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ERISA Watch – In Matter of First Impression, Seventh Circuit Rules that ERISA Does Not Preempt the Illinois Slayer Statute

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This week’s notable decision is Laborers’ Pension Fund v. Miscevic, No. 17-2022, __F.3d__, 2018 WL 578775 (7th Cir. Jan. 29, 2018).  In this case, Zeljko Miscevic worked as a union laborer and earned a vested pension benefit from the Laborers’ Pension Fund (the “Fund”), to be paid upon his retirement as a monthly annuity for his life.  Prior to his death, he was married to Anka Miscevic, and they had a 13-year old daughter together.  It is undisputed that Anka killed Zeljko at their home, but she was found not guilty of first degree murder by reason of insanity.  Anka claimed entitlement to a Surviving Spouse Pension.  The child’s estate argued that Anka was barred from recovering from the Fund by the Illinois slayer statute.

As a matter of first impression for the Court of Appeals, the Seventh Circuit held that ERISA does not preempt the Illinois slayer statute, and the slayer statute barred the plan participant’s wife from recovering his pension benefits after she was found not guilty of murdering him by reason of insanity. 

On the preemption issue, Anka argued that Egelhoff v. Egelhoff, 532 U.S. 141, 147, 121 S.Ct. 1322, 149 L.Ed.2d 264 (2001) (holding that ERISA preempted a Washington statute which provided that a dissolved or invalidated marriage would revoke earlier beneficiary designations to the former spouse) required a finding that the slayer statute is preempted.  Notably, no federal court of appeals faced the question of whether ERISA preempts state slayer statutes, though the majority of the district courts to consider the issue have noted that Egelhoff seems to suggest that ERISA does not preempt state slayer statutes.  The court noted that in Egelhoff, the Supreme Court commented in dicta that slayer statutes present a different question than the Washington statute at issue in that case.  In agreeing with those courts that have held that ERISA does not preempt slayer statutes, the Seventh Circuit explained that slayer laws are an aspect of family law, a traditional area of state regulation.  Anka cannot overcome the presumption that Congress did not intend to supplant this traditional area of state regulation.  Accordingly, the Seventh Circuit held, consistent with the Court’s dicta in Egelhoff, that ERISA does not preempt the Illinois slayer statute.

The Court then had to determine whether, as a matter of Illinois law, the slayer statute applies where the deceased was killed by an individual found not guilty by reason of insanity.  The Illinois slayer statute provides that “[a] person who intentionally and unjustifiably causes the death of another shall not receive any property, benefit, or other interest by reason of the death.” 755 Ill. Comp. Stat. 5/2-6.  The court noted that the Appellate Court of Illinois squarely addressed the issue in Dougherty v. Cole, 401 Ill.App.3d 341, 343 Ill.Dec. 16, 934 N.E.2d 16 (2010) and there is no evidence that the Illinois Supreme Court would disagree with the Dougherty court’s analysis.  The Dougherty court held that where an individual was insane for criminal purposes, but nevertheless cognizant he was killing a person, the Slayer Statute will prevent him from benefitting from his actions.  In this case, the judge at Anka’s criminal trial found that she intended to kill Zeljko “without justification.”  Just because Anka lacked substantial capacity to appreciate the criminality of her conduct, it is not justified.  The court concluded that the Illinois slayer statute bars Anka from receiving Zeljko’s pension benefits.  Affirmed.

On that bright and cheery note, enjoy the rest of the case recaps and have a great week!

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Attorneys’ Fees – Ninth Circuit

Reddick v. Metro. Life Ins. Co., No. 3:15-CV-02326-L-WVG, 2018 WL 637938 (S.D. Cal. Jan. 31, 2018) (Judge M. James Lorenz).  In this long-term disability case that settled for reinstatement of Plaintiff’s benefits and back pay, the court granted in part Counsel’s motion for attorneys’ fees.  The court awarded $650 per hour for all work performed by Robert McKennon (21 years of experience as an attorney and 14 years handling insurance coverage and ERISA claims) prior to 2016 and $700 per hour for all work performed by Mr. McKennon thereafter; $550 per hour for all work performed by Mr. McMillen prior to 2016 and $600 per hour for all work performed by Mr. McMillen thereafter.  The court awarded lower rates for the other junior attorneys on the case.  “[T]he Ninth Circuit has explicitly held that an attorney need not show paying clients have paid them the sought hourly rate. Welch, 480 F.3d at 946. Rather, the test is whether the evidence shows that hourly paying clients will pay the sought rate for representation of comparable quality.”  The total lodestar awarded based on 492.4 hours of work is $293,115.  The court did not award all costs requested since Counsel did not carry its burden of showing it is customary for attorneys to bill these recurring overhead fees to clients.

Breach of Fiduciary Duty

Svigos v. Wheaton Securities, Inc. Employee Stock Ownership Plan, Wheaton Securities, Inc., et al., No. 17-CV-04777, 2018 WL 587190 (N.D. Ill. Jan. 29, 2018) (Judge John Robert Blakey).  The court denied Defendants’ motion to dismiss Plaintiff’s claim against the Wheaton Securities, Inc. Employee Stock Ownership Plan for benefits due under ERISA § 502(a)(1)(B), and her claim against Wheaton Securities, John Svigos, and Paul Svigos for breach of fiduciary duty under ERISA § 502(a)(2), and for equitable relief under ERISA § 502(a)(3).

Class Actions

Third Circuit

Huffman v. The Prudential Insurance Company of America, No. 2:10-CV-05135, 2018 WL 583046 (E.D. Pa. Jan. 29, 2018) (Judge Joseph F. Leeson, Jr.).  On Plaintiff’s third attempt at class certification, the court determined that this proposed class fails to satisfy the predominance requirement of F.R.C.P. 23(b)(3):  “[a]ll beneficiaries of ERISA-governed employee benefit plans that were insured by group life insurance contracts issued by Prudential for whom Prudential established an “Alliance Account” between September 30, 2004, and October 31, 2011, under contracts that contained: (1) a provision providing that “Life Insurance is normally paid to the beneficiary in one sum; (2) an integration clause that did not include other portions of the ERISA plan or a Summary Plan Description (SPD) as a part of the contract with Prudential; and (3) a provision that the contract with Prudential could only be amended with the consent of an officer of Prudential.  Excluded from the Class are (1) beneficiaries of plans whose summary plan descriptions or other plan documents are proven by Prudential to state that claims may be settled using a retained asset account or “Alliance Account,” and do not state that in the event of a conflict between the document and the insurance contract, the contract controls; (2) beneficiaries of contracts that were situated in Arkansas, Colorado, or Nevada; and (3) beneficiaries who resided in Maryland.  The court did, however, certify Plaintiff’s proposed Subclass limited to beneficiaries of the JPMorgan and Con-Way plans.  The Subclass includes only those beneficiaries under group life insurance policies that provided “Life Insurance is normally paid to the beneficiary in one sum” for whom Prudential established an Alliance Account between September 30, 2004, and October 31, 2011.  Excluded from the Subclass are beneficiaries of contracts that were sitused in Arkansas, Colorado, or Nevada, and beneficiaries who resided in Maryland.

Tenth Circuit

Troudt v. Oracle Corp., No. 16-CV-00175-REB-CBS, 2018 WL 637462 (D. Colo. Jan. 30, 2018) (Judge Robert E. Blackburn).  The court certified the following classes:  (1) Excessive Fee Class: All participants and beneficiaries of the Oracle Corporation 401(k) Savings and Investment Plan from January 1, 2009, through the date of judgment, excluding defendants; (2) Imprudent Investment Class A (Artisan Fund): All Plan participants and beneficiaries, excluding defendants, who invested in the Artisan Fund between January 1, 2009, and June 22, 2015, and whose investment in the Fund underperformed relative to the Russell 2000 Index; and (3) Imprudent Investment Class B (TCM Fund): All Plan participants and beneficiaries, excluding defendants, who invested in the TCM Fund between January 1, 2009, and April 8, 2013, and whose investment in the Fund underperformed the Russell 2500 Growth Index.  The court appointed Schlicter Bogard and Denton, LLP, as counsel for the plaintiff class.

Disability Benefit Claims

First Circuit

Rodriguez-Lopez v. Triple-S Vida, Inc., No. CV 14-1498 (BJM), 2018 WL 637397 (D.P.R. Jan. 30, 2018) (Magistrate Judge Bruce J. McGiverin).  The court determined that through both objective and subjective evidence, Plaintiff showed that her fibromyalgia and other physical conditions prevent her from working any job full-time because she cannot sit, stand, or walk, for more than a total of six hours a day.  The court rejected Defendant’s Employability Evaluation because it relies on a flawed medical review.  The court found that the appropriate remedy is an award of benefits since Plaintiff is clearly entitled to them.

Fifth Circuit

Brand v. Liberty Life Assurance Co. of Boston, No. CV 17-12094, 2018 WL 620050 (E.D. La. Jan. 29, 2018) (Judge Susie Morgan).  The court granted Liberty Life’s motion to dismiss Plaintiff’s claim for breach of fiduciary duty under ERISA Section 502(a)(3) since it is well settled in the Fifth Circuit that this claim for equitable relief does not provide for compensatory, liquidated, or punitive damages as relief for ERISA claims for recovery of benefits under ERISA Section 502(a)(1)(B).

Ninth Circuit

Rustad-Link v. Providence Health and Services & Unum Group Corporation, No. CV 16-136-M-DWM, 2018 WL 651833 (D. Mont. Jan. 31, 2018) (Judge Donald W. Molloy).  The court granted Plaintiff’s motion for summary judgment.  It held that Washington law mandates a de novo standard of review, Unum cannot assert the attorney-client privilege against Plaintiff as to communications with counsel that occurred before the parties became adverse, and that Unum breached its fiduciary duty to Plaintiff when it changed her disabling diagnosis following notice of her third-party settlement and deducted against her disability payments.  “The defendant’s shortcoming, among other mistakes, was to prioritize its plan interpretation to its financial interest.”  The court ordered reinstatement of Plaintiff’s long-term disability benefits without any offset for her third-party settlement regarding her below-the-knee amputation resulting from medical malpractice.  Plaintiff is also entitled to attorneys’ fees.


Ninth Circuit

Rustad-Link v. Providence Health and Services & Unum Group Corporation , No. CV 16-136-M-DWM, 2018 WL 651833 (D. Mont. Jan. 31, 2018) (Judge Donald W. Molloy).  Unum claimed attorney-client privilege over a number of documents detailing consultations between Unum’s claims and financial employees and its in-house counsel.  Unum also argued that the attorney-client communications at issue are irrelevant when a court conducts a de novo review. The court determined that the fiduciary exception to the attorney-client privilege prevents Unum from asserting the privilege over these communications until after the date of the final administrative denial.  These documents are part of the administrative record.  The privilege applies to documents that post-date Unum’s denial of Plaintiff’s appeal.

ERISA Preemption

Laborers’ Pension Fund v. Miscevic, No. 17-2022, __F.3d__, 2018 WL 578775 (7th Cir. Jan. 29, 2018) (Before Flaum, Kanne, and Rovner, Circuit Judges).  As a matter of first impression for the Court of Appeals, the Seventh Circuit held that ERISA did not preempt the Illinois slayer statute, and the slayer statute barred the plan participant’s wife from recovering his pension benefits after she was found not guilty of murdering him by reason of insanity.

Medical Benefit Claims

Eighth Circuit

Pacheco v. Honeywell, Int’l Inc., No. CV 17-5048 (SRN/HB), __F.Supp.3d__, 2018 WL 647929 (D. Minn. Jan. 31, 2018) (Judge Susan Richard Nelson).  The court determined that the application of the Dataphase factors weighs in Plaintiffs’ favor and granted their request for a preliminary injunction.  The court ordered that Defendant Honeywell International, Inc. is preliminarily enjoined from terminating the healthcare benefits of the Minnesota retirees under age 65, and their families and surviving spouses, pending an adjudication on the merits of Plaintiffs’ claims or further order of this Court after notice and hearing.

Tenth Circuit

B.D. & S.D. v. Blue Cross Blue Shield of Georgia, et al., No. 1:16-CV-00099-DN, 2018 WL 671213 (D. Utah Jan. 31, 2018) (Judge David Nuffer).  On the issue of whether the Plan violated the Parity Act for not providing coverage for residential treatment is an issue of statutory interpretation for which BCBSG is owed no deference to its discretionary authority.  The court determined that BCBSG’s interpretation that it was not required to cover the disputed treatment at a residential treatment center under the Plan violates the Parity Act and misinterprets the Plan.  The court also determined that Plaintiff exhausted his administrative remedies with respect to future claim denials since he filed a written request asking for BCBSG to review the claims for the dates of service incurred and going forward as the patient remained in treatment.  The court determined that remand is inappropriate; BCBSG should be prohibited from asserting a new reason for denying the claims and the court rejected BCBSG’s reasons for denying the claims.  Lastly, the court determined that an award of prejudgment interest and attorneys’ fees is appropriate.

Eleventh Circuit

Woodruff v. Blue Cross and Blue Shield of Alabama, et al., No. 2:16-CV-00281-SGC, 2018 WL 571933 (N.D. Ala. Jan. 26, 2018) (Magistrate Judge Staci G. Cornelius).  The court granted BCBS’s motion for summary judgment, finding that it was reasonable for BCBS to deny coverage of proton beam radiation treatment (“PBRT”) for treatment of prostate cancer.  BCBS determined that this treatment has not been shown to be superior to other approaches, including intensity modulated radiation therapy (“IMRT”).  The fact that other health care plans cover PBRT does not compel a different result.

Pension Benefit Claims

Third Circuit

Eckert v. Chauffeurs, Teamsters and Helpers Local Union 776 Profit Sharing Plan, et. al., No. 1:15-CV-1920, 2018 WL 571928 (M.D. Pa. Jan. 26, 2018) (Judge Christopher C. Conner).  The court held that the 2012 Plan documents are unambiguous in that they implement a one-year-of-service requirement and that this requirement is waived for any Union employee hired on or before September 1, 2012.  The court found that the Union and the Plan wrongfully denied benefits to Plaintiffs for their first year of covered service beginning January 1, 2012.  On the breach of fiduciary duty claim, the court determined that the presence of four neutral referees ensured that one particular Plan fiduciary did not breach his duty of loyalty to Plan participants through self-dealing.

Pleading Issues & Procedure

Eleventh Circuit

Ferrara v. Luxottica Retail North America Inc., No. 8:17-CV-2914-T-33AEP, 2018 WL 573430 (M.D. Fla. Jan. 26, 2018) (Judge Virginia M. Hernandez Covington).  The court determined that the Dispute Resolution Agreement encompasses Plaintiff’s FMLA and ERISA claims and there are no legal constraints to foreclose arbitration.  The court rejected the argument that Plaintiff’s electronic signature is invalid.  The case will be stayed pending the completion of the arbitration process.

Provider Claims

Third Circuit

Re: Univ. Spine Ctr. v. Anthem Blue Cross Life & Health Ins. Co., No. 17-8711 (SDW) (LDW), 2018 WL 678446 (D.N.J. Feb. 2, 2018) (Judge Susan D. Wigenton).  On Defendant’s motion to dismiss, the court determined that although the alleged assignment does not specify the precise benefits assigned, it is sufficient to grant Plaintiff standing to assert claims under ERISA 502(a) at this stage.  The court declined dismissal of Plaintiff’s claim pursuant to 29 U.S.C. § 1132(a)(3) for breach of fiduciary duty.  The court found it is too early in these proceedings to decide whether Plaintiff is contractually entitled to benefits under the Plan, and if not, whether Plaintiff might still be entitled to “other appropriate equitable relief” to remedy any breaches of fiduciary duty by Defendants.

Univ. Spine Ctr. v. Empire Blue Cross Blue Shield, No. CV177573SDWLDW, 2018 WL 615676 (D.N.J. Jan. 29, 2018) (Judge Susan D. Wigenton).  The court granted Defendant’s motion to dismiss because Plaintiff has not adequately pled that it has standing to assert claims under ERISA 502(a).  “Here, the assignment upon which Plaintiff relies is dated nearly a month prior to the medical services provided, does not identify the insurer, and does not specify the scope of the assignment or the benefits assigned.”  The court determined that this is insufficient to show a valid assignment from Patient to Plaintiff.

Re: Univ. Spine Ctr. v. Blue Shield of California, No. CV1711371SDWCLW, 2018 WL 561842 (D.N.J. Jan. 25, 2018) (Judge Susan D. Wigenton).  Due to the similarities of the two cases, the court adopted the reasoning set forth in the November 16, 2017 decision in University Spine Center, 2017 WL 5513688, and granted Defendant’s Motion to Dismiss.  The earlier case concluded that the anti-assignment clause is valid and enforceable against Plaintiff and it does not have standing to bring this case.

Eleventh Circuit

Polk Med. Ctr., Inc. v. Blue Cross & Blue Shield of Georgia, Inc., No. 1:17-CV-3692-TWT, 2018 WL 624882 (N.D. Ga. Jan. 30, 2018) (Judge Thomas W. Thrash, Jr.).  “The Complaint, which merely alleges the existence of ERISA claims in general, fails to put Blue Cross on notice of the claims that the Plaintiff bases its allegations upon. Therefore, the Court grants the Defendants’ Motion to Dismiss, and will allow the Plaintiff to file an Amended Complaint adequately identifying the underlying ERISA plans and distinguishing between ERISA and non-ERISA plans.  The Court declines to exercise supplementary jurisdiction of the Plaintiff’s state law claims in the absence of a viable federal claim.”

Retaliation Claims

Third Circuit

Romero v. Allstate Ins. Co., No. CV 01-3894, 2018 WL 627116 (E.D. Pa. Jan. 29, 2018) (Judge Kearney).  The court granted summary judgment in favor of Allstate on the Romero Plaintiffs’ claims the Counterclaims violate the ADEA and ERISA.

Statutory Penalties

Third Circuit

Taliaferro v. Trump Entertainment Resorts Inc., et al., No. 14-1083, __F.App’x__, 2018 WL 656369 (3d Cir. Feb. 1, 2018) (Before: KRAUSE, NYGAARD and ROTH, Circuit Judges).  The District Court concluded that there was no material dispute but that Trump Plaza terminated Plaintiff’s medical benefits because she failed to pay premiums and that it did so before terminating her employment.  It also concluded that Trump Plaza’s termination of Plaintiff’s benefits for nonpayment of premiums (unlike a termination of employment) was not a “qualifying event” within the meaning of 29 U.S.C. § 1161(a) that triggered a duty to provide the COBRA notice.  On appeal, Plaintiff did not mention her ERISA claim at all, and the Third Circuit determined that she waived any challenge as to her ERISA claim.

 Your ERISA Watch authored by Michelle L. Roberts, Esq.

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