By Ryan Pinkston and Jon Braunstein

SEYFARTH SYNOPSIS: The Ninth Circuit recently dealt another major blow to healthcare providers that attempt to bring suits as assignees of their individual patients, holding that an ERISA plan’s anti‑assignment provision bars a provider’s suit even where the plan mistakenly told the provider that no such anti‑assignment provision exists.

On April 26, 2018, the United States Court of Appeals for the Ninth Circuit confirmed, yet again, the deference it pays to anti‑assignment provisions set forth in ERISA plans. In Eden Surgical Center v. Cognizant Technology Solutions Corp., No. 16‑56422 (9th Cir.), the appellate court affirmed a district court’s grant of summary judgment in favor of the defendant plan administrator and against a healthcare provider purporting to bring claims for ERISA benefits as an assignee of the provider’s patients.

Eden Surgical is not unique in its affirmation that anti‑assignment provisions in ERISA plans preclude providers from suing the plans as assignees. Time and again, the Ninth Circuit has barred would-be assignees from pursuing their patients’ claims. See, e.g., DB Healthcare, LLC v. Blue Cross Blue Shield of Ariz., Inc., 852 F.3d 868, 876 (9th Cir. 2017); Brand Tarzana Surgical Institute v. ILWU‑PMA Welfare Plan, 706 Fed. App’x 442, 443 (9th Cir. 2017) Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc., 770 F.3d 1282 (9th Cir. 2014). Rather, Eden Surgical is noteworthy for its recognition of the resilience of anti‑assignment provisions in spite of seemingly bad facts. In that case, the Ninth Circuit barred the provider’s suit even though the plan’s representative “mistakenly told Eden that the benefit plan did not contain an anti‑assignment provision.” The Ninth Circuit placed the onus on the healthcare provider to “attempt[] to obtain the plan documents from the purported assignor [the patient] to verify whether the plan contained an anti‑assignment provision, if knowledge of that fact was critical to its decision to file suit.” The provider’s failure to “attempt to obtain the plan documents from its purported assignor until after it had already filed [the] action” rendered any reliance by the provider on the plan’s misrepresentation “unreasonable” as a matter of law.

Eden Surgical also reiterates the Ninth Circuit’s conclusion that a plan does not waive enforcement of its anti‑assignment provision by not raising the provision during the administrative claims review process. As the Ninth Circuit has held in similar cases, an ERISA plan’s anti‑assignment provision is not a reason to deny ERISA benefits during the administrative claims review process, but, instead, is a litigation defense that need not be raised until a purported assignee improperly files suit. See, e.g., Brand, 706 Fed. App’x at 443. Lest there be any doubt, the Ninth Circuit explained in Eden Surgical that ERISA plans do not have “an affirmative duty to make [a provider] aware of the anti‑assignment provision.”

As out of network healthcare providers continue to devise novel theories upon which to pursue ERISA plans for medical benefits, Eden Surgical provides welcome comfort. The Ninth Circuit has yet again confirmed its commitment to enforcing anti‑assignment provisions in ERISA plans as a bar to providers’ suits as purported assignees of their patients. This commitment holds even where, as in Eden Surgical, the plan makes the unfortunate mistake of disclaiming the existence of the anti‑assignment provision.

By Ron Kramer

Seyfarth Synopsis:  While an employer can bargain to impasse and exit a critical status multiemployer pension fund, under the Pension Protection Act it cannot bargain to impasse and implement a proposal that would have it remain in the fund, but under different terms than the rehabilitation plan schedule the parties had previously adopted.

In a case of first impression, the Fourth Circuit held that the Pension Protection Act’s (“PPA”) obligation on bargaining parties to continue to follow a multiemployer pension fund’s rehabilitation plan schedule trumps an employer’s right, upon lawful impasse, to unilaterally implement a proposal to move new hires to a 401(k) plan.  Bakery & Confectionary Union & Industry International Pension Fund v. Just Born II, Inc., Case No. 17-1369 (4th Cir., decided April 26, 2018).

Just Born, the maker of Peeps, participated in the Bakery & Confectionary Union & Industry International Pension Fund (“Pension Fund”).  The Pension Fund is in critical and declining status, and had adopted a rehabilitation plan under the PPA which included a preferred schedule adopted by the Company and its Union pursuant to which Just Born was required to contribute hourly for every bargaining unit employee.

The Company proposed during its 2015 union negotiations that it remain in the Pension Fund for existing employees, but move new hires to a 401(k) plan.  The parties bargained to impasse, and the Company implemented its pension proposal.  The Pension Fund sued.  The Pension Fund relied on a PPA provision (as amended by the Multiemployer Pension Reform Act), 29 U.S.C. § 1085(e)(3)(C)(ii) (“the “Provision”), that the bargaining parties to an expired contract remain obligated to contribute under the rehabilitation plan schedule, which under the Pension Fund’s schedule included all employees, until such time as they reached an agreement.  Indeed, the Provision expressly provides that if the parties cannot reach an agreement within 180 days after contract expiration, the Pension Fund must apply the schedule, as updated, upon which the parties had previously agreed.

The Fourth Circuit ruled for the Pension Fund.  In addition to rejecting various affirmative defenses, the Court rejected the Company’s claim that it ceased being a “bargaining party” governed by the Provision once it reached a lawful impasse because it was no longer a party to an operative collective bargaining agreement.  The Court found that a plain reading of the Provision makes clear that a contract’s expiration cannot alter the employer’s status as a bargaining party.  Indeed, the Provision only applies to parties whose contracts have expired.

The Court further rejected the Company’s Hotel California argument that such an interpretation would mean that once an employer found itself in a critical status plan it would never be able to exit.  The Company argued that Trustees of the Local 138 Pension Trust Fund v. F.W. Honerkamp Co., 692 F.3d 127 (2d Cir. 2012), which upheld an employer’s right to bargain to impasse and implement a proposal to exit a critical status fund, gave it the Company the right to implement its proposal.  The Court distinguished Honerkamp, for it did not provide that an employer could implement a proposal to remain in the fund under different rules than provided for in the rehabilitation plan.

Last but not least, the Company argued that the Pension Fund’s interpretation undermined the Company’s right under the National Labor Relations Act (“NLRA”) to implement its last, best proposal upon impasse.  The Court disagreed, noting that although the right to implement a final offer applies to the Company’s bargaining rights and obligations, the Company’s statutory obligations under the PPA are separate and independent from its rights and obligations under the NLRA.  Just Born was free to bargain to impasse and implement its proposals provided, however, the Company could not implement proposals contrary to the PPA.

Just Born sets an important limit on an employer’s right to bargain to impasse over its participation in a critical or endangered status fund.  An employer is free under the PPA to bargain out and pay the resulting withdrawal liability, even if it has to reach lawful impasse and unilaterally implement.  What it cannot do, according to Just Born, is to remain in the fund but negotiate to impasse and implement conditions on participation different from the rehabilitation or funding improvement plan schedule to which it is a party.  Just Born does not address whether an employer can negotiate to impasse and implement a different schedule provided for in a rehabilitation plan — although it is doubtful since there would still be no agreement as required by the Provision.  Nor does it provide that the bargaining parties can just agree to terms different from a rehabilitation plan schedule.  While a fund may agree to different schedules, it is under no obligation to do so.  Employers beware.

By James Hlawek and Ian Morrison

Seyfarth Synopsis:   An employer, which had paid medical expenses on behalf of an employee’s dependent son, made comments about the company’s rising healthcare costs several months before firing the employee. The Sixth Circuit found this was enough to warrant a trial on the employee’s ERISA interference and retaliation claims.

In Stein v. Atlas Industries, Inc., No. 17-3737, the Sixth Circuit reversed the Northern District of Ohio, which had dismissed the plaintiff’s ERISA interference and retaliation claims. Plaintiff’s son, who suffers from a permanent and debilitating neurological condition, was hospitalized for four months in 2013. As an employee of Atlas Industries, Inc., plaintiff participated in a group medical plan that covered his son’s medical expenses. Atlas’s plan was partially self-insured, and the company paid approximately $250,000 for the son’s care.

Seven months later, plaintiff did not call Atlas or report to work for three consecutive days after he had been released to work following a medical leave. Atlas’s handbook provided that any employee absent for three consecutive days without permission would be automatically fired. After plaintiff’s third no-call/no-show day, his supervisor fired him.

Plaintiff sued, alleging that the company had fired him because of his son’s medical expenses, and thus that the company was liable for both retaliation and interference under ERISA. In support, plaintiff pointed to evidence that (1) Atlas had expressed concerns about “skyrocket[ing]” medical costs in employee notices; (2) an Atlas Vice President had told him in 2013 that he hoped his son would be released soon because the medical costs were getting expensive for the company; and (3) an Atlas human resources director showed another employee the son’s medical expenses and said that large payments were causing the company’s health insurance costs to rise.

While the district court entered summary judgment for Atlas, the Sixth Circuit reversed, finding that there was enough evidence of interference or retaliation to deny summary judgment. Specifically, while the supervisor who fired plaintiff did not know about the son’s medical expenses, the Sixth Circuit found significant that the Vice President and director who commented about medical expenses played a role in the decision. Also, plaintiff contended that Atlas had tried to contact other employees before firing them under the no-call/no-show policy, but did not do the same for him.

The decision is serves as a warning to employers about dealing with employees who incur high medical expenses by themselves or their dependents. Comments about those expenses could considered evidence of interference or retaliation if the employee is later disciplined.   Even general comments about rising healthcare costs and how they burden the company could be used against the employer. The decision also reinforces the importance of consistently applying employment policies. Finally, for employers in the Sixth Circuit, this decision is a reminder that that the threshold for a trial on an ERISA interference or retaliation claim can be quite low.

By, Jim Goodfellow and Sam Schwartz-Fenwick

Seyfarth Synopsis: In a win for ERISA plan and claims administrators, the Third Circuit has affirmed the broad enforcement of a long-term disability plan’s mental or nervous limitation period.

In Krash v. Reliance Standard Life Insurance Group, No. 17-1814, the Third Circuit affirmed the judgment of the Middle District of Pennsylvania, which had concluded that the plaintiff’s disability was limited to the plan’s 24 month period for mental/nervous conditions.

The plan at issue limited benefits “caused by or contributed to by mental or nervous disorders” to 24 months. The plaintiff stopped working in May 2010 due to physical complaints (back pain and tremors). Reliance Standard, the plan’s insurer and claims administrator, paid benefits for four years, and then requested that the plaintiff submit to an in-person independent medical examination. The examining physician concluded that the plaintiff’s tremors were psychological, not physical, in nature. The plaintiff’s medical records also showed that she suffered from depression and anxiety. Accordingly, Reliance Standard terminated the claim, asserting that it was subject to the 24 month limitation for mental/nervous disorders.

The Middle District of Pennsylvania sided with Reliance Standard, and the Third Circuit affirmed. The Third Circuit stated that the plan’s language made clear that to remain eligible for benefits beyond 24 months, it was the plaintiff’s burden to “prove she was totally disabled from any occupation solely due to a physical condition.” The Third Circuit further explained that the terms of the mental nervous limitation in the plan (“’caused or contributed to by’ in a mental disorders limitations clause”) means “that benefits may be terminated when physical disability alone is insufficient to render a claimant totally disabled.” Accordingly, because the record reflected that the plaintiff was capable of performing sedentary work even with her physical condition, the Court found that Reliance Standard did not abuse its discretion in concluding that the mental/nervous limitation applied.

While this is a good win for ERISA plans in the Third Circuit (New Jersey, Delaware, and Pennsylvania), plan and claims administrators should continue to tread carefully, as courts in other circuits take a more plaintiff-friendly view of this type of limitation. Also, this decision turned on the language in the at-issue plan. It is important to review plan documents with counsel to see if their mental and nervous limitations are similarly broad.

By: Meg Troy and Ron Kramer

Seyfarth Synopsis: Disputes over lifetime retiree health benefits for union retirees may become a memory of the past. For the second time in three years, the Supreme Court confirms that collective bargaining agreements must interpreted based on ordinary principles of contract law and it is inappropriate to presume that an agreement allows lifetime vesting of retiree benefits.

On February 20, 2018, in CNH Industrial N.V. v. Reese, No. 17-515 (per curium), the Supreme Court rejected the Sixth Circuit’s attempt to revive the Yard-Man inference. In 2015, the Court in M&G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (2015), struck down the Sixth Circuit’s use of the Yard-Man inference, which courts used to infer that negotiated retiree benefits were intended to continue for the retirees’ lives. The Court found that when a contract is silent as to the duration of retiree benefits, “a court may not infer that the parties intended for those benefits to vest for life.” Rather, collective bargaining agreements must be interpreted based on ordinary principles of contract law. You can read about the Court’s decision in M&G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (2015), here.

In Reese, the Sixth Circuit basically decided that, if it could not use the Yard-Man inference to infer vested benefits, it could still use the inference to find collective bargaining agreements ambiguous regarding the vesting of retiree health such as to permit the introduction of extrinsic evidence of vesting. While the Sixth Circuit acknowledged it was basically applying Yard-Man to find an ambiguity, it reasoned that “[t]here is surely a difference between finding ambiguity from silence and finding vesting from silence.”

The Supreme Court once again said “no.” It rejected the Sixth Circuit’s way of handling these disputes, which the justices said was rooted in inferences and assumptions and not the text of the applicable collective bargaining agreements. The agreement at issue contained a general durational clause that applied to all benefits unless otherwise specified. As such, the Court held that the general durational clause meant the agreement unambiguously provided that CNH retirees were entitled to company-provided health benefits only until the agreement expired and not indefinitely. The Sixth Circuit’s decision to the contrary inappropriately used inferences inconsistent with Tackett. The Court reverse the Sixth Circuit’s judgment and remanded the case for further proceedings consistent with this opinion.

Thus, for the second time in three years, the Supreme Court has rejected Yard-Man and has definitively held that collective bargaining agreements are to be interpreted according to ordinary principles of contract law. Yard-Man is dead. The interference cannot even be used to find an ambiguity in a contract. Hopefully, this time the Sixth Circuit will listen.

By: Ryan Pinkston and Jon Braunstein

Seyfarth Synopsis: In a major victory for ERISA plans and other payors, the Fifth Circuit recently overturned a district court’s notorious decision in favor of a healthcare provider and reinstated a plan administrator’s ability to guard against healthcare billing fraud, waste, and abuse.

On December 19, 2017, the United States Court of Appeals for the Fifth Circuit issued its decision in Connecticut General Life Insurance Co. v. Humble Surgical Hospital, LLC, 878 F.3d 478 (5th Cir 2017), reversing a highly publicized trial court decision that threatened the ability of ERISA plans, insurers, and other payors to safeguard their coffers from providers engaged in healthcare fraud, waste, and abuse.

As described by the Court of Appeals, between 2010 and the initiation of litigation in 2016, Humble Surgical Hospital (“Humble”), a physician-owned hospital in Harris County, Texas, performed hundreds of non-emergency services on members of ERISA and welfare benefit plans administered by Connecticut General Life Insurance Company and its parent corporation (together, “Cigna”). After processing an expensive claim from Humble for what appeared to be a noncomplex outpatient surgical procedure, Cigna increased its scrutiny of Humble’s claims and surveyed plan members whom Humble had treated. Based on its analysis, Cigna concluded that Humble was engaged in “fee-forgiving” (i.e., waiving patients’ co-insurance or deductible fees) and also intentionally inflating its charges to increase reimbursements.

Cigna then sued Humble to recover over $5 million in alleged overpayments. In response, Humble asserted counterclaims against Cigna for nonpayment or underpayment of claims, breach of fiduciary duty, and failure to comply with requests for plan documents. After a bench trial, the district court concluded that Cigna’s claims and defenses failed as a matter of law. The district court also awarded Humble nearly $11.4 million in damages based on Cigna’s underpayment of claims, nearly $2.3 million in statutory penalties based on Cigna’s failure to provide plan documents upon request, and over $2.7 million in attorneys’ fees based on Humble’s success in the litigation. Cigna appealed.

On review, first, the Fifth Circuit reversed the award to Humble of nearly $11.4 million in damages based on underpaid claims and Cigna’s purported breach of fiduciary duties. Notably, the Fifth Circuit held both that the plans at issue vested Cigna with discretionary authority to determine eligibility for benefits and also that Cigna’s interpretation of plan provisions to prohibit “fee‑forgiving” was not arbitrary or capricious. The Court of Appeals also determined that Cigna’s decision was supported by substantial evidence, namely, the survey responses from plan members indicating that Humble had informed the members that they would not be charged for any of the services at issue. This conclusion affirms that courts should defer to a plan administrator’s interpretation of the terms of its own plan.

Second, the Fifth Circuit reversed the approximately $2.3 million awarded to Humble as statutory penalties, because Cigna was not an “administrator” as defined by ERISA. The Fifth Circuit also joined at least eight other circuits in rejecting the notion that a person or entity may become a de facto administrator for notice or statutory penalty purposes. The Court of Appeals’ decision supports the proposition that courts should adhere closely to the express language of the relevant ERISA provision when resolving a dispute, and it also provides welcome comfort to third party claims administrators and other “non-designated” persons or entities that they cannot be held liable for ERISA statutory penalties.

Third, the Fifth Circuit reinstated Cigna’s fraud claims on the ground that the district court failed to address Cigna’s argument that Humble affirmatively misrepresented actual charges by overbilling Cigna. The court’s decision is a reminder that a trial court should examine carefully all of the ways in which a fraudulent scheme may be perpetrated before dismissing a plan’s fraud claims. Finally, based on the foregoing outcomes, the Fifth Circuit vacated the award of attorneys’ fees to Humble and remanded the issue for reconsideration in light of the appellate decision. It remains to be seen whether the trial court will award Cigna its attorneys’ fees in light of its significant success before the appellate court.

Healthcare litigation is on the rise, especially reimbursement disputes. In this instance, Cigna filed suit against Humble in hopes of protecting itself — and health plans for which it serves as claims administrator — from healthcare fraud and abuse. In exchange, Cigna faced a judgment against it in excess of $16 million. The Fifth Circuit’s decision vindicating Cigna’s position constitutes a significant victory for ERISA plans, insurers, and other payors, both for its affirmation of ERISA principles and also for its reversal of a trial court decision that had gained some notoriety for its slant in favor of healthcare providers.

 

By Ronald Kramer and Michael W. Stevens

Seyfarth Synopsis: Claims for benefits at termination may proceed as a breach of contract claim in state court, and avoid ERISA preemption, where the calculations are individualized, straightforward and do not implicate an ongoing administrative scheme.

Under a recent decision from the Central District of California, employers may not be able to invoke ERISA preemption and remove cases to federal courts where the benefits claims at issue are not “complex” and do not implicate administrative discretion.

In Amlani v. Baker’s Burgers, Inc., No. 17-02278, 2018 WL 354617 (C.D. Cal.), Plaintiff brought a breach of contract claim after his employment agreement was terminated by the Defendant. Plaintiff had worked with Defendant for almost 29 years, the first 18 of which were covered by a “handshake” agreement based on a percentage of sales. Id. at *1. In 2006, the parties entered into a written Employee Benefits Agreement, which specified certain benefits to be paid to the Plaintiff. In 2008, they subsequently entered a new Employment Agreement, which in relevant part, allegedly entitled Plaintiff to a longevity payment of “1.68 times [his] base salary and fringe benefits” after the vesting period. Id. at 2.

Defendant terminated Plaintiff, and Plaintiff brought a breach of contract suit in state court claiming he was entitled to certain severance benefits, as well as the longevity payment. Id. Defendant removed to federal court, asserting that Plaintiff’s claims were preempted by ERISA § 502(a)(1)(B). Id.

The Court proceeded to examine whether Plaintiff’s claims fell within the preemption analysis established by Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), which permits preemption where a claim could have been brought under §  502(a)(1)(B), and implicates no other legal duty.

The Court focused on the first half the inquiry: whether Plaintiff’s claims could have been brought under ERISA. To do so, the Court examined whether the agreement constituted a benefit plan covered by ERISA: “does the benefit package implicate an ongoing administrative scheme?” Id. at *3 (citing Delaye v. Agripac, Inc., 39 F.3d 235, 237 (9th Cir. 1994)).

Here, like in Delaye, the Court found no ongoing administrative scheme. The benefits did not apply to a larger group of employees and were relatively straightforward. The longevity severance payment involved a “one-time, individualized calculation,” id., to wit: multiplying the value of Plaintiff’s salary and benefits by 1.68. Nor did the other severance benefits at issue, which required ongoing payments, rise to an ongoing administrative scheme, because there was no “issue of employer discretion, but rather one of contract interpretation.” Id. at *4. The Court thus found no preemption, and remanded to state court.

Amlani reminds employers that where benefits packages are highly individualized, and do not implicate administrative schemes or discretion, claims by employees for breach may remain in state court.

 

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.

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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.