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Your ERISA Watch – Ninth Circuit Holds that ERISA Claims Can be Subject to Mandatory Individual Arbitration

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This week’s notable decision is Dorman v. Charles Schwab Corp., No. 18-15281, __F.3d__, 2019 WL 3926990 (9th Cir. Aug. 20, 2019), where the court addressed the question of whether ERISA claims can be subject to mandatory arbitration.  In short, the Court determined that an arbitration agreement in the Schwab Retirement Savings and Investment Plan (“the Plan”) is enforceable.  To get there, the court revisited and overruled prior Ninth Circuit authority.

By way of background, in Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), the Ninth Circuit held that exhaustion of arbitration procedures for contractual grievances is not required prior to bringing a statutory claim under ERISA Section 510.  The court reversed and remanded the district court’s decision that the arbitration award on a contractual grievance that was adverse to former employees of the company barred their ERISA claims.

In last year’s decision in Munro v. Univ. of S. California, 896 F.3d 1088, 1094 (9th Cir. 2018), cert. denied, 139 S. Ct. 1239, 203 L. Ed. 2d 199 (2019), the Ninth Circuit noted that there was “considerable force” to USC’s position that Amaro, standing for the proposition that ERISA claims are inarbitrable as a matter of law, is “clearly irreconcilable” with intervening Supreme Court case law.   The Munro court took a pass on the question of Amaro’s viability since the Court rested its decision on the fact that the asserted claims fell outside of the arbitration clauses in the employee agreements.

But the rain check was cashed last week when the Court was presented squarely with the question of whether Amaro was still good law.  In American Express Co. v. Italian Colors Restaurant, 570 U.S. 228, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013), the Supreme Court held that federal statutory claims are generally arbitrable and arbitrators can competently interpret and apply federal statutes.  Considering intervening Supreme Court case law, including American Express Co, the three-judge panel determined that Amaro has been effectively overruled and is no longer binding precedent.

In a separately penned unpublished decision in Dorman v. The Charles Schwab Corporation; et al., No. 18-15281, __F.App’x__, 2019 WL 3939644 (9th Cir. Aug. 20, 2019), the court held that the district court erred by refusing to compel arbitration of the ERISA breach of fiduciary duty claims since they fall squarely within the ambit of the Plan.  The court reversed and remanded “with instructions for the district court to order arbitration of individual claims limited to seeking relief for the impaired value of the plan assets in the individual’s own account resulting from the alleged fiduciary breaches.”

Before plan administrators rush to include arbitration provisions in their ERISA plans, think twice.  In fact, I say, just table it all together.  While arbitration is arguably less expensive than federal court litigation (especially if it includes an enforceable class action waiver), there are limited appeal rights in arbitration, you may be subject to potential numerous claims without certainty, and arbitrators are not obligated to follow the law.

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

Attorneys’ Fees

Ninth Circuit

Lehr v. Perri, et al., No. 2:17-CV-1188 WBS AC, 2019 WL 3975661 (E.D. Cal. Aug. 22, 2019) (Judge ).  Defendants prevailed in this action alleging ERISA violations related to the Perri Electric Inc. Profit Sharing Plan.  The court denied Defendants’ motion for attorneys’ fees because the court previously held that neither Plaintiff has standing to sue as a plan participant or beneficiary.  Because Plaintiffs lack standing under Section 1132, the court does not have authority under Section 1132(g) to award Defendants attorneys’ fees.

Breach of Fiduciary Duty

Eighth Circuit

Karg v. Transamerica Corporation, No. 18-CV-134-CJW-KEM, 2019 WL 3938471 (N.D. Iowa Aug. 20, 2019) (Judge ).  In this putative class action alleging breach of fiduciary duty and failure to monitor claims related to Defendants’ retention of six poor-performing investment portfolios, the court denied Defendants’ motion to dismiss.  The court first determined that Plaintiffs’ claims are not barred by the Dennard v. Transamerica Corp., No. 15-cv-30-EJM (N.D. Iowa) settlement agreement’s release, or by the doctrine of res judicata.  The court also determined that at the pleading stage, Plaintiffs alleged facts regarding the challenged funds’ performance sufficiently states an imprudence claim.  Plaintiffs have also alleged sufficient facts to establish a failure to monitor claim under ERISA.

Class Actions

Third Circuit

E.S. v. Marsh & McLennan Companies, Inc. Benefits Administration Committee, et al., No. 217CV03351KSHCLW, 2019 WL 3928660 (D.N.J. Aug. 20, 2019) (Judge Katharine S. Hayden).  The court granted Aetna’s motion to dismiss this putative class action challenging Aetna’s denial of out-of-network residential psychiatric treatment based on an “administrative exclusion” not contained in the plan.  Plaintiff did not identify another plan besides M&M’s to plausibly allege that Aetna’s offending process took place.  “The amended complaint plausibly pleads the existence of a set of criteria Aetna used as claims administrator for the M&M Plan, but it fails to provide context for the allegedly uniform and flawed application of those criteria on the class-wide basis pleaded here.”

Sixth Circuit

Amos, et al. v. PPG Indus., Inc., et al., No. 2:05-CV-70, 2019 WL 3889621 (S.D. Ohio Aug. 16, 2019) (Magistrate Judge Elizabeth A. Preston Deavers).  This is a class action seeking to recover vested retiree medical benefits on behalf of a class of retirees from thirteen PPG facilities.  The court issued an R&R recommending that the district judge grant final approval of the parties’ Settlement Agreement and Plan of Allocation, and award attorney’s fees, costs, and expenses in the amount of $2,350,000.00.  On August 16, 2019, the Court adopted the R&R in full and granted final approval.  Opinion and Order.

Eighth Circuit

Tussey, et al. v. ABB, Inc., et al., No. 06-CV-04305-NKL, 2019 WL 3859763 (W.D. Mo. Aug. 16, 2019) (Judge ).  The court granted Class Counsel’s motion seeking an award of $18,331,500 in attorneys’ fees (1/3 of common fund), $2,256,805 for reimbursement of reasonable expenses, and $25,000 to each class representative from the $55-million settlement achieved in this case.

Disability Benefit Claims

Sixth Circuit

Radsvick v. United of Omaha Life Ins. Co., No. 1:18-CV-1872, 2019 WL 3940232 (N.D. Ohio Aug. 21, 2019) (Judge James S. Gwin).  The court determined that Omaha’s decision to deny Plaintiff’s long-term disability benefits, which he claimed based on post-heart attack cognitive problems, was neither arbitrary nor capricious.  Omaha had Plaintiff’s claim reviewed by a board-certified cardiologist, Dr. Johnathon McAllister, who determined that he had no cardiac-related work restrictions as of the day before the end of the 90-day elimination period.  Omaha also had Plaintiff’s cognitive issues evaluated by board-certified neuropsychologist, Dr. Elena Mendelssohn, who found no neuropsychological impairments or work restrictions.  The court noted that Omaha’s decision “danced dangerously close to an arbitrary decision” because it only reviewed his medical records, SSA found Plaintiff disabled, and Omaha has a conflict of interest.  “This was a close case and, if the Court were reviewing the record de novo, it might find Plaintiff disabled. But it is not.”  Lastly, the court found that Plaintiff may not bring a breach of fiduciary duty claim since he was able to pursue his benefits under § 1132(a)(1).

Savage v. Quicken Loans and Affiliated Companies Welfare Benefits Plan, No. 18-12075, 2019 WL 3936375 (E.D. Mich. Aug. 20, 2019) (Judge Victoria A. Roberts).  The court granted Defendant’s motion for judgment on the administrative record since the administrator provided a “reasonable explanation” for its decision to deny Plaintiff’s claim for short-term disability benefits.  The court found that Plaintiff failed to submit evidence that her psychiatric illness of Adjustment Disorder with Mixed Anxiety and Depressed Mood would necessitate restrictions/limitations.  Her Functional Status Evaluation noted that Plaintiff has a normal attention span, normal recent memory, and demonstrated sound decision making.

Watson v. W. & S. Fin. Grp. Flexible Benefits Plan, No. 2:18-CV-66 (WOB-CJS), 2019 WL 3883859 (E.D. Ky. Aug. 16, 2019) (Judge William O. Bertelsman).  The court determined that Defendant abused its discretion when it “denied Plaintiff’s application for short-term disability benefits, despite the fact that treating physicians and medical records corroborate that Plaintiff is unable to perform the duties of her occupation because she suffers from Grade IV osteoarthritis in her knees, a condition that is compounded by her morbid obesity.”  Defendant did not consider Plaintiff’s relevant job duties; offer any reason for rejecting her treating doctor’s opinion; ignored favorable evidence from her treating physician; selectively reviewed the evidence it did consider; failed to conduct an independent physical examination; and conducted its own file review without a consulting physician.

Ninth Circuit

Rygg v. MetroPCS Wireless, Inc. Employee Welfare Benefit Plan, et al., No. 17-CV-06891-JST, 2019 WL 3891782 (N.D. Cal. Aug. 19, 2019) (Judge Jon S. Tigar).  Life Insurance Company of North America (“LINA”) denied Plaintiff’s “any occupation” long-term disability benefits which forced her to work for another employer for 3.5 months until she undisputedly became disabled status post-surgery.  The court determined that Plaintiff lost coverage under the long-term disability plan when she started working for another employer full-time.  Though Plaintiff became disabled status post-surgery, her return to full time work precludes her coverage under the policy.  The court found that the “Successive Periods of Disability” provision did not apply to her since she did not return to work for the policyholder.

ERISA Preemption

Ninth Circuit

Magrath v. Marsh & McLennan Companies, Inc., No. CV 19-6915 PA (GJSX), 2019 WL 3889463 (C.D. Cal. Aug. 16, 2019) (Judge Percy Anderson).  Defendant removed this matter after Plaintiff served the Marsh & McLennan Companies Retirement Plan with a “Joinder” “seeking to have the purported marital estate’s community property interest in the Plan come within the jurisdiction of the Family Court.”  The court remanded this divorce proceeding to state court because Defendant failed to establish that Plaintiff seeks relief that is completely preempted by ERISA since Plaintiff seeks Defendant’s compliance with the Family Court’s injunction and her claim is based on an independent legal duty.

Life Insurance & AD&D Benefit Claims

Fifth Circuit

Beazley, et al. v. Metropolitan Life Insurance Company, No. CV 16-1188, 2019 WL 3941055 (W.D. La. Aug. 20, 2019) (Judge S. Maurice Hicks, Jr.).  The insured/decedent died 37 days after he was subject to a RIF.  MetLife sent notice of his option to port life insurance coverage more than 15 days after his insurance ended, which extended his period to convert by 45 days.  When the decedent died, he had not opened the letter from MetLife regarding his ability to port nor did he submit an application or pay the associated premium for the coverage.  The court determined that MetLife did not act arbitrarily and capriciously in denying his beneficiaries’ claim for benefits since under the terms of the Plan no coverage existed via conversion.  The insured’s coverage ended on the date he was terminated, he did not submit an application to port prior to his death, and he died outside of the 31-day grace period during which coverage would have been provided without an application.  Though the Plan does not contain a clause that speaks to what happens when an insured dies during the extended time frame to port coverage, MetLife’s decision is supported under the terms of the Plan as it is written.

Eighth Circuit

Sepulveda-Rodriguez v. MetLife Grp., Inc., No. 18-1760, __F.3d__, 2019 WL 3977550 (8th Cir. Aug. 23, 2019) (Before Colloton, Beam, and Shepherd, Circuit Judges).  The court reversed the district court’s award of optional life insurance (“OLI”) benefits to Plaintiff.  The insured worked for Ford from 2013 until his death in 2015.  When his wife made a claim for OLI benefits, Ford informed MetLife that the insured took an online questionnaire and falsely answered “no” to a question about his past history and treatment of high blood pressure.  (Medical records MetLife obtained showed that the insured did have a past history of hypertension.)  Based on his answer, he was enrolled in OLI benefits and premiums were deducted from his paycheck.  The court found that MetLife had discretionary authority and was entitled to rely upon the assertions that the insured answered “no” to each screening question asked of him.  The court found that there is substantial evidence in the record to support MetLife’s reliance upon Ford’s representations that the insured would not have been automatically enrolled in the OLI program if he had truthfully answered the high blood pressure question in the screening questionnaire.  The court also found that the district court erred in finding that OLI benefits could also have been awarded on an equitable estoppel theory.  Since there was substantial evidence to support a denial of benefits, “[a] duplicative equitable estoppel remedy to obtain OLI benefits is also not available.

Pension Benefit Claims

Sixth Circuit

Miller v. Retirement Program Plan For Employees Of Consolidated Nuclear Security, LLC, No. 18-6314, __F.App’x__, 2019 WL 3973965 (6th Cir. Aug. 22, 2019) (Before: McKeague, Kethledge, and Murphy, Circuit Judges).  “Complexity is not the same thing as contradiction.” The court reversed the district court’s application of the term “Credited Service,” which the district court used to count an additional twelve years towards the amount of Plaintiff’s pension benefits.  The Sixth Circuit explained that Plaintiff’s time as a leased employee counts as Credited Service for purposes of vesting, but not for the purpose of calculating the amount of his pension.  The pension plan is clear that the service that is used to determine the amount of benefits is limited to his Company Service Credit, which undisputedly did not include his time as a leased employee.

Ninth Circuit

Sobh v. Phoenix Graphix Inc., et al., No. CV-18-04073-PHX-DWL, 2019 WL 3973697 (D. Ariz. Aug. 22, 2019) (Judge Dominic W. Lanza).  The court dismissed Plaintiff’s ERISA claims related to his complaint that Defendants improperly rejected his request to “cash-out” the benefits he was owed under the profit-sharing plan.  First, Plaintiff’s Section 502(a)(1)(B) claim is dismissed because under the Plan, cash-out distributions need to be made until the year after the termination.  Here, Plaintiff was terminated in 2018 and prematurely filed suit in 2018.  Second, his claim under ERISA § 503 to recover “damages” based upon Defendants’ failure to provide reasons for denying his claim for benefits fails because § 503 does not provide a private right of action for damages.  Third, his claim under ERISA § 510 for “Improper Discrimination” also fails because he points to no related conduct that motivated Defendants to take an adverse employment action against him.  Plaintiff alleges of denying his cash-out request due to his termination but § 510 does not function this way.

Pleading Issues & Procedure

Fourth Circuit

Sheet Metal Workers Local 100 (Baltimore Area) Health and Welfare Fund et al., v. R.E.L. Schneider Co., Inc., No. CV JKB-19-1322, 2019 WL 3935377 (D. Md. Aug. 20, 2019) (Judge James K. Bredar).  The court granted Defendant’s motion to vacate the Clerk’s entry of default.  The court concluded that the person served with process was not authorized to accept service of process on behalf of Defendant’s registered agent so service was not properly made upon Defendant.  Even if Defendant had actual notice about the case because the registered agent talked to Plaintiffs’ counsel about the case, “given the Fourth Circuit’s preference for resolving cases on their merits, and given the lack of prejudice to Plaintiffs in having to litigate their case as they envisioned from its beginning, the Court resolves any doubt as to whether relief should be granted in Defendant’s favor.”

Seventh Circuit

McMaken v. GreatBanc Tr. Co., No. 17-CV-04983, 2019 WL 3973319 (N.D. Ill. Aug. 21, 2019) (Judge Andrea R. Wood).  In this case where Plaintiff alleges that Defendant caused the ESOP to engage in a prohibited transaction, the court granted Plaintiff’s motion for summary judgment on Defendant’s fifth affirmative defense of waiver and release.  At the end of his employment at Chemonics, Plaintiff signed a release that stated Plaintiff, “hereby voluntarily and unconditionally release[s] and forever discharge[s] Chemonics and its parents, subsidiaries, predecessors, successors, directors, officers, fiduciaries, insurers, employees and agents … from any and all causes of action,” and that “this is a GENERAL RELEASE to be construed in the broadest possible manner consistent with applicable law.”  The court concluded that GreatBanc is not a “fiduciary” of Chemonics because it acts on behalf of and owes duties to the ESOP and only the ESOP.

Ninth Circuit

Dorman v. The Charles Schwab Corporation; et al., No. 18-15281, __F.App’x__, 2019 WL 3939644 (9th Cir. Aug. 20, 2019) (Before: Gould and Ikuta, Circuit Judges, and Benita Y. Pearson,* District Judge).  See Notable Decision summary.

Dorman v. Charles Schwab Corp., No. 18-15281, __F.3d__, 2019 WL 3926990 (9th Cir. Aug. 20, 2019) (Before: Gould and Ikuta, Circuit Judges, and Benita Y. Pearson,* District Judge).  See Notable Decision summary.

Tenth Circuit

Miles v. Unified School District No. 500, No. 17-2685-DDC-TJJ, 2019 WL 3858165 (D. Kan. Aug. 16, 2019) (Judge Daniel D. Crabtree).  After applying the factors set forth in Torrez v. Pub. Serv. Co. of N.M., 908 F.2d 687 (10th Cir. 1990), the court determined that Plaintiff waived her ADA, FMLA, and ERISA claims knowingly and voluntarily.  The court did not set aside the release agreement based on fraud, duress, lack of mental capacity or under the totality of the circumstances.

D.C. Circuit

Serv. Employees Int’l Union Nat’l Indus. Pension Fund v. Hebrew Homes Health Network, Inc., No. 1:17-CV-01215 (TNM), 2019 WL 3891075 (D.D.C. Aug. 19, 2019) (Judge Trevor N. McFadden).  The court denied Defendants’ motion to supplement the record with letters they claim are relevant to their SOL defense since it is more than a year after discovery closed and the Magistrate Judge already issued an R&R on the parties’ summary judgment motions.  “The referral process, especially in the summary judgment context, is inefficient and wasteful of judicial resources when the district court considers objections to the magistrate judge’s recommendation that are based on facts the magistrate judge did not have the benefit of considering. A party needs a better justification than ‘we forgot.’”

Statutory Penalties

Second Circuit

Cammarata v. The City University of New York, et al., No. 17-CV-6456 (MKB), 2019 WL 3859401 (E.D.N.Y. Aug. 15, 2019) (Judge Margo K. Brodie).  The court determined that the Eleventh Amendment sovereign immunity bars Plaintiff’s COBRA claims against CUNY and the individual CUNY Defendants in their official capacity.  “There is no indication that Congress intended to abrogate the states’ sovereign immunity by enacting COBRA or that New York has waived its immunity under COBRA.”

Eighth Circuit

Sepulveda-Rodriguez v. MetLife Grp., Inc., No. 18-1760, __F.3d__, 2019 WL 3977550 (8th Cir. Aug. 23, 2019) (Before Colloton, Beam, and Shepherd, Circuit Judges).  The court found that the district court did not abuse its discretion in awarding Plaintiff $2,090 in penalties because the plan administrator did not provide her with the SPD until nineteen days after the penalties began to run.  The plan administrator contended that Plaintiff could have gotten it online had she known her deceased husband’s password and that she suffered no prejudice, but this was not enough to find an abuse of discretion.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Teamsters Local 456 Pension, Health & Welfare, Annuity, Education & Training, Industry Advancement and Legal Services Funds V. CRL Transportation, Inc., No. 18-CV-2056 (KMK), 2019 WL 3960099 (S.D.N.Y. Aug. 22, 2019) (Judge Kenneth M. Karas).  “Plaintiffs are awarded $167,847.54 in total damages and costs. Plaintiffs’ request for attorneys’ fees is denied without prejudice; Plaintiffs are to submit a revised fee application within 14 days removing any time entries for work performed on documents not ultimately filed in this Action.”

32BJ N. Pension Fund v. Nutrition Mgmt. Servs. Co., No. 18-0857-CV(L), __F.3d__, 2019 WL 3917567 (2d Cir. Aug. 20, 2019) (Before: Newman, Jacobs, and Droney, Circuit Judges).  The Second Circuit vacated the district court’s judgment in the Fund’s favor, holding that the employer’s delinquent fund contributions were not subject to the interest rate provided in trust agreement, and the interest rate stated in the fund’s delinquency policy was not so essential to the fund’s functioning that the employer was unilaterally bound to it.

Trustees of Leather Goods Handbags, & Novelty Workers’ Union Local 1 Joint Ret. Fund v. Cent. Fur Storage Co., No. 118CV7224AMDRER, 2019 WL 3936676 (E.D.N.Y. Aug. 20, 2019) (Judge Ann M. Donnelly).  The court adopted the R&R in its entirety and awarded Plaintiffs:  1) $6,935,952.80 in principal, 2) interest at a rate of 3% or $ 570.0783132 per diem from January 27, 2017, to the entry of judgment, 3) liquidated damages equal to the amount of interest, 4) $9,009.38 in attorneys’ fees, and 5) $400 in costs.

Fourth Circuit

Trustees of The National Automatic Sprinkler Industry Welfare Fund v. Amigo Fire Protection, LLC, No. CV TDC-19-0625, 2019 WL 3980764 (D. Md. Aug. 23, 2019) (Magistrate Judge Timothy J. Sullivan).  The court “recommend[ed] that $51,402.51 in damages be awarded to the Funds against Amigo. This amount is comprised of $39,088.60 in delinquent contributions; $7,175.36 in liquidated damages; $3,504.05 in interest assessed at the rate of 12% per annum on unpaid contributions through May 6, 2019 and continuing to accrue through the date of payment; $1,039.50 in attorney’s fees; and $595.00 in costs.”

Ninth Circuit

Northwest Administrators, Inc. v. National Express Transit Services Corporation, No. 2:19-CV-00744 WBS AC, 2019 WL 3986807 (E.D. Cal. Aug. 23, 2019) (Magistrate Judge Allison Claire).  The court issued findings and recommendations granting Plaintiff’s motion to compel compliance with an audit and for partial default judgment.

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