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:: Equitable Relief May Not Include Reimbursement Of Erroneous Payment Of Medical Benefits

It is important to note that neither the Fourth Circuit nor the Supreme Court has dealt directly with a case with this fact pattern, but additional support for this conclusion can be found in Fourth Circuit dicta. The court in Cohen wrote that the plaintiff’s claim for reimbursement of overpaid disability insurance “is arguably unauthorized under § 1132(a)(3),” because the Supreme Court in Great-West “denied a fiduciary’s restitution claim against a beneficiary when the property sought could no longer be traced to a particular fund or property, because the fiduciary [was] seeking a legal remedy—the imposition of personal liability on the beneficiary to pay a sum of money owed to the plan—outside the equitable relief afforded to fiduciaries in civil actions under § 502(a)(3).”

Food Emplrs. Labor Relations Ass’n & United Food & Commer. Workers Health & Welfare Fund v. Dove, 2014 U.S. Dist. LEXIS 159773 (D. Md. Nov. 12, 2014) (Magistrate Judge Report and Recommendation)

This is a case where a multiemployer plan sued to recover medical expenses paid in error.  The Defendant, originally a full time employee, had added coverage for his wife as his dependent.

Later, the Defendant became a part time covered employee, requiring that he pay an additional premium to maintain his wife’s coverage. He did not.  Nonetheless, his wife incurred medical expenses which the Fund paid.

The magistrate judge began with the observation that  ”equitable relief” under ERISA is constrained to “the kinds of relief ‘typically available in equity’ in the days of ‘the divided bench’ before law and equity merged.” U.S. Airways, Inc v. McCutchen, 569 U.S. (slip op., at 5), 133 S. Ct. 1537, 1544, 185 L. Ed. 2d 654 (2013).  Nonetheless, the Fourth Circuit created a “common law remedy of unjust enrichment” within ERISA. Provident Life & Accident Ins. Co. v. Waller, 906 F.2d 985, 994 (4th Cir. 1990).

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:: Pre-Litigation Document Exchange Does Not Trigger Federal Claim Removal Deadline

[T]he Eleventh Circuit has not appeared to have addressed the issue of whether “other papers” under 28 U.S.C. § 1446(b)(2) can include documents provided prior to the commencement of litigation, and indeed, a number of Circuit Courts of Appeal have provided that the answer to this question is “no.”  . . . “As other courts have recognized, if pre-suit documents were allowed to trigger the thirty-day limitation in 28 U.S.C. § 1446(b), defendants would be forced to ‘guess’ [*9]  as to an action’s removability, thus encouraging premature, and often unwarranted, removal requests.”

S. Broward Hosp. Dist. v. Coventry Health & Life Ins. Co., 2014 U.S. Dist. LEXIS 160463 (S.D. Fla. Nov. 13, 2014)

In this provider reimbursement case, an interesting procedural issue overlays the application of the two factor ERISA removal test set forth in Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004).

General Rule For Removal

The removal statute, 28 U.S.C. § 1146,  states that a notice of removal shall be filed within thirty days after the receipt by the defendant of a copy of the initial pleading.  But what if the initial state court pleading does not indicate a basis for removal?

“Other Paper” Hints

The statute contains a solution to that situation in subpart (2) which states that “a notice of removal may be filed within 30 days after receipt by the defendant, through service of otherwise, of a copy of an amended pleading, motion, order or other paper from which it may be first ascertained that the case is one which is or has become removable.”  (emphasis added)

The emphasized language brings a  factual component to the removal question.

Provider Reimbursement Overlay

Provider reimbursement cases can be particularly troublesome because not all such cases permit removal.

For example, in provider reimbursement cases, right of payment cases are removable but rate of payment cases are not under the two prong Davila test.   The Court in the case at bar stated the problem this way:

To address whether the claim falls within the scope of ERISA, the Eleventh Circuit has adopted a distinction between two types of claims: “those challenging the ‘rate of payment’ pursuant to the provider-insurer agreement, and those challenging the ‘right to payment’ under the terms of an ERISA beneficiary’s plan.”  ”[A] ‘rate of payment’ challenge does not necessarily implicate an ERISA plan, but a challenge to the ‘right of payment’ under an ERISA plan does.”

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:: Legal Memorandum From Counsel Protected From Disclosure Despite Dissemination To Third Parties

 . . . the voluntary disclosure of confidential material to a third party “eliminates whatever privilege the communication may have originally possessed, whether because disclosure is viewed as an indication that confidentiality is no longer intended or as a waiver of the privilege.”

The common interest doctrine is a notable exception to this waiver rule. Generally speaking, it brings within the ambit of the attorney-client privilege confidential communications between a client and the client’s attorney that are divulged by the client to a third party if the client and the third party are engaged in some form of common enterprise.

In re Bank of N.Y. Mellon Corp. Forex Transactions Litig., 2014 U.S. Dist. LEXIS 159069 (S.D.N.Y. Nov. 10, 2014)

When a client disseminates a legal memorandum prepared by its attorneys to contractual partners relating to ERISA compliance responsibilities, is that memorandum protected by privilege in subsequent litigation by third parties?  That was the issue at bar in this case.

The Facts

On June 10, 2009, the bank’s outside legal counsel sent the bank a memorandum pertaining to compliance with ERISA.  A bank employee sent the memorandum to representatives of four of the bank’s pension plan’s investment management companies. He asked the recipients to review the memorandum, to confirm that their companies could comply with the advice therein and stated “that compliance with this memo is your responsibility . . .”

In a subsequent ERISA case, certain bank customers alleged that the bank was liable for breaches of fiduciary duties , among other things. The Department of Justice and several other groups of private plaintiffs also sued the bank for civil penalties or alleged damages stemming from its foreign exchange practices.

During the course of the litigation the memorandum aforementioned became the subject of a discovery dispute.

Issue

The nub of the dispute is whether the memorandum was protected by the attorney-client privilege or the work product doctrine, notwithstanding that dissemination, by virtue of the common interest doctrine.

The Arguments

The bank argued that the  memorandum was “protected from disclosure by the attorney-client privilege and work product doctrine” and that dissemination did not waive the privilege.

Plaintiffs, on the other hand, asserted (1) that the Bank forfeited the protection of the attorney-client privilege when it circulated the memorandum to third parties with whom it shared no common legal strategy and (2) that the Groom Memo is not work product because there is no evidence that it was prepared “in connection with active or contemplated litigation.”

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:: Summary Plan Description Format Voids Benefit Limitations – Court Applies “Reasonable Participant” Standard Of Review

The “Limitation of Action” provision, buried deep in Section 9, is not in “close conjunction” to benefits provisions, Sections 1 and 2. Nor is there any reference, adjacent to the benefits description, to the page number on which the “Limitation of Action” provision appears.  . . .

If we were to hold that the placement of the limitation provision in Section 9 satisfies [the] “reasonable plan participant” standard under § 2520.102-2(b), we would, in effect, require a plan beneficiary to read every provision of an SPD in order to ensure that he or she did not miss a limitation provision.

Such a requirement is what the regulation is specifically designed to avoid.

Spinedex Physical Therapy USA Inc. v. United Healthcare of Ariz., Inc., 2014 U.S. App. LEXIS 21132 (9th Cir. Ariz. Nov. 5, 2014) (emphasis added).

The United States Supreme Court opinion in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011) has provoked discussion of a common practice in ERISA plan administration, namely, the use of a plan document in a dual role as that of a summary plan description as well.   Given the Court’s clear distinction between a summary plan description and the plan document in Amara, the practice of using the same document for both the plan and the SPD may seem inappropriate.

Regardless, failure to comply with ERISA’s procedural requirements has not really gained much traction in availing plaintiffs of a useful remedy.  (See comment note below).

The Spinedex opinion noted above, however, draws attention to a related but different problem that can occur when using a plan document to serve as an SPD as well.   If the length and format of the SPD fails to apprise the “reasonable plan participant” of benefit limitations, then a reviewing court may void the limitations period.  In other words, it’s not always what you say, but how you say it.

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:: Bad Faith And Punitive Damages Claims Against Health Plan’s Stop Loss Carrier Are Questions For Jury

This case involves interpretation of provisions of a stop-loss insurance policy issued by Defendant Sun Life Assurance Company of Canada  (“Sun Life”) regarding the scope of its contractual obligation to reimburse Plaintiff Bay Area Roofers Health and Welfare Trust (“the Trust”) for claims paid on behalf of a worker’s minor children for medical care.

Sun Life asserts that coverage is precluded because the worker obtained his employment by fraud through submission of a false Social Security Number  (“SSN”). The Trust asserts that it determined that the worker was an eligible employee under the Health and Welfare Plan and thus, as required by the Policy, Sun Life is contractually obligated to reimburse it for its claims. Cross-motions for summary judgment are presently before the Court.

Bay Area Roofers Health & v. Sun Life Assur. Co., 2014 U.S. Dist. LEXIS 158048 (N.D. Cal. Nov. 6, 2014)

What effect should an employee’s use of an invalid social security number have on an employer’s claim for stop loss reimbursement? In this case, the carrier thought this should invalidate coverage.   The court disagreed.

If the carrier’s defense held, it could have had important and far-reaching consequences for employers.

Nevertheless, despite several complicated claims and defenses raised by the parties, the case essentially presents s state law contract question.   The case remained in federal court and, despite the  obfuscating arguments , ended up decided based upon state law.

The implications of the defense, however, remain an interesting topic and suggest several points that should be included in a due diligence review of stop loss contractual compliance.  Those points will be noted after a brief synopsis of the case as it was presented to the district court.

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:: Pleading a Successful Surcharge Claim under ERISA – District Court Decision Outlines Essential Elements

The Supreme Court in Amara endorsed the surcharge remedy as one available under section 1132(a)(3) on the principle that equity courts traditionally ordered that the “trust or beneficiary [be] made whole following a trustee’s breach of trust.” Amara, 131 S. Ct. at 1881 (emphasis added). “In such instances equity courts would ‘mold the relief to protect the rights of the beneficiary according to the situation involved.’” Id. (quoting George Gleason Bogert, et. al., The Law Of Trusts And Trustees § 861 at 4, emphasis added).

Four other circuits have held that Amara opens the door to monetary relief under a surcharge theory that will make a beneficiary whole for losses caused by a breach of fiduciary duty.

Zisk v. Gannett Co. Income Prot. Plan, 2014 U.S. Dist. LEXIS 157323 (N.D. Cal. Nov. 6, 2014)

The Zisk decision leaves open the door for surcharge claims as an equitable remedy under ERISA’s cramped list of available relief for plaintiffs.    The defendant hoped to close that door by reliance on a Ninth Circuit opinion touching on the issue, Gabriel v. Alaska Electrical Pension Fund, 755 F.3d 647 (9th Cir. 2014).  The district court rejected that claim, ruling instead that “the state of the law in this area is unsettled as to the proper contours of an equitable surcharge remedy.”

The interest in surcharge as a remedy stems from the important aspect of permitting monetary relief while still under the rubric of an equitable remedy.   So availability of the surcharge remedy looms large in the debate over appropriate equitable remedies. [Read more...]

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:: Exhaustion of Administrative Remedies – Exceptions Explained

Although “the text of ERISA nowhere mentions the exhaustion doctrine,” both “the legislative history and the text of ERISA” make clear that Congress “intend[ed] to grant . . . authority to the courts” to “apply that doctrine in suits arising under ERISA.” See Amato v. Bernard, 618 F.2d 559, 566-67, 569 (9th Cir. 1980) (affirming dismissal  of ERISA claim for benefits, where plaintiff had not exhausted administrative remedies available under plan; finding “sound policy requires the application of the exhaustion doctrine in suits under the Act”) . . .

Kaminskiy v. Kimberlite Corp., 2014 U.S. Dist. LEXIS 72061 (D. Cal. 2014)

Two recent cases provide an important reminder that the judicial gloss on ERISA’s claim procedure imposing exhaustion of remedies before filing suit must be carefully considered in any ERISA benefits case.  As noted in the excerpt above, the requirement will not be found in the statute so attentive regard to the pertinent case law.

Aside from compliance with the plan’s administrative review and appeal processes, the plaintiff must allege compliance with those procedures in any subsequent federal suit.

Form of Allegation

For example, in Kaminiskiy, the Court stated: “Here, plaintiff alleges she submitted a claim for benefits on August 29, 2013, and that her claim was thereafter denied. Such allegation is insufficient to allege exhaustion of the administrative remedies available under the ESOP.”

So what sort of allegation is required?  The allegation need not be complex (although providing factual details is undoubtedly the prudent course).   The essential formula according to the Kaminiskiy court reduces to an allegation that “following the denial of her claim for benefits, she submitted a written request for review and that any such request subsequently was denied.”

Exceptions to Requirement

The plaintiff argued that the exhaustion doctrine did not apply to her claims based upon Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. Cal. 1984).  That case involved a distinction between claims that arise under the terms of a plan versus claims created by statute.

#1 Where a claim involves a determination of rights granted under the plan document, then internal appeal procedures apply and exhaustion of remedies is required.

#2 On the other hand, if the claim amounts to a challenge that the plan terms or application thereof violate the statute, then “[t]here is no internal appeal procedure either mandated or recommended by ERISA . . . ”

The court rejected the plaintiff’s argument, however, since it found that the plaintiff’s claims were encompassed in situation #1 above and thus exhaustion was required.  N.B., please see the circuit split below regarding which courts permit exception #2.

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:: Contractual Limitations Period Imposed – Equitable Tolling Argument Rejected

While it may be true that Plaintiff was never provided a copy of the Plan, despite his requests, it does not follow that Plaintiff had no way of discovering the shorter contractual limitation period. Primarily, Plaintiff could have, quite easily, requested information about the Plan from the assigning beneficiary. Plaintiff does not attempt to argue that L.N. had never received a copy of the Plan, and this Court does not believe it is inequitable to apply the Plan’s internal limitations period to someone who had the ability to learn of it. See Ortega Candelaria, 661 F.3d at 680 (citing I.V. Servs. of Am., 182 F.3d at 54).

Torpey v. Anthem Blue Cross Blue Shield, 2014 U.S. Dist. LEXIS 53342 (D.N.J. Apr. 16, 2014)

In this benefit claims case, the plaintiff was a physician who sought payment for services as an “out-of-network provider”.   Pursuant to an  ”Authorization and Assignment” document he appealed the denial of claims to additional payments.

Facts

The Plaintiff  alleged that he submitted a claim to the Defendants on or about June 9, 2011 in the amount of $45,021.00 for medical services provided to the beneficiary.

On or about July 21, 2011, Defendant made an adverse benefit determination of Plaintiff’s claim by making a payment in the amount of $2,582.02, an amount that represented less than 6% of the submitted claim.

On or about September 27, 2011, Plaintiff submitted a First Level Appeal. Thereafter, Plaintiff received an appeal denial letter on or about October 19, 2011.  [Read more...]

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:: Tutorial: Unit 2 – Subrogation & Reimbursement – Collection of ERISA Disability Plan Cases

As noted in Unit 1, many courts have migrated away from the apparent teaching of Knudson that the defendant must be in possession of specifically identifiable funds (a “res”).   The first leaning away from the requirement occurred in some influential cases involving counterclaims by disability carriers against claimants that received SSD payments after having received LTD benefits.

The following is a collection of cases from the various circuits on this issue.  (N.B –  some of these cases are district court opinions).

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:: Equitable Defenses Inadequate To Avert ERISA Plan’s Contractual Limitations Bar

ERISA denial of benefit claims are ordinarily subject to the statute of limitations of the most analogous state law claim of the forum state. Klimowicz v. Unum Life Ins. Co. of Am., 296 F. App’x 248, 250 (3d Cir. 2008). In this case, that would be New Jersey’s six-year statute of limitations for breach of contract claims. Id. Parties to an ERISA plan are free, however, to contract for  a shorter statute of limitations, so long as that period is not manifestly unreasonable. Id.

Mirza v. Ins. Adm’r of Am., Inc., 2013 U.S. Dist. LEXIS 101184 (D.N.J. July 19, 2013)

One of the significant ironies in ERISA’s “comprehensive and reticulated” regulatory scheme is that  ERISA supplies no statute of limitations for claims for benefits.  Mirza v. Ins. Adm’r of America provides an opportunity for a succinct review of the limitations period issues in a benefit claims case.

General Rule

ERISA denial of benefit claims are ordinarily subject to the statute of limitations of the most analogous state law claim of the forum state.  The court cited Klimowicz v. Unum Life Ins. Co. of Am., 296 F. App’x 248, 250 (3d Cir. 2008) in support of this principle.

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:: Tutorial: Unit 1 – Subrogation & Reimbursement – Requirement of A Res

The current state of equitable claims for recovery of funds under ERISA originated with Mertens, blossomed in Knudson and flowered in Sereboff.  This series focuses on one aspect of ERISA “recovery” cases – must there be a “res”?

If an ERISA plan is to recover funds from a plan beneficiary, as for example, in a case of alleged overpayment, or in a case of subrogation or reimbursement, must the funds be in the possession of the defendant?

The courts of appeal differ about whether Sereboff requires that the funds be in the claimant’s possession for imposition of the equitable lien.  

Several courts of appeal have held that the beneficiary need no longer possess the specifically identified funds.

  • Cusson v. Liberty Life Assurance Co. of Bos., 592 F.3d 215, 231 (1st Cir. 2010);
  • Funk v. Cigna Corp. Ins., 648 F.3d 182, 194 & n.14 (3d Cir. 2011);
  • Longaberger Co. v. Kolt, 586 F.3d 459, 466-69 (6th Cir. 2009);
  • Gutta v. Std. Select Ins. Plans, 530 F.3d 614, 621 (7th Cir. 2008)

On the other hand, the Ninth Circuit has constructed a three-part test for recovery of an equitable lien by agreement under Sereboff, including a requirement that the funds be within the possession and control of the beneficiary.  See, Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083, 1094-95 (9th Cir. 2012), cert. denied sub nom. First Unum Life Ins. Co. v. Bilyeu, 185 L. Ed. 2d 178, 2013 WL 598478 (2013).

More on this topic will appear in Unit 2.

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:: Fiduciary Exception To Attorney Client Privilege Explained

Krase has moved to compel LINA to produce four documents that LINA has withheld on grounds of attorney-client privilege, arguing that the documents fall within the “fiduciary exception” to the privilege.

“Under that exception, a fiduciary of an ERISA plan ‘must make available to the beneficiary, upon request, any communications with an attorney that are intended to assist in the administration of  the plan.’” Bland v. Fiatallis N. Amer. Inc., 401 F.3d 779, 787 (7th Cir. 2005). The exception does not apply to “[d]ecisions relating to the plan’s amendment or termination,” which are “not fiduciary decisions.” Id. at 788.

Krase v. Life Ins. Co. of N. Am., 2013 U.S. Dist. LEXIS 100302 (N.D. Ill. July 18, 2013)

The attorney-client privilege does not apply without limitation in ERISA cases.   As a general rule, the attorney-client privilege does not apply when an attorney advises a plan fiduciary about the administration of an employee benefit plan.  On the other hand, the attorney-client privilege does apply when an attorney advises a plan fiduciary regarding issues that do not involve actual administration of the plan.

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:: Concurrent Jurisdiction Applies In ERISA Dispute

 The threshold issue is whether state courts have jurisdiction to determine the  ERISA status of a plan. The Eighth Circuit directly considered this  question and determined that both state and federal courts have the power to  determine ERISA status. Int’l  Ass’n of Entrepreneurs of Am. v. Angoff, 58 F.3d 1266, 1269 (8th Cir.  1995).  The court  reasoned that because the law was silent on whether states have the power to  decide ERISA status the default rule should apply: “[u]nless instructed  otherwise by Congress, state and federal courts have equal power to decide  federal questions.” Id.

Although the Ninth  Circuit has not addressed this specific issue, it has held that “state courts  amply are able to determine whether a state statute or order is preempted by  ERISA.” Delta  Dental Plan of California, Inc. v. Mendoza, 139 F.3d 1289, 1296-97 (9th Cir.  1998) disapproved of on other grounds by Green  v. City of Tucson, 255 F.3d 1086 (9th Cir. 2001). Other courts that have  addressed this issue have found that both federal and state courts have  jurisdiction to decide the status of an ERISA plan. See Weiner  v. Blue Cross & Blue Shield of Maryland, Inc., 925 F.2d 81, 83 (4th Cir.  1991); Browning  Corp. Int’l v. Lee, 624 F. Supp. 555, 557 (N.D. Tex. 1986). Many courts  have also assumed concurrent jurisdiction to decide ERISA plan status  without specifically addressing the issue. See, e.g., Marshall  v. Bankers Life & Cas. Co., 2 Cal. 4th 1045, 1052-54, 10 Cal. Rptr. 2d  72, 832 P.2d 573 (1992).

Knapp v. Cardinale, 2013 U.S. Dist. LEXIS 98644 (N.D. Cal. July 15, 2013)

Although ERISA issues are typically resolved in federal court, this is not always the case.  Aside from occasional benefit claims disputes (where there is concurrent jurisdiction by statute), questions of preemption frequently arise in state courts as well.

In a recent district court case, the court explored questions of concurrent jurisdiction.  The underlying facts are somewhat curious.

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:: Incorporation of SPD In Plan Document Preserves Deferential Review

 . . . [I]n light of Cigna Corp. v. Amara, 131 S.Ct. 1866, 179 L. Ed. 2d 843 (2011) the Court doubted whether it could rely on the SPD alone in the absence of the actual plan document. Zalduondo, 2013 U.S. Dist. LEXIS 59234, 2013 WL 1769718, at *14 (observing that the Court in Amara rejected enforcement of the terms of SPDs as part of the the terms of the Plan itself). Consequently, it deferred judgment on whether the arbitrary and capricious standard applied until Aetna could demonstrate that the Plan documents did not conflict with the SPD. Id.

Having reviewed the Plan documents, the Court and both parties now agree that the SPD is incorporated within the Plan. The Plan states “[t]he benefits offered under the Plan may be described in and subject to . . . summary plan descriptions . . . which are . . . incorporated in the Plan by reference.” Thus, the SPD’s grant of discretion to Aetna will be considered part of the Plan for the purposes of our analysis and we will only review Aetna’s denial of coverage under an arbitrary and capricious standard. See Pettaway v. Teachers Ins. & Annuity Ass’n of Am., 644 F.3d 427, 433-34, 396 U.S. App. D.C. 40 (D.C. Cir. 2011) (looking, post-Amara, to both the SPD and the Plan document to determine the level of deference owed to the claims adjudicator).

Zalduondo v. Aetna Life Ins. Co., 2013 U.S. Dist. LEXIS 96326 (D.D.C. July 10, 2013)

The Supreme Court’s scrutiny of the plan documents in Cigna Corp. v. Amara, 131 S.Ct. 1866, 179 L. Ed. 2d 843 (2011) sparked lively debate over the relationship of  “the” plan document and summary plan descriptions or other documents purportedly constituting plan documentation.   The Court observed that “the summary documents, important as they are, provide communication with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan . . .”

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:: Plaintiffs’ Claims Under ERISA Section 510 and 502(a)(1)(B) Survive Motion To Dismiss

This case is before the court pursuant to defendant’s motion to dismiss for failure to state a claim upon which relief can be granted filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. When a Rule 12(b)(6) motion is filed, the court tests the sufficiency of the allegations in the complaint. The “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)).

Put another way, granting the motion to dismiss is appropriate if plaintiff has not “nudged [her] claims across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. The Third Circuit interprets Twombly to require the plaintiff to describe “enough facts to raise a reasonable expectation that discovery will reveal evidence of” each necessary element of the claims alleged in the complaint. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556). Moreover, the plaintiff must allege facts that “justify moving the case beyond the pleadings to the next stage of litigation.” Id. at 234-35.

Manning v. Sanofi-Aventis, U.S. Inc., 2012 U.S. Dist. LEXIS 114129 (M.D. Pa. Aug. 14, 2012)

The important semantics of stating a “plausible” claim with sufficient particularity came before the district court in this case. The requirements of ERISA Section 510 and 502(a)(1)(B) set the bar for the ERISA claimant.

The Plaintiff claimed benefits under the Defendant’s Employee Retirement Income Security Act (“ERISA”) Separation Plan. The Plaintiff had been terminated for disputed reasons and her position filled by an employee with less experience and at a lower salary.  (The Court’s ample citations to authority are omitted but are indicated by quotations below.)

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:: Choice of Law In ERISA Disputes – How State Law May Affect Outcomes On Judicial Review

Here, the Policy contained a valid choice of law provision, which indicates that the parties intended for the Policy to be governed by Texas law to the extent that it is not preempted by ERISA. Thus, in order to decide this issue, we must ascertain how to determine whether or not to enforce an ERISA plan’s choice of law clause in accordance with federal common law. Although we have not previously addressed this issue, a review of our caselaw in other federal question cases and of caselaw from our sister circuits in ERISA cases reveals three possible approaches to resolving this choice of law issue.

First, our sister circuits have applied two different tests when deciding whether to enforce an ERISA plan’s residual choice of law clause. Two of our sister circuits have held that “[w]here a choice of law is made by an ERISA contract, it should be followed, if not unreasonable or fundamentally unfair.” Wang Labs., Inc. v. Kagan, 990 F.2d 1126, 1128-29 (9th Cir. 1993); Buce v. Allianz Life Ins. Co., 247 F.3d 1133, 1149 (11th Cir. 2001). By contrast, the Sixth Circuit has applied the Restatement (Second) of Conflict of Laws to decide whether to give effect to a choice of law provision in an ERISA plan; it applied the Restatement because it found an “absence of any established body of federal choice of law rules.” Durden, 448 F.3d at 922 (citation omitted). Specifically, the court applied § 187 of the Restatement, which addresses when to apply the law of the state chosen by the parties. Id. at 922-23.

We have likewise generally referred to the Restatement when deciding choice of law issues in some admiralty cases, see Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, 891 (5th Cir. 1991), and in a recent admiralty case we noted that § 187 supported our decision to enforce an insurance policy’s choice of law clause.

Jimenez v. Sun Life Assur. Co., 2012 U.S. App. LEXIS 17108 (5th Cir. La. Aug. 15, 2012)

This unpublished Fifth Circuit opinion addresses several sets of opposing principles in choice of law as applied in the ERISA context. While the court’s analysis is unremarkable, the issues raised by the parties suggest an interesting perspective on a familiar ERISA claims scenario.

The Plaintiff in the case at bar suffered serious injury while driving his automobile. The plan defended a claim under provisions that excluded coverage for injuries which were described as an “illegal acts” exception. The plan contended Plaintiff was injured while driving under the influence of alcohol which constituted an illegal act [Read more...]

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:: Seventh Circuit Sides With Fiduciaries On Question of Out-of-Network Disclosures

At the summary judgment stage of the case, the district court dismissed James’s denial-of-benefits and breach-of-fiduciary-duty claims, but awarded him minimal statutory damages against the health plan administrator. James has appealed.

We hold that the district court properly granted summary judgment on James’s denial-of-benefits and breach-of-fiduciary-duty claims, but incorrectly calculated James’s statutory damages award.

Killian v. Concert Health Plan, 2012 U.S. App. LEXIS 7880 (7th Cir. Ill. Apr. 19, 2012)

The dispute in this Seventh Circuit case arose out of the group health plan’s refusal to out-of-network charges of $80,000. The Plaintiff claimed that there was no adequate proof in the record that the providers were out-of-network, and furthermore that, even if they were, the Defendants breached their fiduciary duty to inform him of that material fact.

The denial of benefits issue did result in a grudging remand to ascertain network status (as an accommodation to the dissenting judge) but appeared a rather futile avenue of relief. The breach of fiduciary duty issue was more interesting.

The Court framed the issue in this way:

James argues that Concert and Royal Management breached their fiduciary duties in two ways: first, by not providing Susan with an SPD; and second, by failing to apprise James that Rush University Hospital was not in Susan’s network despite James’s two phone calls to Concert on April 7, 2006. In short, James alleges that Concert and Royal Management breached their fiduciary duties by failing to make required disclosures.

[Read more...]

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:: ERISA Reimbursement Claims Versus Special Needs Trusts

FKI and ACS rely on Bombardier for the proposition that a benefit plan can recover from a third party that is holding the funds “on behalf of a plan-participant client who is a traditional ERISA party.” Id. at 353. However, that is not the case here, because unlike the attorney in Bombardier, who was found to be subject to the client’s control, the Trust in this case cannot be controlled by Larry Griffin.

ACS Recovery Servs. v. Griffin, 2012 U.S. App. LEXIS 6573 (5th Cir. Tex. Apr. 2, 2012)

The Fifth Circuit has been quite literal in its requirement of a res against which an ERISA plan’s claim under ERISA Section 502(a)(3) may be brought. As stated in the recent case of ACS Recovery Servs. v. Griffin, the Court sees the matter as a three part test:

We have established a three-part test for determining whether the relief sought is equitable within the meaning of ERISA. See Bombardier Aerospace Emp. Welfare Benefit Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 356 (5th Cir. 2003). This test asks whether the plan seeks “to recover funds (1) that are specifically identifiable, (2) that belong in good conscience to the Plan, and (3) that are within the possession and control of the defendant beneficiary[.]” Id. (emphasis added).

The third requirement was the undoing of the plan in the case at bar. The Court described the problem as follows:

To get around Bombardier’s third element, ACS and FKI argue that Larry Griffin had fleeting possession and control over the money that went to the special needs trust when he signed the settlement agreement in the state court lawsuit. Thus, they argue that “those funds were traceable to . . . the Trust established for Larry’s exclusive benefit.” However, Bombardier’s third prong asks whether the plan seeks “to recover funds . . . that are within the possession and control of the defendant beneficiary[.]” Id. at 356 emphasis added). The test makes no mention of whether the funds ever were within the possession or control of the defendant beneficiary. Thus, even if we were to find that Larry Griffin had fleeting possession of the funds, we are still bound by our prior precedent, which requires the defendant beneficiary to have either possession or control of the funds at the time that the defendant is seeking equitable relief. Id. Therefore, we conclude that the district court properly dismissed FKI and ACS’s claim for equitable relief against the Trust and the Trustee.

Note: The Court distinguished other authorities from the case before it, noting that:

FKI and ACS cite two cases where circuit courts have allowed a section 502(a)(3) claim to proceed where a benefit plan sued the trustee of a trust formed to benefit the plan’s beneficiary. See Admin. Comm. for the Wal-Mart Stores, Inc. Assoc.’ Health & Welfare Plan v. Horton, 513 F.3d 1223, 1228-29 (11th Cir. 2008); Admin. Comm. for the Wal-Mart Stores, Inc. Assoc.’ Health & Welfare Plan v. Shank, 500 F.3d 834, 836-37 (8th Cir. 2007).

In Horton, the Eleventh Circuit concluded that a benefit plan could use section 502(a)(3) to recover “a specifically identifiable fund in possession of a defendant.” In that case, the employee beneficiary of the plan was also the conservator for her son, a “covered person” who was injured and received benefits. 513 F.3d at 1228. The court concluded that the money held by the trustee “has been identified as belonging in good conscience to the Administrative Committee by virtue of the Plan’s terms, and the money can clearly be traced to a particular fund in the defendant’s possession.” Id. at 1228-29. It noted that “[t]he fact that [the trustee] holds the funds as a third party” did not defeat the plan’s claim. Id. at 1229. That case did not involve a special needs trust or a trustee who was not herself a beneficiary.

The Eighth Circuit in Shank did address a special needs trust and allowed imposition of a constructive trust on funds held in that trust. 500 F.3d at 836-37. The court concluded that the suit was equitable because the plan (1) sought the “specific funds . . . owed under the terms of the plan[;] (2) from a specifically identifiable fund that is distinct from Shank’s general assets—i.e., the special needs trust; and (3) that is controlled by defendant James Shank, the trustee.” Id. at 836. However, while citing Bombardier, the court did not address the meaning of “defendant beneficiary” as discussed in that case. We are bound by Bombardier; these cases are inapposite.

Must the defendant be a beneficiary or simply in possession of a beneficial interest? The law in this area has become sufficiently complex that an attempt to synthesize the governing principles in a series of posts may be worthwhile.

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:: When Is Exhaustion of Administrative Remedies Required? – A Reappraisal Of The Division Of Authority

The Court agrees with the reasoning in Morales-Cotte and finds that an exhaustion of administrative remedies is not required when a plaintiff’s claim for denial of COBRA benefits is based on a statutory violation of ERISA. Here, neither party has referred to or proffered any argument regarding a plan-based denial of COBRA benefits. The Court therefore concludes that the parties at least implicitly acknowledge that the allegedly unlawful denial of COBRA benefits claim in this case is statutorily based. As a consequence, following the reasoning and analysis in Morales-Cotte, the Court holds that Plaintiff did not need to exhaust his administrative remedies before bringing a claim in this court for denial of COBRA benefits.

Sample v. City of Sheridan, 2012 U.S. Dist. LEXIS 52037 (D. Colo. Apr. 13, 2012)

ERISA Section 503 provides that every benefit plan shall establish an administrative review procedure for “any participant whose claim for benefits has been denied …” 29 U.S.C. § 1133.   From this template the federal judiciary crafted a number of administrative glosses for ERISA claims procedures including a requirement of exhaustion of administrative remedies.   The  courts have applied this requirement as a matter of “judicial discretion.” See, McGraw v. Prudential Ins. Co. of America, 137 F.3d 1253, 1263 (10th Cir. 1998).

[Read more...]

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:: Health Care Provider “Balance Billing” Of The Personal Injury Plaintiff

Marcus Aurelius is a plan member of the Imperial group health plan. Imperial has contracted with Augustan, a preferred provider network or “PPO”.

Augustan has in place a managed care contract with a wide variety of physicians and hospitals. Under the contact, the providers agree to accept a discounted rate in exchange for steerage of patients by inclusion of the providers in the Augustan network that will be promoted to group health plans and claims administrators.

Imperial is impressed with the array of providers included in the Augustan network. The charge for participation in the network is a part of the base cost of Imperial’s group health plan, but the cost seems well worth it in view of the savings to Imperial and its group health plan members.

Marcus is involved in a personal injury accident in which he is not at fault. The at fault driver has a minimum limits liability policy in place with Chariot Insurance of Rome, Georgia.

(Stay with me here – this is the important part.) The Rome General Hospital submits a bill to Marcus. Rome General is a member of the Augustan network. Under the network contract, Rome General only gets 50 cents on the dollar.

Rome General refuses to bill the Imperial plan and insists that its bill be paid in its full amount from the personal injury settlement from Chariot Insurance. Since Rome General is billing the liability carrier, it contends that it is not subject to the network discount.

Marcus’ personal injury attorney argues that Rome General cannot opportunistically set aside its network contractual obligations.

Who is legally correct?

This is a common scenario. Yet, there are few reported cases addressing this issue. [Read more...]

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:: Equitable Defense Rejected In Health Plan Reimbursement Litigation

Schwade’s ERISA health benefits plan (“the Plan”) declined to pay medical expenses for Schwade’s son unless Schwade complied with the Plan by signing a subrogation agreement. Schwade refused. From August to November, 2007, the Plan sent Schwade an explanation of benefits denying each claim. The Plan requires Schwade to administratively appeal a denial within 180 days. Schwade failed to appeal on each occasion. For eighteen months (June, 2008, to December, 2009) after expiration of the time for administrative appeal, Schwade’s attorney sent sporadic letters to the Plan proposing that the Plan pay benefits but compromise the contractual right to subrogation. The Plan twice refused further consideration of a claim unless Schwade signed a subrogation agreement. The Plan plainly declined further negotiation. Another year passed, and in November, 2010, Schwade sued Total Plastics, which administers the Plan, for the benefits. A November 10, 2011, order (Doc. 31; 2010 WL 5459649) concludes that Schwade’s failure to exhaust her administrative remedy (that is, her failure timely to appeal) bars the action, and the order concludes further that under the Plan’s unambiguous terms the Plan correctly denied Schwade’s claims.

Schwade v. Total Plastics, 2012 U.S. Dist. LEXIS 37091 (D. Fla. 2012)

For group health plan administrators and their counsel, Schwade is important for two reasons. First, it affirms that a plan may require acknowledgment of the plan’s subrogation and reimbursement rights before payment of benefits. Second, the opinion offers a trenchant criticism of the Third Circuit opinion in US Airways, Inc. v. McCutchen, 663 F.3d 671 (3d Cir. Nov. 16, 2011).

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:: New MEWA Reporting Requirements – An Unlikely Solution To MEWA Fraud

The U.S. Department of Labor’s Employee Benefits Security Administration today announced a two-week extension of the comment period on its proposed rule requiring multiple employer welfare arrangements (MEWAs) to register with the department.

DOL News Release (appearing here)

A “MEWA” or “multiple employer welfare arrangement” consists of an employee welfare benefit plan, or any other arrangement, which is established or maintained for the purpose of offering or providing a welfare benefit (including benefits for medical care) to the employees of two or more employers, or to their beneficiaries.  (Exceptions include certain plans maintained by  collective bargaining agreements, or rural electric cooperatives or rural telephone cooperative associations.)

As those who have followed my posts for a while probably know by now, I am not a fan of the MEWA.   (An overview of my “Short Course” on MEWA’s appears here.)  On the other hand, I think the new reporting rules are of doubtful value.   Before addressing that point, let’s take a look at the new rule.

The DOL has proposed a rule that, upon adoption, would implement reporting requirements for MEWAs and certain other entities that offer or provide health benefits for employees of two or more employers.

A summary of the rule summarizes its purpose as follows:

This document contains a proposed rule under title I of the Employee Retirement Income Security Act (ERISA) that, upon adoption, would implement reporting requirements for multiple employer welfare arrangements (MEWAs) and certain other entities that offer or provide health benefits for employees of two or more employers. The proposal amends existing reporting rules to incorporate new provisions enacted as part of the Patient Protection and Affordable Care Act (Affordable Care Act) to more clearly address the reporting obligations of MEWAs that are ERISA plans. This regulation is designed to impose the minimal amount of burden on legally compliant MEWAs and entities claiming exception (ECEs) while implementing the Secretary’s authority to take enforcement action against fraudulent or abusive MEWAs included in the Affordable Care Act and working to protect health benefits for businesses and their employees. This proposed rule implements the new provisions while preserving the filing structure and provisions of the 2003 regulations which direct plan MEWAs and non-plan MEWAs to report annually and file upon registration or origination.

The proposed rule appears here.

The DOL seems to think that the new requirements, penalties and criminal sanctions for false reports will have an effect on promotion of fraudulent MEWA’s.  Why?

The perpetrators of fraudulent MEWA’s already violate numerous state and federal laws. Adding new filing requirements will burden compliant MEWA’s for very little gain in the prevention of fraudulent benefit arrangements. In my opinion, this regulatory plan is quite naive.

In any event, the news release extending the comment period appears below.

News Release:

For Immediate Release: March 1, 2012
Contact: Jason Surbey or Mike Trupo
Phone: 202-693-4668/202-693-6588
Email: Surbey.jason@dol.gov/Trupo.michael@dol.gov
US Labor Department extends comment period on proposed rules on filings required by
multiple employer welfare arrangements

WASHINGTON – The U.S. Department of Labor’s Employee Benefits Security Administration today announced a two-week extension of the comment period on its proposed rule requiring multiple employer welfare arrangements (MEWAs) to register with the department.

Interested parties now have until March 19, 2012, to submit comments on the proposed rule via the Federal eRulemaking Portal at www.regulations.gov, or by mail, hand or electronic delivery to the agency at E-OHPSCAMEWARegistration.EBSA@dol.gov.

Under the proposed rule, MEWAs must register prior to operating in a state or be subject to substantial penalties. This filing requirement will allow the department to track MEWAs as they move from state to state and to identify their principals which will provide the department with important information regarding potentially fraudulent arrangements. Complete details on all provisions were published in the Dec. 6, 2011, Federal Register and also are available at www.dol.gov/ebsa/healthreform/.

Those who have already submitted comments or plan to submit comments should note that there was an error in the preamble published in the Federal Register (76 FR 76222) that incorrectly listed the EBSA email address. The incorrect email address was activated to accept messages. However, comments sent electronically prior to February 22, 2012, should be resent to the correct email address above to ensure they are received and given due consideration. Comments that were submitted via the Federal eRulemaking Portal, or by mail or hand delivery were not impacted by the error.

U.S. Department of Labor news materials are accessible at www.dol.gov. The information above is available in large print, Braille, audio tape or disc from the COAST office upon request by calling 202-693-7828 or TTY 202-693-7755.

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:: Health Care Provider’s Negligent Misrepresentation Claim Advances

I conclude that Rule 9(b) does not apply to the negligent misrepresentation claim before me. The crux of the claim is that Beverage failed to use reasonable care or competence in obtaining and communicating information concerning Hood’s eligibility. This rings not of fraud but negligence. See, e.g., Bloskas v. Murray, 646 P.2d 907, 914 (Colo. 1982). The claim should thus be governed by Rule 8(a).

Finding [cited cases] applicable and persuasive, and for the reasons they discussed, I conclude that ERISA would not preempt DHHA’s negligent misrepresentation claim.

Denver Health & Hosp. Auth. v. Beverage Distribs. Co., LLC, 2012 U.S. Dist. LEXIS 15901 (D. Colo. Feb. 8, 2012)

This case involves the rather familiar fact pattern wherein a health care provider disputes denial of its bill after having previously obtained preadmission authorization.

[Read more...]

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:: Five Year Limitations Period For COBRA Notification Lapse

. . . the magistrate judge followed the lead of the Fifth Circuit in Lopez ex rel. Gutierrez v. Premium Auto Acceptance, 389 F.3d 504, 507-510 (5th Cir. 2004) and cases cited therein which analogized such COBRA notice claims to unfair settlement practices claims. Such analogy is necessary, as the COBRA provision does not contain its own statute of limitations provision. DelCostello v. Int’l Brotherhood of Teamsters, 462 U.S. 151, 158, 103 S. Ct. 2281, 76 L. Ed. 2d 476 (1983)(where no express statute of limitations, borrow most closely analogous statute of limitations from state law).

Gilbert v. Norton Healthcare, Inc., 2012 U.S. Dist. LEXIS 17553 (W.D. Ky. Feb. 10, 2012)

The ERISA statutory scheme is many things, but one thing it is not.  It is most definitely not the “‘comprehensive and reticulated statute’” (Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985)) that the federal judiciary has proclaimed.

For example,  nothing is more basic to a remedial statute than the limitations period that defines its reach.   As with other federal statutes, so with ERISA:

As is often the case in federal civil law, there is no federal statute of limitations expressly applicable to this suit.   In such situations we do not ordinarily assume that Congress intended that there be no time limit on actions at all; rather, our task is to “borrow” the most suitable statute or other rule of timeliness from some other source. We have generally concluded that Congress intended that the courts apply the most closely analogous statute of limitations under state law.

Del Costello v. Int’l Bhd. of Teamsters, 462 U.S. 151 (U.S. 1983)

In Gilbert v. Norton Healthcare, Inc., the district court considered the question of the limitations period for a claim against a plan administrator for failure to comply with the notification provisions of the Consolidated Omnibus Recovery Act (“COBRA”), 29 U.S.C. § 1166.   The magistrate judge, in an opinion approved by the district court, first turned to the  Kentucky Unfair Claims Settlement Practices Act.  That statute did not have a limitations period either.

The statutory default provision provided a 5-year limitations period for any “action upon a liability created by statute, when no other time is fixed by the statute creating liability.”   The Court approved the use of that limitations period.

Note: The period for advancing COBRA notice violations ranges from a parsimonious one year period and up depending on the federal circuit.

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:: ERISA “Participant” Status Is Not A Jurisdictional Issue

Whether Leeson is a participant for purposes of ERISA is a substantive element of his claim, not a prerequisite for subject matter jurisdiction. As the Supreme Court has instructed, “when Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character.”  Arbaugh v. Y & H Corp., 546 U.S. 500, 516, 126 S. Ct. 1235, 163 L. Ed. 2d 1097 (2006).

To the extent our prior cases—including Curtis—hold otherwise, they have “no precedential effect” because they are precisely the type  [*4] of “drive-by jurisdictional rulings” the Supreme Court has since rejected. Id. at 511 (quoting Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 91, 118 S. Ct. 1003, 140 L. Ed. 2d 210 (1998)). We therefore vacate the dismissal and remand for further proceedings.

Leeson v. Transamerica Disability Income Plan, 2012 U.S. App. LEXIS 1248 (9th Cir. Wash. Jan. 23, 2012)

Whether a plaintiff is a “participant”  has posed one of the great metaphysical questions in ERISA benefits litigation.  It is usually clear that the person was once a participant – but following separation from employment, are they still?  The question can present itself in the form of another ERISA imponderable – that of standing (see, e.g., :: The Continuing Controversy Over Standing To Sue Under ERISA).

In this recent Ninth Circuit opinion, the Court, taking its cue from the Supreme Court decision in Arbaugh, took a relatively mundane approach to the issue.  Whether a plaintiff is a participant or not is not jurisdictional, but rather just another aspect of the proof of his or her case.

Granting that some of its prior jurisprudence conflicted with this ruling, the Ninth Circuit disavowed those prior cases, dismissively characterizing them as “drive-by jurisdictional rulings”.   (The blame for introducing this bizarre metaphor apparently belongs to Justice Scalia.  See, Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83 (U.S. 1998)).

[Read more...]

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:: Do Benefit Plan Recoupment Claims Trigger Internal Appeal Rights?

Hopkins’ argument focuses on “what procedures an insurer must apply when seeking to recover an overpayment of benefits issued under ERISA health care plans.” Pl.’s Resp. at 3 (emphasis in original). She claims that defendants violated ERISA by seeking recoupment from MVH without providing her notice or an opportunity to appeal their decision to do so. She contends that MVH “balance billed” her “as a direct result of Defendants [sic] recoupment of benefits on her claim without complying with the processes mandated under ERISA. As such, Defendants deprived Hopkins the opportunity to challenge their recalculation of her benefits and the resulting increase in her liability to MVH.” Id. at 4-5. She asks the Court for an order that will “return the parties to the position they were in before Defendants recouped any funds – through restitution of all payments that had been improperly recouped or otherwise recovered.”

Pa. Chiropractic Ass’n v. Blue Cross Blue Shield Ass’n, 2012 U.S. Dist. LEXIS 7257 (D. Ill. 2012)

This case presents a question that I find quite interesting. The issue turns on the significance of a claim for refund or “recoupment” by a group health plan after services have been rendered and benefits paid. In the end, the court in this case decides that the refund request does not trigger any additional obligations under the ERISA claims regulations. It remains to be seen, as noted below, whether that conclusion will follow under the new claims regulations promulgated under the PPACA. (N.B. This opinion only relates to an individual claimant’s rights in the context of a refund to to alleged duplicate payments under the prior claims regulation relating to adverse benefit determinations.)

[Read more...]

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:: Third Circuit Finds Place For Equitable Defenses To Subrogation Claims

Applying the traditional equitable principle of unjust enrichment, we conclude that the judgment requiring McCutchen to provide full reimbursement to US Airways constitutes inappropriate and inequitable relief. Because the amount of the judgment exceeds the net amount of McCutchen’s third-party recovery, it leaves him with less than full payment for his emergency medical bills, thus undermining the entire purpose of the Plan. At the same time, it amounts to a windfall for US Airways, which did not exercise its subrogation rights or contribute to the cost of obtaining the third-party recovery. Equity abhors a windfall. See Prudential Ins. Co. of America v. S.S. American Lancer, 870 F.2d 867, 871 (2d Cir. 1989).

U.S. Airways v. McCutcheon, No. 10-3836, (3rd Circuit Nov. 16, 2011)

Apparently, inspired by the recent Supreme Court decision in CIGNA v. Amara, the Third Circuit has held that the “appropriate equitable relief” qualifier in the grant of civil remedies under ERISA’s Section 501(a)(3) allows for the application of equitable defenses to plan reimbursement claims in – shall we say – “appropriate” situations.  (I reviewed the lower court’s opinion previously.)

The facts were the sort of egregious facts that invite adventuresome opinions.  The plan participant was seriously injured in a devastating automobile accident which was not his fault.  The recovery was relatively meager and the plan sought 100% reimbursement without regard to attorneys’ fees.  (The facts are related in more detail in my previous post.)

The Court focuses on the key issue in this excerpt:

Thus, the Court held that the plan administrator in Sereboff properly sought “equitable relief” under § 502(a)(3). Id. at 369. However, it expressly reserved decision on whether the term “appropriate,” which modifies “equitable relief” in § 502(a)(3), would make equitable principles and defenses applicable to a claim under that section.

This case squarely presents the question that Sereboff left open: whether § 502(a)(3)’s requirement that equitable relief be “appropriate” means that a fiduciary like US
Airways is limited in its recovery from a beneficiary like McCutchen by the equitable defenses and principles that were “typically available in equity.”

The Third Circuit answered the question as follows:

Applying the traditional equitable principle of unjust enrichment, we conclude that the judgment requiring McCutchen to provide full reimbursement to US Airways constitutes inappropriate and inequitable relief. Because the amount of the judgment exceeds the net amount of McCutchen’s third-party recovery, it leaves him with less than full payment for his emergency medical bills, thus undermining the entire purpose of the Plan. At the same time, it amounts to a windfall for US Airways, which did not exercise its subrogation rights or contribute to the cost of obtaining the third-party recovery. Equity abhors a windfall. See Prudential Ins. Co. of America v. S.S. American Lancer, 870 F.2d 867, 871 (2d Cir. 1989).

In my opinion, this conclusion is at odds with Sereboff.

In the Sereboff opinion, the Court stated that “Mid Atlantic need not characterize its claim as a freestanding action for equitable subrogation. Accordingly, the parcel of equitable defenses the Sereboffs claim accompany any such action are beside the point.”

Recall that the plan in Sereboff sought to enforce an “equitable lien by agreement” – which the Court pointed out in stating the equitable defenses were “beside the point”.

The footnote in Sereboff did not suggest that further consideration of equitable defenses was in the future.  That issue was settled in Sereboff.  At most, the footnote suggested that further consideration of what “appropriate” had been reserved for further consideration, but that is disputable.

There is a good discussion of this opinion on erisaboard.com.  Thanks to Roger Baron for alerting me to this case.

Note:  The Sereboff footnote reads as follows:

fn2: The Sereboffs argue that, even if the relief Mid Atlantic sought was
“equitable” under §502(a)(3), it was not “appropriate” under that provision in that it contravened principles like the make-whole doctrine. Neither the District Court nor the Court of Appeals considered the argument that Mid Atlantic’s claim was not “appropriate” apart from the contention that it was not “equitable,” and from our examination of the record it does not appear that the Sereboffs raised this distinct assertion below. We decline to consider it for the first time here. See National Collegiate Athletic Assn.
v. Smith, 525 U. S. 459, 470 (1999).

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:: Forum Selection Clause Enforced In ERISA Claim Litigation

Plaintiff asserts that forum selection clauses are not enforceable under ERISA. In support, Plaintiff relies on a district court case from the Eastern District of Texas, Nicolas v. MCI Health & Welfare Plan No. 501, 453 F. Supp. 2d 972 (E.D. Tex. 2006). In that case, the court held that the policies of the ERISA statutory framework supersede the general policy in the Fifth Circuit of enforcing forum selection clauses. Id. at 974.

Drapeau v. Airpax Holdings, 2011 U.S. Dist. LEXIS 82992 (D. Minn. July 27, 2011)

Plaintiff sought pay and benefits under a severance policy. The severance plan fit into a larger set of agreements following the sale of a business, the terms of which were included in a stock purchase agreement (“SPA”). (In the SPA, the successor employer agreed to “honor all employment, severance . . . and other compensation and benefit plans, policies, arrangements and agreements . . . “)

The plan administrator denied the plaintiff’s claim, asserting that he was terminated for willful misconduct (a defense under the plan terms), and denied a subsequent appeal. The plaintiff filed suit and the Defendants moved to dismissed under Rules 12(b)(3), 12(b)(6), and 28 U.S.C. § 1406(a), or, in the alternative, to transfer the action under 28 U.S.C. § 1404(a) and/or § 1406(a).

The Defendants argued that the SPA’s forum selection clause requires this action to be brought in the Northern District of Illinois or a state court in Chicago, Illinois. The Plaintiff asserted that forum selection clauses are not enforceable under ERISA.

Could the SPA forum selection clause be enforced in this context?

The Forum Selection Clause Language

The SPA contained a choice of venue provision which the Court excerpted as follows:

[A]ny suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Northern District of Illinois or any Illinois State court sitting in Chicago, Illinois, and each of the parties hereby consents to the jurisdiction of such courts . . . in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient form [sic].

The Plaintiff’s Arguments

The Plaintiff presented three reasons that the Court should not enforce the forum selection clause:

#1 the SPA’s forum selection clause is not explicit enough to be enforceable because it was “buried” in the SPA and does not specifically reference Plaintiff’s severance agreement;

#2 forum selection clauses are not enforceable under ERISA; and

#3 the forum selection clause was unreasonable.

The Court’s Response

The Court was unconvinced.

First, the Court noted that the forum selection clause in the SPA was unambiguous and clear in its terms.

Second, the Court distinguished the legal authority cited by the Plaintiff, observing that the SPA “is not a SPA is not a welfare-benefits plan covered by ERISA.” Even if it were, the authority cited, Nicolas v. MCI Health & Welfare Plan No. 501, 453 F. Supp. 2d 972 (E.D. Tex. 2006), “conflicts with the reasoning of the court in Schoemann ex rel. Schoemann v. Excellus Health Plan, Inc., 447 F. Supp. 2d 1000 (D. Minn. 2006).” In short, the Court agreed that ERISA “does not require the Court to disregard, as a matter of law, a forum-selection clause.”

Finally, the Court rejected the unreasonableness argument, stating:

Here, Plaintiff’s action arises from the SPA, which contains a forum selection clause that requires this case to be heard in Illinois. Plaintiff has not demonstrated that the forum selection clause was the product of fraud or overreaching or that Plaintiff was unaware of the clause before signing the SPA. Thus, the forum selection clause should be enforced absent a compelling and countervailing reason. Plaintiff has demonstrated no such reason here and Plaintiff’s assertions that the forum selection clause is unreasonable do not suffice.

Note: Though this case arose in the context of a collateral agreement, namely the SPA, the Court was clearly of the opinion that forum selection clauses contained in ERISA plan terms were enforceable. On the other hand, the Court appears to leave open challenges within the framework of 28 U.S.C. § 1404(a)

Section 1404(a) Factors: The existence of a forum selection clause constitutes a factor to be considered within the general rule governing objections to venue. The general rule is that, for the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.”

The Court must consider:

#1 convenience of the parties,

#2 the convenience of the witnesses, and

#3 the interests of justice.

The review involves a “case-by-case evaluation of the particular circumstances at hand and a consideration of all relevant factors.” Generally, the burden is on the party seeking the transfer “to show that the balance of factors ‘strongly’ favors the movant.”

A valid and applicable forum selection clause becomes a “significant factor that figures centrally into the district court’s calculus.” A forum selection clause is “prima facie valid and should be enforced unless enforcement is shown . . . to be ‘unreasonable’ under the circumstances.” (citing, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972) (quotation omitted). Overcoming a forum selection clause requires a “compelling and countervailing reason.”

“Unambiguous & Clear” Language. The Court noted that the clause was set forth separately under the bolded heading “Jurisdiction.”

Agreement & “Waiver” - Additionally, Plaintiff agreed to the forum selection clause and, under the terms of the agreement “waived any venue objection when he signed onto the SPA.”

Basis For Challenge – The foregoing factors reveal important points for plan sponsors to consider in drafting forum selection clauses. On the other hand, one can also infer from the opinion factors that improve the odds of challenging such provisions, such as:

#1 the clause is “the product of fraud or overreaching”

#2 the plaintiff was unaware of the clause before signing (or perhaps signed nothing, as in the case when the clause appears in the terms of an ERISA plan)

#3 enforcement would effectively deprive the opposing party of a meaningful day in court and

#4 other factors that show that enforcement would be unjust or unreasonable.

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:: Whose Privilege Is It Anyhow?

The fiduciary exception to the attorney-client privilegehas its roots in 19th-century English common-law casesholding that, “when a trustee obtained legal advice relating to his administration of the trust, and not in antici-pation of adversarial legal proceedings against him, thebeneficiaries of the trust had the right to the production of that advice.” Ibid. (collecting cases). The fiduciary excep-tion is now well recognized in the jurisprudence of both federal and state courts,1 and has been applied in a widevariety of contexts, including in litigation involving com-mon-law trusts, see, e.g., Riggs Nat. Bank of Washington, D. C. v. Zimmer, 355 A. 2d 709 (Del. Ch. 1976), disputesbetween corporations and shareholders, see, e.g., Garner v. Wolfinbarger, 430 F. 2d 1093 (CA5 1970), and ERISA enforcement actions, see, e.g., United States v. Doe, 162 F. 3d 554 (CA9 1999).

United States v. Jicarilla Apache Nation, 564 U.S. ___ (June 13, 2011)

Though not an ERISA case, the Jicarilla opinion holds interest for ERISA practitioners.   The primary holding addressed the scope of the attorney-client privilege in a controversy over the United States government’s management of funds held in trust for Indian tribes.   The Supreme Court reversed the Federal Circuit, holding that the common-law fiduciary exception to the attorney-client privilege did not apply to the trust relationship at issue.

In the course of its opinion, however, the Court noted application of the fiduciary exception in the context of ERISA litigation.  Moreover, the Court explained the rationale of the exception with reference to the leading case on the issue, Riggs Nat. Bank of Washington, D. C. v. Zimmer, 355 A. 2d 709 (Del. Ch. 1976).

The Court observed that the Riggs court focused on who the “real clients” were, stating that:

. . .  the trustees had obtained the legal advice as “mere representative[s]” of the beneficiaries because the trustees had a fiduciary obligation to act in the beneficiaries’ interest when administering the trust. Ibid.

For that reason, the beneficiaries were the “real clients” of the attorney who had advised the trustee on trust-related matters, and therefore the attorney-client privilege properly belonged to the beneficiaries rather than the trustees.

The Court also noted the use of a balancing test in Riggs:

Second, the court concluded that the trustees’ fiduciaryduty to furnish trust-related information to the beneficiaries outweighed their interest in the attorney-client privilege. “The policy of preserving the full disclosure necessary in the trustee-beneficiary relationship,” the court explained, “is here ultimately more important than the protection of the trustees’ confidence in the attorney for the trust.” Id., at 714. Because more information helped the beneficiaries to police the trustees’ management of the trust, disclosure was, in the court’s judgment, “a weightier public policy than the preservation of confidential attorney-client communications.”

The Court stated that [t]he Federal Courts of Appeals apply the fiduciary exception based on the same two criteria” and cited the following cases in support of that conclusion:

In re Long Island Lighting Co., 129 F. 3d 268, 272 (CA2 1997);
Wachtel v. Health Net, Inc., 482 F. 3d 225, 233–234 (CA3 2007);
Solis v. Food Employers Labor Relations Assn., 2011 U. S. App. LEXIS 9110, *12 (CA4, May 4, 2011);
Wildbur v. Arco Chemical Co., 974 F. 2d 631, 645 (CA5 1992); and
United States v. Evans, 796 F. 2d 264, 265–266 (CA9 1986) (per curiam).

Note: Factors which may assist in determination of who the “real client” may be derived from the following points taken from Riggs and noted by the Supreme Court: (1) when the advice was sought, no adversarial proceedings between thetrustees and beneficiaries had been pending, and thereforethere was no reason for the trustees to seek legal advice in a personal rather than a fiduciary capacity; (2) the court saw no indication that the memorandum was intended for any purpose other than to benefit the trust; and (3) the law firm had been paid out of trust assets. While not stated in such terms, the third factor appears to create a virtual presumption that the real client was the trust, not the fiduciaries.

See also – I have several posts about this case going back to the lower court’s opinion on erisaboard.com. Also, some useful practice pointers may be found in article published by Hayne & Boone attorneys on this site.

Note:

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:: ERISA Section 502(a)(3) Claims Remanded For Reconsideration After Amara Opinion

For the reasons discussed below, we affirm the district court’s decision rejecting Plaintiffs’ claims under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), and the district court’s dismissal of the claims of the Plaintiffs who received their distributions in the 2002-2003 Plan Years. However, we remand in part to the district court for reconsideration of the issue of whether a remedy exists under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), in light of the Supreme Court’s decision in CIGNA Corp. v. Amara, U.S. , 131 S. Ct. 1866 (May 16, 2011). Because we remand in part, we do not address the Defendants’ cross-appeal.

Rosario v. King & Prince Seafood Corp., 2011 U.S. App. LEXIS 13204 (11th Cir. Ga. June 28, 2011)

This ESOP litigation case has a long back story that I will omit. The part of the 11th Circuit opinion that I find interesting is that the Court felt a reconsideration of the district court’s denial of 29 U.S.C. § 1132(a)(3) claims should be undertaken in view of the Supreme Court decision in CIGNA Corp. v. Amara, U.S. , 131 S. Ct. 1866 (2011).

The lower court had held that the trustees violated the consent rule that requires ERISA plans to provide participants with sufficient information to make informed decisions. (See Morgan, Lewis summary here)

The 11th Circuit ruled that the recent Supreme Court view on 29 U.S.C. § 1132(a)(3) remedies might require a different result on remand, stating:

Having affirmed the district court’s rejection of the Plaintiffs’ § 502(a)(1)(B) claim, and the district court’s holding that there were no violations with respect to the 2002-2003 Plan Years, Plaintiffs’ only remaining claim involves the violations of the Consent Rule in the earlier years — i.e. the 1998-2001 Plan Years. Because the law of this case is that these violations are not actionable under § 502(a)(1)(B), the only issue remaining is whether these violations are actionable under § 502(a)(3). Because the intervening Supreme Court decision in Amara has provided more guidance with respect to the interpretation of § 502(a)(3), we vacate the district court’s judgment with respect to the § 502(a)(3) issue and remand this issue to the district court for reconsideration in light of Amara, and for further proceedings not inconsistent with this opinion.

For additional comment on the Rosario litigation, see the discussion here. For additional discussion of Amara, see previous post here.

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:: Employee Benefit Plans: Reported Criminal Enforcement Actions Year To Date

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:: Supreme Court Signals Broader View of Equitable Relief Under ERISA

Why the Court embarks on this peculiar path is beyond me. It cannot even be explained by an eagerness to demonstrate — by blatant dictum, if necessary — that, by George, plan members misled by an SPD will be compensated.

CIGNA Corp. v. Amara, 2011 U.S. LEXIS 3540 (U.S. May 16, 2011), SCALIA , J. (concurring in judgment)

It was not long ago that the Supreme Court observed that “[p]eople make mistakes. Even administrators of ERISA plans”, in a sort of benevolent prodding to the plan administrator to try to get it right next time. See, Conkright v. Frommert, 130 S. Ct. 1640 (U.S. 2010). The Court was in a different state of temperament in CIGNA Corp. v. Amara.

Although Justice Scalia correctly observes that the commentary on equitable remedies likely exceeds what was required, the important point here is that Justice Breyer, dissenting in Great West, now pens the majority opinion on the scope of equitable remedies.  So, as interesting as the opinion is in the present case, I believe a careful re-reading of the Great West dissent is also instructive.

The facts of the case, in an opinion authored by Justice Breyer, were carefully related in an exposition complete with examples. I am not really sure why the Court felt obliged to explain the workings of defined benefit plans and the cash balance plans that have frequently replaced them.

In a nutshell, the underlying facts are these:

The CIGNA pension plan defined a benefit payable at normal retirement age (65), with an option for early retirement at age 55. Without tedium of numerical examples predicated upon hypotheticals,  it is easy to see that CIGNA changed the retirement picture for its employees when it replaced the pension plan with a cash balance plan.  The cash balance plan transfered  future investment risks to the participant, eliminated the early retirement option and featured a joint and survivor annuity over a single life annuity.

The district court found that CIGNA had not provided the required notice of the changes, and worse, had puffed up the supposed benefits of the new arrangement to the point of misleading the employees. While struggling with the proper remedy, the district court seemed to find the correct remedy under ERISA but found it in the wrong statutory provision.

District Court Error

Here’s what the district court did:

The District Court ordered relief in two steps.

Step 1: It ordered the terms of the plan reformed (so that they provided an “A plus B,” rather than a “greater of A or B” guarantee).

Step 2: It ordered the plan administrator (which it found to be CIGNA) to enforce the plan as reformed. One can fairly describe step 2 as consistent with § 502(a)(1)(B), for that provision grants a participant the right to bring a civil action to “recover benefits due . . . under the terms of his plan.” 29 U.S.C. § 1132(a)(1)(B). And step 2 orders recovery of the benefits provided by the “terms of [the] plan” as reformed.

Here’s where it erred:

But what about step 1?

Where does § 502(a)(1)(B) grant a court the power to change the terms of the plan as they previously existed? The statutory language speaks of “enforc[ing]” the “terms of the plan,” not of changing them. 29 U.S.C. § 1132(a)(1)(B) (emphasis added). The provision allows a court to look outside the plan’s written language in deciding what those terms are, i.e., what the language means. See UNUM Life Ins. Co. of America v. Ward, 526 U.S. 358, 377-379, 119 S. Ct. 1380, 143 L. Ed. 2d 462 (1999) (permitting the insurance terms of an ERISA-governed plan to be interpreted in light of state insurance rules). But we have found nothing suggesting that the provision authorizes a court to alter those terms, at least not in present circumstances, where that change, akin to the reform of a contract, seems less like the simple enforcement of a contract as written and more like an equitable remedy.

A Simple Solution

The Court found the solution in § 502(a)(3) -

If § 502(a)(1)(B) does not authorize entry of the relief here at issue, what about nearby § 502(a)(3)? That provision allows a participant, beneficiary, or fiduciary “to obtain other appropriate equitable relief ” to redress violations of (here relevant) parts of ERISA “or the terms of the plan.” 29 U.S.C. § 1132(a)(3).

- and, to the chagrin of Justices Scalia and Thomas, took this as an occasion to elaborate on what appropriate equitable relief might be. In an observation very important to appreciating the Court’s commentary, the opinion notes that:

The case before us concerns a suit by a beneficiary against a plan fiduciary (whom ERISA typically treats as a trustee) about the terms of a plan (which ERISA typically treats as a trust).

The Court distinguished Mertens, as follows:

Thus, insofar as an award of make-whole relief is concerned, the fact that the defendant in this case, unlike the defendant in Mertens, is analogous to a trustee makes a critical difference. See 508 U.S., at 262-263, 113 S. Ct. 2063, 124 L. Ed. 2d 161. In sum, contrary to the District Court’s fears, the types of remedies the court entered here fall within the scope of the term “appropriate equitable relief ” in § 502(a)(3).

Types of Equitable Relief

So what remedies might qualify as equitable against a plan fiduciary?

The Court specifically identifies, over the course of several paragraphs, injunctions, equitable estoppel, reformation and surcharge. Surcharge?

In an excerpt soon to be much-quoted in ERISA litigation, the Court discussed how this remedy may result in a requirement to pay money:

[T]he District Court injunctions require the plan administrator to pay to already retired beneficiaries money owed them under the plan as reformed. But the fact that this relief takes the form of a money payment does not remove it from the category of traditionally equitable relief. . . .

The surcharge remedy extended to a breach of trust committed by a fiduciary encompassing any violation of a duty imposed upon that fiduciary. See Second Restatement § 201; Adams 59; 4 Pomeroy § 1079; 2 Story §§ 1261, 1268.

Conclusion

CIGNA wanted the Court to review whether the district court’s orders were available under (a)(1)(B). The Court said no, but pointed to (a)(3) as an alternative. CIGNA also wanted the Court to examine the standard of harm. On this point, the Court took the view that the proper standard depended on the type of equitable relief sought. All in all, a mixed bag for CIGNA, but for the plan participants as well.

The upshot is that we can agree with CIGNA only to a limited extent. We believe that, to obtain relief by surcharge for violations of §§ 102(a) and 104(b), a plan participant or beneficiary must show that the violation injured him or her. But to do so, he or she need only show harm and causation. Although it is not always necessary to meet the more rigorous standard implicit in the words “detrimental reliance,” actual harm must be shown.

We are not asked to reassess the evidence. And we are not asked about the other prerequisites for relief. We are asked about the standard of prejudice. And we conclude that the standard of prejudice must be borrowed from equitable principles, as modified by the obligations and injuries identified by ERISA itself. Information-related circumstances, violations, and injuries are potentially too various in nature to insist that harm must always meet that more vigorous “detrimental harm” standard when equity imposed no such strict requirement.

Note: The Second Circuit’s batting average is not too spiffy these days.  The Second Circuit’s assessment of the district court’s opinion, noted by the Court, is somewhat amusing:

The parties cross-appealed the District Court’s judgment. The Court of Appeals for the Second Circuit issued a brief summary order, rejecting all their claims, and affirming “the judgment of the district court for substantially the reasons stated” in the District Court’s “well-reasoned and scholarly opinions.” 348 Fed. Appx. 627 (2009). The parties filed cross-petitions for writs of certiorari in this Court. We granted the request in CIGNA’s petition to consider whether a showing of  ”likely harm” is sufficient to entitle plan participants to recover benefits based on faulty disclosures.

Equitable Remedies - The entire excerpt discussing equitable remedies reads as follows:

First, what the District Court did here may be regarded as the reformation of the terms of the plan, in order to remedy the false or misleading information CIGNA provided. The power to reform contracts (as contrasted with the power to enforce contracts as written) is a traditional power of an equity court, not a court of law, and was used to prevent fraud. See Baltzer v. Raleigh & Augusta R. Co., 115 U.S. 634, 645, 6 S. Ct. 216, 29 L. Ed. 505 (1885) (“[I]t is well settled that equity would reform the contract, and enforce it, as reformed, if the mistake or fraud were shown”); Hearne v. Marine Ins. Co., 87 U.S. 488, 20 Wall. 488, 490, 22 L. Ed. 395 (1874) (“The reformation of written contracts for fraud or mistake is an ordinary head of equity jurisdiction”); Bradford v. Union Bank of Tenn., 54 U.S. 57, 13 How. 57, 66, 14 L. Ed. 49 (1852); J. Eaton, Handbook of Equity Jurisprudence § 306, p. 618 (1901) (hereinafter Eaton) (courts of common law could only void or enforce, but not reform, a contract); 4 Pomeroy § 1375, at 1000 (reformation “chiefly occasioned by fraud or mistake,” which were themselves [*35] concerns of equity courts); 1 Story §§ 152-154; see also 4 Pomeroy § 1375, at 999 (equity often considered reformation a “preparatory step” that “establishes the real contract”).

Second, the District Court’s remedy essentially held CIGNA to what it had promised, namely, that the new plan would not take from its employees benefits they had already accrued. This aspect of the remedy resembles estoppel, a traditional equitable remedy. See, e.g., E. Merwin, Principles of Equity and Equity Pleading § 910 (H. Merwin ed. 1895); 3 Pomeroy § 804. Equitable estoppel “operates to place the person entitled to its benefit in the same position he would have been in had the representations been true.” Eaton § 62, at 176. And, as Justice Story long ago pointed out, equitable estoppel “forms a very essential element in . . . fair dealing, and rebuke of all fraudulent misrepresentation, which it is the boast of courts of equity constantly to promote.” 2 Story § 1533, at 776.

Third, the District Court injunctions require the plan administrator to pay to already retired beneficiaries money owed them under the plan as reformed. But the fact that this relief takes the form of a money payment does not remove it from the category of traditionally equitable relief. Equity courts possessed the power to provide relief in the form of monetary “compensation” for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment. Restatement (Third) of Trusts § 95, and Comment a (Tent. Draft No. 5, Mar. 2, 2009) (hereinafter Third Restatement); Eaton §§ 211-212, at 440. Indeed, prior to the merger of law and equity this kind of monetary remedy against a trustee, sometimes called a “surcharge,” was “exclusively equitable.” Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 464, 59 S. Ct. 275, 83 L. Ed. 285 (1939); Third Restatement § 95, and Comment a; G. Bogert & G. Bogert, Trusts and Trustees § 862 (rev. 2d ed. 1995) (hereinafter Bogert); 4 Scott & Ascher §§ 24.2, 24.9, at 1659-1660, 1686; Second Restatement § 197; see also Manhattan Bank of Memphis v. Walker, 130 U.S. 267, 271, 9 S. Ct. 519, 32 L. Ed. 959 (1889) (“The suit is plainly one of equitable cognizance, the bill being filed to charge the defendant, as a trustee, for a breach of trust”); 1 J. Perry, A Treatise on the Law of Trusts and Trustees § 17, p. 13 (2d ed. 1874) (common-law attempts “to punish trustees for a breach of trust in damages, . . . w[ere] [*37] soon abandoned”).

The surcharge remedy extended to a breach of trust committed by a fiduciary encompassing any violation of a duty imposed upon that fiduciary. See Second Restatement § 201; Adams 59; 4 Pomeroy § 1079; 2 Story §§ 1261, 1268. Thus, insofar as an award of make-whole relief is concerned, the fact that the defendant in this case, unlike the defendant in Mertens, is analogous to a trustee makes a critical difference. See 508 U.S., at 262-263, 113 S. Ct. 2063, 124 L. Ed. 2d 161. In sum, contrary to the District Court’s fears, the types of remedies the court entered here fall within the scope of the term “appropriate equitable relief ” in § 502(a)(3).

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:: Estoppel Claims Can Prevail Over Unambiguous Plan Language

Defendants argue that the first amended complaint is deficient because, with the exception of Count Four, which is identified as a claim for benefits pursuant to §1132(a)(1)(B), plaintiff fails to specify the ERISA statutory provisions upon which her claims are based. This argument is not well taken.

A plaintiff is not required to plead legal theories or cases, or specify the statute or common law principle that a defendant has allegedly violated. Shah v. Inter-Contental Hotel Chicago Operating Corp., 314 F.3d 278, 282 (7th Cir. 2002).

Even the failure to correctly categorize the legal theory giving rise to a claim does not require dismissal if the complaint otherwise alleges facts upon which relief can be granted. Counts Two and Three are labeled as promissory estoppel and equitable estoppel claims. They are based on federal common law.

Virginia Stark, Plaintiff, v. Mars, Inc., et al., Defendants, 2011 U.S. Dist. LEXIS 50246 (May 11, 2011)

In Stark v. Mars, the district court engaged in a thoughtful analysis of several  important ERISA legal theories for relief in the context of the defendants’ motion to dismiss.  The case involved the all too common scenario of a plan participant who was informed that her benefits would be at a level that exceeded what the plan ultimately paid.

The issues challenged for legal sufficiency by the motion are summarized as follows:

#1.            In Count One, [which was essentially a claim based upon breach of fiduciary duty] plaintiff alleges that the defendants exercise discretionary authority or control respecting the management of the plan and the disposition of its assets, and/or have discretionary authority or responsibility in the administration of the Plan. Plaintiff further alleges that defendants are fiduciaries and that they were acting in a fiduciary capacity when they [mis]represented to her that her monthly payments would be $5,364.63.

#2.            In Count Two, the promissory estoppel claim, plaintiff alleges that defendants promised that plaintiff would receive a monthly benefit of $5,364.63, that defendants reasonably should have expected that this promise would induce her to choose this option, and that she did in fact choose this option.

#3.            In Count Three, the equitable estoppel claim, plaintiff alleges that the representations made by defendants that her monthly benefits would be $5,364.63 were material, that defendants were aware that plaintiff was entitled to no more than $2,303.12 per month under the single life annuity with five-year certain pension payment option, that plaintiff reasonably believed that defendants intended for plaintiff to act on their representations, that plaintiff was unaware that she was only entitled to the lesser amount, and that plaintiff detrimentally and justifiably relied on the representations made by defendants.

#4.            In Count Four, plaintiff asserts a claim for benefits under §1132(a)(1)(B). This claim is based on the allegations that plaintiff sent a formal claim letter to the Plan administrator, that her request for benefits in the amount of $5,364.63 was denied by the Committee, and that her appeal of that decision was denied by the Appeals Committee.

The court ultimately found that the complaint sufficiently stated a claim on all counts.

Repackaging Claims

The Plaintiffs’ first hurdle was the inclusion of a claim for benefits under §1132(a)(1)(B). (See # 4. above).  That gave the Defendants the occasion to argue that:

plaintiff cannot pursue  the claim for breach of fiduciary duty in Count One and the estoppel claims in Counts Two and Three because she has asserted a claim for benefits in Count Four.

The court sided with the plaintiff however, stating:

The fact that plaintiff states in her complaint that she is seeking to obtain the higher retirement benefit by way of equitable and injunctive relief does not automatically convert her equitable claims into a claim for Plan benefits under §1132(a)(1)(B). Plaintiff’s claims of breach of fiduciary duty and estoppel are not simply restated benefit claims under §1132(a)(1)(B), and this branch of defendants’ motion to dismiss is denied.

Regarding the estoppel claims, the court noted that those claims were based upon federal common law.  The Sixth Circuit has left open the question of whether whether an equitable or promissory estoppel claim based on misrepresentations could be categorized as a §1132(a)(1)(B) claim or a §1132(a)(3) claim.   In the end, the question was of no moment.

Regardless of whether the estoppel claims can be reclassified as falling within the statutory framework of §1132(a), the estoppel claims are also based on the alleged misrepresentations made to plaintiff, not to plaintiff’s actual entitlement to benefits under the terms of the Plan, and are not simply repackaged benefits claims.

Labels Unimportant

The Defendants also argued that Defendants argue that the complaint was deficient because,

with the exception of Count Four, which is identified as a claim for benefits pursuant to §1132(a)(1)(B), plaintiff fails to specify the ERISA statutory provisions upon which her claims are based.

The court dismissed this argument, stating that:

A plaintiff is not required to plead legal theories or cases, or specify the statute or common law principle that a defendant has allegedly violated. Shah v. Inter-Contental Hotel Chicago Operating Corp., 314 F.3d 278, 282 (7th Cir. 2002). Even the failure to correctly categorize the legal theory giving rise to a claim does not require dismissal if the complaint otherwise alleges facts upon which relief can be granted.

Unambiguous Plan Provisions

Whenever estoppel arguments arise, defenses based upon “unambiguous” plan language are sure to follow.   The basic premise makes sense.  If the plan language is clear enough, how can the plaintiff argue the elements of estoppel?

The argument in this case took a different turn, however, based upon the holding in Bloemker v. Laborers’ Local 265 Pension Fund, 605 F.3d 436 (6th Cir. Ohio 2010).

Estoppel Elements

The basic estoppel claim requires:

(1) conduct or language amounting to a representation of material fact;

(2) awareness of the true facts by the party to be estopped;

(3) an intention on the part of the party to be estopped that the representation be acted on, or conduct toward the party asserting the estoppel such that the latter has a right to believe that the former’s conduct is so intended;

(4) unawareness of the true facts by the party asserting the estoppel; and

(5) detrimental and justifiable reliance by the party asserting estoppel on the representation.

Estoppel Elements . . . Plus

To the foregoing, an exception is added – in the Sixth Circuit at least based upon Bloemker v. Laborers’ Local 265 Pension Fund, 605 F.3d 436 (6th Cir. Ohio 2010).  A plaintiff can invoke equitable estoppel in the case of unambiguous pension plan provisions where plaintiff can  demonstrate the traditional elements of estoppel, (see above) and:

that the defendant engaged in intended deception or such gross negligence as to amount to constructive fraud, plus (1) a written representation; (2) plan provisions which, although unambiguous, did not allow for individual calculation of benefits; and (3) extraordinary circumstances in which the balance of equities strongly favors the application of estoppel.

Extraordinary circumstances could include complexity.  The court took this into account, observed that:

. . .  the court in Bloemker also considered as an extraordinary circumstance the fact that the plaintiff alleged that it would have been impossible for him to determine his correct pension benefit given the complexity of the calculations.  Although the plaintiff in this case does not specifically make such allegations, it is apparent from the Plan and  other documents supplementing the complaint that, even assuming that the Plan terms are unambiguous, the actuarial calculations are also complicated.

Overall, the plaintiff’s motion survived virtually intact.

Note: The court sorted out the plaintiff’s claims in some respects where the complaint did not support claims against certain parties.

The complaint also fails to state a claim for benefits against Mars under §1132(a)(1)(B). The proper defendant in an ERISA action concerning benefits is the plan administrator. See Riverview Health Institute LLC, 601 F.3d at 522. An employer is not a proper party defendant in an action concerning benefits unless the employer “‘is shown to control administration of the plan.’” Gore v. El Paso Energy Corp. Long Term Disability Plan, 477 F.3d 833, 842 (6th Cir. 2007)(quoting  [*21] Daniel v. Eaton Corp., 839 F.2d 263, 266 (6th Cir. 1988)). In other words, the defendant in a §1132((a)(1)(B) action must be the parties or entities which made the decision to deny benefits, in this case, the Committee and the Appeal Committee. Counts One and Four, insofar as they pertain to defendant Mars, will be dismissed.
In regard to the Appeals Committee, the complaint contains no allegations that the Appeals Committee made any misrepresentations to plaintiff about her benefits. Therefore, Counts One, Two and Three, insofar as they pertain to the Appeals Committee, will be dismissed. In regard to Count Four, the denial of benefits claim, the record reveals that the letter denying plaintiff’s appeal was from the Appeals Committee. Doc. 17, Ex. B. The letter states that the Committee “has delegated to the Appeals Committee the absolute discretionary authority and power to review and decide all claim appeals under the Plan.” There is sufficient information in the complaint and related documents to support the claim against the Appeals Committee for denial of benefits asserted in Count Four.
The complaint also fails to state a claim for benefits against Mars under §1132(a)(1)(B). The proper defendant in an ERISA action concerning benefits is the plan administrator. See Riverview Health Institute LLC, 601 F.3d at 522. An employer is not a proper party defendant in an action concerning benefits unless the employer “‘is shown to control administration of the plan.’” Gore v. El Paso Energy Corp. Long Term Disability Plan, 477 F.3d 833, 842 (6th Cir. 2007)(quoting  [*21] Daniel v. Eaton Corp., 839 F.2d 263, 266 (6th Cir. 1988)). In other words, the defendant in a §1132((a)(1)(B) action must be the parties or entities which made the decision to deny benefits, in this case, the Committee and the Appeal Committee. Counts One and Four, insofar as they pertain to defendant Mars, will be dismissed.
In regard to the Appeals Committee, the complaint contains no allegations that the Appeals Committee made any misrepresentations to plaintiff about her benefits. Therefore, Counts One, Two and Three, insofar as they pertain to the Appeals Committee, will be dismissed. In regard to Count Four, the denial of benefits claim, the record reveals that the letter denying plaintiff’s appeal was from the Appeals Committee. Doc. 17, Ex. B. The letter states that the Committee “has delegated to the Appeals Committee the absolute discretionary authority and power to review and decide all claim appeals under the Plan.” There is sufficient information in the complaint and related documents to support the claim against the Appeals Committee for denial of benefits asserted in Count Four.

Motion To Amend - The court disallowed a motion to amend, stating:

If plaintiff has any intent to pursue a claim for denial of benefits under §1132(a)(1)(B) or for breach of fiduciary duty, the time to do so is now. Since plaintiff’s motion for leave to amend her complaint is phrased in terms of a dismissal of Counts One and Four without prejudice,the motion is denied.

In support of the decision to deny the motion, the court stated reasons of judicial economy, fairness to the defendants, and potential issues for the plaintiff, if she sought to assert her claims in the future, given plan provisions imposing a short limitations period.

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:: Claims For Administrative Record And Statutory Penalties Advance Over Challenge

Plaintiffs bring a claim for violation of 29 C.F.R. 2560.503-1(h)(2) on behalf of the individual Plaintiffs against Defendants . . .
29 C.F.R. 2560.503-1(h)(2) sets forth the requirements that must be met in order for a plan’s claims procedures to be considered as having provided a claimant with a reasonable opportunity for a full and fair review of a claim and adverse benefit determination. Subsection (iii) states that the claims procedures of a plan must provide that “a claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.” 29 C.F.R. 2560.503-1(h)(2)(iii).

[E]ven if Plaintiffs are ultimately unable to recover statutory penalties for any alleged document production violations, they have stated a claim for relief that is plausible on its face. Defendants’ motion to dismiss this claim is denied.

Moyle v. Liberty Mut. Ret. Benefit Plan, 2011 U.S. Dist. LEXIS 44065 (D. Cal. 2011)

The plaintiffs in this case argue that the defendants failed to produce documents in derogation of their duties under the DOL claims regulation.  The claims regulation embodies a sort of “due process” for benefit claimants pursuant to 29 U.S.C. § 1133 which states,

“[i]n accordance with regulations of the Secretary, every employee benefit plan shall . . . afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.”

The plaintiffs argued that the defendants violated 29 C.F.R. 2560.503-1(h)(2), a part of the DOL claims regulation promulgated under 29 U.S.C. § 1133.  The defendants argued that the plaintiffs failed to state a claim.

The Regulation And The Allegation

First, let’s take a look at the regulation, summarized as follows:

29 C.F.R. 2560.503-1(h)(2) sets forth the requirements that must be met in order for a plan’s claims procedures to be considered as having provided a claimant with a reasonable opportunity for a full and fair review of  a claim and adverse benefit determination. Subsection (iii) states that the claims procedures of a plan must provide that “a claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.” 29 C.F.R. 2560.503-1(h)(2)(iii)(stating that relevance of a document shall be determined by reference to paragraph (m)(8) of the section).

Now, the plaintiffs argued to the Court that  ”[s]ubstantial portions of the records and documentation related to the Plaintiffs['] claims were not provided,” in connection with the claims process.

The Consequence Of A Violation

Even if the defendants failed to comply with the regulation, they argued it didn’t really matter.   So the arguments looked like this:

# 1 The plaintiffs contended that they were entitled to statutory penalties under 29 U.S.C. section 1132(c)(1).  They also contended that were “entitled to an immediate order . . .  compelling Defendants to produce all such portions of the administrative record on Plaintiffs’ claims which have not been produced as required by law.”

# 2 The defendants demurred, arguing that statutory penalties “are not available for violations of 29 C.F.R. 2560.503-1(h)(2)(iii).”

Who was correct?  In fact the law is not so clear – in the Ninth Circuit anyhow.

The Ninth Circuit View

Perhaps the Ninth Circuit has not fully addressed the issue – the defendants claimed as much – but the Ninth Circuit did provide the plaintiffs a foothold in Sgro v. Danone Waters of N. Am., 532 F.3d 940 (9th Cir. 2008).  As related by the district court:

Plaintiffs claim the Ninth Circuit’s holding in Sgro v. Danone Waters of N. Am., 532 F.3d 940 (9th Cir. 2008), established that Plaintiffs have a claim pursuant to 29 U.S.C. § 1132.

Defendants, in contrast, argue the relevant language in Sgro was merely dicta and the Court should follow the approach taken in Bielenberg v. ODS Health Plan, Inc., 744 F. Supp. 2d 1130, 1143-44 (D. Or. 2010), which denied plaintiff’s motion for leave to amend his complaint to add a claim for penalties pursuant to 29 U.S.C. § 1132(c)(1) based upon violations of 29 C.F.R. 2560.503-1(h)(2)(iii) on the basis that such penalties are not permissible and, thus, amendment would be futile.

A Belt And Suspenders To Be Sure

Sgro also claims that he asked defendants for a “complete copy of [his] claim file” and that defendants didn’t fully comply with the request. In particular,  [*945]  Sgro alleges that MetLife held back “claim activity records or investigation notes” kept by MetLife’s “claims personnel.” Sgro argues that MetLife’s failure to provide these documents violated  [**10] HN11ERISA regulations, which require that
a claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.
29 C.F.R. § 2560.503-1(h)(2)(iii). The documents that MetLife is alleged to have held back are “relevant,” and thus HN12covered by this regulation, because they were “generated in the course of making the benefit determination.” Id. § 2560.503-1(m)(8)(ii). ERISA’s remedies provision gives Sgro a cause of action to sue a plan “administrator” who doesn’t comply with a “request for . . . information.” 29 U.S.C. § 1132(c)(1).
But there are two defendants here, and Sgro’s complaint doesn’t say which one he asked for the records. See First Amend. Compl. P 24. That matters because HN13a defendant can’t be liable unless it received a request. See 29 U.S.C. § 1132(c)(1). As for Danone Waters, Sgro’s lawyer told the district court that he requested the records from that company but that his letter came back to him stamped “undeliverable as addressed.” It’s not at all clear whose fault that was. So it seems possible for Sgro to amend his complaint to state a claim against Danone  [**11] Waters. On remand, Sgro shall be given leave to amend his complaint to allege that he requested these documents from Danone Waters, if he can do so in good faith.

For good measure, the plaintiffs argued that their claim:

should survive Defendants’ motion to dismiss because, in addition to requesting penalties, Plaintiffs request “an order compelling Defendants to produce all such portions of the administrative record on Plaintiffs’ claims which have not been produced as required by law.” )  Plaintiffs argue this claim is not merely based upon the penalty provisions of 29 U.S.C. § 1132, but, rather, seeks to compel Defendants to produce the records required to be produced pursuant to 29 C.F.R. 2560.503-1(h)(2).

So the plaintiffs added a backstop to their argument by asserting that, even if penalties weren’t allowable, their claim would still be viable.   The district court agreed with this point, stating:

Finally, in addition to seeking penalties pursuant to 29 U.S.C. § 1132(c)(1), Plaintiffs seek an order from this Court requiring Defendants to comply with their document production requirements. According to Plaintiffs, they are not relying on § 1132 for this aspect of their claim. Nonetheless, § 1132 provides the Court with the authority to grant such relief. See 29 U.S.C. § 1132(a)(“A civil action may be brought . . . (3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such provisions or (ii) to enforce any provisions of this subchapter or the terms of the plan); 29 U.S.C. § 1132(c)(1)(“the court may in its discretion order such other relief as it deems proper”).

Accordingly, even if Plaintiffs are ultimately unable to recover statutory penalties for any alleged document production violations, they have stated a claim for relief that is plausible on its face. Defendants’ motion to dismiss this claim is denied.

Final Answer?

On the statutory penalties claim, the court left the issue hanging, stating:

The Ninth Circuit’s opinion in Sgro states, in the context of discussion of a claim pursuant to 29 C.F.R. 2560.503-1(h)(2)(iii), that “ERISA’s remedies provision gives Sgro a cause of action to sue a plan ‘administrator’ who doesn’t comply with a ‘request for . . . information. 29 U.S.C. § 1132(c)(1).”   However, the opinion does not contain further discussion regarding the availability of statutory fines for violations of the regulation.  The Court is not persuaded that the opinion in Sgro conclusively established the applicability of § 1132′s penalties  provisions to claims for violations of 29 C.F.R. 2560.503-1(h)(2)(iii), as Plaintiffs argue.

However, neither is the Court persuaded by Defendants’ argument that the opinions of other Circuit Courts should be adopted by this Court to find Plaintiffs have failed to state a claim for relief at the motion to dismiss stage. See Groves v. Modified Ret. Plan for Hourly Paid Emps. of Johns Manville Corp. & Subsidiaries, 803 F.2d 109 (3d Cir. 1986); Stuhlreyer v. Armco, Inc., 12 F.3d 75 (6th Cir. 1993); Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397 (7th Cir. 1996); Brown v. J.B. Hunt Transp. Servs., Inc., 586 F.3d 1079 (8th Cir. 2009).

And so the plaintiffs claims on this issue survived the motion to dismiss and remain to be decided on a later date.

Note:  Regarding statutory penalties:

29 U.S.C. § 1132(c)(1) states “[a]ny administrator . . . who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary . . . by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court’s discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper.”

The current penalty is $110 per day.

Sgro Excerpt:  From the Ninth Circuit opinion:

Sgro also claims that he asked defendants for a “complete copy of [his] claim file” and that defendants didn’t fully comply with the request. In particular,  Sgro alleges that MetLife held back “claim activity records or investigation notes” kept by MetLife’s “claims personnel.” Sgro argues that MetLife’s failure to provide these documents violated  ERISA regulations, which require that:

a claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.

29 C.F.R. § 2560.503-1(h)(2)(iii). The documents that MetLife is alleged to have held back are “relevant,” and thus HN12covered by this regulation, because they were “generated in the course of making the benefit determination.” Id. § 2560.503-1(m)(8)(ii). ERISA’s remedies provision gives Sgro a cause of action to sue a plan “administrator” who doesn’t comply with a “request for . . . information.” 29 U.S.C. § 1132(c)(1).

But there are two defendants here, and Sgro’s complaint doesn’t say which one he asked for the records. See First Amend. Compl. P 24. That matters because a defendant can’t be liable unless it received a request. See 29 U.S.C. § 1132(c)(1). As for Danone Waters, Sgro’s lawyer told the district court that he requested the records from that company but that his letter came back to him stamped “undeliverable as addressed.” It’s not at all clear whose fault that was. So it seems possible for Sgro to amend his complaint to state a claim against Danone  Waters. On remand, Sgro shall be given leave to amend his complaint to allege that he requested these documents from Danone Waters, if he can do so in good faith.

Collected Opinions - There is a nice overview of this issue available online here with collected cases.

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:: Organizing The FAQ’s

I replaced the FAQ resource page previously on this site with a new FAQ page that lists the questions with links back to the DOL site where the answers appear.

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:: Is The DOL Abusing the “FAQ” Format?

Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of the market reform provisions of the Affordable Care Act. These FAQs have been prepared jointly by the Departments of Health and Human Services (HHS), Labor and the Treasury (the Departments). Like previously issued FAQs (available at http://www.dol.gov/ebsa/healthreform/), these FAQs answer questions from stakeholders to help people understand the new law and benefit from it, as intended.

FAQs About Affordable Care Act Implementation Part VI

More “frequently asked questions” about the PPACA are now on tap.  Here is the sextology of FAQ’s:

ACA Implementation FAQs: Part I • Part II • Part III • Part IV • Part V • Part VI

I suppose I am an inveterate cynic, but I doubt these questions are “frequently asked.”  For example, consider this one from FAQ #6:

Q3: A previous FAQ addressed the interaction of value-based insurance design (VBID) and the no cost-sharing preventive care services requirements. See http://www.dol.gov/ebsa/faqs/faq-aca5.html . In that example, a group health plan did not impose a copayment for colorectal cancer preventive services when performed in an in-network ambulatory surgery center. In contrast, the same preventive service provided at an in-network outpatient hospital setting generally required a $250 copayment, although the copayment was waived for individuals for whom it would be medically inappropriate to have the preventive service provided in the ambulatory setting. The FAQ indicated that this VBID did not cause the plan to fail to comply with the no cost-sharing preventive care requirements.

A question about a different situation has been raised. Under a group health plan, similar preventive services are available both at an in-network ambulatory surgery center and at an in-network outpatient hospital setting, but currently no copayment is imposed for these services in either setting. This has been the case since March 23, 2010. If this plan wished to adopt the VBID approach described in the example above by imposing a $250 copayment for these preventive services only when performed in the in-network outpatient hospital setting (i.e., not when performed in an in-network ambulatory surgery center), and with the same waiver of the copayment for any individuals for whom it would be medically inappropriate to have these preventive services provided in the ambulatory setting, would implementation of that new design now cause the plan to relinquish grandfather status?

Now do you really think such questions are “frequently asked’?  Not likely.

So why do federal agencies use FAQ’s?  Because they can use the FAQ format to circumvent the rules applicable to regulatory projects.  The goal is to get the regulatory take on issues in the public domain without bothering with those pesky notice and comment requirements, the possibility of judicial review, etc.  The triumvirate of IRS, DOL and HHS has been strategic in their choice of media for getting their points across.  (“Interim final regulations” are another example.)

FAQ’s are not final agency action, or at least not typically thought of as such.  See, Golden & Zimmerman, LLC v. Domenech, 599 F.3d 426 (4th Cir. Va. 2010).  An agency may signal a position in a FAQ, and evade notice, comment and judicial review, while retaining the option of enforcement action of that position based on interpretations of statutory provisions and prior regulations — i.e., by arguing that was “always” the law.   That should be a cause for concern — particularly given the volume of this administration’s “FAQ’s”.

Note: For those folks out there asking this question, the answer to “Frequently Asked Question” #3 of the sixth set of FAQ’s is as follows:

No. This increase in the copayment for these preventive services solely in the in-network outpatient hospital setting (subject to the waiver arrangement described above) without any change in the copayment in the in-network ambulatory surgery center setting would not be considered to exceed the thresholds described in paragraph (g)(1) of the interim final regulations on grandfather status and thus would not cause the plan to relinquish grandfather status.

The Departments are seeking further information on VBID and wellness programs and are planning to address issues relating to those designs and programs in future regulations. Comments from plan sponsors have expressed an interest in being able to retain grandfather status notwithstanding certain changes in plan terms that are intended to implement VBID and wellness programs. As the regulatory process progresses, the Departments will be giving close attention to these comments, and further guidance may be issued addressing other circumstances in which plan changes implementing those designs and programs may be made without relinquishing grandfather status.

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:: ERISA Section 209 Recordkeeping Duties Do Not Give Rise To Fiduciary Claim

. . . our decision does not prevent Henderson from bringing a subsequent action pursuant to ERISA Section 502(a)(1)(B) to recover benefits associated with any unjustly withheld compensation that she receives if she is successful in her state wage lawsuit. Indeed, at oral argument, UPMC agreed that were it to be established in state court that Henderson should have been paid for the additional hours she alleges, UPMC will make the corresponding contributions to these plans.

Henderson v. Upmc, 2011 U.S. App. LEXIS 6820 (3d Cir. 2011)

Henderson v. UPMC involves one of those interesting intersections between wages and compensation on the one hand and employee benefits on the other. The case illustrates the potential ripple effect of wage disputes into the employee benefit arena.

In this case, however, the court held that the plaintiff had more work to do before she had an ERISA case. As the excerpt above indicates, however, the court nonetheless held open the distinct possibility that an ERISA claim could emerge from the wage case.

The facts underlying the wage claim were as follows:

Henderson’s Second Amended Complaint alleges that while employed as a registered nurse for UPMC, she and other nurses were required to work during their thirty-minute unpaid “meal breaks,” but were never compensated for this work. In addition, UPMC began increasing the number of patients assigned to each nurse per shift.

Nurses were allocated thirty minutes of paid time at the beginning of their shifts to review the status reports of the patients they would cover during the upcoming shift. The complaint alleges that as a result of the increased patient load, nurses such as Henderson had to begin arriving at work and reviewing the status reports twenty to forty minutes prior to the official start of their shift.

Even though the nurses clocked in when they arrived, UPMC would not start crediting the nurses with paid work time until the official start of the shift.

Henderson filed a lawsuit in state court alleging that UPMC violated the Pennsylvania Wage Payment and Collection law and the Pennsylvania Minimum Wage Act.  Henderson v. UPMC, No. GD-09-13303 (Court of Common Pleas, Allegheny County, Pa. filed July 23, 2009).  That suit remains pending.

If true, that is not a very fair way to treat your employees. But what would that have to do with ERISA?  First of all, the plaintiff claimed that the defendant failed to properly keep records of her hours:

Henderson contends that these plans and the ERISA statute which controls them require that UPMC, as an employer, keep records of the uncompensated hours she worked and, as a fiduciary, to investigate and ensure that contributions allegedly corresponding to the hours worked were being provided so that the relevant fund can distribute benefits to Henderson when she retires.

Then, she claims that these misconduct affected her benefits as follows:

Specifically, she alleges that “UPMC failed to maintain records . . . sufficient to determine the benefits due,” in violation of Section 209(a)(1) of ERISA. Henderson also claims that UPMC breached its fiduciary duty under Section 404(a), 29 U.S.C. § 1104(a), “to act prudently and solely in the interests of [Henderson and her coworkers] by failing to credit them with all hours worked for which they were entitled to be paid when calculating their pension benefits, or to investigate whether such hours should be credited.”

The plaintiff asked the court for equitable relief pursuant to Section 502(a)(3), 29 U.S.C § 1132(a)(3), and “[a]ll applicable statutory benefits and contributions” pursuant to Section 502(a)(1)(B).  The district court held for the defendant and the plaintiff appealed to the Third Circuit.

The Third Circuit agreed that the employer had the recordkeeping duties alleged by the plaintiff. But the court looked to the plan language of the retirement plans in issue and found that the calculation of benefits turned on compensation paid, not hours worked.

Based on this plain plan language, we conclude that contributions owed by UPMC are calculated based on compensation paid to the employees and not based on uncompensated hours worked. Henderson’s focus on language other than these straightforward definitions is misguided. See Fields v. Thompson Printing Co., 363 F.3d 259, 268 (3d Cir. 2004) (declining to look beyond plain language of employment agreement when determining liability under ERISA).

So, there would be no ERISA case – yet anyway. We have to wait and see since, as the court noted, a successful wage claim would affect compensation paid and then the benefits due would change – again based upon the plain plan language.

In so holding, we are careful to note that our decision does not prevent Henderson from bringing a subsequent action pursuant to ERISA Section 502(a)(1)(B) to recover benefits associated with any unjustly withheld compensation that she receives if she is successful in her state wage lawsuit. Indeed, at oral argument, UPMC agreed that were it to be established in state court that Henderson should have been paid for the additional hours she alleges, UPMC will make the corresponding contributions to these plans.

Were that to eventuate, Henderson would then have been paid reportable W-2 compensation to which contributions are linked. Accordingly, we see no reason to disturb the District Court’s ruling dismissing the complaint with prejudice with respect to Henderson’s claims for violations of Section 209 and any corollary fiduciary responsibility to monitor and ensure that contributions are being accurately provided. However, as just stated, Henderson retains the right to bring a claim for benefits under Section 502(a)(1)(B), if and when she is successful in her state wage lawsuit.

Note: The court did not reach the alternative issue raised – whether plan participants are entitled to bring a separate cause of action for violations of Section 209.

Relationship of Section 209 to Benefit Claim – The court noted that:

. . . in this case, the records “sufficient to determine the benefits due” under Section 209 are the records of the employee’s compensation actually paid. Nowhere is it alleged that UPMC in anyway failed to keep track of the compensation it did, in fact, pay to Henderson or her coworkers.

. . .  because Henderson has failed to state a Section 209 claim against UPMC, any related claim that UPMC failed its fiduciary obligation under Section 404 to investigate and ensure that contributions were being accurately provided to the fund also fails. Ipso facto, to the extent Henderson is attempting “to recover benefits due to [her] under the terms of [her] plan” from UPMC as a fiduciary pursuant to Section 502(a)(1)(B) or seek injunctive relief under Section 502(a)(3), her claim fails because the plan links contributions and benefits due to compensation paid.

Contrary Authority – The plaintiff did cite a case favorable to her position that the Third Circuit rejected:

Henderson urges us to follow Gerlach v. Wells Fargo & Co., No. C05-0585 CW, 2005 U.S. Dist. LEXIS 46788, *6-8 (N.D. Cal. June 13, 2005), where, notwithstanding that the plan linked contributions to compensation paid, the court held that the employer was obligated to keep track of overtime that was never paid. As evidenced by the long list of cases holding to the contrary, Gerlach is an outlier in refusing to follow  the plan language and we decline to follow it.

Majority View On Section 209- The Court cited the following cases in favor of its position:

. . . we join the several other courts that have determined the scope of the Section 209 record-keeping duty, and its fiduciary corollary, by evaluating how contributions are allocated under the pension plan. See Trs. of the Chi. Painters & Decorators Pension v. Royal Int’l Drywall & Decorating, Inc., 493 F.3d 782, 786 (7th Cir. 2007)   (evaluating scope of Section 209 record-keeping duty by looking to plan language); Mich. Laborers’ Health Care Fund v. Grimaldi Concrete, Inc., 30 F.3d 692, 697 (6th Cir. 1994) (same); Combs v. King, 764 F.2d 818, 825 (11th Cir. 1985) (same); Zipp v. World Mortg. Co., 632 F. Supp. 2d 1117, 1125 (M.D. Fla. 2009) (same); see also Mathews v. ALC Partner, Inc., No. 08-cv-10636, 2009 WL 3837249, at *3-7 (E.D. Mich. Nov. 16, 2009) (evaluating scope of fiduciary duty by looking to plan language); Steavens v. Elec. Data Sys. Corp., No. 07-14536, 2008 WL 3540070, at *4 (E.D. Mich. Aug. 12, 2008) (same).

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Department of Labor Releases Self-Funded Health Plan Report

The Patient Protection and Affordable Care Act (the “Affordable Care Act”) (P. L. 111-
148, as amended) requires the Secretary of Labor to provide Congress with an annual
report containing general information on self-insured employee health benefit plans and
financial information regarding employers that sponsor such plans.

The first such report is now available. From the DOL’s news release:

Department of Labor releases Affordable Care Act study on self-insured plans
WASHINGTON – The U.S. Department of Labor today transmitted to Congress the first annual report on self-insured employee health benefit plans. The report, which was mandated by the Affordable Care Act, contains general information on self-insured employee health benefit plans and financial information on the employers that sponsor them.

Self-insured plans, unlike fully insured plans, are generally plans in which the sponsor retains the risk associated with paying covered health expenses, rather than paying a premium and transferring the risk to an insurance company. Some sponsors retain the risk for a subset of the benefits, but transfer the risk for the remaining benefits to health insurers – that is, they finance the plans’ benefits using a mixture of self-insurance and insurance. Self-insurance is more common among larger sponsors, mainly because the health expenses of larger groups are more predictable and therefore larger sponsors face less risk.

The report includes information on self-insured and mixed health benefit plans that are required to file a Form 5500 Annual Return/Report of Employee Benefit Plan. The department estimates that 12,000 health plans filing a Form 5500 for 2008 were self-insured and 5,000 mixed self-insurance with insurance. These plans respectively covered 22 million and 25 million participants. Many self-insured health plans do not meet the filing requirements and therefore do not file the Form 5500. Therefore, it is likely that the report underestimates the total number of self-insured plans.

Health benefit plans covering private-sector employees must file a Form 5500 if they cover 100 or more participants or hold assets in trust. This report presents data on such plans for 2008, the latest year for which complete data are available.

The full report can be found on the department’s Employee Benefits Security Administration Affordable Care Act page here. 

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:: Conkright In The Courts — Making Sense Of The Firestone Trilogy

People make mistakes. Even administrators of ERISA plans

Conkright v. Frommert, 130 S. Ct. 1640 (U.S. 2010)

The pithy statement quoted above, coupled with the comment that a “single honest mistake” does not alter the standard of review, seems destined to become the talismanic essence of what Conkright means to ERISA law. Starting from the boggy, loamy soil Metropolitan Life v. Glenn left behind, the Court sought traction by reaching for something fixed and weighty — like Firestone v. Bruch, for example.

The trilogy now seems to be in place – Firestone, providing generous deferential review; Glenn, providing a multi-factor analysis for cases in which the fiduciary is deemed unworthy of such deference; and Conkright, to remind us that Firestone remains the bedrock on which all else rests.

A review of post-Conkright cases corroborates this interpretative template.

For example, the following excerpt provides a good summary of Conkright‘s policy argument:

These principles were discussed further in Conkright, in which the Supreme Court declared that a single mistake by a plan administrator cannot serve as a basis for depriving that administrator of deference that would otherwise be warranted under Firestone Tire. Conkright, 130 S.Ct. at 1644-47. It was noted that deference to the findings of a plan administrator, where warranted under the terms of the plan in question, promoted the goals of “efficiency,” “predictability” and “uniformity.” Id. at 1649.

Deference promotes efficiency by encouraging the resolution of benefits disputes by means of “internal grievance procedures,” rather than by means of “costly litigation.” Id.

Predictability is ensured by standards allowing an employer to “rely on the expertise of the plan administrator rather than worry about unexpected and inaccurate plan interpretations that might result from de novo judicial review.” Id.

Uniformity is secured when an employer is able to “avoid a patchwork of different interpretations of a plan” that covers multiple employees in several different jurisdictions. Id. ERISA does not affirmatively require employers to establish employee benefit plans, nor does it mandate what types of benefits must be provided by employers who choose to create such plans. Lockheed Corp. v. Spink, 517 U.S. 882, 887, 116 S. Ct. 1783, 135 L. Ed. 2d 153 (1996). It should not be construed in such a way as to “lead those employers with existing plans to reduce benefits,” or to discourage employers without such plans from adopting them in the first place. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11, 107 S. Ct. 2211, 96 L. Ed. 2d 1 (1987). Instead, it should be interpreted in light of its objectives of ensuring the enforcement of employees’ rights under existing employee benefit plans and encouraging employers to create additional employee benefit plans. Aetna Health, Inc. v. Davila, 542 U.S. 200, 215, 124 S. Ct. 2488, 159 L. Ed. 2d 312 (2004).

Haisley v. Sedgwick Claims Mgmt. Servs., 2011 U.S. Dist. LEXIS 20751 (W.D. Pa. Mar. 2, 201

The district court’s perspective shows its perfect appreciation for the general rule enunciated in Conkright.

The notion of a single honest mistake “rule” is captured in another excerpt from a recent district court opinion:

Where, as here, an employer both administers the Plan and pays benefits, this dual role creates a conflict of interest, and “‘that conflict must be weighed as a factor in determining whether there was an abuse of discretion.’” Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S.Ct. 2343, 2348, 171 L. Ed. 2d 299 (2008)(quoting, Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 957, 103 L. Ed. 2d 80 (1989)).  Nevertheless, the administrator’s decision is still entitled to deference and that deference remains, even where the administrator makes a mistake, because a “single honest mistake in plan interpretation” does not justify “stripping the administrator of . . . deference for subsequent related interpretations of the plan.” Conkright v. Frommert, 130 S.Ct. 1640, 1645, 176 L. Ed. 2d 469 (2010).

Canada v. Am. Airlines, Inc. Pilot Ret. Ben. Program, 50 Employee Benefits Cas. (BNA) 1272 (M.D. Tenn. Aug. 10, 2010)

On the other hand, a magistrate judge swims upstream in an opinion in which he defends the Ninth Circuit Abatie opinion, post-Conkright, and simultaneously overcomes the “single” mistake hurdle:

In Conkright, the court held that a Plan Administrator’s single, honest mistake does not strip a Plan Administrator of deference. 130 S. Ct. 1640, 176 L. Ed. 2d 469, Id. 2010 WL 1558979 at *9-10. Abatie similarly requires that a court “should give the administrator’s decision broad deference notwithstanding a minor irregularity.” Id., 458 F.3d at 972. If anything, Conkright reinforces the basic themes of the main cases over the years related to whether a Plan Administrator is entitled to deference: that deferential review is to be applied; that lower courts are not to deviate from it on ad hoc rationales; and that deferential review is a necessary element of the balancing act between employee rights and the need to encourage employers to provide benefits plans. Conkright, 130 S. Ct. 1640, 176 L. Ed. 2d 469, 2010 WL 1558979 at *7. Instead of changing the controlling law, Conkright reaffirmed it. See e.g., Conkright, 130 S. Ct. 1640, 176 L. Ed. 2d 469, 2010 WL 1558979 at *9 (noting that it would be inappropriate to defer to a Plan Administrator’s interpretation when he does not exercise his discretion fairly or honestly or is too incompetent to exercise his discretion fairly). Accordingly, there are no grounds for reconsideration of my April 12, 2010 Opinion and Order.

Even assuming arguendo that Conkright had changed existing law, application of Conkright’s holding would not change the result here. In Conkright, the Supreme Court rejected the notion that a single honest mistake had infected the ERISA review process. Conkright. 130 S. Ct. 1640, 176 L. Ed. 2d 469, 2010 WL 1558979 at *7. The instant case is not a case about a single mistake. Instead, significant procedural irregularities throughout Providence’s internal review proces

Lafferty v. Providence Health Plans, 720 F. Supp. 2d 1239 (D. Or. 2010)

The Ninth Circuit remains somewhat mired in the bog. In a recent opinion (over a vehement dissent), the Court trotted out a number of axiomatic propositions from the Firestone trilogy (ultimately holding against the plan):

The Supreme Court further refined the standard of review in its decision this year in Conkright v. Frommert, holding that a single honest mistake in plan interpretation” administration does not deprive the plan of the abuse of discretion standard or justify de novo review for subsequent related interpretations. The Court emphasized that under Glenn, “a deferential standard of review remains appropriate even in the face of a conflict.” Conkright noted, though, that “[a]pplying a deferential standard of review does not mean that the plan administrator will prevail on the merits.” n24 What deference means is that the plan administrator’s interpretation of the plan ” ‘will not be disturbed if reasonable.’ ”

Salomaa v. Honda Long Term Disability Plan, 2011 U.S. App. LEXIS 4386 (9th Cir. Cal. Mar. 7, 2011)

But most courts appear to be on board and repeat the now familiar refrain, as in this Seventh Circuit opinion:

“People make mistakes. Even administrators of ERISA plans.” Conkright v. Frommert, 130 S. Ct. 1640, 1644, 176 L. Ed. 2d 469 (2010). This introduction was fitting in Conkright, which dealt with a single honest mistake in the interpretation of an ERISA plan. It is perhaps an understatement in this case, which involves a devastating drafting error in the multi-billion-dollar plan administered by Verizon Communications, Inc. (“Verizon”).

Verizon’s pension plan contains erroneous language that, if enforced literally, would give Verizon pensioners like plaintiff Cynthia Young greater benefits than they expected. Young nonetheless seeks these additional benefits based on ERISA’s strict rules for enforcing plan terms as written. Although Young raises some forceful arguments, we conclude that ERISA’s rules are not so strict as to deny an employer equitable relief from the type of “scrivener’s error” that occurred here. We will accordingly affirm the district court’s judgment granting Verizon equitable reformation of its plan to correct the scrivener’s error.

Young v. Verizon’s Bell Atl. Cash Balance Plan, 615 F.3d 808 (7th Cir. Ill. 2010)

Likewise, from the Third Circuit:

Also waived is Goletz’s argument that, because Prudential’s handling of this case has already been faulted once by the District Court, we should now forego extending any deference to Prudential’s decision and subject it to de novo review. This position was all but rejected by the Supreme Court in Conkright, in which the Court explained that ERISA plan administrators “make mistakes” and that a “single honest mistake in plan interpretation” does not justify “stripping the administrator of . . . deference for subsequent related interpretations of the plan.” ___ U.S. ___, 130 S. Ct. 1640, 176 L. Ed. 2d 469, 2010 WL 1558979, at *3.

Goletz v. Prudential Ins. Co. of Am., 383 Fed. Appx. 193 (3d Cir. Del. 2010)

And the now-chastened Second Circuit (from whence Conkright emerged):

More recently, in Conkright v. Frommert, 130 S. Ct. 1640, 176 L. Ed. 2d 469 (2010), the Supreme Court reiterated its longstanding concern with ERISA litigation expenses. In Frommert, the Court addressed the deference that courts should accord to a plan administrator’s interpretation of an ERISA plan. Central to the Court’s holding was the increased litigation costs associated with de novo review of a plan administrator’s decisions as to plan benefits. As the Court explained:HN19Congress enacted ERISA to ensure that employees would receive the benefits they had earned, but Congress did not require employers to establish benefit plans in the first place. We have therefore recognized that ERISA represents a careful balancing between ensuring fair and prompt enforcement of rights under a plan and the encouragement of the creation of such plans. Congress  sought to create a system that is not so complex that administrative costs, or litigation expenses, truly discourage employers from offering [ERISA] plans in the first place. ERISA induc[es] employers to offer benefits by assuring a predictable set of liabilities, under uniform standards of primary conduct and a uniform regime of ultimate remedial orders and awards when a violation has occurred.Id. at 1648-49 (internal quotation marks and citations omitted). Extending ERISA liability to unintentional misstatements regarding non-plan consequences of retirement decisions would run counter to these goals.

Bell v. Pfizer, Inc., 626 F.3d 66 (2d Cir. 2010)

All of which leaves us to ask, what are we to make of Metropolitan Life v. Glenn, if Conkright is the other bookend to Firestone? I think that would be a great theme for an article about Conkright and one that I hope to finish in the next few weeks.

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:: New ERISA Health Plan Subrogation Website

Professor Roger Baron has a new website on which he addresses ERISA subrogation issues.  The website is available here.

Professor Roger Baron teaches at the University of South Dakota School of Law. A 1976 graduate of the University of Missouri at Columbia School of Law, he practiced law in Missouri for nine years before beginning his teaching career. He is licensed in Missouri, Texas and South Dakota.  Professor Baron has a strong academic interest in the matter of subrogation on personal injury claims and related ERISA reimbursement issues. He has authored three significant law review articles and numerous shorter articles which address subrogation and reimbursement issues in the context of personal injury claims

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:: Extension of Claims Regulations Enforcement Grace Period

Section 2719 of the Public Health Services  Act sets forth standards for plans and issuers that are not grandfathered health plans regarding internal claims and appeals and external review. These rules are aimed at bolstering ERISA’s “due process” requirements by amplifying the old claims regulation released back in 2000, namely, 29 CFR 2560.503-1.

The various departments engaged in publishing regulations under the new statute (DOL, IRS, HHS) published interim final regulations implementing PHS Act section 2719 on July 23, 2010, at 75 FR 43330 (the 2010 interim final regulations). The finished product bears the mark of a hurried assembly of rules with little comprehension of how claims adjudication actually works.

Thus, on September 20, 2010, the regulators retreated, with the Department of Labor issued Technical Release 2010-02 (T.R. 2010-02), which set forth an enforcement grace period for compliance with certain new provisions with respect to internal claims and appeals until July 1, 2011.

Based on comments, the regulators have retreated once again. Now, Technical Release 2011-01 extends, with a few modifications, the enforcement grace period set forth in T.R. 2010-02 until plan years beginning on or after January 1, 2012 “to give the Departments time to publish new regulations necessary or appropriate to implement the internal claims and appeals provisions of PHS Act section 2719(a).” [Read more...]

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:: Plan Administrator’s Business Practices Testimony Prevails In COBRA Case

Defendant argues that it met its obligation to provide notice under COBRA because [it] . . .  placed in the mail to Brooks a letter explaining that he was eligible to continue his health and dental insurance coverage under COBRA (the “COBRA Notice Letter”). . . . Plaintiff makes no argument that the COBRA Notice Letter was in any way deficient for notice under COBRA. Plaintiff argues simply that Defendant has not presented sufficient evidence that the COBRA Notice Letter was actually mailed to him.

Brooks v. AAA Cooper Transp., 2011 U.S. Dist. LEXIS 28218 (S.D. Tex. Mar. 18, 2011)

The result in Brooks v. AAA Cooper Transp. is typical of cases of its kind.  The opinion contains a concise presentation of a defense to a claim that the plan administrator failed to send a COBRA notice upon termination of employment.

The Consolidated Omnibus Budget Reconciliation Act (“COBRA”) requires sponsors of group health plans to provide plan participants who lose coverage because of a “qualifying event” with the opportunity to choose to continue health care coverage on an individual basis. See 29 U.S.C. §§ 1162, 1163.

Termination of employment is a qualifying event pursuant to § 1163(2).  Thus, upon termination of a covered employee’s employment,the plan sponsor must provide written notice to the plan participant within 14 days of the date the plan was notified of the qualifying event.

In the case at bar, the parties agreed that the plaintiff’s termination of employment constituted a qualifying event.  The dispute arose over whether the defendant provided the plaintiff with the statutorily required notice.

[Read more...]

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:: Assignments of Benefits – Do They Include Rights To Statutory Penalties & Attorneys’ Fees?

It is well-established that ERISA plan participants and beneficiaries may assign their rights to their health care provider. Misic v. Bldg. Serv. Employees Health & Welfare Trust, 789 F.2d 1374, 1378-79 (9th Cir. 1986). As an assignee, the provider has standing “to assert the claims of his assignors.” Id. at 1379. A Plan may also prohibit the assignment of rights and benefits. Davidowitz v. Delta Dental Plan of California, Inc., 946 F.2d 1476 (9th Cir. 1991). Both the Braun and Rudolph Plans prohibit the assignment of benefits.

Thus, the question is whether the plan participants assigned Eden the right to sue for statutory penalties, independent from a claim for benefits.

Eden Surgical Ctr. v. B. Braun Med., Inc., 2011 U.S. App. LEXIS 4809 (9th Cir. Cal. Mar. 9, 2011)

Although a short, unpublished opinion, the decision in Eden Surgical Ctr. v. B. Braun Med., Inc. raises an important question. Does the assignment of benefits by a patient to a provider confer rights under an ERISA group health plan to assert other claims, such as a claim for statutory penalties and attorneys fees?

Claims for benefits arise under 29 U.S.C. § 1132(a)(1)(B). This case is not about a claim for benefits, though, but rather statutory penalties and attorneys fees.

Statutory penalties for failure to provide requested plan information, inter alia, may be available under § 1132(c). Attorney’s fees may be available under 29 U.S.C. § 1132(g).

In this case the Court held that the assignment did not confer rights to seek the penalties and attorneys fees, stating:

Eden’s assignment purports to include the right to sue for statutory penalties under § 1132(c), as well as the right to seek attorney’s fees. Eden’s assignment is effective during “any legal process, necessary to collect claims submitted on [the participant's] behalf for health insurance benefits, but denied by [the] plan.” Eden’s assignment grants personal standing under ERISA for “judicial review of denied claims.”

This is not a suit seeking “judicial review of denied claims,” and the claim for relief is not asserted during any “legal process, necessary to collect claims submitted on [the participant's behalf] for health insurance benefits, but denied by [the] plan.” Accordingly, assuming (without deciding) that the right to bring claims under § 1132(c) is free-standing and may be assigned, Eden’s assignment to seek such relief is not effective under the terms of the assignment itself because it is not pursued during a process “necessary to collect claims.”

This means that Eden lacks derivative standing to sue and the district court lacked jurisdiction. See Harris v. Provident Life and Account Ins. Co., 26 F.3d 930, 933 (9th Cir. 1994) (an ERISA civil action must be brought by a participant, beneficiary, fiduciary, or the Secretary of Labor).

According to the dissent, the question was a matter of contract interpretation (meaning, presumably the terms of the assignment itself).

This case turns on a matter of contract interpretation. Unlike the majority, I would find that the assignment language at issue allows Eden Surgical Center (“Eden”) the right to seek penalties under 29 U.S.C. § 1132(c) and would reverse the district court’s decision on that basis. For this reason, I respectfully dissent.

Since the balance of the dissenting opinion contains the judge’s perspective on the specific contractual terms, I do not think it is worth reproducing here.

Note: Since this case turned on a contractual interpretation, and the assignment terms (as interpreted) failed to confer rights to sue for penalties and attorneys’ fees, the question remains open as to whether an assignment can confer such rights under ERISA.

The Fifth Circuit took a hard look at the rights of health care providers under assignments many years ago. Under a strict reading of ERISA, of course, providers are not in the class of permitted plaintiffs.  Nonetheless, in one of the seminal opinions on the issue, the Fifth Circuit permitted an assignment of claims on this analysis:

As the district court correctly concluded below, Memorial’s state law claims asserted as an assignee of Echols’ benefits under Noffs’ plan are preempted. As assignee, Memorial stands in the shoes of Echols and may pursue only whatever rights Echols enjoyed under the terms of the plan. Such derivative claims invoke the relationship among the standard ERISA entities and clearly relate to a plan for preemption purposes. See Hermann Hospital, 845 F.2d at 1290. Moreover, these derivative claims fall within the scope of section 502(a), ERISA’s civil enforcement scheme, which Congress intended to be the exclusive vehicle for suits by a beneficiary to recover benefits from a covered plan. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 62-63, 107 S. Ct. 1542, 1546, 95 L. Ed. 2d 55 (1987).

Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236 (5th Cir. Tex. 1990).

Note the reference to ERISA Section 502(a) (which is the parallel citation to 1132(a)). I am inclined to think that the Fifth Circuit (and likely majority of courts facing this unique issue), would limit health care providers’ rights under assignments to claims for benefits.

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:: “Relatedness” Issue Fatal To Health Plan Subrogation Claims

Rotech has argued that it could, within its discretion, rely upon Huff’s sworn answers to interrogatories and the opinion of Dr. Wilson in concluding that it is entitled to be reimbursed out of any recovery Huff receives in the circuit court litigation against Hawkins and his employers. This court does not agree. This court first concludes that any reliance on Dr. Wilson’s opinion is “downright unreasonable.”

Dr. Wilson first saw Huff in June 2006, more than one and one-half years after the October 2004 accident, when she was referred to him by Dr. Potts. Dr. Wilson testified that any opinion regarding whether the spinal cord stimulator he implanted in September 2007 was necessary because of the collision “would be speculation.” Dr. Potts, by contrast, testified that the spinal cord stimulator implantation performed by Dr. Wilson was not causally related to the October 2004 automobile collision.

Rotech Healthcare, Inc. v. Synthia Ann Huff, (C.D. Ill 9.8.2011)

This opinion illustrates a frequent problem in health plan subrogation cases — determining the medical expenses related to an accident.  In this case, the court weighed two opposing medical opinions and held that the physician seeing the patient after the first accident could not reasonably infer that the medical expenses at issue were causally related to the accident.

Plaintiffs’ attorneys are well familiar with the problem presented when a plaintiff has preexisting injuries.  While Congress has sought to eliminate the significance in health plan claims, the regular insurance world looks at matters quite differently.  And despite the old Prosser hornbook notions of the “eggshell plaintiff”, the possible exacerbation of preexisting conditions does not often inspire liability insurance companies to up their settlement offers.

In the subrogation context, a causal failure in proof is fatal.  In this case, the Court rejected the more recent physician’s opinion as to causality — in spite of a corroborating declaration by the injured party in interrogatory responses.  So, the point is, if relatedness is a material issue, the subrogation claims is likely compromised and settlement negotiations should proceed accordingly.  The full opinion can be viewed on erisaboard.com.  Hat tip to Rob Hoskins for pulling the case.

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:: Summary Judgment Procedural Changes Highlighted

The federal courts have been in some disagreement as to whether, under Rule 56, a court is obliged to consider the materials “on file” in deciding whether a “genuine issue as to any material fact” is shown (as Rule 56(c)(2) indicates). Indeed, a majority of our sister circuits appear to have taken the view that a court, in assessing a summary judgment motion, may confine its consideration to materials submitted with and relied on in response to the motion (as Rule 56(e)(2) may contemplate).

Consistent with the majority view, subdivision (c)(3) of the 2010 version of Rule 56 now specifies that a “court need consider only the cited materials,” though “it may consider other materials in the record.” See Fed. R. Civ. P. 56 advisory committee’s note (explaining that the 2010 version’s “[s]ubdivision (c)(3) reflects judicial opinions and local rules provisions stating that the court may decide a motion for summary judgment without undertaking an independent search of the record”).

Sinclair v. Mobile 360, 2011 U.S. App. LEXIS 4112 (4th Cir. N.C. Mar. 3, 2011) (unpublished)

This rather unusual case does serve the useful purpose of highlighting a requirement that briefs opposing a motion for summary judgment must cite to the record and adduce affidavits or other materials necessary to the opposition.  In the case at bar, the pro se appellants argued that the court below erred by not considering materials previously filed by their (now withdrawn) legal counsel.

Specifically, the Appellants contend that, under the plain terms of Rule 56(c)(2) as it existed in 2009, a court assessing a summary judgment motion must consider the materials “on file,” and the Counseled Response was “on file” in this case when summary judgment was awarded.

The Defendants respond that it was the Appellants’ burden, under Rule 56(e)(2), to bring the Counseled Response to the court’s attention, and that there was nothing preventing the Appellants from resubmitting, in response to the Renewed Motion, any exhibits that had been filed as part of the Counseled Response.

The Fourth Circuit, noting that its prior, more generous, holding on the issue may have been superseded by the rule change noted above, nonetheless chose to apply the old rule here, particularly in view of the pro se litigants’ predicament.

In candor, a majority of the other circuits might prefer a view contrary to our Campbell decision [Campbell v. Hewitt, Coleman & Associates, Inc.], and that view may have since been ensconced in Rule 56 by way of the 2010 amendments. In any event, a careful assessment of the Counseled Response would not impose an unwarranted burden on the magistrate judge, for several reasons. . . .  [E]ven though the First Motion was withdrawn, the Counseled Response and Auto Advantage’s Reply were never withdrawn or stricken from the record. As a result, the Counseled Response remained “on file” in this case when summary judgment was awarded to the Defendants. In such circumstances, the award of summary judgment to the Defendants must be vacated under the applicable 2009 version of Rule 56.

(emphasis added)

Note: Judge Wilkerson dissented, stating:

. . .  the Federal Rules of Civil Procedure were amended in 2010, and these amendments eliminated the “on file” language from Rule 56. Fed. R. Civ. P. 56. Rule 56 now explicitly states that district courts “need consider only the cited materials” when ruling on summary judgment. Fed. R. Civ. P. 56(c)(3).

And the current Rule 56 makes clear that parties are obligated to support their assertions with citations to the record. Fed. R. Civ. P. 56(c)(1). If a party neglects this obligation and “fails to properly support an assertion of fact or fails to properly address another party’s assertion of fact . . . the court may: . . . (2) consider the fact undisputed for purposes of the motion; [and] (3) grant summary judgment if the motion and supporting materials — including the facts considered undisputed — show that the movant is entitled to it . . . .” Fed. R. Civ. P. 56(e).

As the Advisory Committee Notes explain, these changes “reflect[] judicial opinions and local rules provisions stating that the court may decide a motion for summary judgment  without undertaking an independent search of the record.” Fed. R. Civ. P. 56 advisory committee’s note. Thus, the 2010 amendments rejected our minority position in Campbell in favor of the approach followed by the majority of the circuits that had considered the issue. Accordingly, under the current Rule 56, district courts need consult only those materials cited by the parties when ruling on summary judgment.

Decisions From Other Circuits – As noted in the opinion, the Fourth Circuit opinion had been a minority point of view:

At least seven of our sister circuits have weighed in on the apparent tension between the language in subdivisions (c)(2) and (e)(2) of Rule 56. The First Circuit has concluded that the materials “on file” should be considered by the district court in ruling on a summary judgment motion. See Stephanischen v. Merchs. Despatch Transp. Corp., 722 F.2d 922, 930 (1st Cir. 1983). The Second Circuit has decided that summary judgment cannot be awarded “on the ground that the nonmovant’s papers failed to cite to the record unless the parties are given actual notice of the requirement.” See Amnesty Am. v. Town of W. Hartford, 288 F.3d 467, 471 (2d Cir. 2002).

Five other courts of appeals have taken the view that requiring a district court to review materials not relied on by the parties is unduly burdensome to the judiciary. See Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 1029 (9th Cir. 2001);  Adler v. Wal-Mart Stores Inc., 144 F.3d 664, 672 (10th Cir. 1998); Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1994); L.S. Heath & Sons, Inc. v. AT&T Info. Sys., Inc., 9 F.3d 561, 567 (7th Cir. 1993); Guarino v. Brookfield Twp. Trs., 980 F.2d 399, 405 (6th Cir. 1992).However, the Federal Rules of Civil Procedure were amended in 2010, and these amendments eliminated the “on file” language from Rule 56. Fed. R. Civ. P. 56. Rule 56 now explicitly states that district courts “need consider only the cited materials” when ruling on summary judgment. Fed. R. Civ. P. 56(c)(3). And the current Rule 56 makes clear that parties are obligated to support their assertions with citations to the record. Fed. R. Civ. P. 56(c)(1). If a party neglects this obligation and “fails to properly support an assertion of fact or fails to properly address another party’s assertion of fact . . . the court may: . . . (2) consider the fact undisputed for purposes of the motion; [and] (3) grant summary judgment if the motion and supporting materials — including the facts considered undisputed — show that the movant is entitled to it . . . .” Fed. R. Civ. P. 56(e).

Of Interest – Mark Debofsky wrote an interesting article a few years back about the abuse of summary judgment in the ERISA setting.  Though not pertinent to the issue above, the article draws important conclusions about the odd way in which Rule 56 is applied in ERISA cases.  Mark notes that federal courts have migrated toward application of a “substantial evidence” test to determine whether a plan administrator’s decision is rational rather than applying the typical summary judgment standard focused on genuine issues of fact.  See, DeBofsky, The Paradox of the Misuse of Administrative Law In ERISA Benefit Claims, 37 John Marshall Law Review 727 (2004).

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:: Eighth Circuit Holds Mental Health Treatment Limitation Inapplicable

. . . [I]n order for Principal to reasonably deny S.W.’s hospital charges, substantial evidence had to support its determination that the primary focus of her hospitalization was mental health treatment, i.e., treatment designed to alter her behavior. While there is certainly evidence that mental health treatment was one focus of S.W.’s hospitalization, we conclude there is insufficient evidence to support the determination that S.W.’s mental health was the primary focus of the hospitalization.

Wrenn v. Principal Life Ins. Co., 2011 U.S. App. LEXIS 3962 (8th Cir. Iowa Mar. 2, 2011)

This recent opinion by the Eighth Circuit Court of Appeals revisits the standard of review for judicial review of benefit denials in that Circuit.

The facts reveal that “S.W” was a minor that received treatment for an eating disorder. The course of the diagnosis and treatment followed one of those fine lines that occur from time to time where the dichotomy between the psychological and physical etiology of medical symptoms reveal the complex hylomorphic nature of man. We will forgo the factual history (and philosophical observations) at this point, but the full case can be read on the Eighth Circuit’s website (hotlinked above).

Now to the law. Principal was both the insurer and the claims administrator.  Principal denied a substantial amount of hospital charges as exceeding its policy limitations.

Relying upon the policy’s ten-day limit for mental health inpatient services, Principal paid benefits for ten days of S.W.’s hospitalization in the 2006 calendar year, and the first ten days of her hospitalization in the 2007 calendar year, but denied payment of hospitalization benefits beyond that time on the ground that the “primary focus” of S.W.’s hospitalization was mental health  treatment.

The hospital charges Principal refused to pay totaled $44,260.63.

Mental Health Or Physical Condition?

Was S.W. hospitalized because she was physically in jeopardy of dying (a 15 year old diminished to 77 pounds due to “malnutrition”)?  That was clearly the immediate and material cause.  But isn’t it also true that her physical health resulted from choices S.W. made that were “mental” or “psychological”?  Undoubtedly. So which cause should be viewed as “primary”?

The district court took a go at the question, applying an abuse of discretion standard, and came out in favor of Principal: 

The mere fact that Principal arguably could have reached a determination that S.W.’s malnourishment and physical condition were the primary focus of her hospitalization simply cannot change the fact that Principal’s actual decision, that S.W.’s mental health condition was the primary focus of her care, was a reasonable one supported by substantial evidence in the record.

On Appeal

On appeal the plaintiff (S.W.’s father) argued that the district court erred in applying an abuse-of-discretion standard of review because of” procedural irregularities” in Principal’s handling of his claim. Wrenn alternatively argued that Principal abused its discretion in denying his claim.

Wrenn found a sympathetic ear.

In evaluating Principal’s denial of benefits “[u]nder the abuse of discretion standard, the proper inquiry is whether [Principal's] decision was reasonable; i.e., supported by substantial evidence.” Fletcher-Merrit v. NorAm Energy Corp., 250 F.3d 1174, 1179 (8th Cir. 2001) (internal quotation marks and citation omitted). Thus, in order for Principal to reasonably deny S.W.’s hospital charges, substantial evidence had to support its determination that the primary focus of her hospitalization was mental health treatment, i.e., treatment designed to alter her behavior.

While there is certainly evidence that mental health treatment was one focus of S.W.’s hospitalization, we conclude there is insufficient evidence to support the determination that S.W.’s mental health was the primary focus of the hospitalization.

The case appears to be one in which the Court could have come out either way. The critical factor is whether the Court limits its consideration to the stabilization of S.W.’s medical condition or broadens consideration to include the fact that S.W. required supervision and treatment for irrational choices in view of her physical health.

Standard of Review

As noted at the outset, the case provided an opportunity for the Court to examine its standard of review jurisprudence. The opinion notes some continuing vitality in its pre-Glenn decisions, stating:

[Woo v. Deluxe Corp., 144 F.3d 1157, 1161 (8th Cir. 1998)] held a less deferential standard of review than abuse of discretion applied whenever “(1) a palpable conflict of interest or a serious procedural irregularity existed, which (2) caused a serious breach of the plan administrator’s fiduciary duty[.]” Woo, 144 F.3d at 1160.

After the Supreme Court’s decision in Glenn, the Woo sliding-scale approach is no longer triggered by a conflict of interest, because the Supreme Court clarified that a conflict is simply one of several factors considered under the abuse of discretion standard.

The procedural irregularity component of the Woo sliding scale approach may, however, still apply in our circuit post-Glenn. See Wakkinen v. UNUM Life Ins. Co. of Am., 531 F.3d 575, 582 (8th Cir. 2008) (stating “[w]e continue to examine [a procedural irregularity] claim under Woo“); but see Chronister v. Unum Life Ins. Co. of Am., 563 F.3d 773, 776 (8th Cir. 2009) (analyzing a procedural irregularity, i.e., a plan administrator’s failure to follow its own claims-handling procedures, as one factor under Glenn’s abuse of discretion standard).

Because we conclude Principal abused its discretion, we do not address the extent to which Glenn may have changed the procedural irregularity component of Woo‘s sliding-scale approach.

The essential point – for practitioners in the Eighth Circuit, a procedural irregularity remains a point to be argued in a benefit denial case in terms of the prior case law. 

Note:  This would be a great case to analyze in a course or seminar about the new claims procedure rules, post-PPACA.  I like the facts because the case involves an “administrative” denial (internal plan limitations) as well as a “clinical” denial (medical necessity issues), as well as use of some external review (omitted in my discussion above).  Under the new rules, insureds will not be able to invoke external review of administrative denials under most states’ versions of the NAIC model act, although, inexplicably, the interim final regulations denials to external review regardless of whether administrative or clinical in the case of self-funded plans subject to the federal external review process.  

That opens up the issue of whether a valid distinction really can be made between the two in a case like this anyhow or in any case where comorbidity may play a role in the disease or sickness.   None of that was important to the opinion under the applicable law, of course, but the issues presented therein suggest an interesting complexity going forward as the new claims procedures go into effect.

See also: Ten Things The Supreme Court Did Not Do In MetLife v. Glenn

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:: ERISA Symposium – South Dakota Law School

I returned Friday from South Dakota Law School’s ERISA Symposium. The program was well attended by attorneys, law professors, students and members of the public.

One of the highlights for me was the presentation by Peter Stris on litigation before United States Supreme Court. Peter has had several ERISA cases before the Court, including LaRue, and he related his experience in an informative style with dry humor from time to time that really engaged the audience.

John Morrison took up a discussion of discretionary clauses bans which we took up in a panel discussion. Of course John has some experience with that subject, not only through the NAIC, but also as the prevailing party in the matter of Standard v. Morrison. Professor Radha Pathak joined in this discussion and related a number of issues arising in this context which will be addressed in an upcoming article for the South Dakota Law School.

Professor Roger Baron presented on several hot topics in the ERISA health plan subrogation field. I joined David Abney in a discussion of these topics with Roger. As always, the subrogation topic draws varying points of view, but the interplay of opinions really helped to sharpen perspectives on the issues.

I concluded the program with an evaluation of ERISA after health care reform. In particular, I examined the DOL claims procedure, the new external review and several open questions that affect judicial review in light of the PPACA changes. All of these points are given in-depth analysis in an article I wrote that will be published in an upcoming issue of the South Dakota Law Review.

Congratulations to the law school staff, the bright students on the law review staff, Professor Roger Baron and Dean Barry Vickrey on an excellent ERISA symposium covering highly relevant issues. At the risk of some self-promotion, I recommend the upcoming ERISA Symposium issue of the law review for a good source of timely information on ERISA developments.

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:: Contractual Deference Standard Upheld In Favor Of Non-Fiduciary

In Comrie v. IPSCO (7th. Cir. 2/18/11) the Seventh Circuit considered whether a discretion-conferring clause in a SERP plan document should be applied when the plan administrator is not a fiduciary. Noting a difference of opinion on the issue, the Seventh Circuit, via Judge Easterbrook, saw the issue as very simple to resolve:

As for the fact that the administrator of a top-hat plan is not an ERISA fiduciary: One circuit has held that interpretations by a non-fiduciary must be ignored, and that courts must make independent decisions, no matter what a plan’s governing documents say. Goldstein v. Johnson & Johnson, 251 F.3d 433, 442–43 (3d Cir. 2001). Another has adopted an intermediate standard divorced from contractual language. Craig v. Pillsbury Non-Qualified Pension Plan, 458 F.3d 748, 752 (8th Cir. 2006). We don’t get it .

When the Supreme Court held in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), that judges presumptively make independent decisions (often, though misleadingly, called “de novo review”, see Krolnik v.Prudential Insurance Co., 570 F.3d 841, 843 (7th Cir. 2009)), about claims to benefits under ERISA, it derived this conclusion from an analogy to trust law. The Court understood trust law to call for a non-deferential judicial role. ERISA fiduciaries are like common-law trustees the Justices thought, so judges normally should make independent decisions in ERISA litigation.

In Firestone’s framework, deferential review is exceptional, authorized only when the contracts that establish the pension or welfare plan confer interpretive discretion in no uncertain terms. 489 U.S. at 111. See also, e.g., Diaz v. Prudential Insurance Co., 424 F.3d 635 (7th Cir. 2005)

In the Court’s view, Firestone authorizes deference even though the decision-maker is a fiduciary. Thus, when the contract confers discretion on a non-fiduciary, courts should find it “easier, not harder”, to defer to the decision-maker on contract principles.

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:: New MEWA Opinion

Below appears a recent DOL Advisory Opinion on MEWA status of a health plan benefit plan:

2011-01A
ERISA SEC.
3(40) & 514(b)(6)

Dear Mr. Wender:
This is in reply to your request on behalf of the Custom Rail Employer Welfare Trust Fund (“CREW” or “CREW Welfare Trust”) for an advisory opinion regarding Title I of the Employee Retirement Income Security Act of 1974 (ERISA).

Specifically, you ask the Department of Labor (Department) to determine that CREW is a “multiple employer welfare arrangement” (MEWA) within the meaning of ERISA section 3(40)(1) that is “fully insured” within the meaning of ERISA section 514(b)(6).(2) For purposes of that analysis, you ask the Department to assume that CREW is also an “employee welfare benefit plan” within the meaning of ERISA section 3(1).

For the reasons set forth below, it remains the Department’s view that CREW is a MEWA that is not fully insured for purposes of ERISA.

[Read more...]

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:: Claims Appeals – The New Order Of Affairs For ERISA Plans (Part II)

Following up on an earlier post, the new claims appeals and review rules present some opportunities to claimants and concomitant risks to plans.  PHS incorporate the existing claims regulation DOL Reg. Sec. 2560.503-1 into an augmented claims procedure for internal appeals.  PHS Act § 2719 provides that plans and issuers must initially incorporate the internal claims and appeals processes set forth in 29 CFR 2560.503-1 and update these processes as required by the DOL.

The interim final regulations (Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Internal Claims and Appeals and External Review Processes Under the Patient Protection and Affordable Care Act) released on July 23, 2010 appear in the Federal Register at Volume 75, Number 141, Pages 43329-43364.

Grandfathered plans are exempt. The value of this exemption will become vividly apparent as the new rules are reviewed.

The regulations require “strict adherence” to the new claims procedure. Substantial compliance or de minimus violations are not, the regulations state, sufficient to avoid the determination of non-compliance.  (The consequences of non-compliance will be reviewed later — but note for now that the regulations purport to change the standard of review to de novo in this event.   Thus, plan fiduciaries would be well advised to put maximum effort toward compliance.

At the outset, careful observance of what constitutes an adverse benefit determination is necessary. The definition is broader than the definition in the DOL claims procedure regulation.

For example,

Failure to make a payment in whole or in part includes any instance where a plan pays less than the total amount of expenses submitted with regard to a claim, including a denial of part of the claim due to the terms of a plan or health insurance coverage regarding copayments, deductibles, or other cost- sharing requirement.

In the next post I will summarize the new requirements for the claims regulations as augmented.