The Eleventh Circuit recently affirmed an Alabama district court’s decision granting summary judgment in favor of Allstate Insurance Company in a consolidated ERISA class action challenging Allstate’s decision to stop paying premiums on retired employees’ life insurance policies. Klaas v. Allstate Ins. Co., 2021 U.S. App. LEXIS 38473 (11th Cir. Dec. 28, 2021).

For many years, as part of its employee welfare benefit plan, Allstate offered employees who met certain qualifications life insurance that continued into retirement. Beginning in 1990, Allstate distributed summary plan descriptions (SPDs) to its employees, describing the retiree life insurance benefits as “provided at no further cost” to the retiree. At times, Allstate also made representations to employees, both orally and in writing, that their retirement life insurance benefits were “paid up” or “for life.” However, the SPDs also contained (1) reservations of rights, which reserved to Allstate the right to change, amend, or terminate the plan at any time; and (2) “no vesting” provisions stating that neither participants nor beneficiaries had any vested rights in the plan’s benefits.

In 2013, as a cost reduction measure, Allstate informed former employees who retired after 1990 that it would stop paying the premiums on their life insurance policies at the end of 2015. One putative class of retired employees filed suit in September 2013 and the other filed suit in March 2015. Both proposed classes alleged that Allstate violated ERISA § 502(a)(1)(B) by cancelling the insurance benefits, and that it violated its fiduciary duty under ERISA § 502(a)(3) by making written and oral misrepresentations about the benefits. After extensive discovery, the district court granted summary judgment in Allstate’s favor on both claims. Plaintiffs appealed and the Eleventh Circuit affirmed.

Beginning with plaintiffs’ claims under ERISA § 502(a)(1)(B), which allows a participant or beneficiary to bring suit “to recover benefits due to him under the terms of his plan,” the Eleventh Circuit focused exclusively on the SPDs’ reservations of rights and “no vesting” provisions. SPDs, the opinion noted, are “the statutorily established means of informing participants of the terms of the plan and its benefits,” and are construed according to general rules of contract interpretation. Because the SPDs unambiguously gave Allstate the right to change, amend, or terminate the plan at any time, and expressly clarified that employees had no vested rights under the plan, the appellate court agreed with the district court that plaintiffs failed to establish that benefits were actually “due” under “the terms of the plan” for purposes of ERISA § 502(a)(1)(B).

As for plaintiffs’ breach of fiduciary duty claims, the Eleventh Circuit found them time barred by ERISA § 413, a statute of repose (not limitations) which generally bars claims for breach of fiduciary duty after the earlier of (1) six years of the breach or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach. ERISA § 413 provides an exception, however, for breach of fiduciary duty claims based on “fraud or concealment,” in which case the repose period is six years and runs from “the date of discovery of such breach or violation.”

The Eleventh Circuit applied the six-year period running from the breach and concluded that any action by Allstate that could give rise to a breach of fiduciary duty claim took place outside of the repose period. Regardless of whether the plaintiffs were misled, the record confirmed that Allstate last made representations about benefits being either “paid up” or “paid for life” in 2006. The first class of plaintiffs did not file suit until 2013, and the second class of plaintiffs did not file suit until 2015.  Hence, both suits were untimely.

The breach of fiduciary duty claims drew a separate opinion from Judge Brasher, who concurred only in the judgment that the claims were time barred. Judge Brasher reasoned that plaintiffs’ breach of fiduciary duty claims sounded in fraud, and hence the repose period did not begin to run until plaintiffs became aware of the fraud. Judge Brasher concurred with the judgment, however, because the district court found no evidence of fraud, plaintiffs did not argue fraud on appeal, and it was doubtful that the suits could have been deemed timely even if the “fraud exception” to ERISA § 413 applied. He opined, however, that if, on summary judgment, plaintiffs had shown that Allstate fraudulently promised “paid up” insurance and concealed its failure to provide that insurance within six years of their lawsuit, the breach of fiduciary duty claims would have been timely.

The Eleventh Circuit’s opinion reinforces the importance of placing clear, unambiguous reservations of rights and “no vesting” provisions in SPDs. It also strikes a cautionary note that employers should be mindful of how they describe their benefits to their employees. Written or oral descriptions of benefits should always be accompanied by a disclaimer, consistent with the SPD, that benefits are subject to change, modification, or cancellation.

When a district court faces a claim for benefits under ERISA Section 502(a)(1)(B) where it believes that mistakes were made, but the record is not sufficiently developed to award benefits, the court may remand the matter to the plan administrator for further administrative review. Remands such as this have been affirmed by circuit courts for decades, though the Supreme Court has yet to weigh in on the issue.

Nevertheless, a recent concurrence in Card v. Principal Life Insurance Company, 2021 U.S. App. LEXIS 32599 (6th Cir. Nov. 2, 2021), may indicate that at least some members of the federal judiciary are beginning to consider whether ERISA authorizes remands.  In that case, the concurrence questioned why a private litigant (there, the plan administrator) would get a second bite at the apple via a remand rather than have the district court supervise additional litigation using normal rules of civil procedure.

The underlying material facts of Card are simple enough. The plaintiff sought disability benefits, which were provided by an ERISA plan and insured by the defendant. When the defendant denied the claim, the plaintiff filed suit to recover the benefits. The district court found in favor of the defendant. The Sixth Circuit reversed, finding that the defendant had not properly analyzed whether plaintiff could perform the tasks of her regular job or occupation. Rather than awarding the plaintiff benefits, the Sixth Circuit remanded the matter to the plan administrator (the defendant) for further analysis.

When the defendant did not complete its review of certain claims within 45 days (as required by ERISA regulations), the plaintiff filed a motion to reopen the case. The district court denied the motion for lack of jurisdiction, as the Sixth Circuit’s remand order remanded the matter directly to the defendant for further consideration. On appeal, the Sixth Circuit, in a per curiam opinion, vacated the district court’s order, concluding that the district court retained jurisdiction. The Sixth Circuit acknowledged that the phrasing of its prior opinion was confusing but concluded that it should be interpreted as remanding the case to the district court to retain jurisdiction while the administrator completed its review.

In short, and as the concurrence recognized, this case represents nothing more than a rote application of the law regarding remands that applies in each and every circuit, 2021 U.S. LEXIS 32599 at *13, and it corrects an ambiguity regarding the district court’s retention of jurisdiction pending completion of the plan administrator’s review.

As for the question in the concurrence about the court’s authority to remand a claim to the plan administrator, a remand is a proper exercise of a court’s remedial powers under ERISA Section 502(a), 29 U.S.C. § 1132(a). King v. Hartford Life & Accident Ins. Co., 414 F.3d 994, 1005 (8th Cir. 2005) (en banc). In addition, “ERISA trusts plan administrators to make the first determination as to the availability of benefits” and therefore “remand may be appropriate in some, or even many, cases.” Glista v. UNUM Life Ins. Co. of America, 378 F.3d 113, 132 (1st Cir. 2004); see also Conkright v. Frommert, 559 U.S. 506, 513-522 (2010) (when a plan administrator errs in its first exercise of discretion in interpreting the terms of the plan, it must be given another chance to exercise its discretion, with that second interpretation subject to deference). Indeed, the concurrence recognized that the practice of remanding to the plan administrator for further consideration is “well established” in the Sixth Circuit.

That said, the case is representative of increased attempts by the plaintiffs’ bar to convince courts to treat routine ERISA benefits cases like routine litigation. Some courts in the Ninth Circuit will allow for alternative pleading of breach of fiduciary duty claims and claims for benefits, even if the sole basis of the breach of fiduciary duty is the denial of the benefit claim. The Seventh and Ninth Circuits have concluded that state law bans on discretionary language in insurance policies apply to ERISA plan documents if the benefit at issue is insured, even if the document that is the source of discretion is not an insurance policy. And the districts are a hodge-podge of standards regarding the permissible scope of discovery when the abuse of discretion standard applies. When the de novo standard applies, depositions are not out of the question for some judges.

Thus, when faced with a claim for benefits, it is important to know the law in the proper district and to have familiarity with the plaintiff’s counsel to better understand whether the litigation will track what most practitioners would consider to be “standard,” or whether the litigation will be more akin to non-ERISA litigation.

In December 2020, Congress passed the “No Surprises Act” (NSA) as part of the Consolidated Appropriations Act of 2021. The NSA applies most commonly in situations where a patient receives out-of-network medical services from a provider to whom the patient had no meaningful opportunity to consent, as in the case of emergency room care or a service performed by an ancillary provider in connection with a scheduled surgery, such as an anesthesiologist. The intent of the NSA is to protect patients from later receiving large “surprise bills” from such out-of-network providers.

On October 7, 2021, the Biden Administration published a second interim final rule implementing the NSA (September Rule) issued by the Departments of Health and Human Services, Labor, and Treasury (Departments). The NSA and its implementing rules are scheduled to go into effect on January 1, 2022.

The NSA’s process requires the provider to submit the out-of-network bill directly to the insurer. If the insurer disputes the bill, the parties may engage in a 30-day “open negotiations” process. If no settlement is achieved, either party may initiate NSA’s prescribed independent dispute resolution (IDR) process – namely a “baseball-style” arbitration in which the provider and insurer submit their best and final offers to the arbitrator, and the arbitrator must select one or the other.

If the parties opt for arbitration, the statutory language provides that in determining which offer is the most “reasonable,” the arbitrator “shall” consider several factors, namely: (1) the “qualifying payment amount” (QPA), which in practice will typically be the insurer’s median in-network rate for similar services in that geographic location; (2) the provider’s level of experience and quality of outcomes; (3) the market shares of both parties; (4) patient acuity; (5) the teaching status, case mix, and scope of services of the out-of-network facility; and (6) demonstrations of good faith efforts (or lack thereof) by the provider to “go in-network” during the previous four years. The arbitrator may also request, or either party may offer, any other relevant information. However, the arbitrator may not consider: (1) the provider’s “usual and customary charge;” (2) the amount the provider would have billed for the service if the NSA did not apply; or (3) the amount a public payer (like Medicare) would have paid.

While the statutory language does not give presumptive weight to any single factor, the September Rule creates a presumption that the QPA is the appropriate rate. The rule further provides that it is not the arbitrator’s role to determine whether the QPA has been calculated correctly. Finally, the rule requires that the arbitrator “must select the offer closest to the [QPA]” unless the arbitrator finds “credible information” that the QPA is “materially different from the appropriate out-of-network rate,” or if the offers are “equally distant from the [QPA] but in opposing directions.”

On December 9, 2021, the American Medical Association and the American Hospital Association – joined by other medical providers and facilities – filed suit (No. 21-3231) against the Departments in the U.S. District Court for the District of Columbia. The suit challenges the portions of the September Rule that create a presumption that the QPA is the appropriate payment. Plaintiffs allege that this presumption conflicts with the NSA’s statutory text and contravenes the legislative intent of creating an IDR process that does not favor providers or insurers. Plaintiffs seek to vacate the disputed provisions of the September Rule, but they do not seek to enjoin the NSA or the undisputed portions of the rule from taking effect on January 1, 2022.

The Departments have not yet answered the Complaint. Jackson Lewis P.C. will post updates as the suit develops.

 

 

 

In Avenoso v. Reliance Standard Life Insurance Company, No. 21-1772, 2021 U.S. App. LEXIS 35264 (8th Cir. Nov. 30, 2021), the Eighth Circuit clarified its position in a circuit split over the proper judicial procedure for deciding ERISA benefits cases.

The underlying case concerned the defendant’s denial of long-term disability benefits under an ERISA plan after the defendant disability insurer found the plaintiff retained sedentary work capacity. After exhausting his administrative appeals, the plaintiff filed a lawsuit in the United States District Court of Minnesota alleging the benefits denial violated ERISA. Both parties moved for summary judgment, with the district court finding for plaintiff.

On appeal, the Eighth Circuit ruled that the district court’s decision on summary judgment was improper because it weighed evidence, made credibility determinations, and made findings on disputed factual questions in the administrative record. The Eighth Circuit confirmed that it stands with the Second, Seventh, Eleventh, Ninth, and Sixth Circuits in refusing to recognize the First Circuit’s exception, which permits district courts to weigh facts and resolve conflicts in evidence when deciding summary judgment in cases resolving ERISA claims for benefits under 29 U.S.C. § 1132(a)(1)(B).

The Eighth Circuit acknowledged that, under its precedent, when a plan administrator is granted discretionary authority under an ERISA plan to determine benefits claims, the district court typically only makes legal conclusions at a subsequent bench trial – i.e., whether under the applicable record a reasonable factfinder could reach a certain outcome. However, when the plan administrator is not granted discretionary authority under the plan, the district court must review the administrative record de novo and act as a factfinder at a subsequent bench trial. Here, the plan administrator was not granted this discretionary authority. Accordingly, at a bench trial, the district court would have weighed evidence and acted as a factfinder in its de novo review to determine whether benefits were due. As a result, the Eighth Circuit held the district court was not justified in resolving factual issues at summary judgment.

The Eighth Circuit concluded, however, that the district court’s error was harmless under FRCP 61, and it affirmed the district court’s decision granting plaintiff summary judgment. Of controlling import, the parties confirmed that neither had new evidence to submit should the court remand the case for a bench trial. Thus, the same district judge would be deciding the same issue on the same record during a bench trial, and the district court’s factfinding would be reviewed for clear error on appeal. Accordingly, the Eighth Circuit applied the clear error standard here, concluding the district court’s finding that the plaintiff lacked sedentary work capacity was not clearly erroneous.

Avenoso serves as an important reminder to the parties in ERISA benefit claim cases to evaluate the most efficient way to resolve these cases. They are often decided on the administrative record with the judge as the factfinder. In these circumstances, using FRCP 52 to conduct a bench trial “on the paper” (instead of summary judgment) can avoid the issues (including the potential costs of further remand and litigation) raised in the Avenoso appeal.

 

Today, the Supreme Court heard oral arguments in Hughes v. Northwestern University, No. 19-1401, just one of about 150 similar class action suits filed around the country in the last few years. The case was brought by retirement plan participants alleging that plan fiduciaries breached their duties under ERISA relating to recordkeeping and investment fees charged to plan participants. Specifically, Plaintiffs alleged that Northwestern breached its ERISA-imposed duty of prudence by (1) paying excessive recordkeeping fees (using multiple recordkeepers and allowing recordkeeping fees to be paid through revenue sharing); and (2) offering mutual funds with excessive investment management fees.

The district court granted Northwestern’s motion to dismiss, and the Seventh Circuit affirmed. The Seventh Circuit found no ERISA violation based on Northwestern’s recordkeeping arrangement. The court explained that ERISA does not require a sole recordkeeper, and there is “nothing wrong – for ERISA purposes – with plan participants paying recordkeeper costs through expense ratios” under a revenue sharing agreement.

The Seventh Circuit also rejected the excessive investment fee claim, concluding that the types of funds plaintiffs wanted (low-cost index funds) were and are available to them, thus “eliminating any claim that plan participants were forced to stomach an unappetizing menu.”

Plaintiffs appealed to the Supreme Court, which granted certiorari to address this question: “[w]hether allegations that a defined-contribution retirement plan paid or charged its participants fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim against plan fiduciaries for breach of the duty of prudence under ERISA.”

During oral argument today, various members of the Court appeared to struggle to devise a motion to dismiss standard in these cases, with Justices Alito, Gorsuch, Breyer, Kagan, and Kavanaugh each pressing the parties about what facts they believed must be pled to open the courthouse door to plaintiffs, particularly relating to investment fees. Although a key issue in Plaintiffs’ amended complaint was the use of a revenue sharing, rather than a per-participant fee, there was little to no inquiry or recognition by the Justices on the impact of revenue sharing in offsetting fees, as a reason for selecting a more expensive share class as an investment option.

Equally surprising was Justice Roberts’ line of questioning on the scope of ERISA’s fiduciary duty of prudence, asking Plaintiffs’ counsel at one point whether the standard was the “highest” duty or an “average” duty, something more akin to negligence.

There appeared to be more coalescence on the recordkeeping claim. Several members of the Court indicated they approve of the Seventh Circuit’s finding that ERISA does not require a sole recordkeeper, and that Plaintiffs’ argument that the Plan should have been able to obtain a $35 per participant fee, without more, was insufficient to state a claim.

Justice Kagan appeared to be the only jurist clearly in favor of overturning the Seventh Circuit’s decision, with some support from Justices Sotomayor and Breyer. With Justice Barrett recused (she was still sitting on the Seventh Circuit at the time of the underlying decision), if Justice Kagan recruits only one more Justice, there could be a tie vote, but a tie vote would leave the Seventh Circuit decision intact.

 

Shortly after the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) issued its cybersecurity guidance for employee retirement plans and updated its audit inquiries to include compliance with these guidelines, a federal court in Chicago ruled an employee benefit services provider must comply with a subpoena requesting, among other things, documents and communications relating to the provider’s information security and cybersecurity plans and controls.

In Walsh v. Alight Solutions, LLC, No. 20-cv-2138 (N.D. Ill. Oct. 28, 2021), the DOL sought enforcement of an administrative subpoena against Alight Solutions (the Company) — a recordkeeping, administrative, and consulting services provider to ERISA plan clients. The agency’s investigation was prompted, in part, by the alleged discovery that the Company had processed unauthorized distributions due to cybersecurity breaches relating to its ERISA plan clients’ accounts, which it had not corrected.

The subpoena called for “all documents” in the Company’s “possession, custody, [or] control” in response to 32 inquiries. These inquiries included specific requests for, among other things, all documents and/or communications relating to the Company’s:

  • communications, event logs, and reports of any incident involving information security and/or cybersecurity relating to any ERISA plan clients;
  • system penetration testing or other ethical hack reports from the Company, the Company’s service providers, or the Company’s ERISA plan clients (eventually narrowed by the DOL to such testing or reports that relate to any ERISA plan clients);
  • information security or cybersecurity controls (including internal cybersecurity procedures and policies, patch management reports, and cybersecurity assessment reports);
  • crises management plans and corporate continuity plans relating to information security and/or cybersecurity;
  • cybersecurity awareness training; and
  • physical access controls, including key cards, biometric controls, and video cameras relating to information security and/or cybersecurity (narrowed by the DOL to controls that relate to any ERISA plan clients).

In determining whether the subpoena should be enforced, the court recognized the Secretary of Labor must demonstrate: (1) the subpoena is within the authority of the agency; (2) the demand is not too indefinite, and (3) the information sought is reasonably relevant to the DOL’s investigation. The court also acknowledged its duty to consider the potential burden of compliance on the Company.

The court squarely rejected the Company’s arguments that the DOL’s subpoena power only extends to ERISA fiduciaries, finding the DOL has broad subpoena power and may investigate “merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.” The court also found that the requests were not too indefinite because the Secretary outlined in 32 paragraphs its specific requests, which it further clarified during litigation. Lastly, the court recognized the requests were relevant to the investigation, as the requests permissibly sought information that may be relevant to whether ERISA violations had occurred.

With respect to the potential burden of compliance, the Company argued that compliance “would require thousands of hours of work just to identify potentially responsive documents” in addition to “the time and expenses outside counsel would incur reviewing, de-identifying, and producing those materials.” Although the court recognized the burden of compliance may potentially be significant, the court ruled the Company must comply with the subpoena and found the burden did not outweigh the potential relevance of the requests, citing EEOC v. Quad/Graphics, Inc., 63 F.3d 642, 648 (7th Cir. 1995) (upholding district court’s enforcement of subpoena in case in which the responding party estimated that compliance would require more than 200,000 hours).

The court also rejected the Company’s request to “de-identify” the data produced so that it did not disclose the ERISA plan involved. The court noted federal law would protect this information from disclosure by the DOL to outside parties.

What are the takeaways from Walsh v. Alight Solutions? First and foremost, it demonstrates that information security and cybersecurity are clearly a new and important area of interest for the DOL. Although not explicitly stated, the inquiries listed in the subpoena suggest the DOL is looking into what providers are doing to safeguard their own systems to address privacy and security, specific documents that describe those safeguards and controls, as well as whether the provider has had any incidents involving cybersecurity relating to its ERISA plan clients. Moreover, Walsh v. Alight Solutions also reminds us that the DOL has broad subpoena power and authority to investigate compliance with the laws enforced by the department, including compliance by ERISA plan service providers. Accordingly, providers (and by extension, ERISA plans) will want to think carefully about their current practices, including their communications and procedures, to address cybersecurity threats.

 

 

In McIntyre v. Reliance Standard Life Insurance Company, 972 F.3d 955 (8th Cir. 2020), the United States Court of Appeals for the Eighth Circuit clarified the standard of review to apply where there has been a denial of benefits challenged under ERISA Section 502(a)(1)(B).

Generally, a court reviews a denial of benefits under a de novo standard, unless the benefit plan gives the administrator or fiduciary the discretionary authority to determine eligibility for benefits or to construe the terms of the plan. Where the benefit plan gives the administrator such discretionary authority, then a court should review the administrator’s decision for an abuse of discretion.

In this case, an employee who suffered from a degenerative neurological condition was denied disability benefits. She filed an appeal, challenging her administrator’s eligibility determination. After delays from both parties, she underwent an independent medical examination. The doctor performing the independent medical examination concluded she was capable of working full time with an accommodation. The plan administrator upheld its original determination that she was not eligible for disability benefits. She sued for wrongfully denied benefits.

It was undisputed that the benefit plan granted the administrator discretionary authority—thereby triggering an abuse of discretion review. But the district court nevertheless decided that a de novo standard applied, based on purported procedural irregularities in the administrative review process.

In Woo, the Eighth Circuit recognized a court could apply a “less deferential review” if: (1) either the administrator faces a “palpable conflict of interest” or a “serious procedural irregularity” arose in the review process, and (2) either the conflict or the procedural irregularity “caused a serious breach of the plan administrator’s fiduciary duty” to the claimant. Woo v. Deluxe Corp., 144 F.3d 1157 (8th Cir. 1998), abrogated in part by Metro. Life Ins. V. Glenn, 554 U.S. 105, 115-16 (2008).

Based on the district court’s understanding of Woo, it found both a palpable conflict of interest—insofar as the administrator “both determines and pays claims” and ostensibly has a “history of biased claims administration”—and a serious procedural irregularity—namely, the “long delay in deciding [the] appeal.” The district court then applied a de novo standard to its review, determining that the plaintiff was entitled to benefits.

The Eighth Circuit vacated and remanded to the district court for review under the abuse of discretion standard, clarifying that the United States Supreme Court in Glenn abrogated the conflict-of-interest component of Woo. The Eighth Circuit also clarified that it did not intend its holding in Woo to be read as providing a “gateway” to de novo review.  Rather, in Woo, the Eighth  Circuit adopted a “sliding scale approach” to abuse of discretion review. Applying this standard, in some cases an administrator might have to support its decision with “substantial evidence bordering on a preponderance,” while in other cases, an administrator might have to support its decision with mere “substantial evidence.”

Therefore, it was error for the district to treat the ostensibly serious procedural irregularity as a trigger for de novo review. Rather, the irregularity was just another factor for the district court to consider when reviewing the administrator’s decision for an abuse of discretion.

On remand, in McIntyre v. Reliance Standard Life Insurance Company, 2021 U.S. Dist. LEXIS 157848 (D. Minn. Aug. 20, 2021), the district court found that the denial of benefits was an abuse of discretion.  That decision has been appealed to the Eighth Circuit.

 

In an order issued on October 15, 2021, United States District Judge Thomas W. Thrash from the Northern District of Georgia granted an employer’s Motion for Summary Judgment and ruled that plaintiff’s separation agreement with a release and covenant not to sue precluded him from bringing an ERISA class action for breach of fiduciary duties on behalf of the company’s 401(k) plan.

Prior to initiating his ERISA lawsuit in Dan Alfonso v. Cumulus Media, Inc., et al., plaintiff had worked as an engineer for a wholly owned subsidiary of Cumulus Media, Inc., a national media and entertainment conglomerate, from August 2014 to May 2019. On May 31, 2019, plaintiff executed a separation agreement that contained a general release of claims provision in which plaintiff effectively released Cumulus Media from all current and future claims, including any arising under ERISA. The separation agreement also included a covenant not to sue “by reason of or related to” the released ERISA claims.

Less than a year after executing the separation agreement, plaintiff, who had participated in the company’s 401(k) retirement plan during his employment at Cumulus Media, initiated a class action on behalf of the plan against the 401(k) plan fiduciaries, which included Cumulus Media, for alleged breaches of fiduciary duties in their administration of the plan.

Cumulus Media moved for summary judgment, arguing that plaintiff was precluded from bringing an ERISA action against the company because of his separation agreement.  In response, plaintiff argued that the language of the agreement only precluded him from bringing ERISA claims in his individual capacity and it in no way affected his ability to bring derivative claims, such as a breach of fiduciary duty claim under § 502(a)(2), on behalf of the company’s 401(k) plan. Plaintiff therefore argued that derivative actions, like his, brought on behalf of the plan, could not be waived under the release language of the separation agreement.

The court disagreed, reasoning that the appropriate question was not whether derivative actions could be  waived under the separation agreement.  Instead, the court found that even if the agreement had not waived plaintiff’s ability to bring an action on behalf of the plan, he had executed a covenant not to sue Cumulus Media in any capacity, whether individual or derivative, and was thus precluded from bringing any legal action “of or related to” claims he had released in the agreement, including ERISA claims.

The court also dismissed plaintiff’s alternative argument that Cumulus Media had failed to show that he had made a knowing and voluntary waiver of his ERISA claims. The court found that not only was plaintiff’s education level sufficient, but that plaintiff was barred from arguing that he had failed to read the agreement because he represented when he executed it that he had read the agreement carefully. In addition, he had been given forty-five days to review it and consult with an attorney. Finally, the plaintiff had received valuable consideration as part of the agreement.

The case is Alfonso v. Cumulus Media, Inc., No. 1:20-cv-847-TWT (N.D. Georgia Oct. 15, 2021).

On October 12, 2021, Aon Hewitt Investment Consulting, Inc. (“Aon”) defeated a class action in the Western District of North Carolina brought by nearly 250,000 current and former Lowe’s Companies, Inc. (“Lowe’s”) employees who were participants in Lowe’s 401(k) retirement plan (the “Plan”). Plaintiffs alleged that Aon and Lowe’s breached their fiduciary duties of loyalty and prudence under ERISA to the Plan by directing substantial Plan assets to Aon’s proprietary investment products. Specifically, Plaintiffs asserted that Aon violated ERISA by limiting the menu of investment options available to the participants and by transferring more than $1 billion of Plan assets to its own proprietary fund, the Aon Growth Fund, which allegedly resulted in a substantial loss of investment gains. In April 2021, Lowe’s reached a $12.5 million settlement with the Plan participants, leaving only Aon to stand trial.

Aon managed the Plan from 2009 to 2016 and had selected the Aon Growth Fund as an investment option for Plan participants. In 2015, Aon transferred more than half of the Plan’s total assets to the Aon Growth Fund which ultimately performed poorly, according to the participants. Consequently, Plaintiffs sued both Lowe’s and Aon in 2018, alleging that their imprudent and disloyal actions cost the participants more than $100 million by shifting their investments to the Aon Growth Fund. Plaintiffs further accused Aon of recommending its proprietary fund to Lowe’s for its own financial interests.

Following a five-day bench trial, U.S. District Judge Kenneth Bell ruled in favor of Aon on all claims, concluding that “Aon acted loyally and prudently with respect to its recommendations to change the plan’s investment choices — which were consistent with its industry research and the thinking of other financial consultants — as well as its selection and retention of the Aon Growth Fund in the plan, which was similarly reasonable based on Aon’s investment expertise and legitimate strategic choices.” In so holding, Judge Bell opined that Aon “did not breach its fiduciary duty as an investment advisor to the plan in proposing and encouraging Lowe’s to change the plan’s investment structure and menu of investment options nor did it violate ERISA in its efforts to ‘cross-sell’ its delegated fiduciary services.”

In rejecting Plaintiffs’ argument that Aon breached its fiduciary duty because its proprietary fund did not generate as much growth as other investment options, Judge Bell noted that Plaintiffs’ “hindsight attacks” on Aon’s alleged failure to consider alternative investments based on historical results were “unpersuasive,” acknowledging that the “dynamics of the market could have changed at any time making the Aon Growth Fund not only reasonable but likely more profitable for plan participants.” The court further recognized that the Aon Growth Fund was well-diversified and carried reasonable fees, making it an appropriate choice for the Plan. Based on these findings, the court rendered a bench judgment in Aon’s favor.

The case is Reetz v. Lowe’s Cos., No. 5:18-cv-00075 (W.D.N.C. Oct. 12, 2021).

Can a former employee serve as a class representative for ERISA claims when she has signed a general release agreement and has waived her right to participate in class actions? According to a recent decision by the District Court for the Western District of Oklahoma, the answer may very well be “no.”

That court dealt with this issue in Myers v. Administrative Committee, Seventy Seven Energy, Inc. Retirement & Savings Plan. There, a former employee named Kathleen Myers sought class-wide relief against her retirement plan’s fiduciaries, claiming that the plan’s investments were not sufficiently diversified.

While reviewing Myers’ motion for class certification, the court acknowledged that the numerosity and commonality requirements of Rule 23(a) were satisfied. There was a hitch, however, when evaluating whether Myers’ claims were typical of the proposed class members (the “typicality” requirement of Rule 23(a)) and whether Myers was an adequate class representative (the “adequacy” requirement).

Before filing this lawsuit, Meyers had signed a severance agreement, which released all claims against her former employer and its agents. In that agreement, Myers had also waived her right to participate in any class actions against her former employer or its agents. This included a waiver of serving as a class representative.

Without deciding whether Myers could serve as the class representative, the court concluded that Myers did not satisfy Rule 23’s adequacy or typicality requirements. Critically, Myers’ motion for class certification failed to address how Myers was similarly situated to the putative class members, including whether other plan participants had signed release agreements. The court was troubled by this because, if Myers could not recover for any losses attributable to her individual account in the litigation, she would have little incentive to pursue this alleged fiduciary breach on behalf of a plan in which she was no longer a participant. As Myers failed to show that she was an adequate class representative or that her claims were typical of the putative class members, her motion for class certification was denied.

A second putative class representative fared little better. In apparent anticipation of the court’s ruling, Myers’ attorneys identified a new potential class representative, Christopher Snider, at the conclusion of expert discovery. Instead of moving for Snider’s intervention or joinder, however, Myers’ attorneys filed a second class action case with Snider as the plaintiff, then moved to consolidate the Myers and Snider cases. The court denied the consolidation motion, deeming it an attempt to circumvent the long-standing schedule in the original case.  For the same reasons, when plaintiffs’ counsel sought to add Snider as a co-representative for the class in the Myers case, the court refused.

The case is Myers v. Administrative Committee, Seventy Seven Energy, Inc. Retirement & Savings Plan, No. 17-cv-200 (W.D. Okla. Sept. 29, 2021).