Texas University’s Race Admissions Policy Is Debated Before 5th Circuit Court of Appeals

Interesting article in today's NY Times about the Fisher case the Supreme Court heard a while back. The Fifth Circuit just held oral argument. http://www.nytimes.com/2013/11/14/us/texas-universitys-race-admissions-policy-is-debated-before-a-federal-court.html?ref=us

IRS,DOL and HHS Issue Final Wellness Program Regulations

On May 29, 2013, the U.S . departments of Health and Human Services and Labor and the Internal Revenue Service issued final regulations regarding employee wellness programs under the Patient Protection and Affordable Care Act (PPACA). The final rules were published in the Federal Register on June 3, 2013 (78 F.R. 33157) and will take effect 60 days later, on August 2, 2013.

Under the final regulations implementing the Health Insurance Portability and Accountability Act (HIPAA) non-discrimination and wellness provisions issued in 2006, wellness programs are divided into two categories:  “participatory wellness programs” and “health-contingent wellness programs.” The new final regulations under the PPACA further divide health-contingent plans into two sub-categories: “activity-only” wellness programs and “outcome-based” wellness programs. 

The final rules require that health-contingent wellness programs be reasonably designed, uniformly available to all similarly situated individuals and accommodate recommendations made at any time by an individual’s physician, based on medical appropriateness. The final rules also clarify the “reasonable design” requirement for health-contingent wellness programs and the reasonable alternatives they must offer to avoid prohibited discrimination. Notably, the final rules establish criteria for an affirmative defense against a claim that the plan discriminated based on health status in violation of HIPAA.  

The final rules are largely consistent with earlier proposed regulations, which were released on November 20, 2012, but are reorganized for clarification. The final regulations also increase the maximum permissible reward under a health-contingent wellness program offered in connection with a group health plan (and any related health insurance coverage) from 20 percent to 30 percent of the cost of employee coverage, and further increase the maximum permissible reward to 50 percent for programs targeting tobacco use prevention or reduction.

The final regulations are effective for plan years beginning on or after January 1, 2014, and apply to both insured and self-funded health plans, regardless of grandfathered status. 

Five Bailey & Ehrenberg Attorneys Honored as 2013 Super Lawyers and Rising Stars

Bailey & Ehrenberg is pleased to announce that five of the firm’s attorneys have been named to the 2013 Washington, D.C. Super Lawyers and Rising Stars lists as being among the top attorneys in Washington, D.C. Three of Bailey & Ehrenberg’s partners have been selected to the 2013 Washington, D.C. Super Lawyers in the areas of employment law and employee benefits. Only five percent of all attorneys in Washington, D.C. are recognized as Super Lawyers each year. The following Bailey & Ehrenberg attorneys were named as 2013 Super Lawyers:

• James C. Bailey (Employment & Labor)
• Jeffrey B. Cohen (Employee Benefits/ERISA)
• Jason H. Ehrenberg (Employee Benefits/ERISA)

In addition, two of our attorneys have been selected to the 2013 Washington, D.C. Rising Stars list. The Rising Stars list recognizes attorneys who are 40 years old or younger, or who have been practicing for 10 years or less. Each year, no more than 2.5 percent of the lawyers in a state are selected by Super Lawyers to receive this honor. Bailey & Ehrenberg’s attorneys included in this year’s Rising Stars list are:

• Michael A. Tilghman II (Employee Benefits/ERISA)
• Sara M. Klayton (Employment & Labor)

Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annuals selections are made using a rigorous multiphase process that includes statewide surveys of lawyers, an independent research evaluation of candidates and peer review by practice area. Selections are made on an annual, state-by-state basis.

Participants' Stock-Drop Claims Overcome Moench Presumption in Wilmington Trust Litigation

The United States District Court for the District of Delaware ruled on May 3, 2013 that a group of participants challenging Wilmington Trust Corp.'s ("WT Corp.") decision to continue offering company stock in its defined contribution retirement plan alleged sufficiently dire circumstances to overcome the presumption of prudence that shields plan fiduciaries from liability. See In re Wilmington Trust Corp. ERISA Litigation, D. Del., No. 1:10-cv-01114-SLR, 5/3/13. The participants alleged that WT Corp. stock price declined by 90 percent during a period in which plan fiduciaries failed to acknowledge the “concerns of its banking peers” regarding problems in the housing and commercial real estate market. The Court denied the fiduciaries' motion to dismiss this claim, finding that the participants pleaded facts sufficient to overcome the presumption of prudence.

However, the Court did dismiss claims of failure to disclose material information and failure to properly monitor the plan's investment committee.

 

By way of background, according to the complaint, the plaintiffs each invested in WT Corp. stock through their individual accounts in the WT Corp. Thrift Savings Plan. In December 2010, they filed a proposed class action against WT Corp. and related individuals and entities challenging the plan's investment in company stock during a period in which the stock price declined by 90 percent.

According to the complaint, WT Corp. increased its exposure to commercial real estate and construction loans throughout 2007 and failed to acknowledge the “concerns of its banking peers” regarding the viability of the housing market as late as January 2008. In April and May 2008, WT Corp. “continued to assert that its construction and home loan portfolios were locally focused and not suffering from the deteriorating housing market conditions in the rest of the country,” the participants alleged. By December 2009, WT Corp.'s commercial real estate and construction loans made up about 22 percent of its loan portfolio, which the participants claimed was “twice that of other banks.” By the time WT Corp. was acquired by M&T Bank Corp. in 2011, its stock price fell 90 percent from $43.19 per share in January 2007 to $4.45 per share in May 2011. The complaint alleged that the defendants' continued investment of plan assets in WT Corp. stock breached their ERISA fiduciary duties of care, loyalty, and monitoring. The complaint also challenged the defendants' alleged withholding of material information about plan investments.

 

In evaluating the participants' claim of breach of the fiduciary duty of care, the Court applied the Moench presumption, which requires plaintiffs to point to a plan sponsor's impending collapse or other dire circumstances to show that a reasonable plan fiduciary would have divested the plan of employer stock. The Moench presumption, articulated by U.S. Court of Appeals for the Third Circuit in Moench v. Robertson, 62 F.3d 553,  (3d Cir. 1995), is frequently cited as a grounds for dismissal of employer stock-drop cases.The Court determined that the Moench presumption applied, because the plan language directed the fiduciaries to “primarily invest in common stock of the Employer.” Under this standard, the Court found that the participants' complaint demonstrated that WT Corp. “continued to make construction loans after its peers acknowledged the housing market decline” and “seemingly turn[ed] a blind eye to the market's decline.” Further, WT Corp. relied on “outdated appraisals for its loan decisions” throughout the class period. Given these allegations, the Court concluded that the participants set forth allegations that “plausibly suggest a dire enough situation to support an abuse of discretion by the fiduciaries (at least, sufficient to permit discovery).”The Court also allowed the participants to proceed with their claim of breach of the fiduciary duty of loyalty. The participants asserted that the compensation of certain individual defendants “was tied to the performance of WT Corp's stock and that they had information that was inconsistent with the rosy picture of WT Corp's financial condition they continued to paint as corporate officers.” Although the Court cautioned that “the mere fact that compensation is tied to stock prices…is not necessarily enough to show the existence of a breach,” it found that the participants' allegations were sufficient to withstand the motion to dismiss.

 

The Court agreed with the defendants that the participants failed to state a claim for violations of ERISA's disclosure requirements. According to the Court, the plan description and written communications provided the participants with information regarding plan investments and associated risks, including summaries of past performance and warnings against fluctuations resulting from market conditions. These activities satisfied ERISA's disclosure obligations, the court concluded.The Court also dismissed the participants' claim that WT Corp.'s chief executive officer breached the duty to properly appoint, monitor, and oversee the committee responsible for determining plan investments. According to the Court, “even if [the CEO] had informed the Committee of the true financial and operating condition of WT Corp, the Committee was precluded from doing anything with that information until the information was publicly disclosed.”

Gobble Goblle - EEOC Wins $240 Million Disability Verdict Again Turkey Company

The U.S. Equal Employment Opportunity Commission ("EEOC") on May 1 won a $240 million award in a disability discrimination suit brought on behalf of 32 men with intellectual disabilities.
A federal jury in Davenport, Iowa, found that Hill Country Farms, doing business as Henry's Turkey Service, violated the Americans with Disabilities Act ("ADA") by subjecting the men to verbal abuse and physical harassment, housing them in a sub-standard dormitory, dismissing their complaints of injuries and forcing them to carry heavy weights as punishment. The verdict follows a September 2012 order from the U.S. District Court for the Southern District of Iowa that the company pay the men $1.3 million for unlawful disability-based wage discrimination, for a combined penalty of $241.3 million. By way of background, according to the EEOC, for more than 30 years Hill Country Farms employed disabled men to work alongside non-disabled employees on the turkey processing line at a plant in West Liberty, Iowa. The EEOC in court papers described the case as "a story of the loss of human dignity that may well have been borne of better intentions in the 1960s, but which has devolved over the years into a morass of unfathomable and discriminatory, and exploitative conduct."
The men, who lived in a run-down, converted schoolhouse known as "the Bunkhouse," were paid $65 a month for working at least 35 hours a week eviscerating turkeys–or about 46 cents an hour. Wolfe later found that the men should have gotten $11 to $12 an hour. The defendants unsuccessfully argued that the pay constituted a minimum wage when room and board and in-kind care were factored in. The company also took $487 a month from each man's Social Security payments for expenses. In 2009, the Iowa Fire Marshal shut the bunkhouse down for unsafe, unclean and unhealthy conditions such as a leaky roof and insect infestation, and the men were removed. The EEOC filed suit in 2011. Hill Country Farms, which is based in Goldthwaite, Texas, and was represented by David Scieszinski, a solo practitioner in Wilton, Iowa, first argued that it wasn't actually the men's employer. The company contracted with the turkey processing plant to provide the disabled workers. The plant, which was originally owned by Louis Rich Foods, changed owners over the years, but Hill Country continued to provide the workers. During the trial, the EEOC presented evidence that supervisors called the workers "retarded," "dumb ass" and "stupid," and kicked, hit and in at least one case handcuffed them. The jury began deliberating on April 30 and reached a verdict in the morning of May 1. The jury awarded each of the men $2 million in punitive damages and $5.5 million in compensatory damages.

D.C. Court Strikes Down NLRB Poster Rule

The United States Court of Appeals for the District of Columbia struck down on May 7, 2013 a rule requiring companies to post a notice advising employees of their rights under federal labor law, including the right to form or join a union. The rule, which the National Labor Relations Board published in August 2011, would have required nearly 6 million employers, many of them small businesses, to conspicuously display the employee-rights poster. Writing for the Court of Appeals, Senior Judge A. Raymond Randolph said the poster rule made an employer's failure to post the notice an unfair labor practice. However, federal law protects "the right of employers (and unions) not to speak," he continued. "This is why, for example, a company official giving a noncoercive speech to employees describing the disadvantages of unionization does not commit an unfair labor practice if, in his speech, the official neglects to mention the advantages of having a union," Randolph said. Judges Janice Rogers Brown and Karen LeCraft Henderson agreed with the disposition of the case. Writing separately, however, Henderson said she also would have found the board lacked authority to promulgate the posting rule under a different provision of the National Labor Relations Act. Lawyers for the NLRB argued, among other things, that content of the poster reflected the board's speech, not the employer's. The board's attorneys said the poster's message was not ideological. Enforcement of the rule was on hold pending the outcome of the appeal.

Supreme Court Issues Ruling In U.S. Airways ERISA

The United States Supreme Court held today in U.S. Airways, Inc. v. McCutchen, in a 5-4 decision, that the terms of an ERISA plan cannot be overridden by equitable principles in an action for equitable relief under ERISA Section 502(a)(3). In an opinion authored by Justice Elena Kagan, the Supreme Court vacated and remanded a decision by the U.S. Court of Appeals for the Third Circuit declining to enforce a health plan provision (that required participants to reimburse the plan for amounts received in third-party recoveries) against a participant who was not made whole by a third-party settlement. The majority also ruled that, while equitable principles cannot trump a reimbursement provision, they may aid in properly construing it. Because the U.S. Airways plan was silent as to the allocation of attorneys' fees, the Supreme Court found that the equitable "common fund" doctrine provided the appropriate default rule to fill that gap. In a short dissenting opinion, Justice Antonin Scalia disagreed with the majority's use of the common fund doctrine to fill a gap in plan language. Chief Justice Roberts and Justices Thomas and Alito joined the dissent. We will provide a more in-depth analysis of this decision in the near future. The Court's decision can be found at the link below:

http://www.supremecourt.gov/opinions/12pdf/11-1285_i4dk.pdf

New Form I-9 Issued by U.S. Citizenship and Immigration Services

A revised Employment Eligibility Verification Form I-9 has been published by the U.S. Citizenship and Immigration Services ("USCIS").  Employers are allowed to immediately begin to use the form, but beginning on May 7, 2013, employers must use the new form. Until then, the government has provided employers with a grace period during which they may continue to use the old form or may switch to the new form, at their option. If employers fail to use the new form after May 7, 2013, it may result in fines. The new form is two pages and includes additional information to be provided by employees. In particular, the new form requests the employee's telephone number, email address, and foreign passport number. For their part, employers are still required to provide the same information as required under the old Form I-9. USCIS also has released a new Handbook for Employers, known as the M-274, which provides additional guidance on completing the new Form I-9. The new Form I-9 must be completed for all new hires as well as for re-verifying current employees with expiring employment authorization documentation beginning May 7, 2013. It is not necessary to complete a new Form I-9 for existing employees who do not require re-verification.

 

Supreme Court Declines To Review Montana Preemption Case

The United State Supreme Court will not review a ruling from the United States Court of Appeals for the Ninth Circuit that the Employee Retirement Income Security Act (“ERISA”) does not preempt a Montana state unfair insurance practices statute that bars insurers from engaging in “unfair discrimination” when charging policy premiums to similarly situated individuals. See Blue Cross and Blue Shield of Montana Inc. v. Fossen, U.S., No. 11-1144, cert. denied 1/22/13.
By way of background, the lawsuit at issue was originally filed in a Montana state court by Dale Fossen and his company. Fossen claimed that his health insurer, Blue Cross and Blue Shield of Montana Inc. (“BCBSM”), violated Montana Code Ann. §33-22-526(2)(a) by increasing the premiums for Fossen's business by 21 percent, allegedly due at least in part to the health status of one of Fossen's employees. After BCBSM removed the case to federal court, the district court agreed with Fossen that Montana's “little HIPAA” law would fall under ERISA's insurance savings clause. However, the court eventually determined that, even if the law were saved from ERISA preemption, ERISA would still bar application of the Montana law because it was duplicative of ERISA Section 702. The district court subsequently found that BCBSM did not violate ERISA Section 702. Fossen then appealed to the Ninth Circuit. In support of Fossen's appeal, the Department of Labor filed an amicus brief asking the Ninth Circuit to reverse the lower court's ruling on ERISA preemption.
The Ninth Circuit ruled in 2011 that the Montana unfair insurance practices statute was “saved” from ERISA preemption because it applied without regard to the existence of an ERISA plan and therefore fell within ERISA Section 514(a)’s savings clause for state laws regulating insurance. The Ninth Circuit also held that Montana’s “little HIPAA” statute was completely preempted by the federal Health Insurance Portability and Accountability Act (the “HIPPA statute”).  The Ninth Circuit determined that ERISA completely preempted Fossen's claim challenging BCBSM’s conduct under Montana's “little HIPAA” statute. The court found that Fossen could have brought the action under ERISA Section 502(a) and that the state law claim was identical to the federal HIPAA claim he could have filed. However, the Ninth Circuit reversed the district court's ruling on the unfair insurance practices claim against BCBSM, remanding that claim to the district court. According to the Ninth Circuit, the statute was exempt from preemption under ERISA's insurance savings clause because it applied without regard to the existence of an ERISA plan and because it “creates a right that is separate from and could not possibly be remedied under ERISA.”
Following the Ninth Circuit's decision, the Supreme Court declined to review the Ninth Circuit's preemption ruling on Montana's “little HIPAA” statute in June 2012. However, the high court invited the U.S. solicitor general to weigh in on the unfair insurance practices law, expressing the federal government's opinion on whether a substantive state insurance law that is saved from ERISA preemption can be enforced through state law remedies or whether ERISA's enforcement scheme necessarily would apply. Ultimately, the Court declined to grant certiorari.

Notre Dame Might Win the National Championship - But It Loses to the Government In Lawsuit Seeking To Challenge Contraception Provisions of Affordable Care Act

The United States District Court for the Northern District of Indiana dismissed the University of Notre Dame's action against the United States Department of Health and Human Services Secretary Kathleen Sebelius (and others) on December 31, 2012, stating that the University does not have standing to challenge the validity of an Affordable Care Act provision that requires large employers to provide employees with no-cost insurance coverage for contraceptives, contraceptive devices, sterilizations, and patient counseling on such matters.  See University of Notre Dame v. Sebelius, N.D. Ind., No,: 3-12-cv-253 (Dec. 31, 2012).

In dismissing the University's lawsuit, the Court found that the University could not show a concrete and imminent injury-in-fact because it was protected from enforcement by a temporary safe harbor adopted in February 2012. The safe harbor delays enforcement of the mandate against certain employers until the beginning of their first plan year after Aug. 1, 2013. It is expected to remain in effect until the women's preventive services mandate is amended to reflect the concerns of organizations like the University. The court also said the case was not ripe for judicial resolution, because the federal government has issued an advance notice of proposed rulemaking in furtherance of an anticipated amendment. According to the Court, “[t]he present regulatory requirement isn't sufficiently final for review to be ripe, because the defendants have announced it will be modified.”

The Court also asserted that “Notre Dame's claims aren't ripe, and they don't have standing to bring them.” Both conclusions, it said, flowed “from the government's creation of a safe harbor for certain employers (including Notre Dame) while it re-works the regulation.” The school faced “no penalty or restriction based on the existing regulation,” the court said.

By way of explanation, according to the Court, to have standing to maintain such lawsuits, a plaintiff must show a concrete and imminent injury-in-fact, a causal relationship between the injury and defendants' challenged conduct, and a likelihood that a favorable decision would redress the claimed injury. A plaintiff challenging an administrative regulation also must show that its claim is ripe—that is, that the regulation is sufficiently final that the controversy is ready for judicial review, it said. The Court found that the women's preventive services mandate was not sufficiently final to allow the University to show injury. Although the current regulation is final, the court said, “events following the regulation's adoption make clear that it isn't final.” Those events included the government's adoption of the safe harbor and announcement of its intention to change the rule to address concerns voiced by organizations like Notre Dame, it said. Although the Court conceded that “an agency can't ‘stave off judicial review of a challenged rule simply by initiating a new proposed rulemaking that would amend the rule in a significant way,'” the court noted that the government has taken “prompt and concrete action” that supported its intention to reconsider and modify the mandate.