Santos v. Minn. Life Ins. Co., No. 20-cv-06707-PJH, 2021 WL 5302950 (N.D. Cal. Nov. 15, 2021) (Judge Phyllis J. Hamilton).
Mother of forensics, Frances Glessner Lee, created the Nutshell Studies of Unexplained Death as a teaching instrument for detectives to help them determine causes of death at crime scenes. Such a tool would have been instrumental in this case in determining whether decedent Samuel Chong’s death was an accident, suicide, or homicide, and consequently whether accidental death (AD&D) benefits ought to be paid to plaintiff Eva Marie Santos, Mr. Chong’s cousin and the administrator of the estate. During a well-being check by the San Francisco police, Mr. Chong was found dead “on the floor in the kitchen, near a table. The gas oven door was found open, but the oven was not in use. Blood (and dried vomit) was noted near his head.” The autopsy report listed the cause of death as blunt force head trauma with subdural hematoma. The manner of death was listed as an accident. The toxicology report found methamphetamine, amphetamine, and Temazepam in Mr. Chong's blood and urine.
Defendant Minnesota Life Insurance Company paid the basic life insurance benefits but did not pay the AD&D benefits, referring to the “drug exclusion” in the plan. Ms. Santos filed suit seeking recovery of the AD&D plan benefits as well as attorneys’ fees, costs, and prejudgment interest. The parties filed cross-motions for judgment under Federal Rule of Civil Procedure 52. Applying de novo review, the court focused on whether Chong’s death was an accident and if it was, whether it fell within the policy’s drug exclusion.
First, because the medical examiner determined the death to be an accident and investigators found neither evidence of suicide nor evidence of a second party or foul play, the court was satisfied that plaintiff had made a prima facie showing that Mr. Chong’s death was an accident. Additionally, the court disagreed with Minnesota Life’s theory that a reasonable person would view death or serious injury as the substantially certain result of ingesting methamphetamine. In fact, in the case’s most surprising section, the court found that Mr. Chong’s documented long-standing use of the drug demonstrated otherwise. Although he may have known death was a possible outcome of using methamphetamine, the court wrote “knowledge of a potential consequence … does not equate with knowledge of a substantially certain result.” Mr. Chong died from a head trauma, not an overdose. According to the court, no evidence suggested that he could have foreseen falling and nothing supported that he was certain to die in this instance.
Turning to the drug exclusion, the court concluded that methamphetamine could not be characterized as a “prescription drug, narcotic, or hallucinogen” and consequently was outside the plan’s exclusion language. Therefore, the court concluded the drug exclusion did not apply and Ms. Santos was entitled to benefit payments. As such, plaintiff’s motion for judgment under Rule 52 was granted and defendant’s motion was denied. Ms. Santos was then directed by the court to file a procedurally proper motion for attorneys’ fees. Finally, the court awarded Ms. Santos prejudgment interest at the default rate specified in 28 U.S.C. § 1961.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Martin v. The Guardian Life Ins. Co. of Am., No. 5:20-507-DCR, 2021 WL 5410886 (E.D. Ky. Nov. 18, 2021) (Judge Danny C. Reeves). Following the court’s ruling in favor of defendant Guardian in this long-term disability benefits denial case, Guardian moved for attorney’s fees pursuant to 29 U.S.C. § 1132(g)(1). Despite having achieved some degree of success on the merits, the court denied Guardian's motion. The court did not agree with Guardian’s contention that Mr. Martin had a “clear lack of disability” demonstrating bad faith. The court wrote that “while the court determined that Guardian’s denial of benefits was supported by substantial evidence, Martin’s position was not entirely without support,” pointing to MRI imaging revealing Mr. Martin had spinal degeneration. Nor was the court pleased by Guardian’s argument that Mr. Martin declining to participate in an “independent medical examination” indicated bad faith on plaintiff’s part, especially as his attested reasoning for declining the exam was hesitation to go to an unknown medical facility during the COVID-19 pandemic. Also weighing against a fee award was the fact that Mr. Martin did not have the ability to pay the $137,949.94 in requested attorneys’ fees. In fact, the court noted that Mr. Martin only had $1,500 in his bank accounts, had not worked since 2017, was the father of a minor child, and had no income other than a monthly Veteran Affairs benefit of $756.77. The court also sensibly declined to grant the fee motion as it would create a chilling effect on other plaintiffs seeking redress under ERISA.
Breach of Fiduciary Duty
Ruessler v. Boilermakers-Blacksmiths Nat’l Pension Tr. Bd. Of Trs., No. 1:20-cv-128 SNLJ, 2021 WL 5371252 (E.D. Mo. Nov. 18, 2021) (Judge Stephen N. Limbaugh, Jr.). Plaintiff Adam Ruessler brought this lawsuit against the trustees of the Boilermaker-Blacksmith National Pension Trust following the denial of his disability pension benefits application. Mr. Ruessler alleged that defendants breached their fiduciary duties by failing to inform him about the auxiliary disability benefit and the conditional disability pension, failing to inform him that a Social Security “notice of decision” document was insufficient to secure benefits, and encouraging him to abandon his appeal. Along with his equitable relief claim, Mr. Ruessler also brought a Section 1132(a)(1)(B) claim for unpaid benefits. Both parties moved for summary judgment. Under an arbitrary and capricious standard of review, the court held that defendants acted in compliance with ERISA and their fiduciary duties with regards to the denial and appeals process and entered judgment in their favor. First, as Mr. Ruessler only submitted a “notice of decision” and not the required Social Security Disability “notice of award,” the court found that Mr. Ruessler’s own actions prevented a successful appeal. The court further held that defendants had no way of knowing that Mr. Ruessler did not realize he could reapply for benefits, and therefore did not breach their fiduciary duties in this regard. Additionally, as the plan language clearly required a “notice of award,” and as the board advised Mr. Ruessler to submit additional documents in the appeals process, defendants’ actions were found to be appropriate. Defendants’ motion for summary judgment was thus granted, and plaintiff’s motion was denied.
Lipari-Williams v. The Mo. Gaming Co., No. 20-cv-06067-SRB, 2021 WL 5343472 (W.D. Mo. Nov. 16, 2021) (Judge Stephen R. Bough). A putative class moved for certification in this case challenging a tobacco-use surcharge in an ERISA health plan under 29 U.S.C. §1182(b)(1). Defendant Penn National Gaming, Inc. sponsored the health plan. Beginning in 2016, a tobacco surcharge of $50 per month was deducted from the wages of each plan participant who attested to using tobacco products via a health plan questionnaire. Section 1182(b)(1) prohibits discrimination by a group health plan based on health-status related factors. On plaintiffs’ motion for class certification, the court first found that plaintiffs had standing to bring their suit as they suffered a monetary loss from the allegedly unlawful fee. Next, the court evaluated the proposed classes for numerosity, commonality, typicality, and adequacy. As both proposed classes contained at least 1,500 members, the numerosity requirement was satisfied. Commonality was satisfied thanks to plaintiff’s theory of liability based on the class-wide tobacco surcharge documents that were distributed to all participants. The requirement for typicality was satisfied as plaintiffs are asserting the same legal claims under ERISA common to all class members. With no conflict of interest between plaintiffs and the proposed class, plaintiffs were also found to satisfy the adequacy requirement. Further, the court agreed with plaintiffs that Rule 23(b)(1)(B) was satisfied as adjudication of their claims would be dispositive of the interests of the other plan participants’ claims. As for Rule 23(b)(3), the court found that common questions of law in this case predominated over any questions affecting only individual members. A class action was also deemed superior to the filing of separate lawsuits, as it was found to be a more practical use of judicial resources and each individual’s harm was not a substantial amount of money. Finally, the court found class certification warranted under Rule 23(b)(2), despite the fact that the classes sought only monetary and not injunctive relief damages. The parties were directed to meet and confer to determine a proper notice procedure, and the motion to certify the two classes of smokers, vapers, and chewers was granted.
Disability Benefit Claims
Smith v. Aetna Ins., No. 5:20-332-KKC, 2021 WL 5348615 (E.D. Ky. Nov. 16, 2021) (Judge Karen K. Caldwell). Plaintiff Colman Smith brought this case under 29 U.S.C. §1132(a)(1)(B) and RICO, asserting that Aetna Life Insurance Company wrongfully deducted Social Security retirement benefits from his long-term disability benefit payments. Aetna moved to dismiss both Mr. Smith’s ERISA and his related RICO claims against it. The court granted the motion, finding that Mr. Smith’s Social Security payments began after the date he became disabled, as required by the plan language, and Aetna’s decision to deduct these payments was not arbitrary and capricious because it was based on a rational interpretation of the plan’s provisions. Further, the court also dismissed Mr. Smith’s RICO claim because it concluded there was no misrepresentation on Aetna’s part. Finally, Mr. Smith’s motions for summary judgment and class certification were denied as moot.
Pharm. Care Mgmt. Ass’n. v. Wehbi, No. 18-2926, __ F.4th__, 2021 WL 5355916 (8th Cir. Nov. 17, 2021) (Before Circuit Judges Smith, Gruender, and Benton). Plaintiff Pharmaceutical Care Management Association (PCMA) brought suit to enjoin the enforcement of several North Dakota statutory provisions claiming they were preempted by ERISA and Medicare Part D. The district court held that ERISA did not preempt the challenged provisions and that Medicare Part D preempted only one provision. Plaintiff appealed and the Eighth Circuit reversed on the issue of ERISA preemption. The state petitioned for certiorari and the Supreme Court eventually vacated the judgment and remanded to the Eighth Circuit to reconsider the case in light of Rutledge v. Pharmaceutical Care Management Ass'n. The Eighth Circuit affirmed in part and reversed in part. Applying Rutledge, the court found that none of the challenged provisions – which authorized pharmacies to disclose certain information to the plan sponsor, provide relevant information to a patient, mail drugs to a patient as an ancillary service, and charge patients a shipping and handling fee – had an impermissible connection with an ERISA plan. The court determined that these provisions did not “require payment of specific benefits” or “bind plan administrators to specific rules for determining beneficiary status.” The court also held that ERISA was not essential to the challenged provisions’ operation. Therefore, the court concluded that the provisions did not have an impermissible reference to an ERISA plan and therefore ERISA did not preempt these state laws. With regards to Medicare Part D preemption, the Eighth Circuit found that several subsets of the challenged provisions were preempted by Medicare.
Exhaustion of Administrative Remedies
Krysztofiak v. Boston Mut. Life Ins. Co., No. DKC 19-0879, 2021 WL 5304011 (D. Md. Nov. 15, 2021) (Judge Deborah K. Chasanow). Plaintiff Dana Krysztofiak moved to reopen her ERISA case challenging the denial of disability benefits following a denial on remand by defendant Boston Mutual Life Insurance Co. Although the parties agreed that Ms. Krysztofiak must first exhaust available administrative remedies before seeking to reopen, they disputed whether she had done so. Ms. Krysztofiak argued she had exhausted the appeal and that the claim administrator failed to follow the timeline required by ERISA. Defendant argued that the administrative timeline was effectively tolled and extended, and that Ms. Krysztofiak’s motion to reopen was therefore premature. The court agreed with Ms. Krysztofiak that she had properly exhausted her administrative remedies and granted her motion to reopen. According to the court, “once Ms. Krysztofiak filed her appeal on February 5, 2021, the 45-day decision time period began and was set to expire on March 22, 2021.” A letter from the claim administrator providing 30 days for Ms. Krysztofiak to submit additional information “did not invoke the 45-day extension, did not request additional information from Ms. Krysztofiak that was necessary to decide her claim, and did not state that the tolling would last until Ms. Krysztofiak had submitted the requested information necessary to decide the claim.” The court thus concluded that the letter from the claim administrator did not toll the decision time period and Ms. Krysztofiak had therefore exhausted the claims process.
Medical Benefit Claims
Secretary of Labor v. Macy’s, Inc., No. 1:17-cv-541, 2021 WL 5359769 (S.D. Ohio Nov. 17, 2021) (Judge Douglas R. Cole). The Secretary of Labor brought suit alleging defendants Macy’s, Inc., the Macy’s Welfare Benefits Plan, Connecticut General Life Insurance Company (“Cigna”), and Anthem Blue Cross Life and Health Insurance Company violated the Macy’s Health Plan documents and their fiduciary duties by using an out-of-network reimbursement methodology based on the Medicare Allowable Rate, and by operating a discriminatory wellness program that imposed a tobacco-use fee on plan participants. Defendants moved to dismiss the amended complaint for failure to state a claim upon which relief can be granted. The Secretary first alleged that Macy’s failed to amend the plan addenda to reflect the reimbursement changes that occurred in 2009 by Cigna and 2011 by Anthem, when each insurance company began using the Medicare Allowable Rate instead of the usual and customary charge to determine the maximum out-of-network reimbursement. The second count of the complaint, regarding the tobacco surcharge, alleged that Macy’s failed to allow a reasonable alternative for plan participants for whom it was “unreasonably difficult” or “medically inadvisable” to quit using tobacco products to avoid paying the tobacco surcharge. By failing to provide this alternative to participants, the Secretary alleged that Macy’s breached its fiduciary duties and engaged in a self-dealing transaction because participants who wished to participate in a cessation program did so through Cigna and Anthem. The relief requested by the Secretary included asking the court to appoint independent fiduciaries to re-adjudicate all out-of-network claims processed during the relevant time period, and ordering Macy’s to reimburse all participants who paid the tobacco surcharge plus interest and enjoin the collection of future tobacco surcharges until the plan is properly modified. Defendants argued that ERISA does not require reimbursing methodology to be disclosed in documents and failing to do so is therefore not a violation of a fiduciary duty under ERISA. Importantly, defendants also argued that the Secretary did not have standing to bring claims under ERISA Section 502(a)(2) related to the out-of-network reimbursement methodology because the Secretary had not personally suffered financial harm, and plan participants and only participants have an adequate remedy under Section 502(a)(1)(B). As for the Secretary’s claims under Section 502(a)(5), defendants argued the Secretary lacked standing because he did not seek to prospectively enjoin the reimbursement methodology currently in use but rather sought to recover benefits improperly withheld from plan participants. With regard to the tobacco surcharge, Macy’s argued that the Secretary failed to state a claim for a discriminatory wellness program because “no doctor would ever support’ a finding that it was either unreasonably difficult due to a medical condition to cease use of tobacco or medically inadvisable to do so.” The court did not resolve the arguments about what ERISA requires of plan sponsors and claim adjudicators in terms of disclosure of the reimbursement methodologies. Rather, the court agreed with defendants that the Secretary lacked authority to bring the claims challenging the reimbursement methodologies under both of the ERISA civil enforcement provisions on which the Secretary relied. The court found that the Secretary did clear the plausibility hurdle with respect to the challenge to the wellness program but nevertheless concluded that, because Macy’s was acting as a settlor and not a fiduciary in connection with the wellness program, this claim failed as well. For these reasons the court granted Cigna’s and Anthem’s motions to dismiss in their entirety and granted Macy’s motion to dismiss the out-of-network reimbursement methodology. The court dismissed the out-of-network reimbursement methodology claims with prejudice. The court also granted Macy’s motion to dismiss the fiduciary claims arising out of the wellness program with prejudice but dismissed the discriminatory wellness program claims for plan years 2011-2013 without prejudice.
Jass v. Cherryroad Techs., No. 19-cv-00609-DKW-RT, 20-cv-00066-DKW-RT, 2021 WL 5364421 (D. Haw. Nov. 17, 2021) (Judge Derrick K. Watson). Plaintiffs Haralds Jass and Ho Yin Jason Wong brought suit against their former employers for wrongful termination. Defendants subsequently brought counterclaims against both plaintiffs. In this messy Rashomon-like case, all parties have a different take on what occurred and view the events surrounding the firings completely differently. To determine the appropriate summary judgment for the four motions filed (one by Mr. Jass, one by Mr. Wong, one for the counterclaims against Mr. Jass, and one for the counterclaims against Mr. Wong), the court reconstructed the events chronologically and in the end was unable to entirely determine what took place. Accordingly, the court denied summary judgment in part and granted it in part to each party, concluding that claims either lacked evidentiary support or had such disputed evidence as to preclude final judgment. ERISA comes up only with regard to Mr. Jass’s firing. He claimed that one of the defendants violated ERISA/COBRA by failing to provide him with statutorily required notice related to his insurance coverage. However, the court ruled that the Mr. Jass had not proven this defendant was the plan administrator, and therefore granted summary judgment in favor of the defendant with respect to this claim.
Pension Benefit Claims
In re LinkedIn ERISA Litigation, No. 5:20-cv-05704-EJD, 2021 WL 5331448 (N.D. Cal. Nov. 16, 2021) (Judge Edward J. Davila). Putative class action plaintiffs brought claims of breach of fiduciary duties, failure to monitor fiduciaries, and knowing breach of trust against the LinkedIn Corporation, its 401(k) plan, and the plan’s committee and board members. Defendants moved to dismiss all claims under Rules 12(b)(1) and 12(b)(6) and moved to stay discovery pending resolution of the motion to dismiss. The court granted in part and denied in part the motions to dismiss, and the denied the motion to stay discovery. Plaintiffs alleged that LinkedIn acted imprudently by selecting and retaining risky and expensive actively managed funds and certain target date funds rather than cheaper, safer, and better performing passively managed index fund options. The funds that LinkedIn offered were alleged to be imprudent investment options as they significantly underperformed their benchmark, the S&P 500 Index fund, and charged excessively high management fees. Through this mismanagement, plaintiffs’ assert that the value of their retirement funds was substantially less than it otherwise would have been. Defendants argued that plaintiffs lack Article III standing to bring their claims. The court agreed that because none of the named plaintiffs were personally invested in the challenged investments, the Freedom Active Suit and the AMCAP Fund, they lacked Article III standing for their claims based on the imprudence of these funds as to these investment options. Furthermore, as currently pled, the court found that the plaintiffs had not have suffered a concrete injury to provide standing to pursue a plan-wide mismanagement theory based on excessive management fees either. The court did find, however, that plaintiffs alleged sufficient facts to bring their breach of fiduciary duty of prudence claim with regard to the Freedom Active Suite, as stock index suites to which plaintiffs pointed were found to be an appropriate comparator to the Freedom Active Suite because they shared the same management firm and nearly identical glide paths, with the sole difference being the degree to which they were actively managed. The same was not true for the claims concerning the imprudence of the AMCAP Fund, which the court found were sparse and without contextualizing facts. On this basis, the court dismissed plaintiffs’ breach of prudence claim with regard to the inclusion and retention of the AMCAP Fund. Additionally, plaintiffs’ allegation that LinkedIn breached its duty of prudence by failing to offer the institutional share class of the American Beacon Small Cap Value Fund rather than the investor share class was found to be insufficiently pled. However, the court found that the plaintiffs had adequately stated claims with respect to the 13 Fidelity Freedom funds based on the 17 comparable funds to which the plaintiffs pointed, which had substantially lower management expense. Likewise, the court concluded that plaintiffs had sufficiently stated claims with respect to the other five challenged funds. The court also held that plaintiffs’ breach of loyalty claim, to the extent it was based on the breach of prudence claim, was sufficient to withstand the motion to dismiss. However, to the extent it was based on a theory that LinkedIn sought to enrich Fidelity Research at the expense of plan participants, the court found that plaintiffs did not adequately plead facts to withstand the motion to dismiss. Finally, the court declined to dismiss plaintiffs’ derivative claims alleging failure to monitor fiduciaries and co-fiduciary breaches and knowing breach of trust claims. For the claims that were dismissed, the court granted plaintiffs leave to amend to add facts that would establish standing and support their theories.
Pleading Issues & Procedure
Raya v. Barka, No. 19-cv-2295-WQH-AHG, 2021 WL 5280648 (S.D. Cal. Nov. 12, 2021) (Judge William Q. Hayes). Plaintiff Robert Raya brought suit under ERISA and California state law against several named defendants as well as his former employer Calbiotech, Inc., and Calbiotech’s 401(k) Profit Sharing Plan and Pension Plan. According to defendants, Mr. Raya entered into a separation agreement with Calbiotech which prevented him from suing and initiating certain claims in court. They alleged that Mr. Raya breached the terms of this agreement by initiating the court proceeding and, on this basis, brought a counterclaim against Mr. Raya for breach of contract. Following that counterclaim, Mr. Raya filed an answer asserting eight affirmative defenses. Defendants subsequently moved to strike Mr. Raya’s third through eighth affirmative defenses pursuant to Federal Rule of Civil Procedure 12(f). The court agreed with defendants that Mr. Raya’s third and fourth affirmative defenses did nothing more than deny the complaint’s allegations and were thus not proper affirmative defenses. The third defense asserted that the counterclaim failed to state a claim upon which relief may be granted, and the fourth defense asserted that the counterclaim failed to state a valid cause of action. Defendants’ motion to strike these two affirmative defenses was granted. The court did not, however, agree with defendants that the fifth through eighth affirmative defenses should be stricken as they challenged the validity and enforceability of the separation agreement. The court found that Mr. Raya was not collaterally estopped from litigating the validity and enforceability of the agreement. In an earlier case, Raya I, Mr. Raya settled claims against Calbiotech, but did not have the opportunity to have the court weigh in on the validity of the agreement. As the validity of the separation agreement was not actually litigated and decided in Raya I, the court denied defendants’ request to strike the fifth through eighth affirmative defenses.
Central States Se. & Sw. Areas Pension Fund v. DT Leasing, LLC, No. 19 C 05878, 2021 WL 5321382 (N.D. Ill. Nov. 16, 2021) (Judge Thomas M. Durkin). In this withdrawal liability case, defendants DT Leasing, LLC and Shoshone Trucking, LLC moved to dismiss the complaint for lack of personal jurisdiction under Rule 12(b)(2), or in the alternative, to transfer venue to the Northern District of Indiana under 28 U.S.C. § 1404(a). The court denied both of defendants’ motions. The court disagreed with defendants that the Supreme Court’s decision in Bristol-Myers Squibb v. Superior Court of California, 137 S. Ct. 1773 (2017), prohibits a federal court from exercising personal jurisdiction in this case. Rather, Bristol-Myers concerned only the “due process limits on the exercise of specific jurisdiction by a State.” As defendants have significant contacts with the United States by virtue of their business operations and plaintiffs’ claims arose under ERISA, personal jurisdiction was proper in the Northern District of Illinois under 29 U.S.C. §§ 1132(3)(2) and 1451(d). With regard to transfer pursuant to 28 U.S.C. § 1404(a), the court evaluated the relevant private interest factors, including plaintiff’s forum choice, the convenience of the parties and witnesses, and the relative ease of access to evidence. First, weighing heavily against transfer, was plaintiff’s choice of forum. Next, considered a neutral factor, was convenience of the parties, as the court found that transfer would simply “shift inconvenience from one party to another.” Factoring in convenience of witnesses, the court found this factor at best slightly favored transfer, but as traveling to Chicago would only be a couple of hours drive by car from Indiana and most testimony is done virtually now, the court was not swayed much by this factor. Regarding the access to evidence, the court was not persuaded it was a valid reason to transfer. Additionally, docket congestion was not deemed an important consideration as the two district courts had similar median time to disposition. Finally, and importantly, the relative interest of each forum in resolving the dispute weighed heavily against transfer. Congress’s intent to protect ERISA from undue litigation costs and obstacles was instrumental in the court’s decision-making as it was not willing to undermine that goal. Accordingly, the motion to transfer venue was denied and the case will remain in the Windy City going forward.
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.
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