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The Evolution of ERISA Through Case Law: LaRue and Beyond

The Evolution of ERISA Through Case Law: LaRue and Beyond. The Evolution of ERISA through Case Law. MODERATOR: Eric Ross, Claims Manager, Specialty Lines, Beazley Group plc PANELISTS: Wayne E. Borgeest, Partner, Kaufman Borgeest & Ryan LLP

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The Evolution of ERISA Through Case Law: LaRue and Beyond

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  1. The Evolution of ERISA Through Case Law:LaRue and Beyond

  2. The Evolution of ERISAthrough Case Law MODERATOR: Eric Ross,Claims Manager, Specialty Lines, Beazley Group plc PANELISTS: Wayne E. Borgeest, Partner, Kaufman Borgeest & Ryan LLP Rhonda Prussack, Executive Vice President, Fiduciary Product Manager, AIG René E. Thorne, Esq., Partner, Jackson Lewis LLP

  3. Overview • Recent ERISA Decisions in Context • The Implications for Insurers and Insureds • Closing Thoughts and Predictions • Q&A

  4. The LaRue Decision in Context The LaRue Decision: A Significant Development? James LaRue v. DeWolff, Boberg & Associates, Inc. et al., 128 S. Ct. 1020 (2008) Held: Section 502(a)(2) of ERISA provides a remedy for fiduciary breaches that impair the value of the plan assets in an individual participant’s defined contribution account.

  5. Prior to LaRue… The Supreme Court had held that Sec. 502 (a)(2) authorized relief only for the benefit of the plan as a whole. Direct relief was not authorized for any individual participant of the plan.

  6. Prior to LaRue: Who Could Bring Claims? Sec. 502 (a) A civil action may be brought – (1) by a participant or beneficiary * * * (B) to recover benefits due . . . (2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 409 [for breach of fiduciary duties] (3) by a participant, beneficiary, or fiduciary . . . . to obtain other appropriate relief . . .

  7. Prior to LaRue: Who Could Be Liable? ERISA Liability for Breach of Fiduciary Duties - Section 409 says: • “Any person . . .who breaches any of the responsibilities, obligations or duties . . . shall be personally liable to make good to such plan anylosses to the plan . . . and to restore to such plan any profits . . . • and such other equitable or remedial relief . . .”

  8. LaRue: Background • LaRue Involves a Defined Contribution Plan or 401k Plan – • Self-Directed Plan - LaRue Claimed his Investment Instructions had Been Ignored • LaRue Sought Relief Under Sec. 502(a)(3)

  9. LaRue: Background • An issue – was LaRue seeking prohibited “damages” or just an “equitable” remedy in the form of monetary relief under Sec. 502(a)(3)? • LaRue did not sue for “benefits” under Sec. 502(a)(1); but argued that he wanted his plan account to properly reflect what would be his interest in the plan but for the fiduciary breach.

  10. LaRue: Background • LaRue raised Sec. 502(a)(2) for the first time when he appealed from the dismissal of his case by the District Court. • The Supreme Court side-stepped the issue of Sec. 502(a)(3) and went straight to Sec. 502(a)(2) in deciding the case.

  11. LaRue: Background • Taking LaRue’s allegations as true – the fiduciary breach had an adverse impact on the value of the plan assets held in LaRue’s individual 401k account.

  12. LaRue: The Finding • Noting the paradigm shift from defined benefit plans to defined contribution plans, the Court determined that LaRue could sue for individualized relief in respect of the alleged injury to the value of the plan assets held in his individual account.

  13. LaRue: The Finding • The Concurring Opinion of Chief Justice Roberts, joined by Justice Kennedy… • Right outcome, wrong ERISA provision. • According to Justice Roberts, the relief should arise under Sec. 502(a)(1) for “benefits.”

  14. LaRue: The Implications • Frequency and Severity • Plan Losses • Dramatic Increase in the Number of PartiesAble to Sue

  15. What Makes ERISA Cases Increasingly Attractive? • No PSLRA, Including no Automatic Stay and no Tellabs Pleading Juggernaut • No Dura Hurdles

  16. What Makes ERISA Cases Increasingly Attractive? • Favorable Standards of Liability • Extremely Favorable Damages Case Law

  17. What Makes ERISA Cases Increasingly Attractive? • Attorney Fee Shifting • A More Sympathetic Case?

  18. Insurance Coverage Issues • Benefits Due Exclusion

  19. LaRue: Looking Forward What’s Next in This Area? • Cases Decided Since Larue • Reaction of the Plaintiffs’ Bar • The Lower Courts Weigh in • Class Actions Versus Individual Actions Versus Individuals Suing on Behalf of the Entire Plan • More Uncertainty for Everyone

  20. LaRue: Looking Forward • Cases Involving Company Stock • Fiduciary Breaches For Inadequate Disclosure and Prudence • Excessive Fee Cases • Conflict of Interest Based Cases

  21. The Guidant Case in Context The Case: Harzewski et al. v. Guidant Corporation, 489 F.3d 799 (7th Cir. 2007)

  22. Guidant: Background • Former Plan Participant was Found to Have Standing, Even Though She Had Cashed Out of the Plan • Adverse Decision for Fiduciaries • Widened pool of potential plaintiffs • Eliminated a successful defense strategy

  23. Guidant: The Finding • Court Found That Plaintiff was Seeking “Benefits.” • Influential Judge Posner of the Seventh Circuit Court of Appeals wrote: “…the question comes down to whether, if the plaintiffs win their case by obtaining a money judgment against Guidant, the receipt of that money will constitute the receipt of a plan benefit. It will.”

  24. Guidant: The Finding • He Further Elaborated: “Benefits are benefits; in a defined contribution plan they are the value of the retirement account when the employee retires, and a breach of fiduciary duty that diminishes that value gives rise to a claim for benefits…”

  25. Guidant: Related Findings • Two Other Circuits Quickly Made Similar Findings, and Cited Judge Posner’s Remarkson Benefits • The U.S. Supreme Court In Larue Cited the Case • Several More Circuits Jumped on Board

  26. Guidant: The Implications • Fiduciary Liability Policies Contain “Benefits” Exclusions • Insurers’ Responses • Investment Loss Coverage endorsements • Silence

  27. The Metlife Case in Context The Case: Metropolitan Life Ins. Co. et al. v. Wanda Glenn, S.Ct. __, 2008 WL 2444796 (U.S.)

  28. Metlife: Background • The Supreme Court reviews “dual-role” benefit decisions. Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343 (2008). • Before Glenn, various approaches to determine whether insurer had conflict which would justify more stringent review of its discretionary decision-making. • Glenn attempts to resolve split by holding that “dual-role” plan administrators do operate under conflict and that courts must “consider” conflict when reviewing benefit determinations .

  29. Metlife: Background • No definitive guidance on how reviewing court should analyze benefit denial claims in the presence of a conflict. • Standard of review of benefits denials should be a "combination-of-factors method" where the conflict of interest serves "as a tiebreaker when the other factors are closely balanced." • Conflict is "more important . . . where circumstances suggest a higher likelihood that it affected the benefits decision" and "less important . . . where the administrator has taken active steps to reduce potential bias and to promote accuracy."

  30. Metlife: The Finding • Court side-stepped opportunity to set forth uniform standard on how much weight conflict should receive, what factors should be considered, and what, if any, discovery would be permissible into factors. • Chief Justice Roberts’s concurrence and Justice Scalia’s dissent sharply criticized the Glenn majority for adopting an imprecise and uncertain “totality of the circumstances” test. • Roberts warned that the majority’s case-by-case approach would undermine the goals of ERISA by failing to provide for uniform and predictablestandards for employee benefit matters.

  31. Metlife: The Implications • If Roberts’s prediction proves correct, the Court’s decision may increase the cost of employee benefits litigation and introduce greater uncertainty in the outcome.  • The combination-of-factors method adopted by the Glenn majority likely will cause further divisiveness among the lower courts on the level of deference they should accord plan administrators’ decisions and the factors which may be relevant. • Another effect may be to raise litigation costs through significant discovery into the decisional processesto see whether the conflict affected the decision.

  32. Metlife: The Implications • Justice Breyer stated that all employers that maintain self-funded plans and also make benefit decisions should be subject to the same review by the courts. • Lower courts may rely on this dicta as a basis for inquiry into the decisions for self-funded plans.

  33. Appellate Decisions After Metlife • Dunn v. GE Group Life Assur. Co., 2008 U.S. App. LEXIS 17745 (5th Cir. 2008). • GEGLAC's dual role as administrator and insurer is “merely one factor in the overall abuse of discretion analysis.” • Roumeliote v. Long Term Disability, 2008 U.S. App. LEXIS 19768 (6th Cir. 2008). • “In the instant case, the district court recognized the potential for an inherent conflict of interest and weighed it as a factor. Although we are sympathetic to plaintiffs position, we agree with the district court that the plan administrator's decision was not arbitrary and capricious.”

  34. Appellate Decisions After Metlife • Gutta v. Std. Select Trust Ins. Plans, 2008 U.S. App. LEXIS 16952 (7th Cir. 2008). • “[N]othing in Glenn requires a different result in Gutta's particular case. Glenn reaffirmed the rules for deciding whether a de novo or abuse-of-discretion standard of review should be applied…. That is the framework we applied when we decided that the deferential abuse-of-discretion (or arbitrary and capricious) standard was proper for this case.”

  35. Appellate Decisions After Metlife • Jones v. Mountaire Corp. Long Term Disability Plan, 542 F.3d 234 (8th Cir. 2008). • Prudential challenged district court's determination that de novo review applied to denial of benefits • Eighth Circuit remanded in light of Metlife • Wakkinen v. UNUM Life Ins. Co. of Am., 531 F.3d 575 (8th Cir. 2008). • “We are instructed by Glenn to give importance to this conflict of interest, `perhaps . . . great importance’… depending upon how closely the other factors are balanced. The findings of the investigation are troubling, and we do not minimize their import. Taking into accountthe remaining factors … we conclude that there is not a sufficientlyclose balance for the conflict of interest to act as a tiebreaker infavor of finding that UNUM abused its discretion.”

  36. Appellate Decisions After Metlife • Daic v. Haw. Pac. Health Group Plan, 2008 U.S. App. LEXIS 17336 (9th Cir. 2008). • “Although the district court did not have the benefit of … Glenn, it made a careful analysis of the relevant factors, including MetLife's structural conflict of interest. Because the record does not contain evidence of malice, self-dealing, or other circumstances suggesting a higher likelihood that the structural conflict affected the benefits decision, the district court did not err in holding that the importance of MetLife's conflict was low.”

  37. Appellate Decisions After Metlife • White v. Coca-Cola Co., 44 Employee Benefits Cas. (BNA) 2441 (11th Cir. 2008). • Prior to Metlife, Eleventh Circuit used a six-step process in reviewing benefit denials which included as step 6 a "heightened" arbitrary and capricious standard when there was a conflict of interest. • In White, Eleventh Circuit said Glenn "casts doubt" on 6th step/heightened standard. • White court indicated that in light of Glenn it will not be heightening the standard of review when thereis a conflict of interest, but did not elaborate onhow it will weigh conflicts of interest.

  38. The Emergence of ERISA in Wage Cases • Stickle v. SCI Western Market Support Ctr., D. Ariz., No. CV 08-083-PHX-MHM, 9/30/08. • Employees of SCI can proceed with their claims that employer breached fiduciary duties by not properly crediting them for their overtime work. • Rejected employer’s contention that ERISA claims were not ripe for judicial review until the courtfirst determined whether the companies hadviolated the FLSA with respect to the allegedly unpaid overtime.

  39. The Emergence of ERISA in Wage Cases • Found exhaustion would be futile because SCI's employee benefit plans allegedly did not receive accurate payroll records from the SCI companies, and without these records, plans would be unable to adequately consider the employees' claims for benefits.

  40. The Emergence of ERISA in Wage Cases • Rejected contention that the employees' fiduciary breach claims should be dismissed because decisions regarding how to administer payroll are not governed by ERISA: "Under ERISA, crediting hours is a fiduciary function, independent of the payment of wages, necessary to determine participants' participation, vesting and accrual of rights."

  41. Implications for Insured's and Insurers The Emergence of ERISA in Wage Cases

  42. Q & A

  43. Many thanks to • Eric Ross • Wayne E. Borgeest, Esq. • Rhonda Prussack • René E. Thorne, Esq.

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