The Depot et al v. Caring For Montanans et al

ERISA: Claims against “Chamber Choices” health insurance program for assessing surcharges that were kicked back to Chamber of Commerce and charges for insurance products without consent of small businesses rejected for failure to establish fiduciary duty, failure to segregate funds… state law claims impermissible “alternative enforcement mechanisms”… Christensen.

The Depot, Union Club Bar, and Trail Head initiated this putative class action in 6/16 arising from the “Chamber Choices” health insurance program marketed by the Montana Chamber of Commerce. Plaintiffs paid premiums to BCBSMT for group health insurance 2006-14. HCSC purchased BCBSMT’s health insurance business 7/31/13 and BCBSMT changed its name to CFM, and HCSC began doing business as BCBSMT. Without informing Plaintiffs, Defendants overcharged Plaintiffs for medical premiums by assessing surcharges which were kicked back to the Chamber and assessed charges to purchase insurance products, resulting in the Securities Commissioner fining BCBSMT. In 4/14 a group of Chamber Choices participants filed a class-action in State Court solely under state law. Judge Sherlock dismissed on summary judgment, and Ibsen (Mont. 2016) affirmed, finding that the plaintiffs had no claim under Montana statutory or common law. Plaintiffs then brought state and federal claims in this Court. CFM moved to dismiss and stay discovery in 8/16. HCSC joined both motions. This Court denied the motion to stay in 12/16. Defendants move to dismiss because they are not fiduciaries within the meaning of ERISA, ERISA provides no equitable relief to remedy Plaintiffs’ grievances, and ERISA preempts their state law claims.

The issue is whether Defendants were acting as fiduciaries when they charged more than Plaintiffs would have agreed to pay had they known where the money would be spent. Plaintiffs argue that reservation of the right to make “administrative changes or changes in dues, terms, or Benefits” constitutes “exercise of any discretionary authority or discretionary control respecting management of the plan.” 29 USC 1002(21)(A)(i). However, nothing about the member plan or allegations in the Complaint suggest that the relationship differed from that of an ordinary participant/insurer. If the Court were to apply their argument in another case, for example, an insurer could be determined to be a fiduciary whenever it increased or decreased rates, even if those rates were entirely reasonable. Such a broad finding of fiduciary status for insurers could transform the industry. Plaintiffs also argue that because Defendants described the additional fees with “cryptic notations,” they concealed the rates, essentially overriding Plaintiffs’ authority & control over management. If these facts may give rise to an ERISA claim for breach of fiduciary duty, it must be because Defendants interfered with the spending of plan assets, not with management or control of the plan. As with their argument that the member guide gives rise to a finding that Defendants were fiduciaries, this theory is insufficiently connected to Defendants’ conduct — assessment and use of premiums — and has nothing to do with how the plan was administered. If Defendants are fiduciaries under ERISA it must be because they “exercised any authority or control respecting management or control of assets.” Defendants argue that once the premiums changed hands they were no longer plan assets. As both parties ably argue, the cases cited by their opponents — nearly all from other jurisdictions — are readily distinguishable from the facts alleged. However, the Court need not turn to case law, as the answer is in ERISA itself. Plaintiffs have brought a claim against insurers — not administrators. Whether it is a feature or a bug, §502(a)(2) does not allow a cause against an insurer under the circumstances here.

The parties also dispute whether — if Defendants are not fiduciaries — Count I may proceed under §502(1) (3): a participant or fiduciary may bring a civil action “(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” Plaintiffs cannot seek injunctive relief, as Defendants have not assessed charges for kickbacks or unwanted insurance products since 2014. As to “other appropriate equitable relief,” they have requested restitution and/or disgorgement, and the parties disagree as to whether the remedies sought are legal or equitable. Plaintiffs have not alleged that Defendants were fiduciaries; thus “make-whole” relief is not available. Under Montanile (US 2016), which both parties cite, a party cannot recover in equity unless the funds have been maintained in a segregated account. “Equitable remedies are, as a general rule directed against some specific thing; they give or enforce a right to or over some particular thing rather than a right to recover a sum of money generally out of the defendant’s assets.” Id. Although this ostensibly allows a defendant to escape liability simply by spending or commingling funds, it is the rule. See id. (Ginsburg dissenting, describing the outcome of Montanile as “bizarre”). Plaintiffs argue that Montanile should not apply because the defendant in that case was a beneficiary rather than an insurer. Although it is certainly factually distinguishable, its holding regarding remedies under §502(a)(3) applies here. Plaintiffs have cited no authority that restitution and/or disgorgement may be an equitable remedy when it is recovered from the general fund of a defendant that is not a fiduciary. They have not alleged that the overcharges have been kept in a segregated account. They argue in their brief that “the funds in question are among those that have been set aside in the separate repository that is [CFM].” However, they allege in their Complaint that all public assets were transferred from BCBS to CFM when HCSC acquired BCBS’s health insurance business. Thus the Court cannot “enforce a right to or over” the specific portion of the premiums that went to kickbacks or unwanted insurance products. Id. Restitution or disgorgement would necessarily be from a general fund and equivalent to money damages. Bast (9th Cir. 1998). Because of this defect, Plaintiffs cannot proceed with a claim under 502(a)(3) at this time.

Plaintiffs bring state law claims for breach of contract and the implied covenant, negligent misrepresentation, breach of fiduciary duty, unjust enrichment, and CPA violations. Defendants argue that the claims are preempted under conflict preemption and express preemption. Because the claims are expressly preempted, the Court does not reach conflict preemption. ERISA “supersedes any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” §1144(a). 514(a) preempts any state law that has a “connection with” or “reference to” an employee benefit plan. NYSCBCBSP (US 1995); Gobeille (US 2016). The parties agree that the relevant inquiry is whether Plaintiffs’ state law claims have an impermissible “connection with” ERISA plans. Although Plaintiffs allege violation of laws that are not specifically targeted at employee benefit plans, the claims have an unlawful “connection with” ERISA plans. Defendants’ alleged wrongful conduct falls squarely within the scope of ERISA; it just happens to be the unfortunate case that the precise facts alleged in the Complaint do not give rise to an ERISA claim. Plaintiffs’ Complaint must be dismissed in its entirety, but they shall have the opportunity to amend to remedy the defects.

– – –Plaintiffs filed an amended complaint 3/8/17, alleging that their relationship with Defendants was distinguishable from the average insured/insurer because Defendants were able to modify terms of the insurance arrangement during the calendar year, and that Plaintiffs — all small businesses — are uncommonly dependant on Defendants’ services due to their lack of sophistication in selecting & administering employee benefits. They also allege new claims under State law for fraudulent inducement and constructive fraud and have reframed their negligent misrepresentation claim, asking the Court to consider only conduct predating creation of the ERISA plan. Defendants argue that Plaintiffs have failed to remedy the deficiencies identified in the earlier order. The Court agrees.

The most significant differences between the original and amended complaints are designed to support Plaintiffs’ argument that Defendants are fiduciaries under ERISA. They have alleged additional facts intended to show that the relationship was “extraordinary” — beyond the scope of the normal insurer/insured relationship. They misconstrue Defendants’ argument and the Court’s earlier order. Even if the parties did not have equal bargaining power, the relationship was ordinary in the sense that Defendants sold insurance and Plaintiffs purchased that insurance. Plaintiffs have not alleged that Defendants advised them in any way as to insurance products, only that they depended on them to consider their best interests. While the Court is sympathetic, particularly considering that they are small businesses dependent primarily on an unskilled workforce, it does not alter the Court’s reasoning. And because their new claims for fraudulent inducement and constructive fraud are premised on the same facts and therefore fall within the ground covered by ERISA, they are also “alternative enforcement mechanisms” preempted by federal law.

The Clerk shall enter judgment for Defendants.

The Depot, Union Club Bar, Trailhead v. Caring for Montanans and Health Care Service, 44 MFR 106 2/14/17, 44 MFR 124 6/23/17.

John Heenan (Bishop & Heenan), Billings, and John Morrison & Linda Deola (Morrison, Sherwood, Wilson & Deola), Helena, for Plaintiffs; Anthony Shelley (Miller & Chevalier), DC, and Michael McLean & Stefan Wall (Wall, McLean & Gallagher), Helena, for CFM; Kimberly Beatty, Stanley Kaleczyc, and Christy McCann (Browning, Kaleczyc, Berry & Hoven), Helena and Bozeman, for HCS.