ERISA Watch – Seventh Circuit Rules that Pension Fund Can Exclude Certain Compensation In Calculation of Pension Benefits.

This week’s notable decision is Rabinak v. United Bhd. of Carpenters Pension Fund, No. 15-1717, 2016 WL 4248377 (7th Cir. Aug. 10, 2016).  The Seventh Circuit Court of Appeals affirmed the district court’s judgment in favor of the defendant Fund on the issue of how it calculated Rabinak’s pension benefit.  Rabinak served on his organization’s Executive Board and received quarterly payments of $2,500 for his service.  These payments were made separate from his regular salary payments but were reported as wages on his Form W-2s.  The Fund would not take into consideration the additional $10,000 in annual compensation that Rabinak received for purposes of calculating his pension benefit.  The specific reason given was that “[t]he stipends received from the Regional Council of Carpenters for being on the Executive Committee are not included as Compensation for purposes of calculating Final Compensation.” The plan defines “Compensation” as “all salary” but does not include “overtime, or fees or expenses paid or reimbursed” or “the value of employee benefits or other non-wage payments, even if such payments are considered income for tax purposes.”

The court concluded that the Fund’s decision was not arbitrary and capricious given that the $2,500 quarterly payments were coded differently than salary and were not paid with his weekly salary payments.  The court also found that the fact that the president of Plaintiff’s former employer is on the Plan’s Board of Trustees did not create a conflict of interest since the Fund’s benefit appeals are decided by a subcommittee of the Board of Trustees of which the president was not a member.  And in any event, the presence of a conflict will “act as a tiebreaker when the other factors are closely balanced.”  The court rejected Rabinak’s argument that the determination was arbitrary and capricious for failure to provide specific reasons for its exclusion of the quarterly payments.  The court explained that a decision must give “specific reasons” for the denial (29 U.S.C. § 1133(1)), but “that is not the same thing as the reasoning behind the reasons” or “the interpretive process that generated the reason for the denial.”

From the plaintiff’s perspective, the idea that Section 1133 does not require “reasoning behind the reasons” puts claimants appealing a claim denial at a significant disadvantage.  According to Merriam-Webster dictionary, “reason” means “a statement or fact that explains why something is the way it is, why someone does, thinks, or says something, or why someone behaves a certain way.”  The Fund’s stated “reason” in Rabinak hardly provides an explanation for how and why the Fund interpreted the Plan the way that it did.  This doesn’t make any sense.  I’d tell you why, but apparently I don’t have to!  Enjoy the rest of this week’s case blurbs.

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

Attorneys’ Fees

Ninth Circuit

• Following Ninth Circuit’s affirmance of the district court’s grant of default judgment against Defendants in the amounts of $200,000 for ERISA violations, $54,926 in pre-judgment interest, and $221,251.63 in attorneys’ fees, granting Plaintiff’s motion to amend judgment, as modified, to add $62,150.00 in attorney’s fees (based on hourly rate of $250), $4,888.46 in expenses and costs, $209.26 in pre-judgment interest, and $1,400.71 in post-judgment interest, together equaling $68,648.43. Post-judgment interest will continue to accrue until the date of payment at a rate of 0.11 percent, compounded annually.  Lasheen v. Loomis Co., No. 201CV00227KJMEFB, 2016 WL 4161119 (E.D. Cal. Aug. 4, 2016) (Judge Kimberly Mueller).

Breach of Fiduciary Duty

Third Circuit

• Dismissing breach of fiduciary duty claim because Plaintiff’s complaint does not demonstrate that the “appropriate equitable relief” available under § 1132(a)(3) is warranted, and Plaintiff’s § 1132(a)(3) and § 1132(a)(1)(B) claims against Defendant overlap factually and seek the same remedy. Potts v. Hartford Life & Accident Ins. Co., No. CV 3:16-35, 2016 WL 4218384 (W.D. Pa. Aug. 9, 2016) (Judge Kim R. Gibson).

Fourth Circuit

• Granting the Secretary’s motion for default judgment against Defendants for failing to make employer contributions to the Global Research Services, LLC 401(k) Plan and failing to timely remit certain employee contributions to the Plan. Perez v. Glob. Research Servs., LLC, No. 16-CV-229-ELH, 2016 WL 4203889 (D. Md. Aug. 10, 2016) (Magistrate Judge J. Mark Coulson).

Disability Benefit Claims

D.C. Circuit

• Concluding that Plaintiff’s salary for purposes of calculating her disability benefit was based on her hourly rate assuming a 40-hour workweek even though she had worked reduced hours in the weeks leading up to her date of disability; remanding matter to Reliance Standard to determine eligibility for benefits under the “any occupation” definition of disability; awarding 60% of attorneys’ fees requested ($72,240) and post-judgment interest of .27%. Marcin v. Reliance Standard Life Ins. Co., No. CV 13-1308 (ABJ), __F.Supp.3d__, 2016 WL 4148175 (D.D.C. Aug. 4, 2016) (Judge Amy Berman Jackson).

Fourth Circuit

• Denying Plaintiff’s motion to reconsider dismissal of her cause of action for improper claims procedure pursuant to 29 U.S.C. §§ 1132(a)(3) and 1133 since her allegations that during the final appeal process, Defendants “flagrantly abused their discretion in a self-interested manner by ignoring the conclusions of their own external reviewer” and that they have a pattern and practice of “tr[ying] to deny their responsibility as primary payer” do not suggest that Defendants violated the procedural requirements set forth in 29 U.S.C. §§ 1133. Perkins v. US Airways, Inc., No. 6:14-CV-2577-BHH, 2016 WL 4208099 (D.S.C. Aug. 10, 2016) (Judge Bruce Howe Hendricks).

Sixth Circuit

• Concluding that United of Omaha’s termination of long term disability benefits was not arbitrary and capricious where substantial evidence supported its determination that Plaintiff’s specific pattern of disabling narcotic use meets the definition of “Substance Abuse” under the plan. In this case, Plaintiff’s lupus and fibromyalgia were treated with opiates under her physicians’ supervision but an IME concluded that her disability was caused by opioid hyperalgesia.  Blount v. United Of Omaha Life Insurance Company, No. 3:15-CV-00876, 2016 WL 4191725 (M.D. Tenn. Aug. 8, 2016) (Judge Aleta A. Trauger).

Ninth Circuit

• On de novo review of Plaintiff’s long term disability claim denial, admitting into evidence a “Physical Capacities Questionnaire” completed by an Independent Medical Evaluator that was not before the plan administrator at the time it made the decision to terminate LTD benefits; taking judicial notice of O*Net job description; concluding that Plaintiff had not proven “Total Disability” within the meaning of the LTD policy and relying on IME’s opinion that Plaintiff’s subjective complaints exceeded his objective examination findings; finding that the present tense wording of the “Any Occupation” definition does not preclude additional on-the-job training in the five alternative occupations identified by Reliance Standard; determining that Plaintiff’s pre-disability salary does not disqualify alternative occupations that pay minimum wage; finding that alleged procedural irregularities in the appeal do not bear on the Court’s de novo review. Haber v. Reliance Standard Life Ins. Co., No. CV149566MWFMANX, 2016 WL 4154917 (C.D. Cal. Aug. 4, 2016)

Eleventh Circuit

• Where disability policy provides that no benefits are payable for a loss caused or contributed to by use of alcohol, intoxicants, or drugs, except as prescribed by a physician, and where Plaintiff suffered a disabling brain injury while intoxicated, finding that Defendant failed to conduct a sufficient investigation that would allow the administrator to reasonably find a causal link between Plaintiff’s alcohol consumption and his fall and reversing Defendant’s decision to deny Plaintiff’s LTD benefits. Prelutsky v. Greater Georgia Life Ins. Co., No. 1:15-CV-628-WSD, 2016 WL 4177469 (N.D. Ga. Aug. 8, 2016) (Judge William S. Duffey, Jr.)

Life Insurance & AD&D Benefit Claims

Sixth Circuit

• Decree of divorce which provided that:

In order to secure the obligation of the parties to support their child during her minority, [Bruce and Bridget] shall maintain, unencumbered, all employer-provided life insurance, now in existence at a reasonable cost, or later acquired at a reasonable cost, naming their minor child as primary beneficiary during her minority, and the obligation to do so shall continue until she (a) reach(es) the age of eighteen (18) or graduates from high school, whichever occurs last…

substantially complied with 29 U.S.C. § 1056(d)(3)(C), is a QDRO, and is exempt from ERISA’s broad preemption provision.  Although Bruce never changed the beneficiary for his life insurance benefit from his brother to his daughter, the court determined that the daughter is the proper payee of the life policy proceeds.  Sun Life Assurance Co. of Canada v. Jackson, No. 3:14-CV-41, 2016 WL 4184444 (S.D. Ohio Aug. 5, 2016) (Judge Walter H. Rice).

Ninth Circuit

• In dispute over AD&D benefits, denying Defendant’s motion to dismiss and granting Plaintiff’s request for limited discovery on issue as to whether ERISA applies. In this case, Decedent was a member or employee of a labor union that subscribed to the Policy.  Plaintiff argues that whether or not the Policy is governed by ERISA would require the Court to engage in a factual inquiry to determine if Decedent’s union promoted, sponsored, endorsed, or supported the Policy.  Wells v. Hartford Life & Accident Ins. Co., No. 2:16-CV-0056-GMN-CWH, 2016 WL 4257769 (D. Nev. Aug. 10, 2016) (Judge Gloria M. Navarro).

Pension Benefit Claims

Fourth Circuit

• Concluding that the Plan Administrator’s decision to disburse Plaintiff’s money from the 401(k) Plan to his mother was reasonable and not a breach of fiduciary duty where Plaintiff was a minor and his mother was providing for his care; South Carolina Probate Code § 62-5-433 does not apply to the distribution of a 401(k) plan, thus the court need not decide whether it is preempted by ERISA. Robert C. Stills, Plaintiff, v. Janney Montgomery Scott LLC, Prudential Ret. Ins. & Annuity Co., & Ansaldo STS USA, Inc., Defendants. Janney Montgomery Scott LLC, Third Party Plaintiff, v. Amy Stills, Third Party Defendant, No. 3:15-3699-JFA, 2016 WL 4247744 (D.S.C. Aug. 11, 2016) (Judge Joseph F. Anderson, Jr.).

Fifth Circuit

• In matter where decedent named his son from a prior marriage as beneficiary of his 401(k) plan, concluding that the surviving spouse did not waive her right to the surviving spouse annuity by entering into a separate property agreement which does not meet the section 1055(c) surviving spouse standard. Callegari v. Scottrade, Inc., No. CV 16-1750, 2016 WL 4210841 (E.D. La. Aug. 10, 2016) (Judge Carl J. Barbier).

Sixth Circuit

• Adopting Magistrate Judge’s report and recommendation over Defendants’ objections about the consideration of extrinsic evidence in interpreting QDRO; finding that consideration of the express terms of the Divorce Judgment shows the “unmistakeable” intent of Richard and Margaret “at the time of their divorce was for Margaret Trapp to receive 50% of the benefits accrued through the time of their divorce;” granting Defendants’ motion for leave to file a cross claim against Margaret for portions of the surviving spouse pension benefit that should have been paid by the Plan to Plaintiff (surviving spouse). Trapp v. Ford Motor Co. Gen. Ret. Plan, No. 15-10742, 2016 WL 4204131 (E.D. Mich. Aug. 10, 2016) (Judge Sean F. Cox).

• In putative class action challenging Defendant’s new method of retirement benefit calculation for employees that were transferred from Dow to DuPont Dow Elastomers and then back to Dow, granting Defendant’s motion for judgment on the administrative record, dismissing complaint with prejudice, and denying motion for class certification as moot. Johnston v. Dow Employees’ Pension Plan, No. 14-CV-10427, 2016 WL 4158379 (E.D. Mich. Aug. 5, 2016) (Judge Thomas L. Ludington).

Seventh Circuit

• Affirming the district court’s decision and finding not arbitrary and capricious the Plan’s determination that Plaintiff’s $2,500 quarterly payments for Board service are not considered as part of Plaintiff’s salary for purposes of calculating his pension benefit. Rabinak v. United Bhd. of Carpenters Pension Fund, No. 15-1717, __F.3d__, 2016 WL 4248377 (7th Cir. Aug. 10, 2016) (Before WOOD, Chief Judge, and BAUER and WILLIAMS, Circuit Judges).

Plan Status

First Circuit

• Determining that severance benefits offered by AstraZeneca AB is an ERISA plan, where the severance payment is only available to “eligible” employees, and one of the criteria for eligibility is that the employee cannot have been terminated “for cause;” the Plan grants discretion to the administrator to construe its terms, including the definition of “notice of termination,” which was the purported basis for AstraZeneca’s denial of benefits in this case; other benefits under the Plan—post-termination medical, dental, life insurance, and employee assistance—are the types of ongoing benefit payments that constitute a typical ERISA plan. Gordon v. AstraZeneca AB, No. 4:16-CV-40042-TSH, 2016 WL 4212250 (D. Mass. Aug. 9, 2016) (Judge Hillman).

Fourth Circuit

• In matter where the court found that the Alpha Natural Resources Inc. and Subsidiaries Deferred Compensation Plan was not subject to the substantive requirements of ERISA, and concluding that the Debtors did have the right (i) to reject the ANR Employee Plan under §§ 363 and 365 of the Bankruptcy Code, (ii) to terminate the rabbi trusts in accordance with the Trust agreements, and (iii) to recover the funds held by the Trustee for the benefit of the creditors of the bankruptcy estate, denying motion to reconsider the Termination Order under Rules 9023 and 9024 because the Motion to Terminate was properly brought before the Court as a contested matter and an adversary proceeding was not required. In re Alpha Nat. Res., Inc., No. 15-33896-KRH, __B.R__, 2016 WL 4202927 (Bankr. E.D. Va. Aug. 5, 2016) (Bankruptcy Judge Kevin R. Huennekens).

Ninth Circuit

• Defendant’s Equity Growth Plan (“EGP”) is not subject to ERISA because its primary purpose is not to provide deferred compensation, and its terms do not include a “policy or method of funding” or an “ongoing administrative scheme.” Donovan “surrounding circumstances” inquiry does not apply since the EGP has a written plan document.  Miller v. Eric Olsen, et al., No. 3:15-CV-00571-AC, 2016 WL 4154936 (D. Or. Aug. 4, 2016) (Magistrate Judge John V. Acosta).

Provider Claims

Third Circuit

• Following the Eighth Circuit in holding that, in the absence of any other formal plan document, the SPD is the formal plan document, and granting in part Defendants’ motion for partial summary judgment as to 24 plans in dispute where the governing SPD excludes coverage of facility fees for single-room, unlicensed outpatient surgical facilities. Montvale Surgical Ctr., LLC v. Connecticut Gen. Life Ins. Co., No. CV 12-5257 (SRC), 2016 WL 4204548 (D.N.J. Aug. 8, 2016) (Judge Stanley R. Chesler).

Fourth Circuit

• Finding action to be clearly barred by res judicata; where Plaintiff Griffin has a demonstrated history of filing numerous duplicative claims in other courts and against similarly-situated defendants, granting Areva’s motion to dismiss and denying its request for a prefiling injunction; ordering Plaintiff to show cause why she should not be sanctioned—either in the form of attorneys’ fees or otherwise—for bad faith and baseless litigation. Griffin v. Areva, Inc., No. 6:16-CV-00029, 2016 WL 4250494 (W.D. Va. Aug. 10, 2016) (Judge Norman K. Moon).

Fifth Circuit

• In suit brought by surgeons who perform post-mastectomy breast reconstruction medical services and a hospital where the physicians are affiliated, finding that certain of the surgeons’ ERISA benefits claims are barred by anti-assignment clauses but Defendants fail to establish as a matter of law that certain of the hospital’s ERISA benefits claims are barred by anti-assignment clauses; dismissing with prejudice claims for which appeals were untimely or no appeal was filed and the applicable time limit has passed. for Restorative Breast Surgery, L.L.C. v. Blue Cross Blue Shield of Louisiana, No. CV 11-806, 2016 WL 4208479 (E.D. La. Aug. 10, 2016) (Judge Susie Morgan).

• In matter where Plaintiffs allege that Defendants paid the charges for its patients’ medical care at significantly reduced rates, well below the amount billed and also below the reasonable and customary rate, finding that: (1) the allegations adequately state a promissory estoppel claim under Texas law and a promissory estoppel claim can be asserted in a lawsuit by a healthcare provider for payments from an ERISA plan; (2) dismissal of the ERISA Section 502(a)(1)(B) claim is not warranted where the plan documents are not before the court and it cannot be determined whether the plan requires payment at the reasonable and customary rate or, instead, provides for reimbursement at a different rate; (3) dismissal of ERISA Section 503 claim for failure to provide a full and fair review is warranted where neither defendant is an ERISA plan.  Allied Ctr. for Special Surgery v. Unitedhealthcare Ins. Co., No. CV H-16-1273, 2016 WL 4192059 (S.D. Tex. Aug. 9, 2016) (Judge Nancy F. Atlas).

Standard of Review

First Circuit

• Plan language setting forth BCBCRI’s “power to decide” does not bestow discretionary authority; de novo review will apply to BCBCRI’s decision to deny payment for two periods of in-patient treatment for patient with severe mental illness. Doe v. Blue Cross & Blue Shield of Rhode Island, No. 15-CV-41-M-LDA, 2016 WL 4223331 (D.R.I. Aug. 9, 2016) (Judge John J. McConnell, Jr.).

Withdrawal Liability & Unpaid Contributions

Eleventh Circuit

• Granting Plaintiffs’ motion for default judgment and awarding damages provided expressly under sections 502 and 515 of ERISA. Birmingham Plumbers and Steamfitters Local 91 Pension Plan; Birmingham Plumbers and Steamfitters Local 91 Welfare Fund, v. Iron Mountain Construction, Inc., No. 2:15-CV-00499-MHH, 2016 WL 4137972 (N.D. Ala. Aug. 4, 2016) (Judge Madeline Hughes Haikala).

* 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.