BLOGS: Southeastern ERISA Watch

Wednesday, May 18, 2016, 10:59 AM

Jan Baldwin Offers Comments on Edison International ERISA Case to

Participants in an Employee Retirement Income Security Act (ERISA) case earned a victory when the U.S. Supreme Court vacated a Ninth Circuit ruling that their claims were filed too late (Tibble v. Edison International). Edison International employees participating in the company’s employee retirement plans are objecting to the company’s investment choices.

Womble Carlyle attorney Jan Baldwin offered comments on the ruling to

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Wednesday, June 10, 2015, 3:31 PM

Once Again, the Supreme Court Upsets Precedent in Fourth and Eleventh Circuit.

As we reported in our March 11, 2014 article, the Eleventh and Fourth Circuit Court of Appeals definitively rejected the “continuing breach” theory in recent disputes involving statute of limitations deadlines in ERISA cases alleging fiduciary breach claims.  This precedent was short-lived.

As way of background, plan fiduciaries have been under fire in recent years for their role in the selection and retention of underperforming or fee-heavy funds offered as investment options in 401(k) plans.  Under ERISA, a lawsuit premised upon a breach of fiduciary duty must be filed by the earlier of:  (1) three years after the participant had actual knowledge of the breach; or (2) six years after the breach occurred.  As to the latter, the trigger date is: “(A) the date of the last action which constituted a part of the violation; or (B) in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation.” ERISA § 413.

The focus of these recent cases has been on the second prong:  When participants of a defined contribution plan allege that plan fiduciaries breached their duties by failing to remove poor performing funds from 401(k) investment options, is the date of the breach when the funds were initially selected?   Or is there a continuing breach for each day that the funds remained in the investment lineup, assuming no substantial change of circumstance has occurred? 

In 2013, the Court in David v. Alphin, 704 F. 3d 327, 341 (4th Cir. 2013), addressed this issue when plaintiffs alleged, inter alia, that plan fiduciaries failed to remove underperforming and fee-heavy funds from their 401(k) investment options.  The Fourth Circuit Court of Appeals affirmed the District Court’s dismissal of the claim as untimely.  Finding that the complaint’s allegations were “based on attributes of the funds that existed at the time of their initial selection,” the Court held that, “at its core,” plaintiff’s complaint was “simply another challenge to the initial selection of the funds to begin with.”  Id. at 341.   A year later, in Fuller v. SunTrust Banks, Inc., 744 F. 3d 685 (11th Cir. 2014),  the Court held, under a similar fact scenario, that the accrual date for purposes of ERISA § 413 of an alleged breach was the date of the initial selection, unless there existed circumstances or distinct conduct separate from the initial fund selection.  The Eleventh Circuit Court of Appeals affirmed the District Court’s dismissal of plaintiffs’ claims as untimely. 

In Tibble v. Edison Int’l., 2015 WL 2340845 (May 18, 2015), the United States Supreme Court came to the opposite conclusion.  The Court emphasized that, under trust law, “a trustee has a continuing duty to monitor trust investments and remove imprudent ones.  This continuing duty exists separate and apart from the trustees’ duty to exercise prudence in selecting investments at the outset.”   The Court held that “as long as the alleged breach of the continuing duty [to monitor] occurred within six years of suit, the claim is timely.”   In doing so, the Supreme Court reversed the Ninth Circuit’s decision, upon which the Court in Fuller had heavily relied.

The Supreme Court did agree with the Fourth and the Eleventh Circuit on one thing:  It explicitly declined to define what a fiduciary’s continuing duty to monitor was supposed to look like:  “We express no view on the scope of [defendants’] fiduciary duty.” Id. at. *5  (In both Fuller and David, the Courts were careful to decline to decide “whether a fiduciary had an ongoing duty to remove imprudent investment options from a Plan in the absence of a material change in circumstances.” Fuller, 744 F. 3d at 702; see also, David, 704 F. 3d at 341.)  Instead, the Tibble Court remanded to the court below to consider whether the defendants did in fact “conduct the sort of review that a prudent fiduciary would have conducted absent a significant change in circumstances.” Id. at *5.

Monday, March 16, 2015, 12:57 PM

The Sixth Circuit Vindicates the Fourth and Eleventh.

The en banc Sixth Circuit reaffirmed what the Fourth and Eleventh Circuits knew all along. 
Ever since Cigna v.Amara, 131 S. Ct. 1866 (2011), in which the United States Supreme Court provided fresh theories (e.g., surcharge) of equitable relief under ERISA § 502(a)(3), some members of the plaintiff’s bar found a renewed interest in tagging on a claim for equitable relief when seeking employee benefits under ERISA § 502(a)(1)(B).   Defendants were quick to say “whoa” -  Amara did not change the long-standing rule under Varity Corp. v. Howe, 516 U.S. 489, 116 S. Ct. 1065 (1996) that a claimant seeking benefits under ERISA § 502(a)(1)(B) had an adequate avenue of relief available, making a claim for equitable relief under ERISA § 502(a)(3) duplicative and therefore not appropriate. 
In the district courts of the Fourth and Eleventh Circuit, defendants consistently won this battle when seeking to dismiss ERISA § 502(a)(3) claims added to a straight-forward benefits case, the most recent ones being Beckham v. Liberty Life Assurance Co. of Boston, 4 F. Supp. 3d 1266 (M.D. Ala. 2014); Caudle v. LINA, 33 F. Supp. 3d 1288 (N.D. Ala. 2014);  Benson v. LINA, 2014 WL 4769601 (E.D.N.C 2014); Esposito v. Wal-Mart, 2014 WL 4104731 (W.D.N.C. 2014); Campbell v. Rite Aid Corp., 2014 WL 3868008 (D.S.C. 2014); Leach v. Aetna, 2014 WL 470064 (D. Md. 2014); Jenkins v. Grant Thorton, 2014 WL 860547 (S.D. Fla. 2014). 
However, as part of that battle, defendants often were required to address Rochow v. LINA, 737 F. 3d 415 (6th Cir. 2013), a Sixth Circuit outlier showing up in the claimants’ opposition briefs.  Rochow involved the quintessential benefit case; the plaintiff sought employee benefits under ERISA § 502(a)(1)(B), and added an ERISA § 502(a)(3) claim.  Plaintiff argued that two injuries were involved:  (1) the denial of benefits; and (2) the withholding of the benefits during the length of time it took for plaintiff to have the denial reversed.  Under the plaintiff’s theory of surcharge, the recovery of the plan fiduciary’s “unjust enrichment” of profits was calculated at a far greater amount than any conceivable pre-judgment interest rate.  The District Court agreed with the plaintiff, using Amara as its authority.  Rochow, 851 F. Supp. 2d 1090 (E.D. Mich. 2012).  The Sixth Circuit Court of Appeals affirmed in December of 2013, but in February of 2014, the defendant’s motion for rehearing en banc was granted, leaving the decision vacated in the meantime.  Then we waited.     
Over one year later, the majority vacated the panel’s earlier decision, relying upon the authority that seemed clear under Varity and its progeny that the plaintiff’s claim for benefits was adequate relief, making the ERISA § 502(a)(3) claim duplicative and inappropriate:  “Despite Rochow’s creative use of semantics, the reality remains clear- Rochow suffered one injury, the denial of his benefits.”  Rochow,-- F. 3d -- , 2015 WL 925794 (6th Cir. March 5, 2015). The majority also found that pre-judgment interest could be awarded, but not at a rate so high as to be punitive. Id.
The decision was not unanimous, with concurring and dissenting opinions flowing forth.  Nevertheless, the Sixth Circuit majority’s solid reliance on Varity told us what we already knew in the Fourth and Eleventh, and removed any doubt.   


Thursday, September 11, 2014, 4:39 PM

District Court in 11th Circuit Deems Claim for Equitable Relief Appropriate under Amara and Varity.

Yet again, the Court has been called upon to negotiate the juxtaposition between Varity and Amara. According to the Complaint in Biller v. Prudential Ins. Co. and Six Continents Hotels, Inc., 2014 U.S. Dist. Lexis 118577, 2014 WL 4230119 (N.D. Ga. Aug. 26, 2014), Ms. Biller was enrolled for life insurance coverage through the employee benefit plan sponsored by Six Continents, her employer.  The plan’s life insurance benefits were insured by Prudential.  Ms. Biller ceased working on October 28, 2010 and called Prudential on November 3, seeking to convert her coverage to an individual policy, which was an option provided.  After Prudential informed her that it required a written notice by her employer, Ms. Biller called her employer’s HR Department on November 9, and was told that a notice would be mailed to her.  On November 11, she received a notice from her employer’s payroll administrator, informing her that she had 31 days from the date of termination to convert her policy, and to contact her employer for the application.  She again contacted the HR department and was told that it would mail her the application.   When it did not arrive,  Ms. Biller called again, and she received it on December 10.  When she then contacted Prudential, she was informed that the 31-day period had expired, and that her application would not be accepted.  

Ms. Biller died in 2011.  When her beneficiaries under the group life insurance policy submitted a claim, Prudential denied it on the grounds that Ms. Biller failed to timely convert to an individual policy. 
The beneficiaries filed suit against both Prudential and the employer for breach of fiduciary duty, seeking equitable remedies under ERISA § 502(a)(3).  The employer moved to dismiss, arguing, inter alia, that the plaintiffs had an adequate avenue of relief, (i.e., a benefit claim under ERISA § 502(a)(1)(B)), and therefore, their claim under ERISA § 502(a)(3) was not appropriate under the authority of Varity v. Howe, 116 S. C.t 1065 (1996) and its progeny.  Sitting for the United States District Court for the Northern District of Georgia, the Honorable Richard W. Story denied the employer’s motion.  The Court noted that the key to the Varity analysis was whether both theories of recovery were based upon the same alleged conduct; if so, the claim for equitable relief under ERISA § 502(a)(3) was not appropriate. But here, Judge Story found, the alleged wrongful conduct was not Prudential’s benefit determination, but rather the employer’s failure to provide the conversion application in a timely manner.  In fact, as a direct result of the employer’s alleged breach, plaintiffs had no a claim for benefits pursuant to ERISA § 502(a)(1)(B) under the policy terms; they had a claim under ERISA § 502(a)(3) or nothing.  

The employer then argued that the equitable remedy of “surcharge” limited recovery to the fiduciary’s unjust enrichment, which in this case was none.  Judge Story rejected this argument as well, finding that the Supreme Court in Cigna v Amara, 131 S. C.t 1866 (2011)  explicitly sanctioned monetary “make-whole” relief as an available remedy.  

Thursday, August 21, 2014, 9:32 AM

District Court in Fourth Circuit Rejects Extension of Amara-like Remedies to Benefit Cases.

The Honorable Martin Reidinger, sitting in the United States District Court for the Western District of North Carolina, declined Plaintiff’s invitation to extend the applicability of Cigna v. Amara, 131 S. Ct. 1866 (2011), to ERISA benefit cases.  In Esposito v. Wal-Mart Stores, Inc. and Hartford Life andAccident Insurance Company, Plaintiff, who was receiving LTD benefits under Wal-Mart’s employee benefit plan, filed a lawsuit after Hartford, the insurer and claims administrator, terminated further benefits.  In Plaintiff’s first two causes of action, he sought recovery of his benefits under ERISA § 502(a)(1)(B).  But Plaintiff did not stop there; he added four more causes of action, all premised upon ERISA § 502(a)(3) and sounding in equity, including reformation, equitable estoppel and restitution. These claims were based, in part, upon alleged representations by Hartford to Plaintiff during its administrative review of Plaintiff’s LTD claim.  

Relying upon the teachings of Varity v. Howe, 516 U.S. 489, 116 S. Ct. 1065 (1996), which the Fourth Circuit followed in Korotynska v. Metropolitan Life Ins. Co., 474 F. 3d 101 (4th Cir. 2006), Judge Reidinger granted both defendants’ Motions to Dismiss as to these causes of action:  “In short, Plaintiff has ‘repackaged’ his denial of benefits claim,” which, as Varity held, is not an “appropriate” use of ERISA § 502(a)(3).  Plaintiff had argued that his causes of action were supported by McCravy v. Metropolitan Life Ins.Co., 690 F. 3d 176 (4th Cir.  2012), which was the Fourth Circuit case that followed on the heels of Cigna v. Amara, applying it to find potentially available equitable remedies under ERISA § 502(a)(3) in a case involving lack of plan coverage. (See our previous post, Fourth Circuit Takes Expansive View of Equitable Relief. (July 9, 2012)).  Judge Reidinger found that Plaintiff’s reliance on McCravy was “entirely misplaced,” because here, Plaintiff was seeking recovery under the terms of the Plan, something that was unavailable to the plaintiffs in either Amara or McCravy.  

Judge Reidinger concluded with an admonition that a “straight-forward benefit case” should not be pleaded “in this manner,” a final nod to Varity’s long-standing rule (unbroken by Amara) that an ERISA § 502(a)(3) claim is not “appropriate” when a claim under ERISA § 502(a)(1)(B) claim will do the trick.  

 Disclaimer: Womble Carlyle represented a defendant in this case.


Monday, July 14, 2014, 3:01 PM

Supreme Court Refocuses the 11th Circuit in its Review of an ESOP Fiduciary's Duty of Prudence.

Two years ago, when called upon to address an ESOP fiduciary’s duty of prudence in the context of a motion to dismiss, the 11th Circuit Court of Appeals followed a long line of cases: “We join our five sister circuits in …review[ing] only for an abuse of discretion the defendant’s decision to continue investing in and holding [company] stock in compliance with the direction of the Plan.”   Lanfear v. Home Depot, Inc., 679 F. 3d 1267 (11th Cir. 2012).  (See our blog, Eleventh Circuit Determines Standard of Prudence for ESOP Fiduciaries in Stock-Drop Case.In defining that point at which a fiduciary abuses its discretion, the Lanfear Court explored and rejected the two ends of the spectrum:  A fiduciary’s actions should not be subject to scrutiny with every rise and fall of the stock market, nor should the standard be so deferential as to presume prudence unless the company was on the brink of financial collapse.  Rather, in following Moench v. Robertson, 62 F. 3d 553 (3d Cir. 1995), the Lanfear Court held that a fiduciary would be seen to have abused its discretion only when it continued to invest in company stock at a time when it could not have reasonably believed that “continued adherence to the ESOP’s directions was in keeping with the settlor’s expectations of how a prudent trustee would operate it.”  Id. at 1280, quoting Moench.

Although the Moench Court called it a “presumption of prudence,” the Lanfear Court clarified that “the Third Circuit did not intend to use, and we disavow any intension of using, the word ‘presumption’ in a sense that had any evidentiary weight.”   Instead, in the context of a motion to dismiss, the Lanfear described the standard in dauntingly deferential terms:  “prescib[ing] who is to win in almost all of the circumstances that can be envisioned.”  Id. at 1281.

Whether called a “standard of review” or a “presumption,” it is now gone.   In Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (June 25, 2014), the United States Supreme Court held that no special presumption of prudence should apply to ESOP fiduciaries.  Although the rule is stated simply, the issue is complex, when measured against a backdrop of putative class actions where the stakes are high at the pleadings stage.  Defendants have been understandably concerned about meritless claims getting past a Rule 12(b)(6) motion, due to the high cost of going forward in litigation.  The Supreme Court responded to these voiced concerns, but found that this judicially-created presumption did “not readily divide the plausible sheep from the meritless goats.” Id. at 2470.  It suggested instead a “careful, context-sensitive scrutiny of a complaint’s allegations.” Id.  Keeping intact a requirement for a robust review under Twombly and Iqbal, it provided guidelines on “plausibility.”  This included the strong suggestion that a fiduciary’s prudence usually could not be questioned when it used major stock markets as an estimate of the company’s stock value.  Nor could ERISA’s duty of prudence “require an ESOP fiduciary to perform an action…that would violate securities law,” such as insider trading.  Id. at 2473.  For this latter suggestion, it cited Lanfear, keeping at least part of the 11th Circuit’s ruling intact.  

Tuesday, June 3, 2014, 4:22 PM

Employee Benefit Plan is Governmental Plan, Even Though Employees are Not, says District Court in 11th Circuit.

It is a deceptively simple statement:  Governmental employee benefit plans are exempt from ERISA.  29 U.S.C. § 1003(b)(1).  But what about an employee benefit plan of an entity affiliated with a governmental entity, but whose employees are not government employees?   In Gunn v. United of Omaha, 2014 U.S. Dist. Lexis 70520 (M.D. Fla., April 16, 2014), Report and Recommendation adopted, 2014 U.S. Dist. Lexis 70521 (May 22, 2014), the Court grappled with such a hybrid entity.  Halifax Hospital Medical Center, a county hospital in Florida, created a separate non-profit entity, Halifax Staffing, Inc. (“Staffing, Inc.”) to provide staffing and management to the Hospital.  In connection with the creation of Staffing, Inc., the Hospital requested and received an opinion from the Florida Attorney General that employees of Staffing, Inc. were not state employees covered by the Florida Retirement System.  

Staffing, Inc. provided certain employee benefits, including long-term disability (“LTD”) benefits, funded by an insurance policy issued by United of Omaha.  A Staffing, Inc. employee, David Gunn, submitted a claim for LTD benefits, which United of Omaha denied.  Mr. Gunn filed a lawsuit in state court, seeking his LTD benefits under the policy.  United of Omaha removed the case to federal court, on the grounds that Mr. Gunn’s cause of action was governed by ERISA.    

Mr. Gunn moved to remand, on the basis that the plan was a governmental plan and therefore exempt from ERISA.  A governmental plan is a plan that is established for its employees by the federal government, the state government “or any political subdivision thereof, or any agency or instrumentality of the foregoing.” 29 U.S. C. § 1002(32).  While there was not much question that the Hospital was a governmental entity, the fact that Staffing, Inc.’s employees were not state employees made for a trickier question as to whether Staffing, Inc.’s plan was governed by ERISA.  While the Eleventh Circuit had not spoken on the issue, two tests had emerged from other Circuits: (1) the Rose test, (Rose v. Long Island RR Pension Plan , 828 F. 2d 910 (2nd Cir. 1987); and (2) the Alley test (Alley v. Resolution Trust Corp.,984 F. 2d 1201 (D.C. Cir. 1993) (authored by the Honorable Ruth Ginsburg, then a Circuit Court Judge.)   
In Rose, the Court referred to and adopted the IRS’s six-factor test used when defining a governmental “agency or instrumentality” for certain tax purposes.  The Rose Court deferred to the IRS’s interpretation under the rationale that the IRS was one of the agencies that was charged with the enforcement of ERISA.  

In Alley, by contrast, the Court focused on “what should be the core concern for ERISA purposes—the nature of an entity’s relationship to and governance of its employees.” Alley, 984 F. 2d at 1205 n. 11.  The Court weighed such factors as whether the employees were included in the civil service system, were subject to governmental personnel rules and salary restrictions, or were participants in civil servant pension and welfare plans.  United of Omaha argued that the Alley test was more appropriate under the circumstances of Staffing, Inc.’s plan, particularly when Staffing, Inc. was created to place the employees outside of the state retirement system.   
However, the Magistrate Court disagreed, finding that the Alley test was not intended to be applied to entities affiliated with state government, citing federalism concerns.  It opted instead to invoke the Rose test, and found five of the six factors weighing in favor of deeming Staffing, Inc. an “agency or instrumentality” of the government.  The Magistrate Court recommended that Staffing Inc.'s plan be deemed a governmental plan exempt from ERISA.  The District Court concurred with the Magistrate’s approach, and ordered a remand to state court.   
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