The Ninth Circuit has issued a new opinion in the long-running Wit v. United Behavioral Health litigation that changes the legal landscape for ERISA class actions. The Ninth Circuit’s opinion includes significant holdings on issues relating to constitutional standing, class certification and the abuse-of-discretion standard of review under ERISA.
The Ninth Circuit’s January 26, 2023 opinion supersedes the prior, unpublished March 22, 2022 opinion in the same case, which the court withdrew and replaced with the new opinion.
Wit is an ERISA class action in which the plaintiffs challenge 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. Then, after a ten-day bench trial, the district court held that the class members’ UBH plans guaranteed coverage for mental health treatments consistent with “generally accepted standards of care,” and that UBH had violated those terms by applying its guidelines and denying coverage. The district court ordered sweeping, novel relief against UBH, including ordering UBH to “reprocess” over 67,000 past benefits determinations. UBH appealed.
The Ninth Circuit Decision
Standing: UBH argued on appeal that the Wit plaintiffs lacked constitutional standing to bring their claims in the first place, because their alleged injuries were not concrete and they did not show that any class member would have been entitled to benefits but for UBH’s reliance on the challenged guidelines. The Ninth Circuit disagreed. The court held that the plaintiffs had standing under their ERISA denial-of-benefits claim because the alleged “arbitrary and capricious adjudication of benefit claims” presented a “material risk to their interest in fair adjudication ….” The court further held that the plaintiffs had standing under their ERISA fiduciary breach claim because they sufficiently alleged that UBH acted “in UBH’s financial self-interest” and “under a set of Guidelines that impermissibly narrows the scope of their benefits” in violation of its fiduciary duties under ERISA. The court held that the Wit plaintiffs adequately showed that these alleged injuries affected the class plaintiffs “in a personal and individual way” and were therefore sufficient to confer standing.
Class Certification: The Ninth Circuit reversed the trial court’s order certifying Wit as a class action, but only as to the plaintiffs’ ERISA denial-of-benefits claim. The Ninth Circuit did not comprehensively address the propriety of class certification under the plaintiffs’ separate fiduciary breach claim because it held UBH had forfeited the argument.
The Ninth Circuit held that class certification was improper under the denial-of-benefits claim because the “reprocessing” remedy the plaintiffs sought was not available under ERISA. The court reasoned that using class action 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 Ninth Circuit held that ERISA articulates the remedies available under each of its provisions, and that “reprocessing” is not available under either of the provisions the Wit plaintiffs invoked: 29 U.S.C. §§ 1132(a)(1)(B) and 1132(a)(3). The court held that “reprocessing” is not available under Section 1132(a)(1)(B) because the statute authorizes only recovery of benefits or enforcement or clarification of rights under the terms of an ERISA plan. But in Wit, the plaintiffs sought “a procedural remedy only” and expressly disclaimed any effort to show that any particular plaintiff would actually be entitled to benefits if UBH were to reprocess their claim. The court further held that “reprocessing” is unavailable under Section 1132(a)(3), because the Supreme Court has interpreted that statute to provide only remedies that were typically available in equity long ago, before the merger of the courts of equity and the courts of law. The Wit plaintiffs did not show that “reprocessing” was among the categories of relief typically available in those settings.
The Ninth Circuit also reversed the class certification order on a second basis: because the trial court excused the Wit plaintiffs from showing each absent class member had exhausted administrative appeal procedures required by their plan as a precondition to legal action. ERISA requires that plans offer administrative review of benefit claims, and many ERISA plans contractually require that members complete those procedures before suing in federal court.
The Ninth Circuit recognized that prior decisions had endorsed exceptions to prudential exhaustion requirements for “futility, inadequate remedy, and unreasonable claims procedures.” But it held that applying those judge-made exceptions to contractual exhaustion requirements would conflict with Supreme Court precedent reinforcing the primacy of the ERISA plan contract. Thus, the Ninth Circuit held that “federal common law doctrines”—like exceptions to exhaustion requirements—“cannot alter or override clear and unambiguous plan terms.” The Ninth Circuit held that even if any of the previously recognized exceptions to exhaustion were to apply, the trial court’s class certification order 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 ….”
Plan Interpretation: The Ninth Circuit also held that the trial court did not afford UBH sufficient deference in interpreting its own plans. The trial court had determined that UBH’s plans bound it to cover any mental health treatment consistent with “generally accepted standards of care.” The Ninth Circuit reversed that ruling. Examining the plan text, the Ninth Circuit held that the plans required consistency with generally accepted standards as a precondition to coverage, but they did not guarantee coverage for any mental health treatment consistent with those standards.
In recent years, following the Wit trial court’s initial endorsement, plaintiffs in putative ERISA class actions have often sought “reprocessing” remedies. The Ninth Circuit’s holding that “reprocessing” is not available under the ERISA civil remedy provisions at issue in Wit will have significant implications in those and future cases. Further, the Ninth Circuit’s holding that the trial court improperly excused mandatory exhaustion requirements is likely to reinforce exhaustion defenses available to ERISA defendants in both class actions and individual actions.
More broadly, the court interpreted the Rules Enabling Act as a strict limit against class procedures that would expand or restrict the litigants’ substantive rights generally. This holding is likely to be employed by class action defendants even beyond the ERISA context. It is expected that litigants will seek to expand the Ninth Circuit’s reasoning into other circuit courts of appeal.
All entities providing or administering ERISA-governed health plans should continue to monitor developments in Wit and related ERISA class action litigation.