Wow, what a great piece by Rob Hoskins summing up the law throughout the circuits on the Moench presumption, by means of a review of a new decision by the Eastern District of Missouri on the issue. I highly suggest reading at least Rob’s “Moench Presumption for Dummies” if you want to have a solid understanding of the issues raised by the use of the presumption, or the decision itself for more detail. One of the things that is interesting about the decision itself, by the way, is the court’s handling of the pending Supreme Court review of the Moench presumption issues. The Court ruled on the motions pending before it, finding that the Moench “’presumption of prudence’ is appropriately applied at the motion to dismiss stage," but noted that:

The Court is cognizant that this issue is currently pending before the United States
Supreme Court. See Fifth Third Bancorp v. Dudenhoeffer, No 12-751, cert. granted December 13, 2013. Consistent with the majority of courts construing the applicability of the presumption, the Court will apply it with respect to the pending Motion. In the event that the Supreme Court determines the presumption is inapplicable in the 12(b)(6) analysis, the Court will entertain a motion to reconsider.

Doesn’t this mean, effectively, that the District Court is making a prediction of where the Supreme Court will end up on this issue? I suspect the judge wouldn’t have ruled right now to the opposite of what the judge believed was likely to be the outcome of the Supreme Court case.
 

You know, I have been wanting to sit down for weeks – at least – to write about Rochow v. Life Insurance Company of America, initially with regard to the extraordinary remedy initially imposed by the court and then later with regard to the Sixth Circuit’s decision to return to the issue by hearing the case en banc, but I just plain haven’t had the time to write in detail on something that raises so many issues. Beyond that, I am not convinced that the problems raised by Rochow, and the issues it requires observers to consider, are well-suited to the form of a blog post, as there is simply a lot of ground to cover to be able to talk intelligently about the case. This latter problem, though, was solved for me by Alston & Bird’s Elizabeth Wilson Vaughan, who somehow summed up the entire history of the case and the issues it places in play in one simultaneously concise yet in-depth treatment, which you can find here. I highly recommend it to anyone who wants to understand the case, and what the hoo-ha is about, in advance of the en banc return to the issues by the Sixth Circuit.

I have long been on record with the view that the Amara addition of equitable remedies fills in a glaring hole in ERISA, and particularly with regard to ERISA remedies, by, if not solving, at least significantly reducing the problem in ERISA litigation of “harms without a remedy.” We all know those cases, in which a plaintiff makes a compelling presentation of harm, but the remedial structure does not provide for a clear right of recovery; most typically, benefits aren’t due in light of the circumstances at play, and thus a denial of benefits by the administrator was correct and must be upheld, but other issues – most typically a problem in communications with the participant – led to financial losses. We all know, as well, that many judges reluctantly accept that this occurs in ERISA litigation, and rule accordingly, although often expressing unhappiness about doing so – if not in their opinions, then in comments from the bench during hearings. The Amara equitable remedies framework provided a structure for resolving the most meritorious of those claims, by allowing equitable remedies such as estoppel and surcharge to fill in that hole.

The original Rochow disgorgement ruling – widely perceived, including by me, as excessive – falls outside of this framework, by going far beyond simply the proper use of Amara remedies to fix that problem, and is flawed for this reason alone. I have little doubt that the Sixth Circuit will fix this in its next opinion in the case. But for now, it is important, I think, to remember that this is an outlier decision, one that should not be seen as demonstrating some type of inherent flaw in the Amara equitable remedies rubric which, properly used and confined by judicial development of case law to the purpose of solving the “harms without a remedy” problem, is instead a valid and appropriate judicial interpretation of ERISA’s grant of equitable relief. Rochow, in the end, is best thought of, in its rulings to date, as the McDonald’s coffee cup case of ERISA remedies: an example of the need for judicial control over remedies, but not an indictment of the idea of having them.
 

There are many variations on the old question that, if a tree falls in the woods and no one is there to hear it, did it really fall. I am sure, like me, you have heard many versions of that question that are not fit to be reprinted in a PG-13 rated blog.

But I couldn’t help thinking of that line when I read a recent decision from the United States District Court for the District of Massachusetts. In Morgan v. Reliance Standard, an LTD insurer terminated benefits, and the participant responded in, literally, “dismay,” writing a letter to the company expressing that sentiment. The carrier treated it as an appeal of the original termination, although apparently with some trepidation as to whether an appeal was really being filed. The insurer processed it as an appeal, in standard – and from the looks of the decision, appropriate – form, assigning it to an appropriate medical expert for a record review, eventually resulting in a decision upholding the denial on appeal.

Of course, that begged the existential question of whether there was an appeal at all, or, in other words, whether there can be an appeal if the participant, who must file the appeal, doesn’t mean to file one and doesn’t think he filed one. While one might think that someone must actually file an appeal to have an appeal, you would be wrong. The Court found that the participant could not complain of the insurer’s crediting him with an appeal he didn’t file, unless he was prejudiced by it, because under the law in the First Circuit, procedural errors in handling a benefit claim do not give rise to a remedy unless the participant was prejudiced by the error. The Court found that the course of communications between the insurer and the participant caused the participant to have essentially the same protections in the processing of his claim as he would have had if he had, in fact, filed an appeal, and that the participant therefore suffered no prejudice from the fact that his claim was treated as though appealed. The Court then proceeded to decide the case on its merits.

I am not certain whether this case really teaches us anything new about ERISA litigation, since it is very fact specific and certainly concerns a situation that is unlikely to repeat itself very often. It does, though, appear to provide an answer to the question of whether a tree actually falls in the forest if no one is there to hear it: the answer is clearly yes, at least if a court in the First Circuit is deciding the answer.

Thanks, incidentally, is due to Rob Hoskins’ baby, the ERISA Board, for catching this odd little fact pattern, and giving me an excuse to discuss trees, forests, and what they have to do with ERISA.
 

There has been a literal rush of interesting decisions out of the First Circuit and the Massachusetts District Court in the last few weeks, and I am going to try to catch up and comment on them over the next few days. One that jumped out at me, for various reasons, is a decision on whether an arbitrator or instead a federal court decides the collateral estoppel effect of a preceding reinsurance arbitration between an insurer and its reinsurers. In Employers Ins. Co. of Wausau v. OneBeacon American Insurance, the First Circuit concluded that it was an issue for the arbitrator to decide, and not for the court. There were several things that jumped out at me about this decision that made me want to note it and comment on it.

First off, I tried a reinsurance case in the Massachusetts state court’s business session years ago, which was fascinating, as much as anything, for the fact that it was in court at all. As the Employers Ins. opinion reflects, reinsurance disputes are almost always subject to arbitration. In my case, the dispute concerned money owed under a missing reinsurance contract from the 1960s, and no one could establish either its existence or, if it existed, its relevant terms, including whether it required arbitration. As a result, the case became one of the rare reinsurance cases to be tried, requiring first a ruling over the existence and terms of the reinsurance certificate and then one over the amount owed under it. The opinion in Employers Ins. really is, in some ways, about the vacuum-sealed nature of the reinsurance industry and disputes within it, in the sense of they are always, with extraordinarily rare exceptions, kept locked up tight within a system of arbitrations. It is nearly a purely private dispute resolution mechanism that controls that area of business, and the opinion in Employers Ins. reinforces that point, by the degree to which it emphasizes that the plaintiff could not avoid the arbitration system and move its dispute into court. 

 

Second, the case reflects the simple fact that once a business commits to an arbitration regime, they are not getting out of it. The standards for attacking an arbitration ruling in federal court make it nearly impossible to overturn a ruling and, as the Employers Ins. decision makes clear, even the most creative attempts to get around arbitrating a dispute after a company has agreed to that path are likely to be rejected out of hand by the courts. When it comes to arbitration, companies need to understand that the old rule of in for a dime, in for a dollar governs things: if you agree to an arbitration approach, you are stuck with it and are very unlikely to ever be able to get out from under that approach.

There’s a nice overview from Bloomberg BNA on plan fee litigation, and its status in the courts at this point in time. The article opens up by setting the stage:

Plan fee litigation had a big year in 2013, with divisive appellate court decisions affecting standards of judicial review, statutes of limitations and functional fiduciary status that may open the door for increased and novel litigation, employee benefits attorneys said during a conference panel presentation.

Its interesting to read the rest of the article, which summarizes the current status of cases such as Tibble and Leimkuehler, and discusses the totally conflicting views of the defense bar and the plaintiffs’ bar over these cases. If there were ever a case of two sides not being able to agree on whether it is day or night, it is the two sides of the bar arguing over the propriety of judicial decisions over ERISA liability, particularly with regard to excessive fee litigation. I thought there was a divide bordering on the ecumenical decades ago, in my earlier life as an insurance coverage litigator (which I still sometimes am, when not busy with ERISA fiduciary problems or other types of litigation) between policyholder and insurer lawyers over oddities like the asbestosis exclusion, the meaning of the words “expected or intended,” or what the words “sudden and accidental” actually mean, but they had nothing on the current divide between the plaintiff and defense bars when it comes to high stakes ERISA litigation (a division I wrote about at length here).

Substantively, though, the best takeaway from the article comes in its last line, in a quote from someone with the Department of Labor, who notes on one particular issue raised by the fee cases that it is “an interesting issue, and I don’t think we’ve heard the last of it.” One can say that across the board about all of the excessive fee litigation, and its spin off of other types of cases all targeting the question of whether plan participants are paying more than they should for plan benefits. Tibble itself is a wonderful example of the extent to which excessive fee litigation is a gift that keeps on giving, of a sort, for everyone from the lawyers involved, to plan participants (in those instances where they either obtain a recovery as part of a class or receive the incidental benefit of having lower plan expenses because sponsors are responding to the threat, real or perceived, of excessive fee litigation), and, yes, commentators. I wrote substantially about Tibble way back at the trial court level, in 2011, and here we still are, these many years later, writing and talking about the further history of that case.
 

One of the great advantages a Massachusetts ERISA litigator has is that our federal magistrate judges are very good with ERISA issues, which is something that is well illustrated by this decision on the scope of the fiduciary exception to the attorney-client privilege in ERISA litigation. In Kenney v. State Street, the magistrate judge dealt, in a very clean and easily understood manner, with the key issues that come into play under that doctrine, which have to do with its borders: to be exact, what attorney-client communications are subject to disclosure under this exception, and what ones are not. This is a more complicated issue of line drawing than it might appear at first glance because, in essence, you are considering the same course of communications, between the same lawyers and the same plan representatives, dealing with the same general topic (the plan’s operations), sometimes as part of the same in-person meeting, and deciding where the line falls as to the communications that must be produced and those that do not have to be produced.

The takeaway from Kenney on this line drawing is summarized nicely in this blog post by an unidentified Paul Hastings lawyer or two:

First, the attorney-client privilege is available for settlor matters, such as "adopting, amending, or terminating an ERISA plan" because those decisions do not involve ERISA fiduciary functions of managing or administering the plan.
Second, the attorney-client privilege is available to a plan fiduciary who seeks the advice of counsel in response to a threat of litigation by plan beneficiaries (or the government) against the fiduciary.

This is not an issue, by the way, that is just of academic interest, or something for clients and litigators to be concerned about after the fact, when a lawsuit is pending. A few years back there was a major top hat plan case in which some of the key evidence relied upon by the plaintiff consisted of emails and communications between the plan sponsor and its lawyers that were discoverable under these standards: that evidence was very helpful to the plaintiff, and was information that simply should not have been communicated in the manner it was (without, for instance, context and qualification) if it was ever going to see the light of day, rather than being forever cloaked behind the attorney-client privilege. Plans and their outside ERISA lawyers, who on a day to day basis in establishing and running a plan are typically not litigators, need to remember that their communications can end up in a courtroom in later litigation that cannot even be foreseen at the time of the communications in question, and should be careful with regard to the accuracy, context, phrasings and tone of such communications as a result.
 

The Second Circuit has just released its opinion in Liberty Mutual v. Donegan, which concerns whether certain Vermont state reporting regulations are preempted as applied to an ERISA governed plan. The Court concluded that they were, but the more interesting part of the opinion is not its analysis of that particular issue, but rather its sweeping and accurate march through the history of Supreme Court ERISA preemption jurisprudence. It’s a welcome document, one that can be read both by any practitioner seeking a general understanding of the issue and, moreover, by any court or litigant seeking a starting point for an in-depth argument over the scope of preemption.

To me, one of the more significant aspects of the opinion is its focus on the fact that preemption is invoked by any state regulations that dictate plan terms, reporting or benefits in a manner that places the plan at risk of having to comply with multiple conflicting state requirements, as well as ERISA’s own requirements. This is a broad holding that reinforces this widely applied, but often contested, rule of ERISA preemption, and extends beyond the narrow, specific confines of the specific state reporting requirements at issue in Donegan. In this vein, it is interesting that the Court launched its analysis with this point:

ERISA broadly preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Id. § 1144(a). With remarkable consistency, the legislative history reflects that this broad wording was purposeful: it was intended to eliminate the threat of a multiplicity of conflicting or inconsistent state laws . . . See 120 Cong. Rec. 29197 (1974) (Statement of Rep. Dent) (“I wish to make note of what is to many the crowning achievement of this legislation, the reservation to Federal authority the sole power to regulate the field of employee benefit plans. With the preemption of the field, we round out the protection afforded participants by eliminating the threat of conflicting and inconsistent State and local regulation.”); id. at 29933 (Statement of Sen. Williams) (discussing “inten[t] to preempt the field for Federal regulations, thus eliminating the threat of conflicting or inconsistent State and local regulation of employee benefit plans” and stating that “[t]his principle is intended to apply in its broadest sense to all actions of State or local governments, or any instrumentality thereof, which have the force or effect of law”).

In the end, although it is nice that the Court established whether or not Vermont’s reporting requirements were preempted, the more lasting and broader value is that a broadly respected bench has reemphasized the principle that plans cannot be subject to conflicting state regulation with regard to their primary operations. Application of this principle, on a practical level, is central to the efficient and effective operation of benefit plans, since so many operate across state lines, placing them at risk of conflicting legal duties and expensive compliance obligations if they must comply with each state’s unique approach to a particular issue regarding benefit plans.
 

You say disgorgement, I say damages. Sorry, I couldn’t, try as I might, make that fit into the old lyric “you say tomato, I say tomahto, lets call the whole thing off,” but the sentiment fits. In this recent Sixth Circuit decision, reported on here, the Court addressed the question of whether certain employment related damages could be considered disgorgement by the employer, which would not be covered under the employer’s insurance policy because it excluded disgorgement, or should instead be treated as traditional damages, which are covered. The Court concluded that the sums that were awarded could more fairly be described as damages owed to the claimants, and not as disgorgement of ill-gotten gains, and were therefore covered.

Its an interesting decision that raises two issues that companies that defend against employment related claims should always be aware of. First, that there is always room within their insurance policies to look for potential coverage, particularly given the growth of employment practices liability insurance over the past decade and more. Second, that the question of what constitutes disgorgement, or other equitable remedies which are also often not covered, can be a tricky question, and is not always obvious on first review. All sorts of policies limit coverage to awards that constitute damages as that term is understood in the law, often without defining the term, while excluding or otherwise precluding coverage for disgorgement or other types of losses that fall within the realm of equitable relief. It is important to make a thorough and accurate analysis of whether the sums at issue are properly construed as damages or instead as equitable relief in this realm, both for insurers deciding whether to provide coverage and for insureds electing whether to challenge a denial of coverage.
 

Wow – what more is there to say about this story by Michael Rosenberg of Sports Illustrated on the long and bitter fight by aging, 10 year NFL vet Dwight Harrison to obtain disability and pension benefits? The story itself is a beautiful piece of writing, humane and complex all at the same time.

There are a few particularly interesting aspects of the story that are worth commenting on. First, to those who wonder if the story is accurate and the picture painted believable, I can only say that none of us, without going back over the court record and filings, can really know. What I do know, however, is that the story reads like an exact replica of the Mike Webster story, which I wrote about here, which concerned that NFL star’s long battle to collect disability benefits from the NFL’s ERISA-governed disability plan, over a time period that matches up with the time period during with Harrison’s harrowing story unfolds. The similarities are eerie, and lend credence to Harrison and Rosenberg’s (no relation) version of events. One of the things that any good trial lawyer does in investigating and building a case is to look for similarities and contradictions among different parties’ versions of events, on the thesis that the consistencies are more likely true than not, given that more than one person reported them. The striking similarities between Webster’s story and Harrison’s story suggests that the story reported by Rosenberg is highly credible.

Second, and perhaps this also goes to the credibility question with regard to this story (since none of us are likely to ever go out and read the court record itself or to have access to all of the relevant medical records), everything that Rosenberg describes fits comfortably with the manner in which an ERISA disability and pension case would be litigated and processed. It rings, in essence, true to someone, like me, who has litigated those types of cases.

Third, and this harkens back to Webster’s case in which, after a long court battle, he eventually prevailed, overcoming many of the same obstacles faced by Harrison, is the interesting question of why Webster eventually did much better than Harrison has, so far, managed to do. The answer to that, quite simply, is lawyering. Webster, somehow, had access to excellent lawyering and was represented by what was clearly an outstanding lawyer. Harrison, it is clear from the article, for many years had no such access. The quality of legal representation, including the extent to which a plan participant’s lawyer has previous and substantial experience with litigating ERISA cases, makes a huge difference to the outcome of these types of cases: they simply cannot be properly litigated – particularly against a well-lawyered adversary like the NFL – by anyone who doesn’t have substantial experience and expertise in this area of the law.

Fourth, and this is particularly interesting to me, I have had the good fortune over the past few years to speak with more than one retired NFL player who had read my prior writings on the Webster case and wanted to speak with me about their own efforts to obtain long term disability benefits from the NFL. What is very interesting to me about the Rosenberg article is his description of the manner in which the NFL plan operated during the time period in question, including its tiers of benefits, all of which matches up with what I learned in discussions over the years with retired players. It is hard to make the complexities of disability plans and claim structures clear to anyone but experts, but Rosenberg does a good job here. If you want to understand the structure and operation of the NFL disability plan, his article is a good place to start.
 

Ahh, the wonders of church plan litigation. I had the distinct pleasure at an ERISA litigation conference recently of listening to a leading plaintiffs’ lawyer and a leading defense lawyer, who were both representing parties on opposite sides in class actions concerning whether benefit plans were actually church plans for purposes of ERISA, square off over the issue. What came through to me loud and clear were two distinct visions of the world, almost ideological in a way. The defense lawyer insisted that decisions to that date ran his way, and so there was little more to say on the subject, while the plaintiffs’ lawyer explained why close analysis of the facts and legal issues demonstrates that the plaintiffs’ bar is on target.

In their competing certainties over their positions, the debate reminded me of nothing so much as the early years of excessive fee litigation, when the plaintiffs’ bar was largely unsuccessful and the defense bar was more than happy to trumpet the underlying weakness on both a theoretical and practical level of that theory of liability. Of course, time would eventually turn the tables, to a large extent, on that discussion, triggered by an interesting phenomenon, one which was obvious in advance to some of us and became clear in hindsight to the rest of us: that over time, as more and more judges were asked to look at the excessive fee theory, the defense position would begin to show cracks and plaintiffs would eventually begin succeeding to one degree or another with such claims.

Even when I was listening to the two lawyers debate the viability of church plan litigation, it was clear to me we were only at the outset of the legal discussion on this issue, and that the defense bar’s assumption of an impregnable position was unfounded, as well as inconsistent with the history of what had occurred with the excessive fee cases. It was clear that what was more likely to happen was that, as the cases involving the more questionable assertions of church plan status came before courts, the plaintiffs’ bar would begin obtaining traction, and the clearly marked out defense position on these types of cases would weaken.

While I was on trial for most of this month, which I am still digging out from, Mike Reilly wrote a nice piece on something that I see as the first step in this phenomenon starting to come to pass, which was a federal judge denying a motion to dismiss last month that was grounded on the defendant’s status as a church plan. What is most interesting about that decision is that, plank by plank, the judge addressed and rejected the key elements of the defense bar’s standard position on church plan litigation, namely that the claims run contrary to existing judicial decisions and to IRS letter rulings. As the court’s decision itself reflects, the judge specifically engaged those arguments and rejected them.

What does this one decision mean? One can make the argument that it is an outlier, that standing by itself it means nothing in the long run, and has meaning only to the resolution of the specific lawsuit and plan at issue. Past experience with excessive fee litigation, however, suggests to me that the decision is more likely to be the beginning of the end of broadly claiming church plan status for broad, otherwise secular business activities – particularly in the medical area – that have some linkage to religious organizations. History – as well as logic – suggests to me that, bit by bit, we will see plaintiffs’ lawyers and court decisions chip away at the use of church plan status, leading to, eventually, a number of victories in this regard for the plaintiffs’ bar. This will not mean the end of the church plan, but will instead eventually lead to only those plans that most closely fit the purpose, intent and idea of the church plan exemption being able to claim it, with all other plans forced to abandon the claim (either voluntarily or after being sued).