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Posts Tagged ‘U.S. District Court for Northern District of Texas’

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 Issues Nationwide Injunction to Stop Federal Enforcement of Title IX in Gender Identity Cases

Posted on: August 22nd, 2016 by Art Leonard No Comments

A federal district judge in Wichita Falls, Texas, has issued a “nationwide preliminary injunction” against the Obama Administration’s enforcement of Title IX of the Education Amendments Act to require schools to allow transgender students to use restroom facilities consistent with their gender identity. Judge Reed O’Connor’s August 22 ruling, State of Texas v. United States of America, Civ. Action No. 7:16-cv-00054-O (N.D. Texas), is directed specifically at a “Dear Colleague” letter dated May 13, 2016, which the Department of Justice (DOJ) and Department of Education (DOE) jointly sent to all the nation’s schools subject to Title IX, advising them of how the government was now interpreting federal statutes forbidding discrimination “because of sex.”  The letter advised recipients that failure to allow transgender students’ access to facilities consistent with their gender identity would violate Title IX, endangering their eligibility for funding from the DOE.

The May 13 letter was sent out shortly after the U.S. Court of Appeals for the 4th Circuit, based in Richmond, had ruled in April that this interpretation by the Administration, previously stated in filings in a Virginia lawsuit, should be deferred to by the federal courts.  G.G. v. Gloucester County School Board, 822 F.3d 709.    That lawsuit is about the right of Gavin Grimm, a transgender boy, to use boys’ restroom facilities at his Gloucester County, Virginia, high school.  The ACLU had filed the case on Grimm’s behalf after the school district adopted a rule forbidding students from using single-sex-designated facilities inconsistent with their “biological sex” as identified on their birth certificates, a rule similar to that adopted by North Carolina in its notorious H.B.2, which is itself now the subject of several lawsuits in the federal district courts in that state.  After the 4th Circuit ruled, the federal district judge hearing that case, Robert Doumar, issued a preliminary injunction requiring that Grimm be allowed access to the boys’ restrooms while the case is pending, and both Judge Doumar and the 4th Circuit Court of Appeals refused to stay that injunction.  However, the U.S. Supreme Court voted 5-3 to grant the school district’s request for a stay on August 3.  Judge O’Connor prominently mentioned the Supreme Court’s action in his opinion as helping to justify issuing his preliminary injunction, commenting that the case presents a question that the Supreme Court may be resolving this term.

Underlying this and related lawsuits is the Obama Administration’s determination that federal laws banning sex discrimination should be broadly interpreted to ban discrimination because of gender identity or sexual orientation. The Administration adopted this position officially in a series of rulings by the Equal Employment Opportunity Commission (EEOC), the agency charged with enforcing Title VII of the Civil Rights Act of 1964, which prohibits sex discrimination in the workplace.  This interpretation was in line with prior decisions by several federal circuit courts, ruling in cases that had been brought by individual transgender plaintiffs to challenge discrimination under the Violence against Women Act (VAWA), the Fair Credit Act (FCA), and Title VII.  These are all “remedial statutes” that traditionally should receive a liberal interpretation in order to achieve the policy goal of eliminating discrimination because of sex in areas subject to federal legislation.  Although the EEOC and other federal agencies had rejected this broad interpretation repeatedly from the 1960s onward, transgender people began to make progress in the courts after the Supreme Court ruled in 1989 that sex-stereotyping by employers – disadvantaging employees because of their failure to comply with the employer’s stereotyped view of how men and women should act, groom and dress – could be considered evidence of sex discrimination, in the case of Price Waterhouse v. Hopkins.  While some of these courts continue to reject the view that gender identity discrimination, as such, is automatically illegal under these statutes, they have applied the sex-stereotype theory to uphold lawsuits by individual transgender plaintiffs, especially those who are discharged in response to their announcement that they will be transitioning or when they begin their transition process by dressing in their desired gender.

The Education Department built on this growing body of court rulings, as well as on the EEOC’s rulings, when it became involved in cases where transgender students were litigating over restroom and locker room access. DOE first expressed this view formally in a letter it sent in connection with a lawsuit against an Illinois school district, participated in negotiating a settlement in that case under which the school district opened up restroom access, and then began to take a more active approach as more lawsuits emerged.  By earlier this year DOE and DOJ were ready to push the issue nationwide after the 4th Circuit’s ruling marked the first federal appellate acceptance of the argument that this was a reasonable interpretation of the existing regulation that allows school districts to provide separate facilities for boys and girls, so long as the facilities are comparable.  DOE/DOJ argue that because the regulation does not specifically state how to resolve access issues for transgender students, it is ambiguous on the point and thus susceptible to a reasonable interpretation that is consistent with the EEOC’s position on workplace discrimination and the rulings that have emerged from the federal courts under other sex discrimination statutes.  Under a Supreme Court precedent, agency interpretations of ambiguous regulations should receive deference from the courts if those interpretations are reasonable.

The May 13 letter provoked consternation among officials in many states, most prominently Texas, where Attorney General Ken Paxton took the lead in forming a coalition of about a dozen states to file this joint lawsuit challenging the DOE/DOJ position. Paxton aimed to bring the case in the federal court in Wichita Falls before Judge O’Connor, an appointee of George W. Bush who had previously issued a nationwide injunction against the Obama Administration’s policy of deferring deportation of undocumented residents without criminal records and had also ruled to block an Obama Administration interpretation of the Family and Medical Leave Act favoring family leave for gay employees to care for same-sex partners.  Paxton found a small school district in north Texas, Harrold Independent School District, which did not have any transgender students but nonetheless adopted a restrictive restroom access policy, to be a co-plaintiff in the case in order justify filing it in the Wichita Falls court.  Shortly after Paxton filed this case, Nebraska Attorney General Doug Peterson put together another coalition of nine states to file a similar lawsuit in the federal district court in Nebraska early in July.

These cases rely heavily on an argument that was first proposed by Alliance Defending Freedom (ADF), the anti-gay “Christian” public interest law firm, in a lawsuit it brought in May on behalf of some parents and students challenging the settlement of the Illinois case, and a “copycat” lawsuit filed by ADF in North Carolina. The plaintiffs argue that the DOE/DOJ position is not merely an “interpretation” of existing statutory and regulatory requirements under Title IX, but rather is a new “legislative rule,” imposing legal obligations and liabilities on school districts.  As such, they argue, it cannot simply be adopted in a “guidance” or “letter” but must go through the formal process for adopting new regulations under the Administrative Procedure Act. This would require the publication of the proposed rule in the Federal Register, after which interested parties could submit written comments, perhaps one or more public hearings being held around the country to receive more feedback from interested parties, and then publication of a final rule, which would be subject to judicial review in a case filed in a U.S. Court of Appeals.  (This is referred to as the “notice and comment” process.) Neither DOE nor any other agency that has adopted this new interpretation of “sex discrimination” has gone through this administrative rulemaking process.  Additionally, of course, the plaintiffs contend that this new rule is not a legitimate interpretation of Title IX, because Congress did not contemplate this application of the law when it was enacted in the 1970s.

In his August 22 ruling, O’Connor concluded that the plaintiffs met their burden to show that they would likely succeed on the merits of their claim, a necessary finding to support a preliminary injunction. As part of this ruling, he rejected the 4th Circuit’s conclusion that the existing statute and regulations are ambiguous and thus subject to administrative interpretation.  He found it clear based on legislative history that Congress was not contemplating outlawing gender identity discrimination when it passed sex discrimination laws, and that the existing regulation allowing schools to provide separate facilities for boys and girls was intended to protect student privacy against being exposed in circumstances of undress to students of the opposite sex.  In the absence of ambiguity, he found, existing precedents do not require the courts to defer to the agency’s interpretation.  He found that the other prerequisites for injunctive relief had been met, because he concluded that if the enforcement was not enjoined, school districts would be put to the burden of either changing their facilities access policies or potentially losing federal money.  He rejected the government’s argument that the lack of any imminent enforcement activity in the plaintiff states made this purely hypothetical.  After all, the federal government has affirmatively sued North Carolina to enjoin enforcement of the facilities access restrictions in H.B.2.

Much of O’Connor’s decision focuses on the question whether the plaintiffs had standing to challenge the DOE/DOJ guidance in a district court proceeding and whether the court had jurisdiction over the challenge. He found support for his ruling on these points in a recent decision by the 5th Circuit Court of Appeals (which has appellate jurisdiction over cases from Texas) in a lawsuit that Texas brought against the EEOC, challenging a “guidance” about employer consideration of applicant arrest records in deciding whether to hire people.  Texas v. EEOC, 2016 WL 3524242.  Noting disparate enforcement of criminal laws against people of color, the EEOC took the position that reliance on arrest records has a disparate impact on people of color and thus potentially violates Title VII.  A 5th Circuit panel divided 2-1 in determining that the state had standing to maintain the lawsuit and that the district court had jurisdiction to rule on the case.   This suggests the likelihood that the Administration may have difficulty persuading the 5th Circuit to overrule O’Connor’s preliminary injunction on procedural grounds if it seeks to appeal the August 22 ruling.

The Administration argued in this case that any preliminary injunction by O’Connor should be narrowed geographically to the states in the 5th Circuit, even though co-plaintiffs included states in several other circuits, but O’Connor rejected this argument, agreeing with the plaintiffs that the injunction should be nationwide.  He emphasized the regulation allowing schools to have sex-segregated restroom facilities.  “As the separate facilities provision in Section 106.33 is permissive,” he wrote, “states that authorize schools to define sex to include gender identity for purposes of providing separate restrooms, locker rooms, showers, and other intimate facilities will not be impacted” by the injunction.  “Those states who do not want to be covered by this injunction can easily avoid doing so by state law that recognized the permissive nature” of the regulation.  “It therefore only applies to those states whose laws direct separation.  However, an injunction should not unnecessarily interfere with litigation currently pending before other federal courts on this subject regardless of state law.  As such, the parties should file a pleading describing those cases so the Court can appropriately narrow the scope if appropriate.”  This reference is directed mainly to the plethora of lawsuits pending in North Carolina, in which the federal government is contending that H.B.2 violates Title IX and Title VII.