Very interesting case out of the First Circuit the other day on the question of whether former employees satisfy ERISA standing requirements with regard to defined contribution plans. Short answer is they do, but the Court’s analysis and discussion is an interesting open field run across a range of issues that are both explicit and implicit to any consideration of this question. One particular point, basically noted in a footnote, was of particular interest to me. I have discussed frequently in past posts my thesis that much of the evolution in ERISA law is and will continue to be driven by the economic effect on employees of the replacement of the pension system by 401(k) plans; this is partly because employees have become the persons at risk from investment mistakes, which they generally were not – barring complete failure of the employer and its pension plan – when employees were instead covered by pensions. In an interesting footnote, the Court addresses the distinction between the two types of benefits, and hints at the impact of that difference on employees:

Under a defined benefit plan, participants are typically promised a fixed level of retirement income, computed on the basis of a formula contained in the plan documents. See 29 U.S.C. §1002(35). The formula generally accounts for an employee’s years of service and compensation level at retirement. Graden, 496 F.3d at 297 n.10. In contrast with a defined contribution plan, where the amount of benefits is directly related to the investment income earned in an individual account, the investment performance of the portfolio held by a defined benefit plan has no effect on the level of benefits to which a participant is entitled, provided that the plan remains solvent. See LaRue,128 S. Ct. at 1025 ("Misconduct by the administrators of a defined benefit plan will not affect an individual’s entitlement to a defined benefit unless it creates or enhances the risk of default by the entire plan.").

The case is Kerr et al. v. W.R. Grace, et al.

Apparently none, at least according to the first ruling on this question I have seen out of a court in the First Circuit. In a ruling by a magistrate judge, the United States District Court for the District of Maine has concluded that MetLife v. Glenn does not change the rules in the First Circuit governing the extent to which – if at all – a party is allowed to conduct discovery beyond the administrative record itself in a denied benefits case governed by the arbitrary and capricious standard of review. The court found that MetLife is not a discovery ruling, and posits only that, on a case by case basis, a structural conflict of interest may be determined to impact the outcome. The court found that as a result, whether to allow discovery into any prejudice caused by the conflict of interest is likewise to be determined on a case by case basis, and to only be allowed upon a showing by the claimant that discovery into the subject is justified under the circumstances of the particular case at bar; the court specifically found that discovery beyond the administrative record was not allowed in general and as of right, simply because of MetLife. Interestingly, the court found that this is entirely consistent with the existing standards in the First Circuit governing when discovery beyond the administrative record can be allowed- standards which have existed since long before MetLife was decided – and the court is correct on this.

However, to the extent that the case may suggest that a bulwark can be maintained against the expansion of discovery in ERISA cases involving structural conflict of interests, I doubt it should be read in that way, or that the judge intended that. First, certainly MetLife, to mean anything, will over time have to be interpreted as allowing discovery to some extent into whether the conflict played a role, what role it played, and whether it should factor into the court’s review (and if so, in what manner). Otherwise, the decision really doesn’t grant claimants any significant opportunity to prove that the type of conflict at issue in MetLife should affect the outcome of a particular case. Second, the real question, and upcoming battleground, then, is what impact MetLife should be interpreted to have with regard to discovery. The answer, I think, is in line with the magistrate judge’s reasoning and matches up, as the judge suggested, perfectly with current First Circuit law on extra-administrative record discovery, which generally posits that a claimant has to show some really good reason to warrant such discovery. This standard would apply perfectly to cases involving structural conflicts of interest, by requiring that claimants establish a valid reason (perhaps based on discrepancies in the administrative record, or other facts that would at least imply that the conflicted status may have played a role in the benefit determination) that justifies further discovery into the effect of the conflict and justifies a particular scope of discovery. This would be consistent with MetLife, while simultaneously preventing denial of benefit cases from being transformed into the type of overpriced discovery heavy cases that, one, burden much of the rest of civil litigation, and, two, courts have long sought to prevent ERISA cases from being transformed into.

I could write all day on the interplay of ERISA discovery, current standards governing it, and MetLife, but for now, I’d best stop there. If time allows, perhaps I will return to the topic in still more detail in another post.

Many, many people object to ERISA preemption, viewing it as some sort of nasty trick that defendants use to avoid liability in ERISA related cases. Do a quick search for ERISA and preemption on Google Blog and you will find that out pretty quick. But to me, they misunderstand preemption, which was a legitimate policy choice by the Congress that passed ERISA to maintain one consistent federal policy and body of law for purposes of employee benefits. It is worth noting that, some thirty years, countless judicial decisions enforcing preemption, and even more countless numbers of critics later, Congress still has never acted to change that – to, in effect, preempt preemption. Stories like this one here, about the funding problems with Massachusetts’ much lauded – and legally questionable under preemption standards – pay or play law validate Congress’ decision in this regard, as it demonstrates the sheer impossibility of executing effective major change in any significant area of employee benefit law – in this instance with regard to health insurance and health care – on a state by state level. As the article discusses, Massachusetts finds itself unable to fund the universal health care initiative it passed, to much self-congratulation, recently, and is now forced to change the financing structure that it originally relied upon and which was the basis for the law’s enaction and lack of preemption challenge; as I have discussed in the past on this blog, the Massachusetts act, unlike pay or play statutes and ordinances in virtually every other instance, has not been challenged in court as preempted simply because the direct financial burden on the business community was, as enacted, minimal, but I have predicted before that: (1) the statute will inevitably result in an increase of the costs passed onto the business community; and (2) a preemption challenge will come not long after that occurs. As the article reflects, the first one of those events is knocking at the door right now; the second one won’t be long behind it.

Rob Hoskins over at the always interesting ERISABoard has an interesting story about a Second Circuit decision that essentially says “too bad” to a plan participant’s waiver/estoppel theory seeking benefits. The story is consistent with what seems to be a trend in which courts frequently fall back to the terms of the actual plan to decide a dispute, and seem unwilling to allow extrinsic, often but not always verbal, representations to participants to vary or even trump the written terms of the plan documents themselves. My own practice when it comes to participants who have been told one thing by a company representative and want to litigate the benefits they are entitled to as a result is to generally say that, yes, we can make that argument, but we will be a lot better off relying on the plan terms themselves and not on any sort of representation that might be to the contrary. It’s a platitude, to a certain extent, I know, but if you start from that premise, you will more often than not get the right strategy when mapping out litigation in cases in which representations were made that may have been contrary to the plan terms. To paraphrase that old handyman saw of “measure twice, cut once,” the way to think about these types of problems is plan terms first, estoppel claims second.

I am asked on occasion about the topics of this blog and their connection to my practice, more particularly how I ended up focusing the blog on its two primary subjects. For years, my litigation practice has focused primarily on three areas: intellectual property, ERISA and insurance coverage, in no particular order. A joke which I have long used and which always fails to elicit anything more than a pained half-smile is that 50% of my practice is insurance coverage, 50% of my practice is ERISA litigation, and 50% of my practice is intellectual property litigation.

Why did the blog end up focusing on two of those topics – ERISA and insurance coverage – and not the third, intellectual property? Well, one reason is that my experience is that intellectual property cases are heavily fact driven more than they are a product of interesting evolution in case law, limiting the appeal of blogging on them, and another is that, as a very knowledgeable legal blogging guru told me when I started the blog, there were already a lot of – mostly very good – intellectual property focused blogs; all you have to do is take one quick look at William Patry’s copyright blog to see how well tilled that soil already is.

But beyond that, and in contrast, I have found that my other two primary areas of practice, which are the central focuses of this blog (although as the digression section over on the blog topic list on the left hand side of your screen reflects, I do on occasion venture here into intellectual property issues of interest to me), provide a rich vein of endlessly interesting topics and legal developments. ERISA litigation, for instance, is a remarkably and endlessly evolving area of the law, as the courts develop what is in essence a federal common law covering the field, and as the courts deal with new types of retirement plans, plan investments, and increased litigation over both. And the intersection of insurance and the business world is a truly fascinating place to be, as the two come together at every major point in the economy and at every major issue in it as well. Here’s a good story, about the general counsel at Lloyd’s of London, that makes that point.

I wrote a long time back about Stamp v. MetLife, a decision out of the United States District Court for Rhode Island on a particular, oft litigated, and unfortunately frequently repeated fact pattern: namely, whether an unwitnessed automobile accident causing death of an apparently intoxicated driver constituted an accident for purposes of ERISA governed accidental death policies. The First Circuit has now entered its opinion in that case, finding, consistent with what appears to be almost every other federal court to weigh in on the issue, that an administrator can rightly deny benefits for such a death on the ground that the evidence of intoxication indicates that the death should not be deemed an accident for purposes of an accidental death and dismemberment policy governed by ERISA. For those of you not in the know on this issue, such policies limit benefits to deaths caused by accident, and this body of case law supports an administrator’s denial of benefits on the ground that the death was not an accident when the evidence supports the conclusion that the deceased was operating under the influence at the time of death.

There are a few things of interest about the opinion that warrant further reading. In the first instance, the case lays out the proper manner by which a court should consider an administrator’s review of this particular type of scenario, and what type of discretion is granted to that review. Second, there is a nice paragraph summarizing what the First Circuit deems to be a developing federal common law granting an administrator the ability to deny such claims despite the lack of any definitive, eyewitness evidence as to whether the intoxication was actually the cause of the automobile accident and the resulting death. And finally, and of import to ERISA practitioners who may care not one wit for the law governing the application of accidental death policies to cases of driving under the influence, the court weighs in with what I believe is the First Circuit’s first application of MetLife v. Glenn to the question of conflicts of interest by an administrator.

Philadelphia, New York, court hearings – I have been everywhere the past week or so other than at my desk where I could put up blog posts. Here’s a run down of interesting things I came across along the way that you may want to read. First, for those of you who can’t get enough of this topic – I know I can’t, but then I am fascinated enough by this stuff to maintain an entire blog on the subject of ERISA – Workplace Prof passed along this student note on preemption and “pay or play” statutes: Leslie A. Harrelson, Recent Fourth Circuit Decisions: Retail Industry Leaders Ass’n v. Fielder: ERISA Preemption Trumps the "Play or Pay" Law, 67 Maryland L. Rev. 885 (2008).

Second, SCOTUS passed along that the Supreme Court decided not to accept for hearing Amschwand v. Spherion Corp., which, I noted in a previous post, presented an opening for the Court to address when monetary awards for breaches of fiduciary duty can qualify as equitable relief that can be sought under ERISA. I have commented before that the Court has advanced the ball on equitable relief under ERISA into almost untenable terrain, and I am not sure whether the Court can bring any greater clarity to the issue without backtracking from its recent jurisprudence on the subject; given the unlikeliness of the Court doing so already with regard to such relatively recent decisions, it is probably just as well that the Court did not take on the issues presented by that case.

Third, you could learn everything you need to know about the standards of review for benefit denials and the impact of the Supreme Court’s decision in MetLife v. Glenn by clicking on the “Standard of Review” topic over on the left hand side of this blog; or you could spend an hour listening to this webinar on the topic.

Fourth, Pension Risk Matters passes along this Sixth Circuit decision enforcing the Supreme Court’s approach to individual claimants in LaRue, finding that two participants could sue for breach of fiduciary duty. There are two particularly interesting side notes about this. First, it illustrates a particular point I – and others – made in a number of media outlets after the Supreme Court issued its opinion in LaRue, namely that, while it may not result in an avalanche of litigation that otherwise would not have been filed, the ruling is certainly going to lead to an increase in the filing of smaller cases on behalf of a few participants in circumstances that, in the past, would not have generated suits unless a class wide action could be brought. Second, the case presages what may be the dying off, by a thousand cuts, of the long held use of standing to cut off ERISA breach of fiduciary duty suits at the earliest stages of procedural wrangling, long before any litigation over the merits of a case, something which occurred at the federal district court level in the original LaRue case itself. Roy Harmon, over at his Health Plan Law blog, has a detailed analysis of this question, one I have been thinking about since LaRue was decided but which Roy has thankfully saved me from addressing in detail at this point.

How dare the Supreme Court issue a major ERISA ruling while I am tied up in court this morning! How inconsiderate of my schedule. Given that there are only a few of us blogging regularly on these issues, seems to me the least the Court could have done is coordinate the release of its opinion in MetLife v. Glenn – concerning the effect of structural conflicts of interest on judicial review of an administrator’s decision – with each of us (yes, I am talking about you, Paul, and Roy, and Brian, and Suzanne, and whoever else I am forgetting about right now).

Either way, here is the decision, and here is the Workplace Prof’s take on it. For the most part, the Court pretty much did exactly what I said it would after the oral argument: decide that structural conflicts must be taken into account in passing on an administrator’s decision, even under a deferential standard of review, without making any sort of significant change to the general rubric for passing on an administrator’s determination in such circumstances. As I have said in the past, the variety of approaches to this issue taken by different circuits mandated that the Court, as it did today, impose some sort of overall rule governing the issue. However, as the concurring and dissenting justices point out, the majority did so, but without really imposing any clear guidance as to exactly how the lower courts should apply the conflict. Rather, the majority simply established that it was a factor to be considered when conducting discretionary review; does not alter the standard of review itself (i.e., render discretionary review instead de novo); and is not a factor to be considered by applying any particular rubric for analysis.

Personally, and as I have argued in posts in the past, my own experience in the courtroom makes me favor what turned out to be the Chief Justice’s take, not accepted by the majority, that the rule should simply be that the conflict can only be taken into account in reviewing the administrator’s decision upon proof that the administrator’s decision was animated or otherwise affected in some manner by the conflict. The actual play of evidence in litigation makes this a workable standard, and establishes some guidance as to exactly how courts, passing on challenges to administrators’ determinations, are to analyze structural conflicts of interest. The majority rule leaves the question of how the structural conflict is to affect any particular determination amorphous and unpredictable.

Even when trying cases, I have never had a week so busy since launching the blog that I haven’t been able to find time to post. David Rossmiller likes to say that work is the curse of the blogging class, but even when really busy, I have always found writing up a blog post to be a nice chance to recharge my batteries. So for those of you looking for something ERISA related to read on this upcoming summer weekend, I thought I would at least pass along some of the more interesting things I have been reading this week. These include: Kevin LaCroix’s latest post summing up the status of all of the subprime related lawsuits filed around the country’s courthouses, including two new cases brought under ERISA alleging breach of fiduciary duty as a result of subprime related exposures; the Workplace Prof’s series of posts on, in order, the Supreme Court’s request for the government’s view on a cash balance plan issue, the Ninth Circuit’s view that a disability benefit plan claim can be denied if the claimant does not cooperate with investigation of the claim to the extent required by the plan’s terms, and on recent appellate authority on the effectiveness – or ineffectiveness – of particular approaches to delegating discretionary authority to administrators; and the Florida Appellate Blog’s post on an Eleventh Circuit decision finding that an administrator did not have to provide a copy of an IME report to a claimant prior to conclusion of the internal appeal procedure.

The good folks who write the SCOTUS blog are engaged in one of their periodic attempts to read the tea leaves and predict what cases the Supreme Court will choose to hear. This time, they think the Court will review two ERISA cases, Geddes v. United Staffing – which concerns the standard of review to be applied to benefit determinations when fiduciary duties are delegated to a non-fiduciary – and Amschwand v. Spherion Corp., which presents an opportunity to clarify when monetary awards for breaches of fiduciary duty can qualify as equitable relief actionable under ERISA. If the Court hears both cases, we will see a continuation of the trend of the Court focusing on and likely reframing the course of ERISA litigation. Geddes provides not just an opportunity to understand the impact of delegation to third party administrators, and to open up for further development some of the unsettled issues in that realm, but also an opportunity, on the heels of whatever the Court decides in the currently pending MetLife v. Glenn case, to alter the settled understandings of when and how to apply the differing standards of review that apply in benefit cases. Amschwand, in turn, presents the Court with an opportunity to address a very technical and specific question, but one that continues to bedevil courts and litigants, namely the question of what types of claims for monetary recovery can proceed, under current Supreme Court jurisprudence, as claims for equitable relief under ERISA. Of note, the Solicitor General’s office, in recommending that the Court accept review of that case, seems to emphasize a need to broaden the range of theories that can be brought as equitable relief claims under ERISA so as to ensure an acceptable range of remedies and recourse to aggrieved plan participants, a proposition that many who favor broader remedies might not have expected to be forwarded by the administration’s legal team.