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Noteworthy Federal Cases Relating to Employee Benefit Plans in 2017

Here is a round up of cases decided by the U.S. Supreme Court and the First and Second Circuit Courts of Appeals in 2017 involving ERISA employee benefit plans. While courts decided a number of cases pertinent to benefit plans, we found these to be noteworthy:

United States Supreme Court

Advocate Health Care Network v. Stapleton, 137 S. Ct. 1652 (2017)

  • Holding: An employee benefit plan maintained by a church-affiliated organization can qualify as a "church plan" exempt from ERISA even though the plan was not "established" by a church.
  • Key Facts: Participants in a pension plan established and maintained by a church-affiliated hospital challenged the treatment of the plan as a "church plan" — and asserted that the plan should be subject to ERISA — because the plan was not established by a church.
  • Why the case is important: The Court validated nearly forty years of administrative decisions by the Internal Revenue Service, the Department of Labor, and the Pension Benefit Guaranty Corporation by explicitly affirming that plans established by church-affiliated hospitals and other organizations can be accorded the same treatment as plans actually established by a church.
  • Still to come: The decision did not address the question of what attributes or criteria must be met for an organization to be considered an organization the "principal purpose" of which is to establish and maintain a church plan (as required under ERISA). It appears, however, that a church-affiliated hospital can be such a "principal purpose organization."

More analysis of this case is available on our blog hereand our podcast here.

First Circuit Cases

Stephanie C. v. Blue Cross Blue Shield of Mass. HMO Blue, Inc., 852 F.3d 105 (1st Cir. 2017)

  • Holding: An ERISA plan is a form of contract and the principles of contract law inform the interpretation of plan language. Accordingly, the "plain language" of a group health insurance plan should govern the determination of claims and services that are covered under the plan.
  • Key Facts: Stephanie's son M.G. was a beneficiary under an ERISA group health insurance plan maintained by his father's employer. M.G. experienced mental health issues beginning in childhood, which intensified in high school. Stephanie subsequently enrolled M.G. in a private school treatment center in Utah, which BCBS insisted was out of network. BCBS denied reimbursement for room and board expenses because the services were not medically necessary and the submitted documentation did not support the need for an inpatient admission. The District Court granted summary judgment to BCBS. The First Circuit affirmed, noting that the dispositive question was not whether M.G.'s course of treatment at the school was beneficial to M.G., but rather, whether the course of treatment was covered under the plain language of the plan. In this case, the plain language of the plan indicated that the plan did not cover claims for reimbursement of residential mental health treatment.
  • Why the case is important: This case reminds us that judges will examine the "plain language" of the plan document using traditional modes of contract analysis to determine the rights of participants and the scope of benefits.

Rodriguez-Lopez v. Triple-S Vida, Inc., 850 F.3d 14 (1st Cir. 2017)

  • Holding: A district court must review the language of a plan to determine whether it contains a clear grant of discretion to the plan administrator. In the absence of a clear grant of discretion, the district court must apply a de novo standard of review (i.e., without any deference to the plan administrator) when reviewing a denial of benefits.
  • Key Facts: Rodriguez was diagnosed with several physical and mental conditions and filed a claim for disability benefits under her employer's long-term disability plan. The insurer denied Rodriguez's claim, and the district court sustained the denial, applying an arbitrary and capricious standard of review. The First Circuit held that the long-term disability plan did not contain a clear grant of discretionary authority to the insurer to make benefit determinations under the plan. Therefore, the insurer's determination to deny benefits to the participant was subject to de novo review.
  • Why this case is important: This case affirms that a court will review on its own whether or not a plan contains a provision granting discretionary authority, and serves as a reminder that grants of discretion in plans should be clear and unambiguous.

Second Circuit Cases

Osberg v. Foot Locker, Inc., 862 F.3d 198 (2d Cir. 2017)

  • Holding: The statute of limitations for a claim based on a plan's gradual reduction of pension benefits starts running when a participant knows or should know about the effect of the provision, not upon the participant's retirement. In addition,
  • Key Facts: In 1996, Foot Locker converted its employee pension plan from a traditional defined benefit plan to a cash balance plan. To calculate participant initial account balances under the new plan, Foot Locker used a formula that guaranteed that the vast majority of participants' initial account balances would be lessthan the value of their accrued pension benefits under the old plan. To address that problem, the cash balance plan included a stopgap measure that defined a participant's actual benefits as the greater of: (1) the participant's benefits under the defined benefit plan as of December 31, 1995; and (2) the participant's benefits under the new cash balance plan. The "greater of" provision resulted in gradual reduction (or "wear-away") of the participants' original pension benefits because the provision effectively froze participants' benefits following conversion until they accrued enough to close the gap between the value of their cash balance account and their accrued benefit as of December 31, 1995. Foot Locker introduced the new cash balance plan to its employees in a series of written communications, all of which were found by the district court to have "failed to describe wear-away," to have "failed to clearly discuss the reasons for the difference" between the value of a participant's old and new benefits, and to have been "intentionally false and misleading." The district court ordered reformation of the plan to conform to plan participants' reasonably mistaken expectations, which the district court found to have resulted from Foot Locker's materially false, misleading, and incomplete disclosures.
  • Why this case is important: The court refused to impose a more restrictive statute of limitations that would have required claims to be brought within a few years after participants' retirement. The case also reflects a permissive attitude toward the standard of proof and availability of class-wide remedies that apply when a plan administrator is shown to have misled participants.

Arnone v. Aetna Life Ins. Co., 860 F.3d 97 (2d Cir. 2017)

  • Holding: ERISA does not preempt a New York state law barring an insurer from reducing benefits by the amounts the insured receives from a personal injury settlement.
  • Key Facts: Arnone sustained serious injuries while working in New York at the site of a customer of his employer. Arnone filed for, and received, long-term disability benefits related to the injury under his employer's long-term disability plan. Arnone brought a personal injury suit in New York state court against his employer's customer and settled the suit for $850,000. In light of the settlement, Aetna reduced Arnone's disability benefits by a portion of the settlement proceeds, taking the position that the settlement included compensation duplicative of Arnone's disability benefits and citing a plan provision regarding offsetting payments from other sources. The Second Circuit held that New York state law prohibits Aetna's reduction in Arnone's disability benefits, and that ERISA does not preempt the law. The court noted that ERISA does not preempt all state laws that relate to an ERISA plan; rather, ERISA's savings clause exempts from preemption "any law of any State which regulates insurance." The case was appealed to the U.S. Supreme Court, where it remains pending
  • Why this case is important: This case is a reminder that although ERISA's state law preemption provision provides a great deal of national uniformity, entities administering third-party insured plans must be aware of state law and its potential impacts.

Brown v. Rawlings Fin. Servs., LLC, 868 F.3d 126 (2d Cir. 2017)

  • Holding: Connecticut's one-year statute of limitations for actions to recover civil forfeitures should have been applied to plaintiff's failure to provide documents claim.
  • Key Facts: In late 2010, Brown was hurt in a motor vehicle accident. After Brown filed a personal injury lawsuit, Rawlings — a contractor hired by the third-party administrator of Brown's employer's health insurance plan — sent Brown a notice of subrogation pursuant to the terms of the health plan, informing her that if she received money in her lawsuit, she would need to reimburse the plan for the medical expenses it had covered. Rawlings also imposed a health insurance lien. Brown eventually settled her personal injury suit, and the settlement money was initially withheld because of the lien. Brown alleged that she asked Rawlings to provide her with documents regarding her health insurance plan in 2012, but Rawlings did not comply until more than two years later. Brown filed suit against Rawlings, her employer, and the third-party administrator in 2015.
  • Why this case is important: This case serves as a reminder that when ERISA does not specify a statute of limitations, courts look to the most analogous statute of limitations under state law. As in this case, that can sometimes prove favorable to plan administrators.

Pasternack v. Shrader, 863 F.3d 162 (2d Cir. 2017)

  • Holding: A corporation's Stock Rights Plan was not governed by ERISA because the primary purpose of the SRP was to provide working capital for the company and maintain management's control of it, not to provide retirement income within the meaning of ERISA.
  • Key Facts: Plaintiffs were retired officers of Booz Allen Hamilton, a privately held corporation, which allocated its stock via its SRP. In an officer's first participation year, the officer was given the option to purchase a block of shares, of which 10 percent was common stock and 90 percent was Class B stock. The officer paid book value for the common stock and a nominal amount for the Class B stock. In each successive year, the officer exchanged some of the Class B stock for common stock, so that the percentage of common stock in the initial grant increased annually by 10 percent. Thus, at the end of the second year, the block was composed of 20 percent common and 80 percent Class B stock; at the end of the third year, 30 percent common and 70 percent Class B; and so on until, at the end of ten years, the block was 100 percent common stock. The officer paid for the incremental conversions to common stock at the price of half of book value at the time of the initial grant. A new, parallel, ten-year process began every year, as the officer continuously received new amounts of both common stock and Class B stock. When an officer separated from Booz Allen, the disposition of the officer's remaining Class B stock depended on how the officer left. If the participant retired with Booz Allen's approval, all outstanding Class B stock could be converted into common stock. Retirees were allowed to continue holding their stock for two years into retirement, after which Booz Allen had the option of repurchasing the retiree's common stock at the current book value. Both common stock and Class B stock had voting rights in the management of Booz Allen, and the common stock paid a small annual dividend.
  • Why this case is important: This case demonstrates that not all plans that provide for compensation after retirement are retirement plans subject to ERISA.

McCulloch Orthopaedic Surgical Servs., PLLC v. Aetna Inc., 857 F.3d 141 (2d Cir. 2017)

  • Holding: ERISA does not completely preempt an out-of-network health care provider's promissory-estoppel claim against a health insurer where the provider (1) did not receive a valid assignment for payment under the health care plan; and (2) received an independent promise from the insurer that he would be paid for certain medical services provided to the insured.
  • Key Facts: An out-of-network orthopedic surgeon sought reimbursement from Aetna for performing two knee surgeries on a patient who was a member of an Aetna-administered health care plan governed by ERISA. McCulloch brought state law causes of action, alleging that Aetna made promises that he would be reimbursed. The Second Circuit held that ERISA does not completely preempt such a claim because: (1) McCulloch — as an out-of-network health care provider who plainly did not have a valid assignment for payment — was not the type of party who could bring a claim pursuant to ERISA § 502(a)(1)(B); and (2) any legal duty Aetna had to reimburse McCulloch was independent and distinct from its obligations under the patient's plan.
  • Why this case is important: This case serves as a reminder that a plaintiff who may not have the right to bring a claim under ERISA may still have claims under state law — and where he or she does, those claims may not be preempted.

December 28, 2017


This summary is provided for general information only and may not be relied upon by any person as legal advice. This information may not be used in any marketing or promotional materials without our express permission.

Topics: Benefit Plans of Exempt Organizations, Health and Welfare Plans, Plan Administration, Retirement Plans