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ERISA Watch – December 7, 2015

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This past week there were no reported appellate court decisions. Of note is a reported district court case out of the D.C. Circuit, Foster v. Sedgwick Claims Management Services, where the court denied the disability claimant’s motion for reconsideration on its previous determination that the short-term disability plan was not governed by ERISA and the denial of long-term disability benefits was proper. In few circumstances does a plaintiff want to be governed by ERISA. This is because of the limited remedies available to an aggrieved disability plan participant. Read more about Foster and other recent decision in this week’s ERISA Watch.

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

D.C. Circuit

Rule 59(e) motion for reconsideration denied where Plaintiff sought to advance new legal arguments, including whether short-term disability plan is governed by ERISA. Foster v. Sedgwick Claims Mgmt. Servs., Inc., No. CV 14-1241 (JEB), __F.Supp.3d___, 2015 WL 7737305 (D.D.C. Dec. 1, 2015) (Judge James E. Boasberg). Here, Plaintiff moved for reconsideration of the court’s previous grant of summary judgment in favor of Defendants. The court determined that the short-term disability (“STD”) plan is not governed by ERISA and that Sedgwick did not abuse its discretion in denying Plaintiff’s long-term disability (“LTD”) claim. The LTD Plan requires that claimants be eligible for STD benefits or Workers’ Compensation. In her motion, Plaintiff advanced two new theories about the STD Plan, including that it is governed by ERISA and alternatively, that the STD Plan is so “related” to the ERISA-covered LTD Plan that ERISA preempts any state-law remedies and her claim lies only under ERISA. Plaintiff also renewed her arguments that the court should have reviewed Sedgwick’s decision to deny her LTD benefits under a de novo standard, and that Sedgwick improperly labored under a conflict of interest as the claims administrator for both Plans. Plaintiff also sought permission to amend her Complaint to include a claim that Defendants interfered with her rights under these Plans, in violation of ERISA § 510. The court found that Plaintiff did not meet the exacting Rule 59(e) standard for altering the judgment for Defendants. First, Plaintiff previously conceded that the STD plan was a payroll practice not governed by ERISA and there was no change in the law or discovery of new evidence that would support a change in Plaintiff’s position. Second, because eligibility for STD benefits is not at all affected by the LTD Plan, no state-law cause of action based on the STD Plan “relates” to the LTD Plan in such a way that it would preempted by ERISA. The court found that there was no newly discovered evidence or any intervening change in the law meriting reexamination of the court’s earlier resolution of the LTD claim. Lastly, the court denied Plaintiff leave to amend her Complaint to assert a § 510 claim.

Select Slip Copy & Not Reported Decisions

Attorneys’ Fees

Fourth Circuit

Attorneys’ fees denied to prevailing defendants in lawsuit seeking to extend Yiatchos doctrine to ERISA and a QDRO. Dahl v. Aerospace Employees’ Retirement Plan of the Aerospace Corp., No. 1:15CV611 (JCC/IDD), 2015 WL 7777989 (E.D. Va. Dec. 1, 2015) (Judge James C. Cacheris). In this matter on appeal to the Fourth Circuit on the issue of whether the Yiatchos doctrine could be applied to ERISA and a QDRO, the court denied the Defendants’ motion for attorneys’ fees. The Yiacthos doctrine provides that a federal regulatory scheme’s preemption of state law should not be used as a shield for fraud or to prevent relief where the circumstances manifest fraud or a breach of trust tantamount thereto. The court found that although Defendants are the prevailing party, the balance of the factors weigh against an award of fees, including that fees would provide only a minimal positive deterrent effect here because the legal theories presented are not likely to arise again. The court explained that courts can resolve the typical ERISA benefit dispute between ex-spouses with clear Fourth Circuit precedent. Although Plaintiff’s argument for the application of the Yiatchos doctrine appears novel, it is not frivolous or foundationless. Once the Fourth Circuit issues its decision, it will communicate far more to future litigants than an award of attorneys’ fees. The court denied attorneys’ fees even though Plaintiff has the apparent capacity to pay.

Disability Benefit Claims

Fourth Circuit

Claims against employer and disability plan dismissed; court grants motion to seal administrative record. Frank v. Liberty Life Assurance Company of Boston, No. GJH-15-124, 2015 WL 7871335 (D. Md. Dec. 3, 2015) (Judge George J. Hazel). In a lawsuit seeking denied long-term disability benefits, the court granted the employer and the Plan’s motion to dismiss the Section 502(a)(1)(B) claim as to the Plan, finding that Plaintiff failed to allege facts against the Plan that it did or failed to do anything with respect to her claim for benefits. The court also granted the employer’s motion to dismiss the breach of fiduciary duty claim against it, finding that Plaintiff failed to demonstrate that the employer violated a fiduciary duty and, additionally, that relief is fully available under Section 502(a)(1)(B). The court denied the employer’s and the Plan’s attorneys’ fee motion against Plaintiff since there was no indication of bad faith when she presented her claims against them. With respect to the claim for benefits against Liberty Life, the parties agreed that de novo review applies and the court granted Liberty Life’s motion to seal the administrative record due to privacy concerns and the burden of redacting the 970-page file.

ERISA Preemption

Eleventh Circuit

Wrongful death claim against ERISA-governed health insurer is not preempted by ERISA. Ghee v. Regional Medical Center Board, et al., No. 1:15-CV-1430-VEH, 2015 WL 7755392 (N.D. Ala. Dec. 2, 2015) (Judge Virginia Emerson Hopkins). The court granted Plaintiff’s motion to remand his wrongful death lawsuit against one of the defendants, USAble, an insurance company providing benefits under an ERISA-governed plan. The decedent’s doctor recommended a colectomy to remove impacted fecal material. USAble determined that non-surgical treatment was more appropriate than surgery and suggested that the decedent try to convince the hospital to perform the surgery on an emergency basis. Although the decedent returned to the hospital a few more times complaining of severe abdominal pain and rectal bleeding, the hospital discharged him until his final return where he died due to his improperly treated condition. The gist of the claim against USAble is that USAble interjected itself as a healthcare provider for decedent and then negligently provided a suboptimal standard of care resulting in his death. Ghee has now brought this wrongful death action. The court concluded that this claim could not have been brought under ERISA’s private enforcement mechanism, so it lacks subject-matter jurisdiction over the claim. Because the Alabama wrongful death statute does not allow recovery for the value of benefits denied, only punishment for causing a death, the court found that the suit could not be brought under ERISA.

Suit for wrongful denial of chiropractic coverage brought by sub-assignee of plan participant is completely preempted by ERISA. Gables Ins. Recovery, Inc. v. Blue Cross & Blue Shield of Florida, Inc., No. 15-10459, __Fed.Appx.___, 2015 WL 7729474 (11th Cir. Dec. 1, 2015) (Before MARCUS and JILL PRYOR, Circuit Judges and RESTANI, Judge). In this case a healthcare provider, South Miami Chiropractic, provided services to an insured under a Florida Blue health insurance plan. When South Miami Chiropractic sought payment from Florida Blue, the insurer failed to pay and South Miami Chiropractic then assigned its right to payment to Gables, which sought to collect from Florida Blue. The district court held that ERISA completely preempts Gables’s claims and then dismissed the claims without prejudice for failure to exhaust administrative remedies. The Eleventh Circuit affirmed the district court’s finding that the claims are completely preempted because they depend on whether Florida Blue has a duty to pay for services under an ERISA plan. Further, because Gables has standing to sue under the ERISA plan as a sub-assignee of the plan participant, it could have brought an ERISA claim for benefits.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Change in beneficiary designation made by guardian of legally incapacitated participant is void. Metropolitan Life Insurance Company v. Austin, et al., No. 14-CV-12005, 2015 WL 7770659 (E.D. Mich. Dec. 3, 2015) (Judge Linda V. Parker). MetLife initiated this interpleader action to determine the disposition of the proceeds of a life insurance policy owned by Clara Austin. Defendant Laura Brown, the adult great niece of Clara Austin, was named the primary beneficiary of the policy in March 2008. At that time, Michelle Austin, Clara Austin’s adult granddaughter, was removed as the primary beneficiary. Ms. Brown and Ms. Austin each claim entitlement to the insurance proceeds. The court concluded that the beneficiary designation naming Ms. Brown as the beneficiary of the life insurance benefits is void, as Clara Austin lacked the competency to complete the change. Clara Austin was deemed legally incapacitated and Ms. Brown was appointed as her guardian in November 2007. Ms. Brown submitted the beneficiary designation form making herself the primary beneficiary allegedly to comport with Clara Austin’s wishes. The court found that Ms. Brown lacked authority to make this change.

Seventh Circuit

Insured’s death while legally intoxicated not payable under terms of accidental death & dismemberment policy. Fleming v. Reliastar Life Insurance Company, No. 14-1482, 2015 WL 7853847 (C.D. Ill. Dec. 1, 2015) (Judge James E. Shadid). The court granted summary judgment in favor of Reliastar on Plaintiff’s claim for denied accidental death & dismemberment benefits, for which she claimed following the death of her son. The evidence showed that her son had been drinking prior to a motor vehicle accident where the cause of death was stated to be “blunt force trauma to the head and chest” and “accidental.” Her son’s blood ethanol level was .401% and urine ethanol level was .503%. Reliastar’s doctor, Dr. Brad Heltemes, opined that legal intoxication is defined as .08% ethanol so the insured’s level was 5 times above the legal limit. The AD&D policy excludes payment for deaths caused directly or indirectly by the insured’s intoxication. The court found that the administrative record contains adequate, uncontradicted evidence that the insured’s accident and injuries were caused directly or indirectly by his intoxication and ReliaStar’s denial of Plan benefits pursuant to the Intoxication Exclusion was proper.

Medical Benefit Claims

Fourth Circuit

Procedural irregularities in claims decision results in remand to the claims administrator to begin the review process anew. Boyd v. Sysco Corp., et al., No. 4:13-CV-00599-RBH, 2015 WL 7737966 (D.S.C. Dec. 1, 2015) (Judge R. Bryan Harwell). In this matter where Plaintiff seeks coverage for mental health/substance abuse benefits under the Sysco Corporation Group Benefit Plan for treatment he received at a residential rehabilitation program, the court remanded to the claims administrator to consider the administrative record and the relevant plan provisions and internal guidelines for the correct year and begin the review process anew. The Court agreed with the defendants that the effect of any procedural irregularities would be to excuse a failure by a claimant to exhaust administrative remedies and possibly to remand the case, rather than to change the standard of review to de novo. The court found that an abuse of discretion standard would apply to a review of the matter on its merits but due to the court’s concern regarding irregularities in the administrative review process by the claims administrator, UBH, it remanded the matter. The court found that the claims administrator did not process the claim on time, denied Plaintiff a full and fair review by omitting documents from the administrative record, and failed to comply with the procedural requirements of ERISA.

Pension Benefit Claims

Second Circuit

Employer may not withhold payment of SERP benefits on the ground that they are excessive or unreasonable under New York law, federal law, or employer’s articles of incorporation and by-laws. Levy v. Young Adult Inst., Inc., No. 13-CV-2861 (JPO), 2015 WL 7820497 (S.D.N.Y. Dec. 2, 2015) (Judge J. Paul Oetken). Defendants moved for summary judgment on the legal question of whether Plaintiff’s former employer, Youth Adult Institute (“YAI”) may withhold payment of Plaintiffs’ ERISA benefits on the ground that they are excessive or unreasonable under New York law, federal law, or YAI’s articles of incorporation and by-laws. YAI began reducing Plaintiff’s SERP benefits prior to issuing payments in January 2010. In August 2011, the New York Times published an article about Plaintiff’s compensation and the New York State Office for People with Developmental Disabilities signaled that it might pursue remedial action against YAI. YAI stopped making payments and hired Mercer LLC to determine whether Plaintiff’s compensation was reasonable. Mercer concluded that Plaintiff’s compensation was excessive and YAI contacted the IRS to report that it had paid an excess benefit to Plaintiff. The IRS sent YAI two letters disagreeing with its analysis but did not did not issue a decision on Plaintiff’s compensation. The magistrate judge’s Report and Recommendation determined that YAI could not withhold Plaintiff’s compensation and recommended that the court deny its motion for partial summary judgment. Judge Netburn concluded, specifically, that (1) neither the New York Not-for-Profit Corporation Law nor the Internal Revenue Code authorizes YAI’s unilateral decision to withhold Plaintiff’s benefits payments, and (2) public policy considerations do not authorize YAI to set aside the SERP as unenforceable. The court rejected YAI’s objections and adopted the report in full.

Third Circuit

Plaintiffs sufficiently alleged anti-cutback claims with respect to pension plan amendments seeking to eliminate right to grow into “beefed up” early retirement benefits and to no longer count as “service” time spent working as an independent contractor. Tabor v. Allstate Insurance Company, et al., No. CV 15-2602, 2015 WL 7756188 (E.D. Pa. Dec. 1, 2015) (Judge S.J. Buckwalter). The court found that the complaint sets forth a sufficiently plausible claim that Allstate cut back subsidized early retirement benefits that fall within the ambit of § 204(g). The complaint alleged that prior to November of 1991, any employee agent who completed twenty years of continuous service with Allstate could receive “beefed up” early retirement benefit upon reaching age 55. The court found that the pension plan’s provision of a “benefit greater than the actuarial equivalent of the normal retirement benefit,” that was to last beyond retirement age was an accrued benefit upon its creation for purposes of § 204(g). Allstate decided to phase out and ultimately eliminate the “beefed up” benefits. While Plaintiffs may not have been eligible to receive the “beefed up” benefits until they completed twenty years of service with Allstate and reached the age of 55, that fact did not mean that their entitlement to those benefits had not accrued over time relative to their age and years of service. The court found that while Allstate could have phased out and eliminated those benefits for agents who had not yet begun working for Allstate as of the time of the November 1991 amendment, they could not deny Plaintiffs, who were employed before and remained employed after the amendments, the opportunity to “grow into” those benefits. Plaintiff also alleged that under the Pension Plan prior to the amendments, any employee agent who completed twenty years of “service” with Allstate and who attained the age of 55 was entitled to receive early retirement benefits in the event he or she retires before reaching normal retirement age. Prior to its amendments, creditable “service” included any time as either an employee agent of Allstate under a contract, or as an exclusive agent independent contractor of Allstate. The amendments purported to alter the definition of “service” to exclude any time spent as an exclusive agent independent contractor. Because the right to receive certain money on a certain date may not be affected by a condition imposed after a benefit has accrued, the court found that this claim also sufficiently pleads a claim under ERISA § 204(g).

Pleading Issues & Procedure

Seventh Circuit

Collateral estoppel and res judicata do not apply to employer’s withdrawal liability. Midwest Operating Engineers v. Cordova Dredge, No. 15 C 4446, 2015 WL 7731868 (N.D. Ill. Dec. 1, 2015) (Judge Amy J. St. Eve). The employees of Cleveland Quarry voted to decertify Local 150 as their bargaining agent in an election conducted by the NLRB. In a separate suit against Cleveland Quarry by the Funds, the court found that as a matter of law the Funds are entitled to enforce Quarry’s obligations to contribute to the Funds under the CBA. Quarry’s appeal is pending in the Seventh Circuit. Cordova employees (also subject to the Quarry agreement) subsequently also voted to decertify Local 150 and Cordova ceased making contributions to the Funds. The court denied the Funds’ motion for summary judgment as it applies to the preclusive effects of collateral estoppel and res judicata. The court found that the facts of the present case significantly differ from those presented before the Cleveland Quarry court and that Cordova-by way of the defendant Cleveland Quarry-did not have a full and fair opportunity to litigate the legal issues as presented here. However, the court granted the Funds’ motion for summary judgment as it relates to Cordova’s liability for contributions to the Funds under 29 U.S.C. § 1145.

Retaliation Claims

Third Circuit

Tender-back and ratification do not apply to releases that purport to waive ERISA claim and Section 510 claim is equitably tolled. Tabor v. Allstate Insurance Company, et al., No. CV 15-2602, 2015 WL 7756188 (E.D. Pa. Dec. 1, 2015) (Judge S.J. Buckwalter). Plaintiffs who had signed a release agreement with Defendant brought suit challenging the validity of the release and bringing various claims, including an interference/retaliation claim under ERISA § 510 and anti-cutback claims. The court found that Plaintiffs’ ratification of the release agreement has no impact on Plaintiffs’ federal law claims under the ADEA or ERISA given that tender-back and ratification cannot apply to releases that purport to waive such claims. The court found that equitable tolling applies to a portion of the elapsed time for Plaintiffs’ claims under ERISA § 510. Specifically, the filing of the Romero complaint, under which Plaintiffs were eligible class members, tolled the statute of limitations such that the claim is timely filed.

Ninth Circuit

Plaintiff established prima facie case of ERISA interference to defeat summary judgment. Hannan v. Business Journal Publications, Inc., et al., No. 3:14-CV-00831-SB, 2015 WL 7720496 (D. Or. Nov. 30, 2015) (Judge Michael H. Simon). The district court adopted Magistrate Judge Beckerman’s findings and recommendation denying Defendants’ motion for summary judgment with respect to Hannon’s ERISA interference claim. Defendants argued that Hannan failed to establish a prima facie case of ERISA interference and failed to raise genuine issues of material fact regarding whether Defendants’ stated reasons for terminating Hannan’s employment were pretextual. Hannan responded that she established a prima facie case of ERISA interference because she raised genuine issues regarding whether: (1) she was qualified for her position; and (2) the circumstances of her discharge give rise to an inference of discrimination. Her evidence includes the fact that although Defendants claim they eliminated Hannan’s position, Defendants hired someone else to perform her previous duties. She also presented evidence that Defendants were concerned about the cost of retiree health insurance and that Defendants terminated Hannan eighteen months before she would otherwise have qualified for retiree health insurance benefits.

* 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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