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Your ERISA Watch – Supreme Court Sends Closely Watched Fiduciary Duty Case Back to the Second Circuit Court of Appeals

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Yesterday, in Retirement Plans Committee of IBM v. Jander, No. 18-1165, 2020 WL 201024 (U.S. Jan. 14, 2020), the U.S. Supreme Court vacated and remanded a closely watched ESOP breach of fiduciary duty case to the Second Circuit Court of Appeals.  The High Court’s per curiam decision is a short one so allow me to give you some background to understand the full picture.

In December 2018, the Second Circuit issued a decision in Jander v. Ret. Plans Comm. of IBM, 910 F.3d 620 (2d Cir. 2018), cert. granted, 139 S. Ct. 2667, 204 L. Ed. 2d 1068 (2019), and vacated and remanded sub nom. Retirement Plans Committee of IBM v. Jander, No. 18-1165, 2020 WL 201024 (U.S. Jan. 14, 2020), where it addressed the question of what standard one must meet to plausibly allege that fiduciaries of an employee stock option plan (“ESOP”) have violated ERISA’s duty of prudence.

Plaintiffs, who are participants in the company’s ESOP, claim that the plan’s fiduciaries failed to disclose its knowledge that a company division was overvalued, which lead to an artificially inflated company stock price that harmed the ESOP members.  In order to plausibly allege a duty-of-prudence claim, Plaintiffs must allege that a proposed alternative action would not have done more harm than good to the fund by causing a drop in the stock price and a concomitant drop in the value of the stock already head by the fund.  Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2473, 189 L. Ed. 2d 457 (2014) (“Fifth Third”).

The Second Circuit identified that the test set forth in Fifth Third to determine whether a plaintiff has plausibly alleged that the actions a fiduciary took were imprudent in light of available alternatives is unclear.  It explained,

The Court first set out a test that asked whether ‘a prudent fiduciary in the same circumstances would not have viewed [an alternative action] as more likely to harm the fund than to help it.’ This formulation suggests that courts ask what an average prudent fiduciary might have thought. But then, only a short while later in the same decision, the Court required judges to assess whether a prudent fiduciary ‘could not have concluded’ that the action would do more harm than good by dropping the stock price. This latter formulation appears to ask, not whether the average prudent fiduciary would have thought the alternative action would do more harm than good, but rather whether any prudent fiduciary could have considered the action to be more harmful than helpful. It is not clear which of these tests determine whether a plaintiff has plausibly alleged that the actions a defendant took were imprudent in light of available alternatives.

Jander, 910 F.3d at 626-27 (internal citations omitted).  Rather than settle this dispute, the Court declined to decide which of the two standards is correct.  This is because it found that Plaintiff plausibly pleads a duty-of-prudence claim even under the more restrictive test.

The Court disagreed with the district court’s determination that a prudent fiduciary could have concluded that the three proposed alternative actions—disclosure, halting trades of IBM stock, or purchasing a hedging product—would do more harm than good to the fund.  On appeal, Plaintiff proposed just one alternative action:  early corrective disclosure of the microelectronics division’s impairment, conducted alongside the regular SEC reporting process.   The Court found that a prudent fiduciary could not have concluded that the corrective disclosure would do more harm than good.  The Plan Defendants allegedly knew that IBM stock was artificially inflated, they had the power to disclose the trust to the public and correct the artificial inflation, and the failure to promptly disclose the value of the IBM division hurt management’s credibility and the long-term prospects of IBM as an investment.  Plaintiff “plausibly alleges that a prudent fiduciary need not fear an irrational overreaction to the disclosure of fraud.”  Id. at 630.  Lastly, Defendants knew that the disclosure of the truth was inevitable because IBM was likely to sell the business and would not be able to hide its overvaluation from the public at that point.

For these reasons, the Second Circuit found that Plaintiff stated a claim for violation of ERISA’s duty of prudence.  With respect to the dismissal of the parallel securities suit, the Second Circuit found that this was not preclusive.  Plaintiff may allege directly or indirectly that the Plan Defendants committed securities fraud.  The court reversed the judgment below and remanded the matter to the district court.

On June 3, 2019, the U.S. Supreme Court granted the ESOP fiduciaries’ petition for a writ of certiorari.

In the per curiam opinion issued yesterday, the High Court held that the parties’ briefing on certiorari review focused on matters that the Second Circuit had not considered, finding it appropriate to vacate and remand back to the Second Circuit.  Specifically, the Court noted that the ESOP fiduciaries argued that ERISA imposes no duty on an ESOP fiduciary to act on inside information.  The Government, presenting the views of the SEC and DOL, “argued that an ERISA-based duty to disclose inside information that is not otherwise required to be disclosed by the securities laws would ‘conflict’ at least with ‘objectives of ‘ the ‘complex insider trading and corporate disclosure requirements imposed by the federal securities laws ….’”  Jander, 2020 WL 201024, at *1.  In light of the Court’s statement in Fifth Third that the views of the SEC might well be relevant to ERISA’s duty of prudence in this context, the Court believes it is appropriate to allow the Second Circuit to entertain these arguments in the first instance.

Justice Kagan issued a concurring opinion, in which Justice Ginsburg joined.  They stated that the Second Circuit may decide under its usual rules of waiver or forfeiture to not consider those arguments.  But, if the Second Circuit does address the merits of the argument, it has to ask whether it is consistent with the Court’s decision in Fifth Third.  Justice Kagan “cannot see how” it is consistent when Fifth Third makes it clear that an ESOP fiduciary at times has a duty to act on inside information.

Justice Gorsuch issued a separate concurring opinion.  He questioned the basis of Respondents’ claim that certain ERISA fiduciaries should have used their positions as corporate insiders to cause the company to make an SEC-regulated disclosure.  He observed a flaw:  “In ordering up a special disclosure, the defendants necessarily would be acting in their capacities as corporate officers, not ERISA fiduciaries. Run-of-the mill ERISA fiduciaries cannot, after all, order corporate disclosures on behalf of their portfolio companies.”  Respondents, according to Justice Gorsuch, seek to impose an even higher duty on fiduciaries with the authority to make or order SEC-regulated disclosures on behalf of the corporation.  But, this was not addressed by the Second Circuit.

Further, Justice Gorsuch explained that the Court in Fifth Third held that a plaintiff must identify a helpful action that the defendant could have taken consistent with securities laws, but the Court did not consider whether other necessary conditions to suit might exist because the question wasn’t before it.  In other words, the proposed alternative action alone may not be a sufficient condition to an ERISA suit.  “No one in [Fifth Third] asked the Court to decide whether ERISA plaintiffs may hold fiduciaries liable for alternative actions they could have taken only in a nonfiduciary capacity.”

Stay tuned in to Your ERISA Watch for further developments in this case.  There were lots of other notable decisions this past week so keep reading.

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

Breach of Fiduciary Duty

Fourth Circuit

Intravaia, et al. v. National Rural Electric Cooperative Association, et al., 19-cv-973, 2020 WL 58276 (E.D. Va. Jan. 2, 2020) (Judge Liam O’Grady).  The court denied Plan sponsor, National Rural Electric Cooperative Association’s (NRECA) motion to dismiss this putative class action alleging five claims under ERISA against NRECA and the Plan’s named fiduciary, Insurance and Financial Services Committee (“Committee”), for their failure to properly manage the Plan’s administrative costs and NRECA’s increasing compensation extracted from the Plan.  The main allegation made by Plaintiffs is that Defendants failed to properly manage the Plan’s administrative expenses by allowing the Plan to pay higher than market fees and by failing to restrain expenses. Additionally, Plaintiffs alleged that NRECA and the Committee caused unlawful transactions with NRECA, a fiduciary under the Plan and therefore such transactions were prohibited. Moreover, Plaintiffs allege that NRECA failed to monitor the Committee in carrying out its fiduciary duties.  Defendants were ordered to file an Answer to the Complaint within 10 days of the ruling.

Fifth Circuit

Sheedy v. Adventist Health System, No. 3:16-cv-2355-G, 2020 WL 70976 (N.D. Tex. Jan. 3, 2020) (Judge A. Joe Fish). On her third attempt, Plaintiff was unable to cure the defects of her complaint and the case was dismissed with prejudice. The case involves claims regarding the hospital’s defined benefit plan and allegation of breach of fiduciary duty, prohibited transaction, and state law claims for breach of contract and breach of fiduciary duty under state law. Several counts were brought derivatively on behalf of the Hospital Plan and some on behalf of a purported class. As to the first count, without much analysis, the Court found Plaintiff lacks standing. Counts two through four alleged ERISA procedural violations for failure to file annual reports and to provide notices. These counts were similarly dismissed for lack of standing. The fifth claim for inadequate funding was also dismissed. The count alleges inadequate funding, however, by the admission of plaintiff’s expert the plan was funded at 81% which is over the threshold for an “at risk” funding level. Count six was dismissed for failure to allege any injury. Counts seven and eight were dismissed for failure to allege specific wrongdoing against any particular defendant. Count nine alleged violation of the Establishment Clause for the determination that Hospital Plan falls within the Church Plan Exemption. This claim was dismissed for failure to allege any injury to the Plan or plaintiff. Count ten alleged a breach of an implied contract but the claim was dismissed because plaintiff admits there is a written plan document and the law does not recognize an implied contract where there is an express written contract. Finally, count eleven was brought as a state law breach of fiduciary duty claim. This claim was dismissed for failure to identify a wrongdoing against a specific defendant.

Ninth Circuit

Bafford v. Northrop Grumman Corporation, No. 2:18-cv-10219-ODW (Ex), 2020 WL 70834 (C.D. Cal. Jan. 7, 2020) (Judge Otis D. Wright, II). Plaintiffs brought a class action against Northrop Grumman, the Administrative Committee of the Northrop Grumman and Alight Solutions (formerly Hewitt Associates). The complaint alleges, inter alia, that Defendants breached their fiduciary duties by giving inaccurate benefits statements for numerous years which Plaintiffs relied on in deciding to commence benefits. After benefits commenced (and for one Plaintiff were paid for several years), the Plan recalculated those benefits, significantly reducing Plaintiffs’ retirement income. Defendants moved to dismiss all counts and the motion was granted, with leave to amend. The Court found the complaint does not sufficiently allege a breach of the duty to monitor, Hewitt’s miscalculations are not fiduciary acts, and the complaint does not adequately allege a breach of ERISA § 105 because the statements were requested through an online platform (concluding an online platform does not satisfy ERISA’s requirement to make a “written” request for documents). The Court further found Plaintiff’s state law claims against Hewitt for professional negligence and negligent misrepresentation are preempted by ERISA.

Disability Benefit Claims

Wagenstein v. Cigna Life Ins. Co., No. 18—55955, __F.App’x.__, 2020 WL 68394 (9th Cir. Jan. 7, 2020) (Before Boggs, Bea, and Hurwitz, Circuit Judges). Cigna terminated Wagenstein’s benefits in April 2017 and she appealed. In response, Cigna provided her with an opinion by examining physician Samir Shahin, M.D., which concluded Wagenstein could sit for 2.5 hours per workday. However, Cigna’s vocational specialist determined Wagenstein could perform sedentary work within this limitation – directly contrary to Ninth Circuit precedent. After Wagenstein alerted Cigna of this conflict, Cigna commissioned a paper file review by Dr. Roger Belcourt, M.D. In Dr. Belcourt’s opinion, Wagenstein was able to sit for up to eight hours per workday. Cigna failed to disclose the Belcourt report to Wagenstein until the day it denied her appeal. The Ninth Circuit held this violated ERISA’s regulations (29 C.F.R. § 2560.503-1(h)(2)(iii)) and denied her a fair review procedure. Even in a de novo review case, the Ninth Circuit held that when an administrator’s procedural irregularity affected the administrative review, the plan participant “has to be given the opportunity to submit additional evidence.” Because the district court declined to consider letters from Wagenstein’s treating physicians rebutting Belcourt’s conclusions, this was reversable error. On remand, the district court was ordered to review the entire record in light of Wagenstein’s rebuttal evidence and determine de novo whether the termination was justified.

Discovery

Ninth Circuit

Ely v. Bd. of Trustees of Pace Indus. Union-Mgmt. Pension Fund, No. 3:18-CV-00315-CWD, 2020 WL 97161 (D. Idaho Jan. 8, 2020) (Judge Candy W. Dale). Defendant Board of Trustees withheld documents from discovery production based on attorney-client privilege. Plaintiff Ely brought a motion to compel production of the withheld documents. The documents are communications involving Fund counsel and pertain to adoption of an amendment to the Plan. Defendant argued the communications were protected from disclosure by the attorney-client privilege because the Board of Trustees was performing a settlor function when it adopted and amended the Plan. Plaintiff argued the fiduciary exception to the attorney-client privilege applies to the communications because the advice was prepared for the benefit of the Plan’s beneficiaries, not for the trustees exclusively. The court ordered Defendant to reexamine the withheld documents. Communications regarding legal implications and personal liability of the trustees are protected by attorney-client privilege and should be withheld. Communications about the structure and design of the Plan are not privileged and should be produced.

Tenth Circuit

Randall R v. Regence Blue Cross Shield of Utah, No. 2:18-CV-00381-DB-PMW, 2020 WL 109512 (D. Utah Jan. 9, 2020). (Judge Paul M. Warner). The court granted Plaintiff’s motion to conduct discovery regarding the Parity Act claim. The court found that while discovery “is generally not necessary for ERISA claims,” the nature of Parity Act claims is that they require further discovery to evaluate whether there is a disparity between treatments for mental health conditions and medical/surgical conditions. For the Parity claims, the court found that discovery “is essential” to allow Plaintiffs to learn and compare processes and other factors used by Defendant, to show whether mental health benefits were discerningly limited.

ERISA Preemption

Sixth Circuit

Kilfoyle v. Hill, No. 1:19-CV-01831, 2020 WL 127695 (N.D. Ohio Jan. 10, 2020) (Judge Pamela A. Barker). Plaintiff was an insurance agent for Guardian Life Insurance Company of America. He filed a complaint in Ohio state court alleging that Guardian and other related Defendants interfered with his ability to fully participate in Guardian’s retirement program. Defendants removed the case to federal court on the ground that Plaintiff’s claims were subject to complete preemption by ERISA. Plaintiff responded by filing a motion to remand in which he argued that ERISA did not apply because he was a “statutory employee,” i.e., an independent contractor, and not a common law employee. He also argued that none of the payments to which he claimed entitlement were part of an ERISA plan. Defendants responded that Guardian’s retirement income program qualified as an employee benefit plan under ERISA, and that even if Plaintiff was an independent contractor, he still had standing to sue under ERISA because he was identified as a beneficiary. The court agreed with Plaintiff. It stated that the Supreme Court had adopted a common law test for determining who is an “employee” under ERISA, and that under that test Defendants “have failed to show that [Guardian’s] retirement income program covers any employees.” Specifically, Defendants agreed that Plaintiff was an independent contractor, not a common law employee, and did not argue that Guardian’s plan covered any other common law employees. The court distinguished cases cited by Defendants holding that plans covering independent contractors could qualify under ERISA by noting that in those cases, the plans covered at least one common law employee. Here, the Guardian plan covered only independent contractors and no common law employees. As a result, the court found that it was not an employee benefit plan as defined by ERISA and remanded the case to state court.

Plan Status

Tax Court

Ed Thielking, Inc. v. Commissioner of Internal Revenue, No. 187-16R, T.C. Memo. 2020-5, 2020 WL 108413 (T.C. 2020). The IRS determined that the Employee Stock Ownership Plan (“ESOP”) and the Employee Stock Ownership Trust that Ed Thielking, Inc. attempted to establish failed to qualify under sections 401(a) and 501(a), respectively, because the ESOP had both operational and form failures. The IRS determined that the operational failures included: (1) allowing ineligible individuals to participate in the plan, (2) accepting contributions in excess of the limitations imposed by sections 401(a)(16) and 415(c)(1), and (3) failing to have an independent appraiser value employer securities as required by section 401(a)(28)(C). The IRS determined that the plan failed to qualify in form because it did not conform to certain statutory and regulatory requirements, and petitioner did not adopt timely amendments as permitted by section 401(b). Under the abuse of discretion standard, the Tax Court upheld the IRS determinations.

Pleading Issues & Procedure

Eighth Circuit

Int’l Union, United Auto., Aerospace & Agric. Implement Workers of Am. v. Trane U.S. Inc., No. 18-3110, ___F.3d___, 2020 WL 110761 (8th Cir. Jan. 10, 2020) (Before Loken, Colloton, and Kobes, Circuit Judges). The dispute concerns the arbitrability of two grievances by the Union relating to the denial of two benefits the CBA allegedly required Defendant to provide to eligible employees after closure of the plant, a “bridge” benefit and a temporary pension supplement benefit. Defendant argued that these grievances were exempt from arbitration. With respect to the “bridge” benefit, the Court held that, on its face, the grievance stated a claim that Defendant violated a specific CBA provision by not providing a bargained-for benefit which Defendant reconfirmed in the MOA. Because this benefit related to preservation of service following the plant shutdown, as opposed to additional service, this grievance was subject to arbitration. As to the temporary pension supplement benefit, the Court found that the parties agreed to accept, during the term of the PIA (2013-2017), the pension benefits as set forth in the Plan. The Plan was not collectively bargained for and is subject to ERISA. Neither the terms of the PIA nor the CBA made the Plan itself part of the CBA. The language in the PIA expressly excluded disputes over the PIA provisions from arbitration. Parties may exclude disputes arising under a side agreement (such as the PIA in this case) from arbitration should they include a statement to that effect in the arbitration clause of the CBA or in the side agreement itself.

Ninth Circuit

Ryan S v. UnitedHealth Grp., Inc., No. SACV191363JVSKESX, 2020 WL 103517 (C.D. Cal. Jan. 6, 2020). (Judge James V. Selna). The court granted Defendant’s motion to dismiss the class action complaint which alleges UnitedHealthcare’s mental health and substance abuse claims and coverage practices and decisions violate ERISA and parity laws. Plaintiff complained that United unreasonably limited the number of treatment days, required pre-authorization, and refused to reimburse outpatient claims, among other claims. The complaint asserts one cause of action under ERISA seeking declaratory and injunctive relief and attorney’s fees. The court found that Ryan S. did not have standing because the first amended complaint did not include allegations that connect any of UnitedHealthcare’s alleged unfair practices with Ryan S.’s own treatment. Therefore, the court concluded that Ryan S. failed to establish that the court had subject matter jurisdiction.

Williams v. The NFL Player Supplemental Disability Plan, et al., No 19-CV-04236, 2020 WL 43113 (N.D. Cal. Jan 3, 2020) (Judge Lucy Koh). Plaintiff Delvin Williams played professional football in the NFL from 1974-1981. By virtue of his employment in the NFL, he was a participant in the Bert Bell/Pete Rozelle NFL Player Retirement Plan and earned vested rights to benefits under the Plan. Plaintiff received a career-ending neck injury and became permanently unable to work. At “some time in the 1980’s,” Plaintiff pursued a claim for disability benefits under the Plan, but his claim was denied. Plaintiff became eligible for “Football Degenerative” benefits as a result of an amendment to the Plan on or around 1995. He again applied for benefits in 1995. While the Plan acknowledged benefits were indeed due, it deferred the decision on the proper effective date for those benefits. Plaintiff requested an effective date of July 1, 1993, which was denied, as the Plan found the evidence did not show that Plaintiff became disabled earlier than July 1995. In 1998, Plaintiff sued to overturn this determination. Despite achieving partial victory at the District Court, the Ninth Circuit reversed, holding that substantial evidence supported the Plan’s decision, and was thus not an abuse of discretion. Twenty years later, Plaintiff requested that the Plan reclassify his benefits to “Active football” rather than “Football Degenerative” benefits; a request which was denied by the Plan based on the resolution of the 1998 lawsuit. Plaintiff filed the current suit, alleging the Plan abused its discretion by denying his reclassification request. In granting Defendant’s motion to dismiss, the Court concluded that under the Twombly and Iqbal pleading standards, Plaintiff failed to plead enough facts to state a claim to relief which was plausible on its face, as Plaintiff failed to allege why the Plan’s reclassification decision was an abuse of discretion. Further, issue preclusion bars Plaintiff from litigating this issue, as Plaintiff’s eligibility for all disability benefits was properly adjudicated in the prior lawsuit. Finding leave to amend unduly prejudicial to Defendants and futile, the Court did not provide Plaintiffs with leave to amend.

Tenth Circuit

Benedetti v. Schlumberger Technology Corporation, et al., No. Civ-18-614-R, 2020 WL 61048 (W.D. Okla. Jan. 6, 2020) (Judge David L. Russell). Plaintiff alleged that Defendants improperly denied short- and long-term disability benefits, either explicitly or implicitly, because they never tendered a decision on his applications. Defendants filed a motion for summary judgment (“MSJ”). The court thought it necessary to set forth the unique procedural posture of this ERISA case because MSJs were not typical in the ERISA context, but rather, after submission of the administrative record (AR) plaintiff may seek discovery and supplement the record. Thereafter, the plaintiff would file an opening brief on the merits, the defendant responds, and plaintiff replies. Here, Plaintiff failed to seek discovery or file an opening brief and Defendants filed the MSJ. The court noted that ordinarily, this failure by Plaintiff to follow procedure and comply with deadlines would preclude some avenues of relief, but in this case, the underlying factual missteps by Defendants left Plaintiff with some viable ERISA claims.

Plaintiff alleged he was injured on the job and when he attempted to return to work, he could not perform his job duties, so he resigned and thereafter sought benefits under the employer’s Plan. Defendant employer both sponsored and funded the Plan. MetLife, as the claims administrator, denied Plaintiff’s application for STD benefits. On appeal, MetLife reversed its decision because Plaintiff suffered the injury while he was still an employee, and approved STD until the date Plaintiff returned to work. In a subsequent letter, MetLife reiterated that Plaintiff was approved for STD, and advised that his claim was closed. Neither of these letters advised Plaintiff of his right to appeal. In February 2016, MetLife determined that because Plaintiff received his full salary after he returned to work, he was not entitled to any LTD benefits, but advised Plaintiff of his right to appeal. Plaintiff timely submitted his appeal in August of 2016, but prior to that, in July 2016, Cigna became the new claims administrator. Plaintiff was not aware of it until November 2016. There was never any communication from Cigna regarding his appeal. Plaintiff then filed suit and sought to supplement the AR given the irregularities in administering his benefits.

The court confirmed that the parties failed to submit the complete AR, with Defendants only providing excerpts which they deemed necessary. Failure to provide entire AR contemplates less than even arbitrary and capricious review because the court is unable to identify any other relevant evidence presented to the administrator. Although the court could order the parties to submit the entirety of the AR, in this case it found it unnecessary to review the decision for abuse of discretion and instead remanded for appropriate consideration in light of the procedural irregularities already identified which prevented Plaintiff from having a full and fair review. In addition, the letter from MetLife acknowledging it was no longer claims administrator indicated that the LTD appeal would be forwarded to Cigna and could be interpreted as advising Plaintiff that Cigna would render the decision, but that did not occur. Thus, there is no decision on Plaintiff’s LTD claim that the court could review. While on occasion courts can review a claim de novo if there are procedural irregularities, the court in this case thought remand was more appropriate, especially given a lack of a complete AR for the court to review.

Statute of Limitations

Tenth Circuit

AGI Consulting L.L.C. v. Am. Nat’l Ins. Co., No. 19-6060, 2020 WL 104339 (10th Cir. Jan. 9, 2020) (Judges Matheson, McKay, and Bachrach).  In 2011, AGI purchased an employee benefit plan from ANICO that was to be administered by ANICO for the benefit of AGI’s employees. AGI supplied the terms of the plan on a handwritten form. AGI alleged that ANICO replaced the handwritten form with a typewritten one, and in the process altered the terms of the plan. AGI discovered the altered plan in 2016 when it found a copy that had been received by AGI in 2012. AGI brought a claim for common-law fraud against ANICO. The trial court dismissed AGI’s complaint because the state law fraud claims were time-barred. The trial court denied AGI’s motion for reconsideration and its motion to amend the complaint to add an ERISA breach of fiduciary duty claim. On appeal, the Tenth Circuit agreed with the trial court’s denial of AGI’s motions. The appellate court affirmed the dismissal of AGI’s complaint and the denial of the motion to amend. Claims under 29 U.S.C. § 1113(a)(3) for breach of fiduciary duty must be filed within 3 years of actual knowledge of the breach or within 6 years of the breach itself. AGI and ANICO agree more than 6 years has passed since the breach occurred, making the ERISA claims time-barred.

Subrogation/Reimbursement Claims

Ninth Circuit

Swire Pacific Holdings, Inc. v. Jones, No. C19-1329RSM, 2020 WL 70267 (W.D. Wash. Jan. 7, 2020) (Judge Ricardo S. Martinez). Plaintiffs in this case were an employer and its self-funded employee health care plan, which was governed by ERISA. The primary Defendant, Jones, was a plan participant who suffered personal injuries in a serious car accident and received medical benefits from the plan. Jones settled with a third party to compensate him for his injuries, but according to the Plaintiffs, did not fully repay the plan as required by the plan’s reimbursement provisions. The Plaintiffs sued Jones and his attorney under ERISA to recover the settlement funds. Defendants moved to dismiss, arguing that the complaint improperly referred to provisions in a summary plan description, and not terms of the plan itself. Defendants also argued that ERISA’s anti-inurement and self-dealing provisions barred Plaintiffs from recovering the settlement funds. Specifically, Defendants contended that plan assets should never inure to the benefit of an employer, and that if Plaintiffs recovered the funds, it would be an unfair windfall. Plaintiffs responded that the SPD was enforceable because it was the only plan document and complied with all of ERISA’s requirements. Plaintiffs also argued that subrogation is allowed under ERISA and that there was no evidence that the funds would be used for any purpose other than reimbursing the plan for its expenses. The court agreed with Plaintiffs. It found that the SPD was a proper plan document under Mull v. Motion Picture Indus. Health Plan, 865 F.3d 1207 (9th Cir. 2017). It further found that there was no windfall because the plan had paid substantial medical bills and there was no evidence it would profit from any recovery. The court also found that subrogation and reimbursement were permitted by ERISA, citing Sereboff v. Mid Atl. Med. Servs., 547 U.S. 356 (2006), and that Defendants could not speculate about where the settlement funds would go on a motion to dismiss. As a result, the court denied Defendants’ motion.

Withdrawal Liability & Unpaid Contributions

Second Circuit

Trustees Of The New York City District Council Of Carpenters Pension Fund, Welfare Fund, Annuity Fund, & Apprenticeship, Journeyman Retraining, Educational And Industry Fund, et al., v. M.C.F. Associates., No. 19CV7783 (JGK), 2020 WL 85445 (S.D.N.Y. Jan. 6, 2020) (Judge John G. Koeltl).  Petitioners moved to confirm an arbitration award pursuant to LMRA Section 301 and moved for reasonable attorneys’ fees, costs, and post-judgment interest on the award.  The court entered judgment granting the petition to confirm the arbitration award in the amount of $48,277.36, plus interest from the date of the arbitration award accrued at an annual rate of 7.5% until the date of judgment. The court also awarded $1,030.00 in attorneys’ fees, $75.00 in costs, and post-judgment interest on the entire amount of the judgment from the date of judgment at the rate provided by 28 U.S.C. § 1961(a).

Mason Tenders District Council Welfare Fund, et al. v. Gibraltar Contracting, Inc., No. 18 CIV. 3668 (AT), 2020 WL 70858 (S.D.N.Y. Jan. 6, 2020) (Judge Analisa Torres).  The court granted “Plaintiffs’ motion for summary judgment on their claims that Defendants are liable for delinquent contributions in the principal amount of $527,196.41 and for dues checkoffs and PAC contributions in the amount of $39,359.13 for the audit period of May 27, 2015 to December 31, 2016.”  The court also granted Plaintiffs’ motion for summary judgment on their claims for damages, including:  (1) interest in the amount of $82,409.97, plus additional interest accrued from June 27, 2019 until the entry of judgment; (2) liquidated damages in the amounts of $82,409.97, plus the additional interest accrued from June 27, 2019 until the entry of judgment, 29 U.S.C. § 1132(g)(2)(C); (3) imputed audit costs in the amount of $70,292.87; and (4) interest on the unpaid dues checkoffs and PAC contributions from May 27, 2015 through June 26, 2019 in the amount of $11,597.57.

Bldg. Serv. 32BJ Pension Fund v. 1180 AOA Member LLC, No. 18-CV-12226-LTS-OTW, 2020 WL 70947 (S.D.N.Y. Jan. 3, 2020) (Judge Laura Taylor Swain).  “[T]he Fund’s Motion for Default Judgment as to Counts One and Two is granted and the Fund is hereby awarded (1) $287,404 in withdrawal liability, (2) $28,913.63 in prejudgment interest for the period from Nov. 21, 2018, through the entry of judgment, (3) $57,480.80 in liquidated damages, and (4) $17,765 in attorneys’ fees, plus $465 in costs, against Defendant 1180 AOA. Interest shall accrue at the legal rate following the entry of judgment.”  The court dismissed Count Three for joint and several liabilities because the Fund did not support its allegation that 1180 AOA and ABC Companies exist and are under common control.

Bricklayers Insurance and Welfare Fund, et al. v. Mastercraft Masonry I, Inc. et al., 18-cv-6599 (BMC), 2020 WL 70843 (E.D.N.Y., Jan. 7, 2020) (Judge Brian M. Cogan). The court granted in part as to liability and denied in part as to damages Plaintiffs’ motion for summary judgment on several ERISA claims against masonry contractor, Mastercraft, an alter-ego of the company, Northeast, a surety of the company, Endurance, and the company’s General Manager and 50% Owner, Tantillo, for Defendants’ delinquency in making required contributions on the bricklayers’ behalf in the total amount of roughly $1.4 million.  The court did not find any dispute as to liability because Mastercraft conceded liability in its Rule 56 moving papers and responded to a Request to Admit by saying that it did owe some unpaid contributions but did not agree as to the amount of unpaid contributions.  The Court did find genuine factual issues in dispute regarding damages in part because Plaintiffs’ own damages number did not match up between their complaint and motion papers.

Third Circuit

Trustees of the IBEW Local 400 Welfare, Pension, Annuity, Supplemental & Joint Apprenticeship Training Funds for & on behalf of themselves & said Funds, & The Board of Trustees, et al. v. Solar-Mite Electrical Contractors, Inc., No. CV 19-16313, 2020 WL 114073 (D.N.J. Jan. 9, 2020) (Judge John Michael Vazquez).  In this case seeking delinquent contributions and penalties, the court granted Plaintiffs’ motion for default judgment and awarded actual damages in the amount of $71,073.02, as well as $1,337 for attorneys’ fees and costs.

Fourth Circuit

Trustees of the National Electric Benefit Fund, et al., v. Integrity General Engineering Contractors, Inc., No. 8:19-CV-01360-PX, 2020 WL 92209 (D. Md. Jan. 7, 2020) (Judge Paula Xinis).  The court granted Plaintiffs’ motion for default judgment, finding that Defendant was required to make employer contributions to the NEBF and the NEAP and failed to make such contributions in violation of 29 U.S.C. § 1145.  The court ordered Integrity to pay $2,655.20 to NEBF and $4,236.70 to NEAP in unpaid contributions; $531.04 in liquidated damages to NEBF and $847.34 in liquidated damages to NEAP; 10% in annual interest in the amounts of $473.40 to NEBF and $828.32 to NEAP, plus accruing interest through the date of payment; $375 for the NEBF audit and $450 for the NEAP audit; and $521.80 in attorneys’ fees and $275.00 in costs as to each fund.

Seventh Circuit

Wisconsin Laborers Pension Fund, et al. v. The Bristol Group, LLC, et al., No. 17-CV-901-WMC, 2020 WL 128421 (W.D. Wis. Jan. 10, 2020) (Judge William M. Conley).  The court granted Plaintiffs’ motion for summary judgment.  The court assessed $263,076.40 in total damages against defendant Metroscapes, LLC, joint and several with Bristol Group in favor of plaintiff Wisconsin Laborers Health Fund; and $275,366.10 under the defendant The Bristol Group, LLC’s collective bargaining agreement, in favor of Building Trades United Pension Fund on behalf of the other plaintiffs.

Ninth Circuit

Auto. Indus. Pension Tr. Fund v. S. City Motors, Inc., No. 18-16170, __F.App’x__, 2020 WL 110517 (9th Cir. Jan. 9, 2020) (Before: Siler,* Clifton, and Bybee, Circuit Judges). Appellants, a group of dealerships and the Ford Motor Company, appealed the district court’s denial of its motion for summary judgment and its granting of Automotive Industries Pension Trust Fund’s cross-motion for summary judgment. The dispute between the parties arose after two of the appellant dealerships withdrew from the Trust’s multiemployer pension plan and were assessed withdrawal liability because they met the requirements for the “free look” exemption. The arbitrator granted summary judgment in favor of the Trust and awarded attorney’s fees. Both parties filed suit in federal district court – appellant to challenge and appellee to enforce the arbitrator’s award. The Court held that the free look exemption did not apply in this case. Appellants argued that although they are under common control, each individual contributing employer within the controlled group should be able to take advantage of the free look exemption, even if the controlled group to which they belong could not do so. However, the Court reasoned, Congress enacted Section 1301 (b)(1) precisely “to prevent businesses from shirking their ERISA obligations by fractionalizing operations into many separate entities.” Accordingly, it held in this case that the word “employer” refers to the dealerships as a controlled group rather than as individual dealerships and since the group is not eligible for the exemption, neither do any of the individual dealerships. The court, therefore, affirmed the decision of the district court.

D.C. Circuit

Bricklayers & Trowel Trades Int’l Pension Fund v. Masonry Contracting Corp., No. 19-CV-02412 (APM), 2020 WL 109021 (D.D.C. Jan. 9, 2020) (Judge Amit P. Mehta). The court granted Plaintiff’s Motion for Entry of Default Judgment and awarded Plaintiff unpaid contributions in the amount of $23,802.35, with interest to accrue on this amount at the statutory rate.

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

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