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Three new Supreme Court cases
February 19, 2008 by Ross Runkel at LawMemo
US Supreme Court will hear case on union's waiver of court forum for statutory claim.
14 Penn Plaza LLC v. Pyett (Certiorari granted February 19, 2008) [Details, briefs]
When employees sued claiming age discrimination, the employer filed a motion to compel them to take the case to arbitration. The employees were covered by a collective bargaining agreement which prohibited age discrimination and also said "All such claims shall be subject to the grievance and arbitration procedure [in the collective bargaining agreement] as the sole and exclusive remedy for violations." The trial court denied the motion to compel arbitration, and the 2nd Circuit affirmed. The 2nd Circuit held that "arbitration provisions contained in a [collective bargaining agreement], which purport to waive employees' rights to a federal forum with respect to statutory claims, are unenforceable."
See discussion of this case at Daily Developments in EEO Law and at ADR Prof Blog: Supreme Court hears third arbitration case this term: 14 Penn Plaza v. Pyett and at Workplace Prof Blog: Supreme Court Certs
US Supreme Court will hear case on union's use of agency fees for out-of-unit litigation.
Locke v. Karass (Certiorari granted February 19, 2008) [Details, briefs]
The Maine State Employees Association (MSEA) is the exclusive bargaining agent for certain state workers, and collects compulsory "agency fees" from non-members who are in the bargaining unit. Some of these fees are transferred to Service Employees International Union (SEIU), MSEA's national affiliate. MSEA included in its calculation of chargeable expenditures those costs of litigation (by both itself and SEIU) that was germane to collective bargaining. This meant that nonmembers contributed, through their service fees, to some litigation that was not undertaken specifically for their own bargaining unit, but rather was conducted by or on behalf of other units or the national affiliate, sometimes in other states. Included within this general category of expenditures were the salaries of SEIU's lawyers, and other costs of providing legal services to bargaining units throughout the country. Costs of litigation that was not related to collective bargaining, however, were not included in the service fees assessed to MSEA's nonmembers. The 1st Circuit held that MSEA may lawfully charge non-members for this "extra-unit litigation" so long as it is germane to the union's collective bargaining duties.
US Supreme Court will hear case on ERISA anti-alienation.
Kennedy v. Plan Administrator for Dupont Savings and Investment Plan (Certiorari granted February 19, 2008)
Decision below: 5th Cir 08/15/2007
William Kennedy's ERISA plan contained a no-alienation provision. William designated his wife Liv as the sole beneficiary. Upon their divorce, Liv agreed to be divested of all her rights. However, there was no Qualified Domestic Relations Order (QDRO). The 5th Circuit held that an ERISA Qualified Domestic Relations Order is the only valid way a divorcing spouse can waive her right to receive her ex-husband's pension benefits under ERISA.
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9th Circuit grants stay of injunction against San Francisco Health Care Security Ordinance
January 09, 2008 by Ross Runkel at LawMemo
Golden Gate Restaurant Assoc v. San Francisco (9th Cir 01/09/2008)
Trial court opinion: http://www.lawmemo.com/docs/ca-nd/GoldenGate_order.pdf
The 9th Circuit issued a 34 page decision staying an injunction that had been entered by a district court. The effect of the stay is to allow San Francisco to implement its Health Care Security Ordinance pending appeal of the district court's order. The lower court had concluded that the Ordinance is preempted by the Employee Retirement Income Security Act (ERISA).
The Ordinance's effective date is January 1, 2008. It requires private employers with 20 or more employees to make heath care expenditures of specific amounts per hour of work. The Ordinance sets out a number of non-exclusive qualifying health care expenditures, such as contributions to health savings accounts, direct reimbursement to employees for some of the expenses incurred in the purchase of health care services, payments to third parties for the purpose of provided health care services, costs incurred in the direct delivery of health care services, or payments by the employer to the City “to be used on behalf of covered employees.”
United States District Court for the Northern District of California held that the Ordinance is preempted by ERISA because it (1) it has an impermissible connection with employee benefit plans and (2) its expenditure requirements make unlawful reference to employee benefit plans.
The 9th Circuit gave three primary reasons for allowing San Francisco to enforce the Ordinance during the appeals process: (1) The City showed not only a probability of success on the merits, but also a "strong likelihood of success on the merits." (2) "The balance of hardships tips sharply in favor of the City." (3) "The public interest is served by granting a stay."
My view: The 9th Circuit is correct. It's not a question of whether the Ordinance is a wise one. It's a question of whether ERISA strips local governments of their ordinary powers. Employers who have ERISA plans can comply with the Ordinance without making any changes to their ERISA plans.
Other bloggers have their say:
- What's New in Employment Law: Ninth Circuit STAYS Injunction, Allowing SF Health Care Ordinance to Go Forward.
- Workplace Prof Blog: Flash: 9th Cir. Overturns San Francisco ERISA Preemption Decision. (Paul Secunda, of course, opines that the 9th Circuit was wrong. And, of course, I think he's wrong.)
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ERISA preempts San Francisco Health Care Security Ordinance
December 27, 2007 by Ross Runkel at LawMemo
United States District Court for the Northern District of California has held that San Francisco's Health Care Security Ordinance is preempted by ERISA. The ordinance would require private employers with 20 or more employees to make heath care expenditures of specific amounts per hour of work. The Ordinance sets out a number of non-exclusive qualifying health care expenditures, such as contributions to health savings accounts, direct reimbursement to employees for some of the expenses incurred in the purchase of health care services, payments to third parties for the purpose of provided health care services, costs incurred in the direct delivery of health care services, or payments by the employer to the City “to be used on behalf of covered employees.”
Golden Gate Restaurant Assoc v. San Francisco (N.D. California 12/26/2007)
The court granted summary judgment for the plaintiff opposing the ordinance on the grounds that (1) it has an impermissible connection with employee benefit plans and (2) its expenditure requirements make unlawful reference to employee benefit plans.
Earlier reports on this case:
- Workplace Prof Blog: San Francisco Health Law Falls to ERISA Preemption
- What's New in Employment Law?: ERISA Preempts San Francisco Health Care Ordinance
- calitics: SF's Employer Health Care Mandate Struck Down
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LaRue v DeWolff - Transcript of an ERISA case in the US Supreme Court
November 26, 2007 by Ross Runkel at LawMemo
LaRue v. DeWolff, Boberg & Associates Inc. [Details; briefs] was argued this morning in the US Supreme Court, and the transcript is available.
Click here for transcript.
If you want to save some time, Paul Secunda at Workplace Prof Blog has a pretty nice blow-by-blow description of the argument. Paul's prediction is that LaRue will win, with a 6-3 vote.
UPDATE: Paul's comments are cross-posted at SCOTUSblog.com.
Also, Stephen Rosenberg at Boston ERISA and Insurance Litigating Blog has some interesting comments on the argument. Although unwilling to predict the outcome, he points out that the Justices seemed clear that a loss to only one participant's account will be actionable, and you don't need to show a loss to most or all participants.
My view: A win for LaRue. A unanimous decision will not surprise me. Clearly a fiduciary breach that causes a loss to one participant is actionable. Although the Court could stop there, I think they will go ahead and say that the remedy LaRue seeks is "equitable" rather than "legal" and is therefore available under ERISA.
The main flaw in my prediction is that the Court could decide that LaRue did not properly plead his case.
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Will Supreme Court find a remedy for ERISA fiduciary breach?
November 25, 2007 by Ross Runkel at LawMemo
James LaRue had a 401(k) plan, but the plan's administrator didn't follow his investment instructions.
LaRue's 401(k) would have made a lot more money if the administrator had followed his instructions.
So LaRue sued DeWolff, Boberg & Associates, the administrator, claiming a breach of fiduciary duties. The suit came under ERISA, and the lower courts said that ERISA does not allow a remedy for this kind of case.
On November 26, 2007 the US Supreme Court will listen to oral arguments, and then make a decision some time in 2008. LaRue v. DeWolff, Boberg & Associates Inc. [Details; briefs] The United States Solicitor General participates in this oral argument as amicus curiae arguing in support of LaRue.
LaRue was a participant in a defined-contribution ERISA-covered 401(k) plan sponsored by his employer DeWolff. DeWolff administered the plan and thus was an ERISA fiduciary. LaRue claimed that DeWolff breached its fiduciary duties by failing to follow LaRue's instructions as to allocating funds among investment options, thus causing a loss of approximately $150,000 to his "interest in the plan."
LaRue sued under ERISA seeking to have DeWolff reimburse the ERISA plan. The trial court entered judgment on the pleadings in favor of DeWolff on the ground that the monetary relief sought by LaRue was unavailable under ERISA. The 4th Circuit affirmed on two grounds: (1) LaRue was claiming a loss to his account rather than a loss to the plan as a whole, and (2) LaRue was not seeking "equitable relief" within the meaning of ERISA Section 502(a).
The "Question Presented" in the petition for certiorari:
(1) Does § 502(a)(2) of ERISA permit a participant to bring an action to recover losses attributable to his account in a 'defined contribution plan' that were caused by fiduciary breach?(2) Does § 502(a)(3) permit a participant to bring an action for monetary “make-whole” relief to compensate for losses directly caused by fiduciary breach (known in pre-merger courts of equity as "surcharge")?
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Supreme Court denies motion to dismiss ERISA case
September 25, 2007 by Ross Runkel at LawMemo
LaRue v. DeWolff, Boberg & Associates, Inc. (motion denied 09/25/2007)
Order: http://www.supremecourtus.gov/orders/courtorders/092507pzr.pdf
Details: http://www.lawmemo.com/supreme/LaRue/
This case raises the issue of whether ERISA permit a participant to bring an action to recover losses attributable to his account in a “defined contribution plan” that were caused by fiduciary breach.
The respondent filed a motion to dismiss on the ground of mootness because the plan participant has withdrawn all his funds from the account.
The US Supreme Court denied the motion.
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Supreme Court takes ERISA fiduciary case
June 18, 2007 by Ross Runkel at LawMemo
LaRue v. DeWolff, Boberg & Associates. The US Supreme Court granted certiorari June 18, 2007. [Briefs and details]
LaRue was a participant in a 401(k) plan administered by DeWolff. LaRue's suit claimed that DeWolff breached its fiduciary duty by failing to implement his investment strategy, and sought recovery of the amount by which his account would have appreciated had DeWolff followed his instructions.
The 4th Circuit upheld judgment on the pleadings in favor of DeWolff, holding that (a) ERISA Section 502(a)(2) provides remedies only for entire plans and not for individuals, and (b) ERISA Section 502(a)(3) does not apply because LaRue was not seeking "equitable relief." The US Supreme Court granted certiorari to review the 4th Circuit judgment, and will schedule oral arguments for the Fall of 2007.
The "Questions Presented" by the certiorari petition:
1. Section 502(a)(2) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. 1132(a)(2), provides that a "civil action may be brought * * * by a participant * * * for appropriate relief under section 1109 of this title." 29 U.S.C. 1109 states that "a fiduciary with respect to a plan who breaches any * * * duties imposed upon fiduciaries * * * shall be personally liable to make good to such plan any losses to the plan resulting from each such breach."The First Question Presented is:
Does § 502(a)(2) of ERISA permit a participant to bring an action to recover losses attributable to his account in a "defined contribution plan" that were caused by fiduciary breach?
2. Section 502(a)(3) of ERISA, 29 U.S.C. 1132(a)(3), provides that a "civil action may be brought * * * by a participant * * * to obtain other appropriate equitable relief * * * to redress * * * violations" of the statute.
The Second Question Presented is:
Does § 502(a)(3) permit a participant to bring an action for monetary "make-whole" relief to compensate for losses directly caused by fiduciary breach (known in pre-merger courts of equity as "surcharge")?
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ERISA sponsor wins fiduciary argument
June 11, 2007 by Ross Runkel at LawMemo
What are the fiduciary duties when an ERISA plan sponsor terminates the plan?
If a company's union proposes merging the to-be-terminated plan into a pre-existing multi-employer plan, does the sponsor have a fiduciary duty to give this fair consideration? No, according to Beck v. PACE International Union, decided by a unanimous Court on June 11, 2007.
The reason is simple: Merger is not a permissible method of terminating a plan. The ERISA statute, as interpreted by the Pension Benefit Guaranty Corporation, does not permit merger as a method of termination because merger is an alternative to (rather than an example of) plan termination.
My view: I thought it would come out this way, but was not expecting such reliance on the Pension Benefit Guaranty Corporation's interpretation. Just another example of the Court granting strong deference to the interpretation of a federal administrative agency.
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Supreme Court will decide ERISA fiduciary case.
January 21, 2007 by Ross Runkel at LawMemo
Do ERISA fiduciary duties apply when a plan administrator decides to terminate a plan? Are there fiduciary duties as to the implementation of the termination?
The US Supreme Court announced January 19 that it will take up Beck v. PACE International Union, and a decision is expected by the end of June. [Details]
When Crown Vantage Inc went into bankruptcy its board of directors served as the administrator of Crown's 18 defined benefit pension plans. The board began considering terminating the plans by purchasing annuities. PACE, representing employees covered by 17 plans, recommended as an alternative that the plans be merged with a pre-existing multi-employer plan.
The board went forward with its termination decision by purchasing annuities for 12 plans.
PACE brought adversary proceedings in bankruptcy court claiming that Crown's board breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by failing to give adequate consideration to the merger proposal.
The bankruptcy court agreed.
Beck, the trustee in bankruptcy, appealed to the district court which affirmed.
The 9th Circuit affirmed, holding that
- The decision to terminate the plan was a business decision not subject to ERISA fiduciary obligations
- The implementation of the decision was discretionary in nature and subject to ERISA fiduciary obligations
- Crown's board breached its fiduciary duty by failing to adequately investigate the proposed merger
The US Supreme Court granted certiorari on January 19 to review the 9th Circuit judgment.
The formal question presented to the Supreme Court:
"Whether a pension plan sponsor’s decision to terminate a plan by purchasing an annuity, rather than to merge the pension plan with another, is a plan sponsor decision not subject to ERISA’s fiduciary obligations."
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ERISA preempts Maryland Health Act
January 17, 2007 by Ross Runkel at LawMemo
Maryland's Fair Share Health Care Fund Act requires certain employers to spend at least 8 percent of payroll on employee health insurance or pay the shortfall to the state. These health care expenditures can be ERISA-qualified plans, on-site medical clinics, or contributions to Health Savings Accounts.
The 4th Circuit held (2-1) that the Employee Retirement Income Security Act (ERISA) preempts the Maryland Act. Retail Industry Leaders Assoc v. Fielder (4th Cir 01/17/2007)
The court said, "Because [the Act] effectively requires employers in Maryland covered by the Act to restructure their employee health insurance plans, it conflicts with ERISA's goal of permitting uniform nationwide administration of these plans." The state argued that the Act imposes a payroll tax and then offers a credit for qualified spending to help pay for the state's medical assistance program, but the court said this was "a stretch." The court found preemption because the Act has an impermissible "connection with" an ERISA plan.
The court reasoned that "the only rational choice" for employers would be to restructure their ERISA plans, and that this was exactly the intent of the state legislature.
The court rejected the state's argument that the Act provides two options that would not affect ERISA plans: on-premises medical clinics and Health Savings Accounts. The court said the clinics "would not be a serious means," and said Health Savings Accounts are available in only limited circumstances. In addition, both would still have an impermissible "connection with" ERISA plans because employers would need to coordinate their spending with existing ERISA plans.
The DISSENT argued that the Act provides a means of compliance that does not impact ERISA plans - paying an assessment into a state fund.
[Plaintiff Retail Industry Leaders Association is an association of which Wal-Mart is a member. Wal-Mart is the only employer that is both covered by the Act and not already in compliance.]
My view: The case is wrong. The dissent is right. Whether or not the statute is a good idea, Wal-Mart does not have to fuss with any of its ERISA plans in order to comply. This case is an example of a court looking for a reason to strike down a statute it does not like by speculating as to what sort of employer choices are "rational" and by declaring that on-premises clinics would not be a "serious" choice. The Act gives Wal-Mart three non-ERISA ways to comply. The 4th Circuit makes it sound like Wal-Mart had only one way out.
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Supreme Court remands ERISA case
November 27, 2006 by Ross Runkel at LawMemo
Metropolitan Life Ins Co v. Hawkins-Dean (US Supreme Court 11/27/2006) | Order
Case below: Hawkins-Dean v. Metropolitan Life Ins Co (9th Cir 01/06/2006)
Hawkins-Dean sued an ERISA plan administrator seeking long-term disability payments under her employer's group insurance policy. The administrator first denied eligibility and then admitted eligibility for benefits, and calculated that at 60 percent of Hawkins-Dean's earnings - excluding stock options. The trial court held that the administrator had discretion under the plan and did not abuse its discretion in calculating benefits.
The 9th Circuit reversed. First, the 9th Circuit said that the administrator had discretion under the plan. Then the 9th Circuit said that the district court should have reviewed the benefits amount using a de novo standard. The court said, "MetLife's denial and subsequent concession of eligibility for disability benefits was material, probative evidence tending to show that MetLife's decision regarding the amount of benefits due to Hawkins-Dean was affected by self-interest."
The administrator petitioned the US Supreme Court for certiorari in May 2006. Later, the 9th Circuit decided Abatie v. Alta Health and Life Insurance, 458 F.3d 955 (9th Cir en banc 08/15/2006). Abatie signaled a totally different approach to ERISA cases in which a plan administrator denies benefits and (1) the wording of the plan confers discretion on the plan administrator; and (2) the plan administrator has a conflict of interest.
The US Supreme Court vacated the 9th Circuit's judgment in Metropolitan Life Ins Co v. Hawkins-Dean and remanded for further consideration in light of Abatie.
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ERISA standard of review - Big change in the 9th Circuit
August 17, 2006 by Ross Runkel at LawMemo
In Abatie v. Alta Health and Life Insurance (en banc 9th Cir 08/15/2006) Abatie sought life insurance under an employee welfare benefit plan governed by the Employee Retirement Income Security Act (ERISA). She was denied benefits, and sought judicial review. The trial court upheld the plan administrator's decision. Sitting en banc, the 9th Circuit reversed.
"We took this case en banc to reconsider our approach to ERISA cases in which a plan administrator denies benefits and (1) the wording of the plan confers discretion on the plan administrator; and (2) the plan administrator has a conflict of interest."
The court concluded that its earlier opinion in Atwood v. Newmont Gold. Co., 45 F.3d 1317 (9th Cir 1995) "misinterprets" the United States Supreme Court's decision in Firestone Tire & Rubber Co. v. Bruch, 489 US 101 (1989).
Abandoning the analysis set forth in Atwood, the court stated:
"We now establish a more comprehensive approach to ERISA cases in which a conflict of interest exists."
"We read Firestone to require an abuse of discretion review whenever an ERISA plan grants discretion to the plan administrator, but a review informed by the nature, extent, and effect on the decision-making process of any conflict of interest that may appear in the record."
"This standard applies to the kind of inherent conflict of interest that exists when a plan administrator both administers the plan and funds it, as well as to other forms of conflict."
The court also noted that
"this case requires us to consider how a court is to review an ERISA plan administrator's decision when the procedure that produced the decision did not follow all statutory requirements."
The court concluded that
"when a decision by an administrator utterly fails to follow applicable procedures, the administrator is not, in fact, exercising discretionary powers under the plan, and its decision should be subject to de novo review."
"Lesser irregularities ... do not remove the decision from abuse of discretion review, but rather should be factored into the calculus of whether the administrator abused its discretion."
The court ultimately concluded that the trial court erred under the principles established in this en banc opinion, and reversed.
Other commentary on this case:
- En Banc 9th Sets New Conflict Approch for Review Standard from Pensions & Benefits Weblog.
- 9th Cir. En Banc Formulates New Standard for ERISA Denial of Benefits Standard of Review from Workplace Prof Blog.
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Wal-Mart health care law is preempted - Part 2
July 19, 2006 by Ross Runkel at LawMemo
Why do I say the judge was wrong in holding that Maryland's Wal-Mart health care law is preempted by ERISA?
I said that here: Wal-Mart health care law is preempted.
The court opinion: Retail Industry Leaders Association v. Fielder (US District Court, District of Maryland 07/19/2006).
The judge's primary error is that he begins his analysis by declaring that the Maryland statute mandates that Wal-Mart pump more money into an ERISA plan.
Instead, one should ask the question: Does the Maryland statute mandate that Wal-Mart pump more money into an ERISA plan?
The answer: No. The Maryland statute does not mandate that Wal-Mart pump more money into an ERISA plan.
The Maryland statute mandates that Wal-Mart take 8% of its wages, and do one of the following three things. The choice is up to Wal-Mart:
- Spend it on an ERISA plan.
- Spend it on providing health care directly.
The judge quoted a federal regulation dealing with on-premises "facilities for the treatment of minor injuries or illnesses or rendering first aid in case of accidents occurring during working hours."
The judge then writes off this option as springing from the "active imagination of ... lawyers," and "utterly out of line with reality."
He seems to have a vision of neatly dressed nurses handing out aspirin tablets. That's obviously not what the regulation had in mind.
Bottom line: The judge wrote this option out of the state statute because he didn't think the legislature meant it. (A very interesting legal theory, indeed.)
- Write a check to the state government.
The judge dismisses this: While this is "theoretically true, it does not even approximate reality."
Why? Because "no rational employer would pay the state." Smart employers, given the choice, would beef up their ERISA plans rather than write a check to the state.
Bottom line: The judge wrote this option out of the state statute because Wal-Mart probably won't use it.
In the end, the judge took a statute with three options and rewrote it to contain only one option.
Now that the re-written statute requires Wal-Mart to spend money on its ERISA plan, the statute is preempted by ERISA. Nice going, Your Honor.
I have some other statutes I don't like. Could you come over and rewrite these for me?
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Wal-Mart health care law is preempted
July 19, 2006 by Ross Runkel at LawMemo
Maryland's statute requiring large employers to pay 8% of wages on health care is preempted by ERISA. Retail Industry Leaders Association v. Fielder (US District Court, District of Maryland 07/19/2006).
I think this decision is wrong, but here's what happened:
Maryland statute requires private employers with more than 10,000 employees (translation: Wal-Mart) to spend at least 8% of payroll on "health insurance costs." That means either "provide health care or health insurance."
The judge decided that this statute "has a connection with an ERISA plan and is preempted on that ground."
Essentially, the judge says there's a need to avoid multiple regulation from multiple states and localities, and the intended effect of the statute is to "force Wal-Mart to increase its contributions to its health benefit plan, which is an ERISA plan."
Sounds good, and there are US Supreme Court cases that tend to say this.
However, I think the district court erred.
The court stressed that it was looking at the "realities." I think the court should look at the legalities.
The state statute actually provides that Wal-Mart must do one of three things, only one of which has anything to do with ERISA plans. Thus, there are two ways for Wal-Mart to comply without implicating ERISA in any way.
Wal-Mart can (1) beef up its ERISA plan, (2) provide health care directly, or (3) pay the equivalent amount of money to the state.
The judge thought the realities were that Wal-Mart would beef up its ERISA plan. That's fine for realities, but the state law does not require that to happen.
Thanks to Jottings By An Employer's Lawyer for the tip.
I look forward to hearing an "I told you so" from Paul Secunda at Workplace Prof Blog
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ERISA, bigamy, and choice of laws
June 01, 2006 by Ross Runkel at LawMemo
What if the beneficiary of an ERISA plan dies leaving two spouses? Who gets the loot?
It can depend on which state's law applies.
In DaimlerChrysler Corp v. Durden (6th Cir 05/26/2006) an ERISA pension plan beneficiary died, leaving two spouses, and the plan sued for a declaration of who was the "surviving spouse" under the plan.
| Employment Law Memo notified its readers about this case on 05/31/2006. |
- The plan document provided that Michigan law should apply.
- The 6th Circuit held that Ohio law should apply.
The court applied the Restatement (2nd) of Conflicts of Laws, and found that
- Ohio had the most significant relationships to both marriages, both spouses, and the decedent
- Applying Michigan law (which presumes the validity of the second marriage) would be contrary to a fundamental policy of Ohio law (which presumes the continuation of the first marriage
- Michigan has no interest in which marriage is declared valid
The DISSENT would apply Michigan law because that was the decision of the parties and would result in greater uniformity, simplicity, clarity, and efficiency.
More comments on this case:
The ERISA Blog - SIXTH CIRCUIT DISREGARDS CHOICE OF LAW PROVISION IN PENSION PLAN TO DECIDE SURVIVING SPOUSE ISSUE
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ERISA - Sereboff, sanity, and the Supreme Court
May 21, 2006 by Ross Runkel at LawMemo
In a 9-0 opinion, the US Supreme Court breathed a bit of sanity into ERISA. Sereboff v. Mid-Atlantic Medical Services (05/15/2006). The case also says a lot about Chief Justice Roberts.
The Sereboff fact were simple:
- The Sereboffs were insured under Mid-Atlantic's ERISA-regulated medical plan. The Sereboffs were involved in an auto accident, and the plan paid them about $75,000 to cover medical expenses. The Sereboffs recovered $750,000 from the third party that caused the accident.
- The medical plan provided that in such circumstances the insured (the Sereboffs) had to pay back the amount the plan had paid on account of the injuries. Mid-Atlantic sued to recover the money.
The legal issue was whether the relief requested Mid-Atlantic was "equitable" relief under Section 502(a)(3)(B) of ERISA's civil action provision.
The Court side-stepped a lot of arcane law dealing with distinctions between "law" and "equity." The Court viewed the case as involving an "equitable lien" based on an agreement, and that lien was on specifically identifiable funds that were under the Sereboffs' control. Therefore, the relief sought was "equitable," and the Sereboffs have to pay back the $75,000.
This opinion is a tribute to Chief Justice Roberts, who wrote it. It was unanimous. The reasoning was simple. The opinion was short - 11 pages, two footnotes.
Two good extended discussions:
Workplace Prof Blog - Sereboff and the Future of ERISA Remedies
SCOTUSblog - Monday’s Decision in Sereboff v. Mid-Atlantic Medical Services
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Massachusetts plan not preempted by ERISA
April 06, 2006 by Ross Runkel at LawMemo
I take issue with Paul Secunda's prediction that part of Massachusetts' new health care statute will be preempted by ERISA. Workplace Prof Blog - Massachusetts Universal Health Care and ERISA Preemption.
| [The Statute, 145 pages] [The Conference Report, 5 pages] |
Paul's focus is on the "pay-or-play" provision. As I understand the new law, employers will be required to either provide health care for their employees, or contribute to its cost, or pay a fee of $295 per year per employee to the state. Paul's point is this:
"This is because such a law that requires employers to play or pay is related to an employee benefit plan under Section 514(a) of ERISA in that it will impact how employers will administrate and operate their health plans and will potentially lead to the uniformity interests served by ERISA to be undermined. Thereafter, the law is not saved under the Savings Clause because the law is not specifically directed against entitles engaged in insurance as that language has been defined by the Supreme Court in Miller. Consequently, the Massachusetts law will probably not be saved from ERISA preemption."
I think not. ERISA preemption applies when a state law "relates to" an ERISA plan. The US Supreme Court has made it quite clear that "relates to" does not include every possible relationship you can think of. Indeed, it could be that the Massachusetts plan has nothing at all to do with ERISA plans. This part of the statute is pointed at employers, not at ERISA plans or insurers. It may turn out that some employers are plans or are insurers, but that will be merely an accidental (and incidental) byproduct.
Paul says the pay-or-play rule will relate to an employee benefit plan because "it will impact how employers will administrate and operate their health plans." I think the opposite is true. Massachusetts is not going to tell any plan how it should be administered or operated. (It may require that "players" provide specified benefits, but that's not the same thing.) As I understand it, the plans can continue operating, and continue being administered, as they have in the past.
I agree with Paul that the statute will not be saved under the Saving Clause because it's not directed at insurance companies. However, no "saving" is necessary because it does not "relate to" in the first place.
I suppose someone will argue that employers are being coerced into having an ERISA plan. That won't fly. The facts just aren't there. The $295 per year is not a penalty. It's way less than what anybody would pay for insurance. It's the state's estimate of its own costs to treat uninsured individuals (such as those who use emergency rooms for doctor visits). There may be some good questions about the wisdom of this, but it won't result in preemption.
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Sereboff v. Mid Atlantic: Will ERISA plan get reimbursement from plan participants
March 25, 2006 by Ross Runkel at LawMemo
Where I come from an insurance company should get reimbursed when its pay-out gets replaced by a judgment from a third-party tortfeasor. But that's because I don't write statutes that distinguish between equitable relief and legal relief. Congress did just that in ERISA, so we have a split among the circuits on this.
The US Supreme Court will figure it all out in Sereboff v. Mid Atlantic Medical Services, which will be argued on March 28, 2006. Go here for briefs and the lower court opinion.
An ERISA Plan paid about $75,000 to two participants (the Sereboffs) to cover medical expenses connected to accident-related injuries. The Sereboffs recovered $750,000 in a settlement with a third-party tortfeasor, and placed those funds into an investment account. The Plan then sued the Sereboffs to get reimbursed for the benefits it had paid. The Plan sued under ERISA Section 502(a)(3) which allows a Plan to recover "other equitable relief."
The Sereboffs argued that the Plan could not recover because it was seeking "legal" rather than "equitable" relief, citing Great-West Life v. Knudson, 534 US 204 (2002). The Knudson facts were similar except that under the terms of the settlement the proceeds went into a trust for the medical care of one of the Knudsons.
The 4th Circuit held that the Plan was seeking "equitable" relief within the meaning of Great-West Life v. Knudson, and allowed the suit to go forward. The US Supreme Court will be reviewing the 4th Circuit decision.
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Maryland Wal-Mart law, and ERISA preemption
February 12, 2006 by Ross Runkel at LawMemo
Maryland's "Wal-Mart law" says companies with more than 10,000 in Maryland must either (1) spend at least 8 percent of payroll on health care or (2) contribute the difference to the Maryland Medicaid Fund.
It's called the "Wal-Mart law" because Wal-Mart is the only company that comes within the 10,000 employee requirement and does not spend at least 8 percent on health care.
Inevitably, there is a law suit challenging the new (January 12, 2006) statute. The Retail Industry Leaders Association (RILA) sued in federal court. The main claim is that the statute is preempted by the federal Employee Retirement Income Security Act (ERISA).
Here are some resources:
- The court complaint.
- RILA's legal arguments: Legal Overview: Discriminatory Health Care Mandates
- Discussion at BenefitsBlog
- Discussion at WorkplaceProf Blog
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Standard of review in ERISA benefits denial
February 07, 2006 by Ross Runkel at LawMemo
What is the standard of review for a court reviewing an ERISA-regulated benefit plan' denial of benefits?
- "abuse of discretion"?
- "de novo"?
The default rule is that review is "de novo."
The review is "abuse of discretion" if the plan gives the administrator discretionary authority to determine eligibility or benefits.
Even then, the review will be "de novo" if the plan is operating under a conflict of interest that reaches a level that the court thinks might have actually made a difference.
The 9th Circuit has ordered an en banc review of such a case and has withdrawn the earlier decision of a three-judge panel. The order: Abatie v. Alta Health & Life (9th Cir 02/06/2006).
Karla Abatie sued the administrator of an ERISA-regulated benefit plan for denying her claim for life insurance benefits. The trial court held that "abuse of discretion" was the standard of review, and denied Abatie's claim.
A 9th Circuit panel affirmed (2-1). Abatie v. Alta Health & Life (9th Cir 08/31/2005) (this opinion has been withdrawn, but you can still read it).
The DISSENT argued that "de novo" was the correct standard of review on the grounds that the administrator had a conflict of interests, and violated ERISA's procedural protections by ignoring a probative deposition and by adding an additional reason late in the internal appeals process.
For more, see my original source Workplace Prof Blog: Ninth Circuit Grants En Banc Review to Determine Proper Standard of Review in Denial of Benefits Case.
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Sereboff v. Mid Atlantic Medical; law vs. equity
November 28, 2005 by Ross Runkel at LawMemo
The US Supreme Court once again has decided to resolve the question of an ERISA Plan's ability to get reimbursement from a participant who recovered a settlement from a third party. The Court announced November 28 that it will decide this issue in Sereboff v. Mid Atlantic Medical Services - a case from the Fourth Circuit Court of Appeals.
An ERISA Plan paid about $75,000 to Plan participants Joel and Marlene Sereboff for accident-related benefits. The Sereboffs then recovered $750,000 from the tortfeasors in settlement of a personal injury claim. The Plan then sued the Sereboffs to get reimbursed for the medical benefits it had paid.
The Plan sued the Sereboffs under ERISA Section 502(a)(3), which allows a Plan to recover "other equitable relief." The Sereboffs defended on the ground that the Plan was seeking "legal" relief which a Plan cannot recover under Section 502(a)(3).
The trial court held for the Plan, and the 4th Circuit affirmed. Mid Atlantic Medical v. Sereboff (4th Cir 05/04/2005).
It all goes back to Great-West Life & Annuity Insurance Co. v. Knudson, decided by the US Supreme Court in 2002. In Knudson, with somewhat similar facts, the Supreme Court characterized the Plan's claim as "legal" rather than "equitable," and therefore held that the Plan could not recover under 502(a)(3). Of particular importance was the Court's statement that "the term 'equitable relief' refers to those categories of relief that were typically available in equity."
Knudson facts: The Plan paid money to the Knudsons to cover medical expenses connected to an injury. The Knudsons recovered money from a tortfeasor. The settlement agreement provided that the proceeds would go into a trust for Janette Knudson’s medical care.
Sereboff facts: The Plan paid money to the Sereboffs to cover medical expenses connected to an injury. The Sereboffs recovered money from a tortfeasor. The settlement proceeds were disbursed to the Sereboffs, who placed them into their investment accounts.
The Fourth Circuit distinguished the Knudson case, which concluded that the Plan was really seeking to "impose personal liability" on the Knudsons "for a contractual obligation to pay money." The main points:
- The Plan seeks to recover funds that are specifically identifiable.
- The funds belong in good conscience to the Plan.
- The funds are within the possession and control of the Serboffs.
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Off-payroll employees excluded from ERISA plan
August 04, 2005 by Ross Runkel at LawMemo
Three employees sued under the Employment Retirement Income Security Act (ERISA) claiming that the employer violated ERISA by placing them on the payroll of third-party payroll agencies with the result that they were excluded from the employer's ERISA plans. The trial court dismissed the claims; the 1st Circuit affirmed. Edes v. Verizon Communications (1st Cir 08/02/2005)
When the plaintiffs were hired in April 1994 the employer required them to sign on with independent payroll agencies who issued their paychecks during the entire time of their employment. In 1998 the employer terminated the plaintiffs' employment. In 1999 the plaintiffs demanded ERISA plan benefits, and the employer refused. The ERISA plans were expressly limited to employees who were paid directly by the employer, and the plaintiffs sued in October 2001 alleging that this violated ERISA.
- (1) Plaintiffs were not entitled to benefits under ERISA Section 502(a)(1)(B) because, although they may have been common law employees, they were explicitly excluded from the ERISA plans because they were not paid directly by the employer.
- (2) Plaintiffs' Section 510 claim (that the employer failed to move them to the employer's payroll after they were hired) was time-barred under the state's three-year statute of limitations. The claimed wrong was a misclassification that occurred in April 1994, and there was no "continuing violation" based on each subsequent paycheck.
- (3) Plaintiffs' ERISA Section 404 claim (breach of fiduciary duty) was time-barred by the ERISA three-years statute of limitations. Although there is an apparent split of opinion among the circuits as to how to analyze questions of "actual knowledge" of a breach or violation, these plaintiffs had actual knowledge in April 1994, even though they did not have actual knowledge of the plans' eligibility criteria.
- (4) The employer did not violate ERISA's minimum participation standards, as there is "no statutory provision that prohibits the use of such arbitrary eligibility criteria." Even if the employer failed to comply with certain tax regulations, that would not permit a court to re-write a plan.
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Restraining order isn't a COBRA "qualifying event"
July 13, 2005 by Ross Runkel at LawMemo
Today's Employment Law Memo tells us that a protective order from a divorce court does not trigger COBRA's notice requirement.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) authorizes a qualified beneficiary of an employer's group health insurance plan to maintain coverage, when she might otherwise lose coverage, upon the occurrence of a "qualifying event."
A "qualifying event" requires the health plan administrator to notify the beneficiary that she may elect to continue health insurance coverage in return for premium payments. "Divorce or legal separation of the covered employee from the employee's spouse" constitutes a "qualifying event" under COBRA. 29 USC Section 1163(3).
After Zeda Simpson sued her husband for divorce, the divorce court entered three interlocutory protective orders requiring Zeda's husband to stay away from her and the marital residence. Her ERISA Plan administrator decided this was a "qualifying event," and sent her a COBRA notice. Zeda protested, but elected coverage.
Nobody paid Zeda's premiums, so the Plan cancelled the insurance.
Later, Zeda told the Plan she had a final divorce decree and wished to elect COBRA coverage, but the Plan told her that her COBRA rights had expired.
The 10th Circuit put the issue this way:
"whether an Oklahoma divorce court's interlocutory protective orders requiring a husband, a 'covered employee,' to stay away from his wife, a 'qualified beneficiary,' pending their divorce qualified as a 'legal separation,' thereby triggering COBRA's notice requirement and the wife's corresponding obligation to pay premiums in exchange for continued coverage."
The 10th Circuit answered "no." Simpson v. T.D. Williamson Inc (10th Cir 07/11/2005).
The court concluded that "'legal separation,' and thus a 'qualifying event,' occurs within the meaning of COBRA Sections 1161(a) and 1163(3) only upon entry of a final court decree adjudicating the parties legal rights and obligations but preserving the marriage bond."
My view: A correct reading of ERISA and COBRA. Any divorce lawyer will tell you that an order restraining one spouse from having contact with the other is not the same as a legal separation.
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Editor: Ross Runkel, Professor of Law Emeritus. email Ross@LawMemo.Com, Phone 503-399-8028. Copyright LawMemo, Inc.
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