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October 6, 2015

ERISA-Seventh Circuit Discusses When Obligations To Contribute To A Multiemployer Pension Plan End

In Michels Corporation v. Central States, Southeast, and Southwest Areas Pension Fund, No. 14-3726 and 3737 (7th Cir. 2015), the Seventh Circuit Court of Appeals (the "Court") faced a familiar problem for multiemployer pension plans, namely: when does an employer's obligation to contribute to the plan end? The Court said that the answer turns on when the governing collective bargaining agreement ("CBA") between a multi-employer group and a union terminated, and how one should characterize a series of temporary "extensions" of the CBA.

The Court concluded that, in this case, the CBA in question terminated it in accordance with its terms effective January 31, 2011. Thereafter, the union and the employer group entered into a series of short-term agreements that had the effect of extending the CBA's terms for the designated periods while the parties negotiated. The interim agreement that took effect on November 15, 2011, however, was different: it eliminated the employers' duty to contribute to the plan and extended all other terms of the CBA. The district court held that this was not sufficient to end the employers' duty to contribute and thus granted summary judgment for the plan. The Court reversed, and held that the CBA imposing the duty to contribute had long since expired by November of 2011, and the interim agreement effective November 15, 2011 was sufficient to end employer's obligations to contribute.

October 1, 2015

ERISA-Third Circuit Holds That Health Care Service Provider, To Whom Benefit Claim Was Assigned, Has Standing To Sue The Insurer For Health Benefits

In North Jersey Brain & Spine Center v. Aetna, No. 14-2101 (3rd Cir. 2015), the plaintiff, North Jersey Brain & Spine Center ("NJBSC"), was appealing an order entered by the district court dismissing its complaint for lack of standing under ERISA. The question presented on appeal was whether a patient's explicit assignment of payment of insurance benefits to her healthcare provider, without direct reference to the right to file suit, is sufficient to give the provider standing to sue for those benefits under ERISA § 502(a), 29 U.S.C. § 1132(a).

Upon analyzing the case, the Third Circuit Court of Appeals (the "Court") found that such an assignment does confer standing. It held, as a matter of federal common law and in accordance with the other Circuits, when a patient assigns payment of insurance benefits to a healthcare provider, that provider gains standing to sue for that payment under ERISA § 502(a). An assignment of the right to payment logically entails the right to sue for non-payment. Therefore, the Court reversed the order of the District Court and remanded the case for further proceedings.

September 30, 2015

ERISA-Fifth Circuit Rules That Plan Administrator's Denial Of Severance Pay Cannot Be Upheld

In Napoli v. Johnson & Johnson, Inc., No. 14-31000 (5th Cir. 2015), plaintiff Dean Napoli ("Napoli") appeals from a grant of summary judgment by the district court for defendant, Johnson & Johnson, Inc. ("Johnson & Johnson"), on his ERISA claim for the denial by the plan administrator of post-termination severance benefits. In this case, Napoli, during his employment with Johnson & Johnson, participated in the company's Severance Pay Plan ("SPP"). Under the SPP, a participant could be denied a severance benefit if he is fired for one of several specified reasons, namely misconduct, violation of company policy or any conduct detrimental to the company. In September 2010, Johnson & Johnson fired Napoli, prompting him to apply for severance pay. The plan administrator denied the benefit claim.

The Fifth Circuit Court of Appeals (the "Court") reviewed the plan administrator's decision to deny the claim for abuse of discretion. The Court noted that the only documents before the plan administrator at the time of its initial review were Johnson & Johnson's Performance and Conduct Standards Policy and a September 2010 letter from Johnson & Johnson's general counsel to Napoli. The Performance and Conduct Standards Policy is not specific to Napoli or to his alleged violation of company policy; rather, it merely is the policy itself. Needless to say, a citation to a policy is not evidence that Johnson & Johnson fired Napoli for violating that policy, or any of the reasons for which the SPP denies a severance benefit. The September 2010 letter asserts that Napoli is ineligible for severance benefits because he "was terminated for a Group I violation." The letter then states: "Furthermore, since [Napoli] wrongfully expensed over $3,000 on his American Express account, the company hereby demands repayment." The Court felt that this letter, like the policy, does not demonstrate that Napoli was fired for any of the reasons for which the SPP denies a severance benefit.

Based on the foregoing, the Court found that the plan administrator's denial of severance benefits was not supported by substantial evidence and could not be upheld even under a deferential review. Accordingly, the Court reversed the district court's decision, and remanded the case back to the district court.

September 22, 2015

ERISA-Seventh Circuit Rejects Preemption Challenge Of State Law Prohibiting Reservation Of Discretion To Insurers

In Fontaine v. Metropolitan Life Insurance Company, No. 14-1984 (7th Cir. 2015), the Seventh Circuit Court of Appeals (the "Court") addressed a federal preemption challenge to an Illinois insurance law, which prohibits provisions "purporting to reserve discretion" to insurers to interpret health and disability insurance policies. These provisions are intended to prevent the insurer from having the discretion which, under ERISA, when the insurer denies a benefit under a plan covered by ERISA, would entitle the insurer to a deferential review of that denial by a court.

Upon reviewing the case, the Court said that, like our colleagues in the Ninth and Sixth Circuits, as well as the district court in this case, we reject the preemption challenge and apply the state law. Why?

The Court had noted that ERISA deals expressly with the issue of preemption of state law. It first preempts state laws that "relate to any employee benefit plan," 29 U.S.C. § 1144(a), but then saves from preemption any state law "which regulates insurance," 29 U.S.C. § 1144(b)(2)(A). Further, to be deemed a law that "regulates insurance" and thus avoid preemption, according to the Supreme Court decision in Miller, a state law must satisfy two requirements. First, it must be specifically directed toward entities engaged in insurance. Second, it must substantially affect the risk pooling arrangement between the insurer and the insured. The Court concluded that the provision in question does both, and thus is not preempted.

Further, the Court found that the provision is not preempted on the grounds that it conflicts with ERISA's civil enforcement scheme. All the provision does is restore the state's own default rule of de novo review in court cases challenging denials of health and disability benefits.

September 10, 2015

ERISA-Mississippi Supreme Court Affirms Ruling That State Law Which Requires Chancery Court Approval Of A Minor's Settlement Claims Is Not Preempted By ERISA

In the case of In the Matter of the Guardianship of O. D., No. 2014-CA-00322-SCT (Miss. Supreme Court 2015), O.D., a minor child, filed a petition in Pontotoc County Chancery Court for approval of a settlement her parents had negotiated with car insurance companies for injuries she had suffered in a car accident. On the day of the hearing, Ashley Healthcare Plan, O.D.'s health insurance coverage provider, which had a subrogation lien against the proceeds of O.D.'s claim, removed the case to federal court, arguing that the Mississippi law which required the Chancery Court's approval of O.D.'s settlement claims, Mississippi Code Section 93-13-59, was preempted by ERISA.

The United States District Court for the Northern District of Mississippi held that ERISA did not preempt the state law and remanded the case to the Chancery Court without awarding attorney's fees to O.D. On motion from O.D.'s parents, the Pontotoc County Chancery Court awarded O.D. attorney's fees, holding that Ashley Healthcare Plan's removal to federal court was contrary to clearly established law and that it was done for the purpose of delaying litigation. Although O.D. could have sought recovery of attorney's fees under Rule 54 of the Federal Rules of Civil Procedure, frivolous removals to federal court also are subject to the Mississippi Litigation Accountability Act. Miss. Code Ann. §§ 11-55-1 to 11-51-15 (Rev. 2012). Furthermore, according to the Chancery Court, Ashley Healthcare Plan's removal to federal court was contrary to two decades of case law which uniformly held that Mississippi's law requiring Chancery Court approval of minors' settlements is not preempted by ERISA and that Ashley Healthcare Plan was seeking a remedy in federal court that was unavailable to it under the ERISA Civil Enforcement Clause.

The Mississippi Supreme Court affirmed the judgment of the Chancery

September 9, 2015

ERISA-District Court Finds Investment Selection Violates ERISA Fiduciary Rules, But Damages Are Not A

In Tussey v. ABB, 2015 U.S. Dist. LEXIS 89068 (Western District of Missouri 2015), the Eighth Circuit Court of Appeals had remanded the case back to the District Court (the "Court") for application of the Firestone abuse of discretion standard to the defendants' decision to remove the Vanguard Wellington Fund from the PRISM Plan and transfer the plan's assets to the Fidelity Freedom Funds.

Upon reviewing the case, the Court found that the defendants had abused their discretion in connection with the asset removal. The Firestone abuse of discretion standard means that a court will uphold a fiduciary's decision relating to asset investment if it is reasonable, measured by whether substantial evidence exists to support the decision. In this case, the removal of the Wellington Fund from the PRISM platform and the mapping of its assets to the Freedom Funds was an abuse of discretion because: (1) it was motivated in large part to benefit Fidelity Trust (the PRISM Plan's trustee and record keeper) and ABB (the PRISM Plan's sponsor), not the Prism Plan participants, by producing greater revenue sharing for Fidelity Trust and ABB, (2) there is an absence of substantial evidence (e.g., presence of lower fees) supporting the prudence of the decision to remove and map and (3) ABB had a conflict of interest pertaining to such decision, because Fidelity Trust rendered services to ABB paid for with fees from the PRISM Plan.

However, the Court also found that the plaintiffs failed to prove damages consistent with the method of damage calculation suggested by the Eighth Circuit (that method being, generally, treating the damages as being equal to the difference between the performance of the Fidelity Freedom Funds and the minimum return of the subset of managed allocation funds the ABB fiduciaries could have chosen to invest in those funds without breaching their fiduciary obligations). Therefore, the Court did not award any damages to the plaintiffs.

September 8, 2015

ERISA-Third Circuit Says That The Plan Administrator Must Inform Claimants Of Plan Imposed Deadlines For Filing Suit To Challenge The Plan Administrator's Benefit Denial; Otherwise The Deadlines Will Not Apply.

In Mirza v. Insurance Administrator of America, Inc., No. 13-3535 (3d Cir. 2015), the Third Circuit Court of Appeals (the "Court") noted that the regulations implementing ERISA provide that when a plan administrator denies a request for benefits, it must set forth a "description of the plan's review procedures and the time limits applicable to such procedures, including a statement of the claimant's right to bring a civil action." 29 C.F.R. § 2560.503- 1(g)(1)(iv). The Court then said that the ERISA plan at issue in this case contains a one-year deadline for filing a civil action.

Appellant Dr. Neville Mirza received a benefits denial letter advising him of his right to judicial review, but it did not mention the time limit for doing so. The principal question the Court addresses in the case is whether plan administrators must inform claimants, of plan imposed deadlines for judicial review, in their notifications denying benefits. The Court held that they must, and that the appropriate remedy for this regulatory violation is to set aside the plan's time limit and apply the limitations period from the most analogous state-law cause of action--here, New Jersey's six-year deadline for breach of contract claims. Because Mirza filed his complaint before the expiration of this six-year limitations period, the Court found that his suit was filed on a timely basis.

September 2, 2015

ERISA-Second Circuits Holds That Certain ERISA And Parity Act Claims May Proceed

In N.Y. State Psychiatric Association v. UnitedHealth Group, Docket No. 14-20-cv (2nd Cir. 2015), plaintiffs New York State Psychiatric Association, Inc. ("NYSPA"), Jonathan Denbo, and Dr. Shelly Menolascino sued UnitedHealth Group, UHC Insurance Company, United Healthcare Insurance Company of New York, and United Behavioral Health (collectively, "United").

Relying on §§ 502(a)(1)(B) and 502(a)(3) of ERISA, the plaintiffs claimed that United had violated its fiduciary duties under ERISA, the terms of ERISA-governed health insurance plans administered by United, and the Mental Health Parity and Addiction Equity Act of 2008 (the "Parity Act"), which requires group health plans and health insurance issuers to ensure that the financial requirements (deductibles, copays, etc.) and treatment limitations applied to mental health benefits be no more restrictive than the predominant financial requirements and treatment limitations applied to substantially all medical and surgical benefits covered by the plan or insurance, see 29 U.S.C. § 1185a(a)(3)(A). NYSPA also brought three additional counts under New York State law.

United moved to dismiss the amended complaint, arguing that NYSPA did not have associational standing to sue on behalf of its members, that United could not be sued under § 502(a)(3) for alleged violations of the Parity Act or under § 502(a)(1)(B), and that in any event it would not be "appropriate" for the plaintiffs to obtain relief under § 502(a)(3) if § 502(a)(1)(B) offered an adequate remedy. The district court granted United's motion to dismiss. Upon review, the Second Circuit Court of Appeals (the "Court") concluded that NYSPA has standing at this stage of the litigation and that Denbo's claims, but not Dr. Menolascino's claims, should be permitted to proceed. As a result, the Court affirmed the district court's decision in part, vacated the district court's decision in part, and remanded the case back to the district court.

August 31, 2015

ERISA-Third Circuit Dismissed Appeal From District Court's Decision For Lack Of Jurisdiction

In Stevens v. Santander Holdings USA Inc. Self Insured Short Term Disability Plan, No. 14-1481 (3d Cir. 2015), plaintiff Joseph Stevens ("Stevens"), a former employee of a subsidiary of defendant Santander Holdings USA Inc. ("Santander"), brought suit against Santander seeking to recover benefits from two disability benefit plans that Santander provided for its eligible employees. As an employee of a Santander subsidiary, Sovereign Bank, Stevens participated in these plans, a short-term disability plan ("STD") and a long-term disability plan ("LTD"). In October 2010, Stevens sought STD benefits through the administrator of Santander's plans, defendant Liberty Life Assurance Company of Boston, doing business as Liberty Mutual ("Liberty Mutual").

After it initially awarded STD benefits to Stevens, Liberty Mutual determined that Stevens no longer suffered from a qualifying disability, a determination that led it to terminate his STD benefits. Stevens then brought this suit under ERISA, seeking reinstatement of the payment of benefits. The district court found that Liberty Mutual's decision to terminate Stevens's STD benefits was arbitrary and capricious and remanded the case to the plan administrator with instructions to reinstate Stevens's STD benefit payments retroactively, and to determine his eligibility for LTD benefit payments.

Santander and Liberty Mutual appealed the district court's decision to the Third Circuit Court of Appeals (the "Court"). However, Stevens moved to dismiss the appeal for lack of jurisdiction, arguing that the district court's remand order to the plan administrator was not a "final decision" appealable pursuant to 28 U.S.C. § 1291 at that time. Upon review, the Court held that the district court has retained jurisdiction over the case, and that the order from which the defendants have appealed is not yet appealable. Therefore, the Court dismissed the appeal for lack of jurisdiction.

August 27, 2015

ERISA-Eighth Circuit Holds That A Subrogation Provision, Contained In The SPD, Is Enforceable

The case of National Elevator Inc. Health Benefit Plan v. Moore, No.14-4048 (6th Cir. Aug. 25, 2015) involved a subrogation claim, which arose from a dispute involving the Health Benefits Plan (the "Plan") established by the Board of Trustees of the National Elevator Industry (the "NEI Board") under ERISA. The NEI Board, acting as the fiduciary and administrator of the Plan, sued Kyle Moore and the law firm Goodson & Company, Ltd. (collectively, "Moore"), seeking reimbursement for medical expenses that the Plan paid on Moore's behalf, following Moore's successful settlement of a negligence action filed against the entities responsible for injuries he suffered in an accident. In response, Moore contended that the terms of the Plan did not provide for reimbursement and filed a counterclaim alleging that the Board had violated its fiduciary duty by misrepresenting the terms of the Plan. The district court granted summary judgment against Moore, and Moore appeals.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") said that the district court correctly decided that the summary plan description (the "SPD") containing the subrogation provision set out the binding terms of the Plan and that the plain language of the provision required reimbursement. Thus, the Court affirmed the district court's decision.
In so affirming the decision, the Court's findings included the following about the subrogation provision and its inclusion in the SPD. First, the Court found that the SPD-the only document in the record containing a subrogation provision--is a binding plan document that sets out enforceable terms. The SPD itself constitutes a welfare benefits plan, which is provided for in a governing trust agreement. There is no other plan document (aside from the trust agreement). The Supreme Court's decision in Amara does not change this result.

Second, the Court noted that the subrogation provision states:

"Amounts that have been recovered by a covered person from another party are assets of the Plan by virtue of the Plan's subrogation interest and are not distributable to any person or entity . . . . However, amounts recovered by such covered person from another party in excess of benefits paid by the Plan are the separate property of such covered person (emphasis added)."

The Court said that the reimbursement of amounts recovered by Moore, sought by the Plan, are not amounts in excess of benefits paid by the Plan, and therefore are assets of the Plan. Finally, the subrogation provision may be applied, even though (as here) the settling third-party has not actually been determined, either through judicial finding or admission, to be liable for the participant's injuries.

August 25, 2015

ERISA-Second Circuit Holds That A Company Was Not Engaged In A Trade Or Business, And Therefore Could Not Be Held Responsible For A Related Company's Withdrawal Liability.

In UFCW Local One Pension Fund v. Enivel Properties, LLC, No. 14-2487 (2nd Cir. 2015), the Second Circuit Court of Appeals (the "Court") faced the issue of whether a separate business organization can be held responsible for the liabilities of another commonly controlled entity under ERISA.

In this case, Steven Levine was the sole shareholder of Empire Beef Co., Inc. ("Empire"), a food-processing company. Empire was party to a collective bargaining agreement that required it to contribute to the United Food and Commercial Workers Local OnePension Fund (the "Fund") for retirement and related benefits for its employees. In November 2007, Empire effected a "complete withdrawal" from the Fund pursuant to 29 U.S.C. § 1383(a) and incurred a withdrawal liability assessment to the Fund of $1,235,644.00. The Fund sued Empire under ERISA for the assessment, as well as liquidated damages, interest, costs, and attorneys' fees, and secured a judgment against Empire for $1,790,343.90. Empire has not paid any portion of the judgment.

In addition to Empire, Steven and his wife, Lori, owned an investment company, Enivel Properties, LLC ("Enivel"). Steven held forty percent of Enivel's stock; Lori owned the remainder and was solely responsible for Enivel's business operations. The Fund sued Enivel to recover on its judgment against Empire, alleging that Enivel is a trade or business under common control with Empire such that it is jointly and severally liable for Empire's withdrawal liability.

In analyzing the issue, the Court said that, in order to impose withdrawal liability on an organization other than the one obligated to the pension fund, two conditions must be satisfied: the second organization must be (1) under common control with the obligated entity; and (2) a "trade or business." See 29 U.S.C. § 1301(b)(1). Enivel does not dispute that Steven Levine controlled both Empire and Enivel. The only question in this appeal is whether Enivel is a "trade or business."

The Court continued by saying that the courts employ the Supreme Court's reasoning in a tax case, Groetzinger, for guidance in determining the types of conduct that constitute engaging in a "trade or business." Based on that case, for an activity to be a "trade or business" under section 1301(b)(1), a person or entity must engage in the activity: (1) for the primary purpose of income or profit; and (2) with continuity and regularity. The district court had found that, based on the facts of the case, Enivel's primary purpose in any leasing and sales activity it undertook was "personal" for the owners, and that profit was only a secondary purpose. Any activity was not continuous or regular, because it was likely that any time spent managing, leasing, and trying to sell the properties Enivel held was negligible. The Levines did not fragment their business operations over several entities. Rather, Enivel's mission was primarily personal and any profit it derived was incidental. As such, the Court concluded that Enivel did not engage in any trade or business, and therefore could not be held responsible for Empire's withdrawal liability.

August 24, 2015

ERISA-District Court Discusses Whether A Business Owner Is An Employee Under ERISA

In Silverman v. Unum Group, No. 14-CV-6439 (DLI) (SMG) (E.D.NY 2015), Neil Silverman (the "Plaintiff") had brought suit against various insurance companies (collectively the "Defendants"). The Defendants had provided disability insurance coverage (all such coverage referred to below as the "Plan") to the Plaintiff during his employment at Chip-Tech Ltd. The Plaintiff seeks long-term disability benefits from the Defendants, and alleges that his claim for benefits was calculated improperly and then terminated early. The Defendants move to dismiss the complaint, arguing among others that the Plaintiff's claims are preempted by ERISA. Plaintiff counters by, among others, contending that ERISA does not apply to the case, as he is not considered an employee under ERISA.

On the issue as to whether the Plaintiff is an employee for purposes of ERISA, the Court said the following. Plaintiff was part owner and employee of Chip-Tech Ltd. He owned fifteen percent of Chip-Tech Ltd. and his siblings, Robert Silverman and Ivy Raffe, owned seventy and fifteen percent of Chip-Tech Ltd., respectively. The Plan covered only the three owners. The Court said further that it cannot consider the owner of a corporation an "employee" where the corporation is wholly owned by the individual or by the individual and his or her spouse. 29 C.F.R. § 2510.3-3.

The Court noted that the Second Circuit has not addressed whether a plan is governed by ERISA where the only participants are shareholder co-owners of a corporation who are not spouses. However, the Supreme Court has stated that Congress intended working owners to qualify as plan participants. Relying on the explicit language in ERISA regulation 29 C.F.R. § 2510.3-3, the Supreme Court held, in Raymond B. Yates, M.D., P.C. Profit Sharing Plan v Heldon, that:

--plans that cover only sole owners or partners and their spouses fall outside of ERISA's domain; while

--plans covering working owners and their nonowner employees, on the other hand, fall entirely within ERISA's compass.

Relying on the Yates decision, the Fifth Circuit held, in Provident Life & Acc. Ins. Co. v. Sharpless, that shareholder co-owners were considered employees under ERISA and that their plans, therefore, were ERISA plans because the definition of an employee in ERISA excludes owners of corporations only held by one individual and his or her spouse, not multiple shareholder co-owners of a corporation. The Court then said that the facts in the present case are closely analogous to those considered by the Fifth Circuit in Provident Life. Here, three shareholders owned Chip-Tech Ltd. and the Plan was available exclusively to them. Therefore, the Court concludes that the Plaintiff is considered an employee under ERISA, and that the Plan is subject to ERISA. Additionally, the facts show that the Plaintiff was paid a salary and hired by the corporation, further supporting his treatment as an employee for ERISA purposes.

August 18, 2015

ERISA-Eighth Circuit Holds That Claims Against Insurers For Restitution, And The Imposition Of An Equitable Lien And Constructive Trust, Are Legal And May Not Be Brought Under Section 502(a)(3) of ERISA

The case of Central States, South East and South West Areas Health & Welfare Fund v. Student Assurance Services, Inc., 2015 U.S. App. LEXIS 13941 (8th Cir. 2015) involved the following situation. Central States, a multi-employer trust fund governed by ERISA, provides health and welfare benefits to participants in the teamster industry and their dependents. Columbian Life and Security Life are insurance companies that sell, among other things, medical insurance for accidents suffered by students. Student Assurance Services processed claims for policies issued by Columbian Life and Security Life. For convenience, these three entities are referred to collectively as "Student Assurance."

Central States's complaint identifies thirteen junior high, high school, and college student-athletes who were covered dependents under its plan. These students also were covered under policies issued by Student Assurance. After the students sustained athletic injuries, Central States paid the students' medical expenses and sought reimbursement from Student Assurance. Student Assurance refused to pay. In total, Central States paid $137,204.88 in benefits. Central States alleges that according to the coordination of benefits provision of its plan, the student accident policies supply primary coverage for the students' covered medical expenses. Student Assurance insists, however, that the student accident policies are excess policies, and that they are not obligated to pay until Central States has reached the maximum contribution under its plan. Central States sued, invoking federal common law and section 502(a)(3) of ERISA. The complaint includes claims for declaratory relief, restitution, and the imposition of an equitable lien and constructive trust to secure reimbursement for the benefits paid on behalf of the common insureds. Student Assurance moved to dismiss on the ground that Central States's claims, while ostensibly seeking equitable remedies, were actually for legal relief that is unavailable under section 502(a)(3). The district court granted the motion and dismissed the complaint. Central States appeals.

In analyzing the case, the Eighth Circuit Court of Appeals (the "Court") concluded that Central States was seeking legal relief, not equitable relief. The fund seeks compensation out of the general assets of the non-ERISA insurers, and does not assert the right to particular property in the possession of the insurers. Since it is not seeking equitable relief, the Court held that Central States cannot bring its claim under section 502(a)(3). As such, the Court affirmed the district court's decision.

August 17, 2015

ERISA-Eighth Circuit Comments On Successor Liability For Delinquent Contributions and ERISA Violations

In Nutt v. Kees, No. 14-3364 (8th Cir. 2015), Kevin and Lisa Nutt had successfully sued their former employers under ERISA for two claims: delinquent contributions and breach of the fiduciary duty of care. The district court found that the Nutts' former employers could not provide adequate relief and thus relied on a theory of successor liability to hold Osceola Therapy & Living Center, Inc. ("OTLC") liable. OTLC appeals. The Eighth Circuit Court of Appeals (the "Court") reversed.

As to the successor liability theory, the Court said that the doctrine of successor liability provides an equitable exception to the general rule that a buyer takes the assets of his predecessor free and clear of all liabilities other than valid liens and security interests. However, even assuming that that successor liability applies in the ERISA context, the Court concluded that the district court clearly erred, and abused its discretion, in its factual findings and improperly weighed the equities when it held OTLC liable as the successor of the Osceola defendants.

Continuing, the Court said that several considerations guide its review of the district court's decision to impose successor liability. However, the ultimate inquiry always remains whether the imposition of the particular legal obligation at issue would be equitable and in keeping with federal policy. Before imposing financial liability for a predecessor's past misdeed, courts look for two factors to ensure that liability is proper--notice and the direct transfer of assets from the predecessor. Here, OTLC did not purchase, and thus did not receive a direct transfer of, assets, nor did it receive timely notice of the potential liability. Thus, the district court abused its discretion in imposing successor liability.

August 13, 2015

ERISA-Ninth Circuit Holds That Employers' Unpaid Contributions To Employee Benefit Funds Are Not Plan Assets, Even If the Plan Documents Label Future (Unpaid) Contributions As Such, So That The Failure By The Employer To Pay Is Not An ERISA Fiduciary Viol

In Bos v. Board of Trustees, No. 13-15604 (9th Cir. 2015), the Ninth Circuit Court of Appeals (the "Court") was asked to decide whether an employer's contractual requirement to contribute to an employee benefits trust fund makes it a fiduciary of unpaid contributions under ERISA.

In this case, beginning in 2007, Gregory Bos was owner and president of Bos Enterprises, Inc. ("BEI"). BEI was a member of the Modular Installers Association, an employer association. As president of BEI, Bos agreed that BEI would be bound by the Carpenters' Master Agreement, and several trust agreements. The Carpenters' Master Agreement required each employer--including BEI--to contribute monthly payments based on hours of work to the trust funds (the "Funds") for the purpose of providing employee benefits. Each trust agreement defined its respective fund as including "all contributions required by the [Carpenters' Master Agreement]. . . to be made for the establishment and maintenance of the [respective plan], and all interest, income and other returns of any kind."

Bos personally had full control over BEI's finances, as well as authority to make payments on behalf of BEI, whether to the Funds or to other creditors. Thus, Bos was personally responsible for making the required contributions to the Funds on behalf of BEI. However, he failed to make certain required contributions. In an action by the Funds to collect the unpaid contributions, the issue arose as to whether, because the trust agreements defined the Funds as including contributions "required . . . to be made" to the Funds, the unpaid contributions were plan assets, so that Bos-who had control over BEI's funds-had liability as an ERISA fiduciary for the nonpayment of the contributions.

In analyzing the case, the Court held that an employer's unpaid contributions to employee benefit funds are not plan assets, even if the plan document expressly defines the fund to include future payments. This result applies, and is in accord with decisions in the Sixth and Tenth Circuits, even though the Second and Eleventh Circuits have held for or at least recognized a contrary result. Under the Court's holding, Bos did not control plan assets, and thus had no fiduciary duty under ERISA to remit any of BEI's assets to the Funds. The case was decided in the context of Bos's filing for bankruptcy, and has implications for bankruptcy situations as well as ERISA cases.