July 2011 Archives

July 29, 2011

ERISA-Eighth Circuit Rules That Suit Must Be Dismissed For Failure To Exhaust Administrative Remedies

In Angevine v. Anheuser-Busch Companies Pension Plan, No. 10-2832 (8th Cir. 2011), the plaintiff , Richard Angevine ("Angevine"), was appealing the district court's dismissal of his claim for benefits under ERISA. The dismissal was based on the grounds that Angevine had failed to exhaust his administrative remedies.

Angevine had been a participant in the Anheuser-Busch Companies Pension Plan (the "Plan"). The Plan includes a "Change in Control" provision, which makes a participant eligible for enhanced retirement benefits if his or her employment within the employer's controlled group is involuntarily terminated within three years of a change in control. This enhancement consists of an additional five years of credited service and five years of age for purposes of determining pension benefits (the "+5/+5 enhancement"). An event which the parties agree constituted a "Change in Control" occurred. Following this event, Angevine received an email, indicating that he did not qualify for the +5/+5 enhancement. Angevine then filed this suit, in the form of a class action under ERISA, against his employer, the Plan and its trustee. But did Angevine exhaust his administrative remedies?

The Eighth Circuit Court of Appeals (the "Court") said that, before filing a suit to recover benefits or enforce rights under ERISA in federal court, a participant must exhaust the administrative remedies available under the particular plan. The exhaustion requirement is excused only when pursuing an administrative remedy would be futile or there is no administrative remedy to pursue.

In this case, Angevine's allegations do not show that it would have been futile for him to pursue an administrative remedy under the Plan. The futility exception is narrow--the plan participant must show that it is certain that his claim will be denied on appeal, not merely that he doubts that an appeal will result in a different decision. At the time he filed this lawsuit, Angevine had made no attempt to pursue an administrative remedy and the Plan administrator had not denied any similar claims. Angevine's sole basis for alleging futility is the email he received, stating that Angevine is not eligible for the+5/+5 enhancement. Even if the email provides some indication of the position the Plan administrator would take if Angevine had pursued an administrative remedy, it does not show with certainty that the Plan administrator would have denied Angevine's claim for the +5/+5 enhancement upon either initial review or appeal. In this case, the Plan provided an administrative remedy that Angevine could have pursued. In sum, the facts alleged in Angevine's complaint show neither futility nor the lack of an administrative remedy, and the Court concluded that he is required to exhaust his administrative remedies under the Plan before he can bring a civil action in federal court. As such, the Court affirmed the district court's decision.

July 28, 2011

ERISA-Eighth Circuit Rules That Plan Administrator Properly Denied Death Benefits Due To Participant's Intoxication

In River v. Edward D. Jones Co., No. 10-2586 (8th Cir. 2011), Beverly River was the named beneficiary of an accidental benefits plan (the "Plan") that her husband, David Polk, obtained through his employer, Edward D. Jones & Co. After Polk died in a motorcycle accident, the plan administrator, Metropolitan Life Insurance ("Metlife"), determined that Polk was intoxicated at the time of the accident, and denied River's entitlement to a death benefit from the Plan on that basis. River brought suit for this benefit under ERISA, alleging that Metlife had abused its discretion. The district court granted Metlife's motion for summary judgment. River appealed.

On September 22, 2007, Polk and River met with friends at Mark Twain Lake in Ralls County, northwest of St. Louis, Missouri. They ate lunch together and Polk consumed five beers between 11:00 a.m. and 5:00 p.m. He left the campground on a motorcycle. Around 5:25 p.m., he lost control on a curve and was thrown from the motorcycle, striking a tree and sustaining fatal head injuries. The Ralls County coroner's report stated that the cause of death was severe head trauma. In a certified toxicology report issued in October 2007, the Missouri State Highway Crime Laboratory Division stated that Polk's blood alcohol content (BAC) was 0.128%.

The Plan grants Metlife, its claims administrator, the discretion to interpret the terms of the Plan and to make eligibility determinations. The Plan's Certificate of Insurance had an intoxication exclusion for benefits. It stated that "We will not pay benefits under this section for any loss if the injured party is intoxicated at the time of the incident and is the operator of a vehicle or other device involved in the incident." The Certificate also stated that "Intoxicated means that the injured person's blood alcohol level met or exceeded the level that creates a legal presumption of intoxication under the laws of the jurisdiction in which the incident occurred (a BAC of 0.128% exceeds this level in Missouri)."

The Eighth Circuit Court of Appeals (the "Court") noted that when, as here, the plan grants a claims administrator the discretion to determine whether a claimant is eligible for benefits, the administrator's decision on benefit entitlement is reviewed for abuse of discretion. In such case, a court will reverse the claims administrator's determination only if it is arbitrary and capricious. Based on the intoxication exclusion in the Certificate of Insurance by itself (and considering that the Polk's BAC exceeded 0.128%), the Court concluded that Metlife did not abuse its discretion as claims administrator when it denied the death benefit. Metlife reasonably concluded that Polk was intoxicated at the time of the incident resulting in his death, and denied benefits on the basis of the Plan's clear language. As such, the Court upheld Metlife's decision to deny the River the death benefit, and it affirmed the summary judgment granted by the district court.


July 27, 2011

Employment-Second Circuit Rules That A Waiver In A Separation Agreement Bars A Suit Alleging An ADEA Violation.

In Ridinger v. Dow Jones & Company Inc., No. 10-1771-cv (2nd Cir. 2011), the plaintiff sued his former employer, defendant Dow Jones & Company Inc. ("Dow Jones"), seeking monetary and equitable relief for alleged age discrimination in violation of the ADEA. The magistrate judge hearing the case granted summary judgment for Dow Jones. The basis of this decision was a separation agreement between the plaintiff and Dow Jones, which was entered into in connection with the plaintiff's termination of employment, and in which the plaintiff agreed to waive all claims, expressly including claims under the ADEA, that he might have against Dow Jones. The plaintiff appealed.

In this case, when he was a 62-year-old photo editor at Dow Jones' SmartMoney magazine, the plaintiff's employment was terminated. The plaintiff was given a severance package that included 20 weeks' salary and other benefits, in exchange for which he signed a Separation Agreement and General Release (the "Separation Agreement"). The plaintiff received all of the benefits promised to him in the Separation Agreement. The plaintiff then sued Dow Jones, asserting a claim of age discrimination under the ADEA, since- after his termination- the plaintiff's position was filled by a younger employee. Dow Jones' sought to dismiss the plaintiff's complaint, on the grounds that his suit is barred by his voluntary execution of the Separation Agreement, in which he waived all claims. The issue for the Court: is the waiver valid under the ADEA?

The Court said that section 7(f) of the ADEA sets forth rules for a valid waiver. Those rules are strict. The plaintiff challenged the waiver on the grounds that it did not meet the statute's "clarity requirement" (that the waiver must be written in a manner calculated to be understood by the relevant employees), particularly as to his right to sue Dow Jones under the ADEA. The Court rejected this challenge, stating that the waiver, which used the terms "waiver," "release," and "covenant not to sue," did not use or combine those terms in a confusing manner. For example, one part of the waiver refers to covenants not to sue only in stating that the plaintiff agrees not to sue Dow Jones "unless such a covenant not to sue is invalid under applicable law." The waiver gave the plaintiff the right to bring an action challenging the validity of the Separation Agreement itself, but nothing in the waiver could have led the plaintiff to believe that he retained the right to bring an action against Dow Jones under the ADEA. As such, the Court concluded that the waiver met the ADEA's clarity requirement.

The Court rejected several other arguments by the plaintiff as to why the magistrate judge's summary judgment should be overturned, and why the waiver in the Separation Agreement is not valid. As such, the Court ruled that the plaintiff's waiver in the Separation Agreement was valid under the ADEA, and affirmed the magistrate judge's decision.

July 26, 2011

ERISA-Fourth Circuit Holds That An Employer Cannot Reduce Retiree Health Benefits Without Following The Procedure InThe Collective Bargaining Agreement

In Quesenberry v. Volvo Trucks North America Retiree Heathcare Benefit Plan, No. 10-1491 (4th Cir. 2011), the issue was whether a collective bargaining agreement (a "CBA") prevented Volvo from making unilateral changes to retiree health benefits, after the CBA had expired. Upon reviewing this issue, the Fourth Circuit Court of Appeals (the "Court") determined that, as a matter of law, Volvo was not permitted to make these changes, unless it followed the mechanism set forth in the CBA.

The CBA at issue had "Coverage" and "Cost" provisions. The Coverage provision stated that Volvo would continue coverage under the Volvo-UAW health, dental and prescription drug programs (the "Programs") for retiree participants for the duration of this Agreement. The Cost provision specified and limited Volvo's financial obligations towards the Programs' retiree health coverage. It also included a negotiated mechanism to deal with burdensome costs. First, the Cost provision established a VEBA to accept Volvo's contributions and disburse retiree health benefits. Then, the Cost provision said that, in the event that the VEBA was projected to be exhausted within a calendar year, Volvo and the UAW were required to meet to discuss how to reduce healthcare costs. If those negotiations proved unsuccessful, Volvo could charge each retiree for any costs over the limits set forth in the Cost provision.

Volvo later announced that it intended to reduce the Programs' retiree health coverage . This suit ensued under the LMRA and ERISA, on behalf of Volvo employees who had retired prior to the expiration of the CBA. In analyzing the case, the Court said that, to determine whether retiree health benefits must continue after the expiration of the CBA, the Court must determine the intent of the parties to the CBA, as evidenced by the CBA's language. Here, the Cost paragraph, and its negotiated mechanism to deal with burdensome costs, was intended to prevent Volvo from making unilateral changes after the CBA had expired. In particular, the VEBA was not projected to be exhausted, thus triggering the mechanism, until nine years after the CBA was to expire. The CBA required Volvo to make a large contribution ($1.585 million) to the VEBA, providing about 40% of its assets, on the very last day of the CBA's term, making it almost impossible for the VEBA's assets to run out prior to the CBA's expiration. Also, unlike the Coverage provision in the CBA, the Cost provision does not contain any "durational" language (e.g., the provision declares itself to apply only for the life of the CBA). As such, the Court concluded that the parties intended that Volvo could not unilaterally reduce the Programs' retiree health coverage, but can make reductions only pursuant to the CBA's negotiated mechanism.


July 25, 2011

ERISA-New York Supreme Court Holds That Spouse's Waiver of Retirement Benefits In A Separation Agreement Requires That She Returns The Benefits She Received To Her Husband's Estate

In Hess v. Wojcik-Hess, 2011 NY Slip Op 06006 (Appellate Division of the Supreme Court of New York, Third Department, July 21, 2011), Robert C. Hess (the "Decedent") and defendant Karen J. Wojcik-Hess (the "Defendant") were married in 1993. In the separation agreement they signed in 2006, the Defendant waived any claim or interest in the Decedent's retirement savings and pension plans. One year later, the Decedent died.

Prior to his death, the Decedent had not designated any individual as the beneficiary of his savings and security program account or personal pension account with his employer, defendant General Electric Company ("GE"). The Defendant was the Decedent's beneficiary according to GE's plan documents, since she was decedent's spouse (they had separated, not divorced). Upon his death, GE began to distribute the proceeds of those accounts to the Defendant. The Plaintiff, upon being appointed executor of the Decedent's estate, requested that the Defendant turn over the proceeds of the accounts to the estate. When she refused, the Plaintiff commenced this action in New York state court against defendant and GE, seeking those proceeds on the state law grounds that Defendant had breached the separation agreement and was unjustly enriched.

GE removed the case to federal court, on the basis that the matter was controlled by ERISA. The district court determined that GE was required under ERISA to distribute the account funds to the Defendant. The district court then remanded the case back to state court, to decide the Plaintiff's state law claims. The case wound up in the Appellate Division of the New York State Supreme Court (the "Court"). The Court said that the Defendant was bound by the district court's ruling, which implied that ERISA did not preempt her state law claim. As to that claim, in the separation agreement, the Defendant had waived her right to any portion of decedent's pension and retirement savings accounts. This waiver was explicit, voluntary and made in good faith. As such, It to precludes the Defendant from retaining the retirement savings and pension plan account proceeds that GE had paid to her. Accordingly, the Court ruled that the Defendant had to turn these proceeds over to the Decedent's estate.

July 23, 2011

Employee Benefits- New York's Marriage Equality Act Affects Employee Benefits

The New York State Marriage Equality Act (the "Act") becomes effective as of tomorrow, July 24, 2011. The Act allows same-sex couples to be married in New York State. In general, it will also provide same-sex couples, married in New York or any other State, with the same legal rights and protections under New York State law that are afforded to married opposite-sex couples. One important question: does the Act apply to employee benefits offered at work? No and Yes.

Where The Act Will Not Apply. Some plans are subject to the requirements of ERISA and, in some cases, the Federal Defense of Marriage Act (the "DOMA"). For these plans, ERISA would preempt the Act. Also, when applicable, the DOMA says that, for purposes of Federal laws, a "spouse" is solely a husband or wife in an opposite sex marriage. Thus, the Act will not apply to these plans. Such plans include tax-qualified retirement plans (e.g., pension and 401(k)), nonqualified retirement plans, self-insured health plans and other self-insured welfare plans. The Act would also not apply to welfare plans funded with an insurance policy not subject to New York State law.

Where The Act Will Apply. ERISA does not preempt State insurance law. Thus, the Act will apply to a health care plan, or any other welfare plan, which is insured by a policy subject to New York State law. Accordingly, if the plan offers health care coverage (or any other type of coverage), or affords any other right or benefit, to a "spouse", it must offer this coverage, right or benefit to the spouse of a same-sex marriage. Note that, unless the same-sex spouse is a dependent for purposes of federal income taxation, due to DOMA: (1) the cost of health care coverage provided, and any medical benefits paid, to the spouse of a same-sex marriage will be taxable for federal income tax purposes, and (2) an employee cannot purchase health care coverage for a same-sex spouse with pre-tax dollars under a cafeteria plan. The New York State taxation of health care coverage and medical benefits provided to same-sex spouses is not clear. It appears that the State will soon provide guidance on this matter.

Any questions?

July 22, 2011

ERISA-Fifth Circuit Holds That A Plan Administrator May Not Refuse To Treat A Court Order As Being A QDRO, Based On Its Determination That The Underlying Divorce Is A Sham

In Brown v. Continental Airlines Inc., No. 10-20015 (5th Cir. 2011), the issue was whether ERISA allows a retirement plan administrator to seek restitution of benefits that were paid to a plan participant's ex-spouse, pursuant to a qualified domestic relations order (a "QDRO"), if the administrator subsequently determines that the QDRO is based on a "sham" divorce and is therefore not valid . The district court in this case had ruled that ERISA does not authorize an administrator to consider or investigate the subjective intentions or good faith underlying a divorce, so restitution may not be sought. The Fifth Circuit Court of Appeals (the "Court") agreed and affirmed the district court's decision.

Continental Airlines Inc. ("Continental") had alleged that the pilots and spouses obtained "sham" divorces for the purpose of obtaining lump- sum pension payments from the Continental Pilots Retirement Plan ("the Plan"), which they otherwise could not have received without the pilots' separating from their employment with Continental. By getting divorced, the pilots and spouses were able to obtain QDROs, which assigned 100% (or, in one instance, 90%) of the pilots' pension benefits to the spouses. The Plan provides that, upon divorce, if the pilot is at least 50 years old (as all the pilots in this case were), an ex-spouse to whom pension benefits are assigned can elect to receive those benefits-in the form of a lump-sum payment- even though the pilot continues to work at Continental. The pilots and spouses presented the QDROs to Continental and requested the lump-sum payments to the spouses. After the spouses received the benefits, the couples remarried. Proceeding as such, a pilot could receive his entire benefit under the Plan, without having to end his employment with Continental.

Continental had maintained that the divorces were a sham, so that the QDROs were not valid and the benefits paid to the spouse should be returned to the Plan. In analyzing the case, the Court said that Continental's claims depend on, among other things, the proposition that a plan administrator has the authority to refuse to treat a court order as being a QDRO, based on its determination that the underlying divorce is a "sham." The Court rejected this proposition. It said that Section 206(d)(3) of ERISA requires an administrator to determine that a court order is a QDRO if it satisfies all the statutory criteria, and the participants' good faith in obtaining a divorce is not among those criteria. As such, the Court rejected Continental's claim for restitution to the Plan of the lump-sum payments made to the pilots' spouses.

July 21, 2011

ERISA-Seventh Circuit Rules That A District Court Has Subject Matter Jurisdiction Over An Employer's Suit For Declaratory Judgment That Its Reduction Of Retiree Health Benefits Did Not Violate ERISA

In NewPage Wisconsin System Inc. v. United Steel, Paper & Forestry, Rubber, Manufacturing, Energy Allied Industrial and Service Workers International Union, AFL-CIO/CLC, No. 10-2887 (7th Cir. 2011), the plaintiff/ employer had maintained a retiree health plan (the "Plan") for its current and former workers, pursuant to a series of collective bargaining agreements between the plaintiff and the defendant /union. As a cost savings measure, the plaintiff eliminated a subsidy under the Plan for the medical care of retirees who are 65 or older. The plaintiff brought this suit, as a fiduciary of the Plan, asking for a declaratory judgment that the elimination of this subsidy did not violate ERISA (among other statutes). The district court dismissed the suit, on the grounds that it did not have subject matter jurisdiction over the ERISA claim. Its theory was that section 502(a) (3) of ERISA does not authorize relief when "plan administrators. . . seek declaration of their right to reduce or deny benefits." The plaintiff appealed. The issue for the Seventh Circuit Court of Appeals (the "Court"): was the district court correct as to the absence of subject matter jurisdiction?

One important note-the defendant/union had brought its own, separate suit on this matter, claiming (among other things) that the elimination of the subsidy should be remedied under section 502(a)(3) (the "Parallel Suit) (this suit has been dismissed).

The Court in this case noted that section 502(a)(3) of ERISA states that a civil action may be brought "by a participant, beneficiary, or fiduciary . . . to obtain appropriate equitable relief" or to enforce any terms of the plan. Here, the plaintiff, acting as a fiduciary of the Plan, wants the district court to declare that the changes it made to the Plan are consistent with its legal obligations. The plaintiff's request does not ask for equitable relief, or asks the court for help in enforcing the Plan.

However, subject matter jurisdiction depends on a claim arising under federal law, not on whether a particular remedy is available or whether a claim is sound on the merits. Section 502(e) of ERISA gives the district court jurisdiction over ERISA matters. A federal district court is the right forum for a dispute about the meaning of ERISA and the validity of changes to a welfare benefit plan, such as the Plan. The underlying controversy is a claim by the union/defendant -actually made in the Parallel Suit- that the elimination of the Plan's subsidy should be remedied under section 502(a)(3). A district court had jurisdiction over the Parallel Suit under section 502(e), the district court in this case has subject matter jurisdiction under ERISA over this suit for a declaratory judgment by the plaintiff/employer. As such, the Court vacated the district court's dismissal of the case, and remanded the case back to the district court.

July 19, 2011

ERISA-D.C. Circuit Court Rules That Plaintiffs Are Entitled to Interest Due To A 45-Day Delay In Making Lump Sum Benefit Payments

In Stephens v. US Airways Group, Inc., No. 10-7100 (D.C. Circ. 2011), the plaintiffs are retired U.S. Airways pilots. Each received a pension from the U.S. Airways pension plan ("the Plan"), and had elected to receive his pension in the form of a single lump sum payment rather than as an annuity. In accordance with the terms of the Plan, those lump sums were paid by the Plan 45 days later than the plaintiffs would have received their first checks, had they chosen the annuity option. The plaintiffs sued U.S. Airways, claiming the Plan owed them interest for its 45-day delay. The district court disagreed, and the plaintiffs appealed. The question: are the plaintiffs entitled to the interest?

The plaintiffs claimed that, unless the interest for the 45-day period is paid, the lump sum amounts they received were worth less than the annuities they could have elected, violating the actuarial equivalence requirement of section 204(c)(3) of ERISA. Here, the lump sums were calculated to be the actuarial equivalent of the annuities, as of the date on which payment of the annuities would have begun. This meets section 204(c)(3). IRS regulations do allow a reasonable delay in making the lump sum payments. 26 C.F.R. § 1.401(a)-20 (Question & Answer 10(b)(3)).

The issue becomes whether the 45-day delay in making the lump sum payments in this case was reasonable. The Court concluded that it was not. The 45-day delay appears unrelated to the time needed administratively to calculate and pay out the lump sums. Further, the plaintiffs' expert provided evidence that, in practice, pension plans deem delays of 30 days or less--not 45 days--as "reasonable." Thus, the plaintiffs are entitled to interest. How much? The Court remanded the case back to the district court to make this determination.


July 18, 2011

ERISA-Seventh Circuit Holds That Failure To Include A Self-Reported Symptoms Limitation In The SPD Prevents The Insurer From Using It To Stop Paying Long-Term Disability Benefits

In Weitzenkamp v. Unum Life Insurance Company of America, Nos. 10-3898, 11-1006 (7th Cir. 2011), the plaintiff had been diagnosed with fibromyalgia, chronic pain, anxiety, and depression. She was awarded long-term disability benefits under an employee benefits plan ("the Plan") issued and administered by the defendant, Unum Life Insurance Company ("Unum"). These benefits were discontinued after payment for twenty-four months, when Unum determined that the plaintiff had received all to which she was entitled under the Plan's self-reported symptoms limitation. Further, since the plaintiff had retroactively received social security benefits, Unum also sought to recoup equivalent overpayment of the Plan's benefits, as provided by the Plan. On appeal to the Seventh Circuit Court of Appeals (the "Court"), the plaintiff challenged the application of the self-reported symptoms limitation to her case, and argued that Unum's claim for overpayment is barred because the Social Security Act prohibits attachment or garnishment of social security payments.

In this case, the Plan provides that benefits cease after twenty-four months for those with "[d]isabilities, due to sickness or injury, which are primarily based on self-reported symptoms". According to the Plan, self-reported symptoms are "the manifestations of your condition which you tell your doctor that are not verifiable using tests, procedures or clinical examinations standardly accepted in the practice of medicine." Unum felt that this limitation on benefits applies to the plaintiff, who was suffering from diseases- notably fibromyalgia and chronic pain - not (at that time) thought to be verifiable through testing. On the other hand, the summary plan description for the Plan (the "SPD") did not mention the self-reported symptoms limitation. The Court ruled that Unum's failure to include this limitation in the SPD estops it from relying on this limitation to stop paying benefits under the Plan. The court said that the SPD failed to "reasonably apprise" the plaintiff of the self-reported symptoms limitation, and this limitation is relevant to a wide spectrum of plan participants. The SPD does not meet the applicable requirements of ERISA, and estoppel is warranted.

As to the recoupment issue, the Court noted that Section 207(a) of the Social Security Act controls. That section states that social security benefits shall not "be subject to execution, levy, attachment, garnishment, or other legal process." Under this rule, while Unum cannot impose a lien directly on the plaintiff's social security benefits, Unum instead seeks an equitable lien on specific funds it paid the plaintiff under the Plan. Those amounts came from the Plan, not Social Security. The Court ruled that neither section 207(a), nor any other provision in the Social Security Act, bars Unum's recovery of the Plan's overpayments.

July 14, 2011

ERISA-EBSA Postpones Effective Dates Of New Fee And Investment Disclosure Rules

According to a Press Release (July, 13, 2011), the Employee Benefits Security Administration (the "EBSA") has postponed the effective dates for the EBSA's retirement plan fee and investment disclosure rules.

The Press Release says that the EBSA had published a regulation under ERISA Section 408(b)(2) on July 16, 2010. This regulation requires covered service providers of retirement plans to disclose comprehensive information about their fees and potential conflicts of interest to the fiduciaries of those plans. This regulation was to become effective with respect to plan contracts or arrangements for services in existence on or after July 16, 2011. However, a new regulation issued by the EBSA postpones the effective date to April 1, 2012.

The Press Release further says that the EBSA had published a participant-level regulation on Oct. 20, 2010. This regulation requires that employers disclose information about plan and investment costs to workers who direct their own investments in 401(k) plans and other individual account retirement plans which are subject to ERISA. This regulation generally applies in plan years starting on or after Nov. 1, 2011. However, the regulation had contained a 60-day transition rule, that permitted initial compliance no later than 60 days after the start of the first plan year beginning on or after Nov. 1, 2011(the "original transition effective date"). The EBSA's new regulation revises the 60-day transition rule, so that the participant-level regulation does not become effective, and the initial disclosures are not required (subsequent disclosures are quarterly), until 60 days after the later of (i) the original transition effective date, or (ii) the effective date of the Section 408(b)(2) regulation.

July 12, 2011

ERISA-Fifth Circuit Upholds Dismissal Of Former Pilot's ERISA Claims For Lack Of Subject Matter Jurisdiction

In Bowcock v. Continental Airlines, Inc., No. 10-20856 (Fifth Circuit 2011), the plaintiff, a former pilot for defendant Continental Airlines, Inc. ("Continental"), had sued Continental under ERISA. The plaintiff claimed that Continental had breached its fiduciary duty under ERISA to provide truthful and complete information in response to his question about an employee benefit plan. This obtained, the plaintiff alleged, because Continental had wrongly advised him that he could not retire under an early retirement window offered by Continental unless he gave up certain pension claims. The district court dismissed the plaintiff's claim for lack of subject matter jurisdiction under ERISA, and the plaintiff appealed. Was the district court right?

In analyzing the case, the Fifth Circuit Court of Appeals (the "Court") noted that the Railroad Labor Act ("RLA"), 45 U.S.C. §§ 151-88, vested exclusive jurisdiction over "minor disputes" brought by airline employees with regional adjustment boards. Consequently, if the plaintiff is an "employee" with a "minor dispute", the plaintiff's claim was subject to mandatory arbitration under the RLA , and the district court lacked subject-matter jurisdiction over that claim under ERISA . The Court ruled that the plaintiff is an "employee" for this purpose, even though he had retired before filing suit. Relying on the Supreme Court's decision in Pennsylvania Railroad Co. v. Day, 360 U.S. 548 (1959), the Court held that a retired employee, whose claim arose while he was in the service of the carrier, is an employee under the RLA. The Court implicitly held that the plaintiff is involved in a "minor dispute." As such, the Court affirmed the district court's decision.

July 10, 2011

Employment-Eighth Circuit Holds That Eleventh Amendment Bars Suit Against the State of Iowa For An FMLA Violation

In Quinnett v. State of Iowa, No. 10-2870 (8th Cir. 2011), the plaintiff had brought suit against the State of Iowa, the Iowa Department of Administrative Services (the "DAS"), and two officials of the DAS, alleging violation of the Family and Medical Leave Act (the "FMLA").

The plaintiff is a former employee of the DAS. He suffered from various medical problems during his emplyment with the DAS. He took leave from work under the FMLA to take care of these problems, under the FMLA's leave entitlement provisions to care for serious health conditions (the FMLA's "self-care provision"). The plaintiff alleges that the defendants eventually asked him to apply for long-term disability benefits rather than take more FMLA leave, and then terminated him while claiming that he had resigned. The plaintiff then brought this suit against the defendants, alleging that they had interfered with his FMLA leave and retaliated against him for exercising his rights under the FMLA. The district court granted the defendants' motion to dismiss the complaint on the ground that the Eleventh Amendment barred the plaintiff's FMLA claims against all of the defendants, and the plaintiff appealed. The question for the Eighth Circuit Court of Appeals (the "Court"): did the State of Iowa waive its Eleventh Amendment immunity with respect to suits brought under the FMLA's self-care provision?

In analyzing the case, the Court said that the Eleventh Amendment confirms that States entered the Union with their sovereign immunity intact, and thus may not be sued in federal court without their consent (unless Congress has validly abrogated the immunity). A State may waive the immunity by making a clear declaration that it intends to submit itself to the jurisdiction of the federal courts. Here, the State made FMLA leave available to employees. However, nothing in the state regulations, a DAS "Benefit Guide," or the DAS benefits website clearly declares the State's intent to submit itself to federal-court jurisdiction on FMLA matters. The Court noted that the DAS benefits website, in its section on the FMLA, does state that "[e]mployees may also bring a private civil action against an employer for violations," but it does not specify that such an action may be brought in federal court. The Court said that a State does not consent to suit in federal court "by stating its intention to sue and be sued or even by authorizing suits against it in any court of competent jurisdiction." As such, the Court ruled that the Eleventh Amendment bars the plaintiff's suit and affirmed the district court's decision.

July 7, 2011

ERISA-Eleventh Circuit Remands A Case To Determine The Remedies Available In Light of CIGNA Corp. v. Amara

In Rosario v. King & Prince Seafood Corporation, Nos. 10-11967, 10-12104 (11th Cir. 2011) (Unpublished Opinion), the Eleventh Circuit Court (the "Court") agreed with a district court's decision to reject the plaintiff's claims under section 502(a)(1)(B) of ERISA (which generally allows a participant to sue for benefits) . However, the Court remanded the case back to the district court to determine whether a remedy exists under section 502(a)(3) of ERISA (which generally allows equitable relief), in light of the Supreme Court's decision in Cigna Corp. v. Amara ("Amara").

The Court did not indicate what language in Amara influenced its decision to remand this case. The Court said only that Amara, issued after the district court's decision in this case, has provided more guidance with respect to the interpretation of section 502(a)(3). The issue in this case revolved around whether the fiduciaries of an ESOP had breached their fiduciary duties by providing participants with incorrect and untimely notices and election forms pertaining to their ESOP benefits, leading to a violation of the "consent rule" under the Code and ERISA (requiring a plan to obtain a participant's timely consent to a benefit payout). Presumably, it is this breach of fiduciary duty that might be remedied under section 502(a)(3), as interpreted by Amara.

July 7, 2011

ERISA-DOL Says That PTE 86-128 Applies To An Investment Advisor

In Advisory Opinion 2011-08A, the Department of Labor (the "DOL") provided guidance on the application of Prohibited Transaction Class Exemption ("PTC") 86-128. That PTC generally allows a person, who is a fiduciary with respect to a plan or an affiliate of such a fiduciary, to engage in a securities transaction for a fee as an agent on behalf of the plan. In this Advisory Opinion, the DOL said that the PTC applies when that person is a fiduciary by reason of rendering investment advice to a plan, under section 3(21)(A)(ii) of ERISA. Apparantly, this will continue to apply after the proposed changes to the regulations under that section (issued on October 22, 2010) are finalized

The DOL warns that a fiduciary or an affiliate who receives a fee for executing a securities transaction, which is carried out in accordance with the fiduciary's investment advice, would be using its authority as a fiduciary to cause the plan to pay a fee, within the meaning of section II(a) of PTC 86-128. As a result, that fiduciary or affiliate would be engaging in a prohibited transaction unless the conditions of the PTC are met.

July 5, 2011

ERISA-Second Circuit Rules That A Participant Cannot Change The Form Of His Pension Payment Due To Abandonment By His Spouse

In Zangara v. International Painters & Allied Trades Industry Pension Fund, No. 10-1825-cv (2nd Cir. 2011) (Summary Order), the plaintiff's pension was being paid in the form of a joint and survivor annuity, apparently with his spouse as the survivor annuitant. After his spouse abandoned him, the plaintiff wanted to change to form of payment, presumably to a life annuity since the payments under that form would be higher (because there is no survivor annuity). However, the defendant, the International Painters & Allied Trades Industry Pension Fund (the "Fund") would not make this change, and the plaintiff brought suit against it under ERISA. The district court granted summary judgment in the Fund's favor, and the plaintiff appealed. The question for the Second Circuit Court (the "Court"): could the Fund be required to change the form of the plaintiff's pension payment from a joint and survivor annuity to a life annuity?

On appeal, the plaintiff argued that the Fund breached a fiduciary duty owed to him under ERISA by, among other things, (1) failing to alter the form of his pension payments, prior to the start of the payments, despite making timely oral requests to do so after his wife had abandoned him and (2) citing authority contrary to his position in denying his request. The Court noted that it could reject the breach of duty argument on the grounds that the plaintiff did not make it in the district court. Nevertheless, the Court answered the argument as follows.

The Fund clearly indicates--both in its Summary Plan Description ("SPD") and its plan document--that waiver of the joint and survivor annuity form of payment must be made by written request, accompanied by a notarized spousal consent. Without such a waiver, a participant's pension is automatically payable in that form. Moreover, the Fund had provided the plaintiff with a waiver form, but the plaintiff expressly selected the joint and survivor annuity on that form. Further, the Fund did not breach any fiduciary duty to the plaintiff by citing authority contrary to his position in rejecting his request to alter the form of his pension payments. A plan is not required to recognize a waiver of payment form or other benefits through external documents-other than a qualified domestic relations order (a "QDRO")- if the form of the waiver conflicts with plan documents (here, the plaintiff had a divorce decree and a court order, neither of which constituted a QDRO or presented a waiver in the form or at the time required by the Fund). In short, the plaintiff never made the waiver of the joint and survivor annuity in the form required under the terms of the Fund. As such, the Court ruled that the Fund was not required to change the plaintiff's form of payment, and it therefore affirmed the district court's summary judgment in the Fund's favor.