D.N.J. Rejects Plaintiff’s Fee Request In Connection With State Court Remand Of Action Removed Under ERISA, Scaling Back Earlier Charge That Defendant’s Removal Was Nonsensical

In 2010, Chief Justice John Roberts observed that that ERISA is “an enormously complex and detailed statute.” Conkright v. Frommert, 559 U.S. 506, 509 (2010).

Some things don’t change. A recent decision out of the District Court of New Jersey exemplifies how even the most seemingly mundane procedural act — removal — implicates legal nuances with which courts continue to grapple.

In Newton v. South Jersey Paper Products Company, Inc., No. 1:19-cv-17289-NLH-KMW, 2020 WL 7396258 (D.N.J. Dec. 17, 2020) (“Newton II”), the District Court rejected a plaintiff’s bid for attorney’s fees incurred in seeking and obtaining a remand of the plaintiff’s claims — which the defendant had removed to federal court on the basis of ERISA preemption — back to New Jersey state court. In rendering its decision to deny the plaintiff’s fee motion, the District Court recognized “the unique complexity of ERISA preemption issues and the resulting reluctance of courts in this district to impose attorneys’ fees on defendants who have made failed preemption arguments…” Newton II, 2020 WL 7396258, at *4.

In her complaint, the plaintiff alleged that her employer, the defendant, had terminated her long term disability benefits plan without informing her, but nevertheless continued to take weekly paycheck deductions towards plan premiums for nearly two years post-termination. According to the complaint, the plaintiff first learned of the plan’s termination when she applied for long term disability benefits under the plan, and was advised by her employer that no disability coverage was in effect. The plaintiff alleged that she was initially approved for New Jersey’s Temporary Disability Insurance, and that she was subsequently deemed permanently disabled by the Social Security Administration, but that she was deprived of the opportunity to seek and obtain long term disability insurance as a result of her employer failing to notify her of its cancellation or termination of the employer-sponsored plan towards which it continued to deduct her pay. Plaintiff sued her employer in New Jersey state court and claimed that she was entitled to relief under four state common law theories: (1) conversion of plaintiff’s withheld pay; (2) breach of contract for terminating promised insurance coverage for which the employer continued to charge the plaintiff; (3) fraudulent concealment of the fact that long term disability coverage had terminated; and (4) breach of the employer’s fiduciary duty, in its alleged capacity as policyholder and administrator of the long term disability plan, to the plaintiff.

The employer removed the complaint and its four common law claims to federal court on the grounds that they related to an employee benefit plan, thus subjecting them to complete ERISA preemption under 29 U.S.C. § 1144(a). The employer then moved for dismissal of the claims on the basis of such preemption.

The plaintiff opposed the employer’s motion to dismiss, and separately filed a motion for remand on the basis that her claims were not covered by ERISA. Addressing the motion for remand, the District Court concluded that the plaintiff was not a “participant or beneficiary” within the meaning of ERISA, and therefore was “not the type of party that can bring a claim under ERISA” and its civil enforcement procedures set forth in  29 U.S.C. § 1132. Newton v. South Jersey Paper Products Company, Inc., No. 1:19-cv-17289-NLH-KMW, 2020 WL 2059954, at *2 (D.N.J. Apr. 29, 2020) (“Newton I”) (citing Pascack Valley Hosp. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 400 (3d Cir. 2004)). In so holding, the Court gave little attention to the employer’s arguments that claimed damages would necessarily be calculated by reference to the former plan’s terms, and that the plaintiff’s breach of fiduciary claim hinged upon an alleged duty imposed upon plan administrators under ERISA.  Thus, the District Court remanded the action to state court, explaining:  “[i]t is simply nonsensical for Defendant to assert that Plaintiff seeks to enforce her rights under a policy that does exist.” Newton I, at *3.

The plaintiff pounced on the Newton I Court’s characterization of the employer’s arguments as “nonsensical,” and moved for an award of attorney’s fees under 28 U.S.C. § 1447(c). Under this provision, “[t]he standard for awarding fees should turn on the reasonableness of the removal. Absent unusual circumstances, courts may award attorney’s fees under § 1447(c) only where the removing party lacked an objectively reasonable basis for seeking removal. Conversely, when an objectively reasonable basis exists, fees should be denied.” Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005).

The employer argued that its removal of the plaintiff’s claims was not objectively unreasonable, citing numerous recent decisions in which the District Court had denied fees after remanding for lack of complete ERISA preemption, as well as the Third Circuit’s own concession that “[i]t is no secret to judges and lawyers that the courts have struggled with the scope of ERISA preemption.” Kollman v. Hewitt Assocs., LLC, 487 F.3d 139, 147 (3d Cir. 2007). The employer also reminded the Court that, during argument on the motion for remand, the Newton I Court conceded that the applicable case law was “kind of all over the place” and that “[t]here are some cases both for and against it.”

In denying the plaintiff’s motion for attorney’s fees, the Newton II Court acknowledged that the Third Circuit has articulated that ERISA preemption may apply when “the calculation of damages would involve construction of ERISA plans,” an argument that the employer had originally asserted in its opposition to plaintiff’s motion for remand. Newton II, at *3-4 (citing 1975 Salaried Ret. Plan for Eligible Employees of Crucible, Inc. v. Nobers, 968 F.2d 401, 406 (3d Cir. 1992)). Though the Third Circuit and courts within it have more recently questioned the scope and application of this language, the Newton II Court recognized that Nobers has not been overturned. The Newton II Court further noted the “lack of a direct holding” on the objective reasonableness of removal based on ERISA preemption “by the Third Circuit and the more expansive language of some other cases in this Circuit,” all of which rendered it “plausible that [Defendant’s] position was asserted in the belief that it had current legal support, or as part of a good faith argument for an extension of existing law.” Id.

“Given the unique complexity of ERISA preemption issues and the resulting reluctance of courts in this district to impose attorneys’ fees on defendants who have made failed preemption arguments,” the District Court concluded, “the Court will exercise its discretion and not impose attorneys’ fees and costs on Defendant.” Id. at *4.

Newton I and Newton II show that courts continue to grapple with the scope and nuances of ERISA, and that what might harshly be criticized as “nonsensical” on one day and in one context might be construed “as part of a good faith argument for an extension of existing law” on another day, in a related context.

When COBRA Meets COVID-19: Concerns for Plan Administrators and TPAs

Below is an excerpt of an article that has been published in the ERISA Report, the semi-annual newsletter issued by the Defense Research Institute (DRI) Life, Health and Disability/ERISA Committee.

What happens when COBRA meets COVID-19? While it may sound like the premise of a horror movie along the lines of “Snakes on a Plane” or “Sharknado,” extensions of COBRA notice deadlines due to the pandemic have the potential to be a fright fest for group health plan administrators and third-party administrators (TPAs). Read the full article.

Supreme Court Rules that ERISA Does Not Preempt State Law Regulating PBM Reimbursements

In Rutledge v. Pharmaceutical Care Mgt. Assoc., — U.S. –, 2020 WL 7250098 (Dec. 10, 2020), the Supreme Court held that ERISA’s broad express preemption will not reach a state law that focuses on the price of prescription drug benefits that a plan chooses to provide.

The particular question in Rutledge was whether ERISA preempted an Arkansas law regulating the price at which pharmacy benefit managers (PBMs) reimburse pharmacies for the cost of drugs covered by ERISA prescription drug plans. The Court described PBMs as

a little-known but important part of the process by which many Americans get their prescription drugs. Generally speaking, PBMs serve as intermediaries between prescription-drug plans and the pharmacies that beneficiaries use. When a beneficiary of a prescription-drug plan goes to a pharmacy to fill a prescription, the pharmacy checks with a PBM to determine that person’s coverage and copayment information. After the beneficiary leaves with his or her prescription, the PBM reimburses the pharmacy for the prescription, less the amount of the beneficiary’s copayment. The prescription-drug plan, in turn, reimburses the PBM.

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Connecticut District Court Enforces ERISA Venue Provisions and Dismisses Lawsuit with No Connection to Connecticut

In Cook v. Life Insurance Company of North America et al., No. 3:20-cv-139, the plaintiff, Robert Cook, sued Life Insurance Company of North America (LINA), and its indirect corporate parent, Cigna Corporation, for denial of long-term disability benefits under the Employment Retirement Income Security Act of 1974 (ERISA). Cook lived in Tennessee (and his lawyer was located there), his employer/plan sponsor was based in Florida, and LINA, the insurer, was located in Pennsylvania. Nevertheless, Cook brought suit in Connecticut, alleging venue was proper because he had also sued LINA’s indirect parent, Cigna Corporation, which is a Connecticut corporation. Continue Reading

Coverage Under Private Group Health and Disability Plans: Implications of COVID-19

Excerpt of a contributed article published by DRI in the August 2020 issue of For The Defense.

As the new coronavirus (COVID-19) spreads within the United States, questions arise over the potential effect that it may have on private group health and disability plans during and after the current pandemic. This article discusses recent federal legislation and directives in response to growing concerns regarding the coverage of (and cost-sharing for) diagnosis and treatment of COVID-19 under group health plans and analyzes possible developments for claims seeking long term disability benefits following the pandemic. Read the full article.

Disability Claims Regulations and the COVID-19 Pandemic

Those involved in disability claims administration may wish to consider the potential impacts of the current global pandemic. In the current crisis, disability claims regulations may not be at the top of many peoples’ minds. However, insurers, plan administrators, and other involved in disability claims administration may wish to reevaluate the applicable Department of Labor deadlines and requirements in light of present pressures on medical personnel, persons with serious health problems, and business disruptions. Continue Reading

Supreme Court’s Sulyma Decision May Complicate Plan Administrators’ Consideration of the DOL’s New Proposed Electronic Safe Harbor Disclosure Rule

As discussed in an earlier post on this blog, in Intel Corporation Investment Policy Committee et al. v. Sulyma, No. 18-1116 (Feb. 26, 2020), the U.S. Supreme Court addressed the statute of limitations for breach of fiduciary duty lawsuits under ERISA.  In general, fiduciary breach claims are covered by the 6-year statute of limitations in 29 U.S.C. § 1113(1).  However, there is a 3-year statute of limitations if the plaintiff had “actual knowledge” of the breach.  29 U.S.C. § 1113(2).  Writing for a unanimous Court, Justice Alito held that “actual knowledge” “does in fact mean what it says.”  According to the Justice, under this standard a plaintiff must be actually aware of the fiduciary breach – not merely have information from which he or she could have become aware of the violation – for the 3-year statute of limitations to start running.

The allegations in Sulyma may help plan sponsors, administrators, and other plan fiduciaries understand the impacts of Justice Alito’s opinion. Continue Reading

Supreme Court Decision on ERISA Statute of Limitations May Help Defendants Defeat Class Certification

Believe it or not, the Supreme Court of the United States just decided whether “to have ‘actual knowledge’ of a piece of information, one must in fact be aware of it.” The Court said “yes,” and it was unanimous. Most non-lawyers (and even some lawyers) would probably be surprised that this issue was even being debated. But it was a question that had divided the lower courts, with the Sixth Circuit ruling that “actual knowledge” did not require actually seeing or reading a document that was provided. The Supreme Court agreed with the six other circuits that had concluded that “actual knowledge” means what it says. The Court’s opinion potentially holds a silver lining for defendants though when it comes to class certification. Continue Reading

Remand Directing Change in Standard of Judicial Review Is Not Sufficient Success on the Merits to Support Attorneys’ Fee Award

In Ariana M. v. Humana Health Plan of Texas, Inc., No. 18-20700, 2019 WL 5866677 (5th Cir. Nov. 8, 2019), the Fifth Circuit Court of Appeals rejected a plaintiff’s petition for attorneys’ fees under 29 U.S.C. § 1132(g).  This case concerns Humana Health Plan of Texas, Inc.’s denial of benefits for hospitalization to treat an eating disorder.  On a prior appeal, Ariana M. v. Humana Health Plan of Texas, Inc., 884 F.3d 246 (5th Cir. 2018) (en banc) (“Ariana I”), the Fifth Circuit concluded that the District Court erred by conducting a deferential review of the claim decision, that it remanded the case for a de novo review of Humana’s decision.

On remand and de novo review, the District Court found Humana had not erred and entered summary judgment in Humana’s favor.  Nonetheless, Ariana filed a fee petition, asserting that her success in Ariana I in convincing the appellate court to change the standard of review and remand her case entitled her to fees regardless of whether she ultimately won her claim for benefits.  The District Court denied her petition.

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Second Circuit Upholds Reduction of Attorneys’ Fees Sought in ERISA Benefits Case

In a recent summary order in an ERISA LTD benefits case, the Second Circuit Court of Appeals rejected a plaintiff’s appeal concerning the amount of attorneys’ fees awarded by the district court. In Solnin v. Sun Life and Health Insurance Co. et al., after plaintiff prevailed on her claim for benefits, her counsel filed a motion seeking attorneys’ fees of over $515,000, along with costs and interest. Plaintiff’s attorneys, who had their offices in Manhattan (Southern District of New York), argued that their rates should be fixed at Southern District rates, rather than the typically lower rates used in the Eastern District of New York where the case was litigated. The District Court (Hurley, J.) determined that the local rates for the Eastern District should apply. The District Court also found that a 25 percent across-the-board reduction in fees was appropriate given that plaintiff’s counsel had engaged in “impermissible billing practices” including vague descriptions, block billing, and questionable entries, and further noting that decisions in similar cases seemed to suggest that the firm had “a pattern of excessive billing for their time considering their experience.” Solnin I, 2018 WL 4853046 (E.D.N.Y., Sept. 28, 2018). The District Court ultimately awarded slightly over $222,000 in fees, instead of the $500,000-plus that plaintiff had requested. Continue Reading