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Topic: "ERISA" | Main

SCOTUS: ERISA relief is possible without showing detrimental reliance
May 16, 2011 by Ross Runkel at LawMemo

Today's decision in CIGNA Corp v. Amara (US Supreme Ct 05/16/2011):

After CIGNA converted its traditional defined benefit pension plan to a cash balance plan, it issued a summary plan description (SPD) to plan participants. Amara brought a class action claiming that CIGNA's notice of the changes was improper, particularly because the new plan in certain respects provided them with less generous benefits. The District Court held for Amara; the 2nd Circuit affirmed. Although CIGNA argued that the plaintiffs failed to show injury, the District Court found that the participants had shown "likely harm". The District Court then (a) reformed the new plan and (b) ordered CIGNA to pay benefits accordingly.

The US Supreme Court unanimously vacated the 2nd Circuit judgment, and made two significant holdings:

(1) Although ERISA §502(a)(1)(B) did not give the District Court authority to reform CIGNA's plan, relief is authorized by §502(a)(3), which allows a participant, beneficiary, or fiduciary "to obtain other appropriate equitable relief" to redress violations of ERISA "or the [plan's]terms." Section 502(a)(1)(B) speaks to enforcing a plan's terms, not changing them. And the District Court was not enforcing the SPD because statements in the SPD "do not themselves constitute the terms of the plan for purposes of §502(a)(1)(B)."

(2) Because §502(a)(3) authorizes "appropriate equitable relief" for violations of ERISA, the relevant standard of harm will depend on the equitable theory by which the District Court provides relief, which it will do on remand. Potential equitable theories include estoppel, reformation, and surcharge. If the remedy is equivalent to estoppel, a showing of detrimental reliance must be shown. If the remedy is reformation, equity courts did not insist on a showing of detrimental reliance. If the remedy is surcharge, there must be a showing of actual harm, which may come from detrimental reliance or from the loss of a right protected by ERISA. To obtain relief via surcharge, a plan participant or beneficiary must show that the violation caused injury, but need show only actual harm and causation, not detrimental reliance.



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SCOTUS argument recap: CIGNA v. Amara
December 01, 2010 by Ross Runkel at LawMemo

For an excellent recap of yesterday's US Supreme Court oral arguments in CIGNA Corporation v. Amara, read what Jason Steed wrote for SCOTUSblog.

The issue in this case is whether a showing of “likely harm” is sufficient to entitle participants in or beneficiaries of an ERISA plan to recover benefits based on an alleged inconsistency between the explanation of benefits in the Summary Plan Description or similar disclosure and the terms of the plan itself.

There is no way I will predict the outcome in this case.



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SCOTUS Transcript: CIGNA Corporation v. Amara
November 30, 2010 by Ross Runkel at LawMemo

Here is the transcript of today's US Supreme Court oral argument in CIGNA Corporation v. Amara.
[Details; briefs]

The issue:

Whether a showing of "likely harm" is sufficient to entitle participants in or beneficiaries of an ERISA plan to recover benefits based on an alleged inconsistency between the explanation of benefits in the Summary Plan Description or similar disclosure and the terms of the plan itself.

Background:

After CIGNA converted its traditional defined benefit pension plan to a cash balance plan, it issued a summary plan description (SPD) to plan participants.

Amara brought a class action claiming that CIGNA failed to comply with ERISA's notice requirements and SPD provisions.

The trial court held for Amara; the 2nd Circuit affirmed. The finding was that the SPD misrepresented the terms of the plan itself. Although CIGNA argued that the plaintiffs failed to show injury, the court found that the participants had shown "likely harm" and that CIGNA had failed to establish harmless error.

CIGNA's position is that a plan participant must prove detrimental reliance on the SPD in order to recover benefits based on an inconsistency between the SPD and the plan itself.

The US Supreme Court granted certiorari to review the 2nd Circuit judgment. Oral arguments were held November 30.

A decision is expected by June 2011.



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Supreme Court will review "likely harm" standard in ERISA claim
June 28, 2010 by Ross Runkel at LawMemo

The US Supreme Court granted certiorari today to review a 2nd Circuit judgment. The case: CIGNA Corp v. Amara (Certiorari granted 06/28/2010)

After CIGNA converted its traditional defined benefit pension plan to a cash balance plan, it issued a summary plan description (SPD) to plan participants. Amara brought a class action claiming that CIGNA failed to comply with ERISA's notice requirements and SPD provisions. The trial court held for Amara; the 2nd Circuit affirmed. The finding was that the SPD misrepresented the terms of the plan itself.

Although CIGNA argued that the plaintiffs failed to show injury, the trial court found that it was enough that the participants had shown "likely harm" and that CIGNA had failed to establish harmless error. The US Supreme Court granted certiorari to review the 2nd Circuit judgment.



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SG urges no certiorari in San Francisco ERISA preemption case
May 28, 2010 by Ross Runkel at LawMemo

The Solicitor General has filed a US Supreme Court brief recommending against granting certiorari in Golden Gate Restaurant Assoc v. City and County of San Francisco. [Details, all briefs]

The San Francisco Health Care Security Ordinance requires that covered employers make "required health care expenditures to or on behalf of" certain employees each quarter. "Covered employers" are employers engaging in business within the City that are either a) for profit, with an average of at least twenty employees during a quarter; or b) non-profit, with an average of at least fifty employees during a quarter.

The 9th Circuit held that this ordinance is not preempted by the Employee Retirement Income Security Act (ERISA). More specifically, the court concluded that 1) the ordinance does not create an ERISA plan; and 2) the ordinance does not "relate to" ERISA plans within the meaning of ERISA.

The 9th Circuit denied a petition for rehearing en banc in this case. Eight judges dissented, arguing that the panel decision creates a circuit split and undercuts the Supreme Court's ERISA preemption case law.

Official Question Presented:

San Francisco’s Health Care Security Ordinance-- a "pay-or-play" law--mandates either ongoing employer contributions at set minimum rates for employee health-benefits or equal payments to the City’s Health Access Program, along with extensive recordkeeping and reporting and disclosure requirements. In a decision directly conflicting with Supreme Court ERISA preemption decisions, the Ninth Circuit rejected petitioner’s ERISA-preemption challenge despite repeated amicus support by the Secretary of Labor. Identifying "an issue of exceptional national importance," an eight Judge dissenting opinion from denial of rehearing en banc, including Chief Judge Alex Kozinski, observed that the decision "creates a circuit split with the Fourth Circuit . . . , renders meaningless the [ERISA preemption] tests the Supreme Court set out in Shaw v. Delta Airlines..., and disregards the "need for nationally uniform plan administration." It also warned that the decision "will undoubtedly serve as a roadmap in jurisdictions across the country on how to design and enact a labyrinth of laws requiring employer compliance on health care expenditures, thereby creating the very kind of health care balkanization ERISA was intended to avoid."

The Question Presented is:

Whether ERISA section 514(a), 29 U.S.C. § 1144(a), preempts local laws mandating ongoing employer contributions for employee health-benefits, or alternative payments to a local government, and extensive recordkeeping and reporting and disclosure requirements, a question on which the courts of appeals are in conflict.

Solicitor General's basic arguments against granting certiorari:

1. Subject to exceptions not applicable here, ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.”

2. The preemption issue does not warrant this Court’s review at this time for the same reasons that the Department of Labor has determined not to take regulatory action on the issue at this time.

3. a. Petitioner contends (Pet. 15-34) that the Court should grant review because the decision below purportedly conflicts with the Fourth Circuit’ s decision in Retail Industry Leaders Ass’n v. Fielder, 475 F.3d 180 (2007). Although some of the reasoning contained in Fielder is in tension with reasoning in the decision below, the two cases do not present a direct conflict that warrants this Court’s review.

b. Contrary to petitioner’s contention, the decision below does not directly conflict with this Court’s ERISA decisions.

c. In any event, even had a square conflict materialized in the courts of appeals, review by this Court would not be warranted. As discussed above, the intervening enactment of comprehensive federal health care legislation has dramatically changed the landscape governing payment for health care, substantially reducing the importance of the question whether ERISA preempts state or local requirements and also giving rise to additional legal issues that have not been addressed by the federal Departments responsible for implementing the new legislation or by the courts. Accordingly, this Court’s review of the ERISA preemption issue is not warranted at this time.



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SCOTUS: Attorney fees allowed in ERISA case
May 24, 2010 by Ross Runkel at LawMemo

Hardt v. Reliance Standard Life Ins (US Supreme Ct 05/24/2010):

Hardt sued claiming that Reliance Standard violated the Employee Retirement Income Security Act (ERISA) by wrongfully denying her long-term disability benefits. The trial court denied Reliance summary judgment, finding that because the carrier had acted on incomplete medical information, the benefits denial was not based on substantial evidence. Though also denying Hardt summary judgment, the court stated that it found "compelling evidence" in the record that she was totally disabled and that it was inclined to rule in her favor, but concluded that it would be unwise to do so without giving Reliance the chance to address the deficiencies in its approach. The court therefore remanded to Reliance, giving it 30 days to consider all the evidence and to act on Hardt’s application, or else the court would enter judgment in Hardt’s favor. Reliance did as instructed and awarded Hardt benefits. The trial court then awarded Hardt $39,149 in attorney fees. The 4th Circuit reversed, holding that (1) ERISA § 1132(g)(1) provides a district court discretion to award attorney fees only to a prevailing party, and (2) Hardt was not a prevailing party because Hardt’s only request for relief was the award of benefits, which the district court did not award.

The US Supreme Court unanimously reversed, holding that a fee claimant need not be a "prevailing party" to be eligible for an attorney's fees award under §1132(g)(1). Section §1132(g)(1) expressly grants district courts "discretion" to award attorney’s fees "to either party." A court may award fees and costs under §1132(g)(1), as long as the fee claimant has achieved "some degree of success on the merits."



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Cert denied in ERISA preemption case
May 17, 2010 by Ross Runkel at LawMemo

The US Supreme Court this morning denied certiorari in Standard Insurance Co v. Lindeen, leaving the 9th Circuit judgment unchanged.

The Montana insurance commissioner has a practice of disapproving any insurance contract containing a "discretionary clause." Typically, such clauses confer upon the insurer full discretion and authority to review claims for benefits and interpret the terms and provisions of its insurance plan. The commissioner denied Standard Insurance Co's application for approval of its proposed disability insurance forms which contained discretionary clauses, and Standard sued claiming that the subject is preempted by the Employee Retirement Income Security Act (ERISA).

The 9th Circuit held that the commissioner's practice of disapproving any insurance contract containing a discretionary clause is not preempted by ERISA.



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ERISA case cert pending: Standard Insurance Co v Lindeen
May 12, 2010 by Ross Runkel at LawMemo

Standard Insurance Co. v. Lindeen is a hot ERISA case which is pending certiorari at the US Supreme Court. The Court is expected to decide on Thursday whether or not to grant certiorari.

Case below: Standard Insurance Co. v. Morrison (9th Cir 10/27/2009)

Question Presented by Petitioner Standard Insurance Co:
[Petition for Certiorari full text]

In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), this Court held that the standard under which a federal court will review an ERISA plan benefits determination is determined by whether the plan grants its administrator discretion in making such determinations. When the plan includes a so-called “discretionary clause,” the federal courts review the administrator’s determinations deferentially; when the plan does not grant such discretion, the federal court standard of review is de novo.

Two Terms ago, in Metro. Life Ins. Co. v. Glenn, the Court, applying Firestone, cautioned that “a rule that in practice could bring about near universal review by judges de novo” of ERISA benefits decisions would be contrary to congressional intent. 128 S. Ct. 2343, 2350-51 (2008).

The questions presented in this case are:

1. Whether a state rule banning discretionary clauses, with the sole purpose and sole effect of dictating universal de novo review by the federal courts of ERISA benefits decisions, is preempted by ERISA.

2. Whether this Court’s opinion in Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002), authorizes the states to eliminate the option of a deferential federal court standard of review that Congress made available to the creators of ERISA plans.

Question Presented by Respondent Lindeen:

Whether a state insurance commissioner’s disapproval of insurance policies containing clauses that purport to grant discretion to insurers is saved from preemption by 29 U.S.C. § l144(b)(2)(A) of the Employee Retirement Income Security Act of 1974 (ERISA).

Petitioner Standard Insurance Co's arguments:

I. THE DECISION BELOW REVOLUTIONIZES ERISA’S REMEDIAL SCHEME BY PERMITTING STATE REGULATORS TO DICTATE, CONTRARY TO CONGRESSIONAL INTENT, UNIFORM DE NOVO FEDERAL COURT REVIEW
A. The Extraordinary Preemptive Force Of ERISA’s Civil Enforcement Scheme Invalidates Any State Law That Purports To Affect Or Enhance ERISA Remedies

B. Montana’s Attempt To Dictate De Novo Federal Court Review Of ERISA Benefits Denials Conflicts With ERISA’s Carefully Calibrated And Exclusively Federal Remedial Scheme.

II. THE DECISION BELOW HIGHLIGHTS A TENSION BETWEEN THIS COURT’S DECISIONS IN GLENN AND RUSH PRUDENTIAL THAT REQUIRES THIS COURT’S RESOLUTION.

III. THE ISSUE PRESENTED REQUIRES PROMPT RESOLUTION BY THIS COURT.

Respondent Lindeen's arguments:
[Brief in Opposition full text]

I. Because the two courts of appeals that have decided this issue both concluded that ERISA does not preempt a state prohibition of discretionary clauses in insurance policies, there is no conflict in the courts of appeals and this court’s review is not warranted

II. State Disapproval of insurance policies containing Discretionary Clauses Is The Regulation of Insurance And Therefore Consistent With Congressional Intent As Explained By This Court in Kentucky Ass’n and Rush Prudential

III. State Disapproval of insurance policies containing Discretionary Clauses Does Not Change ERISA Remedies Nor Does It Dictate A Standard of Review To Federal courts

A. State Disapproval of insurance policies containing Discretionary Clauses Does Not Affect ERISA Remedies

B. Montana’s Ban on insurance policies containing Discretion- Granting Language Does Not Dictate A Standard of Review to Federal Courts



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ERISA Plan administrator's interpretation is entitled to deference even after reversal for violating ERISA (5-3)
April 21, 2010 by Ross Runkel at LawMemo

Conkright v. Frommert (US Supreme Ct 04/21/2010):

Xerox employees sued their ERISA retirement Plan and administrator challenging the method used by the Plan to calculate how their current benefits are offset to reflect prior distributions. The employees claimed that the Plan violated ERISA's provisions relating to summary plan description, notice, and anti-cutback rules.

There were two appeals to the 2nd Circuit. In the first appeal, the court held that the Plan had violated ERISA in several respects, and remanded for fashioning a remedy. On remand, the Plan administrator proposed a new interpretation of the Plan. The district court declined to apply a deferential standard to this new interpretation, and adopted instead an approach proposed by the employees.

In the second appeal, the 2nd Circuit held that the district court was correct not to apply a deferential standard on remand, and that the district court’s decision on the merits was not an abuse of discretion.

The US Supreme Court reversed (5-3), holding that the district court should have applied a deferential standard of review to the Plan administrator’s new interpretation of the Plan on remand. (The Court did not reach the question of whether the 2nd Circuit erred by applying a deferential standard of review to the district court's decision.)

This case is governed by Firestone Tire & Rubber Co v. Bruch, 489 U S 101 (1989), which held that that an ERISA plan administrator with discretionary authority to interpret a plan is entitled to deference in exercising that discretion. The Court said that "a single honest mistake" should not change that basic rule of trust law. The lower courts made no finding that the Plan administrator had acted in bad faith or would not fairly exercise his discretion to interpret the terms of the Plan, so the Court rejected a "one-strike-and-you're-out" approach.

The DISSENT argued that "trust law ... leaves to the supervising court the decision as to how much weight to give to a plan administrator’s remedial opinion."



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Supreme Court argument on ERISA: Deferral, discretion
January 22, 2010 by Ross Runkel at LawMemo

Conkright v. Frommert was argued at the US Supreme Court on Wednesday.

Questions presented:

Whether the Second Circuit erred in holding

(1) that a district court has no obligation to defer to an ERISA plan administrator's reasonable interpretation of the terms of the plan if the plan administrator arrived at its interpretation outside the context of an administrative claim for benefits.

(2) that a district court has "allowable discretion" to adopt any "reasonable" interpretation of the terms of an ERISA plan when the plan interpretation issue arises in the course of calculating additional benefits due under the plan as a result of an ERISA violation.

[Details
[Argument recap]



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Is only the "prevailing party" entitled to attorney fees under ERISA?
January 18, 2010 by Ross Runkel at LawMemo

Hardt sued claiming that Reliance Standard violated the Employee Retirement Income Security Act (ERISA) by wrongfully denying her long-term disability benefits. The trial court remanded the matter to Reliance for reconsideration, and Reliance reversed its earlier decision and awarded Hardt full benefits. The trial court then awarded Hardt $39,149 in attorney fees. The 4th Circuit reversed. The US Supreme Court granted certiorari on January 15 to review the 4th Circuit judgment.

The 4th Circuit's holding was that (1) ERISA § 502(g)(1) provides a district court discretion to award attorney fees only to a prevailing party, and (2) Hardt was not a prevailing party because Hardt’s only request for relief was the award of benefits, which the district court did not award.

Case below: Hardt v. Reliance Standard Life Insurance Company (4th Cir 05/14/2009)
Official docket sheet
Certiorari granted January 15, 2010.
Oral argument: Not yet scheduled.

Question presented:

Section 502(g)(1) of the Employee Retirement Income Security Act of 1974 (ERISA) provides: "In any action under this subchapter by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney’s fee and costs of the action to either party." 29 U.S.C. § 1132(g)(1).

The Fourth Circuit in the decision below held that "only a prevailing party is entitled to consideration for attorneys’ fees in an ERISA action," while the Second, Fifth and Eleventh Circuits have declined to read a "prevailing party" requirement into § 502(g)(1) and other circuits have issued conflicting authority. The Fourth Circuit also held that the "prevailing party" standard was not met and vacated an award of attorneys’ fees to petitioner, even where the district court found "compelling evidence that [petitioner] is totally disabled," ruled that petitioner "did not get the kind of review to which she was entitled under applicable law" and remanded for a redetermination of benefits with an instruction that respondents "act on [petitioner’s] application by adequately considering all the evidence discussed within this Opinion within thirty (30) days of its date of issuance" or "judgment will be issued in favor of [petitioner]" and petitioner obtained the requested long-term disability benefits upon remand.

The questions presented are:

1. Whether the Fourth Circuit erred in holding that ERISA § 502(g)(1) provides a district court discretion to award reasonable attorney’s fees only to a prevailing party?

2. Whether a party is entitled to attorney’s fees pursuant to § 502(g)(1) when she persuades a district court that a violation of ERISA has occurred, successfully secures a judicially-ordered remand requiring a redetermination of entitlement to benefits and subsequently receives the benefits sought on remand?

Certiorari Documents:

* Petition for certiorari
* Brief in opposition
* Reply Brief for Petitioner

Counsel:

For Petitioner: John R. Ates; Ates Law Firm, P. C.; 1800 Diagonal Road, Suite 600; Alexandria, VA 22314; (703) 647-7501.

For Respondent: Joshua Bachrach; Wilson, Elser, Moskowitz, Edelman & Dicker LLP; The Curtis Center, Ste.1130 East; Independence Square West; Philadelphia, PA 19106-3308; joshua.bachrach@wilsonelser.com; (215) 606-3906.



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DOL claims $3,000,000 ERISA violation
January 15, 2010 by Ross Runkel at LawMemo

Department of Labor has sued the owners of a bankrupt company, claiming that although $1.26 million in employee health plan contributions were withheld, $3,000,000 in employee medical claims were not paid, in violation of the Employee Retirement Income Security Act (ERISA).

The suit seeks a court order to require that the defendants restore any losses, suffered by the plans or their participants and beneficiaries and to undo any prohibited transactions involving the plans.

[Press release]



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Cert granted in ERISA case
June 30, 2009 by Ross Runkel at LawMemo

The US Supreme Court has granted certiorari in an ERISA case that raises issues on (1) the extent to which a district court must defer to the views of an ERISA plan administrator and (2) the appropriate scope of appellate review. This case will be argued in the fall.

Conkright v. Frommert (Certiorari granted 06/29/2009).

Xerox employees sued their ERISA retirement Plan and administrator challenging the method used by the Plan to calculate how their current benefits are offset to reflect prior distributions. The employees claimed that the Plan violated ERISA's provisions relating to summary plan description, notice, and anti-cutback rules.

There were two appeals to the 2nd Circuit. In the first appeal, the court held that the Plan had violated ERISA in several respects, and remanded for fashioning a remedy. On remand, the district court decided upon a remedy without first remanding the case to the Plan administrator.

In the second appeal, the 2nd Circuit made two key rulings:

(1) The district court was not required to defer to the Plan administrator's views on the appropriate remedy for the ERISA violations committed by the administrator and the Plan.

(2) The court of appeals should review the district court's remedial decision for abuse of discretion. The US Supreme Court granted certiorari to review the 2nd Circuit's judgment.

The formal Questions Presented:

1. Whether the Second Circuit erred in holding, in conflict with decisions of this Court and other Circuits, that a district court has no obligation to defer to an ERISA plan administrator's reasonable interpretation of the terms of the plan if the plan administrator arrived at its interpretation outside the context of an administrative claim for benefits.

2. Whether the Second Circuit erred in holding, in conflict with decisions of other Circuits, that a district court has "allowable discretion" to adopt any "reasonable" interpretation of the terms of an ERISA plan when the plan interpretation issue arises in the course of calculating additional benefits due under the plan as a result of an ERISA violation.

[The Supreme Court denied two other petitions for certiorari arising out of the 2nd Circuit decision. Those petitions involved the effect of general releases as waivers of ERISA claims.]



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Arguments for a stay in Golden Gate Restaurant Assn v San Francisco
March 18, 2009 by Ross Runkel at LawMemo

Golden Gate Restaurant Association's Application for Order Staying Mandate in Golden Gate Restaurant Assn v. City of San Francisco , filed March 16, contains the following arguments:

There is a reasonable probability the Court will grant certiorari.

This case present nationally significant issues.

The opinion creates a dramatic split between circuits.

The opinion contradicts existing Supreme Court precedent.

The opinion improperly expands traditional areas of state regulation.

The opinion contradicts settled preemption law.

There is a significant probability that the District Court will be affirmed.

ERISA preempts state laws bearing a connection with or making reference to employee benefit plans.
The ordinance bears an impermissible connection with employee benefit plans in that it (a) interferes with a core area of ERISA concern, (b) interferes with uniform plan design and administration, (c) imposes recordkeeping, inspection and other burdens on plan sponsors and administrators.

The ordinance makes unlawful reference to employee benefit plans.




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Restaurant owners to Supreme Court: Please help us
March 18, 2009 by Ross Runkel at LawMemo

Golden Gate Restaurant Association has filed an application [here] with US Supreme Court Justice Anthony M. Kennedy (Circuit Justice for the 9th Circuit) asking that the 9th Circuit's decision in Golden Gate Restaurant Assn v. City of San Francisco be postponed. [Docket No. 08A824]

The San Francisco Health Care Security Ordinance requires that covered employers make "required health care expenditures to or on behalf of" certain employees each quarter. "Covered employers" are employers engaging in business within the City that are either a) for profit, with an average of at least twenty employees during a quarter; or b) non-profit, with an average of at least fifty employees during a quarter.

The 9th Circuit held that this ordinance is not preempted by the Employee Retirement Income Security Act (ERISA). More specifically, the court concluded that 1) the ordinance does not create an ERISA plan; and 2) the ordinance does not "relate to" ERISA plans within the meaning of ERISA. Golden Gate Restaurant Assn v. City of San Francisco (9th Cir 10/20/2008).

Last week all of the judges in the 9th Circuit decided that they would not allow a rehearing en banc. However, there were eight judges who dissented from that order. [Order, including concurring and dissenting opinions]

My source, with thanks: SSCOTUSblog



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No en banc rehearing on San Francisco Health Care Security Ordinance
March 10, 2009 by Ross Runkel at LawMemo

The 9th Circuit has denied a petition for rehearing en banc in Golden Gate Restaurant Assn v. City of San Francisco. [Order, including concurring and dissenting opinions]

And eight (count 'em - eight) judges dissented from the denial of a rehearing.

Facts:

The San Francisco Health Care Security Ordinance requires that covered employers make "required health care expenditures to or on behalf of" certain employees each quarter. "Covered employers" are employers engaging in business within the City that are either a) for profit, with an average of at least twenty employees during a quarter; or b) non-profit, with an average of at least fifty employees during a quarter.

Ninth Circuit decision on October 20, 2008 [Opinion]:

The 9th Circuit held that this ordinance is not preempted by the Employee Retirement Income Security Act (ERISA). More specifically, the court concluded that 1) the ordinance does not create an ERISA plan; and 2) the ordinance does not "relate to" ERISA plans within the meaning of ERISA.

Dissent to the denial of the petition for rehearing:

Eight judges argue:

The San Francisco Ordinance is clearly preempted by ERISA Section 514(a). Contrary to the arguments made by Judge W. Fletcher in both the Concurrence and the original panel opinion, our decision here creates a circuit split with the Fourth Circuit, undercuts the Supreme Court’s ERISA preemption case law, and creates a roadmap for the enactment of numerous conflicting health care laws affecting national employers, the very situation Congress strove to avoid when it enacted ERISA.

My view: Without taking a position on the wisdom of the ordinance, my view is that the original panel decision was correct. The ordinance is not preempted by ERISA. However, many people disagree with me, including eight 9th Circuit judges. This case seems destined to be decided by the US Supreme Court.



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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:




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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:




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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

  1. The decision to terminate the plan was a business decision not subject to ERISA fiduciary obligations
  2. The implementation of the decision was discretionary in nature and subject to ERISA fiduciary obligations
  3. 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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