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Your ERISA Watch – District Court Reduces Class Counsel Common Fund Fee Award Due to Attorney Misconduct

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This week’s notable decision is Arkansas Teacher Retirement System v. State Street Bank and Trust Company, No. CV 11-10230-MLW, 2020 WL 949885 (D. Mass. Feb. 27, 2020), a must-read for those of us who do plaintiff class action work.  It is also a good reminder for all attorneys of our professional and ethical obligations.  When a decision starts with a quote from Justice Oliver Wendell Holmes and the statement—“Judges trust lawyers”—one can immediately surmise that the opinion isn’t going to turn out well for the lawyers.

In this consolidated class action case, Arkansas Teacher Retirement System (“ATRS”) represents a class of customers alleging fraud in billing for foreign exchange transactions by defendant State Street Bank and Trust Co.  Class Counsel include the law firms of Labaton Sucharow LLP (“Labaton”), The Thornton Law Firm (“Thornton”), and Lieff Cabraser Heimann & Bernstein, LLP (“Lieff”) (collectively, “Class Counsel”).  Several ERISA Plans consolidated with the case given the comparable allegations of fraud and they were represented by experienced ERISA attorneys, Keller Rohrback, McTigue, and Zuckerman Spaeder (“ERISA Counsel”).

In 2016, the court approved a $300,000,000 settlement and fee award of about 25% of the common fund, or approximately $75,000,000.  This was based on Class Counsel’s representation that the figure represented a multiplier of 1.8, which the court found to be reasonable.  Class Counsel agreed to allocate $31,530,948.75 of the fees to Labaton, $19,455,266.25 to Thornton, $16,100,910 to Lieff, and $2,484,708.33 to each of the three ERISA law firms.

The court then details how everything unraveled following a Boston Globe investigation which raised serious questions about the reliability of the representations made by Class Counsel in support of the attorneys’ fees motion.  This included, among other serious issues, double-counting 9,300 attorney work hours to the tune of $4 million, misrepresenting the hourly rates, and the payment of a $4,100,000 “finder’s fee” that was not disclosed to the court.  Ultimately, the court appointed a special master to prepare a Report and Recommendation (“R&R”) concerning all issues relating to the attorneys’ fees, expenses, and service awards previously made in the case.  The court then vacated its previous award of attorneys’ fees.

Upon consideration of the R&R, the court decided to reduce the fee award to $60,000,000, which constitutes 20% of the $300,000,000 common fund.  It also exercised its authority to allocate the award to the law firms as follows:  $22,202,131.25 to Labaton; $13,261,908.10 to Thornton; $15,233,397.53 to Lieff; and a total of $10,716,526.15 to all ERISA Counsel (who left the proceedings unscathed).  The court reduced the Service Award to ATRS from $25,000 to $15,000 and reinstated the original $10,000 service awards to the six ERISA plaintiffs.  The court allocated the additional $14,000,000 to the class.

The court starts by assuming that an award of 20% to 30% would be reasonable and does not presume a lower percentage because the settlement involves a “megafund” of more than $100,000,000.  The case was complex, Class Counsel achieved an unusually large settlement, and it was based on an untested theory of liability under Massachusetts consumer protection law, therefore risky.  However, because of Class Counsel misconduct, including violation of FRCP 11(b) and the related Massachusetts Rules of Professional Conduct, the court found that an award of 20% of the Common Fund to be appropriate.  The court’s opinion is detailed and lengthy.  This is a summary of the court’s findings of misconduct:

  • Garrett Bradley, of the Thornton Law Firm who resigned from the Massachusetts House of Representatives following the Boston Globe articles, did not read the fee declaration he signed under oath before it was submitted to the court. It included many false statements, including that certain attorneys were employed by Thornton and had certain hourly rates that were allegedly “accepted in other complex class actions.” But, Thornton worked solely on a contingent-fee basis; it had no clients who paid the firm on an hourly basis, and no “regular rates charged” for its attorneys.  Staff or contract attorneys did not work for Thornton, rather they were employed by Labaton or Lieff and paid for by Thornton in order to increase Thornton’s lodestar and its claim for a higher percentage of the fees.
  • Bradley did read his declaration after the December 17, 2016 Boston Globe article was published. He knew then it represented false statements but did not inform the court and correct them. “Rather, he permitted Labaton to continue to argue for an award of $75,000,000 based in part on his false statements.”
  • Labaton repeatedly violated Rule 11 by attorney Lawrence Sucharow filing a sworn declaration stating that the lodestar calculations of all of the plaintiff’s firms were based on their current billing rates when he knew that Labaton did not have any clients who were charged or paid hourly rates. The firm did not act with reasonable care in reviewing the declarations concerning the lodestar of each firm.
  • Labaton did not correct the false statements after the Boston Globe alerted the firm to the double-counting.
  • Class Counsel submitted a memo in support of the fees award which provided a misleading description of “An Empirical Study of Class Action Settlements and Their Fee Awards,” 7 J. Empirical Legal Stud. 811 (2010) (the “Fitzpatrick Study”). Labaton represented that the Fitzpatrick Study found that the mean and median fees awarded in 444 common fund settlements were 25.7% and 25%, respectively, but Labaton did not disclose a material fact that Fitzpatrick had also written that “fee percentage is strongly and inversely associated with settlement size …; [when] a settlement size of $100 million was reached … fee percentages plunged well below 20 percent.”
  • Sucharow did not disclose to ERISA Counsel or the court that Labaton would pay $4,100,000 to Damon Chargois as a finder’s fee for securing ATRS as a Labaton client. Chargois did no work on the case.  And as a result of being engaged as “monitoring counsel,” Labaton agreed to pay Chargois 20% of any fee Labaton was awarded as lead counsel.  As Chargois explained:  “Our deal with Labaton is straightforward– we got you ATRS as a client (after considerable favors, political activity, money spent and time dedicated in Arkansas) and Labaton would use ATRS to seek [L]ead [C]ounsel appointments in institutional investor fraud and misrepresentation cases. Where Labaton is successful in getting appointed [L]ead [C]ounsel and obtains a settlement or judgment award, we split Labaton’s attorney fee award 80/20. Period.”
  • “Labaton’s $4,100,000 payment to Chargois violated Massachusetts Rule of Professional Conduct 7.2(c), which in 2011 prohibited a lawyer from paying a person for recommending his services, except for paying a referral fee as defined in Rule 1.5(e). Contrary to Labaton’s contentions, a lawyer is a person and the payment to Chargois was not a permissible ‘referral fee’ under the Massachusetts Rules.”
  • Labaton had a duty as Lead Counsel for a single class that included the ERISA pension funds which were not represented by ATRS, to inform the ERISA Plans of the payment to Chargois. This would have impacted ERISA Counsel’s actions and the viability of the settlement that the DOL had approved before it was presented to the court.  The failure to disclose led to depriving the court of important information.  Lieff was also not accurately or completely informed as to the nature of the $4,100,000 payment.

The court ended its opinion by stating that judges have historically trusted lawyers and many attorneys still deserve such trust.  “However, this case has demonstrated that judges should recognize that in class actions not all lawyers are trustworthy. Some may engage in unethical conduct to obtain clients who will allow them to instigate and control class actions, and to be richly rewarded. When such class actions settle and the adversary process is not operating, some attorneys may engage in misconduct to maximize their income at the expense of their clients and co-counsel.”

The takeaway:  Just don’t do that.

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

Attorneys’ Fees

Ninth Circuit

Coleman-Fire v. Standard Ins. Co., No. 3:18-CV-00180-SB, 2020 WL 905214 (D. Or. Feb. 25, 2020) (Magistrate Judge Stacie F. Beckerman). In this dispute over long-term disability benefits, the court granted Plaintiff’s Motion for Attorney’s Fees and Costs. Defendant acknowledged that Plaintiff was entitled to his attorney’s fees and costs but argued that the hourly rate and number of hours he sought were not reasonable. Plaintiff requested compensation for 381.2 hours of attorney time, at a rate of $475 per hour. The court granted Plaintiff’s motion, explaining that Plaintiff’s attorney, Megan Glor, had nearly 30 years of combined experience, and 20 years of specialized experience in ERISA litigation. Several ERISA specialists, from Oregon and elsewhere, submitted declarations in support of Ms. Glor’s hourly rate. Defendant argued that a rate of $394 per hour was more appropriate, based on the “average” rate for comparable attorneys. The court disagreed and found that Ms. Glor was “far from ‘average’” based on declarations submitted, was a national ERISA expert, and that her excellent work product consistently demonstrated her expertise in ERISA matters. Therefore, Ms. Glor has met her burden for supporting a 75th percentile rate of $475/hour. The court also reviewed the number of hours incurred, and found it to be reasonable, including the pre-complaint hours, which were unrelated to the administrative phase of the case. With respect to the high number of hours Ms. Glor spent on summary judgment briefing and oral argument, the court noted that it showed. As Ms. Glor’s supporters correctly noted, good writing takes an extraordinary amount of time, especially in complex cases. Too often, attorneys do the bare minimum and file briefs that are not at all helpful to the court. Too often, attorneys show up for oral argument without adequate preparation. Ms. Glor’s careful analysis of the issues, clear writing, attention to detail, and thoughtful oral argument were effective and appreciated by the court. The court awarded $181,680 in attorney’s fees and $455 in costs.

Class Actions

First Circuit

Arkansas Teacher Retirement System v. State Street Bank and Trust Company, No. CV 11-10230-MLW, 2020 WL 949885 (D. Mass. Feb. 27, 2020) (Judge Wolf).  See Notable Decision summary above.

Ninth Circuit

Schuman v. Microchip Technology Inc., 16-cv-05544-HSG, 2020 WL 887944 (N.D. Cal. Feb. 24, 2020) (Judge Haywood S. Gilliam, Jr.). The court granted Plaintiffs’ motion for class certification of this severance benefit action. Of note in the decision is the court’s analysis of typicality. Defendants argued the two class representatives’ claims were not typical of the class because they were executive level employees who were not intimidated or coerced into signing the release. They also argued these two Defendants were entitled to additional severance benefits due to their executive employment. The Court disagreed stating the complaint alleges coercion through misleading, false and fraudulent statements about the availability of severance benefits if Plaintiffs failed to sign the release and on motion for class certification the Court does not evaluate whether the allegations of the complaint are true. As to the additional severance benefits the court found this unrelated to the allegations of this complaint.

Also of note was the court’s analysis of whether the class can be certified under Rule 23(b)(1)(A) which determines if “prosecuting separation actions …would create risk of…inconsistent or varying adjudications with respect to individual class members…” Defendants argued Plaintiffs request for surcharge remedy makes class certification inappropriate because it would constitute monetary relief which the Ninth Circuit has deemed inappropriate. Plaintiffs countered that surcharge would only result in incidental monetary relief and that the primary relief would be an injunction against Defendants from enforcing the release and denying entitlement to severance benefits. After engaging in a thorough analysis, the court concluded Plaintiffs did not meet their burden of establishing the monetary relief would be incidental. However, the court found class certification appropriate under Rule 23(b)(2), that Defendants “acted or refused to act on grounds that apply generally to the class.” Plaintiffs complaint alleges the same erroneous information was given to all class members and they seek the unjust enrichment Defendants received, not individual damages. The court said it would not engage in a determination of the likelihood of Plaintiffs’ success on these allegations or the appropriateness of the requested remedy at this stage.

Disability Benefit Claims

First Circuit

Ovist v. Unum, No. 17-cv-40113,(D. Mass. Feb. 21, 2020) (Magistrate Judge David Hennessy). In this report and recommendation, Magistrate Judge David Hennessy recommended that Defendant be granted summary judgment in this litigation over long-term disability benefits. Ms. Ovist became disabled due to chronic fatigue and fibromyalgia. Unum approved her claim for LTD benefits, and LTD benefits began in June 29, 2011. Ms. Ovist’s LTD policy contained a self-reported symptom (“SRS”) limitation which limited the time period benefits would be paid for disabling conditions based on self-reported symptoms to 24 months. After 24 months of benefits had been paid to Ms. Ovist, Unum began investigating whether her claim was subject to the SRS limitation. Unum terminated Ms. Ovist’s claim on February 17, 2015, determining she had exhausted benefits due her under the policy because the SRS applied to her claim. Plaintiff exhausted her administrative remedies and brought this lawsuit. The Court determined Plaintiff bore the burden of proving her entitlement to benefits, as opposed to Unum bearing the burden of proving the exclusion applies because the Court did not consider the SRS limitation to be an exclusion. The Court also found the trigger point tests submitted by Ms. Ovist were diagnosis but did not verify “manifestations” of her condition, and therefore did not save her from the SRS limitation.

Third Circuit

Reichard v. United of Omaha Life Ins. Co., No. 18-2952, __F.App’x__, 2020 WL 883108 (3d Cir. Feb. 24, 2020) (Hardiman, Greenaway, Jr., and Bibas, Circuit Judges). In a case decided under the abuse of discretion standard, the Third Circuit announced that even if one doctor found a patient disabled, an insurer can reasonably credit other doctors who examined her and disagreed. United of Omaha Life Insurance denied Giovanna Reichard continued long-term disability benefits. After losing her internal appeal within United of Omaha, Reichard brought suit. She sought discovery of her appeal reviewer’s alleged conflict of interest, which the district court denied. The district court eventually granted summary judgment for United of Omaha. Reichard challenged both decisions. The Third Circuit affirmed both. It determined the discovery into the “batting average” for upholding claims reviewed by Dr. Thomas Reeder, United of Omaha’s senior vice president and medical director, was not proportional and would cause mini-trials as to the appropriateness of the prior determinations. This was not to say that Dr. Reeder’s conflict of interest was not important. The Third Circuit agreed that, as a high-ranking officer, Dr. Reeder labored under a likely conflict of interest. But the district court took this into account after reviewing three other cases in which courts had cast doubt on Dr. Reeder’s impartiality. On the merits, the Third Circuit found United of Omaha’s decision to deny continued benefits rested on evidence from many doctors, and it reasonably disagreed with the one outlier. So, while United of Omaha’s procedures may have been imperfect and its reviewers “sloppiness does not inspire confidence,” its ultimate decision was not unreasonable.

Fourth Circuit

Silverstone v. Reliance Standard Life Ins. Co., No. 19-1362, ___F.App’x.___ 2020 WL 917062 (4th Cir. Feb. 26, 2020) (Before Floyd and Harris, Circuit Judges, And Hamilton, Senior Circuit Judge).  Plaintiff filed an ERISA complaint against Reliance Standard alleging that her long-term disability benefit claim was wrongfully denied. The district court originally granted summary judgment in favor of Silverstone, concluding that Reliance had abused its discretion in denying her claim for continued LTD benefits.  However, Reliance filed a motion for reconsideration and, “after realizing it was Silverstone’s burden to submit proof of total disability,” the court granted Reliance’s motion and granted summary judgment in favor of Reliance.  The court of appeals affirmed, finding that Reliance did not abuse its discretion in denying Silverstone’s claim for LTD benefits “substantially for the reasons stated in [the district court’s] opinion.”

Eighth Circuit

Bernard v. Kansas City Life Insurance Co., No. 19-4043, 2020 WL 974873 (W.D. Mo. Feb. 28, 2020) (Judge Nanette K. Laughrey).  In this dispute over short- and long-term disability benefits, the court found that MetLife abused its discretion by denying benefits to a certified nurse anesthetist who had relapsed into alcohol and Fentanyl abuse and was terminated following a random drug screening at work. MetLife reasoned that Plaintiff had satisfactory job performance until he was terminated due to his drug use and did not seek treatment until after he was terminated.  The court explained: “Defendant’s conclusion unreasonably divorces Bernard’s Fentanyl use on a single occasion from his Fentanyl addiction and relapse. The uncontradicted evidence is that Bernard has a documented medical history of narcotic addiction, that, many years before his termination, he received in-patient treatment for approximately three months, and that after discharge, he saw a counselor regularly for seven years. . . . No reasonable person could find that a nurse anesthetist so addicted to Fentanyl that he injects himself with drugs during the workday while his medical co-workers are nearby is capable of performing the duties of his job.”  Further, “[w]hile some courts have disagreed as to whether the risk of relapse is sufficient to render one disabled, there appears to be a consensus, even in the courts taking the more conservative approach with respect to the risk of relapse, that relapse itself would preclude work in the field of anesthesia.”  The court found it unreasonable for MetLife to seemingly require that Plaintiff appear visibly impaired in the operating room or injure or kill a patient because he was under the influence before he can be deemed disabled.  The court also found that the policy did not require that Plaintiff receive treatment for his relapse before the end of his employment.  The court granted Plaintiff’s motion for summary judgment and granted Defendant’s motion in limine to exclude any evidence not contained in the administrative record.


Eighth Circuit

Johnson v. Wellmark of S. Dakota, Inc., No. CIV. 19-4017-LLP, 2020 WL 956528 (D.S.D. Feb. 27, 2020) (Judge Lawrence L. Piersol). Plaintiff seeks medical benefits for the cost of a physical therapy cycle for rehabilitation following an accident which left the Plaintiff a paraplegic. Defendant denied benefits as not medically necessary because plaintiff was two years post injury. Defendant filed a motion to limit the case to the administrative record and sought an order limiting discovery. The court provided a lengthy summary of conflict discovery in various district courts and circuits. The court found that the burden of discovery into bias outweighed its likely benefit because Wellmark was not the final arbiter of the claim but rather selected an independent review organization. Further, the court held that it would apply a de novo review and as such, conflict and procedural irregularities are less relevant. The court held that the South Dakota ban on discretionary clauses was not preempted by ERISA and applies to the plan, thereby voiding the discretionary clause. The court provided a lengthy discussion of discovery under a de novo review. The court declined to admit extra-record evidence because Plaintiff did not specify what evidence he sought to introduce, why he was unable to present the evidence during the appeal process, or what good cause exists to justify consideration of extra-record evidence. Given the early juncture of the case, the court was unable to definitively conclude that extra-record evidence is necessary.

Ninth Circuit

DeMarco  v. Life Ins. Co. of N. Am., et al., 2020 WL 906461 (D. Ariz. Feb. 25, 2020) (Judge Lanza). Plaintiff filed suit alleging that her long-term disability benefits were wrongfully denied. The parties stipulated to de novo review, and Plaintiff alleged that she was entitled to discovery under that standard. Specifically, Plaintiff requested discovery related to 1) the conflict of the plan administrator, 2) conflict of the medical reviewers, and 3) documents and admissions not properly provided in response to a request for Plaintiff’s claim file under relevant ERISA regulations. Applying the Opeta standards, which the court criticizes as causing considerable confusion, the court denied all requests. The court denied Plaintiff’s first request on the basis that Plaintiff did not establish why LINA’s conflict of interest, and evidence related thereto, was necessary or even relevant to the court’s de novo determination. The court denied the second request because it concluded that 1) there was already sufficient evidence in the administrative record to allow the court to make a credibility assessment without considering the medical reviewers’ findings, and 2) Plaintiff did not establish why evidence regarding amounts paid to third party vendors would be necessary for a de novo review. The court denied Plaintiff’s final set of requests because Plaintiff did not establish why any of them were necessary for an adequate de novo review.

ERISA Preemption

Third Circuit

Sleep Tight Diagnostic Center, LLC, v. Aetna Inc., et al., No. CV 18-3556 (FLW), 2020 WL 967819 (D.N.J. Feb. 27, 2020) (Judge Freda L. Wolfson). Plaintiff provided polysomnography tests to 25 patients who were covered by insurance administered by Aetna. Prior to the procedures, Plaintiff confirmed its eligibility to be paid as an out-of-network provider with Aetna. However, Defendant did not provide any guaranty of payment, and denied claims submitted by Plaintiff for payment. Plaintiff then filed a complaint alleging wrongful denial of benefits under ERISA, and then amended it to include four common law state claims. The court held that ERISA preempted the state law claims, and that Plaintiff lacked standing to pursue benefits on behalf of the patients whose plans contained enforceable anti-assignment provisions. Plaintiff moved for reconsideration. The court upheld its prior decision because Plaintiff simply regurgitated its previously-failed arguments; mere disagreement did not constitute a proper basis upon which to move for reconsideration. Furthermore, a litigant is not permitted, in a motion for reconsideration, to raise arguments based on law that was available at the time the initial motion was pending. ERISA preempted Plaintiff’s state law claims because the benefits it sought directly implicate the Plan rates, as opposed, for example, some “reasonable charges” which arguably could have removed these claims from ERISA’s purview. Plaintiff’s ERISA causes of action also fail, as Plaintiff did not establish the three elements to show estoppel: (1) material representation, (2) reasonable and detrimental reliance upon the representation, and (3) extraordinary circumstances. The extraordinary circumstances element, in particular, was not established because Plaintiff neither alleged that Aetna acted in bad faith, nor that it attempted to conceal pertinent information.

Fifth Circuit

CHCA Woman’s Hosp., LP v. Rocky Mountain Hosp. & Med. Serv., H-19-3256 (S.D. Tex. Feb. 24, 2020) (Chief Judge Lee H. Rosenthal). The Court held that the Hospital’s state law claims, associated with Rocky Mountain’s attempt recoup over $250,000 in paid medical claims incurred by a newborn insured in NICU care, were preempted by ERISA. Specifically, the Court held that the Hospital’s reliance on Chapter 1301 of the Texas Insurance Code, which would prevent Rocky Mountain from authorizing medical care and later denying payment, could not create a legal duty independent of ERISA because this statute does not apply to claims against an administrator of a self-funded ERISA plan.

Exhaustion of Administrative Remedies

Fifth Circuit

CHCA Woman’s Hosp., LP v. Rocky Mountain Hosp. & Med. Serv., H-19-3256 (S.D. Tex. Feb. 24, 2020) (Chief Judge Lee H. Rosenthal). The Court held that the Hospital adequately alleged facts in its complaint that it did not fail to exhaust the required administrative remedies and its ERISA claims therefore survives Rocky Mountain’s motion to dismiss.

Life Insurance & AD&D Benefit Claims

Second Circuit

Tyll v. Stanley Black & Decker Life Ins. Prog., No. 3:17-cv-1591 (VAB) (D. Conn. Feb. 21, 2020) (Judge Victor A. Bolden). Plaintiff brought suit under an ERISA-governed employee life insurance plan for failure to pay benefits. Her husband, an executive at Stanley Black & Decker, died on an international flight due to deep vein thrombosis (DVT). The plan was insured by both Aetna Life Insurance Company and Federal Insurance Company. Federal agreed that the death was accidental and paid benefits. However, Aetna paid the basic life benefit but denied the claims for accidental and double indemnity benefits. Aetna contended that Plaintiff was not entitled to these benefits because the husband had died of natural causes, and not because of an accident. Plaintiff contended that the death was accidental, and that Aetna had miscalculated the basic life benefit by using the wrong salary. The court ruled that Aetna’s decision was entitled to deference under the abuse of discretion standard of review because the plan delegated discretionary authority to Aetna. Plaintiff contended that the standard of review should be more stringent due to Aetna’s failure to provide relevant documents on appeal, but the court found that Plaintiff had raised this argument too late in litigation. The court also found there was no evidence that Aetna’s structural conflict of interest had affected its claim decision.

Under the abuse of discretion standard of review, the court found that Aetna’s denial decision was reasonable. The court found that the husband had a history of DVT problems, that his death was caused or contributed to by an illness, and thus it was not an accident as defined by the plan. The court also found that Aetna had reasonably calculated the husband’s earnings under the plan.

Plaintiff argued that Aetna was judicially estopped from arguing that the husband’s death was not accidental because Federal, under the same employee benefit plan, had paid accidental death benefits. The court rejected this argument, finding that Federal had paid benefits before the issue was even presented to the court, and that the two decisions were made by different entities under different components of the plan. The court thus granted Defendants’ motion for summary judgment in its entirety.

Fourth Circuit

Metropolitan Life Insurance Company v. Smith-Howell, No. 1:18-CV-00164-MR, 2020 WL 974893 (W.D.N.C. Feb. 28, 2020) (Judge Martin Reidinger).  In this interpleader action, the court granted Smith-Howell’s motion for default judgment.  Here, Smith-Howell, the decedent’s girlfriend, claimed that she was entitled to 95% of the life insurance proceeds because she was the proper beneficiary and that defendant Flack, the decedent’s son, fraudulently changed the beneficiary designation to his favor.  The court explained that because ERISA does not mention misrepresentations or fraud and there is no established body of federal common law to apply to improperly procured beneficiary designations, the court must look to North Carolina law.  Taking the allegations as true since Flack did not respond, the court concluded “that she has established that the June 20 beneficiary change was a product of fraud. Flack either falsely represented that he had the authority to change the Decedent’s Beneficiary Designations or concealed the fact that he did not have such authority when he made the changes on June 20. Flack’s misrepresentations were reasonably calculated to deceive and were made with the intent to deceive, shown by the fact that Flack later indicated that he knew changing the designation ‘was wrong’ and that Flack never had authority to change the Beneficiary Designations. Flack’s misrepresentation deceived MetLife into changing the Beneficiary Designations and resulted in damages to Smith-Howell by causing her to lose her rights to 90% of the Plan proceeds. That is sufficient to show that the June 20 changes to the Beneficiary Designations were effectuated through fraud and should therefore be voided.”

Medical Benefit Claims

Second Circuit

Davis v. Flexible Benefits System, Inc., et al., 19-cv-6504, 2020 WL 906310 (W.D.NY Feb. 25, 2020) (Chief Judge Frank P. Geraci, Jr.). The court held that the pro se Plaintiff failed to state a claim against the administrators of her flexible spending account (FSA) to recover distributions from the FSA for dental expenses incurred. Plaintiff’s claim was defeated because of her refusal to produce or allege facts sufficient to show that she complied with the plan documents by submitting to the administrator a bill or receipt from the provider plainly stating the types of services provided. Instead, Plaintiff refused to provide this information on privacy and confidentiality grounds and merely submitted receipts shedding no light on the nature of her treatment as required by the plan documents. Plaintiff’s complaint was dismissed with prejudice.

Ninth Circuit

Reg’l Med. Ctr. of San Jose v. WH Administrators, Inc., No. 18-15089, __F.App’x__, 2020 WL 901520 (9th Cir. Feb. 25, 2020) (Circuit Court Judges O’Scannlain, McKeown, and Bennett). The district court dismissed Plaintiff hospital’s complaint for lack of standing. The hospital appealed. The court found that the patient signed a Conditions of Admission form assigning her rights to the hospital. The patient’s ERISA Plan allows for the assignment of “benefits payable.” The court found that the Conditions of Admission assignment of the right to receive payment includes the right to sue. Therefore, the court found the hospital gained derivative standing when the patient assigned the hospital the right to receive payment. The court read the Plan’s anti-assignment language was forbidding assignment the right to sue for anything else. The Court reversed the dismissal and remanded to the district court.

Pension Benefit Claims

First Circuit

Quirk v. Vill. Car Co., No. 1:19-CV-00217-JCN, 2020 WL 908111 (D. Me. Feb. 25, 2020) (Magistrate Judge John C. Nivison). Plaintiff contends that Defendant violated ERISA by reducing Plaintiff’s weekly benefit payments for several months, by failing to pay the benefits quarterly as provided by the terms of the Plan, by failing to provide Plaintiff written notice of the reasons for the reduction of Plaintiff’s benefit payments, and by failing to provide information regarding the reduction as requested by Plaintiff. Defendant argues that the temporary reduction of payments to Plaintiff did not constitute a “denial” of a claim by Plaintiff triggering the notice and production of information provisions of ERISA. Defendant also argues that because Plaintiff is no longer employed by Defendant, Plaintiff cannot recover for discrimination under ERISA based on the reduction of his benefits and the payment of the benefits weekly, rather than quarterly. Finally, Defendant maintains that because Plaintiff’s benefit payments are current and being made quarterly, Plaintiff is not entitled to any relief under ERISA. The court denied Plaintiff’s and Defendant’s motions for judgment and dismissed the complaint. Specifically, the court found that Plaintiff’s claims under §§ 503 and 510 were moot because he has obtained all benefits to which he was entitled. The claim for equitable relief was also moot because Defendant followed the Plan and it was clear that the wrongful behavior was not reasonably expected to recur.

Eleventh Circuit

Pension Benefit Guar. Corp. v. Nelson’s Eng’g Servs., Inc., No. 619CV1313ORL37LRH, 2020 WL 919257 (M.D. Fla. Feb. 26, 2020) (Judge Roy B. Dalton, Jr.).  The court adopted Magistrate Judge Leslie R. Hoffman’s Report and Recommendation to grant the Pension Benefit Guaranty Corporation’s Motion for Default Judgment.  The court terminated the Nelson’s Engineering Services, Inc. Defined Benefit Plan pursuant to 29 U.S.C. § 1342(c) with a January 31, 2009 termination date pursuant to 29 U.S.C. § 1348(a)(4).  The PBGC is appointed as statutory trustee of the Pension Plan pursuant to 29 U.S.C. § 1342(b); and the Pension Plan’s assets and documents, wherever located, must be transferred to Plaintiff pursuant to 29 U.S.C. § 1342(d)(1)(A)(ii).

Plan Status

Ninth Circuit

Delano v. Unified Grocers, Inc.; Supervalu Inc., No. 2:19-CV-00225-TLN-DB, WL 903197 (E.D. Cal. Feb. 25, 2020) (Judge Troy L. Nunley).  The matter was before the court on Defendants’ motion to dismiss. Plaintiff and Defendant UGI entered into a retirement agreement that provided benefits to Plaintiff, including life insurance, pension and a salary protection plan. Plaintiff contends that the written agreement is an employee benefit plan governed by ERISA and that it was established to provide life insurance and for that reason is also an employee benefit plan governed by ERISA. After the agreement was signed, UGI merged with Supervalu, Inc. SI notified Plaintiff that it intended to terminate his life insurance and that he could purchase the policy and pay premiums himself. SI then sent a second letter to Plaintiff notifying him that all of his benefits under the agreement would be unilaterally terminated. Plaintiff, through counsel, wrote to SI indicating that the policy was to be maintained until Plaintiff’s death. SI rejected Plaintiff’s claim and gave appeal rights. Plaintiff appealed SI’s rejection and asserted the agreement constituted the entire agreement between the parties as to the severance package and qualified as a separate benefit plan under ERISA. Having exhausted all his administrative remedies, Plaintiff filed his Complaint and alleged three causes of action: wrongful denial of ERISA benefits; breach of fiduciary duty by ERISA Fiduciary; and Financial Elder Abuse against all Defendants. Defendants move to dismiss Plaintiff’s Third Cause of Action pursuant to Rule 12(b)(6) arguing that it is preempted under ERISA. The court dismissed Defendants’ motion to dismiss because it concluded that whether or not ERISA applies to the document in question has not been established.

Pleading Issues & Procedure

Fifth Circuit

CHCA Woman’s Hosp., LP v. Rocky Mountain Hosp. & Med. Serv., H-19-3256, 2020 WL 883269 (S.D. Tex. Feb. 24, 2020) (Chief Judge Lee H. Rosenthal). The court held that the arbitrability of the Hospital’s claims associated with the NICU care of a newborn baby should be determined by a district court and not an arbitrator, especially where the claims are against a nonsignatory to the arbitration agreement.  Here, the arbitration agreement in place was between the Hospital and BCBS Texas, a separate Anthem entity from Rocky Mountain Hospital and Medical Service, Inc (Anthem’s Colorado-based licensee). The court examined the theory of direct-benefits estoppel to determine if Rocky Mountain, as a non-signatory to the arbitration agreement was knowledgeable of the agreement’s terms such that it could and did knowingly exploit the agreement. Because Rocky Mount was not a signatory to the agreement and the Court could not find that direct-benefits estoppel applied, the court denied the Hospital’s motion to compel arbitration.

Sixth Circuit

Retirees of the Goodyear Tire & Rubber Co. v. Steely, No. 5:19-CV-1893, 2020 WL 870979 (N.D. Ohio Feb. 21, 2020) (Judge Sara Lioi). Defendant Steely was injured in an accident, and the plaintiff employee benefit plan paid her medical benefits to which she was entitled as a participant. Steely subsequently received settlement proceeds from a third party, after which the plan attempted to obtain reimbursement from her under the plan’s subrogation provisions. Steely would not reimburse the plan, and the plan brought suit under ERISA against her and her attorneys. The court initially granted Defendants’ motion to dismiss for lack of subject matter jurisdiction, ruling that the plan “could not establish that this lawsuit addresses an ERISA plan and, therefore, there was no subject matter jurisdiction to pursue an ERISA claim.” The plan brought a motion for reconsideration under Federal Rule of Civil Procedure 59(e), contending that the ruling was in error. The court granted this motion. Following Sixth Circuit precedent, the court ruled that the existence of an ERISA plan was an element of the plaintiff’s case in chief and not a prerequisite for federal jurisdiction. However, because the court had already made a ruling on whether the plan was governed by ERISA, it also found that it was obligated to recuse itself from the case in order to avoid the appearance that the issue had been predetermined. The case was thus reassigned to a new judicial officer.

Retaliation Claims

Third Circuit

Brenton v. F.M. Kirby Center for the Performing Arts, No. CV 3:17-89, 2020 WL 916841 (M.D. Pa. Feb. 26, 2020) (Judge Malachy E. Mannion). Joan Brenton requested a detailed accounting of her 403(b) plan and participated in an investigation into improper deposits into her account. Eight days later, she was fired. She brough suit under ERISA for retaliatory discharge. In January 2019, the court granted summary judgment in favor of Defendant. Plaintiff filed a motion for reconsideration in February 2019. The following year, the court granted the motion for reconsideration on the grounds that it had interpreted Plaintiff’s cause of action under § 510 as an interference claim rather than a retaliatory discharge claim. After determining that Plaintiff had made a prima facie case for interference, that Defendant had articulated a legitimate, non-discriminatory reason for the discharge, and Plaintiff had pointed to some evidence to disbelieve the employer’s articulated legitimate reasons–such as the fact she was the only employee terminated and the employer had never previously eliminated a position, the court denied summary judgment.

Standard of Review

Sixth Circuit

Fulkerson v. Unum Life Ins. Co. of America, 1:19-cv-01180, 2020 WL 923972 (N.D. Ohio Feb. 26, 2020) (Magistrate Judge David A. Ruiz). The parties filed a motion to determine the standard of review for an AD&D claim. The Court, following the Sixth Circuit decision of Hoover v. Provident Life & Acc. Ins. Co., 290 F.3d 801, 808 (6th Cir. 2002), found de novo review will apply unless the policy grants discretion, either expressly stated or sufficient language requiring “satisfactory” proof. Unum argued that policy language that it will “deny [a] claim if appropriate information was not submitted” is clear language showing its discretion under the satisfactory proof requirement. The Court disagreed and found the requirement to submit information in support of a claim is not the same as a grant of discretion to make a claims determination. Unum pointed to other combined policy language to argue it has discretion, but the Court disagreed and held the de novo standard of review applies.

Eleventh Circuit

McConnell v. Am. Gen. Life Ins. Co., 19-0174-WS-MU, 2020 WL 948082 (S.D. Ala. Feb. 26, 2020) (Judge William H. Steele). Defendant sought reconsideration of the court’s previous determination that for purposes of this action, 29 C.F.R. § 2560.503-1(h)(4)(i) applied to the Plaintiff’s claim and Defendant’s violation of this provision results in de novo review. Defendant argued that the recent amendments did not apply based on introductory language in the new regulation. The court disagreed and explained that Defendant was on notice that its reliance on the preamble to the exclusion of the regulatory language risked failure. The case law cited in the matter placed Defendant on notice that analysis had to begin with the regulation’s language.

Statutory Penalties

Second Circuit

Riddle v. Pepsico, Inc., No. 19 CV 3634 (VB), 2020 WL 883119 (S.D.N.Y. Feb. 24, 2020) (Judge Vincent L. Briccetti). Pepsico lost its motion to dismiss Plaintiffs’ second amended complaint in this case involving COBRA statutory penalties. Plaintiffs allege that after terminating Kevin Riddle’s employment, Pepsico did not provide notice of COBRA continuation rights to his wife and dependent, Valerie Riddle. Pepsico argued the Riddles had not plausibly pled that the notices were deficient. The Court disagreed. Plaintiffs allege Pepsico sent one letter to the whole family rather than one letter for each dependent, did not identify the plan administrator, provided no details on how to enroll, and did not enclose an enrollment form, among other issues.  These were enough factual allegations to make the deficient notice argument plausible.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Trustees of New York City Dist. Council of Carpenters Pension Fund, Welfare Fund, Annuity Fund, & Apprenticeship, Journeyman Retraining, Educ. & Indus. Fund v. Carolina Trim LLC, No. 17-CV-6485 (VSB), 2020 WL 915815 (S.D.N.Y. Feb. 26, 2020) (Judge Vernon S. Broderick).  The court denied Petitioners’ petition to confirm and enforce the arbitrator’s award under LMRA Section 301.  The court remanded the case to the arbitrator for reconsideration.

Fourth Circuit

Trustees Of The Iron Workers Local Union No. 5 And Iron Workers Employers Association Employee Pension Trust, et al. v. Facade Install Operating Co., D.C., Inc., No. GJH-18-1857, 2020 WL 949961 (D. Md. Feb. 27, 2020) (Judge George J. Hazel).  In this action seeking unpaid contributions, the court granted in part and denied in part Plaintiffs’ Motion for Default Judgment.  The court awarded Plaintiffs $32,110.39 in damages, consisting of $10,909.24 in unpaid contributions, $1,083.34 in liquidated damages, $1,280.28 in interest, $7,771.27 in unpaid wages, and $11,066.26 in fees and costs. Defendant must also submit to an audit by Plaintiffs of its records from January 1, 2017 to the present.

Seventh Circuit

Bldg. Trades United Pension Tr. Fund v. Aztec Plumbing, LLC, No. 19-CV-343-PP, 2020 WL 886129 (E.D. Wis. Feb. 24, 2020) (Judge Pamela Pepper). On Plaintiffs’ amended motion for default judgment in this matter seeking unpaid contributions and other damages, the court ordered Plaintiffs provide the court with evidence that Defendant is aware it has been sued and clarification on the attorneys’ fee statements and statements of costs.

Your ERISA Watch is made possible by the collaboration of the following Kantor & Kantor attorneys:  Brent Dorian BrehmBeth Davis, Sarah DemersElizabeth GreenAndrew Kantor, Monica Lienke, Susan Meter, Michelle RobertsTim Rozelle, Peter Sessions, and Zoya Yarnykh.


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