I have been tied up on trial out of state most of January, and am now starting to go back over the more interesting items that landed in my in-box during that time. One of my favorites is this Supreme Court decision in an ERISA case, which essentially holds that a party cannot wait for a district court’s resolution of a request for attorney’s fees before seeking to appeal any part of an earlier ruling on the substance of the ERISA claim. As Sarah Jenkins and Jon Laramore of Faegre Baker Daniels discussed in this piece – the first one I have seen discussing the substance of this opinion – the Court held in Ray Haluch Gravel Co. v. Central Pension Fund of the International Union of Operating Engineers that “an appeal was untimely because an unresolved issue of contractual attorneys’ fees did not prevent judgment on the merits from being final for purposes of” the appellate clock.

While the details of the decision will be of immense interest – I am sure – to appellate mavens (oh where have you gone, Appellate Law & Practice blog?), the more interesting aspect to me is the decision’s unspoken and unacknowledged linkage to the Supreme Court’s very recent decision in Heimeshoff v. Hartford Life & Accident Insurance, which held that an ERISA claim could be barred by failing to comply with a contractual filing period established under a plan document. The combination of the two decisions drives home the highly technical nature of prosecuting ERISA claims, and the crucial importance of getting every step right so as to protect all rights of recovery available under the statute. As the two cases make clear, one can waive clear rights to recovery under ERISA by failing to prosecute them exactly as required and on the exact time schedule required by applicable plan terms and governing statutes. While some might view the particular timing requirements addressed in Ray Haluch Gravel and Heimeshoff as picayune, the Court’s strict enforcement of them make clear that parties seeking relief under ERISA had best not treat them that way.
 

The more I read yesterday’s Supreme Court’s decision in Heimeshoff v. Hartford Life & Accident  Insurance, the more I return to the same position I expressed when the case was argued: that what the rule that is imposed by the Court turns out to be is much less important than that we actually have a clear rule. The Court established the rule here, and now all parties in the ERISA landscape can adjust to it and play by it. What it means is simply this: the minute a lawyer who represents participants has a new client walk in the door, that lawyer better scrutinize the plan documents and figure out when suit must be filed by. On a substantive, day in day out level, that is what the decision means.

Despite the fact that, on a day to day basis, the decision is not earthshaking in any manner, there are aspects of it that are of interest. You can start with the identity of the opinion’s author, which is Justice Thomas. The opinion falls in line, in the fundamental backbone of its reasoning, with prior opinions – concurring, dissenting or otherwise – by Justice Thomas on ERISA cases: that is to say that the logistical framework is the plan says X, the statute does not expressly require otherwise, and thus X applies. Sure, there is much more to the opinion, but all of the rest is, in many ways, just gloss added on top of that framework, in much the same way that ornaments are added to a Christmas tree, but it is still, underneath it all, a tree.

The other aspect that jumped out at me involves one piece of that gloss, which is the Justice’s suggestion that “[f]orty years of ERISA administration suggest” that claim administration is handled reasonably and generally promptly, and that under those circumstances, it should not be disruptive to enforce a reasonable contractual limitations period. While I can’t account for the whole forty years referenced by the Court, I can account for twenty or so of it in my own practice, and I would have to concur with Justice Thomas in this regard. Although there are certainly outliers that are to the contrary, my experience is that most claims are handled reasonably to very well by most plan sponsors and administrators, and that the exceptions to that rule are just that – exceptions. With that experience to draw on it, I doubt that reasonable contractual limitations periods will pose any type of a significant barrier to the efficient, effective and equitable resolution of claims.

Of course, whenever the Supreme Court weighs in on ERISA, it creates unforeseen ripples: one can think of a Supreme Court opinion on any issue under ERISA as the equivalent of throwing a pebble in a still pond, which creates waves in all directions. Going back at least as far as LaRue – which, by creation of the diamond hypothetical approach to loss, in turn gave rise to the no-diamond approach that some courts have used to find the absence of loss – Supreme Court decisions concerning ERISA have created a multitude of issues for lower courts to sort out and, more often than not, for plan lawyers to deal with in the day to day running and writing of plans. One would think that a simple ruling on a statute of limitations issue would not have that same effect, but I suspect one would be wrong, as the Workplace Prof notes in this excellent post on the decision, in which he comments on the potential future ramifications of the decision beyond simply its application to statutes of limitations.
 

You know I think all things are about ERISA, and ERISA is about everything, don’t you? And of course, my view on this is even somewhat logical, and not just an outgrowth of my own personal interests. If you walk, talk, have health insurance, invest for retirement, have a pension or, even more so, work, you and your activities are governed, to a certain extent, day in and day out, by ERISA. That is, of course, an overstatement and oversimplification, but it drives home my point: ERISA regulated and governed activities that we interact with in day to day life are ubiquitous, even if most people are not aware of it.

I mention this because the Supreme Court issued a very interesting decision on Younger abstention Tuesday, in a case, Sprint Communications v. Jacobs, that concerned telecommunications and utility regulators, and had nothing to do with, and never mentioned, ERISA. And yet to me, if you think about it, the decision has a side to it that is very important to ERISA lawyers and particularly litigators, as well as to plan sponsors. In Sprint, the Court made clear that the reach of Younger abstention is very narrow, and it cannot be invoked to regularly deprive federal courts of their jurisdiction over issues governed by federal law, particularly where federal law preempts state action; further, the Court made clear that Younger abstention cannot prevent parties from seeking federal court protection of their federal rights in most cases involving civil remedies, and in particular in cases where state regulators take action that should be preempted by federal law.

I doubt that any statute has broader preemptive effects than ERISA, but at the same time, as noted above, ERISA touches a vast number of the day to day activities and financial interests of private citizens, even without many of them knowing it. This combination means that many state regulatory bodies can, accidentally or on purpose, act in ways that infringe on plan sponsors’ express rights under ERISA to be free of state regulation with regard to their employee benefit plans. Prior to the Supreme Court’s ruling two days ago in Sprint, there may have been some doubt, in at least some jurisdictions, over whether a federal court could act to protect that right while state regulators were proceeding with regard to an ERISA governed benefit plan. Sprint makes clear that the federal courts can intervene to protect the rights of plan sponsors to be free of state regulation, right from the get go, by enforcing ERISA preemption in the face of state regulatory action.
 

Well, returning briefly to my series on municipal bankruptcies – you really can’t write regularly about pensions in this day and age without addressing, even if unwillingly, that topic – the NY Times has a very interesting article on Stockton, California’s effort to leave bankruptcy, by basically shorting bondholders while leaving the ever rising pension costs that was one of the key drivers of its insolvency untouched. You can hear in the article the skepticism as to whether, having not dealt with that problem, the city can remain solvent for any amount of time, rather than end up back in bankruptcy court again after failing to tame its pension exposures.

The impact of pension promises and debt on municipal finances cannot be understated, particularly after events in Detroit. At the same time, the problems they pose cannot be easily solved, either, because municipal leaders are faced with a highly unpalatable choice with regard to that issue: they can either raise taxes significantly (or substantially cut services, which in the long term is at least as politically dangerous to the political future of the elected officials involved, yet possibly even worse long term for the city than increased taxes) or they can, as one Stockton official put it, look people in the eyes and tell them they are having their benefits cut. Stockton appears to have avoided the latter, for the most part, by seeking a relatively minimal increase in the sales tax, but, as noted above, one wonders whether that will be enough.

At the end of the day, I hate to say it, but the only humane solution to the pension problems in places like Detroit and Stockton is likely to be some version of a bailout in the form of a derisking program, with the pensions turned into private annuities and cities taken out of the pension business once and for all. Its either that or a decision to cut benefits and leave retirees and current workers to bear that cost alone. None of the solutions are good, but the evidence says this is a long run problem that isn’t going away.
 

I enjoyed this post on a fundamental question in ERISA denial of benefit litigation, namely which of the many entities involved with a plan – employer, plan sponsor, fiduciary, claim administrator, insurer, and so on – is a proper defendant to such a claim. As the post points out, correctly, there is some ambiguity on the question, and courts in various parts of the country apply different rules. The author focuses on a recent decision out of the federal court in Minnesota, Nystrom v. AmerisourceBergen Drug Corp., holding, in the author’s words, that “a third party administrator was a proper defendant in a lawsuit seeking benefits on the grounds that Section 502(a)(1)(B), the section of ERISA under which such claims are brought, does not limit the universe of entities that may be sued, and that liability flows from ‘actual control’ over benefit claims;” the author further notes that, according to that court, the “First, Fifth, and Ninth Circuits have reached a similar conclusion.”

In fact, this is the approach typically taken by courts in the First Circuit, and in some ways the case law here on this issue is more concrete and definitive than elsewhere with regard to exactly what entities, within that universe, are in fact the proper defendants. In the words of the First Circuit, “[t]he proper party defendant in an action concerning ERISA benefits is the party that controls administration of the plan.” Terry v Bayer Corp., 145 F.3d 28, 35-36 (1st Cir. 1998)(quoting Garren v. John Hancock Mut. Life. Ins. Co., 114 .F3d 186, 187 (11th Cir. 1997)). It is the decision of the “entity with the power to make, and is the entity that actually made, the final decision to terminate [the plaintiff’s] benefits” that is subject to review, not that of other parties. Id.; see also Aponte-Miranda v. Sensormatic Electronics Corp., 2006 WL 468695 (D.PR. 2006).

So in essence, the First Circuit case law does not leave open who the proper defendant is in a denial of benefit claim, in a manner that would allow the targeting of anyone and everyone involved with a plan. Rather, the proper defendant is the party that actually decided the claim for benefits and has the power to order the payment of benefits. This, in turn, is the right rule: it does not make sense to have a defendant to such a claim be anyone other than the party that could have, but declined to, pay the benefits, as any other defendants are, in that circumstance, being sued for an action they did not take and had no control over.
 

You know, I was just going to tweet about this article, but I realized I had too much to say on this to be limited to 140 characters (I always have too much to say to be limited to 140 characters, but I often cut myself off at that number anyway, or else I could never tweet). The article, “Proposed derisking regs called burdensome,” reports on the ERISA Advisory Council’s recommendations that the DOL regulate derisking and, in particular, declare the decision to do so a fiduciary act. I find it hard to accept the premise that regulating the derisking process is overly burdensome, and, particularly in the realm of pension plans, which are already highly regulated, perhaps it is time to retire the constant complaint that a regulatory initiative is burdensome and should not be pursued for that reason, except in circumstances where someone is actually willing to put forth the effort of explaining how the benefits of the regulatory activity are outweighed by specific, identifiable burdens and costs. Simply complaining about being subject to regulation, which is all that this particular, unspecified complaint boils down to, should not be enough to even warrant the serious consideration of serious people.

Derisking is unquestionably a serious activity being pursued by very serious and big money players, both on the vendor side and on the sponsor side. It likewise has clear and serious risks and benefits to numerous plan participants. It further has a momentum at this point that is approaching, if it hasn’t already exceeded, escape velocity. It is not overly burdensome, nor even unreasonable, to make sure that a reasonable regulatory framework for the activity, intended to ensure that participants come out fine in the process, is in place. And with regard to the question of whether it should be deemed a fiduciary activity, I defer to a very senior in-house lawyer with a major plan sponsor, who, in a talk I attended recently, asserted that fiduciary obligations already require, or if not should require, sponsors to fully consider the risks and benefits to the participants, and not just to the sponsor, before deciding to derisk.
 

Years of experience litigating in the federal courts on the one hand, and arbitrating before the AAA on the other, have left me skeptical of the idea that arbitration is somehow preferable to the courts for resolving complex business disputes. My own experience is that, for those types of cases, arbitration is often not less expensive, seldom faster, and less likely to result in an accurate result (if you define accurate as a result roughly within the bell curve of possible results that an objective observer might forecast for a case). I discussed these issues in detail here, here and here in the past.

One of the bigger concerns I have discussed in the past is the risk of parties just assuming that arbitration is a better forum for a complex business dispute, rather than carefully considering in advance whether or not it is the better forum for their particular dispute and, even more importantly, for the factual and legal arguments they intend to advance. One of the important points I have discussed in the past is that a company and its counsel should carefully consider whether the strength of their position lies in legal arguments or instead in factual ones before electing arbitration, because it is a mistake to forego appellate review when your best arguments are legal. Arbitration panels themselves too frequently get the law wrong or reach incorrect results in cases where a complex or novel legal issue is outcome determinative, for a number of reasons, including an inherent tendency (for a number of reasons) to be more fact driven in their decision making than law driven. As those of you who practice in this area already know, appellate review of arbitration rulings by the courts is extremely limited and unlikely to overturn an award based simply on a glaring error in legal analysis by the arbitration panel, even though that is exactly the type of situation in which an appeals court would freely overrule a trial judge.

Now, the AAA is offering an appellate stage for complex commercial arbitrations, which will go far, at least on paper, towards addressing this problem. While it may not be preferable to going to court and having full appellate review by a federal circuit bench or state supreme court, it will at least allow the parties the opportunity to brief, address and possibly remedy legal errors by an arbitration panel. The devil, of course, will be in the details, but this is a promising step towards making the promise of arbitration – faster and less expensive but accurate dispute resolution – align with the reality.
 

The whole question of patent trolling, and the concern over it, is an issue that has gnawed at me for some time, having defended small companies against patent infringement claims by competing manufacturers and having prosecuted licensing disputes on behalf of non-manufacturing, but inventive, patent holders. My latest bugaboo on this topic is the massive patent infringement lawsuit launched by patent holding entity Rockstar against Google, and the continuing effort by state Attorney Generals to crack down on entities deemed by those offices to be trolls. What bothers me, at the end of the day, is the promiscuous use of the term patent troll, and the underlying – and somewhat Orwellian – extent to which the term is clearly thrown into the lexicon to create a negative impression of non-manufacturing patent holders who seek to enforce their rights. Certainly, there are some patent holding entities, and their accompanying lawyers, who are basically in the business of simply suing on patents to collect licensing revenue or damages. This does not, however, mean that it is fair or appropriate to call all patent holders who do not manufacture or sell in the market trolls, or to treat all such entities as somehow entitled to less than the full protection of the patent laws. Many of us have experience with university patent holders, or have worked –as I have– with inventors whose very purpose is to invent and patent a product, to thereafter license it (hopefully); sometimes these types of patent holders are never able to find a market for their product, and thus their invention is never manufactured, but this should not deprive them later of their right to damages if, years down the road, a company sells a product that infringes on one of their patents.

The Rockstar lawsuit is another perfect example. I was not the first (I suspect) and will probably not be the last to refer to IP litigation between two competitors in the marketplace as the continuation of business by other means and, frankly, I am not sure there is anything wrong with that. The big players are big boys, and if they want to invest a fortune in legal fees to attack their marketplace rivals in that way, so be it. It doesn’t change the fact, though, that such a patent infringement dispute is only tangentially about invention, and much more about collecting damages or obtaining a competitive advantage in the marketplace.

So what do you do? Everyone who sues over a patent but doesn’t manufacture or sell a product can’t be – and clearly isn’t – a patent troll, nor deserves to be tarred with that smear, and yet we know that the sole value of some patents, and sole reason for the existence of some of their holders, is to sue those who do manufacture and sell (and who by doing so create a significant number of jobs, something not true of entities that exist solely to prosecute patent infringement claims).

To my mind, the answer is easy, and doesn’t even require any type of extensive change to the patent laws or the patent process. Instead, all that is necessary is to change the damages provisions of the patent laws: create some type of sliding scale of potential recovery that is inverse to the extent of manufacturing activity, selling activity, or effort to do so (even if unsuccessful) by the patent holder. It would be easy enough to create some sort of step in the litigation process – just as there is a Markman hearing, or preliminary injunction hearing, or a summary judgment proceeding – where the evidence on this could be submitted and a court could decide this issue and determine the extent of potential damages if and when the case were to go to trial. Alternatively, one could decide that, instead, this determination should be a jury question to be decided as part of the trial. Either way, though, you could seriously alter the incentives for trolling if you made the damages recoverable by patent holders dependent on the extent to which they themselves had tried to put the patented product or method into the marketplace.
 

My small group of dedicated twitter followers know I was live tweeting last week from ACI’s ERISA Litigation conference in New York, at least for the first day of the conference. Tweeting allowed me to pass along ideas from the speakers and my own thoughts on their points in real time, which was, frankly, a lot of fun for me (if you haven’t tried live tweeting from an event, you should; it turns being an attendee watching others speak on a topic into a much more interactive and engaged experience). At the same time, though, its fair to say that many of the topics discussed by the panelists, and many of my own thoughts on those topics, don’t neatly fit within 140 characters, so I thought I would post some more detailed take aways from the conference, starting today.

One of the things that jumped out at me at the conference was the fact that the ERISA defense bar has clearly coalesced around the idea that Amara is a bad thing and that the expansion of equitable remedies set into motion by that opinion is objectionable. Even though I am, at least 80% of the time, a member of that defense bar, I think that’s a bit harsh and an overreaction. It does not strike me that the consensus defense bar view articulates a particularly substantial argument for why the Court was wrong to expand that remedy. At the end of the day, most of that remedial expansion – in the forms of reformation, estoppel and surcharge – is directed at only one phenomenon, which is the circumstance in which there is a disjunct between what a plan actually says and what is communicated to plan participants through summary plan descriptions, human resources employees, or other sources (though I have no illusions that participants and their lawyers won’t find ways to try to extend those remedies to other types of circumstances as well). To the extent that employees can show actual harm to them from that error (and by this I do not mean just being deprived of some legal right under ERISA or some hypothetical opportunity to act in response to learning the correct information, but rather some showing of actual concrete out of pocket loss to them), there is no reason they should be without a remedy, and the expansion of remedies in Amara prevents that otherwise all too common outcome.

As one of the prominent in-house attorneys speaking at the conference noted, the nature of ERISA is that the bar for proper performance by plan sponsors and administrators keeps rising, and that is as it should be: one panelist made the point that what is a best practice today in running a plan, will simply be the standard practice that must be lived up to tomorrow. This is all that Amara’s targeting of communication errors by imposing equitable remedies for them will really do in the end: make accurate participant communications a crucially important part of running a plan. As plan administrators raise their game in this regard (making what is today a best practice the standard in this regard in the future), these remedies and the Amara decision itself will become relatively unimportant, and people will come to wonder why there was so much defense bar hue and cry over Amara in the first place.
 

I have maintained a healthy interest in cybercrimes, cyber risks and related liability exposures, for at least two reasons central to the topics of this blog. The first is that, other than credit card companies, probably no one holds more protected personal information than the entities involved with ERISA plans, from health insurers to mutual fund companies to plan sponsors to record keepers. The second is that, from an insurance coverage perspective, developments in this area echo – more than vaguely even if less than resoundingly – the impact on insureds and on the insurance industry of the expansion of environmental liabilities approximately thirty years ago. Then, as now, you had the sudden creation of new potential liabilities – in that case, environmental exposures – that were not foreseen and taken into account by insurers in setting premiums, followed, in short order, by two developments: first, litigation over whether the exposures should be covered under previously issued policies that were not necessarily underwritten in a manner that would account for those risks and then, second, by the industry altering forms and policy language (such as the wording of pollution exclusions and the increased use of the claims made form) in reaction to those events.

You can see the beginnings of exactly those same events now, with regard to the rise of liability for cyber-crimes and related computer security breaches, as insureds, insurers and their coverage lawyers debate the extent to which standard general liability policy language captures or instead excludes those risks, while at the same time the industry develops products and policy language to respond to those exposures. A colleague and I presented this exact theory, as a lens for understanding the insurance coverage issues raised by cyber liabilities, in a major presentation last year, which is captured in this PowerPoint presentation.

I thought of this today, as I read this article pressing the idea that courts will be expanding the liabilities imposed on corporations for data and similar breaches. If the author is right, both the amount of insurance coverage litigation over coverage for cyber liabilities and the creation of new policy language by the insurance industry to deal with the issue will expand hand in hand with that development, in the same way both moved in tandem with the increase in environmental liabilities thirty years ago.