Matousek v. MidAmerican Energy Co., No. 21-2749, __ F. 4th __, 2022 WL 6880771 (8th Cir. Oct. 12, 2022) (Before Circuit Judges Shepherd, Erickson, and Stras)
Participants in a 401(k) plan offered by their employer, MidAmerican Energy Co., brought a class action lawsuit against the company and other plan fiduciaries, alleging fiduciary breaches based on high fees and poor performance with respect to some of the investment options and high overall recordkeeping fees. After the district court dismissed under Rule 12(b)(6), the participants appealed to the Eighth Circuit, which affirmed the dismissal. The court saw ERISA’s prudence requirement as imposing a purely procedural burden and ultimately concluded that the participants failed to plead sufficient facts to allow an inference that anything was procedurally amiss with respect to the plan’s fees and investment choices.
The court started with the recordkeeping fees paid by the plan to Merrill Lynch, which were between $1.9 million and $3.1 million per year, translating to between $326 and $526 per plan participant annually. In the absence of allegations of serious wrongdoing (like kickbacks), the court said, “the way to plausibly plead a claim of this type is to identify similar plans offering the same services for less.”
The participants claimed that they had done so in the complaint, pointing to allegations that similarly-sized large pension plans (with over $1 billion in assets) paid no more than $100 per participant. The Eighth Circuit said not so fast. Even though, at first glance, the fees paid by the MidAmerican plan looked high, the court reasoned that it could not infer that other similarly-sized plans paid less for the same services.
For this, the court looked to two documents (presumably outside the complaint) – participant disclosure forms and Form 5500s – that the court read as indicating that the relevant fees being paid to Merrill Lynch were only between $32 and $48 per participant, and concluded that the other fees must have been for additional services like participant-initiated “loans” and “distributions.” The sources that the participants pointed to in the complaint, however, left out fees for these kinds of individualized services, and were generally for smaller plans, which the court thought might not need the same kinds of services. On these bases, the court concluded that the complaint did not make a “like-to-like” comparison with regard to the claim that the plan overpaid for recordkeeping fees, and the claim therefore failed to pass muster.
The court likewise concluded that the complaint lacked sufficient detail to support the imprudence claims with respect to specific investment options. The court reasoned that the complaint simply gave insufficient information about such matters as investment strategy, risk profile, and the securities held by the peer group funds identified in the complaint to determine whether these funds provided a “sound basis for comparison.” In the end, the court found “no way to compare the large universe of funds – about which we know little – to the risk profiles, return objectives, and management approaches of the funds in MidAmerican’s lineup.”
The court affirmed the dismissal of the complaint with prejudice, noting that the plaintiffs had not moved to amend in the district court.
This decision makes clear that, in the future, ERISA plaintiffs will have to include in their complaints a lot of detail about the services and fees of comparators to state a fee claim in the Eighth Circuit.
Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.
Holt v. Raytheon Techs. Corp., No. 20-11244-FDS, 2022 WL 6819544 (D. Mass. Oct. 11, 2022) (Judge F. Dennis Saylor IV). Plaintiff Michael Holt is a retiree who worked for defense contractor Raytheon Technologies Corporation, as well as for a company Raytheon acquired, Texas Instruments. In his suit Mr. Holt alleged that his pension benefits did not account for his years of service at Texas Instruments prior to the acquisition and he was therefore receiving less than he was entitled to. Mr. Holt asserted claims for equitable and declaratory relief under Section 502(a)(3), a claim for benefits under Section 502(a)(1)(B), and a claim for attorney’s fees and costs under Section 1132(g). The parties filed cross-motions for summary judgment, which the court denied, choosing instead to remand the matter to the plan administrator. “That decision rested largely on the inadequacy of the administrative record for a conclusive decision. The court further concluded that, given remand to the administrator, Holt’s claim for equitable relief was premature.” Mr. Holt subsequently moved for an award of attorney’s fees and costs pursuant to Section 1132(g). The court concluded that a remand “was probably the best result for which plaintiff could have reasonably hoped,” and for that reason, Mr. Holt had achieved some success on the merits and was entitled to an award of attorney’s fees and costs. Mr. Holt was represented by counsel Jonathan Feigenbaum, a long-time ERISA Watch subscriber and solo ERISA practitioner based in Boston who has been practicing for 27 years litigating hundreds of ERISA cases. Counsel sought an award of $126,280 in attorney’s fees comprised of a lodestar based on an hourly rate of $800 and 157.85 hours of work. The court reduced the amount sought in several respects. Specifically, the court reduced the hourly rate for time spent preparing the fee application by 25% and applied a global reduction of the hours by 15% for the time spent on “‘non-core’ legal work, such as telephone conversations, letter writing, and scheduling,” and for Mr. Holt’s lack of a resolution on his Section 502(a)(3) claims. The court also reduced Mr. Feigenbaum’s hourly rate from the requested $800 to $700. This was primarily done because Mr. Feigenbaum increased his hourly rate from $700 to $800 on January 1, 2022, meaning “the bulk of litigation in this case occurred before Feigenbaum raised his hourly rate.” Multiplying the reduced hourly rate by the reduced hours the court was left with a lodestar of $93,028.25. Attorney’s fees were awarded in this amount. The court awarded in full the requested $1,597.20 in costs.
Breach of Fiduciary Duty
Walsh v. Yost, No. 8:20-cv-00449-PX, 2022 WL 9362277 (D. Md. Oct. 14, 2022) (Judge Paula Xinis). Secretary of Labor Martin J. Walsh commenced this suit against the Saturn Corporation Profit Sharing Plan & Trust and its fiduciaries and trustees for breaches of fiduciary duties and engaging in prohibited transactions. Specifically, the Secretary alleged that defendants failed to forward tens of thousands of dollars of employee contributions to the plan and instead retained the funds in the business for up to five years before eventually remitting them to the plans. Because of the delinquent contributions, the Secretary argued that the plan is owed $8,899.20 in foregone interest. Defendants have failed to respond or participate in the litigation and on September 28, 2021, the court entered their default. The Secretary then moved for a default judgment against defendants. The court granted the motion with respect to liability but denied without prejudice as to the relief sought. Specifically, the court accepted the allegations in the complaint as true and agreed with plaintiff that defendants failed to hold the plan assets in trust, failed to use the assets exclusively for the purpose of administering the plan and exclusively for the benefit of plan participants, and allowed the plan assets to inure to the benefit of the company, a party in interest. Accordingly, the court found liability established. Nevertheless, the court declined to grant the Secretary’s request for relief, finding “the record in support thin,” and short on documentation backing up the assertions. Thus, the court denied without prejudice this portion of the motion and instructed the Secretary to supplement the record on damages.
Dover v. Yanfeng U.S. Auto. Interior Sys., No. 2:20-cv-11643, 2022 WL 7610110 (E.D. Mich. Oct. 13, 2022) (Judge Terrence G. Berg). Plaintiffs moved for preliminary approval of a class action settlement agreement in this breach of fiduciary duty pension class action. The court outlined that it tentatively found the settlement fair, reasonable, and adequate “and in the best interest of the class members,” the participants and beneficiaries of the Yanfeng Automotive Interior Systems and Investment 401(k) Plan. Accordingly, the court preliminarily certified the class, appointed the named plaintiffs class representatives, their counsel, Edelson Lechtzin LLP, and Fink Bressack LLP, as class counsel, and Angeion Group as the settlement administrator. The court directed notice of the settlement to be mailed and scheduled a fairness hearing for the court to hear any objections to the settlement. Having drawn these conclusions, the court granted the motion for preliminary approval of the settlement.
Disability Benefit Claims
Winters v. Liberty Life Assurance Co. of Bos., No. C.A. 20-11937-MLW, 2022 WL 6170588 (D. Mass. Oct. 7, 2022) (Judge Mark L. Wolf). In 2018, plaintiff Edward J. Winters, III stopped working as a mortgage consultant at Wells Fargo due a series of yet to be diagnosed neurological symptoms, possibly the result of Lyme Disease. In this suit, he sought to reinstate long-term disability benefits that were terminated during the policy’s “own occupation” period of disability. Several motions were before the court. Mr. Winters moved for summary judgment and moved to strike exhibits that defendant Liberty Life Assurance Company of Boston attached to its statement of facts that were not part of the administrative record. Liberty moved for judgment on the administrative record. The court first began by addressing Mr. Winters’ motion to strike a medical chronology that Liberty compiled of its interpretation of the 4,400-page medical record, and a declaration of from Liberty’s Director of Appeals outlining the ways Liberty mitigates its conflict of interest in making benefit determinations. The court denied the motion to strike, concluding that the exhibits did not impermissibly expand the administrative record. The court found the chronology to be a useful tool as it summarized the voluminous medical record. As for the declaration, the court concluded it was relevant to Mr. Winters’ claim of procedural bias and thus a permissible addition to the record. Accordingly, the motion to strike was denied. The court next evaluated the relevant standard of review. Mr. Winters argued that the standard of review should be de novo based on a relevant state law outlawing discretionary clauses and thanks to Liberty’s procedural errors during the review process. The court disagreed. It found the state law inapplicable because it went into effect after the relevant events at issue here. Regarding the procedural errors, the court concluded they did not result in prejudice and thus did not warrant altering the review standard. Under arbitrary and capricious review, the court ultimately found that Liberty had identified substantial evidence within the medical records to justify terminating benefits. However, the court nevertheless identified a major flaw with the decision, “Liberty did not complete an assessment of whether Winters was able to carry out all of the Material and Substantial Duties of his Own Occupation…Rather, Liberty made a determination that Winters could perform sedentary or light physical work.” With this shortcoming in mind, the court declined to award judgment to either party and instead determined the appropriate course of action was to remand to Liberty for further consideration. Accordingly, each party’s motion for judgment was denied.
Giberson v. Unum Life Ins. Co. of Am., No. 1:21-00305, 2022 WL 7139763 (S.D.W. Va. Oct. 12, 2022) (Judge David A. Faber). During the height of the COVID-19 pandemic, plaintiff Walter J. Giberson’s long-term disability benefits, which he had been receiving for fourteen years due to cardiac conditions and lingering side-effects of a kidney transplant, were terminated by defendant Unum Life Insurance Company of America. In this order, the court ruled on the parties’ cross-motions for summary judgment under abuse of discretion review. Upon review of the administrative record, the court was convinced that substantial evidence supported Unum’s decision to terminate the benefits. This evidence included the opinions of Unum’s reviewing physicians, including the opinion of the cardiologist Unum hired to perform a medical examination of Mr. Giberson, and a vocational assessment, which outlined sedentary occupations Mr. Giberson could perform with the use of personal protective equipment. The court rejected Mr. Giberson’s argument that Unum cherry-picked medical evidence to suit its objective of terminating benefits. Rather, the court saw “cherry-picking” as a “pejorative label for selecting,” which the court stated is naturally what a plan administrator is supposed to do while reviewing claims. Because, according to the court, Unum systematically considered all of Mr. Giberson’s medical records and addressed why it found evidence that conflicted with its interpretation to be unreliable, the court found no abuse of discretion in the decision itself or the process used to reach it. Thus, the court granted summary judgment in favor of Unum and denied Mr. Giberson’s summary judgment motion.
Perez v. Unum Life Ins. Co. of Am., No. 5:21-cv-03207-EJD, 2022 WL 6173217 (N.D. Cal. Oct. 7, 2022) (Judge Edward J. Davila). Plaintiff Robert Perez sued Unum Life Insurance Company of America after his long-term disability benefits were terminated. Mr. Perez moved for judgment on his two claims, a claim for benefits and a claim for breach of fiduciary duty. In this order the court denied the motion and entered judgment in favor of Unum under de novo review. The court ultimately concluded that Mr. Perez’s disabling conditions in his knees, ankles, and lower back had improved by the time Unum terminated benefits and that Mr. Perez would therefore be able to work in one of the sedentary occupations identified by Unum’s vocational expert. The court denied Mr. Perez’s request to supplement the administrative record, finding it contained all the relevant information the court needed to reach its conclusion. The court also rejected Mr. Perez’s argument that Unum needed to show a change in condition to justify its decision to terminate benefits. To the contrary, the court held it remains Mr. Perez’s burden to prove his entitlement to benefits at all times. As for Mr. Perez’s challenge that he is not currently qualified to perform the identified sedentary jobs, the court stated that the policy simply requires that the jobs be ones Mr. Perez “could reasonably be expected to perform.” Finally, the court found that Unum had not breached its fiduciary duty because it provided Mr. Perez the entire claim file within ERISA’s required 30-day window, and the court found Unum’s reviewers had not made any errors demonstrating a breach of fiduciary duty. Accordingly, the court held Mr. Perez did not meet his burden of proving his entitlement to continued long-term disability benefits.
Brushy Creek Family Hosp. v. Blue Cross & Blue Shield of Tex., No. 1:22-CV-00464-RP, 2022 WL 6727278 (W.D. Tex. Oct. 11, 2022) (Magistrate Judge Susan Hightower). Plaintiff Brushy Creek Family Hospital, an emergency care provider in Texas, sued Blue Cross & Blue Shield of Texas in state court for violating Texas insurance law and breaching an implied contract in connection with an alleged underpayment of $50,000 in emergency medical care bills it charged for care provided to an insured patient. Blue Cross removed the action to federal court on the basis of federal question jurisdiction, arguing that the state law claims were completely preempted by ERISA. Brushy Creek moved to remand. In this Report and Recommendation, Magistrate Judge Hightower analyzed Brushy Creek’s complaint under the two-prong Davila preemption test. First, it was undisputed that Brushy Creek, a medical provider with a valid assignment of benefits, could have sued under ERISA Section 502(a)(1)(B) to recover benefits. The first prong of the test was therefore satisfied. The second prong of Davila was the main point of contention between the parties. They disagreed on whether the Texas insurance law created an independent legal duty. In the end, the Magistrate held that the “rate of payment/right to payment” distinction was inapplicable to the particulars of this case because there was no independent provider agreement or contract between the parties. Furthermore, Magistrate Judge Hightower concluded that the duty imposed by the Texas law at issue was not independent of ERISA, because the statutory language of the law defines “the usual and customary rate” by “the relevant allowable amount as described by the applicable master benefit plan document or policy,” and therefore incorporates the terms of the ERISA plan. Consequently, resolution of the dispute was inextricably tied to interpreting the ERISA plan, and the second prong of Davila was also satisfied. Accordingly, the Magistrate agreed with Blue Cross that the claims are preempted by ERISA, and so recommended the court deny Brushy Creek’s motion to remand.
Pension Benefit Claims
Kurisu v. Svenhard’s Swedish Bakery Supplemental Key Mgmt. Ret. Plan, No. 3:21-cv-912-SI, 2022 WL 6733328 (D. Or. Oct. 11, 2022) (Judge Michael H. Simon). Plaintiffs are former employees of Svenhard’s Swedish Bakery. Each of the plaintiffs worked for Svenhard’s for over three decades. During that time, Svenhard’s promised them and other employees that upon their retirement they would receive pension benefits under the Svenhard’s Swedish Bakery Supplemental Key Management Retirement Plan. However, after plaintiffs retired, they were paid substantially less in pension benefits than they had been promised. In this lawsuit plaintiffs brought ERISA claims and a federal common law estoppel claim against the Plan, the plan’s administrators and fiduciaries, and the bakeries that purchased Svenhard’s: United States Bakery, Mountain States Bakeries LLC, and Central California Baking Company (“the bakery defendants”). The bakery defendants moved to dismiss for failure to state a claim. They argued that plaintiffs’ complaint was insufficiently pled because their purchase agreements with Svenhard’s Bakery did not require them to assume pension obligations under the plan. Plaintiffs disagreed and stated that the Plan itself provides that if Svenhard’s sells its assets then Svenhard’s “shall condition any sale, merger, or reorganization of Svenhard’s or substantially all of its assets upon the surviving entity’s or successor organization’s assuming Svenhard’s obligations under this Plan.” This on its own was not enough for the court to find plaintiffs had adequately stated a claim against the bakery defendants. The court held that plaintiffs needed to allege that the bakery defendants had agreed to assume the obligations under the plan, which plaintiffs failed to actively allege “even on information and belief.” Accordingly, the court granted the motion to dismiss. However, the court expressed its sympathy for plaintiffs’ predicament and the position they are currently in. Thus, the court not only dismissed without prejudice with leave to replead, but also went further and allowed plaintiffs “a reasonable amount of limited discovery before plaintiffs must replead so that plaintiffs can determine whether the Bakery Defendants assumed any obligations under the Plan as a condition of Svenhard’s selling its assets to the Bakery Defendants.”
Baleja v. Northrop Grumman Space and Missions Sys. Corp. Salaried Pension Plan, No. EDCV 17-235 JGB (SPx), 2022 WL 8176156 (C.D. Cal. Oct. 13, 2022) (Judge Jesus G. Bernal). A class of former ESL, Inc. employees brought a two-count ERISA class action against Northrop Grumman Corporation, the Northrop Grumman Space and Mission Systems Corp. Salaried Pension Plan, and the plan’s administrative committee. Plaintiffs alleged that defendants violated ERISA’s anti-cutback provision after acquiring ESL, Inc. and failing to account for their years of service with ESL, effectively shrinking their accrued benefits. They also argued that defendants’ failure to pay the benefits was a violation of the terms of the pension plan. The case went to trial this January. In this order the court issued its ruling in favor of defendants, concluding that defendants neither denied benefits due under the plan nor violated ERISA’s anti-cutback provision. In sum, the court concluded that the plan’s “No Duplication of Benefits” provision mandated that an offset for the years plaintiffs worked at ESL was necessary to avoid double payment of benefits for the same years of service. This was true, the court held, even factoring in the defendants’ failure to formally include an appendix to the plan specifically outlining the process of the offsets. Furthermore, because the court concluded that the plan always provided for the ESL offset, there was no decrease of class members’ accrued benefits and thus no violation of the anti-cutback provision. Finally, the court held that under ERISA “only formal amendments to a pension plan give rise to cutback violations. The administrative alterations at issue did not arise under any Plan amendment and are thus not actionable.” Thus, under abuse of discretion review the court held defendants’ actions and their interpretations of the plan were reasonable.
Pleading Issues & Procedure
Holmes v. FCA U.S. LLC, No. 20-cv-13335, 2022 WL 6736294 (E.D. Mich. Oct. 11, 2022) (Judge Gershwin A. Drain). Plaintiff Philip J. Holmes brought this suit challenging the termination and denial of disability benefits under two plans: a payroll practice plan, the FCA U.S. LLC Disability Absence Plan, and an ERISA long-term disability plan, the FCA U.S. LLC Long-Term Disability Benefit Plan. The ERISA disability plan conditions eligibility for benefits on exhaustion of the full 52 weeks of benefits under the payroll practice plan. Because FCA terminated Mr. Holmes’s benefits under the Disability Absence Plan before he had received 52 weeks of benefits, Mr. Holmes was denied disability benefits under the ERISA plan. In this action, Mr. Holmes seeks to recover benefits from both plans, including pre- and post-judgment interest and attorney’s fees and costs. Mr. Holmes brought a breach of contract claim to recover benefits under the payroll practice plan as well as an ERISA Section 502(a)(1)(B) claim to recover benefits under the ERISA disability plan. Mr. Holmes also brought claims for equitable relief, declaratory and injunctive relief, and breach of fiduciary duty. Defendants moved for partial dismissal, asking the court to dismiss the breach of contract, equitable relief, declaratory relief, injunctive relief, and breach of fiduciary duty claims. The matter was referred to a Magistrate Judge, who issued a report recommending the court grant the motion. Mr. Holmes objected to the portion of the report finding that the payroll practice plan was not a binding contract. He argued that the payroll practice plan is a contract under Michigan law and FCA should not be permitted to disturb vested benefits. The court rejected Mr. Holmes’s arguments and agreed with the Magistrate. Because the plan allows FCA the right to modify its terms even retroactively, the court held that FCA was not bound by the Disability Absence Plan and the breach of contract claim therefore failed as a matter of law. Accordingly, Mr. Holmes will be left only with his claim for benefits under ERISA.