Seyfarth Synopsis: Please join us at our Chicago Willis Tower office on Thursday, December 6th, for breakfast along with a Seyfarth Legal Forum and Continuing Legal Education (CLE): 2018 Highlights and a Look Ahead to 2019.

About the Program

Providing our clients with a multidisciplinary overview of Legal Hot Button issues and Best Practice:  Featuring:

  • Biometric Information Privacy Act: What a long, strange year it’s been (and there’s more on the way!)
  • Legalize it: will Illinois go from medical to recreational marijuana and what would that mean to the real estate industry?
  • Affordable Care Act Update & Enforcement Activities, 401(k) Student Loan Repayment Arrangements, Socially Responsible Investments, and HIPAA Privacy & Security Audits
  • Mergers and Acquisitions: Current State of the Market and Post-Merger Integration Strategies
  • The “Cloud”…is in a building?: Data Centers are the newest, and maybe most important, type of real estate
  • Latest Developments in Pregnancy Accommodation (Illinois’ New Lactation Law and Nationwide Trends)
  • Litigation Hot Topics for 2019, including: Developments in trade secret and non-compete law; New laws affecting threshold issues such as forum selection and choice of law; Frontloaded discovery in federal court: Mandatory Initial Discovery Pilot Programs; Best practices for protecting the attorney-client privilege for in-house counsel
  • Welcome to the Future: It arrived yesterday – The intersection of Technology and Legal Services
  • Bots, bits and bytes… Artificial Intelligence and its leading role in recent legal projects

The program will feature a panel of Seyfarth Chicago subject matter experts — with an eye toward preparing for the developments in the coming year. Our overview will be targeted at highlighting issues for the General Counsel, Chief Information Officer, Chief Human Resource Officer, and other members of their teams.

The program will consist of an engaging ninety minute presentation with speakers from each of Seyfarth Chicago’s practice groups: Benefits, Corporate, Labor & Employment, Litigation, and Real Estate, as well as an exciting presentation on the use of technology in law. Then, we will offer 30 minute break-out sessions on hot topics warranting a deeper dive that companies are facing when looking at their legal compliance needs. The break-out sessions will address Privacy/Data Security, Managing in the #metoo Environment, and Blockchain/Cryptocurrency in business.

The program is on Thursday, December 6, 2018, at 8:00 a.m. – 8:30 a.m., for breakfast and registration, 8:30 a.m. – 10:00 a.m., for the panel presentations, and 10:00 a.m. – 10:30 a.m., for the breakout sessions.  Our offices are at 233 S. Wacker Drive, Suite 8000, in Chicago, IL.

While there is no cost to attend, registration is required and space is limited.  If you have any questions, please contact Fiona Carlon at fcarlon@seyfarth.com and reference this event.

Also, for those that need the credits, note that Seyfarth Shaw LLP is an approved provider of Illinois CLE credit. This seminar is approved for 1.5 hours of CLE credit CA, IL, NY, NJ and TX. CLE Credit is pending for GA and VA. HR professionals: please note that the HR Certification Institute accepts CLE credit toward recertification.

By: Mark Casciari and Jim Goodfellow

Seyfarth Synopsis: The Ninth Circuit declined to enforce an agreement to arbitrate ERISA Section 502(a)(2) claims, but did not rule out enforcement in other ERISA claim contexts.

In Munro v. University of Southern California, et al., No. 17-5550, 2018 WL 3542996 (9th Cir. July 24, 2018), plaintiffs sought to represent a class of participants in two ERISA-governed defined contribution plans sponsored by the University of Southern California, alleging multiple breaches of fiduciary duty stemming from the administration of those plans. Plaintiffs sought equitable relief on behalf of the plans under ERISA Section 502(a)(2) in the form of monetary relief, removal of the breaching fiduciaries, a full accounting of losses, reformation of the plans, and an order regarding appropriate future investments.

The defendants moved to compel arbitration, as all of the potential class members had signed arbitration agreements to arbitrate all claims that the putative class members or USC had against one another. The agreements expressly covered claims under federal law, including ERISA. The defendants sought further to compel individual, and not class arbitrations, because the arbitration agreements did not specifically allow class arbitration.

The district court denied the motion, and the Ninth Circuit affirmed. The Ninth Circuit analogized the plaintiffs in this case to plaintiffs in a qui tam action brought on behalf of the U.S. Government under the False Claims Act. Citing to its 2017 decision in U.S. ex rel. Welch v. My Left Foot Children’s Therapy, LLC, 871 F.3d 791 (9th Cir. 2017), the Court stated that individual agreements to arbitrate do not extend to qui tam actions because those are brought on behalf of the government by the plaintiffs. Similarly, the Court said, an ERISA Section 502(a)(2) breach of fiduciary duty claim is brought on behalf of an ERISA plan by its participants.

There is more to take away from this decision, however. The Ninth Circuit specifically declined to rule that an agreement to arbitrate ERISA claims is always unenforceable. The Court suggested that it might disagree in a future case with its 1984 decision in Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), which it held that ERISA’s “equitable character” could not be satisfied in an arbitral proceeding. The Court referred to “intervening Supreme Court case law,” obviously referring to a number of Supreme Court decisions after 1984, including, most recently the Epiq Systems decision that broadly enforce agreements to arbitrate. So we have not heard the last word from the Ninth Circuit on the enforceability of agreements to arbitrate ERISA claims. And we should expect other Courts of Appeal to address arbitration of ERISA claims, and perhaps create a split in the Circuits that would lead to Supreme Court review. Notwithstanding the Ninth Circuit decision in Munro, arbitration agreements remain a hot topic in federal jurisprudence. Stay tuned.

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: 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: 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 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: 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.