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ERISA Watch – October 12, 2015

There were no published appellate decisions last week but there were a number of interesting lower court decisions. Of note, the court in Barfield v. Ascension Health Long Term Disability Plan awarded attorneys’ fees to the plaintiff, where the defendant “voluntarily remanded” the claim to the Plan Administrator after the lawsuit was filed. This is what I call “pay to play.” Another notable decision is Osberg v. Foot Locker, where the court found that the certified Class is entitled to reformation of Plan terms based on the fiduciary’s false, misleading, and incomplete Plan descriptions. Welcome to the era of Plan Reformation!

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

Select Slip Copy & Not Reported Decisions

Attorneys’ Fees

Eighth Circuit

Attorneys’ fees awardable to Plaintiff where Defendant “voluntarily remanded” the claim to the Plan Administrator after the lawsuit was filed. Barfield v. Ascension Health Long Term Disability Plan, No. 4:12-CV-02116 JAR, 2015 WL 5813293 (E.D. Mo. Oct. 5, 2015) (Judge John A. Ross). In this action where Plaintiff prevailed on “own occupation” long term disability benefits following the Plan’s unilateral voluntary remand after suit was filed and upon realizing that not all information submitted by Plaintiff had been reviewed and considered, the court concluded that ERISA’s fee-shifting statute applies to the fees and costs Plaintiff incurred on remand. Defendant contested the award of fees because it “voluntarily remanded” the claim to the Plan Administrator and that the court made no substantive ruling in favor of Plaintiff on the merits of her complaint. However, the court found that the pertinent considerations are that it ordered the remand, that it was not occasioned by Plaintiff’s failure to satisfy the prerequisites under ERISA for filing suit, and that the court retained jurisdiction over the action on remand. The court granted prejudgment interest at the rate specified in 28 U.S.C. § 1961(b).

Breach of Fiduciary Duty

Ninth Circuit

Unpaid employer contributions are not plan assets until they are paid to the plan. Unite Here Health v. Gilbert, No. 213CV00937JADGWF, 2015 WL 5766511 (D. Nev. Sept. 30, 2015) (Judge Jennifer A. Dorsey). In this action seeking more than half a million dollars in unpaid contributions allegedly due under the terms of a CBA, the court held that unpaid employer contributions to an employee-benefits plan are not “plan assets” making the persons and entities that control them ERISA fiduciaries. The court found no reason to depart from the Ninth Circuit’s decision in Cline v. Indust. Maint. Engr. & Contracting Co., where the court announced the general rule that contributions by employers to an employee-benefits plan are not plan assets until they are paid to the plan. The court granted the defendants’ motion for summary judgment.

Eleventh Circuit

PBGC’s failure to intervene or bring its own action under ERISA against the pension defendants does not satisfy requirements for equitable subordination of its claim. In re Durango Georgia Paper Co., No. 02-21669, 2015 WL 5813627 (Bankr. S.D. Ga. Oct. 5, 2015) (Bankruptcy Judge John S. Dalis). The court granted the PBGC’s motion to dismiss the complaint for equitable subordination of claim. The court found that the liquidating trustee is thus incorrect that the alleged injury to the unsecured creditors is alone a sufficient ground for equitable subordination of the PBGC’s claim since it must be shown that the PBGC’s conduct was inequitable. Further, the PBGC is not an “insider” and its exercise of statutory discretion was not inequitable. The court also found that there is no causal connection between the PBGC’s decision to not pursue legal action against the pension defendants and the alleged injury to the unsecured creditors.

Class Actions

Second Circuit

Class entitled to reformation of Plan terms based on fiduciary’s false, misleading, and incomplete Plan descriptions. Osberg v. Foot Locker, Inc., No. 07 CIV. 1358 KBF, 2015 WL 5786523 (S.D.N.Y. Oct. 5, 2015) (Judge Katherine B. Forrest). In a certified class action seeking reformation of a pension plan to conform to the benefits employees understood Foot Locker had promised them, the court found that the evidence is overwhelming that the changes in the Retirement Plan resulted in an effective freeze of pension benefit accruals-and that this freeze was not adequately disclosed to Participants. The court found that the evidence is clear that (1) wear-away was an intended feature of the Plan, (2) Plan disclosures and other communications to Participants failed to disclose wear-away, (3) this lack of disclosure was intentional, (4) wear-away impacted thousands of employees-many, including the named plaintiff, terminated employment and were paid benefits while they were still in wear-away, (5) Participants did not understand that, as a result of wear-away, additional periods of service after January 1, 1996 would not and did not increase the benefit received, and (6) Appropriate disclosure would not have been too confusing and had it been given, Participants would have understood the consequences of wear-away. The court found that Plaintiff has shown all of the elements to obtain reformation of the Plan, including: violations of ERISA §§ 404(a) and 102(a), based on the preponderance of the evidence; mistake or ignorance by employees of “the truth about their retirement benefits,” based on clear and convincing evidence; and “fraud or similar inequitable conduct” by the plan fiduciaries, based on clear and convincing evidence. The court found in favor of the Class on all claims.

Disability Benefit Claims

Ninth Circuit

Court upholds Unum’s denial of LTD benefits to claimant impaired by Chronic Fatigue Syndrome. Hans v. Unum Life Insurance Company; E&J Gallo Winery Long Term Disability Plan, No. CV1402760ABMRWX, 2015 WL 5838462 (C.D. Cal. Oct. 5, 2015) (Judge Andre Birotte Jr.) The court found in favor of Unum on Plaintiff’s claim for long term disability benefits stemming from Chronic Fatigue Syndrome (“CFS”). The court sided with Unum that it relied on a significant improvement in Plaintiff’s condition justifying termination of his benefits. Unum contended that its doctors reviewed Plaintiff’s claims and concluded that the medical record did not support Plaintiff’s CFS diagnosis. Unum’s “independent” medical examiner, Dr. Peter Gannon, examined Plaintiff in-person and confirmed that Plaintiff had no neurological condition or restrictions and limitations. Unum’s vocational analysis concluded that Plaintiff could work in other gainful occupations including computer sales, IT auditor and systems analyst. Lastly, Unum pointed out that the Plaintiff’s CPET (Cardiopulmonary Exercise Test) is very inconsistent with the administrative record and should not be relied upon as objective evidence.

Eleventh Circuit

Plan dismissed from action since not liable for payment of benefits; abuse of discretion applies because decision was made by agents of the entity with discretionary authority; Plaintiff, impaired following a stroke, is entitled to disability benefits for only a limited period. Campbell v. United of Omaha Life Insurance Company & J& B Importers Welfare Plan, No. 2:14-CV-00623-JEO, 2015 WL 5818040 (N.D. Ala. Oct. 6, 2015) (Magistrate Judge John E. Ott). In ruling on the parties’ motions concerning Plaintiff’s short-term and long term disability claims, the court agreed with the Defendants that the Plan is entitled to judgment in its favor and is due to be dismissed from this action since Plaintiff offered no basis for holding the Plan liable for the STD and LTD benefits he claims are due to him. Regarding the standard of review, the court agreed with Defendant that because the Plan grants United of Omaha discretionary authority to make benefits determinations, and because it exercised that authority through its agents, the arbitrary and capricious standard of review applies. Further, all of the letters to Plaintiff and his counsel communicating the status and resolution of the benefits claims were from United of Omaha and written on United of Omaha letterhead with a United of Omaha address. The court found no indication that the employees who made the decisions to deny Plaintiff’s claims were not acting as United of Omaha’s authorized agents. The court found that under the LTD policy, Plaintiff would have been entitled to LTD benefits commencing on or about February 16, 2012, when his 90-day elimination period ended because the evidence from his doctors reflects that he suffered from neurocognitive deficits and memory impairment following his stroke sufficient to prevent him from performing the essential functions of his job through October 2012. Thereafter, United of Omaha had a reasonable basis to deny all LTD benefits to Plaintiff in light of his own self-reporting that he was doing well coupled with the opinion of a physician consultant at University Disability Consortium, Dr. James Bress, that Plaintiff was capable of performing full-time light work.


Eighth Circuit

Medical provider entitled to conflict of interest discovery related to reasonableness of Defendant’s interpretation of plan permitting cross-plan offsetting. Peterson v. Unitedhealth Grp. Inc., No. 14-CV-2101 (PJS/BRT), 2015 WL 5776138 (D. Minn. Oct. 1, 2015) (Judge Patrick J. Schiltz). In an action where a medical provider alleged that United withheld payments in order to offset alleged overpayments that United had made to Plaintiff on behalf of different patients enrolled in different plans, on the parties’ cross-motions for summary judgment, the court found that Plaintiff should be afforded the opportunity to conduct discovery to determine whether there are other factors -such as a history of biased claims administration on United’s part-that could help to persuade the Court that United’s interpretation of the plans is an abuse of discretion. The court denied the motions and directed the parties to meet with the discovery judge to develop a discovery plan.

Ninth Circuit

Fiduciary exception to attorney-client privilege applies to attorney communications on remand determination. Jones v. Life Insurance Company of North America, No. 08-CV-03971-RMW, 2015 WL 5770797 (N.D. Cal. Oct. 2, 2015) (Judge Ronald M. Whyte). Plaintiff sought the production of certain attorney communications and documents which Plaintiff contends are relevant to her claim on the theory that Defendants’ attorneys (in-house or litigation counsel) either made the underlying substantive decision to reject Plaintiff’s appeal regarding the computation of her benefits, or provided advice regarding that decision. The court found that the scope of the documents Defendants must produce to Plaintiff as part of the administrative record is limited to documents that relate to LINA’s remand determination and which were created prior to the date of the final determination on Plaintiff’s ERISA claim. Defendants are required under the Federal Rules of Civil Procedure to produce privilege logs when they withhold information on the basis of privilege that is sought by Plaintiff through discovery. The court will conduct an in camera review of all documents and communications between LINA and in-house counsel that relate to the remand determination.

ERISA Preemption

Seventh Circuit

Separation payment and severance agreement terms as set forth in an email constitute an ERISA plan; claim for severance benefits under the Illinois Wage Payment Collection Act are preempted by ERISA. Cornell v. BP Am. Inc., No. 14 C 2123, 2015 WL 5766931 (N.D. Ill. Sept. 30, 2015) (Judge Ronald A. Guzman). The court found that the BP Recovery Plan and the Value Share Plans are ERISA plans, notwithstanding that BP admitted that Form 5500s were not filed with the United States Department of Labor for those plans. “The filing of a proper form has no bearing … on whether a plan is covered by ERISA,” and “courts have consistently rejected the argument that the failure to comply with formal requirements can prevent the establishment of an ERISA plan.” The BP Recovery Plan satisfies the requisite “ongoing administrative program” aspect of an ERISA-governed severance plan. The Rules of the BP Recovery Plan 2011 is a 16-page document setting forth when a Designated Corporate Officer may grant an Eligible Employee an Option to acquire such number of Shares as the Designated Corporate Officer may determine. The Rules lay out when Options may be granted, which may be at any time, subject to the application of Dealing Restrictions. They further discuss the Designated Corporate Officer’s power to adjust the number of Shares included in each Option, under certain circumstances, in any way which the Designated Corporate Officer considers appropriate, when and how Options may be exercised and relevant definitions of terms used in the Rules, among other things. The court found that ERISA preempts the IWPCA claim with respect to the BP Recovery Plan and the Value Share Plan.

Plan Status

Fourth Circuit

Onetime lump sum payment obligations do not create benefit plans under ERISA. Hayes v. Bayer Cropscience, LP, et al., No. 2:15-CV-07588, 2015 WL 5840215 (S.D.W. Va. Oct. 5, 2015) (Judge Joseph R. Goodwin). The court found that Plaintiff’s claim cannot be preempted by ERISA because the benefit to which he is claiming entitlement does not require an ongoing administrative plan to satisfy the employer’s obligation. Plaintiff in this case is not alleging a claim under Bayer’s Separation and Retention Agreement, Letter Agreement IX, which the record demonstrates allows for a qualifying employee to choose among several plan options. Instead, Plaintiff alleges that he is entitled to a one-time, lump-sum severance payment. While Plaintiff appears to intentionally avoid direct reference to the CBA’s layoff allowance provisions, the court found that the origins of any promise to pay a lump sum severance amount upon the manifestation of a triggering event is of no consequence under an ERISA preemption analysis because the Supreme Court has determined that such onetime, lump sum obligations do not create “benefit plans” under ERISA.

Pleading Issues & Procedure

First Circuit

Court grants plaintiff’s motion to proceed in pseudonym in lawsuit for disability benefits based on mental illness. Doe v. Standard Ins. Co., No. 1:15-CV-00105-GZS, 2015 WL 5778566 (D. Me. Oct. 2, 2015) (Magistrate Judge John C. Nivison). In a dispute involving long term disability benefits for a disability based on mental illness, the court granted Plaintiff’s motion to proceed in pseudonym. The court found that the sole focus of the litigation is Plaintiff’s serious mental health condition and her attempt to recover disability benefits for that condition. “To deny Plaintiff’s request under the circumstances of this case might not only prevent Plaintiff from proceeding on her claim, but might also discourage others who suffer from a serious mental health condition from asserting their claims for mental health related benefits to which they are entitled, or otherwise seeking the assistance of professionals and others in their effort to treat and address their condition.” Because the public will have access to the facts relevant to the parties’ arguments and the Court’s ultimate decision in the case, an order permitting Plaintiff to proceed under a pseudonym will not unreasonably interfere with the public’s interest in access to judicial records.

Third Circuit

Court grants in part and denies in part motion to amend complaint and for discovery in action concerning an ESOP. Hoover v. Besler, No. CV145786MASDEA, 2015 WL 5854248 (D.N.J. Oct. 5, 2015) (Magistrate Judge Douglas E. Arpert). On Plaintiff’s Proposed Amended Complaint which alleges various breaches of fiduciary duty and/or co-fiduciary duty claims under ERISA relating to an Employee Stock Ownership Plan, the court granted Plaintiff’s motion to amend the complaint with two exceptions. On one proposed claim, the court concluded that on its face it falls outside of the six-year limitations period of § 413(1) and is therefore futile. The court also denied the motion to the extent it purports to being claims against the ESOP, which was previously dismissed from the action. The court also granted Plaintiff’s discovery request seeking agreements from 2003-2004 but denied the request as to a defendant’s review of the agreement since the court dismissed the claim alleging that this defendant approved the transactions without adequate consideration.

Sixth Circuit

Plaintiff lacks constitutional and statutory standing to pursue claim against insurer of former employer’s welfare benefit plan. Bonewitz v. Cigna Corp., No. 3:14-CV-02281, 2015 WL 5794549 (M.D. Tenn. Oct. 2, 2015) (Magistrate Judge John S. Bryant). Plaintiff alleges that Cigna is making health care premiums rise artificially by strategically accepting claims for Male Hypogonadism or “Low-T” [testosterone treatments] based on known unstable testing and interpretation methods, and using a faulty and inadequate coding system. The court found that Plaintiff failed to establish constitutional standing because Plaintiff did not plead facts to show that Cigna had any discretionary authority or control over the Plan such that the injunctive relief Plaintiff seeks would not redress the injury alleged. Any action or inaction by Cigna could not be a breach of fiduciary duty. Additionally, Plaintiff is not a “participant” as defined by ERISA: Plaintiff is not currently, and is not reasonably expected to be, in covered employment; Plaintiff does not reasonably expect to return to covered employment; Plaintiff does not seek benefits under the Plan, but rather he seeks to recoup the difference between the services he paid for and the services he received.

Provider Claims

Third Circuit

Provider has derivative standing to pursue document penalty claim but penalties are not warranted due to lack of bad faith. Ctr. for Orthopedics & Sports Med. v. Horizon, No. CV131963KSHCLW, 2015 WL 5770385 (D.N.J. Sept. 30, 2015) (Judge Katharine S. Hayden). Plaintiff sought statutory penalties pursuant to § 502(c)(1)(B) for Horizon’s alleged failure to provide Center with required information and compensatory damages and other equitable relief for Horizon’s failure to maintain claims procedures that comply with 29 C.F.R. § 2560.503-1. The court found that the statutory penalties claim is not moot because Plaintiff withdrew its claim for benefits under § 502(a)(1)(B). A plaintiff may pursue a document penalty claim without also pursuing a claim for benefits. But, the claim for violating the claims procedures by not stating the time limit for initiating an appeal is moot because any deviation from ERISA’s regulations would factor into the determination of whether Horizon’s denial of reimbursement was arbitrary and capricious. The court found that plaintiff has derivative standing to pursue the statutory penalties claim but that penalties are not warranted because Horizon did not act in bad faith.

Statutory Penalty Claims

Fifth Circuit

Service of document requests on Plan Administrator’s attorney is sufficient for document penalty claim. Ctr. for Restorative Breast Surgery, L.L.C. v. Humana Health Benefit Plan of Louisiana, Inc., No. CIV.A. 10-4346, 2015 WL 5822656 (E.D. La. Oct. 6, 2015) (Judge Eldon E. Fallon). The court denied dismissal of Plaintiffs’ ERISA 502(c) claims against Humana, where its attorney indicated that he would accept personal service of document requests. The court found that if the attorney indicated that he would accept personal service of document requests on behalf of Humana, Humana was effectively served for purposes of ERISA section 502(c) based on principles of agency law. Further, the attorney did not inform Plaintiffs that he was not an appropriate representative of Humana’s document requests until three years after Plaintiffs filed their first document request with the attorney. The court found it disingenuous, at best, for Humana to assert that a response by counsel years after the Plaintiffs’ first request for documents could possibly be considered timely.

Withdrawal Liability & Unpaid Benefit Contributions

Second Circuit

Default judgment granted against Defendants for unpaid required contributions to benefit funds. Trustees of Sheet Metal Workers’ Int’l Ass’n Local Union No. 28 Ben. Funds v. Maximum Metal Mfrs., Inc., No. 14-CV-2890 JLC, 2015 WL 5771853 (S.D.N.Y. Oct. 2, 2015) (Judge James L. Cott). The court found Defendants Maximum, Maynard, and Smith jointly and severally liable for their violations of Sections 515, 404(a), and 406(a) of ERISA and awarded (1) $122,574.05 in unpaid fringe benefit contributions; (2) $41,661.40 in interest; (3) $3,260.00 in attorneys’ fees and (4) $480.00 in court costs for a total of $167,975.45.

* 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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