Falberg v. The Goldman Sachs Grp., No. 19 Civ. 9910 (ER), 2022 WL 4280634 (S.D.N.Y. Sep. 14, 2022) (Judge Edgardo Ramos)

Fee cases continue to dominate the world of ERISA pension litigation. In this week’s case of the week, Goldman Sachs obtains a complete and somewhat surprising win on summary judgment in a proposed class action on behalf of 17,000 participants in the company’s massive $7.5 billion 401(k) plan.

Leonid Falberg, a participant in the 401(k) plan, brought suit challenging the plan’s investments in a number of Goldman proprietary mutual funds, alleging that Goldman and its in-house fiduciaries breached their duties under ERISA by, among other things: (1) “only reluctantly and belatedly” removing underperforming Goldman investment funds as investment options in 2017 (rather than in 2014, as Mr. Falberg alleged they should have); (2) failing to consider lower-cost institutional investment vehicles; and (3) failing to claim “fee rebates” on behalf of the Plan that allegedly were available to other similarly situated retirement plans that invested in the Goldman funds.

Mr. Falberg’s complaint pointed out a number of red flags. First, three of the challenged Goldman funds were rated “not broadly recommended” by Rocaton Investment Advisors LLC, Goldman’s outside investment advisor for the Plan. Second, the majority of the mutual funds retained by the Plan were proprietary funds and were “higher-cost” than other investment options. Third, the challenged funds consistently underperformed their benchmarks, in “stark contrast” to the Plan’s nonproprietary funds. Finally, the Plan did not have an investment policy statement, a fact that experts for both sides spent much time discussing.

All of this, Mr. Falberg alleged, indicated that the defendants breached their duties of loyalty and prudence by “retaining high-cost, poorly performing mutual funds in the Plan” based on their “own self-interest” and in “disregard for participants.” Mr. Falberg also alleged that the investment committee’s failure to claim fee rebates that were available to other plans violated ERISA’s prohibited transaction restrictions, and that Goldman breached its duty to monitor the Retirement Committee.

The court, however, disagreed on all fronts. The court saw the fiduciary breach claim as turning primarily on Goldman’s lack of an investment policy statement for the plan. Although the plaintiff’s experts testified that having an IPS was a common and indeed “best practice,” and even the defendant’s expert testified that it was one indicia of a well-run plan, because it was not strictly required under ERISA the court concluded that the lack of such a policy did not establish imprudence.

Nor did the court agree that the plan fiduciaries lacked a deliberative process, despite the sparse minute reports from the investment committee’s quarterly and ad hoc meetings. The plaintiff’s expert testified that the minutes of these meetings revealed that the committee at most engaged in a cursory review of the challenged funds. But again, the court focused on the lack of any requirement in ERISA that minute meetings be more robust. Ultimately, the court concluded that Mr. Falberg’s prudence claim failed because he could not show that a prudent fiduciary in Defendants’ position would have acted differently.

With respect to the claims for self-dealing and disloyalty, the court acknowledged that the defendants operated under a conflict of interest with respect to the plan’s investments in the Goldman proprietary funds, but concluded that a conflict of interest alone is not enough to establish a violation of ERISA’s duty of loyalty. Instead, the court held that a plaintiff must show that plan fiduciaries were influenced by the conflict. Because, at most, Mr. Falberg raised the possibility that committee members may have been influenced by a desire to benefit Goldman, but could not point to any evidence demonstrating that they did act for the purpose of advancing Goldman’s interests, the Committee was entitled to summary judgment on the loyalty claim.

The judge also ruled in favor of the Committee on Mr. Falberg’s claim that it engaged in a prohibited transaction by failing to collect fee rebates in the form of revenue sharing on the proprietary mutual funds at issue. Although the court acknowledged that the investments in the Goldman funds were prohibited under ERISA Section 406, the court concluded that it was nevertheless exempt under the Department of Labor’s Prohibited Transaction Exemption 77-3 (“PTE 77-3”). The court concluded that because the Plan was treated the same with respect to the revenue sharing as any other retirement plan which had the same recordkeeper during the same period, this meant the plan was treated “no less favorable basis” than plans in similar circumstances and the transaction was thus exempt under the terms of PTE 77-3.

Finally, the court concluded that the claim against Goldman for failure to monitor the Committee was derivative of and dependent on the fiduciary breach claims against the Committee. Having concluded that those claims failed, the court reached the same conclusion on the monitoring claims and likewise granted summary judgment in favor of Goldman.

At the end of the day, the court appeared impressed by the expertise and credentials of the Goldman Committee members and satisfied that they evaluated the Goldman funds under a prudent, if truncated, process and were not influenced by their conflicts of interests.

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

Breach of Fiduciary Duty

Third Circuit

Leone v. Olympus Corp. of the Am’s., No. 20-cv-3158, 2022 WL 4280481 (E.D. Pa. Sep. 15, 2022) (Judge Mitchell S. Goldberg). In 2019, the Olympus Corporation of the Americas amended its defined benefit plan to give participants who had not yet started receiving pension benefits the option to elect to receive an immediate lump sum distribution of their plan benefits. Plaintiffs are the 39 individuals who opted to receive these lump sum payments during the available window. They commenced this action against Olympus Corporation, the plan’s administrative committee, and ten individual fiduciaries alleging breach of fiduciary duty under Sections 502(a)(2) and 502(a)(3), equitable estoppel, and detrimental reliance after defendants informed them that their lump sum amounts were calculated using the 2019 interest rates rather than the 2018 interest rates, resulting in estimated values that were about 33% higher than defendants would later inform them they were actually entitled to under defendants’ interpretation of the terms of the amendment. Defendants stated that they were in the midst of distributing the checks to the plaintiffs when they discovered that the actuarial firm they employed to calculate the lump sums had used the lower interest rates resulting in these greater payouts. Accordingly, only six of the 39 plaintiffs received their checks and did not return the overpayments to defendants; the remaining 33 individuals either never received their distribution checks thanks to stop-payments orders issued by defendants or voluntarily returned the overpayments. Defendants moved to dismiss. They argued that the claims failed as a matter of law and that plaintiffs lacked standing. Simply put, defendants argued, and the court agreed, a miscalculation of benefits “is not actionable under ERISA.” An honest mistake, the court opined, is not the type of bad faith action for which a fiduciary can be held liable. Thus, the court sided with defendants and their interpretation of events and concluded that the ERISA breach of fiduciary duty claims failed as a matter of law. Additionally, the court went on to hold that even if the ERISA claims didn’t fail on the merits, plaintiffs lack Article III standing to sue under the Supreme Court’s ruling in Thole v. U.S. Bank because their plan is a defined benefit plan. Plaintiffs’ argument that the fiduciary breach in this instance was not the mismanagement of plan assets that was addressed in Thole, but instead failure to comply with the terms of the plan document which resulted in greatly reduced payouts, was brushed over by the court which circled back to its original posture, stating, “plaintiffs are not entitled to keep the overpayments because no fiduciary duty was breached.” Finally, the court dismissed the Section 502(a)(3) equitable estoppel claim, once again concluding that plaintiffs failed to establish defendants acted in bad faith. However, the six plaintiffs who were paid their lump sum distributions were able to proceed with their fiduciary breach for misrepresentation claim as they sufficiently proved they had detrimentally relied on defendants’ action. For these reasons, defendants’ motion to dismiss was almost wholly granted.

Class Actions

First Circuit

Glynn v. Maine Oxy-Acetylene Supply Co., No. 2:19-cv-00176-NT, 2022 WL 4234761 (D. Me. Sep. 14, 2022) (Judge Nancy Torresen). Participants of the Maine Oxy-Acetylene Supply Company’s employee stock ownership plan (“ESOP”) and Secretary of Labor, Martin J. Walsh, the plaintiffs in this breach of fiduciary duty class action, moved unopposed for preliminary approval of the parties’ settlement agreement. As the court had already certified a class consisting of participants of the ESOP “who sold their shares back to Maine Oxy after the (owners) sold their 51% interest in the company,” the inciting incident of this action, the court understood its role here as evaluating whether the proposed settlement is fair, reasonable, and adequate, and the result of a good faith arm’s length negotiation. In its analysis, the court expressed that it was satisfied that the proposed settlement, totaling $6,330,000, was just that. Specifically, the court emphasized that the $6,330,000 figure, which was based on a $400 per share stock valuation, was exceedingly reasonable given that plaintiffs’ expert’s valuation of the stock ranged from $262 to $467.57, and the $400 per share valuation was “almost exactly what the Class Plaintiffs’ expert would have testified to at trial.” For preliminary purposes, the court also expressed that it found the proposed $7,500 in incentive awards to each of the class representatives to be fair and typical, and the requested $1,200,000 in attorneys’ fees, representing 19% of the total settlement, to also be reasonable. Additionally, the court was convinced that the proposed settlement, which will calculate payments to each class member based on the number of shares allocated under the ESOP, treated the members of the class equitably. Finally, the court was satisfied that the proposed notice was “clear, concise and states in plain language the certified class definition, the class claims, how to request exclusion from the class, and the binding effect of the class judgment.” For these reasons, the court granted preliminary approval of the settlement, approved the proposed notice, and directed the clerk to schedule a final approval fairness hearing.

Second Circuit

The Med. Soc’y of State of N.Y. v. UnitedHealth Grp., No. 16 CIVIL 5265 (JPO), 2022 WL 4234547 (S.D.N.Y. Sep. 14, 2022) (Judge J. Paul Oetken). Plaintiffs in this class action are healthcare providers in New York State who have sued UnitedHealth Group and related entities under ERISA for failing to pay billed facility fees for office-based surgeries. The court held a five-day bench trial in the case last February. The parties then filed post-trial briefing and the court in this order issued its final rulings, finding in favor of defendants on all counts. The court concluded that United’s process for denying facility fees complied with ERISA’s requirements and sufficiently explained to participants why their claims were denied, as the plans’ language did not require United to reimburse providers for billed facility fees when they were submitted by office-based surgery centers. The court reached its conclusion having reviewed a sampling of plan language provided by United. None of the plans the court reviewed required United to pay facility fees to physician offices, and some of them expressly excluded such coverage. The court was particularly persuaded by “the fact that Medicare conventions, other insurers, and New York law support United’s determination that a physician office is not a facility and therefore not entitled to separate facility fees.” The court found this background information helpful in providing context and felt it supported its conclusion that United acted reasonably. Accordingly, the court held that plaintiffs failed to successfully demonstrate that United systematically violated ERISA.

Ninth Circuit

Atzin v. Anthem, Inc., No. 2:17-cv-06816-ODW (PLAx), 2022 WL 4238053 (C.D. Cal. Sep. 14, 2022) (Judge Otis D. Wright II). Plaintiffs in this class action are amputees insured by Anthem, Inc. who have had their claims for a type of prosthetic called “microprocessor-controlled prostheses” denied, either for being investigational in the case of the microprocessor-controlled foot-ankle prostheses (one of the sub-classes), or for being medically unnecessary as defined by the plans for microprocessor-controlled knee prostheses (the other sub-class.) The parties have reached a settlement wherein Anthem has agreed to significant changes to its medical necessity criteria for these prosthetics. The agreed-upon modified criteria are now much less restrictive and are in line with the criteria used by Medicare and other insurers. Furthermore, microprocessor foot/ankle prostheses will no longer be considered investigational under the terms of the settlement, representing “a major shift.” Finally, Anthem has agreed to reprocess the claims of each of the class members under these new criteria and has agreed not to object to paying plaintiffs’ requested $850,000 in attorneys’ fees, $36,833.99 in costs, and $30,000 in incentive awards pending the court’s approval of these amounts. In this order, the court conditionally granted final approval of the settlement pending the distribution of post-approval notice to the class members. The court found the settlement to be not only fair and reasonable but “a very good result for the class.” The court then addressed the motion for attorneys’ fees, costs, and incentive awards. As previously stated, plaintiffs moved for an award of $850,000, which was slightly less than their $882,740.00 lodestar in the case based on 1,098.5 hours of work billed at rates of $900/hour for counsel Robert S. Gianelli, $700/hour for counsel Joshua S. Davis, and $675/hour for counsel Adrian J. Barrio. Because this is a reprocessing class action, no conflict exists between attorneys and class members. The court thus considered its oversight role to be greatly reduced, and accordingly granted the agreed-upon fee award of $850,000, finding it to be reasonable. The same was true of the requested $36,833.99 in costs. However, the court felt that $15,000 incentive awards to each of the two named plaintiffs was excessively high in the Ninth Circuit and reduced the awards to $10,000 each instead.

Disability Benefit Claims

Second Circuit

Provident Life & Accident Ins. Co. v. McKinney, No. 3:19-CV-1325 (SVN), 2022 WL 4120768 (D. Conn. Sep. 9, 2022) (Judge Sarala v. Nagala). Provident Life & Accident Insurance Company brought an ERISA Section 502(a)(3) suit, seeking the equitable relief of recission of an ERISA disability policy, against an insured, defendant Bradley McKinney, after he applied for disability benefits and Provident discovered certain misrepresentations Mr. McKinney had made on his policy application. The policy at issue included a clause providing that “omissions and misstatements in the application could cause an otherwise valid claim to be denied or to be rescinded.” Specifically, Provident Life asserted that Mr. McKinney had falsely represented that he had not received treatment for memory loss, confusion, or speech disruption in the preceding five years, and had also falsely stated that he had not missed one or more days of work due to sickness or injury in the 180 days preceding his application. After Provident filed its lawsuit, Mr. McKinney filed a counterclaim under Section 502(a)(1)(B), asserting that Provident wrongfully denied him benefits, and seeking an order from the court requiring Provident to pay him benefits due under the policy. The parties filed cross-motions for summary judgment. The court stated that its role in ruling on the summary judgment motions revolved around answering the question of whether Mr. McKinney had knowingly made material misrepresentations in his application for the insurance policy, and, if he had, whether those misrepresentations were material to Provident in its decision to issue the policy. Upon examination of the record, the court concluded that there was no genuine dispute of material fact that Mr. McKinney had knowingly made material misrepresentations on his application, as he had been treated for cognitive issues including confusion and speech disruption while he was hospitalized in 2016, and because he had missed a day of work to undergo surgery due to a medical condition. As a result, the court granted Provident’s motion for summary judgment, and denied Mr. McKinney’s summary judgment motion.

Seventh Circuit

McCurry v. Kenco Logistic Servs., No. 22-1273, __ F. App’x __, 2022 WL 4284222 (7th Cir. Sep. 16, 2022) (Before Circuit Judges Easterbrook, Kirsch, and Jackson-Akiwumi). Plaintiff Edith McCurry brought an ERISA Section 502(a)(1)(B) suit after she began experiencing interruptions in her disability benefit payments. Originally, Ms. McCurry named both her former employer, Kenco Logistic Services, as well as the plan’s administrator, Hartford Life and Accident Insurance Company, as defendants in the case. However, Hartford’s motion to dismiss for improper venue was granted by the court, which left Kenco as the sole defendant. Concluding that the evidence in the record clearly demonstrated that Hartford and not Kenco was responsible for all discretionary decisions related to the payment of benefits, the district court held that Kenco couldn’t be liable for the interruptions that Ms. McCurry had experienced. Thus, the district court entered summary judgment for Kenco. Ms. McCurry appealed this decision to the Seventh Circuit, arguing that the district court had failed to view the evidence in the light most favorable to her, the non-moving party, and attempted to demonstrate to the court of appeals that certain evidence sowed doubt as to whether Kenco had in fact made certain decisions that caused her payments to be delayed. The Seventh Circuit felt that Ms. McCurry had failed to “explain the significance of this evidence.” Additionally, the Seventh Circuit pointed out that it was Ms. McCurry’s own failure to adhere to local procedural rules for summary judgment in the district court that had “rendered unrebutted the evidence in the record that Kenco did not influence Hartford’s administration of her benefits.” Given the district court’s broad discretion to enforce local procedural rules of civil litigation, coupled with the Seventh Circuit’s own experience with Ms. McCurry in which she “had flouted the local rules” in previous appeals, the Seventh Circuit not only affirmed the summary judgment ruling but also warned Ms. McCurry “that further frivolous appeals may incur monetary sanctions.”

Discovery

Sixth Circuit

Iannone v. AutoZone, Inc., No. 19-cv-2779-MSN-tmp, 2022 WL 4122226 (W.D. Tenn. Sep. 9, 2022) (Magistrate Judge Tu M. Pham). In this class action, participants of the AutoZone 401(k) Plan have sued the plan’s fiduciaries for breaching their duties under ERISA by failing to control fees and monitor the performance of the plan’s investments. In particular, plaintiffs are challenging the plan’s “most significant investment option”: a proprietary stable value fund called the Prudential Guaranteed Income Fund, which they allege was significantly underperforming. On December 1, 2020, plaintiffs served non-party Prudential with a subpoena seeking information relating to the administrative and service fees it was paid by the plan. The following year, plaintiffs requested additional information and documents from Prudential relating to the stable value products it furnished to other defined contribution plans. That discovery dispute was resolved by a court order in March of this year, wherein the court directed Prudential to produce documents related to the Prudential Guaranteed Interest Fund rates for “the 11 versions of the (guaranteed interest fund) referenced in Plaintiff’s Motion.” Prudential complied with that order and produced the documents. Prudential also made an electronically stored information (“ESI”) production, which included 6,4000 documents. Within its ESI production, Prudential had included a draft of an email instead of a copy of the version of the email that was actually sent, from March 18, 2019, that plaintiffs assert is “the single most important document in the case.” The email was between a managing director at Prudential and an AutoZone Human Resources employee. The version of the email that Prudential produced removed certain key details, and when plaintiffs discovered this discrepancy during their deposition of Prudential’s managing director, they stopped the deposition and filed their present motions, a motion to compel and a motion for sanctions against Prudential. In this order the court denied the motions, holding that Prudential did not engage in discovery misconduct regarding the email and its failure to produce the sent version of the email appeared to the court “to be the result of an ESI oversight rather than bad faith conduct.” This was especially true, the court held, because Prudential has since reexamined its documents and has produced more documents rectifying its mistakes. “Because Prudential has already represented that they have reviewed and corrected the production issue,” the court was unwilling to issue sanctions. Plaintiffs, the court stated, should resume their deposition of Prudential’s managing director now that they have the correct version of the email. Finally, regarding certain third-party subpoenas that plaintiffs served on other 401(k) plans, the court found that plaintiffs were attempting to use them to circumvent its prior discovery order, and therefore also denied plaintiffs’ motion to compel relating to these third-party subpoenas. Accordingly, all of plaintiffs’ motions were denied.

ERISA Preemption

Ninth Circuit

Aton Ctr. v. Northwest Adm’rs, No. 21cv1843-L-MSB, 2022 WL 4229307 (S.D. Cal. Sep. 13, 2022) (Judge M. James Lorenz). Aton Center, Inc. is a healthcare provider of residential inpatient substance use disorder treatment. Aton Center filed suit against defendants Northwest Administrators, Inc. and Innovative Care Management, the administrators of the health insurance policy of a patient, C.P., who received treatment at Aton Center. Aton Center alleged in its complaint that defendants promised to pay usual, customary, and reasonable rates for C.P.’s treatment during a verification of benefits call between the parties. After defendants failed to pay as agreed, Aton Center commenced this suit alleging claims for breach of contract, breach of implied-in-fact contract, promissory estoppel, unfair competition, and fraud. Defendants moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. First, defendants argued that the claims were preempted by Section 514(a) of ERISA. The court disagreed. Instead, it held that Aton Center’s state law causes of action were based “on equitable, tort, and contract principles and premised on Defendants’ alleged representations rather than the plan itself.” Because of this, the court concluded that the claims do not depend on interpreting plan language and are therefore not preempted. Next, the court turned to whether Aton Center’s complaint adequately stated claims, and concluded that it did, and its “allegations (were) sufficient to meet the notice pleading requirement under Rule 8(a)(2),” as well as under the heighted Rule 9(b) standard to plead a fraud claim. Accordingly, the motion to dismiss was denied.

Pleading Issues & Procedure

Eighth Circuit

G.C. v. Automated Benefits Servs., No. 4:22-CV-949 RLW, 2022 WL 4130796 (E.D. Mo. Sep. 12, 2022) (Judge Ronnie L. White). What’s in a pseudonym? That which we call a plaintiff mattered a great deal to the court in this order. Plaintiffs filed this ERISA medical benefits and Mental Health Parity Act violation suit under the initials G.C. and S.C. Plaintiff G.C. is Plaintiff S.C.’s father, and plaintiffs are residents of Michigan. S.C. received treatment for mental health disorders, as well as a substance use disorder, at a residential treatment facility in Texas. Neither of the plaintiffs have identified their full names. Citing Federal Rule of Civil Procedure Rule 10(a), the court stressed that “the title of the complaint must name all the parties,” and emphasized that anonymity is the exception to the presumption against allowing parties to use pseudonyms. Thus, the court would not allow plaintiffs to proceed under their initials absent a motion seeking the court’s permission to do so, in which they identify the factors that would justify allowing them to proceed anonymously. Plaintiffs’ barebones references to the “sensitive nature” of the lawsuit were insufficient to the court. Accordingly, the court ordered plaintiffs to file a request for leave to proceed under pseudonyms/initials by September 23, 2022, or in the alternative, to file an amended complaint under their real names by that same date. Should plaintiffs fail to do this, the court stated that it will dismiss the action for failure to comply with Rule 10(a).

Withdrawal Liability & Unpaid Contributions

Sixth Circuit

Polly’s Food Serv. v. United Food & Commercial Workers Int’l Union – Indus. Pension Fund, No. 2:21-CV-12895-TGB-KGA, 2022 WL 4277516 (E.D. Mich. Sep. 15, 2022) (Judge Terrence G. Berg). Plaintiff Polly’s Food Service, Inc. is an employer which has withdrawn from a multi-employer pension plan administered by defendant United Food & Commercial Workers International Union – Industry Pension Fund. The parties are currently in arbitration to resolve a withdrawal liability dispute. Plaintiff commenced this action seeking declaratory relief that it is not required to continue making interim withdrawal liability payments, and injunctive relief from continuing to make such payments. Plaintiff is required to make these payments under the “pay now dispute later” rule of the Multiemployer Pension Plan Amendments Act (“MPPAA”). The court in this order dismissed the case, holding that no special circumstances exist that warrant judicial intervention in the arbitration dispute. “MPPAA requires the parties to arbitrate the dispute and judicial intervention is impermissible at this juncture.” The court expressly stated that Sixth Circuit precedent makes clear that “a district court errs when it rules on MPPAA claims that are pending in arbitration.” For this reason, defendant’s 12(b)(6) motion to dismiss was granted.

Messing v. Provident Life & Accident Ins. Co., No. 21-2780, __ F.4th __, 2022 WL 4115873 (6th Cir. Sept. 9, 2022) (Before Circuit Judges Clay, Rogers, and Kethledge)

ERISA provides that a plan participant, beneficiary, or fiduciary can sue to obtain “appropriate equitable relief.” 29 U.S.C. § 1132(a)(3). One of the thorniest issues in ERISA litigation is what this provision means. Who is allowed to obtain equitable relief, and what kind of relief can they get? In this published decision, the Sixth Circuit circumscribed the ability of a plan fiduciary to use ERISA’s equitable relief provision to claw back benefits it had previously paid to a participant. At the same time, it overturned that fiduciary’s denial of benefits to the participant.

The plaintiff is Mark Messing, an attorney in Traverse City, Michigan, who unfortunately began struggling with depression in 1994. His condition worsened over the ensuing years to the point that he was eventually hospitalized in 1997. He returned to work, but never full-time, and filed a claim for long-term disability benefits under his ERISA-governed employee benefit plan, which was insured by defendant Provident.

Provident initially approved his claim, but terminated it after a few months. In 1999, Messing sued Provident, who eventually agreed to reinstate his claim. Provident continued paying benefits until 2018, at which time it reviewed updated records from Messing’s physician. After examining these records, and referring the case for further medical review, Provident concluded that Messing could return to work and terminated his claim.

Messing filed suit against Provident, and Provident counterclaimed. Provident’s counterclaim was based on evidence it had uncovered during its investigation that Messing had performed some legal services while receiving benefits. Provident contended that it should be allowed to recover overpaid benefits from Messing under ERISA’s equitable relief provision.

The district court upheld Provident’s termination of benefits, but rejected Provident’s argument that it was equitably entitled to recover overpayments. Both parties appealed.

The Sixth Circuit first tackled the issue of whether Provident was justified in terminating Messing’s benefits. Because the benefit plan did not grant Provident discretionary authority to determine benefit eligibility, the court reviewed Provident’s decision de novo. In doing so, the court addressed two categories of evidence: the physicians’ reports and attorney affidavits.

There were three physician reports, and the Sixth Circuit determined that one was equivocal, one was unhelpful to Messing (indeed, Messing had told the doctor “I’m not” in response to the question of how he was impaired), and the third favored Messing. The court noted, however, that all three doctors “acknowledged the fragile state of Messing’s mental health and that he should be mindful to avoid stressful environments to prevent a relapse into a worse state of depression.” Furthermore, only the third doctor “directly addressed the question at issue: whether Messing could return to work. He squarely stated Messing could not.”

As for the affidavits, they attested that “lawyering is a stressful occupation, that Messing lacks the ability to deal with stress, and that Messing has lost the skills to return to the practice of law after a 20-year hiatus.” The court found that these affidavits were only marginally helpful, as the court was already aware that practicing law is stressful, and testimony regarding Messing’s lost skills “is a separate problem that goes to his employability as a lawyer, not Messing’s disability.” However, the affidavits did provide “some support” for Messing’s argument that he continued to suffer from depression, which was relevant to his claim.

Taking all this evidence together, the Sixth Circuit determined that this was a sufficient showing by Messing, by a preponderance of the evidence, to demonstrate that he “remains unable to return to work as an attorney. Because the district court has held otherwise, we reverse.”

The court then turned to Provident’s claim for equitable relief. Provident asserted that it was entitled to either a lien for restitution or a lien by agreement. The Sixth Circuit agreed with the district court that Provident was not entitled to relief under its restitution theory. The district court had held that Provident “needed to prove that Messing’s statements ‘induced’ it into making payments it otherwise would not have made.” Provident argued that it did not need to show inducement, and that the restitution remedy “simply exists to ‘restore the status quo.’”

However, the Sixth Circuit consulted the Restatement of Restitution and Unjust Enrichment, which “is clear that Provident must prove that the transfer of benefits to Messing was induced by fraud.” Provident had learned that Messing had done part-time legal work, but it could not prove that it would have terminated his claim if it had known about that work. The evidence only showed that Provident would have reevaluated Messing’s claim, and “a review of Messing’s claim does not necessarily mean it would have terminated his benefits earlier.” Because Provident had not introduced satisfactory evidence of inducement, it could not prevail on its restitution theory.

Provident fared no better with its lien by agreement theory. Provident argued that the Individual Disability Status Updates Messing signed from 2010 through 2017 created such an agreement because they included a condition that Messing would repay any overpayments. However, the Sixth Circuit rejected this argument because the language Provident sought to enforce was not in the plan itself: “[A]n equitable lien by agreement for the reimbursement of overpaid benefits under § 502(a)(3)’s equitable relief clause requires that the ERISA-qualified plan contain a promise to repay overpaid benefits.” No such requirement existed in Messing’s benefit plan and thus Provident could not pursue a lien by agreement.

Finally, the court emphasized that “to allow Provident to obtain [equitable] relief…would be illogical in light of our separate holding that Messing remains disabled.”

In short, the appeal was a total victory for Messing, whose benefits will now presumably be reinstated. Attorney claimants often fare well with the courts in ERISA disability disputes, and this case was no exception.

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

Breach of Fiduciary Duty

Third Circuit

Perrone v. Johnson & Johnson, No. 21-1885, __ F.4th __, 2022 WL 4090301 (3d Cir. Sep. 7, 2022) (Before Circuit Judges Jordan, Restrepo, and Smith). Health care industry behemoth Johnson & Johnson has made the headlines a lot recently. This February the company agreed to a $26 billion opioid settlement for its role in contributing to the drug epidemic as one of the country’s largest pharmaceutical distributors. The company is of course also responsible for making one of the country’s COVID-19 vaccines, and administering hundreds of millions of doses worldwide, although the FDA has recently limited its approved use in the U.S. due to rare but serious side effects. And, as relevant to this Employee Stock Ownership Plan (“ESOP”) ERISA class action, the company has faced a major scandal regarding one of its best-selling products, Johnson’s Baby Powder. Over the years, Johnson & Johnson has faced thousands of lawsuits in which plaintiffs alleged that its talc-based baby powder contains asbestos, a carcinogen that is linked to ovarian and other cancers. In late 2018 Reuters published an article, J&J Knew For Decades That Asbestos Lurked In Its Baby Powder, in which the news outlet described how Johnson & Johnson knew that its product likely contained asbestos but kept that information from regulators and consumers by taking actions like influencing scientific research and U.S. regulations. This article created such a splash that other news sources picked it up and Johnson & Johnson’s stock declined over 10% immediately after its publication. As a result of the revelations about Johnson’s Baby Powder and the company’s actions, two major lawsuits are currently pending in the U.S. District Court for the District of New Jersey, a “Products Liability Action” about personal injuries caused by the talc-based products, In re Johnson & Johnson Talcum Powder Prod. Mktg., Sales Pracs. & Prod. Liab. Litig., and a “Securities Fraud Action” alleging senior executives at the company failed to comply with federal securities disclosure laws, Hall v. Johnson & Johnson. In light of all of this, plaintiffs in this lawsuit, participants in the Johnson & Johnson ESOP, allege that the ESOP’s fiduciaries violated their duties by failing to take actions that could have protected the ESOP from the stock market ramifications of these scandals. Specifically, plaintiffs asserted that defendants could have taken one of two actions to ward off the steep stock price drop. First, they claim that defendants could have made corrective public disclosures that may well have prevented such significant stock price declines, and therefore protected the participants. Second, they argued that defendants could have stopped investing in J&J stock altogether and chosen instead to hold the ESOP contributions in cash. Defendants moved to dismiss the complaint in the district court, and the district court granted their motion, agreeing that plaintiffs’ proposed alternative actions failed the Supreme Court’s Fifth Third Bancorp v. Dudenhoeffer test, because a reasonable fiduciary would view the proposed disclosures or cash holdings as “being likely to do more harm than good to the ESOP.” Plaintiffs appealed the dismissal. In this order, the Third Circuit affirmed the lower court’s ruling agreeing that neither proposed course of action outlined in plaintiffs’ complaint passed the Dudenhoeffer test because both “would do more harm than good.” The Third Circuit recognized that this standard, requiring a plaintiff to propose an alternative course of action that is so clearly beneficial as to satisfy this requirement, “is a high bar to clear, even at the pleadings stage, especially when guesswork is involved.” Nevertheless, the Third Circuit held that this is the standard required, and plaintiffs failed to meet it. As the Third Circuit pointed out, only one post-Dudenhoeffer decision, a case in the Second Circuit, “has held that a plaintiff plausibly alleged that corrective disclosures were so clearly beneficial that no prudent corporate-insider fiduciary could have concluded that earlier corrective disclosures would have done more harm than good.” As ESOPs already exist within an exemption to ERISA’s typical diversification requirements, the post-Dudenhoeffer world poses a doubly difficult position for ESOP participants bringing these types of suits who are naturally concerned with the stability of their retirement investments. This decision then is typical and demonstrative of these difficulties, whether or not one agrees with its conclusions.

Disability Benefit Claims

Second Circuit

Baribeau v. Hartford Life & Accident Ins. Co., No. 3:20-CV-01290 (KAD), 2022 WL 4095778 (D. Conn. Sep. 7, 2022) (Judge Kari A. Dooley). Cardiovascular/thoracic surgeon Yvon Baribeau stopped working in 2019 due to a hand deformity called Dupuytren’s Disease, which he developed in both hands, and which affected his ability to safely perform surgery. Mr. Baribeau is a participant in his employer’s employee welfare benefit plan, the Catholic Medical Center long-term disability plan. He submitted a claim for benefits in February 2020. His claim was approved. However, the plan’s administrator, defendant Hartford Life and Accident Insurance Company, decided to offset Mr. Baribeau’s $15,000 in gross monthly benefits not only by the amount he was receiving from the Social Security Administration, but also by the gross monthly benefits of $10,000 he was receiving as a participant in another long-term disability income plan which was sponsored by the American Medical Association (“AMA”). This suit followed, after Hartford upheld its determination on appeal. The parties each moved for summary judgment on the issue of whether Hartford correctly offset the monthly benefits by the amount Mr. Baribeau was receiving from the AMA Plan. As the Catholic Medical Center’s plan includes a discretionary clause, the parties agreed that abuse of discretion review was applicable. Under this review standard the court concluded that Hartford’s interpretation of the plan language was rational and in keeping with the plain words of the plan. In fact, Mr. Baribeau’s explanation of how the AMA Plan could fall outside the plan’s definition of “Other Income Benefits” was, in the court’s view, the more convoluted reading of the plan which would require the court to read additional terms and requirements into the phrase “as a result of,” which the court disfavored doing. Accordingly, the court entered summary judgment in favor of Hartford.

Sixth Circuit

Alvesteffer v. Howmet Aerospace, No. 1:20-cv-703, 2022 WL 4077838 (W.D. Mich. Sep. 6, 2022) (Magistrate Judge Phillip J. Green). This February, Your ERISA Watch summarized Magistrate Judge Green’s summary judgment decision in this long-term disability benefit suit wherein plaintiff Thomas Alvesteffer challenged the termination of his benefits by his employer defendant Howmet Aerospace. The court granted in part and denied in part Mr. Alvesteffer’s motion for summary judgment. Specifically, the court concluded that the denial was arbitrary and capricious and vacated the termination decision. However, the court went on to state that Mr. Alvesteffer had failed to establish his entitlement to benefits and therefore decided to remand to defendant for reconsideration. The court expressed that it was beyond its expertise to weigh medical and vocational evidence pertaining to disability, and therefore relied on Sixth Circuit precedent supporting remand as an appropriate remedy when a court identifies problems with the decision-making process rather than when it draws the conclusion that a claimant is obviously entitlement to benefits. Mr. Alvesteffer moved for reconsideration pursuant to Federal Rule of Civil Procedure 59(e), asking the court to reconsider its decision that this matter should be remanded to defendant for further assessment of whether Mr. Alvesteffer is disabled under the plan terms. In his motion, Mr. Alvesteffer stressed that he was “not asking the Court to become a medical or vocational expert, but only to review the expert opinions already provided by (him), and if it deems those opinions to be competent and valid, to reconsider and alter or amend its opinion accordingly and award benefits.” As before, the court was unwilling to perform this function, again concluding that “it lacks the experience and expertise to evaluate such opinions or otherwise evaluate medical or vocational evidence.” The court rejected “Plaintiff’s assurances that he is ‘not asking the Court to become a medical or vocational expert,’” stating to the contrary, “this is precisely what Plaintiff is requesting.” As before, the court declined to survey the evidence of disability, and thus denied Mr. Alvesteffer’s motion for reconsideration.

Discovery

Eleventh Circuit

Prolow v. Aetna Life Ins. Co., No. 9:20-cv-80545, 2022 WL 4080743 (S.D. Fla. Sep. 6, 2022) (Magistrate Judge William Matthewman). This suit is a class action pertaining to wrongfully denied coverage for a cancer treatment known as Proton Beam Radiation Therapy. The court’s order granting summary judgment in favor of the two named plaintiffs on their individual claims for benefits was our notable decision in Your ERISA Watch’s February 2, 2022 issue. Following that order, this case has proceeded as a putative class action. The parties have engaged in numerous discovery disputes. In this order, the court denied Aetna Life Insurance Company’s motion to compel plaintiff’s two engagement letters with their counsel. Plaintiffs opposed producing their engagement letters and argued that under Eleventh Circuit case law “class representatives’ engagement letters with counsel are not discoverable, absent a showing by the defendant that a conflict of interest exists” between the class representatives and their counsel. They argued that contrary to Aetna’s belief, the engagement letters do not promise or in any way speak to incentive payments to Plaintiffs, nor do they contain any information about counsel’s hourly rate. Rather, plaintiffs attested, the engagement letters requested are standard contingency fee agreements. In support of this, plaintiffs produced the two letters for the court to review in camera. Having reviewed the engagement letters, the court confirmed the truth of plaintiff’s assertions. Furthermore, the court agreed with plaintiffs that defendant did not show that a conflict of interest exists between the two plaintiffs and their attorneys. Instead, Aetna had argued that a potential conflict exists between plaintiffs and the putative class, which the court stated is not grounds to require production of engagement agreements in the Southern District of Florida. Finally, the court held that it has not yet certified the class or made any determination on class damages, meaning the engagement letters between plaintiffs and their legal counsel is not yet “relevant under Rule 26(b)(1) at this stage of the litigation.” Accordingly, the court denied defendant’s motion due to lack of relevancy at this time but did so without prejudice. For readers interested in more information about Proton Beam Radiation Therapy litigation, be on the lookout for an article in the upcoming fall edition of the American Bar Association TIPS Newsletter, written by our colleagues at Kantor and Kantor, Anna Martin and Tim Rozelle.

Medical Benefit Claims

Second Circuit

Connecticut Gen. Life Ins. Co. v. Ogbebor, No. 3:21-cv-00954 (JAM), 2022 WL 4077988 (D. Conn. Sep. 6, 2022) (Judge Jeffrey Alker Meyer). In May 2020, Cigna Health and Life Insurance Company opened an investigation into a healthcare provider, Stafford Renal LLC, which offered dialysis treatments for end stage renal disorder (“ESRD”), believing the provider’s prices for these treatments were “significantly inflated.” During that investigation, Cigna learned that Stafford lacked a required ESRD license, as its old license had expired in 2016, and that the provider was therefore operating in violation of Texas medical licensing requirements. Additionally, Cigna claimed that it interviewed patients receiving treatment at Stafford and discovered that many of the claims for dialysis treatment that Stafford had billed for were not actually performed. Accordingly, Cigna commenced this lawsuit against the provider and its owner, Mike Ogbebor, under Section 502(a)(3) of ERISA, and also brought claims for fraudulent misrepresentation, negligent misrepresentation, and violations of the Connecticut Unfair Trade Practices Act, the Connecticut Health Insurance Fraud Act, and for civil theft. Cigna also sought to pierce the corporate veil and requested the court hold Mr. Ogbebor personally liable for the actions of his company. Mr. Ogbebor had answered Cigna’s complaint on behalf of both defendants. The court previously struck this answer with respect to Stafford because Mr. Ogbebor is a non-lawyer, and the court held that he could not represent his company in this suit. Cigna then moved for a default entry against Stafford. The court granted the default due to Stafford’s failure to appear. Cigna also moved for discovery seeking medical records, information regarding Mr. Ogbebor’s role in Stafford’s ownership and management, and Mr. Ogbebor’s legal and criminal record pertaining to past fraud. Mr. Ogbebor, despite repeated warnings from the court, failed to respond to Cigna’s discovery requests. In this order, the court granted Cigna’s motion for default judgment against both defendants based on their actions to date and awarded declaratory judgment stating that Cigna has no obligation to honor past or future claims submitted by Stafford for ESRD services, and treble monetary damages for the ESRD claims Cigna already paid Stafford, totaling $14,371,384.95 as Cigna adequately stated a claim for civil theft under insurance-friendly Connecticut law which requires such tripling. However, because Cigna was found to be entitled to legal relief in the form of damages, the court did not award anything under Cigna’s claim for equitable recoupment under Section 502(a)(3) of ERISA. Finally, the court agreed to pierce the corporate veil, finding that Cigna provided sufficient evidence for it to infer that Stafford was functioning as Mr. Ogbebor’s corporate alter-ego. The court therefore held Mr. Ogbebor personally liable for the entirety of the damages awarded to Cigna.

Ninth Circuit

RJ v. Cigna Health & Life Ins. Co., No. 5:20-cv-02255-EJD, 2022 WL 4021890 (N.D. Cal. Sep. 2, 2022) (Judge Edward J. Davila). Participants in ERISA-governed healthcare plans have brought a putative class action suit against Cigna Behavioral Health Inc. and MultiPlan, Inc. for failure to reimburse covered out of network mental health provider claims at usual, customary, and reasonable (“UCR”) rates. Plaintiffs claim that defendants engaged in a conspiracy to artificially underprice claims, wherein the insurer played an active role in collaborating and instructing MultiPlan on its “target rate” for each claim it desired to reprice, and MultiPlan utilized these instructions when designing its Viant methodology, giving the arbitrarily low prices the appearance of legitimacy. Plaintiffs asserted claims of RICO violations and RICO conspiracy against both defendants, an ERISA claim for underpayment of benefits against Cigna, and claims for breach of fiduciary duties of loyalty and duty of care against each of the two defendants under Section 502(a)(3) seeking declaratory and injunctive relief. Defendants moved to dismiss. Cigna sought dismissal of the RICO claims, and as part of its Rule 12(b)(6) motion also argued that claims of one of the named plaintiffs (“LW”) must be brought in the Western District of Tennessee in accordance with her plan’s forum selection clause. MultiPlan also sought dismissal of the RICO claims and the ERISA Section 502(a)(3) claim asserted against it. As far as the RICO claims were concerned, the court was satisfied that plaintiffs adequately pled a “violation of RICO based on the predicate acts of mail and wire fraud, but not based on the predicate act of money laundering.” Therefore, the court granted defendants’ motions for the RICO claims to the extent they were based on money laundering. MultiPlan’s motion to dismiss the ERISA claim brought against it was denied. The court was convinced that the complaint sufficiently alleges that MultiPlan is a fiduciary under ERISA, and that the same allegations that support plaintiffs’ RICO claim also support a breach of fiduciary duty claim. The court also rejected MultiPlan’s argument that plaintiffs are not entitled to equitable relief. Plaintiffs, the court held, may seek equitable relief in the alternative and it would be premature at the pleading stage “to engage in a battle over whether or not a specific equitable remedy is appropriate.” Finally, the court held that plaintiff LW’s forum selection clause was valid, and a forum selection clause could be enforced during a Rule 12(b)(6) motion to dismiss. Accordingly, the court dismissed LW’s claims from the case, holding that she must bring her claims in the Western District of Tennessee. Thus, as explained above, the motions to dismiss were granted in part and denied in part.

Pension Benefit Claims

Eleventh Circuit

Southeastern Carpenters & Millwrights Pension Tr. Fund v. Carter, No. CV 621-046, 2022 WL 4098517 (S.D. Ga. Sep. 7, 2022) (Judge J. Randal Hall). Decedent Bruce C. Jeffers was a participant in an ERISA-governed pension plan, the Southeastern Carpenters and Millwrights Pension Trust Plan. This suit is an interpleader action brought by the plan to determine the proper beneficiary of Mr. Jeffers’ pension benefits. During his life, Mr. Jeffers had named several beneficiaries at different junctures, and the last two of his beneficiary designation forms were completed while he was married but lacked his then-wife’s signature. Because of this, Mr. Jeffers left a bit of a mess behind. The story begins in 2008, when his first designation occurred. At that time, Mr. Jeffers elected his then-fiancée, defendant Robin Handly, as his primary beneficiary. It seems Mr. Jeffers and Ms. Handly never married. Instead, two years later, in 2010, Mr. Jeffers married Grace Jeffers, and Mr. Jeffers accordingly changed his beneficiary designation card and designated Ms. Jeffers as the plan’s primary beneficiary, and his stepdaughter, defendant Victoria Thames, as the plan’s contingent beneficiary. In his 2013 designation form, Mr. Jeffers attempted to designate his sister, defendant Cynthia Gail Carter, as his primary beneficiary. At the time of the 2010 and 2013 designations, Mr. Jeffers was still married to Ms. Jeffers. This was the last designation form Mr. Jeffers completed. The Jeffers divorced in 2020. Unfortunately, the plan expressly requires a married plan participant to obtain their spouse’s signature if they wish to name a beneficiary other than their spouse, and neither the 2010 nor 2013 designation form included Ms. Jeffers’ signature. Per the plan, “if a spouse is designated as a Beneficiary, such designation shall be revoked automatically by a subsequent divorce.” Thus, the 2020 divorce revoked Ms. Jeffers’ status as a beneficiary. None of the parties disputed that the 2008 beneficiary designation form was valid at the time. The parties also agreed that the 2010 designation was valid insofar as it designated Ms. Jeffers. However, the parties disputed whether (1) the 2010 contingent beneficiary designation was invalid; (2) the 2013 beneficiary designation was invalid; (3) the 2010 beneficiary designation revoked defendant Handly’s 2008 designation as a beneficiary even after the divorce; and (4) the divorce revoked defendant Thames’ status as a contingent beneficiary. Each of the defendants moved for summary judgment. The court began its analysis with the claim for benefits of defendant Carter (the sister) and concluded that the 2013 designation form, which lacked Ms. Jeffers’ signature, was invalid. Accordingly, Ms. Carter was found not to be entitled to benefits and her motion for summary judgment was denied. Next, the court concluded that the 2010 contingent beneficiary designation, which also lacked Ms. Jeffers’ signature, was also invalid, meaning defendant Thames’s (the stepdaughter’s) motion for summary judgment was denied too. Finally, the court concluded that the 2010 beneficiary form, which was valid for its primary beneficiary designation of Ms. Jeffers, because a designation of a spouse does not require the spouse’s signature, had revoked defendant Handly’s (the ex-fiancée’s) designation as beneficiary. Therefore, her motion for summary judgment was also denied. Having found that none of the defendants had been effectively named and were therefore not entitled to the benefits, the court returned the funds to the plan, and instructed the plan to distribute the funds pursuant to Section 5.14, which provides for how to pay benefits when no beneficiary or contingent beneficiary has been effectively named.

Pleading Issues & Procedure

Sixth Circuit

Schmittou v. The Cincinnati Life Ins. Co., No. 1:21-cv-556, 2022 WL 4080143 (S.D. Ohio Sep. 6, 2022) (Judge Matthew W. McFarland). On July 22, 2021, defendant The Cincinnati Life Insurance Company filed an interpleader complaint in the Court of Common Pleas of Hamilton County, Ohio against Melissa Schmittou and Pamela Schmittou to determine the proper beneficiary of a group life insurance policy belonging to decedent Timothy Schmittou. Mr. Schmittou is plaintiff Melissa Schmittou’s ex-husband and was married at the time of his death to Pamela Schmittou. Plaintiff, both in her response in the interpleader action and in her complaint in this lawsuit, which she brought on August 27, 2021, alleges that she and not Pamela Schmittou is the beneficiary of the policy and therefore she is entitled to the policy’s benefits. It should be noted that after commencing this lawsuit in the federal district court, plaintiff voluntarily dismissed her counterclaim without prejudice in the state law interpleader case. Defendant nevertheless moved to dismiss Ms. Schmittou’s case, arguing that the court should abstain from exercising jurisdiction over the case pursuant to the Colorado River abstention guidelines outlined by the Supreme Court. In response, Ms. Schmittou claimed that the motion to dismiss is moot as she voluntarily dismissed her counterclaim in the state law case. As a preliminary matter, the court stated that despite Ms. Schmittou’s failure to address the Colorado River factors in her briefing, the court found that it should consider each in turn before reaching a decision on the appropriate course of action regarding the two parallel cases. First, the court held that because the state court has not assumed jurisdiction over res or property in the case, the first of the eight factors weighed in favor of it exercising jurisdiction. Next, the court concluded that the state and federal forums were each as convenient to the parties as the another and found the second factor therefore neutral. Third, the court weighed the avoidance of piecemeal litigation factor, concluding that this factor weighed strongly in favor of abstention as there is a potential for two outcomes that are in direct conflict with one another. The court also factored that the state law interpleader case was brought first, which again favored abstention. The governing law here is federal, but the state court action could adequately resolve the issues as it enjoys concurrent jurisdiction with federal courts in ERISA actions, so the fifth factor was found to be essentially neutral. The relative progress in the proceedings was also a neutral factor, as neither case had progressed much to date. Finally, the presence of concurrent jurisdiction, as previously mentioned, weighed in favor of abstention. Thus, the court concluded that the factors set forth in Colorado River favored the court abstaining from exercising its jurisdiction. However, the court declined to dismiss the case and instead determined that a stay of proceedings pending the conclusion of the state court case was the appropriate action. Accordingly, the court stayed the federal suit until the resolution of the state court interpleader action.

Provider Claims

Second Circuit

Superior Biologics NY, Inc. v. Aetna, Inc., No. 20 CIVIL 5291 (KMK), 2022 WL 4110784 (S.D.N.Y. Sep. 8, 2022) (Judge Kenneth M. Karas). Healthcare provider Superior Biologics NY, Inc. sued a collection of ERISA-governed healthcare plans, Aetna, Inc., and its subsidiaries under Section 502(a)(1)(B) of ERISA and for promissory estoppel under New York law for underpayment of pharmacological intravenous immunoglobulin treatments it provided to covered patients. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). They argued that each of the plans at issue includes anti-assignment provisions that preclude plaintiff from suing. The court in its order found the provisions valid and not waived by Aetna, and therefore agreed with defendants that Superior Biologics lacked standing to sue under ERISA. Accordingly, defendants’ motion to dismiss pursuant to Rule 12(b)(1) was granted. The court therefore did not consider the motion to dismiss for failure to state a claim. As Superior Biologics was already given the opportunity to pursue discovery and had already amended its complaint, the court dismissed with prejudice.

Withdrawal Liability & Unpaid Contributions

Seventh Circuit

International Bhd. of Elec. Workers v. Great Lakes Elec. Contractors, No. 21 C 5009, 2022 WL 4109718 (N.D. Ill. Sep. 8, 2022) (Judge Elaine E. Bucklo). Defendant Great Lakes Electrical Contractors, Inc. was a participating employer in plaintiff International Brotherhood of Electrical Workers Local No. 150’s multiemployer pension plan. Pursuant to a collective bargaining agreement it was required to make contributions to the fund on behalf of covered employees. Great Lakes Electrical was owned by defendant Richard P. Anderson. On June 3, 2018, Great Lakes Electrical’s collective bargaining agreement expired, and its obligation to make new contribution to the fund ended. Under the Multiemployer Pension Plan Amendments Act (“MPPAA”) of ERISA, employers who cease contributions to a multiemployer pension fund incur withdrawal liabilities, but, as relevant here, employers in the construction and building industry are exempt from withdrawal liabilities unless the employer “continues to perform work in the jurisdiction of the collective bargaining agreement…or resumes such work within 5 years after the date on which the obligation to contribute under the plan ceases.” So, when Great Lakes Electrical resumed business operations well within 5 years of the expiration of the collective bargaining agreement, the fund assessed withdrawal liability against the employer in the amount of $263,390. The fund filed this suit after Great Lakes Electrical did not make its required payments. “On July 18, 2022, the parties stipulated that (Great Lakes Electrical) was responsible for the full withdrawal liability assessed by the Fund, plus interest, liquidated damages, and collection costs.” The question left for the court to decide in this order was the personal liability of defendant Anderson. The fund argued that Mr. Anderson, who continued operations as an unincorporated sole proprietorship in 2021, was under common control with Great Lakes Electrical, and the fund should therefore be able to recover the withdrawal liability jointly and severally against not only Great Lakes Electrical but also personally go after Mr. Anderson. The court agreed with the fund that under the plain text of the withdrawal exemption for the construction industry a withdrawal had occurred, and the fund may impose withdrawal liability against the new entity of the employer. Holding otherwise, the court expressed, “would frustrate ‘almost the entire purpose of the (MPPAA),’ which is ‘to prevent the dissipation of assets required to secure vested pension benefits.’” Thus, in accordance with MPPAA, Mr. Anderson’s sole proprietorship became jointly and severally liable thanks to its continued covered work, and the fund’s motion for summary judgment on this issue was accordingly granted.

In our two cases of the week, 401(k) plan fiduciaries defeated claims by participants that they breached their duties under ERISA with respect to investment fees.

In the first case, Albert v. Oshkosh Corp., No. 21-2789, __ F.4th __, 2022 WL 3714638 (7th Cir. Aug. 29, 2022) (Before Circuit Judges Easterbrook, St. Eve, and Jackson-Akiwumi), a participant in a 401(k) plan brought a putative class action lawsuit against fiduciaries of the plan for allegedly allowing the plan to pay unreasonably high recordkeeping and administration fees, failing to adequately review the plan’s investment portfolio to ensure that each investment option was prudent, and maintaining investment advisors and consultants who charged unreasonably high fees and/or had poor performance histories. The district court granted the defendants’ motion to dismiss and the Seventh Circuit on appeal reviewed the dismissal in light of the Supreme Court’s decision in Hughes v. Northwestern University, 142 S. Ct. 737 (2022), which was issued during the pendency of the appeal.

Before getting to the merits of the dismissal, however, the court addressed and quickly dispatched defendants’ argument that Mr. Albert lacked Article III standing to sue because he never held some of the challenged investments in his own investment account. The court concluded that Mr. Albert’s allegations that he was invested in at least some actively managed funds was sufficient to confer standing at the pleading stage for his investment-management fee claims.

The court then turned to the imprudence claims. First, the complaint challenged the plan’s payment of $87 per participant in recordkeeping fees when, according to the complaint, plans of similar size in terms of participants and dollars invested paid between $32 and $45 per plan participant. The Seventh Circuit affirmed the dismissal of this claim, holding that nothing in Hughes requires plan fiduciaries to regularly solicit bids for services and the Seventh Circuit has previously rejected such a requirement. In this regard, the court noted that claims based on imprudent recordkeeping fees could survive a motion to dismiss in other circumstances but did not describe what those circumstances might be.

The court held that the complaint likewise contained insufficient detail to state claims that the plan overpaid for actively managed funds and for investment advisor fees. The court also rejected what it viewed as a novel claim that the plan fiduciaries should have selected some higher-cost share classes of certain mutual funds because these funds would have netted more for the plan overall due to revenue sharing. In the court’s view, ERISA could not be read to require the fiduciaries to engage in such an analysis when selecting funds.

The court more quickly dispatched the remaining claims. With respect to Mr. Albert’s breach of loyalty claim, the court saw nothing untoward about the selection of SIA, a subsidiary of the plan’s investment manager, Fidelity, as an investment advisor for the plan, particularly when Mr. Albert did not identify any comparator investment advisors. The duty to monitor claims, the court concluded, were derivative of the fiduciary breach claims and the dismissal of the claims for fiduciary breach doomed the monitoring claims.

Finally, the court concluded that Mr. Albert failed to state a prohibited transaction claim under ERISA Section 406 by merely alleging that the plan contracted with Fidelity and SIA, both of whom were statutory “parties in interest” with respect to the plan. The court appeared to recognize that Mr. Albert’s contention that such allegations state a prohibited transaction claim is consistent with the literal terms of Section 406, and with case law from the Seventh Circuit and elsewhere recognizing that such transactions are prohibited, and that the burden of proving, as an affirmative defense, that they are reasonable and thus permissible lies with the defendant. Nevertheless, the court concluded that holding that payments for routine services are prohibited would lead to “absurd” results.

The court thus affirmed the dismissal of the case in its entirely.

The plaintiffs in the second case, Rozo v. Principal Life Ins. Co., No. 21-2026, __ F.4th __, 2022 WL 4005339 (8th Cir. Sep. 2, 2022) (Before Circuit Judges Smith, Colloton, and Shepherd), fared no better, even after a bench trial. In this case, a plan participant brought suit against Principal Life Insurance Co. for a class of participants who invested in a Principal investment product called the Principal Fixed Income Option (PFIO), claiming that Principal breached its duty of loyalty and engaged in prohibited transactions with regard to the compensation it received under the PFIO.

The PFIO operated in a rather complex manner. Principal created a new sub-fund, called a Guaranteed Investment Fund (GIF), every six months and set the Guaranteed Interest Rate (GIR) for each by setting “deducts” or predictions about the risks and costs it would bear by guaranteeing the future rate over the 10-year life of the GIF until maturity. Under this complicated system, the higher the deduct that Principal set, the greater the amount of its compensation and the less the plan and its participants would earn at the end of the day.

In an earlier phase of the case, the district court dismissed on the basis that Principal was not a fiduciary, but the Eighth Circuit reversed. The case then proceeded to a bench trial, at the conclusion of which the court concluded that Mr. Rozo failed to prove that Principal acted disloyally, and that Principal met its burden of establishing its fees were reasonable, thereby defeating the prohibited transaction claim.

The Eighth Circuit affirmed. Mr. Rozo claimed that Principal acted in its own self-interest, and thus disloyally, by setting the deducts so as to increase its profits. The court rejected the notion that it was disloyal for Principal, as a fiduciary, to act in part to further its own pecuniary interests, holding that this tension between Principal’s interests and the plan’s established a conflict of interest that required the court to scrutinize Principal’s actions more closely to determine its state of mind in setting the deducts. According to the Eighth Circuit, the “district court determined that Principal set the CCR according to a shared interest with participants ‘to establish a CCR that will appropriately account for Principal’s risks and costs in offering the PFIO.’” The court of appeals agreed with this analysis. Moreover, after describing at length the expert and other testimony presented, the Eighth Circuit concluded that the district court “did not clearly err by finding that the deducts were reasonable and set by Principal in the participants’ interest of paying a reasonable amount for the PFIO’s administration.”

The court likewise affirmed the district court’s judgment in Principal’s favor on the prohibited transaction claim. In this regard, the court noted that ERISA Section 408 sets a reasonable expense exemption to ERISA’s Section 406 prohibition on self-dealing. Reiterating that the district court did not err in concluding that the rates set by Principal were reasonable, the Eighth Circuit affirmed the district court’s conclusion that Principal had met its burden of establishing the exemption.

There is much to ponder in these two decisions. At a minimum, they are vivid illustrations of the difficulties of bringing successful suits challenging the fees and investment returns for ERISA pension plans.

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

Attorneys’ Fees

Seventh Circuit

Averbeck v. The Lincoln Nat’l Life Ins. Co., No. 20-cv-420-jdp, 2022 WL 3754735 (W.D. Wis. Aug. 30, 2022) (Judge James D. Peterson). After plaintiff Tamara Averbeck filed a suit under Section 502(a) of ERISA seeking reinstatement of terminated long-term disability benefits, The Lincoln National Life Insurance Company swiftly and voluntarily reinstated her claim and paid past-due benefits. Ms. Averbeck subsequently submitted briefing demonstrating that this move by Lincoln was a testament to the strength of her case and constituted some degree of success on the merits entitling her to an award of attorney’s fees under Section 1132(g)(1). Having examined Ms. Averbeck’s briefing on the issue, the court was satisfied that the merits of her case were indeed strong given the medical evidence provided, the award of benefits from the Social Security Administration, and the errors that Lincoln National made during its benefit determination process. The court also accounted for the fact that Lincoln National’s voluntary decision to overturn its original denial was done under a more stringent standard than it had originally applied, which indicated even the insurer recognized the strength of the case against it. For these reasons, the court found Ms. Averbeck entitled to a reasonable award of attorney’s fees, expenses, and costs, and encouraged the parties to reach an agreement on the proper amount.

Ninth Circuit

Cherry v. Prudential Ins. Co. of Am., No. 21-27 MJP, 2022 WL 3925304 (W.D. Wash. Aug. 30, 2022) (Judge Marsha J. Pechman). On May 2, 2022, the court granted summary judgment in favor of plaintiff Andrew Cherry on his Section 502(a)(1)(B) claim for reinstatement of long-term disability benefits against the Prudential Insurance Company of America. The court concluded that Mr. Cherry was disabled as defined by the plan, and that his lumbar radiculopathy was his disabling condition. The court rejected Prudential’s assertion that Mr. Cherry was disabled from a mental illness, namely somatic symptom disorder. Mr. Cherry also brought a fiduciary breach claim against Prudential, which has not yet been resolved. Prior to the court’s order granting summary judgment in favor of Mr. Cherry on his claim for benefits, Mr. Cherry’s attorneys at the time, Chris Roy and Jesse Cowell, moved to withdraw as counsel. As the motion for withdrawal was proper under the Washington Rules of Professional Conduct, the motion was granted. Mr. Cherry’s former counsel have moved for an award of attorneys’ fees for their work. The court began its discussion by assessing Mr. Cherry’s entitlement to a fee award under the Ninth Circuit’s five Hummell factors and concluded that all five favored an award of fess. First, the court expressed that Prudential’s actions demonstrated “both culpability and bad faith,” by relying “on its consulting physicians who misrepresented statements from Cherry’s physician to justify termination” and by claiming “that Cherry’s condition was somatic and therefore terminated Cherry’s benefits on that ground.” The court also acknowledged that Prudential, which has over $1.7 trillion in assets, is able to satisfy a fee award. Furthermore, the court stressed how an award of fees may deter Prudential from acting in the same manner in the future, and that this deterrence will be to the benefit of other plan participants. Finally, Mr. Cherry, who was awarded summary judgment, prevailed on the merits. Having determined that Mr. Cherry’s counsel are entitled to an award of fees, the court considered the reasonableness of the fees requested. Attorney Chris Roy requested an hourly rate of $600. Because a court in 2017 awarded Mr. Roy, who has been practicing since 1999, a rate of $500 an hour, the court felt an increase of $100 to be appropriate after five years and awarded the requested hourly rate. Attorney Jesse Cowell requested an hourly rate of $500. The court concluded that Mr. Cowell did not provide enough evidence to support this rate and reduced the hourly rate to $475 per hour. Mr. Roy sought fees for 90.2 hours, and Mr. Cowell sought fees for his 97.5 hours. The court reduced Mr. Roy’s requested number of hours by 11.5 for the time he spent familiarizing himself with the case. However, the court also increased Mr. Roy’s hours by 2.2 for the time he spent writing the reply. The court applied no further changes to the billed hours and rejected Prudential’s argument that the block billing submitted was improper. The court was also unpersuaded by Prudential’s argument that counsel should not be entitled to fees as they withdrew prior to the court issuing its judgment. The withdrawal was proper, ethical, and done in good faith according to the court, and counsel were thus entitled to fees for their work performed. Applying the lodestar, the court awarded Mr. Roy $48,540.00 in fees and Mr. Cowell $46,312.50 in fees, for a total of $94,852.50. Finally, the court granted Prudential’s request to stay the fee award, as required by Ninth Circuit precedent, so long as Prudential posts a supersedeas bond consisting of 125% of the award.

Breach of Fiduciary Duty

Second Circuit

Soft Drink, Brewery Workers & Delivery Employees, Indus. Emps., Warehousemen, Helpers & Miscellaneous Workers, Great N.Y. v. Ulrich, No. 17-CV-137 (KMK), 17-CV-7023 (KMK), 2022 WL 3904106 (S.D.N.Y. Aug. 30, 2022) (Judge Kenneth M. Karas). The Soft Drink, Brewery Workers and Delivery Employees, Industrial Employees, Warehousemen, Helpers, & Miscellaneous Workers, Greater New York and Vicinity, Local Union No. 812, its Health Fund, and the Health Fund’s trustees brought related actions against the Union’s former Vice President and former trustee of the Health Fund, defendant John Ulrich. The Union moved for summary judgment on its LMRA and New York Labor Law claims based on Mr. Ulrich’s failure to return Union Property cellphone, tablet, and laptop. The Health Fund plaintiffs moved for summary judgment on their ERISA claims for breach of fiduciary duty based on extortion related to bribes Mr. Ulrich took to keep on the plan’s third-party administrator, Crossroads Healthcare Management. The court granted both motions, finding no genuine dispute of material fact regarding the allegations and relief available for the claims. As for the ERISA claims, there was no dispute that Mr. Ulrich violated Section 406(b) by soliciting thousands of dollars in kickbacks from Crossroads, as he pled guilty to the conspiracy and was sentenced to jail time for it. Furthermore, the court agreed with plaintiffs that Section 409(a) of ERISA provides for disgorgement. Plaintiffs offered information to the court that the retention of Crossroads as the third-party administrator cost the plan $1,007,228.78 in unnecessary fees. The court therefore awarded judgment in the same amount for the ERISA violations.

Third Circuit

Cajoeco, LLC v. Benefit Plans Admin. Servs., No. 17-cv-07551 (KSH) (JSA), 2022 WL 3913395 (D.N.J. Aug. 31, 2022) (Judge Katharine S. Hayden). Plaintiffs are a small business, Cajoeco LLC, and its owners, husband and wife Norman and Carmen Mais. Plaintiffs instituted a retirement plan in 2007, and hired defendants, Benefit Plans Administration Services, Inc., Harbridge Consulting Group, and Consulting Actuaries International, Inc. to provide administration and actuarial services to the plan. Over many years, Mr. Mais electively made a series of investments in his own account to a friend’s restaurant group. Although only briefly alluded to in the decision, it seems these investments were disastrous and resulted in great losses. Plaintiffs have sued defendants arguing that they were ERISA fiduciaries and breached their duties in connection with the plan. Defendants moved for summary judgment, arguing that they were merely third-party plan administrators who provided only ministerial services to the plan and thus shielded from functional fiduciary status under ERISA as outlined by the Department of Labor’s guidelines. Defendants also asserted a counterclaim in which they argued that plaintiffs were plan fiduciaries and that it was their negligent investments of plan assets that was the cause of harm. The court agreed with defendants that their roles performing actuarial and professional consulting services, preparing reports, advising participants of their options and rights under the plan, and making professional recommendations regarding plan administration all fell squarely within the “purely ministerial functions” defined by the Department of Labor. The court found that the record made clear that defendants did not have discretionary authority or control over the plan and instead acted at the direction and instruction of plaintiffs. “That Mais learned of the (restaurant) investment opportunity on his own and continued to invest without meaningful consultations with defendants are circumstances that easily demonstrate defendants’ input was not the ‘primary basis’ for making the investments.” Based on its examination of the record, the court concluded that defendants could not be considered ERISA fiduciaries and accordingly granted defendant’s motion for summary judgment. As for defendant’s counterclaim, the court found that the relief it seemed to seek was dismissal of the action against them. Thus, the court dismissed for mootness and failure to state claim defendant’s counterclaim.

Class Actions

Eighth Circuit

Carrol v. Flexsteel Indus., No. 21-CV-1005-CJW-MAR, 2022 WL 4002313 (N.D. Iowa Sep. 1, 2022) (Judge C.J. Williams). In this order the court granted plaintiffs’ unopposed motions for final approval of settlement, service fees, attorneys’ fees, costs, and class administrator fees in this class action brought under ERISA, the Worker Adjustment and Retraining Notification Act of 1988, and Iowa labor laws. The court began its discussion by affirming its position that the $1,275,00.00 settlement is fair, reasonable, and adequate under the Eighth Circuit’s Marshall factors given the strength of each parties’ merits and the complex nature of this termination and severance class action. The court also stated that notice was proper and satisfied the requirements of the Class Action Fairness Act and those of the Federal Rule of Civil Procedure 23. Additionally, no complaints have been filed, and a fairness hearing was held this August. For these reasons, the court approved the settlement and dismissed the claims of the suit with prejudice. The court also granted the proposed service fees for the named class representatives and awarded $7,500 each to two of the class reps and $2,500 each to the remaining four class representatives. Counsel’s request for $1,275,000 in attorneys’ fees (representing one-third of the settlement fund) was also granted. The court found the amount fair given counsel’s 500 hours of work on the case, the contingency nature of their fee arrangement, and their experience and professionalism litigating the case, praising them for the “high quality” of their legal work. Finally, the court granted the request for $3,770.55 in litigation costs, and the $12,409.00 in fees to the class administrator, Simpluris, for its work calculating and distributing settlement proceeds.

Disability Benefit Claims

First Circuit

Cutway v. Hartford Life & Accident Co., No. 2:22-cv-00113-LEW, 2022 WL 3716210 (D. Me. Aug. 29, 2022) (Judge Lance E. Walker). Plaintiff Kevin Cutway commenced this action against Hartford Life & Accident Company after the insurer discovered it had failed to offset Mr. Cutway’s monthly payments by the amount he was receiving for disability benefits from the Social Security Administration for over two years and notified Mr. Cutway that it would cease making future payments to him until it had recouped the $52,000 of overpayments made by its error. Mr. Cutway argues in his suit that Hartford should be estopped in equity from exercising its contractual right to recoupment of overpayments because the overpayments were the result of Hartford’s own lack of care in administering the plan. The case will likely not be resolved until the end of the year. In the interim, Mr. Cutway has moved for a temporary restraining order or preliminary injunction, requesting the court order Hartford to resume monthly long-term disability payments to Mr. Cutway. In his affidavit Mr. Cutway attests that without his payments from Hartford he currently lacks sufficient income to pay his bills and is suffering financial hardship. On top of that, his disability prevents him from pursuing gainful employment. While the court at present stated it is not certain that Mr. Cutway “will succeed in whole or in part…he appears to have a colorable claim with sufficient justification in the record.” It was clear to the court that Mr. Cutway will suffer harm if his motion is not granted, while the money matters far less to Hartford. Recognizing the difference in situations between a disabled individual and a multibillion-dollar insurance company, the court stated that “the mere existence of the overpayment strongly suggests that the sums involved are not of special concern to Hartford or the Plan.” On balance, the court was moved by Mr. Cutway’s need for preliminary injunctive relief, and therefore granted the motion, ordering Hartford to recommence payments so long as the order remains in effect or until resolution of the case.

Second Circuit

Santorelli v. Hartford Life & Accident Ins. Co., No. 3:20-cv-1671 (JAM), 2022 WL 3996959 (D. Conn. Sep. 1, 2022) (Judge Jeffrey Alker Meyer). In May 2019, plaintiff Rebecca Santorelli was hospitalized for extreme foot pain and numbness. During her 12-day hospital stay, Ms. Santorelli was diagnosed with a vascular disorder called granulomatosis. Her illness was stabilized, and she was discharged from the hospital, but the illness left her immunocompromised with lingering pains that were treated by pain-suppressing steroids. Unable to work her desk job at the office, Ms. Santorelli applied for disability benefits. Her claim for short-term disability benefits was granted and paid; however, Hartford Life & Accident Insurance Company denied her claim for long-term disability benefits, concluding that the illness did not prevent her from performing any of the essential duties of her sedentary work. In resolving the parties cross-motions for judgment under de novo review, the court concluded that Hartford failed to address whether working in an office was an essential duty of Ms. Santorelli’s occupation. If Ms. Santorelli was unable to work from home, the court stated that she may be entitled to disability benefits due to her compromised immune system and potential need to rest her feet and legs. However, the court felt the record pertaining to whether Ms. Santorelli’s job would let her work from home was sparse and therefore concluded the best course of action was remanding the case to Hartford for reconsideration.

Ninth Circuit

Neumiller v. Hartford Life & Accident Ins. Co., No. C22-0610 TSZ, 2022 WL 3716838 (W.D. Wash. Aug. 29, 2022) (Judge Thomas S. Zilly). In 2019, plaintiff Julie Neumiller began medical leave after she was diagnosed with a painful disorder called trigeminal neuralgia. She then applied for disability benefits. The following year, Ms. Neumiller returned to work part-time. Her insurer, defendant Hartford Life & Accident Insurance Company, continued paying her monthly benefits under the plan’s “Return to Work Incentive.” When her employer paid her a trimester bonus that increased her monthly salary to above 60% of her pre-disability income for that period, Hartford ended the monthly payments. Additionally, Hartford applied Ms. Neumiller’s elective pre-tax contributions to her 401(k) plan to her current monthly earnings. Ms. Neumiller appealed Hartford’s inclusion of both her bonuses and her retirement contributions to its calculations of her current monthly earnings. Hartford upheld its decision during the internal appeals process. Ms. Neumiller subsequently brought this action, seeking to recover her benefits under the policy. The parties moved for judgment under Federal Rule of Civil Procedure 52 and agreed to the de novo review standard. The court in its decision held that “Current Monthly Earnings” is a broad, comprehensive, and unambiguous term that includes all earnings an employee receives from his or her employer, including bonuses and elective savings contributions. Accordingly, the court found Hartford had properly calculated Ms. Neumiller’s earnings and appropriately terminated benefits. Hartford was therefore awarded judgment under Rule 52.

Sanchez v. Hartford Life & Accident Ins. Co., No. 2:20-cv-03732-JWH-JEM, 2022 WL 4009176 (C.D. Cal. Sep. 2, 2022) (Judge John W. Holcomb). Plaintiff Bernardo Sanchez is a veteran who suffers from PTSD, anxiety, and depression. Although he was originally diagnosed with PTSD decades ago stemming from his service in the Marine Corps, his mental illnesses worsened in 2019 due to a hostile work environment. Mr. Sanchez applied for short-term disability benefits. His claim was denied by Aetna Life Insurance Company on the ground that the medical documentation in support of the diagnoses lacked required details outlining restrictions and limitations, diagnostic test results, and information on the medications prescribed. During his administrative appeal, Mr. Sanchez did not provide the additional information Aetna stated it required for him to perfect his claim. Additionally, the short-term disability policy does not provide coverage for mental or physical “occupational” illnesses, which is defined broadly in the plan. After exhausting the administrative appeal for his short-term disability claim and choosing not to submit a claim for long-term disability benefits on futility grounds, Mr. Sanchez commenced this suit. The parties each moved for summary judgment. Applying arbitrary and capricious review, the court concluded that Aetna’s denial was not an abuse of discretion, and “Aetna officials reasonably determined that Sanchez presented insufficient medical evidence to establish functional impairment.” As neither Mr. Sanchez nor his providers provided evidence to Aetna “beyond mere diagnoses and certification” to prove that he met the plan’s definition of disability, the court concluded Mr. Sanchez failed to meet his burden establishing his entitlement to benefits under the plan. Furthermore, even if the medical evidence had supported a conclusion that Mr. Sanchez is disabled, the court stressed that Mr. Sanchez’s claim would still not be covered under the plan because it is encompassed by the plan’s broad definition of an “occupational illness.” Finally, the court rejected Mr. Sanchez’s futility argument in support of his decision not to submit a claim for long-term disability benefits because the two plans are distinct from one another and a denial under the short-term policy therefore does not necessarily “render pursuit of a LTD claim futile.” Accordingly, Mr. Sanchez’s claim for benefits under the long-term disability plan was denied without prejudice, and the court entered judgment in favor of Hartford on the short-term disability claim.

Medical Benefit Claims

First Circuit

Turner v. Liberty Mut. Ret. Benefit Plan, No. 20-11530-FDS, 2022 WL 3841119 (D. Mass. Aug. 30, 2022) (Judge F. Dennis Saylor IV). On behalf of himself and a class of similarly situated individuals, plaintiff Thomas Turner brought an ERISA suit against the Liberty Mutual Retirement Benefit Plan, the Liberty Mutual Medical Plan, the Liberty Mutual Retirement Benefit Plan Retirement Board, Liberty Mutual Group Inc., and Liberty Mutual Insurance Company. In his complaint, Mr. Turner asserts that defendants incorrectly calculated cost-share obligations for post-retirement medical benefits by failing to account for employees’ years of service with an insurance company acquired by Liberty Mutual, Safeco Insurance Co. Mr. Turner worked for Safeco from 1980 until the year of the acquisition in 2008. He maintains that he was not rehired at the time of the transition because he did not reinterview for his job, his compensation did not change, and Liberty Mutual always considered the date he began work with Safeco in 1980 as his hire date at Liberty Mutual, which was reflected in pay slips and compensation statements. Furthermore, he claims that he and fellow Safeco employees were repeatedly told that they would continue working for Safeco, under the Liberty Mutual Group umbrella. Mr. Turner asserts that he was informed multiple times that he would receive cost-sharing credit for post-retirement health benefits based on both his pre-merger years with Safeco and his time post-merger with Liberty Mutual. However, when Mr. Turner began formally inquiring about retirement benefits and actively attempting to retire in 2017, Liberty took a new position. Liberty asserted that Mr. Turner’s grandfathered benefits from Safeco were only for 12 years instead of 28 years because of a freeze that Safeco had enacted, and he was not entitled to any years of service for his time with Liberty. Mr. Turner pushed back and expressed that his interpretation of plan documents meant he should be entitled to 37 years of service for his combined years he worked at Safeco and Liberty Mutual. Based on more conversations Mr. Turner had with benefit administrators, Mr. Turner postponed his retirement believing that action would lead to attainment of benefits from his years of service at both companies. Liberty Mutual acknowledged that Mr. Turner was a serious problem for them. One of the employees in charge of informing Mr. Turner of his benefits eligibility put into an email, “He’s constantly asking where all of this is in writing and the SPD is not that explicit. I’m sure he will sue once he retires.” Recognizing its own vulnerability and the plan’s ambiguity, Liberty Mutual changed the plan language in February 2019, expressly removing the grandfathered Safeco benefits. On May 1, 2019, Mr. Turner retired. After appealing unsuccessfully to Liberty Mutual for the benefits he believed he was entitled to, Mr. Turner commenced this suit. Mr. Turner asserted four claims: (1) a claim under Section 502(a)(1)(B) seeking a determination of the plan terms, clarifying rights to benefits under the plan, and seeking benefits; (2) a claim for equitable relief under Section 502(a)(3); and (3+4) claims alleging violations of Section 502(c)(1) for failure to supply requested information. Liberty Mutual moved for summary judgment on claim 1. Mr. Turner argued that summary judgment should be denied. He argued that the plan documents guaranteed him vested benefits for years of service to both companies, that the 2019 summary plan description was an amendment to the plan that did not properly follow the procedures for an amendment, and that the plan documents included in both the January and February 2019 summary plan descriptions were ambiguous and any ambiguities create a genuine issue of material fact precluding summary judgment. Liberty Mutual argued that the February SPD controls and that it was not a plan amendment but a plan clarification not subject to the same procedures. Additionally, Liberty argued that Mr. Turner was never entitled to additional benefits and is therefore not entitled to relief under the terms of the plans. Ultimately, the court held that the January SPD and not the February SPD controls. However, the court went on to conclude that under the January SPD’s unambiguous language, Mr. Turner’s post-retirement medical benefit was not a vested benefit, especially as “plaintiff fails to identify language in any SPD or Plan document that a reasonable factfinder could interpret as granting the vested benefit he claims.” Therefore, the court granted Liberty Mutual’s motion for summary judgment as to the Section 502(a)(1)(B) claim.

Pension Benefit Claims

Third Circuit

Campbell v. Royal Bank Supp. Exec. Ret. Plan, No. 19-798, 2022 WL 4009512 (E.D. Pa. Sep. 2, 2022) (Judge Joel H. Slomsky). During his tenure, plaintiff Joseph Campbell was the President and Chief Executive Officer of Royal Bank America and Royal Bancshares of Pennsylvania Inc. and a participant in the Royal Bank Supplemental Executive Retirement (top-hat) Plan governed by ERISA, the defendant in this suit. In 2017, the Bryn Mawr Trust Company acquired Royal Bank and terminated the Plan. When the plan was terminated, Mr. Campbell received a lump sum payment of $3,924,910. The payment was calculated using the Citi Rate as its discount rate. Mr. Campbell filed a claim with Bryn Mawr Trust Company stating that his lump sum payment was too low per the plan terms which required the use of the 5-Year United States Treasury Note discount rate, “as set forth in Section 6.2” of the Plan. The Plan denied Mr. Campbell’s claim for benefits, and Mr. Campbell filed his suit under Section 502(a)(1)(B) to recover the difference in the amount he was paid and the higher lump sum payment he believed he was entitled to under the plan. The Plan argued that it applied an appropriate actuarial equivalent discount rate and Mr. Campbell is therefore not entitled to a higher payment. A trial was held last October. The court came to its final decisions in this order, and ultimately concluded that Mr. Campbell was correct that the plan required the use of the 5-Year United States Treasury Note discount rate and finding otherwise would render Section 6.2 of the plan, the only section of the plan that “provides any methodology for calculating the lump sum payments after a Change of Control,” meaningless. Thus, the Plan is “not suspectable to two different interpretations” and Mr. Campbell was found by the court to be entitled to a payout worth $432,026 more than he initially received, plus interest, attorney’s fees, and costs.

Sixth Circuit

Vest. v. The Nissan Supplemental Exec. Ret. Plan II, No. 3:19-cv-01021, 2022 WL 3973910 (M.D. Tenn. Aug. 29, 2022) (Judge Eli Richardson). For nine years, plaintiff Rebecca Vest was a senior employee at Nissan North America, Inc., until 2018, when she resigned from the company. As a Vice President, Ms. Vest was a participant in the Nissan Supplemental Executive Retirement Plan II. After leaving the company, Ms. Vest applied for benefits under the plan. Her application was denied under the plan’s non-competition provision because Ms. Vest began to work for a tire manufacturer. Ms. Vest appealed this denial, arguing that it was nonsensical that a tire manufacturer from which Nissan purchases tires could be construed as a “competing company” under the plan’s non-compete provision. When the denial was upheld, Ms. Vest pursued federal legal action. She brought two claims, a claim for benefits under ERISA Section 502(a)(1)(B), and an alternative claim for breach of contract. She moved for summary judgment on her claim for benefits and moved to voluntarily dismiss her breach of contract claim as preempted by ERISA. As a preliminary matter, the court stated that its consideration of whether Ms. Vest was entitled to benefits revolved around answering (1) whether she was eligible under the plan, and if so (2) whether she was disqualified from benefits due to working for a “competing company.” First, the court held that Ms. Vest, who held a senior position at Nissan and worked for the company for over five years, was eligible for benefits under the plan “absent any circumstances justifying disqualification for benefits.” Next, the court concluded that the Administrative Committee’s decision was entitled to de novo review because it was not delegated with the authority to decide that a participant was disqualified from receiving benefits under the non-compete clause. However, the Senior Vice Presidents’ vote denying Ms. Vest’s claim, the court concluded, was subject to arbitrary and capricious review, as it was given discretionary authority to make such a determination under the plan. Having so decided, the court first weighed the denial under de novo review. Ms. Vest was able to convince the court that her new employer was not a competing company, and the Administrative Committee’s denial was therefore incorrect. The court then examined the denial under the heighted deferential review standard and concluded that the denial was “not only incorrect under de novo standard of review but is also arbitrary and capricious.” To conclude that a tire company was a competing company to Nissan, “the SVPs would have had to interpret the word ‘competing’ in a manner that is irrational (and) goes against its plain meaning.” The court accordingly found that Ms. Vest met her burden demonstrating her entitlement to judgment and granted her motion. Additionally, the court found an award of benefits to be the proper remedy and awarded benefits as well as pre- and post-judgment interest and attorneys’ fees. Finally, Ms. Vest’s breach of contract claim was dismissed with prejudice as preempted by ERISA.

Eighth Circuit

Gelschus v. Hogen, No. 21-3453, __ F. 4th __, 2022 WL 3712312 (8th Cir. Aug. 29, 2022) (Before Circuit Judges Gruender, Benton, and Grasz). During her employment at Honeywell International, Inc., Sally A. Hogen contributed to a 401(k) plan. In 2002, Ms. Hogen divorced her husband Clifford C. Hogen. As part of their divorce, the Hogens signed a marital termination agreement, within which they agreed Ms. Hogen “will be awarded, free and clear of any claim on the part of (Mr. Hogen) all of the parties’ right, title, and interest in and to the Honeywell 401(k) Savings and Ownership Plan.” The Hogens did not remain close following the divorce, and hardly to spoke to one another in the nearly two decades that followed. After signing the marital termination agreement, Ms. Hogen submitted a change-of-beneficiary form to Honeywell attempting to allocate a third of her 401(k) benefits (33 1/3%) to each of her three siblings. Strangely, her plan included designation instructions requiring allocation to be in whole percentages. Because Ms. Hogen didn’t use whole percentages, Honeywell never changed her designation, and Mr. Hogen remained the beneficiary. Honeywell claimed that it attempted to contact Ms. Hogen about this. The record is clear that she took no further steps to change her beneficiary. In 2019, Ms. Hogen died after years of long-term health issues. Her 401(k) plan had nearly $600,000 in it at the time of her death. Honeywell paid that money to Mr. Hogen. Ms. Hogen’s brother, and the representative of her estate, Robert F. Gelschus, sued Honeywell for breach of fiduciary duty, and sued Mr. Hogen for breach of contract, unjust enrichment, conversion, and civil theft. The district court granted summary judgment to both Mr. Hogen and Honeywell and against Mr. Gelschus. It concluded that Honeywell complied with ERISA’s requirements to read the plan documents as written and thus did not breach its fiduciary duty. The district court stated that regarding Mr. Hogen, Mr. Gelschus did not have standing, and that in addition his claims failed on the merits because there was no genuine dispute of fact that Mr. Hogen had not breached the divorce agreement. Mr. Gelschus appealed. The Eighth Circuit affirmed in part and reversed in part. Specifically, the Circuit Court agreed with the lower court that Honeywell had not breached its duties under ERISA and had acted in accordance with the plan documents and the plan’s instructions requiring allocation in whole percentages. However, the court of appeals found clear error in the district court’s ruling with regard to defendant Hogen. The Eighth Circuit found that Mr. Gelschus had third-party beneficiary standing as both the personal representative of the estate and as one of his sister’s three intended designees to the benefits. Additionally, the Eighth Circuit held that there was indeed a genuine dispute pertaining to whether the Hogens had intended for the marital termination agreement to waive Mr. Hogen’s beneficiary interest in the 401(k) plan, as a jury could and likely would interpret the language of the agreement and the relationship between the parties after their divorce as meaning Mr. Hogen had no right to the hundreds of thousands of dollars in the plan. “Much evidence shows that Sally would not have wanted to preserve 401(k) funds for Clifford” especially given the fact that Ms. Hogen attempted to change the beneficiaries to her siblings. The court stated that “it is a reasonable inference that Sally, aware of her declining health, would not have preserved plan funds unless she believed that the MTA precluded them from passing to her ex-husband, whom she had avoided for nearly two decades.” Accordingly, the Eighth Circuit reversed the lower court’s summary judgment for Mr. Hogen on the breach of contract and unjust enrichment claims and remanded for further proceedings. Summary judgment for Mr. Hogen on the conversion and civil theft claims was affirmed, as the Eighth Circuit expressed these claims are primarily intended to provide recovery for stolen merchandise or property from a retail store and not for the circumstances presented here.

Pleading Issues & Procedure

Sixth Circuit

Am. Elec. Power Serv. Corp. v. Fitch, No. 22-3005, __ F. App’x __, 2022 WL 3794841 (6th Cir. Aug. 30, 2022) (Before Circuit Judges Guy, Moore, and Clay). American Electric Power Service Corporation, on behalf of its ERISA plan, brought a Section 502(a)(3) suit against the parents of a child who died tragically in a car crash seeking to impose an equitable lien over funds the parents received from two third-party “at-fault” settlements for reimbursement of medical bills the plan paid in connection with the accident. The federal district court concluded that the probate exception deprived it of subject-matter jurisdiction because the Probate Court of Franklin County, Ohio had already approved the settlement and distribution and had allocated the money to the family. Accordingly, without weighing in on the merits of the case, the district court dismissed the complaint. American Electric appealed. Relying on the Supreme Court’s clarification of the probate exception in Marshall v. Marshall, 547 U.S. 293 (2006), the Sixth Circuit understood its role as answering the question “whether this actions seeks to reach the same res over which the probate court has custody?” The district court in its dismissal had concluded that granting American Electric’s requested relief would have imposed upon the jurisdiction of the Probate Court over the distribution of the estate and would have required the district court to dispose of the money “in a manner inconsistent with the Probate Court’s judgment.” American Electric’s appeal, the Sixth Circuit stressed, simply failed to address “why this conclusion (by the district court) was flawed.” American Electric, the court went on, simply failed to engage in a discussion of why the lower court’s reasoning was incorrect which “given the nuances entailed in the probate exception” was an incurable shortcoming for its appeal. The Sixth Circuit thus agreed with the parents that American Electric “forfeited any challenge to the district court’s conclusion that the federal court lacks jurisdiction to hear its claims.” As such, the court of appeals upheld the lower court’s holding that the probate exception applies and affirmed the dismissal. Circuit Judge Guy dissented from his colleagues and stated that he disagreed with the conclusion American Electric forfeited review of whether the probate exception applies. To the contrary, Judge Guy found American Electric’s briefing clearly argued that the lower court had erred by not accepting its claim that the proceeds from the settlements were not in the custody of the probate court and therefore expressly addressed the issue of whether its action seeks to reach the same res as the res within the custody of the probate court. As such, Judge Guy expressed that were he in the majority he would have reversed and remanded for further proceedings.