316 F. Supp. 3d 25
D.C. Cir.2018Background
- VSTD Plan (an ERISA-regulated employee welfare benefit plan) purchased short-term disability insurance from Anthem from 2010–2016; Anthem underwrote coverage and processed claims under successive one-year contracts.
- Plaintiffs (trustees of the Plan) allege Anthem overcharged premiums 2012–2014 (large alleged profit margins) and paid commissions/kickbacks to a non‑party, Edward Carney, which plaintiffs say were improper and raised premiums dollar‑for‑dollar.
- In 2015 plaintiffs (as new trustees) and Anthem negotiated a risk‑sharing arrangement allegedly providing quarterly refunds of 50% of the premium/claims difference; plaintiffs claim Anthem failed to make the quarterly refunds and dispute whether a separate signed 2017 agreement governs payment timing.
- Complaint asserts: Counts I–III (ERISA §406 prohibited‑transaction claims), Count IV (breach of contract for failure to pay quarterly refunds), Count V (unjust enrichment as alternative).
- Anthem moved to dismiss: argues ERISA claims fail because providing services for bargained compensation is not per se prohibited (and some claims time‑barred), and contract/unjust‑enrichment claims are unripe because refunds allegedly payable in 2017.
- Court disposition: Grants motion in part — dismisses ERISA Counts I–III; denies dismissal as to contract (Count IV) and unjust enrichment (Count V), which may proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ERISA §406(a)(1) bars a service provider from furnishing services to a plan for bargained compensation (i.e., service relationship itself is a prohibited transaction) | §406 prohibits furnishing services to a party in interest; Anthem became a party in interest by providing services, so the transactions are prohibited absent exemption | A circular reading: service both creates party‑in‑interest status and is then forbidden; statute must be read in context and does not bar arm’s‑length service contracts with disinterested providers | Court held plaintiffs’ reading untenable; §406(a)(1) does not categorically forbid arm’s‑length provision of services for compensation; Count I dismissed |
| Whether renewal or expansion of Anthem’s contract (e.g., higher 2012 rates, adding bus coverage) becomes a prohibited transaction once Anthem is a party in interest | Renewal/expansion occurred after Anthem became a party in interest; thus the renewed/expanded performance is a prohibited transaction | Renewal or expanded performance does not create a circular prohibition; performance of a renewed contract does not retroactively make the initial arm’s‑length transaction illegal | Court rejected plaintiffs’ renewal/expansion theories; dismissal affirmed for these grounds |
| Whether alleged commission/kickback payments to Carney (not an alleged party in interest) support ERISA recovery from Anthem (disgorgement) | Payments to Carney were sham kickbacks that increased premiums; Anthem should disgorge amounts paid or profits derived | Anthem passed payments through to Carney and did not retain the funds or traceable profits; plaintiffs have not plausibly alleged Anthem profited from the Carney payments | Court held plaintiffs failed to show funds or traceable proceeds remained with Anthem or that Anthem profited sufficiently; Count III dismissed |
| Ripeness of contract/unjust‑enrichment claims (refunds allegedly due) | Plaintiffs allege a binding January 30, 2015 agreement requiring quarterly refunds and allege Anthem failed to make them — injury already accrued | Anthem points to a different written agreement (signed by Plan) showing refunds payable in 2017, so claims are premature | Court found a factual dispute over which agreement governs; plaintiffs plausibly allege breach and unjust enrichment now, so Counts IV and V are ripe and may proceed |
Key Cases Cited
- Harris Tr. & Sav. Bank v. Salomon Smith Barney Inc., 530 U.S. 238 (Sup. Ct.) (articulates equitable remedies for prohibited transactions and discusses scope of §406)
- Lockheed Corp. v. Spink, 517 U.S. 882 (Sup. Ct.) (cautions against extending §406 to transactions that do not involve plan insiders)
- Montanile v. Board of Trustees of Nat'l Elevator Indus. Health Benefit Plan, 136 S. Ct. 651 (Sup. Ct.) (equitable disgorgement limited to traceable funds or proceeds in defendant’s possession)
- Great‑West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (Sup. Ct.) (distinguishes legal money judgments from equitable restitution; scope of ERISA equitable relief)
- Braden v. Wal‑Mart Stores, Inc., 588 F.3d 585 (8th Cir.) (discusses kickback allegations and fiduciary self‑dealing under ERISA)