ERISA & Employee Benefits Litigation Blog

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

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.

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.

UPCOMING WEBINAR: Bitcoins: Retirement Plan and IRA Investment in Digital Currencies

Posted in Uncategorized

On Thursday, March 27, 2014 at 12:00 p.m. Central, Seyfarth’s partner Howard Pianko, Antonis Polemitis of Ledra Capital LLC, and Arthur H. Kohn of Cleary Gottlieb Steen & Hamilton LLP will present “Bitcoins: Retirement Plan and IRA Investment in Digital Currencies.”

Bitcoins’ novelty and potential as an investment asset has resulted in considerable media attention. Illiquidity, speculation and other factors have driven exceptionally large swings in the dollar value of Bitcoins, which today may be considered a prototypical “risky” asset. To some investors, that could be an attractive diversification proposition. While Bitcoins and other digital currencies may turn out to be unworkable or prohibited, they may develop into an integral part of the global economy. Its proponents maintain that, with the significantly reduced cost and transaction speed made possible by the Internet, Bitcoins can revolutionize the money transfer industry.

The emergence of Bitcoins raises many legal questions as to whether they are a permissible and compliant investment for retirement plans and IRAs. This webinar is targeted for ERISA and other practitioners to gain a basic understanding of Bitcoins and how pension and related tax laws might apply to investment in Bitcoins.

Specifically, we will address questions such as:

•           What are Bitcoins and other digital currencies?

•           What are the key considerations for an IRA acquiring Bitcoins?

•           Can a retirement plan acquire Bitcoins?

•           Is it possible for a Bitcoin fund to be included as an investment alternative for a 401(k) plan?

If you have any questions, please contact

*CLE Credit for this webinar has been awarded in the following states: CA, IL, NY and NJ. CLE Credit is pending for the following states: GA, TX and VA. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

There is no cost to attend this program, however, registration is required. To register click here.



Hardly Strict Tracing after Sereboff

Posted in General Fiduciary Breach Litigation

By Kathleen Cahill Slaught and Justin T. Curley[1]

In Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), the U.S. Supreme Court held that an ERISA plan could recover settlement proceeds from a beneficiary under the terms of the plan rather than under an equitable lien theory requiring “strict tracing” of the settlement funds into the beneficiary’s possession.  Previously, other courts, including the Ninth Circuit, read the Supreme Court’s earlier holding in Great-West v. Knudson, 534 U.S. 204 (2002), to bar ERISA plans from recovering money previously paid out to plan participants who subsequently recovered from the third parties who had caused their injuries.  The Supreme Court in Sereboff however held that the ERISA plan at issue could request reimbursement of the benefits paid as a result of the accident pursuant to a reimbursement provision in the plan.

The Sereboff decision contrasts with Knudson which concluded that, because the lawsuit recovery was paid to various entities other than the beneficiary (including a special needs trust), the kind of relief that Great-West sought from the beneficiary was not traceable and therefore unavailable.  This “strict tracing” rule from Knudson effectively shut out ERISA plans from recovering from beneficiaries where the settlement monies were dispersed.

While Sereboff did not explicitly overrule Knudson, the Sereboff decision effectively overruled most of Knudson, in that post-Sereboff a plan administrator or ERISA fiduciary can recover money from a beneficiary to enforce the terms of the plan even without being able to strictly trace identifiable funds into the beneficiary’s possession.

A cascade of circuit courts—the First, Second, Third, Sixth, Seventh and Eighth Circuits—have interpreted Sereboff to hold that a fiduciary can assert an equitable lien even if the funds at issue cannot be strictly traced.  But the Ninth Circuit stands apart; in Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F. 3d 1083 (2012), the Ninth Circuit held that a fiduciary must be able to strictly trace the funds into the beneficiary’s possession.  Last year the U.S. Supreme Court declined to review Bilyeu and resolve the circuit split regarding strict tracing.  In addition, the Second Circuit has recently disagreed with the Ninth Circuit’s holding in BilyeuSee Thurber v. Aetna Life Ins. Co., 712 F.3d 654, 664 (2d Cir. 2013).

Thus, for most of the country, if an ERISA plan’s terms allow for reimbursement from a beneficiary, the likely outcome in most cases will be that the recovery will be permitted, even if the funds cannot be strictly traced.  However, ERISA plan sponsors and insurers in the Ninth Circuit must be prepared to face a higher hurdle when attempting to recover funds from a beneficiary.  Attorneys should carefully review the terms of the relevant ERISA plan documents to ensure that the plan actually allows the recovery sought by the ERISA plan sponsor and insurer.

[1] Hardly Strictly Bluegrass is an annual free music festival held in San Francisco’s Golden Gate Park.


Posted in General Fiduciary Breach Litigation

By: Ronald J. Kramer

When it comes to monetary damages, usually a plaintiff must show some type of harm to recover.  That apparently is not the case, however, when seeking plan reformation as a remedy for an alleged failure to disclose certain information.

In Osberg v. Foot Locker, Case No. 13-187-cv (2d Cir. Feb. 13, 2014) (summary order), plaintiff filed suit on behalf of himself and a class of participants over a defined benefit plan that had been converted to a cash balance plan.  Plaintiff alleged defendants had violated ERISA by: (i) issuing false and misleading SPDs in violation of ERISA Section 102(a) disclosure requirements; (ii) breaching fiduciary duties in violation of ERISA Section 404(a) by making such materially false statements; and (iii) failing to provide proper notice as required by ERISA Section 204(h) that the cash balance plan would reduce benefit accruals.  Plaintiff sought monetary damages under an equitable surcharge theory, and sought the equitable reformation of the plan document.  The district court granted summary judgment in favor of defendants, and the plaintiff appealed.

The Second Circuit Court of Appeals upheld the summary judgment as to the Section 204(h) claim, because the remedy plaintiff sought, the invalidation of portions of the plan amendment, was not achievable.  The only available remedy for such a purported violation was the complete invalidation of the plan amendment.

Regarding the disclosure claims, the district court had held plaintiff’s Section 102(a) claim time-barred, and had found he had failed to raise a genuine issue of material fact entitling him to surcharge and contract reformation on either his Section 102(a) or Section 404(a) claims.  The Second Circuit sidestepped the limitations issue given the Section 404(a) claim admittedly was timely, and instead addressed whether the district court properly found plaintiff had failed to raise a genuine issue of material fact with respect to his demand for “appropriate equitable relief” — specifically, surcharge or reformation — under ERISA Section 502(a)(3).  There, the district court had found plaintiff had failed to raise a genuine issue of material fact as to whether he suffered the type of “actual harm” necessary to obtain the equitable relief of reformation and surcharge.  On that issue the Second Circuit found that the district court erroneously applied an “actual harm” requirement.  Citing to CIGNA Corp. v. Amara, 131 S. Ct. 1866, 1881 (2011), wherein the Supreme Court determined that any requirement of harm must come from the law of equity, the Second Circuit found that equity does not demand  a showing of “actual harm” to obtain contract reformation.

Defendants argued that the district court’s decision should nevertheless be affirmed because plaintiff, as a former employee, lacked standing to pursue reformation.  Defendants basically read Amara to limit monetary relief to surcharge claims, and claimed that absent a viable surcharge claim the only beneficiaries with standing to pursue reformation  would be persons who could prospectively benefit from a modification of plan terms — something that would not include former employees.  The Court rejected that as well, finding such an interpretation supported neither by Amara nor equity.

The Court left it for the district court to decide in the first instance whether plaintiff could otherwise satisfy the basic requirements for plan reformation.  Moreover, while the Court upheld the dismissal of the surcharge claim as moot given its finding that plaintiff could obtain a full recovery via his reformation claim, the court did not foreclose the plaintiff from seeking to reinstate his surcharge claims if his reformation claim later failed.

The Second Circuit has made it clear that ERISA plaintiffs bringing equitable claims and seeking as a remedy plan reformation need not show actual harm — and yet nevertheless may still be entitled to some form of monetary relief.  How this will work in practice remains to be seen.

ERISA Plaintiffs’ Attorneys Find Small Victories Can Be Winning Lottery Tickets

Posted in Uncategorized

Sheryl Skibbe and Michelle Scannell

These days, even small victories can add up to hefty fee awards for ERISA plaintiffs’ counsel.

Under the bedrock litigation principle known as the “American Rule,” each party generally pays its own attorneys’ fees and costs.  But for most ERISA lawsuits, the court may award reasonable attorneys’ fees and costs to either party.  Until recently, courts have split on whether only prevailing parties were eligible for fees and costs in wrongful benefit denial cases.  In 2010, the Supreme Court in Hardt v. Reliance Standard Life Insurance Company, 130 S. Ct. 2149 (2010), held that the ERISA fee-shifting provision contained in 29 U.S.C. § 1132(g)(1) does not require a fee claimant to be the “prevailing party,” (unlike other ERISA fee-shifting provisions), rather it merely requires a fee claimant to have achieved “some degree of success on the merits.”

How much success is “some” success, you ask?  According to the Supreme Court, one must only achieve more than a “trivial success on the merits” or a “purely procedural victory.”  Attempting to apply this blurry line, courts have started awarding attorneys’ fees for rather nominal victories.

For example, some courts have found remand of a benefit decision to the plan administrator to be success on the merits, even though the benefit may ultimately be denied.

In California, a plaintiff was awarded $62,000 in attorneys’ fees and costs where, two weeks after the complaint was filed, the claims administrator reversed a coverage denial based on evidence submitted after the initial denial and just before the lawsuit was filed.  Pomerlau v. Health Net of California, Inc., C.D. Cal., No. 2:11-cv-01654-DDP-FMO, 11/15/12.  The Ninth Circuit also found that a participant had achieved some degree of success if the plan has “paid up only under the cloud of litigation.”  Bryant v. Cigna Healthcare of Cal., Inc., 9th Cir., No. 11-57249, 9/30/13 (unpublished).

What about a class of litigants who sought a billion dollars in damages but was awarded none?  The court awarded the class over $1.8 million in attorneys’ fees and costs because the lawsuit forced the plan to correct a scrivener’s error in the plan document.  Young v. Verizon’s Bell Atl. Cash Balance Plan, 783 F. Supp. 2d 1031 (N.D. Ill. 2011).  The Second Circuit also recently ruled that a pension plan participant was eligible for fees despite having her claims dismissed because her lawsuit led the plan administrator to amend the plan.  Carlson v. HSNC-N. Am. (US) Ret. Income Plan, 2d Cir., No. 12-1209-cv, 9/12/13 (unpublished).

Decisions like these make for bad public policy.  They may encourage continued litigation even where potential benefit recoveries could be small because a plan that reverses its good faith benefit denial to avoid litigation costs may risk an award of attorneys’ fees.  Plan amendments could be delayed simply because a plaintiff may argue that her litigation lead, at least in part, to the revision.

Facing an ERISA lawsuit?  Don’t grab your checkbook just yet.  Plan sponsors should consider adopting the following practices to avoid or limit potential exposure for plaintiffs’ fees and costs:

  • If voluntarily reversing a benefit denial, obtain a release of attorneys’ fees in exchange for agreeing to grant the benefit.
  • Emphasize that fees are unwarranted or should be reduced substantially to reflect any unsuccessful claims.  Note that some courts, however, are unwilling to reduce fee awards for unsuccessful claims.  See e.g. Tarasovsky v. Stratify, Inc. Group Short Term Disability Plan, et al., 2013 U.S. Dist. LEXIS 70651 (N.D. Cal. May 17, 2013).
  • Vigorously defend against allegations of bad faith, because it is often considered as a factor in determining whether eligible parties are entitled to fees.
  • When amending plan language, state the reasons for the change, so that a participant can’t argue that the plan was amended as a result of a lawsuit.

Sixth Circuit Affirms A $3.8 Million Equitable Award To LTD Plaintiff

Posted in Uncategorized

By: Amanda A. Sonneborn and James C. Goodfellow

Recently, the Sixth Circuit in Rochow v. Life Insurance Company of North America affirmed a district court’s award of a $3.8 million award to a long-term disability (“LTD”) plaintiff under an unjust enrichment theory.  By way of background, Plaintiff, who suffered from HSV-Encephalitis, filed a claim for LTD benefits, which was denied.  Plaintiff filed suit, asserting a claim for benefits and for breach of fiduciary duty.  The district court concluded that the defendant had acted arbitrarily and capriciously when it denied Plaintiff’s claim.  The Sixth Circuit affirmed.

After the Sixth Circuit affirmed, the case returned to the district court for litigation over Plaintiff’s appropriate remedy.  During that litigation, Plaintiff filed a motion seeking an equitable accounting and disgorgement, asserting that disgorgement was proper to prevent defendant’s unjust enrichment resulting from its breach of fiduciary duty.  Plaintiff’s motion was supported by an expert report that stated that the defendant earned approximately $3.8 million by retaining his benefits.  The expert estimated that the defendant had earned between 11% and 39% annually on the improperly retained benefits.  Defendant’s expert opined that defendant had earned roughly $33,000 in profits. 

The district court granted Plaintiff’s motion for disgorgement, and the Sixth Circuit affirmed.  The Court began its opinion by concluding that the district court’s award of disgorgement as a remedy was proper even though Plaintiff had not requested it in his complaint.  The Court stated that the district court’s consideration of all appropriate remedies was proper regardless of pleading.  The Sixth Circuit also stated that disgorgement was a proper remedy, as it was not a repackaged claim for benefits.  Rather, it provided a different type of remedy than benefits.  Finally, the Court found that the amount of the award was proper because the district court had found that the money that would have been used to pay Plaintiff’s benefit was available to defendant to use as bottom line equity for any business purpose.  Thus the formula used by Plaintiff’s expert (based on return on investment) did not violate clearly established principles of law or equity. 

In sum, this case is worth watching, as it may be used by the plaintiffs’ bar as justification for seeking remedies well above and beyond benefits at issue.

ERISA Defense Efforts Just Got A Bit Easier — The Supreme Court Endorses Plan Limitation Provisions

Posted in Plan Administration Litigation

By: Mark Casciari, Isabel Lazar and Abigail Cahak

Defending an ERISA claim is a substantial investment — both of time and money.  One way to ensure dismissal of litigation at an early juncture is by demonstrating that the action is time-barred.  Whether the claim is time-barred turns on when it accrued.

 The Heimeshoff Decision

The Supreme Court’s December 16, 2013 decision in Heimeshoff v. Hartford Life & Accident Ins. Co., No. 12-729 (Dec. 16, 2013) provides defense counsel with ammunition to begin accruals on an early date, thus making it more likely that a defense based on limitations will succeed.

Julie Heimeshoff filed a claim for long-term disability benefits from her employer’s LTD plan.  Heimeshoff exhausted the administrative review process and nearly three years later filed suit.

The Plan’s terms required Heimeshoff to sue within three years of the time that proof of loss was due under the Plan.  Under those terms, Heimeshoff’s three-year period actually ran out a year after the final denial was made.  ERISA provides that accrual ordinarily begins upon a claim’s final denial, but is silent as to whether parties can contract for an earlier date.

The Supreme Court concluded that the plan terms controlled to render Heimeshoff’s claim time-barred because the plan’s limitation period was reasonable and not contrary to controlling authority.

The Supreme Court held that the Plan’s three-year period beginning when proof of loss was due was not unreasonable because Heimeshoff had nearly one year after the administrative review process concluded to file suit.  The Supreme Court was also not persuaded that the three-year period undermined ERISA’s remedial scheme.  It disagreed that participants would shortchange the internal review process or that circumstances like Heimeshoff’s were common.  The Court emphasized that three-year time bars only stop claims by participants that have not diligently pursued their rights.  Traditional doctrines such as waiver, estoppel, and equitable tolling can protect those who are barred notwithstanding their diligence.

What Does this Mean for Employers?

As we have previously noted, the Courts regularly hear cases challenging the enforceability of plan terms.  The Supreme Court’s Heimeshoff decision continues the trend of giving priority to ERISA plan terms in the face of such claims.  Employers should craft reasonable, favorable plan language on accrual of claims.  Benefits statements and summary plan descriptions should advise participants that accrual of claims challenging a benefit determination occurs upon notice and not upon a final denial.  After all, the right to file a claim for ERISA benefits is not limited to benefits when due, but also covers claims to enforce a right to “clarify [ ] rights to future benefits under the terms of the plan.”  29 USC § 1132(a)(1)(B).

The Jury Is In: No Jury Trials In ERISA Cases

Posted in Uncategorized

By: Ada W. Dolph and Justin T. Curley

ERISA defendants have long maintained that there is no statutory or constitutional right to a jury trial in ERISA cases. Almost always, the courts have agreed, citing ERISA’s trust law origins and the Seventh Amendment’s application only to suits seeking legal, not equitable, relief. The reasoning goes that because under ERISA you may obtain only relief that was traditionally available in courts of equity, the right to a jury trial does not exist.

A recent spate of high-profile U.S. Supreme Court decisions addressing ERISA and the nature of legal versus equitable relief led some to speculate that plaintiffs would leverage those decisions to renew their demands for jury trials in ERISA cases, reminiscent of what happened after Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002). Knudson held that a plaintiff seeking “to compel the defendant to pay a sum of money” was seeking a legal remedy, not an equitable one, and plaintiffs subsequently seized on this language to argue that they were entitled to jury trials in cases in which they sought to recover money damages.
That concern appears to have been unwarranted. Recent cases have reinforced the absence of a jury trial right in ERISA cases seeking money damages. Following the Supreme Court’s opinion in Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), one district court relied upon Amara to strike a plaintiff’s jury demand. See Smith v. State Farm Group Long Term Disability Plan, No. 12 C 9210, 2013 U.S. Dist. LEXIS 121572 (N.D. Ill. Aug. 27, 2013).  And a survey of recent opinions examining whether a jury trial is available in ERISA cases indicates that the answer remains a resounding no. One outlier, Hellmann v. Cataldo, No. 12-cv-02177-AGF, 2013 U.S. Dist. LEXIS 117676 (E.D. Mo. Aug. 20, 2013), has not yet been relied upon in any other reported decision.

While some may claim that the figurative jury is still out, all indications are that ERISA defendants will not face trial before a jury.