Carlson v. Northrop Grumman Severance Plan, No. 22-1764, __ F. 4th __, 2023 WL 3299703 (7th Cir. May. 8, 2023) (Before Circuit Judges Easterbrook, Hamilton, and Lee)

In this certified class action, former Northrop Grumman employees filed suit against the Northrop Grumman Severance Plan, contending that its refusal to pay severance benefits to them after their termination in a 2012 layoff violated ERISA.

Northrop contended that the plaintiffs were not entitled to severance benefits because the plan provided that a laid-off employee regularly scheduled to work at least 20 hours a week would only receive severance benefits if that employee “received a cover memo, signed by a Vice President of Human Resources (or his/her designee), with this document addressed to you individually by name.” According to Northrop, the plaintiffs did not receive the “HR Memo,” and thus they were not entitled to benefits.

Plaintiffs responded that this document was not a prerequisite for eligibility to receive benefits, but rather a ministerial document, the purpose of which was to verify eligibility for all employees who were scheduled to work at least 20 hours per week. In addition, they maintained that it had always been Northrop’s policy to provide an HR Memo to every laid-off employee who met the work hour requirements. This change, plaintiffs argued, interfered with their rights to receive benefits to which they were otherwise entitled. Accordingly, in this class action plaintiffs asserted three causes of action, under ERISA Sections 502(a)(1)(B), 510, and 502(a)(3), for benefits, retaliation, and breach of fiduciary duty.

When this suit was originally filed, the parties mutually agreed to have a magistrate judge preside over it and resolve the case. However, after the magistrate certified the class, Northrop had a change of heart. “[O]nce the suit was certified as a class action (on behalf of all laid-off employees who did not receive a HR Memo), and the stakes multiplied, Northrop Grumman asked the district judge to resume control. The judge obliged.”

Northrop’s strategy paid off. The district judge granted summary judgment in favor of Northrop, holding that the plan language granted the HR Department the discretion to selectively pick which employees, if any, would receive severance benefits upon termination. Moreover, the court agreed with Northrop that the plan language required participants to be designated as eligible for the plan by the HR Department and that receipt of the HR Memo was required to be eligible for benefits. Finally, the court found that ERISA does not prevent any welfare benefit plan from selectively determining recipients.

The plaintiffs appealed to the Seventh Circuit, which in this published decision affirmed the district court’s rulings in their entirety.

As an initial matter, the Seventh Circuit disagreed with plaintiffs that the district court’s decision to take over the case from the magistrate was an abuse of discretion. The Seventh Circuit agreed that class certification qualified as “good cause” to rescind the previously agreed-upon assignment. “We do not see any abuse of discretion. Class certification complicated and prolonged the litigation…Withdrawing a reference in order to make a simple legal decision that ends the suit has much to be said for it.” The Seventh Circuit stated that it made no difference who resolved the suit at the district court level because the “meaning of the Plan – like the meaning of ERISA – is a question of law.”

With that preliminary matter settled, the court proceeded to the merits of plaintiffs’ claims, “which do not require extended discussion.” The court held simply that plaintiffs’ claims failed because the plan made the receipt of severance benefits contingent on receipt of the HR Memo. Because plaintiffs and the other members of the class did not get an HR Memo, they were not eligible for benefits. And even assuming Northrop’s actions were self-serving, the Seventh Circuit stated that “the terms of welfare-benefit plans are entirely in the control of the entities that establish them. When making design decisions, employers may act in their own interests.” Given the discretionary authority spelled out in the plan, the Seventh Circuit found Northrop was acting well within its powers to pick and choose who received severance benefits.

The Seventh Circuit further ruled that Northrop’s alleged past actions in which it sent automatic HR Memos to all laid-off employees were irrelevant. “A person possessing discretion may change the way that discretion is exercised. So even if Northrop Grumman had announced the universal-severance-benefits norm that plaintiffs believe it had until October 2011, this would not prevent it from changing that approach.” Along these same lines, the Seventh Circuit concluded that past behavior did not create legal entitlement to the benefits and that “[r]ights under ERISA are not subject to estoppel[.]”

In sum, the appeals court concluded that the plaintiffs never qualified for benefits under the severance plan and thus they could not prevail on any of their ERISA claims. For these reasons the judgment of the district court was affirmed.

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

Arbitration

Eighth Circuit

Hursh et al. v. DST Sys., No. 4:21-9184-NKL, 2023 WL 3331799 (W.D. Mo. May. 8, 2023) (Judge Nanette K. Laughrey). Longtime readers of Your ERISA Watch may remember a series of decisions we summarized in 2021 and 2022 in which this court confirmed arbitration awards won by participants of DST Systems, Inc.’s 401(k) profit sharing plan arising from DST’s failure to monitor or rebalance the plan’s overly concentrated investments in a single stock. DST attempted to thwart confirmation of these awards at every step of the way. First, it attempted to transfer these cases to the Southern District of New York, arguing that the plaintiffs should be part of a mandatory class certified in New York. The court denied the motion to transfer, and, as stated above, approved the arbitration awards under the Federal Arbitration Act. DST then appealed these decisions to the Eighth Circuit. There, DST found some success. The arbitration awards were vacated. The Circuit Court concluded that the district court lacked federal question subject matter jurisdiction because the plaintiffs were seeking relief under an arbitration agreement, meaning their motions to confirm these awards did not implicate ERISA without a “look-through” approach, which is considered impermissible in the Eighth Circuit. The appeals court then remanded to the district court with instructions to determine whether it had diversity jurisdiction over each arbitration award by applying a case-by-case analysis. On remand from the Eighth Circuit this court entered a judgment confirming arbitration awards in favor of 55 plaintiffs over which it found it had diversity jurisdiction. These awards included attorneys’ fees, costs, and expenses. Now, the New York class action has reared its head once again. This time DST is attempting a workaround to this court’s judgments by settling the class action in New York under terms which would deprive the plaintiffs here of their judgments. Specifically, if approved, the settlement would eliminate the award of fees and costs, which is substantial, as the court pointed out, “the attorneys’ fees awards in the 55 judgments combined are almost twice as high as the damages awards combined.” In response, the court issued a preliminary injunction against DST to protect its judgments and enjoined DST or the attorneys acting on its behalf from entering into an agreement “that settles, disposes of, interferes with, invalidates…or otherwise compromises each such judgment, without the express written consent of each Confirmation Plaintiff in whose favor judgment was entered by this Court.” DST subsequently filed a motion to stay the injunction. An oral argument was held on the topic, after which the court issued this order denying DST’s motion. It concluded that DST failed to demonstrate any irreparable harm absent a stay, while the confirmation plaintiffs would be substantially injured if the injunction were to be stayed. The court held that DST’s intent was to deprive the court of jurisdiction over the cases despite its previous decision denying DST’s motion to transfer the cases. “Indeed, DST’s position that a lawyer, appointed by a court to represent a class, can give away a class member’s judgment to achieve class-wide settlement is both novel, and frankly, shocking to this Court.” Finally, it was the court’s position that allowing DST to strip a substantial portion of the value of plaintiff’s judgment in this way “would undermine public confidence in the predictability and reliability of the judicial system. Further…to allow DST to ignore orders of this Court would bless forum-shopping and undermine the Federal Arbitration Act and the judiciary’s role in enforcing arbitration agreements and awards.” Accordingly, the court would not sign off on DST’s proposed course of action and thus left its injunction in place.

Breach of Fiduciary Duty

Seventh Circuit

Su v. Johnson, No. 22-2204, __ F. 4th __, 2023 WL 3335733 (7th Cir. May. 10, 2023) (Before Circuit Judges Hamilton, Brennan, and Kirsch). The Secretary of Labor commenced this civil enforcement lawsuit against two ERISA fiduciaries, Shirley T. Sherrod and Leroy Johnson, for breaches of their fiduciary duties. In essence the Secretary argued that through a series of self-dealing transactions “Sherrod gave herself the keys to the bank vault, and Johnson let her use them,” including by paying a quarter of a million dollar bond from plan assets in a state lawsuit and through 123 individual transactions in which Ms. Sherrod withdrew $825,000 in plan assets over a five-year period. The district court granted judgment in favor of the Secretary and entered a permanent injunction against the defendants to remove them as fiduciaries. Additionally, the district court appointed an independent fiduciary to terminate the plan, evaluate all previous distributions and transactions, and to issue distributions to the eligible participants and beneficiaries. Defendants appealed. In this order the Seventh Circuit affirmed. Simply put, the court of appeals concluded that the undisputed facts proved that the defendants were plan fiduciaries, that they breached their duties of care, loyalty, prudence, and to act in accordance with plan documents, and that these breaches caused harm to the plan. Moreover, the Seventh Circuit stated that the district court was well within its powers in awarding the injunctive relief it did, stating that defendants “are fortunate that the relief against them has thus far been relatively modest.” Finally, the Circuit Court concluded that the district court’s denial of defendants’ motion for leave to amend to bring a statute of limitations argument was not a reversible error. It held that the Secretary did not have actual knowledge of the breaches at issue that would have triggered the three-year statute of limitations and that defendants’ documents in support of their position did not prove otherwise. Accordingly, the district court’s grant of summary judgment and the equitable relief it awarded were affirmed.

ERISA Preemption

Sixth Circuit

Lawrence E. Moon Funeral Home v. Metropolitan Life Ins. Co., No. 22-13116, 2023 WL 3431226 (E.D. Mich. May. 12, 2023) (Judge Judith E. Levy). The Lawrence E. Moon Funeral Home sued Metropolitan Life Insurance Company (“MetLife”) in state court seeking payment for funeral services it provided out of proceeds from an ERISA-governed life insurance plan. MetLife removed the action to federal court. It argued that the state law claims were preempted by ERISA. On March 27, 2023, the court ordered MetLife to show cause why this case should not be remanded back to state court for lack of subject matter jurisdiction. MetLife filed its response in opposition to remand, voicing its preemption arguments. However, the court was not persuaded by MetLife’s arguments, concluded in this order that it lacks subject matter jurisdiction, and remanded the case. First, regarding express preemption, the court stated that under Sixth Circuit precedent “preemption under § 1144(a) cannot provide a basis for removal to federal court,” and that MetLife did not meet its burden to overcome the well-pleaded complaint rule. The court stated that preemption was not evident on the face of the complaint itself. “Defendant’s own brief makes clear that § 1144(a) provides the basis for its defense, not the basis of Plaintiffs’ complaint.” Next, the court found that the complaint was not completely preempted by ERISA because the funeral home is not a beneficiary with a colorable claim and therefore would have been unable to assert a cause of action under Section 502(a)(1)(B).  “Moreover, Plaintiffs’ complaint requests that the Court prevent distribution of any proceeds directly to the beneficiaries.” Thus, the court concluded that it lacked jurisdiction over the lawsuit and found that remanding to state court for further proceedings was therefore the appropriate course of action.

Seventh Circuit

King v. King, No. 3:23-CV-355-NJR, 2023 WL 3346974 (S.D. Ill. May. 10, 2023) (Judge Nancy J. Rosenstengel). Following the death of Shaun King, Lincoln National Life Insurance Company distributed benefits from his ERISA group life insurance policy to the named beneficiary, Mr. King’s ex-wife, Angela King. Mr. King’s daughter and the administrator of his estate, Shaunice King, sued both Angela and Lincoln in state court believing the benefit distribution was in direct conflict with the terms of Shaun and Angela’s divorce decree. Shaunice King asserted two causes of action: a claim of unjust enrichment and a claim under Illinois’ Marriage and Dissolution of Marriage Act. Angela and Lincoln removed the action to federal court, arguing the claims against them, which in effect challenge the distribution of life insurance proceeds under an ERISA plan, are preempted by ERISA. In response, Shaunice moved to remand her action back to state court. Defendants then moved to dismiss the action. Both motions were denied in this decision. First, the court agreed with defendants that Shaunice’s claims were preempted under the two-step Davila test. It held that Shaunice was an ERISA beneficiary with a colorable claim for benefits who therefore could have brought her claims under ERISA Section 502(a)(1)(B). Furthermore, it found that both state law claims were premised on the existence of the group life insurance policy and sought proceeds under the policy. Thus, the court stated that no independent legal duty was implicated by Shaunice’s complaint. Nor did the court find that the probate exception applied here as the insurance benefits are not now and never were in the custody of state probate court. For these reasons, the court concluded that ERISA completely preempts Shaunice’s claims and therefore stated that it has jurisdiction over the lawsuit. Accordingly, the court denied the motion to remand. Finally, the court found defendants’ arguments in favor of dismissal to be premature and “better presented and resolved at summary judgment.” Therefore, the court also denied the motion to dismiss.

Medical Benefit Claims

Second Circuit

Tindel v. Excellus Blue Cross & Blue Shield, No. 5:22-cv-971 (BKS/ATB), 2023 WL 3318489 (N.D.N.Y. May. 9, 2023) (Judge Brenda K. Sannes). An ERISA plan beneficiary, Kevin Heffernan, and the two out-of-network orthopedic and neurosurgeons who performed emergency spinal surgery on him, sued Excellus BlueCross & BlueShield asserting claims under ERISA and state law seeking payment of the outstanding 99% of the billed charges which were not paid by the insurance company following the procedure. Defendant moved to dismiss the ERISA causes of action brought by the healthcare provider plaintiffs, and the state law claims brought by all three plaintiffs. First, regarding the healthcare providers, Blue Cross argued that the surgeons lacked standing to bring their claims because the plan contains an anti-assignment provision. To bolster this assertion, Blue Cross attempted to include a document which it claimed was the summary plan description whose terms were incorporated into the ERISA plan. However, the plaintiffs argued that the summary plan descriptions are not themselves the terms of the plan, and they therefore challenged the authenticity and applicability of the document and by extension its anti-assignment clause. In light of this dispute regarding the plan terms, the court declined to consider the document and because it would not consider the outside document and as the complaint itself did not allege the plan contains a provision banning assignments of benefits, the court held that Blue Cross did not meet its burden of demonstrating that the provider’s ERISA claims had to be dismissed for lack of standing. According, the court denied this aspect of Blue Cross’s motion. Nevertheless, the court agreed with Blue Cross that some of plaintiffs’ state law claims were preempted by ERISA as they related to the plan. These causes of action were plaintiffs’ unjust enrichment, breach of contract as intended beneficiaries, and tortious interference claims, all of which were dismissed. However, Plaintiffs were successful in their argument that their claim of breach of implied-in-fact contract involved a “rate of payment” dispute rather than a “right to payment” and that they detrimentally relied on a promise from Blue Cross’s representative that they would be paid for the procedures at the “local usual and customary rates.” Thus, the court found that this claim was not expressly preempted and allowed it to proceed. For these reasons, the motion to dismiss was granted in part and denied in part as described above.

Seventh Circuit

Midthun-Hensen v. Group Health Coop. of S. Cent. Wis., No. 21-cv-608-slc, 2023 WL 3303865 (W.D. Wis. May. 8, 2023) (Magistrate Judge Stephen L. Crocker). Two parents representing their minor daughter who has been diagnosed with Autism Spectrum Disorder filed this putative class action against Group Health Cooperative of South Central Wisconsin, Inc. to challenge its denial of coverage for speech and sensory integration occupation therapies as unproven/experimental treatments. Plaintiffs brought claims for benefits under Section 502(a)(1)(B), a claim under the Mental Health Parity and Addiction Equity Act, and a claim for violation of a Wisconsin state law mandating health insurance providers provide coverage for evidence-based Autism treatments. Group Health moved for summary judgment on all claims. Its motion was granted in this decision. Beginning with the benefits claims, the court held that the denials were not an abuse of discretion and were supported by substantial evidence. Specifically, although the guidelines Group Health relied on at the time of the denial have all since been modified and updated to hold that the treatments at issue are evidenced-based and generally accepted standards of care, the court wrote that “plaintiffs fail[ed] to show that GHC abused its discretion or acted downright unreasonably in determining that the line between experimental and generally accepted had not yet been crossed at the time of the challenged denials in this case.” Thus, under deferential review, the court granted summary judgment to Group Health on all of plaintiffs’ claims asserted under § 1132(a)(1)(B). Having made this determination, the court then moved on to its discussion of the Parity Act claim. Plaintiffs claimed that Group Health applied more stringent limitations regarding non-experimental treatments in the context of Autism treatments than it did for physical chiropractic care. Although the court acknowledged that there was a disparity in coverage for some of the mental health treatments as opposed to the chiropractic treatments, it found that they “arose not from GHC applying a more restrictive strategy or process to mental health benefits, but from a difference in the status of acceptance of those treatments by the medical community at large.” Accordingly, the court held that Group Health had not violated the Mental Health Parity and Addiction Equity Act. Finally, plaintiffs’ state law claim failed for the same reasons as their denials for benefits, i.e., that at the time of the denials there was not a medical consensus that the treatments at issue were considered evidence-based services. For these reasons, Group Health’s summary judgment motion was fully granted.

Pension Benefit Claims

D.C. Circuit

Ljubicic v. Int’l Bhd. of Elec. Workers, No. 22-7124, __ F. App’x __, 2023 WL 3295539 (D.C. Cir. May. 8, 2023) (Before Circuit Judges Millett, Wilkins, and Katsas). An ERISA claimant, Ante Ljubicic, sued the International Brotherhood of Electrical Workers after his claim for pension benefits was denied when the plan trustees determined that Mr. Ljubicic was engaged in disqualifying employment that precluded him from receiving retirement benefits. The district court granted judgment to the union. It concluded that the denial of the application for pension benefits was supported by substantial evidence and that Mr. Ljubicic was afforded a full and fair review process as required under ERISA’s provisions. Mr. Ljubicic appealed the district court’s adverse decision. In this order the D.C. Circuit Court affirmed the district court’s order granting summary judgment to the union. First, the appeals court stated that Mr. Ljubicic forfeited his ability to raise any argument regarding his fraudulent misrepresentation claim because he had failed to do so in his briefs. Second, the court of appeals agreed with the lower court that Mr. Ljubicic could not succeed on his claim for benefits, as well as with its conclusion “that the denial of his application for pension benefits was the result of deliberate and reasoned process and supported by substantial evidence.” Finally, the Circuit Court rejected Mr. Ljubicic’s position that the district court erred by declining to consider materials beyond those presented to the plan administrators at the time they conducted their review. 

Pleading Issues & Procedure

Eleventh Circuit

Schramm v. Metropolitan Life Ins. Co., No. 5:23-cv-163-JSM-PRL, 2023 WL 3320086 (M.D. Fla. May. 9, 2023) (Magistrate Judge Philip R. Lammens). Plaintiff Charles Schramm brought this long-term disability benefit action against Metropolitan Life Insurance Company on March 9, 2023. Less than two months later, he moved to seal his complaint, arguing that he is not comfortable with his private health information being made public in this lawsuit. The court denied the motion to seal in this decision. It found that Mr. Schramm’s wish for medical privacy was not a compelling justification to grant the motion. “By filing this action seeking an award of long-term disability benefits, Plaintiff has placed his own medical condition squarely at issue. ‘Courts have routinely held that, by putting one’s medical condition at issue in a lawsuit, a plaintiff waives any privilege to which he may have otherwise been entitled as to his privacy interests in his medical records.’”

Salim v. Louisiana Health Serv. & Indem. Co., No. 22-30573, __ F. App’x __, 2023 WL 3222804 (5th Cir. May. 3, 2023) (Before Circuit Judges Higginbotham, Southwick, and Willett)

The three words no patient ever wants to hear from his or her health insurer are “not medically necessary.” These words can turn a lifesaving medical procedure into a financial nightmare, especially when the treatment at issue involves specialists and equipment costing thousands of dollars.

This is what happened to plaintiff Robert Salim, who was diagnosed with advanced throat cancer in September of 2018. Mr. Salim’s physicians at the M.D. Anderson Cancer Center in Houston advised him that he should undergo proton beam radiation therapy, and they submitted a preauthorization request for this treatment to defendant Louisiana Health Service & Indemnity Company, better known as Blue Cross & Blue Shield of Louisiana.

A third-party administrator for Blue Cross, AIM Specialty Health, denied the treatment as “not medically necessary.” AIM “reasoned that Salim had no history of cancer, and that proton therapy is used only ‘when the same area has been radiated before.’” AIM then denied Salim’s request for reconsideration as well, citing only one source: the “clinical appropriateness guideline titled Radiation Oncology: Proton Beam Therapy.”

Salim appealed to Blue Cross without success. Blue Cross, relying on the same guideline, stated, “proton beam radiation therapy is not considered medically necessary in adult patients with head and neck cancer.”

Salim submitted a second-level appeal, and in support of that appeal Dr. Clifton Fuller, Salim’s oncologist, pointed out three problems in the guideline on which AIM and Blue Cross had relied.

First, Dr. Fuller noted that the guideline used an “outdated and superseded policy issued by the American Society for Radiation Oncology.” Dr. Fuller informed Blue Cross that the ASTRO policy had actually been updated “to specifically include proton beam therapy as both appropriate and medically necessary for exactly Mr. Salim’s diagnosis, advanced head and neck cancer.”

Second, Dr. Fuller noted that the guideline “glaringly omitted” reference to another source, the National Comprehensive Cancer Network Head and Neck Guidelines. Dr. Fuller pointed out that Blue Cross relied on NCCN recommendations for other diseases and thus questioned why they did not rely on them in this case.

Finally, Dr. Fuller observed that “the Guideline cited only three articles related to head and neck cancer, and that all three ‘specifically endorse the use of proton therapy’ for head and neck cancer.”

Dr. Fuller then went on to explain why proton beam therapy was appropriate and medically necessary for Mr. Salim. In doing so he cited over a dozen evidence-based publications and explained that the ASTRO and NCCN policies “consider proton beam therapy the standard of care.”

Blue Cross referred Mr. Salim’s appeal to a third-party reviewer, which was not impressed by Dr. Fuller’s arguments. It denied Mr. Salim’s second-level appeal, arguing that “most investigators recommend additional study…before adopting [proton therapy] as a standard treatment option for patients with head and neck cancer.” The reviewer also stated that the ASTRO and NCCN policies only support proton therapy for head and neck cancer when the patient has “a lesion with significant involvement of structures at the skull base,” which Mr. Salim did not have.

Despite these denials, Salim proceeded with the recommended proton beam therapy and then sued Blue Cross for failure to pay plan benefits under ERISA.

Even though Mr. Salim’s benefit plan gave Blue Cross full discretionary authority to make benefit determinations, which obligated the court to review Blue Cross’ denial of coverage under the lenient abuse of discretion standard of review, the district court still ruled for Mr. Salim. The district court found that “substantial evidence does not support [Blue Cross]’ finding that [proton therapy] was not medically necessary for treatment of Salim’s cancer.” Thus, Blue Cross “abused its discretion in denying coverage.”

Blue Cross appealed to the Fifth Circuit, raising two issues. First, Blue Cross argued that the district court improperly treated the medical necessity of proton beam therapy as a factual question rather than a legal one. Second, Blue Cross contended that substantial evidence supported its decision.

The Fifth Circuit made short work of both arguments. First, the court distinguished between disputes over a plan’s meaning and those over a plan’s application. Here, the parties agreed about what the plan said, and thus their only dispute involved the application of those plan terms. The only question before the court was “whether proton therapy was medically necessary to treat Salim’s cancer,” which “involves a review of the facts.” Thus, the district court correctly treated the medical necessity decision as a factual question, not a legal one.

On the second issue, the Fifth Circuit upheld the district court’s decision that substantial evidence did not support Blue Cross’ adverse benefit decision. The court noted that Blue Cross had relied on only one guideline for denying coverage, which cited the ASTRO policy. However, as Dr. Fuller pointed out, the ASTRO policy had been specifically updated to include cancers such as the one afflicting Mr. Salim. The court explained that Blue Cross might have the “discretion to ignore ASTRO altogether. But it does not have discretion to deny Salim’s claim by attributing to ASTRO a view that ASTRO does not hold.”

The court was also unimpressed by the third-party review of Mr. Salim’s second-level appeal. According to the court, that review made generic arguments that did not address Dr. Fuller’s points or the specific needs of Mr. Salim. Furthermore, the review misinterpreted the ASTRO and NCCN policies and failed to “address the full range of diagnoses” discussed in them.

In short, “The district court used the correct standard of review, and it correctly held that Blue Cross abused its discretion by denying coverage even when substantial evidence did not support that decision.” Thus, the ruling in Mr. Salim’s favor was affirmed in its entirety, proving that there are some medical necessity denials so unreasonable that they cannot even survive deferential review in the insurer-friendly Fifth Circuit.

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

Class Actions

Ninth Circuit

Gotta v. Stantec Consulting Servs., No. CV-20-01865-PHX-GMS, 2023 WL 3205526 (D. Ariz. May. 2, 2023) (Judge G. Murray Snow). Two former employees of Stantec Consulting Services and participants of the Stantec 401(k) Plan moved to certify a class of similarly situated participants and beneficiaries in this breach of fiduciary duty class action lawsuit. Meanwhile, defendants moved for partial summary judgment on plaintiffs’ request for prospective injunctive relief. They argued that plaintiffs lacked standing to pursue this claim because they are no longer plan participants. It appeared that neither party opposed the other’s motion, and thus the court granted both. To begin, the court concluded that the putative class satisfied all of the requirements of Rule 23. The class contains 10,639 members, which the court stated easily satisfies the numerosity requirement of Rule 23(a). Additionally, the court found “Plaintiff’s claims are virtually the same for every member of the class as the allegations of fiduciary mismanagement would apply in roughly the same way to every class member.” Furthermore, the focus of the case centers on the conduct of the defendants, rather than any individual actions taken by plan members, meaning the court also concluded that typicality was satisfied. The last requirement of Rule 23(a), adequacy, was met too, with the court finding that plaintiffs and their counsel were competent to act on behalf of the class members and had no conflicts of interest. Moreover, for these same reasons the court held that the two named plaintiffs would fairly and adequately protect the interests of the class and appointed them as class representatives. Turning to Rule 23(b), the court found that plaintiffs met their burden of demonstrating that ERISA breach of fiduciary duty claims like theirs are properly certified in the Ninth Circuit under Rule 23(b)(1)(A). Finally, the court appointed Edelson Lechtzin LLP and McKay Law LLC as class counsel, satisfied they met Rule 23(g)’s requirements as they are experienced ERISA practitioners and because both firms have each “secured million-dollar settlements on ERISA claims.” Accordingly, plaintiffs’ motion was granted. The court then transitioned to assessing defendants’ motion for partial summary judgment. As stated earlier, plaintiffs did not oppose the motion and voiced that they did “not intend to seek prospective injunctive relief on behalf of the Stantec 401(k) Plan.” As a result, the court granted the motion.

Disability Benefit Claims

Ninth Circuit

Goodman v. First Unum Life Ins. Co., No. 2:21-cv-00902-BJR, 2023 WL 3224481 (W.D. Wash. May. 3, 2023) (Judge Barbara Jacobs Rothstein). Plaintiff Tanya Goodman brought this ERISA action against First Unum Life Insurance Company seeking a court order requiring the insurer to reinstate her long-term disability benefits which she was receiving for physical, cognitive, and visual impairment symptoms caused by post-concussion syndrome trigged by a car accident. Ms. Goodman asserted two causes of action against Unum, a claim for benefits under Section 502(a)(1)(B) and a claim for equitable relief under Section 502(a)(3) for violation of plan terms and claims-handling practices which she alleged were a breach of Unum’s fiduciary duties. The parties cross-moved for judgment on the record under Federal Rule of Civil Procedure 52. Ms. Goodman additionally moved to supplement the record to include a decision by an administrative law judge at the Social Security Administration granting her Social Security disability benefits. First, the court granted Ms. Goodman’s motion to expand the record with her SSA benefit award. The decision was not issued until after the administrative record was already filed, so it could not have been included in it. Nevertheless, the court stated that it was relevant to its analysis of Unum’s adverse benefit decision as it speaks to issues “of complex medical questions regarding the credibility of medical experts.” Accordingly, the court included the document in the record. Second, the court conducted its de novo review of the medical record, and held that Ms. Goodman was disabled from performing the material duties of her executive leadership role as the Vice President Group Account Director for Aegis Media Americas, Inc. The totality of Ms. Goodman’s symptoms including her cognitive and visual impairments convinced the court that she would not be able to perform the prolonged visual tasks of reading, writing, and computer use, and that she currently lacks the cognitive concentration skills required for her high-level position. Furthermore, the court rejected Unum’s conclusion that Ms. Goodman was disabled from a mental illness, finding the evidence in the record did not establish or support this position. Therefore, the court concluded that Ms. Goodman met her burden to establish by a preponderance of evidence that she was disabled under the plan terms at the time of the termination and granted summary judgment to her on her benefit claim. However, Unum’s denial only considered whether Ms. Goodman was disabled from her own occupation, and thus Unum has never made a determination under the now-applicable “any occupation” standard. Therefore, the court remanded the issue back to Unum to decide whether to extend benefits to Ms. Goodman beyond the regular occupation period into the any occupation period. Finally, the court denied summary judgment to Ms. Goodman on her claim asserted under Section 502(a)(3), ERISA’s “catchall” provision, holding that under Ninth Circuit precedent “a claimant may not bring a claim for denial of benefits under § 1132(a)(3) when a claim under § 1132(a)(1)(B) will afford adequate relief.” As a result, the court was unwilling to award duplicative relief. It also held that to the extent the breach of fiduciary duty claim was independent of the benefit claim, Ms. Goodman did not meet her burden to prove that Unum’s procedures or the actions it took handling her claim were unsuitable under ERISA.

ERISA Preemption

Fourth Circuit

Riley v. Am. Elec. Power Serv. Corp., No. Civil Action 2:22-cv-00577, 2023 WL 3184318 (S.D. W. Va. May. 1, 2023) (Judge Thomas E. Johnston). Plaintiff Sherry Ray Riley sued American Electric Power Service Corporation, Empower Retirement, LLC, the estate of her late ex-husband Roger Allen Riley, and Roger’s daughter, Miranda Riley, in state court asserting state law causes of action seeking payment of benefits under the decedent’s two ERISA-governed retirement plans, to which she claims to be the named beneficiary. Defendants removed the action to the federal judicial system, and subsequently moved to dismiss the complaint for failure to state a claim. Specifically, they argued that the state law claims are preempted by ERISA. The court agreed and granted the motion to dismiss in this decision. The court stated that plaintiff’s complaint was undoubtedly seeking payment of benefits under ERISA plans, making this a clear-cut case of state law claims falling under the umbrella of ERISA preemption. This was true as Ms. Riley’s claims could not be resolved without relying on the terms of the plan and are naturally premised on the existence of the plans. Therefore, the court decided that the complaint as currently pled falls within the scope of ERISA preemption. However, the court dismissed the complaint without prejudice leaving the door open for Ms. Riley to reassert her lawsuit as ERISA action.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Rozier v. Prudential Ins. Co. of Am., No. 1:19-CV-00577, 2023 WL 3214645 (W.D. La. May. 2, 2023) (Judge Robert R. Summerhays). Plaintiff Judith Ann Huthnance Rozier sued her late husband’s former corporate partner, Malcolm Dale Harrington, and the insurance company of the decedent’s group life insurance policy, Prudential Insurance Company of America, after she was denied benefits under his ERISA plan. Prudential had identified Mr. Harrington as the beneficiary of the policy on a copy of a 1984 enrollment card, apparently executed and signed by Mr. Rozier. Ms. Rozier maintained that her husband did not designate his business partner as his beneficiary and that the signature on the card was not her husband’s signature. This action proceeded to a bench trial on November 7, 2022. In this decision, the court concluded that a preponderance of evidence, including expert handwriting testimony during the bench trial, proved that the beneficiary designation was valid and authentic. Additionally, the court found that the record did not reflect any credible evidence that the beneficiary designation was a mistake on the part of Mr. Rozier. “There is no evidence of any agreement between Rozier and Harrington as to the beneficiary designation; nor is there evidence that the parties contemplated how a partner’s withdrawal from the partnership would affect a beneficiary designation.” Accordingly, the court followed ERISA’s principle of enforcing the plain language of the plan beneficiary designation form. Thus, Ms. Rozier’s action ultimately fell “by the terms of the plan,” which named someone else as the designated beneficiary. As a result, the court ruled that Ms. Rozier failed to prove her claims and therefore entered judgment against her.

Metropolitan Life Ins. Co. v. Muecke, No. 22-01029, 2023 WL 3261599 (W.D. La. May. 4, 2023) (Judge Donald E. Walter). Joe Nickle died on August 14, 2021. After Mr. Nickle’s death, his life insurance benefits under an ERISA-governed life insurance plan became payable. Two claimants came forward: the named beneficiary, Mr. Nickle’s girlfriend, Deanne Muecke, and Mr. Nickle’s son, Cameron Nickle, who argued that the beneficiary designation was the product of fraud or coercion. Faced with these competing claims, Metropolitan Life Insurance Company commenced this interpleader action to determine the proper beneficiary. Defendant Nickle moved for summary judgment, which defendant Muecke opposed. Mr. Nickle argued that Ms. Muecke failed to present evidence that she is a valid beneficiary under the plan because the letter she presented showing her as the named beneficiary was not a designation form and was not signed or dated by the decedent. The court denied the summary judgment motion in this order. It found that Mr. Nickle’s motion was not only untimely, but also that he did not attach the document he relied on to his motion or direct the court to it in the record. Therefore, while the court stated that Mr. Nickle may ultimately be correct that the document designating Ms. Muecke is insufficient to show that she is the beneficiary of the plan, “the Court is in no position to make that determination without the benefit of the document.” Thus, the court found this to be a genuine issue of material fact precluding an award of summary judgment to Mr. Nickle.

Pension Benefit Claims

Second Circuit

Purcell v. Scient Fed. Credit Union Split Dollar Agreement Plan, No. 3:22-CV-961 (SVN), 2023 WL 3259985 (D. Conn. May. 4, 2023) (Judge Sarala V. Nagala). Plaintiff David Purcell was fired as the Chief Executive Officer of Scient Federal Credit Union (“SFCU”) on March 16, 2020, when he was informed that his employer was “going in a different direction.” Mr. Purcell believed that the reason that SFCU provided for his termination was a pretext and that he was in fact being terminated due to his disability from Parkinson’s Disease, which his employer knew about. Accordingly, Mr. Purcell submitted a claim for 100% vested benefits in the Annual Borrowing Cap of the Scient Federal Credit Union Split Dollar Agreement Plan, to which he claimed he was entitled if terminated due to a disability. In his notice of claim, Mr. Purcell asserted that SFCU had breached its fiduciary duties to him by denying him full benefits under the plan and failing to implement the loan interest rate deduction that had been previously approved by the compensation committee, which he claims would have protected his benefits under the plan. Defendants, the plan and its administrator, refused to provide Mr. Purcell with the benefits he sought. Mr. Purcell maintains that defendants never sent him an official denial letter as required under ERISA regulations. Mr. Purcell then commenced this action alleging defendants violated ERISA Sections 502(a)(1)(B) and (a)(3). In response, defendants asserted two counterclaims against Mr. Purcell on behalf of SFCU. The first counterclaim alleged that Mr. Purcell breached the implied covenant of good faith and fair dealing in relation to his employment agreement with the company because he failed to disclose that he was unable to perform his job prior to termination. The second counterclaim alleged that Mr. Purcell’s failure to disclose this information similarly breached the fiduciary duties he owed to SFCU as its CEO. Defendants then moved to expand discovery beyond the administrative record, and Mr. Purcell moved to dismiss the two counterclaims asserted against him. The court first addressed Mr. Purcell’s motion to dismiss. It granted the motion, finding that SFCU’s counterclaims violated Federal Rule of Civil Procedure 13 because they were brought in the company’s capacity as Mr. Purcell’s former employer, even though it was only sued in its capacity as plan administrator. Accordingly, the court concluded that the counterclaims violated the opposing party requirement of Rule 13, and that they did not fall under any exceptions to the rule. Specifically, the court held that recovery based on the counterclaims would benefit SFCU only in its role as employer and not in its capacity as fiduciary of the ERISA plan. The court also concluded that the topics discussed in the complaint and the counterclaims were predominantly distinct meaning that equity and judicial economy did not mandate the counterclaims be tried in this lawsuit. For these reasons, the counterclaims were dismissed. The court then addressed defendants’ motion to expand discovery beyond the administrative record. They argued that Mr. Purcell raised allegations in his complaint on topics pertaining to his symptoms from his illness and his job performance that were not addressed in the administrative record. The court acknowledged that this presented a novel situation in which a plan and its administrator were seeking to expand the record rather than a claimant moving to do so. However, operating under the assumption that the standard for permitting additional discovery remains the same regardless of which party requests it, the court concluded that defendants could not demonstrate good cause to expand the record. To the contrary, the court pointed out that defendants had ample opportunity to develop the record. Nor could they claim, the court found, that the issues relating to Mr. Purcell’s illness were only brought into focus once the lawsuit was filed. The court stated that Mr. Purcell made abundantly clear when filing his claim for benefits that he believed his termination was a pretext to deny him additional benefits due to his disability. Therefore, defendants were not allowed to expand the record they were responsible for creating, and their motion to do so was denied.

Ninth Circuit

Munger v. Intel Corp., No. 3:22-cv-00263-HZ, 2023 WL 3260034 (D. Or. May. 3, 2023) (Judge Marco A. Hernandez). Plaintiff Ruth Ann Munger, acting on behalf of the Estate of Philip Cloud, brought this action seeking Philip Cloud’s ERISA plan benefits under five retirement plans offered by his former employer, the Intel Corporation, on the grounds that Oregon and federal law prohibit slayers from profiting from their crimes. Mr. Cloud’s named beneficiary, his wife Tracy Cloud, was convicted by a Washington County jury of second degree murder for killing Mr. Cloud. Ms. Cloud is currently appealing her conviction and her appeal remains pending before the Oregon Court of Appeals. This lawsuit was stayed until the completion of either Ms. Cloud’s criminal appeal or the conclusion of the state court wrongful-death proceedings also brought by Ms. Munger, which sought an order finding Ms. Cloud a slayer. On January 20, 2023, the state court adjudicated Cloud a slayer and found her liable for the wrongful death of Philip Cloud. This court then lifted its stay. Ms. Munger reinstated two motions she had filed with the court prior to the stay, a motion for summary judgment and a motion to strike Ms. Cloud’s declaration and surresponse to the summary judgment motion. The court granted both motions in this decision. First, the court stated that under Ninth Circuit precedent Ms. Cloud could not use the protections of the Fifth Amendment against self-incrimination to avoid a deposition under oath or selectively waive privilege in various declarations and discovery documents. “The Court finds Cloud may not invoke the Fifth Amendment privilege as a shield to oppose depositions while discarding it for the limited purpose of making statements to oppose summary judgment. The Court, therefore, grants Plaintiff’s requests to strike.” Next, the court found that the jury’s unanimous finding of Ms. Cloud’s guilt was a fully litigated issue during a full and fair proceeding under a heavier burden of proof than in this civil action. Therefore, the court applied collateral estoppel to bar Ms. Cloud from relitigating in this action whether she murdered her husband. Accordingly, the court concluded that Ms. Cloud was precluded from receiving the benefits under the five ERISA plans. Ms. Munger’s summary judgment motion was thus granted.

Provider Claims

Third Circuit

Abramson v. Aetna Life Ins. Co., No. 2:22-cv-05092 (BRM) (CLW), 2023 WL 3199198 (D.N.J. May. 2, 2023) (Judge Brian R. Martinotti). An out-of-network surgeon, Dr. David L. Abramson, M.D., sued a claims administrator and fiduciary of an ERISA plan, Aetna Life Insurance Company, under ERISA Section 502(a)(1)(B), after Aetna denied a claim for reimbursement of emergency surgery Mr. Abramson performed on a plan beneficiary. Specifically, the claim was denied for failure to obtain pre-certification. Dr. Abramson and his patient appealed the denial, arguing that pre-authorization was not possible given the emergency circumstances, and that the claim should have been approved under the plan’s emergency exception for out-of-network care. As an assignee, authorized representative, and an attorney-in-fact, Dr. Abramson seeks payment on the patient’s behalf for the unpaid bill of $80,200 for the surgery. Aetna moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Aetna argued that Dr. Abramson lacked standing to bring his claim for benefits because the plan contains a valid anti-assignment provision. In addition, Aetna argued that Dr. Abramson and the plan beneficiary failed to administratively exhaust the appeals process prior to commencing legal action. Finally, Aetna maintained that the complaint failed to state a claim by not plausibly tying the demand for benefits to any specific plan term. In response, Dr. Abramson conceded that the plan contains a provision banning assignments of benefits. However, he nevertheless maintained that he could pursue his claim on behalf of his patient given his status as an attorney-in-fact under Third Circuit precedent. Dr. Abramson also averred that his complaint details that he exhausted administrative remedies prior to bringing his action. Lastly, Dr. Abramson argued that the plan terms requiring payment of claims for emergency out-of-network healthcare require Aetna to pay the claim for benefits. The court addressed standing first. It sided with Dr. Abramson, concluding that Third Circuit case law makes clear that a healthcare provider can function as an attorney-in-fact for a plan beneficiary even in the face of an anti-assignment provision. “The anti-assignment clause in B.H.’s Plan has no more power ‘to strip [Dr. Abramson] of [his] ability to act as [B.H.’s] agent than it does to strip [B.H.] of his interest in his claim.’ This is particularly true in the healthcare context. The Complaint sufficiently alleges that Dr. Abramson is asserting the claim for benefits on B.H.’s behalf; attaches a valid rule-complaint power of attorney; and states the amount B.H. remains responsible for after the alleged emergency services.” In addition, the court agreed with Dr. Abramson that his complaint sufficiently alleged exhaustion of administrative remedies. However, the complaint was found by the court to be flawed on the merits. It was the court’s opinion that the complaint failed to sufficiently identify a plan term supporting the exact amount of damages claimed. While the complaint did cite plan provisions that support the allegations regarding emergency services, the court ultimately found that it did not specify how Aetna was required to pay the amount owed and billed. “Such an allegation is required for Dr. Abramson’s cause of action to be sustained.” Therefore, the court granted the motion to dismiss, but dismissed the complaint without prejudice, granting Dr. Abramson the ability to amend his complaint to address this problem.

Seventh Circuit

OSF Healthcare Sys. v. SEIU Healthcare II Pers. Assistants Health Plan, No. 3:21-cv-50029, 2023 WL 3200256 (N.D. Ill. May. 2, 2023) (Judge Iain D. Johnston). An out-of-network healthcare provider, OSF Healthcare Saint Anthony Medical Center, sued an ERISA healthcare plan, the SEIU Healthcare IL Personal Assistants Health Plan, and its board of trustees, as an authorized representative of a patient and plan participant seeking payment of benefits due for medical services it rendered. Defendants moved to dismiss the complaint. They argued that OSF Healthcare does not have standing to pursue its claims under ERISA because the plan contains a valid anti-assignment clause preventing any third party from bringing ERISA lawsuits. OSF Healthcare responded that it was not acting as an assignee but rather as an authorized representative and that the plan is ambiguous on whether it permits representatives acting on behalf of participants or beneficiaries to bring actions under ERISA. The court turned to Seventh Circuit precedent on the topic. The Seventh Circuit has ruled that because Congress did not expressly include language in ERISA allowing authorized representatives to bring suit under ERISA, courts must read this to mean that Congress did not intend to allow this course of action. Moreover, the court agreed with defendants that the plan’s anti-assignment clause forbids healthcare providers or any other third party from bringing ERISA actions. And although the court admitted that the plan language was less clear regarding the authority of authorized representatives and what actions they may or may not take, it nevertheless concluded that a reading permitting an authorized representative to bring a lawsuit would essentially nullify the terms of the anti-assignment provision. Accordingly, the court would not sanction such a work-around and therefore concluded that OSF Healthcare lacked Article III standing to pursue its claims. Finally, because OSF has already been given three opportunities to replead its claims, the court granted the motion to dismiss with prejudice.

Venue

Ninth Circuit

Protingent, Inc. v. Gustafson-Feis, No. 2:20-cv-01551-TL, 2023 WL 3204598 (W.D. Wash. May. 2, 2023) (Judge Tana Lin). A Washington corporation that self-funds and administers an ERISA health benefits plan, Protingent, Inc., sued one of its plan beneficiaries, Lisa Gustafson-Feis, seeking subrogation and reimbursement of paid medical benefits from money Ms. Gustafson-Feis received from a personal injury claims settlement following a car accident. Ms. Gustafson-Feis moved to transfer the action from the Western District of Washington, where both she and Protingent are located, to the Northern District of New York, the location of the car accident. Protingent opposed transfer and argued that venue is not proper in the Northern District of New York. The court agreed and denied the motion. The court held that there would not be a basis for jurisdiction over Ms. Gustafson-Feis in this action in the district court in New York because both parties and the healthcare plan governing this action are located in Washington. In addition, the court stressed that even if venue were proper in the Northern District of New York, “the convenience of the Parties and the interest of justice weigh against a change of venue.” Thus, this “contractual dispute between the Parties as to whether the terms of the Plan entitle Plaintiff to equitable relief under ERISA to recover a portion of the settlement funds,” will remain in the Western District of Washington.

Mass. Laborers’ Health & Welfare Fund v. Blue Cross Blue Shield of Mass., No. 22-1317, __ F. 4th __, 2023 WL 3069637 (1st Cir. Apr. 25, 2023) (Before Circuit Judges Gelpi, Lynch, and Thompson)

The Massachusetts Health & Welfare Fund, a self-funded multiemployer group health plan, sued its former third-party administrator, Blue Cross & Blue Shield of Massachusetts, after an audit uncovered that Blue Cross had made overpayments of more than $1.4 million in over 5,000 medical claims. These overpayments were usually followed by recoupment efforts which, if successful, resulted in Blue Cross retaining a significant percentage of the recovered amounts as “savings” to the plan. The audit also revealed that, despite negotiated payment rates in its contracts, Blue Cross would “reprice” the amounts it would pay to the medical providers in its networks and pocket the difference.  

Surprisingly, the First Circuit concluded that ERISA’s fiduciary and prohibited transaction provisions did not govern these practices because Blue Cross was not acting as a fiduciary in enriching itself (at the expense of the plan and its participants) in this manner. Even more surprisingly, the court ended its discussion by proclaiming that this result was more in keeping with ERISA’s policies and goals than requiring Blue Cross to act in accordance with ERISA, because affording fiduciary status to Blue Cross would interfere with its cost-saving business model and come at a sharp price to plan participants (who already appear to be paying the price).

But back to the beginning. Following the audit conducted at the Fund’s direction in 2018, the Fund sued Blue Cross in the U.S. District Court for the District of Massachusetts in 2021 under both ERISA and state law. The complaint alleged that the audit uncovered a pattern of Blue Cross overpaying providers, including by repeatedly paying significantly more than the providers billed. The complaint also alleged that Blue Cross engaged in disloyal and self-dealing behavior at the expense of the Fund, principally by retaining wrongful and excessive recovery fees, including when Blue Cross itself caused the overpayments. Among other things, the Fund alleged that Blue Cross increased its recovery percentage fee from 20% to 30% and began imposing a 19% fee on certain purported savings, all without authorization.

Blue Cross moved to dismiss under Federal Rule of Civil Procedure 12(b)(6). The court granted the motion, concluding that Blue Cross was not a fiduciary because it did not exercise discretion in failing to correctly apply the negotiated rates. The district court also held that the working capital account from which Blue Cross paid claims did not constitute an asset of the plan and, in any event, Blue Cross did not exercise sufficient authority or control over this account to be a fiduciary for purposes of the lawsuit. The district court then declined to exercise supplemental jurisdiction over the state law claims and dismissed the entire suit.

The First Circuit agreed. First, the court noted that both the Fund’s administrative services agreement (ASA) with Blue Cross and the summary plan description (SPD) for the plan required Blue Cross to pay providers according to rates it had already negotiated with the providers. Moreover, under the ASA, the Fund retained the authority to review and approve the amounts before Blue Cross would pay the providers. According to the court, the allegations that Blue Cross did not pay its network providers according to these rates “may buttress a claim that [Blue Cross] breached its contractual obligation under the ASA and SPD to price claims according to its negotiated schedules, but they do not support an inference that [Blue Cross] had discretion on whether to do so.”

With respect to the Fund’s claims that Blue Cross exercised discretionary medical judgment in repricing the claims, the court reasoned that “[m]ost of the factual allegations presented by the Fund in its complaint, however, do not reflect an exercise of significant medical judgment” by Blue Cross. The court concluded that the Fund failed to allege fiduciary status because the complaint alleged that Blue Cross “failed to reach the ‘correct’ outcome when pricing claims, not that it had the discretion to reach different conclusions.” 

The court applied the same reasoning with respect to the Fund’s argument that Blue Cross acted as a fiduciary when recovering and settling overpayments. In other words, the court concluded that the Fund was alleging that Blue Cross was violating contractual obligations in taking these actions, not that it had discretionary authority to do so. The one exception to this was the Fund’s allegation that Blue Cross exercised discretion in deciding whether to apply one or two-day rates in some instances and whether and how to settle these claims. But the court concluded that the Fund failed to allege that these actions involved plan management by Blue Cross. Pointing to a Department of Labor interpretive bulletin explaining that a person who performs certain ministerial functions under a framework made by others is not acting as a fiduciary, the court concluded that the Fund itself created in the ASA the framework mandating that Blue Cross apply its provider rates and specifying in detail how Blue Cross should pursue recoveries and settlements.

The court likewise rejected the Fund’s argument that Blue Cross was acting as a fiduciary because the Fund sent working capital on a weekly basis to Blue Cross with which to pay claims, and this working capital constituted a plan asset over which Blue Cross had authority and control. The court declined to resolve the parties’ dispute as to whether the working capital constituted a plan asset. Furthermore, the court conceded that, under the plain terms of ERISA, “‘discretionary’ control or authority is not required with respect to the management or disposition of plan assets.” 

Nevertheless, the court held that mere physical control over plan assets does not equate to “exercis[ing]…authority or control respecting management or disposition of [plan] assets”  within the meaning of ERISA’s definition of fiduciary. The court then determined that the repricing of the claims was not itself an exercise of authority over plan assets because it was “was separate from and antecedent to the act of payment.” And with respect to the actual payment of claims to the providers, the court found that the Fund “failed to plausibly allege that [Blue Cross] exercised any authority or control over the payment process beyond the ‘mere exercise of physical control or the performance of mechanical administrative tasks.’”

Indeed, the court stressed that “[t]he fact that [Blue Cross] could make claim payments only with the Fund’s authorization, along with the fact that the Fund retained full control over the appeals process, weighs toward finding that [Blue Cross] lacked authority respecting the disposition of the working capital amount.” The court then stated that its holding that Blue Cross was not a fiduciary was a “limited one” tethered to the specific facts as alleged and arguments made by the Fund.

The court concluded by addressing the competing arguments of the two sides and their amici with respect to the “practical implications” of the court’s ruling. The court came out on the Blue Cross side of the equation, concluding that “[i]f [Blue Cross] were required here to adhere to strict fiduciary duties in the interests of individual plans, it arguably would need to restructure its networks and procedures based on the needs of each plan, undermining its ability to act in the overall interest of its book of business” to the likely detriment of plan participants. The court was unpersuaded by the arguments of the Fund and its amici (including the Department of Labor) that finding Blue Cross to be a nonfiduciary would lead to anticompetitive practices that concededly could harm plans and their participants, which it concluded were trumped by statutory language.

Thus, based on ERISA’s far from pellucid statutory definition of fiduciary, the First Circuit allowed Blue Cross to evade fiduciary responsibility to the tune of $1.4 million in plan losses caused by its questionable and unauthorized medical claims pricing and payment practices.

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

Breach of Fiduciary Duty

Ninth Circuit

Beldock v. Microsoft Corp., No. C22-1082JLR, 2023 WL 3058016 (W.D. Wash. Apr. 24, 2023) (Judge James L. Robart). Two plaintiffs on behalf of themselves, the Microsoft Corporation Savings Plus 401(k) Plan, and a proposed class sued Microsoft Corporation, the Board of Trustees of the 401(k) Plan, and its Committee for breaches of fiduciary duties. On February 7, 2023, the court granted defendants’ motion to dismiss the complaint for failure to state a claim. A summary of that decision was included in Your ERISA Watch’s February 15th edition. Since then, plaintiffs have amended their complaint, and defendants have renewed their motion to dismiss. Once again, the court granted the motion to dismiss, but this time with prejudice. The court reaffirmed its earlier conclusion that the underperformance of the challenged Black Rock LifePath Index Funds, the suite of target date funds at the center of this putative class action, is insufficient on its own to create an inference that defendants breached any duty under ERISA. The court stated that plaintiffs “alleged nothing that would ‘tend to exclude the possibility’ that Defendants had reasons consistent with their fiduciary duties to retain the BlackRock TDFs as an investment option in the Plan.” In an attempt to cure the deficiencies the court previously identified, plaintiffs added new metrics from which to compare the challenged suite’s performance. These included S&P Target Date Indices and the Sharpe ratio. Plaintiffs asserted that these new benchmarks provided “further plausible comparators and quantitative metrics that would have provided real-time signals to Defendants of the need to investigate and replace Plan investments.” The court, however, did not agree. Simply adding new measures of investment performance, the court held, was not enough “to raise Plaintiffs’ claim(s) above the level of speculation and into plausibility.” Accordingly, the court dismissed the claims of imprudence and disloyalty, and the derivative claims of failure to monitor, co-fiduciary breaches, and knowing breaches of trust.

Eleventh Circuit

Huang v. Trinet HR III, Inc., No. 8:20-cv-2293-VMC-TGW, 2023 WL 3092626 (M.D. Fla. Apr. 26, 2023) (Judge Virginia M. Hernandez Covington). A class of participants of the TriNet Select 401(k) Plan, a multiple employer plan with more than 1,200 participating employers, challenged the actions of the fiduciaries of the plan in this litigation. They argued that TriNet, Inc., its board of directors, and the plan’s investment committee breached their fiduciary duties under ERISA by selecting costly and poorly performing investment options and by causing the participants to pay excessive recordkeeping expenses. Defendants brought two motions before the court: a Daubert motion to exclude the testimony of plaintiffs’ expert and a motion for summary judgment. The court granted both motions in this decision. First, it agreed with defendants that the testimony of plaintiffs’ expert, Frances Vitagliano, an expert in the field of asset management and plan administration, did not satisfy either the qualification or the reliability requirements under Rule 702. First, regarding qualification, the court relied on Mr. Vitagliano’s replies during cross-examination to conclude that he was not qualified to testify competently on the topic of the plan’s process in soliciting requests for proposals for the plan’s recordkeeping services. Second, the court took issue with the methodology Mr. Vitagliano used to reach his conclusion that the plan’s fees were excessive. Mr. Vitagliano, the court found, did not compare the multiple employer plan to similar multiple employer plans of similar size, and instead provided inapt comparisons of plans with different sizes and structures to the plan at issue. Accordingly, the motion to exclude Mr. Vitagliano’s expert opinion was granted. The court then turned to defendants’ summary judgment motion. On the whole the court found that the uncontroverted evidence demonstrated that defendants’ process was consistent with best fiduciary practices and that the committee regularly engaged in competitive searches for recordkeepers during the class period. Moreover, defendants’ expert offered testimony suggesting that the challenged fees were not excessive and were to the contrary “some of the lowest recordkeeping fees of any (multiple employer plan) in the market.” Finally, regarding plaintiffs’ investment-related theories, the court held that substantial evidence demonstrated that “Defendants prudently monitored the Plan during the class period,” and that plaintiffs offered no compelling evidence to the contrary, effectively abandoning this topic. In fact, plaintiffs “acknowledged that they ‘never submitted an expert report to calculate damages with respect to its investment-related theories,’ and state that they are not seeking damages with respect to their investment-related theories.” For these reasons, defendants were granted summary judgment on all claims.

Disability Benefit Claims

Sixth Circuit

Walker v. Reliance Standard Life Ins. Co., No. 2:22-cv-109, 2023 WL 3066708 (E.D. Tenn. Apr. 24, 2023) (Judge Travis R. McDonough). Plaintiff Kevin Walker brought this action against Reliance Standard Life Insurance Company seeking judicial review of Reliance’s calculation of his long-term disability benefits. The parties agreed that Mr. Walker is disabled under the plan due to symptoms he experiences from post-concussive syndrome. However, Mr. Walker maintains that Reliance miscalculated his benefits by improperly interpreting the plan’s “lump sum payments” provision, a subsection of its “other income benefits” provision, to prorate his benefit payment and offset the amount by a lump sum payment he received from his employer sponsored pension plan over a 60-month period. “Walker contends that Reliance incorrectly interpreted the Plan’s Lump Sum Payments provision-specifically the phrase ‘period of time’…[and] argues that, under the unambiguous terms of the Plan, the offset for other income received as a lump sum should be applied to the time period from his retirement until his death.” The parties cross-moved for summary judgment on this issue. The court granted judgment to Reliance. It concluded that “Walker’s interpretation is contrary to the unambiguous language of the Plan…[which] provides for a fixed, definite length of time – sixty months – if no period of time is given. Any contrary interpretation would render the provision’s application impossible. Prorating requires dividing an amount proportionally over a set number of periods. Reliance could not prorate Walker’s pension payment form the time of his retirement until his death because this time is an unknown length.” Because of this unknown variable, the court concluded that it would be impossible for Reliance to prorate the lump-sum payment, and that it was therefore correct to prorate the pension payment for sixty months, as outlined in the plan. Additionally, the court determined that Mr. Walker’s interpretation was inappropriate because he is only eligible for disability benefits until his retirement age, meaning the lump sum payment could not be prorated after his retirement without making the plan’s offset provisions on retirement benefits and lump sum payments a surplusage. Accordingly, the court affirmed Reliance’s interpretation of the plan and its accompanying calculation of Mr. Walker’s benefits.

Seventh Circuit

Murch v. Sun Life Assurance Co. of Can., No. 20-cv-3900, 2023 WL 3058780 (N.D. Ill. Apr. 24, 2023) (Judge Sharon Johnson Coleman). Plaintiff Trent Murch sued defendant Sun Life Assurance Company of Canada seeking a court order overturning its denial of his application for long-term disability benefits under his ERISA-governed plan. The parties filed cross-motions for summary judgment. The court granted in part Mr. Murch’s motion and denied Sun Life’s motion entirely. Mr. Murch maintained that his physical and cognitive symptoms left him unable to perform the material duties of his work as an attorney. In support of his position, Mr. Murch provided documents from his treating physicians, including his neurologist, family doctor, psychiatrist, neuropsychologist, and sleep medicine specialist. Under the deferential review standard, the court concluded that although the factual record “clearly demonstrates that Murch faces several health issues and the Court recognizes that his ailments have had great impact on his livelihood and wellbeing,” it held that it was ultimately not the role of the court to decide whether Mr. Murch qualifies for disability benefits. Instead, its job was “restricted to determining whether Sun Life’s decision to deny his disability insurance benefits was arbitrary and capricious.” Furthermore, the court stated that it would not consider extraneous materials beyond the administrative record to make this determination. First, the court concluded that Sun Life did not deny the claim because Mr. Murch does not have a definitive diagnosis for his symptoms. The court also disagreed with Mr. Murch that Sun Life disregarded the policy’s “own occupation” disability standard. Nor was it the court’s opinion that Sun Life abused its discretion by failing to undertake a holistic review of Mr. Murch’s claims file. However, these findings favorable to Sun Life were undercut by the court’s conclusion that the insurer had acted arbitrarily and capriciously by disregarding and refusing to credit evidence of Mr. Murch’s psychiatric and cognitive disabilities. The court found that Sun Life failed to fully consider the medical record regarding these impairments, and that its failure to do so deprived Mr. Murch of a full and fair review of his claim. Additionally, the court held that it was unreasonable for Sun Life not to inform Mr. Murch “that it would no longer investigate certain portions of his claim.” Lastly, the court decided that Sun Life’s conflict of interest “justifies a finding that Sun Life’s disregard of Murch’s psychiatric and cognitive complaints was arbitrary and capricious.” Because of this flaw in the claims and review process, the court refused to “uphold Sun Life’s disability determination.” Instead, the court determined that the proper course of action was to remand to Sun Life for reconsideration consistent with this order. Finally, the court declined to award either party summary judgment on the question regarding Mr. Murch’s waiver of premium benefit for life insurance because a genuine issue of material fact on this topic still exists.

Ninth Circuit

Waldrip v. Reliance Standard Life Ins. Co., No. 3:21-cv-05602-JHC, 2023 WL 3090837 (W.D. Wash. Apr. 26, 2023) (Judge John H. Chun). In its findings of fact and conclusions of law and decision on cross-motions under Rule 52 under de novo review, the court concluded that plaintiff Christa Waldrip met her burden to prove that her relapsing/remitting multiple sclerosis and its effects “preclude her from reliability working in a full-time capacity.” The court agreed with Ms. Waldrip that her medical records demonstrate that she was unable to sit for at least four hours a day, that her physical symptoms including gastrointestinal problems, chronic pain, and falling which prevent her from performing even sedentary work, and that her policy does not require “objective” medical evidence rather than “subjective” complaints. Under Ninth Circuit precedent governing ERISA disability benefit cases, such symptoms and findings entitle a claimant to benefits under “any occupation” disability definitions. Therefore, the court concluded that Ms. Waldrip is entitled to continued long-term disability benefits, and judgment was granted in her favor.

Discovery

Sixth Circuit

Sweeney v. Nationwide Mut. Ins. Co., No. 2:20-cv-1569, 2023 WL 3051229 (S.D. Ohio Apr. 24, 2023) (Magistrate Judge Chelsey M. Vascura). In this putative class action, two participants of the Nationwide Mutual Insurance Company defined contribution pension plan seek to represent a class of similarly situated participants and beneficiaries who invested in the Plan’s Guaranteed Investment Fund, its most popular investment vehicle, from 2014 through the date of final judgment in this action. Plaintiffs have sued Nationwide Mutual and its subsidiary Nationwide Life Insurance Company for breaches of fiduciary duties, prohibited transactions, self-dealing, and inurement of plan benefits to the employer. The parties are engaged in a discovery dispute, which led to an informal conference with the court to discuss the disagreement between the parties. Following that conference, plaintiffs subsequently filed a motion to compel discovery. In this order, the court mostly granted plaintiffs’ discovery requests. In their motion, plaintiffs sought further production of documents and interrogatory answers related to (1) compensation received by Nationwide Life in connection with the Guaranteed Investment Fund, including information about the expenses it charges through both direct and indirect avenues; (2) the assets in Nationwide Life’s general account where the Fund assets become pooled together with unrelated assets; and (3) documents and information about defendants’ group annuity contracts with other institutions and retirement plans from which to compare. Defendants opposed the motion to compel. They argued that the requested discovery is not relevant to either plaintiffs’ claims or their defenses in this action. Moreover, defendants argued the production requests were not proportional to the needs of the case. The court broadly disagreed. It wrote that defendants “put the cart before the horse,” regarding their overarching position that “they are not liable, and therefore should not be forced to participate in discovery.” In fact, the court concluded that defendants’ affirmative defenses not only do “not foreclose otherwise permissible discovery,” but actively underscored the relevance of plaintiff’s requested information, including on the topics of the prices paid to defendants and the process by which those amounts were determined. A fee by any other name – here a “consideration” – remains discoverable and relevant, the court found. Thus, the court agreed with plaintiffs that their requests were pertinent to the issues and disputes at hand in this action, and therefore granted their document and interrogatory requests, albeit in narrowed forms, both in terms of timeframe and scope. Defendants were then ordered to supplement their responses to plaintiffs’ discovery requests in the manner outlined by the court under the terms it crafted in this decision.

Iannone v. AutoZone Inc., No. 19-cv-2779-MSN-tmp, 2023 WL 3083436 (W.D. Tenn. Apr. 25, 2023) (Magistrate Judge Tu M. Pham). Participants in the AutoZone 401(k) Plan allege in this action that defendants AutoZone, Inc., members of the AutoZone investment committee, and the investment fiduciaries of the plan breached their duties under ERISA by failing to monitor and control the plan’s fees and to maintain a lineup of adequately performing investment options in the plan’s investment portfolio. Defendants, along with non-parties Willis Towers Watson U.S. LLC, a former investment advisor for the plan, and Prudential Retirement Insurance and Annuity Company, the insurance company receiving the administrative and services fees from the plan, jointly moved to maintain confidentiality of challenged documents. Their motion was granted in part and denied in part in this order. Defendants’ general position was that public disclosure of these documents would put them at a competitive disadvantage. Plaintiffs, on the other hand, maintained that defendants did not meet their burden to overcome the strong presumption in favor of public judicial records, particularly because the documents at issue do not involve trade secrets. The court aligned itself more with defendants’ viewpoint. It agreed that internal communications between defendants and the non-parties, their contracts, invoices, and other reports reflected “proprietary methodology” closely analogous to trade secrets. Should this information be made available to the public, the court agreed that it would increase the risk of competitive harm. This, the court concluded, justified keeping the reports, invoices, contracts, and internal communications sealed. Moreover, the public’s interest in accessing the information, the court stressed, did not outweigh the movants’ potential commercial harm. This was particularly true for the non-parties, according to the court, because they “could not have anticipated that their confidential documents ‘would eventually become matter of public record.’” However, 408b-2 disclosures were not allowed to be sealed because these documents are “subject to mandatory disclosure under ERISA.” Additionally, the court declined to seal the reports of three expert witnesses. The court found that, unlike the documents, the expert reports “do not contain proprietary methodology that resembles a trade secret,” and that no harm to movants’ competitive standing would come from their public availability. Thus, the court sided with the plaintiffs and unsealed the expert reports.

Mercer v. Unum Life Ins. Co. of Am., No. 3:22-CV-00337, 2023 WL 3131989 (M.D. Tenn. Apr. 27, 2023) (Magistrate Judge Alistair E. Newbern). Nurse practitioner Nicole Mercer commenced this action against Unum Life Insurance Company of America and Unum Group to challenge its decision to terminate the long-term disability benefits she was receiving for her autoimmune-related disorders. In her action, Ms. Mercer contends that Unum operated under a conflict of interest which tainted its decision. She argued that Unum “incentivizes its claim handlers to terminate a specified number of claims every month” through the use of “claim-closure targets.” Thus, Ms. Mercer maintains that Unum’s adverse benefit decision of her claim was arbitrary and capricious. In order to support this position, Ms. Mercer filed a motion requesting the court compel Unum to produce discovery. Specifically, Ms. Mercer sought statistical data on the three claim reviewers pertinent to her case and all of the claims those individuals evaluated for the health conditions she suffers from. Through this information, Ms. Mercer wishes to compile averages and percentages of the claim reviewers in order to demonstrate that Unum was indeed operating under a conflict of interest and that the review process was not neutral. The Unum defendants opposed. They argued that the court should reject the discovery request and limit the action to the administrative record considered during the internal appeals process only. In its decision, the court acknowledged that fellow “courts are split as to whether such information is discoverable in an ERISA action,” and the “Sixth Circuit has not yet weighed in on the propriety of ‘batting average’ discovery.” However, the court stated that it would deny Ms. Mercer’s motion because her request was too broad. Rather than purely statistical data, Ms. Mercer wanted Unum to produce “each evaluative file or ‘written review’ for claims reviewed by the identified doctors during the relevant time period.” This, the court held, would be “unduly burdensome and the information minimally relevant.” Thus, the court was not persuaded that the information Ms. Mercer requested was “appropriate or proportional” and so declined to order Unum to produce these documents.

Seventh Circuit

Cutrone v. The Allstate Corp., No. 20 C 6463, 2023 WL 3074677 (N.D. Ill. Apr. 25, 2023) (Magistrate Judge M. David Weisman). In this putative class action, former participants of the Allstate 401(k) Savings Plan have sued the Allstate Corporation and the other plan fiduciaries for breaches of their duties and prohibited transactions under ERISA. Plaintiffs filed a motion to take more than ten depositions pursuant to Rule 23(b)(1) and (2). In particular, plaintiffs argued in favor of 26 depositions. They contend that this number of depositions is necessary and proportionate considering the complexities of the topics at issue and the broad scope of the case. Defendants, however, argued that the request was unreasonable, premature, overly burdensome, and would result in duplicative testimony. The court took a compromise position, permitting plaintiffs a total of 20 initial depositions. “Indeed, the sprawling nature of this case weighs greatly in favor of allowing more than ten depositions…[T]here is agreement that the stakes are high in this litigation: the alleged breach of fiduciary duty caused the loss of millions of dollars in Plaintiffs’ retirement savings. Further, the benefit of additional depositions outweighs the burden on Defendants in light of the case’s scale and importance.” However, the court reduced the requested number from 26 down to 20 in order to balance the position of the defendants and help alleviate some of their burden. Nevertheless, after the completion of these initial 20 depositions, the court left the door open for plaintiffs to seek leave to conduct further depositions if necessary.

Life Insurance & AD&D Benefit Claims

Second Circuit

Maxwell v. Lynch, No. 1:21-CV-00346 (LEK/ATB), 2023 WL 3055542 (N.D.N.Y. Apr. 24, 2023) (Judge Lawrence E. Kahn). Plaintiff New York Life Group Insurance Company of New York commenced this interpleader action requesting that the court determine the proper beneficiary of the life insurance coverage issued to decedent Dreena Verhagen. The court previously discharged New York Life from this action. In this order, it denied motions for judgment on the pleadings pursuant to Rule 12(c) filed by seven of the nine interpleader defendants, the potential claimants to the plan’s proceeds. As an initial matter, the court declined to take judicial notice of documents and other materials outside the pleadings. The court wrote that, “[t]he Moving Defendants’ representation that NY Life already determined ‘that Decedent’s siblings are the only eligible recipients of the life insurance benefits’ is…plainly incorrect.” Rather than an action where an insurance company has made an adverse benefits determination, this action is an interpleader action where no determination has yet been reached. Instead, the court held that the central issue in this action is whether the decedent’s signature on the beneficiary designation form was forged, and relying on materials outside the pleadings would therefore be improper in this instance. Moreover, the court held that because this issue cannot be resolved without considering the extrinsic materials offered by the moving defendants, their motion could not be granted. Finally, the court declined to convert their motion for judgment on the pleadings into a summary judgment motion, as there has yet to be discovery in this action.

Medical Benefit Claims

Fourth Circuit

Albert S. v. Blue Cross & Blue Shield of N.C., No. 1:22-cv-235-MOC-WCM, 2023 WL 3111768 (W.D.N.C. Apr. 26, 2023) (Judge Max O. Cogburn Jr.). Albert S. and his daughter S.S. sued their ERISA healthcare plan administrator and plan sponsor, defendants Blue Cross and Blue Shield of North Carolina and North Carolina Bar Association Health Benefit Trust, seeking payment of claims from S.S.’s stay at a residential mental healthcare treatment facility. Specifically, plaintiffs asserted two causes of action in their complaint, a claim for benefits and a claim for violating the Mental Health Parity and Addiction Equity Act. Defendants moved to dismiss the Parity Act claim. The court granted their motion here. It agreed with defendants that plaintiffs failed to state a claim under the Parity Act because it found their allegations of unequal limitations for mental health care as compared to medical or surgical care to be lacking in sufficient facts or details. The court concluded that plaintiffs’ complaint did not include details about what acute criteria were imposed on mental health care coverage that were not imposed on analogous medical coverage or even what the allegedly violative criteria was. Therefore, plaintiffs’ broad assertions about the Magellan Care Guidelines criteria and its treatment limitations for mental healthcare were found by the court to not meet the pleading standards of Rule 8. Thus, plaintiffs’ claim for relief under the Parity Act was dismissed, and they will proceed going forward with their benefits claim only.

Pension Benefit Claims

Federal Circuit

King v. United States, No. 18-1115, 2023 WL 3141796 (Fed. Cl. Apr. 28, 2023) (Judge Richard A. Hertling). Vested participants in a Taft-Hartley pension plan, the New York State Teamsters Conference Pension and Retirement Fund, sued the United States in this certified class action arguing that the Department of Treasury, the Labor Department, and the Pension Benefit Guaranty Corporation (“PBGC”) violated the takings clause of the Fifth Amendment by authorizing a 29% cut to their pension benefits under the Multiemployer Pension Reform Act of 2014 (“MPRA”). The plaintiff class members who were still alive last December “saw their pension benefits restored under the American Rescue Plan Act of 2021 (“ARPA”) and received lump-sum make-up payments without interest in the amount that had been withheld from them. The plaintiffs maintained their suit for interest on the amounts withheld while the benefit cuts were in effect, and payment to the estates of the participants who died prior to December 2022, as those individuals received no money from ARPA. The parties cross-moved for summary judgment under Rule 56. To resolve the cross-motions, the court stated that it needed to address two issues. First, it needed to decide whether plaintiffs’ claims were “more appropriately resolved as classic physical taking or under the more flexible regulatory-takings test provided in Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 98 S. Ct. 2646, 57 L.Ed.2d 631 (1978).” The court concluded that the physical takings test was not applicable here because the federal government had neither appropriated plaintiffs’ property nor occupied it. It stated that although contractual rights are recognized as property interests under the takings clause, “the modification of those contract rights and the accompanying financial loss do not automatically justify the application of the physical-takings test.” The “crucial element in determining whether the physical-takings test applies” is whether the government seized, confiscated, appropriated, or occupied the property of the plaintiffs, and because the plaintiffs here did not meet their burden of demonstrating the government had done so, the court concluded that the regulatory-takings test was the measure it would use for plaintiffs’ claims. This brought the court to the second half of its decision, in which it analyzed the Penn Central factors. Those three key factors are the economic impact of the regulation, the extent of the regulation’s impact and interference with “distinct investment-backed expectations,” and the nature or character of the action the government took. The court acknowledged that this case would have “important implications for the constitutional limits on the ability of Congress and regulators to address the problem of multiemployer-pension-plan insolvency.” The court also considered the financial situations of the plaintiffs, both those still living and estates of those who died following ARPA and the issuance of the make-up payments. The court then looked at the economic impact of the regulation on the plaintiffs. It concluded that the impact of the MPRA suspension and ARPA preclude a finding of regulatory taking because the 29% reduction over the six-year period was mostly negated by the eventual make-up lump-sum payments for the withheld amounts. Under the second factor – the interference with investment-backed expectations – the court held that plaintiffs had reasonable investment-backed expectations to receive their unreduced, vested pension benefits, and that they could not have foreseen they would bear the financial cost of keeping the Teamsters Fund afloat during a period when the plan approached insolvency. Nevertheless, when factoring in the degree of interference with those expectations, the court found that plaintiffs did not present compelling evidence that the government unduly interfered with those reasonable expectations to give rise to a regulatory taking. Finally, the court weighed the character of the government’s action and concluded that “Congress was acting within its constitutional authority to amend ERISA and adjust reasonably the benefits and burdens of the regulatory scheme in an attempt to preserved funds’ financial stability.” On balance, although the suspension of benefits under the MPRA was a drastic step, the court concluded that it was an appropriate tool in the government’s tool-box to be used in a “a last-ditch effort to maintain the solvency of pension plans.” As a result, the court found the Penn Central factors did not tilt in plaintiffs’ favor and instead leaned toward a finding that the federal government had not violated the takings clause of the Fifth Amendment. Accordingly, the court denied plaintiffs’ summary judgment motion, and granted defendant’s motion for summary judgment.

Pleading Issues & Procedure

Second Circuit

Fitzsimons v. N.Y.C. Dist. Council of Carpenters & Joiners of Am., No. 21 Civ. 11151 (AT), 2023 WL 3061852 (S.D.N.Y. Apr. 24, 2023) (Judge Analisa Torres). Plaintiff Peter Fitzsimons and his family members sued the New York City District Council of Carpenters Pension Fund, the New York City District Council of Carpenters Welfare Fund, and the plan’s trustees and fiduciaries, including the New York District Council of Carpenters and Joiners of America union. The Fitzsimons asserted causes of action under the Labor-Management Reporting and Disclosure Act (“LMRDA”) and ERISA for breaches of fiduciary duties and claims for benefits. In essence, plaintiffs allege in their complaint that defendants improperly concluded that Mr. Fitzsimons was working as a carpenter for a non-union company, and ceased payments of all future pension benefits and stripped the family of their health insurance benefits. Defendants moved to dismiss the complaint for failure to state a claim pursuant to Rule 12(b)(6). The Court granted the motion in this decision. It held that the complaint did not contain sufficient factual allegations to state a claim for breach of fiduciary duty under ERISA and that it was based only on “conclusory allegations” insufficient to meet Rule 8 pleading standards. In addition, the court found plaintiffs’ claims for benefits under Section 502(a)(1)(B) time-barred because the relevant plans set a limitations period of one year and the action was not brought until after that time had run. The court disagreed with plaintiffs that a one-year contractual statute of limitation was unreasonably short. Furthermore, the court agreed with defendants that plaintiffs could not assert their claims for benefits under the welfare plan because they failed to exhaust internal appeals procedures prior to commencing their lawsuit. In addition, the court stated that even putting the issues of exhaustion and untimeliness aside the benefit claims would have failed under arbitrary and capricious review because the allegations themselves do not “establish that the Fund Defendants’ actions were arbitrary and capricious.” Finally, the court dismissed the LMRDA claim because it found the complaint itself contradicted plaintiffs’ arguments that Mr. Fitzsimons was not afforded a full and fair hearing under LMRDA § 101(a)(5)(C). For these reasons the complaint was dismissed in its entirety with prejudice.

Provider Claims

Third Circuit

Lipani v. Aetna Life Ins. Co., No. 22-2634 (ZNQ) (DEA), 2023 WL 3092197 (D.N.J. Apr. 26, 2023) (Judge Zahid N. Quraishi). Brain and spinal surgeon Dr. John Lipani, M.D., sued Aetna Life Insurance Company in a one-count complaint seeking reimbursement for surgery he performed on an ERISA plan beneficiary, patient A.T., pursuant to ERISA Section 502(a)(1)(B). A.T. assigned her rights to bring this action to Dr. Lipani, and granted him a limited power of attorney for the same purpose. Aetna moved to dismiss the complaint for failure to state a claim. Specifically, Aetna argued that the plan includes an unambiguous anti-assignment provision, meaning that Dr. Lipani does not have standing to bring his action. The court agreed and granted the motion to dismiss the complaint. Dr. Lipani’s power of attorney did not alter the consideration either, as the court wrote that the healthcare provider “cannot circumvent [an] anti-assignment clause by claiming he is A.T.’s attorney-in-fact.” Accordingly, the court found that Dr. Lipani could not bring his ERISA claim.

Standard of Review

Second Circuit

Rhodes v. First Reliance Standard Life Ins. Co., No. 22 Civ. 5264 (AKH), 2023 WL 3099294 (S.D.N.Y. Apr. 26, 2023) (Judge Alvin K. Hellerstein). Plaintiff William Rhodes sued First Reliance Standard Life Insurance Company under ERISA to challenge its termination of his long-term disability benefits which he was receiving after a traumatic brain injury. Mr. Rhodes moved the court to apply the de novo standard of review. He argued that Frist Reliance violated ERISA claims procedure regulations in three ways, and that this failure to adhere to the regulations should trigger the less stringent review standard. First, Mr. Rhodes argued that the claims administrator failed to consult with an appropriately qualified healthcare professional on appeal in violation of 29 C.F.R. § 2560.503-1(h)(3)(iii) and (4). Second, he claimed that First Reliance failed to give him the opportunity to respond to the reviewer’s addendum report in violation of 29 C.F.R. § 2560.503-1(h)(4)(i). Lastly, Mr. Rhodes argued that First Reliance was untimely in reaching its final determination during the appeals process in violation of 29 C.F.R. § 2560.503-1(i)(1)(i), (i)(3)(i). The court agreed with Mr. Rhodes on all three points and granted his motion. To begin, the court held that a psychologist was not a sufficiently qualified medical professional to opine on Mr. Rhodes’ neurological conditions or to review and analyze his medical records. “First Reliance offers no precedent that would support a finding that a neuropsychologist or any other individual who is not a medical doctor would be sufficiently qualified to satisfy the full and fair review requirement.” Next, the court agreed with Mr. Rhodes that First Reliance failed to comply with the claims procedure regulations by not providing Mr. Rhodes with a copy of the psychologist’s addendum report. The court stated that the report at issue “was a medical opinion regarding new medical evidence, and it was ‘considered’ and ‘generated’ by First Reliance” during the appeals process. Thus, the court concluded that defendants’ failure to give Mr. Rhodes the report and by extension an opportunity to respond to it prior to the final benefits determination, constituted a violation of the claims procedure regulations. Finally, the court found that First Reliance violated its obligation to render a final determination on appeal within 45 days of Mr. Rhodes’ submission. It was the court’s view that “neither awaiting receipt of the IME report nor awaiting the ‘additional information from Plaintiff’ provided a valid basis for First Reliance to stay their review.” These events, the court concluded, were not “special circumstances” warranting an extension. Moreover, the court held that First Reliance had not adequately advised Mr. Rhodes that it intended to invoke the extension, nor did it provide him with a date by which it would render its final decision. Accordingly, here too defendant was found to have violated the claims regulations. For these reasons, the court concluded that the de novo review standard should apply to its review of First Reliance’s denial of Mr. Rhodes’ claim.