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Your ERISA Watch – Court Permits Claims to Proceed Against ERISA Fiduciaries Related to Pension Benefit Misstatements

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Happy New Year! In the first blog of the year we are pleased to report a Kantor & Kantor victory in Wallace v. Int’l Paper Co., No. 2:20-CV-02478-SHL, __F.Supp.3d__, 2020 WL 7643134 (W.D. Tenn. Dec. 23, 2020). In a nutshell, this case is about a plan participant who was successful in defeating two motions to dismiss ERISA and state-law claims based on defendants’ misrepresentations in overstating his pension benefits, misstatements on which the participant specifically relied in deciding to accept a severance package ending his long-term employment for International Paper Company.

Plaintiff Wallace worked for several companies which were ultimately acquired by International Paper. Upon acquisition, his prior pension benefits were merged into the International Paper pension plan as a component plan and he began receiving benefit statements prepared by Alight Solutions, Inc. (formerly Hewitt) showing his monthly pension which he used, with the help of his financial advisor, to plan for his retirement.

In December 2017, Wallace was offered a severance package. He made it clear to International Paper that the amount of his pension was material to the decision of whether to accept the severance. At that time, Wallace’s benefit statement showed a monthly joint and survivor annuity amount of $7,448. Based on this representation, he took the severance package and a year later applied for his pension. The pension was paid for two months at the amount he anticipated but just before the third payment he was notified his monthly pension would be reduced to $2,800 a month.

Wallace sued International Paper, the pension plan committee, the pension plan administrator, and Alight for fiduciary breaches under ERISA and, alternatively, violations of state law. Plaintiff’s ERISA claims are premised, in part, on the requirement to provide pension statements in accordance with ERISA Section 105(a), which states that plan administrators must provide pension benefits statements showing the total benefit accrued, an exact number, not a guess. Plaintiff alleges this ERISA duty was delegated to Alight and, therefore, Alight is an ERISA fiduciary. Plaintiff further alleges that the International Paper defendants had a duty to monitor the delegation of this duty. In the alternative, the complaint alleges state law claims against Alight for professional negligence and negligent misrepresentation.

Defendants moved to dismiss on several theories. The International Paper defendants’ motion to dismiss argued the claims are barred by the severance agreement, that they did not breach any fiduciary duty under ERISA, that the court should not award damages for ERISA reporting requirements, that they are not fiduciaries, and that Wallace did not state a claim for equitable estoppel. Alight’s motion to dismiss argued it is not an ERISA fiduciary because it performed purely ministerial functions and had no discretion with regard to preparing pension statements. It further argued the state law claims are preempted by ERISA.

In denying Defendants’ motions the court found that the International Paper defendants’ arguments do not warrant dismissal at this stage. The court concluded that the severance agreement does not bar claims relating to misrepresentation because Wallace sufficiently alleges that the agreement was obtained based on the misrepresentations in that he relied on the erroneous pension benefit statements in signing the severance agreement. The court further found Wallace alleged with sufficient particularity that the International Paper defendants breached their fiduciary duties by making material misrepresentations in the pension benefit statements, which indicated that Wallace would receive more than twice the amount he was entitled to receive. The court reasoned that these misrepresentations were material because there was “a ‘substantial likelihood that it would mislead a reasonable employee in making an adequately informed decision about if and when to retire.’” quoting James v. Pirelli Armstrong Tire Corp. 305 F.3d 439, 449 (6th Cir. 2002)).

With regard to whether a plaintiff can obtain damages for fiduciary breaches based on violations of ERISA’s reporting requirement, the court concluded it has discretion to award damages where a participant has been harmed by such violations. Furthermore, noting that fiduciary status is a fact-intensive inquiry, the court found plaintiff sufficiently alleged “that each Defendant had a degree of control over the pension estimate process, whether through appointing others to carry out fiduciary acts, supervising fiduciary acts or directly preparing the pension statements.” Finally, the court found Wallace alleged sufficient facts to state a claim meeting the “demanding standard” for a claim for equitable estoppel by alleging that the faulty pension statements were provided over an extensive period of time and that the benefit calculations were too complex for Wallace to perform himself given International Paper’s complicated acquisition history.

With regard to Alight’s motion, the court likewise found Wallace sufficiently alleged Alight acted as a fiduciary. The court stated “‘Congress commodiously imposed fiduciary standards on persons whose actions affect the amount of benefits retirement plan participants will receive.’” quoting John Hancock Mut. Life Ins. Co. v. Harris Tr. & Sav. Bank, 510 U.S. 86, 96 (1993)). Contrary to Alight’s argument that it was providing purely ministerial services, the court concluded that Wallace sufficiently alleged Alight exercised discretion in plan interpretation to prepare the benefit statements, a task that was not simply plugging in numbers into a pre-set formula.

Lastly, the court stated it was premature to determine whether the state law claims are preempted because it would first need to determine whether Alight is a fiduciary. The court reasoned that if it determined that Alight was a fiduciary, the state-law claims would be preempted, as Wallace conceded, but that these claims might not be preempted if it turned out that Alight was not acting as a fiduciary.

Wallace is represented by Elizabeth Hopkins and Susan L. Meter of Kantor & Kantor, LLP.

The above notable decision summary was written by Susan L. Meter. Susan enjoys finding creative solutions to challenging issues, using her 20 plus combined years of experience with retirement plans and as an ERISA attorney.

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

Breach of Fiduciary Duty

Sixth Circuit

Wallace v. Int’l Paper Co., No. 2:20-CV-02478-SHL, __F.Supp.3d__, 2020 WL 7643134 (W.D. Tenn. Dec. 23, 2020) (Judge Sheryl H. Lipman). See Notable Decision summary above.

Class Actions

Ninth Circuit

Caldwell v. United Healthcare Ins. Co., No. C 19-2861 WHA, 2020 WL 7714394 (N.D. Cal. Dec. 29, 2020) (Judge William Alsup). The court granted Plaintiff’s motion for class certification, with a specified class period, as follows: All persons covered under ERISA health plans, self-funded or fully insured, that are administered by United and whose claims for specialized liposuction for treatment of their lipedema were denied as unproven between January 1, 2015 and December 31, 2019. A damages subclass was created for members denied solely on the grounds that liposuction was “unproven” for the treatment of lipedema. Plaintiff Mary Caldwell shall serve as class representative, and Gianelli & Morris was appointed as class counsel.

Disability Benefit Claims

Third Circuit

Addington v. Liberty Life Ass. Co. of Boston, et.al., No. 19-2959, __F.App’x__, 2020 WL 7774952 (3d Cir. Dec. 30, 2020) (Chagres, Scirica, and Roth). Addington became disabled due to chronic back and knee pain and was paid LTD benefits by Liberty. His claim was later terminated when his orthopedic surgeon stated that after an upcoming knee surgery, Addington would be able to return to work. The district court granted summary judgment to Liberty, determining that it was not arbitrary or capricious for Liberty to have relied on the opinions of doctors who reviewed Addington’s medical records, and that Liberty had adequately considered Addington’s favorable SSDI award because Liberty stated that it had considered the award but made a different decision because it had obtained vocational and medical assessments the SSA had not considered. The Third Circuit affirmed the district court’s grant of summary judgment on appeal for the same reasons.

Ninth Circuit

McCulloch v. Hartford Life and Accident Insurance Company, No. 19-CV-07716-SI, 2020 WL 7711257 (N.D. Cal. Dec. 29, 2020) (Judge Susan Illston). Plaintiff filed suit to obtain long term disability benefits. The review was de novo. Plaintiff argued, and the court agreed, that her SSA award should be considered by the court even though it was received after her appeal was denied and therefore was not in the administrative record. Plaintiff contracted Lyme disease and developed fatigue, tremors, and cognitive issues. A SPECT brain scan confirmed statistically significant decreased activity in her frontal lobes. Lab tests confirmed exposure to Lyme. A CPET test confirmed her reduced cardiac capacity. Hartford denied benefits and upheld the denial on appeal. The court found that there was ample objective and subjective evidence of Plaintiff’s disability and noted that it gave little weight to the “vague and conclusory” reports of Hartford’s reviewers.

Exhaustion of Administrative Remedies

Sixth Circuit

Vest v. The Nissan Supplemental Exec. Ret. Plan II and Nissan North America, Inc., Case No. 3:19-CV-1021, 2020 WL 7695261 (M.D. Tenn. Dec. 28, 2020) (Judge Eli Richardson).  Plaintiff was an executive for Nissan and was a participant in the Nissan Supplemental, Executive Retirement Plan II (the Plan). Plaintiff resigned after nine successful years with Nissan to accept a job with Bridgestone, which Plaintiff understood not to be a competitor of Nissan. Plaintiff submitted a claim for benefits under the Plan and was advised that she must provide written confirmation that Bridgestone does not provide products or services to other Original Equipment Manufacturers (“OEM”) or her benefits will be forfeited. Plaintiff confirmed that she does not provide product or services to other OEMs and requested a review of her claim. Defendants did not respond within the time limits set forth in the Plan. As a result, Plaintiff filed a demand for arbitration to which Defendants would not consent without several conditions. As a result, Plaintiff filed this action in federal court seeking benefits under an ERISA Plan. Defendants filed a motion to dismiss or alternatively to compel arbitration and stay proceedings.  Initially, Defendants claimed that the Plan was not governed by ERISA, but later reversed their position. Second, Defendants argued that the time to review Plaintiff’s appeal had not expired, by referencing a provision in the Plan that was inapplicable to the current dispute. The court held that because Defendants failed to follow the claims procedures in the Plan, Plaintiff was deemed to have exhausted her administrative remedies. The court further held that Defendants cannot pursue arbitration now as arbitration is one of the administrative remedies that Plaintiff is deemed to have exhausted. The court denied Defendants’ motion to dismiss and request to compel arbitration.

Medical Benefit Claims

Ninth Circuit

I.M. v. Kaiser Found. Health Plan, Inc., No. 19-16374, __F.App’x__, 2020 WL 7624925 (9th Cir. Dec. 22, 2020) (Before Chief Judge Sidney R. Thomas, Circuit Judge Jane Kelly, Circuit Judge Eric D. Miller). This is a putative class action brought by I.M. against Kaiser Foundation Health Plan alleging Kaiser breached its ERISA fiduciary duties by excluding residential treatment programs from its plan and failing to provide adequate procedures that would enable providers to refer eating disorder patients to residential treatment programs. The district court granted summary judgment in favor of Kaiser and denied reconsideration. The Ninth Circuit affirmed. The court held that the evidence shows I.M.’s residential treatment was plainly covered in his plan and therefore does not support his argument that Kaiser excluded residential treatment. The court did not find significant evidence to the contrary. The court found that I.M. repeatedly refused to take advantage of Kaiser’s residential treatment options and instead opted for an out-of-network facility. The court found there is no evidence that Kaiser’s procedures, or lack thereof, inhibited I.M. from obtaining residential treatment.

L.D. v. United Behavioral Health, Case No. 20-cv-02254 YGR, 2020 WL 7432566 (N.D. Cal. Dec. 18, 2020) (Judge Yvonne Gonzalez Rogers). In a direct ERISA participant-patient suit, plaintiff patients brought a putative class action against UBH and MultiPlan for claims arising out of UBH’s alleged failure to reimburse their claims for Intensive Outpatient Program (“IOP”) services at the Usual, Customary, and Reasonable Rate (“UCR”). Plaintiffs filed a First Amended Complaint (“FAC”), in which they assert, on behalf of a proposed class of similarly situated subscribers of insurance policies administered by UBH, claims under ERISA and RICO. Before the court were two motions to dismiss all claims in the FAC. The court denied Defendants’ motion to dismiss Plaintiffs’ (a)(1)(B) and (a)(3) claims. As to the (a)(1)(B) claims, the court held in pertinent part that Plaintiff’s FAC provided sufficient factual matter to raise the inference that UBH’s use of a Viant database and pricing tool did not generate rates consistent with the plans’ requirements. As to Plaintiffs’ (a)(3) claims, the court also denied Defendants’ motion to dismiss in pertinent part because the FAC sufficiently alleged that MultiPlan knowingly participated in UBH’s alleged breach of its fiduciary duties.

Tenth Circuit

J.L., et al. v. Anthem Blue Cross, et al., No. 218CV00671DBBDBP, 2020 WL 7768126 (D. Utah Dec. 30, 2020) (Judge David Barlow). Plaintiff sought reimbursement of healthcare claims for residential treatment. The parties brought cross-motions for summary judgment. Under an abuse of discretion review, the court granted Anthem’s motion for summary judgment. The court found Anthem substantially complied with ERISA’s procedural requirements and thus the court declined to alter the standard of review due to alleged procedural flaws by Anthem. The court found that Anthem’s interpretation of the Plan’s criteria for residential treatment is reasonable and not incompatible with the Plan. The court found that Anthem did not disregard evidence as treating physicians’ letters were included in the administrative record. The court concluded there is substantial evidence that residential treatment was not medically necessary, and Anthem’s denial was not arbitrary and capricious.

Pension Benefit Claims

Third Circuit

Waters v. Wells Fargo & Co. Cash Balance Plan, et al., No. CV1816832MASTJB, 2020 WL 7841163 (D.N.J. Dec. 30, 2020) (Judge Michael A. Shipp). After Plaintiff was no longer employed by Defendants, he asked for a confirmation that his benefit for early retirement at age 55 would be 79% of his normal retirement benefit based on his age and vested years of service.  A Wachovia representative confirmed Plaintiff’s eligibility. Plaintiff also obtained projections from the plan administrator of early retirement income in the annual amount of $23,319.36, which amounts to 79% of his normal retirement benefit. The pension projection contained two disclaimers: 1) “Wachovia reserves the right to correct any errors…. if the estimate conflicts with the benefit defined by the Wachovia Pension Plan.”, and 2) that the projection “does not replace or change the meaning” of the controlling “plan documents and contracts.” In 2018, Plaintiff received another pension projection showing a much lower amount because Plaintiff did not meet the age requirement at the time he was no longer employed. The court held that Defendants have presented sufficient evidence to demonstrate that the 2006 Restatement’s Early Retirement provision inadvertently removed the age requirement due to the erroneous inclusion of “or” in place of the established “and.” The court, therefore, cannot find as a matter of law that Defendants violated ERISA’s anti-cutback rule and that Plaintiff is entitled to the enhanced early retirement benefit under the Plan. The court, accordingly, denies Plaintiff’s Motion for Summary Judgment.

Sixth Circuit

Black v. Pension Benefit Guar. Corp., No. 19-1419, 2020 WL 7688252, __ F.3d __ (6th Cir. Dec. 28, 2020) (Before Circuit Judges Siler, Gibbons, and Nalbandian). Plaintiffs, retired employees of Delphi Corporation, a subsidiary of GM, brought this action challenging the PBGC’s termination of Delphi’s defined benefit plan. The district court found in favor of PBGC, and Plaintiffs appealed. On appeal, the Sixth Circuit affirmed the judgment. In doing so, the court made rulings on three issues. First, the court ruled that PBGC was not required to obtain a judicial adjudication before terminating the plan. The court closely examined the relevant statute, and found that the text, contextual clues, and authorities from other circuits supported an interpretation that allowed PBGC to terminate a plan when the plan administrator agreed to the termination and agreed to the appointment of a trustee. Second, the court found that Plaintiffs’ due process rights were not violated because they did not have a property interest in the full amount of their vested pension benefits. Instead, the plan only granted Plaintiffs a property interest in the benefits that were funded at the time of plan termination, while ERISA only gave them an interest in the statutory guarantee paid by PBGC. ERISA’s anti-cutback rule did not apply because the case involved a plan termination, not a plan amendment. Finally, the court held that PBGC’s termination decision was not arbitrary or capricious. The court noted that GM was unwilling to assume the plan, that PBGC was not required to exert more pressure on the Treasury Department to ensure that GM assumed the plan, and that PBGC’s decision was justified given Delphi’s underfunding of the plan, its failure to pay minimum funding contributions, and PBGC’s efforts to explore other alternatives before terminating the plan. In short, the court found it “inappropriate…to play armchair administrative agency with the benefit of hindsight.”

Seventh Circuit

Smith v. Rockwell Automation, Inc., No. 19-C-0505, 2020 WL 7714663 (E.D. Wis. Dec. 29, 2020) (Judge Lynn Adelman). Plaintiff, a former employee of Rockwell, alleged that Rockwell’s pension plan violated ERISA because it used outdated actuarial assumptions that excessively diminished the value of certain annuities available under the plan. Defendants responded that Plaintiff’s allegations were unfounded because Plaintiff’s benefits were not calculated using actuarial assumptions and moved to dismiss for lack of standing. The court granted Defendants’ motion. The court noted that Plaintiff had conceded after discovery that Defendants did not use actuarial assumptions to calculate his pension, and that Plaintiff did not have standing to assert an alternative argument that Defendants did use such assumptions to calculate the value of an annuity he did not select. Furthermore, the alternate annuity was worth more, not less, and thus could not have harmed him. Finally, the court found that Defendants did not violate ERISA in its calculation of benefits under the plan even if the alternate annuity was worth less. However, the court gave Plaintiff leave to file an amended complaint that was consistent with its rulings.

Plan Status

Fourth Circuit

Doe, et al., v. Anthem Health Plans of Virginia, Inc., No. 2:20CV408 (RCY), 2020 WL 7630645 (E.D. Va. Dec. 22, 2020) (Judge Roderick C. Young). Doe brings this action against Defendant alleging breach of an insurance contract, negligent infliction of emotional distress, and insurer bad faith under Virginia Code § 38.2-209. Defendant removed this case to federal court, and Plaintiffs move to remand the action to state court. The Court’s jurisdiction over this action turns on whether a small business’s health insurance plan, through which only the business owner, his spouse, and his dependents receives coverage, is governed by ERISA. Plaintiffs argued that it is not, because the business has no employees besides Doe’s father, and the court agreed and remanded the matter back to state court. The court explained that in this case, the Anthem Health Plan has only ever covered one person as an insured subscriber: the law firm’s owner, James M. Boyd. The only other individuals to have received coverage under the plan are his wife and dependents. These individuals alone do not establish an “employee benefit plan” governed by ERISA. Moreover, Linda Peterson and Robert Boyd, who declined to enroll in coverage under the Plan, do not confer jurisdiction through their hypothetical ability to enroll in the Plan and receive benefits. As 29 C.F.R. § 2510.3-3 clarifies, these employees must be covered under the plan for ERISA to apply.

Pleading Issues & Procedure

Second Circuit

Falberg v. The Goldman Sachs Grp., Inc., No. 19 CIV. 9910 (ER), 2020 WL 7695711 (S.D.N.Y. Dec. 28, 2020) (Judge Edgardo Ramos). In this proposed class action, Plaintiffs asserted Defendants had violated ERISA regarding Goldman Sachs 401(k) Plan. On July 9, 2020, the court denied Defendants’ motion to dismiss the complaint for failure to state a claim and for procedural deficiencies including untimeliness and lack of exhaustion. Defendants then filed a motion for a certificate of appealability with respect to the threshold timeliness and exhaustion issues. The court denied Defendants’ motion. Regarding timeliness, the court cited Heimeshoff’s determination that a contractual limitations provision was enforceable in an ERISA benefits case, unless there is a controlling statue to the contrary. At issue was a statutory ERISA claim, not a benefit claim, and thus the court held ERISA’ six-year period found in § 1113 was a controlling statutory limitations period. Regarding exhaustion, the court followed the reasoning of seven circuits in holding that exhaustion was unnecessary for statutory and breach of fiduciary duty claims. It recognized two circuits had contrary holdings, but this was not sufficient to meet the “substantial ground for disagreement” and “exceptional case” criteria for granting interlocutory appeal in Federal Court pursuant to Section 1292 of Title 28 of the United States Code.

Sixth Circuit

Press, et. al., v. BP, PLC & BP Corp. N.A., Inc., No. 1:20-CV-2052, 2020 WL 7640921 (N.D. Ohio Dec. 23, 2020) (Judge James S. Gwin). Plaintiffs are former participants in the Sohio Benefit Plan, which was converted into the BP Retirement Accumulation Plan in 1989. Plaintiffs allege Defendants provided false and misleading information to plan participants during the conversion. A lawsuit based on these same allegations was brought in the Southern District of Texas in 2016. The court granted Defendants’ motion to transfer this case to the Southern District of Texas under the “first-to-file” rule.

Provider Claims

Ninth Circuit

Pac. Recovery Sols. v. United Behavioral Health, et al., Case No. 20-cv-02249 YGR, 2020 WL 4739310 (N.D. Cal. Dec. 18, 2020) (Judge Yvonne Gonzalez Rogers). Out-of-network substance abuse and mental health treatment providers, Plaintiffs Pacific Recovery Solutions, and other providers brought a putative class action suit against United Behavioral Health (UBH) and MultiPlan for claims arising out of UBH’s alleged failure to reimburse Plaintiffs at “a percentage” of the Usual, Customary, and Reasonable Rates (“UCR”) for Intensive Outpatient Program (“IOP”) services. Before the Court were two motions to dismiss all claims on the grounds that: (1) Plaintiffs’ claims under Section 1 of the Sherman Act and RICO failed for lack of statutory standing; (2) Plaintiffs’ state-law claims were preempted by ERISA; and (3) all claims in the FAC continued to be inadequately pleaded. The court held that (1) Plaintiffs did not have antitrust standing; (2) Plaintiffs did not have RICO standing and (3) Plaintiff must amend the FAC to sufficiently allege that their state-law claims fall outside of the scope of ERISA preemption on the basis that the healthcare plans are non-ERISA plans.

Retaliation Claims

Ninth Circuit

Loza v. Intel Americas, Inc., No. C 20-06705 WHA, 2020 WL 7625480 (N.D. Cal. Dec. 22, 2020) (Judge William S. Alsup). Plaintiff, employed by Intel in Texas, filed an age discrimination case against his employer, alleging that it terminated him pretextually after 22 years of employment to avoid paying full retirement benefits. Intel moved to dismiss, arguing that the claim was time-barred and inadequately pled. The court held that the case was not time barred by the tolling agreement into which the parties had entered. Nor did the ADEA claim require that Plaintiff plead that he was replaced by a younger employee. Plaintiff also brought a claim under ERISA, based on his argument that his pension rights were about to vest. Intel argued that four years until vesting was not “about to vest.” The court disagreed and allowed the ERISA cause of action to continue. The court held that the FEHA claim could not apply to Plaintiff as he was not a California resident.

Your ERISA Watch is made possible by the collaboration of the following Kantor & Kantor attorneys:  Brent Dorian Brehm, Sarah DemersElizabeth GreenAndrew Kantor, Anna Martin, Michelle RobertsTim Rozelle, Peter Sessions, Stacy Tucker, and Zoya Yarnykh.

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