August ERISA Litigation Update:

Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. A sample of recent cases is provided below.
The most common type of ERISA case for approximately the past fourteen years has involved retirement plan participants’ allegations that plan fiduciaries caused participants to pay excessive record keeping and investment fees and included poorly-performing investment options in the plan. Recent cases in this category include the following:

  • Covington v. Biogen Inc. (complaint filed in the U.S. District Court for the District of Massachusetts on July 14, 2020);
  • Rice v. Quest Diagnostics Inc. (complaint filed in the U.S. District Court for the District of New Jersey on July 28, 2020); and
  • Nicolas v. The Trustees of Princeton University (settlement agreement submitted to the U.S. District Court for the District of New Jersey on July 28, 2020).

Other types of recent ERISA cases are discussed below.

United States v. Vo (federal grand jury indictment issued on July 7, 2020 in the U.S. District Court for the Central District of California):  During 2019, the defendant allegedly obtained personal identifying information of certain Boeing employees, along with information about their retirement plan accounts, and then made fraudulent withdrawal requests for checks and electronic money transfers from those accounts. (He attempted to obtain approximately $783,328 from those accounts, and he actually obtained approximately $360,847.) The defendant then allegedly deposited the fraudulently-obtained funds in a bank account that he opened in a Boeing employee’s name. If convicted of all charges, the defendant would face a statutory maximum sentence of 92 years in federal prison. Of course, given that only an indictment has been issued at this point, the defendant is presumed innocent in this criminal case unless and until proven guilty beyond a reasonable doubt.

Scalia v. Bridgeport Health Care Center, Inc. (consent judgment and order approved by the U.S. District Court for the District of Connecticut on July 13, 2020):  The main defendant in this case, who is an officer of the plan sponsor of a retirement plan and a welfare benefit plan, also served as a fiduciary and the plans’ administrator. He failed to collect employer contributions owed to the health plan, misrepresented to plan participants that they had health care coverage, and mismanaged the plan sponsor’s finances. That conduct resulted in unpaid health claims for employees. In addition, the defendant diverted over $4 million of retirement plan assets to himself and to other entities.
Under the consent judgment and order’s terms:

  • The defendant will pay a total of $2,526,392 to the health plan to appoint a claims administrator and to resolve numerous unpaid health claims;
  • The defendant will pay $840,565 to the retirement plan, in addition to $4,141,950 that he has already paid to the plan as a result of the conduct at issue;
  • The DOL will assess $490,057 in civil money penalties to the defendant; and
  • The defendant agrees not to serve as a fiduciary of any ERISA-covered plan in the future.

In a separate but related criminal case, the defendant pled guilty to embezzlement and tax charges in January 2020.  He awaits sentencing.

Lyn M. v. Premera Blue Cross (procedural ruling issued on July 24, 2020 by the U.S. Court of Appeals for the Tenth Circuit):  The plaintiffs are the parents of a teenage girl who obtained medical care, which the plaintiffs argue should be covered by the applicable ERISA plan. However, the defendants denied their claim for benefits under the plan. They then sued the defendant under ERISA, claiming an improper denial of medical benefits. The district court granted summary judgment to the defendant, by applying the arbitrary-and-capricious standard of review to the defendant’s decision to deny medical benefits. Under that standard, the court can only overrule the defendant’s decision if it was arbitrary and capricious.

The appeals court ruled, however, that the district court erred by applying that standard of review. As support for that conclusion:

  • The court began its analysis by noting that under applicable case law, “if a plan administrator enjoys discretionary authority under the plan, we apply a deferential standard, affirming the decision unless it is arbitrary and capricious.”
  • The court then stated that although the defendant had a document granting it discretionary authority to “interpret the provisions of the Plan and the facts and circumstances of claims for benefits,” that document was not distributed to plan participants (e.g., the plaintiffs).
  • Although the summary plan description was distributed to participants, it failed to mention the above-referenced document and failed to mention that the plan administrator reserved discretion to interpret the plan’s provisions and the facts involved in benefits claims.
  • The court then opined that a plan administrator must “disclose its discretionary authority or the existence of a document with information about the discretionary authority” to participants.

In sum, given that the defendant has not shown it provided notice to participants regarding its reservation of discretionary authority, the appeals court remanded the case to the district court. That court must now apply the less-employer-friendly de novo standard of review to the defendant’s decision to deny benefits to the plaintiffs’ daughter. Under that standard, the district court will have to review the defendant’s decision from the beginning, without deferring to the defendant’s judgment.