Ryan S. v. UnitedHealth Group, Inc., No. 20-56310, __ F. App’x __, 2022 WL 883743 (9th Cir. Mar. 24, 2022) (Before Circuit Judges Collins and Lee, and District Judge Jill A. Otake)
Wit v. United Behavioral Health, No. 20-17363, __ F. App’x __, 2022 WL 850647 (9th Cir. Mar. 22, 2022) (Before Circuit Judges Christen and Forrest, and District Judge Michael M. Anello)
We have two notable decisions this week; both are unpublished memorandum dispositions from the Ninth Circuit involving class actions against UnitedHealthcare and its affiliates.
The first, Ryan S. v. UnitedHealthGroup, Inc., involved a challenge by plaintiff Ryan S. to United’s administration of substance use disorder benefits under its various health care plans. Ryan S. claimed that United created barriers to accessing substance use disorder care and wrongfully denied payment of covered benefits in violation of ERISA and the federal Mental Health Parity and Addiction Equity Act. Ryan S. requested equitable relief only under 29 U.S.C. § 1132(a)(3).
Ryan S. did not get far at the district court. That court granted United’s motion to dismiss on jurisdictional grounds, contending that Ryan S. lacked standing to challenge any of the six allegedly illegal practices he had identified. Ryan S. appealed.
The Ninth Circuit addressed each of the practices individually and concluded that three were sufficient to grant him standing, but three were not.
First, Ryan S. contended that United required patients to obtain pre-authorization for out-of-network outpatient substance use disorder treatment but did not impose the same requirement for other medical care. However, Ryan S.’s treatment providers had obtained the required pre-authorization, and thus the court concluded that “any harm he suffered cannot be linked to a refusal to pay for lack of pre-authorization.” Furthermore, his suit would not remedy any harm resulting from delay in treatment while awaiting pre-authorization.
The Ninth Circuit also affirmed regarding Ryan S.’s claims that United engaged in cross-plan offsetting, i.e., refusing to pay Ryan S.’s providers for his treatment as a means to recoup alleged overcharges resulting from the treatment of other patients. The court concluded that Ryan S. could not plausibly allege that he was directly responsible for the unpaid bills arising from other patients’ treatment.
For similar reasons, the Ninth Circuit affirmed as to Ryan S.’s claim that United paid substance use disorder treatment claims at inapplicable Medicare rates. The court ruled that Ryan S. had not alleged facts linking United's inappropriate Medicare-based rates to his own unpaid medical bills.
However, while it affirmed on the three practices above, the Ninth Circuit found that the district court had erred regarding the remaining three practices. First, Ryan S. contended that while United paid for some of his outpatient treatment, it impermissibly refused to cover or underpaid for other treatment for his substance use disorder. The court ruled, “That United paid for some of Ryan S.’s outpatient treatment may affect whether Ryan S. can prove his claims, but it does not preclude his standing to challenge an alleged practice.” Further, his request for equitable relief in the form of an injunction would redress his alleged injury.
Ryan S. also contended that United either did not pay or underpaid for auxiliary treatments, such as counseling, case management services, and breathalyzer testing. The district court found that United had no “categorical practice” of denying such claims, but the Ninth Circuit ruled that this bar was too high. “At this early stage of the proceedings, it is sufficient for Ryan S. to allege that United failed to cover some treatment he thinks he is entitled to under his plan or the law, and that such a refusal harmed him.”
Finally, Ryan S. alleged that United denied or limited coverage for certain clinical laboratory services. The Ninth Circuit ruled that Ryan S. could not challenge United's alleged practice of seeking refunds from providers of clinical laboratory services for the same reasons discussed regarding cross-plan offsets. However, the court ruled that Ryan S. could pursue his claims to the extent United denied or limited coverage for the services because he was personally harmed and left with medical bills as a result.
Judge Collins concurred in part, contending that the district court was correct to dismiss the entire action. Judge Collins argued that because Ryan S. was only seeking equitable relief under 29 U.S.C. § 1132(a)(3), he was required to plead “allegations that would plausibly establish that [United’s] instances of alleged failure to pay benefits reflected a general practice, as opposed to case-specific errors or deficiencies that occurred in Ryan S.’s case.”
Plaintiff Ryan S. was represented by your editor, Elizabeth Hopkins.
The second case, Wit v. United Behavioral Health, went far more poorly for the plaintiffs. This case has a long history; it was originally filed in 2014. The district court has issued countless rulings, including certifying a class and ultimately concluding after a ten-day bench trial and extensive fact-finding that United engaged in “pervasive and long-standing violations of ERISA.” Specifically, the court found that United adopted guidelines that were unreasonable and inconsistent with generally accepted standards of medical care. In January of this year, the district court awarded more than $20 million in attorney’s fees and costs to the plaintiff’s counsel.
All of this was swept away by the Ninth Circuit in an eight-page non-precedential memorandum disposition. The decision began by agreeing that the plaintiffs had standing to bring their claims. United argued that the plaintiffs “did not suffer concrete injuries” and “did not show proof of benefits denied,” and thus were not harmed by United’s guidelines. The Ninth Circuit disagreed, holding that the plaintiffs had properly alleged that “their claims will be administered under a set of Guidelines that narrows the scope of their benefits, and also includes the present harm of not knowing the scope of the coverage their Plans provide.” The alleged injury was also “sufficiently particularized because the Guidelines are applied to the contractual benefits afforded to each class member.”
The Ninth Circuit also affirmed the district court’s decision to resolve the plaintiffs’ claims on a class-wide basis. United argued that the district court erred by certifying a class that required individualized determinations, but the Ninth Circuit ruled that “plaintiffs’ fiduciary duty claim, alleging that UBH applied overly restrictive Guidelines and thereby compromised their contractual rights under their Plans, is capable of being resolved on a class-wide basis.” The court further found that the plaintiffs’ denial of benefits claim, “avoided the individualized nature of the benefits remedy available under § 1132(a)(1)(B) by seeking ‘reprocessing.’”
However, these victories were short-lived because the Ninth Circuit then ruled that the district court misapplied the abuse of discretion standard of review “by substituting its interpretation of the Plans for UBH’s.” The court held that UBH’s interpretation of the benefit plans, i.e., that the plans “do not require consistency with the GASC [generally accepted standards of care] – was not unreasonable.” Specifically, the court stated, “The Plans exclude coverage for treatment inconsistent with the GASC; Plaintiffs did not show that the Plans mandate coverage for all treatment that is consistent with the GASC.” The Ninth Circuit noted that it would have arrived at the same result even if United’s conflict of interest was considered. The court, therefore, reversed on this ground.
Judge Forrest concurred and stated that she would have gone even further by holding that the plaintiffs were not entitled to class certification on their denial-of-benefits claim which sought claim reprocessing as a remedy. Judge Forrest stated there are “numerous individualized questions involved in determining plaintiffs’ entitlement to benefits…reprocessing is not the remedy that plaintiffs seek, it is the means to the remedy that they seek.” Judge Forrest concluded that “styling their sought-after relief as procedural for class-certification purposes does not resolve the individualized questions necessarily involved in deciding their claims.”
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Gesualdi v. Bestech Transp., No. 14-CV-1110 (JS) (ARL), 2022 WL 866853 (E.D.N.Y. Mar. 23, 2022) (Judge Joanna Seybert). Plaintiffs moved for attorneys’ fees and costs incurred after non-party Martha Mancheno did not attend her scheduled deposition in compliance with a Rule 45 subpoena, both when it was originally set, and after the court issued an order compelling her appearance. Only after plaintiffs sought to hold Ms. Mancheno in contempt did she ultimately attend her deposition, which occurred years after it was originally scheduled. In their application, plaintiffs sought an award of $7,477.25 in attorneys’ fees and $5,256.65 in costs. As Ms. Mancheno had been “on notice that she may be subject to sanctions for failing to appear for her deposition” since 2019, and because plaintiffs were always clear that they sought attorneys’ fees and costs “incurred because of Ms. Mancheno’s noncompliance with Court orders,” the court agreed that awarding fees and costs was warranted. Turning to the hourly rates requested by the plaintiffs’ counsel, the court found the requested amounts were slightly above the averages awarded by courts in the district. (The requested amounts were (1) for Attorney Muller (senior associate with 6+ years ERISA experience) $410, (2) for Attorney Bardavid (senior associate engaged in labor and employment practice since 2004) $415, and (3) for two experienced paralegals with well over ten years of litigation experience $120.) Accordingly, the court somewhat reduced the requested hourly rates and awarded Attorney Muller $325 an hour, Attorney Bardavid $375 an hour, and the paralegals $110 per hour. The court next examined the hours requested. Attorney Bardavid expended 2.45 hours, Attorney Muller spent 14.10 hours, and the paralegals worked 5.75 hours, all of which were found by the court not to be excessive or redundant. Therefore, the court, multiplying the hours requested by the reduced hourly rates, awarded the plaintiffs $6,131.75 in attorneys’ fees. The requested costs had a much steeper reduction though. The main portion of the costs ($5,217.00 of the total $5,256.65) was for service. Plaintiffs did not provide the court with invoices or documentation to substantiate the requested amount. Therefore, the court declined to award the plaintiffs the service costs. However, the remaining $39.65 in costs for UPS mailing was awarded.
Breach of Fiduciary Duty
Khan v. Board of Dirs. of Pentegra Defined Contribution Plan, No. 20-CV-07561 (PMH), 2022 WL 861640 (S.D.N.Y. Mar. 23, 2022) (Judge Philip M. Halpern). Plaintiffs are participants of a very large multi-employer defined contribution plan, the Pentegra Defined Contribution Plan. The plan has been adopted by 250 banks and has over 27,000 participants and billions in assets. Plaintiffs brought this putative class action in which they allege defendants, fiduciaries of the plan, breached their duties of prudence and loyalty, engaged in prohibited transactions, and failed to monitor the plan’s administrator, defendant Pentegra Services, Inc. Defendants moved to dismiss for failure to state a claim. Most of the defendants’ arguments for dismissal, that defendant Pentegra Services is not a fiduciary, that plaintiffs’ fee benchmarks are improper comparisons to the multi-employer plan, and that plaintiffs failed to sufficiently allege the plan’s monitoring processes were deficient, were all determined by the court to require discovery and fact-finding, and therefore inappropriate bases for dismissal. The court held plaintiffs sufficiently pleaded all their claims, except for their fiduciary duty of loyalty claim. The court held the duty of loyalty theories were redundant to the duty of prudence theories and were better understood as imprudent rather than disloyal or self-serving actions. Therefore, the court granted the motion to dismiss the fiduciary duty of loyalty claim, but denied the motion for the duty of prudence, failure to monitor, and prohibited transaction claims.
Perkins v. United Surgical Partners Int’l, No. 3:21-CV-00973-X, 2022 WL 824839 (N.D. Tex. Mar. 18, 2022) (Judge Brantley Starr). Former employees of United Surgical Partners International, Inc. brought this breach of fiduciary duty putative class action pertaining to the management of the United Surgical 401(k) Plan. Plaintiffs alleged that the plan’s committee breached its duty of prudence by failing to review the plan’s investment portfolio with due care, by maintaining funds in the plan rather than replacing them with similar investment options that had lower costs and/or better performance histories, and by failing to lower the plan’s administrative and recordkeeping costs. Plaintiffs also brought a claim against the plan’s board of directors and individual Doe defendants on the board for failing to monitor the committee to ensure it was adequately performing its fiduciary duties. Defendants moved to dismiss for failure to state a claim and lack of Article III standing. Defendants argued that plaintiffs do not have “standing to seek prospective relief, to challenge funds in which they never invested, and to challenge revenue-sharing fee agreements.” The court agreed that plaintiffs lack standing to seek prospective relief since the plan at issue no longer exists and has merged with a new plan. The court also agreed that plaintiffs lack standing to challenge funds in which they were never invested, and in order to demonstrate standing plaintiffs need to show specifically that they were invested in particular funds rather than make the statement that they had invested in the “Plan investments which are the subject of this lawsuit.” Plaintiffs, the court stressed, need to demonstrate that they sustained individualized injuries, and their allegations on this front were characterized as conclusory. The court went on to agree with defendants that plaintiffs lack standing to challenge the revenue-sharing fee arrangements because they failed to allege that they invested in any of the mutual funds that had these arrangements. The court granted the motion to dismiss for lack of standing, but did so without prejudice, informing plaintiffs that they may be able to establish standing by providing the requisite facts currently missing in their complaint. The court also addressed the motion to dismiss for failure to state a claim, and here too found deficiencies in plaintiffs’ complaint. The court held plaintiffs’ duty of prudence claim, pertaining to defendants’ process, was based upon circumstantial evidence, and lacking in specific comparative benchmarks pertaining to services for actively managed funds. Finally, the court agreed with defendants that Fifth Circuit precedent does not allow individual corporate directors to be held liable, and the board of directors under Texas law is not an entity that can be sued “separate and apart from the corporation it serves.” For these reasons, the motion to dismiss was granted, and plaintiffs were given leave to amend their complaint to address the deficiencies identified by the court.
Seidner v. Kimberly-Clark Corp., No. 3:21-CV-867-L, 2022 WL 865890 (N.D. Tex. Mar. 23, 2022) (Judge Sam A. Lindsay). Plaintiffs are participants of the Kimberly Clark Corporation 401(k) and Profit-Sharing Plan who bring this putative class action for breaches of fiduciary duties of loyalty and prudence and failing to adequately monitor co-fiduciaries pertaining to excessive administrative fees paid to third-party plan administrators. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1). Defendants argued plaintiffs’ allegations are insufficient to support claims for fiduciary breaches and monitoring. Defendants also argued that the individual defendants cannot be sued in Texas as an entity independent of the corporation they serve. Finally, the defendants claimed plaintiffs lack standing “to assert any claims based on the theory of revenue sharing fee arrangements.” The court agreed with the defendants on all fronts. However, the court denied the motion to dismiss the class action complaint without prejudice and directed plaintiffs to amend their complaint but stressed “Plaintiffs’ contention – that certain deficiencies may be resolved through discovery and that such issues are, therefore, not appropriate for a motion to dismiss – is not a valid basis for defeating Defendants’ Motion under Rules 12(b)(6) or 12(b)(1).”
Sweeney v. Nationwide Mut. Ins. Co., No. 2:20-CV-1569, 2022 WL 874851 (S.D. Ohio Mar. 24, 2022) (Judge James L. Graham). Plaintiffs Ryan Sweeney and Bryan Marshall are participants in the Nationwide Savings Plan. They bring this putative class action asserting violations of ERISA’s fiduciary duties of loyalty and prudence, prohibited transactions, and violation of the prohibition of plan assets inuring to the benefit of defendant Nationwide Mutual Insurance Company. Defendants moved to dismiss. Plaintiffs opposed the motion and moved to exclude documents attached to defendants’ motion to dismiss. The court first addressed the motion to exclude. Of the seven exhibits attached to defendants’ motion, the court excluded three. The remaining documents the court considered in the motion were the group annuity contract, a report by an investment consulting firm, the plan itself, and the annual statement filed with the state departments of insurance. The court then turned to the motion to dismiss, in which defendants raised three arguments. The first was that the assets paid by the plan and placed into Nationwide Life’s account, as well as the proceeds earned on those assets, do not constitute plan assets. The court stated that the safe harbor provision on which defendants relied was applicable only if certain conditions were met. To determine whether they were met necessarily requires fact-finding and is therefore inappropriate for the court to consider at the pleading stage. Defendants next argued that plaintiffs inadequately pleaded a claim of wrongful compensation. The court disagreed and understood plaintiffs’ complaint better as being premised on defendants’ “self-interested decision-making process,” with the compensation being evidence of the flawed process. The court found plaintiffs’ fiduciary breach claims were well-pleaded and plausibly stated a claim. Dismissal on this ground was therefore also denied. Finally, defendants argued that plaintiffs’ prohibited transaction claims are insufficient because “the affirmative defense in 29 U.S.C. § 1108(b)(5) applies and provides an exemption to those prohibited transactions.” The court was not persuaded by this argument either. For these reasons, the motion to dismiss was denied.
Disability Benefit Claims
Bilkey v. Reliance Standard Life Ins. Co., No. 20-cv-729-jdp, 2022 WL 873510 (W.D. Wis. Mar. 24, 2022) (Judge James D. Peterson). Plaintiff Teresa Bilkey suffers from chronic gastrointestinal illnesses including ulcerative colitis and Crohn’s disease. These conditions are so severe that in 2018 Ms. Bilkey had six inches of her colon surgically removed. By 2019, Ms. Bilkey’s health problems had worsened greatly, and she was no longer able to perform her work as a clinic manager and applied for long-term disability benefits through her employer’s plan administered by defendant Reliance Standard Life Insurance Company. Ms. Bilkey’s benefit claim was denied by Reliance. After administratively appealing, Ms. Bilkey commenced this suit seeking benefits under Section 502(a)(1)(B). The parties filed cross-motions for summary judgment. Because the plan grants Reliance discretionary authority, the court applied a deferential standard of review to the decision. Under this standard, the court found the denial to be arbitrary and capricious, as the reviewing physician’s report was “fundamentally flawed.” In the ten-month period provided to Reliance, the medical record showed Ms. Bilkey saw her physicians or sought emergency care eleven times. In that period, there was a brief window when medication seemed to improve Ms. Bilkey’s GI symptoms. However, a month later she ended up in a hospital and was diagnosed with prednisone-induced diabetes. The medical record was replete with evidence demonstrating Ms. Bilkey’s symptoms were disabling, and “plainly severe enough to interfere with her work.” While a reviewing physician is not required to agree with the opinions of the treating physicians, he or she cannot as here simply ignore a treating physician’s conclusions or any other medical evidence in the record without any explanation. Accordingly, the court granted summary judgment in favor of Ms. Bilkey, denied Reliance’s summary judgment motion, and remanded to Reliance for further proceedings. In a strange dichotomy to the rest of its decision, the court explained its decision to remand to the insurer, writing this is not “one of those rare cases in which the record contains such powerful evidence that the only reasonable determination is that the claimant is entitled to benefits.”
Tucker v. Express Scripts Health & Welfare Benefits Plan, No. 4:20-CV-00987-NCC, 2022 WL 888143 (E.D. Mo. Mar. 25, 2022) (Magistrate Judge Noelle C. Collins). Plaintiff Ryan Tucker asserted a claim for long-term disability benefits pursuant to ERISA Section 502(a)(1)(B) after MetLife denied Mr. Tucker’s claim for disability benefits beyond 24 months under the plan’s “Limited Disability Benefits” clause. The clause limits disability benefits for certain disorders including chronic fatigue syndrome. Mr. Ryan argued that his disabling diseases were post-viral chronic fatigue syndrome, fibromyalgia, and chronic Epstein-Barr Virus infection. He argued that Epstein-Barr Virus is not one of the limited benefits conditions. The parties filed cross-motions for summary judgment. As the plan includes a discretionary clause, the court applied the abuse of discretion standard of review. The court expressed this was principally a case where the reviewing and treating physicians had a difference of opinion. Based on the evidence within the administrative record, the court held there was “more than a scintilla of evidence supporting MetLife’s decision,” and that it was “not unreasonable for MetLife to have concluded Tucker was disabled due to CFS, not chronic EBV infection or as the result of chronic EBV infection.” For this reason, the court granted summary judgment in favor of defendants and denied Mr. Tucker’s cross-motion for judgment.
Kelly v. Unum Grp., No. 2:20-cv-00622-JNP-DBP, 2022 WL 833044 (D. Utah Mar. 21, 2022) (Judge Jill N. Parrish). Plaintiff William Kenneth Kelly brought this ERISA Section 502(a)(1)(B) case seeking to recover long-term disability benefits which were denied to him by Unum Group. Mr. Kelly worked as a technical advisor for Sinclair Oil Corporation. In early 2015, Mr. Kelly became seriously ill with an infection which left him permanently unwell with body pains and fatigue, and which affected his mental functioning. In an attempt to get a firm diagnosis, Mr. Kelly underwent three months of testing at the Mayo Clinic. The Mayo Clinic, however, was unable to definitively diagnose Mr. Kelly. Unable to work, Mr. Kelly submitted a claim for short-term disability benefits. The claim was granted, and Unum paid short-term disability benefits for six months. Mr. Kelly then applied for long-term disability benefits claiming, “unknown generalized weakness” and “ataxia” as his disabling conditions. Unum denied the claim and upheld the denial in the internal appeals process. After Mr. Kelly sued, Unum moved for summary judgment. Because the plan includes a discretionary clause, the court applied the arbitrary and capricious review standard. Mr. Kelly argued that the denial was arbitrary and capricious because the denial relied solely upon Mr. Kelly’s medical records and these records do not contain substantial evidence to support the determination that Mr. Kelly lacks “physical and cognitive impairments that limit his ability to work.” In addition, Mr. Kelly argued that Unum was wrong to require him to demonstrate an acute worsening of his symptoms and that per the terms of the plan he only needed to prove that he was limited in his ability to perform the material duties of his job and not, as Unum maintained, unable to perform them. The court agreed with Unum that Mr. Kelly’s claim was given a full and fair review because the reviewing doctors spoke with the treating physicians and reviewed all the evidence in the record. Furthermore, the court held there was evidence in the record that Mr. Kelly could perform the duties of his job because he “was able to work normally during the time in which he reported his symptoms at the same level as when he filed for LTD benefits.” All the normal test results and the lack of a firm diagnosis did not help to strengthen Mr. Kelly’s claim. In light of this and given the language of the plan and its definition of “disability,” the court granted Unum’s motion for summary judgment.
Dean v. Aetna Life Ins. Co., No. 21-cv-363, 2022 WL 847249 (S.D. Ohio Mar. 22, 2022) (Judge Timothy S. Black). Plaintiff Leslie Dean moved to dismiss Aetna Life Insurance Company’s state law counterclaim against her for breach of contract in this ERISA long-term disability suit. In its counterclaim Aetna asserted that it overpaid Ms. Dean’s long-term disability benefits as she was concurrently receiving disability benefits from the Social Security Administration, which was an offset. Aetna relied on the plan’s policy allowing benefits to be reduced when a claimant receives SSD benefits, and which includes a right to recover overpayments. The court agreed with Ms. Dean that Aetna’s breach of contract claim is preempted by ERISA as the contract allegedly breached was the ERISA plan itself. In a wonderfully worded passage the court wrote, “it seems Aetna wants to skim off some facially helpful language from ERISA fiduciary cases, while maintaining, through its state law counterclaim, a right to seek legal damages. A close look at Aetna’s arguments highlights the folly in such a strategy.” The court held that ERISA clearly preempts the counterclaim which “undoubtedly treads on ERISA’s civil enforcement territory.” Finally, the court pointed out that even if Aetna had sought to recoup the overpayments through Section 502(a)(3) of ERISA the counterclaim would still be insufficiently pled as it did not identify funds from which to recover, or even challenge Ms. Dean’s assertion that she had already spent the funds. Accordingly, the motion to dismiss Aetna’s counterclaim was granted.
Rohi v. Cigna Health & Life Ins. Co., No. 2:22-cv-10551, 2022 WL 882155 (E.D. Mich. Mar. 24, 2022) (Judge Stephen J. Murphy, III). Plaintiff Shagufta Rohi’s Estate, represented by her widower, sued several doctors and a hospital for medical malpractice. Ms. Rohi was insured under the Group Cigna Medical Plan, governed by ERISA. Defendant Cigna placed a lien on Plaintiff’s Estate and sent the Estate a lien notice that referred to the Plan’s subrogation and reimbursement clause. Plaintiff’s Estate brought suit in Oakland County Probate Court petitioning to extinguish the lien and requesting an evidentiary hearing for Cigna to prove the lien’s validity. Cigna removed the case to federal court, claiming ERISA preempts the Estate’s petition. The court held the Estate’s petition in probate court is not an action that could have been brought under ERISA. Rather, the Estate “disputes Defendants’ entitlement to the lien, the amount claimed by the lien, and how much subrogation or reimbursement of the settlement is allowed under Michigan law.” The Estate therefore is not seeking payment from the plan or enforcing a right guaranteed by ERISA. As ERISA does not provide a basis for subject-matter jurisdiction in this case, the court remanded the case to the state probate court.
BCBSM Inc. v. I.B.E.W., No. 21-1885 (JRT/TNL), 2022 WL 867232 (D. Minn. Mar. 23, 2022) (Judge John R. Tunheim). Plaintiff BCBSM, Inc. brought this case against I.B.E.W. 292 Health Care Plan in Minnesota state court alleging the Plan breached its contract between the parties by failing to defend and indemnify BCBSM in accordance with the agreement. BCBSM served the plan after a healthcare provider’s claim for services was denied by the plan which triggered arbitration between the provider and BCBSM. BCBSM forwarded the notice of arbitration to the plan demanding the plan indemnify and defend it per the terms of their agreement, which the plan ignored. The plan removed the case to federal court, arguing ERISA preempts the breach of contract and declaratory judgment claims. The Plan moved to dismiss the case. BCBSM moved to remand and for attorneys’ fees and costs. The court agreed with BCBSM that ERISA does not preempt its state law claims. “The essence of BCBSM’s claim is a state-law contractual dispute as to whether the Plan is contractually bound to defend and indemnify BCBSM. The Complaint does not assert that BCBSM is entitled to plan benefits or is even a plan beneficiary.” The mere connection between the breach of contract claim and the denial of plan benefits is not enough to trigger preemption. The complaint, the court held, does not satisfy either prong of the Davila test, as the indemnification agreement comes from a contract separate from the ERISA plan, meaning this case could not be brought as a claim for benefits and an independent legal duty exists. Accordingly, the motion to dismiss was denied, and the motion to remand to state court was granted. However, because ERISA preemption is notoriously complex, the court held that the plan had an objectively reasonable basis for seeking removal. Therefore, the court denied BCBSM’s motion for attorneys’ fees and costs.
Life Insurance & AD&D Benefit Claims
Aetna Life Ins. Co. v. Frank, No. 19-CV-6259 19-CV-11001 20-CV-9729, 2022 WL 845651 (S.D.N.Y. Mar. 22, 2022) (Judge J. Paul Oetken). This case is the consolidation of three interpleader actions filed to resolve competing claims over the proceeds of decedent Erich Frank’s life insurance policy, 401(k) plan, and Resource Management Account. Decedent’s mother, Phyllis Frank, and decedent’s long-term partner, Emily Rosen, filed cross-motions for summary judgment on the life insurance policy and the 401(k) plans. Ms. Rosen additionally moved for summary judgment on the Resource Management Account. While he was dying from colon cancer, Mr. Frank, via his lawyer to whom he assigned power of attorney, attempted to change the named beneficiary on his life insurance policy and his 401(k) from his mother to his partner. However, the change of beneficiary forms for these policies were never completed by either Mr. Frank or his attorney. The Resource Management Account, on the other hand, never named Ms. Frank as the beneficiary, and before Mr. Frank died, he completed and signed a death beneficiary designation form for the account and named Ms. Rosen as his beneficiary. First, the court addressed Ms. Rosen’s argument that Ms. Frank does not have standing in the Resource Management Account action, as Ms. Frank was never the named beneficiary. The court agreed and granted Ms. Rosen summary judgment with regard to the Resource Management Account. However, with regard to the other two policies, the court granted summary judgment in favor of Ms. Frank, finding Mr. Frank never substantially complied with the plans’ requirements for changing a beneficiary because he did not complete or sign the required forms.
Medical Benefit Claims
Canter v. Alkermes Blue Care Elect Preferred Provider Plan, No. 1:17-cv-399, 2022 WL 857032 (S.D. Ohio Mar. 23, 2022) (Judge Douglas R. Cole). Plaintiff Keith Canter sued Blue Cross Blue Shield of Massachusetts after his claim for reimbursement for back surgery was denied as not medically necessary. Mr. Canter brought three ERISA claims for (1) violation of procedural rights, (2) improper denial of benefits, and (3) failure to produce the entire plan when Mr. Canter and his counsel requested it. The parties cross-moved for judgment on the administrative record. The Magistrate Judge issued a Report and Recommendation finding Blue Cross had violated Mr. Canter’s procedural rights by failing to provide adequate notice when it denied his claim and by failing to process his second appeal, and that Blue Cross had violated Section 502(a)(1)(B) by denying the claim. The report dismissed Mr. Canter’s claim for failure to provide a copy of the plan upon request because Mr. Canter did not request penalties under Section 502(c)(1) against Blue Cross. Finally, the report recommended the matter be remanded to Blue Cross for redetermination of the benefit claim based upon a complete administrative record. Blue Cross filed an objection to the report, and Mr. Canter moved for leave to file a sur-reply. First, the court granted Mr. Canter’s motion because his argument that he sought to clarify misstatements was an appropriate ground for sur-reply. The court also stated that it would consider the arguments in Mr. Canter’s sur-reply in reaching its conclusions with regard to Blue Cross’s objections. Under de novo review, the court agreed with the findings of the Magistrate Judge, and overruled Blue Cross’s objections. The court did not take Blue Cross at its word that “remand is a useless formality here because…the Procedure was not medically necessary based on the evidence submitted during the administrative process.” Accordingly, the court adopted the Report & Recommendation, granted summary judgment in favor of Mr. Canter on his first two claims as recommended by the Magistrate, and remanded to Blue Cross for reconsideration.
Pleading Issues & Procedure
Mann + Hummel Filtration Tech. U.S. v. DeMayo Law Offices, LLP, No. 3:21-CV-00374-GCM-DSC, 2022 WL 878883 (W.D.N.C. Mar. 24, 2022) (Magistrate Judge David S. Cayer). Plaintiff Mann + Hummel Filtration Technology U.S., LLC is a fiduciary of an ERISA health insurance plan. The plan, which includes a subrogation and reimbursement clause, covered medical expenses incurred during a car accident for defendant Stephen Patterson. Defendant DeMayo Law Offices represented defendant Patterson during a settlement between Mr. Patterson and the third party responsible for the car crash. Plaintiff, on behalf of the plan, seeks reimbursement for the medical expenses it covered for Mr. Patterson, and brought this suit seeking declaratory relief, “imposition of constructive trust or equitable lien by agreement on the relevant settlement proceeds, including interest; payment of the entire outstanding reimbursement amount; and attorneys’ fees and costs.” Defendant DeMayo Law Offices moved to dismiss the claim for equitable relief against it, arguing an attorney cannot be held liable under ERISA for such a claim. The Magistrate Judge disagreed. “Both Supreme Court precedent and North Carolina state law yield the same result here. An attorney is liable to the fiduciary under ERISA if he distributes settlement proceeds in a way that fails to honor the subrogation clause in a contract between his client and an ERISA plan.” Accordingly, the Magistrate recommended the motion to dismiss be denied.
Lysengen v. Argent Trust Co., No. 20-1177, 2022 WL 854818 (C.D. Ill. Mar. 22, 2022) (Judge Michael M. Mihm). Plaintiff Jackie Lysengen is an employee of Morton Buildings, Inc., and a participant in the company’s employee stock ownership plan. Ms. Lysengen brought this putative class action asserting the ESOP overpaid for the stock it purchased during the 2017 transaction. Ms. Lysengen alleged the stock price rose suspiciously one month before the ESOP transaction and then plummeted drastically following the transaction, indicating the stock purchase price was above the fair market value. Initially, Ms. Lysengen sued the trust company which represented the plan as trustee in the ESOP transaction and several of the selling shareholders. The court denied a motion to dismiss these defendants from the initial complaint. The complaint was then amended to add the Estate of Virginia Miller, the Estate of Henry A. Getz, and the Getz Family Partnership. These additional defendants are non-fiduciary family members whom Ms. Lysengen alleged had constructive knowledge of wrongdoing “due to (1) the overvaluation of stock, (2) their direct or indirect involvement of the company as shareholders and family members, and (3) the fact that this benefitted the selling shareholders by overpaying them millions of dollars.” These new defendants moved to dismiss for lack of subject matter jurisdiction and in the alternative for failure to state a claim. The court first addressed jurisdiction, and defendants’ argument that the probate exception to federal jurisdiction applies to plaintiff’s claims. The court disagreed, holding that its role is to issue judgment on an ERISA violation, not to directly involve itself in the administration of an estate, and thus the narrow probate exception did not apply. Having established its jurisdiction over the case, the court turned to the alternative motion to dismiss for failure to state a claim. First, the court rejected defendants’ argument that the Illinois Probate Code’s two-year statute of limitations preempts ERISA’s six-year statute of limitations. Next, the court was satisfied that Ms. Lysengen’s complaint sufficiently pleaded that the estate defendants had actual knowledge of the prohibited transaction. For these reasons the motion to dismiss was denied.
Hoogenboom v. The Trs. of Allied Servs. Div. Welfare Fund, No. 20-cv-4663, 2022 WL 874662 (N.D. Ill. Mar. 24, 2022) (Judge Robert M. Dow, Jr.). Psychologist Carol Hoogenboom sued the Trustees of Allied Services Division Welfare Fund under ERISA Section 502(a)(1)(B) and for injunctive relief under Section 502(a)(3) seeking an order requiring defendants to cease withholding benefits and to complete claims processing. In addition, Ms. Hoogenboom brought a state law claim for promissory estoppel. Defendants moved to dismiss, arguing the plan has an unambiguous anti-assignment clause which prevents a provider from suing under ERISA, and that Ms. Hoogenboom’s state law claim is preempted by ERISA. The court agreed that the plan language – “You cannot ‘assign’ your rights or the payment of benefits to a provider” – unambiguously precludes assignment of benefits. Such clauses, the court held, are permissible as Congress did not mandate assignment, and “until such time as Congress chooses (or does not choose) to mandate assignment, plan sponsors and insurers may continue to bargain over assignment as part of the contract negotiation process.” Ms. Hoogenboom argued that defendants should be estopped from enforcing the anti-assignment provision because they never mentioned its existence throughout her communication and billing with them over several years. The court was not persuaded and said it was not clear “why Defendants should have been aware she was an assignee.” Accordingly, the court dismissed Ms. Hoogenboom’s ERISA claims. However, the state law claim was not dismissed, and the court relinquished its supplemental jurisdiction and remanded the complaint to the state court.
Lashley v. Spartanburg Methodist Coll., No. 7:18-cv-02957-KFM, 2022 WL 872604 (D.S.C. Mar. 24, 2022) (Judge Joseph Dawson, III). Plaintiff Summer D. Lashley, Ph.D. filed this wrongful termination, discrimination, and retaliation lawsuit after her teaching contract was not renewed and she was terminated from Spartanburg Methodist College. Ms. Lashley brought both state and federal causes of action including breach of contract, state law wage violations, defamation, wrongful termination, violation of the Americans with Disabilities Act, Title IX gender discrimination, a Title VII violation, and an ERISA Section 502(c)(1) violation and penalties request for failure to provide COBRA and other post-termination benefits information upon request. Magistrate Judge Kevin F. McDonald issued a report and recommendation recommending summary judgment be granted in favor of defendants for all of Ms. Lashley’s federal claims. Ms. Lashley objected to the Magistrate’s findings and recommendations. The court found Ms. Lashley’s objections unpersuasive and adopted the report, granted defendants’ motion for summary judgment on the federal law claims, and declined to retain jurisdiction over the state law claims. As relevant to ERISA, the court held that defendants complied with ERISA’s requirements by providing Ms. Lashley with COBRA information and forms to convert her life insurance and long-term disability plans into private plans shortly after the termination. Ms. Lashley argued that there were documents she requested which defendants did not provide until after the lawsuit had been filed months later. However, the court expressed that Ms. Lashley “failed to present evidence regarding what ‘plan documents for any employee welfare benefit plan in which she was a participant during her employment with SMC’ existed that the defendant failed to provide to her.” Additionally, Ms. Lashley’s COBRA premiums were paid, and the court could find no evidence of bad faith or prejudice. Therefore, the court overruled Ms. Lashley’s objection regarding her entitlement to statutory penalties under ERISA.
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