Your ERISA Watch – In the Seventh Circuit, File Suit Immediately or Lose De Novo Review

A few weeks ago one of the notable decisions out of the Eastern District of Tennessee, Jordan v. Reliance Standard Life Insurance Company, 2018 WL 543041 (E.D. Tenn. Jan. 24, 2018) held that the claimant’s failure to file her ERISA lawsuit for benefits upon the administrator’s failure to make a decision on her appeal within 45 days, and her continued pursuit of administrative remedies thereafter, required her to “pursue the administrative pathway to its end.”

This week’s notable decision out of the Seventh Circuit, Dragus v. Reliance Standard Life Ins. Co., No. 17-1752, __F.3d__, 2018 WL 851164 (7th Cir. Feb. 14, 2018) is the same song to a different beat.  In Dragus, the Seventh Circuit held that Dragus waived the argument that Reliance Standard’s failure to render a timely decision on her claim compelled de novo review simply because she pursued administrative review through an appeal rather than pursued available remedies when the issue arose (i.e. immediately file a lawsuit).  On the merits of the case, the court determined that Reliance Standard’s decision was not arbitrary and capricious, where it relied on four independent physicians who did an “unbiased investigation.”  [Query: Is that really possible?].  Additionally, the court held that Plaintiff was not entitled to supplement the claim record with the Social Security Administration’s decision finding that Dragus is disabled from any gainful employment.

The unintended consequence of Dragus is that in the Seventh Circuit claimants are now incentivized, rather than discouraged, to immediately file a lawsuit in order to obtain a favorable standard of review (that is, assuming that the Illinois ban on discretionary clauses wouldn’t render any discretionary clauses void as a matter of law).  So what happens when a court gets a claim file containing only a claim submission and no decision?  Will it remand the case back to the administrator for further development?  Will the initial entitlement to de novo review still apply in any second lawsuit?  I’m sure my friends in the Seventh Circuit may have differing views about this, but I think Dragus creates more of the rock and a hard place for ERISA claimants.  Dragus is plaintiff-friendly in the scenario where a claim submission is solidly thorough, the administrator doesn’t make a decision within 45 days (or toll appropriately), the claimant immediately files a lawsuit, and the district court actually makes a decision on the merits without a remand.  This scenario will apply in very few instances, especially where a claimant is not represented by an experienced ERISA attorney at the claims stage.  In my experience, most claimants, if at all, seek an attorney when their claim has already been denied.

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

Attorneys’ Fees

Seventh Circuit

Tharp v. Catron Interior Systems, Inc., No. 112CV01870TWPDML, 2018 WL 828476 (S.D. Ind. Feb. 12, 2018).  The court previously awarded Plaintiffs the unpaid dues, contributions, deductions, interests, liquidated damages, and auditor fees.  On Plaintiffs’ motion for attorneys’ fees and costs, the court awarded Plaintiffs their attorney fees in the amount of $54,062.50 and their costs in the amount of $650.55, for a total award of $54,713.05 against Defendant.

Breach of Fiduciary Duty

First Circuit

Trovato v. Prudential Insurance Company of America, et al., No. 17-CV-11428-DJC, 2018 WL 813368 (D. Mass. Feb. 9, 2018) (Judge Denise J. Casper).  The court determined that Prudential cannot be held liable for breach of fiduciary duty in failing to send the notice of conversion of group life insurance.  The court found that sending that notice was a ministerial, rather than fiduciary, act.  The court noted that the First Circuit has yet to address whether a plaintiff must elect a remedy at this stage of the litigation.  However, finding the reasoning of the Second, Eighth and Ninth Circuits persuasive, since the court cannot determine if Plaintiff will be able to recover on her claim under ERISA Section 502(a)(1)(B), it would be premature to dismiss her claim under Section 502(a)(3) on the ground that it is foreclosed by her Section 502(a)(1)(B) claim.

Third Circuit

Laborers’ Combined Funds of Western Pennsylvania, et. al. v. Kathleen Jennings, Sheri Rummel, & James Redden, No. 2:15-1693, 2018 WL 816842 (W.D. Pa. Feb. 9, 2018).  In this dispute where a construction company failed to remit salary withholdings back to the Funds as required by the governing CBAs, the court found that the unpaid benefit contributions became “plan assets” once they became “due and owing.”  It also found that Defendant Jennings was a “fiduciary” under ERISA and that no reasonable jury could find that Jennings did not breach her fiduciary duties to the Funds.  The court granted summary judgment on the Funds’ breach of fiduciary claim and conversion claim against Jennings.  The court found that Defendant Rummel was not a fiduciary under ERISA as a matter of law and that no reasonable jury could conclude that Rummel interfered with the Funds’ possessory interest in the employee benefit contributions.

Class Actions

Second Circuit

Sacerdote, et al., v. New York Univ., et al., No. 16-CV-6284 (KBF), 2018 WL 840364 (S.D.N.Y. Feb. 13, 2018) (Judge Katherine B. Forrest).  The court granted Plaintiffs’ motion for class certification upon finding that the proposed class is properly certified under Rule 23(a), as well as Rule 23(b)(1)(A) or in the alternative, 23(b)(1)(B).  The court certified the following class:  All participants and beneficiaries of the NYU School of Medicine Retirement Plan for Members of the Faculty, Professional Research Staff and Administration and the New York University Retirement Plan for Members of the Faculty, Professional Research Staff and Administration from August 9, 2010, through the date of judgment, excluding the Defendant and any participant who is a fiduciary to the Plans.

Seventh Circuit

Nistra v. Reliance Trust Company, No. 16 C 4773, 2018 WL 835341 (N.D. Ill. Feb. 13, 2018) (Judge Gary Feinerman).  In this action alleging that Reliance Trust Company, as Plan trustee, breached its fiduciary duties to the Plan by causing it to engage in transactions prohibited by ERISA, the court granted certification of the following class under Rule 23(b)(1)(B):  All persons who were participants in The Bradford Hammacher Group, Inc. Employee Stock Ownership Plan other than the officers and directors of The Bradford Hammacher Group, Inc.; the legal representatives, successors, and assigns of the officers and directors; and those individuals, trusts, and their family members that redeemed or sold their shares in the Bradford Group and its affiliates and/or Hammacher, Schlemmer & Company, Inc. to Bradford in 2013. The court appointed Gregory Y. Porter of Bailey & Glasser LLP and Robert A. Izard of Izard, Kindall & Raabe, LLP, as class counsel.

Disability Benefit Claims

Third Circuit

Krash v. Reliance Standard Life Ins. Grp., No. 17-1814, __F.App’x__, 2018 WL 826742 (3d Cir. Feb. 12, 2018).  On appeal, Plaintiff argued that Reliance’s determination was arbitrary and capricious because the policy’s “mental or nervous disorders” limitation does not apply because her disability began as a solely physical one and that her spondylolisthesis entitles her to long-term benefits.  The court affirmed the district court’s grant of summary judgment in favor of Reliance Standard.  The medical records indicate that Plaintiff’s medical conditions contributed to her disability.  Additionally, the record contains substantial evidence that Plaintiff is not totally disabled under the policy.

Seventh Circuit

Dragus v. Reliance Standard Life Ins. Co., No. 17-1752, __F.3d__, 2018 WL 851164 (7th Cir. Feb. 14, 2018) (Before Bauer, Rovner, and Sykes, Circuit Judges).  See notable decision summary above.

Ninth Circuit

A.G. v. Unum Life Insurance Company of America, No. 3:17-CV-01414-HZ, 2018 WL 903463 (D. Or. Feb. 14, 2018) (Judge Marco A. Hernandez).  In this action challenging a denial of long term disability benefits by a former associate attorney with cognitive disabilities, the court granted Unum’s motion to compel Plaintiff to indicate Plaintiff’s full name, rather than Plaintiff’s initials, in compliance with Federal Rule of Civil Procedure 10(a) and upon application of the five-factor test established in Does I thru XII v. Advanced Textile Corp., 214 F.3d 1058 (9th Cir. 2000).

Tenth Circuit

West v. Aetna Life Insurance Company, No. 115CV00379LTBMEH, 2018 WL 858747 (D. Colo. Feb. 14, 2018) (Judge Lewis T. Babcock).  Aetna’s decision to terminate long term disability benefits was arbitrary and capricious and not based on substantial evidence:  The plan administrator erred by relying on Dr. Sharma’s report without addressing the conflicting opinions and substantial evidence to the contrary; the plan administrator failed to adequately address the objective evidence of brain injury when it terminated benefits; and the plan administrator overlooked the evidence of impairment reflected in the functional capacity assessment.  Aetna’s decision was inconsistent with the Social Security Administration’s decision awarding benefits and every opinion of Plaintiff’s treating physicians.  The court awarded back-due benefits plus interest at the statutory rate, reinstatement of benefits, and reasonable attorneys’ fees and costs under 29 U.S.C. § 1132(g).

Ninth Circuit

Gorbacheva v. Abbott Laboratories Extended Disability Plan, et al., No. 5:14-CV-02524-EJD, 2018 WL 827977 (N.D. Cal. Feb. 12, 2018).  The court granted Defendants’ motion for summary judgment and denied Plaintiff’s motion for judgment on the administrative record, or, in the alternative, an order setting the case for trial de novo.  On the timeliness of the Plan Administrator’s decision following remand, Plaintiff has not identified any substantive harm resulting from Defendant’s purportedly untimely decision that would justify deviating from the abuse of discretion standard of review.  “Plaintiff’s inability to appeal or respond to the new evidence developed on remand did not amount to a ‘wholesale and flagrant’ violation of the procedural requirements of ERISA that would warrant de novo review.”  The extent to which the Plan Administrator relied upon litigation counsel to assist in drafting the decision letter is a concern, but litigation counsel’s involvement in the drafting of the Plan Administrator’s decision letter does not rise to the level of a wholesale and flagrant violation of the procedural requirements of ERISA.  The Plan Administrator did not abuse her discretion by relying on Dr. Kalen’s analysis of the functional capacity evaluation report nor did it abuse its discretion in evaluating the SSDI award.  An FCE and a doctor’s letter from 2017 do not provide any new information regarding Plaintiff’s condition in 2012.

ERISA Preemption

Ninth Circuit

Klein, Inc. v. Board of Trustees of The Alaska Electrical Health & Welfare Fund, No. 3:16-CV-00098-SLG, 2018 WL 832837 (D. Alaska Feb. 12, 2018).  In this breach of contract action by a provider seeking payment of $1,192,297.45 of the billed charges the Fund refused to pay for the treatment it provided to twins born approximately 13 weeks premature, the court granted summary judgment to the Fund on the basis of ERISA preemption.  Resolving the parties’ dispute would require reference to and interpretation of the ERISA plan.  The court found that this case is more akin to that in Lodi Mem’l Hosp. Ass’n v. Tiger Lines, LLC.

Exhaustion of Administrative Remedies

Seventh Circuit

Gunchick v. Bank of Am., No. 16 C 4256, 2018 WL 888755 (N.D. Ill. Feb. 14, 2018) (Judge Matthew F. Kennelly).  Although Plaintiff initially raised both his compensation and length of service complaints when he filed his claim, the court determined that Plaintiff did not exhaust the remedies available to challenge the calculation of his length of service, because he did not raise this issue at each level of appeal provided by the pension administrator.  Plaintiff’s failure to exhaust available plan remedies regarding the length of service calculation precludes his claim on that point.

Life Insurance & AD&D Benefit Claims

Seventh Circuit

Ivie v. Ivie, No. 115CV01896MPBTWP, 2018 WL 833353 (S.D. Ind. Feb. 13, 2018) “The Court finds that Jack Ivie was not unduly influenced when he signed the 2014 Beneficiary Form that made Carolyn Ivie, his wife, the beneficiary of the life insurance policy in question. As established above, the fact that Carolyn Ivie was his attorney-in-fact at the time the 2014 Beneficiary Form was signed and the fact that Ms. Ivie benefited from the execution of the documents are not, by themselves, enough to establish a presumption of undue influence. No evidence was presented nor argument made that Ms. Ivie’s status as Roger’s power of attorney was used in the document’s execution.”

Ninth Circuit

Lincoln National Life Insurance Company v. Ridgway, et al., No. C17-1490 RSM, 2018 WL 883881 (W.D. Wash. Feb. 14, 2018).  In this interpleader action, the court determined that Defendant Ridgway is the sole and valid beneficiary.  There is no dispute that she was the sole beneficiary named on the policies, and that her beneficiary designation was effective at the time of the insured’s death.  The Co-Defendants cannot rebut the presumption of mental competency in this case.  Ridgway presented evidence that the insured was of sound mind when he made her the beneficiary of his insurance policies and the beneficiary of his 401(k).  She had no prior knowledge that she was to be named as the sole beneficiary, no one at Lincoln National had questioned the beneficiary designation at the time Ridgway made her claim and it was prepared to send her a check for the proceeds, and Ridgway presented additional declarations from non-familial individuals attesting to their relationships with the couple during the time period in question.  The court found that there is nothing in the record indicating or even giving rise to an inference of undue influence in designating Ridgway as the beneficiary.

Pension Benefit Claims

Third Circuit

Krauter v. Siemens Corporation, No. 17-1662, __F.App’x__, 2018 WL 921542 (3d Cir. Feb. 16, 2018) (Before: GREENAWAY, JR., NYGAARD and FISHER, Circuit Judges).  The court affirmed the district court’s grant of Defendant’s motion to dismiss.  Plaintiff lacked standing to assert the breach of fiduciary duty, prohibited transaction, declaratory judgment to enforce rights, and declaratory judgment to recover benefits as they pertained to both the defined benefit and defined contribution plans.  Plaintiff also lacked standing to assert his document penalty claim and promissory estoppel.

Sixth Circuit

Titus, Jr. v. Operating Engineers’ Local 324 Pension Plan, No. 16-CV-10951, 2018 WL 836528 (E.D. Mich. Feb. 13, 2018) (Judge Gershwin A. Drain).  The court denied Plaintiff’s Procedural Challenge to the Scheduling Order and granted Defendant’s Motion for Partial Judgment on the Pleadings.  Plaintiff’s claim for benefits under Section 502(a)(1)(B) and for equitable relief under Section 502(a)(3) seek to redress the same injury—denial of Plaintiff’s individual benefits. Therefore the [Hill v. Blue Cross & Blue Shield of Mich., 409 F.3d 710 (6th Cir. 2005)] exception does not apply.  The equitable relief claim is barred because it is an impermissible repackaging of the benefits claim.  The court also found that Plaintiff failed to established the requirements for estoppel in an ERISA case pursuant to ERISA Section 502(a)(3).

Seventh Circuit

Gunchick v. Bank of Am., No. 16 C 4256, 2018 WL 888755 (N.D. Ill. Feb. 14, 2018) (Judge Matthew F. Kennelly).  Plaintiff contended that the pension administrator wrongly excluded his commission payments in calculating his compensation.  The court concluded that no reasonable factfinder could find that it was arbitrary and capricious for the plan administrator to define Plaintiff’s draw payments as his basic income when calculating his pension benefits, given the text of the pension plan.  On the length of service issue, the court determined that Plaintiff was hired on August 29, 1994 but the Plan provides that his term of service does not start before January 1, 1995.  Thus, the pension administrator did not err in calculating his term of service based on that start date rather than his hire date.

Ninth Circuit

Nunez v. Pacific Gas & Electric Company Retirement Plan, No. 16-CV-07412-JST, 2018 WL 827972 (N.D. Cal. Feb. 12, 2018) (Judge Jon S. Tigar).  The court upheld the Plan’s Employee Benefit Appeals Committee’s (“EBAC”) decision to award pre-retirement survivor’s pension benefits to the participant’s daughter from a prior marriage (Vanessa), rather than to his wife (Gloria) at the time of his death.  Gloria had signed a notarized designation form which named Vanessa as the beneficiary.  She retracted it immediately thereafter but then later agreed to the designation, which was notarized and signed by her and Vanessa.  Although Gloria later claimed that she did not truly consent to the beneficiary designation, the court found that the balance of the evidence indicates that she voluntarily executed the designation.

Pleading Issues & Procedure

Fifth Circuit

Chapman, et al. v. Revclaims, LLC, et al., No. 1:17CV75-HSO-JCG, 2018 WL 893866 (S.D. Miss. Feb. 14, 2018) (Judge Halil Suleyman Ozerden).  Defendants sought removal on the basis of ERISA preemption.  The court found that the notice of removal was defective because written consents to the removal were not filed by each of the other Defendants within thirty days of service upon them of the Amended Complaint.  Because of this procedural defect in the removal, remand is required.

Eleventh Circuit

Bryant v. General Electric, No. 5:15-CV-61 (LJA), 2018 WL 894033 (M.D. Ga. Feb. 14, 2018) (Judge Leslie J. Abrams).  Where Plaintiff alleges that he was due lifetime benefits under Defendant’s Plans, that he was denied those benefits when Defendant changed the Plans, that the Plan documents misled Plaintiff as to the nature of the Plan benefits, and that he suffered damages as a result of his reliance on the perpetual existence of the benefits in the Plans, the court found that Plaintiff has stated claims under ERISA for breach of Plan obligation and breach of fiduciary duty under Section 502(a)(1)(B).  Because he has stated a claim under that provision, he cannot alternatively seek relief under ERISA Section 502(a)(3).  The court granted in part and denied in part Defendant’s motion to dismiss for failure to state a claim.

Provider Claims

Third Circuit

Shah, M.D. v. Horizon Blue Cross Blue Shield of New Jersey & Blue Cross Blue Shield of Illinois, No. CV 16-8892 (RBK/AMD), 2018 WL 918888 (D.N.J. Feb. 16, 2018) (Judge Robert B. Kugler).  The court declined to dismiss the benefits claim because Plaintiff has pled facts that plausibly establish that Defendant controls the administration of benefits under the plan.  Plaintiff’s equitable relief claim is dismissed because it seeks duplicative legal relief.  There is no private right of action under 29 C.F.R. 2560.503-1.  ERISA Section 102 also does not provide a cause of action for a party’s failure to establish a Summary Plan Description.

Retaliation Claims

Fifth Circuit

Spencer v. FEI, Incorporated, No. 17-10159, 2018 WL 921580 (5th Cir. Feb. 15, 2018) (Before STEWART, Chief Judge, CLEMENT, and SOUTHWICK, Circuit Judges).  The court did not consider Plaintiff’s argument that intent may be shown through circumstantial evidence using the McDonnell Douglas framework since he did not present this argument to the district court in its consideration of FEI’s motion for summary judgment.  Even if he did, summary judgment on the ERISA claim would still have been warranted since Plaintiff did not show that FEI’s nondiscriminatory reasons for terminating him were pretextual.

Statute of Limitations

Seventh Circuit

Gunchick v. Bank of Am., No. 16 C 4256, 2018 WL 888755 (N.D. Ill. Feb. 14, 2018) (Judge Matthew F. Kennelly).  The court granted Defendant’s motion for summary judgment.  Because Defendant notified Plaintiff how it would calculate his length of service and compensation history in its benefits letter in November 2003, his ERISA claim accrued in November 2003.  Applying 735 ILCS 5/13-206, which provides a ten-year statute of limitations for actions on certain written instruments, as the analogous state law in Illinois for claims under Section 502, the limitations period expired in November 2013.  Plaintiff did not file his lawsuit until 2016, which is untimely.

Statutory Penalties

Fourth Circuit

Figlioli v. Liberty Life Assurance Company of Boston & Group Life Insurance and Disability Plan of United Technologies Corporation, No. 1:17CV171, 2018 WL 834616 (N.D.W. Va. Feb. 12, 2018) (Judge Irene M. Keeley).  The court granted Defendants’ motion for partial judgment on the pleadings.  Following the reasoning in Coleman v. Nationwide Life Ins. Co., 969 F.2d 54 (4th Cir. 1992), the court declined to adopt the “de facto” administrator approach and held that neither the Plan nor Liberty Life is a plan administrator subject to suit under 29 U.S.C. § 1132(c).

Subrogation/Reimbursement Claims

Ninth Circuit

Board of Trustees of The San Diego Electrical Health And Welfare Trust; Andy Berg And Nicholas Segura v. Vickers, No. 18-CV-0296-BTM-JMA, 2018 WL 844328 (S.D. Cal. Feb. 12, 2018) (Judge Barry Ted Moskowitz).  The court granted Plaintiff’s motion for a temporary restraining order.  It found that Plaintiffs have at the very least shown serious questions going to the merits of this case.  Though Defendants have refused to sign the subrogation agreement, they are still bound by the terms of the SPD.  Second, absent a TRO, Plaintiffs risk suffering irreparable harm since it is at risk of losing its remedies under ERISA, as an equitable lien cannot be enforced against general assets when the specifically identified property has been dissipated.  “Third, the balance of equities is in Plaintiffs’ favor, as a TRO simply preserves the status quo while the merits of the case are litigated. Lastly, it is within the public’s interest to grant Plaintiffs a TRO order and uphold a fiduciary’s subrogation and reimbursement rights under ERISA.”

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