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ERISA Watch – September 11, 2014

Your reliable source for summaries of recent ERISA decisions

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

Second Circuit

Section 510 Claim is Time-Barred by Two-Year SOL

In Fouche v. St. Charles Hosp., 14-CV-02492 ADS ARL, 2014 WL 4413782 (E.D.N.Y. Sept. 8, 2014), the court found that the plaintiff’s ERISA 510 claim was time-barred, as she was allegedly “constructively discharged” on November 16, 2011, and this litigation was not commenced until April 18, 2014. The court relied on a 2nd Circuit Court of Appeals decision which found that New York Workmen’s Compensation Law Section 120 is the most analogous New York State law claim to Section 510 of ERISA, and held that the two-year statute of limitations provided for by that statute governs all claims arising under Section 510 of ERISA. The court rejected the plaintiff’s argument that the breach of contract statute of limitations is more analogous to her claim than is Section 120 of New York Workmen’s Compensation Law. The 2nd Circuit also previously rejected this argument.

New York Insurance Law Trumps Plan’s Contractual Limitations Period

In Halpern v. Blue Cross/Blue Shield of W. New York, 12-CV-407S, 2014 WL 4385759 (W.D.N.Y. Sept. 4, 2014), the court determined that the ERISA plan’s one-year contractual limitations period is unenforceable because of New York Insurance Law § 3221(a), which provides, in relevant part: “No policy of group or blanket accident and health insurance shall … be delivered or issued for delivery in this state unless it contains in substance the following provisions or provisions which in the opinion of the superintendent are more favorable to the holders of such certificates or not less favorable to the holders of such certificates and more favorable to policyholders.” The required provisions include a minimum statute of limitations, specifically: “That no action at law or in equity shall be brought to recover on the policy prior to the expiration of sixty days after proof of loss has been filed in accordance with the requirements of the policy and that no such action shall be brought after the expiration of two years following the time such proof of loss is required by the policy.” The defendant contended that the Plan is consistent with New York Insurance Law § 3221 because it was approved by New York’s Superintendent of Insurance. Because the Superintendent is permitted to approve policies with provisions deviating from § 3221’s specified requirements, the Plan at issue here does not run afoul of New York law. However, the court found that a policy provision approved by the Superintendent nonetheless cannot be enforced if it runs counter to the legislative intent or if it violates existing law. Therefore, the court found that New York Insurance Law § 3221 applies in the instant case, and the Plan must be read as conforming with this section’s required minimum limitations period of two years following the time such proof of loss is required by the policy.

Plan Did Not Abuse Discretion in Using Social Security Records to Calculate Pension Benefits

In Barrett v. Citigroup, Inc., 13-CV-8254, 2014 WL 4367347 (S.D.N.Y. Sept. 3, 2014), the court granted the defendant’s motion for summary judgment, finding that the Citigroup Pension Plan did not abuse its discretion in calculating the pension benefits owed to the plaintiff. The Plan bases benefits on an employee’s average compensation and years of credited service. The Plan defines compensation as the regular fixed basic annual rate of compensation received by an Employee and excludes any bonus, overtime payments or other similar distributions. When the plaintiff initiated the process of collecting her pension, Citibank advised her that it had lost her payroll records. The plaintiff had lost her own employment records in a house fire. In the absence these records, the Plan calculated her pension benefits using income records from the Social Security Administration. The plaintiff appealed this decision and argued that these records underreport her earnings at Citibank, resulting in lower benefits from the pension plan and provided letters and Form W-2s in support. The court found that the Committee did not abuse its discretion in determining that the plaintiff’s benefits should be based on the Social Security Administration’s records since they are objective proof of income as reported to the government agency. The Committee considered the alternative proof of income-correspondence from other Citibank employees-and provided rational reasons for rejecting that evidence. None of the correspondence offered any evidence about the plaintiff’s base salary, as defined by the pension plan. Thus, the Committee’s use of employee’s earnings reported to the Social Security Administration is reasonable, not arbitrary or capricious.

Fifth Circuit

Fraudulent Inducement and Breach of Contract Claims Not Completely Preempted by ERISA and Remand to State Court Granted. In Gilbert v. Baker Hughes Inc., 4:14-CV-652, 2014 WL 4402125 (S.D. Tex. Sept. 5, 2014), the court granted the plaintiff’s motion to remand after the defendant removed the case to federal court, claiming federal question jurisdiction on the basis of ERISA. The plaintiff’s lawsuit alleged that the defendant materially breached its contract with the plaintiff by failing to comply with promises made regarding the nature of the plaintiff’s severance package, and failing to offer a severance package that was calculated based on his total years of employment. The plaintiff also alleged that the defendant’s employee, Mark Freeman, knowingly misrepresented the manner in which the severance package would be calculated in order to induce the plaintiff to enter into an employment contract. The court found that the plaintiff’s common-law claim for fraudulent inducement is not completely preempted by ERISA Section 502 because it arises from an independent legal duty, and does not require a court to interpret or administer an ERISA plan. The plaintiff’s claim centers on his allegation that Mr. Freeman promised him that any severance package amount would be premised on all of his years of service rather than the period of service in his latest employment stint with the company. He also alleged that he relied on this promise in his decision to leave his then-current position and return to the defendant’s employ. The misrepresentation at issue did not concern the right to receive benefits under the Plan, but rather the date from which employment would be counted for purposes of disbursement. Essentially, the petition alleges that the defendant fraudulently induced him into returning to a position with his old employer; the misrepresentation about the start date was merely the way it did so. The court determined that it need not wade into the intricacies of ERISA or of the Plan to determine whether the plaintiff was fraudulently induced into accepting a job. A court need only assess whether Mr. Freeman made a knowing misrepresentation about the start date of the severance benefits, with the intent to induce the plaintiff’s employment, and whether the plaintiff relied on this misrepresentation in making his decision. This assessment is too remotely connected to ERISA to be considered an area of exclusive federal concern. The court also found that the plaintiff’s breach of contract claim is not completely preempted under ERISA Section 502 as it only implicates the length of employment for the purposes of calculating severance benefits, and does not require any kind of benefit determination under the ERISA Plan, relying on Lone Star OB/GYN Assoc. v. Aetna Health Inc., 579 F.3d 525, 530 (5th Cir. 2009). The fact that the plaintiff seeks benefits payable under the ERISA Plan does not necessarily establish preemption because although the “relate to” standard has been used to guide the complete preemption inquiry, it is not the dispositive test for determining preemption under Section 502. Since the plaintiff’s common-law claims both arise from independent legal duties, they cannot be completely preempted by ERISA. Further, the Lone Star court expressly rejected the argument that consultation of an ERISA plan alone is sufficient for preemption.

Sixth Circuit

Hartford’s Employability Analysis Report Did Not Contain Sufficient Data for Court to Determine Validity. In Williams v. Target Corp., 13-2410, __ Fed. Appx. ___, 2014 WL 4375989 (6th Cir. Sept. 4, 2014) (not for publication), the plaintiff, a long term disability claimant diagnosed with fibromyalgia and chronic fatigue syndrome, appealed the district court’s application of the abuse of discretion review standard in connection with its ruling on her LTD benefit claim under a group disability policy insured and administered by Hartford Life and Accident Insurance Company. The 6th Circuit Court of Appeals did not address the plaintiff’s argument because, regardless of the standard of review, it found that there is insufficient information in the administrative record to ascertain whether the plaintiff still met the Plan’s definition of disability. In reviewing the plaintiff’s claim, Hartford conducted an Employability Analysis Report (“EAR”), which concluded that the plaintiff’s ailments did not prevent her from performing the occupation of an Accounting Clerks Supervisor, which means she no longer met the Plan’s definition of disability. For the plaintiff’s condition to satisfy the Plan’s definition of disability, it must prevent her from engaging in any occupation that would provide at least 128% of her LTD Benefits, at least $3,724.80 per month. The EAR concluded that there was one job that met the 128% criterion: “Supervisor, Accounting Clerks,” which the EAR indicates has a median monthly wage of $3,908.67. According to the EAR, this number is based on the “Oasys May 2009 median wage data,” although there is no further information on how the wage data is computed. The EAR does cite wage data from both the Census and the Occupational Employment Statistics survey (“OES Survey”), although it is unclear if and how that data affects the “Oasys May 2009 median wage data.” The parties and the district court assumed that the EAR’s $3,908.67 wage estimate was based on Department of Labor data but there is no clear evidence to support this. Further, even if OASYS used Department of Labor data, the court could not ascertain what data was used. The court vacated the district court’s judgment and remanded the case to the district court with instructions that it remand the case to Hartford so that the record may be developed.

Court Permits Disgorgement of Profits Claim Pending Rochow Decision. In Kopecky v. Hartford Life & Acc. Ins. Co., 3-14-1200, 2014 WL 4384440 (M.D. Tenn. Sept. 4, 2014), the district court adopted the magistrate judge’s report and recommendation denying Hartford’s motion to dismiss the plaintiff’s § 502(a)(3) claim for disgorgement of profits where she also brought a § 502(a)(1)(B) claim for the denial of her long term disability benefits. The court determined that while the Rochow decision is not binding at this time, given the impending precedent that may be directly on point, prudence would dictate preserving the issue until that time.

Seventh Circuit

Remand to the Plan Administrator is Some Degree of Success Entitling the Plaintiff to Attorneys’ Fees. In Rappa v. Sun Life Assur. Co. of Canada, 10-CV-585-WMC, 2014 WL 4415242 (W.D. Wis. Sept. 8, 2014), the court awarded the plaintiff attorneys’ fees after achieving some degree of success on the merits of his long term disability claim. The court previously found that defendant Sun Life violated ERISA by acting arbitrarily and capriciously in denying the plaintiff’s benefits and remanded the case to the plan administrator for further review. The court declined to follow two district court cases which arguably stand for the proposition that a remand on procedural grounds only is an absolute bar to recovery, especially in light of the 7th Circuit’s decision in Huss holding open the possibility of attorneys’ fees in ERISA cases involving a remand to the plan administrator. Here, the court found that the plaintiff achieved all he could achieve in this court given the standard of review. As such, the plaintiff obtained not just “some,” but complete success on the merits of his claim. Regardless of the specific characterization of the degree of the plaintiff’s achievement, he achieved the lower standard of “some success” embraced by the Supreme Court in Hardt.

Court Rejects Disgorgement of Profits Claim In Connection with Denial of LTD Benefits. In Hannon v. Unum Life Ins. Co. of Am., 1:14-CV-235-WTL-DKL, 2014 WL 4352156 (S.D. Ind. Sept. 2, 2014), the plaintiff alleged two counts in connection with her denied long term disability claim. Count I contained a claim for the wrongful termination/denial of benefits under ERISA § 502(a)(1)(B) and Count II contained a new claim for disgorgement of profits under ERISA § 502(a)(3). The day after the plaintiff filed her complaint, the Sixth Circuit vacated Rochow v. Life Ins. Co. of N. Am., 737 F.3d 415 (6th Cir.2013) (holding that plaintiff could recover disgorged profits under § 502(a)(3) in addition to denied benefits under § 502(a)(1)(b)) and granted a rehearing en banc. The court held that a plaintiff cannot pursue a claim under ERISA § 502(a)(3) for the wrongful termination of benefits if plaintiff also asserts such a claim under ERISA § 502(a)(1)(B) for the same injury, joining numerous other courts, particularly in the Northern District of Illinois, in reaching this conclusion.

Eighth Circuit

A Request for Plan Documents and Additional Time to Appeal Does Not Constitute Exhaustion of Administrative Remedies. In Deaton v. Hartford Life & Acc. Ins. Co., 4:13-CV-00688-KGB, 2014 WL 4435635 (E.D. Ark. Sept. 9, 2014), the court dismissed the plaintiff’s long term disability claim with prejudice for failing to timely exhaust administrative remedies within 180 days of the December 17, 2012 letter terminating his claim for benefits, or June 15, 2013. The letter informed the plaintiff that benefits would terminate on March 25, 2013. On May 2, 2013, the plaintiff, through his counsel, replied to Hartford’s denial letter requesting a copy of the policy at issue, additional time in order to submit an appeal, and confirmation that the appeal period began on March, 25, 2013, when Hartford stopped paying the plaintiff’s benefits. Hartford responded to the letter by providing a copy of the policy at issue but did not address the other issues. On May 13, 2013, the plaintiff’s counsel sent another letter to Hartford stating that the policy required an explanation of the review procedure upon denial of a claim and again seeking confirmation that the appeal period began on March 25, 2013. The plaintiff’s counsel alleged that he received no response to his May 13 letter, though Hartford claims it sent him a letter dated May 16, 2013, advising that the 180-day appeal period commenced upon his receipt of the denial letter. The question the court considered is whether Hartford’s determination that the plaintiff’s May letters – the only letters sent before the June 15, 2013 deadline to file an appeal – did not satisfy the exhaustion requirement is reasonable, even if a different, reasonable interpretation could have been made. The court determined that Hartford reasonably could have construed the May letters as not providing adequate notice of an appeal or constituting an appeal but instead as mere requests for documents that the plaintiff’s lawyer sought to review before determining whether to file an appeal in the future.

Plaintiffs’ Damages Claims Resulting from Misclassification as Independent Contractors Are Not Preempted by ERISA. In Gray v. Fedex Ground Package Sys., Inc., 4:06-CV-00422 JAR, 2014 WL 4386741 (E.D. Mo. Sept. 5, 2014), the court denied the defendant’s renewed motion for judgment as a matter of law regarding the plaintiff’s claims for damages related to employee benefits where the plaintiffs asserted state law damages claims for the value of the employee benefits they would have received had they been properly classified by FedEx as employees. FedEx argued that the plaintiffs’ damages claims “relate to” an ERISA benefit plan and are, therefore, pre-empted. The court concluded that the plaintiffs’ claims do not have a prohibited connection to an ERISA plan and are therefore not pre-empted by ERISA. These are not claims to recover benefits due under the terms of FedEx’s plans, to enforce rights under the terms of the plans or to clarify rights to future benefits under the terms of the plans. Rather, the plaintiffs seek the value of employee benefits denied them based on their misclassification as independent contractors; any damages would come from FedEx, not from the plan itself. Moreover, the court found that this action does not affect relations between ERISA entities, impact plan structure or affect plan administration because the plaintiffs are not before the Court as ERISA participants.

Plan Provision Which Does Not Clearly Confer Discretion Is Nonetheless Adequate to Apply the Abuse-of-Discretion Standard. In Nystrom v. AmerisourceBergen Drug Corp., CIV. 13-557 DSD/JJK, 2014 WL 4348234 (D. Minn. Sept. 2, 2014), the court granted summary judgment in favor of the defendant in a matter involving the denial of residential treatment at an eating disorder treatment center. The court found that abuse of discretion review was applicable based on the Plan’s provision that Aetna “shall … act as fiduciary solely for health benefit determination and final review of denied claims for health benefits under the Plan,” and the Administrative Services Agreement that the company “hereby delegates to Aetna … authority to make determinations on behalf of [AmerisourceBergen] with respect to benefit payments under the Plan and to pay such benefits.” Such language, although not a model of clarity, tracks the Eighth Circuit’s standard for the abuse-of-discretion standard. The court found that there was substantial evidence in the record supporting the denial of benefits and Aetna did not abuse its discretion by crediting the opinions of its reviewing doctors over the plaintiff’s treating doctors.

Ninth Circuit

Could Upholds Denial of Short-Term Disability Benefits. In Ibrahim v. Bayer Corp. Disability Plan, 12-56689, __ Fed. Appx. ___, 2014 WL 4378717 (9th Cir. Sept. 5, 2014) (not for publication), the court affirmed the district court’s judgment upholding the denial of the plaintiff’s short-term disability benefits by the Bayer Corporation Disability Plan, where the Plan gives the administrator discretion to determine whether a beneficiary is disabled and to interpret the terms of the Plan. Accounting for the fact that the same entity-Bayer-both administers and funds the Plan and may have an improper incentive to deny claims; the court found that the Plan did not abuse its discretion. The court determined that although the administrator could have done a better job communicating to the plaintiff what kind of evidence was requested of her and the exact reasons for its denial of benefits, the evidence in the record suggests that all available information relevant to the plaintiff’s claim was before the administrator when it made its final decision or, at the very least, before the district court below. The court also found that the administrator did not fail to consider any of the relevant evidence that the plaintiff provided.

Disability Claimant Judicially Estopped from Supplementing the Administrative Record and Court Lacks Jurisdiction over Litigation. In Walters v. Odyssey Healthcare Mgmt. Long Term Disability Plan, CV-11-00150-PHX-JAT, 2014 WL 4371284 (D. Ariz. Sept. 4, 2014), the court granted the defendant Plan’s motion for summary judgment against the plaintiff who moved for a remand to the plan administrator to decide her eligibility for long term disability benefits under the Plan. In the course of discovery, the plaintiff steadfastly refused to comply with any discovery request, including answering interrogatories, being deposed, or submitting an affidavit based on the argument that supplementing the administrative record through discovery is forbidden under Ninth Circuit law. In support of her motions for summary judgment, the plaintiff submitted an affidavit, to which the defendant objected. The court determined that the plaintiff’s “clearly inconsistent position” vis-à-vis supplementing the administrative record with the Affidavit provides the plaintiff an unfair advantage and prejudices defendants. Therefore, the court held that the plaintiff is judicially estopped from supplementing the administrative record with the Affidavit and the court only considered the scant administrative record. Because the court excluded the affidavit on judicial estoppel grounds, it did not determine whether the Affidavit should also be excluded as a discovery sanction or defendants’ specific objections based on various hearsay and foundational grounds. The court also determined that it does not have jurisdiction over this ERISA action because the administrative record before the court does not support a reasonable inference that the plaintiff ever filed a claim for long term disability benefits. Without the prerequisite application for benefits, the plaintiff does not have an enforceable right under the plan.

Permanent Injunction Against Delinquent Employer Is Proper Equitable Relief. In Bd. of Trustees of Bay Area Roofers Health & Welfare Trust Fund v. Westech Roofing, 12-CV-05655-JCS, 2014 WL 4383062 (N.D. Cal. Sept. 4, 2014), the court granted the Plaintiffs’ motion to permanently restrain and enjoin Defendant Westech Roofing from: 1) failing to pay fringe benefit contributions to the Plaintiff Trust Funds in a timely manner, as defined by the collective bargaining agreement and/or Trust Agreements; and 2) failing to submit monthly transmittals or reports to the Plaintiff Trust Funds in a timely manner, as defined by the collective bargaining agreement and/or Trust Agreements. A district court may enter a permanent injunction if a plaintiff establishes: (1) plaintiff has suffered an irreparable injury; (2) the remedies at law are inadequate to compensate for that injury; (3) the balance of hardships favors an injunction; and (4) the public interest would not be disserved by an injunction. The court found that the plaintiffs have demonstrated that they are likely to suffer irreparable harm in the absence of injunctive relief, and that the remedies at law are inadequate since Westech’s late payments have prevented the Trust Funds from making timely payments to Plan participants. Further, the amounts of the contributions at issue are significant- not only in this case but in the many previous cases that the plaintiffs have been required to file to obtain payments from Westech over a twenty-two year period. Second, the court found that the balance of the hardships tips sharply in favor of plaintiffs since prolonged and repeated noncompliance has imposed a significant burden on the Trust Funds and the injunctive relief only requires Westech to comply with its existing obligations under the CBA and Trust agreements. Finally, the court found that entry of a permanent injunction is in the public interest because it will protect the integrity of the Plan.

Trustee Violates Fiduciary Duty by Transferring Embezzler’s Pension Benefits to Corporation to Apply against Judgment Debts. In Thomas v. Bostwick, 13-CV-02544-JCS, 2014 WL 4364816 (N.D. Cal. Sept. 3, 2014), plaintiff, Richard Todd Thomas filed this action against defendant James S. Bostwick, a trustee of certain profit sharing plans set up by Mr. Thomas’s former employer, James S. Bostwick, Professional Corporation (the “Corporation”). Mr. Thomas was terminated by the Corporation in 2005 due to Mr. Thomas’s embezzlement of nearly twenty million dollars. After liquidation of the Plans in 2008 and 2009, Mr. Bostwick did not distribute any proceeds to Mr. Thomas. Mr. Bostwick instead transferred Mr. Thomas’s share of the proceeds to the Corporation, which applied the proceeds against Mr. Thomas’s substantial judgment debts. Mr. Thomas argued that Mr. Bostwick breached his fiduciary duties by contravening the Plan’s anti-alienation provision. The court agreed and, in relying on Seventh Circuit case law, found that the plaintiff may recover benefits personally under ERISA sections 502(a)(2) and 409 for breach of fiduciary duty with respect to a defined contribution plan. The court rejected Mr. Bostwick’s argument that Mr. Thomas forfeited his right to Plan benefits by embezzling money from the Corporation because section 203(a) of ERISA requires that, subject to certain conditions, each pension plan shall provide that an employee’s right to his normal retirement benefit is non-forfeitable. Further, there is no applicable exception to ERISA’s anti-alienation requirement. As such, Mr. Bostwick breached his duty as a fiduciary by transferring funds from Mr. Thomas’s account directly to the Corporation in violation of the “No Reversion” and “Inalienability” clauses of the Plans. The court found Mr. Bostwick liable under section 409 for the entire cost of the prohibited transaction. However, because the court has discretion to award prejudgment interest and Mr. Thomas did embezzle funds far exceeding the value of his claim, the court declined to award prejudgment interest.

Tenth Circuit

Termination of LTD Benefits Must be Supported by Substantial Evidence Showing an Improvement. In Buss v. United of Omaha Life Ins. Co., 12-2777 JTM, 2014 WL 4377693 (D. Kan. Sept. 4, 2014), the court found that United of Omaha abused its discretion by terminating the plaintiff’s claim for long term disability benefits where the administrator did not become aware of new information that would justify its changing its decision to pay the plaintiff’s benefits. None of the updated information cited by the insurer’s medical reviewer showed any improvement in the plaintiff’s condition. United downplayed the plaintiff’s pain complaints as subjective and unreliable but the court found that an FCE evaluator’s opinion that the plaintiff was giving “submaximal effort” is subjective too. The court found that United’s decision might be reasonable but not when considering its previous decisions that the plaintiff was disabled under the same information. “To be clear, the court would not require insurers to get their disability decision right the first time upon penalty of forever being stuck with that conclusion. Rather, the court requires that an insurer must show substantial evidence to support changing its disability determination, as it must do to support its initial decision.”

* 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 Parkway, 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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