ERISA & Employee Benefits Litigation Blog

Courts Will Have to Determine Boundaries of Supreme Court’s Hobby Lobby Decision

Posted in Uncategorized

By John T. Murray, Justin T. Curley and Reanne Swafford[1]

Two years after upholding the constitutionality of the Affordable Care Act (ACA), the Supreme Court has narrowed the Act’s contraceptive coverage requirement, and opened the door to new challenges to ACA.  In Burwell v. Hobby Lobby Stores, Inc., 573 U.S. ___ (2014), the Supreme Court considered whether the Religious Freedom Restoration Act of 1993 (RFRA) allows for-profit corporations to avoid ACA’s requirement that they provide insurance coverage for certain contraceptives on religious grounds.  In a 5-4 vote, the Court held that for-profit corporations—at least those that are closely held—can assert religious rights under RFRA and, on that basis, can obtain exemptions from ACA’s contraception coverage mandate.  Thus, Hobby Lobby and similar employers whose owners assert religious objections cannot be required to offer insurance coverage to their employees for contraceptive methods that conflict with the owners’ religious beliefs.

While Justice Alito’s majority opinion stressed that the ruling was limited to ACA’s contraceptive coverage mandate, the opinion does not necessarily foreclose attacks on other ACA provisions based on religious grounds.  Justice Ginsburg emphasized this very point in a strongly worded dissent.  Therefore, it is likely that, in the coming months, the courts will have to decide on new RFRA-based challenges to other ACA mandates.

These challenges could include objections to coverage for other forms of birth control, blood transfusions, prescription antidepressants and other mental health therapies, participation in trial studies that rely on the use of embryonic stem cells, vaccinations, or the implantation of replacement heart valves derived from animals, all of which are or could be objectionable to certain religious groups.  Indeed, the potential challenges to ACA’s coverage requirements based on religious grounds are as varied as individual religious convictions.

Likewise, although the majority limited its holding to closely held corporations, the majority opinion did not completely foreclose the possibility that corporations that are not closely held will attempt to also avail themselves of RFRA’s protections.  As a result it is conceivable that corporations that are not closely held—perhaps even publicly traded corporations—may try to make use of the same exemption, or seek new exemptions, based on the religious beliefs of individuals holding controlling interests in the companies’ stock.

By the time the Court issued its decision in Hobby Lobby, there were nearly 50 pending federal lawsuits brought by for-profit employers raising religious objections to various aspects of ACA’s contraceptive coverage mandate—this figure is sure to increase with other religious challenges to ACA in the wake of Hobby Lobby.

And it remains to be seen whether the challenges may expand to other faith-based objections.  For example, some employers may also seek to leverage Hobby Lobby to challenge healthcare coverage for same-sex spouses in the 19 states (with more likely to come) that permit same-sex marriage.  In fact, a group of religious leaders has already written a letter to President Obama in light of Hobby Lobby arguing for a RFRA exemption to a pending executive order that would prohibit federal contractors from discriminating against LGBT individuals in hiring practices.  However, the courts may cast a critical eye on these claims, as Justice Alito’s opinion cautioned that the decision should not be read to provide a shield for discrimination (although the opinion only specifically references race discrimination), and the federal government might also argue that it has no obvious, readily available alternative to provide same-sex spouses with the benefits that would otherwise be provided by an employer.

Hobby Lobby has set the stage for new waves of litigation beyond the narrow bounds of benefits coverage for certain forms of contraception—only time will tell how and to what extent the decision will play out in the lower courts.

 


[1] Ms. Swafford is a law student at UCLA and summer fellow in Seyfarth Shaw’s San Francisco office.

The Supreme Court—“We Reject the Moench Presumption, But Give Some Comfort to ERISA Fiduciaries”

Posted in General Fiduciary Breach Litigation

By Mark Casciari

Today, the Supreme Court, in a 9-0 decision authored by Justice Breyer, issued its decision in Fifth Third Bancorp v. Dudenhoeffer, stating, “We hold that no such presumption [of prudence] applies. Instead, ESOP fiduciaries are subject to the same duty of prudence that applies to ERISA fiduciaries in general, except that they need not diversify the fund’s assets.”  The Court did not address the ERISA duty of loyalty.

Even though the Court has firmly placed the presumption of prudence, created in Moench v. Robertson, 62 F. 3d 553, 571 (3d Cir. 1995) and adopted in some form by all of the Courts of Appeal, see our prior articles, into the dustbin of American jurisprudence, there is much in Dudenhoeffer to warm the hearts of ERISA fiduciaries.

The Court reversed the decision of the Court of Appeals for the Sixth Circuit.  The Sixth Circuit had held that a complaint alleging that the fiduciaries should have sold publically traded stock (or take other action not specifically authorized by ESOP documents) just before a substantial decline in stock prices stated a valid ERISA claim.

Practitioners, employee benefits professionals, and of course fiduciaries, should note these statements of the Court in Dudenhoeffer:

• The Court expressly recognized that a goal of Congress is to encourage the establishment of ESOPs, and that Congress “is deeply concerned that the objectives sought by this series of laws will be made unattainable by regulations and rulings which treat [ESOPs] as conventional retirement plans, which reduce the freedom of the employee trusts and employers to take the necessary steps to implement the plans, and which otherwise block the establishment and success of these plans.”  This passage could be cited to the Department of Labor, which, for years, has exhibited antagonism towards ESOPs.

• The Court stated that plaintiffs should be unable to survive a motion to dismiss and thereby engage in discovery merely by alleging that the fiduciaries should have taken action to protect publically-traded company stock in light of publicly available information.  Discovery, of course, dramatically increases settlement values.  Prior Supreme Court decisions allow discovery only if the complaint makes “plausible” allegations.  The Court in Dudenhoeffer said:  “[W]here a stock is publicly traded, allegations that a fiduciary should have recognized from publicly available information alone that the market was over- or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances.”  (Emphasis added.)

• The Court stated that plaintiffs will not enter the discovery door without strong allegations that the fiduciaries breached their duties on the basis of inside information:  “To state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.”  (Emphasis added.)  For a further analysis of the relation between securities laws and ERISA, see M. Casciari and I. Morrison, “Should the Securities Exchange Act be the Sole Federal Remedy for an ERISA Fiduciary Misrepresentation of the Value of Public Employer Stock,” John Marshall Law Review, Vol. 39 No. 3 (Spring, 2006).

• The Court stated that plaintiffs cannot survive a motion to dismiss without plausible allegations of conduct the fiduciaries should have undertaken:  “[L]ower courts faced with such claims should also consider whether the complaint has plausibly alleged that a prudent fiduciary in the defendant’s position could not have concluded that stopping purchases—which the market might take as a sign that insider fiduciaries viewed the employer’s stock as a bad investment—or publicly disclosing negative information would do more harm than good to the fund by causing a drop in the stock price and a concomitant drop in the value of the stock already held by the fund.”  (Emphasis added.)

These statements of the Court may help fiduciaries win motions to dismiss not only in the company stock context, but also in other contexts.  The Court’s statements may be seen as having the effect of raising the plausibility bar applicable to all ERISA fiduciary breach claims.

ERISA Has a Whistleblower Provision? Yep.

Posted in Uncategorized

By: Ada Dolph and Robert Szyba

Most employee benefits practitioners are familiar with ERISA Section 510, 29 U.S.C. § 1140, which is frequently used by participants to assert claims that they were terminated in order to prevent them from obtaining certain benefits under an employee benefit plan.  A lesser known part of Section 510, however, is its second clause, which protects ERISA whistleblowers from retaliation after engaging in certain protected whistleblowing activity.  It states that “[i]t shall be unlawful for any person to discharge, fine, suspend, expel, or discriminate against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to [the Act].”  ERISA, 29 U.S.C. § 1140.  A circuit split regarding the meaning of this second clause has emerged, and employers and benefit plans should be aware that in some jurisdictions, even unsolicited internal complaints could form the basis for a claim under ERISA Section 510.

More recently, however, in Sexton v. Panel Processing, Inc., __ F.3d __, 2014 WL 1856692 (6th Cir. May 9, 2014), the Sixth Circuit concluded otherwise, finding that a plaintiff’s one-time, unsolicited complaint about a possible ERISA violation did not constitute “giv[ing] information . . . in any inquiry” as required to be protected under Section 510.  Plaintiff Sexton and one other trustee of an employee retirement plan had been removed as trustees after actively campaigning for the election of two board candidates that the company ultimately refused to seat.  Subsequently, Sexton sent an email to the chairman of the board of directors asserting that the refusal to seat the board candidates and his removal as trustee was a violation of ERISA and state law.  He threatened that if the violations were not “remedied,” he would go to the Department of Labor and the Michigan Department of Licensing and Regulatory Affairs.  Notably, neither the company nor Sexton took any further action regarding his email.  About six months after the email, Sexton was terminated.  He sued, alleging that he was terminated in retaliation for sending the email, which he argued constituted protected conduct under ERISA Section 510.

In analyzing the language of Section 510, the Sixth Circuit reasoned that generally there are two types of anti-retaliation provisions: (1) opposition clauses, protecting employees who oppose, report, or complain about unlawful practices; and (2) participation clauses, shielding employees from retaliation for participating, testifying, or giving information in inquiries, investigations, proceedings, or hearings.  Other laws might contain one of these provisions, with many laws containing both.  The court found it meaningful that ERISA Section 510 contains only a participation clause, given that Congress had included both types of provisions with numerous other statutes enacted both before and after ERISA. Sexton, 2014 WL 1856692, at *3-4 (citations omitted).  The court concluded that Congress had enacted this second clause with the intent of preventing interference with inquiries and proceedings, as opposed to protecting all persons who disclosed violations of the Act.

The Sixth Circuit found that its more narrow reading of Section 510’s second clause was consistent with precedent in the Second, Third and Fourth Circuits.  See Nicolaou v. Horizon Media, Inc., 402 F.3d 325, 329 (2d Cir. 2005); Edwards v. A.H. Cornell & Son, 610 F.3d 217, 225-26 (3d Cir. 2010); King v. Marriot Int’l, Inc., 337 F.3d 421, 428 (4th Cir. 2003).  However, the Court distinguished the Seventh Circuit’s conclusion in George v. Junior Achievement of Cent. Ind., Inc., 694 F.3d 812, 817 (7th Cir. 2012) that Section 510 covers any complaint about ERISA that either asks or answers a question, on the narrow grounds that Sexton’s email “did neither.”

Judge White wrote a lengthy dissent, stating that she would have followed George to conclude that “unsolicited internal employee grievances [are protected] regardless whether the employer or employee initiated the ‘inquiry.’”  Judge White also noted additional circuit opinions from the Fifth and Ninth Circuits that she concluded supported her broader reading of Section 510.  See Hashimoto v. Bank of Hawaii, 999 F.2d 408 (9th Cir. 1993); Anderson v. Electronic Data Systems Corp., 11 F.3d 1311 (5th Cir. 1994).  The Department of Labor filed an amicus brief which had also urged that the broader reading be applied.

Given the emerging circuit split on this issue and the Department of Labor’s advocacy in this area, employers should be mindful that even unsolicited, internal complaints involving ERISA could be found to be protected for the purposes of ERISA Section 510 claims.

A Flush Beats a Straight – Another Court Holds that ERISA Plan Anti-Assignment Provisions Trump Participant Assignments

Posted in Uncategorized

By Jon Braunstein and Kathleen Cahill Slaught 

A US District Court in New Jersey recently held that an ERISA Plan’s anti-assignment provision trumped the plan participant’s assignment of benefits to a health care provider and thus the provider lacked standing to sue under ERISA.  Neurological Surgery Associates, P.A. v. Aetna Life Insurance Company, et. al., 2014 BL 154982, D.N.J., No. 2:12-cv-05600-SRC-CLW, (unpublished 6/4/14).

The case presented a dispute between the provider and Aetna, as the Plan administrator, over payment for services provided to a Plan participant. The Complaint alleged that the Plan participant executed an assignment of benefits which conferred the provider beneficiary status. The Complaint asserted five claims under ERISA and state law.

Aetna moved for summary judgment arguing that the ERISA plan contained an anti-assignment provision requiring that coverage may be assigned only with its consent, which it did not give. Aetna argued that because the provider sues as an assignee under the plan, and because that assignment is invalid as against the anti-assignment provision, the provider lacked standing to sue.  In opposition, the provider contended that it had standing to sue as an ERISA beneficiary under ERISA 502(a)(a)(b), 29 U.S.C. § 1132(a)(1)(B), regardless of the presence of the anti-assignment provision.

In the absence of Third Circuit precedent, the district court chose to follow the majority view which holds that anti-assignment clauses trump provider assignments, citing Physicians Multispecialty Group v. Health Care Plan of Horton Homes, Inc., 371 F.3d 1291, 1295 (11th Cir. 2004), St. Francis Reg’l Med. Ctr. v. Blue Cross & Blue Shield of Kan., Inc., 49 F.3d 1460, 1464-65 (10th Cir. 1995) and Davidowitz v. Delta Dental Plan of Cal., Inc., 946 F.2d 1476, 1478 (9th Cir. 1991).

Citing these authorities, the district court further explained that Congress carefully considered assignment of both pension and welfare plan benefits, and consciously decided to prohibit pension plan assignments but remain silent on welfare benefits. The district court said that, having chosen to remain silent, Congress intended not to mandate assignability, but intended instead to allow the free marketplace to work out such competitive, cost effective, medical expense reducing structures as might evolve.

The district court granted the Aetna’s motion holding that the ERISA Plan’s anti-assignment provision was valid and enforceable, the assignment of rights or benefits was void, and that the provider lacked standing to sue under ERISA. The district court also summarily concluded that the provider’s supplemental state law claims were duplicative of the ERISA claims and thus preempted by ERISA.

The case is significant because claims by out of network providers under ERISA are now percolating in courts throughout the country.  These cases present questions of standing, participant assignments, plan anti-assignment provisions, and challenges to enforcement of anti-assignment provisions (e.g., contractual ambiguity, waiver and/or estoppel).

To borrow a poker analogy, in most jurisdictions a flush (the anti-assignment provision) trumps a straight (the provider assignment).   The next question to be determined in litigation is whether the provider can trump the straight with a full house (i.e., a successful challenge to the anti-assignment provision rendering it unenforceable).  We expect to see many more of these types of cases and claims in the near future.

Back to Basics: Second Circuit Tosses Stock Drop Claim Because Funding a Plan is Not A Fiduciary Act

Posted in Employer Stock Litigation, General Fiduciary Breach Litigation

By: Ian Morrison and Abigail Cahak

The first (or second) question to ask in any ERISA breach of fiduciary duty case is whether the acts in question are even fiduciary acts.

On appeal in an ERISA “stock drop” case, the Second Circuit focused on that basic question, resulting in a clean win for the defendants.

Participants in the Morgan Stanley 401(k) and Employee Stock Ownership Plans (“Plans”) sued after the great recession caused the value of 2007 and 2008 contributions to the Plans in Morgan Stanley stock to crater, allegedly dropping in value from $2.2 billion to $675 million.  The participants sued alleging that the drop was the result of an imprudent investment because Morgan Stanley’s exposure to subprime and mortgage-backed securities had caused the value of the stock to drop.

On March 28, 2013, the U.S. District Court for the Southern District of New York dismissed the cases because, although the named defendants were de facto fiduciaries under ERISA, the plaintiffs had not alleged enough to overcome the so-called Moench presumption that employer stock investments in plans that require such investments are presumed prudent unless plaintiffs can show the plan sponsor’s impending collapse or other “dire” circumstances.

On appeal, the Second Circuit took a back to basics approach to the case.  In a May 29, 2014 opinion, the court ruled that the defendants were not fiduciaries at all, at least not for purposes of anything at issue in the case.  (Coulter v. Morgan Stanley & Co. Inc., No. 13-2504 (2d Cir. May 29, 2014).)  The Court held that establishing and funding the Plans were “settlor functions” not subject to challenge under ERISA’s fiduciary duty rules.  The Court said that the fact that the Plans were already in existence was irrelevant because at the time the decisions were made, the company stock was not an asset of the Plans. The Court cautioned that fiduciary status does not exist “simply because an employer’s business decision proves detrimental to a covered plan or its beneficiaries.”

With aspects of the Moench presumption subject to review by the Supreme Court, with a decision expected in Fifth Third Bancorp v. Dudenhoeffer later this month, the Court’s move may have been calculated to avoid any need for reconsideration in light of the high court’s ruling.  But the Third Circuit’s decision did rely on a view employee benefits practitioners have long held:  the act of plan funding (the amount as well as the nature of payment) is not a fiduciary act.  That’s not to say that funding a plan with employer stock is free of risk after the Second Circuit ruling, but Coulter certainly gives the defense another tool to fight back against stock drop claims.

Getting from A to B — You Have No Class! Spotting Lack of Commonality and Typicality In ERISA Class Actions

Posted in Rule 23 Issues

By: Mark Casciari and Michelle Scannell

ERISA class actions can drag on for years.  Defending them is costly, so expensive nuisance settlements are tempting, regardless of the merits. 

Compounding the problem, ERISA actions often are ripe for class certification because ERISA plans, by definition, each apply to a class of people. 

But before you grab your wallet when faced with a putative ERISA class action, consider this admittedly partial, but helpful, list on how to attack a certification motion on the basis of Fed. R. Civ. P. 23(a) elements of commonality and typicality:

  • Can the would-be class members even sue under ERISA? (See Penn. Chiropractic Ass’n v. Blue Cross Blue Shield Ass’n, No. 1:09-cv-05619 (N.D. Ill. Dec. 28, 2011) (finding that providers suing for reimbursement lacked commonality on issues including whether they could invoke ERISA)).  
  • Did would-be class member claims accrue at different times, and are some untimely? (See In re Unisys Corp. Retiree Med. Benefits Litig., 29 EBC 2473 (E.D. Pa. Feb. 4, 2003) (decertifying class because individualized inquiries were required on many issues, including whether individual fiduciary breach claims of class were timely)).
  • Have would-be class members exhausted their administrative remedies? (See Stephens v. U.S. Airways Grp., Inc., No. 1:07-cv-01264-RMC (D. D.C. Dec. 7, 2012) (finding no typicality because named plaintiff was only class member who exhausted administrative remedies)).
  • Do different standards of review apply to different would-be class members? (See Lipstein v. UnitedHealth Grp., No. 1:11-cv-01185-JBS-JS (D. N.J. Sept. 26, 2013) (finding that proposed class of participants in more than 1,000 plans administered by insurer lacked commonality because different levels of discretion could have applied under different plans)).
  • Did would-be class members adopt different investment strategies? (See Groussman v. Motorola, Inc., 2011 U.S. Dist. LEXIS 134769 (N.D. Ill. Nov. 15, 2011) (finding no commonality due to individualized investment strategies of class members, and lack of typicality for failure to show that class members were allegedly deceived in a uniform fashion)).
  • Did would-be class members uniformly rely on any alleged misrepresentations? (Hudson v. Delta Air Lines, Inc., 90 F.3d 451, 457 (11th Cir. 1996) (finding no commonality due to individualized issues of reliance)).
  • In short, ask yourself this questionHave the putative class action representatives provided the court with a credible and formulaic roadmap to damages for a group of people with standing to sue under ERISA? 
  • If the answer involves a number of detours, you are on to something!

It is Not a Duck: New Jersey Court Holds a Surcharge Is Not A Contribution For Purposes of Determining a Withdrawn Employer’s Payment Schedule

Posted in Withdrawal Liability

By: Ronald Kramer

Since the passage of the Pension Protection Act in 2006, there has been an ongoing debate as to whether a surcharge imposed by a multiemployer pension plan in critical status is part of the employer’s “contribution rate” such that that extra amount — which can be 10% of an employer’s contribution — counts when a fund determines what a withdrawn employer’s “highest contribution rate” is for purposes of calculating the employer’s withdrawal liability payment schedule.  Under ERISA, an employer assessed withdrawal liability has the right to pay that off over time plus interest, with its annual payment equal to no more than its highest three year annual  average of contribution base units in the ten plan years prior to the withdrawal times “the highest contribution rate at which the employer had an obligation to contribute under the plan” in the past ten plan years.  ERISA Section 4219(c)(1)(C)(i)(II).  With many highly underfunded funds assessing so much withdrawal liability that the 20-year cap on annual payments applies, inclusion of a surcharge as part of the contribution rate can significantly increase an employer’s withdrawal liability.

While not all withdrawal liability arbitration decisions are published, at least two arbitrators have found that the surcharge should be considered when determining the highest contribution rate:  American B.D. Company and Local 863 IBT Fund (Taldone, 2013); and IBT Local 863 Pension Fund and C&C Groceries, Inc. (Irvings, 2012) (“C&S”).  In what appears to be the first published court decision, however, the District Court for the District of New Jersey reversed C&S, finding that a surcharge is not part of the contribution rate for purposes of setting an employer’s payment schedule.  Board of Trustees of the IBT Local 863 Pension Fund v. C&S Wholesale Grocers/Woodbridge Logistics LLC, Case No. 12-7823 (D.N.J. March 19, 2014).

The court in C&S looked to ERISA to determine what was meant by the “highest contribution rate at which the employer had an obligation to contribute under the plan.”  While “contribution rate” is undefined, ERISA defines “obligation to contribute” as an obligation to contribute arising “under one of more collective bargaining (or related) agreements,” or “as a result of a duty under applicable labor-management relations law.”  ERISA Section 4212(a).  Given this, the court found that a surcharge required by the PPA arises under ERISA, not a collective bargaining agreement or labor-management relations law.  Thus, the surcharge could not be considered part of the contribution rate.

The court then proceeded to reject the fund’s four arguments for considering the surcharge part of the contribution rate.  First, the court rejected claims that ERISA Section 305(e)(7)(B) somehow established that surcharges are the same as contributions when it provided that they are due and payable the same as the contributions upon which they are based, and if delinquent shall be treated as delinquent contributions.  The court determined that “contribution rates” provided for in a contract, while they might help determine the total value of contributions made by an employer, are distinct from contributions.  Thus, even if surcharges and contributions were the same, the underlying contribution rates were different.

Second, the court dismissed claims that ERISA Section 305(e)(9)(B), which requires that surcharges generally be disregarded in determining the allocation of unfunded vested benefits to a withdrawing employer, did not by implication mean that the surcharge should be included in the contribution rate for the payment schedule.  The court determined that Congress needed to address the application of the surcharge to the allocation of unfunded vested benefits specifically because withdrawal liability determinations are calculated based upon “the total amount required to be contributed” under the plan, with no reference to the contribution rate required under a contract, as provided for with regard to the payment schedule calculation.

Third, the court rejected fund claims that the 2008 amendment to ERISA Section 305(c)(9)(B), which replaced broader language that surcharges should be disregarded in determining “an employer’s withdrawal liability” under Section 4211 with the aforementioned mentioned “allocation of unfunded vested benefits” under Section 4211, meant that Congress deliberately chose not to exclude the surcharge from the contribution rate calculation.  The court found that the more likely explanation for the amendment was that Congress wanted to match the language in this section with the specific terminology utilized in ERISA Section 4211.

Last, but not least, the court rejected fund claims that plan provisions requiring employers to make payments to the plan “to the full extent of the law” somehow required the inclusion of the surcharge in the highest contribution rate.  The plan defined “Employer Payments,” however, as payments owed or made by employers in accordance with a contract or the fund’s trust document.  The court found nothing in the plan requiring the incorporation of the surcharge into the contribution rate, or equating “Employer Payments” under the contract or trust agreement with a statutory surcharge.

C&S is one opinion as to an issue that admittedly has become rarer as fewer and fewer employers remain subject to the surcharge.  For an employer that has withdrawn or will be  at a time when its contribution rate plus the applicable surcharge would in theory be its highest contribution rate, however, this remains a significant issue.  Sooner or later an appellate court will weigh in — perhaps in C&S.  Stay tuned.

Supreme Court Closes The Door — Chiropractic “Manipulations Under Anesthesia” Not Reimbursable Under ERISA Plans

Posted in Uncategorized

By: Jon Braunstein and Mark Casciari

On March 24, 2014, the U.S. Supreme Court announced that it will not review an appellate court decision that dismissed claims by medical providers for reimbursement of “manipulations under anesthesia” from ERISA Plans administered by Aetna, UnitedHealth, Cigna, and Blue Cross and Blue Shield of Florida.

The providers had filed separate lawsuits against the plan administrators for failure to pay benefits according to the terms of ERISA plans.  The providers alleged claims under ERISA for benefits, breach of fiduciary duty, failure to provide plan documents and equitable estoppel.  The providers alleged that they performed over a thousand manipulations under anesthesia, which are controversial procedures performed by chiropractors and orthopedic surgeons on sedated patients to treat neck and back problems dating back to 2004. The providers alleged that they were originally reimbursed by the plan administrators, and that the plan administrators began denying the claims in 2006.  The defendant administrators denied payment for the procedures on the grounds that they were excluded from coverage under the terms of the plans because the procedures are experimental and not medically necessary.

A Florida district court dismissed the lawsuits because they failed to state claims under ERISA.  The plaintiffs appealed.  The U.S. Court of Appeals for the Eleventh Circuit affirmed the dismissals.  The appellate court rejected the providers’ claims for benefits because the providers had not sufficiently alleged medical necessity.  The court also found that the providers lacked derivative standing to assert fiduciary breach claims based on assignments from plan participants. The court rejected the providers’ claim for estoppel because the plans unambiguously defined the terms “medical necessity” and “covered service.”

The case is captioned Sanctuary Surgical Centre Inc. v. Aetna Health Inc., — Fed.Appx. —, 2013 WL 5969636 (11th. Cir. 2013), cert. denied. — S.Ct. —, 2014 WL 469635 (U.S.).

Health care reimbursement litigation is on the rise, especially involving out of network providers. We expect to see many more lawsuits against providers who charge ERISA health plans for services that plan administrators find to be experimental or medically unnecessary.

At times, excessive charges can be part of larger, more elaborate schemes to defraud ERISA plans and health insurers.  This is particularly concerning given that fraudulent health care claims have been estimated at $80 billion per year. See generally http://www.fbi.gov/about-us/investigate/white_collar/health-care-fraud.

ERISA Plan Administrators Beware — If You Sue On Behalf Of A Plan, You Must Give Full Disclosure

Posted in Plan Administration Litigation

By: Jon Braunstein and Mark Casciari

In May 2013, CIGNA sued La Peer Surgery Center LLC of Beverly Hills, an out of network surgical provider, alleging that La Peer overbilled hundreds of ERISA health benefit plans administered by CIGNA. CIGNA alleged that La Peer manipulated the plans’ out-of-network rules in order to increase reimbursements.  La Peer waived patient deductibles, coinsurance and other cost-sharing plan terms, CIGNA alleged, and then billed the plan at high rates.  For example, CIGNA alleged that La Peer billed approximately $14,000 for a colonoscopy or $16,000 for an endoscopy, procedures that cost roughly $650 at an in-network surgical center.  CIGNA claimed that the plans were defrauded of millions of dollars. 

La Peer moved to dismiss, arguing, among other things, that CIGNA lacked standing to sue.  La Peer argued that CIGNA merely administers claims under the plans, and any alleged overpayments came not from CIGNA, but rather from the plans that CIGNA administers. 

CIGNA argued that it had standing as an ERISA fiduciary, a term that includes anyone who exercises discretionary authority over the plan’s management or authority over the management of its assets, and anyone having discretionary authority or responsibility in the plan’s administration.   

On March 12, 2014, U.S. District Judge Christina Snyder in Los Angeles dismissed the lawsuit. 

Judge Snyder agreed with CIGNA that ERISA fiduciaries have standing to assert claims on behalf of the plans they administer, but found that CIGNA failed to allege the identify any of the plans (instead alleging only that it represented “certain employee health benefit plans”), Judge Snyder determined that the plans are the real parties in interest, and that they are effectively proceeding as anonymous plaintiffs, which “runs afoul of the public’s common law right of access to judicial proceedings.”

This decision stands for the proposition that ERISA plan administrators who sue on behalf of the plans they administer must disclose the identity of those plans. The decision is important to note because fraudulent health care claims have been estimated at 80 billion dollars per year. See FBI-Health Care Fraud. http://www.fbi.gov/about-us/investigate/white_collar/health-care-fraud.

We can expect to see many more lawsuits against providers who overcharge ERISA health plans.  ERISA plans should not be shy about disclosing their identities even if they would prefer to remain anonymous victims of fraud.

DOL Proposes to Make Mandatory a Once “Sample” Guide To Accompany ERISA Section 408(b)(2) Service Provider Disclosures to Plan Fiduciaries

Posted in General Fiduciary Breach Litigation

By: Ada Dolph and James Goodfellow

The U.S. Department of Labor (“DOL”) continues to roll out regulations focused on plan fee disclosures.  Last week, the DOL published a proposed amendment to the 2012 final rule proposing to make mandatory a guide for covered service providers to include with their ERISA Section 408(b)(2) disclosures to plan fiduciaries.  In its Fact Sheet accompanying the proposed amendment, the DOL stated that since publication of the 2012 final rule which attached a guide as a “sample,” it has been reviewing service providers’ disclosures and plan fiduciaries’ experiences in receiving the disclosures as well as comments, and concludes that a required guide is warranted.  The DOL asserts that the proposed guide will assist plan fiduciaries in obtaining the information required to assist in evaluating the reasonableness of the compensation to be paid for plan services and potential conflicts of interest that may affect the performance of those services.  It characterizes its current renewed effort to require a guide as “provid[ing] clarity and specificity, while avoiding the uncertainty and burdens that . . . may accompany construction of a ‘summary’ of existing documents.” 

The proposed guide, akin to a table of contents, must specifically identify the document, page, section, or other specific locator, to enable the plan fiduciary to quickly and easily find the following information:

  • The description of the services to be provided;
  • The statement concerning services to be provided as a fiduciary and/or as a registered investment advisor;
  • The description of: all direct and indirect compensation, any compensation that will be paid among related parties, compensation for termination of the contract or arrangement, as well as compensation for record keeping services; and
  • The required investment disclosures for fiduciary services and recordkeeping and brokerage services, including annual operating expenses and ongoing expenses, or if applicable, total operating expenses. 

Other provisions of the proposed rule concern format, and the frequency with which updates to this information would be required to be provided (e.g., annually or as changes occur).  Written comments to the proposed rule must be received by the DOL before June 10, 2014.