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Your ERISA Watch – Ninth Circuit Holds that Breach of Fiduciary Duty Claims Fall Outside of Scope of Employees’ Arbitration Agreement

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Interrupting your regularly scheduled program to highlight yesterday’s notable decision in Munro v. Univ. of S. California, No. 17-55550, __F.3d__, 2018 WL 3542996 (9th Cir. July 24, 2018).  Munro was a highly anticipated decision from the Ninth Circuit Court of Appeals on the question of whether a class action waiver in an arbitration agreement is enforceable to prevent a class claim brought on behalf of the plan under ERISA Section 502(a)(2) of ERISA. The court’s holding was narrower than the issues the parties and amici urged the Court to decide.

For instance, AARP filed an amicus brief, in this case, arguing, among other things, that ERISA only permits the arbitration of withdrawal liability claims and that ERISA’s exculpatory clause voids provisions of an arbitration agreement that limits ERISA’s substantive and procedural rights.  The court did not address these arguments in the opinion.  The court simply discussed the Federal Arbitration Act (“FAA”) and reiterated that where there is no conflict between the FAA and the substantive statutory provision, the FAA limits courts’ involvement to determining whether there is a valid agreement to arbitrate and whether the agreement encompasses the dispute at issue.

The court then turned to the arbitration agreements, in this case, to decide whether the agreement encompasses the dispute at issue.  The court decided that because “the parties consented only to arbitrate claims brought on their own behalf, and because the Employees’ present claims are brought on behalf of the Plans, we conclude that the present dispute falls outside the scope of the agreements.”  The court found that this case is like United States ex rel. Welch v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791 (9th Cir. 2017), where the court decided that a standard employment arbitration agreement did not cover qui tam claims brought by the employee on behalf of the United States under the False Claims Act.  The court determined that there are many similarities between qui tam suits under the FCA and suits for breach of fiduciary duty under ERISA.  In both claims, the plaintiffs are not seeking relief for themselves and the plaintiffs may not alone settle a claim because that claim does not exist for the individual relator or plaintiff’s primary benefit.

The holding in LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 256, 128 S.Ct. 1020, 169 L.Ed.2d 847 (2008) that an individual may bring an ERISA claim alleging breach of fiduciary duty even if the claim pertains only to her own account and seeks relief for losses limited to that account does not control this case.  The claims brought by Plaintiffs here seek financial and equitable remedies to the benefit of the Plans and all affected participants and beneficiaries, not just to the benefit of their own accounts.

The court concluded that “the ERISA § 409(a) claims in this suit are not claims an ‘Employee may have against the University or any of its related entities,’ and the arbitration agreements cannot be stretched to apply to them.”  Because the claims fall outside of the scope of the arbitration clause, the court held that the district court properly denied the motion to compel arbitration.

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

Attorneys’ Fees

Sixth Circuit

Trustees of The Detroit Carpenters Fringe Benefit Funds v. Andrus Acoustical, Inc., No. 11-CV-14656, 2018 WL 3524692 (E.D. Mich. July 23, 2018) (Judge Paul D. Borman).  Following a two-day bench trial and a judgment in favor of the Funds in the amount of $1,080,543.38 in this unpaid fringe benefit contributions matter, the court granted in part and denied in part Plaintiffs’ motion for attorneys’ fees in the amount of $408,110.93 and costs of $8,035.12.  “The Sixth Circuit has instructed that this Court is not required to conduct a line-by-line review of billing records or support its reduction with specific references to particular billing inadequacies. It is enough if the Court, as it has done here based on its ‘overall sense of [the] suit,’ engages in a thoughtful and thorough review of the entirety of the challenged billing records and strives to approximate ‘rough justice.’ The Court rejects Defendants’ request for a 50% reduction but finds that an across-the-board reduction of 15% is appropriate in this case.”

Ninth Circuit

Culbertson-Chavira v. Life Insurance Company of North America, et al., No. 2:17-CV-01702-JAM-AC, 2018 WL 3532907 (E.D. Cal. July 23, 2018) (Judge John A. Mendez).  In this case, involving the denial of long term disability benefits, the court denied Plaintiff’s motion for attorneys’ fees where “Shortly after Plaintiff filed suit, the parties requested a stay so Plaintiff could file an administrative appeal that Defendant could review. After the Court entered the stay, Defendant reversed its denial of Plaintiff’s long term disability benefits.”  The court found that there is no binding or persuasive authority that supports an award of attorneys’ fees where benefits are obtained in an administrative proceeding that the parties voluntarily entered during the pendency of the litigation.

Breach of Fiduciary Duty

First Circuit

Velazquez v. Massachusetts Fin. Servs. Co., No. CV 17-11249-RWZ, __F.Supp.3d__, 2018 WL 3518499 (D. Mass. July 19, 2018) (Judge Rya W. Zobel).  This action challenging the management of two retirement plans is not time-barred because Defendants have not shown it is clear from the face of the complaint that Plaintiff had actual knowledge of fees for the comparable alternative funds more than three years before she filed the instant action.  Plaintiff sufficiently states a claim for breach of fiduciary duties where Plaintiff alleges Defendants collected excessive fees for high-cost proprietary funds and failed to shed those funds in favor of cheaper similar alternatives.  On the prohibited transactions claims, Plaintiffs’ allegation that Defendants failed to offer participants the separate account options and less expensive share classes available to other investors is enough to indicate that the PTE 77-3’s fourth condition is not met and the claim is allowed.  Plaintiff’s claim that Defendants’ mutual fund fees violate ERISA’s prohibition of self-interested transactions involving plan assets is foreclosed in the First Circuit.  Lastly, the court found that Plaintiff’s equitable relief claim is not allowed because Plaintiff has not pleaded scienter here.

Sixth Circuit

Eley on behalf Of Gen. Cable Sav. v. Gen. Cable Corp., No. CV 17-45 (WOB-CJS), 2018 WL 3543046 (E.D. Ky. July 23, 2018) (Judge William O. Bertelsman).  The court granted Defendants’ motion to dismiss.  The court determined that “plaintiff has not plausibly alleged any alternative action the defendants could have taken that would have been consistent with the securities laws and that a similarly situated prudent fiduciary would not have viewed as more likely to harm than help the Plan. Plaintiff thus has failed to plead a claim for breach of the duty of prudence.”  Further, “plaintiff cites no authority for the proposition that use of stock that is not an imprudent investment as matching contributions would form the basis for a breach of loyalty claim.”


Ninth Circuit

Baird, et al. v. Blackrock Institutional Trust Company, N.A., et al., No. 17CV01892HSGKAW, 2018 WL 3491904 (N.D. Cal. July 20, 2018) (Magistrate Judge Kandis A. Westmore).  In this putative class action against Defendants, alleging violations of ERISA fiduciary duty and prohibited transactions provisions, the court issued an order on the parties’ five joint discovery letters.  The court required the production of most of the discovery sought by Plaintiffs and required the parties to further meet and confer regarding the request for documentation and communications concerning changes to revenue sharing splits between Defendant BlackRock and investors in iShares.

Exhaustion of Administrative Remedies

First Circuit

Fortier v. Hartford Life & Accident Ins. Co. et al., No. 16-CV-322-LM, 2018 WL 3542863 (D.N.H. July 23, 2018) (Judge Landya B. McCafferty).  The court granted judgment to Hartford on Plaintiff’s claim for long term disability benefits because she did not timely appeal Hartford’s decision to terminate her LTD benefits.  The court determined that neither the substantial compliance doctrine nor the notice-prejudice rule operates to excuse Plaintiff’s failure to exhaust her administrative remedies.

Anderson, et al. v. Liberty Mutual Insurance, No. 1:17-CV-00346-JAW, 2018 WL 3521176 (D. Me. July 20, 2018) (Judge John A. Woodcock, Jr.).  In this lawsuit seeking accidental death and dismemberment insurance policy benefits, the court determined that no exception to exhaustion applies here and granted judgment in favor of Liberty Life.  Liberty Life’s notice of denial was not defective simply because it was sent to Plaintiff’s attorney rather than to Plaintiff himself.  Liberty Life does not need to show that it was prejudiced by Plaintiff’s delay in filing an appeal; Maine’s notice-prejudice rule may apply to the initial claim but “the rule is different when addressing untimely ERISA appeals.”  Plaintiff cannot rely on the permissive appeal language in the denial letter since, “Unlike the ordinary claimant that ERISA and its regulations seek to protect, however, Mr. Anderson was represented by counsel throughout his claim process” and Plaintiff “has not produced any evidence that he failed to exhaust only because he relied upon the permissive language in the denial notice and Plan and thus reasonably determined that he did not need to timely request an internal appeal before filing this lawsuit.”  Lastly, the court determined that Liberty Life reasonably requested documents.  The court dismissed with prejudice.

Fifth Circuit

Lowe v. Chalmette Refining LLC, et al., No. CV 17-9080, 2018 WL 3495858 (E.D. La. July 20, 2018) (Judge Nannette Jolivette Brown).  The court dismissed Plaintiff’s ERISA benefit claims because he has not exhausted the available administrative remedies for benefits under the applicable plans, nor is he able to point to any evidence in the record to support his allegation of futility.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Lauga v. Applied Cleveland Holdings, Inc., et al., No. CV 16-14022, 2018 WL 3495860 (E.D. La. July 20, 2018) (Judge Jane Triche Milazzo).  Plaintiff brought a claim for benefits and breach of fiduciary duty against an employer and MetLife, the insurance company funding the employer’s life insurance plan, for the denial of life insurance benefits for an insured who committed suicide within the plan’s two-year suicide exclusion, arguing that the life insurance coverage should have been in effect sooner than it was but for the mistakes made by Defendants.  The court granted summary judgment to Defendants.  The employer’s initial failure to put the insured’s hire date and salary on the Statement of Health form was not a breach of fiduciary duty because the required act was merely clerical.  Further, “MetLife does not owe a fiduciary duty in the processing of enrollment applications because such an action is clerical, not discretionary. Plaintiff does not allege that MetLife used its discretion to establish policies and procedures for the application process, rather Plaintiff alleges that MetLife was slow in this instance in the processing of this claim. The actions of MetLife were classic clerical functions that do not give rise to a fiduciary duty.”  Even if MetLife did owe a fiduciary duty to the insured in the processing of his application, Plaintiff cannot establish the other elements required to recover equitable relief.

Medical Benefit Claims

First Circuit

Vorpahl v. Harvard Pilgrim Health Insurance Company, No. 17-CV-10844-DJC, 2018 WL 3518511 (D. Mass. July 20, 2018) (Judge Denise J. Casper).  In this putative class action against Harvard Pilgrim for denying benefits and breaching its fiduciary duty to adjudicate benefits determinations in accordance with the federal Parity Act and the Affordable Care Act, the court granted Harvard Pilgrim’s motion to dismiss as to the claims to the extent that they allege an Affordable Care Act violation, but denied the motion as to the claims to the extent that they allege a Parity Act violation.

Second Circuit

Benjamin v. Oxford Health Ins., Inc., No. 3:16-CV-00408 (CSH), 2018 WL 3489588 (D. Conn. July 19, 2018) (Judge Charles S. Haight, Jr.).  This case challenges the denial of coverage of residential treatment for a mental and/or behavioral health disorder.  The court determined that the following language under the “General Provisions” in the Plan is sufficient to invoke the arbitrary and capricious standard:

“We may develop or adopt standards that describe in more detail when we will make or will not make payments under this Certificate…. We may also develop administrative rules pertaining to enrollment and other administrative matters. We shall have all the powers necessary or appropriate to enable us to carry out our duties in connection with the administration of this Certificate.”

On the merits, the court determined that Defendant’s failure to consider Plaintiff’s medical records, and apply Defendant’s own standards of review, including the failure to conduct a Medical Necessity review amounts to “a clear error of judgment.”  As for the remedy, the court remanded the claim to the Defendant for a full and fair review.  Plaintiff has achieved some success on the merits to make her eligible for an award of attorneys’ fees.

Tenth Circuit

Concilio v. Cigna Health and Life Insurance Company, No. 16-CV-1863-WJM-MJW, 2018 WL 3545306 (D. Colo. July 24, 2018) (Judge William J. Martinez).  In this action challenging Cigna’s denial of preauthorization for a spinal fusion, the court determined that Cigna’s failure to provide one doctor’s treatment records to IMED (the Texas Department of Insurance referred the appeal to this company for review) was not harmless, but was, rather, arbitrary and capricious.  These records go to the issue of whether Plaintiff had failed conservative therapy.  The court remanded to Cigna for re-submission of the proper record to an Independent Review Organization.  Plaintiff may submit new evidence to Cigna.

Plan Status

Ninth Circuit

Bommarito v. Nw. Mut. Life Ins. Co., No. 2:15-CV-1187 WBS DB, 2018 WL 3537118 (E.D. Cal. July 23, 2018) (Judge William B. Shubb).  The court determined that Plaintiff’s state law claims related to the denial of her disability benefit claim is preempted by ERISA because the disability policy is part of an ERISA plan.  “Accordingly, the court concludes that although this plan was accomplished through the issuance of a number of individual insurance policies, a plan was created because ‘from the surrounding circumstances a reasonable person can ascertain the intended benefits, a class of beneficiaries, the source of financing, and procedures for receiving benefits.’”  The court also determined that the safe harbor provision does not apply since “[b]y facilitating discounted premiums through a multi-life premium discount, XCEL ‘contributed’ to the program, regardless of whether it actually paid for the premiums or not.”

Eleventh Circuit

Sheedy v. Adventist Health Sys. Sunbelt Healthcare Corp., et al., No. 616CV1893ORL31GJK, 2018 WL 3538441 (M.D. Fla. July 23, 2018) (Judge Gregory A. Presnell).  In this case where “Plaintiff sues both AHS and the three plan administrative committees, alleging violations of ERISA because neither plan is entitled to the church plan exemption,” the court determined that Plaintiff has plausibly alleged that the Plans do not meet the first element of the Church Plan definition.  Whether an entity “maintains” a pension plan is a fact-intensive inquiry that cannot be resolved at the motion to dismiss stage.

Pleading Issues & Procedure

Third Circuit

University Spine Center v. Aetna, Inc. & Teamsters Western Region and New Jersey Health Care Fund, No. CV 17-8747 (CCC), 2018 WL 3536097 (D.N.J. July 20, 2018) (Judge Claire C. Cecchi).  The court denied dismissal of Plaintiff’s equitable relief claim under § 502(a)(3) because Varity does not preclude the assertion of both a claim under § 502(a)(3) and a claim under § 502(a)(1)(B) at the pleading stage.

Sixth Circuit

Brown v. Wilmington Trust, N.A., No. 3:17-CV-250, 2018 WL 3546186 (S.D. Ohio July 24, 2018) (Judge Walter H. Rice).  In this case, alleging that Defendant engaged in prohibited transactions and overpaid for stock which caused losses to the ESOP, the court overruled Henry Penny Corporation’s motion to compel individual arbitration and to strike the claims purportedly brought on a class or representative basis and Defendant Wilmington Trust’s motion to compel arbitration.  The court found that the Plaintiff did not agree to arbitrate and Plaintiff’s claims fall outside the scope of the arbitration procedure.  In Brown v. Wilmington Trust, N.A., No. 3:17-CV-250, 2018 WL 3546185 (S.D. Ohio July 24, 2018), the court granted Henry Penny’s motion to intervene as a limited-in-scope third-party plaintiff under Rule 24(b)’s permissive intervention.

Eighth Circuit

Feather v. SSM Health, No. 4:16CV1669HEA, 2018 WL 3536613 (E.D. Mo. July 23, 2018) (Judge Henry Edward Autrey).  The court determined that participants in a church retirement plan do not have standing to bring ERISA funding claims since Plaintiffs’ allegations of future harm are speculative and insufficient to confer standing.  The court dismissed the case because there is no actual case or controversy such that the Court may exercise jurisdiction over the asserted claims.

Ninth Circuit

Munro v. Univ. of S. California, No. 17-55550, __F.3d__, 2018 WL 3542996 (9th Cir. July 24, 2018) (Before: Sidney R. Thomas, Chief Circuit Judge, Michelle T. Friedland, Circuit Judge, and Thomas S. Zilly,*District Judge).  See Notable Decision summary above.

Tenth Circuit

Soc’y of Prof’l Eng’g Employees in Aerospace v. Boeing Co., No. 05-1251-JWB, 2018 WL 3495855 (D. Kan. July 20, 2018) (Judge John W. Broomes).  The court denied Boeing’s motion for separate trials and motion for summary judgment.  “With respect to the McCartney-Boone Plaintiffs’ ERISA claims, Judge Belot has previously ruled that the jury will not issue an advisory opinion. The court sees no reason to disturb that ruling. At this time, the court intends to proceed to a jury trial on the claims triable to the jury. After the conclusion of the jury trial, the court will confer with the parties on a schedule for a bench hearing with regard to the ERISA claims. However, the court will defer ruling on whether the parties can present evidence that is specific to the ERISA claims during the jury trial. Those issues are more appropriate for motions in limine.”

Provider Claims

Third Circuit

New Jersey Spine and Orthopedics, LLC v. Schwan Cosmetics USA, Inc., et al., No. CV 17-11609, 2018 WL 3492147 (D.N.J. July 20, 2018) (Judge Claire C. Cecchi).  The court declined to depart from the authorities holding that direct payment to a provider does not amount to waiver of an anti-assignment provision, where such payment is authorized under the plan at issue. The court dismissed the complaint based on the anti-assignment provision.

Fifth Circuit

Unitedhealthcare Services, Inc. et al. v. Next Health, LLC et al., No. 3:17-CV-0243-S, 2018 WL 3520429 (N.D. Tex. July 20, 2018) (Judge Karen Gren Scholer).  United alleges that the Entity Defendants have defrauded United in connection with their provision of out-of-network testing services to United members, including by paying bribes and kickbacks to referral sources. The court granted in part and denied in part the Entity Defendants’ Motion to Dismiss.  The court rejected the following arguments:  United’s state law claims are conflict-preempted by ERISA; United’s state law claims are preempted by the Federal Employee Health Benefits Act (“FEHBA”); United is not authorized to pursue claims on behalf of any Federal Employee Health Benefit Plan; United’s conspiracy to commit fraud claim fails to state a claim; United’s Complaint fails to allege fraud with sufficient particularity; and United’s Lanham Act claim is barred by limitations.  The court agreed that United’s alter ego claim is not a separate cause of action but permitted the allegations to the extent United intends to rely upon them as a theory of attribution of liability to Next Health for the conduct of its subsidiary labs. The court also agreed that United’s Texas Theft Liability Act (“TTLA”) claim is barred by limitations.



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