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Your ERISA Watch – Fourth Circuit Holds Plan Fiduciary May Violate ERISA by Failing to Divest Allegedly Imprudent Frozen Single-Stock Fund

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This week’s notable decision, Stegemann v. Gannett Co., Inc., No. 19-1212, __F.3d__, 2020 WL 4664798 (4th Cir. Aug. 11, 2020), results from the Fourth Circuit’s consideration of “whether and how a participant in a defined contribution plan can allege a breach of the ERISA fiduciary duties of either prudence or diversification on the basis of a plan fiduciary’s non-divestment of an allegedly imprudent frozen single-stock fund.” This decision is a long-awaited victory for plan participants post-Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014), where it has become exceedingly difficult for these types of claims to survive.

Plaintiffs-Appellants are participants in the Gannett Co., Inc. 401(k) Savings Plan (the “Plan”). In a suit on behalf of themselves and other participants in the Plan against the Plan’s sponsor, Defendant Gannett Company, Inc., and the Plan’s management committee, Defendant Gannett Benefit Plans Committee (the “Committee”), Plaintiffs allege that Defendants breached their ERISA-mandated fiduciary duties of prudence and diversification. See 29 U.S.C. § 1104(a)(1). Simply, Plaintiffs contend that following a spin-off of TEGNA, Inc. (previously named Gannett Co., Inc. or “Old Gannett”) to a newly created Gannett Co. (“New Gannett”), Defendants ignored the TEGNA Stock Fund, an imprudent single-stock fund in the Plan that was frozen at the time of the spin-off, “for several years, resulting in millions of dollars in losses.”

The district court (E.D. Va) dismissed the complaint under Fed. R. Civ. P. 12(b)(6). It held that Dudenhoeffer barred Plaintiffs’ duty-of-prudence claims since Plaintiffs are required “to allege ‘special circumstances’ related to mistakes in market valuation not alleged here.” And, “the duty to diversify requires diversity among the full set of funds offered in the menu of plan offerings but does not compel every individual fund in a plan to be diversified.”

The Fourth Circuit disagreed that Plaintiffs failed to state a claim, where all they must do is plausibly allege that a fiduciary breached a duty, causing a loss to the employee benefit plan. “Put simply, Plaintiffs did just that—they set out facts describing how Defendants failed to monitor a fund, which led to a failure to recognize and remedy a defect, which then led to a loss to the Plan.”

The following are the highlights from the court’s decision:

  • Following the reasoning of the Fifth Circuit in Schweitzer v. Inv. Comm. of Phillips 66 Sav. Plan, 960 F.3d 190 (5th Cir. 2020), the court determined that the TEGNA stock, which relates back to pre-spin-off Old Gannett stock, is not exempt from prudence and diversification requirements in the same way as Employee Stock Ownership Plans.
  • It is a false premise that the § 1104(1)(C) duty to diversify can eclipse the § 1104(a)(1)(B) duty of prudence; in a defined contribution plan a fiduciary is obligated to ensure individual funds are diversified at the fund level.
  • “[T]he prudence of investing in one single-stock fund can be impacted by the trials and tribulations of another single-stock fund where the funds each hold stock in formerly related companies, and that such a situation implicates the duty of diversification under § 1104(a)(1)(C).” See Tatum v. RJR Pension Inv. Comm., 855 F.3d 553, 566-67 (4th Cir. 2017).
  • A fiduciary may be obligated to divest a non-diversified fund rather than just freeze it to new investments. The facts here present the inverse of Tatum, where the Fourth Circuit determined that the proper standard for evaluating procedural prudence is whether a prudent fiduciary would have (not could have) made the same decision to divest after performing a proper investigation. Tatum supports the position that forcing divestment is the objectively prudent thing to do even if the fund is frozen.
  • Whether some plan participants would have decided to stay invested in the TEGNA Stock Fund, assuming higher risk for potentially higher reward, is a dubious assertion and one that the court should not prospectively assume had occurred.
  • While fiduciaries should not be liable for participant autonomy, on a motion to dismiss, a “fiduciary of a defined contribution plan should not have the benefit of safe harbor on account of participant choice without proving the § 404(c) defense first. In other words, as-yet-unproven participant choice does not abrogate a fiduciary’s duties such that a plaintiff fails to state a claim where the plaintiff attacks the prudence of an option on a plan’s menu.”
  • Dudenhoeffer does not apply to Plaintiffs’ allegations because their claim that the fund was imprudent due to lack of diversification is not based on a fiduciary’s prediction about the performance of a stock. Here, the imprudence is based on the fund’s composition.

The court recapped Plaintiffs’ plausible allegations supporting a breach of an ERISA fiduciary duty:

“Plaintiffs allege that Defendants breached their duty of prudence. Defendants allegedly breached this duty by failing to monitor the continuing prudence of holding a single-stock fund. Because Defendants did not monitor the merits of the fund, they did not uncover that it was an imprudent fund. As the fund was a single-stock fund with inherent concentration risk, it is plausible that the fund was, in fact, imprudent. Simultaneously, the allegedly imprudent single-stock fund was correlated with another single-stock fund on the Plan’s menu, intensifying diversification concerns. Defendants’ failure to discover the imprudence led to another failure, a failure to divest the fund. Since the fiduciaries did not divest the fund, when the price of the stock in the fund went down, the Plan suffered a loss.”

The court vacated the judgment of the district court and remand for further proceedings.

Judge Niemeyer wrote a dissenting opinion.

Congratulations to Plaintiffs’ attorneys and ERISA Watchers, Gregory Porter and Mark Boyko of Bailey & Glasser LLP for this excellent decision.

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

Breach of Fiduciary Duty

Fourth Circuit

Stegemann v. Gannett Co., Inc., No. 19-1212, __F.3d__, 2020 WL 4664798 (4th Cir. Aug. 11, 2020) (Before Niemeyer, Wynn, and Floyd, Circuit Judges).  See Notable Decision summary above.

Fifth Circuit

Pendleton v. AT&T Servs., No. 219CV111WOBCJS, 2020 WL 4678427 (E.D. Ky. Aug. 12, 2020) (Judge William O. Bertlesman). The court denied Plaintiff’s motion for summary judgment on her breach of fiduciary duty claim under 29 U.S.C. §1132(a)(3). Plaintiff’s late husband worked for AT&T and was a participant in the AT&T pension plan. The pension plan’s recordkeeper made multiple mistakes when calculating Plaintiff’s husband’s pension benefit. The court found the recordkeeper’s actions were not a breach of fiduciary duty because the actions were in error and there was no attempt to mislead Plaintiff. The court also stated that Plaintiff’s claims were really a claim for benefits due under 29 U.S.C. §1132(a)(1)(B) and not a claim for breach of fiduciary duty.

Disability Benefit Claims

Ninth Circuit

Furey v. Metro. Life Ins. Co., No. 19-CV-02144-DMR, 2020 WL 4584196 (N.D. Cal. Aug. 10, 2020) (Before Magistrate Judge Donna Ryu). Plaintiff filed suit against MetLife when it limited his disability benefits to two years of payments under the policy’s mental health limitation. Plaintiff argued that while he suffered from depression and anxiety, he was primarily disabled as a result of liver disease and hemochromatosis. MetLife argued that there was insufficient evidence supporting physical impairment. The parties conceded that the “due to” language predicating this clause required the court to construe the limitation to require “but-for” causation. In other words, if the physical condition is independently disabling, the mental health limitation did not apply. The court held that under de novo review, Plaintiff met his burden by proving disability because of physical conditions. In weighing the evidence, the court gave significant weight to the medical evidence provided by Plaintiff, including but not limited to a 2-day CardioPulmonary Exercise Test (CPET), the results of which confirmed the presence of impairing fatigue, as well as a finding by the Social Security Administration that Plaintiff qualified for Social Security Disability benefits. In contrast, the court gave little weight to the opinions of MetLife’s medical experts, finding their conclusions relied upon a series of mischaracterizations and other logical flaws.

Tenth Circuit

Chandhok v. Companion Life Insurance Company, No. CIV 19-0362 JB/JFR, 2020 WL 4698512 (D.N.M. Aug. 13, 2020). The primary issues are whether Defendant’s conclusion that Plaintiff  was not disabled before his diagnosis was arbitrary and capricious; (ii) whether Chandhok was insured beyond his last day of work; (iii) whether Companion Life’s conclusion that Chandhok’s disability ended on July 5, 2016, is arbitrary and capricious; and (iv) whether Companion Life’s conclusion that Chandhok did not have a mental or nervous impairment is arbitrary and capricious. The court denied Defendant’s Motion for Summary Judgment, remanded the case to Defendant to determine Plaintiff’s impairment date, to reconsider its conclusion that Chandhok was not impaired on July 5, 2016, in light of Dr. Michael Garcia’s August, 2016, comments, and to provide an explanation for its decision to deny Chandhok’s mental impairment claim.  First, Defendant should have asked Plaintiff’s employer about his last day of work before assuming that Chandhok was not disabled on that date. Instead, Defendant’s reading of the record implies that Chandhok ceased work in early March for entirely unknown reasons. Second, because the Tenth Circuit has held that the Plan’s language does not require a claimant to have worked full-time immediately before asserting coverage, and because the record reflects that Chandhok was on short-term medical leave rather than permanently off work, the Policy covered Chandhok when he was diagnosed as impaired on March 15, 2016. Third, Defendant did not consider medical opinions contradicting its conclusion before denying Plaintiff’s claim. Finally, the court did not have any reasoning to analyze, Defendant’s decision to deny Plaintiff’s mental impairment claim was arbitrary and capricious.


Second Circuit

Ferguson v. Ruane Cunniff & Goldfarb Inc., No. 17CV6685ALCBCM, 2020 WL 4586800 (S.D.N.Y. Aug. 10, 2020) (Magistrate Judge Barbara Moses). The court ordered defendant Ruane Cunniff & Goldfarb, Inc. (RCG) to “produce: (1) a complete copy of the June 5, 2020 settlement agreement between RCG and the Settling Plaintiffs defined therein (the RCG Settlement Agreement), including exhibits; and (2) each related Release and Covenant not to Sue (Release) executed by a Settling Plaintiff.” The court explained that although the named plaintiffs are not parties to the RCG Settlement Agreement or releases, the documents are relevant to the class claims, “because, by their terms, they resolve and release the claims of hundreds of putative class members against defendant RCG.” RCG may designate the documents “Confidential.”

Third Circuit

In Re Motion To Compel Compliance With Rule 45 Subopeona Issued To Ethicare Advisors, Inc., No. CV 20-1886 (WJM), 2020 WL 4670914 (D.N.J. Aug. 12, 2020) (Magistrate Judge Mark Falk). The court denied DaVita’s motion to compel compliance with a Rule 45 subpoena seeking documents served on non-party, EthiCare Advisors, Inc. The court explained: “The underlying issue in the Idaho Action is whether WinCo violated its employee benefit plan by failing to reimburse out-of-network dialysis at the UCR rate. This does not require an analysis of how WinCo’s UCR rate was reached. The issue is more basic: WinCo claims that the rate it reimbursed at is an appropriate amount; DaVita contends it should be entitled to more. Indeed, DaVita contends that WinCo/EthiCare’s rate is ‘many multiples’ less than what it should receive. That requires a comparison of two numbers: WinCo’s number and DaVita’s number – buttressed by argument and perhaps expert reports regarding prevailing rates. It does not require a deep dive into EthiCare’s highly confidential reimbursement methodology. If WinCo’s reimbursement rate is truly ‘many multiples’ less than what is appropriate, DaVita will prevail – regardless of how EthiCare’s rate was reached.” The court also found the confidentiality of the information as another reason to deny the discovery as it is not proportional to the needs of the case and constitutes confidential business information that EthiCare represents is not shown to its own customers.

Seventh Circuit

Mohammed v. Prudential Ins. Co. of Am., No. 19 C 3258, 2020 WL 4569696 (N.D. Ill. Aug. 7, 2020) (Judge John Z. Lee). Plaintiff served subpoenas on third parties and Prudential moved to quash them. Abiding by the letter of FRCP 45, the court held that Prudential lacked standing to bring the motion unless the “subpoena infringes upon the movant’s legitimate interests.” This was because Prudential failed to assert privilege, privacy, or any other legitimate interest in the material sought. Even if Prudential had standing, the court would also have denied its motion. Plaintiff had sufficiently shown that his case is exceptional. Plaintiff had alleged a specific pattern of misconduct on Prudential’s part: deliberate delay in approving meritorious STD claims in order to avoid liability for LTD claims. Two other plan administrators, who were not asked to provide LTD benefits, approved Plaintiff’s STD claims immediately, while Prudential, who did face LTD liability, only approved Plaintiff’s STD claim after two appeals. The court determined these facts gave rise to colorable suspicion that Prudential was attempting to avoid LTD liability in adjudicating Plaintiff’s disability claims and cast a cloud over Prudential’s review of Plaintiff’s LTD claim. Plaintiff also had good cause to believe that the discovery he sought would reveal a procedural defect in Prudential’s determination. As Plaintiff pointed out, “the other two claims administrators considered disability of (1) the same person, (2) with the same chronic and progressive illness, (3) experiencing the same symptoms of hand tremors and loss of motor functioning, (4) from the same job of Network Engineer[,] requiring heavy keyboarding.” The court found Plaintiff’s requested discovery “isolate[s] the variable” of LTD liability: because Prudential was subject to LTD liability while the other administrators were not, one might plausibly conclude the difference between Prudential’s and the other administrators’ determinations was the product of Prudential’s incentive to avoid LTD liability. Thus, Mohammed’s requested discovery was relevant to showing whether Prudential approaches disability claims with an eye toward skirting LTD liability.

ERISA Preemption

Fifth Circuit

Advanced Physicians, S.C. v. National Football League, No. 3:19-CV-2432-G, 2020 WL 4731960 (N.D. Tex. Aug. 14, 2020) (Judge A. Joe Fish). In this case, Advanced Physicians, an out-of-network provider who treats retired NFL players, brought state law tort claims against the NFL on the basis that the NFL told its health administrator, Cigna, to deny Advanced’s claims because Advanced conducted diagnostic tests used by some of the players as evidence of disability under the NFL’s disability plan. NFL previously removed the matter and Judge Shah (N.D. Ill.) denied Advanced’s motion to remand, holding that the state law tort claims are completely preempted by ERISA. The court did not rule on the NFL’s motion to dismiss. The case was subsequently transferred to this court and Judge Shah denied Advanced’s motion to certify the order denying remand because the court’s preemption ruling should result in a dismissal with prejudice. On NFL’s present motion to dismiss, the court determined that Advanced’s Illinois state law claim against the NFL is preempted by ERISA, and based on both the law of the case doctrine as well as an independent determination, that Advanced’s claim is preempted by ERISA. Advanced has also failed to establish that the NFL is a proper defendant, because even though the NFL allegedly “effectively made the decision to deny benefit payments,” the NFL is not actually the employer of the players or retired players and an ERISA claim for benefits must be brought against the plan, rather than the plan sponsor.

Gonzales v. Metro. Life Ins. Co., No. CV 20-1022, 2020 WL 4698977 (E.D. La. Aug. 13, 2020) (Judge Sarah Vance). Plaintiff sued MetLife when it denied his claim for employer-sponsored disability benefits following a stroke. After his claim was denied, he filed suit in state court alleging violations of Louisiana state insurance law and omitting ERISA allegations. Defendant moved to dismiss for failure to state a claim under ERISA. The court granted the motion (which Plaintiff did not oppose) finding that this employer-sponsored policy was indeed governed by ERISA and thus his state-law claims fully preempted.

Dall. Med. Ctr. v. United Gov’t Sec. Officers of Am. Int’l. Union, Case No. 19-cv-2754, 2020 WL 4697866 (N.D. Tex. Aug. 13, 2020) (Judge Ada Brown). Dallas Medical Center LLC, a Dallas hospital, filed suit against two defendants, United Government Security Officers of America International Union (UGSOA) and CoreSource Inc. In 2017, an unnamed patient had knee replacement surgery at the hospital. The patient had a self-funded health insurance plan sponsored by UGSOA. The patient’s hospital bill for the hospital’s services was almost $245,000. As instructed by the plan, the hospital submitted its claim for payment to CoreSource, an agent for UGSOA. CoreSource contacted the hospital and proposed a settlement under which the hospital would accept a 10% discount off the full amount of the billed charges. CoreSource sent the hospital a Discount Confirmation Form signed by its critical claims manager. The hospital signed and returned the form. Under this agreement, CoreSource would pay the hospital $220,072.50 and the hospital would accept that amount in full payment of the patient’s account. The hospital alleges that Defendants have refused to tender any payment. The hospital asserted two claims—breach of contract and fraud in the inducement. The hospital also alleged that Defendants breached the agreement to pay $220,072.50. The court granted the hospital’s motion to remand the matter to state court and concluded that ERISA did not preempt the hospital’s fraud in the inducement claim against Defendants.

Ninth Circuit

Fonseca v. Hewlett-Packard Company, et al., No. 19CV1748-GPC-MSB, 2020 WL 4596758 (S.D. Cal. Aug. 11, 2020) (Judge Gonzalo P. Curiel). “Plaintiff brings this class action on behalf of all individuals employed by HP from January 1, 2016 to present and all current, former, or prospective employees who were at least 40 years old at the time that HP terminated them under HP’s 2012 U.S. Workforce Reduction (“WFR”) plan.” HP argues that Plaintiff’s California Business and Professions Code § 16600 claim should be denied on the basis of ERISA preemption. The court determined that Judge Benitez’s previous grant of Plaintiff’s motion to remand on the basis that Plaintiff could not have brought his age-discrimination claims pursuant to ERISA § 502(a)(3), and therefore his claims were not preempted by ERISA under the complete preemption provision, does not foreclose ERISA express preemption. The court found “that because Plaintiff’s Section 16600 claim is premised on language that he argues should be considered part of the WFR plan, his cause of action ‘makes specific reference to, and indeed is premised on’ a plan that is otherwise governed by ERISA and would therefore be preempted since ‘there simply is no cause of action if there is no plan.’”

Michael v. Blue Cross of California, No. 2:20-cv-01836-ODW(AFMx), 2020 WL 4586967 (C.D. Cal. Aug. 7, 2020) (J. Otis D. Wright, II). Plaintiff, a charter school employee, filed this action for breach of contract and bad faith in state court against her health care service plan, alleging that it had failed to pay for medically necessary treatment for her son. Blue Cross removed the case to federal court, and then moved to dismiss on the ground that Plaintiff’s state law claims were preempted by ERISA. Plaintiff simultaneously filed a motion to remand the case back to state court on the ground that the plan was exempt from ERISA as a government plan. The court took judicial notice of Plaintiff’s exhibits demonstrating that her employer received state funding and was under the jurisdiction of the California public school system. The court found that the health plan at issue was established and maintained in part by the school, and that the school paid premiums for the plan. Under these facts, the court, noting that the case “appears to raise a matter of first impression in our Circuit,” ruled that the school was a “government entity” under ERISA. The court accepted Blue Cross’ invitation to apply a six-factor test used by the Second Circuit (adopted from IRS regulations), but found those factors weighed in favor of Plaintiff. Specifically, the school was a “creature of California statute,” it provided a “central governmental function of providing public education,” and it was subject to control by the governmental chartering authority. The court also found that the government plan exception was created largely because governments had taxation power, which allowed it to avoid the problem of under-funded benefit plans. Although charter schools have no taxing authority, they derive their funding from the state, which does. The court thus ruled that the charter school plan was a government plan not subject to ERISA. It granted Plaintiff’s motion to remand and denied Blue Cross’ as moot.

Medical Benefit Claims

Second Circuit

Fisher v. Aetna Life Ins. Co., No. 1:15-CV-283-GHW, 2020 WL 4700935 (S.D.N.Y. Aug. 12, 2020) (Judge Gregory H. Woods). Plaintiff initially filed a lawsuit against Aetna alleging Aetna refused to reimburse Fisher for the cost of Effexor (Fisher I). Plaintiff subsequently filed a second lawsuit alleging Aetna overcharged for medication Effexor (Fisher II). The parties brought motions for summary judgment on the second action. Aetna admits it overcharged Fisher so the court determined Aetna’s administration of the policy was arbitrary and capricious. Aetna claimed Fisher did not present her argument in administrative appeal with Aetna and has not preserved the arguments for judicial review. The court did not resolve the issue because the plan administrator concedes error. The court found remand would be a useless formality and Fisher is entitled to summary judgment limited to $179.76. The court rejected Fisher’s argument that Aetna misapplied the out-of-pocket limitation in the policy, citing the decision in Fisher I.

Ninth Circuit

Wise v. Maximus Fed. Servs., Case No. 18-cv-07454, 2020 WL 4673152 (N.D. Cal. Aug. 12, 2020) (Judge Lucy H. Koh). Wise brought suit against United HealthCare Services, Inc. and UnitedHealthcare Insurance Co. (collectively, “UHC”), as well as Defendant MAXIMUS Federal Services, Inc. (“MAXIMUS”) (collectively, “Defendants”), with regard to a denial of benefits to which Wise claimed he was entitled to coverage for an orthotic device under the Monterey County Hospitality Association Health & Welfare Plan. Wise brought two claims against Defendants. First, Wise brought a claim for wrongful denial of benefits under § 502(a)(1)(B). Second, Plaintiff brought a claim for breach of fiduciary duty under § 502(a)(3). The Court held that (1) UHC was liable for the denied orthotic device because the device did not fall within the Plan’s “unproven services” exclusion; (2) MAXIMUS is not “individually liable” for the wrongful denial of benefits under § 502(a)(1)(B); and (3) Defendants were not liable under § 502(a)(3).

Tenth Circuit

Michele T. v. Oxford, No. 2:19-CV-507-TC, 2020 WL 4596961 (D. Utah Aug. 11, 2020) (Judge Tena Campbell). Oxford moved to dismiss the complaint which alleged violations of ERISA and the Parity Act in Oxford’s denial of residential treatment benefits. The court declined Oxford’s request for a dismissal or stay pending final judgment in Wit v. United Behavioral Health. The court found that the law is not “well-established,” as claimed by Oxford, regarding how the court should handle complaints that might overlap with a pending class action. The court held that because there is no final judgment in Wit, there is no precedent requiring that this case be stayed. The court reviewed three factors in considering whether to apply the first-to-file rule. The court found that the chronology of actions favors staying the case but the other two factors—similarity of parties and issues—supports allowing the case to proceed. The court declined to stay the action. As to the Parity Act allegation, the court found that Plaintiff making an as-applied challenge to the plan need only allege an impermissible mental health exclusion in application. The court found that Plaintiffs sufficiently alleged that residential treatment is analogous to sub-acute inpatient settings. Although the court found that Plaintiffs’ allegations regarding disparity in Oxford’s claims handling for medical and surgical claims versus mental health claims are vague and insufficient, the court believes a Parity Act claim could be potentially pled following discovery. The court dismissed the Parity Act cause of action, but Plaintiffs may conduct discovery and file a motion to amend.

D.C. Circuit

Chipman v. Cigna Behavioral Health, Inc. et al., No. CV 19-456 (TJK), 2020 WL 4732097 (D.D.C. Aug. 14, 2020) (Judge Timothy J. Kelly). In this dispute over coverage for residential mental health treatment for a dependent, the court granted Cigna’s motion for summary judgment (Plaintiff failed to oppose). The court concluded: “The administrative record, to be sure, paints a picture of Dependent as troubled and in need of mental health treatment. But given the deferential standard this Court must apply, it cannot say that Cigna’s decision not to cover the residential mental health treatment here was unreasonable or unsupported by substantial evidence. Defendants have therefore carried their burden, and the Court will grant their motion for summary judgment.”

Pension Benefit Claims

Second Circuit

Galli v. PricewaterhouseCoopers LLP, No. 19 CIV. 7224 (LGS), 2020 WL 4605240 (S.D.N.Y. Aug. 11, 2020) (Judge Lorna G. Schofield). Plaintiff sued her ERISA-governed pension plan alleging that the oral notice it gave her of her termination was inadequate because her Employment Agreement gave her the right to a written notice of three months. Plaintiff requested the court award her three months of salary because of the lack of notice provided by her employer. The Employment Agreement also dictated that any dispute would need to be decided in arbitration. The court granted Defendants’ motion and denied Plaintiff’s motion based on cross motions for summary judgment because the plan had no requirement that the notice be made in writing. The court also granted Defendants’ motion to compel arbitration.

Plan Status

Sixth Circuit

The Retirees of The Goodyear Tire & Rubber Co. Employee Healthcare Trust Committee, v. Steely, et al., No. 5:19-CV-1893, 2020 WL 4676732 (N.D. Ohio Aug. 12, 2020) (Judge Benita Y. Pearson). This action has been brought to enforce the terms of an employee welfare benefit plan (“the Plan”) which provides health benefits to more than 25,000 individuals living in more than 45 jurisdictions. The issue before the court is whether the Plan is subject to ERISA. In examining whether the Plan qualifies as an “employee welfare benefit plan” under ERISA, the court must look to whether the Plan is established or maintained: (1) by any employer; or (2) by any employee organization; or (3) by both. An employee organization includes any labor union or organization that deals with employers concerning employee benefit plans. In this case, the Plan is subject to ERISA because Goodyear (the employer) and the union (an employee organization) established the Plan by negotiating the Plan’s structure and funding source. Goodyear made a $1 billion initial contribution to the fund, and the funding source is a critical factor in determining whether a plan is governed by ERISA. Finally, the Plan in this case unequivocally stated that it was an ERISA plan.

Pleading Issues & Procedure

Seventh Circuit

Mohammed v. Prudential Ins. Co. of Am., No. 19 C 3258, 2020 WL 4569696 (N.D. Ill. Aug. 7, 2020) (Judge John Z. Lee). Plaintiff sued Prudential under both (a)(1)(B) and (a)(3). Prudential moved to dismiss both causes of action pursuant to FRCP 12(b)(6). The court denied the motion regarding the (a)(1)(B) claim because it rested on arguments the administrator had not raised when it denied the claim. “Because Prudential’s ‘disability’ argument was not raised at the time of denial, the Court will not consider it.” However, the court granted the motion regarding the (a)(3) claim because it was “practically indistinguishable” from the (a)(1)(B) claim. Under Seventh Circuit law, an (a)(3) claim that duplicates an (a)(1)(B) claim was unavailable.


Fourth Circuit

Thomas v. Saber Healthcare Group, LLC, No. 3:18-CV-344-GCM, 2020 WL 4596954 (W.D.N.C. Aug. 11, 2020) (J. Graham C. Mullen). Plaintiff brought this action against his employer arising from a loan he had taken from his ERISA-governed 401(k) retirement plan. Loan repayments were deducted from his paycheck until his resignation from the company. At that time, Plaintiff contacted his employer, who informed him that he would receive a notice regarding his repayment obligations. Plaintiff never received such a notice. Meanwhile, his employer was purchased by another company, which sent him a notice of default on the loan, exposing him to tax liability and penalties. Plaintiff then attempted to pay off the loan, but his check was returned as an ineligible payoff. On cross-motions for summary judgment, the court ruled that Defendant had breached its fiduciary obligation to plaintiff under ERISA, but that Plaintiff could not recover the amount of his alleged future tax liability because those damages were not calculable and too speculative. (“Indeed, Plaintiff’s future liability may have been greater than that which he suffered as a result of Defendant’s breach.”) For similar reasons, the court also ruled that Plaintiff could not recover for his alleged lost opportunity to invest funds into a rollover business startup account, as his claim depended on the value of the future tax liability and thus was “inherently speculative.” However, the court allowed Plaintiff to recover the amount of the tax penalty, as that amount was easily calculable and directly resulted from Defendant’s breach.

Ninth Circuit

Castillo v. Metro. Life Ins. Co., No. 19-56093, __F.3d__, 2020 WL 4745033 (9th Cir. Aug. 17, 2020) (Before: Richard A. Paez and Bridget S. Bade, Circuit Judges, and Jack Zouhary, District Judge). The court held that § 1132(a)(3) does not authorize an award of attorneys’ fees incurred during the administrative phase of the ERISA claims process and affirmed the judgment of the district court. Here, MetLife withheld Plaintiff’s long-term disability benefits to offset Plaintiff’s pension rollover that occurred four years prior. He retained Kantor & Kantor who appealed the decision and they succeeded in getting MetLife to reverse its decision and reimburse Plaintiff the withheld benefits. Plaintiff then filed suit claiming MetLife breached its fiduciary duty to him by failing to determine the effect of his pension rollover after it first learned of it and not informing Plaintiff that it was considering it an offset. This alleged breach caused him to hire an attorney and pay attorneys’ fees to get MetLife to reverse its decision. He argued that payment of attorneys’ fees is “appropriate equitable relief” under § 1132(a)(3). In concluding that attorneys’ fees incurred in an administrative appeal are not recoverable under (a)(3), the court analyzed the statutory structure of ERISA. A claimant who succeeds under (a)(3) may obtain fees under § 1132(g) but that does not include fees incurred in an underlying administrative proceeding. This is consistent with the court’s previous opinion in Cann v. Carpenters’ Pension Tr. Fund for N. Cal., 989 F.2d 313 (9th Cir. 1993). “We are not persuaded that the availability of fees should turn on the claimant’s characterization of the benefits dispute or that ERISA should be interpreted in a way to incentive claimants to characterize denial-of-benefits claims as breach-of-fiduciary-duty claims.” The court did not reach the issue as to whether Plaintiff’s complaint failed to state a claim for breach of fiduciary duty.

Subrogation/Reimbursement Claims

Ninth Circuit

Swire Pacific Holdings, Inc., et al v. Jones, No. C19-1329RSM, 2020 WL 4674231 (W.D. Wash. Aug. 12, 2020) (Judge Ricardo S. Martinez). Defendant was injured in a car accident and the Plan paid $407,622.76 in medical bills on his behalf. The benefits provided to Defendant came from a self-funded Plan and not through an insurance carrier. The Plan contained a subrogation and right of recovery provision allowing the Plan to be repaid for benefits “before You receive any recovery for Your damages.” Defendant settled his claims relating to the car accident for $150,000. He did not reimburse the Plan for the medical bills. Plaintiffs sued under (a)(3) to impose an equitable lien or constructive trust and for restitution with respect to the disputed funds. The court agreed with Plaintiffs that Defendant received payment as a result of a covered injury, and that under the terms of the SPD he had agreed to reimburse Plaintiffs from such payment for all the amounts the Plan had paid. Because the Plan had paid out more than $150,000, the $150,000 that he recovered was owed to the Plan. The reimbursement was not barred by Washington’s insurance law preventing subrogation and reimbursement unless the insured was “made whole” because it was not an insured Plan. Further, the court held Montanile allowed a Plan to recover “specifically identified funds that remain in defendant’s possession or against traceable items that the defendant purchased.” A lien was only eliminated when a defendant dissipated the fund on nontraceable items. Plaintiffs argued they had specifically identified a settlement fund of $150,000, Defendants admitted to receiving this amount, and Defendants had not shown that any of the funds had been dissipated. Thus, Plaintiffs contended that “[w]ithout a showing of how much of the $150,000.00 is dissipated on non-traceable items, Montanile is inapplicable and Plaintiffs are entitled to an order awarding $150,000.00.” The court agreed and found Defendants’ unexplained statement that only $60,500 remained in trust insufficient to limit recovery to that amount.


Seventh Circuit

Packman v. The Prudential Insurance Company of America, No. 19-CV-1012-JDP, 2020 WL 4700642 (W.D. Wis. Aug. 13, 2020) (Judge James D. Peterson). In this dispute over long-term disability benefits, the court granted Prudential’s motion to transfer venue to the Eastern District of Missouri. CUNA Mutual, Plaintiff’s former employer through which he obtained LTD coverage, is in Madison, the SPD says the plan was administered in Wisconsin, and Prudential conducts business in Wisconsin. Plaintiff lives in St. Louis County, Missouri and he lived there when he was treated for his ailments, filed his claim for benefits, and when Prudential denied his claim. Plaintiff “chose this forum because he thinks Seventh Circuit law is favorable to him, and he contends that his choice is entitled to deference.” The court explained that “[t]he convenience of the parties and witnesses is not much of a factor in an ERISA case. But Missouri has a much stronger connection to Packman’s lawsuit than Wisconsin does, and Packman’s forum-shopping is not entitled to deference.”

Withdrawal Liability & Unpaid Contributions

Second Circuit

Trustees For The Mason Tenders District Council Welfare Fund, Pension Fund, Annuity Fund, & Training Program Fund, et al. v. Martack Corporation, No. 15 CIV. 4454 (ER), 2020 WL 4671576 (S.D.N.Y. Aug. 12, 2020) (Judge Edgardo Ramos). The court granted the Petitioners’ motion to confirm the arbitration award and directed the Clerk of the Court to enter judgment in favor of the Petitioners in the amount of $18,577.22 against Martack Corporation.

Trustees For The Mason Tenders District Council Welfare Fund, Pension Fund, Annuity Fund, And Training Program Fund v. Preveza Construction Corp., No. 15 CIV. 7195 (ER), 2020 WL 4586255 (S.D.N.Y. Aug. 10, 2020) (Judge Edgardo Ramos). The court granted the Petitioners’ motion to confirm the arbitration award and directed the Clerk of the Court to enter judgment in favor of the petitioners in the amount of $205,254.34 against Preveza Construction Corp.

Third Circuit

Trustees of The B.A.C. Local 4 Pension Fund, et al. v. Sundance Construction Co., Inc. t/a B.D. Malcom Co., No. 2:20-CV-02902, 2020 WL 4596837 (D.N.J. Aug. 11, 2020) (Judge William J. Martini). The court granted Plaintiff’s motion for default judgment.

Trustees Of International Union Of Painters And Allied Trades District Council 711 Health & Welfare Fund, et al., v. Brite-Painting & Decorating Co., Inc., No. CV 19-16808, 2020 WL 4593237 (D.N.J. Aug. 10, 2020) (Judge John Michael Vazquez). On Plaintiffs’ claim seeking delinquent contributions, the court granted Plaintiffs’ motion for default judgment in part.

Eighth Circuit

Raines et al. v. Phoenix Corp. et al., No. 19-CV-2552 (WMW/KMM), 2020 WL 4727430 (D. Minn. Aug. 14, 2020) (Judge Wilhelmina M. Wright). In this dispute over fringe benefit contributions, the court granted Plaintiffs’ motion for entry of default judgment in the amount of $63,075.32 against Defendants Phoenix Corp. and Brian R. Connell.

Ninth Circuit

Puget Sound Electrical Workers Healthcare Trust, et al., v. Chaudry LLC, No. C19-2098 TSZ, 2020 WL 4698799 (W.D. Wash. Aug. 13, 2020) (Judge Thomas S. Zilly). The court granted Plaintiffs’ Motion for Entry of Default Judgment against Defendant Chaudry, LLC.

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


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