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Your ERISA Watch – Circuit Courts Tackle Issues of First Impression and Preemption

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Last week was quite a busy week with notable Circuit Court decisions.  In Hager v. DBG Partners, Inc., No. 17-11147, __F.3d__, 2018 WL 4258968 (5th Cir. Sept. 6, 2018), the court addressed an issue of first impression for the Fifth Circuit concerning the availability of a remedy for a COBRA notice violation.  The court determined that payment of all medical expenses is compensatory damages which are not available under ERISA Section 502(a)(3).  But, a penalty is available under Section 502(c)(1) and the court could “discern no barrier to the court awarding the amount of [the participant’s] medical expenses as a penalty.”  The court remanded the case to the district court to determine whether to award a penalty and the amount of such penalty.

On the same day, the First Circuit issued a decision in Doe v. Harvard Pilgrim Health Care, Inc., No. 17-2078, __F.3d__, 2018 WL 4237288 (1st Cir. Sept. 6, 2018).  In this case, Plaintiff-Appellant appealed the district court’s grant of summary judgment to HPHC, upholding its determination that Doe’s continued residential treatment was not medically necessary.  The district court reviewed HPHC’s determination under de novo review.  The First Circuit reversed the district court, in part, on the basis that the administrative record reviewed by the district court should have included documents from HPHC’s post-filing review of the claim.  This is because HPHC agreed to continue the administrative proceedings and also agreed that the documents would become part of the administrative record before the district court.  Significantly, the First Circuit held “that when a district court examines the denial of ERISA benefits de novo, we review the court’s factual findings only for clear error.”  This aligns with the approach of the Second, Fourth, Sixth, and Ninth Circuits.  Since the district court did not review the complete record, the First Circuit cannot properly conduct such a “deferential review.”  The court vacated the summary judgment order and remanded for further proceedings.

Just days earlier, the Ninth Circuit also issued two significant preemption decisions.  In Bd. of Trustees of Glazing Health & Welfare Tr. v. Chambers, No. 16-15588, __F.3d__, 2018 WL 4200961 (9th Cir. Sept. 4, 2018), the Ninth Circuit held that a 2015 Nevada law, SB223, which limits a state entitlement to hold third-party general contractors vicariously liable for the debts of ERISA plan members, is not preempted by ERISA.  The court determined that SB223 lacks a “connection with” ERISA plans because “holding otherwise would constitutionalize a state entitlement that Nevada was under no obligation to provide in the first place.”  The law “trims a state-conferred entitlement rather than infringes an ERISA-guaranteed right.”  The court also determined that the law does not invade a federal field regulated by ERISA or interferes with its objectives.  The Appellee’s obligations under ERISA are unchanged by the law.  The court vacated the district court’s grant of summary judgment to Appellees.

A different Ninth Circuit panel issued a decision in  Hansen v. Grp. Health Coop., No. 16-35684, __F.3d__, 2018 WL 4201162 (9th Cir. Sept. 4, 2018).  The providers claim that GHC’s licensing of the Milliman Care Guidelines, which provides “primary criteria” for authorizing psychotherapy treatment, is unfair and deceptive because the treatment guidance is biased against mental healthcare.  The providers also claim that GHC uses its treatment guidelines to avoid complying with Washington’s Mental Health Parity Act, and unfairly competes in the marketplace by discouraging its patients from seeking treatment by rival practitioners.  The court held that the mental health providers’ unfair and deceptive business practice claims were not preempted by ERISA because Washington’s law provides an independent statutory duty apart from an ERISA plan’s defined terms.  In addition, any duty GHC has to refrain from harming its competitors arises under state law, not under the terms of an ERISA plan.

Lastly, I want to make a quick mention of the Fourth Circuit’s unpublished decision in Bd. of Trustees, Sheet Metal Workers’ Nat’l Pension Fund v. Lane & Roderick, Inc., No. 17-2205, __F.App’x__, 2018 WL 4203467 (4th Cir. Sept. 4, 2018), where the court affirmed the district court’s finding that certain rent accrued by the company as a liability was a bona fide debt and not an equity contribution for purposes of withdrawal liability under ERISA Section 4225(a).

If you’re still reading, don’t stop!  There were a few other important decisions from this past week.  Read about them below.

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

Breach of Fiduciary Duty

Fifth Circuit

Martone v. Robb, No. 17-50702, __F.3d__, 2018 WL 4203603 (5th Cir. Sept. 4, 2018) (Before HIGGINBOTHAM, SMITH, and CLEMENT, Circuit Judges).  “Thomas Martone, a former Whole Foods employee, brought an action against certain Whole Foods executives who are named fiduciaries for the company’s 401(k) plan. Martone alleges that these executives breached their fiduciary duties by allowing employees to continue to invest in Whole Foods stock while its value was artificially inflated due to a widespread overpricing scheme. The district court dismissed the claims, finding that Martone failed to plausibly allege an alternative action that the fiduciaries could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it. We affirm.”

Seventh Circuit

Kelley v. Hein, et al., No. 1:17-CV-06636, 2018 WL 4205413 (N.D. Ill. Sept. 4, 2018) (Judge Edmond E. Chang).  The court found that the Fund has adequately alleged that Defendants acted as fiduciaries with respect to the payments to the Fund, where the complaint alleges that they were both “fiduciaries with respect to the amount of employee contributions withheld from wages but not paid to the Fund” and that they “exercised discretionary authority or control respecting management or disposition of assets of the Fund.”  The court also determined that withdrawing plan contributions from employee paychecks and failing to remit those monies to the fund is a clear breach of the statute and denied the motion to dismiss the ERISA claim.

Resnick v. Schwartz, et al., No. 17 C 04944, 2018 WL 4191525 (N.D. Ill. Sept. 3, 2018) (Judge Edmond E. Chang).  Current fiduciaries of a pension plan brought suit against Defendants over the alleged unlawful lump-sum payment made to Schwartz, a highly compensated employee, that should have been made in annuity payments over time.  The court determined that the Amended Complaint adequately states a claim under ERISA for violations of Schwartz’s fiduciary duty, where it plausibly alleges that Schwartz was acting as a fiduciary, breached that fiduciary obligation by authorizing an illegal lump-sum pension payment, and allegedly engaged in a prohibited transaction as a fiduciary that caused the plan to engage in an improper payment to himself.

Class Actions

Seventh Circuit

In re: Fedex Ground Package System, Inc. Employment Practices Litigation (MDL 1700) Relating to Craig, et al., v. FedEx Ground Package Sys., Inc., No. 3:05-CV-530 RLM, 2018 WL 4214532 (N.D. Ind. Sept. 5, 2018) (Judge Robert L. Miller, Jr.).  The court granted preliminary approval of a nationwide ERISA class action involving the alleged mischaracterization of drivers as independent contractors and the attendant loss of ERISA plan benefits.  The total settlement fund involves payment of $13,325,000 by FedEx Ground.

Disability Benefit Claims

Second Circuit

Kim v. The Hartford Life Insurance Company, No. 17-2122-CV, 2018 WL 4261617 (2d Cir. Sept. 7, 2018) (PRESENT: Robert D. Sack, Reena Raggi, Denny Chin, Circuit Judges).  “Thus, regardless of whether bipolar disorder has a physical cause, Hartford’s classification of Kim’s disability as a ‘Mental Illness’ and its subsequent denial of her claim for continued benefits — in reliance on the DSM and in accordance with the explicit terms of the Policy — was ‘plainly reasonable.’”  There is no breach of fiduciary duty on the basis of Hartford failing to determine whether the DSM was scientifically valid and up-to-date with current medical research.

ERISA Preemption

Third Circuit

Scudder v. Colgate Palmolive Company, No. CV167433MASTJB, 2018 WL 4188456 (D.N.J. Aug. 31, 2018) (Judge Michael A. Shipp).  The court determined that Plaintiff’s Amended Complaint seeking to compel Defendant to produce documents for examination or audit in an effort to determine whether Defendant is holding any property subject to the New Jersey Uniform Unclaimed Property Act is preempted by ERISA because Plaintiff’s audit contains an impermissible “relation to” and “connection with” an ERISA-regulated plan by virtue of the audit requesting production of documents and data related to allegedly unclaimed benefit payments under an ERISA-governed benefit plan.

Fifth Circuit

Kindred Hospitals Limited Partnership v. Aetna Life Insurance Company, et al., No. 3:18-CV-1099-D, 2018 WL 4215118 (N.D. Tex. Sept. 5, 2018) (Judge Sidney A. Fitzwater).  In this suit under state law to recover unpaid insurance payments based on Aetna’s representation that it would cover the charges, the court granted Plaintiff’s motion to remand Defendant’s second attempt at removal, this time on the basis that plaintiff’s argument in a reply memorandum in support of a discovery motion contains sufficiently different factual allegations to provide a new ground for removal.  The court determined that Plaintiff’s “reply memorandum does not clarify the nature of its existing claims and establish new grounds for removal so as warrant removal based on ERISA complete preemption.”  The court granted Plaintiff’s request for attorney’s fees and costs.

Sky Toxicology, Ltd. v. UnitedHealthcare Ins. Co., No. 5-16-CV-01094-FB-RBF, 2018 WL 4211742 (W.D. Tex. Sept. 4, 2018) (Judge Richard B. Farrer).  The Report & Recommendation by the Magistrate Judge found that the Defendant’s counterclaims against the out-of-network laboratories for fraud and fraudulent non-disclosure and negligent misrepresentation are neither conflict nor completely preempted by ERISA.

Eighth Circuit

Pharm. Care Mgmt. Ass’n v. Tufte, No. 1:17-CV-141, 2018 WL 4222870 (D.N.D. Sept. 5, 2018) (Judge ).  The court determined that North Dakota’s new law which regulates pharmacy benefit managers (“PBMs”) and pharmacies concerning “(1) the practice of pharmacy; (2) pharmacy accreditation and credentialing; and (3) perceived self-dealing and abusive practices on the part of PBMs” is not preempted by ERISA.  The law’s definition of PBM, third-party payer, and plan sponsor do not impermissibly reference ERISA plans.  The law also does not govern matters central to plan administration or interfere with nationally uniform plan administration.

Ninth Circuit

Fonseca v. Hewlett-Packard Company, No. 318CV00071BENBLM, 2018 WL 4242364 (S.D. Cal. Sept. 5, 2018) (Judge Roger T. Benitez).  The court granted Plaintiff’s motion to remand to state court upon determining that he could not have brought his claims pursuant to ERISA Section 502(a)(3).  His complaint challenges HP’s target practice of terminating age 40 and older employees and threatening to withhold severance wages from ex-employees who do not follow the 2012 U.S. Workforce Reduction Plan in violation of California law.

Bd. of Trustees of Glazing Health & Welfare Tr. v. Chambers, No. 16-15588, __F.3d__, 2018 WL 4200961 (9th Cir. Sept. 4, 2018) (Before: J. Clifford Wallace and Consuelo M. Callahan, Circuit Judges, and James V. Selna,* District Judge).  See Notable Decision summary above.

Hansen v. Grp. Health Coop., No. 16-35684, __F.3d__, 2018 WL 4201162 (9th Cir. Sept. 4, 2018) (Before: Ronald M. Gould and Sandra S. Ikuta, Circuit Judges, and John R. Tunheim,* Chief District Judge).  See Notable Decision summary above.

Life Insurance & AD&D Benefit Claims

Fourth Circuit

Grabowski v. Hartford Life & Accident Ins. Co., No. 17-2108, __F.App’x__, 2018 WL 4203465 (4th Cir. Sept. 4, 2018) (Before WYNN, DIAZ, and HARRIS, Circuit Judges).  The court affirmed the district court’s grant of summary judgment to Hartford.  It determined that Hartford acted reasonably in denying AD&D benefits to Plaintiff based on the death of her husband from a pulmonary embolism which happened two days following his cross-country flight.  Hartford applied a coverage exclusion for death caused or contributed to by a sickness or disease.  The court found this adequately supported by the record, including the autopsy report and death certificate which provided information about the biological factors contributing to his death.

Sixth Circuit

Chelf v. Prudential Insurance Company of America, et al., No. 3:17-CV-00736-GNS, 2018 WL 4219424 (W.D. Ky. Sept. 5, 2018) (Judge Greg N. Stivers).  Plaintiff challenges the denial of associate term life insurance benefits for her deceased husband, which Prudential denied on the basis that the insured’s coverage had terminated prior to his death.  Plaintiff’s husband stopped working at Wal-Mart due to disability 18 months earlier but continued to pay for the life insurance coverage.  The court determined that Plaintiff met her pleading burden regarding her claims for equitable relief under Section 502(a)(3) against Prudential.  However, Wal-Mart did not have a fiduciary duty to provide individualized notice of conversion rights.  The collection of premiums is an administrative, not a fiduciary function.  The court granted Wal-Mart’s motion to dismiss.

Ninth Circuit

Securian Life Insurance Company v. Reddeck, et al., No. C18-00023 RAJ, 2018 WL 4184332 (W.D. Wash. Aug. 31, 2018) (Judge Richard A. Jones).  This is a dispute over life insurance benefits between the parents of decedents who were domestic partners prior to their death.  One decedent is alleged to have murdered the insured prior to his own death in an altercation two months later.  The court granted Securian’s motion for interpleader and to deposit funds in the court registry but denied its request for injunctive relief which would prevent the defendants from prosecuting any claims against it relating to the life insurance proceeds.

Medical Benefit Claims

First Circuit

Doe v. Harvard Pilgrim Health Care, Inc., No. 17-2078, __F.3d__, 2018 WL 4237288 (1st Cir. Sept. 6, 2018) (Before Thompson, Selya, and Kayatta, Circuit Judges).  See Notable Decision summary above.

Pension Benefit Claims

Sixth Circuit

United States v. Young, No. 1:99-CR-33, __F.Supp.3d__, 2018 WL 4242455 (W.D. Mich. Sept. 5, 2018) (Judge Robert J. Jonker).  The court overruled Defendant’s objection to the writ of execution against his interest in an employer-sponsored 401(k) plan because ERISA’s anti-alienation provision does not bar the United States from collecting on a criminal defendant’s 401(k) plan under the Mandatory Victims Restitution Act (MVRA).

Pension Benefit Guar. Corp. v. Findlay Indus., Inc., et al., No. 17-3520, __F.3d__, 2018 WL 4201636 (6th Cir. Sept. 4, 2018) (Before: DAUGHTREY, McKEAGUE, and DONALD, Circuit Judges).  In this lawsuit by the PBGC to collect more than $30 million in underfunded pension liabilities, the Sixth Circuit reversed the district court’s ruling finding no successor liability and remanded the case.  On the issue of whether an entity is a trade or business under common control of a defunct company, the court adopted the “categorical test,” which “recognizes the differences between ERISA and the tax code, satisfies the purposes of ERISA, and brings this court into agreement with its sister circuits.”  In addition, the court found that “[r]efusing to apply successor liability here would allow Findlay to make promises to employees, fail to uphold those promises, and then engage in clever financial transactions that leave PBGC to pay millions in pension liabilities. Holding Findlay responsible, on the other hand, is a commonsense answer that fulfills ERISA’s goals.”

Plan Status

Ninth Circuit

Rollins, et al., v. Dignity Health, et al., No. 13-CV-01450-JST, 2018 WL 4262334 (N.D. Cal. Sept. 6, 2018) (Judge Jon S. Tigar).  The court denied Defendant’s motion to dismiss because Plaintiffs adequately allege that the Dignity Plan is not properly maintained as a church plan and that Dignity Health and the Sub-Committee are not associated with a church.  The court will reach the constitutional question of whether ERISA’s church plan exemption violates the Establishment Clause of the First Amendment if and when it determines that the Dignity Plan qualifies as a church plan.

Pleading Issues & Procedure

Second Circuit

Cunningham, et al. v. Cornell University, et al., No. 16-CV-6525 (PKC), 2018 WL 4279466 (S.D.N.Y. Sept. 6, 2018) (Judge P. Kevin Castel).  The court denied Defendants’ motion to strike the jury demand as to all claims by the beneficiaries against the fiduciaries to personally make good to the Plans all losses to the Plans resulting from each breach of fiduciary duty.  The court agreed with Plaintiffs that the claim for compensation to the Plans is a legal, not equitable, claim and that they are entitled to have it tried to a jury.

Fifth Circuit

Sky Toxicology, Ltd. v. UnitedHealthcare Ins. Co., No. 5-16-CV-01094-FB-RBF, 2018 WL 4211741 (W.D. Tex. Sept. 4, 2018) (Judge Richard B. Farrer).  The Report & Recommendation is that Plaintiffs be ordered to file a more definite statement to cure the standing and Rule 8(a) issues and that “Defendants’ Motion to Dismiss be granted with respect to Plaintiffs’ claims for breach of fiduciary duty (Count Two) and for denial of full and fair review (Count Three) as these claims are duplicative of Plaintiffs’ claims for unpaid benefits and cannot be maintained under binding Fifth Circuit precedent. Plaintiffs’ claim for declaratory judgment (Count Seven) should also be dismissed as it is redundant of their substantive claims.”

Remedies

Fifth Circuit

Hager v. DBG Partners, Inc., No. 17-11147, __F.3d__, 2018 WL 4258968 (5th Cir. Sept. 6, 2018) (Before STEWART, Chief Judge, and WIENER and HIGGINSON, Circuit Judges).  See Notable Decision summary above.

Seventh Circuit

Resnick v. Schwartz, et al., No. 17 C 04944, 2018 WL 4191525 (N.D. Ill. Sept. 3, 2018) (Judge Edmond E. Chang).  The court dismissed Plaintiffs’ ERISA claim for money damages arising out of Defendant Spitz’s (a non-fiduciary) alleged participation in facilitating an illegal lump-sum pension payment since there is no equitable basis or remedy for the claim.  The court noted that Spitz’s alleged misconduct in helping, or not preventing, the illegal withdrawal may be a professional malpractice claim or a breach-of-contract claim, but those claims are at law, not in equity.

Retaliation Claims

Fourth Circuit

Young v. Columbia Farms, Inc., No. 6:17-CV-01340-DCC, 2018 WL 4214374 (D.S.C. Sept. 5, 2018) (Judge Donald C. Coggins, Jr.).  The court denied Defendant’s motion dismiss Plaintiff’s ERISA discrimination claim where the Complaint alleges that Plaintiff was 61 when he was terminated and that Defendant terminated him because of his impending eligibility for his pension.  This is sufficient to allege Defendant’s specific intent to interfere with his pension rights.

Eleventh Circuit

Marx v. Baker County Medical Services, Inc., No. 3:16-CV-462-J-32MCR, 2018 WL 4215950 (M.D. Fla. Sept. 5, 2018) (Judge Timothy J. Corrigan).  Other than the temporal proximity between a meeting in which Plaintiff requested leave for knee surgery and his termination (two weeks), the court found that Plaintiff did not present a genuine issue of material fact that he was fired him for any reason other than his subpar performance.  The court granted summary judgment to Defendant.

Statute of Limitations

Second Circuit

Reches v. Morgan Stanley & Co. LLC, No. 17-2874-CV, __F.App’x__, 2018 WL 4224328 (2d Cir. Sept. 6, 2018) (PRESENT: PETER W. HALL, RAYMOND J. LOHIER, JR., Circuit Judges, JANE A. RESTANI,* Judge).  In this lawsuit alleging misclassification of employment status and wrongful denial of pension benefits, the court again affirmed the district court’s denial of Plaintiff’s motions for reconsideration of the decision that his lawsuit is time-barred.

Stolarik v. New York Times Co., No. 17 CIV. 5083 (PGG), 2018 WL 4211315 (S.D.N.Y. Aug. 31, 2018) (Judge Paul G. Gardephe).  The court found that “by April 2, 2004, Plaintiff was aware that he was classified as an independent contractor and was on clear notice that he would not receive employee benefits. Because Plaintiff did not file his claim for benefits until July 28, 2016 – more than twelve years later – his benefits claim under the [Newspaper Guild of New York-New York Times Pension Plan] is barred by the applicable six-year statute of limitations.”  However, because the Adjustable Pension Plan did not come into existence until 2013, Plaintiff’s benefit claims under this plan are not time-barred (but the denial of benefits under that plan is not arbitrary and capricious).

Sixth Circuit

Chelf v. Prudential Insurance Company of America, et al., No. 3:17-CV-00736-GNS, 2018 WL 4219424 (W.D. Ky. Sept. 5, 2018) (Judge Greg N. Stivers).  The plan’s limitation period to file suit within 180 days of the unsuccessful voluntary appeal does not apply to Plaintiff’s Section 502(a)(3) claim which is governed by 29 U.S.C. Section 1113 (the SOL for claims of breach of fiduciary duty).  The plan’s limitation period only applies to claims brought under Section 502(a)(1)(B).

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