Webny (2014)


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Webny (2014)

  1. 1. 1 An Interactive Seminar Presenting Views From Both Sides of the Bar on Current Developments In ERISA Litigation April 10, 2014 William D. Frumkin Frumkin & Hunter LLP 914.468.6096 wfrumkin@frumkinhunter.com Russell L. Hirschhorn Proskauer Rose LLP 212.969.3286 rhirschhorn@proskauer.com 1 42228224_1
  2. 2. 42228224_12 TODAY’S AGENDA • Overview of Relevant Statutory Provisions • Supreme Court Update ­ DOMA ­ Contraceptive Mandate Cases ­ Subrogation Claims ­ Employer Stock Fund Litigation ­ Statute of Limitations • ACA Litigation • Best Practices for Benefit Claims Administration • Arbitrability of ERISA Claims
  3. 3. 42228224_1 ERISA’s Civil Enforcement Scheme • Claims for Benefits • Claims for Breach of Fiduciary Duty • Claims of Discrimination and Interference • Claims for Failure to Provide Information 3
  4. 4. 42228224_1 Section 502(a)(1)(B) • Section 502(a)(1)(B) authorizes a participant or beneficiary: ­ To recover benefits due under the terms of the plan ­ To enforce rights under the terms of the plan ­ To clarify rights to future benefits under the terms of the plan • Who can sue and be sued? • Limitations period generally governed by state law 4
  5. 5. 42228224_1 Section 502(a)(2) • Sections 502(a)(2) and 409 authorize the Secretary of Labor, participant, beneficiary or fiduciary, to bring an action to redress violations of ERISA’s fiduciary responsibility provisions. ­ Fiduciaries are personally liable ­ Claims may be brought only on behalf of the plan as a whole 5
  6. 6. 42228224_1 Section 502(a)(3) • Section 502(a)(3) authorizes a participant, beneficiary, or fiduciary to bring a civil action: ­ To obtain injunctive relief ­ To obtain other “appropriate equitable relief” ­ Claims may be brought on behalf of an individual 6
  7. 7. 42228224_1 • Statute of Limitations, ERISA Section 413, 29 U.S.C. 1113 ­ Earlier of 3 years from actual knowledge, or 6 years from the last act ­ Narrow construction of what constitutes actual knowledge ­ Actual knowledge requires actual knowledge of the essential facts of the transaction or conduct sufficient to constitute a violation ­ Exception for fraud or concealment -- six years after the date of discovery of such breach or violation 7
  8. 8. 42228224_18 Claims of Discrimination & Retaliation • Prohibited Conduct ­ Prohibits discrimination or retaliation “against a participant or beneficiary for exercising any right to which he is entitled” ­ Prohibits “interference with the attainment of any right to which the participant may become entitled” • Statute of limitations ­ Section 510 claims are most analogous to ‘state employment discrimination or wrongful termination claims’” ­ Claim accrues when a decision to terminate (or to take other adverse action) in violation of the statute is made and communicated to the participant
  9. 9. 42228224_1 Claims For Failure To Provide Information • ERISA Section 104(b)(4) ­ A plan administrator shall, upon written request of any participant or beneficiary, furnish a copy of the: ­ latest updated summary plan description ­ latest annual report ­ any terminal report ­ bargaining agreement ­ trust agreement, contract, or other instruments under which the plan is established or operated 9
  10. 10. 42228224_1 • ERISA Sections 502(a)(1)(A) and 502(c) ­Allow for discretionary penalties (up to $110 per day) in the event an administrator fails or refuses to comply with a written request for information that the plan is required to furnish within 30 days after such request 10
  11. 11. 42228224_111 Defense of Marriage Act
  12. 12. 42228224_1 United States v. Windsor, 133 S. Ct. 2675 (2013) • Background ­ In 2007 Edith Windsor and Thea Spyer lawfully married in Ontario, Canada and then returned to their NYC home. ­ Spyer died in 2009, bequeathing her entire estate to Windsor. ­ Windsor claimed a federal estate tax exemption for surviving spouses. ­ DOMA barred Windsor from the definition of spouse as used in Federal Tax Statutes. ­ Under then prevailing NYS law, their marriage was deemed lawful. ­ While the litigation was pending, the USAG served notice that the US would no longer defend DOMA. 12
  13. 13. 42228224_1 United States v. Windsor, 133 S. Ct. 2675 (2013) (cont’d) • USSC Decision ­ NYS first recognized same-sex marriages performed elsewhere; the state then amended its laws to recognize same-sex marriages performed in the State of New York. ­ USSC focused on the extent of state police powers to regulate marriage and concluded that regulation of domestic relations is an area regarded as a virtually exclusive province of the states. ­ USSC held that DOMA seeks to injure the very class that New York law seeks to protect. ­ DOMA forced states that recognize same-sex marriages to treat these unions as second-class marriages. ­ DOMA imposed a legal disability on a class of persons the State finds to be dignified and proper. 13
  14. 14. 42228224_1 Contraceptive Mandate Cases 14
  15. 15. 42228224_1 Contraceptive Mandate Cases (cont’d) • ACA requires group health plans and insurers to cover, without cost-sharing, preventative services for women, which includes contraceptive coverage (all FDA approved contraceptive methods and sterilization procedures) • Religious employers exempted from the requirements to provide contraceptive coverage • For-profit secular employers claim that the mandated inclusion of contraceptive coverage in their health plans infringes on their religious freedoms 15
  16. 16. 42228224_1 Contraceptive Mandate Cases • US Supreme Court Review ­ Third and Sixth Circuits ruled that ACA is a neutral statute of general applicability that regulates public health and welfare, and that it in no way limits the exercise of religion. Autocam Corp. v. Sebelius, 730 F.3d 618 (6th Cir. 2013); Conestoga Wood Specialties Corp., 724 F.3d 377 (3d Cir. 2013). ­ Seventh, Eighth, Tenth, and D.C. Circuits entered preliminary injunctions blocking enforcement of these regulations. Gilardi v. U.S. Dept. of Health and Human Servs, 2013 WL 5854246, at *3-*4 (D.C. Cir. Nov. 1, 2013); Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114 (10th Cir. 2013); Grote v. Sebelius, 708 F.3d 850 (7th Cir. 2013). 16
  17. 17. 42228224_1 Subrogation and Reimbursement 17
  18. 18. US Airways, Inc. v. McCutchen, 133 S.Ct. 1537 (2013) • Background ­ McCutchen, a participant in the US Airways health plan, was seriously injured in an automobile accident. ­ The plan paid $66,866 for McCutchen’s medical expenses. ­ McCutchen recovered $110,000.00 from third parties, $10,000 from the tortfeasor and $100,000 from his own auto insurer. ­ McCutchen’s personal injury counsel had a 40% contingent fee contract and deducted $44,000 for legal fees, leaving a net amount of $66,000 – less than the amount paid by the plan. ­ McCutchen’s attorney denied the plan was entitled to reimbursement, but placed $41,500 in an escrow account (the full $66,866, minus 40% for attorney’s fees). 18 42228224_1
  19. 19. US Airways, Inc. v. McCutchen (cont’d) • Plan Language ­ The SPD stated: “You will be required to reimburse . . . [the Plan] . . . for amounts paid for claims out of any monies recovered from [the] third party. . . .” • The Plan’s Claim ­ The Plan asserted a claim for reimbursement against McCutchen, seeking other appropriate equitable relief under the terms of the plan, pursuant to ERISA § 502(a)(3). 19 42228224_1
  20. 20. 42228224_1 US Airways, Inc. v. McCutchen (cont’d) • USSC Decision ­ Held that the application of lien by agreement requires the binding of all parties to their written promises. ­ Unjust enrichment principles cannot defeat the plan’s reliance on the contract’s clear terms. ­ Because Section 502(a)(3) provides relief to enforce the terms of the plan, the limitation on equitable defenses promotes ERISA’s principal function: to protect contractually defined benefits. Reliance on the written document is critical to carrying out the goals of ERISA. 20
  21. 21. 42228224_1 US Airways, Inc. v. McCutchen (cont’d) ­ Where, as here, a plan document is silent as to the allocation of attorney’s fees, the common-fund doctrine provides the default rule. ­ Awarded McCutchen’s counsel attorney’s fees incurred for the recovery to the plan. ­ If it failed to do this, McCutchen would be worse off (-$866) than had he done nothing. ­ If McCutchen is to act as US Airways collection agent, a result he would not have foreseen when he signed onto the plan, he has to be informed by plan language of this fact. 21
  22. 22. 42228224_1 US Airways, Inc. v. McCutchen (cont’d) • Implications ­ Include reimbursement provisions in the plan document. ­ If the plan intends to abrogate the common-fund doctrine and seek reimbursement of all amounts, including amounts paid to the participant’s tort attorney, the plan must state this unequivocally and unambiguously. 22
  23. 23. 42228224_1 Employer Stock Drop Litigation 23
  24. 24. 42228224_124 Overview • Plan fiduciaries have a fiduciary duty to ensure compliance with ERISA’s prudence and disclosure rules relating to investment options • In “stock-drop” litigation, plaintiffs typically allege breach of fiduciary duty: ­ By failing to eliminate/divest the employer stock fund as an investment option in the plan when fiduciaries knew or should have known that it was an imprudent investment option (“Prudence Claim”); and ­ By making material misrepresentations about the company or omitting information that would have alerted plaintiffs that the company stock price was overvalued (“Disclosure Claim”)
  25. 25. 42228224_125 Disclosure Claims • Nondisclosure Claim ­ Plaintiffs argue that there is a duty to disclose financial and other corporate information about the company to plan participants ­ Several courts have distinguished between disclosure of information about plan benefits vs. financial status of plan investments and concluded that there is no requirement to provide the latter because that would transform plan fiduciaries into investment advisors ­ Courts have not been uniform in their decisions concerning what, if any, obligation plan fiduciaries have with respect to the disclosure of nonpublic information that may impact the company stock fund
  26. 26. 42228224_126 Disclosure Claims (cont’d) ­ More recent decisions have trended away from placing an obligation on a fiduciary to act on insider information. ­ Second Circuit, in Citigroup, “decline[d] to . . . to create a duty to provide participants with nonpublic information pertaining to specific investment options.” ­ Ninth Circuit in Quan suggested that only publicly known facts could trigger a fiduciary’s obligation to investigate the prudence of maintaining employer stock investment option ­ However, older decisions, particularly those in the “bankruptcy implosion” cases such as WorldCom and Enron, have sometimes concluded that special circumstances and extreme impact of fraud may have triggered duties to disclose.
  27. 27. 42228224_127 Disclosure Claims (cont’d) • Material Misrepresentation Claim ­ There is general agreement that the preparation of SEC documents is a corporate, non-fiduciary function. ­ Several courts have held that by incorporating SEC documents in the SPD, defendants did not intentionally link that content to statements about benefits. ­ The Sixth Circuit concluded that that SEC filings when incorporated into plan documents are fiduciary disclosures.
  28. 28. 42228224_128 Prudence Claim (cont’d) • Moench presumption of prudence ­ Fiduciaries presumed to act prudently when they offer employees the option to invest in employer stock unless company’s viability as a going concern is in doubt or other “dire circumstances” are present
  29. 29. 42228224_129 Prudence Claim (cont’d) ­ Moench presumption is difficult to rebut: ­ Significant stock price declines or fluctuations are not enough ­ Plaintiffs typically must show evidence of “dire circumstances” ­ The company’s viability as an ongoing concern is in jeopardy or precipitous decline in stock combined with evidence that company is on brink of collapse or undergoing serious mismanagement ­ Second, Third, Fifth, Seventh and Eleventh Circuits apply Moench presumption at pleadings stage; claims dismissed if they do not allege facts sufficient to overcome the presumption
  30. 30. 42228224_1 Prudence Claim (cont’d) • Sixth Circuit adopted Moench presumption but rejected “dire circumstances” test or application at pleadings stage ­ Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995): adopted presumption but states that to rebut it plaintiff need only prove that “a prudent fiduciary acting under similar circumstances would have made a different investment decision.” ­ Pfeil v. State Street Bank & Trust Co., 671 F.3d 585 (6th Cir. 2012): held that the presumption is an evidentiary presumption, not a pleading requirement. ­ Dudenhoeffer v. Fifth Third Bancorp, 692 F.3d 410 (6th Cir. 2012): the presumption is an additional pleading requirement. 30
  31. 31. 42228224_1 Fifth Third Bancorp v. Dudenhoeffer (U.S. No. 12-751) • USSC granted Fifth Third’s petition for certiorari • Issue to be considered: ­ “Whether the Sixth Circuit erred by holding that Respondents were not required to plausibly allege in their complaint that the fiduciaries of an employee stock ownership plan abused their discretion by remaining invested in employer stock, in order to overcome the presumption that their decision to invest in employer stock was reasonable, as required by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1101, et seq. (“ERISA”), and every other circuit to address the issue.” 31
  32. 32. 42228224_1 Possible Outcomes • Narrow holding – affirms on grounds that there were sufficient allegations to sustain claim even if presumption applied • Moench presumption upheld – Supreme Court follows other Circuit Court rulings and possibly refines the standard • Moench presumption overturned – ordinary standards of prudence govern for reasons stated by plaintiffs and solicitor general • Presumption’s application depends on plan language 32
  33. 33. Statute of Limitations Considerations 33 42228224_1
  34. 34. 42228224_1 Statute of Limitations and Contractual Limitations Periods • ERISA does not contain a statute of limitations period for suits challenging benefits denials ­ Instead, courts borrow the limitations period from the most analogous state statute • Parties may still contract for a shorter limitations period • Courts generally enforce contractual limitations periods for benefit claims so long as they are made known to participants and beneficiaries and are not “manifestly unreasonable” 34
  35. 35. 42228224_1 Statute of Limitations and Contractual Limitations Periods (cont’d) • Federal common law determines when claim accrues • Federal courts use the “discovery rule” to determine accrual date of ERISA benefits claim ­ Statute of limitations begins to run when plaintiff discovers or should have discovered injury that forms basis for the claim ­ In ERISA context, “discovery rule” is known as “clear repudiation” rule ­ Benefits claim accrues when fiduciary repudiates claim for benefits, and repudiation is clear and made known to the beneficiary ­ Formal denial of claim is not required 35
  36. 36. 42228224_1 Statute of Limitations and Contractual Limitations Periods (cont’d) • Heimeshoff v. Hartford Life & Accident Ins. Co., 134 S. Ct. 604 (2013) ­ LTD plan required claims be filed within 3 years of the date that “proof of loss” was required to be submitted and “proof of loss” due before plan’s administrative process can be completed. ­ Plaintiff filed suit less than 3 years after Hartford’s adverse determination, but more than 3 years after “proof of loss” due. ­ District Court dismissed; Second Circuit affirmed. ­ USSC affirmed and held that plan-imposed, contractual statutes of limitations are enforceable under ERISA if the period is not unreasonable or barred by statute. 36
  37. 37. 42228224_1 Statute of Limitations and Contractual Limitations Periods (cont’d) ­ This is true even if the statute of limitations starts to run before the cause of action accrues ­ Plaintiff contended that plan limitations provision would “undermine ERISA’s two-tiered remedial scheme,” but Court disagreed ­ Limitations provisions does not disrupt ERISA’s internal review process OR diminish the availability of judicial review to participants • Steps for employers and plan sponsors: ­ Consider amending plan to include plan-imposed statutes of limitation 37
  38. 38. 42228224_1 ACA Litigation 38
  39. 39. 42228224_1 Workforce Realignment 39 • How are employers responding to Employer Mandate? ­ Possible avoidance by reorganizing workforces ­ Employers may reduce employees’ hours below 30 per week to avoid “full-time” employees under ACA ­ Penalty determined based on “full-time” employees, defined as working at least 30 hrs. per week ­ Some employers experimenting with reorganization
  40. 40. 42228224_1 Potential Litigation under ERISA § 510 40 It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, this subchapter, section 1201 of this title, or the Welfare and Pension Plans Disclosure Act [29 U.S.C. 301 et seq.], or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this subchapter, or the Welfare and Pension Plans Disclosure Act. It shall be unlawful for any person to discharge, fine, suspend, expel, or discriminate against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this chapter or the Welfare and Pension Plans Disclosure Act . . .
  41. 41. 42228224_1 Other Potential Litigation 41 ­ ADEA and Title VII ­ Does “adverse” employment action (i.e., cutback in hours) disparately impact protected class? ­ Legitimate business reason other than avoiding penalties? ­ Whistleblower action under ACA ­ Improper motive need only be “contributing factor”
  42. 42. 42228224_1 ACA Whistleblower Protections 42 • ACA amended the FLSA to provide significant whistleblower protections, including a private cause of action, for individuals reporting violations of the statute • ACA prohibits adverse action against employees who ­ Received a premium tax credit or subsidy for a health plan ­ Provided information to the employer or the federal or state government concerning a violation, act or omission the employee reasonably believes to be a violation relating to Title I of ACA ­ Testified or is about to testify in a proceeding concerning such violation ­ Assisted or participated, or is about to assist or participate, in such a proceeding ­ Objected to, or refused to perform any activity or assigned task the employee reasonably believes to be such a violation
  43. 43. 42228224_1 ACA Whistleblower Protections (cont’d) 43 • Standards of Proof (Burden Shifting) ­ Claimant: must show by preponderance of the evidence that protected activity was contributing factor to adverse action ­ Defense: employer avoids liability only if it proves by clear and convincing evidence that same action would have resulted in the absence of the employee’s protected conduct • Procedure ­ Administrative Process: employee files complaint with OSHA within 180 days of retaliatory action. OSHA can order preliminary relief. Either party can appeal ­ Federal Court: if no final decision within 210 days of administrative claim, complainant may file suit in federal court (trial by jury)
  44. 44. 42228224_1 ACA Whistleblower Protections (cont’d) 44 • Remedies include: ­ Reinstatement ­ Back pay ­ Special damages (including emotional distress damages) ­ Attorneys’ fees • Whistleblower protections are in addition to any other rights under federal or state law or under a collective bargaining agreement • Whistleblower protections cannot be waived
  45. 45. 42228224_145 Best Practices for Benefit Claims Administration
  46. 46. 42228224_146 Standard of Review • Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (S. Ct. 1989) ­ Deferential review if plan grants deferential power to fiduciary ­ Absent power granting language, de novo review • Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008) ­ When the same entity is responsible for determining benefit eligibility and paying benefit claims, conflict-of-interest arises ­ Conflict is one factor in deciding whether there was an abuse of discretion ­ No bright line test; case-by-case basis analysis • Conkright v. Frommert, 130 S. Ct. 1640 (2010) ­ People – including plan administrators – make mistakes ­ Absent bad faith or multiple errors, Firestone entitles plan administrator to deferential review
  47. 47. 42228224_1 Best Practice No. 1: Know Your Plan Documents • Clear v. ambiguous? • Delegation and serial delegations addressed? • Reasonable contractual statute of limitations included? • Firestone language included? • Proper amendments? • Documents are being followed? • Distribute SPD? 47
  48. 48. 42228224_1 Best Practice No. 2: Use the Claims Process • Require exhaustion ­ Futility ­ Denial of Meaningful Access ­ Irreparable Harm ­ Estoppel • Know the law ­ Statute on claims 29 U.S.C. §1133 ­ Regulation on claims 29 C.F.R. §2560.503-1 48
  49. 49. 42228224_1 Best Practice No. 2: Use the Claims Process • Build the administrative record • Protect the standard of review • Watch for pre-litigation signs ­ Letters from lawyers ­ Large claims • Watch for process failures 49
  50. 50. 42228224_150 Best Practice No. 3: Avoiding Structural Conflicts & Creating A Bullet Proof Administrative Record • As required by the regulations ­ Provide participants full and fair opportunity to challenge administrative determination ­ Invoke a deliberative process; full and fair review ­ Consider all evidence submitted ­ Explain basis for decision ­ Provide claimant with relevant documents and information • Vest an internal benefits committee or an independent body with the discretion to interpret the plan’s terms and administer benefits • Provide well-reasoned decisions • Consider whether there is a need for additional information/expertise
  51. 51. 42228224_1 Best Practice No. 4: Discovery Issues • What is the scope of discovery in benefit claims cases? ­ Is the standard of review deferential or de novo? ­ Is there a conflict of interest? ­ What steps were taken to ameliorate the conflict? ­ Does the plan language govern regardless of any conflict? ­ Is there a robust administrative record? 51
  52. 52. 52 • Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008) ­ Deferential review applies, even when a fiduciary is conflicted ­ Plaintiffs bar have used this case to expand scope of discovery to “weigh” the conflict as a factor in determining abuse of discretion • Murphy v. Deloitte & Touche Grp. Ins. Plan, 619 F.3d 1151 (10th Cir. 2010) ­ Glenn contemplates extra-record discovery ­ Fed. R. Civ. P. 26(b) governs scope of discovery, even in ERISA cases ­ Party seeking discovery has burden of establishing its need • Helton v. AT&T Inc., 709 F.3d 343 (4th Cir. 2013) ­ “Overwhelming majority of courts” post-Glenn do not absolutely bar consideration of extrinsic evidence under deferential review ­ Limited discovery allowed under deferential review, in part, to assess conflict of interest 42228224_1
  53. 53. Arbitrability of ERISA Claims 444 53
  54. 54. 42228224_1 4 Considerations for Arbitrating ERISA Claims • Arbitrability of Group Health and Disability Plan Claims • Arbitrability of Other ERISA Claims • Arbitrability of ERISA Class Actions • Best Practices for Arbitration of ERISA Claims 54
  55. 55. 42228224_155 1. Group Health & Disability Plan Claims • DOL regulations provide that the claims procedures in group health and disability plans will not be deemed “reasonable” if the claims procedures contain a mandatory arbitration provision, unless the plan provides that: ­ the arbitration is conducted as one of the two appeals a participant or beneficiary must make prior to filing a civil action; and ­ the claimant is not precluded from challenging the decision under Section 502(a) or other applicable law. 29 C.F.R. § 2560.503-1.
  56. 56. 42228224_156 2. Other ERISA Claims • Mandatory arbitration of other ERISA claims is permitted. ­ Second Circuit: Bird v. Shearson Lehman/American Exp., Inc., 926 F.2d 116 (“ERISA’s text and legislative history do not support a conclusion that Congress intended to preclude arbitration of claims”). ­ Third Circuit: Pritzker v. Merrill Lynch, 7 F.3d 1110 (“ERISA claims are subject to compulsory arbitration under the FAA”). ­ Fifth Circuit: Kramer v. Smith Barney, 80 F.3d 1080 (“Congress did not intend to exempt statutory ERISA claims from the [FAA]”) ­ Eighth Circuit: Sulit v. Dean Witter Reynolds, Inc., 847 F.2d 475 (“agreements to arbitrate ERISA claims are in accord with the explicit provisions of the Arbitration Act”). ­ Tenth Circuit: Williams v. Imhoff, 203 F.3d 758 (“Congress did not intend to prohibit arbitration of ERISA claims”).
  57. 57. 42228224_157 3. ERISA Class Actions • Stolt-Nielsen v. AnimalFeeds, 130 S.Ct. 1758 (2010) • AT&T v. Concepcion, 131 S. Ct. 1740 (2011) • Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064 (2013) • AMEX v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013)
  58. 58. 42228224_158 Parties Must Mutually Agree to Participate in Classwide Arbitration – Take 1 • Stolt-Nielsen v. AnimalFeeds, 130 S.Ct. 1758 (2010) ­ Parties agreed that they were required to arbitrate. ­ Parties stipulated that the agreement was silent on the issue of class arbitration. ­ Parties submitted the question of class arbitration to a panel of arbitrators who concluded that class arbitration was permissible because public policy favors arbitration. ­ USSC held that a party may not be compelled to arbitrate class claims unless it has contractually agreed to do so. ­ Arbitration panel had no proper occasion to ascertain intent. ­ USSC observed that arbitration is a matter of consent and that private agreements are enforced according to their terms, which may include with whom parties choose to arbitrate.
  59. 59. 42228224_159 FAA Preempts State Rules Prohibiting Certain Arbitration Contacts • AT&T v. Concepcion, 131 S.Ct. 1740 (2011) ­ USSC held that the FAA preempted a California state rule prohibiting arbitration contacts that prevented individuals from bringing class claims. ­ FAA reflects a liberal approach toward arbitration. ­ Arbitration agreements should only be struck down for reasons that could nullify other contracts, such as fraud, duress, or unconscionability. ­ There was nothing that justified striking down the clause at issue, and the California rule interfered with the FAA’s goal of promoting arbitration and its expeditious results. ­ The Dissent argued that class proceedings are necessary to prosecute small dollar claims that might otherwise slip through the legal system.
  60. 60. 42228224_1 Parties Must Mutually Agree to Participate in Classwide Arbitration – Take 2 • Oxford Health Plans v. Sutter, 133 S.Ct. 2064 (2013) ­ In-network provider filed a complaint on behalf of a class of health care providers against Oxford and other health insurers alleging breach of contract and other state law violations. ­ Oxford’s network provider agreement contained a broad arbitration clause, but it was silent on the issue of class arbitration: “No civil action concerning any dispute arising under this Agreement shall be instituted before any court.” ­ Arbitrator determined that the arbitration clause allowed for class arbitration in light of the clause’s breadth and therefore issued an award defining the class of claimants and certifying the class. ­ USSC: “So long as an arbitrator ‘makes a good faith attempt’ to interpret a contract, ‘even serious errors of law or fact will not subject his award to vacatur.’”60
  61. 61. 42228224_161 Class Action Waivers Are Enforceable • AMEX v. Italian Colors Restaurant, 133 S.Ct. 2304 (2013) ­ A contractual waiver of class arbitration is enforceable even when plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. 1.Where a plaintiff seeks to assert a federal statutory claim, the FAA requires enforcement of an arbitration agreement unless there is a “contrary congressional command” that overrides the FAA’s mandate. 2.The judicially-created “effective vindication” doctrine did not invalidate the agreement in the case at bar. 3.Concepcion “all but resolve[d]” the Amex case.
  62. 62. 42228224_162 4. Best Practices • Is arbitration the “right” decision? ­ What type of claim is at issue? ­ Considerations include: ­ Arbitrator’s knowledge of ERISA ­ Ability to appeal ­ Confidentiality ­ Cost ­ Speed
  63. 63. 42228224_163 Best Practices (cont’d) • In combination, the USSC rulings appear to permit employers/plan sponsors to avoid defending ERISA claims in federal court – which would present the prospects for class litigation – by conditioning employment on executing arbitration agreements, and avoiding class-wide arbitration by either making no allowance for such claims in the arbitration agreement or, even better, specifically providing that the arbitrations will be limited to individual claims. • Arbitration agreements should expressly state that claims in arbitration are limited to individual claims. • While it is possible that plan sponsors will be able to avoid class claims altogether, keep in mind that derivative class claims under Section 502(a)(2) need not be class claims.
  64. 64. 42228224_1 ETHICS IN ERISA LITIGATION 64
  65. 65. 42228224_1 Question 1 • Skyler, a Plan participant and employee of plan sponsor, Heisenberg Company, Inc., filed a claim for benefits from the Plan. Gus, the Plan administrator, contacted Saul, who is outside counsel to the Plan. Saul provided Gus with an outline showing the dates that Skyler sent letters to the Plan requesting benefits. Saul also gave Gus advice on what fiduciary responsibilities exist under ERISA. Lastly, Saul advised Gus, in his role as VP of HR, on Heisenberg Company’s role as Plan sponsor in connection with the benefit claims process. 65
  66. 66. 42228224_1 • Saul, outside counsel to the Plan, sent an email to Gus in an effort to assist Gus in evaluating the merits of Skyler’s appeal. Gus subsequently denied Skyler’s appeal. Is Saul’s communication with Gus prior to the denial of Skyler’s appeal privileged? A. Yes B. No C. Yes, as long as no third parties were copied on the email D. It depends who was paying Saul 66
  67. 67. 42228224_1 ANSWER = B • ERISA affords plan participants and beneficiaries the right to obtain information pertaining to their own benefit entitlements as well as information regarding the operation of the plans in which they participate. • Two rationales: duty to disclose and the “real client” • The fiduciary exception has been recognized by the Second, Fifth, Sixth, Seventh, Ninth Eleventh and DC Circuits. It has not been rejected by any Circuit. 67
  68. 68. 42228224_1 Timing of the Communication • Pre-Decisional v. Post-Decisional Communications (Timing) ­ Fiduciary exception applies to communications between counsel and plan fiduciaries concerning claims for benefits ­ Communications must have occurred prior to the decision on appeal ­ Post-decisional communications are no longer relevant to the decision making process and constitute evidence that the interests of the beneficiary and the plan fiduciary have diverged 68
  69. 69. 42228224_1 Question 2 • Tuco, a long-time trustee of the Plan, is sued for embezzlement from the Plan. Tuco called Pinkman, the Plan’s lawyer, whom he has known for years. Pinkman stopped Tuco from telling him anything and instead told Tuco to hire a separate lawyer. Tuco took Pinkman’s advice and retained a different lawyer, Saul (who else?). Tuco had several conversations with Saul about the embezzlement charges. Does the fiduciary exception apply to Tuco’s communications with Saul? A. Yes B. No 69
  70. 70. 42228224_1 • They had several conversations, and exchanged several emails, about the embezzlement charges and Tuco’s potential liability. Does the fiduciary exception apply to their communications? A. Yes B. Yes, but only if the plan does not pay Pinkman for the advice C. No D. No, because the advice relates to Tuco’s personal liability 70
  71. 71. 42228224_1 ANSWER = B • Courts have recognized that there are circumstances where the fiduciary exception is inapplicable. For example, where the goal of the advice is to advise a fiduciary of his or her potential personal liability. • The fiduciary exception also has no application to conversations about settlor functions, such as the adoption, amendment or termination of plan. 71
  72. 72. 42228224_1 Question 3 • During a break at a Plan trustees’ meeting, Pinkman consulted with Heisenberg executives, who are also trustees of the Plan, about eliminating the accrual of benefits prospectively. The investment consultant, actuaries and accountants to the plan were not involved in the conversation, but were in the room. Are these communications privileged? A. Yes B. No C. Yes, but only if the third parties were not listening D. No, because the executives were at a plan trustees’ meeting, so they were receiving advice in their trustee capacities.
  73. 73. 42228224_1 ANSWER = Pray for C, but it may be B • Losing the Privilege to Waiver and Exceptions to Waiver ­ Presence of a Third Party ­ Agency Exception to Waiver ­ Common Interest Exception to Waiver 73