The ERISA Litigation Newsletter - April 2016

Author:Mr Stacey CS Cerrone, Russell L. Hirschhorn, Robert W. Rachal, Myron Rumeld and Howard Shapiro
Profession:Proskauer Rose LLP


This month we feature three key developments. First, we review the U.S. Supreme Court's decision in Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936, 947 (2016) wherein the Supreme Court held that a Vermont statute requiring "all payers" to report healthcare information to the State of Vermont was preempted by ERISA. Second, we review the latest chapter in Sun Capital where the district court determined that co-investing funds that were part of the same controlled group were liable for a portfolio company's pension liabilities. Third, for those that missed it, we re-publish our recent Client Alert on the DOL's final conflict of interest rule.

As always, we conclude with Rulings, Filings, and Settlements of Interest where we highlight issues on employer stock drop litigation, retiree health benefits litigation and forum selection clauses.


By Robert Sheppard

The U.S. Supreme Court recently struck down a Vermont statute requiring "all payers"—i.e., healthcare providers, insurers, and facilities—to report healthcare information to the State of Vermont on the ground that the statute was preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"). In this article, we review the Court's decision and also provide some perspective on the potential implications of the decision for plan sponsors and fiduciaries.


Many states have developed and implemented all-payer claims databases to address their need for comprehensive healthcare information, including costs, quality, utilization patterns, and access and barriers to care. One purpose behind these initiatives is to provide consumers and purchasers of healthcare services the ability to compare prices and quality as they make healthcare decisions.

There has been no question about the ability of states to acquire such information from insured plans. Although ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan," 29 U.S.C. § 1144(a), ERISA's "savings clause," saves from ERISA preemption state laws regulating insurance, banking, or securities. But ERISA's "deemer" clause prevents a state from deeming a self-insured ERISA plan "an insurance company or other insurer, bank, trust company, or investment company" for the purposes of regulating it.

In 2008, Vermont passed legislation establishing an all-payer claims database. Vt. Stat. Ann. tit. 18, §9410. The statute provided for the Vermont Healthcare Claims Uniform Reporting and Evaluation System (a newly created agency) to compile claims information from self-funded and fully insured plans into a database with the purpose of showing "all health care utilization, costs and resources" available and provided in the State. The database was designed to enable Vermont "to determine the capacity of existing resources, identify health care needs, evaluate effectiveness, compare costs, provide information to consumers and purchasers of health care, and improve the quality and affordability of patient health care and health care coverage." Liberty Mut. Ins. Co. v. Kimbell, No. 2:11-CV-204, at *2 (D. Vt. Nov. 9, 2012) (220 PBD, 11/15/12).

In an effort to enforce the statute, Vermont subpoenaed claims data from Blue Cross Blue Shield of Massachusetts, Inc., which served as third party administrator for Liberty Mutual Insurance Co., a self-insured plan. Liberty Mutual instructed Blue Cross Blue Shield not to comply with the statute, however, because it was concerned that the reporting of claims data would be a breach of fiduciary duty under ERISA. Liberty Mutual subsequently filed suit against the State, seeking a declaration that ERISA preempted the Vermont reporting system and enjoining the State from enforcing it.

District Court and Second Circuit Opinions

The district court held that ERISA did not preempt the Vermont statute because, in its view, the statute "do[es] not act immediately and exclusively upon ERISA plans, nor is the existence of ERISA plans essential to [its] operation." Id. at *9. The Second Circuit reversed and held that ERISA preempted the Vermont statute because reporting and disclosure actions are core ERISA functions subject to a uniform federal standard, and Vermont's statute created the prospect that an employer's administrative scheme would be subject to conflicting and increasingly burdensome requirements. Liberty Mut. Ins. Co. v. Donegan, 746 F.3d 497, 508-09 (2d Cir. 2014) (24 PBD, 2/5/14).

U.S. Supreme Court Decision

The Supreme Court agreed to decide the question of "whether ERISA pre-empts the Vermont statute as it applies to ERISA plans." In a 6-2 decision authored by Justice Kennedy, the Court held that ERISA preempted the Vermont statute because the statute's reporting requirements overlapped with ERISA's reporting, disclosure, and recordkeeping requirements and frustrated ERISA's objective of uniformity by subjecting plans to novel and inconsistent reporting requirements. Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936, 947 (2016) (41 PBD, 3/2/16).

The Court reviewed its prior precedent and explained that there are two ways in which a state law may be preempted under ERISA: (i) where a state law has a "reference to" ERISA plans; or (ii) where "a state law ... has an impermissible 'connection with' ERISA plans." A state law contains a "reference to" ERISA plans when "a State's law acts immediately and exclusively upon ERISA plans ... or where the existence of ERISA plans is essential to the law's operation." It has a "connection with" ERISA plans where the law "governs ... a central matter of plan administration," "interferes with nationally uniform plan administration," or where " 'acute, albeit indirect, economic effects' of the state law 'force an ERISA plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers.' " In evaluating the scope of ERISA's preemption provision, the Court also has been guided by the ERISA's objectives and "the nature of the effect of the state law on ERISA plans."

Applying these principles, the Court observed that the Vermont statute's reporting requirements both intruded on "a central matter of plan administration"—reporting, disclosure, and recordkeeping requirements—and interfered with ERISA's objectives of national uniformity and cost efficiency. The Court explained that ERISA's current reporting, disclosure, and recordkeeping requirements are onerous, subjecting plans to civil and criminal liability for violations, and that the Secretary of Labor has the authority under the statute to promulgate and enforce additional requirements. Because reporting, disclosure, and recordkeeping activities are "central to, and an essential part of, the uniform system of plan administration contemplated by ERISA," the Court concluded preemption was necessary to prevent the imposition of "novel, inconsistent, and burdensome reporting requirements on plans." Thus, the state statute both infringed on one of ERISA's objectives and affected ERISA-plan administration.

In so ruling, the Court rejected Vermont's arguments against preemption. First, the Court determined that a plan need not wait until confronted with inconsistent obligations and ensuing costs before commencing suit. Second, the Court found irrelevant Vermont's argument that the statute's objectives differ from those of ERISA because the relevant inquiry is the nature of the effect of the state law on ERISA plans, and here the statute's reporting requirements affect a "fundamental ERISA function." Third, the Court rejected Vermont's argument that its actions were a proper exercise of the state's traditional powers "to regulate in the area of public health" because ERISA may preempt state regulations even if those regulations are an exercise of traditional state power.

Justices Thomas authored a concurrence in which he joined the Court's opinion based on its "faithful application of precedent," but expressed doubt about whether ERISA preemption, as it has been applied by the Court, "is a valid exercise of congressional power." Justice Thomas questioned whether any provision of the Constitution authorized Congress to prohibit states from applying a host of generally applicable civil laws to ERISA plans. In his view, "[j]ust because Congress can regulate some aspects of ERISA plans pursuant to the Commerce Clause does not mean that Congress can exempt ERISA plans from state regulations that have nothing to do with interstate commerce."

Justice Breyer also authored a concurring opinion agreeing with the majority that the Vermont statute was preempted by ERISA. He explained: "If each State is free to go its own way ... the result could well be unnecessary, duplicative, and conflicting reporting requirements, any of which can mean increased confusion and increased cost." Justice Breyer suggested that the Secretary of Labor promulgate reporting requirements and collect information, and the States could ask for it.

Justice Ginsburg, with whom Justice Sotomayor joined, dissented. Justice Ginsburg first reviewed whether Vermont's statute had an impermissible "connection with" ERISA plans by looking to the "objectives of the ERISA statute as a guide." According to Justice Ginsburg, Vermont's statute and ERISA serve different purposes. On one hand, ERISA governs the design and administration of employee benefit plans, and its reporting requirements ensure that the plans in fact provide covered benefits. On the other hand, Vermont's data-collection statute aims to improve the quality and utilization, and reduce the cost, of health care in Vermont. According to Justice Ginsburg, "[b]ecause ERISA's reporting requirements and the Vermont law elicit different information and serve distinct purposes, there is no sensible reason to find the Vermont data-collection law preempted." Next, Justice Ginsburg reviewed the "nature of...

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