Vellali v. Yale Univ., No. 3:16-cv-1345 (AWT), 2022 WL 13684612 (D. Conn. Oct. 21, 2022) (Judge Alvin W. Thompson)

A district court in Hartford, Connecticut has held that a longstanding suit by participants in the Yale University 403(b) Retirement Account Plan can proceed to trial on their imprudence claims against Yale and related plan fiduciaries. Given last year’s decision by the Supreme Court in Hughes v. Northwestern University, 142 S. Ct. 737 (2022), vacating judgment in the university’s favor, it should come as no surprise that courts such as this one are giving serious scrutiny to ERISA cases challenging the prudence of investment options in defined contribution plans offered by universities.

A class of 20,000 Yale workers and plan participants brought suit in 2016, asserting claims against Yale and other fiduciaries for breaching their duty of prudence in various ways with respect to plan investments, engaging in prohibited transactions, failing to monitor the plan’s investments, and failing to monitor the other plan fiduciaries. On the defendants’ motion for summary judgment, the court ruled that, with respect to most of plaintiffs’ claims, there were genuine issues of material fact that must be resolved at trial.

In their complaint plaintiffs outlined several ways in which they believed defendants’ actions were deficient under ERISA. First, they challenged Yale’s “bundled” services arrangement with The Teachers Insurance Annuity Association of America (“TIAA”), under which Yale agreed to a contract with TIAA that prohibited it from opting out of TIAA’s investment options or selecting any other recordkeeper for TIAA’s annuities. According to plaintiffs, entering such a contract “committed the Plan to an imprudent arrangement.” The court concluded that genuine issues of material facts with respect to the prudence of the bundling arrangements necessitated a trial on this count.

Plaintiffs additionally alleged defendants breached their duties by causing the plan to pay unreasonable administrative and recordkeeping fees to both of the plan’s service providers, TIAA and Vanguard. Although defendants countered that they reduced these fees in 2015 by dropping Vanguard as a recordkeeper and retaining only TIAA, the court agreed with the plaintiffs that there were genuine issues as to whether this took too long, since the plan fiduciaries began considering consolidation of recordkeepers in 2010.

Plaintiffs also argued that defendants improperly allowed TIAA to use plan data to cross-sell and aggressively market products outside the plan to participants. Claims based on similar allegations directly against TIAA were dismissed in Carfora v. Teachers Ins. Annuity Ass’n of Am., No. 21 CIVIL 8384 (KPF), 2022 WL 4538213 (S.D.N.Y. Sep. 28, 2022), summarized as Your ERISA Watch’s notable decision in our October 5th newsletter. In this case, however, the court concluded that plaintiffs raised issues appropriate for resolution at trial about whether Yale acted imprudently by not obtaining information about TIAA’s cross-selling activities or prohibiting TIAA from engaging in these activities.

Likewise, the court allowed claims based on defendants’ lack of process for monitoring the performance of the plan’s funds, and their failure to select available institutional share classes over costlier retail share classes, to go forward.

The court, however, granted the motion with regard to claims asserting prohibited transactions and failure to monitor co-fiduciaries. The court held that there was ultimately no evidence of concealment or self-dealing to show that prohibited transactions occurred. Finally, the court agreed with defendants that plaintiffs failed to create a genuine dispute supporting their assertion that defendants lacked a sufficient process in place to monitor the delegated plan administrators.

The long and the short of this decision is that most of the claims against Yale will proceed to trial.

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

Breach of Fiduciary Duty

Sixth Circuit

Parker v. GKN N. Am. Servs., No. 21-12468, 2022 WL 15142598 (E.D. Mich. Oct. 26, 2022) (Judge Sean F. Cox). Defendants, GKN North America Services, Inc. and the other fiduciaries of GKN’s “GoalMaker” 401(k) Plan, moved for reconsideration of the court’s August 26, 2022 order denying defendants’ motion to dismiss this putative class action asserting breaches of fiduciary duties. Defendants’ failure “to demonstrate ‘a palpable defect’ in need of correction that would result in a different disposition of the case” was unwelcome to the court, which understood this motion to be a rehashing of issues previously addressed in defendants’ original motion to dismiss. The court rejected defendants’ assertion that plaintiffs’ comparator funds did not “consistently outperform” the challenged funds simply because they didn’t constantly outperform the challenged funds. The court also disagreed with defendants’ understanding of controlling authority Smith v. CommonSpirit, 37 F.4th 1160 (6th Cir. 2022), and found that their assertion that active and passive funds can never be compared missed the mark. In the court’s view, “(t)he issue here is not active versus passive, but rather failure to investigate, failure to select lower-cost options, and retaining imprudent plan investments. Therefore, funds in the same Morningstar category constitute appropriate comparator data in this case.” Accordingly, the court denied defendants’ motion for reconsideration, and things stand today in the case just as they stood on August 26.

Class Actions

Sixth Circuit

Dover v. Yanfeng U.S. Auto. Interior Sys., No. 2:20-cv-11643, 2022 WL 14789119 (E.D. Mich. Oct. 25, 2022) (Judge Terrence G. Berg). Plaintiffs moved for preliminary approval of class action settlement agreement in this breach of fiduciary duty action relating to the management of the Yanfeng Automotive Interior Systems Savings and Investment 401(k) Plan. The court began by conditionally certifying the class of plan participants and beneficiaries, finding the class of around 9,000 members satisfies the requirements of Rule 23(a) and (b) as common questions about defendants’ conduct predominate. For settlement purposes the court preliminarily appointed the named plaintiffs as class representatives and their counsel, Edelson Lechtzin LLP, and Fink Bressack LLP, as class counsel. Furthermore, the court was satisfied that the settlement agreement itself seems to be the product of fair and informed negotiations and therefore approved the settlement subject to further consideration after the final fairness hearing takes place early next year. Finally, the court approved the proposed settlement administrator, Angeion Group, and the Notice and mailing plan. For these reasons, plaintiffs’ motion for preliminary settlement approval was granted.

Eleventh Circuit

Huang v. Trinet HR III, Inc., No. 8:20-cv-2293-VMC-TGW, 2022 WL 13631836 (M.D. Fla. Oct. 21, 2022) (Judge Virginia M. Hernandez Covington). Participants of two multiemployer ERISA plans, the TriNet 401(k) Plan (“the TriNet III Plan”) and the TriNet Select 401(k) Plan (“the TriNet IV Plan”), brought a putative class action lawsuit against the plans’ sponsors and fiduciaries for fiduciary breach related to plan investments. Specially, plaintiffs allege that defendants failed to investigate or include lower-cost and better performing passively managed funds, choosing instead to invest in costly and poorly performing actively managed funds. They also argued that defendants failed to negotiate for and utilize institutional share classes. Finally, plaintiffs alleged defendants paid too much in recordkeeping expenses, and plaintiffs challenged TriNet’s use of revenue sharing to pay for the plans’ fees and expenses. Plaintiffs moved for class certification. Defendants opposed certification. They argued that the named plaintiffs did not have standing to bring claims as to the TriNet III Plan because they only participated in the TriNet IV plan. The court disagreed. Plaintiffs, the court held, are challenging defendants’ general practices, which affect both plans. Accordingly, the court found the TriNet IV Plan plaintiffs have standing to pursue their claims relating to both plans. Turning to the requirements of Rule 23, however, the court concluded that, despite having standing, plaintiffs did not satisfy Rule 23(a)’s typicality requirement for the TriNet III Plan. “None of the TriNet IV Plaintiffs invested in any of the challenged funds in the TriNet III Plan. There is no overlap between the TriNet III challenged funds and the TriNet IV challenged funds. The Plans also utilized different recordkeepers operating under different contracts.” Concluding that the claims relating to each of the two plans do not sufficiently overlap, the court altered the definition of the proposed class and limited it to the participants and beneficiaries of only the TriNet IV Plan. However, under this new limited definition, the court was convinced that plaintiffs met all the requirements of Rule 23(a) and (b) and therefore granted the motion to certify this class.

Disability Benefit Claims

Sixth Circuit

Card v. Principal Life Ins. Co., No. 5:15-139-KKC, 2022 WL 15512209 (E.D. Ky. Oct. 27, 2022) (Judge Karen K. Caldwell). In 2015, plaintiff Susan Card filed her initial complaint against defendant Principal Life Insurance Company challenging Principal’s denial of her disability benefit claim. The court granted summary judgment in favor of Principal, affirming the denial under arbitrary and capricious review. Plaintiff appealed and the Sixth Circuit reversed, concluding that Principal had abused its discretion and that the claim should be sent back to Principal for further consideration. After Principal failed to issue a timely decision, Card filed a motion with the district court to recover attorneys’ fees and costs for her success achieving remand to the plan administrator. She also moved to reopen her case in the district court. The district court denied both motions. Ms. Card once again appealed, and once again found success in the court of appeals, which vacated the district court’s order. The court in this order reconsidered Ms. Card’s attorneys’ fees motion and her motion to reopen her case for judicial review of her long-term disability benefit claim. This time both motions were granted. To begin, the court addressed the motion for fees and costs. Ms. Card sought a total of $66,142.50 in attorneys’ fees and $4,761.45 in costs. The court concluded that Ms. Card’s successes in the Sixth Circuit constituted a degree of success on the merits warranting an award of attorneys’ fees, especially when weighing the other King factors which also favored an award of fees. The court nevertheless reduced the requested amounts and ultimately awarded $47,635.00 in fees and $857.92 in costs. This reduction reflected a downward adjustment of the number of hours expended. The court did not award fees for hours spent on unsuccessful arguments, including the time counsel spent arguing in favor of de novo review. The court also reduced hours for time spent litigating a motion to compel a third-party subpoena. However, the court did not reduce the hourly rates of the attorneys, Michael and Andrew Grabhorn, or their staff, and accepted their rates ranging from between $125 – $525 per hour as acceptable based on the prevailing market rate in Eastern Kentucky. Moving on to the motion to reopen, the court reopened the case, deeming Ms. Card’s claims exhausted because Principal failed to issue a determination on her long-term disability claim by the required 90-day deadline under ERISA. “Without a deadline for determining disability claims on court-ordered remand, the claims could be pending in perpetuity, leaving claimants without recourse and foreclosing their avenue to judicial relief.” And so, this case now stands not far from where it stood in 2015, with the district court once again in a place where it will be tasked with reviewing a disability claim.

Bulas v. Unum Life Ins. Co. of Am., No. 2:22-cv-112, 2022 WL 14813537 (S.D. Ohio Oct. 26, 2022) (Judge Sarah D. Morrison). Plaintiff Robert Bulas, M.D. practiced as a neuroradiologist until 2017, when an eye condition left him unable to continue working and he went on long-term disability. Four years later, in August 2021, Dr. Bulas’s benefits were terminated when the plan’s insurer concluded that although Dr. Bulas would be unable to perform interventional procedures, his ocular condition would not prevent him from performing the duties associated with diagnostic radiology and that he was thus not totally disabled from performing the material duties of his occupation. In this action Dr. Bulas sued Unum Life Insurance Company of America, alleging that he was denied a full and fair review, seeking a declaration that he is totally disabled within the meaning of the policy, and asking the court to reinstate his benefits under the plan. To begin, the parties disputed whether Unum or rather its related subsidiary, Provident Life and Accident Insurance Company, is the proper defendant to the suit. Splitting the baby, the court substituted Provident as the defendant for the claim for benefits and for Dr. Bulas’s claim seeking a declaration of disability, but denied the motion to substitute Provident for the full and fair review claim. This decision was ultimately immaterial though, as the court granted Unum’s motion to dismiss the full and fair review claim. Agreeing with the majority of circuit courts, the court ruled that the 2002 claims regulation did not require administrators to provide claimants with the materials generated during an administrative appeal, and therefore held that Dr. Bulas failed to state a claim based on Unum’s failure to do so. Finally, the court denied Dr. Bulas’s motion for judgment on the pleadings requesting a declaration that he is totally disabled under the policy. The court held that there are genuine disputes among the parties that preclude judgment on the pleadings.

ERISA Preemption

Ninth Circuit

Healthcare Ally Mgmt. of Cal. v. Aetna Life Ins. Co., No. CV 22-4826 DSF (KSx), 2022 WL 14518731 (C.D. Cal. Oct. 25, 2022) (Judge Dale S. Fischer). Plaintiff Healthcare Ally Management of California, LLC sued Aetna Life Insurance Company in Los Angeles County Superior Court alleging two state law causes of action, promissory estoppel and negligent misrepresentation, in connection with underpayment of medical benefits for services it provided to two insured patients. Aetna removed the matter to the Central District of California pursuant to federal question jurisdiction. Plaintiff moved to remand the action. It argued that its claims are based on representations made by Aetna about how much it would be paid. Accordingly, plaintiff argued that its claims concern the rate of payment rather than the right to payment and are thus not preempted by ERISA. The court ultimately agreed with Healthcare Ally Management and granted its motion to remand.

Tenth Circuit

Bank Midwest v. R.F. Fisher Elec. Co., No. 19-CV-2560-JAR-GEB, 2022 WL 14807787 (D. Kan. Oct. 26, 2022) (Judge Julie A. Robinson). In 2019 an electrical contractor, R.F. Fisher Electric Co., LLC, ceased its operations. Immediately after, Bank Midwest filed suit against R.F. Fisher for defaulting on loan agreements. R.F. Fisher was indebted to the bank for approximately $11 million. Bank Midwest moved for a receiver, and one was appointed over R.F. Fisher’s collateral. The bank wasn’t the only party interested in collecting payment from R.F. Fisher. So too were a group of multi-employer ERISA plans who were owned unpaid contributions by R.F. Fisher and its various other related corporate entities. During the receivership, the Funds obtained hundreds of thousands of dollars in payments from R.F. Fisher’s customers in the amounts owed to the Funds for the unpaid contributions. The receiver subsequently brought claims of conversion and tortious interference with contract against the Funds for obtaining these payments which the receiver considers to be “diverted Fisher receivables.” The Funds moved to dismiss, arguing the claims are preempted by ERISA. The court held that the receiver only has the right to obtain Fisher’s property “if R.F. Fisher would have a right to it, and (not) what R.F. Fisher would not have rightful ownership of.” The court concluded that the state law claims are based on the Fund’s alleged misconduct in collecting the fringe benefits and that the claims therefore relate to the ERISA plans are thus fall under ERISA preemption. Additionally, the court found that the receiver’s remedy would involve removal of plan assets, further implicating ERISA preemption and its purposes. Having so concluded, the court granted the Funds’ motion to dismiss.

Exhaustion of Administrative Remedies

Tenth Circuit

Fischer v. Rocky Mountain Hosp. & Med. Serv., No. 21-cv-01489-CMA-MEH, 2022 WL 13682928 (D. Colo. Oct. 21, 2022) (Judge Christine M. Arguello). Since 2008, plaintiff Erik G. Fischer has been taking a daily antibiotic medication called Azithromycin to treat a microbial infection in his spine and abdomen that he developed from a surgical procedure. Mr. Fischer is a participant in an ERISA-governed health plan, and he regularly submits claims to Anthem for coverage of his prescription medication. This ERISA lawsuit is the fourth filed by Mr. Fischer against his plan and Anthem. In 2014, 2016, and 2020 he brought nearly identical actions under Section 502(a)(1)(B) to recover denied claims for his medical benefits. After the plan and Anthem denied reimbursement for his antibiotics this time, in the Spring of 2021, Mr. Fischer skipped the administrative appeals process, reasoning exhaustion would be futile given this pattern of routine denials. The parties jointly moved for determination. Mr. Fischer argued the denial was arbitrary and capricious. Anthem argued that Mr. Fischer’s action should be barred for failure to exhaust administrative remedies. The court ruled in Anthem’s favor, agreeing that Mr. Fischer’s failure to exhaust the internal appeals process was not excusable by his futility arguments, especially given the “important purposes (the exhaustion requirement) serves.” The court was not persuaded that Anthem’s prior denials nor Mr. Fischer’s prior lawsuits were proof that his claim would have certainly been denied on appeal. Thus, the court awarded judgment against Mr. Fischer and in favor of Anthem.  The court did not, however, award Anthem attorney’s fees and costs, though it did caution Mr. Fischer against bringing a future claim for benefits without first exhausting administrative remedies. Failure to do so, the court warned, could warrant awarding Anthem attorney’s fees.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Clements v. Southern Nat’l Life Ins. Co., No. 6:20-CV-01205, 2022 WL 13981831 (W.D. La. Oct. 21, 2022) (Judge Robert R. Summerhays). In 2019 decedent Anthony Clements was fatally electrocuted while at work in a salt mine in Louisiana. Mr. Clements was insured under both a group term life insurance policy and an accidental death and dismemberment (“AD&D”) policy. His son, TC, was the beneficiary of both policies. Defendant Southern National Life Insurance Company paid the benefits from the group term life insurance policy but denied the claim under the AD&D policy. In the denial letter, Southern National informed the family that the claim fell under the policy’s drug exclusion because the toxicology report found that Mr. Clements had narcotic drugs in his system and the death certificate stated that the drugs were a contributing cause of death. Confident in its interpretation of the plan language, Southern National moved for judgment. In this order the court granted the motion, agreeing that the death fell within the exclusion and the denial on this basis was reasonable under arbitrary and capricious review.

Pension Benefit Claims

Ninth Circuit

Lundstrom v. Young, No. 18-cv-2856-GPC, 2022 WL 15524624 (S.D. Cal. Oct. 27, 2022) (Judge Gonzalo P. Curiel). Plaintiff Brian Lundstrom is a divorcé who commenced this legal action against his ex-wife, Carla Young, his former employer, Ligand Pharmaceuticals Inc., and his ERISA 401(k) Plan, asserting state law and ERISA claims challenging the validity of  a court issued qualified domestic relations order (“QDRO”) which granted 100% of his 401(k) Plan account assets to Ms. Young, and the validity of a court-issued domestic relations order (“DRO”) that transferred stock options under Mr. Lundstrom’s Stock Incentive Plan to Ms. Young. Ms. Young and the Ligand Pharmaceutical defendants moved to dismiss. The court granted Ms. Young’s motion and granted in part Ligand Pharmaceuticals and the plan’s motion. The court held that Mr. Lundstrom’s claims against his ex-wife were subject to collateral estoppel because Mr. Lundstrom had already challenged what he considered defects in the 401(k) QDRO and the Stock DRO in Texas state court and in an appeal to the Supreme Court of Texas. Thus, the court considered these issues to have been fully and fairly litigated in the state court actions. However, the court did not agree with the Ligand defendants that all of Mr. Lundstrom’s claims against the company and the plan rely on the validity of the QDRO and DRO. “Plaintiff’s first cause of action alleges that Ligand distributed the benefits in Plaintiff’s 401(k) account in violation of the Plan’s terms. The fourth cause of action relates to the procedures Ligand must have in place for determining the status of a QDRO and whether and how those procedures are communicated to employees. The twelfth cause of action alleges that Plaintiff’s employment was terminated in retaliation for exercising his rights under the 401(k) Plan and ERISA. These allegations are separate and distinct from the question of the validity or invalidity of the 401(k) QDRO and Stock DRO.” Accordingly, these claims against the Ligand defendants were not dismissed. However, Mr. Lundstrom’s breach of fiduciary duty ERISA claims were dismissed as they were premised on Ligand’s failure to investigate the merits of the QDRO, which ERISA does not permit.

Retaliation Claims

Seventh Circuit

Clapper v. United Airlines, Inc., No. 20 CV 2635, 2022 WL 14632805 (N.D. Ill. Oct. 25, 2022) (Judge Manish S. Shah). Flight attendant Gale Clapper was fired by defendant United Airlines, Inc. in 2019 after she took a passenger’s lost iPad and brought it home with her. Ms. Clapper commenced this wrongful termination suit following her termination, believing that the firing was discriminatory and violated ERISA Section 510 because she was scheduled for hip-replacement surgery and was in her 60s and struggling to walk properly. United Airlines argued that its decision to fire Ms. Clapper was because of her theft of the iPad, which it stated was a violation of its professional conduct policies. Regarding Ms. Clapper’s ERISA Section 510 claim, United stated that its decision was not motivated by an intent to interfere with her attainment of benefits and supported this position by proving that it paid for her hip-replacement surgery even after the termination. The court held that United met its burden of providing a non-discriminatory reason for the termination and stated that “nothing about the timing of United’s disciplinary process gives rise to an inference of discrimination.” Accordingly, the court granted United’s motion for summary judgment.

Withdrawal Liability & Unpaid Contributions

Ninth Circuit

Gciu-Employer Ret. Fund. v. MNG Enters., No. 21-55864, __ F. 4th __, 2022 WL 15579987 (9th Cir. Oct. 28, 2022) (Before Circuit Judges Smith, Jr. and Nelson, and District Judge Gershwin A. Drain). An ERISA multiemployer pension plan, the GCIU-Employer Retirement Fund, challenged an arbitrator’s award assessing withdrawal liability against the defendant employer, MNG Enterprises Inc. In the district court the arbitration decision was affirmed except for a typographical error in the assessed interest rate. The Fund appealed the decision, arguing that the district court erred in affirming the arbitrator’s choice of interest rate, and the arbitrator’s decision that MNG could not be assessed partial withdrawal liability following a complete withdrawal. MNG Enterprises took issue with a different aspect of the arbitrator’s and the district court’s decision: the inclusion of contribution histories of two smaller employers that it acquired a few years before the date of the withdrawal. The Ninth Circuit agreed with the lower court and the arbitrator that the interest rate used was appropriate because it took the plan’s assets and past performance into account and was therefore the “best estimate.” However, the Ninth Circuit did not choose to adopt the Fund’s requested interest rate published by the Pension Benefit Guaranty Corporation because it did not reflect the experience or expectations of the plan. Additionally, the court of appeals affirmed the district court’s conclusion that a partial withdrawal cannot occur after a complete withdrawal and “(s)pecifying two types of withdrawal would hardly make sense if a partial withdrawal always followed a complete one.” However, the circuit court vacated the inclusion of the contribution histories of the two small, acquired businesses. The Ninth Circuit felt the district court did not properly address MNG’s potential successor liability for the two businesses it acquired more than a decade earlier. Thus, the appeals court vacated this aspect of the order and remanded to the district court to determine whether MNG had successor liability and if the arbitrator was correct in applying the businesses’ contribution histories at the time of the asset sales.

Richmond v. Life Ins. Co. of N. Am., No. 21-3929, __ F.4th __, 2022 WL 10225155 (8th Cir. Oct. 18, 2022) (Before Circuit Judges Gruender, Shepherd, and Erickson)

Today’s notable decision is yet another in a long-running series of cases involving Life Insurance Company of North America and its ERISA-governed accidental death insurance policies. Many of these cases involve a semantic deep-dive into what constitutes an “accident,” an investigation that Supreme Court Justice Benjamin Cardozo likened to a “plunge in the Serbonian Bog.” Today’s ruling neatly dodges bog-plunging, however, and instead examines an exclusion in one of LINA’s policies.

The plaintiff in the case is Jay Richmond, whose wife, Marie Richmond, worked as a registered nurse. She was a participant in her employer’s voluntary accident insurance plan, which was insured and administered by LINA. She was insured in the amount of $500,000; Jay was her sole beneficiary.

Sadly, one day after work Marie was found slumped over the side of her bed, unresponsive. Emergency responders attempted to revive her, but could not, and she was pronounced dead. Investigators found various injection materials nearby and the autopsy report identified serial needle punctures in her body. The medical examiner opined that Marie had died from mixed drug toxicity involving morphine, hydromorphone, meperidine, and fentanyl. Marie did not have prescriptions for these medications, and although the dosage of each was within the reported therapeutic range, the combination of the drugs was unfortunately lethal.

Jay submitted a claim for accidental death benefits to LINA, which denied the claim on two grounds. LINA contended both that the plan’s “voluntary ingestion” exclusion barred the claim, and that Marie’s death was not a “covered accident” because her death was “a reasonably foreseeable result of self-injecting a mixture of controlled substances.”

After exhausting his appeals with LINA, Jay brought this action seeking payment of benefits under ERISA, 29 U.S.C. § 1132(a)(1)(b). The district court granted judgment to LINA, specifically affirming both of LINA’s rationales for denying Jay’s benefit claim. Jay appealed.

At the outset, the Eighth Circuit noted that the benefit plan granted LINA discretionary authority to interpret the terms and conditions of the plan, and thus it reviewed LINA’s denial for abuse of discretion. Addressing the first basis for denial – whether the voluntary ingestion exclusion barred Jay’s claim – the court employed a two-step approach. First, it “evaluate[d] whether LINA’s interpretation of the plan language is reasonable,” and second, “analyze[d] LINA’s application of that interpretation to the facts to ensure that it is supported by substantial evidence.”

The court found that LINA’s interpretation was reasonable. The court noted that the plan excludes coverage for any accident resulting from the “voluntary ingestion of any narcotic, drug, poison, gas or fumes, unless prescribed or taken under the direction of a Physician and taken in accordance with the prescribed dosage.” The parties did not dispute that Marie had voluntarily taken the drugs in her system, and that she did not have a prescription for them, and thus the sole point of dispute was the word “ingestion.” LINA contended that the term includes self-injections, while Jay argued that the term only means “oral intake for the purposes of digestion.”

To resolve this dispute, the Eighth Circuit employed the five-factor test set forth in Finley v. Special Agents Mut. Ben. Ass’n, Inc., which asks whether an interpretation (1) is consistent with the goals of the plan, (2) renders any plan language meaningless or inconsistent, (3) conflicts with substantive or procedural requirements of ERISA, (4) is consistent over time, or (5) is contrary to the clear language of the plan.

The court found that the first factor was neutral, because while the plan is designed to pay benefits, it is also designed only to pay covered claims. The second factor weighed in LINA’s favor, because Jay’s argument that “ingestion” only meant digestion rendered the part of the exclusion about gas or fumes “nonsensical.” The third factor supported LINA because “the average plan participant would read the voluntary ingestion exclusion to cover any death caused by willingly using unprescribed narcotics,” and thus LINA’s interpretation did not run afoul of ERISA’s requirements. The fourth factor did not weigh in either party’s favor because there was no history in the record of LINA’s interpretation of “ingestion.”

Finally, in evaluating the fifth factor, the court discussed the competing interpretations of the word “ingestion” provided by the parties, including dictionary definitions, and agreed that neither party’s interpretation was unreasonable. However, the court ruled that “the context controls here.” Because the exclusion referred to the ingestion of “gas or fumes,” which are not introduced to the body by digestion, “LINA’s interpretation is more in line with the Plan’s clear language, as Richmond’s would render part of the exclusion meaningless. Thus, the fifth factor weighs in LINA’s favor.”

In sum, the Eighth Circuit found that the Finley factors “tilt slightly in LINA’s favor.” Furthermore, because of the standard of review, LINA’s interpretation only needed to be “reasonable” to survive review. Because LINA “offered a ‘reasonable interpretation’…LINA’s interpretation stands.”

Having decided that LINA’s interpretation was reasonable, the Eighth Circuit then quickly dispensed with the question of whether LINA’s decision was “supported by substantial evidence.” Because the record showed that “Marie undisputedly died because she willingly injected herself with a combination of unprescribed narcotics,” the court found “sufficient evidence to support LINA’s application of the voluntary ingestion exclusion[.]” Because a reasonable person could have reached the same conclusion as LINA, the court was obliged to uphold it, “even if we might have found differently in the first instance.”

As for the question of whether Marie’s death was a covered accident in the first place, the Eighth Circuit declined to address it. Because the court found that Jay’s claim was barred by the voluntary ingestion exclusion, the court stated, “we need not address LINA’s assertion that Marie’s death was not accidental.” As a result, the Eighth Circuit affirmed the judgment for LINA in its entirety.

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

Breach of Fiduciary Duty

Eighth Circuit

Adams v. U.S. Bancorp, No. 22-CV-509 (NEB/LIB), 2022 WL 10046049 (D. Minn. Oct. 17, 2022) (Judge Nancy E. Brasel). In this putative class action lawsuit, former employees of U.S. Bancorp who took early retirement allege that defendants violated ERISA by using unreasonable mortality tables and discount rates, which resulted in the employees receiving pension benefits that were not actuarially equivalent to those they would have received had they retired at the normal age of 65. Defendants moved to dismiss and moved to strike plaintiffs’ class allegations. Defendants argued that their downward adjustments for the longer withdrawal periods were not in violation of Section 1054(c)(3) or 1053(a). At the pleading stage the court accepted plaintiffs’ allegations that defendants were using outdated assumptions to calculate early retirement pension benefits and their basic assertion that because of this they are receiving less in monthly benefits than they are rightly entitled to. The court stated that, contrary to defendants’ position, Section 1054(c)(3) requires pension plans to calculate early retirement benefits with reasonable assumptions. To find otherwise, the court determined, would render the function of the actuarial equivalent provision meaningless or even nonsensical. If fiduciaries could input whatever assumptions they desired to calculate actuarial equivalence, the court reasoned those fiduciaries could engage in self-serving conduct antithetical to ERISA’s guiding principles. Defendants’ position that ERISA’s anti-forfeiture provision does not apply to early retirees proved no more successful. Because Congress did not include language limiting the anti-forfeiture provision’s applicability only to employees who reach “normal retirement age,” the court was convinced that the provision applies to plaintiffs and that they therefore stated their claim. Finally, the court declined to strike plaintiffs’ class allegations and rejected defendants’ position that “the putative class definition is an impermissible fail-safe class.” To the court, striking plaintiffs’ class allegations prior to a motion to certify was an extreme action that defendants failed to demonstrate was warranted or appropriate. For these reasons, the court denied defendants’ motions.

Class Actions

Seventh Circuit

Lysengen v. Argent Tr. Co., No. 20-1177, 2022 WL 11915656 (C.D. Ill. Oct. 20, 2022) (Judge Michael M. Mihm). Plaintiff Jackie Lysengen moved for reconsideration of the court’s order denying class certification in this action challenging the actions of fiduciaries during an Employee Stock Ownership Plan (“ESOP”) transaction and accompanying stock valuation. In this order the court not only affirmed its prior position but expanded upon its reasoning in support of denying certification as the court anticipates the decision will be appealed to the Seventh Circuit. To begin, the court upheld its view that a conflict exists in the proposed class. Prior to the creation of the ESOP, many of the proposed class members were participants in The Morton Buildings, Inc. 401(k) and ESOP (“KSOP”), including Ms. Lysengen. In the court’s view, the KSOP participants who received cash payments compensating them for alleged “undervaluation” of the stock, as well as those who were under a price-protected status immediately following the ESOP transaction, were financially different from, and potentially even in conflict with, other members of the proposed class. This “irreconcilable conflict” precluded Ms. Lysengen from satisfying the requirements of commonality and typicality under Rule 23(a). In addition, the court concluded that Ms. Lysengen did not satisfy the adequacy requirement because she was “in an unusual position in that she left the company while the KSOP stock value was depressed, but she was ineligible to receive the price protected status,” and her situation is therefore not clearly aligned with those of the other class members. These same complicating factors also prevented Ms. Lysengen from satisfying the requirements of Rule 23(b)(1). In the end, the decision to deny certification can be summed up simply: the conduct at issue hurt some of the class members and benefitted others and for this reason the claim was not common among them.

ERISA Preemption

Second Circuit

Murphy Med. Assocs. v. Cigna Health & Life Ins. Co., No. 3:20cv1675 (JBA), 2022 WL 10560321 (D. Conn. Oct. 18, 2022) (Judge Janet Bond Arterton). In this action plaintiffs are healthcare providers seeking reimbursement of COVID-19 testing and care they provided to insureds which went unpaid by defendant Cigna Health & Life Insurance Company. On March 11, 2022, the court issued an order dismissing in part plaintiffs’ complaint. As relevant here, the court dismissed two state law counts, a claim under Connecticut’s Unfair Insurance Act and a claim for unjust enrichment, as being preempted by ERISA. Plaintiffs have since moved for reconsideration of that decision. They argued that the court’s dismissal was improper because their state law claims were brought against both ERISA-governed and non-ERISA plans, and the court therefore should have allowed the state law claims to proceed for the non-ERISA plans. Plaintiffs wished to amend their complaint to specify that these two claims pertain to the non-ERISA plans. In this decision the court granted the motion for reconsideration and permitted plaintiffs to amend their complaint. The court agreed that ERISA preemption does not apply to non-ERISA plans, and because plaintiffs have now made clear to the court that they are bringing claims for non-ERISA plans, the court modified its judgment allowing the two state law claims to proceed for those plans not governed by ERISA.

Third Circuit

Rider v. PPG Indus., No. 21-1819-GBW, 2022 WL 10466974 (D. Del. Oct. 18, 2022) (Judge Gregory B. Williams). Plaintiff Ronald Rider sued PPG Industries, Inc. along with PPG’s welfare and retirement plans under both ERISA and state law to obtain retiree health and pension benefits that were promised to him when he was negotiating the terms of his employment returning to the company post-retirement. Mr. Rider claimed that during those negotiations PPG’s HR representative and recruiter made promises to him in writing that his benefits would be reinstated as if his employment with PPG, which dated back to the 1980s, had never ended. However, after accepting the position and agreeing to return to work for PPG, Mr. Rider was informed that he was ineligible for these benefits, which prompted him to commence litigation. Defendants moved to dismiss Mr. Rider’s state law breach of contract, promissory estoppel, and negligent misrepresentation claims. Defendants argued these claims are preempted by ERISA because they are duplicative of Mr. Rider’s Section 502 ERISA claims and therefore do not create any independent legal duty. The court agreed in part and disagreed in part. The court held that Mr. Rider’s breach of contract and promissory estoppel claims, at least at the pleading stage, are not preempted by ERISA because they are premised on an independent agreement between him and the company meaning that the factfinder could resolve those claims without relying on the terms of the ERISA plans. The motion to dismiss these two claims was thus denied. However, the court found that the negligent misrepresentation claim rested on Mr. Rider’s benefits eligibility and therefore his right to recovery depends upon the court interpreting the terms of the ERISA plans. Accordingly, the court concluded Mr. Rider’s negligent misrepresentation claim was preempted by ERISA. Consequently, the motion to dismiss the negligent misrepresentation claim was granted.

Pension Benefit Claims

Fourth Circuit

Dove v. Johnson, No. 4:20-CV-154-BO, 2022 WL 11282218 (E.D.N.C. Oct. 18, 2022) (Judge Terrence W. Boyle). “Who is the surviving spouse of Vaughan Johnson?” The answer to that question is the gravamen of this case. Two women, Faith Dove and Shirley Johnson, each believes that she is the surviving wife of former NFL player Vaughan M. Johnson, and therefore entitled to receive benefits from The Bert Bell/Pete Rozelle NFL Player Retirement Plan. Ms. Johnson, believing that Ms. Dove was never legally married to Mr. Johnson, moved to strike Ms. Dove’s affidavit and portions of her statement of facts which reference “marriage ceremony,” “lawful marriage,” “spouse” and other phrases of the like. The court denied the motion to strike, as Ms. Johnson’s own affidavit and statement of material facts made the same or similar references to her own marriage. Ms. Johnson’s motion for summary judgment on the ERISA claims was likewise denied. The court once again stressed that the record is not clear or definite as to the validity and status of either marriage. Accordingly, the court concluded that summary judgment could not be awarded at this juncture.

Plan Status

Ninth Circuit

Adams v. Symetra Life Ins. Co., No. CV-18-00378-TUC-JGZ, 2022 WL 10550558 (D. Ariz. Oct. 17, 2022) (Judge Jennifer G. Zipps). In this disability benefit action plaintiff Luke Adams brings state law causes of action against defendant Symetra Life Insurance Company. The parties have been disagreeing over the issues of plan status and ERISA preemption for years, with Mr. Adams maintaining the plan is not governed by ERISA and Symetra holding the opposite view. In 2020 the court ruled that the plan was not governed by ERISA. Now, more than two years after that ruling and just before the case is about to proceed to trial, Symetra has moved to reopen discovery to further develop facts relevant to its position that the plan is governed by ERISA and the state law causes of action are preempted. The court in this brief order denied Symetra’s motion to reopen discovery, holding that the insurer had not shown good cause or demonstrated due diligence to warrant granting the motion. Instead, the court directed Symetra to file briefing addressing why the issue of ERISA preemption is a contested fact and why Mr. Adams should not be entitled to partial summary judgment on the issue of ERISA preemption. The decision ended with the court stressing its intention not to cause further delay and ordering trial preparation to continue.

Provider Claims

Third Circuit

Advanced Orthopedics & Sports Med. Inst. v. Anthem Blue Cross Life & Health Ins. Co., No. 20-13243 (FLW), 2022 WL 13477952 (D.N.J. Oct. 21, 2022) (Judge Freda L. Wolfson). Plaintiff Advanced Orthopedics and Sports Medicine Institute, on behalf of an insured patient, sued Anthem Blue Cross Life and Health Insurance Company, Horizon Healthcare Services Inc., and Central Garden & Pet for underpayment of benefits for spinal surgical services it provided. Plaintiff brought claims under ERISA Sections 502(a)(1)(B), (a)(3), and (a)(3)(B). Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). As a threshold matter, the insurance companies argued that they are not proper parties to the action nor fiduciaries. The court agreed, and found they did not fund or underwrite the plan and were not otherwise functioning as fiduciaries. Accordingly, Anthem and Horizon’s motions to dismiss were granted. The court also dismissed the denial of full and fair review claim as to all defendants, holding that 29 U.S.C. § 1133 does not confer a private right of action. However, the remainder of defendant Central Garden & Pet’s motion to dismiss was denied.

Retaliation Claims

Fifth Circuit

Oliver v. Roehm Am., No. 21-1831, 2022 WL 11763644 (E.D. La. Oct. 20, 2022) (Judge Nannette Jolivette Brown). Plaintiff Chelsea Oliver was terminated from her employment working at Roehm America LLC after she took two family and medical leaves to undergo knee surgeries. In her action Ms. Oliver sued Roehm America, the company’s general counsel, its human resources manager, Chubb Insurance Company of New Jersey, and Federal Insurance Company, alleging violations of FMLA, Title VII, ERISA, ADA, and Louisiana state law. Roehm moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The motion was granted in part and denied in part. Specifically with regard to Ms. Oliver’s ERISA Section 510 claim, the court agreed with Ms. Oliver that she had stated a viable claim. Circumstantial evidence could lead a factfinder to conclude that Ms. Oliver’s termination was motivated at least in part by Roehm’s intent to interfere with Ms. Oliver’s attempt to obtain further costly medical and disability benefits.

Matousek v. MidAmerican Energy Co., No. 21-2749, __ F. 4th __, 2022 WL 6880771 (8th Cir. Oct. 12, 2022) (Before Circuit Judges Shepherd, Erickson, and Stras)

Participants in a 401(k) plan offered by their employer, MidAmerican Energy Co., brought a class action lawsuit against the company and other plan fiduciaries, alleging fiduciary breaches based on high fees and poor performance with respect to some of the investment options and high overall recordkeeping fees. After the district court dismissed under Rule 12(b)(6), the participants appealed to the Eighth Circuit, which affirmed the dismissal. The court saw ERISA’s prudence requirement as imposing a purely procedural burden and ultimately concluded that the participants failed to plead sufficient facts to allow an inference that anything was procedurally amiss with respect to the plan’s fees and investment choices.

The court started with the recordkeeping fees paid by the plan to Merrill Lynch, which were between $1.9 million and $3.1 million per year, translating to between $326 and $526 per plan participant annually. In the absence of allegations of serious wrongdoing (like kickbacks), the court said, “the way to plausibly plead a claim of this type is to identify similar plans offering the same services for less.”

The participants claimed that they had done so in the complaint, pointing to allegations that similarly-sized large pension plans (with over $1 billion in assets) paid no more than $100 per participant. The Eighth Circuit said not so fast. Even though, at first glance, the fees paid by the MidAmerican plan looked high, the court reasoned that it could not infer that other similarly-sized plans paid less for the same services.

For this, the court looked to two documents (presumably outside the complaint) – participant disclosure forms and Form 5500s – that the court read as indicating that the relevant fees being paid to Merrill Lynch were only between $32 and $48 per participant, and concluded that the other fees must have been for additional services like participant-initiated “loans” and “distributions.” The sources that the participants pointed to in the complaint, however, left out fees for these kinds of individualized services, and were generally for smaller plans, which the court thought might not need the same kinds of services. On these bases, the court concluded that the complaint did not make a “like-to-like” comparison with regard to the claim that the plan overpaid for recordkeeping fees, and the claim therefore failed to pass muster.

The court likewise concluded that the complaint lacked sufficient detail to support the imprudence claims with respect to specific investment options. The court reasoned that the complaint simply gave insufficient information about such matters as investment strategy, risk profile, and the securities held by the peer group funds identified in the complaint to determine whether these funds provided a “sound basis for comparison.” In the end, the court found “no way to compare the large universe of funds – about which we know little – to the risk profiles, return objectives, and management approaches of the funds in MidAmerican’s lineup.”

The court affirmed the dismissal of the complaint with prejudice, noting that the plaintiffs had not moved to amend in the district court.

This decision makes clear that, in the future, ERISA plaintiffs will have to include in their complaints a lot of detail about the services and fees of comparators to state a fee claim in the Eighth Circuit.

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

Attorneys’ Fees

First Circuit

Holt v. Raytheon Techs. Corp., No. 20-11244-FDS, 2022 WL 6819544 (D. Mass. Oct. 11, 2022) (Judge F. Dennis Saylor IV). Plaintiff Michael Holt is a retiree who worked for defense contractor Raytheon Technologies Corporation, as well as for a company Raytheon acquired, Texas Instruments. In his suit Mr. Holt alleged that his pension benefits did not account for his years of service at Texas Instruments prior to the acquisition and he was therefore receiving less than he was entitled to. Mr. Holt asserted claims for equitable and declaratory relief under Section 502(a)(3), a claim for benefits under Section 502(a)(1)(B), and a claim for attorney’s fees and costs under Section 1132(g). The parties filed cross-motions for summary judgment, which the court denied, choosing instead to remand the matter to the plan administrator. “That decision rested largely on the inadequacy of the administrative record for a conclusive decision. The court further concluded that, given remand to the administrator, Holt’s claim for equitable relief was premature.” Mr. Holt subsequently moved for an award of attorney’s fees and costs pursuant to Section 1132(g). The court concluded that a remand “was probably the best result for which plaintiff could have reasonably hoped,” and for that reason, Mr. Holt had achieved some success on the merits and was entitled to an award of attorney’s fees and costs. Mr. Holt was represented by counsel Jonathan Feigenbaum, a long-time ERISA Watch subscriber and solo ERISA practitioner based in Boston who has been practicing for 27 years litigating hundreds of ERISA cases. Counsel sought an award of $126,280 in attorney’s fees comprised of a lodestar based on an hourly rate of $800 and 157.85 hours of work. The court reduced the amount sought in several respects. Specifically, the court reduced the hourly rate for time spent preparing the fee application by 25% and applied a global reduction of the hours by 15% for the time spent on “‘non-core’ legal work, such as telephone conversations, letter writing, and scheduling,” and for Mr. Holt’s lack of a resolution on his Section 502(a)(3) claims. The court also reduced Mr. Feigenbaum’s hourly rate from the requested $800 to $700. This was primarily done because Mr. Feigenbaum increased his hourly rate from $700 to $800 on January 1, 2022, meaning “the bulk of litigation in this case occurred before Feigenbaum raised his hourly rate.” Multiplying the reduced hourly rate by the reduced hours the court was left with a lodestar of $93,028.25. Attorney’s fees were awarded in this amount. The court awarded in full the requested $1,597.20 in costs.

Breach of Fiduciary Duty

Fourth Circuit

Walsh v. Yost, No. 8:20-cv-00449-PX, 2022 WL 9362277 (D. Md. Oct. 14, 2022) (Judge Paula Xinis). Secretary of Labor Martin J. Walsh commenced this suit against the Saturn Corporation Profit Sharing Plan & Trust and its fiduciaries and trustees for breaches of fiduciary duties and engaging in prohibited transactions. Specifically, the Secretary alleged that defendants failed to forward tens of thousands of dollars of employee contributions to the plan and instead retained the funds in the business for up to five years before eventually remitting them to the plans. Because of the delinquent contributions, the Secretary argued that the plan is owed $8,899.20 in foregone interest. Defendants have failed to respond or participate in the litigation and on September 28, 2021, the court entered their default. The Secretary then moved for a default judgment against defendants. The court granted the motion with respect to liability but denied without prejudice as to the relief sought. Specifically, the court accepted the allegations in the complaint as true and agreed with plaintiff that defendants failed to hold the plan assets in trust, failed to use the assets exclusively for the purpose of administering the plan and exclusively for the benefit of plan participants, and allowed the plan assets to inure to the benefit of the company, a party in interest. Accordingly, the court found liability established. Nevertheless, the court declined to grant the Secretary’s request for relief, finding “the record in support thin,” and short on documentation backing up the assertions. Thus, the court denied without prejudice this portion of the motion and instructed the Secretary to supplement the record on damages.

Class Actions

Sixth Circuit

Dover v. Yanfeng U.S. Auto. Interior Sys., No. 2:20-cv-11643, 2022 WL 7610110 (E.D. Mich. Oct. 13, 2022) (Judge Terrence G. Berg). Plaintiffs moved for preliminary approval of a class action settlement agreement in this breach of fiduciary duty pension class action. The court outlined that it tentatively found the settlement fair, reasonable, and adequate “and in the best interest of the class members,” the participants and beneficiaries of the Yanfeng Automotive Interior Systems and Investment 401(k) Plan. Accordingly, the court preliminarily certified the class, appointed the named plaintiffs class representatives, their counsel, Edelson Lechtzin LLP, and Fink Bressack LLP, as class counsel, and Angeion Group as the settlement administrator. The court directed notice of the settlement to be mailed and scheduled a fairness hearing for the court to hear any objections to the settlement. Having drawn these conclusions, the court granted the motion for preliminary approval of the settlement.

Disability Benefit Claims

First Circuit

Winters v. Liberty Life Assurance Co. of Bos., No. C.A. 20-11937-MLW, 2022 WL 6170588 (D. Mass. Oct. 7, 2022) (Judge Mark L. Wolf). In 2018, plaintiff Edward J. Winters, III stopped working as a mortgage consultant at Wells Fargo due a series of yet to be diagnosed neurological symptoms, possibly the result of Lyme Disease. In this suit, he sought to reinstate long-term disability benefits that were terminated during the policy’s “own occupation” period of disability. Several motions were before the court. Mr. Winters moved for summary judgment and moved to strike exhibits that defendant Liberty Life Assurance Company of Boston attached to its statement of facts that were not part of the administrative record. Liberty moved for judgment on the administrative record. The court first began by addressing Mr. Winters’ motion to strike a medical chronology that Liberty compiled of its interpretation of the 4,400-page medical record, and a declaration of from Liberty’s Director of Appeals outlining the ways Liberty mitigates its conflict of interest in making benefit determinations. The court denied the motion to strike, concluding that the exhibits did not impermissibly expand the administrative record. The court found the chronology to be a useful tool as it summarized the voluminous medical record. As for the declaration, the court concluded it was relevant to Mr. Winters’ claim of procedural bias and thus a permissible addition to the record. Accordingly, the motion to strike was denied. The court next evaluated the relevant standard of review. Mr. Winters argued that the standard of review should be de novo based on a relevant state law outlawing discretionary clauses and thanks to Liberty’s procedural errors during the review process. The court disagreed. It found the state law inapplicable because it went into effect after the relevant events at issue here. Regarding the procedural errors, the court concluded they did not result in prejudice and thus did not warrant altering the review standard. Under arbitrary and capricious review, the court ultimately found that Liberty had identified substantial evidence within the medical records to justify terminating benefits. However, the court nevertheless identified a major flaw with the decision, “Liberty did not complete an assessment of whether Winters was able to carry out all of the Material and Substantial Duties of his Own Occupation…Rather, Liberty made a determination that Winters could perform sedentary or light physical work.” With this shortcoming in mind, the court declined to award judgment to either party and instead determined the appropriate course of action was to remand to Liberty for further consideration. Accordingly, each party’s motion for judgment was denied.

Fourth Circuit

Giberson v. Unum Life Ins. Co. of Am., No. 1:21-00305, 2022 WL 7139763 (S.D.W. Va. Oct. 12, 2022) (Judge David A. Faber). During the height of the COVID-19 pandemic, plaintiff Walter J. Giberson’s long-term disability benefits, which he had been receiving for fourteen years due to cardiac conditions and lingering side-effects of a kidney transplant, were terminated by defendant Unum Life Insurance Company of America. In this order, the court ruled on the parties’ cross-motions for summary judgment under abuse of discretion review. Upon review of the administrative record, the court was convinced that substantial evidence supported Unum’s decision to terminate the benefits. This evidence included the opinions of Unum’s reviewing physicians, including the opinion of the cardiologist Unum hired to perform a medical examination of Mr. Giberson, and a vocational assessment, which outlined sedentary occupations Mr. Giberson could perform with the use of personal protective equipment. The court rejected Mr. Giberson’s argument that Unum cherry-picked medical evidence to suit its objective of terminating benefits. Rather, the court saw “cherry-picking” as a “pejorative label for selecting,” which the court stated is naturally what a plan administrator is supposed to do while reviewing claims. Because, according to the court, Unum systematically considered all of Mr. Giberson’s medical records and addressed why it found evidence that conflicted with its interpretation to be unreliable, the court found no abuse of discretion in the decision itself or the process used to reach it. Thus, the court granted summary judgment in favor of Unum and denied Mr. Giberson’s summary judgment motion.

Ninth Circuit

Perez v. Unum Life Ins. Co. of Am., No. 5:21-cv-03207-EJD, 2022 WL 6173217 (N.D. Cal. Oct. 7, 2022) (Judge Edward J. Davila). Plaintiff Robert Perez sued Unum Life Insurance Company of America after his long-term disability benefits were terminated. Mr. Perez moved for judgment on his two claims, a claim for benefits and a claim for breach of fiduciary duty. In this order the court denied the motion and entered judgment in favor of Unum under de novo review. The court ultimately concluded that Mr. Perez’s disabling conditions in his knees, ankles, and lower back had improved by the time Unum terminated benefits and that Mr. Perez would therefore be able to work in one of the sedentary occupations identified by Unum’s vocational expert. The court denied Mr. Perez’s request to supplement the administrative record, finding it contained all the relevant information the court needed to reach its conclusion. The court also rejected Mr. Perez’s argument that Unum needed to show a change in condition to justify its decision to terminate benefits. To the contrary, the court held it remains Mr. Perez’s burden to prove his entitlement to benefits at all times. As for Mr. Perez’s challenge that he is not currently qualified to perform the identified sedentary jobs, the court stated that the policy simply requires that the jobs be ones Mr. Perez “could reasonably be expected to perform.” Finally, the court found that Unum had not breached its fiduciary duty because it provided Mr. Perez the entire claim file within ERISA’s required 30-day window, and the court found Unum’s reviewers had not made any errors demonstrating a breach of fiduciary duty. Accordingly, the court held Mr. Perez did not meet his burden of proving his entitlement to continued long-term disability benefits.

ERISA Preemption

Fifth Circuit

Brushy Creek Family Hosp. v. Blue Cross & Blue Shield of Tex., No. 1:22-CV-00464-RP, 2022 WL 6727278 (W.D. Tex. Oct. 11, 2022) (Magistrate Judge Susan Hightower). Plaintiff Brushy Creek Family Hospital, an emergency care provider in Texas, sued Blue Cross & Blue Shield of Texas in state court for violating Texas insurance law and breaching an implied contract in connection with an alleged underpayment of $50,000 in emergency medical care bills it charged for care provided to an insured patient. Blue Cross removed the action to federal court on the basis of federal question jurisdiction, arguing that the state law claims were completely preempted by ERISA. Brushy Creek moved to remand. In this Report and Recommendation, Magistrate Judge Hightower analyzed Brushy Creek’s complaint under the two-prong Davila preemption test. First, it was undisputed that Brushy Creek, a medical provider with a valid assignment of benefits, could have sued under ERISA Section 502(a)(1)(B) to recover benefits. The first prong of the test was therefore satisfied. The second prong of Davila was the main point of contention between the parties. They disagreed on whether the Texas insurance law created an independent legal duty. In the end, the Magistrate held that the “rate of payment/right to payment” distinction was inapplicable to the particulars of this case because there was no independent provider agreement or contract between the parties. Furthermore, Magistrate Judge Hightower concluded that the duty imposed by the Texas law at issue was not independent of ERISA, because the statutory language of the law defines “the usual and customary rate” by “the relevant allowable amount as described by the applicable master benefit plan document or policy,” and therefore incorporates the terms of the ERISA plan. Consequently, resolution of the dispute was inextricably tied to interpreting the ERISA plan, and the second prong of Davila was also satisfied. Accordingly, the Magistrate agreed with Blue Cross that the claims are preempted by ERISA, and so recommended the court deny Brushy Creek’s motion to remand.

Pension Benefit Claims

Ninth Circuit

Kurisu v. Svenhard’s Swedish Bakery Supplemental Key Mgmt. Ret. Plan, No. 3:21-cv-912-SI, 2022 WL 6733328 (D. Or. Oct. 11, 2022) (Judge Michael H. Simon). Plaintiffs are former employees of Svenhard’s Swedish Bakery. Each of the plaintiffs worked for Svenhard’s for over three decades. During that time, Svenhard’s promised them and other employees that upon their retirement they would receive pension benefits under the Svenhard’s Swedish Bakery Supplemental Key Management Retirement Plan. However, after plaintiffs retired, they were paid substantially less in pension benefits than they had been promised. In this lawsuit plaintiffs brought ERISA claims and a federal common law estoppel claim against the Plan, the plan’s administrators and fiduciaries, and the bakeries that purchased Svenhard’s: United States Bakery, Mountain States Bakeries LLC, and Central California Baking Company (“the bakery defendants”). The bakery defendants moved to dismiss for failure to state a claim. They argued that plaintiffs’ complaint was insufficiently pled because their purchase agreements with Svenhard’s Bakery did not require them to assume pension obligations under the plan. Plaintiffs disagreed and stated that the Plan itself provides that if Svenhard’s sells its assets then Svenhard’s “shall condition any sale, merger, or reorganization of Svenhard’s or substantially all of its assets upon the surviving entity’s or successor organization’s assuming Svenhard’s obligations under this Plan.” This on its own was not enough for the court to find plaintiffs had adequately stated a claim against the bakery defendants. The court held that plaintiffs needed to allege that the bakery defendants had agreed to assume the obligations under the plan, which plaintiffs failed to actively allege “even on information and belief.” Accordingly, the court granted the motion to dismiss. However, the court expressed its sympathy for plaintiffs’ predicament and the position they are currently in. Thus, the court not only dismissed without prejudice with leave to replead, but also went further and allowed plaintiffs “a reasonable amount of limited discovery before plaintiffs must replead so that plaintiffs can determine whether the Bakery Defendants assumed any obligations under the Plan as a condition of Svenhard’s selling its assets to the Bakery Defendants.”

Baleja v. Northrop Grumman Space and Missions Sys. Corp. Salaried Pension Plan, No. EDCV 17-235 JGB (SPx), 2022 WL 8176156 (C.D. Cal. Oct. 13, 2022) (Judge Jesus G. Bernal). A class of former ESL, Inc. employees brought a two-count ERISA class action against Northrop Grumman Corporation, the Northrop Grumman Space and Mission Systems Corp. Salaried Pension Plan, and the plan’s administrative committee. Plaintiffs alleged that defendants violated ERISA’s anti-cutback provision after acquiring ESL, Inc. and failing to account for their years of service with ESL, effectively shrinking their accrued benefits. They also argued that defendants’ failure to pay the benefits was a violation of the terms of the pension plan. The case went to trial this January. In this order the court issued its ruling in favor of defendants, concluding that defendants neither denied benefits due under the plan nor violated ERISA’s anti-cutback provision. In sum, the court concluded that the plan’s “No Duplication of Benefits” provision mandated that an offset for the years plaintiffs worked at ESL was necessary to avoid double payment of benefits for the same years of service. This was true, the court held, even factoring in the defendants’ failure to formally include an appendix to the plan specifically outlining the process of the offsets. Furthermore, because the court concluded that the plan always provided for the ESL offset, there was no decrease of class members’ accrued benefits and thus no violation of the anti-cutback provision. Finally, the court held that under ERISA “only formal amendments to a pension plan give rise to cutback violations. The administrative alterations at issue did not arise under any Plan amendment and are thus not actionable.” Thus, under abuse of discretion review the court held defendants’ actions and their interpretations of the plan were reasonable.

Pleading Issues & Procedure

Sixth Circuit

Holmes v. FCA U.S. LLC, No. 20-cv-13335, 2022 WL 6736294 (E.D. Mich. Oct. 11, 2022) (Judge Gershwin A. Drain). Plaintiff Philip J. Holmes brought this suit challenging the termination and denial of disability benefits under two plans: a payroll practice plan, the FCA U.S. LLC Disability Absence Plan, and an ERISA long-term disability plan, the FCA U.S. LLC Long-Term Disability Benefit Plan. The ERISA disability plan conditions eligibility for benefits on exhaustion of the full 52 weeks of benefits under the payroll practice plan. Because FCA terminated Mr. Holmes’s benefits under the Disability Absence Plan before he had received 52 weeks of benefits, Mr. Holmes was denied disability benefits under the ERISA plan. In this action, Mr. Holmes seeks to recover benefits from both plans, including pre- and post-judgment interest and attorney’s fees and costs. Mr. Holmes brought a breach of contract claim to recover benefits under the payroll practice plan as well as an ERISA Section 502(a)(1)(B) claim to recover benefits under the ERISA disability plan. Mr. Holmes also brought claims for equitable relief, declaratory and injunctive relief, and breach of fiduciary duty. Defendants moved for partial dismissal, asking the court to dismiss the breach of contract, equitable relief, declaratory relief, injunctive relief, and breach of fiduciary duty claims. The matter was referred to a Magistrate Judge, who issued a report recommending the court grant the motion. Mr. Holmes objected to the portion of the report finding that the payroll practice plan was not a binding contract. He argued that the payroll practice plan is a contract under Michigan law and FCA should not be permitted to disturb vested benefits. The court rejected Mr. Holmes’s arguments and agreed with the Magistrate. Because the plan allows FCA the right to modify its terms even retroactively, the court held that FCA was not bound by the Disability Absence Plan and the breach of contract claim therefore failed as a matter of law. Accordingly, Mr. Holmes will be left only with his claim for benefits under ERISA.