Wit v. United Behavioral Health, No. 20-17363, __ F.4th __, 2023 WL 411441 (9th Cir. Jan. 26, 2023) (Before Circuit Judges Christen and Forrest, and District Judge Michael M. Anello)

In the March 30, 2022 edition of Your ERISA Watch, we examined the Ninth Circuit’s prior decision in this case, issued on March 22, 2022. We found it notable that despite the case’s long history – which includes numerous extensive orders by the district court on a variety of issues, including class certification, a ten-day bench trial, a finding that defendant United engaged in “pervasive and long-standing violations of ERISA,” and attorneys’ fees of more than $20 million – the Ninth Circuit cursorily reversed in a breezy eight-page non-precedential memorandum disposition.

Plaintiffs, a class of benefit plan participants who had alleged that United violated ERISA by denying their mental health and substance use disorder claims under medical necessity guidelines that were inconsistent with plan requirements, were understandably miffed. They filed a petition for rehearing and rehearing en banc, and numerous amici curiae weighed in as well.

In this decision the Ninth Circuit responded by withdrawing its 2022 memorandum disposition, replacing it with a new published opinion, and denying as moot the petition for rehearing and the amicus motions. The new opinion addresses the issues on appeal more thoroughly, but the result is not what the plaintiffs had hoped.

As in its prior decision, the Ninth Circuit first tackled standing. United argued that the plaintiffs “did not suffer concrete injuries” and “did not show proof of benefits denied,” and thus were not harmed by United’s guidelines. The court disagreed, holding that the plaintiffs had suffered a concrete injury because United’s alleged misadministration of their claims “presents a material risk to their interest in fair adjudication of their entitlement to their contractual benefits. Plaintiffs need not have demonstrated that they were, or will be, entitled to benefits to allege a concrete injury.”

The court also found that the plaintiffs’ injuries were “particularized because the Guidelines are applied to the contractual benefits afforded to each individual class member” and “fairly traceable” to United because plaintiffs’ interest in the proper interpretation of their benefits was connected to United’s improper conduct.

That was the end of the good news for the plaintiffs, however, as the Ninth Circuit moved on to the district court’s class certification order. In last year’s decision, the Ninth Circuit affirmed the district court’s ruling on this issue, holding that the plaintiffs’ breach of fiduciary claim “is capable of being resolved on a class-wide basis.” The court also found that the plaintiffs’ denial of benefits claim “avoided the individualized nature of the benefits remedy available under § 1132(a)(1)(B) by seeking ‘reprocessing.’” The court dodged the issue of whether the reprocessing remedy sought by the plaintiffs “overextended Rule 23 in violation of the Rules Enabling Act.”

Judge Forrest objected to this evasion in her concurrence last year, and in the new opinion the rest of the court agreed with her and squarely addressed this issue. The court observed that the plaintiffs had attempted to avoid the problem of “numerous individualized questions” for each benefit claim by seeking a uniform remedy, i.e., the “reprocessing” of their benefit claims by United. However, the court found that this strategy violated the Rules Enabling Act, which provides that procedural rules “shall not abridge, enlarge or modify any substantive right.”

Specifically, the Ninth Circuit stated that ERISA’s benefit claim provision (29 U.S.C. § 1132(a)(1)(B)) only provides a right to “recover benefits or to enforce or clarify rights under the plan.” Thus, reprocessing, which entails “a remand to the administrator for reevaluation” is not a proper remedy under this provision, and is only “a means to the ultimate remedy,” i.e., the payment of benefits. As a result, the court ruled that the district court violated the Rules Enabling Act by creating a substantive right not authorized in ERISA: “The district court abused its discretion in accepting the erroneous legal view that reprocessing is itself a remedy…independent from the express statutory remedies that Congress created, justifying class treatment.”

The court further ruled that reprocessing was not an available remedy under ERISA’s equitable relief provision (29 U.S.C. § 1132(a)(3)) for two reasons. First, the court stated that plaintiffs are not allowed to repackage their benefit claims as equitable claims, and second, the district court “did not explain or refer to precedent showing how a ‘reprocessing’ remedy constitutes relief that was typically available in equity.”

Next, the court addressed the merits of plaintiffs’ argument, and the result was the same as in last year’s ruling. Because the parties agreed that the standard of review was abuse of discretion, United’s decisions could only be overturned if they were “unreasonable.” The court emphasized that the benefit plans at issue “exclude coverage for treatment inconsistent with GASC [generally accepted standards of care] or otherwise condition treatment on consistency with GASC.” However, while this provision “mandates that a treatment be consistent with GASC as a starting point, it does not compel [United] to cover all treatment that is consistent with GASC. Nor does the exclusion – or any other provision in the Plans – require United to develop Guidelines that mirror GASC.” As a result, United’s interpretation of the plans was not unreasonable. The Ninth Circuit further ruled that the district court’s findings regarding United’s conflict of interest did not change this result.

Finally, the Ninth Circuit examined United’s exhaustion argument, another issue it ducked in last year’s decision. The court ruled in United’s favor on this as well. United contended that the district court erred by excusing unnamed class members from showing that they had complied with the plan’s contractual requirement that they exhaust all appeals before filing suit. The Ninth Circuit agreed, ruling that “application of judicially created exhaustion exceptions would conflict with the written terms of the plan.” Furthermore, the district court’s ruling once again violated the Rules Enabling Act because, “by excusing all absent class members’ failure to exhaust, the district court abridged [United’s] affirmative defense of failure to exhaust and expanded many absent class members’ right to seek judicial remedies.”

After all this, what remains of the plaintiffs’ lawsuit? The Ninth Circuit concluded that the plaintiffs “have Article III standing to bring their breach of fiduciary duty and improper denial of benefits claims,” and that the district court “did not err in certifying three classes to pursue the fiduciary duty claim.” However, the court also ruled that the plaintiffs’ class-wide reprocessing remedy was improper because it violated the Rules Enabling Act. It also ruled that United’s guidelines do not violate the requirements of the benefit plans. Plus, the court’s exhaustion ruling will require a reformulation of the classes in the action. As a result, while the case is not dead, the path forward back in the district court will be tricky.

Or, the plaintiffs could petition the Ninth Circuit for rehearing once again, which seems likely. Stay tuned to Your ERISA Watch to find out.

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

Arbitration

Third Circuit

Burnett v. Prudent Fiduciary Servs., No. C. A. 22-270-RGA-JLH, 2023 WL 387586 (D. Del. Jan. 25, 2023) (Magistrate Judge Jennifer L. Hall). In this putative class action, participants of the Western Global Airlines, Inc. Employee Stock Ownership Plan (“ESOP”) allege breaches of fiduciary duties in connection with a transaction selling stock to the ESOP at what plaintiffs allege was an inflated stock valuation. Plaintiffs’ complaint seeks plan-wide relief seeking to hold defendants liable for the losses resulting from the ESOP transaction and to disgorge any profits made through the plan assets. Additionally, plaintiffs seek removal of the plan trustee and other changes among the plan’s fiduciaries, “as well as certain other equitable and declaratory relief.” Defendants moved to compel arbitration and to either stay proceedings or dismiss the case pursuant to the Federal Arbitration Act. Plaintiffs opposed. They argued that the arbitration provision at issue contains a clause which bans them from seeking plan-wide relief, and because that portion of the arbitration provision is both invalid and not severable, defendants’ motion should be denied. Magistrate Judge Hall agreed. “The ERISA statute gives plan beneficiaries the right to sue on behalf of plan and recover plan-wide damages for a breach of fiduciary duty… But what the statue provides, the arbitration provision takes away… The arbitration provision thus eliminates a right to pursue a remedy provided by a federal statute.” Finally, the magistrate agreed with plaintiffs that the provision’s express language saying that the invalid provision cannot be severed meant that the court could not enforce the arbitration provision at all. Accordingly, Magistrate Judge Hall recommended that defendants’ motion be denied.

Attorneys’ Fees

Ninth Circuit

Robinson v. American Int’l Grp., No. 2:21-cv-00749-MEMF-MRWx, 2023 WL 375939 (C.D. Cal. Jan. 24, 2023) (Judge Maame Ewusi-Mensah Frimpong). Last September, the court issued an order granting summary judgment in favor of plaintiff Ian Robinson in this action challenging a denial of a claim for death benefits under an Accidental Death and Dismemberment Policy. Mr. Robinson subsequently filed a motion for an award of attorneys’ fees, costs, final judgment, and interest. To begin, the parties agreed that attorneys’ fees in the amount of $133,125 and costs in the amount of $2,735.25 were appropriate. Without any objection on the part of the defendant, the court granted the motion to award fees and costs in those amounts. Next, it was undisputed that the benefit claim amounted to $236,000, and defendant was found liable by the court for that amount. Most of the decision’s focus was directed on the primary dispute between the parties – the amount of prejudgment interest. Mr. Robinson argued that historically high inflation deprived him of a period of high growth and favorable returns had he been able to invest the benefit at the time when he filed the claim. Accordingly, Mr. Robinson sought the interest rate prescribed by California’s Civil Code in the amount of 10% per annum from the date of the breach of fiduciary duty. In contrast, defendants argued in favor of the 4.5% interest rate set under 28 U.S.C. § 1961. The court held that Mr. Robinson failed to demonstrate that he would have invested the benefit the manner outlined in his motion. Thus, the court concluded that the equities did not demonstrate the need in this case to award the greater interest rate. The court awarded prejudgment interest calculated at the rate of 4.66% per annum. Finally, the court declined to award compound interest. It stated that prejudgment interest is a form of compensation, not a penalty, and the court’s discretion is whether to award prejudgment interest, not whether the court “elects compound or simple interest.” Awarding compound interest, the court concluded, would be tantamount to imposing a penalty, “a request that the Court cannot accommodate.” Therefore, the court awarded simple interest. Using the established interest rate, the court awarded prejudgment interest of $29,738.72. For these reasons, Mr. Robinson’s motion was granted, as modified by the judge, and judgment was ordered in the amounts described above.

Breach of Fiduciary Duty

First Circuit

Erban v. Tufts Med. Ctr. Physicians Org., No. 22-11193-PBS, 2023 WL 363588 (D. Mass. Jan. 23, 2023) (Judge Patti B. Saris). In 2019, Dr. John Erban, an oncologist at Tufts Medical Center, was given a terminal diagnosis when test results revealed a malignant tumor. In the year between the date of his diagnosis and his death in September 2020, Dr. Erban suffered from cognitive impairments. After her husband’s death, widow Lisa Erban applied for life insurance benefits as the named beneficiary. Her claims for both basic and supplemental life insurance benefits were denied because the policies had lapsed when they were not converted to individual policies. Ms. Erban then brought this action under ERISA Section 502(a)(3) alleging that Tufts Medical Center Physicians Organization and its director of human resources, Nicolas Martin, breached their fiduciary duties by failing to instruct Ms. Erban to continue paying premiums, and failing to inform her about the deadline to convert her husband’s life insurance plans. Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6). In this order the court denied the motion “on the grounds Plaintiff Lisa Erban has stated a plausible claim that Defendants breached their fiduciary duty in light of their knowledge of Dr. Erban’s impaired cognitive ability and that Nicolas Martin, an employee and Human Resources Director, acted as a fiduciary.” The court went on to stress that because defendants were aware of Dr. Erban’s illness, they had an affirmative obligation to inform the Erbans and provide them with accurate and complete material information on their benefit status and options to continue coverage. As the court wrote, “the HR staff knew that the Erbans’ main focus was to ‘assure continuance of active status’ of his life insurance policy,” accordingly, they had a fiduciary duty “to do more than simply not misinform.”

Turner v. Schneider Elec. Holdings, No. 20-11006-NMG, 2023 WL 387592 (D. Mass. Jan. 24, 2023) (Judge Nathaniel M. Gorton). Participants of the Schneider Electric 401(k) Plan initiated a putative class action against the plan, Schneider Electric, the plan’s benefits and investments committees, and the plan’s investment manager, Aon Hewitt Investment Consulting, Inc., for breaches of fiduciary duties of prudence, loyalty, and to monitor after Aon Hewitt replaced existing plan investment options with its own set of proprietary investment trusts. According to plaintiffs, the plan’s decision to invest in these Aon Hewitt trusts resulted in major losses to participants’ retirement savings through underperformance and unreasonably high associated management and recordkeeping fees. Defendants moved for summary judgment. The court first addressed plaintiffs’ breach of fiduciary duty claim arising from the selection of the Aon Trusts. Defendants argued that plaintiffs failed to prove that the plan suffered any losses from the selection and retention of the Aon Trusts. They stated that, to the contrary, thanks to profit earned on separate investments, the plan actually accrued a gain of $27 million during the relevant time period. Plaintiffs pushed back on the concept that a fiduciary is able “to reduce its liability by profit earned on separate investments.” The court held that “combining gains and losses is permissible in the negligence context,” and accordingly found that plaintiffs failed to prove as a matter of law that the selection of the Aon Trusts was imprudent or disloyal. As this was the only claim asserted against defendant Aon Hewitt, the court granted summary judgment in favor of Aon Hewitt and dismissed it from the action. The remaining defendants were granted summary judgment on this claim alone and were not dismissed. Plaintiffs’ breach of fiduciary duty claims of imprudence and monitoring related to the fees were found to have genuine issues of material fact precluding summary judgment.

Eighth Circuit

Riley v. Olin Corp., No. 4:21-cv-01328-SRC, 2023 WL 371872 (E.D. Mo. Jan. 24, 2023) (Judge Stephen R. Clark). Federal Rule of Civil Procedure 8 requires that, in order to state a claim for relief, a pleading must contain “a short and plain statement of the claim showing the pleader is entitled to relief.” However, in the context of ERISA breach of fiduciary duty putative class actions, short and plain statements no longer suffice under precedents set by many of the circuit courts. Rather, specificity, detail, and sufficiently similar comparators have become the keys to unlocking the courthouse door past pleading. And unless complaints are sufficiently festooned with these extras, courts are becoming more and more unwilling to find their allegations of wrongdoing plausible. Such was the case here. Last summer, the court granted defendants’ motion to dismiss plaintiffs’ complaint, which alleged that the fiduciaries of their ERISA retirement plan failed to adequately monitor the plan’s fees, improperly maintained underperforming funds, and failed to prudently select investment options. At the time, the court held that plaintiffs’ complaint did not plausibly state an inferential case that defendants’ actions as fiduciaries of the Olin Corporation retirement plan were imprudent or that their process was flawed. Following the court’s dismissal, plaintiffs moved for leave to amend their complaint. The court denied their motion on futility grounds in this decision. Specifically, the court expressed that plaintiffs’ updated comparisons of the challenged fees and funds were inapposite and thus not meaningful benchmarks with which to compare and contrast. Funds costing more or performing worse than other available options the court stated, “does not, in and of itself, an ERISA violation make.” The court concluded that while courts may not resolve factual questions on the pleadings, they may, and under Eight Circuit precedent must, “analyze whether a meaningful benchmark exists at the motion-to-dismiss phase.” Here, the court found meaningful benchmarks were not provided. Accordingly, the court held the amended complaint failed to address or rectify the deficiencies it previously identified and for this reason denied plaintiffs’ motion to amend.

Class Actions

Second Circuit

Garthwait v. Eversource Energy Serv. Co., No. 3:20-CV-00902 (JCH), 2023 WL 371036 (D. Conn. Jan. 24, 2023) (Judge Janet C. Hall). On December 7, 2022, the court issued an order in this breach of fiduciary duty class action allowing plaintiffs to proceed with some of their ERISA claims before a jury. Your ERISA Watch summarized that decision in its December 14,2022 issue. Following that order, defendants moved for a certificate of appealability and to stay the proceedings. In their motion, defendants argued that neither ERISA nor the Seventh Amendment provide a jury trial right and orders about the availability of jury trials “are often certified for interlocutory appeal.” The court disagreed, writing, “[c]ontrary to defendants’ argument, however, courts in this Circuit have denied motions for certificates of appealability regarding the jury trial right in ERISA cases.” And, although the court recognized that whether ERISA cases are tried in front of a jury is an important issue without consensus, the court stated that it is not a “controlling” issue. Furthermore, the court pointed out that selecting a jury would require minimum time and impact for what will surely be a “multi-week trial (whether before a jury, the court, or both.)” Meanwhile, allowing appeal of this interlocutory order would be a substantial time drain protracting the litigation. On balance, the court found there was significant downside to granting defendants’ request. Accordingly, it denied the motion to issue a certificate of appealability.

Disability Benefit Claims

Eighth Circuit

Elias v. Unum Life Ins. Co. of Am., No. 21-cv-1813 (WMW/TNL), 2023 WL 375649 (D. Minn. Jan. 24, 2023) (Judge Wilhelmina M. Wright). Plaintiff Bijan Elias brought this action under ERISA against Unum Life Insurance Company of America after Unum terminated his long-term disability benefits. The parties cross-moved for summary judgment and agreed that the plan’s discretionary clause triggered deferential review. Mr. Elias offered several reasons why he believed Unum’s termination of benefits constituted an abuse of discretion. First, Mr. Elias maintained that Unum selectively picked from the medical record to support its desired result and ignored evidence of Elias’s disability. The court disagreed. As this was primarily an instance of differing conclusions between medical professionals, the court concluded it was not an abuse of discretion for Unum to disagree with Mr. Elias’s treating doctors so long as it offered reasonable explanations for drawing different conclusions. As the court felt Unum had done so here, it held that a reasonable person could have reached Unum’s conclusions and therefore concluded that Unum did not abuse its discretion by ignoring favorable evidence of disability. Next, Mr. Elias argued that Unum failed to demonstrate substantial evidence of an improvement in his condition from the date of its approval of disability benefits in 2008 to the date when it terminated the benefits in 2021. The court again disagreed, pointing to evidence of improvement in Mr. Elias’s conditions between 2016 and 2021 that affected the benefits determination. Mr. Elias also argued that Unum failed to consider the combined effects of his multiple physical and mental health conditions. Again, the court disagreed, as it viewed Unum’s review as holistic. Regarding Mr. Elias’s argument that Unum unreasonably relied on a paper review, the court expressed that an in-person review may have been stronger or more desirable but was not strictly necessary. Mr. Elias also contended that Unum acted arbitrarily and capriciously by failing to review his appeal fully and fairly by not proving him with the opportunity to review and respond to the reviewing doctor’s reports in violation of the 2018 Department of Labor regulation. The court stated that the 2018 regulation’s rights did not apply to claims filed before 2018. However, this aspect of the court’s ruling was at odds with last week’s notable decision from the Seventh Circuit, Zall v. Standard Ins. Co., which found that the 2018 regulation should be applied if the benefit termination occurred after 2018. Finally, Mr. Elias argued that Unum had a history of biased claims administration that the court should consider in its decision-making. However, the court stated that it would not consider Unum’s history of bias because “Unum’s period of biased claims administration ended before 2003.” Accordingly, the court affirmed Unum’s decision and granted its motion for summary judgment. Mr. Elias’s cross-motion for summary judgment was denied. 

Ninth Circuit

Connor v. Unum Life Ins. Co. of Am., No. 21-15034, __ F. App’x __, 2023 WL 417903 (9th Cir. Jan. 26, 2023) (Before Circuit Judges Bybee, Callahan, and Collins). In a straightforward and brief unpublished decision, the Ninth Circuit affirmed a district court judgment awarding plaintiff Caroline Connor long-term disability benefits and attorney’s fees. Defendant Unum Life Insurance Company of America was unable to persuade the appeals court that the district court abused its discretion in concluding that Ms. Connor is disabled and was a full-time active employee eligible for benefits under the plan. Relying on the unambiguous plan language, the court of appeals agreed with the lower court that active employment was defined as “working at least 30 hours per week,” and although the term “full-time” was not expressly defined, it was a reasonable interpretation of the plan to read the 30-hour minimum required for active employment as setting the hourly minimum for full-time work. In fact, the Ninth Circuit wrote, “it would be odd to read the eligibility provision as expressly specifying a particular numerical standard for weekly work, only to then implicitly override that numerical standard by the additional use of a general and undefined term.” The court also stated that it found no clear error in the district court’s determination that Ms. Connor worked at least 30 hours per week. Finally, because the Ninth Circuit affirmed the judgment on the merits in favor of Ms. Connor, it also upheld the award of attorney’s fees pursuant to Section 502(g)(1). Here, no “special circumstances would render such an award unjust.”

ERISA Preemption

Third Circuit

Johnson & Johnson Health Care Sys. v. Save on SP, LLC, No. 22-2632, 2023 WL 415092 (D.N.J. Jan. 25, 2023) (Judge John Michael Vazquez). Plaintiff Johnson & Johnson Health Care Systems Inc. administers a financial assistance program to help patients afford out-of-pocket costs for some of Johnson & Johnson pharmaceutical’s most costly medications, including its biologics. As part of the program’s eligibility criteria, prospective patients wishing to enroll must agree to the program’s terms and conditions which include, among other things, an agreement not to utilize any other coupon or engage in any other savings program. In this lawsuit, plaintiff alleges that defendant Save on SP, LLC and its cost-savings program have artificially reclassified some of Johnson & Johnson’s medications as non-essential in order to raise the co-pay costs for participants of healthcare plans taking these drugs. This was allegedly part of a scheme to pressure patients, including those enrolled in Johnson & Johnson’s payment assistance program, to enroll in Save on SP’s savings program to avoid the exorbitant out-of-pocket costs. Thus, Johnson & Johnson Health alleges that defendant Save on SP knowingly operates its program in violation of the terms and conditions of Johnson & Johnson’s program and is financially depleting the Johnson & Johnson payment assistance program, to the economic benefit of defendant and its partners. Save on SP moved to dismiss for failure to state a claim. It argued that plaintiff’s tortious interference and deceptive trade practice claims are preempted by ERISA. The court disagreed. “Granting relief to Plaintiff on either claim would not require plan administrators to make any plan changes,” as the claims here “do not mandate certain payments or impose any new rules on plan administrators.” Given this, the court stated that the claims do not undermine ERISA’s objective of facilitating uniform plan administration and procedures and were therefore not connected to any ERISA plan for the purposes of preemption. Furthermore, the court emphasized that the claims do not reference or rely on the terms of any ERISA plan because the Save on SP program applies to both ERISA and non-ERISA plans and the court will not need to interpret the meaning of any plan provision to rule on the claims. In addition to finding that ERISA did not preempt the claims, the court also found that Johnson & Johnson adequately stated its claims and had constitutional standing to assert them. Accordingly, the motion to dismiss was denied.

Exhaustion of Administrative Remedies

Second Circuit

Israel v. Unum Life Ins. Co. of Am., No. 21-CV-4335 (GHW) (JLC), 2023 WL 491039 (S.D.N.Y. Jan. 27, 2023) (Magistrate Judge James L. Cott). Plaintiff Jessica Israel brought suit under ERISA against Unum Life Insurance Company after Unum denied her claims for long-term disability benefits and a waiver of her life insurance premium. The parties filed cross-motions for summary judgment. At issue was whether Ms. Israel exhausted her administrative remedies before taking legal action. Ms. Israel argued that the written letter she submitted challenging the long-term disability benefit determination constituted an appeal under the guidelines provided by Unum. Conversely, Unum stated that Ms. Israel never formally appealed either benefit determination and she therefore lacks a legal basis to challenge the terminations. The court found for each party in part. Pertaining to the long-term disability appeal, the court agreed with Ms. Israel that she had properly taken the steps to appeal. Furthermore, any lack of clarity on the issue, the court stated, should be weighed in favor of Ms. Israel, as the onus is on Unum to comply with ERISA’s regulations. Additionally, the court found Unum’s review to be “ad hoc” and wrote that “Israel’s claim could alternatively be deemed exhausted on the grounds that Unum’s extra-regulatory review of her submissions following the initial May 15 Determination triggered exhaustion of Israel’s claim.” Thus, Ms. Israel’s long-term disability claim was deemed exhausted, and she was granted summary judgment on this issue. The court remanded to Unum for a full and fair review of the long-term disability benefit claim. This remedy was determined appropriate in this case because “the crux of this matter is not substantive but procedural.” Finally, the court held that Ms. Israel failed to exhaust her claim pertaining to her waiver of premium benefit, as “[n]othing in the record suggests that Israel…attempted to appeal the May 21 decision with respect to WOP benefits.” Accordingly, summary judgment was granted in favor of Unum with respect to this claim.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Igo v. Sun Life Assurance Co. of Can., No. 1:22-cv-91, 2023 WL 406195 (S.D. Ohio Jan. 25, 2023) (Judge Timothy S. Black). Plaintiff Patrick Igo brought an ERISA lawsuit seeking the full amount of life insurance benefits his late husband, Dr. Marcos Estrada Gomez, elected and paid premiums on. Mr. Igo’s claim for benefits was paid at a lower rate because the plan’s administrator and insurance company, Sun Life Assurance Company of Canada, found that Dr. Estrada Gomez had not included an evidence of insurability form with his option to increase his coverage. In his complaint, Mr. Igo argued that an evidence of insurability form was not required as part of the election form and Dr. Estrada Gomez therefore met all the necessary conditions for receipt of his full elected benefits. Defendants Sun Life and Benefit Advisors Services Group, LLC moved to dismiss. Their motion was denied, as it was not only untimely, but also because the court disagreed with their assertion that Mr. Igo’s complaint impermissibly engaged in group pleading of the defendants. The court stated that the complaint adequately alleges that the defendants all had a hand in administering the plan and in making benefit determinations, and that the complaint sufficiently puts the defendants on notice of the allegations against them. Thus, the motion to dismiss was denied. Finally, the court granted Mr. Igo’s motion to voluntarily dismiss defendant Bon Secours Mercy Health, Dr. Estrada Gomez’s former employer, as Mercy Health reached a settlement with Mr. Igo.

Ninth Circuit

Wilcox v. Dearborn Ins. Co., No. 2:21-cv-04605-JLS (JCx), 2023 WL 424256 (C.D. Cal. Jan. 26, 2023) (Judge Josephine L. Staton). Plaintiff Kevin Wilcox brought this action against Dearborn Insurance Company challenging its denial of waiver of premium due to disability on his life insurance policy. Mr. Wilcox, who has a diagnosis of HIV, argued that his physical, psychological, and neurological symptoms have rendered him totally disabled from any occupation and that he should therefore qualify for the waiver of premium. The parties moved for judgment pursuant to Federal Rule of Civil Procedure 52. The court reviewed the medical record de novo, emphasizing that the burden of proof of disability lay with Mr. Wilcox. Mr. Wilcox issued a statement expressing “that he’s not been able to drive since 2013, that his spouse quit his job to take care of him full time in 2014 due to his cognitive decline…that he has lost control of his bowels and bladder, that he has frequent falls from peripheral neuropathy and has ‘pain at a level 6 of 10 on most days,’ and that he also has severe outbreaks of psoriasis.” Notwithstanding Mr. Wilcox’s complaints within his personal statement and throughout litigation and his submission of a voluminous medical record that both pre- and post-dated the date that Dearborn discontinued plaintiff’s life insurance premium waiver, the court held that Mr. Wilcox did not adequately support his position with contemporaneous office notes and treatment records. Accordingly, the court held that Mr. Wilcox failed to meet the definition of totally disabled and upheld Dearborn’s decision to discontinue his life insurance premium waiver. Thus, judgment was entered in favor of Dearborn.

Medical Benefit Claims

Third Circuit

Tamburrino v. United HealthCare Ins. Co., No. 21-12766 (SDW)(ESK), 2023 WL 416157 (D.N.J. Jan. 26, 2023) (Judge Susan D. Wigenton). A surgeon and a covered patient have brought a putative class action challenging United Healthcare Insurance Company’s uniform claim practice of denying coverage for the cost of assistant or co-surgeons for women undergoing post-mastectomy reconstructive breast surgery. Plaintiffs asserted causes of action under ERISA Sections 502(a)(1)(B) and 502(a)(3), seeking payment of benefits along with other equitable relief including reprocessing and an injunctive order changing United’s practice. United moved to dismiss plaintiffs’ breach of fiduciary duty claims pursuant to Section 502(a)(3). It argued that plaintiffs’ claims for breaches of fiduciary duties were duplicative of their claims for benefits. Plaintiffs, on the other hand, argued that their fiduciary breach claims are distinct from their claim for benefits. Specifically, plaintiffs asserted that United breached its duty of loyalty and violated the Women’s Health and Cancer Rights Act, a law specifically designed to ensure breast cancer patients have access to reconstructive plastic surgery. In this order the court sided with United. The court viewed plaintiffs’ breach of duty of loyalty claims to be conclusory and to fall short of alleging facts which could support a conclusion that United acted to benefit itself. Regarding plaintiffs’ claims that United violated the Women’s Health and Cancer Rights Act, the court held that the Act does not specify the level of coverage that must be provided, and so interpreted the law to allow for United’s actions alleged here. Thus, the court concluded plaintiffs did not sufficiently allege a violation of the Act to warrant equitable relief under Section 502(a)(3). Accordingly, United’s motion to dismiss the breach of fiduciary duty claims asserted against it was granted. Dismissal of these claims was with prejudice.

Fourth Circuit

L.L. v. MedCost Benefits Servs., No. 1:21-cv-00265-MR, 2023 WL 362391 (W.D.N.C. Jan. 23, 2023) (Judge Martin Reidmger). A mother and her minor child sued MedCost Benefit Services and the Mountain Area Health Education Center Medical and Dental Care Plan in a two-count ERISA complaint. Plaintiffs sought both recovery of medical benefits for the cost of a stay at a residential treatment facility under Section 502(a)(1)(B) and equitable relief under Section 502(a)(3) for violating the Mental Health Parity and Addiction Equity Act. Defendants moved for dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). To begin, the court denied MedCost’s motion to dismiss plaintiffs’ claim for recovery of benefits. “L.L. alleges the existence of an ERISA-governed plan, and alleges that E.R. was a beneficiary of the plan. She goes on to identify the provision of the Plan that she contends entitles E.R. to coverage; she specifically alleges that the Plan covers medically necessary treatment at residential facilities…L.L. alleged that the treatment at (the facility at issue) was medically necessary, and that (it) was not an excluded facility.” A plaintiff, the court held, need not plead more to plausibly allege an ERISA medical benefits claim. However, the court held that the injury of plaintiffs’ Section 502(a)(3) claim was not distinct from the injury of their claim for benefits. Thus, the court found “equitable relief pursuant to § 1132(a)(3) is not appropriate.” Plaintiffs’ second claim was accordingly dismissed. Defendants’ motion was thus granted in part and denied in part. Finally, plaintiffs were ordered to show cause as to why they should be allowed to proceed under pseudonyms.

Provider Claims

Fifth Circuit

Bailey v. Avis Budget Grp., No. 11-22-1647, 2023 WL 375371 (S.D. Tex. Jan. 23, 2023) (Judge Lynn N. Hughes). A healthcare provider, Jason Bailey, and a covered plan participant, Michelle Fairley, sued Avis Budget Group, Inc., and Aetna Life Insurance Co. under ERISA Section 502(a)(1)(B) challenging the amount the healthcare plan paid for medically necessary breast reconstruction surgery following a mastectomy. Defendants moved to dismiss plaintiff Jason Bailey for lack of standing. Defendants provided the court with a copy of the plan which includes a valid and unambiguous anti-assignment provision. Given the evidence provided by defendants and the fact that plaintiffs did not file a response, the court granted the motion and dismissed Jason Bailey’s claims in the case. Accordingly, the action will remain with Ms. Fairley as the plaintiff.

Seventh Circuit

Advanced Physical Med. of Yorkville v. Cigna Healthcare of Ill. Inc., No. 22-cv-1581, 2023 WL 358575 (N.D. Ill. Jan. 23, 2023) (Judge Jorge L. Alonso). Healthcare provider Advanced Physical Medicine of Yorkville sued Cigna Health Management Inc. after one of its patients, Zachary Jump, was denied reimbursement for therapeutic services it provided to him. In this action, Advanced Physical sought recovery of plan benefits as well as statutory penalties for failure to provide plan documents upon request. Cigna moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Cigna attached a copy of the plan to its motion and argued that in light of the plan’s unambiguous anti-assignment provision the provider could not proceed on its ERISA claims. The court agreed and held the benefits are not assignable. “Similarly, Plaintiff’s contention that it is a beneficiary because it was Jump’s authorized representative lacks a basis in law. An ERISA beneficiary is someone ‘entitled to a benefit’ under a plan…not someone authorized to vindicate another’s right to benefits.” Mr. Jump, the court stated, is the proper beneficiary under the plan and is thus “the real party-in-interest.” Furthermore, the court held that a claim for failure to provide plan documents needs to be asserted against the plan administrator, which the plan states is Starbucks not Cigna. As a result, the court dismissed both causes of action for failure to state a claim, and did so with prejudice, concluding, “repleading would be futile.”

Eleventh Circuit

Surgery Ctr. of Viera v. Cigna Health & Life Ins. Co., No. 6:22-cv-393-JA-LHP, 2023 WL 375556 (M.D. Fla. Jan. 24, 2023) (Judge John Antoon II). Plaintiff Surgery Center of Viera, LLC, sued Cigna Health & Life Insurance Company after a claim it submitted for reimbursement of a pre-approved surgery performed on an insured patient was paid at an amount well below the billed charge, allegedly in violation of a repricing agreement between the parties. In its complaint, Surgery Center of Viera asserted three causes of action: breach of contract, unjust enrichment, and quantum meruit. Cigna moved to dismiss the complaint. Cigna argued that the complaint “constitutes an impermissible ‘shotgun pleading,’” and that the state law claims are preempted by ERISA. The court agreed with Cigna on both points. The court reprimanded plaintiff for interweaving necessary facts among legal conclusions and premature arguments. “The result is not a ‘short and plain statement of the claim’…but a frustrating thicket of roughhewn prose in which Cigna – and the Court – are forced to forage for morsels of relevant information.” Along with taking issue with the pleading’s prose and generally finding that the complaint did not satisfy Federal Rule of Civil Procedure 8, the court also found ERISA preempts the state law claims as those claims have “a connection with or reference to an ERISA plan,” and there is no way to determine what amount the provider should be paid without consulting that plan. For these reasons, the court granted the motion and dismissed the complaint.

Retaliation Claims

Sixth Circuit

Schramm v. Neenah Paper Mich., Inc., No. 2:22-cv-00047, 2023 WL 415592 (W.D. Mich. Jan. 25, 2023) (Magistrate Judge Maarten Vermaat). Magistrate Judge Vermaat issued this report and recommendation recommending the court grant in part and deny in part defendant Neenah Paper Michigan, Inc.’s motion to dismiss this wrongful termination and retaliation action under ERISA’s whistleblower provision. Plaintiff Thomas Schramm alleged that his employer took retaliatory actions against him after he reported a chemical spill of 2,000 gallons of bleach at the plant where he worked to the Michigan Department of Environment, Great Lakes, and Energy. As pertains to ERISA, Mr. Schramm brought a Section 510 claim alleging he was fired in retaliation for attempting to exercise his rights under the company’s health insurance plan. Defendant argued that Mr. Schramm argued only that he was “working through his Union to clarify and secure his rights under Neenah’s health insurance plan,” that this allegation is not sufficient to demonstrate that he was exercising a right under the plan, and therefore it is not an activity protected under ERISA. The Magistrate Judge agreed, concluding that Mr. Schramm did not sufficiently state a claim alleging he was terminated due to his use of an employee benefit and thus recommended Mr. Schramm’s ERISA claim be dismissed.

Severance Benefit Claims

Fifth Circuit

Dunn v. Southwest Airlines Co., No. 3:21-CV-1393-X, 2023 WL 360246 (N.D. Tex. Jan. 23, 2023) (Judge Brantley Starr). In May 2020, plaintiff Lafe Dunn, a pilot employed by Southwest Airlines, went on sick leave to enter a substance abuse treatment program to address mental health problems. Just days after he took his sick leave, on June 1, 2020, Southwest created a voluntary separation program in response to the COVID pandemic which would provide severance payments to those interested in voluntarily resigning. Mr. Dunn was interested in taking this deal and applied to participate. The plan stated that Southwest offered this program to “Pilots on active status at Southwest as of June 1, 2020.” Mr. Dunn’s claim for benefits was denied by the board of trustees who interpreted the undefined term “active status” as excluding pilots who were on leave of absence from work as of June 1, 2020. Accordingly, Mr. Dunn’s benefit application was denied, despite oral promises and assurances from Mr. Dunn’s superiors that he would certainly qualify. After an unsuccessful internal appeal, Mr. Dunn brought this lawsuit in which he alleged two causes of action: wrongful denial of benefits under Section 502(a)(1)(B) and breach of fiduciary duty under Section 502(a)(3). The parties cross-moved for summary judgment on both counts. First, the court granted summary judgment to Southwest on Mr. Dunn’s benefit claim. The court determined the plain meaning of the word “inactive,” defined as “’being out of use’ or ‘not performing or available for duties,’” supported the board’s decision to deny benefits. Mr. Dunn argued that considering an employee on sick leave as being inactive is problematic for several reasons, not least because the employee could “fall in and out of insurance coverage as that employee fell in and out of ‘active employment.’” The court stated that because the board reasonably believed Mr. Dunn’s absence from work for medical reasons would last at least six months, Mr. Dunn’s arguments and concerns were irrelevant to the present situation. Thus, under abuse of discretion review, the decision was upheld. Next, the court denied both parties’ motions for summary judgment on the breach of fiduciary duty claim. The court disagreed with Southwest that Mr. Dunn’s claim for breach of fiduciary duty was duplicative of his claim for benefits. Not only were the facts distinct for each claim, but the court also stated that its decision to grant summary judgment to Southwest on the claim for benefits meant that there was “no predicate claim of which his § 1132(a)(3) claim could be duplicative.” However, Mr. Dunn was also unable to convince the court that he was entitled to summary judgment on the breach of fiduciary duty claim. Thus, Mr. Dunn’s summary judgment motion was denied, and Southwest’s cross-motion for summary judgment was granted in part and denied in part.

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.