Emerging Issues and Trends in Employee Benefits Litigation and - PowerPoint PPT Presentation

Emerging Issues and Trends in Employee Benefits Litigation and Regulations Jeffrey J. Wedel Ryan A. Sobel Matthew A. Secrist June 11, 2014

Overview of Presentation • ERISA Cases of Interest in 2013  U.S. Airways, Inc. v. McCutchen , 113 S. Ct. 1537 (Apr. 16, 2013): Plan Language vs. Equitable Doctrines  Heimeshoff v. Hartford Life & Accident Ins. Co. , 134 S. Ct. 604 (Dec. 16, 2013): Setting limitations periods through plan language • On the Horizon in 2014/2015…  Fifth Third Bancorp v. Dudenhoefer , No. 12-751 (Argument 4/2/14): Application of Moench presumption of reasonableness on motion to dismiss  Tackett v. M&G Polymers USA, LLC , No. 13-1010 (expected 2015): legal standard for finding that parties to CBA intended retiree health- care benefits to vest 2

Overview of Presentation • Notable Appellate Decisions from 2013/2014  McClain v. Eaton Corp. Disability Plan , 740 F.3d 1059 (6th Cir. Jan. 24, 2014): Proper standard for arbitrary/capricious review of administrative benefits decisions  Kenseth v. Dean Health Plan, Inc. , 722 F.3d 869 (7th Cir. June 13, 2013): post- Cigna equitable relief and money damages for misrepresentation  Thurber v. Aetna Life Ins. Co. , 712 F.3d 654 (2d Cir. Mar. 13, 2013): post- Sereboff applicability of Knudson ’s strict tracing requirement for equitable lien  Rochow v. Life Ins. Co. of Am. , 737 F.3d 415 (6th Cir. Dec. 6, 2013): disgorgement of profits from wrongfully-denied disability benefits • Non-ERISA Cases that may Impact ERISA  Comcast Corp. v. Behrend , 133 S. Ct. 1426 (March 27, 2013): Class actions and proof of class-wide damages  United States v. Windsor , 133 S. Ct. 2675 (June 26, 2013): Defense of Marriage Act (DOMA) Case 3

ERISA Cases of Interest in 2013 • U.S. Airways, Inc. v. McCutchen , 113 S. Ct. 1537 (Apr. 16, 2013)  Issue: Can beneficiary use equitable defenses to avoid plan reimbursement clause that applied to beneficiary’s recovery from third party? – Defense counsel have feared that past Sup. Ct. decisions opened a Pandora’s box of equitable theories, which 502(a)(3) claimants can use to circumvent plan language or obtain money damages » Cigna v. Amara , 131 S. Ct. 1866 (2011) – reformation and “surcharge” can serve as “other appropriate equitable relief” under 502(a)(3) – Many viewed McCutchen as a canary-in-the-coal-mine for how broad a view of “other appropriate equitable relief” Court will take  The clause in question: – If [the plan] pays benefits for any claim you incur as the result of negligence, willful misconduct, or other actions of a third party, ... [y]ou will be required to reimburse [the plan] for amounts paid for claims out of any monies recovered from [the] third party, including, but not limited to, your own insurance company as the result of judgment, settlement, or otherwise. 4

ERISA Cases of Interest in 2013 • McCutchen , cont.  Beneficiary received $66,866 from Plan for treatment of MVA injuries  Subsequently, Beneficiary received $110,000 under his auto insurance policy and from tortfeasor in lawsuit  Beneficiary owed his attorneys 40% of recovery ($44,000), only had $66,000 left for himself  Plan sued Beneficiary to recover $66,866 under reimbursement clause, based on “equitable lien by agreement” theory (allows money damages as equitable relief under 502(a)(3)) • Beneficiary’s Equitable Defense Theories for Unjust Enrichment:  (1) Entire recovery not subject to the lien; only portion related to medical expenses paid by Plan (“double recovery” doctrine);  (2) Plan reimbursement should be reduced by attorney’s fees from Beneficiary’s suit vs. MVA tortfeasor, as Plan benefited from the legal services (the “common fund” doctrine). 5

ERISA Cases of Interest in 2013 • McCutchen , cont.  Sup. Ct. held: the double-recovery rule and common-fund doctrine cannot override express terms of an ERISA plan – Because the reimbursement provision is explicit, it trumps these unjust enrichment theories – Plan is entitled to reimbursement from amounts recovered from insurance company and tortfeasor – BUT…because the Plan is silent on the allocation of attorney’s fees, the common-fund doctrine may apply as a “gap filler” for the apportionment of some responsibility for those fees to the Plan » District Court must sort that out 6

ERISA Cases of Interest in 2013 • Heimeshoff v. Hartford Life & Accident Ins. Co. , 134 S. Ct. 604 (Dec. 16, 2013)  Facts: – Group LTD Plan – Walmart Sr. Mgr. Public Relations suffered lupus, fibromyalgia – Plan terms: No suit more than 3 years after time written proof of loss due – Claim for LTD benefits denied administratively – Plaintiff sued less than 3 years after denial, but more than 3 years after proof of loss due  U.S. Dist. Conn. dismissed claim as time-barred, 2d Cir. affirmed  Sup. Ct. Holds: Plan and participant can agree to both length of limitation and time of commencement, as long as: – (1) Not unreasonable – (2) Not preempted by controlling statute to contrary  Considerations that were important to Sup. Ct.: – Plaintiff still had a year to bring suit after denial of claim – Plaintiffs won’t shortchange administrative process – they need a record – Administrators won’t delay administrative process – risk immediate judicial, de novo review 7

ERISA Cases of Interest in 2013 • Take-Aways from McCutchen and Heimeshoff  ERISA and this Court favor enforcing written plan terms (absent public policy, fraud, misrepresentation-based reason to disregard or reform)  Silence in plan terms opens the door to equitable theories • So…review your plan documents to make sure you’ve addressed the issues that can give you a leg-up in litigation – Subrogation, recoupment and reimbursement, attorney’s fee allocation, and lien issues – Limitations periods – Discretion of fiduciary/plan administrator to interpret plan terms, determine eligibility » Avoid a de novo review in denial of benefits claim » Receive judicial deference for fiduciary’s interpretation of ambiguous terms – Diversification restrictions for ESOPs » White v. Marshall & Ilsley Corp. , 714 F.3d 980 (7th Cir. Apr. 19, 2013) – Moench presumption defeats stock-drop claim where plan language required investment in employer securities even in “dire” economy – Court skeptical of stock-drop theories that place fiduciaries in lose-lose situation vis-à-vis market fluctuation 8

On the Horizon in 2014/2015… • Fifth Third Bancorp v. Dudenhoefer , No. 12-751 (Argument 4/2/14)  ESOP Stock Drop Case: Does plaintiff who claims ESOP fiduciary breached duty by continuing to invest in employer stock need to overcome Moench presumption of reasonableness at pleading stage?  Facts: – Plaintiffs were former Fifth Third Bancorp employees and participants in Fifth Third Bancorp Profit Sharing Plan (a type of ESOP) – Plaintiffs allege ESOP fiduciaries breached duty by continuing to hold onto Fifth Third stock from 2007 – 2009, when it switched from conservative lending practices to subprime lending – By end of 2009, Fifth Third stock had decreased in value by 74% – Plaintiffs claim ESOP fiduciaries knew or should have known about risks of subprime lending, through watchdog warnings, expertise, etc.  Moench v. Robertson , 62 F.3d 553 (3d Cir. 1995) – ESOP fiduciaries are encouraged (in many cases required) to invest in employer stock, and thus are entitled to a presumption that they acted prudently under ERISA. This presumption can only be overcome by a showing that fiduciary abused discretion by continuing to invest in (or retain) employer stock. 9

On the Horizon in 2014/2015… • Dudenhoefer , cont.  Circuit split on two key issues: – Most circuits: presumption must be overcome at pleading stage » 6th Circuit: must only satisfy ordinary notice pleading standard – Most circuits: presumption must be overcome through proof that the company faced a dire situation, something short of the brink of bankruptcy or an impending collapse, but continued to invest in/hold employer stock » 6th Circuit: plaintiff need only prove that “a prudent fiduciary acting under similar circumstances would have made a different investment decision”  District Court dismissed lawsuit for failure to satisfy Moench presumption, 6th Circuit reversed based on ordinary notice pleading standard  Issue on cert to Sup. Ct.: Does the Moench presumption apply at the pleading stage?  Oral Argument: April 2, 2014: Justices questioned whether any special presumption should apply – “Coach-class” fiduciary standard? – How to reconcile ESOP fiduciary’s inherent conflict? 10