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Your ERISA Watch – Ninth Circuit Holds that Actual Knowledge of Alleged Breach or Violation Is Necessary to Trigger Three-Year Statute of Limitations

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This week’s notable decision is Sulyma v. Intel Corporation Investment Policy Committee, No. 17-15864, __F.3d__, 2018 WL 6186519 (9th Cir. Nov. 28, 2018).  Parting ways with the Sixth Circuit, the Ninth Circuit held that “actual knowledge,” rather than “constructive knowledge,” is required to trigger ERISA’s three-year limitations period under 29 U.S.C. § 1113(2).

The facts:  Plaintiff Sulyma worked for Intel between 2010 and 2012 and participated in the Intel Retirement Contribution Plan and the Intel 401(k) Savings Plan.  Sulyma’s account investments depended upon the investment decisions controlled by Intel, through the performance of different Intel funds.  In 2010, Intel disclosed information about the Funds’ performance on two websites to which Sulyma had access.  Through “Fund Fact Sheets,” Intel explained that the 2045 Fund (where his Savings Plan account was invested), was invested more in hedge funds than comparable portfolios and not performing well as a result.  However, Sulyma denied knowledge that his retirement accounts were invested in alternative investments while he was working at Intel.

On October 29, 2015, Sulyma filed suit alleging that the investment committee violated 29 U.S.C. § 1104 by imprudently investing in alternative investments; that the administrative committee violated 29 U.S.C. § 1104 and 29 C.F.R. § 2250.404a-5(a) by failing to disclose adequate information about the alternative investments; and that the finance committee violated 29 U.S.C. § 1104 by failing to monitor the investment and administrative committees. He also alleged that all defendants were liable for knowing of the other defendants’ ERISA violations and failing to remedy them.

Intel moved to dismiss the complaint as time-barred under § 1113(2).  The district court converted the motion to dismiss into a motion for summary judgment and ordered discovery into the statute of limitations issue.  After discovery, the district court ruled that Sulyma had actual knowledge of the alternative investments more than three years before filing suit and entered summary judgment in favor of Intel.

The Ninth Circuit found that the district court erred by concluding Plaintiff Sulyma had the requisite actual knowledge that the investment committee violated section 1104 by investing his money in imprudent investments.

The Court applies a two-step process to determine whether a claim is barred by § 1113(2). “First, the court isolates and defines the underlying violation on which the plaintiff’s claim is founded. Second, the court inquires whether the plaintiff had ‘actual knowledge’ of the alleged breach or violation.”

The Court held that actual knowledge does not mean that a plaintiff had knowledge that the underlying action violated ERISA or that the underlying action occurred, but rather, a plaintiff must be aware of the nature of the alleged breach more than three years before the action was filed.  In an ERISA §1104 case, this means that a plaintiff was aware that the defendant had acted and that those acts were imprudent.  The Court recognized “that this understanding of actual knowledge conflicts with the Sixth Circuit’s reasoning in Brown v. Owens Corning Investment Review Committee, 622 F.3d 564, 571 (6th Cir. 2010),” where Brown had only constructive knowledge of plan document terms.  For § 1113 to apply, a plaintiff must have actual knowledge of the breach or violation, constructive knowledge is not enough.

Because there are disputes of material fact as to Sulyma’s actual knowledge, the Court reversed the summary judgment decision and remanded the case to the district court for further proceedings.

Plaintiff-Appellant is represented by many friends of ERISA Watch:  COUNSEL, Matthew W.H. Wessler (argued), Jonathan E. Taylor, and Rachel Bloomekatz, Gupta Wessler PLLC, Washington, D.C.; Joseph A. Creitz, Creitz & Serebin LLP, San Francisco, California; Ryan T. Jenny and Gregory Y. Porter, Bailey & Glasser LLP, Washington, D.C.; R. Joseph Barton, Block & Leviton LLP, Washington, D.C.; for Plaintiff-Appellant.

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

Attorneys’ Fees

First Circuit

Sun Capital Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, No. CV 10-10921-DPW, __F.Supp.3d__, 2018 WL 6169366 (D. Mass. Nov. 26, 2018) (Judge Douglas P. Woodlock).  The Pension Fund contended that the remand judgment was entered in error because it failed to include interest, liquidated damages, and attorneys’ fees and costs.  The court agreed.  The court determined that the “timely-filed Rule 59 motion and its success in securing liquidated damages and interest undoes the finality of the earlier March 28, 2016 judgment, and consequently renders a new Rule 54 motion for attorneys’ fees timely.”  The court noted that the First Circuit has not definitively addressed the interplay between Rules 59 and 54, but in this case, Rule 54 supports the Pension Fund’s initiative to pursue attorneys’ fees through a motion to amend the judgment.

Second Circuit

Amara et al v. Cigna Corp. & Cigna Pension Plan, No. 3:01-CV-2361 (JBA), 2018 WL 6242496 (D. Conn. Nov. 29, 2018) (Judge Janet Bond Arterton).  The court granted Plaintiffs’ Motion for Attorneys’ Fees and awarded attorneys’ fees to Class counsel in the amount of 17.5% of the $184,456,124 common fund as valued by Defendants.  (Class counsel valued the common fund at $280.6 million).  The amount equates to an implied multiplier of 3.79 on the adjusted lodestar.  The court awarded $50,000 to the class representatives, $15,000 to the other five trial witnesses, and $5,000 to three witnesses deposed by Cigna.  The court also awarded Plaintiffs payment of $513,927.08 in litigation expenses, but excluded future expenses and expert witness expenses.

Ninth Circuit

Brasley v. Fearless Farris Service Stations, Inc., et al., No. 1:08-CV-00173-BLW, 2018 WL 6251356 (D. Idaho Nov. 29, 2018) (Judge B. Lynn Winmill).  On remand from the Ninth Circuit, the court weighed the five Hummel factors and found that all but bad faith favors an award of attorneys’ fees.  In the Ninth Circuit, bad faith would always justify an award of fees, but it is not required, especially in keeping with ERISA’s purposes to protect participants in employee benefit plans.  The court awarded Plaintiffs a total of $405,479.20 after various deductions.  The court awarded fees at hourly rates ranging from $290 to $450.

Breach of Fiduciary Duty

Fourth Circuit

Acosta v. Chimes District of Columbia, Inc., et al., No. CV RDB-15-3315, 2018 WL 6251002 (D. Md. Nov. 29, 2018) (Judge Richard D. Bennett).  On two of the ten-count complaint against the BCG Defendants who were engaged to provide plan representation services to the health and welfare plan, the court granted summary judgment in favor of the BCG Defendants.  It found that “the Secretary has failed to put forth evidence to demonstrate that the BCG Defendants had actual or constructive knowledge that the bargained-for fees that they were receiving from the Plan were excessive at that time such that Chimes DC was committing a prohibited transaction by paying the fees to BCG.”  The court also held that the Secretary violated 12 U.S.C. § 3417(a)(4) by not providing notice to Defendant prior to serving the first subpoena to First Bank.  The court awarded the BCG Defendants $100 as the statutory civil penalty.

Class Actions

Third Circuit

Association of New Jersey Chiropractors, et al. v. Aetna, Inc., et al., No. CV 09-3761-BRM-TJB, 2018 WL 6168622 (D.N.J. Nov. 26, 2018) (Judge Brian R. Martinotti).  Plaintiffs moved for reconsideration of the Court’s decision to deny class certification of the following “Overpayment Letter Class” under Rule 23(b)(1)(A) and (b)(2):

“All healthcare providers (such as individual practitioners, durable equipment suppliers, or facilities) who, from six (6) years prior to the original filing date of these actions to their final termination (‘Class Period’): (1) received reimbursement from Aetna pursuant to an employer-sponsored benefit plan governed by ERISA; and (2) after having received benefit payments from Aetna were sent an SIU Overpayment Letter from some or all of those payments. Excluded from this class are all providers who voluntarily paid Aetna, in whole or in part, in response to receiving said SIU Overpayment Letter.”

The court “denied certification because, without a demand for repayment, not all Overpayment Letters constituted an [adverse benefit denial], and therefore: (1) varying adjudications did not risk incompatible standards under Rule 23(b)(1)(A); and (2) the cohesiveness requirement was not satisfied under Rule 23(b)(2).”  The court found that Plaintiffs failed to meet their burden for reconsideration.

Disability Benefit Claims

Ninth Circuit

Williby v. Aetna Life Insurance Company, No. 14CV04203CBMMRWX, 2018 WL 6191395 (C.D. Cal. Nov. 26, 2018) (Judge Consuelo B. Marshall).  On remand from the Ninth Circuit to apply abuse of discretion review rather than de novo review, the court determined that Aetna did not abuse its discretion in denying Plaintiff’s claim for short-term disability benefits.  The court previously held that Aetna improperly denied benefits.  In reaching this outcome, the court concluded that the treating physician rule does not apply to this case and Aetna appropriately based its opinion on its own independent review.

Discovery

Eighth Circuit

Friemon v. National Carriers’ Conference Committee, No. 4:18CV702 JCH, 2018 WL 6171439 (E.D. Mo. Nov. 26, 2018) (Judge Jean C. Hamilton).  In this dispute over Supplemental Sickness Benefits, where Plaintiff asserted both a claim for benefits and breach of fiduciary duty, the court granted Plaintiff’s motion for discovery.  It determined that resolution of the claims that Union Pacific Railroad Company acted as a fiduciary with respect to the Plan and had a duty to either provide claim information or initiate a claim would benefit from consideration of facts and circumstances outside of the administrative record.

ERISA Preemption

Third Circuit

East Coast Advanced Plastic Surgery v. Horizon Blue Cross Blue Shield of New Jersey, No. CV187718KMMAH, 2018 WL 6178869 (D.N.J. Nov. 26, 2018) (Judge Kevin McNulty).  In this suit by an out-of-network provider over reimbursement for medical services it performed on a patient, the court found that the asserted claims for breach of an implied contract, promissory estoppel, fraudulent inducement, and account stated are not completely preempted by ERISA and remanded the matter to New Jersey Superior Court.  The allegations in the complaint do not cite an ERISA plan as basis for any payment, rather, the provider alleges that BCBS provided it with independent assurances regarding payment for services it provided.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Crawford v. Metropolitan Life Insurance Company, No. 17-11058, __F.App’x__, 2018 WL 6261877 (5th Cir. Nov. 28, 2018) (Before DAVIS, COSTA, and OLDHAM, Circuit Judges).  The court found that the district court was correct in determining that MetLife did not abuse its discretion in determining that decedent’s great-nephew was entitled to her life insurance benefits.  The only record on file designating a beneficiary was from 2008 and it designated the great-nephew.  Plaintiff and decedent were married in 2011 and she did not update her beneficiary designation to name him.  Because the plan’s text is clear, discovery would not have changed the outcome.

Pension Benefit Claims

Third Circuit

Ashline v. Tri-State Envelope Corporation, et al., No. 3:18-CV-0434, 2018 WL 6178914 (M.D. Pa. Nov. 27, 2018) (Magistrate Judge Susan E. Schwab).  In this dispute over the payment of retirement benefits, the court determined that the Divorce Decree does not meet the requirements to be a QDRO. “Among other things, it does not contain any mailing addresses and it does not clearly set forth the manner in which the amount of benefits will be determined. Further, the Divorce Decree specifically provides that the parties shall share the expense of preparing a QDRO, which shows that the Divorce Decree was not intended to be a QDRO. Moreover, Ashline does not contend that the Divorce Decree is a QDRO. Rather, she asserts that she may still obtain a QDRO in the future, even though Michael Ashline has recently died. Ashline may be able to obtain a QDRO in the future. . . . But it is clear that she does not currently have a QDRO. Thus, she is not a beneficiary under ERISA, and she fails to state a claim for benefits or for breach of fiduciary duty under ERISA.”

Plan Status

Seventh Circuit

Khan v. Board of Education of the City of Chicago, et al., No. 16 CV 8668, 2018 WL 6192186 (N.D. Ill. Nov. 28, 2018) (Judge Manish S. Shah) and Khan v. Board of Education of the City of Chicago, No. 17 CV 9300, 2018 WL 6192191 (N.D. Ill. Nov. 28, 2018) (Judge Manish S. Shah).  Former principals of public elementary schools in Chicago allege that they were wrongfully terminated.  With respect to the ERISA claim, Plaintiffs contended that an exception to the government plan exemption applies because the Board elected to allow employees of private corporations to participate in the Board’s benefit plan.  Since the complaint alleges that more than a de minimis number of private employees participate in the plan, the court denied dismissal of the ERISA claims for failing to state a claim.

Ninth Circuit

Supel v. Northrop Grumman Corporation, No. 18CV2240-CAB-RBB, 2018 WL 6266574 (S.D. Cal. Nov. 30, 2018) (Judge Cathy Ann Bencivengo).  The court determined that Northrop Grumman Corporation’s Short-Term Disability Plan meets the requirements of an ERISA plan.  It is not an exempt “payroll practice” “because benefits under the STD Plan are not paid out of NGC’s general assets, but rather out of an independent, ERISA-compliant VEBA trust account.  The court denied Plaintiff’s motion to remand to state court and granted Defendant’s motion to dismiss the breach of the implied covenant of good faith and fair dealing claim due to ERISA preemption.

Eleventh Circuit

Whirlpool Corp. v. Freight Revenue Recovery of Miami, Inc., No. 17-14752, __F.App’x__, 2018 WL 6167306 (11th Cir. Nov. 26, 2018) (Before JILL PRYOR and BRANCH, Circuit Judges, and REEVES,* District Judge).  Whirlpool obtained a judgment against Freight Revenue and the court permitted Whirlpool to garnish a Charles Schwab account which Freight Revenue asserted was a profit-sharing plan containing assets the company contributed for the benefit of its owner.  The district court determined that because the owner was the only participant since 2012, is not an employee, the Plan is not an employee benefit plan under ERISA.  The Eleventh Circuit determined that the district court’s analysis was incomplete because it did not examine the instrument creating the plan and also, even if the analysis was correct, it is unclear why the Plan’s failure to qualify as an ERISA plan would result in Freight Revenue’s ownership of the funds.  If the Charles Schwab account is part of an ERISA plan then it is protected from garnishment.  The Court vacated and remanded the case for further proceedings.

Pleading Issues & Procedure

Third Circuit

Robinson v. Anthem Blue Cross Life and Health Insurance Company, et. al., No. CV 17-4600 (FLW), 2018 WL 6258881 (D.N.J. Nov. 30, 2018) (Judge Freda L. Wolfson).  The court determined that Plaintiff’s First Amended Complaint fails to not assert a viable claim under § 502(a)(1)(B).  “Plaintiff does not allege how Defendants’ payment of $3,501.60 falls below the ‘maximum allowed’ rate for out-of-network services under the Plan.  Nor does Plaintiff allege, at a minimum, that Defendants acted in contravention of the procedures for determining out-of-network benefits. Instead, Plaintiff merely references them in the First Amended Complaint, without articulating how the pertinent provisions of the Plan entitle him to additional compensation.”  The court gave Plaintiff a final opportunity to amend his Complaint.

Provider Claims

Seventh Circuit

Griffin v. TeamCare, No. 18-2374, __F.App’x__, 2018 WL 6166252 (7th Cir. Nov. 26, 2018) (Before Bauer, Kanne, and St. Eve, Circuit Judges).  Pro se medical provider brought suit against the health and welfare fund’s board of trustees as an assignee seeking unpaid benefits and statutory penalties and alleging breach of fiduciary duty.  The district court dismissed the complaint and the Seventh Circuit affirmed in part, vacated in part, and remanded to the district court.  It held that:  (1) the provider was not required to identify specific terms in the plan establishing coverage in order to state a claim for unpaid benefits; (2) the breach of fiduciary duty claim was duplicative of the benefit claim and properly dismissed; and, (3) the provider, as an assignee, was a “beneficiary” able to sue for statutory penalties based on the failure to furnish plan documents.

Statute of Limitations

Ninth Circuit

Sulyma v. Intel Corporation Investment Policy Committee, No. 17-15864, __F.3d__, 2018 WL 6186519 (9th Cir. Nov. 28, 2018) (Before: J. Clifford Wallace and Susan P. Graber, Circuit Judges, and Robert S. Lasnik,* District Judge).  See Notable Decision summary above.

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