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.