The Depot, Inc. v. Caring for Montanans, Inc.
915 F.3d 643
| 9th Cir. | 2019Background
- Three small Montana employers (members of Montana Chamber of Commerce) purchased fully insured "Chamber Choices" group health plans from BCBSMT (later CFM; business purchased by HCSC) from 2006–2014 and paid monthly premiums for employee coverage.
- Plaintiffs allege defendants embedded two secret surcharges in premiums: one to pay kickbacks to the Chamber (2006–2014) and one to buy unauthorized insurance products (2008–2014), and that defendants concealed those surcharges.
- The Montana Commissioner fined BCBSMT in 2014 for billing in excess of actual medical premium and paying kickbacks; parallel state litigation produced no private remedy under the cited state statute.
- Plaintiffs sued in federal court asserting: (1) ERISA claims — breach of fiduciary duty (29 U.S.C. § 1132(a)(2)) and a prohibited transaction claim (29 U.S.C. § 1132(a)(3)); and (2) state-law claims for fraudulent inducement, constructive fraud, negligent misrepresentation, unjust enrichment, and unfair trade practices.
- The district court dismissed all claims (ERISA claims for failure to state a claim; state-law claims as preempted by ERISA and for failure to plead fraud with Rule 9(b) particularity). The Ninth Circuit: affirmed dismissal of ERISA claims, reversed dismissal of state-law claims, and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants were ERISA fiduciaries when charging/collecting premiums | Defendants acted as functional fiduciaries by exercising discretion over plan management/assets when embedding surcharges and by using a contract clause to modify terms | Premium negotiation and collection were arm's-length, not fiduciary acts; premiums under fully insured plans are not plan assets | Not fiduciaries for the conduct at issue; breach-of-fiduciary claim dismissed |
| Whether premium payments are "plan assets" such that defendants exercised control over them | Premiums (including surcharges) are plan assets and defendants controlled/disposed of them | Premiums for fully insured policies are fixed fees paid for coverage and are not plan assets (unlike participant contributions in self-funded plans) | Premiums are not plan assets here; defendants did not exercise control over plan assets |
| Whether plaintiffs may obtain "appropriate equitable relief" under ERISA § 1132(a)(3) (prohibited transaction) — i.e., restitution/disgorgement | Plaintiffs seek disgorgement/restitution of the surcharges as equitable relief to redress prohibited transactions | Requested money judgment is legal relief (damages); equitable remedies require identifiable/traceable specific funds or property | Relief sought is legal (money judgment), not equitable restitution/disgorgement; § 1132(a)(3) claim dismissed |
| Whether ERISA preempts plaintiffs’ state-law fraud and consumer-protection claims | State-law misrepresentation claims address independent duties (fraud in sale/marketing) and do not conflict with ERISA enforcement; thus not preempted | Defendants argued ERISA preempts because claims touch plan administration/prohibited transactions | ERISA does not preempt these state-law claims (neither express nor conflict preemption); dismissal of state claims reversed and remanded for further pleading or state-court prosecution |
Key Cases Cited
- Aetna Health Inc. v. Davila, 542 U.S. 200 (Sup. Ct.) (ERISA’s integrated civil enforcement scheme and preemption principles)
- Varity Corp. v. Howe, 516 U.S. 489 (Sup. Ct.) (fiduciary duty standard under ERISA: act solely in participants’ interest)
- Pegram v. Herdrich, 530 U.S. 211 (Sup. Ct.) (functional fiduciary test — fiduciary only when performing fiduciary functions)
- Santomenno v. Transamerica Life Ins. Co., 883 F.3d 833 (9th Cir.) (service provider negotiating compensation is not a fiduciary for that negotiation)
- Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (Sup. Ct.) (distinction between legal and equitable restitution in ERISA § 1132(a)(3))
- Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356 (Sup. Ct.) (equitable restitution available where specifically identifiable funds are in defendant’s possession)
- Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (Sup. Ct.) (third-party defendants may be sued under § 1132(a)(3) but equitable relief requires tracing/constructive trust on specific property)
- Montanile v. Bd. of Trs. of Nat’l Elevator Indus. Health Benefit Plan, 136 S. Ct. 651 (Sup. Ct.) (equitable restitution unavailable when funds dissipated on nontraceable items; limits on disgorgement)
- Rutledge v. Seyfarth, Shaw, Fairweather & Geraldson, 201 F.3d 1212 (9th Cir.) (state-law claims may be preempted when they bear on ERISA-governed relationships involving excessive fees)