Category: Erisa

Something to take home and read over the weekend–here is a link to the recent WorldCom directed trustee decision discussed in this previous post here:

In re WorldCom, Inc. ERISA Litigation, 2005 U.S. Dist. LEXIS 1218 (S.D.N.Y. 2005)

More later. . .

For those of you interested in the litigation surrounding legislation of pharmacy benefit managers, you will want to read this opinion here from a federal district court in Maine issued February 2, 2005, holding that Maine’s Unfair Prescription Drug Practices Act (UPDPA), as amended, 22 M.R.S.A. § 2699 (“UPDPA”) is not preempted by ERISA. The Pharmaceutical Care Management Association (PCMA), the national trade association representing pharmaceutical benefits management companies (PBMs), sued Attorney General Rowe in 2003 alleging that the UPDPA is preempted by ERISA and the Federal Employee Health Benefits Act; that it would effect a regulatory taking of trade secrets, revenues, and contractual rights; that it violates PBMs’ civil rights; and that it is unconstitutional for violations of due process, the Commerce Clause, and freedom of speech. Yesterday, after more than a year of intense litigation between industry lawyers and the Attorney General’s Office, U.S. Magistrate Margaret Kravchuk found in favor of the Attorney General on all claims.

The Attorney General’s press release is here.

PCMA’s press release is here.

Law.com is reporting: “Merrill Lynch Wins Workers’ Suit Over WorldCom 401(k) Choices.” The article reports that “Southern District of New York Judge Denise Cote, who is also presiding over WorldCom’s securities class action cases, held that as a “directed trustee” under ERISA, Merrill Lynch’s fiduciary duties were limited in nature and that its decision not to block investment in WorldCom stock by the company’s 401(k) participants did not amount to a breach of its fiduciary duties.” The article further notes Judge Cote’s statements regarding the “duty of inquiry”:

“When a directed trustee receives a direction to invest plan assets in the securities of a company … [it] has a fiduciary duty of inquiry under ERISA when it knows or should know of reliable public information that calls into serious question the company’s short-term viability,” Judge Cote held.

“Knowledge that a company’s fortunes are declining does not impose a duty of inquiry,” she continued.

More on this when I have had a chance to read through the decision. . .

A good article from the Oklahoma Bar Journal discusses the interplay of bankruptcy laws, ERISA, the Internal Revenue Code and COBRA: “Employee Benefits in Bankruptcy: The Employer’s Perspective and the Employee’s Perspective.” The article written by Kenni Merritt begins with some humor:

. . . This article will discuss the interplay of these laws as they relate to employee benefit issues that typically arise in a Chapter 11 bankruptcy of the employer who sponsors a benefit plan, and in a bankruptcy filing by the employee who participates in a retirement plan.

At the outset, it is important to understand that bankruptcy attorneys are from Mars and employee benefits attorneys are from Venus. It is unusual to find a bankruptcy attorney with expertise in ERISA or a benefits attorney with expertise in bankruptcy. Although bankruptcy attorneys and employee benefits attorneys often use the same key words (i.e., Plan, Trustee, Code, priority categories), these terms have very different meanings in the bankruptcy context than they do in the ERISA/employee benefits context. Let me hasten to add that I am from Venus, though I have had spent several summers on Mars. . .

The end of 2004 brought an important development in the ERISA employer stock litigation arena. A federal appellate court granted a discretionary petition on December 29, 2004 to consider some critical questions, including whether such cases may be maintained as class actions under Fed.R.Civ. P. 23. In the case of In re Electronic Data Systems Corp. ERISA Litig, Case No. 6:03-MD-1512 (filed March 14, 2003, E.D.Tex), plaintiffs filed a class action against EDS after its stock fell from 36.46 to $17.20 a share in a day following an earnings warning. Plaintiffs asserted claims that it was imprudent for the fiduciaries to permit participants to invest any funds in EDS stock and that the fiduciaries misrepresented certain information regarding the company and its stock to participants.

Following the district court’s denial of defendants’ motions to dismiss, plaintiffs moved for class certification. The district court granted the motion in part, holding that the prudence claims could be maintained by the plan as a class action, but refusing to certify the misrepresentation claims. The district court reasoned that the misrepresentation claims could not be certified because the class representatives lacked commonality and typicality. It also reasoned that the investments were made by investors in their individual capacity and that section 404 of ERISA, 29 U.S.C. sec. 1104(c) provided fiduciaries with a defense against such claims arising from participants’ investment election.

Defendants filed a petition to review the district court’s decision on class certification and the United States Court of Appeals for the Fifth Circuit granted the discretionary petition on December 29, 2004. EDS is arguing that the claims are not certifiable under Rule 23 because they are not held by the plan, but are really asserted by participants. If so, defendants argue that the claims are for individualized relief under section 502(a)(3) of ERISA, 29 U.S.C. sec 1102(a)(3) and that section does not allow for monetary damages, only equitable relief. Defendants also assert that the class representatives continued to invest their retirement savings into EDS stock, which has somewhat recovered and are therefore estopped from complaining about the fiduciaries conduct.

Courts have recently struggled with ERISA’s civil enforcement provisions and plaintiffs’ ability to recover for such claims under them. A district court in New Jersey held that plaintiffs could not recover damages for defendants’ alleged breaches of fiduciary duty because such recovery was really for individual participants rather than the plan. In re Schering-Plough Corp. ERISA Litig., 2004 WL 1774760 at 6 (D.N.J. June 28, 2004). Most courts have held that plaintiffs are seeking such recovery for the plan which is authorized to file actions for breach of fiduciary duty and recover damages on such claims. The fact that the Fifth Circuit granted discretionary petition to review these claims is extremely noteworthy. If the Fifth Circuit, in fact, decides the case, it will shed considerable light on whether these claims may be maintained as class actions.

Read more about employer stock litigation at the Jenner & Block website entitled “ERISA Fiduciary and Company Stock Update Center.”

Michael Fox has a good post on the recent EEOC charges filed against a major law firm for age discrimination. He has links to the EEOC’s press release here as well as a link to a prior case decided in 2002–EEOC v. Sidley Austin Brown & Wood, 315 F.3d 696 (7th Cir. 2002). He writes:

The basic legal question is simple — when does a partner (and probably equity shareholder, in firms that are professional corporations) have so little say in the running of the firm, that they are for purposes of the discrimination laws just another employee.

In an earlier decision, partially enforcing an EEOC subpoena which preceded the filing of last week’s complaint, Judge Posner lays out the arguments and issues in EEOC v. Sidley Austin Brown & Wood, 315 F.3d 696 (7th Cir. 2002). Although clearly only deciding a preliminary issue, it is hard to read the opinion without coming to the conclusion that Sidley Austin may have an uphill battle on the initial legal question. Of course overcoming the hurdle of the partnership is only the first step. . .

Regarding this issue of whether “partners” are “employees”, the EEOC press release has this to say:

EEOC’s Regional Attorney in Chicago, John C. Hendrickson, said that in resisting the EEOC investigation and in forcing the EEOC to obtain judicial enforcement of its subpoena, “Sidley’s unwavering position has been that the matters involving how the law firm dealt with those it referred to as ‘partners’ and whether it engaged in discrimination were simply way beyond the reach of the ADEA and EEOC.” However, according to Hendrickson, the EEOC administrative investigation revealed that, “except for a very few controlling partners at the very top, Sidley’s lawyers appeared to be ordinary employees not unlike their colleagues at parallel levels in the business community and, therefore, covered by the ADEA.”

Hendrickson said, “Whatever titles Sidley had decided to give these lawyers–partner, counsel, or otherwise–our investigation indicated that they had no voice or control in governance of the firm and that they could be and were fired just like any other employees without notice and without the vote or consent of their fellow attorneys. A small self-perpetuating group of managers at the top ran everything, and that was it–end of story.”

Interestingly enough, the opinion written by Judge Posner for the case decided in 2002, relies on an ERISA case in reaching the conclusion that the “partners” in question could possibly indeed be “employees” for purposes of the ADEA. He states:

The problem of line drawing presented by this case is not unique to employment. It arises whenever legal consequences turn on classification as partner versus employee, whether in tax and tort cases or in discrimination cases. . .

The same problem of the tyranny of labels arose when the Supreme Court had to draw the line in ERISA between an “employee,” defined unhelpfully as in the ADEA as “any individual employed by an employer,” 29 U.S.C. § 1002(6), and an independent contractor. The Court could have said that an employee is anyone who is called an employee. Instead it said:

In determining whether a hired party is an employee under the general common law of agency, we consider the hiring party’s right to control the manner and means by which the project is accomplished. Among the other factors relevant to this inquiry are the skill required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party. Since the commonlaw test contains no shorthand formula or magic phrase that can be applied to find the answer, . . . all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.

Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 323-25 (1992) (citations and internal quotation marks omitted). In a subsequent case, we said the most important factor in deciding whether a worker was an employee or an independent contractor was the employer’s right to control the worker’s work.

The EEOC case could have a great impact on law firms and the legal profession, in general, as the demographics of firms change with more and more of the baby boom generation of lawyers coming of age.

The Wall Street Journal is reporting here that the Defense of Marriage Act (“DOMA”) has been upheld by a federal district court in Florida. U.S. District Judge James S. Moody today upheld the federal law, dismissing a lawsuit by two women seeking to have their Massachusetts marriage recognized in Florida. An Associated Press article (via the New York Times) is here.

Read more about DOMA, how it interacts with ERISA, and how it impacts the benefits arena in previous posts which you can access here.

Also, an article here by USAToday.com reports that the Louisiana Supreme Court unanimously reinstated a marriage amendment to the state constitution that was overwhelmingly approved by voters in September. At issue was a provision of the amendment that stated: “A legal status identical or substantially similar to that of marriage for unmarried individuals shall not be recognized.” Eleven other states adopted similar amendments in the fall elections. The Louisiana Supreme Court reversed a state district judge’s ruling in October which had struck down the amendment on the grounds that it violated a provision of the state constitution requiring that an amendment cover only one subject. You can access the opinion here.

Update: Thanks to a reader who emailed me a bankruptcy case, In re Kandu, decided in August of 2004 in which the court also upheld DOMA. No link to the actual case, but you can read about it here.

An article here from NWAnews.com is reporting that a “bill filed with the Arkansas Legislature on Tuesday would prohibit managed care networks from practices that “discriminate” against doctors and hospitals, a move the bill’s sponsor says will put an “any willing provider” law into effect.” According to the article:

Senate Bill 43 is intended to open closed insurance networks such as those of Arkansas Blue Cross and Blue Shield, allowing health-care providers who are willing to meet an insurer’s terms to see patients at in-network rate . . .

A second bill filed by Faris, SB44, says individuals can sue over violations of SB43 and receive a court order requiring compliance with the law and an award of at least $1,000. . .

SB43 says insurers cannot “discriminate against any provider” who is willing to meet the “terms and conditions for participation.” The bill is the latest in Arkansas’ decade-long fight over “any willing provider,” a term used to describe laws that force insurance companies to extend network membership to any doctor or hospital willing and able to meet the network’s terms.

Here are the events leading up to the introduction of this legislation:

(1) An Arkansas any willing provider law (“AWP law”) called the “Arkansas Patient Protection Act” was passed in 1995, but had been barred from being enforced in Arkansas after a federal district court issued an injunction, holding that the AWP law was subject to preemption under ERISA. The injunction was was affirmed by the 8th Circuit, in the case of of Prudential Insurance Company of America, et al. v.National Park Medical Center, Inc.

(2) The U.S. Supreme Court in the case of Kentucky Association of Health Plans v. Miller decided in April of 2003 that an AWP law in Kentucky was not preempted by ERISA (discussed in previous posts which you can access here.)

(3) After the Miller case was decided, a case was filed in federal district court in Arkansas asking for “a judicial determination” on how the Miller case impacted the old Arkansas AWP law.

(4) The injunction issued in 1998 was lifted on February 12, 2004 by a federal district court in Arkansas, based on the Miller case, but the decision lifting the injunction was appealed to the 8th Circuit. According to the Gazette article, oral arguments in the case–Prudential Ins. Co. v. HMO Partners–were heard in November of last year. You can read about the oral arguments in this article here, or even listen to the oral arguments as well as read the briefs filed in the case here.

According to the article, supporters of the proposed legislation don’t want to wait for the 8th Circuit to rule, and have introduced the legislation, modeling it after the Kentucky AWP law (which was upheld by the Supreme Court), in hopes that it will be enacted, thus bypassing the legal battle that has ensued in the courts.

Read about the legal issues pertaining to AWP laws in this article: “Kentucky’s “Any Willing Provider” Law and ERISA: Implications of the Supreme Court’s Decision for State Health Insurance Regulation” by Patricia A. Butler, JD, DrPH.

An article here from NWAnews.com is reporting that a “bill filed with the Arkansas Legislature on Tuesday would prohibit managed care networks from practices that “discriminate” against doctors and hospitals, a move the bill’s sponsor says will put an “any willing provider” law into effect.” According to the article:

Senate Bill 43 is intended to open closed insurance networks such as those of Arkansas Blue Cross and Blue Shield, allowing health-care providers who are willing to meet an insurer’s terms to see patients at in-network rate . . .

A second bill filed by Faris, SB44, says individuals can sue over violations of SB43 and receive a court order requiring compliance with the law and an award of at least $1,000. . .

SB43 says insurers cannot “discriminate against any provider” who is willing to meet the “terms and conditions for participation.” The bill is the latest in Arkansas’ decade-long fight over “any willing provider,” a term used to describe laws that force insurance companies to extend network membership to any doctor or hospital willing and able to meet the network’s terms.

Here are the events leading up to the introduction of this legislation:

(1) An Arkansas any willing provider law (“AWP law”) called the “Arkansas Patient Protection Act” was passed in 1995, but had been barred from being enforced in Arkansas after a federal district court issued an injunction, holding that the AWP law was subject to preemption under ERISA. The injunction was was affirmed by the 8th Circuit, in the case of of Prudential Insurance Company of America, et al. v.National Park Medical Center, Inc.

(2) The U.S. Supreme Court in the case of Kentucky Association of Health Plans v. Miller decided in April of 2003 that an AWP law in Kentucky was not preempted by ERISA (discussed in previous posts which you can access here.)

(3) After the Miller case was decided, a case was filed in federal district court in Arkansas asking for “a judicial determination” on how the Miller case impacted the old Arkansas AWP law.

(4) The injunction issued in 1998 was lifted on February 12, 2004 by a federal district court in Arkansas, based on the Miller case, but the decision lifting the injunction was appealed to the 8th Circuit. According to the Gazette article, oral arguments in the case–Prudential Ins. Co. v. HMO Partners–were heard in November of last year. You can read about the oral arguments in this article here, or even listen to the oral arguments as well as read the briefs filed in the case here.

According to the article, supporters of the proposed legislation don’t want to wait for the 8th Circuit to rule, and have introduced the legislation, modeling it after the Kentucky AWP law (which was upheld by the Supreme Court), in hopes that it will be enacted, thus bypassing the legal battle that has ensued in the courts.

Read about the legal issues pertaining to AWP laws in this article: “Kentucky’s “Any Willing Provider” Law and ERISA: Implications of the Supreme Court’s Decision for State Health Insurance Regulation” by Patricia A. Butler, JD, DrPH.

Imagine the following scenario: Participant of a 401(k) plan obtains a divorce, and the divorce court enters a decree that the spouse will receive 50% of the increase in value of the account from the date of marriage until the date of divorce. The court directs the spouse’s attorney to prepare a QDRO to effectuate the terms of the divorce decree. The spouse’s attorney prepares a QDRO and submits it to the employer for processing. But before the QDRO is approved, the participant dies. The employer informs the spouse that the plan will not honor the QDRO because it has not been approved by the court. The spouse’s attorney submits the QDRO to the court and the court approves the QDRO nunc pro tunc (meaning “now for then”). The spouse then submits the QDRO to the plan for payment, only to find that the children of the deceased participant have also submitted a claim for payment of that portion of the decedent’s account, claiming that the QDRO approved by the court after the death of the participant is invalid. What should the plan fiduciaries do?

The fiduciaries of the IBM Tax-Deferred Savings Plan decided to let the court settle the controversy, and thus filed an action for interpleader to determine the proper beneficiaries of the account. (See IBM Savings Plan v. Price.) Who prevailed? The spouse, based upon a holding that as long as a QDRO meets the other statutory requirements of ERISA contained in 29 U.S.C. § 1056(d)(3), it can be issued nunc pro tunc. The court noted that the 8th, 9th and 10th Circuit had each reached the same conclusion based upon similar facts.

Was the spouse entitled to attorneys’ fees? Apparently not, since the court concluded that the children’s claim for that portion of the account under the plan were not without some merit.

SEAK, Inc. has announced a new publication–The Biggest Legal Mistakes Physicians Make and How to Avoid Them–authored by various attorneys around the country. Included in the 640 page publication is a chapter on ERISA which I authored. You can access the Table of Contents here.

SEAK, Inc., founded in 1980, provides customized training, seminars, publications, and professional directories for expert witnesses of all disciplines, physicians, attorneys, independent medical examiners, and workers’ compensation professionals.