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ERISA Watch – December 31, 2014

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Your reliable source for summaries of recent ERISA decisions


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

Second Circuit

Claim seeking surcharge remedy for employer’s misrepresentation about long-term disability benefits will go to trial

In D’Iorio v. Winebow, Inc., No. 12-CV-1205 ADS ARL, __F.Supp.3d___, 2014 WL 7335466 (E.D.N.Y. Dec. 26, 2014), Plaintiff claims that Defendant breached a fiduciary duty to her because Defendant (i) failed to provide the Plaintiff with a Summary Plan Description (“SPD”); and (ii) made misrepresentations regarding the Plaintiff’s benefits under its LTD Plan. The dispute centered on the fact that Defendant’s LTD policy did not include commissions in the disability benefit calculation, which caused Plaintiff’s disability benefit to be a much smaller percentage of her total compensation. The court previously dismissed Plaintiff’s ERISA § 502(c)(1) claim and Plaintiff’s only remaining cause of action is its claim pursuant to ERISA § 502(a)(3) seeking a “surcharge” remedy. Defendant filed a motion arguing that there are no genuine issues of fact, and it is entitled to judgment as a matter of law on both of Plaintiff’s theories of liability. In the alternative, Defendant sought an order pursuant to Fed.R.Civ.P. 56(g) limiting Plaintiff’s relief.

The Court found that even if Plaintiff had access to the SPD for its long-term disability policy on its intranet, Defendant would not be entitled to judgment as a matter of law on Plaintiff’s claim that Defendant breached its fiduciary duty by violating the disclosure provisions of ERISA § 104(b)(1)(A). Although Defendant can disclose SPDs to its employees through “electronic media,” it must have taken “appropriate and necessary measures reasonably calculated to ensure … actual receipt of transmitted information.” 29 C .F.R. § 2520.104b-1(b)(1). Here, the court found nothing in the record to suggest that Defendant took any action to confirm that its employees were able to obtain the SPD on its internal website. As such, the court could not find that as a matter of law that Defendant is entitled to judgment based solely on the fact that Defendant uploaded the SPD to its intranet.

The court rejected Defendant’s argument that even if it did not satisfy its disclosure obligations under ERISA, Plaintiff cannot show that she was prejudiced by Defendant’s failure because she did not exercise due diligence in trying to understand her benefits before she began her disability leave. The court found that there is conflicting evidence as to whether Plaintiff was put on notice of Defendant’s policy that monthly benefits under the LTD Plan did not include an employee’s commissions. In particular, under Defendant’s LTD Plan in place from 2002 through 2008, commissions were included in the monthly benefit calculation. Therefore, it would be reasonable to infer that Plaintiff would not have known that the policy changed in 2009 without receiving an SPD or being told directly of a change in the policy. Accordingly, the court denied Defendant’s motion with respect to Plaintiff’s ERISA § 502(a)(3) claim that the Defendant violated the disclosure requirements in ERISA § 104(b)(1)(A).

With respect to the alleged misrepresentation claim, the court found that: 1) Defendant can be held liable as a fiduciary under ERISA for alleged misrepresentations made in a PowerPoint presentation at a meeting intended to provide information to employees about future benefits; 2) a statement in the PowerPoint presentation regarding monthly benefits under the LTD plan was misleading and therefore can subject the Defendant to liability under ERISA; and 3) Plaintiff demonstrated a genuine issue of material fact as to whether she could have raised her draw to an amount high enough that she would have received greater monthly payments under the LTD Plan, and thus, detrimentally relied on Defendant’s representation in its PowerPoint presentation relating to the LTD Plan.

With respect to Defendant’s motion limiting damages, the court concluded that, as a matter of law, Plaintiff is entitled under a surcharge theory to consequential damages, exemplary, or punitive damages in limited circumstances where malice or fraud is involved. However, the court noted that Plaintiff will have a difficult burden proving that she is entitled to damages for future payments under the LTD Plan because it is not possible to determine what Plaintiff’s payments under the LTD plan will be in the future as she is only eligible for benefits under the Plan so long as she is disabled, and if her condition improves, she may no longer be eligible to participate in the Plan. Moreover, there are no facts before the court that suggest that Defendant acted maliciously in these matters warranting punitive damages. The court found that such questions should be left to the factfinder at trial and not resolved on summary judgment. Accordingly, the court denied Defendant’s motion as to Plaintiff’s damages.

Sixth Circuit

Sun Life’s denial of death benefit was arbitrary and capricious when death occurred within conversion period. In Tonguette v. Sun Life & Health Ins. Co. (U.S.), No. 14-3095, __Fed.Appx.___, 2014 WL 7243337 (6th Cir. Dec. 22, 2014), the 6th Circuit reversed and remanded the district court’s judgment in favor of Sun Life in a dispute involving denial of life insurance benefits when the decedent died within a 91-day period to convert group coverage to an individual policy. The Plan provides that a “Claim may be made for a death benefit if you die during the 31 day period during which your insurance may be converted to an individual policy.” Sun Life interpreted the Plan to deny benefits since the decedent died after the first 31 days following his coverage under the Plan. However, when a participant is not informed of his conversion option, the conversion period extends to 91 days. The decedent died before the end of the 91st day and his beneficiary argued that life benefits should be payable although the decedent had not converted his coverage. The court found that when read in the broader context of the plan, there are two significant reasons to favor Plaintiff’s reading of the disputed language, and none to favor Sun Life’s. The court also found that Sun Life lacked discretion to reject Plaintiff’s interpretation of the disputed language here.

Seventh Circuit

Termination of less than 20% of plan participants does not constitute a partial termination of a defined-contribution pension plan. In Matz v. Household Int’l Tax Reduction Inv. Plan, No. 14-1683, __F.3d___, 2014 WL 7331081 (7th Cir. Dec. 24, 2014), a class action that was filed nearly 19 years ago, the suit claims that a defined-contribution ERISA pension plan in which the employer matched contributions that its employees made was partially terminated. The court considered the issue of whether a termination of some plan participants (as by terminating their employment) amounted to a partial termination of the plan, thereby requiring full vesting of plan benefits in the terminated plan participants. In its 2004 opinion, the court adopted “a rebuttable presumption that a 20 percent or greater reduction in plan participants is a partial termination and that a smaller reduction is not …. [But] we assume … that there is a band around 20 percent …. A generous band would run from 10 percent to 40 percent. Below 10 percent, the reduction in coverage should be conclusively presumed not to be a partial termination; above 40 percent, it should be conclusively presumed to be a partial termination.” The Internal Revenue Service subsequently adopted the court’s suggested 20 percent presumption, but has not specified a percentage below which there would be a conclusive presumption that no partial termination had occurred. The district judge decided that the series of reductions in the number of plan participants did not amount to a restructuring plan and should not be considered a single partial termination. The court noted that even if all the terminations were deemed to constitute a single termination, the percentage terminated would be only 17 percent, still below the 20 percent cutoff and with no justification shown for waiving it. The court affirmed the district court’s judgment dismissing the action and awarding costs to Defendants.

In Roe v. Empire Blue Cross Blue Shield, No. 14-1759-CV, __Fed.Appx.___, 2014 WL 7271941(2d Cir. Dec. 23, 2014), the 2nd Circuit affirmed the district court’s judgment dismissing Plaintiffs’ claims for discrimination and breach of fiduciary duty pursuant to Sections 510 and 404, respectively, and denying Plaintiffs’ motion for a preliminary injunction. The court found Plaintiffs have failed to adequately allege any right to which they are entitled or may become entitled under the plan at issue with respect to which defendants discriminated against them or with which Defendants otherwise interfered. The court also found Plaintiffs have not adequately alleged that Defendants were acting in a fiduciary capacity or that they breached any fiduciary duty under ERISA.

Eighth Circuit

Pre-existing condition limitation bars claim for “buy-up” long-term disability benefits. In Brake v. Hutchinson Tech. Inc. Grp. Disability Income Ins. Plan, No. 13-3421, __F.3d___, 2014 WL 7345692 (8th Cir. Dec. 29, 2014), the 8th Circuit affirmed the district court’s decision finding that Hartford did not abuse its discretion in allowing regular core-plan long-term disability benefits but denying buy-up benefits due to the pre-existing condition provision. Here, Plaintiff was insured under the core plan (which provided benefits of up to 50% of an employee’s monthly earnings), but on April 1, 2007, purchased an option for “buy-up” coverage (which provided benefits of up to 70% of monthly income). The buy-up provisions contained a pre-existing condition limitation which excluded buy-up coverage for a particular disability if medical treatment for that condition was rendered within twelve months prior to the effective date of the buy-up coverage. The pre-existing limitation dropped off after the buy-up coverage was in existence for a year without a disability claim. Plaintiff was treated for her MS condition between April 1, 2006 and April 1, 2007, and then became disabled as a result of her MS prior to April 1, 2008. The Plan determined that the pre-existing condition exclusion limited Plaintiff’s benefits to the core plan coverage.

Plaintiff argued that a South Dakota Department of Insurance administrative ruling, which states in part that “[a] discretionary clause is not permitted in any individual or group health policy,” negates the discretionary language in the plan and mandates a de novo standard of review. The plan states that it is governed by the laws of Minnesota, when applicable and not otherwise governed by federal ERISA law. The court found nothing unreasonable or fundamentally unfair about enforcing the plan’s Minnesota choice-of-law provision because the policy was written for a Minnesota corporation and was issued to Hutchinson in Minnesota. Further, the administrative ruling only applies to policies issued or renewed after June 30, 2008, well after all of the relevant events that occurred in the instant case. Accordingly, the court applied the abuse-of-discretion standard of review.

Plaintiff argued that although her disability arose out of a pre-existing condition, she is not excluded from buy-up plan coverage because as a long-term employee of Hutchinson, she was vested in all her rights under the regular long-term disability plan, and was effectively “grandfathered” in to coverage for the buy-up plan. The court rejected this argument and found that a policy provision providing plan participants credit for time spent satisfying a similar pre-existing condition limitation under a “prior policy” did not apply to the buy-up plan, which also contained a window of pre-existing condition limitations.

Ninth Circuit

Liberty Life did not abuse its discretion in denying long-term disability benefits. In Sethi v. Seagate U.S. LLC Grp. Disability Income Plan, No. 12-17215, __Fed.Appx.___, 2014 WL 7272969 (9th Cir. Dec. 23, 2014), the 9th Circuit affirmed the district court’s grant of summary judgment to the Plan on Plaintiff’s claims for long-term disability benefits. The court found that Liberty Life did not abuse its discretion by denying benefits without addressing decisions made in her workers’ compensation case and relying on its vocational expert who did not conduct a personal interview. The court also found that Liberty did not abuse its discretion by denying benefits without further clarifying an ambiguous doctor’s report where the doctor found Plaintiff currently capable of sedentary work. The court further found that Liberty did not abuse its discretion by terminating Plaintiff’s benefits even though she was scheduled to participate in a functional restoration program authorized by workers’ compensation. Even if the district court abused its discretion by denying Plaintiff’s request to conduct discovery into Liberty Life’s structural conflict of interest, the court found that any error was harmless.

Tenth Circuit

Attorneys’ fees motion cannot be construed as a Rule 59 motion that extends 30-day deadline for filing a notice of appeal. Trustees of Eighth Dist. Elec. Pension Fund v. Wasatch Front Elec. & Const., LLC, No. 13-4093, __Fed.Appx.___, 2014 WL 7240058 (10th Cir. Dec. 22, 2014) involved a suit brought by a union and trustees of a pension fund against three electrical companies and one of their owners for failing to make payments required under collective bargaining agreements and ERISA. The district court granted summary judgment to Defendants, holding that the claims were precluded by res judicata because of a prior suit brought by the union. The trustees and the union appealed the summary judgment ruling, but did so out of time. The court rejected Appellants’ argument that the motion for attorneys’ fees could not be construed as a Rule 59 motion that extends the 30-day deadline for filing a notice of appeal pursuant to Fed. R.App. P. 4(a)(1)(A). The district court also granted $134,078.90 in costs and attorneys’ fees to Defendants. The union and the trustees argued that the court should not have assessed any attorneys’ fees and the Defendants conceded the union’s challenge. The court held that the district court acted in its discretion to award fees against the trustees.

Eleventh Circuit

Long-term disability benefit denial upheld for terminated employee who could not be accommodated by employer. In Braden v. Aetna Life Ins. Co., No. 13-15794, 2014 WL 7331584 (11th Cir. Dec. 24, 2014), the 11th Circuit affirmed the district court’s decision granting summary judgment to Defendants on Plaintiff’s claim for a lump sum payment of long-term disability benefit payments. Under the FedEx Long Term Disability Plan (LTD Plan), an employee who the Plan Administrator finds to have permanent occupational restrictions is entitled to a lump sum payment of LTD benefits upon termination of employment. Plaintiff injured her back and was unable to perform the essential duties of her job. Plaintiff was deemed permanent and stationary by Workers’ Compensation, but her treating doctor completed a form indicating that her restrictions were not permanent. FedEx terminated her employment because it could not accommodate her restrictions and limitations and Plaintiff sought a lump sum payment of the remaining 18 months of available LTD benefits. However, Aetna denied Plaintiff’s LTD benefit claim because her treating doctor did not find her restrictions and limitations to be permanent. Applying this Circuit’s six-step process for evaluating an administrator’s decision, the court found that Aetna’s determination, relying on Plaintiff’s treating provider, was not arbitrary and capricious.

Unreported Decisions

Attorneys’ Fees

In James v. AT&T W. Disability Benefits Program, No. 12-CV-06318-WHO, 2014 WL 7272983 (N.D. Cal. Dec. 22, 2014), Plaintiff prevailed in this action for wrongful denial of long-term disability benefits and moved for an award of attorneys’ fees in the amount of $200,794.50. The court found Plaintiff is entitled to fees, but the hourly rate she requests for her attorney is slightly above the prevailing market rate, and some of the hours she claims were expended unreasonably. The court granted the motion but reduced the requested fee award to $181,962.70. The court reduced the requested rate from $675 per hour to $650 per hour. In so doing, the court rejected Defendant’s warning of “the effect of allowing a small number of plaintiff’s attorneys to set the market rate by agreeing on an hourly rate that is rarely actually charged …, and then setting up a circular chain in which each declares the others’ putative hourly rates to be reasonable.” The court reasoned that “while it is true that lawyers of the same field have an interest in encouraging high rates for that field, professional standards – such as Rule 11 of the Federal Rules of Civil Procedure – mitigate the risk that attorneys will submit false declarations in support of allies’ fee motions.”

In Pension Trust Fund for Operating Engineers v. Tractor Equip. Sales, No. 12-CV-01056-WHO, 2014 WL 7276159 (N.D. Cal. Dec. 22, 2014), defendants Van Tuyls prevailed in this action for withdrawal liability and moved for an award of attorneys’ fees and costs against the Plaintiff Fund. Applying the factors set out in Hummell v. S.E. Rykoff & Co., 634 F.2d 446 (9th Cir. 1980), the court declined to award the Van Tuyls attorneys’ fees. The court found that the underlying merits of the dispute raised a close question of law and the Fund did not act in bad faith in bringing the lawsuit; nor is it otherwise culpable.

Withdrawal Liability & Unpaid Benefit Contributions

In Bricklayers Ins. & Welfare Fund v. Sukhmany Constr., Inc., No. 13-CV-6803 ILG SMG, 2014 WL 7335667 (E.D.N.Y. Dec. 22, 2014), the court denied Defendants’ motion to vacate a default judgment assessing damages of unpaid contributions and remittances that Defendants had agreed to provide to Plaintiffs pursuant to a collective bargaining agreement, statutory damages, interest, and costs. Defendants alleged that they were never properly served with process. The court determined that it was entirely proper for Plaintiffs to follow the rules of the CBA and serve the summonses, Complaint, and motion for default judgment in this action on the address Defendants listed therein. Defendants had actual notice that they were not fulfilling their obligations to the Plans because they were not making payments as the CBA required. There is no question as to whether they are liable, and their alleged failure to receive documents informing them of Plaintiffs’ intent to seek redress for that liability before this Court was of their own making.

In Trustees of Chicago Painters & Decorators Pension Fund v. NGM Services, Inc., No. 14 C 5701, 2014 WL 7330939 (N.D. Ill. Dec. 22, 2014), the Plaintiffs-Trustees filed a complaint against Defendant seeking an order declaring NGM to be a successor or alter ego of the now bankrupt Geno’s Decorating, Inc. and an order requiring NGM to submit all necessary books and records to the Funds’ accountant for the purpose of determining whether or not NGM is in compliance with its purported obligation to the Funds. The Funds moved for judgment on the pleadings and for an audit pursuant to Federal Rule of Civil Procedure 12(c). The court denied the Funds’ motion. The court explained why judgment on the pleadings, for the plaintiff, is rarely appropriate given the factual inquiries necessary to determine successor or alter ego liability. The court found that the Funds here have not presented sufficient undisputed facts for the court to make a determination on the question of successor or alter ego liability.

* 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.

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