Supreme Court Hears "Employee-Relationship" Retaliation Case

The U.S. Supreme Court heard oral arguments earlier this week in a case that could impact how courts and HR managers define "employee retaliation" under federal anti-discrimination laws. The facts underlying the case, Thompson v. North American Stainless LP, began approximately 13 years ago when Eric Thomspon was hired by North American Stainless (the "Company"). The Company hired Miriam Regalado three years later. The two Company employees soon entered into a relationship, and eventually were engaged to be married. In February 2003, Regalado sued the company, alleging gender discrimination. Three weeks after the Company became aware of Regalado's lawsuit, the Company fired Thompson. Thompson subsequently filed suit in the U.S. District Court for the Eastern District of Kentucky, arguing that he was wrongfully terminated under Title VII of the Civil Rights Act of 1964. The court dismissed his complaint, holding that Title VII doesn't permit claims based upon of third-party retaliation. The U.S. Court of Appeals for the Sixth Circuit affirmed the lower court's decision, and the U.S. Supreme Court eventually agreed to hear the case.

At oral argument, the Supreme Court appeared reluctant to extend its retaliation jurisprudence, and the protections of Title VII's retaliation provisions to such third-party relationships. "Put yourself in the shoes of an employer," said Justice Samuel A. Alito, Jr.. "You want to take an adverse employment action against Employee A. You think you have good grounds for doing that, but before you do it, you want to know whether you're potentially opening yourself up to a retaliation claim." He continued, noting the implausibility of opening up a claim of retaliation for every kind of employee relationship. "Does the employer have to keep a journal on the intimate or casual relationships between all of its employees, so that it knows what it's opening itself up to when it wants to take an action against someone?" The court also debated what kind of relationships would count—a spouse? A friend? A pal? "Can you help provide where the clear line is?" asked Justice Alito. "Does it include somebody who just has lunch in the cafeteria every day with the person who engaged in the protected conduct? Somebody who once dated the person who engaged in the protected conduct?" Thompson's counsel argued the relationship in this case was strong enough to warrant a claim of retaliation. "The reason the relationship is important in this case is because it tends to render plausible the argument that there's a causal connection between the adverse action visited on Thompson in this case." The Company's counsel maintained the line of reasoning that had defeated Thompson in the lower courts. It asserted that the court's previous rulings show that Title VII does not cover third-party employee retaliation, and that because Thompson did not engage in "protected conduct" (i.e. he himself allegedly had not discriminated against), he did not have standing to sue the Company.

Although the Supreme Court appears from its questioning at the oral argument to be reluctant to extend the protections of Title VII's retaliation provisions to Thompson in this case, the case would have far-ranging legal implications for employers and employees if Thompson were to prevail. If Thompson wins, employees who are fired could gain a legal foothold when arguing they were terminated because of retaliation for another employee's behavior.

Empire BCBS Sued Over Denial of Autism Coverage

Empire Blue Cross ("BCBS") has been sued in federal court in Michigan for allegedly denying health care coverage for autism treatment. Two Michigan residents filed a proposed class action against BCBS earlier this week contending that the insurer ERISA by systematically denying payment for certain treatments for autism. See Lorigan v. Empire Blue Cross Blue Shield, E.D. Mich., No. 10-14842. The lawsuit alleges that BCBS violates ERISA each time it refuses to pay for “applied behavior analysis” ("ABA") received by autistic children insured by BCBS health plans. There have been previous attempts to bring ERISA class actions against BCBS in the past. The lawsuit also alleges that ABA treatment is a “scientifically valid, medically accepted, and mainstream treatment” for autism spectrum disorder, and that by refusing to pay for ABA treatment, Empire Blue Cross has violated the terms of its ERISA health insurance plans.

Other cases have challenged the same actions of other Blue Cross Blue Shield Plans. In March 2009, a federal court in Michigan denied a class certification motion in a health plan participant's case challenging Blue Cross Blue Shield of Michigan's refusal to pay for ABA therapy. In another case dismissed earlier this year, Blue Cross Blue Shield of Tennessee Inc. was also targeted in an ERISA class action over its refusal to pay for ABA treatment. The case was dismissed earlier this year by the U.S. District Court for the Eastern District of Tennessee

Supreme Court to Hear Wal-Mart Bias Case

The Supreme Court has agreed to entertain an appeal in what has been labeled the biggest employment discrimination case in the nation’s history. The case, Wal-Mart Stores v. Dukes, involves claims that Wal-Mart discriminated against hundreds of thousands of women in pay and promotion. The lawsuit seeks back pay that could amount to billions of dollars. The question before the court is not whether there was discrimination but rather whether the claims by the individual employees may be combined as a class action. Wal-Mart, which says its policies expressly bar discrimination and promote diversity, said the plaintiffs, who worked in 3,400 different stores in 170 job classifications, cannot possibly have enough in common to make class-action treatment appropriate.

In April, an 11-member panel of the United States Court of Appeals for the Ninth Circuit, in San Francisco, ruled by a 6-to-5 vote that the class action could go forward. Judge Michael Daly Hawkins, writing for the majority, said the company’s policies and treatment of women were similar enough that a single lawsuit was both efficient and appropriate. He added that the six women who represent the class, four of whom had left Wal-Mart, had claims typical of the other plaintiffs. The size of the proposed class was not an obstacle, Judge Susan P. Graber wrote in a concurrence. “If the employer had 500 female employees, I doubt that any of my colleagues would question the certification of such a class,” Judge Graber wrote. “Certification does not become an abuse of discretion merely because the class has 500,000 members.” That drew a sharp dissent from Chief Judge Alex Kozinski. “Maybe there’d be no difference between 500 employees and 500,000 employees if they all had similar jobs, worked at the same half-billion square foot store and were supervised by the same managers,” he wrote. “But the half-million members of the majority’s approved class held a multitude of jobs, at different levels of Wal-Mart’s hierarchy, for variable lengths of time, in 3,400 stores, sprinkled across 50 states, with a kaleidoscope of supervisors (male and female).” “They have little in common but their sex and this lawsuit,” Judge Kozinski concluded. In a second dissent, Judge Sandra S. Ikuta said that allowing the case to go forward as a class action would prevent Wal-Mart from presenting tailored defenses to individual claims.

GreatBanc/Tribune Com. ESOP Decision - Court Finds Prohibited Transaction

The United States District Court for the Northern District of Illinois ruled on November 9, 2010 that GreatBanc Trust Co. breached its fiduciary duties when it approved a massive purchase of unregistered shares of Tribune Co. stock by the media conglomerate's employee stock ownership plan . See Neil v. Zell, N.D. Ill., No. 08 C 6833. In their lawsuit against GreatBanc, the plaintiff plan participants alleged that as the ESOP's trustee, GreatBanc breached its ERISA fiduciary duties by approving the ESOP's purchase of unregistered shares of Tribune because this purchase was a prohibited transaction. In granting partial summary judgment for a class of ESOP participants, the Court determined that the ESOP's purchase from Tribune of nearly 9 million newly issued unregistered shares of Tribune was a prohibited transaction under the ERISA.

By way of background, until 2006, Tribune was a publicly traded company worth billions of dollars. Tribune owned 10 daily newspapers, 25 television stations, more than 50 websites, and the Chicago Cubs baseball team. Tribune's profits began to decline dramatically in 2006 as the media industry shifted to the Internet. To deal with some of its financial turmoil, Tribune began in 2007 to shift ownership of the company to the ESOP. One step of the process in making the ESOP the company's sole shareholder was a purchase by the ESOP on April 1, 2007, of nearly 9 million newly issued unregistered shares of Tribune for $28 per share. In exchange for the shares, the ESOP gave Tribune a promissory note in the amount of $250 million to be paid over 30 years. In addition to being unregistered, the ESOP's Tribune shares were subject to trading limitations. GreatBanc, as the plan's trustee, agreed that the ESOP's shares would be transferable only pursuant to a public offering registered under the Securities Act of 1933, under Rule 144 or 144A of the Securities and Exchange Commission, or some other unspecified, legally available means of transfer. At the time transfer of shares to the ESOP took place, more than 240 million shares of Tribune stock were available for public trade on the New York Stock Exchange, but starting April 25, 2007, Tribune began a tender offer to repurchase up to 126 million publicly traded shares. Following the stock repurchase, Tribune merged with the ESOP and all Tribune shares not held by the ESOP were retired or canceled, making the ESOP Tribune's sole shareholder

In granting partial judgment for the participants, the court first noted that ESOPs are generally exempt from ERISA's prohibited transaction rules that apply to the purchase of employer stock, so long as certain requirements are met. One of those requirements is that the company stock purchased must satisfy the Internal Revenue Code's definition of “qualifying employer securities.” The court then explained how the tax code interacts with ERISA when it comes to the regulation of ESOPs. The court came to the conclusion that the tax code's definition of “qualifying employer securities,” which is defined as “common stock issued by the employer ... which is readily tradable on an established securities market,” is not inconsistent with ERISA's use of that term in its prohibited transaction rules. Accordingly, the court thus found that for an ESOP's purchase of stock to be exempt from ERISA's prohibited transaction rules, “employer securities” purchased by an ESOP must meet the definition of that term in tax code Section 409(l), which requires that the stock be “readily tradable on an established securities market.” Here, according to the court, the nearly 9 million shares in unregistered stock purchased by the ESOP were not tradable on established securities markets and therefore, the ESOP's purchase of Tribune's stock was a prohibited transaction under ERISA.

DOL Files Amicus Brief in Ninth Circuit Stock Drop Case

The United States Department of Labor ("DOL") recently urged the U.S. Court of Appeals for the Ninth Circuit to grant rehearing and overturn a three-judge panel's recent ruling embracing what is known as the “presumption of prudence” that often places a heavy burden on plaintiffs in employer stock-drop lawsuits, by filing an amicus brief in Quan v. Computer Sciences Corp., 9th Cir., No. 09-56190. The brief, which is posted to the DOL's website , argues that the three-judge panel's adoption of the “presumption of prudence” conflicts with the plain statutory language of ERISA. According to DOL, by adopting the presumption, the three-judge panel replaced ERISA's objective “prudence” standard of care with a “more lenient, judicially-created standard,” the brief said. DOL also argued in its brief that the full panel of Ninth Circuit judges should rehear the case because the three-judge panel's decision conflicts with U.S. Supreme Court and Ninth Circuit decisions concerning the court's authority to create federal common law that contravenes ERISA's plan language and purposes. DOL also argued that rehearing is warranted because the three-judge panel's decision improperly created a “safe harbor” from fiduciary obligations for employer stock investment, which could put billions of dollars in pension plan assets “at undue risk.”

We have written and reported about several recent "stock drop" cases over the past several months. Many courts deciding these cases have adopted the "Moench" presumption of prudence, which provides plan fiduciaries with significant safeguards in their determination as to whether and when to rid a pension plan portfolio of the option of offering employer stock. DOL obviously sees such decisions as a threat to the potential well-being plan participants and beneficiaries and, through this amicus brief, seeks to hold fiduciaries to standards that require more diligence. It will be interesting to see whether DOL's brief impacts the Ninth Circuit's decision and whether other courts will follow suit.

EEOC Issues Final GINA Regulations

On November 9, 2010, the U.S. Equal Employment Opportunity Commission ("EEOC") issued final regulations implementing the employment provisions of the Genetic Information Nondiscrimination Act of 2008 ("GINA"). GINA prohibits use of genetic information to make decisions about health insurance and employment, and restricts the acquisition and disclosure of genetic information. The regulations include clarifications and refinements made in response to comments received during the regulations' notice and comment period.

Congress enacted GINA with strong bipartisan support in 2008, in response to concerns that patients would decline to take advantage of the increasing availability of genetic testing out of concern that they could lose their jobs or health insurance if such tests revealed adverse information. Title II of GINA prohibits employment discrimination based on genetic information, and restricts the acquisition and disclosure of genetic information. Genetic information includes information about individuals’ genetic tests and the tests of their family members; family medical history; requests for and receipt of genetic services by an individual or a family member; and genetic information about a fetus carried by an individual or family member or of an embryo legally held by the individual or family member using assisted reproductive technology.

The final regulations provide examples of genetic tests; more fully explain GINA’s prohibition against requesting, requiring, or purchasing genetic information; provide model language employers can use when requesting medical information from employees to avoid acquiring genetic information; and describe how GINA applies to genetic information obtained via electronic media, including websites and social networking sites.

The regulations are significant in that they represent the first expansion of EEOC's scope and authority since the enactment of the Americans with Disabilities Act of 1990.

NLRB Complaint Alleges Illegal Termination For Facebook Comments

A complaint issued by the National Labor Relation Board's ("NLRB") Hartford regional office on October 27 alleges that an ambulance service illegally terminated an employee who posted negative remarks about her supervisor on her personal Facebook page. The complaint also alleges that the company, American Medical Response of Connecticut, Inc., illegally denied union representation to the employee during an investigatory interview, and maintained and enforced an overly broad blogging and internet posting policy.

When asked by her supervisor to prepare an investigative report concerning a customer complaint about her work, the employee requested and was denied representation from her union, Teamsters Local 443. Later that day from her home computer, the employee posted a negative remark about the supervisor on her personal Facebook page, which drew supportive responses from her co-workers, and led to further negative comments about the supervisor from the employee. The employee was suspended and later terminated for her Facebook postings and because such postings violated the company’s internet policies.

An NLRB investigation found that the employee’s Facebook postings constituted protected concerted activity, and that the company’s blogging and internet posting policy contained unlawful provisions, including one that prohibited employees from making disparaging remarks when discussing the company or supervisors and another that prohibited employees from depicting the company in any way over the internet without company permission. Such provisions constitute interference with employees in the exercise of their right to engage in protected concerted activity. A hearing on the case is scheduled for January 25, 2011.

As this case shows, the tracking of employees' use of social media is a hot issue in the employment and labor law arena. We previously discussed an employee benefits matter in which an insurer denied long-term care disability insurance to an employee based on pictures the employee had posted of herself on a beach vacation on Facebook.

The National Labor Relations Board is an independent federal agency vested with the authority to safeguard employees’ rights to organize and to determine whether to have a union as their collective bargaining representative. The Agency also acts to prevent and remedy unfair labor practices committed by private sector employers and unions, as well as cases arising from the United States Postal Service.

Tufts Professor Sues For Sex Discrimination

A former department chairwoman at Tufts University's dental school is suing for sex discrimination and retaliation, alleging she earned a lower salary than a male counterpart. The plaintiff, Catherine Hayes, was chairwoman of the Department of Public Health and Community Service at the Tufts University School of Dental Medicine from August 2006 to September 2010. She filed the case, Hayes v. Tufts University, in the United States District Court for the District of Massachusetts on Oct. 28. Her legal claims include violation of Massachusetts and federal gender discrimination laws, violation of the Massachusetts and federal equal pay acts, retaliation under state and federal anti-discrimination and equal pay laws and interference with rights under the Massachusetts anti-discrimination law. The defendants include Tufts, its dental school, the current dental school dean, and the dental school's executive associate dean.

The lawsuit alleges that, in the midst of a salary dispute with the dental school, Hayes learned that the chairman of the school's pediatric dentistry department was earning $250,000 per year. The lawsuit claims he was hired at the same time as Hayes but at a lower full-time equivalent. At the time, Hayes earned $184,000 per year. The lawsuit also alleges that Hayes' department includes seven divisions employing 115 faculty and staffers compared to the two divisions and 16 employees in the pediatrics department - implying that Hayes had greater duties and responsibilities (and therefore should have been paid at least as much as her male counterpart). The lawsuit also alleges that Hayes' relationship with her dean and executive associate dean "began to suffer immediately after she brought her concerns to them in April 2009." The dean and executive associate dean allegedly cancelled meetings, excluded Hayes from hiring and salary decisions about new employee, sand cut her out of fiscal 2011 budget discussions.

The lawsuit also alleges damage to Hayes' character. By way of example, the lawsuit alleges that a university office of equal opportunity investigation made incorrect findings that "impugned her character." Hayes also claims that the dean made misstatements about her actions related to a joint project with the Tufts University School of Medicine. She also claims that the defendants improperly and publicly accused her of running a budget deficit in her department in the fall of 2009. According to the lawsuit, their conclusion was based on failing to count existing grant funding and placing faculty costs from another department into her budget. The lawsuit further alleges that, after Hayes also began a doctor-approved medical leave under the Family and Medical Leave Act in July 2010 because of work-related stress, the defendants engaged in surveillance of Hayes and her activities and sent her harassing e-mail. After Hayes returned to work in August 2010, the defendants denied her request for an additional week of medical leave, and she resigned in September 2010.

GM Plans to Infuse Pension Plans With Six Billions Dollars

General Motors Co. reported last week that in advance of its planned initial public offering, it took a series of steps aimed at reducing debt, shoring up its financial position, and funding the company's pension plans. GM said it repaid $2.8 billion on a 9 percent secured note provided to the United Auto Workers Retiree Medical Benefits Trust. In addition, GM obtained a $5 billion five-year revolving credit facility from a syndicate of banks, and plans—on completion of the IPO—to purchase all $2.1 billion of 9 percent Series A preferred stock held by the Treasury Department. GM also plans to contribute at least $4 billion in cash and $2 billion in common stock to its hourly and salaried pension plans. The stock contributions to the pension plans are subject to Labor Department review, and the number of shares will depend on the offering price for GM common stock, GM said. It will be valued as a plan asset for pension funding purposes at the time of contribution and for balance sheet purposes when the shares become fully transferable, the company said.

PBGC Alert - Terrence Deneen To Step Down

The Pension Benefit Guaranty Corporation ("PBGC") issued a press release stating that Terrence M. Deneen, PBGC's veteran Chief Insurance Program Officer, has announced plans to retire from public service in mid-January. PBGC is the federal agency that guarantees payment of private pension benefits when companies and pension plans fail. It purports to protect some 44 million Americans in over 29,000 private defined benefit pension plans. The PBGC pays benefits using insurance premiums and assets and other recoveries from plans and their sponsors; it receives no taxpayer funds. New PBGC Director Josh Gotbaum stated in the press release that “Terry Deneen has provided outstanding leadership,” and that “[w]e will miss his wise counsel and his extraordinary breadth of experience with both bankruptcy and pensions." Mr. Gotbaum added that, filling Mr. Deneen's shoes will be challenging. In his current post since 2005, Mr. Deneen oversees a wide range of risk management and loss mitigation functions. He leads teams of financial analysts, lawyers and actuaries who have achieved great success in negotiating recoveries in bankruptcies and corporate restructurings. He administers a multiemployer insurance division that is currently focused on remediating the complex problems of troubled multiemployer plans. Mr. Deneen also supervises the PBGC professionals who monitor and analyze risks to corporate plan sponsors and work with companies to secure financial protection for their plans.

Court Hands Down SunTrust ERISA "Stock Drop" Decision

The United States District Court for the Northern District of Georgia dismissed portions of an ERISA "stock-drop lawsuit" brought by employees who alleged that SunTrust should have dumped its stock as a pension plan investment option in light of the financial difficulties it faced because of the subprime meltdown. See In re SunTrust Banks Inc. ERISA Litigation, N.D. Ga., No. 1:08-CV-3384-RWS, 10/25/10. The District Court followed the trend of other courts within the U.S. Court of Appeals for the Eleventh Circuit, by ruling that the employees' imprudent investment claim failed because they were simply alleging that the fiduciaries of SunTrust's retirement plans should have better diversified the plan. According to the court, there is no duty to diversify eligible individual account plans that invest in employer stock. The court also noted that it was not adopting the “presumption of prudence” often used in other ERISA stock-drop cases. The court also dismissed the employees' claim that plan fiduciaries breached their ERISA duties by making false statements in Securities and Exchange Commission filings and other documents that were distributed to plan participants. The court said that even assuming that an ERISA claim can be based on false or misleading SEC filings incorporated into plan documents, here the employees' complaint failed to identify any false or misleading statements contained within any of the incorporated SEC filings. The court did rule, however, that the employees could continue in part with their claim that the plan fiduciaries breached their ERISA fiduciary duties by failing to provide plan participants with information about SunTrust stock that would allow them to accurately evaluate their investment in the stock.

Interesting Retaliation Article

There is an interesting article on law.com today discussing current trends in workplace retaliation and recent Supreme Court cases on this topic. A link to the article appears below. While not comprehensive, the article provides a nice basic discussion of the issue for in-house attorneys.

http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202474011917&How_General_Counsel_Can_Recognize_and_Manage_the_Growing_Risk_of_Retaliation_Claims

DOL Proposes New Definition of ERISA Fiduciary

The Department of Labor's Employee Benefits Security Administration ("EBSA") has announced a proposed rule under ERISA that purports to protect beneficiaries of pension plans and individual retirement accounts by more broadly defining the circumstances under which a person is considered to be a “fiduciary” by reason of giving investment advice to an employee benefit plan or a plan’s participants. The proposal amends a thirty-five year old rule that may, according to EBSA, inappropriately limit the types of investment advice relationships that give rise to fiduciary duties on the part of the investment advisor. According to EBSA, the proposed rule takes account of significant changes in both the financial industry and the expectations of plan officials and participants who receive investment advice and is designed to protect participants from conflicts of interest and self-dealing by giving a broader and clearer understanding of when persons providing such advice are subject to ERISA’s fiduciary standards. By way of example, the proposed rule purports to define certain advisers as fiduciaries even if they do not provide advice on a “regular basis.” The full text of the proposed rule may be found at www.dol.gov.

You Want Fries With Your Harassment?

McDonald’s will pay $50,000 to settle a sex discrimination suit brought by the U.S. Equal Employment Opportunity Commission (EEOC), the agency announced. The EEOC charged that McDonald’s USA, LLC unlawfully subjected an employee to sexual harassment at one of its Perth Amboy, N.J., restaurants. According to the EEOC’s lawsuit (Civil Action No. 2:09-Civ-05028 (WJM)(MF)), filed September 29, 2009 in U.S. District Court for District of New Jersey, an assistant store manager made lewd comments to a teenage crew member and touched, spanked and hugged him in a way that made him very uncomfortable. The crew member was only 16-17 years of age when these incidences took place. The case was resolved pursuant to a consent decree signed by Judge William J. Martini on October 19. Besides paying the victim $50,000 in compensatory damages, McDonald’s will also take steps to prevent future workplace harassment. The company will post and maintain EEOC remedial notices and posters; train all employees and managers at the restaurant on the federal laws that prohibit discrimination; maintain an anti-discrimination policy and complaint procedure; and cooperate with EEOC’s compliance monitoring.

The Stock Drops -- On First Horizon

The United States District Court for the Western District of Tennessee recently denied First Horizon National Corp.'s motion for reconsideration of the court's earlier ruling refusing to apply the “presumption of prudence” at the pleadings stage of an ERISA “stock-drop” lawsuit. See Yost v. First Horizon National Corp., W.D. Tenn., No. 08-2293-STA-cgc, 10/19/10. As we have reported on this blog, a number of federal courts recently have decided such cases and have been divided on the issue of whether the “presumption of prudence” used in such cases should be applied at the pleadings stage. Although the courts have been somewhat divided, the majority of courts have applied the presumption at the pleadings stage.

The case against First Horizon was filed in 2008 after the value of the company's stock dropped by nearly 90 percent, due primarily to First Horizon's exposure to subprime and related mortgage loans. The lawsuit, brought by First Horizon employees, alleged that the company's stock was an imprudent investment and that the fiduciaries of First Horizon's defined contribution plan breached their duties by continuing to offer the stock as an investment choice. The court initially (about a year ago) granted in part and denied in part First Horizon's motion to dismiss the case. The Court allowed the employees to go forward with their "stock-drop" claim -- that the plan's fiduciaries breached their duties by failing to remove company stock as a plan investment option as the company's losses from subprime mortgage lending mounted. First Horizon then sought interlocutory review from the United States Court of Appeals for the Sixth Circuit, which declined to hear the appeal. After the Sixth Circuit refused to take up the case, First Horizon returned to the district court and filed a motion for reconsideration, which the Court denied, saying the motion was “not well taken” because First Horizon failed to show any basis for reconsideration. Among other things, the court said that while First Horizon cited an extensive body of case law that applied the presumption of prudence at the pleadings stage, the vast majority of those cases came from courts outside the Sixth Circuit and, therefore, were not of precedential value.

DOL Grants Prohibited Transaction Exemption to General Motors

The United States Department of Labor's ("DOL") Employee Benefits Security Administration ("EBSA") has granted an individual prohibited transaction exemption -- PTE No. 2010-30 --that will allow General Motors Co. to transfer company securities (including common stock, preferred stock, and a $2.5 billion promissory note) to a health plan established for GM retirees. The exemption, which covers the the United Auto Workers GM Retiree Medical Benefits Plan and its associated UAW Retiree Medical Benefits Trust is effective retroactive to July 10, 2009. Generally speaking, the exemption allows GM to transfer certain assets to its voluntary employees' beneficiary association ("VEBA") plan to provide for post-retirement health benefits. Without the exemption, the large transfer of employer securities to the plan likely would have resulted in a violation of ERISA's prohibited transaction rules, which prohibit certain benefit plans from holding large percentages of plan assets in the form of employer securities. See www.dol.gov for more information and the text of the PTE.

Transgender Woman Sues LPGA Over Right to Golf Professionally

The New York Times reported yesterday that a transgender woman has filed a federal lawsuit against the Ladies Professional Golf Association ("L.P.G.A."), alleging that the LPGA's requirement that competitors be “female at birth” violates California civil rights law (California is one of 14 states, including the District of Columbia, that has laws prohibiting discrimination on the basis of gender identity). According to the Times article, Lana Lawless, a 57-year-old retired police officer who had gender-reassignment surgery in 2005, made her name as an athlete in 2008 after winning the women’s world championship in long-drive golf. But this year, Lawless was ruled ineligible in the same championship because Long Drivers of America, which oversees the competition, changed its rules to match the policy of the L.P.G.A. Lawless wrote a letter in May asking for permission to apply for L.P.G.A. qualifying tournaments and was told by a tour lawyer that she would be turned down. Lawless has also named as defendants in her law suit Long Drivers of America, two of its corporate sponsors — Dick’s Sporting Goods and Re/Max — and CVS, the sponsor of the L.P.G.A. Challenge. According to the article, Lawless has claimed that she has no competitive edge over other female golfers - she asserts that the reassignment surgery she underwent removed her testes, and her hormones and muscle strength are in line with someone who is genetically female. See http://www.nytimes.com/ for the full article.

Another "Stock-Drop" Case Dismissed - But for Different Reasons...

On September 30, 2010, the United States District Court for the Eastern District of Michigan dismissed a putative class action law suit brought by General Motors Corp. employees against State Street Bank and Trust Co. ("State Street"). See Pfeil v. State Street Bank and Trust Co., E.D. Mich., No. 09 CV 12229. The lawsuit alleged that State Street breached its fiduciary duties owed to the employees by waiting too long to divest GM's tax code Section 401(k) plans of their holdings in GM stock. The District Court found that, although the GM employees were likely to overcome the “presumption of prudence” that attaches to pension plans that invest in employer stock, State Street did not cause losses to the employees' pension accounts because the employees retained control over their investment selections in their 401(k) accounts. According to the Court, “[a]s alleged in their complaint, Plaintiffs had knowledge at the time State Street became the fiduciary, that GM was in financial trouble yet they continued to invest in the [employee stock ownership plan]. State Street cannot be held liable for actions which Plaintiffs controlled."

Two GM employees filed the lawsuit against State Street in June 2009, alleging that as a fiduciary of the ESOP component of GM's Section 401(k) plans, State Street had a duty to rid the plans of GM stock by no later than July 15, 2008, because at that point the stock was no longer a prudent investment for plan participants. State Street was, at the time, the independent fiduciary for the ESOP. The GM employees alleged that in that same year, analyst reports consistently warned that GM's future was bleak, and that despite these warnings and numerous others that followed in 2007 and 2008, State Street kept the plans invested in GM stock. State Street eventually began to sell off GM stock in March 2009 and completed the sale of all GM stock on April 24, 2009. GM filed Chapter 11 bankruptcy on June 1, 2009. The lawsuit alleged that in its role as the independent fiduciary of the ESOP, State Street had a fiduciary duty under ERISA to determine whether GM stock remained a prudent investment for the plan. According to the lawsuit, GM stock became an imprudent investment for the plans long before the date in which State Street began to sell off the GM stock.

State Street argued in a motion to dismiss the lawsuit that the GM employees had not alleged facts that would overcome the “presumption of prudence” that attaches to plans that invest in employer stock - commonly referred to as the "Moench" presumption. In addition, State Street asserted that the plaintiffs failed to allege facts showing that State Street proximately caused any loss to plan participants. As to the Moench presumption, the court found that the trustee agreement between GM and State Street limited State Street's discretion over the ESOP. The agreement required State Street to invest exclusively in GM stock unless: (1) there was a serious question concerning GM's short-term viability as a going concern without resorting to bankruptcy proceedings, or (2) there was no possibility in the short-term of recouping any substantial proceeds from the sale of stock in the bankruptcy proceedings. In rejecting State Street's Moench defense, the court found that the employees had sufficiently alleged that GM was in serious financial trouble in June 2006 when State Street became the ESOP plan fiduciary. The court further found that the complaint alleged sufficient facts to allow the reasonable inference that there existed a serious question concerning GM's short-term viability as a going concern without resorting to bankruptcy proceedings or there was no possibility in the short-term of recouping any substantial proceeds from the sale of stock in bankruptcy proceedings sufficient for State Street to exercise its fiduciary discretion. The court further noted that the complaint sufficiently alleged numerous “red flags” that should have placed State Street on notice of a need to cease offering GM stock to Plan participants or to liquidate the ESOP funds prior to March 2009.

Although the court found that the employees had alleged sufficient facts to rebut the Moench presumption, the court agreed with State Street that the GM employees had not shown that State Street proximately caused any loss to the employees. According to the court, the plans offered several diverse investment options for participants to choose for themselves and the participants had total control over how to allocate their investments. The court said that the participants had knowledge at the time State Street became the fiduciary that GM was in financial trouble yet they continued to invest in GM stock. The Court found that State Street could not be held liable for the employees' investment choices, and, therefore, determined that State Street had not caused the participants' investment losses.

EEOC Sues Fox News

Fox News Network allegedly retaliated against news reporter Catherine Herridge after she complained to Fox that she was subjected to disparate pay and unequal employment opportunities because of her gender and age, the U.S. Equal Employment Opportunity Commission ("EEOC") announced in a lawsuit filed earlier this week. According to the EEOC’s complaint, during 2007 Herridge made several complaints to management officials at Fox News about employment practices that she believed were discriminatory. Fox conducted an investigation into Herridge's allegations beginning around December 2007, but notified Herridge that no evidence of age and sex discrimination had been found. The complaint alleges that, around the summer or fall of 2008, Fox News included language in Herridge's employment contract, which was set for renewal, that referenced Herridge's discrimination complaints and was intended to stop Herridge from making more of them in the future. Herridge refused to sign the employment contract until the language was removed. Thereafter, Fox refused to negotiate further with Herridge, would not respond to counteroffers as to substantive issues in the proposed contract, and ceased speaking to her agent or to her about her contract. As a result of Fox’s refusal to proceed with a new employment contract absent the retaliatory language, Herridge became an “at-will” employee without any job protections, causing her considerable stress, the EEOC alleged. It was only after Herridge filed a charge of discrimination with the EEOC, and an EEOC investigator conducted an on-site investigation, that Fox agreed to take out the retaliatory language and presented Herridge with a new contract with the retaliatory language removed, in June 2009 which she signed. The EEOC filed suit in the U.S. District Court for the District of Columbia (EEOC v. Fox News Network LLC, Civil Action No. 1:10-cv-01660) after first attempting to reach a pre-litigation settlement. The EEOC’s lawsuit seeks monetary relief for Herridge, including compensatory and punitive damages and an injunction enjoining Fox News from engaging in further retaliation against employees based on their opposition to employment practices which the employee reasonably believes to be unlawful under the federal statutes enforced by the EEOC. More information on this case and the EEOC may be found at www.eeoc.gov.

Yet Another Stock-Drop Case Dismissed

On September 24, 2010, the U.S. District Court for the Middle District of Florida dismissed a the second in a series of ERISA “stock-drop” lawsuits against Community National Bank Corp. ("CNB"). See Guididas v. Community National Bank Corp., M.D. Fla., No. 8:10-cv-1410-T-30TBM, 9/24/10). In June of this year, the same court had granted CNB's motion to dismiss a lawsuit by two employees who claimed CNB and certain of its officers and directors breached fiduciary duties by continuing to hold and acquire CNB stock for the bank's retirement plan at a time when the stock was allegedly an "imprudent" investment. The court dismissed the earlier lawsuit, holding that that the employees in that case should have first exhausted the plan's administrative remedies before heading to federal court. See Swetic v. Community National Bank Corp., 49 EBC 2305 (M.D. Fla. 2010).

The plaintiffs in the Guididas case asserted claims identical in all respects to those brought in Swetic. As in Swetic, the court dismissed the Guididas case for the employees'/participants' failure to exhaust their administrative remedies. The court based its decision on Lanfear v. Home Depot Inc., 536 F.3d 1217 (11th Cir. 2007), a case where the Eleventh Circuit held that exhaustion of administrative remedies is required before plaintiffs can pursue ERISA fiduciary breach claims, unless the plaintiffs can show it would have been futile to go through the administrative appeals process.

In Guididas, the plaintiffs attempted to get around the Lanfear ruling by arguing that they exhausted their administrative remedies when they filed a claim for individual benefits. The court was not persuaded by this argument, finding the plaintiffs' claim for individual benefits did not put CNB on notice that the plaintiffs were alleging a fiduciary breach claim. According to the court, “[p]laintiffs cannot meet the administrative exhaustion requirement under ERISA by merely making requests for individual benefits that are completely unrelated to their claims in this case. Plaintiffs' complaint involves putative class-wide complaints of breaches of fiduciary duty. It is axiomatic that these claims should have first been presented to the administrative review process as outlined in the Plan.” Although the court granted CNB's motion to dismiss, it did so without prejudice so as to allow the plaintiffs to exhaust their administrative remedies before refiling their lawsuit, if necessary.

D.C. Court Clarifies Pleading Requirements in Employment Cases

In Rouse v. John Berry, Civil Action No. 06-2088, Judge Richard W. Roberts of the U.S. District Court for the District of Columbia denied the Office of Personnel Management Director’s (“OPM Director”) and Long Term Care Partners’ (“LTC Partners”) motions to dismiss a complaint brought under § 501 of the Rehabilitation Act, arguing that the plaintiff failed to allege sufficient facts that demonstrate that the administration of the plan was a subterfuge for discrimination. The plaintiff, who has paraplegia and uses a wheelchair, alleged that the defendants unlawfully discriminated against him because of his disability when they rejected his Federal Long Term Care Insurance Program (“FLTCIP”) application due to his wheelchair use.

This case is significant for its interpretation of the heightened pleading standards of Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) in the context of an employment discrimination case. Citing Swierkiewicz v. Sorema N.A., 534 U.S. 506, 534 (2002), Judge Roberts noted that in a fairly straightforward employment discrimination complaint, plaintiffs traditionally have not been subject to a heightened pleading standard. Importantly, he pointed out that Twombly explicitly disavowed any retreat from Swierkiewicz, and that Iqbal did not discuss, much less disavow it. Judge Roberts sided with the plaintiff and his counsel, Jim Bailey, of Bailey & Ehrenberg PLLC, holding that “because Rouse has pled facts demonstrating that he has suffered an adverse employment event because of his disability, he has established a claim under § 501 even without establishing that the administration of the benefits plan is a subterfuge for discrimination.”

Significant Stock-Drop Decision Adopts Presumption of Prudence

In what many are already calling a major victory for the ERISA defense bar, the U.S. Court of Appeals for the Ninth Circuit recently adopted the rebuttable “presumption of prudence” for fiduciaries defending ERISA "stock-drop" lawsuits in Quan v. Computer Sciences Corp. (9th Cir., No. 09-56190, 9/30/10). Following what has been labeled as the “Moench” presumption, the Ninth Circuit joined with the U.S. Courts of Appeals for the Third, Fifth, and Sixth Circuits, which have all applied the presumption in cases where employers who offered employer stock in their defined contribution plans were sued by plan participants after the value of the employer stock sharply decreased. The presumption originated with the Third Circuit's decision in Moench v. Robertson, 62 F.3d 553, 19 EBC 1713 (3d Cir. 1995), and is often relied upon by the defense bar in support of early motions to dismiss in such stock-drop lawsuits.

According to the Ninth Circuit, "if properly formulated, the Moench presumption can strike the appropriate balance between the employee ownership purposes of [employee stock ownership plans and other eligible individual account plans], and ERISA's goal of ensuring proper management of such plans.” “We adopt the Moench presumption because it provides a substantial shield to fiduciaries when plan terms require or encourage the fiduciary to invest primarily in employer stock. Fiduciaries are not expected to predict the future of the company stock's performance." The Ninth Circuit noted its view that the Moench presumption will not “entirely insulate” a fiduciary from liability, because the presumption can be rebutted by a showing that a fiduciary abused its discretion by investing in employer stock. To overcome the presumption, a plaintiff must make allegations that “clearly implicate a company's viability as an ongoing concern” or show a “precipitous decline in employer stock ... combined with evidence that the company is on the brink of collapse or is undergoing serious mismanagement,” the court said. In addition, the court said there is no bright-line rule as to how much evidence is needed to rebut the Moench presumption. “A guiding principle, however, is that the burden to rebut the presumption varies directly with the strength of a plan's requirement that fiduciaries invest in employer stock,” the court said. The court then found that the CSC plan participants were unable to overcome the Moench presumption because they presented no evidence that it was unreasonable for the plan fiduciaries to believe that CSC would overcome its financial problems. The Ninth Circuit also determined that the CSC plan fiduciaries did not breach their ERISA duties by allegedly making misrepresentations to plan participants about the quality of CSC stock.

Beware the Cat's Paw

In Lindsey v. Walgreen Co., No. 10-1036 (7th Cir. August 11, 2010), the United States Court of Appeals for the Seventh Circuit rejected a former employee’s “cat’s paw” argument. The plaintiff, Katie Lindsey, was 53 years old when she sued her former employer under the Age Discrimination in Employment Act ("ADEA"). A few years after she began her employment with the drug store chain Walgreens, Ms. Lindsey was promoted from staff pharmacist to pharmacy manager by her district pharmacy supervisor. Before long, Walgreens received complaints from Ms. Lindsey’s co-workers, and the same district pharmacy supervisor determined that Ms. Lindsey was not fit to continue in a managerial position (in part because she allegedly was not following pharmacy procedures). The district pharmacy supervisor demoted Ms. Lindsey back to a staff pharmacist position, transferred her to another store, and warned her that she would be fired the next time she failed to follow pharmacy procedures. The district pharmacy supervisor later determined that Ms. Lindsey had once again violated company policy and ultimately terminated her employment.

After filing suit in federal court, Ms. Lindsey alleged several theories of discrimination, including the "cat’s paw" theory, a phrase used in the employment law world that refers to an allegedly unbiased decision-maker who is used as a proxy for an allegedly biased manager/employee. Ms. Lindsey argued that the district pharmacy supervisor was a cat’s paw for a co-worker, who she claimed disliked her because of her age. Ms. Lindsey insisted that the district pharmacy manager decided to fire her after “blindly relying” on biased information from the co-worker. Ms. Lindsey alleged that her new co-workers (after she had been transferred) called her “lazy” and “slow” and questioned why Walgreens exiled “old,” “demoted” pharmacists to their store. She also alleged that the biased co-worker made disparaging remarks about her age and abilities. The court rejected Ms. Lindsey’s argument because it determined that Walgreens employer had adequately demonstrated that its employment decision was based on an independent evaluation/review and was not tainted by any alleged bias.

DOL Issues Safe Harbor for Internal Claims and Appeals Processes

The departments of Labor, Treasury, and Health and Human Services issued Technical Release 2010-02 on September 20, 2010. The Release provides an enforcement grace period until July 1, 2011, to give group health care plans and insurance issuers more time to comply with regulations on new internal claims and appeals procedures. On July 22, 2010, the departments released regulations standardizing and strengthening the process by which consumers can appeal medical coverage or claims denials by their health insurance. The rules apply to nongrandfathered health plans and are effective for plan years beginning on or after Sept. 23. The release said that the Labor Department and Internal Revenue Service will not take any enforcement action against a group health plan, and HHS will not take any enforcement action, during the grace period, against a self-funded nonfederal governmental health plan, that is working in good faith to implement such additional standards but does not yet have them in place. The agencies also released a series of FAQs addressing a range of other topics under the health reform law, including compliance with the rules, grandfathered plans, internal and external reviews processes, and dependent care coverage.

D.C. Federal Court Clarifies EEO Charge-Filing Timelines

In Lee v. District of Columbia, Civil Action No. 09-CV-1832, Judge Ricardo M. Urbina of the U.S. District Court for the District of Columbia denied the District of Columbia’s motion to dismiss a complaint brought under the American with Disabilities Act of 1990 (“ADA”), 42 U.S.C. §§ 12101 et seq., arguing that the plaintiff did not timely file a charge of discrimination with the U.S. Equal Employment Opportunity Commission (“EEOC”) within 180 days as required by 42 U.S.C. § 2000e-5(e).

The plaintiff, a person with a disability based on his diabetes, alleged in the lawsuit that the District of Columbia’s Department of Corrections discriminated against him by failing to accommodate his condition by offering him meal breaks to stay alert due to the effects of low blood sugar and then terminating him for failing to stay alert during his work shift. The plaintiff acknowledged in his lawsuit that he did not file a charge of discrimination with the EEOC within 180 days but maintained that his charge was timely filed because it was filed in 205 days, and, given that the District of Columbia Office of Human Rights has a worksharing agreement with the EEOC, the filing deadline is extended to 300 days.

Judge Urbina sided with the plaintiff. He reaffirmed that an individual asserting a claim under the ADA must generally file a charge of discrimination with the EEOC within 180 days; but, “when a worksharing agreement exists between the EEOC and a state or local Fair Employment Practices (“FEP”) agency, the filing window widens to 300 days.” Judge Urbina then determined that the plaintiff’s discrimination charge was timely because “[t]he DCOHR has entered into such an agreement with the EEOC, and therefore the applicable time limitation for filing a charge of discrimination in the District of Columbia is 300 days.”

According to the plaintiff's lawyer, James C. Bailey of Bailey & Ehrenberg PLLC in Washington, D.C., the decision is important because it provides clarification concerning the charge-filing time lines for prospective plaintiffs.

Bang Bang You're Fired

A former employee of Iron Mountain Information Management Inc. has challenged the company to a legal duel in Gwinnett County Superior Court in Georgia over its employees' rights to possess guns while on the clock at work. Jamie Lunsford had worked for the document-shredding company for six years when she was fired for carrying a handgun in her car. Lunsford had driven with a co-worker to the Federal Reserve Bank in Atlanta on business for Iron Mountain. When she entered the Federal Reserve Bank's parking garage, she was asked by security whether she was carrying any firearms. She responded in the affirmative. She was then instructed to leave and park elsewhere. When Lunsford returned to work, she was suspended and then fired. According to Iron Eagle, Lunsford violated the company's gun policy when she drove herself and another employee to a customer's facility while in possession of a gun. Iron Eagle noted that Georgia law allows workers to have guns in company parking lots. The law, however, according to Iron Eagle, does not permit an employee to carry a firearm while conducting company business. Given that, and general employee safety issues, Iron Eagle felt compelled to terminate Lunsford. Employers should take note of this lawsuit. and consider whether their workplace firearms policies are in compliance with relevant state laws. It should be noted that such laws vary from state to state.

IRS, DOL and HHS Issue New Claims Rules for Group Health Plans

The Internal Revenue Service, the Department of Labor's Employee Benefits Security Administration, and the Department of Health and Human Services issued today interim and final rules for group health plans and health insurance issuers relating to internal claims and appeals and external review processes under the Patient and Affordable Care Act. The text of the rules can be found at www.dol.gov.

New DOL "Guidance" on Fees to Plan Service Providers

In recent years, the way services are provided to employee benefit plans (such as record keeping services and investment services) and the way service providers are compensated have become increasingly complex. Indeed, in the 401(k) plan context, there have been over the past few years myriad "excess fee" lawsuits challenging the fees paid by plans and plan fiduciaries to services providers. To address the issue, the United States Department of Labor ("DOL") announced last week an interim final rule that purports to "enhance disclosure to fiduciaries of 401(k) and other retirement plans." Although DOL has in the past issued (it its own words) "considerable guidance" relating to the obligations of plan fiduciaries in selecting and monitoring service providers, the interim final rule "establishes, for the first time, a specific disclosure obligation for plan service providers."

According to DOL, the rule will assist fiduciaries in determining both (1) the reasonableness of compensation paid to plan service providers, and (2) any conflicts of interest that may impact a service provider's performance under a service contract or arrangement. Generally speaking, the interim final rule will enhance disclosure to pension plan fiduciaries by requiring the disclosure of the direct and indirect compensation certain service providers receive in connection with the services they provide. The rule applies to plan service providers that expect to receive $1,000 or more in compensation and that (1) provide certain fiduciary or investment advisory services to plans, (2) make available plan investment options in connection with brokerage or record keeping services, or (3) otherwise receive indirect compensation for providing certain services to plans.

Plan service providers will now have to provide the plan fiduciaries they service a substantial amount of information, in writing. Information that must be disclosed includes a description of the services to be provided and all direct and indirect compensation to be receievd by the service provider (or its affiliates or subcontractors). Because certain services and costs are so significant and/or present the potential for a conflict of interest, information concerning those services and costs must be disclosed without regard to whether services are furnished as part of a bundle or package. Service providers must also disclose whether they are providing any services as a fiduciary to the plan. According to DOL, these new requirements will result in reduced time and cost for fiduciaries to obtain the compensation information needed to fulfill their fiduciary duties.

The full text of the interim regulation may be found at http://www.dol.gov.

The Force Is Not With You Mr. Lucas

The San Fransisco Chronicle reports that a California jury awarded $113,800 in damages against Lucasfilm Ltd earlier this week for withdrawing a job offer from a San Francisco woman after she disclosed that she was pregnant. Lucasfilm Ltd. is film director George Lucas' film production company. Mr. Lucas directed the Star Wars movies. The woman had applied to become an assistant manager at Lucasfilms' personal headquarters in April 2008. She signed a contract for a 30-day position two months later, but said she was told it was a probationary period for a permanent $75,000-a-year job. Two days later, and only days before she was to start work, the woman told her prospective supervisor that she was pregnant. Her job offer was subsequently withdrawn.

DOL Extends FMLA Leave to Gay Workers

The United States Department of Labor ("DOL") announced yesterday that it was "clarifying" the definition of "son and daughter" under the Family and Medical Leave Act ("FMLA") to ensure that an employee who assumes the role of caring for a child receives the parental rights to family leave regardless of the that employee's legal or biological relationship with the child. The FMLA generally allows employees to take up to twelve (12) weeks of unpaid leave during any twelve (12) month period to care for loved ones or themselves. The FMLA also allows employees to take time off for the adoption or birth of a child. The DOL's press release (see www.dol.gov) proclaims that its clarification "is a victory for many non-traditional families" and "sends a clear message to families in the lesbian-gay-bisexual-transgender community, who often in the past have been denied leave to care for their loved ones." According to National Public Radio (www.npr.org), this clarification, coming less than five months before November's congressional elections, likely will incite conservatives and Republicans who earlier opposed the Obama administration's efforts to repeal a ban on gays and lesbians serving openly in the military.

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.

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.

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.