PIPEFITTERS LOCAL 636 INSURANCE FUND; John R. Green, Charles Inman, John O‘Neil, Greg Sievert, E. Thomas Devlin, Gerald Hoover, Trustees of Pipefitters Local 636 Insurance Fund, Plaintiffs-Appellees, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN, Defendant-Appellant.
No. 12-2265.
United States Court of Appeals, Sixth Circuit.
Decided and Filed: July 18, 2013.
Rehearing Denied Aug. 7, 2013.
722 F.3d 861
Argued: June 18, 2013.
Thus, read in light of Amgen, Comcast Corp., Daffin, and other cases we have discussed, the evidence and the district court‘s opinion convince us that class certification is the superior method to adjudicate this case fairly and efficiently. See Amgen, 133 S.Ct. at 1191; Olden, 383 F.3d at 507-10. Use of the class method is warranted particularly because class members are not likely to file individual actions—the cost of litigation would dwarf any potential recovery. See Amgen, 133 S.Ct. at 1202; Amchem Prods., Inc., 521 U.S. at 617, 117 S.Ct. 2231 (finding that in drafting
Once the district court resolves under Ohio law the common liability questions that are likely to generate common answers in this case, the court will either enter judgment for Whirlpool or proceed to the question of plaintiffs’ damages. In the latter event, the court may exercise its discretion in line with Amgen, Comcast Corp., and other cases cited in this opinion to resolve the damages issues.
IV. CONCLUSION
In summary, we uphold, under our prescribed narrow review, the district court‘s determination that the
Before SILER, CLAY, and KETHLEDGE, Circuit Judges.
OPINION
CLAY, Circuit Judge.
Plaintiff Pipefitters Local 636 Insurance Fund (sometimes referred to as “the Fund“) is a self-funded benefits plan, established under the Employee Retirement Income Security Act of 1974 (“ERISA“),
BACKGROUND1
Plaintiff Pipefitters Local 636 Insurance Fund is “a multi-employer trust fund established under and administered pursuant to the Taft-Hartley Act, section 302 of the Labor Management Relations Act,
Prior to its current arrangement with Defendant, Plaintiff was an “insured group customer of BCBSM, purchasing insurance coverage by paying premiums.” Pipefitters I, 213 Fed. Appx. at 475.
In June 2002, the Fund converted from an experience rated (i.e. insured) group customer of BCBSM to a self-funded plan, and entered into an Administrative Services Contract (“ASC“) with BCBSM. The ASC describes the administrative services that BCBSM provides for the Fund‘s medical benefits plan, including but not limited to: automated claims processing, financial management and reporting, cost containment initiatives, provider utilization audits, services for participant inquiries and/or participant communications, maintenance of all necessary records, provider utilization audits, and participation in trustee meetings. The ASC expressly states that “BCBSM is not the Plan Administrator, Plan Sponsor, or a named fiduciary for purposes of ERISA and its obligations shall be limited to the processing and payment of Enrollees’ claims as provided herein.” Pipefitters II, 418 Fed. Appx. at 431 (alterations omitted).
Under the terms of the ASC, the Fund agreed to pay claims and administrative charges, including amounts billed during the year, hospital prepayments, actual administrative charges and group conversion fee, any late payment charges, statutory and/or contractual interest, and “any other amounts which are the Fund‘s responsibility pursuant to this Contract.” The ASC also states that “the Provider Network Fee, contingency, and any cost transfer subsidies or surcharges ordered by the State Insurance Commissioner as authorized pursuant to Michigan law will be reflected in the hospital claims cost contained in Amounts Billed.”
From June 2002 to January 2004, BCBSM collected from the Fund [a cost transfer subsidy fee—“the OTG fee,“] to subsidize coverage for non-group clients. The OTG [fee] was regularly collected from BCBSM‘s group clients. Self-insured clients, however, were not always required to pay the fee.... In January 2004, BCBSM unilaterally [stopped charging the Fund the OTG fee].
In September 2004, the Fund sued BCBSM, alleging that BCBSM breached its fiduciary duty under ERISA by imposing and failing to disclose the OTG [fee] from June 2002 to January 2004. Specifically, the Fund claimed that the OTG [fee] violated
BCBSM moved for dismissal under
On remand from Pipefitters I, Plaintiff moved for class certification, and both parties moved for summary judgment. The district court, in an oral ruling, did three things: (1) granted class certification; (2) granted Plaintiff summary judgment on its OTG imposition claim; and (3) granted Plaintiff summary judgment on its OTG disclosure claim as well as issued an injunction on that claim. We reversed the district court‘s summary judgment decision as to the disclosure claim, concluding that Pipefitters I had previously dismissed that claim. Pipefitters II, 418 Fed. Appx. at 435. Additionally, we reversed the district court‘s class-certification decision. Pipefitters III, 654 F.3d at 630-33. The decisions in Pipefitters II and III did not, however, disturb the district court‘s grant of summary judgment to Plaintiff on its OTG imposition claim. Pipefitters II, 418 Fed. Appx. at 432 n. 2. On remand from the interlocutory appeals, the district court reaffirmed its grant of summary judgment to Plaintiff on the OTG imposition claim and awarded damages to Plaintiff in the amount of $284,970.84 plus $106,960.78 in prejudgment interest.
STANDARD OF REVIEW
We review a district court‘s summary judgment decision de novo, applying the same standards as the district court. Villegas v. Metro. Gov‘t of Nashville, 709 F.3d 563, 568 (6th Cir. 2013). “Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, show that there is no genuine issue as to any material fact such that the movant is entitled to a judgment as a matter of law.” Id. (internal quotation marks omitted); see
DISCUSSION
Plaintiff claims that Defendant‘s collection of the OTG fee in order to cover its Medigap obligation to the State of Michigan constituted a breach of Defendant‘s fiduciary duty to Plaintiff under
1. Defendant‘s Fiduciary Status
Under ERISA, “an entity that exercises any authority or control over disposition of a plan‘s assets becomes a fiduciary.” Guyan Int‘l, Inc. v. Prof‘l Benefits Adm‘rs., Inc., 689 F.3d 793, 798 (6th Cir. 2012) (citing Briscoe v. Fine, 444
There are two relationships that are necessary to understand the “particular activity in question” in this case. Because of Defendant‘s non-traditional status, we turn first to the relationship between it and the State of Michigan. As noted above, Michigan requires Defendant to pay a portion of its revenues to Michigan in order to subsidize the cost of health care to senior citizens. See
Turning to Defendant‘s relationship with Plaintiff, Defendant chose to collect the funds necessary to cover its Medigap obligation to the state by assessing the OTG fee to its customers, including Plaintiff. How this worked in practice was that Defendant negotiated discounts with health care providers such that if, for example, a provider would normally bill an individual $120 for a given procedure, it would only bill Defendant‘s customers $100. Defendant collected the OTG fee by not passing through the entire discount it had negotiated ($20) to its administrative services customers. Instead, Defendant would bill administrative services customers, like Plaintiff, $101 for the procedure that it had only paid $100 for. The extra dollar would then be used by Defendant to pay its Medigap obligation to the State of Michigan.
Defendant contends that in doing so it merely acted as a “pass-through” and not as a fiduciary, and therefore under our decision in Seaway Food Town, Inc. v. Medical Mutual of Ohio, 347 F.3d 610 (6th Cir. 2003), it does not qualify as an ERISA fiduciary. However, the record reveals that Defendant did not charge all of its administrative services customers the OTG fee. In particular, in January 2004, Defendant stopped assessing the OTG fee to Plaintiff for business reasons.
In Seaway, we dealt with a dispute between an ERISA plan and an administrator over a contract provision that stated that “provider discounts” negotiated by the administrator were “for the sole benefit of [the administrator] and [the administrator] will retain any payments resulting therefrom.” Id. at 613-14. The plan claimed it was improper for the administrator to have not passed the negotiated discounts onto the plan. See id. at 617. We disagreed with the plan and held that “where parties enter into a contract term at arm‘s length and where the term confers on one party the unilateral right to retain funds as compensation for services
Unlike in Seaway, the ASC between Plaintiff and Defendant contains no such analogous language. The ASC merely provides that “any cost transfer subsidies or surcharges ordered by the State Insurance Commissioner as authorized pursuant to [Michigan law] will be reflected in the hospital claims cost contained in Amounts Billed” to Plaintiff. (R. 8-2, Pipefitters’ Administrative Services Contract, at PID# 178.) Nowhere does the ASC set forth the dollar amount for the OTG fee or even a method by which the OTG fee is to be calculated. The opaque language that “any cost transfer subsidies or surcharges ... will be reflected” in no way cabins Defendant‘s discretion to charge or set the OTG fee vis-à-vis Plaintiff.
Defendant nonetheless argues that it had no discretion in charging the OTG fee because it was the Michigan Insurance Commissioner who fixed the rate at one percent. This argument confuses the relevant activity for ERISA purposes. To be sure, the amount that Defendant owed to the State of Michigan to fulfill its Medigap obligation was fixed yearly at one percent of all of Defendant‘s earned subscription income, which includes income earned from individual customers, group customers, and administrative services customers, like Plaintiff. However, the state did not fix the rate that Defendant charged each customer, and crucially, neither did the ASC between Plaintiff and Defendant. Further, the fact that not all administrative services customers paid the OTG fee, including Plaintiff after January 2004, demonstrates that Defendant necessarily had discretion in the way it collected the funds to defray its one-percent Medigap obligation to the State of Michigan.
Because “an entity that exercises any authority or control over disposition of a plan‘s assets becomes a fiduciary,” Guyan, 689 F.3d at 798, the district court was correct to conclude that Defendant was an ERISA fiduciary with respect to Defendant‘s collection of the OTG fee from Plaintiff.
2. Defendant‘s Breach of ERISA‘s Fiduciary Duties and Prohibition Against Self-Dealing
Having concluded that Defendant was an ERISA fiduciary when it assessed the OTG fee to Plaintiff, we must consider whether the assessment of the OTG fee was a breach of the fiduciary duties it owed Plaintiff under ERISA. ERISA imposes three broad duties on qualified fiduciaries: (1) the duty of loyalty, which requires “all decisions regarding an ERISA plan ... be made with an eye single to the interests of the participants and beneficiaries“; (2) the “prudent person fiduciary obligation,” which requires a plan fiduciary to act with the “care, skill, prudence, and diligence of a prudent person acting under similar circumstances,” and (3) the exclusive benefit rule, which requires a fiduciary to “act for the exclusive purpose of providing benefits to plan participants.” James v. Pirelli Armstrong Tire Corp., 305 F.3d 439, 448-49 (6th Cir. 2002) (internal quotation marks omitted); accord Dudenhoefer v. Fifth Third Bancorp, 692 F.3d 410, 417 (6th Cir. 2012); see
In addition to these duties, ERISA also contains an “absolute bar against self-dealing” set forth in
The situation in this case strikes us as similar to the one faced by the Ninth Circuit in Patelco Credit Union v. Sahni, 262 F.3d 897 (9th Cir. 2001). In Patelco, an ERISA plan administrator “marked up” the insurance premiums he charged to the plan with an administrative fee. Id. at 911. The contract between the plan and the administrator did not, however, provide what the administrative fee was to be and therefore, the administrator set the fee according to what he thought was “reasonable compensation” for his services as administrator. Id. The Ninth Circuit found this activity to be violative of
Similarly, in this case, Defendant unilaterally determined whether to collect the OTG fee and determined the rate at which it would collect the fee from Plaintiff despite the fact that the ASC did not authorize the exercise of such discretion. Defendant then used the discretionarily collected OTG fees “for [its] own account“—specifically, to satisfy its independent Medigap obligation to the State of Michigan. See
Recently, in Guyan International, Inc. v. Professional Benefits Administrators, Inc., we held that a “classic case of self-dealing,” like Patelco, violated not only
Where a fiduciary uses a plan‘s funds for its own purposes, as is the case here with Defendant using the OTG fees it discretionarily charged to satisfy the Medigap obligation it owed to the State of Michigan, such a fiduciary is liable under
CONCLUSION
For the foregoing reasons, we AFFIRM the district court‘s grant of summary judgment to Plaintiff.
Deborah A. KENSETH, Plaintiff-Appellant, v. DEAN HEALTH PLAN, INC., Defendant-Appellee.
No. 11-1560.
United States Court of Appeals, Seventh Circuit.
Decided June 13, 2013.
Argued Dec. 8, 2011.