Articles Posted in ERISA

In Prime Healthcare Services-Landmark LLC, No. 16-1161(1st 2017), the First Circuit Court of Appeals (the “Court”) had to decide whether a dispute between employees and their successor employer- relating to an alleged violation of the applicable collective bargaining agreement by changing the terms of, and ceasing contributions to, a defined benefit plan- should be resolved in arbitration or in the courts. The parties agreed to arbitrate this dispute. The district court, however, refused to compel arbitration; it found that ERISA preempted arbitration of this dispute, and reasoned that this, in turn, presented an issue of arbitrability properly decided by a judge, not an arbitrator. The Court found that the issue of ERISA preemption in this case is not an issue of arbitrability, but rather one that is squarely for the arbitrator to decide, and therefore reversed the district court’s ruling.

In Prince v. Sears Holdings Corporation, No. 16-1075 (4th Cir. 2017), alleging that his employer improperly administered life insurance benefits, an employee brought suit for misrepresentation, constructive fraud, and infliction of emotional distress. The district court dismissed the employee’s case, and the employee appealed.  The Fourth Circuit Court of Appeals (the “Court”) ruled that, because, ERISA completely preempts these state law claims, the Court affirms the district court’s dismissal of the complaint.

In this case, in November 2010, Billy E. Prince (“Prince”) submitted an application to his employer for $150,000 in life insurance coverage for his wife, Judith Prince. The employer, Sears, sponsored and administered the life insurance program through The Prudential Insurance Company of America. In May 2011, Sears sent an acknowledgment letter to Prince and began withholding premiums from his pay shortly thereafter. Later in 2011, Mrs. Prince learned she had Stage IV liver cancer. Almost a year after Mrs. Prince’s initial diagnosis, Prince checked his online benefits summary, which confirmed his election to purchase life insurance coverage for his wife in the amount of $150,000. Another year passed, and Sears sent Prince a letter advising him that Mrs. Prince’s coverage had never become effective because no “evidence of insurability questionnaire” had been submitted. Sears explained that Prudential had sent a notice to Prince in January 2011 advising that unless a completed insurability questionnaire was submitted, Prudential would terminate his application for the life insurance coverage. Prince claims that he has no record of receipt of that notice but does not dispute that Prudential sent it to him.

On May 26, 2014, Mrs. Prince died. Because Prince did not receive the $150,000 in life insurance, he filed a complaint against Sears in the Circuit Court of Marion County, West Virginia. The complaint asserted one count of “constructive fraud/negligent misrepresentation” and one count of “intentional/reckless infliction of emotional distress,” based on Sears’s alleged misrepresentations regarding the life insurance policy and the harm thereby inflicted on Mr. and Mrs. Prince. Sears removed the case to federal district court, which dismissed the case on the basis of complete ERISA preemption.

Further to my blog of January 13, the DOL has now issued an additional set of FAQs discussing the “Conflict of Interest” rules.  These rules basically apply more stringent ERISA requirements to those who provide investment advice to retirement plans and IRAs.  Here is the DOL’s introduction to the new FAQs:

Set out below are a number of Frequently Asked Questions (FAQs) regarding implementation of the conflict of interest (COI) final rule (Rule) on fiduciary investment advice. Since the publication of the Rule last April, the Department has held many meetings with stakeholders to assist in their compliance efforts. Many of the questions they raised related to the various Rule provisions that draw lines between fiduciary and non-fiduciary communications. Like the FAQs the Department issued on October 27, 2016, on the Prohibited Transaction Exemptions, these FAQs focus particularly on specific technical questions raised by financial service providers. These FAQs are generally limited to investment advice concerning ERISA-covered plans, IRAs, and other plans covered by section 4975(e)(1) of the Internal Revenue Code (Code).

There are now three sets of FAQs on the Conflict of Interest rules:

The appeal in Vendura v. Boxer, No. 15-2387 (1st Cir. 2017), involves a suit for pension benefits that George Vendura (“Vendura”) brings against Northrop Grumman Corp. (“Northrop”) and a number of related entities and individuals (all, the “Defendants”).  The key point of contention concerns the number of “Years of Benefit Service” that should be credited to Vendura in calculating his pension benefits under his pension plan.

In this case, Vendura was hired by TRW Inc. (“TRW”) in 1993 and became a participant in the TRW Salaried Pension Plan (“TRW Plan”).  In 2002, Northrop acquired TRW and renamed the company Northrup Grumman Space and Mission Systems Corp. (“NGSMSC”), and the pension plan became the NGSMSC Plan.  Soon thereafter, NGSMSC attempted to terminate Vendura’s employment.  Vendura, however, challenged the attempt to lay him off, and, in 2003, Vendura and NGSMSC signed a settlement agreement that kept Vendura on board at NGSMSC, subject to certain conditions.

In April of 2013, Vendura filed a claim for pension benefits with the “Administrative Committee” for the NGSMSC Plan.  In making his pension benefits claim to the Administrative Committee, Vendura argued that he is entitled to twenty years of benefit service.  However, the Administrative Committee determined that Vendura was entitled to only 12 years of benefit service when calculating the pension benefits.  Eventually, Vendura filed this suit.  The district court granted summary judgment for the Defendants, and he appeals.

I just got this note from the Department of Labor about the new FAQs on the “Conflict of Interest” rules, which basically apply more stringent ERISA requirements to those who provide investment advice to retirement plans and IRAs.  Here is what the note says:

Good Morning,

You have been following the Labor Department’s Conflict of Interest project on retirement investment advice for some time – perhaps even since the original proposal in October of 2010.  The new consumer protections start to go into effect this April and we want to be sure that consumers have the information they need to make use of those new protections.  We also want to answer as many questions as possible about the new rules.  To that end, we are releasing a set of frequently asked questions meant especially for workers and retirement investors.

In Coburn v. Evercore, No.16-7029 (D.C. Cir. Dec. 30, 2016), Donna M. Coburn (“Coburn”), on behalf of herself and all others similarly situated, appeals the district court’s dismissal of her complaint against Evercore Trust Company, N.A. (“Evercore”) under ERISA.  Coburn, a former J.C. Penney employee and investor in a J.C. Penney employee stock ownership plan (ESOP) managed by Evercore, claims that Evercore breached its fiduciary duties of prudence and loyalty when it failed to take preventative action as the value of J.C. Penney common stock tumbled between 2012 and 2013, thereby causing significant losses.

Despite clear factual similarities, Coburn argues, on appeal, that the pleading requirements outlined by the U.S. Supreme Court in Fifth Third Bancorp v. Dudenhoeffer are inapplicable to her allegations because she challenges Evercore’s failure to appreciate the riskiness of J.C. Penney stock rather than Evercore’s valuation of its price.  The D.C. Circuit Court of Appeals said that it disagrees with Coburn’s arguments, therefore it affirms the district court’s judgment.

In Milby v. MCMC LLC, No. 16-5483 (6th Cir. 2016), Samantha Milby was granted monthly long-term disability benefits through a group insurance policy provided by her employer, University of Louisville Hospital. Her benefits were subsequently terminated after her disability carrier hired defendant MCMC, a third-party medical record reviewer, and MCMC opined that Milby could return to work. Milby brought this state-law claim against MCMC, alleging negligence since it was practicing medicine without a license. MCMC removed the case to federal court alleging complete preemption under ERISA.  Milby appeals the district court’s denial of her motion to remand the case back to state court, and its grant of MCMC’s motion to dismiss her case. The Sixth Circuit Court of Appeals (the “Court”) affirmed the district court’s rulings.

As to the complete preemption issue, the Court said that, in Aetna Health Inc. v. Davila, 542 U.S. 200 (2004),  the Supreme Court articulated a two-prong test to determine whether a state law claim is completely preempted or not.  A state law claim is subject to complete preemption if it satisfies both prongs of the following test: (1) the plaintiff complains about the denial of benefits to which he is entitled only because of the terms of an ERISA-regulated employee benefit plan; and (2) the plaintiff does not allege the violation of any legal duty (state or federal) independent of ERISA or the plan terms.

The Court determined that the state-law claim in this case fits in the category of claims that are completely preempted by ERISA. First, the claim is in essence about the denial of benefits under an ERISA plan. Second, the defendant does not owe an independent duty to the plaintiff because the defendants were not practicing medicine under the specific Kentucky law invoked here as the basis for negligence per se. Accordingly, prong (1) and prong (2) are met.


In Troiano v. Aetna Life Insurance Company, No. 16-1307 (1st Cir. 2016), the lawsuit arose from a dispute between an ERISA disability plan administrator (here, defendant Aetna) and a beneficiary over the amount by which the monthly disability payments made to the beneficiary from the plan should be offset by her other monthly income from Social Security. The administrator maintains that the disability payments must be offset by the gross (pre-tax) amount of Social Security income, while the beneficiary argues that the payments must be offset by the net (post-tax) amount of Social Security income.

The district court found for the administrator, noting that its interpretation of the Plan language to allow for a gross offset was entitled to deference and was, in any event, ultimately reasonable. In addition to contesting this decision, the beneficiary was complaining that the district court abused its discretion when it denied the beneficiary’s broad requests for discovery. Having made a number of assumptions in the beneficiary’s favor, the First Circuit Court of Appeals (the “Court”) affirmed the district court’s rulings, upholding the administrator’s decision on how to compute the offset and denying discovery. The Court noted that, to be clear, the dispute is not about whether the Social Security income may offset the disability payments. It is about whether the administrator may use the simple gross amount of the Social Security payments for offset purposes, with the Court concluding that it may.


In Midwest Operating Engineers Welfare Fund v. Cleveland Quarry, Nos. 15-2628, 15-3221, 15-3861, 16-1870 (7th Cir. 2016), the plaintiffs are certain employee welfare funds.  The defendant is RiverStone Group, Inc., a producer of crushed stone, sand, and gravel (“RiverStone”).

RiverStone had collective bargaining agreements with Local 150 of the International Union of Operating Engineers, AFL-CIO.  The latest agreement, made in 2010, was scheduled to expire in 2015.  It required RiverStone to contribute a specified dollar amount to the welfare funds specified in the agreement for each hour for which an employee receives wages under the terms of the agreement.  But in 2013 employees at RiverStone voted in an election supervised by the National Labor Relations Board to decertify Local 150 as their collective bargaining representative.  Following the vote, RiverStone stopped contributing to the welfare funds, precipitating these suits against it by the welfare funds under 29 U.S. Code § 1145, a provision of ERISA permitting suits for delinquent contributions. The welfare funds were seeking payment of the contributions that would have been due pursuant to the terms of the last collective bargaining agreement  until its 2015 expiration. The question: does the collective bargaining agreement, or “CBA”, expire when the union is decertified as the representative?

The Seventh Circuit Court of Appeals (the “Court”) said No. The CBA at issue states that “the employer’s responsibility to make contributions to the [w]elfare [funds] shall terminate upon expiration of this agreement”. The meaning of this phrase depends on whether “expiration” means the date on which the agreement becomes unenforceable or the date on which it lapses by passage of time. It became unenforceable by the union when the union was decertified, whereby the employer was no longer bound to the promises it had made to the union; but the agreement did not thereby cease to exist—and therefore did not expire—until its five-year term ended. By prematurely ceasing to contribute to the welfare funds, RiverStone became liable under ERISA to make delinquent contributions, the relief sought by the welfare funds. The welfare funds could also prevail as third party beneficiaries of the CBA.

In Tribble v. Edison International, No. 10-56406, No. 10-56415 (9th Cir. 2016), on remand from the Supreme Court, the en banc court of the 9th Circuit Court of Appeals vacated the district court’s judgment in the case, which had been in favor of an employer and its benefits plan administrator on claims of breach of fiduciary duty in the selection and retention of certain mutual funds for a benefit plan governed by ERISA.

The 9th Circuit Court of Appeals (the “Court”) had previously affirmed the district court’s holding that the plan beneficiaries’ claims regarding the selection of mutual funds in 1999 were time-barred under the six-year limit of section 413(1) of ERISA.  The Supreme Court vacated the Court’s decision, observing that federal law imposes on fiduciaries an ongoing duty to monitor investments even absent a change in circumstances, and remanded the case back to the Court. Rejecting defendants’ contention that the beneficiaries waived the ongoing-duty-to-monitor argument, the en banc court held that the beneficiaries did not forfeit the argument either in the district court or on appeal.  Rather, defendants themselves failed to raise the waiver argument in their initial appeal, and thus forfeited this argument.

Section 413 of ERISA states that (absent a case of fraud or concealment) no action may be commenced under ERISA, with respect to a fiduciary’s breach of any responsibility, duty, or obligation under ERISA, or with respect to a violation of ERISA, after the earlier of—