:: Third Circuit Reverses District Court Dismissal of FCRA Class Action For Data Breach

So the Plaintiffs here do not allege a mere technical or procedural violation of FCRA.  They allege instead the unauthorized dissemination of their own private information – the very injury that FCRA is intended to prevent.
There is thus a de facto injury that satisfies the concreteness requirement for Article III standing.24 See In re Nickelodeon, 827 F.3d 274 (concluding that the “unlawful disclosure of legally protected information” in and of itself constitutes a “de facto injury”). Accordingly, the District Court erred when it dismissed the Plaintiffs’ claims for lack of standing.
In Re: HORIZON HEALTHCARE SERVICES INC. DATA BREACH LITIGATION Courtney Diana; Mark Meisel; Karen Pekelney; Mitchell Rindner, Appellants, No. 15-2309, 2017 WL 242554, at *11 (3d Cir. Jan. 20, 2017)

The Third Circuit reversed a district court decision that dismissed an action alleging willful and negligent violations of the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681, et seq., as well as numerous violations of state law following a data breach.

Two laptops, containing sensitive personal information, were stolen from health insurer Horizon Healthcare Services, Inc.  The district court held that the plaintiffs did not have Article III standing, stating:

Our precedent and congressional action lead us to conclude that the improper disclosure of one’s personal data in violation of FCRA is a cognizable injury for Article III standing purposes.

Note:  515 U.S.C. § 1681(b) states:

Reasonable procedures [-]
It is the purpose of this subchapter to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this subchapter.

Procedural Stage – Several other issues remain pending, including a motion to dismiss based on statutory defenses.  The Court noted that:

[W]e assume for purposes of this appeal that FCRA was violated, as alleged, and analyze standing with that assumption in mind. Likewise, our decision regarding Article III standing does not resolve whether Plaintiffs have suffered compensable damages. Some injuries may be “enough to open the courthouse door” even though they ultimately are not compensable. Doe v. Chao, 540 U.S. 614, 625 (2004).

Practice Pointers – Those providing guidance to claims administrators may find the allegations helpful in a due diligence review:

“In addition to properly securing and monitoring the stolen laptop computers and encrypting Plaintiffs’ and Class Members’ [personal information] on the computers,” Horizon should have – according to the Complaint – conducted periodic risk assessments to identify vulnerabilities, developed information security performance metrics, and taken steps to monitor and secure the room and areas where the laptops were stored.

Proof standard – “Reckless disregard” of a requirement of FCRA would qualify as a “willful” violation within the meaning of § 1681n(a). Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007)

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

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

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

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

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

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

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

:: Forum Selection Clause Enforced In ERISA Claim Litigation

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

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

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

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

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

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

The Forum Selection Clause Language

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

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

The Plaintiff’s Arguments

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

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

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

#3 the forum selection clause was unreasonable.

The Court’s Response

The Court was unconvinced.

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

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

Finally, the Court rejected the unreasonableness argument, stating:

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

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

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

The Court must consider:

#1 convenience of the parties,

#2 the convenience of the witnesses, and

#3 the interests of justice.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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:: Summary Judgment Procedural Changes Highlighted

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

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

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

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

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

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

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

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

(emphasis added)

Note: Judge Wilkerson dissented, stating:

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

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

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

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

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

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

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

:: Plan Administrators Cannot Invoke “SPD Prevails” Rule To Cure Plan Language Deficiencies

Here, there are no terms in the plan which allow it to be amended by inserting into the SPD such critical provisions as the administrator’s discretionary authority to interpret the plan or to determine eligibility for benefits. Indeed, this particular plan wholly fails to comply with § 1102(b)(3)’s requirement to include a procedure governing amendment of the plan.

Thus, there is no basis for concluding that the purported grant of discretion in the SPD is a procedurally proper amendment of the policy, and therefore “the policy’s failure to grant discretion results in the default de novo standard.” Jobe, 598 F.3d at 486. “Consequently, the district court should not have reviewed the administrator’s decision for abuse of discretion but, rather, should have reviewed it de novo.” Id.

Ringwald v. Prudential Ins. Co. of Am. (8th Cir.) (06/21/10)

It is not unusual to see plan documents and summary plan descriptions merged into one document these days, or for summary plan descriptions to take on the role as the source of authority and documentation of administrative practices.   This recent Eighth Circuit opinion should give plan fiduciaries pause as they delegate such paperwork to their claims administrators and benefit communications consultants.

Here, the question was whether the plan granted discretionary authority to the plan administrator so as to invoke the benefit of an abuse of discretion standard of review.  The answer – the summary plan description did, but the plan document did not.  And therefore, a de novo standard of review applied.

Some of you may be saying, but I thought the summary plan description controlled in the case of a conflict between the plan and the SPD?   The Eighth Circuit observes that this rule of “SPD prevails” only applies where necessary to protect the plan participants.

the policy underlying the “SPD prevails” rule was ERISA’s important goal of providing complete disclosure to plan participants, such that where disclosures made in an SPD pursuant to 29 U.S.C. § 1022(a)(1) . . .  ERISA’s policy of full disclosure – inuring to the benefit of employees, not employers – would not be advanced by a blanket rule indicating an SPD “prevails over the policy in all circumstances.”

Thus, the door opens for the plan participant to introduce the plan document as a means of impeaching the SPD.   ERISA forbids a plan administrator from using the SPD “to enlarge the rights of the plan administrator at the expense of plan participants when the plan itself does not confer those rights.”

Note: This case does not address the combination of the plan and the SPD into one document.   It does illustrate, however, the risks incurred when plan administrators deviate from ERISA’s documentary scheme.

ERISA contemplates plan documents which control many important legal matters, such as allocation of fiduciary responsibilities, specification of amendment procedures, eligibility, participation and claims adjudication rules.  ERISA further contemplates an SPD or SMM that put these matters in the vernacular for the plan participants.

In view of Ringwald, if important language fails to appear in the plan document, such as a grant of discretion, the SPD cannot cure this deficiency. Plan fiduciaries should review and compare the plan language on this issue as well as other important issues, such as ERISA subrogation and reimbursement rights, to ensure consistency in plan documentation.

:: Health Care Provider’s Tort Claims Preempted Under Fifth Circuit ERISA Jurisprudence

The Court did not suggest that all tort claims are completely preempted by ERISA wherever there is an assignment of patient benefits, only that Plaintiffs’ claims in this case were so preempted under controlling Fifth Circuit law. See Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999).

Quality Dialysis One LP v. Aetna Life Ins. Co., 2009 U.S. Dist. LEXIS 115498 (S.D. Tex. Dec. 10, 2009)

In this opinion out of the Southern District of Texas, the Court finds the health care provider’s claims for reimbursement preempted where the provider sued the health plan asserting “tort claims flowing from the direct communications and business relationship between the parties.” 

The presence of an assignment of benefits and the absence of claims based upon a managed care contract contributed largely to the plan’s successful defense.

The Facts

The facts are adequately summarized in the following excerpt:

Quality Dialysis is a home hemodialysis provider that serviced patients covered by health insurance and employee welfare benefit plans that Aetna administered. Beginning in September 2006, Plaintiffs allege that Aetna began to systematically deny Quality Dialysis’ claims for payment and demanded a refund for claims already paid in excess of one million dollars.

Quality Dialysis further contends that Aetna attempted to persuade patients using Quality Dialysis’ services to switch to a competitor’s home hemodialysis service. Finally, Quality Dialysis alleges that the unpaid insurance claims and Aetna’s request for a refund on past claims caused it to lose an opportunity to sell its business to an unnamed prospective purchaser.

 No Managed Care Contractual Claims

The case was first filed in state court and thereafter removed to federal court based upon ERISA complete preemption of the plaintiff’s claims.  The Court denied the plaintiff’s motion to remand, and in the opinion under discussion here, denied a motion for reconsideration.

The Court observes that:

In its motion for reconsideration, Quality Dialysis argues that the Court failed to “distinguish the true nature of the separate, independent tort causes of action raised by Plaintiffs[,] which only arise out of the independent business relationship between an insurer (Aetna) and medical provider (Quality Dialysis).” (Doc. 39 at 1.)  Quality Dialysis concedes that it “does not bring a breach of contract action arising out of a managed care agreement . . . .” (Id. at 2.) This is important because there was no managed care contract between the Plaintiffs and Defendants in this case.

Claims Based Upon Tort Theories

The Court viewed the plaintiff’s claims as essentially tort claims that emulated a claim for benefits under the plan.  Such claims are of course subject to ERISA complete preemption. 

The Court makes this point as follows:

. . . Quality Dialysis brings “tort claims flowing from the direct communications and business relationship between the parties.” (Id.) The Court, however, determined that it is precisely these tort claims that are preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. §§ 1001-1461.

Effect Of Assignment

The plaintiffs claimed that the Court had overemphasized the effect of an assignment of benefits.

Plaintiffs further express concern that the Court’s ruling “would shield every insurance company from its  independent torts committed against medical providers, no matter how egregious, if the medical provider obtains an assignment of benefits from the patient.”

But the Court rejected this claim as fallacious, stating:

The Court did not suggest that all tort claims are completely preempted by ERISA wherever there is an assignment of patient benefits, only that Plaintiffs’ claims in this case were so preempted under controlling Fifth Circuit law. See Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999).

Thus, the motion for reconsideration was denied.

Note:  This opinion is rather short.  It nonetheless provides a pithy distinction between provider cases brought outside of managed care agreements and those that may articulate an independent contractual duty that may potentially survive preemption.

Procedural Point – The Court notes that the Rule 60 motion is inferior to a timely Rule 59(e) motion.  That is a distinction also worth noting.

  Although Plaintiffs fails to expressly invoke the provision governing motions for reconsideration, such motions are generally considered cognizable under either Federal Rule of Civil Procedure 59(e), as motions “to alter or amend judgment,” or under Rule 60(b), as motions for “relief from judgment.” Lavespere v. Niagara Mach. & Tool Works, 910 F.2d 167, 173 (5th Cir. 1990). “Under which Rule the motion falls turns on the time at which the motion is served.

 If the motion is served within ten days of the rendition of judgment, the motion falls under Rule 59(e); if it is served after that time, it falls under Rule 60(b).” Id. (citing Harcon Barge Co. v. D & G Boat Rentals, 784 F.2d 665, 667 (5th Cir.1986) (en banc)). Because Plaintiffs brought their motion for reconsideration more than ten days from entry of judgment, reconsideration can only be given within the stricter limitations of Rule 60(b).

Earlier Opinion – As noted above, the present opinion was in the context of a motion for reconsideration.  More insight on the Court’s reasoning may be gleaned from this excerpt from the prior opinion:

Finally, Quality Dialysis alleges the common law torts of negligence, negligent misrepresentation, and interference with existing contracts and business relations. Quality Dialysis argues that it is a third-party health care provider and therefore that Memorial Hosp. Sys. v. Northbrook, 904 F.2d 236 (5th Cir. 1990) controls. In that case, the Fifth Circuit held that a claim of deceptive practice under Texas Insurance Code for misrepresentation of the coverage status of an employee’s spouse was not preempted by ERISA, where the hospital providing treatment was a third-party health care provider. While “ERISA does not preempt state law when the state-law claim is brought by an independent, third-party health care provider . . . against an insurer for its negligent misrepresentation regarding the existence of health care coverage[,] . . . state-law claims for breach of fiduciary duty, negligence, equitable estoppel, breach of contract, and fraud are preempted by ERISA when the [health care provider] seeks to recover benefits owed under the plan to a plan participant   who has assigned her right to benefits to the [health care provider].” Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999) Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999) (internal citations omitted). Here, Quality Dialysis is a health care provider holding an assignment of ERISA plan benefits.

In Davila, the Supreme Court confronted state claims against HMOs for negligence “in the handling of coverage decisions” under their benefit plans. 542 U.S. at 204. The Court held that such claims were completely preempted by ERISA despite any violation of state law because “interpretation of the terms of [plaintiffs’] benefit plans form[ed] an essential part of their [state law] claim.” Id. at 213. Quality Dialysis, as an assignee of patients’ plan benefits, could have brought suit under ERISA § 502(a). Because Plaintiffs’ state law causes of action and common law torts arising from unpaid and underpaid insurance claims in plans administered by Aetna are preempted by ERISA, the Court finds federal question jurisdiction present as to these claims.

Quality Dialysis One LP v. Aetna Life Ins. Co., 2009 U.S. Dist. LEXIS 89672 (S.D. Tex. Sept. 29, 2009)

Other Fifth Circuit Authority –  The provider reimbursement case law in the Fifth Circuit has been quite influential.  Here are some important cases in Fifth Circuit jurisprudence in this context:

Hermann Hosp. v. MEBA Medical & Benefits Plan, 845 F.2d 1286, 1290 (5th Cir. 1988)(Hermann I).

Memorial Hosp. System. V. Northbrook Life Ins. Co., 904 F.2d 236, 243-46 (5th Cir. 1990).

Hermann Hosp. v. MEBA Medical & Benefits Plan, 959 F.2d 569 (5th Cir.1992) (Hermann II ).

Cypress Fairbanks Med. Center, Inc. v. Pan-American Life Ins. Co., 110 F.3d 280 (5th Cir.), cert. denied, 139 L. Ed. 2d 110, 118 S. Ct. 167 (1997).

Transitional Hosps. Corp. v. Blue Cross & Blue Shield, Inc., 164 F.3d 952 (5th Cir. Tex. 1999).

Abilene Reg’l Med. Ctr. v. United Indus. Workers Health & Benefits Plan, 41 Employee Benefits Cas. (BNA) 1098 (5th Cir. Tex. Mar. 6, 2007)

:: Discrimination Claims Or Benefit Claims? The ERISA Preemption Divide

“It is not the label placed on a state law claim that determines whether it is preempted, but whether in essence such a claim is for the recovery of an ERISA plan benefit.”

Lockett v. Marsh United States, 2009 FED App. 0759N (6th Cir.) (6th Cir. Ohio Dec. 3, 2009) (citing, Peters v. Lincoln Elec. Co., 285 F.3d 456 (6th Cir. 2002)

This recent unpublished decision from the Sixth Circuit draws on prior authority in that Circuit on the question of when employment law claims tread too closely to ERISA’s domain and thus are preempted by the broad reach of that statutory regime.  In this case, the plaintiff sued on state law theories of discrimination and retaliation but the facts she alleged were found tilted toward a claim for severance benefits which in turn warranted preemption.

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:: A Primer On Venue Choice In ERISA Claim Disputes

Plaintiffs originally filed their complaint in the Court of Common  Pleas of Philadelphia County, Pennsylvania. Defendants then removed the action to federal court. The plaintiffs’ choice of venue is generally accorded great weight, but other factors such as where the underlying events occurred and where the plaintiffs reside can override this concern.

Schoonmaker v. Highmark Blue Cross Blue Shield, 2009 U.S. Dist. LEXIS 101088 (E.D. Pa. Oct. 30, 2009)

This district court opinion features an ample discussion of an important preliminary issue that is often taken for granted – choice of venue.   One of the advantages of modern medical advances has been the proliferation of centers of excellence for various diseases.  On the other hand, access to these facilities often requires travel.

What factors should a court take into account in determining proper venue in a dispute over benefit payment?  The Court in Schoonmaker reviews this question in considerable detail.

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:: Joint Venture Liability For Medical Stop Loss Claims

Majestic has included RMTS as a defendant in Count I (declaratory relief), Count II (breach of contract), and Count IV (bad faith). RMTS argues that it should be “dismissed” from this action because it was not a party to the stop loss contracts.   Majestic counters that RMTS is a proper defendant because it is a party to the contract, or alternatively, because it was engaged in a joint venture with Trustmark.

Majestic Star Casino, LLC v. Trustmark Ins. Co., 2009 U.S. Dist. LEXIS 93911 (N.D. Ill. Oct. 8, 2009)

Joint venture is likely not the first legal theory that comes to mind when considering the liability of managing general underwriters for stop loss claims by plan sponsors.  The theory has been advanced in ERISA cases from time to time as a means to expand the defendant group.

Common endeavor and sharing of risks are required to sustain the claim.  See, e.g., Transit Mgmt. v. Group Ins. Admin., 1998 U.S. Dist. LEXIS 15784 (E.D. La. Sept. 30, 1998).  In this recent opinion, the theory survives a summary judgment motion given the factual issues implicated by the claim.

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:: Balance Billing Practices May Constitute Breach of Contract

rThe Hornings contend that their contract with the PPO provides that in return for the premiums they pay, the PPO makes payments to the providers on their behalf in accordance with the PPO’s contract with the provider. Moreover, the contract the PPO has with the provider ensures that the provider accepts payment at a discounted rate in consideration of the PPO’s referral of patients to the provider. In sum, a reasonable inference can be drawn from the allegations in the complaint that the Hornings were the intended third-party beneficiaries of the contract between Labcorp and the PPO. Therefore, the Hornings may sue for what they perceive as a breach of the PPO-Labcorp agreement.

Horning v. Lab. Corp. of Am., 2009 U.S. Dist. LEXIS 80866 (N.D. Ill. Sept. 3, 2009)

This district court opinion holds interest  for health care providers and benefit fiduciaries alike.

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:: Where ERISA And Workers’ Compensation Claims Intersect – An Insider’s Guide

It’s a well known fact among workers’ compensation attorneys that employer group health plans frequently pay medical claims that probably should have been paid by the comp carrier.  This shift in liability is not always simply a case of money being moved from one pocket to another. 

In many cases employer self-funded group health plans are paying claims that should be paid by the workers’ compensation insurance they have purchased (in other words, the employer is self-insured on the health plan, but has insurance coverage on the comp claim).  And then there are the cases where the comp claim is on a dependent, such that the employer’s group health plan is paying expenses incurred by a non-employee injured on some other employer’s work site.

Here’s an insider’s look into what is going on in this cost-shifting war.

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:: Federal Court Removal Deadline Triggered By Deposition Exhibit

Tyson takes issue with the Magistrate Judge’s conclusion that removal was untimely. The Magistrate Judge found that Tyson was on notice of the removability of the action on December 30, 2008. Rao’s deposition was taken on that date and, during the deposition, an offer letter (to Rao from his current employer Foster Farms) was introduced as a deposition exhibit by Tyson.

Rao v. Tyson Foods, 2009 U.S. Dist. LEXIS 49466 (E.D. Cal. June 12, 2009)

The jousting in this dispute over a non-competition clause involves several noteworthy issues.  Though this is a diversity case, the question of timely removal offers some insights.  In addition, the case reflects competing efforts at controlling venue, with the employer, Tyson, suing in Arkansas, and the employee seeking declaratory relief in before a California court.

The plaintiff, Shivram Rao (“Rao”), filed a civil action against his former employer, Defendant Tyson Foods, Inc. seeking declaratory relief invalidating a non-competition clause.  The action was initially filed in state court, but was removed by Tyson on the basis of diversity jurisdiction. Rao filed a motion to remand.

The removal came up in this way.   On December 30, 2008, Tyson took Rao’s deposition.  Tyson introduced an offer letter from Rao’s new employer, Foster Farms, as an exhibit.

The parties at the deposition also stipulated that the amount of compensation in the offer letter was the amount that Rao was receiving at the time of the deposition. The offer letter shows that Rao’s salary with Foster Farms easily exceeeds the jurisdictional minimum for this Court.

Since the notice of removal was filed on February 12, 2009, if the letter constitutes an “other paper” under 28 U.S.C. § 1446(b), then Tyson’s removal was untimely.

[Background note:  28 U.S.C.A. § 1446(b) states that notice of removal may be filed within 30 days after receipt by the defendant of a copy of an amended pleading, motion, order, or other paper from which it may first be ascertained that the case is or has become removable.]

The district court agreed with the magistrate judge that the deposition exhibit was notice that the case was removable.

. . .  the Ninth Circuit has held that a settlement letter, Cohn v. Petsmart, Inc., 281 F.3d 837, 840 (9th Cir. 2002), as well as a letter sent between attorneys in preparation for mediation, Babasa v. Lenscrafters, Inc., 498 F.3d 972, 975 (9th Cir. 2007), were sufficient to put the respective defendants on notice that the amount in controversy exceeded that required for federal diversity jurisdiction. In this case, the offer letter was made an exhibit to Rao’s deposition and the parties stipulated that the amounts stated therein represent Rao’s current compensation. The offer letter expressly identifies Rao’s salary and the dollar value of other benefits and thus, is sufficiently similar to the settlement letter of Cohn and the letter in preparation of mediation in Babasa to put Tyson on notice of the value of the declaratory relief to Rao. This objection is overruled.

Note: For some discussion of the ERISA parallel to the timeliness issue, see the discussion in :: Challenge To Factual Basis Set Forth In Removal Notice Rejected

Under the complete preemption doctrine, the basis for removal will often not be apparent from the face of the complaint. Cf. Peters v. Lincoln Elec. Co., 285 F.3d 456 (6th Cir. 2002) (plaintiff’s responses to deposition questioning may constitute an “other paper”.

Conflicting Authorities – The district court noted that the authorities are split on the issue, stating:

Tyson is correct that some courts hold that a deposition is not an “other paper” or that courts have indicated that the issue is unclear. E.g., Kiedaisch v. Nike, Inc., 2004 U.S. Dist. LEXIS 2828, *5 n.1 (D. N.H. 2004); Smith v. Equitable Life Assur. Co., 148 F.Supp.2d 1247, 1253 (N.D. Ala. 2001); O’Brien v. Powerforce, Inc., 939 F.Supp. 774, 781 (D. Haw. 1996); Fillmore v. Bank of Am., N.T. & S.A., 1991 U.S. Dist. LEXIS 6640, *9 n.4 (N.D. Cal. 1991).

But the court found that the Ninth Circuit’s position was clear based upon Karambelas v. Hughes Aircraft, 992 F.2d 971 (9th Cir. 1993), a decision which rejected the argument that deposition testimony triggered the 30-day clock on the facts presented:

However, in Karambelas v. Hughes Aircraft, 992 F.2d 971 (9th Cir. 1993), the Ninth Circuit addressed whether the plaintiff’s deposition testimony could form the basis for removal. Karambelas held that the particular deposition testimony was too speculative to show that the plaintiff was alleging an ERISA claim and thus, removal was improper. See id. at 974-75.

And from the Karambelas opinion:

We are also aware of the authorities which permit removal based upon facts developed at a deposition.  [*7] See, e.g., Felton, 940 F.2d at 507; 3 Zawacki v. Penpac, Inc., 745 F. Supp. 1044, 1047 (M.D. Pa. 1990); Riggs v. Continental Baking Co., 678 F. Supp. 236, 238 (N.D. Cal. 1988); Brooks v. Solomon Co., 542 F. Supp. 1229, 1230-31 (N.D. Ala. 1982).

The Ninth Circuit distinguished these authorities, the district court observed, stating:

The Ninth Circuit distinguished those cases because the testimony was clear and non-speculative, unlike Karambelas’s deposition. See id. at 974-75. Riggs, Zawacki, and Brooks are all lower court cases that expressly held that a deposition can constitute an “other paper” under § 1446(b). Zawacki, 745 F.Supp. at 1047; Riggs, 678 F.Supp. at 238; Brooks, 542 F.Supp. at 1230-31. Felton did not expressly discuss § 1446(b) because the plaintiffs in that case had failed to preserve any error associated with removal. See Felton, 940 F.2d at 907. Nevertheless, the Karambelas court characterized Felton as a case that permits removal based upon facts developed at a deposition. Thus, the Ninth Circuit acknowledged cases that expressly hold that depositions are “other papers” under § 1446(b), characterized one of its own prior cases as an authority that permits removal  based on facts from a deposition, examined Karambelas’s deposition testimony, and ultimately distinguished the quality of Karambelas’s deposition testimony from those in Felton, Zawaki, Riggs, and Brooks; the Ninth Circuit did not indicate that depositions were not “other papers.” In light of Karambelas, the law does not seem unclear in the Ninth Circuit — depositions, if sufficiently definite/non-speculative, may form the basis for removal and thus, is an “other paper” under 28 U.S.C. § 1446(b). That lower courts from other jurisdictions have concluded that depositions are not “other papers” does not make the law in the Ninth Circuit “unclear.”

Comment – This area of the law is quite tricky.  For example, Tyson offered the letter as an exhibit.  Other than the stipulation at the deposition, I am not sure why the 30-day clock did not begin to run even earlier, i.e., when Tyson first obtained the letter (presumably in discovery).

Attorneys’ Fees – A mistake here may result in an award of attorneys’ fees against the loser as this case illustrates.

In light of Karambelas, Tyson does not have a reasonable basis for contending that the amended complaint, and not the offer letter received at and made an exhibit to the deposition, triggered the 30 day removal deadline of § 1446(b).

Opinion – I posted the opinion on erisaboard.com this morning for those interested in reading the case.

:: State Law Claims Against “Non-Fiduciary Service Providers” Avert Preemption

Here, plaintiffs’ claims regarding defendants’ alleged post-plan misfeasance are not preempted. As in Paulsen, plaintiffs’ state law claims run to non-fiduciary service providers and do not relate to the plan, its administration, or its benefits.  The  plan is a life insurance plan that the parties admitted at hearing is still in operation and will provide benefits to beneficiaries in the event of  Hausmann’s death. While plaintiffs obtained the plan in part because the contributions could be tax deductible, those deductions are not a “benefit” of the plan itself.

Additionally, the IRS treatment of the tax deductions is unrelated to the administration of the plan because it was something that plaintiffs reported on their own tax filings. Accordingly, as in Marks, the state law claims have only a tenuous connection to the plan, do not affect an ERISA relationship, and do not require interpretation of the plan to adjudicate the matter.

Hausmann v. Union Bank of Cal., 2009 U.S. Dist. LEXIS 39074 (C.D. Cal. May 8, 2009)

This district court opinion describes a set of facts which touch on several features of an ERISA plan but which, based upon the claim at bar, did not sufficient engage plan administration so as to warrant preemption.  The dispute centered on representations and resulting expectations about the performance of a plan designed to meet the requirements of IRS Section 412(i).   

The Facts

The Plaintiffs wanted to obtain retirement planning and life insurance.   They met with an advisor at Union Bank of California Investment Services who put them in contact with an account executive at Hartford.  The Plaintiffs were steered toward a Section 412(i) plan. 

From the opinion: 

Plaintiffs were enticed to purchase this plan because they believed that the entire amount they contributed to the plan would be tax deductible. Plaintiffs allege that at all relevant times, [the advisors] represented that the Internal Revenue Service (“IRS”) had pre-approved this type of retirement plan. In August of 2003, plaintiffs entered into contracts and purchased the plan. 

Unfortunately, however, the IRS also took an interest in this type of plan: 

In early 2004, the IRS issued two revenue rulings that the type of 412(i) plan plaintiffs had purchased needed to be listed on tax returns as a “listed transaction.” Plaintiffs did not do so. In August 2006, the IRS notified plaintiffs that they would be audited. The IRS has not made a final decision in the matter, but plaintiffs could be subjected to hundreds of thousands of dollars in fines.

The Allegations

The Plaintiffs alleged that the defendants knew “prior to the activation of plaintiffs’ plan” that the validity of these types of plans was “very much in question.” They further alleged that the defendants induced them to sign the plan nonetheless “because they had already invested money in those types of plans and would also receive a large commission, which was not disclosed.” Finally, the Plaintiffs alleged that after the IRS issued its revenue rulings defendants failed to notify them of the rulings and a “safe harbor” the IRS offered because defendants wanted to continue to profit from the plan.

The State Court Claims

The Plaintiffs filed suit in state court against the bank, the insurance company and the advisors, alleging (1) negligence; (2) breach of fiduciary duty; (3) fraud; (4) negligent misrepresentation; and (5) unfair competition under California Business and Professions Code § 17200.  

The case was removed to federal district court based upon a claim of federal question jurisdiction.

 Motions For Summary Judgment

The jurisdictional issue arose in the context of motions for summary judgment filed by the defendants.  

The district court was clearly influenced by the recent Ninth Circuit opinion in Paulsen v. CNF, Inc., 559 F.3d 1061, 1081 (9th Cir. 2009).  

 In that case, the Ninth Circuit left open a possible state law claim by employees against a consulting firm that provided advice to plan fiduciaries. 

ERISA contains, in section 502(a), a comprehensive scheme of civil remedies. Paulsen, 559 F.3d at 1084. Paulsen held that employees’ state law damages claim for professional negligence in valuing the benefit liabilities of the prospective plan was not conflict preempted.

Here, plaintiffs request special and compensatory damages related to their state law  claims. As Paulsen explained, these damages are unrelated to the plan and are not conflict-preempted.

The district court also found influential two other opinions, one from the Fifth Circuit and one from the Sixth:
While other circuits do not apply the “relationship test” per se, they have found that state law claims similar to those at issue in Paulsen are not preempted. See, e.g., E.I. Dupont De Nemours & Co. v. Sawyer, 517 F.3d 785, 800 (5th Cir. 2008); Marks v. Newcourt Credit Group, 342 F.3d 444, 453 (6th Cir. 2003).


[5th Circuit]  In Dupont, the Fifth Circuit held that the plaintiffs’ fraud and fraudulent inducement claims were not preempted because to prevail, “the employees need not prove that any aspect of Dupont’s administration of the employees’ ERISA plan was improper. The claims only relate to misrepresentations that Dupont is alleged to have made about its intentions to sell [a subsidiary].” Dupont, 517 F.3d at 800.  The Dupont court added that “the employees’ allegation that Dupont fraudulently induced them to transfer to [the subsidiary] does not affect an area of their relationship that is comprehensively regulated by ERISA.” Id.

[Sixth Circuit] Similarly, the Sixth Circuit in Marks found that the plaintiffs’ fraud and misrepresentation and breach of contract claims were not preempted to the extent that they had a tenuous effect on the plan. 342 F.3d at 453. Marks explained that plaintiff alleged that “without cause, [defendant] significantly altered his duties and reduced his compensation” and that the claim could proceed because it could constitute a breach of contract irrespective of the plan. Id.; see also Samaritan Health Ctr. v. Simplicity Health Care Plan, 459 F. Supp. 2d 786, 797-98 (E.D. Wis. 2006) (holding that breach of contract claim is not preempted because the claim did not rely on an interpretation of the medical plan documents).

Post-Plan Misfeasance Claims Not Preempted

The court’s reasoning turned in large part on its finding that the service providers were not ERISA fiduciaries.

As in Paulsen, plaintiffs’ state law claims run to non-fiduciary service providers and do not relate to the plan, its administration, or its benefits. The  plan is a life insurance plan that the parties admitted at hearing is still in operation and will provide benefits to beneficiaries in the event of Hausmann’s death. While plaintiffs obtained the plan in part because the contributions could be tax deductible, those deductions are not a “benefit” of the plan itself. Additionally, the IRS treatment of the tax deductions is unrelated to the administration of the plan because it was something that plaintiffs reported on their own tax filings. Accordingly, as in Marks, the state law claims have only a tenuous connection to the plan, do not affect an ERISA relationship, and do not require interpretation of the plan to adjudicate the matter.

Claims Based Upon Non-Disclosure Of Commissions Not Preempted

Likewise, the service provider status of the defendants spoiled their defense of preemption.

Defendants’ reliance on Rutledge to argue that failure to disclose the commissions is preempted is unpersuasive. In Rutledge, there was preemption because the compensation at issue affected an ERISA relationship, and the court distinguished similar claims against service providers held to be non-preempted. 201 F.3d at 1222. 

The issue appears to have been a somewhat closer call, however, as the court compared two contrary opinions in reaching its conclusion: 

The Rutledge plaintiffs sued a non-ERISA fiduciary attorney for charging excessive fees. Id. 2 The court found that the allegation of excessive fees implicated the “prohibited transaction”  provision under ERISA, 29 U.S.C. § 1106, triggering preemption. Id. In doing so, the Rutledge court distinguished Arizona State Carpenters, which involved non-ERISA fiduciaries where the claims were not preempted because they did not involve “excessive fees” claims, but, rather claims related to the failure to notify the trustees of defaults on interest and principal payments on investments. Id. (citing Ariz. State Carpenters Pension Trust Fund v. Citibank, 125 F.3d 715, 724 (9th Cir. 1997)). 

In Arizona State Carpenters, the court explained that as a non-fiduciary service provider, the defendant’s relationship with the plaintiff was “no different than that between Citibank and any of its customers.” 125 F.3d at 724. Here, defendants are non-fiduciary service providers and plaintiffs’ claim is not for excessive fees but for failure to disclose a commission. 3 (FAC P 51.) Arguably, this falls between the commercial relationships in Arizona Carpenters and Rutledge, but defendants provide no explanation of how the failure to disclose commissions is a prohibited transaction under 29 U.S.C. § 1106, nor is it listed in the text of the statute as a prohibited transaction. Given that defendants  do not demonstrate ERISA’s applicability on this point, and that there are no ERISA claims in the complaint, the failure-to-disclose-commission allegation is insufficient to constitute the complete preemption required to confer jurisdiction.

Based upon the foregoing, the court held that the  plaintiffs’ state law claims were not expressly preempted by ERISA “because they are tenuous to the plan and do not effect an ERISA relationship.”

Note:  While not determinative, how claims are initially framed against service providers does have some effect.  The inclusion of ERISA causes of action will predispose a court to view the plaintiff’s case as implicating plan administration, for obvious reasons. Consider this statement by the district court:

In Chasan, the court found preemption because the case included ERISA causes of action, which is in part why the court so held. 2007 WL 173927 at *7-8. To the contrary, in Berry II, another case on which defendants rely and that is factually similar, the court found that there was no ERISA preemption because the claims related to the tax consequences of the insurance policies used to fund the plans and not the merits of the plans themselves. Berry v. Indianapolis Life Ins. Co., 08-cv-248, 2009 WL 636531, at *5 (N.D. Tex. Mar. 11, 2009). The Berry II court also found no preemption because defendants did not demonstrate that analysis of the claims would involve an evaluation of the plan itself. Id.

Additional Factors – In addition to non-fiduciary status of the defendants, the opinion highlights two other factors that may be influential in a preemption dispute (1) is the relationship one implicating the service provider/prohibited transaction rules and (2) is the relationship one indistinguishable from a commercial relationship the defendant might have with any other customer.

:: Health Care Provider’s Equitable Estoppel Claims Dismissed As Contrary to Plan’s MAC Provisions

According to the express language of the Plan, “Billed charges [“the amount a Provider charges for services rendered”] may be different from the amount that [Blue Cross] determines to be the Maximum Allowable Charge for services.”

Regency Hosp. of Cincinnati v. Blue Cross Blue Shield of Tenn., 2009 U.S. Dist. LEXIS 37111 (S.D. Ohio May 1, 2009)

This provider reimbursement case illustrates several hazards for the health care provider that warrant careful attention.

First, as always, “verification” calls are always less valuable than they first appear. Verification of what? (Rarely will you find a verification of “payment”).

Second, the language of assurance can be complex. In this case, as the excerpt reveals, a promise to pay the “maximum allowable charge” is far less of a commitment that it may appear.

Third, estoppel will be unavailable in most cases to backstop errors – at least where plan language is clear enough (and the plan administrator will get a pass in many cases based upon a discretionary clause).

The Facts

Regency, a provider of long term acute care hospital services, became embroiled in a dispute over a purported verification of eligibility or coverage, or both – the opinion is ambigous on this point.

The patient, Fogelson,  was insured under a health plan issued by Blue Cross to Fogelson’s employer.  Prior to her admission, Regency telephoned Blue Cross “to verify Fogelson’s coverage” and “to pre-certify her treatment.”

Regency alleged that a Blue Cross representative “confirmed Fogelson’s eligibility.”  Later, Regency again called Blue Cross to “verify Fogelson’s coverage”, and Regency alleges that Blue Cross again “confirmed Fogelson’s eligibility”. Relying on this information, Regency provided services to Fogelson “without arranging alternate payment provisions from her.”

This Call Is Being Recorded

An interesting aspect of this case is that the conversations were recorded and the recordings used as evidence.

Resolution of this case is eased considerably due to the existence of a tape recording of the conversation between the parties where Blue Cross’s representations about coverage are expressly memorialized. The recording eliminates any genuine issue of material fact. And the tape recording entirely disproves Regency’s claims and affirms Blue Cross’s defense.

As the recording of the conversation between Blue Cross and Regency reflects, Regency asked if it would receive “usual and customary rates,” i.e., “UCR” rates, and, in response, Blue Cross expressly told Regency that “the Plan pays Maximum Allowable Charge rates.” In that same call, Blue Cross also expressly told Regency that there was a maximum lifetime benefit of $ 1,000,000.

The Litigation

Regency filed a state law action alleged breach of implied contract and estoppel.  Blue Cross removed the case and moved for summary judgment.  At the time the case was resolved, Regency had not amended its complaint to state a case for equitable estoppel under ERISA common law principles, but the Court removed any doubt that Regency had no estoppel case under state or federal law.

The Case For Preemption

Blue Cross argued that Regency’s state law claims are pre-empted by ERISA.  Moreve, Blue Cross contended that Regency could not assert a breach of contract claim and has not pled a cognizable claim for equitable estoppel.

The Court agreed.

Negligent Misrepresentation Claim Rejected

Regency attempted a circumvention of the preemption argument by contending that it did not bring its claims seeking to enforce the terms and conditions of any health benefit plan.  Rather, Regency argued, it based its claim for recovery of its damages for detrimental reliance based upon the words and actions of Blue Cross.

Regency maintains that “ERISA does not preempt state law when the state law claim is brought by an independent, third-party health care provider (such as a hospital) against an insurer for its negligent misrepresentation regarding the existence of health care coverage.” See Miami Valley Hospital v. Community Ins. Co., 2006 WL 2252669 *7 (S.D. Ohio, August 7, 2006) (Rose, J.) (quoting Transitional Hosps. Corp. v. Blue Cross & Blue Shield of Tex., Inc., 164 F.3d 952, 954 (5th Cir. 1999)).

The Court rejected this argument, stating that:

However, Transitional Hospital also held that “a hospital’s state-law claims for breach of fiduciary duty, negligence, equitable estoppel, breach of contract and fraud are preempted by ERISA when the hospital seeks to recover benefits owed under the plan to a plan participant who has assigned her rights to benefits to the hospital.” See Transitional Hosps., 164 F.3d at 954 (emphasis added).

Moreover, the Sixth Circuit has also held that ERISA preempts such estoppel and breach of contract claims. In Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272 (6th Cir. 1991), the Sixth Circuit stated that “ERISA preempts state law and state law claims that “relate to” any employee benefit plan as that term is defined therein.” Cromwell, 944 F.2d at 1275 (citing 29 U.S.C. Sec. 1 144(a) and Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)). As such, the Sixth Circuit has specifically stated that equitable estoppel and promissory estoppel are expressly preempted. Cromwell, 944 F.2d at 1276.

ERISA Estoppel Principles Unavailing
Regency asserted that even if its state law claims were preempted by ERISA, it could maintain an estoppel claim under ERISA. The Court also rejected this argument since the plan language was not ambiguous.
Equitable estoppel under ERISA is not available to override the clear terms of plan documents. Sprague v. General Motors Corp., 133 F.3d 388, 404 (6th Cir. 1998) (en banc). “(A)lthough equitable estoppel may a viable theory in ERISA cases, principles of estoppel cannot be applied to vary the terms of unambiguous plan documents; estoppel can only be invoked in the context of ambiguous plan provisions.” Putney v. Medical Mutual of Ohio, ILL Fed. Appx. 803, 807 (6th Cir. 2004) (citing Sprague, 133 F.3d at 404).
“Consequently, a claimant must plead plan ambiguity in this Circuit to state a claim for estoppel relative to an ERISA claim for benefits.” Marks v. Newcourt Credit Group, Inc., 342 F.3d 444, 456 (6th Cir. 2003).
The Plan Language Was Not Ambiguous
The Court observed that Regency did not assert that plan language was ambiguous, nor that equitable estoppel should apply to assist with the interpretation of the Plan language.
Thus, absent some pleading that the Plan language itself is ambiguous and requires interpretation, the Court finds that Regency fails to plead a threshold element of ERISA-based equitable estoppel.
Note: The elements of equitable estoppel in the Sixth Circuit are:
(1) a representation of fact made with gross negligence or fraudulent intent; (2) made by a party aware of the true facts;  (3) intended to induce reliance or reasonably believed to be so intended; where the party asserting the estoppel is (4) unaware of the true facts; and (5) reasonably or justifiably relies on the representation to his detriment. Trustees of the Mich. Labors’ Health Care Fund v. Gibbons, 209 F.3d 587, 591 (6th Cir. 2007).
The court observed that Sixth Circuit authority holds that reliance will seldom be considered reasonable if counter to the express terms of the plan.
From the opinion, one can see that an allegation of ambiguity is necessary to properly state a claim for equitable estoppel.
Diagnostic Grouping Rates –The language of MAC can be foreign to the provider but it is an important language to learn.
On the first bill of $ 29,078.81, $ 23,022.33 was disallowed for inclusion within the Maximum Allowable Charge because, pursuant to the Plan, the charge exceeded the Diagnosis Related  Grouping Rate. This disallowance left an allowed amount of $ 6,056.48. After deducting Ms. Fogelson’s $ 200 co-pay, Blue Cross properly paid 100% of the $ 5,856.48 balance.
On the second bill of $ 213,648.07, $ 190,401.69 was disallowed for inclusion within the Maximum Allowable Charge because, pursuant to the Plan, the charge exceeded the Diagnosis Related Grouping Rate. This disallowance left an allowed amount of $ 23,246.38. After deducting Ms. Fogelson’s $ 200 co-pay, and $ 3,902.40 in co-insurance, 2 Blue Cross properly paid 100% of the $ 19.143.98 balance.
The opinion is attached to the new case thread on erisaboard.com.

:: Indemnification Provisions: Do They Apply To Excuse A Party’s Own Wrongdoing?

Only after the first tranche of the settlement funds had been distributed was a challenge raised in late January 2007 by a dissatisfied class member as to the accuracy of the distribution. Upon investigating, Hewitt represents that it discovered that an archived computer system used to calculate ESOP class member allocations contained an incorrect share value for January 1, 1998, resulting in overly large losses to participants holding ESOP shares at the start of the class period. As a result, excessive amounts of the settlement proceeds were distributed to them at the expense of other class members who received underpayments.

Enron Corp. Sav. Plan v. Hewitt Assocs., L.L.C., 2009 U.S. Dist. LEXIS 34569 (S.D. Tex. Apr. 23, 2009)

A novel indemnification issue arose in the context of the complex ERISA litigation before U.S. District Court Judge Melinda Harmon in the Texas Southern District.  Can a party invoke an indemnification provision in an administrative services agreement as a defense to its own negligence?

The facts are quite complex, but unnecessary for comprehending the essential issue at stake here.   The litigation is not about the Enron class action settlement, but about mistakes in calculation of entitlement to the settlement funds.

In short, the critical issue is responsibility for losses and expenses resulting from Hewitt’s mistaken calculations for distribution of the first tranche of the settlement funds, as well as for defense of claims brought against Hewitt by Enron Corp. Savings Plan and the Administrative Committee of the Enron Savings Plan.

The procedural posture of the case was motion to dismiss Hewitt’s declaratory judgment action seeking to establish a right to indemnification from Enron under the administrative services agreement.

The Administrative Services Agreement

Enron argued that, under the express terms of the ASA, Hewitt is the only party required to provide indemnification against damages arising out of Hewitt’s own conduct.

Moreover, Enron observes “[i]t would be incongruous indeed for Hewitt to be both obligated to provide indemnification to Enron for Hewitt’s own conduct and entitled to indemnification from Enron for damages resulting from Hewitt’s own conduct. 

 Texas Fair Notice Doctrine

Enron buttressed its argument with a state law contractual doctrine requiring conspicuity in indemnification provisions.

Furthermore, argues Enron, even if Hewitt did state a claim under the ASA for contractual indemnity by Enron for Hewitt’s own conduct, it is unenforceable under Texas’ fair notice doctrine. Under Texas law, a contractual provision to indemnify a party for its own negligence must afford fair notice of its existence.

Actual Notice

Hewitt countered that (1) the ASA not only meets the fair notice requirements, but (2) even if it did not, Hewitt is entitled to demonstrate that Enron had actual notice and knowledge of its obligations to indemnify Hewitt.

The Court Decides

This Court “fully concurred]” with Enron’s reasoning. The Court concluded that “there is no basis for Hewitt’s claim for contractual indemnification for damages Hewitt suffered as a result of its own conduct.”

 Hewitt’s forced pastiche of provisions in the ASA, unconnected by proximity, reference, format, or logic, does not create a clear statement sufficient to indemnify Hewitt for damages arising from its own conduct.

Nor did Hewitt make out well with the fair notice doctrine.

[T]he Court concludes that the ASA fails to satisfy the express negligence doctrine. As the party that drafted the ASA and the party seeking indemnification from the consequences of its own negligence, Hewitt has failed to express clearly and in specific terms within the four corners of the contract the intent of the parties to the ASA to include a viable agreement to indemnify Hewitt for the results of its own negligence.

The Court thus held for Enron, stating:

. . . because the Court has concluded that the ASA does not oblige Enron to indemnify Hewitt for damages to Hewitt resulting from Hewitt’s own conduct, it also concludes that Hewitt fails to state a claim in its Declaratory Judgment Complaint, Third Party Complaint, and Counterclaim for indemnification against Enron for those damages.

Note:   Actual notice being a fact issue, it remains possible for Hewitt to make out a defense on this basis as discovery proceeds in the case.

Because the actual knowledge exception is in the nature of an affirmative defense to a claim of lack of fair notice, the burden is on the indemnitee to prove actual notice or knowledge. U.S. Rentals, Inc. v. Mundy, 901 S.W.2d 789, 792-93 & n.8 (Tex. App.–Houston [14 Dist.] 1995, writ denied); Interstate Northborough Partners v. Examination Management Serv., Inc., No. 14-96-00335-CV, 1998 Tex. App. LEXIS 2824, 1998 WL 242448, *3-4 (Tex. App.–Houston [14 Dist.] 1998); Douglas Cablevision, 992 S.W.2d at 510.

Evidence Showing Notice –  Where actual notice is concerned, the Court noted that:

The indemnitee might meet that burden with evidence of specific negotiation of those contract terms (e.g., by prior drafts), through prior dealings of the parties (e.g., evidence of similar contracts over a number of years with a similar indemnity provision), proof that the provision had been brought to the indemnitor’s attention (e.g., by a prior claim).  Whether an indemnitor had actual notice or knowledge of an indemnity provision is a question of fact. Interstate Northborough, 1998 Tex. App. LEXIS 2824, 1998 WL 242448, *4.

Indemntification Provisions –  Often overlooked, indemnification provisions (like arbitration provisions and choice of venue) are an extremely important issue in review of administrative services agreements.    This case illustrates the range of  unanticipated consequences flowing from these provisions and a good overview of issues for consideration in contract review.

:: Reformation Remedy Held Viable Against ERISA Plan

An Arizona district court refused to dismiss claims for reformaion of an insurance policy in Carbajal v. Dorn, 2009 U.S. Dist. LEXIS 32688 (D. Ariz. Apr. 14, 2009). The opinion provides an interesting perspective on viable claims under ERISA outside the context of a simple claim for benefits.

The dispute arose over life insurance policies issued by Liberty under the terms of an employee benefit plan operated by the plaintiffs’ employer. The policies insured the lives of Plaintiffs Michael and Mary Carbajal (the “Liberty policies”). Claims of wrongdoing were leveled by the plaintiffs at the insurance agents as follows:

David Dorn and the Dorn Agency were Plaintiffs’ agents for purchase of the life insurance policies. Plaintiffs allege that the Dorn defendants conspired with Danny Carbajal (Michael’s brother and Mary’s son) to fraudulently change the ownership of and beneficiary designations on the Liberty policies. Id. Plaintiffs filed suit in Arizona state court on January 9, 2009, alleging breach of fiduciary duty and negligence against the Dorn defendants, and seeking judicial reformation of the Liberty policies to reflect Michael and Mary Carbajal as owners of the policies with their choice of beneficiaries. Id. PP 43-56.

Removal Of The Case

Liberty removed the case  alleging federal question jurisdiction under the Employee Retirement Income Security Act of 1974 (ERISA). Liberty simultaneously moved to dismiss Plaintiffs’ claims against it, arguing that it was not a proper defendant.

Plaintiffs’ Claim for Reformation Under ERISA

Liberty argued that Plaintiffs’ claims arose under 29 U.S.C. § 1132(a)(1)(B), which permits an ERISA plan participant or beneficiary to bring a civil action “to recover benefits due” under the terms of a plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan. This would end the case since actions brought under § 1132(a)(1)(B) “may be enforced ‘only against the plan as an entity and shall not be enforceable against any other person unless liability against such person is established in his individual capacity.'”

 (The defendant cited Everhart v. Allmerica Fin. Life Ins. Co., 275 F.3d 751, 753 (9th Cir. 2001) and Ford v. MCI Commc’ns Corp. Health and Welfare Plan, 399 F.3d 1076, 1081 (9th Cir. 2005) (noting that under section 1132(a)(1)(B), a claimant “may not sue the plan’s insurer for additional ERISA plan benefits”  for this proposition.) 

On the other hand, liability under § 1132(a)(3) is not limited to the plan itself or its fiduciary.

Thus, the plaintiffs countered that they were not seeking damages from Liberty, but only equitable reformation of the insurance policies. If ERISA preemption applied to their claims, the plaintiffs argued that preemption would convert their equitable state claims to claims pursuant to 29 U.S.C. § 1132(a)(3), not claims arising under 1132(a)(1)(B).

The court framed the issue this way:

The question, then, is whether Plaintiffs’ claim for reformation of the policies falls within section 1132(a)(1)(B) or 1132(a)(3). The Court finds both Everhart and Ford distinguishable. In both those cases, plaintiff beneficiaries brought suit under section 1132(a)(1)(B) seeking recovery of benefits under their ERISA plans. See Everhart, 275 F.3d at 753; Ford, 399 F.3d at 1078. 2 That is not the case here. Reformation is a remedy that “can only be characterized as arising under 29 U.S.C. § 1132(a)(3).” Ross v. Rail Car America Group Disability Income Plan, 285 F.3d 735, 740-41 (8th Cir. 2002) (stating that Plaintiff’s request to reform his employer disability plan was not one for benefits under section 1132(a)(1)).

The court held of the plaintiff’s on this critical issue, stating that “Plaintiffs’ claims against Liberty seek equitable relief within the scope of section 1132(a)(3).”

Section 1132(a)(3) Claims Against Non-Fiduciaries

As a fallback position, citing the Ford decision, Liberty argued that, assuming Plaintiffs’ claims are for equitable relief under § 1132(a)(3), “the defendant must be an ERISA fiduciary” to establish a claim for relief. This argument was rejected for several reasons:

#1 Ford’s statement that section 1132(a)(3) relief may only be had against an ERISA fiduciary is in direct conflict with the Ninth Circuit’s opinion in Everhart, which held that “[l]iability under § 1132(a)(3) is not limited to the plan itself or its fiduciary.” Everhart, 275 F.3d at 753 (citing Harris Trust, 530 U.S. at 247). Until an en banc panel reverses course, this Court must follow the Ninth Circuit’s earlier decision in Everhart. See Miller v. Gammie, 335 F.3d 889, 899 (9th Cir. 2003) (holding that neither a district court nor a three-judge panel may overrule a prior decision of the court unless it has been “undercut by higher authority to such an extent that it has been effectively overruled”).

#2 Ford also relies for the quoted proposition on Mathews v. Chevron Corp., 362 F.3d 1172 (9th Cir. 2004), which in turn relies on the United States Supreme Court’s 1996 decision in Varity Corp. v. Howe in stating that “[t]o establish an action for equitable relief under ERISA section . . . 1132(a)(3), the defendant must be an ERISA fiduciary acting in its fiduciary capacity [internal citation omitted], and must ‘violate [] ERISA-imposed fiduciary obligations.'” Mathews, 362 F.3d at 1178 (citing Varity Corp., 516 U.S. at 498, 506). This Court does not believe Varity Corp. can fairly be read to stand for the proposition that equitable relief may only be had against ERISA fiduciaries.

# 3 Even if Mathews contains a fair reading of Varity Corp., the Supreme Court’s subsequent decision in Harris Trust made clear that status as a fiduciary is not required for claims under section 1132(a)(3). See Harris Trust, 530 U.S. at 241 (finding that section 1132(a)(3) “admits of no limit . . . on the universe of possible defendants”). This Court is persuaded that Everhart correctly followed current Supreme Court precedent in finding that section 1132(a)(3) does not limit the reach of equitable remedies to the plan or its fiduciary.

Note: The “catch all” civil remedies provision, 29 U.S.C. 1132(a)(3), provides that a participant, beneficiary, or fiduciary of an ERISA plan may bring a civil action “(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 violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” 29 U.S.C. § 1132(a)(3). It has often been noted in past commentary that the choice of remedies is ever so critical in ERISA cases. In this case, the plaintiffs began in state court, so the complete preemption of their claims actually worked to their advantage in allowing some flexibility in argument as to how their state law claims should be recharacterized. An interesting outcome thus developed from what one might had anticipated to be a mundane preemption case.

:: District Court Holds That Procedural Conflict Results In Expanded Discovery Rights

Two types of potential conflicts can be alleged by a plaintiff, a structural conflict or a procedural conflict. “The structural inquiry focuses on the financial incentives created by the way the plan is organized, whereas the procedural inquiry focuses on how the administrator treated the particular claimant.” Post, 501 F.3d at 162.

A structural conflict arises when an entity “both determines whether an employee is eligible for benefits” and also pays benefits under the plan. Glenn, 128 S.Ct. at 2346. A procedural conflict involves the examination of “the process by which the administrator came to its decision to determine whether there is evidence  of bias.” Post, 501 F.3d at 165 (citing Pinto, 214 F.3d at 393).

Kalp v. Life Ins. Co. of N. Am., 2009 U.S. Dist. LEXIS 7957 (W.D. Pa. Feb. 4, 2009)

In this dispute over long term disability benefits, the district court addressed the scope permissible discovery and the proper standard of review.   Given the procedural irregularities found in the record, the court permitted rather extensive discovery beyond the administrative record.

In addition, the recent Supreme Court decision in MetLife v. Glenn forced the district court to consider that decision’s effect of Third Circuit’s use of a “sliding scale” of heightened scrutiny where the plan fiduciary operated under a conflict of interest.    

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:: The SanDisk Cruzer Micro Puts Gigs Of Info In Your Pocket

One of the most exciting evolutions of flash memory is how the technology is starting to replace the woefully outdated technology found in hard drives. Cutting edge laptops like the MacBook Air and the Dell Inspiron Mini 9 already replace clunky hard drives with “solid-state drives” (SSDs) that are based on flash memory.

“Burney’s Legal Tech Reviews: A Review of the 8GB SanDisk Cruzer Micro

I had just posted my admiration for the Cruzer jump drive in the technology forum of erisaboard.com (“How Many Pages In A Gig?”) when I ran across this article on llrx.com.   I just have a 4 gig, but here’s an 8 gig on Amazon for $ 22.

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:: Strategic Decisions In Pleading (And Defending) Provider Reimbursement Claims – A Case Study

St. Luke’s may amend within thirty days. If St. Luke’s amends to assert an ERISA claim, the personal jurisdiction issue is far simpler.  “[U]nder ERISA’s nationwide service of process provision,” 29 U.S.C. § 1132(e)(2), “[a] court may exercise personal jurisdiction over the defendant if it determines that the defendant has sufficient ties to the United States.” . . . Because BCBSLA has sufficient contacts with the United States, this court would have personal jurisdiction if St. Luke’s were to amend to assert claims under ERISA.

St. Luke’s Episcopal Hosp. v. La. Health Serv. & Indem. Co., 2009 U.S. Dist. LEXIS 388 (S.D. Tex. Jan. 6, 2009) (citations omitted)

This recent opinion from the Southern District of Texas provides an excellent insight into the strategic decisions involved in provider reimbursement litigation. In the final analysis, the provider’s attempt to assert state law remedies in state court against the Blue Cross defendant failed for want of jurisdiction. All was not lost, however, since the ruling left open the avenue for an amended complaint stating a claim under ERISA on principles of derivative standing (via assignment of benefits).

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:: Sixth Circuit Opinions Applying Estoppel In ERISA Cases – An Anthology

Estoppel under ERISA is an equitable doctrine of the federal common law of contracts designed to enforce ERISA and the agreements made under it. Armistead v. Vernitron, 944 F.3d 1287, 1298 (6th Cir. 1991). There are five elements to an estoppel claim under ERISA: (1) a representation of fact made with gross negligence or fraudulent intent; (2) made by a party aware of the true facts; (3) intended to induce reliance or reasonably believed to be so intended; where the party asserting the estoppel is (4) unaware of the true facts; and (5) reasonably or justifiably relies on the representation to his detriment. Trustees of the Mich. Labors’ Health Care Fund v. Gibbons, 209 F.3d 587, 591 (6th Cir. 2007).

Smiljanich v. GMC 2008 U.S. App. LEXIS 24605 (December 5, 2008)

The Sixth Circuit has proven to be receptive to the incorporation of estoppel principles into the federal common law of ERISA.  In this recent unpublished opinion, the Sixth Circuit panel found the requirements of estoppel met.

The Court employed a two part test to find that interim employment with other employers did not defeat the bridging of service credits.

Subjective understanding goes to the reasonable reliance prong of the estoppel claim; the threshold ambiguity determination is concerned not only with reliance but also with ERISA policy. This requires an objective inquiry.

I discussed the case in more detail here.

Additional Information On Estoppel In The Sixth Circuit

Prior Sixth Circuit cases incorporating the estoppel theory include:

  • Thomas v. Miller, 489 F.3d 293 (2007):

Equitable estoppel often operates to prevent a party from contesting an issue of fact or advancing a particular claim or defense.

  • Trustees of the Mich. Laborers’ Health Care Fund v. Gibbons, 209 F.3d 587 (2000):

In past ERISA cases involving a claim of equitable estoppel, we have required a showing of five common-law elements: 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.

  • Armistead v. Vernitron Corp., 944 F.2d 1287 (1991):

Both the LMRA and ERISA authorize the federal courts to fashion a body of federal common law to enforce the agreement that these statutes bring within their jurisdiction. Lingle v. Norge Div. of Magic Chef, Inc., 486 U.S. 399, 403, 108 S. Ct. 1877, 1880, 100 L. Ed. 2d 410 (1988). In Apponi v. Sunshine Biscuits, Inc., 809 F.2d 1210, 1217 (6th Cir. 1987), this circuit incorporated the doctrine of equitable estoppel into the federal common law of contracts, at least in so far as the agreement at issue is before the federal courts under the LMRA

Apponi v. Sunshine Biscuits, Inc., 652 F.2d 643, 649 (6th Cir. 1981), frequently cited in these opinions, was a pivotal case wherein the Sixth Circuit incorporated estoppel into the federal common law of contracts.

Note: The estoppel theory in this cases is often presented as at war with the written plan requirement.  Many feel that the free use of estoppel in the ERISA context undercuts a fundamental policy underlying ERISA.

That point of view is discussed in :: Finding A Median – The Constraint Of Promissory Estoppel Versus The Broad Ambit Of Deferential Review

The counter to this concern, if there is one, seems to lie in limiting the application of estoppel to cases in which the plan terms are ambiguous.

Consider, for example, this observation:

A party’s reliance can seldom, if ever, be reasonable or justifiable if it is inconsistent with the clear and unambiguous terms of plan documents available to or furnished to the party. Otherwise, the court would be permitting estoppel to override the clear terms of plan documents and in the end would be permitting the party to enforce something other than the plan documents themselves, which is prohibited by ERISA.

Crosby v. Rohm & Haas Co., 480 F.3d 423

Class Actions Limitations – The Sixth Circuit has declined to approve class action treatment on the theory, stating:

The plaintiffs’ estoppel theory was even less susceptible to class-wide treatment. HN5An estoppel claim requires proof of what statements were made to a particular person, how the person interpreted those statements, and whether the person justifiably relied on the statements to his detriment. See Part IV, infra; Armistead v. Vernitron Corp., 944 F.2d 1287, 1298 (6th Cir. 1991). Because of their focus on individualized proof, estoppel claims are typically inappropriate for class treatment. See Jensen v. SIPCO, Inc., 38 F.3d 945, 953 (8th Cir. 1994) (estoppel “must be applied with factual precision and therefore is not a suitable basis for class-wide relief”), cert. denied, 514 U.S. 1050, 131 L. Ed. 2d 310, 115 S. Ct. 1428 (1995).

Sprague v. GMC, 133 F.3d 388 (1997)

Nature Of Representations –  In Gibbons, the nature of representations was examined in some detail.  The representation must be more than a careless statement.  The court stated that:

The Sixth Circuit has followed the nation’s highest court in requiring that such representations must contain an element of fraud, either intended deception or “such gross negligence . . . as to amount to constructive fraud.” Brant v. Virginia Coal and Iron Co., 93 U.S. 326, 335, 23 L. Ed. 927 (1876); [**8] see also TWM Mfg. Co., Inc. v. Dura Corp., 592 F.2d 346, 350 (6th Cir. 1979) (requiring a showing of either “misrepresentations, affirmative acts of misconduct, or intentionally misleading silence” to establish estoppel). Fraudulent conduct alone is not enough, however; the party asserting estoppel must not know the truth behind the other party’s representations, see Heckler v. Community Health Servs., 467 U.S. 51, 59 n.10, 81 L. Ed. 2d 42, 104 S. Ct. 2218 (1984), must reasonably rely on the other’s actions, see id. at 59, and must suffer substantial detriment as a result. See Ashwander v. Tennessee Valley Auth., 297 U.S. 288, 323, 80 L. Ed. 688, 56 S. Ct. 466 (1936); see also Teamster’s Local 348 Health and Welfare Fund v. Kohn Beverage Co., 749 F.2d 315, 319 (6th Cir. 1984) (“Estoppel requires a representation, to a party without knowledge of the facts and without the means to ascertain them, upon which the party asserting the estoppel justifiably relies in good faith to his detriment.”).

Welfare Plans Versus Pension Plans – A somewhat dubious distinction has been made between welfare plans and pension plans as follows:

When a party is estopped from asserting a right in a written plan, the plan as enforced is not the same as the plan as written. For this reason, ERISA would seem to preclude application of equitable estoppel to disputes over benefit plans under the statute.

This reasoning applies primarily to cases involving pension plans and is much less cogent when welfare benefit plans are at issue. The reason is that pension benefits are typically paid out of funds to which both employers and employee contribute. Contributions and pay-outs are determined by actuarial assumptions reflected in the terms of the plan. If the effective terms of the plan may [**37] be altered by transactions between officers of the plan and individual plan participants or discrete groups of them, the rights and legitimate expectations of third parties to retirement income may be prejudiced.

This is not necessarily the case with insurance benefit plans. Typically the employer pays policy premiums out of its own assets, perhaps with a contribution from the employee. The actuarial soundness of a fund, which might be depleted if strict vesting and accrual requirements were not observed, is not an issue where a plan of this description is involved. We conclude therefore that in such a case, the purpose of Congress in enacting 29 U.S.C. § 1102(a) would not be frustrated by recourse to estoppel principles, which are generally applicable to all legal actions.

Armistead, at 1300

See also –  For a look at this subject from a Seventh Circuit perspective, see :: Assessing The Value Of A Promise – A Primer On ERISA Estoppel Claims

:: Disclaimer Shields Claims Administrator From Mispresentation Claims

Tenet alleges that it provided approximately $ 241,000 worth of medical services to Sylvester based on UniCare’s representation that Sylvester was covered under the Plan.

. . .  Pursuant to the Managed Care Agreement, UniCare paid Tenet $ 132,827.34, the negotiated payment under the agreement, on July 27, 2005.  On August 5, 2005, Sheltering Arms informed UniCare that Sylvester had been terminated from employment on May 11, 2005, and that her benefits under the Plan terminated on June 1, 2005.

In September 2005, UniCare notified Tenet that it was requesting a refund of the claim payment under the terms of the Managed Care Agreement because Sylvester’s benefits had terminated prior to her admission to the Hospital.

Tenet Healthcare Ltd. v. UniCare Health Plans of Tex., Inc., 2008 U.S. Dist. LEXIS 96324 (S.D. Tex. Nov. 26, 2008)

For some reason it seems that Texas has more than its share of interesting health care provider reimbursement disputes.  More than one landmark decision has been handed down in the Lone Star state, including of course the venerable Hermann Hosp. v. MEBA Medical and Benefits Plan, 959 F.2d 569, 576 (5th Cir. 1992) and its progeny.

This recent case out of the Southern District is one that the payer community can chalk up as a win.

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:: Should ERISA Attorneys Be Held Liable For Aiding & Abetting A Fiduciary Breach?

May an attorney be held liable for aiding and abetting a fiduciary breach? A recent law review article raises the issue and advocates the view.

The article isn’t written for an ERISA audience, but it suggests the idea – should attorneys be held liable for advising ERISA fiduciaries on actions that are found to constitute a fiduciary breach?

From the article:

Applying aiding and abetting liability to breaches of fiduciary duties creates clear liability for those who assist in such breaches. Unless a wealth of close cases exist in which an attorney’s loyalties would be divided between zealously representing a client and protecting him-or herself from a lawsuit, no beneficial policy exists that justifies creating an exception for attorneys who assist clients in breaching a fiduciary duty.

Attorneys who aid or advise clients in perpetrating frauds or engaging in illegal activity may be held liable for their actions, and indeed the attorney-client privilege is not available for communications regarding the fraud or crime. The reasoning behind such a rule is that society rightfully wishes to discourage attorneys from making such suggestions to clients. The same rationale applies to advising clients to breach fiduciary duties. Since such advice is to be discouraged, attorneys who proffer it should be held liable to the extent they cause harm.

See, Kevin Bennardo, The Tort Of Aiding And Advising?: The Attorney Exception To Aiding And Abetting A Breach of Fiduciary Duty, 84 N. Dak. L. Rev. 85 (2008)

(cross posted to erisaboard.com)

:: Reversing ERISA Subrogation Default Rules By The Stroke Of A Pen

The make-whole rule provides that an insurer cannot enforce its subrogation rights unless and until the insured [i. e., Farie] has been made whole by any recovery, including any payments from the insurer.” Copeland Oaks v. Haupt, 209 F.3d 811, 814 (6th Cir. 2000). The make-whole rule is the default rule in the Sixth Circuit. Id. at 813. . . . The rule may be overcome, however, if the language of the ERISA plan expressly disavows it . . .

Farie v. Jeld-Wen, Inc., 2008 U.S. Dist. LEXIS 88893 (N.D. Ohio) (Oct. 31, 2008).  

 Oliver Wendell Holmes said the life of the law has not been logic but rather experience.  I do not subscribe to Holmes’ jurisprudential views on larger issues, but that pithy comment really does describe much of what we learn about ERISA law.

In this recent case, the Sixth Circuit views on necessary plan language are set forth, and the rules applied by the district court should be scrupulously followed by plan administrators  and third party administrators in the Sixth Circuit.

The case presents the typical health plan reimbursement dispute wherein the plan participant, injured in a car accident, obtains a personal injury settlement and then refuses to reimburse the health plan for related expenditures.  The plaintiff sought a declaratory judgment against the plan on the issue which was then joined in earnest when the plan counterclaimed for its reimbursement.

The procedural posture was a motion to dismiss by the plan. 

The plaintiff/plan participant had wheeled out the usual artillery in this arena, the make whole doctrine and the common fund doctrine.  Both fail to have sufficient range when the plan has set up the proper perimeter through appropriate plan language.  And so it was here.

No Make Whole Rule

“The make-whole rule provides that an insurer cannot enforce its subrogation rights unless and until the insured . . . has been made whole by any recovery, including any payments from the insurer”, stated the judge, noting that “the make-whole rule is the default rule in the Sixth Circuit.”

To avoid the rule, the plan language must meet specific requirements.  The court held that the plan language met the applicable standards, noting that “the rule may be overcome . . .  if the language of the ERISA plan expressly disavows it.”

No Common Fund Doctrine

In addition, the judge rejected claims that the plan must reduce its reimbursement for attorneys’ fees.  The court observed that “like the make-whole rule, the Sixth Circuit recognizes that the language of an ERISA plan may disclaim the common fund doctrine.” 

Note:  The simplicity of drafting appropriate plan language to meet challenges such as occurred in this case is increasingly reflected in the common adoption of disavowal language in specimen plan documents.   Nonetheless, the venue of plan administration must also be considered. 

For example, while the Eleventh Circuit imposes a similar “default rule” favoring the make whole doctrine, prudence dictates that the precise means of rejecting the rule should be considered in view of prior Eleventh Circuit caselaw rather than reliance on a boilerplate provision.    Better to have language couched in terms of prior case law than a generic plan provision – in short, experience over logic when it comes to ERISA.

:: Discovery Responses Do Not Support Removal & ERISA Preemption

In the case at bar, Plaintiff is no longer  a participant in Defendant’s ERISA plan and he does not allege a wrongful withholding of benefits.  . . . Plaintiff does not claim that Defendant promised him continued participation in an ERISA plan. Plaintiff stated at his deposition that he thought that Defendant was at least partially motivated to fire him in order to avoid paying him higher pension benefits, which he would have accrued had he continued to work for Defendant.  However, Plaintiff’s statement does not automatically give rise to ERISA preemption.

Black v. Lear, 2008 U.S. Dist. LEXIS 86985 ( E.D. Mich. Oct. 28, 2008)

Plaintiffs walk a fine line when asserting claims under the ADA and state wrongful discharge laws.  This recent district court opinion exemplifies a successful avoidance of ERISA preemption, but not without the trouble of removal and remand.

The problem lies in the natural consequence of termination.  Aside from loss of wages and compensation benefits, the plaitntiff will lose participation in employee benefit plans.  If that becomes an important aspect of the case, the defendant should remove the case as more properly stating an ERISA Section 510 claim.

The trade is not an even one.   ERISA will preempt state law claims while offering in return a weapon with less range, less punch and prone to frequent operator error.

The Snare Is Laid

The motion practice associated with removal of claims offers a journey through one of the last remaining wilderness preserves where trial by ambush may be robustly pursued.  The stakes are high on either side.  If the defendant does not remove within 30 days, the right is lost.  If the plaintiff inadvertently triggers removal, then the complaint is restated as a set of ERISA claims which, as noted above, have inherent limitations.

In this instance, the parties began stalking the issue in depositions.

On July 24, 2008, Defendant deposed Plaintiff. (Def.’s Br. 1). During the deposition Defendant asked Plaintiff whether he claimed that Defendant terminated him to avoid paying him higher pension benefits. (Black Dep. 94-95). Plaintiff answered: “Seems reasonable, yes, to assume that. I don’t know why Lear terminated me. I worked 35 years for the company.” (Id. at 95).

When Defendant asked Plaintiff a second time whether he claimed that he was fired to prevent him from earning higher pension benefits, Plaintiff responded, “That’s right.” (Id.at 98). Defendant followed up by asking Plaintiff if he knew of any facts that support his claim. (Id.) Plaintiff answered, “The only fact I know is that I’m not working there anymore.” Defendant pressed Plaintiff for other facts and Plaintiff said, “And I won’t accrue those benefits.”

In addition, the defendant developed the issue somewhat further by a set of requests for admissions directed a eliciting admissions as to the nature of claims asserted:

The second request asked Plaintiff to admit whether he alleges that Defendant intentionally terminated his employment with the purpose to deprive him of benefits under the Lear Corporation Pension Plan. (Id.) Plaintiff responded: “Denied, such may or may not have been the sole basis. The Complaint alleges multiple basis [sic] for Plaintiff’s termination.” (Id.)

The Claims Evaluated

The defendant having acquired all that could be adduced on the issue, then turned to federal court for an assessment of the results. The plaintiff filed a motion to remand.  The issue was then joined on whether the plaintiff had, in effect, plead an ERISA Section 510 claim.

The district court framed the issue with reference to the key Supreme Court opinion –

In Metropolitan Life Insurance, the United States Supreme Court held that ERISA preempts state common law claims when the action is to recover benefits, enforce rights, or clarify future benefits under an ERISA plan. 481 U.S. at 63-64.

– and then dialed in the applicable Sixth Circuit authority:

In accordance  with Metropolitan Life Insurance, the Sixth Circuit held in Peters v. Lincoln Electric Company, 285 F.3d 456, 467 (2002), that ERISA completely preempted the plaintiff’s state law breach of promise claim because the plaintiff asserted that the defendant breached a promise to continue his participation in an ERISA regulated benefit plan. In Peters, the plaintiff filed a complaint against his former employer alleging age discrimination, breach of contract, detrimental reliance and breach of public policy. Id. at 464.

During the plaintiff’s deposition, the defendant asked the plaintiff a series of questions designed to uncover the specific “unbroken promises” for which the plaintiff sought relief. Id. The plaintiff testified that one of the promises he sued to enforce was the defendant’s promise to continue his participation in its supplemental executive pension plan. Id. at 466.

The Facts Differ

The district court found the Peters case distinguishable.  In the court’s view, the plaintiff had avoided the preemption trip wire and thus was entitled to return to state court.

In the case at bar, Plaintiff is no longer a participant in Defendant’s ERISA plan and he does not allege a wrongful withholding of benefits. See Sears, 884 F.Supp. at 1131-32. Moreover, unlike in Peters, Plaintiff does not claim that Defendant promised him continued participation in an ERISA plan. 285 F.3d at 468. Plaintiff stated at his deposition that he thought that Defendant was at least partially motivated to fire him in order to avoid paying him higher pension benefits, which he would have accrued had he continued to work for Defendant. (Black’s Dep. 95, 98).

However, Plaintiff’s statement does not automatically give rise to ERISA preemption. Plaintiff’s wrongful discharge and age discrimination claims may give rise to an award of damages based on the value of the increased pension benefits Plaintiff would have received if he was not terminated, but he is only seeking the value of the employment he lost, not the benefits themselves. See Morningstar, 662 F.Supp. at 557. The gravamen of Plaintiff’s complaint is his claim that he was discharged in violation of his employment contract, against public policy and as a result of age discrimination. Plaintiff assures the Court that he is not asserting a purposeful deprivation  of benefits claim. (Plaintiff’s Br. 4).

Because the essence of Plaintiff’s state law claims are not for the recovery of an ERISA plan benefit, and Plaintiff only seeks to recovery the value of the benefits he lost as a consequence of his termination, there is no ERISA cause of action. Defendant, therefore, has failed to show that subject matter jurisdiction lies with this Court, and this matter must be remanded to the Wayne County Circuit Court.

Note: The case gives a good discussion of the line of demarcation.  The issue turns on the facts, so analogy to caselaw can be difficult.  This excerpt probably offers the most important guidance that may be gleaned from the opinion and, for that reason, I’ll quote the entire passage:

Both the Sixth Circuit and courts in the Eastern District of Michigan have held that a plaintiff’s state sex, age and race employment discrimination claims are not preempted when the action is merely peripherally related to the ERISA plan in question. See Wright, 262 F.3d at 613 (“‘[e]ven if an action refers to a plan, . . . the action will not relate to the plan for preemption purposes when the action only peripherally affects the plan.” (quoting Crabbs v. Copperweld Tubing Products Company, 114 F.3d 85 (6th Cir. 1997)); Yageman v. Vista Maria, Sisters of the Good Shepherd, 767 F.Supp. 144, 145 (E.D. Mich. 1991)  (Duggan, J.) (holding that plaintiff’s loss of pension benefits was a mere consequence of, and not a motivating factor behind, his termination and, therefore, no ERISA action existed); Sears v. Chrysler Corp., 884 F.Supp. 1125, 1131-32 (E.D. Mich. 1995) (Rosen, J.) (holding that a former employee, who sought to recover the value of the benefits she would have received under the ERISA plan, is not a plan participant and cannot state a § 1132(a)(1)(B) ERISA claim); Morningstar v. Meijer, Inc., 662 F.Supp. 555, 556-57 (E.D. Mich. 1987) (Churchill, J.) (concluding that the plaintiff’s state law claim for breach of employment contract was not preempted when the plaintiff was not a plan participant, did not allege that the defendant fired her to prevent her benefits from vesting, to keep her from exercising rights under the plan or for any other improper purpose, and only sought to recover the value of the benefits).

Thus, in instances where a plaintiff is not a plan participant and is not alleging a wrongful withholding of benefits but seeks damages for the loss of ERISA benefits, an ERISA cause of action does not exist, and removal is improper.

See also – For more on Section 510, see :: Sixth Circuit Permits Claims Under Tolle Rule But Finds Wrong Without Remedy

For more on the timing and factual issues attending ERISA removal, see :: Challenge To Factual Basis Set Forth In Removal Notice Rejected


The ERISA TOOLKIT page has been updated to reflect additional practice pointers for the plan fiduciary. The ERISA TOOLKIT page is divided into three parts:

Part I – Overview

Part II – From A Claimant’s Perspective

Part III – From A Fiduciary’s Perspective

The new material will be found under Part III.

This is a work in progress for community benefit. If you have a tip or suggestion, please feel free to suggest a practice tip.

:: “Substantial Compliance” Saves Deferential Review Standard In Dispute Over Untimely Review Of Appeal: Substantial Compliance Factor Checklist

This case presents the question of what is the appropriate standard of review in an ERISA case when the Claims Reviewer denies an appeal after expiration of the regulatory deadline for decision . . . For the reasons set forth below, the Court HOLDS that the standard of review applicable to this case is the modified abuse of discretion standard rather than de novo review. Hardt v. Reliance Standard Life Ins. Co, — F.Supp.2d —-, 2007 WL 2007941 (E.D.Va.) (July 12, 2007)

In this claim for disability benefits case, the specific issue was whether the applicable standard of review should be the modified abuse of discretion standard or a de novo standard.

Continue reading

:: Protecting Finder’s Fees And Brokerage Commissions – A Contractual Terms Primer

“[A]n agreement is not enforceable as a contract, because of its uncertainty, when any of its essential terms are left unsettled.” . . . When material terms and conditions are not ascertainable, there is no enforceable contract, even if the intent to contract is present.”) (internal citations omitted). Parties do not have an enforceable contract unless, by the terms of the agreement, a court “can require the specific thing contracted for [ ] be done.” . . . Even where the parties have “manifested the intent to make a contract,” failure of the definiteness and certainty requirements may make an agreement unenforceable. . . . We conclude that, as a matter of Illinois law, the letter of May 19th does not contain sufficiently definite and certain terms to constitute an enforceable agreement. . . . In the present case . . . there simply is no statement whatsoever of the consideration ABS will provide for the receipt of commissions. Association Ben. Services, Inc. v. Caremark RX, Inc., — F.3d —-, 2007 WL 2012364, C.A.7 (Ill.) (July 13, 2007)

This case demonstrates that little can be left to the imagination when preparing documentation of a compensation arrangement for facilitating an introduction of a service provider to an employer. In this case, the plaintiff corporation successfully acquired a business prospect, facilitated an introduction of the prospect to a PBM, and ultimately found itself in litigation over the compensation arrangement for its services.

All essential terms to a contract must be documented to avoid disputes and possible invalidation of the agreement. In a service contract, the obligations of both parties should be stipulated as well as the all-important price term. In this case, the price term was documented. The agreement foundered on an ambiguity found by the court as to what the parties agreed to do under the agreement.

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:: Review of Claim Denials (Unit 3): Limitation Of Argument To The Administrative Record

[P]laintiffs filed suit against the Plan on June 14, 2004 to recover benefits under § 502(a)(1)(B) of ERISA. See 29 U.S.C. § 1132(a)(1)(B). The district court certified the class on November 4, 2004, which was later enlarged to include four Spokane plaintiffs. The total amount of benefits sought by Plaintiffs is $6,701,626.32 . . . the Plan’s argument that the WFSP is not arranged by the Company for its employees generally is wholly unsupported and entirely inconsistent with its past practices. It would be unreasonable to deny benefits based on this ground. The Plan has articulated no other rationale for denying benefits, and we can conceive of none that is either apparent or meritorious. Thus, this is a case where a remand is unnecessary and we must award Plaintiffs the benefits to which they are clearly entitled. Flinders v. Workforce Stabilization Plan of Phillips Petroleum Co., — F.3d —-, 2007 WL 1894825 C.A.10 (Utah) (July 03, 2007)

This article follows two previous discussions on the theme of review of claim denials.

:: Review of Claim Denials (Unit 1): The Tenth Circuit Explains Its View On When “Remands” To Plan Administrators May Be Appealed

:: Review of Claim Denials (Unit 2): Disclosure Requirements On Administrative Appeal

As in the previous two units, a Tenth Circuit opinion provides the background for this article.

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:: COBRA Requirements May Apply To Employers Having Less Than 20 Employees

[C]an the doctrine of equitable estoppel bar an employer, who employs fewer than the [COBRA] statute’s threshold of twenty employees, from defending an action on that basis?   As we explain more fully below, the Supreme Court’s decision last term in Arbaugh v. Y & H Corp., 546 U.S. 500, 516 (2006), which held that such an application threshold is an element of a claim rather than a jurisdictional bar, renders this  an open question in our circuit. There is no principled reason we can see, in Arbaugh’s wake, to set such a threshold apart from other elements of claims, which parties generally may concede, be ordered by a court to admit (as in a discovery sanction), or be equitably estopped from contesting. Thus, we hold that equitable estoppel may, in appropriate cases, bar an employer from arguing that it does not satisfy a statute’s numerical application threshold. Thomas v. Miller, — F.3d —-, 2007 WL 1827293 (C.A.6 (Mich.) (June 27, 2007)

Silvia Thomas sued Elmwood Cemetery and Chancey Miller, her former employer and supervisor, respectively, for health benefits under the Consolidated Omnibus Reconciliation Act (“COBRA”). Yet, both parties agreed that Elmwood fell below the statute’s application threshold of 20 or more employees. (See, 29 U.S.C. § 1161(b)).

If the employer does not have 20 or more employees, is a suit based on COBRA possible? Yes, in the view of the Sixth Circuit. The basis for this answer lies in the doctrine of equitable estoppel.

This holding stands for the proposition that, even though an employer may have less that 20 employees, it may be subject to COBRA requirements if the employer has used “conduct or language amounting to a representation” that an employee is entitled to COBRA benefits. If the employer’s insurance contract does not provide COBRA benefits, the employer could be stuck with huge medical bills with no insurance carrier to turn to for reimbursement.

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:: Due Diligence Page Added

Due diligence checklists and articles are collected on the new Due Diligence Page. The page currently contains one of my checklists on selecting services providers, the DOL Fact Sheet on Selecting Service Providers, an article by Scott MacEwen on choosing a health plan consultant, a checklist of ten warning signs, and several links to sites with further resources. Additional checklists, articles and links pertinent to due diligence will continue to be collected on this page.

:: Preparing A Case For Provider Reimbursement – A Due Diligence Checklist

The law governing health care provider reimbursements, assignments, and managed care agreements continues to present one of the most dynamic topics in the ERISA field. A number of the issues raised in recent controversies may be usefully summarized in a topical list.

The evaluation begins with the assumption that applicability of ERISA preemption doctrines (complete or conflict preemption) is the first and often decisive legal issue bearing on whether the provider will be successful or not.

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:: Employee Benefit Websites Page Updated

New additions to the Employee Benefit Websites page:

A real classic in the genre – Janell Grenier’s site at Benefitcounsel.com. The sitemap presents a good overview of the substantial content on Janell’s site.

From time to time I visit the BNA Pension and Benefits Blog. BNA has some fine professionals on their advisory board and the comments from that resource base can be insightful; however, BNA does not offer much free content to practitioners.

FindLaw, on the other hand, provides the best legal website on the web. For some reason, the site includes a political/legal column which is distracting at best. Nonetheless, the free content on the site demonstrates an understanding of how to use the web to promote a commercial endeavor. The site offers employment law case summaries, ERISA articles, and, of course, the free code and case library.

Though not an employee benefits website, LLRX.com provides an excellent legal research aid. LLRX.com describes itself as:

the premier free, independent, one person produced Web journal dedicated to providing legal, library, IT/IS, marketing and administrative professionals with the most up-to-date information on a wide range of Internet research and technology-related issues, applications, resources and tools.

Easier to quote than rephrase. Great site.

:: Employer Malpractice Claims Against Service Providers

Preemption under § 514(a) covers “any and all State laws” that “relate to” an ERISA plan. 29 U.S.C. § 1144(a). What is the implication of that provision for employers that assert state law claims, such as negligence or mispresentation, against service providers to their ERISA plans?

The recent case, Kollman v. Hewitt Associates, LLC, — F.3d —-, 2007 WL 1394503 (May 14, 2007), discussed on this site yesterday, included a holding that the plan participant’s state law malpractice claim against a service provider (actuarial consultants) was preempted by ERISA. While that outcome was predictable, it must be distinguished from a long line of cases holding that negligence claims by employers against non-fiduciary service providers are not preempted.

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:: Employee Benefit Websites

One of the truly great resources provided in this digital age can be found in the enormous quantity of free legal information available on the web. I have started a page on this site dedicated to recognition of professional websites that offer information on insurance and employee benefits issues.

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:: Benefits Fraud & Abuse: Ten Danger Signs

The inherent delay between beginning participation in an employee benefit plan and the delivery of benefits can give rise to substantial delays before plan participants realize that the plan is not working. Nonetheless, warning signs usually precede the onset of troubles and several lists have been compiled to assist.

Here are some simple lists that identify important warning signs.

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:: Ten Pitfalls To Avoid In Claims Administration

What follows are ten frequent claims administration errors that I identified in a seminar presentation yesterday.

  1. Summaries – Ideally, ERISA operates based upon the plan document. Immediately, however, we find the need to summarize. If for no other reason, employers must provide a summary plan description. When we summarize, we omit. When we interpret, we alter. Inattention to document consistency, whether through memoranda, summary plan descriptions or oral statements, contributes largely to the ERISA litigation docket.
  2. PBM contracts – Prescription drug costs represent a huge component of health care costs. Failure to review contracts with the proposed PBM is a significant oversight.
  3. Plan language versus policy language – Far too often, employers make commitments to their employees that are beyond what the insured coverage provides. For example, if a disability policy imposes a waiting period, the employer exposes itself to significant risks by failing to note the condition to coverage. What does the stop loss policy say concerning issues of coverage at year end? What are the dates on which claims must be incurred and paid?  Continue reading

:: Suspension of Employee Without Pay – An Issue Of “Actively At Work” Status

The issue in this appeal is whether an employee, while suspended without pay, was “actively at work” and thus qualified to receive short-term disability benefits under his employer’s ERISA plan. Pollett v. Rinker Materials Corp, — F.3d —-, 2007 WL 442975 (6th Cir. 2007) (February 13, 2007)

What might appear a simple issue drew sharply divided opinions from the Sixth Circuit Court of Appeals. Ascertaining when an employee is “actively at work” has broad implications, thus making the decision one of special interest.

The employer in this case, Rinker Materials Corp. , maintained a self-funded ERISA short-term disability plan that provided up to 70% of an employee’s basic weekly earnings on the fifteenth day of continuous disability, for a maximum of 12 weeks.

The sticking point was that, to qualify for benefits, an employee must be “actively at work” at the time of the disability notice. Continue reading

:: Role of In-House Legal Counsel In Claim Investigation Proper Delegation of Authority

[N]othing set forth in ERISA prohibits plan administrators from relying on information provided by and following the recommendations of either in-house or outside attorneys for the employer who sponsors the plan.

Ford v. Motorola Inc. Involuntary Severance Plan, Slip Copy, 2007 WL 162680 (D. Ariz. 2007)(January 18, 2007)

Plaintiff Jenny Ford claimed benefits under the Motorola, Inc. Involuntary Severance Plan. According to the facts of the case, Ford, having several weeks prior advised her supervisor she would be resigning to take a position at Intel, was nonetheless offered severance benefits under the involuntary severance plan. Upon investigation of Plaintiff’s claim, it was learned that the offer of benefits came about as an error, and the claim was subsequently denied.

Involvement of In-House Legal Counsel

The involvement of in-house legal counsel would form a basis of Ford’s claim that that the plan failed to follow procedural requirements. Continue reading

:: EBSA “Targeting Criteria” Enhancements Lead to Large Enforcement Gains

The Employee Benefits Security Administration (EBSA) reports total monetary recoveries for FY 2006 of more than $1.4 billion. Included in this figure is $829 million in assets restored to plans and benefits recovered for individual workers, “an increase of more than 200% over FY 2001”.

The agency breaks its 2006 recoveries into three categories: Continue reading

:: ERISA Plan Information Requests (Unit 5): Who Is Entitled To Request Plan Information?

This article contains another unit in a series on plan information requests under 29 U.S.C. 1024(b)(4).

Having addressed what plan information is subject to the statute (“Statutory Purpose And Scope”) in Units 1 and 2, we began in Unit 3 a discussion of the question who can request plan information (“Who Is Entitled To Request Plan Information”). This issue seemed best addressed in three parts.

The three subtopics were as follows:

1. Who is a participant or beneficiary? (Unit 3)
2. When may third parties advance statutory claims for participants or beneficiaries? (Unit 4) and
3. Who are the proper parties to whom such requests must be directed?

It is this last question that will concern be taken up in this Unit 5.

By way of background, the statute reads:

The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.

So here we take up the issue of who is an “administrator” for purposes of the request. Since ERISA provides a definition of the term “administrator” the issue would appear rather straightforward.

The definition is as follows:

The term “administrator” means:
(i) the person specifically so designated by the terms of the instrument under which the plan is operated;
(ii) if an administrator is not so designated, the plan sponsor; or
(iii) in the case of a plan for which an administrator is not designated and a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe.

29 U.S.C. 1002 Section 16(A)

As it turns out, however, the determination of who is the administrator can be one of the most tedious of all on this topic. Moreover, the consequences of an error here can make the difference in winning and losing a statutory penalty case. For example, in Hiney Printing.Hiney Printing Co. v. Brantner, 243 F.3d 956 (6th Cir. 2001), the Court stated:

The law in this Circuit is clear that “[o]nly a plan administrator can be held liable under section 1132(c).” VanderKlok v. Provident Life & Accident Insurance Co., 956 F.2d 610, 617 (6th Cir.1992). It is undisputed that the Master Plan Document defines Hiney Printing as the plan administrator, and that Brantner, through counsel, directed her request for plan information to Administrative Service Consultants and Subro Audit, rather than Hiney Printing.

Thus, in that case the Sixth Circuit affirmed the district court’s decision against the plan participant on statutory penalty claims..

As will be seen below, Continue reading

:: Practice Tip – ERISA Cross References

Those of us who routinely cite statutory references face the tedious task of finding parallel U.S.C. references to ERISA statutory provisions. Veterans in area already know that BenefitsLink provides a good resource for this chore. Harvey Frey, Ph.D, J.D., M.D., has also provided a resource for this purpose. And, if you are not familiar with these sites by chance, you should bookmark them now, and visit them at your leisure. Both are monumental contributions to free and accessible ERISA information.

:: Practice Tip: Free Erisa

On FreeErisa, you can review Form 5500 filings and obtain information compiled from that data. From a recent press release:

FreeERISA.com is intended as a useful, website where visitors may view retirement and welfare benefit information on the group or groups of their choice as this data appears on Form 5500 for free. All 5500 forms filed with the United States Department of Labor under the Employee Retirement Income Security Act (ERISA) are open for public inspection. The United States Department of Labor makes this data available to the public. The data on the Form 5500 or schedules, recreated on freeERISA.com, appears exactly as it has been electronically transmitted from the DOL.

For easily accessible information on the ERISA plan filings and much more, this is a site you should bookmark.

>> New Electronic Discovery Rules

[Excerpt] “Although the start date of the new electronic-discovery procedural rules is still three months away, lawyers who haven’t sat down with clients to devise a plan may be losing a race against time.

The intent of the changes to the Federal Rules of Civil Procedure, effective on Dec. 1, is that they catch up with communications technology, which has turned matters of once-routine litigation into discovery nightmares as parties and courts grapple with electronic databases, e-mail, backup tapes and much more.” From The National Law Journal. Continue reading