ERISA Watch – Roberts Disability Law, P.C. wins motion in severance benefit class action lawsuit

This week’s notable ERISA decision comes from the Roberts Disability Law, P.C. private collection.  Our case, Carlson v. Northrop Grumman Corp., No. 13-cv- 2635, 2016 U.S. Dist. LEXIS 89083 (N.D. Ill. July 11, 2016), involves a putative class of former employees laid off from Northrop Grumman Corporation.  Northrop Grumman allegedly changed how it interprets and applies the terms of the plan to make a new condition to receiving benefits after a “harmonization,” which resulted in a change in application of the terms of the plan to make receipt of a memorandum of eligibility required to receive benefits, but the plan terms did not actually change.  As they say, “that was yesterday.”

The plan states an employee working in the United States who is laid off, worked at least 20 hours per week, and worked in the United States is entitled to severance, and the employee must receive a memorandum signed by a vice president advising the laid off employee of eligibility. All of the plaintiffs worked over 20 hours per week in the United States and were laid off, but they did not receive the memorandum of eligibility. Plaintiffs alleged the memorandum serves as a vehicle to notify participants they satisfied eligibility criterial, rather than representing a discretionary decision to include or exclude a given employee. In addition, they alleged Northrop Grumman violated ERISA § 510 by withholding the memorandum to interfere with plaintiffs’ attainment of the benefits, and breach of fiduciary duty for failing to disclose a change in application to the terms of the plan. The court denied Northrop Grumman’s motion to dismiss the amended complaint.

Because plaintiffs alleged that Northrop Grumman changed its interpretation and application of identical plan terms to make receipt of the memorandum a condition in 2001, without changing any plan terms, the court reasoned “[i]nterpretation of the same plan term in different ways is ‘paradigmatically arbitrary and capricious.’”

Next the court rejected the notion that there must be an adverse employment action to constitute a § 510 violation and that withholding the memorandum in order to prevent a laid off employee from receiving severance can constitute unlawful benefit interference under the text of § 510.

Finally, the court held plaintiffs properly sought reformation of the severance plan to modify any changed terms regarding interpretation to reflect that the application of the terms had not changed since Northrop Grumman never disclosed to employees it would begin treating the memorandum as a condition to receiving benefits.

There were several other notable decisions.  Read about them below.  Until next week!

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

Disability Benefit Claims

Second Circuit

• For claimant with degenerative disc disease, ordering reinstatement of long term disability benefits and finding that Aetna’s termination of benefits was arbitrary and capricious where: (1) the Plan did not require “objective medical evidence” and Aetna previously approved payment of benefits to Plaintiff without requiring a showing of “objective medical evidence;” (2) Aetna did not consider the SSA’s finding of disability although it had those records available to it; and (3) Aetna failed to order an independent medical examination where Plaintiff’s claim for benefits stood or  fell on the credibility of her subjective complaints.  Dunda v. Aetna Life Ins. Co., No. 6:15-CV-6232-MAT, 2016 WL 3552187 (W.D.N.Y. June 30, 2016) (Judge Michael A. Telesca).

Third Circuit

• Affirming summary judgment in favor of National Life Insurance Company based on language contained in a Rider for Residual Disability Income Benefit and finding that Rider could be construed to mean that residual disability benefits are subject to a changing standard in the determination of what the term “occupation” means. The Rider provides that:  “Until an income benefit, for any period of continuous disability, has been paid to the Insured’s 55th birthday, or for 120 months, whichever is longer, occupation means the occupation of the Insured at the time such disability begins. Thereafter it means any occupation for which the Insured is or becomes reasonably fitted by education, training or experience.”  Bowerman v. National Life Insurance Company, No. 15-1129, __F.App’x__, 2016 WL 3626811 (3d Cir. July 7, 2016) (BEFORE: FUENTES, SMITH, and NYGAARD, Circuit Judges).

• On Plaintiff’s long term disability claim, vacating the district court’s grant of summary judgment in favor of Defendants due to factually intense inquiry of issue of whether the medical information that Plaintiff provided on administrative appeal was different or less substantial than the medical information that MetLife originally accepted in support of his claim. Temporal proximity of claim termination and MetLife’s discovery of its $10,000/month underpayment raises a reasonable inference that monetary concerns were a factor in MetLife’s claim decision.  Failure to order an IME is a factor to consider in determining whether decision was arbitrary or capricious.  Reed v. *Citigroup Inc, As Plan Sponsor Of The Citigroup Disability Plan; Metropolitan Life Insurance Company, a New York Corp., No. 15-2094, __F.App’x__, 2016 WL 3626816 (3d Cir. July 7, 2016) (Before: FUENTES, VANASKIE and SCIRICA, Circuit Judges).

Ninth Circuit

• Denying Plaintiff’s motion seeking a declaration that disability policy’s “discretionary clause” is “void and unenforceable in its entirety” under Cal. Ins. Code § 10110.6 since the University of California disability policy is not governed by ERISA and there is no actual controversy; denying Plaintiff’s motion seeking a declaration that disability policy’s offset provision and recoupment provisions violate Section 407 of the Social Security Act. Dao v. Liberty Life Assurance Co. of Boston, No. 14-CV-04749-SI, 2016 WL 3595686 (N.D. Cal. July 5, 2016) (Judge Susan Illston).

• Abuse of discretion review applies where Plan documents vest the Plan Administrator with discretionary authority and Plan Administrator delegated the discretionary authority to the “the Divisional Vice President, Benefits” and decision was made by the “Divisional Vice Present, Benefits and Wellness” (affidavit attests that the title changed after the Plan delegation). Giving moderate weight to the structural conflict of interest, and finding an abuse of discretion, where the Plan Administrator failed to respond to findings from a Functional Capacity Evaluation and the Plan Administrator was informed of Plaintiff’s SSDI award but did not request the decision nor considered it in the final decision.   Appropriate remedy is a remand to the Plan Administrator to make an initial determination in light of all of the evidence that it should have considered in the first instance, but no reinstatement of benefits.  Gorbacheva v. Abbott Labs. Extended Disability Plan, No. 5:14-CV-02524-EJD, 2016 WL 3566979 (N.D. Cal. June 30, 2016) (Judge Edward J. Davila).

ERISA Preemption

Sixth Circuit

• In action by organization representing sponsors and administrators of self-funded employee benefit plans against Michigan state officials, alleging that ERISA preempted provision of Michigan’s Health Insurance Claims Assessment Act imposing tax on paid claims by carriers or third–party administrators to health care providers for services rendered in Michigan for Michigan residents, holding that there is no ERISA preemption where: (1) the Michigan law did not impose administrative burdens in addition to those prescribed by ERISA or interfere with uniform plan administration; (2) the Michigan law did not alter the relationship between ERISA plan administrators and plan beneficiaries; and (3) the Michigan law did not force carriers or third–party administrators to collect the tax from the ERISA–covered entities.  Self-Ins. Inst. of Am., Inc. v. Snyder, No. 12-2264, 2016 WL 3606849 (6th Cir. July 1, 2016) (Before: BOGGS and MOORE, Circuit Judges; BARRETT, District Judge).

Exhaustion of Administrative Remedies

Ninth Circuit

• Dismissing lawsuit for pension benefits due to Plaintiff’s failure to exhaust administrative remedies, finding that Plaintiff’s lack of knowledge about the Plan’s review procedures does not negate the exhaustion requirement. Rodrigues v. Bank of Am., No. C 16-1390 CW, 2016 WL 3566950 (N.D. Cal. July 1, 2016) (Judge Claudia Wilken).

Life Insurance & AD&D Benefit Claims

Fifth Circuit

• In action brought pursuant to Section 1132(a)(1)(B), affirming summary judgment in favor of Prudential and UPS on Plaintiff’s denied claim for life insurance benefits based on a policy exclusion for active-duty servicemen, where Plaintiff’s husband was an active-duty soldier in the United States Army but was killed in a weekend motorcycle accident while off base and not on duty. Although Plaintiff claimed that exclusion was not listed in the SPD, court noted that relief may be available under Section 1132(a)(3) but Plaintiff did not bring that claim.  Plan states that it is governed by Georgia law so court declined to determine whether Louisiana Law (La. Stat. Ann § 22:942(7)) renders the exclusion unenforceable.  And, relevant Georgia law (GA. CODE § 33-27-3(a)(7)) is preempted by ERISA.  Singletary v. United Parcel Serv., Inc., No. 15-30762, __F.3d__, 2016 WL 3629029 (5th Cir. July 6, 2016) (Before KING, SOUTHWICK, and HAYNES, Circuit Judges).

Medical Benefit Claims

Fifth Circuit

• In matter where Defendant Blue Cross Blue Shield of South Carolina (“BCBSSC”) denied payment for a core decompression with platelet-rich plasma as an alternative treatment for aseptic necrosis on the basis that it is excluded “investigational/experimental medical treatment,” denying Defendant’s motion for summary judgment due to genuine issues of material fact, where: (1) Plaintiff’s BCBSSC policy contained no reference to “Medical Guidelines,” (2) Defendant has not asserted that BCBSSC’s “Medical Guidelines” were provided to Plaintiff or that Plaintiff was made aware of such guidelines; and (3) BCBSSC’s ex post facto determination of whether a procedure is covered or deemed investigational or experimental appears inherently unfair and unreasonable.  Seymour v. Carolina, No. CV 15-3829, 2016 WL 3554727 (E.D. La. June 30, 2016) (Judge Carl J. Barbier).

• Determining that Defendant Catholic Health Initiative’s health plan’s exclusion for room and board in a residential mental health treatment facility, which was in effect at the time Plaintiff incurred the room and board charges, is enforceable and does not violate the Interim Final Rules or the Parity Act. Although the Final Rules require such coverage, the rules are not retroactive. P. v. Catholic Health Initiatives, No. C15-5024 RBL, 2016 WL 3551972 (W.D. Wash. June 30, 2016) (Judge Ronald B. Leighton).

Pension Benefit Claims

Sixth Circuit

• Denial of lump sum benefit not arbitrary and capricious where pension plan participant died prior to commencement of his assigned Lump Sum Window Election Period, he never became eligible to elect a lump sum distribution, and thus had no vested interest in the lump sum opportunity. Prior to Lump Sum Window Election Period, Plaintiff made four phone calls to the Plan requesting the paperwork to make the election in light of her husband’s serious illness and husband stated in a letter that he was hospitalized, death may be imminent, and he desired to election the lump sum option.  Strang v. Ford Motor Co., No. 14-CV-14410, 2016 WL 3625601 (E.D. Mich. July 7, 2016) (Judge Bernard A. Friedman).

Ninth Circuit

• In action alleging improper handling and distribution of Plaintiff’s share in a profit sharing plan and after granting in part Plaintiff’s motion for summary judgment, finding that the Plan’s valuation of Plaintiff’s distribution was proper where it valued the share as of the date of distribution. Feikes v. Cardiovascular Surgery Associates Profit Sharing Plan, Trust, et al., No. 2:04-CV-1724-LDG-GWF, 2016 WL 3566985 (D. Nev. June 29, 2016) (Judge Lloyd D. George).

Plan Status

Fifth Circuit

• Occupational Accident Benefit Plan (the Plan) is an ERISA plan where: (1) ERISA’s safe harbor provisions do not apply because the employer’s role was not limited to collecting premiums and remitting them to an insurer; (2) employer was the Policyholder under the Plan, designated its agent as the claims administrator, had the right to terminate the Plan, calculated Plaintiff’s monthly premiums, paid such premiums in a timely fashion, and maintained a policy that covered whole classes of employees; and (3) the Plan was established with the intent to benefit employees.  State-law claims preempted by ERISA.  Roberts v. Reynolds & Reynolds Trucking, Inc., No. 3:15-CV-3662-B, 2016 WL 3570652 (N.D. Tex. July 1, 2016) (Judge Jane J. Boyle).

Pleading Issues & Procedure

Third Circuit

• Denying motion to disqualify law firm of Proskauer Rose LLP brought by Steelworkers Pension Trust (the “SPT”), a multi-employer pension plan making a withdrawal liability claim against Defendants. Although SPT is not a current or former client of Proskauer, it has standing to bring the motion to disqualify, but the court found that SPT has not met its burden and identified any lawsuit that Proskauer is presently handling in which its clients’ interests would be adversely affected if Defendant Renco prevailed on its argument as to the effect of the filing of a proof of claim or an “evade or avoid” theory in this case’s particular circumstance.  Steelworkers Pension Trust By Daniel A. Bosh, Chairman v. The Renco Group, Inc., Ilshar Capital Llc, Blue Turtles, Inc., Unarco Material Handling, Inc., Iteva Products LLC, The Doe Run Resources Corporation, & Usmagnesium LLC, No. 16-190, 2016 WL 3633079 (W.D. Pa. July 7, 2016) (Judge Robert C. Mitchell).

Fifth Circuit

• Finding that Assurance, a third-party administrator, is a proper party defendant to ERISA Section 502(a) action, but Companion, a company alleged to be an underwriter of the Plan and employer’s indemnitor, is not a proper party. Roberts v. Reynolds & Reynolds Trucking, Inc., No. 3:15-CV-3662-B, 2016 WL 3570652 (N.D. Tex. July 1, 2016) (Judge Jane J. Boyle).

Ninth Circuit

• Striking demand for jury trial for ERISA breach of fiduciary duty claim, finding that Ninth Circuit law holds that jury trials are not required for ERISA claims. Rodrigues v. Bank of Am., No. C 16-1390 CW, 2016 WL 3566950 (N.D. Cal. July 1, 2016) (Judge Claudia Wilken).

• In matter seeking to enjoin the Internal Revenue Service from levying against the pension plan pursuant to ERISA section 502(a)(3), denying Plaintiff’s motion for a temporary restraining order because: (1) Plaintiff has not established that the court has subject matter jurisdiction over this action; (2) Plaintiff has not established that the Anti-Injunction Act, 26 U.S.C. § 7421, does not bar this action; and (3) Plaintiff has not satisfied the Federal Rule 65(b) standard applicable to unnoticed TROs.  Nemlowill v. United States, No. 16CV1642-MMA (WVG), 2016 WL 3552070 (S.D. Cal. June 29, 2016) (Judge Michael M. Anello).

* 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.  If you have questions about how the developing law impacts your ERISA benefit claim, contact an experienced ERISA attorney.  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.