Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

BURNS v. ORTHOTEK, INC. EMPLOYEES' PENSION PLAN AND TRUST (September 15, 2011)

Dr. Richard Burns conducted his northern Indiana orthodontics practice as Orthotek, Inc. Burns was the Plan administrator, the fiduciary, and the principal participant in the company’s pension plan. In early 2003, Burns signed a Plan document that named his sons as beneficiaries. His wife Cheryl signed a document consenting to that designation. Her signatures are dated the day after those of her husband's, however. When Dr. Burns died in mid-2004, Cheryl Burns filed a benefits claim. She claimed that she did not remember signing the form, that she did not understand the form, and that her signature was not witnessed. The Plan denied her claim. Cheryl Burns brought suit against the Plan pursuant to ERISA. Chief Judge Simon (N.D. Ind.) granted summary judgment to the Plan. Burns appeals.

In their opinion, Seventh Circuit Judges Posner, Flaum, and Sykes affirmed. Under ERISA, a plan participant may designate a beneficiary other than a surviving spouse but only if the spouse consents in writing and the consent is witnessed by a plan representative. The only issue on this appeal is whether Dr. Burns witnessed his wife's signature. The Court rejected the district court's conclusion that the consent was in "substantial compliance" with ERISA. The doctrine of substantial compliance comes into play only when ERISA is silent on a subject. Here, the statute explicitly requires a witnessed consent. But the statute does not necessarily require that the witness be physically present at the time of the spouse’s signature. Furthermore, the Court stated that the statute should not be interpreted to produce absurd results. Here, a) Dr. Burns was the only Plan representative, b) he signed the required forms, c) he must have given the forms to his wife, d) his wife signed the forms, and e) she must have given the forms back to him. Under these admittedly unusual circumstances, the Court concluded that the Plan was within its discretion to find that Dr. Burns witnessed his wife's signature.

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LOOMIS v. EXELON CORP. (September 6, 2011)

Exelon Corp. maintains a defined-contribution pension plan for its employees. It offers its participants 24 no-load mutual funds among its 32 different options. The expense ratios of the 24 funds range from 0.03% to 0.96%, depending on how actively the fund is managed. The expenses are deducted from the fund assets and therefore, in effect, paid for by the participants. Some participants brought suit against the Plan under ERISA, alleging that the Plan violated its fiduciary duties by 1) offering only funds that are available to the general public, and 2) requiring the Plan's participants to pay for the funds’ expenses. Judge Darrah (N.D. Ill.) concluded that the claim was controlled by Hecker and dismissed it. The court also awarded $42,000 in costs. Plaintiffs appeal.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Posner and Tinder affirmed. The Court stated that it had resolved the first of the plaintiffs' complaints in Hecker, where the Court held that a plan's menu of 25 mutual funds that were available to the public with expense ratios ranging from 0.07% to 1.00% was acceptable as a matter of law. The Court expressed no interest in overruling Hecker. The plaintiffs' second claim, that the Plan should cover the expenses of the funds, was not presented in Hecker. But if fails also. Although Exelon could have set up its Plan in that way, it was not required to. An employer can act in its own interest when it designs a plan and decides how much to contribute. The Court turned to the costs award. Rule 54(d), on which the district court relied in awarding costs, creates a presumption in favor of the prevailing party unless a statute or rule provides otherwise. ERISA, on the other hand, provides that a court in its discretion may allow costs to either party. Plaintiffs contend that ERISA is therefore a statute that provides otherwise and thus supersedes Rule 54 (D.). They further contend that ERISA requires a finding of bad faith or harassment to award costs. The Court conceded that it had never addressed the question head-on and that it's treatment of the question has not been consistent. It concluded that it did not need to resolve the question, because it disagreed with plaintiffs' premise that ERISA required a finding of bad faith in order to award costs. Both the rule and ERISA give the district court discretion to award costs -- that is what the district court did.

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KOLBE & KOLBE HEALTH & WELFARE BENEFIT PLAN v. THE MEDICAL COLLEGE OF WISCONSIN, INC. (September 2, 2011)

Scott Gurzynski worked for the Kolbe & Kolbe Millwork Co. and participated in its welfare benefit plan. His daughter K.G. was born in 2007. Although he submitted an enrollment change to the Plan in mid-2007, it was incomplete. For example, he neglected to indicate whether K.G. lived with him and whether he claimed her as a tax exemption. It was not until late November that he admitted that she did not live with him and that he was not claiming her as an exemption. The Plan requested additional information without success. It eventually denied enrollment status to K.G. in June 2008. Meanwhile, K.G. had received over $1.5 million in medical care from the Medical College of Wisconsin and the Children's Hospital of Wisconsin, all paid for by the Plan. After its decision denying K.G. enrollment status, the Plan asked the Medical College and the Children's Hospital to refund the money the Plan had paid. They refused. In a second amended complaint, the Plan seeks recovery under three theories: a) ERISA § 502(a)(3) equitable relief, b) unjust enrichment under federal common law, and c) breach of contract. Judge Crabb (W.D. Wis.) dismissed each of the claims and awarded attorneys fees to the defendants. The Plan appeals.

In their opinion, Seventh Circuit Judges Flaum and Williams and District Chief Judge Herndon affirmed in part and reversed and remanded in part. The Court addressed each theory in turn. ERISA § 502(a)(3) allows a Plan fiduciary to bring an equitable claim to enforce a term of the Plan. Here, the Plan seeks to enforce the Plan's overpayment provision. Under that provision, the Plan is entitled to seek recovery of payments it has made in error. However, the Plan limits that right to recovery from a "Covered Person." Although that term is not defined in the Plan, it is clear that neither the defendants, who provided the medical services, nor K.G., who was denied enrollment in the Plan, is a "Covered Person." The ERISA count was properly dismissed. In fact, in addressing the unjust enrichment count, the Court noted that ERISA had nothing to do with the case. K.G. was never covered by the Plan -- there is no need to interpret ERISA or the Plan. Therefore, there is also no ERISA unjust enrichment claim. The Court turned to the state law breach of contract claims. First, it concluded that the claims were not preempted by ERISA since the claims do not relate to the terms of the Plan. Instead, they relate to the contracts between the Plan and the defendants. The Court therefore remanded the state law claims to the district court, with the comment that the normal practice would be to decline to exercise supplemental jurisdiction over the claims. With respect to attorney's fees, the Court stated that the basic question, after the prevailing party's showing of some degree of success on the merits, is whether the losing party's position was substantially justified or merely harassment. The district court had concluded that the ERISA and state law claims were not substantially justified. The Court concluded that that was an abuse of discretion. It found all of plaintiffs claims to be substantially justified and taken in good faith – and reversed the fee award.

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FRYE v. THOMPSON STEEL COMPANY (September 2, 2011)

During Basil Frye's long employment with Thompson Steel Company in Franklin Park Illinois, he suffered two work-related injuries. He received over $80,000 in workers’ compensation settlements for permanent partial disabilities. In 2007, Thompson decided to close its Franklin Park facility and Frye chose to take early retirement. The company's Retirement Committee, which administered Frye's pension, advised Frye that his pension benefits would first go to repay the workers’ compensation settlement amounts. The Plan provided that amounts paid to an employee for an injury causing "disability in the nature of a permanent disability" would be deducted from the employee's pension benefits. Frye challenged the Committee's determination unsuccessfully. He then filed suit under ERISA’s § 502 to recover benefits. Magistrate Judge Cole (N.D. Ill.) granted summary judgment to Frye, concluding that the Committee's decision was arbitrary and capricious. The court based its ruling on the Plan's definition of disability. Thompson appeals.

In their opinion, Seventh Circuit Judges Ripple, Evans (who, as a result of his death, took no part in the decision), and Sykes reversed and remanded. The Court first noted that the Committee had substantial leeway in interpreting the Plan under the arbitrary and capricious standard of review. Although it is not free to disregard unambiguous language, its construction and interpretation of ambiguities is entitled to substantial deference. Here, the Plan defined disability as when an employee "has been totally disabled by bodily injury or disease so as to be prevented thereby from engaging in any occupation or employment." The Court conceded that there were two reasonable interpretations of the Plan’s settlement offset section. Under one, a permanent partial disability like Frye's could be an offset disability because it is in the nature of a permanent disability. Under another, an offset disability must be one that prevents the employee from engaging in any occupation or employment, which Frye’s is not. The Court found nothing in the Plan’s structure or the application of common sense to resolve the ambiguity. The Committee was entitled to interpret the plan to the best of its ability and its interpretation was reasonable. The Court remanded with instructions to enter summary judgment for Thompson.

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CARTER v. PENSION PLAN OF A. FINKL & SONS COMPANY FOR ELIGIBLE OFFICE EMPLOYEES (August 15, 2011)

A. Finkl & Sons is a large, Chicago-based steel company. Until 2006, it offered its employees a defined benefit pension plan. It was then that it decided to terminate the Plan. Because the plan was an ERISA-qualified plan, the termination process was rather complicated and involved many steps. Finkl began the involved process, after receiving permission to do so from the Pension Benefit Guarantee Corporation. The Plan notified the employees of the termination and adopted Amendment 1, which provided that all Plan participants, even current employees, could elect to receive their pension benefits as an immediate annuity upon Plan termination. The Plan even distributed election forms for employees to indicate whether they wanted an immediate annuity or wait for retirement. Ultimately, Finkl decided not to terminate the Plan. It advised its employees and the PBGC of that decision. The PBGC approved the company's actions and the Plan adopted Amendment 2, which deleted Amendment 1. A group of employees demanded that the Plan go ahead with the termination and distribution and also demanded that the Plan revise the way benefits were calculated as it related to bonuses. The plaintiffs claimed that they were unaware of the distinction between regular bonuses (which were credited to an employee’s retirement calculation) and special bonuses (which were not credited to an employee’s retirement calculation). The Plan denied both claims and plaintiffs filed suit under ERISA. Judge Pallmeyer (N.D. Ill.) granted summary judgment to the Plan. She concluded that Amendment 2 violated neither ERISA’s anti-cutback provision or the Plan’s anti-cutback clause. She also concluded that plaintiffs could not prevail on their benefit recalculation argument. Plaintiffs appeal.

In their opinion, Seventh Circuit Judges Manion, Wood, and Williams affirmed. The Court agreed with plaintiffs that ERISA prohibits a plan from decreasing beneficiaries' protected benefits. Likewise, a Plan can include a clause that protects beneficiaries' benefits. It is these "anti-cutback" provisions the plaintiffs claim were violated in this case. The Court first addressed the statutory claim. The ERISA anti-cutback clause applies only to benefits tied to a participant’s actual retirement. The Amendment 1 benefit is not tied to retirement and is therefore not protected. The Court turned to the Plan language. That language protects "pension benefits already accrued." When the Plan denied plaintiffs' claim, it concluded that Amendment 1 conferred a protected benefit only upon the Plan's termination and thus was not subject to the anti-cutback clause. The Court concluded that the Plan’s interpretation was reasonable. It also rejected plaintiffs' argument that the benefit was protected because the plan had, in fact, terminated. The Court reiterated the number of required steps in the approval process before statutory termination. The record does not support plaintiffs' conclusion. With respect to the second claim, regarding the inclusion of bonuses in the benefit calculation, the Court concluded that there was no evidence in the record creating a material issue of fact. Even if plaintiffs were unaware of the distinction used by the company, summary judgment was still appropriate.

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GOMEZ v. ST. VINCENT HEALTH (August 15, 2011)

St. Vincent Health operates a number of hospitals and health care facilities in central Indiana and employs thousands of people. Federal law obligates it to give timely notice to any qualified person who leaves it employ of his or her right to extended health insurance coverage under COBRA. St. Vincent uses a third-party administrator to manage the process of sending out these COBRA notices. To monitor and ensure its compliance with this requirement, St. Vincent also established an oversight system, pursuant to which an outside accounting firm audited its program, and a call center, where current and former employees can get benefits questions answered. Notwithstanding these safeguards, three former employees filed a class-action against St. Vincent in February of 2006 alleging that many employees received their COBRA notices late or not at all. St. Vincent conducted an internal investigation and concluded that over 200 individuals in the preceding 21 months failed to receive timely notices. It provided notices to each of those individuals, allowed a retroactive benefits selection, and even offered a payment plan if the individual had trouble becoming current with premium payments. Meanwhile, the district court declined to certify the class for several reasons, including inadequate class counsel, and granted summary judgment to St. Vincent on the individual claims. The plaintiffs filed an appeal, but later withdrew it. Undaunted, plaintiffs' counsel solicited new class representatives from information it acquired in the first case and filed a new, almost identical, class action. The two named plaintiffs are Blanca Gomez and Joan Wagner-Barnett. Gomez received her COBRA notice 17 months late but she testified that she would not have elected to extend her benefits. Wagner-Barnett also received notice 17 months late, testified that she would have extended coverage, and contends that she incurred almost $1000 in out-of-pocket expenses that she would not have otherwise incurred. Judge Barker (S.D. Ind.) denied class certification on inadequacy of counsel grounds. On the individual claims, the district court concluded that the circumstances did not warrant a statutory penalty, that Gomez suffered no damage since she would not have elected extended coverage anyway, and awarded Wagner-Barnett $396 in damages, the difference between her out-of-pocket prescription costs and the premium she would have paid. Gomez and Wagner-Barnett appeal.

In their opinion, Seventh Circuit Judges Cudahy, Kanne, and Tinder affirmed. The appeal raises three issues: the amount of Wagner-Barnett’s damages, the propriety of a statutory penalty, and class certification. The Court first questioned the propriety of any damages. ERISA’s enforcement provision does not authorize compensatory damages -- only equitable relief and "such other relief" as is proper. Here, the district court followed a practice used by other district courts (and at least condoned by Courts of Appeals) to include, as "such other relief," a party's medical expenses less the premiums that would have been paid. Although "reticent" to condone such an approach, the Court found no error. The amount was small, it did not contradict ERISA’s plain language, and St. Vincent did not appeal on that ground. With respect to Wagner-Barnett’s request for additional medical expenses, the Court concluded that the district court did not abuse its discretion in denying those expenses. The Court turned to statutory penalties. Under the statute, the district court could have imposed as much as $110 a day in statutory penalties. The Court found no error in the district court's approach. It considered the right factors, including any prejudice to the former employee and the nature of the company’s conduct. There is no evidence of bad faith or gross negligence on the part of St. Vincent. Furthermore, there is no evidence of any prejudice to the plaintiffs. When same Vincent discovered its noncompliance, it contacted the former employees, provided notice, allowed for a retroactive election, and even offered a payment plan to catch up on the unpaid premiums. Finally, the Court turned to the class certification issue. Again, it found no error. It noted that counsel did not even address much of the district court's rationale with respect to his diligence, respect for judicial resources, and promptness. 

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SULLIVAN v. CUNA MUTUAL INSURANCE SOCIETY (August 10, 2011)

CUNA Mutual Insurance Society maintains a retiree health care plan. CUNA contributed half the annual premium, the retirees contributed the other half. Beginning in 1982, CUNA calculated the value of each retiree's unused sick-leave and allowed retirees to use that to "pay" their share of the annual premiums. Although management employees had no other options, retirees who had been covered by collective bargaining agreements could choose to take the sick-leave value in cash. In 2008, CUNA amended its plan. It stopped its own contributions to the annual premiums. The retirees were liable for 100% of the premiums. It also discontinued its unused sick-leave credit program for management. For those retirees who could have taken their sick-leave credit in cash were treated as having done so and invested that value in an account administered by the health care plan. Four retired management employees and one retired non-management employee filed a class action pursuant to ERISA. Judge Crabb (W.D. Wis.) entered judgment on the pleadings to CUNA and the Plan. The class appeals.

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Manion and Hamilton (dissenting in part) affirmed. The Court noted that welfare benefit plans such as the one at issue differ from pension plans in two fundamental ways. One, they need not be funded. Two, employers can reduce or even eliminate welfare benefits altogether. In fact, CUNA inserted a clause in every version of its health care plan stating that it reserved its rights to amend or terminate the plan. The retiree class principally argued that CUNA violated ERISA by transferring assets of the plan to itself. They cite to the $120 million gain on CUNA's balance sheet when it terminated the plan. The Court disagreed. The $120 million entry did not reflect a company asset. The company carried that figure on its books to reflect its projected cost of contributions to the plan. The balance sheet merely reflected the company's removal of that liability. Alternatively, the retirees argue that the sick-leave balances, if not governed by ERISA, are governed by state law. The Court identified the same flaw with this argument -- the sick-leave balances are not assets at all. Finally, the retirees argue that the plan created vested rights, notwithstanding its reservation of rights language. They point to many documents created by the Plan that do not contain a reservation of rights. The Court was unpersuaded. The absence of a reservation of a right to amend in any particular document does not create a vested right.

Judge Hamilton dissented. He noted that, without ERISA, the retirees would have a straightforward promissory estoppel claim. CUNA made a promise. It intended its employees to reply upon that promise. The employees did rely. CUNA broke its promise and the employees were harmed. Judge Hamilton conceded, however, that ERISA preempts that result. Addressing the issue under ERISA, he concluded that the majority's test result was not mandated by ERISA’s language or Supreme Court or Seventh Circuit precedent. To the extent that courts have honored a reservation of rights clauses, he suggested they reconsider. A better approach might be a middle ground where a court could fashion an appropriate remedy under principles of promissory estoppel.

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NATIONAL SHOPMEN PENSION FUND v. DISA INDUSTRIES (August 8, 2011)

In the early 2000s, DISA Industries, an Illinois foundry-equipment business, made contributions to its Union's multiemployer pension plan. After only two years of contributions, DISA closed the plant covered by the plan and ceased its contributions. The Plan calculated the company's withdrawal liability at $602 a month. The company challenged the calculation and stated its intent to begin arbitration -- but also began paying the monthly liability. Several months later, the Plan recalculated the monthly liability at $978 and asked for an increase. DISA disagreed with the recalculation and filed a demand for arbitration. It also refused to pay the increased amount. The Plan filed suit in the District of Columbia seeking the recalculated amount. The district court there expressed its doubts about the recalculation but thought the issue should be resolved by the arbitrator. The court also did not think that the statutory obligation to pay withdrawal liability pending a challenge applied in the case of a recalculation. The court therefore dismissed the complaint. After the district court opinion, DISA withdrew its arbitration demand. The Plan then filed suit in Illinois contending that the company was in default and liable for the full amount. Judge Kendall (N.D. Ill.) concluded that the Plan's withdrawal liability calculation was in error, that the company was therefore not in default, and dismissed the complaint. The Union appeals.

In their opinion, Seventh Circuit Judges Bauer, Wood, and Williams reversed. Under ERISA, an employer who withdraws from a multiemployer pension plan is obligated to contribute to the plan that amount of money that represents its employees' share of the unfunded benefits. The employer is usually required to make the payments requested by the fund during any challenge to the calculation. If an employer challenges the calculation but refuses to make the requested payments, the plan may file suit to collect those interim payments. If, however, an employer refuses to make the requested payments without challenging the calculation or the liability, the Plan may file suit to collect the entirety of the liability and the company forfeits any defense that it could have raised with the arbitrator. Here, the Court rejected the district court's conclusion that the Plan could only impose the recalculated amount through arbitration. Instead, the Court concurred with the position taken by the PBGC that the plan may reassess withdrawal liability while the amount is still being challenged in litigation or arbitration. The Plan's reassessment is therefore valid. Since DISA terminated the arbitration proceedings and has not paid the Plan's assessment, it is in default and has forfeited its defenses.

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PAKOVICH v. VERIZON LTD PLAN (July 22, 2011)

Lisa Pakovich became disabled during her employment with Verizon. Verizon denied her request for long-term disability benefits under its ERISA plan. Although the district court affirmed the denial, the Seventh Circuit reversed and remanded to the plan administrator for a new determination. Pakovich heard nothing from the administrator for almost 5 months so she filed another suit. Shortly thereafter, the Plan agreed to pay all the benefits she requested and moved to dismiss her suit as moot. Judge Reagan (S.D. Ill.) denied the motion, entered judgment for Pakovich in the amount the Plan agreed to pay, but denied Pakovich's fee motion.

In their opinion, Seventh Circuit Judges Flaum, Evans, and Tinder vacated in part and affirmed in part. The Court first agreed with the Plan that Pakovich's case was moot. The Plan agreed to pay everything she asked for in her claim for benefits. Her fee request did not prevent her case from being moot. The Court next considered whether the district court even had jurisdiction of her fee claim. Relying on its FOIA jurisprudence, the Court concluded that a district court retains equitable jurisdiction to address a fee claim. Addressing the merits of the fee claim, the Court noted that a fee award under ERISA has two elements. First, the claimant must show "some degree of success on the merits." Second, the defendant's position must be not substantially justified. The Court ultimately determined that it did not need to decide either of those elements. Here, the district court denied her fee request because of inadequate documentation and support for either the hourly rate or the time spent. It was her burden to adequately support her request. The district court did not abuse its discretion when it denied fees.

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NEWPAGE WISCONSIN SYSTEM, INC. v. UNITED STEEL, PAPER & FORESTRY, RUBBER, MANUFACTURING, ENERGY ALLIED INDUSTRIAL AND SERVICE WORKERS INTERNATIONAL UNION (July 12, 2011)

NewPage Wisconsin System recently closed several paper mills that it operates in Wisconsin in order to save money. It also stopped subsidizing medical care for retirees over 65. The Union claimed the subsidy elimination violated both the Retiree Health Plan and the Collective Bargaining Agreement. It brought suit under § 301 of the Labor Management Relations Act and ERISA § 502 in the Southern District of Ohio. Several weeks later, NewPage filed a declaratory judgment action in the Western District of Wisconsin raising the same issues. Judge Crabb (W.D. Wis.) dismissed the suit. She concluded that the court did not have subject matter jurisdiction over the ERISA claim. The court did have jurisdiction over the LMRA claim but dismissed in deference to the Ohio suit. NewPage appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Bauer, and District Judge Young vacated and remanded. The Court noted that § 2201 authorizes declaratory judgment actions but does not itself grant subject matter jurisdiction. Jurisdiction must arise from the substantive claims. The Court agreed with the district court that ERISA § 502(a)(3) only grants jurisdiction for a request for appropriate equitable relief. There is no such request here. Nevertheless, the Court found two other bases for jurisdiction. First, ERISA § 502(e) grants jurisdiction for actions arising under its subchapter. NewPage's claim does arise under that subchapter. In order to determine jurisdiction for a declaratory judgment action, a court must determine whether a complaint filed by the defendant would meet jurisdictional requirements. The Court looked to the actual complaint filed by the defendants in Ohio to conclude that it, and therefore the declaratory judgment action, came within § 502(e) jurisdiction. Second, the Court looked to § 1331’s general federal question jurisdiction grant. ERISA claims are always federal in nature. In concluding that the district court had jurisdiction of both the ERISA claim in the LMRA claim, the Court had to overrule part of its 2008 decision in Newell Operating Co. (another part of the decision was overruled in 2010). The Court next addressed whether the district court abused its discretion in dismissing the case in deference to the Ohio litigation. Since the district court decision, that case has stalled on procedural matters and is on appeal in the Sixth Circuit. Wisconsin now seems to be the better forum for litigating the issues on the merits. The Court remanded to the district court, however, to make that decision.

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WEITZENKAMP v. UNUM LIFE INSURANCE COMPANY OF AMERICA (July 11, 2011)

On August 12, 2011, the panel granted a Petition for Rehearing and withdrew this opinion.

As a Time Warner Cable employee, Susie Weitzenkamp participated in its disability plan. Under the plan, a participant is entitled to 24 months of benefits if she can no longer perform her job duties. After 24 months, a participant must be unable to perform any occupation in order to continue receiving benefits. The plan also provides that benefits cease after 24 months in any event if the disability is primarily based on self-reported symptoms that are not verifiable by standard medical examinations. The plan administrator provided participants with a summary plan description ("SPD"). The SPD did not mention the self-reported symptoms exception. In December of 2005, Weitzenkamp became unable to work and was diagnosed with fibromyalgia, chronic pain, anxiety, and depression. Weitzenkamp applied for and received benefits. Weitzenkamp also applied for and received Social Security benefits. In August 2008, the plan administrator discontinued Weitzenkamp's benefits. It concluded both that she was not disabled and that she was ineligible for benefits based on the self-reported symptoms exception. Weitzenkamp brought suit against the administrator. The administrator counterclaimed to recover an overpayment created by the retroactive award of Social Security benefits. Judge Griesbach (E.D. Wis.) granted summary judgment to the administrator on both the complaint and counterclaim. Although the court concluded that the finding of no disability was arbitrary and capricious, it agreed that she was ineligible for benefits because of the self-reported symptoms exception. Weitzenkamp appeals. The administrator cross-appeals the arbitrary and capricious ruling.

In their opinion, Circuit Judges Rovner and Hamilton and District Judge Lefkow affirmed in part, reversed in part, and dismissed in part. The Court stated that ERISA requires an SPD to describe the plan’s requirements for benefits eligibility and note any circumstances that would result in a denial or loss of benefits. The SPD here did not mention the self-reported symptoms exception. It therefore failed to communicate to the plan participants the true scope of the plan and, therefore, violated ERISA. The plan administrator is estopped from relying on the exception. Summary judgment in its favor was error. With respect to the overpayments, the Court agreed with the district court. The Social Security Act does provide that benefits are not subject to levy, attachment, or garnishment. But that is not what the administrator has done. It only seeks a lien on the funds it has already paid to Weitzenkamp, not her Social Security benefits. It is entitled to recover the overpayments in this manner. In its cross-appeal, the administrator sought to challenge the district court's finding that the no disability conclusion was arbitrary and capricious. The Court noted that the cross-appeal was improper. A cross-appeal should be taken only one the party seeks a judgment different from that already rendered. When a party seeks merely to affirm a judgment on alternate grounds, as is the case here, it should raise it in the main appeal. The plan administrator therefore forfeited that argument. Finally, the Court considered whether it was proper to reinstate benefits or merely remand for further proceedings. Given that the plan administrator originally found her eligible for benefits and then withdrew those benefits improperly, the proper remedy is to return to the status quo and reinstate benefits retroactively. The Court noted, however, that the administrator is free to review her present eligibility.

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THOMPSON v. RETIREMENT PLAN FOR EMPLOYEES OF S.C. JOHNSON & SON, INC. (June 22, 2011)

S. C. Johnson & Son changed its ERISA plan from a defined benefit plan to a cash balance plan in 1988. In the amended plan, each participant's account received interest credit at the greater of 4% or 75% of the Plan's rate of return. The Plan also allowed participants to take a lump-sum early withdrawal. But the plan penalized early withdrawers by including a provision that equated the future interest rate credits with the discount rate reduction. Thus, those that opted for the lump-sum received only their then-current account balance. A number of former participants in the Plan who received lump-sum distributions filed suit against the Plan in November of 2007. Although the Plan conceded the provision violated ERISA, it moved for summary judgment on the grounds that the claims were time-barred. Judge Stadtmueller (E.D. Wis.) concluded that Wisconsin's six-year contract statute of limitations applied and that each plaintiff's claim accrued when he received his distribution. Any plaintiff who took his distribution prior to November of 2001, therefore, was time-barred. With respect to the calculation of future interest credit, the court concluded that the Plan was entitled to some deference in choosing an appropriate calculation and adopted a modified version of the Plan’s proposed calculation. Plaintiffs appealed. The Plan cross-appealed.

In their opinion, Judges Cudahy, Kanne, and Tinder affirmed in part, reversed in part, and remanded. With respect to the statute of limitations, the Court noted the general rule that an ERISA claim for benefits accrues "upon a clear and equivocal repudiation of rights" known to the beneficiary. Although it considered it a very close question, the Court rejected the Plan's argument that the claims accrued when the Summary Plan Description and other materials were circulated in 1988 and 1989. Although those documents did disclose the illegal provision at issue, the Court concluded that they did not amount to an unequivocal repudiation. The ERISA right itself is fairly obscure, the information appeared in numerous publications received by Plan participants over the course of months, most of the information about the provision itself was not clear, and the clearest statements were found in the informal documents rather than the more formal Summary Plan Description. The Court did agree with the district court that the receipt of the distributions themselves did equal an unequivocal repudiation. The district court was correct. The Court turned to the method of calculation. It disagreed with the district court’s deference to the Plan. Plan administrators are normally given deference, particularly if the Plan itself gives them discretion. But that deference is given in situations where the Plan administrator is interpreting the Plan. Here, the Plan administrator is not interpreting the plan -- the Plan is illegal. Instead, the Court instructed the district court to exercise its usual role in calculating plaintiffs' recovery. The Court remanded for that purpose.

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JACKMAN FINANCIAL CORP. V. HUMANA INSURANCE CO. (May 31, 2011)

Kunta Torrence participated in his employer's benefits plan that included a $15,000 life insurance policy issued by Humana Insurance. Torrence named his brother as beneficiary. The policy included a "facility-of-payment" clause. That clause covered the situation in which the named beneficiary is not alive at the time of the insured's death. It gave Humana the option to pay the proceeds of the policy to the insured's spouse, children, parents, siblings, or estate. Sadly, Torrence and his brother were both killed in the same car accident. Their mother, Nancy Kelly, borrowed $10,000 from Jackman Financial in order to pay for the funerals. She assigned a portion of the life insurance proceeds to Jackman to secure the loan. Two days later, she was appointed administrator of her son's estate. She completed a beneficiary form for Humana identifying herself as the beneficiary. At Humana's request, Kelley also completed an affidavit identifying Torrence's family members. Humana later advised Kelly that it had decided to turn over the proceeds to Torrence’s minor children. Jackman filed suit for denial of benefits under ERISA. Judge Norgle (N.D. Ill.) granted summary judgment to Humana. Jackman appeals.

In their opinion, Judges Rovner, Williams, and Hamilton affirmed. A facility-of-payment clause gives an insurer broad discretion in distributing the policy proceeds. Humana has an absolute right to choose from the list of possible recipients. Even though Humana knew that Kelly had already assigned much of the proceeds to Jackman, it was under no obligation to turn over the proceeds to Kelly or the estate. The Court then considered Humana's request for fees. Under ERISA, a prevailing party has a modest but rebuttable presumption in favor of fees. The Court applied the "substantially justified" test in denying fees to Humana. It considered that the case was filed in good faith, that neither Kelly nor Jackman new of the facility-of-payment clause at the time of the assignment, and that Jackman gave notice of its claim long before Humana paid out the proceeds. The Court did warn that it might decide differently if future litigants continue to challenge facility-of-payment clauses.

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IN RE: MOTOROLA SECURITIES LITIGATION (May 4, 2011) 

Motorola created the Motorola 401(k) Profit-Sharing Plan for the benefit of its current and former employees. It is a defined contribution retirement plan. The Plan Administrator is the Profit-Sharing Committee, a committee appointed by the Motorola's Board of Directors. Plan participants decide how much to invest and where to invest among available funds. One of the available funds is a Motorola Stock Fund. Participants who invest in the stock fund do not acquired title to Motorola stock, but rather own a pro-rata share in the Fund. The Fund's assets are almost entirely Motorola stock. A number of plaintiffs initiated a class-action securities fraud case against Motorola in 2003 relating to its relationship with a Turkish wireless provider. The class was defined as including all persons "who purchased publicly traded Motorola, Inc. common stock" and specifically excluded any Motorola "affiliate." The parties settled the litigation for $190 million. The Plan submitted a claim for a share of the settlement. Judge Pallmeyer (N.D. Ill.) denied the claim on two grounds: first, Plan participants were not purchasers of "publicly traded" stock and second, the Plan was a Motorola "affiliate." The Plan intervened and appeals.

In their opinion, Circuit Judges Evans and Sykes and District Judge Simon affirmed. The Court disagreed with the district court on its "publicly traded" rationale. The district court found that the Plan was not a class member because plan participants did not purchase publicly traded stock. But it is the Plan that is the claimant here, and the Plan regularly purchased publicly traded Motorola stock. The Court agreed with the district court, however, on the "affiliate" issue, although not for the identical reason. The district court concluded that the Plan was an affiliate applying an ordinary usage definition of affiliate and concluding that the Plan and Motorola were closely associated. The Court chose to apply a securities law definition of affiliate. Under that definition, an affiliate is one who controls, is controlled by, or is under common control with another. Control is defined as the power to manage or direct. Motorola controlled the Profit-Sharing Committee and the Committee had general operational control of the Plan. The Court concluded that the Plan was excluded from the class as an affiliate under the class definition.

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EDWARDS v. BRIGGS & STRATTON RETIREMENT PLAN (April 29, 2011)

Briggs & Stratton employed Augusta Edwards until November of 2005. She stopped working because of several nerve conditions, including carpal tunnel and cubital tunnel syndromes. Edwards' doctor believed that she was totally and permanently disabled. She filed a claim with the Briggs & Stratton Retirement Plan in August 2007. The Plan’s physician rendered an opinion that she was not permanently disabled. The Plan denied her claim on September 29 and advised her that she had 180 days to appeal the denial. The Plan received Edwards’ appeal on April 11, 2008, 195 days after she received the denial. She offered no explanation for her tardiness. The Plan refused to consider her appeal. Edwards filed suit under ERISA against the plan. Magistrate Judge Goodstein (E.D. Wis.) granted summary judgment to the Plan. Edwards appeals.

In their opinion, Circuit Judges Tinder and Hamilton and District Judge Murphy affirmed. The Court noted that its review was under the arbitrary and capricious standard because the Plan gave its administrator discretionary authority to determine eligibility. The Court further noted that it has interpreted ERISA to require exhaustion of administrative remedies. That requirement, however, rests with the discretion of the district court and can be excused where, for example, an appeal would have been futile. Here, Edwards does not dispute that her appeal was late. But she does not claim that an appeal would have been futile. The Court rejected her attempt to excuse the tardiness because of the "substantial compliance" doctrine. It noted that the doctrine had never been used in such a way. The Court also rejected her arguments based on the Wisconsin "notice-prejudice" statute, interpreting her earlier letters as notices of appeal, and the Plan's conflict of interest. Here, the Plan adopted a reasonable appeal deadline, included the deadline in the Plan documents, and gave Edwards specific notice at the time it denied her claim. Although the Plan could have exercised its discretion to entertain the appeal, it was not arbitrary and capricious for it not to do so.

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HUSS v. IBM MEDICAL AND DENTAL PLAN (April 13, 2011)

Eileen Huss was an IBM employee and participated in the IBM Medical and Dental Plan. Huss’ son Joseph had a mental disability and was entirely dependent on Huss and her husband for his support. In 2005, Joseph was 24 years old and enrolled in his father's medical plan. But Huss wanted him enrolled in her plan at the time of her anticipated retirement at the end of 2006. Plan representatives told her that her son would be eligible to enroll at that time and that she need not take any additional steps until her retirement. In January of 2007, a month after her retirement, a Plan representative told her that Joseph was ineligible because she had not submitted a written application years earlier (60 days before he turned 23). Huss requested a summary of the plan and any relevant material. A plan representative responded that the 2006 Summary Plan Description (SPD), which Huss already had, was the only relevant document. Huss specifically requested plan language that was in effect in 2004, the year Joseph turned 23. Huss retained a lawyer who asked for reconsideration and again requested plan language and documents from the earlier years. Plan administrator R. A. Barnes denied relief based on language from the 2006 SPD. Barnes did provide some of the earlier language. Huss made her final appeal based on the 2004 SPD language, which did not require a written request. Barnes again denied eligibility. Huss brought suit pursuant to ERISA against both the Plan and Barnes. She sought benefits and statutory damages for failure to provide documents. Judge Zagel (N.D. Ill.) granted summary judgment to Huss on both counts, assessed statutory penalties of over $15,000, and awarded fees and expenses of over $86,000. Defendants appeal.

In their opinion, Judges Kanne, Williams and Tinder vacated and remanded on the claim for benefits, affirmed in part and reversed in part on the statutory penalties, and vacated and remanded the award of fees and expenses. The Court began with the eligibility issue. Since the administrator has discretion under the Plan’s language, Barnes' decision is reviewed under an arbitrary and capricious standard. The Court recognized Hackett's "sweeping language" to the effect that the plan in effect at the time a claim is denied is the plan that controls. But the Court noted that the type of dispute in Hackett was quite different and concluded that the nature of the dispute dictates whether earlier language might control. Here, where the Plan's denial is based on failure to satisfy a condition precedent, the controlling plan language must be that which was in effect when the claimant's ability to satisfy the condition precedent expired. In this case, that is the language in effect in 2004. Barnes' exclusive reliance on the 2006 SPD makes her actions arbitrary and capricious. With respect to eligibility under the earlier language, the Court found the earlier language ambiguous regarding the need for a parent's request for coverage continuation. Because of the ambiguity and the a plan administrator’s broad discretion, the Court concluded that Barnes’ interpretation -- that an employee had to make a request within 60 days of the dependent’s 23rd birthday -- was not unreasonable. A genuine issue of fact existed, however, with respect to whether Huss actually made that request. The Court remanded to the administrator for further development of the record and other proceedings. The Court next addressed the statutory penalty award. It affirmed the penalties associated with the Plan's original failure to send Huss the 2003 plan documents. The Court had already determined that this was the controlling document and the Plan did not produce it within the statutory time period. The district court’s second statutory penalty, however, related to defendant’s failure to produce a number of SPDs published between 2004 and 2007. Although the Court conceded that these documents would show the evolution of the condition precedent language and may have been helpful to Huss, it concluded that they did not fall within the category of documents that ERISA required defendants to produce. The district court therefore abused its discretion in awarding those penalties. Finally, the Court turned to the fee award. It noted that the Supreme Court had recently concluded, contrary to prior Seventh Circuit jurisprudence, that an ERISA plaintiff may still be awarded fees if her case is remanded to the administrator if she shows "some degree of success." The Court expressed its disagreement with some of the district court's findings but ultimately decided simply to vacate the award, given its treatment of the merits. The district court will have another opportunity to consider a fee award after remand.

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PEABODY v. DAVIS (April 12, 2011)

Jonathan Peabody joined the Rock Island Corporation, a closely held operation, in 1998. He first invested in the company’s pension plan in 1999 when he rolled over a $167,000 IRA into the Plan. Almost all of the rolled over funds were used to purchase Rock Island stock. There was no market for, and therefore no easy way to value, the stock. The Plan's trustee issued valuation statements periodically. At different times between 2000 and 2004, it was assigned values of $757, $500, $625 and $550 per share. Peabody left Rock Island in 2004. At the time he had 835 Rock Island shares. Peabody and Rock Island entered into a loan agreement pursuant to which Rock Island agreed to purchase the stock and to pay $350 per share in one year. However, when the loan became due, Rock Island was unable to pay. It went out of business in 2005. Peabody brought suit against the company, the Plan trustees, and two insurance companies that had issued policies protecting Rock Island against employee dishonesty. Judge Coar (N.D. Ill.) held a bench trial and ruled that: a) Peabody had waived any fiduciary duty claim with respect to the initial rollover or the defendants' failure to diversify his account, b) the Plan and the trustee's violated their fiduciary duties by maintaining the Rock Island investment and by failing to distribute the benefit, c) one trustee breached his fiduciary duty by offering the loan, d) ERISA prohibited the loan transaction, e) Rock Island itself was not liable, and f) Peabody did not have standing to assert a claim against the insurance company defendants. The court awarded damages based on a $500 per-share valuation in reliance on the fact that the Plan purchased shares for Peabody's account at that price in 2001. Peabody and the defendants appealed.

In their opinion, Judges Cudahy, Flaum, and Kanne affirmed in part and reversed and remanded in part. The Court first noted it was dealing with three separate claims: a) a § 502(a)(2) claim against the fiduciaries on behalf of the Plan, b) a § 502(a)(1)(b) claim for benefits, and c) a § 502(a)(3) equitable claim against the insurance companies. The Court first concluded that the trustees breached their fiduciary duties under § 502(a)(2). A new SEC rule had substantial negative implications for the company's profit margins and its stock steeply declined over a five-year period. The trustee's knew of the changed rule, knew it was prominent, and knew of its significant impact on Rock Island’s business model. The company did not require employees to invest in Rock Island stock. In fact, Peabody apparently had a greater percentage of company stock than any other employee. A prudent investor would have divested earlier. The Court also concluded that Peabody's initial consent to the stock purchase did not affect the trustee's continuing fiduciary duty over the course of the investment. The Court rejected Peabody's alternative theory of liability arising from the loan for stock transfer. Although the Court agreed that the transaction violated ERISA, it concluded that Peabody suffered no damages from the transaction. As the Court pointed out, it was simply the trade "of worthless stock for a worthless loan." The district court erred, however, in computing damages when it applied the $500 per-share figure to all of the stock. The Court remanded for a damages recalculation, advising the district court to start with Peabody's original investment , consider using average values over the length of the investment, and assume that 25% to 33% of the stock could have been left in the account without violating a duty of prudence. The Court also affirmed the district court's rejection of Peabody's § 502(a)(1)(B) benefits claim on the grounds that it would result in no additional relief. Finally, the Court agreed with the district court’s rejection of the § 502(a)(3) claim against the insurance companies. That section allows for "other appropriate equitable relief." The Supreme Court has limited the section to "typical" equitable relief. Peabody's request for money damages from the insurance policies is not typical equitable relief.

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GEORGE v. KRAFT FOODS GLOBAL, INC. (April 11, 2011)

Kraft Foods Global, Inc. sponsored an ERISA defined contribution plan for its employees. Each participating employee had an account and was able to choose where to invest. The plan offered up to nine different funds, including two company stock funds and a number of multi-stock funds. The plan contracted with Hewitt & Associates to track the accounts and transactions and State Street Bank to manage the fund's assets. A number of Plan participants filed suit against seven defendants in 2006, alleging that the defendants mismanaged the company stock funds and paid excessive fees to the service providers. The original fact discovery deadline was March of 2008. The parties completed the class certification motion briefing by January 2008. In May 2008, plaintiffs sought to amend their complaint to add 21 defendants and to add claims challenging a number of investment decisions. Magistrate Judge Schenkier (N.D. Ill.) denied the motion, concluding that the plaintiffs had known about the facts in support of the amendment for quite some time, that the plaintiffs never advised the court of their desire to amend, and that the new claims were substantially different from the original claims. The court then certified a class and granted summary judgment to the defendants. Plaintiffs appeal.

In their opinion, Circuit Judges Cudahy (concurring in part and dissenting in part) and Rovner and District Judge Adelman affirmed in part and reversed and remanded in part. The Court first addressed the district court's denial of the motion to amend. The district court found that the plaintiffs were aware of the facts supporting the amendment early on, that they never asked for a amendment deadline, and that the addition of the new defendants and claims would prejudice both the defendants and the court. The Court found no abuse of discretion. The Court also found no error in the district court's refusal to allow an expert witness. The expert's opinion related only to the claims in the amended complaint and was not relevant to the case without it. On the merits, the Court first addressed the plaintiffs allegations with respect to the company stock funds. The plaintiffs complained of the defendants' decision to operate these funds on a unitized basis. The benefits of unitization are that it allows transactions to consummate more quickly and it allows the Plan to save on transaction costs by offsetting purchase orders with sell orders. Two alleged downsides of unitization are: a) the Fund gets lower returns when the stock appreciates because of the need to keep a portion of the fund in cash or other liquid investments, and b) unitization incentivizes more transactions and higher transaction costs, since transaction costs are deducted from the fund value rather than allocated to individual traders. Plaintiffs' legal theory is that defendants breached their fiduciary duty by not eliminating unitization or at least adopting measures to limit the number of transactions. Notwithstanding contrary conclusions by the district court, the Court could find nothing in the record establishing that a decision was ever made. But a failure to make a decision, one way or the other, when a prudent man would have done so, is also a breach of ERISA’s fiduciary obligation. The Court therefore reversed and remanded for further consideration. The Court turned to the allegations regarding the Hewitt and State Street fees. With respect to Hewitt, the Court reversed the summary judgment in defendants' favor. Plaintiffs' allegations are that the fiduciaries should have, but did not, solicit competitive bids before extending the Hewitt contract. Plaintiffs’ expert testified to that opinion and further opined that the plan overpaid Hewitt. Defendants assert that they received consultants’ opinions that the Hewitt contract was prudent. The district court erred when it weighed the expert opinion at the summary judgment stage and also erred when it concluded that reliance on experts was sufficient for judgment as a matter of law. With respect to the State Street claims, the court affirmed summary judgment for defendants. Plaintiffs' allegations here are that the fiduciaries allowed State Street to retain as income interest from "float" without even knowing the amount of that income. The Court noted, however, that the defendants submitted a declaration that they received annual income reports. Plaintiffs did not contradict the declaration. Plaintiffs point to no other breach of duty evidence. Summary judgment for the defendants was appropriate.

Judge Cudahy concurred in part and dissenting in part. He would have affirmed the district court decision in its entirety. First, unitization is a "universally accepted investment practice" and whether or not to adopt it is a routine investment consideration. Nothing in ERISA requires a fiduciary to create a record of the balancing of its pluses and minuses. Second, with respect to the Hewitt claim, Judge Cudahy agreed with the district court that the long relationship between the Fund and Hewitt and the Fund's reliance on consultants to evaluate the fee’s prudence satisfies its fiduciary duties.

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CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND v. GEORGIA-PACIFIC (March 29, 2011)

In the early 1990s, Georgia-Pacific contributed to the multiemployer Central States, Southeast and Southwest Areas Pension Fund on behalf of employees in three different divisions. In 1994 and 1995, it laid off workers in its wood-pulp division and stopped its contributions for that division. In 1997, the company laid off workers in its building division and ceased those contributions. Then, in 2004, the company sold its building-products division. The new owner began contributing to the Fund and posted a bond. The Fund claims that Georgia-Pacific owes approximately $5 million in withdrawal liability. Georgia-Pacific, on the other hand, asserts that it has no liability under ERISA § 1384 because it ceased operations "solely because" of an arms-length sale of assets to an unrelated party. The parties proceeded to arbitration, as required by the statute. The arbitrator ruled in Georgia-Pacific's favor. Judge Pallmeyer (N.D. Ill.) enforced the arbitrator's award. The Fund appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Ripple affirmed. The Court noted that withdrawal payments are necessary to ensure the continued viability of underfunded multiemployer plans. The purpose of § 1384 is to prevent a windfall to a plan. But what does "solely because" mean? The Court found no appellate court jurisprudence on that question. The Fund argued that the arms-length sale was not the sole cause for Georgia-Pacific no longer contributing to the Fund. It cited the earlier layoffs as additional contributors. The Court identified and elaborated on the problems created by the Fund’s approach and concluded that the proper statutory construction requires consideration only of the transaction at issue. If no withdrawal liability would have accrued to the seller had there been no sale, then no withdrawal liability should accrue to the seller when the sale does go through. The Court recognized an exception to this general rule if an employer manipulates its business planning to avoid withdrawal liability. Here, the arbitrator was asked to consider whether the three stages of Georgia-Pacific's fund withdrawal should be considered as one. The arbitrator concluded that each stage was independent. The Court found that factual conclusion adequately supported by the evidence.

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SMITH v. MEDICAL BENEFIT ADMINISTRATORS GROUP (March 15, 2011)

Brenner Tanks of Fond du Lac, Wisconsin employs Jeffrey Smith. It also offers a group health plan, to which Smith belongs. Taking the allegations of the complaint as true: In 2006, Smith's doctors advised that he undergo gastric bypass surgery. Smith sought preauthorization for the surgery from the plan's third party claims administrator, Auxiant. Auxiant took four months to act on his request and authorized the surgery, but they later denied his claims based on a plan exclusion for obesity related surgeries. In fact, according to Smith, Auxiant routinely takes a long time in responding to authorization requests and routinely denies coverage for procedures that it has already preauthorized. Smith brought suit under ERISA, seeking damages, restitution, and other relief. Judge Randa (E.D. Wis.) dismissed the complaint, concluding that Smith was not entitled to the relief he sought under ERISA. Smith appeals.

In their opinion, Judges Flaum, Rovner, and Sykes affirmed in part and reversed and remanded in part. The Court first concluded that Smith had adequately alleged that Auxiant breached a fiduciary duty. Auxiant is an ERISA fiduciary, has a duty of loyalty, must exercise reasonable care, and must not mislead an insured. Accepting the factual allegations as true, the Court concluded that Auxiant’s preauthorization practices could be considered a breach of a fiduciary duty. But is Smith entitled to relief? The Court identified three possibilities. Under § 502(a)(1)(B), a plan beneficiary is entitled to recover benefits due him -- but Smith has conceded that Auxiant’s ultimate denial of benefits was proper under the plan terms. Under § 502(a)(2), a plan beneficiary is entitled to recover losses to the plan that result from a breach of fiduciary duty -- but Smith is seeking damages for himself, not the recovery of plan losses. The plan had no losses. Finally, under § 502(a)(3), a plan beneficiary may seek to enjoin an improper practice or obtain other equitable relief for ERISA or plan violations. Smith has a cause of action under (a)(3), but only for equitable relief. The Court concluded that Smith adequately requested such relief in his complaint. The Court warned that any such relief should be carefully crafted so as not to modify the plan terms.

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CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND v. AUFFENBERG FORD, INC. (March 11, 2011)

Auffenberg Ford employs workers who are represented by Local 50 of the International Brotherhood of Teamsters. Auffenberg participated in a multi-employer pension fund for several years before withdrawing in 1997. It had to pay a $50,000 withdrawal liability at the time. A few years later, the Local's president encouraged Auffenberg to re-enter the fund. Auffenberg agreed to do so only if it could withdraw again after five years without any withdrawal liability. Auffenberg and the Local’s president orally agreed on that point, but the Collective Bargaining Agreement did not include that term. Instead, it provided that all of its terms would remain in effect until a new agreement was negotiated. The CBA expired in April of 2006 but negotiations for a new agreement continued into February of 2007. The Local's new president orally agreed to honor the 2001 commitment. Auffenberg advised the Fund of this new oral agreement by letter. Auffenberg and the Local agree that Auffenberg’s obligation to the Fund stopped when the CBA expired in April 2006. But the Fund disagreed. It filed suit under ERISA to collect what it considered unpaid contributions. Judge Gettleman (N.D. Ill.) granted summary judgment to the Fund, concluding that evidence of the 2001 oral agreement was barred by the parole evidence rule. Auffenberg appeals.

In their opinion, Judges Manion, Rovner, and Sykes affirmed. ERISA requires that benefit plan terms be "established and maintained" in a written instrument. Similarly, the Labor Management Relations Act requires that the basis of a benefit plan payment be described in writing. The only written agreement here, the 2001 CBA, required fund contributions until a new CBA was negotiated. The Court concluded that the 2001 oral agreement did not change the terms of the CBA, even though notice of the oral agreement was given in writing. The oral commitments of the Local's presidents are simply unenforceable.

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COMRIE v. IPSCO, INC. (February 18, 2011)

Ipsco, Inc. had an unfunded, supplemental pension plan for its top executives. The plan had a golden parachute provision under which an executive was eligible for benefits if he left the company's employ within two years of a change of control. John Comrie was an executive covered by the plan. He resigned shortly after Ipsco was acquired by a Swedish company. Under the plan, Comrie was entitled to 54% of his average annual compensation over the last five years of his employment. The plan specifically excludes a "bonus" from compensation. Comrie computed his benefits by excluding only that compensation that was specifically designated as a "bonus." The company, through the committee that administered the plan, computed his benefits by excluding all compensation that was linked to stock, even if it was not designated as a "bonus." Judge Darrah (N.D. Ill.) granted summary judgment to the defendants. He applied an arbitrary and capricious standard because the plan granted the committee interpretive discretion. Comrie appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Rovner affirmed. The Court agreed with the district court's deferential review. It rejected Comrie's argument that the committee had a conflict of interest. And it concluded, relying on Firestone, that a contract conferring interpretive discretion on an  administrator, whether or not an ERISA fiduciary, must be honored. In so holding, the Court criticized the Third (Goldstein) and Eighth (Craig) Circuits. Applying the deferential standard, the Court concluded that the committee's decision was not arbitrary or capricious. Although it found nothing in the plan's language or other relevant evidence that answer the question definitively, the Court applied a common "business world" understanding of the term. The amount of Comrie's stock-linked income varied from year to year and was discretionary -- that sounded enough like a bonus to the Court to support the committee’s decision.

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SPANO v. THE BOEING COMPANY (January 21, 2011)

Like most American companies, the Boeing Company and the International Paper Company offered their employees participation in defined-contribution benefit plans. Members in each of the plans brought suit against each company and the plans. The allegations in each of the suits were quite similar. They claimed that the plans breached their fiduciary duties by a) paying excessive fees and expenses, b) choosing to include imprudent investment options in the plans, and c) concealing information from plan participants. Chief Judge Herndon (S.D. Ill.) certified a class in each case under Rule 23(b)(1). Each class definition included all persons who are, were, or ever will be participants or beneficiaries of the plan. Boeing and IP sought review.

In their opinion, Judges Bauer, Wood, and Tinder granted the request for review, vacated each certification order, and remanded. The Court noted that the case was brought under § 502(a)(2) of ERISA, which allows a participant to bring a civil action for relief under § 409, which in turn makes a fiduciary personally liable for a breach of fiduciary duty. In 1985, the Supreme Court held, in Russell, that a fiduciary in a defined-benefit plan context was not personally liable to a participant for damages. In a defined-benefit plan, assets are held in trust and the plan is administered by a fiduciary. Obligating a fiduciary to restore funds to the plan is sufficient to make the plan whole. In 2008, the Supreme Court had an occasion to apply that principle to a defined-contribution plan in LaRue. LaRue alleged a breach by a fiduciary that affected his account only and sought restoration of that amount to his account. Relying principally on the differences between defined-benefit and defined-contribution plans, the Supreme Court held that § 502(a) does authorize recovery for breaches of fiduciary duty that impair only the assets in a particular participant's account. But LaRue was an individual claim. The consolidated appeals involve class claims. The Court had to distinguish between an individual injury and an injury that should be considered a plan injury -- only a complaint about the latter is appropriately treated as a class. The Court turned to Rule 23. In order to proceed as a class, a claim must meet all of the elements of Rule 23(a) and fit into one of the 23(b) categories. For class certification purposes, a district court should not take the facts as alleged but, rather, make any required factual determinations. If the court finds that the claims meet the Rule 23 requirements, it issues an order in which it certifies and defines the class. The class definition is a very important aspect of the order, affecting both the litigation's scope and its res judicata effect. With those principles in mind, the Court turned first to the Boeing case. Although the Court found that the class met the numerosity and commonality requirements of Rule 23(a), it concluded that it did not meet the typicality and adequacy of representation requirements. Given the breadth of the class definition and the specific objections to two of the several investment options included in the plan, it is possible that many plan participants never owned shares in the targeted funds. Because the plaintiffs could potentially correct the Rule 23(a) problems by redefining the class, the Court also addressed Rule 23(b). The Court mentioned the Supreme Court’s cautionary remarks in Ortiz regarding the use of mandatory (b)(1) classes. Again, using the class definition certified, the Court concluded that the class could not meet the (b)(1)(A) or (b)(1)(B) requirements. The class was simply too diverse to for the Court to conclude that the class members had an identity of interest or that there was a risk of incompatible standards of conduct. Turning to the IP class, the Court found some of the same problems. It addressed the theories of relief (misrepresentation, imprudent investment, and excessive fees) individually. Under the misrepresentation theory, the Court concluded that it was not clear that the class representative's claims were typical of those of the group. With respect to the imprudent investment theory, the Court concluded (like in the Boeing class) that the allegation that some funds were imprudent while others were not, in conjunction with the diversity of the class, made the claim inappropriate for class treatment. Finally, with respect to the excessive fee theory, it appears that some fees were plan specific while others were fund specific. Given the class members’ different decisions regarding specific fund investments, this theory is also not appropriate for class treatment. The Court again emphasized that its decision was based on the definition provided by the district court and that it was not holding that an appropriate class could not be defined.

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HOWELL v. MOTOROLA (January 21, 2011)

Motorola has a ERISA defined-contribution pension plan that it offers its employees. The Plan Administrator, called the Profit Sharing Committee, was appointed by the Board of Directors. The Committee selected the investments that the plan offered and monitored the plan. The participants in the plan had complete authority over their investment choices. Before 2000, the plan offered four investment options, one of which was a Motorola Stock Fund. After 2000, nine options were available, still including a Motorola Stock Fund. Motorola stock had done quite well in the 1990s, increasing in value tenfold. It was trading around $30 in May 2000. It was in May 2000 that Motorola filed an SEC report in which it reported a significant agreement with a Turkish company. The report failed to mention that Motorola had provided almost $2 billion in financing to the company. The Turkey project did not go well. By May 2001, Motorola stock was trading at about $15 a share. Bruce Howell, a former Motorola employee and plan member, filed suit in 2003. Stephen Lingis and others later intervened. The suit alleges three breaches of fiduciary duty: a) imprudence in offering the Motorola Stock Fund, b) misrepresentation or failure to disclose information about the Turkey project, and c) failure to appoint and monitor competent fiduciaries. The defendants included Motorola, the Profit Sharing Committee, and a number of individual defendants. Judge Pallmeyer (N.D. Ill.) certified a class, dismissed Howell's claims on the grounds that he signed an enforceable release, and granted summary judgment to the defendants. She concluded that no defendant breached an ERISA duty and that the defendants were entitled to the section 404(c) safe harbor. Howell and the plaintiff class appeal.

In their opinion, Judges Bauer, Wood, and Tinder affirmed. The Court first addressed Howell's appeal. He had signed a General Release as part of a severance program in 2001. The release specifically included ERISA claims but excluded claims under the "employee benefits plan" and claims which could not be released by law. Howell claimed that the release was either not voluntary or fit within one of the exclusions. On the voluntariness point, the Court concluded that Howell failed to create an issue of fact. The Court addressed the "benefits plan" exclusion as a contract matter and concluded that the only rational reading of the clause was that Howell reserved the right to assert a claim for benefits already accrued but waived the right to challenge the plan as a whole. Finally, the Court rejected the argument that the release was an agreement that purported to relieve a fiduciary from responsibility prohibited under ERISA § 410(a). The release does not relieve any fiduciary of responsibility, it merely settles claims he might have. Turning to the merits of the class appeal, the Court identified three issues: a) which of the defendants were fiduciaries, b) whether there was a breach of a fiduciary duty, and c) whether the class was harmed. On the question of which defendants were fiduciaries, the Court addressed them in categories. With respect to Motorola and the Committee, as entities, the Court identified some thorny issues. Since it would later conclude that there was no breach, it assumed that both the company and the Committee fiduciaries. The Court then concluded that each of the individual defendants was an ERISA fiduciary, either as a Committee member, a Board member responsible for selecting Committee members, or as the Vice President of benefits. The Court thus turned to the evidence of a breach. It addressed each of the three theories of liability separately. On the theory that the fiduciaries were imprudent in even offering the Motorola Stock Fund, the Court found that the “safe harbor" did not apply. The safe harbor only protects a fiduciary from responsibility as a result of choices made by someone beyond his control. The choice of funds to offer, however, is exclusively within the fiduciary's control -- the safe harbor is unavailable. It found the class' evidence on the imprudence theory quite thin, however. The participants were always provided with other options, they were almost always allowed to move investment money out of the Motorola Stock Fund, and Motorola was a fundamentally sound company. It concluded that offering a Motorola Stock fund was not a breach. The class’ failure to disclose theory is that the fiduciaries breached a duty by failing to provide information on the Turkey project to the plan participants. The same failure to provide information, argued the class, defeats their safe harbor argument. In fact, the Court accepted the district court's approach that basically equated the two standards. The Court concluded, however, that the class presented insufficient evidence of an intentionally misleading statement or material omission. Therefore, the defendants did not violate a fiduciary duty and were entitled to the safe harbor. Finally, on the failure to monitor allegations, the Court found that the same safe harbor analysis it undertook with respect to disclosure theory applied. Even without safe harbor, there would be no liability as the Court thought the allegations were close to frivolous.

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FEINBERG v. RM ACQUISITION (January 6, 2011)

Henry Feinberg used to be a senior executive at Rand McNally & Company. He participated in its unfunded, supplemental, deferred compensation plan. The company itself was the plan administrator. Rand McNally went through a bankruptcy and, several years later, sold all of its assets to RM Acquisition. The sales documents provided that RM was not acquiring the liabilities associated with the deferred compensation plan. Feinberg and others brought a suit under ERISA against the plan, Rand McNally, and RM. It later dismissed the plan and Rand McNally since neither had any assets. Judge Andersen (N.D. Ill) dismissed the complaint against RM for failure to state a claim. Feinberg appeals.

In their opinion, Judges Posner, Flaum, and Sykes affirmed. The Court noted the general rule that one can purchase the assets of a company without also purchasing its liabilities. Here, RM did just that. It specifically provided that it was not assuming the liabilities associated with the deferred compensation plan. But there is an exception to that rule regarding the successor liability of RM. If the claim arises from an alleged violation of federal rights and two conditions are met, the successor to the business may be liable. The two conditions are a) that the successor have notice of the claim before the acquisition, and b) there is substantial continuity in the business operations. However, Fienberg has made no showing of "substantial continuity" so his ERISA § 502 claim must fail. The Court noted that Fienberg could possibly have a claim against the company's shareholders if they received, as a distribution, the consideration the company received in exchange for its assets. The Court also rejected Fienberg's argument that he had a claim under § 510. That section makes it unlawful to "discharge, fined, suspended, expelled, discipline, or discriminate" against a plan beneficiary for exercising a right under the plan. Although the Court rejected the notion that the section applies only to employer/employee relationships, it nevertheless concluded that RM was not interfering with any participant's rights in the plan.

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SELLERS v. ZURICH AMERICAN INSURANCE CO. (December 3, 2010)

On September 15, 2005, Time Warner Cable employee Anthony Sellers suffered a torn tendon in his knee while at work. His surgeon, Dr. Schultz, repaired the tear and inserted a metal wire in the knee to facilitate Sellers' recovery. The wire was originally scheduled to be removed after several months. Dr. Schultz decided to leave it in, however, because Sellers was experiencing no pain. He eventually removed the wire on November 16, 2006, after Sellers complained of swelling and x-rays showed that the wire had broken into three pieces. Tragically, Sellers died nine days later from acute pulmonary embolism. Anthony's widow Audrey Sellers made a benefits claim under Sellers' accidental death and dismemberment policy, a part of Time Warner's employee welfare benefit plan. The plan provided for accidental death benefits if an "injury" results in death within a year of the "accident." Zurich American Insurance Company, which issued the policy, denied benefits. Its position was that the death occurred more than one year after the accident. It rejected Sellers' position that the wire breakage was an "injury." Sellers brought suit under ERISA. The district court remanded for more expansive findings and rationale on whether the wire breakage was an injury. Zurich again denied the claim. Its rationale was that an accident is an "unexpected event" and that, as evidenced by the Schultz's notes, the wire breakage was expected. On the renewal of the cross-motions for summary judgment, Judge Adelman (E.D. Wis.) granted summary judgment to Zurich. Sellers appeals.

In their opinion, Seventh Circuit Judges Flaum, Manion, and Tinder affirmed. The Court first noted that it was applying an arbitrary and capricious standard of review, because Time Warner's benefit plan gives Zurich discretion to construe policy terms and Zurich based its decision on a construction of the plan's terms. On the merits, the Court found Zurich's construction of the plan arbitrary and capricious because it applied its definition of accident through the eyes of a doctor instead of a person of average intelligence and experience. Nevertheless, the Court affirmed the denial of benefits based upon its decision in Senkier. In that case, the court held that a death that is the result of complications of a standard medical treatment is the result of the underlying cause for the treatment. Here, the wire breakage was not an accident because it was an expected risk of the original surgery. Thus, the accident is the original tear and Sellers' death did not occur within a year.

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CENTRAL STATES SOUTHEAST AND SOUTHWEST AREAS PENSION FUND v. O'NEILL BROS. TRANSFER & STORAGE (August 31, 2010)

Until 2007, O’Neill Bros. Transfer & Storage took part in a multi-employer pension fund administered by the Central States Southeast and Southwest Areas Pension Fund (the “Fund”). A multi-employer fund is a pension plan in which numerous employers make contributions to a single fund on behalf of their employees. ERISA requires adequate funding levels and withdrawal liability payments upon the withdrawal of an employer from the plan. When O'Neill advised the Fund that it was preparing to liquidate, the Fund considered it a withdrawal, deemed O'Neill in default, and demanded immediate payment. The Fund filed a complaint several months later seeking the entire amount of the payment. The Court ordered the Fund to propose a payment schedule, which it did. O'Neill never accepted the schedule. Judge Der-Yeghiayan (N.D. Ill.) granted summary judgment to the Fund for a lump sum payment of the entire amount of liability. O'Neill appeals.

In their opinion, Judges Bauer, Ripple, and Kanne affirmed. The Court reviewed relevant statutory and plan provisions:

•  the plan must calculate withdrawal liability and provide an installment payment plan
•  the employer may challenge but must make the payments during the arbitration process
•  the plan may demand immediate payment in the event of default (defined as the failure to make payment if not cured or any event which the plan defines as indicating a substantial likelihood that the employer will be unable to pay)
• under the "substantial likelihood" default, a plan may demand full payment of withdrawal liability
• the Fund adopted a rule that included an employer's insolvency as a default event under the "substantial likelihood" clause.

The issue before the Court was whether the employer must immediately pay, notwithstanding arbitration, its entire withdrawal liability when demanded under the substantial likelihood default clause. The Pension Benefit Guarantee Corporation (PBGC) has promulgated a regulation that a default under the failure to pay paragraph does not take effect until 61 days after the arbitrator makes its decision. The substantial likelihood clause does not contain the same language as the failure to pay clause relied upon by the PBGC in reaching that conclusion. The PBGC is the agency charged with the administration of the provision -- the Court found that interpretation a reasonable one and found it worthy of deference. It therefore concluded that an accelerated default payment under the substantial likelihood clause is not deferred pending arbitration.

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YOUNG v. VERIZON'S BELL ATLANTIC CASH BALANCE PLAN (AUGUST 10, 2010)

In 1996, Bell Atlantic replaced its Bell Atlantic Management Pension Plan, a defined annuity pension plan, with the Bell Atlantic Cash Balance Plan. The old pension plan included a lump sum option for certain employees that used an enhanced discount rate. The new Plan contained provision for converting employees' benefits from the pension plan to the new Plan. One key to the conversion was an employee's "transition factor." The transition factor was a multiplier that increased as an employee's age and years of service increased. Unfortunately for Bell Atlantic, the Plan's formula for computing an employee's opening balance contained the transition factor twice. The Plan Summary and all communications to employees described the formula correctly -- using the transition factor only once. The company also recognized the error and corrected it in a 1998 version of the Plan. Cynthia Young retired in 1997 after 32 years of service. After receiving her lump sum benefit, Young sought administrative review. She made two claims: that the company failed to apply the transition factor twice and that the company improperly applied the enhanced discount rate from the earlier pension plan. The company denied Young's claim. Young filed suit pursuant to ERISA § 502(a). The company counterclaimed for equitable reformation to correct the "scrivener's error." Magistrate Judge Denlow (N.D. Ill.) upheld the company's denial of the discount rate claim as not arbitrary and capricious and granted the equitable reformation counterclaim. Young appeals.

In their opinion, Judges Bauer, Flaum, and Tinder affirmed. The Court first addressed both party's statute of limitations arguments. The parties and the Court agreed that Pennsylvania's four-year limitations period applies. At issue was when the claims accrued. The Court concluded that the complaint and counterclaims were both timely. Young's claim did not accrue until she had a "clear repudiation" of her demand, which occurred in 2005. Although the company knew about the drafting mistake in 1997, the Court concluded that its claim for reformation did not accrue at that time. It was not on notice of the need to reform because it had always treated the second transition factor inclusion as a mistake. It paid benefits and communicated with its employees on that basis. It corrected the mistake and no one complained until Young brought suit. On the merits, the Court noted that § 502(a)(3) of ERISA permits "appropriate equitable relief." Although the Court has never addressed the propriety of equitable reformation, other circuits have and have either concluded that it is available or at least not foreclosed. Relying on those cases and the Court's own cases on ambiguous plan language, the Court concluded that equitable reformation is permitted when there is clear and convincing evidence of a scrivener’s error that does not reflect participants' reasonable expectations. The Court found such evidence present here. It relied on the drafting history, the communications and course of dealing between the company and its employees, the plan statements to participants, and the lack of any complaint until Young. The Court then considered and rejected the traditional equitable defenses raised by Young (good faith, unclean hands, and laches). Finally, the Court used principles of contract construction and interpretation, particularly that specific provisions control general provision, to reject Young's enhanced discount rate claim. The Court found that the most reasonable reading of the Plan required the enhanced rate.

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 HOLMSTROM v. METROPOLITAN LIFE INSURANCE CO. (August 4, 2010)

Lanette Holmstrom developed a painful nerve condition in her right arm in 2000 and stopped working. Metropolitan Life Insurance Company administered her employer's benefit plan. MetLife paid disability benefits first under the "own-occupation" standard and then under the "any-occupation" standard for several years. Meanwhile, Holmstrom underwent three surgeries. None of the surgeries relieved her pain. Her physician diagnosed complex regional pain syndrome and concluded that further surgical intervention was unwarranted. Instead, Holmstrom was placed on a heavy pain medication regimen. With MetLife's help, Holmstrom applied for and began receiving Social Security benefits. Despite any lack of improvement in her condition, MetLife terminated Holmstrom's benefits in 2005 after a periodic review. Its rationale for the denial was that the medical data "no longer support(ed)" the severity of her impairment. Holmstrom appealed and provided substantial additional information, including a 2005 Functional Capacity Evaluation ("FCE") and a detailed statement from her physician with his diagnosis and his conclusion that she could perform no hand functions. MetLife denied the appeal, noting a lack of "objective findings." MetLife specifically noted that it could have reached a different decision had it been provided a more thorough FCE. Holmstrom submitted the requested FCE and additional test results. MetLife's physicians concluded that Holmstrom's physical limitations were not severe and that her diagnosis was not established by medical data. After a further exchange, one of MetLife's physicians recommended an independent medical examination. MetLife upheld its denial of benefits without seeking such an examination. Holmstrom brought suit under ERISA. Judge Dow (N.D. Ill.) granted summary judgment to MetLife. Holmstrom appeals.

In their opinion, Judges Kanne, Wood, and Hamilton reversed and remanded. Even applying the arbitrary and capricious standard of review, the Court found error. The Court first rejected three of Holmstrom arguments: a) that MetLife could not periodically review and reverse prior benefit decisions, b) that MetLife had to prove that her condition actually improved to reverse its course, and c) that the court could take into consideration MetLife's "batting average" in other federal cases challenging its benefit decisions. On the other hand, the Court found that several factors supported an arbitrary and capricious conclusion: a) erroneously concluding that certain normal test results contraindicated the diagnosis, b) unreasonably demanding objective pain data were no objective test exists, c) not adequately explaining its rejection of the FCEs, d) failing to even consider the Social Security determination, e) discounting Holmstrom's own extensive medical history, f) rejecting the evidence of Holmstrom's cognitive impairment resulting from the medication regimen, g) relying on the opinion of the records-review doctors in the face of overwhelming contrary evidence, h) ignoring the recommendations of its own physician to conduct an independent medical examination, and i) its repeated practice of asking for new data and then rejecting the data for reasons never communicated to Holmstrom. Holmstrom submitted evidence sufficient to establish her disability -- MetLife failed to counter it with sound reasoning supported by the record. The Court added that it saw several factors that suggested a conflict of interest existed. Finally, with respect to the remedy, the court conceded that the normal remedy in such a case is a remand for a fresh administrative decision. Here, however, there was an earlier award of benefits, there has been no apparent positive change in Holmstrom's condition, and the Court had a "firm grasp" of the merits. It decided that the appropriate remedy was a reinstatement of benefits. It remanded for the district court to consider the request for fees, costs, and interest.

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PONSETTI v. GE PENSION PLAN (July 30, 2010)

Ronald Lehn was employed at a General Electric Company facility in Ottawa, Illinois and participated in the company's retirement plan. For many years, his wife Lisa was the primary beneficiary under the plan. Lehn created a trust in 2002 which directed the trustee to distribute 25% shares to his wife, his son, his daughter, with a fourth 25% share going to other family members. He did not attempt to change the designated beneficiary with the Plan, however, until 2005. When he attempted to designate the Trustee as the primary beneficiary, he was told that he needed the signed and notarized consent of his spouse. He submitted a form that purported to contain Lisa's signature that had been notarized by one of his coworkers. The coworker did not witness Lisa's signature. Lehn died later that year. The company advised Lisa that it was aware of his death and that their records indicated that the Trust was the beneficiary of his retirement benefits. Lisa's representative submitted a claim for benefits and advised the company that Lisa had not been competent at the time of her supposed consent. Over the next several months, Lisa's representative submitted substantial additional information and support for her position, including a letter from Lehn himself describing his wife as "profoundly demented." The company advised the Trust of Lisa's claim. The Trust's investigation discovered the absence of a properly notarized consent form. In late 2006, the Plan granted Lisa's claim for benefits and denied the Trust's claim. Following some additional investigation, the Trust indicated its concurrence with the Plan's decision. The Trust nevertheless filed suit against the company and the Plan. Judge Mihm (C.D. Ill) dismissed the § 502(a)(3) and breach of fiduciary duty claims and other state law claims and granted summary judgment on the ERISA § 502(a)(1)(B) claim. The Trust appeals.

In their opinion, Chief Judge Easterbrook, Circuit Judge Flaum, and District Judge Hibbler affirmed. The Court noted that, although there was some confusion in the lower court and in the Trust's briefs, the narrow issue on review was whether the district court erred when it found that the Plan complied with the "full and fair review" ERISA requirement. In that regard, the Court cited the familiar "arbitrary and capricious" standard of review it applies in a situation where the Plan, as here, confers discretionary authority to an administrator. It rejected the Trustee's valiant attempts to convince it otherwise. On the merits of the failure to pay claim, the Court noted that ERISA requires the claimant be given a full and fair review and that reasons for denial of its claim are communicated. The inquiry is fact intensive. The Court had little difficulty in concluding that the evidence overwhelmingly supported the Plan administrator's decision -- a decision, by the way, that the Trust acknowledged being correct. The Court next addressed the "novel" breach of fiduciary duty theory under § 502(a)(1)(B). Section 502 is generally considered a contract claim for Plan benefits while § 510 is a claim to prevent interference with one's ability to collect benefits. In order to state a claim under § 502, a party must have a contractual entitlement under the Plan. Here, the Trust has no such entitlement. The Court affirmed without addressing the underlying merits of the fiduciary duty claim.

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WALKER v. MONSANTO COMPANY PENSION PLAN (July 30, 2010)

Prior to 1997, Monsanto's employees had a variety of the retirement plan benefits. All employees had an age-65 benefit, but some employees had a discounted early retirement option while others had a subsidized early retirement option. Monsanto standardized and restructured its retirement plan in 1997 from a traditional plan into a cash balance plan. It created two accounts for each employee -- one that reflected benefits already earned at the time of the restructuring (the Prior Plan Account or PPA) and one to reflect newly earned benefits. The opening PPA balance was arrived at by converting the prior plan annuity amount to a lump sum equivalent and then discounting the amount by 8.5% per year for each year under 55 the employee was at the time of restructuring. Once the PPA was created, its balance increased through pay credits (4% per year law while employed) and interest credits (8.5% per year until age 55). It granted to all employees the subsidized early retirement option that only some of them had previously had. For the first time, it also gave employees an opportunity to receive retirement benefits before the age of 55. A number of Monsanto employees filed lawsuits, which were then consolidated. The employees allege that the restructured plan violates ERISA's prohibition on reducing an employee’s benefit accrual when the employee reaches a certain age. Judge Gilbert (S.D. Ill.) granted summary judgment to defendants. Plaintiffs appeal.

In their opinion, Judges Bauer, Flaum, and Evans affirmed. The plaintiffs claim that the 8.5% interest credit is a "benefit accrual" under ERISA and that termination of that benefit once an employee reaches the age of 55 violates the statute. The Court noted that ERISA prohibits a plan from reducing "an employee’s rate of benefit accrual" but does not define "benefit accrual." Benefit accrual depends, in part, on the type of plan at issue. Many cash balance plans operate like defined contribution plans. In those situations, the court must look to the annual additions to the employee’s hypothetical account. The Monsanto plan, however, operates like a defined benefit plan. Here, the court should look instead to the total accrued benefit at retirement. The Court looked at the total benefit at retirement under various scenarios and concluded that the Monsanto interest credits do not increase the employee’s total benefits. They are therefore not "benefit accruals" under ERISA and their termination at age 55 does not violate ERISA.

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KENSETH v. DEAN HEALTH PLAN (June 28, 2010)

In 1987, Deborah Kenseth decided to do something about her serious weight problem. She underwent a surgical procedure known as vertical banded gastroplasty (“VBG”) and shed 120 pounds. Kenseth joined Highsmith, Inc., a library furniture and supply distributor, in 1996. Kenseth elected to participate in the Dean Health Plan through her employer. The plan did not cover surgical treatment for gross obesity such as VBG. It also generally excluded any services "related to" a non-covered service. Several years later, Kenseth began to experience complications arising from the VBG. In 2004, she had a surgical procedure to address one of those complications. Notwithstanding the plan language, Dean paid for the procedure. The procedure, however, was not totally successful. Her physician recommended a gastric bypass procedure as a long-term solution to her situation. After the surgery was scheduled, the physician's office provided standard instructions to Kenseth. Included in the instructions was a direction to call her insurance company to check on coverage. Kenseth did just that. Kenseth described the procedure to the Dean customer service agent as one dealing with the "bottom of the esophagus." She did not disclose, she says unintentionally, that the procedure was related to her 1987 VBG surgery. The plan representative told her that the procedure would be covered. The day after the surgery, Dean made its initial decision to deny coverage. Its rationale was that the procedure addressed a complication arising from, and therefore related to, the VBG, a non-covered service. Kenseth unsuccessfully challenged Dean's decision internally. She then brought suit under ERISA and state law. She asserted that: a) Dean breached its fiduciary obligation because the plan was unclear both as to coverage and as to how she could determine coverage and because Dean failed to provide a pre-approval authorization procedure, b) Dean was collaterally estopped from denying benefits because of the representative's "approval," and c) Dean violated Wisconsin law on an insurer's ability to deny coverage for pre-existing conditions. Judge Crabb (W.D. Wis.) granted summary judgment to Dean on all counts. Kenseth appeals.

In their opinion (as amended), Judges Manion, Rovner, and Tinder affirmed in part, vacated in part, and remanded. First, the Court affirmed summary judgment on collateral estoppel. Kenseth failed to advise the Dean customer service agent of the connection between the procedure and her earlier surgery, even if unintentionally. Equitable estoppel should not be applied when the party being estopped is unaware of a material fact. Second, the Court also affirmed with respect to the state statutory argument. The Wisconsin statute deals with pre-existing conditions. The exclusion on which Dean relies focuses on the nature of the benefit, not whether it was pre-existing. Third, the Court addressed the breach of fiduciary duty claim. Such a claim requires a plan fiduciary, a breach, and harm. Dean is a plan fiduciary, not because it is the customer service agent's employer, but because it is a claims administrator with discretionary authority to assess a plan participant's entitlement to benefits. Thus, it owes the plan participants duties of loyalty and reasonable care. One core duty to beneficiaries is the duty to disclose all material information. That duty has a negative component (not to mislead or misrepresent) but also has an affirmative component (to communicate material facts). Here, on the record before the Court, it concluded that a fact finder could determine the Dean had a duty to a) advise callers to its customer service line that they were not entitled to rely on any advice recieved, and b) inform callers how to obtain a binding determination of coverage. Dean could have avoided that liability by providing plan beneficiaries with a clear and unambiguous statement of benefits. Although the Court concluded that Dean's statement of benefits was clear that a procedure like the VBG was not covered, it concluded that the "related to" exclusion was not clear. In addition to the fact that the language itself was not clear, the Court also referred to the fact that Dean had already paid for a procedure to address a complication of the original surgery. Finally, the Court had no difficulty in finding an injury caused by Dean's breach of its fiduciary duty. Having found a breach and an injury, the Court turned to the remedy. It emphasized that Kenseth's claim was not a denial of benefits claim under section 1132(a)(1)(B) nor was it a representative action under section 1109 (a). Instead, it was an individual action under section 1132 (a)(3). But that section allows only equitable relief, not damages. The Court remanded to allow Kenseth an opportunity to identify, if possible, an appropriate form of equitable relief.

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ESTATE OF BLANCO v. PRUDENTIAL INSURANCE CO. (May 21, 2010)

Norman Blanco was hired by Porsche Engineering Services in April of 2005. After one month of employment, he was covered by Porsche's benefit plan. The plan included both short and long term disability benefits. Blanco suffered a heart attack in July and, by the end of August, was no longer able to work. The long-term disability plan had a pre-existing condition exclusion. It precluded coverage for conditions for which the beneficiary, in the three months prior to his coverage effective date, had either a) received care or took medication or b) had symptoms for which a prudent person would have sought care. Pursuant to the pre-existing condition exclusion, Prudential denied Blanco's claim for long-term benefits. Blanco filed an ERISA suit. Judge McKinney (S.D. Ind.) granted summary judgment to Prudential.

In their opinion, Judges Cudahy, Flaum, and Evans affirmed. Before addressing the core issue, the Court noted that a) Blanco had a long history of heart problems, including congestive heart failure (CHF), for which he was being treated and b) pre-existing condition exclusions were regularly upheld. On the merits, the Court found that he failed to qualify under either prong of the exclusion. He was taking heart medication. The fact that he was taking it for hypertension as well as CHF does not matter. Even if it did, the hypertension and CHF are related and taking medication for the hypertension would disqualify him. The Court also found that Blanco was excluded under the second prong of the policy. He had an episode of high blood pressure for which a prudent person would have sought treatment.

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GREEN v. THE UPS HEALTH AND WELFARE PACKAGE (February 10, 2010)

UPS negotiates collective bargaining agreements (CBAs) covering its employees who are members of the International Brotherhood of Teamsters (“IBT”). It actually negotiates with the international union and also directly and separately negotiates with some large locals, including Local 705. Under the 2002-2008 CBA with Local 705, UPS agreed to provide health care to Local 705 retirees. The benefit was outlined in the Summary Plan Description (SPD), which applied to all IBT retirees. The SPD set a monthly contribution for each retiree and provided that, if the cost of coverage exceeded a certain threshold, each retiree would share in the excess cost “by making an additional contribution.” It also stated that additional contributions would not be implemented until after the “current” CBA expired. The cost threshold was exceeded in 2006. In October 2007, UPS issued a Summary of Material Modification (SMM) advising all IBT retirees of that fact and imposing an additional contribution for each retiree effective January 1, 2008. Before implementing the additional contribution, however, UPS agreed with both the international and local unions to delay implementation until their respective CBAs expired. UPS sent a revised SMM to Local 705 retirees in December 2007 advising that increased contributions “well be effective” after the expiration of the “current” CBA. After the Local 705 CBA expired in mid-2008, UPS notified Local 705 retirees that it would implement an additional contribution effective February 2009. Local 705 retirees brought a class action, alleging that the collection of additional contributions violated the Plan and ERISA because a) the retirees were not sharing equally since the international retirees were not yet contributing, and b) the SPD stated that contributions would not be implemented until the expiration of the “current” plan and the Local 705 current plan now expired in 2013. The district court agreed with Local 705 on the first argument but agreed with the Plan on the second – and enjoined further collection of contributions until further order of the court. The retirees and the Plan appeal.

In their opinion, Judges Cudahy, Wood, and Evans affirmed. The Court agreed with the district court that the collection of contributions from Local 705 retirees only controverted the plain language of the Plan and was, therefore, arbitrary and capricious. The Court rejected UPS’ contrary interpretation of the “share equally” language and rejected its plea to consider extrinsic evidence under the doctrine of extrinsic ambiguity. Although the Court was more receptive to the use of the extrinsic ambiguity doctrine with respect to the meaning of “current” in the SPD, it concluded that it need not. Instead, it held that the December 2007 revised SMM modified the SPD and made it clear that the “current” CBA referred to was the 2002 CBA.

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LINE CONSTRUCTION BENEFIT FUND v. ALLIED ELECTRIC CONTRACTORS (January 8, 2010)

Allied Electric Contractors has been a member of the National Electrical Contractors Association (NECA), an association of union employers, since 2002. It has been making employee benefit contributions to Line Construction Benefit Fund since the 1990s. In 2005, NECA entered into a Collective Bargaining Agreement (CBA) with the union. It set forth the terms of employer contributions to the Fund and increased the hourly contribution by a quarter. By its own terms, it bound all employers who signed a letter of consent. Although Allied did not sign a letter of consent until December of 2006, it continued to make the required contributions, including the extra quarter, until July 2006. It failed to make contributions for July, August, and December of 2006 as well as for January and February of 2007. The Fund brought suit under ERISA. The court denied Allied's motion to dismiss and granted summary judgment to the Fund. Allied appeals.

In their opinion, Judges Cudahy, Wood, and Tinder affirmed. The Court first addressed Allied's argument that the Fund had no cause of action under ERISA. It concluded that a multiemployer plan is authorized to bring suit under section 502(e) of ERISA as a plan fiduciary, reaffirming its holding in Vanguard Car Rental. The Court then rejected Allied's position that the CBA requirement of a signed letter of consent excused its nonpayment. Conduct manifesting consent, said the Court, is sufficient. Here the undisputed events, including the payments in early 2006 and the payments reflecting the additional quarter contribution, established that consent. Finally, the Court concluded that the CBA met the LMRA's requirement that an employer must have a written agreement before it makes contributions to employee benefit funds.

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MAJESKI v. METROPOLITAN LIFE INSURANCE CO. (December 29, 2009)

Kirsten Majeski was a nurse consultant for Metropolitan Life Insurance Co. ("MetLife"). Her typical workday involved sitting at a desk, using a phone and computer. In 2006, she was diagnosed with cervical radiculitis, a compression in the upper spinal. MetLife originally approved short-term disability benefits. It later determined that Majeski was not entitled to benefits, concluding that her impairment did not prevent her from performing her job. Majeski appealed and submitted medical evidence from her doctor and physical therapist. The conclusion of the medical evidence was that she had difficulty sitting and using her hands -- and was thus unable to perform her job. MetLife had a physician review the records. He concluded that there were "minimal objective findings" to support the suggested limitations. MetLife rejected the appeal. Majeski brought suit under ERISA. The district court granted summary judgment to MetLife. Majeski appeals.

In their opinion, Judges Wood, Evans and Tinder vacated and remanded. The Court first rejected Majeski's argument that the Supreme Court's decision in Glenn required a heightened standard of review. The Court admitted that it was still undecided on how to weigh a Plan administrator's conflict of interest. In Marrs, the Court concluded that the circumstances of the case should determine the impact of the conflict. The Court also rejected Majeski's argument that the district court should have considered evidence outside of the administrative record. On the merits, however, the Court agreed with Majeski. The physician's report on which MetLife solely relies did not address key findings presented by Majeski's medical evidence. Although the report concludes that there were "minimal objective findings," the Court cited several objective findings contained in Majeski's material that MetLife physician failed to mention or rebut. The failure to address this significant medical evidence amounts to an absence of reasoning and lack of fair review. The Court declined to rule directly in Majeski's favor, concluding that the typical and proper course is to remand to the plan administrator.

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BANDAK v. ELI LILLY AND COMPANY RETIREMENT PLAN (November 18, 2009)

Stephen Bandak was employed by an Eli Lilly company in England, his native country, from 1978 to 1995. He participated in the company's retirement plan. He was transferred to the United States in 1995. The company told him, upon his enrollment in the U. S. company's plan, that his benefits in that plan would be based on years of employment retroactive to 1978. The plan also provided that benefits would be reduced by the actuarial equivalence of any other benefits under a “qualified defined benefit plan” maintained by an Eli Lilly company. When Bandak retired in 2004, the company took the position that his benefits under the English company's plan were benefits under a qualified defined benefit plan and were thus properly deducted from his U.S. pension benefits. Bandak sued the company under ERISA. Judgment was entered in his favor for both damages and an injunction relating to future benefit payments. The court also concluded that Lilly's position was not substantially justified and awarded attorneys’ fees. Eli Lilly appeals.

In their opinion, Judges Posner, Rovner and Williams affirmed. The Court focused on the language "qualified defined benefit plan" in the plan document. The term is a technical term and it refers to a plan that has been afforded favorable tax treatment by the Internal Revenue Service. The Court concluded that it had no meaning outside that context. The Court applied the presumption that, when a technical legal term is used in the contract, it is given its technical legal meaning. If it had no meaning outside the United States, the English plan was not such a plan and it should not have reduced his benefits. Substantial evidence in the record supported the Court's conclusion. The Court also concurred in the district court's conclusion that the company's position was not justified.

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WETZLER v. ILLINOIS CPA SOCIETY & FOUNDATION RETIREMENT INCOME PLAN (November 10, 2009)

Thomas Wetzler worked for the Illinois CPA Society for twenty-two years. Throughout his employment, he participated in the Society's Retirement Income Plan (the "Plan"). When he retired, he qualified as a highly-compensated employee ("HCE") under the plan. Wetzler was only the second HCE to retire under the Plan. Although the first was allowed to take a lump-sum payout of Plan benefits, the Plan later determined that the distribution was in error and violated federal regulations. The Plan was amended to require security when an HCE elects a lump-some distribution. When the Plan refused to allow Wetzler to take a lump-sum distribution, he filed suit under ERISA. He alleged that the amendment violated the Act by eliminating a benefit which had been previously available. The district court granted summary judgment to the Plan. Wetzler appeals.

In their opinion, Circuit Judges Manion and Kanne and District Judge Kendall affirmed. The Court first concluded that the lower court applied the correct standard of review. Because the Plan gives its administrator discretion to construe its terms, the court's review of the administrator's decision is under an arbitrary and capricious standard. Next, the Court addressed the merits of the argument that the Plan amendment violated ERISA. The Court concluded that HCEs never had the option of a lump-sum payment. The amendment was simply the Plan's way of correcting the earlier, erroneous distribution. The amendment, therefore, did not violate ERISA. Finally, the Court upheld the administrator's decision to deny the distribution to Wetzler. The fact that the distribution would have been in violation of the Internal Revenue Code gave the administrator a reasonable basis for denial.

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PERRY v. SHEET METAL WORKERS' LOCAL NO. 73 PENSION FUND (October 27, 2009)

Donald Perry and William Wilk both participated in their union's Pension Fund. Neither was awarded pension credit for the eight years they each worked in a training program at Washburne Trade School (now demolished). When they sought an adjustment, the Pension Fund explained that the school had been their actual employer during the period in question and was not a "contributing employer" under the terms of the Plan. The Fund further explained that the reason another union member who taught at the school at the same time did receive credit was because he was an employee of a "contributing employer" that made contributions in his name. Perry and Wilk filed suit under ERISA, alleging a denial of benefits. The district court granted summary judgment to the Pension Fund in a memorandum opinion dated March 24, 2008. Perry and Wilk appeal (on April 24).

In their opinion, Chief Judge Easterbrook and Judges Williams and Sykes affirmed. The Court first addressed the timeliness of the appeal, given that more than 30 days had passed between the time of the memorandum opinion and the notice of appeal. An appeal must be filed, however, within 30 days after the judgment is entered. Rule 58(a) requires a separate document for the entry of the judgment upon the granting of a motion for summary judgment. Pursuant to Appellate Rule 4, judgment is thus entered upon the earlier of the date on which the separate document is issued or 150 days have run from the entry of the order. Here, there was no separate order. The judgment is therefore not considered entered until 150 days have run. The appeal is timely, since an appeal filed after a decision but before the entry of a judgment is considered to be filed on the date of the entry of the judgment. On the merits, the Court's inquiry was limited to whether the Fund complied with the Plan's provisions in determining the members' pension credits. The Plan specifically provides that members receive pension credits for hours of work for which contributions are required to be paid by an employer. Since it is undisputed that no employer made or was required to make such contributions on behalf of Perry or Wilk, the Court concluded that the Fund acted in accordance with the Plan.

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BLACK v. LONG-TERM DISABILITY INSURANCE (September 18, 2009)

Elizabeth Black was the executive director of the Milwaukee World Festival, Inc., the organization that operates an annual summer music festival in Milwaukee. In early 2001, she had surgery to repair two aneurysms. She returned to work after several weeks and was well enough to run the festival that summer. Although her contract was not scheduled to expire until the end of 2003, she sought a renewal after the 2001 festival. The organization deferred a decision until 2002. When that time came, many of her relationships with coworkers had deteriorated. She complained, and had several doctors support her complaints, that the stress and abuse of her job was harmful to her health. In July of 2003, the organization elected not to extend her contract. Within a month, Black claimed that she was disabled and could no longer work. She filed a disability claim with the organization's plan. The plan denied the claim, based on a review of the records she submitted. After an administrative appeal, the plan’s underwriter consulted four physicians and a psychiatrist, each of whom reviewed her records and concluded that she was not disabled. The underwriter denied the appeal. Black appealed to the district court, which granted summary judgment to the plan. Black appeals.

In their opinion, Judges Evans, Williams and Tinder affirmed. The Court reiterated that it’s standard of review, because of the plan’s discretion, is arbitrary and capricious. The Supreme Court's Glenn decision simply requires the court to consider a plan administrator's conflict of interest -- it does not result in a heightened standard of review. On the merits, the administrator's decision was well supported by the record. The plan's consulting physicians were unanimous in their belief that Black's condition was stable. The administrator also considered Black's treating physician's reports. The administrator found those reports to be slanted one way when she was seeking a contract extension and the other way when she was seeking disability benefits. The Court concluded that the administrator was allowed to rely on the thorough and reasonable explanations given by the consulting physicians. Finally, although Black's Social Security disability determination is a factor that should be considered in a benefits determination, the Court noted that the administrator did consider the determination and discounted it because the Social Security Administration did not have the same medical records available to it.

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LABORERS' PENSION FUND v. LAY-COM, INC. (September 2, 2009)

King & Larsen, Lord & Essex and Lay-Com are all in the development or construction business. Mike King is the owner of King & Larsen. Lord & Essex and Lay-Com are both owned directly or indirectly by members of the Popp family. King & Larsen had a collective bargaining agreement that required it to make contributions to the plaintiff fund. When it ran into financial difficulty, Lord & Essex and Lay-Com came to its rescue. They loaned money and paid some bills. The companies then entered into a complex series of transactions that resulted in the transfer of most of King & Larsen's assets to a new company, M. A. King. The tax and union pension fund liabilities of King & Larsen remained behind, in an otherwise empty shell. The pension fund sued King & Larsen, M. A. King and Mike King for the unpaid contributions. After obtaining default judgments, the funds added Lay-Com, Lord & Essex, the Lay Trust and John Popp as defendants. The district court found Lay-Com, Lord & Essex and the Lay Trust liable on a veil-piercing theory and dismissed John Popp. All parties appeal.

In their opinion, Judges Cudahy, Manion and Tinder affirmed in part and reversed in part. The Court identified the sole issue on appeal as whether it was appropriate to pierce the corporate veil of M. A. King, as successor to King & Larsen, to reach the other defendants. A primary purpose of the corporate structure is to limit liability. An exception to that limitation of liability occurs when a corporation is used as a mere instrumentality of another. The Court stated that the plaintiffs must both demonstrate that there exists a unity of interest in ownership between or among the companies and that honoring the corporate fiction would result in an injustice. A principal factor in addressing the former is whether the companies respected their separateness. A principal factor in addressing the latter is whether the company operates with sufficient capital. Addressing each of the four defendants, the Court concluded that the test was met with respect to Lay-Com. First, Lay-Com exerted substantial control over M.A. King and did not allow it to operate separately. Second, M.A. King was created with not only inadequate capital – it was created with no equity capital. The Court concluded no capital is inadequate as a matter of law. Although the Court found the analysis with respect to Lord & Essex more difficult, it also concluded that Lord and Essex was a important part of the scheme and did not maintain its separateness from M.A. King. The Court concluded that the Lay Trust and John Popp individually played no role in the scheme. It found neither subject to liability under veil-piercing.

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CENTRA, INC. V. CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND (August 20, 2009)

CenTra, Inc. is a family-owned holding company with several subsidiaries, including the Detroit International Bridge Co. (“DIBC”), which operates the Ambassador Bridge between Detroit and Windsor. Prior to 1995, two of the other subsidiaries were Central Cartage Company and Central Transport, Inc. Each of those subsidiaries had labor agreements with unions and contributed to the defendant's pension fund. The company reorganized in 1995. It created two new subsidiaries to take on the union-trucking operations of Cartage and Transport and a third subsidiary to engage in non-union operations. It then merged Cartage and Transport into the holding company. Those companies ceased to exist. Shortly thereafter, the holding company contributed selected assets and liabilities of the former subsidiaries into the newly formed union-trucking subsidiaries. The stock in the new subsidiaries was sold the following year to U.S. Truck, a company controlled by members of the same family. The new companies did not do well and U.S. Truck was liquidated within a few years. DIBC still had union agreements and contributed to the defendant's pension fund until 1997. Under the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), an employer withdrawing from a multi-employer pension plan must pay a "withdrawal liability," a proportionate share of the plans underfunded, vested benefits. A complex formula for calculating the withdrawal liability is based for the most part on an employer's history of contributions. Here, defendant assessed in excess of $14 million in withdrawal liability against CenTra, including in its calculations the contribution history of Cartage and Transport, the two subsidiaries that ceased to exist in 1995. CenTra challenged the assessment in arbitration and was successful in getting it reduced to under $1 million. The district court reinstated the assessment. CenTra appeals.

In their opinion, Judges Cudahy, Ripple and Wood affirmed. The Court examined the re-organization process one step at a time to determine the effect on the company's withdrawal liability under the MPPAA. The first step, the merger of Cartage and Transport into CenTra, resulted in CenTra inheriting the contribution histories of those subsidiaries. In the second step, CenTra transferred selected assets and liabilities of the former subsidiaries into the new subsidiaries. The Court concluded that this transaction did not meet the statute's specific safe-harbor requirements for transferring the contribution histories from CenTra into the new subsidiaries. The assets and liabilities of the old subsidiaries were not transferred intact into the new subsidiaries, but were transferred piecemeal at the discretion of CenTra. The district court was correct in concluding that the calculation of the withdrawal liability of CenTra included the contribution history of Cartage and Transport. 

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SHARP ELECTRONICS CORP. v. METROPOLITAN LIFE INSURANCE CO. (August 18, 2009)

Sandra Rudzinski was an active employee of Sharp Electronics when she began experiencing fatigue and headaches. As a Sharp employee, she participated in its disability plan. Under the plan, Sharp paid short-term benefits during an initial 180-day period and Metropolitan Life Insurance Company ("MetLife") paid long-term benefits. Sharp paid premiums to MetLife on behalf of its employees. Rudzinski received short-term benefits from Sharp and applied for long-term benefits from MetLife. MetLife denied her application, first on the ground that she had a pre-existing disability and later on the ground that she had not completed the 180 days of short-term benefits. Rudzinski sued MetLife under ERISA. During the litigation, MetLife told Rudzinski that MetLife also denied her benefits because Sharp stopped remitting premium payments after her employment ended. She added Sharp as a defendant. She accused Sharp of interfering with her benefits, violating fiduciary duties, and for telling her that she could maintain her benefits by obtaining a conversion policy. Sharp cross-claimed against MetLife, alleging breach of fiduciary duty, equitable estoppel and indemnity. Rudzinski voluntarily dismissed her claim against Sharp and the court entered judgment in her favor in her claim against MetLife, leaving only Sharp's cross-claim. Sharp filed an amended complaint, alleging breach of fiduciary duty under ERISA, indemnification, negligence, negligent inducement, negligent misrepresentation, abuse of process and common-law breach of fiduciary duty. The court granted MetLife's motion to dismiss, concluding that MetLife had not breached a fiduciary duty and that the state law claims were preempted by ERISA. Sharp appeals.

In their opinion, Judges Kanne, Rovner and Wood affirmed with respect to ERISA and vacated and dismissed with respect to the state law claims. In order to recover under its ERISA claim, Sharp had to prove that MetLife owed it a fiduciary duty, that it was involved in fiduciary functions when it told Rudzinski about Sharp's failure to pay premiums, and that it was seeking damages for losses suffered by the plan (as opposed to the company). Although the Court agreed that Sharp and MetLife both occupied fiduciary roles, it concluded that MetLife did not owe a fiduciary duty to Sharp. It also concluded that Sharp's only losses were its fees and expenses in defending the suit brought by Rudzinski, losses not recoverable under ERISA. With respect to the state law claims, the Court disagreed with the district court that they were preempted by ERISA. ERISA does not preempt state law claims that are not related to a benefit plan. Here, Sharp's claims relate to its contractual relationship with MetLife. Even though the subject of that relationship is a benefit plan, claims relating to the contract are not preempted. The Court nevertheless dismissed the state law claims based on the lower court's alternative ruling that it would not exercise its discretion to hear the state law claims, considering that the only federal claim was dismissed. 

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MARRS v. MOTOROLA, INC. (August 14, 2009)

Years ago, Michael Marrs developed a psychiatric condition that forced him to leave his job at Motorola and go on disability leave. Six years after he started his leave, Motorola amended its disability plan. It imposed a two-year limit on disability benefits resulting from mental, rather than physical, conditions. Marr's benefits were terminated by Motorola two years after the amendment. Marrs brought a class action under ERISA. The district court granted summary judgment to Motorola. Marrs appeals.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Posner affirmed. ERISA limits a plan's ability to amend its terms. It provides that no amendment can adversely affect benefits with respect to periods of disability prior to the date of the amendment. The Court rejected Marrs' interpretation under which a plan could not affect any benefits for a period of disability that began before the amendment, but continues to run. The Court also addressed and rejected Marrs' argument that the Supreme Court's Glenn decision required a different outcome. Normally, the Court stated, if the plan administrator is given discretion to interpret the terms of the plan, a court will only reject its interpretation if it is unreasonable. That discretion exists in Motorola's plan. In Glenn, the Supreme Court addressed the situation when a plan administrator is laboring under a conflict of interest. Here, however, the Court concluded that the record did not establish that the administrator had a serious conflict of interest.
 

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RAYBOURNE v. CIGNA LIFE INSURANCE COMPANY (August 6, 2009)

After 23 years on the job, Edward Raybourne went on long-term disability. He was about to have the first of four surgeries on the big toe of his right foot. His disability plan provided payments for 24 months upon a showing that he was unable to perform his regular job. After 24 months, he had to show that he was unable to perform any job in order to continue receiving benefits. After an independent medical examination concluded that Raybourne could return to work, Cigna terminated his long-term disability benefits. Raybourne's treating physician continued to state that he was unable to return to work. After his internal appeals were unsuccessful, Raybourne brought suit under ERISA. The district court granted summary judgment to Cigna, concluding that it had not abused its discretion. Raybourne appeals.

In their opinion, Judges Rovner, Wood and Williams vacated and remanded. An abuse of discretion standard, stated the Court, is appropriate when the plan administrator has discretionary authority. The Court found that Cigna had such authority, notwithstanding Raybourne's contention that the grant of discretion is not included in a plan document. Under that standard, an administrator's decision will be upheld as long as it is supported by evidence in the record and specific reasons are communicated to the claimant. Here, however, the Court noted that the Supreme Court released its opinion in Glenn just a few days before the district court's summary judgment decision. Glenn held that one factor in the abuse of discretion analysis is the structural conflict of interest when a plan administrator is both the arbiter of claims and the payor of successful claims. The Court concluded that the district court's passing reference to Glenn required a remand for a proper analysis of the structural conflict.

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FISCHER v. LIBERTY LIFE ASSURANCE CO. (August 4, 2009)

After five years as a programmer with Stein Roe, Bruce Fischer complained of memory loss and problems with his attention. He applied for and received short-term disability benefits. A few months later, he submitted a claim for long-term benefits. The three medical reports he submitted with his application contained diagnoses of severe or profound depression. The plan administrator approved his application but informed him of the plan's 24-month maximum benefit period for mental illnesses, including depression. After the 24 months, the plan discontinued Fischer's benefits. Fischer continued to see additional medical personnel during the period of the plan's evaluation and his appeal. In all, at least thirteen physicians reviewed Fischer’s case. There was disagreement among the physicians as to whether Fischer's condition was organic or psychological. Fischer brought an action under ERISA for reinstatement of benefits. The district court granted summary judgment to the plan administrator. Fischer appeals.

In their opinion, Judges Posner, Flaum and Wood affirmed. The Court noted its limited scope of review. Only if the plan's decision is arbitrary and capricious will the court disturb it. The Court noted the "ample evidence" in the record supporting Fischer's contention that his condition is organic, at least in part. It also noted, however, the evidence in the record that concluded that his condition was solely psychological. On that record, applying an arbitrary and capricious standard of review, Fischer cannot prevail.

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LOVE v. NATIONAL CITY CORPORATION WELFARE BENEFITS PLAN (July 23, 2009)

Nancy Love had worked at National City for over twenty years when she was diagnosed with multiple sclerosis. After almost 3 years of receiving long-term disability benefits, the Plan told her she no longer fit their definition of "disabled." The controlling definition, after two years of long-term disability, is that a claimant must not be able to perform any job for which she is or could be qualified. The Plan's assessment concluded that, although she probably suffered from multiple sclerosis, she had never suffered an attack nor exhibited clinical signs. Love appealed the determination. She supported her appeal with several medical reports concluding that she had limited functional ability. The Plan denied her appeal, citing its doctor's conclusion that Love was able to do certain simple jobs. Love sued the Plan under ERISA. The district court granted summary judgment to the Plan. Love appeals.

In their opinion, Judges Ripple, Evans and Sykes reversed and remanded. The court stated that ERISA requires a plan to set forth its specific reasons for any denial of benefits. Love's medical file and her appeal contained multiple medical reports questioning for functional capacity. In fact, each of Love's treating physicians concluded that she was unable to work for more than a few hours a day. The Court noted that neither the initial termination letter nor the letter denying her appeal explained the Plan's reasons for discrediting the reports. The Court concluded that the Plan acted arbitrarily by denying benefits without an adequate explanation. The Court declined, however, to order reinstatement of benefits. Instead, it remanded to the district court with instructions to remand to the Plan Administrator for further proceedings.

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FRY v. EXELON CORPORATION CASH BALANCE PENSION PLAN (July 2, 2009)
 

Exelon Corporation created a defined-benefit pension plan in 2002. In order to be able to distribute the balance of employee's account as if the Plan were a defined-contribution plan, Exelon defined "normal retirement age" to be five years after commencement of employment. Exelon was thus able to avoid what it considered to be a problem with ERISA's treatment of defined-benefit plans (Congress fixed the problem in ERISA in 2006). Thomas Fry retired from Exelon in 2003 at age 55. Fry sued the Plan when it turned over only his account balance rather than his balance plus investment credits through age 65. The lower court held that the Plan satisfied ERISA. Fry appeals.

In their opinion, Chief Judge Easterbrook and Judges Evans and Sykes affirmed. The Court examined the statute. ERISA defines "normal retirement age" as either a) when an employee attains normal retirement age under the plan, or b) the later of i) age 65 or ii) the employee’s fifth anniversary in the Plan. The Court agreed with Exelon that its approach was allowable under the first prong of the definition. It concluded that ERISA did not require a retirement age to be actuarially accurate. Under the statute, an age is a "normal retirement age" if the plan says it is.

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KROLNIK v. THE PRUDENTIAL INSURANCE COMPANY (June 29, 2009)

Although Paul Krolnik ceased working because of a hernia and back pain, he failed to return to work because, at least in part, of his depression. Prudential paid him long-term disability benefits for two years. It stopped the benefit stream after two years because the policy at issue caps the benefit at two years if the inability to work is caused, even in part, by a mental illness (including depression). Krolnik brought an ERISA suit against Prudential. The court below barred all discovery on medical issues, struck Krolnik's medical affidavits and granted summary judgment to Prudential.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Williams affirmed in part and vacated and remanded in part. The parties agreed that the benefit plan at issue did not confirm operational discretion on its administrator. The Court stated that the court below therefore was required to make an independent decision on Krolnik’s benefit entitlement. Here, instead, the judge simply looked at the administrative record and disallowed any new evidence. The court erred in barring discovery, refusing to take new evidence, declining to resolve disputed facts and simply relying on the administrative record. As an aside, the Court criticized the use of the phrase "de novo review" in these circumstances since the court is not reviewing anything but reaching an independent decision. The Court affirmed the district court with respect to a subrogation issue and otherwise vacated and remanded.

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JENKINS v. PRICE WATERHOUSE LONG TERM DISABILITY PLAN (May 4, 2009)

Charles Jenkins went to work for PricewaterhouseCoopers LLP ("PwC") in 1989. He started experiencing health problems related to HIV in 1993. He suffered from fatigue, nerve damage, decreased sensation, dexterity limitations, and infections. By the end of 1993, he was no longer able to work. He filed a claim under PwC’s long-term disability plan. The plan administrator agreed that he met the definition of "total disability" and paid him benefits from 1994 until 2006. Beginning in 2004, the plan administrator began to review Jenkins' file. After two medical record reviews and an independent medical examination, the plan administrator terminated Jenkins' benefits. The more recent reviews concluded that Jenkins' condition was fairly stable and that he may be capable of performing some jobs. In fact, a rehabilitation specialist identified certain specific positions that fit within Jenkins’ limitations. Jenkins' treating physician disagreed with the conclusion and maintained that he was unable to work. After an unsuccessful internal appeal, Jenkins brought an action under ERISA. The district court granted summary judgment to the plan. Jenkins appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Evans affirmed. The Court noted that its review is highly deferential and looks only for "rational support" in the record. The Court found that support. Admittedly, the opinion was not unanimous, the evidence was not conclusive, and the result was not required. However, four medical professionals and significant medical evidence supported the plan's determination. That support was enough to affirm the judgment for the plan.

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IN RE: RADCLIFFE (April 23, 2009)

Barry Radcliffe owned Glass Service, Inc. The company made pension contributions as part of a labor agreement. When the company became delinquent, Radcliffe provided his personal guarantee. When he failed to perform on his guarantee, the pension fund sued and obtained a default judgment. Radcliffe requested his own pension benefits from the fund and, shortly thereafter, declared bankruptcy. The fund refused to turn over his benefits. Instead, they said they would apply the money to the default judgment. Radcliffe filed an adversary action in the bankruptcy court. The court ordered the fund to pay damages, interest, punitive damages and attorney's fees. The district court affirmed. The pension fund appeals.

In their opinion, Judges Kanne, Rovner and Evans affirmed. The first issue the Court addressed was whether the fund violated the automatic stay. The automatic stay takes effect immediately upon the filing of the bankruptcy petition and prevents creditors from taking any action to collect on a debt. The Court agreed with the district court that the fund’s refusal to pay the benefits violated the automatic stay. The Court also agreed that the fund’s conduct was intentional, taken with full knowledge of the existence of the bankruptcy proceeding, a requirement for punitive damages. The next issue was whether the court should have lifted the stay. One of ERISA's goals is to safeguard pension benefits. One way in which it does that is to prevent benefits from being assigned or alienated. As such, Radcliffe's pension benefits never became part of the bankruptcy estate. The Court found no abuse of discretion in the lower court’s refusal to lift the stay.

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CONTILLI v. LOCAL 705 INTERNATIONAL BROTHERHOOD OF TEAMSTERS PENSION FUND (March 23, 2009)

Vito Contilli reached retirement age in 1995 but continued to work for two years. He retired in October of 1997 and applied for his retirement benefits in January of 1998. Applying their rule that a retiree had to apply for benefits, the union Pension Fund began paying his monthly pension payments in February. The Fund neither paid Contilli for the interim months nor increased his monthly benefit to take those months into account. Contilli brought an action, claiming that the approach violated ERISA’s non-forfeiture rule. The district court found in favor of the Fund. Contilli appeals.

In their opinion, Chief Judge Easterbrook and Judges Ripple and Rovner vacated and remanded. The Court agreed that the retiree application requirement was not a problem – nor was a deferral of retirement without any benefit payment while the retiree is still working. Section 1053(a) requires, however, that any delay in benefits once a retirement is effective must be made up with payments for the missing months or with an actuarial adjustment to payments in future months.

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LEGER v. TRIBUNE COMPANY LONG TERM DISABILITY BENEFIT PLAN (March 9, 2009)

Lisa Leger suffered from osteoarthritis for years. Prior to 1990, she underwent three different arthroscopic procedures but was able to hold a job and engage in a rehabilitative exercise program. However, in 1990, she stopped working for WGN-TV and went on short-term disability. She began receiving long-term disability benefits in December 1990. She continued to receive benefits through 2005. During that time, she continued to have pain and problems with her knees and underwent multiple additional surgeries. The plan administrator reviewed her benefits in 2005 and requested updated information. Her treating physician advised that she was essentially unable to walk. The plan administrator's medical review concluded that she had significant osteoarthritis but that she was not precluded from sedentary work. A vocational rehabilitation consultant identified several employment positions for which she was qualified. The plan administrator therefore terminated her benefits in October of 2005. Leger appealed and provided additional medical information. The plan administrator arranged for another review of the file. That review highlighted some inconsistencies in her records. For example, the records indicated that she could not sit for more than 30 minutes at a time but she nevertheless was wheelchair bound. The plan administrator upheld the decision to terminate her benefits. Leger brought an action pursuant to ERISA’s section 1132 (a)(1)(b) to reinstate her benefits. The lower court granted summary judgment to the plan, stating that it advanced a reasonable explanation for its decision to terminate the benefits. Leger appeals.

In their opinion, Judges Bauer, Ripple and Evans reversed and remanded. The Court first rejected Leger's position, first brought out on appeal, that the arbitrary and capricious standard was the inappropriate standard of review. It added, however, that the claims determination still must comply with ERISA and that the claimant must be afforded a full and fair review. The Court also rejected Leger's arguments that the fifteen year history of payments or the plan's reliance on a medical file review only created a presumption that the termination decision was arbitrary and capricious. Instead, in determining whether a decision is arbitrary and capricious, the Court said it would look to the specific reasons for the denial, whether the claimant was afforded a full and fair review, and whether there is an absence of reasoning in support of the determination. Here, the Court was concerned that the determination failed to mention Leger's voluminous medical record spanning almost 20 years and 17 surgeries. The Court was also concerned about the treatment of the functional capacity evaluation. The plan ignored the FCE evidence that Leger's complaints of pain were real. The Court indicated that the plan was required to do more than just dismiss the complaints. As such, there was an absence of reasoning in the record and the determination was arbitrary and capricious. The Court recognized that it had the option of either remanding the case for further proceedings or reinstating the benefits. Here, because the plan failed to consider the lengthy medical history and to provide adequate reasoning for its treatment of the FCE, the Court was unable to say definitively that the determination was unreasonable. It therefore remanded the case for further proceedings.
 

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SOLIS V. CURRENT DEVELOPMENT CORP. (March 5, 2009)

George Klein is the president and sole shareholder of Current Development Corporation (CDC). CDC sponsored two employee benefit plans. The Department of Labor objected to the way Klein ran the plans and filed suit in District Court. In a settlement by consent order, Klein agreed to terminate both plans and distribute their assets -- a vacant parcel of land and almost $900,000 in cash. Klein allowed the plan participants to choose to take their shares in cash or in an ownership interest in the property. Almost everyone selected the cash option. Klein and his wife, themselves plan participants, were left with a 97% interest in the land. While Klein was winding up the plans, unbeknownst to the participants, he was negotiating the sale of the property. He used a property value of $1.7 million in calculating the participants' shares, even though he had already rejected a $2.3 million purchase offer. The Department of Labor found out about these negotiations and returned to court. The court concluded that Klein had breached his duty of loyalty to the participants and removed him as trustee. The court also appointed an independent fiduciary, who soon sold the property for $2.6 million. The independent fiduciary concluded, after a review of CDC's books and records, that Klein owed the plan another $170,000. The court ordered Klein to repay the money, with prejudgment interest. The independent fiduciary then calculated the final asset distribution figures, which the court adopted. Klein appeals.

In their opinion, Judges Bauer, Rovner and Evans dismissed in part and affirmed in part. The Court first addressed the jurisdictional issue. Klein filed two notices of appeal -- one after the court's denial of his motion to reconsider the order of prejudgment interest, and one after the court’s final payment determination. The Court noted that the consent decree itself was a final order. All orders after that were post-judgment orders. The Court compared a post-judgment proceeding to a freestanding lawsuit. In determining its scope of appeal, an appellate court will look for the nature of the proceeding and a final determination of the issues. Here, the Department of Labor began the proceedings when it filed its motion seeking Klein's removal as trustee and disgorgement of his gains. Thus, the proceeding was not final until both those issues were decided. The Court concluded that the post-judgment proceedings were final upon the court's determination of the distribution amounts. Since Klein filed a timely notice of appeal from that decision, the Court concluded that it had appellate jurisdiction of the matters presented during the proceedings. The Court dismissed Klein’s first appeal. The Court then addressed the standard of proof. Klein attempted to characterize the proceeding as one for civil contempt – with an accompanying clear and convincing standard of proof. The Court rejected that conclusion, holding that the proceeding was merely one for violation of the consent order. On the merits, the Court had little difficulty dismissing Klein's arguments: a) he waived his right to evidentiary hearing, b.) he should have disclosed the ongoing negotiations for the sale of the property to the plan's participants, c.) the court authorized the investigation into his operation of the plan, and d) the lower court's order for Klein to return money he took from the plan's assets in violation of ERISA and the final determination order were not clearly erroneous.

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MONDRY V. AMERICAN FAMILY MUTUAL INSURANCE COMPANY (March 5, 2009)

Sharon Mondry was an employee of American Family Mutual Insurance Company ("American Family") and participated in its health insurance plan. When her son needed speech therapy, she contacted the company to ascertain the extent of her benefits. After being referred to the Summary Plan Description ("SPD"), she enrolled her son in speech therapy in January 2003. In June 2003, CIGNA, the claims administrator, denied coverage. The letter indicated that the denial was based on CIGNA’s “Benefit Resource Tools guidelines” (“BRT”). The language used in the denial letter and the BRT was not consistent with the SPD, The SPD indicated that speech therapy is typically covered if performed by a certified therapist. Mondry began an effort that lasted over a year to get the documentation that was used by CIGNA to deny the coverage. For months, CIGNA and American Family either ignored or denied her requests. Mondry’s appeal of the denial was upheld in July of 2003. The letter upholding the denial again referenced a document that Mondry had never seen -- the Clinical Resource Tool (“CRT”). Mondry added the CRT to her document request. Her requests continued to go unanswered or denied. In September 2003, Mondry left her employment with American Family and elected not to continue her health coverage. She did continue her efforts to receive a complete set of plan documents and to reverse the denial of coverage. Mondry finally obtained copies of the CRT in July of 2004 in the BRT in October 2004. It became clear that the criteria contained in the CRT and the BRT were different from the criteria contained in the SPD. CIGNA reversed its position and authorized coverage of the speech therapy. Ten months later, CIGNA reimbursed Mondry for most of her out-of-pocket therapy expenses. Mondry filed suit against American Family and CIGNA pursuant to ERISA. She alleged that American Family and CIGNA failed to produce documents as required by the statute and that they both breached fiduciary duties owed to her. The district court dismissed the claims against CIGNA and entered summary judgment for American Family. Mondry appeals.

In their opinion, Judges Flaum, Kanne and Rovner affirmed in part and reversed in part. The court first addressed the failure to produce documents. ERISA requires a plan administrator to produce to a plan participant the Summary Plan Description and other documents, including "other instruments under which the plan is established or operated." The court affirmed the district court's dismissal of CIGNA with respect to this count because CIGNA is not the plan administrator. As the claims administrator, it is not subject to the requirement. The Court reversed, however, with respect to American Family. It held that American Family was required to produce the claims administration agreement as well as the BRT in the CRT. The Court had little problem in requiring the production of the claims administration agreement. Since it established the respective authorities and obligations of a plan administrator and claims administrator, it was a document on which the plan was operated. The Court found the BRT and the CRT closer questions. The Court stated that the catchall language should be narrowly construed to reach only documents that formally govern the establishment or operation of the plan. Since CIGNA treated the documents as authoritative sources -- in fact, the bases for their decision to deny the claim -- they are more than simply private guidelines. The Court emphasized the narrowness of its holding, only to apply to documents that are treated by the claims administrator as the equivalent of plan language. Finally, the Court held that the fact that American Family was not in possession of the documents was not relevant to its liability. If American Family did not have the right to obtain the documents from CIGNA, they certainly should have bargained for that right. The Court remanded to the district court for determination of the appropriate penalty.

The Court went on to address Mondry's claim that both American Family and CIGNA violated their fiduciary duties. Before addressing the existence of a fiduciary duty, the Court considered whether Mondry qualified for one of the statute’s limited range of remedies. The section of the statute upon which Mondry relies authorizes only equitable relief. The Court concluded that her claims for unreimbursed expenses and the expense she incurred as a result of her decision not to participate in COBRA were not authorized remedies. The Court did, however, concluded that Mondry had a viable claim for the time-value of the money she spent on the speech therapy. The Court noted that this was a restitutionary remedy -- sometimes considered a legal remedy and sometimes an equitable one. Restitution is equitable when it is sought as a result of a breach of fiduciary duty. Here, American Family had the interest-free use of the money and restitution by Mondry negate its gain. Having found relief to which Mondry may be entitled, the Court proceeded to address the fiduciary duty issue. ERISA imposes a duty of loyalty like that of a trustee and it creates a duty of care in executing that duty. The Court looked to a Fourth Circuit decision that concluded that a fiduciary breaches its fiduciary obligation when it fails to make the disclosures required by the statute. The Court concluded that there was sufficient evidence from which a fact-finder could determine that American Family breached its fiduciary duty to Mondry. With respect to CIGNA, however, the Court found so no such duty. CIGNA did not have the same obligation to produce documents, nor did profit from a refusal to do so. The Court affirmed the lower court's dismissal of all counts as against CIGNA and reversed with respect to both counts as against American Family. It remanded the claim for penalties for a determination of the appropriate amount and reversed the summary judgment on the fiduciary duty count and remanded for further proceedings.

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HECKER v. DEERE & COMPANY (February 12, 2009)

Deere & Co. sponsors 401(k) plans for its employees. It engaged Fidelity Management Trust Co. (“Trust”) to serve as trustee of two of the plans. Trust administered employees’ accounts, maintained records, and advised Deere regarding investment options to include in the plans. Both plans offered many different investment choices – Fidelity mutual funds, two investment funds managed by Trust, a Deere stock option, and an option that provided a link to over 2500 funds managed by different companies. The plan’s participants managed their own funds from among the choices. Each of the funds imposed a percentage of assets fee upon participants. Fidelity Management & Research Co. (“Research”) is the investment advisor for the Fidelity mutual funds. Research earned revenue from the mutual fund fees and shared it with Trust. Trust’s only compensation for managing Deere’s plans was the fee from Research. Dennis Hecker and other plan participants brought this class action against Deere, alleging that Deere violated its fiduciary duty under ERISA by providing options in the plans that charged excessive fees and by not disclosing the fee structure between Trust and Research. Hecker also sued Trust and Research as functional fiduciaries. The district court granted defendants’ motions to dismiss without addressing the class issue. Hecker appeals.

In their opinion, Judges Manion, Wood and Tinder affirmed. The Court addressed several issues on appeal:
     1) Defendants’ motions to dismiss included hundreds of pages of documents related to the plans. The documents were either referred to in the complaint or were publicly available. The Court rejected Hecker’s argument that the district court improperly considered documents outside the complaint. The documents were used only to show the disclosures that had been made to plaintiffs. The district court was within its discretion to consider them without converting the motion to one for summary judgment.
     2) Deere admits that it owed some fiduciary duties to plaintiffs. Trust and Research, however, deny that they are fiduciaries. The district court agreed. Hecker argues only that they are “functional fiduciaries.” In order to be a functional fiduciary, the Court stated, one must exercise some discretionary management or control over the plan. The Hecker complaint alleged that Trust and Research “played a role,” not that they exercised control. The Court held Hecker to his complaint and rejected his attempts to change his theory on appeal.
     3) Even if Deere left an inaccurate impression that it was paying for the management of the fund, the Court agreed with the district court that there was nothing illegal about the revenue sharing agreement described in the complaint. The participants were fully informed of the amount of fees imposed by each fund and were free to direct their assets to whichever fund they chose. In order for there to be a breach of a fiduciary duty, there must have been a material omission. How Research distributed its fee is not material to plaintiffs – and they cannot make out a breach of fiduciary duty claim for that omission.
     4) Hecker also asserts that Deere breached its fiduciary duty by selecting investment options with excessive fees. The Court held that no rational trier of fact could conclude that Deere failed to offer a sufficient array of vehicles – it offered over 2500 different vehicles with varying fees, all of which were also available to the public. The Court could find nothing in ERISA that required any particular mix of plans – so Deere’s decision may not even be within its fiduciary responsibilities. Even if it is, the Court found no breach. 
     5) The Court also addressed the ERISA “safe harbor” provision as an alternative grounds for affirmance. The normal ERISA imposition of a fiduciary duty on a plan manager is modified when the participants: exercise independent control of their assets, can choose from a broad range of alternatives, and have sufficient information to make informed choices. Then, a fiduciary is not liable for a participant’s loss resulting from that exercise of control. Although this “safe harbor” provision is an affirmative defense normally not applied on a Rule 12(b)(6) motion, the Court noted that it can be applied when the complaint establishes the very elements of the defense. Here, the 2500+ options to plan participants with fees ranging from .07% to 1% establish the elements of the safe harbor for Deere and Trust and Research.
     6) The Court summarily rejected Hecker’s complaints with respect to the court’s refusal to entertain an amended complaint and its award of costs.

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ESTATE OF SUSKOVICH v. ANTHEM HEALTH PLANS (January 22, 2009)

Anthony Suskovich was a computer programmer and analyst. From 1996 until his unfortunate and sudden death in 2006, he provided services to WellPoint. WellPoint retained Suskovich on many projects with limited duration, although frequently one project rolled over into another. He billed WellPoint on an invoice, was paid by the hour, and his income was reported on a 1099. WellPoint adopted a preferred vendor program around 2000 under which it could only avail itself of Suskovich’s services if they were provided by a preferred vendor. Suskovich began a relationship with Trasys. Suskovich would send an invoice to WellPoint, which in turn would refer them to Trasys for payment to Suskovich. Suskovich’s income was still reported on a 1099. In 2001, Suskovich signed an “independent contractor” agreement. Suskovich worked on many different projects, sometimes on more than one at once. He usually worked at WellPoint’s offices with a computer supplied by WellPoint. In 2005, WellPoint informed Suskovich that they would not be using him anymore and asked him to train a replacement. Later, Suskovich and WellPoint had discussions about the possibility of Suskovich becoming an employee of WellPoint but nothing ever came of them. Before his death, the IRS began an investigation of Suskovich for not filing tax returns. The investigation led to his filing of returns for several years in which he listed himself as self-employed. He still had remaining tax liability when he died. His estate brought an action against WellPoint and Trasys, seeking a declaratory judgment that Suskovich was an employee of WellPoint and Trasys and for compensation under the Fair Labor Standards Act (“FLSA”), benefits under ERISA, and tax indemnity. The district court granted summary judgment for the defendants, holding that Suskovich was an independent contractor. The Estate appeals.

In their opinion, Judges Cudahy, Flaum and Sykes affirmed. First, the Court held that the district court did not give improper weight to the “independent contractor” agreement. The Court held that the court below properly followed the law of the Circuit that parties can define their relationship as long as the other factors do not lead to the opposite conclusion. The district court gave primary weight to the contract but did consider and weigh other factors. Next, the Court held that the district court properly resolved the ambiguity in the contract by considering the language of the contract as well as extrinsic evidence. The Court proceeded to the meat of the appeal – whether Suskovich was an independent contractor or an employee. The Court decided to approach the question under the 10-factor Restatement test, even though the asserted claims have different tests. ERISA claims use a 12-factor common law test. FLSA claims use a broader 6-factor test. The Supreme Court has held that the ERISA test is similar to the Restatement test and the Estate relied on the Restatement test. The Court evaluated and weighed the ten factors: a) extent of control, b) whether the worker is engaged in a distinct occupation, c) whether the type of work is generally done without supervision, d) skill required, e) who supplies the tools and workplace, f) length of employment, g) whether the payment is by time or job, h) whether the work is the regular business of the employer, i) the parties’ belief, and j) whether the principal is in business. The Court concluded that only two factors weighed at all in Suskovich’s favor: who supplied the tools and whether the work was the regular part of the business. The former is a relatively unimportant factor and the latter only favors Suskovich as against Trasys. All of the other factors weighed against Suskovich. The district court was correct in awarding summary judgment to WellPoint and Trasys.

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MARRS v. MOTOROLA, INC. (November 7, 2008)

Michael Marrs sued Motorola, Inc. and several of its benefit plans (“Motorola”), alleging violations of ERISA. The parties stipulated to class action certification. Marrs served as the class representative. The district court granted summary judgment to Motorola. Marrs appealed. Marrs moves for leave to correct his notice of appeal.

In their opinion, Judges Cudahy, Posner, and Flaum denied Marrs’ motion. Marrs’ original notice was in his name only. It did not mention other claimants or the class. In fact, it did not indicate that he is appealing in any capacity other than individually. Marrs moved to amend his notice to indicate that he is appealing on behalf of the class. The Court began with Rule 3(c) of the Federal Rules of Appellate Procedure. That rule provides that a notice of appeal in a class action is sufficient if it names one person who is qualified to bring the appeal. It also provides that an appeal should not be dismissed for failure to name a party “whose intent to appeal is otherwise clear from the notice.” The Court cited its decision in Murphy v. Keystone Steel & Wire Co. for the further proposition that the notice of appeal by a class representative must indicate the he is appealing in his representative capacity. One of the reasons the Court limited the appeal in Murphy to the named plaintiffs was the inclusion on the notice of another party who was not a class member. The Court also looked to its decision in Clay v. Fort Wayne Community Schools. In Clay, there were two separate classes. The Court held that the appeal in the name of one class did not support review of the claims of the other. Neither case involved a single class as the only plaintiff. Nevertheless, the Court found the differences “too slight” to warrant a different result.

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LEISTER v. DOVETAIL, INC.  (October 23, 2008)

Sandra Leister and Michelle and Evan Peterson worked together at a company that provided employee assistance programs to employers. In 1997, the Petersons purchased some of their employer’s program contracts and formed Dovetail to administer those contracts. They hired Leister, a psychologist, to work for Dovetail. As one of the benefits of employment, they agreed to deposit a percentage of her salary into a 401(k) account. They complied with their promise for about a year and then began diverting Leister’s money to their own benefit. They also refused to provide Leister with documentation of her rights under the plan. Leister brought this action under ERISA to recover the contributions that Dovetail was obligated to make to her account and for statutory penalties. The district court found a willful breach of the defendants’ fiduciary duties and awarded Leister $82,741 for the contributions not made. The court declined to impose statutory penalties for the Peterson’s failure to provide plan documents, relying on their dire financial circumstances. The defendants and Leister each appeal.

In their opinion, Judges Bauer, Posner, and Williams affirmed in part, reversed in part, and remanded. The Court first addressed two preliminary matters – whether there was enough of a writing to satisfy ERISA and the impact of Leister’s failure to name the plan as a defendant – and resolved each of them in Leister’s favor. It then proceeded to the statute of limitations issue. ERISA complaints are governed by two limitations provisions. Complaints for breach of a fiduciary duty under sections 1101 to 1114 must be brought within the shorter of six years from the breach or three years from the date when the plaintiff had actual knowledge of the breach. Complaints for benefits due under the plan pursuant to section 1132(a)(1)(b) are governed by the most analogous state limitations period, in this case Illinois’ ten-year statute for breach of a written contract. Leister sought relief under both sections 1104 and 1132(a)(1)(b), but the district court based its judgment only on section 1104. Since Leister’s complaint was filed more than six years after the defendants’ first breach, her recovery would be limited under 1104. The Court found that a) she was entitled to relief under both sections, b) she was entitled to more relief under section 1132(a)(1)(b), and c) she met the ten-year statute of limitations. Under 1132(a)(1)(b), Leister was entitled to the unpaid contributions as well as a reasonable estimate of their investment growth over time. The Court accepted Leister’s cross-appeal argument that the district court erred in not considering the tax-free status of the contributions. It directed the court to recalculate the benefits on remand.

Leister also “shoehorn[ed]” a claim for sales commissions into her ERISA claim. The Court found that the district court erred in treating it as an ERISA claim even though Leister alleged that she would have deposited the commissions into her 401(k) account. Nevertheless, the Court noted that the claim was also pleaded as a state law claim and would be considered in that context on remand. The Court offered guidance to the district court on the state law claim: a) it has a shorter limitations period than the ERISA claims because it is not a written contract, b) Leister cannot recover tax benefits as if she would have deposited the money into her 401(k), and c) an Illinois statute may allow for an award of attorneys’ fees. Lastly, the Court addressed Leister’s argument that the court erred in not awarding statutory penalties. The Court observed that penalties, in whatever form, are meant to deter. Although deterrence can be achieved with smaller awards against poorer defendants, an award of no penalties against a solvent defendant who commits a willful breach is unreasonable. The district court’s decision was an abuse of discretion.

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ORTH v. WISCONSIN STATE EMPLOYEES UNION  (October 22, 2008)

Ron Orth retired in 1998. The collective bargaining agreement covering his employment required his employer to provide health insurance to retirees. It also required the employer to pay 90% of the premium. Finally, it stated that the monetary value of an employee’s unused sick leave upon retirement, if any, would be used to pay the employee’s share of the premium. Notwithstanding these provisions, the benefits plan of Orth’s former employer deducted all of the premium amounts from Orth’s sick leave account, using it up in eight years. Orth brought this action, with his wife, against his former employer and its benefits plan, alleging that they violated ERISA. The defendants admitted that the terms of the written plan were as alleged by the Orths but maintained that the plan had been modified through the conduct of the parties over time. The district court granted summary judgment to the Orths and awarded attorneys’ fees. The defendants appeal.

In their opinion, Judges Bauer, Posner, and Williams affirmed. The Court observed the general rule that a contract can be modified by the subsequent dealings of the parties. ERISA, however, requires that plans be in writing. The Court held that amendments to plans must be in writing as well. The ERISA plan, therefore, could not be amended by conduct. The Court went on to consider whether the fact that the plan was a creature of a collective bargaining agreement made a difference. Collective bargaining agreements are often modified orally or by subsequent dealings. Employees are not even parties to the agreements. A collective bargaining agreement can be modified without an employee’s consent, as it was here. The union does owe a fiduciary duty to its members, but the Orths do not complain of a breach of the union’s fiduciary duty. But, the Court went on, the welfare plan also owes a fiduciary duty to its participants. Although the plan can be changed without the consent of the participants, the change in this case was made without notice to the participants. That, said the Court, is a violation of the plan manager’s fiduciary duty to the participants (as well as a violation of law).

The defendants also quarrel with the award of damages and fees. The Court agreed that ERISA does not allow consequential damages, but it declined defendants’ invitation to characterize the award of premiums the Orths paid to maintain coverage after their sick leave account was drained as consequential damages. The Court roundly rejected defendants’ argument that the district court erred when it awarded fees on a finding of “no substantial justification” for their position. To the contrary, the Court said, it questioned whether the district court was even correct in its opinion that the defendants acted in good faith. Finally, the Court found no merit in defendants’ argument that the $41,000 fee award was excessive given that the damages awarded to the Orths was about the same. The Court found no error, remarking that one reason fee awards exist is to allow people with small losses the ability to recover those losses.

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TATE V. LONG-TERM DISABILITY PLAN FOR SALARIED EMPLOYEES OF CHAMPION INT’L CORP. #506 (September 19, 2008)

in 1988, Jo Ann Tate left her job with Nationwide Papers as a sales representative because of problems with anxiety and depression. Her employer’s benefits plan (the “Plan”), governed by ERISA, gave her the right to short-term and long-term disability benefits. The long-term disability program was divided into two stages. A person could receive up to two years of long-term disability on a showing that she was unable to perform the duties of her job. After two years, a person had to show that she was unable to perform the duties of any job for which she was or could be qualified. Tate received short-term disability benefits for six months and applied for and was granted long-term disability benefits in 1999. In 2003, the Plan notified Tate that she was no longer eligible for benefits because she did not meet the second stage (i.e., any job) test. The Plan based its decision terminating her benefits on the report of a physician who had not examined Tate but had access to her file. Tate appealed the denial. A second physician reviewed her file and came to the same conclusion. She based her conclusion on the facts that Tate kept her home, complied with her treatment schedule, and experienced some benefit from medication. Tate challenged the determination in district court. On cross motions for summary judgment, the court found that the Plan’s decision to terminate her benefits was arbitrary and capricious in that it consisted only of conclusory statements unsupported by fact. The court specifically noted the absence of any employability review or identification of jobs available to Tate. The Plan appeals. In addition, the court remanded in order for the Plan to make a proper determination of benefits and denied Tate’s request for attorneys’ fees. Tate appeals.

In their opinion, Judges Posner, Kanne, and Williams affirmed all aspects of the district court’s decision. On the Plan’s appeal, the Court noted its de novo review of the district court’s decision and the highly deferential, “arbitrary and capricious,” standard of review of the denial of benefits. Nevertheless, the panel found that it was arbitrary and capricious because neither physician’s report was based on any explanation or reasoning. The first physician apparently did not even review her employment file. The second physician reviewed her employment file but did not tie the conclusion that Tate was unable to work to anything that was relevant to that issue. ERISA requires the Plan to assess her qualifications to work and relate those to jobs she might be able to perform.

Tate’s appeal argued that reinstatement, not remand, was appropriate because the Plan terminated previously awarded benefits, and did not simply deny benefits. Tate relied on the fact that the Plan provided benefits for two years after the “any job” standard took effect. The Court was puzzled by the Plan’s continued payments of benefits after two years without any determination but still found no such determination and held that a remand was proper. The panel also agreed with the district court’s conclusion that obtaining a remand in an ERISA case is not equivalent to “prevailing” for purposes of attorneys’ fees awards. 

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ABENA v. METROPOLITAN LIFE INS. CO. (September 16, 2008)

Albert Abena worked as a dentist for American Dental Partners, Inc. (“ADP”). ADP provided long-term disability benefits to eligible employees through a plan administered by Metropolitan Life Insurance Co. (“MetLife”). An employee seeking benefits had to file a “Proof of Disability” within three months of the end of an “Elimination Period” (a ninety day period from the date of disability during which benefits were not paid). The Plan provided that no legal action could be filed before the sixtieth day after the filing of the Proof of Disability or after three years from the date Proof of Disability had to be filed. Abena submitted a Proof of Disability on October 23, 2000. He asserted that his disability commenced on May 16, 2000. MetLife approved the claim in early 2001 and began paying benefits. After learning that Abena was again working as a dentist, MetLife reviewed his claim and notified him on August 8, 2002 that his benefits would be terminated. Abena took advantage of an internal appeals process. MetLife affirmed its decision on April 16, 2003. Abena filed suit on April 17, 2006 under ERISA against ADP and MetLife. The district court granted summary judgment to the defendants on the ground that the suit was not timely filed. Abena appeals.

In their opinion, Judges Manion, Rovner, and Evans affirmed. The Court agreed with the court below that the issue was controlled by the Court’s 1997 decision in Doe v. Blue Cross Blue Shield United of Wisconsin. In Doe, the Court noted that ERISA did not contain a Statute of Limitations and that the normal practice would be to borrow a limitations period from a closely analogous statute. It also held that a shorter contractual limitations period would be enforced if it was reasonable. Doe dealt with an employer-sponsored health plan. Like the ADP plan, the Doe plan provided that a claimant had to file for reimbursement within ninety days of the date of service and that the claimant could not initiate a suit after three years from the last day a claim could be filed. The plan also required a claimant to pursue an internal appeals process. The appeals process in Doe was concluded with seventeen months left in the three year limitations period. Particularly given that the claimant was represented by counsel, the Court held that the seventeen months was reasonable and enforceable. In applying Doe to Abena’s situation, the three year period expired in November of 2003. MetLife notified him of its affirmance of termination of benefits in April of 2003. Abena, therefore, had seven months to file suit. Abena argues that Doe was an initial claim case and his is a denial of previously granted benefits and therefore distinguishable. The Court agreed that the limitations provision may be better suited to an initial claim but did not see that as a reason to depart from Doe’s holding. The Court also agreed with Abena that a situation could arise in which benefits were paid for thirty nine months before termination, leaving no time to bring suit. Unfortunately for Abena, the Court’s view was that the possibility of that result did not invalidate the limitations period or make a seven month period unreasonable – it merely would have made the application of the provision in that case unreasonable. Abena, too, was represented by counsel. In those circumstances, the Court held that a seven month period was reasonable and enforceable. 
  

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