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Your ERISA Watch – First Circuit Joins Circuit Split; Adopts Burden-Shifting Approach in Breach of Fiduciary Duty Cases

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This week’s notable decision is Brotherston v. Putnam Investments, LLC, No. 17-1711, __F.3d__, 2018 WL 4958829 (1st Cir. Oct. 15, 2018), which involves a class action alleging breach of fiduciary duty with respect to the selection of imprudent investment options for the Putman Investments, LLC 401(k) retirement plan.  As summarized by the court, Plaintiffs’

“. . . claim that Putnam (as well as other Plan fiduciaries) breached fiduciary duties owed to Plan participants by offering participants a range of mutual fund investments that included all of (and, for most of the class period, only) Putnam’s own mutual funds without regard to whether such funds were prudent investment options. They also claim that Putnam structured fees and rebates in a manner that was both unreasonable and treated Plan participants worse than other investors in those Putnam mutual funds. In a series of rulings before and after plaintiffs presented their evidence at trial, the district court found that plaintiffs failed to prove that any lack of care in selecting the Plan’s investment options resulted in a loss to the Plan and that the manner in which Putnam transacted with the Plan was neither unreasonable nor less advantageous than the manner in which Putnam dealt with other investors in its mutual funds. Finding several errors of law in the district court’s rulings, we vacate the district court’s judgment in part and remand for further proceedings.”

The First Circuit affirmed the district court’s determination that Defendants are not liable under the prohibited transaction provision of 29 U.S.C. § 1106(a)(1)(C).  It found that the district court did not commit clear error by finding that the fees received by the Putnam subsidiaries for their services to Putman mutual funds were reasonable.

On the question of whether Defendants are liable under 29 U.S.C. § 1106(b) because Putnam received fees from the funds in which the Plan invested, the court considered PTE 77-3, the DOL exemption that renders the prohibition of § 1106 inapplicable to employee benefit plans that invest in in-house mutual funds, provided that four conditions are met.  The court vacated the judgment against Plaintiffs on their claim under 29 U.S.C. § 1106(b) and remanded for the district court to reconsider whether the requirement of PTE 77-3(d) is satisfied in light of revenue sharing payments Putnam makes to some other plans.

On the question of causation of the loss to the plan, Plaintiffs’ expert’s testimony demonstrated that “the Plan and its beneficiaries paid a premium of $30 to $35 million to obtain overall net returns that fell below the returns generated by the passive investment options that the [Putnam Benefits Investment Committee] could have offered.”  In adopting the burden-shifting approach, the court found that the district court erred in finding that Plaintiffs failed as a matter of law to make even a prima facie case showing of loss.  It aligned with “the Fourth, Fifth, and Eighth Circuits and [held] that once an ERISA plaintiff has shown a breach of fiduciary duty and loss to the plan, the burden shifts to the fiduciary to prove that such loss was not caused by its breach, that is, to prove that the resulting investment decision was objectively prudent.”  (The Ninth, Tenth, and Eleventh Circuits put the burden of proof squarely on the plaintiff asserting a breach of fiduciary duty.)  The court remanded to the district court to complete the bench trial to decide whether Putnam breached the duty of prudence, if Plaintiffs have shown a loss to the Plan, and if so, whether Putnam can meet its burden of showing that the loss most likely would have occurred even if Putnam had been prudent.

The court affirmed that there was not a breach of the duty of loyalty.  Lastly, the court determined that Plaintiffs have waived any argument that the fees are subject to disgorgement under § 1109(a).

Amici included AARP, AARP Foundation, National Employment Lawyers Association, Chamber of Commerce of the U.S.A., American Benefits Council, Securities Industry, Financial Markets Association, and Investment Company Institute.

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

Attorneys’ Fees

Second Circuit

Amara v. Cigna Corp., No. 3:01-CV-2361 (JBA), 2018 WL 5077894 (D. Conn. Oct. 17, 2018) (Judge Janet Bond Arterton).  On the dispute relating to the method for the calculation of attorneys’ fees to be awarded to class counsel, the court adopted Plaintiff’s proposed methodology:  (1) the court will use the IRC § 417(e) interest rates for the determination of present value of annuities to value the class’ recovery; (2) the court will not artificially diminish the value of the remedy for purposes of determining fees by assuming all class members will choose to forego early retirement; instead, attorneys’ fees will be calculated on the basis of the more actuarially-valuable option that class members are entitled to choose.  The court denied Plaintiffs leave to file a supporting declaration from James Holland regarding the background of the 25-year stabilization rates.

Sixth Circuit

Wallace v. Beaumont Healthcare Employee Welfare Benefit Plan, et al., No. CV 16-10625, 2018 WL 5095169 (E.D. Mich. Oct. 19, 2018) (Judge Linda V. Parker).  In this dispute over long term disability benefits, the Court found Plaintiff entitled to attorneys’ fees and awarded $58,740.00 in attorney’s fees and $3,861.76 in costs.  The court also found Plaintiff entitled to pre-judgment interest at the rates set forth in 28 U.S.C. § 1961 up to the date of judgment.

Breach of Fiduciary Duty

First Circuit

Brotherston v. Putnam Investments, LLC, No. 17-1711, __F.3d__, 2018 WL 4958829 (1st Cir. Oct. 15, 2018) (Before Torruella, Thompson, and Kayatta, Circuit Judges).  See Notable Decision summary above.

Second Circuit

Browe v. CTC Corporation, No. 2:15-CV-267, 2018 WL 5095677 (D. Vt. Oct. 18, 2018) (Judge Christina Reiss).  Following a multi-day bench trial, the court ordered that $350,603 be restored to the deferred compensation plan by the Plan Administrators as the proper of measure of harm suffered by the Plan as a result of their breaches of fiduciary duty, but with no prejudgment interest because Defendant acted innocently.  The court apportioned liability 60/40 with Defendant Laumeister contributing 60% and Plaintiff Launderville (Plan Administrator) contributing 40%.

Third Circuit

Dixon v. Washington, No. CV 18-2838, 2018 WL 5046033 (E.D. Pa. Oct. 17, 2018) (Judge Baylson).  Plaintiffs alleged breach of fiduciary duty under 29 U.S.C. § 1109 for misappropriated funds that resulted from a sale of the church, a scholarship fundraiser, and a FEMA grant.  The court dismissed the ERISA claims without prejudice because Plaintiffs have not asserted that there was a breach of a duty regarding an ERISA employee benefit plan.  An amended complaint must include facts regarding Plaintiffs’ coverage by ERISA and their status as employees with an employee benefit plan.

Disability Benefit Claims

First Circuit

Ampe v. The Prudential Insurance Company of America, No. 17-CV-11119-RGS, 2018 WL 5045184 (D. Mass. Oct. 17, 2018) (Judge Richard G. Stearns).  Defendants abused their discretion by failing to adequately consider evidence of mental disability.  “While the court is not in a position to address in any definitive fashion the medical validity of post-concussion syndrome as a diagnosis, there is enough support in the medical literature documenting its existence so as to make a denial of LTD benefits based on one skeptical doctor’s file review open to question, especially where three examining specialists and a treating physician at different times came to a contrary conclusion.”  In addition, “there is no record evidence that Prudential (unlike the SSA) engaged in an analysis of the impact of Ampe’s limitations, whether subjective or substantiated by the clinical examinations and objective testing, on his ability to perform the work of a Senior Development and Test Engineer.”

Martinez v. Sun Life Assurance Co. of Canada, No. 16-CV-12154-LTS, 2018 WL 5045183 (D. Mass. Oct. 16, 2018) (Judge Leo T. Sorokin).  The court granted Sun Life’s motion for judgment on the pleadings because “Sun Life properly followed the terms of the Plan when it offset Martinez’ LTD benefits by the amount he received in VA benefits. As such, the claim that Sun Life violated its fiduciary duty under ERISA must fail.” The court also granted the motion as to Plaintiff’s co-fiduciary breach claim on the basis that the employer did not explicitly disclose that VA benefits were included with “Other Income Benefits.”  The court previously determined that an average period reading the Certificate could understand that it encompasses unidentified types of benefits which constitute “compulsory benefits.”  Because there was no failure to disclose and no violation of the plan language, there was no fiduciary breach by the employer which can support a co-fiduciary breach by Sun Life.

Fourth Circuit

Hewitt v. Liberty Life Assurance Co. of Boston, No. 4:18-CV-00842-RBH, 2018 WL 4962218 (D.S.C. Oct. 15, 2018) (Judge R. Bryan Harwell).  The court adopted the report and recommendation to dismiss this case pursuant to Fed. R. Civ. P. 41(b) for failure to prosecute, or alternatively, to grant Defendant’s motion for judgment on the pleadings and dismissing this case with prejudice.

Sixth Circuit

Wallace v. Beaumont Healthcare Employee Welfare Benefit Plan, et al., No. CV 16-10625, 2018 WL 5095169 (E.D. Mich. Oct. 19, 2018) (Judge Linda V. Parker). The court previously rejected Reliance’s basis for denying Plaintiff LTD benefits and found that the record undisputedly reflects that Plaintiff is totally disabled and entitled to LTD benefits.  In the present decision, the court rejected Reliance’s position that Plaintiff is only entitled to 24 months of own occupation benefits.  The record, including an SSDI award, supports disability after 24 months.  “Finally, the Court has made clear that Reliance should not have a second bite at the proverbial apple or a second opportunity to dig up evidence to support a new reason for rejecting Plaintiff’s claim for LTD benefits. That is exactly what Reliance is attempting to do by contending that the Court’s decision was limited to Plaintiff’s entitlement to the first twenty-four months of benefits, only.”

Shrout, Jr. v. Life Insurance Company of North America, No. CV 5:18-416-KKC, 2018 WL 4976799 (E.D. Ky. Oct. 15, 2018) (Judge Karen K. Caldwell).  The court determined that Frazier v. Life Ins. Co. of N. Am., 725 F.3d 560 (6th Cir. 2013) governs here and that plan language requiring “satisfactory proof of Disability before benefits will be paid” contains a clear grant of discretionary authority to the plan administrator.  Until Frazier is reversed, the court is bound to follow its holding.  The applicable standard of review, in this case, is arbitrary and capricious.

Seventh Circuit

Floerke v. SSM Health Care Plan & Unum Life Ins. Co. of N. Am., No. 17-CV-567-WMC, 2018 WL 5045770 (W.D. Wis. Oct. 17, 2018) (Judge William M. Conley).  Unum did not abuse its discretion in applying the self-reported symptoms limitation to Plaintiff’s migraines and headaches since they are based primarily on self-reported symptoms, making them subject to the self-reported symptom limitation as interpreted by Weitzenkamp.  In addition, Unum’s application of the mental illness limitation was also not an abuse of discretion where multiple treatment providers noted her major depressive disorder secondary to her headache pain.

Eighth Circuit

Buquoi v. United States Life Insurance Company in the City of New York, No. 4:18-CV-00093 BRW, 2018 WL 5091898 (E.D. Ark. Oct. 18, 2018) (Judge Billy Roy Wilson).  In this case, “Plaintiff received Defendant’s request for the SSD records on December 19, 2017, and on January 8, 2018, he signed the appropriate documents permitting Defendant to review the SSD records. However, the next day Defendant denied Plaintiff’s appeal – just seven days after it requested an extension to evaluate the appeal, and, more importantly, before it received the requested SSD records.”  The court remanded the case to Defendant to reopen the administrative record, obtain and review the SSD records, and make a new determination of the claim.

Sievers v. United of Omaha Life Insurance Company, No. 18-CV-3048-CJW, 2018 WL 5019388 (N.D. Iowa Oct. 16, 2018) (Judge C.J. Williams).  The court granted United of Omaha’s motion to dismiss based on Plaintiff’s failure to exhaust administrative remedies with respect to her long term disability claim.  “The long term disability policy permits a claimant to receive long term disability benefits upon the satisfaction of one of two conditions: 1) the lapse of 180 calendar days; or 2) the end of short-term disability benefits being provided.”  The court rejected Plaintiff’s argument that it would have been futile because her STD claim was denied on appeal.  The STD and LTD plans have different definitions of disability.  The court found that “it is conceivable that plaintiff could still be awarded long term disability benefits, if she is able to meet the lesser standard of showing that she is prevented from performing at least one material duty of her regular job.”

Tenth Circuit

Shore v. The Procter & Gamble Health and Long Term Disability Plan, No. 218CV02294HLTJPO, 2018 WL 5045193 (D. Kan. Oct. 17, 2018) (Judge Holly L. Teeter).  The court found that Plaintiff’s Section 502(a)(3) claim is not duplicative of his Section 502(a)(1)(B) claim where the former alleges that Defendant Committee mishandled the appeal by considering an improper and insufficient administrative record because it included wrong evidence and failed to include relevant evidence.  The court explained that under Section 502(a)(3), Plaintiff could have an avenue to get the proper record before the court.  The court also declined to dismiss Plaintiff’s claim for statutory and regulatory noncompliance on the basis of failing to provide a reasonable claims procedure.  Plaintiff has stated a cognizable claim for equitable relief under Section 502(a)(3).

Eleventh Circuit

Campbell v. Hartford Life and Accident Insurance Company, No. 17-80193-CIV, 2018 WL 4963118 (S.D. Fla. Oct. 15, 2018) (Judge Kenneth A. Marra).  The court determined it was not “irrational” for Hartford to terminate long term disability benefits where surveillance video disclosed Plaintiff exercising vigorously in a gym for a sustained period and peer reviewer Dr. Sarah White specifically confirmed that this documented activity level was inconsistent with her reported limitations and wholly consistent with full-time work capacity. In addition, Plaintiff’s own neurologist changed his opinion to finding that Plaintiff was capable of full-time sedentary work after he reviewed the surveillance.  Summary Judgment granted to Hartford.


Sixth Circuit

Davis v. Hartford Life & Accident Insurance Company, No. 3:14-CV-507-CHB, 2018 WL 5045211 (W.D. Ky. Oct. 17, 2018) (Judge Claria Horn Boom).  In this dispute over long term disability benefits, the court overruled Plaintiff’s objections to the Magistrate Judge’s discovery order.  Plaintiff is not entitled to the “Claims Excellence” manual because though it was used in general training it was not utilized in every claim and appeal or in Plaintiff’s claim and appeal.  Defendant has produced sufficient documentation regarding the relationship between Hartford Life and Accident Insurance Company and Hartford Insurance Company.  Defendant represented under Rule 11 that it took extensive efforts to confirm that a “Claims Settlement Worksheet” does not exist which makes Plaintiff’s objection moot.  The Magistrate Judge did not err by finding the “Turnaround Time Reports” related to University Disability Consortium to be irrelevant and clearly implicate serious HIPAA and privacy concerns.  Plaintiff is also not entitled to each list provided by UDC of its approved physician reviewers, physician documentation, and quarterly reports.

D.C. Circuit

U.S. Dep’t of the Treasury v. Pension Benefit Guar. Corp. v. Black, et al., No. 12-MC-100 (EGS), 2018 WL 4964499 (D.D.C. Oct. 15, 2018) (Judge Emmet G. Sullivan).  In this action where Respondents allege that the Pension Benefit Guaranty Corporation illegally terminated Delphi’s pension plan for its salaried workers, via an agreement with Delphi and General Motors, because of improper pressure exerted by Treasury, the court granted in part and denied in part Respondents’ renewed motion to compel the production of 61 documents withheld by Treasury under a claim of the presidential communications privilege.

Life Insurance & AD&D Benefit Claims

Ninth Circuit

Heng v. Metro. Life Ins. Co., No. 17-16726, __F.App’x__, 2018 WL 4959839 (9th Cir. Oct. 15, 2018) (Before: TROTT, SILVERMAN, and TALLMAN, Circuit Judges).  The court affirmed the court’s grant of summary judgment to MetLife against the pro se plaintiff.  Plaintiff’s deceased husband died after he was no longer employed and covered by the employer’s AD&D policy.  The conversion rights in the contract were never exercised but they also unambiguously related only to life insurance coverage, not to AD&D.

Pension Benefit Claims

Eighth Circuit

In re Lerbakken, __B.R.__, 2018 WL 4996146 (8th Cir. BAP (Minn.)) (Before SCHERMER, NAIL and SHODEEN, Bankruptcy Judges).  An order dissolving Lerbakken’s marriage awarded him one-half of the value of his ex-wife’s Wells Fargo 401(k) and an entire IRA account.  Lerbakken did not submit a QDRO as directed or take another other action to obtain title or possession of the accounts.  On the question of whether he is entitled to claim an exemption in the accounts, the court held that “[a]ny interest he holds in the Accounts resulted from nothing more than a property settlement. Applying the reasoning of Clark the 401K and IRA accounts are not retirement funds which qualify as exempt under federal law.”

Pleading Issues & Procedure

Second Circuit

Raymond A. Semente, D.C., P.C. v. Empire Healthchoice Assurance, Inc., No. 14CV5823DRHSIL, 2018 WL 4954096 (E.D.N.Y. Oct. 12, 2018) (Magistrate Judge Steven I. Locke).  The court denied Defendants’ motion to sever the provider’s claims against Verizon health plans (ERISA) from the Suffolk County health plans (non-ERISA).  “[T]he Court notes Verizon’s argument that severance is appropriate, inter alia, because it had reached an agreement in principle to settle with Plaintiff, only to have Plaintiff back out at the last minute because it was concerned that settling with Verizon, and letting Verizon out of the case, would deprive this Court of subject matter jurisdiction because the ERISA claims against Verizon would be gone and only New York state law claims against Suffolk County would remain. While the Court expresses no opinion on this issue, even assuming that this argument has merit, severance would still be denied under the circumstances presented. The logical connection between all of the claims at issue, and the efficiency of resolving whether Empire properly denied Semente’s claims in applying its internal guidelines, outweighs any potential benefit in having some of the claims settle, especially when Empire’s conduct would be the central issue in either or both cases.”

Retaliation Claims

Ninth Circuit

O’Farrell v. Parker Smith & Feek Inc., No. C17-637-MJP, 2018 WL 5013772 (W.D. Wash. Oct. 16, 2018) (Judge Marsha J. Pechman).  The court granted summary judgment to Defendant on Plaintiff’s ERISA Section 510 claim upon finding that the following facts do not show that Plaintiff’s termination was motivated by the “specific intent” to interfere with his benefit rights: (1) the fact that the “with cause” distinction is only made with respect to shareholders, (2) the fact that shareholders are only ever terminated “with cause,” and (3) the fact that PSF is “cost-conscious when it comes to deferred compensation obligations under the Plan.”

Statutory Penalties

Second Circuit

Browe v. CTC Corporation, No. 2:15-CV-267, 2018 WL 5095677 (D. Vt. Oct. 18, 2018) (Judge Christina Reiss).  “In light of the totality of the circumstances, the court agrees that there should be a consequence for the Plan Administrators’ failure to comply with ERISA’s reporting and disclosure requirements but concludes that Plaintiffs’ suggestion of a statutory penalty of $766,500 per Plan Participant is exorbitant and unsupported by the factual record. The court awards $2,000 in statutory penalties to be paid by Defendant Laumeister ($1,000) and Plaintiff Launderville ($1,000) in addition to the Restoration Award.”


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