There is no shortage of new and interesting employee benefits court decisions. And there is no shortage of new and interesting decisions that do not directly impact employee benefits but have a significant indirect impact.
We are two employee benefits attorneys who have practiced on each side of the “v.” – representing plaintiffs and defendants. We note the decisions that we think deserve your attention and humbly predict where employee benefits litigation is heading.
A. Standing
The U.S. Constitution’s Article III preconditions all federal court litigation, including of course ERISA litigation, on standing. Just over a year ago, the Supreme Court issued its decision in Thole v. U.S. Bank N.A., wherein plaintiffs alleged a mismanagement of defined benefit plan funds that resulted in an approximate $750 million loss. The Court found that the employees lacked Article III standing because they “received all of their monthly benefit payments so far, and the outcome of this suit would not affect their future benefit payments.” The Court “emphasized that Article III standing requires a concrete injury even in the context of a statutory violation;" and added that “[t]here is no ERISA exception to Article III."
Then, in California v. Texas, the Supreme Court addressed the third judicial challenge to the Affordable Care Act (ACA). The Court found that the plaintiffs lacked Article III standing to challenge the constitutionality of the ACA after Congress reduced the individual penalty for failing to obtain minimum essential healthcare coverage to $0. The Court found that “[n]either the individual nor the state plaintiffs have shown that the injury they will suffer or have suffered is fairly traceable to the allegedly unlawful conduct of which they complain," so they “failed to show a concrete, particularized injury fairly traceable to the defendants’ conduct in enforcing the specific statutory provision they attack as unconstitutional."
And then, just two weeks later, the Supreme Court once again addressed Article III standing in TransUnion LLC v. Ramirez. In Ramirez, the plaintiff class claimed that TransUnion failed to ensure the accuracy of the information contained in their credit files. The class consisted of more than 8,000 individuals, but less than 2,000 credit files were actually provided to third parties. The Court found that only those individuals whose credit information had been shared with others demonstrated concrete harm and had standing to sue. The Court stated that “the mere existence of inaccurate information in a database is insufficient to confer Article III standing."
There also have been some significant Courts of Appeal decisions on standing in ERISA cases. In Gonzalez de Fuente v. Preferred Home Care of N.Y. LLC, the Second Circuit upheld the dismissal of a suit brought under Section 502(a)(2) and (a)(3) that alleged the misappropriation of employer contributions and plan funds. The plaintiffs did not claim that they had been denied benefits due under the plan or that the plan was incapable of continuing to provide benefits. Relying heavily on Thole, the Second Circuit likened a group healthcare plan to a defined benefit plan and concluded that “[b]ecause winning or losing on their ERISA claims would not change the plaintiffs’ [health] benefits, they have no concrete stake in this dispute and therefore lack Article III standing."
Standing has also been raised in Wit v. United Behavioral Health, which is currently pending in the Ninth Circuit. Wit involved a class of approximately 67,000 participants in group healthcare plans. The district court found that UBH’s guidelines for assessing mental health treatment claims were inconsistent with generally accepted standards of care and remanded the claims for reprocessing under appropriate criteria. The district court found that because each class participant claim was denied, the claimants had suffered a concrete injury sufficient to establish Article III standing. The Secretary of Labor recently filed an amicus brief supporting the plaintiff-appellees to “ensur[e] that participants and beneficiaries challenging coverage denials…are not denied access to court based on a cramped investigation of standing principles." We all should pay attention to any ruling on standing by the Ninth Circuit.
In contrast to Wit, in Smith v. Health Care Serv. Corp., another district court in the Seventh Circuit dismissed a similar complaint alleging that other mental health treatment guidelines are inconsistent with generally accepted standards of care because of a lack of standing. The court cited Thole and reasoned that the Smith plaintiffs alleged only “a bare incursion on the purported statutory right to more generous medical necessity guidelines with regard to residential treatment services,” and had not shown that benefits were improperly denied on account of such guidelines. The district court concluded that there was no concrete injury.
Trend Line. Expect more challenges to federal court employee benefits complaints in the class action or plan relief context based on Article III standing. Query whether district courts may even hear evidence on the issue or allow some limited discovery before ruling. And query whether plaintiffs (to the extent not relying on exclusive Section 502(a)(2) or (3) federal court claim jurisdiction) may resort more to state courts, where standing rules do not derive from Article III.
B. Preemption
Another evolving issue is the scope of ERISA preemption. The Supreme Court’s 2016 decision in Gobeille v. Liberty Mut. Ins. Co. strengthened ERISA’s preemption provision in Section 514(a). The majority decision was written by Justice Kennedy, who is now retired.
The new composition of the Court seems less enamored with ERISA preemption. In Rutledge v. Pharm. Care Mgmt. Ass’n, the Court held that an Arkansas statute regulating the reimbursement rates paid by pharmacy benefit managers to local pharmacies was not preempted by ERISA. Citing New York State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.,