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Your ERISA Watch – Sixth Circuit Holds that Contra Proferentum and Firestone Deference Are Incompatible on Issues of ERISA Plan Interpretation

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The Sixth Circuit is back in the news.  This week’s notable decision is Clemons v. Norton Healthcare Inc. Ret. Plan, No. 16-5063, __F.3d__, 2018 WL 2142640 (6th Cir. May 10, 2018), an upset to the Plaintiff-Retirees who had prevailed on behalf of a certified class at the district court on their claim for underpaid pension benefits.  This lengthy opinion is succinctly summarized by the Court as follows:

This appeal is the latest installment in an ERISA litigation saga that has spanned almost ten years. At the risk of oversimplifying their case, the Plaintiff–Retirees claim that Defendant Norton Healthcare, Inc. Retirement Plan (“Norton”) underpaid them under the terms of the plan. The district court found that the plan was unambiguous in the Retirees’ favor. We agree with the district court on most issues. However, because the Plan is ambiguous in one crucial respect and may not comply with ERISA in another, we VACATE the district court’s summary judgment order and REMAND for further examination of those issues. Consequently, we also VACATE the district court’s damages order, including its certification of a class under Rule 23(b)(1)(A) and (b)(2) during the damages stage. In doing so, we mean no slight to the district judges and their staff, who ought to be praised for their commitment to this case and for their patience with the complex issues it presents.

The crucial ambiguity in the Plan is whether the “early retirement reducers” apply to the Plaintiff-Retirees.  The district court applied contra proferentum to find in favor of the Retirees.  The Sixth Circuit, however, concluded that contra proferentum cannot be used in conjunction with Firestone deference and held that when Firestone applies, a court may not invoke contra proferentum to “temper” arbitrary-and-capricious review.

The court explained that, as a practical matter, Firestone deference and contra proferentum cannot be applied to the same case without contradiction.  First, Firestone deference must include the ability to choose between two reasonable interpretations of the Plan, but this is the precise situation in which traditional contra proferentum operates against the drafter.  “In effect, applying contra proferentum when language is ambiguous generates a paradox where the administrator can only exercise his discretion when it is not needed, i.e., when the plan language is clear.”  Second, it is doubtful that plan decisions will be influenced by a contra proferentum rule, which is a prophylactic rule (be clear next time), not a remedial device.  Plan decisions are far removed from contract negotiations and the parties cannot reasonably be expected to foresee every possible negative consequence of the language they use.  This is the very reason why administrators are vested with discretion.  The court did not abandon contra proferentum entirely – it should be applied to the threshold question of whether Firestone deference exists.

The court also found no place for contra proferentum as a factor in determining whether there is an abuse of discretion, except in the circumstance where the administrator deliberately makes the Plan ambiguous so that it can invoke deference to serve its own interests.  [As an aside, this raises a question not addressed in the opinion:  Can plaintiffs now seek discovery on the administrator’s process in drafting the Plan language?  If so, what primary showing of conflict must plaintiffs make for a court to authorize such discovery?]

Because the Plan was unambiguous on all fronts except for the issue of the early retirement reducers, the court vacated the district court’s holding on that issue and remanded the matter for a Firestone analysis of Defendant’s proposed interpretation.

On the other issues, the court held that the Retirees’ claims based on Plan interpretation are governed by Kentucky’s contractual limitations period, which is fifteen years.  However, the actuarial-equivalence claims are governed by the statutory limitations period of five years.  The court affirmed the class certification for plan interpretation issues but vacated the certification and remanded it for further proceedings to the extent it included damages calculations.

Judge Helene N. White, wrote an opinion concurring in part and dissenting in part.

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

Attorneys’ Fees

Third Circuit

Univ. Spine Ctr. v. Horizon Blue Cross Blue Shield of New Jersey, No. 16-CV-8021(SDW)(LDW), 2018 WL 2134060 (D.N.J. May 9, 2018) (Judge Susan D. Wigenton).  Where the court previously found in favor of Defendants on the summary judgment as to whether Defendants had properly reimbursed Plaintiff pursuant to the Plan’s terms, the court granted Defendants’ motion for attorneys’ fees and costs in the amount of $17,893.59 (at a rate of $280–88/per hour for counsel and $152/per hour for counsel’s paralegal).  “In addition, an award of fees may act as a deterrent against Plaintiff’s serial litigation and discourage Plaintiff from filing claims that lack merit and which clog this Court’s docket.”

Breach of Fiduciary Duty

First Circuit

Fleming v. Fid. Mgmt. Tr. Co., No. 16-CV-10918-ADB, 2018 WL 2089354 (D. Mass. May 3, 2018) (Judge Allison D. Burroughs).  The court denied Plaintiffs’ motion to vacate and amend the judgment and file an amended complaint.  The court previously held that Plaintiffs have failed to plausibly allege that Defendants were exercising a fiduciary function under 29 U.S.C. § 1002(21)(A) when they decided which securities to make available through BrokerageLink.  The court determined that Plaintiffs have failed to meet their burden under Rule 59(e) or Rule 60(b)

Third Circuit

Kovarikova v. Wellspan Good Samaritan Hospital, No. 1:15-CV-2218, 2018 WL 2095700 (M.D. Pa. May 7, 2018) (Judge John E. Jones III).  The court granted Defendants’ motion for reconsideration on its previous finding that Defendants had a duty to correct Plaintiff’s misunderstanding once the plan changes were being seriously considered.  The court agreed with Defendants that the court “misapplied Third Circuit precedent to create a duty that does not exist: specifically, the duty to go back and correct a statement about future benefits that, while not a material misrepresentation at the time, became misleading once a change in benefits took place.”

Fifth Circuit

Schweitzer v. The Investment Committee of The Phillips 66 Savings Plan, et al., No. CV H-17-3013, 2018 WL 2137887 (S.D. Tex. May 9, 2018) (Judge Sim Lake).  The court granted Defendants’ motion to dismiss Plaintiffs’ claims for failure to state a claim under Rule 12(b)(6) where Plaintiffs allege that Defendants breached their fiduciary duties of diversification and prudence by retaining the ConocoPhillips Funds in the Plan after the spinoff because the ConocoPhillips stock no longer qualified as an “employer security” under ERISA.   The court concluded that shares of ConocoPhillips stock are not employer securities and that Defendants are therefore not exempt from ERISA’s diversification requirement with respect to the ConocoPhillips Funds.  But, Plaintiffs fail to state a claim for relief based on a duty to diversify, duty of prudence, or failure to engage in an adequate process.

Class Actions

Ninth Circuit

Johnson, et al., v. Fujitsu Technology and Business of America, Inc., et al., No. 16-CV-03698-NC, 2018 WL 2183253 (N.D. Cal. May 11, 2018) (Magistrate Judge Nathanael M. Cousins).  The court granted “Plaintiffs’ unopposed motion for final approval of a proposed class action settlement concerning a retirement fund for employees of Fujitsu Technology and Business of America, Inc. The proposed class settlement totals $14 million, and includes measures to prevent future mismanagement of the retirement fund.” The court also granted Plaintiffs’ unopposed motion for attorneys’ fees of 25% of the gross settlement amount, litigation and administrative costs, and class representative awards, totaling $3,679,380.76, which would be deducted from the $14 million settlement fund.

Disability Benefit Claims

Third Circuit

Thomas v. Prudential Ins. Co. of Am., No. CV 17-4522, 2018 WL 2118020 (E.D. Pa. May 8, 2018) (Judge Robert F. Kelly, Sr.).  Plaintiff filed suit against Prudential for long-term disability benefits and Prudential filed a counterclaim against Plaintiff for breach of contract on the basis that he waived his LTD claim when he entered into a separation agreement with his employer.  The court denied Plaintiff’s motion to dismiss the counterclaim.  The court explained that there is no reason in law or fact why Prudential cannot receive a voluntary benefit from the separation agreement.  In addition, Prudential is not a third party; it has standing to enforce the agreement as a Released Party.

Sixth Circuit

Smith v. Reliastar Life Insurance Company, Inc., No. 3:17-CV-285, 2018 WL 2149734 (S.D. Ohio May 10, 2018) (Judge Thomas M. Rose).  In this case involving a denied total and permanent disability income benefit under a group life insurance policy, the court determined that Reliastar’s denial of benefits was not arbitrary and capricious where Plaintiff’s doctor completed a form noting that Plaintiff is not totally disabled for all occupations, just his regular occupation.  Totally disabled is defined as the  “inability, due to sickness or accidental injury, to work at or perform the material and substantial duties of any job” suited to the employee’s “education, training, or experience.”  The definition of permanent disability is defined as a “total disability, which is expected to continue for 10 years or for the rest of the disabled person’s expected lifetime, whichever is shorter.”

Yerington v. The Lincoln National Life Insurance Company, No. 2:17-CV-849, 2018 WL 2149738 (S.D. Ohio May 10, 2018) (Judge George C. Smith).  The court dismissed Plaintiff’s lawsuit seeking an injunction preventing Lincoln from ever deeming the Own Occupation Period to be at an end, and damages incurred by Plaintiff in forgone employment opportunities.  The court determined that the injunctive relief claim is not ripe since Plaintiff is receiving the maximum benefit possible.  Also, the plan language clearly has an end date for the Own Occupation Period.  Plaintiff cannot get damages for forgone employment income because under ERISA there are no extra-contractual damages.

Ninth Circuit

Gorena v. Aetna Life Insurance Company, No. C17-532 MJP, 2018 WL 2113952 (W.D. Wash. May 8, 2018) (Judge Marsha J. Pechman).  On de novo review, the court found that the weight of the evidence unquestionably favors Plaintiff’s claim for long-term disability benefits due to multiple sclerosis.  The court ordered Aetna to approve and pay Plaintiff’s long-term disability claim to the present and ordered Aetna to “continue to pay Plaintiff’s long-term disability claim to the policy’s maximum benefit absent a showing of improvement in her medical record such that a reasonable physician would conclude that she could work in any reasonable sedentary occupation in the competitive workforce (as defined by the Plan) for which she has the education, training and experience, and is capable of performing productively, full-time, without undue disruptions and absences due to her MS and its related symptoms.”

Spies v. Life Ins. Co. of N. Am., No. 17-CV-02012-PJH, 2018 WL 2096520 (N.D. Cal. May 7, 2018) (Judge Phyllis J. Hamilton).  In this case, LINA paid Plaintiff two years of long-term disability benefits before realizing she was never enrolled in the LTD plan and stopped paying her claim.  Plaintiff argued that LINA should continue her LTD benefits.  The court granted LINA’s motion for summary judgment because plaintiff lacks standing to state a claim based on the LTD plan because she never became a participant.  Further, Plaintiff does not meet the requirements of equitable estoppel.  The Ninth Circuit has held that a party cannot maintain a federal equitable estoppel claim in the ERISA context when recovery on the claim would contradict written plan provisions.

Tenth Circuit

Derichs v. AT&T Services, Inc., No. 16-2346-JWL, 2018 WL 2134067 (D. Kan. May 9, 2018) (Judge John W. Lungstrum).  Under the Plan, one is totally disabled if “because of illness or injury, you are unable to perform all of the essential functions of your job….”  On the question of interpreting this provision, the court found that the most reasonable interpretation is that “unable to perform all of the essential functions” means that a claimant is disabled if she cannot perform any particular essential function of her job, as she would then be unable to perform “all” of the essential functions.  The court found that this was also supported by the doctrine of contra proferentem.  The court remanded the matter back to Defendant to evaluate Plaintiff’s claim in light of this interpretation of the plan.

Discovery

Sixth Circuit

Baker v. The Ohio Operating Engineers Pension Plan, et al., No. 2:17-CV-316, 2018 WL 2095344 (S.D. Ohio May 7, 2018) (Magistrate Judge Elizabeth A. Preston Deavers).  In this lawsuit for pension benefits, the court denied Plaintiff’s motion for leave to conduct discovery into “(1) the bias or conflict of interest of the Fund Administrator and Trustees in reaching their decision; (2) Defendants’ administrative procedures for making benefit determinations and any procedural irregularities and due process issues related thereto; and (3) Defendants’ prior interpretation and application of Plan language regarding claims involving the same or similar facts.”

ERISA Preemption

Third Circuit

North Jersey Spine Group, LLC v. Blue Cross and Blue Shield of Massachusetts, Inc., et al., No. CV 17-13173 (JLL), 2018 WL 2095174 (D.N.J. May 7, 2018) (Judge Jose L. Linares).  The court granted Plaintiffs’ motion to remand its lawsuit seeking payment for pre-authorized surgical treatment it provided to one of Defendants’ insureds.  “While it is true that Plaintiffs’ claims could have potentially been brought under ERISA, Defendants fail to provide any proof that Patient J.B. executed assignments of benefits in connection with his surgery such that ERISA would be applicable.”

Exhaustion of Administrative Remedies

Ninth Circuit

Abdilnour v. Blue Cross of Idaho Health Serv. Inc., No. 1:17-CV-00412-BLW, 2018 WL 2088737 (D. Idaho May 4, 2018) (Judge B. Lynn Winmill).  The court denied Defendant’s motion to dismiss for failure to exhaust administrative remedies.  The court found that a letter sent by a representative of the air ambulance company constitutes an appeal of the claim determination on behalf of Plaintiff.  “BCI should have recognized the letter as such, even without an explicit statement of his appeal rights, or at the very least sent notice to VMF and Mr. Abdilnour of their intention not to treat the letter as an appeal. Where BCI did not provide such notice, they cannot now argue that Mr. Abdilnour failed to timely appeal.”

Life Insurance & AD&D Benefit Claims

Sixth Circuit

Guinn v. General Motors LLC, et al., No. 1:17CV197, 2018 WL 2149267 (N.D. Ohio May 10, 2018) (Judge Christopher A. Boyko).  The court found that although the decedent may have intended to change her beneficiary from her ex-husband to her nephew, she did not comply with the required terms of the MetLife policy in order to effectuate that change and the law mandates that the Plan documents control.  The court also again rejected Plaintiff’s motion to supplement the “administrative record” with an affidavit showing that the decedent had no trust agreement and to support Plaintiff’s claim that the decedent substantially complied with the Plan’s requirements.  Even though MetLife stipulated to the expansion of the administrative record, the court declined to adopt the stipulation where there was no alleged lack of due process or bias.

Medical Benefit Claims

Third Circuit

Bickhart v. Carpenters Health & Welfare Fund of Philadelphia & Vicinity, No. 17-2834, __F.App’x__, 2018 WL 2095484 (3d Cir. May 7, 2018) (Before: CHAGARES, VANASKIE and FISHER, Circuit Judges).  The court affirmed the judgment of the district court granting summary judgment for the Defendants.  It found that the terms of the plan make clear that, absent a waiver, the work Plaintiff engaged in would result in forfeiture of his retiree medical benefits.

Pension Benefit Claims

Third Circuit

Howard Johnson International, Inc. v. University Hospitality, LLC, et al., No. CV 11-4720 (JLL), 2018 WL 2095595 (D.N.J. May 7, 2018) (Judge Jose L. Linares).  The court granted Defendant’s motion to stay because “it is clear to the Court that irreparable injury will result absent a stay because Defendant would lose the $278,207.00 in the IRA, which the Third Circuit may later deem as exempt under ERISA’s anti-assignment clause.”

Sixth Circuit

Clemons v. Norton Healthcare Inc. Ret. Plan, No. 16-5063, __F.3d__, 2018 WL 2142640 (6th Cir. May 10, 2018) (Before: SILER, McKEAGUE, and WHITE, Circuit Judges).  See Notable Decision summary above.

Seventh Circuit

Howard v. Bricklayers & Trowel Trades International Pension Fund, No. 17-C-209, 2018 WL 2120416 (E.D. Wis. May 8, 2018) (Judge William C. Griesbach).  The court granted Defendant’s motion for summary judgment, finding that the IPF’s conditional denial of Plaintiff’s application due to his failure to provide information to support his request to collect from his early retirement pension was neither arbitrary nor capricious and the IPF’s determination that Plaintiff’s work in disqualifying employment delayed the commencement of his early retirement pension was reasonable.

Ninth Circuit

Pension Benefit Guar. Corp. v. Idaho Hyperbarics, Inc., No. 4:16-CV-00325-CWD, 2018 WL 2088733 (D. Idaho May 4, 2018) (Magistrate Judge Candy W. Dale).  The court granted PBGC’s motion for summary judgment, requesting that the Court uphold PBGC’s administrative determination that Idaho Hyperbarics, Inc. failed to complete the standard termination of the Plan in accordance with the Plan’s provisions and under ERISA and improperly reduced the benefits of approximately 17 Plan participants.

Provider Claims

Third Circuit

Shah, MD v. Blue Cross Blue Shield of Michigan, et al., No. 117CV00711NLHAMD, 2018 WL 2148866 (D.N.J. May 10, 2018) (Judge Noel L. Hillman).  The court found that the Plan participant’s assignment of benefits to Plaintiff is unambiguous and clearly assigns him the right to benefits under the Plan.  It also found that the Plan did not abuse its discretion when it paid Plaintiff for his surgical services as an out-of-network, nonparticipating provider.

Eighth Circuit

McKennan v. Meadowvale Dairy Employee Benefit Plan, No. C18-4010-LTS, 2018 WL 2090190 (N.D. Iowa May 4, 2018) (Judge Leonard T. Strand).  The court found that there is no authority for the argument that the Assignment, if otherwise valid, does not grant Plaintiff standing to prosecute any cause of action that its patient may have against the Plan.  The court also found that Plaintiff substantially complied with the internal appeals process despite the missing “Appointment of Authorized Representative for Meritain Appeal” form since Plaintiff filed two timely appeals of the adverse decision and the Administrator accepted and ruled on both appeals.

Retaliation Claims

Sixth Circuit

Williams v. Graphic Packaging International, Inc., No. 1:16-CV-00102, 2018 WL 2118311 (M.D. Tenn. May 8, 2018) (Judge William L. Campbell, Jr.).  An HR Manager’s comment that Plaintiff might refuse to resign was because he needed to maintain medical coverage is not direct evidence of ERISA discrimination.  The court granted summary judgment for Defendant on Plaintiff’s ERISA interference and retaliation claims because Plaintiff has introduced no evidence to show Defendant’s desire to avoid paying for Plaintiff’s medical treatment was a determining factor in Plaintiff’s discharge.

Subrogation/Reimbursement Claims

Tenth Circuit

Anderson v. University of Utah, No. 2:17-CV-950 TS, 2018 WL 2122859 (D. Utah May 8, 2018) (Judge Ted Stewart).  The court granted Plaintiff’s Motion to Amend/Correct Judgment with respect to the declaratory relief claim against Defendant Mixon:  “Plaintiffs are entitled under the Plan Document to sue, compromise, or settle with Headley and Farmers in either their own names or in [Mixon’s] name to the full extent of the fringe benefit payments made to or on behalf of the . . . and that [Mixon] shall cooperate with Plaintiffs in any suit brought by or on behalf of them against Headley and/or Farmers.”

Venue

Tenth Circuit

IHC Health Services, Inc. v. Cadence Aerospace, LLC, et al., No. 2:18-CV-12-DB, 2018 WL 2138656 (D. Utah May 9, 2018) (Judge Dee Benson).  The court found that venue is proper in Utah (where the plaintiff medical provider is located) and the Defendants did not establish that Utah would be an inconvenient forum for this litigation under the Chrysler factors.

 

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