Federal appellate courts issued various decisions involving the Employee Retirement Income Security Act (ERISA) in the latter half of 2023. Here are five important ERISA decisions that benefits attorneys should know.
Cunningham et al. v. Cornell University et al., case number 21-88, U.S. Court of Appeals for the Second Circuit
The U.S. Court of Appeals for the Second Circuit issued an opinion affirming the dismissal of a class action against Cornell University by employees who claimed that their employer had violated ERISA in mismanaging their defined-contribution 403(b) retirement plan. The employees alleged that Cornell had charged excessively high recordkeeping and administrative fees while offering employees poorly performing investment options.
A retirement plan participant first filed suit against Cornell in 2016. The lawsuit became a certified class action involving about 28,000 retirement plan participants. The trial court judge granted summary judgment to the university in September 2019 on all but one of the plan participants’ claims, which settled for $225,000 in December 2020. The class appealed, but the Second Circuit affirmed the dismissal of the workers’ ERISA claims in a decision that focused on the pleading standard for an ERISA-prohibited transaction claim.
The class argued that Cornell violated ERISA by engaging in prohibited transactions involving excessive fees with its services providers, Fidelity and the Teachers Insurance and Annuity Association of America and College Retirement Equities Fund (TIAA-CREF). In upholding the district court’s decision, the Second Circuit held that it was insufficient for the purposes of an ERISA-prohibited transaction claim for the class to allege that Cornell caused the plan to overcompensate its service providers. Instead, the class had to allege that the fiduciary provided “unnecessary services or unreasonable compensation involved in allegations supporting an inference of disloyalty.”
In its decision, the Second Circuit joined the Third, Seventh, and Tenth Circuits in issuing similar rulings, in contrast to the Eight and Ninth Circuits, which have issued contradictory rulings. This circuit split makes it likely that the issue will end up before the U.S. Supreme Court in the future.
Matney et al. v. Barrick Gold of North America et al., case number 22-4045, U.S. Court of Appeals for the Tenth Circuit
The U.S. Court of Appeals for the Tenth Circuit joined the Third and Seventh Circuit (and now the Second Circuit) in affirming a pleading standard in alleged ERISA mismanagement cases requiring plaintiffs to include a “meaningful benchmark” to allow courts to compare different ERISA plans. The Tenth Circuit upheld the lower court’s dismissal of workers’ excessive fees and investment challenges to the defined contribution retirement plan maintained by mining company Barrick Gold of North America Inc.
The circuit split over the pleading standard is particularly important considering the U.S. Supreme Court’s decision in 2022 involving mismanagement claims concerning a similar defined benefit contribution plan against Northwestern University. While the Supreme Court revived the ERISA suit, rejecting Northwestern’s affirmative defense that better investment options in a plan could overrule claims about less profitable investment options, it left open the necessary pleading standards for excessive fee and investment challenge lawsuits.
David Wit et al. v. United Behavioral Health, case numbers 20-17363 and 21-15193; Gary Alexander et al. v. United Behavioral Health, case numbers 20-17364 and 21-15194, U.S. Court of Appeals for the Ninth Circuit
A panel of the U.S. Court of Appeals for the Ninth Circuit originally published an opinion in January 2023 finding that patients in ERISA-governed health plans administered by United Behavioral Health (UBH) weren’t entitled to the reprocessing of their claims as a class unless they could first prove that they were owed benefits. However, following pushback by the Biden administration, mental health and substance abuse treatment providers, and state attorneys general, the court revised its opinion to state that while class-wide reprocessing was unavailable in this case, it was a remedy potentially available under ERISA in other cases.
The Ninth Circuit panel’s decision partially reverses a pair of 2019 and 2020 rulings that would have required UBH to reprocess 67,000 claims for substance use disorder and mental health treatment. The decision also preserves the class certification and upholds a portion of the trial court’s judgment on a fiduciary breach claim. However, the current decision is quite different from the panel’s first unpublished memorandum in the case, which it issued in March 2022.
This appeal began in 2014 with two cases – one involving benefit denials for outpatient treatment and one for residential treatment and hospital stays – that later were consolidated. To date, three decisions have been issued in the case, widely known as Wit I, II, and III.
The Ninth Circuit panel’s latest decision has major implications for ERISA litigation, as it opens the door for reprocessing benefits claims as a remedy in a class action case – just not under the facts of Wit III.
Pharmaceutical Care Management Association v. Mulready et al., case number 22-6074, U.S. Court of Appeals for the Tenth Circuit
A U.S. Court of Appeals for the Tenth Circuit panel found that ERISA preempted some portions of a 2019 Oklahoma state statute that regulates pharmacy benefit managers (PBMs). In its ruling, the panel reversed the lower court’s decision of April 2022, finding that the parts of the state’s Patient’s Right to Pharmacy Choice Act were not federally preempted and remanded the case to the lower court for further proceedings.
The Pharmaceutical Care Management Association (PCMA), a lobbying group representing PBMs, sued the Oklahoma Insurance Commission and the State Insurance Department over the law in October 2019, one week before the law would have become effective. The case was stayed while the U.S. Supreme Court considered Rutledge v. PCMA. After the Supreme Court held that ERISA did not preempt an Arkansas PBM law in Rutledge, both sides moved for summary judgment in this case in September 2021.
The Tenth Circuit panel ruling was a major victory for the ERISA defense bar due to the recent proliferation of state laws targeting PBMs. According to the panel, the Oklahoma law did more than increase costs; it changed the PBM network design to affect ERISA and Medicare plan administration directly. The panel also distinguished the Oklahoma law from the Arkansas law that the Supreme Court addressed in Rutledge. Oklahoma state officials have petitioned the Tenth Circuit for a rehearing.
Robert Bugielski et al. v. AT&T Services Inc. et al., case number 21-56196, U.S. Court of Appeals for the Ninth Circuit
A unanimous three-judge panel of the U.S. Court of Appeals for the Ninth Circuit broke from other circuits in overturning a lower court’s dismissal of a 401(k)-mismanagement suit against AT&T in a class action lawsuit. The employees alleged that AT&T failed to monitor the plan for excessive fees and poor investments, constituting a prohibited transaction under ERISA.
In its ruling, the Ninth Circuit panel rejected the argument that ERISA’s prohibition on transactions between parties in interest didn’t include arms-length transactions, such as those between plan recordkeepers and third-party entities providing investment advice to plan participants. The panel also found that the lower court erred in finding that AT&T met an exemption to the general prohibition on transactions between parties in interest that contemplates reasonable compensation paid to service providers for necessary services.
Since the Ninth Circuit panel decision, the Tenth and Second Circuits have issued contrasting decisions requiring class members to meet more specific standards of proof in ERISA mismanagement claims. As noted above, the growing split among the circuits on this issue will likely result in a showdown before the U.S. Supreme Court.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
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