Your ERISA Watch – What a Difference Discretion Makes
Mayer v. Ringler Assocs. Inc., No. 20-1281, __, F.4th __, 2021 WL 3556473 (2d Cir. Aug. 12, 2021) (Before Circuit Judges Walker, Sack, and Menashi). This week’s notable decision demonstrates the uphill battle ERISA claimants face in litigation with insurers over their employee benefits, particularly where courts apply the highly deferential abuse of discretion standard. Here, because the court concluded that California’s ban on discretion was inapplicable to the claim of a New York resident, and the claim was governed by the old ERISA claims regulations of pre-January 2017, plaintiff’s defeat was assured.
Gregory Mayer was the sole owner and an employee of Ringler Associates Scarsdale, Inc. (“RAI-Scarsdale”), an affiliate of Ringler Associates Inc. (“RAI”). Mayer became disabled and made a claim for long-term disability benefits under the Ringler Associates Inc. and Affiliates Long Term Disability Plan (the “Plan”). Mayer’s claim was approved by Hartford, the insurer and claims administrator of the Plan. However, Mayer disagreed with Hartford’s calculation of his pre-disability earnings. Mayer appealed Hartford’s determination, but Hartford upheld its decision. Mayer brought a lawsuit for benefits due under the Plan, alleging that Hartford had miscalculated his pre-disability earnings. The district court applied the abuse of discretion standard of review and granted Hartford’s motion for summary judgment on the benefits due claim.
On appeal, the Second Circuit considered what standard of review should apply to the review of Hartford’s decision. First, the court considered whether the Plan’s grant of discretionary authority to Hartford as the claims administrator was negated by the California ban on discretionary language. Second, the court analyzed whether Hartford had complied with the ERISA claims regulations.
The parties agreed the Plan granted Hartford discretionary authority. Mayer argued that because the Plan was delivered in California and California law governs the Plan, that the California ban on discretionary language in insurance policies voided the Plan’s discretionary language. California Insurance Code § 10110.6(a). The statute states that if a policy provides disability insurance coverage “for any California resident”, any discretion granting language is “void and unenforceable.” However, Mayer is a resident of New York. He worked in New York, became disabled while working in New York, and applied for disability benefits while living in New York. The appellate court explained that the California statute could be read to apply if a policy covered even one California resident, even if the claimant was not a California resident himself. However, the Court concluded that such an interpretation would violate the Commerce Clause and thus be unconstitutional. Mayer’s preferred interpretation would also be a logistical nightmare since the standard of review in any one case would depend on the residence of all the other plan participants. On these bases, the appellate panel held that the statute only applies when the claimant is a California resident and therefore the Plan’s discretionary language was not void.
Mayer also argued that Hartford had not complied with the ERISA claims regulations and therefore de novo review should apply. Specifically, Hartford did not provide Mayer with a chance to review and respond to documents Hartford considered for the first time during the administrative appeal. Mayer’s appeal was being considered by Hartford under the old claims regulations which directed claims administrators to provide such documents to claimants upon request. The new claims regulations, which came into effect January 19, 2017, make it clear new evidence gathered on appeal must be provided to claimants during the administrative appeal prior to a final decision being made so the claimant has an opportunity to respond. The Second Circuit joined the Third, Fifth, Sixth, Eighth, Tenth, Eleventh, and D.C. Circuits in finding that the old claims regulations did not require claims administrators to provide access to these documents prior to a final claim determination.
Unsurprisingly, under the highly deferential abuse of discretion standard, the appellate court affirmed Hartford’s decision regarding the computation of Mayer’s pre-disability earnings.
This week’s notable decision summary was prepared by Kantor & Kantor LLP Associate Sarah Demers. Sarah has devoted her law practice to representing individuals in disputes over life insurance, disability income, and retirement benefits, and is passionate about fighting for people who have been wrongfully denied employee benefits.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Eighth Circuit Wilson v. Kleinsasser, 4:20-cv-04009-KES 2021 WL 3549937 (D.S.D. August 11, 2021) (Judge Karen E. Schreier). After accepting an offer of judgment for $20,000 on her claim for fiduciary breach, plaintiff filed a motion for fees and costs, opposed by defendants. The court held that plaintiff achieved some degree of success on the merits and, applying the Eighth Circuit’s list of 5 factors, found that that plaintiff was entitled to an award of some fees. But it also found that plaintiff’s attorney’s compensation must be limited to what is reasonable, and, on that basis, cut several thousand dollars in requested fees as duplicative or unjustified.
Breach of Fiduciary Duty
Ninth Circuit Klawonn v. Board of Directors for the Motion Picture Indus. Pension Plans, No. CV 20-9194 DMG(JEMx), 2021 WL 3508534 (C.D. Cal. Aug. 9, 2021) (Judge Dolly M. Gee). The court dismissed in its entirety a case against the Board of Directors of the Motion Picture Industries Pension Plans alleging breach of the duty of prudence for investing the retirement assets in funds with excessive fees that underperformed compared to several benchmarks. The plan is a defined contribution plan that is funded exclusively by employer contributions and the employees are not permitted to direct the investment of their accounts. Plaintiff argued the one-size-fits-all investment of plan assets did not consider the needs of plan participants and that the investment in actively managed hedge funds with overly high fees and poor performance was imprudent. The court found that plaintiff had standing and her claims were timely; however, the court granted the motion to dismiss on the merits because the plan provision allocating investment responsibility to an investment manager was a plan design issue and not a fiduciary act. The court further found the board’s choice of investment managers was not imprudent because plaintiff failed to allege a failed decision-making process. With respect to the investment in headge funds, the court concluded that the complaint failed to include information about comparative investments with lower fees and better performance. Because that deficiency could potentially be corrected by amendment, the court dismissed this claim without prejudice.
Sixth Circuit Oglesby v. FedEx Ground Package Sys., No. 3:20-CV-346, 2021 WL 3560884 (S.D. Ohio Aug. 11, 2021) (Judge Walter H. Rice). Plaintiff, who delivered packages for FedEx through an independent service provider, alleged she was improperly denied ERISA employment benefits and overtime wages by FedEx. FedEx argued that plaintiff was not eligible for ERISA benefits because she was not an employee eligible for benefits under the FedEx ERISA plans, which specifically exclude employees of independent contractors, even if the workers have been misclassified as such. The court granted FedEx’s motion for judgment on the pleadings as to plaintiff’s ERISA claims because plan administrators are not required to establish employee benefit plans or provide any particular benefits, and are allowed to draft their plans to exclude particular classes of workers. Plaintiff was not entitled to benefits under the plans because she was excluded as an employee of an independent contractor.
Second Circuit Crista v. Wisconsin Physicians Serv. Ins. Corp., No. 18-CV-365, 2021 WL 3511092 (W.D. Wis. August 10, 2021) (Judge William M. Conley). Plaintiffs sued WPS after it denied prior authorization requests for administration of intravenous immunoglobulin (“IVIG”) to Christa’s twin sons, on the grounds that the treatment was experimental and not medically necessary because the diagnosis of primary immunodeficiency had not purportedly been established. Plaintiffs filed a lawsuit asserting claims under Section 502(a)(1)(B) and 502(a)(3), and the parties filed cross-motions for summary judgment. WPS had approved the IVIG for the twins from January 2015 through August 2017, with several denials and reversals of decisions throughout, leaving an overall impression that WPS was looking for a reason to deny benefits. The court described the medical records as a “mixed bag.” There was evidence to support the twins’ position, including the opinions of two treating physicians and two outside experts retained by WPS. However, there was also evidence to support WPS’s decision, including the opinions of five outside experts retained by WPS at different times. The court applied the arbitrary and capricious standard, which the court tempered by WPS’s conflict of interest, because it both decided and paid claims. Ultimately, although the court noted that it was troubled by some of WPS’s actions during its multi-year review process, the court upheld WPS’s decision based in particular on the detailed report of one of the outside experts who reviewed all records beginning in 2014. The court granted judgment in favor of defendants on plaintiffs’ Section 502(a)(1)(B) claim for benefits. As for plaintiffs’ Section 502(a)(3) claim, the court did not dismiss it as being duplicative of plaintiffs’ Section 502(a)(1)(B) claim, because plaintiffs did not seek duplicative remedies. The court noted, however, that this was a “pyrrhic victory” because plaintiffs’ breach of fiduciary duty claim failed on the merits. Judgment was entered in favor of WPS.
Ninth Circuit Dimry v. Bert Bell/Pete Rozelle NFL Player Ret. Plan, No. 20-17049, __ Fed. Appx. __, 2021 WL 3509349 (9th Cir. Aug. 10, 2021) (Before Circuit Judges Graber and Lee, and District Judge Kathryn H. Vratil, sitting by designation). Evaluating cross-appeals, the court agreed with the district court in Dimry II that the plan’s actions on remand, following Dimry I, violated the requirement of a meaningful dialogue between ERISA plan administrators and their beneficiaries. Dimry and his counsel were in the dark during the entirety of the remand process. The Plan did not notify Dimry that the remand process had begun or indicate how the process would take place. The Plan concluded that the record required supplementation but did not inform Dimry that it intended to reopen the record for reports, or allow Dimry the opportunity to respond to those reports. The court therefore affirmed the district court’s finding that the Plan denied Dimry a full and fair review under ERISA. Perhaps more interesting, the parties agreed that the Ninth Circuit should not remand to the Plan, but should, instead have the district court decide Dimry’s entitlement to benefits. The court allowed this as it aligns with Ninth Circuit precedent.
Morris v. Aetna Life Ins. Co., Case No. 8:20-cv-00821-SB-GJSx, 2021 WL 3509553 (C.D. Cal. Aug. 9, 2021) (Judge Stanley Blumenfeld, Jr.). Plaintiff took sick leave and underwent surgery and chemotherapy for cancer. Morris submitted a long-term disability claim to Aetna indicating that she could not return to work for at least three months because she was still completing chemotherapy. Aetna subsequently approved Morris’ claim. Two years later, Aetna determined that Morris met the plan’s definition of being totally disabled from performing any gainful occupation. Morris continued to receive long term disability benefits in the amount of $4,113.17 per month as long as she continued to meet the plan’s definition of “disability.” In calculating that benefit, it appeared that the Aetna assumed that Morris was paid bi-weekly, meaning that she received 26 paychecks a year. In reality, Morris was paid semi-monthly, which amounts to 24 paychecks a year. Nine years after Morris’ original diagnosis, she was diagnosed with a growth in her right lung, and underwent a wedge resection to remove the growth. Aetna then recommended the claim be transferred to their “extended duration unit.” The original miscalculation was discovered upon the transfer. On February 25, 2019, Aetna wrote to Morris concerning repayment of the overpaid benefits. Aetna confirmed Morris’ monthly pre-disability earnings were in fact $9,583.34, and informed plaintiff that she owed $56,478.17, the amount of overpayment as a result of the calculation error. Aetna began reducing and withholding Morris’ monthly benefits to recoup the overpayment, recovering a sum of approximately $56,063. When Morris appealed Aetna’s decision, Aetna maintained its position. Plaintiff filed an ERISA action. At trial, the court found that the terms of the plan provided that the amount of benefits were dependent on “the amount of salary or wages you were receiving from an employer participating in this Plan on the day before a period of disability started, calculated on a monthly basis.” It was undisputed that Morris’ salary prior to her disability was $115,000 a year (or $9,583.33 per month). Because Morris was insured for 60% of her predisability monthly earnings, the plan unambiguously provided that her gross monthly benefit should be $5,750—not the gross benefit of $6,229.17 that she received. Accordingly, the court entered judgment in favor of Aetna.
First Circuit Keefe v. LendUS, LLC, No. 20-CV-195-JD, 2021 WL 3550036 (D.N.H. Aug. 11, 2021) (Judge Joseph A. DiClerico, Jr.). Plaintiff Keefe sued his former employer, seeking to enforce the terms of its ERISA-governed executive incentive bonus program. Keefe served discovery on the employer, requesting production of audited financial statements and tax returns. The employer refused to produce the documents, based on a variety of objections, and Keefe filed a motion to compel. The court granted Keefe’s motion, finding that the discovery was relevant because a determination of net profits and losses was required in order to calculate the bonuses Keefe claimed he was due. The employer contended that the information was already available in the form of financial statements it had already provided, but the court rejected this argument, noting that these statements were not audited. The court also granted Keefe the opportunity to file a motion for an award of reasonable expenses arising from his motion to compel.
Seventh Circuit Glover v. American Gen. Life Ins. Co., No. 3:21-CV-50205, 2021 WL 3472637 (N.D. Ill. Aug. 6, 2021) (Judge Iain D. Johnston). Plaintiff Glover filed a breach of contract suit in state court against American General for terminating his long-term disability benefits. American General removed the case to federal court on the ground that Glover’s claims were preempted by ERISA. Glover moved to remand, arguing that the benefit plan that paid his benefits was a governmental plan exempted from ERISA. The court agreed, finding that Glover’s employer, St. Louis Community College, was a governmental entity and thus its plan was not governed by ERISA. The court granted Glover’s motion and remanded the action to state court.
Momou v. Dean Health Plan, Inc., No. 21-1039, __ Fed. Appx __, 2021 WL 3483441 (7th Cir. Aug. 9, 2021) (Before Circuit Judges Easterbrook, Wood, and St. Eve). Plaintiff Momou filed a tort suit against his employer’s ERISA-governed health plan, alleging that its decision to pay for chemotherapy for his wife, but not surgery, accelerated his wife’s death. The district court ruled that Momou could not bring a claim under ERISA because the plan was sponsored by the University of Wisconsin Hospital and Clinics Authority, and thus was a governmental plan exempted from ERISA preemption. In a brief decision, the Seventh Circuit agreed and affirmed.
Graham v. Bd. of Educ. of City of Chicago,19-2745, 2021 — F.4th —- 2021 WL 3508563 (7th Cir. Aug. 10, 2021) (Before Circuit Judges Easterbrook, Rovner, and Hamilton). Plaintiff was a Chicago public school teacher who was fired after seeking a higher salary for earning extra college credits, through a program offered through the school district. She claimed §1983 violations as well as ERISA violations for the loss of her health and pension benefits. Plaintiff represented herself pro se. The district court found that she failed to state a case. The Seventh Circuit disagreed, noting that the school district’s counsel hid controlling legal authority from both the plaintiff and the court. The court asked ERISA lawyers to present an amicus brief on the question of whether ERISA applies to charter school benefits. The court concluded that a charter school was not a private entity, but was a government entity under governing Illinois law, and thus not subject to ERISA.
Eighth Circuit Boilermaker-Blacksmith Nat’l Pension Tr. v. Ironhead Marine, Inc., No. 5:21-CV-06008-DGK, 2021 WL 3476612 (W.D. Mo. Aug. 6, 2021) (Judge Greg Kays). Plaintiff, a multi-employer trust, sued participating employer Ironhead, alleging that Ironhead had failed to adequately pay contributions to the trust. In response, Ironhead filed three counterclaims, one of which was a state law breach of contract claim. The trust moved to dismiss this claim, arguing that it was preempted by ERISA. The court agreed that the claim was preempted, finding that it related to the contribution of funds to the trust, and that the structure and administration of the plan would be affected by the outcome of the claim. As a result, the court granted the trust’s motion to dismiss.
Exhaustion of Administrative Remedies
Seventh Circuit Pierce v. FLSmidth, Inc., No. 20-CV-1369, 2021 WL 3502463 (C.D. Ill. Aug. 9, 2021) (Judge Michael M. Mihm). Plaintiff Pierce filed suit against her deceased husband’s employer, alleging that it breached its fiduciary duty under ERISA by failing to notify the husband of the active employment provisions in its life insurance benefit plan. The employer filed a motion to dismiss, arguing that Pierce had failed to exhaust her administrative appeals under the plan before filing suit. Pierce contended that she exhausted her appeals when her attorney sent a letter to Lincoln Life Assurance Company of Boston, the claim administrator, after it denied her claim. The court disagreed, finding that the letter “makes no mention of a breach of fiduciary duty claim against Defendant nor does it request administrative review of that claim.” Instead, the letter was “a threat to take Lincoln to court if the matter was not resolved favorably for the Plaintiff.” The court further found that Pierce had not alleged sufficient facts excusing the exhaustion requirement. Thus, the court granted the employer’s motion and issued judgment in its favor.
Medical Benefit Claims
Eighth Circuit G.F. v. Blue Cross & Blue Shield of Texas, No. 2:21-CV-4079-MDH, 2021 WL 3557651 (W.D. Mo. Aug. 11, 2021) (Judge Douglas Harpool). Plaintiff G.F. received medical treatment for her idiopathic scoliosis, but her claim for benefits under an ERISA-governed health plan was denied on the ground that the treatment was excluded from coverage as “experimental and investigational.” G.F. filed suit, and the defendants filed motions to dismiss three of G.F.’s claims. First, defendants contended that G.F.’s claim for equitable relief should be dismissed because it was duplicative of her claim for plan benefits; both claims sought to recover benefits for allegedly improperly denied healthcare claims. Second, defendants argued that G.F.’s state law breach of contract claim should be dismissed because it was preempted by ERISA. Third, the insurer defendant argued that G.F.’s claim for statutory penalties for failing to produce plan documents should be dismissed as to the insurer because the insurer was not the plan administrator and thus not a proper defendant. The court agreed with all three arguments and granted the motions to dismiss.
Tenth Circuit Peter M. v. Aetna Health & Life Ins. Co., No. 2:20-CV-00331-TC, 2021 WL 3571396 (D. Utah Aug. 12, 2021) (Judge Tena Campbell). When I.M. was fifteen years old, he received treatment at Aspiro Adventure Therapy after struggling for several months with drug addiction, depressive disorder, and anorexia. Aetna denied the benefit claims for this treatment, claiming that Aspiro was a “wilderness treatment program” and excluded from plan coverage. Plaintiffs claimed that procedural irregularities warranted de novo review: (1) defendants denied I.M.’s claims for his second visit to Aspiro without giving him all of the internal appeals guaranteed to him by the Plan; (2) defendants did not take the information plaintiffs submitted during their appeals into account and made no attempt to engage in a “meaningful dialogue” with plaintiffs when they issued boilerplate denial letters with identical denial rationales; and (3) defendants failed to provide copies of all documents, records, and other information relevant to their claims despite plaintiffs’ repeated requests that they do so. The court did not find any of these reasons persuasive and held that these irregularities did not prejudice plaintiffs. As to the merits of the case, the court held that plaintiffs could not prevail on either of their causes of action (one for recovery of benefits and the other for equitable relief), explaining that defendants’ denial was reasonable because Aspiro defines itself as a wilderness therapy program and as the pioneer of wilderness adventure therapy, and there was no violation of the federal mental health parity act because the plan’s wilderness treatment exclusion applied equally to both mental health treatment and medical/surgical treatment.
M. S. v. Premera Blue Cross, 2:19-cv-00199-RJS-CMR, 2021 WL 3511094 (D. Utah Aug. 10, 2021) (Judge Robert J. Shelby). The insureds had Premera Blue Cross health insurance through their employer, Microsoft. The insureds needed residential treatment for their minor son for oppositional defiant disorder, autism spectrum disorder, pervasive developmental disorder, and anxiety. Premera denied the claim, finding the treatment not medically necessary and that the child could be treated in a less restrictive setting. The insureds submitted an appeal, which was denied, and then a level-two appeal, which was also denied. The insureds asked that de novo review be imposed as a penalty for Premera failing to follow its own procedures, as it failed to significantly refer to any of the information provided in their two appeals in the subsequent denial letters. The court felt that these actions did not rise to the level of procedural irregularities and reviewed the denial under the abuse of discretion standard. The court agreed that, by not referring to its original reason for denial – lack of intensity of treatment – in the appeal letters, Premera waived it. Despite this, the court determined that the residential treatment was not medically necessary under the InterQual Criteria. Premera relied on InterQual Criteria to determine if the placement was medically necessary. InterQual required that a patient at a behavioral residential program each week refuse school, have an interpersonal conflict, lose privileges, refuse to follow instructions or respond to staff directions. However, the court agreed with the insureds that the InterQual criteria was more restrictive than similar criteria to access residential treatment for physical reasons. The court held that the additional requirement of meeting InterQual Criteria instead of just the terms of the Plan violated the Parity Act. The court asked the insureds to file supplemental briefing on the appropriate remedy for this violation. Because Premera refused to provide the InterQual Criteria to the insureds upon request, and also refused to provide the Administrative Services Agreement between Premera and Microsoft, the court also assessed statutory penalties under ERISA for $123,100 for failing to provide Plan documents. The court also awarded attorney fees.
Pension Benefit Claims
Second Circuit Wegmann v. Young Adult Institute, Inc., Case No. 20-1147, __ Fed. Appx. __, 2021 WL 3573753 (2d Cir. Aug. 13, 2021) (Before Circuit Judges Livingston, Sack, and Chin). Plaintiff filed an ERISA action after the Trustees of the Supplemental Pension Plan for Certain Management Employees of Young Adult Institute (the “Board”) denied her claim for benefits under its Supplemental Pension Plan for Certain Management Employees (the “SERP”), which both parties agree is a so-called “top hat” plan. The Second Circuit affirmed the district court’s decision that the Board arbitrarily and capriciously denied Wegmann’s claim for benefits principally because the Board’s decision rested on an unreasonable interpretation of the SERP. The court found that the Board rested its denial of Wegmann’s claim for benefits in large part on an interpretation of the SERP’s “Eligibility” provision, Section 10.1.2, which provides: “Each Management Employee who shall complete 15 years of service with [YAI] and whose compensation is not fully considered in the computation of Federal Social Security benefits, shall be eligible to participate in the Plan. Entry into the Plan as a Plan Participant shall be on the July 1 coincident with or next following the employee’s compliance with the Eligibility Requirements.” The Board interpreted the phrase “eligible to participate” in this provision to indicate that employees do not automatically become SERP participants upon satisfying the enumerated eligibility criteria. Rather, in the Board’s view, the SERP both requires employees to obtain Board approval to enter into the SERP and endows the Board with discretion to assess an employee’s entitlement to benefits based on factors external to the SERP. The court affirmed the district court’s finding that the Board’s interpretation of the SERP imposed a standard not required by the SERP’s provisions and was inconsistent with the SERP’s plain words.
Pleading Issues & Procedure
First Circuit Board of Trs. of IUOE Local 4 Pension Fund v. Alongi, No. CV 21-10163-FDS, 2021 WL 3493714 (D. Mass. Aug. 9, 2021) (Judge F. Dennis Saylor IV). Plaintiffs filed suit against defendant Alongi, accusing her of breaching her fiduciary duty to multiple pension funds during her employment as administrator for the funds. Before this action was filed, Alongi filed a complaint against plaintiffs with the Massachusetts Commission Against Discrimination. Four months after plaintiffs filed the ERISA complaint, Alongi filed a discrimination complaint in Massachusetts Superior Court. Alongi moved to stay federal proceedings, pending resolution of the state court matter, based on the Younger abstention doctrine, the Colorado River abstention doctrine, and the prior-pending action doctrine. The court rejected Alongi’s motion, holding that abstention “requires the state forum to either ‘provide an adequate opportunity for the plaintiff to raise the claims advanced in his federal lawsuit’ or be ‘adequate … to protect [each] parties’ interests.’ Here, the Superior Court is not an adequate forum because it cannot adjudicate the Funds’ claim.”
Ninth Circuit SMART-TD Local 161 v. WeDriveU, Inc., No. 20-01312, 2021 WL 3565429 (W.D. Wash. August 12, 2021) (Judge Richard A. Jones). Plaintiff is a union representing drivers formerly employed by WeDriveU. Plaintiff sued WeDriveU and its benefit plan administrator under ERISA for violation of the Consolidated Omnibus Reconciliation Act (“COBRA”) for their failure to provide timely election notices which denied the drivers their right to elect COBRA coverage. Defendants filed a motion to dismiss for failure to