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Texas Federal Court Will Allow Surviving Same-Sex Partner to Replead Claim for Death Benefits

Posted on: May 31st, 2019 by Art Leonard No Comments

On May 21, U.S. District Judge Jane J. Boyle issued a ruling in a complicated employee benefits case involving a same-sex partner’s claim to benefits under the employment-related life insurance policy of his late partner.  Ford v. Freemen, 2019 U.S. Dist. LEXIS 85178, 2019 WL 2189256 (N.D. Tex.).  The ruling concerned the part of the case in which Rodney Ford sought to hold either Bank of America (BoA) or Prudential Life Insurance Company (Prudential) liable for over $700,000.00, the amount in contention as between Ford and his late partner’a father, to whom Prudential had paid on the Policy.  This ruling did not concern Ford’s claim against Otis Freemen, his late partner’s father.

Rodney Ford and David Freemen lived together as same-sex partners when Freemen worked for MBNA Bank.  MBNA provided a life insurance policy as an employee benefit.  In 1996, Freemen completed a beneficiary designation form designating Ford as “100% beneficiary” under the policy.  Freemen continued actively to work for MBNA until 2005, when he left active active employment on long-term disability.  From 2005 until Freemen died in October 2016, Ford alleges that MBNA, and then Bank of America (BoA), which purchased MBNA and took over its obligations to MBNA employees and retirees, and Prudential, the issuer of the life-insurance policy, periodically sent David Freemen information confirming his insured status and that Ford was his beneficiary on the policy.  However, Ford claims, sometime before Freemen died, he “cleaned out” these documents, as a result of which they were not available to Ford after Freemen’s death.

Ford contacted Prudential and BoA to claim survivor benefits under various employee benefit plans, including this life insurance policy.  Prudential responded that there was no beneficiary designation on the life insurance Policy and advised Ford to contact BoA to obtain the original records.  Ford then called BoA and spoke with an HR representative, Kecia Atkins, who told him that she “found your name, but could not (would not) certify that the beneficiary designation applied to the Policy,” according to the allegations of Ford’s complaint.  Ford also alleged that Atkins “stated unequivocally that there was no beneficiary form showing Ford as beneficiary of the Policy.”  Ford then contacted Prudential to ask what would happen in the absence of a written beneficiary designation and was told, accurately, that under the policy the proceeds would go to Freemen’s heirs, meaning, in this instance, his father, Otis Norman Freemen.  The Prudential representative also told him that if he could prove he was a surviving spouse under Texas law, he would take priority over Otis Freemen, but since Rodney and David had not married after Obergefell v. Hodges was decided in 2015, that would mean he would have to prove he was a surviving common law spouse, a difficult but not necessarily impossible task.

Ford decided that rather than go through that, he would approach Otis Freemen to see if they could work out an agreement.  He alleges that Freemen agreed to obtain the proceeds of the policy as heir to his son, and then pay them over to Ford.  The opinion does not mention any further details about this alleged agreement, only to say that Otis Freemen received the death benefit payout and, instead of turning it over to Ford, used to it pay off a mortgage and other debts.  Based on the court’s reference to this as an “alleged” agreement, one infers that a copy of a written agreement was not attached as an exhibit to Ford’s complaint.

In February 2017, Ford filed suit in Texas state court against Freemen, alleging breach of contract for Freemen’s failure to pay over the proceeds from the Policy.  While this litigation was going on, Ford alleges, BoA responded to a discovery subpoena for the Policy records and, lo and behold, the records “showed Ford as the sole 100% beneficiary of the Policy based on the 1996 designation.”  Ford amended his state law complaint to add claims against BoA and Prudential, and they quickly removed the action to federal court, resting jurisdiction on Employee Retirement Income Security Act (ERISA).  Since the Policy was provided under an employee benefits plan, it is governed by ERISA.  Then BoA and Prudential moved to dismiss the claims against them, citing ERISA preemption of state law claims and failure by Ford to exhaust administrative remedies under the Policy by filing a claim and appealing any resulting denial as provided in the Policy.  Judge Boyle’s May 21 opinion addresses these motions by the bank and the insurance company.

ERISA expressly preempts all state laws relating to an employee benefits plan.  Under Supreme Court precedents, “state laws” are broadly construed to include common law claims, such as breach of contract or negligence.  The court addressed separately the preemption defenses advanced by BoA and Prudential.

The essence of the state law claim against BoA was negligent misrepresentation.  Ford claimed that Atkins failed to take reasonable care to find the relevant records, which only surfaced later in response to the subpoena, and that Ford had relied upon Atkins’ misrepresentation when he decided to forego attempting to prove surviving spouse status and instead to make a deal with Otis Freemen to obtain the benefit and pay it over to Ford.  The issue for the court was whether Ford’s claim against BoA could be held to “affect an employee benefits plan,” which turned on whether it might be conceptualized as an ERISA claim, in which case the state law claim he had asserted in his complaint would be preempted.  Judge Boyle explained two kinds of ERISA preemption, “complete preemption” and “conflicts preemption,” and explained why she concluded that both theories produced the same result: the state law claim was preempted.  Instead, Ford would have to assert that BoA had violated his rights under ERISA by providing misinformation and failing to verify the beneficiary designation upon David’s death and Ford’s inquiry.  Dismissal of the negligent misrepresentation claim would not necessarily deprive Ford of his cause of action against BoA.  Judge Boyle found it appropriate to dismiss the state law claim, but to allow Ford quickly to replead his claim against BoA as a federal claim under the pertinent provision of ERISA, giving him thirty days to do so.

Turning to Prudential, the court found that Ford has no viable ERISA claim against Prudential.  ERISA would automatically preempt any attempt by Ford to assert a breach of contract claim against Prudential on the assertion that Prudential paid the benefit to the wrong person.  As the issuer of the insurance policy, Prudential was required under ERISA to interpret and apply the Policy according to its terms.  Having been advised by Ford that he did not have a beneficiary designation, Prudential applied the relevant Policy terms to pay out the proceeds to David’s father.  In the absence of any evidence of bad faith by Prudential, it could not be held liable under ERISA.  “Plaintiff chose not to pursue a claim for benefits under the Policy with Prudential,” wrote Boyle, “but instead entered into an agreement with Freemen where he would receive the Policy’s proceeds and then give the proceeds to Plaintiff.  In Plaintiff choosing this path, Prudential did what it was required to do under the Policy – and what Plaintiff expected them to do – it paid the Policy’s proceeds to Freemen since there was no beneficiary designee and no claim by the Decedent’s spouse or children.”  Thus, the complaint failed to state a claim against Prudential under ERISA.

Both BoA and Prudential had also sought dismissal on grounds of failure to exhaust administrative remedies.  ERISA requires that employee benefit plans have a process of handling claims and providing for appeals of claim denials.  Ford did not try to invoke these procedures, instead merely adding BoA and Prudential as defendants in his state court lawsuit against Freemen two years after the death of his partner.  Ford argued that BoA’s exhaustion argument was “misplaced because BoA has failed to show that the Policy required him to make a claim with BoA, as opposed to the plan-administrator, Prudential,” wrote Boyle.  “In its Reply, BoA does not respond to this argument or make additional exhaustion arguments . . .  the Court does not find it appropriate to dismiss Plaintiff’s claims against BoA for failure to allege exhaustion of administrative remedies at the motion-to-dismiss stage” because, among other things, exhaustion is an affirmative defense, and it would be premature to deal with it at this stage of the case.  For another, of course, courts have recognized exceptions to the exhaustion requirement where a beneficiary had a “valid reason” for failing to exhaust administrative remedies.  “Although discovery will be needed to determine the applicability of this and other potential exceptions to the exhaustion requirement,” wrote Boyle, “the Court finds that the allegations in Plaintiff’s Complaint and the unique circumstances of this case are sufficient to infer that an exception to exhausting administrative remedies may be appropriate in this case.”

Turning to Prudential, however, the court found that this was an additional reason to grant Prudential’s motion to dismiss.  “Prudential’s position as to who is entitled to the Policy’s proceeds has remained the same from the time Plaintiff called Prudential following the Decedent’s death to the present day – absent a beneficiary designee, the Policy’s proceeds would be paid out to the Decedent’s spouse, and if none, to the Decedent’s heirs.  Prudential’s current position is not that it would have refused any claim by Plaintiff, but that the time to make a claim was when it originally advised Plaintiff of the proper claim process after the Decedent’s death and prior to filing suit.”  The judge noted that Ford had not alleged that Prudential’s policy was discriminatory, or that it would have refused to pay out if he had attempted to “prove up” his common law spouse status, and “there are no allegations that Prudential was hostile or biased against Plaintiff’s attempt to collect the Policy’s proceeds.”  The bottom line — Prudential is out of the case, because it did just what a Plan administrator is supposed to do: administer the Policy according to its terms.

The court gave Ford, who is represented by counsel – Tom C. Clark of Clark, Malouf & White LLP, Dallas – thirty days to amend his Complaint to convert the dismissed state law claim into a federal claim under ERISA.  The court did not give Ford leave to replead against Prudential.   The judge explained, “The Court finds that allowing Plaintiff the opportunity to replead against Prudential would be futile because Plaintiff would in essence have to contradict many of the allegations and arguments he currently asserts against Prudential in order to state a viable [ERISA] claim.”  Of course, the case continues against Otis Freemen, giving Ford alternative theories to pursue in seeking to recover the $726, 299.18 (presumably plus interest) at stake in this case.

Federal Court Lets Transgender Employee Sue Employer for Transition Benefits Denial Under Title VII

Posted on: January 17th, 2017 by Art Leonard No Comments

Does a transgender employee who seeks coverage under her employer’s benefits plans for breast augmentation surgery have a legal remedy if her claims are denied? U.S. District Judge Sidney A. Fitzwater ruled on January 13 that a transgender woman employed by L-3 Communications Integrated Systems (L-3) may pursue a sex discrimination claim under Title VII of the Civil Rights Act of 1964, having alleged that she was denied such benefits because of her gender, but not under the anti-discrimination provision of the Affordable Care Act (ACA). Baker v. Aetna Life Insurance Company, 2017 U.S. Dist. LEXIS 5665, 2017 WL 131658 (N.D. Tex.).

Judge Fitzwater rejected discrimination claims against the insurance company that provides the coverage and administers the plans on behalf of the employer, finding that the ACA and President Obama’s Executive Order governing gender identity discrimination by federal contractors do not apply to this situation, and that the insurance company cannot be sued under Title VII because it is not the plaintiff’s employer. Judge Fitzwater declined to grant motions for summary judgment by either the employee or by the insurer of her claim that denial of health and short-term disability benefits violates her rights under the terms of the employee benefits plan, setting that claim down for further proceedings.

According to her Complaint filed in the U.S. District Court for the Northern District of Texas in Dallas, Charlize Marie Baker is an employee of L-3 and a participant in the company’s Health Plan and its Short-Term-Disability (STD) Plan, both of which are administered by Aetna Life Insurance Company. She began the process of transitioning in 2011, obtained a legal name change, and had her gender designation changed from male to female on all government-issued documents.  She scheduled breast implant surgery in 2015 after her doctor determined that it was medically necessary to treat her gender dysphoria.

Baker filed claims for coverage of the surgery under the Health Plan and coverage of her recovery period under the STD Plan.  She alleges that the Health Plan denied her claim to cover the surgery, because “the plan does not cover breast implants for individuals with a male birth gender designation who are transitioning to the female gender, although the plan covers individuals with a female birth designation who are transitioning to the male gender and seeking a mastectomy.”  Presumably the mastectomy would be routinely covered because the Health Plan is accustomed to covering mastectomies for female employees when their doctors state that the procedure is medically necessary.   Baker was denied STD benefits because the Plan administrator decided that surgery to treat Gender Dysphoria does not qualify as “treatment of an illness.”

In his January 13 ruling, Judge Fitzwater focused on motions by L-3 and Aetna to dismiss discrimination claims brought under Section 1557 of the ACA, the Employee Retirement Income Security Act (ERISA), and Title VII of the Civil Rights Act of 1964. Section 1557 of the ACA incorporates by reference Title IX of the Education Amendments Act of 1972, which prohibits discrimination “because of sex.”  ERISA has its own non-discrimination provision, but does not specifically ban discrimination “because of sex.”  The ERISA provision broadly prohibits discriminating against an employee to prevent them from getting benefits to which they are entitled under an employee benefit plan.  ERISA provides a vehicle for employees to sue plan administrators for the wrongful denial of benefits to which they are entitled under employee benefit plans.

None of the statutes under which Baker filed her claims explicitly prohibits discrimination because of gender identity. In resisting the motions to dismiss, she relied heavily on a regulation published by the Department of Health and Human Services last spring, providing that Section 1557 of the ACA bans discrimination because of gender identity by insurers and health care providers, tracking interpretations of Title IX by the Department of Education and the Justice Department, which in turn relied on interpretations of Title VII by some federal courts and the Equal Employment Opportunity Commission (EEOC).

Baker also relied on President Obama’s Executive Order 13672, which bans gender identity discrimination by federal contractors. Noting that L-3 is a federal contractor, Baker’s attorneys, Michael J. Hindman and Kasey Cathryn Krummel of Hindman/Bynum PC, urged the court to make “a good faith extension of existing law that the discrimination by Defendants based on her Gender Identity is also discrimination in violation of ERISA in this context and that ERISA must be read to include the prohibition of discrimination based on gender identity.”

“Baker is unable to point to any controlling precedent that recognizes a cause of action under Section 1557 [of the ACA] for discrimination based on gender identity,” wrote the judge. For one thing, he pointed out, the HHS regulation on point was to become effective on January 1, 2017, long after Baker was denied benefits, and thus was not applicable at the time of Aetna’s decision to deny the claims, and furthermore, one of Judge Fitzwater’s colleagues on the Northern District of Texas bench, Judge Reed O’Connor, has issued two rulings rejecting the argument that Title IX, which is the source of the ACA non-discrimination policy regarding sex, should be “construed broadly to protect any person, including transgendered persons, from discrimination.”

On August 21, 2016, Judge O’Connor issued a preliminary injunction against the enforcement of Title IX by the federal government in gender identity cases, and he issued a similar preliminary injunction on December 31, 2016, against the enforcement of the HHS regulation in gender identity cases under the ACA. The government appealed the August 21 ruling to the 5th Circuit Court of Appeals in Houston, and announced it would similarly appeal the December 31 ruling.  Whether those appeals will be pursued or dropped after the change of administration on January 20 is a decision for the new attorney general and secretaries of education and health.  In both of those cases, O’Connor concluded that the plaintiffs were likely to prevail on their claim that Title IX (and by extension the ACA) does not ban gender identity discrimination.

Many federal courts are grappling with the question whether federal laws and regulations banning discrimination “because of sex” should apply to gender identity or sexual orientation discrimination, but there is no consensus yet among the appellate courts. The Supreme Court has a case pending on the gender identity issue under Title IX, but it has yet to be scheduled for argument.  The closest the appeals courts have come are decisions finding that “sex stereotyping” violates Title VII and perhaps by extension other sex discrimination laws, based on a 1989 ruling by the Supreme Court in Price Waterhouse v. Hopkins.  Some courts have used the “sex stereotyping” theory to protect transgender employees in Title VII cases.  However, Judge Fitzwater was correct in observing that as of now there is no “controlling precedent” supporting Baker’s claim that gender identity discrimination, as such, violates Section 1557 of the ACA.  For this judge, a “controlling precedent” would be one coming from the 5th Circuit, which has appellate jurisdiction over federal trial courts in Texas, or the Supreme Court, and expressly addressing the issue.

Baker sought to argue that “the ‘effect’ of E.O. 13672 seems to be little more than to clarify the issue left somewhat ambiguous in Section 1557 that discrimination against transgender persons under this law is prohibited.” She argued that when the ACA was enacted in 2010, some courts had already relied on Price Waterhouse v. Hopkins to find gender identity discrimination covered by Title VII.

Fitzwater found “two fallacies” in this argument. “First,” he wrote, “the Fifth Circuit has not extended Hopkins’ Title VII reasoning to apply to any statute referenced in Section 1557,” and cited Judge O’Connor’s August 21 ruling in support of this point.  “Second, Baker is relying on an Executive Order to clarify what she characterizes as a ‘somewhat ambiguous’ legislative act.”  This was not enough to satisfy Fitzwater, who granted the motions to dismiss the ACA discrimination claim.

Aetna also moved to dismiss Baker’s ERISA claim, contending that ERISA does not ban gender identity discrimination in the administration of employee benefit plans. Fitzwater agreed with Aetna, finding that “as Baker acknowledges, this claim is not currently recognized.  It is for the Congress, not this court, to decide whether to create in ERISA a protection that the statute does not already provide.”  And because the court had already rejected her argument under Section 1557, it would not rely on that ACA provision as a basis for finding a right under ERISA.

Turning finally to the motions to dismiss the Title VII claim, Judge Fitzwater rejected Baker’s argument that Aetna should be liable to suit for sex discrimination under Title VII as an “agent” of L-3 in administering the benefits plans. Fitzwater pointed to 5th Circuit precedents holding that Title VII does not apply in the absence of an employer-employee relationship.  Baker argued that in the EEOC Compliance Manual there is a suggestion that an insurance company administering an employer’s benefit plans is acting as the employer’s agent, “but the EEOC Compliance Manual does not have the force of law,” wrote Fitzwater.  “And this circuit recognizes an agency theory of employer liability only if the alleged agent had authority ‘with respect to employment practices,’” which Baker did not allege.

However, at long last Fitzwater reached the only claim that he refused to dismiss in this opinion: Baker’s allegation that the denial of coverage for her surgery and recovery period under the benefits plans provided by her employer constituted sex discrimination by the employer in violation of Title VII. L-3 argued that Baker had failed to allege that she suffered an adverse employment action based on her gender, but, wrote Fitzwater, “The Court disagrees.”

“Baker plausibly alleges that she was denied employment benefits based on her sex,” he wrote. “She asserts that L-3 ‘engaged in intentional gender discrimination in the terms and conditions of employment by denying her a medically necessary procedure based solely on her gender,’” that the company’s “conduct constitutes a deliberate and intentional violation of Title VII,” and that this conduct “has cause [her] to suffer the loss of pay, benefits, and prestige.”  This was enough, concluded Fitzwater, to allow her Title VII claim against her employer to continue.  Interestingly, his opinion does not explore explicitly whether Title VII applies to gender identity discrimination claims as such, and makes no mention of the EEOC’s 2012 decision to that effect, choosing to treat this as purely a sex discrimination, presumably on the basis that Baker would have been covered for the procedure had she been identified female at birth, so clearly in that sense the denial was because of her sex.

Thus, at this point Baker continues to have a claim under ERISA against Aetna, based on her allegation that Aetna’s refusal to cover her procedure and recovery period violated the terms of the benefits plans, and a sex discrimination claim under Title VII against her employer, based on her allegation that the employer’s benefit plan discriminated against her because of her sex.

Federal Court Applies U.S. v. Windsor Retroactively to Allow Lesbian Widow to Seek Pension Benefit

Posted on: January 11th, 2016 by Art Leonard No Comments

U.S. District Judge Phyllis J. Hamilton ruled on January 4 in Schuett v. FedEx Corporation, 2015 U.S. Dist. LEXIS 244, 2015 WL 39890 (N.D. Cal.), that the Supreme Court’s 2013 decision in U.S. v. Windsor, striking down Section 3, a key provision of the Defense of Marriage Act (DOMA), could be applied retroactively to allow Stacey Schuett, a lesbian widow, to sue her late spouse’s employer for a survivor annuity.  Although the judge rejected a claim that the lawsuit could be brought directly under the company’s pension plan or as a breach of fiduciary duty action against the plan’s administrators, she accepted the argument that the plan could be sued for violating the Employee Retirement Income Security Act (ERISA) by failing to authorize the annuity for the plaintiff.

The story is complicated.  This account is based on what Stacey Schuett alleged in her complaint, as summarized by Judge Hamilton.

Schuett lived together in a committed relationship for 27 years with Lesly Taboada-Hall, who passed away from cancer on June 20, 2013, just a week before the Supreme Court’s momentous June 26 decisions rejecting an appeal of the federal court ruling that struck down California Proposition 8 and striking down Section 3 of DOMA.  For almost the entire length of their relationship, Taboada-Hall had been employed by Federal Express (FedEx), and she was a fully-vested participant in the FedEx Pension Plan.

As required by ERISA, the plan states that if an employee with a vested pension dies before retiring, their surviving spouse is eligible to receive a “qualified joint and survivor annuity” for the rest of their life.  The written pension plan uses the federal definition of spouse, directly referring to Section 3 of DOMA, which defined a spouse as “a person of the opposite sex who is a husband or wife.”  This is the definition that the Supreme Court declared unconstitutional on June 26, 2013.

Ms. Taboada-Hall was diagnosed with cancer in February, 2010, and as her condition worsened she took a medical leave of absence from FedEx in November 2012.  In February 2013, facing the fact that she would not be able to resume working, she contacted a FedEx human resources representative about her pension and other employee benefits, since she was eligible for early retirement under the terms of the pension plan.  The representative advised her not to retire, since she could continue on medical leave and have her medical expenses covered under the FedEx employee benefits plan.  She was asked about her other benefits, and was advised to name Schuett as her sole beneficiary on the other plans.  She also asked whether Schuett would get the “defined pension benefit” to which Taboada-Hall would be entitled, if Taboada-Hall died before retiring.  The representative said he did not know the answer to that and said “ask someone else.”

On June 3, 2013, the doctor advised that Taboada-Hall was terminal and did not have long to live.  Schuett and Taboada-Hall looked again through the benefits package, and noticed that the plan defined “spouse” with reference to DOMA.  Between June 3 and June 13, they had several conversations with FedEx human resources personnel trying to find out what would happen to Taboada-Hall’s benefits, and on June 13 they received the answer: Schuett would not receive a surviving spouse benefit because only opposite-sex partners could be recognized under the plan.

They quickly arranged with a Sonoma County Supervisor to come to their home and perform a civil marriage ceremony, even though they could not get a marriage license because Proposition 8 was still in effect.  The ceremony was witnessed by friends and family members on June 19. The next day Taboada-Hall died, and six days later Prop 8 and DOMA were declared unconstitutional.

What to do next?  Two days after the Prop 8 decision, the 9th Circuit Court of Appeals lifted its stay and Judge Vaughan Walker’s 2010 ruling holding Prop 8 unconstitutional went into effect.  Of course, the logical implication of the Supreme Court’s decision that the proponents of Prop 8 did not have standing to appeal Judge Walker’s decision was that Walker’s ruling should have been in effect from the summer of 2010 when it was issued, so by rights Taboada-Hall and Schuett should have been able to get a marriage license at any time since then.  Furthermore, the logical implication of the DOMA decision was that the federal definition of marriage was unconstitutional from the date it was enacted in 1996.

Schuett went into Sonoma County Superior Court on August 6, 2013, filing a Petition to Establish the Fact, Date, and Place of Marriage, contending that the June 19 marriage should be retroactively validated.  That court agreed, ruling on September 18, 2013, that the marriage was valid as of June 19, 2013, issuing a delayed certificate of marriage carrying that date.  This means that Schuett was a surviving widow when Taboada-Hall died on June 20, and thus she should be entitled to be treated as a surviving spouse by FedEx.

But not so fast!  FedEx turned her down for the benefit, arguing that eligibility depended on the terms of the written plan, which was limited to surviving different-sex spouses.  In Schuett’s federal lawsuit against FedEx for the benefit, Judge Hamilton agreed with FedEx that Schuett could not sue for the benefit directly, since only beneficiaries under a plan can sue for benefits and under the terms of the written plan she was not a beneficiary.  Furthermore, Judge Hamilton agreed with FedEx that the administrators of the plan had not violated their fiduciary duty, which required them to follow a reasonable interpretation of the written plan’s terms.  The judge granted FedEx’s motion to dismiss Schuett’s claims under these two legal theories.

However, plan administrators are required to administer plans “in accordance with applicable law,” wrote Judge Hamilton.  ERISA provides that a plan must provide an annuity benefit to the spouse of an employee who has a fully vested pension benefit but dies before they have retired and begun to receive retirement benefits.  Schuett argued that since California recognized her as being married on June 19, 2013, the day before Taboada-Hall died, she should be considered a surviving spouse for purposes of this ERISA provision.  She pointed out that in the Windsor case, the Supreme Court not only declared DOMA unconstitutional but also ordered that the federal government refund with interest the money Edie Windsor had paid to cover estate taxes of her wife, Thea Speyer, which would not have been due if the federal government recognized their Canadian marriage.  Thus, the ruling in Windsor was itself retroactive.

Judge Hamilton accepted Schuett’s argument, finding that “ERISA requires a fiduciary to follow plan documents insofar as such documents are consistent with Title I of ERISA.  ERISA requires defined benefit plans such as the Plan at issue to provide a qualified preretirement survivor annuity to all married participants who are vested and die before the annuity starting date, unless the participant has waived the benefit and the spouse consented to the waiver.”  Furthermore, the Department of Labor had issued a “guidance” document making clear that “ERISA’s mandatory benefits provisions apply to all spouses, including same-sex spouses.”

Among the cases Judge Hamilton relied upon were Cozen O’Connor P.C. v. Tobits, 2013 U.S. Dist. LEXIS 105507, 2013 WL 3878688 (E.D. Pa. 2013), specifically on an ERISA survivor benefits claim involving a same-sex couple, and Harper v. Virginia Dep’t of Taxation, 509 U.S. 86 (1993), on retroactivity when the Supreme Court announces a new rule of federal law and applies it retroactively to the parties in the case.

Hamilton found that the Windsor decision “appears to invalidate Section 3 of DOMA retroactive to 1996, the date of enactment.  Notably, the decision in Windsor applied retroactively.”

“In the present case,” she wrote, “although California denied recognition of the term ‘spouse’ to same-sex couples at the time of Ms. Taboada-Hall’s death on June 20, 2013, the Sonoma County Superior Court determined that plaintiff and Ms. Taboada-Hall were married on June 19, 2013, and issued a delayed marriage certificate. . .  [T]his court defers to the California court’s certification of the marriage. . .  The court finds that plaintiff has adequately alleged that FedEx has violated Title I of ERISA by acting contrary to applicable federal law and failing to provide plaintiff with a benefit mandated by ERISA, and that she is entitled to pursue equitable relief to remedy that violation.”  She concluded on this point that she was not persuaded “under the facts alleged in the complaint that there is any basis for denying retroactive application of Windsor.” Thus, Judge Hamilton denied FedEx’s motion to dismiss Schuett’s claim under the ERISA violation theory.

Stacey Schuett is represented by Nina Rachel Wasow, an attorney with Feinberg, Jackson, Worthman & Wasow (Oakland); Amy Whelan, Christopher Francis Stoll, and Shannon Minter of the National Center for Lesbian Rights (San Francisco); Julie Wilensky of Civil Rights Education & Enforcement Center (Berkeley); and Tate A. Birnie (Sebastopol).  FedEx used in-house counsel to litigate its motion to dismiss, but would probably retain outside counsel if it seeks to appeal this ruling to the 9th Circuit.  Since the FedEx plan administrators are under a fiduciary duty not to pay out any benefits that are not required by the plan or the law, they might conclude that they have to appeal this ruling, although the pragmatic approach could be to avoid the costs of litigation and grant Schuett’s claim for the annuity.  Of course, it is also open to Schuett to appeal the court’s order dismissing her claim on the other legal theories.

Federal Court Rejects Discrimination Claim Against Catholic Hospital’s Refusal to Cover Same-Sex Spouse Under Employee Benefit Plan

Posted on: May 7th, 2014 by Art Leonard No Comments

Although both the federal government and the state of New York recognize same-sex marriages, and the state of New York prohibits discrimination against same-sex married couples, a federal judge in Manhattan ruled on May 1 that a woman whose Catholic hospital employer refused to enroll her wife in the employee health insurance plan could not sue under the federal employee benefits law. U.S. District Judge Nelson S. Roman granted a motion to dismiss by Empire Blue Cross Blue Shield and St. Joseph’s Medical Center.

The plaintiff is identified in court papers as “Jane Roe.” She has been employed at the St. Vincent’s (Westchester) division of St. Joseph’s Medical Center since September 2007. After New York enacted its Marriage Equality Act in 2011, she married her same-sex partner. At the next open enrollment period for her employer’s health insurance plan later that year, she submitted an unsuccessful application to enroll her wife as a dependent. St. Joseph’s Human Resources department told her that the plan did not cover “same-sex spouses.” She filed grievance letters with both St. Joseph’s and the insurer, Empire Blue Cross Blue Shield. Empire responded to her final round grievance letter, stating, “under [the Plan], same sex spouse and domestic partner is an EXCLUSION under the benefit.” Evidently Empire’s letter-writer needs a remedial English course.

“Roe” then filed suit in federal court, alleging violations of two provisions of the Employee Retirement Income Security Act (ERISA), a federal statute that regulates employee benefit plans of non-governmental employers. Her main argument was that because of the U.S. Supreme Court’s decision last June in U.S. v. Windsor, declaring section 3 of the Defense of Marriage Act unconstitutional, the federal government is now required to recognize same-sex marriages that are valid under state law, as her marriage is, and thus ERISA’s non-discrimination provision must mandate non-discriminatory coverage for same-sex couples in compliance with New York Law. The New York Marriage Equality Act says, “A marriage that is otherwise valid shall be valid regardless of whether the parties to the marriage are of the same or different sex.”

The defendants argued that the New York statute is preempted by ERISA, and thus is inapplicable in this case. ERISA has a broad preemption provision, which states that the federal law “shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.” Judge Roman rejected the idea that ERISA would preempt New York’s marriage law, but he deemed that issue to be “irrelevant.” “The question presented by Plaintiff’s Complaint is not whether ERISA or New York State law applies on the issue of marriage, but whether a private plan violates a provision of ERISA by excluding same sex couples from beneficiary status,” he wrote.

As to that, Judge Roman concluded that the exclusion of coverage for same-sex couples does not violate Section 510, the provision of ERISA that is usually called the non-discrimination provision. This provision, which is titled “Interference with protected rights,” says that it is unlawful to “discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.” The typical complaint to which this section applies is a situation where an employer discharges somebody in order to prevent them from qualifying for benefits. The 2nd Circuit Court of Appeals, which sets precedents for the federal courts in New York, has said that this section was “designed primarily to prevent ‘unscrupulous employers from discharging or harassing their employees in order to keep them from obtaining vested pension rights.” As a result of this narrow interpretation, trial courts within the 2nd Circuit have given a narrow reading to this provision, holding, in one case, that in order to assert a claim under this section, “plaintiffs must allege that defendant took some type of adverse employment action to interfere with the attainment of their benefit rights under the plan.”

Although courts in some other parts of the country have taken a broader view of the non-discrimination provision, their rulings are not binding on a trial court in New York. Judge Roman noted that ERISA leaves employers “generally free” to “adopt, modify, or terminate welfare plans” such as health insurance plans, and does not regulate the “substantive content of welfare-benefit plans.” Consequently, unless another federal statute (which would not be preempted by ERISA) would ban such an exclusion as discriminatory, a federal court would not have jurisdiction over the discrimination claim. New York’s Human Rights Act, which forbids sexual orientation discrimination in employment, was interpreted by New York courts beginning in 2008 to require public employers in the state to allow legally-recognized same-sex spouses of their employees to participate in their insurance plans, but ERISA preemption prevents the application of New York’s Human Rights Act to a private (that is, non-governmental) employer’s plan, and St. Joseph’s, a Catholic hospital, is a private employer.

This gap in coverage against sexual orientation discrimination might be corrected if the version of the federal Employment Non-Discrimination Act (ENDA) approved by the Senate last year were to be enacted, since ERISA does not preempt other federal statutes. Although prior versions of ENDA specifically stated that it would not require employers to provide benefits to same-sex partners of employees, and it incorporated the Defense of Marriage Act by reference, that provision was dropped from ENDA after the Supreme Court declared Section 3 of DOMA unconstitutional last year. However, ENDA broadly exempts from coverage those corporations that are deemed to be “religious employers” under Title VII of the Civil Rights Act of 1964. If St. Joseph’s Catholic affiliation would result in it been considered a “religious employer,” it would not have to comply with the non-discrimination provisions of ENDA either. Gay rights advocates have criticized this religious employer exemption as being broader than would be required by the First Amendment, but sponsors of the bill deemed it necessary to win sufficient votes for passage.

Jane Roe also claimed that the defendants violated their fiduciary duties under Section 404 of ERISA, which requires that administrators of employee benefits plans carry out their duties in the best interest of the beneficiaries. Roe argued that it violates fiduciary duties to enforce a provision in an employee benefit plan that is unlawful. Judge Roman easily rejected this argument, as he found that the exclusion of coverage for same-sex spouses does not violate ERISA or any other federal law and so is not “unlawful.” Judge Roman pointed out that an ERISA fiduciary’s obligation is to “carry out his or her duties in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of ERISA,” so no breach of fiduciary duty could be found in this case.

Judge Roman noted that in a different context ERISA might require recognition of a same-sex marriage. A federal court in Philadelphia ruled last year that when an employee benefit plan uses the term “spouse” without a specific definition of that term, an ERISA requirement that pension plans make surviving spouses automatic beneficiaries would have to be interpreted as including legally married same-sex spouses, so long as they are living at the time of the employee’s death in a state that recognizes their marriage. However, there is no ERISA provision requiring employers to even have health insurance plans for their employees, much less plans that also cover spouses and other dependents, so that decision in the case of Cozen O’Connor P.C. v. Tobits does not apply to Jane Roe’s claim. The Cozen O’Connor decision was not appealed to the 3rd Circuit, so it has value only as a persuasive precedent at best.

Jane Roe is represented by Debra Sue Cohen, Jeffrey Michael Norton, and Randolph M. McLaughlin of the New York City law firm Newman Ferrara LLP.

Court Awards Survivor’s Benefits to Same-Sex Spouse

Posted on: July 30th, 2013 by Art Leonard No Comments

U.S. District Judge C. Darnell Jones, II (E.D.Pa.), ruled July 29 that the federal Employee Retirement Income Security Act (ERISA) should be construed, now that DOMA Section 3 has been declared unconstitutional, to recognize a same-sex marriage for purposes of an employee benefit plan when the married couple resided in a state that recognized the validity of the marriage.  The ruling means that Jennifer J. Tobits will be entitled to a survivor’s benefit under the Profit Sharing Plan maintained by a Philadelphia-based law firm, Cozen O’Connor PC, which had employed her late wife, Sarah Ellyn Farley, in its Chicago office.  Tobits and Farley married in Canada in 2006, and lived together in Illinois.  Cozen O’Connor v. Tobits, 2013 U.S. Dist. LEXIS 105507.

Farley was diagnosed with cancer shortly after the women were wed, and she passed away on September 13, 2010.  Shortly after her death, Farley’s parents, who had not approved of her relationship with Tobits, presented Cozen O’Connor with a form dated September 12, 2010, which they represented to be a designation by their daughter of them as her beneficiaries entitled to the survivor’s benefit, which the court says amounts to about $49,000.  Tobits also submitted a claim for the benefits, based on her status as surviving spouse of Farley.

The Cozen O’Connor Profit Sharing Plan provides for retirement annuities for participants.  If a participant dies prior to retirement, the annuity payment they earned goes to their surviving spouse, unless the spouse has approved the participant’s determination to designate somebody else as the beneficiary.  Tobits never approved any designation of Farley’s parents as beneficiaries, and she disputed the validity of the designation form they presented, purportedly executed the day prior to Farley’s death.

Cozen O’Connor, caught in the middle of clashing claims, and confronting the definition of “spouse” under federal law as set forth in Section 3 of the Defense of Marriage Act, filed a suit in the U.S. District Court in Philadelphia, seeking a judicial determination of who is entitled to the benefit.  This kind of lawsuit is called an “interpleader action,” in which a party who has a financial obligation to two or more others can file an action in which the potential creditors are drawn in as defendants and will be bound by the determination of the court.

The Farleys, relying on Section 3 of DOMA as providing the definition of “spouse” for purposes of a federally-regulated employee benefit plan, argued that their daughter had died without leaving a legally recognized spouse.  Thus, under the terms of the Plan, her surviving parents would be entitled to the benefit.  Futher, they argued that the designation form was valid.  Tobits, represented by the National Center for Lesbian Rights, argued that she was the surviving legally-recognized spouse, and that she had never consented to waive her rights in favor of her wife’s parents in any case, so the designation form was invalid.

Judge Jones heard the arguments on pre-trial motions last year, then put the case on his “suspense calendar” to sit until the U.S. Supreme Court ruled on the constitutionality of Section 3 of DOMA.  Once that ruling came down on June 26, wrote Judge Jones, the case had to be decided in Tobits’ favor. 

“The Windsor Court held that because the state of New York recognized same-sex marriages as valid — and, to wit, the Canadian marriage of Edith Windsor and Thea Spyer — DOMA unlawfully deprived those couples of the equal liberty of persons that is protected by the Fifth Amendment,” wrote Jones.  “As it stood, DOMA ‘wrote inequality into the entire United States Code.’ That ‘written inequality’ in DOMA Section 3 extended to the ERISA definition of ‘Spouse.’ Prior to the Court’s decision in Windsor, under the plain language of ERISA, the [Internal Revenue] Code, and the Plan at issue in this case, qualified retirement plans were under no obligation to provide benefits to same-sex  Spouses.  Following the Court’s ruling, the term ‘Spouse’ is no longer unconstitutionally restricted to members of the opposite sex, but now rightfully includes those same-sex spouses in ‘otherwise valid marriages.'”

The problem for this case was to determine whether the Farley-Tobits marriage is an “otherwise valid marriage” for purposes of the Cozen O’Connor Plan.  The Plan itself provided that it terms would be defined according to their meaning under ERISA, and with the Supreme Court’s ruling striking down Section 3 of DOMA, there is no longer a federal statutory definition of “marriage” or “spouse” to be used in ERISA cases.  Thus, the court must fall back on the normal practice of asking whether the parties are in a marriage recognized by the state where they live.  Judge Jones rejected the idea that this should be based on Pennsylvania law just because the Cozen O’Connor firm is headquartered there and the plan documents refer to Pennsylvania law, since ERISA preempts state law and Tobits was never employed in Cozen O’Connor’s office in Pennsylvnia.  He warned that defining marriage according to the law of the state where a plan is written could lead employers to “forum shop” for a state that does not recognize same-sex marriages if they want to deny such benefits.

Thus, the question fell to Illinois law because Farley was employed in Illinois and that’s where the couple resided.  Illinois has a Civil Union Act but does not have same-sex marriage.  Thus, the Farley-Tobits marriage is treated as a civil union for purposes of Illinois law.  However, the issue in this case is not the meaning of “marriage” but rather the meaning of “spouse,” since that is the term used in the Plan to described the principal beneficiary, “surviving spouse.”  Wrote Jones, “By virtue of its civil union statute, Illinois can recognize same-sex marriages solemnized in other jurisdictions, such as Canada.”  He pointed out, in a footnote, that in the Illinois Civil Union Act, the statute provides “persons entering into a civil union with the obligations, responsibiltiies, protections and benefits afforded or recognzied by the law of Illinois to spouses.” 

This proved sufficient for Judge Jones.  “There can be no doubt that Ms. Tobits is Ms. Farley’s ‘surviving Spouse’ under the Plan in light of the Supreme Court’s decision in Windsor,” he wrote.  “Post-Windsor, where a state recognizes a party as a ‘Surviving Spouse,’ the federal government must do the same with respect to ERISA benefits — at least pursuant to the express language of the ERISA-qualified Plan at issue here.  There can be no doubt that Illinois, the couple’s place of domicile, would consider Ms. Tobits Ms. Farley’s ‘Surviving Spouse’ — indeed, it already has made that specific finding under state law,” he wrote, noting further that Tobits had secured from the Cook County Circuit Court an Order designating her as Ms. Farley’s sole heir at law as her surviving civil union partner. 

“Indeed, because the Illinois probate court recognized Ms. Tobits as the sole heir to a civil union, it accepted as valid the marriage between Ms. Tobits and Ms. Farley that took place in Canada in 2006.  As this Canadian marriage was deemed valid, albeit under the nominal title of ‘civil union’ in Illinois, there can be no dispute that Ms. Tobits is a ‘surviving Spouse’ pursuant to the Plan.”

Thus, it was fortuitous that Farley and Tobits lived in a state that provides legal recognition as spouses to same-sex couple residents who marry elsewhere.  This decision doesn’t answer — because it needn’t answer — the looming question of whether the result would have been the same had Farley worked in Cozen O’Connor’s Philadelphia office, inasmuch as Pennsylvania has a state DOMA amendment and does not afford any recognition to the status of same-sex couples married elsewhere but resident in Pennsylvania.  Although ERISA broadly preempts state laws relating to employee benefits plans, it still looks to state law to identify the marital status of employees covered by those plans.  As such, this decision’s persuasive precedential value seems limited, at least for now, to states that afford spousal recognition to same-sex marriages.