• In Franco v. Connecticut General Life Ins. Co., No. 07-cv-6039, 2011 U.S. Dist. LEXIS 109022 (D.N.J. Sept. 23, 2011), plaintiffs, who were plan subscribers, health care providers, and several associations whose members consisted of out-of-network ("ONET") providers who provided ONET services to patients insured by CIGNA, alleged that CIGNA violated its contractual obligations to pay for ONET services at the "usual, customary and reasonable" ("UCR") rate by relying on the flawed database maintained by Ingenix, which generated artificially low UCRs to underpay ONET benefits to CIGNA plan members. Plaintiffs also alleged that the failure to disclose the Ingenix database and/or CIGNA's ONET processing methodology violated ERISA Sections 102, 404, and 503. In granting in part and denying in part motions to dismiss filed by the various defendants, the court concluded, inter alia, that the provider plaintiffs failed to establish that they had standing as assignees of their patients' rights because the provider plaintiffs had not sufficiently alleged that the assignments encompassed the patient's legal claim to benefits under the plan (i.e., the limited assignment of a right to receive reimbursement from an insurer vs. a complete assignment of a subscriber's health insurance benefits). The court found the provider plaintiffs' allegations conclusory and determined that the assignment theory was belied by the fact that ONET providers reserved the right to collect their entire actual charges from patients and that the subscriber plaintiffs were also asserting claims to recover for the same injuries. The court also concluded that: (1) Section 102 does not require that a SPD include information about the methodology for determining UCR or for calculating ONET claims; (2) Section 404 does not require disclosure of the data used to determine the UCR or prevailing fee for a service if knowing that the plan obtained its UCR data from Ingenix would not have impacted the participant's ability to make an informed decision about whether to seek treatment from an ONET provider; and (3) Section 503 does not require a plan to explain the ONET processing methodology underlying the claim decision.

Waiver of Spousal Rights:

  • In Burns v. Orthotek, Inc. Employees' Pension Plan & Trust, --- F.3d ----, No. 10-1521, 2011 WL 4089798 (7th Cir. Sept. 15, 2011), the Seventh Circuit held that a participant, who was also the plan administrator, named fiduciary, and plan representative of the pension plan he created and sponsored for his orthodontics practice, could witness his spouse's written consent to his designation of his sons as beneficiaries of his pension benefits. ERISA provides that a plan participant may elect to waive his spousal-survivor annuity and designate a beneficiary other than his surviving spouse only if the spouse of the participant consents in writing to the designation, the election designates a beneficiary, and the spouse's consent acknowledges the effect of such election and is witnessed by a plan representative or notary. Consistent with these provisions, prior to his death, the participant signed three related plan documents wherein he waived his right to a joint and survivor annuity and designated his sons as beneficiaries. The participant's wife signed and consented to both the waiver and designation. However, after her husband's death, she filed a claim for benefits asserting, among other things, that her consent was not "witnessed" by a plan representative because her husband signed the form the day before she did. The Seventh Circuit disagreed, concluding that when a plan participant, who is also the plan representative, signs a beneficiary designation form requiring spousal consent, gives the form to his consenting wife, who in turn signs it in multiple places acknowledging her consent and returns it to her husband, the plan was within its discretion to find that the participant, as a plan representative, verified the authenticity of his wife's signature on the written consent form and this satisfied ERISA's witness requirement even though he did not sign the form a second time as a "witness."

Recoupment and Reimbursement:

  • In Bd. of Trustees of Plumbers & Pipefitters Local Union No. 9 Welfare Fund v. Drew, No. 10-4367, 2011 WL 4152308 (3d Cir. Sept. 16, 2011), the court held that ambiguities in the controlling documents precluded the entry of summary judgment in favor of a plan seeking to enforce its subrogation provision under ERISA Section 502(a)(3). A plan participant was injured in a car accident and the plan paid more than $180,000 in medical expenses on his behalf. Some years later, the participant settled his tort and accident insurance claims for $900,000. The Third Circuit agreed with the plan that it had a right to reimbursement under the plan terms, and that New Jersey's insurance laws limiting subrogation were preempted by ERISA. However, ambiguities in key documents, including the summary plan description and a modified repayment agreement between the fund and the participant, were required to be resolved before a decision could be rendered. Thus, the court remanded for consideration and resolution of these ambiguities.
  • In Int'l Longshore & Warehouse Union-Pacific Maritime Assoc. Welfare Plan Bd. of Trustees v. South Gate Ambulatory Surgery Center, LLC, No. C 11-01215, 2011 WL 4080054 (N.D. Cal. Sept. 12, 2011), the court held that the fiduciaries of a welfare plan asserted a viable claim for equitable relief under ERISA Section 502(a)(3) to recover monies overpaid or erroneously paid to medical providers as assignees of plan participants. The parties did not dispute plaintiffs' fiduciary status, and the plan contained a provision explicitly authorizing the fiduciaries to collect overpayments due to "error, misrepresentation, or fraud." Citing Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356 (2006) (holding ERISA Section 502(a)(3) permits only traditional forms of equitable relief, and allowing a plan to enforce its subrogation provision against a participant), the court determined that the complaint asserted a plausible claim for relief because the plan arguably created an equitable lien by agreement over the payments at issue. The court rejected the providers' argument that the fiduciaries' claims were not equitable, noting that the lack of specifically identifiable funds was not an impediment to recovery because tracing is not required for equitable liens by agreement.

Breach of Fiduciary Duties:

  • In Clark v. Feder, Semo & Bard, P.C., --- F. Supp. 2d ----, No. 07-0470, 2011 WL 3912941 (D.D.C. Sept. 7, 2011), the district court held a plan did not violate ERISA's anti-cutback rule by terminating an underfunded cash balance pension plan and paying plaintiff approximately half the present value of the annuity to which she would otherwise have been entitled at normal retirement age. In so ruling, the court noted the plan contained a termination provision providing for the pro rata distribution of benefits from available funds, and the plan was not amended to facilitate the termination or reduce distributions. The court also ruled that the plan's distributions to highly compensated individuals, in violation of regulations that could cause the plan to lose its qualified income tax status, could not support a claim for breach of fiduciary duty. On the other hand, the court ruled the plaintiff could pursue breach of fiduciary duty claims based on the plan's actuarial assumptions that allegedly led to the plan's underfunding, and based on the plan's methodology for apportioning the reduced distributions, plus a reporting and disclosure claim based on the SPD's failure to adequately inform participants of the consequences of a plan termination. The court also ruled the plaintiff's claims could proceed under Section 502(a)(1)(B) or 502(a)(3), but not both, and that plaintiff could seek monetary relief as equitable surcharge after the Supreme Court's ruling in CIGNA Corp. v. Amara,131 S. Ct. 1866 (2011).
  • In Kujanek v. Houston Poly Bag I, Ltd., ---F.3d---, No. 10-20664, 2011 WL 4445993 (5th Cir. Sept. 27, 2011), the Fifth Circuit held that a plan administrator breached its fiduciary duty of loyalty when it wrongfully withheld plan documents and instructions needed by a participant to access profit-sharing account benefits. The Court affirmed the district court's award of damages under ERISA Section 502(a)(2) "to restore plan losses," in an amount equal to the loss in value of the account during the time that the administrator had failed to provide the necessary documents and information. The fiduciary breach occurred in connection with a failure to respond to discovery requests in a prior state court suit between the participant and the employer, who was also the plan administrator. Although the state court suit did not involve the employer in its capacity as plan administrator, the court held that the administrator knew or should have known that it needed to distribute plan documents to the participant. ERISA Section 502(c) statutory disclosure penalties were not triggered by the failure to respond to the discovery request, however, because it was not a "written" request under ERISA to the plan administrator. Finally, the Fifth Circuit affirmed the award of attorney's fees to the participant, concluding that he had obtained a minimum degree of success on the merits, and that the culpability of the employer/plan administrator was substantial.

Benefit Claims:

  • In Frye v. Thompson Steel Co., --- F.3d ----, No. 10-1900, 2011 WL 3873769 (7th Cir. Sept. 2, 2011), the Seventh Circuit reaffirmed that trial courts must defer to reasonable plan interpretations by fiduciaries vested with discretionary authority. Frye suffered workplace injuries resulting in workers' compensation settlements of more than $83,000. When Frye retired, he was informed that the settlement payments triggered the plan's pension offset provision, such that pension benefits would be deferred for more than ten years. The trial court held that applying the pension offset was arbitrary and capricious, finding that the plan's terms were ambiguous and that the fiduciaries improperly resolved the ambiguity. Reversing, the Seventh Circuit held that the reconciliation of conflicting plan provisions is precisely the task entrusted to plan administrators vested with discretion, and the decision to offset Frye's pension benefits was reasonably supported by the terms of the plan. Proper application of the abuse of discretion standard thus meant that the fiduciary's interpretation should have been upheld, even if the trial court could have divined a different meaning from its interpretation of the plan.
  • In Daft v. Advest, Inc., --- F.3d ----, Nos. 08-3212 & 10-3151, 2011 WL 4430852 (6th Cir. Sept. 23, 2011), the Sixth Circuit held that remand to the plan administrator was required to determine whether a deferred compensation plan was a top-hat plan, and thus exempt from ERISA's vesting requirements, because the administrator failed to apply the proper legal standard, failed to consider certain relevant factors, and the administrative record lacked certain relevant facts. In so ruling, the Sixth Circuit vacated the district court's award of benefits, which hinged on the determination of whether the plan was a top hat plan, and explained that the district court had an "obligation to remand," despite the fact that statutory violations were alleged and the district court found an abuse of discretion. The Sixth Circuit also held that the issue of whether a plan is an employee benefit plan governed by ERISA is a substantive element of an ERISA claim, rather than a jurisdictional issue that could deprive a federal court of subject matter jurisdiction. Thus, by failing to timely raise the issue, defendants had waived it.
  • In Helton v. AT&T, Inc., No. 10-0857, 2011 WL 4369054 (E.D. Va. Sept. 16, 2011), the district court awarded retroactive early retirement benefits to a participant based on its determination that the plan administrator abused its discretion in denying the participant's claim for early retirement benefits for failure to timely request them, without meaningfully considering that the participant claimed not to have received notice that early retirement benefits could be available. The court also held that the plan administrator violated ERISA's reporting and disclosure provisions by failing to distribute the SPD that contained the relevant information about the availability of early retirement benefits to deferred vested participants such as plaintiff. Further, the court held it was a breach of fiduciary duty to inadequately inform the plaintiff, in response to her inquiry, that she could be eligible for early retirement benefits prior to age 65. The court declined to award monetary relief for the breach of fiduciary duty because the participant recovered on her claim for benefits, finding that "double recovery" was not appropriate equitable relief.

Employer Stock Drop:

  • In Kenney v. State Street Corp., No. 09-10750, 2011 WL 4344452 (D. Mass. Sept. 15, 2011), the district court held a plaintiff, on behalf of a purported class, could file a second amended complaint to reassert a previously-dismissed breach of fiduciary duty claim alleging it was imprudent to continue to offer company stock as an investment option in the 401(k) plan. The court ruled the amended complaint's claim was plausible because it alleged detailed facts regarding the company's allegedly risky investments, the investments' importance to the company's continued viability, and how and when the fiduciaries should have realized that offering company stock was imprudent. In so ruling, the court refused to apply the Moench presumption of prudence at the pleadings stage, noting the First Circuit has not adopted it, and refused to certify the issue for interlocutory appeal. On the other hand, the court held the plaintiff's breach of fiduciary duty claim based on misrepresentations or omissions would fail, and could not be reasserted, because plaintiff did not allege he relied on the misrepresentations, a required element even after the decision CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011).

Affordable Care Act:

  • In Liberty University, Inc. v. Geithner, 10-2347-cv, 2011 WL 3962915 (4th Cir. Sept. 8, 2011) and Virginia ex rel. Cuccinelli v Sebelius, 11-1057-cv, 2011 WL 3925617 (4th Cir. Sept. 8, 2011), the Fourth Circuit avoided deciding the issue of whether the Affordable Care Act's minimum coverage provision, which requires that all applicable individuals maintain minimum essential heath insurance coverage or pay a fine, is constitutional pursuant to Congress's power to regulate interstate commerce. In Liberty University, the Court declined to rule on the issue, holding instead that the Act's minimum coverage provision constituted a tax within the meaning of the Anti-Injunction Act, and thus, the Court was barred from adjudicating a pre-enforcement action "seeking to restrain the assessment of a tax." In Cuccinelli, the Court ruled that the Commonwealth of Virginia did not have standing to sue because its basis for standing, namely that the minimum coverage provision conflicted with its state law, was without merit and did not give rise to a cognizable injury. On October 4, 2011, the Attorney General of Virginia filed a petition of certiorari asking the United States Supreme Court to review the Fourth Circuit's ruling with respect to both the standing issue and the merits of the case. So, while the Fourth Circuit may have sidestepped ruling on the constitutionality of the minimum coverage provision for now, the issue may eventually be heard by the United States Supreme Court because in addition to the petition for certiorari filed in this case, other petitions have also been filed in similar cases, including one by the plaintiffs in the case before the Sixth Circuit Court of Appeals and the other by the government in the case before the Eleventh Circuit Court of Appeals. For a more detailed discussion of this case and related cases currently before other Appellate Courts, please see our June, July, and August editions of the Newsletter.

New York's Anti-Subrogation Law:

  • In HealthNow New York, Inc. v. New York, 10-4094-cv, 2011 WL 4014303 (2d Cir. Sept. 15, 2011), the Second Circuit ruled that HealthNow did not have standing to sue the Attorney General of New York in a suit seeking a declaration that the State's Anti-Subrogation law, which prevents benefit providers from recovering medical expenses paid to personal injury plaintiffs who have received settlements or awards, is invalid. The Court held that HealthNow lacked standing because: (i) it could not demonstrate that its injury, i.e., its inability to be reimbursed for medical expenses paid due to the Anti-Subrogation Act, was caused by any action of the Attorney General; and (ii) the Attorney General had not threatened any action against HealthNow to prevent it from pursuing recovery of medical expenses paid.

Section 510 Claim:

  • In Jenkins v. The Union Labor Life Ins. Co. ("ULLICO"), 10-cv-7361, 2011 WL 3919501 (E.D. Pa. Sept. 7, 2011), the court ruled that participants of ULLICO's defined benefit plan (the "Plan") could proceed with their ERISA claim against their former employer, ULLICO, which was still responsible for paying benefits under the Plan, because plaintiffs were able to demonstrate through the use of circumstantial evidence that plaintiffs' current employer, Amalgamated Life Insurance Company, terminated their employment to avoid paying benefits three months before their benefits were to become vested. The court ruled that because ULLICO and Amalgamated misled participants about vesting requirements and Amalgamated terminated all former ULLICO employees on the same day, the court could "plausibly infer that Amalgamated acted with specific intent to terminate plaintiffs in order to prevent them from vesting in the defined benefit plan in violation" of ERISA. Notably, the court dismissed plaintiffs' claim for benefits under Section 501(a)(1)(B) of ERISA, holding that they were required to exhaust administrative remedies because this was not a claim solely to enforce statutory rights under ERISA, but instead sought an award of benefits from the plan.


  • In Boos v. AT&T Inc., 643 F.3d 127 (5th Cir. 2011), petition for cert. filed, 80 U.S.L.W. 3133 (U.S. Sept. 1, 2011) (Nos. 11-288, 11A166), plaintiffs filed a petition for writ of certiorari asking the Supreme Court to review the issue of whether the Fifth Circuit Court of Appeals improperly created its own test of determining whether a plan is covered by ERISA by ruling that because the plan's "primary thrust" was something other than to provide income to retirees, the plan was not covered by ERISA. The plaintiffs argued that ERISA provides that any plan that provides retirement income is an ERISA plan, and thus the plan at issue, which did provide some retirement income to its participants, should be covered by ERISA. For a more detailed description of the Circuit Court's ruling, see the July edition of the Newsletter.