This past week there were a couple of notable decisions in the subrogation/reimbursement context. In UnitedHealth Grp. Inc. v. MacElree Harvey, Ltd., No. CV 16-1026, 2016 WL 5239675 (E.D. Pa. Sept. 21, 2016), the court certified for interlocutory appeal pursuant to 28 U.S.C. 1292(b) the following question:
Whether the terms of an ERISA Plan requiring a plan participant to reimburse the Plan in full without reduction for attorney’s fees preempts or supersedes a claim brought by a third party attorney against the Plan for unjust enrichment under the common fund doctrine where the Plan has been reimbursed in full by the plan beneficiary.
This followed the court’s previous decision where it ruled that a plan fiduciary can sue under ERISA § 502(a)(3) to receive either (1) injunctive or declaratory judgment that participant’s counsel cannot recover attorney’s fees from the plan from monies the plan received pursuant to a subrogation and reimbursement clause that specifically exempts attorney’s fees, or (2) in the alternative, declaratory judgment that the participant indemnify the plan for any attorney’s fees participant’s counsel recovers from the plan. The court determined that it is “equitable relief” when a plan administrator seeks an equitable lien against a fund already in its possession so as to prevent claims against the fund by non-parties to the Plan and it is “equitable relief” when a plan administrator seeks a declaration that a participant indemnify the Plan.
This case highlights the obstacles for personal injury attorneys after the Supreme Court’s decision in U.S. Airways v. McCutchen, 133 S.Ct. 1537 (2013). We will keep watch for further developments in that case.
The other notable reimbursement case is GoDaddy.com LLC v. Monson, No. CV-16-0948-PHX-DKD, __F.Supp.3d__, 2016 WL 5109906 (D. Ariz. Sept. 20, 2016). Monson was injured in a motorcycle accident while he was covered by the GoDaddy Welfare Benefit Plan. Through settlement, he recovered tort damages for his injuries and the Plan demanded reimbursement of the medical expenses it covered from the settlement proceeds pursuant to the Plan’s terms for subrogation and reimbursement. When Monson did not comply, GoDaddy initiated this action seeking legal and equitable relief. The court determined that GoDaddy’s breach of contract claim against Monson based on the Plan’s subrogation and reimbursement terms must be dismissed because the breach of contract claim is a legal remedy that is not available under ERISA’s equitable recovery scheme. And, because the contract claim requires interpretation of the ERISA plan, the claim is preempted.
Read more below!
Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.
- Although Defendant abused its discretion in terminating disability benefits, attorneys’ fees are not merited under Section 1132(g)(1). “First, though DMBA’s interpretation of the Plan is unreasonable, it remains unclear whether DMBA acted entirely in bad faith. Second, a review of the administrative record does not reveal DMBA’s financial situation and, consequently, whether DMBA could satisfy an award of attorney’s fees. Third, an award of attorney’s fees could induce others to more thoroughly review their plans before denying a claimant benefits. Fourth, Mr. Black brought this suit to recover benefits owed to him, not to anybody else. Nor did Mr. Black seek to resolve any significant legal questions regarding ERISA. And fifth, DMBA’s interpretation was unreasonable, so the merits of Mr. Black’s position greatly outweighed the merits of DMBA’s.” Black vs. Deseret Mutual Benefit Administrators, No. 2:15-CV-00695-TC, 2016 WL 5173246 (D. Utah Sept. 21, 2016) (Judge Tena Campbell).
Breach of Fiduciary Duty
- In case concerning a securities class action settlement agreement, finding that various ERISA plans are not “affiliates” of AIG for the purposes of a class action settlement agreement and that the district court erred by not considering the statutory limitations imposed on a sponsor’s control over an employee benefit plan under ERISA. Rothstein v. Am. Int’l Grp., Inc., No. 14-4067(L), __F.3d__, 2016 WL 5075939 (2d Cir. Sept. 20, 2016) (Before: POOLER and SACK, Circuit Judges, and FAILLA, District Judge).
- Denying Defendants’ motion to dismiss the Secretary of Labor’s complaint against a health and welfare plan and its fiduciaries and service providers. On Count I for “excessive plan expenses,” the Secretary alleged that an independent broker had identified alternatives to FCE, but that the Chimes Defendants did not investigate those options. On Count II for “Chimes Defendants’ receipt of benefits in connection with the Plans retention of FCE,” the Secretary alleged that the Chimes Defendants exercised their authority to cause the Plan to retain and pay FCE and BCG as service providers. On Count IV for “FCE’s receipt of payments from service providers,” the Secretary alleged that FCE used payments from the Plan, which it negotiated, to third parties as a means by which FCE was able to obtain commissions and other payments from third parties. On Count V for “failure to prudently and loyally administer the Plan,” the Secretary adequately alleged that FCE was a fiduciary with respect to the services it provides to the Plan. On Count VI for “Plan’s reimbursement to Chimes DC for work of its full-time employee,” the Secretary alleged that Chimes DC and Bussone directed FCE to reimburse Chimes DC for this work using Plan assets and that FCE knowingly participated in this misconduct. Secretary Perez v. Chimes D.C., Inc., No. CV RDB-15-3315, 2016 WL 4993293 (D. Md. Sept. 19, 2016) (Judge Richard D. Bennett).
- In securities class action lawsuits against corporation, employee benefit plans, sponsored by corporation and which held shares of corporation, were not corporation’s “affiliates” excluded from settlement class under settlement agreement. Rothstein v. Am. Int’l Grp., Inc., No. 14-4067(L), __F.3d__, 2016 WL 5075939 (2d Cir. Sept. 20, 2016) (Before: POOLER and SACK, Circuit Judges, and FAILLA, District Judge).
- Certifying class: All Trojan Horse Ltd 401(k) Plan participants who contributed to the Plan through payroll deduction from January 1, 2011, through the date of entry of this order. Granting Plaintiffs’ motion for summary judgment, finding that Ascensus was under an express fiduciary duty to administer funds once received and had a further duty to ensure that those contributions were being made. Its failure to do so is a breach of fiduciary duty. Unpaid Plan contributions are Plan assets. Entering judgment against Ascensus, the non-appearing defendants and cross-defendants in the amount representing the unpaid contributions to the Plan, $2,985,914.27. Longo v. Trojan Horse Ltd., No. 5:13-CV-418-BO, 2016 WL 5118281 (E.D.N.C. Sept. 20, 2016) (Judge Terrence W. Boyle).
- In matter alleging wrongful denial of coverage for mental health and substance use disorder treatment by Defendant United Behavioral Health (“UBH”), granting class certification of the following Classes:
The Wit Guideline Class
Any member of a health benefit plan governed by ERISA whose request for coverage of residential treatment services for a mental illness or substance use disorder was denied by UBH, in whole or in part, on or after May 22, 2011, based upon UBH‘s Level of Care Guidelines or UBH‘s Coverage Determination Guidelines. The Wit Guideline Class excludes members of the Wit State Mandate Class, as defined below.
The Wit State Mandate Class
Any member of a fully-insured health benefit plan governed by both ERISA and the state law of Connecticut, Illinois, Rhode Island or Texas, whose request for coverage of residential treatment services for a substance use disorder was denied by UBH, in whole or in part, on or after May 22, 2011, based upon UBH‘s Level of Care Guidelines or UBH‘s Coverage Determination Guidelines and not upon the level-of-care criteria mandated by the applicable state law. The Wit State Mandate Class shall only include denials governed by Illinois law that occurred on or after August 18, 2011, denials governed by Connecticut law that occurred on or after October 1, 2013, and denials governed by Rhode Island law that occurred on or after July 10, 2015. The Wit State Mandate Class excludes members of the Wit Guideline Class, as defined above.
The Alexander Guideline Class
Any member of a health benefit plan governed by ERISA whose request for coverage of outpatient or intensive outpatient services for a mental illness or substance use disorder was denied by UBH, in whole or in part, on or after May 22, 2011, based upon UBH‘s Level of Care Guidelines or UBH‘s Coverage Determination Guidelines. The Alexander Guideline Class excludes any member of a fully insured plan governed by both ERISA and the state law of Connecticut, Illinois, Rhode Island or Texas, whose request for coverage of intensive outpatient treatment or outpatient treatment related to a substance use disorder.
Wit et al. v. United Behavioral Health, No. 14-CV-02346 JCS, __F.R.D.__, 2016 WL 4990514 (N.D. Cal. Sept. 19, 2016) (Magistrate Judge Joseph C. Spero).
Disability Benefit Claims
- Denial of benefits to permanently paralyzed claimant on four different occasions, including on the basis of missing a 180-day limit for filing an appeal that was not included in the policy, suggests that the denial was procedurally unreasonable and an abuse of discretion. Hughes v. Life Ins. Co. of N. Am., No. CV 15-2941, 2016 WL 5231811 (E.D. La. Sept. 22, 2016) (Judge Eldon E. Fallon).
- On motion seeking (1) a determination whether the Plan is governed by the laws of Texas and (2) a determination whether the Policy Interpretation clause is valid and enforceable in Washington, ordering additional briefing on whether a single document may qualify as both a SPD and a plan document. Flaaen v. McLane Co., Inc., No. C15-5899BHS, 2016 WL 4992650 (W.D. Wash. Sept. 19, 2016) (Judge Benjamin H. Settle).
- Deseret Mutual Benefit Administrators abused its discretion in limiting disability benefits for Plaintiff, disabled by a severe, systemic yeast infection (systemic candidiasis or candida), on that basis that it qualified as chronic pain or a fatigue-related illness under the insurance plan, which limits coverage for such disabilities to twelve months. DMBA unreasonably interprets the Plan where it takes the position that the 12-month limitation applies as long as the primary symptoms of an illness are pain and fatigue. Court interprets provision as allowing employees Plan benefits while they seek a diagnosis for their pain or fatigue in the event the employee’s pain or fatigue is caused by a condition not limited to twelve months of coverage. Black vs. Deseret Mutual Benefit Administrators, No. 2:15-CV-00695-TC, 2016 WL 5173246 (D. Utah Sept. 21, 2016) (Judge Tena Campbell).
- Granting motion for judgment to Aetna where denial of long term disability benefits was supported by hired consultants who only did paper reviews of the claim and where sufficient medical evidence supported the decision. Plaintiff’s gastroenterologist made no determination that Plaintiff was disabled, Plaintiff’s endocrinologist concluded that Plaintiff’s diabetes was not disabling and that her diabetes was stable, and Plaintiff’s one doctor who claimed that she was disabled noted in a phone call with a reviewing doctor that he did not consider Plaintiff to be disabled. Kendrick v. Aetna Life Insurance Company, No. CV415-074, 2016 WL 5024223 (S.D. Ga. Sept. 16, 2016) (Judge William T. Moore).
Exhaustion of Administrative Remedies
- Motion for summary judgment on the basis of failure to exhaust is denied where the plan itself does not include a 180-day limit for filing an appeal. The 180-day timeframe set forth in the denial letter cannot become binding policy provisions. Even if the 180-day limitation was included in the Summary Plan Description, the terms of the SPD cannot be enforced under ERISA Section 502(a)(1)(B) as the terms of the plan itself. Hughes v. Life Ins. Co. of N. Am., No. CV 15-2941, 2016 WL 5231811 (E.D. La. Sept. 22, 2016) (Judge Eldon E. Fallon).
- Following persuasive authority from the Eleventh, Second, and Seventh Circuits, finding that Plaintiff reasonably interpreted the Plan to not require a second level of appeal, where the Plan terms are ambiguous as to whether Plaintiff was required to pursue a second level of appeal before filing suit. Section XV begins with the language that a plan participant who “wishes” to formally appeal “may do so,” whereas, the first step in the appeal process is described in mandatory terms: “[a] written appeal must be sent” within 180 days after receipt of notice of an Adverse Benefits Determination. Lecates v. Blue Cross Of Idaho, No. 3:15-CV-00072-CWD, 2016 WL 4974950 (D. Idaho Sept. 16, 2016) (Magistrate Judge Candy W. Dale).
Life Insurance & AD&D Benefit Claims
- Following the exhaustion of FMLA leave, neither LINA, the Plan, nor WellStar issued a notice of termination of life insurance coverage or a formal conversion notice such that the insured could assume payment of the requisite premiums. LINA paid the insured $250,000 on his Terminal Illness Benefit claim and suggested in a letter that he continued to have coverage. Because plan benefits are conditioned upon payment of premiums, and premiums were not paid at the time of passing, LINA and the Plan are entitled to judgment as a matter of law on the Section 502(a)(1)(B) claim. However, neither party established entitlement to judgment as a matter of law on whether LINA’s letter contained latent misrepresentations/material omissions or as to whether WellStar’s actions amount to the requisite notice of conversion rights. Erwood v. Life Ins. Co. of N. Am., No. CV 14-1284, 2016 WL 4945320 (W.D. Pa. Sept. 16, 2016) (Magistrate Judge Maureen P. Kelly).
- In life insurance dispute, wherein Plaintiff alleges that Defendant failed to properly review relevant information and that Defendant’s decision-making process did not provide Plaintiff with a full and fair review, granting Plaintiff’s motion to supplement the administrative record with (i) the office of the Medical Examiner Amendment Report and (ii) the final investigative report prepared on behalf of Plaintiff, including witness statements. Carlson v. Reliance Standard Life Insurance Company, No. 3:15-0200, 2016 WL 4993381 (M.D. Tenn. Sept. 19, 2016) (Magistrate Judge Barbara D. Holmes).
- In matter where Additional Term Insurance expired on September 28, 1995 and the insured died on January 14, 2015, the Section 502(a)(1)(B) claim is barred by the six year statute of limitations. Equitable estoppel does not apply because Plaintiffs do not allege that the Policy is ambiguous or that Defendant made representations to them regarding an ambiguous provision. Because Plaintiffs’ Section 502(a)(1)(B) and Section 502(a)(3) claims are supported by the same factual allegations, they cannot bring their claims based on Section 502(a)(3) because they have an adequate remedy available elsewhere in ERISA’s statutory framework. Kirby v. Am. United Life Ins. Co., No. 4:16-CV-776-VEH, 2016 WL 5118265 (N.D. Ala. Sept. 21, 2016) (Judge Virginia Emerson Hopkins).
Medical Benefit Claims
- Finding that the illegal act exclusion in the Plan must be read in light of Idaho law. The exclusion for expenses incurred “for the treatment of injuries sustained while…engaging in an illegal act” is unambiguous, because the phrase “engaging in an illegal act” refers to acts that the Idaho legislature has deemed contrary to law. The blood test results do not meet the legal requirement to support a conclusion of illegal intoxication under Idaho law so Blue Cross abused its discretion in denying LeCates’s claim for medical benefits. Lecates v. Blue Cross Of Idaho, No. 3:15-CV-00072-CWD, 2016 WL 4974950 (D. Idaho Sept. 16, 2016) (Magistrate Judge Candy W. Dale).
Pension Benefit Claims
- Denying petition for panel rehearing and rehearing en banc of holding that where a participant has made a prima facie case that he is entitled to pension benefits under the plan but lacks access to information needed to substantiate claim and the defendant controls such information, the burden shifts to the defendant to produce this information. In the dissenting opinion, Judge Smith laments that the majority “invents an unprecedented burden-of-proof standard that only it seems to have had the foresight to impose on plan administrators. … Why have the Supreme Court and our circuit mandate standards of review if judges can ignore them at any time they are so inclined? Our circuit has inexplicably turned its back on the principle of stare decisis in this case. From this time forward, can each panel decide the law on its own, provided enough active judges are willing to live with it?” Estate of Barton v. ADT Sec. Servs. Pension Plan, No. 13-56379, __F.3d__, 2016 WL 5030341 (9th Cir. Sept. 20, 2016) (Before Kozinski, Ikuta, and Owens).
- Denying motion to remand breach of contract action in state court because the benefits plan at issue is governed by ERISA. There is no evidence that Saint Louis University or SLU hospital is controlled by the Catholic Church, so the plan at issue cannot be considered a church plan under 29 U.S.C.A. § 1002(33)(A). Applying the three-factor test from Chronister, the plan at issue is not a church plan. There is no evidence that SLU or its hospital receives financial support from the Catholic Church, or that the Catholic Church governs or approves board members for SLU or the hospital. Additionally, there is a denominational requirement for SLU and the hospital. Walsh v. Mutual of Omaha Ins. Co., No. 4:16 CV 800 RWS, 2016 WL 5076197 (E.D. Mo. Sept. 20, 2016) (Judge Rodney W. Sippel).
Pleading Issues & Procedure
- Quad’s challenge to the 2012 withdrawal liability assessment does not present a live case or controversy. Although Quad’s challenge to the request for information does present a live case or controversy, that challenge is the mirror image of the GCIU-Employer Retirement Fund’s action to enforce the request for information, which is pending in the Central District of California. Granting motion to dismiss and declining to hear request for declaratory relief when there is a mirror-image claim for “coercive” relief pending. Quad/Graphics, Inc., V. GCIU-Employer Retirement Fund, No. 16-C-0033, 2016 WL 5121758 (E.D. Wis. Sept. 20, 2016) (Judge Lynn Adelman).
- To seek judicial review of an arbitrator’s decision under the MPPAA, a party must bring an action in court, commenced by filing a complaint. The Pension Fund’s “Petition to Vacate” was not styled a “complaint,” but the court will construe it as a complaint and subject to Rule 4(m)’s time frame for service of process. Given the lack of guidance from courts on the proper procedure for seeking judicial review of an arbitrator’s decision under the MPPAA, there is good cause to extend the time frame for service of process under Rule 4(m). In the Matter of the Arbitration Between Genz-Ryan Plumbing & Heating Co. v. Sheet Metal Workers’ Local 10, Pension Fund, No. CV 16-280 (DWF/SER), 2016 WL 5107074 (D. Minn. Sept. 19, 2016) (Judge Donovan W. Frank).
- Dismissing ERISA § 510 claim based on Prudential’s alleged threats to initiate legal action in an attempt to dissuade Plaintiff from seeking further benefits because controlling jurisprudence from the Fifth Circuit clearly states that a valid § 510 claim requires an employment relationship, and there was no such relationship between Prudential and Plaintiff. Manuel v. Turner Indus. Grp., LLC, No. CV 14-599-SDD-RLB, 2016 WL 5349446 (M.D. La. Sept. 23, 2016) (Judge Shelly D. Dick).
Statute of Limitations
- Finding that Plaintiff cannot avail herself of the exceptional remedy of equitable tolling of claims for benefits and breach of fiduciary duty, where there was no tolling agreement and Plaintiff relied on a good faith belief that an on-the-record understanding had been reached to dismiss the prior federal case without prejudice, appeal the state court decision, and if the appeal was successful, re-file in federal court. Guo v. IBM 401(k) Plus Plan, No. 13-CV-8223 (KMK), 2016 WL 4991666 (S.D.N.Y. Sept. 15, 2016) (Judge Kenneth M. Karas).
- In matter where LINA had paid LTD benefits but then terminated the claim, finding that the three-year contractual limitation period started, at the earliest, on September 12, 2012, the date Plaintiff was informed that his appeal had been closed. The present suit was timely filed. Hughes v. Life Ins. Co. of N. Am., No. CV 15-2941, 2016 WL 5231811 (E.D. La. Sept. 22, 2016) (Judge Eldon E. Fallon).
- Certifying the following question for interlocutory appeal pursuant to 28 U.S.C. 1292(b): Whether the terms of an ERISA Plan requiring a plan participant to reimburse the Plan in full without reduction for attorney’s fees preempts or supersedes a claim brought by a third party attorney against the Plan for unjust enrichment under the common fund doctrine where the Plan has been reimbursed in full by the plan beneficiary. UnitedHealth Grp. Inc. v. MacElree Harvey, Ltd., No. CV 16-1026, 2016 WL 5239675 (E.D. Pa. Sept. 21, 2016) (Judge C. Darnell Jones, II).
- Plaintiffs’ breach of contract claim against Defendant based on health plan’s subrogation and reimbursement terms must be dismissed because the breach of contract claim is a legal remedy that is not available under ERISA’s equitable recovery scheme. And, because the contract claim requires interpretation of the ERISA plan, the claim is preempted. com LLC v. Monson, No. CV-16-0948-PHX-DKD, __F.Supp.3d__, 2016 WL 5109906 (D. Ariz. Sept. 20, 2016) (Judge David K. Duncan).
Withdrawal Liability & Unpaid Contributions
- Denying motion to dismiss in delinquent contributions matter where a fiduciary moved to dismiss the fiduciary duty claim against him on the basis that the terms of an earlier settlement agreement, plaintiffs waived their right to proceed against him, and that the Amended Complaint fails to state a claim for breach of fiduciary duty. Trustees of the New York City Dist. Council of Carpenters Pension Fund v. Metro. Enterprises, Inc., No. 16 CIV. 284 (PAE), 2016 WL 5334982 (S.D.N.Y. Sept. 22, 2016) (Judge Paul A. Engelmayer).
- Denying Plaintiff’s motion for partial summary judgment with leave to renew following an evidentiary hearing before Magistrate Judge Locke on the issue of fraud in the execution, and specifically whether defendant Angelo Stanco had a reasonable opportunity to read the Assumption Agreement prior to execution. Trustees of the United Plant v. Am. Paving & Masonry Corp., No. 15CV1223SJFSIL, 2016 WL 4991542 (E.D.N.Y. Sept. 15, 2016) (Judge Feuerstein).
- Defendant is entitled to dismissal under Fed. R. Civ. P. 12(b)(6) for failure to state a claim where the complaint does not allege any of the “facts” supposedly contained in Ex. E that arguably establish Defendant’s identity as a “successor employer.” Rule 8 requires every factual allegation to be explicitly included among the numbered paragraphs of the complaint. Local 109 Board Of Trustees Of The Operative Plasterers And Cement Masons Pension Fund v. All American Acoustic And Drywall, Inc., No. 5:15-CV-2361, 2016 WL 5232828 (N.D. Ohio Sept. 22, 2016) (Judge Sara Lioi).
- Granting unopposed motion for summary judgment in favor of the Plaintiffs in the amount of $65,704.95, (Delinquent Fringe Benefits: $51,642.57; Liquidated Damages: $10,036.25; Interest: $4,026.13), plus attorneys fees and costs. Cleveland Bakers and Teamsters Health and Welfare Fund, et al., v. Pincus Bakery, Inc., No. 1:15 CV 2349, 2016 WL 5231809 (N.D. Ohio Sept. 21, 2016) (Judge Donald C. Nugent).
- Granting Plaintiffs’ motion for civil contempt as to defendant J L Brown Contracting Service, Inc. for failure to comply with the October 6, 2015, order directing it to produce its records for inspection by Plaintiffs. Greater St. Louis Construction Laborers Welfare Fund, et al. v. J L Brown Contracting Service, Inc., No. 4:15-CV-960-CEJ, 2016 WL 5076189 (E.D. Mo. Sept. 20, 2016) (Judge Carol E. Jackson).
- Ordering final judgment immediately in favor of Plaintiffs: 1) against Dynamic as to Counts I and IV and against Aguinaldo as to Count II, in the amount of $18,349.75, pursuant to the February 3, 2015 Order Adopting Magistrate Judge’s Findings and Recommendation and the instant Order; and 2) against Dynamic and Aguinaldo as to the civil contempt sanction, in the amount of $2,294.88, pursuant to the May 26, 2016 Order Granting in Part and Denying in Part Plaintiffs’ Request for Sanctions Against Defendant Dynamic Interiors LLC and the instant Order. Hawaii Masons’ Health & Welfare Fund, Etc. v. Dynamic Interiors, LLC, No. 14-00434 LEK-RLP, 2016 WL 5219453 (D. Haw. Sept. 20, 2016) (Judge Leslie E. Kobayashi).
* 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. If you have questions about how the developing law impacts your ERISA benefit claim, contact an experienced ERISA attorney. Case summaries authored by Michelle L. Roberts, Partner, Kantor & Kantor LLP, 1050 Marina Village Pkwy., Ste. 105, Alameda, CA 94501; Tel: 510-992-6130.