Your ERISA Watch - The First Circuit Gives Ammunition to Mental Health Parity Act Plaintiffs

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Your ERISA Watch – The First Circuit Gives Ammunition to Mental Health Parity Act Plaintiffs

N.R. by & through S.R. v. Raytheon Co., No. 20-1639, __ F.4th __, 2022 WL 278537 (1st Cir. Jan. 31, 2022) (Before Circuit Judges Howard, Thompson, and Gelpí).

It has been a rough 2022 so far for United Healthcare. Last month it got hit with a $20 million fees/costs award in Wit v. UBH, and last week a district court in Oklahoma found that United violated ERISA’s procedural safeguards in handling a breast cancer victim’s medical claims (see below for more details).
 
This week’s notable decision is another ruling against United, and it comes from the First Circuit. The plaintiffs were a boy, N.R., and his two parents, who were insured under an ERISA-governed health plan sponsored by Raytheon and insured by United. N.R. was diagnosed with Autism Spectrum Disorder in 2017 when he was four years old, at which time he began receiving speech therapy treatment.
 
However, United refused to cover this treatment, contending that “this service is not covered for the diagnosis listed on the claim” and referring N.R.’s parents to the “plan documents” for further explanation. United further contended that speech therapy was only covered under the plan to “restore speech that was lost,” and because N.R. had not lost speech, his treatment was not covered.
 
Plaintiffs unsuccessfully appealed this decision to United, citing the federal Mental Health Parity and Addition Equity Act, to no avail, and then filed suit in the District of Massachusetts. The district court granted defendants’ motion to dismiss, and plaintiffs appealed to the First Circuit.
 
The First Circuit noted that plaintiffs had raised four different claims, “but one question predominates the analysis: Does the Plan violate the Parity Act?” Defendants argued that the plan had a “habilitative services” exclusion that denied coverage for all conditions, both physical and mental, and thus the Parity Act’s requirements were satisfied.
 
However, plaintiffs responded that the plan only defined “habilitative service” once – in the mental health benefit section, as a type of mental health service – and thus the exclusion applied to mental health claims only in violation of the Parity Act. Plaintiffs also noted that the plan covered at least some procedures that improved function for those with a physical impairment, but the habilitative services exclusion barred coverage for similar improved function treatment for those seeking mental health services. Plaintiffs also argued that United denied N.R.’s claims purely on the basis of his diagnosis, without conducting any kind of investigation as to whether his treatment was habilitative or not.
 
The First Circuit refused to take sides on this argument, characterizing it as “a tough disagreement to untangle, with each side making arguments about the reading of the complex Plan document and the actual application of the habilitative services exclusion[.]” However, the court neatly dodged the issue by stating, “Thankfully, this case is before us on an appeal from a motion to dismiss.” At this early stage of the litigation, the Court ruled that plaintiffs had presented a “plausible reading of the text of the Plan,” and thus the district court “was premature” in “agree[ing] with the defendants’ representation of how the Plan works.”
 
Having addressed the Parity Act issue, the Court then turned to plaintiffs’ remaining three claims. The Court agreed with the district court that plaintiffs could not argue that a Parity Act violation also supported a claim under 29 U.S.C. § 1132(a)(2). The Court acknowledged that Section 1132(a)(2) authorizes actions alleging a breach of fiduciary duty, but held that any benefit sought by such a claim must “allege damage to a plan’s financial integrity” and “seek a remedy that will inure to the plan as a whole.” Here, only plaintiffs had suffered financial harm, and thus they could not pursue a claim under Section 1132(a)(2).
 
However, the Court allowed plaintiffs’ claim for plan benefits under Section 1132(a)(1)(B) to proceed. The Court rejected the district court’s contention that the Parity Act’s requirements were not a term of the plan, noting that plan terms cannot override ERISA’s requirements. In short, the Parity Act “trumps” the plan. Thus, plaintiffs could pursue claim benefits under Section 1132(a)(1)(B).
 
Finally, the Court addressed plaintiffs’ claim under Section 1132(a)(1)(A) for failure to provide requested information. The Court affirmed the dismissal of this claim against United, as United was not the plan administrator and thus was not statutorily required to provide the information. However, as for Raytheon, it argued that plaintiffs had improperly sent their request to Raytheon itself, and not to the Raytheon employee who was the designated plan administrator. The Court quickly rejected this argument, noting that “we have never endorsed quite such a persnickety reading of the statute.” Raytheon also argued that plaintiffs were not entitled to the documents they sought, which consisted of guidelines regarding how the non-restorative speech therapy exclusion was applied. However, the Court ruled that these documents should have been produced because they were not “optional” guidelines that defendants could choose to withhold, but were instead mandatory substantive guidelines required by the Parity Act.
 
In short, while the First Circuit affirmed the dismissal of one of plaintiffs’ claims, it reversed and remanded as to the dismissal of plaintiffs’ remaining claims. Plaintiffs can now proceed to gather evidence to support their Parity Act arguments against United.

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

Arbitration
 
Fifth Circuit
Scutt v. Thomas J. Henry Law PLLC, No. SA-21-CV-00934-XR, 2022 WL 315025 (W.D. Tex. Feb. 1, 2022) (Judge Xavier Rodriguez). Plaintiff Matthew Scutt brought suit against his employer, Thomas J. Henry Law PLLC, and the firm’s CEO, John Harvey Sweeny for violations of the Family and Medical Leave Act and ERISA Section 510. Defendants asked the court to compel arbitration in accordance with Mr. Scutt’s employment agreement. In addition, defendants moved to dismiss Mr. Scutt’s claims with prejudice for improper venue, lack of subject matter jurisdiction, or for failure to state a claim. Mr. Scutt did not oppose submitting his claims to arbitration, but asked the court to stay the case pending arbitration. The court granted defendant’s motion to compel arbitration, but denied defendant’s motion to dismiss, choosing instead to stay the case. The court declined to dismiss for two reasons. First, although defendant Mr. Sweeney consented to arbitration, the claims against him were not subject to the arbitration agreement. Second, Mr. Scutt, “specifically requested a stay pending arbitration.” Strengthening this decision was the firm’s own acknowledgement in its briefing that staying the proceedings would be an appropriate and acceptable alternative to dismissing the case outright.
 
Attorneys’ Fees
 
Sixth Circuit
Laake v. The Benefits Comm., No. 1:17-cv-611 (WOB-KLL), 2022 WL 279866 (S.D. Ohio Jan. 31, 2022) (Judge William O. Bertelsman). Plaintiff Sherry Laake, who was granted summary judgment and awarded long-term disability benefits last November, moved for an award of prejudgment interest, and an award of attorney’s fees and costs for work done since January 24, 2020. Ms. Laake asked the court to award 6.2% in prejudgment interest, $182,547.50 in attorney’s fees, and $2,600.70 in costs. Defendants requested the court instead award prejudgment interest of 1.2%, and deny Ms. Laake’s request for additional attorney’s fees (counsel was awarded fees for the work done on the up before January 24, 2020) and costs, or at least to reduce the requested amounts. First, the court awarded prejudgment interest of 3.5%, determining it to be an appropriate halfway mark between the parties’ requested amounts, and finding this amount of prejudgment interest does not, “constitute a windfall for either party.” Turning to attorney’s fees, the court found counsel Claire Danzl’s rate of $350 per hour reasonable, “given her experience and the specialized nature of ERISA litigation.” However, the court did not find the requested paralegal rate of $125 per hour reasonable as counsel’s paralegal is still a student not a “seasoned paralegal.” As such, the court reduced Ms. Mallone’s hourly rate to $50 per hour. Next, the court agreed with defendants that the requested hours were unreasonable and reflected time counsel spent on issues and claims which were either unsuccessful or unnecessary. The court also took issue with the sheer number of hours billed on certain motions, and specifically found 55 hours spent drafting the motion for attorney’s fees to be excessive. Accordingly, the court reduced the requested 599.2 attorney hours and 21.4 paralegal hours by a third. Finally, the court granted plaintiff’s motion for costs, specifically deposition costs, which the court determined were necessary to reveal procedural issues entitling Ms. Laake to de novo review.
 
Breach of Fiduciary Duty
 
Third Circuit
Ahrendsen v. Prudent Fiduciary Servs., No. 21-2157, 2022 WL 294394 (E.D. Pa. Feb. 1, 2022) (Judge Harvey Bartle III). Plaintiffs are former employees of World Travel, Inc., a corporate travel management company, who brought a putative ERISA class action case pertaining to the World Travel, Inc. ESOP. Plaintiffs alleged that the ESOP constituted a prohibited transaction, and that the trustees relied upon unrealistic financial and growth projections in calculating the stock value when it purchased 100% of World Travel stock from the company’s owners, the Wells family. Through this faulty valuation, plaintiffs alleged they received diminished stock allocations, high debt to the plan, and losses to their individual retirement accounts. Defendants moved to dismiss pursuant to Federal Rules of Civil Procedure Rule 12(b)(6), arguing in large part that plaintiffs failed to meet pleading requirements. The court largely disagreed, and with the exception only of two of the Wells family members and the claims against them, denied the motion to dismiss. The court held that many of defendants’ arguments were inappropriate at the pleading stage, and plaintiffs’ allegations as taken true sufficiently demonstrated potential fiduciary breaches, a prohibited transaction, and a violation of Section 1110 by having an indemnification agreement that relieves the trustees from liability. However, the court found that plaintiffs only pled specific facts about how one member of the Wells family, Jim Wells, knowingly participated in a prohibited transaction and was liable as a co-fiduciary by alleging that he was centrally involved in the transaction and created the underlying financial projections used. The court held that the plaintiffs had not pled sufficient facts with regard to the other two family members to support that they had knowingly engaged in any wrongdoing. Nevertheless, the vast majority of plaintiffs’ complaint will proceed.
 
Ninth Circuit
Turpin v. Duke Energy Corp., No. 3:20-CV-00528-KDB-DSC, 2022 WL 287548 (W.D. Cal. Jan. 31, 2022) (Judge Kenneth D. Bell). Plaintiffs are current and former participants in the Duke Energy Retirement Savings Plan who brought this putative class action alleging defendants breached their fiduciary duties by failing to monitor the plan’s expenses and requiring participants to pay excessive fees. On March 4, 2021, magistrate judge, David S. Cayer, entered a memorandum and recommendation to deny defendants’ motion to dismiss for failure to state a claim for breach of fiduciary duty. Relying on the recent unanimous Supreme Court decision, Hughes v. Northwestern Univ., 595 U.S., No. 19-1401, 2022 WL 199351 (U.S. Jan. 24, 2022), the court concluded that plaintiffs are entitled to pursue their claims writing that, “while the ultimate truth of Plaintiffs’ allegations will be determined through discovery and further proceedings, Plaintiffs have alleged that Plan participants paid excessive record keeping and account management fees and failed to adequately monitor the expenses charged to Plan participants.” Defendants’ arguments were determined to be arguments on the merits, not grounds to dismiss. Accordingly, the memorandum and recommendation of the magistrate judge was adopted and the motion to dismiss was denied. 
 
Disability Benefit Claims
 
Ninth Circuit
McFarland v. Unum Life Ins. Co. of Am., No. C20-1823 TSZ, 2022 WL 306069 (W.D. Wash. Feb. 2, 2022) (Judge Thomas S. Zilly). Plaintiff Neil McFarland, a medical doctor working as an urgent care physician with the University of Washington, began experiencing health problems in 2015 including respiratory issues, heart palpitations, blurred vision, dizziness, fatigue, and nausea. Despite seeing many doctors, Dr. McFarland was unable to get a concrete diagnosis, and had mostly normal test results. One physician, noting that Dr. McFarland’s symptoms primarily occurred at his workplace concluded that they were “suggestive of sick building syndrome.” Then, in 2017, Dr. McFarland collapsed at work and was taken to the emergency room. Following FMLA leave and unsuccessful attempts to work outside of Washington, Dr. McFarland applied for long-term disability in 2018. Unum Life Insurance Co. of America denied Dr. McFarland’s claim for disability benefits after its reviewing doctors concluded that Dr. McFarland’s medical record did not support his claim that he lacked the capacity to perform his vocational demands. Having exhausted the internal appeals process, Dr. McFarland brought a Section 502(a)(1)(B) claim for benefits. The parties filed cross motions for judgment. The court denied Dr. McFarland’s motion and granted defendant Unum’s motion. The court concluded that Dr. McFarland did not meet his burden of establishing disability. The record clearly showed, according to the court, that Dr. McFarland was able to perform the material and substantial duties of his job and he was not continuously disabled throughout the relevant time period. Thus, the denial was reasonable under the de novo review the court applied.
 
Discovery
 
Fifth Circuit
Bowman v. The McDonnell Law Firm, P.A., No. 1:21-cv-121-TBM-RPM, 2022 WL 303673 (S.D. Miss. Feb. 1, 2022) (Judge Taylor B. McNeel). Plaintiff David Eugene Bowman brought suit in state court against the McDonnell Law Firm, P.A., and MetLife Legal Plans, Inc. alleging claims related to Mr. Bowman’s pre-paid legal services plan. Defendants then removed the case to federal court citing ERISA preemption. In this decision, the court concluded that to rule on defendants’ motion to dismiss and plaintiff’s motion to remand, it first needed to decide whether Mr. Bowman was entitled to limited discovery as to the applicability of ERISA. After reviewing the record and conducting a hearing on the matter, the court determined that limited discovery was necessary and allowed Mr. Bowman discovery to develop the record, “as to whether endorsement is present, and therefore, whether the ERISA Safe Harbor provision applies.” Therefore, Mr. Bowman was instructed to proceed with limited discovery and the motion to dismiss and motion to remand were both denied without prejudice as premature.
 
ERISA Preemption
 
Eleventh Circuit
Meurer v. Humana Employers Health Plan of Ga., Inc., No. 1:21-cv-01628-SDG, 2022 WL 327201 (N.D. Ga. Feb. 3, 2022) (Judge Steven D. Grimberg). Plaintiff Neil Meurer filed suit against Humana Employers Health Plan of Georgia, Inc. in state court  for breach of contract, unjust enrichment, and bad faith after Humana refused to pay for his medical care. Humana removed the case to federal court arguing the claims are preempted by ERISA. Humana filed a motion to dismiss on April 28, 2021. According to the court’s local rules, Mr. Meurer’s response was due on May 12. However, Mr. Meurer did not respond to the motion to dismiss or seek to extend the deadline, but on May 19, filed a first amended complaint adding an ERISA claim to his state law claims. Humana then filed the motion before the court here, a partial motion to dismiss, to which Mr. Meurer once again failed to respond before the deadline. When Mr. Meurer untimely sought an extension of time after his counsel went on an unnoticed leave of absence for a vacation, the court communicated that such a request, “neither established good cause nor excusable neglect” and warned any further behavior along this line would result in sanctions. In light of this, the court treated Humana’s partial motion to dismiss as unopposed and granted said motion. The court agreed with Humana that the state law claims are defensively preempted by ERISA as they arise from the same facts revolving around Humana’s refusal to pay for medical services. As these claims naturally relate to the ERISA-governed plan, the court dismissed them, leaving Mr. Meurer with only his ERISA claim for benefits.
 
Christopherson v. United Healthcare Ins. Co., No. 1:21-cv-01611-SDG, 2022 WL 327205 (N.D. Ga. Feb. 3, 2022) (Judge Steven D. Grimberg). Both preemption cases this week were orders from Judge Grimberg, and both plaintiffs were represented by the same counsel. The similarities don’t stop there either, here as in the Meurer case, plaintiff’s counsel blew deadlines, thanks to the same family vacation. Turning specifically to this decision, plaintiff Joshua Christopherson, a participant in a group health benefit plan sponsored by his employer, Walgreens Co., and administered by defendant United Healthcare Insurance Co., brought claims for breach of contract, unjust enrichment, bad faith, and stubborn litigiousness in state court after United failed to pay for medical care for Mr. Christopherson following injuries sustained in a car accident. United removed the case to the district court citing ERISA preemption. United then moved for judgment on the pleadings arguing the state law claims are preempted by ERISA and must be dismissed. The court treated the motion as unopposed thanks to the aforementioned tardiness on behalf of plaintiff’s counsel, and granted the motion. The court held the state law claims necessarily rely on the ERISA health care plan, and thus are preempted.
 
Medical Benefit Claims
 
Tenth Circuit
Evans v. United Healthcare of Okla. Inc., No. 20-CV-0670-CVE-SH, 2022 WL 319973 (N.D. Okla. Feb. 2, 2022) (Judge Claire V. Eagan). Plaintiff Edith Evans, a breast cancer patient, brought suit against United Healthcare of Oklahoma Inc. following a denial to pay for breast reconstructive surgery which was required after the cancer treatment and bilateral mastectomy had caused severe tissue damage. Included in the administrative record of the case was a hand-written doctor’s note dated from about a month before the reconstructive surgery was performed, wherein the in-network surgeon, Dr. Hughes, documented the insurance verification. This note further states, “Mercy (the hospital) & Dr. Hughes are in-network” and “no authorization needed per codes due to Breast Cancer Diagnosis.” This document, according to the court, constituted a “reasonable procedural safeguard.” The parties disagreed over whether the denial should be reviewed de novo or under the arbitrary and capricious standard. Ms. Evans argued that the denial should be reviewed de novo because United failed to provide her with adequate notice of the denial and to provide her with a full and fair review. According to Ms. Evans, under de novo review the denial should be reversed because it was an unreasonable interpretation of the terms of the plan, and even under the deferential review standard it should be overturned as the denial was not based on substantial evidence. United on the other hand argued that the denial was reasonable and supported by the medical record, and that arbitrary and capricious review should apply because the plan grants it discretionary decision-making authority. Although the court concluded that the record indicated procedural problems and United failed to give Ms. Evans a full and fair review, and even found the denials themselves to “fall far short of the minimum requirements set forth in ERISA,” the court also held that the administrative record was incomplete and missing documents without which the court could not evaluate the “substantiality of the evidence relied on the plan administrator in denying benefits.” Thus, the court held that it was unable to determine the appropriate standard of review and decided to remand to United for “further findings and explanations.” Accordingly, the court did not rule on any of the motions before it, specifically United’s counterclaim for attorneys’ fees and plaintiff’s motion to dismiss, strike, or clarify defendant’s counterclaim. As such, United gets a chance on remand to clarify and correct its “impermissibly vague” and “misleading” denials.
 
Pension Benefit Claims
 
Ninth Circuit
Bafford v. Northrop Grumman Corp., No. 2:18-cv-10219-ODW, 2022 WL 294815 (C.D. Cal. Feb. 1, 2022) (Judge Otis D. Wright, II). Retirees Stephen H. Bafford, his wife Laura Bafford, and Evelyn L. Wilson brought a putative class action against defendants Northrop Grumman Corporation, the administrative committee of the Northrop Pension Plan, and Alight Solutions LLC after their defined-benefit pension plan benefits were recalculated and reduced by over half. Mr. Bafford and Ms. Wilson had both worked for Northrop in the late 1980s, and then left the company about a decade later to work for the TRW Corporation. However, in 2002, Northrop acquired TWR, and plaintiffs once again became Northrop employees. When plaintiffs requested pension benefit statements from Northrop from 2010 until the dates of their retirements they were sent statements which calculated their benefits on their average earnings at the time. In fact, upon retiring, each plaintiff initially received the amounts they were promised in their pension benefit statements. However, according to Northrop, following the acquisition plaintiffs continued to accrue retirement benefits under TRW’s plan, not Northrop’s, and plaintiffs’ average earnings therefore should have been based on what they were earning in the 1990s. Thus, according to Northrop, it had miscalculated the benefits and overpaid the retirees. This case is back before the district court after a remand from the Ninth Circuit partially reversing the district court’s prior dismissal. After Plaintiffs amended their complaint, defendants again moved to dismiss pursuant to Rule 12(b)(6). The court split defendant Alight’s motion from the Northrop defendants’ motion, and granted the later while deferring decision on the former. First, the court examined the ERISA claim against Northrop and the Administrative Committee for failure to furnish pension benefit statements. The court understood the complaint as alleging “three distinct theories” of the Section 105 violation; (1) failure to provide automatic triennial statements or notice of how to obtain a statement; (2) failure to provide any benefit statements in response to plaintiffs’ written requests; and (3) providing statements that contained inaccurate benefit figures. The court first addressed, “whether the ERISA statue that obligates plan administrators to provide pension benefit statements … also obligates plan administrators to ensure that the information on the statements is accurate.” The court concluded it does not. Inaccuracy, according to the court, does not harm a participant, and the real harm the statute is meant to address is undue delay in receiving benefit statements which may be inaccurate. Therefore, the court determined that plaintiffs cannot state a claim for relief for violation of Section 105 based on inaccurate figures in their statements and dismissed the claim based on inaccuracies with prejudice. As to the other two Section 105 theories – failure to provide statements automatically or when requested – the court found the allegations, “so intertwined with Plaintiffs’ inaccurate-figures-on-statements allegations,” that it was “impossible for the court to determine if Plaintiffs have stated a claim.” The court therefore decided to dismiss the ERISA claim in its entirety with leave to amend to address this. As for Alight’s motion to dismiss the state law claims against it, the court stated that it would do so if the plain tiffs did not amend and additional found the state law claims to be “quite attenuated” from the ERISA claims, making supplemental jurisdiction potentially inappropriate even if the ERISA claims ultimately proceed. The court thus deferred ruling on this issue and ordered the parties to provide further briefing on the matter of jurisdiction if the plaintiff choose to amend.
 
Pleading Issues & Procedure
 
Ninth Circuit
Gamino v. SPCP Group, LLC, No. 5:21-cv-01466-SB-SHK, 2022 WL 336469 (C.D. Cal. Feb. 2, 2022) (Judge Stanley Blumenfeld, Jr.). In November, Your ERISA Watch summarized a decision in the related case Gamino v. KPC Healthcare Holdings, Inc., No. 5:20-cv-01126-SB-MRW, 2021 WL 5104382 (C.D. Cal. Nov. 1, 2021) in which Judge Blumenfeld denied in part defendants’ motion to dismiss. Here, Plaintiff Danielle Gamino alleged defendant SPCP Group, LLC knowingly participated in the same improper ESOP stock purchase deal that the KPC Healthcare Holdings case also pertains to. According to the complaint, 100% KPC Healthcare Holdings’ stock was purchased at an inflated price with parties-in-interest actively engaging in self-dealing through a series of connected prohibited transactions. Defendant SPCP, according to the complaint, had access to company financials when it participated in the ESOP transaction and knew that the stock price paid far exceeded its true value. SPCP moved to dismiss under Rule 12(b)(6), while Ms. Gamino moved to consolidate the two cases. The court denied the motion to dismiss and granted the motion to consolidate. Ms. Gamino’s complaint, the court held, was plausible on its face, and the relief sought by Ms. Gamino through specifically identifiable funds was appropriately equitable not legal. Moreover, as Ms. Gamino’s complaint alleges that SPCP had access to financial information, her complaint adequately alleged actual knowledge that the transaction was imprudent. As for the motion to consolidate, the court found the interests of judicial economy and justice would be served by combining the related cases.
 
Subrogation/Reimbursement Claims
 
Sixth Circuit
Patterson v. UnitedHealthcare Ins. Co., No. 1:21-cv-470, 2022 WL 279952 (N.D. Ohio Jan. 31, 2022) (Judge J. Philip Calabrese). In 2014, plaintiff Eric Patterson was injured in a car accident involving a semi tractor-trailer. His ERISA-governed healthcare plan paid for his medical treatment. However, after the truck driver’s insurer settled with Mr. Patterson, UnitedHealthcare informed him that it was invoking the plan’s subrogation provision to collect the $35,500.00 it had paid in medical bills. In a state court case, Mr. Patterson sued the truck’s insurer for compensatory damages. He also sought a declaration from the court that he had no obligation to reimburse the plan. Throughout that case, the plan and UnitedHealthcare represented that no “plan documents” existed beside from the summary plan description (“SPD”), which provided for subrogation and reimbursement. Mr. Patterson eventually settled that case and paid UnitedHealthcare and the plan $25,000. As luck would have it, Mr. Patterson’s wife was unfortunately injured in a separate car accident. She too was covered by her husband’s plan, and the plan also paid for her injuries. Once again, UnitedHealthcare sought reimbursement of payments it made when Mrs. Patterson sued the negligent driver’s insurance in state court for compensatory damages. In this case too, the plan denied that plan documents existed and said that the pertinent language came from the SPD. Mrs. Patterson not only settled with the negligent driver and his insurance, but she also received discovery in this case that revealed the plan in fact had plan documents beyond the SPD. It turned out that the relevant plan documents had no subrogation or reimbursement provisions, and the state court entered summary judgment in her favor stating she was not required to reimburse the plan. Mr. Patterson, who had already paid $25,000, brought this suit against UnitedHealthcare, his employer, and the lawyers that represented the plan and UnitedHealthcare in the state court cases, but did not bring claims against the plan itself. Mr. Patterson asserted claims under ERISA for breach of fiduciary duty, prohibited transactions, and failing to provide plan documents, as well as seeking declaratory judgment that the reimbursement terms of the SPD are invalid. Mr. Patterson also brought RICO claims, and several state law claims. Defendants moved to dismiss. Plaintiff moved for leave to amend, to add claims on behalf of a class. The court granted the motion to dismiss and denied the motion to amend. The court held that plaintiff lacked Article III standing to sue for prospective relief and to sue for retrospective relief on behalf of the plan, because his injury only supported a claim for individual retrospective relief, and the prospective relief he sought of enjoining defendants’ conduct or replacing the plan administrator would not remediate his loss. According to the court, plaintiff only had standing to sue for the $25,000 loss he incurred in his action in state court, and to sue for disgorgement he needed to sue the plan itself, which he did not. Accordingly, the court dismissed the ERISA claims. The RICO claims were also dismissed. The court held Mr. Patterson failed to plead a pattern of behavior to constitute “separate predicate acts necessary to maintain a pattern of activity under RICO.” As for the state law claims, the court decided that state courts should decide the merits of these, and dismissed them without prejudice. Finally, the court held that because Mr. Patterson does not have standing, he cannot bring a class action, and denied the motion to amend as futile.
 
Withdrawal Liability & Unpaid Contributions
 
Ninth Circuit
Bd. of Trs. of W. States Office & Prof’l Emps. Pension Fund v. Welfare & Pension Admin. Serv., No. 20-35545, __ F. 4th __, 2022 WL 276032 (9th Cir. Jan. 31, 2022) (Before Circuit Judges Fletcher, Ikuta, and Bress). The Welfare & Pension Administration Service, Inc. (“WPAS”) entered into a collective bargaining agreement with the Office and Professional Employees International Union Local No. 8 in 2007, requiring WPAS to contribute to a multiemployer pension plan. Two years later, the pension plan was determined to be in critical status, triggering a 5% surcharge the first year and a 10% surcharge for each year thereafter, in addition to the required contributions spelled out in the collective bargaining agreement. Then, in 2016, WPAS withdrew from the multiemployer pension plan, triggering a withdrawal liability calculated at $24,436,947. Rather than pay this amount as a one-time lump sum, WPAS elected to satisfy this liability through annual withdrawal payments. The Fund, which administered the plan, calculated WPAS’s contribution base units at 296,213 annual employee hours, and the contribution rate as the highest contribution rate per the agreement of $2.95 plus 10% surcharge, equaling $3.245. Thus, according to the Fund, WPAS should pay an annual withdrawal payment of $961,211. WPAS, although it agreed with the number of compensable hours, contested the Fund adding the surcharge to the highest contribution rate. Instead, WPAS argued its annual withdrawal payment should be $873,828, and initiated an arbitration proceeding to challenging the Fund’s assessment. The arbitrator found in favor of WPAS, prompting the Fund to bring suit to vacate the arbitrator’s award. The district court agreed with WPAS and the arbitrator and concluded that the highest contribution rate was the $2.95 required by the collective bargaining agreement. On appeal, the Fund argued that this interpretation is inconsistent with the purpose of withdrawal liability because it results in an annual withdrawal payment that is 10% lower than what the employer would be required to make if it had not withdrawn. The Ninth Circuit disagreed with the Fund’s arguments and affirmed the district court’s order. The appeals court concluded that, “the surcharge is not the ‘highest contribution rate’ because it is not a ‘contribution rate’ at all.” Instead, the highest contribution rate was determined to be the highest dollar amount per compensable hour that WPAS was obligated to contribute under the agreement.

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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And don't forget to check out the ERISA Watch podcast, which tells the true stories behind the cases. The newest episode is a tribute to Karen Ferguson and a spotlight on the wonderful work being done by the Pension Rights Center. You can listen to the ERISA Watch podcast here.
   

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