Here’s a dog bites man story: the joint defense privilege exists in Massachusetts. For those of you who are unfamiliar with the topic, the joint defense privilege allows parties on the same side of the dispute in a multiparty litigation to share information amongst themselves and their various attorneys without waiving the attorney client privilege. Normally, the privilege only attaches to information kept in confidence by a party and its attorney, and if they disclose it to anyone else, the privilege is lost (or waived, as the litigators say). However, the joint defense privilege allows parties who have a shared interest in litigating against yet another party to disclose information to each other without waiving the privilege. The Massachusetts Supreme Judicial Court has now officially recognized this principle, but what makes it a little bit of a dog bites man story is that Massachusetts lawyers and trial court judges have been acting for decades as though the joint defense privilege exists. The Supreme Judicial Court acknowledged this in its opinion, stating: 

Although this court has not had occasion to consider the common interest doctrine or any of its components, there is no doubt that attorneys and their clients have relied on its implicit existence. It is evident from cases such as Commonwealth v. Beneficial Fin. Co., 360 Mass. 188 (1971), the longest criminal trial in the history of the Commonwealth, that joint defense arrangements have been used in criminal trials in Massachusetts for a substantial period of time. Indeed, in The Society of Jesus of New England v. Commonwealth, 441 Mass. 662, 666 (2004), we noted without comment that the defendants in that criminal case had entered into a "Joint Defense Agreement." The principle, at least in the litigation context, is incorporated into Proposed Mass. R. Evid. 502 (b) (3). The parties have brought to our attention numerous well-reasoned decisions of judges in the Superior Court recognizing the validity of the joint defense privilege in civil cases.

It is not surprising, by the way, that the issue came up, and was finally decided by the Supreme Judicial Court, in an insurance related case; insurance disputes routinely involve multiple parties, from primary carriers to excess carriers to insurance agents to third party administrators, and on and on. It is very difficult for all of the parties on one side or the other of the case to align their positions and litigate effectively without sharing privileged information.

Here’s a curious case out of the First Circuit yesterday that is, and isn’t, about ERISA, but hints at how the First Circuit would handle a particular issue of some importance with regard to ERISA’s protection of retirement benefits. I have talked in the past about a decision out of the Ninth Circuit a few months back, United States v. Novak, in which the court held that the criminal restitution requirements imposed by the federal Mandatory Victims Restitution Act (“MVRA”) trumped the anti-alienation provisions of ERISA. Here’s my earlier post on that case, and here’s a post on an article in the National Law Journal in which I am quoted on the Novak case. In United States v. Hyde, decided yesterday, the First Circuit suggests its agreement with Novak, strongly indicating that in this circuit retirement benefits can be attached to fulfill criminal restitution orders entered in accordance with the MVRA. Discussing whether the bankruptcy code or homestead exemptions under Massachusetts law prevented attachment by the government of certain proceeds, the First Circuit concluded in no uncertain terms that the “MVRA’s language is unambiguous [and its] provisions apply ‘[n]otwithstanding any other Federal law.’" The Court relied heavily on the Novak decision as support, noting that Novak held that the “MVRA provisions supersede the non-alienation provisions of ERISA.”

Here’s an interesting case out of the First Circuit this week concerning an attempt to use an equitable estoppel theory to force a plan to pay supplemental life insurance benefits even though the former employee covered by the plan had not submitted the necessary health forms to qualify for that coverage. The case, Todisco v. Verizon Communications, involved a situation in which the now deceased employee was supposedly told that he could sign up for the additional life insurance benefits without submitting the necessary health information. The plan administrator refused to pay those benefits after his death because his failure to submit that information precluded such coverage under the terms of the plan.

After much wrangling at the district court (“wrangling” in this context being a euphemism for substantial motion practice), what remained was the plaintiff’s theory that she could recover the benefits on an estoppel theory based on the allegedly misleading statements made to the deceased at the time he elected the benefits. The First Circuit held that the theory failed as a matter of law, however. The Court analyzed the issue under both possible statutory causes of action available to the plaintiff, namely Section 502(a)(1)(B), which “empowers a ‘participant or beneficiary’ to bring suit ‘to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan,’ and Section 502(a)(3), which “allows a ‘participant, beneficiary, or fiduciary’ to sue ‘(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (I) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan."

The First Circuit held, however, that the plaintiff’s equitable estoppel claim had no home under either statutory section. It found that even though in common parlance equitable estoppel is understood to be an equitable remedy, it did not constitute equitable relief for purposes of ERISA under applicable Supreme Court precedent; for ERISA purposes, equitable relief has a very narrow and specific meaning, and the plaintiff’s attempt to recover compensatory damages only under an estoppel theory did not fit that meaning. The plaintiff’s claim was therefore not actionable as a matter of law under Section 502(a)(3). At the same time, however, the First Circuit found that the relief was not viable as a claim for damages – namely the denied benefits – under Section 502(a)(1)(B), because that section only allows recovery of benefits due under the terms of the plan, and the plaintiff’s estoppel theory did not allege that the benefits were due under the actual terms of the plan, but that they were instead due under the terms of the plan as misrepresented to the deceased at the time he sought to obtain the coverage. The Court found that this claim did not fit the express requirements of the statutory provision in question, which limits recovery to benefits when the actual terms of the plan require them to be paid.

On the first Monday morning in August I expect things to lighten up with lots of people on vacation and the like, so I scheduled a breakfast meeting this morning right in the middle of one of Massachusetts’ most congested highways (well, not really in the middle of the highway, more like at a restaurant off an exit off of one of the most congested highways), on the theory traffic would be lighter than usual. It wasn’t. But I still think August should be a lighter month, so today’s blog posting is musical. Here is a link to the song “Pension Tension Blues,” courtesy of Pension Governance. What is “Pension Tension Blues”? Pension Governance describes it thusly: 

Inspired by those who bring attention to serious issues through humor, Dr. Susan M. Mangiero, [Pension Governance] president and founder, and Mr. Steve Zelin, the Singing CPA have co-created a (hopefully) memorable ballad about the state of affairs in pension land. Mangiero adds "Pension Governance, LLC is committed to helping fiduciaries do a better job of identifying, measuring and managing financial risk. We hope the song is a friendly reminder of the hard work ahead."

 

Wow, here is a great insurance coverage story out of the Massachusetts Lawyers Weekly, concerning a state trial court decision over the impact of a particular clause in a life insurance policy. The case involved a life insurance policy containing a clause under which the policy only became effective if the insured was in good health at the time of issuance. The life insurer had a medical exam conducted on the applicant for the coverage, and found him to be healthy enough for the policy to be issued. Two weeks later, however, he was found by his own physicians to have a terminal disease. The life insurer sought to deny the claim, after his death, for the life insurance proceeds on the ground that the good health requirement was not met.

The state trial court, probably rightly so, ruled against the insurer, restricting the good health clause to limiting coverage if the insured knew or should have known that he was not in good health, and rejected the insurer’s argument that the clause instead applies on an objective level and precludes coverage if the insured was not in good health at the time of issuance, without regard to what the insured or anyone else actually knew at that time. The court’s choice seems to me to be a reasonable and fair result. But what is really interesting about it is that in doing so, the trial court rejected 85 year old precedent to the contrary, finding that it was outdated and that changing the rule to instead apply in the manner selected by the trial court better conformed to the reasonable expectations of the insured.

I have talked before in this blog about the reasonable expectations doctrine, and about the idea that it can be understood as a tool for the court to look at an insurance contract and give it the most realistic and sensible interpretation for the parties given that the parties themselves at the time of contracting are limited in their ability to anticipate the future events over which they are contracting and have only a finite capacity for capturing all possible contingencies in the policy language. This case represents a perfect example of that use of the doctrine, particularly so given the extraordinary rarity of the fact pattern at issue. Really, what reasonable insured or insurer – particularly after the insurer had arranged for a pre-coverage medical examination of the applicant – would have anticipated this exact fact pattern? And for that matter, what applicant would buy coverage, after being examined and having his medical records reviewed by the insurer prior to coverage being approved, if the coverage would vanish if, contrary to the knowledge of both the insurer and the insured, he was thereafter found to be terminally ill?

I am kind of fond of this recent disability benefits case out of the United States District Court for the District of Maine for one particular reason, namely its discussion of functional fiduciaries, and thought I would pass it along as a result. Confronted with the question of whether Metropolitan Life, the administrator, was a fiduciary or possessed fiduciary authority with regard to benefit determinations, the court explained that although Metropolitan Life was not the Plan Administrator or a "named fiduciary" within the meaning of ERISA, the plan language clearly gave it authority that would render it a fiduciary. While there is nothing particularly out of the usual or fascinating about that finding, I liked the court’s further citation of the First Circuit’s recognition of the doctrine of functional fiduciaries as further support for its finding. The court noted that: 

The First Circuit has recognized that ERISA’s fiduciary duty provisions extend to "functional fiduciaries–persons who act as fiduciaries (though not explicitly denominated as such) by performing at least one of the several enumerated functions with respect to a plan." Beddall v. State Street Bank and Trust Co., 137 F.3d 12, 18 (1st Cir. 1998). "The key determinant of whether a person qualifies as a functional fiduciary is whether that person exercises discretionary authority in respect to, or meaningful control over, an ERISA plan, its administration, or its assets." Id.

In the disability benefits field, where many of the insurers and administrators are highly experienced, plan documents are usually clear as to who is playing what fiduciary role and who has discretionary authority, but in other cases, such as smaller self-managed plans or involving smaller third party administrators, the controlling plan documents often do not address the role of every person or service provider involved in the operation of the plan. In those cases, the functional fiduciary analysis can be quite handy in understanding the role of the players involved in the administration of the plan, and the possible liabilities of each as well.

Here’s a nice follow up ruling in the case of Curran v Camden National, a particularly interesting ERISA case that I discussed here. In this newest ruling, the United States District Court for the District of Maine denied the motion of the defendant – which had earlier successfully moved to dismiss the complaint against it – for an award of attorney’s fees under ERISA. The Court first stated the governing standard in the First Circuit on this issue, which is that: 

in an ERISA case, a prevailing plaintiff does not, merely by prevailing, create a presumption that he or she is entitled to a fee-shifting award [and there is no] creation of a presumption in favor of prevailing defendants. Rather . . . in the context of ERISA cases, the Court is to apply a five-factor analysis to determine the appropriateness of an award of attorney’s fees to the prevailing party: (1) the degree of culpability or bad faith attributable to the losing party; (2) the depth of the losing party’s pocket, i.e., his or her capacity to pay an award; (3) the extent (if at all) to which such an award would deter other persons acting under similar circumstances; (4) the benefit (if any) that the successful suit confers on plan participants or beneficiaries generally; and (5) the relative merit of the parties’ positions.

The Court then went step by step through each factor, explaining how none warranted an award of attorney’s fees, despite the fact that the defendant had prevailed on a motion to dismiss – which is always a pretty good showing of a potentially severe absence of merit in the plaintiff’s claims. The Court explained that prevailing on such a motion alone cannot be enough to support an award of attorney’s fees, because if it was, it would discourage parties from proceeding with what may well be meritorious claims out of fear of being hit with an award of attorney’s fees if they are wrong in their analysis of the merits. The take home from the opinion in this case can only be that the standard for obtaining such an award, at least as a prevailing defendant, is pretty high, and if I were defending against a claim for attorney’s fees under ERISA, this is the case I would open my brief with.

I like this article here about a judge’s extensive evidentiary analysis of the admissibility of electronically generated data, in particular the fact that the judge found that certain types of computer generated data are not subject in any manner, shape or form to the rule against hearsay. As the article sums up the judge’s point: 

Perhaps the more important — and interesting — aspect of [U.S. Magistrate Judge] Grimm’s opinion is his conclusion that information he describes as "electronically generated" is completely outside the hearsay rule. The hearsay rule is among the best known and important of the gate-keeping rules to screen evidence before it reaches the jury. Under the hearsay rule, a statement made outside of court may not be offered into evidence for its truth unless the statement falls within one or more specific exceptions (for example, when the statements are contained in business records, made by employees or agents, or made against the speaker’s interests). Hearsay evidence is excluded at trial because there is no opportunity to cross-examine its creator to determine how reliable the evidence is. By electronically generated information, Grimm means information a computer creates itself. Electronically generated information can take a variety of forms. Grimm cites as an example the report a fax machine prints whenever a fax is sent. Another example (but which he does not cite) is "metadata." Metadata is information "created" by the computer that records (often without the user’s knowledge and often without the user ever seeing it) what has happened to a particular document, such as who created the document, when it was created, who viewed it and who changed it.

A neat analysis of some of the ever evolving issues arising from the expansion of discovery into computer data, but I can’t say I really buy it. Even though the data and/or the information printed out is not directly inputted by a person, the computer system itself obviously didn’t create and store these types of information on its own or create it from some artificial intelligence of its own. The information is there, and stored and formatted in a particular manner, only because of software and other input placed there by humans for the purpose of having the system create, store and generate the data in a particular manner. As such, the information discussed by Judge Grimm is at root the creation, by extension, of the individuals who did that, rendering the computer generated information a statement of some human or another. The information is therefore more accurately thought of as the out of court statements of an individual, and should only be admissible if an applicable exception to the hearsay rule applies – most likely, as a business record of the party in control of the computer network that generated the data or that created the stored information.

In any event, beyond this one quibble over the application of the hearsay rule to certain forms of computer generated data, the judge’s full opinion on these issues, in the case of Lorraine v. Markel American Insurance Company, is actually terrific and I recommend it to anyone interested in electronic discovery and the rules of evidence. Indeed, it is really a terrific treatise not just on admissibility of electronically stored data, but on the federal rules of evidence themselves. And as I have mentioned before in other posts on the subject of electronic discovery, the evolving law on these types of issues is central to both ERISA and insurance litigation, the primary subject matters of this blog, due to the fact that the administration of ERISA plans and insurance claims are almost always computer based.

If it seems like I have been digressing a lot these past couple of weeks off of the primary topics of this blog and into other areas that interest me – such as the billable hour system – or that I practice in, like intellectual property litigation, it is because the courts of the First Circuit have been fairly quiet with regard to ERISA issues since the First Circuit issued its opinion in this case a few weeks back in which I represented the prevailing parties. Things change quickly in the forest, though, and the courts in this circuit have begun speaking again on ERISA issues. The United States District Court for the District of Puerto Rico has now provided this nice, handy summary of why an individual plan participant whose benefits have been terminated must bring solely a claim for benefits, and cannot press forward with an alternative theory for breach of fiduciary duty. In the words of the court: 

ERISA recognizes two avenues through which a plan participant may maintain a breach of fiduciary duty claim: (1) a Section 502(a)(2) claim to obtain plan-wide relief, see 29 U.S.C. § 1132(a)(2); and (2) an individual suit under Section 502(a)(3) to obtain equitable relief, see 29 U.S.C. § 1132(a)(3). Cintron [the plaintiff] does not seek plan-wide relief. Consequently, ERISA authorizes her breach of fiduciary duty claim only if she seeks "appropriate equitable relief." 29 U.S.C. § 1132(a)(3); Varity Corp. v. Howe, 516 U.S. 489, 512, 116 S. Ct. 1065, 134 L. Ed. 2d 130 (1996); Watson v. Deaconess Waltham Hosp., 298 F.3d 102, 109-10 (1st Cir. 2002); Larocca v. Borden, Inc., 276 F.3d 22, 27-28 (1st Cir. 2002). The Supreme Court of the United States has described Section 502(a)(3) as a "safety net" that provides appropriate equitable relief for injuries that Section 502 does not elsewhere adequately remedy. Varity, 516 U.S. at 512. Section 502(a)(3), therefore, does not authorize an individualized claim where the plaintiff’s injury finds adequate relief in another part of ERISA’s statutory scheme. Id. at 512, 515; see also Watson, 298 F.3d at 112-13; Larocca, 276 F.3d at 27-28; Turner v. Fallon Cmty. Health Plan, 127 F.3d 196, 200 (1st Cir. 1997). Following Varity, "federal courts have uniformly concluded that, if a plaintiff can pursue benefits under the plan pursuant to Section [502(a)(1)(B)], there is an adequate remedy under the plan which bars any further remedy under Section [502(a)(3)]." Larocca, 276 F.3d at 28.

Section 502(a)(1)(B) provides Cintron the opportunity to obtain redress for the injury she alleges to have suffered–a wrongful termination of her benefits. If the defendants wrongfully stopped paying her benefits, Section 502(a)(1)(B) provides an avenue through which she may recover benefits due. She may not seek relief for the same injury under Section 502(a)(3). . . .Thus, she may not maintain a claim for breach of fiduciary duty under Section 502(a)(3).

As some of you know from other posts, I like to collect handy summaries like this to insert into future briefs in appropriate spots, and I pass this one along to anyone who may want to do likewise. The case is Cintron-Serrano v. Bristol-Myers Squibb P.R., Inc.

Here’s an article on Law.com today, out of the Recorder, on whether San Francisco’s version of a pay or play law mandating certain health care payments by businesses in the interest of bringing about the holy grail of universal health care coverage can survive ERISA preemption. The article points out, similar to what I discussed here, that federal courts have struck down similar laws in New York and Maryland. Based on the description of the San Francisco act in the article, I can’t say it sounds sufficiently different from the laws struck down in those cases that I would give it much chance of surviving a preemption challenge, with one caveat, that the Ninth Circuit, as it recently did with regard to the standard of review of benefit denial cases under ERISA, may be willing to shift the parameters of the law in this area. If it does, you will see the issue before the Supreme Court, as it is likely to create a direct conflict with the Fourth Circuit’s findings in Fielder, and on an issue – state regulation of employer provided health benefits – that is at play in more and more states every day.