Thursday, November 29, 2012

Supreme Court To Decide "Supervisor" Job Discrimination Case

In Vance v. Ball State University, the Supreme Court will decide who is a “supervisor” and who is not, under Title VII of the Civil Rights Act of 1964. Maetta Vance, the only black employee in Ball State’s catering department, alleged that a number of her supervisors and co-workers subjected her to racial taunts and veiled threats, creating a hostile work environment for her at the Muncie, Ind. university. However, the University won summary judgment at trial in part because the court, interpreting Seventh Circuit precedent, ruled that one of Vance’s alleged supervisors was not, in fact, her supervisor. The court ruled, and the Seventh Circuit affirmed, that supervisors are only those with“the power to hire, fire, demote, promote, transfer, or discipline an employee,” and not simply those who possess “the authority to direct an employee’s daily activities.” The Supreme Court is tasked with determining whether the Seventh Circuit’s definition is proper.

Title VII prohibits employers from racial discrimination with respect to an employee’s “compensation, terms, conditions, or privileges of employment…”42 U.S.C. § 2000e-2(a)(1). In order to hold an employer liable for a hostile work environment created by its employees, however, a plaintiff must prove, among other things, that there is a basis for employer liability. See Dear v. Shinseki, 578 F.3d 605 (7th Cir. 2009). This element is the issue at the heart of Vance. A basis for employer liability is automatically found if the harassing employee is a supervisor, but if the harassing employee is merely a co-worker then Vance must show that the employer was “negligent in either discovering or remedying the harassment.” Williams v. Waste Mgmt. of Ill., 361 F.3d 1021, 1029 (7th Cir. 2004).


Calling Verizon - Do You Know Where My Benefits Are?

Verizon Communications Inc. ("Verizon") was sued earlier this week in the United States District Court for the Nothern District of Texas for an alleged misuse of plan assets. See Lee v. Verizon Communications Inc., Case No. 12-cv-04834 (N.D. Tex.). The putative class action alleges that Verizon's plan to transfer $7.5 million in assets from its defined benefits pension plan to purchase annuities from Prudential Insurance Company of America ("Prudential") violates ERISA.

By way of background, Verizon announced on Oct. 17, 2012 that it reached an agreement to use pension assets to purchase a group annuity contract from Prudential, which would then assume the obligation to make future annuity payments affecting about 41,000 Verizon retirees. Verizon asserted that it expected the transfer to further its “objective of de-risking the pension plan while improving the company's longer term financial profile.” The lawsuit alleges that the plan asset transfer violates Verizon's fiduciary duties under ERISA and interferes with the retirees' protected rights under ERISA. The retirees have asked the court to enjoin Verizon from proceeding with the plan asset transfer to Prudential. The lawsuit alleges that the transfer of plan asset would improperly eliminate all ERISA protections to which the retirees are entitled because “Prudential will not be subject to ERISA's fiduciary duties standards, minimum funding standards and disclosure requirements.” The participants also aver that the transfer “will effectively eliminate all of the transferred retirees' ERISA protections for their pensions,” including the financial security provided by the Pension Benefit Guaranty Corporation.

The lawsuit sets forth several claims. First, it alleges that Verizon violated ERISA by failing to issue a summary plan description ("SPD") that “disclose[d] all circumstances that may result in Plaintiffs' and putative class members' ineligibility for or loss of benefits provided by the Plan,” asserting that Verizon's SPDs failed to disclose “that either a single retiree or large group of retirees with vested rights could be involuntarily removed from enrollment in the Plan and transferred to either Prudential or any other insurance company and, thereby, made ineligible for continued receipt of pension benefits under the Plan.” The lawsuit also asserts that Verizon breached fiduciary duties by failing to comply with relevant plan documents, stating that Verizon's plan to transfer the participants out of the plan is an attempt to “evade a standard termination of the Plan,” which is the “only process allowed by the Plan's controlling terms so as to immediately end Plan participation by the group of 41,000 retirees.” According to the complaint, the plan lacks language authorizing Verizon to “involuntarily transfer retirees' pensions out of the Plan to be replaced by an insurance annuity,” which violates the plan's restriction on reducing participants' accrued benefits under the plan. Additionally, the transfer breaches fiduciary duties to diversify investments and to act solely in the interest of plan participants, the participants allege. The lawsuit also alleges that Verizon has violated ERISA Section 510 by interfering with the participants' rights by seeking to expel them from the plan before they have received all vested benefits they are entitled to under the plan. The suit further asserts claims under ERISA Sections 502(a)(2) and (a)(3) seeking to require Verizon to “maintain the status quo and not carry out the contemplated removal of 41,000 retirees from the Plan.”

Friday, November 16, 2012

Recent Decision - Conflict of Interest and Fiduciary Exception to Attorney-Client Privilege

In September of this year, the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court decision upholding previous hitUnumnext hit Life Insurance Co.'s  ("Unum") calculation of a participant's disability benefits, finding that the district court did not properly weigh the inherent conflict of interest present in Unum's dual status as the entity responsible for both paying and calculating benefits. See Stephan v. UNUM Life Insurance Co. of America, 9th Cir., No. 10-16840 (Sept. 12, 2012). The case addressed two interesting issues: (1) the "conflict of interest" analysis and the weight to be given such conflicts by district court's reviewing benefits determinations; and (2) the "fiduciary exception" to the attorney-client privilege. 
With regard to the former issue, the Ninth Circuit found that the U.S. District Court for the Northern District of California correctly determined that Unum's actions should be reviewed for an abuse of discretion but that the district court failed to fully consider Unum's conflict of interest. The Court  of Appeals  remanded the case to the district court and instructed it to weigh the evidence in the light most favorable to the participant, to consider evidence outside the administrative record, and to consider the “public record" of Unum's history of biased decision making. With regard to the latter issue, the Ninth Circuit also ruled that the previous hitfiduciary exceptionnext hit to attorney-client privilege applied to insurance companies acting as fiduciaries of plans governed by the Employee Retirement Income Security Act, an issue of first impression in the Circuit.
By way of background, three months after he accepted a management position at Thomas Weisel Partners, Mark Stephan sustained injuries in a bicycle accident that rendered him a quadriplegic. Stephan applied for long-term disability benefits from a previous hitUnumnext hit plan that provided disabled employees with 60 percent of their monthly earnings, up to a maximum of $20,000. previous hitUnumnext hit calculated Stephan's monthly benefit at $10,000 based on his annual salary of $200,000. Stephan appealed Unum's determination, arguing that the calculation should included both his $200,000 salary and the $300,000 annual bonus that TWP guaranteed in his offer of employment. previous hitUnumnext hit rejected his appeal based on its finding that Stephan only worked for TWP for four months and did not receive a bonus during that period, and its conclusion that TWP “went outside their own employment agreement” when it paid Stephan's guaranteed bonus four months after he stopped working. Stephan sued previous hitUnumnext hit to recover additional disability benefits, and the United States District Court for the Northern District of California determined that previous hitUnumnext hit did not abuse its discretion in calculating his benefits  The district court found that, because previous hitUnumnext hit both determined benefits eligibility and paid claims out of its own pocket, it operated under a conflict of interest that must be weighed as a factor in determining whether an abuse of discretion occurred. However, the district court found that, although a conflict of interest existed, there was little evidence of malice, self-dealing, or a pattern of disproportionately denying claims to support a finding that previous hitUnumnext hit abused its discretion.
On appeal, the Ninth Circuit ruled that the district court correctly concluded that, because previous hitUnumnext hit “both decides who gets benefits and pays for them,” it must consider this structural conflict of interest in determining whether previous hitUnumnext hit abused its discretion and that the significance of this conflict “depends upon the likelihood that the conflict impacted the administrator's decision making.” However, according to the Court of Appeals, the district court improperly weighed this factor in its analysis in several ways. First, the district court should have applied traditional principles of summary judgment in weighing the conflict, including viewing the evidence in the light most favorable to the non moving party—Stephan—and admitting evidence outside the administrative record. Second, because the district court limited its review to information contained in the administrative record, it failed to consider other relevant evidence about Unum's history of biased decision making, the Ninth Circuit concluded.
The Ninth Circuit also held that the previous hitfiduciary exceptionnext hit to attorney–client privilege—which generally provides that ERISA fiduciaries cannot assert attorney-client privilege with regard to legal advice and they receive in their capacity as ERISA fiduciaries—applies to insurance companies as well as employers, finding that the policy behind the previous hitfiduciary exceptionnext hit applies equally to employers and insurers serving as ERISA fiduciaries. While the district court concluded that the previous hitfiduciary exceptionnext hit did not apply to the instant case because the documents Stephan sought to admit were created after an adversarial relationship had begun, the Ninth Circuit disagreed and found that the documents in question “offer advice solely on how the Plan ought to be interpreted” and “do not address any potential civil or criminal liability previous hitUnumnext hit might face” and thus should have been admitted. The Ninth Circuit held that, for purposes of the previous hitfiduciary exceptionnext hit, the relationship between the parties does not become adversarial until after the final adverse benefit determination, and that documents prepared prior to that time are presumed admissible.
Finally, the Ninth Circuit said that “numerous courts” have commented previously on Unum's history of “erroneous and arbitrary benefit denials, bad faith contract misinterpretations, and other unscrupulous tactics.”In affirming Unum's determination, the district court held that Stephan had not sufficiently demonstrated Unum's history of biased claims administration, the Ninth Circuit said. On remand, the Ninth Circuit instructed the district court to “take into account the public record of Unum's history of biased decision making as well as any evidence of such history Stephan produces.” The Ninth Circuit also described several aspects of Unum's decision making that the district court could find indicative of bias.

What - No More Twinkies!

Hostess Brands announced today that it will liquidate in bankruptcy. The New York Times wrote up a nice discussion. See

Wednesday, November 14, 2012

Bailey & Ehrenberg Honored in the 2012-2013 U.S. News Best Lawyers® "Best Law Firms" Rankings

Washington, D.C. – U.S. News Media Group and Best Lawyers® have released the 2012-2013 “Best Law Firms” rankings, and Bailey & Ehrenberg is pleased to announce that the Firm took first-tier honors for its Employee Retirement Income Security Act (“ERISA”) Litigation practice both nationally and in the Washington, D.C. area.

The U.S.News – Best Lawyers® “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process. For more information on Best Lawyers®, please visit

Dedicated to high quality, Bailey & Ehrenberg PLLC provides comprehensive legal representation on a nationwide basis to both individual and corporate clients in nearly every practice area.

Supreme Court Denies Cert. in JP Morgan "Moench Presumption" Case

The United States Supreme Court denied cert. yesterday in a lawsuit by JP Morgan Chase & Co. (“JP Morgan”) employees, Fisher v. JP Morgan Chase & Co., U.S., No. 12-298 (cert. denied Nov. 13, 2012) who alleged that fiduciaries of the company's Section 401(k) plan (the “Plan”) breached their duties under ERISA by not eliminating company stock from the Plan when the stock price dropped due to losses the company incurred through its dealings with Enron Corp.
By way of background, the lawsuit was filed in 2003 by a group of JP Morgan employees who had invested in the company's stock between April 1999 and January 2003. The employees alleged that, during this period, the fiduciaries of JP Morgan's 401(k) plan knew or should have known that the company's stock was not a prudent investment option, given that JP Morgan had billions of dollars in undisclosed loss exposure to Enron. The Supreme Court’s denial of cert. followed the United States Court of Appeals for the Second Circuit’s May 2012 decision upholding a district court’s dismissal of the lawsuit against JP Morgan, using the “presumption of prudence” (frequently called the "Moench presumption") that attaches to defined contribution pension plans that offer employer stock in their plans, finding that there were no “dire circumstances” that should have prompted plan fiduciaries to remove employer stock as an investment option. The Second Circuit had noted that it had already ruled in two other cases that the “presumption of prudence” applied to all eligible individual account plans and employee stock ownership plans, even if those plans did not strictly mandate that employer stock be offered.
The petition for certiorari asked the Supreme Court to determine whether there is a presumption of prudence that immunizes from liability fiduciaries of Section 401(k) plans when they offer employer stock as an investment option, and, if so, whether the presumption is applicable to all eligible individual account plans or only those plans that mandate or strongly favor employer stock. The petition also asked what facts or circumstances give rise to or overcome the presumption and whether the presumption is properly applied to test the sufficiency of a complaint on a motion to dismiss.

Tuesday, November 13, 2012

What Protections Do Graduate Students Have When Advisors' Actions Are Unchecked

B&E is currently representing a former graduate student of a national university in a litigation stemming from actions the graduate student's faculty advisor took vis-a-vis the student and actions the university failed to take to assist the graduate student. The case is referenced in an article that appearted in yesterday's Chronicle of Higher Education and highlights the difficult situation that many graduate students find themselves in when a faculty advisor is alleged to have stolen a student's work and passed it off as his or her own, or where an advisor allegedly impeded a student's ability to stand for his or her dissertation (for impermissible reasons). The article, which notes the difficulties that graduate students face, can be found at: