Pharm. Care Mgmt. Ass’n v. Mulready, No. 22-6074, __ F. 4th __, 2023 WL 5218138 (10th Cir. Aug. 15, 2023) (Before Circuit Judges Phillips, Murphy, and Rossman)

Ah preemption, the thorniest of ERISA’s thorny issues. Like many courts before it, the Tenth Circuit last week addressed the effect of ERISA’s notoriously broad and amorphous preemption provision, concluding that ERISA preempts Oklahoma’s attempt to regulate pharmacy benefit managers (PBMs).

In 2019, Oklahoma enacted the Patient’s Right to Pharmacy Choice Act to regulate some of the practices of pharmacy benefit managers (PBMs), organizations that act as middle-men between pharmaceutical retailers and healthcare plans, both those governed by ERISA and those that are not. They do so in several ways: by contracting with manufacturers for drug rebates, by generally managing the prescription drug benefits offered by healthcare plans, by contracting with pharmacies to be in the PBMs’ networks, and by designing the structure of drug benefits and pharmacy networks for plans.

The Pharmaceutical Care Management Association (PCMA), a trade association for PBMs, brought suit challenging thirteen of the Oklahoma law’s provisions as preempted by ERISA and by Medicare Part B. The district court ruled against PCMA on all thirteen ERISA challenges but ruled in favor of the organization on its Medicare Part D challenges with respect to six of the thirteen provisions.

By the time the case reached the Tenth Circuit, only four provisions were at issue. Three of these provisions are aimed at the PBMs’ networks. The first requires that PBMs design their networks so that a fixed percentage of covered individuals in Oklahoma live close to a brick-and -mortar pharmacy. The second prohibits PBMs from refusing to contract with pharmacies that are on probation but who have not had their licenses revoked. The third of these provisions required PBMs to admit any pharmacy willing to agree to their terms into the network (a so-called “any willing provider” provision). The fourth provision under challenge prohibits the use of cost-savings and discounts aimed at incentivizing covered individuals to use only certain pharmacies.      

The Tenth Circuit decision starts from the premise that PBMs provide a valuable service because, in the court’s view, it would be “prohibitively expensive” for healthcare plans to simply allow plan participants and beneficiaries to obtain the drugs their doctors prescribe at any pharmacy. The Court touts  the “economic efficiencies and administrative savvy” of PBMs, apparently agreeing with PCMA’s assertion that PBMs provide cost savings for plans. Whether this is true or not, there is no disagreeing with that fact that PBMs now manage prescription drug benefits for most people, an estimated 270 million, “nearly everyone with a prescription drug benefit.” It would seem logical that, if you think you are paying too much, not too little, for prescription drugs, PBMs may bear some responsibility. In fact, according to Kaiser Family Foundation, Americans pay more for prescription drugs than citizens of any other peer nation.

But back to preemption. The court began this analysis with the familiar formulation of the scope of Section 514, 29 U.S.C. § 1114, noting that ERISA preempts state laws that have a ”connection with” or “reference to” ERISA plans. PCMA only challenged the provisions under the “connection with” prong. In deciding whether a state law is preempted under this prong, the Tenth Circuit naturally turned to the Supreme Court’s most recent preemption decision, Rutledge v. PCMA, 114 S. Ct. 474 (2020), which, not coincidentally, also involved a state law regulating PBMs and a challenge to that law brought by PCMA. In that case, however, the Supreme Court concluded that ERISA did not preempt an Arkansas PBM law.

The Tenth Circuit noted that Rutledge identified two categories of laws that are preempted as having a “connection with” ERISA plans: those that directly require plans to structure their benefits in a particular manner, and those that do so indirectly through acute economic effects. Distilled down, the court saw the issue as whether the challenged state law governs a central matter of plan administration or interferes with nationally uniform plan administration.

Having described the state of ERISA preemption, the court then dealt with what it saw as a threshold issue. Was the Oklahoma law even within ERISA’s purview given that, in its aim and effect, it only directly governs PBMs, not plans? The court had no trouble answering in the affirmative, referencing many cases in which the Supreme Court and other courts found that ERISA preempted state laws that regulate third parties in their dealing with ERISA plans.

Turning to the geographic access provision, the discount prohibition and the any willing provider provision, the court concluded that all three were preempted because they govern a central matter of plan administration by requiring that prescription drug benefits be structured in a particular way. “Together, these three provisions effectively abolish the two-tiered network structure, eliminate any reason for plans to employ mail-order or specialty pharmacies, and oblige PBMs to embrace every pharmacy into the fold.”

This conclusion, the court reasoned, “adheres to Rutledge,” because Rutledge concerned reimbursement-rate provisions of a state law that had a purely economic impact on plans, whereas the Oklahoma law regulates the network-structure through which plan beneficiaries obtain their prescriptions.

Thus, the court rejected all of Oklahoma’s arguments to the contrary and concluded that ERISA preempts all three of these network provisions. It probably did not help Oklahoma that the Department of Labor agreed with PCMA that these provisions had a “connection with” ERISA plans. Although the Department argued that the provisions were nevertheless “saved” from preemption as insurance regulations, the Tenth Circuit declined to address the insurance savings clause argument because it concluded that the state had not pressed this argument sufficiently either in the district court or on appeal.

The court then turned to the probation provision. The court reasoned that this provision, like the other three, dictated the composition of permissible networks and was likewise preempted. The Department of Labor supported Oklahoma’s position that this provision was not preempted because its effect on plan design was de minimis. But the Tenth Circuit rejected the application of what it saw as a “novel” de mimimis test, and also was unconvinced with the Department contention that the impact was slight. The Tenth Circuit did recognize that the Eighth Circuit had concluded that a similar North Dakota law was not preempted. PCMA v. Wehbi, 18 F.4th 956 (8th Cir. 2021). But the Tenth Circuit found that Wehbi “unhelpful” because its  reasoning “formulaic” and “limited.” 

Thus, the court concluded that ERISA preempts all four challenged provisions in their application to ERISA plans. The Tenth Circuit likewise concluded that the Medicare Part D preempts the any willing provider provision as applied to Medicare Part D plans.  

Another day, another circuit split. So stay tuned for further developments as states continue to attempt to regulate PBMs and PCMA, we predict, will continue to challenge those law. And speaking of ERISA developments, the Ninth Circuit panel in Wit v. United Behavioral Health, just issued yet another decision, which came out too late for this edition.  We’ll analyze it next week.       

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

Breach of Fiduciary Duty

Ninth Circuit

Bracalente v. CISCO Sys., No. 5:22-cv-04417-EJD, 2023 WL 5184138 (N.D. Cal. Aug. 11, 2023) (Judge Edward J. Davila). Two participants of the Cisco Systems, Inc.’s 401(k) Plan brought this putative class action against the plan’s fiduciaries to challenge their behavior administering the plan. Specifically, plaintiffs allege that Cisco and the retirement committee imprudently maintained a suite of BlackRock LifePath target date Index Funds as the plan’s default investment options, despite the funds long-term and significant underperformance of similar target date fund investment options which were available. Defendants moved to dismiss the complaint for failure to state a claim. Their motion was supported by two amicus curiae briefs, one from the American Benefits Council, American Retirement Association Committee on Investment of Employee Benefit Assets, Inc., and the ERISA Industry Committee, and the other from the U.S. Chamber of Commerce. Defendants and amici maintained that case law makes clear that underperformance alone cannot sustain a plausible claim for breach of fiduciary duty under ERISA. The court agreed. It found the complaint focused too heavily on underperformance while ignoring other factors about the BlackRock funds like their investment strategy, cost, and risk. The court expressed that it therefore could not infer that just because the target date fund suite was underperforming, even for an extended period of time, that Cisco’s decision to continue offering these investment options fell outside the range of reasonable fiduciary judgments, especially given the difficult tradeoffs fiduciaries must make when designing investment portfolios. Therefore, the court granted the motion to dismiss the complaint. However, dismissal was without prejudice, and plaintiffs were granted leave to amend to cure the court’s identified deficiencies. The court cautioned though that further evidence of underperformance would not in and of itself cure the problems, regardless of the comparators that plaintiffs selected.

Class Actions

Third Circuit

Wolff v. Aetna Life Ins. Co., No. 22-8056, __ F. 4th __, 2023 WL 5082238 (3d Cir. Aug. 9, 2023) (Before Circuit Judges Jordan, Shwartz, and Smith). Plaintiff Joanne Wolff commenced this action on behalf of a nationwide class to challenge defendant Aetna Life Insurance Company’s allegedly coercive practices of recouping a portion of disability payments from disabled plan participants who received third-party personal injury recoveries for their disabling injury causing event, despite the plans’ language which do not contemplate any such reimbursement. Ms. Wolff moved for class certification under Rule 23(b)(3). On May 25, 2022, the court granted her motion and certified a class. Eighty-four days later, on August 17, 2022, Aetna filed a motion to reconsider the class certification order. Its arguments were two-fold. First, and primarily, it argued that a Third Circuit decision which had recently been issued updated the precedent on how district courts need to analyze the requirements of Rule 23 class certification. Second, Aetna argued that the class definition created an impermissible “fail-safe” class, the membership of which hinged on answers to merits issues. On November 22, 2022, the district court granted in part and denied in part Aetna’s motion for reconsideration. Specifically, the district court rejected Aetna’s assertions that new authority from the Third Circuit required it to alter its precertification order. Instead, the court reaffirmed its prior analysis regarding the differences among the class members and their plans. The district court did, however, revise its class definition to address the potential fail-safe issues, and reworded its definition slightly, creating a simpler class definition wherein membership could be determined without resolving any merits of the case. Following the district court’s decision, Aetna filed a 23(f) petition with the Third Circuit seeking interlocutory review of the district court’s class certification order from November 22. Ms. Wolff opposed the petition, as “patently untimely,” arguing that the November 22 order did not materially change the status quo and that Aetna was therefore required to file a Rule 23(f) petition within fourteen days of the original May 25, 2022, class certification order, which it failed to do. In this decision, the Third Circuit agreed with Ms. Wolff. The appeals court stated that Rule 23(f)’s time limit “is strict and mandatory…[and] purposefully unforgiving.” This petition, the court of appeals found was untimely and could not be considered. It agreed with Ms. Wolff that nothing in the November 22 order had any practical effect on the class or materially changed the class definition. Instead, the district court was “merely reaffirm[ing] its prior ruling,” through clarifying changes. As a result, the Third Circuit stated that it could not view the November 22 decision as an order granting or denying class-action certification, and therefore agreed with Ms. Wolff that, under Rule 23(f)’s time limitation, Aetna had been required to file an interlocutory appeal within 14 days of the original order. As that deadline came and went without Aetna filing a 23(f) petition, the court held that this petition was untimely and therefore denied it without considering its merits. 

Disability Benefit Claims

First Circuit

Hughes v. The Lincoln Nat’l Life Ins. Co., No. 2:22-cv-00098-NT, 2023 WL 5310611 (D. Me. Aug. 17, 2023) (Judge Nancy Torresen). Before the onset of symptoms from a mysterious gastrointestinal illness, plaintiff Benjamin Hughes worked as a systems engineer for the Lincoln National Life Insurance Company. In 2021, Mr. Hughes stopped working after abdominal pain, nausea, vomiting, and diarrhea became debilitating. Originally, Lincoln approved and paid for Mr. Hughes’ disability benefits. However, by a letter dated August 31, 2021, Mr. Hughes was informed that his long-term disability benefits were being terminated, as Lincoln determined that he no longer met his policy’s definition of disability for his own occupation. Following an unsuccessful administrative appeal, Mr. Hughes commenced this ERISA lawsuit under Section 502(a)(1)(B), seeking to recover his disability benefits. The parties filed cross-motions for judgment on the administrative record. The court in this order granted defendant’s motion for judgment. The court disagreed with Mr. Hughes that he was denied a full and fair review of his benefits claims thanks to Lincoln’s failure to provide him with a copy of its vocational expert’s analysis with which to respond to. To the contrary, the court held that this failure to turn over relevant records did not constitute a denial of a full and fair review because the procedural irregularity here did not prejudice Mr. Hughes in the end. This was so, the court stated, because Mr. Hughes could not identify “any evidence that he contends he would have provided to Lincoln to further develop the administrative record if given the opportunity to respond to [the] analysis.” The failure to provide this type of evidence, the court wrote, “seriously undercuts his argument that the procedural irregularity was prejudicial.” Nor did the court identify any problem with Lincoln’s timeliness in issuing its denials under ERISA’s claims procedural regulations. The court agreed with Lincoln that there were special circumstances present which justified its extension of the usual 45-day window. Accordingly, the court moved on to evaluating the merits of the adverse benefit decision. Under abuse of discretion review, the court upheld the denial. It found that there was substantial evidence to support Lincoln’s reasonable conclusion that Mr. Hughes’ gastrointestinal problems did not render him unable to perform the material and substantial duties of his occupation. For these reasons, the court granted judgment in favor of Lincoln and denied Mr. Hughes’ claim for judgment.

Fourth Circuit

Pifer v. Lincoln Life Assurance Co. of Bos., No. 1:22-cv-186, 2023 WL 5208111 (M.D.N.C. Aug. 14, 2023) (Judge William Lindsay Osteen Jr.). Back in 2011, plaintiff Rebecca Pifer was diagnosed with an inherited disorder called, Ehlers Danlos Syndrome, a disease which affects and weakens a person’s connective tissues. The disease has left her with osteoarthritis and pain in her cervical spine, shoulders, hands, and feet. Shortly after her diagnosis, Ms. Pifer stopped working and applied for disability benefits. She received long-term disability benefits from 2011 until 2021, at which time her monthly benefits were terminated. The claims administrator and payor of the policy, defendant Lincoln Life Assurance Company of Boston, terminated Ms. Pifer’s benefits determining that she could perform a sedentary occupation. Following an unsuccessful administrative appeal, Ms. Pifer brought this ERISA benefits action to challenge that decision. The parties cross-moved for judgment in their favor. In this order the court entered judgment in favor of Ms. Pifer under arbitrary and capricious review standard and remanded to Lincoln for further decision-making. The court identified several major flaws with Lincoln’s decision. These shortcomings included Lincoln’s failure to provide its reviewing doctors with all of the relevant medical records, its decision to ignore evidence within the record favorable to Ms. Pifer, its shaky grounds for terminating benefits that it had been paying for years without any significant change or improvement in the medical records, and its failure to consider Ms. Pifer’s subjective accounts of her pain and the severity of her symptoms. These failures, the court wrote, were “not harmless,” and therefore it found the decision to terminate the long-term disability benefits not supported by adequate evidence, and not the result of a reasoned and principled decision-making process. Accordingly, concluding the adverse benefit determination was an abuse of Lincoln’s discretion, the court granted summary judgment in favor of Ms. Pifer. Nevertheless, the court declined to award benefits outright. Instead, it chose to remand to Lincoln. According to the court remand was the proper course of action here, as the Fourth Circuit directs district courts to “reverse and remand” an unreasonable ERISA benefit decision to allow the administrator to correct its findings and reconsider after reviewing all available evidence “that has been developed since the original denial…and to make a new determination.”

Sixth Circuit

Jordan v. Reliance Standard Life Ins. Co., No. 22-5234, __ F. App’x __, 2023 WL 5322417 (6th Cir. Aug. 18, 2023) (Before Circuit Judges Cole, Clay, and Kethledge). Plaintiff/appellant Beth Nichole Jordan appealed a district court order upholding defendant Reliance Standard Life Insurance Company’s denial of her long-term disability benefits. In this Sixth Circuit decision, the court of appeals reversed the district court’s judgment, and awarded benefits to Ms. Jordan. The court of appeals found Ms. Jordan’s medical records compelling evidence that the symptoms of Lyme disease and a history of breast cancer left her unable to continue working as a nurse anesthetist. Reliance Standard’s findings to the contrary were determined by the court of appeals to be “conclusory…[and] not sufficiently supported by credible medical evidence.” The appeals court stated that Reliance Standard’s denial letters failed to adequately explain their reasoning and inappropriately selected from the medical records. Moreover, it found “the medical opinions utilized by Reliance Standard [to be] riddled with errors.” Accordingly, the Sixth Circuit determined that Reliance Standard acted arbitrarily and capriciously and so overturned the denial of benefits.

Ninth Circuit

Sund v. Hartford Life & Accident Ins. Co., No. 21-cv-05218-JST, 2023 WL 5181624 (N.D. Cal. Aug. 11, 2023) (Judge Jon S. Tigar). Plaintiff David F. Sund was employed with Amazon working as a global commodity manager, a position which required extensive travel both domestically and internationally, including to Asia and Europe. While away on one such business trip to China, Mr. Sund unfortunately severely injured his spine after slipping on wet marble, falling backwards. He immediately received treatment in hospitals in China and was diagnosed with a significant traumatic compression fracture of his lumbar. The doctors in Hong Kong and Kaiser recommended that Mr. Sund wait to undergo vertebrae plasty surgery. However, by the time Mr. Sund returned to the U.S. and saw doctors here, he was informed that it was too late to have the procedure done and was instead provided with other treatments for his chronic pain and back injury. Mr. Sund attempted to return to his position at Amazon, but was unable to work his scheduled hours, or to perform even modified duties to continue with his occupation. Accordingly, Amazon formally terminated him, after which Mr. Sund applied for disability benefits under Amazon’s ERISA-governed disability policy insured by defendant Hartford Life & Accident Insurance Company. Ultimately, Mr. Sund’s claim for long-term disability benefits was denied by Hartford, which concluded that his occupation was sedentary in nature and that he could perform sedentary-level work with his back conditions. Mr. Sund appealed the denial, and after the denial was upheld, commenced this action under Section 502(a)(1)(B) of ERISA to challenge de novo the adverse benefit decision. The parties cross-moved for judgment under Federal Rule of Civil Procedure 52.  Giving no deference to Hartford’s denial, the court reviewed the medical records and concluded that the insurer incorrectly denied benefits. As a result, the court concluded that Mr. Sund was entitled to the full 24 months of benefits payable under the plan to participants, like him, who have reached the age of 65. The court stated that whether it viewed Mr. Sund’s occupation as “sedentary” or “light,” Mr. Sund would still qualify for benefits, as his condition has left him unable to sit for more than one-third of the workday, and because he cannot stand, walk, or travel for any extended period of time, nor can he lift, push, or pull objects weighing more than 5lbs. Moreover, the court reasoned that Mr. Sund’s attempt to return to work for four months after the accident, and Amazon’s inability to accommodate him even with modifications, supported a finding that Mr. Sund was disabled. Finally, the court decided to give greater weight to Mr. Sund’s treating physicians, rather than to Hartford’s reviewing doctor who never personally examined Mr. Sund. Based on the foregoing, the court concluded that Mr. Sund proved by a preponderance of the evidence that he was disabled under the policy terms and therefore entitled to benefits. Thus, the court entered judgment in favor of Mr. Sund and denied Hartford’s cross-motion for judgment.

Discovery

Sixth Circuit

Kramer v. Am. Elec. Power Exec. Severance Plan, No. 2:21-cv-5501, 2023 WL 5177429 (S.D. Ohio Aug. 11, 2023) (Judge Sarah D. Morrison). Plaintiff Derek Kramer served as Chief Digital Officer of American Electric Power Service Corporation for two years from 2018 to 2020. In 2020, American Electric terminated him. Following his termination, Mr. Kramer applied for severance benefits under the company’s EIRSA-governed severance plan. His claim was denied on the grounds that his termination was “for cause.” Mr. Kramer unsuccessfully appealed the denial and later commenced this ERISA action to challenge it. The court allowed Mr. Kramer to conduct discovery into allegations regarding American Electric’s conflict of interest, and the ways in which bias may have adversely affected his benefit decision. In response to this discovery order, American Electric produced certain documents. However, many others were withheld on the basis of attorney-client and work product privileges. These withheld documents were identified in a privilege log American Electric provided to Mr. Kramer. Mr. Kramer subsequently filed a motion to compel production of the documents withheld on the basis of attorney-client privilege. He argued that these documents are discoverable under the fiduciary exception to attorney-client privilege under ERISA. The matter was assigned to a magistrate judge. The Magistrate issued an opinion in April of this year denying Mr. Kramer’s discovery motion, concluding that the plan qualifies as a “top hat” plan and that it is therefore exempted from ERISA’s fiduciary duty provisions. As a result, the Magistrate Judge held that the fiduciary exception to attorney-client privilege did not apply here, and that the documents were thus not discoverable. Mr. Kramer objected to the Magistrate’s rulings. In this order the court overruled his objections. It found no clear error with the Magistrate’s findings that the plan qualifies as a top-hat executive plan. The court agreed that the plan was established primarily for providing deferred compensation because it provides future compensation for past work. Additionally, the court stated that because the plan is a top-hat plan, it was not required to file annual reporting and disclosure documents with the Department of Labor, and the fact that it did not file these documents was further support that it qualified as an exempted top-hat plan. For these reasons, the court affirmed the position of the Magistrate and overruled Mr. Kramer’s objections. And because the court reached this conclusion putting an end to the discovery period, it also ordered Mr. Kramer to respond to American Electric’s pending summary judgment motion within fourteen days of this order.

Eighth Circuit

Wessberg v. Unum Life Ins. Co. of Am., No. 22-0094 (JRT/DLM), 2023 WL 5311509 (D. Minn. Aug. 17, 2023) (Judge John R. Tunheim). Attorney Ann D. Wessberg brings this action to challenge defendant Unum Life Insurance Company of America’s denial of her long-term disability benefit claim. Ms. Wessberg moved to expand the administrative record, compel discovery, and amend the scheduling order. Her motions were assigned to Magistrate Judge Leo I. Brisbois. Judge Brisbois denied the motions, concluding that special circumstances did not warrant expanding the record or opening up discovery. Specifically, Judge Brisbois felt that Ms. Wessberg was “improperly attempting to present ‘better evidence’ than she did during the claim administration.” Ms. Wessberg appealed the Magistrate’s order denying her motions. In this decision the court held that there was no clear error with the Magistrate’s conclusion that Ms. Wessberg could not show good cause to justify expanding the administrative record. The court agreed with Judge Brisbois that the evidence and medical records Ms. Wessberg sought to include in the administrative record were available to her during the administrative claims review process, and that there was no reason why she could not have included them at the time. Accordingly, the court denied Ms. Wessberg’s appeal and affirmed the order of the Magistrate.

ERISA Preemption

Tenth Circuit

Crawford v. The Guard. State Bank & Tr. Co., No. 2:22-CV-02542-JAR-GEB, 2023 WL 5222496 (D. Kan. Aug. 15, 2023) (Judge Julie A. Robinson). Plaintiff David Crawford worked for The Guaranty State Bank & Trust Company for 30 years from 1990 until his resignation with the bank in 2020. His career progressed from agricultural loan officer to senior vice president, with the majority of his work throughout his career dealing with cattle financing. Mr. Crawford though was not a model employee. Over the years, Mr. Crawford was embroiled in several escalating incidents involving personal side deals with borrowers and problematic loans he issued which involved at different points missing, dead, and even non-existent livestock. The search for some of these missing or stollen bovines eventually lead to an investigation headed by the Kansas Bureau of Investigations (“KBI”). That KBI investigation would not wrap-up until over a year after Mr. Crawford had resigned from his position. After receiving and reading the report, the bank determined that Mr. Crawford was ineligible for benefits under an ERISA-governed executive salary continuation plan. It pointed to plan language which provides that executives fired “for cause” shall forfeit all provided benefits. Following the termination of his benefits, Mr. Crawford brought this lawsuit under ERISA to recover them under Section 502(a)(1)(B). The defendants responded by asserting five counterclaims against Mr. Crawford for recoupment for fraudulent misrepresentation and omission, recoupment for conversion, recoupment for breach of fiduciary duty, recoupment for breach of the duty of good faith and fair dealing, and recoupment for negligence. Mr. Crawford moved to dismiss the counterclaims for failure to state a claim or in the alternative to stay consideration of the counterclaims pending resolution of an overlapping state court proceeding. The court addressed the motion to dismiss first. Mr. Crawford asserted that the state law counterclaims are preempted under both complete and conflict preemption. The court disagreed. Regarding complete preemption, it found that defendants’ counterclaims did not constitute an action for equitable relief and that they therefore could not have brought them under ERISA Section 502(a). With regard to conflict preemption, the court found that Kansas’s common law doctrine of recoupment was distinct from ERISA, as it applies to all contract disputes and does not have any impermissible connection with ERISA plans. “[I]n fact, the Court sees no specific connection between the common law doctrine of recoupment and an ERISA plan.” Accordingly, the court concluded that defendants’ counterclaims were not preempted by ERISA, and thus denied the motion to dismiss them. The court then turned to Mr. Crawford’s alternative motion to stay the proceedings of the counterclaims pending resolution of the similar state court civil action. As an initial matter, the court disagreed with Mr. Crawford that the two lawsuits were parallel. While some of the parties are the same, and so are some of the issues, the court pointed out that the overlapping issues have to do with defendants’ counterclaims, not plaintiff’s ERISA claims against defendants. “Therefore, what Plaintiff is requesting amounts to a partial stay; yet Plaintiff has not cited, and the Court has not found, ‘any authority that a federal district court can partially dismiss or stay a case under Colorado River, and it is not clear that Colorado River applies when only part of the case is parallel to a state court action.” For this reason, the court denied the novel request to stay part of the action pending the outcome of the state court case. Consequently, both of Mr. Crawford’s motions were denied.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Wicks v. Metro. Life Ins. Co., No. 4:21-CV-1275-O, 2023 WL 5216493 (N.D. Tex. Aug. 14, 2023) (Judge Reed O’Connor). Decedent Jackie Wicks underwent surgery on June 24, 2021, to treat morbid obesity. He died the next morning. The circumstances and causes of Mr. Wicks’ death are not entirely clear. However, his death seems to have been caused, at least in part, by a negative reaction to the opioid medications he was given in the hospital post-operation. Fonda Wicks, his widow and the plaintiff in this Accidental Death & Dismemberment (“AD&D”) action, viewed her husband’s death as a tragic accident, and therefore believes she is entitled to benefits under his AD&D plan. The policy does not define the term accident. However, her claim for benefits was denied by defendant Metropolitan Life Insurance Company (“MetLife”) pursuant to both the plan’s sole-cause clause, as well as its illness/treatment exclusion, which excludes coverage for deaths caused or contributed by a pre-existing physical or mental illness. In this decision the court issued its judgement under de novo review of the administrative record and affirmed the denial. The court concluded that Fifth Circuit precedent on the topic makes clear that Mr. Wick’s death “resulted from underlying illness, not accident, because it ‘occurred from the standard complications of standard medical treatment for a disease.’” Specifically, the court found that Mr. Wick died from the combined effects of surgery and post-surgery medication complications to treat morbid obesity. Furthermore, the court agreed with MetLife that Ms. Wicks could not prove that the “accident” – here the adverse reaction to the opioid medications – was the sole cause of her husband’s death. Even if she could though, the court maintained that Mr. Wicks’ medication reaction nevertheless falls under the umbrella of standard and proper medical care and the range of standard complication which can result from that care. Thus, the court found that Mr. Wicks died as a result of his obesity, and that his death therefore was not the result of an “accidental injury, independent other causes.” As a result, MetLife’s denial of benefits was affirmed.

Medical Benefit Claims

First Circuit

Turner v. Liberty Mut. Ret. Benefit Plan, No. 20-11530-FDS, 2023 WL 5179194 (D. Mass. Aug. 11, 2023) (Judge F. Dennis Saylor IV). Plaintiff Thomas Turner sued the Liberty Mutual Retirement Benefit Plan, the Liberty Mutual Medical Plan, the Liberty Mutual Retirement Benefit Plan Retirement Board, Liberty Mutual Group, Inc., and Liberty Mutual Insurance Company under ERISA for benefits, equitable relief, failure to provide a full and fair review, and failure to disclose plan limitations in connection with his cost-share obligations for post-retirement medical benefits, which he believed were incorrectly calculated. Defendants previously moved for summary judgment on the benefits claim under Section 502(a)(1)(B). The court granted that motion. It concluded that the medical benefit was not a vested benefit and agreed with defendants that the unambiguous terms of the governing summary plan description “state that the plan does not provide cost-sharing credit for his years working with Safeco Insurance Company, a company acquired by Liberty Mutual.” Defendants subsequently moved for summary judgment on the remaining claims. In this decision the court granted in part and denied in part their summary judgment motion. In particular, the court found that a genuine issue of material fact exists with regard to whether Liberty Mutual and its representatives repeatedly misled Mr. Turner about whether his plan provided for a cost-sharing credit for his years working at Safeco pre-merger, and whether he reasonably relied on these misrepresentations to his detriment, including by turning down opportunities to work with other employers. The court expressed that the Supreme Court decisions in “Varity and Amara stand for the principle that plan administrators have a fiduciary duty not to mislead beneficiaries about plan benefits, and that at least in some circumstances, such misrepresentation can be remedied by equitable relief under § 502(a)(3), including through reformation and surcharge.” Thus, the court concluded that Mr. Turner may possibly succeed on this claim and that discovery needs to take place as to the specifics of the alleged misrepresentations and their context before the equitable relief claim can be resolved on summary judgment. Moreover, the court found that this claim was not duplicative of Mr. Turner’s claim for denial of benefits and that he was thus not relitigating the same benefits dispute already resolved in defendants’ favor. Accordingly, the court denied defendants’ motion as to the claim under Section 502(a)(3). However, defendants were granted summary judgment on both the full and fair review claim and the failure to disclose plan limitations claim, as the court concluded that these claims were foreclosed by its findings as to the benefit claim. Regarding the Section 503 full and fair review claim, the court held that the appropriate relief should Mr. Turner succeed – remand – is unavailable here. Therefore, even if the court found that procedural requirements were violated, given the unambiguous plan language which cuts against Mr. Turner, the court stressed that remand would be futile and is thus inappropriate given the circumstances. And as for the allegation that the summary plan descriptions failed to adequately disclose how the prior service with Safeco would be used to calculate benefits, the court found that an average plan participant would have been able to understand the SPD’s unambiguous language barring Safeco employees from receiving cost-sharing credit for their years of service prior to the merger. Therefore, the court found that Mr. Turner could not prevail on his failure to disclose limitations claim. For these reasons, defendants were granted in part and denied in part summary judgment as described above.

Fifth Circuit

Specialists Hosp. Shreveport v. Harper, No. 21-1748, 2023 WL 5309906 (W.D. La. Aug. 15, 2023) (Judge Elizabeth Erny Foote). In 2020, Tammy Harper took a leave of absence from her employment. She opted to continue her healthcare coverage during this time. Ms. Harper was informed of the requirements for continued coverage under COBRA. Principally, she needed to make contribution payments by the 15th day of each month in order to maintain coverage. At first, she did so, paying her first two premiums in a timely manner. After that though she stopped making her healthcare payments, and Blue Cross ultimately ended her coverage. On March 4, 2020, Ms. Harper’s husband underwent lumbar surgery that was previously scheduled and pre-approved by Blue Cross. By this time, however, the family’s COBRA coverage had lapsed, and they were ultimately left on the hook for the $140,273.92 in unpaid costs related to the surgery. In this action, the provider has sued Mr. Harper to recoup that payment. In turn, Mr. Harper brought an ERISA claim against Blue Cross alleging that it breached the terms of the plan by refusing to pay the expenses arising from the surgery. Blue Cross moved for summary judgment. It presented two arguments why the court should grant its motion. First, Blue Cross argued that it was not designated authority to determine eligibility or coverage under the plan and that it is therefore an improper party for a benefits claim. The court disagreed. Not only do the plan documents clearly list Blue Cross as the plan administrator, but the court also found that its actions preapproving the surgery, and then issuing the denial letters constituted the fiduciary actions of an entity with decision-making authority. Thus, the court proceeded to assess the merits to Blue Cross’s second argument – that the Harper family’s coverage was properly terminated. This time, the court agreed with Blue Cross. At bottom, the plan’s terms clearly required the Harpers to pay their premiums by the fifteenth day of every month in order to maintain coverage. Because they did not do so, the termination of their coverage was determined by the court not to be an abuse of discretion. Accordingly, the court granted Blue Cross’s motion and dismissed Mr. Harper’s claims against it with prejudice.

Tenth Circuit

David P. v. United Healthcare Ins. Co., No. 21-4129, __ F. 4th __, 2023 WL 5209748 (10th Cir. Aug. 15, 2023) (Before Circuit Judges Carson, Baldock, and Ebel). A father and daughter, plaintiffs David P. and L.P., commenced this ERISA medical benefits action seeking reimbursement of costs incurred during L.P.’s year-long mental health and substance abuse treatment, which she received at two residential treatment centers. Plaintiffs sued the plan’s administrator, defendant Morgan Stanley, and its claims administrator, defendants United Healthcare Insurance Company and United Behavioral Health, under ERISA Section 502(a)(1)(B). Plaintiffs challenged both the substance and the sufficiency of the denials they received for L.P.’s treatment. And in the district court they found success. The court awarded plaintiffs summary judgment, benefits, and attorneys’ fees. It concluded that defendants’ claims processing fell short of ERISA’s “meaningful dialogue” mandate. As a result, the district court held that defendants had not provided plaintiffs will a full and fair review of their claims and that defendants therefore abused their discretion. Defendants challenged the district court’s decisions in this appeal to the Tenth Circuit. The appeals court affirmed the lower court’s ruling that defendants violated ERISA by circumventing the dialogue required between plan participants and the administrators processing their claims for benefits. The Tenth Circuit concurred that United Behavioral Health provided shifting and inconsistent bases for its denial rationales, and that these  rationales were also often inaccurate and easily refuted by the medical records. Moreover, the denial letters had statements that both the district court and the Tenth Circuit found “were conclusory and failed to refer to any of L.P.’s treatment records.” Three specific concerns both courts had with the denials were (1) their failure to address whether L.P.’s treatment for substance abuse provided an independent ground for coverage; (2) their failure to engage with the opinions of the treating providers who believed L.P. required care in a residential treatment center; and (3) the letters’ failure to fully explain why L.P.’s care was not medically necessary. The court of appeals stated plainly that defendants could not deprive claimants of a meaningful dialogue simply by having secret back-up reasons and internal notes as extra-justifications at the ready in case of litigation. “If [United Behavioral Health] thought Summit did not qualify as a [residential treatment center] it could have explained that to Plaintiffs. If [it] disagreed with the treatment recommendations made by L.P.’s treating health care providers, it could have said so and explained why. [United Behavioral Health] instead, abused its discretion by denying Plaintiffs the meaningful dialogue ERISA mandates.” The appellate court also specified that although an external reviewer also came to the same conclusion that the residential care was not medically necessary here, that external review could not cure the insufficiencies of the deficient claims handling, and that the external review therefore did not preclude reversing the denial of benefits. At this point in the decision, the Tenth Circuit and the district court’s paths diverged. Despite agreeing that reversing the denials was appropriate, the court of appeals determined that the district court had erred by awarding benefits outright. United Behavioral Health’s failure to adequately explain the grounds for its denials and its failure to make adequate factual findings were circumstances the Tenth Circuit held warranted remand rather than an award of benefits. The court went on to say that remand was appropriate because the record did not clearly show that father and daughter are entitled to their claimed benefits. Nevertheless, the court of appeals strongly warned defendants that “remand, however, does not ‘provide the plan administrator the opportunity to reevaluate a claim based on a rationale not raised in the administrative record,’…and not previously conveyed to Plaintiffs.” Finally, the Tenth Circuit reversed the district court’s award of attorneys’ fees in light of its ruling that defendants should have the claim remained to them for further consideration. The fee issue was thus remanded to the district court for reconsideration after defendants finished their fresh consideration of the benefits claim. At that time, the Tenth Circuit stated that the district court may redecide whether and in what amount to award plaintiffs’ counsel fees and costs. Overall, this decision from the Tenth Circuit has affirmed its conviction of late that one-sided conversations and soliloquies do not a dialogue make.

Pension Benefit Claims

Third Circuit

Miller v. Campbell Soup Co. Ret. & Pension Plan Admin. Comm., No. 1:19-cv-11397 (RBK/EAP), 2023 WL 5287816 (D.N.J. Aug. 17, 2023) (Judge Robert B. Kugler). During her tenure working at Campbell Soup Company, plaintiff Sherry L. Miller saw her retirement plan transform from a traditional defined-benefit plan into a cash balance plan. Ms. Miller’s employment with Campbell initially ended in the year 2000. This constituted her “first termination” for the purposes of benefits calculations under the retirement plan. “At that point in time, Plaintiff’s retirement benefits had been calculated under the traditional pension formula, and her retirement benefits under that formula froze at 15.333 years, which included her employment through August 12, 2000, as well as her severance period through February 16, 2001.” Shortly after leaving the company, Ms. Miller returned. In June of 2001, she was rehired by Campbell. This is where the dispute between the parties begins. At the time of the rehire, Campbell maintains that it had a policy in effect to bridge prior service for rehired employees for the purposes of calculating their retirement benefits. Under this policy, Ms. Miller’s retirement benefits continued to accrue from the date of her rehire under the new cash balance formula, rather than under the traditional pension formula it had previously been calculated under. Ms. Miller did not believe that this was correct. She felt that under the bridging policy she was entitled to 28.6 years of benefit service pursuant to the traditional pension formula. The question when Ms. Miller first brought this lawsuit in 2022 was whether Campbell used the correct formula to calculate Ms. Miller’s benefits by the time she retired anew in the fall of 2015 under Campbell’s Voluntary Separation Incentive Program. The answer, according to the court, was yes, and it dismissed Ms. Miller’s Section 502(a)(1)(B) claim on April 12, 2022, finding that she was not entitled to further benefits under the express terms of the plans. Nevertheless, Ms. Miller continued her ERISA action under claims of breach of fiduciary duty and equitable estoppel. Parties since filed cross-motions for summary judgment on those remaining claims. Here, the court granted defendant’s motion and denied Ms. Miller’s. It concluded that the release Ms. Miller signed as part of the voluntary separation program barred her remaining claims. “Plaintiff’s claims are premised on her detrimental reliance on Campbell’s misrepresentations of her pension plan benefits. Because the terms of the Release unambiguously waive misrepresentation, estoppel, and ERISA claims, Plaintiff’s claims are ‘foreclosed by the plain language of the contract,’ and Defendant is entitled to judgment as a matter of law.” Accordingly, Ms. Miller’s lawsuit anticlimactically resolved in favor of Campbell.

Provider Claims

Third Circuit

Metro. Neurosurgery on Assignment of Naazish S. v. Aetna Ins. Co., No. 22-0083 (JXN)(MAH), 2023 WL 5274611 (D.N.J. Aug. 16, 2023) (Judge Julien Xavier Neals). On December 4, 2019, patient Naazish S. was admitted to an emergency room and subsequently underwent emergency spinal surgeries, which were performed by plaintiff Metropolitan Neurosurgery Associates. At the time, Naazish was a participant in an ERISA-governed healthcare plan funded by his employer, defendant Deloitte LLP, and administered by defendant Aetna Life Insurance Company. Plaintiff was an out-of-network healthcare provider. It submitted a claim for reimbursement of the care. Eventually, the plan paid for the emergency surgical procedures, but only in the amount of $4,068.70, which represented a tiny fraction of the $138,192.00 billed by the provider. Metro. Neurosurgery filed this ERISA benefit action in response, to challenge that payment amount. Defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Their motion was granted by the court in this decision. It found that plaintiff failed to tie its claim to a plan provision showing it is entitled to the amount it seeks in this action. The court wrote that the complaint lacked details necessary to set forth an ERISA claim as it “does not point to any Plan provision from which the Court can infer that Plaintiff was entitled to the amount of reimbursement demanded for the out-of-network emergency medical services provided to the Patient.” Moreover, the court stated that the complaint failed to adequately allege that the billed amount constituted a “reasonable charge” as that term is defined by the plan. Accordingly, the court dismissed the benefit claim. Dismissal was without prejudice. Finally, because the court dismissed the complaint for failure to state a claim, it declined to address the merits of defendants’ exhaustion arguments. However, the court informed the parties that should plaintiff file an amended complaint, defendants would be free to raise the issue of administrative exhaustion anew.

Severance Benefit Claims

Fifth Circuit

Lu v. Anadarko Petroleum Corp. Welfare Benefits Admin. Comm., No. H-22-709, 2023 WL 5254682 (S.D. Tex. Aug. 15, 2023) (Judge Lee H. Rosenthal). Data scientist, plaintiff Ping Lu started working at Anadarko Petroleum Corporation in 2017. Two years later, another company, Occidental Petroleum Corporation acquired Anadarko. Should such an acquisition occur, Anadarko had put in place a Change of Control Severance Plan, which would allow employees to resign for “good reason” and receive severance benefits. On November 1, 2019, Mr. Lu did just that, and completed his form claiming good reason on the basis of a material and adverse diminishment in his duties following the acquisition. His claim for benefits was denied, which ultimately led to this ERISA lawsuit. Parties have now filed competing motions for judgment in their favor. In this order the court granted judgment in favor of defendants. To begin, the court concluded that summary judgment under Rule 56, rather than judgment under Rule 52, is the more appropriate mechanism to apply to its review here to resolve the dispute. It reached this decision because “the plan itself extends broad discretion to the Committee and limits the court’s review,” and Rule 52 requires the court to issues its own findings of fact which would be different from those already issued by the committee. Therefore, the court concluded that its limited review would be more appropriately handled under Rule 56 summary judgment. The court then segued to its analysis of the denial under abuse of discretion review. Mr. Lu argued that the committed did not give the plan uniform construction as every other data scientist was approved severance benefits, while his claim was denied. In response, defendants maintained that these individuals had different circumstances, and their roles did experience diminished responsibilities entitling them to benefits, unlike Mr. Lu. “The Committee’s factual findings are entitled to deference, and nothing in the administrative record indicates that the Committee abused its discretion in finding that Berestovsky, Bayeh, and Cao’s circumstances different than Lu’s circumstances.” Therefore, the court did not find Mr. Lu’s uniform construction argument grounds for reversal. His procedural fairness argument fared no better. There, the court held that the committee gave Mr. Lu a full and fair hearing, thoroughly considered his claim, and complied with ERISA’s procedural requirements. Finally, the court upheld the merits decision itself. The court found that “the record shows that Lu simply disliked that his work environment had changed, not that he was negatively impacted.” In fact, the court was persuaded by defendants that there was ample work for Mr. Lu following the acquisition and that his responsibilities, if anything, were set to increase beyond those under Anadarko. Based on the forgoing, defendants’ decision was upheld, and judgment was entered in their favor.

Withdrawal Liability & Unpaid Contributions

Ninth Circuit

Unite Here Ret. Fund v. City of San Jose, No. 5:20-cv-06069-EJD, 2023 WL 5181633 (N.D. Cal. Aug. 11, 2023) (Judge Edward J. Davila). From 2003 to 2019, the City of San Jose owned a hotel and conference center known as the Hayes Mansion. To manage and operate the mansion, the City contracted with a company called Dolce International. The scope of Dolce’s role and the duties it was required to carry out on the City’s behalf were outlined in a Managed Agreement that was signed and executed in 2003. Pertinent here, the agreement discussed Dolce International’s role with regards to labor unions and their ERISA-governed plans, including by requiring the company pay pension contributions, negotiate for the best interest of the City with labor unions, and comply with all provisions and obligations under collective bargaining agreements. Throughout this period when Dolce International managed the facility, many of the employees working at the mansion were unionized and were subject to collective bargaining agreements between their local union and Dolce. Things came to a head in 2019 when the City decided to sell Hayes Mansion. The obligation to contribute to the multiemployer pension plan was terminated, and a withdrawal liability was triggered. A question then arose– who is the employer bound under the collective bargaining agreement and therefore responsible for paying the liability – the City, Dolce International, or both? The Fund commenced this withdrawal liability MPPAA action to get the court’s answer, and its liability payment. Each party filed its own separate cross-motion for summary judgment. The City moved for summary judgement that Dolce International is the employer responsible for paying the withdrawal liability. Dolce International moved for summary judgment that it is not responsible for paying. The Fund moved for judgment that Dolce International is responsible, or, in the alternative, that the City is responsible. To resolve the dispute, the court took a deep dive into the agency relationship between the City and Dolce. To begin, the court found that an agent can obligate its principal to a collective bargaining agreement under ERISA, such that the principal is responsible for any withdrawal liability. Having concluded that the City could be bound by an agent, the court looked to whether Dolce International in fact qualified as the City’s agent. In the end the court was satisfied that the managed agreement between the parties created an agency agreement, as it expressly outlined how Dolce International was to act on behalf of the City of San Jose. Furthermore, the scope of the agreement was such that the court was convinced signing the agreement on behalf of the City was within the authority granted to Dolce. Accordingly, the court found there was no genuine dispute that the City is an employer responsible for the withdrawal liability in this case. Nevertheless, the court stated that it could not resolve on summary judgment the issue of whether Dolce International was also an employer, at least not with the factual record currently developed. Whether Dolce International is jointly responsible for the liability “turns on the issue of disclose,” and it remains unclear whether Dolce ever informed the union that the City was the principal with regard to the collective bargaining agreements. Thus, the court did not grant summary judgment either for or against Dolce International, and the action will proceed to resolve this open issue. However, the court did grant summary judgment to the Fund on its claim against the City. The City’s motion for summary judgment for denied.

Chavez v. Plan Benefit Servs., No. 22-50368, __ F. 4th __, 2023 WL 5160393 (5th Cir. Aug. 11, 2023) (Before Circuit Judges Wiener, Stewart, and Engelhardt)

Judicial decisions in ERISA cases usually do not have repercussions in the larger legal world, but this case presents a potential exception. The issue addressed by the Fifth Circuit here was the interplay between standing and class certification rules.

A plaintiff seeking class certification often wishes to represent other class members who may have suffered similar, but not identical, harms. When evaluating this issue, should a court decide whether the plaintiff has standing to assert claims relating to those other class members at the outset? Or should it decide this issue at the class certification stage in addressing the scope of the proposed class?

The plaintiffs here were employees of the Training, Rehabilitation & Development Institute, Inc. (TRDI). TRDI contracted with the defendants, collectively known as Fringe Benefit Group (FBG), for various services connected with its employees’ benefits.

Under TRDI’s arrangement with FBG, TRDI disbursed benefits to its employees through two trusts, one which covered retirement benefits (the Contractors and Employee Retirement Trust, or CERT), and one which covered health and welfare benefits (the Contractors Plan Trust, or CPT). FBG managed the trusts and had the power to enter into contracts imposing fees and charges on the trusts and plans it administered. The plaintiffs each had accounts into which TRDI paid contributions, out of which FBG retained a percentage for administration services.

In their complaint, the plaintiffs alleged that these fees were unreasonably high and that FBG mismanaged TRDI’s plan, as well as other benefit plans covered by the CERT and CPT trusts, in violation of ERISA.

The plaintiffs filed a motion for class certification, which presented a problem for the district court. In order to grant the motion, the district court had to find that the plaintiffs had “standing to sue FBG on behalf of unnamed class members from different contribution plans.” The district court ultimately ruled that the plaintiffs had both constitutional and statutory standing to sue.

The Fifth Circuit reversed, concluding that the district court’s class action analysis was not sufficiently rigorous. On remand, the district court certified two classes which were tailored more narrowly than before, but still represented participants from different plans. FBG appealed once again, maintaining its argument that the plaintiffs lacked standing to bring their claims.

In this decision, the Fifth Circuit opened by noting that there was a circuit split over how courts should analyze standing issues in class actions. If a class representative wants to litigate over harms that other class members suffered but were not identical to the ones the representative suffered, when should courts address the “disjuncture between the harm that the plaintiff suffered and the relief that she seeks”?

Some courts have simply ruled that plaintiffs have standing as to their own individual claims and then addressed the disjuncture during the class certification stage. Other courts have addressed the disjuncture at the pleading stage, deciding whether the plaintiffs have standing to pursue the claims of others. The Fifth Circuit called the first approach the “class certification approach” and the second the “standing approach.”

Ultimately, the Fifth Circuit dodged the issue of which approach was correct. Instead, it used both approaches in addressing the facts of the case, and ruled that the plaintiffs could proceed under either.

Under the “class certification approach,” the Fifth Circuit ruled that plaintiffs easily cleared the standing bar. The court found that the plaintiffs had demonstrated injury in fact by alleging that “FBG abused its authority under the Master Trust Agreement by hiring itself to perform services paid with funds from the CERT and CPT trusts, effectively devaluing the trusts and retirement benefits that Plaintiffs otherwise would have accrued with their employer.” They also established that their injury was traceable to FBG’s conduct because FBG had direct control over the trusts and the agreement with their employer. Also, their injury would be redressable by an award of monetary damages or other relief.

Under the “standing approach,” the Fifth Circuit also found that the plaintiffs could proceed. The court found that the plaintiffs “have undeniably suffered the same kind of loss as the unnamed class members because of FBG’s alleged misconduct,” and thus the “set of concerns here are identical between Plaintiffs and the unnamed class members: the return of trust funds that each plaintiff would otherwise have been entitled to if FBG had not violated ERISA.” In other words, the plaintiffs and the proposed class “have the same interest and suffer[ed] the same injury.” The court found that even if the other class members had different agreements with different employers, the harm was the same because it “occurred directly from FBG’s misconduct pertaining to the trusts that it required participation in[.]”

Having concluded that the plaintiffs had standing, the Fifth Circuit then turned to the district court’s class certification order. FBG did not challenge whether the plaintiffs could adequately represent the class under Federal Rule of Civil Procedure 23(a), but did challenge the district court’s certification under Rules 23(b)(1) and (b)(3).

Under Rule 23(b)(1), FBG argued that the proposed class “involves vastly different plans and fees” and that an accounting for the plaintiffs’ claims would not be dispositive of the claims of other plan members. The Fifth Circuit disagreed, noting that FBG’s pricing scheme was either “uniform or amenable to a pricing grid,” and that the plaintiffs were seeking not only monetary relief, but also equitable remedies, which “undoubtedly involves the entire class – or any other members of the CERT and CPT trusts[.]”

Under Rule 23(b)(3), the Fifth Circuit agreed with the district court that there were “common questions of law and fact as to whether FBG owed fiduciary duties to the Plaintiffs and the other class members by virtue of their role in managing the CERT and CPT trusts.” FBG argued that “individualized issues of fee excessiveness predominate this dispute,” and thus because of the “wide variety of different fees and plans,” the case would turn into “a series of mini-trials” regarding FBG’s fiduciary status as to each plan.

The Fifth Circuit rejected this argument, noting that “each plaintiff would certainly produce that plaintiff’s own contract, which expressly makes FBG a fiduciary by incorporating the Master Trust Agreement.” The court further rejected FBG’s argument that class certification would deprive it of due process rights, noting that the district court acted well within its discretion “by acknowledging Plaintiffs’ plan to establish FBG’s liability using an arithmetic, formulaic method.”

As a result, the second time was the charm, as the Fifth Circuit affirmed the district court’s class certification order in its entirety. In doing so, the court may not have resolved the “disjuncture” between standing and class certification, but it has flagged the issue once again for those seeking to take the issue up to the Supreme Court.

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

Breach of Fiduciary Duty

Third Circuit

Seibert v. Nokia of Am. Corp., No. 21-20478 (ES) (AME), 2023 WL 5035026 (D.N.J. Aug. 8, 2023) (Judge Esther Salas). Seven participants of the Nokia Savings/401(k) Plan bring this putative class action against Nokia of America Corporation, its board of directors, and the 401(k) committee for breaches of their fiduciary duties of prudence and monitoring under ERISA. Specifically, plaintiffs allege that defendants breached their duty of prudence by failing to review the plan’s investment portfolio to ensure that the options were prudent in terms of their expense ratios. Plaintiffs pointed to seventeen funds offered by the plan that had excessive cost and management fees. Additionally, plaintiffs allege that the participants were subjected to excessive recordkeeping and administrative costs. In their complaint, plaintiffs calculated that the per participant fees charged during the relevant period ranged from $76.59 to $116.26. They maintain that similar mega plans with billions of dollars in assets under management and tens of thousands of plan participants charged participants only around $20-30 in fees. Finally, plaintiffs believe that Nokia and the board failed to monitor the other fiduciaries. Defendants moved to dismiss the complaint. In this order, the court granted in part and denied in part the motion to dismiss. It began with the excessive expense ratio claims. The court agreed with defendants that it could not infer that the process to review the investment portfolio was flawed and imprudent because the comparators plaintiffs used did not constitute a meaningful benchmark. “In effect, Plaintiffs have done little more than allege that cheaper alternative investments existed in the marketplace. This is not sufficient to adequately plead a claim for breach of the duty of prudence.” Applying a “context-specific inquiry,” the court stated that more information about the comparator plans’ investment styles, performance, and returns would be necessary in order to infer that cheaper was indeed better. Accordingly, the court dismissed the imprudence and monitoring claims premised on the failure to adequately review the investment portfolio to ensure the investments were prudent in terms of cost. However, these claims were dismissed without prejudice, and plaintiffs were allowed to amend their complaint to address these deficiencies. Next, the court turned to the recordkeeping and administrative fee claims. Unlike the expense ratio claims, the court was satisfied that plaintiffs plausibly alleged that the fees were excessive, astronomical even, particularly when considering plaintiffs’ lack of access to full plan data. Viewing the complaint in the light most favorable to plaintiffs, the court was unwilling to scrutinize plaintiffs’ calculations or determine whether the comparator plans were inappropriately cherry-picked as defendants argued. The court also stated that plaintiffs sufficiently alleged that defendants failed to regularly solicit bids for lower cost administrative services, and while competitive bidding is not required under ERISA, failure to do so is often indicative of imprudence. Thus, defendants’ motion to dismiss the recordkeeping and administrative fee imprudence and monitoring claims was denied.

Fourth Circuit

Reed v. MedStar Health, Inc., No. JKB-20-1984, 2023 WL 5154507 (D. Md. Aug. 9, 2023) (Judge James K. Bredar). Plaintiff Elsa Reed, individually and on behalf of the MedStar Health, Inc. Savings 403(b) Plan and a certified class of participants and beneficiaries of the plan, brings this action against the plan’s fiduciaries for breaches of their duties under ERISA. Ms. Reed claims that the participants of the plan suffered losses as a result of defendants’ imprudent inclusion of a series of challenged target date funds as investment options in the plan, which were risky, performed poorly, and had high fees and costs associated with them and their active management. Several pre-trial motions were before the court here. Defendants moved to strike plaintiff’s jury demand, and also filed motions to exclude the opinions and testimony of plaintiff’s two experts. In addition, plaintiff moved for leave to file a second amended complaint to include additional factual allegations she obtained through the discovery process. In this order the court granted the motion to strike the jury demand, granted in part and denied in part the Daubert motions, and granted the motion for leave to file an amended complaint. The court agreed with defendants and “the overwhelming weight of authority” of the courts nationwide that ERISA breach of fiduciary duty claims like those asserted here are equitable in nature and therefore not within the purview of the Seventh Amendment’s right to a jury trial. As for the expert testimonies, the court denied defendants’ motion to exclude the testimony of plaintiff’s expert Gerald Buetow, whose report concerns the calculation of losses suffered by the plan as a result of the inclusion of the challenged funds. The court found that Mr. Buetow used a reliable method and applied said method to the facts at issue to reach his calculations. Thus, the court denied the motion to exclude Mr. Buetow’s testimony and stated that defendants’ “various challenges to Buetow’s damages calculation methodology are more properly resolved on cross-examination.” However, the court reached a different result with regard to plaintiff’s other expert, Michael Geist. Mr. Geist’s report testified about the reasonable market rates for fees and calculated the plan’s losses incurred as a result of the allegedly excessive fees. The court excluded the portions of Mr. Geist’s report that concerned specific calculations of the losses. It held that Mr. Geist did not cite the necessary “data, scholarly publication, or other source[s]” relied on to make his calculations, instead basing his assessments on his own experience. The court found this assertion of expertise falls short of the necessary standards for expert reports and that it could not adequately review or scrutinize the pricing information relied on. As a consequence, the court found that Mr. Geist’s “specific calculation of losses amounts to no more than conjecture or speculation.” Nevertheless, the court did not exclude Mr. Geist’s opinions as to the standard industry practices for obtaining reasonable fees. Finally, the court concluded that Ms. Reed satisfied the “good cause” standard to grant her motion to amend her complaint beyond the original deadline set forth in the scheduling order, because the information she sought to add only became available to her after the deadline ended during the discovery process. Moreover, the court agreed with plaintiff that these additional facts she seeks to add to her complaint support her existing claims asserted in the action from the beginning regarding the recordkeeping fees. The court disagreed with defendants that granting Ms. Reed’s motion would prejudice them in any material way. Therefore, the court granted the motion to amend and allowed Ms. Reed to add the additional factual allegations she sought to include.

Seventh Circuit

Lysengen v. Argent Tr. Co., No. 20-1177, 2023 WL 5158078 (C.D. Ill. Aug. 10, 2023) (Judge Michael M. Mihm). In this employee stock ownership plan (“ESOP”) litigation, a former employee of Morton Buildings, Incorporated and a participant in its ESOP, as well as an older 401(k) plan that had an ESOP option (“KSOP”), sued Argent Trust Company and the selling shareholders for breaches of fiduciary duties and prohibited transactions under ERISA, asserting that the ESOP overpaid for the stock it purchased. Originally, plaintiff sought to represent a class under Rule 23. However, her motion for certification was denied by the court, which held that there were irreconcilable conflicts between the ESOP participants which made certification of the class impossible. Specifically, the court identified at least three sub-groups with conflicting interests – members of the company’s old KSOP who had protected stock price status, members of the KSOP who did not have protected stock price status, and members of the ESOP who were never members of the KSOP plan. As a result, the court concluded that the proposed class members were not identically situated due to these complicating factors and that their interests were not completely aligned. Accordingly, the court declined to certify the class, and upheld its decision when plaintiff moved for reconsideration. Following the certification ruling, defendants moved for summary judgment. They argued that because plaintiff cannot proceed on a class-wide basis, she also could not proceed in a representative capacity under ERISA Section 502(a)(2). Plaintiff moved for partial summary judgment, seeking a judgment to the contrary – that notwithstanding the court’s decision regarding certification, she may still proceed with her claims for plan-wide relief including seeking a potential judgment to recover losses to the plan, to disgorge profits earned by defendants, and other forms of equitable relief available in a representative capacity. The court heard oral argument on the topic. In this written order it granted plaintiff’s partial summary judgement motion and denied defendants’ competing summary judgment motion. “While the Court recognizes its class certification findings, it is important to note that at this juncture, the Plaintiff is seeking a payment for potential losses to the ESOP as a whole that result from the alleged overpayment of stock. If the Court found in favor of the Plaintiff, the requested relief would maximize the value of the entire ESOP, and therefore, benefit all ESOP participants within the meaning of Section 502(a)(2).” The court expressed that it would not issue any judgment or relief that distinguishes between the ESOP and KSOP participants or their individual interests and injuries. Accordingly, the problems that existed for the purposes of certifying the class were resolved by the court’s decision here to allow the plaintiff to proceed with plan-wide claims in a representative capacity on the issue of whether the stock purchased during the ESOP transaction was purchased for fair market value. To further protect the other plan participants, the court ordered plaintiff to inform the ESOP participants of this litigation and to keep them updated on its progress via a website. Moreover, should the parties reach a settlement, the court noted that it would likely employ additional safeguards to protect the absent plan beneficiaries and their interests.

Su v. Fensler, No. 22-cv-01030, 2023 WL 5152640 (N.D. Ill. Aug. 10, 2023) (Judge Nancy L. Maldonado). Secretary of the United States Department of Labor, Julie A. Su, has sued the trustees and fiduciaries of the United Employee Benefit Fund Trust for breaching their fiduciary duties and using the fund assets in prohibited transactions that were against the interests of the plan and its beneficiaries, causing millions of dollars of losses to the fund. In addition to this lawsuit, several other federal and state actions are pending that relate to the fund’s operations and include the same essential underlying facts and challenged conduct at issue here. The Secretary has moved for a temporary restraining order and preliminary injunction, requesting that the court issue an order removing defendants from their position as trustees and appointing an independent fiduciary to take over the fund’s management during the pendency of this lawsuit. Ms. Su alleges that the assets in the fund are dwindling at an alarming rate, and that irreparable harm will result absent this relief. Specifically, she contends that the fund’s assets have reduced from $22 million in 2018, when she first became aware of the conduct at issue here, to approximately $6 million today. She argues there is a substantial risk that the fund’s money will be drained completely if no intervention is taken, as defendants are using the assets as their own piggy-bank to cover the costs of litigating the aforementioned actions against them. The court agreed with the Secretary that simple math supports her “well-founded” position that there is a high risk the fund’s assets will be depleted if defendants retain control over the plan in the interim. The court stated that it “agrees with the Secretary that, at a minimum, the Trustee Defendants’ conduct suggest they are prioritizing the Fund’s payment of substantial legal and administrative fees, which, given the precarious nature of the Fund’s assets, creates a risk of irreparable harm to the Fund’s participants.” Not only did the court agree that a risk of irreparable harm exists, it also found that because the Secretary is only seeking equitable relief, no traditional legal remedy exists that would be adequate in place of issuing the requested injunction. Additionally, the court was satisfied that Ms. Su meets the “low threshold” necessary to demonstrate a likelihood of success on the merits of her action. Finally, the court concluded that the issuance of an injunction appointing an independent fiduciary would serve both the public interest and the congressional goals of ERISA. For the foregoing reasons, the Secretary’s motions were granted by the court.

Eighth Circuit

Fitzpatrick v. Neb. Methodist Health Sys., No. 8:23CV27, 2023 WL 5105362 (D. Neb. Aug. 9, 2023) (Judge Robert F. Rossiter, Jr.). Former employees of Nebraska Methodist Health System, Inc. have sued the fiduciaries of Nebraska Health’s ERISA-governed defined contribution retirement plan for breaches of their fiduciary duties of prudence and monitoring. Plaintiffs allege that defendants failed to engage in an appropriate process managing the plan because they selected imprudent, underperforming investment options and failed to replace these options over time despite their continued underperformance. Because of these improper investment options, plaintiffs maintain that they suffered millions of dollars in losses in their retirement savings. Defendants moved to dismiss for lack of standing and for failure to state a claim. The court began by addressing Article III standing first. It agreed with plaintiffs that they alleged sufficient injuries to their own plans to assert plan-wide claims even with respect to funds they did not personally invest in. The court concluded that the Supreme Court’s decision in Thole v. U.S. Bank N.A. was distinguishable from the facts here because this plan is a defined contribution rather than a defined benefit plan and this “present challenge is more akin to the trust-based theory of standing discussed in Thole, rather than the defined-benefit plan actually decided.” However, the court did identify an issue with plaintiffs’ standing regarding prospective injunctive relief. As plaintiffs are former plan participants, the court concluded that they lack standing to pursue injunctive relief as any injunctive relief would not affect them. With the standing issues addressed, the court moved on to the merits and sufficiency of plaintiffs’ breach of fiduciary duty claims. Despite rejecting “the defendants’ bright-line rule that allegations of underperformance alone cannot state a claim,” the court agreed with defendants that plaintiffs needed to provide meaningful benchmarks for the alleged underperformance in order to state colorable claims. The court found that plaintiffs had not done so here. Instead, it found plaintiffs’ comparable Morningstar and S&P Indexes to be insufficient benchmarks as the complaint did not specify what the asset allocations, investment strategies, or risk profiles were for each of the funds it used to compare. Without such details, the court stated that plaintiffs’ allegations of imprudence, while possible, were not plausible. Accordingly, the court granted the motion to dismiss the imprudence claims, as well as the wholly derivative monitoring claims and did so with prejudice.

Discovery

Second Circuit

Berkelhammer v. Voya Institutional Plan Servs., No. 3:22-mc-00099-MEG, 2023 WL 5042526 (D. Conn. Aug. 8, 2023) (Magistrate Judge Maria E. Garcia). A class of participants and beneficiaries of a 401(k) plan have sued the plan’s sponsor, Automatic Data Processing, Inc., and several related entities for breaches of their fiduciary duties under ERISA. Automatic Data Processing hired Voya Retirement Advisors, LLC to provide services to the plan. Those parties entered into an Advisory and Data Services Agreement. Plaintiffs moved to compel Voya Retirement Advisors to produce this agreement and all documents describing the payments it made to a subcontractor that it hired as a subadvisor for the plan’s managed accounts. Voya opposed producing these documents. Plaintiffs argued that these documents were relevant to their claims and that they are not shielded by trade secret protections. The court disagreed on both counts. It found that these subcontracting documents and the agreement itself are removed and irrelevant to plaintiffs’ claims against the plan. “[T]he relevant comparative information to Plaintiffs is what [Voya Retirement Advisors] charged the Plan relative to the market, relative to its competitors.” The court also found that the documents are confidential and proprietary in nature as they describe sensitive financial terms. “In light of the confidential nature of the documents and what can be considered most favorably to Plaintiffs as marginal relevance, almost any burden is undue. The burden of producing the irrelevant, confidential information at issue certainly is,” the court held. Thus, the court concluded that the requested documents were not discoverable and therefore denied the motion to compel their production.

ERISA Preemption

Fourth Circuit

C Evans Consulting LLC v. Sortino Fin., No. GLR-21-2493, 2023 WL 5103725 (D. Md. Aug. 8, 2023) (Judge George L. Russell, III). Plaintiffs Cecelia Evans Laray and her company C Evans Consulting LLC have sued a series of related financial services institutions as well as several individuals employed at those firms for negligence, unjust enrichment, and declaratory judgment. Plaintiffs allege in the operative complaint that defendants recommended and sold an inappropriate 412(e)(3) ERISA plan to them without disclosing relevant information. They claim that this misleading sales pitch left them in financial strain leaving them unable to properly fund the plan in order to terminate it, which has caused problems with the IRS. Plaintiffs further allege that defendants benefitted greatly financially by selling them the plan under false pretenses. Plaintiffs seek hundreds of thousands of dollars in compensatory damages and for defendants to disgorge all fees and commissions they earned in relation to the plan. Defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Defendants argued that the complaint must be dismissed because the state law causes of action are preempted by ERISA. The court agreed. It concluded that plaintiffs have standing to sue under ERISA, that their claims could have been brought as equitable relief claims under Section 502(a)(3), and that the state law claims are not capable of resolution without interpreting the ERISA plan. “Despite Plaintiffs’ contention that their claims do not relate to the administration of the Plan, but rather to the marketing and sale of the Plan before it was implemented, the [complaint] still includes allegations regarding the Plan’s specific deficiencies and how those deficiencies have caused Plaintiffs substantial monetary harm. There is no way for a court to resolve whether Plaintiffs are correct about the Plan’s alleged deficiencies – or whether the Plan’s issues were prompted by or resulted in negligence or unjust enrichment – without interpreting the Plan.” Accordingly, the court concluded that ERISA preempts the claims because they challenge the administration of the ERISA-governed plan. Thus, the court granted the motions to dismiss.

Ninth Circuit

Cal. Spine & Neurosurgery Inst. v. Fresenius U.S., Inc., No. 21-cv-03107-EMC, 2023 WL 5021782 (N.D. Cal. Aug. 7, 2023) (Judge Edward M. Chen). Before performing complex spinal surgery on an insured patient, plaintiff California Spine and Neurosurgery Institute sought pre-approval of the surgery and coverage from the Fresenius Medical Care Holdings, Inc. ERISA-governed healthcare plan, and its administrator, United Healthcare. On a phone call between a United representative and a staff member at the surgery center, United promised that it would pay for the medically necessary surgery at the usual and customary reimbursement rate, the rate for the customary charges for similar services in the geographic area. Given this preapproval and payment promise, California Spine went ahead and performed the surgery. It then billed the plan what it believes is the usual and customary rate for this type of complex spinal surgery –  $83,000. The plan ultimately paid plaintiff only $7,320.44 for the treatment. California Spine maintains that this amount is far below average rates for this medical service in the geographic area and therefore holds that the payment is a violation of the plan’s promise to pay it the usual and customary rates for its services. As a result, California Spine sued Fresenius Medical for promissory estoppel to recover damages for the underpayment. Defendant moved for judgment on the pleadings, contending that the promissory estoppel claim is preempted by ERISA. In this decision the court denied defendant’s motion and laid out why it believes the claim is based on an independent legal duty and thus not preempted. “Whether a claim is premised on an ERISA plan turns on whether the source of the plaintiff’s claim is predicated on the ERISA plan. In other words, the inquiry is whether the defendant’s alleged obligation – as asserted by the plaintiff – is (1) based on the ERISA plan or (2) based on some legal duty independent of the plan.” Here, the court found the source of the legal duty to be the administrator’s promise, not the plan itself. The fact that the plan states that it allows for usual and customary payments for out-of-network providers did not change this calculation. The court reasoned that the term “usual and customary rates” is widely used in the healthcare and insurance industry and that someone could therefore make a compelling argument that the use of this term does not in and of itself incorporate the terms of the plan. However, even assuming the promising of payment at the usual and customary rate did incorporate the plan terms, the court found that this connection to the plan was too tenuous to invoke ERISA preemption because it would necessitate nothing more than a cursory examination of the plan. The court expressed caution at applying ERISA’s broad preemption powers to cases like this for fear of creating a Catch-22 situation where providers have no way of challenging underpayments or denials when they lack standing to bring ERISA claims and their state law claims are preempted by ERISA. The court stated that its approach is “consistent with ERISA’s goals of protecting plan participants” and encouraging doctors to provide care to patients. Accordingly, the court allowed the provider’s promissory estoppel claim to proceed and denied defendant’s motion for judgment on the pleadings.

Life Insurance & AD&D Benefit Claims

Second Circuit

LePino v. Anthem Blue Cross Life & Health Ins. Co., No. 22-cv-4400 (NSR), 2023 WL 5001439 (S.D.N.Y. Aug. 4, 2023) (Judge Nelson S. Roman). Plaintiff Tricia LePino’s husband, John Capotorto, III, died on February 22, 2022, from acute intoxication due the combined effects of heroin, fentanyl, and xylazine (a non-opioid horse tranquilizer, commonly referred to as Tranq, sometimes cut into street drugs). Following her husband’s overdose, Ms. LePino submitted a claim for life insurance benefits under Mr. Capotorto’s ERISA-governed policy. Her claim was denied by defendant Anthem Blue Cross Life and Health Insurance Company pursuant to the plan’s broad exclusion for deaths resulting from, either wholly or partly, the influence of any controlled substance. In this action, Ms. LePino seeks to recover benefits under the plan. Anthem moved to dismiss for failure to state a claim based on the theory that no benefit is owed to Ms. LePino because of the unambiguous language of the plan’s exclusion for payment of benefits for drug-related deaths. Anthem’s motion was granted, without prejudice, by the court in this decision. It agreed with defendant that the insured’s death falls squarely within the plain meaning of the unambiguous exclusionary provision. The court concluded that “a natural reading of the Exclusionary Provision indicates that it applies to any death caused by an incident which the Insured was affected by drugs.” Ms. LePino’s preferred reading of the exclusion – applying the language only to deaths resulting from accidents that occur while a person is under the influence of drugs – was viewed by the court as “overly narrow.” Moreover, the court stated that the exclusion covered decedent’s death despite the fact that it does not expressly use the term “overdose.” Finally, the court found the language of the policy exclusion here distinguishable from other ERISA life insurance cases that similarly involved narcotic overdoses and drug exclusions where plaintiffs’ claims were found to have met Rule 8 pleading standards, because “Defendant’s Policy plainly excludes deaths, caused, even in any part, for being under the influence of drugs.” Accordingly, the court found the exclusion applies here and therefore granted the motion to dismiss. Ms. LePino was given one month to file an amended complaint should she wish to do so.

Medical Benefit Claims

Second Circuit

Kwasnik v. Oxford Health Ins., No. 22-CV-4767 (VEC), 2023 WL 5050952 (S.D.N.Y. Aug. 8, 2023) (Judge Valerie Caproni). Plaintiff Fiana Kwasnik is covered under an ERISA healthcare policy insured by defendant Oxford Health Insurance, Inc. Ms. Kwasnik sought IVF treatment for infertility issues and submitted a claim to her plan to cover her round of fertility treatments which included hormone injections, an egg retrieval, genetic testing, and egg fertilization. Her plan expressly covers infertility treatments. However, her claim for IVF treatment was denied by the plan because Ms. Kwasnik had previously retrieved and fertilized eggs which had resulted in preserved frozen embryos, called oocytes. The plan insisted that Ms. Kwasnik could use these oocytes, rather than undergo a new round of treatments. Ms. Kwasnik had paid for this previous treatment herself, without the benefit of her health insurance plan. She maintains that the plan was not allowed to rely on the existence of her previous fertility treatments to deny a claim for her current treatment on medical necessity grounds. She appealed the adverse benefit determination. After the denial was upheld, Ms. Kwasnik sought an external review of the denial under New York state law. Her review was assigned to Island Peer Review Organization, Inc. Island Peer upheld the denial. Ms. Kwasnik then commenced this ERISA action, asserting claims against both Oxford and Island Peer. In essence, she argues that the denial of her IVF treatment was improper, and the external review wrongfully upheld the denial. Ms. Kwasnik brings claims pursuant to Sections 502(a)(1)(B) and 502(c) seeking money damages, declaratory judgment, injunctive relief, and attorneys’ fees. Defendants filed separate motions to dismiss for failure to state a claim. Oxford sought dismissal of Ms. Kwasnik’s Section 502(c) and declaratory judgment claims (but not the claim for benefits). Island Peer sought dismissal of all of the claims asserted against it. The motions to dismiss were granted in this order. The court began with Oxford’s motion to dismiss the claim for failure to provide plan documents upon request. The court found that Ms. Kwasnik could not state this claim against Oxford because Section 502(c) applies only to plan administrators, or alternatively plan sponsors, and Oxford by definition is not a plan administrator under ERISA. Therefore, even assuming, as the court must at the pleadings, that Oxford failed to provide Ms. Kwasnik with the requested documents, the court found that it cannot be held liable for that inaction. Next, the court dismissed the declaratory judgment claim against Oxford, concluding that it was duplicative of her claim for benefits. Accordingly, Ms. Kwasnik was left with only her benefits claim against Oxford. The court then turned to Island Peer’s motion to dismiss. There, it found that the statutory language of New York’s external review insurance law shields Island Peer from lawsuits unless it was grossly negligent or acted in bad faith. Because Ms. Kwasnik did not allege either gross negligence or bad faith, the court agreed with Island Peer that her claims against it could not be sustained. Therefore, its motion too was granted.

Fourth Circuit

T.S. v. Anthem Blue Cross Blue Shield, No. 1:23-cv-60-MOC, 2023 WL 5004499 (W.D.N.C. Aug. 3, 2023) (Judge Max O. Cogburn Jr.). Plaintiffs T.S. and J.S. sued their self-funded ERISA welfare benefits plan, and the plan’s claims administrator, Anthem Blue Cross Blue Shield, after the family’s claim for J.S.’s stay at a residential treatment center was denied. Plaintiffs asserted two causes of action, a claim for benefits under Section 502(a)(1)(B), and a claim for equitable relief under Section 502(a)(3) for violation of the Mental Health Parity Addiction Equity Act. With regard to their Parity Act claim, plaintiffs averred that Anthem’s clinical criteria for coverage of mental health residential programs are more stringent than its analogous medical or surgical benefits because their mental health policies require patients to “fail-first” by attempting treatment at lower levels of care. They argued that these guidelines violate generally accepted standards of mental healthcare best practice. Anthem moved to dismiss the Parity Act claim. Its motion for partial dismissal was granted by the court in this order. The court agreed with defendant that Fourth Circuit precedent does not allow for simultaneous pleading of claims under Sections 502(a)(3) and 502(a)(1)(B) where, as here, plaintiffs have an adequate legal remedy through their benefits claim and the two claims are premised on the same injury. “Plaintiffs’ underlying injury is the same – Defendants’ denial of benefits under the plan. Plaintiffs have a cause of action against the Plan directly under § 1132(a)(1)(B). ‘Thus, relief through the application of Section 1132(a)(3) would be inappropriate.’” Accordingly, the court granted the motion to dismiss the equitable relief claim.

Pension Benefit Claims

Ninth Circuit

Iannacone v. Int’l Bhd. of Elec. Workers Pension Benefit Fund, No. CV-22-01599-PHX-DWL, 2023 WL 5017008 (D. Ariz. Aug. 4, 2023) (Judge Dominic W. Lanza). Pro se plaintiff Quido Iannacone brought suit against the International Brotherhood of Electrical Workers Pension Benefit Fund to challenge the termination of his monthly pension benefits. Defendant ceased issuing the payments after it learned that Mr. Iannacone was continuing to pay his union dues. It informed him that he could not have his pension benefits reinstated while he continued to pay these dues. Mr. Iannacone maintained that he kept paying his dues to allow him to speak at local union meetings and to run for union office, things that were important to him. However, Mr. Iannacone had ceased working in the electrical trade, and because he never violated the plan’s prohibition on work, he believed that he qualified for continued monthly payments under the terms of the plan. Nevertheless, the union steadfastly disagreed. It argued that it had a long-standing policy of precluding active dues-paying union members from receiving pensions, and that retirees have always been precluded from participating in the affairs of the local unions. The pension fund moved for summary judgment. The court resolved the dispute in favor of defendant, granted its motion for judgment, and affirmed the adverse benefit decision. It concluded that under abuse of discretion review the termination was reasonable and consistent with the fund’s long held eligibility rules, which themselves were a reasonable reading of the plan language. Further, the court agreed with defendant that “there was no ‘wholesale and flagrant’ procedural violation that deprived Plaintiff of a full and fair review,” despite the fact that the denial letter did not notify Mr. Iannacone of his right to sue under ERISA Section 502. The court found that because the letter “was not the final step in the claim process – any violation was relatively minor.” This was particularly true here, the court stated, because Mr. Iannacone “was successful in timely filing this action.” Therefore, the court declined to alter the standard of review to de novo. In sum, the court expressed that it was sympathetic to Mr. Iannacone over the plan’s requirement that union members cease working and stop actively participating in local union activities in order to obtain pension benefits, but that the terms of the plan and the union’s practice were clear that these actions were prerequisites for benefit eligibility, and until he met the requirements Mr. Iannacone was not entitled to benefits. Accordingly, the court affirmed the fund’s decision.

Plan Status

Fifth Circuit

Edwards v. Guardian Life Ins. of Am., No. 1:22-CV-145-KHJ-MTP, 2023 WL 5120246 (N.D. Miss. Aug. 9, 2023) (Judge Kristi H. Johnson). In 2022, Pam Edwards died from terminal cancer. After her death, her widower, James Edwards, was informed by the family’s attorney that his wife was insured under a group life insurance policy she had purchased in 2007 for the hair salon she owned and operated with Guardian Life Insurance of America. Mr. Edwards subsequently submitted a claim for benefits under the $85,000 policy. His claim was denied. Guardian maintained that unrelated to her terminal cancer diagnosis, it had very recently cancelled the hair salon’s ERISA plan because not enough of the salon’s employees maintained insurance and the company had therefore fallen below its required participation level. Guardian claims that it sent letters to the salon informing it of the termination. The salon and the attorney could find no record of said letters. Believing that the termination of the life insurance policy was a false justification to deny the claim for benefits, Mr. Edwards commenced this action against Guardian. He asserted a claim for benefits under ERISA and also a claim under Mississippi state law. Guardian moved for partial summary judgment on the issue of the plan’s status as an ERISA-governed plan. It requested declaratory judgment from the court holding that the plan is governed by ERISA and that the state law contract claim was therefore preempted by ERISA. The court granted the partial summary judgment motion. It agreed that the plan qualified as an ERISA plan, and that the salon’s employees did not qualify as independent contractors because Ms. Edwards controlled their hours and pay, and owned the salon and its equipment. Moreover, the court found that because the salon paid 100% of the policy’s premiums, the plan did not qualify for ERISA’s safe-harbor exemption. As the court determined that the policy falls under ERISA, it then turned to whether the state law claim related to the plan, or whether it could be considered a state insurance regulating law exempted from preemption under ERISA’s savings clause. Mr. Edwards maintains that Mississippi common law prohibits cancelling an insurance policy after an insured becomes uninsurable from a fatal or terminal illness. The court found that this common law was really a breach of an insurance contract claim, and while the law has a bearing on insurers, it is not a law specifically directed towards the insurance industry and therefore not covered under the savings clause. Thus, the court held that the law-regulating-insurance exception did not apply here, and the contract claim was therefore preempted. The court therefore dismissed the state law claim with prejudice. Accordingly, Mr. Edwards was left with only his ERISA benefits claim.

Pleading Issues & Procedure

Seventh Circuit

Bledsoe v. Continental Cas. Co., No. 22-cv-02170, 2023 WL 5018000 (N.D. Ill. Aug. 7, 2023) (Judge Sharon Johnson Coleman). Pro se plaintiff Letra Bledsoe sued her former employer, Continental Casualty Co., and its HR representative, Elizabeth Aquinaga, under Title VII of the Civil Rights Act, ERISA, and for libel. In her three-page complaint, Ms. Bledsoe argues that Continental Casualty violated ERISA by failing to permit a lump sum payment of her pension benefits. She also claimed that defendants discriminated against her and that she faced harassment in the workplace. Defendants moved to dismiss for failure to state a claim. The court granted the motion to dismiss without prejudice. The court found the complaint failed to allege that the ERISA plan allows for lump sum payments, and therefore concluded that Ms. Bledsoe failed to plausibly state a claim that she is entitled to any such payment. It similarly concluded that the complaint was deficient in its allegations of Title VII discrimination, and that Ms. Bledsoe gave no indication she exhausted her administrative remedies by filing a claim with the EEOC after the alleged violation occurred. Finally, the court dismissed the state law libel claim for lack of subject matter jurisdiction.

Provider Claims

Third Circuit

Univ. Spine Ctr. v. Cigna Health & Life Ins. Co., No. 22-02051 (SDW) (LDW), 2023 WL 5125443 (D.N.J. Aug. 10, 2023) (Judge Susan D. Wigenton). Plaintiff University Spine Center provided treatment to a patient insured under an ERISA health benefit plan administered and insured by Cigna Health & Life Insurance Company. After it was assigned benefits from the patient, the provider submitted a claim for reimbursement to Cigna. Cigna issued a payment, but not for the nearly $400,000 for which the provider sought reimbursement. Instead, it paid just over $8,000. Disputing this calculation, University Spine sued Cigna under ERISA Section 502(a)(1)(B) seeking reimbursement. Cigna moved for dismissal pursuant to the plan’s anti-assignment provision. The court granted the motion to dismiss for lack of derivative standing on February 21, 2023. University Spine moved to alter or amend that judgment and also moved for leave to amend its complaint. It argued that it received a valid power of attorney (“POA”) from the patient, and that it can therefore bring an ERISA claim on behalf of the patient for reimbursement of the medical costs. The court did not agree. “Plaintiff seeks to use the POA to circumvent the anti-assignment provision for the apparent benefit of Plaintiff, rather than to serve as an attorney-in-fact to benefit the Patient. Such a scheme constitutes improper use of a POA in this context.” Consequently, the court found that plaintiff’s motion to alter or amend its judgment presented insufficient grounds to cure its fatal jurisdictional deficiency and therefore denied the motion. It also found that because the provider cannot establish standing, any further amendment to the complaint would be futile. Thus, the court also denied the motion for leave to amend.

Venue

Fourth Circuit

Kovach v. LHC Grp., No. 3:23-0051, 2023 WL 5002457 (S.D.W. Va. Aug. 4, 2023) (Judge Robert C. Chambers). Two former employees of LHC Group, Inc. who are participants in the company’s 401(k) plan have sued LHC, the plan’s committee, and the individual committee members for breaches of their fiduciary duties under ERISA. Plaintiffs alleged that defendants mismanaged the plan by failing to monitor its fees and investments. Defendants moved to transfer venue from the Southern District of West Virginia to the Western District of Louisiana. The court ultimately granted the motion to transfer, concluding that the action could have been filed in Louisiana and the balance of factors strongly favored transfer. In particular, the court focused on the fact that the plan is administered in Lafayette, Louisiana, that all administrative decision-making occurred there, and all of the defendants are located in the state. These facts, the court determined, meant that the case has a greater connection to the Western District of Louisiana than it does to the Southern District of West Virginia, where the plaintiffs worked, lived, and contributed to the plan. Thus, the court determined that “nearly all discovery related to the Committee members’ decisions and actions regarding the alleged mismanagement and breaches of fiduciary duties occurred within the Western District of Louisiana.” Additionally, the court noted that plaintiffs’ participation in the ligation will most likely be less than defendants’ involvement will be. Therefore, the court gave greater consideration to the defendants’ forum non conveniens argument. “Under these circumstances, the Court has no difficulty finding the inefficiencies of litigating this matter in the Southern District of West Virginia are overwhelmingly evident and the considerations of convenience, fairness, and interest of justice strongly favor transferring this action to the Western District of Louisiana.” Thus, the court granted defendants’ motion and ordered the case to be transferred.

Tenth Circuit

Shani N. v. Gillette Childrens Specialty Healthcare Med. Benefit Plan, No. 4:22-cv-00070-RJS-PK, 2023 WL 5046818 (D. Utah Aug. 8, 2023) (Judge Robert J. Shelby). Mother and daughter plaintiffs Shani N. and J.G. sued their self-funded ERISA welfare plan, the Gillette Children’s Specialty Healthcare Medical Benefit Plan, after J.G.’s claims for stays at two out-of-network residential treatment programs in Utah and Arizona were denied. One of the residential treatment centers was found by the plan to be a wilderness therapy program expressly excluded from coverage under its language. J.G.’s treatment at the other facility was approved up until she turned 18, at which point the plan ceased paying for treatment as its terms only provide for such care for minors. Seeking payment of benefits and challenging the plan’s limitations for mental healthcare, plaintiffs sued the plan for violating ERISA Section 502(a)(1)(B), and also intend to state a claim under Section 502(a)(3). Defendant moved to dismiss the complaint for lack of personal jurisdiction, improper venue, and failure to state a claim. In the alternative, defendant moved to transfer venue from Utah to Minnesota. Plaintiffs opposed. The court began its discussion with defendant’s challenge to personal jurisdiction and improper venue. It found that the plan failed to meet its burden to demonstrate that litigating in Utah violates the principles of due process and therefore denied the motion to dismiss on either basis. Having concluded that venue is proper in Utah, the court proceeded to analyze whether Minnesota would be a more convenient forum and, as a result, whether the interests of justice would be served by transferring. The court answered in the affirmative. Because all parties are located in Minnesota, the court dockets are less congested in Minnesota, and all relevant events occurred in Minnesota aside from J.G.’s treatment, the court held that transferring was in the best interest of justice. Thus, it granted the motion to transfer. Last, the court denied without prejudice defendant’s motion to dismiss pursuant to Rule 12(b)(6). The court decided not to resolve the substantive issues raised in the motion to dismiss for failure to state a claim. Instead, the court prompted the plan to refile the motion before the court in Minnesota.

Bugielski v. AT&T Servs., Inc., No. 21-56196, __ F.4th __, 2023 WL 4986499 (9th Cir. Aug. 4, 2023) (Before Circuit Judges Paez and Bade and District Judge Raner C. Collins)

Section 406(a) of ERISA prohibits benefit plan fiduciaries from entering into certain transactions with “parties in interest.” Prohibited transactions include the sale of property, lending of money, transfer of interest in plan assets, and any “furnishing of goods, services, or facilities.” Parties in interest include any plan fiduciary, the employer, employees, and any third-party service providers. Because the statute is so broadly written, plan fiduciaries and beneficiaries often battle over how far it reaches, and this case is yet another example.

The plaintiffs were Robert Bugielski and Chad Simecek, former AT&T employees who contributed to AT&T’s retirement plan. Recordkeeping duties were performed by Fidelity Workplace Services. The plaintiffs filed a class action lawsuit against AT&T centered around the services performed by Fidelity.

Fidelity had been the plan’s recordkeeper since 2005, but in 2012, AT&T amended its contract with Fidelity to provide plan participants with access to Fidelity’s brokerage account platform, called BrokerageLink. Fidelity charged fees to participants for investing with BrokerageLink, and also received “revenue-sharing fees” from the mutual funds in which participants invested using BrokerageLink. Fidelity earned millions of dollars through this revenue sharing.

Following this, in 2014, AT&T contracted with Financial Engines Advisors, LLC to provide optional investment advisory services to plan participants. In order to advise participants, Financial Engines needed access to participant accounts, which it obtained when AT&T amended its contract with Fidelity to provide Financial Engines with the access it needed. Financial Engines and Fidelity also entered into a separate contract through which Fidelity received a portion of the fees Financial Engines earned from managing participant investments. Again, this was highly lucrative for Fidelity, which received millions of dollars through this agreement.

The plaintiffs criticized these arrangements and contended that AT&T violated ERISA in three ways. First, they argued that AT&T’s failure to consider Fidelity’s compensation rendered its contract with Fidelity a prohibited transaction under ERISA. Second, they contended that AT&T breached its duty of prudence to plan participants by failing to consider this compensation. Third, plaintiffs argued that AT&T failed to disclose this compensation in its annual Form 5500 report to the Department of Labor.

The district court granted summary judgment to AT&T on all counts, and the plaintiffs appealed.

The Ninth Circuit first tackled the prohibited transaction claim. The court quickly found that AT&T’s contract amendment with Fidelity was a prohibited transaction under ERISA’s “plain and unambiguous statutory text.” Fidelity was clearly a “party in interest” because it “provided services to the plan,” and the amendment constituted a “furnishing of services” between AT&T and Fidelity.

AT&T contended that ERISA’s prohibited transactions provision was not intended to include “arm’s-length service transactions,” but the Ninth Circuit was unmoved. The court emphasized that the statute was broadly written, and thus must be broadly interpreted. The statute “contains no language limiting its application to non-arm’s-length transactions, and accepting AT&T’s ‘statutory intent’ argument would undermine the scheme Congress enacted.”

The court further noted that its interpretation was supported by the Department of Labor, which had issued an advisory opinion involving “remarkably similar” facts. The Department had observed that arrangements like the one in this case “could lead to potential conflicts of interest” and thus constituted prohibited transactions.

Undeterred, AT&T cited three cases which supported its theory that arm’s-length transactions should not be included in ERISA’s definition of prohibited transactions: Lockheed Corp. v. Spink, 517 U.S. 882 (1996), Sweda v. University of Penn., 923 F.3d 320 (3d Cir. 2019), and Albert v. Oshkosh Corp., 47 F.4th 570 (7th Cir. 2022). (Your ERISA Watch discussed the latter two rulings in its May 5, 2019 and September 7, 2022 issues.)

The court found that Lockheed was inapposite, partly because it was not even clear that the arrangement in that case was a “transaction” in the first place, and furthermore, it did not “have the potential to be harmful,” whereas here the fees involved “could ‘significantly reduce’ participants’ assets.” As for Sweda and Albert, the Ninth Circuit found them “unpersuasive” and “disagreed with [their] analysis” because they did “not follow the statutory text.” The Ninth Circuit noted that neither case considered the Department of Labor’s thoughts on the issue, which strongly supported the court’s conclusion that the transactions at issue were statutorily prohibited.

Thus, the Ninth Circuit squarely ruled that the transactions at issue were prohibited. However, this was not the end of the story. Even if a transaction is prohibited, ERISA allows for an exemption if (1) the contract or arrangement is “reasonable,” (2) the services are “necessary for the establishment or operation of the plan,” and (3) no more than “reasonable compensation is paid” for the services.

The Ninth Circuit bypassed the first two requirements and focused on the third. AT&T argued that “reasonable compensation” only referred to what Fidelity received directly from the plan and its participants, while the plaintiffs contended that “reasonable compensation” included the compensation Fidelity received from Financial Engines and BrokerageLink.

The Ninth Circuit again agreed with the plaintiffs, and in doing so again relied on the Department of Labor, which had stated in its amendment of regulations that “responsible plan fiduciaries have a duty to consider compensation that will be received by a [party in interest] from all sources in connection with the services it provides to a covered plan pursuant to the [party in interest’s] contract or arrangement.”

The court particularly noted the Department’s concern regarding “third-party fees.” The Department observed that these fees involved “special risks” because they can “create conflicts of interest between service providers and their clients.” The Department also noted that these payments have “been largely hidden from view,” thereby preventing fiduciaries “from assessing the reasonableness of the costs for plan services.”

Because the district court did not consider the compensation Fidelity received from Financial Engines and BrokerageLink in evaluating whether “reasonable compensation” was paid for its services, the Ninth Circuit remanded for the district court to engage in that analysis in the first instance.

For the same reasons, the Ninth Circuit reversed the district court’s ruling in AT&T’s favor on plaintiffs’ second claim for violation of the duty of prudence. The court noted that fiduciaries such as AT&T “must have information about the compensation – direct and indirect – received by service providers like Fidelity ‘to satisfy their fiduciary obligations under ERISA[.]’” However, a fiduciary cannot satisfy these obligations “if he or she is unaware of how and to what extent a service provider is compensated.”

This left only one claim, plaintiffs’ argument that AT&T incorrectly reported Fidelity’s compensation to the Department of Labor in its Form 5500. The Ninth Circuit upheld the district court’s ruling that AT&T correctly reported Fidelity’s compensation from BrokerageLink. However, it reversed as to Financial Engines, holding that its fees were not “eligible indirect compensation,” and thus should have been reported.

As a result, the Ninth Circuit reversed and remanded for further evaluation by the district court. The court’s unvarnished criticism of the Third Circuit’s decision in Sweda and the Seventh Circuit’s decision in Albert is noteworthy, and thus Your ERISA Watch will be keeping a close eye on this case to see if it receives en banc review or perhaps even the attention of the Supreme Court.

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

Arbitration

Second Circuit

The Trs. of the N.Y. State Nurses Ass’n Pension Plan v. Hakkak, No. 22-cv-5672 (ER), 2023 WL 4967071 (S.D.N.Y. Aug. 2, 2023) (Judge Edgardo Ramos). The relationship between the Trustees of the New York State Nurses Association Pension Plan and the private equity firm, White Oak, began in 2013. After pitching their funds to the plan, defendants Andre Hakkak and Barbara McKee, the co-founders of the firm, were able to convince the Trustees to enter into an Investment Management Agreement with White Oak. They did so on December 31, 2013. The Agreement included an arbitration clause with broad language requiring any dispute arising from the agreement be resolved by arbitration. Without the input of the Trustees, White Oak executed a Limited Partnership Agreement (“LPA”), which included “irrevocably committing the investments to White Oak since the LPAs ‘locked up’ the Funds.” In 2015, the Investment Management Agreement was set to expire. “Around the same time, unknown to the Trustees, Defendants courted the Plan’s chief investment officer…to join White Oak.” Operating under that conflict of interest, the investment manager of the plan recommended to the Trustees that they renew the agreement for another two years. Based on that advice, the Trustees signed a new Investment Management Agreement with White Oak, and this renewed agreement contained the same broad arbitration provision as the original agreement. One month after the new agreement was signed, White Oak hired the plan’s chief investment officer as their new Vice Chairman. The Trustees, now aware of the relationship between their own investment manager and White Oak, tasked the plan’s new chief investment officer with closely inspecting White Oak. What he found became the basis of a 2017 arbitration proceeding between the parties, wherein the Trustees alleged that White Oak breached its fiduciary duties by never returning money owed to the plan, unilaterally “locking-up” the funds in the LPAs, charging the plan retroactive fees, and committing the plan to indemnify it against losses and claims caused by its conduct. The arbitrator found that White Oak had violated ERISA by engaging in numerous prohibited transactions. The arbitrator removed White Oak as the plan’s investment manager, ordered disgorgement of profits, and awarded fees and costs to the Trustees. That arbitration award was then confirmed in court. Defendants however “continue to hold the Plan’s money, and the Trustees claim that Defendants engaged and are engaging in prohibited transactions contrary to their fiduciary duties.” Thus, the Trustees brought this ERISA action against the co-founders. Defendants then filed a motion to compel arbitration as non-parties to the Investment Management Agreement on the basis of equitable estoppel because of their close relationship with White Oak and as the Trustees’ claims fall under the broad language of the arbitration clause. In this order the court agreed with defendants and granted their motion to compel arbitration. It stated that the defendants may equitably estop the Trustees as they are sufficiently intertwined with White Oak and the claims fall under the agreement. Moreover, the court found that unmistakable evidence existed that the parties intended to submit the threshold question of arbitrability to the arbitrator, because the arbitration clause invokes the American Arbitration Association and its rules. Accordingly, the court ordered a stay of the case until the arbitrator decides this threshold issue.

Tenth Circuit

Harrison v. Envision Mgmt. Holding Inc., No. 21-cv-00304-CNS-MDB, 2023 WL 4945841 (D. Colo. Aug. 3, 2023) (Magistrate Judge Maritza Dominguez Braswell). In early 2021, plaintiff Robert Harrison filed this class action involving an ERISA-governed ESOP, the Envision Management Holding, Inc. Employee Stock Ownership Plan. Defendants – the selling shareholders, Argent Trust Company, the company’s board of directors, and the plan’s committee – moved to compel arbitration. That motion was denied. The court found the arbitration provision invalid because it disallowed plan-wide relief “expressly contemplated by ERISA.” Defendants appealed to the the Tenth Circuit and moved to stay the order while the appeal was pending. The motion to stay was granted. The Tenth Circuit Court of Appeals then affirmed the order denying the motion to compel arbitration. A summary of that decision was Your ERISA Watch’s case of the week in our February 15, 2023 newsletter. Defendants filed a petition for rehearing, which the Tenth Circuit denied. Jurisdiction then returned to the district court. Defendants subsequently filed a petition to the U.S. Supreme Court and argued in the district court in favor of keeping the stay pending resolution of their petition. The court “decided to lift the stay, but stage discovery to account for the…petition to the Supreme Court.” In response, defendants renewed their motion to stay pending appeal in light of an intervening Supreme Court decision in Coinbase, Inc. v. Bielski, 143 S. Ct. 1915 (2023). Defendants argued that the Coinbase decision requires an automatic stay until resolution of appeals, including petitions to the Supreme Court, in cases involving disputes over arbitration. Mr. Harrison disagreed with this reading of the decision and instead argued that Coinbase decided a narrow issue, resolving a circuit split over whether the statutory right to appeal under 9 U.S.C. § 16(a) comes with an automatic stay while an appeal is pending in the court of appeals. He maintained that the automatic stay does not extend through resolution of a petition in the Supreme Court. In this decision, the court agreed with plaintiff. “Nowhere in Coinbase does the majority discuss the application of this automatic stay beyond the court of appeals process.” Not only did the court conclude that Coinbase does not require an automatic stay, but it also declined to reinstate the stay. Doing so, the court found, would prejudice plaintiff as a continued delay could make it harder to litigate the claims. Based on the foregoing, the court denied defendants’ motion, and ordered the discovery process to continue pursuant to the court’s staggered discovery schedule.

Breach of Fiduciary Duty

Fourth Circuit

McDonald v. Laboratory Corp. of Am., No. 1:22CV680, 2023 WL 4850693 (M.D.N.C. Jul. 28, 2023) (Judge Loretta C. Biggs). In this putative class action, plan participant Damian McDonald seeks to represent a class of the participants and beneficiaries of the LabCorp 401(k) Plan “to protect the retirement savings” of those invested in the plan. Mr. McDonald alleges that the Laboratory Corporation of America (“LabCorp”) breached its fiduciary duty of prudence in violation of ERISA. He specifically alleges that LabCorp acted imprudently by allowing the plan to pay excessive recordkeeping fees and by causing the plan to invest in high-cost retail share classes of mutual funds when lower-cost institutional share classes were available to the plan. LabCorp moved to dismiss the complaint for failure to state a claim. In this order the court granted in small part, but mostly denied, the motion to dismiss. The court concluded that plaintiff adequately stated his claim based on excessive recordkeeping fees. Because the complaint alleged that the plan paid over $43 per participant during the class period “when it could have paid $25 or less per participant” and included comparator plans with similar services, the court found the allegations sufficient to withstand a motion to dismiss. LabCorp’s arguments to the contrary were unpersuasive to the court, which considered them inappropriate as they would have required viewing the allegations in a less favorable light to the non-moving party by interpreting and scrutinizing the data provided. Accordingly, the court found that Mr. McDonald identified sufficient benchmarks against which to compare LabCorp’s plan and adequately alleged that the company failed to track how much it was paying for recordkeeping services or to solicit competing bids for cheaper services. Thus, the court allowed the fee claim to continue. However, with regard to the share class claim, the court held that LabCorp made “a meritorious objection to one of Plaintiff’s fourteen proposed high-cost-to-low-cost substitutions. The issue is that the challenged allegedly high-cost fund is a mutual fund, and the proposed lower-cost alternative is a collective investment trust.” The court agreed with LabCorp that mutual funds and collective investment trusts are too dissimilar to compare based solely on price. Thus, the court dismissed this one share class. Nevertheless, the court held that Mr. McDonald stated an imprudence claim based on the remaining thirteen challenged funds.

Sixth Circuit

Patterson v. United Healthcare Ins. Co., No. 22-3167, __ F. 4th __, 2023 WL 4882436 (6th Cir. Aug. 1, 2023) (Before Circuit Judges Siler, Nalbandian, and Readler). Plaintiff-appellant Eric Patterson was injured in a car accident involving a tractor trailer. His medical expenses were covered under his ERISA-governed healthcare plan and paid by United Healthcare Insurance Company. Mr. Patterson later sued the other driver in state court for his injuries. In the lawsuit, Mr. Patterson joined his ERISA plan to obtain a declaratory judgment that it had no right to reimbursement of any potential recovery. During discovery, United maintained that no plan document beyond the summary plan description existed, and that the summary plan description included a right to reimbursement. That lawsuit ended with Mr. Patterson recovering a settlement from the other driver’s employer, and Mr. Patterson agreeing to pay United $25,000 as reimbursement for the medical expenses. But as luck would have it, the story did not end there. In a strange twist of fate, a couple of months later, Mr. Patterson’s wife was unfortunately hurt in a second traffic accident. United once again paid the medical bills, and once again informed the family that it would seek reimbursement from any potential recovery from the other driver. Ms. Patterson did sue the other driver, and again sought a declaratory judgment in state court that United had no reimbursement right. “After initially denying the existence of a plan document, as they did in the first state court case, the plan’s attorneys produced one. The tendered plan document stated that it took precedence over the summary plan document in the event of a discrepancy between the two. And while the summary plan document included a reimbursement right, the plan document did not.” The second state court action ended with the court awarding judgment in favor of Ms. Patterson, including on her declaratory judgment claim against the plan. Having discovered that he was never obligated to reimburse United under the governing document, Mr. Patterson took to the courts once again, filing this action under ERISA against the United entities and the plan’s attorneys, seeking the return of his $25,000. Mr. Patterson also sought to represent a class of similarly situated participants and beneficiaries, believing that what happened to him and his wife was part of a larger practice by defendants of swindling reimbursements out of third-party recoveries. Defendants moved to dismiss, and Mr. Patterson moved to amend his complaint. The district court dismissed the complaint. It found that Mr. Patterson did not have standing to represent a class. As to his individual claim for the return of the money he paid as reimbursement, the district court found that Mr. Patterson had not stated a viable claim under ERISA. Finally, based on futility grounds, the district court denied Mr. Patterson’s motion for leave to amend. This appeal to the Sixth Circuit followed, and in this decision the court of appeals reversed in part and affirmed in part. The decision began by addressing the threshold issue of standing. The Sixth Circuit agreed with the lower court that Mr. Patterson has standing to sue for return of his $25,000 settlement payment, but that he did not plausibly allege any future injury entitling him to prospective injunctive relief. Additionally, the court of appeals agreed that Mr. Patterson does not have standing to pursue class claims because he could not point to any other insured with a similar story to his and his wife’s where United sought an improper reimbursement from a third-party recovery. Thus, the appeals court found that he failed to state facts to show a plausible injury to other participants and beneficiaries. It also concluded that Mr. Patterson had failed to claim that defendants’ actions caused harm to the plan itself in any way, including in the form of inadequate funding. Accordingly, the court of appeals affirmed the district court’s standing conclusions and agreed that Mr. Patterson’s only injury-in-fact was the $25,000 he lost when he settled and paid reimbursement to defendants under false pretenses. Next, the Sixth Circuit addressed defendants’ arguments related to the Rooker-Feldman doctrine. Defendants argued that “this lawsuit is an impermissible attempt to end-run the unsuccessful declaratory judgment claim Patterson brought against United and the plan in state court.” The Sixth Circuit disagreed. Instead, it concluded that Mr. Patterson had properly brought a suit challenging defendants’ actions before and during litigation which he believes were a breach of fiduciary duties they owe him under the plan and ERISA. “Accordingly, this case falls comfortably outside Rooker-Feldman’s purview.” With these threshold matters addressed, the Sixth Circuit proceeded to the merits, and analyzed whether Mr. Patterson could state valid claims for breach of fiduciary duty and prohibited transaction against defendants based on their actions claiming rights to recover reimbursement when they had none. The appeals court began with Mr. Patterson’s equitable relief claims pursuant to Section 502(a)(3). Not only did the court find that the breach of fiduciary duty claim had an equitable basis, but it also found the prohibited transaction claim did too, as the facts underlying both claims are identical and United therefore allegedly used the plan assets for its own purposes violating both duties. “Because both theories Patterson puts forth rest on an equitable basis, they may proceed.” Further, the Sixth Circuit found that disgorgement of the $25,000 and equitable restitution were both forms of equitable relief that may be pursued through Section 502(a)(3). It also held that Mr. Patterson adequately pleaded the tracing requirement to state a disgorgement claim. The Sixth Circuit then evaluated whether Mr. Patterson could sue for relief under ERISA Section 1109. It concluded that he could not because he did not plausibly allege harm to the plan. As for the attorney defendants, the court of appeals held that Mr. Patterson could not state a viable claim under Section 502(a)(3) against them as they were only “implicated through implausible contentions that they participated in a large-scale scheme.” Finally, the Sixth Circuit expressed that it found no error in the district court’s denial of leave to amend the complaint to pursue the putative class claims. As stated earlier, the Sixth Circuit found flaws in Mr. Patterson’s class-based theories and therefore agreed with the district court that a class action here is not viable and amendment therefore is futile. In sum, the court of appeals found that Mr. Patterson had colorable claims for breach of fiduciary duty and prohibited transactions against the United defendants, and therefore reversed this aspect of the lower court’s dismissal. In all other respects, the remainder of the district court’s decision was affirmed.

England v. DENSO Int’l Am., No. 22-11129, 2023 WL 4851878 (E.D. Mich. Jul. 28, 2023) (Judge Mark A. Goldsmith). Participants of the DENSO International America, Inc. 401(k) Plan have sued the plan’s fiduciaries in this putative class action for breaches of their duties of prudence and monitoring. Plaintiffs allege that defendants allowed the plan to pay excessive amounts of recordkeeping and management fees, that the plan retained a higher cost share class for one of the funds offered in the plan, and that defendants selected and retained an underperforming stable value fund in the plan. Defendants moved to dismiss plaintiffs’ complaint for failure to state a claim. The court agreed with defendants that plaintiffs failed to allege sufficient facts from which it could plausibly infer that defendants breached their duties “based on the circumstances that existed at the time defendants acted.” This was especially true for plaintiffs’ claims premised on the underperforming fund. Below-average performance in and of itself, the court found, does not a plausible ERISA violation make. Moreover, the court was not convinced by the allegations in the complaint that defendants paid excessive fees relative to the services received. It found plaintiffs’ blanket assertion that the plan’s recordkeeper “did not provide any services at any higher level that were not also part of the standard package of RKA services provided by all recordkeepers to mega plans” to be conclusory and insufficient to state a plausible claim. For all of plaintiffs’ fee based claims, the court held that they had not provided sufficient benchmarks with which to measure the reasonableness of the costs incurred. Finally, the court rejected plaintiffs’ novel “net expense ratio theory.” Plaintiffs argued that the plan should have offered a retail share class rather than an institutional share class because the particulars of the two funds meant that the retail share class had a greater revenue sharing credit which would have offset the higher cost of the share class, making the net expense actually less than that of the institutional share class the plan invested in. The court stated that these facts did not necessarily indicate imprudence and that plaintiffs therefore failed to state a claim centered on this theory. Thus, the court granted the motion to dismiss.

Class Actions

Ninth Circuit

Hendricks v. Aetna Life Ins. Co., No. CV 19-06840-CJC (MRWx), 2023 WL 4853418 (C.D. Cal. Jul. 25, 2023) (Judge Cormac J. Carney). Plaintiffs Brian Hendricks and Andrew Sagalongos brought this class action against Aetna Life Insurance Company to challenge its uniform policy of denying coverage for Lumbar Artificial Disc Replacement (“Lumbar ADR”) surgery as “experimental or investigational.” On June 11, 2021, the court certified a class of all persons covered by ERISA-governed plans insured by Aetna whose requests for Lumbar ADR were denied on experimental or investigational grounds, and whose denials are subject to abuse of discretion review. A summary of that decision was Your ERISA Watch’s case of the week in our June 23, 2021 newsletter. Before the court here was a motion filed by Aetna to decertify the class in light of the Ninth Circuit’s decision in Wit v. United Behavioral Health, 58 F.4th 1080 (9th Cir. 2023). In this order the court denied the motion. The court reached its decision by distinguishing the facts from Wit. In particular, the court agreed with plaintiffs that “commonality under Rule 23(a)(2), as well as the requirements under Rule 23(b)(1)(A) through (b)(2), remain satisfied notwithstanding Wit’s holdings on the ‘reprocessing’ remedy.” When the court previously found the commonality requirement satisfied, it concluded that this action raised a common question of whether the surgery “has been proven safe and effective for treating degenerative disc disease. If the answer is yes, then Aetna cannot deny requests for Lumbar ADR on the ground that it is experimental or investigational.” To the court, “nothing in Wit…undermines this conclusion.” Furthermore, the court held that the class members do not need to demonstrate entitlement to a positive benefits determination in order to succeed on their claim for breach of fiduciary duty. Moreover, because Aetna’s denials were systematic and made on a common basis, the court stated that it could determine whether Aetna abused its discretion in denying coverage “[i]n one fell swoop.” In addition, the court also held that although “Wit clarified that when exhaustion is required as a matter of contract, the rules governing prudential exhaustion have no place,” this clarification does not disturb the well-settled contract principle of repudiation. In this instance, the court held that Aetna’s denials of coverage for the surgery were systematic and automatic “regardless of whether Plaintiffs exhausted their appeals.” Thus, the court once again found that plaintiffs were typical of the class regardless of their failure to exhaust administrative appeals. Finally, the court held that although Aetna has revised its policy on Lumbar ADR, plaintiffs’ requests for an injunction are not moot. “Nothing prevents Aetna from returning to its old ways, so the injunction is still viable notwithstanding Aetna’s change of heart,” the court wrote. For these reasons, the court was unwilling to decertify the class even in light of the Ninth Circuit’s holding in Wit, and it therefore denied Aetna’s motion.

Eleventh Circuit

Goodman v. Columbus Reg’l Healthcare Sys., No. 4:21-CV-15 (CDL), 2023 WL 4935004 (M.D. Ga. Aug. 2, 2023) (Judge Clay D. Land). Participants of Columbus Regional Healthcare System, Inc.’s defined contribution plan filed this putative class action alleging that Columbus Regional breached its fiduciary duties under ERISA by failing to monitor the plan’s investment options and expenses. Plaintiffs amended their complaint to add a prohibited transaction claim under Section 406 of ERISA. Two motions were before the court here. First, Columbus Regional moved to dismiss the new prohibited transaction claim. Second, plaintiffs moved to certify their class under Federal Rule of Civil Procedure 23(b)(1). In this order, the court denied the partial motion to dismiss, and granted the motion to certify. Regarding the motion to dismiss, the court was satisfied that at this pleading stage plaintiffs adequately alleged that the agreements with the service providers constituted prohibited transactions under ERISA, and that they therefore stated their claim. Turning to the motion to certify, the court was convinced the class of participants and beneficiaries of the plan met the requirements of Rule 23(a) and (b)(1). Even Columbus Regional acknowledged “that ERISA actions alleging breach of fiduciary duty are routinely certified under Rule 23(b)(1),” because prosecuting separate actions would run the risk of creating inconsistent adjudications or establishing incompatible standards of conduct for the plan. Columbus Regional also did not dispute that the class was numerous or that representation was adequate. Instead, it challenged plaintiffs’ standing, commonality, and typicality. The court found that plaintiffs had standing to assert their class-wide claims, as “the named Plaintiffs assert that their accounts were negatively affected by each of the three types of alleged fiduciary duty breaches by Columbus Regional.” The court also found that there are common issues of law and fact for plaintiffs’ investment, fee, and prohibited transaction claims. Moreover, the court stated that plaintiffs’ allegations sufficiently imply that Columbus Regional employed flawed practices which were common across the plan and affected all participants. Thus, the court was convinced that plaintiffs’ claims were capable of class-wide resolution, and found plaintiffs met their burden of establishing that their proposed class should be certified.

ERISA Preemption

Second Circuit

Park Ave. Podiatric Care v. Cigna Health & Life Ins. Co., No. 22 Civ. 10312 (AKH), 2023 WL 4866045 (S.D.N.Y. Jul. 31, 2023) (Judge Alvin K. Hellerstein). An out-of-network podiatric center, Park Avenue Podiatric Care, P.L.L.C., sued Cigna Health and Life Insurance Company challenging a payment of benefits for care it provided to a patient covered under an ERISA plan insured by Cigna. Park Avenue Podiatric brought state law claims for breach of oral contract, unjust enrichment, promissory estoppel, and a violation of New York’s Prompt Pay Law. On March 13, 2023, the court dismissed the complaint as preempted by ERISA. Park Avenue Podiatric moved for reconsideration. The court denied the motion. It stated that plaintiff had not identified any change in controlling law or facts nor clear error in the original order. Reiterating its prior position, the court maintained that Cigna’s coverage determinations could not be evaluated without consulting and analyzing the language of the ERISA plan, meaning the state law causes of action are preempted. As it had done before, the court rejected Park Avenue Podiatric’s argument that the conversations it had with Cigna created an oral contract and independent legal duty unrelated to the terms of the plan. Consequently, the court viewed the motion for reconsideration as a simple disagreement with its previous conclusions and reading of the complaint. Accordingly, the court’s view that “Cigna’s commitment to pay is inextricable from the terms of the Plan,” remained unaltered and plaintiff’s motion was denied.

Medical Benefit Claims

Seventh Circuit

Hatch v. Wolters Kluwer United States, Inc., No. 20 C 7168, 2023 WL 4930286 (N.D. Ill. Aug. 1, 2023) (Judge Matthew F. Kennelly). A mother and daughter who are a participant and beneficiary of the mother’s employer-provided health plan, the Wolters Kluwer United States, Inc. Health Plan, brought suit against the plan and its administrator seeking judicial review of the plan’s denials of coverage for residential treatment the daughter received for mental health issues during a two-year period from 2018 to 2020. The parties cross-moved for summary judgment. Having evaluated the 9,000-page administrative record, the parties’ briefing, and the denials, the court was left with the opinion that defendants’ “disregard of the relevant evidence,” their “near-verbatim repetition” of findings throughout the many denial letters, those letters’ “use of boilerplate language,” and defendants’ “selective view of the medical evidence,” were all “classic arbitrary and capricious behavior.” Accordingly, the court granted judgment in favor of plaintiffs and denied defendants’ motion for summary judgment. The court also found that plaintiffs’ suit was not time-barred as defendants never informed plaintiffs of the plan’s contractual limitations period, an action which the court found violated the Department of Labor’s regulations. Additionally, the court determined that even if defendants were right that plaintiffs had failed to exhaust administrative remedies for the daughter’s treatment at one of the residential facilities, such a failure would be excusable here because the plaintiffs had a lack of meaningful access to the review procedures. Regarding remedies, the court awarded benefits in part and reversed and remanded in part. The court directed reinstatement of the benefits for the claims where it found “the record indicates that the plaintiff’s condition has either remained constant or worsened,” from the time when benefits were paid to when they were arbitrarily terminated. It reversed and remanded the benefit determinations that it viewed as based on inadequate findings or explanations, but where the record did not definitively show that the benefits were medically necessary. Finally, the court directed plaintiffs to submit briefing on the amount of monetary recovery, interest, attorney’s fees, and costs. Overall, this decision, with its language unequivocally finding the denials arbitrary and capricious, was a significant victory for the plaintiffs.

Tenth Circuit

L.D. v. UnitedHealthcare Ins., No. 1:21-cv-00121-RJS-DBP, 2023 WL 4847421 (D. Utah Jul. 28, 2023) (Judge Robert J. Shelby). Plaintiff L.D., on behalf of her minor daughter, K.D., sued her ERISA-governed welfare plan, The Insperity Group Health Plan, and its plan administrator, UnitedHealthcare Insurance, after the plan stopped paying for her daughter’s stay at a residential treatment center. L.D. brought a claim for recovery of benefits pursuant to Section 502(a)(1)(B), as well as a claim for violation of the Mental Health Parity and Addiction Equity Act. The parties filed competing motions for summary judgment. In this decision the court granted both motions in part and denied both motions in part. First, because the appropriate review standard here was de novo, the court stated that it would not consider defendants’ procedural shortcomings and whether their inconsistencies in the denial letters or even the “cursory nature” of the letters denied plaintiff a full and fair review. Instead, the court evaluated whether a preponderance of the evidence supported a finding that K.D.’s continued stay at the residential treatment center was medically necessary as defined by the plan. The court found that K.D.’s mental health and behavioral problems had not stabilized, and that treatment therefore was medically necessary from February 11 to March 15, 2019, and ordered defendants to pay for K.D.’s treatment at the residential treatment center for these dates. However, from March 16 to August 6, 2019, the court found that the evidence established that K.D. had improved enough to uphold defendants’ denial during this period. Utilizing Optum’s level of care guidelines, the court agreed with defendants that K.D. no longer qualified for benefits during this time period as she exhibited no episodes of violence towards herself or others. “K.D.’s ongoing behavioral problems may indicate she needed additional treatment. But they do not demonstrate by a preponderance of the evidence that K.D. needed 24-hour care. K.D. had no self-harm for almost five months and successfully participated in off-campus activities, demonstrating K.D.’s symptoms had stabilized, and she no longer required 24-hour care.” Finally, the court concluded that remand was appropriate to determine the claim from August 7, 2019, to November 4, 2019, agreeing with plaintiff that the record was not developed enough for this time frame because the denial rationales only applied to the claims before August 7, 2019. Thus, the court remanded to defendants to provide a specific rationale for why coverage was denied beyond August 6. The court then turned to plaintiff’s Parity Act claim. Ultimately, the court determined that the plan’s medical necessity limitation applicable to mental health benefits was not more restrictive than the limitation it applied to coverage for skilled nursing facilities or impatient rehabilitation facilities. Although the guidelines for the two were not identical, the court was satisfied they were comparable and that one was not more restrictive or applied in a more restrictive way than the other. Accordingly, defendants were granted judgment on the Parity Act claim. Last, the court allowed plaintiff to submit briefing on prejudgment interest, attorney’s fees, and costs on the portion of the denial of benefits claim for which she was successful.

Pleading Issues & Procedure

Second Circuit

Sacerdote v. N.Y. Univ., No. 16 Civ. 6284 (AT) (VF), 2023 WL 4894909 (S.D.N.Y. Aug. 1, 2023) (Judge Analisa Torres). This action began in 2016, when participants and beneficiaries on behalf of two ERISA-governed New York University retirement plans sued NYU to challenge its management of the plans. Plaintiffs brought fiduciary breach claims related the plan’s fees and share classes. NYU moved to dismiss the action, and on August 25, 2017, the court granted in part the motion to dismiss. Plaintiffs responded by moving for leave to amend their complaint to add the individual Retirement Plan Committee members as defendants and to replead the dismissed claims. Their motion was denied. The case then proceeded to an eight-day bench trial held in the spring of 2018, and that summer, the court issued a written decision finding in favor of NYU on all remaining claims. Plaintiffs moved for amended or additional trial findings under Federal Rule of Civil Procedure 52(b) and to alter or amend the judgment under Rule 59(e). The court denied the post-trial motions. Plaintiffs then appealed the final entry of judgment and the denial of their post-trial motions to the Second Circuit Court of Appeals. On appeal, the Second Circuit found that the court erred in denying leave to amend by applying the wrong legal standard to plaintiff’s 2017 motion. This error, the court wrote, was not “harmless because the resulting denial of leave to amend may have affected plaintiffs’ post-trial motions.” Moreover, the appeals court found that had plaintiffs been allowed to add the individual committee members as defendants “the district court would have had to enter judgements specific to each of them after trial, finding whether each had breached her fiduciary duty as an individual member of the Committee.” The Second Circuit accordingly vacated the denial of leave to amend and remanded plaintiffs’ motion for consideration under the correct legal standard. The Second Circuit also vacated the denial of plaintiffs’ Rule 52(b) and 59(e) post-trial motions. When the case was back before the district court, Magistrate Judge Valerie Figueredo granted plaintiffs’ motion for leave to file a second amended complaint. In that order the Magistrate concluded that naming the individual committee members as defendants would not be futile and was in line with the Second Circuit’s rulings. NYU filed objections and moved to vacate the Magistrate’s order. In this decision, the court overruled the objections and denied the request to vacate. “Instead of identifying errors in the Order, NYU speculates about Plaintiffs’ intentions in this action,” the court said. It held that Magistrate Figueredo’s conclusions were grounded in the text of the Second Circuit’s decision, and after careful review of the order and the Second Circuit decision, the court expressed that it was not “left with the definite and firm conviction that a mistake has been committed.” Mostly, the court viewed NYU’s objections as reiterated arguments already presented to Judge Figueredo. Having found no clear error in the order, the court denied NYU’s motion and directed plaintiffs to file their amended complaint.

Fourth Circuit

Falwell v. Liberty Univ., No. 6:23-cv-11, 2023 WL 4867432 (W.D. Va. Jul. 31, 2023) (Judge Robert S. Ballou). Son of famous televangelist Jerry Falwell, Jerry Falwell, Jr., brings this ERISA action seeking payment of Supplemental Executive Retirement (“SERP”) benefits from his former employer, defendant Liberty University, Inc. following his resignation from Liberty which he alleges was “without cause” and for “good reason” as defined by the plan. Since accepting Mr. Falwell’s resignation in August of 2020, circumstances between the employer and its former employee have soured. One year later, in 2021, Liberty filed suit against Mr. Falwell in state court for claims arising out of alleged actions Mr. Falwell took both during and after his employment. Liberty asserts claims of breach of contract, breach of employment contract, breach of fiduciary duty, conspiracy, and unjust enrichment. “Particularly relevant to this case, Liberty alleges that Falwell breached his fiduciary duty to Liberty by negotiating the ‘walkaway’ severance and [SERP] benefits in 2019 and 2020 while withholding pertinent information from Liberty.” By the time Mr. Falwell submitted his claim for SERP benefits in 2022, the state court action was already underway and his claim for benefits was denied because the committee stated that it could not properly construe the terms of the plan or Mr. Falwell’s eligibility for benefits while the state court action was pending. After a final denial was issued, Mr. Falwell commenced this federal action against Liberty and the Executive Committee of the Board of Trustees of the university seeking payment of his benefits under Section 502(a)(1)(B). Liberty responded by requesting the court apply the Colorado River abstention doctrine and either dismiss or stay this action pending the Virginia state court proceeding. The Colorado River doctrine allows a court to exercise its discretion to stay or dismiss a federal suit “in exceptional and limited circumstances where there is a substantially similar suit pending in state court.” Here, the court did not find that such circumstances existed and therefore denied defendant’s motion. Although Liberty asserted that abstention was warranted because rescission of the ERISA plan is a remedy it is seeking in state court and in direct conflict with Mr. Falwell’s request for an order of payment of benefits by the court in this action, the court found this argument “insufficient to warrant abstention.” Overall, it agreed with Mr. Falwell that the factors used to assess the appropriateness of abstention were not met and the state and federal actions were “not sufficiently similar to constitute parallel proceedings.” Moreover, the court stated that resolution of the state court action “will not necessarily resolve the claims in this federal ERISA case.” In perhaps the most interesting section of the decision the court found fault with Liberty’s “unabashed” attempt “to use the state court discovery process to conduct fact-finding outside the administrative record in an effort to unwind the [SERP] contract and avoid paying benefits under an ERISA plan. Liberty’s request that this court abstain to allow it to engage in discovery in state court conflicts with the clear congressional intent of the ERISA statute to permit the nationally uniform administration of employee benefit plans through the federal courts.” The court stressed that this use of a state court proceeding’s discovery process is not the proper use of Colorado River abstention and is moreover antithetical to ERISA’s claims handling procedures. For these reasons, the court declined to exercise its discretion to stay proceedings or dismiss the action.

Provider Claims

Second Circuit

Karkare v. Meritain Health, No. 22-CV-3697 (FB) (AYS), 2023 WL 4904754 (E.D.N.Y. Aug. 1, 2023) (Judge Frederic Block). Surgeon Nakul Karkare sued Meritain Health under ERISA as an attorney-in-fact on behalf of a patient on whom he performed surgery at a hospital. Dr. Karkare seeks payment of benefits for the surgery for which the patient is otherwise responsible. Meritain Health moved to dismiss the action, which the court granted in this order. The court stated that in the Second Circuit a power of attorney is insufficient for a provider to bring a suit on behalf of a patient under ERISA. As Dr. Karkare did not allege that he was assigned benefits, the court found that he lacked derivative standing to sue for benefits, and because he lacked statutory standing under ERISA, the court dismissed the complaint with prejudice.

Withdrawal Liability & Unpaid Contributions

Eighth Circuit

Greater St. Louis Constr. Laborers Welfare Fund v. B.F.W. Contracting, LLC, No. 22-2138, __ F. 4th __, 2023 WL 4940260 (8th Cir. Aug. 3, 2023) (Before Circuit Judges Smith, Stras, and Kobes). Two labor unions, four employee benefit funds, and the trustees of those funds sued construction companies B.F.W. Contracting, LLC and B.F.W. Contractors, LLC to compel an audit and recover unpaid contributions pursuant to a collective bargaining agreement. The district court found that the contractors were bound by the collective bargaining agreement, that they could not unilaterally terminate the agreement, and that they had violated its terms. It granted summary judgment in favor of plaintiffs and found they had incurred $30,368.22 in damages for the unreported covered work. “This sum included fringe benefit contributions, supplemental dues, liquidated damages, and interest.” Additionally, the district court awarded plaintiffs $4,792 to cover the cost of the audit, $11,015 in attorneys’ fees, and $2,393.54 in court costs. The contractors appealed to the Eighth Circuit. They advanced several arguments, but the court of appeals did not consider most of them because it found a genuine issue of material fact that made the award of summary judgment inappropriate – “whether the Contractors had a duty to pay supplemental dues under the [collective bargaining agreement].” Under the terms of the agreement, supplemental dues are only deducted from employees’ wages at “such time as the Employer has physically in his possession an authorization card signed by the employee providing for such deduction and payment to the respective Local Unions.” The Eighth Circuit concluded that pursuant to this clear language the Board was required to provide evidence that the authorization cards were actually supplied to the contractors in order to show that they breached the collective bargaining agreement and had a duty to pay the supplemental dues. Furthermore, the court of appeals found that the contractors had raised this issue below and therefore had not forfeited the argument. Thus, as this fact issue remains, the Eighth Circuit reversed the summary judgment order and remanded to the district court for further proceedings.