Kairys v. S. Pines Trucking, Inc., No. 22-1783, __ F. 4th __, 2023 WL 4718509 (3d Cir. Jul. 25, 2023) (Before Circuit Judges Hardiman, Porter, and Fisher).

This week’s case of the week is a rare bird: an ERISA Section 510 trial ending in a favorable decision for the plan participant. Plaintiff Thomas J. Kairys sued his former employer, Southern Pines Trucking, Inc. challenging the company’s decision to fire him four months after he took time off work to undergo a costly surgery. Believing his termination discriminatory and retaliatory, Mr. Kairys sued Southern Pines alleging violations of the Americans with Disabilities Act (“ADA”), the Age Discrimination in Employment Act (“ADEA”), ERISA Section 510, and also asserting state-law claims for breach of contract, violation of Pennsylvania’s Wage Payment and Collection Law, and discrimination under Pennsylvania Human Relations Act (“PHRA”).

A jury trial was held in the case simultaneously with a bench trial on the ERISA retaliation claim. The jury returned a verdict finding that Southern Pines had not violated ADA, ADEA, and PHRA, but that Southern Pines had violated the state wage law. In addition, the jury also returned an advisory verdict on Mr. Kairys’ ERISA Section 510 claim, finding that Mr. Kairys’ failed to prove by a preponderance of the evidence that the company’s decision to fire him was motivated by retaliation for his use of costly healthcare benefits from the self-funded ERISA welfare benefit plan, or by an intent to interfere with his rights to use future healthcare benefits for potential upcoming surgeries.

The district court, however, did not adopt this advisory view. Instead, it independently considered the evidence, evaluated the ERISA claim, and determined that Southern Pines had retaliated against Mr. Kairys for using his ERISA-protected healthcare benefits and interfered with his right to future protected benefits. The district court awarded Mr. Kairys $67,500 in front pay and $111,981.79 in attorneys’ fees and costs under ERISA Section 502(g).

Southern Pines appealed the court’s judgment on the ERISA claim (and resulting fee award), and the Third Circuit affirmed.

Although the Third Circuit noted that advisory jury verdicts are generally not binding on a trial court, the district court was required to “accept[ ] the jury’s findings on common facts.”  Nevertheless, the court of appeals held that the district court’s judgment on the ERISA claim “was neither inconsistent with the jury’s verdict on his other claims, nor unsupported by the trial evidence.” Although the “jury made no specific findings of fact,” the court of appeals reasoned that “ADA, ADEA, PHRA, and ERISA claims have distinct elements of proof,” and the jury’s finding that Mr. Kairys’ disability and his age were not a determining factor in his termination, did not necessarily mean that his exercise of ERISA benefits “also must not have been a determinative factor.”

Turning to the merits, the appeals court was satisfied that there was sufficient evidence to support the district court’s verdict on the ERISA claim and that its conclusions with respect to this claim were not clearly erroneous. As an initial matter, the court disagreed with Mr. Kairys that Southern Pine had waived this issue, noting that the company raised the same issues with the sufficiency of the evidence in the district court as it raised on appeal.  Nevertheless, the Third Circuit was satisfied that the evidence in the record could be construed to support a finding that Southern Pines’ decision to terminate Mr. Kairys’ employment was motivated by a discriminatory, rather than a legitimate, reason.

In this regard, the Third Circuit noted that the district court credited Mr. Kairys’ testimony that he was told by his supervisor to “lay low” after his surgery over the contrary testimony of that supervisor and another manager. Moreover, the company’s assertion that it had simply eliminated Mr. Kairys’ position was undermined by the fact that it soon “borrowed” a replacement employee from a sister company. Furthermore, there was evidence that supported that the company was aware of the costs of Mr. Kairys’ surgery and indeed had highlighted the invoices for the surgery and terminated him after reviewing the health insurance records and considering the financial impact of the surgery.

Finally, the Third Circuit held that the lower court had not abused its discretion in calculating a reasonable award of attorneys’ fees and costs. It viewed the district court’s 25% reduction in fees, to account for the claims on which Kairys did not prevail, to be reasonable. Moreover, the Third Circuit found no error in Kairys’ counsel’s time entries.

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

Arbitration

Ninth Circuit

Platt v. Sodexo, No. 8:22-CV-02211-DOC-ADS, 2023 WL 4832660 (C.D. Cal. Jul. 25, 2023) (Judge David O. Carter). Plaintiff Robert Platt is an employee of defendant Sodexo, Inc. and a participant in its medical plan. He brings this action against his employer on behalf of himself and all similarly situated plan participants and beneficiaries for violation of ERISA in connection with the plan’s yearly nicotine surcharge. Mr. Platt argues in his complaint that the nicotine surcharge violates ERISA because there is no alternative to the surcharge, like a smoking cessation program, offered to plan participants. Moreover, Mr. Platt maintains that Sodexo is required to give participants notice of a reasonable alternative standard, which the company is also failing to do. Mr. Platt contends that Sodexo is breaching its fiduciary duties to participants by discriminating against participants based on a health-status related factor and that the collection of the surcharges is contrary to the terms of the plan itself. Sodexo moved to compel arbitration of Mr. Platt’s claims, arguing that the arbitration provision it included to the plan in 2021 covers Mr. Platt’s claims. Mr. Platt opposed the arbitration motion. He argued that the provision lacked mutual assent, as it was buried on page 153 of a 170-page summary plan description that was sent to participants as a hyperlink in an email which did not mention arbitration or in any way put recipients on notice that they would be relinquishing their rights to sue or subject to binding arbitration. Mr. Platt never clicked on the hyperlink to the summary plan description, let alone signed the document, checked a box, clicked a button, or took any action to manifest his knowledge of the provision or his agreement to its terms. In this decision the court denied the motion to compel arbitration, agreeing with Mr. Platt that he had not accepted the agreement to arbitrate. It held that employers “may not unilaterally modify an ERISA plan to include arbitration provisions.” Without conspicuous notice, the court wrote, “it is difficult to see how Plaintiff could have agreed to the provision, be it by silence or by continued participation in the plan. While there is a presumption in favor of arbitration, such a presumption does not override the principle that a court may submit to arbitration ‘only those disputes…the parties have agreed to submit,’…nor that courts may use policy considerations as a substitute for party agreement.” Therefore, the court found no agreement to arbitrate and denied defendant’s motion. Because the court denied the motion to compel arbitration on this ground, it did not reach other issues including those regarding the scope of the provision or its class action waiver.

Attorneys’ Fees

Tenth Circuit

Theo M. v. Beacon Health Options, Inc., No. 2:19-cv-00364-JNP-DBP, 2023 WL 4826771 (D. Utah Jul. 27, 2023) (Judge Jill N. Parrish). Plaintiffs Theo M. and M.M. brought this ERISA mental healthcare action seeking payment from their ERISA-governed mental health and substance abuse plan for reimbursement of medical costs incurred by the family from treatment M.M. received at two residential treatment centers. Parties cross-moved for summary judgment and the court entered judgment in favor of plaintiffs, concluding that defendant Beacon Health Options, Inc.’s denial of benefits was arbitrary and capricious as it failed to explain its reasons for denying the claims despite having “several opportunities to provide Plaintiffs with a coherent reason for denying their claims,” and because it disregarded the opinions of the treating physicians. Given what the court called these “egregious” violations of ERISA’s procedural requirements, the court concluded that reversal of the denials and remanding to Beacon Health for reconsideration was the proper course of action. Now plaintiffs have moved for an award of attorney’s fees and costs pursuant to ERISA Section 502(g)(1). The court granted their motion and ordered defendants pay plaintiffs $51,460 in fees and $400 in costs. Specifically, the court found the fee award appropriate given defendants’ “culpability for failing to properly assess Plaintiffs’ claims,” their abuse of discretion, and the fact that a fee award “would encourage (defendants) to follow ERISA’s regulations and requirements.” The court was also satisfied plaintiffs met the threshold requirement of “success on the merits,” and were thus eligible for a fee award. However, when it came to the amounts of the awards, the court did reduce the requested $63,800 plaintiffs sought in attorney fees. The court agreed with defendants that attorney Brian King’s hourly rate of $600 per hour was excessive and reduced the rate to $500 per hour. Attorneys Brent Newton and Samuel Hall’s hourly rates of $320 and $250 per hour respectively were not altered by the court. Additionally, the court reduced Mr. King’s hours from 87.5 hours down to 80.2 hours, reflecting a reduction in the hours billed preparing the fee motion. The court once again did not disturb the hours of the attorneys Newton and Hall who worked 15.5 hours and 25.6 hours on the case. After these alterations the court was left with its ultimate fee award of $51,460, and declined to reduce this amount as defendants requested to reflect what they viewed as  plaintiffs’ “limited success.” Finally, the court awarded plaintiffs their requested $400 in costs, “attributable to the filing fee.”

Breach of Fiduciary Duty

Tenth Circuit

Teodosio v. Davita, Inc., No. 22-cv-0712-WJM-MDB, 2023 WL 4761621 (D. Colo. Jul. 26, 2023) (Judge William J. Martinez). In this fee case, former employees of DaVita, Inc. and participants of its defined contribution retirement savings plan have brought a putative class action against the plan’s fiduciaries for breaches of their duties of prudence and monitoring in connection with the plan’s administrative management and recordkeeping fees. Plaintiffs allege that these fees were unreasonably high when compared to those associated with similar plan investment options and recordkeepers, and that defendants failed to engage in a prudent process, including by leveraging the bargaining power of their large plan, to select funds and recordkeeping services with lower costs. Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). Their motion was granted in part and denied in part in this order. Scrutinizing plaintiff’s complaint, the court agreed with defendants that plaintiffs had a problem with standing. None of the four named plaintiffs personally invested in any of the challenged funds. Adopting, what it “determined to be the majority position of courts that have considered this issue,” the court held “that for Plaintiffs to have standing to sue on behalf of absent putative class members, they do not need to have invested in each of the allegedly imprudent funds; however, they must have elected to invest in at least one such fund, and the absent putative class members’ injuries must be ‘rooted in Defendants’ conduct in managing all the funds as a group.’” Since plaintiffs did not meet this threshold qualification, the court concluded that they lacked standing to bring their fiduciary breach claim premised on their management fee theory. The court therefore dismissed this portion of their allegations, however it did so without prejudice. Turning to the recordkeeping fee claims, the court found that plaintiffs have suffered a particularized injury-in-fact and that the court thus has subject-matter jurisdiction over these claims. The court then evaluated whether plaintiffs had stated their recordkeeping fee claims under Rule 8 pleading standards and concluded that they had. While the court stated that defendants’ arguments about insufficient comparators were “generally well-taken,” it also held that the “fact-intensive” nature of these arguments make them inappropriate at this stage of the litigation. Accordingly, the 12(b)(6) motion to dismiss the recordkeeping fee imprudence and monitoring claims was denied.

Disability Benefit Claims

Third Circuit

Avery v. Sedgwick Claims Mgmt. Servs., No. 22-1960, __ F. App’x __, 2023 WL 4703865 (6th Cir. Jul. 24, 2023) (Before Circuit Judges McKeague, Griffin, and Murphy). For two years following an accident in which she fractured her ankle, Plaintiff Jacqueline Avery received long-term disability benefits for “advance peripheral deyelinatibe and axonal polyneuropathy [of the] lower legs,” under the plan sponsored by her employer, Chrysler Group LLC. The third-party claims administrator for the Plan, Sedgwick Claims Management Services, then terminated those benefits and Ms. Avery sued for the reinstatement of those benefits. The district court granted judgment in favor of Sedgwick on the administrative record and the Sixth Circuit affirmed on appeal, despite an extensive challenge by Ms. Avery both with respect to numerous perceived procedural deficiencies and with respect to the merits of the decision. With respect to the procedural challenges, the court concluded that Sedgwick substantially complied with ERISA’s statutory and regulatory requirements with respect to notice of the basis for the denial and an opportunity to appeal, did not deny Ms. Avery an opportunity to supplement the administrative record in support of her claim, did not violate the claims regulation by having a non-specialist examine her because two board-certified neurologists then conducted record reviews of the medical evidence, and did not omit any relevant documents from the administrative record. ON the merits, the court concluded that Sedwick’s decision was not arbitrary and capricious, a standard that the Sixth Circuit referred to as “extremely deferential” and “the least demanding form of judicial review.” Applying this standard, the court determined that “Sedgwick engaged in a deliberate, principled reasoning process when it decided to terminate Avery’s long-term disability benefit,” and that the record “contained more than adequate evidence for Sedgwick to conclude that Avery was no longer totally disabled under the terms of the Plan,” supported by “no fewer than four physicians [who] concluded that Avery is no longer totally disabled.”      

Discovery

Fourth Circuit

Taekman v. Unum Life Ins. Co. of Am., No. 1:22cv605, 2023 WL 4763724 (M.D.N.C. Jul. 26, 2023) (Magistrate Judge L. Patrick Auld). Plaintiff Dr. Jeffrey Taekman, MD, a board certified anesthesiologist who has leukemia, brought this ERISA action seeking to recover long-term disability benefits under an ERISA-governed disability plan insured and administered by defendant Unum Life Insurance Company of America. After an unsuccessful mediation, Dr. Taekman served interrogatories, requests for admission, and requests for production of documents on Unum. Unum responded to Dr. Taekman’s discovery requests, answering some and objecting to most others. Stuck in a discovery dispute, the parties sought resolution in the court. Unum moved for an expansive protective order limiting the court’s review to what Unum views as the complete administrative record and prohibiting parties to engage in written discovery, depositions, and all further production of documents. Dr. Taekman took issue with Unum’s protective order request and its broad assertion that no exceptional circumstances, difficult medical questions, conflicts of interest, or issues regarding the credibility of medical experts are at play here, as well as Unum’s belief that the administrative record is complete. Dr. Taekman not only opposed Unum’s protective order motion, but also moved to compel further discovery. Unum additionally moved to seal “Exhibit C,” which it considered to be the complete administrative record in the case. Dr. Taekman did not object to filing Exhibit C under seal. The court addressed each of these motions in this decision. First, with regard to the protective order sought by Unum, the court agreed with Dr. Taekman that Unum “has not established good cause” to justify such relief. Not only did the court hold that Unum’s discovery responses fell short in many respects, but it also concluded that its general assertions about discovery and the lack of specifics to the particulars of this litigation, meant that Unum failed to demonstrate that closing off further discovery entirely is appropriate here. Accordingly, the court denied Unum’s requested protective order. Nevertheless, the court also found that Dr. Taekman did not satisfy the perquisites for compelled production of further discovery including its conferral obligations. Because of this, the court denied, without prejudice Dr. Taekman’s discovery motion. Dr. Taekman was instructed by the court to file any renewed discovery motion in a more careful and considered manner, and to “clearly address why permitting such discovery, including any requested deposition, qualifies as proportional given the ‘significant restraints on the district court’s ability to allow evidence beyond what was presented to the administrator’ and the need to ‘provide prompt resolution of ERISA claims.’” Finally, the motion to seal was granted. The court found sealing Exhibit C justifiable given the good cause of protecting private medical information.

Eighth Circuit

Hardy v. UNUM Life Ins. Co. of Am., No. 23-cv-563 (JRT/JFD), 2023 WL 4841952 (D. Minn. Jul. 28, 2023) (Magistrate Judge John F. Docherty). Plaintiff Mark W. Hardy, an attorney who became disabled in 2016 from a tumor, sued Unum Life Insurance Company of America after his long-term disability benefits were terminated in late 2020. Mr. Hardy has moved to conduct discovery beyond the administrative record and additionally moved to compel Unum to produce privilege log documents based on the fiduciary exception to attorney-client privilege. The court in this order denied the discovery motion and granted the motion to compel the production of the privilege log documents. To begin, the court stressed the general presumption against extra-record discovery in ERISA disability benefits, particularly those, as here, where the denial will be reviewed under de novo review standard. Mr. Hardy suggested that the administrative record Unum produced was not complete, and that its decision to terminate his benefits “was tainted by bias or bad faith.” With regard to the completeness of the record, the court held that Mr. Hardy failed “to allege or show that any medical evidence or records are missing from the administrative record provided by Unum.” Regarding Unum’s intent while processing Mr. Hardy’s claim, the court stated that such information is irrelevant when analyzing the administrative record de novo. Accordingly, the court held that Mr. Hardy did not satisfy the good cause standard to conduct additional discovery, as it has everything it will need to review the denial on the record as is. However, concerning the motion to compel the privilege log, the court agreed with Mr. Hardy that he was entitled to these documents based on the fiduciary exception to attorney-client privilege. The court expressed that it was unpersuaded by Unum’s position that there was an adversarial relationship between the parties prior to litigation and therefore held that the liability exception-to-the-exception did not apply here.

Medical Benefit Claims

Third Circuit

Univ. Spine Ctr. v. Edward Don & Co., No. 22-3389, 2023 WL 4841885  (D.N.J. Jul. 28, 2023) (Judge John Michael Vazquez). Plaintiff University Spine Center, acting as attorney-in-fact to an insured patient, has sued Edward Don & Company, LLC and Cigna Health and Life Insurance seeking unpaid medical benefits. The healthcare provider’s original complaint was dismissed for failure to state a claim pursuant to Rule 12(b)(6). University Spine Center filed a second amended complaint, and defendants once again moved for dismissal. In this order the court granted the renewed motion to dismiss. Once again, the court held that plaintiff failed to allege that Cigna inaccurately calculated and paid benefits given Cigna’s discretionary authority to interpret the plan’s reimbursement language and its ability to “override” a conflict between two billing codes. Instead, the court found that plaintiff had merely asserted in the complaint that it “disagrees with Cigna’s determinations.” Because the court concluded that University Spine Center had not plausibility alleged that defendants acted in contravention to the terms of the plan, the court found that it had not demonstrated that it was entitled to the relief it sought. The court’s dismissal, however, was without prejudice, and the medical center was given 30 days to file another amended complaint should it choose to do so.

Pension Benefit Claims

Second Circuit

Aracich v. The Bd. of Trs. of the Emp. Benefit Funds of Heat & Frost Insulators Local 12, No. 22-2544, __ F. App’x __, 2023 WL 4692316 (2d Cir. Jul. 24, 2023) (Before Circuit Judges Kearse, Jacobs, and Menashi). In early 2021, plaintiff-appellant Matthew Aracich’s employer, the Building and Construction Trades Council of Nassau & Suffolk Counties, AFL-CIO, terminated its agreement with the International Association of Heat and Frost Insulators Local No. 12 union and ceased making contributions to its pension and welfare plans. At this time, Mr. Aracich announced that he would be retiring from Local Union No. 12, although he remained in his position working for the Trades Council.  Under the terms of the two ERISA plans, Mr. Aracich considered himself retired given that he was no longer employed by a covered employer, and so he applied for early retirement benefits under the plans. The Trustees of the plans denied Mr. Aracich’s benefit claims, interpreting the plan language as requiring him to cease working altogether in order to have “retired” and therefore be eligible for benefits. After unsuccessfully appealing the denial, Mr. Aracich sued the Board of Trustees in a five count ERISA complaint, bringing claims for benefits, retaliation, anti-cutback, breach of fiduciary duty, and breach of contract. The Trustees moved to dismiss the complaint for failure to state a claim. The district court granted their motion and dismissed the action on September 20, 2022. A summary of that decision can be found in Your ERISA Watch’s September 28, 2022 edition. Mr. Aracich appealed the dismissal in the Second Circuit. In this unpublished decision, the Second Circuit affirmed the lower court’s holdings. First, the court of appeals concluded that the Trustees appropriately exercised their discretionary authority in interpreting the ambiguous definition of “retire,” including the term “contributing employer,” under the plans and that their interpretation “was neither ‘without reason’ nor ‘erroneous as a matter of law.’” Accordingly, the Second Circuit held that the Trustees had not violated ERISA in denying the benefit claims. Next, the court of appeals agreed with the district court that Mr. Aracich failed to state a claim under Section 510 because he suffered no adverse employment action and his allegations of disparate treatment compared to similarly situated employees who retired before him were found to be “conclusory.” Additionally, the Second Circuit disagreed with Mr. Aracich that the Trustees’ new interpretation of the term “retire” – to require cessation of all employment – was in direct conflict to the plans’ language which contemplate separation from covered employment, or that this re-interpretation could be considered a plan amendment for the purposes of ERISA’s anti-cutback rule. The Second Circuit wrote that Mr. Aracich “remains entitled to his pension, which he can collect when he retires.” Regarding Mr. Aracich’s breach of contract claim, the appeals court found it duplicative of his claims for benefits. Finally, the appellate court concluded that Mr. Aracich had not stated a claim for breach of fiduciary duty, and that his arguments to the contrary were without merit. For the forgoing reasons, the Second Circuit affirmed the dismissal.

Third Circuit

Luciano v. Teachers Ins. & Annuity Ass’n of Am., No. 15-6726 (RK) (DEA), 2023 WL 4760578 (D.N.J. Jul. 26, 2023) (Judge Robert Kirsch). Plaintiff Lorraine H. Luciano is the surviving spouse of a former employee of defendant Educational Testing Service (“ETS”). After her husband died, Ms. Luciano filed a claim with defendants Teachers Insurance and Annuity Association of America and the College Retirement Equities Fund seeking to recover 100% of her deceased husband’s Qualified Preretirement Survivor Annuity (“QPSA”) under ETS’s 401(a) Plan and its 403(b) Match Plan. Defendants paid Ms. Luciano only 50% of the QPSA benefit. Ms. Luciano then commenced this lawsuit, on behalf of a putative class, challenging the 50% QPSA determination under the plans. The court compelled arbitration as to the 401(a) Plan and stayed the 403(b) claims pending resolution of the arbitration. Ms. Luciano was successful during arbitration, and on April 30, 2020, the arbitrator held that the terms of the 401(a) Plan unambiguously required payment to Ms. Luciano of a “benefit based upon the full Account Balance value of (decedent’s) account,” and issued an award to that effect. Thereafter, Ms. Luciano moved to confirm the arbitration award and reopen the case. Defendants opposed her motion, and also requested permission to renew a motion for equitable reformation of the plans. The court then granted plaintiff’s motions, fully confirming the award entered by the arbitrator and reopening the remainder of the case. The court also granted defendants’ request to renew their motion for equitable reformation. Defendants subsequently moved to amend the ETS 401(a) Plan, to correct a scrivener’s error that occurred in 2002, which they say they discovered during this action, and which they argued resulted in the 401(a) plan accidently eliminating the 50% QPSA benefit.  In this decision the court granted the motion to reform based on Third Circuit precedent which allows “the scrivener’s error doctrine (to) be invoked to modify ERISA plans under certain limited circumstances.” As a preliminary matter, the court rejected Ms. Luciano’s argument that defendants’ motion was untimely under New Jersey’s six-year statute of limitations for reformation of contract claims, as well as her argument that defendants waived their ability to argue for equitable reformation. The court held that defendants’ motion was timely as they did not have actual knowledge of the error until 2014 at the earliest, the date when Ms. Luciano first sent defendants a letter contesting the 50% benefit amount. With regard to waiver, the court did not agree with Ms. Luciano that defendants were required to raise the argument during either the administrative proceedings or during arbitration. With these challenges overruled, the court turned the merits of defendants’ motion. It held that the evidence clearly and convincingly showed that the 2002 amendment never intended to provide for a 100% QPSA benefit, especially as all Plan documents both before and after the 2002 restatement of the plan “consistently presented a 50% QPSA benefit.” Furthermore, the court stated that it appeared no participant or beneficiary ever saw the Plan language containing the error. “Rather, it appears that all participants construed the benefits through communications which consistently provided for a 50% QPSA benefit. Accordingly, allowing reformation of the scrivener’s error would not thwart ERISA’s statutory purpose of ensuring that plan participants can rely on their expected entitlement.” Thus, the court was satisfied that defendants met their burden of showing that the 2002 drafting error was unintentional and therefore allowed them to equitably reform the Plan “to more clearly reflect an intent to provide a 50% QPSA benefit.” However, the court was careful to specify that this decision will not disturb the confirmed arbitration award or Ms. Luciano’s 100% QPSA benefit under the 401(a) Plan.

Provider Claims

Fifth Circuit

Windmill Wellness Ranch, L.L.C. v. Blue Cross & Blue Shield of Ala., No. SA-19-CV-1211-OLG (HJB), 2023 WL 4842453 (W.D. Tex. Jul. 28, 2023) (Magistrate Judge Henry J. Bemporad). An out-of-network mental health and substance use treatment center in Texas, plaintiff Windmill Wellness Ranch, LLC, has sued a series of Blue Cross and Blue Shield entities under ERISA Section 502(a)(1)(B) and state law seeking to recover payment of numerous medical claims for treatment it provided to insureds and beneficiaries from 2017 – 2019. Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), 12(b)(3) and 12(b)(6), based on numerous grounds including lack of standing, lack of personal jurisdiction, failure to exhaust administrative remedies, and failure to state a claim. Magistrate Judge Bemporad issued this report and recommendation recommending the court grant in part and deny in part the motions to dismiss. First, with regard to standing, because the patients have been added as plaintiffs to the case, Magistrate Bemporad stated that “either Patients or Windmill have standing to assert he claims. Accordingly, Defendants’ motions to dismiss for lack of standing should be denied.” As for personal jurisdiction, the Magistrate found that ERISA provides for nationwide personal jurisdiction over the defendants. Things were different with respect to the breach of contract claim though. The report highlighted the complaint’s failure to identify which Blue Cross defendants contracted with Windmill. Due to this lack of information the court will not be able to determine whether personal jurisdiction exists for each of the defendants regarding the breach of contract claim. Thus, the report recommended the court grant the motion to dismiss for lack of personal jurisdiction over the state law claims, but to do so without prejudice allowing Windmill leave to amend and cure this deficiency. The report then moved to the issue of exhaustion. Magistrate Bemporad wrote that “because exhaustion of administrative remedies is an affirmative defense and not a jurisdictional bar,” the topic is not properly addressed at the motion to dismiss stage and should instead be raised during summary judgment. Therefore, the report recommended the court deny the motions to dismiss for failure to exhaust. Finally, the Magistrate Judge held that plaintiffs stated their claims as they identified language from the plan documents in their possession and allege a good faith effort to obtain those not in their possession. Furthermore, the provider and patients allege sufficient facts to infer that defendants breached the contracts and violated the reimbursement language of the plans. As a result, viewing the allegations in the light most favorable to plaintiffs, the report expressed that it was satisfied the complaint sufficiently states claims for relief to survive a 12(b)(6) challenge.

Seventh Circuit

John Muir Health v. Health Care Serv. Corp., No. 22-cv-6963, 2023 WL 4707430 (N.D. Ill. Jul. 24, 2023) (Judge Steven C. Seeger). In 2013, a non-profit healthcare corporation, plaintiff John Muir Health, entered into a contract with non-party Anthem Blue Cross. That contract required plaintiff to treat individuals insured both by Anthem Blue Cross health plans and by non-Anthem Blue Cross health plans “financed, sponsored, and/or administered by members of companies belonging to the national Blue Cross Blue Shield Association.” Defendant Health Care Service Corporation, although a non-signatory to the contract, is a member of the Blue Cross Blue Shield Association. John Muir alleges that it provided medically necessary treatment to individuals who were participants and beneficiaries of Health Care Service Corp.’s plans and that Health Care Service Corp. authorized those services. Nevertheless, John Muir maintains that it was never paid for the services it provided, leaving it with unpaid bills totaling $177,559.38. Seeking payment, John Muir Health sued Health Care Service Corp. and Blue Cross and Blue Shield of Texas in state court asserting claims of breach of implied-in-fact contract and quantum meruit. Defendants removed the case to the federal court system pursuant to federal question jurisdiction based on ERISA preemption. Defendants then moved to dismiss the action for failure to state a claim. In this order the court denied the motion to dismiss, although it agreed with defendants that the state law claims are completely preempted, at least to the extent they involve beneficiaries of ERISA-governed healthcare plans. To the extent that any of the patients are not insured under ERISA plans, the court stated that it would exercise supplemental jurisdiction over the state law claims. With regard to preemption, the court stated that this was a straightforward benefit payment dispute, and it is clear that John Muir has derivative standing to bring ERISA benefit claims as it has been assigned benefits by the patients. Accordingly, the court held that John Muir may replead its complaint under ERISA, and that dismissal here is inappropriate.

Remedies

Eighth Circuit

Kellum v. Nationwide Ins. Co. of Am., No. 1:20-cv-23-SNLJ, 2023 WL 4824540 (E.D. Mo. Jul. 27, 2023) (Judge Stephen N. Limbaugh, Jr.). In this case involving a subrogation claim to recover medical costs from uninsured motorist coverage proceeds that would have otherwise been payable to the decedent’s family, an ERISA-governed health plan, the Glister-Mary Lee Corporation Group Health Benefit Plan, has been awarded judgment in its favor. Defendant/interpleader plaintiff Nationwide Insurance Company of America filed a motion objecting to the health plan’s proposed judgment, specifically its inclusion of prejudgment interest. Nationwide’s objection to the remedy of prejudgment interest and its position that such relief is not allowed, were rejected by the court in this order. The court wrote, that to the contrary, “ERISA specifically authorizes the Health Plan, as a fiduciary, to obtain all appropriate equitable relief,” and that Eighth Circuit case law going back to the early 1980s makes clear that awards of prejudgment interest are permitted in ERISA actions like this one as a form of make whole relief and that Missouri statutory interest rate applies. Accordingly, the court awarded prejudgment interest at Missouri’s rate of 9% from the date when the claim accrued in 2018, and ordered Nationwide pay the plan $21,750 in prejudgment interest, and then applied a 5.35% post-judgment interest rate to that sum. The decision ended with the court granting the health plan’s motion to dismiss the remaining counterclaims and crossclaims.

Withdrawal Liability & Unpaid Contributions

Fourth Circuit

Int’l Painters & Allied Trades Indus. Pension Fund v. Watters Painting Inc., No. JRR-22-2571, 2023 WL 4759289 (D. Md. Jul. 26, 2023) (Magistrate Judge A. David Copperthite). Multiemployer funds, the International Painters and Allied Trades Pension Plan and the International Painters and Allied Trades Industry Annuity Plan, sued a contributing employer, Watters Painting, Inc., and its owner and executive, Scott Watters, for failure to accurately remit required contributions under a Collective Bargaining Agreement (“CBA”), failure to pay liquidated damages and interest on these delinquent contributions, and failure to produce required records necessary to conduct an audit, as well as a claim for breach of fiduciary duty for misappropriating and diverting plan assets. Plaintiffs moved for default judgment, to which defendants did not timely respond. The matter was assigned to Magistrate Judge Copperthite who issued this report and recommendation recommending the court grant plaintiffs’ motion in its entirety. Magistrate Copperthite held that, accepting the factual allegations in plaintiffs’ complaint as true, plaintiffs sufficiently stated their claims and established liability. Accordingly, he recommended the court enter a default judgment in favor of plaintiffs and against the company and Mr. Watters. As for damages, plaintiffs requested a total amount of $102,884.40, comprised of $66,065.10 in unpaid contributions, $7,977.59 in interest, $14,981.21 in liquidated damages, and $13,860.50 in attorneys’ fees and costs. Each of these amounts was determined by Magistrate Judge Copperthite to be properly calculated pursuant to the terms of the CBA. He thus recommended the court award damages in the full amounts requested. Regarding attorneys’ fees, the court concluded the requested hourly rates ranging from $185 per hour to $325 per hour for each attorney based on their respective years of experience to be appropriate and well within the norms of frequently awarded rates for attorneys in the Pittsburgh, Pennsylvania region. Moreover, Judge Copperthite concluded the 60 hours of total time spent on this action “warranted given the extent and sporadic nature of the delinquent contributions, Defendants’ refusal to comply with mandated audit procedures, and the difficulty of calculating interest and liquidated damages across such a long period of time.” Thus, the requested lodestar was found to be reasonable, and he advised the court to award the full amount of fees requested. Additionally, the requested $437.00 in costs, representing the filing fees and messenger service fees, were also determined fair and to be the type of typical expenses incurred during litigation and thus recoverable. Finally, the Magistrate recommended the court grant plaintiffs’ requested injunctive relief ordering defendants produce documents necessary to complete the audit of its payroll records.

Eighth Circuit

Painters Dist. Council No. 58 v. MJ Interior Finishes & Constr. Mgmt., No. 4:22 CV 405 CDP, 2023 WL 4824564 (E.D. Mo. Jul. 27, 2023) (Judge Catherine D. Perry). The Painters District Council 58 union, its four ERISA employee benefit plans, and the plans’ trustees and fiduciaries sued a company, MJ Interior Finishes and Construction Management LLC, and its owner, Michael Parran, to recover unpaid benefit contributions. Plaintiffs moved for default judgment seeking payment of the delinquent contributions plus liquidated damages, attorneys’ fees and costs. In their motion, plaintiffs sought to recover $15,052.73 comprised of $3,901 in unpaid contributions, $780.20 in liquidated damages, $9,790 in attorneys’ fees, and $581.53 in costs. The court denied the motion for default judgment in this order, without prejudice, concluding that “the evidence submitted within the motion does not support the requested amount of judgment.” Plaintiffs were directed to file a new motion that cures the deficiencies identified by the court in this order. In particular, the court stated that based on its review of the reports, the face value for the unpaid contributions is actually about $100 less – $3,800.65. The order went on to identify other errors in plaintiffs’ calculations, both stemming and not stemming from the underlying flaw of the unpaid contribution arithmetic. Based on these math mistakes the court found that “the affidavits and evidence submitted in the case” do not “support the amount(s)” plaintiffs requested. Thus, the court requested plaintiffs resubmit their motion and take a second crack at their figures.

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.