There were two notable decisions this past week that we want to highlight: Tatum v. RJR Pension Investment Committee, et al., No. 16-1293, __F.3d__, 2017 WL 1531578 (4th Cir. Apr. 28, 2017) and our firm’s decision in Contreras v. United of Omaha Life Insurance Company, No. 16 C 3495, __F.Supp.3d__, 2017 WL 1493701 (N.D. Ill. Apr. 25, 2017).
In Tatum, the plaintiff alleged that the fiduciaries of the RJR Nabisco’s ERISA-covered retirement plan breached their duties under ERISA by eliminating Nabisco stock from the Plan on an arbitrary timeline without conducting a thorough investigation. Further, the fiduciary breach caused substantial loss to the Plan because it forced the sale of the Plan’s Nabisco Funds at their all-time low, despite the strong likelihood that Nabisco’s stock prices would rebound. In the 2002, the district court found that the Plan documents required divestment of the Nabisco Funds, but on appeal, the Fourth Circuit found otherwise and reversed and remanded the case to the district court.
On remand, the district court held that RJR breached its fiduciary duty of procedural prudence, bore the burden of proving that the breach did not caused the alleged losses to the Plan, and met its burden by showing that a hypothetical prudent fiduciary could have made the same decision. On the second appeal, the Fourth Circuit agreed with the district court about the breach and the burden, but vacated the district court’s judgment because Fourth Circuit precedent requires a breaching fiduciary to prove by a preponderance of the evidence that a hypothetical prudent fiduciary would have made the same decision. On remand, the district court found that RJR met this burden and Tatum appealed.
Upon its third consideration of this case, the Fourth Circuit affirmed the district court’s decision that the fiduciary’s breach of its duty of procedural prudence did not cause the substantial losses in the retirement plan resulting from the sale of non-employer stock funds. Specifically, the fiduciary’s breach did not cause the losses because a prudent fiduciary would have made the same divestment decision at the same time and in the same manner. “RJR’s experts testified that a prudent fiduciary would have concluded that retaining the Nabisco Funds exposed beneficiaries to a high risk of future loss and reduced the diversity of the Plan.” The district court weighed the evidence, including expert testimony from both sides, and came to a reasonable conclusion finding that RJR met the more rigorous “would have” standard. The district court’s decision is consistent with Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014) and the efficient market hypothesis.
Judge Diaz wrote a dissenting opinion. He explained that the district court failed to explain whether a hypothetical prudent fiduciary would have made the same decisions that RJR did with respect to the timing of the divestment and the fiduciary’s disregard for the governing Plan document, both of which the Fourth Circuit previously described as “extraordinary circumstances.”
Our recent case from the Northern District of Illinois, Contreras v. United of Omaha Life Insurance Company, shows that prior work history is not only relevant to determine for what alternative work disability insurance claimants can qualify, but also the likelihood of their ability to meet a particular earning level within a given occupation if they do qualify. Though insurers routinely take a position claimants will earn the median or mean wage for a given occupation, the entry level wage or 10th percentile wage, may be more appropriate if the claimant never did the type of work before. United of Omaha denied Contreras’ claim for disability benefits reasoning she was not disabled from any Gainful Occupation under the insurance policy, defined as “an occupation for which You are reasonably fitted by training, education or experience, [and] is or can be expected to provide You with Current Earnings at least equal to 85% of Basic Monthly Earnings within 12 months of Your return to work.” Contreras’ most recently worked as a hand packer, packing steel lacing, loading a machine with steel lacing for packing, and labeling and palletizing the packages. Before that, she worked as a home health aide, and held several jobs as a retail cashier. The only occupation United of Omaha contended met the policy’s requirements as a Gainful Occupation was Order Clerk, a sales and clerical position.
The court explained in order for United of Omaha to prevail, it needed both (1) Contreras to be reasonably fitted for the Order Clerk occupation, and (2) to be able to earn 85% of her prior wages within 12 months of starting work as an Order Clerk. Though the parties supplied competing expert vocational reports on the question of Contreras’ qualification for work as an Order Clerk, the court declined to make a finding on that question, calling it a “close question.” While United of Omaha’s expert opined Contreras would earn the median wage as an Order Clerk (which slightly exceeded the policy’s required wage), she did not state when that would occur. Contreras’ vocational expert, James Radke, explained based on Contreras’ work history, if she were able to obtain a job as an Order Clerk she would begin at an entry-level wage, which was approximately $2,271 per month, though the policy’s required wage is $2,808.17 per month. Radke likewise did not opine as to what Contreras’ earnings would be within 12 months of beginning work, but the court inferred reasonably that Contreras would not likely yield a 23% raise after one year of work. Additionally, the court explained Contreras’ prior unskilled work “would be highly unlikely to motivate an employer to pay her at least $2,808.17 per month—approximately double her earnings as a cashier—within her first year working as an Order Clerk.”
If you have a denied disability claim and the insurance company is claiming that you can do work you know you cannot do, give our attorneys a call.
Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.
Mason Tenders Dist. Council of Greater N.Y. v. Phase Constr. Servs., Inc., No. 14 CIV. 6016 (ER), 2017 WL 1434454 (S.D.N.Y. Apr. 21, 2017) (Judge Edgardo Ramos). The court previously granted Plaintiffs’ motion for attorneys’ fees and costs in connection with a motion to compel discovery. In this order, the court grants Plaintiffs’ request for attorneys’ fees and expenses in the amount of $13,194.50.
Breach of Fiduciary Duty
Hannan v. Hartford Financial Services, Inc., No. 16-1316-CV, __F.App’x__, 2017 WL 1476132 (2d Cir. Apr. 25, 2017) (PRESENT: GUIDO CALABRESI, DENNY CHIN, RAYMOND J. LOHIER, JR., Circuit Judges). In this matter alleging a “cross-subsidization” scheme to charge supplemental life insurance premiums at unwarranted prices, the court found that Plaintiff’s claims failed because they did not identify a misrepresentation or false statement, there was no fiduciary duty to disclose Family Dollar’s allocation of supplemental life insurance premiums, the insurance rate structure did not violate ERISA or any fiduciary duties, and the selection of the rate structure did not constitute self-dealing. The Second Circuit held that the district court correctly dismissed the complaint because it failed to plausibly allege that Hartford was a fiduciary under ERISA, that Family Dollar made any fraudulent misrepresentations or omissions, or that Defendants engaged in prohibited transactions.
Tatum v. RJR Pension Investment Committee, et al., No. 16-1293, __F.3d__, 2017 WL 1531578 (4th Cir. Apr. 28, 2017) (Before WILKINSON, MOTZ, and DIAZ, Circuit Judges). In its third consideration of this matter, the court affirmed the district court’s decision that the fiduciary’s breach of its duty of procedural prudence did not cause the substantial losses in the retirement plan resulting from the sale of non-employer stock funds. Specifically, the fiduciary’s breach did not cause the losses because a prudent fiduciary would have made the same divestment decision at the same time and in the same manner.
In Re: Conco, Inc., No. 16-6166, __F.3d__, 2017 WL 1522124 (6th Cir. Apr. 28, 2017) (Before: DAUGHTREY, SUTTON, and DONALD, Circuit Judges). The Bankruptcy Court did not abuse its discretion when it ordered that the holders of Class 4 Equity Security Interests of Conco, Inc. under the Debtor’s Third Amended Plan of Reorganization are enjoined from selling, transferring, or otherwise divesting themselves of the Equity Interests of Conco, Inc. until January 1, 2019. “The Bankruptcy Court found that the four corners of the Confirmed Plan, as well the UCC’s abandonment of its objection under the absolute priority rule of 11 U.S.C. § 1129(b)1 to the ESOP’s retention of the Equity Interest in Conco, evidenced an intent for the Equity Interests not to be sold through December 31, 2018.”
Alvarado v. Gaylor Inc., No. 416CV00158SEBDML, 2017 WL 1426024 (S.D. Ind. Apr. 20, 2017) (Judge Sarah Evans Barker). Plaintiff alleged that the Trust breached its fiduciary duties under 29 U.S.C. § 1104 by not properly using fringe benefit contributions to provide qualified fringe benefits for Plaintiffs in accordance with the Kentucky prevailing wage laws. The court dismissed this claim for failure to state a claim because there is no support for the contention that by violating the Kentucky prevailing wage statute, the Trust ipso facto violated ERISA. “We reject Plaintiffs’ attempt to secure ERISA relief through the back door by alleging a state-law claim that is couched in terms of ERISA’s fiduciary duty requirements.”
Disability Benefit Claims
Nicodemus v. Life Ins. Co. of N. Am., No. 16 C 6968, 2017 WL 1511475 (N.D. Ill. Apr. 27, 2017) (Judge Rebecca R. Pallmeyer). In this matter where LINA approved Plaintiff’s long term disability benefit claim after he filed a lawsuit, but where he challenged the amount of benefits paid, the court found that Plaintiff has not yet exhausted his remedies under the policy review process and must first seek internal review of his underpayment claim.
Contreras v. United of Omaha Life Insurance Company, No. 16 C 3495, __F.Supp.3d__, 2017 WL 1493701 (N.D. Ill. Apr. 25, 2017) (Judge Gary Feinerman). United of Omaha’s definition of Gainful Occupation is, “an occupation for which You are reasonably fitted by training, education, or experience, [and] is or can be expected to provide You with Current Earnings at least equal to 85% of Basic Monthly Earnings within 12 months of Your return to work.” The court held that United of Omaha’s Transferrable Skills Analysis was not credible on the issue of whether the claimant could meet the earnings requirement within 12 months of returning to work. Plaintiff’s vocational expert opined that she lacked transferable skills to enter the occupation, and if she could she would likely yield an entry level wage. The court distinguished the Seventh Circuit opinion in Geiger v. Aetna on grounds that the policy requires a level of earning by a certain time, and the Geiger policy did not.
Caponio v. Boilermakers Local 549, No. 16-CV-03919-VC, 2017 WL 1477133 (N.D. Cal. Apr. 25, 2017) (Judge Vince Chhabria). Plaintiff’s state law claims alleging that Defendants denied her the benefits of a joint apprenticeship program (an ERISA plan) because of her sex and age are completely preempted by ERISA.
Exhaustion of Administrative Remedies
Chesterfield Spine Center, LLC v. Gilster-Mary Lee Corp., No. 4:15 CV 1169 RWS, 2017 WL 1477132 (E.D. Mo. Apr. 25, 2017) (Judge Rodney W. Sippel). In this matter where a provider sued a health plan sponsor for its failure to pay for surgical treatment for one of its covered participants, the court found that Defendant was entitled to judgment as a matter of law because Plaintiff failed to exhaust the Plan’s internal review procedures because it failed to timely appeal the denial of benefits.
Life Insurance & AD&D Benefit Claims
Metro. Life Ins. Co. v. Ivie, No. 115CV01896TWPMPB, 2017 WL 1479294 (S.D. Ind. Apr. 25, 2017) (Judge Tanya Walton Pratt). Son of deceased insured presented sufficient evidence to establish a presumption of undue influence precluding summary judgment, where he alleged that at the time his father signed the documents granting his then fiancé Power of Attorney and sole beneficiary of the Plan, he was on heavy medication and undergoing chemotherapy, as well as radiation for cancer. He also alleged that the attorney for both the wife and the decedent benefits from the decedent designating the wife as sole beneficiary of the Plan.
Medical Benefit Claims
Jeffrey F. v. Mcgraw Hill Financial, Inc. Comprehensive Medical And Prescription Drug Plan & Valueoptions, No. 2:15-CV-00874-BSJ, 2017 WL 1424027 (D. Utah Apr. 20, 2017) (Judge Bruce S. Jenkins). The court determined that ValueOptions did not abuse its discretion in denying residential treatment coverage at Gateway Academy in Utah because the court found that substantial evidence in the patient’s medical records showed that residential treatment center services were not medically necessary.
Pension Benefit Claims
Carroll v. Continental Automotive, Inc., et al., No. 16-1152, __F.App’x__, 2017 WL 1437212 (4th Cir. Apr. 24, 2017) (Before WILKINSON, WYNN, and FLOYD, Circuit Judges). The court affirmed the district court and held that under the clear and unambiguous terms of the Plan, Plaintiff had sufficient “Vesting and Eligibility Service” and was entitled to Regular Early Retirement. The court rejected Appellants’ arguments that language in the Summary Plan Description or in other provisions of the Plan creates an ambiguity that allows the Plan to exercise its discretion. The court explained that the SPD is not considered part of a plan, and any terms in the SPD that conflict with the terms of the plan are not enforced.
Brixius v. Am. Transfer Co., No. 117CV00114LJOEPG, 2017 WL 1408096 (E.D. Cal. Apr. 20, 2017) (Judge Lawrence J. O’Neill). The court determined that the following circumstances did not create a “de facto” pension plan due to lack of an ongoing administrative scheme: (1) in exchange for an agreement to refrain from unionizing activities, Plaintiff was promised a “retirement plan” that would pay his salary at the time of retirement, plus the amount paid towards health benefits; (2) Plaintiff refrained from unionizing activities and retired in 2004; (3) Defendant paid Plaintiff his 2004 salary plus medical for every year until 2011, when it was reduced, and then ultimately stopped in 2016 when the company closed. The court found significant that ATC had no discretion regarding the payments to Plaintiff or the amount he was due, his ongoing eligibility, or the duration of the benefits.
Pleading Issues & Procedure
Div. 1181 Amalgamated Transit Union-N.Y. Employees Pension Fund v. R & C Transit, Inc., No. 16CV2481ADSARL, __F.Supp.3d__, 2017 WL 1450599 (E.D.N.Y. Apr. 22, 2017) (Judge Spatt). The court vacated the default judgment, where Defendant represents that it had difficulty finding an attorney experienced in ERISA litigation. “While counsel for the Defendant should have made a motion for an extension of time to file a responsive pleading upon being retained, the Court accepts his representation that he was conducting research. Three months elapsed between service of the complaint and the Defendant’s first motion. While any delay is inexcusable, the Court finds that such a short delay is not evidence of willfulness.”
Woods v. Radiation Therapy Services, Inc., No. 216CV897FTM29MRM, 2017 WL 1434784 (M.D. Fla. Apr. 24, 2017) (Judge John E. Steele). The court denied Defendant’s motion to disqualify Plaintiff’s attorneys on the basis that many witnesses will include many of the same witnesses that were prepped in previous litigation where the attorney represented Defendant. The court found that the current case is not a substantially related matter.
Griffin v. Coca-Cola Enterprises, Inc., No. 16-13411, __F.App’x__, 2017 WL 1505308 (11th Cir. Apr. 27, 2017) (Before TJOFLAT, WILLIAM PRYOR, and ANDERSON, Circuit Judges). The court affirmed the district court’s decision which found that Plaintiff failed to demonstrate statutory standing to file an ERISA claim based upon an unambiguous anti-assignment provision in the plan. Defendant did not waive its right to rely upon the provision and the provision is not preempted by Georgia law, O.C.G.A. § 33-24-52.
Carroll v. Continental Automotive, Inc., et al., No. 16-1152, __F.App’x__, 2017 WL 1437212 (4th Cir. Apr. 24, 2017) (Before WILKINSON, WYNN, and FLOYD, Circuit Judges). The court affirmed the district court’s award to Plaintiff of $50 per day ($1,300 total) for the Plan’s tardiness in producing the documents Plaintiff requested. The district court was not required to make a finding of bad faith or prejudice to Plaintiff.
Schiavone v. Prudential Ins. Co. of Am., No. 16-CV-09848, 2017 WL 1493721 (N.D. Ill. Apr. 26, 2017) (Judge John Robert Blakey). The court declined to dismiss Prudential’s counterclaim seeking a constructive trust over the long-term disability overpayment resulting from Plaintiff’s receipt of Social Security benefits. Both the terms of the Plan and Plaintiff’s reimbursement agreement afford Prudential the “right to recover” any overpayment of benefits due a beneficiary’s receipt of deductible sources of income. The “specifically identifiable” fund is the overpaid portion of disability payments, the fund purportedly constitutes money or property “belonging in good conscience” to Prudential, and they “can clearly be traced to particular funds or property” in Plaintiff’s possession. The court found that the basis of Prudential’s claim is equitable under § 502(a)(3).