Articles Posted in ERISA

In Trustees of the Suburban Teamsters of Northern Illinois Pension Fund v. E Co., No. 18-2273 (7th Cir. 2019), under the terms of a collective bargaining agreement, T&W Edmier Corporation (“T&W”) regularly contributed on behalf of its employees to the Suburban Teamsters of Northern Illinois Pension Fund (the “Pension Fund”). But in 2014, T&W ceased operations and cut off its pension contributions, prompting the Pension Fund to assess withdrawal liability of $640,900. The Pension Fund sought to collect payment by mailing a notice of the withdrawal liability to T&W and several affiliated entities, only to see their collection efforts ignored. The Trustees of the Pension Fund eventually sued to collect payment, and that action culminated in the district court ordering T&W, along with several other individuals and entities under common control, to pay the withdrawal liability. Now seeking to vacate the district court’s judgment, T&W and the other defendants argue that their due process rights were violated when the Pension Fund initiated collection of the withdrawal liability by mailing notice to some but not all of them.

Upon reviewing the case, the Seventh Circuit Court of Appeals (the “Court”) affirmed the district court’s judgment. The Court found that certain defendants forfeited all defenses to liability, including the defense that they were not members of a controlled group, by failing to arbitrate after receiving the Fund’s notice of withdrawal liability. The Court further found that other defendants had likewise forfeited all defenses, as they were not  unsuspecting defendants;  rather the Court found that none of these defendants had a credible claim of surprise (at being a member of a controlled group) that would allow it to sidestep ERISA’s arbitration requirement. Each defendant was a trade or business under common control with another party who received the notice. As such, each defendant was liable for the withdrawal liability under ERISA’s controlled group provision, and therefore became jointly and severally liable for payment.

 

The case of Rittinger v. Healthy Alliance Life Insurance Company, No. 17-20646 (5th Cir. 2019), involves a bariatric surgery gone wrong and the ensuing clash over insurance coverage.

In this case, Karen Rittinger was the beneficiary of an ERISA-covered plan. Healthy Alliance Life Insurance Company offered the plan and Anthem Blue Cross Blue Shield (“Anthem”) administered it. In October 2014, Rittinger underwent bariatric surgery. Complications arose requiring follow-up surgery and intensive care. Anthem denied preauthorization (and thus plan benefits) for both the bariatric surgery and the follow-up surgery, writing, “We cannot approve coverage for weight loss surgery (bariatric surgery) or hospital care after this surgery. Bariatric or weight loss surgery is an exclusion in your health plan contract.” The contract, though, had an exception to this exclusion for “excessive nausea/vomiting.” Arguably, the exception applied to Rittinger. Nevertheless, Anthem denied her claim for benefits in both a first and second-level appeal, on the basis of the plan’s exclusion of bariatric surgery. Having exhausted the plan’s internal remedies, Rittinger filed suit in district court. The district court overturned Anthem’s decision, on the grounds that Anthem did not interpret the plan correctly and did not give enough weight to Rittinger’s vomiting problem. Anthem appealed. Rittinger filed a cross-appeal to determine the exact dollar amount of the damages she is owed.

Upon reviewing the case, the Fifth Circuit Court of Appeal (the “Court”) noted that Anthem’s decision is entitled to a highly deferential standard of review.  The Court concluded that, given this level of review, the Court could not say that Anthem, the plan administrator, abused its discretion in either the first or second internal appeal. Therefore, the Court overturned the district court’s decision. Because the Court agrees with Anthem, it also held that Rittinger’s cross-appeal is moot.

 

In Torres v. Bella Vista Hospital, Inc., No. 16-2316 (1st Cir. 2019), Olga Torres and Pedro Bonilla are former employees of Bella Vista Hospital (“Bella Vista”), a Mayaguez, Puerto Rico-based hospital operated by the General Conference of Seventh Day Adventist Church. In 1982, the hospital created a pension program, advising its employees that the plan was subject to ERISA.

Certain types of plans are exempt from ERISA’s requirements, including plans which meet the statutory definition of “church plan,” 29 U.S.C. § 1003(b)(2). In 2000, the Internal Revenue Service, which is empowered to issue rulings to parties as to the status of their plans, advised Bella Vista that its pension plan met the definition of “church plan” and so was exempt from ERISA. In 2003, Bella Vista terminated the plan. Torres and Bonilla had become disabled some years earlier, and certain benefits they were receiving from the hospital ended. In November 2006, Torres and Bonilla sued in federal district court in Puerto Rico to recover lost benefits. Although the plaintiffs claimed federal subject matter jurisdiction under ERISA, the district court found that the church plan exception applied so ERISA did not govern the hospital’s pension regime. The court granted summary judgment in favor of the defendants, dismissing the case on May 21, 2009, for lack of subject matter jurisdiction—there being no federal claim in the case outside of the purported ERISA count. Torres and Bonilla did not appeal that decision and took no further action in court for five years. On November 24, 2014, Torres and Bonilla filed a motion in the district court to set aside the 2009 judgment, invoking the court’s authority to vacate a judgment procured by “fraud on the court” based material false statements by lawyers and others made during the proceedings.

After, reviewing the case, the First Circuit Court of Appeals (the “Court”), dismissed the motion and upheld the decision of the district court.  The Court said that claims of false statements by lawyers or parties are a serious matter and might meet some definitions of “fraud,” but the phrase “fraud on the court” has a special, well-understood and limited office. Inaccurate assertions in lawsuits are commonplace and to allow all such claims to be presented as “fraud on the court,” with no time limit, would undermine the finality of judgments and the need for all litigation to come to an end. Thus “fraud on the court” is limited to fraud that seriously affects the integrity of the normal process of adjudication, defiles the court itself, and prevents the judicial machinery from performing its usual function—for example, in bribery of a judge or jury tampering. severity is present in the plaintiffs’ allegations.

In Schwartz v. Bogen, No. 17-3812 (8th Cir. 2019). Bruce Schwartz filed an action against Ardis Bogen, his ex-wife, alleging violations of the anti-alienation provisions of ERISA, that arose from payments he made to her for almost three decades. Bogen moved for dismissal on the ground of res judicata, and the district court dismissed the matter with prejudice. On appeal, Schwartz argues the district court erred in granting Bogen’s motion.

Upon reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) affirmed the district court’s dismissal of the case. The Court found that Schwartz had the opportunity to litigate the question of whether the state court had jurisdiction to hear ERISA claims, but he did not do so. Therefore, the Court held that the state court’s judgment is entitled to res judicata and will not be overturned by a district court.

 

In Peterson v. UnitedHealth Group Inc., No. 17-1744 (8th Cir. 2019), UnitedHealth Group Inc. (“United”) administers thousands of health insurance plans. In the course of processing millions of claims for benefits, United at times erroneously overpays service providers. United can generally recover these overpayments from “in-network” providers because it has agreements with those providers that allow it to “offset” the overpayment by withholding the overpaid amount from subsequent payments to that provider. In 2007, United implemented an aggregate payment and recovery procedure in which it began to offset overpayments made to “out-of-network” providers, even where the overpayment was made from one plan and the offset taken from a payment by a different plan, a practice known as cross-plan offsetting.

The named plaintiffs in these consolidated class action cases are out-of-network medical providers who United intentionally failed to fully pay for services rendered to United plan beneficiaries in order to offset overpayments to the same providers from other United administered plans. The plaintiffs, litigating under ERISA on behalf of their patients, the plan beneficiaries, claim the relevant plan documents do not authorize United to engage in cross-plan offsetting. The district court agreed and entered partial summary judgment to the plaintiffs on the issue of liability. United appealed the summary judgment order.

Upon reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) affirmed the district court’s decision. The Court found that, first, nothing in the plan documents even comes close to authorizing cross-plan offsetting, the practice of not paying a benefit due under one plan in order to recover an amount believed to be owed to another plan because of that other plan’s overpayment.  Second, the practice of cross-plan offsetting is in some tension with the requirements of ERISA. While the Court said that it need not decide here whether cross-plan offsetting necessarily violates ERISA, it said that, at the very least, the offsetting approaches the line of what is permissible. If such a practice was authorized by the plan documents, the Court said that it would expect much clearer language to that effect. This led the Court to conclude that United’s interpretation and offsetting practice is not reasonable.

In Frommert v. Conkright, Docket Nos. 17-114-cv(L), 17-738-cv(CON) (2nd Cir. 2019), the principal issue is whether the district court  awarded an adequate equitable remedy for violations of ERISA related to Xerox Corporation’s pension plan (the “Plan”).

The plaintiffs-appellants (“Plaintiffs”) are Xerox employees who left the company in the 1980’s, received lump-sum distributions of retirement benefits they had earned up to that point, and were later rehired. The dispute giving rise to this case concerns how to account for the Plaintiffs’ past distributions when calculating their current benefits—that is, how to avoid paying the Plaintiffs the same benefits twice. The defendants-appellees are Xerox, the Plan, and individually named retirement plan administrators (individually and collectively, the “Plan Administrator”). In the most recent decision of the Second Circuit Court of Appeals (the “Court”) in this case, the Court determined that the Plan Administrator’s method of calculating the Plaintiffs’ current benefits violated ERISA’s notice requirements and therefore could not be applied to the Plaintiffs’ benefits. The Court remanded the case to the district court to fashion, in its discretion, an equitable remedy providing appropriate retirement benefits to the Plaintiffs (the Court refers to these benefits as “New Benefits”)

Selecting the equitable remedy of reformation, the district court held that New Benefits should be calculated as if the Plaintiffs were newly hired on their return to Xerox.  In a separate decision and order, the district court also determined that the Plaintiffs are entitled to prejudgment interest at the federal prime rate.

In GCIU Employer Retirement Fund v. Quad/Graphics, Inc., No. 17-55667 (9th Cir. 2018) (Unpublished Memorandum), the issue for decision was whether Quad/Graphics, Inc. (“Quad”) partially withdrew from the GCIU-Employer Retirement Fund (“the Fund”) in 2010, after employees at Quad’s Versailles, Kentucky, facility voted to decertify a collective bargaining agreement (“CBA”).  An arbitrator found that Quad had not withdrawn, but on review, the district court disagreed.  Quad appeals.

In reviewing this case, the Ninth Circuit Court of Appeals (the “Court”) said that, like the district court, we must presume the arbitrator’s factual findings are correct but review his conclusions of law de novo.  As such, the Court affirmed the district court’s decision that Quad had partially withdraww from the Fund.

In explaining its decision, the Court noted that an employer partially withdraws from a multiemployer pension plan, such as the Fund, when it permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute.  The district court correctly held that Quad partially withdrew from the Fund in 2010.  The Versailles CBA-one of the CBAs that Quad had with the Union- became void prospectively as of the decertification of the union as the employee’s bargaining representative in December 2010, extinguishing Quad’s ongoing obligations to contribute to the Fund on behalf of Versailles employees under the Versailles CBA.

In Leirer v. P&G Disability Ben. Plan, No. 17-3426 (8th Cir. 2018), Gary Leirer worked for the Proctor & Gamble Company (which maintained the Proctor & Gamble Disability Benefit Plan, collectively, the “Company”) for many years.  He became disabled as a result of a medical condition and began receiving total disability benefits.  Following a medical examination, the Company later determined that Leirer was partially disabled, and it terminated his benefits when his partial disability coverage ended.  After the Company upheld its determination, Leirer filed suit under section 502(a)(1)(B) of ERISA (a suit for benefits).  The district court granted summary judgment in favor the Company, and Mr. Leirer appeals.

After reviewing the case, the Eighth Circuit Court of Appeals (the “Court”) upheld the district court’s decision.  In doing so, the Court noted the following.  Mr. Leirer has not shown that a serious procedural irregularity existed, which caused a serious breach of the plan administrator’s fiduciary duty to him.  Further, the Company’s denial letter adequately stated the reasons supporting its decision.  The Company’s interpretation of the plan was reasonable and the Independent Medical Examination and Functional Capacity Evaluation constituted substantial evidence in support of its decision.  Also, there was no evidence that the Plan administrators’ conflict of interest—arising from their dual responsibilities of adjudicating Leirer’s claim and paying his benefits—affected the disposition of Leirer’s claim.

 

In Jander v. Retirement Plans Committee of IBM, Docket No. 17-3518 (2nd Cir. 2018), plaintiffs Larry Jander and Richard Waksman appeal from a judgment of the district court dismissing their suit against fiduciaries of IBM’s employee stock option plan (the “ESOP”).  The plaintiffs claim that the defendants violated their fiduciary duty under ERISA to manage the ESOP’s assets prudently, because they knew but failed to disclose that IBM’s microelectronics division (and thus IBM’s stock) was overvalued.  The district court determined that plaintiffs did not plausibly plead a violation of ERISA’s duty of prudence, because a prudent fiduciary could have concluded that earlier corrective disclosure would have done more harm than good.

On appeal, the plaintiffs assert that the foregoing standard for the duty of prudence is stricter than the one set out in Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014), and that the district court and others have applied this stricter standard in a manner that makes it functionally impossible to plead a duty-of-prudence violation.

In reviewing the case, the Second Circuit Court of Appeals (the “Court”) found it unnecessary to determine whether plaintiffs are correct, because they plausibly plead a duty-of-prudence claim even under the stricter standard used by the district court.  Here, the Court concluded that several allegations in the plaintiff’s complaint (considered in combination and drawing all reasonable inferences in plaintiffs’ favor) establish that a prudent fiduciary in the ESOP defendants’ position could not have concluded that corrective disclosure would do more harm than good.  Accordingly, the Court reversed the judgment of the district court and remanded the case back to the district court for further proceedings.

 

In Acosta v. Brain, Nos. 16-56529, 16-56532 (9th Cir. 2018), a panel of the Ninth Circuit Court of Appeals (the “Panel”) affirmed in part, reversed in part, and vacated in part the district court’s judgment in a civil enforcement action brought by the Secretary of the Department of Labor against Scott Brain, a former trustee of the Cement Masons Southern California Trust Funds (the “Trust Funds”), and Melissa Cook and Melissa W. Cook & Associates, PC (collectively, the Cook Defendants), former counsel to the Trust Funds, alleging violations of the ERISA.

The action alleged violations of two sections of ERISA — unlawful retaliation in violation of ERISA section 510, and breach of fiduciary duty in violation of ERISA section 404.

The Panel held that the district court did not err in concluding that Brain violated ERISA section 510 by retaliating against whistleblower Cheryle Robbins, the Director of the Trust Funds’ internal Audit and Collections Department.  The Panel held that Robbins’s participation in the Department of Labor (“DOL”) investigation of Brain was unmistakably protected activity under ERISA, and constituted an independently sufficient ground for the district court’s conclusion.  The Panel noted that there was a circuit split on the issue of whether “unsolicited internal complaints” constituted protected activity within the meaning of ERISA section 510, but concluded that the issue of Robbins’s letter-writing being protected activity was immaterial where Robbins’s cooperation with the DOL investigation provided an independent basis for the section 510 claim.