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ERISA Watch – October 19, 2015

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Happy Monday! In ERISA news this week, the U.S. Supreme Court denied cert in Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc., where the Ninth Circuit held that health providers with valid assignments of benefits have standing under Article III of the U.S. Constitution to prosecute claims for benefits whether or not they have billed their patients for any balance owing on their accounts. In LeGras v. Aetna Life Insurance Company, Aetna petitioned for certiorari, challenging the Ninth Circuit’s determination that where the 180-day internal appeal deadline falls on a Saturday, neither that day nor Sunday count in the computation of the 180 days. There’s rarely an ERISA case that I’d like to see the Supremes grant cert but this might be one of them. Insurers routinely issue benefit determinations late (often way late) without consequence. It seems absurd and unfair to seek to deprive a claimant the right to pursue his claim because he did not mail in his appeal on a Saturday. Indeed, I can’t recall the last time I received a letter from a plan administrator dated on a Saturday. But hey, way to go get ’em Aetna.

This week’s notable decision reminds me of a famous quote: “[t]here’s an old saying in Tennessee. Fool me once, shame on you. Fool me…you can’t get fooled again!” …that is, unless you have an ERISA benefits claim. A court may give an insurance company three chances before it finally puts the gavel down. In Marcin v. Reliance Standard Life Ins. Co., following two previous remands to the insurance company, the court decided the plaintiff’s claim for long-term disability benefits in her favor. Even so, the court declined to decide the ultimate question of whether the plaintiff was “totally disabled” at the time she stopped working. Instead, the court found that Reliance’s denial of benefits was not reasonable because it reflects: (1) a selective review of the medical evidence; (2) reliance on a mischaracterization of a doctor’s report; and (3) a failure to meaningfully engage with the undisputed fact that the plaintiff never actually worked full time. Read about this and more below!

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


SCOTUS denied the petition for writ of certiorari. United Healthcare of Arizona v. Spinedex Physical Therapy USA, Inc., No. 14-1286,— S.Ct. —, 2015 WL 1914438 (Mem), 83 USLW 3841 (Oct. 13, 2015). In Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc., 770 F.3d 1282 (9th Cir. 2014), the Ninth Circuit held that health providers with valid assignments of benefits have standing under Article III of the U.S. Constitution to prosecute claims for benefits whether or not they have billed their patients for any balance owing on their accounts.

Select Slip Copy & Not Reported Decisions

Attorneys’ Fees

Third Circuit

Philadelphia lawyer fee survey may be used to establish reasonable hourly rate in ERISA matter. Einhorn v. Dimedio Lime Co., No. CV 13-3634 (RBK/JS), 2015 WL 5920911 (D.N.J. Oct. 9, 2015) (Judge Robert B. Kugler). In matter involving withdrawal liability, the court awarded attorneys’ fees in the amount of $25,950 and costs in the amount of $825.56. The court found that the 86.50 hours expended on this matter was reasonable and that the requested hourly rate of the two attorneys, $300 per hour, is reasonable in light of the 2014 Philadelphia Community Legal Services (“CLS”) survey of Philadelphia lawyer attorney’s fees.

Disability Benefit Claims

Third Circuit

Abuse of discretion review applies in face of challenge that unauthorized third-party made the benefits determination. Cipriani v. Liberty Life Assurance Co. of Boston, No. 4:12-CV-1335, 2015 WL 5923454 (M.D. Pa. Oct. 9, 2015) (Judge Matthew W. Brann). The court adopted the Magistrate Judge’s Report and Recommendation denying Plaintiff’s motion seeking de novo review of his long-term disability denial. The court rejected Plaintiff’s argument that Defendant delegated its responsibility for determining his eligibility for benefits to Liberty Mutual Insurance Company, an unauthorized third party. The LTD policy vests Liberty Life with the authority, “in its sole discretion, to construe the terms of [the] policy and to determine benefit eligibility.” Stephanie Berry, an Appeal Review Consultant who was chiefly responsible for the final appeal decision, testified in a deposition that she believed she was employed by Liberty Life but actually paid by Liberty Mutual and that they were essentially “one and the same.” Defendant relied on an affidavit from James Pugh (Liberty Life’s Assistant Secretary) in which he asserted that although Ms. Berry and other Liberty Life personnel may have been paid by Liberty Mutual, at the time they were making the determinations, they were working for Liberty Life under the direction and control of Liberty Life’s officers and board of directors. The court found that the evidence sufficiently indicates that Liberty Life made the benefits decisions being challenged and that Plaintiff’s claims are subject to review for abuse of discretion. The court noted that “this controversy would be entirely avoidable if the defendant exercised greater care and clarity in its administration of this plan.”

DC Circuit

Court enters judgment in favor of disability claimant impaired by hypercoagulable thrombosis, portal vein thrombosis, status post splenorenal shunt, and renal cell carcinoma. Marcin v. Reliance Standard Life Ins. Co., No. CV 13-1308 (ABJ), __.F.Supp.3d___, 2015 WL 5996341 (D.D.C. Oct. 14, 2015) (Judge Amy Berman Jackson). In this matter involving long-term disability benefits, the court previously remanded the matter to Reliance for further consideration on no less than two occasions. Upon the third time that Reliance concluded Plaintiff was capable of performing all of the material duties of her regular occupation on a full time basis when her coverage for benefits ended, the court determined that it would enter in judgment in favor of Plaintiff. The court noted, however, that the entry of judgment for Plaintiff is not a judicial determination that plaintiff was “totally disabled” at the time she stopped working, but rather, based on the finding that Reliance’s denial of benefits to Plaintiff was not reasonable. In sum, the court found that Reliance’s decision reflects: (1) a selective review of the medical evidence that omits any mention of three relevant records that undermine the conclusion that Plaintiff could work full-time; (2) reliance on a mischaracterization of a doctor’s report; and (3) a failure to meaningfully engage with the undisputed fact that Plaintiff never actually worked full time. Taken together, Reliance’s determination was not supported by “substantial evidence.”

ERISA Preemption

Sixth Circuit

Severance provision in employment agreement does not constitute an ERISA plan. Williams v. CCPI, INC., No. 1:15-CV-269, 2015 WL 5935821 (S.D. Ohio Oct. 13, 2015). Plaintiff alleges that he is entitled to severance payments under the terms of an employment agreement between the parties. The court granted Plaintiff’s motion to remand to state court, finding that the severance provision in the employment agreement does not constitute an ERISA plan and is thus not preempted. Although Defendant must exercise its judgment to determine whether Plaintiff was terminated without cause or resigned for “Good Reason”, the court found that the discretion to determine a single employee’s eligibility for severance payments of the type specified in the parties’ agreement has not been held sufficient in and of itself to satisfy the first prong of the Kolkowski test (whether there is administrative discretion over the distribution of benefits). The agreement does not vest CCPI with any discretion to alter the level, amount, duration, or timing of benefits. The court found that the second factor to be considered – whether the agreement creates ongoing demand on the employer’s assets – also weighs against a finding that the Employment Agreement is covered by ERISA.

Ninth Circuit

Request for order to enforce a QDRO is not preempted by ERISA. NONNA VON SONN, Plaintiff, v. RAYMOND X. BACA, Defendant. NONNA VON SONN, Plaintiff, v. RAYTHEON BARGAINING RETIREMENT PLAN, Defendant., No. EDCV15000757TJHJCX, 2015 WL 6085693 (C.D. Cal. Oct. 16, 2015) (Judge Terry J. Hatter, Jr.). The court found that removal was not proper of lawsuit seeking to enforce the terms of a 1998 judgment issuing a QDRO that required Plaintiff to be named “as the beneficiary of any [retirement/pension] benefits payable or available in the event of [Baca’s] death. The court found that Plaintiff’s Request for Order to enforce the terms of the Judgment is not an ERISA claim. The Judgment is a QDRO not preempted by ERISA because it specified: (i) the name and the last known mailing address (if any) of the participant and the name and mailing address of each alternate payee covered by the order; (ii) the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such order applies; and (iv) each plan to which such order applies. The court deferred to the jurisdiction of the Riverside County Superior Court to ensure that the terms of the 1998 QDRO are consistent with the terms of the Judgment, and to observe comity with respect to California’s traditional jurisdiction over matters of domestic relations and the superior competence of California state courts in settling family disputes.

Allegation of fraud related to the termination of insurance benefits is not preempted by ERISA. McGill v. Pacific Bell Telephone Company, No. CV1506323BROPLAX, 2015 WL 6039267 (C.D. Cal. Oct. 15, 2015) (Judge Beverly Reid O’Connell). The pro se Plaintiff filed suit against Defendant alleging that it owes him $5,000 for cancelling his insurance benefits without prior notice. Defendant removed the action and in seeking remand to state court, Plaintiff contended that his claim is not preempted by ERISA because he “alleges fraud in the method used to cancel the Plaintiff’s insurance benefits by telling him in a recorded phone conversation not to sign with Aon Insurance,” which is not a federal issue. The court found that Plaintiff’s state law fraud claim does not fall within the scope of complete preemption under ERISA § 502(a), 29 U.S.C. § 1132(a). Moreover, the court found that Plaintiff could not have brought his claim under ERISA § 502(a)(1)(B) and he seeks to remedy violations of legal duties independent of ERISA. The court declined Plaintiff’s request to impose sanctions on Defendant.

ERISA does not regulate the relationship between third-party medical supply companies and ERISA plans. Nationwide DME, LLC v. Cigna Health & Life Ins. Co., No. CV-14-02026-PHX-SPL, __F.Supp.3d___, 2015 WL 5827985 (D. Ariz. Sept. 30, 2015) (Judge Steven P. Logan). In suit by supplier of durable medical equipment against insurer of medical plans for payment of programmable computerized pumps for which the supplier sought preauthorization prior to providing the patients with the pumps, the court found that the supplier’s state law claims are not preempted by ERISA. The court found that the existence of ERISA plans is not essential to the supplier’s claims. Thus, the state-law claims survive the “reference to” preemption inquiry. The court also found that the claims survive the “connection with” inquiry because the state law claims will have no direct effect on the underlying ERISA plans.

Exhaustion of Administrative Remedies

Ninth Circuit

Notice-prejudice rule does not extend to 180-day administrative appeal deadline. Dietz-Clark v. HDR, Inc., No. 3:15-CV-00035 JWS, 2015 WL 6039587 (D. Alaska Oct. 15, 2015) (Senior Judge John W. Sedwick). The court granted United of Omaha’s motion to dismiss for Plaintiff’s failure to exhaust administrative remedies in connection with her denial of long-term disability benefits claim because she did not file an appeal of the denial within 180 days. Plaintiff alleged that she did not file an appeal because she hoped to rehabilitate herself. Plaintiff’s attorney requested that United of Omaha reopen her claim, arguing that the missed deadline was not fatal to her request because of Alaska’s “notice-prejudice rule,” which is not preempted by ERISA based on UNUM Life Insurance Co. v. Ward. United of Omaha declined to reopen the claim. The court declined to extend the notice-prejudice rule to cover contractual administrative appeal deadlines.

Medical Benefit Claims

Second Circuit

Denial of residential treatment for substance abuse affirmed. Tansey v. Anthem Health Plans, Inc., No. 14-3931, __Fed.Appx.___, 2015 WL 5999320 (2d Cir. Oct. 15, 2015) (DENNIS JACOBS, RAYMOND J. LOHIER, JR., Circuit Judges and GEOFFREY W. CRAWFORD,* District Judge). The court affirmed the grant of summary judgment in favor of Defendant on Plaintiff’s claim for residential treatment in a substance abuse facility. The court found that the denial of benefits was not arbitrary and capricious where four physicians opined that residential rehabilitation treatment was not medically necessary-including one outside consultant and one consultant retained by an independent, impartial review organization, with no connection to Anthem.

Fifth Circuit

Waiver under Settlement Program is valid and precludes claims related to workplace injury. Castillo v. Tyson Foods, Inc., No. CIV.A. H-14-2354, 2015 WL 6039236 (S.D. Tex. Oct. 15, 2015) (Judge Lee H. Rosenthal). The court found that Plaintiff’s claims against Tyson are precluded by her participation in Tyson’s Workplace Injury Settlement Program and her agreement to accept benefits under that program. Plaintiff was born in Mexico, has a sixth-grade education, and cannot speak English. She was injured at a Tyson food-processing plant in Houston, Texas when a machine fell on her hand and pulled it into a vat while she held a nylon bag underneath a dumper (a machine that deposits chicken into a vat for processing). The court declined to strike an affidavit by a Tyson nurse, wherein she attested that she provided Plaintiff with the Program’s SPD and acceptance-and-waiver form in Spanish and thoroughly explained the terms to her before Plaintiff signed the waiver without any questions. The court found that the waiver was knowing and voluntary, specified the true intent of the parties, and was conspicuous and on the face of the agreement. The court also found that it was statutorily and contractually valid and that there was no procedural or substantive unconscionability.

Tenth Circuit

Denial of residential treatment for eating disorder affirmed. M.K. v. Visa Cigna Network POS Plan, No. 14-4143, __Fed.Appx.___, 2015 WL 5933591 (10th Cir. Oct. 13, 2015) (BRISCOE, HOLMES and MORITZ, Circuit Judges). The court affirmed the district court’s determination that Defendant’s denial of coverage for residential treatment for an eating disorder was not arbitrary and capricious. Cigna’s physician, Dr. Narendra Patel, determined that inpatient residential treatment of the eating disorder was not medically necessary and that a partial hospitalization program is available to assist Plaintiff to learn coping skills to deal with binging, purging, and restricting. The court found that the Visa Plan Document gave the plan administrator and any appointed claims administrators, including Cigna, full power, discretion, and authority to administer the Plan and apply all of its provisions. Although the Plan required decisions regarding medical necessity to be made by “the Medical Director” and there was no evidence that a Medical Director made the decision, the court found that this procedural irregularity was nothing more than a “technicality” and Cigna substantially complied with ERISA regulations and the terms of the Plan and Summary Plan Description. In considering all of the factors, the court found that immediate admission to residential treatment was not necessary.

Pension Benefit Claims

First Circuit

Terms of settlement agreement and pension plan do not provide Plaintiff with the right to accrue benefit service while on disability leave. Vendura v. Northrop Grumman Corp., et al., No. 14-10943-WGY, 2015 WL 6085698 (D. Mass. Oct. 16, 2015). The core dispute in this case is whether the Northrop Grumman Space & Mission Systems Corp. Salaried Pension Plan Administrative Committee properly assessed the amount of Benefit Service Plaintiff had accrued. The court found that no explicit terms of a settlement agreement grants Plaintiff any Benefit Service for time spent on disability leave and its guarantee of continued employee status until retirement does not on its own give Plaintiff any right to Benefit Service credit during this period. The pension plan terms create a sixty-month cap on the amount of Benefit Service a Participant can receive for long term disability leave beginning after January 1, 2000. Because Plaintiff had started his leave in June 2000 and had been on leave for more than five years, this five-year maximum was added to his seven years of actual service to make up twelve years of Benefit Service. The Summary Plan Description also does not entitle Plaintiff to more years of Benefit Service and even if the SPD is ambiguous, the Plan controls and the SPD cannot alter the Court’s construction of the Plan. Lastly, the court found that Defendant did not misrepresent the fact that Plaintiff could not accrue Benefit Service under the Plan.

Retaliation Claims

Seventh Circuit

Plaintiff provided an ERISA framework supported by factual allegations that make it plausible Defendant’s actions were “at least” motivated by intent to frustrate Plaintiff’s attainment of benefits. Deka v. Countryside Ass’n for People With Disabilities, Inc., No. 15-CV-2611, 2015 WL 5996337 (N.D. Ill. Oct. 14, 2015) (Judge Amy J. St. Eve). The court denied dismissal of ERISA § 510 interference claim where Plaintiff alleged that: she participated in Countryside’s long-term disability coverage and group health insurance plans during her five year tenure with the company; she was qualified for her position, identifying a number of occasions on which Countryside recognized and commended her for her contributions to the organization; Countryside learned about Plaintiff’s multiple sclerosis no later than February 27, 2012 when she submitted her FMLA leave application; on February 28, 2012, Countryside discontinued her health insurance; and, on March 30, 2012, terminated her employment “with the specific intent” of preventing her from using employment-related health insurance benefits. Plaintiff also identified a number of comments Countryside’s directors made to her regarding the costliness of covering serious illnesses and their disapproval of FMLA leave.

Withdrawal Liability & Unpaid Benefit Contributions

Third Circuit

Motion to dismiss denied where complaint adequately pleads claim for withdrawal liability based on alter ego theory, successor liability, and common control. New Jersey Bldg. Laborers’ Statewide Pension Fund & Trustees Thereof v. CID Constr. Servs., LLC, No. 15CV3412SRCCLW, 2015 WL 5965627 (D.N.J. Oct. 14, 2015) (Judge Stanley R. Chesler). In matter seeking withdrawal liability, the court denied both CID’s motion to dismiss and CID’s motion for summary judgment. With respect to summary judgment, the court found that the Pension Fund has had no opportunity to conduct discovery on the actual relationship between the alleged alter ego company and the judgment debtor, and thus material issues of fact pertaining to the relationship between the companies remain in dispute. With respect to the motion to dismiss, the court found that the Pension Fund adequately pled an alter ego theory of liability: CID and U.S.E.U.S. collaborate on labor and employee relationships, and that the companies use the same equipment and machinery; and the companies have common ownership, common business operations, and a common corporate structure, as well as operating from the same location and operations. The court also found that the Complaint pleads sufficient facts to make plausible that CID would be responsible for U.S.E.U.S.’s withdrawal liability on a theory of successor liability: the Pension Fund asserts that the entities are related through family ownership and employment, and that the companies share equipment, premises, and a place of business; and CID exists to avoid U.S.E.U.S.’s withdrawal liability. Lastly, the court found that there are sufficient facts alleged in the Complaint that the Pension Fund has stated a common control claim upon which relief could be granted by the Court: the Pension Fund alleges that CID exists to avoid U.S.E.U.S.’s withdrawal liability, and that the businesses shared common ownership, common business operations, and a common corporate structure; the same individual or individuals own, manage, and oversee the operations of CID and U.S.E.U.S.; and CID and USEUS perform the same or similar services, in construction, and that they use and share the same equipment and machinery. CID and U.S.E.U.S. both engage in the business of construction.

Default judgment granted in favor of funds of unpaid benefit contributions. IBEW Local 102Welfare, Pension, Annuity & Joint Apprenticeship Training Funds v. BCG Solar, LLC, No. 13-CV-4473 (KM), 2015 WL 5996320 (D.N.J. Oct. 13, 2015) (Judge Kevin McNulty). The court entered default judgment against BCG but not against BAM, and awarded IBEW $95,356.85, comprising (i) $64,043.29 in outstanding fees; (ii) liquidated damages of $23,808.66; and (iii) $7,504.90 in attorneys’ fees and costs. Postjudgment interest will accrue at the appropriate rate pursuant to 28 U.S.C. § 1961.

* 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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