Radmilovich v. Unum Life Ins. Co. of Am., No. SA CV 22-00181-DOC-KES, __ F. Supp. 3d __, 2023 WL 7457118 (C.D. Cal. Nov. 7, 2023) (Judge David O. Carter)

In selecting this week’s notable decision, we are admittedly engaging in some light self-promotion, as Kantor & Kantor prevailed in this published district court decision on behalf of a client seeking long-term disability benefits.

The plaintiff was David Radmilovich, an industrial engineer who suffered a cardiac arrest in 2016 at the age of 53. Paramedics who responded performed lifesaving CPR after discovering he had no pulse, no blood pressure, and was not breathing. While recovering in the hospital, his cardiologist determined he had multilevel coronary artery disease.

Unsurprisingly, this traumatic event had lasting health consequences. Mr. Radmilovich underwent coronary artery bypass surgery and could not return to work until 2017. His ability to work was compromised, as he suffered from heart palpitations, dizziness, shortness of breath, and chest pain. Mr. Radmilovich’s cardiologist referred him for a neuropsychological evaluation (NPE), which also determined he was suffering from a mild neurocognitive disorder and a somatic symptom disorder. His symptoms continued and he was eventually forced to stop working.

Mr. Radmilovich submitted a claim for benefits to the insurer of his employer’s group long-term disability employee benefit plan, defendant Unum Life Insurance Company of America. Unum paid benefits for just over a year, but terminated them in October of 2019, concluding that Mr. Radmilovich had “above average exercise capacity,” there was “no clear evidence of cognitive impairment,” and there was no behavioral impairment.

Mr. Radmilovich appealed, submitting an updated NPE and an independent cardiology evaluation, among other evidence. The NPE diagnosed Mr. Radmilovich with major neurocognitive disorder, tracing his problems to his cardiac arrest which had deprived his brain of oxygen. The cardiologist determined that Mr. Radmilovich was suffering from ongoing coronary microvascular disease. Both agreed he was disabled. Unum remained unconvinced, however, and upheld its termination. As a result, Mr. Radmilovich filed this action.

The district court found in favor of Mr. Radmilovich under de novo review. In doing so, it touched on a number of issues that commonly arise in long-term disability cases. First, the court gave the opinions of Mr. Radmilovich’s doctors more weight than those of Unum’s reviewing physicians, who had only conducted “paper reviews” and did not examine him in person. Specifically, the court credited reports from Mr. Radmilovich’s treating physicians that confirmed his symptoms and explained how they were a result of his 2016 cardiac arrest.

Second, the court criticized Unum’s use of “a generic list of occupational activities” in determining whether Mr. Radmilovich was disabled, instead of considering “the specific requirements of Mr. Radmilovich’s job.” In doing so, the court ruled that Unum did not abide by the policy’s definition of disability and Ninth Circuit case law which holds that “insurers must consider the insured’s actual job activities.” (The two cases cited by the court for this proposition were both Kantor & Kantor victories: Salz v. Standard Ins. Co., 380 F. App’x 723 (9th Cir. 2010), and Kay v. Hartford Life & Accident Ins. Co., No. 21-55463, 2022 WL 4363444 (9th Cir. Sept. 21, 2022).)

Third, the court agreed with Mr. Radmilovich that it was permitted to consider evidence that was acquired after Unum terminated his benefits, and also agreed that just because his doctors’ diagnoses had changed over time that did not make them necessarily less credible.

Fourth, the court ruled that Unum did not adequately take all of Mr. Radmilovich’s conditions into consideration. The court noted that it was not prepared to rule that Mr. Radmilovich had “met his burden to prove that he was disabled from just his cardiac condition or just his cognitive impairments,” but it was convinced that the combined conditions rendered him disabled and entitled to benefits.

As a result, the court concluded that Mr. Radmilovich was entitled to benefits during the initial two-year “own occupation” time period, and remanded to Unum to determine whether he was entitled to benefits past that period, and whether he was entitled to a waiver of premiums on his life insurance benefits due to his disability.

Mr. Radmilovich was represented by Glenn R. Kantor, Sally Mermelstein, and Rhonda Harris Buckner of Kantor & Kantor LLP.

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Attorneys’ Fees

Ninth Circuit

Neumiller v. Hartford Life & Accident Ins. Co., No. C22-0610 TSZ, 2023 WL 7280906 (W.D. Wash. Nov. 3, 2023) (Judge Thomas S. Zilly). Plaintiff Julie Neumiller commenced this ERISA action against Hartford Life & Accident Insurance Company to challenge its termination of her long-term disability benefits. Ms. Neumiller’s motion for judgment on the administrative record was denied in the district court. It entered judgment instead in favor of Hartford. Ms. Neumiller subsequently appealed that adverse ruling and found success in the Ninth Circuit. The court of appeals held that Hartford had failed to correctly prorate Ms. Neumiller’s trimester bonus when calculating her current monthly earnings. Based on this finding, the Ninth Circuit vacated the lower court’s judgment and remanded for further development of the administrative record. Back in district court the Ninth Circuit’s instructions were relayed to Hartford, as the district court remanded the matter to the insurer to develop the record to include more information regarding the trimester bonuses and to revise its benefits decision consistent with this updated information and the position of the Ninth Circuit. Before Hartford decided the remand, Ms. Neumiller moved for an award of attorney’s fees and costs pursuant to ERISA’s fee statute, Section 502(g)(1). Hartford opposed the motion. It argued that Ms. Neumiller’s success was purely procedural. The court disagreed. Relying on well-developed case law, it found that remand to an insurance company to conduct further administrative proceedings is a significant degree of success on the merits to make an ERISA plaintiff eligible for an award of fees. Moreover, the court agreed with Ms. Neumiller that her success warranted a fee award, as it will serve to deter Hartford from violating its ERISA obligations going forward and may discourage it “from prioritizing its own interests over the interests of plan beneficiaries.” Further, the court wrote that by bringing this action, “Plaintiff has benefited other plan participants by clarifying how an ambiguous plan provision is to be interpreted.” Thus, the court found that the relevant factors supported an award of fees and costs to Ms. Neumiller. Ms. Neumiller moved for an award of $42,000 in attorney’s fees, based on an hourly rate of $600 per hour for her counsel. Hartford did not argue in its opposition to the fee motion that the hours expended, or the attorney’s hourly rate, were unreasonable. And the court did not view them as such. Accordingly, Ms. Neumiller was awarded her full requested fee award. She was likewise awarded $844.40 in costs. Thus, plaintiff’s motion was granted in an entirely unaltered form, and Hartford was ordered to pay a total of $42,844.40 to Ms. Neumiller.

Breach of Fiduciary Duty

Ninth Circuit

The Bd. of Trs. for the Alaska Carpenters Defined Contribution Tr. Fund v. Principal Life Ins. Co., No. 22-cv-01337, 2023 WL 7280748 (W.D. Wash. Nov. 3, 2023) (Judge Jamal N. Whitehead). In this action the Board of Trustees for the Alaska Carpenters Defined Contribution Trust Fund has sued its former third-party administrator, Principal Life Insurance Company, for breaching its fiduciary duties under ERISA and breaching its contract with the Board. In essence, the trustees allege that Principal, which had control over fund assets, “used its discretion to unilaterally withdraw fees inconsistent with the ‘understanding and practice’ involving fees and representations made to the Board about the same.” Thus, alleging that Principal took more than its fair, and contractually agreed upon, share of fees, the Board maintains that its service provider was in violation of both ERISA and state contract laws. Principal moved to dismiss the complaint for failure to state a claim. The court denied its motion, finding that plaintiff plausibly alleged its ERISA and breach of contract claims. The court was satisfied that the complaint plausibly alleges that Principal was functioning in its fiduciary capacity at the time of the actions that are the subject of this lawsuit. Specifically, the court stated that under Ninth Circuit precedent on the topic, plaintiffs who allege that ERISA plan service providers are taking more from plan funds than they are entitled to “plausibly allege a fiduciary relationship.” As for the breach of contract claim, the court held that the complaint cites the service agreement as the contract creating and outlining Principal’s duties, and also cites the specific duties that the Board contends Principal breached, which caused the damages at issue. For these reasons, Principal’s motion to dismiss was denied.

Eleventh Circuit

Foughty v. Cleaver-Brooks, Inc., No. 1:23-CV-3074-TWT, 2023 WL 7287220 (N.D. Ga. Nov. 3, 2023) (Judge Thomas W. Thrash, Jr.). Plaintiff Pamela Foughty’s late husband, decedent William Foughty, was an employee of defendant Cleaver-Brooks, Inc. Sadly, Mr. Foughty was diagnosed with brain cancer in the spring of 2020. Following his diagnosis, the Foughtys “worked diligently to ensure his life insurance policy would remain active through the time of his death.” Nevertheless, after Mr. Foughty’s death, Ms. Foughty’s claim for benefits was denied by life insurer Reliance Standard. This action arises from that denial. After Reliance upheld its decision during the internal appeals process, Ms. Foughty sued the insurer. That case was settled for the full benefits amount plus interest. In this lawsuit, Ms. Foughty has sued Cleaver-Brooks for its role in providing false and misleading information which resulted in the loss of life insurance coverage. Ms. Foughty alleges a single claim for breach of fiduciary duty under Section 502(a)(3) of ERISA. Cleaver-Brooks moved to dismiss the complaint for failure to state a claim. It argued that it did not breach any duties owed to the family, that Ms. Foughty is improperly seeking compensatory damages, and that res judicata bars her claim. Ms. Foughty responded that defendant plausibly breached its fiduciary duties and that she is entitled to make-whole compensation under the theory of equitable surcharge. Further, Ms. Foughty maintains that her settlement with Reliance Standard carved out and preserved her claims against Cleaver-Brooks, meaning res judicata does not bar her claim. As a preliminary matter, the court identified defendant’s first argument – that it didn’t breach any fiduciary duty owed to Ms. Foughty – as a merits dispute “inappropriate for consideration at the motion to dismiss stage.” However, the court considered defendant’s arguments regarding equitable surcharge and res judicata. First, it held that Ms. Foughty does not have an adequate remedy at law under Section 502(a)(1)(B), because the plan was fully insured meaning “its recourse to recover benefits due under the plan was against Reliance Standard, not the Defendant.” As to whether to allow equitable surcharge as a remedy in this case where Ms. Foughty is bringing a claim for breach of fiduciary duty against the employer after first proceeding against the insurer, the court stated that it could find “no legal authority prohibiting such a proceeding. Absent such authority, the Court cannot conclude that the Plaintiff’s elected procedure bars her § 502(a)(3) claim against the Defendant.” With regard to res judicata, the court agreed with Ms. Foughty that privity does not exist between Cleaver-Brooks and Reliance Standard in the prior suit. Thus, the court held that res judicata does not bar the breach of fiduciary duty claim in this action. Accordingly, the court denied the motion to dismiss and allowed Ms. Foughty to proceed with her Section 502(a)(3) claim against the employer.

Class Actions

Ninth Circuit

Kazda v. Aetna Life Ins. Co., No. 19-cv-02512-WHO, 2023 WL 7305038 (N.D. Cal. Nov. 6, 2023) (Judge William H. Orrick). In this certified class action, a group of insured participants of EIRSA-governed healthcare plans administered by defendant Aetna Life Insurance Company are challenging Aetna’s use of clinical policies to systematically deny all claims for liposuction surgery for the treatment for the disease lipedema as cosmetic. Lipedema is a rare, painful, and progressive disease involving an abnormal buildup of fat tissue. Left untreated lipedema can lead to immobility. In their action, the class is alleging that Aetna’s policies categorically considered suction lipectomy to be a cosmetic procedure and that claims for the surgery were denied on this single basis thanks to those internal clinical policies. They further maintain that Aetna’s categorization of their claims as “cosmetic” is in direct conflict with the plans’ definitions of cosmetic procedures – surgeries intended to improve appearance rather than treat serious symptoms associated with diseases. Based on this theory of the case, the class brings two claims against Aetna – a claim for denial of benefits and clarification of rights under Section 502(a)(1)(B), and a claim for breach of fiduciary duty under Section 502(a)(3). Before the court were two motions. First, Aetna moved to decertify the class based on the Ninth Circuit’s rulings in the Wit v. United Behavioral Health action. Second, plaintiff Michala Kazda moved for summary judgment. In this decision the court denied both motions. Beginning with the motion to decertify, the court held that Wit II did not mean what Aetna was arguing it meant. Rather than a categorical rejection of reprocessing as a class remedy, the court wrote that Wit II clarifies “that reprocessing may be an appropriate remedy where an administrator has applied the wrong standard, and the claimant could have been prejudiced by the application of that standard.” The court stated that it had already found the class “made a showing at least for the purposes of class certification, that application of the wrong standards (here, Aetna’s CPBs) could have prejudged them.” This, the court held, “meets the minimum requirements for reprocessing,” and is common among all of the members of the class. Furthermore, the court emphasized that plaintiffs are not required to show entitlement to a positive benefits determination under Wit II, only that remand for reprocessing would not be futile. Finally, the court allowed plaintiffs to proceed with simultaneous claims under Sections 502(a)(1)(B), and (a)(3) because it continued to hold, as it did when it certified the class, that the remedies the class is seeking under each subsection are unique, available, and appropriate. Accordingly, the court found that nothing in Wit II requires or even supports decertification of the class. The decision then switched gears to analyze plaintiff’s motion for summary judgment. That motion too was denied. The court identified several issues of disputed facts material to both the benefit claim and the fiduciary breach claim. These issues included a material factual dispute over whether Aetna categorically denied claims for lipedema surgery as cosmetic based on the policies or whether the insurer individually reviewed claims for benefits to determine medical necessity. Aetna also offered evidence that cut against the complaint’s allegations of breaches of fiduciary duties. The court therefore held that undisputed evidence did not prove the class’ theory of the case and as such determined that an award of summary judgment to the claimants was inappropriate.

Disability Benefit Claims

Third Circuit

Patrick v. Reliance Standard Life Ins. Co., No. 21-1681, __ F. App’x __, 2023 WL 7381460 (3d Cir. Nov. 8, 2023) (Before Circuit Judges Restrepo, McKee, and Rendell). As you may have read above in our notable decision, in disability cases it is not uncommon for insurance companies to be somewhat creative with their classification of a claimant’s job title. Nevertheless, this case is quite an audacious and brazen example of a job reclassification even by the typical standards. Plaintiff Amy Patrick, M.D. is a gastroenterologist. Defendant Reliance Standard Life Insurance Company recognized as much during the ten years when it paid her long-term disability benefits. However, this changed when Reliance terminated Dr. Patrick’s benefits. “In 2019, notwithstanding Reliance’s having paid her benefits for a decade based on her inability to perform her duties as a Gastroenterologist, Reliance determined that Dr. Patrick was no longer entitled to benefits because her disability did not prevent her from performing the regular duties of an Internal Medicine Specialist.” Although the digestive system is internal, only AI would understand a GI doctor to be an internal medicine doctor. The two fields of medicine are functionally different. As a gastroenterologist Dr. Patrick was required to routinely perform GI procedures, including coloscopies and endoscopies, something she and her healthcare providers agree she is unable to safely and effectively do as she does not have full use of her right shoulder. Perhaps unsurprisingly then, the district court concluded that this behavior was an abuse of discretion and awarded benefits to Dr. Patrick. Agreeing with the lower court, the Third Circuit upheld its decision in this short unpublished order. The appeals court concurred with the district court that Reliance’s characterization of Dr. Patrick as an internal medicine specialist was not reasonable and “contrary to the plan’s plain language.” The Third Circuit agreed with the district court that “the record is replete with evidence that Dr. Patrick is a gastroenterologist: Dr. Patrick’s training, employment history, board certification, and even Reliance’s records of Dr. Patrick’s disability support the finding that the occupation she routinely performed when her Total Disability began was that of a Gastroenterologist. Indeed, at the time Reliance began paying Dr. Patrick benefits, she was not even board-certified to practice internal medicine.” Thus, the court rejected Reliance’s “ridiculous” position “that Gastroenterologist is not an occupation,” and therefore affirmed the holdings of the lower court, including its award of fees and costs.

Sixth Circuit

Olah v. Unum Life Ins. Co., No. 1:19-CV-96-KAC-CHS, 2023 WL 7305033 (E.D. Tenn. Nov. 6, 2023) (Judge Katherine A. Crytzer). Plaintiff Lori Olah commenced this action in 2019 to challenge Unum Life Insurance Company’s termination of her long-term disability and life insurance without premiums benefits under ERISA. Ms. Olah began receiving disability and no-premium life insurance benefits in 2017 following a spinal surgery she underwent to correct a pinched nerve root located in her lower back. Unum approved and paid Ms. Olah’s claim for benefits for one year following the surgery, at which time it terminated the benefits, concluding that she had been given an adequate amount of time for the nerve damage to heal. Unum’s reviewing doctors determined that Ms. Olah was exhibiting consistent signs of improved health and could return to sedentary work. Ms. Olah saw things differently. She maintained that she was continuing to experience debilitating back pain, stated that she required the use of a cane to walk, and pointed out that her orthopedic surgeon had diagnosed her with “moderately severe degenerative disc disease.” The parties filed cross-motions for judgment on the administrative record. Magistrate Judge Christopher H. Steger issued a report and recommendation recommending the court enter judgment in favor of Unum. Ms. Olah objected to the report. She argued that the Magistrate Judge erroneously permitted Unum to consider evidence of medical improvement which occurred while it was still approving her benefits, that the Magistrate’s report improperly cherry-picked evidence from Unum’s reviewers rather than considering the evidence of her treating healthcare providers, and that the report failed to adequately consider the conflict of interest that Unum’s reviewing doctors and claims handlers were operating under. In this decision, the court overruled Ms. Olah’s three objections and adopted the Magistrate’s report in full. To begin, the court held that Unum was entitled to consider the entire medical record, including evidence of medical improvement during the period in which benefits were approved. The court also held that Unum’s decision to rely on its own doctor’s opinions without an in-person exam of Ms. Olah was not on its own arbitrary or capricious. As for Ms. Olah’s argument that Unum and the report cherry-picked evidence in the record unfavorable to her, the court found that it was not an abuse of discretion on Unum’s part nor an error on the part of the report to credit one piece of conflicting evidence over another. Finally, with regard to Unum’s conflict of interest, the court found that Ms. Olah’s arguments failed because she could not produce any evidence that the conflicts Unum, its claims director, and its reviewing physicians were operating under “affected the plan administrator’s decision to deny her specific claim.” For these reasons, the court stated that it could not conclude the denial of Ms. Olah’s benefit claims was “anything other than a deliberate, principled reasoning process and supported by substantial evidence.” Accordingly, Unum’s motion for judgment was granted and Ms. Olah’s motion for judgment was denied.

Discovery

Fifth Circuit

Pedersen v. Kinder Morgan, Inc., No. 4:21-CV-3590, 2023 WL 7284177 (S.D. Tex. Nov. 2, 2023) (Magistrate Judge Dena Hanovice Palermo). In this pension benefits action, plan participants have sued the Kinder Morgan, Inc. cash balance plan and its fiduciaries asserting six separate claims under ERISA Sections 502(a)(1)(B) and (a)(3) for miscalculating early retirement benefits, failing to follow claims procedure regulations, violating ERISA’s anti-cutback provisions, using outdated mortality tables and interest rates, and for having plan language that is ambiguous and not understood by the average participant. Defendants previously tried and failed to limit the scope of plaintiffs’ action only to claims asserted under Section 502(a)(1)(B), “keen to prevent plaintiffs from bringing claims under Section 502(a)(3)…[to] severely limit discovery.” District Judge Ellison permitted four of the six claims to proceed under Section 502(a)(3), and therefore incorporated its less restrictive discovery procedures. The court then granted each party the ability to take 10 depositions each. Now defendants have moved for a protective order preventing plaintiffs from taking three of those ten depositions. The court denied the motions in this order, finding defendants failed to establish good cause for a protective order. It held that each of the three witnesses – the counsel to the plan, Ms. Bethany Bacci, and two members of the pension benefits team (Ms. Norma Ortega and Mr. Eddie Ammons) – possess unique information relevant to plaintiffs’ claims asserted under both subsections of ERISA. The court wrote that the record demonstrates that the three individuals have information and knowledge relevant to obtain discovery on the Crosby exceptions for claims asserted under Section 502(a)(1)(B), and that they further possess knowledge relevant to the claims brought under Section 502(a)(3) “which are not subject to ERISA’s narrow discovery, but rather are governed by Rule 26.” Moreover, the court was not convinced that the depositions would be duplicative of one another. Finally, the court did not require plaintiffs to submit a list of topics before deposing the individuals nor limit the duration of the depositions, as defendants had requested. Instead, the court allowed plaintiffs to depose Ms. Bacci, Ms. Ortega, and Mr. Ammons, and ask them questions relevant to the subjects of their claims, given that these “witnesses have a considerable amount of information and knowledge about which they may be deposed.”

Pedersen v. Kinder Morgan, Inc., No. 4:21-CV-3590, 2023 WL 7428865 (S.D. Tex. Nov. 9, 2023) (Magistrate Judge Dena Hanovice Palermo). Magistrate Judge Dena Hanovice Palermo wasn’t quite done ruling on discovery disputes in the Pederson action this week. In this second decision, the court weighed in on plaintiffs’ motion to apply the fiduciary exception to the attorney-client privilege with regard to communications and documents related to the plan’s administration. After examining the withheld documents during an in-camera review and analyzing the parties’ briefing and the relevant case law, the court concluded “that these documents are protected by attorney-client and work product privileges, and therefore Plaintiffs’ motion is denied.” The court stated that while the documents at issue do mention the plan beneficiaries, it emphasized that they do not “discuss or decide the merits of their pending claims and/or appeals and [don’t] direct the fiduciary committee to act on those claims.” The court ultimately disagreed with plaintiffs that the documents contained legal advice related to plan administration making them discoverable under the fiduciary exception. Instead, the court concluded that the withheld documents were privileged because the plan was receiving legal advice about the risks of potential litigation between it and its beneficiaries. Thus, as the documents analyze legal risks of potential litigation and discuss legal arguments and strategies for the plan, the court found that they were protected under the attorney-client privilege and work-product doctrine, not subject to the fiduciary exception, and thus protected from disclosure. Plaintiffs’ motion was accordingly denied.

Ninth Circuit

Schoenberger v. Securian Life Ins. Co., No. 2:23-CV-00096-LK, 2023 WL 7317199 (W.D. Wash. Nov. 2, 2023) (Judge Lauren King). Plaintiff Amelita Schoenberger brings this ERISA action seeking accidental death and dismemberment benefits that were denied by defendant Securian Life Insurance Company following the death of her husband. Ms. Schoenberger moved to conduct limited discovery regarding the disclosure of redacted claim file documents which she maintains are part of the administrative record and were improperly withheld pursuant to attorney-client and work-product privileges. Ms. Schoenberger contends that these file entries are discoverable under the fiduciary exception and that they therefore are improperly being withheld on the basis of privilege. Therefore, she moved for the court to order production of these documents and their redacted information. Securian opposed Ms. Schonberger’s motion. It argued that she did not comply with the Federal Rules of Civil Procedure because she did not serve discovery requests for production after obtaining leave to conduct discovery. In response, Ms. Schonberger stated that she was following the court’s method for resolving the discovery dispute as described in the joint status report. The court rejected this argument. “First, the Court does not entertain requests for relief in a Joint Status Report.” It stated that it had no intention of circumventing procedural requirements. Therefore, the court held that Ms. Schonberger was not exempted “from the standard discovery procedures applicable to compelling disclosure,” and her request for production of documents was accordingly determined to be procedurally improper. As a result, the court denied Ms. Schonberger’s limited discovery motion and cautioned her to comply with the Federal Rules of Civil Procedure going forward. However, the court did say, “to the extent the redacted information falls within the definition of ‘relevant’ documents, records, or information…Securian must comply with Rule 26(b)(5) by supplying Plaintiff with a privilege log.”

ERISA Preemption

First Circuit

Cannon v. Blue Cross & Blue Shield of Mass., No. 23-cv-10950-DJC, 2023 WL 7332297 (D. Mass. Nov. 7, 2023) (Judge Denise J. Casper). Plaintiff Scott Cannon, individually and as representative of the estate of Blaise Cannon, sued Blue Cross and Blue Shield of Massachusetts, Inc. in state court alleging six state law causes of action arising from Blue Cross’s denial of coverage for a Wixela Inhub inhaler to treat Blaise’s asthma. Without this inhaler, Blaise died due to complications related to his asthma. Blue Cross removed the action to federal court. It then moved to dismiss the complaint, arguing that the state law claims are preempted by ERISA and that Mr. Cannon has failed to state a claim under ERISA. Blue Cross attached several documents and exhibits to its motion to dismiss, including what it purports is the governing healthcare policy. However, Mr. Cannon questioned the completeness and authenticity of the documents Blue Cross submitted. Because the court could not say that the submitted documents were indisputably authentic, it denied the motion to dismiss without prejudice. “Had BCBS submitted an affidavit or declaration explaining the significance of the proffered policy documents and verifying they concerned the health insurance policy through which Blaise sought coverage for the Wixela Inhub inhaler, the Court may have considered the exhibits and reached the ERISA preemption arguments raised by BCBS’s motion to dismiss. However, in light of the parties’ submissions to date, the Court is unable to do so.” Nevertheless, resolution of the ERISA preemption issue remains important. Accordingly, the court ordered the parties to conduct limited discovery on matters bearing upon the issue and then to file summary judgment motions on ERISA preemption, at which point it will address and rule on whether ERISA governs the policy at issue and if so, whether Mr. Cannon can proceed with claims under ERISA.

Medical Benefit Claims

Tenth Circuit

Robert B. v. Premera Blue Cross, No. 1:20-cv-00187-DBB-CMR, 2023 WL 7282726 (D. Utah Nov. 3, 2023) (Judge David Barlow). Robert B., individually and on behalf of his son, C.B., brought this two-count ERISA action against Premera Blue Cross to challenge its denial of C.B.’s one-year long stay at a psychiatric residential treatment center. Robert B. alleges in his complaint that Premera’s denial violated ERISA by denying the family a full and fair review, incorrectly denying a benefit claim the family was entitled to under the terms of the plan, and for violating the Mental Health Parity and Addiction Equity Act by making coverage conditions for mental health residential treatment more onerous than analogs coverage for other types of medical and surgical care. The parties cross-moved for summary judgment. In this decision the court granted summary judgment in favor of plaintiff on his Section 502(a)(1)(B) benefit claim, remanded to Premera for reconsideration and a full and fair review, and granted judgment to Premera on the Parity Act violation claim. To begin, the court agreed with Robert B. that Premera entirely ignored evidence of suicidal ideation present in the medical record and that this flagrant disregard of a key qualifying symptom for residential treatment coverage under the relevant criteria was not a full and fair review of either the medical records or the claim for benefits. Moreover, the court found that Premera wholly ignored the opinions of C.B.’s treating healthcare professionals, thereby shutting its eyes to readily available and relevant medical information. The court wrote that “other than listing the letters as received or reviewed, none of the denial or review correspondence substantively addressed the treaters’ opinions. They do not discuss or reference the opinions whatsoever, leaving both the beneficiary and the court with no way of discerning whether they actually were engaged with substantively at all. The denials are simply devoid of what weight, if any, Premera accorded these opinions.” Such a lack of substantive engagement with relevant medical information was found by the court to fall short of a meaningful dialogue required under ERISA. Accordingly, the court agreed with plaintiff that Premera had acted arbitrarily and capriciously in denying the benefit claims. However, rather than award benefits, the court determined that the proper recourse was to remand to Premera for a full and fair review. It felt that this remedy was appropriate given Premera’s procedural failings and because the court could not say that the record clearly shows that plaintiff is entitled to benefits for the entire year-long stay at the facility. Moving to the Parity Act violation, the court drew a different conclusion, far less favorable to Robert B. He was alleging that the plan applied more restrictive criteria for mental health residential treatment centers than skilled nursing facilities including requiring more serious and acute psychiatric symptoms and by not factoring in the risk of decline or relapse if a patient is discharged. However, the court found that separate was not inherently unequal in these circumstances and simply pointing out differences between medical/surgical care and mental healthcare is insufficient to prevail on a Parity Act violation claim. Finding that Robert B. had not shown how the limitations for mental healthcare were more restrictive than the limitations for other types of care, the court granted summary judgment to Premera on the Parity Act claim.

Ninth Circuit

The Regents of the Univ. of Cal. v. The Chefs Warehouse, Inc., No. 2:23-cv-00676-KJM-CKD, 2023 WL 7284799 (E.D. Cal. Oct. 31, 2023) (Judge Kimberly J. Mueller). Is the Affordable Care Act (“ACA”) a misnomer? This decision from the Eastern District of California suggests it may be, after a patient insured under a self-funded, self-insured group health plan is now on the hook for nearly half a million dollars’ worth of health care for an inpatient hospital stay and outpatient chemotherapy treatment at the UC Davis Medical Center. In this order the court ruled that hospital had not plausibly alleged that the plan, The Chef’s Warehouse, Inc. Employee Benefit Plan, was in violation of ERISA or the ACA despite leaving the patient with bills far exceeding the plan’s own $3,600 out-of-pocket expenses limit and the $8,550 limit on out-of-pocket expenses in the ACA. Thus, the court granted the plan’s motion to dismiss the hospital’s complaint for failure to state a claim. The court stressed that the hospital was an out-of-network provider, meaning the plan was not barred under the ACA from requiring its participants to pay “any balance bills from outside the plan’s network, and the costs of any services the plan does not cover, regardless of the $8,550 limit.” This was so even though the plan at issue does not have a single hospital in network. Although the court acknowledged the language of the ACA is faulty and problematic, creating quite the loophole to its cost-sharing rules, the end result was this: “a plan can saddle a patient with the balance of a provider’s bill if the provider is not in the plan’s network.” And although the plan did not have a single hospital in network, the court found that the complaint did not allege that the plan participant’s only choice was to seek treatment from a hospital rather than an in-network provider. Without allegations that the patient had no choice but to seek care at a hospital, that the care she needed was practically unavailable in-network, and the plan’s price limits are not accepted by any provider, the court found that plaintiff’s theory of the case failed on its merits. “Nor has the hospital shown plans must include hospitals in their networks.” Shocking as these conclusions may sound, this decision is not an outlier. Other courts have drawn similar conclusions both regarding balanced out-of-network bills and inadequate healthcare networks. These cases were cited by the court in this decision as evidence that its hands were tied regardless of the absurdity of the results which appear on their face entirely inconsistent with the goals of affordable healthcare. Whether the hospital will be able to replead its two ERISA claims to convince the court that the plan at issue is akin to the junk insurance policies banned by Congress in the ACA, and by extension that its theories of the case are plausible under the terms of the ACA, remains an open question. However, the court dismissed the case without prejudice, meaning the provider will at least have the opportunity to attempt to do so.

Pension Benefit Claims

Ninth Circuit

Schmidt v. Emp. Deferred Comp. Agreement, No. CV-22-01464-PHX-ROS, 2023 WL 7413667 (D. Ariz. Nov. 9, 2023) (Judge Roslyn O. Silver). After her husband’s death, plaintiff Patricia Schmidt discovered a copy of a top hat plan in her home and subsequently sent a written demand for benefits under the plan. Her husband’s corporation, Temprite Co., adopted the position that this plan did not exist. Frustrated in her attempt to receive the monthly benefits she believed she was entitled to, Ms. Schmidt brought this ERISA lawsuit. The parties have cross-moved for summary judgment. There was no dispute that, if the plan is in place, Ms. Schmidt is entitled to benefits. The dispute instead is whether the plan was adopted and whether it remains in effect or was ever abandoned, rescinded, or replaced by a 2010 stock agreement. The court concluded in its decision here that the “record viewed in the light most favorable to Temprite establishes the top hat plan was validly adopted and never replaced.” In particular the court emphasized that the plan fiduciaries sent a letter to the Department of Labor to inform the agency of the plan’s creation and that it was in effect and intended to be a plan under ERISA. The court wrote that it was “not possible to read Brown’s letter [to the DOL] and conclude Brown wished to repudiate the top hat plan. To the extent necessary, Brown’s actions were sufficient to ratify adoption of the top hat plan.” In addition, the court held that the stock agreement in no way abandoned or replaced the top hat plan, finding “the undisputed evidence establishes the 2010 agreement was not intended to impact the top hat plan.” Based on the foregoing, the court determined that the plan was validly executed and remains enforceable today and therefore granted summary judgment in favor of Ms. Schmidt.

Plan Status

Ninth Circuit

Steigleman v. Symetra Life Ins. Co., No. CV-19-08060-PCT-ROS, 2023 WL 7413668 (D. Ariz. Nov. 9, 2023) (Judge Roslyn O. Silver). Plaintiff Jill M. Steigleman sued Symetra Life Insurance Company under state law to reinstate terminated long-term disability benefits. She stated in her action that she does not wish to pursue any ERISA-based claims, and that she does not believe the plan at issue, established in connection with her insurance agency, the Steigleman Insurance Agency, was governed by ERISA. In this decision, the court concluded that the disability coverage was part of an employee welfare benefit plan governed by ERISA and entered judgment in favor of Symetra. The court found that Ms. Steigleman’s agency always had employees and that it offered those employees benefit packages, including healthcare and disability benefits, that required an ongoing administrative scheme and discretionary decision making. Furthermore, the agency paid 100% of its employees’ premiums for certain coverage options, meaning the plan did not qualify under ERISA’s safe harbor provision. “These facts establish the Agency was not involved in the simple purchase of insurance on behalf of its employees. Instead, the Agency had an ongoing administrative scheme that promised specific benefits to employees and required ongoing monitoring by Steigleman. The extent of the Agency’s involvement in its employees’ benefits also raised the possibility of abuse, providing an additional reason to conclude ERISA applies.” Nor would any employee reasonably review the coverage as not being endorsed by Ms. Steigleman’s agency. Thus, the court concluded that the agency established a benefits package for its employees and by doing so created an ERISA-governed employee welfare benefit plan, regardless of whether it intended to or not.

Tenth Circuit

Faris v. S. Ute Indian Tribe, No. 23-cv-00245-NYW-STV, 2023 WL 7386870 (D. Colo. Nov. 8, 2023) (Judge Nina Y. Wang). Plaintiff Michelle Faris brought this ERISA Section 510 and breach of fiduciary duty action against her former employer, the Red Willow Production Company, believing the company “fabricated a for-cause termination”  to avoid paying her increased distribution payments under an employee benefit plan. That plan, the Long Term Incentive Plan, was the central focus of this decision. Specifically, the decision discussed whether the plan is a bonus plan or a traditional retirement plan, and if it is a bonus program, whether it systematically defers payment to the termination of covered employment and is therefore subject to ERISA. This dispute was central to defendants’ motion to dismiss pursuant to Rule 12(b)(1) for lack of subject matter jurisdiction. In its decision, the court concluded that the plan is excluded from ERISA coverage and ERISA therefore does not govern Ms. Faris’ claims. It agreed with defendants that the plan is properly categorized as a bonus plan as its purpose is to “reward and retain eligible employees of the Growth Fund and its business enterprises,” rather than provide retirement income. Moreover, it found that the plan does not systematically defer payments to the termination of employment, and “any post-termination distributions are the result of ‘happenstance,’ not the systematic deferral of payment to the termination of employment or beyond.” Accordingly, the court granted the motion to dismiss for lack of subject matter jurisdiction.

Pleading Issues & Procedure

First Circuit

Cutway v. The Hartford Life & Accident Co., No. 2:22-cv-00113-LEW, 2023 WL 7386371 (D. Me. Nov. 8, 2023) (Magistrate Judge John C. Nivison). Plaintiff Kevin Cutway commenced this ERISA action seeking a court order reinstating disability benefits that defendant Hartford Life & Accident Company suspended to offset an overpayment of benefits. The parties agree that the plan provides for an offset of disability benefits paid by the Social Security Administration. However, Mr. Cutway disagrees with Hartford that it was entitled to a setoff of all the amounts paid by the Social Security Administration and to suspend his benefits altogether. The parties filed motions for judgment on the record and oppositions to each other’s motions. As part of his opposition, Mr. Cutway “filed an affirmation in which he recounted communications he had with Defendant regarding the amount he was receiving in social security benefits.” He also filed a reply memorandum. Hartford moved to strike both Mr. Cutway’s affirmation and reply memorandum. It argued that Mr. Cutway impermissibly modified the administrative record with his affirmation and that his reply was in direct contravention of the court’s scheduling order. The court agreed with Hartford. It struck the reply memorandum, as it was not explicitly authorized by the scheduling order and because Mr. Cutway did not seek leave of the court to file it. As for the affirmation, the court stressed that it would not allow the administrative record to be altered at this time. “[I]f plaintiff were permitted to supplement the record with the affirmation, presumably Defendant would also seek to supplement the record with additional information regarding communications between the parties. Such a process would be inconsistent with the general rule that the Court’s review is limited to the record before the Plan administrator. The court discerns no reason to deviate from the general rule in this case. Accordingly, even if Plaintiff had filed an appropriate motion, he has not demonstrated sufficient grounds to supplement the record.” Based on the foregoing, the court granted Hartford’s motion to strike, and kept the administrative record unaltered from the version the parties relied upon in their motions for judgment.

Provider Claims

Ninth Circuit

Saloojas, Inc. v. United Healthcare Ins. Co., No. C 22-03536 WHA, 2023 WL 7393016 (N.D. Cal. Nov. 8, 2023) (Judge William Alsup). A healthcare provider that offered COVID-19 testing services throughout the pandemic, Saloojas, Inc., brought this putative class action against United Healthcare Insurance Company for failure to pay for its services. Saloojas has commenced several of these actions with different insurers subbed in as the defendants. In each, it alleges that the insurance provider, here United, violated the CARES Act, the Families First Coronavirus Response Act (“FFCRA”), ERISA, and RICO, as well as state law promissory estoppel and fraud. Other courts in the district have dismissed Saloojas’s actions. Here, this court joined in, granting United’s motion to dismiss for failure to state a claim. Like the other decisions, the court here concluded that the CARES Act and FFCRA do not create private rights of action for healthcare providers. These two claims were dismissed with prejudice. Saloojas’ ERISA claim was dismissed, without prejudice, as the complaint fails to allege the provider received assignments of benefits from patients insured under ERISA plans. The court stated that Saloojas may seek leave to amend its ERISA claim to allege specific language of assignment. The RICO and state law fraud claims were dismissed because the court found that the provider failed to satisfy Rule 9(b)’s heightened pleading standard. Like the ERISA claim, these causes of action were dismissed without prejudice. Finally, the court concluded that the promissory estoppel claim failed because Saloojas did not identify any clear and unambiguous promise by United to reimburse it for the COVID-19 testing.

Standard of Review

Eleventh Circuit

Givens v. Nextran Corp., No. 3:22-cv-733-TJC-MCR, 2023 WL 7284769 (M.D. Fla. Oct. 27, 2023) (Judge Timothy J. Corrigan). In order to rule on a benefit determination under an ERISA-governed healthcare plan, the court ordered the parties to submit supplemental briefing on whether the de novo or arbitrary and capricious standard of review applies this action. In this order it ruled that the case will proceed under a de novo standard of review. In this short decision, the court stressed that deviation from the default de novo review standard requires “a clear and explicit grant of discretion.” Here, the court held that the Nextran health plan does not expressly grant discretionary authority. Rather, the plan uses such language as “decided,” “interpretation,” “good faith,” and “best interest of the member.” These phrases, the court stated, could be viewed as indirectly implying some discretionary decision-making, but certainly do not constitute an explicit grant of discretionary authority. And although the plan allows the fiduciaries to make determinations of the claimant’s eligibility, the court ruled that the plan language does not trigger deferential review. Finally, the court declined to incorporate the language of a second ERISA plan offered by the employer to alter the standard of review for the health plan at issue. In essence, the court found the other plan’s connection to the operative group health plan to be tenuous and concluded that its language, including its express grant of discretionary authority, not applicable to this case. Accordingly, when it comes time, the court will rule on the adverse benefit determination at the center of this action under the de novo standard of review. 

Venue

Tenth Circuit

K.A. v. UnitedHealthcare Ins. Co., No. 2:23-cv-00315-RJS-JCB, 2023 WL 7282544 (D. Utah Nov. 3, 2023) (Judge Robert J. Shelby). Plaintiff K.A. sued UnitedHealthcare Insurance Company and United Behavioral Health in this one-count ERISA action after the insurance company denied a benefit claim for the residential mental health treatment of K.A.’s minor daughter, L.A. United moved to transfer venue. Its motion was granted here. Father and daughter are residents of Illinois. L.A.’s treatment facility was located in Missouri. United is headquartered in the business-friendly state of Connecticut. And the plan sponsor is located in Arizona. As none of the parties, operative facts, or relevant events had any connection to the state of Utah, the court afforded little weight to plaintiff’s choice of forum. The only connection to the District of Utah was the office of plaintiff’s attorney, located in Salt Lake City. This tie to the state, on its own, was seen by the court as too tenuous a connection to justify keeping the lawsuit in the district. Instead, given the lack of a meaningful connection to the District of Utah, the court agreed with United that the Northern District of Illinois, where K.A. and L.A. reside and where the alleged breach occurred, was a more appropriate and convenient venue for this action. For these reasons, the court found that it was in the interest of justice to move the case, and United’s motion to transfer the lawsuit to the Northern District of Illinois was thus granted.

This week sets the all-time record for a slow week in the courts, with only three relevant ERISA decisions reported. Although Your ERISA Watch normally focusses on case law, given the dearth of material we are dispensing with the Case of the Week and instead discussing a Regulation of the Week. After all, it was big news on October 31 when the Department of Labor dropped its latest proposal regarding the regulation of fiduciary investment advisors, a topic with a long and tortuous history.

Because life is short (so many interesting ERISA issues, so little time), I won’t attempt a complete analysis of that history or the latest proposed regulation and exemptions. Instead, I will offer a few thoughts about the proposal.

But first, the history in a nutshell. ERISA includes within its broad and functional definition of fiduciary a person who “renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so.” 29 U.S.C. § 1002(21)(A)(ii). Sounds straightforward enough.

However, in 1975, shortly after ERISA was enacted, the DOL promulgated an investment advisor regulation that appeared to convert a two-part statutory test for determining whether a person rendering investment advice is a plan fiduciary into a five-part test, with at least two parts seemingly pulled out of thin air. Under this regulation, in addition to the statutory requirements that the person in question must (1) render investment advice (including as to the value of plan property) (2) for a direct or indirect fee or other compensation, the regulations added the requirements that (3) the advice be “pursuant to mutual agreement, arrangement, or understanding” with the plan or plan fiduciary, (4) the advice “will serve as the primary basis for investment decisions with respect to plan assets,” and (5) the person in question “will render individualized investment advice to the plan based on the particular needs of the plan regarding such matters as, among other things, investment policies or strategy, overall portfolio composition, or diversification of plan investments.” 29 C.F.R. § 2510.3-21(a)(1). The IRS promulgated a nearly identical regulation. The DOL also issued an advisory opinion in 2005 (A.O. 2005-23A or the “Deseret Letter”), which stated that advice about distribution options from a plan, including about where to invest such distributions, was not covered fiduciary advice.

Whew. Needless to say, this regulatory definition significantly narrowed the universe of plan advisors that one would expect to be considered fiduciaries under the statutory definition. For this reason, particularly after the rise of 401(k) and other defined contribution plans, the DOL began to consider reining in this regulation in order to hew more closely to what seems to have been the congressional intent to cover all paid plan investment advisors. However, the DOL found that once it had opened up a sizable loophole, narrowing it again would be a difficult task.  

Although the DOL began the formal process of reconsidering the regulation in 2010, it wasn’t until 2016 that it issued two notices of proposed rulemaking and held hearings, and then issued a final rule and two new prohibited transaction exemptions (as well as amendments to a number of others). Among other things, the changes were designed to cover many kinds of one-time advice, retract the Deseret Letter by covering recommendations to rollover ERISA plan and IRA assets, make the regulation applicable to IRAs, and require that advisors act in the best interest of the plans and IRAs.

The DOL’s regulatory actions were immediately challenged in multiple lawsuits filed in federal courts across the country. District courts in the District of Columbia, Texas, and Kansas, as well as the Tenth Circuit Court of Appeals, upheld the final rule as well within the authority of the DOL (and indeed more consistent with the statutory language). But none of that mattered because the Fifth Circuit overturned the Texas judge’s ruling and vacated the 2016 rule in its entirety. The Fifth Circuit expressed concern that the DOL had untethered fiduciary status from notions of trust and confidence and that the DOL had exceeded its authority through rulemaking that covered not only Title I ERISA plans but also IRAs governed by Title II.

Well, that was a rather big nutshell, and you’ll have to trust me that I didn’t cover everything. But I am guessing that the pressing questions for our readers (at least those who have read so far) are how the current proposal differs from the 2016 rulemaking, what changes are likely to be made to the proposal during the rulemaking process, and what the chances are of a new final regulation surviving a challenge. As with most things in this area of the law, the answer is complicated.

First, some of the changes from the 2016 regulation that jumped out at me are that the proposal (1) mostly swaps out the language referring to plans and IRAs for the term “retirement investor,” (2) changes the focus of the “regular basis” prong of the 1975 test from the retirement investor to the advisor (that is, the advisor has to make investment recommendations on a regular basis), (3) states that the recommendation must be made under circumstances that indicate it is individualized, reliable, and in the investor’s best interest, and (4) states that written disclaimers of fiduciary status will not control over “oral communications, marketing materials, applicable State or Federal Law, or other interactions with the retirement investor.”

It is difficult to know how much of this proposal will change before the DOL issues a final rule because the DOL must of course be responsive to the comments it receives. But we are talking about at least the third rodeo for the DOL on these issues, so my best guess is that this was very well considered, and changes are likely to be around the edges. I did wonder if the DOL might consider a severability provision. I actually think that is unlikely, but it could conceivably help some of the regulation survive.

This brings us to the last question. Whether the final rule will survive, in whole or in part, the legal challenges that are sure to follow present the toughest test of all because they depend in part on what the final rule looks like, and on who the reviewing judges are. But the DOL certainly made an effort to address the Fifth Circuit’s trust law concerns and also did an excellent job explaining the importance of the issues from an economic and societal perspective.

If you want to dig into the new regulations for yourself, feel free to visit the links below:

Proposed Retirement Security Rule

Proposed Amendment to PTE 2020–02

Proposed Amendment to PTE 84–24

Proposed Amendment to PTEs 75–1, 77–4, 80–83, 83–1, and 86–128

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

ERISA Preemption

Seventh Circuit

Stanford Health Care v. Health Care Serv. Corp., No. 23-cv-4744, 2023 WL 7182990 (N.D. Ill. Nov. 1, 2023) (Judge Joan B. Gottschall). Plaintiff Stanford Health Care, a healthcare provider in California, sued Health Care Service Corporation d/b/a Blue Cross and Blue Shield of Illinois and Blue Cross and Blue Shield of Texas, in Illinois state court alleging claims of breach of implied contract and, pled in the alternative, quantum meruit, for the insurer’s failure to reimburse it at the costs agreed upon in a contract it entered into with Anthem Blue Cross, the parent association of which Health Care Service Corporation is a member. Stanford Health maintains that Health Care Service Corp. has not paid either the discounted agreed-upon rates set out in the contract nor the usual and customary cost of the services at issue. Defendant removed the action to federal court, arguing that ERISA preempts the claims asserted. Stanford Health disagreed, and moved to remand the action back to state court. The court granted the motion to remand in this decision. It agreed with the provider that this action is not a lawsuit seeking to recover benefits under an ERISA plan, to enforce plan rights, or to determine rights to any future benefits under the terms of an ERISA plan. Instead, it ruled that Stanford Health brought non-preempted “rate claims” as a medical provider to enforce terms of a contract unrelated to any ERISA plan. The court expressed that Stanford Health’s claims are about the amount of payment and not the right to payment, meaning “there is no need to interpret an ERISA plan because the rate to be paid is external from the ERISA plan.” Accordingly, the court concluded that there were no grounds for removal because ERISA does not completely preempt the two state law causes of action.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Metropolitan Life Ins. Co. v. Muecke, No. 22-01029, 2023 WL 7131041 (W.D. La. Oct. 30, 2023) (Judge Donald E. Walter). Interpleader plaintiff Metropolitan Life Insurance Company commenced this action after two individuals submitted claims to recover life insurance benefits from an ERISA-governed life insurance policy belonging to decedent Joe Nickle. Those two individuals, Mr. Nickle’s son, Cameron Nickle, and Joe Nickle’s girlfriend, Deanna Muecke, each moved for summary judgment and to be awarded the $20,000 in benefits plus interest. In this decision the court granted judgment in favor of Ms. Muecke because she was the named beneficiary of the policy. The court rejected the younger Mr. Nickle’s arguments that Ms. Muecke was fraudulently listed as the beneficiary and that the elder Mr. Nickle was under undue influence, misled, and deceived by Ms. Muecke when naming her as the beneficiary. The court found these allegations advanced by Cameron Nickle to be speculative, not alleged with sufficient particularity, and presented without competent supporting evidence. Accordingly, the court honored the elder Mr. Nickle’s beneficiary designation and paid the benefits to Ms. Muecke according to his wishes.

Withdrawal Liability & Unpaid Contributions

Fifth Circuit

New Orleans Employers Int’l Longshoremen’s Ass’n, AFL-CIO Pension Fund v. United Stevedoring of Am., No. 22-2566, 2023 WL 7220551 (E.D. La. Nov. 2, 2023) (Judge Ivan L.R. Lemelle). More than a year ago, plaintiffs New Orleans Employers International Longshoremen’s Association, AFL-CIO Pension Fund and its administrator commenced this ERISA civil enforcement action against two defendants, United Stevedoring of America, Inc. and American Guard Services, Inc., which are companies they believe to be a controlled group or a single employer for the purposes of withdrawal liability. In March of 2021, United Stevedoring’s collective bargaining agreement was terminated, and the employer completely withdrew from the pension fund. The next month, plaintiffs sent notice to the employer of its withdrawal assessment and demanded payment. United Stevedoring subsequently requested additional information from the fund to which plaintiffs responded on April 12, 2022. That response started a sixty-day clock for the employer to initiate arbitration should it wish to contest the fund’s assessed amount of withdrawal liability. By June 11, 2022, the date when the window to initiate arbitration ended, United Stevedoring had not filed for arbitration with the American Arbitration Association. The company would not do so for over a year, after this lawsuit was filed, while the discovery process was underway. Instead, the only action related to initiating arbitration proceedings that the employer took within the sixty-day window was to send an email to plaintiffs on June 2, 2022, requesting a list of recommendations for arbitrators to facilitate the arbitration process. Defendants maintain that this action bolsters their claim that they tried to arbitrate their dispute over the assessed amount of withdrawal liability but were frustrated and divested of their right to initiate arbitration. Thus, defendants argued that the clock to do so should be reset. Operating under this belief, defendants moved to compel arbitration. The court was not persuaded. It held that defendants failed to timely initiate arbitration proceedings. “The statutory text…makes clear both the arbitration deadlines and the consequences for neglecting them. Beyond-deadline arbitration demands are improper.” Defendants’ email to plaintiffs was not interpreted by the court as a written demand for arbitration. It also rejected their “strained textual reading of their [collective bargaining] agreement.” Pointing out that the agreement incorporates ERISA’s default rules concerning arbitration proceedings for employers who wish to contest withdrawal assessments, the court ruled that defendants were negligent in timely initiating arbitration, and that the time to do so has passed. Thus, it concluded arbitration is no longer available. Defendants’ motion to compel arbitration was accordingly denied.

Asner v. The SAG-AFTRA Health Fund, No. 2:20-cv-10914-CAS-JEMx, 2023 WL 6984582 (C.D. Cal. Oct. 19, 2023) (Judge Christina A. Snyder)

A judge in the Central District of California approved a settlement of this class action brought by participants and beneficiaries of the SAG-AFTRA Health Plan against the trustees and fiduciaries of the plan, after they amended and restructured the plan during the height of the COVID-19 pandemic to cut costs by changing benefit eligibility requirements. These changes resulted in many then out-of-work actors losing their healthcare coverage. Participants who did not lose coverage saw reduced benefits and higher premiums and out-of-pocket expenses. Plaintiffs brought this ERISA action alleging breaches of fiduciary duties in connection with these changes.

In April of this year, the parties reached agreement on the terms of a settlement and submitted a motion for preliminary approval of class action settlement. The court granted their motion for preliminary approval, approved plaintiffs’ plan for dissemination of settlement notice, and scheduled a fairness hearing. That hearing took place on September 11, 2023. In this decision the court granted the parties’ motion for final approval of the class action settlement, and set out the awards of attorneys’ fees, costs, and class representative service awards.

To begin, the court went through the somewhat complicated terms of the proposed settlement and its impact on the various sub-classes of participants and beneficiaries. Broadly, as proposed, the settlement consists of three main parts. First, it will create a $15 million cash fund to compensate participants and their spouses over the age of 65 who lost coverage because of the amendments. Second, the settlement will provide HRA allocations of up to $700,000 annually to accounts of members who became ineligible for coverage after the plan eliminated residual earnings eligibility as a means of qualifying for coverage. Third, the settlement will provide for certain non-monetary relief, including mandating certain disclosures and requiring fiduciaries to engage a cost consultant for future proposed changes to the plan, allotting additional time for seniors to use their sessional wages to qualify for coverage, and other related enhanced disclosures.

Upon evaluating the settlement and factoring in the two objections voiced during the fairness hearing, the court blessed the terms of the agreement. “Based on its familiarity with the nature of the case, the record, the procedural history, the parties, and the work of their counsel, the Court finds that the Settlement was not the product of collusion and lacks any indicia of unfairness. The Court finds the Settlement is fair, reasonable, and adequate to the Settlement Class considering the complexity, expense, and likely duration of the case, and the risks involved in establishing liability, damages, and in maintaining this case through trial and on appeal. The Court finds that the Settlement represents a fair and complete resolution of all claims.” Accordingly, the court granted final approval of the settlement.

The decision then turned to calculating the fee and cost awards. Regarding attorneys’ fees, plaintiffs argued that fees should be calculated based on the total estimated maximum recovery of the settlement of $20.6 million. They requested a fee award of $6,866,667, or 25% of this amount. Defendants objected to this request and sought a lowered amount. Taking in the portions of the benefit that are not a “sum certain,” the court estimated the total recovery to be worth approximately $15,450,000, considerably less than the plaintiffs’ estimate. Nevertheless, the court agreed that plaintiffs’ attorneys should be awarded “25% of the common fund” of $15,450,000, or $3,862,500, based on their success in securing “a substantial settlement for the class despite their uncertain odds at trial.” This amount was slightly above plaintiffs’ counsel’s collective lodestar of $3.8 million.

As for costs, the court granted plaintiffs’ request for reimbursement of litigation expenses in the amount of $50,954.13. Finally, the court awarded each of the class representatives service awards of $5,000 for their help and effort in actively participating in this litigation and their commitment to seeking a benefit on behalf of the class.

At a time when members of SAG-AFTRA are currently on strike seeking higher pay, more job security, and better benefits from the major studios and streaming platforms, it is nice to see this action come to a favorable resolution for those same individuals.

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Arbitration

Sixth Circuit

Merrow v. Horizon Bank, No. 22-123-DLB-CJS, 2023 WL 7003231 (E.D. Ky. Oct. 24, 2023) (Judge David L. Bunning). Three participants of the P.L. Marketing, Inc. Employee Stock Ownership Plan (“ESOP”) sued a group of selling shareholders from whom their plan acquired stock and the bank which acted as the trustee overseeing the transaction for breaches of fiduciary duties and prohibited transactions under ERISA. Defendants moved to dismiss the amended complaint and argued that plaintiffs were required to arbitrate their dispute pursuant to the plan’s arbitration provision. The arbitration clause states that in exchange for participating in the plan participants are bound to mandatory arbitration of any dispute, and that a claimant “whether pursing a claim for benefits or other relief on behalf of the Plan as a whole, by participating in this Plan, is specifically waiving the right it otherwise would have had to sue the Company, Trustee, the Administrator or any party to whom administration or investment discretion is delegated hereunder in court and to have such claims decided by a judge or jury.” Importantly, the ESOP also includes a waiver of class arbitration, and requires claims be arbitrated individually. Plaintiffs maintained that the arbitration agreement in the ESOP is unenforceable. The court resolved the parties’ arbitration dispute in this order in favor of arbitration. It concluded that plaintiffs’ position that the provision was unenforceable because it waives statutory remedies was “based on a misinterpretation of the relevant case law.” It disagreed with plaintiffs’ reading of case law to mean that “a plan cannot agree to prospectively waive statutory rights and remedies.” Instead, the court determined that plaintiffs’ claims must be brought in arbitration pursuant to the broad terms of the ESOP’s arbitration clause. The court therefore compelled arbitration and stayed the case pending arbitration.

Attorneys’ Fees

Eighth Circuit

Yates v. Symetra Life Ins. Co., No. 4:19-CV-154 RLW, 2023 WL 7017736 (E.D. Mo. Oct. 25, 2023) (Judge Ronnie L. White). On January 3, 2022, this court granted summary judgment in favor of plaintiff Terri Yates and awarded her accidental death and dismemberment benefits. Reversing an earlier position that Ms. Yates had failed to exhaust administrative remedies, the court concluded that Ms. Yates was not required to exhaust administrative remedies because there was no exhaustion requirement in the terms of the plan. Further, the court ruled that Symetra Life Insurance Company’s decision to deny benefits was erroneous. Following that decision, the court then issued a second judgment awarding Ms. Yates attorneys’ fees totaling $54,058.50. Symetra appealed the district court’s rulings. On February 23 of this year, the Eighth Circuit Court of Appeals affirmed the lower court’s decisions in all respects. Your ERISA Watch covered the Eighth Circuit’s ruling and featured it as our case of the week in our March 1, 2023 newsletter. Ms. Yates now moves for an award of attorneys’ fees and costs on appeal for her counsel, Kantor & Kantor attorneys Glenn Kantor and Sally Mermelstein. In addition, Ms. Yates sought prejudgment interest on her award of accidental death benefits. As a preliminary matter, the court quickly decided that Ms. Yates was both eligible for and entitled to a reasonable award of attorneys’ fees for her counsel’s work on appeal. It incorporated by reference its earlier analysis in its district court litigation fee decision. Having established that Ms. Yates should be awarded fees, the court moved on to assessing the reasonableness of counsel’s hours and their hourly rates. Ms. Yates sought attorneys’ fees totaling $114,840 for work incurred on appeal. This amount was comprised of hourly rates of $700 per hour for Mr. Kantor and $600 per hour for Ms. Mermelstein, and a total of 180 hours of work between the two attorneys. Symetra did not take issue with Mr. Kantor’s hourly rate, as it was the same rate awarded to Mr. Kantor by this court in 2022. However, the district court awarded Ms. Mermelstein $450 an hour in its 2022 fee decision, and Symetra argued in favor of matching that hourly rate again for the appeal fees. Finding a compromise, the court awarded Ms. Mermelstein an hourly rate of $500. It concluded that Ms. Mermelstein was entitled to an increase in her hourly rate given the “high quality” of her work on appeal, her “additional seniority and appellate ERISA briefing experience since the prior fee award,” and the general fact that “appellate work normally commands a higher rate than trial-level litigation work.” With the hourly rates established, the court then analyzed the hours expended. Ultimately it reduced the 180 hours sought by twenty percent, a reduction of 22.32 hours for Ms. Mermelstein in preparing the brief and 13.68 hours for Mr. Kantor for his work arguing on appeal. The court agreed with Ms. Yates that on appeal “Symetra was arguably seeking to establish Circuit case law that would have been highly unfavorable to millions of employees,” and that this appeal therefore “required a high level of work due to the potential adverse impact on ERISA participants in this Circuit if this Court’s decision had been reversed.” Left with its hourly rates and number of hours, the court calculated the lodestar and awarded Ms. Yates’ attorneys’ fees totaling $82,944. However, her motion for costs was denied. The court stated that Ms. Yates’ bill of costs was deficient because it was not accompanied by a declaration under penalty of perjury that the claimed costs were correct and necessary as required under the local statute. Finally, relying on Eighth Circuit precedent, the court awarded annually compounding prejudgment interest of 0.41%, which was the weekly average 1-year constant maturity Treasury yield from the calendar week preceding the court’s January 3, 2022 order. This low rate was the result of the COVID-19 pandemic when interest rates were set artificially low in order to counteract the economic impact of the pandemic.

Ninth Circuit

Su v. Bowers, No. 22-15378, __ F. 4th __, 2023 WL 7009599 (9th Cir. Oct. 25, 2023) (Before Circuit Judges Bea, Collins, and Lee). The U.S. Department of Labor brought an ERISA action against two owners/selling stockholders of an architecture and build company, appellants Brian Bowers and Dexter Kubota, alleging the two individuals inflated the value of the company’s stock when selling shares to an employee stock ownership plan. The DOL’s arguments were dependent on the report of a single valuation expert, Steven Sherman, resulting in a case the court of appeals described as “shoddy.” The district court rejected Mr. Sherman’s opinion entirely because of a fairly consequential calculation error he made in which he included subconsultant fees in his projections when these fees could not have had any impact on the figures, a fact Mr. Sherman stated that he knew and admitted later was a mistake. It either was known, or should have been known, to the government before trial that this error existed because the defendants’ expert pointed it out during discovery. This mistake left the government without the testimony of their lone valuation expert. As a result, the government lost their action following a bench trial. “Without a reliable expert to show that B+K was sold for more than its fair market value, the government’s case crumbled.” Mr. Bowers and Mr. Kubota then moved for attorneys’ fees and nontaxable costs under the Equal Access to Justice Act (“EAJA”). The district court denied this request and held that the government’s litigation position was substantially justified and that the government had not acted in bad faith by bringing the case. Mr. Bowers and Mr. Kubota appealed that decision. In this order the Ninth Circuit affirmed the district court’s denial of fees and costs under EAJA and remanded the district court’s award of taxable costs. Specifically, the court of appeals concluded that the lower court had not abused its discretion in concluding that the government’s position was substantially justified, despite their case’s “many flaws,” as the government could not have known heading into trial that the district court would reject their expert’s opinion as entirely unreliable. “The government’s expert, despite his errors, arguably had a reasonable basis – at least at the time of trial – in questioning whether the company’s profits could surge by millions of dollars in just months.” Therefore, the court of appeals concluded that the district court had not clearly erred in finding the government did not act in bad faith. However, the Ninth Circuit found the district court did abuse its discretion in reducing the award of taxable costs. It held that the lower court had relied on findings of fact that were clearly erroneous about when depositions were taken. The district court mistakenly believed that these depositions occurred after the summary judgment motion. However, it is clear from evidence provided that the depositions were actually taken before then. The Ninth Circuit therefore held that because “the district court’s reduction of costs was mainly based on that clear error, it abused its discretion.” Therefore this portion of the district court’s decision was overturned and remanded to the district court with instructions to reconsider its decision on the corrected record. Circuit Judge Collins dissented from the majority’s view affirming the denial of the EAJA attorneys’ fees. He was dubious of the district court’s determination that the government’s position was in fact substantially justified and stated that he would remand to the district court with instructions to consider the government’s argument that Mr. Bowers and Mr. Kubota did not satisfy the net worth requirements under EAJA. Nevertheless, Judge Collins stated that he concurred with his colleagues’ decision to vacate the district court’s order reducing the award of taxable costs.

Class Actions

Third Circuit

Packer v. Glenn O. Hawbaker, Inc., No. 4:21-CV-01747, 2023 WL 7019187 (M.D. Pa. Oct. 25, 2023) (Judge Matthew W. Brann). In 2021, the Pennsylvania Attorney General brought a criminal complaint against defendant Glenn O. Hawbaker, Inc., alleging the company underfunded benefits of prevailing wage employees. Later that same year, Hawbaker pleaded no contest to the charges and agreed to pay over $20 million in restitution to over 1,000 employees. Two months after the plea, three former employees of Hawbaker initiated this ERISA suit on behalf of themselves and others similarly situated. On June 6, 2023, the court certified a class of all current and former hourly wage employees who worked on prevailing wage contracts with the company in Pennsylvania from 2012 to 2018. Hawbaker moved for reconsideration of the class certification decision. In response, plaintiffs moved to supplement the class certification record. The court resolved both motions in this order. To begin, the court granted defendant’s motion. It agreed with Hawbaker that it shouldn’t have considered the criminal complaint and affidavit of probable cause to establish commonality, typicality, or adequacy. Because these documents could not be considered to establish the company’s benefit practices, the court ruled that certification of the class was in error. However, its decision didn’t stop there. Looking at plaintiffs’ motion to supplement the certification record, the court ended up back where it started. Plaintiffs included deposition transcripts and accompanying exhibits from Hawbaker’s CFO and Corporate Comptroller to prove the prerequisites of certification under Rule 23(a). The court held that this updated information was an adequate substitute for the criminal case documents it was now excluding, and that this supplemental information could be used to establish Hawbaker’s benefit calculation methods and the legality of those methods. Therefore, pursuant to this new record, the court held that plaintiffs carried their burden to establish that each of Rule 23’s prerequisites remained satisfied, and therefore ended up reaffirming its June 6 order certifying the class. Thus, after only a little ado, this decision ended with no change in the status quo.

Eleventh Circuit

In re Blue Cross Blue Shield Antitrust Litig., No. 22-13051, __ F. 4th __, 2023 WL 7012247 (11th Cir. Oct. 25, 2023) (Before Circuit Judges Pryor and Abudu and District Judge Thomas P. Barber). The Eleventh Circuit affirmed a $2.67 billion settlement in this multi-district class action brought a decade ago by policyholders of Blue Cross Blue Shield Association plans who alleged the insurer and its affiliated member plans were conspiring to drive up the cost of health insurance by agreeing not to compete with each other in violation of antitrust laws. The healthcare plan subscribers alleged that Blue Cross engaged in a multi-part campaign to restrain competition by allocating geographic regions, limiting the competition of member plans through mandating business under the Blue Cross brand, by restricting the right of member plans to be sold outside the Blue Cross Association, and through other consolidating and anticompetitive behaviors and schemes. In addition to the billions of dollars in monetary recovery, the settlement also provides for several forms of injunctive relief, including new requirements that will force “Blue Cross to make structural reforms to increase competition between its members.” The terms of the settlement also call for attorneys’ fees and expenses of 25% of the settlement fund, totaling $667 million. Although not an ERISA action, an ERISA issue did come up both during the fairness hearing and again on appeal. Two employees of fully insured employer plans who objected to the settlement argued “that the district court erred in…approving a plan of distribution that fails to address the employers’ disbursement obligations under…ERISA.” During the fairness hearing of the proposed settlement, the Department of Labor, which is not a party to this action, filed a statement of interest expressing concerns regarding the terms of the agreement and its effect on employers and other plan fiduciaries regarding their obligations under ERISA. “Specifically, the Department was concerned that the settlement did not account for ERISA at all.” This concern by the DOL, along with all other objections, was overruled by the district court, which approved the settlement. On appeal, the Eleventh Circuit found that the district court had not abused its discretion in holding that ERISA was no impediment to approving the agreement. The appeals court wrote, “as the district court explained, nothing in the settlement agreement changes ERISA rights: the order approving the settlement states that ‘all ERISA duties still apply’ and that ‘all ERISA fiduciaries must comply with those duties.’ Plans and employees retain their rights to sue under ERISA. The fear of a speculative violation is no reason to reject the settlement.” Aside from ERISA, no other argument presented on appeal persuaded the Eleventh Circuit to overturn the district court’s approval of the settlement. It rejected all of the legal challenges and found that (1) the terms of the release were not in violation of public policy; (2) they do not perpetuate illegal conduct; (3) the release is appropriately limited in its scope; (4) the distribution methods are fair under civil procedure rules; (5) the district court did not err by approving a settlement with the same named plaintiffs representing both the injunctive and damage classes; and (6) the attorneys’ fees were within the range of reasonableness. Accordingly, the settlement objectors’ concerns were overruled and the judgement approving the settlement agreement itself was affirmed.

Disability Benefit Claims

Ninth Circuit

Haag v. Unum Life Ins. Co. of Am., No. 22-cv-03130-TSH, 2023 WL 6960369 (N.D. Cal. Oct. 20, 2023) (Magistrate Judge Thomas S. Hixson). Plaintiff Rebecca Haag commenced this disability action against Unum Life Insurance Company of America to recover terminated long-term disability benefits under an ERISA-governed policy. Ms. Haag, a clinical lab scientist, stopped working and started receiving disability benefits on January 1, 2020, after finding she could not sustain even part-time work with the symptoms she was experiencing from lumbar radiculopathy, spondylosis, sciatica, a labral tear, and a herniated disc. Ms. Haag’s musculoskeletal spine and hip conditions ultimately required her to undergo two surgeries, experiment with a series of pain medications, and engage in several rounds of physical therapy. In the end these treatments did help improve Ms. Haag’s conditions. In August of 2022, after recovering from her second surgery, Ms. Haag returned to work as a lab analysist. However, this date was nearly three years after she stopped full time employment and “just under two years after [Unum’s] initial determination that she would not receive ongoing benefits.” Thus, the question before the court was whether the medical records established that Ms. Haag remained unable to work from the date when Unum terminated benefits until the date when Ms. Haag returned to work. In this decision ruling on the parties’ cross-motions for judgment, the court found that Ms. Haag produced sufficient evidence to demonstrate that she was disabled within the meaning of the policy from the date when Unum denied benefits through December 7, 2021. Beyond that date, the court concluded that the records did not support continued evidence of disability, as Ms. Haag’s surgeon concluded that she was doing well with significantly decreased pain levels. Nevertheless, prior to December 7, 2021, the court stated that Ms. Haag was “credible in describing her pain and ongoing symptoms…[and] consistently sought medical treatment, visited multiple providers…, engaged in multiple rounds of MRIs and testing,…. tried multiple medications which themselves created side effects, engaged in months and months of physical therapy, all while reporting ongoing pain. These activities support that she was truthfully and actually in serious pain.” Furthermore, the court found that objective evidence, including the results of a functional capacity examination, supported Ms. Haag’s characterization of her pain and work limitations, and that her treating physician’s opinions should be afforded weight. Additionally, the court was not persuaded by Unum’s hypothesis that Ms. Haag’s “real motivation in not returning to work was not back pain, but rather related to her mental health.” If anything, the court viewed Ms. Haag’s mental health as taking a toll from not being able to continue working in her career path. The court reminded Unum that it had itself concluded that Ms. Haag’s cause of disability was her pain when it approved her claim for benefits. Based on the foregoing, the court concluded that the evidence in the administrative record demonstrated that Ms. Haag was disabled under the terms of her plan through December 7, 2021, and that Ms. Haag was entitled to judgment in her favor up until that date. For the period beyond December 7, 2021, judgment was granted in favor of Unum. Ms. Haag was represented by Your ERISA Watch co-editor Peter Sessions.

Discovery

Fifth Circuit

Edwards v. Guardian Life Ins. of Am., No. 1:22-CV-145-KHJ-MTP, 2023 WL 7092500 (N.D. Miss. Oct. 26, 2023) (Judge Kristi H. Johnson). This action involves a dispute over a life insurance policy. In a previous order the court concluded that the policy at issue is an ERISA-governed employee benefit plan. Following that order, the Magistrate Judge issued a case management order setting out the deadlines for the case. Plaintiff Jimmy Edwards appeals that case management order because it limits discovery to the administrative record absent a court order on a discovery motion filed by either party. Applying a clear error standard, the court denied Mr. Edwards’ motion and upheld the case management order. The court understood Mr. Edwards’ motion as an attempt to reconsider its prior holding that the policy is an ERISA plan. It declined to engage with this attempt. Instead, the court stressed that Mr. Edwards does not have grounds to challenge the order as clearly erroneous or contrary to law. It emphasized that he has not been denied a specific discovery request. Rather, the order reiterates the court’s holding that ERISA applies, and incorporates ERISA’s general principle of limiting discovery to the administrative record. Should he wish, Mr. Edwards can petition the court for discovery. As such, the court found no mistake in the order and therefore upheld it.

Life Insurance & AD&D Benefit Claims

Fourth Circuit

GSP Transp. Inc. 401(k), Plan Comm. v. Hall, No. 2:23-cv-814-RMG, 2023 WL 6969962 (D.S.C. Oct. 23, 2023) (Judge Richard Mark Gergel). Marriage. Marriage is what brings these parties together today, in this interpleader action. Specifically, they were brought together over a dispute about whether the marriage of decedent Jeffrey Schoepfel and defendant Summer Hall was legally invalid, as his surviving children, defendants Jessica and Nicholas Schoepfel, contend, or whether Ms. Hall was Mr. Schoepfel’s lawful wife and thus entitled to benefits under the plan, as Ms. Hall maintains. Ms. Hall moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). Noting that judgment on the pleadings is only appropriate if, after accepting all of the nonmoving parties’ allegations as true and viewing facts most favorably to them, the moving party is entitled to judgment as a matter of law, the court wrote it was “abundantly clear that this is not a case that should be disposed of on a motion for judgment on the pleadings.” To the contrary, the validity of the marriage between Ms. Hall and Mr. Schoepfel “is vigorously disputed” among the competing beneficiaries. Therefore, the court ruled that judgment on the pleadings would not be appropriate here, and consequently denied Ms. Hall’s Rule 12(c) motion.

Medical Benefit Claims

Fifth Circuit

Windmill Wellness Ranch LLC v. H.E.B., Inc., No. SA-23-CV-00034-DAE, 2023 WL 6981993 (W.D. Tex. Oct. 23, 2023) (Magistrate Judge Elizabeth S. Chestney). A rehabilitation facility, plaintiff Windmill Wellness Ranch LLC, and a patient who received treatment there, E.A., brought this ERISA action against the HEB PPO healthcare plan, and its sponsor and administrator, H.E.B., Inc., for underpaying for E.A.’s treatment at Windmill. HEB and the Plan filed a joint motion objecting to plaintiffs’ experts’ testimony “asking the Court to exclude all of Plaintiffs’ designated experts.” In this order the court granted defendants’ motion. Plaintiffs designated four experts. They were the CEO of Windmill, Windmill’s Medical Director, a medical doctor hired as a consultant retained to testify about the reasonableness of Windmill’s charges, and plaintiffs’ counsel to testify on the reasonable of their attorneys’ fees. Defendants argued that plaintiffs’ experts should not be allowed to provide testimony because plaintiffs’ violated a procedural requirement for submitting a written report of their retained expert witness, the testimony of the experts is beyond the scope permitted in ERISA benefit actions, the proposed testimony will not assist the trier of fact, and plaintiffs’ counsel’s testimony on fees is unnecessary as fee motions are submitted separately after resolution of the merits of the case. The court agreed with these points. “The question in this case centers on whether HEB violated the Plan terms in applying its methodology for reimbursing Windmill for E.A.’s treatment. Here, none of the experts identified by Plaintiffs have been designated to testify as to how HEB, as administrator of the Plan, has interpreted the relevant terms of the Plan in other instances. Nor have Plaintiffs designated any experts to testify to assist the Court in its understanding of medical terminology or practice related to E.A.’s benefits claim. Rather, Plaintiffs’ experts are employees of Windmill who intend to testify on the services Windmill provides, the reasonableness of Windmill’s charges, the necessity of E.A.’s treatment, and the appropriate reimbursement rate for the services provided.” This information, the court held was “beyond the scope of the administrative record,” and not useful for resolution of the claims at issue. Therefore, the court granted defendants’ motion to strike plaintiffs’ experts.

Pension Benefit Claims

Second Circuit

Board of Trs. of the Bakery Drivers Local 550 & Indus. Pension Fund v. Pension Benefit Guar. Corp., No. 23-CV-1595 (JMA) (JMW), 2023 WL 7091862 (E.D.N.Y. Oct. 26, 2023) (Judge Joan M. Azrack). Just in time for the Halloween season, this case involves a zombie multiemployer plan resurrected from the grave not to eat brains but to apply for funds from a government assistance program. On December 17, 2016, the Bakery Drivers Local 550 and Industry Pension Fund was terminated following a mass withdrawal of employers. It was restored six years later on September 1, 2022, when the employer Bimbo Bakeries USA, Inc. and the Union agreed to amend the collective bargaining agreement, springing the pension plan back to life. Just five days later, the Fund filed a certification of its critical and declining status with the IRS. Why would they do this? Likely because of a pandemic-era amendment to Title IV of ERISA, wherein Congress enacted a new special financial assistance program to give multiemployer plans money to pay all benefits due through 2051 from general taxpayer monies. The program applied to plans in critical funding status from 2020 through the end of 2022. The Fund applied for $132,250,472.00 in assistance under the program. As the court wrote, “[i]t appears that the purpose of the Fund’s attempted restoration in September 2022 was to allow it to apply for [the program’s] assistance.” Its application was denied by the Pension Benefit Guaranty Corporation (“PBGC”) based on the PBGC’s opinion that “ERISA contains no provision allowing a multiemployer plan that terminated by mass withdrawal under Section 1341a to be restored.” The trustees of the Fund and the PBGC have each moved for judgment on the denial of the application for the government-backed financial assistance under the program. In this order the court affirmed the PBGC’s denial and granted judgment in its favor. The court identified “two questions of statutory interpretation” that it needed to answer in order to resolve the dispute. The first question was whether plans terminated by mass withdrawal prior to January 1, 2020 and remained terminated are eligible for special financial assistance benefits. The second was whether a multiemployer plan that was previously terminated by mass withdrawal can be restored after such a termination. The court concluded first that plans which terminated prior to January 1, 2020 are not eligible for benefits under the program. Accordingly, in order to qualify for benefits, the Fund needed to have been restored following its termination, making the answer to the second question central to the dispute among the parties. To answer this question, the court needed to consider the Chevron doctrine, and decide whether the PBGC’s interpretation is entitled to Chevron deference. It concluded that Congress had sufficiently delegated interpretive authority of Title IV of ERISA to the PBGC “such that its interpretation of Tile IV, including Sections 1347 and related provisions, trigger the Chevron deference framework.” Moreover, the court found that the PBGC’s interpretation was not unreasonable, arbitrary, or capricious. Therefore, it upheld the PBGC’s reasonable interpretation that Title IV prohibits restoration of a multiemployer plan terminated by mass withdrawal, and therefore granted the PBGC’s motion for summary judgment and denied the Fund’s motion for summary judgment. Thus, the court did not allow the undead Fund to feast on the pandemic-era assistance.

Plan Status

Second Circuit

Lovo v. Investis Dig., No. 23 Civ. 1868 (LLS), 2023 WL 7004772 (S.D.N.Y. Oct. 24, 2023) (Judge Louis L. Stanton). The terms of decedent Charles D. Scales’ employment agreement with his employer, Investis Digital Inc., were amended in the spring of 2021. At the time Mr. Scales was the Global CEO of the company. The amendment extended the list of employee benefit plans in which Mr. Scales was eligible to participate to include life insurance, with a benefit valued at five times his base salary of $459,000. This was a big deal for Mr. Scales, who was in his mid-60s and had a series of health complications which made obtaining life insurance difficult. However, Investis was not able to provide Mr. Scales with these promised life insurance benefits. The third-party insurer it attempted to secure a policy from denied Mr. Scales’ application after it received his statement of health and medical evaluation. Mr. Scales died just one month later, and was therefore never able to appeal the denial of his application for benefits. Investis has never paid any form of life insurance to Mr. Scales’ estate. In this action, asserted under both ERISA and state law, Mr. Scales’ estate seeks the life insurance benefits Mr. Scales was allegedly promised. Plaintiff alleges that defendants “knew that Scales could have obtained life insurance for three times the amount of his salary without completing a statement of health, and that Investis gave that life insurance option to the other two executives who received life insurance following Scales’ death.” The complaint maintains that this failure to pay life insurance benefits to the estate violates ERISA because the employment agreement entitles Mr. Scales to five times his base salary in life insurance benefits. Defendants moved to dismiss the action. Their motion was granted in this order, as the court concluded that it lacked subject matter jurisdiction over the lawsuit. The court disagreed with the estate that the employment agreement was an ERISA-governed plan. It wrote, “not every agreement by an employer to provide benefits to an employee constitutes an ERISA plan.” Because the court concluded that the agreement at issue here did not create an ongoing administrative program, it found that no ERISA life insurance plan exists and that the claims therefore do not arise under ERISA. In sum, the court stated that “a promise to obtain life insurance on Scales’ behalf is not the same as providing life insurance.” As a result, the court determined that it lacked federal subject matter jurisdiction over the case and dismissed it without prejudice.

Mason v. District Council 1707, No. 21-CV-9382 (VSB), 2023 WL 7043226 (S.D.N.Y. Oct. 26, 2023) (Judge Vernon S. Broderick). Former employees of District Council 1707, American Federation of State, County and Municipal Employees have sued the organization and its parent union under ERISA and New York State labor law after they were not paid the full amount of severance and vacation benefits for terminated employees that they maintain they are entitled to. Defendants moved to dismiss. They argued that the severance and vacation policies do not constitute employee benefit plans under ERISA. At this early stage of litigation, the court held that defendants failed to establish that either the vacation plan or the severance plan were beyond the scope of ERISA as a matter of law. Taking the allegations in the complaint as true, the court concluded that they were plausible to allege plaintiffs’ ERISA causes of action and therefore denied the motion to dismiss the ERISA claims. The court also denied the motion to dismiss the state law claims, as defendants’ only argument in support of dismissing them was that plaintiffs failed to raise federal claims, and thus the court lacks supplemental jurisdiction over the state law causes of action. “Because Plaintiffs’ ERISA claims survive Defendants’ motion to dismiss, so do their New York state law claims.”

Pleading Issues & Procedure

Ninth Circuit

Tolentino v. Saito, No. 23-00280 SOM-KJM, 2023 WL 7090375 (D. Haw. Oct. 26, 2023) (Judge Susan Oki Mollway). This action, asserted under ERISA, the Labor Management Relations Act (“LMRA”), and the Federal Arbitration Act (“FAA”), is a dispute among union trustees and employer trustees in interpreting the language of a collective bargaining agreement and its effect on settling matters over which the trustees are deadlocked. There are an equal number of union trustees and employee trustees. All of the union trustees have voted in favor of expanding certain benefits under a training fund. All of the employer trustees have voted against these added benefits. The document governing the trustees has a provision regarding deadlock votes. It states, “If the number of votes on any matter is deadlocked, the matter may be submitted to an impartial umpire mutually agreed upon by the Union and the Association.” Here, the union trustees are seeking a court order compelling the employer trustees to participate in arbitration over the deadlock. Plaintiffs bring an ERISA claim under Section 502(a)(3) to enforce the terms of the plan, a claim under Section 301 of the LMRA for refusal to arbitrate pursuant to the terms of the plan, and a claim under the FAA seeking to compel arbitration. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). They argued that the court lacks subject matter jurisdiction and that the complaint fails to state a claim because the use of the word “may” indicates that arbitration is only permitted, not required. The court denied the motion to dismiss. It held that plaintiffs stated nonfrivolous claims under ERISA and LMRA, which establish federal jurisdiction, even if those claims later fail on the merits. With respect to ERISA, the court stated that “there is at least a question as to whether the Training Fund qualifies as a ‘plan’ for the purposes of ERISA. While the existence of such a question does not on its own render the Training Fund an ERISA plan, Defendants’ uncertainty at the very least means that Plaintiffs’ claim that ERISA applies cannot be disregarded as frivolous.” As for the use of the word “may” in the arbitration/deadlock provision, the court held that context matters. While the word “may” is usually understood to be permissive, here there would be no procedure for resolving a deadlock if arbitration is voluntary or requires all parties to agree to arbitration. Thus, because there would be no way to break a deadlock, “a deadlock would instead represent the failure of a motion to carry by a majority vote.” Given that this reading of the word “may” would essentially nullify the very clause it is contained within, the court declined to dismiss for failure to state a claim. Accordingly, none of plaintiffs’ claims were dismissed.

Severance Benefit Claims

Tenth Circuit

Franke v. Fifth Amended & Restated Newfield Expl. Co. Change of Control Severance Plan, No. 21-cv-2234-WJM-SKC, 2023 WL 6962081 (D. Colo. Oct. 20, 2023) (Judge William J. Martínez). The company plaintiff Jarrid Franke worked at for 14 years, Newfield Exploration Company, was acquired in 2019. Prior to that acquisition, the company had created a change of control severance plan to provide severance benefits to covered employees if they were involuntarily terminated or voluntarily resigned for “Good Reason” following a change of control at the company. In this ERISA action, Mr. Franke has sued the plan, its benefits administrator, and its committee, for improperly denying him severance benefits after his position at the company and aggregate responsibilities were materially reduced in the wake of the acquisition. In this order the court agreed with Mr. Franke that defendants arbitrarily and capriciously denied him severance benefits, and remanded to the committee with instructions and guidance to reconsider their decision under the proper standards outlined by the terms of the plan. The court held that defendants did not meaningfully engage with the material reductions in the scope and nature of Mr. Franke’s work in his roles immediately prior to and after the change in control and instead inappropriately “focused a great deal on Plaintiff’s career development, which has nothing to do with whether his aggregate responsibilities were reduced or if any such reduction was material.” The court wrote, “[n]ot only is the opportunity for future growth highly subjective and difficult to define, neither the Plan’s language nor the Committee’s interpretation worksheet indicate that it is a proper consideration at all.” Regardless, defendants’ discussions focused almost exclusively on this immaterial point. Therefore, the court found that defendants’ denial was an abuse of discretion not supported by substantial evidence, and so ordered them to perform a proper analysis of whether Mr. Franke is entitled to benefits under the plan by engaging with Mr. Franke’s specific evidence submitted regarding the ways in which his work was reduced. It stressed, “the Committee must not consider opportunity for growth or any other concepts not related to Plaintiff’s comparative aggregate responsibilities.” Mr. Franke was not awarded an injunction or statutory penalties on his second claim for breach of fiduciary duty claim though. The court stated that defendants did not breach any fiduciary duty and were in compliance with the Department of Labor’s governing regulations because they produced all documents they were required to which were relevant to his claim. Finally, the court determined that Mr. Franke achieved success on the merits in this action, and as a consequence concluded that he is entitled to an award of reasonable attorneys’ fees and costs.