Susan Priddy v. Health Care Service Corporatio
2017 U.S. App. LEXIS 16784
| 7th Cir. | 2017Background
- Health Care Service Corporation (HCSC) is an Illinois not-for-profit insurer operating Blue Cross/Blue Shield plans through affiliates in five states and uses related third-party affiliates to provide prescription, claims, and administrative services.
- HCSC owns or controls many affiliates, places officers on their boards, receives undisclosed rebates from affiliates, and does not pass rebates to insureds.
- Plaintiffs (Priddy and others) filed a putative class action alleging HCSC’s use of affiliates and undisclosed rebate flows violates ERISA and Illinois law by constituting self-dealing and breaching fiduciary duties.
- The district court certified four Rule 23(b)(3) classes (employers buying HCSC plans, employer-plan beneficiaries, individual purchasers, and Illinois-regulated insureds), totaling roughly ten million people, finding Rule 23(a) and (b) requirements satisfied.
- On appeal, the Seventh Circuit held the district court failed to develop the factual and legal record on whether HCSC acted in a fiduciary capacity for various class members and whether common questions predominated; certification was vacated and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule 23(a) prerequisites (numerosity, commonality, typicality, adequacy) were met | Plaintiffs: common legal theory (HCSC’s fiduciary breach/self-dealing) and uniform policy make classwide issues common and typical. | HCSC: classes are heterogeneous; many members lack the same relationship to HCSC (insured vs. administered), undermining commonality/typicality. | Court: district court did not adequately analyze commonality/typicality given factual gaps; remanded. |
| Whether plaintiffs showed HCSC owed fiduciary duties to class members under ERISA | Plaintiffs: HCSC’s actions in channeling rebates and controlling affiliates amounted to fiduciary conduct harming beneficiaries. | HCSC: liability depends on whether HCSC acted in a fiduciary capacity for each member; many putative members are not ERISA plan participants or HCSC-insured. | Court: determining fiduciary status is context-specific; district court failed to resolve who HCSC acted for in fiduciary capacity. |
| Whether Rule 23(b)(3) predominance and superiority were satisfied | Plaintiffs: uniform policy and contract language mean common questions predominate and class litigation is superior given class size. | HCSC: individualized inquiries (plan status, fiduciary status, contract variations, state-law differences) defeat predominance and possibly superiority. | Court: district court did not analyze these individualized issues; certification unsupported on the present record. |
| Proper scope of merits inquiry at certification | Plaintiffs: certification may proceed on classwide legal theory without extensive merits discovery. | HCSC: merits overlap with class issues, requiring factual inquiry and evidence before certification. | Court: trial courts must resolve material factual disputes and sometimes probe merits where they overlap with Rule 23 analysis; district court failed to do so here. |
Key Cases Cited
- General Telephone Co. of S.W. v. Falcon, 457 U.S. 147 (commonality and typicality often merge)
- Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (predominance requirement and need for common proof)
- Messner v. Northshore Univ. HealthSystem, 669 F.3d 802 (court must resolve material factual disputes at certification)
- Szabo v. Bridgeport Machines, Inc., 249 F.3d 672 (sometimes preliminary merits inquiry necessary for Rule 23(b)(3))
- Pegram v. Herdrich, 530 U.S. 211 (fiduciary status under ERISA is context-specific)
- Arreola v. Godinez, 546 F.3d 788 (standard of review for certification decisions)
- Reliable Money Order, Inc. v. McKnight Sales Co., 704 F.3d 489 (procedural standards reviewing certification)