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Your ERISA Watch – Sixth Circuit Finds that Deferred Compensation Plan for Executive Employees is an Employee Pension Benefit Plan

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This week’s notable decision is Wilson v. Safelite Grp., Inc., No. 18-3408, __F.3d__, 2019 WL 3000995 (6th Cir. July 10, 2019), where the Sixth Circuit answers the question of what constitutes an employee pension benefit plan under ERISA.  At issue is a deferred compensation plan for executive employees that the district court determined to be an employee pension benefit plan under 29 U.S.C. § 1002(2)(A)(ii) and not a bonus plan exempted from ERISA under 29 C.F.R. § 2510.3-2(c).  Analyzing the plain text of ERISA and the bonus plan regulation, the Sixth Circuit affirmed the district court’s decision.

Safelite’s Board of Directors created the Safelite Group, Inc. 2005 Transaction Incentive Plan (TIP), which provided a substantial bonus payment to five Safelite executives if they secured a strategic buyer for the company.  When Belron SA emerged as a likely buyer which would prompt payments under the TIP, the Board adopted the Safelite Group, Inc. Nonqualified Deferred Compensation Plan which would allow participants to defer compensation to avoid certain tax consequences.  Only four executive employees were eligible to participate in it.  The Plan permitted the participants to defer compensation and “TIP Amounts” and they could specify in which year or years they wanted to receive distributions of the deferred income, either during or after the termination of employment.  Wilson deferred hundreds of thousands of dollars between 2006 and 2013 such that when he left Safelite he had $9,111,384 in deferred compensation.  Unfortunately, a federal audit revealed that his elections failed to comply with 26 U.S.C. § 409(A) and he owed income taxes and substantial tax penalties.

Wilson brought state law claims against Safelite and Safelite argued those claims are preempted by ERISA.  The district court found that the Plan is an employee pension benefit plan and granted Wilson leave to file an amended complaint asserting ERISA claims.  Instead, he appealed.

On appeal, the Sixth Circuit had to resolve the issue of whether the Plan “results in a deferral of income by employees for periods extending to the termination of covered employment or beyond …”  29 U.S.C. § 1002(2)(A).  According to the ordinary meaning of the word “results,” a plan is an employee pension benefit plan when a deferral of income arises as an effect, issue, or outcome from the provisions of that plan.  A plan does not need to require a deferral of income to the termination of covered employment.  The court found that a plan can be an ERISA employee pension benefit plan even if it allows for distributions both before and after termination.  Here, the Plan was designed and administered to permit participants to defer income for various periods, including periods up to and beyond termination.  The court found that it does not fall under the bonus plan exemption because it does not state an intention to provide financial incentives for employee performance or retention and does not operate as a bonus plan.  The court agreed with the district court that deferring bonuses provided for under a separate agreement does not transform a deferred compensation plan into a bonus plan.  (Of note, the concurring opinions delve into an interesting debate on the concept of corpus linguistics as an objective method of statutory interpretation.  Check those out if you are interested in approaches to statutory interpretation.)

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

Breach of Fiduciary Duty

Ninth Circuit

Fisher v. Secchitano, No. 3:18-CV-1639-JR, 2019 WL 2994206 (D. Or. July 9, 2019) (Judge Michael W. Mosman).  The court granted Defendants’ motion to dismiss the breach of fiduciary duty claims in the FAC.  Plaintiff alleges that the Trustees failed to act in accordance with the Trust Documents because the Inlandboatmen Union’s Pension Plan incurred an unfunded vested benefit liability which the Trust Documents prohibit.  The court found that Plaintiff does not challenge an action that was within the Trustees’ authority and control as fiduciaries.  “As Judge Russo noted in her F&R, it would be absurd to hold the Trustees responsible for a decrease in the value of plan assets that resulted from a nationwide recession.”  Plaintiff needs to identify an act or omission within the Trustees’ capacities as fiduciaries that resulted in a breach of those duties.   The court granted Plaintiff leave to amend the complaint.

Disability Benefit Claims

First Circuit

Hammond v. Procter & Gamble Health and Long Term Disability Plan, No. CV 18-11343-RGS, 2019 WL 3027644 (D. Mass. July 11, 2019) (Judge Richard G. Stearns).  The court found that the Plan’s decision to find Plaintiff only partially disabled, rather than totally disabled, was not arbitrary or capricious.  The Plan provides that a partially disabled participant “can perform other useful roles at the same Company site or at other jobs outside the Company … [and] is not necessarily prevented from performing useful tasks, utilizing public or private transportation, or taking part in social or business activities outside the home,” whereas, “[u]sually, total disability involves a condition of such severity as to require care in a hospital or restriction to the immediate confines of the home.” Here, Plaintiff’s own doctor concluded that he could work six or eight hours a day with restrictions and he continued to work part-time at Gillette until early June.  On this record, the finding of partial disability is amply supported.

Second Circuit

Schuman v. Aetna Life Ins. Co., et al., No. 3:15-CV-01006 (SRU), 2019 WL 2991958 (D. Conn. July 9, 2019) (Judge Stefan R. Underhill).  On de novo review considering whether Plaintiff is unable to perform pharmaceutical jobs in the national economy that meet his reasonable wage requirement, the court found neither party entitled to summary judgment.  The court found that Plaintiff’s former employer’s inability to accommodate his sedentary restrictions does not preclude that another company may be able to accommodate him.  There is also no evidence that his advanced age renders him physically or mentally incapable of working as a retail pharmacist or completing new training for another occupation.  The court also found Aetna’s labor market survey (prepared by Coventry) unavailing because there is a genuine dispute as to whether Plaintiff is or can become qualified for the identified non-retail pharmacy occupations, most of which require experience that Plaintiff does not have.  Further, Aetna did not fully assess whether Plaintiff could be accommodated as a retail pharmacist by another employer.  The court set the matter for trial.

Sixth Circuit

Majeske v. Quicken Loans and Affiliated Companies Welfare Benefits Plan, No. 18-12403, 2019 WL 3035547 (E.D. Mich. July 11, 2019) (Judge Arthur J. Tarnow).  The plan did not abuse its discretion by crediting the medical opinions of its own experts over those of Plaintiff’s experts.  “There is no treating physician rule in ERISA denial of benefits cases.”  The court found that Plaintiff did not present sufficient objective evidence of how her chronic Borreliosis rendered her unable to perform her work, including that there were no psychiatric, cognitive, or neurological tests in her file.  Defendant was not required to have conducted its own medical examinations of Plaintiff.

Ninth Circuit

Elliott v. Life Insurance Company of North America, Inc., No. 16-CV-01348-MMC, 2019 WL 2970843 (N.D. Cal. July 9, 2019) (Judge Maxine M. Chesney).  See Notable Decision summary above.

Discovery

Sixth Circuit

Duncan v. Minnesota Life Insurance Company, No. 3:17-CV-00025, 2019 WL 3000692 (S.D. Ohio July 10, 2019) (Magistrate Judge Sharon L. Ovington).  In this dispute over accidental death benefits, the court found that the fiduciary exception to the attorney-client privilege applied to certain communications during the administrative claims process.  The fiduciary exception also applies to the work-product doctrine.  However, when Plaintiff’s attorney sent a “strongly worded, evidence-based letter” with a doctor’s opinion challenging the propriety of the denial, the court found that “Minnesota Life faced more than a mere possibility of future litigation if it continued to deny benefits.”  At this point the relationship became adversarial and Defendant knew that litigation would occur if it continued to deny benefits after it received the letter.  Thus, the fiduciary exception does not apply to documents after Defendant received Plaintiff’s counsel letter (even though it was before Defendant rendered a final decision).

ERISA Preemption

Sixth Circuit

K.B. by & through Qassis v. Methodist Healthcare – Memphis Hosps., No. 18-6128, __F.3d__, 2019 WL 3024729 (6th Cir. July 11, 2019) (Before: McKeague, Thapar, And Murphy, Circuit Judges).  The court determined that Plaintiff’s action alleging that the hospital overcharged her and reneged on its agreements with her health insurance providers regarding the cost of her treatment was not completely preempted by ERISA, and thus, removal was not warranted on that basis.  Plaintiff alleged breach of contract and other state-law claims and sued only the hospital based on its billing practices.  Although the ERISA plan paid a small portion of her hospital bill, Plaintiff made no claim based on a denial of benefits under an ERISA plan, and her claims did not depend on the terms of any ERISA plan.  Reversed and remanded.

Medical Benefit Claims

Third Circuit

Commonwealth of Pennsylvania; State of New Jersey v. President United States of America, No. 17-3752, __F.3d__, 2019 WL 3057657 (3d Cir. July 12, 2019) (Before: McKee, Shwartz, and Fuentes, Circuit Judges).  In 2017, the Department of Health and Human Services and the Departments of Labor and Treasury promulgated regulations that expanded the entities that could invoke an exemption to the requirement that group health insurance plans cover contraceptive services as a form of women’s preventive health care. The Third Circuit affirmed the district court’s order preliminarily enjoining the rules’ enforcement nationwide because the state plaintiffs are likely to succeed in proving that the Agencies did not follow the APA and that the regulations are not authorized under the ACA or required by the Religious Freedom Restoration Act.

Pension Benefit Claims

Second Circuit

Brightman v. 1199SEIU Health Care Employees Pension Fund, No. 18 CIV. 4932 (CM), 2019 WL 3006471 (S.D.N.Y. July 10, 2019) (Judge McMahon).  In this dispute challenging the suspension of benefits due to Plaintiff’s “related employment,” the court found that the Fund’s decision was arbitrary and capricious.  The court found that the Fund was required to compare Plaintiff’s skills as a physician’s assistant (“PA”) at Corizon Health, Inc. and PAGNY prior to suspending her benefits.  Further, the record does not show that the Fund gave Plaintiff adequate notice.  There is doubt as to whether letters the Fund claimed it sent were sent.  The court provided a schedule for remand of the issue to the Fund.  On the issue of the calculation of Plaintiff’s average final pay, the court determined that the Fund’s decision was arbitrary and capricious because the record does not establish that the Fund was unable to obtain actual pay information or that its calculations based on industry standard are accurate.  On remand, the Fund must attend to obtain necessary information from Corizon or the Union.  On the issue of Plaintiff’s future service credit for her work at St. Barnabas, the court found that the Committee’s decision denying her future service credit was not arbitrary and capricious.  The court found the same with respect to her claim that she should be credited for past service for work as a PA for St. Vincent’s.

Sixth Circuit

Southern Electrical Retirement Fund v. Gruel, No. 3:18-CV-0585, 2019 WL 3027018 (M.D. Tenn. July 11, 2019) (Magistrate Judge Barbara D. Holmes).  In this interpleader action brought by the Southern Electrical Retirement Fund (the “Fund”) for a determination of which defendant, Christiana Gruel or Camyrn Elizabeth Lawhorne, is entitled to pre-retirement death benefits owing because of the death of plan participant, Donald Lawhorne, Jr., the court determined that the benefits are payable to Camyrn Elizabeth Lawhorne, decedent’s daughter who was designated as the contingent beneficiary.  The court determined that the interpleader action did not render the Plan’s prior decision about eligibility null and void.  The court applied the arbitrary and capricious standard of review to the Fund’s determination finding that Gruel was not entitled to the benefits. The Plan denied Gruel benefits because the decedent listed the primary beneficiary as “Christy Bender-Christina [sic]” with a relationship description as “Girlfriend.”  At the time of his death, she was no longer his girlfriend and she was married to someone else.  “Fundamentally, the Fund determined that the relationship designation of a beneficiary is a substantive component of beneficiary eligibility. Contrary to the assertions of Ms. Gruel, the Fund’s eligibility determination is the kind of reasoned explanation, based on the evidence, that supports a conclusion that the Fund acted neither arbitrarily nor capriciously.”

Nolan v. Detroit Edison Company, No. 18-13359, 2019 WL 2996178 (E.D. Mich. July 9, 2019) (Judge David M. Lawson).  Plaintiff worked for Defendant and was a participant in its traditional defined benefit plan.  In 2002, she was offered the choice of staying with the traditional plan or moving to the Cash Balance Plan.  Due to the wear away, her opening account balance barely grew post-conversion.  She claimed ERISA disclosure violations and entitlement to her frozen traditional plan balance plus the benefit she would earn under the Cash Balance Plan.  The court dismissed her claims, finding that Defendants gave adequate notice and information concerning the conversion and there was no violation of ERISA § 204(h).  Defendant provided the employees at least four resources to help guide their decisions: the Retirement Choice Decision Guide, a personalized statement of their accrued benefits and the projected conversion to an opening cash balance, an online modeling tool, and in-person workshops and webcasts presented by an outside financial counselor.  The court explained that it was not necessary to use the term “wear away” in the materials.  Further, elimination of the early retirement subsidy is not a triggering event for notice under § 204(h).  On Plaintiff’s ERISA § 102(a) claim, the court found that the Decision Guide did meet the requirements of a “summary material modification” (SMM).

Eighth Circuit

Hayes v. Twin City Carpenters & Joiners Pension Plan, et al., No. 17CV05267ECTBRT, 2019 WL 3017747 (D. Minn. July 10, 2019) (Judge Eric C. Tostrud).  In this dispute over the suspension of pension benefits due to Plaintiff’s post-retirement employment, the court found that the Committee abused its discretion by considering suspension-of-benefit rules applicable to a benefit Plaintiff was not receiving.  The court did not agree with Plaintiff that the procedural irregularities in this case warranted de novo review.  The court found that remand is appropriate.

Eleventh Circuit

Tcherneshoff v. Northrup Grumman Corp., et al., No. 5:19-CV-284-LCB, 2019 WL 2928891 (N.D. Ala. July 8, 2019) (Judge Liles C. Burke).  Plaintiff alleges that he’s entitled to pension benefits under the Northrop Grumman Electronic Systems Executive Pension Plan, in addition to the Northrop Grumman Electronic Systems Pension Plan under which he is currently receiving benefits.  The court dismissed his claim under Section 502(a)(3) since he has an adequate remedy under Section 502(a)(1)(B).  Plaintiff alleges he was vested in the plan so his remedy is not seeking equitable relief in the form of reformation such that he can plead a 502(a)(3) claim in the alternative.

Plan Status

Sixth Circuit

Wilson v. Safelite Grp., Inc., No. 18-3408, __F.3d__, 2019 WL 3000995 (6th Cir. July 10, 2019) (Before: Rogers, Stranch, and Thapar, Circuit Judges).  See Notable Decision summary above.

Pleading Issues & Procedure

Fourth Circuit

Townes Telecommunications, Inc., et al. v. National Telecommunications Cooperative Association, et al., No. 1:19-CV-436, 2019 WL 2997387 (E.D. Va. July 9, 2019) (Judge T.S. Ellis, III).  In this removed action involving a dispute over potential multi-million-dollar withdrawal liability for seven employers seeking to withdraw from a pension plan, the court denied the employers’ motion to remand the case to state court.  The court agreed with Defendants that the ERISA issue is “(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.”

Tenth Circuit

GCIU-Employer Retirement Fund and Board of Trustees of The GCIU-Employer Retirement Fund v. Coleridge Fine Arts, et al., No. 14-2303-EFM-KGG, 2019 WL 2924843 (D. Kan. July 8, 2019) (Judge Eric F. Melgren).  In this dispute seeking to collect withdrawal liability, following limited jurisdictional discovery, the court found that there are insufficient minimum contacts by Defendants and that Plaintiffs’ injuries do not arise from Defendants’ contacts. The court granted Defendants’ Motion to Dismiss for Lack of Personal Jurisdiction.

State Bans on Discretion

Sixth Circuit

Majeske v. Quicken Loans and Affiliated Companies Welfare Benefits Plan, No. 18-12403, 2019 WL 3035547 (E.D. Mich. July 11, 2019) (Judge Arthur J. Tarnow).  The court found that MICH. ADMIN. CODE. R. 500.2201-02 (2012), which prohibits insurance policies from containing discretionary clauses, does not apply to the self-funded disability plan.  § 1144(b)(2)(B) provides that a self-funded plan cannot be subject to state laws that conflict with ERISA.  Thus, the arbitrary and capricious standard of review therefore applies.

Statute of Limitations

Sixth Circuit

Nolan v. Detroit Edison Company, No. 18-13359, 2019 WL 2996178 (E.D. Mich. July 9, 2019) (Judge David M. Lawson).  The court found that Plaintiff’s claim under ERISA § 502(a)(1)(B) that she is entitled to a “two-part formula” under the Cash Balance plan is time-barred.  The court determined that the six-year statute of limitations accrued in 2002 when Plaintiff was informed through a “Decision Guide” that the retirement plan provided a benefit completely at odds with her claimed entitlement.  The Decision Guide provided sufficient notice and Plaintiff cannot rely on her misunderstanding to delay the accrual of her claim.  The court rejected Plaintiff’s argument that her claim began accruing after she initiated the claim review process sometime after October 2017.  Because she did not file her lawsuit until October 2018, her claim must be dismissed.

Subrogation/Reimbursement Claims

First Circuit

Jette v. United of Omaha Life Ins. Co., No. CV 18-11650-JCB, __F.Supp.3d__, 2019 WL 3027745 (D. Mass. July 11, 2019) (Magistrate Judge Jennifer C. Boal).  The court dismissed United’s counterclaim against Plaintiff seeking to recover long-term disability benefits it overpaid as a result of her receipt of SSDI benefits.  The court found that United’s counterclaim is equitable in that it asks the court to impose a constructive trust or enforce an equitable lien over the overpayment.  But, United did not allege that the funds are in Plaintiff’s possession.  United suggested that it did not allege that because it did not have sufficient knowledge to make that allegation.  The court permits United to conduct limited discovery on the issue of possession and seek leave to amend the answer to add counterclaims.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Trustees for The Mason Tenders District Council Welfare Fund v. Champion Electrical Mechanical Builder Corp., No. 19-CV-00879 (RA), 2019 WL 3006400 (S.D.N.Y. July 10, 2019) (Judge Ronnie Abrams).  The court granted the petition to confirm the arbitration award and directed the Clerk of Court to enter judgment in the amount of $73,503.91, plus post-judgment interest at the statutory rate.

Third Circuit

Trustees of International Union of Painters and Allied Trades District Council 711 Health & Welfare Fund, et al. v. Valhalla Construction, LLC, No. CV 18-16538, 2019 WL 2950195 (D.N.J. July 9, 2019) (Judge John Michael Vazquez).  “In sum, the Court grants actual damages from July through August, 2017 in the amount of $17,014.93, as well as $2,572.92 for attorneys’ fees and costs. Additionally, the Court grants the right to recover the unpaid contributions for November, contractual liquidated damages, interest on the total contributions owed, and penalties as contemplated by Section 502(g)(2)(C) and the CBA. Plaintiffs may submit an affidavit with the November invoice, interest and an independent basis by which the Court could award 20% liquidated damages and a penalty. If appropriate the Court will enter an amended order.”

Sixth Circuit

Carpenters Pension Trust Fund – Detroit And Vicinity et al. v. Brunt Associates, Inc. et al., No. 16-CV-13928, 2019 WL 3035524 (E.D. Mich. July 11, 2019) (Judge Matthew F. Leitman).  The court granted Brunt’s motion for summary judgment and dismissed all of Plaintiffs’ claims against Brunt.  The court granted BAI’s motion for summary judgment on Count II but denied BAI’s motion for summary judgment or for judgment on the pleadings in all other respects.  The court denied Plaintiffs’ motion for summary judgment and “will hold a bench trial to resolve the factual dispute concerning whether BAI received the May 24 Letter when Malinowski sent it in May 2016.”

Seventh Circuit

Chicago Area I. B. OF T. Health and Welfare Trust Fund v. Olympic Wholesale Produce, Inc., No. 18-CV-00202, 2019 WL 2994525 (N.D. Ill. July 9, 2019) (Judge Robert M. Dow, Jr.).  The court found that Busse Apartments is jointly and severally liable for the withdrawal liability owed by Defendant Olympic Wholesale Produce, Inc. to the Chicago Area I.B. of T. Pension Trust Fund, which as of the date of the decision, totals $258,002.86.

Ninth Circuit

Northwest Dairy Association & Darigold, Inc. v. Western Conference of Teamsters Pension Trust Fund, No. C18-1100RSL, 2019 WL 2918230 (W.D. Wash. July 8, 2019) (Judge Roberts S. Lasnik).  The court affirmed the arbitrator’s findings that the defendant trust fund’s obligation to contribute to the pension trust fund ended in 2012 and that a partial withdrawal occurred at that time under the MPPAA.  “The arbitrator’s factual determinations regarding Darigold’s intent to cancel its obligation to contribute to the fund and its substantial compliance with the written notice provision of the E-U Certificate are presumed correct, and Darigold has not disproved the challenged factual determinations by a preponderance of the evidence.”

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