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ERISA Watch – Class-Wide Equitable Relief May Be Awarded Absent Individualized Proof of Detrimental Reliance

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This week’s notable decision is a good one on the current state of ERISA remedies.  In Osberg v. Foot Locker, Inc., Foot Locker Retirement Plan, No. 15-3602-CV, __F.3d__, 2017 WL 2871358 (2d Cir. July 6, 2017).  Foot Locker and the Foot Locker Retirement Plan appealed from a judgment entered by the district court following a two-week bench trial, where the district court held that Foot Locker violated ERISA §§ 102 and 404(a) by, inter alia, failing to disclose “wear-away” caused by Foot Locker’s introduction of a new employee pension plan.  Invoking its equitable power under ERISA § 502(a)(3), the district court ordered reformation of the plan to conform to the plan participants’ reasonably mistaken expectations, which the district court found to have resulted from Foot Locker’s materially false, misleading, and incomplete disclosures.  Defendants do not challenge the district court’s determination of their ERISA violations; rather, they complain “that the district court erred by:  (1) awarding relief to plan participants whose claims were barred by the applicable statute of limitations; (2) ordering class-wide relief on participants’ § 404(a) claims without requiring individualized proof of detrimental reliance; (3) concluding that mistake, a prerequisite to the equitable remedy of reformation, had been shown by clear and convincing evidence as to all class members; and (4) using a formula for calculating relief that resulted in a windfall to certain plan participants.”  The Second Circuit Court of Appeals rejected each of the above challenges and affirmed the district court’s judgment for the following reasons.

First, on the question of timeliness of the § 102 claims, the court adopted the Novella framework and asks whether a participant would have had enough information to assure that he knew or reasonably should have known of the existence of wear-away at the time that the participant received the lump sum payment.  The court declined to start the statute of limitations clock running at the time of the lump sum payment given that the materials designed by Foot Locker concealed “the very phenomenon that Defendants now argue should have been ‘readily discoverable.’”   On the timeliness of the § 404(a) claims, the court, determined that the concealment exception applies in this case and the claims are timely because they were brought within six years of their discovery in 2005.

Second, on the issue of individualized proof of detrimental reliance, the court held that Defendants’ arguments are foreclosed by the Supreme Court’s reasoning in CIGNA Corp. v. Amara (“Amara I”), 563 U.S. 421 (2011).  Where a plaintiff alleges a violation of § 404(a) and seeks plan reformation under § 502(a)(3), he or she need not show detrimental reliance.  Thus, the district court correctly declined to require such a showing before granting class-wide relief.

Third, on the issue of mistake, the court found that an ERISA contract may be reformed where one party is mistaken and the other commits fraud or engages in inequitable conduct.  Here, it is sufficient for Plaintiffs to show ignorance of a contract’s terms through generalized circumstantial evidence where Defendants have made uniform misrepresentations about an agreement’s contents and have undertaken efforts to conceal its effect.  The district court did not err in concluding that class-wide mistake was demonstrated by clear and convincing evidence.

Lastly, the court did find theoretically appealing Defendants’ arguments that the district court’s award of equitable relief should have been tailored to account for the fact that certain participants experienced little to no wear-away, but, given the review for abuse of discretion or clear error of law, the Second Circuit concluded that the district court’s award of benefits to all participants did not fall outside the range of permissible decisions available.

There you have it ERISA Watchers!  Amara at its finest.  Enjoy a quick skim of the rest of this past week’s notable decisions.

Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.

Class Actions

Ninth Circuit

Schwartz v. Cook, No. 15-CV-03347-BLF, 2017 WL 2834115 (N.D. Cal. June 30, 2017) (Judge Beth Labson Freeman).  In this ESOP breach of fiduciary duty case, the court finally approved a $350,000 settlement which represents approximately $6.00 per share before attorneys’ fees and expenses are deducted and approximately $3.61 per share after deduction. The court received only one objection to the settlement by the former CEO who believes the company is worth more.  The court approved attorneys’ fees of $115,500 and reimbursement of expenses of $25,000.

Disability Benefit Claims

Fourth Circuit

Everette v. Liberty Life Assurance Company of Boston, No. CV TDC-16-1248, 2017 WL 2829673 (D. Md. June 29, 2017) (Judge Theodore D. Chuang).  The court granted judgment in favor of Liberty Life, finding that it was not unreasonable for Liberty to accord only limited to weight to the report of a physician’s assistant, a Functional Capacity Evaluation, and the statements of Plaintiff and her family and friends and greater weight to the evaluations of the medical records by two independent physicians, particularly where Plaintiff’s treating physicians offered no contrary interpretation of the records.

Eighth Circuit

Cooper v. Metro. Life Ins. Co., No. 16-3429, __F.3d__, 2017 WL 2853729 (8th Cir. July 5, 2017) (Before WOLLMAN and LOKEN, Circuit Judges, and NELSON, District Judge).  The court affirmed the district court’s grant of summary judgment in favor of MetLife in this dispute over the denial of long-term disability benefits.  Specifically, the court held that:  (1) only minimal weight to MetLife’s conflict of interest applied based on its dual role as both evaluator and payor of benefits claims; (2) the district court did not abuse its discretion in excluding physician affidavits from the record that were proffered by Plaintiff to challenge the accuracy of the consulting physician’s report; (3) crediting the consulting physician’s opinion that participant was not objectively disabled over a competing assessment by the treating physician was not arbitrary; and (4) the alleged error by MetLife in denying benefits by allowing a nurse with unspecified training to decide medical importance of Plaintiff’s lab tests was harmless.

Eleventh Circuit

Abston v. Sedgwick Claims Mgmt. Servs., Inc., No. 3:16-CV-00037-AKK, 2017 WL 2834059 (N.D. Ala. June 30, 2017) (Judge Abdul K. Kallon).  In this matter where Plaintiff suffers from lupus, psoriasis, arthritis, and fibromyalgia, the court found that Sedgwick’s decision to deny Plaintiff’s long term disability benefits was de novo correct and not an abuse of discretion.  The court rejected Plaintiff’s argument that Sedgwick failed to consider the entirety of her social security file and did not afford appropriate weight to the opinions of her treating doctor.  The court explained that the approval of Social Security benefits is not conclusive on whether a claimant is also disabled under the terms of an ERISA plan.  In addition, plan administrators do not need to accord special weight to the opinions of a claimant’s physician, nor may courts impose on plan administrators a discrete burden of explanation when they credit reliable evidence that conflicts with a treating physician’s evaluation.

ERISA Preemption

Eleventh Circuit

Hialeah Anesthesia Specialists, LLC v. Coventry Health Care of Florida, Inc., No. 16-CV-25194, 2017 WL 2821504 (S.D. Fla. June 29, 2017) (Judge Darrin P. Gayles).  The court granted Plaintiff’s motion to remand after applying the Connecticut State Dental test since the parties’ dispute is wholly over the rate of payment and falls outside the scope of section 502(a) of ERISA.

Exhaustion of Administrative Remedies

Sixth Circuit

Aviation West Charters, LLC v. United Healthcare Insurance Company, et al., No. 1: 16 CV 210, 2017 WL 2838474 (N.D. Ohio June 30, 2017) (Judge Donald C. Nugent).  In this dispute between a provider and insurance company of the payment of air ambulance services, the court found that United failed to comply with the time limits for appeals and wrongly failed to consider Angel MedFlight’s second appeal materials.  Under the terms of the Plan a “second level appeal request must be submitted within 180 days from receipt of the first level appeal decision.”  The time for appeal is measured from the day Angel MedFlight received the first level appeal decision.  Although the record does not show when Angel MedFlight received the decision, since it was sent by first class mail, it was probably received by Angel MedFlight within the usual delivery time of up to 3 business days.  180 days from the assumed receipt date means that the submission of the second level appeal was timely.  Case remanded to Defendant to consider the second appeal.

Life Insurance & AD&D Benefit Claims

Third Circuit

Prudential Ins. Co. of Am. v. White, No. 1:16-CV-1094, 2017 WL 2834459 (M.D. Pa. June 29, 2017) (Judge Yvette Kane).  In this dispute over life insurance proceeds where the named beneficiary is alleged to have murdered the insured and her next of kin in the same incident, and there is a question as to whether ERISA preempts state simultaneous death statutes, the court found that Prudential’s Interpleader Complaint is properly brought and that Prudential should be discharged from future liability after payment of the proceeds of the Death Benefit into the Court’s Registry.

Fourth Circuit

Collins v. Unum Life Ins. Co. of Am., No. 16-1636, __F.App’x__,  2017 WL 2875159 (4th Cir. July 6, 2017) (Before GREGORY, Chief Judge, and NIEMEYER, and HARRIS, Circuit Judges).  The insured was a 17-year Veteran who served in dangerous and stressful situations and suffered from PTSD, Major Depressive Disorder, Generalized Anxiety Disorder, and chronic traumatic encephalopathy.  He was found dead in his car with a gunshot wound to his head and his death was ruled to be a suicide.  The court affirmed the district court’s order granting summary judgment to Unum and held that Unum reasonably interpreted the life insurance policy’s suicide exclusion to encompass insane suicide.

Eleventh Circuit

Metropolitan Life Insurance Company v. Waddell, No. 16-15321, __F.App’x__, 2017 WL 2874514 (11th Cir. July 6, 2017) (Before HULL, JULIE CARNES, and JILL PRYOR, Circuit Judges).  The court affirmed the district court’s determination in this interpleader action that the life insurance proceeds are payable to the insured’s surviving spouse since there was no beneficiary designation on file and she was first in line.  The insured’s son produced a beneficiary designation form that the insured allegedly signed eleven days before his death and which named the son as a beneficiary, but there was no evidence the insured submitted the form to MetLife before his death.

Medical Benefit Claims

Eighth Circuit

Hillenbrand v. Wellmark of South Dakota, Inc., No. 5:16-CV-05007-KES, 2017 WL 2821544 (D.S.D. June 29, 2017) (Judge Karen E. Schreier).  In this case involving unpaid claims for treatment of Lyme disease, the court found that Wellmark’s decisions on the 26 internal appeals were based on a reasonable interpretation of the Plan and were supported by substantial evidence.  The court granted Wellmark’s motion for summary judgment.

Pleading Issues & Procedure

Ninth Circuit

Daley v. Lockheed Martin Corp., No. 16-CV-07107-LHK, 2017 WL 2834130 (N.D. Cal. June 30, 2017) (Judge Lucy Koh).  The court granted Defendants’ motion to dismiss Plaintiff’s First Amended Complaint because although Plaintiff states in her opposition that she is alleging a claim under Section 404 of ERISA for breach of fiduciary duty, Plaintiff’s FAC does not contain any citation or reference to ERISA; and, even assuming that Plaintiff’s FAC adequately referenced ERISA, it is nonetheless deficient because Plaintiff fails to plausibly allege an ERISA claim.  The FAC does not contain any allegations that Defendants are fiduciaries or that they injured the Plan or Plan assets.

Remedies

Second Circuit

Osberg v. Foot Locker, Inc., Foot Locker Retirement Plan, No. 15-3602-CV, __F.3d__, 2017 WL 2871358 (2d Cir. July 6, 2017) (Before: WINTER, CABRANES, and LYNCH, Circuit Judges).  The court affirmed the district court’s award of equitable relief for Defendants’ violations of §§ 102 and 404(a) of ERISA.  The court considered and rejected Defendants’ arguments that the district court erred by: (1) awarding relief to plan participants whose claims were barred by the applicable statute of limitations; (2) ordering class-wide relief on participants’ § 404(a) claims without requiring individualized proof of detrimental reliance; (3) concluding that mistake, a prerequisite to the equitable remedy of reformation, had been shown by clear and convincing evidence as to all class members; and (4) using a formula for calculating relief that resulted in a windfall to certain plan participants.

Statutory Penalties

Fourth Circuit

Everette v. Liberty Life Assurance Company of Boston, No. CV TDC-16-1248, 2017 WL 2829673 (D. Md. June 29, 2017) (Judge Theodore D. Chuang).  The court denied Plaintiff’s claim for statutory penalties under 29 U.S.C. § 1132(c) because of Liberty’s alleged failure to produce its claim notes in a timely manner.  Upon consideration of an affidavit from Paula McGee (Liberty Life Litigation Manager) and examination of the claim notes, the court declined to exercise its discretion to impose a statutory penalty because there was no prejudice or bad faith.

Subrogation/Reimbursement Claims

Eleventh Circuit

Cannella v. Boone, No. 5:15-CV-258 (MTT), 2017 WL 2872423 (M.D. Ga. July 5, 2017) (Judge Marc T. Treadwell).  The court dismissed the Trustees’ ERISA claim against Plaintiff, a widow who allegedly continued to receive her late husband’s monthly pension payments for 22 months, since the record does not demonstrate that any of the pension funds remain or that there are any traceable proceeds.  The Trustees acknowledged at the hearing that there is no meritorious claim for an ERISA remedy based on Montanile v. Board of Trustees of National Elevator Industry Health Benefit Plan, 136 S. Ct. 651 (2016).

 

 

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