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ERISA Watch – Supreme Court Holds that Defined Benefit Plan of Church-Affiliated Organization Is an ERISA-Exempt Church Plan

This week’s notable decision is fresh out of the U.S. Supreme Court in Advocate Health Care Network, et al. v. Stapleton, et al., No. 16-74, 581 U.S. __, (June 5, 2017).  In a stunning blow to the pension plan participants of “principal-purpose organizations,” the Supreme Court held that a church-affiliated organization’s defined benefit plan is an ERISA-exempt “church plan” regardless of who established it.  Petitioners are three church-affiliated nonprofits that established the defined benefit plans at issue and manage these plans by internal employee-benefits committees.  Respondents are current and former hospital employees who claim that the pension plans do not fall within ERISA’s church plan exemption because they were not established by a church.  The Supreme Court reasoned that when Congress amended ERISA to expand the definition of a church plan to include a “plan maintained by an organization … the principal purpose…of which is the administration or funding of [such] plan …for the employees of a church…, if such organization is controlled by or associated with a church,” Congress intended to include plans maintained by principal-purpose organizations.  See 29 U.S.C. Section 1002(33)(C)(i).  In other words, Congress added language that enabled a plan maintained by a principal-purpose organization to substitute for a plan both established and maintained by a church.  Justice Kagan delivered the opinion of the Court, in which all other Members joined, except Justice Gorsuch, who took no part in the consideration or decision of the cases.  Justice Sotomayor filed a concurring opinion because she agrees that the statutory text compels the result reached by the majority but is troubled by the outcome that employees of large healthcare providers are not subject to ERISA’s protections.  Besides this heavyweight of a decision, the rest of this week was fairly light.  Enjoy!

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

Attorneys’ Fees

Second Circuit

Dist. Photo Inc. Health Care Plan v. Pyrros, No. 13CV4285JFBSIL, __F.Supp.3d__, 2017 WL 2334027 (E.D.N.Y. May 30, 2017) (Judge Joseph F. Bianco).  Where Defendants ultimately prevailed in this action against them seeking restitution of overpaid benefits, the court denied their motion for attorneys’ fees where it found that the Chambless factors weigh against an award of attorneys’ fees, especially in light of plaintiff’s minimal culpability and the possible chilling effect an award would have on potentially meritorious lawsuits brought to protect beneficiaries’ interests.

Breach of Fiduciary Duty

Eighth Circuit

3M Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, No. 15-3495, __F.3d__, 2017 WL 2347105 (8th Cir. May 31, 2017) (Before LOKEN, SMITH, and COLLOTON, Circuit Judges).  The court affirmed the district court’s grant of summary judgment to the defendant insurer. The district court held that the 3M’s losses due to fraud perpetrated by its own investment advisors are not covered by 3M’s insurance policy since 3M does not meet the conditions of coverage set forth in the “ownership provision” of the policy.  Although 3M claimed that it satisfies the ownership requirement because it had ERISA fiduciary duties regarding the stolen earnings, the court explained that ERISA regulation, 29 C.F.R. § 2510.3–101, does not alter general commercial property rights, but merely defines the nature and scope of the fiduciary duties owed to plan participants.

Meiners v. Wells Fargo & Co., et al., No. CV 16-3981(DSD/FLN), 2017 WL 2303968 (D. Minn. May 25, 2017) (Judge David S. Doty).  Plaintiff’s allegation that Wells Fargo breached its fiduciary duty by continuing to invest in its own target date funds when better-performing funds were available at a lower cost is insufficient to plausibly allege a breach of fiduciary duty.  Thus, that claim and the breach of co-fiduciary duty and knowing participation in a breach of fiduciary duty must be dismissed.


Eleventh Circuit

Turner v. Alstate Ins. Co., No. 2:13-CV-685-WKW, 2017 WL 2274331 (M.D. Ala. May 24, 2017) (Magistrate Judge Charles S. Coody).  In this consolidated ERISA action concerning “paid up” life insurance policies for retirees, the court granted Plaintiffs’ motion to compel to redepose Jim Devries to answer the following question which his attorney instructed him not to answer due to privilege:  … in making the decision to terminate the retiree life Insurance benefits to Allstate employees, did you consider what commitments Allstate had made to its home office employees when it issued a special retirement opportunity to them in the mid ‘90’s?  The answer requests a historical fact which is not privileged.

Medical Benefit Claims

Ninth Circuit

B.R. v. Beacon Health Options, No. 16-CV-04576-MEJ, 2017 WL 2351973 (N.D. Cal. May 31, 2017) (Magistrate Judge Maria-Elena James).  The court granted Defendant’s motion to dismiss because Plaintiffs have not identified precisely which Plan provisions they contend SAG-AFTRA violated by not paying for W.R.’s residential mental health treatment.  The court also granted the motion on the basis that the Plan does not provide coverage for non-emergency, out-of-network hospital treatment.

Pension Benefit Claims

Third Circuit

Aicher v. IBEW Local Union No. 269 Joint Trust Funds Office, No. CV 12-1781 (FLW), 2017 WL 2364191 (D.N.J. May 31, 2017) (Judge Freda L. Wolfson).  The court held that the Trustees’ denial of Plaintiff’s retroactive pension payments for the period of September 2010 to December 2011 is arbitrary and capricious, where the Trustees’ determined that Plaintiff’s work as an Administrative Manager was in the electrical construction industry which is in the same “industry” as his former employment, but did not engage in the pertinent analyses of considering the skill or skills actually used by the retiree in his job.  The court awarded benefits and prejudgment interest at the interest rate prescribed for post-judgment interest under 28 U.S.C. Section 1961.

Plan Status

Fifth Circuit

Andrus v. Unum Life Ins. Co. of Am., No. CV 16-1112, 2017 WL 2364247 (E.D. La. May 31, 2017) (Judge Susie Morgan).  OGHS is a political subdivision of the State of Louisiana because it is administered by individuals who are responsible to public officials or the general electorate.  It is also an agency or instrumentality of the Hospital Service District No. 2, which is a political subdivision of the State of Louisiana.  As such, the employee benefit plan established and maintained by OGHS is a “governmental plan,” which is exempt from ERISA coverage pursuant to 29 U.S.C. § 1003(b)(1).

Pleading Issues & Procedure

Eighth Circuit

Pearson v. Wellmark, Inc., No. 4:15-CV-3164, 2017 WL 2371142 (D. Neb. May 31, 2017) (Judge John M. Gerrard).  In this matter challenging a denial of air ambulance services, the court denied Defendant’s motion to dismiss Plaintiff’s claim for equitable relief based on Wellmark’s alleged refusal to comply with ERISA’s disclosure requirements even though Plaintiff also alleged a claim for benefits under § 1132(a)(1)(B).  Although these claims derive from the same factual premise—i.e., Wellmark’s denial of benefits—that fact is not, at the motion to dismiss stage, dispositive under Varity.  The court also denied the motion to dismiss on the grounds that the air-ambulance fee schedule is outside of Section 1024(b)(4)’s reach.

Provider Claims

Third Circuit

Bloomfield Surgical Center v. Cigna Health and Life Insurance Company, et al., No. CV168645SDWLDW, 2017 WL 2304642 (D.N.J. May 25, 2017) (Judge Susan D. Wigenton).  The court dismissed the counts asserting claims for failure to establish a Summary Plan Description and breach of fiduciary duty since they do not fall within the narrow scope of the assigned rights set forth in the assignment of benefits. The court also dismissed the claim brought under 29 C.F.R. 2560.503-1 since this regulation does not create a private right of action.

Severance Benefit Claim

Fifth Circuit

Langley v. Howard Hughes Management Company, L.L.C., No. 16-20724, __F.App’x__, 2017 WL 2390609 (5th Cir. June 1, 2017) (Before KING, JOLLY, and PRADO, Circuit Judges).  The court reversed the district court’s award of summary judgment and attorneys’ fees in favor of the plan administrator.  The plan administrator denied separation benefits to Plaintiff based on the exclusion for any person who is compensated by “special fees.” The court held that the administrator’s reading of the Separation Benefits Plan to exclude Plaintiff on the basis of the Club Sale Incentive Award was not legally correct.  Because the administrator’s interpretation of the Plan contradicted the plain meaning of the plan language, it was an abuse of discretion.

Subrogation/Reimbursement Claims

Third Circuit

Aicher v. IBEW Local Union No. 269 Joint Trust Funds Office, No. CV 12-1781 (FLW), 2017 WL 2364191 (D.N.J. May 31, 2017) (Judge Freda L. Wolfson).  Plaintiff’s allegations that Defendants discouraged him from filing benefits claim or that Defendants instructed the Third–Party Plan Administrator to not process Plaintiff’s application for benefits do not present any actionable prohibited employer conduct within the meaning of section 510.

Fifth Circuit

Rhea v. Alan Ritchey, Inc. Welfare Benefit Plan, No. 16-41032, __F.3d__, 2017 WL 2332538 (5th Cir. May 30, 2017) (Before SMITH, PRADO, and GRAVES, Circuit Judges).  The court affirmed the district court’s decision that Defendants are entitled to reimbursement for medical expenses from Plaintiff’s malpractice claim settlement because the settlement created an equitable lien by agreement.  An SPD can function as a written instrument in the absence of a separate written instrument.  When the SPD is the plan’s only plausible written instrument, it can be assumed at the SPD is the written instrument.  ERISA does not require written instruments to set forth complex procedures so the SPD’s minimal discussion of the Plan’s funding is sufficient to satisfy ERISA’s requirements.




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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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