Hughes v. Northwestern Univ., No. 18-2569, __ F. 4th __, 2023 WL 2607921 (7th Cir. Mar. 23, 2023) (Before Circuit Judges Sykes, Hamilton, and Brennan)

Last year we reported on the Supreme Court’s decision in Hughes v. Northwestern University, No. 19-1401, 142 S. Ct. 737, 2022 WL 199351 (U.S. Jan. 24, 2022), which also made our list of best decisions of 2022. Despite the Supreme Court’s unanimous ruling that “even in a defined-contribution plan where participants choose their investments, plan fiduciaries are required to conduct their own independent evaluation to determine which investments may be prudently included in the plan’s menu of options,” ERISA fiduciaries have sometimes touted the decision as supporting a stringent pleading standard in investment fee cases. The Seventh Circuit’s decision this week on remand makes such assertions highly suspect.

Plan participants in two defined contribution plans sponsored by Northwestern University brought a putative class action. Among other things, they alleged that Northwestern breached its fiduciary duties under ERISA by allowing the plans to pay four to five times a reasonable per participant recordkeeping fee through an uncapped revenue-sharing arrangement and by employing two recordkeepers for each plan. They also alleged that Northwestern breached its fiduciary duties by placing too many investment options in the plans, which caused investor confusion and added expense, and by failing to replace otherwise identical retail-class mutual fund investments with lower cost institutional-class shares.

The district court granted Northwestern’s motion to dismiss without leave to amend and the Seventh Circuit affirmed. On grant of certiorari, the Supreme Court rejected the Seventh Circuit’s reliance on a “categorical rule” that imprudent investment options in a plan line-up are neutralized by prudent, lower cost options, holding that this rule could not be squared with the Supreme Court’s recognition in Tibble v. Edison Int’l, 575 U.S. 523, 530 (2015), that ERISA’s fiduciary duties are context-specific and require plan fiduciaries to monitor plan investments and remove imprudent ones. On this basis, the Supreme Court vacated the judgment and remanded for reconsideration.

The Seventh Circuit recognized that the Supreme Court’s decision “says that providing a diverse menu of investments alone is not dispositive that a plan fiduciary has fulfilled the duty of prudence.” But, as the Seventh Circuit saw it, the Supreme Court’s decision left untouched three principles from earlier Seventh Circuit cases: (1) revenue sharing for plan expenses is not a per se breach of fiduciary duty; (2) plan fiduciaries are not required to “scour the market” to offer the cheapest investment options; and (3) offering a wide array of investment options is generally not a breach of fiduciary duty. These principles, however, did not answer the “context specific” question of whether plaintiffs had plausibly pled that Northwestern had breached its fiduciary duties to prudently select investment options, periodically review those options and remove the ones that were no longer appropriate, and incur only appropriate costs.

Before addressing that issue, however, the court turned to two last preliminary matters. First, the court addressed and rejected the application of the higher pleading standard articulated in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014). The Seventh Circuit concluded that the Dudenhoeffer standard was limited to fiduciary breach claims concerning employee stock ownership plans, where there are “difficult tradeoffs” for a fiduciary attempting to make decisions based on insider information with respect to the company stock.

Second, the court addressed principles applicable in determining whether an ERISA plaintiff has pled a cause of action for fiduciary breach where there are alternative inferences that might be drawn with respect to the fiduciary’s actions. In this regard, the court flatly rejected Northwestern’s contention that a plaintiff was required to rule out every possible innocent explanation for a fiduciary’s conduct.Moreover, in a “newly formulated pleading standard,” the court held that where “alternative inferences are in equipoise” in the sense that they are equally reasonable, the court must resolve the matter in favor of the plaintiffs. This means that it is enough if the plaintiffs plead that a prudent course of action might have been available rather than proving it actually was.

Aided by these principles, the court had little trouble concluding that plaintiffs had plausibly stated the remaining claims in the case, which were: (1) Northwestern had allowed the plans to incur unreasonable recordkeeping fees; (2) Northwestern had acted imprudently in selecting and retaining retail share-classes for certain mutual funds and insurance company variable annuities; and (3) Northwestern acted imprudently by maintaining multiple duplicative investment options.

With respect to the recordkeeping fees, the court reasoned that one of its previous rationales for dismissal – that plan participants themselves could keep recordkeeping fees low by selecting low-cost investment options – was foreclosed by the Supreme Court’s decision in Hughes.  

The court next concluded that its previous holding that ERISA does not require a flat-fee structure did not answer whether plaintiffs had nevertheless sufficiently pled that the fiduciaries had allowed the plans to overpay for recordkeeping services. The court concluded that they had, because under Hughes “a fiduciary who fails to monitor the reasonableness of plan fess and to take action to mitigate excessive fees may violate the duty of prudence.” Moreover, the plaintiffs had expressly asserted that the fees were excessive in relation to the services provided, thus distinguishing the case from earlier cases in which the Seventh Circuit had affirmed dismissal of recordkeeping claims.

Furthermore, the court concluded that, under its new pleading standard, the plaintiffs could not be required to show that a single recordkeeper that would have charged lower fees was available. Nor was the court convinced, as Northwestern argued, that encouraging small participant investment was worth charging four to five times as much as could have been charged in recordkeeping fees. Instead, the court found it equally if not more plausible that Northwestern had simply failed to keep the plans’ recordkeeping fees at a reasonable level.    

The court had even less trouble concluding that the plaintiffs had plausibly alleged imprudence based on the selected share classes. Again, the court stressed that plaintiffs need not plead that lower cost, institutional-class shares of the challenged investments were actually available to the plans, only that they were plausibly available given the large size and bargaining power of the plans, as the complaint had done. Nor could Northwestern’s contention that retail-share classes had advantages be resolved on the pleadings given that plaintiffs had pled that the “institutional shares were identical to the retail shares” except for the higher fees associated with the retail shares. The court thus joined with the five other circuits that have upheld “similar share-class claims against dismissal.”

Finally, the court declined to affirm the dismissal of the duplicative fund claim. Although the court was not convinced that the multiplicity of funds would cause confusion and thereby harm plan participants, the court remanded for the district court to consider whether the plaintiffs had plausibly alleged that consolidating the duplicative investments would have saved the plans money.

The court thus reversed the district court’s dismissal of the claims that the plaintiffs persevered on their trip to the Supreme Court and affirmed the district court’s dismissal of the other counts in the complaint and the denial of plaintiffs’ requests to amend the complaint and for a jury trial.

It seems likely to this editor that the Seventh Circuit’s new pleading standard will have a significant plaintiff-friendly impact far beyond fee cases.

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

Attorneys’ Fees

Ninth Circuit

Price v. Reliance Standard Life Ins. Co., No. 3:22-cv-04300-JD, 2023 WL 2600453 (N.D. Cal. Mar. 22, 2023) (Judge James Donato). Plaintiff Robin Price initiated this civil action after his long-term disability benefits were terminated by defendant Reliance Standard Life Insurance Company. After Mr. Price filed this lawsuit, Reliance Standard reinstated his benefits. The disputes between the parties have thus been resolved in all respects except for the matter of an award of reasonable attorneys’ fees pursuant to ERISA Section 502(g)(1). Plaintiff moved for an award of $76,545 in attorneys’ fees for his counsel, attorneys Glenn Kantor and Sally Mermelstein of Kantor & Kantor LLP. The requested fee award was based on a lodestar comprised of hourly rates for founding partner Glenn Kantor of $850 and for Sally Mermelstein, of counsel, of $700. As an initial matter, the court was satisfied that counsels’ time records, declarations regarding hourly rates provided other ERISA attorneys not involved in this action, and evidence of the prevailing market rates were all materials which “amply satisfy a claimant’s burden of submitting evidence supporting the reasonableness of hourly rates, time use, and overall bills.” Nevertheless, the court agreed with Reliance Standard that some trimming was warranted. First, the court reduced Mr. Price’s attorneys’ hourly rates each by $50, resulting in hourly rates for Mr. Kantor of $800 and for Ms. Mermelstein of $650. Additionally, the court eliminated the time spent on the reply brief and applied a 25% overall reduction. Following this final reduction, the court was left with a fee award of $48,120. This amount, the court was satisfied, was reasonable and warranted under the Ninth Circuit’s Hummell factors, as the fee award reflected both the degree of bad faith on behalf of Reliance Standard and the success achieved by Mr. Price, and because the award would serve a deterrent purpose to discourage Reliance Standard from engaging in similar conduct handling claims going forward.

Breach of Fiduciary Duty

Seventh Circuit

Gaines v. BDO U.S., LLP, No. 22 C 1878, 2023 WL 2587811 (N.D. Ill. Mar. 21, 2023) (Judge Matthew F. Kennelly). Three plaintiffs sued BDO USA, LLP, the company’s board, and its retirement plan committee on behalf of a class of participants and beneficiaries of the plan for breaches of fiduciary duties. In their action, plaintiffs challenged defendants’ use of paying for the plan’s recordkeeping and administrative services through revenue sharing. They argued that this practice resulted in exorbitant costs compared to an approach charging a flat rate per participant for the same services. Additionally, because BDO’s plan qualifies as a mega defined contribution plan, with over 11,000 participants and net assets exceeding $1.24 billion, plaintiffs argued that the plan fiduciaries could have leveraged the plan’s size to reduce its overall costs and control the fees paid. The complaint alleged an imprudent process could be inferred through the plan’s expense ratio which was “over 50% higher than the ICI median,” and by defendants’ failure to select the lowest cost available share classes for funds. Finally, plaintiffs challenged defendants’ selection and retention of funds with excessive investment management fees which they aver underperformed their peers during the relevant period and therefore ought to have been removed. Defendants moved to dismiss for failure to state a claim. The motion to dismiss was denied in part and granted in part in this order. The court broke down plaintiffs’ complaint into four categories; (1) the selection of retail share classes; (2) the failure to remove underperforming funds; (3) failure to control recordkeeping fees; and (4) the selection of funds with excessive management fees. In the end, the court dismissed the claims based on “allegations that BDO selected and retained funds with excessive investment management fees or failed to monitor and control recordkeeping fees.” However, the claims of imprudence and failure to monitor based on the selection of retail rather than available institutional share classes, and the claims based on the failure to remove underperforming funds, were allowed to proceed. To the court, the difference between the fee claims and the fund claims turned on the benchmarks provided by the plaintiffs. Simply put, the court was convinced that plaintiffs had appropriate benchmarks for their funds but not for their fees. In the context of the administrative and recordkeeping fees, the court held that cheaper did not necessarily mean better. Thus, as currently alleged, the court stated that it could not infer a breach based on the fees paid. Accordingly, this decision left both defendants and plaintiffs with a decidedly mixed result.

Class Actions

Third Circuit

Wolff v. Aetna Life Ins. Co., No. 4:19-CV-01596, 2023 WL 2589228 (M.D. Pa. Mar. 21, 2023) (Judge Matthew W. Brann). On May 25, 2022, the court granted plaintiff Joanne Wolff’s motion to certify a class of similarly situated individuals who had disability plans insured by Aetna Life Insurance Company who received disability benefits as a result of an injury from whom Aetna later sought reimbursement of settlement proceeds through the use of the plans’ “Other Income Benefits” provisions rather than through explicit subrogation or reimbursement clauses, which the plans at issue did not have. The court found the proposed class was sufficiently united in their experiences, the language of their plans, and in their situations to satisfy Rule 23(a)’s commonality and typicality requirements. The court also concluded that the requirements of Rule 23(b)(3) were met because class certification was a superior method of adjudication than individual civil actions and the single issue uniting the class members was more significant than any non-common issue. Unsatisfied with this ruling, Aetna moved for reconsideration. On November 22, 2022, the court denied Aetna’s motion. Although the court clarified its prior order, it did not expand, reduce, or in any material way alter its previous findings and conclusions. To the contrary, the court rejected each of Aetna’s reexamined arguments, and other than taking the opportunity to slightly redefine the class, the court maintained the status quo in its November 22 order. Following that decision, Aetna filed a Federal Rule of Civil Procedure 23(f) petition with the Third Circuit Court of Appeals seeking permission to appeal the court’s November 22 decision. Aetna simultaneously filed a motion with the district court to stay its order granting class certification pending the Third Circuit’s ruling on the Rule 23(f) petition. Ms. Wolff opposed the stay, arguing it would be inappropriate and unnecessary. In ruling on Aetna’s motion, the court found that Aetna did not make a strong showing of a likelihood of success on the merits of its appeal to the Third Circuit, based on both procedural reasons and on the strength of its legal position, which the court had already analyzed and rejected twice before. Procedurally, the court concluded that Aetna’s petition was untimely as the court’s motion denying reconsideration did not alter the status quo of its original motion granting class certification. Furthermore, the court stated that Aetna was not truly challenging the reconsideration order, but rather contesting the validity of the original order granting certification. Accordingly, the court stated that Aetna was attempting to improperly “circumvent the Rule 23(f) time limitations,” and that the Third Circuit would therefore likely not entertain Aetna’s motion. Finally, the court found that Aetna would not be irreparably harmed absent a stay, because the allegations of wrongdoing are already “publicly available, and anyone in the country may readily access the complaint in this matter – a complaint that levies more substantial accusations against Aetna than those noted in the class notice – even without having received a class notice.” For these reasons, the court found that factors weighed against granting Aetna’s motion to stay proceedings. Accordingly, the motion to stay was denied.

Disability Benefit Claims

First Circuit

MacNaughton v. The Paul Revere Ins. Co., No. 4:19-40016-TSH, 2023 WL 2601624 (D. Mass. Mar. 22, 2023) (Judge Timothy S. Hillman). Plaintiff Dr. Mary MacNaughton, a diagnostic radiologist, submitted a claim for long-term disability benefits after a pregnancy complication left her with permanent electrical damage in her left eye. Dr. MacNaughton’s attending physician diagnosed her with ischemic optic neuropathy. Unable to see properly, Dr. MacNaughton was therefore unable to perform the essential functions of her profession. And for ten years, from 2007 to 2017, defendant The Paul Revere Insurance Company approved and paid Dr. MacNaughton’s long-term disability benefits. Things changed when Dr. MacNaughton began working part-time in a supervisory non-diagnostic position. It was at this time, when Paul Revere contacted her, that Dr. MacNaughton mentioned in an off-hand comment that in her current work she did not have any restrictions and limitations. Paul Revere swiftly transferred Dr. MacNaughton’s claim to a disability benefits specialist, and then terminated her benefits. In the words of the court, “Paul Revere’s behavior suggests that the decision (to terminate benefits) was preordained.” Dr. MacNaughton then commenced this action to challenge Paul Revere’s adverse benefit decision. On March 7, 2022, the court concluded that Paul Revere denied Dr. MacNaughton the opportunity for a full and fair review by failing to give her the opportunity to rebut its examining doctor’s report and conclusions. The court then granted summary judgment to Dr. MacNaughton and remanded to Paul Revere to allow Dr. MacNaughton to refute the report and submit additional evidence. It also found that the standard of review would be arbitrary and capricious given the plan language granting Paul Revere discretionary authority. On remand, Paul Revere denied the claim for a second time. In this order, that denial was upheld under deferential review. The court agreed that Paul Revere’s treating physician engaged in a point-by-point dialogue with Dr. MacNaughton’s attending physician, and that Paul Revere was under no obligation to favor the views of Dr. MacNaughton’s doctor over its own doctor. Although the court ultimately would not engage with one of Paul Revere’s grounds for denial – “that the inability to use one eye does not render a diagnostic radiologist disabled” – the court nevertheless found that there was substantial evidence in the record to support its other reason for denial – “that Dr. MacNaughton has sufficient use of both of her eyes.” Accordingly, while the court did have issues with Paul Revere’s conduct throughout this case, the end result was ultimately the same regardless of the means. Thus, Paul Revere’s motion for summary judgment was granted, and Dr. MacNaughton’s motion for judgment was denied.

Fifth Circuit

Moore v. Unum Life Ins. Co. of Am., No. 3:21-CV-253-SA-JMV, 2023 WL 2587484 (N.D. Miss. Mar. 21, 2023) (Judge Sharion Aycock). In the summer of 2016, plaintiff Sherry Moore stopped working after she was hospitalized for a serious bacterial skin infection and other problems, including a loss of sensation in her feet, related to uncontrolled diabetes. After briefly attempting to return to work, Ms. Moore ended up hospitalized for a second time. After her second hospitalization, Ms. Moore applied for long-term disability benefits under her plan insured by defendant Unum Insurance Company of America. Unum approved the claim, and paid Ms. Moore monthly benefits for 24 months under her plan’s “regular occupation” definition of disability. However, after her plan’s definition of disability changed to “unable to perform the duties of any gainful occupation for which you are reasonably fitted,” Unum terminated Ms. Moore’s benefits, determining she would be able to perform the duties of a more sedentary occupation. In this action, Ms. Moore alleged that Unum wrongfully terminated her long-term disability benefits and challenged the denial under ERISA Section 502(a)(1)(B). The parties cross-moved for summary judgment. In this order the court applied de novo review, as no plan provision explicitly granted Unum discretionary authority to interpret the policy. However, even under the more favorable review standard, Ms. Moore was ultimately unable to prove to the court that she was disabled within the meaning of her policy. The court concluded that Ms. Moore’s inability to walk or stand for periods of any length would not preclude her from performing certain full-time sedentary work that she meets the qualifications for, and which therefore satisfy the policy’s definition of “gainful occupation.” This finding was bolstered by the Administrative Law Judge’s ruling on Ms. Moore’s Social Security Disability Insurance application claim, who likewise concluded that Ms. Moore “has the residual functional capacity to perform sedentary work.” The court therefore affirmed Unum’s decision to terminate Ms. Moore’s disability benefits, and thus granted summary judgment in favor of defendant.

Freeman v. Hartford Life & Accident Ins. Co., No. 21-342-SDD-RLB, 2023 WL 2597893 (M.D. La. Mar. 22, 2023) (Judge Shelly D. Dick). In June of 2016, plaintiff Kurt Freeman injured his left shoulder and arm. This injury was then surgically repaired, however even following the surgery Mr. Freeman experiences pain and limitations as a result of that injury. In this action, Mr. Freeman sought a court order overturning defendant Hartford Life & Accident Insurance Company’s termination of his long-term disability benefits under his policy’s “any reasonable occupation” definition of disability. Mr. Freeman argued that Hartford disregarded key evidence supporting a finding of disability and notes from the doctor who performed his independent medical examination which found that Mr. Freeman’s “physical capacity is ‘less than sedentary.’” Hartford, for its part, moved for judgment in its favor, arguing that under deferential review its determination should not be disturbed because substantial evidence in the record supported its conclusion. The court agreed with Hartford. It held that there was no evidence that Hartford’s conflict of interest adversely or even directly affected Mr. Freeman, and that the “record demonstrates that Plaintiff’s own physicians, Drs. Boussert and Waggenspack, support Hartford’s claim determination. Dr. Boussert concluded that Plaintiff can perform sedentary work and that his pain is well-controlled by medication that does not cognitively impair his ability to work.” Finally, the court agreed with Hartford that subjective evidence within the record contradicted Mr. Freeman’s subjective complaints of pain, and that it was therefore reasonable for Hartford to consider but ultimately disagree with Mr. Freeman’s testimony in reaching its decision. For these reasons, the court granted Hartford’s motion for judgment and denied Mr. Freeman’s motion for judgment.

Sixth Circuit

Snowden v. Hartford Life & Accident Ins. Co., No. 5:21-144-KKC, 2023 WL 2586132 (E.D. Ky. Mar. 21, 2023) (Judge Karen K. Caldwell). Plaintiff Crystal Snowden sued Hartford Life & Accident Insurance Company to challenge its denial of her claim for long-term disability benefits for her mysterious symptoms she finds disabling caused by a yet undiagnosed medical condition. The parties each moved for judgment on the administrative record under arbitrary and capricious review. Unsurprisingly, given the deferential review standard and Ms. Snowden’s lack of any formal diagnosis, the court granted judgment in favor of Hartford in this order. It found Hartford’s interpretation of Ms. Snowden’s medical records and its conclusion that she was not disabled as defined by the policy supported by substantial evidence within the record, including by the various objective test results which all came back unremarkable and nonconclusive. The court held that it was not unreasonable for Hartford to disagree with Ms. Snowden’s treating physician’s conclusion that her symptoms were disabling because Ms. Snowden’s treating specialists were unable to identify the cause of those symptoms and the objective evidence in the record supported the opposite conclusion, that Ms. Snowden was not disabled. Accordingly, the court concluded that it could not disturb Hartford’s decision in the absence of evidence that the decision was the result of an unprincipled or flawed reasoning process, which Ms. Snowden had not provided. Finally, the court disagreed with Ms. Snowden that Hartford’s denial was the result of her lack of a formal diagnosis. Instead, the court found that Hartford had reasonably concluded that there was not enough evidence of a disability based on Ms. Snowden’s pain and auto-immune disorder-like symptoms to support an award of benefits. Thus, the court affirmed Hartford’s denial.

McEachin v. Reliance Standard Life Ins. Co., No. 2:21-CV-12819-TGB-EAS, 2023 WL 2611719 (E.D. Mich. Mar. 23, 2023) (Judge Terrence G. Berg). From February 2017 to October 2019 plaintiff Annette McEachin experienced a series of tragic events that would have a major impact on her life. First, Ms. McEachin was in a car accident, the result of which left her with musculoskeletal problems, pains, and post-concussive headaches. Then, less than a year later, Ms. McEachin was in a second car accident, only exacerbating her physical problems. Finally, the most tragic event occurred in the fall of 2019, when Ms. McEachin’s son committed suicide. Following his death, Ms. McEachin was diagnosed with mental health conditions, including severe symptoms from depression and anxiety. While all of this was happening, Ms. McEachin had been receiving long-term disability benefits for her physical disabilities caused by the car crash. Then, on April 1, 2021, Reliance terminated Ms. McEachin’s benefits. It concluded that her physical symptoms had improved since 2017, and although she was now disabled for mental health reasons, she could not receive disability benefits for her psychiatric health problems because she had already received more than 24 months of disability benefits, which was her policy’s maximum allowance for disabilities due to mental health conditions. Ms. McEachin appealed, and when her appeal proved unsuccessful, commenced this action. The parties then filed cross-motions for summary judgment. The court referred the cross-motions to Magistrate Judge Elizabeth A. Stafford for a report and recommendation. Magistrate Stafford issued a report recommending the court grant summary judgment in favor of Reliance. Ms. McEachin timely filed objections to the report. In this order, the court adopted in part and rejected in part Magistrate Stafford’s report. Specifically, the court agreed with Magistrate Stafford’s conclusion that Ms. McEachin was not disabled by her physical conditions as of April 1, 2021, the date of the termination, despite the fact that Ms. McEachin’s physical conditions subsequently took a turn for the worse. The court focused on Sixth Circuit precedent which mandates that judicial review be limited to the medical record prior to the date of the benefit denial. In the Sixth Circuit, deterioration in health status following the date coverage is denied is not relevant, and the court therefore found that “Judge Stafford analyzed the appropriate time period and correctly concluded that, during that time, McEachin’s symptoms improved.” However, the court rejected Magistrate Stafford’s report to the extent that it concluded Ms. McEachin exhausted her policy’s 24-month limit on benefits for mental conditions as of April 1, 2021. The court held that Reliance clearly granted Ms. McEachin’s claim for disability benefits based on her physical conditions, actively concluding at the time that Ms. McEachin’s “medical records reflected no ‘evidence of disabling psychiatric symptoms or resulting functional impairments,’” and that it could not now retroactively apply the mental health limitation exclusion to that same period. As a result, the court found that Ms. McEachin did not exhaust her 24-month cap on mental health disability benefits, and because Reliance decided that Ms. McEachin “was totally disabled from full-time work because of a mental impairment” when it terminated her benefits in April 2021, the court ordered Reliance to pay Ms. McEachin her benefits until the two-year period is exhausted “so long as McEachin has been and continues to be totally disabled from work because of a mental impairment.”

Berg v. Unum Life Ins. Co. of Am., No. 2:21-CV-11737-TGB-DRG, 2023 WL 2619015 (E.D. Mich. Mar. 23, 2023) (Judge Terrence G. Berg). Plaintiff Dr. Paula Berg, a cardiothoracic anesthesiologist, filed this action seeking judicial review of her long-term disability benefit denial. Defendant Unum Life Insurance Company of America agrees that Dr. Berg is disabled from her occupation. However, Unum asserts that Dr. Berg’s disabling symptoms are the result of a psychological condition and that she exhausted her policy’s 12-month limitation on benefits for mental health conditions. Dr. Berg maintains that she is disabled due a physical condition, cancer, and that she is therefore eligible for the full 48 months of disability benefits available to her under her policy. In resolving the parties cross-motions for judgment on the record, the court agreed with Dr. Berg and consequently granted her motion for judgment. The court found that Dr. Berg was disabled due to breast cancer, which was diagnosed in her right breast, and not, as Unum contended, from general anxiety disorder. Although Dr. Berg continued to be treated with regular therapy sessions throughout her cancer treatment, the court held that Dr. Berg was ultimately unable to continue her work “due to the affects and issues related to having cancer,” including from the cognitive side effects and the fatigue she experienced as a result of the cancer treatments and medications prescribed by her oncologist which left her unable to practice medicine. For this reason, the court rejected Unum’s position that Dr. Berg’s symptoms were the result of a psychiatric condition. Accordingly, under de novo review, the court concluded that Dr. Berg met her burden of proving entitlement to benefits and ordered Unum to reinstate Dr. Berg’s benefits and to retroactively pay her claim.

ERISA Preemption

Fifth Circuit

Labat v. Shell Pipeline Co., No. 21-690-JWD-EWD, 2023 WL 2561778 (M.D. La. Mar. 17, 2023) (Judge John W. deGravelles). From September 1992 until September 2006, plaintiff Richard Labat was employed by LOOP, LLC, a joint venture in which a Shell-affiliated entity participated. Then, on September 18, 2006, Mr. Labat began working directly for Shell. In 2020, like a lot of other employers at the beginning of the global pandemic, Shell needed to reduce its workforce. To do this, Shell gave its employees an opportunity to participate in a Special Severance Plan. Before deciding whether he would accept the severance on offer, Mr. Labat sought to clarify with Shell, its HR representative, and Fidelity that his hire date was September 29, 1992, for the purposes of his retirement benefits, including the Shell sponsored medical plan. Mr. Labat got confirmation in writing that Shell and Fidelity had confirmed his understanding that he had a 1992 effective date of service. Based on these written representations, Mr. Labat executed a Waiver, Release, Promise, and Settlement Agreement with Shell on September 30, 2020, and was given a severance payment of $202,650. After he executed the special severance plan, Shell determined that Mr. Labat’s hire date was actually September 18, 2006, which was a determination that critically affected the way his healthcare benefit contributions were calculated because of a 2006 amendment to the healthcare plan that only applied to participants with a hire date after January 1, 2006. As a result of this change, Mr. Labat pleads, “there was a $93,000 shortfall for what I had budgeted for my future health insurance based upon the…promises of Shell.” Thus, seeking the application of the pre-2006 amendment to the way the healthcare plan calculates the method of subsidizing premiums for retiree medical coverage, Mr. Labat filed this civil action, pleading state law claims for detrimental reliance, promissory estoppel, and fraud. Shell moved for summary judgment. It argued that Mr. Labat’s state law claims were preempted by ERISA. The court agreed that both complete preemption and conflict preemption applied to Mr. Labat’s claims and therefore granted Shell’s summary judgment motion. Specifically, the court agreed with Shell that Mr. Labat was seeking to recover benefits under an ERISA-governed plan and that his complaint therefore falls within ERISA Section 502(a). Further, the court held that the claims require interpreting the terms of the ERISA plan and that “regardless of how his claim is phrased, it falls under ERISA’s civil enforcement provision and is thus preempted.” The court disagreed with Mr. Labat that Shell’s conduct implicated any independent legal duty. Simply put, the court concluded that resolution of the dispute among the parties, including about whether Shell made a misrepresentation regarding Mr. Labat’s years of service, would necessarily require interpreting the terms of the plan, and referring to the plan “to assess Labat’s damages.” Accordingly, the court found the state law claims preempted by ERISA, and Shell was granted summary judgment. However, Mr. Labat was given leave to amend his complaint to allege causes of action under ERISA.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Bailey v. United of Omaha Life Ins. Co., No. 2:21-cv-5164, 2023 WL 2599979 (S.D. Ohio Mar. 22, 2023) (Judge James L. Graham). Plaintiff Griffin Bailey brought this action against his late father’s former employer, defendant Hirschvogel Incorporated, and defendant United of Omaha Life Insurance Company, the insurer of life insurance policies belonging to decedent, seeking life insurance benefits from the policies under ERISA. Mr. Bailey was the sole beneficiary of the proceeds from both policies. His father died in late 2019 in a car accident “less than two months after terminating his employment with Hirschvogel.” Due to a glitch in its system, Hirschvogel never informed United about the terminations of several of their employees, including decedent. As a result, the life insurance policies were not canceled at the end of the employment, the premiums continued to be paid, and Mr. Bailey’s father was never notified of the possibility that his life insurance could be canceled. After discovering the issue, Hirschvogel retroactively terminated the insurance policies, with an effective date shortly before the date of the car accident. Thus, when Mr. Bailey submitted a claim for benefits under the plans, his claim was denied with the explanation that the policies were terminated prior to his father’s death. In his complaint, Mr. Bailey asserted two causes of action: a claim for benefits against United under ERISA Section 502(a)(1)(B), and a claim for other remedies under ERISA Section 502(a)(3) for breaches of fiduciary duties against both defendants. Defendant Hirschvogel moved to dismiss the claim against it. In this order the court denied the motion to dismiss. The court held Mr. Bailey had stated a claim upon which relief could be granted against the employer based on the facts alleged. In particular, the court found that Mr. Bailey’s claim for benefits and his claim under Section 502(a)(3) could be pursued in parallel as they were each “premised on a ‘separate and distinct injury.’” Finally, the court found that Section 502(a)(1)(B) could not adequately remedy the alleged mishandling and breaches of fiduciary duties that the complaint outlines. Accordingly, the court found that Mr. Bailey had adequately asserted his second cause of action against defendant Hirschvogel.

Medical Benefit Claims

Third Circuit

Skorupski v. Local 464A United Food, No. 22-3804 (SDW) (JBC), 2023 WL 2570167 (D.N.J. Mar. 20, 2023) (Judge Susan D. Wigenton). After several hospitalizations for severe abdominal pain, plaintiff Stacy Skorupski was eventually diagnosed with pancreatic duct disruption. Ms. Skorupski then underwent surgery to repair the torn duct. All these medical procedures did not come cheap. Ms. Skorupski, who has been healthy since the surgery, racked up medical bills of nearly $600,000. Her husband’s ERISA plan, Local 464A United Food and Commercial Workers Welfare Service Benefit Fund, of which she is a beneficiary, has refused to cover the cost of this medical care under the plan’s exclusion for treatment of medical conditions provided in connection with alcohol use including “any treatment for any condition that is related to such a primary, secondary or tertiary diagnosis or any other condition resulting therefrom.” In the hospital, doctors suggested that Ms. Skorupski’s pancreatitis was connected, at least in part, to her consumption of a nightly cocktail. After the plan upheld its decision on appeal, Ms. Skorupski and her husband filed this civil action, alleging claims under ERISA Sections 502(a)(1)(B), and (a)(3). Defendants moved to dismiss. The court converted their motion into one for summary judgment under Rule 56, and in this order granted judgment in favor of defendants. First, applying deferential review, the court found the board’s interpretation of the alcohol use clause not arbitrary and capricious. “The Board broadly interprets that exclusion to bar coverage when ‘alcohol use, along with other factors, is a contributing factor or cause of the condition.’ That interpretation of the unambiguous Plan terms is ‘reasonably consistent’ with the ‘Plan’s text.’” Although Ms. Skorupski included opinions from her treating physicians who called into question whether her pancreatitis was indeed connected to alcohol consumption, she was ultimately unable to refute the board’s determination as “none of those supplemental letters stated that her conditions were not caused, at least in part, by alcohol use or misuse.” Accordingly, the court granted judgment to defendants on the claim for benefits. Next, the court held that Ms. Skorupski’s breach of fiduciary duty claim was a repackaged claim for benefits “indistinguishable” from her Section 502(a)(1)(B) claim. Additionally, the court concluded that Ms. Skorupski was seeking “a past due monetary obligation” which the court held is not an appropriate form of equitable relief under Section 502(a)(3). Thus, defendants were also granted summary judgment on the breach of fiduciary duty claim, and the Skorupskis will now be left to cover the hundreds of thousands of dollars of unpaid medical bills without the benefit of their health insurance policy. 

Plan Status

Sixth Circuit

In re AME Church Emp. Ret. Fund Litig., No. 1:22-md-03035-STA-jay, 2023 WL 2562784 (W.D. Tenn. Mar. 17, 2023) (Judge S. Thomas Anderson). Clergy members and other employees of the African Methodist Episcopal Church, who are participants and beneficiaries of the church’s retirement plan, the Ministerial Annuity Plan of the African Methodist Episcopal Church, brought this class action against the church, its officials, the plan’s third-party service providers, and other fiduciaries for plan mismanagement, including embezzlement of plan funds by its former Executive Director, which resulted in at least $90 million in losses to the plan. Plaintiffs asserted seventeen causes of action, pled in the alternative, under both Tennessee law and ERISA. Tellingly, the court’s order begins, “This multidistrict litigation concerns losses to a non-ERISA retirement plan…” Accordingly, in ruling on the motions to dismiss before it, the court dismissed the ERISA causes of action, agreeing with the church that its plan qualifies as a church plan exempt from ERISA. The court concluded that the complaint did not allege that the plan elected to be an ERISA plan. Nevertheless, many of defendants’ other arguments in favor of dismissal were rejected by the court in this lengthy decision, which left the retirees with much of their complaint intact. Notably, the court concluded that venue was proper in the federal judicial system under diversity jurisdiction as the amount in controversy far exceeds $5 million and the named plaintiffs of the putative class are all citizens of states different from any defendant. Additionally, the court found that plaintiffs had Article III standing, as they suffered concrete particularized injuries, namely the loss of as much as 80% of the money in their retirement accounts, and that those injuries were traceable to defendants’ alleged actions and could be remedied through this litigation. With regard to the remaining state law claims, the court dismissed the contract, fraud, and Tennessee Trust Code claims without prejudice, but significantly, let plaintiffs go forward with their breach of fiduciary duty and negligence claims, including against the plan’s third-party service providers, Symetra and Newport.

Pleading Issues & Procedure

Third Circuit

Wright v. Elton Corp., No. C. A. 17-286-JFB, 2023 WL 2563178 (D. Del. Mar. 17, 2023) (Judge Joseph F. Bataillon). On January 25, 2023, the court issued a post-trial order ruling in favor of plaintiff T. Kimberly Williams in this action alleging longstanding mismanagement and breaches of fiduciary duties in connection with the administration of the Mary Chichester duPont Clark Pension Trust, an ERISA-governed pension plan. In its January 25 Findings of Fact and Conclusions of Law, the court ordered “equitable relief to be determined after proceedings before a Special Master.” Following that order, the duPont employers jointly moved for permissive appeal. In their motion, the duPont defendants sought certification from the court on a legal issue –  regarding the application of an ERISA safe-harbor provision – for an immediate interlocutory appeal. Defendants argued that whether the safe harbor exemption is applicable to the plan “is a controlling ‘pure question of law the reviewing court could decide quickly and cleanly without reviewing the record.’” In addition, the moving parties sought to stay the work of the Special Master, arguing “a permissive appeal will avoid the complicated process of trying to undo after a reversal from a final judgment the Special Master’s and this Court’s efforts to bring the Trust in line with ERISA.” Ms. Williams opposed the motion. She argued that the duPont defendants were engaged in tactics designed to further delay the proceedings, and resolution of the question of whether the safe harbor provision applies to the trust would not affect the court’s other findings of fiduciary breaches. Ultimately, the court focused on “the procedural posture of the case,” including the upcoming task by the Special Master of implementing the remedy, which will be difficult and time-consuming. Given these circumstances, the court found the moving parties established the need for immediate review of the issue of the applicability of the safe harbor provision. Thus, the court found the employers adequately showed there is a difference of opinion and an absence of controlling authority on the application of the provision at issue and therefore agreed with them that an immediate appeal would “materially advance the litigation by giving guidance to the Special Master in implementing the remedies.” Accordingly, the court granted the motion for certification of appealability and stayed proceedings before the Special Master until the resolution of the appeal.

Provider Claims

Second Circuit

Murphy Medical Associates, LLC v. Yale University, No. 3:22-cv-33 (KAD), 2023 WL 2631798 (D. Conn. Mar. 24, 2023) (Judge Kari A. Dooley). Murphy Medical Associates, LLC v.1199SEIU National Benefit Fund, No. 3:22-cv-00064 (KAD), 2023 WL 2631811 (D. Conn. Mar. 24, 2023) (Judge Kari A. Dooley). Plaintiff Murphy Medical Associates, LLC is seeking reimbursement for COVID-19 diagnostic tests it provided to insured patients throughout the global pandemic. In an attempt to receive payments for these tests, plaintiff has filed several related lawsuits against different entities. In all of its actions, Murphy Medical asserted causes of action under the Families First Coronavirus Response Act (“FFCRA”), the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), the Affordable Care Act (“ACA”), ERISA, and several state laws including breach of contract, unjust enrichment, and two Connecticut insurance laws. In these two decisions Judge Dooley granted motions to dismiss, by defendant Yale University in the first action, and by defendant 1199SEIU National Benefit Fund in the second. In both decisions the court agreed with the “reasoning and conclusions” of its sister circuits that neither FFCRA, the Cares Act, nor the ACA creates an express private right of action for a healthcare provider to sue. Accordingly, Murphy Medical’s claims asserted under those statutes were dismissed with prejudice. Next, the court evaluated plaintiff’s ERISA benefit claims. Yale challenged Murphy Medical’s standing, and both defendants argued for dismissal as plaintiff has not exhausted administrative remedies prior to bringing suit. Regarding standing, the court agreed with Yale that the complaint did not satisfy Rule 8 pleading, as the language regarding assignments of benefits was entirely conclusory. Regarding Murphy Medical’s failure to exhaust, the court agreed with defendants that the healthcare provider failed to plead particular details about the relevant plan’s exhaustion requirements and whether Murphy Medical took the steps required by those exhaustion procedures. Murphy Medical’s language asserting that it “appealed every claim submitted,” was therefore found to be insufficient to withstand a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss. However, dismissal of the ERISA Section 502(a)(1)(B) claims was without prejudice, and Murphy Medical may amend its complaints to address these identified deficiencies. The same was not true for its equitable relief claims under ERISA Section 502(a)(3). The court viewed plaintiff’s equitable relief claims as falling “comfortably within the scope of § 502(a)(1)(B),” and therefore viewed the 502(a)(3) claims as duplicative. Thus, dismissal of the equitable relief claims under ERISA was with prejudice. Finally, the court dismissed plaintiff’s state law claims, concluding they were preempted by ERISA § 514. To the extent the state law claims were not preempted, the court highlighted further reasons the state law claims failed. Accordingly, these claims were also dismissed with prejudice. As these two decisions from Judge Dooley demonstrate, healthcare providers seeking reimbursement of COVID-19 testing face significant hurdles in the legal system, despite federal legislation seemingly designed to assist them.

Seventh Circuit

Advanced Physical Medicine of Yorkville, LTD v. Cigna Health & Life Ins. Co., No. 22-cv-02991, 2023 WL 2631725 (N.D. Ill. Mar. 24, 2023) (Judge John F. Kness). Advanced Physical Medicine of Yorkville, LTD v. Allied Benefit Systems, Inc., No. 22-cv-02972, 2023 WL 2631723 (N.D. Ill. Mar. 24, 2023) (Judge John F. Kness). Plaintiff Advanced Physical Medicine of Yorkville, Ltd. commenced two lawsuits, one filed on June 7, 2022, against defendants Allied Benefits Systems, Inc. and Paramedic Services of Illinois Inc., and the second filed the following day against defendants Cigna Health and Life Insurance Company and American Specialty Health Group, each asserting causes of action under ERISA seeking benefits for healthcare services it provided to insured patients. Defendants in both lawsuits moved for dismissal. In each action the defendants’ argument was the same – Advanced Physical could not bring an ERISA civil action as the plans at issue contained valid and unambiguous anti-assignment clauses. The court agreed with defendants in both instances. Accordingly, the plans’ anti-assignment provisions rendered invalid any assignment to the healthcare provider that the patients signed, and therefore barred plaintiff’s right to sue under ERISA. For this reason, the court dismissed with prejudice both complaints.

Venue

Tenth Circuit

F.F. v. Capital Bluecross, No. 2:22-cv-494-RJS-JCB, 2023 WL 2574367 (D. Utah Mar. 20, 2023) (Judge Robert J. Shelby). Plaintiff F.F. sued Capital Blue Cross after the insurance provider refused to cover his minor son’s stay at a residential treatment center. F.F. asserted two causes of action: a claim for benefits under ERISA Section 502(a)(1)(B), and a claim for violation of the Mental Health Parity and Addiction Equity Act under ERISA Section 502(a)(3). Capital Blue Cross moved to dismiss or in the alternative to transfer venue to Pennsylvania. In this order, the court denied the motion to dismiss, but granted the motion to transfer based on the plan’s forum selection clause, despite the fact that F.F. and his son are residents of Summit County, Utah. The court concluded that the clause was valid and that F.F. did not meet his burden to demonstrate “why the court should not transfer the case to the forum to which the parties agreed.” Moreover, the court disagreed with F.F. that the forum selection clause violates ERISA’s venue provisions and its goal of providing plan participants with easy access to the federal courts. Instead, the court agreed with the majority of its sister courts to conclude that forum selection clauses are not fundamentally at odds with ERISA. Thus, the court held that this was not the unusual circumstance necessary to invalidate a forum selection clause, and so enforced the clause and granted the motion to transfer the case to the Middle District of Pennsylvania.

McCutcheon v. Colgate-Palmolive Co., No. 20-3225, __ F. 4th __, 2023 WL 2467367 (2d Cir. Mar. 13, 2023) (Before Circuit Judges Livingston and Sack, and District Judge Brian M. Cogan)

ERISA can be complicated. In part this is because ERISA and ERISA plans have their own intentionally obscure and technical language, especially when applied to cash balance pension plans. The Second Circuit in this case refers to this as the “argot of federal law governing employee retirement income plans.” Argot is an interesting word in this context, as its original meaning is “the jargon of Paris rogues and thieves for the purposes of disguise and concealment.”

Here, the court refused to allow this jargon to “obscure” what it saw as “a simple question of contract interpretation.” Thus, after years of “extensive litigation,” the appellate court determined that the interpretation of the Colgate retirement plan propounded by the plaintiffs, a class of former employees, was “unambiguously correct.” On this seemingly simple basis, the Second Circuit affirmed the final judgment and order of the district court granting summary judgment to plaintiffs on their claim for greater benefits.  

This case originated in 1989 when Colgate converted an ordinary defined benefit pension plan that based pension benefits on employees’ final average pay to a cash balance plan that uses a hypothetical account and an automatic fixed interest rate to calculate benefits. In 2005, Colgate amended the plan to account for participants who were entitled to a greater benefit under the cash balance plan than their accrued benefit under the old final average pay plan, and who elected to receive a lump sum payment of their accrued benefit. This amendment, referred to in the decision a Residual Annuity Amendment (“RAA”), was not discovered by counsel for plan participants until 2010.

In the meantime, in 2007, participants in the Plan filed a class action lawsuit against Colgate for cutting back on the accrued benefits of its employees in numerous other respects in converting to a cash balance plan. When the participants discovered the 2005 amendment, settlement discussions were already underway. Ultimately, most of the case settled with approval from the district court for $45 million (Colgate I), but with a carve-out for claims based upon the RAA.

As relevant here, after two years of discovery, plaintiffs filed for and ultimately won summary judgment on their claim that Colgate made two errors in calculating the RAA benefit, leading to an improper forfeiture of benefits. First, the district court agreed with plaintiffs that Colgate erred in determining eligibility and the amount of the residual annuity based on a comparison of the lump sum already paid to the participants to the grandfathered annuity. Instead, under what the district court referred to, without irony, as the “plain reading of the RAA,” it determined that “the amount of the Residual Annuity is determined by comparing the Age 65 [actuarial equivalent of the lump sum]…with the greater of the Grandfathered Benefit or the Member’s Accrued Benefit…plus Employee Contributions.” 

Second, the district court held that Colgate erred in applying a pre-retirement mortality discount in calculating the residual annuities because applying such a discount to a retirement benefit that “does not decrease if the participant dies” before reaching age 65 is obviously not proper.  

Finally, the district court ordered Colgate to use the 20-year Treasury bill rate plus 1% (20+1%) to project the equivalent annuity amount of the cash balance of a below-retirement age participant, and then to use the PBGC interest rate as the discount factor to convert that annuity amount to its present value.

The Second Circuit affirmed. With respect to the first calculation error, the appellate court agreed with the district court and the plaintiffs that the plan language “unambiguously” supported their interpretation. Luckily for the reader, I will not belabor that language. Suffice it to say that the court determined that the clear and unambiguous text of the plan provided that a residual annuity for participants such as the plaintiff is calculated by the difference between the amount of the lump sum payment expressed as an annuity and the larger of the grandfathered annuity and the cash balance annuity. In reaching this conclusion, the court rejected Colgate’s alternative reading of the plan language as unreasonable.

The court likewise was not persuaded that “ any allegedly unusual effects flowing from the RAA’s plain meaning” should change the “ambiguity analysis.” In fact, the court noted “that certain effects of our interpretation, which may seem odd at first, may not be so confounding upon closer review.” To the court, whatever Colgate’s preferred construction of the RAA, both when it settled Colgate I and during the RAA litigation, it made “perfectly good sense to conclude that while Colgate was in the process of fixing an issue relating to the forfeiture of grandfathered benefits, it would use the same mechanism to partially remedy a contemporaneous whipsaw violation [at issue in Colgate I], inflicted upon those same grandfathered participants.”

The court then turned to the interest rate issues. The Second Circuit agreed with the district court that Colgate was required to use the PBGC rate as the discount rate to calculate the actuarial equivalent of the lump sum payment expressed as an annuity, not because that interest rate was required under the Internal Revenue Code, but because it was required under the plan itself. In this regard, the Second Circuit noted that Colgate, through a committee that determined benefits under the plan, adopted a resolution to apply the PBGC rate in calculating residual annuities. This resolution was a binding part of the plan.

The court next concluded that the 20+1% rate was applicable for the purpose of projecting a participant’s cash balance account forward and converting it to an age 65 annuity. Again, the court found this was required under “the plain text of the plan,” which contained a section requiring the use of the 20+1% rate “for purposes of converting a Member’s Account into a single life annuity payable for the life of the Member starting at Normal Retirement Date.” The court noted that, even if it were to determine that this provision was ambiguous, Colgate’s reading had to be rejected because it would mean that the plan did not state how to project a cash balance account to age 65, thus rendering the benefit not “definitely determinable” and making the plan illegal. 

Finally, the court turned to the question of whether a pre-retirement mortality discount could be applied to calculate the residual annuity, as required under the plan. In this instance, the court did not simply follow the plan language, Instead, the court agreed with the logic of a number of other court decisions that had concluded that it would be an impermissible forfeiture to apply such a mortality discount to reduce the present value of a lump sum distribution when the death benefit is not reduced but is equal to the participant’s accrued benefit. The court was not persuaded that the supposedly “incidental” nature of the death benefit permitted application of such a discount, or that a proposed but never adopted IRS regulation required application of a pre-retirement mortality discount in this context.

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

Breach of Fiduciary Duty

Seventh Circuit

Daly v. West Monroe Partners, Inc., No. 21 C 6805, 2023 WL 2525362 (N.D. Ill. Mar. 15, 2023) (Judge Ronald A. Guzman). A participant of the West Monroe Partners Employee Stock Ownership Plan (“ESOP”), plaintiff Matthew Daly, filed a breach of fiduciary duty class action complaint outlining the ways in which he believed a series of related stock transactions violated ERISA. First, in September of 2021, West Monroe bought approximately 28,000 shares of the company stock from the plan at a price of $515.18 per share. According to Mr. Daly, this price was “grossly undervalued.” Then, about three weeks later, West Monroe took what it had just bought low and sold high, selling a 50% stake in the Company to a third-party investor, MSD, at a price per share over three times higher than what it had just paid to the plan participants. “According to Plaintiff, the share price paid to MSD ‘did not come out of thin air’ and ‘long before the sale [to MSD], the West Monroe Defendants had received bids from potential buyers and reviewed more recent valuations’ but did not disclose them to Plaintiff or the putative class members prior to buying their shares in September 2021.” Thus, by allegedly manipulating the valuations in this way, Mr. Daly argued that the selling shareholders were able to enrich themselves to the detriment of the participants of the plan. Defendants moved to dismiss. The court denied the motion, except with regard to the claims asserted against the individual board or committee members. Those claims were dismissed without prejudice. Specifically, the court declined to resolve the issue over whether Mr. Daly’s failure to exhaust administrative remedies precludes his ability to bring suit. Mr. Daly argued that an administrative appeal under these circumstances would have been futile. For pleading purposes this was deemed sufficient to withstand dismissal on exhaustion grounds. Next, the court held that it could infer from the complaint that defendants breached their duties, engaged in a prohibited transaction, failed to monitor co-fiduciaries, and failed to produce plan documents. However, with regard to the individual committee and board members, the court held that Mr. Daly failed to make allegations as to these specific individual members sufficient to establish they were acting as fiduciaries, meaning “none are currently implicated in the breach-of-fiduciary-duty claim.” In all other respects, the motion to dismiss was denied and plaintiff’s claims were found to be plausible.

Ninth Circuit

Thomson v. Caesars Holdings Inc., No. 2:21-cv-00961-CDS-BNW, 2023 WL 2480673 (D. Nev. Mar. 13, 2023) (Judge Cristina D. Silva). Participants of the Caesars Entertainment Corporation Savings & Retirement Plan, on behalf of a proposed class, filed this breach of fiduciary duty action against Caesars Holdings Inc., the plan’s committees, and Russell Investments Trust Company in connection with alleged self-serving actions which resulted in an investment portfolio made up of costly and underperforming proprietary funds. According to the complaint, after Russell assumed control of the plan’s investment menu in 2017, it replaced all of the plan’s old investment options with its own proprietary collective investment trusts and thus three-quarters of the plan’s $1.6 billion in assets ended up invested in Russell’s age-based funds. Plaintiffs alleged that this outsourcing of control over the administration of the plan was the result of a leveraged buyout of Caesars Palace by private equity firms following the 2008 financial crisis. Plaintiffs compared the plan’s prior investment options with the Russell replacement funds to demonstrate the disparity between the old funds’ consistent track record of success and the new funds’ underperformance. Finally, plaintiffs contend that the decision to replace the old investment menu with the proprietary funds was made to offset the losses that Russell was experiencing outside the plan in the open market and that the decision was therefore made to benefit Russell because it provided Russell with a direct infusion of much needed cash. Defendants moved to dismiss. The court began its analysis by stressing that the “‘crucible of congressional concern was misuse and mismanagement of plan assets by plan administrators,’ and ‘ERISA was designed to prevent these abuses.’” To that end, the court drew inferences in favor of the participants and was satisfied that their allegations were facially plausible violations of imprudence and disloyalty. However, the court held that co-fiduciary claims against the Caesars defendants could not proceed because “§ 1105(d) extinguishes bases for their liability for [Russell’s] alleged breaches, except to the extent that the Caesars defendants were aware of such breaches but failed to take reasonable efforts to remedy them.” Nevertheless, the court concluded that plaintiffs’ claim against the Caesars defendants for imprudent selection of Russell and failure to survey the proprietary investment lineup could proceed. Thus, only the co-fiduciary claim against Caesars defendants was dismissed, and in all other respects the motions to dismiss were denied.

Class Actions

Second Circuit

Vellali v. Yale University, No. 3:16-cv-1345(AWT), 2023 WL 2552719 (D. Conn. Mar. 17, 2023) (Judge Alvin W. Thompson). Three participants of the Yale University 403(b) Retirement Account Plan, individually and on behalf of a class of plan participants and beneficiaries, brought this action on behalf of the plan against Yale University, Michael A. Peel, and the retirement plan committee for breaches of fiduciary duties and prohibited transactions. Defendants moved to strike plaintiff’s jury demand. Their motion was denied in this order. Although the court found that breach of fiduciary duty claims would have historically been within the jurisdiction of equity courts in 18th century England, it stated that the greater matter of importance to its analysis was whether the remedy sought is legal or equitable in nature. And on this point, the court held the prayer for relief in the complaint included not only requests that were equitable, but also a request for make whole relief, a claim for compensatory damages for which defendants will be personally liable that is therefore legal in nature. When, as here, a legal claim is joined among equitable claims, the court stated that the right to the jury trial “remains intact.” Accordingly, the court permitted plaintiffs to proceed with their action in front of a jury because all of their claims seek legal money damages.

Eleventh Circuit

Roll v. Enhanced Recovery Co., No. 6:20-cv-212-RBD-EJK, 2023 WL 2535081 (M.D. Fla. Mar. 16, 2023) (Judge Roy B. Dalton Jr.). In this class action a group of terminated employees sued their former employer, Enhanced Recovery Co., alleging that it failed to notify them of their right to continued healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). The parties agreed to settle the claims on a class-wide basis. The court previously issued an order preliminarily approving the settlement agreement. Now plaintiffs have moved for attorneys’ fees and final approval of class action settlement. The court granted the motion for final settlement approval and granted in part the fee motion. As a preliminary matter, the court reaffirmed its earlier findings, concluding that “there is no question that the Rule 23(e)(2) and Bennett factors are met,” and the settlement was fair, reasonable, and adequate given the equitable treatment of the class and the developed record post-discovery. The court then continued by scrutinizing the requested fee award of $65,000 “which is 49% of the settlement fund,” and the $2,500 requested to cover the costs. Magistrate Judge Kidd issued a report recommending the awards be reduced to a total of $61,987.50 for attorneys’ fees, or 45% of the settlement fund, and $472.85 for costs. The court adopted Magistrate Kidd’s recommendation, agreeing that it was a more reasonable fee recovery and a fairer percentage of the common fund. The court ended its decision by acknowledging the complexity of the novel issues in the case. Due to that complexity, the court agreed with plaintiffs that this case may have been viewed by other attorneys as undesirable, and there was undoubtably a risk of no recovery. Accordingly, “class counsel achieved a significant settlement providing monetary relief to all class members despite the inherent risk of no recovery.” Thus, with the class and settlement granted final approval, and with the fee award designated, the action was dismissed.

Disability Benefit Claims

Second Circuit

Nall v. Hartford Co., No. 22-49, __ F. App’x __, 2023 WL 2530456 (2d Cir. Mar. 16, 2023) (Before Circuit Judges Raggi, Wesley, and Menashi). Plaintiff-appellant Ashley Nall filed for long-term disability benefits in 2019 based on her allegedly disabling symptoms of Meniere’s disease. The plan’s insurance provider, Hartford Life and Accident Insurance Company, denied the claim, finding Ms. Nall’s symptoms not so severe as to render her unable to perform the essential functions of her occupation as an intake coordinator. In the district court, summary judgment was granted to Hartford under arbitrary and capricious standard of review. Ms. Nall subsequently appealed that ruling to the Second Circuit. In this unpublished decision the Second Circuit affirmed the ruling of the district court. The court of appeals concluded that “Hartford’s denial of Nall’s claim for benefits under the Plan was not without reason, was supported by substantial evidence, and was not erroneous as a matter of law.” In particular, the Second Circuit highlighted how Hartford relied on medical records of at least five medical professionals, including Nall’s own treating physician, to reach its conclusions. Even Ms. Nall’s own testimony regarding her symptoms, the court found, could be construed as bolstering Hartford’s position that she could perform sedentary tasks. The appeals court also held that objective test results further supported a finding that Ms. Nall was not totally disabled as defined by the plan. Finally, the Second Circuit disagreed with Ms. Nall’s position that Hartford failed to consider the episodic character of the vertigo her disease caused. In sum, the court of appeals felt that it could not disturb Hartford’s conclusions because the insurance company had reasonable bases for its conclusion, regardless of whether evidence in the record supported the conclusion that Ms. Nall is disabled, and for that reason the district court’s order was affirmed.

Third Circuit

Stein v. Paul Revere Life Ins. Co., No. 21-3546, 2023 WL 2539004 (E.D. Pa. Mar. 16, 2023) (Judge Juan R. Sanchez). Dr. Eric Stein is a physician who specialized in interventional radiology. Given the nature of his practice, Dr. Stein wore heavy leaded personal protective apparel daily. Either as a result of donning these weighted lead vests, or at least exacerbated by them, Dr. Stein began experiencing pain in his back and legs and started having severe mobility issues. Although he had been experiencing back pains and spinal problems since 2009, he did not seek treatment for these issues until 2011. From that time on, Dr. Stein’s physical ailments progressively worsened. By summer 2018, Dr. Stein was left unable to continue working. His treating physicians scheduled spinal surgery and diagnosed him with permanent musculoskeletal conditions. These doctors highlighted the occupational hazard of the lead vests he had worn throughout his career. Dr. Stein applied for disability benefits under his ERISA plan insured by defendant Paul Revere Life Insurance Company. Paul Revere approved the benefits for losses due to sickness and began issuing Dr. Stein monthly benefits of $6,480. Importantly, by designating Dr. Stein’s disability the result of illness, rather than injury, Paul Revere was able to decrease the benefits on October 15, 2020, to a monthly benefit of $648 under the policy’s lifetime payment of benefits rider which entitled claimants to only 10% of their original benefit for a sickness after an initial 30-month period. Under this same rider, disability caused by an injury allows for the full monthly disability benefits for life. Dr. Stein appealed this decision, and ultimately filed this action seeking a court order reversing Paul Revere’s classification. He got just that in this decision wherein the court granted summary judgment in his favor and determined that the cause of his permanent disability “was an accidental bodily injury.” The court agreed with Dr. Stein that his spinal conditions were the result of repetitive stress injuries from wearing the lead apron during procedures for over 30 years, and that “Paul Revere’s interpretation of the LTD policy (was) fundamentally flawed because it excludes repetitive trauma injuries from the definition of ‘injury.’” Finally, the court denied Dr. Stein’s request for attorneys’ fees under Section 502(g)(1). It determined, “The merits of the parties’ positions here were relatively balanced and the Court recognizes other courts, including in the Third Circuit, may disagree with this decision.” As the other factors it analyzed did “not counsel in favor of an award of attorneys’ fees and costs,” the fee request was denied.

Fourth Circuit

Krysztofiak v. Boston Mut. Life Ins. Co., No. DKC 19-879, 2023 WL 2537537 (D. Md. Mar. 16, 2023) (Judge Deborah K. Chasanow). Last September, the court issued an order and opinion granting in part defendant Boston Mutual Life Insurance Company’s motion for summary judgment in this ERISA disability benefits action. The court relied on precedent in the Fourth Circuit in Gagliano v. Reliance Standard Life Ins. Co., 547 F.3d 230 (4th Cir. 2008), to decide that Boston Mutual may rely on a basis other than the one it initially applied to the denial when evaluating plaintiff Dana Krysztofiak’s long-term disability benefit claim on remand. Here, that new basis was a Special Conditions Limitation Rider, which did not even exist at the time of the benefit termination. Nevertheless, the court held that under Gagliano ERISA’s focus on the written plan document requires a remand to the insurance company so that a plaintiff may not obtain benefits through the judicial system that he or she would otherwise not be entitled to under the terms of the policy. Represented by new counsel from Kantor & Kantor following the death of her previous legal representative in this action, Ms. Krysztofiak moved for reconsideration under Rule 54(b). Her motion was denied in this order, under much the same reasoning as used in the court’s September 16th order. Once again, the court concluded that it was bound by Gagliano, no matter how many bites at the apple the insurance company has taken to date. Simply put, a court may not order an insurance company to pay benefits under an ERISA plan if that payment is contrary to the terms of the plan, even as here, when those terms are shifting. Accordingly, Boston Mutual will now once again evaluate Ms. Krysztofiak’s claim for disability benefits on remand.

Sixth Circuit

Masevice v. Life Ins. Co. of N. Am., No. 1:22CV223, 2023 WL 2534042 (N.D. Ohio Mar. 16, 2023) (Judge Christopher A. Boyko). Plaintiff Rebecca Masevice filed this action after defendant Life Insurance Company of North America (“LINA”) terminated her long-term disability benefits when her policy’s definition of disability transitioned from unable to perform the essential functions of her own occupation to any occupation. Ms. Masevice is disabled from neurological and cardiological conditions, including postural orthostatic tachycardia syndrome (“POTS”), migraine, and cluster headaches. The parties filed cross-motions for judgment on the administrative record. Ultimately, the court denied both motions and remanded to LINA for additional fact-finding. In particular, the court concluded that an in-person independent medical examination (“IME”) needed to be conducted and that an IME was crucial in order to fully develop the record and to establish whether Ms. Masevice remains disabled under the policy’s broader definition of “any occupation” disability. This was true, the court emphasized, because the review standard here was de novo under which “a court’s review is limited to the administrative record as it existed when the plan administrator made its final decision.” Simply put, the court found the record currently underdeveloped for Ms. Masevice to be able to prove by a preponderance of evidence that she met her plan’s definition of disabled. “The Court is not a medical specialist and the disability determination is not the Court’s to make.”

Seventh Circuit

Snapper v. Unum Life Ins. Co. of Am., No. 1:21-cv-02116, 2023 WL 2539242 (N.D. Ill. Mar. 16, 2023) (Judge Elaine E. Bucklo). Although plaintiff Joseph Snapper had a history of back and leg problems dating back to as early as 2008, a car accident in 2016 was really the straw that broke his already strained back. Two years later, Mr. Snapper, an attorney at Mayer Brown LLP, started taking leaves of absence from work to try and address his pain, and by the following year, 2019, Mr. Snapper stopped working altogether and applied for disability benefits under his plan administered by Unum Life Insurance Company of America. Unum initially granted the claim and began issuing monthly benefits in August 2019. Meanwhile, Mr. Snapper underwent an exhaustive series of spinal surgeries, pain treatments, physical therapy sessions, and medical testing and exams. Nothing improved his condition, and several of the attempted treatments had the opposite effect. However, looking at this same medical history, Unum’s hired reviewer, a family medicine doctor, concluded that Mr. Snapper could meet the essential requirements of his occupation, and on July 17, 2020, Unum terminated Mr. Snapper’s benefits. This litigation followed an unsuccessful administrative appeal. With the record fully developed, the parties cross-moved for summary judgment. In this order the court granted Mr. Snapper’s summary judgment motion and denied Unum’s cross-motion under de novo review. The court found the medical record proved by a preponderance of evidence that Mr. Snapper was disabled from performing the functions of his legal career and was therefore disabled as defined by his plan. The court particularly focused on the cognitive abilities necessary to practice law and wrote, “Unum devotes virtually no attention to the evidence pertaining to Snapper’s inability vel non to perform the cognitive aspects of his occupation.” Regardless, the court found “ample evidence in the record supporting the conclusion that Snapper’s pain prevented him from performing the cognitive functions listed in Mayer Brown’s job description.” The court also held that substantial evidence within the medical record demonstrated that Mr. Snapper could not perform the physical aspects of his work as an attorney, including “sitting, standing, and walking to the degree demanded by his work.” In sum, the court found the record painted a clear and consistent picture of a man whose quality of life was upended by his pain. Thus, the court granted summary judgment in Mr. Snapper’s favor and restored the status quo by reinstating benefits.

Eighth Circuit

Radle v. Unum Life Ins. Co. of Am., No. 4:21CV1039 HEA, 2023 WL 2474509 (E.D. Mo. Mar. 13, 2023) (Judge Henry Edward Autrey). On May 4, 2016, plaintiff Michael Radle suffered a head injury when he fell while he was out running and hit his head on a concrete sidewalk. As is often the case with traumatic brain injuries, Mr. Radle did not really begin to suffer any adverse neurological symptoms or effects from the fall until a few days later, on May 8, at which time he went to the emergency room. At the ER Mr. Radle was diagnosed with “conversion disorder,” a psychological condition, which the court noted is “most often seen in women and people who had a previous psychiatric diagnosis.” Mr. Radle’s symptoms would only worsen over the coming year, and his original diagnosis was determined to be a mis-diagnosis. Several neurologists treating Mr. Radle would later attest that Mr. Radle’s neurological and cognitive symptoms were the result of post-concussive syndrome from his traumatic brain injury caused by his May 2016 fall. By August 15, 2017, Mr. Radle was disabled to the extent that he could no longer work, and on August 25, 2017, he submitted a claim for long-term disability benefits with Unum. His claim was approved by Unum on March 12, 2018. However, Unum limited Mr. Radle’s benefits to 24 months under his plan’s limitation for mental illnesses, and on May 12, 2020, Unum terminated Mr. Radle’s benefits for exhausting the payable benefits under the mental illness limitation. Mr. Radle appealed. During the appeals process, Unum relied on information that was not provided to Mr. Radle and upheld its determination. Mr. Radle subsequently initiated this lawsuit, asserting claims under ERISA Sections 502(a)(1)(B) and (a)(3). Unum moved for partial summary judgment on Mr. Radle’s breach of fiduciary duty claim pursuant to Section 502(a)(3), in which Mr. Radle argued he was denied a full and fair review under the Department of Labor’s updated 2018 regulation mandating that insurers provide claimants with the materials and evidence used to make the determination so that they may comment on the documents relied upon. Unum argued that “these subsections of the Regulations cannot provide the basis for Plaintiff’s breach of fiduciary duty claim since they were not in effect at the time Plaintiff filed his claim for benefits.” The court agreed, writing, “[u]nder ERISA, the date that a claimant requests benefits is the applicable date to determine what procedures apply.” Thus, the court held that the pre-2018 regulations were applicable to Mr. Radle’s appeal of his benefit denial, and under those he “was not entitled to receive, and be given an opportunity to comment on, the additional evidence considered in the appeal.” Accordingly, the court found that Unum was entitled to judgment on the claim.

Discovery

Sixth Circuit

Sweeney v. Nationwide Mut. Ins. Co., No. 2:20-cv-1569, 2023 WL 2549549 (S.D. Ohio Mar. 17, 2023) (Judge James L. Graham). Participants of the Nationwide Mutual Insurance Company’s defined contribution plan brought this ERISA action alleging breach of fiduciary duty, prohibited transaction, and inurement of plan assets against Nationwide Mutual and other plan fiduciaries. The parties have been actively engaged in a discovery dispute. Although they were continuing to meet and confer, the parties informed the Magistrate Judge during a conference that they were at an impasse regarding three proposed Electronically Stored Information (“ESI”) search strings relating to the method by which defendants make determinations about the crediting rate for the challenged Nationwide guaranteed investment fund (“GIF”), the fund at the center of the action. Following briefing on the topic, and after hearing from the parties on the conference call, “the Magistrate Judge found that Plaintiffs satisfied the necessary threshold showing of relevance because the information related to the method by which Defendants determine the crediting rate of the GIF is relevant to Plaintiffs’ claims.” Accordingly, the court granted plaintiffs’ motion and ordered the parties to engage in the ESI process with these search strings. Defendants timely objected. In this order, the court overruled the objections and left the Magistrate’s discovery order undisturbed. It found nothing clearly erroneous in the Magistrate’s factual findings, and that defendants’ objections “lack[ed] merit.” The court found the requirements of Federal Rule of Civil Procedure 7(b)(1)(A), including its requirement that a motion be made in writing unless made during a hearing, “amply satisfied.” Finally, the court agreed with the Magistrate Judge that the proposed searches were relevant to the breach of duty of loyalty claims and Defendants’ statutory defenses.

ERISA Preemption

Second Circuit

Park Ave. Podiatric Care, PLLC v. Cigna Health & Life Ins. Co., No. 22 Civ. 10312 (AKH), 2023 WL 2478642 (S.D.N.Y. Mar. 13, 2023) (Judge Alvin K. Hellerstein). Plaintiff Park Avenue Podiatric Care, P.L.L.C., sued Cigna Health and Life Insurance Company asserting state law claims for breach of contract, unjust enrichment, promissory estoppel, and violation of New York’s prompt payment law seeking payment for foot surgeries it provided to a patient who was a beneficiary of an ERISA plan insured by Cigna. Cigna moved to dismiss the complaint. It argued that the state law claims were expressly preempted by ERISA section 514(a). The court agreed and granted the motion. Specifically, the court concluded that Park Ave. Podiatric Care’s right to converge derived directly from the terms of the ERISA plan, as Cigna informed the provider that under the plan it would pay 80% of the usual and customary rate. Moreover, the court held the $7,199 payment that was made to Park Ave. Podiatric Care was adjudicated under the terms of the plan and that it was therefore “clear on the face of the Complaint that Plaintiff’s claims derive from coverage determinations made pursuant to a health benefit plan regulated by ERISA.” Thus, the court ruled that the state law claims could not be decided without consulting and referencing the plan, and therefore fell within ERISA preemption’s broad borders.

Ninth Circuit

Stoddart v. Heavy Metal Iron, Inc., No. 2:22-cv-01532-DAD-DB, 2023 WL 2524313 (E.D. Cal. Mar. 14, 2023) (Judge Dale A. Drozd). Last May, plaintiff Michael Stoddard filed a lawsuit in state court against his former employer, Heavy Metal Iron, Inc., and several individual defendants for violations of California labor laws and the Private Attorneys General Act of 2004 (“PAGA”) on behalf of himself, the Labor Workforce Development Agency, and other employees employed by defendants who worked in non-exempt positions and also suffered a wage and hour violation. Based on the PAGA causes of action, defendants removed the complaint to federal court arguing that the Labor Management Rights Act (“LMRA”) and ERISA preempt the claims. Specifically, defendants argued that although Mr. Stoddard’s employment was not covered by a collective bargaining agreement, some of the employees he asserts these claims on behalf of are. Additionally, defendants argued that some of these employees were also part of a joint apprenticeship program which was governed by ERISA. Mr. Stoddard disagreed with defendants’ preemption arguments and moved to remand his action back to state court. The court agreed with Mr. Stoddard that it did not have federal jurisdiction over the complaint and granted the motion to remand. It found defendants’ preemption arguments misplaced as neither LMRA nor ERISA applied directly to Mr. Stoddard, especially as Mr. Stoddard was not subject to a qualifying collective bargaining agreement and because defendants did not “argue that plaintiff was a participant or beneficiary of an employee benefit plan.”

Medical Benefit Claims

Tenth Circuit

L.L. v. Anthem Blue Cross Life, No. 2:22CV208-DAK, 2023 WL 2480053 (D. Utah Mar. 13, 2023) (Judge Dale A. Kimball). Plaintiff L.L., on behalf of his minor daughter, filed this action against his employer, DLA Piper LLP, his healthcare plan, the DLA Piper Welfare Benefit Plan, and the plan’s claims administrator, Anthem Blue Cross Life and Health Insurance Company, after his daughter’s stay at a residential treatment program was denied as “investigational” under the plan’s policy addressing wilderness programs. In his complaint, L.L. asserted three causes of action: a claim for recovery of benefits under Section 502(a)(1)(B), a violation of the Mental Health Parity and Addiction Equity Act under Section 502(a)(3), and a claim for statutory penalties under Sections 502(a)(1)(A) and (c). Defendants moved to dismiss L.L.’s second and third causes of action. The court granted their motion in this order. First, the court concluded that L.L. had failed to plead a Parity Act violation because the policy designating wilderness programs investigational specifically applied to both medical conditions and behavioral health/mental health disorders. L.L.’s other theories about disparities within the plan between mental health exclusions and permitted analogous medical treatments were determined by the court to be irrelevant here because they were “not the basis for the denial of benefits in this case.” Finally, the court dismissed the claim for statutory penalties for failure to provide documents upon request because L.L. requested documents from Anthem, the claims administrator, and not from DLA Piper, the plan administrator. The court held that Anthem and DLA Piper are separate legal entities and Anthem is therefore not the agent of DLA Piper and not required to honor document requests from claimants. Accordingly, following these dismissals, plaintiff is left only with his claim for benefits.

Pension Benefit Claims

Second Circuit

Guzman v. Bldg. Serv. 32BJ Pension Fund, No. 22-cv-01916 (LJL), 2023 WL 2526093 (S.D.N.Y. Mar. 14, 2023) (Judge Lewis J. Liman). In this decision the court granted the motion of Building Service 32BJ Pension Fund and the other individual defendants to dismiss pro se plaintiff Carlos Guzman’s ERISA lawsuit for failure to state a claim for relief. The court agreed with defendants that Mr. Guzman’s monthly pension benefits were calculated properly under defendants’ interpretation of terms of the plan. Furthermore, the court concluded that Mr. Guzman was given a full and fair administrative appeal hearing. Because he was given a full and fair review and the plan grants defendants discretionary authority, the court held that the abuse of discretion review standard applied here. Under deferential review, the court found that defendants’ calculation of benefits was based on a reasonable interpretation of plan language and therefore it could not be disturbed. This was true, the court concluded, because there “is no dispute here that Plaintiff continued to work in Disqualifying Employment after his Normal Retirement Age of sixty-five prior to the Required Beginning Date.” Accordingly, the motion to dismiss was granted.

Pleading Issues & Procedure

Fifth Circuit

Harmon v. Shell Oil Co., No. 3:20-cv-00021, 2023 WL 2474503 (S.D. Tex. Mar. 13, 2023) (Magistrate Judge Andrew M. Edison). Three current or former employees of Shell Oil Company who are participants of Shell’s defined contribution plan, the Shell Provident Fund 401(k) Plan, brought this lawsuit alleging breaches of fiduciary duties. As part of their action, plaintiffs demanded a jury trial. Shell moved to strike the jury demand. It argued that plaintiffs are not entitled to a jury trial under the Seventh Amendment because their claims and remedies are equitable in nature. Plaintiffs opposed the motion to strike. They argued that although their claims would have historically been decided in the courts of equity in 18th century England, they nevertheless have a right to a jury trial because their claim under Section 1132(a)(2) involves compensatory damages, which they asserted are “the classic form of legal relief.” Furthermore, plaintiffs argued that 29 U.S.C. § 1109(a) allows for appropriate “equitable or remedial relief,” which they argued meant that relief is not limited to equitable relief but also may include the “traditional legal remedy of ‘losses to the plan.’” The court, however, disagreed. It interpreted Supreme Court precedent to conclude that plaintiffs’ request for surcharge “(i.e., make-whole) relief” is equitable in nature. Thus, the court aligned itself with the majority of district courts who have weighed in on this issue and held that monetary remedies to remedy a breach of a fiduciary duty are equitable and not legal in nature. The court therefore granted Shell’s motion and struck plaintiffs’ jury demand.

Sixth Circuit

McClure v. K&K Ins., No. 6:22-CV-092-CHB-HAI, 2023 WL 2480728 (E.D. Ky. Mar. 13, 2023) (Judge Claria Horn Boom). At the beginning of the school year in 2016, former high school student Martina McClure was “assaulted by another student on school grounds, which caused her to ‘suffer severe and permanent injuries, including traumatic brain injuries.’” Martina incurred and continues to incur significant medical bills because of the assault. Her treatments were covered by her father’s ERISA-governed health insurance plan established by Central States Health & Welfare Fund. Plaintiff Donna McClure is a guardian for Martina. Attempting to hold the school responsible, Ms. McClure sued several school employees for the assault. Her claims were settled through payment by a casualty insurer. Central States then asserted a statutory lien against the settlement proceeds under the plan’s subrogation provision. Under the Central States plan, “any other policy providing specific risk coverage bears primary responsibility for the insured’s losses.” At the time of the assault, the school was insured by Zurich American Insurance Group through a blanket accident policy administered by K&K Insurance Group. Ms. McClure directed healthcare providers to bill K&K Insurance Group for the medical treatments they provided to Martina. However, K&K has not paid these costs, and has denied the claims. On April 28, 2022, Ms. McClure filed her complaint against Zurich and K&K under ERISA and state law. Defendants subsequently filed motions to dismiss the complaint. They argued that the state law claims are preempted by ERISA, that the claims are time-barred by a contractual limitations period, and that Ms. McClure otherwise failed to state her claims. To begin, the court disagreed with defendants that Ms. McClure’s state law claims were preempted by ERISA. The court wrote that while it was true that Ms. McClure referenced the Central States plan in her complaint in the counts other than her ERISA claim, she was “really challenging Zurich’s actions under the insurance policy…meaning the first step of the preemption test is not satisfied.” Additionally, the court stated that defendants could not show that no other independent legal duty existed because “Plaintiff alleges that the Defendants ‘breached a duty that stems from the insurance contract, not from the ERISA plan.’” Regardless, the court agreed with defendants that Ms. McClure’s claims were untimely. It observed that the complaint affirmatively showed that the claims were time-barred. The court stated that the insurance policy referenced in the complaint provided it with the relevant information necessary to determine that the claims were untimely. In other words, the court disagreed with Ms. McClure that it was premature to address whether the complaint was time-barred based on a contractual limitation provision, because the unambiguous terms of that provision made clear that she only had three years to bring a complaint. “Martina’s injury occurred on September 16, 2016, and because Plaintiff did not file in this Court until April 28, 2022, her claims are untimely.” Finally, the court found Ms. McClure’s dispute of the validity of the provision cursory, perfunctory, and “too underdeveloped to constitute a real challenge to the enforceability of the limitations period.” For this reason, the motions to dismiss were granted, and the complaint was dismissed with prejudice.

Retaliation Claims

Sixth Circuit

Murray v. City of Elizabethton, No. 2:21-CV-123-TAV-CRW, 2023 WL 2530936 (E.D. Tenn. Mar. 15, 2023) (Judge Thomas A. Varlan). At the end of 2020 and in early 2021 COVID-19 vaccines were a rare commodity. As a result, when the City of Elizabethton in Tennessee held a mass vaccination event on December 23, 2020, for eligible individuals employed by Carter County, Tennessee, there was a lot of tension over who received a vaccine that day. That tension is the center of this retaliation lawsuit wherein former Deputy Chief of Elizabethton’s fire department, plaintiff Aubrey Murray, alleges he was demoted and then forced to retire after he received criticism for his wife and son getting vaccinated at the event. Mr. Murray argued that his family did not receive preferential status to get vaccinated, as his son was also an employee of the county, and because he did not create or influence the list of eligible employees. Mr. Murray suspected his wife’s name got on the list as she had done years of volunteer work for the county. Regardless, he argued the adverse employment actions against him were motivated at least in part by a desire to interfere with and reduce his generous pension and was a violation of ERISA Section 510. Finally, Mr. Murray argued that his employer’s actions violated his First and Fourteenth Amendment rights, and that Elizabethton’s actions constituted common law retaliatory discharge. Defendants moved to dismiss and for summary judgment. Their motions were granted in part and denied in part. First, the court denied the motion to dismiss Mr. Murray’s First and Fourteenth Amendment claims. The court agreed with Mr. Murray that the public had an interest “as to how employers were investigating employees accused of wrongdoing in connection to the vaccines,” and construing the allegations as true the court stated that it could infer that Elizabethton’s actions violated Mr. Murray’s freedoms of speech and intimate association. However, Mr. Murray’s ERISA retaliation claim was dismissed because his pension plan is an exempt governmental plan and therefore not governed by ERISA. His common law retaliatory discharge claim was also dismissed. Finally, one of the individual defendants, Mr. Murray’s supervisor, was granted summary judgment because of qualified immunity.

Subrogation/Reimbursement Claims

First Circuit

Verizon Sickness & Accident Disability Benefit Plan for New Eng. Assocs. v. Rogers, No. 1:21-CV-00110-MSM-PAS, 2023 WL 2525208 (D.R.I. Mar. 15, 2023) (Judge Mary S. McElroy). A participant of Verizon, Inc.’s disability benefits plan, non-party Jacqueline Rogers, was struck in an automobile accident leaving her too injured to continue working. Ms. Rogers went on disability leave and was paid $44,962.50 in disability benefits. After she had been paid these benefits, Ms. Rogers settled with the insurer of the at-fault driver for a lump sum of $100,000. She was represented by attorney Richard M. Sands, and the settlement proceeds were disbursed to the Sands firm. Verizon filed this action against Mr. Sands seeking reimbursement of the disability benefits paid to Ms. Rogers pursuant to the summary plan description’s subrogation clause. In response, Mr. Rogers filed counterclaims against Verizon. The parties cross-moved for summary judgment. The court began by evaluating plaintiff’s Section 502(a)(3) claim against Mr. Sands. As a preliminary matter, the court was satisfied that the summary plan description was a part of the plan and that the subrogation clause within it created an automatic equitable lien. This was particularly true, the court held, because the clause was “written in language as intelligible to laypersons as insurance policies get.” Furthermore, the court agreed with plaintiff that the lien could be enforced against a non-participant attorney who collected settlements from a third party for the plan beneficiary who had received benefits. However, the court ultimately did not grant summary judgment in favor of either party on this claim because the issue of whether this action is an equitable or legal one can only be resolved by answering a question of fact, i.e., whether the settlement proceeds have been completely disbursed on nontraceable items. Therefore, both the plaintiff’s and defendant’s motions for summary judgment on this cause of action were denied. The court then analyzed Mr. Sands’ counterclaims for violation of § 1024(b)(4) and tortious interference with contract. It granted summary judgment in favor of Verizon on both counts, holding that “§ 1024 on its face does not require production of ‘employment records,’ which is what the Sands request sought,” and what both claims were ultimately premised on.

Winsor v. Sequoia Benefits & Ins. Servs., LLC, No. 21-16992, __ F.4th __, 2023 WL 2397497 (9th Cir. Mar. 8, 2023) (Before Circuit Judges Bress and VanDyke, and Judge Jane A. Restani (Ct. Int’l Trade))

Standing has always been an important issue in ERISA class actions, and has become even more important since the Supreme Court’s decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615, 207 L. Ed. 2d 85 (2020). The big question after Thole has been whether and how that ruling would be extended to prevent benefit plan participants from challenging the actions of plan fiduciaries. In this week’s notable decision, the Ninth Circuit addressed this issue in the context of a Multiple Employer Welfare Arrangement (MEWA).

The plaintiffs were current and former employees of tech company RingCentral who participated in RingCentral’s welfare benefits plan. The RingCentral plan participated in a “Tech Benefits Program,” which was a MEWA administered by defendant Sequoia Benefits and Insurance Services. The Program “pools assets from more than 180 employer-sponsored plans into a trust fund for the purpose of obtaining insurance benefits for employees at large-group rates that may otherwise be unattainable for individual employer plans.”

The RingCentral plan was funded by contributions from both RingCentral and its employees. RingCentral decided which benefits to offer and how much employees would contribute toward each benefit. These funds were then sent to Sequoia, which “selected the insurance benefits that would be made available to employers, negotiated the cost of any given benefit with the insurance provider, and determined how much each employer plan must contribute to the Tech Benefits Program’s trust fund in exchange for the plan participants’ selected benefits.”

Sequoia paid the insurance costs and fees out of the trust fund, maintained in the name of the Program, which was funded by contributions from the RingCentral plan. In turn, Sequoia received commissions from the companies from which it purchased insurance for participating plan participants.

Plaintiffs challenged this arrangement in their putative class action. They alleged that Sequoia breached its fiduciary duties under ERISA to the RingCentral plan “in two ways: (1) by receiving and retaining commission payments from insurers, which plaintiffs regard as kickbacks; and (2) by negotiating allegedly excessive administrative fees with insurers, which led to higher commissions for Sequoia.” In an amended complaint, plaintiffs argued that these breaches “injured them by requiring plaintiffs to pay higher contributions toward their benefits and by allegedly interfering with plaintiffs’ purported equitable ownership interest in the Tech Benefits Program trust fund.” Plaintiffs requested that Sequoia’s “improper profits” be disgorged to the plan participants, or alternatively reimbursed to the RingCentral plan.

The district court dismissed the action, “concluding that plaintiffs had not alleged sufficient facts indicating that Sequoia’s conduct led plaintiffs to pay higher contributions or to receive fewer benefits.” Thus, plaintiffs lacked Article III standing to bring their suit in the first place. Plaintiffs appealed.

The Ninth Circuit separated plaintiffs’ arguments into two theories of recovery. The first theory was that “Sequoia’s actions allegedly caused plaintiffs to pay higher contributions for their insurance, and that eliminating Sequoia’s commissions and reducing administrative fees would therefore have lowered plaintiffs’ payments.”

However, the Ninth Circuit held, “The problem with plaintiffs’ theory is that plaintiffs have not pleaded facts tending to show that Sequoia’s alleged breach of fiduciary duty led to plaintiffs paying higher contributions.” The court noted that RingCentral made all decisions regarding which benefits would be offered to employees, and what contributions would be required for those benefits.            Plaintiffs were required to establish a connection between Sequoia’s actions and their contributions, but RingCentral’s intermediary actions broke that connection: “Plaintiffs have not alleged that RingCentral has changed or would change employee contribution rates based on Sequoia’s alleged breaches of fiduciary duty, or that employee contribution rates are tied to overall premiums.”

The Ninth Circuit further rejected plaintiffs’ argument that such a connection could be inferred. There was no “specific formula or set of factors” used by RingCentral to determine what contributions would be required, and in fact some benefits did not require any employee contributions at all. As a result, plaintiffs were unable to prove the causation element of Article III standing.

For similar reasons, the Ninth Circuit further ruled that plaintiffs’ two theories of redressability were also inadequate. Even assuming that ERISA permitted plaintiffs’ theory of constructive trust relief, “plaintiffs do not explain how a court could place Sequoia’s ‘ill-gotten profits’ directly into plaintiffs’ pockets when plaintiffs have not alleged how a court could identify the discrete ‘profits’ supposedly owed to them, given RingCentral’s discretion in setting employee contribution amounts and the manner in which RingCentral exercised this discretion.”

The court also rejected plaintiffs’ other theory of redressability – awarding damages to the plan itself – because it was foreclosed by the court’s prior decision in Glanton ex rel. ALCOA Prescription Drug Plan v. AdvancePCS Inc., 465 F.3d 1123 (9th Cir. 2006). In Glanton, the court held that “any one-time award to the plans for past overpayments [would not] inure to the benefit of participants” because employers “would be free to reduce their contributions or cease funding the plans altogether until any such funds were exhausted.” The court stated, “That same logic applies here…. There is thus no basis for plaintiffs’ assertion that, if the RingCentral plan received money from Sequoia, the plan would ‘likely’ remit that money to plaintiffs.”

The Ninth Circuit then turned to plaintiffs’ second standing theory, which was that they retained an equitable ownership interest in the Tech Benefits Program’s trust fund, and thus, as beneficiaries of that fund, they had “standing to pursue relief such as surcharge or disgorgement, even if they suffered no tangible out-of-pocket loss.”

The court held that this argument ran afoul of the Supreme Court’s decision in Thole. In Thole, the plaintiffs “had pointed to trust law principles and contended that ‘an ERISA defined-benefit plan participant possesses an equitable or property interest in the plan.’” Thus, a fiduciary duty breach “itself harms ERISA defined-benefit plan participants, even if the participants themselves have not suffered (and will not suffer) any monetary losses.” The Supreme Court rejected this theory, holding that “plan participants possess no equitable or property interest in the plan,” and thus they were required to show how the alleged breach concretely affected them.

The Ninth Circuit found Thole analogous. “Although the Tech Benefits Program is not a defined-benefit pension plan, it similarly provides a fixed set of benefits as promised in plan documents.” The plaintiffs’ benefits do not “increase or decrease depending on the management of trust assets.” The plaintiffs were not “entitled to receive the funds held by the program,” and instead were only “contractually entitled to the insurance benefits that Sequoia agreed to purchase for them with the program’s funds – benefits that plaintiffs have received.” Because the plaintiffs had received all of the benefits to which they were entitled, the court found that they had not suffered a concrete harm. As a result, the district court’s order granting Sequoia’s motion to dismiss was affirmed in its entirety.

It is unclear what impact this case will have. As the Ninth Circuit noted, this case is unusual because the plaintiffs did not sue RingCentral, or even the RingCentral benefit plan. Instead, “This case is less typical because the plaintiffs are leapfrogging the RingCentral plan and seeking to recover directly from Sequoia, a management and insurance brokerage company that is a step removed from the contributions plaintiffs pay and the benefits they receive.” Furthermore, in a footnote the Ninth Circuit dodged the issue of whether Sequoia was even a fiduciary under ERISA. One thing is clear, however: the fallout from Thole continues, and this decision will likely be cited by plan administrators and fiduciaries in future cases seeking to escape liability on standing grounds.

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

Arbitration

Third Circuit

Burnett v. Prudent Fiduciary Servs., No. 22-270-RGA, 2023 WL 2401707 (D. Del. Mar. 8, 2023) (Judge Richard G. Andrews). On January 25, 2023, Magistrate Judge Jennifer L. Hall issued a report and recommendation in this breach of fiduciary duty class action brought by the participants of the Western Global Airlines, Inc. Employee Stock Ownership Plan recommending the court deny defendants’ motion to compel arbitration. Magistrate Hall reasoned that the arbitration provision contained a clause improperly banning participants from exercising their ERISA-protected right to seek plan-wide relief, and because this clause was non-severable, Magistrate Hall found the arbitration provision itself unenforceable. Very shortly after the recommendation was issued, the Tenth Circuit “on a complaint alleging the same theories as in the instant case, and with essentially the same arbitration agreement, thoroughly analyzed the same issues and came to the same conclusion as the Magistrate Judge did,” in Harris v. Envision Mgmt. Holding, Inc. Bd. of Directors. (Harris was the notable decision in our February 15, 2023 issue.) Defendants filed objections to the Magistrate’s recommendation. The court reviewed the Magistrate’s recommendation de novo and found it “persuasive” and “prescient,” given the Tenth Circuit’s ruling in Harris. Accordingly, the objections were overruled, the report and recommendation was adopted in full, and the motion to compel arbitration was denied.

Breach of Fiduciary Duty

First Circuit

Brown v. The MITRE Corp., No. 22-cv-10976-DJC, 2023 WL 2383772 (D. Mass. Mar. 6, 2023) (Judge Denise J. Casper). Six plan participants, on behalf of themselves and a putative class, filed a two-count complaint against The MITRE Corporation, its board of trustees, and the investment advisory committee for breaches of the duties of prudence and monitoring in connection with its two “jumbo plans,” the Tax Sheltered Annuity Plan and the Qualified Retirement Plan, which combined had at least $3.5 billion in assets and over 20,000 participants during the relevant period. Plaintiffs alleged that defendants breached their duty of prudence by adopting a revenue sharing approach to plan fees, which resulted in per participant fees of up to $80. In addition, plaintiffs challenged defendants’ retention of two recordkeepers, TIAA and Fidelity, for at least 14 years despite the allegedly unnecessary costs of doing so, and also argued that the committee was imprudent by failing to regularly solicit or conduct requests for proposals at reasonable intervals throughout the class period. Finally, plaintiffs alleged that the plans’ use of three higher cost share classes of funds that had otherwise identical institutional options available also constituted a breach of the duty of prudence. In addition to these imprudent actions, the plan participants also argued that the board breached its fiduciary duty to monitor by failing to evaluate or scrutinize the performance of the investment committee, to the participants’ detriment. Defendants moved to dismiss the complaint. The court declined to dismiss either cause of action. It was satisfied that plaintiffs were sufficiently comparing the fees of the challenged plans with those of at least ten other similarly sized plans. Given this, the court stated that it could infer imprudence and a derivative breach of the duty of monitoring, especially as the complaint focused on defendants’ failure to leverage the substantial size and bargaining power of the plan to obtain the same services and investments for lower costs. However, the court did grant defendants’ motion to dismiss with regard to one of the six named plaintiffs, whom the court agreed was barred from filing this action against these defendants by the doctrine of issue preclusion, as he had previously filed a similar lawsuit which was dismissed for lack of subject matter jurisdiction. Nevertheless, defendants’ motion to dismiss was denied in all other respects, and this fiduciary breach action will carry on.

Sixth Circuit

Sigetich v. The Kroger Co., No. 1:21-cv-697, 2023 WL 2431667 (S.D. Ohio Mar. 9, 2023) (Judge Timothy S. Black). Plaintiff Lisa Sigetich, on behalf of a proposed class of plan participants, sued the fiduciaries of The Kroger Co. 401(k) retirement Savings Accounts Plan for breaching their fiduciary duties by overpaying and failing to negotiate for lower fees to be paid to the plan’s service provider, Merrill Lynch. Ms. Sigetich maintained that the per participant recordkeeping fee was excessive when compared to other similarly sized plans and included information in her complaint to suggest that Merrill Lynch provided a standard package of bundled administrative and recordkeeping services comparable to all other packages of plan administration services. Defendants moved to dismiss, and the Chamber of Commerce of the United States of America filed an amicus curiae brief in support of the fiduciaries of this mega defined contribution plan. To begin, the court held that Ms. Sigetich plausibly alleged standing to assert her two claims, breach of the fiduciary duty of prudence and breach of the duty to monitor. Viewing all plausible inferences in favor of Ms. Sigetich, the court concluded that her excessive fee allegations were adequate to infer an injury-in-fact traceable to the alleged misconduct. Next, the court took a look at the sufficiency of the complaint’s pleading of the fiduciary breach claims. Giving due regard to all of the range of possible reasonable judgments a plan fiduciary could make, the court concluded that Ms. Sigetich failed to plausibly state claims for relief. Moreover, the court agreed with defendants that Ms. Sigetich’s comparisons were “handpicked plans from one single year,” and therefore inapt benchmarks to determine the appropriateness of the plan’s costs. The court also took issue with Ms. Sigetich’s position that the services rendered by Merrill Lynch were typical of the level and quality of all recordkeeping and administrative services provided by service providers to a plan of this size. “[W]hen the Court takes a careful, context-sensitive scrutiny of the comparable plans, Plaintiff’s suggestion that minor variations are immaterial is not plausible.” For these reasons, the court concluded that it could not infer imprudence, a flawed oversight process, or mismanagement on behalf of the plan’s fiduciaries. Accordingly, the motion to dismiss was granted, and the action was dismissed with prejudice.

Seventh Circuit

Hensiek v. Bd. of Dirs. of Casino Queen Holding Co., No. 20-cv-377-DWD, 2023 WL 2374371 (S.D. Ill. Mar. 6, 2023) (Judge David W. Dugan); Hesiek v. Bd. of Dirs. of Casino Queen Holding Co., No. 20-cv-377-DWD, 2023 WL 2411143 (S.D. Ill. Mar. 8, 2023) (Judge David W. Dugan). In two decisions this week, the court denied a collection of motions to dismiss, motions for judgment on the pleadings, and summary judgment motions filed by the defendants in this breach of fiduciary duty and prohibited transaction litigation involving the sale of a riverboat gambling company’s stock to its Employee Stock Ownership Plan (ESOP). Specifically, plaintiffs outlined several interrelated activities which they aver constituted violations of ERISA. First, plaintiffs alleged that the selling shareholders attempted to sell Casino Queen to various third parties from 2005 to 2011, but were unsuccessful due to the casino’s declining success and rising competition in the geographic area. Unable to go this route, the defendants undertook another path to accomplish their goals. To begin, in October 2012, the selling shareholders created a holding company for Casino Queen. Then, the selling shareholders exchanged their Casino Queen Stock for the holding company’s stock and placed themselves on the newly formed board of the holding company. Subsequently, in December 2012, the shareholders and the holding company established the Casino Queen ESOP and facilitated the terms of the ESOP stock purchase of the holding company’s outstanding stock for $170 million. In order to finance this transaction, the ESOP borrowed $130 million from Wells Fargo, $15 million from an unnamed third party, and $25 million from the defendants at the “draconian interest rate” of 17.5%. Following the 2012 stock purchase, the ESOP proceeded to sell all of the Casino Queen’s real estate to a third party gambling company, Gaming and Leisure Properties, Inc., for $140 million. Plaintiffs alleged that the real value of these assets totaled only about $12.1 million. Then, and perhaps most astoundingly, Casino Queen leased back the property it had just sold for $140 million at the price of $210 million, to be paid over 15 years (more annually than what plaintiffs claimed the properties were worth). Defendants argued the purpose of this sale was to pay off the ESOP’s outstanding loans owed to the selling shareholders, and that once the selling shareholders’ loans were fully repaid in 2014, two of the defendants relinquished their board memberships. Finally, plaintiffs provided examples of the ways in which defendants took actions to obscure the truth from them and the Department of Labor. Thus, they claim it was not until 2019 that they learned what had occurred. They filed their lawsuit shortly after. Regarding the motions before the court, the court took the broad position that inferences needed to be drawn in favor of the plaintiffs at this early junction in the case. In doing so, the court determined that plaintiffs adequately stated claims and that those claims were timely. The court did not take kindly to defendants’ gamesmanship. Accordingly, this may not be an instance where the house always wins, or at least not before the benefit of discovery.

Lucero v. Credit Union Ret. Plan Ass’n, No. 22-cv-208-jdp, 2023 WL 2424787 (W.D. Wis. Mar. 9, 2023) (Judge James D. Peterson). Participants in a jumbo multi-employer pension plan, the Credit Union Retirement Plan Association 401(k) Plan, have sued the plan’s fiduciaries for breaching their fiduciary duties. In particular, they contend that defendants failed to control the plan’s costs. Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Concluding that plaintiffs stated plausible claims, the court denied the motion to dismiss. As a preliminary matter, the court concluded that defendants’ arguments that each participant only had standing limited to the fees directly charged to them was premature, expressing, “Courts do not dismiss parts of claims at the pleading stage.” Next, the court evaluated whether plaintiffs put defendants on notice of their claims and whether they alleged plausible facts which suggest they are entitled to relief. It concluded they had on both their breach of duty of prudence claim and their derivative breach of duty to monitor claim. This was especially true, because “plaintiffs don’t know the process the fiduciary used to determine the fees paid for recordkeeping and administration, so plaintiffs must rely on circumstantial allegations to support a plausible claim.” The fact that the plan’s per participant fees were as high as $271 during the class period suggested to the court that the fiduciary process defendants engaged in was flawed and potentially imprudent. Additionally, the court was satisfied that plaintiffs provided adequate benchmarks and comparisons needed in order to state their claims. It stated, “the plaintiffs allege in this case that defendants’ recordkeeping fees are approximately 10 times higher than the fees of plans with a similar number of participants. That difference is much larger than the disparity alleged in Albert. A cheaper plan isn’t necessarily better…but the difference is so significant that it provides some basis for inferring that defendants are using an imprudent process to choose investments.” Accordingly, this class action will proceed past the pleading stage.

Disability Benefit Claims

Second Circuit

Israel v. Unum Life Ins. Co. of Am., No. 1:21-cv-4335-GHW, 2023 WL 2390873 (S.D.N.Y. Mar. 7, 2023) (Judge Gregory H. Woods). On January 27, 2023, Magistrate Judge James L. Cott issued a report recommending the court grant in part and deny in part Unum Life Insurance Company of America’s motion to dismiss plaintiff Jessica Israel’s complaint for failure to exhaust administrative remedies. Specifically, Magistrate Cott found in favor of Ms. Israel on her long-term disability benefit claim, concluding that she had effectively exhausted and taken the proper steps to appeal, while Unum failed to comply with ERISA’s regulations in its review of the disability claim. To rectify this, the Magistrate recommended that the long-term disability decision be remanded to Unum for a full and fair review. However, the report also recommended that Ms. Israel’s claim for waiver of premium benefit be dismissed because “nothing in the record suggests that Israel… attempted to appeal the May 21 decision with respect to WOP benefits.” The Magistrate also recommended that Ms. Israel’s claim for attorney’s fees be considered at a later point in the case. Both parties timely objected to portions of the report. Unum argued that the report erred as the record demonstrated that Ms. Israel failed to exhaust her administrative remedies under the long-term disability plan and Ms. Israel’s counsel’s letter to Unum did not constitute an adequate notice of appeal and should not be treated as one. Ms. Israel objected “to the Report’s determination that an application for attorney’s fees would be premature at this time.” She argued that remand was enough success on the merits to warrant an award of fees under ERISA Section 502(g)(1). The Court reviewed the report and recommendation de novo and agreed “with Judge Cott’s thoughtful and well-reasoned analysis and conclusions in full and therefore adopt[ed] the Report in its entirety.” Regarding Unum’s objection, the court wrote that the “appropriate question is not whether Unum might have considered the June 1, 2018, letter as an administrative appeal, but whether Unum was required to consider it an administration appeal.” As for Ms. Israel’s objection, the court stated that it did not understand the report to suggest that the remedy of remand was the reason that fees were premature. Instead, it wrote that because the case is being remanded to Unum for further consideration “the full degree of Plaintiff’s success will turn on the outcome of the appeal process on remand. It is in the interest of judicial economy to resolve any fee application after Defendant has completed its review.” Thus, for the foregoing reasons the report was adopted in full.

Schuyler v. Sun Life Assurance Co. of Can., No. 20 CIVIL 10905 (RA), 2023 WL 2388757 (S.D.N.Y. Mar. 7, 2023) (Judge Ronnie Abrams). Plaintiff Kristen Schuyler was employed by Benco Dental Supply Company from May 2011 until May 2019, when she stopped working due to disabling symptoms from a traumatic brain injury she sustained in 2015. Ms. Schuyler applied for long-term disability benefits under the company’s ERISA-governed benefit plan insured by Sun Life Assurance Company of Canada. Her claim was denied by Sun Life which determined that she was not totally disabled from performing the duties of her own occupation as defined by the plan. Ms. Schuyler began the process of administratively appealing the denial of her claim, which is presently worth approximately $1.2 million. Meanwhile, on December 12, 2019, Ms. Schuyler signed a separation agreement and release with Benco Dental. Before signing the document, Ms. Schuyler sought clarification that signing would not interfere with her ability to appeal her long-term disability denial with Sun Life. She attests that Benco Dental’s answers to her questions on this point assured her that signing the agreement would not limit her ability to receive long-term disability benefits from Sun Life. However, Ms. Schuyler did sign the agreement, which included the following statement: “Employee of her…own free will, voluntarily releases…any and all known and unknown actions…arising out of or limited to, any alleged violation of…the Employee Retirement Income Security Act of 1974 (‘ERISA’).” By signing the document and receiving a payment of $25,000, the court ruled that Ms. Schuyler had lost her ability to bring this civil action against non-signatory Sun Life to challenge her denial. The court concluded that contrary to Ms. Schuyler’s “self-serving statements made after the fact,” she knowingly and voluntarily waived her right to bring an ERISA civil suit, against not only Benco Dental but also against Sun Life, by signing the separation agreement. Accordingly, the court granted summary judgment in favor of Sun Life.

ERISA Preemption

First Circuit

Medicaid & Medicare Advantage Prods. Ass’n of P.R. v. Hernandez, No. 20-1760 (DRD), 2023 WL 2399713 (D.P.R. Mar. 8, 2023) (Judge Daniel R. Domínguez). A collection of health insurance companies and Medicaid and Medicare Advantage products providers sued Puerto Rico’s Attorney General and Insurance Commissioner seeking declaratory and injunctive relief against the enforcement of two Acts passed in 2020, which set new and more protective standards for healthcare plans throughout Puerto Rico, including ERISA, Medicare, Medicaid, and Federal Employees Health Benefit (“FEHB”) plans. Specifically, the Acts impose obligations on the insurance companies relating to the timing of the reimbursement of submitted medical claims, prohibiting providers from altering medical criteria regarding patients’ treatments, mandating insurers provide continuing coverage for prescribed prescription drugs, and setting standards for payments to pharmacies. In essence these Acts were designed to prohibit health insurance providers from having ultimate control over how medicine is practiced in Puerto Rico, including by defining “medical necessity” as being determined exclusively by the professional judgment of the treating physicians “as long as providers conform with generally accepted standards of medical practice.” Plaintiffs argued that the Acts interfere with healthcare plan operation and are therefore preempted by the federal programs’ preemption clauses, and moved for judgment on the pleadings. The attorney general and the insurance commissioner opposed the motion. It was their position that the federal legislations’ preemption clauses do not preempt either Act because “the Government is exercising its historic and traditional police power to ensure the health and safety of the citizens and residents of Puerto Rico.” Accordingly, the court’s role was to determine whether the preemption clauses of FEHB, ERISA, Medicare Advantage, and Medicare Part D apply to and preempt “the Commonwealth’s attempts to regulate how these plans operate.” In this order, it concluded that they did and granted plaintiffs’ motion for judgment. In particular, the court found that Acts would necessarily regulate the operations of the plans governed by these federal programs and that they were precisely the types of state laws that were directly encompassed by each preemption provision. Further, the court disagreed with defendants that the Acts only had a tenuous or tangential connection with ERISA and FEHB plan administration. The court focused on the Supreme Court’s decision in Gobeille v. Liberty Mut. Ins. Co. and found instructive its conclusion that “requiring ERISA administrators to master the relevant laws of 50 States and to contend with litigation would undermine the congressional goal of ‘minimizing the administrative and financial burdens’ on plan administrators – burdens ultimately borne by the beneficiaries.” Accordingly, the court agreed with the challengers that these Acts relate to and interfere with plan administration. Thus, the court granted the motion and entered declaratory judgment that the Acts in the Puerto Rico Insurance Code were expressly preempted by the Medicare Advantage program, Medicare Part D, FEHB, and ERISA.

Hussey v. E. Coast Slurry Co., No. 20-11511-MPK[1], 2023 WL 2384018 (D. Mass. Mar. 6, 2023) (Magistrate Judge M. Page Kelley). Plaintiff Virginia Hussey sued her former employer, East Coast Slurry Co, LLC, her former union, International Operating Engineers Local 4, and her former apprenticeship school, Hoisting and Portable Engineers Apprenticeship and Training Program, for gender discrimination, sexual harassment, and retaliation. Defendants previously argued that the school is governed by ERISA and that ERISA accordingly preempts Ms. Hussey’s state law claims. On summary judgment the court rejected these arguments. The School subsequently moved in limine to dismiss. Its motion was again premised on ERISA preemption. Further, even in the absence of ERISA preemption, it argued that the 180-day statute of limitation applied to Ms. Hussey’s Title VII claim. The motion was denied in this order “except that the School may renew its ERISA preemption argument, if renewal is supported by the evidence and verdict.” The court otherwise declined to revisit the issue of ERISA preemption pre-trial.

Ninth Circuit

Russell v. S. Cal. Permanente Med. Grp., No. 22-cv-1930-W-JLB, 2023 WL 2436005 (S.D. Cal. Mar. 9, 2023) (Judge Thomas J. Whelan). Last August, plaintiff Laura Russell sued her former employer, Kaiser Permanente, in San Diego Superior Court asserting 13 causes of action including wage and hour and overtime violations and a claim under California’s labor code for forced patronage, alleging that Kaiser forced employees to partake in its own health benefits program. The Kaiser defendants removed the action to federal district court. They argued that Ms. Russell’s state law claims were preempted by the Labor Management Relations Act (“LMRA”) and ERISA. Ms. Russell held the opposite view, and moved to remand the case back to state court on the ground that the federal laws do not preempt her claims and the court therefore lacks federal-question jurisdiction. The court agreed with Ms. Russell and granted her motion. First, the court stated that contrary to Kaiser’s position, resolution of Ms. Russell’s state law claims would not require interpretation of the terms of the Collective Bargaining Agreement. Second, the court held that Ms. Russell’s forced patronage claim was not preempted by ERISA. The text of California Labor Code 450(a), the court stated, “does not act immediately and exclusively upon ERISA plans and the law could operate even if ERISA plans did not exist.” Furthermore, the court wrote that “whether the Aggrieved Employees were unlawfully forced to purchase insurance under section 450(a) is not related to ‘a fundamental ERISA function,’” and therefore would not interfere with plan administration. At most, the court felt that resolution of the state labor law claim had a tenuous connection to an ERISA plan. Thus, the court concluded that ERISA did not preempt the claim, and as the court concluded that LMRA also did not preempt Ms. Russell’s causes of action, the court found there was no basis for federal subject matter jurisdiction over the complaint.

Pleading Issues & Procedure

Ninth Circuit

Zavala v. Kruse, No. 1:19-cv-00239-ADA-SKO, 2023 WL 2387513 (E.D. Cal. Mar. 7, 2023) (Judge Ana de Alba). Plaintiff Armando Zavala filed this putative class action in early 2019 alleging that defendants GreatBanc Trust Company, Western Milling, LLC, Kruse-Western Inc., Kruse-Western’s board of directors, the company’s administration committee, and individual Doe defendants violated ERISA by manipulating the value of Kruse Western stock and orchestrating the sale of the stock to the company’s Employee Stock Ownership Plan (“ESOP”) for a price that far exceeded fair market value. Since filing his complaint, Mr. Zavala filed a first amended complaint, and then moved to file a second amended complaint. In his second amended complaint, Mr. Zavala sought to add defendants he had previously referred to only as Doe defendants, and to add claims pertaining to the restructuring of Western Milling which occurred less than a week before the ESOP transaction. Mr. Zavala argued that these activities were directly related to one another and could be viewed as steps of a larger interrelated scheme. In addition to Mr. Zavala’s motion to file a second amended complaint, the company defendants moved to seal information they maintained was confidential and proprietary. These two motions were referred to the Magistrate Judge, who issued a report and recommendation advising the court to grant both motions. The Kruse-Western defendants objected to the portion of the Magistrate’s recommendation recommending the court grant Mr. Zavala’s motion. In this order, the court overruled defendants’ motion and adopted the Magistrate’s recommendation in full. Specifically, the court agreed that the new allegations were directly tied to the ESOP transaction set out in the original pleading. These events, the court expressed, were unified as part of “a multi-step integrated transaction that took place in 2015.” Thus, the court held that Mr. Zavala adequately demonstrated that the second amended complaint directly relates back to the original pleading and therefore satisfied the requirements of Federal Rule of Civil Procedure 15(c). Additionally, the court held that the new defendants received timely notice of the action and should have known that they were the flagged Doe individuals the action was asserted against “but for a mistake concerning the proper party’s identity.” Accordingly, the court held that the newly identified board members and selling shareholders were not prejudiced. Finally, the remainder of defendants’ arguments were viewed by the court as a premature motion to dismiss the complaint. The court stated that “any factual disputes are not appropriately resolved at this stage of the proceedings.” For these reasons, the court concluded that it would allow amendment of the complaint.

Provider Claims

Second Circuit

Murphy Med. Assocs. v. Centene Corp., No. 3:22-cv-504-VLB, 2023 WL 2384143 (D. Conn. Mar. 6, 2023) (Judge Vanessa L. Bryant). An out-of-network healthcare provider, Murphy Medical Associates, LLC d/b/a Diagnostic and Medical Specialists of Greenwich, LLC sued two insurance providers, WellCare Health Insurance of Connecticut, Inc. and New York Quality Healthcare Corporation, and their parent company, Centene Corporation, for failing to reimburse it for COVID-19 diagnostic testing. In its complaint, Murphy Medical alleges that from the time it began providing COVID-19 testing in March 2020 to the filing of this action, it provided services to over 35,000 patients for whom it has received very little or no reimbursement from defendants. Murphy Medical asserted eight causes of action under ERISA, state law, the Affordable Care Act (“ACA”), the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”). Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). Defendants’ motion was granted without prejudice in this decision. To begin, the court found that Murphy Medical did not satisfy the pleading standard to present evidence that it was an assignee of benefits, because it did not present any of the “contracts upon which the Court could determine whether there was a valid assignment of benefits.” Furthermore, the court concluded that plaintiff failed to establish a prima facie showing that the court has personal jurisdiction over defendants New York Quality Healthcare Corporation or Centene Corporation (both foreign corporations without a principal place of business in the state of Connecticut) under Connecticut’s long-arm statute. The court therefore dismissed the claims against these two defendants pursuant to Federal Rule of Civil Procedure 12(b)(1). With those initial matters out of the way, the court proceeded to evaluate the sufficiency of the claims. It first addressed the claim brought under the CARES Act and FFCRA. Agreeing with “virtually every district court that addressed” the issue, the court concluded that neither Act provides a private right of action. The court wrote that Murphy Medical’s “criticism of the conclusion reached by the vast majority of district courts that have addressed this question focuses on strained in between-the-lines reading of the Acts.” Thus, taking the path more traveled, the court found plaintiff failed to state a claim under FFCRA and the CARES Act. The court similarly concluded that Congress did not create a private right of action under the ACA provision requiring health insurance providers to cover emergency services without pre-authorization. “District courts that have addressed whether this provision of the ACA provides a private right of action have all concluded it does not.” This claim too was dismissed. With regard to plaintiff’s claims asserted under ERISA, the court agreed with defendants that Murphy Medical’s claims under ERISA had to be dismissed because it “failed to set forth specific factual allegations that the coverage claims at issue arise under health plans subject to ERISA.” Accordingly, the court agreed with defendants that the complaint did not put them on notice of what claims were and were not violations of ERISA. Finally, having dismissed the federal causes of action, the court declined to exercise supplemental jurisdiction over the state law causes of action. However, because dismissal was without prejudice, plaintiff was given 42 days from the date of this decision to amend their complaint and replead in a manner which addresses and rectifies these identified deficiencies.

Third Circuit

Genesis Lab. Mgmt. v. United Health Grp., No. 21cv12057 (EP) (JSA), 2023 WL 2387400 (D.N.J. Mar. 6, 2023) (Judge Evelyn Padin). In this action, a diagnostic laboratory, plaintiff Genesis Laboratory Management LLC, sued UnitedHealth Group, Inc., United Healthcare Services, Inc., and Oxford Health Plans, Inc. for failing to reimburse it for COVID-19 and other testing services it provided to 51,000 individuals who are participants or beneficiaries of defendants’ health benefit plans. In its six-count complaint, Genesis asserted causes of action under the Families First Coronavirus Response Act (“FFCRA”), the CARES Act, breach of implied contract, breach of the covenant of good faith and fair dealing, unjust enrichment, quantum meruit, promissory estoppel, and two New Jersey insurance and healthcare laws. Defendants moved to dismiss, challenging the sufficiency of Genesis’s complaint. Their motion was granted, in part with prejudice and in part without prejudice, in this order. The court held that Genesis’s first cause of action asserted under the CARES Act and FFCRA could not survive the motion to dismiss, agreeing with its sister courts’ conclusion that neither CARES nor FFCRA creates a private right of action for a healthcare provider to sue. The court rejected Genesis’s argument that the Acts create an implied private right of action and disagreed that “it would be ‘illogical’ for Congress to give providers a personal right to payment without also giving them a remedy to enforce that right.” Without any direct substantive evidence that Congress intended to create a private remedy, the court stated it would not infer one. For this reason, the court dismissed without prejudice count one of the complaint. Next, the court found Genesis’s remaining state law claims, based on defendants’ failure to fully reimburse it for the testing services, were preempted by ERISA. The court agreed with defendants that these claims were “aimed at recovering ERISA-governed benefits,” and that “ERISA would provide the only available remedy.” It disagreed with Genesis that this was a lawsuit where defendants’ obligation to reimburse it was set by the terms of FFCRA and the CARES Act, rather than the terms of the ERISA plans. At the very least, the court stated that the coronavirus relief laws were “intended to interlock with ERISA,” and therefore fall under the board umbrella of “relating to” ERISA plans. Thus, “this Court finds that Section 6001 of the FFCRA and Section 3202 of the CARES Act must be considered together with ERISA because they impose legal requirements on ERISA plans.” However, the court wrote that to the extent plaintiffs’ state law claims relate to non-ERISA plans, those claims are not preempted. Nevertheless, the court concluded that the current complaint does not adequately distinguish between ERISA and non-ERISA plans and therefore currently fails to state claims. For this reason, dismissal of the state law causes of action was without prejudice, and Genesis may replead these claims with regard to any non-ERISA plan.

Withdrawal Liability & Unpaid Contributions

Third Circuit

Allied Painting & Decorating, Inc. v. Int’l Painters & Allied Trades Indus. Pension Fund, No. 3:21-cv-13310, 2023 WL 2384150 (D.N.J. Mar. 1, 2023) (Judge Peter G. Sheridan). In 2017, twelve years after plaintiff Allied Painting & Decorating, Inc.’s obligation to contribute to the International Painters and Allied Trades Industry Pension Fund ended, the Fund sent the contributing employer a demand letter for withdrawal liability. Allied challenged this demand and argued that the withdrawal liability demand was barred by laches “after an approximate 10-year delay between the resumption of work after withdrawal by Allied, and the time of notification by the Fund to Allied that it is subject to withdrawal liability.” The parties thus engaged in arbitration over this dispute, and on June 4, 2021, the arbitrator issued a final award in the amount of $427,195.00 in favor of the Fund and against the employer. The arbitrator concluded that the employer’s destruction of documents constituted a failure to diligently search for records and found that the delay on behalf of the Fund did not prejudice it, especially as Allied likely financially benefitted from the delay in making the payments. Thus, the laches objection was denied. Unsatisfied with this ruling, Allied commenced this lawsuit. The Fund sought to confirm the award and Allied sought to vacate the award. In this order, the award was vacated. The court concluded that the arbitrator minimized the employer’s testimony, and improperly concluded that the employer was not prejudiced by the Fund’s unreasonable delay. In addition, the court stated that the arbitrator provided no authority to support its conclusion that prejudice could be mitigated by financial advantages or economic benefits for the employer. Further, the court stated that the arbitrator clearly erred by finding Allied’s harm “entirely hypothetical,” which was a standard the court found to be again “contrary to case law.” Finally, the court questioned the authenticity of the collectively bargained agreement the arbitrator relied upon. Accordingly, the court found that “[t]he cumulation of the above… amounts to a reasonable appearance of bias against Allied and results in deprivation of a fair hearing.” The arbitration award was thus vacated.