The Supreme Court rescues Obamacare one more time

President Obama might want to invite Chief Justice John Roberts to the White House for a “thank you” dinner!

The United States Supreme Court today issued an opinion in King v. Burwell that upholds the Obama administration’s interpretation of language in the Affordable Care Act (the “ACA”) that concluded government subsidies to underwrite the cost of health care coverage are available to all qualifying Americans–and not just to those living in states that maintain their own heath care exchanges under the ACA.  In a 6-3 decision, Chef Justice Roberts authored the opinion of the court (just as he did in the Court’s landmark opinion in 2012 in National Federation of Independent Business v. Sebelius).  Specifically, the Court’s opinion upholds a ruling by the Internal Revenue Service that subsidies should be available both in states that have set up their own exchanges and in other states in which residents must purchase coverage through the federal government exchange.  Five other justices joined Chief Justice Roberts in his opinion, including Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan.  Justice Antonin Scalia wrote a typically scathing dissent, and was joined in that dissent by Justices Clarence Thomas and Samuel Alito Jr.

The case centered on an interpretation of a phrase in the ACA that offers tax credits to individuals who purchase health care coverage on exchanges that are “established by the state.”  Chief Justice Roberts wrote that even though the language was problematic, the intent of Congress to provide the subsidies to all individuals was clear.  In perhaps the core (and ultimately most-quoted) statement in the opinion, Roberts wrote that “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them.  If at all possible we must interpret the Act in a way that is consistent with the former, and avoids the latter.”

In his dissent, Justice Scalia forcefully expressed his view that the actions of majority were not designed to interpret the ACA but rather to save it—a job he believes is rightfully reserved to the legislature.  Scalia closed his dissent with a statement that is sure to gain much notice and notoriety when he wrote that “We should start calling this law SCOTUScare.”

This case does not deal with complicated constitutional principles, and at the end of the day simply preserves the status quo.  Having said that, most observers believed that a contrary ruling would have dealt a devastating blow to the essential operations of the ACA.  While other legal challenges to the ACA are being litigated, none of those cases seem to present such an existential threat to the ACA.  Still, the challenges are not over.  The ACA surely will be a centerpiece issue during the 2016 presidential campaign, and legislative efforts to repeal, defund or revise all or parts of the ACA will continue.  Although the battlefield may have changed, the battles will continue.

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A Bad Deed is Not Entirely Unpunished

Richard Thomas embezzled nearly $20,000,000 from his employer. The employer then kept Thomas’s profit sharing account of about $21,000 as an offset against the embezzled amount. Of course, this violated ERISA’s anti-alienation provisions. Thomas sued his former employer for the money and won.

To add to the employer’s misery, Thomas then sued to recover his attorneys’ fees. The case does not indicate the amount but says that the amount embezzled is hundreds of times more than the amount of the attorneys’ fees sought.

Courts are permitted to award attorneys’ fees to those who win ERISA cases and Thomas had won his case. The court evaluated the five factors typically used to decide whether to award fees and found that they slightly favored Thomas’s request. Nevertheless, the court refused to award attorneys’ fees, finding that stealing almost $20,000,000 that the participant will probably never be able to repay is a special circumstance that renders an award of attorneys’ fees to that participant unjust. Thus, the court did not add insult to the former employer’s injury and did not award Thomas his fees.

The president of the company had been found personally liable for the unpaid profit sharing account. The president would also have been personally liable for the attorneys’ fee award. Although the president did not have to pay for Thomas’s attorneys, the president undoubtedly had to pay his own counsel a substantial amount to fight the initial lawsuit and the attorneys’ fees request. The moral of the story is that an employer should not use qualified plan accounts to offset debts owed by the employee to the employer.


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ERISA damages—two bites off the same apple are impermissible

The United States Court of Appeals for the Sixth Circuit issued an en banc decision in Rochow v. Life Insurance Company of North America on March 5, 2015 that deals with the ability of a participant in a plan covered by ERISA to recover benefits due from that plan while simultaneously pursuing “other appropriate equitable relief” based on that same asserted injury. In a decision likely to be applauded by many plan sponsors, the court’s en banc decision concluded that both forms of recovery are inappropriate when based on the same injury except in limited circumstances—circumstances that were not satisfied in this case.

The facts of the case involve a claim for long term disability benefits filed by Daniel Rochow under a policy issued by Life Insurance Company of North America (“LINA”). After LINA denied that claim and all administrative appeals also were unsuccessful, Rochow filed an action in the United States District Court for the Eastern District of Michigan. That complaint sought to recover benefits due to Rochow under the applicable disability policy under ERISA Section 502(a)(1)(B) and to seek appropriate equitable relief to redress an alleged fiduciary breach under ERISA Section 502(a)(3).

The District Court issued a decision in favor of Rochow, and awarded him a payment of approximately $900,000 plus interest for benefits due to him under the applicable policy (and based on the claim under Section 502(a)(1)(B)). In addition, the District Court granted Rochow an additional award of almost $3.8 million as additional equitable relief under ERISA Section 502(a)(3). This equitable award was based on a disgorgement of the gain that LINA realized by not paying to Rochow the benefit when due to him under the applicable policy. This somewhat surprising decision subsequently was affirmed by a three-judge panel from the Court of Appeals for the Sixth Circuit, which concluded that separate claims for benefits due under ERISA Section 502(a)(1)(B) and for a breach of fiduciary duty under ERISA 502(a)(3) are permitted even when both are based on the same asserted injury. Subsequent to the issue of the decision by the three-judge panel, LINA’s request of an en banc rehearing was granted.

The sole issue before the Sixth Circuit in the en banc rehearing was whether Rochow was entitled to recover under both ERISA Sections 502(a)(1)(B) and 502(a)(3) based only on LINA’s denial of benefits. In this instance, the Sixth Circuit decided the answer to that question was no, and therefore it vacated the disgorgement award under ERISA Section 502(a)(3) (the case was remanded to consider some tangential prejudgment interest issues). Citing the 1996 decision of the United States Supreme Court in Verity Corp. v. Howe and previous Sixth Circuit decisions, the court concluded that a claimant can pursue recovery under a breach of fiduciary claim under ERISA Section 502(a)(3) only if the claim for such a breach is based on an injury that is separate and distinct from the claim for benefits due or upon a showing that the remedy available under ERISA Section 502(a)(1)(B) to redress the benefits due claim is inadequate. In that regard, the court concluded that Rochow only alleged one injury (i.e., the failure to pay benefits due) and that the remedy available under ERISA Section 502(a)(1)(B) was sufficient to resolve that injury.

The decision by the Sixth Circuit in the en banc rehearing seems to bring that circuit back into alignment with other federal circuits and the Supreme Court, which is a good thing. Accordingly, plaintiffs should be able to sustain separate claims under ERISA Section 502(a)(3) only when they can prove separate claims that are not remedied by claims under ERISA Section 502(a)(1)(B) for benefits due. This decision, which seems to narrow the range of exposure in the context of claims for improper benefit claim denials, should provide some cheer to plan sponsors and their advisers.


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Formal Denial Of Benefits Unnecessary For Accrual of ERISA Benefits Claim

To hold that an insured cannot bring an action until an insurer formally denies the claim for benefits would, as the district court noted, allow insurers to “prevent policy holders from suing by continuing in perpetuity to consider the claims open and the denial of benefits preliminary.” Curry, 2013 U.S. Dist. LEXIS 98791, 2013 WL 3716413, at *3 n.5. This cannot be so.

Therefore, we conclude that Curry’s cause of action for breach of contract arose–and the statute of limitations began to run–when Trustmark terminated Curry’s monthly benefit payments on June 30, 2008.n5 As a result, his suit, filed on July 27, 2011, falls outside the limitations period.n6

Curry v. Trustmark Ins. Co., 2015 U.S. App. LEXIS 1910 (4th Cir. Md. Feb. 6, 2015) (unpublished)


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