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Your ERISA Watch - The Goldilocks Standard: Hughes v. Northwestern Argued in the Supreme Court

Your ERISA Watch – A Victory for a Disabled Plan Participant at the Fourth Circuit, and a Summary of the Supreme Court Argument in Hughes v. Northwestern

ERISA Watch has two highlights this week: one is a win by a disabled plan participant, represented by Kantor & Kantor, at the Fourth Circuit, and the other is an examination of Monday’s argument at the Supreme Court in Hughes v. Northwestern.
 
Shupe v. Hartford Life & Acc. Ins. Co., No. 19-1854, __ F.4th __, 2021 WL 5774728 (4th Cir. Dec. 7, 2021) (Before Circuit Judges Wilkinson, Agee, and Floyd).
 
Robert Shupe was an Executive Sous Chef for the Hyatt Corporation in San Diego. In 2003 he began experiencing symptoms of osteomyelitis, an infection in his spinal cord. He sought treatment, but nothing was effective and in 2004 he was forced to stop working. He submitted a claim to Hartford, the insurer of Hyatt’s long-term disability benefit plan, which approved his claim.
 
Hartford paid Shupe’s claim without incident for more than eleven years. During this time Shupe continued to receive treatment for his painful condition, including the insertion of a spinal cord stimulator and prescription pain medicine which caused cognitive impairment. However, in 2016 Hartford terminated Shupe’s benefits on the basis of a functional capacity evaluation (FCE) performed by Alyssa Wolf that determined he could return to sedentary work, even though the FCE also found that he could only sit for ten minutes at a time and was impaired by his medication. Hartford sent the Wolf FCE report to Shupe’s new treating physician, Dr. Whittenberg, who indicated that she “agree[d] with the FCE conclusions” but did not explicitly agree that he could do sedentary work.
 
Shupe appealed and submitted reports from an independent medical examination, FCE, and a vocational expert, which all determined that Shupe was unemployable. Hartford was unimpressed and upheld its denial decision. Shupe subsequently sent Hartford a letter written by Dr. Whittenberg, who indicated that she agreed with the reports submitted by Shupe on appeal and that Shupe could not return to work. Hartford told Shupe it would not review this letter because his appeals had been exhausted.
 
Shupe filed suit, and the parties stipulated to de novo review. On summary judgment, the district court granted Hartford’s motion to strike the Dr. Whittenberg letter from evidence and upheld Hartford’s decision to terminate benefits.
 
Shupe appealed to the Fourth Circuit, which tackled two issues. First, the court agreed that the district court did not abuse its discretion in determining that the letter from Dr. Whittenberg was inadmissible. The court found that Shupe could not “demonstrate a persuasive reason why he failed to present the letter during the administrative appeal.”
 
However, the Fourth Circuit reversed the merits of Hartford’s disability determination. The court noted that the “consistent medical history leading up to the Wolf FCE reflects [Shupe’s] inability to maintain full-time sedentary employment.” The court further found that while the Wolf FCE initially appeared to support Hartford’s decision, “a deeper reading reflects that the Wolf FCE is internally inconsistent and represents an outlier in Shupe's medical history.” The court noted that the report “suffers from practical and logistical inconsistencies” because its conclusion (that Shupe could work) was “difficult to reconcile” with its findings that Shupe needed to frequently change positions and could only sit for ten minutes at a time. As a result, the Wolf FCE was “of limited value in our analysis.”
 
The court also dismissed the opinion of Harford’s reviewing physician, Dr. Lewis, finding that his “assessment is of limited efficacy and cannot stand against the weight of Shupe’s medical history and contemporaneous evaluations concluding to the contrary, particularly considering Dr. Lewis completed his report without examining Shupe or consulting with Dr. Whittenberg.”
 
Instead, the court found that the reports submitted with Shupe’s appeal were far more persuasive. These reports, “coupled with Shupe’s contemporaneous medical history predating the Wolf FCE, all uniformly conclude that Shupe was incapable of full-time sedentary employment and lead us to conclude that the Wolf FCE is an unsupported outlier.” The court further noted that Shupe’s “prescribed medications operate as an inhibitor to full-time sedentary employment.”
 
As a result, the Fourth Circuit reversed the grant of summary judgment and instructed the district court to enter judgment in Shupe’s favor, including the reinstatement of benefits from the date of termination.
 
Shupe was represented by Kantor & Kantor attorneys Glenn Kantor, Sally Mermelstein, and your Co-Editor in Chief, Peter Sessions.
 
The Goldilocks Standard: Hughes v. Northwestern Argued in the Supreme Court

On Monday, December 6, 2021, the Supreme Court heard arguments in Hughes v. Northwestern University, No. 19-1401 (S. Ct.). The issue in the case is the level of specificity needed to state breach of fiduciary duty claims in a case involving excessive fees for investments offered in a 403(b) retirement plan in order to survive a motion to dismiss. The Seventh Circuit held that fiduciaries acted prudently with respect Northwestern’s plan because they offered some prudent investment options with reasonable fees alongside allegedly imprudent investments, and that the Hughes plaintiffs did not provide sufficient specificity in their complaint to state a claim pertaining to the allegedly excessive fees.
 
The arguments presented by both sides, as well as by the government, were coherent and concise. Representing plaintiffs, counsel David Frederick argued that it is not the responsibility of plan participants to have to sift through imprudent funds to pick one of the prudent options available, especially given that Northwestern’s plan offered over 240 funds, many of them duplicative. Reasonableness, counsel argued, is tied to process, and Northwestern failed for seven years following the Department of Labor’s rule changes to take the appropriate steps to monitor its funds, request a reduction in fees, or consolidate its overly broad and bloated investment portfolio by eliminating some of the options. Plaintiffs argued that the complaint specifically named funds identical to those offered in the plan that were available and had substantially lower institutional rather than retail fees. Finally, as evidence of breach of fiduciary duty, plaintiffs pointed to the fact that, by 2003, between 80-90% of 403(b) plans were compliant with the DOL’s regulations and had moved to having only one recordkeeper. In fact, plaintiff pointed out that Northwestern itself lowered its fees, got rid of imprudent funds, and reduced its number of recordkeepers, albeit much later than other colleges and universities.
 
Representing the government as amicus curiae in support of the participants, counsel Brian Fletcher argued that it would be inconsistent with precedent and the guiding principles of ERISA if Northwestern’s pleading standard were to be adopted. Heightening the notice pleading standard of Rule 8 is unwarranted and would act to the detriment of retirees and plan participants who have no other recourse than the courts to redress harms. Plan fiduciaries, the government argued, have a duty to make cost comparisons, negotiate lower fees, and eliminate duplicative funds to the extent that they result in higher and unnecessary fees for participants. The government did not have an opinion as to the consolidation of the allegedly bloated investment portfolio.
 
Representing Northwestern, counsel Greg Garre argued that the Seventh Circuit was correct to dismiss the case at the pleading stage as the complaint was, in his words, “massive in size, short on specifics.” Plaintiffs’ recordkeeping fee benchmarks were “plucked out of thin air,” the 129 allegedly identical funds with institutional level fees were not actually available to the plan, and allowing this case to go forward would open the litigation floodgates, overwhelming the federal court system and causing the courts to micromanage ERISA plans. As for the 242 funds offered, counsel argued that options are a good thing and ERISA should not impose a “Goldilocks rule” of a just-right investment options menu. Finally, Northwestern speculated that the government chose not to take a stance on the consolidation issue because it would be “unadministrable.”
 
The Justices seemed willing to reverse, or at least reluctant to adopt, the Seventh Circuit’s pleading standard. Indeed, Justice Gorsuch noted that complaints must be read “reasonably but not too parsimoniously.” Likewise, the Justices seemed, as a general matter, to accept the seemingly unremarkable proposition that fiduciaries have the obligation to obtain the same mutual fund investments for less if they can. But little else appears clear from the questioning. Were institutional mutual funds actually available to the plan given required investment minimums? How and why should judges restrict investment choices, asked Justice Gorsuch. Are the appropriate benchmarks for fees the industry averages, and what if those industry norms are changing, asked Chief Justice Roberts and Justice Gorsuch.

Three Justices – Kavanaugh, Kagan, and Sotomayor – all asked questions pertaining to whether consolidation of the excessive options was a necessary component of all of the arguments, including the fee arguments, and particularly pressed the government as to why it chose not to express an opinion on consolidation. Justice Sotamayor pushed backed strongly on the recordkeeping fees, noting that there might well be value to having two recordkeepers, as Northwestern did. Justice Breyer spent the argument on an imaginary trip to a grocery store, questioning how much was too much to pay for an apple in a droll but ultimately flawed analogy. Paying too much for an apple, after all, would never have the same consequences as paying excessive fees over a lifetime on retirement income.
 
The Justices also ruminated about how tough it is to be a fiduciary, seemingly sympathizing with Mr. Garre’s argument against imposing a Goldilocks rule that would put fiduciaries in a “damned if you, damned if you don’t” scenario. Perhaps, however, Goldilocks would make an excellent prudent fiduciary. Northwestern’s 403(b) plan participants might themselves be all in favor of having “just right” investments. Whether the Court adopts such a view remains to be seen when it issues its decision in this case before the end of the term in June.

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
 
Attorneys’ Fees
 
Fifth Circuit
Newman v. Arens Servs., No. 1:19-CV-1102-LY, 2021 WL 5564269 (W.D. Tex. Nov. 29, 2021) (Magistrate Judge Susan Hightower). Everything is bigger in Texas, except for an award of attorney’s fees. Final judgment was entered in this case in the district court on September 2, 2021, ordering judgment against defendants in the amount of $90,084.46 and pre-judgment interest of $8,835.68. Plaintiffs moved for attorneys’ fees and costs, requesting $39,340 in attorney’s fees, $1,502 in costs, and $20,000 in conditional appellate fees in the event that defendants appeal the district court’s judgment. Defendants objected to the size of the requested fee award and asked that it be reduced from $39,340 to $24,975. Plaintiffs’ counsel, Bradley J. Reeves, sought an hourly rate of $350. He has been a practicing attorney for 11 years. Mr. Reeves declared his rate reasonable considering the complexity of ERISA cases, although he gave the court no specific information as to his expertise in ERISA. Defendant argued that an hourly rate of $250 fit “the prevailing rates of attorneys of similar skill and experience in this district.” The court, relying on Rossi v. Precision Drilling Oilfield Servs. Corp. Emp. Benefits Plan, No. A-10-CA-841-SS, 2013 WL 12113201 (W.D. Tex. July 26, 2013) (which reduced an hourly rate of $400 to $300 for a highly accomplished ERISA practitioner with 22 years of experience), determined the same rate should apply here; reasoning that Austin’s legal market has grown tremendously since 2013, but Mr. Reeves had half the experience of the counsel in Rossi and failed to establish his ERISA expertise. Accordingly, the court held that an hourly rate of $300 was reasonable. Next, the court reduced 4.1 hours, found to be erroneous or duplicative, of the 112.4 hours of compensation sought by Mr. Reeves. Multiplying 108.3 hours by the hourly rate of $300, the lodestar amount was $32,490. The court found the base lodestar amount satisfied the Johnson factors with no further adjustments warranted. Thus, plaintiffs were awarded $32,490 in attorney’s fees. Additionally, the court determined plaintiffs’ requested $1,502 in costs and expenses was reasonable, and defendants did not oppose the motion for costs. Finally, the motion for $20,000 in conditional appellate fees was denied as the amount was overly speculative and the award premature.
 
Breach of Fiduciary Duty
 
Eighth Circuit
Snyder v. UnitedHealth Group, Inc., No. 21-1049 (JRT/BRT), 2021 WL 5745852 (D. Minn. Dec. 2, 2021) (Judge John R. Tunheim). Plan participants of UnitedHealth Group, Inc.’s 401(k) Savings Plan brought a class action suit against UnitedHealth, its board of directors, and the plan’s investment and administrative committees alleging, as fiduciaries, they breached their duty of prudence and duty to monitor. The plan is large with over 200,000 participants and approximately $15 billion in assets. Defendants moved to dismiss, and in the alternative moved for summary judgment. The motion to dismiss was denied, as plaintiffs sufficiently demonstrated that the Wells Fargo Target Date Funds chronically underperformed for over eleven years by identifying six meaningful benchmarks with which to compare the funds. The motion for summary judgment was also denied, as the court determined it was premature, especially given that discovery hasn’t begun in the case.
 
Disability Benefit Claims
 
Eighth Circuit
Avenoso v. Reliance Standard Life Ins. Co., No. 21-1772__ F.4th __, 2021 WL 5570816 (8th Cir. Nov. 30, 2021) (Before Circuit Judges Gruender, Erickson, and Stras). Plaintiff Michael Avenoso brought suit challenging the denial of his long-term disability benefit claim. The district court granted summary judgment in favor of Mr. Avenoso. Defendant Reliance Standard Life Insurance Company appealed. The Eighth Circuit concluded that the district court erred by resolving factual disputes on summary judgment but wrote, “the error was harmless” and therefore affirmed the lower court’s judgment. In a very standard course of events for a long-term disability case, Reliance initially approved Mr. Avenoso’s claim following back surgery and paid his benefits for two years under the “own occupation” standard. Then, when the standard was raised to “any occupation,” Reliance cut off Mr. Avenoso’s benefits arguing that he could perform sedentary work functions. Mr. Avenoso’s treating physician disagreed, and testified that Mr. Avenoso would be unable to sit for long periods of time with his conditions. Mr. Avenoso also provided his Social Security disability benefits award as part of his administrative record. The Social Security Administration determined that Mr. Avenoso was unable “to engage in any substantial gainful activity.” Reviewing the district court’s ruling, the Eighth Circuit concluded that the district court “weighed the evidence, made a determination as to the credibility of Avenoso’s accounts of his condition, and made findings on disputed factual questions… (adjudicating) the parties’ summary-judgment motions as if it were ruling in a bench trial.” However, this distinction between summary judgment motions and bench trial rulings is opaque when it comes to ERISA cases, and in this particular case, the Eighth Circuit ultimately concluded the outcome was the same either way because the district court had not clearly erred in finding Mr. Avenoso disabled as defined by the plan.
 
Ninth Circuit
Gary v. Unum Life Ins. Co. of Am., No. 3:17-cv-01414-HZ, 2021 WL 5625547 (D. Or. Nov. 29, 2021) (Judge Marco A. Hernández). Plaintiff Alison Gary brought a wrongful denial of benefits suit against Unum Life Insurance Company of America after her long-term disability benefits were denied. Ms. Gary has Ehlers-Danlos syndrome (“EDS”) Type III, cervicomedullary syndrome, and related neurological and cognitive impairments. Ms. Gary asserted that because of her illnesses she was no longer able to perform the duties of her job as an attorney, as supported by her treating physicians and surgeons. The district court previously granted in part and denied in part Ms. Gary’s summary judgment motion. Ms. Gary then partially appealed the summary judgment decision to the Ninth Circuit. On appeal, the Ninth Circuit concluded that the district court needed to be more skeptical in its application of abuse of discretion review. Specifically, the appeals court concluded that Unum had a conflict of interest which “‘support[ed] a higher degree of skepticism than the moderate degree [that was] applied,’ given that (1) Defendant's consultants ‘cherry-picked’ certain observations from medical records; (2) Defendant did not hire an EDS specialist to access Plaintiff's claim; (3) Defendant did not conduct its own in-person medical examination (“IME”) of Plaintiff; and (4) Defendant initially denied Plaintiff's claim outright and then reversed its previous decision, finding that Plaintiff was disabled from November 27, 2013, through April 6, 2015.” The Ninth Circuit remanded the case to the district court with the instructions to apply a heightened level of skepticism in determining whether Unum abused its discretion. On remand, the district court did so and concluded that Unum’s interpretation of the medical records was unreasonable, and Ms. Gary was disabled as defined by the plan. Therefore, the court granted Ms. Gary’s partial motion for summary judgment and ordered payment of benefits.
 
Discovery
 
Eighth Circuit
Shafer v. Zimmerman Transfer, Inc., No. 1:20-cv-00023-RP-SHL, 2021 WL 5632087 (S.D. Iowa Nov. 23, 2021) (Magistrate Judge Stephen H. Locher). In 2017, plaintiff Darrin Shafer underwent emergency surgery to remove an obstruction in his bowel. The claims administrator informed Mr. Shafer that this surgery would not be covered under his ERISA health plan because it resulted from non-covered gastric bypass surgery performed two years earlier, referring to the “pre-existing conditions” section of the plan to deny the coverage. During the appeals process, the plan determined that the emergency surgery was not “medically necessary.” Having exhausted the internal appeals, Mr. Shafer brought this ERISA Section 502(a)(1)(B) benefits claim in which he alleged defendants’ denial of benefits was arbitrary and capricious. Mr. Shafer requested the court to order defendants to respond to discovery he served on November 8, 2021. Defendants jointly moved to limit the scope of Mr. Shafer’s discovery request. The court, navigating the fog of ERISA discovery motions, came to the conclusion that discovery is warranted for determining conflict of interest concerns. The court wrote that “these factors inherently seem to require discovery outside the administrative record, as no plan administrator would admit, for example, to having a ‘history of biased claims administration’ in an administrative record.” Therefore, although most of Mr. Shafer’s requested discovery was considered overly broad or already sufficiently part of the administrative record, in two instances the court ordered defendants to produce the requested discovery. First, defendants were ordered to inform Mr. Shafer of the name of the doctor who performed the external review of his claim and whether this person was employed by or affiliated with defendants. Second, the court ordered the defendants to provide “any rules, regulations, or written guidelines of any sort upon which you relied in this case, or have relied in similar cases in the past, for the purpose of deciding whether or not to deny coverage in claims of this nature.” As this request will shed light on potential bias, the court found this information necessary for plaintiff’s claims. For the rest of the discovery Mr. Shafer sought, the court held that he failed to establish good cause, and therefore defendants’ motion to limit the scope of the discovery was granted for all the remaining requests.
 
Medical Benefit Claims
 
Fifth Circuit
Randolph v. E. Baton Rouge Par. Sch. Sys., No. 21-30022__F.4th__, 2021 WL 5577014 (5th Cir. Nov. 30, 2021) (Before Circuit Judges Higginbotham, Smith, and Ho). Plaintiff Kathran Randolph was an employee of the East Baton Rouge Parish School System. Ms. Randolph retired on February 15, 2016 and on August 23, 2016 her insurer paid its final claim. When Ms. Randolph went for a doctor’s appointment on September 13, 2016, her coverage was denied. Ms. Randolph then spoke to a payroll and benefits person from the Parish School System and was informed that following her retirement her premiums went up from $200 per month to $480 per month and that she owed $2,900 for back payments on missed insurance premiums. Ms. Randolph received her first COBRA notice in a letter dated October 3, 2016. Two days later, Ms. Randolph commenced this suit alleging her former employer violated COBRA when it failed to timely provide her with information pertaining to her right to continue insurance coverage. This is the second time this case has been appealed to the Fifth Circuit. Here, the Fifth Circuit reversed the district court’s holding that no COBRA violation occurred, affirmed the district court’s denial of Ms. Randolph’s request for payment of her medical expenses, and remanded to the district court to decide whether an award of statutory penalties and attorneys’ fees is warranted. Ms. Randolph’s retirement was determined to be a qualifying event and insufficient notice was given following the retirement. As Ms. Randolph’s monthly premium costs went up following retirement, this change of contribution rates for continued health insurance would not have occurred “but for” the retirement. Therefore, the employer was required to provide Ms. Randolph a COBRA notice following the change within 44 days of the retirement, meaning, in this case, by the end of March 2016. As notice was not given until October 2016, defendant violated COBRA. As for Ms. Randolph’s request for payment of her medical expenses, the 5th Circuit agreed with the district court’s conclusion that since defendant continued to pay Ms. Randolph’s medical bills, the total amount of unpaid medical bills was less than the unpaid premiums. The court, therefore, determined that the denial of payment of medical bills was reasonable and presented no clear error to warrant reversing the decision. With regard to an award of statutory penalties and attorney’s fees, the Fifth Circuit determined that she achieved some success on the merits and remanded to the district court to reconsider awarding both the attorneys’ fees and the statutory penalties.
 
Eighth Circuit
Anglim v. Sharp Med. Staffing, No. 8:21-CV-171, 2021 WL 5741961 (D. Neb. Dec. 2, 2021) (Judge Brian C. Buescher). Plaintiff Carrie Anglim brought suit against Sharp Medical Staffing, LLC for violating the COBRA notice provision and for failing to enroll her in the COBRA group health plan. Defendant Sharp moved for summary judgment, which was granted by the court. First, as the Department of Labor and the IRS jointly issued an emergency rule relating to the COVID-19 pandemic extending the allowable time for employers to provide COBRA notice, and this rule was in effect during the relevant time, the court held that the COBRA notice given was timely. Second, as Sharp was able to prove that it had enrolled Ms. Anglim in its COBRA program and Ms. Anglim suffered no damages because she was able to reimburse the medical expenses incurred during the period in-between coverage, the court concluded that Ms. Anglim’s failure to enroll claim failed as a matter of law. Having so decided, the case was dismissed.
 
Tenth Circuit
Lyn M. v. Premera Blue Cross, No. 2:17-cv-01152-BSJ, 2021 WL 5579710 (D. Utah Nov. 30, 2021) (Judge Bruce S. Jenkins). Plaintiff and plan beneficiary L.M. was denied coverage for her fourteen-month stay at a residential treatment center. The cost of the stay exceeded $80,000. L.M. had a history of suicide attempts and other serious mental health conditions. Throughout her stay, including after six months of treatment, treating doctors and other medical professionals noted that L.M. was having thoughts of suicide. Premera Blue Cross denied the coverage, first on the basis that the treatment was not medically necessary, and, on appeal, citing the fact that L.M. was evaluated only once a month by a psychiatrist, rather than once every seven days. L.M., through her parents, commenced this Section 502(a)(1)(B) suit seeking payment of $80,000 in medical bills be paid by Premera. Previously the district court granted summary judgment to Premera under the arbitrary and capricious deferential review standard. L.M. appealed that decision to the Tenth Circuit, which reversed, noting two errors. The Tenth Circuit held that de novo was the correct standard of review for the case, as Premera failed to disclose the existence of the “Plan Instrument” document which gave full discretion to the plan administrator to its members and instead provided members with a summary plan description which did not contain this information. The Tenth Circuit also emphasized that a determination of medical necessity needed to be based on both the summary plan description and the specific criteria found within it pertaining to psychiatric residential treatment. The Tenth Circuit remanded the case for the district court to review under a de novo standard and in light of the criteria contained within the medical policy and summary plan description. On remand, the district court granted plaintiffs’ motion for summary judgment and denied defendants’ motion for summary judgment. As L.M. continued to have thoughts of suicide throughout her stay, the court held that treatment at the residential center was medically necessary as defined by the plan language given L.M.’s severity of illness. Nor was the court willing to accept Premera’s denial basis cited in the appeal about the intensity of service and lack of weekly psychiatric evaluations, as “Tenth Circuit law forbids plan administrators from making new arguments before the Court that was not articulated in the administrative record.” Finally, the court was not swayed by the opinions of Premera’s two evaluating doctors, the first of whom was specially informed not to base his decision on the medical policy. As for the other doctor, the court held that his determination was invalid as he specifically indicated that L.M. had not experienced suicidal symptoms since her admission to the treatment facility, which was directly contradicted by the medical records. For these reasons, plaintiffs’ summary judgment motion was granted.
 
Pension Benefit Claims
 
First Circuit
The Estate of Ralph R. Smith III v. Raytheon Co., No. 1:19-CV-10328-DPW, 2021 WL 5605125 (D. Mass. Nov. 30, 2021) (Judge Douglas P. Woodlock). Widow, Dr. Deborah McCoy, alleged that the Raytheon Company improperly delayed, frustrated, and complicated her late husband’s attempt to perfect his non-standard election of upgraded annuity benefits from his ERISA plan. Raytheon and the plan asserted that Mr. Smith did not properly sign up for the 100% Joint and Survivor Annuity before his death and that Dr. McCoy is therefore only entitled to receive the benefits from the standard annuity with the 50% Surviving Spouse Benefit. Dr. McCoy brought three counts against defendants: (1) a Section 502(a)(1)(B) claim (count I); (2) a Section 502(a)(2) claim (count II); and (3) a Section 502(a)(3) claim (count III). Defendants moved to dismiss all claims. The Section 502(a)(1)(B) claim was dismissed for failure to state a claim as “it is clear both that the plan language is central to eligibility questions and that Mr. Smith did not technically meet the ‘in writing’ requirement set forth in the Plan.” The Section 502(a)(2) claim was also dismissed, as claims brought under this section may only be brought on behalf of plans and there was no loss to the plan as a whole alleged. However, the Section 502(a)(3) breach of prudence claim was allowed to proceed, as Dr. McCoy sufficiently alleged facts supporting her allegations; specially, that Raytheon failed to accurately advise the family of the necessary steps to effectuate the retirement benefits election by giving misleading information and not providing the family with the plan documents. Accordingly, the motion to dismiss the Section 502(a)(3) claim was denied, but the motions to dismiss the 502(a)(1)(B) and the 502(a)(2) claims were granted.
 
Pleading Issues & Procedure
 
Second Circuit
Massaro v. Palladino, No. 20-1807, __F.4th__, 2021 WL 5570814 (2nd Cir. Nov. 30, 2021) (Before Circuit Judges Kearse, Lynch, and Sullivan). The trustees tasked with managing a pension fund and a welfare fund on behalf of the Laborers' International Union of North America, Local Union No. 91, are fighting among themselves in this case over who gets a seat on the board. On one side are the Employer Trustees (Angelo Massaro, Douglas May, and James Panepinto), and on the other side are the Union Trustees (Richard Palladino, Mario Neri, and Randy Palladino). The Employer Trustees brought this case alleging the Union Trustees breached their ERISA fiduciary duties because under the terms of the trust agreements amendments are required to be passed by a unanimous vote of the trustees. The board of trustees who manages the funds is comprised of six trustees: three Employer Trustees and three Union Trustees. On January 9, 2019, the board of trustees for the funds convened a meeting whereby a 4-2 majority vote, two amendments were passed. This majority was comprised of the three Union Trustees along with Anthony Majka (representing the Council of Utility Contractors, Inc.) This fact is important because the Employer Trustees wanted to replace Mr. Majka, which Mr. Majka was informed of in December 2018. The Employer Trustees essentially argued that the amendments, which added additional qualifications for new board members and “created a procedure by which Trustees who did not meet those requirements could petition the existing Board of Trustees to be seated only by unanimous approval,” were introduced with the explicit purpose of making it more difficult to remove Mr. Majka. This argument seems supported by facts because at the next board meeting in April the Council of Utility Contractors removed Mr. Majka as its appointed trustee and appointed Mr. Panepinto. The Union Trustees objected to the seating of Panepinto because he did not meet the qualifications added in the amendments. Hence the bitter dispute and the Employer Trustees filing their complaint seeking to invalidate the amendments and enjoin the Union Trustees from objecting to the seating of Mr. Panepinto. The district court, finding a breach of fiduciary duty under Section 404(a)(1)(D) of ERISA, granted summary judgment in favor of the Employer Trustees. However, because the Union Trustees’ arguments “were colorable and nonfrivolous,” the district court denied the Employer Trustees’ request for attorneys’ fees and costs. Following the summary judgment order, the Union Trustees appealed the district court’s decision. The Employer Trustees, in turn, cross-appealed. The Employer Trustees also moved in the district court for an order holding the Union Trustees in contempt for failing to comply with the district court’s summary judgment order and accompanying judgment. The district court had denied the contempt motion, agreeing with the Union Trustees that the summary judgment order was not sufficiently clear and unambiguous to support a contempt finding. The Employer Trustees then appealed the district court’s contempt decision and claimed that the contempt decision substantively changed the summary judgment order and appealed the summary judgment order “as changed or clarified by” the contempt decision. So, the court of appeals was presented with: (1) the Union Trustees’ appeal of summary judgment in favor of the Employer Trustees; (2) the Employer Trustees’ cross-appeal of the denial of attorneys’ fees; (3) the Employer Trustees’ appeal of the denial of the contempt motion; and (4) the Employer Trustees’ appeal of the district court’s denial of injunctive relief in the summary judgment order as clarified by the contempt decision. The Second Circuit agreed with the district court that the Union Trustees’ amendments were procedurally invalid, but did not agree that the Union Trustees breached their fiduciary duties in passing the invalid amendments, “because trustees do not act in a fiduciary capacity under ERISA when they pass amendments to a multiemployer benefit plan.” As for the Employer Trustees’ cross-appeal challenging the attorneys’ fee denial, the court held that, in light of its decision to vacate the district court’s grant of summary judgment, the Employer Trustees cannot claim success on the merits. Accordingly, the court of appeals denied the attorneys’ fee motion. Likewise, the Employer Trustees’ appeals pertaining to the contempt decision were mooted by the vacatur of the underlying order on which the contempt decision was based.
 
Feltington v. Hartford Life Ins. Co., No. 14-CV-06616 (GRB) (JMW), 2021 WL 5577924 (E.D.N.Y. Nov. 30, 2021) (Magistrate Judge James M. Wicks). Plaintiff Lisa Feltington brought this ERISA suit seeking an award of long-term disability benefits. Ms. Feltington became disabled in 2011, when she began suffering from spinal conditions including degenerative disc disease. Defendant Hartford Life Insurance Company paid for Ms. Feltington’s benefits until 2014 when it determined she was no longer eligible. Ms. Feltington alleged that Hartford Life failed to consider medical records submitted with her appeal and inappropriately relied on its own doctor who never treated or examined her. Earlier in this case, the court awarded in part Ms. Feltington’s discovery request and required Hartford Life to produce its internal procedure for reopening and reconsidering closed claims. Following discovery, Ms. Feltington moved to supplement the administrative record with two letters and Hartford Life moved to file certain internal policy documents under seal. First, the court examined Ms. Feltington’s motion. The first of the two letters Ms. Feltington sought to add to the administrative record was a letter from her physical therapist sent to her attorney. In the letter, the physical therapist explained that Hartford Life’s doctor never called her back about the examination she performed on Ms. Feltington, directly contradicting Hartford Life’s statements. The second letter was from Ms. Feltington’s counsel to Hartford Life conveying the information from the first letter. The court granted Ms. Feltington’s motion to supplement the administrative record with regard to the first letter as she sufficiently demonstrated “good cause” because the information points to potential bad faith on defendant’s part. The second letter was not added to the administrative record as it contained legal arguments and did not go to a good cause. The court then turned to defendant’s motion to seal. Finding defendant failed to sufficiently overcome the strong presumption of public access for documents, the court denied the motion. Specially, the internal policy which defendant sought to seal merely stated that defendant will not re-visit internal appeal determinations and will not consider any new evidence presented following its internal determination. This was determined not  to “rise to the level of sensitive business information that requires protection from public access.”
 
Fifth Circuit
Allen v. Sherman Operating Co., No. 4:20-CV-290-SDJ, 2021 WL 5710566 (E.D. Tex. Dec. 2, 2021) (Judge Sean D. Jordan). At her workplace, plaintiff Carol Allen tripped and fell over an eighteen-foot-long phone cord and injured herself. She then filed a claim for benefits under an employee injury benefit ERISA plan. The plan’s claims administrator partially denied Ms. Allen’s claims, as some of the injuries she identified were considered to be pre-existing conditions. Then, Ms. Allen was terminated under the benefits plan altogether, as the plan administrator determined she had reached her maximum level of recovery, had not complied with the plan provisions, and had “abandoned her employment.” Following those decisions, Ms. Allen filed suit asserting state law causes of actions and ERISA violations. Defendant Sherman Operating moved for summary judgment and the Magistrate Judge entered a Report and Recommendation recommending granting summary judgment in favor of Sherman Operating on all claims. Ms. Allen filed objections to the Magistrate Judge’s report. Having conducted a de novo review of the objections to the report, the court found the Magistrate Judge’s conclusions correct, the objections meritless, and adopted the findings and conclusions of the Magistrate Judge, granting summary judgment in favor of Sherman Operating. The court did not agree with Ms. Allen that the phone cord was an obvious danger as a matter of law, that a “necessary-use” exception should preclude summary judgment, or that the Magistrate Judge erroneously applied the wrong standard of review. The court concluded therefore that the Magistrate Judge had not erred in any of her legal reasoning or incorrectly assessed the case. At the end of the day, it is hard to argue with the court’s reasoning that “there is no evidence Sherman Operating ‘should have anticipated that she was unable to avoid the alleged unreasonable risk associated’” with a phone cord.
 
Standard of Review
 
Ninth Circuit
Sides v. Cisco Sys., No. 19-15830__ F. App’x __, 2021 WL 5755089 (9th Cir. Dec. 3, 2021) (Before Circuit Judges Owens, Bade, and Lee). Plaintiff Kip Sides appealed the district court’s judgment in favor of defendants. As the plan clearly conferred discretionary authority to the plan administrator to determine benefits eligibility, the Ninth Circuit held that the district court properly applied abuse of discretion rather than de novo review in its decision making. Additionally, the court of appeals agreed with the district court that Mr. Sides failed to exhaust his administrative remedies before filing suit. Finally, the court of appeals determined that the district court properly awarded judgment in favor of UnitedHealthcare and Cisco because the information Sides provided was vague and he failed to establish an ERISA violation. Accordingly, the Ninth Circuit affirmed all of the lower court’s holdings.
 
Subrogation/Reimbursement Claims
 
Sixth Circuit
Fitch v. Am. Electric Power System Comprehensive Med. Plan, No. 21-cv-576, 2:21-cv-682, 2021 WL 5711909 (S.D. Ohio Dec. 2, 2021) (Judge Edmund A. Sargus, Jr.). On October 11, 2019, John D. Fitch was gravely injured in a car accident. He died the following day after receiving emergency medical treatment. John Fitch was a beneficiary of his mother’s ERISA medical plan. This plan, American Electric Power System Comprehensive Medical Plan, paid for John’s hospital bills. A year after the death, John D. Fitch’s father, John K. Fitch, resolved two settlement claims: one for $500,000 for the at-fault driver’s insurance, and the other for $100,000 from State Farm, the Fitch’s automobile insurer, for medical payments. The entire $600,000 of the settlement proceeds were designated by an Ohio probate court as “wrongful death proceeds to be disbursed amongst Decedent’s immediate family.” Anthem Blue Cross, the ERISA medical plan’s claims administrator, asserted a right to enforce the plan’s subrogation provision against the Fitch estate to recover the money it paid in medical expenses following the accident. The issue in these related Fitch I and Fitch II cases then is whether, under ERISA, the employee benefit plan is entitled to reimbursement from settlement proceeds that were already allocated to the wrongful death claims by the probate court. However, the district court never resolved this question as it instead found that it lacked subject matter jurisdiction over both cases. Both the motion to remand Fitch I to the Franklin County Probate Court and the motion to dismiss the Fitch II complaint were granted. The court agreed with the Fitches that the “probate exception” applied to these cases and therefore the district court was barred from adjudicating the complaint. The court further held that the declaratory action at the center of the cases was not completely preempted by ERISA and thus could only be resolved by the probate court. Specifically, the court held that the administrator of the estate did not qualify as a plan participant/beneficiary nor as a fiduciary and would therefore be barred from bringing an action to enforce its rights under ERISA Section 502(a)(3).
 
Venue
 
Ninth Circuit
Collins v. Guardian Life Ins. Co. of Am., No. 2:21-cv-00206-SMJ, 2021 WL 5570586 (E.D. Wash. Nov. 29, 2021) (Judge Salvador Mendoza, Jr.). Plaintiff Mamie Collins brought suit against Guardian Life Insurance Company of America seeking an award of long-term disability benefits. Guardian Life moved to transfer venue under 28 U.S.C. § 1404(a) to the District of Hawaii. Ms. Collins opposed the motion to transfer. The court granted the motion as the considerations weighing against transfer were few and the considerations weighing in favor of transfer were numerous. First, the court did not give significant weight to Ms. Collins’s choice of forum as she is not a resident of Washington and the only connection this action has to the district is that the policy allows claimants to write to Guardian at an address in Spokane, Washington, which Ms. Collins never did. No relevant decisions or actions in the case occurred in Washington. While the court did acknowledge that in the event the case goes to trial, Hawaii may impose greater travel burdens on the parties, because in all likelihood the case will be decided on the administrative record, travel considerations were not determined to be overly important. Additionally, Ms. Collins lives in Maine and having filed in Washington state, has already consented to a distant forum. Weighing in favor of transfer was the fact that Ms. Collins lived in Hawaii during all relevant events relating to the case and her treating physicians at the time are still located there, therefore access to witnesses and proof, if needed, will be much easier in Hawaii. Furthermore, the alleged breach occurred in Hawaii, Hawaii has a lower number of civil case filings, and Hawaii has a greater interest in deciding a local controversy of a company whose plan applies to Hawaiian employees. Concluding that it is in the interest of justice to transfer, the court transferred the matter to the Aloha State.
 
Withdrawal Liability & Unpaid Contributions
 
Seventh Circuit
Midwest Operating Eng’rs Welfare Fund v. Davis & Son Excavation LLC, No. 19-CV-1153, 2021 WL 5564872 (N.D. Ill. Nov. 29, 2021) (Magistrate Judge Young B. Kim). Plaintiffs are several ERISA funds who brought suit seeking an audit of Davis & Son Excavation LLC’s records pursuant to a memorandum of agreement between the International Union of Operating Engineers and Davis. Davis, per the terms of collective bargaining agreements, was required to make benefit contributions to the funds for work performed. Now, the funds have collected records from Davis and have completed their audit. Based on the information from the audit and the records, the funds seek recovery of delinquent contributions, attorneys’ fees, costs, and audit fees. Before the court are the funds’ motions seeking to bar Davis from introducing evidence at trial relating to “(1) declarations obtained by Davis during prior settlement negotiations, and (2) evidence from laborers, including a CBA with the laborers’ union, payment data, and correspondence,” and Davis’s motions asking the court to exclude, “(1) evidence post-dating the expiration of the CBA at issue, and (2) drone footage of Davis’s employees and construction sites the funds recorded.” Each side opposed the other side’s motions. First, the court granted the funds’ motion to exclude declarations Davis obtained from its employees Chris Lane and Joseph Williams in 2017 pursuant to Rule 408 as the declarations were made during prior settlement negotiations in a 2016 case. The court denied the funds’ second motion seeking to bar admission of the collective bargaining agreement, payment data, correspondence from the laborers’ union, and any other evidence tending to show that the laborers’ unions’ alleged claim to covered work defeats the funds’ claims. The court disagreed with the funds that the evidence was offered to interpret the terms of the collective bargaining agreement, but found that its purpose was to show the laborers’ union’s claim to disputed work under the laborers’ collective bargaining agreement and was therefore relevant to Davis’s defenses. Turning to Davis’s motions, the court granted the motion to bar a settlement letter which was deemed inadmissible under Rule 408. The remainder of Davis’s motions were denied as Davis failed to show the nontestimonial evidence was “inadmissible on any ground,” and the court determined that the drone footage sought to be excluded did not violate any laws.

Note from the Your ERISA Watch editors:
 

Your ERISA Watch is written and edited by Elizabeth Hopkins and Peter Sessions, with the assistance of Emily Hopkins. Each week our goal is to provide you with the benefit of the expertise of knowledgeable ERISA litigators who are on the frontline of benefit claim and fiduciary breach litigation. Although our firm represents plaintiffs, we strive to provide objective and balanced summaries so they are informative for the widest possible audience.

We include recent cases that have been picked up by Westlaw or sent to us by one of our readers. If you have a decision you'd like to see included in Your ERISA Watch, please send it to Elizabeth Hopkins at ehopkins@kantorlaw.net.

And don't forget to check out the ERISA Watch podcast, which tells the true stories behind the cases. The newest episode focuses on the importance of the investment fees at issue in Hughes v. Northwestern University. Former Assistant Secretary of Labor Phyllis Borzi explains why investment fees are matters of great importance to anyone with a pension. You can listen to this podcast and other episodes here.

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