:: DOL Alleges Failure To Monitor TPA Fees Constitutes A Fiduciary Breach

Whether a breach of the duty of prudence has occurred depends on “whether the fiduciary engaged in a reasoned decision-making process, consistent with that of a prudent man acting in a like capacity.” Id. (internal quotations and citations omitted).

Although the Secretary alleges that FCE and Ward concealed certain activities from the Chimes Defendants, the Secretary is not foreclosed from also alleging that the Chimes Defendants failed to fulfill their broader duties to prudently and loyally monitor the Plan.

 Perez v. Chimes D.C., Inc., No. CV RDB-15-3315, 2016 WL 5815443, at *9 (D. Md. Oct. 5, 2016)

 A recent case illustrates the DOL’s focus on the duty to monitor fees and compensation arrangements as a fiduciary duty.  The case has resulted in several opinions.  Here are some highlights from an opinion denying certain defendants’ motion to dismiss.
Parent company may be a fiduciary
Parent companies of plan sponsors and administrators lack fiduciary status to the extent they do not actually exercise any control over plan assets or discretion over the plans of their subsidiaries, or exercise the power to appoint the actual fiduciaries.  But the Secretary alleged a “factual basis” for the parent company”s fiduciary status— namely, its control over plan assets and power to appoint plan fiduciaries.
Corporate officers and directors may become fiducaries
 Corporate officers and directors do not become fiduciaries solely by virtue of their corporate position, even if the corporation is a fiduciary, ‘unless it can be shown that they have individual discretionary roles as to plan administration.’  Here, however, the Secretary did not “simply restate ERISA’s statutory language”, but specifically alleged that the defendants:
  • Took part in negotiation of fees and engagement of third party administrator

  • Failed to conduct a full request for bid proposals from alternative providers, or request that an independent broker obtain and compare bid proposals from alternative providers” and

  • Neglected conflicts of interest in relying on recommendations

Concealment of activities is not a bar to liability of fiduciaries

Although the Secretary alleged that the TPA concealed certain activities from the employer’s representatives, the Court held that the Secretary was not foreclosed from also alleging that they failed to fulfill their broader duties to prudently and loyally monitor the Plan.

Co-fiduciaries may be liable for “consequential breach

Aside from knowing violations,  a fiduciary is also liable where “by his failure to comply with [his own ERISA fiduciary duties] in the administration of his specific responsibilities which give rise to his status as a fiduciary, he has enabled such other fiduciary to commit a breach.”  Thus, the Court allowed this allegation to stand.

Failure to monitor fees may constitute a breach

The Secretary alleged that the corporate officers did not take other steps to ensure that TPA’s fees were reasonable, such as consulting with an independent expert regarding its fees or comparing the fees to industry benchmarks.

Failure to remit comissions and rebates may constitute a breach

The parties had agreed that, with a few specific exceptions, that any commissions or rebates paid by the Plan service providers to the TPA  should be forwarded to the Plan.  The Secretary alleged that the TPA failed to forward all payments that it received from service providers to the Plan.

 Note:  The DOL has published a booklet which is useful for clients as a general overview entitled “Meeting Your Fiduciary Duties”.  Included is the following paragraph:

Monitoring a Service Provider


An employer should establish and follow a formal review process at reasonable intervals to decide if it wants to continue using the current service providers or look for replacements. When monitoring service providers, actions to ensure they are performing the agreed-upon services include:


- Evaluating any notices received from the service provider about possible changes to their compensation and the other information they provided when hired (or when the contract or arrangement was renewed);

- Reviewing the service providers’ performance;

- Reading any reports they provide;

- Checking actual fees charged;

- Asking about policies and practices (such as trading, investment turnover, and proxy voting); and

- Following up on participant complaints.

See also: Tibbie v.Edison Int’l, 135 S. Ct. 1823, 1829 (2015)

:: Fifth Circuit Rule On Availability of Equitable Relief In Doubt

Defendants argue that even if a plaintiff can sometimes pursue a Section 502(a)(1)(B) claim and a Section 502(a)(3) claim simultaneously, Currier cannot do so here because, assuming her factual allegations are correct, she will not require equitable relief to make her whole. Defendants assert that Currier “will be recompensed fully by an award of benefits under [Section] 502(a)(1)(B).” The Court disagrees.

Currier v. Entergy Corp. Emple. Benefits Comm., 2016 U.S. Dist. LEXIS 142471 * (E.D. La. Oct. 14, 2016)

Can a plaintiff assert a claim for benefits and also a claim for equitable relief? That was the issue in this recent case.

In the past the Fifth Circuit was of the opinion that the assertion of a 502(a)(1)(B) claim (claim for benefits) foreclosed the use of Section 502(a)(3) (equitable relief).

 Statutory Provisions

Section 502(a)(1)(B) of ERISA states that a plan participant or beneficiary may bring a civil action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B).

Section 502(a)(3) states that a civil action may be brought:

by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.

Since neither statute references the other and there is no ordering rule elsewhere in ERISA, one might assume that alleging claims under both would be acceptable.

 Varity Corp. v. Howe

Nevertheless, in Varity Corp. v. Howe, the Supreme Court gave reason to doubt. As noted by the district court, the Supreme Court observed in that opinion that Section 502(a)(3) serves as a “safety net, offering appropriate equitable relief for injuries caused by violations that [Section] 502 does not elsewhere adequately remedy.”

And further, the Court stated that “we should expect that where Congress elsewhere provided adequate relief for a beneficiary’s injury, there will likely be no need for further equitable relief, in which case such relief normally would not be appropriate.”

So the Defendants moved to dismiss the plaintiff’s Section 502(a)(3) claim. The plaintiff countered that the U.S. Supreme Court’s decision in CIGNA Corp. v. Amara, 563 U.S. 421, 131 S. Ct. 1866, 179 L. Ed. 2d 843 (2011), implicitly overruled the Varity point of view.

 CIGNA Corp. v. Amara

In Amara, the plaintiffs alleged that they were misled by an inaccurate summary plan description (“SPD”) into accepting a reduction in benefits. The Court noted that Section 502(a)(1)(B) only empowers courts to award beneficiaries the benefits they are due under the plan. Yet, benefits promised in an SPD but not contained within the plan itself are not benefits due “under the terms of the plan.”

Furthermore, the Court held that reformation of the plan to match the terms of the SPD was an equitable remedy only available under Section 502(a)(3). Thus, it remanded the case for a determination of whether such relief was appropriate under Section 502(a)(3).

The Plaintiff Prevails

Based on its interpretation of Amara, the district court held that a plaintiff can alternatively plead a Section 502(a)(1)(B) claim and a Section 502(a)(3) claim, “at least where there is a possibility that equitable relief may be necessary to make the plaintiff whole.”

 Note: The defendants argued that even if Amara changed the law, the plaintiff should not be allowed to proceed with both claims “because, assuming her factual allegations are correct, she will not require equitable relief to make her whole since she “will be recompensed fully by an award of benefits under [Section] 502(a)(1)(B).” The court rejected the defendants’ argument, stating:

 [Although the plaintiff] asserts one set of claims related to the decision to deny benefits under the terms of the Plan, for which Section 502(a)(1)(B) would in fact provide an adequate remedy, but she also asserts a separate set of claims related to her detrimental reliance on alleged misrepresentations made by Entergy Services agents as fiduciaries. The latter claims can be remedied only through Section 502(a)(3).

Fifth Circuit Cases – The court noted possible consistent opinions in Gonzalez v. Aztex Advantage, 547 F. App’x 424, 426 n.3 (5th Cir. 2013) (“Because we determine that the district court properly concluded that Gonzalez abandoned his equitable remedy claim and properly denied his motion to withdraw his nonobjection, we need not decide whether Amara would have entitled Gonzalez to any relief.”)  And see, Gearlds v. Entergy Servs., Inc., 709 F.3d 448, 452 (5th Cir. 2013) (“Even assuming it is dictum, however, we give serious consideration to this recent and detailed discussion of the law by a majority of the Supreme Court.”); Singletary v. United Parcel Serv., Inc., 828 F.3d 342, 350 (5th Cir. 2016) (“We need not resolve whether subsection (a)(2) or (a)(3) is the better fit [because] [t]he claim could have been brought by referring to both sections.”).).

Other Circuits - The court noted that:

Multiple circuit courts have come to the same conclusion. Notably, the Second, Eighth, and Ninth Circuits have all recently interpreted the Amara decision as clarifying that a Section 502(a)(3) claim is not automatically undermined by the presence of a Section 502(a)(1)(B) claim. See New York State Psychiatric Association, Inc. v. UnitedHealth Group, 798 F.3d 125, 134 (2d Cir. 2015) (stating, in light of the Amara decision, that “it is important to distinguish between a cause of action and a remedy under § 502(a)(3)” because “Varity Corp. did not eliminate a private cause of action for breach of fiduciary duty when another potential remedy is available”); Silva v. Metro. Life Ins. Co., 762 F.3d 711, 727 (8th Cir. 2014) (holding, in light of Amara, that “Varity only bars duplicate recovery and does not address pleading alternate theories of liability”); id. at 730 (Gruender, J., concurring in part and dissenting in part) (“I agree with the court that Silva was permitted to plead simultaneously claims [*10] under both § 1132(a)(1)(B) and § 1132(a)(3) [because] at this early stage of litigation, an ERISA plaintiff may plead claims under both provisions in the alternative.”); Moyle v. Liberty Mut. Ret. Ben. Plan, 823 F.3d 948, 960 (9th Cir. 2016), as amended on denial of reh’g and reh’g en banc (Aug. 18, 2016) (“While Amara did not explicitly state that litigants may seek equitable remedies under [Section 502](a)(3) if [Section 502](a)(1)(B) provides adequate relief, Amara’s holding in effect does precisely that.”).

Fifth Circuit Authority In Question – Here are some cases that are in doubt post-Amara:

Tolson v. Avondale Indus., Inc., 141 F.3d 604, 610 (5th Cir. 1998).McCall v. Burlington N./Santa Fe Co., 237 F.3d 506, 512 (5th Cir. 2000); see also Walsh v. Lifer Ins. Co. of N. Am., No. 08-791, 2008 U.S. Dist. LEXIS 38052, 2008 WL 2026107, at *2 (E.D. La. May 9, 2008) Ctr. for Restorative Breast Surgery, L.L.C. v. Humana Health Benefit Plan of La., Inc., No. 10-4346, 2015 U.S. Dist. LEXIS 91942, 2015 WL 4394034, at *5-6 (E.D. La. July 15, 2015); Taylor v. Ochsner Found. Clinic Hosp., No. 09-4179, 2010 U.S. Dist. LEXIS 92029, 2010 WL 3528624, at *6 (E.D. La. Sept. 3, 2010); Walsh v. Lifer Ins. Co. of N. Am., No. 08-791, 2008 U.S. Dist. LEXIS 38052, 2008 WL 2026107, at *2-4 (E.D. La. May 9, 2008); Sullivan v. Monsanto Co., 555 F. Supp. 2d 676, 683-85 (E.D. La. 2008).

Practice Pointer: The viability of claims under both statutory provions is not automatic and could change during the course of a case.  The Court noted that:

Because it is unclear at this point whether the Q & A document serves as an SPD and whether the breach of fiduciary duty claims regarding deliberate misrepresentations are sufficiently distinct from the claims requesting enforcement of the plan so as not to effectively constitute “repackaging” of the latter, the Court cannot decide whether Currier’s claim is more accurately grounded in the Pilots Plan itself or in enforcement of the Q & A document. (emphasis added).

:: Ninth Circuit Finds Abuse of Discretion Due to Procedural, Substantive, and Structural Flaws

We will customarily uphold an administrator’s decision if it is “grounded on any reasonable basis.”  This deference is tempered where, as here, the plan administrator has a structural conflict of interest, being the entity that both funds and administers the benefits plan.

Other case-specific factors heighten our judicial scrutiny of an administrator’s benefits decision, including procedural irregularities, the quality and quantity of the medical evidence, and the administrator’s reliance on a paper review of the claimant’s medical records.

Yox v. Providence Health Plan, 2016 U.S. App. LEXIS 16600 (9th Cir.) (September 9, 2016)

This recent 9th Circuit opinion offers a good overview of factors that might lead to a reversal of a claim denial even under the very forgiving abuse of discretion standard.

After a seizure-induced fall fractured the plaintiff’s jaw, her group health plan covered the costs for initial surgeries. Nonetheless, the plan denied preauthorization for additional trauma-related dental services under the Plan.

Failure to Follow Procedural Guidelines

The Court noted that Providence did not follow important procedural requirements.

For example, Providence failed to adequately notify Yox of her right to bring a civil action under ERISA § 502(a). See 29 C.F.R. § 2560.503-1(g)(1)(iv) and (j)(4). Moreover, Providence also failed to consult a professional with “appropriate training and experience in the field of medicine involved in the medical judgment.” See 29 C.F.R. § 2560.503-1(h)(3)(iii).

Ignoring these regulations “contravenes the purpose of ERISA” and weighs in favor of finding an abuse of discretion. Abatie, 458 F.3d at 974.

Failure to Meet Procedural Obligations

In assessing the substance of her claim. Providence continually asserted that the plaintiff’s treatment was dental rather than medical.  Yet, it provided no evidentiary basis for its decision.

Furthermore, Providence failed to consult with adequately trained professionals when analyzing her preauthorization request.  In addition, Providence arbitrarily refused to address the clinical evaluation submitted by her treating dentist. See Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834, 123 S. Ct. 1965, 155 L. Ed. 2d 1034 (2003). When Providence did address the evaluation provided by another dentist, it discounted the dentist’s opinion as “insufficient” without further explanation.

Providence’s conclusory opinion does not satisfy its duty under ERISA. See Salomaa, 642 F.3d at 680. “An administrator does not do its duty under the statute and regulations by saying merely ‘we are not persuaded’ or ‘your evidence is insufficient.’”).

Presence of Structural Conflict of Interest

Based upon the foregoing, the Court concluded that a structural conflict of interest played a role in the benefits denial.

 Because of this manifest conflict of interest, we must view Providence’s decision with heightened skepticism; it is simply not enough for us to “scan[] the record for medical evidence supporting” Providence’s decision, even if such evidence exists. Montour, 588 F.3d at 630. The district court did not err in factoring Providence’s conflict of interest into its abuse of discretion analysis.

Note:   The district court’s decision was also affirmed on its ruling that the scope of the plaintiff’s claim did not include the expanded services she requested after starting her internal appeal.

Providence never had a chance for first review of the additional claim, because the appeals process addresses only the scope of the initial denial. That Providence did not change its appeals process to include Yox’s expanded claim is not arbitrary, nor does it conflict with the plain language of the Plan. See Schikore v. BankAmerica Supplemental Ret. Plan, 269 F.3d 956, 960 (9th Cir. 2001).

Practice Pointer - The plaintiff attacked the benefit denial on three grounds - procedural, substantive, and structural flaws.  The first two issues helped support the finding of a structural conflict of interest.

Treating Physician Rule -  Although plan administrators are not bound to give any special weight to the opinions of treating physicians, they may not arbitrarily refuse to credit a claimant’s reliable evidence, including the opinions of a treating physician.  Black & Decker Disability Plan v. Nord, 538 U.S. 822, 834 (U.S. 2003)

Claims Regulations – See,  Department of Labor, Employee Benefits Security Administration, http://www.dol.gov/ebsa/faqs/faq_claims_proc_reg.html, Question B-4

Ninth Circuit Authority - The key case on judicial review of benefit decision is Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955 (9th Cir. Cal. 2006).

Scholarship - I co-authored a law review article that might be helpful in this context:  “Weighing Medical Judgments: Explaining Evidentiary Preferences for Treating Physician Opinions in ERISA Cases after Black and Decker v. Nord” , 13 Michigan State Law School Journal of Medicine and Law 157 (2009)

:: Court Finds Constructive Trust By Law Firm Supports Plan’s Claim For Equitable Relief

The Fifth, Sixth, Eighth, Tenth and Eleventh Circuits have considered whether a plan may sue a third-party, non-party to a plan, under § 502(a)(3). Applying the lesson of Harris Trust, all have affirmed Justice Ginsburg’s Knudson pronouncement.


Unitedhealth Grp. Inc. v. MacElree Harvey, Ltd., No. CV 16-1026, 2016 WL 4440358, at *7 (E.D. Pa. Aug. 23, 2016)

If an ERISA plan participant reimburses the plan, may the participant subsequently litigate issues concerning the reimbursement in state court?

The court grapples with that issue in this case.  The facts involve competing claims by the plan fiduciaries in federal court and the plan participant’s law firm in state court.  The comments in the notes section below show a possible way around the complexities presented in this case.

Underlying Facts

Following injuries in a car accident,  the personal injury plaintiff, Ms. Neff, pursued a case against a third party allegedly responsible for her injuries.  She settled that case for $50,000.  Also, she pursued an underinsured motorist claim with The Hartford Co., the insurer of the car in which she was a passenger.   She settled that case for $100,000. Finally, at the time of the case at bar, she was pursuing an underinsured motorist claim against State Farm Insurance Company, her own carrier.

Reimbursement of ERISA Plan . . .

The operative facts giving rise to the ERISA litigation are as follows:

On October 12, 2015, UHG’s recovery agent wrote MacElree Harvey [personal injury plaintiff's law firm] a letter rejecting MacElree Harvey’s request for attorney’s fees and costs at any level. The letter demanded that the Plan be reimbursed the full value of the claims it paid on Ms. Neff’s behalf, without reduction for attorney’s fees.


On November 4, 2015, MacElree Harvey forwarded UHG a check for the full amount of UHG’s subrogation and reimbursement claim.

So the personal injury attorney paid UHG all sums it was owed under the terms of the health plan.  It was this fact that caused the Court concern during the ensuing legal manuevers.

Followed By State Court Litigation Against the Plan . . . 

The personal injury law firm then filed suit against the plan.  This turn of events set the case at bar in motion:

On January 29, 2016, MacElree Harvey [the personal injury law firm] filed a complaint against UHG in the Chester County Court of Common Pleas alleging a common law claim of unjust enrichment, MacElree Harvey, Ltd. v. United Health Grp. Inc., Civ. A. No. 2016-00710-CT (Ct. Com. Pl. Chester 2016).


MacElree Harvey alleged that it was entitled to costs and attorney’s fees for services rendered to Ms. Neff in this first third-party lawsuit under the Pennsylvania common fund doctrine.

Followed By Federal Court Litigation Against Law Firm & Participant . . .

In response to the State Court Lawsuit, Plaintiffs filed this action. Plaintiffs allege two counts.


Under Count One, Plaintiffs argue that the Court may exercise its authority to issue equitable relief under § 502(a)(3) because Defendants exhibited wrongful conduct by filing the State Court Lawsuit, thereby harming the Plan.  Under Count Two, Plaintiffs request the same declaratory judgments sought in Count One, pursuant to the Declaratory Judgment Act.

 Does The Defendant’s Lack of Possession of Funds Affect Jurisdiction?

The facts presented a perplexing scenario for the Court.  Recall that the law firm had already reimbursed the plan before filing suit.  This led the Court to muse:

[If] Ms. Neff controlled the settlement fund, Plaintiffs could seek a constructive trust to enforce an equitable lien over the fund. If the settlement fund was placed in a court registry or in escrow, Plaintiffs could seek a constructive trust to enforce an equitable lien over the fund. If MacElree Harvey controlled the settlement fund, Plaintiffs could seek a constructive trust to enforce an equitable lien over the fund. 

Thus, in this case, what is the practical difference that the settlement fund is in the possession of the plan administrator?

A Possible Solution
The plan fiduciary pointed the Court to cases where courts found subject matter jurisdiction under § 502(a)(1)(B) when participants sued plans for benefits already received.

Pursuant to § 502(a)(1)(B), “[a] civil action may be brought by a participant or beneficiary to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.”

Plaintiffs [the plan fiduciaries] argue that since courts have found that a participant is seeking to “recover benefits,” even when he has already received said benefits, then a plan administrator is seeking equitable relief when it seeks a constructive trust over a settlement fund it has already received.

Battle of the Liens
The Court was troubled as to how it could fit the plan’s requested relief within Section 502(a)(3) when the defendant did not have possession of disputed funds. Thus, it contrived the following analysis and found that the plan was asserting equitable relief as required under ERISA Section 502(a)(3):

The Court holds that MacElree Harvey remains a constructive trustee over the settlement fund due to their common fund claim, even though Plaintiffs physically retain control over the fund. MacElree Harvey has a legal claim over the settlement fund under the common fund doctrine. Conceptually, MacElree Harvey is the legal owner of its future recovery of the settlement fund under the common fund doctrine.


While MacElree Harvey has a legal claim under the common fund doctrine, Plaintiffs argue in their Complaint that they have the superior equitable claim under the explicit language of the Plan. Thus, the relief that Plaintiffs are seeking is equitable insofar as they are seeking to enforce their equitable lien over MacElree Harvey’s future recovery of the settlement fund from its common fund claim.

In other words, the Court resorted to the legal fiction that the funds that the defendants relinquished to the plan in payment of the plan’s claims somehow remained subject to a constructive trust.  By this reasoning the Court could satisfy itself that the defendants were in “possession” of funds and thus the plan’s Section 502(a)(3) claim was well grounded in ERISA jurisprudence concerning the nature of equitable relief.

This conclusion led to the Court denying the defendants’ motion to dismiss filed against the plan’s claims for relief.

Note:  The Court’s approach in this case seems a bit strange.  Let’s see if we can figure out why.

The state court action attacked the explicit method of allocating recovered funds as set forth in the ERISA plan document.  If the analysis began here then matters would have sorted out much more sensibly.

For how that approach would have worked, review my analysis of a similar scenario in :: State Court Lien Adjudication Claim Subject to Removal and ERISA Preemption

State Court Proceedings - Since the state court proceedings were not removed, the Court engaged the issue in terms of the plan’s Section 502(a)(3) claim rather than preemption of the state law claim.  So what becomes of that case?  The Court addressed the issue obliquely without a definite conclusion, stating:

Finally, the relief requested does not violate the Anti-Injunction Act. Under the Anti-Injunction Act, “[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” 28 U.S.C. § 2283. As an overarching matter, Plaintiffs have not requested that the Court say the state court proceedings.

Moreover, even if the requested relief could be so interpreted, because the Court has found that it has subject matter jurisdiction pursuant to § 502(a)(3), the injunction is necessary to aid the court’s jurisdiction so the Act does not apply. See Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 146 (1988).

Unitedhealth Grp. Inc. v. MacElree Harvey, Ltd., No. CV 16-1026, 2016 WL 4440358, at *12 (E.D. Pa. Aug. 23, 2016)

See Also - :: ERISA Preemption of Subrogation Challenges – A Conflict of Opinions (Part 1)

:: Court Permits Plethora Of Claims To Advance In Provider Reimbursement Litigation

The dispute at the heart of this lawsuit is whether United wrongly treated Plaintiffs as in-network providers and, consequently, wrongly under-paid or denied benefit insurance claims submitted by Plaintiffs on behalf of their patients. Dr. Gabriel alleges that while he was an in-network provider from 2006 to 2008 during his employment at Peninsula Hospital, he became out-of-network upon his leaving that hospital in 2008. Id. ¶ 36. For the following three years, Dr. Gabriel submitted assigned claims to United from his private practice, and while United “often paid such claims on an out-of-network basis,” United also sometimes treated Dr. Gabriel as a participating provider. Id. ¶ 37. Despite “repeatedly” being told by Dr. Gabriel that he was out-of-network, United’s inconsistent claims determinations continued unabated. Id.

MBody Minimally Invasive Surgery, P.C. v. United HealthCare Ins. Co., 2016 U.S. Dist. LEXIS 108598, *4 (S.D.N.Y. Aug. 15, 2016)

This case offers a survey of issues and potential claims in the health care provider reimbursement context.   In a sense, one might say the case provides a toolbox for claimants who challenge health plan reimbursement practices.   The court ruled favorably on the vast majority of claims on hearing the defendants’ motion to dismiss.

Overview of Allegations

Here’s the overview of allegations by the plaintiff:

First, while United “historically” paid from 80% to 100% of the billed charges Plaintiffs submitted, United embarked on a “retaliatory campaign” following Dr. Gabriel’s December 2011 communication to United . . .

Second, United was inconsistent and arbitrary in reimbursing different amounts at different times for the same procedure codes under the same health insurance plans.

Third, United wrongly told some of Dr. Gabriel’s patients that he was in-network and that Plaintiffs’ practice of balance billing was “improper,” “fraudulent,” and in at least one instance, a “crime.”

Fourth, after United’s payments of Plaintiffs’ claims “slowed to a trickle, with no notice or explanation of any reason for the drastic reductions in payments,” Plaintiffs’ billing service contacted United on March 11, 2013 and was informed that Plaintiffs claims were being “audited” ,,, [but] that United failed to provide adequate notice of any audit-related information, including the audit’s initiation, the fact that United at one point hired a different third-party review company, the intermittent blanket denials all of Plaintiffs’ submitted claims, and claim-specific justifications for benefit denials.

Fifth, with respect to every denied claim litigated in this suit, Plaintiffs allege that United violated a number of ERISA’s statutory and regulatory provisions and non-ERISA contractual provisions by failing to provide in a timely fashion certain required notices, disclosures, and explanations of adverse benefit determinations, plan terms, review procedures, and appeal responses.

Continue reading

:: District Court Applies Discretionary Clause Ban To ERISA Self Funded Plan

For these reasons, the Court concludes that section 10110.6 applies to self-funded plans in the same way it applies to insured plans and effectively bars the Court from applying the abuse of discretion standard of review. The Court will therefore review Aetna’s decision on a de novo basis.

Thomas v. Aetna Life Ins. Co., No. 215-CV-01112-JAM-KJN, 2016 WL 4368110, at *7 (E.D. Cal. Aug. 15, 2016)

This opinion addresses two issues: first, the adequacy of the plan document’s delegation of discretionary authority to the claims administrator and, second, whether state law prohibiting discretionary clauses may apply to a self funded ERISA plan.

In a poorly reasoned opinion, the district court reached the wrong conclusion on both issues.  The mistake in the ERISA preemption analysis is the most troubling. In fact, this is at least the second time that a California district court has incorrectly applied a state law regulation to a self funded ERISA plan.

Delegation of Authority

The plaintiff (Thomas) argues that:

. . . the abuse of discretion standard would be inappropriate here because Aetna was never unambiguously granted discretion by the Benefits Committee. Thomas concedes that the Benefits Committee was granted discretion for its determination of whether Thomas was disabled but contends that “there is no language in the Plan granting Aetna discretion and Defendants have not cited anything evidencing that the Benefits Committee expressly delegated its discretion to Aetna.”

In short, while the plan grants the “Benefits Committee” discretionary authority, it does not grant that authority to the claims administrator (Aetna) – and, significantly, the Benefits Committee never delegated its authority to Aetna.  This argument should be viewed in context of the historical and prevailing ERISA jurisprudence that ERISA plan terms must be in writing and enforced accordingly.

Inexplicably, the Court rules against the plaintiff on the issue, finding that, “[r]ead as a whole, the Plan sufficiently delegates the Plan Administrator’s discretionary authority to Aetna.”  (emphasis supplied).

ERISA Preemption

The Court then turned its attention to the ERISA preemption issue.  The Court saw the issue as merely one of whether the state law ban conflicted with ERISA’s administrative scheme.

. . . the Ninth Circuit has concluded that state laws that bar discretionary clauses (such as section 10110.6) are not preempted by ERISA because they do not “authorize any form of relief in state courts nor serve as an alternative enforcement mechanism outside of ERISA’s civil enforcement provisions.” Standard Ins. Co., 584 F.3d at 846 [Standard Ins. Co. v. Morrison, 584 F.3d 837, 846 (9th Cir. 2009)] (rejecting claim that ERISA preempted a policy implemented by the Montana insurance commissioner of disapproving any insurance contract containing a discretionary clause).

On this view,  state law bans on discretionary clauses “merely force [ ] ERISA suits to proceed with their default standard of review,” which is de novo, and therefore do not “duplicate, supplement, or supplant the ERISA remedy.”

The Problem With the Court’s Reasoning

The problem with the Court’s reasoning lies in its careless reading of Ninth Circuit authority, i.e., the Standard Ins. Co. v. Morrison opinion.

That opinion involved two arguments, each of which would have been fatal to the application of the discretionary clause ban.   The Court ignored the first argument in Morrison which involved application of ERISA’s savings clause and went straight to the second argument of whether the law conflicted with ERISA remedies.

Let’s review the first argument as presented in Morrison.  The Ninth Circuit opinion began by asking:
Is Commissioner Morrison’s practice of denying approval to insurance forms with discretionary clauses preempted by ERISA? Here, no one disputes that Commissioner Morrison’s practice “relate[s] to any [covered] employee benefit plan.” 29 U.S.C. § 1144(a). It is thus preempted unless preserved by the savings clause.
Only after resolving this issue in favor of applying the savings clause did the Ninth Circuit reach the second argument.  And the second argument was essentially advancing an exception to the savings clause -
We decline to create an additional exception from the savings clause here. Like the regulatory scheme in Rush Prudential, the Commissioner’s practice “provides no new cause of action under state law and authorizes no new form of ultimate relief.” Id. at 379, 122 S.Ct. 2151. The Rush Prudential court emphasized that the scheme in that case “does not enlarge the claim beyond the benefits available” and does not grant relief other than “what ERISA authorizes in a suit for benefits under § 1132(a).” Id. Neither does the Commissioner’s practice.

Standard Ins. Co. v. Morrison, 584 F.3d 837, 848 (9th Cir. 2009)

By failing to appreciate the significance of the self funded status of the plan, the Court reached the wrong result.   Without benefit of the savings clause (which could not apply since it only extends to laws regulating the business of insurance), the state law discretionary ban is preempted since it relates to an ERISA plan.

Note – The Court appears to have relied in part on the decision by another district court which also reached the wrong conclusion on this issue:

During the hearing, however, Defendants conceded that the only court that has directly addressed the issue of whether the application of section 10110.6 to self-funded plans is preempted by ERISA concluded that there is no preemption. Williby v. AETNA Life Insurance Company, 2015 WL 5145499, *5 (C.D. Cal. Aug. 31, 2015).1 The defendant in Williby argued just as Defendants argue in this case “that the insurance code does not apply because (1) the STD benefits are self-funded … and (2) Aetna is granted discretion by the Plan, which is not an insurance policy, and thus, not regulated by the insurance code.” Id. at *5. The Williby court rejected this argument.

Thomas v. Aetna Life Ins. Co., No. 215CV01112JAMKJN, 2016 WL 4368110, at *6 (E.D. Cal. Aug. 15, 2016)

Deemer Clause – Since the overarching issue here is the application of state insurance law to self funded ERISA plans, note that states may not treat self funded plans as “insurance” so as to avoid ERISA preemption:

We read the deemer clause to exempt self-funded ERISA plans from state laws that “regulat[e] insurance” within the meaning of the saving clause. By forbidding States to deem employee benefit plans “to be an insurance company or other insurer … or to be engaged in the business of insurance,” the deemer clause relieves plans from state laws “purporting to regulate insurance.” As a result, self-funded ERISA plans are exempt from state regulation insofar as that regulation “relate[s] to” the plans.

FMC Corp. v. Holliday, 498 U.S. 52, 61, 111 S. Ct. 403, 409, 112 L. Ed. 2d 356 (1990)






:: How to Enforce Oral Contractual Arrangements For Health Care Provider Reimbursement

Defendants next argue that, even if Sigma Delta was authorized to enter into contracts with Defendants on behalf of Plaintiffs, Plaintiffs’ cause of action fails as a matter of law because Plaintiffs cannot establish the elements required to prove the existence of an oral contract of which the value exceeds $500.

Ctr. for Restorative Breast Surgery, L.L.C. v. Blue Cross Blue Shield of Louisiana, No. CV 11-806, 2016 WL 4208479, at *11 (E.D. La. Aug. 10, 2016)
In this case, the plaintiffs were out-of-network health care providers who provided services to patients covered under the defendants’ plans and policies.  The plaintiffs alleged that they received preauthorization from the defendants.   Among other things, the plaintiffs argued that these agreements constituted enforceable oral contracts.

So,are oral contracts enforceable?  Any first year law student knows the answer.  Of course they are.  But . . .

The practical problem is – how do you prove the terms?
The situation here is not unusual in the context of health care provider reimbursement.  Many times the terms and conditions of payment are reached telephonically – so this issue is important.

Let’s return to the case at bar before discussing the issue further.
The defendants raised a defense based on statute but that goes back to the English common law.

 It is undisputed that the value of the alleged oral contracts exceed $500. Louisiana Civil Code article 1846 requires that, when the plaintiff alleges the existence of an oral contract of which “the price or value is in excess of five hundred dollars, the contract must be proved by at least one witness and other corroborating circumstances.”

For those interested in history, the law dates back to the 1600′s.  The law is generally known as the the “Statute of Frauds” and is based on a 1677 act passed by the English Parliament, originally known as “An Act for the Prevention of Frauds and Perjuries.”

And in this case, this defense was fatal to the plaintiffs’ claims:

Plaintiffs do not offer any evidence from another source to establish corroborating circumstances of the alleged contract. “[W]ithout the necessary corroborating evidence, a claimant’s testimony, standing alone, is insufficient to prove the existence or amendment of an oral contract.” Defendants’ motion for summary judgment on Plaintiffs’ state-law cause of action for breach of contract in Count VI is granted.

So are oral contracts of any value at all?  It would seem not.  But that would be a premature judgment.

In fact many exceptions can be found to the statute of frauds.  Given the frequency of this issue in provider reimbursement cases, these are exceptions worth exploring.
Exceptions include contracts that can be performed within one year, contracts which are partially performed, and equitable estoppel.   (e.g., see, http://www.vsb.org/docs/conferences/young-lawyers/dc_spr2013.pdf).  And see, 2 Wm. & Mary Bus. L. Rev. 73 (2011).

Note - An example of a successful pleading and proof of an oral contract may be found in Queen’s Med. Ctr. v. Kaiser Found. Health Plan, Inc., 948 F. Supp. 2d 1131, 1144 (D. Haw. 2013):

Plaintiff sufficiently pleads an oral contract based on the following allegations: (1) the offer – Plaintiff offered to continue to provide healthcare services in exchange for Kaiser’s agreement to reimburse Plaintiff for 100% of the billed charges (Compl. at 18 ¶ 58), (2) acceptance – Kaiser acknowledged that it would need to pay 100% of the billed charges for services provided by Plaintiff (Compl. at 7, ¶¶ 15, 18, 19), and (3) consideration – Plaintiff would provide services in exchange for Kaiser’s payment (Compl. at 7, ¶ 15).

:: Severance Arrangement Constitutes ERISA Plan – Factor Analysis of Plan Status

The dispositive issue in this case is whether Plaintiff’s state-law claims are preempted by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. and thus subject to the sixty-day appeal period.

Gordon v. AstraZeneca AB, No. 4:16-CV-40042-TSH, 2016 WL 4212250, at *2 (D. Mass. Aug. 9, 2016)

This case involves a preliminary issue of whether a severance pay arrangement is an ERISA plan.  If so, the plaintiff’s state law claims would be preempted – and even more significantly, the failure to appeal the denial of benefits gives rise to the defense of failure to exhaust administrative remedies.

Was the arrangement an ERISA plan?

Severance pay arrangements require a careful examination of the facts underlying the benefit obligations.  The Court turned to the seminal cases for guidance, noting:

“[A]n employee benefit may be considered a plan for purposes of ERISA only if it involves the undertaking of continuing administrative and financial obligations by the employer to the behoof of employees or their beneficiaries.” Belanger v. WymanGordon Co., 71 F.3d 451, 454 (1st Cir.1995) (citing Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 12, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987); District of Columbia v. Greater Wash. Bd. of Trade, 506 U.S. 125, 130 n. 2, 113 S.Ct. 580, 121 L.Ed.2d 513 (1992)).

When evaluating whether a given program falls under ERISA, the court looks to “the nature and extent of an employer’s benefit obligations.” O’Connor v. Commonwealth Gas Co., 251 F.3d 262, 266–67 (1st Cir.2001) (quoting Rodowicz v. Mass. Mut. Life Ins. Co., 192 F.3d 162, 170, amended by 195 F.3d 65 (1st Cir.1999)).

So the project of evaluating whether a plan exists becomes a “fact-intensive inquiry specific to each case” with no “authoritative checklist” that settles the question.
The Court finds that the arrangement constitutes an ERISA plan . . .
The reasons:
  1. the severance payment was only available to “eligible” employees, and one of the criteria for eligibility was that the employee cannot have been terminated “for cause.”
  2. the Plan granted discretion to the administrator to construe its terms, including the definition of “notice of termination,” which was the purported basis for benefits denial
  3. other benefits under the Plan—post-termination medical, dental, life insurance, and employee assistance—are the types of ongoing benefit payments that constitute a typical ERISA plan
  4. both the Plan and the Plan Summary contained clear statements of intent that this is an ERISA plan.

Note that #1 and #2 support the argument that the plan involved discretion which is factor indicating ERISA plan status.

The court finds the state law claims preempted . . .
Having found the existence of an ERISA plan, it was a short step for the Court to arrive at the conclusion that the plaintiff’s state law claims were preempted.  In short, the Court held that the Plaintiff sought to enforce the terms of the Plan through state-law causes of action—precisely the type of alternative enforcement that ERISA prohibits.
The Supreme Court has “identified three categories of state laws that ‘relate to’ ERISA plans” for purposes of preemption: “(1) state laws that ‘mandate [ ] employee benefit structures or their administration,’ (2) state laws that ‘bind plan administrators to [a] particular choice,’ and (3) state law causes of action that provide ‘alternative enforcement mechanisms’ to ERISA’s enforcement regime.” Id. at 51 (quoting New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514 U.S. 645, 658–59, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995)).
The third category applies to the state law causes of action in this case. “[I]n order to assess whether the state law cause of action is an alternative enforcement mechanism, [the court] must ‘look beyond the face of the complaint’ and determine the real nature of the claim ‘regardless of plaintiff’s … characterization.’ ” Id. (quoting Danca v. Private Health Care Sys., Inc., 185 F.3d 1, 5 (1st Cir.1999)).
. . . and that the Plaintiff failed to exhaust administrative remedies.
Regardless of the issue of whether an ERISA plan exists, the possibility that it might requires careful attention to the procedural aspects of ERISA appeals as set forth in the applicable documents.  Here, the Plaintiff did not appeal the initial denial of his claim.  The Court refused to accept his argument that an appeal would have been futile.
“blanket assertion[s], unsupported by any facts, [are] insufficient to call the futility exception into play.” Id. at 63. To show futility, the employee must produce evidence to show that the administrative review would have been futile. See id.; Drinkwater, 846 F.2d at 826. Plaintiff’s blanket statement about the inadequacy of the appeals procedure is insufficient to satisfy this requirement.
In sum, I find that Plaintiff’s state-law claims are preempted by ERISA and that he has failed to exhaust his administrative remedies.

Note:  Although the Court eschews the use of authoritative checklists, it does in fact quote opinions that do, more or less, provide a checklist for determining whether an ERISA plan exists.  For example:

Factors indicating no plan -
  • a benefits package that consists primarily of a non-discretionary, one-time, lump-sum benefit
  • voluntary termination program offering one-time lump-sum or incremental severance benefit was not ERISA plan
Factors indicating existence of a plan –
  • whether “the time period [was] prolonged, individualized decisions [were] required, and at least one of the criteria [was] far from mechanical.”
  • whether the payments are ongoing;
  • whether the employer’s obligation is triggered by the occurrence of a particular contingency;
  • whether the plan administrator has discretionary functions;
  • whether the plan contains a detailed claims procedure; and
  • whether the plan states that it is governed by ERISA.

Bottom line - A “one-shot, take-it-or-leave-it incentive” payment—the administration and application of is purely mechanical is not an ERISA plan.  As the arrangement increases in complexity and discretion, it will to that extent move on the spectrum toward ERISA plan status.

:: State Court Lien Adjudication Claim Subject to Removal and ERISA Preemption

This case arises from Defendant Hawaii Management Alliance Association’s (“HMAA”) lien for $400,779.70 of the medical expenses it paid pursuant to Plaintiff Randy Rudel’s (“Plaintiff” or “Rudel”) HMAA benefit plan (the “Plan”) after Rudel was injured in a motorcycle crash.

According to HMAA, the Plan entitles HMAA to reimbursement in light of Rudel’s $1,500,000 third-party tort settlement related to the motorcycle crash.   Rudel initiated a state-court action to determine the validity of HMAA’s lien . . . HMAA removed the Petition to this court asserting that this matter is completely preempted by [ERISA]

Rudel v. Hawaii Mgmt. All. Ass’n, No. CV 15-00539 JMS-RLP, 2016 WL 4083320, at *1 (D. Haw. Aug. 1, 2016)

This case is quite similar to another recent case,  Noetzel v. Hawaii Med. Serv. Ass’n, 2016 WL 4033099 (D. Haw. July 27, 2016).   [Analyzed here]  As in that case, the question is whether an ERISA plan participant may avoid ERISA’s preemptive provisions by filing a state court petition to adjudicate a health plan’s reimbursement provisions.

Two Prong Test

The Court turned to the now familiar two prong test set forth in Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) for deciding whether a state-law cause of action is completely preempted by ERISA. A state law claim is preempted if: (1) the plaintiff “could have brought his claim under ERISA § 502(a)(1)(B)”; and (2) “there is no other independent legal duty that is implicated by a defendant’s actions.” Davila, 542 U.S. at 210.


Could Rudel have brought his claim under ERISA § 502(a)(1)(B)? That question sums up the first issue since the challenge in state court could really be construed as a claim for benefits undiminished by the offsetting reimbursement claim.

Section 502(a)(1)(B) provides that a Plan participant or beneficiary may bring a civil action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a).

Rudel argues that it is “patently clear” his Petition is brought pursuant to Hawaii state law instead of ERISA. According to Rudel, ERISA § 502(a)(1)(B) does not apply because the Petition does not seek to recover benefits under the terms of the Plan. Rather, Rudel argues, the Petition only seeks to keep benefits already provided by HMAA.

Rudel misses the point. “Focusing on how a claim is pled risks missing the critical inquiry as to whether ‘an individual, at some point in time could have brought his claim under ERISA § 502(a).’ ” Noetzel, 2016 WL 1698264, at *11 (citing Davila, 542 U.S. at 210).Here, HMAA’s lien places Rudel’s benefits “ ‘under something of a cloud.’ ” Id. at *9 (citing Arana v. Ochsner Health Plan, 338 F.3d 433, 438 (5th Cir. 2003) (en banc)). Rudel’s Petition seeks to remove the “cloud” by obtaining “recovery of the entire benefit provided by [HMAA], as opposed to the benefit minus the amount to be reimbursed to [HMAA].”

The essence of the Petition, therefore, is that “although the benefits have already been paid, [Rudel] has not fully ‘recovered them because [he] has not obtained the benefits free and clear of [HMAA's] claims.” Id. (quoting Arana, 338 F.3d at 438).The fact that HMAA has “already provided the benefits to [Rudel] as opposed to having denied them in the first instance, does not change the nature of [his] claim[s], which, for all intents and purposes, seek[ ] to establish [his] entitlement to ERISA benefits.” Id.

(emphasis added)

# 2

Does state law impose an independent legal duty?  This is the second prong issue.  The Court concluded that it did not.

The Court noted that:

. . . [s]tate law legal duties are not independent of ERISA where interpretation of the terms of the benefit plan forms an essential part of the claim, and legal liability can exist only because of the defendant’s administration of ERISA-regulated benefit plans.” Id. at *13 (citing Davila, 542 U.S. at 213) (some quotations, alterations, and citations omitted).

And the Court found that interpretation of plan terms formed an “essential part” of  state law Petition.  Furthermore,

Rudel’s Petition is dependent on ERISA because Rudel “would have no claim in the absence of the ERISA Plan itself.” Id. That is, Rudel’s Petition is challenging the validity of the Plan’s request for reimbursement, and “legal liability can exist only because of the defendant’s administration of ERISA-regulated benefit plans.” Noetzel, 2016 WL 1698264, at *13. Ultimately, any legal duty HMAA might have “is entirely dependent on the ERISA Plan.” Id. at *14.

Thus, the state law claim was properly removed to federal court and preempted by ERISA.

Note:   A conflict in the federal courts exists on the first prong query.  The Court noted that:
In reaching this conclusion, the court is well aware that Wurtz v. Rawlings Co., LLC, 761 F.3d 232 (2d Cir. 2014) –– the case the F&R relied upon in finding that Rudel’s claim was not within the scope of § 502(a)(1)(B) –– “is the only decision cited to the court which interpreted and analyzed” Davila’s two-prong test.
But the court finds Wurtz unpersuasive because it “flouts the direction in Davila to examine the essence of a claim in determining whether it is completely preempted by § 502(a).” Noetzel, 2016 WL 1698264, at *10. As such, the court finds that the first prong of Davila is satisfied.

 Rudel v. Hawaii Mgmt. All. Ass’n, No. CV 15-00539 JMS-RLP, 2016 WL 4083320, at *2 (D. Haw. Aug. 1, 2016)



:: No Fault Carrier’s Claim Defeated By Health Plan’s ERISA Defense

When Timothy Van Camp (“Van Camp”) suffered injuries in a motor vehicle accident, he was insured by both Appellant Farm Bureau General Insurance Company of Michigan (“Farm Bureau”), a no-fault auto insurer, and an ERISA1 plan administered by Appellee Blue Cross Blue Shield of Michigan (“BCBSM”).

BCBSM contends that its Plan does not cover the medical services received by Van Camp because those services were not medically necessary. Although Farm Bureau had not yet paid for Van Camp’s medical bills, Farm Bureau brought an action under federal common law and, in the alternative, under ERISA § 502(a). Farm Bureau sought a declaration of coverage and reimbursement or recoupment from BCBSM for the cost of Van Camp’s medical care.

The district court dismissed Farm Bureau’s claims. Because Farm Bureau has no standing to bring a claim under federal common law or ERISA § 502(a), we affirm.

FARM BUREAU GENERAL INSURANCE COMPANY OF MICHIGAN, Plaintiff-Appellant, v. BLUE CROSS BLUE SHIELD OF MICHIGAN, Defendant-Appellee., No. 15-2323, 2016 WL 3924243, at *1 (6th Cir. July 21, 2016)

Farm Bureau first filed in state court.  Blue Cross removed the case to federal court on the grounds that the claims related to an ERISA plan.

No Fault Carrier Argues

Farm Bureau amended its complaint to seek:

(1) a declaratory judgment stating that BCBSM is first in priority to reimburse Van Camp’s medical claims,

(2) recoupment from BCBSM under federal common law for the payments that Farm Bureau made toward Van Camp’s medical claims, and

(3) as an alternative to its first two claims, equitable subrogation to the remedies available to Van Camp as a Plan participant or beneficiary under ERISA §§ 502(a)(1)(B) and 502(a)(3) (codified at 29 U.S.C. §§ 1132(a)(1)(B) and 1132(a)(3)).

Health Plan Responds

Blue Cross filed a motion to dismiss, asserting:

(1)  the dispute between the parties was an ERISA denial-of-benefits action under § 502(a)(1)(B), not a priority dispute governed by federal common law or an action for equitable subrogation under § 502(a)(3),

(2)  Farm Bureau lacked standing to bring an ERISA denial-of-benefits action because Farm Bureau had not paid Van Camp’s claims and, thus, was not a subrogee, and

(3)  even if Farm Bureau were a subrogee, Farm Bureau had failed to exhaust its administrative remedies prior to filing suit.

The Court Rules In Favor of Health Plan

Farm Bureau’s federal-common-law claim fails because it lacked standing to bring its claims. (See #2 above)

 The fact that Farm Bureau, a non-participant, non-beneficiary, and non-assignee, has no standing to assert a claim under ERISA § 502(a)(1)(B), is not evidence of an interstice. It is evidence of Congress’ intention to prohibit all but a narrow range of potential plaintiffs from bringing suit under § 502(a). What Farm Bureau sees as an interstice is, in reality, a deliberate limitation. The Court utilizes federal common law to fill inadvertent gaps, not to open avenues for relief that Congress intentionally closed. The Court declines to circumvent the clear wording of § 502(a).

Farm Bureau cannot bring a claim under federal common law to recoup the amount denied by the Plan when the ERISA provision that specifically provides for the recovery of denied benefits—§ 502(a)(1)(B)—would prohibit Farm Bureau’s claim.

Note:  The Court distinguished other cases relied on by Farm Bureau, stating that:

Here, by contrast, there is no coordination-of-benefits dispute. (Appellant Br. at vi.) And more fundamentally, there is no interstice in ERISA’s coverage. An ERISA provision—§ 502(a)(1)(B)—already addresses disputes over denial of benefits, see Weiner, 108 F.3d at 92, and Farm Bureau has no standing to bring a claim under that section because it is not a participant, beneficiary, or assignee, see 29 U.S.C. § 1132(a)(1)(B).

These cases were Prudential Property and Casualty Insurance v. Delfield Company Group Health Plan and Auto Owners Insurance Company v. Thorn Apple Valley, Inc.—who were permitted to bring federal-common-law claims purportedly because they failed to fall within any of the plaintiff categories elucidated in ERISA § 502(a).

In a nutshell:

We permitted the plaintiffs in Thorn Apple Valley and Delfield to bring claims under federal common law because their claims required the court to interpret conflicting coordination-of-benefit clauses. See Delfield, 187 F.3d 637 (Table), 1999 WL 617992, at *3; Thorn Apple Valley, 31 F.3d at 374. This Court relies on federal common law when addressing coordination-of-benefits disputes because neither ERISA nor any other federal statute “addresses the resolution of [a] conflict between [coordination-of-benefits] clauses.” Thorn Apple Valley, 31 F.3d at 374.

:: Fiduciary Liable Under ERISA For Denied Life Insurance Coverage

In short, the Court finds that Plaintiffs have met their summary-judgment burden by presenting evidence that Church’s made representations to Van Loo implying that she had completed her enrollment for a level of coverage that never actually became effective. Church’s attempts to isolate and neutralize individual statements do not change this result.

Loo v. Cajun Operating Co. d/b/a Church’s Chicken, No. 14-CV-10604, 2016 WL 3137822, at *7 (E.D. Mich. June 6, 2016)

This case illustrates how an employer can end up paying a high price for assuming that an insurance company will take responsibility for providing necessary information to its employees.  In this instance, the group life carrier denied coverage for additional benefits due to failure to supply an “evidence of insurability” form for the increased coverage.

The Court was not impressed with the employer’s attempt to shift blame:

And while Church’s points the finger at Reliance, stating that Reliance’s Plan Administrator Guides did not offer Church’s any guidance on the EIF requirement, it is undisputed that Church’s had access to the Policy. And the Policy articulated the EIF requirement.

The Plaintiff made out a successful claim for breach of fiduciary duty by negligent misrepresentation in the following manner: Continue reading

:: ERISA Claims For Alleged Overpayments To Hospital Fail To Qualify As “Equitable Relief”

Based on the analysis and reasoning set forth herein, the Court determines that Cigna’s claim(s) for reimbursement of overpayments made pursuant to ERISA and/or common law fail, as a matter of law; therefore, Humble’s Rule 52 motion for judgment should be GRANTED. The Court further concludes that Cigna’s defenses to Humble’s ERISA claims fail and Humble is entitled to recover damages under § 502(a)(1)(B)1 and penalties under § 502(c)(1)(B).

CONNECTICUT GENERAL LIFE INSURANCE COMPANY, et al., Plaintiffs, v. HUMBLE SURGICAL HOSPITAL, LLC, Defendant., No. 4:13-CV-3291, 2016 WL 3077405, at *2 (S.D. Tex. June 1, 2016)

Though the seminal cases defining the scope of equitable relief under ERISA (via Section 502(a)(3)) occur in the health plan subrogation and reimbursement context, the consequences of those decisions reach beyond to include reimbursement claims for plan overpayments.

In the cited case, CIGNA asserted claims under the plan’s “Overpayment” clause based on its position that it had overpaid a health care provider.

As a threshold matter, Cigna asserts a claim for equitable reimbursement of overpayments pursuant to ERISA § 502(a)(3). Specifically, Cigna seeks equitable restitution in the amount of $5,121,137.

That sort of overpayment claim would not be expected to have occurred on just a few claims and in fact, it did not.

The evidence shows that this sum represents the difference between the benefits that Cigna paid and the benefits that the members/patients were contractually entitled to receive under the plans.

So, after CIGNA “discovered” the billing pattern that caused this situation, it sued the provider basing its case in part upon ERISA.
Be careful what you ask for . . . 
In this context, the plan fiduciary has to be very careful about what relief is requested.   Continue reading

:: Provider Reimbursement Case Fails Because of Standing Defect

Finally, a plaintiff must have a cause of action under the applicable statute. This was formerly called “statutory standing.” In the past, we suggested that this was either “a separate aspect of standing or a part of the prudential aspect of standing.” Lerner v. Fleet Bank, N.A., 318 F.3d 113, 126 n. 12 (2d Cir.2003); see also Kendall v. Emps. Ret. Plan of Avon Prods., 561 F.3d 112, 118 (2d Cir.2009).

The Supreme Court has recently clarified, however, that what has been called “statutory standing” in fact is not a standing issue, but simply a question of whether the particular plaintiff “has a cause of action under the statute.” Lexmark Int’l, Inc. v. Static Control Components, Inc., ––– U.S. ––––, ––––, 134 S.Ct. 1377, 1387, 188 L.Ed.2d 392 (2014). This inquiry “does not belong” to the family of standing inquiries, id., because “the absence of a valid … cause of action does not implicate subject-matter jurisdiction, i.e., the court’s statutory or constitutional power to adjudicate the case.” Id. at 1386 n. 4 (emphasis in original) (internal quotation marks omitted); see also Nw. Airlines, Inc. v. County of Kent, 510 U.S. 355, 365, 114 S.Ct. 855, 127 L.Ed.2d 183 (1994) (“The question whether a federal statute creates a claim for relief is not jurisdictional.”).

Am. Psychiatric Ass’n v. Anthem Health Plans, Inc., No. 14-3993-CV, 2016 WL 2772853, at *4 (2d Cir. May 13, 2016)

This recent Second Circuit opinion reflects the complexity of provider reimbursement cases in the ERISA context.

Continue reading

:: Equitable Surcharge and Reformation – New Remedies Add Bite to Bungled Insurance Benefits Administration

Plaintiff claims that Defendants’ alleged mishandling of Guy Barnette’s request to port his life insurance and failure to inform him of his other options under the Policy constitute breaches of fiduciary duty.  She has alleged a claim solely pursuant to § 502(a)(3), 29 U.S.C. § 1132(a)(3), of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. Barnette v. Sun Life Assurance Co. of Canada, No. CV 4:15-3720, 2016 WL 1384688, at *2 (S.D. Tex. Apr. 7, 2016)

This case illustrates the possible use of surcharge and reformation as a solution for fiduciary malfeasance in the communication and handling of a life insurance benefits.

:: ERISA Preemption of Subrogation Challenges – Characterization of The Complaint (Part 2)

Mr. Cox contends that his state law employment claims are not removable to federal court. [Filing No. 14.] Mr. Cox emphasizes that his Statement of Claims “clarified that it is not his intention to assert a claim under ERISA § 502 for benefits per se.” Instead, Mr. Cox seeks damages from what he contends was his misclassification as an independent contractor.

Mr. Cox emphasizes that he “does not seek actual plan benefits in this case; rather, he seeks damages based in part on the value of such benefits that would have and should have been provided for him had he been properly classified during his working relationship with Defendants.”

Cox v. Gannett Co., Inc., 2016 WL 1425525, at *3 (S.D. Ind. Apr. 12, 2016)

The district court in Elizabeth Noetzel v. Hawaii Medical Service Association criticized the Second Circuit’s opinion in Wurtz v. Rawlings Co., LLC for failing to look at what the participant’s claim “really” is about. (See discussion in :: ERISA Preemption of Subrogation Challenges – A Conflict of Opinions (Part 1)).

In Cox v. Gannett Co., Inc., the district court provides an example how, in the ERISA removal and preemption context, the words chosen in the complaint and in briefing are of great importance.

The Davila Preemption Test

To set the stage, recall the two requirements for preemption stated in Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004).

“[I]f an individual, at some point in time, could have brought his claim under ERISA [civil enforcement provision] § 502(a)(1)(B), and where there is no other independent legal duty that is implicated by a defendant’s actions, then the individual’s cause of action is completely pre-empted by ERISA § 502(a)(1)(B).”’

Colorable Claim Under ERISA

In Cox, the plaintiff, treated as an independent contractor, but arguing he met the definition of an “employee”,  brought state law employment law claims against his employer.  He also sought the value of lost benefits through state law remedies.

To avoid preemption, he argued he “is not now and never was a participant or beneficiary in the ERISA plan” at issue because he was characterized as an independent contractor.  To the contrary, the court held that his allegations in the complaint were sufficient to make a colorable claim that he was a “participant” under ERISA for purposes of a civil enforcement action.

No Independent Legal Duty

To avoid preemption he emphasized that he did not seek the benefits per se – just the value of the benefits.

Mr. Cox appears to argue that because he brings state law claims for Defendants’ alleged violations under various Indiana statutes unrelated to ERISA benefits—specifically, a failure to pay overtime claim, an unlawful deduction from wages claim, and a violation of Indiana’s wage payment statute—ERISA preemption does not apply to his action. Mr. Cox ignores, however, that he specifically requests employment benefits through his common law claims for fraud and unjust enrichment.

The court rejected this argument and held that since the plaintiff pointed to no other independent legal duty implicated by Defendants’ actions with regard to his claim for unpaid benefits under those common law theories, his argument regarding the second requirement of ERISA preemption failed as well.

Seventh Circuit Authority

In the prior post, we noted that Blackburn v. Sundstrand Corp., 115 F.3d 493 (7th Cir.1997) and Speciale v. Seybold, 147 F.3d 612 (7th Cir.1998) presented a sort of odd set of cases in the ERISA subrogation line of authorities.  In those two cases, the ERISA fiduciaries lost in their effort to convert a state law issue into a federal preemption case.

Yet in Cox, the district court cited Seybold in support of its removal and preemption of state law claims.  “Complete preemption permits ‘recharacterization’ of a plaintiff’s state law claim as a federal claim so that removal is proper.” Speciale v. Seybold, 147 F.3d 612, 615 (7th Cir. 1998).  So how should one view the Seventh Circuit cases in this context?

The Seventh Circuit makes a distinction between a challenge to ERISA subrogation and a state law action to apportion settlement or recovery proceeds.  The Court notes that “both of these earlier cases we held that a petition to apportion claims to a settlement fund between an ERISA plan subrogation claim and other lienholders was not preempted by ERISA’s civil enforcement provision and the allocation of the funds was a matter for determination in the state court.” Hart v. Wal-Mart Stores, Inc. Associates’ Health & Welfare Plan, 360 F.3d 674, 676 (7th Cir. 2004).

Note - Is the Seventh Circuit’s distinction persuasive?  Have federal courts in the Seventh Circuit retreated from this position?  These are questions we will take up in the next post.



:: ERISA Preemption of Subrogation Challenges – A Conflict of Opinions (Part 1)

In viewing Noetzel’s claim as not completely preempted by ERISA § 502(a), the F & R relied almost exclusively on Wurtz v. Rawlings Co., LLC, 761 F.3d 232 (2d Cir. 2014).  Wurtz represents the minority view that a challenge to an ERISA plan administrator’s right to subrogation or reimbursement falls outside the scope of ERISA § 502(a). While this court would not hesitate to adopt a minority position if convinced it was the better-reasoned approach, this court identifies problems that preclude the adoption of the reasoning in Wurtz.

Elizabeth Noetzel v. Hawaii Medical Service Association,  — F.Supp.3d —-2016 WL 1698264  (D. Hawai’i, April 27, 2016)
The district court surveys the opposing points of view on the question of whether a plan participant’s challenge to an ERISA plan’s reimbursement rights should be construed as a claim cognizable under ERISA § 502(a).   The court sides with the majority view that a plan participant’s assertion of state law remedies in this context is essentially a claim for benefits and thus within the scope of ERISA § 502(a).  As a result, the claims are preempted.
Problems With Wurtz Holding
Relying on Wurtz v. Rawlings Co., LLC, 761 F.3d 232 (2d Cir. 2014),, the magistrate judge had concluded otherwise.  In rejecting the finding and recommendation, the district court stated that the Second Circuit’s decision in Wurtz flouted the Supreme Court’s holding in Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004).
Wurtz flouts the direction in Davila to examine the essence of a claim in determining whether it is completely preempted by ERISA § 502(a). That is, Davila counsels the court not to accept claims at face value. “[D]istinguishing between pre-empted and non-pre-empted claims based on the particular label affixed to them would elevate form over substance and allow parties to evade the pre-emptive scope of ERISA simply by relabeling their contract claims as [state law] claims.” 542 U.S. at 214.
In addition, Wurtz “conflicts directly with governing Ninth Circuit precedent.”
In the Ninth Circuit, “[p]reemption under ERISA section 502(a) is not affected by [section 514(b)(2)(A) as a state regulation of insurance].”  Cleghorn [v. Blue Shield of California], 408 F.3d at 1227. Cleghorn provides: “A state cause of action that would fall within the scope of this scheme of remedies [in § 502(a) ] is preempted as conflicting with the intended exclusivity of the ERISA remedial scheme, even if those causes of action would not necessarily be preempted by section 514(a).” Id. at 1225 (citing Davila, 542 U.S. at 214 n.4).
The problem with Wurtz, in a nutshell then, is that (1) it fails to look at what the participant’s claim “really” is about and (2) it subordinates Section 502(a) claims preemption to the savings clause (an outcome rejected by the majority).
Survey of Opposing Opinions
The district court noted that the Ninth Circuit has not yet addressed the issue of whether a challenge to an ERISA plan provider’s reimbursement claim falls within the scope of ERISA § 502(a)(1)(B).
This occasioned the survey of other circuits that have addressed the question.
As against Wurtz, the court reviewed the opinions in Wirth v. Aetna U.S. Healthcare, 469 F.3d 305 (3d Cir. 2006); Levine v. United Healthcare Corp., 402 F.3d 156 (3d Cir. 2005), cert. denied, 2005 WL 3144545 (U.S. Nov. 28, 2005)(No. 05–387); Arana v. Ochsner Health Plan, 338 F.3d 433 (5th Cir. 2003)(en banc); Singh v. Prudential Health Care Plan, Inc., 335 F.3d 278 (4th Cir. 2003).
Although Arana, Singh, Levine, and Wirth did not apply the Davila test, they nonetheless provide useful guidance to the extent they addressed the exact question that the first prong of Davila requires this court to address, namely, whether a claim challenging a request for reimbursement for benefits already provided falls within the scope of § 502(a).
Note:  The Seventh Circuit may be in a middle category, depending on how one interprets  opinions in Blackburn v. Sundstrand Corp., 115 F.3d 493 (7th Cir.1997) and Speciale v. Seybold, 147 F.3d 612 (7th Cir.1998).  See, :: ERISA Preemption of Subrogation Challenges – Characterization of The Complaint (Part 2)

:: District Court Opinion Provides A Primer On ERISA Venue Considerations

28 U.S.C. § 1404(a) provides that, for “the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.”  The plain text of § 1404(a) requires a two-part analysis.  The Court must first determine if the action could have originally been filed in the transferee district.  Van Dusen v. Barrack, 376 U.S. 612, 616 (1964).  If so, the Court must then determine “whether, on balance, a transfer would serve ‘the convenience of the parties and witnesses’ and otherwise promote ‘the interest of justice.’”  Atl. Marine Constr. Co. v. U.S. Dist. Court for W. Dist. of Tex., 134 S. Ct. 568, 581 (2013) (quoting 28 U.S.C. § 1404(a)).

JANICE D. YOUNGBLOOD, Plaintiff v. LIFE INSURANCE COMPANY OF NORTH AMERICA (W.D. Kentucky April 14, 2016) Slip Copy 2016 WL 1466559

In this claim for long term disability benefits case, the plaintiff filed suit in the Western District of Kentucky though she lived in the Northern District of Alabama for a company that was headquartered in Wisconsin. Which district is proper for venue?

The district court reviewed the various factors and provides a useful overview of considerations involved in on a motion to transfer venue (which the defendant LINA filed). The plaintiff clearly wanted the case in the Sixth Circuit but the court found that Alabama was the proper venue after applying the factor analysis.

Preliminary Question

As an initial matter, the court noted that venue must be proper in another district before the Court can transfer. Venue in an ERISA action is proper in any district: Continue reading

:: District Court Holds Plaintiff’s State Law Claims Preempted

This court does not agree that Plaintiff’s negligence cause of action nor his bad faith cause of action is directed specifically towards entities engaged in insurance. With regard to the bad faith claim in particular, all contracts—not just those pertaining to insurance—in South Carolina contain an implied covenant of good faith and fair dealing, the breach of which can give rise to a common law cause of action. Adams v. G.J. Creel & Sons, 465 S.E.2d 84, 85 (S.C. 1995).

Finally, this court does not find persuasive Plaintiff’s argument that his causes of action, because they “tell [insurers and insureds] what bargains are acceptable,” (ECF No.16 at 11), “substantially” affect the risk pooling arrangement between the insurer and insured. Kentucky Ass’n of Health Plans, Inc., 538 U.S. at 342.

Hendrix v. Res. Real Estate Mgmt., Inc., No. 3:15-CV-01173-JMC, 2016 WL 1045739, at *8 (D.S.C. Mar. 16, 2016)

This case presented a dispute over denied benefits provided under a group insurance policy.  The plaintiff filed several state law claims and marshaled various theories in an attempt to avoid ERISA preemption.

Savings clause argument (29 U.S.C. § 1144(b)(2)(A))

Plaintiff argued that his state law causes of action for bad faith, attorneys’ fees, and negligence and recklessness survived ERISA preemption under the savings clause as applied in Unum Life Insurance Co. of America v. Ward, 526 U.S. 358 (1999).  (The Unum cased involved California’s notice-prejudice rule, under which insurer must show that it was prejudiced by untimely proof of claim before it can avoid liability.)

. . . rejected by the Court

Plaintiff’s state law causes of action, even if one could find that they “regulate insurance,” do not survive ERISA preemption under Unum Life Insurance Co. of America v. Ward, 526 U.S. 358 (1999). See Aetna Health Inc. v. Davila, Aetna health Inc., 542 U.S. 200, 208 (2004) (“Under ordinary principles of conflict pre-emption…even a state law that can arguably be characterized as ‘regulating insurance’ will be preempted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA’s remedial scheme.”).

And neither are Plaintiff’s claims saved from ERISA preemption under Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329, 342 (2003). This is because this court is not persuaded by Plaintiff’s argument that from a “common sense view,” the laws from which his state causes of action spring regulate insurance and substantially affect risk pooling.

Fraudulent procurement argument

The Plaintiff also argued that his bad faith failure to pay, negligence and recklessness, and liability for attorneys’ fees should not be preempted by ERISA because of fraudulent procurement, citing Coyne & Delany Co. v. Selman, 98 F.3d 1457, 1469 (4th Cir. 1996).

The Court rejected this argument as well.

Because all of Plaintiff’s causes of action seek benefits—not insurance—under the plan, this court furthermore does not accept Plaintiff’s argument that ERISA preemption is not appropriate here because some of the state law claims involve “fraudulent act[s] in the procurement of an insurance policy.”

Regulatory exception argument

In cases of limited employer involvement, an insurance arrangement may be excluded from ERISA.  The Plaintiff argued this position, but since the employer paid the premiums and showed other involvement, the Court held the exceptions inapplicable.

29 C.F.R. § 2510.3-1(j) does not shield Plaintiff’s claims from ERISA coverage here because he does not satisfy all of the regulatory conditions, as he is required to do so for these exceptions to apply. See, e.g., Hansen v. Continental Ins. Co., 940 F.2d 971 (5th Cir. 1991) (“Group insurance plans which meet each of these [29 C.F.R. § 2510.3-1(j)] criteria are excluded from ERISA coverage.”); Vazquez v. Paul Revere Life Ins. Co., 289 F. Supp. 2d 727 (E.D. Va. 2001).

In sum, this court concludes that ERISA governs Plaintiff’s claims here and furthermore preempts them. Removal therefore was proper.

Note:  The Court applied the Fourth Circuit test for preemption stated in Sonoco Prod. Co. v. Physicians Health Plan, Inc., 338 F.3d 366, 372 (4th Cir. 2003):

(1) the plaintiff must have standing under [ERISA] § 502(a) to pursue its claim; (2) its claim must fall[ ] within the scope of an ERISA provision that [it] can enforce via § 502(a); and (3) the claim must not be capable of resolution without an interpretation of the contract governed by federal law, i.e., an ERISA-governed employee benefit plan.


:: Plans Established By Church Agencies Not ERISA Exempt

Thus a church plan is exempt from ERISA regulation. But the question presented in this case is: does a plan established by a church-affiliated organization, like the defendant here, Advocate Health Care Network, qualify as a church plan under ERISA?

Stapleton v. Advocate Health Care Network, No. 15-1368 (7th Cir. 2016)

Can plans established by church affiliated agencies can qualify for the ERISA church plan exemption?

The question is an important one.  In the case at bar, the plaintiffs alleged that their employer had not maintained its pension plan according to the standards set forth by ERISA, 29 U.S.C. § 1001 et. seq., breached its fiduciary duty and omitted various duties imposed by ERISA.

The Seventh Circuit observed that the issue “is springing up across the country” with the district courts divided and little guidance from the circuit courts.  That guidance has now arrived.

Third Circuit Opinion

The Third Circuit became the first circuit court to weigh in on the debate, and held that a church-affiliated organization cannot establish an ERISA-exempt plan. Kaplan v. St. Peter’s Healthcare Sys., 810 F.3d 175 (3d Cir. 2015).

Seventh Circuit Weighs In

The Seventh Circuit sided with the Third Circuit.  The Court held that:

although the legislative record clearly supports an intent to continue to allow employees of church-affiliated organizations to be included in church plans, no part of that record suggests an intent to allow a church-affiliated corporation to claim the exemption for a plan unless the church itself has established the plan, as required by the original definition of a church plan in subsection (33)(A) of ERISA.

Note:  Contrary authority includes: Lann v. Trinity Health Corp., No. 8:14-cv-02237, 2015 WL 6468197, at *1 (D. Md. Feb. 24, 2015); Medina v. Catholic Health Initiatives, No. 13-CV-01249, 2014 WL 4244012, at *2 (D. Colo. Aug 26, 2014) 3; Overall v. Ascension, 23 F. Supp. 3d 816, 829 (E.D. Mich. 2014).

“Church Plan” Defined - Subsection (33)(A) of ERISA defines a church plan as a “plan established and maintained” by a church. 29 U.S.C. § 1002(33)(A). In short, two separate elements must both be met for the exemption to apply: (1) a church must first create or establish the plan and then (2) maintain the plan.

Arguments Rebutted –  Though the statute states that “[a] church plan includes a plan maintained by a church-affiliated organization” the Court held that the plan must nonetheless be first established by a Church.  Likewise, arguments predicated on IRS rulings were deemed to be owed no deference and unpersuasive.

Bottom Line - Churches may have outside organizations maintain their plans. The only requirement is that a church must establish the plan in the first place.

:: Regulatory Defect Renders Plan’s Contractual Limitation Period Void

Based on the plain language of the regulation, we hold that the correct interpretation of section 2560.503-1(g)(1)(iv) is that a denial of benefits letter must include notice of the plan-imposed time limit for filing a civil action. . . .

[T] the Department of Labor requires plan administrators to give notice of the limitations period in the denial of benefits letter — even when the information is also contained elsewhere in the plan documents . . . This leaves us with but one conclusion to draw, which is that the regulation itself contemplates that failure to include this information in the denial of benefits letter is per se prejudicial to the plaintiff.

Santana- Díaz v. Metropolitan Life Insurance Co., No. 15-1273, 1st Cir. (March 14, 2016)

This long term disability case illustrates the importance of including notice of contractual limitation periods on filing suit.

Contractual Limitations Periods

ERISA itself does not contain a statute of limitations for bringing a civil action, see 29 U.S.C. § 1132(a)(1)(B), so federal courts usually “borrow the most closely analogous statute of limitations in the forum state.”  On the other hand, plans may impose a contractual limitations period and in such cases, courts will enforce the provision so long as it is reasonable.

Equitable Tolling

In the case at bar, the plaintiff argued that the plan failed to advise him of the limitations period in the plan and therefore the plan should not be allowed to enforce the three year period set forth in the document.  In other words, the plaintiff asked to court to “toll” or suspend the running of the limitations period.

A limitations period may be equitably tolled where a plaintiff establishes that “extraordinary circumstances” beyond his control prevented a timely filing, such as where the plaintiff was “materially misled into missing the deadline.” BarretoBarreto v. United States, 551 F.3d 95, 101 (1st Cir. 2008) (citations omitted).  The Court chose a different solution.

Regulatory Compliance Defect

Rather than resolving the issue in terms of equitable remedies, the Court concluded MetLife’s regulatory violation rendered the contractual limitations period altogether inapplicable.

Department of Labor regulations require that a plan administrator to provide “written or electronic notification of any adverse benefit determination” that includes 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 held that this language required inclusion of the time limits in the denial letter, stating:

Based on the plain language of the regulation, we hold that the correct interpretation of section 2560.503-1(g)(1)(iv) is that a denial of benefits letter must include notice of the plan-imposed time limit for filing a civil action. To repeat, the regulation states that the letter must contain 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) (emphasis added).

Substantial Compliance Defense

Courts only require “substantial compliance” with the regulations such that a plaintiff must demonstrate that the violation prejudiced him by affecting review of his claim. In other words, a plaintiff must make some “showing that a precisely correct form of notice would have made a difference.” Recupero v. New England Tel. & Tel. Co., 118 F.3d 820, 840 (1st Cir. 1997).  In the case at bar, however, the violation failed to meet even this general compliance standard.

The Court stated that:

 . . . we hold that, where a plan administrator fails, as MetLife did here, to include the time limit for filing suit in its denial of benefits letter, and it has not otherwise cured the defect by, for example, informing the claimant of the limitations period in a subsequent letter that still leaves the claimant sufficient time to file suit, the plan administrator can never be in substantial compliance with the ERISA regulations, and the violation is per se prejudicial to the claimant.


By holding the contractual limitations period inapplicable, the Court placed the issue back in the realm of the most analogous state statute.  In this case, that was the 15 year contractual limitations period – which left the plaintiff’s suit well within the allowable time period to be timely.

Note:  The First Circuit noted that both the Third and Sixth Circuits have interpreted section 2560.503-1(g)(1)(iv) as it did, and have held that the regulation requires a plan administrator to provide in its final denial letter not only notice of the right to bring a civil action, but also of the time limit for filing the action.  See, Mirza v. Insurance Administrator of America, Inc., 800 F.3d 129 (3d Cir. 2015); Moyer v. Metropolitan Life Insurance Co., 762 F.3d 503 (6th Cir. 2014); but cf., Wilson v. Standard Insurance Co., 613 F. App’x 841 (11th Cir. 2015) (per curiam) (unpublished).

:: “Minimizing ERISA Liens in Personal Injury Settlements”

Once again I am giving a seminar on ERISA plan reimbursement and subrogation.  This year the date and time are as follows:

6/17/2016 – Teleconference

Session Time: 2:00 PM – 3:30 PM Eastern

For more information contact the National Business Institute (http://www.nbi-sems.com/contactus.aspx)

The agenda was not exactly of my own making but this is what is scheduled for discussion:

• Synopsis of Significant ERISA Case Law

• Subrogation Versus Reimbursement

• Has the Insured Been Made Whole?

• When a Lien is Effective

• Claim Investigation Tips and Whom to Contact (Insider’s Tips)

• Effect of Supreme Court Decision in Montanile on Plan Rights

• Analysis of Plan Language

• Resolution Strategies – How to Negotiate Successfully

• Common Mistakes and Timing Issues

• Defense Strategies

• Professional Responsibility Issues

:: Equitable Liens By Agreement Do Not Obviate Res Requirement

Because the lower courts erroneously held that the plan could recover out of Montanile’s general assets, they did not determine whether Montanile kept his settlement fund separate from his general assets or dissipated the entire fund on nontraceable assets. At oral argument, Montanile’s counsel acknowledged “a genuine issue of . . . material fact on how much dissipation there was” and a lack of record evidence as to whether Montanile mixed the settlement fund with his general assets. A remand is necessary so that the District Court can make that determination.

Montanile v. Bd. of Trs. of the Nat’l Elevator Indus. Health Ben. Plan, 136 S. Ct. 651, 662 (U.S. 2016)

The Court should never have had to decide this case.  The plan’s argument was patently wrong under prior Supreme Court precedent.  Nonetheless, careless reading of those prior cases by lower courts required the correction administered in Montanile which is very simple to understand.

1.  The plan argued that, while equity courts ordinarily required plaintiffs to trace a specific, identifiable fund in the defendant’s possession to which the lien attached, there is an exception for equitable liens by agreement.

2. The plan misread Sereboff, which left untouched the rule thatall types of equitable liens must be enforced against a specifically identified fund in the defendant’s possession.

3. Recovery out of general assets — in the absence of commingling — was not relief “typically available” in equity.

Thus, equitable liens by agreement do not upset the basic rule set forth in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U. S. 204 (2002).  In all events, the plan’s claim for relief must be directed at a specific, identifiable fund in the defendant’s possession.

Note:  The Court’s advice to ERISA plan administrators is succinctly conveyed in this excerpt:

The Board had sufficient notice of Montanile’s settlement to have taken various steps to preserve those funds. Most notably, when negotiations broke down and Montanile’s lawyer expressed his intent to disburse the remaining settlement funds to Montanile unless the plan objected within 14 days, the Board could have — but did not — object. Moreover, the Board could have filed suit immediately, rather than waiting half a year.

:: Supreme Court To Address Circuit Split On ERISA Plan Subrogation Rights

On appeal, Montanile argues that the district court erred in finding that the Board could impose an equitable lien on the settlement funds because the funds had been spent or dissipated. As both parties recognize in their supplemental briefs, Montanile’s argument is now foreclosed by our recent holding in AirTran Airways, Inc. v. Elem, 767 F.3d 1192 (11th Cir. 2014).

This Court held in AirTran that, pursuant to § 1132(a)(3)(B), an equitable lien immediately attached to settlement funds where a plan provision’s unambiguous terms gave the plan a first-priority claim to all payments made by a third party. Id. at 1198. The AirTran court held that the settlement funds were “specifically identifiable,” and a plan participant’s dissipation of the funds thus “could not destroy the lien that attached before” the dissipation. Id. (emphasis in original). This holding binds our decision here. Accordingly, the Board can impose an equitable lien on Montanile’s settlement, even if dissipated, if his health benefit Plan gave the Plan a first-priority claim to the settlement payments Montanile received.

Bd. of Trs. of the Nat’l Elevator Indus. Health Benefit Plan v. Montanile, 2014 U.S. App. LEXIS 22438 (11th Cir. Fla. Nov. 25, 2014)

The U.S. Supreme Court granted certiorari granted in Montanile v. Bd. of Trs. Neihbp, 2015 U.S. LEXIS 2305 (U.S., Mar. 30, 2015) to settle a relatively simple question.  To put the question in context, the controversy can be summed up in a nutshell this way:

  1. ERISA permits suits by fiduciaries for equitable relief.
  2. The Supreme Court has been coy in telling us what equitable relief means, referring back to the days of the “divided bench” when equity and law claims were heard by separate courts.
  3. In 2002, the Court added some detail to the contours of permissible equitable relief – it said that a plan fiduciary’s claim for equitable relief would fail if the defendant was not in possession of the disputed funds. (Knudson)
  4. In 2006, the Court elaborated further by saying that a plan fiduciary’s claim for equitable relief would not fail just because it could not trace a money trail to the disputed funds. (Sereboff)
  5. The point in #4 did not alter or reverse the point in #3.  In other words, that the plan fiduciary did not have to trace its claims to funds in the defendant’s possession does not mean that the defendant does not have to have the disputed funds in possession.  (The majority of circuits, including the 11th in the Montanile case, do not accept this proposition.)

So, now the Court will apparently return to address once again the scope of equitable relief under ERISA Section 502(a)(3).

Possession of Funds Unnecessary 

The First, Third, Sixth, and Seventh Circuits deny my point #5 and do not require the defendant to have possession of the disputed funds.

Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614 (7th Cir. 2008)

Longaberger Co. v. Kolt, 586 F.3d 459 (6th Cir. 2009),

Cusson v. Liberty Life Assurance Co., 592 F.3d 215 (1st Cir. 2010)

Funk v. CIGNA Grp. Ins., 648 F.3d 182 (3d Cir. 2011).

Possession of Funds Necessary 

The Eight and Ninth Circuits held to the contrary.

Treasurer, Trustees of Drury Industries, Inc. Health Care Plan & Trust v. Goding, 692 F.3d 888 (2012), cert. denied, 133 S. Ct. 1644 (2013).

 Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083 (9th Cir. 2012), cert. denied, 133 S.Ct. 1242 (2013)

 Note:  The petitioner and respondent briefs can be read here:  http://www.scotusblog.com/case-files/cases/montanile-v-board-of-trustees-of-the-national-elevator-industry-health-benefit-plan/

:: Plan Administrator Definition Ambiguity Defeats Insurer’s Motion To Dismiss

Defendants argue that controlling authority in this circuit rejects the concept of a “de facto” plan administrator, or one that is not expressly named in the health plan documents. However, a number of courts, including courts in this jurisdiction, have treated insurance companies as plan administrators if they “control the distribution of funds and decide[] whether or not to grant benefits under an employee benefit plan.”

Mbody Minimally Invasive Surgery v. Empire Healthchoice HMO, Inc., 2015 U.S. Dist. LEXIS 22592 (D.N.Y. 2015) (February 25, 2015) (citations omitted)

Who is the plan administrator?   The statutory definition has not always been satisfactory to the courts.  In this post I will take the recent provider reimbursement case as an opportunity to provide some commentary on “plan administrator” status.

In the case at bar, the providers were seeking reimbursement from insurance providers, presumably under assignment of benefits from their patient-plan participants.

Of course, claims under ERISA have to fit one of the civil remedies provisions to go forward.  In this case, the provision at issue was §502(a)(1)(B).

Were the defendants plan administrators?

That’s the context for the plan administrator inquiry -

The issue here is whether defendants are “plan administrators.”

ERISA Section 502 empowers participants and beneficiaries to bring a civil action to recover benefits due under the terms of a benefits plan. See 29 U.S.C.A. § 1132(a)(1)(B). However, the Second Circuit has determined that such claims may only be brought against the plan, the plan administrator, or plan trustee. See Crocco v. Xerox Corp., 137 F.3d 105, 107 (2d Cir. 1998).

Confusing plan documents

As is often the case with insured arrangements, the documents were a mess.  I have never really understood why that is one of the eternal verities but it just seems to be.

So in this case the documents were not clear on the designation – at least not to the court’s satisfaction.

The court was not then, and is not now, satisfied that all the health plan documents name entities other than the defendants as health plan administrators.

Even for those that appear to do so, it is impossible to discern from the materials provided which health plan documents correspond to which defendants, purportedly immunizing them from § 502(a)(1)(B) claims. And, as discussed, some of the health plan documents do not, in fact, name entities other than defendants as the plan administrator.

What happens when the documents are unclear?

The defendants, unsuccessful in their motion, argued that the district court was using the notion of a “de facto” plan administrator.  In some circuits, this is a viable approach but not in the Second Circuit.

To this argument, the court demurred, stating:

Defendants argue that controlling authority in this circuit rejects the concept of a “de facto” plan administrator, or one that is not expressly named in the health plan documents. See Rep. Mem. L. Further Supp. Mot. Part. Recons. at 2 (citing Crocco v. Xerox Corp., 137 F.3d 105, 107 and Lee v. Burhkart, 991 F.2d 1004, 1010 n.5 (2d Cir. 1993)). However, a number of courts, including courts in this jurisdiction, have treated insurance companies as plan administrators if they “controlf] the distribution of funds and decide[] whether or not to [*6] grant benefits under an employee benefit plan.” See, e.g., Sheehan v. Metro. Life Ins. Co., No. 01-CV-9182 (CSH), 2002 WL 1424592, at *2 (S.D.N.Y. June 28, 2002).

In any event, defendants’ argument misconstrues this court’s decision. This court did not reach the question of whether plaintiffs may maintain a § 502(a)(1)(B) claim against de facto plan administrators.

Rather, the court held that plaintiffs had plausibly alleged that defendants are plan administrators themselves, noting “plaintiffs … do allege [they] are the plan administrators in other sections of the complaint.” See Opinion of Aug. 15, 2014, at 7-8 (citing Compl. 1 56).

In other words, the court stated that the defendants had misconstrued its holding.  The defendants were free to adduce evidence that they were not the plan administrators at a later stage in the proceeding.

Note:   The question of plan administrator status is important in other contexts as well, such as in cases of plan information requests and the application of statutory penalties.  Please see my discussion of this topic in a prior post here.

Circuit Conflict - The conflict noted in the opinion is set forth in Crocco v. Xerox Corp., 137 F.3d 105 (2d Cir. 1998) as follows:

We believe, however, that our reasoning in Lee v. Burkhart, 991 F.2d 1004 (2d Cir. 1993), precludes a finding that an employer is a de facto co-administrator jointly liable with the named administrator in a suit to recover benefits under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). In Lee, we rejected a claim that an insurance company — under contract to provide assistance in the management of an employer’s self-funded employee benefits plan -was an unnamed plan administrator. See id. at 1010.

In doing so, we expressly stated our disagreement with decisions of the First and Eleventh Circuits holding employers responsible as de facto administrators under ERISA §§ 502(a)(1)(A) and 502(c), 29 U.S.C. §§ 1132(a)(1)(A), 1132(c). See id. at 1010 n.5 (citing Rosen v. TRW, Inc., 979 F.2d 191, 193-94 (11th Cir. 1992); Law, 956 F.2d at 372-74).

And we cited with approval the Tenth Circuit’s decision in McKinsey v. Sentry Insurance, 986 F.2d 401 (10th Cir. 1993), which criticized the view that an employer could be a de facto administrator, and held that HN2″[29 U.S.C. § ] 1002(16)(A) provides that if a plan specifically designates a plan administrator, [**7] then that individual or entity is the plan administrator for purposes of ERISA,” id. at 404. n3 In short, then, we think that the reasoning -if not necessarily the holding — of Lee precludes employer liability, as a de facto co-administrator, in a suit brought under § 502(a)(1)(B), where the employer has designated a plan administrator in accordance with 29 U.S.C. § 1002(16)(A).

 Statute - The statute provides:

(16) (A) The term “administrator” means–

(i) the person specifically so designated by the terms of the instrument under which the plan is operated;

(ii) if an administrator is not so designated, the plan sponsor; or

(iii) in the case of a plan for which an administrator is not designated and a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe.

29 USCS § 1002

:: Court Highlights Distinction Between Wrongful Death Claims And Claims By Estate In Subrogation Context

Where medical malpractice results in the death of a patient, the cause of action for medical malpractice survives, and may be asserted by the personal representative of the deceased. Id.; A.R.S. § 14-3110.

A survival claim compensates the decedent’s estate; a wrongful death claim compensates statutory beneficiaries for their losses. Gandy v. United States, 437 F. Supp. 2d 1085, 1087 (D. Ariz. 2006). A survival claim and a wrongful death claim are separate and distinct even when they originate from the same wrongful act . . .

MedCath Inc. Emple. Health Care Plan v. Stratton, 2015 U.S. Dist. LEXIS 5514 (D. Ariz. Jan. 16, 2015)

The federal courts distinguish between actions by an injured party or his estate and actions by his statutory beneficiaries under wrongful death statutes.  Two recent cases illustrate that distinction.

Stratton, cited above, is a wrongful death case.  The plan’s subrogation claims failed.

From the opinion:

ERISA “is built around reliance on the face of written plan documents.” U.S. Airways, 133 S. Ct. at 1548. ERISA permits Plaintiff to seek equitable relief to enforce the terms of the Plan, but the written plan documents authorize Plaintiff to recover payments for health care expenses incurred by Ms. Stratton only from proceeds paid in compensation for Ms. Stratton’s injuries. They do not entitle Plaintiff to recover from proceeds received in the wrongful death action for the losses suffered by Ms. Stratton’s children. Plaintiff’s subrogation and reimbursement rights do not apply in the circumstances of this action.

The Estate of Tracie Stratton was not a party to the wrongful death action and did not continue Ms. Stratton’s professional negligence action after her death. Plaintiff does not allege that the Estate has received any proceeds that would be subject to Plaintiff’s subrogation and reimbursement rights, i.e., compensation for Ms. Stratton’s injuries.

By contrast, in Norstan Inc. v. Lancaster, 58 Employee Benefits Cas. (BNA) 2451 (D. Ariz. June 25, 2014) (distinguished by the Stratton court), the ERISA plan’s right of subrogation and reimbursement applied to proceeds the estate recovered in a malpractice action for the same condition or injury for which the plan had paid medical expenses.  Thus, the plan’s subrogation claims succeeded in that case.

Note:  Though not cited in by the Stratton court, the seminal decisions on this issue are two Fourth Circuit cases: Liberty Corp. v. NCNB National Bank of South Carolina, 984 F.2d 1383 (4th Cir. 1993) and McInnis v. Provident Life & Accident Ins. Co., 21 F.3d 586 (4th Cir. 1994).  See discussion of these cases in Caterpillar, Inc. v. Wilhelm, 824 F. Supp. 2d 828 (C.D. Ill. 2009).


:: Formal Denial Of Benefits Unnecessary To Begin Limitations Period

To hold that an insured cannot bring an action until an insurer formally denies the claim for benefits would, as the district court noted, allow insurers to “prevent policy holders from suing by continuing in perpetuity to consider the claims open and the denial of benefits preliminary.” Curry, 2013 U.S. Dist. LEXIS 98791, 2013 WL 3716413, at *3 n.5. This cannot be so.

Therefore, we conclude that Curry’s cause of action for breach of contract arose–and the statute of limitations began to run–when Trustmark terminated Curry’s monthly benefit payments on June 30, 2008.n5 As a result, his suit, filed on July 27, 2011, falls outside the limitations period.n6

Curry v. Trustmark Ins. Co., 2015 U.S. App. LEXIS 1910 (4th Cir. Md. Feb. 6, 2015) (unpublished)

Curry alleged that because his back injury rendered him disabled under his disability insurance policy, he was owed benefits under his disability policy.   The carrier had required continuing proof of loss and after some period of controversy, which included a denial, resumption and another denial of benefits, the matter ultimately ended up in court.

The district court held that Trustmark “breached the contract each time [it] failed to pay benefits for a period during which [Curry] was disabled.”  On this view, each failure to pay monthly benefits was a separate and independent breach so that part of Curry’s claim remained timely.  (Nonetheless, on the portion of Curry’s action that fell within the limitations period, the district court ruled against Curry on the merits.)

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:: Equitable Relief May Not Include Reimbursement Of Erroneous Payment Of Medical Benefits

It is important to note that neither the Fourth Circuit nor the Supreme Court has dealt directly with a case with this fact pattern, but additional support for this conclusion can be found in Fourth Circuit dicta. The court in Cohen wrote that the plaintiff’s claim for reimbursement of overpaid disability insurance “is arguably unauthorized under § 1132(a)(3),” because the Supreme Court in Great-West “denied a fiduciary’s restitution claim against a beneficiary when the property sought could no longer be traced to a particular fund or property, because the fiduciary [was] seeking a legal remedy—the imposition of personal liability on the beneficiary to pay a sum of money owed to the plan—outside the equitable relief afforded to fiduciaries in civil actions under § 502(a)(3).”

Food Emplrs. Labor Relations Ass’n & United Food & Commer. Workers Health & Welfare Fund v. Dove, 2014 U.S. Dist. LEXIS 159773 (D. Md. Nov. 12, 2014) (Magistrate Judge Report and Recommendation)

This is a case where a multiemployer plan sued to recover medical expenses paid in error.  The Defendant, originally a full time employee, had added coverage for his wife as his dependent.

Later, the Defendant became a part time covered employee, requiring that he pay an additional premium to maintain his wife’s coverage. He did not.  Nonetheless, his wife incurred medical expenses which the Fund paid.

The magistrate judge began with the observation that  ”equitable relief” under ERISA is constrained to “the kinds of relief ‘typically available in equity’ in the days of ‘the divided bench’ before law and equity merged.” U.S. Airways, Inc v. McCutchen, 569 U.S. (slip op., at 5), 133 S. Ct. 1537, 1544, 185 L. Ed. 2d 654 (2013).  Nonetheless, the Fourth Circuit created a “common law remedy of unjust enrichment” within ERISA. Provident Life & Accident Ins. Co. v. Waller, 906 F.2d 985, 994 (4th Cir. 1990).

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:: Pre-Litigation Document Exchange Does Not Trigger Federal Claim Removal Deadline

[T]he Eleventh Circuit has not appeared to have addressed the issue of whether “other papers” under 28 U.S.C. § 1446(b)(2) can include documents provided prior to the commencement of litigation, and indeed, a number of Circuit Courts of Appeal have provided that the answer to this question is “no.”  . . . “As other courts have recognized, if pre-suit documents were allowed to trigger the thirty-day limitation in 28 U.S.C. § 1446(b), defendants would be forced to ‘guess’ [*9]  as to an action’s removability, thus encouraging premature, and often unwarranted, removal requests.”

S. Broward Hosp. Dist. v. Coventry Health & Life Ins. Co., 2014 U.S. Dist. LEXIS 160463 (S.D. Fla. Nov. 13, 2014)

In this provider reimbursement case, an interesting procedural issue overlays the application of the two factor ERISA removal test set forth in Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004).

General Rule For Removal

The removal statute, 28 U.S.C. § 1146,  states that a notice of removal shall be filed within thirty days after the receipt by the defendant of a copy of the initial pleading.  But what if the initial state court pleading does not indicate a basis for removal?

“Other Paper” Hints

The statute contains a solution to that situation in subpart (2) which states that “a notice of removal may be filed within 30 days after receipt by the defendant, through service of otherwise, of a copy of an amended pleading, motion, order or other paper from which it may be first ascertained that the case is one which is or has become removable.”  (emphasis added)

The emphasized language brings a  factual component to the removal question.

Provider Reimbursement Overlay

Provider reimbursement cases can be particularly troublesome because not all such cases permit removal.

For example, in provider reimbursement cases, right of payment cases are removable but rate of payment cases are not under the two prong Davila test.   The Court in the case at bar stated the problem this way:

To address whether the claim falls within the scope of ERISA, the Eleventh Circuit has adopted a distinction between two types of claims: “those challenging the ‘rate of payment’ pursuant to the provider-insurer agreement, and those challenging the ‘right to payment’ under the terms of an ERISA beneficiary’s plan.”  ”[A] ‘rate of payment’ challenge does not necessarily implicate an ERISA plan, but a challenge to the ‘right of payment’ under an ERISA plan does.”

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:: Legal Memorandum From Counsel Protected From Disclosure Despite Dissemination To Third Parties

 . . . the voluntary disclosure of confidential material to a third party “eliminates whatever privilege the communication may have originally possessed, whether because disclosure is viewed as an indication that confidentiality is no longer intended or as a waiver of the privilege.”

The common interest doctrine is a notable exception to this waiver rule. Generally speaking, it brings within the ambit of the attorney-client privilege confidential communications between a client and the client’s attorney that are divulged by the client to a third party if the client and the third party are engaged in some form of common enterprise.

In re Bank of N.Y. Mellon Corp. Forex Transactions Litig., 2014 U.S. Dist. LEXIS 159069 (S.D.N.Y. Nov. 10, 2014)

When a client disseminates a legal memorandum prepared by its attorneys to contractual partners relating to ERISA compliance responsibilities, is that memorandum protected by privilege in subsequent litigation by third parties?  That was the issue at bar in this case.

The Facts

On June 10, 2009, the bank’s outside legal counsel sent the bank a memorandum pertaining to compliance with ERISA.  A bank employee sent the memorandum to representatives of four of the bank’s pension plan’s investment management companies. He asked the recipients to review the memorandum, to confirm that their companies could comply with the advice therein and stated “that compliance with this memo is your responsibility . . .”

In a subsequent ERISA case, certain bank customers alleged that the bank was liable for breaches of fiduciary duties , among other things. The Department of Justice and several other groups of private plaintiffs also sued the bank for civil penalties or alleged damages stemming from its foreign exchange practices.

During the course of the litigation the memorandum aforementioned became the subject of a discovery dispute.


The nub of the dispute is whether the memorandum was protected by the attorney-client privilege or the work product doctrine, notwithstanding that dissemination, by virtue of the common interest doctrine.

The Arguments

The bank argued that the  memorandum was “protected from disclosure by the attorney-client privilege and work product doctrine” and that dissemination did not waive the privilege.

Plaintiffs, on the other hand, asserted (1) that the Bank forfeited the protection of the attorney-client privilege when it circulated the memorandum to third parties with whom it shared no common legal strategy and (2) that the Groom Memo is not work product because there is no evidence that it was prepared “in connection with active or contemplated litigation.”

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:: Summary Plan Description Format Voids Benefit Limitations – Court Applies “Reasonable Participant” Standard Of Review

The “Limitation of Action” provision, buried deep in Section 9, is not in “close conjunction” to benefits provisions, Sections 1 and 2. Nor is there any reference, adjacent to the benefits description, to the page number on which the “Limitation of Action” provision appears.  . . .

If we were to hold that the placement of the limitation provision in Section 9 satisfies [the] “reasonable plan participant” standard under § 2520.102-2(b), we would, in effect, require a plan beneficiary to read every provision of an SPD in order to ensure that he or she did not miss a limitation provision.

Such a requirement is what the regulation is specifically designed to avoid.

Spinedex Physical Therapy USA Inc. v. United Healthcare of Ariz., Inc., 2014 U.S. App. LEXIS 21132 (9th Cir. Ariz. Nov. 5, 2014) (emphasis added).

The United States Supreme Court opinion in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011) has provoked discussion of a common practice in ERISA plan administration, namely, the use of a plan document in a dual role as that of a summary plan description as well.   Given the Court’s clear distinction between a summary plan description and the plan document in Amara, the practice of using the same document for both the plan and the SPD may seem inappropriate.

Regardless, failure to comply with ERISA’s procedural requirements has not really gained much traction in availing plaintiffs of a useful remedy.  (See comment note below).

The Spinedex opinion noted above, however, draws attention to a related but different problem that can occur when using a plan document to serve as an SPD as well.   If the length and format of the SPD fails to apprise the “reasonable plan participant” of benefit limitations, then a reviewing court may void the limitations period.  In other words, it’s not always what you say, but how you say it.

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:: Bad Faith And Punitive Damages Claims Against Health Plan’s Stop Loss Carrier Are Questions For Jury

This case involves interpretation of provisions of a stop-loss insurance policy issued by Defendant Sun Life Assurance Company of Canada  (“Sun Life”) regarding the scope of its contractual obligation to reimburse Plaintiff Bay Area Roofers Health and Welfare Trust (“the Trust”) for claims paid on behalf of a worker’s minor children for medical care.

Sun Life asserts that coverage is precluded because the worker obtained his employment by fraud through submission of a false Social Security Number  (“SSN”). The Trust asserts that it determined that the worker was an eligible employee under the Health and Welfare Plan and thus, as required by the Policy, Sun Life is contractually obligated to reimburse it for its claims. Cross-motions for summary judgment are presently before the Court.

Bay Area Roofers Health & v. Sun Life Assur. Co., 2014 U.S. Dist. LEXIS 158048 (N.D. Cal. Nov. 6, 2014)

What effect should an employee’s use of an invalid social security number have on an employer’s claim for stop loss reimbursement? In this case, the carrier thought this should invalidate coverage.   The court disagreed.

If the carrier’s defense held, it could have had important and far-reaching consequences for employers.

Nevertheless, despite several complicated claims and defenses raised by the parties, the case essentially presents s state law contract question.   The case remained in federal court and, despite the  obfuscating arguments , ended up decided based upon state law.

The implications of the defense, however, remain an interesting topic and suggest several points that should be included in a due diligence review of stop loss contractual compliance.  Those points will be noted after a brief synopsis of the case as it was presented to the district court.

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:: Pleading a Successful Surcharge Claim under ERISA – District Court Decision Outlines Essential Elements

The Supreme Court in Amara endorsed the surcharge remedy as one available under section 1132(a)(3) on the principle that equity courts traditionally ordered that the “trust or beneficiary [be] made whole following a trustee’s breach of trust.” Amara, 131 S. Ct. at 1881 (emphasis added). “In such instances equity courts would ‘mold the relief to protect the rights of the beneficiary according to the situation involved.’” Id. (quoting George Gleason Bogert, et. al., The Law Of Trusts And Trustees § 861 at 4, emphasis added).

Four other circuits have held that Amara opens the door to monetary relief under a surcharge theory that will make a beneficiary whole for losses caused by a breach of fiduciary duty.

Zisk v. Gannett Co. Income Prot. Plan, 2014 U.S. Dist. LEXIS 157323 (N.D. Cal. Nov. 6, 2014)

The Zisk decision leaves open the door for surcharge claims as an equitable remedy under ERISA’s cramped list of available relief for plaintiffs.    The defendant hoped to close that door by reliance on a Ninth Circuit opinion touching on the issue, Gabriel v. Alaska Electrical Pension Fund, 755 F.3d 647 (9th Cir. 2014).  The district court rejected that claim, ruling instead that “the state of the law in this area is unsettled as to the proper contours of an equitable surcharge remedy.”

The interest in surcharge as a remedy stems from the important aspect of permitting monetary relief while still under the rubric of an equitable remedy.   So availability of the surcharge remedy looms large in the debate over appropriate equitable remedies. Continue reading

:: Exhaustion of Administrative Remedies – Exceptions Explained

Although “the text of ERISA nowhere mentions the exhaustion doctrine,” both “the legislative history and the text of ERISA” make clear that Congress “intend[ed] to grant . . . authority to the courts” to “apply that doctrine in suits arising under ERISA.” See Amato v. Bernard, 618 F.2d 559, 566-67, 569 (9th Cir. 1980) (affirming dismissal  of ERISA claim for benefits, where plaintiff had not exhausted administrative remedies available under plan; finding “sound policy requires the application of the exhaustion doctrine in suits under the Act”) . . .

Kaminskiy v. Kimberlite Corp., 2014 U.S. Dist. LEXIS 72061 (D. Cal. 2014)

Two recent cases provide an important reminder that the judicial gloss on ERISA’s claim procedure imposing exhaustion of remedies before filing suit must be carefully considered in any ERISA benefits case.  As noted in the excerpt above, the requirement will not be found in the statute so attentive regard to the pertinent case law.

Aside from compliance with the plan’s administrative review and appeal processes, the plaintiff must allege compliance with those procedures in any subsequent federal suit.

Form of Allegation

For example, in Kaminiskiy, the Court stated: “Here, plaintiff alleges she submitted a claim for benefits on August 29, 2013, and that her claim was thereafter denied. Such allegation is insufficient to allege exhaustion of the administrative remedies available under the ESOP.”

So what sort of allegation is required?  The allegation need not be complex (although providing factual details is undoubtedly the prudent course).   The essential formula according to the Kaminiskiy court reduces to an allegation that “following the denial of her claim for benefits, she submitted a written request for review and that any such request subsequently was denied.”

Exceptions to Requirement

The plaintiff argued that the exhaustion doctrine did not apply to her claims based upon Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. Cal. 1984).  That case involved a distinction between claims that arise under the terms of a plan versus claims created by statute.

#1 Where a claim involves a determination of rights granted under the plan document, then internal appeal procedures apply and exhaustion of remedies is required.

#2 On the other hand, if the claim amounts to a challenge that the plan terms or application thereof violate the statute, then “[t]here is no internal appeal procedure either mandated or recommended by ERISA . . . ”

The court rejected the plaintiff’s argument, however, since it found that the plaintiff’s claims were encompassed in situation #1 above and thus exhaustion was required.  N.B., please see the circuit split below regarding which courts permit exception #2.

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:: Contractual Limitations Period Imposed – Equitable Tolling Argument Rejected

While it may be true that Plaintiff was never provided a copy of the Plan, despite his requests, it does not follow that Plaintiff had no way of discovering the shorter contractual limitation period. Primarily, Plaintiff could have, quite easily, requested information about the Plan from the assigning beneficiary. Plaintiff does not attempt to argue that L.N. had never received a copy of the Plan, and this Court does not believe it is inequitable to apply the Plan’s internal limitations period to someone who had the ability to learn of it. See Ortega Candelaria, 661 F.3d at 680 (citing I.V. Servs. of Am., 182 F.3d at 54).

Torpey v. Anthem Blue Cross Blue Shield, 2014 U.S. Dist. LEXIS 53342 (D.N.J. Apr. 16, 2014)

In this benefit claims case, the plaintiff was a physician who sought payment for services as an “out-of-network provider”.   Pursuant to an  ”Authorization and Assignment” document he appealed the denial of claims to additional payments.


The Plaintiff  alleged that he submitted a claim to the Defendants on or about June 9, 2011 in the amount of $45,021.00 for medical services provided to the beneficiary.

On or about July 21, 2011, Defendant made an adverse benefit determination of Plaintiff’s claim by making a payment in the amount of $2,582.02, an amount that represented less than 6% of the submitted claim.

On or about September 27, 2011, Plaintiff submitted a First Level Appeal. Thereafter, Plaintiff received an appeal denial letter on or about October 19, 2011.  Continue reading

:: Tutorial: Unit 2 – Subrogation & Reimbursement – Collection of ERISA Disability Plan Cases

As noted in Unit 1, many courts have migrated away from the apparent teaching of Knudson that the defendant must be in possession of specifically identifiable funds (a “res”).   The first leaning away from the requirement occurred in some influential cases involving counterclaims by disability carriers against claimants that received SSD payments after having received LTD benefits.

The following is a collection of cases from the various circuits on this issue.  (N.B –  some of these cases are district court opinions).

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:: Equitable Defenses Inadequate To Avert ERISA Plan’s Contractual Limitations Bar

ERISA denial of benefit claims are ordinarily subject to the statute of limitations of the most analogous state law claim of the forum state. Klimowicz v. Unum Life Ins. Co. of Am., 296 F. App’x 248, 250 (3d Cir. 2008). In this case, that would be New Jersey’s six-year statute of limitations for breach of contract claims. Id. Parties to an ERISA plan are free, however, to contract for  a shorter statute of limitations, so long as that period is not manifestly unreasonable. Id.

Mirza v. Ins. Adm’r of Am., Inc., 2013 U.S. Dist. LEXIS 101184 (D.N.J. July 19, 2013)

One of the significant ironies in ERISA’s “comprehensive and reticulated” regulatory scheme is that  ERISA supplies no statute of limitations for claims for benefits.  Mirza v. Ins. Adm’r of America provides an opportunity for a succinct review of the limitations period issues in a benefit claims case.

General Rule

ERISA denial of benefit claims are ordinarily subject to the statute of limitations of the most analogous state law claim of the forum state.  The court cited Klimowicz v. Unum Life Ins. Co. of Am., 296 F. App’x 248, 250 (3d Cir. 2008) in support of this principle.

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:: Tutorial: Unit 1 – Subrogation & Reimbursement – Requirement of A Res

The current state of equitable claims for recovery of funds under ERISA originated with Mertens, blossomed in Knudson and flowered in Sereboff.  This series focuses on one aspect of ERISA “recovery” cases – must there be a “res”?

If an ERISA plan is to recover funds from a plan beneficiary, as for example, in a case of alleged overpayment, or in a case of subrogation or reimbursement, must the funds be in the possession of the defendant?

The courts of appeal differ about whether Sereboff requires that the funds be in the claimant’s possession for imposition of the equitable lien.  

Several courts of appeal have held that the beneficiary need no longer possess the specifically identified funds.

  • Cusson v. Liberty Life Assurance Co. of Bos., 592 F.3d 215, 231 (1st Cir. 2010);
  • Funk v. Cigna Corp. Ins., 648 F.3d 182, 194 & n.14 (3d Cir. 2011);
  • Longaberger Co. v. Kolt, 586 F.3d 459, 466-69 (6th Cir. 2009);
  • Gutta v. Std. Select Ins. Plans, 530 F.3d 614, 621 (7th Cir. 2008)

On the other hand, the Ninth Circuit has constructed a three-part test for recovery of an equitable lien by agreement under Sereboff, including a requirement that the funds be within the possession and control of the beneficiary.  See, Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083, 1094-95 (9th Cir. 2012), cert. denied sub nom. First Unum Life Ins. Co. v. Bilyeu, 185 L. Ed. 2d 178, 2013 WL 598478 (2013).

More on this topic will appear in Unit 2.

:: Fiduciary Exception To Attorney Client Privilege Explained

Krase has moved to compel LINA to produce four documents that LINA has withheld on grounds of attorney-client privilege, arguing that the documents fall within the “fiduciary exception” to the privilege.

“Under that exception, a fiduciary of an ERISA plan ‘must make available to the beneficiary, upon request, any communications with an attorney that are intended to assist in the administration of  the plan.’” Bland v. Fiatallis N. Amer. Inc., 401 F.3d 779, 787 (7th Cir. 2005). The exception does not apply to “[d]ecisions relating to the plan’s amendment or termination,” which are “not fiduciary decisions.” Id. at 788.

Krase v. Life Ins. Co. of N. Am., 2013 U.S. Dist. LEXIS 100302 (N.D. Ill. July 18, 2013)

The attorney-client privilege does not apply without limitation in ERISA cases.   As a general rule, the attorney-client privilege does not apply when an attorney advises a plan fiduciary about the administration of an employee benefit plan.  On the other hand, the attorney-client privilege does apply when an attorney advises a plan fiduciary regarding issues that do not involve actual administration of the plan.

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:: Concurrent Jurisdiction Applies In ERISA Dispute

 The threshold issue is whether state courts have jurisdiction to determine the  ERISA status of a plan. The Eighth Circuit directly considered this  question and determined that both state and federal courts have the power to  determine ERISA status. Int’l  Ass’n of Entrepreneurs of Am. v. Angoff, 58 F.3d 1266, 1269 (8th Cir.  1995).  The court  reasoned that because the law was silent on whether states have the power to  decide ERISA status the default rule should apply: “[u]nless instructed  otherwise by Congress, state and federal courts have equal power to decide  federal questions.” Id.

Although the Ninth  Circuit has not addressed this specific issue, it has held that “state courts  amply are able to determine whether a state statute or order is preempted by  ERISA.” Delta  Dental Plan of California, Inc. v. Mendoza, 139 F.3d 1289, 1296-97 (9th Cir.  1998) disapproved of on other grounds by Green  v. City of Tucson, 255 F.3d 1086 (9th Cir. 2001). Other courts that have  addressed this issue have found that both federal and state courts have  jurisdiction to decide the status of an ERISA plan. See Weiner  v. Blue Cross & Blue Shield of Maryland, Inc., 925 F.2d 81, 83 (4th Cir.  1991); Browning  Corp. Int’l v. Lee, 624 F. Supp. 555, 557 (N.D. Tex. 1986). Many courts  have also assumed concurrent jurisdiction to decide ERISA plan status  without specifically addressing the issue. See, e.g., Marshall  v. Bankers Life & Cas. Co., 2 Cal. 4th 1045, 1052-54, 10 Cal. Rptr. 2d  72, 832 P.2d 573 (1992).

Knapp v. Cardinale, 2013 U.S. Dist. LEXIS 98644 (N.D. Cal. July 15, 2013)

Although ERISA issues are typically resolved in federal court, this is not always the case.  Aside from occasional benefit claims disputes (where there is concurrent jurisdiction by statute), questions of preemption frequently arise in state courts as well.

In a recent district court case, the court explored questions of concurrent jurisdiction.  The underlying facts are somewhat curious.

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:: Incorporation of SPD In Plan Document Preserves Deferential Review

 . . . [I]n light of Cigna Corp. v. Amara, 131 S.Ct. 1866, 179 L. Ed. 2d 843 (2011) the Court doubted whether it could rely on the SPD alone in the absence of the actual plan document. Zalduondo, 2013 U.S. Dist. LEXIS 59234, 2013 WL 1769718, at *14 (observing that the Court in Amara rejected enforcement of the terms of SPDs as part of the the terms of the Plan itself). Consequently, it deferred judgment on whether the arbitrary and capricious standard applied until Aetna could demonstrate that the Plan documents did not conflict with the SPD. Id.

Having reviewed the Plan documents, the Court and both parties now agree that the SPD is incorporated within the Plan. The Plan states “[t]he benefits offered under the Plan may be described in and subject to . . . summary plan descriptions . . . which are . . . incorporated in the Plan by reference.” Thus, the SPD’s grant of discretion to Aetna will be considered part of the Plan for the purposes of our analysis and we will only review Aetna’s denial of coverage under an arbitrary and capricious standard. See Pettaway v. Teachers Ins. & Annuity Ass’n of Am., 644 F.3d 427, 433-34, 396 U.S. App. D.C. 40 (D.C. Cir. 2011) (looking, post-Amara, to both the SPD and the Plan document to determine the level of deference owed to the claims adjudicator).

Zalduondo v. Aetna Life Ins. Co., 2013 U.S. Dist. LEXIS 96326 (D.D.C. July 10, 2013)

The Supreme Court’s scrutiny of the plan documents in Cigna Corp. v. Amara, 131 S.Ct. 1866, 179 L. Ed. 2d 843 (2011) sparked lively debate over the relationship of  “the” plan document and summary plan descriptions or other documents purportedly constituting plan documentation.   The Court observed that “the summary documents, important as they are, provide communication with beneficiaries about the plan, but that their statements do not themselves constitute the terms of the plan . . .”

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:: Plaintiffs’ Claims Under ERISA Section 510 and 502(a)(1)(B) Survive Motion To Dismiss

This case is before the court pursuant to defendant’s motion to dismiss for failure to state a claim upon which relief can be granted filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. When a Rule 12(b)(6) motion is filed, the court tests the sufficiency of the allegations in the complaint. The “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)).

Put another way, granting the motion to dismiss is appropriate if plaintiff has not “nudged [her] claims across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. The Third Circuit interprets Twombly to require the plaintiff to describe “enough facts to raise a reasonable expectation that discovery will reveal evidence of” each necessary element of the claims alleged in the complaint. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556). Moreover, the plaintiff must allege facts that “justify moving the case beyond the pleadings to the next stage of litigation.” Id. at 234-35.

Manning v. Sanofi-Aventis, U.S. Inc., 2012 U.S. Dist. LEXIS 114129 (M.D. Pa. Aug. 14, 2012)

The important semantics of stating a “plausible” claim with sufficient particularity came before the district court in this case. The requirements of ERISA Section 510 and 502(a)(1)(B) set the bar for the ERISA claimant.

The Plaintiff claimed benefits under the Defendant’s Employee Retirement Income Security Act (“ERISA”) Separation Plan. The Plaintiff had been terminated for disputed reasons and her position filled by an employee with less experience and at a lower salary.  (The Court’s ample citations to authority are omitted but are indicated by quotations below.)

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:: Choice of Law In ERISA Disputes – How State Law May Affect Outcomes On Judicial Review

Here, the Policy contained a valid choice of law provision, which indicates that the parties intended for the Policy to be governed by Texas law to the extent that it is not preempted by ERISA. Thus, in order to decide this issue, we must ascertain how to determine whether or not to enforce an ERISA plan’s choice of law clause in accordance with federal common law. Although we have not previously addressed this issue, a review of our caselaw in other federal question cases and of caselaw from our sister circuits in ERISA cases reveals three possible approaches to resolving this choice of law issue.

First, our sister circuits have applied two different tests when deciding whether to enforce an ERISA plan’s residual choice of law clause. Two of our sister circuits have held that “[w]here a choice of law is made by an ERISA contract, it should be followed, if not unreasonable or fundamentally unfair.” Wang Labs., Inc. v. Kagan, 990 F.2d 1126, 1128-29 (9th Cir. 1993); Buce v. Allianz Life Ins. Co., 247 F.3d 1133, 1149 (11th Cir. 2001). By contrast, the Sixth Circuit has applied the Restatement (Second) of Conflict of Laws to decide whether to give effect to a choice of law provision in an ERISA plan; it applied the Restatement because it found an “absence of any established body of federal choice of law rules.” Durden, 448 F.3d at 922 (citation omitted). Specifically, the court applied § 187 of the Restatement, which addresses when to apply the law of the state chosen by the parties. Id. at 922-23.

We have likewise generally referred to the Restatement when deciding choice of law issues in some admiralty cases, see Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, 891 (5th Cir. 1991), and in a recent admiralty case we noted that § 187 supported our decision to enforce an insurance policy’s choice of law clause.

Jimenez v. Sun Life Assur. Co., 2012 U.S. App. LEXIS 17108 (5th Cir. La. Aug. 15, 2012)

This unpublished Fifth Circuit opinion addresses several sets of opposing principles in choice of law as applied in the ERISA context. While the court’s analysis is unremarkable, the issues raised by the parties suggest an interesting perspective on a familiar ERISA claims scenario.

The Plaintiff in the case at bar suffered serious injury while driving his automobile. The plan defended a claim under provisions that excluded coverage for injuries which were described as an “illegal acts” exception. The plan contended Plaintiff was injured while driving under the influence of alcohol which constituted an illegal act Continue reading

:: Seventh Circuit Sides With Fiduciaries On Question of Out-of-Network Disclosures

At the summary judgment stage of the case, the district court dismissed James’s denial-of-benefits and breach-of-fiduciary-duty claims, but awarded him minimal statutory damages against the health plan administrator. James has appealed.

We hold that the district court properly granted summary judgment on James’s denial-of-benefits and breach-of-fiduciary-duty claims, but incorrectly calculated James’s statutory damages award.

Killian v. Concert Health Plan, 2012 U.S. App. LEXIS 7880 (7th Cir. Ill. Apr. 19, 2012)

The dispute in this Seventh Circuit case arose out of the group health plan’s refusal to out-of-network charges of $80,000. The Plaintiff claimed that there was no adequate proof in the record that the providers were out-of-network, and furthermore that, even if they were, the Defendants breached their fiduciary duty to inform him of that material fact.

The denial of benefits issue did result in a grudging remand to ascertain network status (as an accommodation to the dissenting judge) but appeared a rather futile avenue of relief. The breach of fiduciary duty issue was more interesting.

The Court framed the issue in this way:

James argues that Concert and Royal Management breached their fiduciary duties in two ways: first, by not providing Susan with an SPD; and second, by failing to apprise James that Rush University Hospital was not in Susan’s network despite James’s two phone calls to Concert on April 7, 2006. In short, James alleges that Concert and Royal Management breached their fiduciary duties by failing to make required disclosures.

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:: ERISA Reimbursement Claims Versus Special Needs Trusts

FKI and ACS rely on Bombardier for the proposition that a benefit plan can recover from a third party that is holding the funds “on behalf of a plan-participant client who is a traditional ERISA party.” Id. at 353. However, that is not the case here, because unlike the attorney in Bombardier, who was found to be subject to the client’s control, the Trust in this case cannot be controlled by Larry Griffin.

ACS Recovery Servs. v. Griffin, 2012 U.S. App. LEXIS 6573 (5th Cir. Tex. Apr. 2, 2012)

The Fifth Circuit has been quite literal in its requirement of a res against which an ERISA plan’s claim under ERISA Section 502(a)(3) may be brought. As stated in the recent case of ACS Recovery Servs. v. Griffin, the Court sees the matter as a three part test:

We have established a three-part test for determining whether the relief sought is equitable within the meaning of ERISA. See Bombardier Aerospace Emp. Welfare Benefit Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 356 (5th Cir. 2003). This test asks whether the plan seeks “to recover funds (1) that are specifically identifiable, (2) that belong in good conscience to the Plan, and (3) that are within the possession and control of the defendant beneficiary[.]” Id. (emphasis added).

The third requirement was the undoing of the plan in the case at bar. The Court described the problem as follows:

To get around Bombardier’s third element, ACS and FKI argue that Larry Griffin had fleeting possession and control over the money that went to the special needs trust when he signed the settlement agreement in the state court lawsuit. Thus, they argue that “those funds were traceable to . . . the Trust established for Larry’s exclusive benefit.” However, Bombardier’s third prong asks whether the plan seeks “to recover funds . . . that are within the possession and control of the defendant beneficiary[.]” Id. at 356 emphasis added). The test makes no mention of whether the funds ever were within the possession or control of the defendant beneficiary. Thus, even if we were to find that Larry Griffin had fleeting possession of the funds, we are still bound by our prior precedent, which requires the defendant beneficiary to have either possession or control of the funds at the time that the defendant is seeking equitable relief. Id. Therefore, we conclude that the district court properly dismissed FKI and ACS’s claim for equitable relief against the Trust and the Trustee.

Note: The Court distinguished other authorities from the case before it, noting that:

FKI and ACS cite two cases where circuit courts have allowed a section 502(a)(3) claim to proceed where a benefit plan sued the trustee of a trust formed to benefit the plan’s beneficiary. See Admin. Comm. for the Wal-Mart Stores, Inc. Assoc.’ Health & Welfare Plan v. Horton, 513 F.3d 1223, 1228-29 (11th Cir. 2008); Admin. Comm. for the Wal-Mart Stores, Inc. Assoc.’ Health & Welfare Plan v. Shank, 500 F.3d 834, 836-37 (8th Cir. 2007).

In Horton, the Eleventh Circuit concluded that a benefit plan could use section 502(a)(3) to recover “a specifically identifiable fund in possession of a defendant.” In that case, the employee beneficiary of the plan was also the conservator for her son, a “covered person” who was injured and received benefits. 513 F.3d at 1228. The court concluded that the money held by the trustee “has been identified as belonging in good conscience to the Administrative Committee by virtue of the Plan’s terms, and the money can clearly be traced to a particular fund in the defendant’s possession.” Id. at 1228-29. It noted that “[t]he fact that [the trustee] holds the funds as a third party” did not defeat the plan’s claim. Id. at 1229. That case did not involve a special needs trust or a trustee who was not herself a beneficiary.

The Eighth Circuit in Shank did address a special needs trust and allowed imposition of a constructive trust on funds held in that trust. 500 F.3d at 836-37. The court concluded that the suit was equitable because the plan (1) sought the “specific funds . . . owed under the terms of the plan[;] (2) from a specifically identifiable fund that is distinct from Shank’s general assets—i.e., the special needs trust; and (3) that is controlled by defendant James Shank, the trustee.” Id. at 836. However, while citing Bombardier, the court did not address the meaning of “defendant beneficiary” as discussed in that case. We are bound by Bombardier; these cases are inapposite.

Must the defendant be a beneficiary or simply in possession of a beneficial interest? The law in this area has become sufficiently complex that an attempt to synthesize the governing principles in a series of posts may be worthwhile.

:: When Is Exhaustion of Administrative Remedies Required? – A Reappraisal Of The Division Of Authority

The Court agrees with the reasoning in Morales-Cotte and finds that an exhaustion of administrative remedies is not required when a plaintiff’s claim for denial of COBRA benefits is based on a statutory violation of ERISA. Here, neither party has referred to or proffered any argument regarding a plan-based denial of COBRA benefits. The Court therefore concludes that the parties at least implicitly acknowledge that the allegedly unlawful denial of COBRA benefits claim in this case is statutorily based. As a consequence, following the reasoning and analysis in Morales-Cotte, the Court holds that Plaintiff did not need to exhaust his administrative remedies before bringing a claim in this court for denial of COBRA benefits.

Sample v. City of Sheridan, 2012 U.S. Dist. LEXIS 52037 (D. Colo. Apr. 13, 2012)

ERISA Section 503 provides that every benefit plan shall establish an administrative review procedure for “any participant whose claim for benefits has been denied …” 29 U.S.C. § 1133.   From this template the federal judiciary crafted a number of administrative glosses for ERISA claims procedures including a requirement of exhaustion of administrative remedies.   The  courts have applied this requirement as a matter of “judicial discretion.” See, McGraw v. Prudential Ins. Co. of America, 137 F.3d 1253, 1263 (10th Cir. 1998).

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:: Health Care Provider “Balance Billing” Of The Personal Injury Plaintiff

Marcus Aurelius is a plan member of the Imperial group health plan. Imperial has contracted with Augustan, a preferred provider network or “PPO”.

Augustan has in place a managed care contract with a wide variety of physicians and hospitals. Under the contact, the providers agree to accept a discounted rate in exchange for steerage of patients by inclusion of the providers in the Augustan network that will be promoted to group health plans and claims administrators.

Imperial is impressed with the array of providers included in the Augustan network. The charge for participation in the network is a part of the base cost of Imperial’s group health plan, but the cost seems well worth it in view of the savings to Imperial and its group health plan members.

Marcus is involved in a personal injury accident in which he is not at fault. The at fault driver has a minimum limits liability policy in place with Chariot Insurance of Rome, Georgia.

(Stay with me here – this is the important part.) The Rome General Hospital submits a bill to Marcus. Rome General is a member of the Augustan network. Under the network contract, Rome General only gets 50 cents on the dollar.

Rome General refuses to bill the Imperial plan and insists that its bill be paid in its full amount from the personal injury settlement from Chariot Insurance. Since Rome General is billing the liability carrier, it contends that it is not subject to the network discount.

Marcus’ personal injury attorney argues that Rome General cannot opportunistically set aside its network contractual obligations.

Who is legally correct?

This is a common scenario. Yet, there are few reported cases addressing this issue. Continue reading

:: Equitable Defense Rejected In Health Plan Reimbursement Litigation

Schwade’s ERISA health benefits plan (“the Plan”) declined to pay medical expenses for Schwade’s son unless Schwade complied with the Plan by signing a subrogation agreement. Schwade refused. From August to November, 2007, the Plan sent Schwade an explanation of benefits denying each claim. The Plan requires Schwade to administratively appeal a denial within 180 days. Schwade failed to appeal on each occasion. For eighteen months (June, 2008, to December, 2009) after expiration of the time for administrative appeal, Schwade’s attorney sent sporadic letters to the Plan proposing that the Plan pay benefits but compromise the contractual right to subrogation. The Plan twice refused further consideration of a claim unless Schwade signed a subrogation agreement. The Plan plainly declined further negotiation. Another year passed, and in November, 2010, Schwade sued Total Plastics, which administers the Plan, for the benefits. A November 10, 2011, order (Doc. 31; 2010 WL 5459649) concludes that Schwade’s failure to exhaust her administrative remedy (that is, her failure timely to appeal) bars the action, and the order concludes further that under the Plan’s unambiguous terms the Plan correctly denied Schwade’s claims.

Schwade v. Total Plastics, 2012 U.S. Dist. LEXIS 37091 (D. Fla. 2012)

For group health plan administrators and their counsel, Schwade is important for two reasons. First, it affirms that a plan may require acknowledgment of the plan’s subrogation and reimbursement rights before payment of benefits. Second, the opinion offers a trenchant criticism of the Third Circuit opinion in US Airways, Inc. v. McCutchen, 663 F.3d 671 (3d Cir. Nov. 16, 2011).

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:: New MEWA Reporting Requirements – An Unlikely Solution To MEWA Fraud

The U.S. Department of Labor’s Employee Benefits Security Administration today announced a two-week extension of the comment period on its proposed rule requiring multiple employer welfare arrangements (MEWAs) to register with the department.

DOL News Release (appearing here)

A “MEWA” or “multiple employer welfare arrangement” consists of an employee welfare benefit plan, or any other arrangement, which is established or maintained for the purpose of offering or providing a welfare benefit (including benefits for medical care) to the employees of two or more employers, or to their beneficiaries.  (Exceptions include certain plans maintained by  collective bargaining agreements, or rural electric cooperatives or rural telephone cooperative associations.)

As those who have followed my posts for a while probably know by now, I am not a fan of the MEWA.   (An overview of my “Short Course” on MEWA’s appears here.)  On the other hand, I think the new reporting rules are of doubtful value.   Before addressing that point, let’s take a look at the new rule.

The DOL has proposed a rule that, upon adoption, would implement reporting requirements for MEWAs and certain other entities that offer or provide health benefits for employees of two or more employers.

A summary of the rule summarizes its purpose as follows:

This document contains a proposed rule under title I of the Employee Retirement Income Security Act (ERISA) that, upon adoption, would implement reporting requirements for multiple employer welfare arrangements (MEWAs) and certain other entities that offer or provide health benefits for employees of two or more employers. The proposal amends existing reporting rules to incorporate new provisions enacted as part of the Patient Protection and Affordable Care Act (Affordable Care Act) to more clearly address the reporting obligations of MEWAs that are ERISA plans. This regulation is designed to impose the minimal amount of burden on legally compliant MEWAs and entities claiming exception (ECEs) while implementing the Secretary’s authority to take enforcement action against fraudulent or abusive MEWAs included in the Affordable Care Act and working to protect health benefits for businesses and their employees. This proposed rule implements the new provisions while preserving the filing structure and provisions of the 2003 regulations which direct plan MEWAs and non-plan MEWAs to report annually and file upon registration or origination.

The proposed rule appears here.

The DOL seems to think that the new requirements, penalties and criminal sanctions for false reports will have an effect on promotion of fraudulent MEWA’s.  Why?

The perpetrators of fraudulent MEWA’s already violate numerous state and federal laws. Adding new filing requirements will burden compliant MEWA’s for very little gain in the prevention of fraudulent benefit arrangements. In my opinion, this regulatory plan is quite naive.

In any event, the news release extending the comment period appears below.

News Release:

For Immediate Release: March 1, 2012
Contact: Jason Surbey or Mike Trupo
Phone: 202-693-4668/202-693-6588
Email: Surbey.jason@dol.gov/Trupo.michael@dol.gov
US Labor Department extends comment period on proposed rules on filings required by
multiple employer welfare arrangements

WASHINGTON – The U.S. Department of Labor’s Employee Benefits Security Administration today announced a two-week extension of the comment period on its proposed rule requiring multiple employer welfare arrangements (MEWAs) to register with the department.

Interested parties now have until March 19, 2012, to submit comments on the proposed rule via the Federal eRulemaking Portal at www.regulations.gov, or by mail, hand or electronic delivery to the agency at E-OHPSCAMEWARegistration.EBSA@dol.gov.

Under the proposed rule, MEWAs must register prior to operating in a state or be subject to substantial penalties. This filing requirement will allow the department to track MEWAs as they move from state to state and to identify their principals which will provide the department with important information regarding potentially fraudulent arrangements. Complete details on all provisions were published in the Dec. 6, 2011, Federal Register and also are available at www.dol.gov/ebsa/healthreform/.

Those who have already submitted comments or plan to submit comments should note that there was an error in the preamble published in the Federal Register (76 FR 76222) that incorrectly listed the EBSA email address. The incorrect email address was activated to accept messages. However, comments sent electronically prior to February 22, 2012, should be resent to the correct email address above to ensure they are received and given due consideration. Comments that were submitted via the Federal eRulemaking Portal, or by mail or hand delivery were not impacted by the error.

U.S. Department of Labor news materials are accessible at www.dol.gov. The information above is available in large print, Braille, audio tape or disc from the COAST office upon request by calling 202-693-7828 or TTY 202-693-7755.

:: Health Care Provider’s Negligent Misrepresentation Claim Advances

I conclude that Rule 9(b) does not apply to the negligent misrepresentation claim before me. The crux of the claim is that Beverage failed to use reasonable care or competence in obtaining and communicating information concerning Hood’s eligibility. This rings not of fraud but negligence. See, e.g., Bloskas v. Murray, 646 P.2d 907, 914 (Colo. 1982). The claim should thus be governed by Rule 8(a).

Finding [cited cases] applicable and persuasive, and for the reasons they discussed, I conclude that ERISA would not preempt DHHA’s negligent misrepresentation claim.

Denver Health & Hosp. Auth. v. Beverage Distribs. Co., LLC, 2012 U.S. Dist. LEXIS 15901 (D. Colo. Feb. 8, 2012)

This case involves the rather familiar fact pattern wherein a health care provider disputes denial of its bill after having previously obtained preadmission authorization.

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:: Five Year Limitations Period For COBRA Notification Lapse

. . . the magistrate judge followed the lead of the Fifth Circuit in Lopez ex rel. Gutierrez v. Premium Auto Acceptance, 389 F.3d 504, 507-510 (5th Cir. 2004) and cases cited therein which analogized such COBRA notice claims to unfair settlement practices claims. Such analogy is necessary, as the COBRA provision does not contain its own statute of limitations provision. DelCostello v. Int’l Brotherhood of Teamsters, 462 U.S. 151, 158, 103 S. Ct. 2281, 76 L. Ed. 2d 476 (1983)(where no express statute of limitations, borrow most closely analogous statute of limitations from state law).

Gilbert v. Norton Healthcare, Inc., 2012 U.S. Dist. LEXIS 17553 (W.D. Ky. Feb. 10, 2012)

The ERISA statutory scheme is many things, but one thing it is not.  It is most definitely not the “‘comprehensive and reticulated statute’” (Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985)) that the federal judiciary has proclaimed.

For example,  nothing is more basic to a remedial statute than the limitations period that defines its reach.   As with other federal statutes, so with ERISA:

As is often the case in federal civil law, there is no federal statute of limitations expressly applicable to this suit.   In such situations we do not ordinarily assume that Congress intended that there be no time limit on actions at all; rather, our task is to “borrow” the most suitable statute or other rule of timeliness from some other source. We have generally concluded that Congress intended that the courts apply the most closely analogous statute of limitations under state law.

Del Costello v. Int’l Bhd. of Teamsters, 462 U.S. 151 (U.S. 1983)

In Gilbert v. Norton Healthcare, Inc., the district court considered the question of the limitations period for a claim against a plan administrator for failure to comply with the notification provisions of the Consolidated Omnibus Recovery Act (“COBRA”), 29 U.S.C. § 1166.   The magistrate judge, in an opinion approved by the district court, first turned to the  Kentucky Unfair Claims Settlement Practices Act.  That statute did not have a limitations period either.

The statutory default provision provided a 5-year limitations period for any “action upon a liability created by statute, when no other time is fixed by the statute creating liability.”   The Court approved the use of that limitations period.

Note: The period for advancing COBRA notice violations ranges from a parsimonious one year period and up depending on the federal circuit.