Your ERISA Watch – Another One Bites the Dust:  Fifth Circuit Rules that Putative Class Action Fails to Meet Dudenhoeffer Standard

In what was conservatively good news for plan participants, the U.S. Supreme Court in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 189 L. Ed. 2d 457 (2014) held that ESOP fiduciaries were not entitled to a presumption of prudence, abrogating several circuit court decisions holding otherwise.  BUT, the Court also held that ERISA fiduciaries could prudently rely on the market price of stock as the assessment of its value in light of all public information; and a claim for breach of duty of prudence based on inside information was required to allege alternative action that a fiduciary could have taken consistent with securities laws, which a prudent fiduciary in the same circumstances would not have viewed as more likely to harm plan than to help it.

Then in Amgen, Inc. v. Harris, 136 S. Ct. 758 (2016), the Supreme Court held that to state claim for breach of fiduciary duty under ERISA, Plaintiffs were required to plausibly allege that a prudent fiduciary in the same position could not have concluded that alternative action of removing employer’s stock from list of investment options would do more harm than good.  The Court reversed the judgment of the Ninth Circuit and remanded for further proceedings.  Then the case settled.  Harris v. Amgen, Inc., No. CV075442PSGPLAX, 2016 WL 7626161 (C.D. Cal. Nov. 29, 2016).

Nearly four years after Dudenhoeffer, the courts to consider the Dudenhoeffer standard have not encountered a complaint that can survive dismissal.  See Jander v. Ret. Plans Comm. of IBM, 272 F.Supp.3d 444 (S.D.N.Y. 2017) (appeal filed on 10/27/17); Tatum v. RJR Pension Inv. Comm., 855 F.3d 553 (4th Cir. 2017); Saumer v. Cliffs Natural Resources Inc., et al., 853 F.3d 855 (6th Cir. 2017); Roe v. Arch Coal, Inc., No. 4:15-CV-910 (CEJ), 2017 WL 3333928 (E.D. Mo. Aug. 4, 2017) (appeal filed on 9/14/17); Coburn v. Evercore Trust Company, N.A., 844 F.3d 965 (D.C. Cir. 2016); Brannen v. First Citizens Bankshares Inc., No. 6:15-CV-30, 2016 WL 4499458, 62 EB Cases 2272 (S.D. Ga. Aug. 26, 2016); Whitley v. BP, P.L.C., 838 F.3d 523 (5th Cir. 2016), Taveras v. UBS AG, 612 F. App’x 27 (2d Cir. 2015); In re BP p.l.c. Sec. Litig., No. 4:10-CV-4214, 2015 WL 6674576 (S.D. Tex. Oct. 30, 2015); In re Lehman Bros. Sec. & ERISA Litig., 113 F. Supp. 3d 745 (S.D.N.Y. 2015), aff’d sub nom. Rinehart v. Lehman Bros. Holdings Inc., 817 F.3d 56 (2d Cir. 2016); Int’l Bhd. of Teamsters Union Local No. 710 Pension Fund v. Bank of New York Mellon Corp., No. 13 C 1844, 2015 WL 1234091 (N.D. Ill. Mar. 16, 2015); Smith v. Delta Air Lines Inc., 619 F. App’x 874 (11th Cir. 2015).

In this week’s notable decision, Singh v. RadioShack Corp., No. 16-11587, __F.3d__, 2018 WL 732913 (5th Cir. Feb. 6, 2018), Plaintiffs, who are retirement plan participants, brought a putative class action against Defendants alleging that they breached their fiduciary duties by allowing participants to invest in RadioShack’s stock despite its descent into bankruptcy.  The district court dismissed Plaintiffs’ first and second amended complaints for failure to state a claim pursuant to FRCP 12(b)(6).

On appeal, Plaintiffs fared no better than the other Dudenhoeffer casualties.  The Fifth Circuit affirmed the district court’s dismissal of the claims.  The court held that:  (1) absent special circumstances, the plan administrative committee did not breach the duty of prudence by relying on the market price as a fair indicator of the value of the employer’s stock; (2) no special circumstances existed that would make the committee’s reliance on the market price imprudent; (3) participants failed to allege that the plan administrative committee possessed any inside information that would have made its decision to purchase the employer’s stock at market price imprudent; (4) participants failed to state a duty of prudence claim based on insider information; (5) the fact that directors personally owned employer’s stock, without more, did not indicate that they breached their duty of loyalty by failing to freeze the plan investment; and (6) participants lacked Article III standing to assert any claims for breach of fiduciary duty related to the Puerto Rico plan.

Is there any hope for plaintiffs in these kinds of lawsuits post Dudenhoeffer?  Or are they all going in the doody hopper?  While you ponder that, enjoy the rest of this past week’s case summaries.

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Breach of Fiduciary Duty

Fifth Circuit

Singh v. RadioShack Corp., No. 16-11587, __F.3d__, 2018 WL 732913 (5th Cir. Feb. 6, 2018) (Before STEWART, Chief Judge, and JOLLY and OWEN, Circuit Judges).  See notable decision summary above.

Disability Benefit Claims

Third Circuit

Alzza v. Prudential Insurance Company of America, No. CV 15-5194 (JMV), 2018 WL 785858 (D.N.J. Feb. 7, 2018) (Judge John Michael Vazquez).  On the standard of review, the court determined that because the Employer Plan Document is not controlling, has an express waiver that the insurance contracts remain the final authority, and because the Group Contract and Booklet do not confer discretionary authority to Prudential, the court reviews Prudential’s determination de novo.  The court rejected all of Plaintiff’s reasons for why Prudential’s determination to deny benefits should not be upheld.  The court agreed with Prudential that Plaintiff’s subjective complaints to her healthcare professionals were inconsistent with their objective findings and that Prudential’s reviewer on Plaintiff’s second appeal thoroughly examined her doctors’ opinions and observations.  The court granted summary judgment for Defendant.

Sixth Circuit

Kellar v. Aetna Life Insurance Company, et al., No. CV 5: 17-81-DCR, 2018 WL 715381 (E.D. Ky. Feb. 5, 2018) (Judge Danny C. Reeves).  Aetna’s decision to deny Plaintiff’s long term disability benefit is not arbitrary and capricious. Aetna was entitled to credit the opinions of its medical reviewers over those expressed by Plaintiff’s doctors, and it satisfied its obligation to provide a reasoned explanation for doing so.  “Although there is evidence in the record that would have supported a contrary finding, the Court should not second guess an administrator’s decision when it is supported by substantial evidence.”

Ninth Circuit

Strickland v. AT&T Pension Benefit Plan, No. C 17-01393 WHA, 2018 WL 774046 (N.D. Cal. Feb. 7, 2018).  The court held that the AT&T Integrated Disability Service Center (IDSC) did not abuse its discretion in denying long term disability benefits to Plaintiff.  IDSC was not responsible for obtaining Plaintiff’s medical records, despite Plaintiff’s allegation that IDSC had previously used his authorization to obtain his medical records directly from his health-care providers.  The court found that IDSC adhered to ERISA’s procedural requirements with respect to its claim termination communications.  Lastly, the court determined that Plaintiff misinterprets a plan provision permitting the Plan to “correct errors.”  This provision did not require that IDSC consider a post-final decision submission of medical records.

Eleventh Circuit

Peer v. Liberty Life Assurance Co. of Boston, No. 9:17-CV-80281, 2018 WL 707752 (S.D. Fla. Feb. 5, 2018) (Judge Robin L. Rosenberg).  In this action seeking a disability-based waiver of premium of a group life insurance policy, the court denied Plaintiff’s summary judgment motion as moot since Liberty Life administratively reversed its denial of her claim for the benefit after she filed her lawsuit.

Discovery

Seventh Circuit

Allen v. The Lilly Extended Disability Plan, et al., No. 116CV02224TWPTAB, 2018 WL 691638 (S.D. Ind. Feb. 2, 2018).  In this matter challenging a long term disability denial, the court determined that Plaintiff failed to show she is entitled to discovery, and the court denied her motion to compel.  The court rejected Plaintiff’s argument that Defendants waived all objections to discovery by not properly responding to her requests.  The court explained that there were indications that the court was not inclined to permit discovery so Defendants’ response was sufficient.  The court did order Defendants to confirm that the administrative record is complete by submitting an affidavit or declaration from an appropriate officer or employee within 14 days.

ERISA Preemption

Fifth Circuit

Downs v. United of Omaha Life Insurance Company, et al., No. CV 17-0888, 2018 WL 794703 (W.D. La. Feb. 8, 2018) (Judge Robert G. James).  The court adopted the Magistrate Judge’s R&R in full.  It found that the subject disability policy is an ERISA plan, that Plaintiff’s state law claim for unpaid benefits and fees under the plan are completely preempted by ERISA, but the claims are recast under ERISA § 502(a)(1)(B); any other state law claim, including claims for punitive damages and/or penalties is dismissed with prejudice; Plaintiff does not get a jury trial; and the claim for fees under 42 U.S.C. § 1988 is dismissed with prejudice.

Ninth Circuit

Workman v. Dearborn National Life Insurance Company, No. 217CV04515ODWSSX, 2018 WL 707961 (C.D. Cal. Feb. 5, 2018) (Judge Otis D. Wright, II).  In this matter seeking interest under Cal. Ins. Code Section 10172.5 on life insurance benefits accruing from the date of the insured’s death, the court determined that Plaintiff’s unjust enrichment claim is not preempted by ERISA.  The Cal. Ins. Code is directed at insurers and the statute affects the risk allocated between insurer and insured.  The court will “balance the equities” after the development of a factual record.  The court denied dismissal of the unjust enrichment claim.  In light of the court’s discretion to award prejudgment interest in an ERISA action, the court also rejected Dearborn’s argument that interest is not recoverable because the Policy does not provide for interest payments.

Life Insurance & AD&D Benefit Claims

Fourth Circuit

Sun Life Assurance Company of Canada v. Horn, et al., No. CV ELH-17-434, 2018 WL 704867 (D. Md. Feb. 5, 2018) (Judge Ellen Lipton Hollander).  A former life insurance beneficiary argued that, as a matter of law, the terms of the power of attorney executed by the decedent did not authorize the agent to change the beneficiary under the Policy.  The court was unable to determine, as a matter of law, whether the word “modify,” as used in the power of attorney form, permits or precludes a change in beneficiary.  In addition, there is evidence that the decedent intended to authorize the change in beneficiary.  The court denied the former beneficiary’s motion for partial summary judgment.

Tenth Circuit

Smith v. Standard Insurance Company, et al., No. CIV-15-1126-D, 2018 WL 703133 (W.D. Okla. Feb. 2, 2018) (Judge Timothy D. Degiusti).  Plaintiff’s second claim for relief asserts that he is entitled to recover the additional life insurance benefit provided by the Policy due to an “Incontestability Clause.” Standard argued that the insured did not effectively enroll in the additional coverage.  The court explained that the application of the Incontestability Clause to Plaintiff’s claim for benefits cannot be decided separate from the question of whether the insured’s additional life insurance coverage was subject to Evidence of Insurability.  The court denied Plaintiff’s motion for summary judgment based on the finding that the Incontestability Clause of the Policy, standing alone, does not bar the denial of Plaintiff’s claim.

Pension Benefit Claims

Ninth Circuit

Paul v. RBC Capital Markets LLC, et al., No. C16-5616 RBL, 2018 WL 784577 (W.D. Wash. Feb. 8, 2018).  The court determined that RBC is collaterally estopped from re-litigating the Wealth Accumulation Plan’s (WAP’s) status as an employee pension benefit plan given the Fifth Circuit’s decision in Tolbert v. RBC Capital Mkts. Corp., 758 F.3d 619 (5th Cir. 2014).  And, even if collateral estoppel did not apply, the court would determine that the WAP is an employee pension benefit plan under ERISA.  The court denied RBC’s motion for summary judgment on the pension plan issue and granted Plaintiff’s motion for partial summary judgment.

Pleading Issues & Procedure

Fourth Circuit

Robinson v. Wateree Cmty. Actions, Inc., No. 3:17-CV-01578-JMC, 2018 WL 703335 (D.S.C. Feb. 5, 2018).  The court denied Plaintiff’s motion for default judgment since Plaintiff’s service of process was not compliant with S.C. R. Civ. P. 4(d)(8).  Plaintiff’s only evidence of proper service is an undated Return Receipt that is not signed by the addressee.  Plaintiff did not provide any evidence that the signee had the authority to receive service of process as an authorized agent of Wateree.

Sixth Circuit

Trinkle v. Hammer Trucking, Inc., et al., No. 16-14361, 2018 WL 783153 (E.D. Mich. Feb. 7, 2018) (Judge Denise Page Hood).  Where Plaintiff sought to amend his complaint to flush out his ERISA violation claim to include both retaliation and interference (Plaintiff was allegedly fired for withdrawing money from his 401(k) plan), the court concluded that although Plaintiff could have moved to amend the Complaint earlier in the proceedings: Defendants have not been harmed by a lack of notice; there is no evidence Plaintiff is acting in bad faith; there have been no previous attempts to amend; Defendant will not be unduly prejudiced by the amendment; and the amendment is not futile on its face.

Ninth Circuit

Berman v. Microchip Tech. Inc., No. 17-CV-01864-HSG, 2018 WL 732667 (N.D. Cal. Feb. 6, 2018); Schuman v. Microchip Technology Incorporated, et al., No. 16-CV-05544-HSG, 2018 WL 732664 (N.D. Cal. Feb. 6, 2018) (Judge Haywood S. Gilliam, Jr.).  The court granted Defendants’ motion to dismiss in part.  It determined that Plaintiffs’ 33-page complaint sufficiently complies with Rule 8(a) because it provides fair notice of Plaintiff’s claims for severance benefits and breaches of fiduciary duty.  The court also determined that the first cause of action for breach of fiduciary duty under Section 404(a) only partially states a claim for equitable relief because the Atmel Plan is not a proper defendant.  Plaintiffs are not required to seek relief on behalf of the Atmel Plan.  The court found, additionally, that Plaintiffs adequately allege that Microchip was a fiduciary in breach of its duties under ERISA.  Plaintiffs may bring their claim for equitable relief under section 502(a)(3) on behalf of all participants of the Atmel Plan without bringing their claims as a class action.  They may seek equitable relief under section 502(a)(3) in addition to their claims under section 502(a)(1)(B) to the extent that relief obtained under the latter provision does not negate the need for equitable relief.  Plaintiffs have stated a claim to limited injunctive relief, surcharge, and equitable estoppel under section 502(a)(3).  However, Plaintiffs fail to state a claim for ERISA interference under Section 510.

Provider Claims

Third Circuit

Shah, MD v. Horizon Blue Cross Blue Shield of New Jersey, No. CV 15-8590 (RMB/KMW), 2018 WL 801584 (D.N.J. Feb. 9, 2018) (Judge Renee Marie Bumb).  The court granted summary judgment to Horizon Blue Cross.  It found that reimbursement is not due at 60% of his charges, the provider has not been underpaid even under Horizon’s proposed method of calculating benefits, and the provider is not entitled to equitable relief in the form of contract reformation.

Venue

Ninth Circuit

Stefan v. Life Ins. Co. of N. Am., No. 217CV06165CASRAOX, 2018 WL 748163 (C.D. Cal. Feb. 6, 2018) (Judge Christina A. Snyder).  Where venue is also proper in the Central District of California, the court determined that Defendants have not satisfied their burden of demonstrating that transfer to the Western District of Pennsylvania would serve the convenience of the parties and witnesses given that the case will be decided on an “administrative record” and none of plaintiff’s proposed discovery would occur there.

Haskins v. Gen. Elec. Co., No. 17-CV-1960-CAB-BLM, 2018 WL 692280 (S.D. Cal. Feb. 2, 2018) (Judge Cathy Ann Bencivengo).  In this putative class action alleging breaches of fiduciary duties and mismanagement of the Defendant’s 401(k) plan, the court found that the convenience of the parties, the convenience of the witnesses, the interests of justice, and judicial efficiency all overwhelmingly favor litigating this dispute between a nationwide class and Defendants in Massachusetts instead of San Diego.  The court granted Defendants’ motion to transfer venue to the District of Massachusetts.

Your ERISA Watch authored by Michelle L. Roberts, Esq., Partner