Wit Redux—Again: Ninth Circuit Again Supersedes Its Prior Opinion in Landmark Mental Health Case

Health Highlights

Editor’s Note: In the article below, Manatt discusses the Ninth Circuit’s new opinion in the ongoing Wit v. United Behavioral Health litigation and the changes from the now-vacated January 2023 Wit decision. Details on the latest developments in Wit will be one of the topics we’ll be discussing at our September 19 webinar, Mental Health Parity Update: Key Takeaways From the Newest Regulatory Guidance and Litigation Trends. The program also will cover the new documents the Departments of Treasury, Labor, and Health and Human Services published in July, including proposed regulations intended to clarify and improve compliance with the Mental Health Parity and Addiction Equity Act (MHPAEA), a lengthy new 2023 MHPAEA Comparative Analysis Report to Congress, and a Technical Release. For more information and to register for the free webinar, click here.

Last week, a Ninth Circuit panel vacated its prior decision in the long-running Wit v. United Behavioral Health litigation and issued a new opinion. The now-vacated January 2023 Wit decision had changed the legal landscape for ERISA class actions, including significant holdings on issues relating to constitutional standing, class certification, the abuse of discretion standard of review under ERISA, and ERISA plans’ exhaustion of remedies requirements. While the new opinion mirrors the January 2023 opinion in some respects, there are several significant changes. For instance, the new opinion deletes the January 2023 opinion’s analysis of ERISA plans’ exhaustion requirements and its holding that such contractual requirements cannot be excused by common-law doctrines such as futility. That prior analysis and holding are now gone. Importantly, the Ninth Circuit did not reach a different conclusion on exhaustion; rather, it remanded for the district court to determine in the first instance (1) whether the ERISA plans’ exhaustion requirement applies at all to the plaintiffs’ claims for breach of fiduciary duty and (2) whether, if the requirement applies, it was satisfied or otherwise excused.

To recap the litigation’s history, Wit is an ERISA class action in which the plaintiffs challenged the propriety of guidelines that United Behavioral Health (UBH) previously consulted when determining the medical necessity of certain outpatient and residential mental health treatments. The district court certified Wit as a class action, consolidating tens of thousands of individual mental health benefit determinations. Following a ten-day bench trial, the district court found that the class members’ plans were required to provide coverage for all mental health treatments that are consistent with “generally accepted standards of care” (GASC). The district court therefore found that, by applying more restrictive guidelines and denying coverage for some care that was consistent with GASC, UBH had violated those plan terms. The district court ordered sweeping relief, including ordering UBH to “reprocess” over 67,000 past benefits determinations.

In the August 2023 opinion, the panel again concluded, as it did in the January 2023 opinion, that the plaintiffs had met the requirements for constitutional standing to assert their claims. The panel also again held that the district court erred in finding that the ERISA plans require coverage for all mental health treatment consistent with GASC.

However, the recent decision on rehearing includes the changes described below regarding class certification of reprocessing claims, exhaustion and plan interpretation.

Class Certification—Reprocessing: In the January 2023 opinion, the Ninth Circuit reversed the district court’s order certifying a class as to the plaintiffs’ ERISA denial-of-benefits claims. The court there held that the “reprocessing” remedy the plaintiffs sought was not available under ERISA, so that using class certification rules to permit class “reprocessing” would expand the class members’ legal rights under ERISA, an impermissible result under the Rules Enabling Act, 28 U.S.C. § 2072. The Rules Enabling Act prohibits federal court rules—like those enabling class actions—that would “abridge, enlarge or modify any substantive right.”

The August 2023 opinion reaches the same conclusion, but based on a modified analysis. The January 2023 opinion focused on the fact that the reprocessing sought by the plaintiffs was a means to an ERISA remedy, but not itself an ERISA-authorized remedy. In contrast, the August 2023 opinion addressed and rejected the plaintiffs’ argument that the reprocessing would provide the “full and fair review” of their claims that ERISA requires. The August 2023 opinion states that the court had never remanded an ERISA case for reprocessing unless the claimant had shown both that the plan had applied an incorrect standard and that the claimant could be entitled to benefits under the correct standard. However, the Wit plaintiffs’ claim was purely about the “process” and not about the result. The court held that although remand to a plan to reprocess denied claims could be an appropriate remedy in some cases where an administrator had applied an inappropriate standard—where the plaintiff could show that application of the correct standard might result in approval of the claim—the district court had erred in granting class certification “based on its determination that the class members were entitled to have their claims reprocessed regardless of the individual circumstances at issue in their claims.” Plaintiffs had defined their class to include all plan members whose claims had been denied with reference to UBH’s guidelines, including guidelines that plaintiffs had not challenged as improper and including claims that had been denied in part based on the guidelines but also based on independent criteria. Plaintiffs therefore failed to show that all class members had been denied a full and fair review or that this presented a common question. Thus, a class seeking relief under Section 1132(a)(2) was improperly certified. As to plaintiffs’ contention that reprocessing was a permissible remedy under the “catchall” equitable provision of Section 1132(a)(3), the court held again that plaintiffs failed to show that reprocessing was the type of equitable remedy traditionally available before the merger of law and equity.

Exhaustion: In the August 2023 opinion, the Ninth Circuit declined to reach an issue that was a significant part of the January 2023 opinion’s holding: that the district court had abused its discretion in finding that the absent class members were excused from exhausting their ERISA plans’ administrative exhaustion requirements. The January 2023 opinion recognized that applying judge-made exceptions to exhaustion—such as futility—to ERISA plans’ contractual exhaustion requirements would conflict with Supreme Court precedent reinforcing the primacy of the ERISA plan contract. The January 2023 opinion further held that excusing exhaustion by absent class members also violated the Rules Enabling Act, because it deprived UBH of its “defense of failure to exhaust” and applied class action rules in a way that improperly “expanded many class members’ right to seek judicial remedies ….”

On rehearing, the panel deleted from its opinion the entire discussion of exhaustion requirements, common-law exceptions, prior precedent, and the conflict between the district court’s exhaustion ruling and the Rules Enabling Act. In its place, the August 2023 opinion simply remands the question of exhaustion—as to the breach of fiduciary duty claims only—to the district court. That court is to determine in the first instance “the threshold question of whether Plaintiffs’ breach of fiduciary duty claim is a ‘disguised claim for benefits,’ subject to the exhaustion requirement” and, if so, whether exhaustion “was satisfied or otherwise excused in light of our resolution of the issues presented in this appeal.” The court did not address exhaustion as to the denial of benefits claims, presumably because it had separately disposed of those class claims by reversing both the class certification order and the merits decision that UBH had abused its discretion.

Therefore, in lieu of the January 2023 opinion’s definitive and sweeping holding that common-law doctrines will never excuse ERISA plans’ contractual exhaustion requirements, the August 2023 opinion leaves the issue open for future consideration once the district court has examined the issue on remand.

Plan Interpretation: In the prior opinion, the Ninth Circuit reversed the district court’s decision on the merits. UBH administered the mental health benefits provided by the ERISA plans and had discretion to interpret the plan documents. The Ninth Circuit initially viewed the district court’s ruling as having determined that the plan documents bound the plans to cover any mental health treatment that was consistent with “generally accepted standards of care,” and it held in the January 2023 opinion that the district court did not afford UBH sufficient deference in interpreting the plans. Examining the plans’ text, the Ninth Circuit originally held that the plans required that in order to be covered, mental health treatment must be consistent with GASC, but that the Plans did not guarantee coverage for any mental health treatment consistent with those standards.

The court held again that UBH’s interpretation of the plans as not requiring coverage for all treatment consistent with GASC did not conflict with the plans’ language. “To the contrary, it gives effect to all the Plan provisions because the Plans exclude coverage for treatment inconsistent with GASC or otherwise condition treatment on consistency with GASC. In short, while the Plans mandated that a treatment be consistent with GASC [to be covered], they did not compel UBH to cover all treatment that was consistent with GASC.”

But in the August 2023 opinion, the court hedged on its initial ruling regarding the district court’s decision, explaining that “[t]he district court’s statements on this issue are conflicting.” While the court again endorsed its prior interpretation of the plans as requiring consistency with generally accepted standards but not guaranteeing coverage for all treatment consistent with those standards, it also concluded that the district court erred only “to the extent” that it interpreted the plans as requiring that coverage. The court further held that there was no error “to the extent the district court concluded that the challenged portions of the Guidelines represented UBH’s implementation” of the plans’ requirement that consistency with GASC was a precondition to coverage.

Key Takeaways

The elimination from the August 2023 Wit opinion of the prior sweeping holding regarding enforcement of plan exhaustion requirements, and its remand to the district court to address the subject, leaves in limbo the issue of whether absent class members’ failure to exhaust remedies with respect to both denial of benefits claims and breach of fiduciary duty claims can be excused by common-law doctrines, as well as the impact on class certification. Eventually, the question likely will become ripe for definitive resolution by the Ninth Circuit, once the district court has addressed the issue on remand. All entities providing or administering ERISA-governed health plans should monitor developments in the district court in Wit.



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