Rulings

  • In Burke v. LASH Work Environments, Inc., No. 10-1139-cv, 2011 WL 286188 (2d Cir. Jan. 31, 2011), the Second Circuit reversed the dismissal, for want of federal subject matter jurisdiction, of a claim that defendants had breached a settlement agreement relating to ERISA withdrawal liability claims. The court found that there was subject matter jurisdiction because, on its face, the complaint asserted various ERISA claims.
  • In Solis v. Malkani, No. 09-1383, 2011 WL 343949 (4th Cir. Feb. 4, 2011), the Fourth Circuit ruled that the trial court had acted with the scope of its equitable powers by (i) imposing contempt sanctions on the breaching fiduciary for failing timely to remit payment of nearly $500,000 in fees to the independent fiduciary, and (ii) authorizing the replacement fiduciary to terminate the ERISA plan at issue. The independent fiduciary had been appointed to administer the plan following a ruling finding that the named fiduciary had repeatedly breached the duty of loyalty.
  • In Garcia v. Best Buy Stores, L.P., No. 10-20243, 2011 U.S. App. LEXIS 2218 (5th Cir. Feb. 2, 2011), the Fifth Circuit affirmed the district court’s ruling that Texas’s notice-prejudice rule was preempted with respect to its application to a self-funded medical plan. The plaintiff claimed he was injured on the job and submitted a claim to Best Buy’s occupational health benefits plan. Best Buy denied the claim because Garcia failed to comply with the plan’s requirement that injuries be reported within twenty-four hours. Garcia filed suit, arguing that the Texas notice-prejudice rule required Best Buy to prove that it suffered actual prejudice before asserting a defense relating to the failure to timely notify Best Buy of the claim. On appeal, the Fifth Circuit found that the Texas notice-prejudice rule regulated insurance within the meaning of ERISA’s savings clause. However, because Best Buy’s plan was self-insured and ERISA’s deemer clause exempts self-funded ERISA plans from state laws that regulate insurance, the court held that Texas’s notice-prejudice rule was not applicable to Garcia’s claim.
  • In Crowell v. CIGNA Group Life Ins., No. 09-51086-cv, 2011 WL 365284 (5th Cir. Feb. 7, 2011), the Fifth Circuit affirmed the district court’s refusal to enforce a settlement agreement reached between Life Insurance Company of North America (“LINA”) and a participant of short-term and long-term disability plans it administered, finding that there was no “meeting of the minds” among the parties. During settlement negotiations, LINA was under the impression that it was negotiating the resolution of Crowell’s claims for both past and future claims for benefits since Crowell’s complaint sought to recover past benefits due and future benefits, and his demand letter referenced both past and future claims. Crowell, however, had no intention of releasing his future claims to benefits under the plans. After LINA filed a Notice of Settlement with the court, but before it distributed the settlement payments to Crowell, the parties discovered that they misinterpreted each other’s legal positions. Crowell nevertheless requested the court to enforce the settlement agreement for payment of his past claims, while preserving his right to bring future claims. The district court denied Crowell’s motion and the Fifth Circuit affirmed, finding that “Crowell and LINA were not negotiating the same claims and therefore, … the putative settlement agreement does not reflect a meeting of the minds.”
  • In Kenseth v. Dean Health Plan, Inc., No. 08-00001 (W.D. Wis. Feb. 14, 2011), a district court granted summary judgment with respect to a former plan participant’s breach of fiduciary duty claim, finding that the remedy sought — payment of medical expenses the participant was told the plan would cover — is not “appropriate equitable relief” under ERISA § 502(a)(3). The ruling followed a decision by the Seventh Circuit, 610 F.3d 452 (7th Cir. 2010), which found that defendant had breached its fiduciary duty, but expressed skepticism that any relief was available. In its ruling, the district court explained that compensatory damages are never “equitable,” whether recovered from a fiduciary or a nonfiduciary. The court also held that the relief sought was not “appropriate” because plaintiff had failed to show that her medical expenses would have been covered by the plan if she had not been misinformed regarding plan coverage; nor had she shown that relief would not be available via other provisions of ERISA, such as § 502(a)(1)(B).
  • In Womack v. Orchids Paper Products Co. 401(k) Savings Plan, No. 09-748, 2011 WL 672565 (N.D. Okla. Feb. 15, 2011), a district court held that an employer breached its fiduciary duty by failing to transmit a 401(k) plan participant’s investment directions to the plan’s trustee. In so ruling, the court held that a prudent fiduciary would not have overlooked the directions, which the participant submitted to her employer with other forms as part of the plan’s transition to a new trustee. As a result of the mistake, plaintiff’s 401(k) plan account was invested in the plan’s qualified default investment alternative, and decreased in value by approximately $100,000 during the next seven months. Summary judgment was granted against the employer, as the named plan administrator, and the employer’s CEO and CFO as designated fiduciaries, for their failure properly to supervise and train the employee who mishandled plaintiff’s forms. A bench trial will be held to determine damages.
  • In Dann v. Lincoln National Corporation, No. 08-5740, 2011 WL 487207 (E.D. Pa. Feb. 10, 2011), a stock-drop case, the district court granted plaintiffs’ motion to strike certain of defendants’ allegedly “bare bones” affirmative defenses as insufficiently pled because they failed to allege legal elements and lacked factual support. The court struck (without prejudice and with leave to amend) the statute of limitations defense, and a defense alleging the plan administrator had discretion to interpret the plan and make factual determinations. The court refused to strike the “loss causation” and/or Section 404(c) defenses. It explained that, although such defenses may not technically be “affirmative,” because plaintiffs bear the burden to prove a breach of fiduciary duty caused a loss to the plan, they “go to the heart” of fiduciary breach claims, as fiduciaries are not liable for plan losses that result from a participant’s investment choices.
  • In Duffy v. Modern Waste Systems Corp., No. 09-cv-0655, 2011 WL 573564 (E.D.N.Y. Feb. 14, 2011), three employers and their owners were held jointly and severally liable for unpaid contributions to a multiemployer pension and welfare fund. Although only one employer signed a collective bargaining agreement requiring contributions to the fund, the district court ruled the three employers constituted a single employer because they shared personnel, equipment, management, office space, and customers; and the companies constituted a single bargaining unit because they shared professional and administrative services, management, customers, and employees with similar working conditions, job duties, and locations. The companies’ owners were held personally liable because they “dominated” the companies’ management and abused their corporate status to such an extent that the district court ruled their corporate veils should be pierced.
  • In Am. Dental Ass’n v. Wellpoint Health Network Inc. (In re Managed Care Litig.), No. 02-cv-22027, 2011 WL 675540 (S.D. Fla. Feb. 16, 2011), the court dismissed dental providers’ claims for additional reimbursement because of their failure to exhaust administrative remedies. The dentists claimed entitlement to additional fees based on the plan’s reliance on an allegedly flawed database to calculate usual and customary rates for out-of-network services. One dentist inquired about the failure to pay his usual and customary fee and requested additional information from the plan, but he failed to file a formal appeal pursuant to the plan’s procedures. The court determined that the failure to appeal could not be excused as “futile” based on plaintiffs’ presumption that the outcome of the appeal would be adverse. Rather, the futility exception would be applicable only if plaintiff was unable to present a claim for administrative review.
  • In England v. Marriott International Inc., No. 10 Civ. 01256, 2011 WL 570128 (D. Md. Feb. 15, 2011), a district court granted, in part, and denied, in part, a motion to dismiss plaintiffs’ claim that Marriott violated ERISA by failing to bring its retirement stock awards program into compliance with ERISA and to communicate with beneficiaries about their stock reward benefits at the time of their retirement. The court determined, among other things, that the members of the putative class who terminated their employment with Marriott prior to the passage of ERISA could not state a claim based upon ERISA’s vesting requirements because ERISA does not “apply retroactively to persons who terminated employment before the requirements became effective.” However, the court rejected defendants’ argument that the other plaintiffs’ claims were time-barred, reasoning that because Marriott denied that ERISA governed the rewards program until 2010, the statute of limitations did not run before then.
  • In Moss v. Unum Life Ins. Co., No. 5:09-cv-209, 2011 WL 321738 (W.D. Ky. Jan. 28, 2011), the court held that the fiduciary exception to attorney-client privilege did not require disclosure of documents shared between in-house counsel and plan fiduciaries prior to the final administrative decision with respect to a claim for benefits, but after a lawsuit had been filed, because the documents related to the lawsuit rather than to plan administration.
  • In Theis v. Life Ins. Co. of N. Am., No. 09-cv-98 (W.D. Ky. Feb. 4, 2011), the court held that the fiduciary exception to attorney-client privilege required the disclosure of certain documents related to payment of accidental death policy benefits created during administrative exhaustion of plaintiff’s claim, but that the fiduciary exception did not require production of a document created after the final administrative benefit determination in response to a letter containing a “final demand for payment” and threatening litigation.
  • In Estate of Boss v. Boss, No. 5:10-CV-190, 2011 WL 482874 (W.D. Ky. Feb. 4, 2011), the district court held that an estate’s breach of contract claim for pension benefits brought against a deceased participant’s ex-wife was not preempted by ERISA, and remanded the case to state court. Prior to divorcing, the plan participant named his wife as the beneficiary of his pension plan. Pursuant to a marital settlement agreement, the wife waived her right to the participant’s pension benefits. The participant never changed the beneficiary designation for his pension plan and upon his death, his benefits were paid to his ex-wife. The deceased’s estate brought suit in state court against the ex-wife, alleging that she breached the marital settlement agreement by accepting the pension benefits and not relinquishing them to the estate. The ex-wife removed the case, arguing that the claim was completely preempted by ERISA because the estate was seeking to recover benefits under an ERISA plan. The district court concluded that the breach of contract claim was not preempted by ERISA because the estate only sought to recover the pension benefits after they had been distributed to the rightful beneficiary. The court reasoned that the estate was not challenging the terms of the plan or seeking to enforce or clarify rights under the plan, but instead was seeking to enforce the terms of the marital settlement agreement.
  • In Mezyk v. U.S. Bank Pension Plan, No. 3:09-cv-384-JPG, 2011 WL 147303 (S.D. Ill. Feb. 11, 2011), the district court certified two classes of participants challenging the conversion of their traditional defined benefit plan to a cash balance plan. Plaintiffs, participants who were forty-five years old or older when the conversion took place, challenged a plan provision that applied a deeper discount rate to their accounts than to the accounts of younger participants. They also asserted that the plan failed to properly notify them of the plan amendments, in violation of ERISA’s statutory notice provisions. Plaintiffs sought to certify a class of all participants and a subclass of all participants age forty-five and older. Defendants argued that there were intra-class conflicts that prevented the named plaintiffs from serving as class representatives with respect to the statutory notice claims because some participants under age forty-five received greater benefits under the cash balance plan and would not want the conversion declared void. The court found that while defendants’ objections were conceivable, they failed to point to a single person who received a benefit that was higher than the benefit he or she would have received if the prior plan remained in effect. The court did, however, exclude three participants who previously brought an unsuccessful lawsuit against defendants for the same claims.

Settlements

  • In Schmidt v. AK Steel Corp. Pensions Agreement Plan, et al., No. 09 Civ. 464 (S.D. Ohio Feb. 9, 2011), the court approved a settlement between AK Steel Corp. and a class of its union retirees, resolving the retirees’ claim that the AK Steel Corp. Pensions Agreement Plan violated ERISA by failing to employ a “whipsaw” when calculating the retirees’ lump-sum distributions. AK Steel Corp agreed to pay 42 retirees approximately $650,000 to make up for the difference between their lump-sum distributions and what they would have been paid had the company used the “whipsaw” when calculating the retirees’ payments. Included in the settlement amount are attorney’s fees in the amount of $95,000.
  • In In re PPF Bancorp Inc., No. 08 Civ. 13127 (D. Del. Bankr. Feb. 3, 2011), the bankruptcy court approved a settlement between PFF Bancorp Inc. (PFF) and a class of participants in its ERISA pension plans, resolving the participants’ claims that PFF violated ERISA’s fiduciary requirements by imprudently investing in company stock while it was known that the company’s value was artificially inflated. PFF is slated to pay the class $3 million and potentially as much as an extra $400,000 from the proceeds of the class’s bankruptcy claim. The judge in the district court in which the ERISA litigation is pending must grant final approval before the settlement is finalized.
  • In In re Ford Motor Company ERISA Litigation, No. 06-cv-11718 (E.D. Mich. Feb. 15, 2011), the district court give final approval to a class action settlement for “stock drop” claims brought by employees of Ford. This settlement is different from most in that it does not establish a monetary fund. Instead, the parties fashioned a unique settlement agreement that requires Ford to implement remedial provisions that will improve the ability of the class to more effectively save for retirement with their 401(k) plans. Specifically, the settlement requires that: (1) Ford provide online financial advice tools for a period of four years following the settlement, enhance communications to active participants regarding the importance of diversification, and provide third-party fiduciary training for Ford’s Investment Committee and Investment Process Committee; (2) within ninety days of the settlement, Ford must provide notice to active participants when their investment in Ford stock exceeds 20% of their total holdings; and (3) if Ford elects during the three years following the settlement to match employee contributions to the plan, the match must be made in cash and invested in any applicable investment option under the plan designated by the participant, or, if none is selected, the default investment option. The settlement does provide $2,500 for each named plaintiff and attorney’s fees of $1,475,000 for plaintiffs’ counsel.
  • In In re RadioShack “ERISA” Litigation, No. 08-MD-1875 (N.D. Tex. Feb. 8, 2011), the district court approved a $2.4 million settlement of “excessive fee” breach of fiduciary duty claims, wherein a class of 35,000 participants alleged it was imprudent for Radio Shack’s 401(k) plan to offer certain mutual funds as investment options in light of their below-average returns and fees. The settlement comes almost five years after the first case in the multidistrict litigation was filed, and almost three years after the class’s stock-drop claims were dismissed. See 547 F. Supp. 2d 606 (N.D. Tex. 2008). As part of the settlement, RadioShack will provide $1.6 million to the mandatory, non-opt-out class, two years of outside investment advice to the plan participants, and additional training to the plan fiduciaries. In In re Diebold ERISA Litig., No. 5:06 CV 0170 (N.D. Ohio Feb. 11, 2011), the district court approved a $4.5 million settlement of an action brought by participants in Diebold’s 401(k) plan who invested in Diebold stock. The complaint alleged that the defendants breached their fiduciary duties under ERISA by continuing to offer Diebold stock in the 401(k) plan when they knew that the company’s stock was artificially inflated. The settlement followed a district court ruling in May 2008, denying defendants’ motion to dismiss, and rejecting defendants’ argument that a “presumption of reasonableness” should apply at the pleadings stage of the litigation, and a subsequent ruling in March 2009, denying plaintiffs’ motion for class certification.

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