The Ninth Circuit Court of Appeals ruled yesterday that, contrary to prior Circuit precedent, the presence of an arbitration provision in an employee benefits plan could compel arbitration.  See, Dorman v. Charles Schwab Corp., Case No. 18-15281 (9th Cir., Aug. 20, 2019).  The plaintiff had filed a class action suit in district court alleging that the defendants, plan fiduciaries, administrators, and employers, had improperly selected proprietary funds for inclusion within the offerings of multiple 401(k) plans, despite their poor performance, and to the detriment of the plans and individual participants.

Relying principally on the holding of American Express Co. v. Italian Colors Restaurant, 570 U.S. 228 (2013), the court ruled that Amaro v. Continental Can Co., 724 F.2d 747 (9th Cir. 1984), was no longer good law and ERISA claims could be subject to contractually-mandated arbitration.

The relevant arbitration provision, contained within the plan document itself, was wide-reaching, stating that “[a]ny claim, dispute or breach arising out of or in any way related to the Plan shall be settled by binding arbitration….”  The provision also included a waiver of class or other collective action, “even if absent the waiver [the plaintiff] could have represented the interests of other Plan participants. The arbitration provision within the second plan at issue was materially identical.

The plaintiff sought to recover under both ERISA Section 502(a)(2) and (3), “seeking plan-wide relief on behalf of a class comprising all participants in, and beneficiaries of, the Plan at any time within six years of the filing of the Complaint.” The complaint’s claims were focused on violation of ERISA’s prohibited transaction rules through demonstrated preference of inclusion of investment funds affiliated with Schwab, despite mounting evidence of poor performance across benchmarks.

The district court had previously denied the motion to compel arbitration, holding the provisions were inapplicable since enacted after the plaintiff’s participation in the plan ended and that “the claims were ‘claims for benefits’ that were expressly carved out of the arbitration agreement in the Compensation Plan.” Further, the district court ruled that even if the agreements were applicable, they were unenforceable as the plaintiff’s claims were “brought on behalf of the Plan,” not for individual relief, and an individual “cannot waive rights that belong to the Plan, such as the right to file this action in court.”

While the Dorman opinion cites Munro v. University of Southern California, No. 17-55550 (9th Cir., Jul. 24, 2018), multiple times throughout as complimentary, the outcome in Munro was, notably, the opposite of that within Dorman – the Ninth Circuit held that the Plaintiffs, who had been required to sign arbitration agreements as part of their employment contracts, were asserting claims squarely on behalf of their plans and, accordingly, arbitration clauses executed on behalf of the individuals themselves, pursuant to employment contracts, would not compel arbitration of claims clearly brought on behalf of the plans.

Under the Munro court’s holding, employees

seek[ing] financial and equitable remedies to benefit the Plans and all affected participants… including a determination as to the method of calculating losses, removal of breaching fiduciaries, a full accounting of Plan losses, reformation of the Plans, and an order regarding appropriate future investments” are clearly “bringing their claims to benefit their respective Plans across the board, not just to benefit their own accounts as in LaRue.

Munro slip op. at 12-13. The Dorman court was arguably facing a distinguishable analysis on two separate fronts – while the obvious difference is the fact the plans at issue in Dorman contained the relevant arbitration agreement (rather than individual employment agreements, as in Munro), the scope and direction of the separate plaintiffs’ claims would also seem to be critically different.  The Dorman plaintiff was seeking relief which could, conceptually at least, be segregated into an individual claim – ultimately, the recovery of losses sustained on his individual retirement account(s) owing to alleged fiduciary breach, versus the clear plan-wide relief sought in Munro.

But take for instance a hybrid-hypothetical, somewhere between both Dorman and Munro – a class of plaintiffs seeking to litigate claims clearly brought on behalf of their plan (removal of breaching fiduciaries and reformation) yet faced with an arbitration provision contained within the relevant plan itself and barring class-wide or collective arbitration.  Consistent with the Munro holding, an ERISA plaintiff seeking judicial remedy which exists for the benefit of a plan may not alone settle a claim.  Id. at 11.  If arbitration was compelled, would a plan-appointed representative step-in or is that not the position already occupied by a plaintiff bringing a derivative action? Would a split of the individual claims and the ‘clear’ plan relief-related claims be compelled, resulting in the possibility of two distinct resolutions on fact?

The Dorman court also addressed, in a separate memorandum, the effectiveness of an arbitration provision in barring class-wide arbitration of 502(a)(2) claims brought by a plaintiff.  However those claims are, as articulated in the memorandum, and under LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008), “inherently individualized when brought in the context of a defined contribution plan….”  Dorman, et al. v. The Charles Schwab Corporation, et al., No. 17-cv-00285, ECF No. 53, at 5-6 (Aug. 20, 2019).

Despite the protections ERISA offers a beneficiary, every now and then relief available outside of the statute tempts a plaintiff to argue against ERISA qualification – in this instance, the plaintiff was a former President and CEO of Safelite Group, Inc.  In 2005, Safelite’s Board of Directors created the Safelite Group, Inc. 2005 Transaction Incentive Plan (“TIP,”) which provided substantial bonus payments to the five Safelite executive participants, dependent on their securing a strategic buyer for the company.

After a likely buyer emerged, the size of the TIP participants’ tax obligations in the event a purchase went through became evident, prompting the board to adopt the Safelite Group, Inc. Nonqualified Deferred Compensation Plan (the “NDCP”).  At the date of its creation, only the four executives who were participants in the TIP were eligible for the Safelite NDCP.

The NDCP allowed its participants to defer two types of income – compensation and TIP amounts.  These deferments were made by individual election forms indicating percentages of TIP Amounts, base annual salary, and bonuses sought to be deferred, as well as the year or years distributions were desired.

Between 2006 and 2014, the plaintiff deferred a total of $9,111,384 – until a federal audit revealed some of his elections failed to comply with a tax statute regulating deferred compensation plans.  The plaintiff brought suit against Safelite, asserting breach of contract and negligent misrepresentation.  In federal court, Safelite asserted in its motion to dismiss that plaintiff’s claims were preempted under ERISA as the NDCP constituted an “employee pension benefit plan” under ERISA Section 3(2)(A)(ii), 29 U.S.C. § 1002(2).  The district court granted the motion but permitted the plaintiff 28 days to amend his complaint.  With no amendment, the district court entered final judgment and the plaintiff appealed.

On appeal the court considered (1) whether the Safelite Plan was an employee pension benefit plan covered by 29 U.S.C. § 1002(2)(A)(ii), and (2) whether the Safelite Plan was exempt from ERISA pursuant to DOL regulation 29 C.F.R. § 2510.3-2(c).


Did the NDCP Qualify as an Employee Pension Benefit Plan?

Under ERISA and Sixth Circuit precedent, an employee pension benefit plan must “by its express terms or as a result of surrounding circumstances,” either

(i) provide retirement income to employees, or

(ii) result in a deferral of income by employees for periods extending to the termination of covered employment or beyond…

29 U.S.C. § 1002(2)(A). The court noted that ERISA’s overarching purpose in the scope of EPBP’s is to “protect[ ] monies belonging to plan beneficiaries while such funds are held and managed by others.”  Accordingly, any state law remedy which duplicates or supplements ERISA’s available remedies is preempted.

Attempting to move the plan outside of the scope of preemption, the plaintiff argued that in order to fit within the “results” stratum, a plan “‘must require’ deferrals to the termination of covered employment or beyond.”  The court was not persuaded, noting the difference between “results” and “requires,” as well as Congresses’ use of the actual term “require” within other sections of ERISA.

Was the NDCP an exempt bonus plan under DOL regulations?

DOL regulations exclude “payments made by an employer… as bonuses for work performed, unless such payments are systematically deferred to the termination of covered employment or beyond….” 29 C.F.R. § 2510.3-2(c). The court interpreted the regulation as “envision[ing] bonuses, not pay for regular compensation, such as annual salaries.”  Id. at p. 8.  “A bonus plan may defer payment of bonuses and remain exempt, ‘unless such payments are systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.’” – Systematic deferral would suggest the payments were not ‘merit’ based but rather an ERISA-exempt proxy for retirement income.

Hoping to slot the plan into the exception, the plaintiff disputed whether the plan actually resulted in a deferral of income by employees for periods extending to the termination of covered employment or beyond.

The court noted that the NDCP “expressly provides for employees to defer income from several sources to the future” and accordingly fit within the meaning of 29 U.S.C. § 1002(2)(A)(ii) and fell outside the ambit of the DOL exclusion.  Id. at 10-11 (Emphasis added). The inclusion of multiple sources of income in the NDCP (general wages and other incentives outside of the TIP amounts) factored into the court’s decision, leading the court to conclude that the “Safelite Plan [was] not designed as a bonus plan and instead distributes deferred amounts of non-bonus income, [therefore] it is not a plan providing for payments made ‘as bonuses for work performed.’”  Id. at 11-12.

Analytics Brings the Past Back to the Future

While the majority opinion was directed toward assessing the ERISA-qualified nature of the plan at issue, the concurrence diverged considerably – advocating for the utility of “corpus linguistics,” crediting it with focusing “on the common knowledge of the lay person by showing us the ordinary uses of words in our common language.”  Id. at 15 (Thapar, J., concurring).

Specific arguments in Safelite may have been novel, but there exists at the very least tens of cases interpreting the provisions at issue here – more interesting perhaps is the potential application of corpus linguistics to the interpretation of plan terms.  Consider an arguably ambiguous term or phrase in a plan which an insured asserts led him or her to reasonably expect a greater level of coverage than that actually provided.  Rather than expecting attorneys and judges to unwind years of legal experience and analyze the language at issue from the perspective of a hypothetical, reasonable reader (one lacking any formal legal training), could not analytics aid in evaluating the general import of a term or phrase at its time of publication?

The concurrence endorses this possibility of a greater incorporation of corpus linguistics into legal analysis, drawing upon millions of examples of everyday word usage” to divine the “ordinary meaning” of language at a particular point in time – with the

corresponding search results… yield[ing] a broader and more empirically-based understanding of the ordinary meaning of a word or phrase by giving us different situations in which the word or phrase was used across a wide variety of common usages… corpus linguistics is a powerful tool for discerning how the public would have understood a staute’s text at the time it was enacted.

* * *

[T]he entire practice of law – and certainly the practice of interpretation – involves judgment calls about whether a particular source is relevant.  And at least with corpus linguistics, those calls can be vetted by the public in a more transparent way.

Responding to another concurring opinion’s suggestion that corpus linguistics is redundant when compared with dictionaries, Judge Thapar notes that rather than a meaning arrived at in an indistinguishable point in time, “corpus linguistics… help[s] pinpoint the ordinary uses of a word at the time a statute was enacted.”

While Judge Thapar was not advocating for contract interpretation to devolve into administration by “automatons of algorithms” (and neither are we), perhaps it is time to introduce a more formulaic – and arguably representative – portrait of the idealized ‘reasonable insured’ into the traditional legal algorithm.


For the full opinion, see, Wilson v. Safelite Group, Inc., No. 18-3408 (6th Cir., Jul. 10, 2019)

Recently, we participated in a mediation with a large national insurer who is showing up more and more in our litigation files. Our client is a thirty-year employee who suffered from a terrible spinal condition and failed back surgery. Three medical treating physicians and an independent medical examiner found her totally disabled. One opined she was incapable of ever working again. She drained her 401(k) to pay her living expenses. She has applied for Social Security and is awaiting a decision.

The insurer denied the claim and has paid nothing for two and a half years while this financial wreckage has ensued.

The insurer’s claim denial was based upon a file review performed by a single East Coast doctor who never examined the insured and was contracted through a national vendor. The national vendor has a contractual relationship with the insurer.

The file reviewer’s report lists the medical evidence she claimed to have reviewed which includes MRIs (both actual images and reports). The file reviewer then opines that the restrictions could not be “substantiated” because there were “no MRI reports” in the file. This is not a misprint – the insurance company doctor lists the MRIs in the reviewed materials portion of the report and then somehow writes that those images do not exist.

Obviously, the denial is made in bad faith and is particularly sloppy.

At mediation, the insurer who has paid nothing now argues that the insured should get a mere stipend of because her “estimated” disability income is really the responsibility of the Social Security Administration, and the insurer merely provides a secondary benefit. We told the insurer to take a hike, and we will fight to get the decision and try to set precedent.

Unfortunately, this is the typical scenario in an ERISA group long-term disability case today.

More and more, private disability insurers who collect hundreds of millions in premiums are basically turning over the financial responsibility to the federal government to re-insure these private insurance contracts. Disability insurance companies argue this other income “offsetting” is keeping insurance rates low, but what they omit mention of is that this same “low-rate insurance” is not really insurance at all. All the insured has purchased is the right to apply for Social Security and maybe get a small stipend from the insurer.

The insurers have figured this out. The long-term disability contracts require an application to Social Security to get benefits flowing from the federal government, regardless of whether the insured even qualifies. Long-term disability contracts typically contain a 180-day waiting period (the same as Social Security). These same long-term disability contracts contain a “minimum” benefit usually of $100 per month.

Why do the insurance companies pay a $100 per month? Disability insurers know that an employee earning $40,000.00 a year with one or more dependents is really is never going to collect much private disability insurance, and if they don’t pay just a little something to the insured, the contract will fail for want of consideration. In other words, the contract will fail because the insured is getting nothing in return.

So, you have a long-term disability insurance contract, but do you really have any insurance coverage?

In a sprawling trial opinion following a bench trial, the Northern District of California Federal District Court held that United Behavioral Health’s standard of care guidelines from at least 2013 through 2017 failed to comply with guaranteed terms of insurance, various laws of several states, and overall to “set forth a unified standard that is inconsistent with generally accepted standards of care.”  Wit, et al. v. United Behavioral Health, et al., No. 14-cv-02346, 2019 WL 1033730 at *33 (N.D. Cal. Mar. 5, 2019).

A class of plaintiffs asserted that UBH breached its duties by: “1) developing guidelines for making coverage determinations that are far more restrictive than those that are generally accepted even though Plaintiffs’ health insurance plans provide for coverage of treatment that is consistent with generally accepted standards of care; and 2) prioritizing cost savings over members’ interests.”

The court seized on one of UBH’s chief witness’ testimony, the individual primarily responsible for developing and maintaining the Level of Care Guidelines for over a decade, stating in part that his testimony made “it crystal clear that the primary focus of the Guideline development process… was the implementation of a ‘utilization management’ model that keeps benefit expenses down by placing a heavy emphasis on crisis stabilization and an insufficient emphasis on the effective treatment of co-occurring and chronic conditions.”  Id. at *9.

The company’s internal processing guidelines made processing claims manifestly unfair.  Here the court found “that UBH employees apply the Guidelines as written, that is, their exercise of clinical judgment is constrained by the criteria for coverage set forth in the Guidelines, which are mandatory.”  Id. at *10.

Scrutinizing UBH’s Guidelines, the court found they failed to account for the fact that “in the area of mental health and substance use disorder treatment, there is a continuum of intensity at which services are delivered.”  Id. at *16.

The court articulated seven separate “Generally Accepted Standards of Care” which framed analysis of the challenged UBH guidelines, including:

  • Effective treatment requires treatment of the individual’s underlying condition and is not limited to alleviation of the individual’s current symptoms;
  • Effective treatment requires treatment of co-occurring behavioral health disorders and/or medical conditions in a coordinated manner which considers the interactions of the disorders and conditions;
  • Patients should receive treatment for mental health and substance use disorders at the least intensive and restrictive level of care that is safe and effective;
  • When there is ambiguity as to the appropriate level of care, the practitioner should err on the side of caution by placing the patient in a higher level of care; and
  • Effective treatment of mental health and substance use disorders includes services needed to maintain functioning or prevent deterioration.

The court held that “by a preponderance of evidence… in every level of care that is at issue in this case, there is an excessive emphasis on addressing acute symptoms and stabilizing crises while ignoring the effective treatment of members’ underlying conditions.  While the particular form this focus on acuity takes varies somewhat between the versions, in each version of the Guidelines at issue in this case the defect is pervasive and results in a significantly narrower scope of coverage than is consistent with generally accepted standards of care.”  Id. at *22 (Emphasis added).


Problem Number One – An Emphasis on Requiring Improvement

Each of the Guidelines displayed an overemphasis on acuity through requiring that “in order to obtain coverage upon admission, there must be a reasonable expectation that services will improve the member’s ‘presenting problems’ within a reasonable period of time.”  Id. at *23.  The court held that the ‘presenting problems’ requirement, in combination with contemporaneous evidence, “reflects that UBH knowingly and purposefully drafted its Guidelines to limit coverage to acute signs and symptoms.”  Id. at *24.

These defects were present in “all versions of the Guidelines [which] imposed the same ‘presenting problems’ requirement, regardless of whether they used the term ‘acute’ to describe it…”  Id. at *24. Requiring improvement in ‘acute’ symptoms as a sine qua non of continuing treatment fails the standards of care test.

Problem Number Two – The “Why Now” Requirement

Similarly, the UBH Guidelines required a ‘why now’ trigger for coverage, necessitating “acute changes in the member’s signs and symptoms and/or psychosocial and environmental factors leading to admission.”  Id. at *25.

UBH witness testimony attempted to style the ‘why now’ factors as aimed to “focus people more on thinking about the whole person and everything they’re bringing to the point of request for this level of care…” Id. at *25.

The court held the ‘why now’ definition in the Guidelines themselves contradicted this testimony, specifically in that the “definition makes clear that the focus of ‘why now’ is the member’s recent severe changes and that it does not encompass factors related to the member’s chronic condition that are not directly tied to those acute changes.”  Id. Thus, the definition required a recent severe change in a condition.  Further, distinct factors within the UBH Guidelines were duplicative of the ‘why now’ testimonial explanation and evidenced a post-hoc attempt to re-craft the ‘why now’ definition.  Finally, the court also concluded that the chief witness was unconvincing, in that while he stated the ‘why now’ concept was borrowed from “crisis intervention literature,” he was unable to remember any specific sources that addressed the concept, “much less supported his explanation of its meaning.”

For 2014-2016, coverage was predicated on fulfilling the requirements that there was both no less of an intensive setting for treatment to be rendered and that the reason the patient required a higher level of care was the ‘why now’ factors.  The 2015 and 2016 guidelines also incorporated a third requirement that signs, symptoms and environmental factors require the requested intensity of services.

The court held broadly that these requirements failed the standard of care test because they were overly focused on treatment of acute symptoms.  These requirements worked to deny a member coverage, even if the other criteria were met, “if the reason the patient requires the prescribed level of care and ‘cannot’ be treated in a lower level of care is anything other than ‘acute changes in the member’s signs and symptoms and/or psychosocial and environmental factors.”  Id. at *26.  The court was clear that “neither ‘acute symptoms’ nor ‘acute changes’ should be a mandatory prerequisite for coverage of outpatient, intensive outpatient or residential treatment.” The guidelines functionally required that

just as a showing of acute symptoms is necessary for admission to a level of care, the patient must continue to suffer from those acute symptoms for coverage to continue at that level of care… The discharge criteria for the Guidelines in these years further reinforce the rule that treatment services will not be covered once the immediate crisis has passed.

Even more worrisome, “[w]here coverage at a particular level of care has been denied or terminated on the ground that the member’s acute symptoms have been alleviated, services even at a lower level of care may not be covered because of the focus on acute symptoms in the admissions criteria for all levels of care.”  Id. at *27.

Altogether, the application, flawed testimony, and reality of UBH’s Guidelines, particularly in consideration of the ‘why now’ factors, led the court to conclude that “under UBH’s Guidelines patients may be denied coverage at a higher level of care because their acute symptoms have been addressed and it is safe to move them to a lower level of care even though treatment at a lower level of care may not be effective or even covered.”  Id. at *27.

The court further held the UBH “Guiding Principles,” while emphasizing a more holistic focus on the member’s overall well-being, were essentially meaningless: “while these statements of principle are consistent with generally accepted standards of care, they are not incorporated into the specific Guidelines that establish rules for making coverage determinations.”  Id. at *28.

Additionally, the UBH Guidelines failed to take into account the challenges and unique necessity in treatment required of the combined effects of co-occurring conditions:

[D]etermination of the appropriate level of care for the purposes of making coverage decisions should be based only on whether treatment of the current condition is likely to be effective at that level of care whereas treatment of co-occurring conditions need only be sufficient to ‘safely manage’ them or to ensure that their treatment does not undermine treatment of the current condition.  Conversely, the Guidelines omit any evaluation of whether… those conditions complicate or aggravate the member’s situation such that an effective treatment plan requires a more intensive level of care than might otherwise be appropriate.

Id. at *28 (Emphasis added).  The court held that UBH’s witness testimony amounted to nothing more than “post hoc rationalizations for Guidelines that transparently fail to provide for the effective treatment of co-occurring conditions.”  Id. at 29.


Failing to Err on the Side of Caution in Favor of Higher Levels of Care

From the viewpoint that “it is a generally accepted standard of care that patients should be placed at the least restrictive level of care that is both safe and effective,” movement to a less restrictive level of care is not justified if “it is also likely to be less effective in treating the patient’s overall condition….”  Id. at *29.  Rather than embrace these principles, UBH’s Guidelines were found to, essentially, actively seek movement of patients to the least restrictive level of care.

Newly adopted annual Guidelines featured separate, additional provisions which “push[ed] patients to lower levels of care even though services at the lower level of care may not be as effective in treating the patient’s condition.”  Id. at *30.[1]  The Guidelines read to improperly direct clinicians to place an emphasis on the safety of a diminishment in level of treatment, rather than on any resultant drop in effectiveness.[2]

Defining the Purpose of Treatment

The court also determined that, beginning in 2014, UBH’s Guidelines displayed a concentrated “drive to lower levels of care, even if they were likely to be less effective in treating a patient’s overall condition,” even in how the Guidelines defined “purpose of treatment.”  Id. at *31.

While effective treatment of mental health and substance use disorders includes treatment “aimed at preventing relapse or deterioration of the patient’s condition and maintaining the patient’s level of functioning[,]” the Guidelines departed from this through requiring both marked improvement in a patient’s condition and that the improvement occur within a “reasonable time,” evidenced through a reduction or control of acute symptoms which necessitated treatment.

While UBH modeled a portion of it’s criteria to measure improvement off of the CMS Manual (a questionable decision alone), it also “modified the language used in the CMS Manual to provide for more limited coverage of services aimed at maintaining level of function.”  Id. at *31.  While the CMS Manual focused any evaluation of improvement on a comparison of “the effect of continuing treatment versus discontinuing it… UBH made important modifications in its Guidelines that focused on acuity and precluded coverage of treatment services aimed at maintenance.”  Id. at *32.  From a meta perspective, UBH shifted the focus from maintenance of perspective to crisis stabilization – thereby depriving its insureds of the right to seek treatment which managed their conditions and allowed them to live their best life in light of those conditions.


The court further found that UBH Guidelines violated generally accepted standards of care in:

  • Providing that continued stay criteria was no longer met when a member was unwilling or unable to participate in treatment;
  • Failing to adopt separate level-of-care criteria tailored to the unique needs of children and adolescents, specifically in failing to take into account stages of development and the slower pace at which children and adolescents generally respond to treatment;
  • Failing to provide for coverage at the less severe end of the American Society of Addiction Medicine spectrum; and
  • Consistent with the findings discussed above, through applying a definition of “custodial care” which generally precludes the coverage of services which are aimed at maintaining function.[3]

UBH Guidelines were also held to be out of compliance with the coverage laws of multiple states.

Capping the opinion, the court analyzed UBH’s Guideline Development process, focusing on the “why” and the executive decision-making process behind UBH’s implementation of insufficient coverage criteria.  Among other markers of financial incentives carrying an outweighed impact on the formation process behind the Guidelines, the court noted UBH’s detailed utilization data relating to average length of stay and related monthly targets, UBH’s decision in late 2016 not to amend its Guidelines with respect to Applied Behavioral Analysis, including its CEO’s statement that “[w]e need to be more mindful of the business implications of guideline change recommendations” and UBH’s decision-makers’ repeated refusal to adopt its own clinicians recommendations to integrate the ASAM criteria into its Guidelines.

While the scope of inadequacies in UBH’s coverage guidelines, spanning a period of at least five years, is staggering, perhaps even more sobering is the possibility that the flaws identified by the court are industry standard contractual cost-control mechanisms – private insured nationwide may be routinely denied adequate, necessary treatment on the basis of an overemphasis on evidencing acute improvement and an under emphasis of the treatment and maintenance of underlying conditions.

[1] E.g., the requirement that a member demonstrate “a significant likelihood of deterioration in functioning/relapse if transitioned to a less intensive level of care” for continued coverage essentially requires that coverage be discontinued unless movement to a lower level of care is unsafe, regardless of the effectiveness of treatment at a lower level of coverage.

[2] One of the noted points of agreement between the parties’ experts was that one of the year’s Guideline’s requirement that “clear and compelling” evidence be provided was an “impossible metric.”  Id. at *30.

[3] Under UBH’s Guidelines, “only those services that are expected to reduce or control acute symptoms count as ‘active treatment’ sufficient to avoid a finding that the services are custodial (and consequently excluded from coverage).”

While “ERISA and the securities laws ultimately have differing objectives pursued under entirely separate statutory schemes designed to protect different constituencies[,]” recent cases have explored the possibility of liability outside of the traditional “marketplace harm” for corporate practices which manipulated securities prices.  Jander v. Retirement Plans Committee of IBM, 910 F.3d 620, 632 (2d Cir. 2018).


Fentress v. Exxon Mobil Corporation

The recent case of Fentress v. Exxon Mobil Corporation, No. 4:16-CV-3484, 2019 WL 426147 (S.D. Tex., Feb. 4, 2019) assessed a company’s potential liability arising from its contribution to global warming.

Plaintiffs, who were participants in the Exxon Mobil Savings Plan and invested in Exxon company stock, brought a class action against Exxon senior corporate officers for failure to prudently manage the plan’s assets pursuant to 29 U.S.C. § 1104(a)(1)(D), alleging that they knew or should have known that Exxon’s stock had become artificially inflated in value owing to fraud and misrepresentation, mainly stemming from corporate failure to report impaired oil and gas reserves.  Exxon stock was the single largest holding of the plan, around $10 billion.

Materially false and misleading statements were primarily attributed to Exxon’s failure to disclose the impairment of reserves owing to, among other causes, “the proxy cost of carbon, which incorporated the future effects of global climate change….”

The plaintiffs alleged that, among other alternative actions, the defendants “should have sought out those responsible for Exxon’s disclosures under the federal securities laws and tried to persuade them to refrain from making affirmative misrepresentations regarding the value of Exxon’s reserves.”

The district court dismissed the non-public information claim because “the alternative actions proposed by plaintiffs were not ‘so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it,” as required in the Fifth Circuit.  “[C]ourts have repeatedly found that early, corrective disclosures do not meet the alternative action standard of a duty of prudence claim.”

In their amended complaint, the plaintiffs uniquely pled that “based on general economic principles… corrective disclosures do not materially affect stock prices, and that Exxon’s stock drop was instead the result of the market punishing Exxon for its fraud.”

The court acknowledged that under a stock drop theory, plaintiffs may “allege imprudence (1) on the basis of publicly available information or (2) on the basis of non-public information” however reiterated the principle that “where a stock is publicly traded, allegations that [a] fiduciary should have recognized from publicly available information alone that the market was over or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances.” (quoting Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2471 (2014)).  Apparently, global warming and reserve overvaluation do not qualify as “special circumstances.”

The court noted that, generally, ERISA fiduciaries can prudently rely on the market price, that the plaintiff’s burden is ‘significant’ and the alternative course of action must be “so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it.”  (citing Whitley v. B.P., P.L.C., 838 F.3d 523, 529 (5th Cir. 2016)) (emphasis in the original).

The court refused to acknowledge that “attempting to prevent Exxon’s alleged misrepresentations would have been ‘so clearly beneficial that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to help it.’ … As other comparable companies made corrective disclosures, remaining silent may have communicated to market investors that Exxon was facing the same troubles, which would have had much the same outcome as a corrective disclosure.”

During the pendency of briefing concluding and the court issuing a decision, Jander v. Retirement Plans Comm. of IBM, 910 F.3d 620 (2d Cir. 2018) was decided. The Fentress court identified a circuit split between the Second and Fifth that deprived the Jander opinion of any precedential value, centering on “the argument that reputational damage to the company would increase the longer the fraud went on.”

Further disassociating itself from Jander, the court identified that “there was no major triggering event that made Exxon’s eventual disclosure inevitable.” Despite investigations by state attorney generals and the SEC, the court held that, while “put[ting] pressure on the company [they] resulted in no charges within the class period… Exxon’s eventual disclosure was probably foreseeable, but the Court cannot say it was inevitable.”


In re Wells Fargo 401(K) Litigation

In re Wells Fargo 401(K) Litigation, 331 F. Supp. 3d 868 (D. Minn. 2018), is another recent case to address these concepts. The plaintiffs alleged that plan fiduciaries had inside information on the basis of which “they knew or should have known that the market price for the sponsor’s stock was ‘inflated’ and that therefore the plan fiduciaries, under ERISA, were required to take some sort of action, e.g., disclosure of the inside information.”

Wells Fargo established three primary hurdles for a plaintiff bringing an ESOP claim.  First, ERISA’s duty of prudence never requires a fiduciary to break the law, thus “a fiduciary cannot be imprudent for failing to buy or sell stock in violation of the insider trading laws.”  Second, when the action at issue is failure to act on negative inside information (be it via sale or disclosure), a court must carefully adjudge whether the proposed action would have ran afoul of corporate disclosure requirements or insider trading laws.  Third, and most often the heavily contested factor, a court must consider whether the complaint has plausibly alleged that a prudent fiduciary in the defendant’s position could not have concluded that stopping purchases or publicly disclosing negative information would do more harm than good to the fund by causing a drop in the stock price and concomitant drop in the value of the stock already held by the fund.”

Wells Fargo conceded the Supreme Court’s decision in Fifth Third Bancorp et al. v. Dudenhoeffer, 573 U.S. 409 (2016), was limited to stock drop claims based on a breach of the ERISA duty of prudence – yet securities law still complicates breach of loyalty claims under ERISA: a court “would have as much concern about these loyalty claims as it had about the prudence claims in Dudenhoeffer.”  While stock drop claims may originate under ERISA, concern of the policy implemented by the Private Securities Litigation Reform Act of 1995 which “sought to reduce the volume of abusive federal securities litigation by erecting procedural barriers… such as heightened pleading standards” is still paramount. Plaintiff’s counsel must be wary of a complaint appearing to be nothing more than an attempt to get around those heightened pleading standards under the securities laws, involving “taking what is essentially a securities-fraud action and pleading it as an ERISA action.” (quoting Wright v. Medtronic, Inc., No. 09-cv-0443, 2010 WL 1027808 (D. Minn., Mar. 17, 2010)).

Pleading a breach of the duty of prudence requires an elevated showing – that a prudent person would not have delayed disclosure of the defect.  By comparison, pleading a breach of the duty of loyalty requires a showing that a fiduciary delayed disclosure of the defect to further his own interests, rather than the interests of the fund participants.  Tussey v. ABB, Inc., 850 F.3d 951, 958 (8th Cir. 2017) (“A fiduciary can abuse its discretion and breach its duties by acting on improper motives, even if one acting for the right reasons might have ended up in the same place.”).

Ultimately, the Wells Fargo court found that, as employees of Wells Fargo, the defendants were “incentivized to avoid doing or saying anything that would harm the image or reputation of Wells Fargo.”  The court stated, “the mere fact that a fiduciary had an adverse interest does not by itself state a claim for relief.”


Jander v. Retirement Plans Committee of IBM

In Jander v. Retirement Plans Committee of IBM, 910 F.3d 620 (2018), IBM employees claimed that the plan’s fiduciaries knew that a division of the company was overvalued but failed to disclose that fact – a failure which artificially inflated IBM’s stock price, harming the ESOP’s members.[1]  The court held that even under a more restrictive interpretation of the Supreme Court’s ruling – which was at contention between the parties – the plaintiffs plausibly alleged an ERISA violation.[2]

The plaintiffs took issue with the defendants’ continual investment of the ESOP’s funds in IBM common stock despite the plan defendants’ knowledge of undisclosed troubles relating to IBM’s microelectronics business, in violation of the duty of prudence. The plaintiffs argued the defendants should have either disclosed the truth about Microelectronics’ value or issued new investment guidelines that would temporarily freeze further investments in IBM stock.

The Jander court recognized Dudenhoeffer’s concern that “subjecting ESOP fiduciaries to a duty of prudence without the protection of a special presumption will lead to conflicts with the legal prohibition on insider trading,” given that “ESOP fiduciaries often are company insiders” subject to allegations that they “were imprudent in failing to act on inside information that they had about the value of the employer’s stock.”  That being said, the Jander court still emphasized that “an ESOP-specific rule that a fiduciary does not act imprudently in buying or holding company stock unless the company is on the brink of collapse (or the like) is an ill-fitting means of addressing” that issue, concluding that the presumption of prudence was not “an appropriate way to weed out meritless lawsuits or to provide the requisite ‘balancing.’”

The court identified the correct standard as one which must “readily divide the plausible sheep from the meritless goats,” a task that is “better accomplished through careful, context-sensitive scrutiny of a complaint’s allegations.”  The court also attacked the “presumption of prudence as ‘making it impossible for a plaintiff to state a duty-of-prudence claim, no matter how meritorious, unless the employer is in very bad economic circumstances.’”

Critically then, under the IBM court’s holding, plaintiffs must allege “an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.”

The IBM court identified three considerations to “inform the requisite analysis.”  The first is that the duty of prudence does not, and cannot, require an ESOP to perform an action which would violate the securities laws.  The second is that if the complaint faults fiduciaries for failing to make additional purchases or disclose information to the public, thereby avoiding overvalued stock, courts must consider whether the action advocated by the plaintiffs could conflict with insider trading and/or corporate disclosure requirements.  Finally, courts must consider whether the complaint plausibly alleged that a prudent fiduciary could not have concluded that any alternative action would have done more harm than good to the fund “by causing a drop in the stock price and a concomitant drop in the value of the stock already held by the fund.”  Citing Fifth Third.

Noting that the plan defendants “allegedly knew that IBM stock was artificially inflated through accounting violations” and that the plaintiffs had “plausibly alleged a GAAP violation,” under ERISA’s “lower pleading standards” the plaintiffs had “plausibly pled that IBM’s Microelectronics unit was impaired and that the Plan fiduciaries were aware of its impairment.”

The court also noted that two of the plan defendants had the primary responsibility for the public disclosures that had artificially inflated the stock price to begin with and disclosure could have been done within a regular SEC reporting regime so as not to “spook the market.”

Perhaps most notably, the appellate court endorsed the allegation that the defendants’ failure to promptly disclose “hurt management’s credibility and the long-term prospects of IBM as an investment” as the eventual disclosure of prolonged fraud caused exponentially increasing “reputational damage.”  The court refused to classify this argument as retrospective – the district court’s issue with this claim – as a “reasonable business executive could plausibly foresee that the inevitable disclosure of longstanding corporate fraud would reflect badly on the company and undermine faith in its future pronouncements.”  The plaintiff also supported this argument with economic analyses.

Potentially unique to the IBM case, the court noted that the defendants “allegedly knew that disclosure of the truth… was inevitable, because IBM was likely to sell the business and would be unable to hide its overvaluation from the public at that point… In the normal case, when the prudent fiduciary asks whether disclosure would do more harm than good, the fiduciary is making a comparison only to the status quo of non-disclosure.  In this case, however, the prudent fiduciary would have to compare the benefits and costs of earlier disclosure to those of later disclosure…”  When a loss is inevitable, a fiduciary should endeavor to limit the effects of the artificial inflation, generally leaning toward earlier disclosure.

[1] In a subsequent motion to stay the Second Circuit’s mandate, the defendants’ alleged this ruling was the first to “hold that a plaintiff can state a claim for breach of the fiduciary duty of prudence under Section 502… based on the failure of a corporate officer to disclose that the company’s stock was overvalued.”  Jander v. Retirement Plans Committee of IBM, No. 17-3518, ECF No. 84.

[2] On February 4, 2019, the Second Circuit denied the defendants’ motion to stay the mandate pending the filing and disposition of their writ of certiorari.

Admittedly, the title may be a bit misleading – there is no foolproof way to shield yourself from pension errors.  Pensions and other retirement benefits are complicated beasts, often tracking 30+ years of an employee’s career history across multiple positions, companies, plan amendments and, typically, through at least one merger or acquisition.

Fortunately, there are a few ‘best practices’ which, if followed, may allow you to document the promises made to you along the way, so that any unwelcome surprise waiting for you when it is time to finally ‘cash in the chips’ may be resolved as expeditiously as possible – and in your favor.

Print out your pension statements and summaries quarterly.

These documents are generally updated on a quarterly basis – if not, you have the right to request updated statements at any time.  Statements and accounts summaries can help you track accruals throughout the years and diagnose if, and when, an issue may have first arisen.  They can also serve as valuable evidence should an appeal or lawsuit become necessary.

Save and/or scan every piece of correspondence you receive from either your employer or the plan.

A seemingly innocuous letter informing you of a ‘minor’ modification to the pension calculation formula today may be worth tens of thousands of dollars to you a decade from now – it is simply impossible to predict.  While employers and pension administrators are required, by ERISA, to turn over all correspondence sent to pension participants upon request, generally the only way to verify compliance, and thereby ensure all relevant communications are accessible, is to keep your own file.

Ask for everything in writing.

While your regional manager may have an excellent memory and reputation for honesty, obtaining written confirmation in some form of every message delivered to you from either your employer or an agent of the pension administrator in relation to your pension is the only way to ensure those characteristics endure.  Do not settle for handshake promises or announcements at the end of weekly meetings – ERISA requires all material modifications to your pension plan to be communicated either electronically or via mail.

When calling on your pension, document the first and last name of every individual you speak with, as well as an employee identification number and call number, if possible.

While the electronic recording at the beginning of your call may kindly inform you that your call is being recorded, it does not guarantee you access to that recording.  Corporations’ data retention policies regarding recordings of calls are hardly transparent and rarely available, so if a call recording ever holds the key to evidencing your entitlement to a larger pension amount, do not be surprised if it has ‘unfortunately’ been purged under a ‘regular or routine’ data-deletion schedule.  Even if the call recordings are available, administrators are typically unwilling to release those prior to litigation.  Documenting names and any form of identification numbers is a best practice which can lend credence to a claim of explanations or promises made verbally, in the event the actual recordings are unobtainable.

Digitally preserve any unusual activity.

Modern technology enables you to prepare for the worst case scenario in real-time.  If you notice unusual activity on your online pension portal, take screenshots and/or recordings of the abnormality.  Document the URLs, export a PDF version of the webpage causing you concern.  Any form of digital evidence is exponentially more persuasive, and valuable, than personal testimony.

Document each and every employment or financial decision you make which is predicated on your current understanding of your future pension entitlement.

From purchasing a new home to extending employment for another year, innumerable day to day decisions are based upon a basic understanding of the size of one’s pension – and rough calculations of where it should be at come retirement.  Keep a journal in some form of these decisions, dating the point in time the decision was made and, ideally, what your current expected pension cash-out is.  In the event issues later arise, a written record of your reliance upon calculations provided to you through past years is critical to maximizing your likelihood of recovering all that was promised to you.


While these ‘best practices’ may seem tedious, or even unnecessary, in light of your plan’s ‘superb’ funding status, the amounts potentially at stake justify surplus precaution.  Creating your own paper-trail should give you peace of mind that you are preparing yourself for a worst-case scenario which could rob you of the satisfaction of reaching retirement.

On January 22nd, 2019, a federal district judge certified a class of at least 28,000 participants and beneficiaries of the Cornell University Retirement Plan, consisting of the Employees of the Endowed Colleges at Ithaca Plan and the Cornell University Tax Deferred Annuity Plan, in Cunningham et al. v. Cornell University et al., No. 1:16-cv-06525 (S.D.N.Y., Jan. 22, 2019).

Consistent with a number of suits for underfunded and poorly performing university pension plans, the plaintiffs’ complaint asserts the fiduciaries did not manage the plans prudently, underperformed, and accrued excessive administrative fees in violation of ERISA Sections 404 and 406, 29 U.S.C. §§ 1104, 1106.

Each plan holds more than a billion dollars in assets, a fact which the plaintiffs claim affords the plans and their fiduciaries “tremendous bargaining power in the market for retirement plan services.”  While participants are allowed to designate which of the available investment options to invest their individual accounts, the Plans’ fiduciaries choose the investment option offerings, which as of December 2014 averaged 300 separate investment options between the two plans.

The defendant fiduciaries, including Cornell University, the Retirement Plan Oversight Committee, the plan recordkeepers – TIAA-CREF (Teachers Insurance and Annuity Association of America) and the College Retirement Equities Fund) and Fidelity, and CAPTRUST Financial Advisors, had previously filed a motion to dismiss which was denied in part.

In denying the defendants’ motion to dismiss, the federal court held that the plaintiffs’ amended complaint plausibly alleged:

  • All defendants, other than CAPTRUST, failed to monitor and control the plans’ recordkeeping fees and failed to solicit bids from competing recordkeeping providers on a flat per-participant fee basis, and failed to determine, in a timely manner, whether the plans would benefit from moving to a single recordkeeper; and
  • All defendants unreasonably continued to offer as a fund option the CREF Stock Account and TIAA Real Estate Account, despite high fees and poor performance, selected and retained funds with high fees and poor performance relative to other available options, and selected and retained high-cost mutual funds instead of identical lower-cost funds.

In ruling on the motion to dismiss, the court also held that the plaintiffs had plausibly alleged that Cornell University and Mary G. Opperman, the head of the Oversight Committee, failed to monitor the performance of their appointees to the Committee and failed to remove appointees whose performance was inadequate as related to selecting and retaining funds.

In certifying the class, the court defined the class as “All participants and beneficiaries of the Plans from August 17, 2010, through the date of judgment, excluding the Defendants and any participant who is a fiduciary to the Plans.”

The court held that the plaintiffs had demonstrated individualized losses for each count which survived the motion to dismiss, noting that the Second Circuit has previously held that plaintiffs who assert claims in a derivative capacity on behalf of a retirement plan establish sufficient injury-in-fact by alleging injuries to the plan itself, regardless of whether the plan is a defined benefit or defined contribution plan.  Nor was standing predicated on a plaintiffs actual purchase of a financial instrument – as long as the defendant’s conduct in question implicates the same set of concerns, a plaintiff can bring claims on behalf of the absent class members who had purchased said instruments. (“Personalized injury-in-fact requires named plaintiffs to demonstrate individualized losses in the form of some amount of financial damage; it does not require harm to be shown from investment in each fund that makes up an overall plan.”).

In adjudging commonality, the court noted that the common contention of the classes’ action was that “the investment lineup made available to all participants violated ERISA… [and that] the centralized administration of [the plans] is common to all class members.”  This commonality holds regardless of the number of individual funds available in each plan, as the allegations go to the defendants’ prudential oversight and failure to take actions that would result in lower costs.

Also of note, the court refused to credit defendants’ argument that individualized statute of limitation calculations negated the “many other common issues in this case.”

Regarding typicality, the court held that “[e]ach plaintiff’s claim and each class member’s claim is based on the same legal theory and underlying events, namely, that CAPTRUST and the Cornell Defendants breached their duty of prudence by imprudently selecting, administering, and reviewing the Retirement and TDA Plans’ investments, recordkeeping fees, and the Committee’s delegates.”

A full copy of the court’s opinion and order is available here.

On January 22, 2019, the United States Secretary of Labor filed an amicus curiae brief in support of the plaintiff-appellants/ cross-appellees Ivan and Melissa Mitchell in the matter of Mitchell, et al. v. Blue Cross Blue Shield of North Dakota, et al.

Blue Cross Blue Shield of North Dakota filed a cross-appeal in the matter arguing that the Mitchells, despite being fully insured for medical claims by Blue Cross, had ‘no legal or constitutional standing’ to sue for payment of their benefits.

Ms. Mitchell was transported by air ambulance during a winter storm between two medical facilities owing to the fact that the receiving hospital did not have the capability to treat her emergency medical condition.

Blue Cross, despite having provided the Mitchells with coverage documents indicating it would pay 80% of “allowed” air ambulance charges, paid only about 20% of those charges.

The Secretary argued:

1.  “A denial of a participant’s or beneficiary’s right to have a benefits claim determined in accordance with plan terms is an injury sufficient to establish constitutional standing. The Mitchells suffered an injury in fact when Blue Cross denied benefits they contend were promised by the Plan by failing to fully reimburse their medical service provider”; and

2.  In accordance with Supreme Court precedent, an ERISA participant “may include a former employee with a colorable claim for benefits.” (quoting LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008)).  The Mitchells advanced a “colorable argument that Blue Cross interpreted the Plan terms to deprive them of rights promised under the Plan” and, accordingly, established statutory standing to bring an ERISA action under Section 502(a)(1)(B).

The Secretary of Labor emphasized the fact that the four United States Circuits to consider the issue have each held that a denial of a benefits claim which is alleged to constitute a violation of the plan terms constitutes injury for Article III purposes.  Uniformly, “whether a provider decided to seek payment for services from a plan participant or whether the participant actually paid is irrelevant to the injury that the participant suffers from the deprivation of benefits owed under the plan.”  This also comports with Congressional intent underlying ERISA, common law precedent,[1] and Spokeo v. Robins, 136 S. Ct. 1540 (2016).  A ruling contrary to that of the district court’s on the issue of standing would “create an unnecessary circuit split and deny a participant the only recourse for judicial review of a plan’s denial of a benefit.”

The amicus brief also argues that, consistent with all circuit court decisions, a “provider’s actions are not determinative to an injury in fact analysis: “Whether the Mitchells assigned the proceeds of this litigation to (but not their underlying claim) to another party is irrelevant to their injury in fact… That injury is not eliminated if the provider decides not to balance bill the patient for the amount the plan did not pay.”

A copy of the Secretary of Labor’s brief is available here.

[1] “A breach of a promise in a plan is analogous to a breach of contract, and courts have always considered breaches of contractual promises to constitute Article III injuries.”


A federal district judge in Mississippi undertook the painstaking steps of collecting and documenting Reliance Standard’s long history of abusive claims practices in disability claims.   The expansive decision of Nichols v. Reliance Standard Life Ins. Co., No. 3:17-CV-42-CWR-FKB, 2018 WL 3213618 (S.D. Miss., June 29, 2018), contains hundreds of citations of cases where reviewing courts have found a long history of improper practices on the part of Reliance Standard in the ERISA benefits context.

With respect to relief, the district court ordered Reliance Standard to pay full past due benefits to the disabled claimant and instated the payment of future benefits.

The district court identified common themes and patterns known to lawyers who litigate against Reliance Standard – biased experts, disingenuous denials, inconsistencies, and reckless indifference in evaluating the medical claims of its insured.

The district court, realizing the limits of ERISA, did point out that perhaps further case law will expand the remedies available to disability claimants against insurance companies like Reliance. The district court explained:

Many courts have, after recounting Reliance’s abuses, ordered the insurer to pay benefits and attorney’s fees. Apparently, these costs have not caused Reliance to change course, as it has spent decades ignoring them with impunity—perhaps treating them as the price of doing business. In future cases, courts may be asked to order further relief to curb Reliance’s perceived abuses. That relief can be quite broad. (Id. at *10).

The district court in Nichols appeared to give serious consideration to the Supreme Court’s observations in Metro. Life Ins. Co. v. Glenn, 554 U.S. 105 (2008), that an insurer’s history of claims abuses should be given greater weight when evaluating a determination under the abuse of discretion standard. Id. at 117.  (“The conflict of interest at issue here, for example, should prove more important (perhaps of great importance) where circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration.”)

Western Michigan University-Cooley Law Review has published an article authored by J.J. Conway, Esq. and Trever M. Sims analyzing the Wilkins v. Baptist Healthcare Systems decision and its impact on ERISA benefits dispute resolution within the Sixth Circuit. The article, published in WMU-Cooley Law Review’s Summer 2018 issue, serves in part as a 20-year retrospective of what was, at the time, a concurring opinion in a seemingly routine disability benefits dispute. The article is entitled “Refining Wilkins: A 20-Year Look at the Recurring Factors Used in the Sixth Circuit’s Resolution of Disability Claims Under ERISA Section 502(a)(1)(B).”