Health Plan Law — ERISA Group Health Plan Administration

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

Posted on August 19, 2012 ·

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.)

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

Posted on August 19, 2012 ·

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...]

Filed Under: ERISA, PRACTICE TIPS ·

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

Posted on April 20, 2012 ·

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.

:: ERISA Reimbursement Claims Versus Special Needs Trusts

Posted on April 19, 2012 ·

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.

Filed Under: SUBROGATION ·

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

Posted on April 17, 2012 ·

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...]

Filed Under: CLAIMS PROCEDURES, COBRA ·

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

Posted on April 11, 2012 ·

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...]

Filed Under: ERISA, PROVIDER REIMBURSEMENT, SUBROGATION ·

:: Equitable Defense Rejected In Health Plan Reimbursement Litigation

Posted on March 21, 2012 ·

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).

[Read more...]

Filed Under: SUBROGATION ·

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

Posted on March 6, 2012 ·

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.

Filed Under: MEWA's ·

:: Health Care Provider’s Negligent Misrepresentation Claim Advances

Posted on February 24, 2012 ·

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...]

Filed Under: ERISA, PROVIDER REIMBURSEMENT ·

:: Five Year Limitations Period For COBRA Notification Lapse

Posted on February 20, 2012 ·

. . . 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.

Filed Under: COBRA, ERISA ·

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

Posted on January 27, 2012 ·

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...]

Filed Under: 502(A)(1)(B) CLAIM FOR BENEFITS, JURISDICTION ·

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

Posted on January 25, 2012 ·

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...]

Filed Under: CLAIMS PROCEDURES · Tagged: PROVIDER REIMBURSEMENT

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

Posted on November 22, 2011 ·

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).

Filed Under: 502(a)(3), SUBROGATION ·

:: Forum Selection Clause Enforced In ERISA Claim Litigation

Posted on August 1, 2011 ·

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.

Filed Under: LITIGATION, PRACTICE TIPS, Waiver, WELFARE BENEFIT PLANS · Tagged: LITIGATION, Venue

:: Whose Privilege Is It Anyhow?

Posted on July 12, 2011 ·

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:

Filed Under: Discovery, LITIGATION ·

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

Posted on June 30, 2011 ·

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.

Filed Under: ERISA ·

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

Posted on June 9, 2011 ·

Filed Under: ERISA ·

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

Posted on May 17, 2011 ·

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).

Filed Under: ERISA ·

:: Estoppel Claims Can Prevail Over Unambiguous Plan Language

Posted on May 12, 2011 ·

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.

Filed Under: FIDUCIARY LIABILITY ·

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

Posted on April 26, 2011 ·

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.

Filed Under: STATUTORY PENALTIES ·

:: Organizing The FAQ’s

Posted on April 20, 2011 ·

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.

Filed Under: Health Care Reform ·

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

Posted on April 13, 2011 ·

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.

Filed Under: ERISA ·

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

Posted on April 6, 2011 ·

. . . 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).

Filed Under: 502(A)(1)(B) CLAIM FOR BENEFITS, FIDUCIARY LIABILITY ·

Department of Labor Releases Self-Funded Health Plan Report

Posted on March 31, 2011 ·

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.

Filed Under: ERISA ·

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

Posted on March 25, 2011 ·

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.

Filed Under: LITIGATION, STANDARD OF REVIEW ·

:: New ERISA Health Plan Subrogation Website

Posted on March 23, 2011 ·

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

Filed Under: ERISA ·

:: Extension of Claims Regulations Enforcement Grace Period

Posted on March 23, 2011 ·

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...]

Filed Under: CLAIMS PROCEDURES ·

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

Posted on March 22, 2011 ·

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...]

Filed Under: PRACTICE TIPS · Tagged: COBRA, Practice Tips

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

Posted on March 15, 2011 ·

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.

Filed Under: 502(A)(1)(B) CLAIM FOR BENEFITS, PROVIDER REIMBURSEMENT · Tagged: 502(a)(2) Claim For Benefits, PROVIDER REIMBURSEMENT

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

Posted on March 10, 2011 ·

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.

Filed Under: SUBROGATION · Tagged: SUBROGATION

:: Summary Judgment Procedural Changes Highlighted

Posted on March 7, 2011 ·

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).

Filed Under: ERISA, PRACTICE TIPS · Tagged: Summary Judgment

:: Eighth Circuit Holds Mental Health Treatment Limitation Inapplicable

Posted on March 4, 2011 ·

“ . . . [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.

Filed Under: 502(A)(1)(B) CLAIM FOR BENEFITS, STANDARD OF REVIEW · Tagged: Conflicted Fiduciaries; Standard Of Review

:: ERISA Symposium – South Dakota Law School

Posted on February 28, 2011 ·

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.

Filed Under: ERISA ·

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

Posted on February 21, 2011 ·

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.

Filed Under: ERISA ·

:: New MEWA Opinion

Posted on February 16, 2011 ·

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...]

Filed Under: ERISA ·

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

Posted on February 15, 2011 ·

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.

Filed Under: ERISA ·

:: Strike 2 For Health Care Reform

Posted on February 1, 2011 ·

A second federal judge ruled on Monday that it was unconstitutional for Congress to enact a health care law that required Americans to obtain commercial insurance, evening the score at 2 to 2 in the lower courts as conflicting opinions begin their path to the Supreme Court.

“Federal Judge Rules That Health Law Violates Constitution”, New York Times (January 31, 2011)

Here’s the link to the NYT article and the opinion.

Filed Under: Health Care Reform ·

:: Defendant’s Counterclaim Dismissed In Provider Reimbursement Dispute

Posted on January 31, 2011 ·

Under ordinary circumstances, the Court likely would not require a party making a breach of contract claim to identify the contractual terms on which it relies; alleging the nature of the breach would be enough. In this case, however, Regence’s claim is premised not on one or a small number of contracts. Rather, it relies in significant part on a large number of underlying contracts — the subscriber agreements. And, as the Court has indicated, the claim may be preempted in whole or in part, depending on the nature of the alleged breaches of the provider agreement and what underlying subscriber agreements are involved. These factors together require further detail before the Court can conclude whether, and to what extent, Regence has stated a non-preempted claim.

Pa. Chiropractic Ass’n v. BCBS Ass’n, 2011 U.S. Dist. LEXIS 6446 (N.D. Ill. Jan. 21, 2011)

In this litigation between BCBS and a group of health care providers, the defendant BCBS filed a counterclaims seeking alleged overpayments. The alleged overpayments were claimed due under the terms of collateral subscriber agreements.

Defendant The Regence Group has filed a counterclaim against plaintiff Larry Miggins and third party defendant Miggins & Miggins, Inc. (collectively, Miggins) alleging breach of contract and unjust enrichment. Regence’s breach of contract claim is premised, at least on the surface, on a provider agreement that it had with Miggins under which Miggins agreed to provide health care services to patients covered by Regence’s subscriber agreements and to receive payment for those services on specified terms.

Specifically, BCBS alleged that the plaintiff breached its contract by:

failing to charge and make reasonable attempts to collect coinsurance payments;
submitting and obtaining claims for reimbursement using incorrect diagnosis codes and modifiers; and
submitting and obtaining claims for reimbursement for services that were not medically necessary as defined in the provider agreement and that were otherwise not covered under the patients’ subscriber agreements.

Plaintiff Miggins moved to dismiss the counterclaim on the ground that it is preempted by ERISA and because it does not include sufficient detail.

ERISA Preemption

Argument # 1:

Miggins argues that Regence’s claim is preempted by ERISA section 514(a), which provides that ERISA supersedes state laws that “relate to any employee benefit plan.” 29 U.S.C. § 1144(a). State law relates to a benefit plan if is has connection with or reference to such a plan. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47, 107 S. Ct. 1549, 95 L. Ed. 2d 39 (1987). This occurs in [*10] various ways, only one of which is relevant here: if the state law “provides an alternative enforcement mechanism to ERISA.” Trustees of the AFTRA Health Fund v. Biondi, 303 F.3d 765, 774 (7th Cir. 2002). That happens if the benefit plan’s existence is a critical element of a state law claim, such that the state law relies on a direct and unequivocal nexus with an ERISA plan. Id. at 778.

The court agreed that “at least some parts of Regence’s claim are, in fact, preempted by ERISA”, stating that:

Regence relies in part on a contention that Miggins obtained payment on claims that were not covered under patient subscriber agreements. Regence does not disclose whether any of those agreements are ERISA benefit plans, but it is overwhelmingly likely that some or even most of them are. In addition, it is conceivable that other parts of Regence’s claim rely on the terms of one or more ERISA benefit plans.

Lack of Specificity

Argument # 2

Demonstrating that the Twombly standard can trip up plaintiff and defendant alike, the court ruled that the counterclaim failed the specificity requirement. The court observed that:

Even after Bell Atlantic v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), and its progeny, federal courts follow a notice-pleading regime under which a plaintiff (here, Regence) need provide only enough detail to give the defendant (here, Miggins) fair notice of what the claim is and the grounds on which it rests. See, [*11] e.g., Tamayo v. Blagojevich, 526 F.3d 1074, 1083 (7th Cir. 2008). In complex case, however, a fuller set of factual allegations may be necessary. See, e.g., Limestone Dev. Corp. v. Village of Lemont, 520 F.3d 797, 803 (7th Cir. 2008).

Note: The court granted the motion to dismiss with leave to amend.

Filed Under: PROVIDER REIMBURSEMENT ·

:: PPACA Individual Mandates Unconstitutional

Posted on January 28, 2011 ·

So argued Professor James Ely today in a symposium on the PPACA sponsored by the Charleston School of Law. And a federal district court judge agreed in a case in which he and fellow academics brought in U.S. District Court for the Eastern District of Virginia. Brian Galle, Assistant Professor of Law, Boston College Law School presented an opposing point of view. I found Professor Ely’s position more convincing, as did Judge Hudson.

There is one case going the other way and we will have to see how the matter turns on on appeal. Aside from the ethereal world of constitutional law, we must also ask if the individual mandate is enforceable as a practical matter. Seriously, do you really think that the tax can be collected against the vast majority of uninsured Americans? Constitutional or not, the individual mandate is a bankrupt idea as Massachusetts’ experiment proves for anyone interested in empirical data.

For my part, I discussed the internal appeals and external review regulations as a part of a panel discussion on how the PPACA affects the practice of law. The interim final regulations on this topic make some huge changes in current law that are likely unwarranted by the statute. I will review some highlights in my next newsletter.

For now, congratulations to the Charleston School of Law faculty and their Federal Courts Law Review on an excellent contribution to scholarship and debate on this important policy issue.

Brian Galle, Assistant Professor of Law, Boston College Law Schoo

Filed Under: ERISA ·

:: Attachment Of Proof Of Benefit Assignment May Prove Critical To Removal

Posted on January 26, 2011 ·

The second prong of the Pascack test is also satisfied. Plaintiff identifies no other “independent legal duty” that would support its claims. Plaintiff’s argument that this is a “rate of payment” case is of no avail. 6 Plaintiff admits that it has no contractual relationship with any Defendants. At the same time, it argues that its right to payment is dependent upon assignments of benefits. The amount of payment (i.e., the “rate”) at issue would necessarily implicate the rates in the ERISA plans under which Plaintiff claims it has received assignments.

Sportscare of Am., P.C. v. Multiplan, Inc., 2011 U.S. Dist. LEXIS 6295 (D.N.J. Jan. 24, 2011)

The plaintiff in this case, Sportscare of America, P.C. (“Plaintiff”), is a physical therapy facility. The plaintiff filed its complaint in New Jersey Superior Court, naming twenty-one insurance providers and one medical claim processing company.

The gravamen of the complaint, “couched in terms of fraud, negligence, and interference with contract,” consisted of a claim for additional reimbursement.

In short, Plaintiff submitted claims to the health insurers and received some payment but at a rate that it claims is improper. Plaintiff apparently sues for the difference between what Plaintiff was paid and what it thinks it should have been paid on various insurance claims . . .

ERISA intrudes upon these controversies, of course, and requires its due, whether in argument and satisfaction that it does not apply, or in acknowledgment that it does and the consequences that flow from that fact. In this case, ERISA claimed the field.

The Third Circuit has some distinctive and influential case law on provider reimbursement issues stemming from Pascack Valley Hosp., Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393 (3d Cir. N.J. 2004).

In this case, however, the Court found most important the lack of foundation for removal of the case to federal court.

On its face, the Hospital’s complaint does not present a federal question. Rather, the complaint asserts state common law claims for breach of contract. The complaint does not expressly refer to ERISA and the rights or immunities created under ERISA are not elements, let alone essential elements, of the plaintiff’s claims. The possibility–or even likelihood–that ERISA’s pre-emption provision, 29 U.S.C. § 1144(a), may pre-empt the Hospital’s state law claims is not a sufficient basis for removal.

So the defendant’s removal was found wanting inasmuch as the only claims asserted by the plaintiff were state law claims. Undoubtedly, the court could have found the image of a claim for benefits here. Had the defendant proved assignments of benefits the matter may turned out that way. But no assignments were before the court in the removal papers.

The court observed that:

As the party seeking removal, the Plan bore the burden of proving that the Hospital’s claim is an ERISA claim. Accordingly, the Plan bore the burden of establishing the existence of an assignment. The Plan concedes that the record contains no evidence of an express assignment, whether oral or written, from either Psaras or Rovetto to the Hospital.

The mere argument that assignments should be assumed from the facts did not carry any weight.

The Plan argues that the Hospital’s claims arise under “the federal common law” of ERISA. On several occasions, we have predicated jurisdiction on a plaintiff’s invocation of the federal common law of ERISA.

Here, the Hospital’s complaint asserts a state law claim for breach of contract, and the federal common law of ERISA does not provide an element–essential or otherwise–of such a claim. The Plan may be correct that, in interpreting the Subscriber Agreement, the federal common law of ERISA displaces state law.

The capstone of the court’s decisional analysis rested on a key principal of preemption jurisprudence:

Nevertheless, potential defenses, even when anticipated in the complaint, are not relevant under the well-pleaded complaint rule.

Note: The importance of assignments varies from jurisdiction to jurisdiction. This case illustrates that attachment of assignments to the removal papers (if they are available) is a good practice.

Testimony as to business practice may not carry the day:

The Plan offers the certification of Kathy Pridmore, the Plan’s Director of Medical Benefits, to support a finding of an assignment. Pridmore broadly declares that, in her experience, the Plan has “consistently followed the claims and claim review procedures” contained in the Summary Plan Description. The Plan argues that Pridmore’s declaration constitutes evidence of “routine practice” that supports an inference of an assignment. See Fed. R. Evid. 406. We disagree. Pridmore does not declare that the Plan routinely receives assignments prior to payment. In her recitation of the Plan’s “standard procedure for processing claims,” she does not even mention the execution of assignments by Plan participants or beneficiaries. As such, Pridmore’s certification cannot establish a routine practice relevant to this appeal, let alone satisfy the Plan’s burden of establishing federal subject-matter jurisdiction by a preponderance of the evidence.

On Remand – The plan can still argue ERISA preemption as a defensive proposition in state court. It just failed to justify complete preemption warranting removal.

Practice Pointer - This case suggests that a provider reimbursement case filed in state court may have some advantages, subject to the point noted above regarding the situation on remand.

Filed Under: PROVIDER REIMBURSEMENT ·

:: New Scholarship – ERISA Section 510 Relief

Posted on January 25, 2011 ·

Adam B. Gartner, Fordham University – School of Law, has published a note, “Protecting the ERISA Whistleblower: The Reach of Section 510 of ERISA” in the Fordham Law Review, Vol. 80, Fall 2011. The Note “addresses the unresolved circuit split over the reach of ERISA’s whistleblower protection provisions.”

Gartner, Adam B., Protecting the ERISA Whistleblower: The Reach of Section 510 of ERISA (January 24, 2011). Fordham Law Review, Vol. 80, Fall 2011.

The Note is Available at SSRN as a part of the Accepted Paper Series:

http://ssrn.com/abstract=1747286

Filed Under: SECTION 510 ·

:: ERISA Plan Subrogation Provisions Eliminate Attorneys’ Fee Claim

Posted on January 20, 2011 ·

Johnson Controls v. Flaherty, 2011 U.S. App. LEXIS 969 (11th Cir.) (January 18, 2011) (unpublished) presents a typical subrogation scenario. The plan brought suit under 29 U.S.C. § 1132(a)(3), for medical benefits that the employee benefits plan, Johnson Controls, Inc. Welfare Plan (“the Plan”), had paid resulting from a bicycle injury. The Defendant had successfully settled a personal injury case and recovered proceeds for the injury from a third party.

The defendant and his lawyer argued that attorneys’ fees and costs incurred in obtaining the settlement — amounting to $14,467.44 — must be deducted from the settlement proceeds before the funds are subject to the Plan’s reimbursement claim.

In a short unpublished opinion, the Court disagreed, stating:

Section 6.06 of the Plan expressly provides, however, that when an employee receives benefits under the Plan and thereafter recovers for his injuries from a third party, the Plan “has the right to be reimbursed for such benefits in full,” and “no portion of the [Plan]‘s recovery shall be reduced by[] the fees or costs (including attorney’s fees) associated with any claim, lawsuit, or settlement agreement in connection with any recovery, without the express written consent of the Plan Administrator no portion of the [Plan]‘s recovery shall be reduced by[] the fees or costs (including attorney’s fees) associated with any claim, lawsuit, or settlement agreement in connection with any recovery, without the express written consent of the Plan Administrator.” (Emphasis added). The Summary Plan Description also plainly says that the Plan “ha[s] the right to be reimbursed in full before any amounts (including attorneys’ fees) are deducted from any policy, proceeds, judgment or settlement,” and that the Plan’s “right to . . . reimbursement takes preference over any other claims against the recovery, . . . regardless of how settlement proceeds are characterized.”

Where the terms of an ERISA plan are clear and unambiguous — as they are here — we must enforce them as written. See Zurich Am. Ins. Co. v. O’Hara, 604 F.3d 1232, 1239 (11th Cir. 2010) (holding that “full reimbursement according to the terms of the Plan’s clear and unambiguous subrogation provision [wa]s necessary . . . to effectuate ERISA’s policy of preserving the integrity of written plans”). The district court correctly applied the unambiguous terms of the Plan, requiring Flaherty to reimburse Johnson Controls for the entire amount it paid in medical expenses on Flaherty’s behalf, without deduction for attorneys’ fees and costs.

Filed Under: SUBROGATION · Tagged: SUBROGATION

:: Discovery Permitted To Determine Scope Of Administrative Record

Posted on January 18, 2011 ·

In the present case, the plaintiff asserts its procedural challenge on the grounds that, given the different versions of the administrative record produced during discovery, many of which lacked important medical records initially provided by the plaintiff, it is impossible to determine what comprises the full administrative record on which the defendants relied when denying the plaintiff’s claim. The Court concludes that this claim justifies discovery beyond the administrative record. The plaintiff’s allegation that the defendants may have failed to consider significant portions of the record may give rise to a procedural challenge of the kind discussed in Killian and may also give rise to an inference of a structural conflict of interest.

Pediatric Special Care, Inc. v. United Med. Res. (UMR), 2011 U.S. Dist. LEXIS 3795 ( E.D. Mich. Jan. 14, 2011)

In review of benefit denials, the federal judiciary treats the plan administrator’s determination as it would that of a administrative agency. Never mind that ERISA does not require or even mention this sort of deference. In any event, it follows on this train of thought that evidence considered in judicial review should be limited to the “administrative record”, i.e., the evidence before the plan administrator.

Nonetheless, discovery may be available in the case of procedural irregularities, as indicated above, or into possible conflicts of interest. Typically, some sort of evidentiary showing is required as a predicate.

For example, as noted in the Michigan case cited above, “in the context of a procedural challenge to an administrator’s decision, some discovery of evidence not contained in the administrative record is permissible.” In short,

The district court may consider evidence outside of the administrative record only if that evidence is offered in support of a procedural challenge to the administrator’s decision, such as an alleged lack of due process afforded by the administrator or alleged bias on its part. This also means that any prehearing discovery at the district court level should be limited to such procedural challenges.

This exception stems from a form of due process:

The Sixth Circuit has held in the procedural challenge context that due process is denied when the administrator fails to provide the insured with proper notice under the plan’s hearing procedures, VanderKlok v. Provident Life & Accident Ins. Co., 956 F.2d 610, 617 (6th Cir. 1992), and when the administrator refuses to consider evidence favorable to the insured while actively seeking out and considering evidence unfavorable to the insured, Killian v. Healthsource Provident Adm’rs, Inc., 152 F.3d 514, 522 (6th Cir. 1998).

Of course, the “due process” consists of the full and fair review requirements of ERISA, not constitutional due process. (I do not believe there is sufficient state action involved to invoke constitutional due process, at least prior to the PPACA.)

Another recent case to this effect is Dandridge v. Raytheon Co., 2010 U.S. Dist. LEXIS 5854 (D.N.J. 2010)

Aside from this category, some courts have permitted discovery of “documents about employee compensation criteria or standards . . . for employees involved in that claim.” Hughes v. CUNA Mut. Grp., 257 F.R.D. 176, 180-81 (S.D. Ind. 2009); see also, e.g., Santos v. Quebecor World Long Term Disability Plan, 254 F.R.D. 643, 650 (E.D. Cal. 2009); Myers v. Prudential Ins. Co. of Am., 581 F. Supp. 2d 904, 914 (E.D. Tenn. 2008).

See also, Denmark v. Liberty Life Ins. Co., 566 F.3d 1, 10 (1st Cir. 2009) (”The majority opinion in Glenn fairly can be read as contemplating some discovery on the issue of whether a structural conflict has morphed into an actual conflict.”); Kalp v. Life Ins. Co. of N. Am., No. 08-1005, 2009 WL 261189 (W.D. Pa. Feb. 4, 2009) and McGahey v. Harvard University Flexible Benefits Plan, Civil Action No. 08-10435-RGS September 14, 2009.

Note: The PPACA does not directly alter ERISA jurisprudence in this area but the possibility of external review process may indirectly affect the scope of the administrative record.

Filed Under: 502(A)(1)(B) CLAIM FOR BENEFITS, Discovery ·

:: New Scholarship Tests Heightened Pleading Requirements Against Empirical Data

Posted on January 17, 2011 ·

Alexander A. Reinert, Assistant Professor of Law, Benjamin N. Cardozo School of Law, has published a meticulously researched article that examines effects of the heightened pleading requirements under recent United States Supreme Court jurisprudence.

Entitled “The Costs of Heightened Pleading”, the article appears in the Winter 2011 issue of the Indiana Law Journal ( 86 Ind. L.J. 119).

Professor Reinert observes that Twombly v. Bell Atlantic Corp., 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) have created a pleading standard that “heightens attention to ‘conclusory’ pleading, treats state of mind allegations in a manner at odds with prior precedent, and encourages lower courts to apply their own intuitions to decide whether a plaintiff’s legal claims and allegations are sufficient to proceed to discovery.”

Have these developments aided judicial economy and the cause of justice by eliminating a measurable number of meritless claims? Through a carefully designed research project, this work parses ”empirical data to question the widespread assumptions about the costs and benefits of heightened pleading.” This work illustrates a gap in the supposed link between the heightened pleading standards and filtering of meritorious claims.

Nor does the heightened pleading standard come without costs. In this regard, the author suggests “a heightened pleading standard may function in the same way that randomized dismissal would, amounting to a radical departure from pleading standards that few would find satisfactory.”

See, Reinert, Alex A., The Costs of Heightened Pleading (August 16, 2010). Indiana Law Journal, Vol. 86, 2011; Cardozo Legal Studies Research Paper No. 307.

Available at SSRN: http://ssrn.com/abstract=1666770

Filed Under: LITIGATION ·

:: District Court Permits Supplementation Of Record But With Instruction On Law

Posted on January 7, 2011 ·

ERISA provides federal courts with jurisdiction to review benefits determinations made by fiduciaries or plan administrators. 29 U.S.C. § 1132(a)(1)(B); see also Lopez ex rel. Gutierrez v. Premium Auto Acceptance Corp., 389 F.3d 504, 509 (5th Cir. 2004). A district court’s function when reviewing ERISA claims is like an appellate court’s.

“[The court] does not take evidence, but, rather, evaluates the reasonableness of an administrative determination in light of the record compiled before the plan fiduciary.” Leahy v. Raytheon Co., 315 F.3d 11, 18 (1st Cir.2002). Courts cannot consider additional evidence “resolve the merits of the coverage determination—i.e. whether coverage should have been afforded under the plan-unless the evidence is in the administrative record, relates to how the administrator has interpreted the plan in the past, or would assist the court in understanding medical terms and procedures.” Crosby v. La. Health Serv. & Indem. Co., — F.3d —, No. 10-30043, 2010 U.S. App. LEXIS 26323, *8, 2010 WL 5356498 (5th Cir. Dec. 29, 2010). A claimant is not permitted to explore, through discovery in an ERISA lawsuit, what information a plan administrator “should have considered” in making its benefits determination, as opposed to analyzing the information that the plan administrator “did consider” in making its decision. Griffin, 2005 U.S. Dist. LEXIS 18720, 2005 WL 4891214, at *2.

Bullard v. Life Ins. Co. of N. Am., 2011 U.S. Dist. LEXIS 47 (S.D. Tex. Jan. 3, 2011)

In this claim for accidental death benefits, a factual dispute arose over policy exclusions given the circumstances of death. The deceased, Darnell Berryman, died six days after receiving 17 stitches for a knife wound to his face. He was on prescribed medication after the stitches but h also had a history of sleep anea. The death certificate and autopsy report listed the cause of death as “Acute Toxicity due to the Combined Effects of Hydrocodone, Alprazom, Carisprodol, and Promethazine.”

As explained in more detail below, the carrier denied the parents’ claim for death benefits. The issue before the court, however, was not simply whether that denial should be overturned.

In fact, the insurer and the claimants agreed that further proceedings were appropriate before judicial review — they just couldn’t agree on the extent of those proceedings. [Read more...]

Filed Under: 502(A)(1)(B) CLAIM FOR BENEFITS, ERISA, STANDARD OF REVIEW, SUMMARY PLAN DESCRIPTION · Tagged: 502(a)(2) Claim For Benefits, Discovery

:: NAIRO White Paper On External Review Questionable

Posted on January 5, 2011 ·

The NAIRO released a white paper covering a number of points on the new external review requirements. A press release on the white paper appears here.

Under the DOL’s point of view, the decision of the external review organization is binding. In other words, if Sue Smith requests external review of a benefit denial, the external review organization’s decision will be the final word, absent further judicial review to the extent available.

The drafters of the interim guidance show a woeful lack of perspective on the existing state of the law under Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) and ancillary legal concerns over fiduciary status and deference in judicial review. [Read more...]

Filed Under: CLAIMS PROCEDURES, CLAIMS REVIEW, Regulatory · Tagged: Conflicted Fiduciaries; Standard Of Review, Health Care Reform, STANDARD OF REVIEW

:: EBSA Regulatory Projects Underway

Posted on January 5, 2011 ·

From the Employee Benefit Security Administration’s website:

EBSA Unified Agenda Entries

DOL Fall 2010 Semi-Annual Agenda

Filed Under: Regulatory ·

:: Compliance With External Review Requirements

Posted on January 3, 2011 ·

The new group health plan external review requirements require analysis on several levels.

Some of the more obvious issues involve whether the external review requirements apply, and if so, whether state or federal external review requirements will apply. As the note below suggests, these issues are just the beginning of the analysis.

Unless grandfathered, a group health plan must comply with either a federal or a state external review process. Thus, the first level of inquiry might be something like this:

#1 Is the plan a grandfathered plan? If so, the rules don’t apply.

#2 Does a state law external review process apply to the plan?

Point #2 involves consideration of several factors. As a general matter, plans that provide coverage through health insurance are typically subject to state external review laws (due to ERISA’s savings clause – see Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002)).

On the other hand, the state external review process must be equivalent to the minimum requirements imposed by the interim procedures for external review . . . so if the state law does not comport with the minimum standards set forth in the interim regulations, then the federal external review procedures apply.

#3 Is the plan a governmental plan, a church plan or a multiple employer welfare arrangement (“MEWA”)? If so, a state external review process may apply.

Point # 3 will require careful consideration – first, to ascertain the plan’s status under ERISA, second, to determine if state external review processes could apply, and third, even if they might otherwise apply, whether the state external review process meets the minimum standards.

A plan or issuer is subject to the Federal external review process where the State external review process does not meet, at a minimum, the consumer protections in the NAIC Uniform Model Act, as well as where there is no applicable State external review process.

Note: The requirement of external review poses a major change in plan administration for self funded ERISA plans. Moreover, several important additional issues remain to be sorted out.

For example, under the interim guidance, the standards will:

provide that an external review decision is binding on the plan or issuer, as well as the claimant, except to the extent other remedies are available under State or Federal law.

If an external review affirms the benefit denial, the regulations appear to contemplate that the decision can be challenged in a claim for benefits under ERISA (Section 1132(a)(1)(B)). What, however, are the plan’s options if the external review is in favor of the participant?

The quoted language above suggests that the external review decision must be binding – but then further adds the proviso regarding remedies under federal law. The form of the plan challenge to the external review decision is not clear from the regulations.

Further, assuming that the employer challenges the decision in federal court, does the independence of the external review become a factor to be reviewed under the analysis in MetLife v. Glenn? Does it serve, for example, to mitigate a conflict of interest whether the plan fiduciary both adjudicate claims and pays benefits?

Similar issues have arisen in the context of state external review statutes requiring “binding” external review. These administrative regimes raise substantial questions of due process and separation of powers.

I anticipate supplementing this line of inquiry with research acquired during work on an upcoming law review article. In the meantime, the interim rules remain the only official source of guidance and careful regard should be given to the effective dates and the technical releases concerning implementation.

Filed Under: 502(A)(1)(B) CLAIM FOR BENEFITS, Health Care Reform · Tagged: 502(a)(2) Claim For Benefits, Conflicted Fiduciaries; Standard Of Review, Health Care Reform

:: Virginia District Court Rules Individual Mandate Unconstitional

Posted on December 13, 2010 ·

More on this later, but Judge Henry Hudson has ruled that the PPACA individual mandate is unconstitutional:

Judge Henry E. Hudson ruled Monday for the state’s claim that the requirement for people to purchase health care exceeds the power of Congress under the Constitution’s Commerce Clause or under the General Welfare Clause.

http://www.foxnews.com/politics/2010…alth-care-law/

The opinion can be read here:

http://www.foxnews.com/projects/pdf/…_ACA_Order.pdf

Filed Under: ERISA ·

:: Fiduciary Duties Not Implicated In Managed Care Rate Negotiations

Posted on December 9, 2010 ·

Thus, in a nutshell, Blue Cross lowered rates for its own subsidiary by effectively raising them for Flagstar and other self-insured plans. The letter agreements between Blue Cross and the hospitals spell out these facts in black and white.

But that does not mean that Flagstar knew about the deals. To the contrary, Blue Cross has admitted (in interrogatory responses in this case) that it never told Flagstar it had raised the Plan’s rates in order to lower them for its own subsidiary. And it appears that Flagstar was otherwise clueless about the change, because Blue Cross did not provide backup data for the bottom-line charges it sent Flagstar each month.

Deluca v. Blue Cross Blue Shield of Mich., 2010 FED App. 0371P (6th Cir.) (6th Cir. Mich. Dec. 8, 2010), Kethledge, J, dissenting.

This unpublished Sixth Circuit opinion spotlights a business practice that rarely gets such close scrutiny. A Blue Cross subsidiary failed to meet its profitability numbers which inspired the idea to lower its reimbursement rates.

That solution did not sit well with health care providers, of course, so Blue Cross promised to make the transaction “budget neutral” in this way:

BCBSM agreed to make the rate adjustments budget-neutral for the health-care providers by increasing the PPO and traditional plan rates to make up for the decrease in the HMO rates. Some of these rate adjustments were retroactive to the beginning of the year in which they were negotiated.

A plan participant in one of the self-funded plans Blue Cross administered sued Blue Cross alleging breach of fiduciary duty.

DeLuca, a practicing attorney in Grosse Point Park, Michigan, was a beneficiary of the Flagstar Bank Group Health Plan through his wife’s participation as a Flagstar Bank employee. In 2006, he filed the present action against BCBSM alleging that BCBSM violated its duties as a fiduciary under two provisions of ERISA, 29 U.S.C. § 1104 and § 1106(b), by agreeing to increase its traditional and PPO plan rates in exchange for decreases in the HMO rates.

The district court granted Blue Cross’ motion for summary judgment, concluding that BCBSM was not acting as a fiduciary for the Flagstar Plan when it negotiated the rate adjustments, and DeLuca appealed.

Two Issues

On appeal the issues were:

#1 What Blue Cross acting as an ERISA fiduciary under 29 U.S.C. § 1104 when it negotiated the rate changes?; and

#2 Must Blue Cross be “acting in a fiduciary capacity” to be liable under 29 U.S.C. § 1106(b)(2)?

[which provides that "A fiduciary with respect to a plan shall not . . . in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries."]

Not Acting As A Fiduciary

The Court held that Blue Cross was not in fact acting as a fiduciary when it negotiated the rates with providers.

We conclude, as did the district court, that BCBSM was not acting as a fiduciary when it negotiated the challenged rate changes, principally because those business dealings were not directly associated with the benefits plan at issue here but were generally applicable to a broad range of health-care consumers.

The Court concluded that “a business decision that has an effect on an ERISA plan not subject to fiduciary standards.”In this case, the “conduct at issue” clearly falls into the latter category, “a business decision that has an effect on an ERISA plan not subject to fiduciary standards.

. . . And Thus Not Liable For A Prohibited Transaction

The Court held that the foregoing conclusion defeated the prohibited transaction claim, stating that:

DeLuca’s argument, as we understand it, is that the terminology “in any other capacity” imposes liability on a fiduciary even when not acting in a fiduciary capacity, at least with regard to those activities prohibited by section 1106. Such an interpretation, however, flies in the face of our holding that, “by its own terms, § 1106 applies only to those who act in a fiduciary capacity.” Hunter, 220 F.3d at 724. Because BCBSM was not acting in a fiduciary capacity when it negotiated the rate changes at issue in this case, BCBSM did not violate § 1106(b)(2).In this case, the “conduct at issue” clearly falls into the latter category, “a business decision that has an effect on an ERISA plan not subject to fiduciary standards.”

Note: The dissent saw the matter as involving factual issues that made the case one for trial, not summary judgment. In a thoughtful opinion, Judge Kethledge wrote:

Whether Blue Cross functioned as a fiduciary when it established and maintained provider networks for Flagstar depends on how one characterizes their agreement. DeLuca says—and I think no one disagrees—that the function of negotiating rates with provider hospitals surely would have been fiduciary in nature had the Plan’s trustees kept that function in-house; and in DeLuca’s view, the Contract merely delegated that function from the trustees to Blue Cross. He therefore contends that Blue Cross was acting as a fiduciary when, as part of the services it provided under the Contract, it negotiated rates for the Plan. In contrast, Blue Cross argues that it actually provided a product—off-the-shelf access to its provider network at whatever rates Blue Cross cared to negotiate with them—rather than services.

The difference matters because, while selling a product tends not to create fiduciary duties under ERISA, providing services quite frequently does. And that is especially true for discretionary services that directly impact a plan’s finances. The nub of this case, therefore, is which conception of the parties’ agreement is right.

I do not think this issue is one we can fairly decide—at least in Blue Cross’s favor—as a matter of law.

29 U.S.C. § 1106(b)(2) - The dissent also disagreed on the elements required for a prohibited transaction under this provision, stating:

In Pegram v. Herdrich, 530 U.S. 211 (2000), the Supreme Court stated that, “[i]n every case charging breach of ERISA fiduciary duty, then, the threshold question is . . . whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint.” Id. at 226 (emphasis added). But Pegram was only a § 1104 case, so that statement is pure dicta as to § 1106(b)(2).

A similar statement by our court, however, cannot be so characterized. In Hunter v. Caliber System, Inc., 220 F.3d 702 (6th Cir. 2000), we said that, “by its own terms, § 1106 applies only to those who act in a fiduciary capacity.” Id. at 724. The Hunter court characterized that statement as a holding (albeit an alternative one), and I cannot fairly recast it as dicta. It is binding precedent for our circuit.

Policy Issues – The dissent reviewed the policy issues raised by Blue Cross and proposed some interesting rebuttals. In the end, however, Judge Kethledge concluded that:

More fundamentally, I reject the unspoken premise of the preceding two arguments, which is that we should be acutely concerned about Blue Cross’s business model in the first place. Cases have consequences, and we should be mindful of them. But our task in this case is not to divine the business model that best serves the plans’ interests and those of everyone else; our task, instead, is the comparatively simple one of determining whether the letter deals violated ERISA. The wisdom of business models can be determined elsewhere.

Filed Under: PPO's & Networks, PROVIDER REIMBURSEMENT · Tagged: PPO's & Networks, PROVIDER REIMBURSEMENT

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