Your reliable source for summaries of recent ERISA decisions
Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.
Discovery on conflicts and procedural irregularities is permitted in cases subject to de novo review
In Liyan He v. Cigna Life Ins. Co. of New York, No. 14 CIV. 2180 AT GWG, __F.R.D.___, 2015 WL 249832, at (S.D.N.Y. Jan. 20, 2015), a matter involving review of a denial of long-term disability benefits, the court concluded that discovery in cases that will ultimately be subject to de novo review should normally be designed to cast light on conflicts and procedural irregularities that might have affected the completeness of the administrative record. The court explained that the 2nd Circuit made clear in two de novo review cases that the decision whether to consider material outside the administrative record turns on the existence of a conflict of interest and procedural regularities. Thus, the relevance of conflicts and procedural irregularities in de novo review cases should derive from their potential to impact the development of a proper administrative record. In considering what specific discovery should be ordered here, the court recognized that there are a number of cases holding that there is a special test for obtaining discovery in ERISA benefit determination cases that is, whether the plaintiff has shown a “reasonable chance that the requested discovery will satisfy the good cause requirement.” However, the court found that the use of this phrasing as a special standard to govern ERISA cases is “unwarranted.” Instead, Fed.R.Civ.P. 26(b)(1)-limiting the scope of discovery to material that is “relevant to any party’s claim or defense”-applies. Discovery should be limited if the burden or expense of the proposed discovery outweighs its likely benefit. In addition, courts must recognize the significant ERISA policy interests of minimizing costs of claim disputes and ensuring prompt claims-resolution procedures. With these principles in mind, the court determined that since Cigna does not dispute that it has an inherent conflict of interest, there is no need for discovery into the issue of Cigna’s structural conflict of interest. Further, the existing record provides a sound basis on which to evaluate the existence of procedural irregularities and other nonstructural conflicts that might have affected the completeness of the record. As such, the court is “skeptical” that Plaintiff needs much more discovery beyond what is already contained in the administrative record in order to attempt to make her “good cause” showing. In light of the above factors, the court limited Plaintiff to a single deposition of a Cigna employee as to the procedural administration of Plaintiff’s claim and denied all document discovery with the exception of the examination of the written evaluations of some key employees involved in the decisionmaking on Plaintiff’s claim. The court reiterated that the goal of this discovery will be only to determine whether there are conflicts or procedural irregularities that bear on the question of whether the existing administrative record is incomplete.
A court is limited to reviewing reasons for denial provided to Plaintiff during the claim review process. A policy limitation on disabilities “caused by or contributed to by” a mental disorder only limits benefits if a physical impairment is insufficient to support total disability.
In George v. Reliance Standard Life Ins. Co., No. 14-50368, __F.3d___, 2015 WL 216729 (5th Cir. Jan. 15, 2015), the majority of the 5th Circuit panel reversed and remanded the district court’s decision that Reliance Standard (“RSL”) did not abuse its discretion in determining that the relevant long-term disability policy’s 24-month payment maximum for Total Disabilities “caused by or contributed to by mental or nervous disorders” limited Plaintiff’s right to benefits. The district court held that the evidence supported RSL’s determination that Plaintiff’s depression and PTSD contributed to his Total Disability. Based on this finding, the district court held that RSL did not abuse its discretion, but it did not reach the question whether Plaintiff was Totally Disabled under the Policy.
The 5th Circuit held that it was limited on review to considering whether the record supported the reasons that RSL provided to Plaintiff during the claim review process, and not a new reason it offered afterwards. Specifically, the court declined to consider whether Plaintiff carried his burden to show a right to benefits because RSL did not deny Plaintiff’s claim because he failed to carry his burden. RSL denied his claim because it determined that there was sufficient evidence in the record to show that he was not Totally Disabled and that, even if he was, a mental disorder contributed to this Total Disability. The court further held that RSL abused its discretion when it determined that Plaintiff was not totally disabled. The court found that RSL failed to cite any evidence in the record that supports its conclusion that Plaintiff’s ability to perform sedentary work, and to work in the alternative occupations, would allow him to obtain “substantially the same earning capacity” that he obtained as a pilot. Lastly, the court held that Plaintiff’s mental disabilities did not cause or contribute to his total disability; and on issue of first impression, the “caused by or contributed to by” language excludes coverage only when a claimant’s physical disability is insufficient to render him totally disabled.
The dissent, Circuit Judge King, disagreed with the majority’s conclusion that RSL abused its discretion when it determined that Plaintiff’s disability was “caused by or contributed to by” a mental disorder. Judge King noted that the the majority concedes that “George’s depression and PTSD impaired his ability to hold down a job.” In Judge King’s view, this should end the inquiry since it was more than reasonable for RSL to conclude that Plaintiff’s mental conditions at least contributed to his disability, thus triggering the exclusion. Notwithstanding, Judge King noted that “[i]t is a dreadful result, driven by a dreadful provision in the policy. The more serious a claimant’s physical problems (and resulting employment problems), the more likely he is to suffer from a “mental disorder” (e.g., depression), just at the time when he most needs the coverage otherwise afforded by a policy like this.”
PBGC determination of benefit liabilities was not an abuse of discretion. In Pension Ben. Guar. Corp. v. Kentucky Bancshares, Inc., No. 14-5573, __Fed.Appx.___, 2015 WL 221621 (6th Cir. Jan. 15, 2015), the 6th Circuit affirmed the district court’s grant of summary judgment to the Pension Benefit Guaranty Corporation (“PBGC”) under 29 U.S.C. § 1303(e) to enforce its determination that Kentucky Bancshares, Inc., in terminating its Retirement Plan and Trust (“Plan”), violated Title IV of ERISA, in particular 29 U.S.C. § 1341, and a PBGC regulation. Kentucky Bancshares allegedly failed to pay all benefit liabilities due under the terms of the Plan and the PBGC found that a post-termination amendment of the Plan did not alter Kentucky Bancshares’ obligations at the time of termination. The court found that the district court correctly recognized that PBGC’s resolution of the controversy is subject to deferential review and its final determination will be upheld unless it is shown to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. PBGC reasonably concluded that Kentucky Bancshares’ compliance with PPA § 1107 did not obviate its obligation to also comply with ERISA’s standard termination requirements. Specifically, the Plan’s qualifying status under IRC §§ 401 and 411does not compel the conclusion that the resultant decrease in the value of benefits was necessary to maintain Plan qualification under §§ 401 and 411, for purposes of 29 C.F.R. § 4041.8(a)(1) and (c)(1).
Health plan’s subrogation provision does not apply to wrongful death action brought by a plan participant’s children and mother. MedCath Inc. Employee Health Care Plan v. Stratton, No. CV-14-08099-PCT-NVW, __F.Supp.3d___, 2015 WL 225414 (D. Ariz. Jan. 16, 2015) is an action by a health plan seeking to enforce a subrogation provision against the estate of a plan participant who had brought a negligence action related to medical care she received under the plan. The plan participant passed away and her surviving son intervened as plaintiff and filed an amended complaint for himself and on behalf of his minor siblings and grandmother. The amended complaint asserted an Arizona Wrongful Death Act claim seeking monetary judgment on behalf of each of the statutory beneficiaries as compensation for grief and sorrow and for the loss of the decedent’s love, affection, companionship, tutelage, and guidance. It does not seek to recover any damages incurred by the plan participant. Plaintiff sought to intervene and filed this action to adjudicate its ERISA subrogation claim. The court found that the First Amended Complaint fails to state any ERISA claim upon which relief can be granted. ERISA permits Plaintiff to seek equitable relief to enforce the terms of the Plan, but the written plan documents authorize Plaintiff to recover payments for health care expenses incurred by the plan participant only from proceeds paid in compensation for the participant’s injuries. The court found that they do not entitle Plaintiff to recover from proceeds received in the wrongful death action for the losses suffered by the participant’s children. The Estate of Tracie Stratton was not a party to the wrongful death action and did not continue her professional negligence action after her death. Plaintiff does not allege that the Estate has received any proceeds that would be subject to Plaintiff’s subrogation and reimbursement rights. As such, Plaintiff’s subrogation and reimbursement rights do not apply in the circumstances of this action and the question of whether an ERISA plan preempts the Arizona Wrongful Death Act does not arise.
In Aviation W. Charters, Inc. v. United Healthcare Ins. Co., No. CV-14-00338-PHX-NVW, 2015 WL 143829 (D. Ariz. Jan. 12, 2015), Plaintiff brought suit seeking a declaration that Defendants violated certain ERISA requirements, to enjoin Defendants from continuing to pursue recoupment efforts against Plaintiff related to beneficiary claims, and to order Defendants to return to Plaintiff all monies recouped, and other relief. The court had granted summary judgment against Plaintiff on any federal law claims, finding that Plaintiff did not have a cause of action under ERISA because it is not a plan participant, beneficiary, or fiduciary and did not have a valid assignment of benefits from the beneficiary under the Plan. The court declined to exercise supplemental jurisdiction on any state law claim. United requested an attorneys’ fee award under 29 U.S.C. § 1132(g) (1) in the amount of $65,301.50. Defendants Renaud Cook Drury Mesaros, P.A. Welfare Benefit Plan and Renaud Cook Drury Mesaros, P.A. sought an award of attorneys’ fees in the amount of $3,080.00. The court found that Defendants may seek fees under 29 U.S.C. § 1132(g)(1) and the fact that Plaintiff failed to prove beneficiary status does not oust the court’s discretion to award fees under ERISA. The court also found that Defendants achieved “some success on the merits” by obtaining dismissal of Plaintiff’s ERISA action. But, the court found that the Hummell Factors weigh against a fee award.
In Iron Workers St. Louis Dist. Council Annutiy Trust v. Miller Bldg. Grp., LLC, No. 4:14-CV-01298-JAR, 2015 WL 153810 (E.D. Mo. Jan. 12, 2015), Plaintiffs sought to take a post-judgment deposition in aid of execution of their judgment in this matter involving delinquent fringe benefit contributions. The court found that this procedure is appropriate pursuant to Rules 69(a) and 30 of the Federal Rules of Civil Procedure.
In Metro. Life Ins. Co. v. Bentley, No. 14-CV-14939, 2015 WL 163581 (E.D. Mich. Jan. 13, 2015), the court denied Plaintiff Metropolitan Life Insurance Company’s motion for a temporary restraining order (“TRO”) but scheduled a hearing to consider its request for a preliminary injunction, in this matter where MetLife alleges that it erroneously overpaid monies to Defendant as beneficiary of a decedent’s life insurance benefits. Four factors govern whether the court will issue a TRO (the same four factors governing whether to issue a preliminary injunction): (1) whether the plaintiff has demonstrated a substantial likelihood of success on the merits; (2) whether there is a threat of irreparable harm to the plaintiff; (3) whether issuance of the injunction would harm others; and (4) whether the public interest is served by granting injunctive relief. Plaintiff, in its motion for a TRO, did not engage in any analysis of the four factors govern ing the propriety of granting temporary injunctive relief. Further, even if assuming, without deciding, that § 502(a)(3) of ERISA entitles a plan fiduciary to immediate equitable relief, Plaintiff did not provide the requisite proofs to demonstrate that § 502(a)(3) applies to this specific situation. Plaintiff did not identify anything in its initial filings demonstrating that a “term of the plan” requires enforcement to remedy the overpayment.
Pension Benefit Claims
In Levy v. Young Adult Inst., Inc., No. 13-CV-2861 JPO, 2015 WL 170442 (S.D.N.Y. Jan. 13, 2015), the court denied Plaintiffs motion for a preliminary injunction seeking to protect certain assets held in a trust under the terms of the Supplemental Pension Plan and Trust for Certain Management Employees of Young Adult Institute (the “SERP”), and also requesting expedited discovery. The court found that Plaintiffs did not demonstrate irreparable harm because Plaintiffs may reach beyond the SERP to satisfy any eventual judgment against Defendant. The court also found that Plaintiffs have not demonstrated an equitable interest in the Defendants’ assets sufficient to freeze them prior to trial. The court had denied Plaintiffs’ motion to amend their complaint to add equitable claims under ERISA § 502(a)(3), which sought a remedy at law or duplicate claims filed under § 502(a)(1)(B). The court explained that Plaintiffs’ existing equitable claim is insufficient to assert a lien or equitable interest over any of Defendants’ funds. Further, Plaintiffs’ proposed form of preliminary relief fails to identify a particular fund and targets Defendants’ general assets. Plaintiffs are not entitled to enjoin the restoration of funds from Defendant’s general assets to the Trust or to place a constructive trust over such funds.
Pleading Issues & Procedure
In Berkshire Life Ins. Co. of Am. v. Duggan, No. 8:14-CV-246-T-23MAP, 2015 WL 224671 (M.D. Fla. Jan. 15, 2015), Plaintiff Berkshire alleged that Defendant’s application for disability income insurance included false material statements and that the insurance plan is subject to ERISA. Plaintiff sued for (1) for a judgment declaring that the defendant is not a plan participant (Count I) and for rescission of the plan (Count II). Alternatively, Plaintiff sues under Florida law (1) for a judgment declaring that the plan is void or unenforceable (Count III) and (2) for rescission. Defendant moved to dismiss Counts I and II for failure to state a claim under ERISA because the plan is not an “employee welfare benefit plan,” as defined in ERISA. Defendant also argued that even if the plan is an ERISA plan, ERISA is inapplicable because ERISA’s “safe harbor” exemption applies. Lastly, Defendant argued that, if ERISA applies, Counts III and IV are preempted. The court denied Defendant’s motion. The court found that Defendant failed to identify a deficiency of a necessary element of an ERISA plan. With respect to the “safe harbor” argument, the regulation explicitly obliges the employer who seeks its safe harbor to refrain from any functions other than permitting the insurer to publicize the program and collecting premiums. Here, the complaint alleges that Defendant’s employer both “accept[s] delivery of any policy issued” to Defendant and is Defendant’s contact “regarding any increases in coverage.” These alleged “functions” exceed the “functions” permitted in Section 2510.3-1(j)(3). With respect to preemption, the court explained that the state law claims are alternative claims that are preempted only if ERISA applies, an issue that remains unresolved.
In Boyd v. ConAgra Foods, Inc., No. 4:14-CV-01435-JAR, 2015 WL 170572 (E.D. Mo. Jan. 13, 2015), Defendant moved to dismiss Count II of Plaintiff’s First Amended Complaint. In Count I, Plaintiff alleges that ConAgra breached the fiduciary duty owed to Plaintiff by failing to pay his severance under the Plan. In Count II, Plaintiff alleges that ConAgra breached its fiduciary duties to Plaintiff by communicating inconsistent and ambiguous information to him. Plaintiff requests: (1) benefits owed to him under the terms of the Plan, (2) an equitable surcharge, consisting of either the benefits that would have been owed to Plaintiff under the terms of the Plan or the value of wages, health insurance, retirement contributions and any raises and bonuses Plaintiff would have received had the Plan been properly administered, (3) prejudgment interest, and (4) attorneys’ fees and costs. Defendant argued that the harm alleged and relief requested are unallowably duplicative of the harm alleged and relief requested in Plaintiff’s first claim for benefits, and further, that the compensatory relief Plaintiff seeks in Count II is not available under ERISA. The court agreed with Plaintiff that a surcharge, in the form of monetary compensation for a loss resulting from a trustee’s breach of duty, is available upon a showing that the plan participant was harmed as a result of the plan administrator’s breach of a fiduciary duty. At this stage of the litigation, the court allowed Plaintiff to move forward with simultaneous claims under § 502(a)(1)(B) and § 502(a)(3). A Plaintiff is only barred from a duplicate recovery under § 502(a)(1)(B) and § 502(a)(3), not pleading them as alternate theories of liability.
Statute of Limitations
In Boles v. Eastman Kodak Co., No. 14-CV-6243-FPG, 2015 WL 213248 (W.D.N.Y. Jan. 14, 2015), the court dismissed Plaintiff’s complaint seeking payment of deferred vested benefits owed in 1998 because it is untimely under both the Plan’s 90-day limitations period and the otherwise applicable 6-year statute of limitations.
In Turner v. Sedgwick Claims Mgmt. Servs., Inc., No. 7:14-CV-1244-LSC, 2015 WL 225495 (N.D. Ala. Jan. 16, 2015), the court, after a lengthy analysis, enforced the following venue provision in Ascension’s long-term disability plan:
10.20 Forum Selection Clause.
Except as the law of the United States may otherwise require, any action by a Plan Participant or Beneficiary relating to or arising under the Plan shall be brought and resolved only in the U.S. District Court for the Eastern District of Missouri and in any courts in which appeals from such court are heard, and such court shall have personal jurisdiction over any Participant or Beneficiary named in such action.
The court held that pursuant to the mandatory forum-selection clause in the Plan documents, Plaintiff could file her ERISA action only in the United States District Court for the Eastern District of Missouri and a motion for a transfer to that district under the federal forum non conveniens statute, 28 U.S.C. § 1404(a) is the correct procedural vehicle by which to enforce a forum-selection clause pointing to a different federal court.
Aeschliman v. Dealer Mktg. Servs., Inc., No. 14-CV-1448, 2015 WL 231949 (C.D. Ill. Jan. 16, 2015) involves state law claims of breach of contract, violation of the Illinois Wage Payment and Collection Act, and violation of ERISA. Defendants removed the entire civil action from the Circuit Court of Tazewell County, Illinois to this court pursuant to 28 U.S.C. § 1441 on the basis of federal question jurisdiction. Defendants sought to dismiss the action for lack of venue or alternatively, to change venue to the Southern District of Iowa, Davenport Division. Plaintiff’s ERISA claim is that DMS failed to notify its plan administrator that Plaintiff was terminated, thus depriving him of COBRA benefits under ERISA. The court explained that much like the breach of contract claim, where the decision to withhold the COBRA benefits from Plaintiff is the location of the material events for this claim. The parties did not present the court with any information to definitively conclude where that decision was made, nor was there any evidence of where DMS’ plan administrator, alleged to be the individual responsible for administering DMS’ ERISA plan obligations, works or resides. The court presumed that the plan administrator is one of the DMS employees that is located or works in Davenport, Iowa. As such, the court concluded the ERISA claim weighs in favor of transferring the matter to Iowa, but other more significant relevant factors weigh in favor of keeping this action in Peoria, Illinois. The court denied Defendants’ motion.
In Danny P. v. Catholic Health Initiatives, No. 1:14-CV-00022-DN, 2015 WL 164183 (D. Utah Jan. 13, 2015), the court granted Defendants motion to transfer venue from Utah to Washington under 28 U.S.C. § 1404(a). Plaintiffs brought suit under ERISA to recover expenses incurred by them for the treatment of one of the plaintiffs at the Island View Residential Treatment Center located in Utah. Plaintiffs are residents of Kitsap County, Washington. The health plan was provided to Plaintiffs through employment that took place in Washington. The court found that although the proper laying of venue is not a factor under § 1404(a), it adds weight to the analysis of transferring “in the interest of justice” where the validity of venue in Utah is doubtful. The court also found that the Western District of Washington bears a greater, and therefore a more just connection to the case than Utah. Lastly, the court noted that although choice of counsel is not addressed in 28 U.S.C. § 1404(a), and the Tenth Circuit has yet to rule on this issue, the Seventh Circuit has held that convenience of counsel is not a relevant factor in determining whether change of venue is proper under § 1404(a). The court found the Seventh Circuit’s reasoning persuasive and does not consider the convenience of counsel to be a relevant factor.
Withdrawal Liability & Unpaid Benefit Contributions
In Carpenters Pension Trust Fund for N. California v. Walker, No. 12-CV-01447-WHO, 2015 WL 224940 (N.D. Cal. Jan. 16, 2015), the court found that defendants K & M Industries, Inc. (“K & M”) and D & B Engineered Applications, Inc. (“D & B”) are “trades or businesses” so as to render them control group members pursuant to 29 U.S.C. § 1301(b)(1). Both K & M and D & B have an economic nexus to the operations of Rollie French, Inc. (“RFI”), a company that terminated a collective bargaining agreement with the plaintiff Pension Fund. Because this establishes that they were “trades or businesses” under section 1301(b), the court found that they are jointly and severally liable for RFI’s withdrawal liability along with the other members of the control group.
In Operating Engineers Local 324 Health Care Plan v. Diversicon Excavating LLC, No. 12-11492, 2015 WL 225506 (E.D. Mich. Jan. 16, 2015), the court considered whether unpaid plan fringe benefits constitute plan assets sufficient to make employers plan fiduciaries. Noting that this is an unsettled issue in the Sixth Circuit, the court recognized that the vast majority of persuasive authority indicates that employer contributions become an asset of the plan only when the contribution has been made. Consequently, the Court held that Defendant Farrell did not exercise authority over plan assets when he did not pay fringe benefits and, therefore, did not breach his fiduciary duty when he did not pay them.
* 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.