Affordable Health Care Act:

  • In Thomas More Law Center v. Obama, 10-2388-cv, 2011 WL 2556039 (6th Cir. June 29, 2011), the Sixth Circuit Court of Appeals affirmed the district court’s decision, holding that the Affordable Care Act’s minimum coverage provision, which requires that all applicable individuals maintain minimum essential heath insurance coverage or pay a fine, was constitutional pursuant to Congress’s power to regulate interstate commerce. Applying the rational basis test, the court concluded that Congress had a rational basis to conclude that an individual’s choice not to purchase health insurance “substantially affected interstate commerce,” and therefore, the provision was facially constitutional. Additionally, the court found that failure to regulate such activity would undermine the effectiveness and intent of the Act’s regulatory scheme. In so holding, the court rejected the plaintiffs’ argument that Congress was impermissibly regulating “inactivity,” stating that “far from regulating inactivity, the minimum coverage provision regulates individuals who are, in the aggregate, active in the health care market.” For a more detailed discussion of this case and related cases currently before other Appellate Courts, please see the June issue of our Newsletter.

ESOP Litigation:

  • In Bacon v. Stiefel Laboratories, Inc., 09-cv-21871-JLK, 2011 WL 2973677 (S.D. Fla. July 21, 2011), the district court refused to certify a class action lawsuit where plaintiffs alleged that defendants tricked them into selling back their shares of company stock at a significantly undervalued price during a merger of the company’s ESOP and 401(k) plans so that the defendants could, shortly thereafter, sell the company at a drastically higher price per share. The court refused to certify the class because the individual determinations by each plaintiff in response to these statements would have varied based on each plaintiff’s needs. This case will be the topic of a feature article to appear in the September issue of the Newsletter.
  • In Taylor v. ANB Bancshares, Inc., No. 5:08-cv-05170-RTD (W.D. Ark. July 14, 2011), the district court preliminarily approved a $2 million settlement agreement in a class action lawsuit where in ESOP participants alleged that the fiduciaries breached their duties under ERISA by continuing to invest the plan’s assets in company stock when they allegedly knew that the company was severely undercapitalized. The ESOP suffered significant losses of virtually all of its assets when the company was closed by the Federal Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation was appointed as a receiver.

Equitable Relief Post Amara:

  • The Secretary of Labor filed an amicus brief in support of the reversal of the decision in Kenseth v. Dean Health Plan, Inc., No. 08-00001 (W.D. Wis. Feb. 14, 2011), arguing that the district court erred in denying a plan participant payment of medical expenses that she was told defendant’s plan covered. The district court held that plaintiff’s claim failed because the payment sought was not “appropriate equitable relief” under ERISA § 502(a)(3). The Secretary argued that the district court erred in applying law relating only to non-fiduciaries. According to the Secretary, this law was inapplicable here because plaintiff’s claim was against a plan fiduciary over the terms of the plan, and, as such, was the kind of claim that, before the merger of law and equity, plaintiff could have brought only in a court of equity, not a court of law. The Secretary argued, based on the Supreme Court’s ruling in CIGNA Corp. v. Amara, 131 S.Ct. 1866 (2011), that ERISA fiduciaries who breach their fiduciary duties are subject to the make-whole remedy of surcharge, as well as other equitable monetary awards such as estoppel and reformation under ERISA § 502(a)(3). The Secretary concluded that the ruling in Amara effectively overruled the district court’s holding in Kenseth, and therefore equitable remedies should be awarded to the participant.
  • In Biglands v. Raytheon Employee Savings and Investment Plan, No. 1:10cv351, 2011 WL 2709893 (N.D. Ind. July 12, 2011), a participant sued the plan and its administrator challenging the denial of a claim for benefits arising in connection with the distribution of an estate for which plaintiff was the executrix. Biglands alleged both a claim for the benefits under ERISA § 502(a)(1)(B) and a claim under § 502(a)(3) seeking to establish a constructive trust and a surcharge equal in amount to the benefits claim. Citing a long line of precedent, the court held that when a claimant asserts both a claim for benefits and a claim for equitable relief based on the same injury, the latter claim must be dismissed. In so ruling, the court rejected Biglands’s argument that the Supreme Court’s recent decision in CIGNA Corp v. Amara, 131 S. Ct. 1866 (2011), “changed the landscape of § 502(a)(3) claims by expanding the reach of” fiduciary breach claims. In addition to noting that Amara’s discussion of equitable remedies was mere dicta, the court found the decision distinguishable on its facts, as the Amara plaintiff had no claim under § 502(a)(1)(B).

Retiree Benefits:

  • In Quesenberry v. Volvo Trucks N. Am. Retiree Healthcare Benefit Plan, --- F.3d ----, No. 10-1491, 2011 WL 2675923 (4th Cir. July 11, 2011), the Fourth Circuit affirmed a ruling that Volvo’s changes to retiree health benefits violated the LMRA and justified a permanent injunction. The Court determined that Volvo’s obligations continued after the expiration of the governing collective bargaining agreement (CBA), even though the CBA stated the coverage at issue would continue “for the duration of this Agreement.” In so ruling, the court relied upon the fact that although the “coverage” section of the CBA had a durational limit, the separate “cost” section did not. Rather, the “cost” section included a negotiated mechanism that allowed Volvo to charge retirees a premium in excess of agreed limits only if the trust created for above-cap costs was expected to be depleted within a year and Volvo and the union engaged in unsuccessful negotiations to agree on benefits reductions. Because these “cost” conditions could not be satisfied, the court held, Volvo could not unilaterally modify the benefits. The district court’s ruling that the changes also violated ERISA was not considered on appeal because the appeals court had ruled in the retirees’ favor on the LMRA claim.
  • In NewPage Wis. Sys. Inc. v. United Steel, Paper & Forestry, Rubber, Manuf., Energy Allied Indus. & Serv. Workers Int’l Union, AFL-CIO/CLC, --- F.3d ----, No. 10-2887, 2011 WL 2684910 (7th Cir. July 12, 2011), the Seventh Circuit held there was federal jurisdiction over an action by an employer and its plan seeking a declaratory judgment that changes to the retiree health plan did not violate ERISA. In reversing the district court, the court held there was jurisdiction because there would be federal jurisdiction over a “mirror-image” action, with the same issues, if filed by plan participants under ERISA §§ 502(a)(1) and (a)(3). The court ruled that jurisdiction does not depend on whether the relief sought is available under ERISA. In so holding, the court overruled Newell Operating Co. v. United Auto. Workers, 532 F.3d 583 (7th Cir. 2008), which held that jurisdiction was lacking for a similar suit because the declaratory judgment sought remedies that would not be “appropriate equitable relief.” The employer also sought a judgment that its changes did not violate the LMRA, but the district court held there was federal jurisdiction over those claims and that ruling was not on appeal.
  • In Maytag Corp. v. Int’l Union, United Auto., Aerospace, and Agric. Implement Workers of Am., No. 4:08-cv-00291 (S.D. Iowa July 22, 2011), the court ruled that, after Whirlpool purchased Maytag, it could unilaterally reduce retiree medical benefits because the union and its members had failed to meet their burden of showing that the relevant collective bargaining agreements demonstrated that the company intended to vest retiree benefits. Citing Eighth Circuit precedent, the court held that vesting is not to be presumed, but rather must be proved by a preponderance of the evidence that the employer agreed to vesting. In so ruling, the court relied on the CBA’s duration provisions and blanket reservation of rights, a plan cap on lifetime benefits, and a bargaining history that showed benefits were modified over the years.

Failure to Exhaust Administrative Remedies:

  • In Angevine v. Anheuser-Busch Companies Pension Plan, No. 10-2832, 2011 WL 2936354 (8th Cir. July 22, 2011), the Eighth Circuit affirmed the district court’s dismissal of plaintiff’s claim for benefits for failing to exhaust administrative remedies. Plaintiff claimed that an email informing employees they were not entitled to an early retirement benefit enhancement served as a repudiation of his right to such a benefit, thus rendering exhaustion futile. The court disagreed, reasoning that, while an ERISA claim accrues as a result of a clear repudiation known to a beneficiary, statutory accrual is a separate question from whether the judicially created exhaustion requirement is excused. The court found that plaintiff failed to demonstrate with certainty that pursuing administrative remedies under the plan would have been futile because he did not attempt to pursue administrative remedies and the plan administrator had not denied similar claims. The court also found that even if the email provided plaintiff with an indication of the outcome of pursuing an administrative remedy, the email alone did not show with certainty that the administrator would have denied plaintiff’s claim.

Administrator’s Conflict of Interest:

  • In Blankenship v. Metropolitan Life Ins. Co., --- F.3d ---, No.10-10717, 2011 WL 2567788 (11th Cir. June 30, 2011), the Eleventh Circuit reversed and remanded a long-term disability benefits ruling in plaintiff’s favor, holding that the district court placed too much weight on the administrator’s conflict of interest. The court noted that a structural conflict of interest – where administrators both make eligibility decisions and pay benefits – is “an unremarkable fact in today’s marketplace,” and that the burden remains with plaintiff to show that the conflict rendered a denial of benefits arbitrary and capricious. The court determined that the administrator’s conflict of interest was counter-balanced by inconsistent reports from the participant’s own physician about the gravity of his injuries. The court further rejected the notion that the large size of the claim – over a half million dollars – was enough to be a dispositive factor in the context of a plan administrator whose annual revenues exceeded $50 billion. Considering the conflict as one factor in the analysis of the reasonableness of the administrator’s decision, the court determined that the denial of benefits should be upheld.

SPD Violation:

  • In Weitzenkamp v. Unum Life Insurance Co. of America, No. 10-3898, 2011 WL 2675247 (7th Cir. July 11, 2011), the Seventh Circuit reversed the district court’s decision and held that the plan administrator could not rely on a plan’s self-reported symptoms limitation to deny benefits because the limitation was not included in the summary plan description (SPD). Self-reported symptoms are those that cannot be verified by medical tests (headaches, pain, soreness, etc.) and can only be described by a patient to his or her doctor. The Seventh Circuit reasoned that the SPD violated ERISA § 102(b) because it did not include the plan’s eligibility requirements for participation and benefits.

Interest Due on Lump-Sum Payments:

  • In Stephens v. US Airways Group, Inc., 10-7100-cv, 2011 WL 2739851 (D.C. Cir. July 15, 2011), the D.C. Circuit held that because the US Airways Pension Plan paid participants their lump-sum payments 45 days later than the day on which participants would have received their first checks had they selected the annuity payment option under the plan, participants were entitled to interest. The court reasoned that “a pension plan could not satisfy ERISA by correctly calculating an actuarially equivalent lump sum, then delaying payment of that sum indefinitely.” The court also determined that the delay was “unreasonable,” ruling that while the plan took 21 business days to calculate the lump-sum payments, the remaining delay was not the result of any administrative necessity. Accordingly, the court remanded the case to the district court to calculate the appropriate amounts due.

QDROs:

  • In Brown v. Continental Airlines, Inc., --- F.3d ---, No.10-20015, 2011 WL 2780505 (5th Cir. July 18, 2011), the court held that plans may not obtain restitution under ERISA Section 502(a)(3) of lump-sum pension benefit payments issued pursuant to a qualified domestic relations order (QDRO) upon a later determination that the participant engaged in a “sham” divorce solely to obtain the benefits. Continental alleged that several pilots, worried that the company’s financial troubles would result in less then full payment of benefits at retirement, divorced their spouses to trigger immediate benefit payments to them under the terms of the plan and the QDROs. The court noted that ERISA § 206(d)(3) limits the DRO qualification determination to whether the state court decree calls for benefit payments outside the terms of the plan. The court then rejected Continental’s expanded reading of § 206, concluding that plan administrators may not question the good faith intent of participants submitting DROs for qualification.