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Your ERISA Watch – Court Holds that Detrimental Reliance Is Not Needed for Class-Wide Relief and Certifies ESOP Class

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This week’s notable decision is Cunningham, et al. v. Wawa, Inc., et al., No. 2:18-cv-03355-PD (E.D. Pa. July 2, 2019), where the court granted Plaintiffs’ motion to certify a class of Employee Stock Ownership Plan (“ESOP”) participants.  In their ten-count complaint, Plaintiffs claim that Defendant Wawa violated ERISA in several ways by amending the ESOP in a manner which took away their right to hold Wawa stock through age 68 and forced them to sell their shares at an unfair price.  Plaintiffs moved to certify a class and two subclasses of over one thousand participants who were adversely impacted by the amendments.

Defendants did not contest that class certification was appropriate for several of the claims.  The court found that numerosity was met given that the Class included over one thousand participants and the Subclasses will include hundreds of members.  The court also found that there were common questions of law and fact, including whether Defendants were fiduciaries, whether they conducted a reasonable investigation into the price of the shares, and whether members received a fair price for their shares.  The Class representatives’ claims are typical of the Class because their stock was sold after the same valuation process as the other Class members.  The Class is also represented by counsel with substantial experience in class action and ERISA litigation, including the same lawyers who represented the Class in the Pfeifer v. Wawa, Inc. litigation.  The court found that the uncontested claims may be certified under Rule 23(b)(1) or 23(b)(2).  Because of this, the court did not consider whether the Classes may be certified under Rule 23(b)(3).

The court certified the following Class and Subclasses:

On Counts I–IV, IX, and X (the “Class”): All Participants in the Wawa, Inc. Employee Stock Ownership Plan (“Wawa ESOP”) with account balances greater than $5,000.00 as of the date that they terminated employment whose accounts were liquidated on or after September 12, 2015 and the beneficiaries of such participants;

On Counts VI and VIII (the “Terminated Pre-2014 Employee Subclass”): All Participant members of the Class who were employed by Wawa and participated in the ESOP before January 1, 2014 and who terminated employment on or after January 1, 2015 except for Participants whose accounts were liquidated due to death, disability or a voluntary request for distribution, and the beneficiaries of such participants; and

On Counts V–VIII (the “Retired Employee Subclass”): All Participant members of the Class who Retired between January 1, 2011 and December 31, 2014 except for Participants whose accounts were liquidated due to death, disability or a voluntary request for distribution, and the beneficiaries of such Participants

There’s a lot more to this decision but I want to focus on the Order’s discussion of equitable remedies.  The parties disputed whether Plaintiffs’ claim that Defendants breached their fiduciary duties by misrepresenting to the Retired Employee Subclass that they were entitled to hold their shares in Wawa stock until age 68 could satisfy Rule 23’s commonality, typicality, or predominance requirements.  Defendants argued that each putative Subclass member will need to show detrimental reliance on the alleged misrepresentations.  Plaintiffs retorted that the Supreme Court’s decision in Cigna Corp. v. Amara eliminates the need for detrimental reliance for ERISA § 404 misrepresentation claims where the participants seek reformation and surcharge.

The court disagreed with Wawa.  Though Amara’s discussion of equitable remedies is dictum, “it remains highly persuasive.”  None of Defendants’ cited cases address class certification or the § 404 detrimental reliance requirement in light of Amara.  The court found the reasoning of the Second and Eighth Circuits to be persuasive and concluded that Plaintiffs do not need to show § 404 detrimental reliance to seek reformation and surcharge under § 502(a)(3).  With respect to commonality issues, the court found that even if detrimental reliance were required to establish a § 404 violation, such reliance could be presumed on a class-wide basis where Defendants allegedly made promises in SPDs and other class-wide communications.  This is not undercut by Cunningham’s testimony that he relied on oral representations that he could hold Wawa stock until age 68.  There is no evidence that these oral statements differ from Defendants’ allegedly misleading written statements.

The court applied the same reasoning to Plaintiffs’ claim that the Committee Defendants furnished misleading SPDs to the Retired Employee Subclass and the Terminated Pre-2014 Employee Subclass.  It noted that the Third Circuit has never held that § 102 (SPD requirements) and § 104 (requirement to furnish SPD) misrepresentation claims require a showing of detrimental reliance.

The workers are represented by Cohen Milstein Sellers & Toll LLP, Block & Leviton LLP, Feinberg Jackson Worthman & Wasow LLP and Donahoo & Associates PC.  Special shout out to Friends of ERISA Watch, Joe Barton and Dan Feinberg.

This morning I queried Mr. Feinberg, as to what’s next.  Mr. Feinberg, now an avid tea drinker, said:

“Plaintiffs are proceeding with discovery as to their claims that Wawa broke its promise to allow them to hold company stock until age 68 and then undervalued their stock when they were forced to sell it back to Wawa.  Wawa is a successful company today because of the hard work of both its current and former employees.  Wawa should allow the former employees who helped build the company share in the fruits of their labor.”

When pressed as to whether he’s a fan of the Wawa Dark Roast coffee, Mr. Feinberg reserved comment until the end of the case.  And there you have it folks.

There were several other interesting cases from this past week keep reading.  For those of you in the Eighth Circuit, make sure you check out MBI Energy Servs. v. Hoch, No. 18-1539, __F.3d__, 2019 WL 2814855 (8th Cir. July 3, 2019), where the court joined the Fifth, Sixth, Ninth, and Tenth Circuits in concluding that Amara does not prevent a summary plan description from functioning as the plan in the absence of a formal plan document.

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

Attorneys’ Fees

D.C. Circuit

Service Employees International Union National Industry Pension Fund, et al., v. Jersey City Healthcare Providers, LLC, No. CV 17-1657 (CKK), 2019 WL 2870216 (D.D.C. July 3, 2019) (Judge Colleen Kollar-Kotelly).  The court previously granted summary judgment to Plaintiffs on its claims for unpaid benefit plan contributions.  The court granted Plaintiff’s request for attorneys’ fees and awarded “a total of $18,824.00 in attorneys’ fees (including fees on fees), $495.00 in costs, and $3,904.43 in additional accrued interest and awards those amounts.”  Defendants did not dispute the reasonableness of the hourly rates charged, including $220 for partners, $195 for associates, and $120 for paralegals.  The court rejected Defendants’ arguments that the hours awarded should be reduced because much of the filings were cut and paste from other cases Plaintiff’s counsel has litigated and that Plaintiffs’ counsel should have had a paralegal doing more of the work.  “While litigation presents numerous tasks which the use of billing judgment suggests could be performed by a paralegal, legal analysis and litigation strategy are the province of attorneys.”

Breach of Fiduciary Duty

Second Circuit

Sacerdote, et al. v. New York University, No. 16 CIV. 6284 (AT), 2019 WL 2763922 (S.D.N.Y. July 1, 2019) (Judge Analisa Torres).  Judge Katherine Forrest previously held a bench trial in this case and found in favor of Defendant on all claims by Plaintiffs that the Committee breached its fiduciary duty with respect to the NYU Retirement Plan.  Shortly thereafter, Judge Forrest resigned from the bench to join Cravath, Swaine & Moore LLP (a firm not involved in this litigation).  The case was reassigned to Judge Robert Sweet and then to Judge Analisa Torres after Judge Sweet’s death.  First, Judge Torres denied Plaintiffs’ motion under either Rule 52(b) and 59(e) for amended or additional findings concerning two Committee members who they argued should be removed from the Committee.  Although Judge Forrest did not decide against removing them from the Committee, her opinion makes clear that she considered the issue and determined that removal was not warranted.  Second, the court granted Defendant’s motion to strike three declarations submitted by Plaintiffs’ purported experts in legal ethics who opined that Judge Forrest should have disqualified herself from deciding the case pursuant to 28 U.S.C. § 455(a).  The court found that Plaintiffs impermissibly seek to introduce expert declarations on a question of law and there is no precedent of a court relying on or finding admissible an expert opinion about the outcome of a § 455 motion.  Lastly, the court denied Plaintiffs’ motion to vacate the judgment and for a new trial.  “Their extraordinarily attenuated chain of connections is this: one of over eighty partners at Cravath—who is not alleged to have played any role in hiring Judge Forrest—is, on his own time, one of over sixty members of NYU’s Board of Trustees [], an entity that, at best, played a minor role in this litigation. The Court concludes that this chain of connections did not create an objective appearance of bias, and Plaintiffs’ motion is DENIED.”

Ninth Circuit

Wise v. Maximus Federal Services, Inc., et al., No. 18-CV-07454-LHK, 2019 WL 2775535 (N.D. Cal. July 2, 2019) (Judge Lucy H. Koh).  In this dispute over the denial of a MyoPro orthosis for Plaintiff with a paralyzed left arm, the court granted Defendant MVI Administrators Insurance Solutions, Inc.’s motion to dismiss Plaintiff’s claims against it because it is not a fiduciary.  MVI is the designated Plan Administrator that contracted with the group health and welfare plan’s trustees to perform many of the Plan Administrator’s tasks.  The court determined that MVI was not a named fiduciary because it was not so designated in the SPD, the plan instrument.  It is not a “functional fiduciary” because MVI did not act or participate in any way in the denial of benefits.

Class Actions

Third Circuit

Cunningham, et al. v. Wawa, Inc., et al., No. 2:18-cv-03355-PD (E.D. Pa. July 2, 2019) (Judge Paul S. Diamond).  See Notable Decision summary above.

Disability Benefit Claims

First Circuit

Hughes v. Life Insurance Company of North America, No. CV 18-386-JJM-LDA, 2019 WL 2717111 (D.R.I. June 28, 2019) (Judge John J. McConnell, Jr.).  The court granted Plaintiff’s motion to determine that the proper standard of review of his denial of long-term disability benefits is de novo.  The plan states that, “The Plan Administrator has appointed the Insurance Company as the named fiduciary for deciding claims for benefits under the Plan, and for deciding any appeals of denied claims.”  The court explained that the First Circuit instructs that the power to decide claims does not bestow discretion.  The court concluded that the plan does not unambiguously provide LINA with the discretion to construe the terms of the plan so the default standard of de novo review must apply to this case.

Fifth Circuit

Botello v. AT&T Umbrella Benefit Plan No. 3, No. 5-18-CV-00361-FB-RBF, 2019 WL 2719414 (W.D. Tex. June 27, 2019) (Magistrate Judge Richard B. Farrer).  The court issued a report and recommendation granting the Plan’s motion for summary judgment.  It found that the Plan’s denial of long-term disability benefits was based on substantial evidence where it relied on three medical consultants who found that there was insufficient evidence that Plaintiff was significantly limited in her day-to-day functioning as a result of her psychiatric condition.  In rejecting Plaintiff’s argument challenging the Transferrable Skills Assessment, the court explained that a vocational expert is only required to take the limitations determined by a physician to determine whether there is any occupation a claimant could perform.  “Botello cites to no case or other authority—nor is the Court aware of any—that would require a vocational expert to evaluate a claimant’s non-functional related symptoms when performing a transferrable skills assessment.”

Eighth Circuit

Nicholson v. Standard Ins. Company, No. 18-1848, __F.App’x__, 2019 WL 2871106 (8th Cir. July 3, 2019) (Before LOKEN, WOLLMAN, and STRAS, Circuit Judges).  Plaintiff was in a car accident in 1978 and worked for his employer from 2001 to 2014 with pain that he alleges became disabling in September 2014.  The court found that it was not an abuse of discretion to deny his claim for long-term disability benefits where the records did not document any changes appearing on any imaging tests, there was no change in his pain medication regimen nor a referral to a specialty provider or further evaluation of his condition.

Exhaustion of Administrative Remedies

Ninth Circuit

Greiff v. Life Ins. Co. of N. Am., No. CV-18-00496-TUC-RM (D. Ariz. July 5, 2019) (Judge Rosemary Marquez).  Construing ambiguities in the Plan in favor of the insured, the court found that the Plan documents in this case could reasonably be read as making the administrative appeal process optional and ERISA does not require administrative exhaustion.  The Plan documents which discuss the “right” to appeal is not the same as an obligation to appeal.  The denial letter stating that ERISA requires the claimant to go through the administrative appeal review process is not part of the ERISA plan and cannot alter the parties’ rights under the plan.  Even if the language in the denial letter constitutes terms of the plan, it still does not clearly state that the plan requires exhaustion as a prerequisite to filing suit.  The court denied LINA’s motion to dismiss for failure to exhaust administrative remedies.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Price v. Life Ins. Co. of N. Am., et al., No. CV H-18-3900, 2019 WL 2716537 (S.D. Tex. June 28, 2019) (Judge Gray H. Miller).  Plaintiffs are the beneficiaries to life insurance policies insured and administered by LINA and sponsored by decedent’s employer, AHC.  AHC contracted with Northgate to act as third-party administrator of its benefits plan.  Decedent was diagnosed with terminal cancer and reduced his work hours to part-time until his death.  Prior to this death, a Northgate representative contacted LINA about the steps for decedent to convert or port his remaining life insurance.  After LINA responded, no one of AHC or Northgate followed up with LINA and vice versa.  Following decedent’s death, LINA denied benefits on the basis that he did not have coverage after he went to part-time status and did not convert his coverage within twelve months of losing coverage.  Plaintiffs filed suit against AHC, Northgate, and LINA.  The court granted AHC’s motion to dismiss in part.  It decided that:  (1) the complaint provides enough factual allegations to demonstrate a plausible claim for relief under § 502(a)(1)(B) where Plaintiffs name the policy at issue and point to one particular provision regarding coverage while on FMLA leave; (2) the § 502(a)(1)(B) claim against the Plan must be dismissed because the Plan is not responsible for the wrongful denial of benefits, did not take on the responsibility of an administrator, and did not exercise actual control over the Plan; (3) since Plaintiffs have adequate redress pursuant to § 502(a)(1)(B) to address the injury for which they seek equitable relief, they cannot pursue a § 502(a)(3) claim for breach of fiduciary duty regardless of whether the § 502(a)(1)(B) claim against LINA is ultimately successful; and (4) Plaintiffs may pursue a § 502(a)(3) claim relating to an SPD deficiency against AHC.

Plan Status

Seventh Circuit

Graham v. Board of Education of the City of Chicago, No. 18 C 4761, 2019 WL 2772648 (N.D. Ill. July 2, 2019) (Judge Virginia M. Kendall).  The court determined that the Board of Education of the City of Chicago’s benefit plan is a governmental plan exempt from ERISA.  Even if the Board’s benefit plans are funded and maintained in part by private companies that own and operate charter schools, what matters is that the plan was established or maintained by a governmental entity.  Here, the Board established the plan so the governmental exemption applies.

Provider Claims

Eleventh Circuit

Lee Memorial Health System v. Winn Dixie Stores, Inc., No. 216CV738FTM29UAM, 2019 WL 2744550 (M.D. Fla. July 1, 2019) (Judge John E. Steele).  The court rejected the Magistrate Judge’s R&R denying Plaintiff leave to file a second amended complaint.  The court found that Plaintiff’s allegations are sufficient to make out a clear case of waiver of the anti-assignment provision. Plaintiff alleged that it provided assignments to Blue Cross in the past, Blue Cross provided payment without objection to the assignments and made representations to Plaintiff suggesting that assignments are not prohibited in certain situations.  These allegations, coupled with Plaintiff’s assertion of derivative standing based on its patient’s assignment, establish that the SAC states a claim to relief that is plausible on its face.

State Bans on Discretion

Eighth Circuit

Nicholson v. Standard Ins. Company, No. 18-1848, __F.App’x__, 2019 WL 2871106 (8th Cir. July 3, 2019) (Before LOKEN, WOLLMAN, and STRAS, Circuit Judges).  The court determined that Standard’s long-term disability policy is not subject to Arkansas Insurance Department Rule 101, which bans discretionary clauses in all disability income policies issued or renewed on or after March 1, 2013, because the policy was issued on January 1, 2007 and last amended on January 1, 2013.  Nothing suggests that Standard explicitly set a renewal date after March 1, 2013.  Thus, abuse of discretion review applies.

Statutory Penalties

Eighth Circuit

Brown v. Express Scripts, Inc., No. 4:19-CV-808 JMB, 2019 WL 2774335 (E.D. Mo. July 2, 2019) (Magistrate Judge John M. Bodenhausen).  The court granted the pro se plaintiff’s motion for leave to file the civil action without prepayment of the required filing fee due to the lack of sufficient funds.  The court found that her claim states a plausible claim for relief where she “alleges that she is a participant in a plan administered by defendant Express Scripts, Inc. and that Express Scripts failed to comply with her multiple requests, beginning June 12, 2017 and made through her attorney, for plan documents including a summary plan description. According to plaintiff, not only did Express Scripts fail to comply with the specific requests within the thirty days allowed by statute, but it still had not complied by April 1, 2019, when this case was filed.”

Subrogation/Reimbursement Claims

Eighth Circuit

MBI Energy Servs. v. Hoch, No. 18-1539, __F.3d__, 2019 WL 2814855 (8th Cir. July 3, 2019) (Before Gruender, Benton, and Grasz, Circuit Judges).  Defendant’s self-funded health plan provided Defendant with $68,210.38 in medical benefits after he was injured in an accident.  The Plan sought reimbursement of this amount after he secured compensation from the tortfeasor’s insurer (eventually reducing its claim by attorneys’ fees paid by Defendant).  The court determined that Plaintiff MBI was entitled to summary judgment on its reimbursement claim.  The court found that the SPD which contained the subrogation/reimbursement provision is enforceable because the terms of the SPD compromise the Plan.  In coming to this conclusion, the court found that its past decision in Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Health & Welfare Plan v. Gamboa, 479 F.3d 538 (8th Cir. 2007)—which addressed whether in the absence of any other plan document providing benefits, the SPD could constitute the plan—was consistent with the Supreme Court’s decision in Cigna Corp. v. Amara, 563 U.S. 421 (2011).  Specifically, Amara does not prevent an SPD from functioning as the plan in the absence of a formal plan document as is the case here.  The court declined to address Defendant’s arguments regarding equitable remedies for violations of ERISA by MBI where Defendant did not raise these in the opening brief.

Withdrawal Liability & Unpaid Contributions

Fourth Circuit

Bd. of Trustees, Sheet Metal Workers’ Nat’l Pension Fund v. Four-C-Aire, Inc., No. 17-2295, __F.3d__, 2019 WL 2837706 (4th Cir. July 3, 2019) (Before Niemeyer, Agee, and Diaz, Circuit Judges).  The plaintiff multiemployer pension plan filed suit pursuant to ERISA § 515 claiming a delinquent exit contribution from Four-C-Aire, Inc., a former participating employer. The court found that the complaint alleges a viable claim because the Fund’s governing agreements and Four-C-Aire’s CBA require participating employers to pay an exit contribution when they no longer have a duty to contribute to the Fund due to the expiration of the underlying CBA. The court reversed the district court’s order granting the motion to dismiss, vacated the judgment as to the exit contribution claim, and remanded for further proceedings consistent with this opinion.

Seventh Circuit

Wisconsin Masons Health Care Fund v. Sid’s Sealants, LLC, No. 19-CV-131-JDP, 2019 WL 2870068 (W.D. Wis. July 3, 2019) (Judge James D. Peterson).  The court dismissed Plaintiffs’ ERISA claims that they raised in their previous lawsuit, Case No. 17-cv-28, on the basis of claim preclusion.  The court found that Plaintiffs alleged cognizable new claims that Sid’s violated ERISA by withholding contributions for hours worked in 2018 and by subcontracting work in violation of a collective bargaining agreement.  Lastly, the court exercised its discretion under § 1367(c)(2) to decline to exercise jurisdiction over Plaintiffs’ claim for breach of the settlement agreement, which generally raise only state law issues and cannot provide a basis for jurisdiction without diversity of citizenship.

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