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ERISA Watch – Play or Pay – Claimants and Administrators Must See the Administrative Process Through

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Follow me to Tennessee!  This week’s notable decisions are far apart on the spectrum, yet more similar than you might think, and not just because they’re both out of Tennessee and involve Reliance Standard Life Insurance Company.  Let’s start with the bad/bizarre (for Claimants):  Jordan v. Reliance Standard Life Insurance Company, No. 1:16-CV-23, 2018 WL 543041 (E.D. Tenn. Jan. 24, 2018).  Jordan filed a lawsuit seeking long-term disability benefits after Reliance Standard failed to make a timely decision on her appeal.  Reliance Standard’s decision was due on December 18, 2015 (45 days following the appeal submission) but Jordan did not file suit until February 5, 2016 (more than 90 days following the appeal submission).  In litigation, Reliance Standard argued that Jordan failed to exhaust her administrative remedies.  The court agreed.  Although Reliance Standard did not make a timely decision within 45 days of Jordan’s appeal, Jordan continued to pursue her administrative remedies for nearly two more months, including traveling to participate in an Independent Medical Examination and expressing a willingness to reschedule that exam.  The court explained that because Jordan continued to pursue her administrative remedies rather than immediately file suit when Reliance did not render a decision by the 45-day deadline, she must now pursue the administrative pathway to its end.  The court denied both motions for judgment and remanded the action to Reliance Standard.

Just a day earlier, Carlson v. Reliance Standard Life Insurance Company, No. 3:15-CV-00200, 2018 WL 508070 (M.D. Tenn. Jan. 23, 2018) came out.  In this case involving a denial of life insurance benefits, the court determined that Reliance Standard did not substantially comply with the ERISA regulations because it did not consider the Amended Medical Examiner Report which contained information supporting the change of the cause of death from “suicide” to “could not be determined.”  Reliance Standard argued that it substantially complied with the regulations by granting Carlson multiple extensions, and that it is not required to hold an appeal open indefinitely.  The court explained that when Carlson served notice that potentially important information was forthcoming that is directly relevant to her claim, she has a right under § 2560.501-1 for Reliance Standard to hold the record open pending receipt of that information.  Closing of the “administrative record” was arbitrary and did not substantially comply with the ERISA regulations.  The court remanded the case to Reliance Standard for consideration of the evidence.

Both decisions reflect the courts’ view of the importance of the ERISA “administrative process” playing out to the very end, even if it results in a decision coming out beyond the statutory deadline.  There’s certainly appeal to the notion that the administrative process should be a flexible, open, information-sharing process not hampered by the rigidity of statutory deadlines or the fail-safe of substantial compliance.  As Judge Kozinski stated in Booton v. Lockheed Martin Medical Benefit Plan:  “There is nothing extraordinary about this; it’s how civilized people communicate with each other regarding important matters.”  Booton, 110 F.3d 1461, 1463 (9th Cir. 1997).  I suppose in a perfect system where the process is truly non-adversarial and the administrator is actually trying to come to an accurate decision, allowing the process to play out makes some sense.  But in real life, at least from the plaintiff’s perspective, we know there may be adverse consequences for allowing the administrative process to drag out.  Sometimes it makes sense to file suit immediately, other times it makes sense to allow the administrator to continue with the decision-making process.  But I have different advice for Tennesseans:  On Day 46, do not pass Go, do not collect $200, go straight to court.

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

Attorneys’ Fees

Eleventh Circuit

Bauman by & through Sumner v. Publix Super Markets, Inc., No. 3:15-CV-75-WSD, 2018 WL 508067 (N.D. Ga. Jan. 23, 2018) (Judge William S. Duffey, Jr.).  Plaintiff previously lost his claim for ESOP benefits, which he brought on the basis that the Plan was required to send his benefits to his conservator – not to Plaintiff directly – because the company knew that he was legally incompetent (he lost all of the money in an internet scam).  Defendants sought attorneys’ fees.  The court found that attorney’s fees under ERISA are not warranted here, particularly in light of the fact that Sumner brought claims on behalf of his ward in good faith. The court also determined that Plaintiff’s conduct does not warrant sanctions under 28 U.S.C. § 1927.   Negligence in prematurely filing suit before exhausting Plaintiff’s administrative remedies is insufficient to show bad faith.

Breach of Fiduciary Duty

Second Circuit

Laurent v. PricewaterhouseCoopers LLP, No. 06-CV-2280 (JPO), 2018 WL 502239 (S.D.N.Y. Jan. 19, 2018) (Judge J. Paul Oetken).  The court denied Plaintiffs’ motion for reconsideration.  The court remains convinced that Section 502(a) does not authorize the form of “legal” relief that Plaintiffs seek.  The “structure” of ERISA does not compel the conclusion that Section 502(a)(3) authorizes them to bring an action to enforce its substantive vesting requirements.  Plaintiffs seek injunctive relief but the court explained that there is no precedent or authority authorizing a federal court to enjoin a plan administrator to comply with ERISA.  “The mere fact that Plaintiffs seek relief against a trustee does not, by itself, transmogrify legal relief into appropriate equitable relief under ERISA.”  [Transmogrify means to transform, especially in a surprising or magical manner.]  Lastly, Plaintiffs have not identified any breach of fiduciary duty warranting an equitable surcharge.

Ninth Circuit

Acosta v. Hutcheson, No. 17-35076, __F.App’x__, 2018 WL 495535 (9th Cir. Jan. 22, 2018) (Before: REINHARDT, TROTT, and HURWITZ, Circuit Judges).  In a short unpublished opinion, the Ninth Circuit held that the district court properly granted summary judgment against the defendant plan fiduciary because he failed to raise a genuine dispute of material fact as to whether he engaged in a prohibited transaction under ERISA in violation of his fiduciary duties.  The district court opinion is at Perez v. Hutcheson, No. 1:12-CV-00236-EJL, 2016 WL 7256785, (D. Idaho Dec. 15, 2016), aff’d sub nom. Acosta v. Hutcheson, No. 17-35076, 2018 WL 495535 (9th Cir. Jan. 22, 2018).

Class Actions

Ninth Circuit

Atzin v. Anthem, Inc. & Anthem UM Services, No. 217CV06816ODWPLAX, 2018 WL 501543 (C.D. Cal. Jan. 19, 2018) (Judge Otis D. Wright, II).  In this putative class action, the court denied Defendants’ motion to dismiss, finding that that Anthem is a proper defendant for Plaintiffs’ claims under § 1132(a)(1)(B) and § 1132(a)(3) given the allegation that Anthem had a hand in developing coverage guidelines that determine what types of claims should be granted or denied.  The court also determined that Plaintiffs’ § 1132(a)(3) claim is not duplicative of their § 1132(a)(1)(B) claim.  The § 1132(a)(3) claim seeks “1) declaratory relief that Defendant’s denials of requests for microprocessor controlled prostheses are wrong and improper; 2) an accounting; and 3) injunctive relief requiring Defendants to reevaluate and reprocess Plaintiffs’ requests; 4) provide notice of the reevaluation and reprocessing; and 5) precluding Defendants from relying on specific reasons not recited in their form denial letters.”

Disability Benefit Claims

Third Circuit

Killebrew v. The Prudential Insurance Company of America, No. 17-2137, __F.App’x__, 2018 WL 526487 (3d Cir. Jan. 24, 2018) (Before: AMBRO, RESTREPO, and FUENTES, Circuit Judges).  Where the Health & Income Protection Program for J.P. Morgan Chase Bank and Certain Affiliated Companies (the “wrap document”) constitutes the terms of the plan and gives that discretion to Prudential, the district court correctly found the denial of benefits in this case should be reviewed for an abuse of discretion.  The court vacated in part the district court’s grant of summary judgment to Prudential and remanded for the court to consider whether it was arbitrary and capricious for Prudential (1) to decide not to conduct an independent medical evaluation, (2) to rely on its medical experts’ conclusions that were contrary to Plaintiff’s treating physicians’ opinions, and (3) to reject her complaints of fatigue and pain.

Sixth Circuit

Barber, III v. Lincoln National Life Insurance Company, No. 17-5588, __F.App’x__, 2018 WL 509318 (6th Cir. Jan. 23, 2018) (BEFORE: COLE, Chief Judge; SILER and COOK, Circuit Judges).  The Sixth Circuit affirmed the district court’s dismissal of Plaintiff’s claim challenging Lincoln National’s offset from his disability benefits his earnings as a political consultant for failure to state a claim.  The court also affirmed the dismissal of the claim challenging Lincoln National’s calculation of those offsets using figures he disclosed to Lincoln rather than the numbers he later reported for federal income tax purposes since Plaintiff failed to exhaust administrative remedies.


Sixth Circuit

Quarles v. Hartford Life & Accident Insurance Company, No. 3:15-CV-372-DJH-CHL, 2018 WL 523211 (W.D. Ky. Jan. 23, 2018) (Judge David J. Hale).  In this dispute challenging Hartford’s termination of Plaintiff’s long-term disability benefit claim, the court overruled Plaintiff’s objections to the Magistrate Judge’s denial of his motion to compel Hartford to respond to various discovery requests based on Hartford’s supplemental discovery responses and stipulation that the court would review its decision to terminate benefits de novo.

ERISA Preemption

Third Circuit

MHA, LLC v. Empire Healthchoice HMO, INC., et al., No. 17-6391-SDW-LDW, 2018 WL 549641 (D.N.J. Jan. 25, 2018) (Judge Susan D. Wigenton).  The court granted Plaintiff’s motion to remand and dismissed as moot Defendants’ motion to dismiss.  The court determined that MHA is neither a participant nor a beneficiary as defined by ERISA. Additionally, MHA is a third-party provider and disclaims any attempt to assert the rights of the patients it treated, so it does not have standing to bring suit under Section 502(a).  Because Plaintiff does not have standing under ERISA, the court did not reach the second prong of the Pascack test.

Ninth Circuit

Crosby v. California Physicians’ Serv., No. SACV1701970CJCJDEX, __F.Supp.3d__, 2018 WL 540109 (C.D. Cal. Jan. 23, 2018) (Judge Cormac J. Carney).  In this case alleging (1) breach of the covenant of good faith and fair dealing, (2) intentional interference with contractual relations, (3) violations of Business and Professions Code Sections 17200, and (4) negligence against Defendant for denying coverage of Applied Behavior Analysis (“ABA”) therapy until an Independent Medical Review ordered Blue Shield to authorize the ABA treatment, the court found that the plan at issue is governed by ERISA and Plaintiffs’ state law claims are preempted.  The harm that Plaintiffs suffered was inextricably intertwined with Blue Shield’s decision not to pay.  Since ERISA Section 514(a) bars Plaintiffs’ state law claims, the court granted Defendants’ motion to dismiss.

Snyder v. Los Angeles Times, No. 216CV02680TLNEFB, 2018 WL 528170 (E.D. Cal. Jan. 23, 2018) (Judge Troy L. Nunley).  In his state breach of contract cause of action, Plaintiff alleged he entered into a written agreement with Times/Tribune under which he was to receive $2,127.69 in payments until age 65, but their agent, Prudential, breached the agreement because Prudential failed and refused to make payments required under the contract.  Plaintiff alleged he suffered loss of monthly income of approximately $2,127.69 per month, emotional distress, general damages, and loss of enjoyment of life.  Defendants argued that Plaintiff seeks ERISA-governed long-term disability benefits and his claims are completely preempted by ERISA.  The court granted Plaintiff’s motion to remand because Defendants have not shown that the state law claims are entirely encompassed by ERISA.

Exhaustion of Administrative Remedies

Sixth Circuit

Jordan v. Reliance Standard Life Insurance Company, No. 1:16-CV-23, 2018 WL 543041 (E.D. Tenn. Jan. 24, 2018) (Judge Thomas W. Phillips).  See notable decision summary above.

Eleventh Circuit

Waters, et al. v. AIG Claims, Inc., et al., No. 2:17-CV-133-WKW-GMB, 2018 WL 547642 (M.D. Ala. Jan. 24, 2018) (Magistrate Judge Gray M. Borden).  “The court understands that, with respect to Plaintiffs’ ERISA claims, the parties dispute whether they should be allowed to pursue a deemed denial or fully exhausted theory of liability. The court finds that Defendants have not met their burden of demonstrating that a deemed denial theory of liability is futile or prohibited when a claim also has been ‘actually denied’; thus, to the extent Defendants challenge these dual theories of liability, they may do so in a responsive pleading or motion.”

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Carlson v. Reliance Standard Life Ins. Co., No. 3:15-CV-00200, 2018 WL 508070 (M.D. Tenn. Jan. 23, 2018) (Judge Waverly D. Crenshaw, Jr.).  See notable decision summary above.

Eleventh Circuit

Hassoun v. Reliastar Life Insurance Company, No. 17-CV-60528, 2018 WL 490617 (S.D. Fla. Jan. 19, 2018) (Judge Beth Bloom).  The court determined that the insured, Walid Hassoun, who was diagnosed with amyotrophic lateral sclerosis (“ALS”) complied with all Policy requirements to change his beneficiary designation for the Policy. “Although he could not use his hands to write, he brought a blank beneficiary form to the home of his sister-in-law, who also held power of attorney. Walid then asked her assist him with filling out the 2013 Beneficiary Form per his wishes. Walid affixed his thumbprint below the signature line with the intent to authenticate the document, and he instructed his sister-in-law to mail the form to the U.S. to be sent to Reliastar. It is undisputed that Reliastar received the 2013 Beneficiary Form, but due to human error, never processed it. The 2013 Beneficiary Form cannot be avoided—and Walid’s wishes defeated—simply because of Reliastar’s administrative error.”

Pension Benefit Claims

Fifth Circuit

Schexnayder v. Louisiana Carpenters Pension Fund, No. CV 2:17-00938, 2018 WL 505406 (W.D. La. Jan. 22, 2018) (Judge James T. Trimble, Jr.).  The Fund did not abuse its discretion by suspending Plaintiff’s pension benefits after determining that his “sales” job with a contractor working within the Building Trades and Construction Industry constituted Disqualifying Employment for an Early Retiree.

Pleading Issues & Procedure

Ninth Circuit

On v. Vannucci, M.D., Inc., et al., No. 214CV02714TLNCMK, 2018 WL 489157 (E.D. Cal. Jan. 19, 2018).  In this employment dispute concerning ERISA and state law claims, the court granted Defendant’s motion to dismiss in favor of compulsory arbitration.  The court rejected Plaintiffs’ argument that Defendants are in default in arbitration and waived any right to compel arbitration by actively participating in the litigation for three years.

Eleventh Circuit

Teitel, M.D., J.D. v. Capell Howard, P.C., et al., No. 2:17-CV-00017-KOB, 2018 WL 525296 (M.D. Ala. Jan. 23, 2018) (Judge Karon Owen Bowdre).  The pro se plaintiff (also an attorney), sued Defendants, including a former U.S. District Judge, alleging they fraudulently conspired against him to “effect a wrongful award” in an ERISA case filed against Plaintiff in September 2001.  The court granted both motions to dismiss.  The court found that the immunity doctrine applies and Plaintiff’s claims against the Federal Defendants are due to be dismissed for failure to state a claim upon which relief can be granted.  With respect to the other defendants, the court found no plausible claims for abuse of process, negligence or misrepresentation.

Statutory Penalties

Third Circuit

Weiss v. Surgical Anesthesia Servs., LLC, No. 1:17-CV-1162, 2018 WL 527941 (M.D. Pa. Jan. 24, 2018) (Judge Sylvia H. Rambo).  Plaintiffs alleged that the company issued him the required COBRA notification late and only after Plaintiff Weiss and his attorney sent repeated requests for the notification.  The court denied Defendants’ motion to dismiss because Plaintiffs have stated a claim that Defendants failed to provide them with proper notice under the notice requirements of COBRA.


Sixth Circuit

Kelly v. Liberty Life Assurance Co. of Boston, et al., No. CV 17-139-DLB, 2018 WL 558643 (E.D. Ky. Jan. 25, 2018) (Judge David L. Bunning).  In this case where the only Plan documents are an SPD and the “Wrap Plan” document, and only the SPD contains a forum-selection clause, the court found the forum-selection clause enforceable.  It rejected Plaintiff’s argument that it would be unfair for Plaintiff, a Kentucky resident, to sue his employer in its own backyard, and to travel six hours from his residence to the Plan’s chosen forum.  In lieu of dismissal, the court transferred the matter to the Western District of Pennsylvania, Pittsburgh Division.

Ninth Circuit

Ortiz v. Reliance Standard Life Ins. Co., No. 217CV00580JADGWF, 2018 WL 547229 (D. Nev. Jan. 24, 2018) (Judge Jennifer A. Dorsey).  In this dispute over long-term disability benefits, the court found that Plaintiff has not met his burden to show that venue is proper in the District of Nevada, and Reliance has not met its burden to show that this case might have been brought in the Eastern District of Pennsylvania.  The court dismissed the case without prejudice to refile in a court of competent jurisdiction.

ERISA Watch authored by Michelle L. Roberts, Partner.


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