Employee Benefit Plan Review – From the Courts

February 3, 2020 | Norman L. Tolle | Employment & Labor | Insurance Coverage

ERISA Required Payment of Plan Proceeds to Widow, But Prenuptial Agreement Barred Her Retention of Them, Alabama Supreme Court Rules

The Supreme Court of Alabama, affirming a trial court’s decision, has ruled that a plan administrator had properly distributed proceeds from a company’s 401(k) retirement plan and from its pension benefit plan to a deceased employee’s widow, but that she had violated the prenuptial agreement she had signed by retaining the proceeds.

THE CASE

Jimmy Lee Moore worked at NCR Corporation and participated in the company’s 401(k) retirement plan and its pension benefit plan. Moore named his brother as the beneficiary of both plans.

In July 2016, before getting married, Moore executed a will that stated that he intended to provide for his wife, Beulah Jean James Moore, “outside” the will and that he intended to leave his estate, including his real and personal property, to his brother.

A few days after Moore executed his will, he and his wife signed a prenuptial agreement. The agreement provided that the separate property that both brought into the marriage would remain separate. It also provided that neither would “claim, demand, assert any right to, take or receive any part of the property of the other as described on Schedules 1 and 2,” which included Moore’s 401(k) plan and the pension plan.

Additionally, Section 4.4 of the prenuptial agreement provided that the couple renounced any right to any retirement account held by the other. That section further provided that it was not intended to restrict the rights of an account owner to “direct” account-benefit distributions to a beneficiary and that, in order to effectuate such a designation, each would be required to execute any necessary “spousal consents or waivers.”

The couple married in August 2016 and Moore died of cancer later that year.

At some point after Moore’s death, the NCR plan administrator distributed the proceeds from both the 401(k) plan and the pension plan – totaling over $500,000 – to Moore’s widow.

In October 2017, Moore’s brother, individually and as executor of Moore’s estate, sued Moore’s widow for breach of contract, alleging that she had breached the prenuptial agreement by retaining the funds she had received.

The trial court entered summary judgment in favor of Moore’s brother, and the dispute reached the Supreme Court of Alabama. There, Moore’s widow contended that she had not waived her right to receive or to retain the funds from the 401(k) plan or the pension plan under the prenuptial agreement because she had never executed a valid spousal waiver under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the language in the prenuptial agreement was insufficient to constitute a waiver of her “statutory rights” to those funds.

THE ALABAMA SUPREME COURT’S DECISION

The court affirmed, holding that Moore’s widow had breached the prenuptial agreement by retaining the funds from the 401(k) plan and the pension plan after those funds had been distributed to her.

In its decision, the court explained that, under ERISA, “a qualified preretirement survivor annuity” had to be provided to the surviving spouse of a vested plan participant. The court added that, under ERISA, a plan participant “may elect at any time during the applicable election period to waive the . . . qualified preretirement survivor annuity form of benefit” but that such an election was effective only if:

(i) the spouse of the participant consents in writing to such election, (ii) such election designates a beneficiary (or a form of benefits) which may not be changed without spousal consent (or the consent of the spouse expressly permits designations by the participant without any requirement of further consent by the spouse), and (iii) the spouse’s consent acknowledges the effect of such election and is witnessed by a plan representative or a notary public. . . .

The court observed that Moore’s widow had never executed a spousal waiver or provided written consent as required by ERISA and by Section 4.4 of the couple’s prenuptial agreement, which required that she, “execute such spousal consents or waivers, if any, as may be required to effect the desired beneficiary designation of the account owner.”

Accordingly, the court ruled, Moore’s widow had not waived her surviving spousal rights under ERISA and the funds had been properly “distributed” to her by the plan administrator.

The court, however, was not finished with its analysis. It declared that the absence of a valid ERISA waiver affected only to whom the plan administrator had to distribute the funds. According to the court, the absence of a valid waiver did not bar a lawsuit “under state common-law theories” after the distributions had been made.

In particular, the court ruled, ERISA did not bar Moore’s brother’s breach-of-contract action against Moore’s widow.

The court was not persuaded by Moore’s widow’s argument that because she had not executed any “spousal consents or waivers” as she argued was required by the language of both the prenuptial agreement and ERISA, she had not waived her rights to the proceeds of the 401(k) plan and the pension plan and, therefore, she was entitled to retain those proceeds.

The court reasoned that this argument assumed that the waiver requirement under ERISA trumped the “contractual obligations” of the parties to the prenuptial agreement. The court ruled, however, that ERISA had “no bearing” on an estate’s post-distribution breach-of-contract action against a spouse regarding the proper ownership of distributed benefits. Under ERISA, the court continued, the plan administrator was obligated to pay the proceeds to Moore’s widow, but her right to retain those funds was an “ordinary contract dispute.”

Finally, the court decided that the fact that Moore’s widow had never executed a “spousal consent or waiver” did not negate the provision in Section 4.4 of the prenuptial agreement in which she had renounced her right to the plans’ benefits in the first place. The court stated that nothing in that section suggested that the failure to execute a spousal consent or waiver changed the parties’ “clear intent throughout the entire prenuptial agreement” to renounce claims to the other’s property.

Accordingly, the court concluded that Moore’s widow had breached the prenuptial agreement by retaining the benefits from the 401(k) plan and the pension plan. [Moore v. Moore, No. 1180482 (Ala. Nov. 22, 2019).]

Fifth Circuit Rejects Former Employee’s Claim That He Was Fired So Company Could Avoid Paying Him Benefits

The U.S. Court of Appeals for the Fifth Circuit, affirming a district court’s decision, has ruled that a plaintiff had not provided sufficient evidence to show that his former employer had used his job performance as a pretext for firing him to avoid paying severance and retirement benefits that he said he otherwise would have been entitled to receive under the Employee Retirement Income Security Act of 1974 (“ERISA”).

THE CASE

On April 17, 2012, the plaintiff began working for Chevron USA, Inc., as an oils planning analyst. He enrolled in the company’s retirement plan, which provided that his retirement benefits would vest after five years of employment.

In early 2015, Chevron made the plaintiff a crude exposure analyst and moved him to a new team and supervisor. His new position had a salary level of “Pay Scale Grade 23.”

In March 2016, the plaintiff received his first annual performance evaluation in his new position. His supervisor noted that his performance was “below expectation of a PSG 23 employee in the areas of independent work and analytical methodology,” and that he needed to improve “proactive communication” and “analytical depth.” The plaintiff’s supervisor also gave him informal feedback in emails and in person about similar performance deficiencies throughout 2015 and 2016, and she discussed her concerns with her supervisors.

On August 3, 2016, Chevron announced job cutbacks as part of a cost-reduction program. The plaintiff’s supervisor and her supervisor were involved in proposing organizational changes to reduce the number of employees in the department where the plaintiff worked. They attended meetings to discuss the reorganization throughout the remainder of the year.

On August 4, 2016, the plaintiff’s supervisor submitted the plaintiff’s next scheduled formal performance review. She noted that the plaintiff had continued to “rely heavily . . . on others to assist and guide [his] data analysis versus demonstrating ownership and mastery of the process.” She again noted his deficiencies in “level of independent work product” and “depth of analysis.” She reported that he required more assistance “to ensure clarity of message, data quality and formatting” in his work product than she “expect[ed] for a PSG 23 employee.” At that salary level, the plaintiff’s supervisor said, she expected the plaintiff to complete his work “quickly with minimal assistance.”

In August or September, the plaintiff’s supervisor discussed his performance issues with the human resources department for the first time. The plaintiff’s supervisor subsequently put the plaintiff on a performance improvement plan and explained that his failure to improve in the following three months as outlined in the plan could result in his termination.

By December 2016, Chevron had decided to eliminate the plaintiff’s position of crude exposure analyst as part of a department reorganization. The company did not notify the plaintiff at that time and his supervisor continued to meet with him about once every two weeks during the improvement plan period to discuss his performance.

In January 2017, the plaintiff’s supervisor decided that his performance had not improved and that he should be terminated. She met with the plaintiff on February 13, 2017 and terminated his employment.

The following day, Chevron notified some employees in the department where the plaintiff had worked that their positions were being eliminated as part of the cost-reduction program. The company explained that, effective February 15, 2017, employees whose positions were eliminated as part of that cost-reduction program could be eligible for severance pay if Chevron did not transfer them to another position.

A few months later, the plaintiff sued Chevron, alleging among other things that it had fired him to prevent him from receiving retirement plan and severance pay in violation of ERISA.

The U.S. District Court for the Southern District of Texas granted summary judgment to Chevron, and the plaintiff appealed.

THE FIFTH CIRCUIT’S DECISION

The Fifth Circuit affirmed.

In its decision, the circuit court explained that, under Section 510 of ERISA, an employer may not “discharge . . . a participant or beneficiary . . . for the purpose of interfering with the attainment of any right to which such participant may become entitled under” an ERISA-governed benefit plan.

To succeed on that claim, the circuit court continued, the plaintiff first had to “establish a prima facie case that [Chevron] fired him with a specific discriminatory intent” to prevent him from receiving ERISA benefits. If he could do so, then Chevron had to articulate a non-discriminatory reason for its actions. If Chevron could do that, then the plaintiff had to prove that the reason was a “pretext” and that Chevron’s real purpose was denial of ERISA benefits, the circuit court added.

The circuit court then found that, assuming that the plaintiff had established a prima facie case, Chevron had satisfied its burden of going forward with evidence of a legitimate, non-discriminatory reason for firing him: poor job performance. It then found that the plaintiff had not demonstrated that Chevron’s proffered reason for firing him was pretextual.

The circuit court reasoned that the plaintiff’s supervisor had testified that she had learned about the five-year vesting requirement only after the plaintiff had filed his lawsuit; that if she did not know about the vesting requirement and the plaintiff’s vesting date, then she could not have fired the plaintiff with the specific intent of preventing his retirement benefits from vesting; and that there was no evidence that the pension or severance benefits would have been paid from the budget in the plaintiff’s department or, if they would have been paid from that budget, that the plaintiff’s supervisor had known that.

Moreover, the circuit court observed, the plaintiff’s supervisor had begun criticizing the plaintiff’s job performance no later than March 2016, months before she knew about the cost-reduction program. The Fifth Circuit also noted that, if the plaintiff’s supervisor thought that the plaintiff’s performance might justify termination, placing him on an improvement plan “would be an important part of testing her suspicions.” This kind of deliberative process, the circuit court concluded, was “precisely what one would expect a responsible employer to go through before deciding whether to fire or relocate an employee.” Thus, the circuit court concluded that the plaintiff had not provided sufficient evidence to show that Chevron had used his job performance as a pretext for firing him to avoid paying severance and retirement benefits. [Shah v. Chevron USA, Inc., No. 18-20817 (5th Cir. Nov. 22, 2019).]

Fifth Circuit Affirms Award of Attorneys’ Fees in ERISA Case to Defendant That No Longer Legally Existed

The U.S. Court of Appeals for the Fifth Circuit has affirmed a district court’s decision awarding attorneys’ fees in a case under the Employment Retirement Income Security Act of 1974 (“ERISA”) to a limited partnership that had achieved “some degree of success on the merits,” even though its registration as a limited partnership had been terminated.

THE CASE

The plaintiff in this case sued MetroCare Services – Austin, L.P., in 2007. In 2012, while the plaintiff’s lawsuit was ongoing, MetroCare’s registration as a limited partnership was terminated.

In 2018, the U.S. District Court for the Western District of Texas granted summary judgment to MetroCare on the plaintiff’s ERISA claims.

MetroCare then moved for attorneys’ fees under ERISA’s fee-shifting provision. The district court assessed attorneys’ fees against the plaintiff, and she appealed to the Fifth Circuit. The plaintiff argued that MetroCare could not seek attorneys’ fees because it no longer existed.

The plaintiff argued that Texas statutes provide that a terminated entity continued in existence, for certain enumerated purposes, for three years from the date of its termination and that because MetroCare had been terminated in 2012, its 2018 request for attorneys’ fees fell outside the three-year period and, therefore, was improper.

THE FIFTH CIRCUIT’S DECISION

The Fifth Circuit affirmed.

In its decision, the circuit court explained that, in addition to providing that a terminated entity continued in existence, for certain enumerated purposes, for three years from the date of its termination, Texas statutes also provide that if an action was brought by or against a terminated entity before the three-year period elapsed, the entity continued to survive for purposes of the action “until all judgments, orders, and decrees” had been fully executed.

Accordingly, because the lawsuit involving MetroCare had begun before MetroCare’s termination and continued after that event, the Fifth Circuit rejected the plaintiff’s argument that MetroCare could not seek attorneys’ fees because it no longer existed. [Cluck v. MetroCare Services – Austin, L.P., No. 19-50327 (5th Cir. Nov. 20, 2019).]

Plaintiff Failed to Demonstrate That He Was Disabled Throughout Entire Elimination Period, Eleventh Circuit Rules

The U.S. Court of Appeals for the Eleventh Circuit has affirmed a district court’s ruling upholding a decision by the administrator of a long-term disability benefit plan subject to the Employee Retirement Income Security Act of 1974 (“ERISA”) to deny the plaintiff’s claim for long-term disability benefits because he failed to demonstrate that he was disabled throughout the entire elimination period, as required by the plan.

THE CASE

The administrator of the long-term disability benefit plan that Tower Hill Insurance Group offered to its employees denied the plaintiff’s claim for long-term disability benefits, and he sued.

The U.S. District Court for the Northern District of Florida granted summary judgment in favor of the administrator, and the plaintiff appealed to the Eleventh Circuit.

THE ELEVENTH CIRCUIT’S DECISION

The Eleventh Circuit affirmed.

In its decision, the circuit court explained that, under the plan, the plaintiff was entitled to long-term disability benefits only if he could prove that he was disabled throughout the entire “elimination period” and not just at some point during the elimination period (which, in this case, ran from May 15, 2016 to August 27, 2016).

The circuit court then decided that the administrator had not been “wrong” when it decided that the plaintiff had not demonstrated that he had been disabled throughout the entire elimination period.

The circuit court pointed out that, based primarily on the opinions of two doctors who had conducted a file review of the medical evidence, the administrator determined that the clinical evidence indicated that the plaintiff was not disabled from May 15, 2016 to July 19, 2016, the date the plaintiff had knee replacement surgery. Moreover, the circuit court said, the administrator also determined that the plaintiff would have sufficiently recovered from the knee surgery at least by August 26, 2016 and was not disabled then or thereafter.

Among other things, the Eleventh Circuit said that the plaintiff argued to the district court and to the Eleventh Circuit that he was disabled by the pain and fatigue that he experienced as a result of his polymyalgia rheumatica (“PMR”), a rheumatic disease that causes muscle pain and stiffness. The circuit court pointed out, however, that the plaintiff had never identified PMR as a disabling condition in his initial application for disability benefits but, rather that he predicated his claim solely on a knee injury that occurred on May 15, 2016, which necessitated knee replacement surgery on July 19, 2016.

The circuit court concluded that, at most, the plaintiff was disabled for a short period of time while recovering from his knee replacement surgery and, therefore, that he was not disabled throughout the entire elimination period. It then upheld the administrator’s decision denying the plaintiff’s claim for long-term disability benefits. [Benson v. Hartford Life & Accident Ins. Co., No. 18-14835 (11th Cir. Nov. 22, 2019).]

Former NBA Player Filed His ERISA Suit at Least 10 Years Late, Second Circuit Rules

The U.S. Court of Appeals for the Second Circuit, affirming a district court’s decision, has ruled that a former professional basketball player filed his lawsuit against a pension plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”) at least 10 years after the applicable statute of limitations had expired.

THE CASE

In July 2001, the National Basketball Association (“NBA”) players’ pension plan terminated its payments to the plaintiff, a former professional basketball player who played in the NBA from 1968 to 1978, under his accelerated retirement schedule.

The plaintiff sued the plan on November 15, 2017, alleging that the plan had violated ERISA.

The U.S. District Court for the Southern District of New York dismissed the plaintiff’s lawsuit as time-barred, finding that he had knowledge of a potential claim against the plan by, at the latest, July 2001 and that he had filed his lawsuit well past the applicable six year statute of limitations in this case. (The district court pointed out that ERISA does not provide a statute of limitations so it applied the most nearly analogous state limitations statute – here, the six year statute for contract actions under New York law.)

According to the district court, if the plaintiff believed that he was owed more money in July 2001, then he should have brought an action immediately after the benefits ended, or sometime before the statute of limitations had expired.

The plaintiff appealed to the Second Circuit.

THE SECOND CIRCUIT’S DECISION

The Second Circuit affirmed.

In its decision, the circuit court explained that the statute of limitations period began running when the plan “clearly and unequivocally” repudiated the plaintiff’s claim for benefits and the plaintiff knew or should have known about that repudiation.

The circuit court then agreed with the district court that, by July 2001, the plaintiff had sufficient notice that he would receive no future benefits.

Accordingly, the Second Circuit concluded, the plaintiff’s complaint had been filed “at least 10 years too late.” [Abdul-Aziz v. National Basketball Association, Players’ Pension Plan, No. 19-782-cv (2d Cir. Nov. 12, 2019).]

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