Your ERISA Watch – The D.C. Circuit Rules That Past is Prologue in Withdrawal Liability Dispute

ERISA Watch

United Mine Workers of Am. 1974 Pension Plan v. Energy W. Mining Co., No. 20-7054, __ F. 4th __, 2022 WL 2568025 (D.C. Cir. Jul. 8, 2022) (Before Circuit Judges Rao, Walker, and Sentelle).

We have rarely selected a withdrawal liability case as the Case of the Week, but this decision from the D.C. Circuit siding, with a mining company that withdrew from a multiemployer defined benefit pension plan, is an interesting exception.

In 2015, the defendant in the case, Energy West Mining Company (“Energy West”) withdrew from the United Mine Workers of America Pension Plan. This case came to the court of appeals from an arbitrator’s decision affirming the plan’s imposition of $115 million in withdrawal liability on Energy West and a district court’s order enforcing the arbitration award. Energy West challenged this award and said that the correct amount of withdrawal liability was only $40 million, a delta explained by application of different interest rate assumptions.

As the decision explains, in the multiemployer plan context, a participating employer can withdraw from a defined benefit pension plan without triggering ERISA’s termination provisions that pertain to single employer plans. Instead, ERISA requires the employer wishing to leave the plan to pay withdrawal liability, which a plan actuary must calculate using “assumptions and methods which, in the aggregate, are reasonable (taking into account the experience of the plan and reasonable expectations) and which, in combination, offer the actuary’s best estimate of anticipated experience under the plan.” 29 U.S.C. § 1393(a)(1). The language of this provision was at the heart of the dispute presented to the D.C. Circuit.

There are various assumptions and predictions that go into calculating an employer’s withdrawal liability, including projected retirement dates of participants and their expected longevity. But the most important assumption in terms of sheer dollars is what is referred to as the “discount rate,” which represents an attempt to predict the interest that the plan assets will earn in the future. The higher the rate, the lower the amount that the employer will owe. The actuary who calculated the withdrawal liability in this case stated that he did not take into account the interest rate earned by the plan in the past, which was around 7.5%. Instead, he used a much lower “risk-free” rate of between 2.71% and 2.78%, concluding that this was appropriate because once the employer withdrew, it would no longer bear any risk with respect to the plan’s investment performance.

In doing so, the actuary relied on a professional actuarial standard that supported this approach. The arbitrator concluded that, by relying on this standard, the actuary was acting reasonably “in the aggregate” and the district court agreed. The district court reasoned that the statutory “best estimate” language required only that the actuary act independently, but did not impose any substantive requirement with respect to the discount rate assumption. The court of appeals, however, saw things differently.

The court concluded that, under the statutory language, the actuary must use assumptions “which, in combination, offer the actuary’s best estimate of anticipated experience under the plan,” meaning that the actuary must select a discount rate based on the plan’s actual historical investment returns. The court concluded that the rate assumption used by the actuary did not meet the statutory requirement because it did not do so. The court therefore vacated the arbitration award.

That left one issue for resolution: what discount rate assumption should be applied? Energy West argued that ERISA’s minimum funding standards provide the appropriate interest rate assumptions. The court concluded that the discounts rates mandated in the minimum funding provisions must be similar, but need not be identical to, the rates mandated under the withdrawal liability provision. Instead, the court concluded that there is an “acceptable range” of appropriate interest rates assumptions, and so long as the assumption chosen by the actuary falls somewhere in that range and reflects the plan’s actual characteristics, it will meet the statutory requirements. The court therefore reversed the district court’s decision and remanded for vacatur of the arbitration award and recalculation of the withdrawal liability using an interest rate assumption that is “similar, but need not be identical, to the discount rate assumption used to calculate minimum funding.”

On one level, the court’s insistence that, under the statute, the discount rate must reflect the historical performance of the plan’s investments seems reasonable enough. But sometimes, of course, the future looks different than the past. In 2015, the plan was predicted to be bankrupt as early as 2022. That didn’t happen because of a government bailout. But this reality begs the question whether it makes sense to impose a discount rate that assumes the plan would have continued to earn something close to 7.5% on its assets during the relevant time period. Or does applying such an assumption simply shift the costs of withdrawal from the participating mining company to the taxpayers and the plan, thereby incentivizing employers such as Energy West to withdraw, doing precisely what Congress was seeking to avoid. Perhaps on remand the auditor can take the plan’s precarious financial situation in 2015 into account in some way that aligns with the D.C. Circuit’s ruling.

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

Attorneys’ Fees

Seventh Circuit

Ill. State Painters Welfare Fund v. AB Drywall, Inc., No. 19-cv-280-SMY, 2022 WL 2528272 (S.D. Ill. Jul. 7, 2022) (Judge Staci M. Yandle). Plaintiffs are two ERISA-governed multi-employer plans who sued an employer, defendant AB Drywall, Inc., after an audit revealed that AB Drywall had failed to make required contributions and had underpaid contributions on behalf of an employee, Jared Shires. In their complaint, plaintiffs sought payment of the cost of the audit and for the delinquent benefit contributions. AB Drywall did not dispute that it had underpaid benefits for Mr. Shires, and the court granted plaintiffs summary judgment on that claim. However, the court rejected plaintiffs’ damage calculations. Plaintiffs’ remaining claim with regards to the failure to make required contributions was never resolved because parties filed a stipulation of dismissal, which the court granted and dismissed the case without prejudice. The court therefore never awarded any damages to plaintiffs. Plaintiffs have now moved for an award of attorneys’ fees and costs pursuant to Section 502(g)(2). Defendants opposed the motion and argued that plaintiffs are not the prevailing party because judgment was never “entered for a dollar amount of unpaid contributions…instead, the Complaint was dismissed without prejudice.” The court agreed, and determined that a “judgment in favor the plan” would be a final summary judgment order, a post-trial judgment, or a default judgment, but “not an interlocutory non-final summary judgement order.” Therefore, the court denied plaintiffs’ Rule 54 motion for attorneys’ fees and costs.

Class Actions

Fourth Circuit

Feinberg v. T. Rowe Price Grp., No. CIVIL JKB-17-0427, 2022 WL 2529545 (D. Md. Jul. 6, 2022) (Judge James K. Bredar). Plaintiffs moved for final approval of class action settlement, attorneys’ fees, costs, and service awards in this case involving breaches of fiduciary duties and prohibited transactions with regards to the administration of the T. Rowe Price U.S. Retirement Program, and its offering solely of the T. Rowe Price organization’s own investment vehicles. In May of 2019, the court certified the class pursuant to the Rule 23(b)(1). The settlement was finalized in the case last December, and on January 18, 2022, the court preliminarily approved the $7 million settlement and its proposed pro rata allocation to each class member. In the preliminarily decision, the court factored in the $6.6 million “special payment” that T. Rowe Price had paid in 2019 to over 6,000 plan participants, which the court described as “a discretionary 2019 payment made in response to the initiation of litigation.” In this decision, the court systematically went through the requirements of Federal Rule of Civil Procedure 23 and the Class Action Fairness Act, and granted final approval to the settlement, satisfied that the settlement is fair, adequate, and reasonable, and in light of the lack of objections by class members. In addition, the court granted the requested $3.5 million in attorneys’ fees, the $707,908.79 in costs, and the service awards for the 11 class representatives ranging from $10,000 to $15,000, finding all the amounts fair and warranted. First, the court was satisfied that the $3.5 million in attorneys’ fees, which represented 25.7% of the $13.6 million in total cash payments to the class, and a negative lodestar multiplier of 0.73, to be well in line with other ERISA litigation fee awards. As far as the costs, the majority of the expenses were for reimbursement of expert services, which the court concluded to be reasonable given the reliance district court’s place “on expert testimony and the complex nature of the ERISA litigation.” Finally, the court agreed with plaintiffs that the named class representatives made “important contributions to this case,” and awarding them $10,000 to $15,000 was appropriate and reasonable given their time, effort, and risk. For these reasons, the court approved plaintiffs’ motions, and this large class action reached its conclusion for all involved.

Sixth Circuit

Nolan v. Detroit Edison Co., No. 18-13359, 2022 WL 2438842 (E.D. Mich. Jul. 5, 2022) (Judge David M. Lawson). The story of this class action begins in 2002, when the Detroit Edison Company implemented a new retirement plan, a “cash balance plan,” a hybrid defined contribution-defined benefit plan, and offered its existing participating employees the option to stay with the traditional defined benefit plan or to opt into the new one. The employees who chose to switch to the new plan were misled to believe that they would continuing accruing benefits beyond their initial balance transferred from the previous pension plan. Essentially employees who switched believed that they would receive a monthly guaranteed benefit as calculated under the old plan plus the amount accrued under the cash balance plan since 2002, or “A+B benefits”. It would not become clear to these employees that this was not how the plan was actually functioning until nearly two decades later when they realized their pension benefits had hardly grown since the accounts were frozen in 2002 at the guaranteed amounts. After Detroit Edison “refused to tender monthly retirement benefits… under the A+B formula,” named plaintiff Leslie Nolan commenced this class action alleging defendants breached the terms of the plan, failed to state the plan terms in a manner understandable to plan participants, and failed to give notice of amendment to the plan that resulted in significant reduction of benefits. Parties have reached a settlement in the case of $5.5 million, representing more than half of the gross damages for all class members. Now before the court is the motion for preliminary settlement of class and approval of class settlement agreement. The proposed settlement class was defined as all the employees who elected to transfer from the old plan to the cash balance plan in 2002, as well as the beneficiaries of any deceased employees who would otherwise be class members. The court first evaluated the class under Rule 23. The requirements of Rule 23(a) were satisfied. The class consisting of 466 individuals was sufficiently numerous. The court also concluded that common questions predominate over individualized issues because their claims are “universally based on the same legal theory.” Defendants’ systematic actions and applications of policy was also determined to be appropriate for unified resolution through class action. Finally, Ms. Nolan and her counsel, attorneys Eva T. Canterella, Robert P. Geller, and Patricia A. Stamler, were all found to be adequate representatives of the class. The court was also satisfied that certification was appropriate under Rule 23(b)(1)(A) because individual actions by participants runs the risk of inconsistent adjudications “that would establish incompatible standards of conduct for the defendants.” The court therefore preliminarily certified the settlement class, appointed Ms. Nolan as class representative, and appointed her attorneys as class counsel. Moving to the proposed $5.5 million settlement, the 33.5% recovery for class members of their A+B damages, the $15,000 service award for Ms. Nolan, and the $1,833,333.33 in attorneys’ fees and $73,272.08 in costs, the court found all to be reasonable, adequate, and fair, and the product of informed good faith negotiations between the parties. The proposed means of sending notice via U.S. mail and email, was also determined to be appropriate by the court. Accordingly, the court granted the preliminary motions and scheduled a final settlement hearing. As the court put it at the end of its decision, approval of the settlement “is consistent with Congress’s intent in enacting ERISA to ensure that plan participants receive their employer-provided benefits.”

ERISA Preemption

Ninth Circuit

Wong v. BEI Hotel, No. 21-cv-06271-EMC, 2022 WL 2541274 (N.D. Cal. Jul. 7, 2022) (Judge Edward M. Chen). Plaintiffs are sixteen employees of defendants BEI Hotel and Davidson Hospitality Group who asserted nine state law claims arising out of defendants’ failure to make contributions to their ERISA-governed multi-employer pension plan. Defendants moved to dismiss. The court granted the motion, holding that all nine state law claims (embezzlement, negligence, negligent misrepresentation, intentional misrepresentation, breach of fiduciary duty, violation of California labor code, violation of California business and professions code, conversion, and constructive trust) were “completely preempted by ERISA’s express preemption provision,” because “there would be no causes of action if there was no ERISA pension plan,” and “failure to contribute to an ERISA plan and the improper processing of a claim for benefits are preempted.” Plaintiffs requested the court grant them leave to amend their complaint. The court decided to defer ruling of the motion to leave to amend until the parties have completed their obligation to engage in meditation. The court ended its decision urging the parties to settle “because even if Plaintiffs’ current claims are preempted, Plaintiffs may well assert convention ERISA claims against Defendants.”

Exhaustion of Administrative Remedies

Seventh Circuit

Dual Diagnosis Treatment Ctr. v. Health Care Serv. Corp., No. 22 C 846, 2022 WL 2528060 (N.D. Ill. Jul. 7, 2022) (Judge Charles P. Kocoras). Plaintiffs are five out-of-network healthcare providers who provided mental health and substance abuse treatments to nine patients insured under Blue Cross and Blue Shield of Illinois health insurance plans, eight of them governed by ERISA and the last patient with private insurance. Accordingly, plaintiffs asserted a claim under ERISA Section 502(a)(1)(B) for payment of benefits, as well as a breach of contract state law claim. Blue Cross moved to dismiss pursuant to Rule 12(b)(6). Blue Cross made several arguments in favor of dismissal. First, Blue Cross argued the complaint should be dismissed because plaintiffs failed to exhaust administrative remedies prior to filing suit. Second, Blue Cross stated that 5 of the plans have anti-assignment provisions which expressly prohibit patients from assigning the claims to providers. Third, Blue Cross argued that plaintiffs failed to sufficiently state a claim for breach of contract. Finally, Blue Cross made the argument that plaintiff Dual Diagnosis should be dismissed as a plaintiff for lack of standing. The court addressed each in turn. First, and most significantly, the court granted the motion to dismiss, without prejudice, for failure to exhaust administrative remedies. Plaintiffs conceded that they did not exhaust the internal appeals process before taking legal action, but argued that appealing would have been futile. The court did not agree that any appeal would have necessarily resulted in a denial of their claims, and held the futility exception does not apply. Despite granting the motion to dismiss on this ground, the court also addressed the remainder of Blue Cross’s arguments, and granted plaintiffs’ request for leave to amend their complaint. The court additionally held that, plaintiffs may allege waiver and/ or estoppel arguments against Blue Cross with regard to its reliance on the plans’ anti-assignment provisions for the first time at the motion to dismiss stage. The court also directed plaintiffs should they choose to amend to state a specific plan term which Blue Cross allegedly breached in order to plead a sufficient breach of contract claim. Last, the court dismissed Dual Diagnosis as a plaintiff. The court agreed that as the “umbrella company” of the other providers, Dual Diagnosis does not have any assignments of its own nor individual Article III standing to sue. Thus, the complaint was dismissed in its entirety, without prejudice, and plaintiffs were given a few weeks’ time to amend their complaint.

Eleventh Circuit

Freeman v. S. Co. Gas, No. 1:21-CV-4294-JPB, 2022 WL 2529188 (N.D. Ga. Jul. 7, 2022) (Judge G.P. Boulee). Plaintiff Sonia Freeman was diagnosed with diabetes, atrial fibrillation, and rheumatoid arthritis. From August to November 2019, Ms. Freeman received short-term disability benefits. After her short-term disability benefits were terminated, Ms. Freeman requested her employer, defendant Southern Company Gas, provider her with a Summary Plan Description. Defendant did not produce the document and informed Ms. Freeman that the short-term disability plan was not governed by ERISA. Ms. Freeman appealed the denial of the short-term disability benefits, and requested an application for long-term disability benefits. The long-term disability benefit plan, she was informed was governed by ERISA. Then the following April, defendant informed Ms. Freeman that because she had not returned to work, her employment was terminated, and she is no longer eligible for company benefits. Ms. Freeman subsequently commenced this suit. She brought a breach of contract claim for the short-term disability benefits, a claim for the long-term disability benefits under ERISA, and a claim for wrongful termination under ERISA Section 502(a)(3). Defendant moved to dismiss, arguing that Ms. Freeman cannot bring ERISA claims because she failed to exhaust administrative remedies. The court agreed, finding Ms. Freeman’s statement within her complaint that “to the extent legally necessary, she has exhausted all administrative remedies,” to be a conclusory allegation insufficient to state a claim. In fact, the court held that Ms. Freeman, who currently has an application for long-term disability benefits awaiting a determination from MetLife, needs to wait and see MetLife’s decision and exhaust administrative remedies should it be a denial, before she may sue under ERISA. Ms. Freeman’s argument that “Defendant never issued any actual denial letters…never made a decision that she was not disabled…and never explained how she could appeal,” were unpersuasive given that Ms. Freeman had not even applied for long-term disability benefits until after bringing this lawsuit. The court therefore concluded that administrative remedies were not exhausted, and dismissed without prejudice the ERISA claims. In addition, the court declined to exercise supplemental jurisdiction over the remaining state law claim, and therefore dismissed it too without prejudice.

Medical Benefit Claims

Tenth Circuit

Jonathan Z. v. Oxford Health Plans, No. 2:18-cv-00383-JNP-JCB, 2022 WL 2528362 (D. Utah Jul. 7, 2022) (Judge Jill N. Parrish). Father and son plaintiffs Johnathon and Daniel Z. brought a claim for benefits under ERISA Section 502(a)(1)(B) as well a claim for violation of the Mental Health Parity and Addiction Equity Act under Section 502(a)(3) against Oxford Health Plans after Daniel’s treatment at three residential facilities for mental health and substance abuse were denied by United Behavioral Health. Parties filed cross-motions for summary judgment on both claims. First, the court addressed the appropriate review standard for the claims for benefits. The parties agreed that the plan expressly grants Oxford and United Behavioral Health discretionary authority to make coverage decisions. However, plaintiffs argued that Oxford violated ERISA’s procedural requirements by changing rationales for its denials of benefits at the first facility, failed to consider Daniel’s substance abuse problems in addition to his mental health diagnoses at the second facility, and denied previously preauthorized services at the third facility. The court agreed with plaintiffs with regards to the first two treatment centers, and therefore applied de novo review of the claims for them. As for the third facility, the court held that plaintiffs were unable to provide evidence that Oxford preauthorized services, and therefore applied abuse of discretion review to the claims for the third center. Turning to the claims for benefits themselves, the court upheld all of Oxford’s denials, agreeing with Oxford that plaintiffs failed to meet their burden of proofing that the treatment was medically necessary as defined by the plan. “The court recognizes that Daniel clearly needed mental health and substance abuse treatment. But the question here is whether Daniel could have been treated at a lower level of care. And Plaintiffs simply have not submitted sufficient medical evidence…to demonstrate that Daniel necessitated (residential treatment center) care.” Thus, the court granted summary judgment in favor of defendant on the Section 502(a)(1)(B) benefit denials at all three facilities. Nevertheless, the court did find that Oxford had violated the Mental Health Parity and Addiction Equity Act with its blanket exclusion of wilderness therapy facilities pertaining only to mental health and addiction treatment, and by applying more stringent limitations on residential treatment centers by requiring patients to exhibit acute symptoms to qualify for care whereas it does not require similar acute symptoms for comparable medical or surgical treatment. The court therefore entered a factual finding of these Parity Act violations and directed plaintiffs to submit supplemental briefing on the equitable relief they seek with regards to the violations.

Pension Benefit Claims

Fifth Circuit

Transocean U.S. Sav. Plan v. Thure, No. Civil Action H-21-3969, 2022 WL 2439183 (S.D. Tex. Jul. 5, 2022) (Judge Lee H. Rosenthal). In 2019, Emma Charlene Taylor died. After Ms. Taylor’s death, the administrator of the Transocean Drilling, Inc. U.S. Savings Plan paid Ms. Taylor’s estate $137,902.35. Then two years later, Ms. Taylor’s ex-husband, Jerome Taylor, sued Fidelity and Transocean, claiming he was entitled to the benefits because he was the listed plan beneficiary. The administrator reviewed Mr. Taylor’s claim and determined that Ms. Taylor had never revoked her beneficiary designation, and therefore Mr. Taylor was correct that he was entitled to the benefits. Mr. Taylor was then also paid $137,902.35. After paying the same benefits twice, the plan and its administrative committee “sought the return of the benefits it alleges it paid in error to Charlene Taylor’s estate.” The estate administrator, defendant Burgundi Thure, refused to return the funds, asserting that the estate and not Mr. Taylor was the proper beneficiary, and it was therefore the second payment that was in error. Transocean then field this ERISA suit seeking a lien on the funds in the amount of $137,902.35 that the estate is in possession of. Parties have now filed cross-motions for summary judgment. According to the court, Transocean needed to demonstrate that under the plan terms the estate was not entitled to the benefits it was paid, and it must also demonstrate that the money it paid to the estate is still within the estate’s possession. The court was satisfied that Transocean was able to prove both things, and therefore granted its summary judgment motion and denied the estate administrator’s cross motion for summary judgment. The court however declined to award Transocean attorneys’ fees.

Pleading Issues & Procedure

Eighth Circuit

Manderson v. Fairview Health Servs., No. CIVIL 21-1797 (JRT/TNL), 2022 WL 2442233 (D. Minn. Jul. 5, 2022) (Judge John R. Tunheim). A plan, an insurance company, and a healthcare provider walk into a courthouse. This could be the beginning of a bad joke, but it’s also a fairly decent beginning to this case in which the three parties dispute the “underlying controversy (of) who is responsible for the costs of the,” $3.6 million in services provided: the provider, the insurer, or the plan? Plaintiffs are trustees of the I.B.E.W. 292 Health Care Plan, who have sued Fairview Health Services, as well as Blue Cross Blue Shield of Minnesota, Inc. in connection with the millions in services that Fairview Health is seeking payment of. Against Fairview, the Plan and its trustees are seeking a declaratory judgment that any claims Fairview asserts against them for benefits is preempted by ERISA, as well as declaratory judgment enforcing the terms of the medical benefit plan documents. Also against Fairview, the plan asks the court for an order enjoining the provider from seeking payment for these services. As for the claim against Blue Cross, the Plan brings a claim of breach of contract seeking damages and declaratory judgments that the plan does not have a duty to indemnify Blue Cross in connection with the claims at issue or in relation to any breach Blue Cross committed with regards to its agreements with Fairview. Blue Cross and Fairview both moved to dismiss. Fairview moved to dismiss under Federal Rule of Civil Procedure 12(b)(1) asserting that the court lacks subject matter jurisdiction because “(1) any attempt to recover for the services provided are state law causes of action that are not preempted by ERISA… and (2) the Plan’s Complaint does not present a justiciable case or controversy.” First, the court stated that at the pleading stage the issue of ERISA preemption and whether payment is based on the contract between Blue Cross and Fairview or the Plan documents is unresolved. “The face of the Complaint properly alleges the Court has original question subject matter jurisdiction arising from ERISA § 502(a)(3). Fairview’s argument may have validity as the facts of the case develop,” but for now the court would not dismiss for lack of subject matter jurisdiction. Fairview’s second argument in favor of dismissal also proved unsuccessful. The court stated that payment of the $3.6 million in medical bills certainly constitutes an actual controversy over which the court may issue a declaratory judgment. Thus, Fairview’s motion to dismiss was denied. Blue Cross moved to dismiss under both Federal Rule of Civil Procedure 12(b)(1), asserting lack of supplemental jurisdiction, and under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. First, the court held that there is a common nucleus of operative facts between the federal and state claim, because “resolving the allegations in the Complaint against both Fairview and BCBSM will require analyzing many overlapping issues including interpretation of Plan Documents, the Master Agreement (between Fairview and Blue Cross), and the Termination Agreement (between Blue Cross and the Plan which includes the indemnification clause); the legal effects including who is bound by those documents; the timing of submission, and so on.” The court therefore concluded it has and may exercise supplemental jurisdiction over the state law aspect of the case asserted against Blue Cross. Finally, the court disagreed with Blue Cross’s assertion that the complaint fails to state a claim for breach of contract, because the complaint sufficiently alleged that Blue Cross breached its conditions of the Termination Agreement to adjudicate claims in accordance with the plan documents. Accordingly, Blue Cross’s motion to dismiss was also denied.

Provider Claims

Ninth Circuit

Physicians Surgery Ctr. of Chandler v. Cigna Healthcare Inc., No. CV-20-02007-PHX-MTL, 2022 WL 2390948 (D. Ariz. Jul. 1, 2022) (Judge Michael T. Liburdi). Plaintiff Physicians Surgery Center of Chandler is a medical provider which has sued Cigna Healthcare Inc. for withholding millions of dollars of payment it asserts is due to it. Cigna for its part claims that the provider is engaging in “fee forgiveness,” a practice in which healthcare providers do not bill patients their full out-of-network cost share. Because of this alleged practice, Cigna has denied all claims submitted by Physicians Surgery Center, and has informed Physicians Surgery Center that it will continue to deny claims until it has been provided with proof of payment by patients. Plaintiff’s complaint asserted three ERISA claims: failure to pay benefits, breach of fiduciary duties, and failure to provide full and fair review. In addition, plaintiff also asserted five state law causes of action. Cigna moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The court first addressed the claims for benefits under Section 502(a)(1)(B). Within the plans, there is language granting Cigna sole discretion to refuse to pay for services if it determines that a provider is engaging in fee forgiveness. While the court for the purposes of the motion to dismiss accepted plaintiff’s assertion that it is not engaging in fee forgiveness, under the fee forgiveness plan term it is nevertheless required to prove that patients are paying their cost share when requested by Cigna. Because plaintiff’s complaint is silent about its efforts to provide Cigna with proof-of-payment, the court granted the motion to dismiss the ERISA claims. However, the court gave Physicians Surgery Center leave to amend its ERISA benefit claims and its full and fair review claims. These two claims were thus dismissed without prejudice. Plaintiff’s breach of fiduciary duty claim however was dismissed with prejudice. The court held that plaintiff could not allege that the patients have suffered an injury based on any fiduciary breach, only that it suffered an injury, which is insufficient tot state a claim under Section 502(a)(3) as an assignee. As for the state law claims, the court found that plaintiff does not have standing to bring non-ERISA claims because the patients have only assigned it the right to bring ERISA benefit claims. Accordingly, these claims too were dismissed with prejudice.

Statute of Limitations

Eighth Circuit

Dida v. Ascension Providence Hosp., No. 4:22-CV-0508-AGF, 2022 WL 2438347 (E.D. Mo. Jul. 1, 2022) (Judge Audrey G. Fleissig). Plaintiff Dawit Dida was employed by Ascension Providence Hospital for over ten years. In 2016, he became sick and requested time off work for medical leave to no avail. According to the complaint, Mr. Dida also attempted to obtain disability benefit coverage, but his efforts were frustrated by an Ascension employee who informed Mr. Dida that he was not entitled to coverage. Mr. Dida also alleged that Ascension refused to accommodate his disability. Then, shortly after attempting to receive medical and disability benefits, Ascension fired Mr. Dida. Following the termination, Mr. Dida filed a charge of discrimination with the D.C. Office of Human Rights. The attempted mediation settlement process between the parties was unsuccessful. Mr. Dida withdrew his complaint with the Office of Human Rights, and then filed this present action in D.C. Superior Court. Ascension then removed the case to the Federal District Court for the District of Columbia and moved to transfer the case citing its plan’s forum selection clause. The case was thus transferred to the Eastern District of Missouri, where Ascension is headquartered. As currently pled, Mr. Dida asserts four causes of action under the Americans with Disabilities Act (“ADA”), ERISA, the Family Medical Leave Act (“FMLA”), and a state law claim for breach of contract. Ascension now moves to dismiss the complaint. Ascension argued that the FMLA claim is time-barred, that Mr. Dida failed to exhaust administrative remedies on his ADA and ERISA claims, that the ERISA claim is also time-barred, and that the breach of contract claim is preempted by ERISA. Mr. Dida argued that the applicable statute of limitations was tolled while his charge was pending with the Office of Human Rights, that the time limits were also tolled by equitable tolling and/or estoppel, and that exhaustion was futile. The court first addressed the FMLA claim. The court first concluded that the federal FMLA claim was not tolled while the Office of Human Rights claim was pending. However, the court could not determine “the propriety of equitable tolling or estoppel” as pertains to the FMLA claim and therefore denied the motion to dismiss the claim. The court also denied the motion to dismiss the ADA claim, finding that the clock was tolled during the Office of Human Rights proceeding. Turning to ERISA, the court was persuaded that Mr. Dida has a valid futility defense to the exhaustion requirement given his complaint’s allegations. Additionally, the ERISA claim was not dismissed as being untimely. The court concluded that the current record is insufficient to make determinations of the applicable statute of limitations and whether D.C. of Missouri law would apply in the alternative, and concluded therefore that Ascension did not meet its burden to establish the claim is barred. Thus, the ERISA claim was not dismissed. Finally, the court granted the motion to dismiss the breach of contract claim, concluding that it was preempted by ERISA, but did so without prejudice.

Statute of Limitations

Second Circuit

Grosso v. AT&T Pension Benefit Plan, No. 18 Civ. 6448 (LGS), 2022 WL 2533000 (S.D.N.Y. Jul. 7, 2022) (Judge Lorna G. Schofield). Plaintiffs are plan participants who commenced this suit challenging their denials of retroactive pension benefits of the AT&T Pension Benefit Plan. Plaintiffs sought to collect early retirement benefits at the age of fifty-five. Their applicants for retroactive benefits were denied on the grounds that that had not filed written applications as required by the plan’s 1997 amendment. The plan administrator found that plaintiffs had elective to receive benefits starting on certain dates and were thus not entitled to retroactive benefits prior to those dates. Previously in the case, the court agreed with defendants’ denial of benefits, and granted defendants summary judgment on plaintiffs’ first cause of action which asserted a violation of the plan. The remaining cause of action left undecided in the case asserts breach of fiduciary duties. Defendants moved for summary judgment on this claim, arguing that the claim is time barred by ERISA’s six-year statute of limitations. The court in this order agreed. According to the court, the latest date on which the alleged breach could have been cured was when each plaintiff turned 55, “which was the earliest possible date Plaintiffs could have made a written application to trigger their entitlement to unreduced benefits.” The court therefore held that plaintiff Wing turned 55 in April 2012, meaning that the latest the case could have been brought would have been April 2018. However, the case was not brought until July 2018, and was determined therefore to be untimely. The court would not read Section 1113(1) as “extending a defendant’s exposure to liability indefinitely under the rationale that Defendants could have ‘cured the breach or violation’ at any time after the omission,” because reading the statute in this way would render it meaningless. The court also rejected plaintiffs’ argument that their claim was not time barred because of fraud or concealment. The complaint, the court stated, alleged that defendants breached their fiduciary duty by failing to inform plaintiffs about the amendment to the plan, and the “record contains no evidence of alleged wrongdoing beyond this failure.” Therefore, concluding the claim to be untimely, the court granted defendants’ motion for summary judgment.

Subrogation/Reimbursement Claims

Fourth Circuit

Synchrony Fin. Welfare Benefits Comm. v. Demayo Law Offices, LLP, No. 3:21-cv-00376-RJC-DSC, 2022 WL 2600165 (W.D.N.C. Jul. 8, 2022) (Judge Robert J. Conrad, Jr.). Plaintiff is a plan administrator and fiduciary of an ERISA-governed welfare benefit plan who has sued a plan participant and her counsel, defendant Demayo Law Offices, LLP, for failing to reimburse the plan for medical expenses it paid on her behalf following a car accident, after the participant successfully received a recovery from the responsible third party. Defendant Demayo Law moved to dismiss. Previously in the case the Magistrate issued a memorandum and recommendation on the motion to dismiss recommending the court deny the motion. Demayo Law objected to the Magistrate’s report. In this order, the court overruled the objections, adopted the recommendation, and denied the motion to dismiss. The court held that Supreme Court precedent in Harris Tr. & Savs. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 238(200) allows for an attorney to be a defendant in ERISA Section 502(a)(3) suits, because there is “no limit…on the universe of possible defendants’ as long as the relief sought is equitable.” Demayo Law argued that the holding in Harris does not apply because it addressed a violation of a different section of ERISA. The court disagreed. “Even though the factual context in Harris involved a nonfiduciary party in interest, its interpretation of § 502(a)(3) was not limited to nonfiduciary parties in interest…Section 502(a)(3) simply is not silent on whether DeMayo may be a defendant.”

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 Payson. 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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  • Your ERISA Watch – Plan Participant States a Claim That She Was Sued for Seeking Plan Benefits Read More
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