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Your ERISA Watch – D.C. Circuit Holds That Participant Is Entitled to Deferred Compensation Benefits Despite Termination for Refusing to Transfer Positions

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This week’s notable decision is Peck v. SELEX Sys. Integration, Inc., No. 17-7138, __F.3d__, 2018 WL 3431740 (D.C. Cir. July 17, 2018).  Plaintiff Ronald Peck was a participant in Defendant SELEX Systems Integration’s “top-hat” ERISA-governed deferred compensation plan.  After working for SELEX for over fifteen years, the company terminated him when he refused to accept a transfer from his marketing position in D.C. to a different position in quality-control in Kansas.  Defendants denied Plaintiff’s claims for benefits under SELEX’s deferred-compensation plan and its severance policy on the basis that Plaintiff’s termination for refusing to transfer positions rendered him ineligible for benefits.  The district court granted judgment in SELEX’s favor on both claims for benefits.  The D.C. Circuit vacated the district court’s judgment with regard to the deferred compensation claim but affirmed the judgment with regard to severance pay.

On the issue of the standard of review, the Court noted disagreement among the courts of appeals as to whether Firestone’s deferential standard of review applies in the case of a top-hat plan that grants the plan administrator discretion to interpret the plan’s terms.  The Court declined to join the fray:  “[W]e have no need in this case to explore the varying approaches or to choose between them. As we explain next, even assuming Firestone’s deferential standard of review applies in the context of this case, SELEX’s denial of Peck’s claim for deferred compensation still cannot be sustained as a reasonable determination under the company’s plan.”

The Court held that Peck’s refusal to accept a transfer to a different position with different duties in a different location was not “cause” for termination which would make him ineligible for deferred compensation benefits under the terms of the Plan.  Defendants argued that Peck was an at-will employee without any employment contract assigning him to a specific position or specific duties so the company could direct him to perform whatever duties it chooses.  Thus, his refusal to accept the new position constitutes a “refusal to perform” the “material duties and obligations” of his employment.  The Court determined that Defendant’s interpretation of the Plan is incorrect because it is incompatible with the terms of the Plan and “upsets the parties’ reasonable expectations about the duties of a person’s employment with the company.”  It would require an at-will employee’s “material duties and obligations” to be completely unconnected to his or her current position.  Peck was offered the opportunity to assume a new set of material duties and obligations, which he declined.  This is not the same as refusing to perform the material duties and obligations of his employment.

The Court also held that Peck was ineligible for severance pay under the terms of SELEX’s separation policy because he needed to show that he was terminated for one of the three enumerated reasons: “lack of work, elimination of position, or change in control.”  Peck was terminated because he would not return to Kansas to serve in a different capacity, not because SELEX was eliminating the marketing position in D.C.  Additionally, Defendant was not estopped from claiming that Plaintiff was terminated for a reason other than the elimination of position, in response to Plaintiff’s claim for severance pay.

The Court remanded the deferred-compensation claim to the district court for entry of judgment in Peck’s favor and affirmed the judgment in SELEX’s favor on the severance pay claim.

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

Attorneys’ Fees

Third Circuit

University Spine Center v. Empire Blue Cross and Blue Shield & John Doe, No. CV 2:18-03662, 2018 WL 3435074 (D.N.J. July 17, 2018) (Judge William J. Martini).  “Finally, with respect to Defendant’s request for attorneys’ fees and costs, Plaintiff filed its Complaint on March 16, 2018, at which time the Third Circuit had yet to address the enforceability of anti-assignment provisions in ERISA plans. Plaintiff, therefore, could not have known at that time that it did not have standing due to the anti-assignment provision in Patient’s Plan. Accordingly, the Court finds no reason why Plaintiff should be sanctioned for filing its claim and Defendant’s request, therefore, is DENIED.”

Sixth Circuit

Guest-Marcotte v. Life Insurance Company of North America, et al., No. 15-CV-10738, 2018 WL 3436782 (E.D. Mich. July 17, 2018) (Judge Thomas L. Ludington).  In this case, the Sixth Circuit reversed the dismissal of Plaintiff’s claims and remanded the matter for a full and fair review of Plaintiff’s condition and her application for short term disability benefits.  Despite prevailing at the Sixth Circuit, the district court denied Plaintiff’s motion for attorneys’ fees.  On the “culpability” factor, the court explained:  “Thus, the Sixth Circuit’s arbitrary-and-capricious determination was at least in part based on LINA’s interpretation of the plan’s terms. A mistaken interpretation of plan terms, however, is not sufficient to find a plan administrator highly culpable for the purposes of the King test. . . . Although LINA erred in failing to exercise its right to conduct a physical examination, it did provide reasoned, if mistaken, explanations for its determinations. Furthermore, LINA appears to have engaged in a full, rather than selective, file review. Defendants’ conduct may have been culpable, but it was not sufficiently culpable for this factor to weigh in favor of a fee award.”

Breach of Fiduciary Duty

Seventh Circuit

Wasserstein v. Univ. of Chicago, No. 17-CV-6567, 2018 WL 3474543 (N.D. Ill. July 19, 2018) (Judge John Robert Blakey).  Plaintiff’s claim for any breach of fiduciary duty that Defendant committed by allegedly giving Plaintiff faulty information before he entered the early retirement agreement is time-barred.  Even if not time-barred, the court granted summary judgment to Defendant because Defendant did not breach its fiduciary duty by intentionally providing Plaintiff false or misleading information about early retirement benefits nor did Defendant fail to notify Plaintiff of any material changes to the Faculty Retirement Incentive Plan (FRIP).  “[C]hanges to the FAQ are not covered by the FRIP’s notice requirement.”

Eighth Circuit

In Re: Wells Fargo ERISA 401(K) Litigation, No. 16-CV-3405 (PJS/BRT), 2018 WL 3475485 (D. Minn. July 19, 2018) (Judge Patrick J. Schiltz).  In this matter where Plaintiffs alleged Defendants violated ERISA’s duty of prudence and duty of loyalty by failing to disclose Wells Fargo’s unethical sales practices prior to September 2016 which would have prevented the drop in the value of the Wells Fargo stock in their 401(k) accounts, the court granted Defendants’ motion to dismiss Plaintiff’s second amended complaint.  The court rejected Defendants’ argument that the Dudenhoeffer more-harm-than-good standard should be applied to both prudence and loyalty claims.  “[A] plaintiff who brings a loyalty claim does not have to plead or prove anything about what a hypothetical prudent person would have done under the same circumstances; instead, the plaintiff must plead and prove that the defendant acted to further his own interests rather than the interests of the fund.”  But, the loyalty claim is subject to the same rigorous application of the Iqbal/Twombly plausibility standard.  Applying this standard, Plaintiffs’ loyalty claim fails.  The allegation that Defendants acted “disloyally by failing to avoid conflicts of interest, by failing to disclose inside corporate information to plan participants, and (perhaps) by affirmatively misleading the general public” is insufficient to make a plausible breach of loyalty claim.

Discovery

Third Circuit

Bell v. ATH Holding Company, LLC, No. MC 18-148, 2018 WL 3429710 (E.D. Pa. July 16, 2018) (Judge Mark Kearney).  “Following close of discovery in a complex ERISA putative class action pending in the Southern District of Indiana, the class representative now asks us to compel third party witness Vanguard Group, Inc. to reappear for a deposition held here for convenience reasons under a subpoena issued from the Southern District of Indiana for a deposition scheduled to occur in Indianapolis.”  The court transferred the motion to the Southern District of Indiana because the participants show exceptional circumstances under Fed. R. Civ. P. 45(f) requiring the transfer and Rule 45 does not require that this district become Vanguard’s clearinghouse for its discovery disputes pending throughout the country.

Fourth Circuit

Sims, et al. v. BB&T Corporation, et al., No. 1:15-CV-732, 2018 WL 3466945 (M.D.N.C. July 18, 2018) (Judge Catherine C. Eagles).  In this ERISA action alleging breach of fiduciary duties and prohibited transactions with respect to the BB&T Corporation 401(k) Savings Plan, the court granted in part and denied in part the parties’ consolidated motion to seal documents which were filed in connection with Defendants’ summary judgment motion. “The Court will grant the motion to the extent it seeks to seal documents for which a party has established a compelling interest that outweighs the public’s right to access; otherwise the motion is denied.”

Sixth Circuit

Kushner v. Nationwide Mutual Insurance Company, et al., No. 2:17-CV-715, 2018 WL 3454685 (S.D. Ohio July 18, 2018) (Magistrate Judge Chelsey M. Vascura).  Upon in camera review of the disputed documents, the court concluded that “a number of the withheld documents fall within the fiduciary exception to the attorney-client privilege and a number of them do not.”  The court went through and explained the basis of the privilege and the exception for each document.

ERISA Preemption

Eleventh Circuit

Wanna v. Health Services of Central Georgia, Inc., et al., No. 5:18-CV-00189-TES, 2018 WL 3430687 (M.D. Ga. July 16, 2018) (Judge Tilman E. Self, III).  Here, Plaintiff argued that his breach of contract claim for SERP benefits is completely preempted by ERISA, Defendants failed to remove the claim within 30 days of realizing that the claim arose under ERISA and that his matter should be remanded to state court.  The court agreed and found that it lacks jurisdiction over this case because Defendants failed to remove it within the time required by 28 U.S.C. § 1446.

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Hutson v. Reliance Standard Life Ins. Co., No. 17-2453, __F.App’x__, 2018 WL 3434527 (6th Cir. July 16, 2018) (Before: COLE, Chief Judge; SUTTON and LARSEN, Circuit Judges).  Upon reviewing the law and the facts de novo, the Sixth Circuit affirmed the district court’s grant of summary judgment to Reliance Standard Life Insurance Company on Plaintiff’s claim for accidental death benefits under a policy issued to her brother, who died in a car crash.  Reliance applied a policy exclusion that precluded recovery for “any loss … to which sickness, disease, or myocardial infarction … is a contributing factor.”  The court declined to consider Plaintiff’s argument, raised for the first time on appeal, that even if her brother suffered a heart attack, such an event would be too attenuated to be a “contributing factor” to the death within the meaning of the policy.

Medical Benefit Claims

First Circuit

Fisher v. Harvard Pilgrim Health Care of New England, Inc., No. CV 17-11232-FDS, 2018 WL 3421323 (D. Mass. July 13, 2018) (Judge F. Dennis Saylor).  In this lawsuit challenging the denial of health plan benefits for treatment related to an eating disorder for not being medically necessary, the court denied Plaintiff’s motion to expand the record beyond the documents available to the decisionmaker.  The court found that documents from the period after the final administrative decision cannot be included.  With respect to documents that existed before the final decision, Plaintiff has not demonstrated a “very good reason” for those medical records to be included for judicial review when they could have been submitted to the decisionmaker.  If “relevance alone were enough to reopen the record in ERISA benefits cases, there would be no teeth to a rule restricting review to the record before the administrator.”

Eighth Circuit

Mitchell, et al. v. Blue Cross Blue Shield Of North Dakota & Towner County Medical Center-Healthcare Reimbursement Plan, No. 215CV00086LLPARS, 2018 WL 3463260 (D.N.D. July 18, 2018).  This case involves a dispute over the payment of air ambulance transport.  The court considered the terms of the July 2015 Agreement, which speak to the injury and redressability factors of a standing inquiry, because there is good cause to consider evidence outside the administrative record.  Defendant argued that Plaintiffs no longer have the standing to pursue their claim because the July 2015 Agreement extinguishes any payment obligation of the Plaintiffs to Valley Med Flight and Plaintiffs are no longer covered under the Plan.  The court found that Plaintiffs have met their burden of establishing each of the elements of Article III standing and statutory standing.  The court denied Plaintiffs’ motion for summary judgment as to the charges for procedure codes A0430 and A0435 but granted it with respect to the $450.00 charge for procedure code A0398.

Pension Benefit Claims

Eleventh Circuit

Ryan, et al. v. Flowers Food, Inc., et al., No. 1:17-CV-817-TWT, 2018 WL 3427878 (N.D. Ga. July 16, 2018) (Judge Thomas W. Thrash, Jr.).  “The Defendants move for summary judgment as to the Plaintiffs’ ERISA claim on two grounds. First, they argue that the Plaintiffs are expressly ineligible for benefits under the terms of the Plan, even if they are ultimately deemed to be common law employees. Second, the Defendants argue that even if the Plaintiffs are eligible for benefits under the Plan, they nonetheless failed to exhaust administrative remedies under the Plan. The Court concludes that the Plaintiffs’ ERISA claim fails because they have not shown that they are eligible for benefits under the Plan. Therefore, it is unnecessary to address whether the Plaintiffs were required to exhaust their administrative remedies.”

Provider Claims

Third Circuit

Reiter v. Anthem Blue Cross Blue Shield, No. CV 17-H622, 2018 WL 3472627 (D.N.J. July 18, 2018) (Judge Kevin McNulty).  The court dismissed the case on its determination that Dr. Reiter lacks standing to sue as assignee due to the Plan’s anti-assignment provision.

University Spine Center v. Empire Blue Cross and Blue Shield & John Doe, No. CV 2:18-03662, 2018 WL 3435074 (D.N.J. July 17, 2018) (Judge William J. Martini).  The court found that Plaintiff lacks standing because the anti-assignment clause is unambiguous and plainly states that Patient could not assign his right to receive Plan benefits to Plaintiff.

Tenth Circuit

Centura Health Corp. v. Agnew, No. 18-CV-00569-RBJ, 2018 WL 3454976 (D. Colo. July 18, 2018) (Judge R. Brooke Jackson).  In this lawsuit by a provider seeking payment for bladder sling surgery it provided to Defendant’s insured, the court found that Defendants far exceeded the de facto deadline to obtain unanimous consent for removal which constitutes grounds for remand.  Further, the hospital has standing to sue as an assignee and its claim is not preempted by ERISA because it is not seeking relief available under ERISA Section 502(a)(1)(B).

IHC Health Servs., Inc. v. Tyco Integrated Sec., LLC, No. 2:17-CV-00747-DN, 2018 WL 3429932 (D. Utah July 16, 2018) (Judge David Nuffer).  “Because the assignment of benefits IHC received from J.B. authorizes it to bring suit under ERISA, and because IHC alleges it timely submitted administrative appeals, Tyco and BCBSAL’s Motion to Dismiss is DENIED in part. However, the Motion to Dismiss is GRANTED as to IHC’s breach of fiduciary duties claim because adequate relief is available for IHC’s alleged injuries under its recovery of plan benefits claim.”

Severance Benefit Claims

Sixth Circuit

Castellon-Vogel v. International Paper Company, No. 1:17-CV-00645, 2018 WL 3462505 (S.D. Ohio July 18, 2018) (Magistrate Judge Karen L. Litkovitz). “The Court finds that the complaint must be dismissed because plaintiff’s claim does not satisfy the ‘actual controversy’ requirement of the Declaratory Judgment Act. Plaintiff is not a ‘participant’ in the IP Plan who brings this action for declaratory relief to recover benefits due her under the terms of the IP Plan, to enforce her rights under the terms of the Plan, or to clarify her rights to future benefits under the terms of the Plan.  Plaintiff is a former employee of IP. She does not have a reasonable expectation of returning to covered employment with IP. Plaintiff agreed when she signed the Termination Agreement that her employment relationship with IP was ‘permanently terminated’ as of that date, and she agreed ‘not to apply for or otherwise seek employment with [IP] in any capacity’ in the future. Nor does plaintiff have a colorable claim to vested benefits.”  (internal citations omitted).

D.C. Circuit

Peck v. SELEX Sys. Integration, Inc., No. 17-7138, __F.3d__, 2018 WL 3431740 (D.C. Cir. July 17, 2018) (Before: Henderson and Srinivasan, Circuit Judges, and Edwards, Senior Circuit Judge).  See Notable Decision summary above.

Subrogation/Reimbursement Claims

Third Circuit

Highmark Blue Cross Blue Shield W. Virginia v. Johnson, No. 2:17-CV-00786, 2018 WL 3435062 (W.D. Pa. July 17, 2018) (Judge Mark R. Hornak).  The court determined that it cannot grant Ross’s motion for summary judgment on Plaintiff’s Section 502(a)(3) claim because it is unclear whether the UIM Settlement proceeds are still in Ross’s firm’s general account; the court cannot conclude as a matter of law that Section 502(a)(3) prohibits relief through an equitable lien on the settlement funds if they are sitting in the law firm’s account; and the court cannot determine at this time whether Plaintiffs are entitled to such relief under the specific terms of the Trust Agreement, the 2011 SPD, and the 2012 Amendment.

 

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