Ruessler v. Boilermaker-Blacksmith Nat’l Pension Tr. Bd. of Trs., No. 21-3876, __ F. 4th __, 2023 WL 2750829 (8th Cir. Apr. 3, 2023) (Before Circuit Judges Shepherd, Kelly, and Grasz)

In ERISA disability benefit cases, the issue of Social Security always looms large. Its most direct effect is usually on the calculation of benefits – in most plans, any benefits from Social Security act as an offset for any benefits the participant receives from the plan.

However, in some plans the two benefits can be more tightly integrated, and can even affect benefit eligibility itself. This week’s notable decision involved a union-affiliated benefit plan, the Boilermaker-Blacksmith National Pension Trust. A participant who wants to claim entitlement to disability benefits under this plan cannot do so with independent evidence. Instead, the plan requires the claimant to have (1) been awarded Social Security disability benefits, and (2) “filed a written application for benefits…together with a notice of award of disability benefits from the Social Security Administration.”

The plaintiff, Adam Ruessler, became disabled in 2015 and applied for Social Security disability benefits. In July of 2017, while waiting for a final decision from the SSA, he applied for disability benefits under the plan. The timing of Ruessler’s application for plan benefits was motivated by an amendment to the plan which “drastically reduced” benefits for start dates after October 1, 2017.

When Ruessler submitted his claim for plan benefits, he did not include documentation from the SSA for the obvious reason that he had not yet been awarded Social Security disability benefits. The plan repeatedly notified Ruessler that he needed to provide a Notice of Award from the SSA, and eventually, in January of 2018, the plan denied his claim. The plan explained that Ruessler “[did] not qualify for a Disability Pension because [he] failed to provide a copy of [his] Social Security Disability Notice of Award.”

Ruessler appealed to the plan, and at approximately the same time the SSA finally approved his claim for disability benefits. Ruessler submitted the “Notice of Decision” from the SSA administrative law judge to the plan in conjunction with his appeal, but the plan denied his appeal. The plan explained that it was required to make a decision on Ruessler’s claim within 180 days of his submission, that Ruessler had not provided a Notice of Award in that timeframe, and thus it was required to reject his claim.

Ruessler filed suit in 2019, but he dismissed that action without prejudice, and reapplied for benefits in 2020. This time his claim was approved, but the benefits he received were much smaller. He then brought this action, alleging that he suffered damages from the plan’s denial of his initial 2017 claim.

In our November 24, 2021 edition, we reported on the district court’s ruling, in which the court did not directly address whether the plan’s interpretation of the plan was reasonable. Instead, the district court found that Ruessler’s arguments could not overcome the fact that he never submitted a Notice of Award. The district court thus granted the plan’s motion for summary judgment and denied Ruessler’s. Ruessler appealed to the Eighth Circuit.

The Eighth Circuit identified three issues that warranted discussion. First, the parties did not agree on the correct standard of review. Ruessler conceded that the plan granted the board of trustees discretionary authority to make benefit determinations, but argued that the board had a conflict of interest as the “decider and payer of benefits,” which operated to reduce any deference the court might owe to its decisions.

The plan contended that it was a union-affiliated fund, equally controlled by employer and employee representatives, and financed by employer contributions, and thus “consideration of an alleged conflict of interest is not required under these circumstances.” The Eighth Circuit noted that the Second and Ninth Circuits had addressed this issue in different ways, and decided to duck the issue because resolution would “not change the outcome of this case.”

Thus, the court turned to the second, central issue: the denial of Ruessler’s benefit claim. The Eighth Circuit bypassed the district court’s reasoning on this issue and instead focused on plan interpretation. In his briefing, Ruessler cited the plan’s section governing benefit appeals, which required the plan to state in the notice of denial “a description of the additional material or information necessary for the claimant to perfect his claim and an explanation of why such material or information is necessary.” The plan also provided that a claimant has the right to submit documents not previously considered, the plan must review those documents, and the plan must “decide the claim anew” on appeal.

Ruessler contended that these provisions gave him “the right to submit a notice of award during the appeal process and that doing so would cure the defect and preserve the annuity starting date associated with that application.”

The Eighth Circuit disagreed. Under its view, “the right to be given notice of how to ‘perfect his claim’ on appeal does not necessarily mean notice of how to cure any defect.” The court further held that the plan properly allowed for “the opportunity to submit documents showing [the claimant] had provided the Board with the required document in the 180-day time period,” and that the “decide anew” language only meant that the plan was required to decide the claim without deference to the initial decision, and did not grant “a do-over or an extended opportunity to submit the notice of award.”

The Eighth Circuit also noted that Ruessler had not provided evidence to suggest that any conflict of interest that might have affected the board’s decision “warrants special weight.” The court stated that the board’s competing duties to him and the “long-term financial health of the Plan” did not create a conflict because that tension “is the kind of tension all trustees who decide claims and pay benefits must balance.” Thus, the court saw “no compelling reason to disturb the Board’s interpretation of the Plan as an abuse of discretion.”

Finally, the Eighth Circuit addressed Ruessler’s argument that the Board breached its fiduciary duties to him by failing to provide him with information that might have assisted him in applying for benefits. The court found no breach, holding that the Board repeatedly communicated to Ruessler that he could reapply for benefits if his application was denied. The court further ruled that the Board did not breach its duties when it did not notify Ruessler that the Notice of Decision he submitted on appeal was insufficient, and that he instead needed to provide a Notice of Award. Furthermore, Ruessler did not “identif[y] anything that should have caused the Board to know he misunderstood his rights.”

As a result, while the Eighth Circuit did not adopt the district court’s reasoning in full, it arrived at the same conclusion and affirmed the grant of summary judgment against Ruessler.

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

Attorneys’ Fees

Sixth Circuit

Jordan v. Reliance Standard Life Ins. Co., No. 1:16-CV-00023-DCLC-CHS, 2023 WL 2733431 (E.D. Tenn. Mar. 31, 2023) (Judge Clifton L. Corker). Defendant Reliance Standard Life Insurance Company filed objections to a Magistrate Judge’s report and recommendation recommending the court award plaintiff Beth Nicole Jordan attorney’s fees to reflect the successes she achieved in her long-term disability benefit action when she obtained two court-ordered remands and won two motions to compel. In this order, the court overruled Reliance’s objection and adopted the report in full. It agreed with the Magistrate that Ms. Jordan was entitled to a fee award because the court remanded the case to Reliance “for failing to provide a full and fair review under ERISA,” and then “found a flaw in the integrity of (Reliance’s) review of Jordan’s claim when it remanded her claim for a second time.” Both the court and the Magistrate Judge rejected Reliance’s stance that Ms. Jordan’s victory was “purely procedural.”  Further, the court agreed with the Magistrate Judge that a fee award would serve a deterrent purpose. Thus, the court held that Ms. Jordan was eligible for an award under Section 502(g)(1) and the Sixth Circuit’s King test factors supported an award. Not only did the court agree with the Magistrate that Ms. Jordan was entitled to a fee award, but it also expressed that the Magistrate’s assessed fee award reflected that Ms. Jordan’s “success was limited.” Finally, the court agreed with the Magistrate’s assessed reasonable hourly rates for Ms. Jordan’s attorneys and paralegals. Accordingly, the court granted Ms. Jordan a fee award of $51,203.75.

Breach of Fiduciary Duty

Sixth Circuit

McCool v. AHS Mgmt. Co., No. 3:19-cv-01158, 2023 WL 2752400 (M.D. Tenn. Mar. 31, 2023) (Judge William L. Campbell, Jr.). Participants of the Ardent Health Services Retirement Savings Plan sued the plan’s fiduciaries for breaching their duties of prudence and monitoring. Plaintiffs asserted both fee and investment claims, arguing that defendants’ process for selecting and monitoring plan investments and administering the plan was not in compliance with ERISA’s fiduciary duties, “the highest known to the law.” Defendants moved for summary judgment. The court denied defendants’ motion in this decision. It identified several material disputes of fact precluding a summary judgment award to the defendants. Among these were questions over whether defendants’ conduct and involvement with respect to monitoring the plan’s investments was adequate, whether their conduct monitoring fees was compliant with ERISA’s requirements, and whether the fees and funds themselves were imprudent or reasonable. Given these disputes and others, the court held that defendants were not entitled to summary judgment on any of the breach of fiduciary duty claims as a matter of law.

Seventh Circuit

Acosta v. Bd. of Trs. of Unite Here Health, No. 22 C 1458, 2023 WL 2744556 (N.D. Ill. Mar. 31, 2023) (Judge Harry D. Leinenweber). Participants of two units of the Unite Here Health multiemployer employee welfare benefit plan have sued the plan’s board of trustees and the individual board members for breaches of fiduciary duties and prohibited transactions under ERISA. Plaintiffs allege that the annual administrative expenses allocated by the defendants to their units of the plan were far costlier than the overall averages for self-insured multiemployer healthcare plans over the relevant period. They maintain that these expenses didn’t “match the return on the spending; the better health plans were found with lower administrative costs.” Moreover, plaintiffs outlined how the money allocated to healthcare contributions came directly from their wages and compared the expenses of their two units with the other units in the plan. During the proposed class period the Unite Here Health plan was divided into between 16 and 19 of these plan units, which were each their own functional benefit programs, administered differently for the different geographic locations of the participants and their respective collective bargaining agreements. Plaintiffs asserted causes of action against defendants for violations of the fiduciary duties of loyalty and prudence, prohibited transactions, a claim for a violation of the “exclusive purpose rule,” and derivative claims for restitution and disgorgement. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). The court denied in part and granted in part defendants’ motion. First, the court declined to dismiss the action for lack of Article III standing. It held that plaintiffs sufficiently alleged an injury in fact in the form of decreased wages, higher cost-sharing and coinsurance payments, and less valuable health benefits, and that these injuries were the direct result of the alleged actions of the defendants. Moving on to the sufficiency of the stated claims, the court found that plaintiffs had sufficiently stated their first two claims for breaches of fiduciary duties of prudence and loyalty, asserted under ERISA Sections 502(a)(2), (a)(3), and 409, in connection with the administrative expenses. “Here, Plaintiffs showed that similarly situated funds accrued significantly lower administrative costs. This finding demonstrates not only consistency but some likelihood that the fiduciary failed to conduct regular reviews of its investment.” However, plaintiffs’ third and fourth claims, for prohibited transactions and violation of the exclusive purpose rule, did not survive defendants’ pleading challenge. The court agreed with defendants that the complaint was devoid of allegations of self-dealing or identified prohibited transactions to sufficiently infer that Unite Here Health funds were used for anyone other than the participants. Finally, plaintiffs’ claims for restitution and disgorgement were allowed to proceed as defendants’ arguments for dismissal echoed their arguments about standing which the court rejected above. Accordingly, the lion’s share of plaintiffs’ complaint was determined to meet the pleading standards of Rule 8 and as such were not dismissed by the court.

Eighth Circuit

Williams v. Centene Corp., No. 4:22-cv-00216-SEP, 2023 WL 2755544 (E.D. Mo. Apr. 4, 2023) (Judge Sarah E. Pitlyk). Plaintiffs in this action are four participants of the Centene Management Corporation Retirement Plan. They filed this action against Centene Corporation, its board of directors, the plan’s investment committee, and individual board and committee members for breaching their fiduciary duties of prudence, loyalty, and adequate monitoring. Plaintiffs alleged that the management process of the plan was fundamentally flawed as defendants failed to leverage the plan’s size, including its tens of thousands of participants and billions of dollars in assets, to lower costs, instead allowing the total expense ratio of the plan to balloon. Plaintiffs also argued that defendants failed to select a menu of prudent, well-performing, and reasonably priced funds. The U.S. Chamber of Commerce filed a motion for leave to participate as amicus curiae. Defendants moved to dismiss plaintiffs’ complaint. Both motions were granted by the court in this order. The court first addressed the amicus motion. It concluded that the perspective of the Chamber of Commerce would be helpful to its analysis of the motion to dismiss, and therefore exercised its broad discretion to accept amicus briefs. Then the court considered the motion to dismiss. Defendants outlined why they believed none of plaintiffs’ arguments supporting their theories of imprudence and disloyalty adequately supported their claims for these fiduciary breaches. They argued that plaintiffs had not provided sound comparisons for their fee or fund claims, and that a factfinder could therefore not reasonably infer any fiduciary breach of the allegations asserted. The court agreed. It held that plaintiffs had made bare and conclusory assertions, insufficient to state claims. Accordingly, plaintiffs’ complaint was dismissed.

D.C. Circuit

Wilcox v. Georgetown Univ., No. 18-0422 (ABJ), 2023 WL 2734224 (D.D.C. Mar. 31, 2023) (Judge Amy Berman Jackson). Two participants, individually and on behalf of a class, sued the fiduciaries of the Georgetown University Defined Contribution Retirement Plan and the Georgetown University Voluntary Contribution Retirement Plan for breaches of their duties under ERISA. The participants alleged that defendants failed to keep plan expenses at a reasonable cost which caused them to pay excessive fees for investments and administrative and recordkeeping services to the Teachers Insurance and Annuity Association (TIAA), Vanguard, and Fidelity. Four years into the complicated history of the litigation, and following an order dismissing the operative complaint after a remand from an appeal to the D.C. Circuit, plaintiffs have moved for leave to file an amended complaint. In this order, the court denied plaintiffs’ motion. It wrote, “[t]he case appears to be a lawsuit in search of a theory, and notwithstanding its length, the proposed amended complaint does not add much to the original pleading that was dismissed. Plaintiffs identify ways in which plan management could be different, or even improved, but they have not alleged facts to support a plausible inference that defendants have failed as fiduciaries.” Thus, the court held that it would be futile to allow plaintiffs to file their currently proposed version of the complaint, concluding that their fiduciary breach counts would not withstand a motion to dismiss.

Class Actions

First Circuit

Vega-Ortiz v. Cooperativa De Seguros Multiples De P.R., No. Civ. 19-2056 (SCC), 2023 WL 2770214 (D.P.R. Mar. 31, 2023) (Judge Silvia Carreno-Coll). Participants in the Real Legacy Assurance Retirement Plan filed this putative class action alleging the fiduciaries of the plan violated ERISA and breached their duties to the participants by mismanaging the plan, failing to comply with disclosure and reporting requirements, failing to ensure the plan was covered by the PBGC, and by taking actions which caused the plan to be underfunded. Plaintiffs moved pursuant to Rule 23 to certify a class of plan participants and beneficiaries who suffered a reduction in accrued benefits under the plan at the time the plan was terminated. Their motion was granted for the ERISA breach of fiduciary duty claims, the class was certified, and plaintiffs’ counsel, attorneys Jason W. Burge and Harold Vicente Colon of the law firms Fishman Haygood, LLP and Vicente & Cuebas were appointed class counsel. The court found the class of over 200 individuals satisfied Rule 23(a)’s numerosity requirement. In addition, the court concluded that the named representatives were adequate and typical representatives of the other members of the class. Finally, the court was satisfied that common questions regarding defendants’ actions united the members and predominated over individual issues. The court then turned to Rule 23(b) and certified the class pursuant to Rule 23(b)(1). It found that independent actions would run the risk of differing and inconsistent adjudications. Further, the court held that certification was proper because “ERISA creates a ‘shared’ set of rights among the Plan participants by imposing duties on fiduciaries relative to the Plan, and it even structures relief in terms of the Plan and its accounts, rather than directly for the individual participants.” However, the court did identify a “wrinkle.” Although it held that certification of the class for the ERISA claims was appropriate, it stated that plaintiffs’ state law claims asserted against two actuarial firms were not fully briefed or addressed in the class certification motion. Accordingly, this portion of plaintiffs’ action was temporarily paused, and the court directed plaintiffs to submit more briefing on this topic.

Ninth Circuit

LD v. United Behavioral Health, No. 20-cv-02254-YGR, 2023 WL 2806323 (N.D. Cal. Mar. 31, 2023) (Judge Yvonne Gonzalez Rogers). Five named plaintiffs brought this putative class action on behalf of themselves and a class of similarly situated participants and beneficiaries of ERISA plans administered or insured by defendants United Behavioral Health and UnitedHealthcare Insurance Company whose plans utilized United’s “Reasonable and Customary” program for reimbursement of out-of-network benefits and who had claims for intensive outpatient services which were paid at prices determined using defendant MutliPlan’s methodology. The named plaintiffs allege that defendants developed and then used a repricing tool that fabricated reimbursement rates which resulted in underpayments of their claims for their mental healthcare treatment. In their action plaintiffs asserted claims under RICO and ERISA, including claims for underpaid benefits under ERISA Section 502(a)(1)(B), and claims for breaches of fiduciary duties of loyalty and due care and other equitable relief claims under ERISA Section 502(a)(3). Several motions were before the court, including Daubert motions filed by defendants and plaintiffs seeking to preclude each other’s expert’s testimony, plaintiff’s motion for class certification under Rule 23, defendants’ motion for relief from a previous order requiring them to produce certain documents, and administrative motions to seal, also filed by the defendants. The court began its decision by examining the parties’ motions to exclude. The court granted defendants’ motion, holding that plaintiff’s expert’s report was a “thinly disguised attempt to submit what is essentially an amicus brief as an expert report.” It was the opinion of the court that the law professor’s opinions invaded on the province of the court and were thus “legal opinions” outside the bounds of permissible testimony under Federal Rule of Evidence 702. Turning to plaintiff’s motion to exclude, the court stated that it did not rely on the testimony that plaintiffs objected to and therefore denied as moot their Daubert motion. With these preliminary matters out of the way the court segued to evaluating plaintiffs’ motion for class certification. The court found that plaintiffs could not certify their class because the main relief they seek, reprocessing, is unavailable to them following the Ninth Circuit’s decision in Wit v. United Behavioral Health. Furthermore, the court stated that plaintiffs do not have a valid avenue for injunctive relief as they did not allege any threat of imminent future harm. Nor was this case distinguishable from Wit “on the ground that the battle concerns underpayment rather than denial of benefits.” Finally, “[b]ecause reprocessing is unavailable, a declaration that plaintiffs’ rights were violated would provide them with no remedy.” For these reasons, the court found that plaintiffs lack a uniform remedy and therefore stated that it could not grant them certification under Rule 23(b)(3). With regard to the remaining motions, the court denied defendants’ motion for relief from the non-dispositive production order, concluding that there was no clear error in Magistrate Spero’s order. Finally, the court denied in part and granted in part defendants’ motion to seal documents within the judicial record. As this decision demonstrates, plaintiffs with healthcare class actions in the Ninth Circuit are facing an uphill battle following the Wit decision. Nevertheless, plaintiffs will continue with their individual claims and the parties were ordered to meet and confer to discuss scheduling for this remaining portion of the action.

D.C. Circuit

In re White, No. 22-8001, __ F. 4th __, 2023 WL 2763812 (D.C. Cir. Apr. 4, 2023) (Before Circuit Judges Srinivasan, Millett, and Edwards). Three former employees of Hilton Hotels sought to certify a class of similarly situated individuals to pursue claims for retirement benefits against the Hilton Hotels Retirement Plan that they maintain were vested benefits that were unlawfully denied under ERISA. In the district court, plaintiffs’ motion for class certification under Rule 23 was denied on the ground that plaintiffs were proposing an impermissible “fail-safe” class, which is a class upon which the membership “depends on the merits.” In this particular instance, the district court took issue with plaintiffs’ language defining the class as individuals who had “vested rights to retirement benefits that have been denied.” The district court held that the determination of whether the retirement benefits had in fact vested was the central issue to be resolve in the action. The concern is that defining the class in such a manner would create a heads plaintiffs win, tails defendants lose situation, in which the class members either win or “by virtue of losing, are defined out of the class, escaping the bars of res judicata and collateral estoppel.” Plaintiffs timely filed an interlocutory Rule 23(f) appeal with the D.C. Circuit Court of Appeals. In this decision the appeals court granted the petition for interlocutory review and reversed and remanded the district court’s ruling for further review consistent with the guidance of this opinion. To begin, the Circuit Court held that it would grant plaintiffs’ petition for review “[b]ecause the Rule 23(f) appeal in this case was timely filed, the question raised involves an important and recurring issue of the law, the issue will likely evade end-of-case review for all particular purposes, and the circumstances taken as a whole warrant interlocutory intervention.” With that preliminary issue settled, the court of appeals then focused its attention on answering the question of whether Rule 23 prohibits fail-safe classes. First, the D.C. Circuit pointed out that many aspects of Rule 23’s prerequisites would ameliorate the circular merits-based issues posed by fail-safe classes. Numerosity, commonality, typicality, and the requirements of Rule 23(b), including the superiority requirement of 23(b)(3), would be “a hard hill to climb if the named plaintiffs might not be members of the class come final judgment.” In other words, the court held that application of the instrument of Rule 23 itself “should eliminate most, if not all, genuinely fail-safe class definitions.” What’s more, the appeals court held that district courts should simply work with plaintiffs, or even themselves rewrite any proposed class definition with a merits-based criterion, rather than deny certification on this basis. As a result, the D.C. Circuit rejected “a rule against ‘fail-safe’ classes as a freestanding bar to class certification ungrounded in Rule 23’s prescribed criteria. Instead, district courts should rely on the carefully calibrated requirements in Rule 23 to guide their class certification decisions and the authority the Rule gives them to deal with curable misarticulations of the proposed class definition.”

Disability Benefit Claims

Fifth Circuit

Taylor v. Unum Life Ins. Co. of Am., No. 21-331-JWD-EWD, 2023 WL 2766018 (M.D. La. Mar. 31, 2023) (Judge John W. deGravelles). Plaintiff Jeffrey Taylor sued Unum Life Insurance Company of America, challenging its denial of his claim for long-term disability benefits under an ERISA benefit plan. The parties filed cross-motions for summary judgment. In this order the court denied Mr. Taylor’s motion and granted Unum’s motion. It held that under abuse of discretion review Unum’s decision was not arbitrary and capricious because it conducted a full and fair review of Mr. Taylor’s claim, and its decision was supported by substantial evidence in the administrative record. Specifically, the court agreed with Unum’s conclusion that Mr. Taylor’s neurological and cognitive symptoms due to early onset Alzheimer’s disease did not preclude him from performing the essential duties of any gainful occupation for which he was reasonably fitted, as defined by the policy during the relevant period. In addition, the court held that Unum was not required to disclose the opinion of the doctors it retained for its appeal to Mr. Taylor because “Plaintiff’s disability claim was submitted after he stopped working on December 10, 2017,” and the relevant ERISA regulation did not go into effect until April 1, 2018. The court’s conclusion regarding which Department of Labor regulation applied thus differed from the position adopted by some other courts, including the Seventh Circuit’s decision in Zall v. Standard Ins. Co., which was the notable decision in our January 25, 2023 edition. Accordingly, the court found that Unum substantially complied with ERISA regulations and “procedural obligations in handling Plaintiff’s claim.” Finally, regarding the merits of the denial, the court was satisfied that the decision to terminate long-term disability benefits was not an abuse of discretion because it was supported by the opinions of Unum’s reviewing doctors and supported by objective medical data including MRIs and brain scans which were before Unum at the time of its determination. For these reasons, judgment was granted in favor of Unum.

Discovery

Fifth Circuit

Hallman v. Hartford Life & Accident Ins. Co., No. SA-22-CV-00780-DAE, 2023 WL 2769439 (W.D. Tex. Mar. 31, 2023) (Magistrate Judge Elizabeth S. Chestney). Plaintiff Kathy Hallman is the wife of Matthew Hallman. Up until Mr. Hallman’s sudden disappearance in 2011, Mr. Hallman worked for L-3 Communications, a U.S. defense contractor and surveillance company. Believing her husband dead as the result of an accidental injury in his line of work, Ms. Hallman filed a claim for accidental death benefits in April 2021. Ms. Hallman’s claim was denied by Hartford Life & Accident Insurance Company, which concluded that Ms. Hallman had not provided sufficient evidence that Mr. Hallman died by accident during the policy period. In this lawsuit, Ms. Hallman seeks to challenge that denial. She has moved to conduct limited discovery into the investigations into her husband’s disappearance conducted by the FBI and internally at L-3 Communications. “Plaintiff believes the FBI and L-3 Communications are in possession of additional evidence that may be relevant to the inquiry of whether Mr. Hallman died by accident.” Hartford opposes Ms. Hallman’s discovery motion. It argued that the court’s review of the denial of Ms. Hallman’s claim is limited to the administrative record that was before it at the time of its decision. The discovery dispute was referred to Magistrate Judge Elizabeth S. Chestney. In this order Magistrate Chestney denied Ms. Hallman’s motion without prejudice. Magistrate Judge Chestney relied on Fifth Circuit precedent which holds that district courts in ERISA benefit cases are “precluded from receiving evidence to resolve disputed material facts – i.e., a fact the administrator relied on to resolve the merits of the claim itself.” The Fifth Circuit, however, does recognize discovery exceptions to explore whether the administrative record is complete and whether the administrative record complied with procedural ERISA requirements. Ms. Hallman argued that her discovery motion fell under the exception related to the question of whether the administrative record was complete. However, the court disagreed with Ms. Hallman’s interpretation, viewing her request instead as asking “the Court to permit discovery to augment the designated administrative record with information relating to the merits of the final benefit determination in this case.” Accordingly, Magistrate Chestney stressed, Ms. Hallman’s position misunderstands the principles and exceptions regarding the completeness of the record. Despite the novel circumstances presented in this action, the court held that the basic principles limiting ERISA benefits determinations to the administrative record before the insurance company at the time of the denial remain unchanged. As a result, “new discovery cannot be admitted to resolve the merits of a coverage determination.” For this reason, Ms. Hallman was not allowed to conduct her requested limited discovery.

ERISA Preemption

Seventh Circuit

GCS Credit Union v. American United Life Ins. Co., No. 3:20-CV-00937-NJR, 2023 WL 2743557 (S.D. Ill. Mar. 31, 2023) (Judge Nancy J. Rosenstengel). Upon discovering an issue of ERISA non-compliance, a plan administrator, plaintiff GCS Credit Union, sued its contractor, defendant American United Life Insurance Company, in state court asserting claims of professional negligence and breach of contract. The issue at the heart of this action is whether in the course of its professional services, American United Life Insurance Company intentionally concealed GCS’s non-compliance with the plan “through contractually obligated testing,” and whether it “negligently and incorrectly represented that GCS passed testing, failed to notify GCS of the issue, and intentionally concealed such information causing GCS to owe corrective contributions as required” under ERISA. Two motions were before the court here. First, defendant American United moved for summary judgment. It argued that GCS’s state law claims fell under ERISA Section 514 conflict preemption because the central question of this case “is who bore the responsibility of preventing Plan violations or determining employee eligibility for Plan participants,” and American United argued that the answer to that question necessarily lies in the interpretation of the ERISA plan. However, the court disagreed. It found, to the contrary, that American United is a non-fiduciary contractor, and resolving the state law claims underlying the action will not necessitate any interpretation or application of the plan, and therefore the claims do not relate to the plan in any significant way that would interfere with unified plan administration, the prevention of which is the guiding purpose behind ERISA preemption. In the eyes of the court, the “professional negligence and breach of contract claims underlying this action are garden-variety state-law tort claims that do not invoke any Plan provisions or indicate that (American United) breached a Plan term.” Accordingly, American United’s summary judgment motion was not granted on preemption grounds. Nevertheless, American United was granted summary judgment on the professional negligence claim asserted against it, as the court held that the service provider does not qualify as a “professional” akin to a lawyer, doctor, or investment fiduciary, meaning it cannot be subject to that heighted standard of professional care required to state such a claim. The court reached a different conclusion on the breach of contract claim. With regard to that claim, the court held that there was a genuine dispute of material fact which exists regarding whether American United failed to meet its duties in accordance with the service agreement between it and GCS. Finally, because GCS’s breach of contract claim survived summary judgment, the court turned to the second motion before it, GCS’s motion for a jury trial. This request was denied by the court, which found it untimely. As a result, this non-ERISA action will proceed to a bench trial on the one remaining claim in the action.

Ninth Circuit

Stanford Health Care v. Trustmark Servs. Co., No. 22-cv-03946-RS, 2023 WL 2743581 (N.D. Cal. Mar. 31, 2023) (Judge Richard Seeborg). Plaintiff Stanford Health Care sued The Chef’s Warehouse, Inc. and Trustmark Health Benefits, Inc. after it provided emergency medical services to patients insured by a plan sponsored, administered, and funded by the defendants and was not reimbursed the full amounts it billed. Defendants moved to dismiss the state law claims asserted against them – breach of implied contract, quantum meruit, and a violation of California’s Unfair Competition Law. Although the court granted the motion on state law grounds, it did not grant dismissal based on ERISA preemption, as the court concluded that ERISA did not preempt these causes of action under Ninth Circuit precedent. The court held that each of the three state law claims provided Stanford Health with independent grounds for liability. Moreover, the court agreed with plaintiff that “it could not have brought an ERISA claim against Defendants because it is not a participant or beneficiary of the TCW Plan, nor is it standing in the shoes of one.” Accordingly, the court established this was a rate of payment dispute that did not relate to or interfere with an ERISA welfare benefit plan.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

The Lincoln Nat’l Life Ins. Co. v. Subramaniam, No. 21-cv-12984, 2023 WL 2789602 (E.D. Mich. Apr. 5, 2023) (Judge Judith E. Levy). Defendant Sowndharya Subramaniam moved for summary judgment in this interpleader action to determine the proper beneficiary of life insurance proceeds under an ERISA benefit plan. Ms. Subramaniam is the ex-wife of the decedent and the named beneficiary of the plan. Defendant Brindha Periyasamy is decedent’s widow. She opposed Ms. Subramaniam’s summary judgment motion and filed a crossclaim against her. In this decision, the court granted Ms. Subramaniam’s motion and denied as moot Ms. Periyasamy’s motion. The court found the divorce decree between the decedent and Ms. Subramaniam was not a qualified domestic relations order and Ms. Subramaniam did not waive her rights to benefits under the plan. In the absence of fraud, concealment, or misrepresentation, the court found that Ms. Subramaniam was entitled to the benefits as the named beneficiary because the uncontroverted evidence showed that decedent never completed a new enrollment form to designate his new spouse as the beneficiary. Ms. Periyasamy’s argument that Ms. Subramaniam should not receive the proceeds because she and decedent did not maintain a friendly relationship following their divorce was determined by the court to be inapposite as no authority supports the conclusion that such circumstances warrant imposing a constructive trust. Thus, the court found “the plan documents naming Subramaniam as the beneficiary of the policy controls.” Accordingly, the court held there was no genuine dispute of material fact that Ms. Subramaniam was entitled to the proceeds as she is the only named beneficiary of the life insurance policy and she was therefore granted summary judgment.

Medical Benefit Claims

Ninth Circuit

N.C. v. Premera Blue Cross, No. 2:21-cv-01257-JHC, 2023 WL 2741874 (W.D. Wash. Mar. 31, 2023) (Judge John H. Chun). Mother N.C. and her son A.C. sued Premera Blue Cross under ERISA sections 502(a)(1)(B) and (a)(3) challenging its denial of their claim for reimbursement for A.C.’s 14-month stay at a psychiatric residential treatment center. The parties filed cross- motions for summary judgment. First, the court established that the de novo standard of review applied, as Washington insurance law bans discretionary clauses. Next, the court agreed with plaintiffs that Premera’s use of the InterQual guidelines was not in accordance with the plan language as they were not incorporated into the plan either explicitly or by reference. “The Court also notes that Premera’s use of the InterQual guidelines…(and) its decision to exclude coverage based on Plaintiff’s failure to meet these extraneous and rigid standards – which are not explicitly referenced in the Plan language – is troubling.” The court also found an area of ambiguity in the plan’s definition of medical necessity, especially around the “generally accepted standards of medical practice.” It accordingly applied the doctrine of contra proferentem and construed the ambiguous language against the insurer. Therefore, the court agreed to consult the standards of the American Academy of Child and Adolescent Psychiatry, for which the plaintiffs advocated, rather than strictly adhere to Premera’s preferred InterQual guidelines. With these preliminary issues settled, the court progressed to its review of the medical record to evaluate whether plaintiffs were entitled to benefits under Section 502(a)(1)(B). It concluded that they were, and that the preponderance of evidence in the record established that A.C.’s stay at the treatment facility was medically necessary as defined by the plan. “First, all of the medical health professionals who actually examined or treated A.C. found that his symptoms could not be safely managed at home, and that he required the structure of a residential treatment center to engage in effective therapeutic interventions.” Moreover, the court categorized Premera’s review of plaintiffs’ claim as “cursory, and focus(ed) on several acute symptoms (such as suicidality and homicidality) that are emphasized in the InterQual criteria.” The court also stressed that there was no meaningful change in A.C.’s symptoms on the date when Premera denied coverage, following its approval of his first week of treatment. Thus, based on the above, the court held that A.C.’s stay was “both clinically appropriate and adhered to the generally accepted standards of care,” and that plaintiffs were entitled to coverage for the stay. However, because the court granted summary judgment and benefits to plaintiffs on their Section 502(a)(1)(B) claim, it decided equitable relief under Section 502(a)(3) for plaintiffs’ Parity Act violation claim “would be inappropriate.” The court therefore dismissed the Parity Act claim.

Tenth Circuit

Brian J. v. United Healthcare Ins. Co., No. 4:21-cv-42, 2023 WL 2743097 (D. Utah Mar. 31, 2023) (Judge Howard C. Nielson, Jr.). A father and daughter, a plan participant and beneficiary, sued United Healthcare Insurance Company to challenge its denial of benefits for the daughter’s stay at a psychiatric residential treatment center. Plaintiffs asserted two causes of action, a claim for benefits and a claim for violation of the Mental Health Parity and Addiction Equity Act. The parties filed cross-motions for summary judgment. The court granted United’s motion for summary judgment on the Parity Act violation claim, denied both parties’ motions on the claim for payment of benefits, and remanded to United for further consideration of plaintiffs’ benefits claims. As an initial matter, the court rejected United’s assertion that plaintiffs waived their rights to federal civil lawsuits after an adverse decision was reached by an independent external review organization. Under the Illinois Health Carrier External Review Act, the court stated that the “external review decision is binding on the health carrier…[and] on the covered person except to the extent the covered person has other remedies available under applicable federal or state law.” Here, plaintiffs have remedies available to them under ERISA, and the court therefore stated that plaintiffs were not barred from filing their lawsuit. Turning to the adverse benefit decision, the court did not reach a final decision regarding the merits over whether United correctly denied the claim for benefits. Instead, it concluded that remand was the proper course of action as United “failed to make adequate factual findings,” and failed to provide “an adequate explanation for the decision.” The evidence in the record itself, the court held, did not clearly establish that the plaintiffs were entitled to the benefits. Accordingly, United was instructed to determine whether the daughter satisfied the guidelines for continued care at the treatment center and to then “make adequate factual findings, and to provide a candid and adequate explanation for whatever decision it reaches.” Finally, the court evaluated the Parity Act claim and concluded that ruling on plaintiffs’ facial challenge would not redress their injury because “regardless of whether the Plan imposes more stringent requirements on residential treatment centers than on skilled nursing facilities, United did not deny G.J.’s claim for continued treatment at Sunrise on the ground that Sunrise failed to meet the Plan’s requirements for residential treatment centers.”  Regarding plaintiffs’ as-applied Parity Act challenge, the court ruled that plaintiffs did not identify evidence of how the plan “evaluates claims for analogous medical or surgical treatment in practice or even any evidence, apart from G.J.’s own experience, of how the Plan evaluates claims for mental health care at residential treatment centers in practice.” In the absence of such evidence, the court found that plaintiffs’ as-applied challenge failed. Thus, United was granted summary judgment on plaintiffs’ Parity Act claim.

Pleading Issues & Procedure

Third Circuit

The ERISA Indus. Comm. v. Asaro-Angelo, No. 20-10094 (ZNQ) (TJB), 2023 WL 2808105 (D.N.J. Apr. 6, 2023) (Judge Zahid N. Quraishi). As Your ERISA Watch has previously reported, this action was brought by a Washington, D.C. lobbying group, the ERISA Industry Committee (“ERIC”), against the Commissioner of the New Jersey Department of Labor of Workforce Development, Robert Asaro-Angelo. ERIC seeks a court order declaring New Jersey Senate Bill 3170, which is scheduled to go into effect on April 10, 2023, preempted by ERISA. SB 3170 will impose new regulations on employers and will require employers to pay statutorily mandated severance benefits to employees already entitled to severance payments under collective bargaining agreements. ERIC represents the interests of a group of large employers who offer ERISA benefit plans. The organization’s principal mission is to advocate for and “promote nationally uniform laws regarding employee benefits.” ERIC and Mr. Asaro-Angelo filed cross-motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Mr. Asaro-Angelo challenged ERIC’s Article III standing to bring this action. The Commissioner argued that ERIC did not have either direct organizational standing or associational standing to challenge the bill. The court considered each basis for standing, and ultimately agreed with Mr. Asaro-Angelo that ERIC did not satisfy either basis. First, the court held that ERIC lacked direct organizational standing as it did not incur any “actual time spent or costs associated with diverting resources to educate its members on S.B. 3170,” over and beyond the expenses it already incurs in the scope of its normal operations in pursuit of its own agenda. Rather, the court understood ERIC’s injury as “an injury to its advocacy,” which “is precisely the type of injury the Supreme Court rejected in Sierra Club v. Morton, 405 U.S. 727, 739 (1972), when it held that the Sierra Club’s special interest in promoting and protecting our ‘natural heritage from man’s depredations’ is insufficient for standing.” Accordingly, the court found that ERIC did not have direct organization standing. Next, the court analyzed whether the organization had associational standing to sue on behalf of its members. And here too the court identified a major problem: ERIC could not demonstrate that at least one of its members would have standing on its own right because ERIC was unwilling to identify any of its members. ERIC maintained that it was not required to identify its members by name to satisfy Article III. It insisted that its membership list was privileged under the First Amendment, and cited case law to support this assertion. But the court disagreed. It found that ERIC “presented no evidence to demonstrate that disclosure of its membership list – much less the identity of a single, injured member for the purposes of supporting ERIC’s standing to bring its claims – would adversely impact its members. Further, ERIC has failed to demonstrate any hostility related to associating with ERIC. The court therefore finds that the associational privilege does not shield ERIC from disclosing its members for the purposes of standing.” Without naming a member with standing, the court found that ERIC did not satisfy the prongs necessary to establish associational standing, and accordingly held that ERIC lacked Article III standing to pursue this lawsuit. Therefore, the court granted Mr. Asaro-Angelo’s cross-motion for summary judgment and denied ERIC’s motion for summary judgment.

Ninth Circuit

Valley Pain Ctrs. v. Aetna Life Ins. Co., No. CV-19-05395-PHX-DJH, 2023 WL 2759022 (D. Ariz. Mar. 31, 2023) (Judge Diane J. Humetewa). An outpatient treatment center and related healthcare providers sued Aetna Life Insurance Company in this civil action. In response, Aetna filed thirteen counterclaims against the healthcare providers based on an overarching theory of a billing scheme conspiracy designed to harm Aetna and its self-funded ERISA plan sponsors. Aetna asserted state law claims, RICO claims, fraud claims, and a claim under ERISA Section 502(a)(3) to recoup the alleged overpayments of benefits. Two of the counterclaim defendants, Thomas Moshiri, the creator of North Valley Pain Center, and Greg Maldonado, the President of Advanced Reimbursement Solutions, LLC and the Manager of American Surgical Development, LLC, moved to dismiss the counterclaims asserted against them. The court granted in part and denied in part the motions to dismiss. The court granted the motions to dismiss Aetna’s RICO claims, its ERISA claim, and its negligent misrepresentation claim. However, the court denied the motion to dismiss the tortious interference with contract, fraud, civil conspiracy, aiding and abetting, unjust enrichment, and money had and received counterclaims. Regarding the ERISA claim, the court held that Aetna had failed to allege that the funds in question it seeks to receive restitution from were specific and identifiable. Instead, Aetna only pled that the funds remained in Mr. Maldonado’s possession based upon “information and belief,” which the court held “does not meet the pleading standards.” The court therefore dismissed Aetna’s ERISA claim.

Provider Claims

Fifth Circuit

Texienne Physicians Med. Ass’n v. Health Care Serv. Corp., No. 3:22-CV-0591-G, 2023 WL 2799726 (N.D. Tex. Apr. 5, 2023) (Judge A. Joe Fish). Healthcare provider Texienne Physicians Medical Association sued Blue Cross and Blue Shield of Texas for underpayment of health care services it provided to insured patients. In the operative complaint, Texienne asserts two causes of action, a claim for benefits under ERISA Section 502(a)(1)(B), and a state law breach of contract claim. Blue Cross moved for dismissal pursuant to Federal Rules of Civil Procedure 12(b)(1) and (b)(6). To begin, the court denied the motion to dismiss for lack of subject matter jurisdiction, concluding that Texienne’s assertion that it procured assignments of benefits from the patients was plausible and adequate to confer it with derivative standing at this juncture. With this matter settled, the court proceeded to evaluate whether Texienne had stated claims upon which relief could be granted. Here, the court was less friendly toward the provider, agreeing with Blue Cross that it had not pled a viable ERISA benefit claim. Simply put, the court held that the complaint failed to state a claim by not identifying “the health insurance beneficiaries, the health benefit plans or policies Blue Cross allegedly breached, or how Blue Cross breached those plans or policy terms.” Without these details, Texienne’s ERISA claim did not survive the 12(b)(6) challenge. However, Texienne was granted leave to file an amended complaint to remedy these identified defects. Finally, in contrast to the ERISA benefit claims, the court held that the provider had “sufficiently pleaded the elements of breach of contract.” Thus, Blue Cross’s motion to dismiss the state law claim was denied.

Bailey v. Blue Cross & Blue Shield of Tex. Inc., No. 4:21-CV-00917, 2023 WL 2781092 (S.D. Tex. Mar. 31, 2023) (Judge Alfred H. Bennett). Surgeon Jason R. Bailey, M.D. and Lone Star Surgical Partners, P.A. sued Blue Cross & Blue Shield of Texas, Inc. and its related entities in state court for failure to properly reimburse it for pre-approved surgical services it provided to covered patients. As the court put it, “[t]his case has a winding procedural history in state and federal court,” snaking between the two based on ERISA preemption. Now, the healthcare providers have moved for leave to amend their complaint to eliminate and voluntarily dismiss the claims as to the twenty identified patients whose claims were the basis of Blue Cross’s removal and who are covered under ERISA-governed plans. In addition, plaintiffs moved to remand their action, for a final time, back to state court. Their motions were granted in this order. The court agreed with plaintiffs that granting the requested leave to amend the complaint would not unduly prejudice the insurance companies and that there was “no undue delay, bad faith, or dilatory movie by Plaintiffs.” Moreover, the court was not convinced there was any risk of parallel state and federal lawsuits as “Plaintiffs have explicitly disclaimed recovery arising from federal claims.” Accordingly, the court freely granted the motion to voluntarily dismiss the claims which were the basis of federal jurisdiction. Finally, the court followed Fifth Circuit precedent which holds that courts should decline to exercise jurisdiction over remaining state law claims when the federal law claims are eliminated before trial. Therefore, in accordance with this precedent, the court found the case should be remanded to state court. 

Statute of Limitations

Fourth Circuit

Moore v. Va. Cmty. Bankshares, No. 3:19-CV-45, 2023 WL 2714930 (W.D. Va. Mar. 30, 2023) (Judge Norman K. Moon). A former employee of Virginia Community Bank and participant in the company’s terminated Employee Stock Ownership Plan (“ESOP”), plaintiff Janice A. Moore, sued the ESOP’s trustees asserting that they breached their fiduciary duties and engaged in prohibited transactions under ERISA by allegedly engaging in stock price manipulation. Defendants moved for summary judgment, arguing that Ms. Moore’s action was untimely. Ms. Moore opposed. She maintained that her complaint was timely because the statute of repose for her claims was tolled due to defendants fraudulently concealing their wrongdoing. She went on to argue that defendants did not “cure the fraudulent concealment before the ESOP’s termination on December 31, 2016, nor did they cure it before the final distributions from the ESOP were made in 2018.” In this decision, the court denied defendants’ summary judgment motion. The court concluded that there was a genuine dispute of material fact on this matter, as the parties are in dispute over “whether Plaintiff should have known of the prohibited transaction within the six years after they occurred,” and therefore viewing the issue favorably to the non-movant, declined to award judgment to the defendants. Specifically, the court held that Ms. Moore had alleged enough in her complaint to plausibly infer that defendants had failed to comply with disclosure requirements by inaccurately reporting the loan and stock information on the relevant Form 5500 filings with the Department of Labor. Such failures, if true, would support Ms. Moore’s tolling argument due to fraudulent concealment. Moreover, under Fourth Circuit precedent, the court held that determining whether a plaintiff exercised reasonable diligence in discovering defendants’ wrongdoing “should be decided by the finder of fact and is not amenable to resolution on the pleadings or at summary judgment.” Accordingly, the court determined that the question of whether defendants tolled the statute of repose by preventing Ms. Moore from discovering their alleged breaches due to either concealment or fraud was a genuine issue of material fact which precluded it from granting defendants’ summary judgment motion.