Reetz v. Aon Hewitt Inv. Consulting, Inc., No. 21-2267, __ F. 4th __, 2023 WL 4552593 (4th Cir. Jul. 17, 2023) (Before Circuit Judges King, Richardson, and Keenan)

The October 20, 2021 edition of Your ERISA Watch covered the district court decision in this case as a “surprising loss for participants in Lowe’s 401(k) pension plan against the plan’s investment manager, Aon Hewitt Investment Consulting, following class certification, success on summary judgment, and a multi-million-dollar, court-approved settlement with Lowe’s inside fiduciaries.”  Last week’s Fourth Circuit decision upholding Aon’s victory may be a little less surprising, but it is far more consequential and troubling for ERISA pension plan participants seeking to challenge bad investment advice and plan fiduciaries giving that advice.

Aon was a fiduciary to Lowe’s massive 401(k) plan in its dual roles as both the plan’s investment advisor and its investment manager. The Plaintiff, Benjamin Reetz, a former Lowe’s employee and plan participant, brought suit against Lowe’s, the administrative committee of the plan, and Aon, claiming numerous breaches of fiduciary duty with respect to Aon’s design and implementation of a new investment strategy and line-up for the plan. At the center of this investment strategy were Aon’s newly-formed proprietary funds that, as it turned out, significantly underperformed benchmarks, leading to total plan losses of between $70 and $277 million. After settling with Lowe’s, the case against Aon proceeded to a five-day bench trial. The district court issued a 120-page decision concluding that Aon had acted consistently with its fiduciary duties of prudence and loyalty.

The Fourth Circuit agreed. With respect to the duty of loyalty, Mr. Reetz argued that Aon breached its duty in two ways. First, he argued that Aon acted disloyally in pitching its investment management services, essentially cross-selling these services through its role as an investment advisor to the plan. The Fourth Circuit, however, concluded that Aon did not act as a fiduciary in attempting to sell or cross-sell its services.

Second, Mr. Reetz argued that Aon acted disloyally when it “gave its advice to streamline the investment menu to advance its own interest in selling” its own proprietary funds. Again, the court of appeals disagreed. Quite surprisingly, the court reasoned that ERISA’s duty of loyalty “does not mean a fiduciary is disqualified whenever it has a conflict of interest,” but instead merely requires “that a fiduciary must act as if it is free of any conflict.” Acknowledging that some evidence in the record supported that Aon had self-interest in promoting its “streamlined investment strategy,” the appellate court nevertheless reasoned that the district court properly concluded that Aon had acted as if it was free of any conflict and that any benefit to itself from its recommendation was simply incidental.

Mr. Reetz also challenged Aon’s selection and retention of its own proprietary Growth Fund as an investment vehicle for the plan as violative of ERISA’s duty of prudence. The court of appeals, however, stressed that prudence is not concerned with results and does not require clairvoyance. Instead, viewing prudence as primarily requiring a reasoned process to investigate the merits of a decision, the court found the record clear that Aon “considered” and employed a reasoned process to reject “other potential investment funds and strategies.” That, in the court’s view, was sufficient “to clear the prudence bar” in Aon’s selection of the Growth Fund, even if, as it turned out, Aon was wrong about the strategy it chose. Moreover, because the record evidence showed that Aon continued to monitor the fund’s performance after it selected the Growth Fund, even if it never again considered another growth vehicle, the Fourth Circuit held that Aon met its duty of prudence in this respect as well.       

With respect to the duty of loyalty, Judge King, in dissent, saw things differently. Citing the axiomatic principle that an ERISA fiduciary “must act ‘solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits . . . and defraying reasonable expenses,'” Judge King was unsatisfied that Aon had acted “ with an eye single to the interests of the . . . [plan] participants” in making its investment decisions. Indeed, the dissent focused on the district court’s own factual findings that the Aon employee in charge of the Lowe’s account was not simply focused on the 401(k) plan, but was also “‘focus[ed] on encouraging, arranging and participating’ in cross-selling delegated services ‘to burnish his candidacy to become a Partner at Aon.’” These circumstances, the dissent concluded, established that the investment advice given by Aon was designed “at least in part to enhance [Aon’s] position,” thereby failing to meet “ERISA’s exacting duty of loyalty.”  

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

Attorneys’ Fees

Eighth Circuit

Flosdorf v. Reliance Standard Life Ins. Co., No. 22-cv-00091 (SRN/ECW), 2023 WL 4580828 (D. Minn. Jul. 18, 2023) (Judge Susan Richard Nelson). Following a court order granting judgment in his favor, plaintiff Andrew Flosdorf moved for a benefits award, prejudgment interest, attorney’s fees, and costs. Defendant Reliance Standard filed a brief in opposition to Mr. Flosdorf’s benefit and interest calculations. However, it did not object to Mr. Flosdorf’s requested fees or costs. The court began by assessing the appropriate award of long-term disability benefits. Mr. Flosdorf requested a total benefit award of $609,094.99, which reflected his monthly $600 disability benefits from the date of termination through December 11, 2036. Reliance Standard stated that this period was inappropriately lengthy, and requested the court only award benefits through September 20, 2021, the end of the “any occupation” standard for benefits eligibility, and then remand to it for a determination under the “own occupation standard.” Reliance calculated that based on this end date, Mr. Flosdorf was entitled to an award of just $29,088.88. The court agreed with Reliance that it only made a determination that a preponderance of the evidence demonstrated that Mr. Flosdorf was disabled from performing the material duties of his own occupation. It also held that remand to Reliance for a determination under the “any occupation” standard was appropriate and in line with Seventh Circuit precedent on the issue. However, when it came to determining the proper amount of damages, the court stated that it would award benefits through the date of the court’s order granting judgment on May 31, 2023. “To conclude otherwise would be to reward Reliance Standard for its error in denying Mr. Flosdorf’s claim,” the court stated, especially as disability benefits do not automatically end when eligibility for benefits shifts from one standard to the other. Thus, the court awarded Mr. Flosdorf benefits through the date of its order, which totaled $88,865.32. The court next addressed prejudgment interest and found “an award of prejudgment interest…appropriate equitable relief here.” It determined that interest at a rate equal to the weekly average 1-year constant maturity Treasury yield, which in this case was 4.91%, was appropriate. Using this rate, the court reached an amount of prejudgment interest of $6,030.61. It then instructed the parties to submit a declaration if either or both of them disagreed with this calculation. Finally, as noted above, Reliance did not contest Mr. Flosdorf’s requested $22,578.25 in fees for 79.85 hours of work, nor his $708.08 in costs. As a result, the court awarded fees and costs in these requested amounts. 

Ninth Circuit

Beryl v. Navient Corp., No. 20-cv-05920-LB, 2023 WL 4570626 (N.D. Cal. Jul. 13, 2023) (Magistrate Judge Laurel Beeler). A successful plaintiff, Louis Beryl, moved for an award of attorneys’ fees, costs, and prejudgment interest after a jury awarded him over $2 million in damages on his contract and estoppel claims, and the court awarded him just under $1 million for benefits due under an ERISA-governed severance plan and waiting-time penalties under a California state labor law. In his motion, Mr. Beryl sought attorneys’ fees totaling $1,180,128, prejudgment interest of $1,649,991.54, and costs of $32,581.25. Defendant Navient Corporation did not challenge Mr. Beryl’s entitlement to fees or costs but challenged the amounts Mr. Beryl requested. In addition, defendant argued that Mr. Beryl’s counsel did not confer to resolve the fee dispute as required by the local rules. As an initial matter, the court disagreed on this point, finding no procedural default under the local rules. The court then proceeded to examine the requested fee award. Plaintiff sought a 1.6 multiplier of a lodestar totaling $737,580. The lodestar was comprised of hourly rates of $600 per hour for two of the attorneys, and an hourly rate of $1,200 an hour for the most senior attorney, Jonathan Sack, an experienced practitioner with thirty-four years of experience in cases like Mr. Beryl’s who is based in New York. Navient challenged Mr. Sack’s hourly rate but did not challenge the $600 per hour charged by the other two attorneys. The court found Mr. Sack’s rate “supported by the declarations, similar cases, and the court’s experience,” and therefore did not reduce it. Additionally, the court held that Mr. Beryl’s attorneys had not engaged in “block billing” and that the hours they spent on each task were “appropriate to the needs of the litigation.” Accordingly, the underlying lodestar of $737,580 was not disturbed by the court. Nevertheless, the court found a 1.6 multiplier too high, and instead applied a 1.2 multiplier, as it has done in similar litigation. Thus, the court was left with a fee award of $885,096. Furthermore, the court awarded the full amount of requested costs, including those associated with travel and electronic research, concluding that all of the costs were “reasonable and the type billed to clients.” Finally, the court held off on awarding prejudgment interest, and instead directed the parties to recalculate the prejudgment interest and then submit a new proposal on the revised amounts.

Breach of Fiduciary Duty

Seventh Circuit

Luckett v. Wintrust Fin. Corp., No. 22-cv-03968, 2023 WL 4549620 (N.D. Ill. Jul. 14, 2023) (Judge Mary M. Rowland). Plaintiff Lynetta Luckett sued the Wintrust Financial Corporation and the other fiduciaries of the company’s Retirement Savings Plan individually, on behalf of the plan, and on behalf of a putative class of similarly-situated participants and beneficiaries, for breaches of fiduciary duties. Ms. Luckett argues in her complaint that defendants imprudently and disloyally retained underperforming funds in the plan. Wintrust moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). Additionally, several amicus parties – American Benefits Council, the ERISA Industry Committee, American Retirement Association, Committee on Investment of Employee Benefit Assets, Inc., and the Chamber of Commerce of the United States of America – moved for leave to file amicus briefs. As an initial matter, the court used its discretion to grant the motions for leave to file the amicus briefs. However, it stated that it did not rely on the information provided by the amici parties to resolve the motion to dismiss. With regard to the motion to dismiss, the court agreed with Wintrust that Ms. Luckett did not provide sound comparators for the challenged suite of BlackRock Target Date Funds, as her comparators included actively managed funds in contrast to the challenged passively managed funds and some of the comparator funds also had different retirement strategies from that of the challenged funds. Thus, the court stated that Ms. Luckett’s claims did not move from possible to plausible, and it therefore could not infer from the allegations as currently pled that Wintrust breached its duties of loyalty, prudence, and monitoring. Because the court dismissed the causes of action for failure to state a claim, it did not address the issue of whether Ms. Luckett, a former plan participant, has standing to bring claims of injunctive relief. It also did not meaningfully discuss whether Wintrust was acting as a fiduciary in the course of the challenged activity, although the court did note that “this is a fact-intensive inquiry” probably not appropriate for resolution at the motion to dismiss stage. Finally, the court allowed Ms. Luckett the opportunity to replead her claims and amend her complaint.

Disability Benefit Claims

First Circuit

Leif v. Hartford Life & Accident Ins. Co., No. 22-cv-10085-DJC, 2023 WL 4601967 (D. Mass. Jul. 18, 2023) (Judge Denise J. Casper). Plaintiff Lisa Leif commenced this action against Hartford Life and Accident Insurance Company seeking judicial review of Hartford’s denial of her claim for long-term disability benefits based on her heart disease, angina, and medical history of two myocardial infractions. Ms. Leif moved for judgment on the administrative record. The parties agreed that the plan granted Hartford with discretionary authority and as a result the applicable standard of review here was abuse of discretion. Under this deferential review, the court denied Ms. Leif’s motion for judgment, concluding that Hartford’s determination that Ms. Leif was not disabled from performing the duties of her own occupation was reasonable and supported by substantial evidence. Despite Ms. Leif’s arguments to the contrary, the court held that Hartford had not arbitrarily focused on whether she could perform any sedentary occupation rather than the duties of her specific work, that the insurer had not discounted the impact of occupational stress on her heart conditions, and that it had substantially complied with ERISA’s requirements to review Ms. Leif’s submitted materials, including the printout she included in her appeal from the Occupational Information Network outlining the job responsibilities for her occupation, a bill and account collector. Finally, the court found that the procedural issues with Hartford’s denial letters, including Hartford’s failure to initially provide Ms. Leif with information about her appeal rights, did not prejudice Ms. Leif. For these reasons, Hartford’s denial was upheld and Ms. Leif’s motion for judgment was denied.

Seventh Circuit

Lane v. Structural Iron Workers Local No. 1 Pension Tr. Fund, No. 22-1149, __ F. 4th __, 2023 WL 4554097 (7th Cir. Jul. 17, 2023) (Before Circuit Judges Flaum, Scudder, and Kirsch). Former iron worker Jeffery Lane applied for disability payments under a multiemployer benefits fund established by the structural Iron Workers Local No. 1 union which was established “to provide financial support to disabled members.” Under the terms of the plan, eligibility for disability benefits is dependent on the claimant’s total and permanent disability being “the result of an accident sustained while on the job and employed by a Contributing Employer as an Iron Worker.” Although Mr. Lane was awarded disability benefits by the Social Security Administration, Mr. Lane’s application for benefits under the fund was denied because the trustees tasked with reviewing the claim concluded that Mr. Lane’s disability could not be tied to his workplace injury based on the evidence he provided in his application or on the additional evidence he provided during the appeals process. Mr. Lane challenged this decision in court, bringing an action under ERISA against the fund. The district court ultimately concluded that the fund’s denial of Mr. Lane’s claim was not downright unreasonable under deferential review, and thus granted judgment to defendant. Mr. Lane appealed. On appeal the Seventh Circuit affirmed, agreeing with the lower court that the trustees’ denial was reasonable and they acted within their discretion. Although Mr. Lane did convince the court of appeals that he was denied a full and fair review under the Department of Labor’s regulations because he was never provided a copy of the independent medical examiner’s report before the denial of his claim was affirmed on appeal, the court of appeals held this was ultimately a moot point because Mr. Lane never advanced such an argument in the district court. Because of this, the Seventh Circuit agreed with the fund that Mr. Lane had waived his procedural error argument. Therefore, looking only at the substance of the decision itself, the appeals court found no flaw in the district court’s findings and agreed that the denial was rational, supported by substantial evidence, and that the trustees had not overlooked any piece of crucial evidence favorable to Mr. Lane. For these reasons, the district court’s entry of summary judgment for the fund was affirmed.

Eighth Circuit

McIntyre v. Reliance Standard Life Ins. Co., No. 21-3063, __ F. 4th __, 2023 WL 4673615 (8th Cir. Jul. 21, 2023) (Before Circuit Judges Colloton, Melloy, and Gruender). Plaintiff-appellee Melissa McIntyre, a former nurse for the Mayo Clinic, stopped working in 2011 after her symptoms from a degenerative neurological disorder, Charcot-Marie-Tooth disease, left her unable to continue working. Under the Mayo Clinic’s long-term disability benefit plan Ms. McIntyre was awarded benefits and paid disability benefits from 2011 until 2016, at which time defendant-appellant Reliance Standard Life Insurance Company terminated them. Ms. McIntyre appealed the decision. 205 days later, Reliance Standard upheld its denial, concluding that there were sedentary occupations Ms. McIntyre could perform even with her limitations from the disease. Ms. McIntyre responded by suing Reliance pursuant to ERISA Section 502(a)(1)(B). Both parties then moved for summary judgment. The district court reviewed the denial under de novo review given the egregious procedural irregularities during the appeals process, including the lengthy delay in Reliance’s issuance of its final denial. The Eighth Circuit vacated that decision and remanded to the district court instructing it to apply “sliding scale” deferential review “under which a procedural irregularity is one of many factors that a court should evaluate in determining whether there was an abuse of discretion.” The district court then did so, and once again awarded Ms. McIntyre long-term disability benefits. It found that Reliance’s lengthy delay “violated ERISA’s clear statutory mandates,” and gave this factor significant weight in its abuse of discretion analysis. It found that Reliance’s decision to terminate benefits was not supported by substantial evidence and that the insurer ignored evidence in the record favorable to Ms. McIntyre which indicated her disease was worsening overtime. Moreover, the district court found that Reliance had a history of biased claims administration and also factored this conflict of interest into its decision making. Reliance again appealed to the Eighth Circuit. It argued that its decision was supported by substantial evidence “and that neither its decisional delay nor conflict of interest show an abuse of discretion.” The Eighth Circuit agreed and reversed, ordering the district court to vacant its summary judgment decision and fee award, and enter judgment in favor of Reliance. The court of appeals found that it was reasonable for Reliance to determine that Ms. McIntyre could perform certain sedentary fulltime work and that evidence to the contrary in the administrative record “does not negate the substantial evidence supporting Reliance’s decision.” The Eighth Circuit also declined to give Reliance’s procedural irregulates or conflict of interest much weigh on the “sliding scale.” For those reasons the court of appeals found that Reliance’s termination of benefits was not the product of an arbitrary decision. Circuit Judge Melloy, however, dissented, disagreeing that Reliance’s decision to terminate benefits was based on substantial evidence, especially factoring in its unreasonable delay in issuing its final decision during the appeal process. Judge Melloy considered Reliance’s evidence to support its conclusion that Ms. McIntyre could work full-time “weak.” Along these same lines, Judge Melloy outlined how Reliance failed to rebut Ms. McIntyre’s treating physician’s finding that Ms. McIntyre could not perform a task for longer than 30 minutes at a time, and stated that this too was in violation of ERISA’s requirements, which mandate that plan administrators engage with relevant evidence. Finally, Judge Melloy wrote that Reliance’s “finding that McIntyre can work full time at a computer does not ‘logically follow’ from a report which found McIntyre did not have the ability to continuously utilize fine motor skills, reach at desk level, or use other upper body mobility on a regular basis in an 8-hour workday.” Accordingly, Judge Melloy held that he would have affirmed the lower court’s summary judgment decision and would not have rubber stamped Reliance’s denial even under deferential review.

Ninth Circuit

Sutton v. Metropolitan Life Ins. Co., No. 2:22-cv-00732-KJM-CKD, 2023 WL 4669994 (E.D. Cal. Jul. 19, 2023) (Judge Kimberly J. Mueller). Plaintiff Keith Sutton was paid long-term disability benefits under his ERISA-governed plan for 24 months. At the end of that period his benefits were terminated pursuant to his policy’s two-year limitation for disabilities caused by neuromuscular or musculoskeletal conditions. However, this policy exclusion has an exception. Benefits remain payable beyond two years if the claimant has one of six listed conditions. Two of those six conditions are relevant to Mr. Sutton: Myelopathies (a type of spinal cord injury caused by severe compression) and Spinal Cord Damage. In this Section 502(a)(1)(B) lawsuit, Mr. Sutton maintained that he qualifies for continued benefits under this exception and therefore has challenged the decision of the plan and its administrator, MetLife, to terminate his benefits. The parties agree that Mr. Sutton is disabled under the terms of the plan and that the cause of his disability is musculoskeletal in nature. They also agree that this is a case of de novo review. The court held a bench trial on the administrative record. In this decision the court held that Mr. Sutton met his burden of demonstrating “that MetLife erroneously denied benefits under the plan.” First, the court found that the plan language requiring the disability to have “objective evidence” of “Myelopathies” or “Spinal Cord Damage” to be confusing, ambiguous, and open to several possible interpretations. The court stated that it would apply settled interpretive rules requiring courts to interpret ambiguities in favor of the plan participant and construe exclusions in favor of continued coverage. The court therefore construed “the disputed policy phrase as requiring objective evidence of myelopathy or spinal cord damage among the evidence offered to support the conclusion that a plan participant is disabled,” and clarified that this objective evidence tending to establish these conditions need not exclude other potential causes of the back pain or definitively “prove” that Mr. Sutton suffers from these conditions. Working off of this understanding of the policy requirements, the court found that the administrative record indeed included clinical observations and imaging reports that supported and suggested myelopathy and spinal cord damage. It also held that MetLife’s attempts to minimize this favorable evidence were unpersuasive, as MetLife based its conclusions off of a hired doctor who did examine or speak to Mr. Sutton or any of his treating physicians, and because its denial was based on “negative inferences.” Accordingly, the court was satisfied that Mr. Sutton proved his entitlement to benefits and therefore granted judgment in his favor.

ERISA Preemption

Fourth Circuit

Risdorfer v. Ascentage Pharma Grp., No. ELH-23-987, 2023 WL 4664036 (D. Md. Jul. 19, 2023) (Judge Ellen L. Hollander). Plaintiff Albert Risdorfer filed suit in Maryland state court against his former employer, Ascentage Pharma Group, Inc., for violations of state retaliation and wrongful termination laws. Mr. Risdorfer argues in his complaint that he was wrongfully terminated for engaging in a protected activity when he disclosed that Ascentage’s hiring practices were discriminatory, it was failing to comply with ERISA, it was breaking tax laws, it was not complying with federal pharmaceutical company regulations, and it was violating HIPAA by sharing employees’ personal health information with its Chinese parent company. Ascentage removed the case to federal court based on federal question jurisdiction. Ascentage then moved to dismiss the action pursuant to ERISA preemption. Mr. Risdorfer opposed the motion to dismiss and moved to remand his action back to state court. The court issued this order granting the motion to remand and denying, without prejudice, the motion to dismiss. The court wrote, “Risorfer’s claims of retaliation and unlawful termination are not founded on the particulars of an employee benefit plan, nor were they made in the context of an inquiry or proceeding or a required report. Rather, plaintiff merely referenced ERISA violations to his supervisor as one of multiple examples of his belief that defendant was engaged in wrongdoing.” Based on this, the court concluded that Mr. Risorfer’s mentions of ERISA in his complaint were too unsubstantial for his claims to be completely preempted by the statute. As a result, the court found removal improper and therefore granted the motion to remand the action to Maryland state court.

Eleventh Circuit

Surgery Ctr. of Viera v. UnitedHealthCare Ins. Co., No. 6:22-cv-793-PGB-DAB, 2023 WL 4549634 (M.D. Fla. Jul. 14, 2023) (Judge Paul G. Byron). In the fall of 2018, plaintiff Surgery Center of Viera, LLC obtained pre-surgery authorization from UnitedHealthcare Insurance Company to perform a medically necessary cervical spinal surgery on a patient insured under an ERISA-governed healthcare plan administered by United. As part of this pre-authorization, plaintiff alleges that non-party Preferred Medical Claims Solutions secured a repricing agreement from the surgery center on behalf of United setting out a reimbursement rate formula. The surgery center then performed the approved surgery and subsequently billed United for the care. United paid a fraction of the billed charges, which it maintains was the correct payment under the terms of the ERISA plan. Disputing this payment amount, plaintiff commenced this lawsuit against United asserting claims for breach of contract, unjust enrichment, and quantum meruit, arguing that the payment was in violation of the terms of the repricing agreement between the parties. United moved to dismiss the second amended complaint, arguing that the state law causes of action were preempted by ERISA as they relate to the terms of the ERISA plan. The court granted that motion and dismissed the second amended complaint without prejudice, holding that the repricing agreement was not truly distinct from the terms of the ERISA plan as the repricing agreement’s rate of payment “squares with” the reasonable and customary charges analysis under the terms of the plan. The surgery center repleaded its claims and submitted a third amended complaint attempting to address the court’s identified deficiencies. United once again moved to dismiss. In this order the court granted the motion to dismiss and dismissed the claims with prejudice. The court held that the third amended complaint essentially retold the same story with the same flaws, and that once again even viewing this in the light most favorable to the healthcare provider, the state law causes of action necessarily relate to the administration of the healthcare plan. Here, the court found that the repricing agreement itself “does not provide a method to determine the ‘non-covered amounts.’ Instead, the only way to determine what a ‘non-covered amount’ is by reference to…the terms of the Plan…the Plan makes clear that out-of-network charges or claims will be limited to a ‘Reasonable & Customary’ adjustment. As such, the Court finds that, as pled, the Repricing Agreements are not plausibility ‘separate and distinct’ from an ERISA-governed agreement and accordingly ‘relate to’ the Plan.” As a result, the court agreed with United that the claims were preempted.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Krishna v. Life Ins. Co. of N. Am., No. 22-20516, __ F. App’x __, 2023 WL 4676822 (5th Cir. Jul. 21, 2023) (Before Circuit Judges Wiener, Southwick, and Duncan). Plaintiff-appellant Deepa Krishna brought an ERISA lawsuit after her husband died in a plane crash while a passenger of a small private airplane and her claim for accidental death and dismemberment benefits was denied. In her action, Ms. Krishna sued her husband’s former employer, Honeywell International Inc., the benefit plan, and the plan’s insurance provider, Life Insurance Company of North America (“LINA”). Ms. Krishna originally brought claims under ERISA Sections 502(a)(3) and 502(a)(1)(B). However, she voluntarily dismissed her claim pursuant to Section 502(a)(3), leaving her only with her benefits claim. The district court granted judgment to defendants and denied Ms. Krishna’s motion for summary judgment, holding that the denial was not an abuse of discretion and it was a reasonable interpretation of the policy’s exclusion for deaths caused by private aircraft flights. Ms. Krishna appealed the district court’s summary judgment rulings to the Fifth Circuit. She argued that LINA did not have discretionary authority under the policy, that the summary plan description defendants relied on was not operable at the time of her husband’s death, that the interpretation of the exclusion was an abuse of discretion, and that defendants violated ERISA regulations during the claims process which deprived her of a full and fair review. The Fifth Circuit affirmed the district court’s ruling in this decision under de novo review. It found that the 2019 SPD was an operative plan document at the time of decedent’s death and that the SPD vested LINA with discretionary authority triggering deferential review. Furthermore, the court of appeals concluded that LINA’s interpretation of the flight exclusion was “consistent with a fair reading of the Plan.” Moreover, the Fifth Circuit pointed out that that federal courts have at least twice “upheld LINA’s interpretation of substantially similar flight exclusions,” and wrote that it saw “no reason to depart from this well-founded view.” Thus, the appeals court held that LINA’s interpretation was legally correct and therefore not an abuse of discretion. Finally, the court of appeals held that Ms. Krishna had waived her arguments regarding the violation of ERISA regulations by voluntarily dismissing her Section 502(a)(3) claim. For these reasons, the Fifth Circuit affirmed the district court’s summary judgment decision.

Seventh Circuit

Burkett v. The Heritage Corp., No. 1:22-CV-405-HAB, 2023 WL 4579953 (N.D. Ind. Jul. 18, 2023) (Judge Holly A. Brady). While plaintiff Therese Burkett’s husband, Norman Burkett, was hospitalized with brain cancer in December 2019, his group life insurance policy coverage ended, at which time he had 90 days to convert the policy to an individual whole life insurance policy. During his hospitalization, the plan administrator, defendant Unum Life Insurance Company of America, sent Mr. Burkett a letter informing him of this news. Mr. Burkett never received this letter due to his hospitalization. Instead, a month later, when he was out of the hospital, Mr. Burkett followed the instructions of the plan’s SPD and contacted his former employer, defendant The Heritage Group, to inquire about his life insurance coverage. An HR administrator from the company responded to Mr. Burkett’s emails and informed him that he needed to contact Unum. In addition, the HR administrator from the Heritage Group provided inaccurate information to Mr. Burkett about how long he had to convert his policy, although that misinformation was corrected in a follow up email sent shortly after. Ultimately, Mr. Burkett died from his brain tumor in April of 2020 without successfully completing his conversion process. In this lawsuit, his widow has sued both The Heritage Group and Unum for breaches of their fiduciary duties, arguing that defendants were responsible for her husband’s inability to maintain his life insurance coverage. The Heritage Group moved to dismiss for failure to state a claim. It argued that it did not breach any fiduciary duty and that Ms. Burkett did not suffer any harm based on the alleged wrongdoing in the complaint. Ms. Burkett advanced several rationales in her complaint as bases for her fiduciary breach claim. First, she argued that the HR representative for the company provided misleading information to her husband, including that the conversion process deadline had already expired when it had not yet done so. Second, Ms. Burkett maintained that The Heritage Group had a duty to initiate the conversion process on behalf of Mr. Burkett after he inquired about the process and because the employer knew he was suffering from brain cancer. Finally, Ms. Burkett argued that the conversion process itself was confusing and unreasonable. The court dismissed the breach of fiduciary duty claim based on the first theory about the emails but denied the motion to dismiss based on Ms. Burkett’s second two theories. Specifically, the court agreed with defendant that the Seventh Circuit requires an intent to deceive for a breach of fiduciary duty claim premised on a misstatement. Here, the allegations did not demonstrate any intent to actively deceive Mr. Burkett. Nevertheless, the court was satisfied that Ms. Burkett pleaded a plausible fiduciary breach claim based on both The Heritage Group’s failure to obtain the conversion application and based on the confusion of the overall process to convert, including the discrepancies between the plan documents and the way the process unfolded for the family. “The Court cannot say, then, that [The Heritage Group] fulfilled its fiduciary duty when it sought to shuffle [Mr. Burkett] off to Unum.” Finally, the court held that Ms. Burkett’s inability to obtain life insurance benefits was proximately caused by the alleged breach, and that she therefore satisfied the elements necessary to state a fiduciary breach claim. Accordingly, the motion to dismiss was granted in part and denied in part as described above.

Pleading Issues & Procedure

Third Circuit

Knudsen v. Metlife Grp., No. 2:23-cv-00426 (WJM), 2023 WL 4580406 (D.N.J. Jul. 18, 2023) (Judge William J. Martini). Former participants of the MetLife Options & Choices Plan, a health and welfare benefits plan governed by ERISA, sued MetLife Group, Inc. for breaches of fiduciary duties, prohibited transactions, and establishment of trust and anti-inurement after $65 million in drug rebates MetLife received from its pharmacy benefits manager, Express Scripts, were not allocated as Plan assets and were instead paid to MetLife itself for its own benefit. MetLife moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), for lack of Article III standing, and 12(b)(6) for failure to state a claim. In this order the court granted the motion to dismiss for lack of constitutional standing. MetLife’s other grounds for dismissal were not discussed and the 12(b)(6) motion was denied as moot. Regarding standing, the court found that that plan here “is analogous to a defined benefit plan that was at issue in Thole [v. U.S. Bank, N.A.] Here, the Plan is a self-funded healthcare plan… Consistent with a defined benefit plan, MetLife, as the employer, is responsible for paying claims out of the employee’s contributions and bears the financial risk of any shortfall… Thus, even if Plaintiffs are correct that the drug rebates should have been allocated as Plan assets, Plan participants here have no legal right to the general pool of Plan assets just like the plaintiffs in Thole were not entitled to any additional money in the retirement plan beyond the monthly payments that they were ‘legally and contractually’ entitled to receive.” The court therefore determined that the injury to the plan, if it exists, is not an injury to the individual participants themselves. Moreover, the court found plaintiffs’ theory that absent the mismanagement alleged they may have received the benefit of lower co-pays, deductibles, or co-insurance, to be “conjecture.” Accordingly, the court agreed with MetLife that plaintiffs did not have a concrete stake in the outcome of the lawsuit and that they thus lacked standing to assert their claims.

Berkelhammer v. ADP TotalSource Grp., No. 22-1618, __ F. 4th __, 2023 WL 4554581 (3d Cir. Jul. 17, 2023) (Before Circuit Judges Shwartz, Matey, and Fuentes)

For the second time in less than three weeks, the Third Circuit has addressed whether to enforce an arbitration agreement in a lawsuit brought by plan participants under ERISA Section 502(a)(2), 29 U.S.C. § 1132(a)(2). In last week’s edition of Your ERISA Watch, we featured a Third Circuit decision in which the court refused to enforce an agreement that included a provision barring plan-wide relief. Knowing that this would not be the last we would see of important arbitration issues in ERISA cases, we promised to update readers on future developments in this area. So here we are, true to our word but a little sooner than expected. This week, addressing an arbitration agreement between a pension plan and its investment advisor that did not contain a limitation on plan-wide relief, the Third Circuit has concluded that the agreement is binding on the plan participants asserting fiduciary breach claims under Section 502(a)(2).

The decision is not a lengthy one. As the court describes it, the “short story” is that the plaintiffs, Beth Berkelhammer and Naomi Ruiz, participated in the ADP TotalSource Retirement Savings Plan (“Plan”), the investment portfolio of which was managed by NFP Retirement, Inc. The Plan’s sponsor, ADP TotalSource, created a committee to handle Plan administration, which in turn entered into an Investment Advisory Agreement with NFP. This agreement included a provision mandating arbitration of “[a]ll disputes and controversies relating to the interpretation, construction, performance, or breach of” the agreement and further providing that “[f]inal resolution of any dispute through arbitration may include any remedy or relief that the arbitrator deems just and equitable.”

Unhappy with the management of the Plan and the performance of its investments, plaintiffs brought suit on behalf of the Plan under ERISA Section 502(a)(2) against both the committee and NFP alleging fiduciary breaches and other violations of ERISA. NFP moved to compel arbitration. The district court granted its motion.

On appeal, the court began with the congressional command placing arbitration agreements on the same footing as other contracts. “Consent,” the court reasoned, “is the key.” The inquiry into consent entails answering two threshold questions: (1) whether there is a valid arbitration agreement between the parties; and (2) whether the dispute falls within the language of the agreement.

As the court of appeals saw it, neither question was “much disputed here” because the agreement was a contract requiring arbitration of the kind of claims brought by the plaintiffs. Relying on a line of Supreme Court decisions holding that claims brought under Section 502(a)(2) are plan claims, and its own analysis that the statute makes the plan, and not the participants and beneficiaries, the entity to which fiduciary duties are owed, the Third Circuit concluded that the plan, and not the participants, was the relevant contracting party. 

The court looked to other ERISA arbitration decisions – such as Hawkins v. Cintas Corp., 32 F.4th 625 (6th Cir. 2022) and Munro v. University of Southern Cal., 896 F.3d 1088 (9th Cir. 2018) – as confirming that “the presence or absence of the individual claimants’ consent to arbitration is irrelevant; what counts is the contract created by the plan.” In those cases, the courts concluded that agreements by individual participants to arbitrate could not bind the plan.

The Third Circuit concluded that, despite the different factual context, the same “proposition holds here.” The court recognized that “in Munro and Hawkins the plaintiffs had agreed to arbitrate and the plans had not, [whereas] here the Plan agreed to arbitrate, not Appellants.” Nevertheless, the Third Circuit concluded that “[t]he difference in direction does not change the result: the Plan’s agreement to arbitrate is what matters, and that agreement applies to Appellants’ claims on the Plan’s behalf.”

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

Arbitration

Second Circuit

SiriusPoint Ltd. v. Davis, No. 22-CV-7955 (JPO), 2023 WL 4447098 (S.D.N.Y. Jul. 11, 2023) (Judge J. Paul Oetken). Defendant Jeffrey Davis served as the Executive Vice President, Chief Risk Officer, and Chief Actuary to the insurance company Sirius Internal Insurance Group, Ltd. In early 2021, Sirius Internal Insurance Group, Ltd. merged with Third Point Reinsurance, Ltd., forming a new company, SiriusPoint Ltd, the plaintiff in this lawsuit. Following that change in control, Mr. Davis believed that his position and job requirements were materially altered at the new organization. As a result, Mr. Davis initiated the “Good Reason Process” under both his Retention Award Agreement (“RAA”) and his ERISA-governed Group Severance Plan with the company. He then resigned and initiated arbitration with the American Arbitration Association. “The crux of Davis’s theory of liability is that he resigned for Good Reason, complied with the Good Reason Process, and so is entitled to the contractual benefits associated with the ERISA provisions in the Severance Plan as well as the full retention award he had been paid under the RAA. Davis argued, among other things, that the merger was a ‘Change in Control’ within the meaning of the Severance Plan.” In response to Mr. Davis’s actions, SiriusPoint initiated this action for breach of contract. It seeks a refund of the payment it made to Mr. Davis under the RAA. In addition, SiriusPoint has moved for a preliminary and permanent injunction against Mr. Davis’s arbitration of his claim related to the RAA payments. Mr. Davis opposed SiriusPoint’s motion and argued that the arbitration clause between the parties unambiguously delegates jurisdiction to the arbitrators to determine arbitrability. In this decision the court agreed with Mr. Davis, denied SiriusPoint’s motion for a preliminary injunction enjoining the arbitration of the RAA claim, and compelled arbitration on the threshold question of arbitrability of the dispute. The court concluded that the parties agreed to arbitrate the issue of arbitrability. “[T]he dispositive fact is that the arbitration clause expressly adopted the AAA rules, which the Second Circuit has found both necessary and sufficient, as a matter of law, to ‘provide clear and unmistakable evidence of the parties’ intent to arbitrate issues of arbitrability.’” Accordingly, the court determined that SiriusPoint did not show a likelihood of success on its motion, and therefore denied the motion and stayed proceedings until after the arbitration panel determines the issue of arbitrability.

Fifth Circuit

Coleman v. Brozen, No. 3:20-CV-01358-E, 2023 WL 4498506 (N.D. Tex. Jul. 12, 2023) (Judge Ada Brown). Following on the coattails of last week’s case of the week, Henry v. Wilmington Trust NA, No. 21-2801, __ F.4th __, 2023 WL 4281813 (3d Cir. June 30, 2023), the court in this putative ESOP class action denied the fiduciary defendants’ motion to compel individual arbitration, concluding that the plan’s arbitration provision’s Class Action Waiver section was unenforceable under the effective vindication exception to the Federal Arbitration Act as it conflicts with plaintiffs’ statutory rights under Section 502(a)(2) by prohibiting participants from seeking or obtaining plan-wide relief. Furthermore, the court agreed with the plaintiffs that the Class Action Waiver was non-severable from the arbitration procedure as a whole and therefore concluded that the arbitration provision in the plan was unenforceable. Thus, the court jointed the Third, Seventh, and Tenth Circuits and their conclusions that language such as that found in this ESOP’s Class Action Waiver improperly forecloses statutory “remedies that ERISA expressly authorizes,” and that such language therefore invalidates these arbitration agreements under the effective vindication exception. Having so decided, the court did not address plaintiffs’ other arguments as to whether they assented to the arbitration procedure in the first place, or whether the Class Action Waiver also violates other “rights, remedies, and standards under ERISA,” Sections 204(g), 410(a), 404(a), and 502(g).

Attorneys’ Fees

Ninth Circuit

Estate of Dick v. Desert Mut. Benefit Adm’rs, No. 2:21-cv-01194-HL, 2023 WL 4535163 (D. Or. Jul. 13, 2023) (Magistrate Judge Andrew Hallman). Plaintiff, the Estate of Susan K. Dick, moved for an award of attorney’s fees and costs pursuant to ERISA Section 502(g)(1). The Estate requested an award of $40,950 in fees, and costs of $402 for reimbursement of the filing fee in this action. Defendant Desert Mutual Benefit Administrators filed only a limited objection to the request, asking the court to preserve its rights in the event of an appeal. However, defendant did not object to the underlying fee award. That underlying fee award was based on a lodestar of counsel’s time spent litigating the case multiplied by an hourly rate of $300. Plaintiff did not request a multiplier. The court agreed with the Estate that it is entitled to attorney’s fees in the amount requested based on the Ninth Circuit’s Hummell factors. In light of defendant’s objection, the court stated that it “may reconsider this award of fees and costs” if the judgment is reversed on appeal. Other than this caveat, the court awarded plaintiff’s motion in its entirety, finding the requests for fees and costs reasonable and warranted.

Disability Benefit Claims

Second Circuit

Graziano v. First Unum Life Ins. Co., No. 21-CV-2708 (PAC), 2023 WL 4530274 (S.D.N.Y. Jul. 12, 2023) (Judge Paul A. Crotty). Plaintiff Michael Graziano commenced this action to challenge defendant First Unum Life Insurance Company’s termination of his long-term disability benefits and life insurance premium waiver benefits. The parties agreed to have the court resolve their dispute pursuant to Federal Rule of Civil Procedure 52 and were also in agreement that the plan did not grant discretionary authority, making the appropriate standard of review de novo. In this decision the court issued its ruling and entered judgment in favor of Mr. Graziano, finding him disabled within the meaning of both the long-term disability plan and the waiver plan through the date of the close of the administrative record. The court then remanded to Unum to determine whether Mr. Graziano qualifies for continued benefits under the plans after that date. Upon review of the administrative record, the court concluded that Mr. Graziano, who suffers from “persistent (and deteriorating)” back, shoulder, and hip pain, including osteoarthritis and lumbar radiculopathy, was unable to perform the material duties of his sedentary occupation because Mr. Graziano cannot perform the sitting requirements of his regular occupation or any similar sedentary desk job. The court stated that it found Mr. Graziano’s treating physician, a board-certified pain management specialist, to be more credible than Unum’s reviewers, who did not specialize in rehabilitation or pain management and who never personally examined Mr. Graziano. Additionally, the court concluded that Unum had inappropriately characterized Mr. Graziano’s attempts to treat his conditions as “conservative.” To the contrary, the court found the record demonstrated that Mr. Graziano underwent extensive and varied treatments to improve his conditions, including physical therapy, medical branch injections, steroid injections, and lumbar radiofrequency ablation treatments. Finally, the court wrote that Unum’s “policy reversal in light of Graziano’s worsening lumbar conditions ‘weighs against the administrator and in favor of the claimant.’” Thus, the court held that Mr. Graziano was disabled as defined by his ERISA plans. However, the court declined to award Mr. Graziano benefits past the date when the administrative record ended because it has not had the opportunity to review additional medical documentation beyond that date. The court therefore remanded to Unum to make a determination of continued disability and entitlement of benefits from the date when the administrative record ended onward.

Discovery

Third Circuit

L.P. v. Crunchy Data Sols., No. 22-2004 (RK), 2023 WL 4457888 (D.N.J. Jul. 10, 2023) (Magistrate Judge Tonianne J. Bongiovanni). Plaintiff L.P. sought authorization from his ERISA healthcare plan’s administrator, Cigna Health and Life Insurance Company, to approve a phrenic nerve reconstructive surgery by an out-of-network provider. Cigna originally denied the pre-authorization request, but later revoked its original decision and authorized the surgery, agreeing that it was “medically necessary.” However, rather than abide by the terms of the plan, which call for reimbursement of approved out-of-network claims at the “Maximum Reimbursable Charge” rate, otherwise known as the “usual, customary, and reasonable” rate, Cigna required payment for the surgery be based on its in-network rate, a lower amount. L.P. and his surgeon appealed this determination, arguing that “Cigna’s approval of the Surgery, but refusal to negotiate, was tantamount to a denial of medically necessary treatment covered by the Plan.” Cigna did not respond to plaintiff or the surgeon regarding their appeal. In this action, L.P. seeks an injunctive order requiring his plan and Cigna to pay the usual, customary, and reasonable charges for his approved medically necessary surgery pursuant to Section 502(a)(1)(B). L.P. maintains that Cigna’s failure to respond to his appeal amounts to  noncompliance with the plan’s internal appeals procedures and therefore is “tantamount to a denial to provide medical services as covered by the Plan.” At this point, the parties have reached an impasse over discovery. Both parties object to all requests by the other regarding all documents beyond the administrative record. L.P. subsequently moved to compel discovery. He argued that he is entitled to discovery beyond the administrative record because of procedural irregularities which he maintains have given him reasons to doubt the neutrality of Cigna’s actions and whether its decisions were affected by a conflict of interest. Cigna opposed L.P.’s motion, asserting that L.P. did not establish a reasonable suspicion of procedural irregularity that would justify extra-record discovery, and that the discovery L.P. seeks is overly broad and not truly “conflict” discovery, but rather discovery to challenge the merits of its decision. The court agreed with Cigna on all points, and denied L.P.’s discovery motion, holding, “[i]n this case, even if Plaintiff’s allegations signify a procedural irregularity, Plaintiff has failed to demonstrate: (1) a reasonable suspicion of Cigna’s misconduct or bias, and (2) that extra-record discovery would aid in the court’s evaluation of the alleged abnormality.”

Life Insurance & AD&D Benefit Claims

Sixth Circuit

United of Omaha Life Ins. Co. v. Freeman, No. 2:22-cv-1492, 2023 WL 4533708 (S.D. Ohio Jul. 13, 2023) (Judge Sarah D. Morrison). United of Omaha Life Insurance Company brought this interpleader action to determine the proper beneficiary of the life insurance benefits under two ERISA-governed life insurance policies provided to decedent Donald R. Morrison. The two defendants, the individuals with the competing claims for the benefits, were Mr. Morrison’s ex-wife, Shana Seufer, and Mr. Morrison’s only child, Amy K. Freeman. The defendants filed cross-motions for judgment. In this order the court granted judgment for Ms. Freeman. The court found that there was no evidence Mr. Morrison ever named a beneficiary under the policies. “Accordingly, by the plain language of the Policies, the benefits must be paid to Mr. Morrison’s surviving child – Ms. Freeman.” Therefore, the court found that Ms. Freeman was entitled to judgment in her favor and ordered the benefits from the policies, plus interest, be paid to her.

Medical Benefit Claims

Eleventh Circuit

L.R. v. Cigna Health & Life Ins. Co., No. 6:22-cv-1819-RBD-DCI, 2023 WL 4532672 (M.D. Fla. Jul. 11, 2023) (Magistrate Judge Daniel C. Irick). Plaintiff L.R. sued Cigna Health and Life Insurance Company for violations of ERISA and the Mental Health Parity and Addiction Equity Act after her claims for reimbursement of her mental health treatment at a residential treatment facility were denied by her healthcare plan. In a previous order, the court dismissed L.R.’s Parity Act violation and simultaneously directed L.R. to show cause why she should be allowed to proceed under her initials rather than appear with her full name. L.R. responded by arguing that her privacy outweighs the presumption of openness, as her lawsuit is about a sensitive topic regarding her private health information. L.R. made the point that issues of mental healthcare are stigmatized and that proceeding under her full name would have a negative health effects for her, which she stated “would make her progress backwards.” Additionally, L.R. argued that the public has no interest in and is not served by requiring her to proceed without a pseudonym. Notably, Cigna did not object to L.R. proceeding under a pseudonym. Nevertheless, in this order the court denied L.R.’s motion. The court stated that it was opposed to the presumption that “all plaintiffs in ERISA cases involving mental health can proceed anonymously. That type of blanket rule,” the court held, “is inappropriate.” The court cited a similar decision, which Your ERISA Watch covered last week, L.L. v. MedCost Benefits Servs., No. 1:21-cv-00265-MR, 2023 WL 4393748 (W.D.N.C. Jul. 5, 2023),in support of its stance against allowing plaintiffs in these types of intimate and sensitive mental healthcare ERISA cases to proceed anonymously. Much like the court in L.L. v. MedCost, the court here held that it prefers to seal the medical information rather than allow the plaintiff to proceed under a pseudonym. Such a trend against allowing plaintiffs this type of privacy, if it continues, may serve as an alarming deterrent function to patients suffering from mental health disorders who wish to challenge benefit denials. Contrary to the court’s position, individuals facing mental health problems are stigmatized and discriminated against in society, and allowing even the most pared-back details about their treatment to be made public may be harmful to them, both psychically and socially. Furthermore, as we here at Your ERISA Watch argued in our summary of the L.L. decision, we believe that the public’s interest in cases like L.R.’s is actually served when individuals are permitted to proceed anonymously with the fuller medical and claims denial record included openly for the public’s scrutiny. It is only when the public has access to this type of granular detail that changes can begin to take place in mental health policy and treatment. It is for this reason that we hope this trend is nipped in the bud, especially as it is antithetical to ERISA, which intends for plan participants to be able to vindicate their rights, and to mental health parity laws, which recognize that society has a long way to go in overcoming the stigma associated with mental illness.

Pension Benefit Claims

Sixth Circuit

Howmet Aerospace, Inc. v. Corrigan, No. 1:22-cv-713, 2023 WL 4540342 (W.D. Mich. Jul. 14, 2023) (Judge Hala Y. Jarbou). Plaintiff Howmet Aerospace, Inc. terminated a nonqualified deferred compensation top hat plan on July 28, 2020. Howmet believes that it properly discharged all of its obligations under the plan by paying the executives the balances of their deferred compensation accounts. The executives, however, dispute Howmet’s termination of the plan and believe that Howmet had a duty to pay out death benefits to their beneficiaries upon their deaths pursuant to Section 7.3 of the plan. Howmet commenced this action seeking a court declaration finding that it properly discharged its termination obligations to the executives and appropriately paid them what was due. The executive defendants brought counterclaims against Howmet for breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. Before the court were two motions brought by Howmet: a motion to dismiss the counterclaims and a motion for judgment on the pleadings. In this decision the court granted both motions. As a preliminary matter, defendants did not timely respond to Howmet’s motions. Thus, the court expressed that it would examine plaintiff’s motions to evaluate whether it met its burden for the requested relief but stated that defendants had waived any right to counterarguments. The decision began with the motion to dismiss the counterclaims. The court found that the claims were preempted by ERISA as the relief the claims sought was the amount of benefits the executives believed they were entitled to under the plan. The court then assessed Howmet’s motion for judgment on the pleadings on its claim for declaratory judgment. The court granted the motion and declared that Howmet properly terminated the plan because Section 7.3 did not survive the termination of the plan pursuant to the plan language. Under the terms of the plan, the court agreed with Howmet that “no payment shall be made under (Section 7.3) following” a termination pursuant to the terms of another Section, 9.2, of the plan. Thus, the court found that no payment was owed to the executives’ beneficiaries upon the participant’s death, and as such the declaratory relief Howmet sought was proper.

Pleading Issues & Procedure

Fifth Circuit

Martin v. Sedgwick Claims Mgmt. Servs., No. SA-23-CV-00169-XR, 2023 WL 4535719 (W.D. Tex. Jul. 12, 2023) (Judge Xavier Rodriguez). Plaintiff Shantyry Martin brought this breach of contract lawsuit against her former employer, General Electric Company, and the claims manager of GE’s Salary Continuation Program, Sedgwick Claims Management Services, Inc. Ms. Martin alleges in her complaint that defendants violated the terms of the non-ERISA pay-roll practice by denying her claim for benefits after she became disabled due to lupus and related auto-immune disorders. In addition to denying her claim under the non-ERISA salary continuation program, defendants also denied Ms. Martin’s claim under the company’s ERISA-governed long-term disability plan. Eligibility under that plan was dependent on a successful application for benefits under the salary continuation program, which functions essentially as a short-term disability plan. Defendants moved to dismiss for failure to state a claim. They argued that Ms. Martin’s breach of contract claim was untimely under the three-year contractual limitations period outlined in the Administrative Handbook, which they argued governs both the payroll practice and the ERISA disability plan. Ms. Martin disagreed, claiming the Handbook only applied to the ERISA long-term disability plan. However, the court found that reading the Handbook as a whole, it is clear that its terms “apply to the GE Salary Continuation Program,” as well as the long-term disability plan, and that Ms. Martin’s claims for short-term disability benefits under the non-ERISA plan are governed by the terms of the Handbook and therefore subject to the limitation period within it. Accordingly, the court agreed with defendants that Ms. Martin’s action was untimely and thus granted their motion to dismiss.

D.C. Circuit

Keister v. American Ass’n of Retired Persons, No. 22-7002, __ F. App’x __, 2023 WL 4541023 (D.C. Cir. Jul. 14, 2023) (Before Circuit Judges Srinivasan, Wilkins, and Randolph). While employed at the American Association of Retired Persons (“AARP”), Kim Keister suffered a stroke. As a result of the stroke, Mr. Keister lost certain language and cognitive skills and became unable to function in his position as AARP’s news and policy executive editor. Mr. Keister subsequently applied for and received short-term disability benefits, and once they had expired submitted a claim for long-term disability benefits. While Mr. Keister’s claim for long-term disability benefits was pending, AARP presented Mr. Keister with a severance agreement. Mr. Keister signed the agreement and released all rights to “any other legal or equitable claim of any kind, whether based upon statute, contract, tort, common law, ordinance, regulation or public policy” in exchange for the severance pay. Aetna eventually denied Mr. Keister’s long-term disability benefit claim, and then upheld its denial following the internal appeals process. Shortly after the final denial was issued, Mr. Keister filed an ERISA benefits lawsuit against both Aetna and the AARP Benefits Committee, alleging they wrongfully denied him disability benefits under the plan. Mr. Keister alleged that he was misled and misinformed by AARP and its representatives when he signed the severance benefits release waiver. Defendants moved for summary judgment. They argued that Mr. Keister’s claim was barred because he waived his right to bring lawsuits when he signed the severance agreement. The district court granted summary judgment in favor of both AARP Benefits Committee and Aetna, agreeing that by signing the separation agreement Mr. Keister had waived his rights to bring his claim as a matter of law. The court also noted that it found no evidence of “fraudulent misrepresentation.” Mr. Keister then brought this second lawsuit, against AARP, arguing that his former employer misrepresented the effect of the severance agreement with respect to the long-term disability benefits and that it intentionally interfered with his attainment of those benefits. AARP moved to dismiss Keister II, arguing that Mr. Keister’s claims were barred by the doctrines of claim and issue preclusion. The district court agreed with AARP and dismissed the second lawsuit. Mr. Keister appealed the dismissal of the second action to the D.C. Court of Appeals. In this decision the appeals court affirmed the district court’s dismissal, concluding that Mr. Keister’s second lawsuit was barred by res judicata. Specifically, the court of appeals found that Keister I and II shared the same common nucleus of facts and allegations, as Mr. Keister had raised the same arguments in both his first and second actions. The D.C. Circuit also determined that AARP and the AARP Benefits Committee are in privity. For these reasons, the appeals court affirmed the district court’s grant of the motion to dismiss as it agreed that the lawsuit was barred by claim preclusion.

Subrogation/Reimbursement Claims

Ninth Circuit

Board of Trs. of the Sw. Carpenters Health & Welfare Tr. v. Jackson, No. CV-22-01781-PHX-SMM, 2023 WL 4488978 (D. Ariz. Jul. 12, 2023) (Judge Stephen M. McNamee). This subrogation action begins with a tragedy, which occurred on February 9, 2020, when a young girl, a beneficiary of the Southwest Carpenters Health and Welfare Plan for Active Carpenters, Cyndi Jackson, died at Phoenix Children’s Hospital after being admitted for gastrointestinal distress. Following the girl’s death, her parents, defendants Darwin and Veloria Jackson, sued the hospital for medical malpractice in state court in Arizona. In 2022, the parents settled the claims alleged in the lawsuit for a confidential amount and signed a Memorandum of Settlement Agreement. Two months later, the Board of Trustees of the Southwest Carpenters Health and Welfare Trust, the administrator of the healthcare plan, sued the family under ERISA pursuant to the plan’s subrogation and reimbursement provision seeking repayment of the $105,569.44 that the plan paid on behalf of Cyndi for the medical treatment she received at Phoenix Children’s Hospital. The Jacksons have moved to dismiss pursuant to Rule 12(b)(6). Their principal argument was that Arizona’s Wrongful Death Act precludes the plan administrator from seeking recovery from the settlement funds. They argued that they did not recover money because of injuries sustained by Cyndi, but that their damages and the recovery was for their own injuries. Plaintiff responded that it is entitled to recover under the plain language of the plan and that the Wrongful Death Act is preempted by ERISA. Contrary to the Jacksons’ assertions, plaintiff stated that some of the claims were Cyndi’s, brought under a survivorship action, and that the Jacksons also explicitly brought and settled claims for medical expenses, and that this recovery falls easily under the remit of the plan’s subrogation and reimbursement provisions. The court agreed and denied the motion to dismiss. It concluded that the Board of Trustees had stated non-frivolous claims to enforce its right to reimbursement and thus allowed the action to proceed.

Henry v. Wilmington Trust NA, No. 21-2801, __ F.4th __, 2023 WL 4281813 (3d Cir. June 30, 2023) (Before Circuit Judges Chagares, Jordan, and Scirica)

Your ERISA Watch is cheating a little bit, as the case of the week is actually from two weeks ago. However, Your ERISA Watch was on vacation last week celebrating our nation’s birthday, and this published decision from the Third Circuit is notable enough that it deserves to be highlighted, even if in an ever-so-slightly untimely fashion.

The case addressed the oft-recurring interplay between ERISA and arbitration. The plaintiff was Marlow Henry, who was a participant in an ERISA-governed employee stock ownership plan (“ESOP”) sponsored by his employer, BSC Ventures Holdings, Inc., and administered by Wilmington Trust.

In 2016, the ESOP purchased $50 million in BSC stock. Henry believed that Wilmington, as the ESOP’s trustee, had overvalued the stock, which resulted in the ESOP overpaying to the detriment of all the ESOP participants. Henry contended that Wilmington “improperly relied on flawed financial projections” which were provided by self-interested BSC executives from whom much of the stock was being purchased.

Henry, on behalf of a putative class of ESOP participants, filed suit against Wilmington and two BSC executives. He alleged that the defendants breached their fiduciary duties to the ESOP and engaged in transactions prohibited by ERISA. Henry sought several forms of relief, including declaratory relief, disgorgement, attorneys’ fees, and “other appropriate equitable relief to the [ESOP] and its participants and beneficiaries.”

The defendants moved to dismiss, arguing that the plan contained a provision which required Henry to pursue any claims he might have in arbitration. That provision also contained a class action waiver which prohibited Henry from pursuing any plan-wide relief.

Henry made two arguments in response. First, he contended that the arbitration clause was not binding on him because it had been unilaterally added to the plan and he had not consented to it. Second, Henry argued that the arbitration clause was invalid because the class action waiver forced him to waive his rights to pursue plan-wide relief authorized by ERISA.

The district court denied the defendants’ motion to dismiss, agreeing with Henry on his first argument that he had not “manifested his assent” to BSC’s addition of an arbitration provision to the plan. Thus, the district court did not reach Henry’s second argument, although in a footnote the court indicated that it was skeptical of its merit.

The defendants appealed to the Third Circuit. Henry responded first with a jurisdictional argument. He conceded that Congress had authorized circuit courts to exercise jurisdiction over orders denying a petition to compel arbitration. However, Henry argued that the defendants’ motion in this case was a motion to dismiss, not a motion to compel arbitration, and thus it was non-appealable.

The Third Circuit disagreed, essentially concluding that if an order looks like a duck, walks like a duck, and quacks like a duck, then it’s a duck. The court ruled that the motion, even if not styled as a motion to compel arbitration, “was substantively a motion to compel arbitration, and the District Court’s order denying the motion to dismiss was substantively an order denying a motion to compel arbitration.” Thus, the Third Circuit concluded that it had jurisdiction to hear the appeal.

The court then turned to addressing the merits of the district court’s arbitration ruling. The Third Circuit agreed with the district court that it only needed to address one of Henry’s two arguments, but surprisingly, it did not choose the issue on which the district court had ruled (i.e., whether Henry had consented to the plan’s addition of the arbitration provision).

Instead, the Third Circuit discussed the broader issue of “whether the class action waiver amounts to an illegal waiver of statutory remedies.” The court noted that while federal law favors arbitration, “arbitration agreements are not enforceable in some cases.” This is because arbitration is intended to be an alternate venue where the claimant can pursue his statutory rights. If a provision “prohibits a litigant from pursuing his statutory rights in the arbitral forum, the arbitration provision operates as a forbidden prospective waiver and is not enforceable.”

The court concluded that the class action waiver in this case ran afoul of that rule. The court noted that Henry had brought his suit under 29 U.S.C. § 1132(a)(2) and 29 U.S.C. § 1109, and thus his claim was “brought in a representative capacity on behalf of the plan as a whole.” The court explained that any relief Henry might win under those provisions would necessarily accrue to the plan as a whole, including such remedies as reimbursement to the plan, removal of fiduciaries, and “such other equitable or remedial relief as the court may deem appropriate.”

However, the class action waiver in the ESOP’s arbitration provision barred Henry from pursuing any of these remedies. Specifically, the waiver sought to prohibit participants such as Henry from bringing a lawsuit that “seek[s] or receive[s] any remedy which has the purpose or effect of providing additional benefits or monetary or other relief” to any third party. The court observed that it was impossible for an arbitrator to provide the kind of relief authorized by 29 U.S.C. § 1109 solely to Henry. For example, a court could not remove a plan fiduciary only for Henry, or order restitution to the plan only for Henry. “Restitution of ‘all plan losses’ would necessarily result in monetary relief to non-party plan participants.”

In short, “Because the class action waiver purports to prohibit statutorily authorized remedies, the class action waiver and the statute cannot be reconciled.” The Third Circuit thus concluded that the class action waiver could not be enforced. Furthermore, because the ESOP explicitly provided that the class action waiver was non-severable from the rest of the arbitration provision, the entire arbitration provision was “void in its entirety” and unenforceable against Henry.

Thus, the Third Circuit affirmed the district court’s order denying the defendants’ motion to dismiss, albeit on an entirely different ground. In so ruling, the Third Circuit agreed with two recent decisions by the Seventh and Tenth Circuits that arrived at similar conclusions. Your ERISA Watch comprehensively covered both of those prior opinions – Smith v. Board of Directors of Triad Mfg., Inc., 13 F.4th 613 (7th Cir. 2021), and Harrison v. Envision Mgmt. Holding, Inc., 59 F.4th 1090 (10th Cir. 2023) – when they were decided. Your ERISA Watch has also discussed two similar recent district court orders: Burnett v. Prudent Fiduciary Servs., No. 22-270-RGA, 2023 WL 2401707 (D. Del. Mar. 8, 2023), and Lloyd v. Argent Tr. Co., No. 22cv4129 (DLC), 2022 WL 17542071 (S.D.N.Y. Dec. 6, 2022). If you want to learn more about this issue, feel free to follow the links and keep reading Your ERISA Watch, which will cover the inevitable future developments in this area.

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

Breach of Fiduciary Duty

Second Circuit

Singh v. Deloitte LLP, No. 21-CV-8458 (JGK), 2023 WL 4350650 (S.D.N.Y. Jul. 5, 2023) (Judge John G. Koeltl). Participants in Deloitte LLP’s two defined-contribution retirement plans, its profit-sharing plan and its 401(k) plan, sued the plans’ fiduciaries for breaches of their duties to ensure the investments in the plan and fees paid by the plan were reasonable and prudent. The court previously granted defendants’ motion to dismiss. Plaintiffs subsequently moved for leave to file an amended complaint. In their amended complaint, plaintiffs attempted to cure the deficiencies the court identified previously regarding the administrative and recordkeeping fees charged. The amended complaint, however, did not address the previously dismissed expense ratio fund claims, focusing only on the cost claims. In this order the court concluded that plaintiffs failed to rectify the defects it identified in the original complaint and thus denied their motion. In particular, the court held that the amended complaint failed to address what services were received for the fees charged or whether those services were of a higher quality than those received by the plans which paid less. The court rejected plaintiffs’ position that defined-contribution plan fees are based solely on the number of participants. This “economy of scale” argument was considered implausible by the court and nothing more than a conclusory allegation. In sum, the court found that the proposed amended complaint “suffers from the same pleading deficiencies as the original complaint,” and therefore its reaction to it remained unchanged.

Tenth Circuit

Su v. Ascent Constr., No. 1:23-cv-0047-TS-DAO, 2023 WL 4315762 (D. Utah Jul. 3, 2023) (Judge Ted Stewart). Acting Secretary of Labor Julie A. Su sued the plan sponsor and the sole trustee of the Ascent Construction, Inc. Employee Stock Ownership Plan for breaches of fiduciary duties and prohibited transactions. The Department of Labor alleges that defendants withdrew plan assets and engaged in self-dealing, using the funds for their own benefit, to the detriment of the plan participants. Because of concerns regarding this unlawful handling of the plan’s funds, coupled with the financial distress Ascent Construction is currently facing, the DOL moved for a preliminary injunction to prevent further ERISA violations, seeking a court order removing defendants from their fiduciary positions as administrator and trustee, and appointing a new independent fiduciary to manage the plan. In this decision the court granted the motion. To begin, the court held that the DOL’s motion sought to alter the status quo by seeking to remove defendants and appoint a new fiduciary to oversee plan administration. Therefore, the court articulated that it would only grant the motion and disturb the status quo if the DOL could make a strong showing with regard to both the balance of harm and the likelihood of success on the merits. Here, the court was satisfied that the DOL had done so. Regarding harm, the court concluded that irreparable harm exists here as the money may not be collectible in the future if the injunction were not issued given the precarious financial situation the plan and the defendants are currently facing. Because of “Defendants’ alleged use of the Plan assets for personal benefit and the importance of protecting the Plan from future harm,” the court found the balance of harm weighed in favor of granting the injunction. With regard to the likelihood of success on the merits, the court was persuaded that the DOL presented strong evidence showing a substantial likelihood of success on all of the claims asserted. Finally, the court agreed with the DOL that the public interest would be served by issuing the preliminary injunction, as there is a national public interest in protecting ERISA plans. Based on the foregoing, the court held that the DOL established that injunctive relief here is necessary, and thus granted the motion and issued a preliminary injunction removing defendants as plan fiduciaries and appointing an independent fiduciary to manage the plan.

Class Actions

Second Circuit

Neufeld v. Cigna Health & Life Ins. Co., No. 3:17-cv-01693 (KAD), 2023 WL 4366137 (D. Conn. Jul. 6, 2023) (Judge Kari A. Dooley). Participants and beneficiaries of ERISA healthcare plans insured and administered by Cigna Health and Life Insurance Company commenced this putative class action against the company for violations of ERISA alleging that Cigna engaged in a scheme of artificially over-charging patients for medical services, supplies, and equipment. Specifically, the plaintiffs allege that Cigna violated the terms of the plans and breached its fiduciary duties by charging patients the rate paid to its billing vendor, CareCentrix, rather than the actual cost of the care, or the “Provider Rate.” In this lawsuit, plaintiffs challenged these practices which they alleged Cigna designed to inflate healthcare costs to patients. Following years of discovery, plaintiffs moved for class certification. As plaintiffs framed it, the question of whether Cigna violated ERISA by charging the CareCentrix rate to those receiving healthcare benefits through the ERISA plans is the singular class-wide legal issue uniting the class members. The court, however, did not see the situation as plaintiffs did, and in this decision denied their motion for certification. The court disagreed with plaintiffs that they were united by the common behavior of Cigna irrespective of the differences that exist among their healthcare plans. This was a strong sticking point for the court. In the court’s view, the variations in the healthcare plans and the plans’ language on a variety of topics, from discretionary authority to differing obligations outlined within Cigna’s agreements with self-funded plan sponsors, defeated commonality. Put simply, the court agreed with Cigna that the number of variations among the plans at issue would require individualized analysis “that must be taken into consideration in adjudicating each Plaintiff’s ERISA claims.” Moreover, beyond the court’s issues with commonality, which precluded certification under Rule 23(a), the court went on to outline the ways in which it found certification under the subsections of Rule 23(b) even more problematic. First, under Rule 23(b)(1), the court stated that rather than individual adjudications being unworkable, “it is the class-wide adjudication of Plaintiffs’ claims that would be unworkable, if not impossible,” given these differences among the class members and the ERISA plans. “As indicated, the possibility for variations in the applicable standard of review and the potential effects of plan variations could yield an array of differing outcomes across the class.” Similarly, evaluating the potential class under Rule 23(b)(2) would also, the court said, result in a variety of inconsistent outcomes across the class which would preclude “the imposition of singular injunctive relief for the class as a whole.” Furthermore, the court expressed doubts over whether reprocessing is in fact injunctive rather than monetary relief, although it said it need not, and would not, resolve the issue here. Finally, under Rule 23(b)(3), the court said that it could not certify the class because common questions do not predominate over individual ones, for all of the reasons it defined in its commonality analysis. Accordingly, plaintiffs’ motion for class certification was denied.

Third Circuit

Shapiro v. Aetna Inc., No. 22-cv-1958 (ES) (AME), 2023 WL 4348601 (D.N.J. Jul. 5, 2023) (Judge Esther Salas). Three women who receive health insurance benefits through self-funded ERISA plans administered by defendants Aetna, Inc. and Aetna Life Insurance Company have sued the Aetna defendants under ERISA for benefits, breaches of fiduciary duties, and unjust enrichment in this putative class action. The three named plaintiffs each underwent breast reconstruction surgeries which were performed by out-of-network providers at in-network facilities, circumstances their plans refer to as “Involuntary Services.” According to the complaint, the plaintiffs’ benefit claims should have been processed as “Involuntary Services,” meaning they should have been calculated “in the same way as we would if you received services from a network provider.” However, plaintiffs argue this is not how their claims were processed. Instead, plaintiffs allege that Aetna underpaid benefits under the terms of the plans in order to enrich itself through charging the plans its National Advantage Program Access Fee. They outlined in their complaint how Aetna routinely pays these claims at artificially low rates calculated through MultiPlan’s Data iSight algorithm. Thus, plaintiff claim that Aetna violated ERISA by paying the claims in a manner that contradicted the terms of their plans, and that defendants breached their fiduciary duties and enriched themselves by doing so. Defendants moved to dismiss pursuant to Rule 12(b)(6). They argued that plaintiffs’ claims did not constitute “Involuntary Services” under their plans, and that they therefore could not state claims for benefits under Section 502(a)(1)(B). The court disagreed, concluding that, especially at this early stage of litigation, plaintiffs’ benefit claims should be allowed to proceed. However, the court dismissed with prejudice plaintiffs’ breach of fiduciary duty claims to the extent that they were asserted under Section 502(a)(1)(B), concluding that the Third Circuit does not recognize Section 502(a)(1)(B) as creating a private cause of action for breach of fiduciary duty. On the other hand, the court refused to dismiss plaintiffs’ fiduciary breach claims asserted under Section 502(a)(3)(A), agreeing with plaintiffs that they could plead claims in the alternative under Sections 502(a)(1) and (a)(3). Furthermore, the court was satisfied that plaintiffs were seeking appropriate forms of equitable relief, namely a declaratory injunction, a reprocessing order, and a permanent injunction. Defendants were successful in dismissing plaintiffs’ unjust enrichment claim under Section 502(a)(3)(B), however. Here, the court dismissed the claim without prejudice because the court could not infer from the complaint as currently alleged whether defendants received the access fees in connection with their claims for benefits. Plaintiffs were permitted to file an amended complaint to address this shortcoming. Finally, the court rejected Aetna Inc.’s motion to dismiss it as a defendant in this action. Aetna, Inc. argued that it is only a holding company and therefore an improper defendant. The court agreed with plaintiffs that their complaint alleges ways in which Aetna. Inc. controlled the administration of the benefits under their healthcare plans, and accepting these allegations as true found that Aetna is a proper defendant at this stage of the proceedings. Moreover, the court did not agree with the Aetna defendants that plaintiffs had failed to distinguish between Aetna, Inc. and Aetna Life Insurance Company, and found that plaintiffs did not engage in group pleading. To the contrary, the court was satisfied that the complaint adequately put each defendant on notice of the claims against it, satisfying the pleading requirements of Rule 8.

Disability Benefit Claims

Ninth Circuit

Neumiller v. Hartford Life & Accident Ins. Co., No. 22-35688, __ F. App’x __, 2023 WL 4173022 (9th Cir. Jun. 26, 2023) (Before Circuit Judges Bea and Bress, and District Judge Ohta). Plaintiff Julie Neumiller appealed a district court order entering judgment under Rule 52 against her and in favor of defendant Hartford Life and Accident Insurance Company in this long-term disability benefit dispute. Ms. Neumiller argued on appeal that she is entitled to long-term disability benefits under the terms of her plan which state that benefits terminate when a claimant’s “Current Monthly Earnings” exceed 60% of his or her “PreDisability Earnings.” Ms. Neumiller claims that Hartford misinterpreted the plan terms and prematurely terminated her benefits thanks to the manner it used to determine her current monthly earnings. She maintained that Hartford inappropriately included her pre-tax contributions and trimester bonuses in its calculation of her monthly earnings. On appeal, Ms. Neumiller advanced three arguments in support of this position: “that (1) pre-tax contributions and Trimester Bonuses are not ‘earnings,’ (2) pre-tax contributions are not ‘received,’ and (3) Trimester Bonuses are not ‘monthly earnings.’” The Ninth Circuit rejected the first two arguments but agreed with Ms. Neumiller on the third. Specifically, the court of appeals held that pre-tax contributions and trimester bonuses are unambiguously “earnings” as defined by the policy. Additionally, the court found that Ms. Neumiller received her pre-tax contributions despite placing that salary into a 401(k) account. However, the Ninth Circuit disagreed with the lower court’s decision to treat all of Ms. Neumiller’s trimester bonus amounts paid out to her in a given month as “monthly earnings.” Instead, it concluded that under the doctrine of contra proferentem the district court was required to construe the ambiguity of the term “monthly earnings” as it applied here against Hartford, particularly as the Ninth Circuit held Ms. Neumiller’s interpretation favoring prorating “is ultimately the stronger one anyway.” The appeals court found this interpretation particularly persuasive given the way the policy averages bonuses across 24 months instead of counting all bonuses toward the single month at the end of the year in which they are distributed. To construe the term “monthly earnings” otherwise, the court held, “would unexpectedly attach enormous consequences (terminating disability benefits) to an employer’s decision to distribute a bonus in a lump sum, instead of spreading it out across the several months in which it is earned.” Accordingly, the Ninth Circuit vacated the district court’s ruling. However, because the effect of the Ninth Circuit’s conclusion finding that Hartford erroneously credited Ms. Neumiller’s entire trimester bonus payment toward one month’s “monthly earnings,” rather than prorating the amount over a four-month period of time, was not apparent from the record, the Ninth Circuit remanded to the district court for further proceedings consistent with its decision.

ERISA Preemption

First Circuit

Waggeh v. Guardian Life Ins. Co. of Am., No. 22-11800-FDS, 2023 WL 4373897 (D. Mass. Jul. 6, 2023) (Judge F. Dennis Saylor IV). In 2019, decedent Alpha Sowe applied for a life insurance policy through his employment with Berkshire Healthcare Systems, Inc. Guardian Life Insurance Company of America approved the application, issued the policy, and began collecting premiums. Several months later, on July 28, 2019, Mr. Sowe died. Following his death, his widow, plaintiff Suntu Waggeh, filed a claim for life insurance benefits with Guardian. Guardian allegedly issued a small partial payment, including a return of the premiums, but mostly denied the claim, stating that Mr. Sowe “misrepresented his medical condition” on his application. In response, Ms. Waggeh filed a lawsuit seeking the proceeds from the life insurance policy in state court in Massachusetts, asserting four state law causes of action. Guardian removed the action to federal court. It then moved to dismiss the complaint for failure to state a claim, arguing that the state law claims are all preempted by ERISA. Guardian’s motion was granted in this order. The court agreed with Guardian that the complaint on its face seemed to indicate that the life-insurance policy is part of an ERISA-governed employee welfare benefit plan, as Mr. Sowe applied for the policy through his employer. Moreover, the court found that Ms. Waggeh’s state law causes of action seek to recover benefits due under the plan, and therefore fall under ERISA Section 502(a)(1)(B). “The state law claims therefore appear to be preempted by ERISA.” Ms. Waggeh attempted to advance two arguments for why her claims fall within ERISA’s safe-harbor provision and therefore are not governed by ERISA and not preempted. First, she asserted that Berkshire did not make any contributions to the plan, that Mr. Sowe’s participation was voluntary, that Berkshire acted only as a conduit between Mr. Sowe and Guardian, and that Berkshire received no consideration from Guardian in connection with the plan. Second, Ms. Waggeh argued that the life insurance benefit was a “payroll practice” under 29 C.F.R. § 2510.3-1(b). Both of these arguments were viewed by the court as unsubstantiated and conclusory. Because of this, the court concluded that Ms. Waggeh did not meet her burden of plausibly demonstrating that ERISA preemption does not apply. Thus, the court found her state law claims preempted and granted the motion to dismiss.

Medical Benefit Claims

Fourth Circuit

L.L. v. MedCost Benefits Servs., No. 1:21-cv-00265-MR, 2023 WL 4393748 (W.D.N.C. Jul. 5, 2023) (Judge Martin Reidinger); L.L. v. MedCost Benefits Servs., No. 1:21-cv-00265-MR, 2023 WL 4375663 (W.D.N.C. Jul. 5, 2023) (Judge Martin Reidinger). This action began in 2021 when plaintiff L.L., individually and on behalf of her minor daughter, E.R., sued their self-funded healthcare plan and its third-party claims administrator for benefits and violating the Mental Health Parity and Addiction Equity Act in connection with denied benefit claims for treatment E.R. received at a residential treatment facility. Since the case was initially filed, E.R. has reached the age of majority. Earlier this year, the court entered an order granting in part defendants’ motion to dismiss, dismissing the Parity Act claim asserted pursuant to Section 502(a)(3). In that order the court ordered L.L. and E.R. to show cause why they should be allowed to proceed under pseudonyms, and, because E.R. is now an adult, to add her as a plaintiff and show cause why she cannot prosecute the action on her own. In response to that order, L.L. and E.R. moved to proceed anonymously and to add E.R. as a plaintiff. In addition, mother and daughter moved for reconsideration of the court’s order dismissing their MHPAEA claim. The court ruled on the two motions in separate decisions. In the first decision, it denied plaintiffs’ motion to proceed anonymously and granted their motion to add E.R. as a plaintiff. The court held that ERISA cases, even involving sensitive medical information, are not “private proceedings where claimants can come to a public court under a general cloak of anonymity.” Although the court did not dispute that E.R.’s medical history, which occurred while she was a minor suffering from a mental health crisis, is in and of itself “sensitive and highly personal” information, the court fundamentally disagreed that a denial of medical benefits allegedly covered under the terms of an ERISA plan is a sensitive topic. To the contrary, the court stated that requiring E.R. and L.L. to use their full names would not “reveal anything more than the general fact that E.R. struggles with her mental health. To the extent more detailed information about E.R.’s mental health and severity of her struggles must be considered during these proceedings, that personal information can be redacted and records detailing sensitive information can be filed under seal if appropriate.” Your ERISA Watch believes that the court’s position here fundamentally misunderstands the public’s interest in issues of mental health policy and treatment. People interested in improving the law for individuals suffering from mental illness want the details to be part of the public record, so that people can understand the seriousness of the symptoms sometimes associated with mental illness. However, that doesn’t mean that the public has an interest in giving up the right to privacy of individuals, particularly minors, suffering from these issues. Clearly their privacy can be protected through the age-old use of pseudonyms. The public’s “strong interest in the openness of these proceedings” should have therefore led the court to reach the exact opposite result, allowing plaintiffs to proceed anonymously while including information regarding the specifics of what happened and why disputes over mental health coverage matter in the first place. Nevertheless, the court denied the motion and ordered plaintiffs to file an amended complaint that incudes their full names. The court then addressed whether L.L. should be dismissed as a plaintiff for lack of standing. At all times, L.L. was a participant of the healthcare plan and E.R. was a plan beneficiary. L.L. alleges that she paid out of pocket for E.R.’s treatment at the facility. Thus, plaintiffs argued that L.L. has suffered an injury as a result of the plan’s denial of benefits, and she therefore has standing to remain a plaintiff in this litigation. The court agreed. It granted plaintiffs’ motion to add E.R. as a plaintiff, and allowed L.L. to remain a plaintiff as well. In the second decision, the court ruled on plaintiffs’ motion for reconsideration. Plaintiffs argued that a recent Fourth Circuit decision, Hayes v. Prudential Ins. Co. of Am., No. 21-2406, __ F. 4th __, 2023 WL 2175736(4th Cir. 2023), clarifies the Fourth Circuit’s stance on pleading ERISA claims in the alternative. In the Hayes decision, the court wrote, “a plaintiff who prevails in a claim for benefits under Subsection (a)(1)(B) may not also obtain other relief under Subsection (a)(3). But Federal Rule of Civil Procedure 8(a)(3) specifically permits pleading ‘in the alternative,’ so nothing would have prevented plaintiff from suing under both provisions.” Plaintiffs maintained these sentences clearly allow them to plead both of their causes of action. The court remained steadfast that its previous reasoning dismissing the Parity Act claim, and the precedent it relied on, remained unchanged after Hayes. Because Section 502(a)(1)(B) affords plaintiffs adequate relief, the court held that “a cause of action under § 1132(a)(3) is ‘not appropriate.’” Therefore, the court denied the motion for reconsideration, finding plaintiffs’ second cause of action impermissibly duplicative of their benefits claim.

Sixth Circuit

BlueCross BlueShield of Tenn. Inc. v. Nicolopoulos, No. 1:21-CV-00271-JRG-CHS, 2023 WL 4191413 (E.D. Tenn. Jun. 26, 2023) (Judge J. Ronnie Greer). A participant of an ERISA-governed healthcare plan, the PhyNet Dermatology, LLC group health insurance plan, underwent what she believed were medically necessary fertility treatments. Although her plan is based in Tennessee and insured by Bluecross Blueshield of Tennessee, she is a resident of New Hampshire. New Hampshire and Tennessee have differing state insurance laws governing fertility treatments. New Hampshire requires insurance companies doing business in the state to provide coverage for medically necessary fertility treatments, while Tennessee has no such mandate. The plan states that it is governed by Tennessee law and expressly excludes coverage for fertility treatments. After the participant’s claims for reimbursement of her fertility treatments were denied by BCBS under the terms of the plan, she contacted the New Hampshire Insurance Department to complain about the denials, which she believes are in violation of her state’s insurance laws. In response to the participant’s complaint, the New Hampshire Insurance Department issued an Order to Show Cause and Notice of Hearing to BCBS demanding the insurance provider appear for a hearing to determine whether it violated New Hampshire insurance laws, and if so, to pay a fine and to cease and desist from offering health insurance in New Hampshire. The hearing was stayed after BCBS initiated this ERISA lawsuit against the Commissioner of the New Hampshire Insurance Department. BCBS argues in this action that this is a choice-of-law dispute involving an ERISA plan whose terms rely on Tennessee law. BCBS maintains that applying New Hampshire insurance law would violate the terms of the plan, interfere with ERISA’s exclusive remedy for wrongful denial of benefits, and violate its fiduciary duties. BCBS moved for summary judgment on these claims. Its motion was denied, and the court gave notice of its intent to grant judgment to the Commissioner. The court expressed that it disagreed with BCBS’ characterization and understanding of the issues present. “This case is not about [BCBS’] duties…under the PhyNet Plans; thus, choice-of-law under the Plans is irrelevant, much less dispositive. Rather, this case concerns New Hampshire’s authority to regulate the business of insurance within its borders. ERISA’s ‘Saving Clause’ specifically preserves that authority even when such regulation is contrary to an ERISA-covered plan’s terms.” Stated differently, the court found that BCBS could not shield itself from the New Hampshire Insurance Department’s regulatory authority by relying on plan terms that run contrary to the state’s insurance laws. “In short, insurers cannot contract their way out of state regulation.” Thus, viewing BCBS’ lawsuit here as an attempt to do just that, the court denied its motion for judgment and stated that it intends to grant summary judgment to the Commissioner of New Hampshire’s Insurance Department.

Pleading Issues & Procedure

Second Circuit

Dabney v. Hughes Hubbard & Reed LLP, No. 1:23-mc-78 (MKV), 2023 WL 4399048 (S.D.N.Y. Jul. 6, 2023) (Judge Mary Kay Vyskocil). Former equity partner James Dabney has initiated arbitration proceedings pursuant to his Partnership Agreement with his former law firm, Hughes Hubbard & Reed LLP. The parties have agreed to arbitrate various claims that Mr. Dabney has asserted following his retirement. “The overarching dispute between Dabney and Hughes Hubbard revolves around pension benefits and whether (and in what amount) Dabney was entitled to such benefits while he continued to practice law at the Firm.” In his demand for arbitration, Mr. Dabney asserted claims under ERISA, the Age Discrimination in Employment Act, and state law. No arbitrator has yet been appointed to hear these claims. Mr. Dabney is continuing to use the law firm’s name and resources for work purposes. In this action, Mr. Dabney is seeking injunctive relief in aid of arbitration. He seeks to enjoin the law firm from disabling his access to their systems, including his telephone number and email address, pending arbitration of his claims. The court stated that it would retain jurisdiction over this matter “in order to maintain the viability of the arbitration and protect against irreparable harm.” In this order the court denied Mr. Dabney’s motion for preliminary injunction. The court held that Mr. Dabney is not likely to succeed on the merits of his claims, that he will not suffer an irreparable harm absent an injunction, and that the balance of hardships tips in favor of the law firm. Regarding likelihood of success, the court agreed with Hughes Hubbard that as an equity partner, Mr. Dabney likely does not fit the definition of “employee” as the word is used in the context of either ADEA or ERISA. As for irreparable harm, the court stated that while there “may be inconveniences associated with” retiring from the firm or altering his relationship from the firm, these circumstances “are too minor and routine to constitute irreparable harm.” Thus, the court concluded that Mr. Dabney does not need to maintain access to the law firm’s systems and therefore denied his motion.

Severance Benefit Claims

Ninth Circuit

Wilson v. Taronis Fuels Inc., No. CV-22-00229-PHX-SPL, 2023 WL 4353193 (D. Ariz. Jul. 5, 2023) (Judge Steven P. Logan); Wilson v. Taronis Fuels Inc., No. CV-22-00229-PHX-SPL, 2023 WL 4353198 (D. Ariz. Jul. 5, 2023) (Judge Steven P. Logan). In two wide-ranging decisions this week the court ruled on a series of motions and entered judgment in this severance benefit litigation. Plaintiff Tyler B. Wilson is the former Chief Financial Officer, Secretary, and General Counsel of defendant Taronis Fuels Incorporated. Mr. Wilson alleged in this lawsuit that his job titles and responsibilities were materially reduced in early 2021 during a corporate shakeup at the company and a battle over control of the Board. As a result, Mr. Wilson delivered a notice of good reason to the company pursuant to the terms of his severance plan alleging that he had sustained material reduction in his job responsibilities and that the company had breached his employment agreement by ceasing the monthly payments of his 2020 year-end bonus. Mr. Wilson contends that these conditions amounted to “good reason” under his severance plan, and that he was therefore entitled to benefits. Accordingly, the major dispute between the parties here was whether Mr. Wilson resigned of his own volition with or without good reason under the plan, and therefore whether he was entitled to severance benefits. However, before the court could address those issues, it first needed to rule on three preliminary motions filed by defendant – (1) a partial objection to the administrative record, (2) a motion for leave to supplement response brief, and (3) a motion to stay proceedings pending the resolution of a lawsuit involving the Securities and Exchange Commission in the Middle District of Florida. The court denied all three motions. First, the court stated that it found “no reason to excise” certain documents from the administrative record, namely a letter and a series of emails, because these documents were submitted and generated in the course of making the benefit determination and concerned the company’s compliance with claims handling practices. Second, the court denied defendant’s motion to supplement its response briefing with details from the SEC lawsuit. The court concluded that the company had not clearly established that consideration of this lawsuit was necessary for the court to conduct its review of the severance benefit denial. Rather, the court said that it was equipped to conduct a full and fair review of Mr. Wilson’s claim “based solely on the evidence contained in the administrative record and on the parties’ briefing.” Third, the court declined to stay proceedings pending resolution of the SEC action. It held that a stay would pose some level of harm to Mr. Wilson, albeit fairly minimal harm, the harm posed to defendant absent a stay was highly speculative and dependent on the outcomes of the two independent legal actions, and the SEC’s allegations had only a minor relation to the factual and legal issues before the court in this action, making resolution of the SEC litigation unnecessary to resolve the ERISA benefits claim. Thus, defendant’s motions were denied, and the court moved on to reviewing the record as a de novo matter. After conducting this review, the court ultimately concluded that Mr. Wilson did not resign with good reason. It agreed with defendant that Mr. Wilson’s job responsibilities were not materially and substantially reduced. Although Mr. Wilson was cut off from dealing with an outside firm, the court found that this exclusion related to Mr. Wilson’s own potential involvement in financial misconduct, and therefore did not amount to any material reduction of Mr. Wilson’s duties “because Plaintiff could not have had any expectation that he would be involved in investigations of and communications about his own employment.” Moreover, another example provided by Mr. Wilson of a ten-day long reduction in his work responsibilities was determined by the court to have been too short a period to qualify as a good reason under the plan. On top of the court’s conclusion that Mr. Wilson did not suffer a material sustained reduction in his work responsibilities, the court further found that the company had not breached its employment agreement by issuing Mr. Wilson’s 2020 bonus payments as monthly installments rather than a lump sum or by terminating those payments altogether. Accordingly, the court ruled that Mr. Wilson failed to demonstrate “good reason” sufficient to qualify him for benefits under his severance plan. Thus, the court entered judgment in favor of Taronis Fuels Inc.