In Re: Derogatis, Docket Nos. 16-977-cv, 16-3549-cv (2nd Cir. 2018) has tandem cases, in which plaintiff-appellant Emily DeRogatis appeals the judgment of the district court awarding summary judgment to defendants-appellees, the trustees of two union-affiliated employee benefit plans, on her claims for relief asserted under ERISA.  The benefit plans at issue are the Pension Plan, which governed benefits payable to Emily as a surviving spouse after the death of her husband, Frank, and the Welfare Plan, which governed the DeRogatises’ entitlement to health benefits during and after Frank’s lifetime.  The conflict arises primarily because of certain oral miscommunications by Plan personnel to the DeRogatises before Frank’s death in 2011.

Upon reviewing the case, as to the Pension Plan, the Second Circuit Court of Appeals (the “Court”) concluded that the Pension Plan trustees correctly denied DeRogatis’s request for an augmented survivor benefit following her husband’s death.  It therefore affirmed the district court’s decision denying DeRogatis’s claim under ERISA § 502(a)(1)(B) against the Pension Plan for benefits due.  As to DeRogatis’s claim under ERISA § 502(a)(3) for breach of fiduciary duty, the District Court reasoned that a plan administrator cannot be held liable for unintentional misrepresentations made about the plan’s operation by its non-fiduciary, “ministerial” agent and on this basis denied the claim.  The Court rejected that ruling.  Nonetheless, it affirmed the judgment denying DeRogatis relief under this section because the Pension Plan’s summary plan description (“SPD”) adequately described the eligibility requirements for the benefits in question and thereby satisfied the trustees’ fiduciary duty to provide complete and accurate information to plan participants and beneficiaries.  Therefore, the summary judgment entered by the district court for the Pension Plan defendants is affirmed.

As to the Welfare Fund, DeRogatis asserts an ERISA § 502(a)(3) claim for breach of fiduciary duty against the trustees of the Welfare Fund.  The district court granted summary judgment for defendants on this claim on the same “ministerial employee” ground as described above.  Again, the Court rejected that analysis.  It disagreed, too, with the district court’s conclusion that the Welfare Plan SPD explained clearly its participants’ options to receive post-retirement health benefits. Given the evidence that Welfare Fund agents misstated material aspects of those same benefits when communicating with the DeRogatises, the Court identifies an open question of material fact concerning whether the Welfare Plan trustees breached their fiduciary duty to provide plan participants with complete and accurate information about their benefits.  Therefore, the Court vacated the judgment entered in favor of the Welfare Plan defendants, and remanded that part of the case back to the district court.

In Hager v. DBG Partners, Inc., No. 17-11147 (5th Cir. 2018), after plaintiff David Hager (“Hager”) was fired by defendant, DBG Partners, Inc (“DBG”), he obtained continuation coverage under DBG’s ERISA health care plan through COBRA.  Hager later filed this suit, alleging that DBG had discontinued its health plan without notifying him, violating COBRA’s notice requirements.  The district court dismissed Hager’s claim on the eve of trial, concluding that ERISA did not provide Hager with a remedy.  Hager appeals.

Upon reviewing the case, the Fifth Circuit Court of Appeals (the “Court”) reversed the district court’s decision.  COBRA has a notice provision, in  29 U.S.C.S. § 1166(a)(4), which applies to former employees receiving COBRA benefits.  DBG discontinued its health plan earlier than 18 months after Hager was fired.  It therefore had an obligation-under the COBRA notice provision- to notify Hager “as soon as practicable” that it was discontinuing coverage.  Hager adequately alleged that DBG did not fulfill its notice obligations under COBRA.  Hagar could be entitled to the penalty award under 29 U.S.C.S. § 1132(c)(1) because of DBG’s failure to provide the notice.

In Doe v. Harvard Pilgrim Health Care, Inc., No. 17-2078 (1st Cir. 2018), Jane Doe’s insurer, Harvard Pilgrim Health Care (“HPHC”), deemed part of the time Doe spent at a mental health residential treatment facility not medically necessary under the health care benefits plan established by the employer of Doe’s parent. HPHC therefore denied coverage for that portion of the treatment.  After several unsuccessful administrative appeals, Doe sued HPHC in federal court under ERISA.

On de novo review, the district court agreed with HPHC’s determination that continued residential treatment was not medically necessary for Doe.  However, upon review by the First Circuit Court of Appeals (the “Court”), the Court concluded that the administrative record upon which the district court based its finding should have been supplemented.  As a result, the Court reversed in part, vacated in part, and remanded for further proceedings.

In Board of Trustees of the Glazing Health and Welfare Trust v. Chambers, No. 16-15588 (9th Cir. 2018), vacating the district court’s summary judgment in favor of the plaintiffs, a panel of the Ninth Circuit Court of Appeals (the “Panel”) held that Nevada Senate Bill 223 was a legitimate exercise of Nevada’s traditional state authority and was not preempted by ERISA.

Nevada law holds general contractors vicariously liable for the labor debts owed by subcontractors to subcontractors’ employees on construction projects.  SB 223 limited the damages that can be collected from general contractors and imposed notification requirements on contractors and welfare benefit plans regulated under ERISA before an action could be brought under Nevada law against general contractors.  Plaintiffs, ERISA trusts that managed ERISA plans, claimed that SB 223 was preempted by ERISA because it impermissibly “related to” ERISA plans.

The Panel concluded that the appeal was not moot following the Nevada legislature’s repeal of SB 223 and enactment of SB 338, a replacement that repeats some of the challenged aspects of SB 223.  The Panel held that legislative change in response to an adverse judicial ruling is generally the type of “voluntary cessation” that defeats mootness on appeal.  The Panel concluded that Nevada did not rebut a presumption that its appeal was not moot because it did not demonstrate that the legislature would certainly not reenact the challenged provisions of SB 223.

In Doe v. Harvard Pilgrim Health Care, Inc., No. 17-2078 (1st Cir. 2018), Jane Doe’s insurer, Harvard Pilgrim Health Care (“HPHC”), deemed part of the time Doe spent at a mental health residential treatment facility not medically necessary under the health care benefits plan established by the employer of Doe’s parent. HPHC therefore denied coverage for that portion of the treatment.  After several unsuccessful administrative appeals, Doe sued HPHC in federal court under ERISA.

 

On de novo review, the district court agreed with HPHC’s determination that continued residential treatment was not medically necessary for Doe.  However, upon review by the First Circuit Court of Appeals (the “Court”), the Court concluded that the administrative record upon which the district court based its finding should have been supplemented.  As a result, the Court reversed in part, vacated in part, and remanded for further proceedings.

In Hansen v. Group Health Cooperative, No. 16-35684 (9th Cir. 2018), a panel for the Ninth Circuit Court of Appeals (the “Panel”) reversed the district court’s exercise of subject matter jurisdiction in dismissing state law claims brought by mental health providers against an insurance company, and remanded for the entirety of the dispute to be returned to the state court from which it had been removed.

The mental health providers filed a class action complaint in state court, alleging violation of the Washington Consumer Protection Act in defendant’s use of certain screening criteria for mental healthcare coverage.  Defendant removed the case to federal court on the ground that the providers had been assigned benefits by patients who were insured under health plans governed by ERISA, which, defendant asserted, therefore completely preempted the providers’ claims.  The district court dismissed in part, concluding that the providers’ claims were subject to conflict and express preemption to the extent that they concerned defendant’s business practices in administering ERISA plans.  The district court declined to exercise supplemental jurisdiction over the providers’ claims as to defendant’s administration of non-ERISA plans, and it remanded that part of the case to Washington state court.

The Panel held that the providers’ claims did not fall within the scope of, and so were not completely preempted by, ERISA section 502(a)(1)(B).  There was no dispute that the providers’ claim for wrongfully licensing allegedly biased mental health coverage guidelines was based on an independent duty to refrain from engaging in unfair and deceptive business practices.  The Panel held that there also was not complete preemption of a claim that defendant used its treatment guidelines to avoid complying with Washington’s Mental Health Parity Act, or of a claim that defendant unfairly competed in the marketplace by discouraging its patients from seeking treatment by rival practitioners.  The Panel concluded that all three of the providers’ claims for unfair and deceptive business practices were based on independent duties beyond those imposed by their patients’ ERISA plans.

In Pension Benefit Guaranty Corporation v. Findlay Industries, Inc., No. 17-3520 (6th Cir. 2018), the Pension Benefit Guaranty Corporation (“PBGC”) had sued to collect more than $30 million in underfunded pension liabilities from Findlay Industries following the shutdown of its operation in 2009, apparently a casualty of the worsening economy at the time.  When Findlay could not meet its obligations, PBGC looked to hold liable a trust started by Findlay’s founder, Philip D. Gardner (the “Gardner Trust”), treating it as a “trade or business” under common control by Findlay.  PBGC also asked the court to apply the federal-common-law doctrine of successor liability to hold Michael J. Gardner, Philip’s son, liable for some of Findlay’s debt.  Michael, a 45 percent shareholder of Findlay and its former-CEO, had purchased Findlay’s assets and started his own companies using the same land, hiring many of the same employees, and selling to Findlay’s largest customer. The district court refused to hold either the trust or Michael and his companies liable and dismissed the case.  PBGC appeals.

Upon reviewing the case, the Sixth Circuit Court of Appeals (the “Court”) concluded that the district court’s decision is flawed in two respects.  First, an entity like the Gardner Trust that leases property to an entity under common control like Findlay should be considered a “trade or business,” categorically.  This reading of the statute recognizes the differences between ERISA and the tax code, satisfies the purposes of ERISA, and brings this court in line with its sister circuits. Next, in this specific instance, successor liability is required to promote fundamental ERISA policies.  Refusing to apply successor liability would allow employers to fail to uphold promises made to employees and then engage in clever financial transactions to leave PBGC paying out millions in pension liabilities. Holding the employers responsible, on the other hand, is a commonsense answer that fulfills ERISA’s goals.

As such, the Court vacated the district court’s order of dismissal and remanded the case for further proceedings.

In Martone v. Robb, No. 17-50702 (5th Cir. 2018), Thomas Martone, a former Whole Foods employee, brought an action against certain Whole Foods executives who are named fiduciaries for the company’s 401(k) plan.  Martone alleges that these executives breached their fiduciary duties by allowing employees to continue to invest in Whole Foods stock while its value was artificially inflated due to a widespread overpricing scheme.  The district court dismissed the claims, finding that Martone failed to plausibly allege an alternative action that the fiduciaries could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.

Upon reviewing the case, the Fifth Circuit Court of Appeals agreed with the district court’s finding and therefore affirmed the district court’s decision.

In WHD Opinion Letter FMLA2018-2-A, the U.S. Department of Labor (the “DOL”) concluded that organ-donation surgery can qualify as a “serious health condition” under the Family and Medical Leave Act of 1993 (the “FMLA”).  Here is what the DOL said.

BACKGROUND.  The FMLA entitles eligible employees of covered employers to unpaid, job-protected leave for specified family and medical reasons.  Eligible employees may take up to 12 workweeks of leave in a 12-month period for, among other things, a serious health condition that renders the employee unable to perform the functions of his or her job. 29 U.S.C. § 2612(a)(1)(D); 29 C.F.R. § 825.112(a)(4).

The FMLA defines “serious health condition” as an “illness, injury, impairment, or physical or mental condition that involves” either “inpatient care in a hospital, hospice, or residential medical care facility” or “continuing treatment by a health care provider.” 29 U.S.C. § 2611(11).  Implementing regulations define “inpatient care” as “an overnight stay in a hospital, hospice, or residential medical care facility, including any period of incapacity… or any subsequent treatment in connection with such inpatient care.” 29 C.F.R. § 825.114.  The regulations also specify that “continuing treatment” includes “incapacity and treatment,” “chronic conditions,” “permanent or long-term conditions,” and “conditions requiring multiple treatments.” 29 C.F.R. § 825.115.  For all conditions, “incapacity” means “inability to work, attend school or perform other regular daily activities due to the serious health condition, treatment therefore, or recovery therefrom,” and “treatment” includes “examinations to determine if a serious health condition exists and evaluations of the condition.” 29 C.F.R. § 825.113(b), (c).  An employee is incapacitated if he or she is “unable to work at all or is unable to perform any one of the essential functions of the employee’s position,” including when the employee “must be absent from work to receive medical treatment.” 29 C.F.R. §§ 825.113(b), .123(a).

The Internal Revenue Service (the “IRS”) has issued a Private Letter Ruling in which an employer proposes to amend its 401(k) plan in a manner which will help its employees accumulate moneys to pay off student loans.

In PLR 201833012 (dated August 17, 2018), the Internal Revenue Service (the “IRS”) was faced with the following proposed amendment to a 401(k) plan (the “Plan”).

An employer proposed to amend the Plan to offer a student loan benefit program (the “Program”).  Under the Program, the employer would make an employer nonelective contribution on behalf of an employee, conditioned on that employee making student loan repayments (the “SLR Nonelective Contribution”).  The Program is voluntary.  An employee must elect to enroll, and once enrolled, may opt out of enrollment on a prospective basis.