Zall v. Standard Ins. Co., No. 22-1096, __ F. 4th __, 2023 WL 312368 (7th Cir. Jan. 19, 2023) (Before Circuit Judges Hamilton, St. Eve, and Kirsch)

ERISA Section 503 requires that plan fiduciaries decide benefit claims under a “full and fair” claims review procedure. 29 U.S.C. § 1133. The Department of Labor has fleshed out what this means in regulations that it periodically updates, generally to impose additional and more stringent claims processing requirements. Which version of these regulations applies to a given case is a question that frequently arises in the disability context, where benefits are often terminated years after a plan participant first applied for and was awarded benefits. Here, the Seventh Circuit answers that question in the participant’s favor, holding that the regulations in effect at the time of the termination govern. 

Eric Zall worked as a dentist for more than two decades until chronic pain in his neck and right arm made it impossible to continue doing so. In 2013, he filed a claim for long-term disability benefits with Standard Insurance Company, which insured and administered an ERISA-governed disability plan in which Mr. Zall was a participant. At that time, the governing regulations, which were promulgated in 2000 with an effective date of January 1, 2002, required the claims administrator to give copies of all document and records which it considered, generated, or relied upon in denying benefits to the claimant “upon request.” Standard approved Mr. Zall’s claim and paid benefits for six years.

Then, in 2019, Standard terminated Mr. Zall’s benefits based on a determination that his claim was subject to a 24-month benefit limit for disabilities “caused or contributed to by…carpal tunnel or repetitive motion syndrome.” By that time new regulations were in effect, which now require that administrators provide claimants with pertinent information whether they ask for it or not. Despite this requirement, Standard issued a final decision upholding the initial termination of benefits that relied substantially on the report of a physician Standard consulted during the administrative review process, Dr. Michelle Albert, which it did not provide to Mr. Zall.

Mr. Zall sued, arguing, among other things, that Standard denied him “full and fair review” of his benefit claim by failing to give him Dr. Albert’s report, and that Standard’s decision to terminate his benefits was not rationally supported by the evidence. The district court disagreed on both counts. It held that the new regulations were inapplicable because they applied only to claims that were “filed” after April 2018. The district court also concluded that Standard’s determination that Mr. Zall’s condition fell within the 24-month limitation was not “arbitrary and capricious” and was supported by substantial evidence in the form of Dr. Albert’s report.

The Seventh Circuit saw things differently on the “full and fair review” issue, which turned on whether the 2002 or the 2018 regulations applied. The court found the answer in the plain language of the 2018 regulations, which state that, subject to a few inapplicable exceptions, they apply to claims filed after January 1, 2002. The court then rejected each of Standard’s arguments seeking to avoid “this straightforward reading of the controlling text.”

First, the court considered Standard’s argument that a summary of the regulations prepared by the Department of Labor stated that the applicability date of the regulations was April 1, 2018, and this should control. As an initial matter, the court noted that where the text of a regulation is clear, there is no need to consult extratextual evidence on its meaning. Moreover, the court saw no conflict between the summary statement and the effective date of January 1, 2018 set forth in the regulations, reasoning that this simply meant that once the regulations became operative in 2018, they applied to all active claims so long as they were filed after January 1, 2002.

Second, the court rejected Standard’s argument that Mr. Zall waived his “full and fair review” argument by not raising it during the administrative review. The problem with Standard’s waiver argument, the court reasoned, is that “Standard committed the procedural error at the very last stage of Zall’s administrative appeal.”

Standard also argued that Mr. Zall waived the argument about the 2018 regulations “by failing to allege it in his complaint.” According to the court, “[t]his argument reflects a deep and all-too-common misunderstanding of federal pleading requirements.” In fact, the federal rules do not require plaintiffs to plead legal theories, and even when they do so, those theories may be altered or refined.

Finally, the court rejected Standard’s argument that applying the 2018 regulations to Mr. Zall’s claim would violate general principles disfavoring retroactivity and construing statutory grants of rulemaking authority not to authorize retroactive rulemaking unless they do so expressly. But these rules disfavoring retroactivity apply only to substantive rules, and changes in procedural rules do not raise concerns about retroactivity. The court concluded that the “Claims procedure” regulations at issue were “purely procedural” and could therefore be applied to disputes arising before their enactment. The court ended this discussion of retroactivity by noting that it “would have been easy for Standard to comply with the new procedural requirement without any prejudice to its interests” by simply providing Mr. Zall with a copy of, and a chance to respond to, Dr. Albert’s report “sufficiently in advance” of its final determination.

Although the court agreed with Mr. Zall that he was prejudiced by Standard’s failure to provide him with Dr. Albert’s report while Mr. Zall’s claim was still undergoing administrative review, the court concluded that it “could not reliably say whether Standard acted arbitrarily and capriciously in terminating” his benefits. The court therefore declined to review Standard’s substantive decision to terminate benefits and instead remanded the case to Standard to allow Mr. Zall the opportunity to make additional arguments and submit additional evidence during a full and fair review of his claim.     

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

Attorneys’ Fees

Ninth Circuit

Gary v. Unum Life Ins. Co. of Am., No. 3:17-cv-01414-HZ, 2023 WL 196172 (D. Or. Jan. 17, 2023) (Judge Marco A. Hernandez). Plaintiff Alison Gary found success in the Ninth Circuit when it determined that Unum Life Insurance Company of America abused its discretion by failing to provide her long-term disability benefits. Subsequently, more than five years after commencing legal action, Ms. Gary has moved for an award of attorneys’ fees and costs pursuant to ERISA Section 502(g)(1). Ms. Gary was represented in this matter by six attorneys and one paralegal. For their years of work in the case, counsel sought a total fee award of $683,644.20, including a requested 1.2 multiplier. As an initial matter, the court stated that Ms. Gary was entitled to an award of fees and costs under the Ninth Circuit’s Hummell test because she succeeded on the merits, Unum can satisfy a fee award, and as a fee award will serve a deterrent purpose discouraging Unum from engaging in the same conduct in the future. Satisfied that Ms. Gary was entitled to an award of fees and costs, the court assessed the lodestar. Counsel sought the following hourly rates: for lead counsel Arden J. Olson, an experienced ERISA attorney practicing for over 4 decades – $540; for appellate counsel Sharon A. Rudnick, an experienced ERISA practitioner with 49 years of experience – $550; for appellate counsel Susan Marmaduke, an experienced appellate lawyer practicing for 35 years – $540; for attorney Aaron Landau, a civil rights and ERISA practitioner with 12 years of experience – $410; for attorney Aaron Crockett – $290; for attorney Julian Marrs, a former clerk of the Alaska Supreme Court and a litigator with years of experience – $305; and for paralegal Ginger Fullerton – $150. The court adjusted the hourly rate only of attorney Landau, whose rate was lowered to $362 per hour, which the court felt was an appropriate rate for an attorney of his skill and experience in Oregon during the relevant period. The remainder of the requested hourly rates were awarded unadjusted. Then the court addressed the reasonableness of the hours billed. Counsel sought compensation for a total of 1,288 hours of work performed by all the attorneys and the paralegal. The court reduced these down to about 900 hours. Of note was the court’s reduction of counsel’s 24.7 hours drafting the complaint down to a mere 8 hours. Also notable was the fact that the court awarded no hours whatsoever to counsel Susan Marmaduke, and only a half-hour to counsel Julian Marrs. These hundreds of billed hours were cut for being excessive, duplicative, clerical, and because the fee claim exceeded the damages that were awarded. The court also declined to apply the requested 1.2 multiplier, concluding “an enhanced award is neither appropriate nor justified in the case.” Accordingly, the court awarded fees comprised of its crafted lodestar: $416,749.05. Finally, as mandated by the court of appeals, Ms. Gary was awarded $171 in costs.

Breach of Fiduciary Duty

Second Circuit

Singh v. Deloitte LLP, No. 21-CV-8458 (JGK), 2023 WL 186679 (S.D.N.Y. Jan. 13, 2023) (Judge John G. Koeltl). Former employees of a financial services firm, Deloitte LLP, commenced a putative class action alleging breaches of fiduciary duties in connection with Deloitte’s two defined-contribution retirement plans, a profit-sharing plan and a 401(k) plan. In their complaint, these participants allege the plan’s fiduciaries fell short of their obligations under ERISA by not ensuring the investments within the plans were “appropriate, had no more expense than reasonable and performed well as compared to their peers.” Defendants moved to dismiss for lack of Article III standing pursuant to Federal Rule of Civil Procedure 12(b)(1), and for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). To begin, the court addressed whether plaintiffs had constitutional standing to assert their class-wide claims. Defendants argued that because none of the named plaintiffs were participants in the Profit Sharing Plan, they lack standing with respect to the claims involving that plan. The court agreed. In addition, the court dismissed plaintiffs’ claims pertaining to four of the six challenged funds in the 401(k) Plan, because none of the plaintiffs invested in those four funds and so were not personally financially harmed by their performance, expense ratios, or fees. The court then analyzed whether plaintiffs stated their remaining claims. The court concluded they had not. The court viewed plaintiffs’ allegations that the fees and expense ratios were astronomically high as being inappropriately focused on the outcome. Instead, the court emphasized that its role in analyzing a breach of fiduciary duty allegation is to determine whether a fiduciary’s process and decision-making was flawed, which is a context-specific endeavor. In the context provided by plaintiffs, the court could not determine that the fiduciaries had breached any duty. This was especially true, the court stated, because plaintiffs’ comparisons and benchmarks were “disingenuous” amalgamations of direct and indirect costs, which the court felt lacked sufficient detail on the services provided for the fees. “Because the plaintiffs’ comparison does not compare apples to apples, the comparison fails to indicate plausibly imprudence on the part of the defendants.” For these reasons, the court granted the motion to dismiss without prejudice.

Fifth Circuit

Locascio v. Fluor Corp., No. 3:22-CV-0154-X, 2023 WL 320000 (N.D. Tex. Jan. 18, 2023) (Judge Brantley Starr). Two participants of the Fluor Corporation Employees’ Savings Investment Plan, plaintiffs Deborah Locascio and David Summers, commenced a putative class action lawsuit against the Fluor Corporation, the plan’s administrative and investment committees, and the plan’s consulting firm, Mercer Investments, LLC, for breaches of fiduciary duties of prudence, loyalty, and monitoring. Defendants moved to dismiss for lack of Article III standing under Rule 12(b)(1), and for failure to state a claim under Rule 12(b)(6). Their motion was granted by the court in this order. To begin, the court granted the motion to dismiss Ms. Locascio’s claims for lack of standing because she did not personally invest in any of the challenged funds and thus suffered no personal injury in fact traceable to defendants’ actions. Mr. Summers, the court held, also lacked Article III standing to bring all claims involving nine out of twelve plan options in which he did not invest. Accordingly, the court dismissed all claims involving those nine investment funds. The court next turned to evaluating the claims under Rule 12(b)(6). At bottom, the court found the complaint conclusory, thanks to its focus on the underperformance of the highlighted portfolio options, and its lack of plausible allegations about a flawed process used to reach those undesirable results. The court came close to stating outright that performance results are immaterial to pleading breaches of fiduciary duties. “Summers must demonstrate ‘conduct, not results,’” the court wrote. By focusing on the results, the court stated the complaint failed to provide details which could lead it to infer an imprudent or disloyal process. “Put bluntly, a flawed fiduciary process can result in great returns while a diligent and complete fiduciary process can result in underperformance.” As to whether the fiduciaries were disloyal, the court held that more was needed in the complaint to infer a disloyalty beyond the existence of the corporate relationship between Mercer and BlackRock. Finally, the court stated that the complaint’s allegations around Fluor’s failure to question Mercer’s actions and investment choices was “so threadbare that the Court cannot infer Fluor’s failure to monitor.” For the foregoing reasons, the court dismissed the putative class action. However, dismissal was without prejudice, allowing plaintiffs the opportunity to revise and shore up their claims to address the identified deficiencies. Perhaps this summary should end where the court’s decision began: “sometimes stocks underperform.”

Discovery

Seventh Circuit

Central States v. Wingra Redi-Mix, Inc., No. 21 C 3684, 2023 WL 199360 (N.D. Ill. Jan. 17, 2023) (Judge Virginia M. Kendall). After the financial downturn of the 2008 great recession, an employer, defendant Wingra Redi-Mix, Inc., and a multi-employer plan, the Central, States, Southeast, and Southwest Areas Pension Fund, found themselves at odds. A disagreement arose between the two as to whether the employer, whose was experiencing decreased revenue and in turn paying fewer dues to union members, was in violation of an adverse selection rule contained in the governing Trust Agreement. That dispute was eventually resolved, in 2017, by a settlement agreement. One of the provisions of the 2017 settlement agreement imposed a $58 million withdrawal liability on the company if it withdrew from the plan before January 1, 2021. On November 1, 2020, two months before the hefty withdrawal liability provision was set to expire, Central States expelled the company from the plan. Sure enough, two weeks later, Central States requested the $58 million withdrawal liability from Wingra. The Fund then sued Wingra, in this action, seeking a court order imposing the withdrawal liability because Wingra was now no longer part of the fund. Wingra then counterclaimed for breach of settlement agreement. Now the parties are engaged in a discovery dispute. The employer has moved to compel discovery from the Fund. Specifically, Wingra seeks to compel Central States to produce internal emails and text messages from 2017 to 2020 about Wingra, to interview witnesses about what Wingra refers to as Central States’ “scheme,” to audit files Central States kept on Wingra during the relevant period, and other related relevant communications and documents. Central States opposed production, arguing that Wingra waived its right to defenses and counterclaims by not initiating arbitration, and the discovery requests extend beyond the administrative record. On the topic of mandatory arbitration, the court concluded that the relevant statute within MPPAA mandating arbitration “applies only when an employer decides to leave a pension plan, and therefore, an employer’s expulsion falls outside the statute. Therefore, Wingra did not need to initiate arbitration within the prescribed statutory period.” Regarding Central States’ argument about the administrative record, the court stated that “the question is not whether the information sought is part of the administrative record but whether it could conceivably be.” The information Wingra sought, the court held, could conceivably be part of the administrative record, and is therefore discoverable. Furthermore, the particulars of this lawsuit potentially indicate “bad faith by Central States.” Although Wingra may not be able to ultimately prove its narrative of Central States’ “scheme” to enrich itself, the court concluded the allegations themselves “warrant limited discovery into the fund’s decision-making.” Accordingly, Wingra’s discovery request was granted.

Tenth Circuit

Anne A. v. United HealthCare Ins. Co., No. 2:20-cv-00814, 2023 WL 197301 (D. Utah Jan. 17, 2023) (Magistrate Judge Daphne A. Oberg). “The risk of economic injury to defendants outweighs plaintiff’s interest in disclosure,” concludes Magistrate Judge Oberg in this order maintaining the confidentiality designation of documents falling under the disclosure provisions of ERISA and the Mental Health Parity Act, including United Behavioral Health’s MCG healthcare guidelines. The tension at the center of the dispute over the party’s opposing views about the confidentiality of these documents was whether plan information should be available to the public. To the court, the answer was no. Magistrate Oberg interpreted the disclosure provisions in the Parity Act and ERISA, which lack confidentiality language, as unambiguously intending plan documents to be “available only to an exclusive and definable group of people – potential and current plan participants and beneficiaries.” Put another way, the court stated that plan information, which is discoverable, can nevertheless be designated as confidential. Plaintiffs did not sway the court away from this position with their argument that the underlying goal of the Parity Act, raising awareness of mental health and substance use treatment, was proof of congressional intent to promote public disclosure. With that threshold determination made, the court transitioned to conducting a more straightforward evaluation of (1) whether the documents at issue contained confidential business/commercial information; (2) whether the insurance company, United, and healthcare network guidelines and technology company, MCG, would suffer potential financial harm from the disclosure; and (3) whether plaintiffs’ interest in disclosure outweighs any potential business harm. First, the court agreed with defendants that the guidelines and other briefly alluded-to disputed documents contain proprietary secrets. Next, the court held that defendants may be financially harmed by public disclosure of the information. Finally, the court concluded that plaintiffs have no interest in disclosure because designating the documents as confidential will not “impair Plaintiffs’ prosecution of claims.” As for the public’s interest in the information, the court wrote only that Plaintiffs “have shown no other need for public disclosure of the documents.” Accordingly, defendants’ motion was granted.

ERISA Preemption

Fourth Circuit

Bowser v. Cree, Inc., No. 5:22-CV-134-BO, 2023 WL 307453 (E.D.N.C. Jan. 17, 2023) (Judge Terrance W. Boyle). On July 12, 2019, plaintiff Robert Bowser filed a complaint in North Carolina state court alleging that his former employer, defendant Cree, Inc., violated North Carolina wage-and-hour laws and seeking unpaid wages, liquidated damages, and attorneys’ fees in connection with the terms of a severance agreement between the parties. Mr. Bowser further alleged state law breach of contract and unjust enrichment claims. Cree answered the complaint and raised complete ERISA preemption as a defense. It also brought counterclaims against Mr. Bowser. The state law case then proceeded through discovery and the parties moved for summary judgment based on ERISA preemption. The state court held that both Mr. Bowser’s state law claims and Cree’s ERISA preemption defense should proceed to trial. Then, with the court’s permission, Mr. Bowser amended his complaint to assert claims, pled in the alternative, under ERISA, which included a claim for benefits under Section 502(a)(1)(B), and a claim for failing to comply with ERISA notice, record-keeping, and reporting requirements under Section 502(c)(1)(B). Cree subsequently removed Mr. Bowser’s action to federal court based on federal question jurisdiction. Before the court here were two motions; a motion by Cree to dismiss Mr. Bowser’s Section 502(c)(1)(B) claim and a motion by Mr. Bowser to remand. First, the parties stipulated to the dismissal of the Section 502(c)(1)(B) claim. Accordingly, Cree’s motion to dismiss was denied as moot. Second, the court held that “Cree waived its right to removal by demonstrating a clear, unequivocal intent to remain in state court.” Removal, the court held, was untimely in this instance. Initial pleading in 2019 “put Cree on notice that the case was removable.” Mr. Bowser’s amendment to the complaint years later did not restart the clock and therefore “did not provide Cree with a new opportunity to remove the case.” Accordingly, the court found Cree’s removal improper and so granted Mr. Bowser’s motion to remand.

Exhaustion of Administrative Remedies

Fifth Circuit

Campbell v. Cargill, Inc., No. 1:22-CV-70-SA-DAS, 2023 WL 242388 (N.D. Miss. Jan. 17, 2023) (Judge Sharion Aycock). In 2021, Cargill, Inc. sent its former employee, plaintiff Kenneth Campbell, paperwork informing him his pension benefits had fully vested. Mr. Campbell subsequently contacted Cargill and its HR department to ask questions about his pension benefits. These communications were verbal. Mr. Campbell never submitted a written claim for benefits. However, in 2022, Mr. Campbell did receive a written denial letter, which informed him that his benefits had been fully paid in 1986 in a $3,500 lump-sum payment. Afterwards Mr. Campbell commenced this action challenging that determination. Cargill moved to dismiss, or alternatively, for summary judgment. As a preliminary matter, the court decided to convert Cargill’s motion to one for summary judgment under Rule 56, concluding that both parties relied on material outside the pleadings. Next, the court denied Mr. Campbell’s request for time to conduct discovery. The court stated that Mr. Campbell’s assertion that he was not provided a copy of the plan was irrelevant to the issue of whether he could be excused from exhausting administrative remedies, and was not a disputed fact in any event as Cargill confirmed that it did not give Mr. Campbell the plan. Thus, the court saw no reason to delay its ruling. The court ultimately held that there was not a genuine dispute around the issue of exhaustion, as it was undisputed that Mr. Campbell did not submit a claim for benefits in writing as required under the plan. Therefore, the court held Mr. Campbell did not exhaust the claims procedure before engaging in litigation. Under Fifth Circuit precedent, the court concluded that Mr. Campbell’s informal communication with the HR team could not substitute for the plan’s formal written claims procedure requirement. Allowing such circumvention, the court reasoned, would frustrate the principles of the exhaustion requirement, “including the need for creation of a clear administrative record prior to litigation.” Finally, the court highlighted another Fifth Circuit decision, Meza v. General Battery Corp.,908 F.2d at 1279, where the Fifth Circuit found that exhaustion could not be excused even when participants were never informed of the applicable procedures. Consequently, the court decided that the administrator’s failure to provide plan documents to Mr. Campbell did not excuse Mr. Campbell’s failure to comply with the requirement to exhaust. For these reasons, the court granted Cargill’s summary judgment motion.

Pension Benefit Claims

Sixth Circuit

Kanefsky v. Ford Motor Co. Gen. Ret. Plan, No. 22-cv-10548, 2023 WL 186800 (E.D. Mich. Jan. 13, 2023) (Judge Sean F. Cox). Plaintiff Peter Kanefsky worked for the Ford Motor Company for 38 years, in both England and America. After being laid off in 2019, Mr. Kanefsky contacted the Ford Motor Company General Retirement Plan and requested a retirement benefits estimate. He was given a calculation and a benefits kit. Based on the information provided Mr. Kanefsky and his wife, plaintiff Jennifer Kanefsky, elected a pension plan entitling Mr. Kanefsky to $6,225.24 per month for the remainder of his life, and $4,046.41 per month for Ms. Kanefsky’s life should he predecease her. The Plan approved the Kanefskys’ benefit application, and for two years paid Mr. Kanefsky the amount he elected. Then, in 2021, the Plan informed the Kanefskys that it had incorrectly overpaid their benefits due to an error offsetting the benefits from the time working in America with the benefits accrued from the time working in the UK. The Ford retirement plan’s newly determined monthly benefit rate was about half the amount Mr. Kanefsky had been previously receiving. The plan also informed plaintiffs that it had overpaid them more than $50,000 in the two years since they began receiving the retirement payments. The Plan then unilaterally reduced Mr. Kanefsky’s monthly benefit payment to $1,898.73 per month until it recovered the overpayment amount. Mr. Kanefsky filed a claim with the plan challenging the change, and after his claim was rejected on appeal the Kanefskys commenced this ERISA equitable estoppel action seeking a court order estopping Ford from permanently reducing the monthly payments and from recouping the alleged overpayment. Defendants moved to dismiss for failure to state a claim. Their motion was granted. The court stated that under Sixth Circuit precedent plaintiffs are required to demonstrate “an intention on the part of the party to be estopped that the representation be acted on, or conduct toward the party asserting the estoppel such that the latter has a right to believe the former’s conduct is so intended.” The court agreed with defendants that the Kanefskys could not satisfy this requirement and that their complaint accordingly was legally insufficient. This was true, the court reasoned, because plaintiffs provided no evidence that Ford intended the Kanefskys to act based on the representations it made in the benefits kit and calculations documents. Although the company made a mistake in responding to Mr. Kanefsky’s inquiry, the court wrote that Ford “stood to gain no benefit regardless of when [he] started to receive benefits.” Thus, the court ruled that the complaint did not adequately state an estoppel claim and dismissed the case.

Plan Status

Ninth Circuit

Steigleman v. Symetra Life Ins. Co., No. CV-19-08060-PCT-ROS, 2023 WL 345924 (D. Ariz. Jan. 20, 2023) (Judge Roslyn O. Silver). On March 29, 2022, the Ninth Circuit reversed the district court’s order in this case granting summary judgment in favor of defendant Symetra Life Insurance Company on plaintiff Jill Steigleman’s state law breach of contract and bad faith claims challenging the denial of her long-term disability benefits. In that order, the appeals court concluded that there was a genuine dispute of material fact about the application of ERISA preemption and that the district court erred by holding that the policy was an employee welfare plan governed by ERISA. Ms. Steigleman has since moved for summary judgment that ERISA does not preempt her state law claims for breach of contract and bad faith. Symetra, meanwhile, has cross-moved for summary judgment in favor of the opposite view. In this decision, the court denied the motions of both parties and set a bench trial on the issue of ERISA applicability. Recognizing that it is Symetra’s burden to establish the plan is governed by ERISA, the court stated that the insurance company will need to prove certain facts such as the existence of a selected package of benefits, a unique eligibility requirement set by Ms. Steigleman, that Ms. Steigleman paid the entirety of the employees’ premiums, or that employees were only offered a subset of the benefits offered. If Symetra can prove these facts, the court wrote “it will be difficult to conclude ERISA does not apply.” However, to decide the issue, the court articulated that it would need to make credibility determinations about what to believe, which cannot be done during summary judgment. Thus, “[a] bench trial is necessary.”

Pleading Issues & Procedure

Sixth Circuit

Trustees of the Painters Union Deposit Fund v. Eugenio Painting Co., No. 22-12416, 2023 WL 273996 (E.D. Mich. Jan. 18, 2023) (Judge Robert H. Cleland). In this action, a union and its Taft-Hartley plan have sued a contributing employee under ERISA for violating the terms of their collective bargaining agreement. Specifically, plaintiffs allege that the company, Eugenio Painting Co., failed to permit an audit as required under the terms of their agreement. Furthermore, the union stated that it was informed that the employer was using non-union contractors to perform labor and was taking other steps to avoid paying requisite benefit contributions. Accordingly, plaintiffs brought a two-count complaint: count one for refusal to comply with the audit and count two for unpaid contributions/breach of collective bargaining agreement. Eugenio Painting moved to dismiss. The motion was denied. Defendant first argued that plaintiffs are only entitled to an audit that is time-limited to the term of the current operative collective bargaining agreement. Therefore, defendant stated that the collective bargaining agreement does not authorize the six-year audit plaintiffs seek. The court disagreed. The court stated that plaintiffs plausibly alleged that the audit provision and its terms are an “evergreen” clause of the collective bargaining agreement that renews annually unless a signatory gives notice of its termination. Because Eugenio Painting has always been bound by the same audit provision, which expressly states that it extends the obligations of the agreement, the court stated that plaintiffs adequately alleged count one. Next, defendant sought dismissal of count two of the complaint. Defendant stated that plaintiffs’ use of the term “upon information and belief” meant that their claim for breach of contract was hypothetical. The court said this was not so. Particularly because plaintiffs do not yet have all of the documents within their possession to say with certainty what violations the employer has committed, the court stated that they have for now sufficiently stated their claim for unpaid contributions and breach of contract. Thus, the court held plaintiffs satisfied notice pleading under Federal Rule of Civil Procedure 8, and so declined to dismiss either cause of action.

Withdrawal Liability & Unpaid Contributions

Seventh Circuit

Plumbers’ Pension Fund v. Pellegrini Plumbing, LLC, No. 20-cv-5024, 2023 WL 264392 (N.D. Ill. Jan. 18, 2023) (Judge Steven C. Seeger). In 2014, a group of related multi-employer pension funds sued a contributing employer, Pellegrini Plumbing, LLC, to recover unpaid contributions. Two years later, the funds won their case and judgment was entered against Pellegrini Plumbing for over $700,000. Some of that money was paid by Pellegrini Plumbing, but hundreds of thousands of dollars of the judgment were not. “The owner of the company, Daniel Pellegrini, turned over a new leaf (or, depending on your perspective, maybe he turned over the same leaf.) In 2019, Daniel Pellegrini created a new company: Daniel Pellegrini Pluming, LLC.” In response, the funds brought this action seeking to hold both companies and their owner responsible for the unpaid contributions they owe as both alter egos and successors. Defendants moved to dismiss for lack of subject matter jurisdiction. They argued that Seventh Circuit precedent holds that federal district courts lack jurisdiction over standalone claims for successor liability to enforce a prior ERISA judgment. However, as the court pointed out, defendants did not address the remainder of plaintiffs’ claims which alleged alter ego liability for unpaid contributions, breach of collective bargaining agreement, successor-in-interest under state law, and successor liability under the collective bargaining agreement. All of these claims, the court expressed, do not have jurisdictional issues as they each sufficiently allege that defendants violated a federal statute or a state law sharing common facts. Thus, the court dismissed only one of plaintiffs’ causes of action to the extent that it alleged successor liability under ERISA to enforce the 2016 judgment “without an ongoing violation of the collective bargaining agreement by Daniel Pellegrini Plumbing, LLC.” Otherwise, the motion to dismiss was denied.

It was a slow week in ERISA-land, as the courts presumably continue to recover from December and January vacations.

Read on for summaries of this week’s cases, which include a potential class action challenge to Hartford’s disability benefit claims handling (McQuillin v. Hartford), another skirmish in the battle between employees and employers over whether plan-wide claims should be arbitrated (Best v. James), and a cow’s powerful $100,000 kick (Stover v. CareFactor).

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

Arbitration

Sixth Circuit

Best v. James, No. 3:20-cv-299-RGJ, 2023 WL 145007 (W.D. Ky. Jan. 10, 2023) (Judge Rebecca Grady Jennings). In early 2020, a putative class of participants of the ISCO Employee Stock Ownership Plan (“ESOP”) filed a breach of fiduciary duty and prohibited transaction class action against ISCO Industries, Inc. and its executives under ERISA Sections 502(a)(2) and (a)(3). Defendants moved to dismiss in favor of enforcing arbitration agreements plaintiffs signed when they were hired. On September 22, 2022, the court granted defendants’ motion. A summary of that decision can be found in the September 28, 2022 edition of Your ERISA Watch. Plaintiffs moved pursuant to Rule 59 for reconsideration. Defendants moved for leave to file a surreply to plaintiffs’ motion for reconsideration. To begin, the court granted defendants’ motion. Defendants argued that plaintiffs were incorrect in their interpretation of federal law regarding arbitration agreements prohibiting plan-wide relief in ERISA actions and their view that class waiver is unenforceable because Section 502(a)(2) mandates proceeding on a class basis. Furthermore, defendants argued that plaintiffs “recharacterized their manifest injustice argument in reply.” The court found these arguments worthy of consideration and thus felt the surreply should be permitted. Next, the court analyzed plaintiffs’ motion for reconsideration. Regarding plaintiffs’ Section 502(a)(3) claims seeking individual monetary relief, the court held that its original analysis concluding that the employment agreements, which contained express references to ERISA actions, bound their Section 502(a)(3) claims to arbitration “remains appropriate.” With regard to plaintiffs’ plan-wide claims brought under Section 502(a)(2), the court concluded that the ESOP’s arbitration amendment, which was signed by ISCO representatives, constituted a valid consent to arbitrate by the plan. “Plaintiffs’ ERISA claims are within the scope of the ESOP Amended Agreement, as it explicitly includes an ‘ERISA Arbitration and Class Action Waiver.’ Under this agreement, Plaintiffs must arbitrate their claims.” Thus, the court denied plaintiffs’ motion to reconsider.

Attorneys’ Fees

First Circuit

Cutway v. Hartford Life & Accident Co., No. 2:22-cv-0113-LEW, 2023 WL 156863 (D. Me. Jan. 10, 2023) (Judge Lance E. Walker). Plaintiff Kevin Cutway sued Hartford Life & Accident Company, the administrator of his long-term disability plan, after the insurer ceased monthly benefit payments to Mr. Cutaway to recover overpayments it says it paid to him through its own recently discovered error. In his action, Mr. Cutway seeks a court order requiring Hartford to stop offsetting his benefits and for reimbursement of the amount withheld to date. Mr. Cutway filed a motion for temporary restraining order or preliminary injunction requesting the court keep Hartford from withholding his monthly benefits during the duration of this litigation. On August 29, 2022, the court issued an order granting Mr. Cutway’s motion, as we summarized in our September 7, 2022 edition. Following that order, Mr. Cutway subsequently moved for attorneys’ fees under ERISA Section 502(g)(1). In this order, the court denied without prejudice Mr. Cutway’s motion. At bottom, the court reasoned that while the outcome of its August 29 ruling “absolutely constituted ‘some meaningful benefit for the fee-seeker,’” that success was ultimately not derived from “delving into meritorious issues.” Rather, the court came to its conclusion “largely upon considering the irreparable harm that Mr. Cutway would face if such relief was not granted.” As the application of a preliminary injunction is not a final factual determination but a protection put in place “to prevent a threatened wrong or any further perpetration of injury,” the court stated that it was only ruling in order to preserve the status quo until the merits of the parties’ arguments have been litigated and decided. Thus, the court concluded the time to explore a fee award will come at a later date when a party “is able to show some degree of success on the merits.”

Breach of Fiduciary Duty

Second Circuit

McQuillin v. Hartford Life & Accident Ins. Co., No. 20-CV-2353 (JS) (ARL), __ F. Supp. 3d __, 2023 WL 177909 (E.D.N.Y. Jan. 13, 2023) (Magistrate Judge Arlene R. Lindsay). Plaintiff John McQuillin sued Hartford Life and Accident Insurance Company under ERISA after his long-term disability benefit claim was denied. Mr. McQuillin’s complaint was dismissed on May 25, 2021, for failure to exhaust administrative remedies. That decision was overturned by the Second Circuit on June 7, 2022, which was the case of the week in our June 15, 2022 edition. The court of appeals concluded that Mr. McQuillin’s administrative remedies were deemed exhausted because Hartford was in violation of ERISA’s regulation requiring a final benefit decision be reached within 45 days of a claimant’s administrative appeal. Following the reversal, Mr. McQuillin filed a motion to amend his complaint. The amended complaint seeks to add a breach of fiduciary duty claim and equitable relief ordering defendant be removed as claim administrator from the plan. The new allegation claims that “Hartford’s unwritten protocols for remanding administrative appeals to its claim department, and relying on the EBSA COVID notice to delay rendering timely benefits decisions, breach Hartford [sic] fiduciary duty to all LTD Plan participants.” Magistrate Judge Lindsay found Mr. McQuillin’s allegations about a systematic claim administration practice in violation of fiduciary duties plausible. However, Magistrate Lindsay conditioned granting Mr. McQuillin’s motion to amend to add the breach of fiduciary duty claim on Mr. McQuillin taking steps to proceed with this claim on behalf of all plan participants. Accordingly, the motion to amend was granted.

Disability Benefit Claims

Seventh Circuit

Arenson v. First Unum Life Ins. Co., No. 20-cv-02800, 2023 WL 184233 (N.D. Ill. Jan. 13, 2023) (Judge John J. Tharp, Jr.). Plaintiff Gregg Arenson, a former executive futures and options trade broker, sued Unum Life Insurance Company challenging its decisions denying his claims for long-term disability benefits and waiver of life insurance premiums. Mr. Arenson, who suffered a stroke caused by the heart condition atrial fibrillation, alleged that Unum improperly discounted the severity of his cognitive disabilities when making its decisions. The parties cross-moved for summary judgment. Upon review of the administrative record, the court held that the medical reports and test results “revealed no severe cognitive difficulties.” The court cited to one of Mr. Arenson’s own neurologists, who discounted that his cognitive difficulties were the result of the stroke and responded to Unum’s inquiries that he believed Mr. Arenson could perform occupational demands and return to work. Unum’s reviewing physicians agreed and explained why they believed Mr. Arenson’s cognitive impairments were not severe or disabling. Based on this information, the court could not conclude that “Unum’s decision was irrational.” Thus, the court affirmed both denials and granted Unum’s motion for summary judgment.

Medical Benefit Claims

Sixth Circuit

Stover v. CareFactor, No. 2:22-cv-1789, 2023 WL 130709 (S.D. Ohio Jan. 9, 2023) (Judge Sarah D. Morrison). In 2021, in an accident which could have been taken straight from the plot of a Thomas Hardy novel, plaintiff Richard Stover was injured by a cow. The cow’s kick caused a severe ankle break which required immediate surgery. As a result of the injury, Mr. Stover incurred more than $100,000 in medical expenses. In this Section 502(a)(1)(B) action, Mr. Stover seeks to overturn his ERISA health plan’s denial of benefits made by the plan’s third-party claims administrator, defendant CareFactor. CareFactor denied the claims for coverage under the plan’s “Occupational Exclusion,” which excludes injuries resulting from work of all kinds including self-employment. In his complaint, Mr. Stover, an employee of a plumbing company, argued that he raises and butchers cattle for personal consumption, and that his injury therefore did not arise from work. CareFactor moved to dismiss the complaint and requested attorneys’ fees. It argued that it was not a proper defendant under Section 502 because it “is simply a non-fiduciary claims administrator.” The court, in a brief and straightforward decision, disagreed with CareFactor’s argument. Referring to the Supreme Court’s decision in Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000), the court wrote, “Like §502(a)(3), §502(a)(1)(B) identifies the possible plaintiffs in a claim for benefits, but ‘admits no universe of the limit of possible defendants.’” The complaint, the court held, sufficiently alleged that CareFactor exercised control over the benefits denial and subsequent appeals and is therefore a proper defendant to support a Section 502 claim against it. Drawing this conclusion, the court denied both CareFactor’s motion to dismiss and its concurrent motion for attorneys’ fees.

Pleading Issues & Procedure

Tenth Circuit

Smith v. Aetna, No. 22-cv-00426-RMR-KLM, 2023 WL 143025 (D. Colo. Jan. 10, 2023) (Magistrate Judge Kristen L. Mix). Pro se plaintiff Matthew Smith sued Aetna in small claims court challenging its denial of his claim for disability benefits under plans governed by ERISA. Aetna removed the action to federal district court and subsequently moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Magistrate Judge Mix in this order recommended that Aetna’s motion to dismiss be granted, with leave to amend. The Magistrate Judge stated that Mr. Smith’s complaint “clearly falls short of Rule 12(b)(6),” because other than stating that Mr. Smith was not approved for disability benefits, the complaint is silent about Aetna’s actions, the harm that resulted from those actions, “and what specific legal right the plaintiff believes the defendant violated.” Accordingly, the Magistrate viewed Mr. Smith’s allegations as underdeveloped and devoid of necessary facts to meet the pleading standards of Federal Rule of Civil Procedure 8(a).

Eleventh Circuit

Blessinger v. Wells Fargo & Co., No. 8:22-cv-1029-TPB-SPF, 2023 WL 145449 (M.D. Fla. Jan. 10, 2023) (Judge Tom Barber). Last May, plaintiffs Guy Blessinger, Audra Niski, and Nelson Ferreira sued Wells Fargo & Company under ERISA, as amended by the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), for failing to provide notice of rights of eligibility to continued health plan coverage in a manner understood by an average plan participant. Plaintiffs, who elected not to continue health plan coverage based on Wells Fargo’s notice, each incurred medical expenses. They argued that the notices they were given discouraged them and others similarly situated from electing COBRA coverage “because they contained misstatements of law related to criminal and civil penalties and IRS penalties.” Wells Fargo moved to dismiss the complaint. First, the court denied the motion to dismiss based on defendant’s argument that the language within the notices was “neither confusing nor legally incorrect.” Such an argument, the court stressed, directly challenges the merits of plaintiffs’ complaint, and is therefore not appropriate for resolution at the pleading stage. However, Wells Fargo’s motion was granted to the extent plaintiffs’ claims related to the notices’ failure to identify the plan administrator. Wells Fargo argued, and plaintiffs conceded, that COBRA notices are not required to identify the plan administrator. Accordingly, the motion to dismiss was granted only with regard to this aspect of plaintiffs’ complaint.

Severance Benefit Claims

Third Circuit

Cope v. Hudson Bay Co. Severance Pay Plan for Emps. Amended & Restated, No. 20-6490, 2023 WL 174960 (E.D. Pa. Jan. 12, 2023) (Judge Chad F. Kenney). On May 25, 2017, Hudson Bay Company, the owner of many clothing and department stores, including Lord & Taylor, enacted a severance plan governed by ERISA to give a sense of security to employees should their positions be eliminated following a merger and acquisition or the sale of one of Hudson Bay’s companies. Such a sale did occur, in the fall of 2019, when Hudson Bay Company sold Lord & Taylor to Le Tote. In swift fashion, Hudson Bay amended the severance plan to remove Lord & Taylor from the list of entities defined as an “Employer.” Just three days after the amendment, plaintiff Roxanne Cope, a sales staffing coordinator at Lord & Taylor, was terminated. Following an unsuccessful attempt at applying for benefits under the severance plan, Ms. Cope commenced this putative class action against the plan, Hudson Bay Company, and the plan’s administrator. In her complaint, Ms. Cope asserted four causes of action; (1) wrongful denial of benefits under Section 502(a)(1)(B); breach of fiduciary duty under Section 502(a)(3); interference with attainment of benefits under Section 510; and violations of Pennsylvania Wage Payment and Collection Law. Defendants moved for dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Their motion was granted by the court in this order, which dismissed Ms. Cope’s complaint with prejudice. First, the court interpreted the plan language to evaluate whether Ms. Cope stated a valid claim under Section 502(a)(1)(B). To be eligible for benefits, the severance plan states that a claimant must be an eligible employee of an employer who incurs a covered termination of employment. The court concluded that Ms. Cope did not allege facts in her complaint demonstrating that Lord & Taylor was an employer, because it was not an “Affiliate” of Hudson Bay Company, as defined by the IRS, at the time of her termination. To draw this conclusion, the court mostly ignored Ms. Cope’s allegations that Le Tote and Hudson Bay were affiliated companies under common control. Thus, the court concluded that the complaint failed to state a claim under Section 502(a)(1)(B). Next, the court applied much the same logic to the breach of fiduciary duty claim, holding that fiduciaries, who are required to apply the terms of the plan when making benefit determinations, did not breach any duty by finding Ms. Cope ineligible for benefits under the plan. Furthermore, the court stated that under Supreme Court precedent amending a plan is not a fiduciary action, and defendants therefore did not breach any duty by amending the plan after the sale of Lord & Taylor to Le Tote. Lastly, the court stated that defendants did not breach any duty by failing to inform Ms. Cope of the amendment to the plan, writing, “there was no obligation for Defendants to disclose information to Plaintiff about potential changes to the Plan that did not apply to her.” Regarding Ms. Cope’s Section 510 claim, the court stated that “amending a plan does not violate Section 510,” and Ms. Cope’s complaint therefore “does not allege any prohibited employer conduct.”  Finally, Ms. Cope’s state law claim, which sought benefits under the severance plan, was dismissed as being preempted by ERISA. The decision ended with the court’s conclusion that amendment to the complaint would be futile. In its view, no allegation could overcome the identified deficiencies.

Withdrawal Liability & Unpaid Contributions

Sixth Circuit

Thrower v. Global Team Elec., No. 3:20-cv-00392, 2023 WL 149994 (M.D. Tenn. Jan. 10, 2023) (Magistrate Judge Jeffery S. Frensley). Two Taft-Hartley funds, a multi-employer pension plan and a multi-employer welfare benefits plan, sued an employer, defendant Global Team Electric, LLC, and its co-owners, defendants Calvin Godwin and Darmelleon Lee, for delinquent contributions and fiduciary breaches. The Funds moved for summary judgment, entry of judgment, and an award of attorneys’ fees under ERISA. Magistrate Judge Frensley recommended in this order that plaintiffs’ motions be granted. Ultimately, the Magistrate concluded that there was no genuine issue of material fact. It was undisputed that the employer was obligated to pay contributions to the Funds on behalf of covered employees per the terms of the governing collective bargaining agreements. Evidence proved that the employer and its owners skirted their duty to make the contributions by using plan assets for personal and business expenses, underreporting the hours worked by covered employees, and falsifying the owners’ own hours of covered employment. Finally, the Magistrate concluded that defendants were fiduciaries under ERISA because of their authority to control management of assets, and that they were responsible fiduciaries and co-fiduciaries for the breaches committed. Thus, it was the Magistrate’s opinion that the Funds’ motion for summary judgment be granted. As for their request for awarded damages in the total amount of $193,112.70, comprised of $176,126.62 in delinquent contributions, statutory penalties, and interest, plus attorneys’ fees and costs in the amount of $16,986.08, Magistrate Frensley also recommended it be granted as the amount of damages was uncontroverted and the attorneys’ fee amount was based on a reasonable lodestar.

Curtis v. Aetna Life Ins. Co., No. 3:19-cv-01579-MPS, 2023 WL 34662 (D. Conn. Jan. 4, 2023) (Judge Michael P. Shea)

In this week’s notable decision, Judge Michael P. Shea applied a “somewhat-novel doctrine of ‘class standing’” to significantly limit claims in an ERISA healthcare coverage class action against Aetna Life Insurance Company. This application of class standing as a hurdle separate and above Article III standing and outside the bounds of Federal Rule of Civil Procedure 23 analysis strikes us as a topic worthy of our readers’ attention.

Plaintiff Dennis E. Curtis, a beneficiary of a Yale University ERISA group medical benefits plan, brought suit on behalf of himself and a class of similarly situated participants and beneficiaries of ERISA healthcare plans administered by Aetna challenging Aetna’s use of medical necessity criteria for physical and rehabilitative therapies not set forth in the plans or their provisions. According to the complaint, these internal “Clinical Policy Bulletins” relied upon by Aetna “modify and limit, to the plan members’ detriment, the plans’ definition of ‘medically necessary.’” Thus, Mr. Curtis alleges that Aetna has violated ERISA by failing to administer the claims for medical benefits in accordance with the language of the plans.

Before Mr. Curtis obtained discovery and moved for class certification under Rule 23, Aetna filed a motion for partial dismissal. Aetna argued that Mr. Curtis, who was denied coverage for physical therapy services, never submitted claims for coverage for additional types of rehabilitation services benefits and therefore lacked class standing to bring these claims. Aetna, however, took a clear position that it was not challenging Mr. Curtis’s Article III standing.

The court found that, despite having Article III standing, Mr. Curtis’s challenges to physical therapy denials were too dissimilar to denials received by other potential class members for the five other therapies – speech, pulmonary rehabilitation, cognitive rehabilitation, occupational, and voice – for Mr. Curtis to have class standing to litigate claims related to these services on behalf of the class. The court reasoned that the evidence Mr. Curtis will need to prove his individual claims for physical therapy benefits will be different from the proof needed to prove the other class members’ claims pertaining to the other challenged therapies. This was so, the court concluded, because the Clinical Policy Bulletins contain unique definitions of medical necessity for these six sub-categories of therapies and it could only decide whether Aetna’s actions violated ERISA by individually analyzing the relevant Clinical Policy Bulletin for each therapy.

Despite Mr. Curtis’ allegation that Aetna’s practice of limiting the definition of medically necessary beyond those of the plans was general to all class members, the court found that under Second Circuit precedent Mr. Curtis did not have a “sufficiently personal and concrete stake in proving [the] other, related claims against” Aetna. Thus, the court focused on the differences between the putative class members rather than Aetna’s challenged common practices.

Finally, the court disagreed with Mr. Curtis’s position that Aetna’s challenge to his class standing should be decided on a Rule 23 motion for class certification and not on a motion to dismiss. The court acknowledged that courts within the Second Circuit are not consistent about when they choose to analyze class standing. However, as the court saw it, Mr. Curtis’s individual claims for physical therapy gave him no incentive to develop medical evidence necessary to prove entitlement to different therapies for which he was never denied coverage. The court concluded that this justified analyzing class standing at the motion to dismiss stage, without the benefit of discovery, or the protections and protocols of Rule 23. For these reasons, the court granted Aetna’s motion, “leaving only (Mr. Curtis’) claims on behalf of a class related to… physical therapy benefits for which he sought coverage.”

In reaching this determination, the district court relied on Second Circuit precedent, including the decision in NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Company, 693 F.3d 145 (2d Cir. 2012). However, in NECA-IBEW, the Second Circuit seemed to use class standing to expand Article III standing, not as a limitation, acknowledging that NECA did not have Article III standing to challenge the misrepresentations made with respect to securities it did not invest in, but that it could nevertheless assert those claims on behalf of the class if the challenged conduct implicated “the same set of concerns” as the misrepresentations that NECA did have Article III standing to challenge. Whether the district court’s decision in this case can be squared with that view of class standing is as “murky” as the “line between traditional Article III standing and so-called ‘class standing.’” Ret. Bd. of the Policemen’s Annuity & Benefit Fund of the City of Chicago v. Bank of N.Y. Mellon, 775 F.3d 154 (2d Cir. 2014). 

In any event, this tension between traditional Article III standing, class standing, and class certification under Rule 23 is a compelling topic and perhaps a noteworthy new trend, made particularly interesting in this decision by Aetna’s clear position that it was not challenging the named plaintiff’s Article III standing.

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

Breach of Fiduciary Duty

Ninth Circuit

Lehr v. Perri Elec., No. 19-17199, __ F. App’x __, 2023 WL 21466 (9th Cir. Jan. 3, 2023) (Before Circuit Judges Thomas, Bennett, and Sung). A former employer, trustee, and plan participant, Colleen Lehr, was criminally prosecuted for embezzling funds from the Perri Electric Inc. Profit Sharing Plan and Profit Sharing Trust Fund. The judgment in the criminal case and bankruptcy proceedings ordered restitution payments in the amounts Ms. Lehr embezzled from the plan. In this ERISA breach of fiduciary duty action against the Perri Electric Inc. company and the plan, Ms. Lehr and her husband Paul argued that the restitution payment she paid to Perri Electric should have been put back into the plan, rather than used by the company to cover business expenses. The district court granted summary judgment in favor of defendants, determining that the Lehrs lacked standing. Plaintiffs appealed. On appeal, the Ninth Circuit affirmed, holding “the district court correctly concluded that Ms. Lehr lacked standing to assert an ERISA breach of fiduciary duty claim” under Parker v. Bain, 68 F.3d 1131 (9th Cir. 1995), which held that “a plaintiff lacks standing under ERISA where they breach their fiduciary duty to the plan by embezzling funds in excess of their claimed account balance.” Although the particulars of this action were mostly not addressed in the Ninth Circuit’s decision, it did state that here “the money allegedly owed to the Plan by Ms. Lehr far exceeds her claimed account balance.” Additionally, the appellate court stated that the judgment in the criminal case against Ms. Lehr ordered payment to the Perri Electric company, not the plan, and a debtor in bankruptcy “cannot designate to which liability its payments will be allocated.” Accordingly, the Ninth Circuit found no error in the lower court’s finding that no mandate in the criminal case or the bankruptcy proceedings required the payment to the company be remitted to the plan. However, this view was not shared among all three judges on the panel. Judge Bennett dissented, finding the Lehrs “established a genuine dispute of material fact as to whether Ms. Lehr’s restitution payment constituted a Plan asset.” Judge Bennett argued that a factfinder could interpret the restitution payment as being intended to compensate the plan rather than the company. The majority’s view was flawed, in Judge Bennett’s opinion, because “by finding that the Lehrs lack statutory standing because the restitution payment was unambiguously not a Plan asset, the majority effectively precludes other Plan participants from challenging defendants’ use of the restitution payment under ERISA.” Judge Bennett reasoned that the criminal and bankruptcy judgments “could have been ordered to Perri Electric in its capacity as a fiduciary of the Plan.” This was supported, Judge Bennett concluded, by the fact that Ms. Lehr’s embezzlement was from the plan and not directly from the company, and the ordered restitution was the “exact amount” stolen by Ms. Lehr from the plan. Thus, looking at the facts favorably to the Lehrs, the dissenting opinion concluded that the purpose of the restitution payment was to remediate the plan for its losses, and therefore the Lehrs in their action are “simply seeking to enforce the bankruptcy judgment and not usurp Perri Electric’s supposed sole and unfettered discretion.” Although Ms. Lehr may not be an innocent party, participants who are, Judge Bennett stated, “are left with no recourse against defendants under the statute,” because the majority’s conclusion essentially finds that defendants didn’t violate any fiduciary duty in using the payment to cover business expenses rather than reimburse the plans.

Raya v. Barka, No. 19-cv-2295-WQH-AHG, 2023 WL 27358 (S.D. Cal. Jan. 3, 2023) (Judge William Q. Hayes). On March 19, 2019, the Department of Labor informed the Calbiotech, Inc. 401(k) Profit Sharing Plan that it was opening an investigation into its operations. The Department’s letter informed the plan that it had found that Calbiotech and the other plan fiduciaries failed to timely remit employee contributions and loan payments and failed to make mandatory safe harbor employer contributions into the accounts of the eligible participants in violation of ERISA. Despite this conclusion, the Department of Labor informed the plan that it had decided not to take legal action. Nevertheless, the plan and its fiduciaries did face legal action, when on December 2, 2019, pro se plaintiff Robert Raya filed this ERISA lawsuit challenging defendants’ conduct in administering the plan. In addition to a claim for benefits and claims for breaches of fiduciary duties, Mr. Raya also included a retaliation claim, arguing that defendants unlawfully terminated him in retaliation for requesting plan documents. The court previously granted summary judgment to defendants on plaintiffs’ claim for benefits, leaving Mr. Raya’s claims for equitable relief pertaining to defendants’ breaches of fiduciary duties pursuant to Sections 502(a)(2) and (a)(3), along with his Section 510 retaliation claim. Defendants moved for summary judgment. The court addressed the breach of fiduciary duty claims first. To begin, the court agreed with defendants that the plan’s phrase about matching contributions describing “‘an amount…as determined by the Board,’ expressly gives the Board of Calbiotech discretion to set the amount of matching contribution and does not preclude the Board from setting the amount to zero.” Accordingly, the plan documents allowed the board not to allocate matching contributions, and thus the court found no breach of fiduciary duty on this basis. Thus, defendants were granted summary judgment on the breach of fiduciary duty claims to the extent they were based on defendants’ failure to make matching contributions to the plan. Next, the court found that uncontroverted evidence established that defendants remitted Mr. Raya’s loan payments to his account in their entirety. Although the Department of Labor had found wrongdoing by defendants for failing to remit loan payments to other participants, the remittance schedule the Department provided demonstrated that Mr. Raya’s account was unaffected because the first unremitted payment occurred after Mr. Raya’s loan was fully repaid. Accordingly, defendants were granted summary judgment on the loan payment remittances claims as well. However, the court determined that the final basis for Mr. Raya’s breach of fiduciary duty claims – that defendants failed to make safe harbor matching contributions to the plan – raised a genuine dispute of material fact precluding an award of summary judgment. Additionally, the court found Mr. Raya had standing to assert this claim as a plan participant. Nevertheless, the court permitted Mr. Raya to proceed only with his breach of fiduciary duty claim asserted under Section 502(a)(2), concluding that his Section 502(a)(3) claim was duplicative and without a distinct remedy. Finally, the court denied defendants’ summary judgment motion on Mr. Raya’s retaliation claim. The court concluded that this claim may be timely, as Mr. Raya provided evidence which could indicate fraudulent concealment justifying tolling the statute of limitations. For these reasons, defendants achieved mixed success and their summary judgment motion was granted in part and denied in part as described above.

Disability Benefit Claims

Eighth Circuit

Diaz v. Metropolitan Life Ins. Co., No. 21-cv-679 (MJD/JFD), 2023 WL 112586 (D. Minn. Jan. 5, 2023) (Judge Michael J. Davis). Plaintiff Raul Diaz worked as a flight attendant for American Airlines for over 30 years until he experienced a tragic accident falling off a roof in 2017, which left him injured and disabled. The fall resulted in a calcaneal fracture of his right foot and the injury required four surgeries. Eventually, Mr. Diaz was diagnosed with avascular necrosis, or the death of bone tissue due to lack of blood supply. Mr. Diaz was never physically the same afterwards and was left with debilitating symptoms, including an inability to walk or stand for extended periods of time. In this action he sought a court order overturning defendant Metropolitan Life Insurance Company’s decision to terminate his long-term disability benefits after 24 months, the plan’s limitation for certain musculoskeletal disorders. The parties cross-moved for summary judgment. In this order the court concluded that MetLife abused its discretion and granted summary judgment in favor of Mr. Diaz. In particular, the court concluded the medical record supported Mr. Diaz’s avascular necrosis diagnosis, and MetLife therefore acted arbitrarily and capriciously in finding Mr. Diaz not disabled due to any nonlimited condition. The court found MetLife’s reviewing doctor’s conclusion that “there remains no evidence of imaging to support” the diagnosis of avascular necrosis problematic, especially since the doctor failed to request any additional imaging or medical records and did not attempt to speak to or consult Mr. Diaz’s treating physicians for further clarification. Had MetLife’s reviewers sought evidence of imaging to support the diagnosis rather than simply stating their conclusion to the contrary they would have found it. The court wrote, “the record is filled with evidence of medical imaging to support the claim of Diaz and his treating physicians that Diaz suffers from avascular necrosis. This includes a March 2019 CT Scan, a June 2019 MRI, a November 2019 CT Scan, a bone density test, and x-rays.” Confronted with this objective medical evidence that MetLife failed to address, the court found that MetLife had not satisfied its duties under ERISA as the plan’s administrator. In sum, the court felt that MetLife’s review of Mr. Diaz’s claim was not a quality review, and “MetLife cannot rewrite the administrative record now.”

Ninth Circuit

Veronica L. v. Metropolitan Life Ins. Co., No. 3:21-cv-01260-HZ, 2022 WL 18062830 (D. Or. Dec. 28, 2022) (Judge Marco A. Hernandez). Plaintiff Veronica L. worked for Google for twelve years as a Senior UX Writer until she became disabled in the summer of 2017. At that time, Veronica became unable to carry on working, describing how she “used to be able to push myself through at will and got to a point that I couldn’t push through anymore. I didn’t have the capability anymore.” From 2017 onward, Veronica explained that her mental and physical health problems led her to lead “an entirely different life.” Defendant Metropolitan Life Insurance Company (“MetLife”) approved Veronica’s long-term disability benefit claim but did so for her psychiatric and mental health symptoms, limiting her eligibility for benefits to the plan’s 36-month limitation period. 36 months later, MetLife informed Veronica that it would be terminating her benefits. Following an unsuccessful administrative appeal, Veronica commenced this ERISA suit seeking reinstatement of benefits. She argued that her severe chronic fatigue syndrome, a non-limited condition under her plan, has left her unable to work and that she is therefore entitled to benefits beyond the limitation period. As support, Veronica included medical records from her treating physicians, and all of these health care professionals opined that Veronica’s reports of her symptoms were entirely credible and the level of fatigue she was experiencing could not be attributed to her mental health conditions. MetLife’s reviewing doctor of osteopathy agreed that Veronica suffered from chronic fatigue syndrome but found that no objective evidence supported a finding that the disease was severe enough to be disabling on its own. On de novo review of the administrative record under Federal Rule of Civil Procedure 52, the court ultimately faulted MetLife for conducting a paper-only review of a condition which can only be diagnosed upon subjective symptoms and a physician’s in-person credibility assessment of those self-reported symptoms. Additionally, the court stated that MetLife’s blanket statement of a “lack of objective evidence” was inappropriate because “[f]atigue, like pain, is an inherently subjective condition.” To the court, MetLife’s failure to conduct an independent medical evaluation failed to develop the record such that “the Court cannot definitively determine whether Plaintiff is disabled due to a non-limited condition under the Plan.” To rectify this inadequate review, the court concluded that remand to the plan administrator to further develop the incomplete record was the proper recourse in this instance and declined to award judgment to either party at this time.

Exhaustion of Administrative Remedies

Ninth Circuit

Schmidt v. Employee Deferred Comp. Agreement, No. CV-22-01464-PHX-ROS, 2023 WL 35027 (D. Ariz. Jan. 3, 2023) (Judge Roslyn O. Silver). Widow Patricia Schmidt sued her late husband’s employer, the Temprite Company, its deferred compensation top hat plan, and the plans’ fiduciaries, seeking a lifetime monthly benefit of $4,583.33, to which she believes she is entitled under the terms of the plan. Following her husband’s death, the company took actions to frustrate Ms. Schmidt’s claim, at first outright denying the existence of the plan before Ms. Schmidt was able to locate plan documents among her husband’s possessions. Once she had done so, Ms. Schmidt attempted to apply for the benefits. At that point, the company changed gears, stating that Ms. Schmidt was not entitled to both shares of Temprite stock and plan benefits. Unable to exhaust the administrative appeals process, Ms. Schmidt pursued legal action. Defendants moved to dismiss and alternatively moved to transfer. To begin, the named plan administrator, defendant Bob Brown, moved to dismiss for lack of personal jurisdiction. Mr. Brown argued that, contrary to plan documents produced by Ms. Schmidt naming him as the plan administrator, he could not be deemed the plan administrator because “he never performed the work of plan administrator.” The court disagreed, holding Mr. Brown’s argument “does not prove what Brown thinks it does. Construed in the light most favorable to Patricia, Brown’s statement that he has not acted as the plan administrator is evidence he has not performed tasks he should have performed.” Thus, at least at this stage of litigation, the court was satisfied that Mr. Brown is the plan’s administrator and thus subject to “ERISA’s nationwide service of process statute.” Next, the court addressed defendants’ position that Ms. Schmidt failed to exhaust administrative remedies. The court construed defendants’ position as paradoxical because they were simultaneously claiming the top hat plan did not exist while also arguing Ms. Schmidt was required to comply with its claim procedures. Given the allegations in Ms. Schmidt’s complaint, the court found that there was no reasonable procedure to exhaust, stressing that, while top hat plans are excepted from some ERISA requirements, they are not exempt from the requirement that they follow a reasonable procedure for handling benefit claims. “In simple terms, it would not have been reasonable to require Patricia send an administrative claim to Brown, an individual who disavows any role in the administration of the top hat plan.” Furthermore, there was evidence Ms. Schmidt made a reasonable attempt to comply with the claims procedure. For these reasons, the motions to dismiss were denied. Finally, the court also denied defendants’ undeveloped motion to transfer.

Pension Benefit Claims

Second Circuit

Maddaloni v. Pension Tr. Fund, No. 19-cv-3146 (RPK) (ST), 2023 WL 22633 (E.D.N.Y. Jan. 3, 2023) (Judge Rachel P. Kovner). Plaintiff Mark Maddaloni sued the Pension Trust Fund of the Pension, Hospitalization and Benefit Plan of the Electrical Industry and its board under Section 502(a)(1)(B), arguing defendants’ denial of his application for disability pension was an abuse of discretion. Mr. Maddaloni claimed defendants’ reliance in their denial on a plan term that required participants receiving workers’ compensation or disability benefits to apply for disability pension within two years of the date of disability onset was arbitrary and capricious because he was not receiving either. Thus, Mr. Maddaloni argued that under the terms of the plan his application was timely. Defendants responded that the plan was silent on the issue of whether participants who were not receiving workers’ compensation or disability benefits had to apply for disability pension benefits, and they were therefore able to rely on the summary plan description and their own “broad discretion” to impose this limitation. The court rejected defendants’ argument, concluding it “misunderstands the power of ERISA trustees.” Instead, only three requirements were necessary, the court held, for Mr. Maddaloni to be eligible for disability pension: (1) being permanently disabled; (2) having at least 10 pension credits; (3) and being employed by contributing employers for 10 years immediately prior to disability onset. The court concluded defendants failed to meet their burden of establishing that Mr. Maddaloni, who was receiving Social Security disability benefits, did not satisfy these requirements. Furthermore, the court held that Mr. Maddaloni complied with the application requirements in place at the time when he submitted his application. Accordingly, the court granted summary judgment in favor of Mr. Maddaloni, and denied in part defendants’ motion for summary judgment, granting summary judgment in favor of defendants only on Mr. Maddaloni’s alternative claim asserted under Section 502(a)(3), which Mr. Maddaloni did not object to. However, because the court felt it could not “conclude that plaintiff is entitled to benefits,” it opted to remand to the board for further proceedings consistent with its ruling here.

Pleading Issues & Procedure

Fourth Circuit

Int’l Painters & Allied Trades Indus. Pension Fund v. I. Losch, Inc., No. Civ. BPG-19-3492, 2023 WL 24247 (D. Md. Jan. 3, 2023) (Magistrate Judge Beth P. Gesner). A multi-employer pension fund and its trustees filed an ERISA lawsuit to collect withdrawal liability payments after a contributing employer ceased payments into the fund. Last September, the court granted plaintiffs’ motion for summary judgment and awarded withdrawal liability, interest, and liquidated damages. Defendants moved pursuant to Federal Rule of Civil Procedure 59(e) to alter or amend that judgment. In this order the court denied their motion. At bottom, the court held that defendants’ arguments amounted “to nothing more than a disagreement with the court’s conclusion,” and a rehashing of rejected arguments. Specifically, the court expressed that it considered and addressed defendants’ position that defendant Harry Yohn satisfied the requirements of the spousal attribution exception, reiterating how it had “discussed defendants’ argument at some length in its memorandum opinion.” As there was no intervening change in controlling law nor any new evidence not previously available, the court concluded that defendants needed to demonstrate the court’s ruling was a clear error of law. To the court, defendants here did not do so, and in fact did not even engage with the court’s conclusions regarding the spousal attribution exception. Mere disagreement, the court held did not suffice to clear the high bar necessary to overturn or revise the court’s judgment. Accordingly, all remains as before.

Provider Claims

Third Circuit

University Spine Ctr. v. Edward Don & Co., No. 22-3389, 2023 WL 22424 (D.N.J. Jan. 3, 2023) (Judge John Michael Vazquez). A healthcare provider given an assignment of benefits by its patient sued a healthcare plan, the Edward Don & Company, LLC plan, and its claims administrator, Cigna Health and Life Insurance, under ERISA Section 502(a)(1)(B) after the plan paid only $6,184.46 of a medically necessary spinal surgery for which they billed $340,316. Defendants moved to dismiss pursuant to Federal Rule 12(b)(6), arguing the provider failed to state a claim by failing to allege how the payment of $6,18.46 violates the plan. The provider had included in its complaint language from the plan that explains that the plan will pay for the lesser of either the provider’s normal charge, the Medicare allowable fee for the same service, or the 80th percentile of charges made by providers for the same service in the same geographic location. Although plaintiff’s complaint seemed to draw the conclusion that a payment of about $6,000 for spinal surgery must be in violation of the policy language, the complaint failed to explain what calculation defendants used to determine their rate of reimbursement, and precisely what about that calculation was incorrect. Because of this, the court agreed with defendants that Plaintiff failed to state a claim by “merely referenc[ing] the relevant provision without articulating how and why it entitles Plaintiff to additional compensation.” Dismissal, however, was without prejudice, and the provider may replead to address this stated deficiency.

Statute of Limitations

Second Circuit

Spillane v. N.Y.C. Dist. Council of Carpenters & Joiners of Am., No. 21 Civ. 8016 (AT), 2023 WL 22611 (S.D.N.Y. Jan. 3, 2023) (Judge Analisa Torres). Patrick and Deborah Spillane, a retired member of the New York City District Council of Carpenters and Joiners of America union and his spouse, brought an ERISA, LMRDA, and state law claims against the union, its pension and welfare funds, union leadership, and the funds fiduciaries after a union trial found that Mr. Spillane performed employment for a non-union contractor, and the trial “verdict” was subsequently used as grounds to terminate the Spillanes’ pension and healthcare benefits. Plaintiffs asserted ERISA claims under Sections 502(a)(1)(B) and (a)(3), for benefits and breaches of fiduciary duties respectively. Defendants moved to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). The court began its analysis by addressing the pension plan’s one-year statute of limitations. Plaintiffs argued that a 365-day window within which to commence legal action was unreasonably short. The court disagreed and referred to decisions by other courts in the Southern District of New York which have upheld “limitations provisions that afforded participants less than a year to file suit following a denial of benefits.” Accordingly, the court granted defendants’ motion to dismiss the Section 502(a)(1)(B) claim for pension benefits as untimely. Next, the court analyzed the claim for healthcare benefits. The relevant plan documents for the welfare plan conferred discretionary authority upon the fund’s trustees. Thus, the court held that the arbitrary and capricious standard of review applied. Plaintiffs’ assertion that the union trial verdict was flawed was found by the court not to “establish that the Fund Defendants’ actions were arbitrary and capricious. The Fund Defendants’ interpretation that…Spillane worked in disqualifying employment [and] was no longer eligible for benefits under the Welfare Plan, is supported by the plain language of the 2003 Welfare Plan SPD and the SMMs defining ‘disqualifying employment.’” Thus, the court held that plaintiffs failed to state a claim for benefits. Next, the court dismissed plaintiffs’ breach of fiduciary duty claim under ERISA as “conclusory.” Plaintiffs’ LMRA claims held up no better than their ERISA claims and were also dismissed under Rule 12(b)(6). The court also declined to exercise supplemental jurisdiction over the state law tort claim. Finally, the court denied plaintiffs’ motion for leave to amend their complaint, holding amendment would be futile.

Withdrawal Liability & Unpaid Contributions

Seventh Circuit

Trs. of the Chi. Reg’l Council of Carpenters Pension Fund v. Drive Constr., No. 19 C 2965, 2023 WL 22141 (N.D. Ill. Jan. 3, 2023) (Judge Virginia M. Kendall). Trustees of multi-employer ERISA pension funds sued an employer for unpaid contributions under collective bargaining agreements between the employer and the Chicago Regional Council of Carpenters union. In this order the court granted plaintiffs’ motion for leave to file a second amended complaint to add an additional defendant, a company they believe is under common control with the first employer, which they allege was created to avoid paying millions of dollars to the funds in contributions. Plaintiffs expressed in their motion that they discovered the existence of the alter ego of the first company thanks to an investigation by the Illinois Attorney General, and that defendant “deliberately concealed” this corporate relationship “throughout the litigation.” Furthermore, the trustees, relying on subpoena responses during the attorney general’s investigation, offered evidence that the employers failed to submit over $9 million to the pension funds and thus moved to file the second amended complaint to allege their original contribution claims against both companies as either alter egos or as a single employer. The court disagreed with the employer that permitting the amendment would be unduly prejudicial, holding that this “appears to be a bona fide change in circumstances,” as the relationship between the employers “was not available until (the) response to the AG’s subpoena in the separate investigation.” Finally, the court held “[i]f Plaintiff’s allegations prove to be true…denying the filing of the SAC would serve to shield Defendants from liability due to their own actions of concealing the ownership of the company,” and that the interest of justice would therefore be promoted by granting plaintiffs’ motion.