This week’s notable decision is the Second Circuit’s short per curiam opinion in Jander v. Ret. Plans Comm. of IBM, No. 17-3518, __F.3d__, 2020 WL 3412115 (2d Cir. June 22, 2020), a case where Plaintiffs, who are participants in the IBM’s employee stock ownership plan (“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. You might be familiar with the defense bar’s moniker: a “stock drop” case.
The Second Circuit again remands the case to the district court. This is the case’s second trip to the Second Circuit following remand from the Supreme Court. Given this long-running dispute, this is likely not the last time the Second Circuit will decide this matter.
By way of background in Memento-esque fashion, as summarized in our January 15, 2020 issue of ERISA Watch, the Supreme Court earlier this year vacated and remanded this closely watched ESOP breach of fiduciary duty case to the Second Circuit Court of Appeals.
In December 2018, the Second Circuit issued its 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, 140 S. Ct. 592, 205 L. Ed. 2d 432 (2020), where it addressed the question of what standard one must meet to plausibly allege that fiduciaries of an ESOP have violated ERISA’s duty of prudence. 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 but that there are two possible standards: (1) 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; and (2) whether a prudent fiduciary could not have concluded that the action would do more harm than good by dropping the stock price; in other words, whether any prudent fiduciary could have considered the action to be more harmful than helpful.
The Second Circuit declined to decide which of the two standards is correct because it found that Plaintiffs plausibly plead 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 Plaintiffs stated a claim for violation of ERISA’s duty of prudence. The court reversed the judgment below and remanded the matter to the district court.
In the Supreme Court’s per curiam opinion issued on January 14, 2020, the 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 ….’” Ret. Plans Comm. of IBM v. Jander, 140 S. Ct. 592, 594, 205 L. Ed. 2d 432 (2020). 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 believed it is appropriate to allow the Second Circuit to entertain these arguments in the first instance.
On remand, following consideration of supplemental briefs from the parties, the government, and amici on whether the court should consider any arguments not previously raised before it, the Second Circuit issued a four-paragraph opinion declining to do so. It explained: “The arguments raised in the supplemental briefs either were previously considered by this Court or were not properly raised. To the extent that the arguments were previously considered, we will not revisit them. To the extent that they were not properly raised, they have been forfeited, and we decline to entertain them.” Thus, the case is remanded back to the district court for further proceedings consistent with the Second Circuit’s initial opinion.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Operating Engineers’ Health and Welfare Trust Fund For Northern California, et al., v. United RSC General & Engineering, Inc., et al., No. 3:19-CV-02308-WHA, 2020 WL 3402240 (N.D. Cal. June 19, 2020) (Judge William Alsup). The motion argues that Plaintiffs are entitled to attorney’s fees and costs under the Payroll Inspection and Payroll Inspection Collection Procedures, which have been incorporated as part of the construction agreement with Defendants. Plaintiffs read these procedures as requiring Defendants to reimburse them for “attorneys’ fees and audit fees”. This order, which concerns the assignment of fees and costs and not the substance of the agreement, need not turn on whether Plaintiffs’ motion interprets these procedures correctly. Rather, Plaintiffs’ motion can be decided under Section 1132(g) of Title 29 of the United States Code, which allows for the assignment of attorney’s fees and costs in ERISA cases. Section 1132(g) provides that in any ERISA action other than “a judgment in favor of the plan,” courts have discretion to award “a reasonable attorney’s fee and costs of action to either party.” The court concluded that an hourly fee of $230-$235 for attorneys and $135 for paralegals was reasonable and awarded $3,772 in attorney’s fees and $980.61 in costs.
Shaikh v. Aetna Life Ins. Co., No. 18-CV-04394-MMC, 2020 WL 3402247 (N.D. Cal. June 19, 2020) (Judge Maxine M. Chesney). Plaintiff sought attorneys’ fees in the amount of $163,990, as well as prejudgment interest in the amount of $2,579.79. The court found fees and interest warranted but reduced both. It found some of Plaintiff’s attorneys’ time was excessive—such as seeking time for purely clerical or secretarial tasks. It also found one attorneys’ hourly rate to be excessive. The court found $800 per hour was too high for an attorney practicing since 2002. It determined $725 per hour reasonable prior to August 2019 and $750 reasonable thereafter. That lodestar came to $138,087.50. But the court still imposed a 10 percent “haircut,” brining the final award of attorneys’ fees to $124,278.75 for an ERISA action determined under the de novo standard of review in which discovery was denied. Turning to prejudgment interest, Plaintiff asked for 10%. The court denied this, noting Plaintiff had not submitted “substantial evidence” that the equities of his case required a rate different from that dictated by 28 U.S.C. § 1961. The court awarded interest in accordance with the statute.
Breach of Fiduciary Duty
Jander v. Ret. Plans Comm. of IBM, No. 17-3518, __F.3d__, 2020 WL 3412115 (2d Cir. June 22, 2020) (Before: Katzmann, Chief Judge, Sack and Raggi, Circuit Judges). See Notable Decision summary above.
Claudet v. Cytec Retirement Plan, et al., Case No. 17-10027, 2020 WL 3128611 (E.D. La. Jun. 12, 2020) (Judge Eldon E. Fallon). This case arises from a reduction of retirement benefits. Claudet is a retired beneficiary of Defendant Cytec Retirement Plan who also brought claims against Defendants Cytec Industries, Inc. and Solvay USA, Inc. Claudet brought this action on behalf of himself and at least 320 similarly situated individuals who were allegedly purposefully deprived of retirement benefits by Defendants. The class was certified in 2018 and a preliminary settlement agreement was reached and approved in 2019 that would provide $1.825 million to settle the claims of all class members. Before the court here was (1) a motion for final approval of class settlement and (2) a motion by Class Counsel seeking an award of $350,000 in attorneys’ fees, $37,000 in costs, and a $5,000 Case Contribution Award to Claudet. The court held that (1) the Settlement is fair, reasonable, and adequate and granted final approval, and (2) the Court granted Plaintiffs’ requests for $350,000 in attorneys’ fees, $37,000 in costs and a $5,000 case contribution award for Claudet.
Disability Benefit Claims
Boyles, Jr. v. American Heritage Life Insurance Company, No. 19-2145, 2020 WL 3397597 (3d Cir. June 19, 2020) (Before: Smith, Chief Judge, Chagares, and Porter, Circuit Judges). In a two-paragraph opinion, the court affirmed the grant of summary judgment to Plaintiff’s employer and supervisor in his claims for breach of fiduciary duty related to the denial of his disability insurance claims. The district court’s decision was summarized as the notable decision in the April 29, 2019 issue of ERISA Watch.
Refaey v. Aetna Life Ins. Co., No. 3:18-CV-588-MOC-DSC, 2020 WL 3288451 (W.D.N.C. June 18, 2020) (Judge Max Cogburn). In this ERISA disability benefits dispute, Aetna denied Plaintiff’s claim for LTD benefits under the Bank of America Group Benefits Plan. Under an abuse of discretion standard of review, the court granted Summary Judgement for Defendants. Reviewing the Booth factors which define reasonableness in the Fourth Circuit, the court held that Aetna’s decision was consistent with plan language and goals. It also found that there was substantive affirmative evidence supporting the benefit denial, Defendant’s decision-making process was reasoned and principled, and that the decision was consistent with the procedural and substantive requirements of ERISA.
Odd v. Delta Air Lines, Inc., No. 19-55555, __F.App’x__, 2020 WL 3170854 (9th Cir. June 15, 2020) (Before: Lee and Bumatay, Circuit Judges, and Molloy,*District Judge). The court affirmed the district court’s judgment in favor of the Plan. “The Plan’s boilerplate list of information that Odd could submit on appeal following the denial of her claim for benefits did not comply with its procedural obligation to engage in ‘meaningful dialogue.’ But even considering this deficiency, the Plan did not abuse its discretion in denying Odd’s claim. Four independent reviewers determined that Odd was not disabled, Odd’s own primary care physician and neurologist provided mixed evidence about her condition, and only one of her treatment providers responded to inquiries from the independent reviewers. Further, the Plan did not impermissibly condition benefits ‘on the existence of evidence that cannot exist’ by requiring objective confirmation of Odd’s neck pain and headaches. Odd offers no support for the contention that her condition is clinically undetectable.” (internal citations omitted).
DeVries v. Aetna Life Ins. Co., No. SA CV 19-01499-DOC-DFM, 2020 WL 3265108 (C.D. Cal. June 16, 2020) (Judge David O. Carter). Plaintiff worked for First American as a Senior Business Analyst until she stopped working in 2016. She claimed disability due to myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS). Aetna denied her claim for benefits on the grounds that she was not precluded from performing sedentary work—the exertional class for her occupation. On de novo review, the court noted the relevant standard was not the ability to perform a sedentary occupation, but the claimant’s own occupation. This may include a level of physical activity, but it also included analytical, strategic, and managerial tasks. After determining Plaintiff’s doctors—who interacted with and examined her over the course of numerous appointments—were “more reliable witnesses” than Aetna’s hired reviewers and in a “far better position to make [a disability] determination,” the court held that Plaintiff shall receive past-due benefits, pre-judgment interest, attorneys’ fees, and costs through the “own occupation” period. It remanded the claim to determine benefits under the “any occupation” standard.
Painters District Counsel No. 58, et al. v. Platinum Enterprises, LLC, et al., No. 4:16CV1218 RLW, 2020 WL 3172664 (E.D. Mo. June 15, 2020) (Judge Ronnie L. White). In this action to collect delinquent fringe benefit contributions, the court granted Plaintiffs’ unopposed motion to compel Defendants to produce requested documents and appear for a post-judgment deposition.
Michael W. v. United Behavioral Health, et al., No. 218CV00818JNPDAO, 2020 WL 3404937 (D. Utah June 19, 2020) (Judge Jill N. Parrish). In this health treatment case involving a claim for benefits under § 1132(a)(1)(B) and a claim for a Parity Act violation, the court granted Plaintiffs’ motion for leave to conduct discovery as to the Parity Act claim. The court agreed with Plaintiffs that “they should be permitted to conduct discovery on their Parity Act claim for three reasons: first, because the Parity Act claim is separate from the ERISA claim; second, because discovery is permitted for Parity Act claims and is necessary to prove a Parity Act violation as applied; and, third, because the requested discovery satisfies the requirements of Rule 26(b)(1) of the Federal Rules of Civil Procedure.” The court rejected UBH’s arguments that the Parity Act claim is just a repackaged ERISA claim for benefits and that Plaintiffs’ discovery requests are overly board and not proportional to the needs of their case.
Ewell v. UMWA 1974 Pension Tr., No. 20-CV-202-RJD, 2020 WL 3205838 (S.D. Ill. June 15, 2020) (Magistrate Judge Daly). Plaintiff challenges the suspension of his pension benefits due to his work in the coal industry. The court found that Plaintiff’s claim arises under ERISA § 502(a), and thus his state law claim for promissory estoppel is preempted by ERISA. Though the Seventh Circuit recognizes estoppel as a common law claim under ERISA, a plaintiff must demonstrate four elements to support the claim: (1) a knowing misrepresentation; (2) made in writing; (3) with reasonable reliance on that misrepresentation by the plaintiff; (4) to his detriment. “Here, Plaintiff has not raised his right to relief under ERISA above the speculative level.” Characterizing Plaintiff’s claim as one arising under ERISA, the court found that Plaintiff failed to state a claim upon which relief can be granted and dismissed the complaint without prejudice. The court did not reach the issue of exhaustion of administrative remedies.
Medical Benefit Claims
Blankenship v. Dominion Energy Transmission, Inc., No. 19-3374, __F.App’x__, 2020 WL 3397740 (3d Cir. June 19, 2020) (Justices Smith, Chagres and Porter). In this case, retired employees of Dominion Energy Transmission fought to keep what they argued were lifetime medical benefits. The trial court dismissed the case for failure to state a claim. The Third Circuit agreed, finding that the plan documents and collective bargaining agreement (“CBA”) did not set a termination date for the benefits but also did not label them as lifetime medical benefits. The Third Circuit panel opined that “[A] contract that is silent in duration does not operate ‘in perpetuity.’” The medical plan was a part of the CBA, and the CBA expired at a specific date. When the CBA expired, the medical plan also expired, stated the Third Circuit. Therefore, the retirees are not entitled to lifetime health benefits.
Denise M., et al. v. Cigna Health and Life Ins. Co., et al., No. 2:19-CV-975-DAK, 2020 WL 3317994 (D. Utah June 18, 2020) (Judge Dale A. Kimball). Defendants filed a motion to dismiss Plaintiffs’ second cause of action for failing to comply with the Mental Health Parity and Addiction Equity Act of 2008 (“Parity Act”). The parties do not dispute that the plan is subject to the Parity Act or that there are differing treatment limitations on benefits for mental health care as compared to medical/surgical care. The court found Plaintiffs plausibly alleged that Cigna is applying different levels of criteria based on whether the claimant is seeking intermediate mental health care or intermediate medical/surgical care. The court also found that Cigna has limited the facilities where mental health care can be received more strictly than its medical/surgical analogs. Therefore, the court concluded there is no basis for dismissing Plaintiff’s Parity Act claim. The court found that Plaintiffs are not prohibited from pleading two different causes of action under separate ERISA sections. The court also found the parties should proceed to conduct discovery on the Parity Act claim.
Pension Benefit Claims
In re Lehman Bros. Inc., No. 08-01420 (SCC) SIPA, 2020 WL 3264058 (Bankr. S.D.N.Y. June 15, 2020) (Bank. Judge Shelley C. Chapman). The court determined that under the terms of the Lehman Brothers Inc. Deferred Compensation Defense Steering Committee as Attorney-in-Fact for Those Specified (“ESEP Committee”) Agreements, deferred compensation directed to the ESEP by the Claimants is part of Lehman Brothers Inc’s estate and remains subject to the claims of LBI’s general creditors. The court determined that Section 541(b)(7) of the Bankruptcy Code—which excludes from property of the estate funds that are either “withheld by an employer from the wages of employees for payment as contribution” or “received by an employer from employees for payment as contributions” to “an employee benefit plan that is subject to title I” of ERISA—does not apply to unfunded top hat plans such as the ESEP to exclude deferred compensation contributed to the ESEP from the LBI bankruptcy estate or remove such amounts from the reach of LBI’s creditors.
Fisher v. Pension Benefit Guaranty Corporation, Case No. 14-1275 (RDM), 2020 WL 3402337 (D.D.C. Jun. 19, 2020) (Judge Randolph D. Moss). Fisher is a former executive of a company that sponsored a pension plan governed by ERISA. After the company declared bankruptcy, but before the plan submitted a notice of intent to terminate (NOIT), Fisher requested that his pension benefits be paid in a lump sum form. The plan administrator denied his request on the ground that “applicable law prohibits the payment of lump sum distributions in anticipation of the termination of the Plan.” When Fisher’s case eventually made it to the PBGC’s Board of Appeals, the Board concluded that Fisher was not entitled to a lump sum payment. In Fisher I, the court set aside that decision and remanded the case for further proceedings because the Board’s decision failed to address three potentially dispositive issues: (1) the Board did not grapple with the fact that Fisher’s request was denied (not merely submitted) before the NOIT and thus did “not fall within the plain terms” of the policy the Board had relied on; (2) “neither the policy nor the decision spoke to whether an administrator may deny [a lump sum] request before submitting a [NOIT];” and (3) the decision “wholly ignore[d] whether and how 29 C.F.R. § 4044.4 might apply to Fisher’s claim.” On remand, the Board concluded that the administrator correctly denied Fisher’s request for a lump sum because 29 C.F.R. § 4044.4 prohibits the distribution of plan assets in anticipation of termination and also rejected Fisher’s contention that § 4044.4(b) is inconsistent with ERISA. Here, in Fisher II, the court (1) denied Fisher’s motion for summary judgment, denied Fisher’s request to conduct discovery under Rule 56(d), and granted PBGC’s cross-motion for summary judgment finding that the Board’s decision was not an abuse of discretion.
Pleading Issues & Procedure
Stewart v. IHT Ins. Agency Grp. LLC Welfare Benefits Plan, No. 2:16-CV-210, 2020 WL 3166674 (S.D. Ohio June 15, 2020) (Judge James L. Graham). Plaintiffs Merrilee Stewart and Charles Stewart allege that Defendants: 1) wrongfully terminated Ms. Stewart’s membership interest in Defendant RRL Holding Company of Ohio, LLC (“RRL”), in violation of an operating agreement (the “Buy/Sell Agreement”), and in doing so, intentionally interfered with the benefits afforded Plaintiffs through Ms. Stewart’s membership in the IHT Insurance Agency Group, LLC Welfare Benefits Plan (the “Plan”), an employee welfare benefits plan established under ERISA. Plaintiffs further claim that Defendants IHT Insurance, RRL, and Fritz Griffioen breached their fiduciary duties to Plaintiffs as Plan participants and beneficiaries and did not evenly apply the terms of the Plan to similarly situated persons. The issue before the court is whether Plaintiffs’ ERISA claims were previously resolved at arbitration. The court found that they were and dismissed the action. The arbitration panel issued a decision finding that Ms. Stewart was properly removed as a member of RRL and ordered her to execute closing documents including a mutual release of claims. Plaintiffs argue that the mutual release would not serve to extinguish the ERISA claims, nor does it absolve any of the plan fiduciaries from liability and only pertains to buyouts of members’ interests in the company. Plaintiffs provide no support for their contention, whereas Defendants point out that the broad language of the mutual release pertains to any causes of action. The court agreed with Defendants, stating that res judicata applied to the arbitration decision, the parties in this case were in privity to the parties in arbitration, and that Plaintiffs had a full and fair opportunity to litigate issues at arbitration.
Gilmour III v. Aetna Health, Inc., No. SA-17-CV-00510-FB, 2020 WL 3184365 (W.D. Tex. June 12, 2020) (Magistrate Judge Elizabeth S. Chestney). Plaintiff, a trustee for a group of bankrupt orthopedic facilities, sued Aetna under ERISA and various Texas laws, alleging that Aetna had failed to pay or underpaid out-of-network claims for covered services performed by the facilities, which helped drive them into bankruptcy. Aetna counterclaimed, alleging fraud and other claims for relief based on excessive charges for services. The parties then filed several motions. The court granted in part Aetna’s motion to exclude the testimony of Plaintiff’s damages expert, ruling that his testimony related solely to damages and could not be used to establish liability. The court further ruled that because Plaintiff’s opposition relied heavily on the expert report, and the report was inadmissible, Aetna was entitled to summary judgment on Plaintiff’s ERISA claims, regardless of which standard of review was employed. The court further found that Plaintiff had not provided sufficient evidence to demonstrate that Aetna had inconsistently paid claims or violated plan terms. The court declined to rule on Aetna’s counterclaims, and denied Aetna’s motion for sanctions.
Verizon Employee Benefits Comm. v. Baldino, No. CV1814251MASTJB, 2020 WL 3183165 (D.N.J. June 15, 2020) (Judge Shipp). The court granted Verizon’s motion for default judgment against Defendant, the guardian of a deceased pension plan beneficiary who received benefit payments for several years after the participant’s death. The court found that Verizon established a legitimate cause of action under ERISA § 502(a)(3) because the Plan terms provide that payments cease upon the death of the beneficiary, Defendant failed to notify Verizon of the beneficiary’s death, Verizon overpaid pension benefits directly into a bank account and the funds are specifically identifiable, and Defendant maintains complete control over the account and has failed to return the overpaid funds. The court awarded Verizon $11,446 in equitable restitution.
Withdrawal Liability & Unpaid Contributions
Int’l Union of Painters v. Hosek Contractors, Inc., No. 519CV1406FJSML, 2020 WL 3211119 (N.D.N.Y. June 15, 2020) (Judge Scullin). In this action seeking delinquent benefit funds contributions, the court granted Plaintiffs’ motion for entry of a default judgment against Defendants and awarded judgment “for the sum of $47,722.58, plus interest on that amount from the date of entry of judgment to the date of payment at the rate provided for by 28 U.S.C. § 1961(a)…”
Board Of Trustees Of The Bay Area Roofers Health & Welfare Trust Fund, et al., v. Fajardo, et al., No. 19-CV-06586-VC, 2020 WL 3396778 (N.D. Cal. June 19, 2020) (Judge Vince Chhabria). In this action seeking delinquent contributions, the court granted Plaintiffs’ motion for default judgment and ordered Defendants “to submit to an audit by the plaintiffs’ auditor. The audit will be conducted at defendants’ premises during business hours at a reasonable time. The defendants must permit the auditor to review relevant financial records, including the documents identified by the plaintiffs’ motion. The defendants are also ordered to pay attorney’s fees and costs of $9,580.25.”
Scalia v. Sin City Inv. Grp., Inc., No. 2:19-CV-361 JCM (NJK), 2020 WL 3172997 (D. Nev. June 15, 2020) (Judge James C. Mahan). The Department of Labor sued an employer and other related entities under ERISA, alleging (1) failure to timely remit employee contributions, (2) failure to maintain plan governing documents, and (3) vicarious liability for failure to remit employee contributions. During litigation, the government propounded discovery, including requests for admission, to which the employer failed to respond. The government then filed a motion for summary judgment, arguing that the employer’s non-responses should constitute admissions. The court had previously denied a motion for sanctions due to the employer’s non-responses, but it was not forgiving regarding the summary judgment motion because the employer still had not responded to the requests. The court found the material facts supporting the government’s motion to be deemed admitted and granted summary judgment in its favor on the first two claims for relief. However, the court denied summary judgment as to the third claim for vicarious liability, holding that the Ninth Circuit had not yet allowed such claims under ERISA.
Your ERISA Watch is made possible by the collaboration of the following Kantor & Kantor attorneys: Brent Dorian Brehm, Sarah Demers, Elizabeth Green, Andrew Kantor, Susan Meter, Michelle Roberts, Tim Rozelle, Peter Sessions, and Zoya Yarnykh.