Justia U.S. 7th Circuit Court of Appeals Opinion SummariesArticles Posted in ERISA
Su v. Sherrod
Sherrod and Johnson were fiduciaries of a retirement plan that Sherrod had set up for herself and other employees of her medical practice. The Secretary of Labor brought this civil enforcement action alleging that both had breached their fiduciary duties under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001. The district court granted the Secretary summary judgment and entered a permanent injunction removing the defendants as fiduciaries.The Seventh Circuit affirmed. Both defendants breached their fiduciary duties of loyalty and prudence under ERISA. Hundreds of thousands of dollars of plan assets were used for Sherrod’s personal benefit but were accounted for as plan expenses or losses rather than as distributions of retirement benefits. The permanent injunction was within the scope of reasonable responses to the breaches. Even giving Sherrod the benefit of her assertions of good faith, since the district court imposed the injunction based on a summary judgment decision, good faith is not a defense for one breach of fiduciary duty, let alone repeated breaches. Many of Sherrod’s payments to herself from plan assets from 2012-2017 were also prohibited as self-dealing. “Given the gravity and frequency of defendants’ breaches of their fiduciary duties, they are fortunate that the relief against them has thus far been relatively modest.” View "Su v. Sherrod" on Justia Law
Posted in: ERISA
Carlson v. Northrop Grumman Severance Plan
Northrop laid off workers in 2012 and did not provide them all with severance benefits. Its Severance Plan provides that a laid-off employee regularly scheduled to work at least 20 hours a week will receive severance benefits if that employee “received a cover memo, signed by a Vice President of Human Resources.” The plaintiffs, who did not receive this “HR Memo,” filed suit under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001– 1461.The parties agreed to have a magistrate resolve the case, 28 U.S.C. 636(c). After the suit was certified as a class action, the district judge resumed control at Northrop's request, finding that the increased stakes constituted “good cause” for withdrawing the reference. The district court granted the defendants summary judgment, ruling that the Plan gives the HR Department discretion to choose who gets severance pay.The Seventh Circuit affirmed, first finding no abuse of discretion in the withdrawal of the reference order. The Plan makes the receipt of severance benefits contingent on the receipt of an HR Memo, which the class members did not get. Welfare-benefit plans under ERISA—unlike retirement plans—need not provide for vesting, and the terms of welfare-benefit plans are entirely in the control of the entities that establish them. When making design decisions, employers may act in their own interests and may include a discretionary component. Rights under ERISA are not subject to estoppel. The plan itself—not past practice—always controls. View "Carlson v. Northrop Grumman Severance Plan" on Justia Law
Posted in: Civil Procedure, ERISA, Labor & Employment Law
Divane v. Northwestern University
Participating employees can contribute a portion of their salary to their Retirement Plan account and Northwestern makes a matching contribution. Employees participating in the Voluntary Savings Plan also contribute a portion of their salary, but Northwestern does not make a matching contribution. Both plans allow participants to choose the investments for their accounts from options assembled by the plans’ fiduciaries. Northwestern is the administrator and designated fiduciary of both plans. The plaintiffs sued Northwestern under the Employee Retirement Income Security Act, 29 U.S.C. 1001 (ERISA).The Seventh Circuit affirmed the dismissal of the suit in 2020. The Supreme Court rejected the Seventh Circuit's reliance on a “categorical rule” that providing some low-cost options eliminates concerns about other investment options being imprudent. On remand, the Seventh Circuit reinstated claims that Northwestern failed to monitor and incurred excessive recordkeeping fees and failed to swap out retail shares for cheaper but otherwise identical institutional shares. The court again affirmed the dismissal of other claims, including a claim that Northwestern retained duplicative funds. View "Divane v. Northwestern University" on Justia Law
Posted in: ERISA, Securities Law
Zall v. Standard Insurance Co.
Department of Labor regulations required the administrator of an employee benefit plan to give a claimant, “upon request,” copies of “all documents, records, and other information” that the administrator considered in making an adverse benefit determination. In 2018, the regulations were amended to eliminate “upon request” and require an administrator to provide such information “sufficiently in advance” of an adverse determination “to give the claimant a reasonable opportunity to respond.”Zall, a dentist for 20 years, sought long-term disability benefits in 2013 after pain and numbness forced him to stop working. His insurer, Standard denied the claim. In 2014, after considering additional medical information and consulting an orthopedic surgeon, Standard approved Zall’s claim, including retroactive payments. Less than a year later, Standard began reviewing his case to see if his condition was subject to a 24-month benefit limit applicable to any disability “caused or contributed to by … carpal tunnel or repetitive motion syndrome” or “diseases or disorders of the cervical, thoracic, or lumbosacral back and its surrounding soft tissue.” Standard ultimately terminated Zall’s benefits.Zall filed suit under the Employee Retirement Income Security Act, 29 U.S.C. 1001, arguing that the decision was arbitrary and capricious and that Standard violated ERISA’s procedural requirements by failing to afford him “a full and fair review.” The district court granted Standard summary judgment. The Seventh Circuit reversed and remanded. The plain language shows that the amended regulation applies; Standard failed to comply. View "Zall v. Standard Insurance Co." on Justia Law
Posted in: ERISA, Insurance Law
Central States Southeast & Southwest Areas Pension Fund v. Zenith Logistics, Inc.
The employers agreed that for the duration of two collective bargaining agreements (CBAs), they would make pension contributions on behalf of covered employees to the Pension Fund. Both CBAs contained “evergreen clauses” that extended them a year at a time until either party provided timely written notice expressing an “intention to terminate.” Both were to expire in January 2019. After the window for timely notice of intention to terminate on that date, the employers and the union signed new CBAs requiring pension contributions to a different fund beginning in February 2019. The employers notified the Fund that they were ceasing contributions, relying on letters the union sent in November 2018.The Seventh Circuit reversed the dismissal of the Fund’s lawsuit. Those letters did not express the union’s intent to terminate the existing CBAs, so as to satisfy the evergreen clause's termination procedure. The letters did not mention termination. They noted the date that the CBAs would expire and expressed a desire to meet to negotiate new agreements; neither of these points communicated an intent to terminate the existing agreements. In the context of an evergreen clause, expiration and termination are distinct concepts. A desire to negotiate a new contract is quite consistent with a desire to leave the existing agreement in place until a new deal is reached. The old agreements renewed under the evergreen clauses; the employers remained obligated to contribute to the Fund for one more year. View "Central States Southeast & Southwest Areas Pension Fund v. Zenith Logistics, Inc." on Justia Law
Posted in: ERISA, Labor & Employment Law
Albert v. Oshkosh Corp.
Albert claimed that his former employer, a subsidiary of Oshkosh, violated the Employee Retirement Income Security Act, 29 U.S.C.1132(a)(2), by mismanaging its retirement plan. Albert alleged that the defendants breached their fiduciary duties by authorizing the Plan to pay unreasonably high fees for recordkeeping and administration, failing to adequately review the Plan’s investment portfolio to ensure that each investment option was prudent, and unreasonably maintaining investment advisors and consultants for the Plan despite the availability of similar service providers with lower costs or better performance histories.The district court dismissed the complaint. While Albert’s appeal was pending, the Supreme Court issued Hughes v. Northwestern University (2022), vacating Seventh Circuit precedent (Divane) and remanding. The district court had cited Divane repeatedly in its opinion, albeit not for the proposition that the Supreme Court rejected in Hughes. The Seventh Circuit affirmed the dismissal of all claims for failure to state a claim. The complaint is devoid of allegations as to the quality or type of services the comparator plans provided; the cheapest investment option is not necessarily the one a prudent fiduciary would select. Plaintiffs “must do more than recast allegations of purported breaches of fiduciary duty as disloyal acts.” View "Albert v. Oshkosh Corp." on Justia Law
Posted in: ERISA
Dean v. National Production Workers Union, Local 707
The NPWU previously represented the plaintiffs, Parsec employees, participating in the NPWU’s retirement multiemployer defined-contribution plans. A lawsuit brought by the Department of Labor settled, requiring the Severance Plan to pay back loans and approving the Plan’s administrators and its third-party accounting firm, Krol. Parsec employees later voted to decertify the NPWU and elect the Teamsters as their new bargaining representative. The Teamsters told Parsec employees that their retirement accounts would roll over to the Teamsters’ plan. NPWU stated that the retirement accounts would become inactive but remain under NPWU control. After the election, Parsec stopped contributing to the NPWU plan and began contributing to the Teamsters’ plan. Parsec employees’ accounts became inactive but remained under NPWU control. Plaintiffs alleged excessive expenses, undisclosed payments to NPWU officers and their relatives, and high salaries. Plaintiffs requested copies of documents, to which they were entitled under the Employee Retirement Income Security Act (ERISA). The Plans responded but did not provide certain documents, including a “summary plan description” for the 401(k) Plan, which did not exist. Plaintiffs sent several letters requesting that the Plans roll over their accounts to the Teamsters’ plan. The Plans refused.Plaintiffs filed a putative class action. The Seventh Circuit affirmed the dismissal of the suit. The Plans terms did not require rollover and the allegations failed to show that the trustees breached their fiduciary duties. View "Dean v. National Production Workers Union, Local 707" on Justia Law
Posted in: ERISA, Labor & Employment Law
Walsh v. Alight Solutions, LLC
Alight provides recordkeeping services for employee healthcare and retirement benefit plans, some of which are governed by ERISA, 29 U.S.C. 1001–1461 The Department of Labor investigated Alight, following a discovery that Alight processed unauthorized distributions of plan benefits due to cybersecurity breaches, and sent Alight an administrative subpoena duces tecum, seeking documents in response to 32 inquiries, including broad demands, such as “[a]ll documents and communications relating to services offered to ERISA plan clients.” Alight produced some documents but objected to several inquiries, citing its duty to keep certain information confidential. The Department petitioned for enforcement of the subpoena. Alight produced additional materials but redacted most of the documents to remove client identifying information, preventing the Department from discerning potential ERISA violations. Alight asked the court to quash or limit the subpoena and permit redactions. Alight’s legal consultant projected full compliance would require “thousands of hours of work.” The Department clarified or narrowed its requests.The Seventh Circuit affirmed an order granting the Department’s petition to enforce the subpoena with some modifications. The court rejected Alight’s arguments that the subpoena is unenforceable because the Department lacks authority to investigate the company because it is not a fiduciary under ERISA, or cybersecurity incidents generally; that the subpoena’s demands are too indefinite and unduly burdensome, and that the district court abused its discretion by denying Alight’s request for a protective order to limit production of certain sensitive information. View "Walsh v. Alight Solutions, LLC" on Justia Law
Posted in: ERISA, Government & Administrative Law, Internet Law
Burke v. Boeing Co.
In this putative class action filed shortly after two fatal crashes of new Boeing 737 MAX airliners led to a worldwide grounding of those planes and a halt to production, resulting to a significant drop in the value of Boeing stock, the Seventh Circuit affirmed the judgment of the district court granting Defendants' motion to dismiss under Fed. R. Civ. P. 12(b)(6), holding that there was no error.At issue was The Boeing Company's employee stock ownership plan (ESOP) and whether Boeing plan fiduciaries' delegation to an independent outside fiduciary the selection and management of investment options for the ESOP protected the company and company insiders from liability for the plan's continued offering of Boeing stock as an independent option for employees before and during the time when the Boeing stock dropped. Plaintiffs argued that Boeing's continuous concealment of material facts relating to the 737 MAX jets caused the price of the stock to be artificially inflated and that Defendants should disclosed the safety issues to the public immediately. The district court dismissed the action. The Seventh District affirmed, holding that the delegation of investment decisions to an independent fiduciary meant that Boeing did not act in an ERISA fiduciary capacity in connection with the continued investments in Boeing stock. View "Burke v. Boeing Co." on Justia Law
Posted in: Business Law, ERISA, Labor & Employment Law
Canter v. AT&T Umbrella Benefit Plan No.3
Canter worked as a premises technician, installing wires, lifting heavy loads, and climbing tall ladders. After he began to suffer from severe migraines, lightheadedness, and dizziness, Canter concluded that he no longer could perform that work. He applied for short-term disability benefits in February 2017 through an AT&T plan. The plan administrator granted benefits for a few months, but AT&T terminated benefits after an independent medical reviewer concluded that Canter’s medical tests were normal and that his symptoms had improved. After Canter unsuccessfully appealed this decision using AT&T’s internal processes, he sued under the Employment Retirement Income Security Act (ERISA), 29 U.S.C. 1132.The district court granted the defendants summary judgment in favor of the defendants. The Seventh Circuit affirmed the decision but reversed the court’s award of $181 in pro hac vice fees to the defendants as not taxable “costs” under 28 U.S.C. 1920. Extensive medical testing consistently yielded normal results, even though the medical providers and reviewers thought that a significant problem would have shown up in one or more concrete, physiological ways. Canter himself reported that he was experiencing improvement. View "Canter v. AT&T Umbrella Benefit Plan No.3" on Justia Law
Posted in: ERISA, Insurance Law