This week’s notable decision comes from a discovery order in a long term disability case. The court in Wilson v. Pharmerica Corporation Long Term Disability Plan, No. CV 14-CV-12345-LTS, 2015 WL 4572833 (D. Mass. July 29, 2015) granted in part Aetna’s motion for a protective order concerning four categories of documents related to its conflict of interest. With respect to information surrounding Aetna’s financial arrangements with individual physicians retained as medical consultants, the court agreed with Aetna that public disclosure of its financial arrangement with an individual medical consultant could cause harm. Specifically, the court reasoned that another consulting physician could underbid the consultant to take his or her business or demand more money from Aetna upon seeing what the other physician is being paid. [insert music from world’s smallest violin.] This is one of the few circumstances where we say let the free market reign. Enjoy this week’s cases.
Your reliable source for summaries of recent ERISA decisions
Below is Kantor & Kantor LLP summary of this past week’s notable ERISA decisions.
Employer effectively submitted notice of termination from collective bargaining relationship, ending union’s right to conduct an audit of its records. In New England Carpenters Cent. Collection Agency v. Labonte Drywall Co., No. 14-1739, __F.3d___, 2015 WL 4597552 (1st Cir. July 31, 2015), the Trustees for a group of union-related benefits funds and their collection agency brought suit against Defendant under ERISA and LMRA, seeking enforcement of an agreement that required Defendant to allow audit of its records. Defendant agreed to abide by the terms and obligations of the collective bargaining agreement (“CBA”) through incorporation by reference in a statewide agreement, which it terminated effective April 3, 2007. Plaintiffs sought to audit Defendant through August 31, 2009. The district court granted judgment for Defendant after a bench trial and Plaintiffs appealed. The First Circuit held that: (1) the terms of a statewide agreement to abide by the terms of a CBA that simply required “notice of termination” in writing did not require Defendant to use any particular language in its notice of termination; (2) Defendant’s letter expressed unequivocal intent to withdraw from collective bargaining relationship so as to be a legally effective termination; (3) actual notice was sufficient to terminate the collective bargaining relationship under the terms of the statewide agreement; (4) union, as the other party to the statewide agreement to abide by the terms of the CBA, received actual notice of the letter providing unequivocal intent to withdraw from collective bargaining relationship; (5) the employer had authority to terminate the statewide agreement to abide by the terms of the CBA before the collective bargaining agreement’s expiration date; and (6) the union did not have right to conduct audit of employer’s records.
Unpaid contributions by employers to employee benefit funds are not ERISA plan assets, and Plaintiff did not engage in defalcation since he had no fiduciary responsibilities. In Bos v. Bd. of Trustees, No. 13-15604, __F.3d___, 2015 WL 4568015 (9th Cir. July 30, 2015), the Ninth Circuit considered whether an employer’s contractual requirement to contribute to an employee benefits trust fund makes it a fiduciary of unpaid contributions. Plaintiff was owner and president of Bos Enterprises, Inc., which was a member of the Modular Installers Association, an employer association. As president, Plaintiff agreed that the company would be bound by the Carpenters’ Master Agreement, and several trust agreements. Plaintiff eventually filed bankruptcy and the bankruptcy court entered judgment, concluding that Plaintiff had committed defalcation while acting as a fiduciary of the Funds and that the $504,282.59 debt to the Funds was therefore nondischargeable. The district court affirmed the bankruptcy court on the same grounds and entered an order to that effect. Plaintiff appealed and argued that the bankruptcy court and district court erred in concluding that he was a “fiduciary” under 11 U.S.C. § 523(a)(4). The Ninth Circuit agreed with the view taken by the Sixth and Tenth Circuits, finding that it comports with the limited approach it takes in recognizing fiduciary status, particularly in the § 523(a)(4) context. The court reasoned that a typical employer never has sufficient control over a plan asset to make it a fiduciary for purposes of § 523(a)(4). Even if a plan document could convert an unpaid contribution into some type of plan asset, such an “asset” could legally be classified in only one of three ways which does not give the employer the requisite control over such plan asset: (1) the contractual right to collect payments once they become due; (2) the unpaid past-due contributions; (3) amounts which the employer must eventually contribute to the plan, but which are not yet due, thus avoiding the problem of the act of wrongdoing creating the fiduciary status. The Ninth Circuit reversed and remanded the district court and held that unpaid contributions by employers to employee benefit funds are not ERISA plan assets, and Plaintiff did not engage in defalcation since he had no ERISA fiduciary responsibilities.
Select Slip Copy & Not Reported Decisions
Breach of Fiduciary Duty
In Smith v. Delta Air Lines Inc., No. 13-15155, __Fed.Appx.___, 2015 WL 4546170 (11th Cir. July 29, 2015), on remand from the U.S. Supreme Court for reconsideration in light of Fifth Third Bancorp v. Dudenhoeffer, the court held that Plaintiff’s prudence claim falls squarely within the class of claims the Supreme Court deems “implausible as a general rule.” Specifically, his prudence claim is that the Delta fiduciaries should have foreseen that Delta stock would continue to decline, but the court found no allegation in the amended complaint that the fiduciaries had material inside information about Delta’s financial condition that was not disclosed to the market, nor is there any allegation of a special circumstance that rendered reliance on the market price imprudent, such as fraud, improper accounting, illegal conduct or other actions that would have caused Delta stock to trade at an artificially inflated price. As such, the Delta fiduciaries cannot be held liable for failing to predict the future performance of the airline’s stock and Fifth Third does not change the outcome of the court’s prior disposition. The court affirmed the judgment of dismissal.
In Page v. Unimerica Ins. Co., No. 3:12-CV-103, 2015 WL 4549473 (S.D. Ohio July 27, 2015), Plaintiff is a beneficiary who brought breach of fiduciary duty claims against her deceased spouse’s employer and life insurance claims administrator for alleged miscommunications which led her and her husband to believe that he had continued life insurance coverage after he became disabled and stopped working. The court found that the claims administrator did not make the challenged representations upon which Plaintiff’s breach of fiduciary duty claim is based, so it could not have been acting in a fiduciary capacity when the representations were made. For this reason, the court found that the claims administrator is entitled to summary judgment on the breach of fiduciary duty claim against it. With respect to the employer, however, the court found that a reasonable fact-finder could conclude that the representations and omissions were material. Here, the employer failed to respond to Plaintiff’s letter and sent an enrollment form concerning her husband’s “eligibility under a plan” and “the extent of benefits” he was entitled to as his employment terminated. The employer’s failure to respond to the participant’s inquiry misled him into thinking that his life insurance premium would continue to be paid by the company, which prevented him from making an adequately informed decision about whether to pursue the conversion option under the Plan. The court also found that no evidence supported the employer’s claim that they did not rely on the misrepresentations to Plaintiff’s detriment, especially where Plaintiff testified that her, “husband died believing that he was taking care of his family trough that life insurance, and [the employer] gave us no reason to believe that it was not [in effect].” As such, the court did not grant summary judgment to the employer for the breach of fiduciary duty claim. Lastly, with respect to the equitable estoppel claim against the employer, the court found there is no evidence to support the elements of Plaintiff’s equitable estoppel claim against employer, and the company cannot be estopped from denying her claim because the Plan did not give it the right to deny it or obligate it to pay the life insurance benefit she seeks. Accordingly, the court granted summary judgment on the equitable estoppel claim.
Disability Benefit Claims
In Kirk v. Lockheed Martin Grp. Benefits Plan No. 594, No. 15-CV-00842-WHO, 2015 WL 4638243 (N.D. Cal. Aug. 4, 2015), Plaintiff asserted that the Plan breached its fiduciary duty in failing to properly investigate his claims and in initially denying him benefits, and that he is entitled to equitable relief under 29 U.S.C.A. § 1132(a)(3). Defendant Lockheed Martin Group Benefits Plan No. 594 had twice overturned on appeal initial decisions to deny and then terminate Plaintiff’s long term disability benefits. The court granted Defendant’s motion to dismiss but with leave to amend because Plaintiff’s first cause of action is moot since his benefits have been paid, and because in his second cause of action Plaintiff failed to allege any facts to state a plausible claim for equitable surcharge or other equitable relief. The basis for the breach of fiduciary duty claim is the same as the first claim for relief for benefits. The court found that Plaintiff did not need to exhaust administrative remedies for the breach claim, but that the complaint does not actually allege a violation of section 502(a)(3) or request any specific equitable relief, such as reformation or an injunction. To the extent that Plaintiff seeks an equitable surcharge, he has to allege actual harm since his benefits were reinstated and paid in full.
In Srivastava v. Guardian Life Ins. Co. of Am., No. CIV.A. 14-2568, 2015 WL 4610981 (E.D. Pa. Aug. 3, 2015), the court found that Guardian’s denial and termination of Plaintiff’s long term disability benefits was not arbitrary and capricious. Plaintiff is an oncologist and hematologist allegedly suffering from hemianopia and partial field of vision loss. Plaintiff argued that (1) Guardian’s reliance on the independent medical opinions of Drs. Lawrence Reese (ophthalmologist) and Grant T. Liu (neuro-ophthalmologist), to the exclusion of her treating opthalmologist, was arbitrary and capricious; (2) Guardian violated ERISA by relying on Dr. Reese’s peer review for its initial decision and on appeal; (3) Guardian accepted the diagnoses of Drs. Reese and Betz, but ignored the caveats accompanying those diagnoses; and (4) Guardian ignored Plaintiff’s self-reported symptoms. The court rejected each of these arguments and found that Guardian’s determinations were supported by substantial medical evidence, especially where Plaintiff’s treating doctors described the peer review as providing an excellent summary of Plaintiff’s problems and was “outstanding and very thorough.”
In Silverman v. Unum Grp., No. 14-CV-6439 DLI SMG, 2015 WL 4603345 (E.D.N.Y. July 30, 2015), Plaintiff was part owner and employee of a company where his siblings were the other owners. Plaintiff contested that the relevant disability policy covering him and his siblings constituted an ERISA plan. The court disagreed. Although the Second Circuit has not addressed whether a plan is governed by ERISA where the only participants are shareholder co-owners of a corporation who are not spouses, following the Fifth Circuit’s decision in Provident Life & Acc. Ins. Co. v. Sharpless, 364 F.3d 634 (5th Cir.2004), the court found that Plaintiff is considered an employee under ERISA and his plan is an ERISA plan.
In Wilson v. Pharmerica Corporation Long Term Disability Plan, No. CV 14-CV-12345-LTS, 2015 WL 4572833 (D. Mass. July 29, 2015), the court previously ordered Aetna to produce certain categories of documents. Aetna filed a motion seeking a protective order for four categories of documents: (1) internal guidelines regarding Aetna’s 24 month limitation policy; (2) information surrounding the firewall Aetna has in place to eliminate any conflict of interest between those who administer plans and those who make benefits determinations; (3) information surrounding Aetna’s financial arrangements with the MES Group, Inc. (“MES”), a third-party vendor providing medical consultant services; and (4) information surrounding Aetna’s financial arrangements with individual physicians retained as medical consultants. Aetna argued that the information is confidential and that its dissemination to others outside of the present litigation could give Aetna’s competitors and other medical service providers sensitive information which could in turn be used to Aetna’s financial detriment. Plaintiff urged the court to view Aetna as a fiduciary of the employee benefits plan who should not be able to shield its decision-making or process from any plan participants. Based on an in camera review, the court found that internal guidelines regarding the 24-month limitations policy does not reveal any specific business strategies, cost saving measures, or specific issues relating to mental disabilities triggering the limitation. The court denied the protective order as to this category. The court also found that Aetna did not demonstrate how disclosure of information regarding its structural conflict of interest is likely to harm Aetna in the marketplace and denied a protection order with respect to that information. However, the court agreed with Aetna that public disclosure of documents involving Aetna’s dealings with MES may indeed harm both Aetna and/or MES in the marketplace and granted a protective order as to that information. Lastly, Aetna sought to protect documents surrounding its dealings with independent individual physicians as medical consultants. In support of its motion, Aetna submitted an affidavit from Michael A. Corarito, a business consultant with Aetna Review Consultant Services (“ARCS”). The court agreed with Aetna that public disclosure of its financial arrangement with an individual medical consultant could cause another consulting physician to underbid the consultant to take his or her business or demand more money from Aetna upon seeing what the other physician is being paid. As such, the court granted Aetna’s motion as to this information.
In Patel v. Sea Nine Associates, Inc., No. 3:15-CV-00754-M, 2015 WL 4617020 (N.D. Tex. Aug. 3, 2015), the court found as not preempted Plaintiffs’ suit against Defendants, claiming that they were induced into investing in employee benefit plans by fraudulent misrepresentations as to the tax-exempt status of those plans. Plaintiffs alleged that Defendants and their representatives presented Plaintiffs with information regarding a “419A Plan,” a type of employee benefit program that purported to comply with Internal Revenue Code Section 419A(f)(6). Compliance meant that Plaintiffs would be exempt from limitations placed by the Internal Revenue Service on deductions taken from employer contributions to a welfare benefit plan and Defendants allegedly represented that the 419A Plan was not a transaction that would result in the IRS requiring the filing of a Form 8886. Plaintiffs invested approximately $1,280,000 in the plan marketed to them by Defendants, and took the income tax deductions they had been told by Defendants they were entitled to under the plan but the IRS imposed back taxes, substantial penalties and ever-accruing interest. The IRS also concluded that the plan was a prohibited individual investment account, because it presented all the classic symptoms of a 419A listed transaction and imposed penalties and interest associated with Plaintiffs’ failure to file a Form 8886 when investing in a listed transaction. The court found that the duty Plaintiffs claim Comerica owed them, to “act in a manner conforming to the professional standards of care applicable to prudent insurance companies, trustees, investment advisors, or insurance advisors,” relates to conduct that occurred before the marketed plan was entered into by Plaintiffs and not based on a relationship between traditional ERISA entities.
In Minnesota Life Ins. Co. v. Gomez, No. CV-14-00866-PHX-JZB, 2015 WL 4638351 (D. Ariz. Aug. 4, 2015), Plaintiff filed a Complaint in interpleader requesting that the court determine the right beneficiaries of the decedent’s basic life insurance and accidental death and dismemberment policy. The spouse was named a beneficiary but is being investigated for murdering the decedent. On a default judgment, the court granted Plaintiff’s request for relief in the form of an order (1) discharging Plaintiff from further liability for the funds, (2) requiring Defendants to interplead their claims to the benefits, (3) permanently enjoining Defendants from bringing any claim or action against Plaintiff relating to the benefits, and (4) dismissing Plaintiff with prejudice.
Life Insurance & AD&D Benefit Claims
In Minchella v. Sun Life Assur. Co. of Canada, No. CIV.A. 14-4024, 2015 WL 4578902 (E.D. Pa. July 29, 2015), Plaintiff alleged that Defendant failed to make a decision on Plaintiff’s claim for basic accidental death benefits, pursuant to a policy issued to the decedent, Jason Minchella, despite Plaintiff’s repeated requests that Defendant do so. Defendant moved to dismiss the claim on the grounds that Plaintiff’s claim is precluded under the doctrine of res judicata and that Plaintiff has failed to exhaust his administrative remedies as required under ERISA. The court denied Defendant’s motion. The court determined that it was better to decide the res judicata issue stemming from a settlement agreement between the parties and prior court action relating to a claim for general life insurance benefits on a complete factual record rather than on a motion to dismiss. With respect to exhaustion of remedies, the court found that Defendant failed to plead any specific language in the Policy regarding available or required administrative remedies. Further, the express reservation of the accidental death benefit claim in the release and settlement agreement appears to evince Plaintiff’s intent to exhaust administrative remedies. Plaintiff’s allegation that Defendant repeatedly ignored Plaintiff’s request to reach a final claim decision raises a potential issue as to whether any further attempt to exhaust administrative remedies would have been futile. Because the current state of the record does not permit any determination as to the affirmative defense of exhaustion of administrative remedies, the court denied the motion but permitted Defendant to raise the issue again in any motions for summary judgment.
Medical Benefit Claims
In Barling v. UEBT Retiree Health Plan, No. 14-CV-04530-VC, 2015 WL 4623611 (N.D. Cal. July 31, 2015), Plaintiff brought a putative class action against a health plan and related defendants alleging that they violated the terms of the ERISA plan by requiring him to pay deductibles and coinsurance during a time when Medicare served as Plaintiff’s “primary payer” and the Plan served as his “secondary payer.” Plaintiff also brought an individual ERISA penalties claim for the plan administrator’s failure to respond promptly to his document requests. The court found that under either standard of review, Plaintiff wins because the Plan language is susceptible to only one meaning: coinsurance and deductibles are part of “Covered Expenses” and therefore the Plan could not make retirees pay them when the Plan serves as the secondary payer. The court found that the Plan improperly required him to pay deductibles but that there is no evidence that the Plan required Plaintiff to pay coinsurance. Because Plaintiff is no longer a participant in the Plan, the Plan’s improper interpretation will not harm him in the future and he lacks standing to pursue a benefits claim with respect to coinsurance. The court awarded a total of $10,000 in statutory document penalties for the Plan’s year-long delay in producing the CBA and LLC Agreement and Contract.
In Hamsher v. N. Cypress Med. Ctr. Operating Co., No. 14-20576, __Fed.Appx.___, 2015 WL 4547720 (5th Cir. July 29, 2015), the self-funded health plan required “prior-authorization” as an absolute precondition to reimbursement for certain services. Both inpatient and outpatient hospital services must be prior-authorized. The Plan defines “[h]ospital” to include “[a] facility operating legally as a psychiatric [h]ospital or residential treatment facility for mental health and licensed as such by the state in which the facility operates. The court found that the administrative record is essentially silent as to the nature of the participant’s treatment at a facility called Timberline Knolls Residential Treatment Center. Further, there was no information as to whether Timberline is a “hospital” as defined under the Plan. Although, the name is suggestive, the title alone does not constitute the type of “substantial evidence” that Defendant must put forward. The court found that Defendant had its chance to create a record showing that the participant received services at a “hospital” but failed to do so. As a result, the court reversed the judgment of the district court and remanded for entry of judgment in favor of Plaintiff.
In Spizman v. BCBSM, Inc., No. 14-CV-3568MJD, 2015 WL 4569249 (D. Minn. July 27, 2015), Plaintiffs asserted six causes of action. In Count I, Plaintiffs seek a declaration that BCBSM had an affirmative duty to notify Plaintiffs in writing of a substantial reduction in coverage from 2012 to 2013; that BCBSM’s failure so to notify rendered the 2013 reduction in coverage void; and therefore, the 2012 Certificate provides coverage for Mrs. Spizman’s home health care needs. With Count II, Plaintiffs seek declaratory judgment that the 2013 Certificate provides coverage for Mrs. Spizman’s home health care needs and requirements. Count III is a claim for benefits under ERISA based on the terms of the basic group term life insurance plan. With Count IV, Plaintiffs allege that BCBSM breached its fiduciary duty “[b]y failing and refusing to pay benefits to Plaintiffs and engaging in deceptive and fraudulent conduct.” Plaintiffs seek separate monetary compensation resulting from Defendant’s breach of fiduciary duties and other equitable relief, including future home health care coverage, as a “restitutionary monetary reward in the form of a constructive trust,” and judicial reformation of the Plan. With Count V, Plaintiffs seek a $110-per-day penalty for BCBSM’s failure to provide relevant materials for Plaintiffs’ appeal. With Count VI, Plaintiffs seek equitable relief in the form of enforcement of the reformed plan and separate monetary compensation, asserting that statements made by BCBSM’s agent and claim representative, estop BCBSM from denying benefits to Plaintiffs. The court granted Defendant’s motion to dismiss with respect to Counts I, II, V, and VI and denied to all other counts.
In Bloom v. Independence Blue Cross, No. CIV.A. 14-2582, 2015 WL 4598016 (E.D. Pa. July 31, 2015), involving a “simple payment dispute,” the court concluded that Plaintiffs are not beneficiaries with direct standing to bring their claims under ERISA but have derivative standing after an assignment of benefits from Plaintiffs’ patients as plan participants. The court found that the fact that Plaintiffs’ patients were not forced to pay for the medical services they received does not invalidate an otherwise enforceable assignment of rights.
In Neurosurgical Associates of NJ, P.C. v. QualCare Inc., No. CIV. 15-3236, 2015 WL 4569792 (D.N.J. July 28, 2015), Plaintiff is a non-participating or out-of-network health care provider that performed cervical spinal fusion surgery on a patient who was a participant in an insurance plan maintained by Defendant. Plaintiff claims that the services rendered amounted to $115,478.00 and were emergent in nature but Defendant reimbursed only $4,074.01. Defendant moved to dismiss arguing that it is not an ERISA fiduciary and that Plaintiff did not adequately allege its entitlement to further reimbursement. Plaintiff alleged Defendant’s fiduciary status based on the fact that it processed the patient’s claim and handled the patient’s appeals. While bare, the court found these allegations are sufficient to satisfy the Rule 12(b)(6) standard. And although the Complaint failed to identify any specific terms of the plan that would indicate further reimbursement is appropriate, on a motion to dismiss, the court may rely on documents integral to the complaint, which in this case would include the relevant plan documents. Included within Defendant’s Reply papers were copies of plan documents providing some indication that greater reimbursement may have been warranted. Thus at this point, the court found that Defendant has not carried its burden of showing that no claim has been asserted by Plaintiff.
Severance Benefit Claims
In Schweikert v. Baxter Healthcare Corp., No. CIV.A. 12-5876 FLW, 2015 WL 4578443 (D.N.J. July 29, 2015), Plaintiff brought several claims against his former employer, including a claim for benefits under the company’s ERISA-governed Severance Plan. On abuse of discretion review, the court found that an abundance of evidence exists to justify the Administrative Committee’s decision denying Plaintiff severance pay on the basis of his termination for accepting employment with Ikaria, an unrelated company. First, the court found that the Severance Plan permits a denial of severance pay even if an employee does not breach a specific provision of the Employment Agreement or the Code of Conduct. Second, the Code of Conduct identifies “Time Conflicts of Interest” as conflicts that “may happen when you are engaged in a second job or business of your own that may conflict with your responsibilities with Baxter,” and directs employees to “disclose any apparent or actual conflicts to management. When Baxter approves an apparent or actual conflict, the approval decision must be documented.” The court found that Defendant had ample reason to conclude that Plaintiff’s dual, full-time employment with Baxter and Ikaria posed at least an apparent time conflict of interest for Baxter and Plaintiff did not disclose his employment with Ikaria to any Baxter management officials.
Withdrawal Liability & Unpaid Benefit Contributions
In S. City Motors, Inc. v. Auto. Indus. Pension Trust Fund, No. 15-CV-01068-JST, 2015 WL 4638251 (N.D. Cal. Aug. 4, 2015), the court granted Defendant’s motion to stay pending arbitration and motion to dismiss as to the fraudulent inducement/concealment, negligent representation/concealment, equitable estoppel, and declaratory relief claims, and denied as to the restitution of mistaken contributions.
In Trustees of the Operative Plasterers’ & Cement Masons’ Int’l Ass’n Local 262 Welfare Fund v. Emerald Drywall Finishing Corp., No. 14-CV-4631 JGK JLC, 2015 WL 4621534 (S.D.N.Y. July 31, 2015), the court awarded Plaintiffs (1) $44,347.29 in unpaid fringe benefit contributions; (2) $804.31 in interest; (3) $8,869.46 in liquidated damages; (4) $4,273.73 in unpaid union dues; (5) $2,100.00 in attorney’s fees; (6) $540.00 in court costs; and (7) $3,500.00 in accountant fees for a total of $64,434.79.
* Please note that these are only case summaries of decisions as they are reported and do not constitute legal advice. These summaries are not updated to note any subsequent change in status, including whether a decision is reconsidered or vacated. The cases reported above were handled by other law firms but if you have questions about how the developing law impacts your ERISA benefit claim, the attorneys at Kantor & Kantor LLP may be able to advise you so please contact us. Case summaries authored by Michelle L. Roberts, Partner, Kantor & Kantor LLP, 1050 Marina Village Pkwy., Ste. 105, Alameda, CA 94501; Tel: 510-992-6130.