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Your ERISA Watch – Ninth Circuit Holds that Same-Sex Domestic Partner Is Entitled to Joint-and-Survivor Pension Benefits

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This week’s notable decision is a short and sweet read in the matter of Reed v. KRON/IBEW Local 45 Pension Plan, No. 17-17176, __F.App’x__, 2019 WL 2145652 (9th Cir. May 16, 2019), where the Ninth Circuit reversed the district court’s decision finding that it was not an abuse of discretion for Defendant to deny survivor-spousal benefits to a same-sex domestic partner.

By way of background, Plaintiff David Reed and Donald Lee Gardner, an employee of KRON-TV, were registered as domestic partners in California in 2004.  Mr. Gardner retired in 2009 and elected a single-life annuity pension under the KRON/IBEW Local 45 Pension Plan (the “Plan”).  Reed claimed that KRON-TV’s HR department never mentioned the availability of a joint-and-survivor form of benefit although they knew he and Gardner were registered domestic partners.  In May 2014, Reed and Gardner got married and then Gardner passed away five days later.  Reed submitted a claim for a survivor benefit to the KRON/IBEW Local 45 Pension Plan (the “Committee”), which it denied.

Plaintiff filed suit against Defendants asserting three claims:  (1) claim for benefits under ERISA Section 1132(a)(1)(B) against the Plan and the Committee; (2) a penalty under Section 1132(a)(1)(A) against the Committee and KRON-TV; and (3) a violation of ERISA Section 1132(a)(3) against KRON-TV.  Reed alleged that he and Gardner had the status of married persons under California law and that Reed did not consent to Gardner’s election of a single-life annuity.  Reed also alleged that KRON-TV breached its fiduciary duties to him by failing to investigate his entitlement to a joint-and-survivor annuity and failing to advise him of his rights.

Defendants moved to dismiss all three claims.  On December 5, 2016, Judge Jeffrey S. White of the Northern District of California dismissed the second claim for relief on the basis that KRON-TV is not a plan administrator and not subject to penalties under ERISA Section 1132(c)Reed v. Kron/Ibew Local 45 Pension Plan, No. 16-CV-04471-JSW, 2016 WL 10826863, at *3 (N.D. Cal. Dec. 5, 2016).  The court did not dismiss the first and third claims.

Defendants then moved for judgment on the pleadings on the remaining claims.  On September 25, 2017, Judge White issued an order granting Defendants’ motion for judgment on the pleadings as to the first and third claims.  The court determined that ERISA does not preempt state law recognition of spouses but that the Committee did not abuse its discretion in failing to offer Gardner joint-and-survivor annuity benefits because when Gardner retired DOMA Section 3 was still considered good law.  (DOMA Section 3 prevented the federal government from recognizing any marriages between same-sex couples for the purpose of federal laws or programs, even if those couples are considered legally married by their home state.)  The court further explained that DOMA explicitly defined “spouse” as limited to partners of the opposite sex.  Reed v. KRON/IBEW Local 45 Pension Plan, No. 16-CV-04471-JSW, 2017 WL 6523478, at *5 (N.D. Cal. Sept. 25, 2017), rev’d and remanded sub nom. Reed v. KRON/IBEW Local 45 Pension Plan, No. 17-17176, 2019 WL 2145652 (9th Cir. May 16, 2019).  The court also held that KRON-TV is not a fiduciary under ERISA because it does not have sufficient control of plan assets to qualify as a fiduciary.

In reversing the district court, the Ninth Circuit found that the Committee abused its discretion by denying benefits to Reed.  When the Committee evaluated the Plan’s benefits (in 2009 and 2016), California law afforded domestic partners the same rights, protections, and benefits as those granted to spouses. See Cal. Fam. Code § 297.5(a).  The court found that neither ERISA nor the Internal Revenue Code provided binding guidance inconsistent with applying this interpretation of spouse to the Plan.  Because “Reed and Gardner were domestic partners at the time of Gardner’s retirement, the Committee should have awarded Reed spousal benefits in accordance with California law, as was required by the Plan’s choice-of-law provision.”

Reed is represented by the National Center for Lesbian Rights (NCLR) and friends of ERISA Watch, Renaker Hasselman Scott LLP.  In explaining the import of this decision, Teresa Renaker, who argued the appeal before the Ninth Circuit, said “Although the Defense of Marriage Act was struck down in 2013, some employers have continued to deny spousal pension benefits to same-sex couples if the employee retired or died before the Supreme Court decision. Today’s decision recognizes that DOMA cannot deprive a same-sex couple of pension protections merely because it was still on the books when an employee retired.”  See Press Release.

This was a semi-busy week for ERISA decisions.  Before you skim the rest of the case recaps, I want to share my recent discovery that “Your ERISA Watch” was featured in the March 19 ABA Journal Weekly Newsletter and is listed in the ABA Journal Blawg Directory.  Thank you to everyone who has helped spread the word!

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

Breach of Fiduciary Duty

Second Circuit

Bekker v. The Neuberger Berman Investment Committee, No. 16 CV 6123-LTS-BCM, 2019 WL 2073953 (S.D.N.Y. May 9, 2019) (Judge Laura Taylor Swain).  In this putative class action alleging breach of fiduciary duties and prohibited transactions with respect to a defined contribution plan, the court granted Plaintiff leave to amend his Complaint to provide further detailed factual allegations against which to compare the Neuberger Berman Value Equity Fund’s performance and fees as circumstantial support for Plaintiff’s claims of breach of fiduciary duty, and to add a demand for a jury trial.  On the issue of the statute of limitations, the court found that discovery narrowly targeted to the issue of when Plaintiff had actual knowledge of the alleged ERISA violations may proceed.  The court permitted the jury trial demand without prejudice for Defendants to renew their motion to strike after the Second Circuit decides a pending issue of whether a jury trial is available in an ERISA breach of fiduciary duty claim.

Ninth Circuit

Pension Benefit Guar. Corp. v. Karp, No. 18CV652-MMA (AGS), 2019 WL 2106596 (S.D. Cal. May 14, 2019) (Judge Michael M. Anello).  The court denied Defendants’ motions for leave to amend to add proposed counterclaims against the PBGC alleging intentional infliction of emotional distress and negligent infliction of emotional distress by outrageously processing Defendants’ pension and handling the distress termination for three years because the alleged conduct is subject to the discretionary function exception to the Federal Torts Claims Act and the court lacks subject matter jurisdiction.

Disability Benefit Claims

First Circuit

Lyman v. Unum Grp., No. CV 17-11530-JGD, __F.Supp.3d__, 2019 WL 2075797 (D. Mass. May 10, 2019) (Judge Dein).  Unum did not abuse its discretion in denying Plaintiff an extra year to file her short and long-term disability claims where the policy states that, “Written notice of a claim should be sent within 30 days after the date your disability begins. However, you must send Unum written proof of your claim no later than 90 days after your elimination period. If it is not possible to give proof within 90 days it must be given no later than 1 year after the time proof is otherwise required except in the absence of legal capacity.” (emphasis added).  Unum determined that Plaintiff’s explanations for the late filing, including that she thought she was going to be able to return to work and that she was intimidated by the claim forms, was not a reasonable basis for not filing a timely claim.  The court found that Unum made a reasoned decision that it was possible for her to file her claim on time.  The court also found that the “notice-prejudice” rule set forth in Mass. Gen. Laws ch. 175 § 112 does not apply in the ERISA context.

Discovery

Sixth Circuit

Brackett v. Siemens VDO Automotive Corporation, No. 2:09-CV-10048, 2019 WL 2136895 (E.D. Mich. May 15, 2019) (Judge Denise Page Hood).  In this dispute over severance benefits, the court granted Plaintiffs’ motion to strike the testimony of defense witness Gary Fell as a substantive fact witness because Defendants did not disclose documents related to the subject matter of his testimony which involved a central issue of the summary judgment motion the court ruled on at trial.  Defendants only listed Mr. Fell as a Custodian of Records in the Joint Final Pre-Trial Order.

ERISA Preemption

Ninth Circuit

Blue Cross of California Inc., et al. v. Insys Therapeutics Inc., No. CV-17-02286-PHX-DLR, 2019 WL 2099945 (D. Ariz. May 14, 2019) (Judge Douglas L. Rayes).  The court found that the Complaint which alleges that “Insys, a drug manufacturer and non-ERISA entity, defrauded Anthem by knowingly submitting frivolous claims for reimbursement” is not preempted under ERISA Section 514(a) because the state law claims do not have the requisite nexus with an ERISA plan or benefit system.  The claims are also not completely preempted by ERISA because the “claims are based on duties which derive from state common and statutory law—namely to refrain from making misrepresentations in the presentation of claims for benefits.”

Exhaustion of Administrative Remedies

Sixth Circuit

Brackett v. Siemens VDO Automotive Corporation, No. 2:09-CV-10048, 2019 WL 2136895 (E.D. Mich. May 15, 2019) (Judge Denise Page Hood).  In this dispute over the payment of severance benefits, the court found that exhaustion of administrative remedies would have been futile because “[t]estimony at trial was unclear about who were the members of the Committee for the Severance Plan; there was a failure to give written notice that no severance would be paid; there was a failure to notify of appeal; and, there was a failure to clearly identify the ultimate decision maker on the issue of severance pay. The Plan provides that if claim for benefits is denied or ignored, the employee may file suit in a state or federal court.”

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Teenor v. Leblanc, No. 18-CV-12364, 2019 WL 2074585 (E.D. Mich. May 10, 2019) (Judge Gershwin A. Drain).  The court found that the decedent and his ex-wife’s judgment of divorce satisfies the four statutory requirements of a QDRO and his life insurance benefits must be paid to her rather than the decedent’s domestic partner who he listed as a beneficiary.  The QDRO constitutes an exception to the ERISA preemption rules. The court also found that even if the judgment of divorce did not meet the statutory requirements of a QDRO that it has the authority to impose a constructive trust over the decedent’s life insurance proceeds.  However, the court reserved judgment on the imposition of a constructive trust due to several unresolved factual questions, including whether the domestic partner contributed in any way to the decedent’s violation of the judgment of divorce.

Medical Benefit Claims

Fourth Circuit

Berdeau v. Schaeffler Grp., USA Inc. & Blue Cross Blue Shield of S.C., No. 4:17-CV-02744-DCC, 2019 WL 2137474 (D.S.C. May 16, 2019) (Judge Donald C. Coggins, Jr.).  The court determined that the Plan’s denial of Plaintiff’s request for pre-authorization of an anterior lumbar fusion was proper and not an abuse of discretion where the Plan determined that it was not medically necessary for his “mild degenerative disc disease” for which all appropriate conservative treatments had not been tried.

Seventh Circuit

Mem’l Hosp. & Health Care Ctr. v. Houston Int’l Ins. Grp., No. 318CV00225RLYMPB, 2019 WL 2088586 (S.D. Ind. May 13, 2019) (Judge Richard L. Young).  This case involves a dispute by the sponsor of a self-funded ERISA health plan over the payment of stop-loss medical insurance for the cost of the delivery of premature twins whose medical bills totaled $2,300,000. The court granted WebTPA’s motion to dismiss because the Administrative Services Agreement provides that WebTPA, who is a third-party administrator that performs claims-processing services related to the Plan, may not be held legally responsible for Great Midwest’s denial of the stop-loss claims.  Thus, Plaintiff fails to allege a plausible claim for relief for breach of the ASA.

Eleventh Circuit

O.D. v. Jones Lang Lasalle Med. PPO Plus Plan, No. 17-13060, __F.App’x__, 2019 WL 2127963 (11th Cir. May 15, 2019) (Before WILSON, JILL PRYOR, and TALLMAN,* Circuit Judges).  In this dispute over the payment of residential treatment for a minor’s bulimia, the court affirmed the decision in favor of Defendants.  The court found that even though the denial letters did not expressly refer to the plan’s “medical necessity” definition, they did sufficiently explain the basis for the denial.  Because UBH substantially complied with the notice requirements, its decision was not arbitrary and capricious on that basis.  UBH’s decision was based on the review of four board-certified psychiatrists who reviewed the plaintiff’s medical records.  The evidence showed that the minor had serious mental health problems, it was reasonable for UBH to approve coverage for just partial hospitalization.

Pension Benefit Claims

Ninth Circuit

Reed v. KRON/IBEW Local 45 Pension Plan, No. 17-17176, __F.App’x__, 2019 WL 2145652 (9th Cir. May 16, 2019) (Before: McKEOWN, W. FLETCHER, and MURGUIA, Circuit Judges).  See Notable Decision summary.

Tenth Circuit

Petersen v. Comm’r of Internal Revenue, No. 17-9003, __F.3d__, 2019 WL 2120528 (10th Cir. May 15, 2019) (Before HARTZ, PHILLIPS, and EID, Circuit Judges).  The court concluded that the corporation’s ESOP trust is a trust within the meaning of IRC § 267 and that the Commissioner properly applied that section to Taxpayers.  The S corporation stock held by the trust was deemed to be owned by the trust’s beneficiaries.  Thus, the corporation and ESOP-participating employees were “related persons” under this Code provision that operates to defer the corporation’s deductions for accrued but unpaid payroll expenses to the year in which such pay was received by ESOP participants and includible in their gross income.

Pleading Issues & Procedure

Fourth Circuit

The Michelin Ret. Plan; The Inv. Comm. of the Michelin Ret. Plan v. Chicago Transit Auth. Retiree Health Care Tr., Intervenor, No. 616CV03604DCCJDA, 2019 WL 2098843 (D.S.C. May 13, 2019) (Judge Donald C. Coggins, Jr.).  “[B]ecause Plaintiffs can no longer rely on ERISA’s nationwide service of process provision, it lacks personal jurisdiction over the DP Defendants to decide a state law claim for professional negligence.”  The court found that it lacks specific personal jurisdiction over the DP Defendants under the South Carolina long-arm statute and the professional negligence claim should be dismissed.

Provider Claims

Third Circuit

University Spine Center v. Aetna, Inc., No. 18-2842, __F.App’x__, 2019 WL 2149590 (3d Cir. May 16, 2019) (Before: CHAGARES, HARDIMAN, and SILER, JR.,+ Circuit Judges).  The court agreed with the district court that the anti-assignment provision in the insured’s ERISA-governed medical benefits plan is unambiguous and enforceable.  The medical provider lacks standing to bring a claim against the insurer of the plan and its lawsuit was properly dismissed with prejudice.

Remedies

Fourth Circuit

The Michelin Ret. Plan; The Inv. Comm. of the Michelin Ret. Plan v. Chicago Transit Auth. Retiree Health Care Tr., Intervenor, No. 616CV03604DCCJDA, 2019 WL 2098843 (D.S.C. May 13, 2019) (Judge Donald C. Coggins, Jr.).  The court overruled Plaintiffs’ objections to the R&R finding that Count II (knowing participation in prohibited transaction) fails to state a claim against the DP Defendants because the relief they request is not available in an ERISA § 502(a)(3) claim. Though Amara recognized a broader category of equitable relief available under § 502 (a)(3), Plaintiffs have not requested restitution, disgorgement, accounting for profits, surcharge, or any other kind of equitable relief available pursuant to § 502(a)(3). There is also no allegation that the DP Defendants received any of the transfers or misused any of Plaintiffs’ assets such that an equitable remedy would be appropriate.

Severance Benefit Claims

Sixth Circuit

Brackett v. Siemens VDO Automotive Corporation, No. 2:09-CV-10048, 2019 WL 2136895 (E.D. Mich. May 15, 2019) (Judge Denise Page Hood).  The court found that Plaintiffs are not entitled to severance benefits.  Three of the plaintiffs were offered positions with the new employer immediately following the divestiture that had “substantially comparable” salary, job duties, and benefits.  One plaintiff was not entitled to severance benefits because he retired voluntarily before he was offered employment with the new employer.  Even though the Committee’s denial of severance pay to Plaintiffs pay was not in writing, the court found that it was not an arbitrary nor capricious decision.

Venue

Ninth Circuit

Mayfield v. ACE Am. Ins. Co., No. C18-1695RSM, 2019 WL 2084489 (W.D. Wash. May 13, 2019) (Judge Ricardo S. Martinez).  In this putative class action challenging ACE’s failure to pay interest on delayed accidental death and dismemberment claims, the court granted ACE’s motion to transfer venue to the Northern District of Georgia due to the convenience to the parties and potential class members and witnesses.  Plaintiff’s choice of forum is entitled to less weight when the lawsuit is brought on behalf of a putative class.  The Plan at issue was negotiated and executed in Georgia.  If Georgia law applies to this case, that district is more familiar with that body of law.  It will also be less costly for the action to be maintained in Georgia based on the location of the parties, counsel, and putative class members.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Durso et al. v. Modern Food Center, Inc., No. 17CIV7324LAKGWG, __F.Supp.3d__, 2019 WL 2150424 (S.D.N.Y. May 17, 2019) (Judge Gabriel W. Gorenstein).  The court denied Defendants motion to vacate the entry of default judgment “because it would be pointless to have this case proceed given the certainty that defendants have no defense. All that would result is a summary judgment motion by plaintiffs met with same arguments that defendants have made in seeking vacatur of the default. Thus, we conclude that defendants have not shown “good cause” to vacate the entry of default.”

Casey v. Tyree Service Corp., No. 218CV2421DRHGRB, 2019 WL 2124514 (E.D.N.Y. May 15, 2019) (Judge Denis R. Hurley).  The court granted Defendants’ motion to stay this matter and directed the parties to arbitrate their dispute over Defendants’ withdrawal liability. The court ordered Defendants to begin making withdrawal payments in accordance with 29 U.S.C. § 1401(d).

Trustees of Ne. Carpenters Health, Pension, Annuity, Apprenticeship, & Labor Mgmt. Cooperation Funds v. W.B.E. Walls & Ceilings, Inc., No. 18CV6444JFBAKT, 2019 WL 2079825 (E.D.N.Y. May 10, 2019) (Judge Joseph F. Bianco).  “[P]etitioners’ motion to confirm the arbitration award in the amount of $ 12,788.70 is granted. Further, the Court awards petitioners prejudgment interest (from the date of the arbitration award through the date of judgment) at a rate of nine percent per year, $ 200.00 in attorney’s fees, and $ 475.00 in costs.”

Trustees of Ne. Carpenters Health, Pension, Annuity, Apprenticeship, & Labor Mgmt. Cooperation Funds v. Cali Enterprises, Inc., No. 18CV3556JFBAYS, 2019 WL 2076784 (E.D.N.Y. May 10, 2019) (Judge Joseph F. Bianco).  “[P]etitioners’ motion to confirm the arbitration award in the amount of $ 192,696.31 is granted. Further, the Court awards petitioners prejudgment interest (from the date of the arbitration award through the date of judgment) at a rate of nine percent per year, $ 229 in attorney’s fees, and $ 475 in costs.”

Third Circuit

International Union of Painters and Allied Trades District Council No. 21 Health and Welfare Fund, et al. v. Service Painting, Inc., et al., No. CV 18-3480, 2019 WL 2143370 (E.D. Pa. May 16, 2019) (Judge Kearney).  The court found that the contractor’s president/principal shareholder, who stopped paying the required sum to the union funds so he would have enough money to help buyout a former partner he did not want around, and then sought bankruptcy protection, is individually liable for breach of fiduciary duty under ERISA and conversion under Pennsylvania law.  The court granted the Funds judgment against Mr. Garavelas in the amount of $472,093.96.

Trustees of The New Jersey B.A.C. Health Fund, et al. v. BFI Concrete, LLC, No. 118CV11493NLHAMD, 2019 WL 2107322 (D.N.J. May 14, 2019) (Judge Noel L. Hillman).  The court granted Plaintiffs’ motion for default judgment and found that “Plaintiffs have provided competent documentation to support their demand under 29 U.S.C. §§ 185(a) and 1132(g)(2) for contractual liquidated damages ($2,557.37), statutory interest ($686.23), and attorneys’ fees and costs ($6,297.50).”

Fourth Circuit

Trustees of The Heating, Piping & Refrigeration Pension Fund, et al. v. Clean Air Mechanical, Inc., et al., No. CV JKB-17-3690, 2019 WL 2146916 (D. Md. May 16, 2019) (Judge James K. Bredar).  The court granted Plaintiffs’ motion to voluntarily dismiss Count VI (breach of fiduciary duty) without prejudice and granted default judgment on all other Counts (unpaid contributions, payroll audit, and bond).

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