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ERISA Watch – January 4, 2016

This week’s notable decision is out of the Third Circuit Court of Appeals. In Kaplan v. Saint Peter’s Healthcare System, the Third Circuit held that a church agency could not “establish” a church plan exempt from the requirements of ERISA. Rather, only a church can establish an ERISA-exempt plan. Certainly, the plan participants in this putative class action are praying that this decision holds. There weren’t as many decisions this past week due to the holidays so enjoy this short(er) read as you get back on track this week.

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

Third Circuit

A church agency, in addition to maintaining an exempt church plan, cannot also establish a plan exempt from ERISA. Kaplan v. Saint Peter’s Healthcare Sys., No. 15-1172, __F.3d___, 2015 WL 9487719 (3d Cir. Dec. 29, 2015) (Before McKEE, Chief Judge, AMBRO, and HARDIMAN, Circuit Judges). A participant in in an ERISA plan brought a putative class claim against his employer, a religiously affiliated hospital, alleging that, as a mere qualifying agency of a church, the hospital was precluded from establishing a church plan entitled to certain exemptions under ERISA. The district court denied the employer’s motion to dismiss and the employer appealed. ERISA § 3(33)(A) defines a church plan as one that is established and maintained for its employees (or their beneficiaries) by a tax-exempt church and Subsection 3(33)(C)(i) clarifies that a plan established and maintained by a church includes a plan maintained by a qualifying agency of a church. The district court concluded that a church agency, in addition to maintaining an exempt church plan, cannot also establish such a plan. The Third Circuit explained that per the plain text of ERISA, only a church can establish a plan that qualifies for an exemption under § 4(b)(2) and because no church established St. Peter’s Healthcare System’s retirement plan, it is ineligible for a church plan exemption. The Third Circuit affirmed the district court’s decision and held that: (1) relevant ERISA provision was unambiguous in requiring a church to establish a church exempt plan; (2) legislative history indicated that agencies were precluded from establishing church exempt plans; and (3) provision did not violate Free Exercise Clause.

Sixth Circuit

Employer executed written agreements binding itself to CBA’s fringe benefit obligations and is required to make delinquent contributions. Bd. of Trustees of the Plumbers, Pipe Fitters & Mech. Equip. Serv., Local Union No. 392 Pension Fund v. B&B Mech. Servs., Inc., __F.3d__, 2015 WL 9466618 (6th Cir. Dec. 29, 2015) (COLE, Chief Judge; GIBBONS (dissenting) and STRANCH, Circuit Judges). Five multi-employer fringe benefit funds (“the Funds”) filed suit to collect delinquent employee fringe benefit contributions from B & B Mechanical Services, Inc. (“B & B”), an Ohio commercial plumbing contractor. The Funds were established for the benefit of contractors’ employees who perform work under a collective bargaining agreement (CBA) negotiated between the Union and the Mechanical Contractors Association (MCA) as agent for its member employers. B & B argued that it made ten years of contributions on a voluntary basis and that its principal did not independently sign the CBA. The district court agreed and granted summary judgment in favor of B&B. The district court held that the Funds failed to produce evidence to prove that B & B signed the CBA or entered into any written agreement binding B & B to the CBA. The panel majority reversed the district court’s grant of summary judgment and remanded the case for further proceedings. The court concluded that as a matter of law that B & B entered a number of written agreements setting out its obligation to contribute as required by the Labor Management Relations Act (LMRA) § 302(c)(5)(B) and is bound to pay delinquent contributions that are owed to the Funds in accordance with the terms of the CBA and the trust agreements. The majority did not address whether B & B’s multi-year contributions to the Funds are void for illegality because the undisputed evidence supports the conclusion that B & B executed written agreements binding itself to the CBA’s fringe benefit obligations. The majority also did not decide whether an employer’s course of conduct alone is sufficient to demonstrate that the employer is bound to a written agreement requiring the payment of contributions.

Select Slip Copy & Not Reported Decisions

Attorneys’ Fees

Second Circuit

Fees denied to successful ERISA defendant. Scott Groudine, M.D. v. Albany Med. Ctr. Grp. Health Ins. Plan, No. 112CV473NAMCFH, 2015 WL 9484510 (N.D.N.Y. Dec. 29, 2015) (Judge Norman A. Mordue). Defendant brought a motion for attorneys’ fees following its success on appeal on Plaintiff’s claim for payment of health benefits. The court denied the motion although it recognized that Defendant achieved success on the merits and thus is eligible for an award of attorneys’ fees under Hardt. In determining whether to exercise its discretion to grant Defendant’s motion, the court considered the Chambless factors and found that the first factor heavily favors plaintiff; the second factor is neutral; the third factor strongly favors plaintiff; the fourth factor is neutral; and the fifth factor favors Defendant. Particularly in view of the remedial purpose of ERISA, the court found that consideration of the Chambless factors strongly supports denial of Defendant’s motion.

Disability Benefit Claims

Sixth Circuit

California Insurance Code banning discretion is not preempted by ERISA but does not apply to Ohio resident; Liberty Life did not abuse discretion in denying LTD claim. Pfenning v. Liberty Life Assurance Company of Boston, No. 3:14-CV-471, 2015 WL 9460578 (S.D. Ohio Dec. 28, 2015) (Judge Thomas M. Rose). The court held that California Insurance Code § 10110.6, a state law banning discretionary clauses from disability plans, is not preempted under ERISA because it is a law that regulates insurance and satisfies the Supreme Court’s Miller test: (1) the state law must be specifically directed towards entities engaged in insurance and (2) the state law must substantially affect the risk pooling arrangement between insurer and the insured. Although not preempted, the court determined that the Code is inapplicable to this case because Plaintiff is a resident of Ohio and the Code explicitly states that voids discretionary clauses for “any California resident.” Applying abuse of discretion review, the court determined that Liberty Life did not abuse its discretion by relying on the DOT and SOC/O*NET to determine Plaintiff’s occupation. Although Plaintiff’s job contains additional field duties, the court found that not every single duty needs to be reflected as long as his other comparable duties are considered. The court also found that Liberty Life did not act arbitrarily or capriciously by rejecting the results of a Functional Capacity Evaluation and relying on the conclusions of peer reviewers, Dr. David Lang (neurologist) and Dr. Sarah White.

Exhaustion of Administrative Remedies

Sixth Circuit

Failure to notify healthcare provider with derivative standing of time limit for initiating an administrative review results in remand. Lucia Zamorano, M.D., P.C. v. Roofers Local 149-Sec. Benefit Trust Fund, No. 14-10565, 2015 WL 9478024 (E.D. Mich. Dec. 29, 2015) (Judge Arthur J. Tarnow). Plaintiffs sought to recover benefits allegedly owed to it pursuant to a patient’s assignment of medical benefits under an ERISA-governed insurance plan. The court agreed with the Third Circuit and concluded that a plan participant or beneficiary’s authorization of payment of her benefits directly to a healthcare provider as reimbursement for medical services confers on the provider derivative standing as a beneficiary to bring an ERISA claim for the benefits. Since the Plaintiff here obtained derivative standing as a beneficiary, it was entitled to notice of the procedure for appealing Defendant’s denial of its claim for benefits. 29 U.S.C. § 1133; 29 C.F.R. § 2560.503-1(g)(1)(iv). Since Defendant did not provide such notice, Plaintiff’s failure to appeal the denial of its claim within the 180-day deadline does not warrant dismissal of its claim. But because Plaintiff was denied the right to complete administrative review and Defendant failed to notify it of the time limit for initiating an administrative appeal, the court remanded Plaintiff’s claim to the administrative process, to be treated as if Plaintiff timely appealed the denial of benefits.

Life Insurance & AD&D Benefit Claims

Third Circuit

Administrator’s determination that decedent was not eligible for life insurance benefits was reasonable and administrators are not bound by Federal Rules of Evidence. Malishka v. MetLife, No. 14-4195, __Fed.Appx.___, 2015 WL 9311399 (3d Cir. Dec. 23, 2015) (Before CHAGARES, RENDELL, and BARRY, Circuit Judges). The court affirmed the district court’s grant of summary judgment in favor of MetLife on Plaintiff’s denied claim for life insurance benefits for her deceased son. The court found that MetLife reasonably determined from the administrative record that the decedent lost eligibility for coverage under the Boilermakers National Health and Welfare Fund in the third Eligibility Quarter in 2011 and did not regain eligibility prior to his death. MetLife relied upon detail summaries of the decedent’s hours which were provided by the union. The union advised that the hours attributed to the decedent were accurate and had been confirmed by the employer. The court rejected Plaintiff’s objection that MetLife relied on hearsay evidence since an ERISA plan administrator is not bound by the Federal Rules of Evidence.

Pension Benefit Claims

Ninth Circuit

Account levied by creditors is exempt under the anti-alienation provision of ERISA. Bay Area Painters v. Torben Hansen Enterprises, Inc., No. 14-CV-00182-WHO, 2015 WL 9453646 (N.D. Cal. Dec. 28, 2015) (Judge William H. Orrick). Plaintiffs Bay Area Painters moved for an order determining that an account opened by Defendant, a judgment debtor of Plaintiffs, was not exempt under the anti-alienation provision of ERISA. The court found that because the account was set up in the name of an ERISA-governed profit sharing plan name and contained plan assets as part of the winding up of the Plan, the account was exempt. The court found that Defendant met its burden to show that the disputed funds are exempt under Cal. Civil Proc. Code Section 704.115 and ordered $55,380.09 to be returned to the Plan, plus interest.

Pleading Issues & Procedure

Second Circuit

Claim dismissed for failure to allege exhaustion of administrative remedies but COBRA notice violation claim is adequately pled. Mayer v. Joint Industry Board of the Electrical Industry, et al., No. 15-CV-1460(JS)(ARL), 2015 WL 9581821 (E.D.N.Y. Dec. 30, 2015) (Judge Joanna Seybert). The court dismissed without prejudice Plaintiff’s claim for benefits because she did not allege anything with respect to whether she exhausted or even pursued administrative remedies prior to filing suit. The court declined to dismiss Plaintiff’s COBRA claim in her amended complaint, finding that she stated a claim under 29 U.S.C. § 1132(c)(1)(A) for a violation of COBRA’s statutory notice requirements. Specifically, she alleged that her husband disappeared on June 14, 2013 and that Defendants were fully informed about his disappearance, and the Defendants made a determination that a qualifying event had occurred at some point and it would most likely have been a reduction of hours under 29 U.S.C. 1163, since he never returned to work following his June 14 disappearance. Accepting these allegations as true, the court found that the spouse’s failure to return to work was a termination or reduction of hours and, accordingly, a “qualifying event” as set forth in 29 U.S.C. § 1163(2). Lastly, the court dismissed as a defendant the treasurer of the Joint Industry Board of the Electrical Industry. The court declined to address whether the treasurer is an appropriate defendant since Plaintiff did not proffer any specific allegations regarding whether he is the administrator or otherwise possessed control or discretion with respect to the Plan’s denial of benefits.

Provider Claims

Eighth Circuit

Anti-assignment provisions do not prohibit patients from assigning their causes of action to medical provider. Riverview Health Institute v. Unitedhealth Group Inc., et al., No. 15-CV-3064 (PJS/BRT), 2015 WL 9581807 (D. Minn. Dec. 30, 2015) (Judge Patrick J. Schiltz). The court denied United’s motion to dismiss Plaintiff’s lawsuit claiming that United took “cross-plan offsets” in violation of the terms of various ERISA plans and ERISA. United relied on anti-assignment clauses found in 19 of the ERISA plans at issue, contending that Riverview lacks standing with respect to claims under those plans because the anti-assignment clauses barred the patients’ assignments. The court found that United’s argument is foreclosed by Lutheran Medical Center of Omaha, Nebraska v. Contractors, Laborers, Teamsters & Engineers Health & Welfare Plan, 25 F.3d 616 (8th Cir. 1994), abrogated on other grounds by Martin v. Arkansas Blue Cross & Blue Shield, 299 F.3d 966 (8th Cir. 2002). The court concluded that Lutheran Medical constrains this court to hold that the anti-assignment provisions in the plans administered by United did not prohibit the patients from assigning their causes of action to Riverview.

Eleventh Circuit

Medical provider fails to state a claim where health plan contains unambiguous anti-assignment clause. Griffin v. Focus Brands, Inc., No. 15-12137, __Fed.Appx.___, 2015 WL 9487801 (11th Cir. Dec. 30, 2015) (Before MARTIN, JILL PRYOR and ANDERSON, Circuit Judges). The court concluded that Dr. Griffin failed to state a claim because she failed to allege facts sufficient to support a cause of action under § 502(a) of ERISA and affirmed the district court’s dismissal of her complaint. Here, the court found that the ERISA health plan contained an unambiguous anti-assignment clause and Georgia statute O.C.G.A. § 33-2454(a) does not implicitly bar anti-assignment provisions. The court declined to apply equitable estoppel against Defendant where the claims administrator failed to notify Dr. Griffin of the anti-assignment provision after she asked whether the Plan contained such a term. The court made similar conclusions in parallel cases brought by Dr. Griffin: Griffin v. S. Co. Servs., No. 15-12135, __Fed.Appx.___, 2015 WL 9487798 (11th Cir. Dec. 30, 2015); Griffin v. Health Sys. Mgmt., Inc., No. 15-12138, __Fed.Appx.___, 2015 WL 9466968 (11th Cir. Dec. 29, 2015); Griffin v. Gen. Mills, Inc., No. 15-12157, __Fed.Appx.___, 2015 WL 9466979 (11th Cir. Dec. 29, 2015).

Statute of Limitations

Ninth Circuit

Date of initial claim denial does not trigger Plan’s 2-year contractual limitations period. Watkins v. Citigroup Retirement Systems, No. 15-CV-731 DMS (NLS), 2015 WL 9581838 (S.D. Cal. Dec. 30, 2015) (Judge Dana M. Sabraw). In this case Defendant relied on the Plan’s two-year contractual limitations period to argue that Plaintiff’s lawsuit is time barred because it was filed nearly three years after he received the initial denial of his claim on April 11, 2012. The court found that although Plaintiff did have actual knowledge of the initial denial of his claim no later than April 11, 2012, the record also reveals the denial was debated for over 19 months-from April 11, 2012 to December 18, 2013. The court rejected Defendant’s invitation to interpret the contractual limitations period to be triggered when the claim was initially denied because the Plan provides that: “The two-year limitation shall be increased by any time a claim or appeal on the issue is under consideration by the appropriate fiduciary.” The court found that this language applies to a claim or an appeal, or both, and clearly indicates that resolution (not awareness) of the claim is the triggering event. On December 18, 2013, Plaintiff was expressly advised that his claim was denied and that he could pursue his claim through a “formal” claims and appeals procedure. The court found that Plaintiff’s lawsuit is timely because it was filed within two years of this date.

* Please note that these are only case summaries of decisions as they are reported and do not constitute legal advice. These summaries are not updated to note any subsequent change in status, including whether a decision is reconsidered or vacated. The cases reported above were 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. Case summaries authored by Michelle L. Roberts, Partner, Roberts Disability Law, P.C., 1050 Marina Village Pkwy., Ste. 105, Alameda, CA 94501; Tel: 510-230-2090.


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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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