Wednesday, May 26, 2010

Supreme Court Decides ERISA Attorneys' Fee Case -- And Doesn't Answer Any Questions

In its latest ERISA decision, and in a decision that will leave practitioners and litigants scratching their heads, the Supreme Court ruled on Monday that attorneys' fees are available in ERISA benefits cases to parties that have achieved "some degree of success on the merits." The Court's ruling, in this practitioner's view, did nothing but further confuse the issues.

By way of background, the case arose from Reliance Standard Life Insurance Company's ("Reliance") denial of Bridget Hart's claim for long term disability benefits. Hart filed suit in federal district court challenging the denial. The district court held that Reliance did not properly review Hart's benefit claim and remanded the case to Reliance for further consideration with instructions to properly review the evidence in the administrative record. On remand, Reliance reversed its decision and awarded Hart benefits. Hart subsequently moved for attorneys' fees in the district court, which fees the district court awarded and the United States Court of Appeals for the Fourth Circuit reversed.

In reversing the Fourth Circuit's denial of attorneys' fees, the Supreme Court focused its attention on the circumstances under which a court may award attorneys' fees under section 502(g)(1) of ERISA. Citing its 1983 decision in Ruckelshaus v. Sierra Club, the Court said that because the words "prevailing party" do not appear in the next of Section 502(g)(1), and nothing else in Section 502(g)(1) showed that Congress meant to abandon the traditional American Rule (that each party is responsible for their own attorneys' fees unless a statute says otherwise), some degree of success on the merits would be necessary for an award of fees. The Court continued by noting that "[a] claimant does not satisfy that requirement by achieving 'trivial success on the merits' or a purely procedural victor[y],' but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits without conducting a 'lengthy inquiry into the question whether a particular party's success was 'substantial' or occurred on a 'central issue". The Court determined that Hart had obtained some degree of success on the merits in the case before it because the district court had determined that the plan administrator did not follow ERISA's guidelines when reviewing the Hart's benefit claim and had instructed the administrator to re-review the claim, taking into consideration all of the evidence, or the district court would enter judgment for Hart.

Quite simply, the Court really did nothing to clarify the issue of when attorneys' fees are appropriate in an ERISA benefits dispute. The Court's ruling will just create more confusion in the district courts and basically allows the district courts to award or deny attorneys' fees on a whim.

Tuesday, May 25, 2010

Warning to Hooters Girls - Don't Eat The Wings

The Wallstreet Journal reports today that Hooters has been sued in Michigan for allegedly violating a state law that bars discrimination on the grounds of religion, race, age, sex, height and, of all things, weight. Cassandra Marie Smith, 20, alleges in her lawsuit that she began working at a Hooters in 2008. At the time, she weighed 145 pounds. In a performance evaluation earlier this month, she claims, management advised her to join a gym in order to improve herself and her ability to fit into the extra small-sized uniform. The official uniform for Hooters waitresses, she claims, comes in 3 sizes: extra extra small, extra small, or small. Smith alleges she was advised to sign an agreement placing her on 30 day “weight probation” as a condition of retaining her employment and that she was 5’8 and 132.5 pounds at the time of the evaluation. Smith claims she was unable to return to Hooters after the humiliation of being put on weight probation. Although this case may seem "silly" to some, it is a reminder to employers that many state anti-discrimination laws are more expansive in breadth than federal laws that prohibit discrimination in the workplace. For example, many states (and municipalities) have workplace antidiscrimination laws that prohibit discrimination based on sexual orientation. In contrast, to date, Congress has not extended the reach of federal antidiscrimination laws to that group.

Saturday, May 22, 2010

Blue Cross Thinks Chiropractors Are a Pain in the [...]!!!

The United States District Court for the Northern District of Illinois ruled on May 17, 2010 that a group of chiropractors can go forward with their claim that Blue Cross Blue Shield Association entities violated the Employee Retirement Income Security Act ("ERISA") by devising an alleged scheme in which the entities paid the chiropractors and then turned around and asked the chiropractors for reimbursement. See Pennsylvania Chiropractic Ass'n v. Blue Cross Blue Shield Ass'n, N.D. Ill., No. 09 C 5619, 5/17/10). The lawsuit was filed against dozens of Blue Cross entities by numerous chiropractors and associations that represent chiropractors. The plaintiffs alleged that the Blue Cross entities violated ERISA through a scheme in which they would initially reimburse the chiropractors for services provided to individuals insured by Blue Cross plans, and then sometime afterward the Blue Cross entities would make a “false or fraudulent” determination that the payments were made in error. Blue Cross would then allegedly demand repayment from the chiropractors and if the chiropractors refused, Blue Cross would force recoupment by withholding payment on other unrelated claims for services that the chiropractors provided to other Blue Cross insureds, the plaintiffs alleged. The plaintiffs asserted that the Blue Cross entities' repayment requests and forced recoupments violated ERISA.

In denying the Blue Cross entities' motion to dismiss ERISA claims (the plaintiffs also brought RICO claims, which were dismissed), the District Court rejected several challenges Blue Cross made to the chiropractors' ability to support an ERISA claim. Briefly summarizing, the District Court rejected Blue Cross's contention that the Blue Cross entities were plan administrators and thus were not proper defendants under ERISA. The District Court rejected the Blue Cross entities' contention that they were not proper defendants because the U.S. Court of Appeals for the Seventh Circuit has held that plans, and not plan administrators, are proper defendants. The District Court said that the Seventh Circuit has not been so strict as to rule that plan administrators are never the proper defendant in an ERISA action. Instead, the Seventh Circuit has said plan administrators can be sued if they are “closely intertwined” with the plan. The District Court found that in this case, the chiropractors had sufficiently alleged that Blue Cross was “closely intertwined” with the plans because it had the sole authority to make the decisions about repayment and recoupment.

The District Court also rejected the Blue Cross entities' assertion that the ERISA claims should be dismissed because the chiropractors' complaint did not identify even a single ERISA plan, a single plan participant, or a single plan provision that was violated by the Blue Cross companies. According to the District Court, this argument would have carried more weight had it not been for the fact that the chiropractors' complaint alleged that they did not identify an ERISA plan, participant, or plan provision because the Blue Cross entities had refused to tell them which patients and plans were affected by the repayment demands. The chiropractors claimed the Blue Cross entities did this “in an effort to frustrate any attempt to appeal the determination.” Finally, as relevant here, the District Court was not persuaded by the Blue Cross companies' contention that the court lacked subject matter jurisdiction over the chiropractors' ERISA claims to the extent that the chiropractors had obtained assignments of rights from their patients that were not permitted under Blue Cross' ERISA plans. To support this argument, the Blue Cross companies cited to language in their ERISA plans and contracts that prohibit plan participants from assigning their benefits to medical providers. The District Court said that while this bar on assignment of benefits might later defeat some of the chiropractors' claims, it would not divest the court of jurisdiction of the ERISA claims.

A Gentle Reminder To Withdrawing Employers -- Arbitrate!!!

The United States District Court for the District of New Jersey ruled on May 17, 2010 that an employer waived its right to contest withdrawal liability by not timely pursing its arbitration rights. Granting summary judgment for William J. Einhorn as the plan administrator for the Teamsters Pension Fund of Philadelphia & the Vicinity, the District Court rejected the employer's argument that the arbitration deadline should be equitably tolled because it waived its administrative remedies in reliance on a conversation with a fund trustee who allegedly assured the company that, even though it had stopped employing union members, it would not face withdrawal liability if it hired one union member. The District Court noted that, among other things, the fund clearly notified the produce seller that the hiring of a union member would not remedy its withdrawal liability, and that the company had ample time after that notice to initiate arbitration within the Multiemployer Pension Plan Amendment Act's ("MPPAA") deadline.

By way of background, the fund assessed withdrawal liability against the employer in July 2007 after it determined that the employer had completely withdrawn from the fund when it ceased employing union members and stopped making contributions to the fund as required by collective bargaining agreements with a local union. In late October 2007, after missing its first scheduled payment, the employer contested the fund's determination that it had completely withdrawn from the fund and requested review of the withdrawal liability assessment in accordance with the MPPAA. The employer's letter also informed the fund that it had hired a union employee and would begin making contributions, thereby mooting the withdrawal liability.
The following month, the fund rejected the employer's request for a review and informed it that whether the contributions would abate the withdrawal liability depended on MPPAA Section 4207's provision for the reduction or waiver of complete withdrawal liability. The employer did not respond to this letter and the fund sued in federal district court. After the lawsuit was filed, the employer filed a demand for arbitration.

This is yet another reminder to employers to demand arbitration as to both the existence, and amount, of withdrawal liability. The arbitration requirement is absolute.

Friday, May 21, 2010

Jeffrey Cohen Joins Bailey & Ehrenberg PLLC

We are pleased to announce that Jeffrey B. Cohen, former Chief Counsel to the Pension Benefit Guaranty Corp. has joined our firm as a Partner in Washington, DC. Jeffrey's thirty year career has been split almost evenly between the private sector and government. The one constant has been his singular focus on employee benefits litigation. His distinguished tenure at the federal Pension Benefit Guaranty Corporation culminated in his appointment as Chief Counsel, where he led the legal staff in representing the agency in ERISA litigation and in bankruptcy proceedings, including the largest, most complex, and highest profile corporate reorganizations of that era. He has litigated a wide range of employee benefit disputes at all levels of the federal judicial system, as well as in arbitrations and state courts. He is also a nationally recognized expert on employee benefits issues in bankruptcy. He earned his law degree from Georgetown University Law Center in 1980 and his Bachelor of Arts from the State University of New York at Binghamton in 1977. Mr. Cohen is a Fellow of the American College of Employee Benefits Counsel and was named as a “Dealmaker of the Year” by the American Lawyer in 2006. He has been recognized in the 2010 edition of Best Lawyers in America and as a DC Superlawyer. He is admitted to practice in the District of Columbia, New York, and Virginia, as well as the Supreme Court of the United States and a number of federal courts of appeals and district courts.

Stormy Weather for CBS News

The Wallstreet Journal reported today that longtime CBS News weatherman George Cullen has filed suite against CBS in federal court alleging that he was terminated due to his age (Cullen is 58). The lawsuit alleges that CBS terminated Cullen (after 29 years with the network) in favor of a younger, less experienced staffer. The lawsuit also alleges that CBS purportedly terminated Cullen for failing to show up for a mandatory training session. This should be an interesting case, which will turn on whether Cullen and his legal team can prove that CBS's reason for his termination - his alleged failing to attend the training session - was merely a pretext. The fact that Cullen has been replaced with a younger, less experienced staffer will help his case, but is not dispositive. Cullen will need to marshal additional evidence to prove that he was terminated solely, or predominantly, because of his age. The Journal reports that Cullen appeared on The CBS Evening News, The CBS Early Show, and The CBS NFL Today over the years. Cullen was CBS's chief meteorologist. (see for more)

Friday, May 7, 2010

Yet Another "Stock Drop" Decision...

In yet another “stock-drop” decision, the United States District Court for the Northern District of Illinois denied on Thursday a company’s motion to dismiss an ERISA lawsuit stemming from the offering of company stock in its 401(k) plan.

The facts of In re General Growth Properties Inc. ERISA Litigation, Case No. 08cv6680 (N.D. Ill.) are all too familiar. General Growth is a self-administered real estate investment trust that conducts most business through its operating partnership GGP Limited Partnership. General Growth and GGP both filed for bankruptcy protection in April 2009. In 2008 and 2009, General Growth was one of many U.S. companies devastated by the subprime lending crisis. During the relevant time period -- running from April 30, 2007, to April 16, 2009 -- General Growth's stock lost 99 percent of its value, falling from high of $65.81 per share to a low of $.49 per share. The participants alleged in their lawsuit that the General Growth and its top officials breached fiduciary duties by continuing to offer General Growth's stock in the Company's 401(k) plan during a time when they knew or should have known that the subprime lending crisis and declines in consumer spending made expansion of the company's real estate holdings “an ill-advised business plan.” The participants also alleged that the Company breached its fiduciary duties by failing to disclose to participants the adverse effect of the real estate market's collapse on the Company's real estate holdings.

The defendants filed a motion to dismiss, requesting the court to dismiss the entire lawsuit. In denying the defendants' motion to dismiss part of the participants' claims, the District Court refused to use the “presumption of prudence” analysis that many courts have applied in the context of stock-drop cases (the “presumption of prudence” analysis generally weighs in favor of company’s that offer company stock in their retirement plans). The Court determined that presumption would not apply here because the Company’s 401(k) plan did not mandate that Company stock be offered under the 401(k) plan. Further, the District Court determined that the participants had asserted sufficient facts that to allow a potential finding that it was imprudent for the fiduciaries to continue offering company stock in the Company’s 401(k) plan after the stock had lost nearly 99 percent of its value. The Court granted the motion to dismiss as to claims alleging that the defendants breached fiduciary duties by failing to tell participants about the company's financial struggles during the subprime mortgage meltdown and by incorporating misleading and inaccurate Securities and Exchange Commission filings in the plan documents. According to the court, “[w]hile Plaintiff is correct that some courts have found that incorporated SEC filings do constitute fiduciary speech, recent jurisprudence has declined to hold ERISA fiduciaries liable for SEC filings.” The Court further noted that any allegedly misleading statements made by the defendants to the participants were made in their corporate capacities, not in their plan fiduciary capacities.

Thursday, May 6, 2010

Interesting "Stock Drop" Decision

The United States District Court for the Northern District of Illinois held on Monday that Baxter International Inc. did not breach its fiduciary duties when it offered its stock in the company's tax code Section 401(k) plan at a time when the stock price was dropping (due to the company's failure to meet earnings projections). The Court's decision in Rogers v. Baxter International Inc., N.D. Ill., No. 04 C 6476 (N.D. Ill.) is significant because unlike other “stock-drop” cases -- where courts applied a “presumption of prudence” standard -- to dismiss fiduciary breach claims, the Court here based its decision (for the most part) on the safe harbor provision of ERISA Section 404(c) of the Employee Retirement Income Security Act.

The case history is quite long. The action, brought by a Baxter employee and plan participant, stems from Baxter's announcement in July 2002 that it had inflated its expected earnings, which caused Baxter's stock price to drop sharply. The employee sued Baxter, the plan's administrative and investment committees, and several individuals including two chief financial officers and two former chief executive officers. In his lawsuit, the employee alleged that the defendants breached their fiduciary duties by: (1) failing to diversify investments and by selecting Baxter stock as an investment option when the defendants knew or should have known the price was inflated, (2) imprudently investing in Baxter common stock and wrongfully presenting Baxter stock as an investment alternative, (3) making material misrepresentations and nondisclosures, and (4) “dividing loyalty” by engaging in a scheme to artificially inflate the price of Baxter's stock so as to allow executives to benefit in the form of higher stock options. The defendants filed a motion to dismiss, which the Court denied in February 2006. The Court subsequently certified the relevant claims as class action claims. The defendants filed an interlocutory appeal to the United States Court of Appeals for the Seventh Circuit, which appeal was denied, and the Seventh Circuit sent the case back to the district court.

The defendants subsequently filed a motion for summary judgment, arguing that their 401(k) plan qualified as an ERISA Section 404(c) plan, thus relieving the plan's fiduciaries of liability. Section 404(c) exempts defined contribution pension plan fiduciaries from liability if the plan meets five requirements. Those requirements are that the plan (1) provide for individual accounts, (2) allow participants the opportunity to exercise control over their accounts, (3) provide participants with the opportunity to choose from a broad range of investment alternatives, (4) give participants sufficient information to make informed investment decisions, and (5) provide additional safeguards if the plan offers qualifying employer securities. The Court determined that Baxter's tax code Section 401(k) plan met the requirements of an ERISA Section 404(c) plan, thus exempting the plan's fiduciaries from liability. In granting Baxter's motion for summary judgment, the court found that Baxter had satisfied Section 404(c) by providing participants with sufficient information to allow them to make informed decisions about their investment in Baxter stock. The court also found significant the fact that, plan participants, and not the plan fiduciaries, directed investment of plan assets. According to the Court, “[b]y providing Plan participants and beneficiaries with the requisite control over their accounts (in addition to the requisite information and range of investment alternatives) to satisfy the safe harbor defense, defendant fiduciaries ceded control over the assets in each individual Plan participant's account to each participants." In so doing, the Court noted, the defendant fiduciaries ceded responsibility for decisions regarding how those assets would be invested and agreed to follow participants' investment instructions.

The Court also disposed of the employee's argument that ERISA Section 404(c) did not absolve the defendants from liability with respect to his claim that the plan violated ERISA by acquiring and holding more than 10 percent of the plan assets in Baxter stock. According to the Court, the "10 percent claim" and the applicability of the safe harbor defense hinged on who “caused” the plan to hold more than 10 percent of its assets in Baxter stock. The court found it was the participants, and not the Baxter defendants, who caused the plan to hold more than 10 percent of its assets in company stock because the investments were made by the participants. The Court noted that "[b]ecause the fiduciary is obligated to comply with investment instructions, the Department of Labor has determined that the safe harbor shields a fiduciary from an individual participant's concentration of all of his account assets in a single stock, ... even though that concentration of assets in a single stock might be imprudent if the fiduciary had chosen to do so in exercise of its discretion." The Court further noted that "[t]here is no indication that the Department of Labor interprets the safe harbor differently if several participants decide to make the same non-diversified investment so that a large percentage of plan assets would be invested in a single stock.”