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ERISA Watch – November 16, 2015

Your reliable source for summaries of recent ERISA decisions

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

Sixth Circuit

In ESOP case, fiduciary investment decision to continue to buy and not sell GM common stock is not actionably imprudent. Pfeil v. State St. Bank & Trust Co., No. 14-1491, __F.3d___, 2015 WL 6874769 (6th Cir. Nov. 10, 2015) (BOGGS, J., delivered the opinion of the court in which SUHRHEINRICH, J., joined. WHITE, J. delivered a separate dissenting opinion). In suit brought by participants in employee stock ownership plan (ESOP) against plan fiduciary, alleging that it breached its fiduciary duty under ERISA to manage plan’s assets prudently, the Sixth Circuit affirmed the district court’s grant of summary judgment in favor of the fiduciary. The majority held that: 1) a plaintiff claiming that an ESOP’s investment in a publicly traded security was imprudent must show special circumstances to survive a motion to dismiss; 2) participants failed to show a special circumstance such that fiduciary should not have relied on market pricing in determining whether to continue to buy and to decline to sell employer’s common stock during the relevant period; and 3) fiduciary’s actual processes for monitoring employer’s stock demonstrated the requisite prudence.

Upon reconsideration, retirees are entitled to vested retiree health insurance benefits. Reese, et al. v. CNH Industrial N.V. & CNH Industrial America, LLC, No. CV 04-70592, __F.Supp.3d___, 2015 WL 6865964 (E.D. Mich. Nov. 9, 2015) (Judge Patrick J. Duggan). In a matter involving retiree health insurance benefits, the court granted Plaintiff’s motion for reconsideration, vacated the court’s September 28, 2015 Judgment, denied Defendants’ motion for summary judgment, granted Plaintiffs’ motion for summary judgment, and denied as moot Plaintiffs’ motion to strike. On reconsideration, the court found that CNH incorrectly asserted that the only conclusion to be reached once the Yard-Man inferences are removed is that the parties intended Plaintiffs’ retiree health insurance benefits to terminate with the 1998 Central Agreement. The court explained that the Supreme Court’s opinion in M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015) did not create new rules for construing collective bargaining agreements. Instead, Tackett simply reaffirmed that collective bargaining agreements are interpreted “according to ordinary principles of contract law….” CNH failed to apply those ordinary principles of contract law to the relevant agreements in its motion for summary judgment, a mistake the court repeated in reaching its September 28, 2015 decision. Applying the ordinary principles of contract law, the court concluded that Plaintiffs are entitled to vested retiree health insurance benefits.

Select Slip Copy & Not Reported Decisions

Breach of Fiduciary Duty

Eighth Circuit

Failing to remit employee contributions to a health plan constitutes breach of fiduciary duty. Perez v. Harris, No. 12-CV-3136 (SRN/FLN), 2015 WL 6872453 (D. Minn. Nov. 9, 2015) (Judge Susan Richard Nelson). Plaintiff Secretary of Labor alleged that Defendant Harris was a fiduciary to the Faribault Woolen Mills, Inc. Fully Insured Hospital Life Welfare Plan and that he breached his fiduciary responsibilities under ERISA by failing to remit $55,040.61 in employee contributions to the Health Plan between January 9, 2009 and March 20, 2009. The Secretary asserted that Harris breached his duty of loyalty to the Health Plan participants in violation of ERISA § 404(a), 29 U.S.C. § 1104(a), and caused the Health Plan to engage in prohibited transactions in violation of ERISA § 406, 29 U.S.C. § 1106. The court determined that Harris is liable under ERISA § 404(a)(1)(A) for breach of fiduciary duty and declined to address the Secretary’s claim that Harris also is liable for engaging in prohibited transactions in violation of ERISA § 406. The court denied as moot the Secretary’s Motion in Limine to Narrow the Issues at Trial, which concerned whether ERISA’s proscriptions in § 406(a)(1)(D) against prohibited transactions and self-dealing require a subjective intent to benefit a party in interest. The court found Harris liable for restitution and prejudgment interest. The court further found that injunctive relief of removing Harris as a fiduciary of the plan is not appropriate since the plan is no longer in existence and Harris’s conduct was not so egregious as to warrant a broader injunction on his ability to serve as a fiduciary or service provider to any ERISA-covered employee benefit plan.

Disability Benefit Claims

Second Circuit

Disability pension benefits denied to participant who was neither employed nor actively seeking covered employment as of the date of disability. Labombard v. Winterbottom, No. 8:14-CV-00071 MAD, 2015 WL 6801206 (N.D.N.Y. Nov. 6, 2015) (Judge Mae A. D’Agostino). The court granted summary judgment in favor of Defendants on Plaintiff’s claim for disability benefits under the Laborers’ Pension Fund of Local Union No. 186 (the “Fund”). Plaintiff was an enrolled member of Local Laborers’ Union No. 186, Plattsburgh, New York starting in 1988 and undisputedly was engaged in covered employment with the Union from 1988 to 2008. On February 8, 2013, Plaintiff submitted an application to the Fund for a disability pension resulting from injuries sustained in a car accident on November 13, 2012, stating that his last day of covered employment was November 13, 2012. Plaintiff’s application was denied on April 17, 2013 in a letter from Defendant Winterbottom stating that “[a] participant must be employed or actively seeking employment that would earn Pension or Vesting Service when the incident or illness that causes the disability occurs. According to our records, you last worked in covered employment in 2008 and your Social Security Award does not start until May 2013.” Plaintiff appealed and claimed that he was entitled to benefits because he was a dues paying member of the Fund and that he was at all times, ready, willing and able to appear for any jobs assigned by the Laborers’ Union and was actively seeking employment but none had been assigned since 2008. Defendant Winterbottom informed Plaintiff that his appeal was denied based on the absence of any evidence that Plaintiff was actively seeking work during the period between his last date of covered employment in 2008 and the date he became disabled. The Trustees also found that Plaintiff was working as an operating engineer (non-covered employment) during this time and that he was not on the Union’s out of work list when his disability began. Plaintiff claimed that he was never told that he had to fill out an out of work form, but he did not raise this argument during the administrative review process. The court found that it was not arbitrary and capricious for the Trustees to rely on statements made by a union trustee that he observed Plaintiff working as an operating engineer. The court also found that it was not the Fund’s burden to show that Plaintiff was called for work and turned it down.

Ninth Circuit

On de novo review, claimant did not meet his burden of demonstrating entitlement to benefits. Lawrence v. Life Insurance Company of North America, No. CV15-170 DSF (PJWX), 2015 WL 7013089 (C.D. Cal. Nov. 12, 2015) (Judge Dale S. Fischer). The court found that evidence in the Administrative Record did not show that Plaintiff met his burden of demonstrating that he was entitled to the disability benefits sought. First, Plaintiff’s treating physician did not opine that Plaintiff was disabled through the Policy Elimination Period, and prior to the denial of the claim the treating physician stated that Plaintiff was “ready to work.” Second, the court found that the record showed that Plaintiff’s hypertension is generally well-controlled, and even when it is not, there is no evidence that it interferes with his job function or creates an undue risk of a life-threatening event while on the job. Third, apart from self-reported symptoms, the court found no evidence of Plaintiff suffering from a disabling psychological condition. Lastly, the court found no reason to believe that the muscular issues reported by one doctor rises to the level of disabling conditions.

Aetna abused its discretion by applying “inconsistent yardsticks” in disability determination and claimant is entitled to “own occupation” benefits. Rude v. Intel Corp. Long Term Disability Ben. Plan, No. 13-15834, __Fed.Appx.___, 2015 WL 6912951 (9th Cir. Nov. 10, 2015) (Before SILVERMAN and CHRISTEN, Circuit Judges, and DUFFY, District Judge). In an action challenging a denial of a claim for long term disability benefits under the Intel Corp. Long Term Disability Plan, the Ninth Circuit vacated and remanded the district court’s decision in favor of the Plan. The court found that Aetna abused its discretion in denying Plaintiff’s benefits because it “applied inconsistent yardsticks when measuring what Rude’s job was and what he was capable of performing.” The court also found that Aetna’s characterization of Plaintiff’s job as sedentary is inconsistent with statements from his supervisor, who stated that Plaintiff’s job involved as much as two hours of walking and one hour of standing per day, and from Plaintiff himself, who stated that his job required three hours of standing and one hour of walking per day. The court vacated the district court’s judgment and remanded for an award of benefits for the six months of long term disability remaining in Plaintiff’s “own occupation” period but disallowed benefits for the subsequent “any occupation.”

ERISA Preemption

Second Circuit

ERISA does not preempt constructive trust on life insurance policy proceeds. McCarthy v. Estate of McCarthy, No. 14-CV-6194 JMF, 2015 WL 7019768 (S.D.N.Y. Nov. 10, 2015) (Judge Jesse M. Furman). In a matter alleging constructive fraud against Defendants, the court concluded that Plaintiffs are entitled to the proceeds of an Aetna insurance policy. The court found that it need not resolve whether one of the defendants was designated as the primary beneficiary on the Aetna Policy, because even assuming the defendant was so designated, equity commands that the court impose a constructive trust on the paid-out proceeds of that policy. The Decedent, upon his failure to maintain death benefits in the amount of $4 million in accordance with the terms of the Marriage Settlement Agreement, had an obligation to name Plaintiffs as beneficiaries on later policies. Under New York law, that obligation is enforceable in equity despite the Decedent’s failure to comply with the terms of the separation agreement and, when the Decedent died, Plaintiffs acquired not only a right at law to sue his estate for breach of contract, a right now worthless, but also an equitable right in the proceeds of the Aetna policy. The court found that ERISA does not preempt the imposition of a constructive trust on the proceeds of the policy. After proceeds have been distributed, parties’ rights and equities may be determined without regard to ERISA because post-distribution suits do not interfere with any of those objectives.

Eleventh Circuit

Claim involving continuation of life insurance benefits following retirement is preempted by ERISA. Woods v. American United Life Insurance Company, No. 1:15-CV-00859-JEO, 2015 WL 7075284 (N.D. Ala. Nov. 13, 2015) (Magistrate Judge John E. Ott). In a dispute involving payment of life insurance benefits, the court granted Defendant’s motion to dismiss Plaintiff’s state-law claims and her demands for punitive and extra-contractual damages, and to strike her demand for a jury trial, finding that the claims are preempted by ERISA. Here, the insured retired from her employment with the Talladega County School System and elected to continue her existing coverage under the Alabama Education Association (AEA) group policy, an employee benefits plan governed by ERISA. The court found that her coverage remained under the scope of ERISA, notwithstanding that she was no longer employed by the County and was required to make her premium payments directly to the insurer. The court relied on other cases that hold that when an employee participates in an employee benefits plan and then keeps her coverage in force by paying the premiums herself after her employment ends, ERISA continues to govern the coverage.

Life Insurance & AD&D Benefit Claims

In interpleader action, beneficiary designation controls notwithstanding allegations that beneficiary took advantage of the decedent. Metropolitan Life Insurance Company v. Thomason, et al., No. 15-12256, 2015 WL 6955412 (E.D. Mich. Nov. 10, 2015) (Judge Avern Cohn). In an interpleader action, the court found that the decedent’s most recent beneficiary designation was valid and that 50% of the benefit is payable to the decedent’s caregiver/girlfriend. The decedent’s sister challenged the designation, claiming that the caregiver took advantage of decedent, that decedent was suffering from dementia, that she was not aware that the caregiver was decedent’s girlfriend, and that the caregiver did not take good care of decedent. However, the court found that there is no evidentiary support in the record for these allegations and in the absence of any basis in the record for questioning decedent’s most recent designation of beneficiary form, the court concluded that the final designation made by the decedent is controlling.

Pension Benefit Claims

Sixth Circuit

Right to lifetime pension benefits under Supplemental Executive Retirement Plan was superseded by an agreement. Schempp v. GC Acquisition, LLC, No. 14-4076, __Fed.Appx.___, 2015 WL 7003396 (6th Cir. Nov. 12, 2015) (Before GUY, BATCHELDER, and GIBBONS, Circuit Judges). The Sixth Circuit affirmed the district court’s ruling that Plaintiff waived his rights to benefits under Glastic Corporation’s Supplemental Executive Retirement Plan A (“SERP A”) because he entered an agreement that superseded SERP A. The district court held that a 2006 Agreement, on its face, replaces any rights Plaintiff may have had under SERP A. The following provision from the Agreement’s recitals provision was dispositive for the district court: “It is the intent of the parties that this Agreement, a modification of [SERP A], and all deferrals of compensation and distributions made pursuant to it, complies with Section 409A of the Internal Revenue Code of 1986, as amended.” Assuming without deciding that the knowing-and-voluntary requirement applies in this case, the court was convinced that a rational trier of fact would conclude that Plaintiff both knowingly and voluntarily waived his rights under SERP A.

Eleventh Circuit

Plan administrator abused its discretion in denying Plaintiff “Male direct owner” classification under pension plan. Lee v. Equity Properties Asset Management, Inc., et al., No. 8:13-CV-2239-T-30EAJ, 2015 WL 6956556 (M.D. Fla. Nov. 10, 2015). The court found that Defendants’ decision to deny Plaintiff the advantageous “Male direct owner” classification under the Equity Properties Asset Management, Inc. Defined Benefit Pension Plan was arbitrary and capricious. The court found that under the terms of the Plan, “Male direct owners” is undefined and ambiguous and the ambiguity must be construed in Plaintiff’s favor for purposes of de novo review. Under Plaintiff’s interpretation, he fits the description of “Male direct owners” because he held an option to purchase 50% of EPAM’s stock. Because the administrator was de novo wrong, the court next determines whether the administrator was vested with discretion in interpreting the provisions of the Pension Plan. The court found that the plan administrator was vested with discretion but that its decision was unreasonable given a number of procedural irregularities. The procedural irregularities that the court found most notable included Defendants’ admitted failure to compile an administrative record, failed to timely and properly provide Plaintiff with election forms, and never provided Plaintiff with a final determination on his claim. The court found that a close review of the record suggests that Defendants were, at the very least, partners in a scheme to obscure Plaintiff’s control over the company to their mutual advantage.

Pleading Issues & Procedure

Second Circuit

Allegation of disparate treatment by union member does not state a claim under ERISA. Trieste v. Graphic Commc’ns Teamsters Local 503, No. 14-CV-6413, 2015 WL 6872482 (W.D.N.Y. Nov. 9, 2015) (Judge Michael A. Telesca). Plaintiff alleged that Defendants made false representations to him that as a union member, he was required to make monetary contributions to the Pension fund as a condition of his employment. The court granted Defendants’ motion to dismiss, finding that Plaintiff did not plead a cognizable ERISA claim. The court explained that Plaintiff’s claim that Local 503, in requiring his participation in the Pension Fund as a condition of employment, engaged in disparate treatment and acted in a manner that was arbitrary and capricious, if proven true, would be a breach of Local 503’s duty of fair representation, not a breach of ERISA.

Third Circuit

Language of ERISA policy does not explicitly authorize rescission when there is fraud or intentional misrepresentation. Salvatore v. Blue Cross of Northeastern Pennsylvania, No. 3:13·CV·02975, 2015 WL 7069334, at (M.D. Pa. Nov. 12, 2015) (Judge Robert D. Mariani). The court denied Blue Cross’s motion to dismiss Plaintiff’s second amended complaint. The issue the court considered but did not fully resolve is whether an insurer is entitled to rescind an ERISA policy based on material misrepresentations in a policy application. The court noted that district and circuit courts around the country have applied ERISA’s common law to conclude that material misrepresentations made in an application for a benefits policy may lead to rescission. The Eighth Circuit does not require retroactive rescission for innocent material non-disclosures but requires the decision-maker to act in accordance with its duties as an ERISA fiduciary. With this background, the court denied Defendant’s motion to dismiss because: 1) it is not clear from the face of the Second Amended Complaint and supporting materials that Plaintiff either attempted or committed fraud in her application for benefits or that she made an intentional misrepresentation of material fact; and 2) even if it could be established that Plaintiff committed fraud or made intentional misrepresentations of material fact, the Policy does not explicitly authorize rescission. Because Defendant has not shown that Plaintiff’s second amended complaint fails to state an ERISA claim on the basis of the language of Plaintiff’s policy, the court found it unnecessary to address the other issues raised.

Eighth Circuit

Respondeat Superior does not extend to who may be liable as a fiduciary under ERISA. Goodman v. Crittenden Hosp. Ass’n, Inc., No. 3:14-CV-229-DPM, 2015 WL 7016992 (E.D. Ark. Nov. 12, 2015) (Judge D.P. Marshall Jr.). Plaintiff brought suit against Cigna and Methodist Le Bonheur Healthcare for breaching their fiduciary duties with respect to the administration of an underfunded health plan. The court denied Cigna’s motion to dismiss, finding that Plaintiff’s allegation that Cigna harmed the plan by not processing claims and therefore depriving the plan of Cigna’s substantial provider discount is good at the pleading stage. The court did dismiss the constructive fraud claim under Arkansas law against Cigna, but without prejudice. With respect to Methodist, however, the court granted its motion to dismiss because Methodist is not a fiduciary under ERISA. Specifically, the theory of liability against it – respondeat superior – doesn’t exist under ERISA. While respondeat superior is, carefully speaking, neither a remedy nor a cause of action; it’s a principle of liability-holding A responsible for B’s actions because the two are one in the law’s eyes. The court found that expansion of this doctrine to who may be liable for a fiduciary’s violations of duty would alter the balance Congress struck when it expanded the common law’s concept of a fiduciary. The court did note that the cases go both ways but neither the U.S. Supreme Court nor the Eighth Circuit has searched ERISA for respondeat superior liability.

Ninth Circuit

Motion challenging ERISA plan’s subrogation rights does not confer federal court with subject matter jurisdiction. Gay v. Guderjohn, No. CV-15-01545-PHX-DGC, 2015 WL 7075173 (D. Ariz. Nov. 13, 2015). In a state court action, Plaintiff moved pursuant to Arizona Rule of Civil Procedure 19(a) to add a health plan governed by ERISA as an involuntary plaintiff in the state case, and the state court granted the motion. Plaintiff then filed a motion challenging the validity of the Plan’s lien rights against any settlement Plaintiff might receive from Defendant, at which point the Plan filed a notice of removal, alleging that the motion’s challenge to the subrogation rights of the ERISA plan raises a question of federal law. The court explained that a cause of action arises under federal law only when the plaintiff’s well-pleaded complaint raises issues of federal law. Here, only Plaintiff’s motion challenges the Plan’s subrogation rights but noting in the complaint contains an ERISA-related claim. As such, the court found that it does not have subject matter jurisdiction. The court remanded the case back to state court.

Court denies motion to dismiss putative class action alleging wrongful termination of medical benefits. Radevska v. Noble Americas Energy Sols., LLC, No. 15-CV-0271-GPC-RBB, 2015 WL 6869345 (S.D. Cal. Nov. 9, 2015) (Judge Gonzalo P. Curiel). Plaintiffs brought a putative class action on behalf of themselves and others similarly situated, claiming that Defendants wrongfully terminated Plaintiffs’ medical benefits in violation of ERISA. Defendants moved to dismiss, which the court denied. In so doing, the court declined to consider the Summary Plan Description and Administrative Services Only Agreement since Plaintiffs’ claims do not necessarily rely on the contents of the SPD. On Plaintiffs’ Section 502(a)(1)(B) claim, the court found that Plaintiffs sufficiently allege they were eligible to receive health benefits under the Plan. The court found that Defendant CHC-CA, a California corporation and wholly owned subsidiary of Cigna Corp responsible for administering claims and paying benefits provided by the Plan in accordance with its provisions, is a proper party. The court found that on Plaintiffs’ ERISA Section 502(a)(3) claim that Plaintiffs stated facts sufficient to establish that Defendants were fiduciaries under ERISA with respect to eligibility determinations and equitable remedies are inappropriate against CIGNA. Here, Plaintiffs seek reformation, equitable estoppel, restitution, and surcharge.

Tenth Circuit

Federal district court has subject matter jurisdiction over ERISA claim for benefits under a federally-recognized Indian tribe’s healthcare plan. Coppe v. Sac & Fox Casino Healthcare Plan, No. 2:14-CV-02598-GLR, 2015 WL 6806540 (D. Kan. Nov. 5, 2015) (Not Reported in F.Supp.3d) (Magistrate Judge Gerald L. Rushfelt). In a lawsuit for benefits under the defendant healthcare plan filed in federal court pursuant to ERISA, Defendant’s moved to dismiss based on lack of subject matter jurisdiction based on the argument that the Sac & Fox Nation has tribal sovereign immunity and can be sued only in its own tribal court. Plaintiff was a deli clerk and a security guard at the Casino, which the court found is unquestionably a commercial enterprise (rather than an essential government function). The court denied the motion, concluding that it has subject matter jurisdiction because of the unequivocal Congressional abrogation of sovereign immunity under 29 U.S.C. § 1003(b)(32) and the Plan’s clear contractual waiver of sovereign immunity.

Subrogation/Reimbursement Claims

First Circuit

Post-petition reduction of disability benefits to recoup overpayment does not violate Bankruptcy Code. In re DeLotto, No. BR 15-10648, 2015 WL 6876775 (Bankr. D.R.I. Nov. 9, 2015) (Bankruptcy Judge Diane Finkle). Plaintiff filed various motions challenging Liberty Life’s reduction of his disability insurance benefits by an amount it overpaid as a result of an award of Social Security benefits. Plaintiff contended that the recoupment constituted “setoff” in violation of Bankruptcy Code §§ 362(a)(6) and (7). The court found that Liberty Life’s post-petition reduction of Plaintiff’s long term disability benefits to recover its pre-petition overpayment in accordance with the Policy terms constitutes permissible recoupment that is an exception to the automatic stay. The court explained that no matter how unfortunate the consequences might be, its exercise of such rights does not offend notions of equity or fairness. The court denied all of Plaintiff’s motions.


Second Circuit

Court enforces pro se litigant’s choice of his home forum to litigate denial of pension benefits. McQuennie v. Carpenters Local Union 429, No. 3:15-CV-00432, 2015 WL 6872444 (D. Conn. Nov. 9, 2015) (Judge Victor A. Bolden). In action brought by pro se plaintiff for pension benefits, the court denied Defendants’ motion to dismiss the case for improper venue and to transfer this action to the Central District of California. The court construed Plaintiff’s pleading to allege that his claim for pension benefits continues to be denied to this date. Because Plaintiff resides in Connecticut, he most recently was to receive benefits, if any, in Connecticut, and thus the alleged breach, if any, took place in Connecticut and venue is proper in this district. The court found that while the convenience of witnesses and locus of operative facts weigh heavily in favor of transferring this action, more compelling the considerations that (i) Plaintiff has chosen to sue in his home forum, which “choice is generally entitled to great deference” and “should rarely be disturbed,” (ii) Plaintiff’s choice of forum receives even greater deference in the ERISA context; and (iii) Defendants have much greater means to litigate in this district than Plaintiff, who is pro se, has to litigate in California.

Third Circuit

Forum selection clause is enforceable in breach of fiduciary duty action. Harley v. The Bank of New York Mellon, No. 1:15-CV-1384, 2015 WL 6956564, at *1 (M.D. Pa. Nov. 10, 2015) (Judge Sylvia H. Rambo). In this ERISA breach of fiduciary duty action, Defendant moved to transfer venue to the Southern District of New York pursuant to a forum selection clause contained in a master trust agreement governing Defendant’s direction of assets in a pension plan. The court found that the forum selection clause is valid and applies to the current dispute. Accordingly, the court granted Defendant’s motion to transfer venue.

* 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. The cases reported above were 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. 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.


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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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