ERISA & Employee Benefits Litigation Blog

DOL Fiduciary Rule-Making Overreach? Stay Tuned for the Judgment of the Courts

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By:  Jim Goodfellow and Mark Casciari

Seyfarth Synopsis: The U.S. Department of Labor has recently issued its new regulation expanding the definition of fiduciary under ERISA, but there are a number of lawsuits challenging the authority of the DOL to issue the regulation — stay tuned to see how the DOL fares in the courts.  

In April, the Department of Labor issued new regulations under ERISA related to individuals who offer investment advice to ERISA plans, their fiduciaries, or participants for a fee.

The DOL now says that a fiduciary is someone who provides recommendations or advice for a fee to a plan, a plan fiduciary, a plan participant, or an IRA owner for a fee regarding: (1) the advisability of acquiring, holding, disposing, or exchanging plan or IRA assets; (2) the investment of assets after those assets are rolled over, transferred, or distributed from a plan or IRA; and (3) the management of those assets. The new regulation became effective on June 7, 2016.

Investment advisers and other groups are not taking this new rule lying down, and the DOL now faces a number of separate lawsuits, which allege that the DOL overstepped its rule making authority when it issued its new regulation.  Five of those lawsuits have been consolidated into one action in the United States District Court for the Northern District of Texas, and a hearing in that consolidated action has been set for November 17, 2016. Another lawsuit has been filed in the United States District Court for the District of Kansas.

In yet another suit, National Association for Fixed Annuities v. Perez, 16-cv-01035 (D.D.C.), the parties are briefing a motion for a preliminary injunction filed by the plaintiff association. The plaintiff association has argued, among other things, that implementing the new rule will have irreparable harm on the fixed annuity industry because the new fiduciary definition will cause jobs to hemorrhage. In addition, the plaintiff argues that the DOL has expanded fiduciary liability far beyond Congress’ intent when it passed ERISA–according to the plaintiff, ERISA fiduciary status is meant to cover only those who provide ongoing management of the plan or its assets.

The DOL has responded with a cross motion for summary judgment and a memorandum in opposition, arguing that its regulation comports with ERISA, and that the plaintiff is playing Chicken Little as to the harm to its membership.

Stay tuned. This surely will wind up before one or more Courts of Appeal and perhaps the Supreme Court.

An Expanding Universe of Healthcare Provider Liability: The United States Supreme Court Endorses “Implied False Certification” under the False Claims Act

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An Expanding Universe of Healthcare Provider Liability:  The United States Supreme Court Endorses “Implied False Certification” under the False Claims Act

By Jonathan Braunstein and Nabeel Ahmad

http://www.seyfarth.com/JonathanBraunstein

http://www.seyfarth.com/NabeelAhmad

 

Seyfarth Synopsis:

In Universal Health Services Inc. v. U.S. et al. ex rel. Escobar et al., the United States Supreme Court found a healthcare provider liable under the False Claims Act (“FCA”) for material omissions on its claim for payment because the claim made specific representations, and the provider’s failure to disclose its noncompliance with regulatory requirements made those representations misleading.

The Holding

On June 16, 2016, the Supreme Court considered and endorsed the “implied false certification” theory of liability under the False Claims Act. Specifically, the Supreme Court held a defendant may be liable for a material omission on a claim for payment if the claim makes specific representations, and the defendant’s failure to disclose its noncompliance with a statutory, regulatory, or contractual requirement renders those representations misleading. Going even further, the Supreme Court held that a defendant may be liable even if the requirement that the defendant did not comply with was not an express condition of payment.

The Underlying Facts

A beneficiary of a state Medicaid program received counseling services at a mental health facility owned and operated by Universal Health. The beneficiary died after suffering an adverse reaction to medication prescribed by the facility. After the beneficiary’s death, her guardians learned that the vast majority of the facility’s employees were not licensed or authorized to prescribe medication or offer counseling without supervision. The guardians filed a qui tam action against Universal Health alleging that it had violated the FCA under the “implied false certification theory” of liability.

The Supreme Court’s Analysis

In a unanimous decision written by Justice Thomas, the Supreme Court agreed with plaintiffs. First, the Supreme Court considered whether submitting a claim without disclosing violations of statutory, regulatory, or contractual requirements constituted an actionable misrepresentation under the FCA. Finding that it did, the Court wrote that by submitting claims for payment using payment codes corresponding to specific services, Universal Health represented that specific types of treatment were provided. The facility’s staff members made further representations by using National Provider Identification numbers corresponding to specific job titles. By conveying this information without disclosing the facility’s many violations, Universal Health’s claims constituted actionable misrepresentations.

Second, the Supreme Court considered Universal Health’s argument that FCA liability should be limited to undisclosed violations of express conditions of payment. The Court disagreed, and held that this argument was not supported by the text of the statute or the statute’s scienter requirement. According to the Court, a defendant can have actual knowledge that a condition is material even if not expressly designated as a condition of payment.

Third, the Supreme Court clarified the FCA’s materiality requirement and held that the Government’s decision to specify a provision as a condition of payment is relevant, but not dispositive. The Supreme Court noted that it is not sufficient for a finding of materiality that the Government would have declined to pay a claim if it knew of the defendant’s noncompliance.  Materiality also cannot be found if the defendant’s noncompliance with statutory, contractual, or regulatory requirements is minor or insubstantial. Moreover, payment of a claim despite actual knowledge that certain requirements were violated is strong evidence that those requirements are not material. The Supreme Court vacated the First Circuit Court of Appeal’s ruling because its materiality standard was too broad.

Takeaway for ERISA plans: The Supreme Court’s Endorsement of Implied False Certification Liability Will Help ERISA Plans Defend Provider Collection Actions, Prosecute Overpayment Recovery Actions, and Deter Future Fraud

Although this case involved claims for payment under the FCA, the ruling is of great relevance and aid to ERISA plans. Claim submissions by providers to ERISA benefit plans often contain actionable material omissions and concealments akin to “implied false certifications” under the FCA.

If providers concealed material information on their claim submissions to ERISA benefit plans, they should not be able to recover allegedly owed but unpaid claims. The “implied certification” theory under the FCA can be cited by ERISA plans in support of affirmative defenses (such as unclean hands) to collection actions brought by providers.

Similarly, ERISA plans should be able to claw back overpayments induced by the providers’ material omissions and concealments. Fraudulent omissions, concealments and “implied false certifications” support claims by ERISA Plans under state law (see e.g., Cal. Civil Code 1710, sub. 3) to recover overpayments and offset future amounts owed.

Health care fraud, waste and abuse have a significant impact on our economy. Public agencies and private companies are focused on controlling costs and are increasing anti-fraud efforts.  Hopefully, the Supreme Court’s decision will serve as a fraud deterrent going forward. We fully expect to see many more civil and criminal healthcare fraud and provider billing disputes involving “implied false certification” in the near future.

Don’t Be a Menace to South Central (Houston Action Council) When Your ERISA Claim Is No Good

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By Sam Schwartz-Fenwick and William David

Seyfarth Synopsis: A recent decision district court ruling affirms that in a benefit discrimination claim, just as in a typical claim of employment discrimination, to survive summary judgment a plaintiff must demonstrate that a defendant’s given lawful reason for taking an adverse action was pretext.

Temporal proximity between an adverse action and an enrollment in an ERISA plan (without more), is insufficient to overcome an employer’s legitimate, nondiscriminatory reason for the termination. Such was the decision of the district court for the Southern District of Texas in Francis v. South Central Houston Action Council Inc.

Plaintiff, was hired by Defendant in February 2012.  A year later she enrolled in Defendant’s medical plan. A month later she was terminated for being insubordinate, and for violating company policy regarding absenteeism and tardiness.

Plaintiff sued for wrongful discharge in violation of the Employee Retirement Income Security Act (“ERISA”), employment discrimination based on national origin in violation of Title VII of the Civil Rights Act of 1964 (“Title VII”), and age discrimination in violation of the Age Discrimination in Employment Act (“ADEA”). Her employer moved for summary judgment for all three claims, and the court granted the motion in its entirety.  Because this blog is focused on ERISA, we limit our discussion to the court’s analysis of the ERISA claim.

In the Complaint, Plaintiff asserted that the proximity in time between her benefits enrollment and her termination established she was terminated in violation of ERISA for enrolling in the plan.

The Court rejected this argument. It held that Defendant offered a legitimate, nondiscriminatory reason for Plaintiff’s termination, and thus it was Plaintiff’s burden to demonstrate pretext. The Court found Plaintiff failed to make this showing as she simply argued that the temporal proximity between her enrollment in the plan and her termination raised a question of fact sufficient to survive summary judgment.

What is the takeaway here for employers? The decision reinforces that in a benefit discrimination claim, just as in a typical claim of employment discrimination, a plaintiff must meet its burden of proof and not rely on happenstance if it hopes to survive a motion for summary judgment.

Spokeo and the Future of ERISA Litigation

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By Mark Casciari

Seyfarth Synopsis: The Supreme Court’s Spokeo decision is sure to impact ERISA litigation.  Expect ERISA plaintiffs to focus more on alleging a “concrete” injury, and ERISA defendants to argue more often that the claim cannot proceed in federal court because its alleged injury, while it may allege a breach of ERISA, does not rise above a purely technical violation.

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We have blogged previously about the Spokeo Inc. v. Robbins case just decided by the Supreme Court, and our sister blog has recently commented on that decision. The following comments do not repeat what already has been said, and are intended to limit the discussion at this time to the ERISA litigation context.

The facts in Spokeo concern the federal Fair Credit Reporting Act, but the holding implicates litigation under a number of other federal statutes, including ERISA.  The Supreme Court said that, while Congress can create federal claims, those claims can be litigated in federal court only if the plaintiff alleges a “concrete” injury (i) that affects the plaintiff in a personal and individual way, (ii) that is traceable to the defendant, and (iii) that is repressible by the federal judge.  Add to these preconditions the Supreme Court’s Twombly holding, which said that any federal complaint, as a matter of federal civil procedure, must state a “plausible” claim, beyond speculation and conclusion, in order to be considered by a federal judge.

The Supreme Court found the allegations in Spokeo possibly less than concrete, and remanded the case back to the Court of Appeals for the Ninth Circuit with instructions to address that issue in detail.  Here is the Court’s explanation of what a claim needs to allege to be “concrete” enough to be heard by a federal judge:

  • The alleged injury must “actually exist”; it must be “real.”
  • The alleged injury can be tangible or intangible. As to intangible harm, the courts will give some deference to what Congress thinks on the subject.  But Congress cannot create an intangible harm merely by creating a claim to remedy a statutory violation.
  • The alleged injury can be a “risk” of real harm that is difficult to measure. For example, the Court said, a failure to obtain information that Congress decided must be make public can (but not necessarily will) be a concrete injury.  Still, it seems, any risk of real harm must rise to a level above speculation.

Some ERISA litigation claims obviously involve concrete injuries.  These include claims for denial of benefits that plan terms allow, plan investment losses resulting from a fiduciary breach and detrimental reliance on fiduciary misrepresentations.  Other ERISA litigation claims less obviously involve concrete injuries.  These include claims challenging a denial to provide plan documents in a timely fashion, claims challenging notice of plan amendments that arguably violate ERISA section 204(h), claims challenging a fiduciary breach attendant to an investment of plan assets in an overfunded defined pension plan, and claims challenging a failure to fund a defined benefit plan where the plaintiff has suffered no benefit denial.

Where lines are drawn undoubtedly will be a subject of much discussion.  How lines are drawn may determine the outcome of high-stakes litigation.  For example, line-drawing will affect class certification decisions, as the more individualized the alleged concrete injury, the less likely the court will certify a class.

ERISA litigators should expect plaintiff s to spend more time drafting complaints, so they plausibly allege concrete injuries.  They should expect defendants to spend more time arguing that, notwithstanding all the extra work, the plaintiffs still cannot enter a federal court because all that the plaintiff is merely alleging a technical violation or “gotcha” claim.

Suing Not Too Wisely

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By: Jules Levenson and Sam Schwartz-Fenwick

Seyfarth Synopsis: A district court in Minnesota recently found an employee could not challenge a plan’s blanket transgender exclusion under Title VII, when the employee was not transgender but her son was. The Court went on to find that a third party administrator could not be sued for the blanket plan exclusion under the Affordable Care Act, when the complaint did not name the correct TPA and when all the TPA was alleged to have done was to follow the plan’s terms.

Existing federal laws have limits when it comes to who can be sued to redress claims of transgender benefits discrimination, so held the District of Minnesota recently in Tovar v. Essentia Health, LLC, et al, No. 16-cv-100 (May 11, 2016). In Tovar, plaintiff’s health-coverage was provided under a benefit plan that expressly excluded covering any “services and/or surgery for gender reassignment.” Plaintiff’s son was a plan beneficiary, who was denied coverage when he sought gender affirmation surgery (and related medical treatments).

Plaintiff brought suit against her employer and the alleged third-party administrator of the plan. She alleged the employer violated Title VII (and Minnesota anti-discrimination laws) by “excluding coverage for gender reassignment services or surgery” in its benefit plan. She further asserted that the third-party administrator violated Section 1557 of the Affordable Care Act, because as an entity that accepted federal funds, it was obligated to disregard the plan’s exclusionary language and instead award benefits related to transgender related services.

Both defendants moved to dismiss. The Court granted both motions. The Court dismissed the employment discrimination claims, holding that Title VII could only redress a claim against an employee. The Court reasoned that Plaintiff suffered no injury as her benefits were not denied. Only her son was denied care. The Court held that a claim of Title VII discrimination did not extend to alleged discrimination against a child-beneficiary. By holding that an injury against a child-beneficiary was not a cognizable injury under Title VII, the Court set more stringent boundaries of the law than the one advocated by the current administration.

The Court dismissed the Section 1557 claim for lack of standing because the evidence in the record demonstrated that the alleged TPA was not in fact the TPA, so any injury was neither traceable to it, nor redressable by it. The Court also noted that even if the alleged TPA actually administered the plan, the TPA was authorized only to interpret the plan, and could not violate the Act by simply following the terms of the plan. The Court stressed that the TPA had a fiduciary obligation to follow the terms of the plan. The Court went on to note that the plan sponsor is the appropriate target in a claim against a blanket transgender benefit exclusion as it is the entity that drafted the challenged plan language. It is unclear from the facts whether the plan sponsor had sufficient contact with the federal government to allow it to be sued under Section 1557.

The Court’s reasoning regarding Section 1557 is in line with the subsequently issued final rules of the Department of Health and Human Services regarding Section 1557. In these rules, HHS ruled that a covered third-party administrator will violate Section 1557 if it administers a plan in a discriminatory way, not if it simply follows the language of the plan.  Note that this is different from the standard under ERISA, under which a fiduciary is only required to follow the terms of the plan to the extent they don’t violate applicable law.

Whether the Tovar Court would have found the blanket exclusion violated Title VII if the claim was brought by an employee plan-participant (instead of a beneficiary), is a question left for another day. What is certain is that the EEOC has taken the position that such conduct would clearly state a cognizable injury under Title VII, and HHS regulations clarify that entities that receive Federal financial assistance (including Medicare) violate the ACA if they retain blanket plan exclusions of transgender related care. Perhaps for this very reason, the employer in Tovar amended the at-issue plan to prospectively remove the blanket exclusion.

Judge Garland’s ERISA Jurisprudence Reflects His Methodical and Moderate Reputation

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By Ada W. Dolph and Justin T. Curley

With President Obama’s recent nomination of Judge Merrick B. Garland of the U.S. Court of Appeals for the D.C. Circuit to the U.S. Supreme Court, we thought our loyal readers would be interested to learn a little about Judge Garland’s ERISA jurisprudence while on the D.C. Circuit. While Judge Garland’s oeuvre in this area of the law is limited despite his 19 years on the appellate bench, it does nonetheless reflect his methodical and restrained reputation, and his penchant for consensus-building, as the decisions that he has been a part of were all unanimous while still peppered with both Democratic- and Republican-appointed judges.

Judge Garland has authored two decisions that have substantively discussed ERISA and its regulations. In Boivin v. U.S. Airways, Inc., 446 F.3d 148 (D.C. Cir. 2006), retired pilots brought suit against the Pension Benefit Guaranty Corporation (“PBGC”), seeking to compel the PBGC to correct alleged errors in its calculation of estimated retirement benefits due the pilots under ERISA and the pilots’ pension plan. In a thorough and carefully crafted opinion, Judge Garland wrote for the panel that the pilots’ claims must be dismissed without prejudice, because the pilots had not yet exhausted their administrative remedies provided by the PBGC, and that they were required to do so before seeking judicial review. In so holding, the panel observed that while ERISA does not expressly require exhaustion of administrative remedies or condition judicial review upon “final” agency action, sound judicial discretion, the case law and the circumstances of the case favored requiring exhaustion.

In Francis v. Rodman Local Union 201 Pension Fund, 367 F.3d 937 (D.C. Cir. 2004), Judge Garland wrote the opinion which affirmed summary judgment for the defendant, reasoning that the plaintiff was not entitled to recover pension benefits alleged owed to him under the terms of an ERISA plan based on the additional hours that he arguably would have worked but for alleged racial discrimination charged and settled in prior litigation. Judge Garland analyzed the terms of the pension plan and the settlement agreement and laid out how the facts of the case demonstrated that the parties never intended the prior settlement payment to plaintiff to generate additional pension benefits, and noted that the plaintiff still retained the right to receive pension benefits under the plan for the hours that he actually worked.

While Judge Garland has not authored an opinion in a denial of benefits case, the decisions in which he participated as a member of the panel do not lean one way or the other, and instead reflect the reasoned, middle of the road approach for which he is known. In Fitts v. Unum Life Ins. Co. of Am., 520 F.3d 499 (D.C. Cir. 2008), the plaintiff challenged her disability plan’s determination that her bipolar disorder was a mental illness, as opposed to a physical illness, and therefore limited her disability benefits to two years. The district court had concluded that the meaning of mental illness was ambiguous, and resolved the ambiguity in favor of the plaintiff. On appeal, Judge Garland and the two other judges reversed, noting the conflicting evidence regarding the causes of bipolar disorder in general and of plaintiff’s bipolar illness in particular. Given the genuine dispute about the possible causes of bipolar disorder, and in light of the defendant’s evidence casting doubt on the cause of plaintiff’s illness, the panel ruled that the district court should not have granted summary judgment for the plaintiff.

In White v. Aetna Life Ins. Co., 210 F.3d 412 (D.C. Cir. 2000), the plaintiff had filed her appeal of a denial of benefits three months late, and the defendant refused to consider the untimely appeal. The district court granted summary judgment for the defendant. On appeal, Judge Garland and the panel reversed, holding that the denial notice did not substantially comply with the notice requirements of ERISA and its implementing regulations, and that therefore the plaintiff’s 60-day appeal deadline never began to run. Specifically, the denial notice failed to include a fourth reason for the benefits denial, which the panel concluded was a “major omission,” as it precluded the plaintiff from perfecting her benefit claim for appeal.

Judge Garland’s only decision touching on ERISA preemption is O’Connor v. UNUM Life Ins. Co. of Am., 146 F.3d 959 (D.C. Cir. 1998), a case in which the panel reversed the district court’s grant of summary judgment in favor of the defendant. The plaintiff had argued that the district court erred because the defendant failed to submit any evidence that it was prejudiced by the plaintiff’s failure to file timely proof of her claim. The plaintiff relied upon California’s so-called “notice-prejudice” rule, which provides that a defense based on an insured’s failure to give timely notice of a claim to the insurer requires the insurer to prove that it suffered substantial, actual prejudice due to the delayed notice. While the parties agreed that the notice-prejudice rule “relates to” an employee benefit plan and therefore falls within ERISA’s general preemption provision, they disputed whether ERISA’s savings clause for “any law of any State which regulates insurance, banking, or securities” applied. The panel concluded that the savings clause did apply because the notice-prejudice rule regulates insurance, and that accordingly ERISA does not preempt California’s notice-prejudice rule.

In sum, Judge Garland’s ERISA jurisprudence, albeit limited, reflects his reputation as a judicial centrist who is not reflexively pro-plaintiff or pro-defendant. The ERISA decisions in which he has participated, either as an author or panel member, are thoughtfully considered and well-reasoned, reveal consensus and bend toward the middle.

Seventh Circuit Does The Math and Sides with Plan Administrator in Pension Calculation Dispute

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By Ronald Kramer and Christopher Busey

On Wednesday, March 16, the Seventh Circuit inspired a collective sigh of relief among actuaries and plan administrators everywhere. In Cocker v. Terminal Railroad Association of St. Louis Pension Plan for Nonschedule Employees, 15-2690, the Court acknowledged the concept of actuarial equivalence in finding that the defendant plan’s calculation of the plaintiff’s pension benefit was correct.

The plaintiff, Roger Cocker, retired from Union Pacific Railroad in 2006, but went to work for Terminal Railroad at that time. Although his normal retirement age under the Union Pacific pension plan would have been in 2019, he elected to receive early pension benefits under that plan beginning in 2009. His monthly benefit under that plan was $1,022.94, rather than the $2,311.73 he would have received had he commenced benefits in 2019. The plaintiff then retired from Terminal in 2010 and claimed benefits pursuant to that employer’s plan. The Terminal plan provided that benefits from any other retirement plan would be offset for the amount “that would have been payable under such other plan in the form of a Single Life Annuity commencing on the Participant’s Normal Retirement Date.” The plan administrator concluded that this offset amount would be $2,311.73, the amount plaintiff would have begun receiving in 2019 based on plaintiff’s total years of work. The Southern District Court of Illinois disagreed, finding that the administrator should only have reduced plaintiff’s pension by the lesser amount he began receiving from the Union Pacific plan in 2009.

Judge Richard Posner—writing for the three-judge Seventh Circuit panel—disagreed with the lower court. The Court recognized that using the lower offset would have provided plaintiff with a windfall because the two amounts were actuarial equivalents. Under the Union Pacific plan, the plaintiff had the same total expected payment over his lifetime regardless of when he elected to commence payments. Forcing the Terminal plan to use the lower offset would place plaintiff in a better position by choosing to begin benefits earlier even though he had worked the same amount. The Court noted that this same conclusion was recently reached by the Eight Circuit in a “virtually identical case.” Ingram v. Terminal R.R. Ass’n of St. Louis Pension Plan for Nonschedule Employees, 812 F.3d 628 (8th Cir. 2016). The Court acknowledged the plan administrator’s conflict of interest, but found it irrelevant because its interpretation of the plan was correct. It thus found no violation of ERISA or the plan in using the higher offset.

While this decision does not break any new ground, it avoids a circuit split that could have been exploited by plaintiffs’ attorneys. It also provides some assurance to plan administrator’s that courts often recognize the concepts on which they routinely base decisions and administer plans.

Supreme Court Concludes That ERISA Preempts State Reporting Requirements

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By Ian Morrison, Sam Schwartz-Fenwick and Jim Goodfellow

In a closely observed federalism battle over the scope of ERISA preemption, the Supreme Court came down on the side of Federal power. Specifically, in Gobeille v. Liberty Mutual Insurance Company, the Court, in a 6-2 ruling, concluded that ERISA preempted a Vermont law.

The state law at issue required all health insurers, including self-insured health plans governed by ERISA, to provide the state with reports relating to claims data (e.g., claims submitted, claims paid) and other information related to health care. The purpose of the statute is to help provide information to consumers and to improve health care in Vermont.

Writing for the majority, Justice Kennedy concluded that because reporting, disclosure, and record keeping are central ERISA functions, and because violation of ERISA’s reporting requirements can result in civil and criminal liability, Vermont’s reporting regime intruded upon a central matter of ERISA plan administration and interfered with nationally uniform plan administration. The majority further observed that only the Secretary of Labor, not the states, may enact reporting requirements for ERISA plans. Justices Thomas and Breyer separately concurred in the Court’s decision. Justice Thomas’ opinion acknowledges that the outcome is correct under existing precedent, but questions whether ERISAs preemption provision is even constitutional or consistent with the limits on preemption applied to other federal laws.

Justices Ginsburg and Sotomayor dissented, concluding that Vermont’s reporting was designed to improve health care in the state, while ERISA’s reporting requirements were designed to eliminate fraud. This divergence in purpose was critical. The dissenters also noted that Vermont’s law would not significantly burden ERISA plans because the information Vermont seeks already is collected by plans, and the Vermont law does not require any additional administrative procedures.

For ERISA plan sponsors and administrator, this case reaffirms the broad preemptive scope of ERISA. That said, states are increasingly passing legislation related to health and retirement plans in the face of Congressional inaction. As this trend continues, it is almost certain that Gobeille will not be the Court’s last word on ERISA preemption.

What Amgen and Tackett Tell Us About ERISA Litigation Trend Lines

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By: Mark Casciari

Two recent Supreme Court decisions, and a recent Sixth Circuit analysis on remand from the Supreme Court, offer a roadmap of sorts on ERISA litigation. In both decisions, the Supreme Court did away with presumptions, and at the same time made it more difficult for plaintiffs to sue.

In Amgen, Inc. v. Harris, 2016 WL 280886 (Jan. 25, 2016), the Supreme Court affirmed its 2014 decision in Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459 (2014) that a claim for a breach of fiduciary duty of prudence against ERISA fiduciaries who manage publically-traded employee stock investments in 401(k) plans need not overcome a presumption of prudence. But the Court reversed a Ninth Circuit decision that imposed too low a burden on plaintiffs when arguing that the ERISA fiduciaries should have “done something” to halt a decline in stock values. The Court affirmed this critical Dudenhoeffer pleading standard for plaintiffs: The complaint must “plausibly allege” that “a prudent fiduciary in the same position could not have concluded that [ ] alternative action would do more harm than good.” (Emphasis added; internal quotation marks omitted.) There are two points to note with this affirmation of the Dudenhoeffer phrasing of the plaintiff’s burden: (1) “plausibility” has become at catch-word for specificity, and (2) alleging a negative with specificity is very hard to do.

In Tackett v. M&G Polymers USA, Inc., 2016 WL 240414 (6th Cir. Jan. 21, 2016), the Court of Appeals for the Sixth Circuit remanded a case to the District Court in light of the Supreme Court’s decision in M&G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (2015) that did away with a presumption of vesting of collectively bargained retiree welfare benefits. The Sixth Circuit instructed the District Court to evaluate the vesting issue under “ordinary principles of contract law.” The Sixth Circuit then listed many of these ordinary principles. Of note is the principle that “traditional rules of contractual interpretation require a clear manifestation of intent before conferring a benefit.” Combining this principle with plausibility means that plaintiffs must allege with specificity a plan sponsor intention to vest. A collective bargaining agreement’s durational language or incorporation of a plan document with a reservation of rights will make it hard for a plaintiff to allege with specificity the existence of vested benefits, even if the other governing language is vague.

So, what do these decisions suggest about the future of ERISA litigation? Expect a tougher road for plaintiffs to state claims upon which relief may be granted. Also expect stock drop and retiree welfare benefits litigation to shine a spotlight on an ERISA plan’s privately-held stock investments, the ERISA duty of loyalty (which was not the focus of the Amgen decision), and plans and collective bargaining agreements that, from a plan sponsor perspective, are badly drafted.

The Magic 8 Ball says –The Supreme Court’s Montanile Decision and The Seemingly Random Evolution of Supreme Court ERISA Remedies Jurisprudence

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It’s a common fact pattern.  A plan participant is injured and received benefits for treatment of his injuries.  The participant then sues a third party for damages based on his injuries.  The plan then seeks to recover a portion of the judgment or settlement in reimbursement.  So common is this fact pattern that the ability of the plan fiduciaries to recover on these facts has been the subject of four Supreme Court decisions.

In the latest decision, Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, No. 14-723 (January 20, 2016), the Court ruled 8-1 that no right of reimbursement exists if the participant already spent all the money received in the personal injury case.

Montanile involved the typical fact pattern, with a twist not present in the prior cases.  Here, the participant claimed to have spent some (if not all) of his personal injury settlement.  He challenged the claim brought by the health plan’s board of trustees under ERISA § 502(a)(3) for “appropriate equitable relief.”  Essentially, he argued that the trustees’ claim wasn’t equitable because he spent the settlement money and no longer held it in an identifiable fund.

To reach what dissenting Justice Ruth Bader Ginsberg characterized as a “bizarre conclusion” that the trustees had no claim, the Court consulted the Magic 8 Ball of ERISA remedies jurisprudence: “standard treatises on equity.”  Op. at 5.  According to these treatises and the Court’s prior decisions, to be an equitable remedy for which a plan fiduciary can sue, the remedy must be one that a court of equity would have typically awarded in the days of the divided bench.  The Court stressed that the claim and the remedy must be equitable in nature.  While the trustees’ claim for enforcement of an equitable lien by agreement was a typical equity claim, the remedy was not.  The Court reasoned that in a court of equity, “a plaintiff ordinarily could not enforce any type of equitable lien if the defendant once possessed a separate, identifiable fund to which the lien attached, but then dissipated it all.” Id. at 9.

All was not lost in this case, however, because the participant’s lawyer admitted at oral argument that a fact question existed as to whether the participant still had any of the settlement money in his possession.  The Court sent the case back to the lower courts to resolve this question and, if undissipated assets still existed, presumably to allow the trustees to recover them.

The practical consequences of the decision will be significant, because it will force plans to race to take action to recover funds faster than the participant can spend the money, which is not the norm now and may not be possible in practice.  The decision may also have consequences for other types of common reimbursement claims (such as for pension and disability benefit overpayments).  In the face of a Supreme Court decision that encourages participants to dissipate assets potentially subject to reimbursement obligations, plan sponsors may need to consider taking steps to avoid payment of benefits until potential overpayments are resolved, and fiduciaries should review and enhance their collection efforts.