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Your ERISA Watch – Murder of Plan Participant Disqualifies 401(k) Beneficiary

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This week’s notable decision is a district court decision in Estate of Colleen J. Brownell v. Lyczak, et al., 2019 WL 5485392 (D.N.J. Oct. 25, 2019), which is another cautionary tale for the notion that murder doesn’t pay, well at least a murder conviction.

In this case, Defendant Lyczak pleaded guilty to murdering his girlfriend, Colleen Brownell, who was a plan participant in a 401(k) Employee Savings Plan (“the Plan”) administered by her former employer, Defendant PHH Corporation.  Lyczak was Brownell’s named primary beneficiary.  In other words, in the event of her passing, Lyczak was to receive all the money in her Plan account.  The plaintiff is the Estate of Colleen J. Brownell.

The Estate moved for summary judgment on the basis that Lyczak’s guilty plea to the murder disqualifies him from being a beneficiary of Brownell’s 401(k) account.  Lyczak did not respond and PHH did not oppose the motion.

The Plan states that Maryland law shall apply, except to the extent Federal law applies, and there is no dispute that Maryland law governs.  Section 11-112 of the Maryland Code Annotated, Estates & Trusts, is a codification of Maryland’s common law “Slayer’s Rule.”  The intent of the Slayer’s Rule derives from the common law principles that equity would not allow anyone to profit by his or her own wrong or to acquire property by his or her own crime.

The statute provides that a “disqualified person” is “a person who feloniously and intentionally kills, conspires to kill, or procures the killing of the decedent.”  A disqualified person cannot receive property or interest in the property of the decedent.  Instead, a disqualified person shall be treated as if he or she disclaimed the property or interest in the property as of the decedent’s death.  The statute also provides that a disqualified person is not entitled to a benefit under a contractual arrangement if he or she was a named beneficiary of such contact.  Lastly, a final conviction of the killing is conclusive for purposes of the statute.  See Md. Code Ann., Est. & Trusts § 11-112.

In this case, it is undisputed that Lyczak pleaded guilty to the murder of Brownell, and his final conviction has been submitted to the Court.  Because his final conviction is conclusive, the Court disqualified him from being a beneficiary of Brownell’s 401(k) account.  Because Lyczak is disqualified and he was the sole named beneficiary, the Court was tasked with determining who may replace him.

Looking to the terms of the Plan, if a participant omits or fails to designate a beneficiary or no designated beneficiary survives the plan participant, or the Defendant PHH Employee Benefits Committee (“Committee”) finds the designation invalid, then the benefits shall be paid to the surviving spouse, and if there is no surviving spouse, then to the participant’s estate.

The Court found that Maryland law requires the Committee to find that Brownell’s beneficiary designation is invalid since Lyczak has been disqualified from serving as a beneficiary.  The Court also found that the Committee is likewise barred from distributing benefits to her “surviving spouse.”  (The opinion does not describe Lyczak’s relationship to Brownell but by other accounts he is described as her boyfriend.)  As such, the Court concluded that benefits must be paid to the Estate.

The court granted Plaintiff’s motion for summary judgment and ordered Defendant PHH pay Brownell’s death benefits to Plaintiff.

Switching gears to firm news, I’m pleased to announce that Kantor & Kantor, LLP was recently selected by the Daily Journal as a 2019 Top Boutique Law Firm in California.  Click here to read the Daily Journal article.

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

Attorneys’ Fees

Sixth Circuit

In re Trans-Industries, Inc., No. 06-43993, __ B.R. __, 2019 WL 5420780 (Bankr. E.D. Mich. Oct. 23, 2019) (Judge Thomas J. Tucker). The court exercised its discretion to award attorney’s fees to the plaintiff trustee under ERISA in a bankruptcy adversary action for breach of fiduciary duty. The court found that the trustee achieved “some success on the merits” under Hardt v. Reliance Standard and satisfied the Sixth Circuit’s five-factor King test for awarding fees. Specifically, the court found that the defendants’ actions were “egregious” and resulted in the loss almost all the retirement savings in the pension plan.

Ninth Circuit

Masonry Industry Trust Administration, Inc. v. Diversified Masonry, LLC, No. 3:18-CV-02034-JR, 2019 WL 5381818 (D. Or. Oct. 21, 2019) (Magistrate Judge Jolie A. Russo).  The court previously entered default judgment against Defendant for failure to pay wages and contributions on covered employees as required under the operative collective bargaining agreement.  The court granted Plaintiff’s Motion for Award of Attorney Fees and Costs, awarding a total of $2,574.00 in attorneys’ fees and $400.00 in costs.  The court found that the requested rate of $165 for an attorney with over 15 years of experience was reasonable given that the average and median hourly rates from the 2017 Oregon State Bar Survey for a Portland attorney with 13 to 15 years of experience are $288 and $300, respectively.

Breach of Fiduciary Duty

Sixth Circuit

In re Trans-Industries, Inc., No. 06-43993, __ B.R. __, 2019 WL 5420780 (Bankr. E.D. Mich. Oct. 23, 2019) (Judge Thomas J. Tucker). In this Chapter 7 bankruptcy case, the trustee asserted multi-million-dollar breach of fiduciary duty claims under ERISA in an adversary action against two former executives who were pension plan fiduciaries. The court held a trial, and in a 73-page ruling found that the defendants had breached their duty to the pension plan under ERISA. Specifically, the court found that the defendants had retained the company’s common stock in the plan for too long and thus failed to properly diversify its assets. The court also found that the defendants improperly made distributions to themselves from the plan, thereby rendering the plan unable to satisfy its obligations to the other plan participants.

Shiff v. ImageMaster Printing LLC, No. 18-CV-12302, 2019 WL 5422981 (E.D. Mich. Oct. 23, 2019) (Judge Bernard A. Friedman).  Marianne Shiff brought allegations that “ImageMaster (the plan’s administrator) and Albert Rodriguez (the plan trustee) violated various ERISA provisions by providing services to the plan, dealing with plan assets ‘in their own interest,’ ‘moving funds without advance notice to participants, engaging in high-risk option trading, and charging excessive fees to participants.’” On cross-motions for summary judgment, the court determined Defendants engaged in self-dealing because Rodriguez collected “administrative fees” from plan assets and placed them in ImageMaster’s bank account. Rodriguez argued these fees were used for the benefits of the plan because they were used to offset matching contributions. The court did not find this argument persuasive explaining “[s]uch conduct constitutes a per se violation of 29 U.S.C. § 1106(b)(1).” The court could not, however, grant Plaintiff’s motion for summary judgment because neither side could correctly calculate damages and left the issue for trial.

Disability Benefit Claims

Fifth Circuit

Trahan v. Metro. Life Ins. Co., No. CV 18-1262, 2019 WL 5459774 (W.D. La. Oct. 23, 2019) (Judge Terry A. Doughty).  The court adopted the Magistrate Judges’ R&R found that (1) ERISA governs the plan at issue; (2) the Plan vests MetLife with discretionary authority to determine eligibility for benefits and/or construe and interpret the terms of the plan, and (3) ERISA preempts all state law claims related to the plan.  Magistrate Judge Karen L. Hayes’ report and recommendation is here.

Exhaustion of Administrative Remedies

Third Circuit

Rizzo v. First Reliance Standard Life Insurance Co., et al., No.: 17-cv-00745 PGS, 2019 WL 5420548 (D.N.J. Oct. 23, 2019) (Judge Peter G. Sheridan).  On cross-motions for summary judgement, the court found that Reliance abused its discretion when it denied the Life Insurance Waiver of Premium (WOP) application filed by Plaintiff’s now-deceased husband. Reliance denied his application for WOP benefits and Mr. Rizzo did not appeal within the 180-day deadline. Plaintiff alleges that she never received the October 2013 denial, while defendant alleges the denial letter was sent. The court rejected Defendant’s argument that Plaintiff failed to exhaust administrative remedies because Reliance failed to comply with claim regulations requiring a decision be made within 90 days (the denial was issued some 7 months after the initial application was filed.) The court noted that the Third Circuit has found that when a plan administrator fails to follow claims procedures in denying a claim for benefits, administrative remedies are deemed exhausted—rejecting Defendant’s argument that the “timing of the denial is irrelevant” to the exhaustion analysis. As such, Plaintiff was free to bring her lawsuit as soon as the 90-day deadline expired.  The court went on to find that Reliance deliberately disregarded critical medical evidence, including its own vocational experts’ opinion that more medical evidence was necessary before a determination could be made as well as a diagnosis of congestive heart failure prior to the October denial.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Consol. Wealth Mgmt., LLC v. Short, No. CV 4:18-03268, 2019 WL 5485176 (S.D. Tex. Oct. 18, 2019) (Senior Judge Nancy F. Atlas).  In this interpleader action regarding group life insurance benefits, the court granted Defendant’s Motion for Summary Judgement finding that she was the proper beneficiary of her deceased husband’s life insurance policy through Sun Life Insurance, and finding the competing claims of prior business partners who attempted to purchase an interest in Mr. Short’s policy void under state law.  Plaintiffs asserted “in passing” that Sun Life’s determination to pay the benefits should be reviewed under an abuse of discretion review, as the Sun Life policy was governed by ERISA. The court rejected this argument, noting that 1) Sun Life never made a benefit “determination,” as interpleading the funds with the Court is an explicit request to ask the Court to make the benefit determination; and 2) because no benefit determination was made, the Court will not review Sun Life’s decision under an abuse of discretion standard.

Medical Benefit Claims

Ninth Circuit

California v. U.S. Dep’t of Health & Human Servs., No. 19-15072, __F.3d__, 2019 WL 5382250 (9th Cir. Oct. 22, 2019) (Before: Wallace, Kleinfeld, and Graber, Circuit Judges).  The Ninth Circuit affirmed the district court’s (Judge Haywood S. Gilliam, Jr.) issuance of a preliminary injunction barring enforcement of agency rules exempting employers with religious and moral objections to cover contraceptive care without cost sharing as required by the Affordable Care Act.  The court held that the plaintiff states (California, Connecticut, Delaware, Hawaii, Illinois, Maryland, Minnesota, New York, North Carolina, Rhode Island, Vermont, Virginia, Washington, and the District of Columbia) have standing to sue based on the Court’s prior decision.  The court also concluded that the appeal is not moot based on the nationwide injunction issued in Pennsylvania v. Trump, 351 F. Supp. 3d 791, 835 (E.D. Pa.), aff’d 930 F.3d 543 (3d Cir.), petition for cert. filed, ––– U.S.L.W. –––– (U.S. Oct. 1, 2019) (No. 19-431).  With respect to the effect of a nationwide injunction issued by one court, the Ninth Circuit acknowledged that they are in “uncharted waters” and welcomed guidance from the Supreme Court.  On the merits of the preliminary injunction, the Court found that all four factors were met here.  First, the district court did not err in concluding that the agencies lacked statutory authority under the ACA to issue the final rules.  Second, the Religious Freedom Restoration Act (“RFRA”) does not authorize the religious exemption at issue in this case and the accommodation process likely does not violate the RFRA.  Third, the states are likely to suffer irreparable harm absent an injunction.  Lastly, the district court did not abuse its discretion in determining that the balance of the equities tips sharply in favor of the plaintiff states.  Judge Kleinfeld dissented.

Eleventh Circuit

Pierce v. Wyndham Worldwide Operations, Inc., No. 19-11079, __F.App’x__, 2019 WL 5444808 (11th Cir. Oct. 24, 2019) (Before Wilson, Jill Pryor, and Anderson, Circuit Judges). The court affirmed the district court’s grant of summary judgment in favor of Cigna, the claims administrator, finding that Cigna reasonably concluded that the Plaintiff’s two-level spinal fusion surgery fell under the plan exclusion for “experimental, investigational or unproven” treatment. The court found that the Cigna had a reasonable basis for concluding that the procedure was “not demonstrated, through existing peer-reviewed, evidence-based, scientific literature to be safe and effective” for Pierce’s degenerative disc disease. Cigna properly relied on its Coverage Policy which provides “multiple peer-reviewed, evidence-based, scientific articles.” The court rejected the Plaintiff’s argument that Cigna operated under a conflict of interest. The court found that Plaintiff’s argument that Cigna had a “financial interest in pleasing Wyndham” was too remote to establish a conflict of interest. The benefits were self-funded by Wyndham and not paid by Cigna, thus the case lacked the structural conflict of interest articulated in Glenn.

Pension Benefit Claims

Third Circuit

Estate of Colleen J. Brownell v. Lyczak, et al., No. CV1816803RMBAMD, 2019 WL 5485392 (D.N.J. Oct. 25, 2019) (Judge Renée Marie Bumb).  See Notable Decision summary above.

Plan Status

D.C. Circuit

Perisic v. Jim Yong Kim, No. 18-CV-2038 (EGS), 2019 WL 5459048, (D.D.C. Oct. 24, 2019) (Judge Emmet G. Sullivan). Plaintiff, proceeding pro se, challenged her termination by the World Bank and asserted a host of claims, including for employee benefits. Plaintiff included as a defendant Cigna, who administered the World Bank’s dental and vision benefits. Plaintiff originally brought her claims in the Superior Court of the District of Columbia; the defendants removed the case to federal court. The court found that it had jurisdiction, and that the case was properly removed, because plaintiff’s claims for benefits under the World Bank’s group insurance plans implicated ERISA. The district court also granted the World Bank’s motion to dismiss because the World Bank is immune from suit under the International Organizations Immunity Act (IOIA). The district court further granted Cigna’s motion to dismiss because the World Bank plans are classified as governmental plans, which are not regulated by ERISA.

Pleading Issues & Procedure

Second Circuit

Aikens v. Cerrito, No. 19CV5168PKCLB, 2019 WL 5423332 (E.D.N.Y. Oct. 22, 2019) (Judge Pamela Chen).  The pro se plaintiff was granted SSDI benefits and a disability pension benefit through Blasters, Drillrunners & Miners Union Local 29 Pension Fund. Plaintiff was later incarcerated, and his disability pension payments stopped without explanation. Plaintiff attempted to contact the plan administrator numerous times but received no response. Eight years later, the plan administrator responded that Plaintiff needed to provide evidence he had been continuously receiving SSDI since his date of disability. Plaintiff sued the plan administrators, alleging they had violated ERISA by wrongfully terminating his disability pension benefits and not responding to Plaintiff’s repeated requests for information. The court denied Defendants’ motion to dismiss Plaintiff’s ERISA claims because it determined that Plaintiff had pled colorable claims under ERISA.

Remedies

Sixth Circuit

In re Trans-Industries, Inc., No. 06-43993, __ B.R. __, 2019 WL 5420780 (Bankr. E.D. Mich. Oct. 23, 2019) (Judge Thomas J. Tucker). The court exercised its discretion to award prejudgment interest at the federal postjudgment rate, finding that the case had been pending for many years and was based on fiduciary duty breaches that occurred much earlier than the filing of the action. Prejudgment interest was thus necessary in order to fairly compensate the benefit plan for the lost use of the funds at issue. The court declined to award such interest from the date the claims became ripe, and instead awarded it from the date the action was filed, because it was on that date that the defendants had notice that their conduct was being challenged.

Retaliation Claims

Sixth Circuit

Lemanski v. Rev Grp. Inc., No. 19-11253, 2019 WL 5455416 (E.D. Mich. Oct. 24, 2019) (Judge Robert H. Cleland).  Among several claims, Plaintiff alleged that Defendants, Plaintiff’s former employer Rev Group, Inc. (“Rev”) and two individual former supervisors, violated ERISA § 510 by terminating Plaintiff’s employment less than two hours after he requested to use his short-term disability benefits and by delaying payment and underpaying his short-term disability benefits.  To state a prima facie case under ERISA § 510, Plaintiff was required to allege existence of (1) prohibited employer conduct (2) taken for the purpose of interfering (3) with attainment of any right to which the employee may become entitled.  The court held that Plaintiff had presented sufficient information to allege the existence of a qualifying plan operated by Rev and that Rev interfered with receipt of funds, therefore the court denied Defendants’ motion to dismiss as to Defendant Rev.  However, the court granted Defendants’ motion to dismiss as to the individual supervisors on this count because the fact of being employed as Plaintiff’s supervisors is insufficient for individual liability and Plaintiff did not allege that the supervisors were involved in plan administration or were plan fiduciaries.

Venue

Tenth Circuit

Kevin D. v. Blue Cross & Blue Shield of S. Corolina (sic), No. 19-CV-268, 2019 WL 5391303 (D. Utah Oct. 22, 2019) (Judge Jill N. Parrish). Plaintiffs reside in Tennessee and receive healthcare coverage through a self-funded ERISA plan administered in South Carolina by defendant Blue Cross and Blue Shield of South Carolina. Plaintiffs sued in Utah challenging the denial of treatment received in New Mexico. Defendant filed a motion to transfer venue to either South Carolina or Tennessee. Plaintiff did not oppose the motion, instead requesting a transfer to Tennessee. Applying the ubiquitous factors used to evaluate transfer of venue motions, the court noted that, although technically plaintiffs’ second choice, the plaintiffs’ preference is entitled to deference and should rarely be disturbed. Unique to ERISA, because the administrative record (a.k.a. claim file) usually cannot be supplemented, issues related to witnesses, the cost of making proof, and a trial are largely irrelevant. The court transferred the case to plaintiffs’ preferred venue, the Middle District of Tennessee.

Withdrawal Liability & Unpaid Contributions

Seventh Circuit

Elec. Constr. Indus. Prefunding Credit Reimbursement Program v. Veterans Elec., LLC, No. 18-3703, ___F.3d___2019 WL 5445968 (7th Cir. Oct. 24, 2019) (Before Wood, Bauer, and Hamilton, Circuit Judges). In light of the fiduciary duties imposed by ERISA on union trustees and the authority provided by the Trust Agreements in this case, the Funds had the right to conduct random audits on employer payroll records. A benefit plan must primarily rely on union monitoring of an employer’s compliance with its trust obligations. Here, Veterans, through its membership in the multiemployer association, became signatory to the Collective Bargaining Agreement and bound to its terms. The CBA incorporates by reference these Trust Agreements throughout. The Trust Agreements authorized the trustees to conduct random audits to ensure the employer made the proper payments. Therefore, the requested audit was within the authority of the trustees.

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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