August 27, 2014

ERISA-Ninth Circuit Holds That Plan Administrator Abused Its Discretion In Refusing To Pay For More Than Three Weeks Of Inpatient Hospital Treatment

In Pacific Shores Hospital v. United Behavioral Health, No. 12-55210 (9th Cir. 2014), an employee of Wells Fargo, whom the Court called Jane Jones, was covered under the Wells Fargo & Company Health Plan (the "Plan"), governed by ERISA. United Behavioral Health ("UBH") is a third-party claims administrator of the Plan. Jones was admitted to Pacific Shores Hospital ("PSH") for acute inpatient treatment for severe anorexia nervosa. UBH refused to pay for more than three weeks of inpatient hospital treatment. UBH based its refusal in substantial part on mischaracterizations of Jones's medical history and condition. PSH continued to provide inpatient treatment to Jones after UBH refused to pay. Jones assigned to PSH her rights to payment under the Plan. PSH sued the Plan and UBH, seeking payment for the additional days of inpatient treatment.

In analyzing the case, the Ninth Circuit Court of Appeals (the "Court"), concluded that that UBH abused its discretion in refusing to pay for these days of treatment, and the Court therefore overturned its decision to pay for more than the three weeks of treatment. Why did the Court reach this conclusion?

The Court reviewed UBH's denial of benefits for abuse of discretion, since the Plan had unambiguously granted discretion to UBH. However, the Court said that it was "painfully apparent" that UBH did not follow procedures appropriate to Jones's case. No PSH hospital records were ever put into the administrative record. No UBH doctor or other claims administrator ever examined Jones. Rather UBH's decision was based entirely on telephone conversations and voicemail messages, and factual errors by certain evaluating doctors.

The Court said, further, that UBH owed a fiduciary duty to Jones under ERISA. UBH fell far short of fulfilling this duty. Dr. Zucker, UBH's primary decisionmaker, made a number of critical factual errors. Dr. Center, as an ostensibly independent evaluator, made additional critical factual errors. Dr. Barnard, UBH's final decisionmaker, stated that he arrived at his decision to deny benefits "after fully investigating the substance of the appeal." He then rubberstamped Dr. Center's conclusions. There was a striking lack of care by Drs. Zucker, Center, and Barnard, resulting in the obvious errors. What is worse, the errors are not randomly distributed. All of the errors support denial of payment; none supports payment. The unhappy fact is that UBH acted as a fiduciary in name only, abusing the discretion with which it had been entrusted. Therefore, reviewing the case for abuse of discretion, the Court concluded that UBH improperly denied benefits under the Plan in violation of its fiduciary duty under ERISA.

August 26, 2014

ERISA-Sixth Circuit Holds That Michigan State Law Which Taxes Claims Paid By, And Imposes Reporting And Other Requirements On, Self-Insured Health Plans Is Not Preempted By ERISA

In Self-Insurance Institute of America, Inc. v. Snyder, No. 12-2264 (6th Cir. 2014), the plaintiff, Self-Insurance Institute of America, Inc. ("SIIA"), represents various sponsors and administrators of self-funded ERISA benefit plans, which it claims are affected by Michigan's Health Insurance Claims Assessment Act (the "Act"). SIIA argues, among other things, that ERISA's express-preemption provision, 29 U.S.C. § 1144(a), prohibits the application of the Act to ERISA-covered entities.

In analyzing the case, the Sixth Circuit Court of Appeals (the "Court") held that the Act escapes ERISA preemption. The Court said, first, that the Act functions by imposing a one-percent tax on all "paid claims" by "carriers" or "third party administrators" to healthcare providers for services rendered in Michigan for Michigan residents."Carriers" include sponsors of "group health plans" subject to ERISA. On top of the tax, every carrier and third-party administrator paying the tax must submit quarterly returns with the Michigan Department of the Treasury and keep accurate and complete records and pertinent documents as required by the Department. Every carrier and third-party administrator must also develop and implement a methodology by which it will collect the tax subject to several conditions.

The Court said, next, that ERISA supersedes any and all State laws insofar as they relate to any employee benefit plan subject to ERISA. 29 U.S.C. § 1144(a). However, the Court found that the Act does not "relate to" any such plan, because the Act does not: (1) interfere with plan administration (the Act does not require a plan administrator to change how it administers the plan at all), (2) create inappropriate administrative burdens (despite requiring the returns and records, since those are not the plan's core functions) or (3) through its residency requirement, interfere with the relationship between the plan and its participants (even though the plan may be required to collect some additional information from participants). As such, ERISA does not preempt the Act.

August 25, 2014

Employee Benefits-Eighth Circuit Rules That The Taxpayer Made A Rollover Contribution To An IRA, Thereby Offsetting Income From An Earlier IRA Withdrawal

In Haury v. Commissioner of Internal Revenue, No. 13-1780 (8th Cir. 2014), the issue arose as to whether the taxpayer ("Haury") had made a $120,000 rollover contribution an IRA, which would offset the income attributable to earlier IRA withdrawals.

In this case, Haury had made certain loans to two companies, which he funded with withdrawals from his IRA account, taken from February 15, 2007 through October 25, 2007 totalling about $425,000, including a withdrawal of $168,000 on April 9, 2007. Haury was less than 59 ½ years old, so his IRA withdrawals were taxable as ordinary income subject to a 10% additional tax. Haury also made a $120,000 contribution to his IRA account on April 30, 2007. The issue is whether that contribution was a qualifying "rollover" that reduced Haury's 2007 taxable IRA-distribution income by $120,000.

The Eighth Circuit Court of Appeals (the "Court") noted that, under Code section 408(d)(3)(A)(i), an individual may exclude an IRA withdrawal from taxable income if it is "rolled over" into an IRA account, by not later than the 60th day after the day on which he receives the withdrawal. An amount less than the entire withdrawal is likewise excluded if it is paid into an IRA, under Code section 408(d)(3)(D). The rollover contribution exclusion does not apply if the distributee used it to exclude another withdrawal from tax in the year prior to the date of the withdrawal in question, under Code section 408(d)(3)(B).

The Court concluded that Haury's April 30, 2007 IRA contribution of $120,000 was made well within 60 days of the April 9 withdrawal of $168,000. There was no previous rollover contribution during the year preceding April 30, 2007. Therefore, the April 30 contribution was a qualifying partial rollover contribution under § 408(d)(3)(D), and Haury is entitled to reduce his taxable 2007 IRA withdrawals by $120,000.

August 21, 2014

ERISA-Fourth Circuit Expresses Its View On Assessing Liability For Breach Of Duty Of Prudence When Liquidating A Plan Investment

Tatum v. RJR Pension Investment Committee, No. 13-1360 (4th Cir. 2014) involved an appeal from a judgment in favor of R.J. Reynolds Tobacco Company and R.J. Reynolds Tobacco Holdings, Inc. (collectively "RJR"). Richard Tatum brought this suit on behalf of himself and other participants in RJR's 401(k) retirement savings plan (collectively "the participants"). He alleges that RJR breached its fiduciary duties under ERISA, when it liquidated two funds held by the plan on an arbitrary timeline without conducting a thorough investigation, thereby causing a substantial loss to the plan.

After a bench trial, the district court found that RJR did indeed breach its fiduciary duty of procedural prudence and so bore the burden of proving that this breach did not cause loss to the plan participants. But the court concluded that RJR met this burden by establishing that a reasonable and prudent fiduciary could have made the same decision after performing a proper investigation. In analyzing the case, the Fourth Circuit Court of Appeals (the "Court") affirmed the district court's holdings that RJR breached its duty of procedural prudence, in that RJR failed to engage in a prudent decision-making process, and therefore bore the burden of proof as to causation. But, because the Court concluded the district court then failed to apply the correct legal standard in assessing RJR's liability, the Court reversed its judgment and remanded the case back to the district court.

What did the Court say about the correct legal standard for assessing liability? The Court said that, to carry its burden and avoid liability for loss, RJR had to prove that despite its imprudent decision-making process, its ultimate investment decision was "objectively prudent," that is, a hypothetical prudent fiduciary would have made the same decision anyway. In making this determination, a court must consider all relevant evidence, including-in this case- the timing of the divestment.

August 20, 2014

ERISA-Sixth Circuit Rules That An Employer Cannot Bring Suit Against Trustees Of A Multiemployer Plan For Negligent Management

In DiGeronimo Aggregates, LLC v. Zemla, No. 12-2095 (6th Cir. Aug. 14, 2014), the plaintiff, an employer who contributes to a multiemployer pension plan governed by ERISA, filed a complaint against defendants, the trustees of that plan, alleging that they negligently managed the plan, causing plaintiff to suffer an increased withdrawal liability when a majority of contributing employers withdrew from the plan. The district court granted defendants' Rule 12(b)(6) motion to dismiss, holding that there was no substantive basis for plaintiff's negligence claim in any section of ERISA or under the federal common law.

After reviewing the case, the Sixth Circuit Court of Appeals (the "Court") said that it agreed with the district court. The plaintiff brings a claim of negligence. The Court said that, acknowledging that a negligence claim is not authorized by any section of ERISA, the plaintiff urges us to utilize our lawmaking powers under the federal common law to create a new negligence claim in favor of contributing employers.

The Court said, further, that is has previously held that the Court's authority to create federal common law in this area is restricted to instances in which: (1) ERISA is silent or ambiguous; (2) there is an awkward gap in the statutory scheme; or (3) federal common law is essential to the promotion of fundamental ERISA policies. Here, none of these conditions are met. Rather, because Congress has established an extensive statutory framework and expressly announced its intention to occupy the field of private-sector pensions, and because the Court does not lightly create additional rights under the federal common law given these circumstances, the Court concluded that a contributing employer to a multiemployer pension plan has no cause of action against plan trustees for negligent management under the federal common law of ERISA pension plans. As such, the Court affirmed the district court's judgment.

August 19, 2014

Employment-Third Circuit Rules That Mailbox Rule Presumption, Of Receipt By Employee Of A Letter Designating Her Absence As FMLA Leave, Is Not Sufficient To Support Summary Judgment Against Employee's FMLA Claims

In Lupyan v. Corinthian Colleges Inc., No. 13-1843 (Third Circuit 2014), Lisa Lupyan ("Lupyan") was appealing the summary judgment rendered by the district court in favor of her former employer, Corinthian Colleges, Inc. ("CCI") on her claims of interference with the exercise of her rights under the Family and Medical Leave Act (the "FMLA" ) and retaliation for her exercise of those rights.

In this case, Lupyan was hired as an instructor in CCI's Applied Science Management program in 2004. In December 2007, in response to the suggestion by her supervisor that she take leave from work since she looked depressed, Lupyan filed a Request for Leave Form. CCI's human resources department determined that Lupyan was eligible for leave under the FMLA.

On December 19, 2007, Sherri Hixson, CCI's Supervisor of Administration, met with Lupyan and instructed her to initial the box marked "Family Medical Leave" on her Request for Leave Form. Hixson also changed Lupyan's projected date of return to April 1, 2008, based upon the Certification of Health Provider provided by Lupyan. Lupyan contends--and CCI does not dispute --that her rights under the FMLA were never discussed during this meeting. However, later that afternoon CCI allegedly mailed Lupyan a letter advising her that her leave was designated as FMLA leave, and further explaining her rights under that act (the Letter"). Lupyan denies ever having received the Letter, and denies having any knowledge that she was on FMLA leave until she attempted to return to work.

Lupyan did not return to work by April 1, 2008. She was advised, on April 9, 2008, that she was being terminated from her position at CCI due to low student enrollment, and because she had not returned to work within the twelve weeks allotted for FMLA leave. Lupyan claims this was the first time she had any knowledge that she was on FMLA leave. This suit ensued, with Lupyan claiming that CCI interfered with her rights under the FMLA by failing to give notice that her leave fell under that act, and that she was fired in retaliation for taking FMLA leave.

In analyzing the case, the Third Circuit Court of Appeals (the "Court") noted that the FMLA regulations require an employer give to employees individual written notice that an absence falls under the FMLA, and is therefore governed by it. 29 CFR § 825.208. Failure to provide the required notice can constitute an interference claim. Here, Lupyan claims that CCI interfered with her FMLA rights by not informing her that her leave was under the FMLA. According to her, she therefore was unaware of the requirement that she had to return to work within twelve weeks or be subject to termination.
The issue in this case is whether Lupyan received the Letter. The law contains a presumption of receipt under the "mailbox rule". Under this rule, if a letter properly directed is proved to have been either put into the post-office or delivered to the postman, it is presumed that it reached its destination at the regular time, and was received by the person to whom it was addressed. However, this is only a rebuttable presumption. Given Lupyan's denial that the Letter was received, and the ease with which a letter can be certified, tracked, or proof of receipt obtained in order to prove delivery, that rebuttable presumption is not sufficient to establish receipt as a matter of law and thereby entitle CCI to summary judgment. Accordingly, given certain consideration about the interference and retaliation claim, the Court reversed the district court's summary judgment, and remanded the case back to the district court.

August 18, 2014

Employee Benefits-A Reminder: Revised Business Associate Agreements Must Be Executed By September 22

Introduction. Generally, under HIPAA, a health plan-including a multiemployer health plan-may disclose protected health information ("PHI") to a business associate only if the plan and the business associate meet several requirements, including the entering of a "business associate agreement" between them. This agreement must reflect the requirements of the HIPAA regulations.

The U.S. Health and Human Services Department (the "HHS") issued, on January 25, 2013, final regulations modifying a number of requirements under HIPAA. These modifications changed some of the requirements for the business associate agreement, so that the plan and business associate are required modify their agreement.

Changes to the Business Associate Agreements. The changes to the requirements for business associate agreements in the final regulations cause the agreements to reflect the following:

1) If the health plan delegates any of its obligations under the HIPAA Privacy Rule to the business associate, then the business associate must comply with the Privacy Rule when carrying out the obligations.

2) The business associate must comply with the HIPAA Security Standards for electronic PHI.

3) The business associate is required to report to the plan any breaches of unsecured PHI, in addition to any security incidents.

4) The business associate is required to enter into an agreement with each of its subcontractors that create or receive PHI for or from the business associate, and this agreement must be substantially similar to the business associate agreement with the plan (a "subcontractor agreement").

Due Date for Revised Business Associate and Subcontractor Agreements. The plan and the business associate were generally required to revise their business associate agreement to reflect the above changes by September 23, 2013. However, a transitional deadline has been available if the plan and business associate had a business associate agreement which:

-- was in place prior to January 25, 2013,

--complied-prior to January 25, 2013- with the HIPAA regulations in effect as of such date, and

--is not renewed or modified from March 26, 2013, until September 23, 2013.

If the transitional deadline applied to a business associate agreement, then such agreement need not be revised to reflect the changes in the regulations until the earlier of: (1) the date on which such agreement is renewed or modified on or after September 23, 2013 or (2) September 22, 2014.

The same regular and transitional deadline apply to subcontractor agreements.
Bottom Line: The revisions to all business associate agreements must be completed and executed by this coming September 22.

August 14, 2014

ERISA-Third Circuit Rules That Plaintiffs' Supplemental Coverage Is Part Of An ERISA Plan, So That State Law Claims Including Fraud Are Preempted By ERISA

In Menkes v. Prudential Insurance Company of America, No. 13-1408 (3rd Cir. 2014), the two plaintiffs were appealing the district court's dismissal of their complaint for failure to state a claim.

In this case, the plaintiffs were employed by defense contractor defendant Qinetiq to work on a military base in Kirkuk, Iraq in 2008. As employees, the plaintiffs were automatically enrolled in Qinetiq's ERISA-covered Basic Long Term Disability, Basic Life, and Accidental Death and Dismemberment insurance policies (the "Basic Policies"). These policies were established pursuant to a single group contract with the Prudential Insurance Company of North America ("Prudential") and Qinetiq paid the premiums for each of these policies on behalf of its employees. Both plaintiffs also purchased, from Prudential, supplemental long term disability insurance coverage, and one plaintiff (Menkes) purchased supplemental accidental death and dismemberment insurance coverage, to augment their benefits under the Basic Policies, paying the premiums for this coverage out of their own funds (collectively, the "Supplemental Coverage"). The Basic Policies and Supplemental Coverage were explained in a single booklet (a "Booklet") and summary plan description ("SPD") for each type of insurance The Booklets and SPDs contained an exclusion for injuries occurring during war.

After Menkes filed a claim for disability benefits which Prudential rejected, and this suit ensued. One of the claims made by the plaintiffs was that Prudential fraudulently induced them to buy the Supplemental Coverage, knowing that any claim they filed would likely be subject to the war exclusion clauses because their place of employment was in a war zone in Iraq. Other state law claims were asserted. They wanted a return of premium for this coverage and punitive damages.

The District Court dismissed the suit in its entirety. It held that the Supplemental Coverage was governed by ERISA and could not be unbundled from the Basic Policies. Viewing the Basic Policies and Supplemental Coverage as closely related component parts of a single plan, it held that all of the plaintiffs' claim of fraud, and the other state law claims they made, were expressly preempted by ERISA's broad preemption clause, § 514(a). In the alternative, it held that the plaintiffs' claims were preempted by § 502(a) of ERISA because the causes of action that the plaintiffs asserted conflicted with ERISA's exclusive civil enforcement scheme. - The Third Circuit Court of Appeals agreed with this analysis, and therefore affirmed the district court's decision.

August 13, 2014

ERISA-Sixth Circuit Holds That A Letter From The Plan Administrator Denying A Benefit Must Include Information On The Time Frame For Filing Suit To Challenge The Denial

In Moyer v. Metropolitan Life Insurance Company, No. 13-1396 (6th Cir. 2014), Joseph Moyer ("Moyer"), a participant in a plan governed by ERISA, appeals the district court's dismissal for untimeliness of his action against the plan's claim administrator, Metropolitan Life Insurance Company ("MetLife"), seeking recovery of unpaid plan benefits.

In this case, as an employee of Solvay America, Inc., Moyer participated in Solvay's ERISA-governed Long Term Disability Plan (the "Plan"). When Moyer applied for disability benefits in 2005, MetLife initially approved his claim, but reversed its decision in 2007 after determining that Moyer retained the physical capacity to perform work other than his former job. Moyer filed an administrative appeal, and MetLife affirmed the revocation of benefits on June 20, 2008. Moyer's adverse benefit determination letter included notice of the right to judicial review but failed to include notice that a three-year contractual time limit applied to judicial review. The Plan's summary plan description (the "SPD") failed to provide notice of either Moyer's right to judicial review or the applicable time limit for initiating judicial review.

On February 20, 2012, Moyer sued MetLife, seeking recovery of unpaid plan benefits under 29 U.S.C. § 1132(a)(1)(B). MetLife moved to dismiss, arguing that the Plan's three-year limitations period barred Moyer's claim. The district court agreed, noting that the plan documents--which were not sent to plan participants unless requested--stated in the Claims Procedure section of the plan that there was a three-year limitations period for filing suit. It concluded that MetLife provided Moyer with constructive notice of the contractual time limit for judicial review. Moyer now appeals, requesting equitable tolling.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that courts uphold contractual limitations periods embodied in ERISA plans as long as the period qualifies as "reasonable." However,the three year time limit, found in the Plan document, for seeking judicial review was not provided to Moyer in the letter revoking his benefits or in the SPD. The Court concluded that, under ERISA's claim procedure (29 U.S.C. § 1133) and the underlying DOL regulations, this time limit should have been included in this letter. The failure to include the time limit violates ERISA, and Moyer is entitled to a judicial review of the benefit denial. Having so concluded, the Court did not need to reach the issue of whether the time limit should have been included in the SPD. Accordingly, the Court reversed the district court's holding, and remanded the case back to the district court to consider Moyer's judicial appeal of his adverse benefit determinatio

August 12, 2014

ERISA-Eighth Circuit Holds That Surcharge, Reformation And Equitable Estoppel Could Be Available To Remedy The Fiduciary's Failure To Provide An SPD

In Silva v. Metropolitan Life Insurance Company, No. 13-2233 (8th Cir. 2014), Abel Silva ("Abel") died on June 27, 2010. His father, Salvador Silva ("Silva"), sought to recover the benefits of Abel's life insurance policy (the policy being the "Plan"). The insurer denied Silva's claim, asserting that Abel did not actually have a policy because he had not provided required paperwork. Silva brought suit against Abel's employer, Savvis Communications Corporation ("Savvis"), and the insurer and plan fiduciary, Metropolitan Life Insurance Company ("MetLife"), under ERISA. The district court denied relief, and Silva appeals.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") noted that the district court granted summary judgment to the defendants because it found that Silva was not entitled to benefits under the Plan. Section 1132(a)(1)(B) of ERISA allows Silva to bring a civil action "to recover benefits due to him under the terms of his plan." The defendants argue that Silva is not entitled to "recover benefits under the terms of his plan" because the terms of the Plan required Abel to submit evidence of insurability as a late enrollee. Silva argues that § 1132(a)(1)(B) entitles him to benefits owed under the Plan. To succeed, Silva must show that MetLife's determination that he had not provided "evidence of insurability" was an abuse of discretion (due to its discretion as plan administrator, with somewhat less deference because of conflict as plan administrator and payor). Since it is not clear as to whether there has been an abuse of discretion, the Court reversed the case and remanded Silva's § 1132(a)(1)(B) claim to the district court for further proceedings.

The Court also faced the question as to whether Silva could add a claim for equitable relief under section 1132(a)(3) of ERISA, based on fiduciary failure to provide a summary plan description (the "SPD")that explained the Plan's enrollment procedures. The district court did not allow this addition, finding that the § 1132(a)(3) claim was futile because Silva sought money damages ($429,000 in policy benefits), rather than equitable relief, which the district court concluded was unavailable under that section of the statute. The Court ruled that the failure to provide the SPD was a breach of fiduciary duty. But does this wrong have a remedy? Under the Supreme Court's decision in Amara, the remedy of surcharge could be available, to provide relief in the form of monetary "compensation" for a loss resulting from a trustee's breach of duty, or to prevent the trustee's unjust enrichment. The remedy is available if the plan participant shows harm resulting from the plan administrator's breach of a fiduciary duty. Since, under the facts alleged, Silva could make such a showing, the Court reversed the district court's determination that a claim under § 1132(a)(3) against the defendants would be futile. The Court also stated, in remanding the case back to the district court, that the remedies of reformation and equitable estoppel could be available under Amara.

August 11, 2014

ERISA-Second Circuit Rules that Claims By A Medical Fund Against Another Fund For Unpaid Contributions Are State Law Breach-Of-Contract Claims, Rather Than Claims Under ERISA

In Silverman, Trustee of the Union Mutual Medical Fund v. Crowley, Docket Nos. 13‐392‐cv(L), 13‐1175‐cv(XAP) (2nd Cir. 2014), the Teamsters Local 210 Affiliated Health and Insurance Fund (the "210 Fund") and its trustees appeal from a judgment of the district court, which awarded approximately $2.5 million to the Union Mutual Medical Fund ("UMM Fund") for unpaid ERISA plan contributions.

In analyzing the case, the Second Circuit Court of Appeals (the "Court") said that, since the 210 Fund was not obligated to contribute funds to the UMM Fund under the terms of an ERISA plan (such contributions were required under a collective bargaining agreement, which is not an ERISA plan), the district court lacked subject matter jurisdiction under ERISA over the claims on which the UMM Fund prevailed. However, because these claims can be construed as state law breach‐of‐contract claims, the Court vacated and remanded the case back to the district court to decide, in the first instance, whether to exercise supplemental jurisdiction and decide the claims under this alternative theory.

August 6, 2014

Employee Benefits-IRS Provides Guidance On Retirement Plan Terminations

In Employee Plans News, Issue 2014-11, August 4, 2014, the Internal Revenue Service ("IRS") provides guidance on retirement plan terminations, including partial terminations. If you are contemplating a plan termination, or think you may be facing a partial termination, you may want to take a look at what the IRS says in this guidance, which may be found here.

August 5, 2014

ERISA-Seventh Circuit Rules That Companies, Which Were Under Common Control With An Employer That Incurred Withdrawal Liability, Are Jointly and Severally Liable For The Withdrawal Liability

In Central States Southeast and Southwest Area Pension Fund v. CLP Venture LLC, Nos. 13-3010 and 13-3776 (7th Cir. 2014), the Seventh Circuit Court of Appeals (the "Court") was asked to determine whether the various co-defendants were under common control, and therefore are jointly and severally liable for the withdrawal liability incurred by General Warehouse, Inc. ("General Warehouse").

In this case, the Central States Pension Fund (the "Fund") had filed suit to collect withdrawal liability, totaling $1,262,568, against General Warehouse, the employer incurring the liability, as well as against GEOBEO and other businesses under common control. The parties to that litigation entered into a consent judgment, acknowledging that the named defendants were jointly and severally liable. The Fund then initiated this action to add the defendants to the group of business entities from which it can collect.

After reviewing the case, the Court found that " there is overwhelming evidence that these entities were under common control" with General Warehouse-since the entities had the requisite common ownership and were trades or businesses. The Court therefore ruled that these entities are jointly and severally liable for General Warehouse's withdrawal liability.

August 4, 2014

ERISA-Second Circuit Rules That New York Law Prohibiting Insurer Subrogation Is Not Preempted By ERISA

In Wurtz v. The Rawlings Company, LLC, No. 13‐1695‐cv (2nd Cir. 2014), the plaintiffs initially filed the complaint in this case in New York state court, seeking, among other things, to enjoin defendant insurers under N.Y. Gen. Oblig. Law § 5‐335 from obtaining reimbursement of medical benefits from plaintiffs' tort settlements (that is, to enjoin the insurers from enforcing subrogation rights to obtain the settlement amounts). The defendants removed this action to the Eastern District of New York. There, the district court granted the defendants' motion to dismiss under Rule 12(b)(6) for failure to state a claim on the basis that the plaintiffs' claims were subject to both "complete" and "express" preemption under ERISA.

Upon review, the Second Circuit Court of Appeals (the "Court") held, first, that the plaintiffs' claims do not satisfy the Supreme Court's test for being subject to complete ERISA preemption (in Aetna Health Inc. v. Davila) , which would have conferred federal subject‐matter jurisdiction. Such jurisdiction exists, however, under the Class Action Fairness Act ("CAFA"), 28 U.S.C.§ 1332(d). Accordingly, the Court then reached the merits of the express preemption defense, and concluded that N.Y. Gen. Oblig. Law § 5‐335 is saved from express preemption under ERISA § 514, 29 U.S.C. § 1144, as a law that "regulates insurance." Accordingly, the Court reversed the district court's judgment and remanded the case for further proceedings on the plaintiffs' claims.

Two points to be considered here. First, the Court ruled that the claims were not subject to complete preemption under ERISA, since-contrary to the requirements of the Supreme Court (in Davila)- the claims could not be construed as claims for benefits under ERISA section 502(a)(1)(B), and there may be independent duties, aside from those arising under ERISA or any employee benefit plan, that the defendants may have breached.

The second point is why N.Y. Gen. Oblig. Law § 5‐335 is not subject to express preemption under ERISA. This provision states that a personal injury settlement presumptively "does not include any compensation for the cost of health care
services" or other losses that "are obligated to be paid or reimbursed by a benefit provider" (such as an insurer), and that benefit providers have no "right of subrogation or reimbursement against any such settling party." ERISA expressly preempts any state law that "relate[s] to any employee benefit plan," but not if that law "regulates insurance." ERISA § 514(a)‐(b), 29 U.S.C. § 1144(a)‐(b). In this case, the N.Y. Gen. Oblig. Law § 5‐335 regulates insurance, since this provision is specifically directed toward insurers and substantially affects risk pooling between
insurers and insureds. As such, it is saved from express preemption.

July 30, 2014

Employment- Second Circuit Rules That Entry-Level Accountants At KPMG Are Exempt From FLSA Overtime Requirements

In Pippins v KPMG LLP, Docket No. 13-889-cv (2nd Cir. 2014), the plaintiffs had sued KPMG LLP ("KPMG") for unpaid overtime wages under the Fair Labor Standards Act ("the FLSA"), 29 U.S.C. §§ 201‐219. The district court granted KPMG's motion for summary judgment on the ground that plaintiffs, employed as entry‐level accountants doing auditing work, were learned professionals exempt from the FLSA's overtime provisions under 29 U.S.C. § 213(a)(1).

In analyzing the case, the Second Circuit Court of Appeals (the "Court") said that the record reveals that plaintiffs were employed in a field of science and learning, that they relied on knowledge customarily acquired by prolonged specialized instruction, and that their work involved consistent exercise of professional judgment, see 29 C.F.R. § 541.301. The Court concluded, therefore, that the plaintiffs were learned professionals. Accordingly, the Court affirmed the district court's judgment.