By: Brian Stolzenbach and Meg Troy

Seyfarth Synopsis: In Medina v. Catholic Health Initiatives, — F.3d —, 2017 WL 6459961 (10th Cir. Dec. 19, 2017), the Tenth Circuit held that a retirement plan sponsored by Catholic Health Initiatives (“CHI”), a church-affiliated healthcare organization, is a “church plan” under ERISA. This decision strengthens the litigation positions of religiously-affiliated healthcare systems who are facing similar lawsuits across the country and gives other courts a solid framework to analyze the relevant statutory provisions.

If a benefit plan is a “church plan,” it is exempt from the statute and is not required to adhere to ERISA requirements. A “church plan” is defined as “a plan established and maintained . . . for its employees (or their beneficiaries) by a church . . . .” 29 U.S.C. § 1002(33)(A). The statute continues:

A plan established and maintained for its employees (or their beneficiaries) by a church . . . includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church . . . if such organization is controlled by or associated with a church. . . .”

29 U.S.C. § 1002(33)(C)(i).

We have previously written about the Supreme Court’s June 2017 Advocate Health Network v. Stapleton decision here. In Advocate, the Supreme Court held that plans maintained by certain tax-exempt organizations controlled by or associated with a church may qualify as church plans. Specifically, a plan established by a non-church may qualify for the exemption if the plan is maintained by a “principal-purpose organization,” i.e., an organization whose principal purpose is administering or funding a plan and that is controlled by or associated with a church. That being said, the Court did not further explain what qualifies as a “principal-purpose organization” or what it means to be “controlled by” or “associated with” a church.

The Tenth Circuit analyzed these open issues by answering three questions: (1) Is the entity offering the plan a tax-exempt nonprofit organization associated with a church? (2) If so, is the entity’s plan maintained by a principal-purpose organization? That is, is the plan maintained by an organization whose principal purpose is administering or funding a plan for entity employees? (3) If so, is that principal-purpose organization itself associated with a church?

First, in determining whether CHI was “associated with” the Catholic Church, the Court looked to the language of 29 U.S.C. § 1002(C)(iv), which defines the phrase to mean sharing “common religious bonds and convictions” with a church. It found CHI was “associated with” the Catholic Church because of, among other things, CHI’s relationship with Catholic Health Care Federation, a “public juridic person” created by, and accountable to, the Vatican; CHI’s Articles of Incorporation provide it was organized exclusively to carry out religious purposes; and CHI was listed in the Official Catholic Directory.

Second, Court considered what it means to “maintain” a plan under 29 U.S.C. § 1002(C)(i). Analyzing the ordinary meaning of the term, the Court concluded that to “maintain” a plan means that an entity “cares for the plan for purposes of operational productivity.” Based on this definition, CHI’s Defined Benefit Plan Subcommittee, which administers the CHI Plan, was a “principal purpose organization” that “maintained” the plan for purposes of the exemption.

Third, the Court determined that the subcommittee was an “organization” because it satisfied the ordinary meaning of the term, which means “a body of persons . . . formed for a common purpose.” The Court also concluded that the subcommittee was “associated with” the Catholic Church because it is a subdivision of CHI and the plan itself stated that the subcommittee shared “common religious bonds and convictions” with the Catholic Church.

The Court also found that the church plan exemption, as applied to CHI’s retirement plan, did not violate the Establishment Clause of the First Amendment.

43781230v.2

By: Meg Troy and Mark Casciari

Seyfarth Synopsis: The Seventh Circuit has now applied a clear error standard of review to a withdrawal liability arbitrator’s interpretation of a collective bargaining agreement, thus enhancing the role of the arbitrator in resolving withdrawal liability disputes.

On January 8, 2018, in Laborers’ Pension Fund v. W.R. Weis Company, Inc., — F.3d —, 2018 WL 316555 (7th Cir. Jan. 8, 2018), the Seventh Circuit applied the clear error standard of review to a withdrawal liability arbitrator’s interpretation of the parties’ underlying collective bargaining agreement (CBA) that required contributions to a multiemployer pension fund.

The Court enforced the arbitrator’s findings, a victory for the employer whose withdrawal liability was consequently reduced from over $600,000 to $0.

W.R. Weis Company, a stonework firm, was required by a CBA to contribute to the Laborers’ Pension Fund for work performed by members of the Laborers’ Union. In 2012, after several years of laborers performing no work for Weis and Weis remitting no contributions to the Fund, Weis formally terminated the CBA and the Fund issued a complete withdrawal assessment. Weis argued that it fell under the withdrawal liability building and construction industry exception, 29 U.S.C. § 1383(b).

Section 1383(b) states, in pertinent part:

In the case of an employer that has an obligation to contribute under a plan for work performed in the building and construction industry . . . .

A withdrawal occurs if (A) an employer ceases to have an obligation to contribute under the plan, and (B) the employer continues to perform work in the jurisdiction of the collective bargaining agreement of the type for which contributions were previously required. (Emphasis added.)

An arbitrator found that the language of the Weis Laborers’ CBA was ambiguous as to whether Weis continued to perform Laborers’ CBA work after ceasing Laborers’ Fund contributions. The arbitrator looked to past practice to resolve a CBA ambiguity. She focused on the fact that two previous audits and Fund business manager testimony showing Weis did not owe the Laborers’ Fund delinquent contributions for discontinued work.

The Seventh Circuit said that the arbitrator’s findings of fact may be set aside only if clearly erroneous, while the arbitrator’s legal conclusions are subject to de novo review.

The Laborers’ Fund sought de novo review. Weis argued that the clear error standard applied because the arbitrator’s review during the arbitration was limited to applying the facts to the language of the CBA rather than interpreting the statute itself. The Seventh Circuit agreed, and found no clear error.

This decision is significant because many withdrawal liability disputes turn on the meaning of a CBA. For example, 29 U.S.C. § 1385, in part, defines a partial withdrawal as a permanent cessation of an obligation to contribute “under one or more but fewer than all collective bargaining agreement[s].”

By Sam Schwartz-Fenwick and Tom Horan

Seyfarth Synopsis: The Supreme Court announced that it would not hear an appeal from the City of Houston in a case challenging the city’s ability to offer spousal benefits to same-sex spouses of municipal employees. By leaving in place the Texas Supreme Court’s ruling that the Obergefell decision does not, in fact, require such benefits to be extended, the decision to deny cert will return the case to the trial court, where plaintiffs will argue that the benefits violate Texas state law and seek an order forcing the city to rescind them.

In a case previously discussed in this blog here, the United States Supreme Court denied the petition for certiorari filed by the City of Houston, seeking to challenge the Texas Supreme Court’s ruling in Pidgeon v. Turner, No. 15-0688. The petition had asked the Court to consider whether the Supreme Court of Texas correctly decided that Obergefell v. Hodges “did not hold that states must provide the same publicly funded benefits to all married persons,” regardless of whether their marriages are same-sex or opposite sex.

While the Houston City Attorney said the city’s policy to provide benefits to same-sex spouses will continue despite today’s ruling, the decision to deny certiorari will return the case to the trial court in Texas, where plaintiffs seek an injunction, arguing that Texas state laws prohibit spending taxpayer funds on benefits for same-sex spouses. An order from the state court that the city must stop offering the benefits would likely bring the case back before the Supreme Court.

In light of the Supreme Court’s normal practice of only considering cases after they have reached final resolution, it was viewed as unlikely that the Court would grant the city’s petition here. Still, certiorari was seen as a possibility because of the Texas Supreme Court’s narrow reading of Obergefell as requiring states to license and recognize same-sex marriage, but not necessarily provide all recognized married person with the same publically funding benefits. Plaintiffs, in fact, argue that the right to marry does not “entail any particular package of tax benefits, employee fringe benefits or testimonial privileges.”

While it remains possible that the Texas state courts will determine that Houston cannot constitutionally deny benefits to its employees’ same-sex partners, it leaves in place, for now, the Texas Supreme Court’s decision that there is still room to explore “the reach and ramifications” of marriage recognition following Obergefell.

That this case continues on more than two years after the Supreme Court’s ruling legalizing same-sex marriage, demonstrates that opponents of marriage equality continue to view the courts as a viable vehicle to limit or reverse marriage equality. As this case and other challenges make their way through the courts, private employers and benefit plans considering modifying their benefit offerings to exclude same-sex spouses should tread very carefully, especially given the EEOC’s position that differential benefit offerings to same-sex spouses violates Title VII of the Civil Rights Act.

 

By Jonathan A. Braunstein and Michael W. Stevens

Seyfarth Synopsis: The Fourth Circuit found that the medical necessity of a given service constitutes a material element of representations regarding submissions for payment, potentially providing payors with another legal authority to fight health care fraud.

The Fourth Circuit recently affirmed two criminal convictions for health care fraud under 18 U.S.C. §§  1347 and 1349, finding that a misrepresentation as to the medical necessity of the service rendered was material for purposes of violating the statute. United States v. Palin, — F.3d —-, No. 16-4522, 2017 WL 4871381 (4th Cir. Oct. 30, 2017).

The two defendants operated an addiction medicine clinic and laboratory, which frequently processed urine tests. There were two kinds of urine tests, a simpler, less-expensive test and a more complicated, more expensive one.  When submitting lab orders, doctors would usually not specify which test they intended.  Generally, where patients were uninsured, the defendants would use the cheaper test, but where patients were insured, the defendants would use the more expensive test.

The district court convicted the defendants, finding that by this course of conduct, defendants “knowingly and willfully executed a scheme to defraud health care benefit programs” in violation of the health care fraud statute.

Defendants appealed, asserting that the district court erred in its analysis of materiality of the misrepresentation. Defendants asserted that there was no material misrepresentation, because they did not misrepresent to payors either the type of test they billed for or the frequency of the tests. See id. at *2.  Defendants impliedly argued that because they billed for services actually rendered, and told the payors which services were rendered, no fraud occurred.

The Fourth Circuit rejected defendants’ arguments, finding that “materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation” Id. at *3 (citations omitted).

The Court found that “the misrepresentations here were material: insurers would not have paid for the sophisticated tests had they known those tests were unnecessary. . . . [T]he insurers here did not reimburse claims despite knowing [defendants] sought payment for tests that [defendants] knew were not medically necessary. . . . No evidence even suggests that medical necessity was anything less than a critical prerequisite to payment.” Id. (emphasis added).  The Fourth Circuit proceeded to reject defendants’ other arguments against their convictions.

Palin represents an important arrow in the quiver for payors alleging that billing payors for medically unnecessary services constitutes health care fraud.  Although this case involved a criminal conviction for fraudulently billing private insurers, the facts potentially apply equally to civil actions and disputes involving other payors, including ERISA Plans.  Stay tuned to this blog for further legal developments in health care fraud and provider billing litigation.

By: Chris Busey and Ron Kramer

Even when a claims administrator approves a claim for disability benefits, its job is not done. That principle was again demonstrated in the recent case Owings v. United of Omaha Life Insurance Co., No. 16-3128 (10th Cir. Oct. 17, 2017). The plaintiff’s claim for long-term disability benefits had been approved, but he claimed that the benefits paid were based on the wrong salary.

The plaintiff injured his back at work on July 1, 2013. Later that same day, the plaintiff was demoted from manager to supervisor with a corresponding reduction in his salary. The plaintiff returned home that day and claimed that he did not return to work the following day due to his back pain. The claims administrator approved and paid long-term disability due to plaintiff’s back injury, but based the amount on his reduced salary. It relied on the employer’s human resources representative, who said that plaintiff worked on July 2, making his date of disability at July 3. Plaintiff filed a claim seeking increased benefits based on his prior claim and appealed the denial. The defendant again relied on the employer’s human resources department in determining that the plaintiff worked on July 2, thus making his pay at the time of his disability the lower amount. After plaintiff filed suit in Kansas state court, the case was removed to the U.S. District Court for the District of Kansas. That court ruled in the defendant’s favoring, determining that it did not abuse its discretion in denying plaintiff’s claim.

On appeal, the Tenth Circuit overturned that decision, determining that the insurer abused its discretion in several ways. First, it held that the defendant’s interpretation of “disabled” under the plan was unreasonable. The defendant had determined that plaintiff’s disability did not begin until July 3 because he continued to perform at least one job duty on July 2. The plan, however, defined disability as being unable to perform “at least one of the Material Duties of Your Regular Occupation.” The defendant’s interpretation was thus inconsistent with plan’s terms. The Court also rejected the defendant’s argument that plaintiff was disabled, at the earliest, on July 2 because he worked at least part of July 1. The Court noted that the plan did not support the defendant’s interpretation that the date of disability must be difference than a claimant’s last day worked. This interpretation was unreasonable in light of the plan’s plain language. Finally, the Court found it unreasonable for the defendant to rely solely on the assertions of the employer’s human resources director in determining that last day worked. The defendant was focused solely on whether plaintiff worked on a specific day, and not on when plaintiff’s injury sustained on July 1 prevented him from performing one or more of the duties of his position. The Court remanded the case to the lower court with instructions to enter judgment for the plaintiff.

This case presents a few key takeaways. As always, the plan terms and, in particular, the plan’s definition of disability, must always be at the forefront of any benefits decision. The more unexpected result is the Court’s finding that a claimant’s last day worked and date of disability may be the same. This defies the typical interpretation many administrators use where the date of disability follows the last day worked. While the Court relied on the specific plan language at issue in making that determination it is noteworthy for claims administrators going forward. Further, the Court found it was unreasonable for the administrator to rely on the employer’s assertions alone. This case thus serves as a reminder to conduct an independent investigation.

 

By Amanda Sonneborn, Megan Troy, and Tom Horan

Seyfarth Synopsis: Since August 2016, sixteen elite colleges and universities have faced class action lawsuits related to management of their retirement plans. After five cases previously survived motions to dismiss, the University of Pennsylvania became the first college to secure a complete victory when accused of retirement plan mismanagement.

On September 21, 2017, the Eastern District of Pennsylvania ruled in favor of the University of Pennsylvania on every count in a proposed class action, which challenged the school’s retirement plan fees, investment lineup, and use of multiple plan record keepers. The proposed class action specifically alleged that both Penn and the administrator of its defined contribution retirement plan breached their fiduciary duty by “locking in” participants’ options to two investment companies, allowed the plan to pay too much in administrative fees, and charged excessive investment fees for access to an underperforming portfolio.

Citing Renfro v. Unisys Corp., 671 F.3d 314 (3d Cir. 2011), the court rejected the claim that by “locking in” arrangements with two investment companies, the plan fiduciaries’ imprudently failed to monitor the investment options offered to participants. Specifically, the court found that plaintiffs’ claims amounted to impermissible second-guessing of the fiduciaries’ investment decisions just because they turned out to lose money. The court noted that, standing alone, the decision to “lock in” arrangements with investment companies is not imprudent. The court likened locking a plan into an arrangement with an investment company for a stated period to cell phone companies offering discounted rates in exchange for two-year contracts, and found that plans are often able to obtain favorable terms in exchange for committing to providing a predictable period of business to investment companies.

The court found that plaintiffs’ administrative fee claims failed because there are lawful explanations for not offering the absolute lowest-available fees to participants. In dismissing these claims, the court stated: “the plaintiffs need something more than a claim that there may be (or even are) cheaper options available. The plaintiffs must show that there were no reasonable alternatives given to plan participants to choose from, which the plaintiffs have not pled.”

Similarly, with respect to the unreasonable investment management fees claim, the court stated: “The plaintiffs’ argument that fiduciaries must maintain a myopic focus on the singular goal of lower fees was soundly rejected in Renfro.” Plaintiffs also argued that, by offering too many investment options, there was participant confusion. Because they failed to point to a single participant that was confused by the investment options, however, the court dismissed the claim. The court also found no cause of action for plaintiffs’ claims that certain funds were outperformed in the market.

The Court characterized plaintiffs’ prohibited transaction claims as an impermissible attempt to shoehorn their fiduciary breach claims into prohibited transaction rules. The court found that accepting plaintiffs’ arguments would mean that administrators commit prohibited transactions every time they contract with a party to provide services to a plan for money, and dismissed the claims because there was no evidence of an intent to benefit parties at participants’ expense.

This decision is a significant victory for the University of Pennsylvania and a change in course for the cases against colleges and universities. The Court’s reliance on Renfro requires plaintiffs in these cases to do more than second-guess fiduciary decisions where they lose money, and instead holds them to the burden to plausibly allege systematic mismanagement that left participants with a choice between participating in a poorly-performing retirement plan or no plan at all.  It remains to be seen whether the impact of Renfro will be limited to the Third Circuit or whether it will expand to other circuits as well.

 

41188851v.1

 

 

By Jonathan A. Braunstein and Michael W. Stevens

Seyfarth Synopsis: The Ninth Circuit Court of Appeals recently confirmed that ERISA preempts state insurance law bans on discretionary clauses  for self-funded ERISA plans.

The Ninth Circuit has weighed into the national debate over discretionary clauses in ERISA plans, holding that ERISA preempts a state-law ban on discretionary clauses for self-funded disability plans, but not for fully-insured plans. Williby v. Aetna Life Ins. Co., No. 15-56394, Aug. 15, 2019 (9th Cir.).

In Williby, an employee of The Boeing Company sought disability benefits.  Boeing provided its employees with a self-funded short-term disability program, administered by Aetna.  The plan included a so-called discretionary clause, providing Aetna with “full discretionary authority to determine all questions that may arise,” including determination of benefits eligibility and scope.  Discretionary clauses effectively make an administrator’s determinations subject to a higher standard of review (abuse of discretion), rather than a de novo review.

The employee sought short-term disability benefits, which Aetna granted in part but denied in part. The employee then sued, accusing Aetna of wrongful denial.  The trial court reviewed Aetna’s determination de novo, finding in part that Cal. Ins. Code § 10110.6 — a ban on discretionary clauses in life or disability insurance — prohibited application of a more stringent standard of review. The trial court then held that plaintiff was entitled to more benefits than what Aetna had originally granted. Aetna appealed.

The Ninth Circuit reversed and remanded. The Court ruled that ERISA preempted § 10110.6, as applied to the self-funded plan at issue. The Ninth Circuit focused its analysis on the difference between a fully-insured and a self-funded benefit plan.  The Court held that there “is a simple, bright-line rule: if a plan is insured, a State may regulate it indirectly through regulation of its insurer and its insurer’s insurance contracts; if the plan is uninsured, the State may not regulate it. . . . Thus, for a self-funded disability plan like Boeing’s, the saving clause does not apply, and state insurance regulations operating on such a self-funded plan are preempted.”

The Court then held that, because § 10110.6 was preempted, Aetna’s decisions were entitled to an abuse of discretion standard, and remanded for further proceedings.

Thus, while the national battle over the force of state discretionary clause bans continues to be fought, self-funded plans in the Ninth Circuit can point to Williby as setting a clear and bright line limit on the interplay of state insurance regulations and ERISA. In the coming years,   we expect to see many more cases presenting ERISA preemption issues in the near future, as it remains a very hot-button and heavily litigated issue.  Stay tuned to this blog for further updates.

 

 

By: Jules Levenson and Mark Casciari

Seyfarth Synopsis: A district court in New York has held that a plaintiff cannot assert claims against a plan in which she did not participate and cannot assert claims of fiduciary breach without plausible allegations of wrongdoing.

A federal district judge in the Southern District of New York has dismissed claims that a stable value fund was depressing returns and pocketing the difference between the amount credited to the investments and the actual return on the investments. The decision is reported as Dezelan v. Voya Retirement Ins. & Annuity Co., No. 16-cv-1251 (S.D.N.Y. July 6, 2017).

The plaintiff participated in a separate-account stable value fund (with money segregated from Voya’s general accounts).  She sued on behalf of a class of participants in all of Voya’s ERISA-covered stable value funds in a multitude of employer-sponsored plans, including participants in non-segregated funds. The suit alleged that Voya violated its fiduciary duties and engaged in prohibited transactions by skimming money from the investments rather than allowing it to accrue to the plans.

Voya filed a motion to dismiss, which the Court granted without prejudice. On the general account claims, the court found that the plaintiff did not have standing to attack alleged violations in the general account funds because the she did not participate in the funds, and thus  had no redressable injury.  It also rejected plaintiff’s claims as to separate account plans because the claims turned on a showing that Voya improperly transferred assets between its segregated and general accounts. The Court lastly rejected holdings from other circuits that an ERISA participant may represent participants in other plans if the “gravamen” of the suit involves the same general practices across all plans.

On the merits of the separate account claims, the Court found that the complaint did not state a claim for breach of fiduciary duty because the complaint did not plausibly allege that Voya kept plan money, so there was no inference of misconduct. As to the prohibited transaction claims, the complaint did not allege, the Court said, that any improper transfers occurred,  and one could not be presumed because of opportunity.

The Court’s decision is important because it shows that, at least for some district judges, the Supreme Court’s Twombly plausibility standard continues to limit the ability of plaintiffs to sue for, and seek discovery on, alleged wrongdoing in plans in which they did not participate.  It is also important because it requires plaintiffs to carefully allege self-dealing facts.  That said, the decision has the potential to lead to piecemeal litigation, with a multiplicity of suits asserting similar claims. And note that the Dezelan case is far from over. On August 3, 2017, the plaintiff filed her amended complaint; an answer or new motion to dismiss is due September 18.

By: Ian Morrison and Tom Horan

Seyfarth Synopsis: In a strong decision for insurers, the Eighth Circuit affirmed summary judgment for the administrator, rejected plaintiff’s conflict of interest argument, and found that it was not arbitrary for the administrator to require objective evidence of impairment when processing an LTD claim.

Cooper v. Metropolitan Life Insurance Company, No 16-3429, 2017 WL 2853729 (8th Cir. July 5, 2017), is a fairly typical ERISA long-term disability case, but has unusually strong pro-insurer holdings. On appeal from a summary judgment win for MetLife, the Eight Circuit conclusively rejected the plaintiff’s claim that the insurer’s dual role as decisionmaker and payor of benefits warranted a closer review of its decision.

In support of the LTD claim at issue, plaintiff submitted documentation from both her treating physician and her chiropractor. MetLife found no clinical findings to support disability. Plaintiff did not formally appeal, but continued to correspond with MetLife and supplied additional notes from her treating physician. MetLife referred those records, as well as the records from previous STD and LTD claims, to an independent physician for review. The reviewing physician found no objective clinical support for the conclusion that plaintiff was disabled as defined in the plan.

On appeal, the plaintiff argued that the district court erred in applying the abuse of discretion standard and refusing to consider affidavits from her treating physician and chiropractor that were outside the administrative record. The court rejected plaintiff’s argument that MetLife’s dual role warranted more searching review. The court noted that plaintiff’s generic claim of conflict was devoid of evidence of biased decision making. Instead, the court found that the record evinced a comprehensive review, including reliance on the opinion of a qualified independent expert, and did not require a “less deferential” review under the U.S. Supreme Court’s decision in Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008).

The Eighth Circuit also found it permissible for the insurer to rely on the opinion of its retained physician instead of the competing views of a treating physician, especially where the plaintiff was given repeated notice of the type of evidence missing from her physician’s submissions. In reaching its conclusion, the court rejected the oft-heard argument that it was arbitrary to insist upon objective evidence of impairment. The court stated that that MetLife was entitled to favor the reviewing physician’s opinion over that of plaintiff’s treating physician—particularly where the treating physician was not tasked with interpreting “disability” as defined in the plan—so long as the reviewing physician’s conclusion was a reasonable one to draw from the record. Finally, the court rejected plaintiff’s argument that MetLife violated the ERISA claims regulations by having a nurse with unspecified credentials interpret certain lab tests, reasoning that MetLife was in substantial compliance with the claim regulations and that there was no evidence that having a different professional review the tests would have changed the outcome.

Cooper will become a go to case for insurers and other benefit plan administrators to cite in their summary judgment briefs, at least as to its “objective evidence” and conflict holdings.  The court’s “substantial compliance” holding, however, may not survive the implementation of the revised DOL claim regulations.

 

By Michelle Scannell and Mark Casciari

Seyfarth Synopsis: The Supreme Court appears to have barred equitable tolling under ERISA Section 413’s six-year statute of repose for fiduciary breach claims, subject only to well-pled allegations and proof of fraud or concealment.

Statutes of repose begin to run after a defendant’s last culpable act or omission–regardless of when a plaintiff is injured—and give defendants a complete defense to any lawsuit commenced after the repose limitations period. ERISA Section 413 provides a six-year statute of repose for fiduciary breach claims, with a narrow exception, “in the case of fraud or concealment.” If the exception applies, the claim may be brought within six years of discovery of the breach.

The Supreme Court recently shut down the argument that the tolling doctrine in American Pipe & Construction Company v. Utah, 414 U.S. 538 (1974) applies to an unconditional statute of repose.  The American Pipe rule allows the equitable tolling of individual claims during the pendency of a class action until class certification is denied or the individual is no longer part of the class.  So the equitable tolling doctrine allows courts to extend limitations periods beyond the limitations period set forth by Congress, and creates substantial uncertainty for defendants.

In California Public Employees Retirement Sys. (CALPERS) v. ANZ Securities, Inc., No. 16-373 (June 26, 2017), the Court dismissed as untimely a securities case filed by CALPERS after the statute of repose expired.  CALPERS argued that the lawsuit was timely because the same claim was timely asserted in another securities class action that CALPERS opted out of after filing its own case.  The Court rejected the CALPERS argument that the timely filing of the class action equitably tolled statute of repose for its individual case.

The Supreme Court said that unconditional statutes of repose may not be tolled under any circumstances. The Court said that statutes of repose reflect a legislative intent to protect defendants from an “interminable threat of liability,” which displaces the traditional power of courts to modify statutory time limits based on equitable doctrines, including the one applied in American Pipe. Statutes of repose, the Court stated, offer “full and final security after” the repose period expires.

By direct analogy, the CALPERS decision should apply to the ERISA Section 413 statute of repose, with one caveat.

Section 413, unlike the securities limitation statute at issue in CALPERS, is not unconditional.  Its “fraud or concealment” exception, as the Supreme Court noted in CALPERS, “demonstrates the requisite intent to alter the operation of the statutory period.”

ERISA fiduciaries therefore still face indeterminate liability in cases of alleged fraud or concealment. But it is difficult for plaintiffs to allege, let alone prove, fiduciary fraud or concealment.  Strict pleading standards dictated under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), may provide fiduciaries with a strong motion to dismiss argument that, if successful, could provide a quick win, and obviate the need to expend substantial time and money associated with the rigors of discovery.

The CALPERS decision is good for fiduciaries sued on claims accruing more than six years before a suit is filed. CALPERS removes equitable tolling from the arsenal of plaintiff arguments, leaving only the much harder “fraud or concealment” argument to revive what otherwise would appear to be a stale case.