Peters v. Aetna Inc., No. CIVIL 1:15-cv-00109-MR, 2023 WL 3829407 (W.D.N.C. Jun. 5, 2023) (Judge Martin Reidinger)

Fee cases have long been a dominant part of pension litigation. With the increased scrutiny on healthcare plan practices and the uptick in ERISA healthcare litigation in recent years, plan participants and fiduciaries are increasingly challenging fees and costs associated with their healthcare plans. Today’s notable decision is a good example of this trend.

Plaintiff Sandra M. Peters brought a putative class action to challenge a billing scheme between insurance company Aetna and its subcontractor Optum. Ms. Peters alleges that the Aetna and Optum defendants circumvented the terms of the 1,954 self-funded ERISA healthcare plans encompassed in the putative class, all of which specify that Aetna is responsible for covering all subcontractor costs. Ms. Peters alleges Aetna buried the natures of these costs and billed the plans, participants, and beneficiaries for reimbursement of these administrative fees by using a dummy code to treat Optum as a medical provider rather than a subcontractor.

The case has a long procedural history. In her original complaint, Ms. Peters brought claims under ERISA Sections 502(a)(1)(B), (a)(2), and (a)(3) for restitution of the overcharged amounts, disgorgement and surcharge of improper gains, and several forms of declaratory and injunctive relief, including prospective relief. Ms. Peters seeks to bring her case as a class action on behalf of two classes, a plan class and a participant class.

After the discovery period ended, Ms. Peters moved for class certification and the defendants moved for summary judgment. The court granted summary judgment in favor of the defendants and dismissed all of Ms. Peters’ claims. She appealed to the Fourth Circuit, which ruled largely in her favor, reversing, vacating, and remanding much of the court’s summary judgment order. The Fourth Circuit’s decision in the case was Your ERISA Watch’s case of the week in our June 30, 2021 edition.

On remand from the court of appeals, Ms. Peters and the defendants renewed their arguments for and against her standing to assert her claims, Optum reasserted its arguments that it should be dismissed, and Ms. Peters renewed her arguments for class certification. The district court addressed each of these arguments in turn.

First, the court addressed the effect of the Fourth Circuit’s decision on Ms. Peters’ restitution claims. The Fourth Circuit held that Ms. Peters could not show a financial loss to establish standing on her restitution claim under the criteria set forth in Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir. 1985), because Ms. Peters and her plan actually paid less than or equal to what they would have paid for her healthcare claims if Optum’s administrative fee were not included in the billed charge. In light of this ruling from the Fourth Circuit, the district court unsurprisingly dismissed Ms. Peters’ restitution claims under Section 502(a)(2).

Second, the court addressed defendants’ arguments regarding Ms. Peters’ standing to bring the rest of her claims. Again relying on the Fourth Circuit’s decision, the court was satisfied that Ms. Peters and the proposed classes have standing to bring the claims for equitable relief. The district court agreed with the Fourth Circuit that financial injury is not a prerequisite to pursue claims of surcharge, disgorgement, declaratory, and injunctive relief. The court also stated that it disagreed with defendants’ position that the Fourth Circuit’s holding with respect to standing was in conflict with standing decisions from the Supreme Court. Nevertheless, the district court held that Ms. Peters, who is no longer a plan participant insured by Aetna, lacked standing to assert claims for prospective declaratory and injunctive relief because she lacks a concrete risk of future harm. Therefore, her claim for prospective injunctive relief was dismissed.

In the third section of the decision, the court tackled Optum’s renewed request for dismissal from the class action. The district court concluded that “Optum’s arguments are foreclosed by the Fourth Circuit’s opinion.” The district court pointed out that the court of appeals had already concluded that Ms. Peters “presented sufficient evidence from which a reasonable factfinder could conclude that ‘Optum could be held as a party in interest involved in the prohibited transactions based on its apparent participation in and knowledge of Aetna’s administrative fee billing model.’” On this basis, the court denied Optum’s request to be dismissed.

In the final and longest section of the decision, the court assessed Ms. Peters’ class certification motion. As a preliminary matter, the court agreed with Ms. Peters that the proposed class members were ascertainable based on the defendants’ own data identifying the members, the plans, and the fees charged for each particular claim. The court then evaluated the two putative classes under Rule 23(a) and concluded that they met Rule 23(a)’s requirements. Regarding numerosity, there was no dispute that the class was sufficiently numerous given the 87,754 plan participants and 1,954 plans that were billed the administrative fees. As for commonality, the court identified several issues of law and fact that were common to all putative members related to both Aetna and Optum’s conduct. The court applied this same logic to its typicality assessment, concluding that Ms. Peters’ claims and the claims of the putative classes are based on the same facts and legal theories and therefore are typical of those of the classes. Finally, the court found that Ms. Peters and her experienced class counsel from the Van Winkle Law Firm and Zuckerman Spaeder LLP had proven that they could adequately represent the classes.

With the requirements of Rule 23(a) cleared, the court turned to the requirements of Rule 23(b). It found that there is a risk of inconsistent judgments resulting in conflicting standards of conduct for the defendants if the case cannot proceed as a class action. Furthermore, the court concluded that common issues predominate over insignificant individual differences, and that “judicial economy weighs heavily in favor of proceeding as a class action,” as “there is little incentive for individual plaintiffs to bring their cases independently because the cost of doing so far exceeds the value of their individual claims.” Having determined that Ms. Peters met the criteria for certification under both Rule 23(a) and (b), the court granted her motion to certify the two classes.

Clearly, this decision represents a significant victory for Ms. Peters and the participants and plans she now represents. But considering the many years it has taken to get to this point, this case demonstrates the challenges for both plaintiffs and defendants in ERISA healthcare litigation.

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

Breach of Fiduciary Duty

Sixth Circuit

Davis v. Magna Int’l of Am., No. 20-11060, 2023 WL 3821807 (E.D. Mich. Jun. 5, 2023) (Judge Nancy G. Edmunds). Participants in the Magna Group of Companies Retirement Savings 401(k) Plan sued Magna International of America, Inc., its board of directors, and two committees of the plan, an investment committee, and a retirement savings committee, for breaches of fiduciary duties of loyalty, prudence, and monitoring. The plaintiffs claim that defendants breached their duties to the plan and its participants by failing to review the plan’s investment portfolio to ensure that the investment options were prudent in terms of costs and performance. Defendants moved for summary judgment. The court granted in part and denied in part their motion. It began with an assessment of plaintiffs’ claims for breaches of fiduciary duties of prudence and loyalty. With regard to the investment option claims, the court held that defendants’ arguments defending their actions in selecting and retaining the challenged share classes, mutual funds, and collective trusts could not be resolved without the court weighing or interpreting the evidence. “Viewing the evidence in the light most favorable to Plaintiffs, the Plaintiffs have raised genuine issues of material fact related to whether the Defendants prudently monitored the Plan’s challenged investments.” As a result, the court denied defendants’ motion for summary judgment on the investment option claims. The court also denied defendants summary judgment on the recordkeeping costs claims. It concluded that the plaintiffs have presented compelling evidence that challenged whether the monitoring of recordkeeping fees was prudent. Specifically, the court agreed with plaintiffs that defendants had a duty to monitor costs on an ongoing basis, and that they likely did not do so here as they failed to regularly solicit bids from competitors and “predominately relied only on information provided by Principal (the plan’s recordkeeper) to monitor the Plan’s fees, including through documents produced by Principal.” Thus, the court agreed with plaintiffs that there were genuine issues of material fact as to whether defendants adequately monitored fees. Also, the court concluded that plaintiffs had enough evidence to allow them to continue with their breach of loyalty claim, because Principal had interests in both the recordkeeping fees and its proprietary target date funds that it selected and retained as plan investments. The court did, however, grant defendants’ motion for judgment on plaintiffs’ monitoring claim against the board, concluding that the board did not have the power to appoint or remove committee members, and therefore had no obligation under ERISA to oversee them.

Class Actions

Third Circuit

Packer v. Glenn O. Hawbaker, Inc., No. 4:21-CV-01747, 2023 WL 3851993 (M.D. Pa. Jun. 6, 2023) (Judge Matthew W. Brann). In the spring of 2021, the Office of the Attorney General of Pennsylvania filed a criminal complaint against Glenn O. Hawbaker, Inc. alleging that the company stole “its prevailing wage workers’ pension and health and welfare money” and that it used those fringe benefits for its own ends. In the criminal case, the AG calculated that Hawbaker’s theft totaled more than $20 million. In August of that same year, Hawbaker pleaded nolo contendere to all claims and committed to pay restitution in the amount of $20,696,453 to the 1,262 prevailing wage worker victims. Two months later, three of those victims filed this ERISA putative class action. Tethering their complaint to the criminal case, the plaintiffs allege that Hawbaker, its board of directors, and the administrator of the benefits plan breached their fiduciary duties to the plan participants. In this decision the court ruled on plaintiffs’ class certification motion wherein they sought to certify their class of all current and former hourly wage employees who worked at Hawbaker during the relevant period. The court began by assessing the putative class under the requirements of Rule 23(a). First, the court agreed with plaintiffs that the class will include at least the 1,262 individuals encompassed in the plea deal of the four felony charges. As this number greatly exceeds the 40 individuals sufficient to establish numerosity, the court concluded that this requirement was easily met. Next, the court concurred with plaintiffs that common questions of law and fact are applicable to all class members including “whether the Defendants breached fiduciary duties owed to the Plan and its participants by failing to pay properly and timely the correct amount of wages and benefits.” Additionally, the court decided that the injuries to the putative class members stem from the same conduct by the defendants, and that the named plaintiffs’ claims are therefore typical of those of the rest of the class. Finally, the court found that the plaintiffs and their experienced class action attorneys are adequate representatives who can appropriately represent the class members to obtain relief from the defendants. Accordingly, the court was satisfied that all of the requirements of Rule 23(a) are met. It therefore moved on to evaluating the class under Rule 23(b). Following the clear direction of the Third Circuit, the court agreed that ERISA breach of fiduciary duty actions like this one are “paradigmatic examples of claims appropriate for certification as a Rule 23(b)(1) class.” This is because allowing separate actions to proceed would likely result in contrary and incompatible rulings, meaning “one district court should determine whether Defendants’ uniform conduct with respect to the Hawbaker Benefits Plan constitutes a breach of fiduciary duties.” For these reasons, the court determined that plaintiffs presented evidence to establish the proposed class meets the obligations of Rule 23, and therefore granted the motion and certified the class.

Disability Benefit Claims

Second Circuit

Glickman v. First Unum Life Ins. Co., No. 19-CV-5908 (VSB), 2023 WL 3868519 (S.D.N.Y. Jun. 7, 2023) (Judge Vernon S. Broderick). In early 2016, Dr. Laurence T. Glickman was diagnosed with prostate cancer. That fall he underwent prostatectomy surgery. Unfortunately, the surgery did not go well. It resulted in an injury which left Dr. Glickman with pain, weakness, and fatigue. Dr. Glickman kept working for the next year. However, by December 2017, Dr. Glickman felt he could no longer continue practicing due to his limitations and he filed a claim for disability benefits under his ERISA plan. The plan’s insurance provider, defendant First Unum Life Insurance Company, approved Dr. Glickman’s claim for benefits, and determined that his disability date was November 1, 2017. Unum later rescinded that determination. It recalculated and determined that the proper start date of the elimination period was the date of the prostate surgery on September 1, 2016. The difference in the two dates amounted to a significant decrease in Dr. Glickman’s benefit, and thus he challenges that determination and Unum’s reading of the policy’s elimination period in this lawsuit. The parties cross-moved for summary judgment. The court entered judgment in favor of Dr. Glickman under de novo review. It concluded that his reading of the plan language was more straightforward than Unum’s. “Plaintiff’s reading gives effect to more of the Plan as written, making it the preferable reading…to meet the Requirements that define disability under the Plan, a person must be ‘limited from performing the material and substantial duties of his regulation occupation due to his sickness or injury; and’ must ‘have a 20% or more loss in his indexed monthly earning due to the same sickness or injury.’ Plaintiff’s reading focuses on those last seven words. As Plaintiff explains the Plan, a covered physician is disabled where a single ‘sickness or injury’ is the cause of both the Limitation Requirement and the Income Requirement.” This reading, the court found, did not require elimination of words or terms out of the plan. Moreover, even if the court found the plan language ambiguous, it stated that such ambiguity should be construed against Unum and in favor of Dr. Glickman. Accordingly, the court granted summary judgment in favor of Dr. Glickman.

Eleventh Circuit

Evans v. Life Ins. Co. of N. Am., No. 2:22-cv-00075-ACA, 2023 WL 3868384 (N.D. Ala. Jun. 7, 2023) (Judge Annemarie Carney Axon). In 2013, plaintiff Heath Evans suffered an injury to his back while working as a wireline operator. The injury left Mr. Evans with lingering pain and limitations and required him to undergo two spinal surgeries. From the time of the injury until 2018, Mr. Evans received disability benefits under his ERISA-governed disability benefit plan. Circumstances changed when the plan’s insurance company switched from MetLife to defendant Life Insurance Company of North America (“LINA”). As soon as LINA took over as the plan’s claims administrator, it opened up an investigation into Mr. Evans’ entitlement to disability benefits. As part of this review, LINA had one of its doctors conduct an in-person examination of Mr. Evans. LINA’s doctor concluded that Mr. Evans was greatly exaggerating his pain, exhibiting, in his words, “highly dramatic and over the top pain behavior.” The doctor determined that Mr. Evans did not have strict restrictions in his ability to perform many types of work. Relying on this in-person review, as well as the opinions of two other LINA-employed medical professionals, LINA determined that Mr. Evans no longer satisfied his plan’s definition of disabled from any occupation and therefore terminated his benefits. Mr. Evans exhausted LINA’s internal appeals procedures and then initiated this ERISA lawsuit. The parties filed cross-motions for judgment on the administrative record. Mr. Evans argued that LINA’s decision ignored his self-reported pain, the conclusions of his treating physicians, and his entirely favorable decision from the Social Security Administration. The court did not agree and concluded that LINA’s denial was not de novo wrong. The court favored the opinions of the non-treating physicians over those of the treating physicians, as it found their conclusions based on objective medical evidence rather than subjective self-reports of pain. The court wrote, “the more recent medical opinions all establish that Mr. Evans can perform sedentary work.” In addition, the court stressed that this more recent evidence was not before the administrative law judge who ruled in favor of Mr. Evans on his claim for Social Security Disability Benefits, which helped to explain why the Social Security Administration reached a different conclusion than LINA. Finally, the court was satisfied that LINA engaged in an appropriate vocational assessment of Mr. Evans and accurately determined that jobs existed in the economy that Mr. Evans could perform. Thus, under de novo review the court held that LINA’s decision was not wrong and entered judgment in its favor.

ERISA Preemption

Second Circuit

Facey v. Intrinsic Tech. Grp., No. 23-cv-3392(DLI)(RER), 2023 WL 3794136 (E.D.N.Y. Jun. 2, 2023) (Judge Dora L. Irizarry). Plaintiff Sasha Deandra Facey sued her former employer and former boss, defendants Intrinsic Technology Group, Inc. and Rajajneesh Dhingra, in New York state court alleging that they discriminated against her under state and local disability discrimination laws throughout her employment and when she was terminated from her employment. Defendants removed the action to federal court based on federal question jurisdiction. Ms. Facey subsequently moved for remand. To date, the defendants have not responded to Ms. Facey’s motion. She argued that ERISA does not preempt her state law causes of action. The court agreed and granted her motion in this order. First, the court found that although it is possible that Ms. Facey could have brought a claim under Section 510 of ERISA, her state law discrimination claims nevertheless implicate independent legal duties. From the complaint, it is clear that Ms. Facey alleges that she was discriminated and retaliated against because of her diagnosis of Lupus. The court found that while the complaint does mention that Ms. Facey was terminated after inquiring about health insurance relating to her medical needs, it also provides numerous other supporting factual allegations and examples of discrimination that are completely unrelated to any ERISA benefit plan, including patterns of hostile conditions and discriminatory attitudes. The court was therefore convinced that this is an example of a case where the claims can clearly survive in the absence of the ERISA benefit plan. “In sum, ‘[this] is not a lawsuit claiming wrongful withholding of ERISA covered plan benefits; it is a lawsuit claiming discrimination resulting in damages, one component of which [may be] a sum owed under the provision of [a] plan.’” Thus, the court concluded that defendants failed to establish that ERISA preempts Ms. Facey’s claims and therefore remanded the action to state court.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Krishna v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA., No. H-22-3423, 2023 WL 3887814 (S.D. Tex. Jun. 8, 2023) (Judge Sim Lake). Plaintiff Deepa Krishna is the widow of Karthik Balakrishnan. Mr. Balakrishnan was employed as a Senior Marketing Manager at Honeywell International, Inc. As part of his employment with Honeywell, Mr. Balakrishnan was a member of its employee welfare benefit plan, which included Business Travel Accident Insurance provided by defendant National Union Fire Insurance Company of Pittsburgh, PA. Sadly, Mr. Balakrishnan died on October 25, 2020, in a crash of a small private airplane flying to Texas. Ms. Krishna submitted a claim for benefits under the Business Travel Accident Insurance policy. She believed that her husband’s death fell under the terms of the policy as he was traveling to Texas for work. She argued that his work assignment included travel to Texas as needed, and that he had decided to fly to Texas for work reasons. Honeywell and National Union Fire did not agree. They took the position that the term “while on assignment by or at the direction of the Policyholder for the purpose of furthering the business of the Policyholder,” means that the employer had to have knowledge of and approved the business travel. Because Mr. Balakrishnan had decided on his own to travel, they felt that his trip did not qualify as an approved business trip and the decedent’s widow and their four-year old daughter were therefore not entitled to benefits under the plan. Ms. Krishna filed this lawsuit to challenge the denial under Section 502(a)(1)(B), seeking benefits, interest, attorneys’ fees, and costs. The parties filed cross-motions for judgment on the administrative record. As an initial matter, they disputed the relevant standard of review. National Union Fire argued that the plan included unambiguous discretionary language triggering deferential review. Ms. Krishna argued that the applicable standard of review should be de novo because National Union Fire had an unauthorized third-party law firm decide her administrative appeal, and because that appeal was untimely under ERISA’s governing regulations. The court excused this “technical noncompliance,” finding they did not rise to “wholesale or flagrant violations” worthy of converting the standard of review from abuse of discretion to de novo. The court then continued its decision with more unfavorable rulings for Ms. Krishna. It concluded that “as needed” travel was not sufficient to qualify for benefits under the clear policy language. Thus, absent evidence that Mr. Balakrishnan was traveling at the direction of Honeywell on his trip to Texas, the court held that Ms. Krishna’s claim failed as a matter of law. Under abuse of discretion review, it held that the denial was a legally correct interpretation of the plan language and that it was supported by substantial evidence provided by Honeywell. Finally, the court stated that under Fifth Circuit precedent National Union Fire was under no duty to investigate or challenge the validity of the information Honeywell provided. Based on the foregoing, the court granted defendant’s motion for judgment and denied Ms. Krishna’s cross-motion for judgment.

Medical Benefit Claims

Eighth Circuit

Shafer v. Zimmerman Transfer, Inc., No. 22-2275, __ F. 4th __, 2023 WL 3857343 (8th Cir. Jun. 7, 2023) (Before Circuit Judges Colloton, Wollman, and Gruender). Plaintiff Darrin Shafer underwent bariatric surgery for medical and weight loss purposes. Shortly after the surgery, Mr. Shafer found employment at Zimmerman Transfer, Inc. and became a participant in the company’s ERISA-governed healthcare plan. A couple of years later, Mr. Shafer was admitted to an emergency room complaining of abdominal pains, nausea, and vomiting. At the hospital, it became clear that Mr. Shafer was experiencing complications from his bariatric surgery. He was transferred to another hospital and informed he needed a second surgery to fix a bowel obstruction. His plan pre-certified the treatment. However, after the surgery took place, the plan denied the claim for benefits, concluding that “the hernia surgery is considered a complication of the patient’s prior bariatric surgery and excluded from coverage.” After an unsuccessful attempt to administratively appeal the denial, Mr. Shafer brought a lawsuit against Zimmerman and the plan’s benefits administrator under ERISA Section 502(a)(1)(B). The district court ultimately granted summary judgment for the defendants under deferential review. Mr. Shafer appealed the district court’s decision to the Eighth Circuit. On appeal, the Eighth Circuit affirmed. The court of appeals first held that Mr. Shafer did not lack standing to sue the former third-party administrator, reasoning that “the fact that a plan participant might not be able to enforce a money judgment against a former third-party administrator does not mean that he lacks standing to sue that defendant.” However, addressing the denial itself, the Eighth Circuit agreed with the district court that it was not an abuse of discretion. The court of appeals stated that Iowa laws about coverage of emergency medical treatment and the emergency treatment regulation of the Affordable Care Act “do not require that a plan cover all emergency services; rather, they require plans that already cover emergency services to satisfy additional requirements like covering out-of-network treatment. Moreover, the provisions state that coverage is subject to a plan’s exclusions.” Thus, the Eighth Circuit disagreed with Mr. Shafer that the plan was obligated to pay for his emergency surgery, as the plan specifically excludes treatment for complications stemming from weight-reduction surgeries. In addition, the appeals court decided that just because the treatment was medically necessary does not automatically make it a “Medically Necessary Covered Expense.” Having come to these conclusions, the Eighth Circuit held that the denial of Mr. Shafer’s claim was not arbitrary and capricious, stating that “the interpretation of the plan was reasonable and the decision to deny benefits was supported by substantial evidence.”

Ninth Circuit

A.H. v. Anthem Blue Cross, No. 22-cv-07660-HSG, 2023 WL 3819367 (N.D. Cal. Jun. 5, 2023) (Judge Haywood S. Gilliam, Jr.). Plaintiff A.H., on behalf of her minor child, B.H., sued her healthcare insurance provider, Anthem Blue Cross, in the District of Utah after Blue Cross denied the family’s claim for reimbursement of B.H.’s stay at a wilderness therapy treatment program for adolescents with mental health, behavioral, and substance use problems. After the case was transferred to the Northern District of California, Blue Cross moved to dismiss the complaint for failure to state a claim. It argued that A.H.’s claim for benefits under Section 502(a)(1)(B) failed on the face of the complaint because the plan does not cover treatment at wilderness programs. In addition, Blue Cross averred that A.H. could not state a claim under the Mental Health Parity and Addiction Equity Act because the plan’s wilderness program exclusion does not distinguish between treatment for mental health or treatment for medical/surgical problems. In this decision the court granted the motion to dismiss the benefits claim but denied the motion to dismiss the Parity Act claim. First, the court agreed with Blue Cross that A.H. had not plausibly alleged that she is entitled to benefits under the terms of the plan, given the unambiguous exclusion for wilderness programs. Nevertheless, at the pleading stage, the court accepted as true A.H.’s assertion that the wilderness program exclusion in the plan is a violation of the Parity Act because Blue Cross applies the exclusion exclusively on claims for substance use and mental healthcare treatment. Thus, viewing the allegations in the light most favorable to A.H., the court found it plausible that the coverage limitation is a violation of the Parity Act, and therefore denied the motion to dismiss the Parity violation claim.

Breitwieser v. Vail Corp., No. 2:21-cv-00568-DJC-KJN, 2023 WL 3853483 (E.D. Cal. Jun. 5, 2023) (Judge Daniel J. Calabretta). Mr. Breitwieser suffered a head injury which landed him in his local emergency room. When he submitted his claim for reimbursement of this stay to his self-funded ERISA healthcare plan, his employer, Vail Corporation, through its third-party plan administrator, denied the claim for emergency care under the plan’s intoxication provision. The medical records from the hospital make clear that Mr. Breitwieser was intoxicated at the time when the injury occurred. His blood alcohol content was .19%, and the treating physicians attested that his injury was likely the result of his intoxication. Mr. Breitwieser brought this action seeking a court review of the denial. Vail Corporation moved for summary judgment. Defendant’s position was simple. It maintained that it did not abuse its discretion in denying the claims for coverage because the plan includes an intoxication exclusion, and the uncontroverted medical evidence established that Mr. Breitwieser was under the influence of a substantial amount of alcohol at the time of the injury. The court agreed. To start, the court concluded that a California insurance law banning alcohol exclusions in healthcare plans was inapplicable here, as this plan is self-insured and therefore exempted from ERISA’s savings clause. Next, although the court agreed with Mr. Breitwieser that Vail Corporation had a structural conflict of interest in its decision-making, and that it should therefore apply a degree of skepticism to its analysis of the benefit determination, the court nevertheless concluded that the specifics of this case did not involve complex or subjective judgment calls making “the determination in the present case highly distinct from other situations that raise the specter of a conflict influencing a final benefits decision.” Overall, the court rejected Mr. Breitwieser’s argument that he was denied a full and fair review. The court held that the medical evidence clearly established that the intoxication exclusion was properly applied, and the denial was therefore reasonable. As a result, the court granted Vail Corporation’s motion for summary judgment.

Pleading Issues & Procedure

Sixth Circuit

Montgomery v. Smith, No. 3:23-cv-00275, 2023 WL 3853947 (M.D. Tenn. Jun. 6, 2023) (Judge Aleta A. Trauger). In this decision, the court screened the complaint of an inmate in Tennessee, pro se plaintiff Gary Montgomery, pursuant to the Prison Litigation Reform Act. Mr. Montgomery filed his complaint against his former wife, her lover, the estate of the judge who presided over his divorce proceedings and gave his ex-wife permission to access his 401(k) account, and nine other defendants, asserting claims under ERISA and Tennessee state law. Mr. Montgomery’s complaint tells a rambling story about a series of misdeeds and thefts involving the assets of his 401(k) Plan. Mr. Montgomery brought ERISA claims for breach of fiduciary duty and prohibited transactions. The court found that the complaint included plausible allegations of fiduciary breaches to state colorable non-frivolous claims under ERISA for the purposes of the required Prison Litigation Reform Act screening. The court therefore allowed the complaint to proceed for further development of these claims. In addition, the court stated that it could not sufficiently determine the scope of the judge’s judicial immunity at this state of litigation, and therefore allowed Mr. Montgomery’s Section 1983 claims against the judge’s estate to proceed. However, to the extent Mr. Montgomery requested that the court open an investigation into alleged criminal activity that he believes the defendants engaged in, the court took the opportunity to inform Mr. Montgomery that it lacks the jurisdiction to do so. Finally, because the court will allow Mr. Montgomery’s ERISA claims to proceed, it decided to exercise supplemental jurisdiction over his state law tort claims.

Remedies

Ninth Circuit

Dick v. Deseret Mut. Benefit Adm’rs, No. 2:21-cv-01194-HL, 2023 WL 3884550 (D. Or. Jun. 8, 2023) (Magistrate Judge Andrew Hallman). The estate of healthcare plan participant Susan K. Dick brought this ERISA lawsuit against Deseret Mutual Benefit Administrators to recover benefits due under her healthcare plan for three radiation treatments she received in 2020. In a previous decision the court ruled in plaintiff’s favor. The parties now dispute the proper judgment amount. The estate argued that it is entitled to the originally billed amounts of the medical procedures, totaling $229,173.27, “despite some of these amounts being written off by the provider and some amounts being paid by Deseret Mutual.” At first, Deseret Mutual sought recoupment of the payments from the provider, although it never received any reimbursement as the provider refused to return the payments. Defendant now stipulates that it has stopped efforts to recoup these payments. Because of this, Deseret Mutual maintains that plaintiff is only entitled to judgment totaling $43,185.62, for the expenses Ms. Dick incurred for the treatments, and that she is not entitled to the greater amount under the terms of the plan. The court agreed with Deseret Mutual and concluded that plaintiff was only entitled to recovery for the much lower amount. It read the plan to mean that the estate is only entitled to expenses that Ms. Dick incurred that remain due to her. “Ms. Dick did not incur the expenses that were written off by the provider or paid by Deseret Mutual.” Thus, the court entered judgment of $43,185.62 for the outstanding medical expenses plus prejudgment and post-judgment interest and statutory penalties.

Morris v. Aetna Life Ins. Co., No. 21-56169, __ F. App’x __, 2023 WL 3773656 (9th Cir. Jun. 2, 2023) (Before Circuit Judges Wardlaw and W. Fletcher, and District Judge Edward R. Korman)

Because ERISA allows benefit plan participants and beneficiaries (among others) to sue for breach of fiduciary duty, one of the thorniest questions in ERISA litigation is “who is a fiduciary?” This week’s notable decision from the Ninth Circuit tackles that issue, but first we must set the stage.

As Your ERISA Watch explained in its April 21, 2021 issue, the Ninth Circuit addressed this topic two years ago in Bafford v. Northrop Grumman Corp., 994 F.3d 1020 (9th Cir. 2021). In Bafford, the court considered Northrop Grumman’s pension plan, whose benefit statements were prepared by third party Hewitt (now Alight Solutions).

The plaintiffs brought a suit for breach of fiduciary duty against Northrop and Hewitt, alleging that Northrop and Hewitt had provided them with inaccurate pension benefit statements, on which they relied to their detriment when they retired. The defendants filed a motion to dismiss, arguing that calculation of pension benefits pursuant to a formula is not a fiduciary function, and thus Hewitt’s mistakes could not be a breach of fiduciary duty.

The district court agreed, and the Ninth Circuit affirmed, holding, “Northrop and the Committee did not breach a fiduciary duty by failing to ensure that Hewitt correctly calculated Plaintiffs’ benefits.” (However, the court did allow the plaintiffs to proceed with their state law claims, holding that they were not preempted by ERISA, and with a federal claim against the Committee, the plan administrator, for failure to provide accurate pension benefit statements.)

The defendant in this week’s notable decision, Aetna Life Insurance Company, seized on Bafford and attempted to expand its reach in the disability insurance context. The plaintiff was Irina Morris, a software consultant who had long-term disability insurance coverage with Aetna as an employee benefit. Unfortunately, she was stricken by cancer and became disabled in 2009. Aetna approved her claim for benefits and paid her a monthly benefit of $4,113.17. Over the years, Ms. Morris relied on this calculation in negotiating her divorce, paying her taxes, and refinancing her home. Aetna reassured her on numerous occasions that her benefit was accurate and would continue.

However, in 2018, almost a decade later, Aetna discovered that it had miscalculated Ms. Morris’ benefit and had been overpaying her for the duration of her claim. Aetna began reducing her benefit to recoup the overpayment. Ms. Morris appealed this decision, but Aetna upheld it, so Ms. Morris filed suit against Aetna, alleging that it had breached its fiduciary duty to her under ERISA § 502(a)(3).

Aetna filed a motion to dismiss, which the district court granted. The district court ruled that the alleged breach was “inextricably entwined with the ‘calculation of…benefits,’ which is ‘a ministerial function that does not have a fiduciary duty attached to it.’” As a result, “Bafford defeats Morris’ § 502(a)(3) claim.”

Ms. Morris appealed to the Ninth Circuit, arguing that the district court had misinterpreted Bafford. The Ninth Circuit agreed and reversed. The court ruled that Aetna’s actions “lie well within the category of ‘well-established fiduciary functions.’” The court noted that Aetna provided Ms. Morris with “individualized consultations with benefits counselors,” “consulted with Ms. Morris by phone about her benefit amount numerous times,” “sent letters Aetna knew Morris would share with lenders as proof of her benefits,” and “communicated with Morris’s financial institutions to verify her benefit amount.”

The court further noted that Aetna “exercised discretion when it gathered her earnings information, and interpreted the Plan’s terms to determine which benefits and deductions applied.” Furthermore, it exercised discretion when it decided to “immediately and aggressively collect the overpayment amount after nine years had passed, going as far as to entirely suspend Morris’s benefits.” The court clearly was not pleased with Aetna’s conduct, finding that “Aetna was not required to recoup the overpayment at all, much less in the manner it did that put Morris in dire financial straits.”

Aetna argued that the only “action subject to complaint” was its miscalculation of benefits, and thus Bafford applied. The court rejected this argument, noting that the behavior Ms. Morris complained about was not the miscalculation of benefits, but Aetna’s conduct over the years that “could have avoided any overpayment, much less the catastrophic amount that resulted.”

In conclusion, the court held that Aetna was not simply “a clerical employee typ[ing] an erroneous code onto a computer screen.” Instead, “the extent of Aetna’s involvement in Morris’s financial life distinguishes her case” from the supposedly “ministerial calculation error addressed in Bafford.” As a result, the court held that Bafford was inapposite, ruled that Aetna was indeed a fiduciary, and remanded to the district court to determine whether Aetna breached its duty to Ms. Morris.

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

Breach of Fiduciary Duty

Second Circuit

Powell v. Ocwen Fin. Corp., No. 18-CV-1951 (VSB), 2023 WL 3756847 (S.D.N.Y. June 1, 2023) (Judge Vernon S. Broderick). The six named plaintiffs in this putative class action lawsuit are trustees of The United Food & Commercial Workers Union & Employers Midwest Pension Fund. They sued nineteen defendants, including the moving defendants, Ocwen Financial Corporation, Ocwen Loan Servicing LLC, Ocwen Mortgage Servicing, Inc., and Wells Fargo Bank, N.A., for breaches of fiduciary duties and prohibited transactions in connection with the management of residential mortgages in six trusts in which the Fund invested. The moving defendants sought summary judgment on the grounds that the mortgages were not plan assets within the meaning of ERISA. Plaintiffs, for their part, sought summary judgment to establish that the securities they purchased were in fact plan assets within the meaning of ERISA. Under a governing regulation issued by the Department of Labor, the court concluded that the mortgage-backed securities are not plan assets within the meaning of ERISA. Accordingly, the court denied plaintiffs’ partial summary judgment motion, and granted the moving defendants’ summary judgment motion. Specifically, the court concluded that the securities at issue are “treated as indebtedness under applicable local law(s),” not plan assets, because they had fixed interest rates and final maturity dates. The court also found that the securities “have no substantial equity features,” under the relevant guidance of the Second Circuit’s “reasonable expectations of repayment” test. Thus, the court found that the at-issue securities cannot constitute equity interests under the relevant criteria. Because of this, the court held that “the Funds’ owning the At-Issue Securities (do) not cause the mortgages underlying the Trusts to be ‘plan assets’ within the meaning of ERISA § 2510.3-101(a)(2), and all of plaintiffs’ claims…fail.” Having so decided, the court not only granted the moving defendants’ motion for summary judgment, but it also directed the clerk of the court to terminate all open motions, enter judgment in favor of all nineteen defendants, and to close the case.

Disability Benefit Claims

Seventh Circuit

Artz v. Hartford Life & Accident Ins. Co., No. 21-cv-0391-bhl, 2023 WL 3752006 (E.D. Wis. Jun. 1, 2023) (Judge Brett H. Ludwig). Plaintiff Donald Artz stopped working in 2019 due to symptoms he was experiencing from multiple sclerosis (“MS”), after a career of more than 20 years working as a senior electric distribution controller for an energy company. After leaving his position, Mr. Artz applied for long-term disability benefits. The plan administrator, Hartford Life & Accident Insurance Company, denied his claim, concluding that Mr. Artz could work in the same position at other companies and that he therefore did not meet the plan’s eligibility requirements for benefits. Following an unsuccessful administrative appeal, Mr. Artz sued Hartford in this action. Under deferential review, however, the court concluded in this decision that Hartford’s decision was not arbitrary and capricious and therefore entered judgment in its favor. The court was particularly struck by the fact that Mr. Artz requested his employer change his 12-hour work shifts to 8-hour work shifts, and that this request was denied. The court agreed with Hartford’s conclusion that Mr. Artz would have been capable of performing the essential duties of his own occupation despite his MS symptoms because other employers would have allowed Mr. Artz to work a standard 8-hour day, and the position is mostly a sedentary occupation. Mr. Artz disagreed and emphasized that no employer in the industry only requires 8-hour workdays and that “any electric distribution controller ‘would be expected to work at any hour and however long is required’ to fix a [utility] issue.” In response, the court wrote, “Artz’s many iterations of this argument fail to address the terms of Hartford’s plan or the factual basis for Hartford’s decision. Hartford’s plan defines Artz’s Occupation by reference to the national economy, not his actual position at WEC.” Additionally, the court was satisfied that the medical evidence in the record could be read to support Hartford’s position, and that Hartford sufficiently explained its assessment of Mr. Artz’s medical situation. Finally, the court held that Mr. Artz’s award of disability benefits from the Social Security Administration, and Hartford’s conflict of interest, did not shift the weight of things in Mr. Artz’s favor or mean that the benefits determination was wrong. For these reasons, the court was persuaded that the evidence supported Hartford’s conclusion that Mr. Artz was not disabled within the meaning of the plan. 

Discovery

Eighth Circuit

Hanley v. Unum Life Ins. Co. of Am., No. 4:22-cv-01094-SRC, 2023 WL 3736478 (E.D. Mo. May. 31, 2023) (Judge Stephen R. Clark). Decedent Suzanna Hanley died from a subdural hemorrhage while in a hospital a few days after she accidentally fell in a parking lot in October of 2021. Her widower, plaintiff Riley Hanley, filed a claim for accidental death and dismemberment benefits with Unum Life Insurance Company of America. Unum denied the claim. It held that Ms. Hanley’s death was contributed to by other non-accidental causes and therefore was excluded from the policy. Specifically, it found that Ms. Hanley’s “death was contributed to by a medical condition for which she was treating with aspirin and Plavix for peripheral vascular disease,” and that it therefore did not consider the death to be solely the result of an accident. Mr. Hanley appealed. He averred that the death certificate and medical records from the hospital did not list any underlying medical condition or prescription medication as contributing causes of death, and that her death was the result of an accident entitling him to benefits under the plan. After Unum affirmed its denial on appeal, Mr. Hanley commenced this lawsuit for benefits. Now, Mr. Hanley has moved for discovery beyond the administrative record. In his motion he seeks documents relating to Unum’s claims handling practices and seeks to depose an Unum representative. Mr. Hanley argued that discovery outside the administrative record is warranted in this case because of procedural irregularities. In particular, Mr. Hanley argued that Unum did not conduct an investigation of his claim after he filed his appeal, and that Unum did not employ a physician to review the claim or make a determination as to whether Ms. Hanley’s death was an accident under the terms of the policy. Unum opposed the discovery motion. It stressed that the 2,300 page administrative record contradicts Mr. Hanley’s assertion that it failed to investigate the claim. Furthermore, Unum argued that it employed a nurse to review and summarize the claims file, and that her summary is compliant with ERISA’s requirements. The court wrote that “Unum has the better argument,” and denied the discovery motion. The court did not agree with Mr. Hanley that serious procedural irregularities existed to the point where the record requires supplementation of further evidence.

ERISA Preemption

Third Circuit

Premier Orthopaedic Assocs. of S. N.J. v. Anthem Blue Cross Blue Shield, No. 22-02407 (RMB/EAP), 2023 WL 3727889 (D.N.J. May. 30, 2023) (Judge Renee Marie Bumb). An out-of-network healthcare provider, Premier Orthopaedic Associates of Southern NJ, LLC, sued Anthem Blue Cross Blue Shield in state court seeking payment for costs of medically necessary emergency spinal surgery it performed on an insured patient which it alleges Anthem approved but failed to pay for. Anthem removed the complaint to federal court and moved to dismiss the lawsuit. Anthem’s arguments for dismissal were twofold. First, it argued that the claims were preempted by ERISA. Second, Anthem maintained that the complaint failed to state plausible claims to survive dismissal under Federal Rule of Civil Procedure 12(b)(6). The court disagreed with the former argument, at least at this stage, but agreed with the latter. As a result, the court dismissed the complaint, but did so without prejudice. Regarding preemption, the court found that it could not address Anthem’s preemption argument without relying on a document outside of the complaint, a preauthorization letter,  the validity of which was challenged by Premier. The court also noted that Premier itself maintained that its state law claims were not based on this letter but instead were based on a “prior course of conduct” between it and Anthem. Thus, because the document was not necessarily relied upon in the complaint and not undisputedly authentic, the court declined to look at the letter. The court therefore stated that it would not conclude as a matter of law that the state law claims were preempted, especially because plaintiff maintains that there was an independent obligation to pay the claims for the surgery apart from the ERISA healthcare plan. However, the court wrote that “even when viewed in the light most favorably to Premier, the Complaint lacks enough facts to support Premier’s breach of contract, promissory estoppel, and account stated claims.” Nevertheless, the court allowed Premier the opportunity to replead its claims to address the deficiencies it identified in order to meet the elements necessary to plausibly state each of these claims.

Fourth Circuit

Zhang v. Cigna Healthcare Inc., No. 1:22-cv-1221 (MSN/IDD), 2023 WL 3727936 (E.D. Va. May. 30, 2023) (Judge Michael S. Nachmanoff). Dr. Jianyi Zhang sued Cigna Healthcare, Inc. in state court in Virginia asserting several state law claims in connection with what Dr. Zhang believed were unfair claim settling practices by Cigna with regard to the prices it paid him for reimbursement of claims for urine tests he submitted. Cigna removed the action to federal court. It argued that Dr. Zhang’s claims were preempted by ERISA. Cigna then moved to dismiss the complaint, and Dr. Zhang moved to remand his complaint back to state court. The court granted Dr. Zhang’s motion to remand, agreeing with him that ERISA did not preempt his causes of action and that it therefore lacked jurisdiction over the matter. Specifically, the court found that Dr. Zhang did not possess either direct or derivative standing to assert claims under Section 502 of ERISA, and that as a result complete preemption does not exist. Because the court found that Dr. Zhang did not meet the standing element for complete preemption, it did not even address the other prongs of the complete preemption test. Therefore, the court concluded that it lacked subject matter jurisdiction and remanded the action to the Circuit Court of Arlington County, Virginia. Cigna’s motion to dismiss was thus denied as moot.

Eighth Circuit

Bey v. Bd. of Trs. of the Carpenters & Joiners Defined Contribution Plan, No. 23-335 (JRT/ECW), 2023 WL 3752190 (D. Minn. Jun. 1, 2023) (Judge John R. Tunheim). Plaintiff Zar El Thomas Bey, as an authorized agent for a plan participant, Javon Martize Thomas, initiated this suit when he served the administrator of the Carpenters and Joinders Defined Contribution Plan with a notice of bill in equity to be reviewed by the U.S. Federal Supreme Court of Chancery. The Board of Trustees removed the action and has subsequently moved to dismiss it. The Board argued that Mr. Bey’s state law claims of fraud, theft, breach of contract, and for benefits are all preempted by ERISA, and that Mr. Bey also failed to state a claim upon which relief could be granted. The court agreed. To begin, it became clear that Mr. Bey’s allegations were likely premised on a misreading of the Plan’s Summary Annual Report from 2022. His filings appeared to suggest that he misunderstood the Summary Annual Report as describing the assets in Mr. Thomas’s individual retirement account, rather than explaining the total plan assets and the amount paid in plan expenses for the prior calendar year. Upon review of the Summary Annual Report, the court confirmed that the amounts Mr. Bey attributed to Mr. Thomas’s “private account” exactly corresponded with the amounts relating to the entire plan. Nonetheless, the court stated that the claims are all preempted by ERISA as they pertain to the administration of plan benefits, relate to the plan and its assets, and because Mr. Thomas could bring a claim for benefits only under Section 502 of ERISA. Moreover, the court agreed with the Board that the claims are unripe, as Mr. Thomas has not brought a claim or exhausted his administrative remedies. Finally, the court interpreted Mr. Bey’s failure to respond to the motion to dismiss as a waiver and voluntary dismissal of his claims. For these reasons, the court granted the motion to dismiss under Rule 12(b)(6) and dismissed the claims with prejudice. 

Eleventh Circuit

Am. Prods Prod. Co. of Pinellas Cnty. v. Armstrong, No. 8:23-cv-747-KKM-SPF, 2023 WL 3728407 (M.D. Fla. May. 30, 2023) (Judge Kathryn Kimball Mizelle). Plaintiffs are a group of Florida corporations owned by two individuals, Joseph Muraco and Kevin Mullan. They brought suit in state court in Florida against a former employee, the International Painters & Allied Trades Industry Pension Fund, and several other parties associated with an ERISA plan alleging defamation and abuse of process after the pension fund brought a withdrawal liability action against the companies in the federal District Court of Maryland under ERISA and the Multiemployer Pension Plan Amendments Act. Defendants removed the Florida state law case to federal court. They argued that the complaint is preempted by ERISA and moved for dismissal. The companies, meanwhile, moved to remand their action back to state court. The court resolved the motions in this decision, concluding that defendants had not met their burden of establishing complete preemption under ERISA. Defendants argued that the abuse of process claim premised on the withdrawal liability action between the parties necessarily “relates to the substantive merits of the withdrawal liability claim” and the actions that defendants took in that lawsuit. Additionally, Defendants expressed that plaintiffs’ lawsuit here significantly overlaps with counterclaims plaintiffs asserted in the Maryland action. The court, however, did not agree. “Even if the state court must address some aspects of the ERISA dispute, the state court’s decision ‘will not stand as binding precedent’ for any current or future withdrawal liability claim because resolution of Defendants’ pending ERISA suit is not an essential element of Plaintiffs’ abuse of process claim.” To the court, the distinction between the two actions is that resolution of the Maryland suit will determine whether plaintiffs improperly withdrew from the fund, while the analysis for the state law abuse of process claim will instead “evaluate the Defendants’ motive for bringing the Maryland suit, not the merits of the Defendants’ claim. Thus, no state court will adjudicate the merits of any ERISA claim, so this dispute is not significant enough to warrant federal jurisdiction.” Accordingly, the court granted plaintiffs’ motion to remand, and denied as moot defendants’ motion to dismiss.

Life Insurance & AD&D Benefit Claims

Seventh Circuit

McCombs v. Reliance Standard Life Ins. Co., No. 20CV3746, 2023 WL 3763526 (N.D. Ill. Jun. 1, 2023) (Judge Lindsay C. Jenkins). Father of two, Jeffrey McCombs, died on July 29, 2016. At the time of his death, his two children were both minors, and Mr. McCombs was insured under an ERISA-governed group life insurance policy which named his children as co-equal beneficiaries of the policy. Shortly after Mr. McCombs’ death, a benefits analyst for his employer, Transunion, reached out to Reliance on behalf of the minor children and their mother. Reliance Standard, through two employees, a client manager and a manager of life insurance claims, responded to the Transunion employee’s emails, and informed her that “the proceeds for the minor will be held with Reliance Standard until the minor attains the legal age of majority and requests the proceeds.” Mindful of this information provided by Reliance, the children waited until the older one reached adulthood, and then submitted a claim for benefits. Reliance Standard denied the children’s claim as untimely, and for failure to provide written notice of claim and information about the death within the time period outlined in the plan. The family appealed the denial. They argued that Transunion’s emails constituted written notice of claim, and that they could not have submitted a claim for benefits any earlier because the children were both minors and therefore legally incapable of submitting a claim any earlier. After Reliance Standard upheld its denial, the family commenced this lawsuit, arguing that Reliance’s decision was an abuse of discretion. In their action, the family seeks benefits, attorney’s fees, and prejudgment interest. The parties filed cross-motions for summary judgment. In this decision, the court entered judgment in favor of the children and ordered Reliance to pay them the life insurance benefits, plus attorney’s fees, costs, and interest. Regarding the notice of claim, the court held that “nothing in the record [suggests] that Reliance ever informed Plaintiffs (who were minors at the time) that the notice of loss had to come directly from them or their right to benefits would be forfeited.” The court also stated that the notice of claim met all of the plan’s requirements, as it was timely, and because it informed Reliance of Mr. McCombs’ death, his policy number, and included information about his beneficiaries. Thus, the court found that Reliance’s reasoning to deny the claim for failure to comply with the policy’s notice of loss provision was arbitrary and capricious, especially when factoring in its structural conflict of interest. Next, the court found that plaintiffs’ claim for benefits was timely, not only because the children relied on Reliance’s direction in the email correspondence, but also because they were minors legally incapable of claiming benefits any sooner. Finally, the court ruled that even if the children could have brought a claim earlier, which it doubted, Illinois insurance law provides no time limit for filing death claims, meaning the plan’s statute of limitations provision is unenforceable. Accordingly, the court agreed with plaintiffs that Reliance Standard’s denial was an abuse of discretion.

Medical Benefit Claims

Ninth Circuit

S.L. v. Premera Blue Cross, No. C18-1308RSL, 2023 WL 3738991 (W.D. Wash. May. 31, 2023) (Judge Robert S. Lasnik). Plaintiff S.L. and his parents sued Premera Blue Cross, Amazon Corporate LLC, and the Amazon Corporate LLC Group Health and Welfare Program under ERISA Section 502(a)(1)(B) after Blue Cross denied coverage for S.L.’s stay at a residential treatment facility in Utah. Plaintiffs argued that defendants violated the plan’s terms for coverage of medically necessary mental healthcare and substance use treatment by denying their claims. The parties filed cross-motions for summary judgment. The court granted judgment in favor of defendants under the abuse of discretion review standard. Upon review of the record, the court held that even weighing the procedural irregularities of the review of the claims, including the reviewer’s focus on S.L.’s preadmission symptoms, the denials were supported by substantial evidence. Moreover, the court stated that the procedural irregularities did not prevent the development of a full administrative record, and therefore stated that it would not consider evidence, including discovery testimony, outside of the administrative record in its review of Blue Cross’s decision. Regarding the decision, the court found that defendants’ position that S.L.’s stay at the treatment facility was not medically necessary under the plan because the InterQual Criteria “were not met for severe functional impairment” was not arbitrary or capricious. Specifically, the court disagreed with plaintiffs that defendants’ reliance on the InterQual Criteria was itself an abuse of discretion, writing that “courts across the country have recognized the widespread adoption of InterQual Criteria and ‘district courts routinely find that InterQual’s criteria comport with generally accepted standards of care.’” Thus, although the court expressed sympathy for the family, and stated that it admired their efforts to get S.L. the care he needed, it concluded that the denial of benefits was not an abuse of discretion and therefore denied plaintiffs’ motion for judgment and granted defendants’ summary judgment motion.

Tenth Circuit

D.B. v. United Healthcare Ins. Co., No. 1:21-cv-00098-BSJ, 2023 WL 3766102 (D. Utah Jun. 1, 2023) (Judge Bruce S. Jenkins). Plaintiff D.B., on behalf of his minor son, A.B., sued two insurance companies, Blue Cross Blue Shield of Illinois and United Healthcare Insurance Company/United Behavioral Health, in connection with denied coverage for A.B.’s stay at a sub-acute residential treatment center. Plaintiff asserted claims for benefits and claims for violation of the Mental Health Parity and Addiction Equity Act against insurers of both plans that A.B. was a beneficiary of. In this order the court issued its rulings on those motions. It began by addressing Blue Cross’s denial. Blue Cross denied the claim under a plan term requiring residential treatment centers to offer 24-hour onsite nursing services. Because the facility A.B. stayed at did not offer such services, Blue Cross denied the claim. Under abuse of discretion review, the court found that the facility did not satisfy the plan’s unambiguous requirement and that the denial was therefore reasonable. Accordingly, the court granted summary judgment in favor of Blue Cross on the denial claim. Regarding the Parity Act claim asserted against Blue Cross, the court found that there was no discrepancy between the 24-hour onsite nursing services requirement for mental healthcare facilities and any skilled nursing facility because federal Medicare law and state licensing authorities impose the exact same 24-hour onsite nursing services requirement on all inpatient facilities. Thus, the court stated that D.B. did not establish that the requirement for coverage of residential treatment centers for mental healthcare was more restrictive than comparable nursing treatment centers under the terms of the plan, and without any proof of a disparity in treatment, the Parity Act claim failed. Despite plaintiff’s lack of success against Blue Cross, the court’s calculus was quite different with regard to United Behavioral Health. In the case of United, the denial was based on a lack of medical necessity under a plan that included discretionary language which triggered arbitrary and capricious review. In its analysis, the court relied on recent Tenth Circuit precedent in D.K. v. United Behavioral Health, No. 21-4088, 2023 WL 3443353 (10th Cir. May 15, 2023), which Your ERISA Watch featured as our case of the week in our May 24, 2023 newsletter. Under the guidance of D.K., the court found that United’s denial was an abuse of discretion as United failed to engage in a dialogue with A.B.’s treatment provider or address that doctor’s opinions and recommendations. “Nowhere in any of its denials did UBH address the recommendations of Dr. McCormick that A.B. continue to receive (residential treatment center) care.” Thus, applying D.K., the court concluded that United arbitrarily and capriciously refused to engage with the medical opinions of A.B.’s treating healthcare providers, and therefore entered summary judgment against United. Unfortunately for plaintiff, though, the court did differ from D.K. in one respect. Rather than awarding benefits outright, it concluded the proper course of action in this case would be to remand to United for a renewed evaluation of the claim consistent with this decision. Finally, having directed remand, the court denied as moot United and D.B.’s cross-motions for judgment on the Parity Act claim.

Pleading Issues & Procedure

Second Circuit

Vellali v. Yale Univ., No. 3:16-cv-1345(AWT), 2023 WL 3727426 (D. Conn. May. 26, 2023) (Judge Alvin W. Thompson), Vellali v. Yale Univ., No. 3:16-cv-1345(AWT), 2023 WL 3727432 (D. Conn. May. 26, 2023) (Judge Alvin W. Thompson), Vellali v. Yale Univ., No. 3:16-cv-1345(AWT), 2023 WL 3727415 (D. Conn. May. 30, 2023) (Judge Alvin W. Thompson), Vellali v. Yale Univ., No. 3:16-cv-1345(AWT), 2023 WL 3727452 (D. Conn. May. 26, 2023) (Judge Alvin W. Thompson), Vellali v. Yale Univ., No. 3:16-cv-1345 (AWT), 2023 WL 3727438 (D. Conn. May. 26, 2023) (Judge Alvin W. Thompson). A series of motions in limine were before the court this week in a class action brought by participants in the Yale University 403(b) Retirement Account Plan, where a jury trial is already underway, a first of its kind in an ERISA breach of fiduciary duty case. In the first two decisions, the court ruled on the sufficiency of plaintiffs’ claim that the Yale fiduciaries had the authority to transfer participant assets from TIAA annuities to other investments, a practice referred to as “mapping.” The participants argued that “ERISA requires plan documents and service provider contracts to be interpreted to allow Defendants to close investments and map them to other options if the investments are imprudent or charge unreasonable fees.” The court did not agree with this characterization of ERISA’s requirements. Instead, it held that the plan does not unambiguously give defendants the authority to remove any investment option or to transfer funds into a different option, and that doing so would actually have interfered with the terms of the contracts between the participants and TIAA itself. “Thus, the plaintiffs have failed to show that they have a basis for arguing or attempting to introduce evidence in support of an argument, that the defendants were imprudent by not unilaterally transferring assets invested in the legacy version of the TIAA traditional annuities to different investment options.” Accordingly, the court denied plaintiffs’ motion regarding defendants’ authority to map the TIAA annuities and granted defendants’ motion precluding plaintiffs from arguing that they were imprudent by not unilaterally doing so. The third decision of the bunch granted in part and denied in part plaintiffs’ motion to exclude evidence or argument “suggesting that Defendants’ duty of prudence under ERISA is defined solely by comparison to the conduct of other educational institutions.” Plaintiffs argued that there is no such thing as a “university specific standard” for ERISA fiduciaries. The court granted the motion to the extent that it seeks to preclude defendants from arguing that the applicable legal standard is defined solely through the context of conduct by other universities. Nevertheless, the court found plaintiffs’ motion to be overly broad, and denied it to the extent that they sought to preclude defendants from arguing that the most appropriate comparator plans to the Yale plan are those belonging to other educational institutions. In the fourth decision, the court denied plaintiffs’ motion to exclude testimony of Conrad Ciccotello, an individual that defendants intend to call as an expert witness to offer testimony about Yale’s oversight process for monitoring and reviewing third party vendors and plan investments. The court concluded that Mr. Ciccotello is qualified to testify as an expert given his academic work, his past service as an expert witness in similar cases, and his experience with two private foundations, including as a research fellow in the TIAA Institute. In addition, the court was satisfied that Mr. Ciccotello’s opinions were likely to be reliable and helpful to the triers of fact. In the final decision this week, the court almost entirely denied defendants’ omnibus motion in limine addressing nine separate issues. First, the court ruled that defendants’ remedial measures, including their decision to consolidate recordkeepers in 2015 and move to a consolidated investment lineup, are admissible before the jury. The court agreed with plaintiffs that whether Yale could have taken these actions earlier is a contested and relevant fact that the jury will have to decide. Second, the court ruled that it would not preclude plaintiffs from introducing evidence relating to their previously dismissed claims so long as that evidence is probative to the claims still pending. Third, the court stated that the statute of limitations which shaped the class period, “does not operate to bar the introduction of evidence that predates the commencement of the limitations period but that is relevant to the events during the period.” Thus, the court allowed plaintiffs to include information about pre-class period conduct for the jury to be able to consider how the fiduciaries managed the plan over an extended period of time. Fourth, the court denied defendants’ motion to exclude evidence regarding Yale’s procurement process, holding that such evidence is relevant. Fifth, the court granted, with the consent of plaintiffs, defendants’ motion for an order forbidding plaintiffs’ experts from referring to settlements in other ERISA cases. Sixth, the court restated an earlier opinion that Yale’s process for monitoring investments in its endowments was relevant, and therefore denied defendants’ motion to exclude evidence on this topic. Seventh, defendants moved to preclude plaintiffs from introducing evidence about comparative plans that did not have TIAA annuities. The court denied this motion. It stated that whether recordkeeping or investment monitoring practices undertaken by fiduciaries of ERISA plans that did not offer TIAA annuity products are comparable to the Yale plan is a determination that should be made by the finder of fact. Eighth, the court allowed plaintiffs to offer evidence about potential conflicts of interest defendants had involving TIAA. Finally, the court reiterated that the “jury trial standard” applies to Daubert motions to exclude, and that its analysis on defendants’ arguments to exclude plaintiffs’ experts’ opinions remains unchanged from its earlier decision.

Retaliation Claims

Second Circuit

Neufville v. Metro Cmty. Health Ctrs., No. 22-cv-06002 (ALC), 2023 WL 3687727 (S.D.N.Y. May. 26, 2023) (Judge Andrew L. Carter). Plaintiff Sherie Neufville was employed by a health clinic, defendant Metro Community Health Centers, Inc., as a podiatrist from December 2016 until February 2022. She was fired in February 2022 while taking paid maternity leave under an employer sponsored benefit plan. In her complaint, Ms. Neufville alleges that in the fall of 2021 she formally applied for and was approved paid family leave to give birth and take care of her newborn from late November 2021 to the end of February 2022. She maintains that her employer discharged her for retaliatory reasons to interfere with her attempt to exercise her rights under her ERISA plan. Accordingly, in this lawsuit Ms. Neufville asserted one cause of action, a violation of Section 510 of ERISA. To date, Metro Community Health has not appeared in the action. On March 28, 2023, the court issued an order to show cause why it should not issue an order pursuant to Federal Rule of Civil Procedure 55 entering default judgment. Ms. Neufville served a copy of the order to show cause on Metro Community Health. Once again, it failed to respond. As a result, Ms. Neufville moved for default judgment. The court granted her motion in this order. It was satisfied that Ms. Neufville made a prima facie case that her employer’s action to terminate her was at least partially motivated by the intent to engage in retaliatory conduct. The short time period between Ms. Neufville’s protected activity and the termination also convinced the court that “a causal connection could exit between the protected activity…and the adverse action.” Finally, because defendant defaulted, the court stated that it failed to articulate a legitimate or non-discriminatory reason for its decision to fire Ms. Neufville while she was on her paid leave. “Therefore, the presumption of retaliation is not rebutted, and Defendant is liable for violating Section 510 of ERISA.” However, the court did not award damages in this order. Instead, it ordered Ms. Neufville to file supplemental materials clarifying the amount in damages she was seeking and the basis for the requested award amount.

Statutory Penalties

Third Circuit

Goode v. Capital One Fin. Corp., No. 22-325-CFC, 2023 WL 3750679 (D. Del. Jun. 1, 2023) (Judge Colm F. Connolly). Pro se plaintiff Alexander Goode sued his former employer, Capital One Financial Corporation, for a violation of a provision in the American Rescue Plan Act of 2021 which requires employers to notify laid off workers that they were entitled to have their former employer pay for their healthcare premiums for continuing coverage under COBRA. In his complaint, Mr. Goode asserted a claim under ERISA § 1132(c) for statutory penalties of up to $110 per day for the alleged violation of the American Rescue Plan Act’s notice provisions. Capital One moved to dismiss. It argued that the complaint failed as a matter of law because Section 502(c) does not authorize statutory penalties of violations of the American Rescue Plan Act. The court disagreed and denied the motion to dismiss. It held that failure to comply with the availability of premium assistance notification requirements of the act constitutes a failure to comply with ERISA’s COBRA requirements, and that under Section 502(c), a court may exercise its discretion and award penalties per day from the date of such a failure. Thus, the court concluded that Mr. Goode’s claim for statutory penalties for Capital One’s alleged failure to comply with these provisions did not fail as a matter of law.

There is no one case that stood out as Case of the Week. However, this week’s batch of decisions highlights several interesting trends. First, healthcare continues to dominate the ERISA litigation scene. Second, as a sign perhaps of tough economic times, we are seeing an increasing number of suits for severance benefits. Finally, collectively-bargained pension plans continue to change and tighten their rules about post-retirement employment and covered participants who counted on their ability to collect pensions while working continue to challenge this.  

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

Breach of Fiduciary Duty

Ninth Circuit

Diaz v. Westco Chems., Inc., No. 22-55823, __ F. App’x __, 2023 WL 3615663 (9th Cir. May. 24, 2023) (Before Circuit Judges Christen and Bress, and District Judge Antoon). In a very concise unpublished decision, the Ninth Circuit affirmed a district court’s summary judgment order in favor of Westco Chemicals, Inc., and the other plan fiduciaries in this breach of fiduciary duty class action involving a defined benefit pension plan. Relying on the Supreme Court’s decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020), the Ninth Circuit agreed with the district court that appellants could not satisfy the requirements of Article III standing either individually or on behalf of the plan because the “undisputed evidence in the record shows that the plan is not currently at risk of default,” and the participants were paid the benefits to which they were entitled. Accordingly, whatever misconduct the administrators of the defined benefit plan may have engaged in, the court of appeals concluded that the participants lacked standing to state their claims. Thus, the Ninth Circuit affirmed, concluding the district court correctly granted summary judgment to the fiduciaries.

Hagins v. Knight-Swift Transp. Holdings, No. CV-22-01835-PHX-ROS, 2023 WL 3627478 (D. Ariz. May. 24, 2023) (Judge Roslyn O. Silver). In this putative class action complaint participants of the defined contribution Knight-Swift Transportations Holdings, Inc. Retirement Plan sued Knight-Swift Transportations Holdings, Inc., the plan sponsor, and plan administrator, for breaching its fiduciary duties of prudence and monitoring. Plaintiffs allege that Knight-Swift mismanaged the plan by allowing the plan’s administrative and recordkeeping expenses to expand to imprudent levels through both direct and indirect fees, by failing to invest in available lower cost institutional share classes of otherwise identical funds, and by not properly overseeing and monitoring the performance of the plan’s administrative committee. Knight-Swift moved to dismiss the complaint. Plaintiffs opposed the motion to dismiss and moved to strike twelve exhibits that Knight-Swift filed with its motion to dismiss. The court began its decision by deciding whether to take judicial notice of the disputed documents. It mostly granted plaintiffs’ motion to strike, as plaintiffs challenged the authenticity and accuracy of the exhibits. However, the court did take judicial notice of a Form 5500 of the Knight-Swift Plan and a Form 5500 for another plan that plaintiffs used as a comparator in their complaint. With this matter addressed, the court proceeded with its analysis of the motion to dismiss. To begin, it found that plaintiffs adequately alleged their breach of duty of prudence claims based on both the fees and share classes. Defendants’ arguments, the court ruled, could not properly be addressed or resolved at the pleadings stage. Instead, the court determined that Swift-Knight’s interpretations could not be favored over plaintiffs’, and that plaintiffs’ allegations were enough to state a claim. Lastly, the court denied the motion to dismiss the derivative failure to monitor claim, again concluding that plaintiffs had alleged sufficient details to infer that defendant did not do enough to monitor the actions of the committee. For these reasons, Knight-Swift’s motion to dismiss was denied.

Disability Benefit Claims

Sixth Circuit

Bombassei v. The Lincoln Nat’l Life Ins. Co., No. 22-10593, 2023 WL 3605968 (E.D. Mich. May. 23, 2023) (Judge Denise Page Hood). On March 5, 2021, at the end of the “own occupation” period, plaintiff Cheryl Bombassei’s long-term disability coverage was terminated by defendant Lincoln National Life Insurance Company. Ms. Bombassei, a nurse and nurse practitioner who has been diagnosed with type 2 narcolepsy with extreme daytime sleepiness and rheumatoid arthritis, appealed Lincoln’s decision. After the denial was upheld by Lincoln, Ms. Bombassei commenced this lawsuit. The parties cross-moved for judgment under de novo review. In this order the court awarded judgment in favor of Ms. Bombassei and reinstated her disability benefits. The court was persuaded by the conclusions of Ms. Bombassei’s treating physicians, the Administrative Law Judge who awarded her Social Security Disability benefits, and the testimony of Ms. Bombassei and her family members, that she would be unable to perform any occupation in the economy given her severe impairments. In particular, the fact that Ms. Bombassei must nap for two hours in the middle of the workday in order to control her narcolepsy was proof to the court that “she is inhibited from performing the Main Duties for pretty much any occupation, as one fundamental condition for performing an occupation is being awake.” The court also found “it notable that the reports and opinions of physicians Defendant identifies lack any in-depth analysis regarding Plaintiff’s narcolepsy; in fact, most fail to even acknowledge or discuss Plaintiff’s narcolepsy.” For these reasons, the court was satisfied that Ms. Bombassei is totally disabled under the terms of her policy and that she was therefore entitled to judgment in her favor. Finally, the court reversed the benefits decision outright and ordered Lincoln to “honor Plaintiff’s award of benefits, including the award of past due benefits and interest on past due benefits, as well as pay Plaintiff for future benefits as long as she continues to meet the definition of Total Disability under the policy.” And in this case, the court implied Ms. Bombassei would likely continue to qualify for benefits under the plan’s definition of total disability, as there is no evidence that narcolepsy is curable or that it goes into remission.

Discovery

Tenth Circuit

M.A. v. United Behavioral Health, No. 2:20-cv-00894-DAK-JCB, 2023 WL 3604420 (D. Utah May. 23, 2023) (Magistrate Judge Jared C. Bennett). In this lawsuit a family of participants and beneficiaries of the Motion Picture Industry Health Plan have sued their plan, United Behavioral Health, and OptumHealth Behavioral Solutions, Inc. under ERISA and the Mental Health Parity and Addiction Equity Act stemming from denials the family received of coverage for mental healthcare services. During discovery in this action defendants produced documents but designated many of them as confidential. Plaintiffs challenged the confidentiality designations of three documents: “(1) a Mental Health Parity Comparison conducted by Defendants; (2) the Milliman Care Guidelines for Subacute/Skilled Nursing Facility Care…; and (3) UBH Clinical Technology Assessments.” Defendants filed a motion for protective order with the court to maintain the confidentiality designations of these disputed documents. Plaintiffs opposed defendants’ motion. The court reviewed the documents during an in camera review and then heard oral argument on the motion. In this order, it issued its decision. As an initial matter, the court held that ERISA’s mandatory disclosure provisions do not automatically require documents to be publicly available. Rather, although the documents are discoverable, it held that that does not mean they cannot also be kept confidential. Instead, the court decided the appropriate course of action would be to apply the traditional balancing test to decide whether the documents at issue should maintain their confidential designations. Upon applying the balancing test, the court permitted defendants to retain the confidentiality designations on the disputed documents. It found that the documents contain confidential, sensitive, and proprietary commercial business information, and that unrestricted disclosure of the documents would result in economic harm to defendants. Regarding plaintiffs’ interest in disclosure, the court wrote only one line, “Plaintiffs, on the other hand, have not demonstrated that the confidentiality designations placed on the Disputed Documents – which have already been produced for use in this case – will any way prevent or unduly burden the prosecution of their claims.” As a result, the court found that defendants’ risk of harm outweighed plaintiffs’ interest in public disclosure and availability of the documents, and therefore granted defendants’ motion to keep the documents designated as confidential.

ERISA Preemption

Third Circuit

Thompson v. Command Alkon Inc., No. 22-344, 2023 WL 3594178 (E.D. Pa. May. 22, 2023) (Judge Gene E.K. Pratter). Plaintiff Linda Thompson sued her former employer Command Alkon, Inc. in state court seeking benefits under her severance plan. Both parties have now moved for summary judgment. Command Alkon argued that the plan is an ERISA-governed plan, and the state law causes of action are therefore preempted. In this decision the court granted Command Alkon’s motion for summary judgment as to the issue of preemption and ordered the parties to provide supplemental briefing on the application of ERISA to this action. To begin, the court agreed with defendant that the plan creates an administrative scheme because Ms. Thompson’s eligibility turns on whether she was terminated for or without cause, a decision which requires “her employer (to) exercise managerial discretion in categorizing the circumstances of Ms. Thompson’s termination.” Moreover, the plan contemplates installments of payments over a maximum of five years, rather than a lump sum. The court felt this too required ongoing administration, meaning the plan qualifies as an ERISA plan. Finally, the court concluded that the employment and severance contract can constitute an ERISA plan even though it only covers one employee, Ms. Thompson. Having established that the plan is indeed governed by ERISA, the court concluded that Ms. Thompson’s state law claims, for breach of contract and violation of Pennsylvania’s Wage Payment and Collection Law, are preempted by ERISA as they “are both premised on the argument that Command Alkon denied her severance benefits owed under her employment agreement,” and because they require review of the plan. For these reasons, the court granted defendant’s summary judgment motion on the issue of ERISA preemption. However, the court did not feel comfortable proceeding on the remainder of the summary judgment motions. Instead, it instructed the parties to submit a joint status update detailing their views on whether Ms. Thompson should be granted leave to amend her complaint to replead her claims under ERISA.

Medical Benefit Claims

Fourth Circuit

Hainey v. SAG-AFTRA Health Plan, No. 8:21-cv-02618-PX, 2023 WL 3645514 (D. Md. May. 24, 2023) (Judge Paula Xinis). Husband and wife Robert and Rosemary Hainey were participants of the SAG-AFTRA Health Plan from January 1, 2017, through December 31, 2020. The healthcare plan changed in 2021. At that time, the plan eliminated supplemental Medicare coverage to retirees and instead allowed enrollees the option to purchase individual insurance on a private exchange and a monthly subsidy through a health reimbursement account. Mr. Hainey sent letters of grievance to the plan when he learned of these and other plan changes. Mr. Hainey believed the changes were not legal. He argued that from 1974 to 1995 his employers contributed deferred income into his Taft-Hartley Fund and that he had a balance of more than $244,000 in a welfare benefit trust. Mr. Hainey maintained that the 2021 plan therefore divested him of his earlier contributions and vested benefits. As part of his communications with the plan at this time, Mr. Hainey requested plan documents and other information required under ERISA Section 502(c)(1)(B). These documents were not provided until after the lawsuit commenced, and one document, the 2020 SPD, was never provided to Mr. Hainey. Upset about the new changes to the plan, Mr. Hainey did not attempt to enroll in the 2021 plan. His wife, however, did, and paid premiums for her enrollment. Ultimately, the plan concluded that Ms. Hainey was not eligible to participate in the plan unless her husband was enrolled in the plan. However, the plan never reimbursed Ms. Hainey for her premiums. Finally, Mr. Hainey underwent certain medical procedures in late 2020. These procedures were never covered by the plan. The plan maintained that because Mr. Hainey was no longer a participant in 2021, it would not pay for these claims. In response to these events, the Haineys brought this lawsuit against SAG-AFTRA, the plan, and its board of trustees, alleging six wide-ranging causes of action; (1) breach of implied contract/unjust enrichment; (2) failure to take up appeal; (3) wrongful cancellation of spousal coverage; (4) breach of fiduciary duty for coverage cancellation and failure to reimburse premium payments; (5) failure to furnish requested documents; and (6) breach of fiduciary duty for mismanagement of plan funds. Defendants moved to dismiss. Their motion was almost entirely granted in this order, with only two small exceptions. The court allowed plaintiffs’ claims relating to defendants’ failure to provide documents and failure to reimburse premiums to proceed. The remainder of the complaint was dismissed, as the court agreed with defendants that the claims failed as a matter of law. On the whole, the court found that plaintiffs could not support their theory that their healthcare benefits vested. To the contrary, it stated that “Defendants were free to change the Plan terms and conditions from year to year. Simply because Plaintiffs were dissatisfied with the changes does not give rise to a cause of action.” Additionally, the claims that were dismissed were dismissed with prejudice, as the court found that amendment would be futile. Finally, the court held that remaining claims will not be tried before a jury.

Fifth Circuit

William J. v. BlueCross BlueShield of Tex., No. 3:22-CV-1919-G, 2023 WL 3635640 (N.D. Tex. May. 24, 2023) (Judge Allen Joe Fish). A father and his minor child sued the father’s employer, Texas Instruments Incorporated, their ERISA welfare plan, the Texas Instruments Incorporated Welfare Benefits Plan, and the plan’s insurance company and third party claims administrator, Blue Cross and Blue Shield of Texas, under ERISA Sections 502(a)(1)(B) and (a)(3) for benefits, failure to provide a full and fair review, and violation of the Mental Health Parity and Addiction Equity Act after the family was denied coverage for the child’s stay at an inpatient treatment center. Defendants moved pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss plaintiffs’ complaint. Their motions were granted in part and denied in part in this decision. The court began with plaintiffs’ claims asserted under Section 502(a)(1)(B). As a preliminary matter, the court would not rely on terms in the Summary Plan Description as a basis to dismiss the claim for benefits. Rather, relying on Supreme Court precedent, the court quoted language explaining that SPDs are “communication with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan for purposes of §[1132](a)(1)(B).” In addition, the court concluded that plaintiffs’ complaint sufficiently alleged facts to plausibly infer that they were entitled to the benefits that were denied by the plan. Accordingly, the court did not dismiss the claim for benefits. However, plaintiffs also asserted a claim under Section 502(a)(1)(B) for denial of a full and fair review, and the court did dismiss this portion of that claim. It concluded that regardless of defendants’ actions, a possible lack of a full and fair review process does not provide an independent basis to recover benefits. Additionally, the court agreed with defendants that plaintiffs failed to engage with this argument in their reply briefing and therefore had abandoned the issue. This left the court with the Section 502(a)(3) claim for violation of the Parity Act. The court once again agreed with defendants and concluded that the “catchall” provision in (a)(3) “is appropriate when there are no other available avenues for remedy.” Thus, the court concluded that plaintiffs’ Section 502(a)(3) claim was duplicative of their Section 502(a)(1)(B) claim, as the relief they sought for both claims was the same make-whole relief stemming from defendants’ refusal to cover the child’s treatment. Therefore, the court dismissed this claim as well, leaving plaintiffs only with their claim for benefits. Finally, the court denied plaintiffs’ request for leave to amend. The court stated that amendment of the full and fair review claim would prejudice defendants as plaintiffs “wholly omitted it from their pleading.” With regard to the Parity Act claim, the court stated that amendment would be futile because Section 502(a)(1)(B) affords the plaintiffs with adequate relief.

Sixth Circuit

Mark Z. v. Priority Health Managed Benefits, Inc., No. 22-10007, 2023 WL 3587536 (E.D. Mich. May. 22, 2023) (Judge Denise Page Hood). Plaintiff Mark Z. and his daughter M.Z. sued their self-funded employee welfare benefit plan, The Michigan Dental Association Health Plan, and its third-party administrator, Priority Health Managed Benefit, Inc., under ERISA and the Mental Health Parity and Addiction Equity Act after their claims for M.Z.’s stay at two residential treatment programs were denied by the plan. Defendant Priority Health moved to dismiss the claims against it. Its motion was granted in this decision. The court agreed with Priority Health that as a third party administrator its role was to process the claims and to “strictly follow the terms of the Plan.” As a result, the court concluded that Priority Health, despite issuing the denials at issue in this lawsuit, was not a fiduciary with discretionary control or authority. “As the Agreement does not afford (Priority Health) discretion, the Court finds (Michigan Dental Association) ‘did no more than rent the claims processing department of (Priority Health) to review claims and determine the amount payable in accordance with the terms and conditions of the Plan.’” The court also disagreed with plaintiffs that Priority Health asserted authority and control over Plan assets by issuing the final adverse benefit decision. Instead, the court found that there was no evidence that Priority Health handled the plan’s money, and therefore concluded that it did not have control over plan assets. For these reasons, the court dismissed the ERISA Section 502(a)(1)(B) claim against Priority Health. It then went on to dismiss the Parity Act claim as well. Here the court not only found that Priority Health did not have any role in drafting the terms and conditions of the plan, but the court also stated that it did not view the plan terms themselves to be in violation of Mental Health Parity. Additionally, because the court concluded that Priority Health is not a fiduciary, it held it could not be liable for breaches of fiduciary duties under Section 502(a)(3). Accordingly, Priority Health’s motion to dismiss was fully granted.

Pension Benefit Claims

Third Circuit

Schlear v. Carpenters Pension & Annuity Fund of Phil. & Vicinity, No. 22-1843, 2023 WL 3569971 (E.D. Pa. May. 18, 2023) (Judge Mitchell S. Goldberg). In 2021, plaintiff Robert Schlear spoke with a representative from the Carpenters Pension & Annuity Fund of Philadelphia and was informed that he could apply for a Waiver of Suspension of Benefits, which would allow him to collect early pension benefits while maintaining his employment in a non-union managerial role with his employer. However, once he applied, Mr. Schlear’s application for benefits was denied. The plan cited a provision which prohibits applicants from receiving early retirement benefits if they perform union work for a contributing employer. Mr. Schlear appealed the denial, at which time the fund added an additional reason for its denial, that granting Mr. Schlear’s benefits would violate a section of the Internal Revue Code which excludes the payment of retirement benefits to retirees who continue to work for their prior employers, which could potentially cause the plan to lose its tax-exempt status. The denial prompted Mr. Schlear to commence this action under ERISA Section 502(a)(1)(B). He maintains that the fund’s decision to deny his benefits was arbitrary and capricious “because he has not worked as a carpenter during his current employment and would not be performing any carpentry-related work going forward.” In addition, Mr. Schlear argued that other similarly situated plan participants were granted benefits under almost identical circumstances to his in the past. Finally, he contends that defendant actually denied his claim, at least in part, as retaliation against him because of prior disputes he has had with the union and with his employer. Defendant moved to dismiss the complaint, arguing that as a matter of law Mr. Schlear cannot show that the denial was an abuse of discretion. Its motion was denied in this order. The court disagreed that summary judgment decisions in similar cases decided after review of the administrative record and discovery meant that this case ought to be dismissed at the pleadings. To the contrary, the court stated that “Plaintiff’s Complaint creates a plausible inference that Defendant’s decision was not necessarily premised on the IRS considerations,” especially when factoring in the disparate treatment of similarly situated individuals by the plan in the past. Taking all of Mr. Schlear’s allegations as true, the court found that it could infer the denial was unreasonable and based on pretextual reasons. As a result the court was satisfied that Mr. Schlear stated his claim, and therefore declined to dismiss it “at this juncture.”

Pleading Issues & Procedure

Fourth Circuit

Harris v. Johns Hopkins Health Sys. Corp., No. ELH-23-701, 2023 WL 3624733 (D. Md. May. 23, 2023) (Judge Ellen L. Hollander). Plaintiff Tina Harris sued the Johns Hopkins Health System School of Medicine and the Johns Hopkins Health System Corporation in state court in Maryland alleging that her former employer took retaliatory actions against her which deprived her of her vested pension benefits. Johns Hopkins removed the case to federal court on the basis of federal question jurisdiction pursuant to ERISA. Now Johns Hopkins has moved to dismiss the lawsuit pursuant to Federal Rules of Civil Procedure 12(b)(5) and (b)(6). The court construed the Rule 12(b)(5) motion as a motion to quash service. Johns Hopkins challenged the sufficiency of Ms. Harris’ service of process and argued that Ms. Harris did not comply with local rules. The court agreed. However, it decided the proper recourse was not dismissal because Johns Hopkins was not “prejudiced by the insufficient service; the case is in its infancy; and JHHS learned of the suit because it received the summons.” Thus, the court allowed Ms. Harris the opportunity to cure this deficiency and serve an amended complaint in accordance with applicable rules to defendants. The court then addressed Johns Hopkins’ motion to dismiss pursuant to Rule 12(b)(6). Although the court agreed with Johns Hopkins that Ms. Harris’ state law claims could have been brought under ERISA Section 510 and were therefore completely preempted, the court once again declined to dismiss the complaint at the pleadings. Instead, the court allowed Ms. Harris the opportunity to replead and submit an amended complaint under ERISA. As a result, the court denied as moot defendants’ motion to dismiss for failure to state a claim.

Provider Claims

Third Circuit

AHS Hosp. Corp. v. Aetna Health, Inc., No. 22-6601, 2023 WL 3585265 (D.N.J. May. 22, 2023) (Judge John Michael Vazquez). Plaintiff AHS Hospital Corp. sued Aetna Health, Inc. in state court after it was denied reimbursement for care it provided to a plan beneficiary. Aetna removed the action based on the court’s diversity jurisdiction. After the case was removed to federal court, AHS added two causes of action under ERISA Section 502(a)(1)(B), pled in the alternative to its three original state law claims, unsure of whether the plan at issue is governed by ERISA. Aetna subsequently moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Aetna first argued that the three state law claims are expressly preempted by Section 514. The hospital responded that the record does not yet establish whether the plan is governed by ERISA. However, the court relied on language in plaintiff’s complaint that “upon information and belief” the plan is “a self-funded plan under ERISA,” to find that the hospital “adequately alleges that the plan is governed by ERISA.” Operating under this conclusion, then, the court found that the state law claims, which seek payment for healthcare services pursuant to the plan, relate to the plan and are therefore preempted. In the second half of the decision, the court agreed with Aetna that the hospital could not bring its ERISA claims for benefits because it failed to identify the relevant plan language establishing Aetna “is responsible for [the beneficiary’s] medical care.” Accordingly, the court dismissed the ERISA causes of action as well. Thus, Aetna’s motion to dismiss was granted, and the complaint was dismissed without prejudice.

Severance Benefit Claims

Seventh Circuit

Smith v. Lutheran Life Ministries, No. 21 C 2066, 2023 WL 3602679 (N.D. Ill. May. 23, 2023) (Judge John H. Lefkow). Plaintiff Lori Smith brought this action against her former employer, Lutheran Life Ministries, and its board of directors under state law and ERISA seeking payments of severance benefits under an employment contract. On February 28, 2023, the court issued an order, summarized in Your ERISA Watch’s March 8th newsletter, granting defendants’ motion to dismiss Ms. Smith’s complaint. In that decision the court concluded that an undefined term in the agreement, “transition period,” referred to a change in control at Lutheran Life. The court interpreted a change of control to mean a change in the board of directors, a change that did not occur. Instead, the change Ms. Smith interpreted as a transition period was a change in the CEO and President of Lutheran Life. Ms. Smith therefore believed that this change, coupled with the CEO’s decision to alter Ms. Smith’s managerial position with the company, constituted a constructive termination entitling her to benefits under the plan. In response to the court’s dismissal in February, Ms. Smith asked the court to reconsider its dismissal of her ERISA claims and her breach of contract claim and sought to file a third amended complaint including these previously dismissed claims. The court bifurcated Ms. Smith’s motion into a motion for reconsideration under Rule 54, and a motion for leave to amend. It tackled the motion for reconsideration first. First, the court found the motion seeking reinstatement of the breach of contract claim to be moot because Ms. Smith had abandoned the claim in her second amended complaint. Thus, the court wrote that it would address the breach of contract claim only in the motion for leave to amend. Regarding the ERISA claims, the court disagreed with Ms. Smith had it had made any clear error in its previous ruling, including with regard to its discussion and interpretation of the undefined term “transition period.” Accordingly, the court did not grant Ms. Smith’s motion for reconsideration. However, the court did grant in part Ms. Smith’s motion for leave to amend. The court allowed Ms. Smith to amend her state law promissory estoppel claim as it related to Lutheran Life’s promise of executive housing. Nevertheless, the court found Ms. Smith’s breach of contract and promissory estoppel claims preempted by ERISA insofar as they sought benefits under the plan. Next, regarding the ERISA claims for benefits and promissory estoppel, the court split the baby. Specifically, it allowed Ms. Smith to amend her complaint to include factual allegations regarding the meaning of the terms “transition period” and “change in control,” finding that the proposed changes affected whether she could plausibly state her claim for benefits. However, the court denied Ms. Smith’s motion to amend her promissory estoppel ERISA claim. It concluded that her amended complaint did not cure the previously identified deficiencies or satisfy the elements to state such a claim. For these reasons, Ms. Smith’s motion was granted in part and denied in part as discussed above. 

Eleventh Circuit

Martinez v. Miami Children’s Health Sys., No. 21-cv-22700-BLOOM/Otazo-Reyes, 2023 WL 3686777 (S.D. Fla. May. 25, 2023) (Judge Beth Bloom). Plaintiff Eddy Martinez was employed by Miami Children’s Health System from 2009 to 2019, at which point he held the position of Chief Information Officer and Senior Vice President. Mr. Martinez would lose this position and be terminated on July 2, 2019, one day after a new interim CEO was appointed to head the company. The newly appointed acting CEO claimed he fired Mr. Martinez “for cause.” Mr. Martinez did not agree, challenged his termination, and applied for severance benefits under his ERISA severance plan. His claim for benefits was denied. In fact, as the uncontroverted evidence of this lawsuit uncovered, Miami Children’s determined that Martinez was not entitled to severance pay before even beginning to formally adjudicate his claim. In fact, anticipating litigation, the company hired a law firm to handle Mr. Martinez’s claim and defend Miami Children’s decision to deny Mr. Martinez severance benefits. In this decision, the court resolved cross-motions for summary judgment, and concluded that “the adjudication process in this case was replete with ‘procedural unfairness.’” Specifically, the court agreed with Mr. Martinez that nothing about the review of his severance claim was neutral or unaffected by the conflict of interest. Rather, the court held that every indication in the record supported the conclusion that “the procedurally deficient claim review in this case led to a deficient investigation, an incomplete administrative record, and a one-sided analysis.” The court wrote that it was “revealing that every factual issue is resolved against Martinez,” and gave several examples of the adversarial and one-sided investigation the claim reviewers engaged in. Accordingly, the court found that Mr. Martinez was denied a full and fair review process and granted judgment in his favor. However, under Eleventh Circuit precedent, the court found the proper course of action was “not to ‘evaluate the merits’ of the Administrator’s decision,” but instead to remand to defendants to re-evaluate the claim and conduct a full and fair review. Thus, despite the egregious manner in which the claim was handled, Mr. Martinez was not awarded benefits by the court.