ERISA Exhaustion Defense Still Viable In Some Jurisdictions

By Art Marrapese (January 7, 2021)

This article addresses the viability of the Employee Retirement Income

Security Act's claims exhaustion doctrine as a defense in lawsuits alleging

fiduciary breaches and other ERISA statutory violations.

A recent decision out of the U.S. District Court for the Northern District of

Georgia — Fleming v. Rollins Inc. — reminds us that defending ERISA

trend is due, in part, to the reasonably high odds of surviving a motion to dismiss even

where the complaint contains copycat allegations borrowed from other class actions.

The plaintiffs bar is aware that if the suit can get to the discovery phase, the chances of a

settlement — and a payday — increase because of the substantial defense costs, the

prospect of having to make restorative contributions to the plan in addition to payment of

the plaintiffs' attorney fees and the reputational costs incurred by the plan fiduciaries.[2]

The federal appeals court jurisdictions that permit fiduciaries to raise a failure to exhaust

defense in connection with ERISA statutory claims base their decisions, in part, on the

The Exhaustion Doctrine

Section 503 of ERISA requires ERISA-governed employee benefit plans to maintain

procedures for resolving disputes involving a participant or beneficiary's benefits under the

plan.[3] U.S. Department of Labor regulations detail the specific standards and

requirements that govern the claims dispute process.[4]

Every federal appeals court in the country has held that ERISA plaintiffs must exhaust

available plan administrative remedies before suing for benefits in federal court, even

As a general rule, the exhaustion requirement does not apply where: (1) the plan either

does not have a claims process or does not mandate exhaustion of the plan's administrative

remedies as a condition of filing suit (e.g., where a document or summary plan description

states that participants may file claims); (2) the claims procedure does not apply to the

Art Marrapese

disputed right or benefit (e.g., by its terms, the claims procedure does not explicitly cover

ERISA statutory claims); (3) where requiring exhaustion would be futile; or (4) where the

plan-based claim, which involves the interpretation of plan language and its application to a

set of facts.

Of the 12 circuit courts of appeal, the U.S. Court of Appeals for the Third Circuit, the U.S.

Court of Appeals for the Fourth Circuit, the U.S. Court of Appeals for the Fifth Circuit,

the U.S. Court of Appeals for the Sixth Circuit, the U.S. Court of Appeals for the Ninth

Circuit, the U.S. Court of Appeals for the Tenth Circuit, and the U.S. Court of Appeals for the

D.C. Circuit do not require exhaustion of administrative remedies prior to bringing a claim

alleging breach of fiduciary duty or other ERISA statutory violations.[5]

decision to assist the court's analysis if the dispute is eventually litigated.

The three remaining circuit courts — the U.S. Court of Appeals for the First Circuit, the U.S.

Court of Appeals for the Second Circuit, and the U.S. Court of Appeals for the Eighth Circuit

— do not appear to have squarely addressed the issue.[8] There is no way to know how the

remaining courts will decide the issue, although the more recent case law suggests the

trend is leaning against requiring exhaustion in cases alleging ERISA violations.

For example, although the Second Circuit has not directly addressed the question, it made a

point in Nechis v. Oxford Health Plans Inc. to mention that district courts within the Second

Fleming involves a putative class action filed in a district court in the Eleventh Circuit that,

like many fiduciary breach cases, alleges that the plan's fiduciaries imprudently selected and

offered high-cost investment funds with historically poor performance records, made

excessive payments to service providers from plan assets, and failed to adequately diversify

the plan's investment options.

In Fleming, the defendants succeeded in dismissing the plaintiff's complaint on the grounds

that the class action plaintiff failed to exhaust the plan's claims procedure. In opposing the

motion to dismiss, the plaintiff argued that the plan's claims procedure did not cover

statutory violations of ERISA, and that even if it did, the failure to exhaust administrative

claim to include "any grievance, complaint, or claims concerning any aspect of the operation

or administration of the plan or trust, including but not limited to claims for benefits and

would not apply where a claimant completely bypasses the administrative process as was

the case in Fleming.

Takeaways

Defending ERISA breach claims on the grounds that the plaintiff has failed to exhaust plan

administrative remedies is a viable litigation strategy in the Seventh and Eleventh Circuits,

and may be worth asserting in a case arising in the First, Second and Eighth Circuits, which

do not appear to have ruled out the defense.

resolution procedures have the potential to further the essential purposes of reducing the

number of frivolous lawsuits under ERISA, minimizing the cost of dispute resolution, and

enhancing plan fiduciaries' ability to carry out their duties expertly and efficiently by

preventing premature judicial intervention in the fiduciary decision-making process.

The Seventh and Eleventh Circuit authority that favors the application of the exhaustion

doctrine in ERISA breach cases is somewhat dated and is at odds with circuit courts that

have more recently addressed this issue, most notably the Sixth Circuit's 2017 decision in

Hitchcock v. Cumberland University 403(b) Plan.[9]

Action Steps

Plan sponsors and fiduciaries should review governing plan documents and summary plan

descriptions to:

• Remove language in the plan document and summary plan description that suggests

that a claimant's administrative remedies are not mandatory but permissive. The

• Define the term "claimant" broadly to encompass any person — regardless of plan

status — who may claim a right or benefit under the plan. A well-crafted claims

procedure will apply to all claims by any person claiming a right or benefit under the

plan.

• Ensure that the plan's claims procedure encompasses disputes that involve ERISA

statutory claims and fiduciary claims — e.g., ERISA 510 claims and breach of

doctrine to such claims.

Art Marrapese is a partner at Barclay Damon LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views

of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This

article is for general information purposes and is not intended to be and should not be taken

as legal advice.

University of Pennsylvania in its Petition for A Writ of Certiorari following the Circuit Courts

decision in Sweda v. University of Pennsylvania (923 F.3d 320 (3d Cir. 2019)). The Petition

was denied.

[3] 29 U.S. Code §1133.

[4] 29 C.F.R. §2560.503-1.

[5] A number of courts have held that the exhaustion requirement applies even where the

plan appears to permit exhaustion, rather than mandate it. See, e.g., Wert v. Liberty Life

[6] Harrow v. Prudential Ins. Co. of Am. (279 F.3d 244 (3d Cir. 2002)); Zipf v. AT&T

[7] Lindemann v. Mobil Oil Corp . (79 F.3d 647 (7th Cir. 1996)); Robyns v. Reliance

Standard Life Ins. Co. (130 F.3d 1231, (7th Cir. 1997)); Kross v. Western Elec. Co. (701

F.2d 1238 (7th Cir. 1983)); Lanfear v. Home Depot, Inc. (536 F.3d 1217 (11th Cir.

2008)); Mason v. Cont'l Grp. , (763 F.2d 1219 (11th Cir. 1985)).

[8] Madera v. Marsh USA, Inc. (426 F.3d 56 (1st Cir. 2005)); Nechis v. Oxford Health

Plans, Inc. (421 F.3d 96 (2d Cir. 2005)); Burds v. Union Pac. Corp. (223 F.3d 814 (8th Cir.

2000)).