West Virginia Business Litigation : West Virginia Business Litigation Lawyer & Attorney : Law Office of Jeffrey V. Mehalic : Charleston, Huntington, Parkersburg

Before I get to my post, I want to note a change to the Supreme Court of Appeals of West Virginia's schedule this week.  The Court has canceled its motion and argument dockets for tomorrow, March 25, so that the justices and staff can attend the funeral of Justice Joseph P. Albright, who died last Friday. 

The Court has rescheduled those cases, as reflected on its updated motion and argument dockets.

My post deals with a West Virginia federal district decision that Rob Hoskins wrote about yesterday at ERISABoard.  Rob's analysis focused on the substantive issues, but I think the procedural aspect of the case is more compelling. 

When I read Dunlap v. Ormet Corp., Civil Action No. 5:08-CV-00065 (N. D. W. Va., March 19, 2008) (no Westlaw cite available), I was amazed, and not in a good way.  In fact, I don't know why Dunlap even had a lawyer.  Perhaps you'll have a better answer to the question than I do.

Dunlap's lawyer filed her suit for death benefits payable by an employer-sponsored benefit plan in state court.  The defendants removed the case to federal court based on ERISA preemption.  The plaintiff did not object to the removal, which was reasonable in view of the subject matter.

The parties were unable to agree on the scope of discovery, so the Court ordered the parties to brief the issue.  The corporate defendants submitted memoranda in support of their positions, but the plaintiff did not file any brief in support of her position that, presumably, she was entitled to engage in discovery.  The Court determined that its review was limited to the administrative record and that discovery beyond the record was unnecessary.

Ormet filed a motion to dismiss accompanied by documents beyond the pleadings, which converted the motion to one for summary judgment, and the Unum defendants moved for summary judgment.  The plaintiff did not file a response to either motion, nor did she request an extension of time to do so.

Then, Ormet filed a supplemental memorandum in support of its position that it was entitled to dismissal "by default," and the Unum defendants filed a supplemental memorandum discussing a recent Supreme Court case that supported their position.  The plaintiff did not respond to either supplemental memorandum.

The Court rejected Ormet's position and rendered a decision on the merits, which granted Ormet's motion.  The Court also granted the Unum defendants' motion for summary judgment.  Finally, the Court denied the defendants' motion for attorney's fees, and concluded that the dismissal of the claims against the corporate defendants deprived the Court of supplemental jurisdiction over the individual defendants, and dismissed without prejudice the plaintiff's claims against them.

Unfortunately, this sort of result happens more often than you would think in ERISA cases.  The outcome may not be this extreme, but often, a lawyer who doesn't handle ERISA cases regularly -- or, sometimes, at all -- gets involved and quickly realizes that he or she misunderstood the scope of preemption, the substantive law, the remedies, etc.  But the way to deal with that situation, if you're that lawyer, is not what Dunlap's lawyer did.  You can talk to the defendant's lawyer and try to reach a resolution.  Or you can bring in more experienced counsel and try to salvage the case.  Or you can try to seek relief from the court, as the plaintiff did in Henry v. UBC Product Support Center, Inc., which I wrote about in January.   But you can at least respond to the defendants' pleadings.

I'm not trying to brand ERISA as the most complicated area of law imaginable.  It's intricate, as are a lot of areas of law.  But it always surprises me when a lawyer who would never consider representing a client in a trademark infringement case because he or she doesn't practice intellectual property law will represent a plaintiff in an ERISA case because the lawyer thinks it's like a bad faith case or a personal injury case, then realizes too late that it's impossible to dabble in ERISA.

So I'm still not sure what benefit the plaintiff gained from having a lawyer and from filing suit.  She shouldn't have represented herself, because that's almost always a certain path to defeat, but I'm at a loss to know how Dunlap's interests were represented.

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Stephen D. Rosenberg, who writes the excellent Boston ERISA & Insurance Litigation Blog, was kind enough last week to post the materials he presented to a group of pension professionals and actuaries earlier in January.  Stephen's presentation was entitled "ERISA Litigation: An Update from the Front Lines," and it discusses recent developments, including Supreme Court decisions and potential causes of action.

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I am indebted to Roy Harmon, who writes Health Plan Law, for his explanation of the basis for the Fourth Circuit’s opinion in Martine v. Hertz Corp., 103 F.3d 118 (4th Cir. 1996), which held that West Virginia’s Public Employees Insurance Agency (PEIA) had no right of subrogation against a verdict obtained by its insured for personal injuries.

In his dissent in Turner ex rel. Turner v. Turner, Justice Larry Starcher had suggested that Martine held that ERISA does not preempt West Virginia’s made-whole doctrine.

As I noted in my post about the dissent, the Fourth Circuit did not explicitly hold that ERISA does not preempt the made-whole doctrine in West Virginia.  But, as Roy explained in a post at ERISABoard, the PEIA is a governmental plan and therefore exempt from coverage under ERISA.  So, the Martine Court would have had no need to discuss, much less apply, ERISA or whether ERISA barred the made-whole doctrine. 

Although Justice Starcher disagrees with the majority’s decision in Turner, while conceding that it was "technically correct," his opinion illustrates what happens often when state courts delve into ERISA issues.

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I’ve been writing quite a bit lately about cases dealing with ERISA, and the dissent filed by Justice Larry Starcher in Turner ex rel. Turner v. Turner, 2008 WL 5449773 (December 15, 2008), provides an opportunity to discuss a potentially significant issue.   

As you may recall, in Turner, which I wrote about last week, the Supreme Court of Appeals of West Virginia held that a subrogation action by an ERISA plan fiduciary or administrator has to be filed in federal court and cannot be adjudicated as part of an underlying personal injury action.

In his dissent, Justice Starcher, who left the Court on December 31, 2008 after he did not run for reelection, questioned whether the “made-whole” doctrine would preclude City Hospital from recovering for the medical expenses paid on behalf of its employee’s children.  Justice Starcher wrote that, “[i]n West Virginia, the ‘made whole doctrine’ stops an insurance company from gobbling up a plaintiff’s entire settlement under the rubric of ‘subrogation’ if the settlement is insufficient to fully compensate the plaintiff’s past and future losses.”

He then went on to write that, “[m]ost importantly, a per curiam opinion from the Fourth Circuit Court of Appeals indicates that West Virginia’s made whole doctrine is not preempted by ERISA.  See Martine v. Hertz Corp., 103 F.3d 118 (4th Cir. 1996)."

Unfortunately, the dissent in Turner does not expand on that issue. 

In  Martine, USB, the claims administrator for the West Virginia Public Employees Insurance Agency (PEIA), appealed the dismissal of its subrogation claim created by PEIA's payment of more than $124,000 in medical expenses incurred by Martine, who had been involved in an accident with another driver who had rented a car from Hertz. 

USB moved to intervene in the action, which the district court permitted.  Following a four-day trial, but before the jury announced its verdict, Martine moved to dismiss USB's complaint on the grounds that he would not be made whole because the tortfeasor had insufficient assets to satisfy a probable judgment. 

The jury's verdict of $650,000 included $36,800 for past medical expenses and $5,000 for future medical bills.  In granting Martine's motion, the district court relied on the Supreme Court of Appeals of West Virginia's decision in Kittle v. Icard, 405 S.E.2d 456 (W. Va. 1991) and concluded that because Martine would not be made whole by the amount he could collect, USB was not entitled to subrogation.  USB appealed.

The Fourth Circuit noted initially that the West Virginia Code gave PEIA a statutory right to subrogation, and that the Supreme Court of Appeals had held that subrogation clauses in insurance contracts are valid and enforceable.

USB argued that Kittle did not apply because its right to subrogation was contractual, while the insurer in Kittle had only a statutory right, and cited a case from the Tenth Circuit Court of Appeals that rejected the made-whole doctrine when an insurance contract unambiguously provided the insurer with subrogation rights if its insured obtained a settlement or verdict.

The Fourth Circuit disagreed because "Kittle defines subrogation in such a way as to require that equity be considered whenever an insurer invokes its right."   Here is the Court's explanation for why equitable principles did not entitle USB to subrogation at least in the amount awarded by the jury for medical expenses:

The district court determined that the West Virginia Supreme Court's pronouncements in Kittle and [State ex rel. Allstate Ins. Co. v.] Karl, supra, defined equity as per se denying insurers any recovery when insureds were not fully compensated by a settlement or judgment.  And, noting that Martine received less than one-sixth of the amount to which he was entitled and would be further undercompensated for his injuries if USB were entitled to subrogation the district court held that even aside from any per se rule, the equities favor Martine over USB.  We find no abuse of discretion or legal error in that conclusion.

This is an interesting issue.  Martine does not explicitly hold that ERISA does not preempt the made-whole doctrine in West Virginia.  But the opinion did address the presence of subrogation language in insurance policies, which would be akin to the subrogation language or anti-made-whole doctrine language present in a summary plan description, such as City Hospital's in Turner, and found that Kittle's definition of subrogation required equity to be considered.  

I would like to know if anyone has relied on Kittle or Martine successfully to defeat a health plan's subrogation claim.  The majority opinion in Turner does not cite either case -- but the opinion did not seem interested in expanding the Turners' options for challenging City Hospital's subrogation interest.  

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Two recent decisions from federal courts in West Virginia illustrate some procedural and substantive pitfalls that can arise in ERISA cases.

In Conner v. Elkem Metals Co., 2008 WL 5122197 (S. D. W. Va. 2008), which originated in the Southern District, Conner retired in 2000 and was told by an employee in the benefits department that his pension would be $300 per month, but that if he waited four years to receive his pension, his benefits would be substantially larger.

Conner later learned that his actual pension when he retired would have been $917 per month, and that the benefits department employee misrepresented the amount to him.  Conner filed suit and alleged that his employer negligently or intentionally misrepresented the amount of his benefits.  The defendants' motion for summary judgment asserted that Conner had "failed to invoke any of the remedial schemes afforded by Section 502(a) of ERISA." 

The district court discussed Conner’s requirement to exhaust his administrative remedies and whether his causes of action were preempted, and concluded that even if Conner had exhausted his administrative remedies, the defendants’ motion for summary judgment should be granted because Conner had failed to state a valid cause of action under ERISA. 

But here’s the interesting issue with the court’s decision.  As Rob Hoskins observed at ERISABoard, there is no requirement in the Fourth Circuit that a plaintiff has to exhaust administrative remedies in a breach of fiduciary claim.  But apparently, neither party informed the court of the law.

Further, in Griggs v. E. I. DuPont de Nemours and Co., 237 F.3d 371 (4^th Cir. 2001), the Fourth Circuit held that the proper remedy for breach of fiduciary duty is reinstatement, i.e., returning the parties to the positions they would have been in but for the misrepresentation.  The district court refers to Griggs throughout its opinion, but does not discuss reinstatement, which may be an example of the court choosing not to grant relief that was not requested by the plaintiff.

The decision from the Northern District, Henry v. UBC Product Support Center, Inc., 2008 WL 5378321 (N. D. W. Va. 2008), deals with a procedural problem created by the plaintiff’s inadvertent pleading.

Henry alleged that her employer wrongfully terminated her based on her age and disability.  She also alleged that she and her husband were disabled and covered by her employer’s health insurance, and that her employer harassed and constructively discharged her based on their disabilities and status of their coverage, a claim intended to bolster her allegations of her employer's discrimination against her.

The defendants removed the action on the grounds that Section 510 of ERISA prohibits discrimination against a plan participant for exercising any right to which he or she is entitled, and that jurisdiction of such a claim is exclusively federal.  Even though Henry did not explicitly state a claim under ERISA, “complete preemption” made removal appropriate. 

And if that wasn't bad enough for the plaintiff, the defendants asserted that the court also had jurisdiction of the remaining counts, which alleged state law claims, because the court could assert supplemental jurisdiction over them.  

Faced with this situation, Henry moved to amend the complaint in order to withdraw the count asserting discrimination under ERISA and to remand the case.

The court determined that Henry’s claim of discrimination was preempted by ERISA, which gave the court sole and exclusive jurisdiction.  The more difficult issue was Henry's motion to amend, which was filed solely to deprive the court of jurisdiction, a fact not lost on the court:

This Court does not doubt that, as were the motions filed by the plaintiffs in CSX Hotel and Savilla, Henry’s motion to amend is motivated in no small part by a desire to eliminate any basis for federal jurisdiction from her case.  Nevertheless, the Court cannot find that her motion is made in bad faith.  As she admits, Count Three is inartfully drafted; it does not directly state a claim that would fall under ERISA, but rather implies such.  Although the Court has already found that the count, as drafted, is sufficient to invoke ERISA preemption, it is not unreasonable to conclude that Henry never intended to state such a claim.  Moreover, it is understandable that her attorney, perhaps unfamiliar with how ERISA cases are litigated, would want to limit the scope of the case to avoid the claim.  Accordingly, the Court GRANTS Henry’s motion to amend, finds that it was made in good faith, and ORDERS the Amended Complaint to be deemed filed.

Because the court granted the motion to amend, it declined to assert supplemental jurisdiction over the other counts on the grounds that “the principles of economy, convenience, fairness and comity favor remand. Indeed, should novel questions of state law under the WVHRA [West Virginia Human Rights Act] arise in this case, West Virginia courts certainly will be better positioned to answer them."

I don't doubt that Henry and her lawyer never intended to assert a claim under ERISA, but  they dodged a bullet by being allowed to amend their complaint and being remanded to state court.

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I hope everyone is enjoying their holidays.  I haven’t written in the past few weeks due to a death in my family, but I’m back in my office and resuming work, including catching up on decisions and developments.  The Supreme Court of Appeals of West Virginia’s Fall Term ended on December 10, so I’ll be writing about some of its opinions in the next few days.  By the way, the Court’s Spring Term starts on January 13, with the first argument docket that day.

The first opinion I want to write about is Turner ex rel. Turner v. Turner, 2008 WL 5273080 (December 15, 2008), a 4-1 decision by Chief Justice Elliott E. "Spike" Maynard, which was one of the last opinions issued for the term.

Turner is unique because it’s a state court appellate decision dealing with ERISA, which ordinarily and almost exclusively is adjudicated in federal court. 

In Turner, City Hospital, Inc. moved to intervene in the settlement of personal injury claims asserted on behalf of the minor children of City Hospital’s employee, Diane Turner.  City Hospital's health plan had paid most of the children’s medical expenses.  The settlement provided that Diane Turner agreed to waive her interest in the settlements and settle the claims within policy limits as long as the Circuit Court of Berkeley County precluded City Hospital from asserting a lien on the settlement proceeds that was inconsistent with West Virginia law.

Not surprisingly, City Hospital objected to the settlements and challenged the circuit court’s jurisdiction to consider the petitions for approval of the settlements because ERISA governed City Hospital’s health plan's claims.

The circuit court concluded that it had jurisdiction to approve or reject the proposed settlements, but did not have jurisdiction to decide the issue of City Hospital’s lien, based on its request for what was essentially equitable relief, which was governed by 29 U.S.C. § 1132(e)(1).  Diane Turner appealed that ruling on behalf of herself and her minor children.

There was a preliminary issue of whether the circuit court’s order was a final order for purposes of prosecuting an appeal, which is not germane to the resolution of the ERISA issue.  The Supreme Court concluded that the order “had the nature and effect of ending the litigation between the appellants and City Hospital with regard to City Hospital’s reimbursement/subrogation claim[,]” and could be appealed.

The more significant issue, as identified by the Court, was “whether the circuit court properly determined that it does not have jurisdiction pursuant to ERISA to decide, limit, or enforce City Hospital’s employee health plan’s subrogation rights to the proposed minor settlements submitted on behalf of Dylan, Rhiannon, and Ronan Turner.”

The Court first distinguished between ordinary preemption and complete preemption.  Because the circuit court did not find that the issue was preempted under § 1144(a) (ordinary preemption), the Court analyzed the issue under § 1132(e)(1) and controlling federal precedents.  The Court concluded:

Based on the clear language of § 1132(a)(3) in conjunction with § 1132(e)(1), and the Supreme Court’s application of these provisions, this Court now holds that an action by a fiduciary or administrator of a plan under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., to obtain appropriate equitable relief to enforce the terms the ERISA plan pursuant to 29 U.S.C. § 1132(a)(3), must be brought in the federal courts of the United States as provided for in 29 U.S.C. § 1132(e)(1).

The Court’s holding, which was incorporated in new Syllabus Point 3, left the remaining issue of whether City Hospital’s claim had to be brought under § 1132(a)(3).  The Court looked to the Supreme Court's decision in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), which presented a situation similar to Turner, i.e., "a fiduciary seeking reimbursements for amounts an ERISA health plan paid for the medical expenses of beneficiaries, who were injured in an automobile accident, from proceeds of the beneficiaries' settlement with the tortfeasors."

Guided by Sereboff, the Court found that the relief sought by City Hospital -- reimbursement for expenses paid on behalf of its plan's beneficiaries -- is the type provided for in § 1132(a)(3), which meant that a claim in state court arising from City Hospital's plan's subrogation/reimbursement would duplicate a § 1132(a)(3) action, which must be brought in federal court.

The Court did not devote any consideration to the Turners' arguments that the circuit court had jurisdiction, with one exception: the Turners asserted that, assuming approval of the settlements, the funds would not be paid to Diane Turner, but would be held in trust for her children.  Thus, the funds would never be available to her and could not be the subject of a claim by City Hospital under § 1132(a)(3).

The Court noted that City Hospital acknowledged that it could not seek proceeds that had not been paid to Diane Turner, but found that City Hospital's request that the circuit court preserve the funds in a separate account while City Hospital pursued an action in federal court addressed that concern.  Plus, West Virginia Code § 44-10-14(g) would prevent settlement funds from being transferred to minors' trust accounts in a way that liens, such as City Hospital's, would not be satisfied.

I question, as did Rob Hoskins at ERISABoard, why City Hospital didn't go ahead and file an action in federal court in order to assert its lien(s) against the Turner children's settlement proceeds, which may have mooted some or all of this action.  I also agree with him that in certain circumstances, a plan or its fiduciary can have state law claims that are not preempted.  But Turner makes clear that a plan fiduciary's action to obtain equitable relief under 29 U.S.C. § 1132(a)(3) must be filed in federal court.

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Here's an update on Samuel Juniper's lawsuit against his employer, M&G Polymers USA, LLC.  If you’ve forgotten, Juniper successfully sued M&G last year after Aetna, M&G’s health insurer, denied $40 in charges for three venipunctures, then provided Juniper with various and conflicting reasons for the denials.  I wrote about the lawsuit in this post.

On October 10, the Fourth Circuit Court of Appeals affirmed the Southern District of West Virginia’s ruling in Juniper's favor.  The Fourth Circuit adopted the district court's reasoning in an unpublished per curiam opinion.  Juniper v. M&G Polymers USA, LLC, 2008 WL 4538161 (4th Cir. 2008).  

District Judge Robert C. Chambers had accepted Magistrate Judge Maurice G. Taylor, Jr.'s recommended decision that Juniper's motion for summary judgment be granted and M&G's be denied.  The court found that the "decision [to deny the charges] was arbitrary, not supported by evidence, inconsistent with earlier interpretations of the plan and not reasonable."  Juniper v. M&G Polymers USA, LLC, 495 F.Supp.2d 590 (S. D. W. Va. 2007). 

The ContractsProf Blog posted about the decision, which it described as "David Defeats Goliath."   And the ABA Journal reported that Juniper intends to frame his $40 check when he receives it.

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 My thanks to Rob Hoskins for his post at www.ERISABoard.com about a recent decision from the Northern District of West Virginia that presents a twist on the typical removal-remand scenario. 

Before I get to the case, though, let me plug ERISABoard, which is a discussion forum for attorneys who are interested in ERISA issues.  (I am a moderator on a couple of forums.)  Currently the membership is limited to attorneys, but if your practice includes ERISA and employee benefits issues, I encourage you to join the nearly 400 lawyers who have already registered, and participate in the discussion.  Registration is free. 

Now, back to Consol Energy, Inc. v. Corley, 2008 WL 4610329 (N. D. W. Va. October 15, 2008), which reminds us that although the plaintiff is the “master of the claim,” its choice about where to file suit is not without consequences.

Consol filed suit against James Corley in West Virginia state court in order to recover more than $70,000 in alleged overpayments of long-term disability benefits.  Corley filed an answer and counterclaim, and alleged that Consol had wrongfully denied or withheld benefits under ERISA.  Consol relied on that allegation to remove the action to federal court on the grounds that federal question jurisdiction existed.  Corley moved to remand.

Here is the district's court analysis:

The issue before this Court is one of removal, and a peculiar removal at that, because it is the plaintiff in this case, and not the defendant, that is seeking removal of this action to federal court.  Consol removed this action to this Court, arguing that federal jurisdiction is proper.  Specifically, Consol asserts that Corley's counterclaim alleges violations of ERISA without particularly identifying the provisions upon which he bases his claim.  Thus, Consol argues that because Corley's counterclaims can be construed under several ERISA provisions that a federal court maintains exclusive jurisdiction over, jurisdiction in this Court is appropriate.  This Court disagrees and instead, finds that remand of this action to the state court is necessary.  (Emphasis in original.)

Simply put, a plaintiff cannot remove an action to federal court on the grounds that the counterclaim permits removal: "Once a plaintiff, always a plaintiff.  Likewise, once a defendant, always a defendant."   Because Consol, as the plaintiff, chose to file its complaint in state court, that's where its case must be heard, even if Corley's counterclaim asserts federal question jurisdiction.

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    Last month, I wrote about the class action filed by employees of U.S. Sugar, who claim that their shares of company stock have been devalued as a result of mismanagement and self-dealing by the company’s officers.  In 1983, the employees participated in an ESOP (employee stock ownership plan) which traded their participation in a pension plan for ownership of the company’s stock, which is not publicly traded.  Thus, the employees have to depend on what the company is willing to pay to redeem their shares, which, according to allegations in the lawsuit, has been far less than what the shares are actually worth. 

    Then, last week, in an unexpected development, Florida Governor Charlie Crist announced that, as part of the restoration of the Everglades, Florida is willing to pay U.S. Sugar $1.75 billion for its 187,000 acres in four counties in southern Florida.  The company would lease the property back from Florida for six years, then go out of business.  Here are the statements issued by U.S. Sugar and by Governor Crist’s office, and an Associated Press story in today’s New York Times, which reports that the proposed purchase is moving forward.  

    This post by Suzanne Wynn in her Pension Protection Act Blog notes that the ESOP participants (U.S. Sugar's employees), as the owners of the largest block of stock, are the largest group affected by the purchase. 

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    An issue that always has to be addressed in ERISA disability claims is the standard of review to be applied to the plan administrator’s decision.  If the plan language does not confer discretion on the administrator, then the court reviews any decision under a de novo standard.  However, if the plan gives discretion, then the administrator’s decision is reviewed under an abuse of discretion standard.  

    But there can be another scenario, one that has confounded litigants, lawyers, and courts for years.  It is where the plan administrator, which makes the decision about a claimant’s entitlement to benefits, is also the plan insurer and therefore responsible for paying benefits.

    Courts have long recognized the conflict of interest that exists, even if they have not been sure how to deal with it.  That’s why the Supreme Court of the United States’ decision in Metropolitan Life Insurance Company v. Glenn, 2008 WL 2444796 (June 19, 2008),was so eagerly awaited.

    In Glenn, Metropolitan (“MetLife”) administered Sears, Roebuck & Company’s long-term disability plan and also paid the benefits.  Sears’ plan’s language conferred discretion on Metropolitan, which meant that its decision whether to award benefits would be reviewed under the abuse of discretion standard.

    Wanda Glenn applied for and received LTD benefits because she was able to show that she could not perform the material duties of her own job (the “own occ” standard).  After 24 months, however, the plan’s standard for proving disability changed, and required her to prove that not only could she not perform her own job, but that she could not perform the material duties of any gainful occupation for which she was reasonably qualified (the “any occ” standard).

    MetLife found that she did not satisfy this standard and denied her claim for benefits.  The District Court for the Southern District of Ohio affirmed the denial, and Glenn appealed to the United States Court of Appeals for the Sixth Circuit.

    In reversing the denial of Glenn’s benefits, the Sixth Circuit relied on a combination of factors, including MetLife’s conflict of interest (the others factors were specific to the treatment of Glenn’s claim).   MetLife appealed to the Supreme Court.

    In an opinion written by Justice Stephen Breyer for a majority of five justices, the Court affirmed the Sixth Circuit and identified two questions to be answered: the first, posed by MetLife, is “whether a plan administrator that both evaluates and pays claims operates under a conflict of interest in making discretionary benefit determinations.”  The second question, posed by the Solicitor General, is “’how’ any such conflict should ‘be taken into account on judicial review of a discretionary benefit determination.’”  

    Personally, I find the second question to be much more significant than the first.  Courts have noted for years the existence of a conflict of interest when the “entity that administers the plan, such as an employer or an insurance company, both determines whether an employee is eligible for benefits and pays benefits out of its own pocket.”  The real issue is how a court is supposed to deal with the conflict.

    The Court relied on principles of trust law in concluding that “for ERISA purposes a conflict exists,” and identified several reasons. 

The employer’s own conflict may extend to its selection of an insurance company to administer its plan (an employer may be more interested in a company that offers low rates instead of one that has accurate claim processing);

ERISA imposes higher-than-marketplace quality standards on insurers (ERISA requires a plan administrator to adhere to a special standard of care; and

A legal rule that treats insurance company administrators and employers alike in respect to the existence of a conflict can nonetheless take account of the circumstances to which MetLife points so far as it treats those, or similar, circumstances as diminishing the significance or severity of the conflict in individual cases

    Regarding the thornier problem of how to account for a conflict, the Court repeated its statement from Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), that a conflict “should be weighed as a factor in determining whether there is an abuse of discretion.”

    The Court pointed out that the standard of review should not change, however, which “in practice could bring about near universal review by judges de novo-i.e., without deference-of the lion’s share of ERISA plan claims denials.”  Rather, the Court envisioned that a conflict of interest is a “factor” to be considered in addition to other considerations.  This was the approach taken by the Sixth Circuit; it considered the conflict, but may not have found it to be determinative of Glenn’s appeal in view of other factors.

    Interestingly, in his partial concurrence, Chief Justice John Roberts cautioned that the majority’s approach would bring about a change in the standard of review:  “The end result is to increase the level of scrutiny in every case in which there is a conflict-that is, in many if not most ERISA cases-thereby undermining the deference owed to plan administrators when the plan vests discretion in them.” 

    If you're interested in knowing more about MetLife v. Glenn (and who wouldn't be?), I recommend the knowledgeable and insightful comment and analysis of Roy Harmon at Health Plan Law, Brian King at ERISA Law Blog,  Steven Rosenberg at Boston ERISA & Insurance Litigation Blog, Paul Secunda at Workplace Prof Blog, Suzanne Wynn at Pension Protection Act Blog, and Mark DeBofsky at DDBlog.

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    In The New York Times yesterday, Mary Williams Walsh wrote about the situation faced by thousands of employees of U.S. Sugar, who participated in an ESOP (employee stock ownership plan) in 1983, which traded their participation in a pension plan for ownership of the company’s stock.  But as more employees reach retirement, they have discovered that their shares are not as valuable as they expected. 

    U.S. Sugar's shares are not traded publicly, so their value is determined by what the company is willing to pay to redeem them.  Then, once an employee cashes in his or her shares, the shares are retired, which critics of the plan allege makes it easier for insider groups to maintain control, because the pool of shares is getting smaller.

    According to the article, the company’s board turned down two offers by the Lawrence Group, a large agribusiness concern from Sikeston, Missouri,  to buy the shares for $293 each, even though the company was paying employees from $194 to $205 per share at the time.  The employees claim that they were not told about the offers or given the chance to sell their shares at the higher price. 

    To make matters worse, U.S. Sugar hired an outside appraisal firm to evaluate the Lawrence Group’s second offer, which was made in early 2007.  The appraiser determined that U.S. Sugar’s break-up value was $2.5 billion, or $1,273 per share.  Based on that estimate, U.S. Sugar rejected the Lawrence Group’s bid as inadequate, but did not increase the purchase price offered to employees.

    The employees have filed a class action, Johnson v. White, Civil Action No. 08-CV-80101 (M.D. Fla.), which is described on this Website set up by their counsel, Colson Hicks Eidson. The site has most of the court filings from PACER in PDF format. 

    The most recent filing is an amended complaint filed on May 2, 2008, which alleges claims for breach of fiduciary duty against the company’s directors and officers and for violations of ERISA and equitable relief under ERISA Section 502(a)(3).  

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    Apparently, the negative publicity surrounding Wal-Mart’s decision to pursue reimbursement for Debbie Shank’s medical expenses from the remainder of her personal injury settlement made it rethink its position, as Wal-Mart announced yesterday that it would not attempt to collect any funds from Shank.

    Here is the letter from Pat Curran, Wal-Mart’s Executive Vice President ? People (yes, that’s really her title), to Jim Shank, in which she explained that, “Occasionally others help us step back and look at a situation in a different way.  This is one of those times.”   I imagine that’s true, particularly when the “others” are CNN, MSNBC, The Wall Street Journal, and the websites and blogs that are devoted to following and scrutinizing Wal-Mart’s activities. 

    For more background, here is the Associated Press story in yesterday's Wall Street Journal, which quoted Roger Baron, who teaches at the University of South Dakota School of Law and specializes in reimbursement and subrogation issues.  Professor Baron points out that since the United States Supreme Court’s decision in 2006 in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), health plans have become “very aggressive” about subrogation.  The Wall Street Journal Law Blog also weighs in today on Wal-Mart’s change of heart.

    Wal-Mart did the right thing by realizing that in this situation, its position was inequitable.  But I have no doubt that if Wal-Mart had not been subjected to so much criticism, it would have continued to pursue its subrogation claim against whatever remains of Debbie Shank's personal injury settlement. 

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    CNN has picked up on the story of Debbie Shank, whose fight with Wal-Mart over reimbursement of her medical expenses was on the front page of The Wall Street Journal last November.  At that time, I wrote about her unsuccessful efforts to reach a compromise with Wal-Mart regarding its health plan’s right to be repaid for medical expenses incurred in connection with Ms. Shank’s motor vehicle accident, which left her severely brain-damaged.  In August, she lost her appeal before the Eighth Circuit Court of Appeals, and last week, the Supreme Court of the United States denied her petition for a writ of certiorari.  James A. Shank, et al. v. Administrative Committee of the Wal-Mart Stores Inc. Associates' Health and Welfare Plan, No 07-791.

    CNN focuses on the human interest aspect of her story and doesn’t try to grapple with the policy issues, but the statement from Wal-Mart’s spokesman seems inaccurate:

Wal-Mart’s plan is bound by very specific rules … We wish it could be more flexible in Mrs. Shank’s case since her circumstances are clearly extraordinary, but this is done out of fairness to all associates who contribute to, and benefit from, the plan. 

    Undeniably, Wal-Mart has the right to pursue its subrogation interest against Ms. Shank’s recovery, but nothing forces Wal-Mart to seek reimbursement of the entire amount, or an amount equal to the remaining settlement.  The implication that Wal-Mart was required to pursue the recovery of its entire claim is incorrect.  In fact, health plans routinely negotiate in these circumstances like these in order to receive some recovery, without leaving the plan participant or beneficiary in circumstances as dire as Ms. Shank's, and Wal-Mart clearly could have done that here.  

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    A story on the front-page of yesterday’s Wall Street Journal focuses attention on an important legal issue, but one that I suspect a lot of people may not appreciate: a health plan’s right of subrogation.  The article, entitled "Accident Victims Face Grab for Legal Winnings" discusses an employer health plan’s successful effort to obtain reimbursement for health care costs paid on behalf of an employee who was severely injured in a motor vehicle accident. 

    The employee, Deborah Shank, who was injured seven years ago, obtained a $700,000 settlement from the trucking company whose tractor trailer crashed into her car.  After attorney’s fees and expenses were deducted, she was left with $417,000, which was put in a special needs trust for her future care.  But her employer, Wal-Mart, Inc., pursued a lawsuit against her, seeking reimbursement for nearly $470,000 in medical expenses that its health plan had paid on her behalf. 

    A district court ruled in Wal-Mart’s favor, and that ruling was affirmed by the Eighth Circuit Court of Appeals in August.  Administrative Committee of Wal-Mart Stores, Inc. Associates' Health and Welfare Plan v. Shank, 500 F.3d 834 (8th Cir. 2007).  Mrs. Shank’s motion for en banc reconsideration of the decision was rejected last week, which leaves an appeal to the Supreme Court of the United States as her last hope.

    Roy Harmon, in his Health Plan Law blog, described the article as “provocative,” and he’s right.  Having Wal-Mart as the employer in this situation invites more scrutiny of its actions than another employer might receive. But I have found that entities, like corporations, that receive more attention for their actions than others receive often deserve the extra attention, and this is one of those situations.

    Assuming that a health plan, like Wal-Mart’s, has language that entitles it to reimbursement of expenses paid on behalf of plan participants who receive compensation from an accident settlement or other third-party, the plan should be reimbursed.  But as Roy also pointed out, most plan administrators try to work out settlements of claims such as Mrs. Shank’s for a couple of reasons, including the legal expenses that the plan might incur in pursuing a recovery and a plan’s natural reluctance to sue its own employee to recover the costs.  Not surprisingly, neither of these factors was of concern to Wal-Mart.  In fact, Mrs. Shank’s lawyer said he approached Wal-Mart about settling its claim, “but was told the health plan wanted to proceed with the lawsuit.”

    There is one point mentioned in the article that I would like to have known more about.  The author, Vanessa Furhmans, writes that after Mrs. Shank’s lawyer informed Wal-Mart that the settlement funds had been placed in a special needs trust, Wal-Mart waited three years to sue Mrs. Shank for the money.  Why did Wal-Mart wait so long?  After three years, isn’t Mrs. Shank entitled to conclude that Wal-Mart isn’t going to pursue any right of subrogation against her?

    The Healthcare Neutral ADR Blog, written by Richard J. Webb, also has a post about the article, which highlights the need to “get all players at the table,” i.e., involve everyone who has or may have an interest in the settlement at a point when that involvement is meaningful.  If you represent plaintiffs or defendants in personal injury litigation, sooner or later, you will confront a situation like this.  The facts may not be outrageous as Mrs. Shank’s, but the scenario will be the same or very similar, and you need to be prepared.  Likewise, if you do work for health plans, you need to be prepared to deal with situations like this one.  Hopefully, an outcome like Deborah Shank’s will be the exception rather than the rule.   

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    Last month, I wrote about a decision from federal court for the Northern District of West Virginia in which the court awarded death benefits to a widow whose husband died of a drug overdose.  Judge Irene Keeley held, in a thorough opinion, that the husband’s death was accidental, not intentional, and that his widow was entitled to benefits.  Judge Keeley’s analysis centered on whether the decedent could reasonably have expected to die from his overmedication. She concluded that he could not, as he was trying to relieve his pain, “not to inflict any type of injury, much less to cause his own death.”

    Contrast that decision with this one from the Sixth Circuit Court of Appeals, which recently ruled that MetLife did not act arbitrarily and capriciously in denying a claim for death benefits on the grounds that its insured’s death, which occurred while he was driving with a blood alcohol content of three times the legal limit, was not an “accident” within the meaning of its Personal Accident Insurance (PAI) policy.  Lennon v. Metropolitan Life Insurance Company, 2007 WL 2934993 (6th Cir. 2007). 

    In Lennon, the district court had held that even though the driver had a blood alcohol content of 0.321 (which was more than three times Michigan’s limit of .10), he “did not reasonably expect to lose his life and that his death was thus accidental.”

    MetLife argued that driving in an impaired state made serious injury or death “reasonably foreseeable,” and therefore Lennon’s death was not an accident within the meaning of the PAI plan.  MetLife also argued that Lennon’s impaired condition, which was caused by his voluntary consumption of alcohol, constituted intentional self-inflicted injuries under the plan, which were excluded from coverage.

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    Today, in the Boston ERISA Law Blog, Stephen Rosenberg pokes a little fun at The Wall Street Journal Law Blog’s fascination this week with the doctrine of pre-emption, and accurately describes ERISA pre-emption (which the WSJ Law Blog has omitted from its discussion) as “the most important and interesting application of preemption ….”

    Rosenberg also points out that efforts by states to require employers to provide health care coverage to their employees demonstrate that ERISA pre-emption “is in fact the one area of preemption that consistently affects broad numbers of everyday, real life people ….”   He is referring to Maryland’s Fair Share Act, which was held by the Fourth Circuit Court of Appeals in Retail Industry Leaders' Association v. Fielder, 475 F.3d 180 (4th Cir. 2007),  to be pre-empted by ERISA, and to efforts by California to provide universal health coverage.  Rosenberg's post from August 27, entitled "California, Health Insurance and ERISA Preemption," includes a link to a paper on the topic by University of Maryland Professor Sharon Reece and a post by the Workplace Prof Blog.

    Rosenberg seems to doubt the success of such efforts (and he appears to be right, according to The Wall Street Journal article referenced above), but Brian King at the ERISA Law Blog has a contrary view, in this post from April 27. 

    My own view is that unless Congress amends ERISA’s pre-emption language (highly unlikely, at least in the short term) or the United States Supreme Court holds that ERISA’s scope of pre-emption is too broad (even more unlikely, given the enormous body of federal law, including, significantly, decisions from the Supreme Court, which has repeatedly endorsed that scope as demonstrating Congressional intent), legislation like California’s will be pre-empted. 

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    Long-term disability cases generate an enormous amount of litigation, almost always in federal court because of the scope of ERISA pre-emption.  ERISA also bars state law claims, such as negligence and breach of contract, and compensatory and punitive damages.  Thus, a claimant is typically limited to the amount of the benefits at issue in his or her claim and possibly an award of attorney’s fees.

    Further, if the plan grants discretion to the administrator to make eligibility decisions, as many, if not most, plans do, the court is obligated to defer to the administrator’s decision, which means that unless the court finds that the administrator abused its discretion (the “arbitrary and capricious” standard), the court must affirm the decision, even if the court would have decided the issue differently.

    But out of federal court for the Northern District of West Virginia comes a decision, admittedly with an atypical set of facts, which demonstrates that a plaintiff can prevail in an LTD claim.  In Gower v. AIG Claim Services, Inc., 2007 WL 2119262 (N.D.W.Va.), Kathy Gower filed a claim for accidental death benefits resulting from the death of her husband, a 41 year old coal miner.  AIG provided a group accident insurance policy through Peabody Holding Company, the parent of Gower’s husband’s employer, Eastern Associated Coal Corporation. 

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    A recent decision from federal court for the Southern District of West Virginia illustrates what happens when a health insurance company uses questionable judgment in trying to save a few (in this case, very few) dollars. 

    In Juniper v. M&G Polymers USA, LLC, 2007 WL 2028844 (S.D.W.Va. 2007), Judge Robert C. Chambers granted summary judgment for the plaintiff, Samuel Juniper, who was pro se for almost the entire case, and against the defendant, M&G Polymers USA, LLC, the plaintiff’s employer and plan administrator.  Brian King of the ERISA Law Blog wrote about the case a few days ago.

    Aetna, M&G's health plan insurer, denied $40 in charges for three venipunctures.  Juniper pursued the matter and was given various and apparently conflicting reasons for the denials by Aetna and by M&G.  He filed suit against M&G in Mason County (West Virginia) Magistrate Court (which has a $5,000 jurisdictional limit) in order to obtain payment for the charges.

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