I don’t want to turn this blog into a soapbox, and as someone who really likes newspapers, I also don’t want to join the Greek chorus of self-appointed media watchdogs that seems to make up much of the blogosphere. Some things, however, such as this article in the New York Times, call out for a skeptical and critical reaction. The article explains how the NFL has now created a program to provide some funding for long term, home or facility, care for former pro players who “have various forms of dementia,” even though the NFL insists that football injuries to the brain – multiple concussion syndrome, anyone, for those of you who follow the sport? – are not the cause. The article seems to credit the NFL for providing this help to former players – help that, despite the vast wealth of the league, is capped at $88,000 a year – and praises the idea that this problem is being resolved through this program rather than by litigation, i.e. by former players suing the NFL. Astoundingly, the article describes the program as addressing an unmet need because, and I quote the Times here on this, “former players who have dementia do not qualify for the N.F.L.’s disability insurance program, because neither the league nor the union consider their conditions football-related, a stance that has been cast in doubt by several scientific studies.”

And yet, as I discussed in this post several months ago, the family of the late Pittsburgh Steelers center Mike Webster litigated that exact issue for years, finally defeating the NFL, the players association and the plan before the Fourth Circuit court of appeals, to recover benefits under the league’s ERISA governed pension and disability system for exactly this type of injury. The Fourth Circuit’s opinion, in fact, was a pretty powerful condemnation of the roadblocks that had been tossed in Webster and the estate’s path in their attempt to obtain the benefits.

Which brings me to a couple of points that should be kept in mind in reading the Times article and considering the value of the NFL’s new program that the article praises. First, I suspect that the pension plan/disability plan system that the Webster family targeted provides far greater benefits than does this separate plan discussed in the article. If so, the idea that former players should pursue help under that program, rather than through the pension plan, is a disservice to retired players. Second, again if I am right about the greater benefits available under the pension/disability plan, then one has to wonder whether the separate NFL plan discussed in this article, although commendable for providing some help to aging players, actually serves as something of a Trojan horse (not a perfect analogy, I know) that, intentionally or otherwise, draws retired players away from seeking the larger payouts of the pension/disability system and instead to this plan. And third, given that a leading federal court of appeals with a significant track record in ERISA cases has already found that the NFL’s pension and disability plan actually does cover brain injuries of this type, the article is simply off-base in stating that dementia falls outside of the plan.

The article notes the relevance of this issue to some high profile recent players, such as Ted Johnson of the Patriots, 34, whose doctors”said he was exhibiting the depression and memory lapses associated with oncoming Alzheimer’s.” Those players should, notwithstanding this article, first be looking to the NFL’s pension and disability plans, particularly in light of the Fourth Circuit’s ruling in the Webster case, for compensation and care, before settling for the limited assistance provided by this alternative plan.

And finally, this whole matter brings me back to an issue I have talked about in the past, about questionable decision making by courts concerning what decisions to publish and what ones not to publish in the ERISA context. The Fourth Circuit’s decision in the Webster case, to my recollection, was not marked for publication (you can locate it, however, at my earlier post on that case). Yet, really, the scope of NFL plan benefits for this type of mental injury had never been resolved before, and it remains, as this article in the Times reflects, not well understood, making this an opinion that probably should have been published, and should not have been part of what I have called in the past “the hidden law of ERISA.”

Ten, twenty years ago, insurance coverage litigation was predominately about broad issues and big ticket items, about the extent of insurance coverage across decades of policies for long term environmental pollution or for tens of thousands of asbestos related bodily injury claims. The actual coverage issues themselves tended to be of a big picture nature – such as whether years of dumping of pollutants was an accident for purposes of insurance policies, for instance – and were frequently not heavily focused on very narrow and highly technical aspects of policy language. Insurance coverage litigation today is, in contrast, much narrower in its focus, much more technical (see my post here, for example, about the years I once spent litigating the effect on coverage of the absence of the letter “s” from a particular provision in an insurance policy); it’s not necessarily better or worse than the whole forest picture cases of the past, just different.

A perfect example is in this (very good) article on the subject of whether disgorgement or restitution constitutes loss covered by directors and officers insurance. As the article explains, the issue revolves around the question of whether any particular recovery from directors and officers should fall within a policy’s specific definition of loss – these types of policies typically cover “loss” as defined in the policy, rather than damages, as is typically covered under liability policies – and on whether the exact recovery from the directors and officers in the particular claim at issue fits that definition.

For insurance coverage lawyers, it’s the kind of thing that is fun to fight over, but it is definitely the type of dispute where you are really focusing on a particular tree in the forest, and not (to happily and intentionally mix my metaphors) on a bigger picture. It is also the type of issue that shows why directors and officers insurance is often its own little planet when it comes to evaluating insurance coverage, because this particular issue is driven by the fact that the structure of and coverage under directors and officers policies focuses on the defined term loss. Business liability coverages, in contrast, do not center coverage on this concept, and instead are built around coverage for damages, and the question of whether disgorgement or restitution can constitute damages for purposes of such policies is quite different than the question of whether or not they constitute loss for purposes of directors and officers policies.

There is an interesting interrelationship between the two primary subjects of this blog, ERISA litigation and insurance coverage, and one that I had not really thought much about until Rick Shoff, who works with Mike Pratico over at CapTrust Financial Advisors, raised it in a conversation recently. As I have mentioned in the past, Mike and his colleagues at CapTrust serve as fiduciary advisors to retirement plans and their sponsors, and he and Rick commented to me about the issue of errors and omissions insurance and the necessary amount of coverage for fiduciary advisors.

Two points came out of our conversation that I thought I would pass along. First, what is the appropriate amount of coverage for a fiduciary advisor under its E&O insurance? What should the relationship be between the limits selected and the amount of assets in the plans that the advisor works with? Obviously, the limits can’t match the asset amounts, as any good advisor is likely advising on plans with assets far higher than the amount the advisor could purchase in E&O insurance, at least not without paying every penny the advisor earns over to the insurance company as premiums (and even then, I doubt limits that high could be obtained). It also would not be necessary, since an advisor’s potential exposure to a lawsuit undoubtedly would never equal the total amount of the assets in a particular plan, but instead would equal only some portion of it that was supposedly affected by an error by the advisor. My own take is that the proper policy limit is somewhere around the amount that would make a plaintiff in a hypothetical claim consider settlement within the policy limits, without trying to obtain an excess verdict that the advisor itself would have to pay.

The second issue that popped up is the range of actors out there who are involved in providing advice to retirement plans, participants and the like. It may well be that not all such companies and consultants, even if they have professional liability or general liability insurance coverage, are actually covered for claims arising out of their role in providing such advice. Many policies, unless they are specifically underwritten to cover a professional engaged in ERISA related activities, contain exclusions for ERISA related claims that would preclude coverage of claims involving ERISA governed plans. As a result, a plan sponsor cannot assume that all advisors to a plan actually have coverage for claims arising out of their activities, and the sponsor must instead actually examine their advisors’ insurance coverage to know whether or not this is the case.

The district courts in the First Circuit have been so busy issuing ERISA related decisions recently that it has become difficult to find time to post on other things that I also want to talk about. That said, however, the District Court for the District of Maine just issued a remarkable opinion that I both wanted to comment on and to be sure to spotlight. The case is Curran v. Camden National Bank, and it involved the question of whether the defendant bank owed hundreds of thousands of dollars to a multi-employer health care trust upon its withdrawal from the group. There are a few things that are really note worthy about the ruling. First of all, the decision is a nicely crafted survey of the law in this circuit as it currently stands on a number of topics, in particular: the extent to which, after Sereboff, equitable relief is available under ERISA in this circuit; the proper analysis of preemption; and the determination of fiduciary status for purposes of a claim for breach of fiduciary duty.

One could pick the court’s analysis of any of these three issues to focus on, and have plenty to write about, but today I will comment in particular on the court’s discussion of the viability of claims for equitable relief in this circuit after Sereboff, particularly since the court points out that the First Circuit itself has not yet found reason to interpret and apply Sereboff, other than to cite the case for the proposition that “what forms of relief are considered equitable is a matter in dispute.” On this issue, the district court began by providing a handy blueprint for analyzing claims for equitable relief in this circuit, and whether they can proceed without running afoul of Supreme Court precedent. Addressing “29 U.S.C. § 1132(a)(3), which provides [that a] civil action may be brought by a participant, beneficiary, or fiduciary (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 court stated:

 

By its terms, however, section 1132(a)(3) authorizes only "those categories of relief that were typically available in equity." Sereboff v. Mid Atl. Med. Servs., U.S. , 126 S. Ct. 1869 (2006) (quoting Mertens v. Hewitt Associates, 508 U.S. 248, 256 (1993) (emphasis in original)). If the plaintiffs seek legal as opposed to equitable relief, "their suit is not authorized by § [1132(a)(3)]." Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 218 (2002).

The First Circuit has set forth a two-step inquiry to evaluate a cause of action under § 1132(a)(3): "1) is the proposed relief equitable, and 2) if so, is it appropriate?" LaRocca v. Borden, Inc., 276 F.3d 22, 27-28 (1st Cir. 2002). With respect to the first prong, under ERISA, "’equitable relief’ includes ‘those categories of relief that were typically available in equity (such as injunction, mandamus, and restitution, but not compensatory damages).’" Id. at 28 (quoting Mertens, 508 U.S. at 256). Turning to the second step, the purpose of § 1132(a)(3) is to serve as a "safety net, offering appropriate equitable relief for injuries caused by violations that § [1132] does not elsewhere adequately remedy." Id. (quoting Varity Corp. v. Howe, 516 U.S. 489, 512 (1996)).

This is a very handy formulation that one can borrow to begin the section of any brief submitted in this circuit arguing over whether or not a particular claim can proceed under this section of ERISA. The court then went on, however, to provide far more analysis and guidance on this issue, explaining how a proper analysis of Sereboff and subsequent history from other circuits established that the plaintiffs were seeking a legal remedy dressed in the clothing of equitable relief, and that the claim therefore could not proceed under this statutory section.

Second of all, the bank’s lawyers did a terrific job here, drawing the court across a diverse range of ERISA issues and convincing the court that none of the plaintiffs’ claims were viable in light of the statute and case law interpreting it. I tip my hat to the bank’s lawyers for a terrific win.

Wow. Don’t think the heat is on for company 401(k) sponsors and other fiduciaries of employee retirement benefit plans who may not have done enough benchmarking and due diligence to make sure that mutual fund and advisor fees are as low as possible? Then take a look at this article out of the Washington Post about congressional hearings into the issue. The gist of the testimony is to the effect that fees are too high, are not disclosed fully or understood by plan participants, and have a significant impact on returns in the plans. While the mutual fund industry disputes this characterization, anecdotal evidence certainly suggests that at least some significant portion of company sponsored plans suffer from these problems. It would certainly be nice if the sponsors of plans investigated right away whether or not their plans suffer from these defects and, if so, promptly remedied the problems. But for reasons I have discussed before in other posts, doing so would not only be good business and the right thing to do for company employees who participate in such plans, but is also necessary to protect the plan’s fiduciaries from legal exposure. It clearly appears at this point that conducting due diligence to root out these problems and then remedy them – or even better, to find out that the particular plan in question does not suffer from these problems and that there is nothing to remedy – is an essential element of satisfying a fiduciary’s obligations in the operation of these plans, and that the failure to do so is an open invitation for a breach of fiduciary duty lawsuit.

Why do we have insurance coverage lawyers, and why, as Mark Mayerson has written, has “insurance-coverage law . . . developed over the last 20 years into a rarefied specialty practice”? Because when lawyers who don’t know their way around the subject get involved with insurance coverage, problems just pile up. A case out of the New Jersey Supreme Court reflects this dynamic. In that case, as this article describes it, a law firm retained to represent a business in a dispute won a judgment that was then overturned because the lawyers had blown the statute of limitations. But that wasn’t the worst part for the attorneys who lost that case; they then turned out to not have coverage for the resulting legal malpractice claim, because they had failed to disclose the potential error and potential claim on their application for professional liability insurance. Now even if they had disclosed it, they may well not have been covered for it, as the insurer may have refused to issue a policy without excluding any claims that might arise out of the disclosed events. However, one will never know, because what we do know for sure is that a failure to disclose on an application a potential claim is a quick way to lose coverage. Indeed, as the article sums up:

[T]he ruling sends a clear signal to attorneys: Be forthcoming, and err on the side of discretion, when applying for malpractice insurance. "Law firms have to disclose in the application any potential error they’ve committed," [one of the lawyers involved] says. "Here, they knew there was a likelihood a complaint was going to be filed. If there is any basis to believe you have breached a duty, there is a good chance you’re going to be sued." The insured’s lawyer . . . does not disagree in principle. "It is in an attorney’s best interest to disclose to its carrier any possible mistake because then the carrier is responsible," he says. "You’re putting the carrier on notice."

 

Here is an interesting little twist on the common scenario of a plan overpaying retirement benefits and then seeking reimbursement, as allowed under the plan’s terms, of the overpayment from the plan beneficiary. Normally, these cases are focused on whether the reimbursement qualifies as equitable relief that the fiduciary is allowed to pursue. In this case out of the District Court for the District of New Hampshire, however, the court simply assumed the plan fiduciary could legally obtain that recovery as equitable relief under ERISA, even though the judge commented in the opinion that “the scope of this court’s equitable authority in an ERISA context is not well-defined.”

However, the court then went on to let the beneficiary off the hook (or at least to find a question of fact that precluded an award of summary judgment to the plan), on the theory that the beneficiary could have reasonably believed that he was entitled to receive the overpayments, even though they amounted to many thousands of dollars a month for a number of months beyond the one time lump sum he had elected to receive as his pension benefit, and had changed his position, by spending those funds, in reliance on that belief. The court found that ordering reimbursement from the beneficiary, under those circumstances, could be inequitable, and that the plan could not recoup the overpayments if that were the case.

Of interest, there was one factual quirk that made the case somewhat different than the usual recoupment case where the overpaid beneficiary argues that he or she already spent the money and it would be inequitable to order repayment as a result. There was actually evidence showing that the beneficiary, prior to the time of the request for reimbursement, had performed rough calculations that showed him entitled to a sum significantly larger than he was actually entitled to receive. Although the math was grossly incorrect, the court found that even if his “calculations are inaccurate, the mere fact that he prepared the estimate suggests that he may have reasonably believed that he was entitled to the erroneous payments.” Most of the published decisions where beneficiaries claim they didn’t know they were receiving large payments in error and thus should not have to repay them involve fact patterns where that assertion is simply hard to believe; the court here, rightly or wrongly, was clearly swayed by evidence that placed this case outside of that mainstream.

The case is Laborer’s District Council Pension Fund for Baltimore v. Regan.

I recently had a fun virtual meeting, by conference call and downloads, with Animators at Law, who produce 2D and 3D trial graphics, and in particular with Christine McCarey, a former in-house counsel and now the company’s national director of business development. I have been at this long enough to remember when trial graphics were big glorified poster boards or, worse yet, were projected by what appeared to be simply updated versions of the overhead projectors that jurors, typically recoiling in fright, remembered with horror from junior high school.

Well, that was then and this is now. Christine, tracking my professional interests, showed off some great pieces of work from a range of intellectual property and insurance coverage cases that were both imaginative and informative; in this visual age, they are the kind of things that a jury will actually note and remember. I particularly liked two examples, the first a graphic from a trade dress infringement trial that showed the defendant’s product literally morphing over time from its original design into a design that perfectly mimicked the plaintiff’s product (for those of you who don’t do this kind of work and wouldn’t know trade dress infringement from a cocktail dress, that kind of a match puts the defendant in the position of having to rely on technical legal defenses, while letting the plaintiff reinforce in the jury’s mind that, hey, the competing products look too much the same for this to be legal).

The second example that I really liked was a series of exhibits from an environmental insurance coverage case. What I liked best about them was that they took what is in essence a dry textual issue – what does insurance contract language mean and how does it apply to these facts – and transformed it into something visual and catchy. That’s no mean feet, and it’s a long way from those bar graphs showing layers of excess policies that passed for exhibits in insurance coverage cases lo these many years ago.

Fun stuff, and if you have an interest in state of the art trial graphics, you could certainly do worse than talk with Christine.

Although I am diligent about covering in this blog ERISA decisions coming out of the courts in the First Circuit, I also keep an eye on ERISA decisions elsewhere in the country and discuss them when there is something particularly interesting about them that catches my eye. The Ninth Circuit has just done exactly that, luring me into the realm of the intersection of criminal law and ERISA by its en banc decision in USA v. Novak, and giving me an opportunity to use this blog to make my pitch to any readers in Hollywood for my proposal for a new and thrilling television show, CSI:ERISA. Can’t you just see it? Ripped from the headlines, a husband and wife resell stolen telephone equipment, fail to report the millions of dollars they earn from that to the government on their tax returns, and are caught (these are the real underlying facts of Novak, and that gave rise to the ERISA issue before the court); in tonight’s exciting episode, what happens to their retirement benefits after the conviction? Well, I don’t know, maybe that’s going a bit far, but the Novak decision is pretty interesting, on a few levels.

In Novak, the Ninth Circuit addressed the impact of ERISA’s anti-alienation provision on a federal criminal restitution order that attempted to attach the garnishee’s retirement benefits. Recognizing that ERISA itself contains an anti-alienation provision that would appear to bar such attachment, the Ninth Circuit held that the federal Mandatory Victims Restitution Act of 1996 (“MVRA”) overrode the prohibition and allowed attachment of the retirement benefits for purposes of satisfying criminal restitution orders. There is much that could be said about this opinion, but I’ll limit myself today to a few points.

First, as the court recognized, the two statutes themselves – ERISA and the MVRA – do not expressly resolve the issue of whether, despite the anti-alienation provision in ERISA, retirement benefits can be attached to pay restitution. The court presents a very persuasive and well reasoned exercise in statutory construction to reconcile the two statutes and conclude that the MVRA controls the issue and allows such attachment. To a certain extent, the court provides really a mini-tutorial on the rules underlying statutory interpretation, and the opinion is useful reading for anyone who ever has to argue a case involving construction of a previously unaddressed statutory provision. At the same time, though, the analysis reflects a real problem with trying to reach a final decision over rights and obligations by means of statutory construction, in that there is no real definitive basis in the legislative history or statutory language relied upon by the court that mandates reaching the particular conclusion accepted by the court, and instead one can argue that the opposite result could just as credibly be reached in the case.

Second, and building off of the point that the statutory language itself is not determinative of the proper result here, the court’s analysis and approach rings true, even if the result might be arguable. Conceptually and intellectually, the court’s opinion reminded me of nothing so much as Ronald Dworkin’s mythical Judge Hercules, who, when presented with a particular statute whose meaning is open to debate, sees himself as the next of a series of authors – a series that began with the legislature – and who tries to interpret the statute by adding the necessary additional layers of meaning to it that are needed to effectuate its purposes. The Ninth Circuit’s analysis reads exactly like that, with the court taking a complicated statutory text – two of them, actually, ERISA and the MVRA – and adding more meaning to the statutory text to allow it to deal with this particular fact pattern, one not addressed by the congressional drafters of the statutes.

And third, on a more prosaic basis, it is interesting how the court resolved the question of exactly what could be attached – all the assets of the retirement plan itself that are attributable to the garnishee, or only the payments due to the garnishee as they come due. The court resolved this in a quite sensible manner, concluding that what can be garnished are only those assets the garnishee himself has a current right to receive.

Michael Pratico, a fiduciary advisor to retirement plans throughout New England for Captrust Financial Advisors, and one of my favorite touchstones for real world – i.e. non-lawyer – information about the actual operation of retirement benefit plans, pointed out an interesting conundrum to me the other day concerning the operations of retirement plans and the fiduciary obligations of those who operate them. As I have discussed in other posts, the fiduciary obligations of those who sponsor or administer such plans clearly require, at this point in time and in light of current developments in the law, a certain level of due diligence, requiring at a minimum a regular comparison of fees and other aspects of a 401(k) or other retirement plan to the broader market as a whole.

Michael points out an interesting side effect of this, however, which is that once a plan sponsor or other fiduciary undertakes such due diligence, the plan becomes obliged, for all intents and purposes, to act on any bad news uncovered by the due diligence. What this means is that, yes, the plan sponsor is obligated to do the due diligence, and it seems to me is a sitting duck for a stock drop or excessive fees type suit if it fails to do so based simply on that failure.  But that is certainly not the end of it.  Instead, it means as well that once the sponsor has done that, if the due diligence shows a disjunct between better results or costs in the market as a whole and what the particular plan is earning or paying in expenses, the plan sponsor or other fiduciary becomes obligated to act on that information and change the plan to address those problems, with the failure to take that step likewise then becoming a legitimate basis for a breach of fiduciary duty lawsuit.

This is what Michael and other fiduciary advisors of his ilk do, take the existing plan, see where it is off base relative to the mutual fund world as a whole, and then recommend how to fix it. Taking both steps, and not either playing ostrich and skipping the due diligence entirely or else doing the due diligence but skipping the action it points out is needed, is really the best way to avoid incurring liability from excessive fee and similar types of claims.