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ERISA Watch – Third Circuit Holds that Plan Participant Bargaining Power Is Not a Substantive Element of a Top-Hat Plan

This week’s notable decision is Sikora v. UPMC, No. 17-1288, __F.3d__, 2017 WL 5642407 (3d Cir. Nov. 24, 2017), where the Third Circuit joined the First Circuit, and departed from the Second, Sixth, and Ninth Circuits, in determining that plan participant bargaining power is not a substantive element of a top-hat plan.

In this case, Plaintiff-Appellant Sikora is a former employee of UPMC, who participated in UPMC’s Non-Qualified Supplemental Benefit Plan (“the Plan”).  Sikora sought benefits under the Plan following his voluntary termination, which UPMC denied.  In the United States District Court for the Western District of Pennsylvania, UPMC argued that the Plan was a top-hat plan, and, because three of Sikora’s claims relied on ERISA provisions inapplicable to top-hat plans, those claims should be dismissed.  The District Court concluded that the Plan was a top-hat plan and granted UPMC’s partial summary judgment motion.

First, the Third Circuit determined that the Plan meets ERISA’s definition of a top-hat plan:  “unfunded and … maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.” 29 U.S.C. §§ 1101(a)(1), 1051(2), 1081(a)(3).  It is undisputed that the Plan here is both unfunded and maintained by UPMC for the purpose of providing deferred compensation.  Sikora argued that the third element, which requires that the Plan cover a “select group” of employees, is not satisfied here.  The court disagreed.  It found that the quantitative restriction of the “select group” element is met since the Plan covers approximately 0.1% of the entire UPMC workforce.  With respective to the qualitative restriction, the court determined that the Plan covers high-level employees who are both a select group of management and highly compensated employees.  During the relevant time period, the average annual salary of Plan participants hovered around $500,000, where the average annual salary of all UPMC employees was around $55,000.  Because both quantitative and qualitative restrictions of the “select group” element exist here, the court held that the Plan is a top-hat plan.

Second, the court considered Sikora’s argument that the Plan does not cover a “select group” because there is no evidence regarding the “bargaining power” of the Plan participants.  Sikora relied on a paragraph from a 1990 Department of Labor (“DOL”) opinion letter, which states in relevant part:

It is the view of the Department that in providing relief for “top hat” plans from the broad remedial provisions of ERISA, Congress recognized that certain individuals, by virtue of their position or compensation level, have the ability to affect or substantially influence, through negotiation or otherwise, the design and operation of their deferred compensation plan, taking into consideration any risks attendant thereto, and, therefore, would not need the substantive rights and protections of Title I.

U.S. Dep’t of Labor, Pension & Welfare Benefit Programs, Opinion Letter 90-14A at 2 (May 8, 1990).  The Third Circuit noted that three of its sister circuits have inquired into participants’ bargaining power before determining whether a particular plan qualifies as a top-hat plan.  See  Bakri v. Venture Mfg. Co., 473 F.3d 677 (6th Cir. 2007); Demery v. Extebank Deferred Comp. Plan (B), 216 F.3d 283 (2d Cir. 2000); Duggan v. Hobbs, 99 F.3d 307 (9th Cir. 1996).  But, the First Circuit has expressed a different view, declining “to depart from the plain language of the statute and jerry-build onto it a requirement of individual bargaining power.”  Alexander v. Brigham & Women’s Physicians Org., Inc., 513 F.3d 37, 47 (1st Cir. 2008).

The Third Circuit agreed with the First Circuit’s approach, finding that the opinion letter does not require that participants in a top-hat plan possess bargaining power.  Although the Second, Sixth, and Ninth Circuits have inquired into plan participants’ bargaining power, they do not clearly adopt bargaining power as an additional requirement.  The Third Circuit affirmed the District Court and concluded that participants’ bargaining power is not a substantive element of a top-hat plan.

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

Breach of Fiduciary Duty

Fifth Circuit

Cooper Indus., Ltd. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pennsylvania, No. 16-20539, __F.3d__, 2017 WL 5562300 (5th Cir. Nov. 20, 2017) (Before STEWART, Chief Judge, and KING and JONES, Circuit Judges).  The court affirmed the district court’s judgment in favor of National Union.  The district court held that Cooper could not recover under its commercial-crime insurance policy with National Union because the claimed loss occurred only after Cooper loaned its funds (pension-plan assets) to a Ponzi scheme, at which point Cooper did not own either the earnings or the principal, as required under the policy.

Disability Benefit Claims

Fifth Circuit

Foster v. Principal Life Insurance Company, et al., No. CV 16-1270, 2017 WL 5599505 (E.D. La. Nov. 21, 2017) (Judge Nannette Jolivette Brown).  The court granted Principal’s motion for judgment upholding its denial of Plaintiff’s long term disability and life insurance waiver of premium benefits.  While Plaintiff, a former healthcare attorney, had complaints of headaches that were subjectively affecting her functionality, no objective or clinical evidence was presented to demonstrate that she was functionally impaired by the headaches.  Plaintiff also points to no evidence that addresses the specific job requirements of a healthcare attorney, and thus, has not satisfied her burden of proving that she cannot perform one or more of the material and substantial duties of her occupation as a healthcare attorney.  The court denied attorneys’ fees to both parties.

Ninth Circuit

Vaccaro v. Liberty Life Assurance Company Of Boston, No. 16-CV-03220-BLF, 2017 WL 5564910 (N.D. Cal. Nov. 20, 2017) (Judge Beth Labson Freeman).  The court granted Plaintiff’s motion for judgment on the issue of whether she is a Class 1 or Class 2 employer under the Liberty Life disability policy.  Class 1 participants enjoy a lifetime “own occupation” definition of disability.  Class 1 participants include Managers and Plaintiff had the job title of Manager.  The court found that the term Manager was unambiguous but even if it were ambiguous, Plaintiff still prevails.  The court determined that the 2015 policy and not the 2017 policy governs Plaintiff’s long term disability claim since the governing policy is the policy in effect when the ERISA cause of action accrued and it was the 2015 policy in effect when Plaintiff’s cause of action accrued.  Plaintiff’s cause of action accrued upon the expiration of Liberty’s June 8, 2016 deadline to issue an appeal deadline.  The court rejected Liberty Life’s “substantial compliance” argument that it based on the fact it issued the denial letter only six days late.

Medical Benefit Claims

Seventh Circuit

Boyden v. Conlin, et al., No. 17-CV-264-WMC, 2017 WL 5592688 (W.D. Wis. Nov. 20, 2017) (Judge William M. Conley).  Plaintiffs assert Title VII equal protection and Affordable Care Act claims against Defendants for the denial of healthcare coverage related to treatment for gender transition.  “Title VII is not the proper vehicle for plaintiff to bring a claim against Dean. As explained in Klassy, to hold otherwise would necessarily mean that Dean and all other health providers would be deemed at least an agent for every employer who contracted to provide healthcare plans to its employees, even though they have no discretion as to the scope of health benefits covered. It is doubtful that Congress intended to impose such wide-ranging liability on insurance companies under Title VII, and absent clear statutory language to the contrary, this court is disinclined to reach a different conclusion than it did more than a decade ago in Klassy.”

Ninth Circuit

Aviation West Charters, LLC d/b/a Angel Medflight v. Unitedhealthcare Insurance Company, No. CV 2:16-436 WBS AC, 2017 WL 5526569 (E.D. Cal. Nov. 16, 2017) (Judge William B. Shubb).  This is a lawsuit by a health plan participant against her insurance company for not paying for air ambulance services for her minor child.  The court determined that California Insurance Code § 10110.6 does not void the discretionary clause in the Plan because the Plan contains a choice of law provision explaining that Virginia law will apply to any disputes involving the terms of the Plan.  The court determined that Plaintiff’s declaration, which was not submitted to the administrator before it made a final determination, is inadmissible.  Because the administrator did not conduct a reasonable investigation of the claim, the court remanded the matter to United for reconsideration.

Pension Benefit Claims

Third Circuit

Sikora v. UPMC, No. 17-1288, __F.3d__, 2017 WL 5642407 (3d Cir. Nov. 24, 2017) (Before: SMITH, Chief Judge, McKEE, and RESTREPO, Circuit Judges).  The court affirmed the District Court’s judgment in favor of Defendants on the basis that Plaintiff cannot recover top-hat plan benefits under ERISA.  Plaintiff appealed arguing that the District Court should have required Defendants to prove that plan participants had bargaining power before concluding that he participated in a top-hat plan.  The court determined that plan participant bargaining power is not a substantive element of a top-hat plan.

Pleading Issues & Procedure

Tenth Circuit

Med Flight Air Ambulance, Inc. v. MGM Resorts International, et al., No. 17-CV-0246 WJ/KRS, 2017 WL 5634116 (D.N.M. Nov. 22, 2017) (Judge William P. Johnson).  The court granted Defendant’s motion to dismiss for lack of personal jurisdiction.  The court found and concluded that MGM has successfully demonstrated that litigation in this forum is unduly inconvenient and that any federal interest in litigating the dispute in New Mexico outweighs the burden imposed on MGM in having to defend the case here.

Statute of Limitations

Ninth Circuit

Costanzo, et al. v. National Union Fire Insurance Company of Pittsburgh, PA, No. 217CV01739APGPAL, 2017 WL 5615441 (D. Nev. Nov. 20, 2017) (Judge Andrew P. Gordon).  The court granted Defendant’s motion to dismiss since Plaintiffs have not alleged facts in the complaint supporting equitable estoppel, including that Plaintiffs detrimentally relied on any of National Union’s actions or that National Union caused them to miss filing suit within the three-year contractual limitation.  The court granted leave to amend if Plaintiffs can assert facts showing that National Union acted in a way, or made representations, that Plaintiffs detrimentally relied on and made them miss the contractual or statutory limitation periods.

Tenth Circuit

Zisumbo v. Convergys Corp., et al., No. 1:14-CV-134-RJS, 2017 WL 5634120 (D. Utah Nov. 22, 2017) (Judge Robert J. Shelby).  In this case, Plaintiff submitted a signed job application to Defendant that imposed, among other things, a six-month limitations period for any employment-related claim.  The court determined that an employer may contractually restrict the statutory time limitations for claims under ERISA, but not for FMLA claims.  With respect to the ERISA claim, the court found that Plaintiff has not shown the limitations provision in her Application was against public policy, or that it is ambiguous, or that she unknowingly waived her rights, or that any waiver was unconscionable.



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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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