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Your ERISA Watch – Second Circuit Holds Reformation of Pension Plan is Equitable Remedy Even Absent Traditional Fraud or Mutual Mistake

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This week’s notable decision, Laurent v. PricewaterhouseCoopers LLP, No. 18-487-CV, __F.3d__, 2019 WL 7042414 (2d Cir. Dec. 23, 2019), is more fruit from Amara’s labor.  In a matter of first impression, the Second Circuit considered whether reformation is an available remedy where a pension plan’s written terms violate ERISA, but there is no allegation that the violation is a result of traditional fraud, mistake, or other inequitable conduct.  In what I’ll call the Amara two-step, the Second Circuit held that reformation is available in this circumstance under ERISA § 502(a)(3) and that the district court is authorized to enforce the reformed Plan as a second step under ERISA § 502(a)(1)(B).

By way of background, this case involves a lengthy procedural history concerning the Retirement Benefit Accumulation Plan for Employees of PricewaterhouseCoopers LLP’s (the “Plan”).  In 2015, the Second Circuit held that the Plan’s definition of “normal retirement age” as five years of service violates ERISA.  Laurent v. PricewaterhouseCoopers LLP, 794 F.3d 272 (2d Cir. 2015).  Plaintiffs alleged that the Plan’s definition of normal retirement age as five years of service denied them “whipsaw payments.”  Whipsaw payments guarantee that plan participants who take distributions in the form of a lump sum when they terminate employment will receive the actuarial equivalent of the value of their accounts at retirement. (In 2006, the Pension Protection Act eliminated mandatory whipsaw payments and this case involves pre-PPA distributions). The Second Circuit held that the plan’s definition of “normal retirement age” as five years of service violates ERISA because five years of service bears no plausible relation to “normal retirement,” and is therefore inconsistent with the plain meaning of the statute.

Following the Second Circuit’s decision, the district court on remand granted Defendant’s motion for judgment on the pleadings and denied Plaintiffs’ motion for summary judgment on the issue of relief, holding that equitable reformation of the Plan was not available absent allegations of fraud or mutual mistake.  Plaintiffs moved for reconsideration and clarification of the district court’s orders and the district court denied both motions.  Plaintiffs appealed.

On appeal, the Second Circuit took a different view.  The court found that reformation under § 502(a)(3) is available to remedy the Plan’s violation of ERISA § 3(24) (definition of “normal retirement age”).  The court explained:

The district court reached a contrary conclusion because it interpreted [Mertens v. Hewitt Assocs., 508 U.S. 248, 256 (1993)] and its progeny as limiting the availability of equitable remedies under § 502(a)(3) to the specific circumstances under which those remedies were typically available in equity courts. But neither the statute nor Mertens imposes this added requirement. Instead, § 502(a)(3) tells us that equitable remedies are available to ‘redress violations of’ or ‘to enforce any provisions of’ ERISA subchapter I.

Laurent, 2019 WL 7042414, at *6 (internal citations omitted).  Further, the Supreme Court has instructed courts to construe remedies under § 502(a)(3) guided by equitable principles modified by ERISA’s obligations and injuries.  The Second Circuit’s own precedent “has identified ‘fraud, mutual mistake, or terms violative of ERISA’ as independent bases that justify the equitable remedy of reformation under § 502(a)(3).” See Nechis v. Oxford Health Plans, Inc., 421 F.3d 96, 103 (2d Cir. 2005).  This is consistent with the maxim of equity that equity suffers not a right to be without a remedy.

The court held “that § 502(a)(3) authorizes district courts to grant equitable relief — including reformation — to remedy violations of subsection I of ERISA, even in the absence of mistake, fraud, or other conduct traditionally considered to be inequitable.”  The court did not address Plaintiffs’ alternative arguments for relief and vacated and remanded the district court’s judgment for further proceedings.

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

Breach of Fiduciary Duty

Third Circuit

Acosta v. Schwab, et al., No. 5:18-CV-3544, 2019 WL 7046916 (E.D. Pa. Dec. 20, 2019) (Judge Joseph F. Leeson).  In this lawsuit alleging breach of fiduciary duties for unlawfully mismanaging a retirement plan, the court granted the Secretary’s motion for default judgment against Defendants.  “The Court finds that based on the Secretary’s allegations—which, taken as true, establish violations of six provisions of ERISA—the Schwabs are liable as co-fiduciaries under 29 U.S.C. § 1105(a)(1)-(3). Given the nature of their relationship as husband and wife and as manager and payroll officer of the Company, it is probable that Adam and Jodi Schwab (1) each knowingly participated in and undertook to conceal the acts or omissions of the other with respect to the commingling of Plan assets; (2) through this participation in or concealment of the commingling of funds, each enabled the other to further the breach of the fiduciary duty; and (3) each failed to make reasonable efforts to remedy the ongoing breach. The Company, as Plan Administrator, which was controlled and managed by the Schwabs, is similarly liable as a co-fiduciary. As a result, Adam Schwab, Jodi Schwab, and the Company are jointly and severally liable in this action.” (internal citations omitted).

Sixth Circuit

Clark v. Ford Motor Company et al., No. 19-CV-11410, 2019 WL 7212692 (E.D. Mich. Dec. 26, 2019) (Judge Paul D. Borman).  The court denied Defendants’ motion to dismiss Plaintiff’s breach of fiduciary duty claim predicated on Ford’s HR representative’s statement that he would “work on fixing” the issue with Plaintiff’s Contributory Service Fund (“CSF”).  “Plaintiff’s allegations that Ford is a fiduciary and Blake’s alleged statements regarding administration of the Plan and Plaintiff’s CSF contributions plausibly appear to demonstrate the exercise of discretion that ‘relate[s] to plan management or administration.’ As such, Plaintiff has sufficiently pleaded that Blake was acting in a fiduciary capacity under ERISA with regard to Plaintiff’s eligibility for CSF credits.”

Class Actions

Ninth Circuit

Condry, et al. v. Unitedhealth Group, Inc., et al., No. 17-CV-00183-VC, 2019 WL 7050114 (N.D. Cal. Dec. 23, 2019) (Judge Vince Chhabria).  The court certified a class pursuant to Federal Rule of Civil Procedure 23(b)(2) of ERISA plan participants who received denial letters denying reimbursement of out-of-network lactation services, which the court previously held violated ERISA’s requirement that the plan administrator write a denial in a manner calculated to be understood by the claimant.  The court denied certification of a nationwide class of people who were denied coverage for out-of-network lactation services, for the purpose of ordering United Healthcare to reprocess all those claims under the correct standard.  “[T]he data and evidence the plaintiffs have provided doesn’t come close to proving that United Healthcare failed to comply with the ACA in a uniform way.”

Disability Benefit Claims

Eighth Circuit

Conner v. Ascension Health & Sedgwick, No. 4:17-CV-00021-AGF, 2019 WL 7194762 (E.D. Mo. Dec. 26, 2019) (Judge Audrey G. Fleissig).  The court found that Sedgwick did not abuse its discretion when it denied Plaintiff’s disability benefit claim under the “own occupation” standard.  The court explained:  “Plaintiff’s FCE, performed in November 2015, reflected that she could occasionally lift up to twenty pounds floor to waist, push and pull ten pounds of force, stand and sit frequently, walk occasionally, climb stairs occasionally, engage in constant object handling and fingering, and occasionally reach floor level. It determined that Plaintiff could not reach overhead with her left upper extremity. Plaintiff’s medical records indicate that although Plaintiff continued to experience some pain due to her left shoulder and neck, Plaintiff was ‘doing well’ on her pain medications, and evaluations of Plaintiff’s range of motion were generally normal. A TSA performed by Ms. Phillis-Harvey, which accounted for any limitations in Plaintiff’s ability to reach, concluded that Plaintiff could work as a nurse instructor, school nurse, office nurse, or nurse consultant. Ms. Phillis-Harvey noted that these occupations would allow Plaintiff to change positions often, and Plaintiff’s sixteen years as a nurse made her well-qualified for those occupations.”  The court denied Sedgwick’s motion for summary judgment on its counterclaim seeking reimbursement of overpayments due to Plaintiff’s receipt of Social Security benefits because there was no affidavit or other evidence supporting the amount of the overpayment or how the calculation was made.

Ninth Circuit

Ruppert v. Atlas Air, Inc. Long Term Disability Plan; Hartford Life and Accident Insurance Co., No. 3:19-CV-0152-HRH, 2019 WL 7212305 (D. Alaska Dec. 27, 2019) (Judge H. Russel Holland).  Applying a low level of skepticism, the court concluded that Hartford did not abuse its discretion in determining that Plaintiff’s Social Security Retirement benefits are offsetable as “Other Income Benefits” under the long-term disability plan.

ERISA Preemption

Ninth Circuit

California Spine and Neurosurgery Institute v. JP Morgan Chase & Co., et al., No. 19-CV-03552-PJH, 2019 WL 7050113 (N.D. Cal. Dec. 23, 2019) (Judge Phyllis J. Hamilton).  Plaintiff brought state law claims for promissory estoppel and quantum meruit against Defendant for failing to pay the full $77,000 it charged for performing out-of-network back surgery on the Defendant health plan’s participant.  The court granted Defendants’ motion for judgment on the pleadings without prejudice because it found the state law claims expressly preempted by ERISA, 29 U.S.C. § 1144(a).  The court found that the state law claims are premised upon BM’s ERISA plan for two reasons:  “(1) they are necessarily predicated upon such plan’s existence (i.e., without the plan, plaintiff would not have called defendant United Health and the alleged promise would never have been made); and (2) their measure of damages depends upon the meaning of certain terms (deductible, coinsurance, and copayment) fixed by such plan.”

Medical Benefit Claims

Tenth Circuit

Ryland v. Blue Cross Blue Shield Healthcare Plan of Georgia, No. CIV-19-807-D, 2019 WL 7195610 (W.D. Okla. Dec. 26, 2019) (Judge Timothy D. DeGiusti).  Plaintiff brought a claim for benefits under ERISA Section 502(a)(1)(B) and for breach of fiduciary duty under ERISA Section 502(a)(3) based on Blue Cross’s denial of his son’s inpatient-treatment for mental health and chemical dependency.  The court granted Defendant’s partial motion to dismiss the breach of fiduciary duty claim because Plaintiff failed to offer any other allegations of fiduciary actions that could give rise to equitable relief outside of the claim for benefits.  “This is neither a situation where the same set of facts can support two different legal theories nor a situation where alternative facts are alleged. Instead, Plaintiff has alleged one set of facts that simultaneously states a claim under 1132(a)(1) and precludes a claim under 1132(a)(3). Under these circumstances, dismissal is appropriate.”

Pension Benefit Claims

Sixth Circuit

Clark v. Ford Motor Company et al., No. 19-CV-11410, 2019 WL 7212692 (E.D. Mich. Dec. 26, 2019) (Judge Paul D. Borman).  Plaintiff claims that Ford should be equitably estopped from denying his claim for pension benefits due to its misrepresentation.  The court found that Plaintiff did sufficiently allege misrepresentation, but the equitable estoppel claim nevertheless fails due to the unambiguous plan provisions.  Plaintiff must demonstrate estoppel elements and the additional factors required in the case of unambiguous plan provisions.

Plan Status

Fifth Circuit

Atkins v. CB&I, LLC, No. 2:19-CV-00899, 2019 WL 7194473 (W.D. La. Dec. 26, 2019) (Judge James D. Cain, Jr.).  The court determined that CB&I’s “Project Completion Initiative,” which provides an additional percentage of earned wages to employees upon the project’s completion, is an ERISA plan.  “Under this scheme, the plan administrator must determine whether a qualifying termination has taken place before the benefit can be paid. Because the policy is not limited to qualifying terminations happening on a certain date, it requires ‘an ongoing administrative program’ to make benefits determinations.”  Here, because the employees quit and were not covered by the Plan, they are not entitled to benefits.

Pleading Issues & Procedure

Tenth Circuit

Ramos, et al. v. Banner Health, et al., No. 15-CV-2556-WJM-NRN, 2019 WL 7189490 (D. Colo. Dec. 26, 2019) (Judge William J. Martinez).  In this lawsuit where Plaintiffs allege breach of fiduciary duties, the court granted Slocum’s Motion In Limine to exclude a February 8, 2017 Exchange Commission Order (“SEC”) imposing remedial sanctions on Slocum and its founder.  Plaintiffs argued that Defendants accepted gifts by regularly attending dinners and outings purchased by Fidelity which caused them to maintain the status quo Plan fees and retain underperforming investment funds.  The court found that there is no apparent connection between Banner’s alleged conduct and the SEC Order.  The court was not convinced that the SEC Order makes it more or less probable that Slocum engaged in “tainted behavior” by accepting gifts from Fidelity.  The court denied Plaintiffs’ Motion In Limine to preclude Banner from calling Michael Frick as a trial witness even though Banner did not list Frick in its Rule 26 disclosures.  The court found that there would be no undue prejudice to Plaintiffs since Frick was a named defendant, listed on Plaintiffs’ Rule 26 disclosures, and Plaintiffs failed to seek his deposition once he was listed as a “will call” witness in the Amended Final Pretrial Order.

Remedies

Second Circuit

Laurent v. PricewaterhouseCoopers LLP, No. 18-487-CV, __F.3d__, 2019 WL 7042414 (2d Cir. Dec. 23, 2019) (Before: Katzmann, Chief Judge, and Chin and Droney, Circuit Judges).  See Notable Decision summary.

Statute of Limitations

Sixth Circuit

Clark v. Ford Motor Company et al., No. 19-CV-11410, 2019 WL 7212692 (E.D. Mich. Dec. 26, 2019) (Judge Paul D. Borman).  “Plaintiff’s breach of fiduciary duty claim against Ford under Section 502(a)(2) is based upon two alternative theories; namely, that Ford breached its fiduciary duty to Plaintiff when it: (1) ceased Plaintiff’s [Ford Contributory Service Fund (“CSF”) ]deductions beginning in 2004; and (2) failed to retroactively credit him with additional CSF contributions after he challenged the unmade deductions.”  The court denied Defendants’ motion to dismiss this claim as being barred by the three-year statute of limitations because Plaintiff pleads that he believed he was a continuous participant in the CSF and that he only learned in July 2017 that his CSF contributions were not being credited after March 2004.  Though Defendants may be correct that Plaintiff’s paychecks starting in 2004 gave him notice that CSF deductions were not being made, which would trigger the statute of limitations, the court found that the issue may be better resolved on summary judgment.

Seventh Circuit

Resnick, et al. v. Schwartz, et al., No. 17 C 04944, 2019 WL 7282516 (N.D. Ill. Dec. 27, 2019) (Judge Edmond E. Chang).  In this case where Defendant Schwartz withdrew over $800,000 in lump sum pension plan benefits over 17 years go despite that he was considered a “highly compensated” employee who was required to take annuity payments over time, the court found that the breach of fiduciary duty claims against him were time-barred.  Plaintiffs conceded that they knew about the lump-sum distribution when it happened, which was more than three years before they filed the lawsuit.  The court found that the fraudulent-concealment exception does not apply because Defendants took no affirmative acts to conceal anything, cover their tracks, or hide the distribution.  Plaintiffs also failed to show that due diligence would not have led to the discovery of the breach or underfunding.

Subrogation/Reimbursement Claims

Sixth Circuit

Murray v. Unum Life Ins. Co. of Am., No. 3:18-CV-96-DJH-RSE, 2019 WL 7040628 (W.D. Ky. Dec. 20, 2019) (Judge David J. Hale).  In this dispute over deductible sources of income in a long-term disability policy, the court granted Unum’s motion for judgment on the administrative record.  The policy at issue provides that Unum is entitled to offset the LTD benefit by the amount that a participant receives from a third party by judgment, settlement, or otherwise.  Plaintiff ceased work due to Meniere’s Disease and then a couple of months later sustained injuries in a car accident.  She began claiming that her disability stemmed from both Meniere’s and spine injuries caused by the car accident.  After Plaintiff and her husband received a settlement related to the car accident, Unum began offsetting her LTD benefits by the amount of the settlement.  The court explained that Unum’s interpretation of the policy is not subject to contra proferentum since arbitrary-and-capricious review applies.  The court also found that Unum’s decision to offset the settlement as a deductible source of income was not arbitrary and capricious.  The court did not reach the question of whether Unum’s interpretation of “same disability” was arbitrary and capricious since Plaintiff consistently claimed disability for both her initial disabling condition and the injuries stemming from the car accident.  The “make-whole doctrine” does not prevent Unum from recovering the overpayment since Unum effectively established a priority to the overpayment funds.

Venue

Fourth Circuit

Davis v. Stadion Money Mgmt., LLC, No. 1:19CV119, 2019 WL 7037426 (M.D.N.C. Dec. 20, 2019) (Judge Loretta C. Biggs).  In this putative class action, Plaintiff alleged that Defendant Stadion, a company that provided a managed account service within a retirement plan administered by United of Omaha, selected investment options that generated higher fees for United in exchange for United continuing to provide business for Stadion despite its lackluster track record.  The court granted United’s motion to transfer venue to the District of Nebraska.  The court found that Plaintiff could have sued either in this District, where Plaintiff received benefits, or the District of Nebraska, where United resides.  Turning to the discretionary factors, the court determined that Plaintiff’s initial choice of forum is accorded substantially less weight since Plaintiff chose to litigate a putative, diffuse class with little connection to North Carolina in her home state.  The court found that the other factors weigh in favor of transfer, including relative ease of access to sources of proof, the cost of obtaining attendance or willing and unwilling witnesses, and the local interest in having localized controversies settled at home.

Withdrawal Liability & Unpaid Contributions

Fourth Circuit

National Electrical Benefit Fund v. Lighthouse Electric, Inc., No. GJH-19-257, 2019 WL 7049690 (D. Md. Dec. 23, 2019) (Judge George J. Hazel).  The court granted Plaintiff’s Motion for Default Judgment.

D.C. Circuit

Service Employees International Union National Pension Fund, et al. v. Bayville Healthcare, LLC, No. 19-CV-833 (CRC), 2019 WL 7066799 (D.D.C. Dec. 23, 2019) (Judge Christopher R. Cooper). The court granted the Fund’s motion for default judgment seeking to recover unpaid contributions and associated damages from Defendant.  The court found Defendant liable for  “$263,176.78 (plus additional interest), which includes delinquent contributions for the period of July 2016 through September 2019, interest, liquidated damages, and audit testing fees, as well as $11,980.79 in attorney’s fees and court costs.”

Your ERISA Watch is made possible by the collaboration of the following Kantor & Kantor attorneys:  Brent Dorian BrehmBeth Davis, Sarah DemersElizabeth GreenAndrew KantorSusan Meter, Michelle RobertsTim Rozelle, Peter Sessions, and Zoya Yarnykh.

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