Health Plans

Research Reveals Disparities Between Disability Claims and Other Types of Benefits Litigation

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By Joseph A. Garofolo

The Department of Labor recently cited ERISA Benefits Litigation: An Empirical Picture, 28 ABA J. Lab. & Emp. L. 1 (2012) (“ERISA Benefits”), in its proposed regulation regarding disability benefit plan claims procedures.  See 80 Fed. Reg. 72014, 72016 n.8 (Nov. 18, 2015).  ERISA Benefits is a study by Sean M. Anderson, a professor at the University of Illinois College of Law, that most ERISA practitioners—regardless of whether they focus on disability claims—will find fascinating.

Professor Anderson analyzed data relating to ERISA benefits lawsuits filed between 2006 and 2010.  He found that disability suits accounted for 64.5% of benefits litigation whereas lawsuits involving health care plans and pension plans accounted for only 14.4% and 9.3%, respectively.  ERISA Benefits at 7.  According to the study, defendants asserted failure to exhaust in 27.8% to 40.4% of lawsuits in which disability benefits were not involved.  Id. at 11.  In contrast, failure to exhaust was asserted as a defense in only 14.7% of the disability cases.  Id.  

Professor Anderson has indicated that he intends to further analyze the data that he has collected.  The author believes that analysis of class action benefits litigation, claims brought by providers where numerous medical claims are litigated in a single lawsuit (often brought by providers), and the amount of monetary recovery sought in different types of benefits claims would be of interest to ERISA practitioners and policymakers.

Montanile May Be a Mixed Result for Plans and Participants

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By Joseph A. Garofolo

At first glance, the Supreme Court’s recent decision interpreting “appropriate equitable relief” as used in ERISA § 502(a)(3) is a victory for health plan participants.  But upon closer scrutiny, Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 2016 U.S. LEXIS 843 (2016), is a mixed result for participants and plans.

The plan at issue paid $121,044.02 in medical expenses for a participant who was injured in a car accident caused by a drunk driver.  The participant subsequently settled his claim against the drunk driver for $500,000.  The plan contained a subrogation clause that provided the following: “[A]ny amounts [that a participant] recover[s] from another party by award, judgment, settlement or otherwise . . . will promptly be applied first to reimburse the Plan in full for benefits advanced by the Plan . . . and without reduction for attorneys’ fees, costs, expenses or damages claimed by the covered person.”  Id. at *7 (internal quotations omitted).   The plan further stated that “[a]mounts that have been recovered by a [participant] from another party are assets of the Plan . . . and are not distributable to any person or entity without the Plan’s written release of its subrogation interest.”  Id. at *6-*7.

After the participant and the plan could not reach agreement regarding the plan’s entitlement to the funds recovered by the participant, the participant’s attorney distributed $240,000 (the amount remaining after payment of attorney’s fees and costs).  The participant subsequently spent some or all of the $240,000 and the board of trustees asserted a claim under ERISA § 502(a)(3) against the participant to enforce the plan’s subrogation provision.

The Supreme Court reversed the Eleventh Circuit—which had reasoned that the board of trustees could enforce the subrogation provision—and held that “when a participant dissipates the whole settlement on nontraceable items, the fiduciary cannot bring a suit to attach the participant’s general assets under § 502(a)(3) because the suit is not one for ‘appropriate equitable relief.’” Id. at *6.  As it had in previous decisions, the Court looked to “standard equity treatises.”  Id. at *14.  The Court explained the following:

[The standard equity treatises] make clear that a plaintiff could ordinarily enforce an equitable lien only against specifically identified funds that remain in the defendant’s possession or against traceable items that the defendant purchased with the funds (e.g., identifiable property like a car). A defendant’s expenditure of the entire identifiable fund on nontraceable items (like food or travel) destroys an equitable lien.

Id.

While the facts of Montanile are sympathetic to the participant, in other instances, the Court’s reliance on standard equity treatises will likely continue to create impediments for participants seeking to obtain relief against nonfiduciaries pursuant to ERISA § 502(a)(3).  In her dissent, Justice Ginsburg referred to the Court’s holding as “bizarre” and reiterated her opinion expressed in another dissent that “the Court [has] erred profoundly . . . by reading the work product of a Congress sitting in 1974 as unravel[ling] forty years of fusion of law and equity, solely by employing the benign sounding word ‘equitable’ when authorizing ‘appropriate equitable relief.’”  Id. at *25 (some internal quotations omitted).  Notably, in her concurrence in Aetna Health Inc. v. Davila, 542 U.S. 200, 223-24 (2004), Justice Ginsburg accurately interpreted the scope of relief available against fiduciaries under ERISA § 502(a)(3) years before the Supreme Court confirmed such interpretation in CIGNA Corp. v. Amara, 563 U.S. 421 (2011).  It remains to be seen whether the Court will come around to her interpretation of ERISA § 502(a)(3) as it pertains to nonfiduciaries.

Moreover, in addition to bringing suit under ERISA § 502(a)(3) before a participant dissipates funds potentially subject to subrogation, a trustee may be able to recover funds from a participant under the theory that such funds constitute plan assets when the participant receives the funds.  The Eleventh Circuit has applied a documentary test when determining whether particular funds constitute plan assets.  See ITPE Pension Fund v. Hall, 334 F.3d 1011, 1013 (11th Cir. 2003).  The language of the plan in Montanile appears to support an argument that the participant was handling plan assets.  The theory would be that the participant is exercising authority or control over the management or disposition of plan assets and is, therefore, a fiduciary within the meaning of ERISA § 3(21)(A)(i).  A suit could then be asserted against the participant/fiduciary on behalf of the plan pursuant to ERISA § 502(a)(2).

Accordingly, there may be more than meets the eye with regard to issues implicated by Montanile.

 

 

 

 

 

 

 

 

 

 

 

 

Expert Testimony Regarding the ERISA Fiduciary Standard of Care

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By Joseph A. Garofolo

Courts regularly allow ERISA expert testimony relating to the fiduciary standard of care, especially in complex cases.  See, e.g., In re Reliant Energy ERISA Litig., 2005 U.S. Dist. LEXIS 48034, at *3, *7-*8 (S.D. Tex. Aug. 19, 2005); Smith v. Sydnor, 2000 U.S. Dist. LEXIS 20074, at *57-*58 (E.D. Va. Aug. 25, 2000); Flanigan v. GE, 93 F. Supp. 2d 236, 242-243 (D. Conn. 2000).  As explained by one court when rejecting an effort to exclude testimony that an ERISA fiduciary breached its duties, “expert witnesses, in all types of litigation, render an opinion as to what the applicable standard of care is and whether it has been complied with.”  Harris v. Koenig, 2011 U.S. Dist. LEXIS 51860, at *6 (D.D.C. May 16, 2011).

Moreover, the vast majority of ERISA fiduciary breach cases are heard by a judge.  And courts in most federal circuits have recognized that there is a relaxed standard for admissibility of expert testimony in bench trials.  See, e.g., United States v. Wood, 741 F.3d 417, 425 (4th Cir. 2013); David E. Watson, P.C. v. United States, 668 F.3d 1008, 1015 (8th Cir. 2012); Att’y Gen. of Okla. v. Tyson Foods, Inc., 565 F.3d 769, 779 (10th Cir. 2009); United States v. Brown, 415 F.3d 1257, 1268 (11th Cir. 2005); Deal v. Hamilton Cnty. Bd. of Educ., 392 F.3d 840, 852 (6th Cir. 2004); Serby v. First Alert, Inc., 2015 U.S. Dist. LEXIS 95612, at *3 (E.D.N.Y. July 22, 2015); Wolkowitz v. Lerner, 2008 U.S. Dist. LEXIS 34698, at *5 (C.D. Cal. Apr. 21, 2008).

Thus, in addition to the fact that fiduciary breach cases are often complex, there is a significant likelihood that competing expert testimony will be heard by a judge in ERISA cases, including litigation involving 401(k) plans and employee stock ownership plans.

 

 

 

Designation of a Named Fiduciary

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By Joseph A. Garofolo

ERISA §§ 402(a)(1) and (2) require a plan to designate, or provide a procedure for designating, one or more named fiduciaries “who jointly or severally shall have authority to control and manage the operation and administration of the plan.”  The designation of a named fiduciary or fiduciaries can become important in 401(k) plan fiduciary breach and other ERISA litigation because it effectively forecloses the person or persons so designated from arguing that they are not fiduciaries with attendant duties.

But how specific does the designation of a named fiduciary have to be?

Fortunately, the Department of Labor provided early interpretive guidance, now codified in 29 C.F.R. § 2509.75-5, relating to this issue.  This guidance, issued in 1975, answers three basic questions relating to the designation of named fiduciaries.

First, the Department indicated yes in response to the question of whether the designation of a committee by position or by individual satisfies the requirements of ERISA § 402(a).

Second, with regard to a collectively bargained plan, the Department explained that ERISA § 402(a) is satisfied if a “joint board is clearly identified as the entity which has authority to control and manage the operation and administration of the plan.”  29 C.F.R. § 2509.75-5, FR-2.  The Department continued that each member of the joint board would be a named fiduciary under such a situation.

And, third, the Department confirmed that a plan may name a corporation/plan sponsor as the named fiduciary.  The Department indicated that the plan instrument designating the corporation “should provide for designation by the corporation of specified individuals or other persons to carry out specified fiduciary responsibilities under the plan, in accordance with section 405(c)(1)(B) of the Act.”  29 C.F.R. § 2509.75-5, FR-3.

Early Department of Labor interpretative guidance is often a good place to start when seeking clarification regarding fundamental fiduciary responsibilities.   

 

 

 

ERISA’s Fiduciary Duty to Monitor

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By Joseph A. Garofolo

In Tibble v. Edison International, 135 S. Ct. 1823 (2015), the Supreme Court clarified the applicability of ERISA’s statute of limitations to the fiduciary duty to monitor.  The plaintiffs alleged that fiduciaries violated the duty to monitor investments by continuing to offer retail-class mutual funds to 401(k) plan participants as opposed to institutional-class funds with lower fees.  The Court held “that the duty of prudence involves a continuing duty to monitor investments and remove imprudent ones” and that a breach of the duty to monitor occurring within ERISA’s statute of limitations was sufficient to hold that plaintiffs’ fiduciary breach claims were not time barred.  Id. at 1829.

While Tibble involved the duty to monitor 401(k) plan investments, another important fiduciary duty to monitor exists with regard to the appointment of plan fiduciaries and the selection of service providers to plans.  The Department of Labor has explained the following:

At reasonable intervals[,] the performance of trustees and other fiduciaries should be reviewed by the appointing fiduciary in such manner as may be reasonably expected to ensure that their performance has been in compliance with the terms of the plan and statutory standards, and satisfies the needs of the plan.  No single procedure will be appropriate in all cases; the procedure adopted may vary in accordance with the nature of the plan and other facts and circumstances relevant to the choice of the procedure.

 29 C.F.R. § 2509.75-8, FR-17.

The Department has made it clear that the “reasonable intervals” standard also applies to monitoring plan service providers.  See http://www.dol.gov/ebsa/publications/fiduciaryresponsibility.html.

Notably, the duty to monitor is part of a fiduciary’s obligations under ERISA § 404(a)(1).  Indeed, consistent with the Supreme Court’s analysis in Tibble, some courts have held that it is part of the duty of prudence.  However, the duty to monitor should not be confused with co-fiduciary duties under ERISA § 405(a)—that section requires the elements of one of its subsections (e.g., knowledge of a fiduciary breach by another without making reasonable remedial efforts) whereas those elements are not required to be satisfied in order for a breach of ERISA § 404(a)(1) to occur.

Notwithstanding the difference between the duty to monitor and co-fiduciary duties, it is critical for fiduciaries to understand both, as ERISA is not forgiving to fiduciaries who are unware of their responsibilities.

 

Administrative Agency Interpretation, the Affordable Care Act, and ERISA

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By Joseph A. Garofolo

On June 25, 2015, the Supreme Court decided King v. Burwell, 576 U.S. ____, 192 L. Ed. 2d 483 (2015).  The Court held that the Patient Protection and Affordable Care Act (the “Affordable Care Act”) permits tax credits in states in which the federal government has established health care exchanges.  While most of the focus of commentators, understandably, has been on this substantive result, King is also interesting because of the Court’s analysis of Chevron deference.

Chevron deference is the principle articulated by the Court in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), that, under certain circumstances, courts must defer to reasonable interpretations of agencies when a statute is ambiguous.  In King, Chief Justice Roberts, writing for the Court, explained that Chevron deference assumes that Congress implicitly delegated authority to an agency to interpret “statutory gaps.”  192 L. Ed. 2d at 493 (internal quotations and citation omitted).  But, in “extraordinary cases, . . . there may be reasons to hesitate before concluding that Congress has intended such an implicit delegation.” Id. at 493-94 (internal quotations and citations omitted).  With regard to the availability of tax credits in states where exchanges have been established by the federal government, if Congress had desired to delegate authority to an agency, “it surely would have done so expressly.”  Id. at 494.  Moreover, the Court reasoned that Congress would not likely have delegated such an important decision to the Internal Revenue Service because of its lack of expertise regarding the subject matter.  Accordingly, the Court decided King without any deference to the Internal Revenue Service’s interpretation of the Affordable Care Act.

This is not the first time that the Court has invoked what has come to be known as the “major questions doctrine.”  See Adam White, Symposium: Defining deference down, SCOTUSblog, June 25, 2015, http://www.scotusblog.com/2015/06/symposium-defining-deference-down/.  And although the result was necessary in King to avoid the possibility that a different administration could change its interpretation of the Affordable Care Act, it is also possible that King could signal a broader retreat from the Court’s application of Chevron deference.  See id. 

Is this likely to occur in the field of ERISA?  There are a number of places in the statute where Congress expressly delegated interpretative authority to the Secretary of Labor.  For example, ERISA § 503, which addresses the claims procedure that must be provided by employee benefit plans (including retirement and health and welfare plans), expressly grants the Secretary authority to promulgate a regulation.  Perhaps more importantly, ERISA § 505 grants broad authority to the Secretary to promulgate regulations relating to Title I.  Therefore, the major questions doctrine is not likely to play a role with regard to the Secretary’s interpretative authority as it pertains to most significant ERISA issues.

Finally, one quick note regarding a previous post is necessary to close the book for now on King.  The prior post discussed a method of predicting the outcome of Supreme Court cases based on the number of questions asked by the Justices to each side.  This method predicted the wrong outcome in King.  However, in fairness, the professor who has been collecting data on the method had placed the case in the toss-up category.  And Justice Roberts asked only one question.  So, from an empirical standpoint, the case probably does not tell us much about the ultimate ability of the method to consistently predict the outcome of Supreme Court decisions.

 

Predicting the Outcome of the Latest Challenge to the Affordable Care Act

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By Joseph A. Garofolo

Since there have already been a number of thoughtful posts regarding the proposed ERISA fiduciary regulation that was issued by the Department of Labor on April 14, 2015, this blog strays from that subject to make a few observations about King v. Burwell—the latest challenge to the Patient Protection and Affordable Care Act (the “ACA”) pending before the Supreme Court.

King involves an interpretation of a section of the Internal Revenue Code (the “Code”) added by the ACA.  Code § 36B addresses the availability of premium tax credits for low to moderate income purchasers of insurance through health care exchanges established under the ACA.

Premium tax credits are made available for eligible taxpayers “enrolled through an Exchange established by the State under [section] 1311 [of the ACA].”  26 U.S.C. § 36B(b)(2)(A).  Exchanges under the ACA were to be established pursuant to one of three methods: i) by the state pursuant to ACA § 1311; ii) by the federal government and state partnering pursuant to ACA § 1321; and iii) by the federal government pursuant to ACA § 1321.  In 2012, the Internal Revenue Service (the “IRS”) promulgated a regulation that interpreted the relevant language of Code § 36B to include those “enrolled in one or more qualified health plans through an exchange,” meaning that the tax credits would be available to eligible taxpayers regardless of how an exchange was established in a particular state.  Thereafter, 34 states declined to establish exchanges and, as contemplated by the ACA, the Department of Health and Human Services set up exchanges in those states.

The question before the Supreme Court is whether the IRS’ interpretation is a permissible construction of Code § 36B.  An agency cannot interpret a statute contrary to the “unambiguously expressed intent of Congress.”  Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 (1984).

Judging by the questions at oral argument, Justices Breyer, Ginsburg, Kagan, and Sotomayor appear to be in favor of upholding the IRS’ interpretation as a permissible construction of Code § 36B while Justices Alito and Scalia appear to be in the opposite camp.  Thus, the count appears to be four to three without a clear indication of where Chief Justice Roberts or Justice Kennedy will come out—this assumes that Justice Thomas is with the latter group since, as usual, he did not ask any questions at oral argument.

Of course, it is a dangerous exercise to attempt to predict the outcome of a case based on the questions asked by the Justices.  But, interestingly, Professor Ed Lee of ITT Chicago-Kent College of Law has applied a method of predicting the outcome of Supreme Court cases to King based on exactly that.  Simply put, “the party that receives the most questions from the Justices during oral argument is more likely to lose.”  Edward Lee, Ed Lee: Predicting the Winners, ITT Chicago-Kent College of Law SCOTUS Now, http://blogs.kentlaw.iit.edu/iscotus/lee-predicting-winners/.  Professor Lee credits Judge Richard Posner of the Seventh Circuit and Professors Lee Epstein of Washington University and William Landes of the University of Chicago Law School with having performed a statistical analysis of this method.  See Lee Epstein, William M. Landes, & Richard A. Posner, Inferring the Winning Party in the Supreme Court from the Pattern of Questioning at Oral Argument, 39 J. Legal Stud. 433 (2010).

According to Professor Lee, based on this method, King could go either way.  However, he predicts that the challengers of the IRS’ interpretation will prevail.  Edward Lee, Affordable Care Act, OT 2014, Predicting the Winners, Predicting the Winner in King v. Burwell—Will Obamacare Stand?, ITT Chicago-Kent College of Law SCOTUS Now, March 4, 2015, http://blogs.kentlaw.iit.edu/iscotus/predicting-winner-king-v-burwell/.  With regard to Justice Kennedy, Professor Lee writes the following: “[I]n his questions, Kennedy floated a theory of constitutional doubt that would, if applied, favor the Solicitor General.  But if I stick to the question count method, Kennedy’s question count favors the Petitioner.”

A decision in King is expected in the next few months so we shall soon find out.

Is Williston on Contracts The Sacred Text for Interpretation of ERISA Plans?

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By Joseph A. Garofolo

Earlier this year, the Supreme Court emphasized that collective bargaining agreements establishing ERISA welfare plans generally must be construed in accordance with ordinary principles of contract interpretation.  See M&G Polymers USA, LLC v. Tackett, 135 S. Ct. 926 (2015).   The Court rejected the Sixth Circuit’s inferences in favor of vesting of retiree health care benefits outlined in International Union, United Auto, Aerospace, & Agricultural Implement Workers of America v. Yard-Man, Inc., 716 F.2d 1476, 1479 (6th Cir. 1983).  Counting the concurring opinion, the Court cited Williston on Contracts no less than seven times when describing ordinary principles of contract interpretation.  See Tackett, 135 S. Ct. at 933, 935-938 (citing R. Lord, Williston on Contracts (4th ed. 2008 & 2012)).  The majority also cited Williston on Contracts in US Airways, Inc. v. McCutchen, 133 S. Ct. 1537, 1549 (2013), and Justice Scalia cited the treatise in his concurrence in Cigna Corp. v. Amara, 131 S. Ct. 1866, 1884 (2011).

ERISA practitioners familiar with the Supreme Court’s interpretive history of the phrase “other appropriate equitable relief,” as used in ERISA § 502(a)(3), will recall the Court’s frequent references to the Restatement of Trusts, Bogert & Bogert’s Law of Trusts and Trustees, and Scott & Fratcher’s Law of Trusts (now Scott & Ascher on Trusts), sometimes referred to as The Sacred Texts.  See Jacklyn Willie, Attorneys Reflect on 40 Years of ERISA’s Biggest Rulings, Bloomberg BNA Pension & Benefits Daily, Sept. 9, 2014, at 2.

In light of the Court’s recent decisions, Williston on Contracts might be viewed as The Sacred Text when it comes to benefit plan interpretation.  But this is by no means a foregone conclusion.  The Supreme Court has characterized Corbin on Contracts as a “standard current work[].”  Great-West Life Annuity Ins. Co. v. Knudson, 534 U.S. 204, 217 (2002).  Indeed, in Tackett, 135 S. Ct. at 936, the Court also cited Corbin on Contracts.  Of course, Arthur Corbin and Samuel Williston famously disagreed on a number of fundamental principles relating to contractual interpretation, such as the proper application of the parol evidence rule.  See Eric A. Posner, The Parol Evidence Rule, the Plain Meaning Rule, and the Principles of Contractual Interpretation, 146 U. Pa. L. Rev. 533, 568-69 (1998).  

Moreover, “for the last few decades the academic literature has not taken Williston’s jurisprudence all that seriously.”  Mark L. Movsesian, Rediscovering Williston, 62 Wash. & Lee L. Rev. 207, 209 (2005).  While Mark Movsesian, a contracts professor at St. John’s University School of Law, concluded in 2005—perhaps presciently in the case of the Supreme Court’s recent ERISA jurisprudence—that there had been a resurgence of interest in Williston’s work, he also explained the following:

The cite count is high, but scholars have tended to look to Williston only in passing, referencing him when they have needed a source for some black-letter proposition or some point of legal history.  In part, this indifference stems from the fact that most of Williston’s work is of a doctrinal and case-oriented style that has fallen out of vogue. . . . Over time, the conventional wisdom has lumped Williston together with the great villains of contemporary jurisprudence, the classical formalists, portraying him as a mindless reactionary obsessed with logic and conceptual abstraction.

Id. at 209-210.

Elaborating upon what some perceive to be failings of Williston’s work, Professor Movsesian pointed out that Harvard Law Professor Morton Horwitz has asserted that “Williston’s objective theory of contract acts to ‘disguise gross disparities of bargaining power under a facade of neutral and formal rules.'”  Id. at 226 (citation omitted).

Back to the realm of ERISA, in Tackett, the Supreme Court suggested that it would not be appropriate to apply ordinary contract law principles when such principles are “inconsistent with federal labor policy.”  135 S. Ct. at 933.  And, in addition to the fact that ERISA expressly states that one of its purposes is to protect the interests of participants and beneficiaries, some commentators have contended that ERISA plans are adhesion contracts.  See, e.g., John H. Langbein, Trust Law as Regulatory Law: The Unum/Provident Scandal and Judicial Review of Benefit Denials Under ERISA, 101 Nw. U. L. Rev. 1315, 1323 (2007) (“ERISA benefit plans are characteristic contracts of adhesion, offered on a take-the-plan-or-leave-the-job basis.”).

Thus, it is unclear whether all of the principles of contractual interpretation associated with Samuel Williston are consistent with the “special nature and purpose of employee benefit plans.”  Varity Corp. v. Howe, 516 U.S. 489, 497 (1997).

Because ERISA cases frequently involve disputes over benefit plan interpretation, we will likely have the opportunity to observe whether the Court will continue to rely upon Williston on Contracts to articulate ordinary principles of contract interpretation.  If this turns out to be the case, considering the fact that the treatise currently consists of 31 volumes, there is certainly plenty of material for the Court to draw from in framing the “ordinary contract principles” that must be applied to employee benefit plans.

Courts Continue to Permit Expert Testimony on a Variety of ERISA Issues

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By Joseph A. Garofolo

In Abbott, et al. v. Lockheed Martin Corporation, et al.—the 401(k) plan excessive fee lawsuit in which a provisional settlement was recently reached—expert testimony was almost certain to play a critical role had the case proceeded to trial.  Just before the provisional settlement was reported, as a potential prelude to the clash between experts if the case had continued, the United States District Court for the Southern District of Illinois ruled that it would permit a supplemental expert report of one of the plaintiffs’ experts.  In his supplemental report, the plaintiffs’ expert opined that plan “fiduciaries’ attempts (or lack thereof) to explore alternative recordkeeping and administrative processes contributed to the excessive amount of fees assessed against Plan participants over the years.”  (Order dated December 14, 2014 at 1).

As evidenced by the Abbott litigation, expert testimony can take center stage in ERISA cases all the way up to trial.  But what is the basis for allowing such testimony and what issues have experts been permitted to opine upon in ERISA cases?

To begin with, Rule 702 of the Federal Rules of Evidence focuses on the expert’s qualifications, the reliability of the proffered testimony, and whether the testimony is helpful to the trier of fact.  And Rule 704 declares that “[a]n opinion is not objectionable just because it embraces an ultimate issue.”

In light of the guidance provided by Rules 702 and 704 of the Federal Rules of Evidence, it is not surprising that federal courts across the circuits have permitted expert testimony regarding a variety of ERISA issues.  See, e.g., Hans v. Tharaldson, 2011 U.S. Dist. LEXIS 151083, at *17 (D.N.D. Dec. 23, 2011) (expert “may testify about the duty to act prudently, the standard of care applicable to a fiduciary in this situation, how [defendant’s] actions deviated from the applicable standard of care, and/or why he believes [the] . . . analysis [of the other side’s expert] is flawed”); In re Iron Workers Local 25 Pension Fund, 2011 U.S. Dist. LEXIS 34505, *15-*16 (E.D. Mich. Mar. 31, 2011); Stinker Stores, Inc. v. Nationwide Agribusiness Ins. & Order Co., 2010 U.S. Dist. LEXIS 31643, at *11-*12 (D. Idaho Mar. 31, 2010) (expert opinions would be “helpful to the jury in understanding relevant issues of employee benefit administration and ERISA, and the application of relevant . . . policy language to the day-to-day practice of employee benefits administration”); In re Reliant Energy ERISA Litig., 2005 U.S. Dist. LEXIS 48034, at *8 (S.D. Tex. Aug. 18, 2005) (expert “opinions on specific issues, such as whether Defendants were ERISA fiduciaries for certain relevant purposes” could be helpful to the court); Engers v. AT&T (In re Engers), 2005 U.S. Dist. LEXIS 41693, at *3, *10 (D.N.J. Aug. 10, 2005); Stuart Park Assocs. Ltd. Partnership v. Ameritech Pension Trust, 51 F.3d 1319, 1327 (7th Cir. 1995).

In what might actually be an understatement, one court explained that the “interactions of ERISA, the [Internal Revenue Code], and their accompanying regulations were ‘sufficiently esoteric’ to the uninitiated factfinder to justify expert witness opinion testimony under Rule 702.”  Proujansky v. Blau, 2000 U.S. Dist. LEXIS 786, at *23 (S.D.N.Y. Jan. 27, 2000).

Moreover, since most ERISA cases are bench trials, in the author’s experience, the admissibility of expert testimony may remain unresolved at trial because a judge may be inclined to delay a ruling on challenged expert testimony until after trial.

Thus, it is likely that experts will continue to assume an important role in ERISA litigation, especially in cases involving complex issues or alleged breaches of fiduciary duty.

A Touch of Grey—ERISA Remains a Complex and Evolving Statute After 40 Years

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By Joseph A. Garofolo

To celebrate ERISA’s 40th anniversary and for EES’s inaugural blog, here are 10 observations relating to the landmark statute:

1.  ERISA was signed into law by President Gerald Ford on September 2, 1974, but most of its provisions took effect on January 1, 1975.  After coming out of conference committee, the House of Representatives passed ERISA by a vote of 407-2 on August 20, 1974.

2.  As originally enacted, ERISA § 502 set forth six civil statutory causes of action.  See ERISA §§ 502(a)(1)-(6).  As amended, ERISA currently provides for ten civil statutory causes of action.  See ERISA §§ 502(a)(1)-(10).

3.  The Secretary of Labor has been a party to a number of seminal cases that contributed to the development of ERISA jurisprudence.  See, e.g., Cutaiar v. Marshall, 590 F.2d 523 (3d Cir. 1979); Donovan v. Bierwirth, 680 F.2d 263 (2d Cir. 1982); Donovan v. Mazzola, 716 F.2d 1226 (9th Cir. 1983); Donovan v. Cunningham, 716 F.2d 1455 (5th Cir. 1983).

4.  The Fifth Circuit has recognized that “a pure heart and empty head” are not enough to satisfy ERISA’s fiduciary duties.  Donovan v. Cunningham, 716 F.2d 1455, 1467 (5th Cir. 1983).

5.  According to the Fifth Circuit, ERISA’s prudence standard does not require a fiduciary to conduct himself or herself as a prudent expert: “Some commentators have suggested that the reference in Section 404 to a prudent man ‘familiar with such matters’ creates a ‘prudent expert’ standard under ERISA. . . . However, a review of the relevant history of Section 404 does not support this view; rather, it confirms that the emphasis of Section 404 is on flexibility.”  Donovan v. Cunningham, 715 F.2d 1455, 1467 n.26 (5th Cir. 1983) (citations omitted).

6.  In Donovan v. Bierwirth, the Second Circuit explained that a fiduciary’s decisions “must be made with an eye single to the interests of participants and beneficiaries.”  680 F.2d 263, 271 (2d Cir. 1982) (citations omitted).

7.  The Ninth Circuit has observed that ERISA’s prudence standard is derived from the common law of trusts, but that it must be interpreted “bearing in mind the special nature and purpose of employee benefit plans.”  Donovan v. Mazzola, 716 F.2d 1226, 1231 (9th Cir. 1983).

8.  The Supreme Court has described ERISA’s preemption clause as “conspicuous for its breadth,”  FMC Corp. v. Holliday, 498 U.S. 52, 58 (1990), and the Ninth Circuit has noted that “ERISA contains one of the broadest preemption clauses ever enacted by Congress.”  PM Group Life Ins. v. W. Growers Assur. Trust, 953 F.2d 543, 545 (9th Cir. 1992).

9.  Health and welfare plans covered by ERISA are not exempt from its fiduciary duty provisions.

10.  Since ERISA was enacted, there have been 14 Secretaries of Labor (not including Acting Secretaries): Peter J. Brennan (1973-1975/Nixon); John T. Dunlop (1975-76/Ford); W.J. Usery, Jr. (1976-77/Ford); Ray Marshall (1977-81/Carter); Raymond J. Donovan (1981-85/Reagan); William E. Brock (1985-87/Reagan); Ann Dore McLaughlin (1987-89/Reagan); Elizabeth Hanford Dole (1989-90/Bush); Lynn Morley Martin (1991-93/Bush); Robert B. Reich (1993-97/Clinton); Alexis M. Herman (1997-01/Clinton); Elaine L. Chao (2001-09/Bush); Hilda L. Solis (2009-13/Obama); and Thomas Perez (2013-present/Obama).