Fifth Circuit Finds Unlawful the Department of Labor’s Advisory Opinion Regarding ERISA Status of Health Plan

Data Mktg. P’ship, LP v. United States Dep’t of Lab., No. 20-11179, __F.4th__, 2022 WL 3440652 (5th Cir. Aug. 17, 2022) (Before: Smith, Elrod, and Oldham, Circuit Judges).

This dispute arises from Plaintiffs-Appellees Data Market Partnership, LP’s challenge of the Department of Labor’s advisory opinion concluding that the plaintiffs’ health insurance plan for its limited partnerships was not covered by ERISA because the limited partners were neither working owners nor bona fide partners. In resolving the dispute, the Fifth Circuit addressed three questions.

First, the court considered whether the DOL’s “advisory opinion” is reviewable “final agency action” under the Administrative Procedure Act (“APA”). The APA provides judicial review of final agency action for which there is no other adequate remedy in a court. There are two requirements: (1) the action must mark the consummation of the agency’s decisionmaking process, and (2) the action must be one by which rights or obligations have been determined, or from which legal consequences flow. The court found that both requirements are met here. The DOL effectively conceded that the advisory opinion is not subject to additional agency review. “The advisory opinion also determined rights, produced obligations, or caused legal consequences.”

Second, the court considered whether the DOL’s advisory opinion was lawful. The court determined that the opinion was arbitrary and capricious because the DOL failed to reasonably consider relevant issues and explain the opinion. “The key factors the Department ignored were its prior advisory opinions discussing the term ‘working owner’ and its regulation adopting a definition of the term in a related context.” The advisory opinion adopts a definition of “working owner” that is different from the definitions in its earlier opinions. This unexplained inconsistency is arbitrary and capricious. The court also determined that the district court did not perform the proper analysis of “working owner” following the Supreme Court’s decision in Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1, 6, 124 S.Ct. 1330, 158 L.Ed.2d 40 (2004). Yates provided a framework for assessing working-owner questions, but the district court read Yates to say that ERISA always provides specific guidance for all working-owner questions. “[T]he question on remand is whether all of the Yates factors, including the various provisions of ERISA and the IRC, combine to make these particular working owners qualify as plan participants.” With respect to “bona fide partners,” the district court did not apply a totality-of-the-circumstances inquiry. The court remanded the case for the court to apply this inquiry in the first instance. The district court should also consider whether the DOL’s interpretation of the regulation warrants Auer deference.

Lastly, the court considered the proper remedy. The court upheld the district court’s vacatur since the APA gives courts power to set aside unlawful agency actions. The court vacated the injunction enjoining the DOL from refusing to acknowledge the ERISA-status of the Plan or refusing to recognize the Limited Partners as working owners of Data Marketing since this injunction turned on the interpretative questions that the district court must address on remand.