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Your ERISA Watch – Sixth Circuit Rules That Section 502(a)(2) Claims Cannot Be Forced into Arbitration

Your ERISA Watch – Sixth Circuit Rules That Section 502(a)(2) Claims Cannot Be Forced into Arbitration

Hawkins v. Cintas Corp., No. 21-3156, __ F.4th __, 2022 WL 1236954 (6th Cir. Apr. 27, 2022) (Before Circuit Judges Boggs, Gibbons, and Nalbandian).

One of the hot topics in ERISA law in the last few years has been arbitration. Can companies force their employees to arbitrate ERISA claims? What kind of language is required in order to ensure that an arbitration clause sticks? What about class actions? What about claims for equitable relief? There seems to be an endless list of issues and sub-issues, some of which have divided the federal courts.

The Sixth Circuit waded into the fray in this case involving plaintiffs Raymond Hawkins and Robin Lung, who alleged in a putative class action that their former employer, defendant Cintas Corporation, breached the fiduciary duties it owed to the company’s retirement plan. Specifically, the plaintiffs argued that Cintas only offered participants the ability to invest in actively managed funds instead of lower-cost passively managed funds, and that Cintas charged the plan excessive recordkeeping fees. The plaintiffs brought a single claim for relief under § 502(a)(2) of ERISA, which authorizes a plan participant or beneficiary to bring a civil action for breach of fiduciary duty.

However, both of the plaintiffs had signed employment agreements with Cintas that contained arbitration provisions. Thus, when the plaintiffs filed suit, Cintas fired back with a motion to compel arbitration, arguing that they had signed away their right to bring their claims in federal court.

The district court disagreed with Cintas, concluding that “the action was brought on behalf of the Plan, and it was therefore irrelevant that Hawkins and Lung had consented to arbitration through their employment agreements.” Cintas appealed to the Sixth Circuit.

The Sixth Circuit noted that this was a case of first impression, and stated at the outset that it had “not yet determined whether statutory ERISA claims are subject to arbitration,” although “every other circuit to consider the issue” had held that “ERISA claims are generally arbitrable.” However, the Sixth Circuit found that it “need not reach that issue” because it concluded that the plaintiffs’ claims “could not, in theory, be subject to arbitration” in the first place.

The Sixth Circuit explained that Section 502(a)(2) claims are “brought in a representative capacity on behalf of the plan as a whole.” The court further noted that the Supreme Court had clarified in LaRue v. DeWolff, Boberg & Assocs., Inc. that Section 502(a)(2) authorizes actions on behalf of a plan even if the harm is inherently individualized, such as the plaintiffs’ claim in this case. However, LaRue did not clarify whether such a claim “belongs” to either the plaintiff or the plan itself. This question was important because if the claim belongs to the plan, a participant does not have the right to bind it to arbitration.

The Sixth Circuit thus looked to other case law, and found persuasive the reasoning by the Ninth Circuit in Munro v. University of Southern California, which “presented facts nearly identical to this case.” In Munro, the Ninth Circuit analogized to qui tam actions under the False Claims Act in ruling that claims under Section 502(a)(2) belong to the plan, not the participant. The Sixth Circuit also relied on Third Circuit precedent which described Section 502(a)(2) claims as being “derivative in nature,” i.e., “it is the plan that takes legal claim to the recovery, suggesting that the claim really ‘belongs’ to the Plan.” Thus, the Sixth Circuit concluded, “because § 502(a)(2) claims ‘belong’ to the Plan, an arbitration agreement that binds only individual participants cannot bring such claims into arbitration.”

Cintas argued that its arbitration agreement was different from the one in Munro because its agreement covered “all rights or claims” under ERISA, whereas the agreement in Munro only covered “claims,” and did not mention ERISA specifically. However, the Sixth Circuit stated that this was a distinction without a difference, as the employees’ rights could only be vindicated through claims brought under ERISA.

Cintas also argued that the plaintiffs were “actually asserting claims on their own behalf, not on behalf of the Plan.” The Sixth Circuit rejected this argument because it “appears to conflict with LaRue,” which held that Section 502(a)(2) “does not provide a remedy for individual injuries distinct from plan injuries.” Furthermore, “the fact that the individual Plaintiffs will indirectly benefit from a remedy accruing to the Plan as a whole does not render the claims individualized.” As the court observed, “If, for instance, the named Plaintiffs were to be swapped out with two other employees, nothing material in the complaint would need to be changed.”

The Sixth Circuit was not done, however. It further stated that even if the claims at issue did “belong” to the individual plaintiffs, and the right to bring those claims was covered by the arbitration provision, Cintas still could not force the case into arbitration because the plaintiffs were not the sole owners of the claims. This was because “Section 502(a)(2) claims belong to the Plan as well,” and thus the plaintiffs could not “unilaterally bind an ERISA plan to arbitration in the absence of an arbitration provision in the plan documents or some other manifestation of the plan’s consent.”

Cintas countered that the plan in fact had consented to arbitration, because a plan can only act through its agents, and the plan sponsor had agreed to arbitration through its execution of the arbitration agreements. The Sixth Circuit, however, found that this “stretches case law too far.” The court found no authority “suggesting that the relationship between an ERISA plan and its sponsor is akin to that of alter-ego business entities.” Indeed, such an argument “dissolves the distinction between the Plan sponsor and the Plan as a legal entity,” and by making such an argument, “Cintas is hinting that it should be able to unilaterally decide it wants to arbitrate claims against itself.” This “would, in a sense, be allowing the fox to guard the henhouse.”

The court threw a bone to Cintas, suggesting that Cintas might be able to amend the plan documents to include an arbitration provision, but saved the question of whether this would pass legal muster for another day.

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

Breach of Fiduciary Duty

Sixth Circuit

Saginaw Chippewa Indian Tribe of Mich. v. Blue Cross Blue Shield of Mich., No. 21-1226, __ F. 4th __, 2022 WL 1209026 (6th Cir. Apr. 25, 2022) (Before Circuit Judges Rogers, Stranch, and Donald). The Saginaw Chippewa Indian Tribe of Michigan and its Benefit Plan sued Blue Cross Blue Shield of Michigan in 2016, alleging that Blue Cross, who administered both the Tribe’s health insurance plans (one of which is an ERISA-governed plan), failed to fulfill its fiduciary duties. Specifically, the Tribe alleged that Blue Cross charged hidden fees, overpaid for medical services, and failed to demand Medicare-like rates (“MLR”) from providers when eligible. “The Tribe alleges that BCBSM knew it was supposed to pay MLR to hospitals participating in Medicare, but instead chose to pay standard contractual rates for MLR-eligible services using Plan assets.” According to the Tribe’s complaint, this alleged failure to insist of MLR by Blue Cross cost them millions. In 2019, the Sixth Circuit reversed the district court’s dismissal of the Tribe’s claims pertaining to the Blue Cross’s failure to insist on MLR for authorized care. On remand, the district court granted summary judgment to Blue Cross. The district court held that “the Tribe’s payments for (Contract Health Services) care through the Blue Cross plans were not eligible for Medicare-like rates,” and Blue Cross did not have a duty under either of the plans to seek the Medicare-like rates. The tribe appealed. In this decision, the Sixth Circuit again reversed and remanded, holding the district court erred in concluding that MLR were not available for the services authorized by the Contract Health Services program and billed through the plans. The appeals court stated that the plain wording of the applicable regulations do not mandate the use of Contract Health Services’ funds, rather the language makes clear that “the Tribe or Tribal organization must be authorizing the care in furtherance of its Contract Health Services program.” Thus, the Sixth Circuit reversed the district court’s summary judgment order and remanded with instructions to determine whether the Tribe’s Contract Health Services program authorized the care for which they allege they were entitled to the Medicare-like rates, and if so, to then consider Blue Cross’s alternative arguments.

Class Actions

Eighth Circuit

Becker v. Wells Fargo & Co., No. 20-cv-2016 (KMM/BRT), 2022 WL 1210948 (D. Minn. Apr. 25, 2022) (Judge Katherine Menendez). In this succinct order, the court preliminarily approved of the class action settlement and provisional class certification in this case involving participants of the Wells Fargo & Company 401(k) Plan. The court was satisfied that the proposed settlement agreement was fair, adequate, and reasonable, and the result of informed good faith negotiations. Furthermore, the court expressed that the settlement agreement and settlement class meet all requirements of the Federal Rule of Civil Procedure 23. The court also appointed named plaintiffs Becker, Nobles, Ramirez, Seyler, and Weiner as class representatives and their counsel Cohen Milstein Sellers & Toll PLLC, Keller Rohrback LLP, and Zimmerman Reed LLP as class counsel. A fairness hearing is scheduled, and plaintiffs were directed to file applications for attorneys’ fees and costs, and for class representative awards.

Ninth Circuit

Kazda v. Aetna Life Ins. Co., No. 19-cv-02512-WHO, 2022 WL 1225032 (N.D. Cal. Apr. 26, 2022) (Judge William H. Orrick). Plaintiff Michala Kazda suffers from a rare condition called lipedema. Advanced lipedema is treated with a surgery called tumescent liposuction. Ms. Kazda’s claim for this surgery was denied by defendant Aetna Life Insurance Company as cosmetic. Before the court here was Ms. Kazda’s motion for class certification. The court granted the motion and certified a class of people covered under ERISA health plans administered by Aetna whose claims for liposuction treatment for their lipedema were denied as cosmetic. First, the court rejected Aetna’s attempt to challenge Ms. Kazda’s standing. Since this case commenced, Aetna has updated its policies to specifically make an exception for liposuction as medically necessary to treat lipedema. Nevertheless, the court held Ms. Kazda and the other class members have appropriate retrospective injunctive relief in the form of reprocessing their denied claims. Turning to certification under Rule 23(a), the court concluded that Ms. Kazda’s claims are typical, she is an adequate representation, she has named questions common to the class as a whole, and although the class will only include around 25 individuals, the court was satisfied that the class is numerous enough to avoid duplicative suits given the strain on the federal court system. The court also held that certification is appropriate under Rule 23(b) as separate suits run the risk of reaching diverse conclusions, establishing incompatible standards of conduct for the insurer. Finally, the reprocessing relief sought here is appropriate, the court held, for the class as a whole. In addition, in granting the motion for class certification, the court also largely granted parties’ motions to seal documents. For the most part, the court granted the motion for documents containing private health information. The court also granted Aetna’s motion to seal documents that contain non-public information about its business practices.

ERISA Preemption

Sixth Circuit

Gardi v. Optum Rx Admin. Servs., No. 1:22-cv-00410, 2022 WL 1283576 (N.D. Ohio Apr. 29, 2022) (Judge J. Philip Calabrese). Plaintiff Joseph Gardi commenced this action in state court against Optum Infusion Services and OptumRx Administrative Services alleging claims of negligence and violation of the Ohio Consumer Sales Practices Act. According to Mr. Gardi’s complaint, defendants have delayed administering the prescription medication he requires. Mr. Gardi also claims that defendants are in violation of Ohio state law by substituting his prescribed medications with less expensive generic versions. Defendants removed the case to the Northern District of Ohio. They assert that Mr. Gardi’s claims are preempted by ERISA. The court examined the claims under the two-prong Davila test. Although the court concluded that the first prong of Davila was met, as Mr. Gardi could bring a claim for benefits, the court held that the second prong was not satisfied. The court reasoned that the complaint relies on an independent legal duty, specifically that defendants violated Ohio law. This law is not conditioned upon the terms of the ERISA-governed plan, and it does not appear that there will be a need to interpret the terms of the plan to resolve Mr. Gardi’s claims. Thus, the court remanded the case, determining that it lacks jurisdiction.

Eighth Circuit

Scott v. St. Louis Univ. Hosp., No. 4:21-cv-01270-AGF, 2022 WL 1211092 (E.D. Mo. Apr. 25, 2022) (Judge Audrey G. Fleissig). Plaintiff Angelia Scott sued her employer, St. Louis University Hospital, for violations of Title VII and the Affordable Care Act, because her ERISA-governed health plan includes a categorical exclusion of all care related to gender reassignment and gender dysphoria and therefore would not cover the cost of treatment for her transgender child’s medical care. Because of this exclusion, Ms. Scott alleges that her son was forced to “forgo or delay the gender confirming procedures, and (she) incurred financial hardship, including out-of-pocket damages.” Defendant moved to dismiss for failure to state a claim. First, defendant argued that ERISA preempts Ms. Scott’s claims. The court disagreed with defendant. ERISA’s preemption provisions, the court concluded, expressly excludes federal laws. As the plan at issue excludes coverage for these services, Ms. Scott has no rights to enforce under the plan. Therefore, Ms. Scott’s Title VII and ACA claims were not found to be preempted. The court then turned to defendant’s alternative argument that Ms. Scott does not fall within the class of plaintiffs authorized to sue under Title VII or the ACA because Ms. Scott is not alleging that St. Louis University Hospital discriminated against her on the basis of her sex, rather that the discrimination was on the basis of her son’s sex. The court agreed with this argument with regard to Title VII, but rejected it with regard to the Affordable Care Act. “Title IX, and by extension the ACA, is a much broader prohibition on discrimination than Title VII…Title VII prohibits discrimination ‘against any individual…because of such individual’s race, color, religion, sex, or national origin.’…But the language of Title IX has no such limitations. Rather it states ‘no person in the United States shall, on the basis of sex…be subjected to discrimination.’” Accordingly, the court granted the motion to dismiss the Title VII claim, but denied the motion to dismiss with regard to the Affordable Care Act claim.

Ninth Circuit

Pac. Bells LLC v. Inslee, No. C21-1515 TSZ, 2022 WL 1213322 (W.D. Wash. Apr. 21, 2022) (Judge Thomas S. Zilly). In this putative class action, plaintiffs sued the governor of Washington and others, challenging the validity of a new Washington state law, referred to as “WA Cares,” which creates a long-term care benefit program in the state independent of Medicaid. Plaintiffs claimed that WA Cares is preempted by ERISA, that it violates ERISA, the Fourteenth Amendment, and the Age Discrimination in Employment Act, and that the Long-Term Services and Supports Trust Program created by the state is a multi-employer welfare arrangement, as defined by ERISA. Defendants moved to dismiss for lack of subject-matter jurisdiction. The court granted the motion. First, the court concluded that WA Cares is not governed by ERISA. The court held, “WA Cares is a creation of the Washington Legislature, which, in this context is neither an employer nor an employee organization as defined by ERISA.” The court emphasized that the law has been designed to assess premiums and offer long-term care benefits “regardless of whether a person is employed by the State of Washington.” As ERISA does not confer jurisdiction on the court in this matter, the court turned to the application of the Tax Injunction Act which “drastically” limits federal jurisdiction to “enjoin, suspend, or restrain the assessment, levy, or collection of” taxes under State law when a “plain, speedy, and efficient remedy may be had in the courts of such State.” As the WA Cares premium constitutes a tax, and the court concluded plaintiffs have a speedy remedy in Washington state court, the court dismissed the case without prejudice without considering the merits of plaintiffs’ claims.

Medical Benefit Claims

Tenth Circuit

D.H. v. Blue Cross Blue Shield of Ill., No. 2:21-CV-00334-DAK, 2022 WL 1211515 (D. Utah Apr. 25, 2022) (Judge Dale A. Kimball). While a teenager, plaintiff M.H. suffered from serious mental health disorders. After experiencing a sexual assault, M.H. attempted suicide. She was then admitted to an in-patient treatment facility called La Europa Academy and received treatment there for nearly a year. Following her stay at La Europa, M.H. was transferred to another in-patient treatment center, Mosaic House and received care there for another three-and-a half months. Blue Cross denied payment for M.H.’s treatment at both facilities. Blue Cross denied payment for La Europa because “it had not received requested information, preauthorization was not requested, and the service was excluded from the Plan.” As for Mosaic, Blue Cross denied on the grounds that the service was excluded from the Plan. Blue Cross upheld the denials on appeal, prompting M.H. and her father, plaintiff D.H. to sue for benefits under ERISA. As the case progressed, Blue Cross made certain pretrial disclosures and produced its record which included internal notes that showed Blue Cross denied payment in La Europa because “it determined that La Europa’s license was ‘invalid’ as it did not have a 24-hour nursing and physician presence.” Based on this new information, plaintiffs amended their complaint to include a violation of the Mental Health Parity and Addition Equity Act (“MHPAEA”) with regards to the denial of the La Europa treatment in which they argued that the plan limits coverage of mental health care in a more stringent way than it uses to limit coverage for similar medical/surgical treatment. Blue Cross moved to dismiss the MHPAEA claim pursuant to Federal Rules of Civil Procedure Rule 12(b)(6). The court granted the motion and dismissed with prejudice the MHPAEA claim. According to the court, the issue with plaintiffs’ MHPAEA claim was that they failed to plead allegations that Blue Cross applied or relied on any medical necessity criteria to come to the adverse benefits determination. “Put simply, there is no nexus between Plaintiff’s MHPAEA claim and the benefits determination in this case.” The court also held that because plaintiffs deficiently pled this claim “with what appears to be all the relevant documents the first time,” dismissing without prejudice was not appropriate.

Pleading Issues & Procedure

Sixth Circuit

Laake v. The Benefits Comm., No. 1:17-cv-611 (WOB-KLL), 2022 WL 1233621 (S.D. Ohio Apr. 26, 2022) (Judge William O. Bertelsman). Previously in this case, the court issued a declaratory judgment that determined plaintiff Sherry Laake’s rights to long-term disability benefits under the plan at issue. Defendants have now moved for stay of execution pending appeal and approval of supersedeas bond. Ms. Laake did not object to the motion for stay as it related to the court’s judgment awarding her $380,370.45 in past-due disability benefits. However, she objected to the motion as it relates to the court’s order reinstating her disability benefits, and asked the court to deny the motion in this regards. She argued that this portion of the order is not subject to an automatic stay because the reinstatement of benefits under ERISA Section 502(a)(1)(B) is injunctive in nature and thus not covered under Federal Rule of Civil Procedure 62(b). The court was not persuaded by this argument, and held to the contrary that its order is monetary in nature because the reinstate of benefits requires defendants to pay Ms. Laake a monthly dollar amount per month. The court also stressed that the purpose of supersedeas bonds is “to secure the appellee from loss resulting from stay of execution, as well as to compensate her for the degravitation of the immediate benefits of its judgment.” Because it will be simple to calculate Ms. Laake’s monetary damage incurred while the case is being appealed, and as defendants have posted a bond for 12 months of additional long-term disability benefits and post-judgment interest, the court granted defendants’ motion for stay pending appeal.

Provider Claims

Third Circuit

Tamburrino v. UnitedHealth Grp., No. 21-12766 (SDW) (ESK), 2022 WL 1213467 (D.N.J. Apr. 25, 2022) (Judge Susan D. Wigenton). Plaintiffs in this putative class action are plastic surgeons who challenge UnitedHealth Group’s “uniform claim processing and reimbursement policy that denies coverage for United members whose plastic surgeons perform post-mastectomy DIEP flap microsurgery as either assistant surgeons or as co-surgeons.” In their complaint, plaintiffs asserted claims for wrongful denial of benefits under Section 502(a)(2)(B), and fiduciary breach claims under Section 502(a)(3). Defendants moved to dismiss for failure to state a claim. The court granted the motion without prejudice. First, the court concluded that plaintiffs lacked standing to bring their Section 502(a)(1)(B) claims because United’s policies include anti-assignment provisions, and plaintiffs did not challenge the enforceability of the provisions or claim that United consented to an assignment. Next, the court dismissed the breach of fiduciary duty claims because it said plaintiffs failed to identify the duties allegedly breached and therefore did not give defendants proper notice of the claims. The court also stated that the Section 502(a)(3) claims were duplicative of the claim for denial of benefits. Finally, the court held the amended complaint failed to “adequately allege that UnitedHealth Group, Inc., United Healthcare Services, Inc., United Healthcare Services LLC, Oxford Health Plans, LLC, and Oxford Health Insurance, Inc. are proper defendants under ERISA.” The court was not persuaded by plaintiffs that these defendants could be held liable as plan administrators or fiduciaries due to the role they played in creating United’s co-surgeon reimbursement policy.

Retaliation Claims

Ninth Circuit

Kuykendall v. Les Schwab Tire Ctrs. Of Wash., No. 2:20-cv-00154-SMJ, 2022 WL 1217224 (E.D. Wash. Apr. 25, 2022) (Judge Salvador Mendoza, Jr.). After Les Schwab Tire Centers of Washington informed its employees that it was closing its Spokane More Mile Shop in fall 2019, an employee reported to the company that another employee had stolen a company air compressor. Following an investigation, it was revealed that plaintiff Douglas Kuykendall had taken the air compressor under the advice of his manager. The company fired the manger in such a way as to render him ineligible for rehire. The company also fired Mr. Kuykendall for having violated the company’s code of conduct. Firing him in this way, permitted rehire. In fact, the company did rehire Mr. Kuykendall, but importantly, did so more than thirty days after his termination date, which under the company’s policy treated Mr. Kuykendall as a new employee without his former benefits. Mr. Kuykendall believed that this decision was based on his two past claims for worker’s compensation, with the more recent claim being only months before his termination, as well as motivated by his daughter’s Crohn’s disease and her costly medication. In fact, the amount Les Schwab paid in medical expenses for Mr. Kuykendall and his family was nearly twice the amount of expenses paid for its next highest claimant. Mr. Kuykendall in his complaint asserted both federal and state causes of action including an ERISA Section 510 retaliation claim, a state worker’s compensation retaliation claim, a claim of associational disability discrimination, and claims for age and disability discrimination under both the Americans with Disabilities Act and Washington state law. Les Schwab moved for summary judgment. The motion was granted with regards to the age discrimination claim, as the court was satisfied there was no genuine dispute of material fact regarding whether Mr. Kuykendall’s age was a motivating factor in the company’s termination decision. However, the motion was otherwise denied. For Mr. Kuykendall’s ERISA claim, ADA claims, and worker’s compensation claims, the court concluded there were triable issues, and Mr. Kuykendall could potentially demonstrate that his daughter’s medical condition and costs, as well as Mr. Kuykendall’s history of physical impairments factored into Les Schwab’s decision making.

Withdrawal Liability & Unpaid Contributions

Fourth Circuit

Bd. of Trs., Sheet Metal, Workers’ Nat’l Pension Fund v. Bishop, No. 1:21-cv-1122, 2022 WL 1238623 (E.D. Va. Apr. 25, 2022) (Judge T.S. Ellis, III). Plaintiff, the Board of Trustees, Sheet Metal Workers’ National Pension Fund is an employee benefit trust fund that initiated this suit seeking recovery of withdrawal liability against Janet Bishop, the majority owner of Bishop Metals Inc. The Fund moved for summary judgment. The court held there was no dispute that Bishop Metals effected a complete withdrawal from the plan on March 31, 2020, when it ceased making required benefit contributions. Nor was there any dispute that Bishop Metals failed to request an additional review of or contest the calculated $469,396.83 withdrawal liability either within the 90 day period ERISA permits, or at any time after. Therefore, the court held that “the undisputed factual record clearly compels the conclusion that Plaintiff is entitled to collect withdrawal liability from Bishop Metals pursuant to ERISA,” and the Fund is entitled to collect the unpaid withdrawal liability, plus interest and liquidated damages, totaling $604,628.09. The court also stated that plaintiff is entitled to a reasonable award of attorneys’ fees and costs and ordered briefing on the subject. As for the question of whether Ms. Bishop is jointly and severally liable for Bishop Metals’ withdrawal liability, the court answered yes. To find otherwise, the court expressed “would incentivize ERISA employers to fractionalize their assets, placing property outside of the reach of parties entitled to collect withdrawal liability, which is the very conduct § 1301(b)(1) serves to combat.” For these reasons, plaintiff’s motion for summary judgment was granted, and judgment was entered against Ms. Bishop and in favor of the Fund.

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.

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