Court Dismisses Putative COBRA Class Action Brought Against Southwest Airlines Board of Trustees

Carter v. Southwest Airlines Co. Board of Trustee, Case No. 8:20-cv-1381-WFJ-JSS (M.D. Fla.) was one of the latest cases in which a healthcare-plan beneficiary attempted to bring claims based upon alleged technical noncompliance with the notice requirements of the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Consolidated Omnibus Budget Reconciliation Act (COBRA). The defendant, Southwest Airlines Co. Board of Trustees – represented by a team of Holland & Knight attorneys – successfully obtained dismissal of the purported class action, resulting in a precedent-setting decision that employers and plan sponsors across the United States can rely on to fight back against class actions filed against them.

COBRA Class Actions and Their Implications for Employers

COBRA gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances, such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce and other life events (Qualifying Events). See 29 U.S.C. § 1163(2). If a terminated employee does not receive timely notice of their COBRA rights, or the notice fails to include information required by the regulations, they may file a civil action to enforce their rights. See29 U.S.C. § 1132(a).

Over the past several years, numerous large employers and plan sponsors have been sued by former employees alleging that they received defective COBRA notices. These lawsuits are typically brought as proposed class actions by former employees who did not elect COBRA coverage and then allegedly incurred costs for medical treatment while uninsured. The plaintiffs commonly allege the COBRA election notices deviated from U.S. Department of Labor (DOL) regulations in some way, which resulted in allegedly confusing or misleading notices that purportedly prevented the participants from successfully enrolling in continuing coverage under COBRA.

These lawsuits often seek statutory penalties and other damages on a class-wide basis, which seem staggering at first glance as COBRA allows qualified beneficiaries to receive up to $110 per day, per person for a plan administrator's failure to provide the required COBRA election notice. When the $110-per-person-per-day statutory penalties are sought on behalf of a class, a large employer who sends out thousands of COBRA notices over the course of several years can face significant statutory penalties. Furthermore, ERISA provides that the court may award legal fees to the plaintiff's counsel. See 29 U.S.C. § 1132(g)(1).

Factual Background

In Carter v. Southwest Airlines Co. Board of Trustees, a former employee of Southwest Airlines brought a putative class action alleging that she and other purported class members received COBRA notices that failed to include all information mandated under the DOL regulations. In support of her claims, the plaintiff alleged that her employment ended on May 8, 2019. Six days later, on May 14, 2019, the COBRA plan administrator sent the plaintiff a COBRA election notice – although the plaintiff averred that she never received that notice. Shortly thereafter, the plaintiff challenged her termination through an internal union grievance process, which allowed the plaintiff to maintain her employee healthcare benefits while the grievance process remained pending. On May 23, 2019, the defendant sent the plaintiff a letter notifying her that she would not lose her employee healthcare coverage until the resolution of the union grievance. On Aug. 5, 2019, the union rejected the plaintiff's grievance, which made her termination final and ended her employee health insurance. One day later, on Aug. 6, 2019, the COBRA plan administrator sent the plaintiff a second COBRA election notice.

The plaintiff asserted that the COBRA election notice she received on Aug. 6 was untimely and deficient because it purportedly did not include information required by the DOL's model COBRA notice. Specifically, the plaintiff alleged that the COBRA notice omitted: 1) the date on which the qualifying event occurred; 2) the name, address and telephone number of the party responsible under the plan for administration of continuation coverage benefits, including the "plan administrator;" and 3) the name of the plan. The plaintiff also alleged that the COBRA notice was not drafted in a manner calculated to be understood by the average plan participant. Based on these allegations the plaintiff sought to certify two classes: 1) former employees who did not receive COBRA notices within applicable deadlines; and 2) former employees who received notices that lacked details required by the COBRA regulations.

District Court Decision

In the court's written opinion, Carter v. Sw. Airlines Co., No. 8:20-CV-1381-T-02JSS, 2020 WL 7334504 (M.D. Fla. Dec. 14, 2020), the court dismissed the plaintiff's claims for lack of standing and for failure to state a claim.

As the court observed, standing under Article III of the U.S. Constitution requires a plaintiff to establish: 1) a concrete and particularized injury-in-fact; 2) that is fairly traceable to the defendant's conduct; and 3) that can be redressed by a favorable court decision. The court concluded that the plaintiff failed to establish standing to sue. As to the first notice sent, the court rejected the plaintiff's contention that she never received the May election notice. According to the court, "the applicable standard is not whether the beneficiary actually received the COBRA notice; it is whether the plan administrator sent the notice using methods that are 'reasonably calculated' to reach plan participants, such as sending the notice by first-class mail."

Addressing the alleged defects in the contents of the notices, the court next determined that the plaintiff could not have suffered any injury as a result of the alleged defects identified by plaintiff. First, the court rejected plaintiff's argument that the COBRA notice violated 29 C.F.R. § 2590.606-4(b)(2)(ii) by not including the date on which the qualifying event occurred. The court determined "Section 2590.606-4(b)(2) does not regulate what substantive information must be included in a COBRA notice" but instead "simply regulates when a plan administer/employer must send notice."

Next, the court rejected the plaintiff's claim that the notice violated 29 C.F.R. § 2590.606-4(b)(4)(i) by failing to include the formal name of the plan. The court observed that although the notice before the court did not include the formal name of the plan, the notice identified the name of the plaintiff's employer and specifically identified the party responsible for administering the COBRA benefits available under that plan. In light of these facts, the court concluded that the plaintiff failed to establish how or why the failure to include the formal name of the plan caused the plaintiff to fail to enroll in COBRA or otherwise caused her to suffer any harm.

The court similarly rejected the plaintiff's argument that the COBRA notice was deficient because it did not provide the contact information for the "plan administrator" as plaintiff claimed was required under 29 C.F.R. § 2590.606-4(b)(4)(i). The court observed that "nowhere in § 2590.606-4(b)(4)(i) does the term 'plan administrator' even appear." The court also noted that the DOL's guidance supports the conclusion that the term "plan administrator" should not be read into the regulation. The court also observed that the notice identified the name, address and web address for the third-party administrator responsible for administering COBRA benefits under the plan at issue. Notably, the DOL filed an amicus brief in which the department confirmed that the DOL's regulations do not require the "plan administrator" to be identified in a COBRA election notice.

Finally – while noting that the U.S. Court of Appeals for the Eleventh Circuit has not directly addressed what an employer must do to satisfy its notification obligations – the court rejected the plaintiff's claim that the defendant's COBRA notice was not written in a manner that the average plan participant could understand. Because the court dismissed the plaintiff's claims on the basis of standing, the court dismissed the lawsuit without prejudice and granted the plaintiff an opportunity to amend. Rather than attempt to amend again in response to the court's Order, the plaintiff dismissed her claims with prejudice – without any settlement.

Key Considerations

The court's decision is noteworthy because substantially similar allegations have been asserted in numerous other COBRA class action lawsuits filed against large employers. In nearly all of these instances, those complaints – at times combined with other claims – have survived a motion to dismiss. The dismissal obtained by Holland & Knight is the first decision in which a court granted a motion to dismiss in the recent wave of putative class actions filed in which plaintiffs allege that COBRA notices were defective in some manner.

If you have any questions regarding the court's decision or Holland & Knight's ERISA practice, please contact the authors or another member of the firm's ERISA Litigation Team or Employee Benefits and Executive Compensation Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.