By: Samuel Schwartz-Fenwick and Thomas Horan

Seyfarth Synopsis: Adding to the body of conflicting authority on the scope of the attorney-client privilege in ERISA lawsuits, a district court has found that the fiduciary exception to attorney-client privilege applies to an insurance company that acts as a claim administrator, thus requiring disclosure of  communications between the insurer and its lawyers regarding a claim for benefits during the claims process.

When an insurance company asks its attorneys for advice regarding decisions on benefits claims and appeals, it may be doing so without the protection of attorney-client privilege, according to a recent decision from the Southern District of New York. In McFarlane v. First UNUM Life Insurance Company, the court granted Plaintiff’s motion to compel production of  documents determined by the court to be within the fiduciary exception to the attorney-client privilege. No. 16-cv-07806, 2017 WL 480500 (S.D.N.Y. Feb. 6, 2017). In doing so, the court rejected the argument that the fiduciary exception to attorney-client privilege—which makes a fiduciary’s communications with counsel discoverable in certain situations— does not apply to insurers acting as benefit claims administrators.

Plaintiff sought benefits under an LTD plan offered by her employer. Authority to make decisions on benefit claims and appeals had been delegated to Defendant, the insurer who issued the policy. After benefits were terminated, Plaintiff filed suit and sought production of the administrative record. Along with its production, Defendant produced a privilege log containing three entries related to communications between the Lead Appeals Specialist and Defendant’s in-house attorneys. Those three entries were the subject of Plaintiff’s motion.

Defendant argued these documents were privileged based on the rationale of Wachtel v. Health Net, Inc., 482 F.3d 225 (3d Cir. 2007). In Wachtel, the Third Circuit found the fiduciary exception did not apply to insurers. It reasoned, that in contrast to an internal claims-administrator, when an insurer acts as the claim administrator the legal advice it seeks during the claim process is paid for by the insurer, not by the beneficiary or benefit plan. As such, the insurer—as opposed to a traditional administrator—owns the funds that will ultimately be paid out and has an interest in the management of those assets.

Rejecting the Third Circuit reasoning, the court found that the dispositive factor under Second Circuit law is the purpose of the communication in question. Thus, if the purpose of the communication concerns the exercise of fiduciary functions, the requirement that the fiduciary act in the beneficiary’s best interests makes the beneficiary the “true client” of the advice. This is a “fact-specific inquiry” and requires the court to examine both the content and context of the communication.

The court’s rejection of Wachtel highlights the fact that courts differ in their application of the fiduciary exception. It also, however, demonstrates that fiduciaries need to be aware of the risk that a court may find their communications with counsel discoverable should a dispute arise regarding an administrator’s decision during the administrative review process.

By Andrew Scroggins and Mark Casciari

The Seventh Circuit has stymied an EEOC attempt to declare that employer wellness plans violate the Americans with Disabilities Act (“ADA”). The court decided that the issues raised by the suit are moot, and deferred to another day tackling weightier questions of statutory interpretation and the EEOC’s rulemaking authority.

The decision arises out of EEOC v. Flambeau, Inc.  As we previously wrote, Flambeau offered an employer-subsidized self-funded health plan, but conditioned participation on completion of a “health risk assessment” and “biometric screening test.”  The health risk assessment “required each participant to complete a questionnaire about his or her medical history, diet, mental and social health and job satisfaction.” The biometric test “involved height and weight measurements, a blood pressure test and a blood draw.”  The EEOC argued that this violated the ADA’s ban on involuntary medical examinations, citing its then proposed (now final) regulations on employer-sponsored wellness plans.  (See also our prior blogs here and here.)

The district court rejected the EEOC’s position, finding that the EEOC’s regulations were not binding on the court.  Working through the statutory language, the court concluded that the ADA’s safe harbor protections, which exempt activities related to the administration of a bona fide employee benefit plan, enable employers to design benefit plans that require otherwise prohibited medical examinations as a condition of enrollment.

In EEOC v. Flambeau, Inc., No. 16-1402 (7th Cir. Jan. 25, 2017), the Seventh Circuit affirmed “but without reaching the merits of the parties’ statutory debate.”  The court held that neither party to the case continued to have a serious stake in its outcome, and the relief sought by the EEOC is either unavailable or moot.  Before the EEOC commenced litigation, Flambeau had already made its wellness program non-mandatory, having concluded that the costs of the health risk assessment and biometric screening test outweighed their benefits.  The employee who had challenged the policy had no claim for damages, including EEOC-requested punitive damages, and had long since left the employer.  The court also observed that the case was a poor candidate for evaluating the statutory questions because the events at issue had occurred before the EEOC issued its wellness plan regulations.

A decision on the merits of the EEOC’s regulations will have to wait for another day.  But the Seventh Circuit’s discussion did provide defense lawyers a memorable line to be cited in future cases where the EEOC stakes out a new or untested position:

An employer’s or its attorney’s disagreement with EEOC guidance does not by itself support a punitive damages award, at least where the guidance addresses an area of law as unsettled as this one.

Stay tuned for more court decisions and, perhaps, revocation or non-enforcement of the regulations, as the Trump administration makes leadership changes at the EEOC.  Note as well that, President Trump has named Vicki Lipnic as EEOC Acting Chair.

 

By Kathleen Cahill Slaught and Shireen Yvette Wetmore

Seyfarth Synopsis: Insurer gets to pick its remedy when hospital engages in dishonest billing and illegal kickbacks…to the tune of $41 million.

Judge Lynn Hughes of the U.S. District Court for the Southern District of Texas closed out the year with a bang in Aetna Life Insurance Company v. Humble Surgical Hospital, LLC, No. Civil Action H-12-1206 (S.D. Tex. Dec. 31, 2016). The not-so-appropriately-named Humble Surgical Hospital, LLC (“Humble”) was sued by insurer Aetna for allegedly waiving patient fees and paying kickbacks to referring physicians through an elaborate, but ultimately not-so-clever, shell game in which the providers created shell LLCs and paid $3,500 annually in “administrative fees” to participate in the 300-bed hospital’s scheme.

In a scathing opinion, the court explained the scheme as follows, “Because no economically rational patient would choose [Humble] over an in-network provider, Humble paid referral fees to doctors, waived patient costs, and submitted inflated bills to Aetna.”

In a three-year period from 2010 to 2013, Humble managed to bill $41 million in fees paid by Aetna. The Court found that Humble had enticed patients with promises that their out-of-pocket costs would be equal to or less than the cost of using in-network services. Yet Humble was not part of the Aetna network, nor did it charge Aetna for services at the in-network negotiated rates. Humble also enticed the doctors with a 30% kickback–representing nearly $12 million in fees.

Clearly illegal, right? Comically, Humble attempted to argue that Aetna was not entitled to recovery because it knowingly paid Humble the amounts it charged without challenging the charges. Because Aetna did not know of the scheme, the Court said that the voluntary payment rule did not apply.

Humble also attempted to argue defenses based on preemption. The Court found that ERISA is silent regarding overpayment by providers and that recovery actions for fraud are not attempts to enforce the applicable plans. As such, the Court found that Aetna’s claims were not preempted.

Humble even attempted to argue the defense of unclean hands. The Court made short work of that: “Humble has no defense . . . [it] is filthy up to the elbows from lies and corrupt bargains.”

In the end, the Court gave Aetna a choice between three remedies:

  • $12 million – to recover the kickbacks Humble unlawfully gave to providers
  • $20 million – to recover the difference between the out-of-network fees paid and the in-network equivalents, OR
  • $41 million – to recover the total amount paid by Aetna to Humble during the three year period from 2010 to 2013.

Which would you choose?

 

 

By Ron Kramer

Seyfarth Synopsis: Seventh Circuit  finds employer still obligated to contribute to benefit funds for the life of the CBA even though the employees decertified the union.

Employers often assume that when their employees decertify a union, that any obligations an employer had under the operative collective bargaining agreement would disappear. No union, no contract.  Right?

Wrong! In Midwest Operating Engineers Welfare Fund v. Cleveland Quarry, Case Nos. 15-2628, -3221, -3861, 16-1870 (7th Cir. Dec. 20, 2016), employees in three separate IUOE bargaining units of the Company voted to decertify in 2013.  At the time, the Union and the Company were party to five year collective bargaining agreements expiring in 2015.  The Company assumed the decertification of the Union, which allowed it to set its own terms and conditions of employment, ended any contractual obligation to contribute to the multiemployer welfare and pension funds (“Funds”).

The Funds sued, and after they were successful in district court the Company appealed. The Seventh Circuit recognized that the collective bargaining agreements were unenforceable as to the Union, but found nevertheless that the Funds had the right under ERISA to bring a suit for delinquent contributions under 29 U.S.C. § 1145.  The Court based its decision on the idea that when the Funds promised to provide a level of benefits to the employees (presumably by allowing the employer to participate in the Funds under the terms of the CBAs), that created a binding contractual promise.  The Court also recognized that the Funds were third-party beneficiaries to the CBAs and thus entitled to enforce them even if the Union could no longer do so.  “[S]o far as benefit law is concerned the employees were still working ‘under the terms of’ the collective bargaining agreement.”

The Seventh Circuit is not alone in finding that an employer’s contractual obligations to participate in multiemployer funds can survive decertification, withdrawals of recognition, and disclaimers of interest. But there is a competing view.  The Ninth Circuit has recognized that when a bargaining unit ceases to exist, be it by decertification or contract repudiation given the existence of a one person bargaining unit, any existing contract becomes void, not voidable, ending the employer’s obligation to contribute to employee benefit plans. Laborers Health & Welfare Trust Fund v. Westlake Development, 53 F.3d 979 (9th Cir. 1995) (contract repudiation); Sheet Metal Workers’ Int’l Ass’n v. West Coast Sheet Metal Co., 954 F.2d 1506 (9th Cir. 1992) (decertification case were the court held “that the renewal contract became void prospectively as of the decertification of the Union”).  Notably, the Seventh Circuit did not address the Circuit split.

Employers lucky enough to have employees decertify prior to contract expiration cannot assume their obligations to the funds necessarily end. Consult counsel before making any rash moves you may live to regret.

By Mark Casciari and Chris Busey

Seyfarth Synopsis: The Supreme Court’s grant of certiorari in three Church Plan cases presents the possibility that many Church Plans thought for years to be exempt from ERISA rules, including its funding rules, will now have to comply with the statute. It also presents a possible issue of Article III standing — even though not part of the issue on which the Court granted certiorari — whether some of the plaintiffs are unable to sue in federal court because they allege the risk of an injury in the future, but not a concrete injury at present.

It has been widely reported that the Supreme Court soon could require over $1 billion in new defined benefit plan funding with the stroke of a pen when it decides whether Church Plans thought for years to be exempt from ERISA funding rules are really not exempt.  The three Courts of Appeal opinions now being reviewed by the Court are: Rollins v. Dignity Health, 830 F.3d 900 (9th Cir. July 26, 2016); Stapleton v. Advocate Health Care Network, 817 F.3d 517 (7th Cir. Mar. 17, 2016); and Kaplan v. St. Peters Healthcare System, 810 F.3d 175 (3d Cir. Dec. 29, 2015). In each of these cases, employees of the hospital systems alleged that the pension plans maintained by their employers were misclassified as ERISA-exempt.

We have been monitoring developments in these cases (see our previous blog posts here and here), and now the Supreme Court’s decision to review the Rollins, Stapleton, and Kaplan opinions presents the possibility of a nationwide reclassification of many Church Plans, with enormous consequences, especially in the funding context. The funding consequences arise because ERISA funding rules are more exacting than the funding standards under which the plans at issue have been governed.

The Supreme Court will consider a question of statutory interpretation. ERISA Section 3(33)(A) defines an exempt Church Plan as one established and maintained “by a church or by a convention or association of churches which is exempt from tax.” The issue becomes whether ERISA’s church-plan exemption applies if a plan is maintained by a tax-qualifying church-affiliated organization, or if the exemption applies only where a church established the plan. Each of the Courts of Appeal under review declined to defer to the IRS’s opinion–expressed in a 1983 memorandum from the IRS General Counsel–that Church Plans include those maintained by a church-affiliated organization regardless of the identity of the entity that established the plan. The Supreme Court’s question presented explicitly references, as well, the 30-plus-year history of Church Plan classifications by the federal Department of Labor and Pension Benefit Guaranty Corporation that correspond to that of the IRS.

One sleeping issue in these cases may have implications for ERISA litigation generally. The Court’s Church Plan decision may intersect with its recent decision in Spokeo Inc. v. Robbins, 136 S.Ct. 1540 (2016). Spokeo dealt with the U.S. Constitution’s Article III standing precondition to any federal lawsuit, and said that a plaintiff must allege a “concrete injury” to bring suit (see here and here for additional background). The plaintiffs in the Church Plan cases under review allege a number of ERISA violations that have occurred as a result of a possible misclassification of their pension plans. These include that the plans failed to meet ERISA’s funding, fiduciary and reporting and disclosure requirements. To be sure, some plaintiffs also allege a clearly concrete injury — for example, an actual loss of benefits due to the plan’s vesting schedule that fails to meet ERISA minimums. But under Spokeo, it is unclear if alleged funding, fiduciary and reporting and disclosure “injuries,” in the absence of a specific, personal harm, or non-speculative risk of harm, would pass muster as sufficiently concrete. Although the Supreme Court did not request briefing on the Article III issue, it may address a lack of Article III standing, as a question of subject matter jurisdiction may arise at any point in federal litigation. ERISA litigators should read the coming Church Plan decision to see if it contains an Article III analysis that has implications beyond the Church Plan context. If it does not, litigators nonetheless should be aware that the last word on the intersection of Spokeo and ERISA will not yet be written.

By: Danielle Vera and Sam Schwartz-Fenwick

Seyfarth Synopsis: Currently before the  Supreme Court are two petitions regarding the thorny legal question of which organizations can qualify for ERISA’s Church-plan exemption. If the Supreme Court grants certiorari and follows the recent Third and Seventh Circuit Court decisions, then all Church-affiliated organizations (e.g. church affiliated hospitals, daycares, and adoption agencies) will have to bring their existing plans into compliance with ERISA, likely at a substantial cost both to their bottom line and to their religious mandate.    

In the fall term, the Supreme Court may address an ERISA question with broad ranging impact on the First Amendment. Specifically, currently before the Court are petitions in two cases (Saint Peter’s Healthcare System v. Kaplan and Advocate Health Care Network v. Stapleton) where the appellate court found that benefit plans established by religious hospitals (Church-affiliated organizations) are not eligible for ERISA’s Church-plan exemption and therefore are subject to ERISA..

Both the Third and Seventh Circuits found that the defendant healthcare organizations did not qualify for the ERISA Church-plan exemption, as they were Church affiliated organizations not Churches. They reasoned the Church-plan exemption was very limited and only applied to plans established by a church, or by a convention or association of churches. The courts found that the exemption does not apply to plans established and maintained by a Church-affiliated organization. In reaching this holding, the courts rejected the arguments that both the legislative history and text of ERISA support a broad Church-plan exemption that extends to Church affiliated organizations.

While a Circuit split has not yet emerged on this issue, there is still a significant chance that the Supreme Court will grant certiorari, given that these cases touch on the limits of the Federal government to regulate religion.

As a practical matter, if the Supreme Court affirms the rulings of the Circuit Court it will be difficult financially for many of these plans to comply with ERISA. Subjecting formerly exempt plans to the strictures of ERISA places high monetary demands on Church-affiliated organizations that maintain pension plans. For instance, the plan will be subjected to ERISA disclosure requirements and compliance with the funding requirements of the Pension Protection Act of 2006. In addition, an affirmance of the Circuit Courts’ holdings will cause many plans to make amendments that contradict the religious tenets of the Church with which they affiliate. For instance, retirement and welfare plans, suddenly subject to ERISA, will likely be very limited in their ability to limit health and survivor benefits to opposite-sex spouses (a core tenet of many religious entities that maintain Church plans). Even if the Supreme Court were to affirm the Circuit Courts’ holdings, it is certain that the plans, relying on the decision in Hobby Lobby, would argue that their religious right to provide benefits in accord with their religious tenets should control. How the Supreme Court will ultimately decide that issue has broad implications for employers and plan sponsors as it will help clarify the line between an employer’s freedom of religion, and an employee’s entitlement to certain benefits under anti-discrimination laws.

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

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.

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.

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.

Business man in suit with cityscape montage. The man is unrecognizable and you cannot see his face. He is superimposed onto a city skyline at sunset. He is holding a world map globe like a crystal ball. Success, vison concept with copy space.

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.