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ERISA Watch – ERISA Section 305(e) Does Not Apply Before Critical Status Certification

Last week was a busy week for ERISA decisions.  This week’s first notable decision is Lehman v. Nelson, et al., No. 15-35414, __F.3d__, 2017 WL 2989916 (9th Cir. July 14, 2017), where the panel affirmed in part and reversed in part the district court’s judgment in favor of the pension plan participant plaintiffs in an ERISA class action concerning a union pension fund.

The facts:  In order to improve the IBEW Pacific Coast Pension Fund’s funding status, which was heading towards “critical” under the Pension Protection Act, the trustees of the Fund amended the Plan twice – Amendments 14 and 24 – and began withholding at least $1.00 per hour from all employer contributions.  Lehman was a “traveler” who worked in the jurisdictions of various local union pension funds, and his employers in those jurisdictions contributed to the local funds for the areas in which the work was performed.  Under a reciprocal agreement among home funds, Lehman’s employer contributions were transferred to his home pension fund, but under Amendment 14, the Pacific Coast Fund withheld $1.00 per hour that Lehman worked in the Fund’s jurisdiction.  When the Fund did not resolve Lehman’s claim to his satisfaction, he brought suit on behalf of himself and others similarly situated.

And then what:  Judge Ricardo Martinez of the Western District of Washington granted summary judgment in favor of Lehman in part, finding that the trustees abused their discretion in interpreting Amendment 14’s application to reciprocal transfers.  The district court also certified a plaintiffs’ class.  The court ordered damages for the class in the amount of $2,473,132.77 as of February 28, 2015, which it clarified applied to withholdings under both Amendments 14 and 24.

On appeal:  The panel affirmed the damages award for withholdings under Amendment 14 based on a correct interpretation of that Amendment in light of other plan provisions, but the panel vacated the damages award under Amendment 24 because the trustees did not have notice that those withholdings were at issue, nor an opportunity to respond.  The panel concluded that the district court erred in its determination that Amendment 14’s application to travelers who worked in the Pacific Coast Fund’s jurisdiction on a temporary basis violated ERISA § 305 for reducing benefit-accrual rates on the withheld contributions to zero.  The panel agreed with the Trustees that critical status certification is the statutory trigger for the requirement to develop a rehabilitation plan.  “While ERISA section 305 creates a deadline by which plan sponsors must adopt a rehabilitation plan, it does not prohibit plan sponsors from taking action before ‘critical status’ certification.”  The panel remanded for further proceedings on the withholdings under Amendment 24 and also vacated the district court’s award of attorneys’ fees.

But on a good note on ERISA attorneys’ fees, fellow ERISA Watcher Jim Keenley of Bolt Keenly Kim LLP scored a fantastic fee award in the other notable decision of Doe v. Prudential Ins. Co. of Am., No. CV1504089ABFFMX, __F.Supp.3d__, 2017 WL 2954362 (C.D. Cal. July 7, 2017).  Following a judgment in favor of Doe on his denied long term disability claim, the court awarded a pre-judgment yearly interest rate of 11.5% (a fair approximation of the interest Doe would have earned on his benefits had Prudential not wrongfully terminated them) and attorneys’ fees totaling $348,595.  What’s the lesson here?  When Bolt Keenley Kim is on the pleadings, an insurance company would be keen to bolt out of the case.  (No compensation was provided for that cheesy endorsement.)  Enjoy the rest of the summaries below!

Below is Roberts Disability Law, P.C.’s summary of this past week’s notable ERISA decisions.

Attorneys’ Fees

Fourth Circuit

Wiwel v. IBM Medical And Dental Benefit Plans For Regular Full-Time And Part-Time Employees, No. 5:15-CV-504-FL, 2017 WL 2963444 (E.D.N.C. July 11, 2017) (Judge Louise W. Flanagan).  Following a determination that Defendant abused its discretion in denying Plaintiff’s medical benefit claim, the court awarded attorneys’ fees to Plaintiffs in the amount of $80,679.55 and costs of court in the amount of $1,946.00.  Fees awarded were 79% of the total fees sought for 314.8 hours of work.  The court awarded the lead attorney, Norris Adams, II (a 2004 law grad), an hourly rate of $400.

Ninth Circuit

Doe v. Prudential Ins. Co. of Am., No. CV1504089ABFFMX, __F.Supp.3d__, 2017 WL 2954362 (C.D. Cal. July 7, 2017) (Judge Andre Birotte Jr.).  Following a judgment in favor of Plaintiff on his denied long term disability claim, the court found that Plaintiff’s benefits due total $1,025,219.  The court awarded a pre-judgment yearly interest rate of 11.5% since it is a fair approximation of the interest Plaintiff would have earned on his benefits had Prudential not wrongfully terminated them.  The court awarded attorneys’ fees at the rate of $650/hour for 536.3 hours for a total of $348,595.  The court also awarded costs of $5,562.60.

Breach of Fiduciary Duty

Second Circuit

Dezelan v. Voya Ret. Ins. & Annuity Co., No. 3:16-CV-1251, 2017 WL 2909714 (D. Conn. July 6, 2017) (Judge Victor A. Bolden).  The court granted Voya’s motion to dismiss Plaintiff’s complaint concerning the management of retirement funds in the Cedars-Sinai Medical Center 403(b) Retirement Plan.  The court determined that Plaintiff did not allege that she was a “participant, beneficiary or fiduciary,” of a general account stable value fund, and therefore does not have standing to bring claims concerning these products.  The court could also not say whether or not Plaintiff has a sufficiently personal and concrete stake in the other related claims to merit class standing under NECA and Retirement Board.  The complaint does sufficiently state a claim that Voya had discretionary control over the plan’s assets and is an ERISA fiduciary but it does sufficiently allege that Voya keeps the “Spread” that it earns from the Plan’s Separate Account assets in its own account in violation of ERISA Section 404.  Plaintiff also did not allege a prohibited transaction claim.

Disability Benefit Claims

Fourth Circuit

Washington v. Hartford Life and Accident Insurance Company, No. 5:16-CV-173-BO, 2017 WL 2930579 (E.D.N.C. July 7, 2017) (Judge Terrence W. Boyle).  The court granted Plaintiff’s motion to enforce a settlement agreement based on the following email exchange:  “Please let us know if Ms. Washington will accept $120,000 to settle this case and Ms. Washington’s claim.”  “Ms. Washington accepts Hartford’s offer to settle this case and her claim for $120,000.”  Subsequently, Hartford required Plaintiff to sign a 5-page release with additional terms and she refused.  The court rejected Hartford’s argument that the settlement agreement is unenforceable because its terms are not sufficiently definite.  The court found the terms of the agreement clear:  Defendant offered to pay Plaintiff $120,000 to settle this case and her claim.  By accepting this offer, Plaintiff is entitled to $120,000 and her case and claim against Defendant will be dismissed, which has a preclusive effect on any related claims arising out of the facts of this case.

Fifth Circuit

Taylor v. Prudential Ins. Co. of Am., No. 3:12CV702TSL-RHW, 2017 WL 2973930 (S.D. Miss. July 11, 2017) (Judge Tom S. Lee).  Prudential did not abuse its discretion in denying long term disability benefits to Plaintiff, who alleged disability from multiple conditions including fibromyalgia, shoulder and back pain, IBS, and sleep apnea.  Prudential’s decision was neither procedurally unreasonable nor an abuse of discretion merely because it was contrary to the determination of the SSA, relied on the opinion of an IME performed by Dr. Philip J. Blount, and based on a vocational assessment finding that Plaintiff can work in a “gainful occupation.”

Ninth Circuit

Kott v. Agilent Techs., Inc., No. 16-CV-03678-BLF, 2017 WL 2903174 (N.D. Cal. July 7, 2017) (Judge Beth Labson Freeman).  The court granted Defendant’s motion for judgment on whether Plaintiff is disabled from any occupation under the terms of a self-funded disability plan.  Under abuse of discretion review, the court declined to expand the record to include a letter and appointment log from Plaintiff’s treating doctor which contradicts Defendant’s claim in the final denial letter that there was a conversation between this doctor and one of its doctors.  The court determined that this was not a “procedural irregularity” as described in Abatie justifying the consideration of evidence outside of the record.  Based on the doctors’ opinions that Plaintiff could return to work within a few months, the court concluded that Defendant did not abuse its discretion when it denied Plaintiff’s disability claim.  The court did not reach the issue of whether part-time work ability is enough to disqualify Plaintiff for any occupation disability benefits since there is evidence in the record showing that Plaintiff could return to full-time work after working part-time for several months.

Eleventh Circuit

Carr v. John Hancock Life Insurance Company (USA), No. 16-17134, __F.App’x__, 2017 WL 2963446 (11th Cir. July 12, 2017) (Before HULL, JULIE CARNES, and JILL PRYOR, Circuit Judges).  It was not an abuse of discretion for Defendant to terminate Plaintiff’s long-term care benefits.  Plaintiff had to demonstrate that he was unable to perform at least two ADLs without substantial assistance from another individual for a period of at least 90 days due to a loss of functional capacity.  But, an on-site assessment, which was performed by an independent company, found that Plaintiff did not need assistance to perform any ADLs, and this was corroborated by the weekly notes and independent care provider service bills which showed that Plaintiff needed assistance with, at most, one ADL.


Eighth Circuit

Heartsill v. Ascension Health Alliance, et al., No. 4:17CV00155 ERW, 2017 WL 2955008 (E.D. Mo. July 11, 2017) (Judge E. Richard Webber).  In this dispute over ongoing disability benefits, Plaintiff moved for permission to conduct limited discovery outside of the administrative record, including:  “(1) production of Ascension’s Administrative Services Agreement; (2) a deposition of Ascension’s corporate representative about any conflict of interests between Ascension and Sedgwick; and (3) issuance of a subpoena to Dane Street, a third-party vendor, for documents and a deposition of a corporate representative to explore an alleged procedural irregularity in Dane Street’s process of obtaining and reviewing reports from independent medical professionals relied upon in denying Plaintiff’s claim.  Defendants agreed to produce the Administrative Services Agreement subject to redaction of any dollar amounts contained in the agreement, which the court permitted.  The court also required production of the internal claims handling guidelines but will not permit Plaintiff to take a deposition of a corporate representative of Ascension.  The court permitted discovery of:  “(1) the contract or agreement between Defendant(s) and Dane Street pursuant to which Dane Street provided medical review services to Defendant(s); (2) any directions provided by Dane Street to the reviewing physicians; and (3) the number of reviews the physicians have performed for Dane Street on behalf of Defendants.”

ERISA Preemption

Third Circuit

Winograd v. Mercedes-Benz USA, LLC, Civ. No. 2:16-cv-04914(WJM), (D.NJ. July 7, 2017) (Judge William J. Martini).  The court adopted the Magistrate Judge’s Report and Recommendation finding that Plaintiff’s lawsuit seeking to recover payment for medical services is not completely preempted by ERISA Section 502(a).  This case presents a straightforward breach of contract action independent of any claims that could exist under the patients’ ERISA plans.

Fifth Circuit

St. Charles Surgical Hospital, LLC v. Louisiana Health Service & Indemnity Co., et al., No. CV 17-2590, 2017 WL 2953733 (E.D. La. July 10, 2017) (Judge Jay C. Zainey).  The plaintiff hospital filed suit against BCBSLA in state court alleging that BCBSLA violated La. R.S. § 40:2010 when it failed to honor an assignment and paid $72,926.14 directly to the patient.  The court held that the Fifth Circuit’s holding in Rapides Healthcare that La. R.S. § 40:2010 is not preempted by ERISA applies to a self-funded plan like the one at issue in this case.

Sixth Circuit

Kennedy v. Life Ins. Co. of N. Am., No. 3:15-CV-00741-CRS-DW, 2017 WL 2919005 (W.D. Ky. July 7, 2017) (Judge Charles R. Simpson III).  The court found that Plaintiff did not exhaust his administrative remedies with respect to his long term disability claim, where Plaintiff only filed a short-term disability claim and not a long term disability claim on the expectation that his short term claim would transition into one for long term disability benefits.  The court found that because LINA could not have expected that Plaintiff’s short term disability claim would reach maximum duration, the insurance company was not required to transition his claim into one for long term disability benefits under LINA’s short-term-disability-to-long-term-disability-claims policy.  Accordingly, LINA is entitled to summary judgment on Plaintiff’s breach of contract and breach of fiduciary duty claims for Plaintiff’s failure to exhaust.

Ninth Circuit

Lazar v. Kroncke, No. 15-15078, __F.3d__, 2017 WL 2989915 (9th Cir. July 14, 2017) (Before: Eugene E. Siler, Jr.,*A. Wallace Tashima, and Andrew D. Hurwitz, Circuit Judges).  The court affirmed the district court’s conclusion that an Arizona state court would disregard the IRA’s choice of law provision and instead apply Arizona’s revocation-on-divorce statute. The choice-of-law provision is not an “express term” for the purposes of Arizona’s ROD statute.  Any “express terms” removing an instrument from the scope of the ROD statute must address the effect of divorce, and the Plan’s choice-of-law provision was silent in this regard. The Arizona statute is not preempted by ERISA or other federal statutes and regulations governing IRAs.

Doan v. 3M Co., No. SACV1700559JVSSKX, 2017 WL 2962350 (C.D. Cal. July 11, 2017) (Judge James V. Selna).  The court granted the Plaintiffs-Administrators’ motion to remand this matter to state court.  The Administrators seek to enforce a Marital Settlement Agreement through a state probate action.  Because they seek misappropriated assets under a state court order, the action could not arise under ERISA’s civil enforcement section.  The court determined that this is a probate action for the turnover of an asset to the estate which arises from the Agreement (where the 401(k) Plan is identified as the decedent’s asset) and concerns an independent legal duty.

Pension Benefit Claims

Fifth Circuit

Miletello v. R M R Mech., Inc., No. CV 16-1623, 2017 WL 2936798 (W.D. La. July 10, 2017) (Judge Robert G. James).  Plaintiff moved for judgment on the pleadings on the basis that survivor’s annuity benefits vested in her as the surviving spouse on the date of Gerald’s death, and that his ex-wife’s post-death QDRO does not make the ex-wife a non-spouse beneficiary.  The court held that the property settlement agreement filed before Gerald’s death appears to satisfy the requirements for a QDRO under ERISA, but the court has not been provided with any judgment, decree, or order approving the settlement.  Because there remains a disputed issue of material fact as to whether the property settlement agreement was approved before Gerald’s death, the court denied the motion.

Ninth Circuit

Lehman v. Nelson, et al., No. 15-35414, __F.3d__, 2017 WL 2989916 (9th Cir. July 14, 2017) (Before: Dorothy W. Nelson, Milan D. Smith, Jr., and Morgan Christen, Circuit Judges).  “We vacate the damages award for withholdings under Amendment 24’s formal Rehabilitation Plan because the complaints did not provide adequate notice to the Trustees that Amendment 24 was at issue. We affirm: (1) the district court’s ruling that the Trustees abused their discretion by interpreting Amendment 14 to conflict with Article 5 of the Pension Plan; (2) the award of damages for the $1.00 hourly withholding in Amendment 14 pursuant to ERISA section 502(a)(1)(B); and (3) the district court’s ruling that the plaintiffs have the right to enforce the Pension Plan’s terms, including the provisions that incorporate the Reciprocal Agreement. We decline to reach the issues on cross-appeal, vacate the attorneys’ fees award, and remand for further proceedings consistent with this opinion.”

Plan Status

Second Circuit

Pasternack v. Shrader, et. al., No. 16-217, __F.3d__, 2017 WL 2979158 (2d Cir. July 13, 2017) (Before: WINTER, JACOBS, and POOLER, Circuit Judges).  In this case where retired officers of Booz Allen Hamilton allege that they received insufficient payment in connection with Booz Allen’s sale of a division to another company, the court affirmed the district court’s dismissal of the ERISA claims because the plan through which Booz Allen distributed its stock to plaintiffs is not an employee pension benefit plan within the meaning of ERISA.  The Stock Rights Plan does not qualify as an employee pension benefit plan because income is not deferred. “The salient benefit that an SRP participant receives in exchange for a capital injection is an ownership stake in Booz Allen.  And because Booz Allen is owned entirely by its officers, that ownership stake entails the right to actively direct the management of the enterprise.  Those benefits accrue during the SRP participants’ tenure at Booz Allen, not at retirement.”

Provider Claims

Third Circuit

Shah v. Aetna, No. CV 17-195 (JBS/JS), 2017 WL 2918943 (D.N.J. July 6, 2017) (Judge Jerome B. Simandle).  “Dr. Shah seeks as relief for this cause of action reimbursement for medical benefits owed under the plan and ‘such other and further relief as the Court may deem just and equitable.’  Aetna argues that this claim must be dismissed because it essentially seeks only legal, monetary relief that is duplicative of the claim for benefits (count two), while a breach of fiduciary duty under ERISA permits only equitable relief. In opposition, Dr. Shah asserts that this claim should be allowed to move forward because he also seeks ‘other appropriate equitable relief,’ and to dismiss the § 502(a)(3) claim as duplicative before adjudicating the merits of his benefits claim would be premature.  The Court agrees with Dr. Shah, and with other courts in this District, that dismissal of an ERISA breach of fiduciary duty claim on this basis is not appropriate at this early procedural stage.”  However, neither 29 C.F.R. 2560.503-1 nor its accompanying statute, 29 U.S.C. § 1133 (ERISA § 503), establish a private right of action for a failure to comply with the regulatory disclosure requirements.

Standard of Review

Ninth Circuit

Monroe v. Metropolitan Life Insurance Company, No. 215CV02079TLNCKD, 2017 WL 2985063 (E.D. Cal. July 13, 2017) (Judge Troy L. Nunley).  In light of the Ninth Circuit’s decision in Orzechowski v. Boeing Company Non-Union Long Term Disability Plan, 856 F.3d 686 (9th Cir. 2017), Cal. Ins. Code Section 10110.6 applies to MetLife as an entity engaged in insurance and the Plan and Supplemental Plan Descriptions as contracts pertaining to insurance.  The Code voids the Plan’s discretionary clause and de novo review will apply.

Statute of Limitations

Fifth Circuit

Redoak Hospital, LLC v. GAP Inc., & GAP Inc. Health and Life Insurance Plan, No. CV H-16-1303, 2017 WL 2936316 (S.D. Tex. July 10, 2017) (Judge Lee H. Rosenthal).  The court found the out-of-network provider’s lawsuit against the self-funded plan for payment of services rendered to be time barred because it was not filed within 90 days as required by the Plan.  The court rejected the argument that a 90-day period for a plaintiff to file suit is unreasonably short.  “RedOak blew the deadlines and cannot proceed.”

Sixth Circuit

Hewitt v. Western And Southern Financial Group Flexibly Benefits Plan & The Western And Southern Life Insurance Co., No. CV 16-120-HRW, 2017 WL 2927472 (E.D. Ky. July 7, 2017) (Judge Henry R. Wilholt, Jr.).  The court overruled Plaintiff’s request for reconsideration of an earlier decision to find his medical benefit claim time barred for not being filed within 6 months of the final denial.  Plaintiff raised two new arguments and asked the court to address whether Article I gives Congress the power to prevent states from applying applicable civil laws to ERISA plans and whether § 1144 may permissibly be read to avoid unconstitutional events. Second, if the Plan were only partially-funded, then a state statute of limitations should apply to his claims, rather than the limitations period provided in the Plan.  The court found that neither of these arguments is proper for reconsideration as they could have been raised initially.

Subrogation/Reimbursement Claims

Ninth Circuit

In re: James W. Corbett & Daisy A. Corbett, Debtors. California Correctional Peace Officers Association Benefit Trust Fund, Appellant, v. Daisy A. Corbett, Appellee., No. 1:16-CV-01517-LJO, 2017 WL 2984877 (E.D. Cal. July 13, 2017) (Judge Lawrence J O’Neill).  The court reversed and remanded the Bankruptcy Court’s determination that Appellant was not entitled to an equitable lien against the award funds under federal law.  Applying the three Bilyeu criteria to establish an equitable lien by agreement in an ERISA action, the court found that there was an agreement to reimburse, identification of a particular fund, and possession and control of award funds.  Regarding possession, the court explained that given the special status of the bankruptcy trustee, the fact that it is not the debtor who has possession of the award funds does not defeat Appellant’s right to an equitable lien.


Tenth Circuit

Todd R., Suzanne R., & Lillian R., v. Premera Blue Cross Blue Shield Of Alaska, No. 1:17-CV-00058-DN, 2017 WL 2912420 (D. Utah July 7, 2017) (Judge David Nuffer).  The court granted Defendant’s motion to change venue to the W.D. of Washington because Plaintiffs reside at Matanuska-Susitna Borough, Alaska and Premara is the plan administrator and headquartered and incorporated in the state of Washington.  Transfer is appropriate because the plan is administered and the defendant resides in Washington.



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*Please note that this blog is a summary of a reported legal decision and does not constitute legal advice. This blog has not been updated to note any subsequent change in status, including whether a decision is reconsidered or vacated. The case above was handled by other law firms, but if you have questions about how the developing law impacts your ERISA benefit claim, the attorneys at Roberts Disability Law, P.C. may be able to advise you so please contact us.

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