Fifth Circuit Remands APA Challenge of ESG Rule Following Chevron's Demise

The U.S. Court of Appeals for the Fifth Circuit issued a decision on July 18, 2024, that vacated a September 2023 order upholding the Department of Labor's (DOL) 2021 iteration of its regulation interpreting ERISA fiduciary duties when selecting investments and remanded the case back to the district court to "reassess the merits." Utah v. Su, No. 23-11097 (5th Cir. July 18, 2024). The appeals court took this action in response to the Supreme Court's recent decision in Loper Bright Enterprises v. Raimondo overruling Chevron USA, Inc. v. National Resources Defenses Council. Inc., 467 U.S. 837 (1984). The district court relied on Chevron deference when ruling that the DOL rule, which sets forth criteria for consideration of environmental, social, and governance (ESG) factors when selecting plan investment options, did not run afoul of ERISA or the Administrative Procedure Act (APA). 

The Fifth Circuit acknowledged that the demise of Chevron two weeks before the July 9, 2024, oral argument in the appeal did not impact arguments from DOL or the plaintiffs who challenged in the rule, because each maintained they had the best reading of ERISA. In addition, neither party suggested the case should be remanded to the district court in light of the intervening Supreme Court precedent. The court nonetheless decided to vacate the lower court decision and remand the case in accordance with its "normal" and "modest" practice when changes in precedent apply to cases pending on appeal. The court stated that this practice is also warranted because appellate courts are courts "of review, not first view." According to the court, this practice respects the independence and "special role" of district court judges in the judicial system, especially considering the Supreme Court's statements in Loper Bright that courts must discharge their "solemn duty" of interpreting laws without influence from the "political branches" of government. 

The District Court for the Northern District of Texas will now reconsider the plaintiffs' challenge to the DOL rule in light of the Supreme Court's decision in Loper Bright.

Eighth Circuit Dismisses Cross-Plan Offsetting Lawsuit for Lack of Standing

Earlier in July, the U.S. Court of Appeals for the Eighth Circuit upheld a lower court ruling that the plaintiffs in Smith et al. v. UnitedHealth Group, Inc., No. 23-2369 (8th Cir. July 8, 2024), lacked standing to bring ERISA fiduciary breach and prohibited transaction claims against UnitedHealth Group, Inc. (United), challenging United's practice of cross-plan offsetting. Cross-plan offsetting is a health plan payment practice whereby a plan administrator of multiple plans corrects a mistaken overpayment to an out-of-network healthcare provider from one plan by offsetting a future payment to the same provider on a claim of a participant in a different plan. The plaintiffs, who sought to represent a class of "all persons in the United States who were covered under an ERISA self-funded plan administered by United, who had at least one claim not paid in full because United applied some portion of the covered amount toward an alleged overpayment by a different plan," alleged that by underpaying or failing to pay benefits to providers on their claims, United exposed them to balance billing for the offset amounts in violation of United's fiduciary duties under ERISA. Although both plaintiffs had claims subjected to cross-plan offsetting, neither plaintiff was, in fact, balance billed by their provider. 

The plaintiffs argued that they suffered a concrete injury similar to the plan participants in Mitchell v. Blue Cross Blue Shield of North Dakota, 953 F. 3d 529 (8th Cir. 2020), where the Eighth Circuit held that the denial of contractually entitled benefits is a particularized and concrete injury sufficient to support standing. The court distinguished Mitchell because the plaintiffs' plans explicitly delegated to United the discretion to implement cross-plan offsetting and found no concrete injury to the plaintiffs. In addition, citing the Supreme Court's decision in Clapper v. Amnesty Int'l USA, the Eighth Circuit rejected the notion that there was a material risk of future harm sufficient to support standing arising from providers' possible future collection actions against plaintiffs because "[p]laintiffs cannot rely on speculation about the unfettered choices made by independent actors not before the court."

The court did not reach the substantive question of whether cross-plan offsetting violates ERISA. In 2019, the Eighth Circuit heard a similar claim in Peterson v. UnitedHealth Group, Inc., 913 F.3d 769 (8th Cir. 2019), where it suggested that cross-plan offsetting may violate ERISA but stopped short of reaching that holding. According to the Peterson court, "[w]hile we need not decide here whether cross-plan offsetting necessarily violates ERISA, at the very least it approaches the line of what is permissible." However, in Peterson, unlike Smith, the plans did not contain terms authorizing the practice of cross-plan offsetting. 

Cross-plan offsetting has been the subject of a handful of lawsuits over the past seven years and will likely continue to be the subject of ERISA litigation going forward. As the Eighth Circuit's decisions indicate, whether plaintiffs have been balanced billed due to the practice and whether plan terms address the practice will likely control the outcome of these cases.

On July 22, 2024, the plaintiffs in Smith asked for a rehearing of their appeal before the Eighth Circuit, arguing that the case "presents questions of exceptional importance relating to the standing of participants and beneficiaries to bring claims under [ERISA]."

Upcoming Speaking Engagements and Events

Joanne and Tax Member Rob Kovacev are presenting the webinar "Perspectives Post-Chevron: What to Expect and How to Navigate the New Regulatory Landscape" on August 1. 

The firm is sponsoring the ERISA 50th Anniversary Symposium and Gala on September 12.

In the News

In Bloomberg Law, Joanne comments on the increase in lawsuits related to health plan costs, a trend driven by enhanced transparency laws that reveal pricing data.

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