Spinedex Physical Therapy USA Inc v. United Healthcare of Arizona, Inc. et al

Filing 132

ORDER Plas' Motion 113 For Leave To File Separate Statement, Objections, and Motion To Strike is DENIED. FURTHER ORDERED Plas' Request For Judicial Notice 115 is GRANTED IN PART, in conformance with Section II of this Order. Plas' Second Request For Judicial Notice 124 is GRANTED. FURTHER ORDERED Plas' Motion 125 For Leave To File Supplemental Memorandum is DENIED. Dfts' Revised Motion 110 To Dismiss The Second Amended Complaint is GRANTED IN PART. FURTHER ORDE RED the Plan Defendants ARE DISMISSED from this action WITH PREJUDICE. The Clerk of Court shall remove all Defendants except: UnitedHealthcare of Arizona, Inc., Ingenix, Inc., UnitedHealth Group, Inc., United Healthcare, Inc., United Healthcare Insur ance Co., and United Healthcare Services, Inc. FURTHER ORDERED Count III of Plas' Second Amended Complaint (Doc. 38) IS DISMISSED WITH PREJUDICE. FURTHER ORDERED Count I of Plas' Second Amended Complaint (Doc. 38) IS DISMISSED IN PART, WITH PREJUDICE, in conformance with Section IV.D.1 of this Order. FURTHER ORDERED Count V of Plas' Second Amended Complaint (Doc. 38) IS DISMISSED IN PART, WITH PREJUDICE, in conformance with Section IV.D.5 of this Order. Signed by Judge Roslyn O Silver on 4/28/09.(KMG)

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 wo IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Spinedex Physical Therapy USA, Inc. et) ) al., ) ) Plaintiffs, ) ) vs. ) ) United Healthcare of Arizona, Inc. et al., ) ) ) Defendants. ) ) No. CV-08-457-PHX-ROS ORDER BACKGROUND On July 9, 2008, Plaintiffs Claude Aragon, Jack Adams, Spinedex Physical Therapy USA, Inc. ("Spinedex") and the Arizona Chiropractic Society ("ACS") filed a Second Amended Complaint, alleging a class action under the Employee Retirement Income Security Act of 1974 ("ERISA") (Doc. 38). Aragon and Adams are participants or beneficiaries in, and thus receive health insurance from, one of the Plans and allege wrongful denial of benefits.1 Spinedex is a medical practice which provided health care services to Aragon, Adams and other Plan participants and beneficiaries (i.e. Spinedex's patients) and alleges wrongful denial of compensation for services. ACS represents the interests of its member physicians who claim wrongful denial of compensation for services provided to Plan 1 28 "The Plans" refer to some or all of the forty-five employee welfare benefit plans named as Defendants. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 participants and beneficiaries. Forty-five employee welfare benefit Plans are named as Defendants ("Plan Defendants") (Doc. 38 at 13-23, 29-34). Six corporations which allegedly are fiduciaries and administrators of the Plans are also named as Defendants ("United Defendants") (Doc. 38 at 8-12, 22-46). On August 22, 2008, Defendants filed a Motion To Dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(6) (Doc. 103). Prior to filing the Motion, the parties stipulated to and the Court allowed the parties to exceed the length requirements of Local Rule of Civil Procedure 7.2(e) and file a thirty-five-page Motion and Response and a twenty-page Reply (Doc. 57). On September 18, because the Motion violated the memoranda type-set requirements of Local Rule of Civil Procedure 7.1(b)(1), Defendants were ordered to resubmit the Motion in conformance with the Rule (Docs. 107-08). Because the parties stipulated that the revisions required to conform the Motion to the Rule would only be a reduction of approximately four pages, the briefing schedule was not altered, except for granting a one-day extension for the Response (Docs. 108, 111). The revised Motion was filed on September 19, 2008 (Doc. 110). Plaintiffs responded on September 23, 2008 (Doc. 112), and the Reply was filed on October 22, 2008 (Doc. 123). On the same day as filing the Response, Plaintiffs filed a Motion For Leave To File Separate Statement, Objections, and Motion to Strike as a Separate Motion, which is fully briefed (Docs. 113, 118, 122). Plaintiffs also filed two Requests For Judicial Notice and a Motion For Leave To File A Supplemental Memorandum, the first two of which Defendants did not oppose (Docs. 115, 124-25). The Court's rulings are as follows: The Motion For Leave To File Separate Statement, Objections, and Motion to Strike as a Separate Motion will be denied. The Request For Judicial Notice will be granted in part. The Second Request For Judicial Notice will be granted. The Motion For Leave To File A Supplemental Memorandum will be denied. The Motion To Dismiss will be granted in part. -2- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 II. Request For Judicial Notice DISCUSSION I. Motion For Leave To File Separate Statement, Objections, and Motion to Strike as a Separate Motion Plaintiffs' Motion For Leave To File Separate Statement, Objections, and Motion to Strike as a Separate Motion will be denied (Doc. 113). Local Rule of Civil Procedure 7.2(m) is clear: "An objection to the admission of evidence offered in support or opposition to a motion must be presented in the objecting party's responsive or reply memorandum . . . and not in a separate motion to strike or other separate filing." LRCiv 7.2(m)(2) (emphasis added) ("Rule 7.2(m)"). Plaintiffs request permission to separately file a motion challenging evidence attached to the Motion To Dismiss. According to Plaintiffs, it is "impossible for Plaintiffs to brief the issues and the law relating to their evidentiary objections and their Motion to Strike within the four corners of their [Response]" (Doc. 113 at 3). The Court does not agree. Plaintiffs also argue, because most motions to dismiss do not include voluminous evidentiary submissions, the "spirit of the Local Rules" should allow an exception (Doc. 113 at 3). Again, the Court does not agree. Finally, Plaintiffs infer they were prejudiced when the Court ordered Defendants to resubmit the Motion To Dismiss in conformance with Local Rule 7.1(b) but only granted Plaintiffs one additional day to respond. This argument is without merit. Plaintiffs had three and one-half weeks to respond to the Motion To Dismiss from August 22 to September 17, 2008 before the Rule 7.1(b) issue surfaced. Defendants filed the revised motion to dismiss on September 19, 2008 and Plaintiffs had an additional four days to adust the Response to Defendants' minor revisions. The Motion For Leave To File Separate Statement, Objections, and Motion to Strike as a Separate Motion will thus be denied. None of the evidentiary objections presented in that Motion will be considered. -3- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Given Defendants' failure to respond, Plaintiffs' Request For Judicial Notice will be granted and all documents listed in the Request will be noticed (Doc. 115 at 2-3). See Fed. R. Evid. 201(d) ("A court shall take judicial notice if requested by a party and supplied with the necessary information.") (emphasis added). The contents of the documents appear to be "not subject to reasonable dispute" and "capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned," including court records, public filings, and other government documents. Fed. R. Evid. 201(b) (Docs. 115 at 2-3; Doc. 116 Ex. B-H). It is noted that some documents were attached to but not listed in the body of the Request. These documents will not be considered until properly included in a formal request for judicial notice (Docs. 115 at 2-3; 116 Ex. A, I-N). III. "Second Request For Judicial Notice" and Motion For Leave To File Supplemental Memorandum Plaintiffs' Second Request For Judicial Notice (Doc. 124) will be granted and Plaintiffs' Motion For Leave To File Supplemental Memorandum will be denied (Doc. 125). Plaintiffs request judicial notice of an amicus curiae brief filed by the Secretary of the Department of Labor in proceedings before the Ninth Circuit concerning whether a thirdparty insurer is a proper defendant in a suit for unpaid employee welfare benefit plan benefits pursuant to 29 U.S.C. 1132(a)(1)(B), ERISA 503(a)(1)(B) (Doc. 124 Ex. A). See infra Section IV.D.4.c. The amicus brief is relevant to an issue currently before the Court, was filed after the Response to the Motion to Dismiss was due, the contents are "not subject to reasonable dispute," the brief itself is "capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned" and notice is unopposed. Fed. R. Evid. 201(b). See also Serv. Employees Int'l Union Local 102 v. County of San Diego, 60 F.3d 1346, 1356 n.3 (9th Cir. 1994) (per curiam) (judicially noticing a relevant amicus brief filed in other proceedings). Nevertheless, Plaintiffs will not be allowed to file a supplemental brief to "analyze[] the relevance" of the Secretary's amicus (Doc. 125 at 2). The value of the Secretary's amicus is evident on its face and is not new authority. If this matter involved a question of -4- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 statutory interpretation that was unsettled in the Ninth Circuit, the Secretary's opinion might carry some authoritative weight. See e.g. U.S. v. Mead Corp., 121 S. Ct. 2164, 2175 (2001) (an executive determination that Congress did not intend to carry the force of law, such as a policy statement, enforcement guideline, or other legal interpretation, may receive some deference); see also infra note 9. However, Plaintiffs urge the Court to consider the amicus as authority contrary to Ninth Circuit interpretation of ERISA, arguing a 1132(a)(1)(B) plaintiff may sue a third-party insurer that is neither an employee welfare benefit plan nor a plan administrator for wrongfully denied benefits. But see Everhart v. Allmerica Fin. Life Ins. Co., 275 F.3d 751, 754 (9th Cir. 2001) (a plaintiff cannot sue a third-party insurer under 1132(a)(1)(B) that is neither an employee welfare benefit plan nor a plan administrator). In fact, the Secretary concludes the contrary is Ninth Circuit law (Doc. 124 Ex. A at 5-8). Although judicial deference to executive construction of a statute may be relevant to interpreting ambiguous statutes, the "judiciary is the final authority on issues of statutory construction" and in this case the judiciary has spoken. Chevron U.S.A., Inc. v. Natural Res. Def. Council, 104 S. Ct. 2778, 2782 n.9 (1984). Thus, the amicus is advisory and no further analysis from the parties is necessary. IV. Motion To Dismiss A. Standard Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)") permits challenge of a complaint for "failure to state a claim upon which relief can be granted." A court's inquiry "is limited to the allegations in the complaint, which are accepted as true and construed in the light most favorable to the plaintiff." Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008). However, a court "need not accept as true allegations contradicting documents that are referenced in the complaint or that are properly subject to judicial notice." Id. See also Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) (identifying "two exceptions to the requirement that consideration of extrinsic evidence converts a 12(b)(6) -5- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 motion to a summary judgment motion" material subject to judicial notice and material attached to or referenced in the complaint). Consideration of materials incorporated by reference in the complaint is permitted when "plaintiff's claim depends on the contents of a document, the defendant attaches the document to its motion to dismiss, and the parties do not dispute the authenticity of the document." Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). Federal Rule of Civil Procedure 8(a)(2) ("Rule 8(a)(2)") provides the yardstick for determining the sufficiency of a complaint in a Rule 12(b)(6) analysis. According to Rule 8(a)(2), a proper claim for relief need only contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The Supreme Court has interpreted Rule 8(a)(2) to require that a plaintiff's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007). The Bell Atlantic standard requires neither "heightened fact pleading of specifics" nor "detailed factual allegations," but a plaintiff cannot rely on "labels and conclusions, and a formulaic recitation of the elements of a cause of action." Id. at 1964-65, 1974. In this way, while "[s]pecific facts are not necessary," a plaintiff must allege enough facts to "give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Erickson v. Pardus, 127 S.Ct. 2197, 2200 (2007) (per curiam) (internal citation omitted). The defendant bears the burden of proving plaintiff has failed to state a claim. See e.g. Hedges v. U.S., 404 F.3d 744, 750 (3d Cir. 2005); Bangura v. Hansen, 434 F.3d 487, 498 (6th Cir. 2006); James Wm. Moore, 2 Moore's Federal Practice 12.34[1][a] at 12-73. (2008 ed.). B. Standing -6- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1. ACS' Association Standing Plaintiffs argue for association standing on the theory that ACS represents the interest of its member physicians who provided services to Plan participants and beneficiaries (i.e. patients) and have been assigned the right to sue the Plans for wrongfully denied compensation by the participants and beneficiaries (Doc. 38 at 7-8, 29).2 Defendants contend ACS cannot assert association standing and thus must be dismissed (Doc. 110 at 31-33).3 To assert association standing, ACS must satisfy a three-prong test, showing: (a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization's purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit. Hunt v. Wash. State Apple Advertising Com'n, 97 S.Ct. 2434, 2441 (1977). The burden of proof to show standing is on ACS. See Loritz v. U.S. Ct. of App. for the 9th Cir., 382 F.3d 990, 991 (9th Cir. 2004) ("Article III of the Constitution requires a plaintiff attempting to invoke the jurisdiction of the federal courts to demonstrate that he has standing."). ACS' compliance with all three prongs of the Hunt test is contested. Challenging prongs one and two, Defendants argue ACS members lack the independent right to participate in this action and the interest ACS seeks to protect is not germane to the organization's purpose (Doc. 110 at 33). Both arguments are unavailing. As discussed Because ACS member physicians do not have an independent right of action under ERISA, they may only pursue ERISA claims if a Plan participant or beneficiary assigns each physician the right to collect the disputed compensation. See Misic v. Bldg. Serv. Employees Health and Welfare Trust, 789 F.2d 1374, 1378 (9th Cir. 1986) (per curiam) ("ERISA provides civil actions may be brought under the statute by participants, beneficiaries, fiduciaries, and the Secretary of Labor," not service providers) (citing 29 U.S.C. 1132(a)).. Defendants assert ACS may only participate in the present action via derivative standing. Plaintiffs do not contest this issue. 3 2 -7- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 above in note 2, if participants and beneficiaries have assigned to ACS member physicians the right to sue for unpaid Plan compensation, the physicians have independent standing. See Misic, 789 F.2d at 1378. These allegations are sufficiently pled in the Complaint to satisfy the first prong (Doc. 38 at 7-8, 29). Furthermore, ensuring proper compensation for ACS member physicians is germane to ACS' organizational purpose. This allegation is sufficiently pled in the Complaint to satisfy the second prong (Doc. 38 at 7-8). While Defendants would have preferred the Complaint to include more factual details concerning the first and second prongs, as discussed below in Section IV.C.2, such detail is not required at the pleading stage.4 Defendants next argue the requested relief, which includes retrospective monetary damages, causes ACS to fail the third prong of the Hunt test because the determination of money damages will require participation of all ACS member physicians. See Warth v. Seldin, 95 S.Ct. 2197, 2214 (1976) ("[T]o obtain relief in damages, each member of [Plaintiff Association] who claims injury as a result of respondents' practices m[u]st be a party to the suit, and [Plaintiff Association] has no standing to claim damages on his behalf.") (emphasis added). To the extent ACS is seeking monetary damages, Defendants are correct. However, ACS is also seeking equitable relief, that is, a declaration or injunction requiring Defendants to pay benefits according to the terms of the Plans (Docs. 38 at 46-48; 112 at 33). The participation of ACS membership will not likely be necessary to implement these requested remedies. See Id. at 2213-14 ("If in a proper case the association seeks a declaration, injunction, or some other form of prospective relief, it can reasonably be supposed that the Defendants argue the Complaint's simple statement affirming the germaneness of this action to ACS' organizational purpose, without more, is insufficient to satisfy the second prong (Doc. 110 at 33). See Helmet Law Def. League v. Cal. Highway Patrol, 122 F.3d 1071, 2007 WL 547956, *1-2 (9th Cir. 1997). Even if the Court were to consider Helmet Law Def. League, despite its status as an eleven-year-old unpublished opinion, the decision's persuasive appeal is not great, given the short and unreasoned paragraph analyzing the contested issue. The relationship of ACS' organizational purpose to the subject of the action is obvious, even if not spelled out with great detail in the Complaint. 4 -8- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 remedy, if granted, will inure to the benefit of those members of the association actually injured" and not require "individualized proof").5 Defendants further argue ACS' claim fails the third prong because ACS must prove each member physician has in fact received an assignment from a Plan participant or beneficiary and thus cannot prevail without "the participation of individual members in the lawsuit." Hunt, 97 S.Ct. at 2441; see also Misic, 789 F.2d at 1378. Although Defendants cite an unpublished, out-of-circuit case to support this position, it is directly on point and persuasive. See Am. Med. Ass'n v. United HealthCare Corp., 2007 WL 1771498, *22 (S.D.N.Y. 2007) ("[T]he Medical Association Plaintiffs must still show receipt of valid assignments to proceed in their ERISA claims . . .because to make such showings [Plaintiffs] would be forced to rely on participation by their members, the Court finds that [Plaintiffs] fail the third prong of the Hunt test"). Plaintiffs respond that individualized proof will not be required because all necessary evidence to prove assignment is in the control of Defendants, will be the subject of discovery in this litigation, and need not involve participation by all ACS members (Doc. 112 at 35). The Complaint alleges the same (Doc. 38 at 8). Plaintiffs' ability to obtain the necessary evidence of assignment without involving every ACS member is questionable. However, Rule 12 (b)(6) requires all reasonable factual inferences to be interpreted in Plaintiffs' favor. See Lazy Y Ranch Ltd., 546 F.3d at 588. (When adjudicating a Rule 12(b)(6) motion, "allegations in the complaint . . are accepted as true and construed in the light most favorable to the plaintiff."); see also Pa. Psychiatric Cf. Lake Mohave Boat Owners Ass'n v. Nat'l Park Serv., 78 F.3d 1360, 1367 (9th Cir. 1995) (denying an association plaintiff standing in a suit for collection of equitable restitution on behalf of association members, because "whatever injury may have been suffered is peculiar to the individual member concerned, and . . . would require individualized proof."); Harris v. McRae, 100 S.Ct. 2671, 2690 (1980) (applying same logic to deny standing to an association plaintiff seeking injunctive relief pursuant to the free exercise clause, because each group member's particular religious beliefs would be different and require a unique remedy). 5 -9- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Soc'y. v. Green Spring Health Serv.'s, Inc., 280 F.3d 278, 286-87 (3d Cir. 2002) (upholding an association's standing against a Rule 12(b)(6) motion, despite questions concerning plaintiff's ability in fact to maintain standing without involving all association members, because facts must be interpreted in plaintiff's favor). Furthermore, the threshold for satisfying the third prong of Hunt is not high, requiring Plaintiffs to show only that "participation by each allegedly injured party would not be necessary." Hosp. Council of W. Pa. v. City of Pittsburgh, 949 F.2d 83, 90 (3d Cir. 1991) (citing Warth, 95 S. Ct. at 221112) (emphasis added); accord Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584, 601-02 (7th Cir. 1993). Thus, even if ACS' claim required participation of most association members, the third prong would be satisfied as long as the participation of each member is not required. Accordingly, ACS' standing will be upheld. 2. ACS' Third-Party Standing Because ACS' association standing will be upheld, the challenge to ACS' third-party standing will not be reached. 3. Spinedex's Derivative Standing According to Plaintiffs, Spinedex may assert standing on behalf of its patients who are Plan participants or beneficiaries and assigned to Spinedex the right to collect wrongfully denied Plan compensation. Defendants respond that six of the Plan policies contain nonassignment clauses and thus Spinedex cannot sue for compensation originating from the six Plans (Doc. 110 at 34-35).6 See Davidowitz v. Delta Dental Plan of Cal., Inc., 946 F.2d 1476, 1480-81 (9th Cir. 1991) (non-assignment clauses are enforceable under ERISA and will preclude assignment of Plan rights). In support, Defendants have submitted six Plan policy documents with the Motion To Dismiss. Because the Complaint depends upon the Defendants contend Spinedex may only participate in the present action via derivative standing. Plaintiffs do not contest this issue. 6 - 10 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 construction of these documents to establish Spinedex's standing, they may be considered (Doc. 38 at 22-23, 29). See Lazy Y Ranch Ltd, 546 F.3d at 588 (When adjudicating a motion to dismiss, a court "need not accept as true allegations contradicting documents that are referenced in the complaint"); Knievel, 393 F.3d at 1076 (Consideration of materials incorporated by reference in the complaint is permitted when "plaintiff's claim depends on the contents of a document, the defendant attaches the document to its motion to dismiss, and the parties do not dispute the authenticity of the document."). The policy documents are authenticated with an affidavit from Defense counsel and Plaintiffs have not properly objected to their authenticity (Doc. 104). Five of the six non-assignment clauses contain broad exceptions. See Doc. 104 Ex. U at 47 ("You may not assign your Benefits under the Plan to a non-Network provider without our consent) (emphasis added); Ex. O 2002 Amendment at 14 (same); Ex. N 2002 Amendment at 14 (same); Ex. T 2002 Amendment (same); Ex. V at 5 ("Except as expressly authorized by this Program or as required to comply with the legally applicable provisions of a Qualified Medical Child Support Order . . . benefits, claims, coverage or other interests in the Program may not be assigned . . .") (emphasis added). Whether the above exceptions apply to the disputed Spinedex assignments is a question of fact not addressed by the Motion To Dismiss. Only one of the six non-assignment clauses is unconditional: "[Y]ou cannot sell, transfer, or assign the value of your benefit under the Plan;" "Reimbursement of the scheduled amount for covered services is made to the covered participant and is not assignable to the provider" (Doc. 104 Ex. L at 82, 50). In this way, Defendants only show that Spinedex cannot pursue claims on behalf of Plan participants or beneficiaries in the Honeywell International, Inc. Group Health Plan (Doc. 104 Ex. L). Plaintiffs respond that Defendants' argument fails because it involves a question of evidentiary proof inappropriate on a motion to dismiss (Doc. 112 at 35). However, extrinsic evidence, if properly submitted, may be considered on a motion to dismiss. See Lazy Y Ranch Ltd, 546 F.3d at 588; Knievel, 393 F.3d at 1076. Plaintiffs next argue Defendants - 11 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 may have submitted the incorrect plan documents (Doc. 112 at 35). The Response provides no evidence to support this argument. Lastly, Plaintiffs argue the Defendants' inconsistent administration of the Honeywell Group Health Plan negates the non-assignment clause (Doc. 112 at 35). Yet, Plaintiffs' cited law, a section from the Code of Federal Regulations, does not support the argument. See 29 C.F.R. 2560.503-1(b)(5).7 Accordingly, Spinedex has no standing to assert claims on behalf of participants or beneficiaries in the Honeywell Group Health Plan. Spinedex and ACS otherwise have standing. C. Factual Challenges 1. Plan Defendants Defendants contend the Complaint "does not describe any conduct in which the Plan Defendants engaged" and thus allegations against the Plan Defendants should be dismissed for failure to state a claim (Doc. 110 at 6). See Bell Atl. Corp., 127 S.Ct. at 1955. The Court agrees and the Plan Defendants will be dismissed. Plaintiffs are suing the Plan Defendants to recover improperly denied health care benefits and clarify prospective rights under the Plans (Doc. 38 at 44-45). See 29 U.S.C. 1132(a)(1)(B); Everhart, 275 F.3d at 754 (an employee welfare benefit plan is a proper defendant in a 1132(a)(1)(B) action). Yet the Complaint does not ascribe any act or commission to the Plan Defendants. Plaintiffs attempt to remedy this omission by arguing for the Plan Defendants to be held liable for the actions of the United Defendants because "[a] plan acts through its fiduciaries" (Doc. 112 at 5). Plaintiffs are correct that employee The cited regulatory provision merely says: "The claims procedures for a plan will be deemed to be reasonable only if [t]he claims procedures contain administrative processes and safeguards designed to ensure and to verify that benefit claim determinations are made in accordance with governing plan documents and that, where appropriate, the plan provisions have been applied consistently with respect to similarly situated claimants." 29 C.F.R. 2560.503-1(b)(5). 7 - 12 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 welfare benefit plans generally act through fiduciaries or administrators (Doc. 112 at 5). However, Plaintiffs cite no authority for the position that a plan is vicariously liable for the acts of a fiduciary or administrator. To the contrary, if a plan administrator is solely responsible for a 1132(a)(1)(B) violation, the plaintiff must sue the administrator for redress, not the plan, to receive damages from the responsible party and prevent future violations. See Jayne E. Zanglein & Susan J. Stabile, ERISA Litigation 7.III.A at 207 (2005 ed.) ("[M]ost courts have held that, to be sued under Section [1132](a)(1)(B), the person must have some control over plan administration."); Garren v. John Hancock Mut. Life Ins. Co., 114 F.3d 186, 187 (11th Cir. 1997) ("The proper party defendant in an action concerning ERISA benefits is the party that controls administration of the plan."); Everhart, 275 F.3d at 754 (citing Garren with approval). Because Plaintiffs allege not a single act committed by the Plan Defendants, the proper subject of the 1132(a)(1)(B) claim is the United Defendants, the parties which committed all the allegedly wrongful actions and which Plaintiffs claim are liable as administrators of the Plans. To adopt Plaintiffs' theory of vicarious liability would serve only to expose the Plan Defendants to liability for acts in which they did not participate and punish blameless parties. Plaintiffs' claim against the Plan Defendants will thus be dismissed. 2. United Defendants Defendants also contend Plaintiffs fail to state a claim against the United Defendants, per Bell Atlantic (Doc. 110 at 7-11). See 127 S.Ct. at 1955. Defendants argue "Plaintiffs improperly conflate the various defendants" and fail to offer allegations pertaining to each United Defendant in its individual capacity (Doc. 110 at 8). The argument is without merit. The Complaint lays out facts in sufficient detail to establish the United Defendants' status as fiduciaries and administrators of the Plans as well as corresponding breaches of duty owed to Plaintiffs by each United Defendant, usually all - 13 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 five. Although Defendants are correct that the allegations generally do not distinguish between the five United Defendants, this failure is not fatal. According to the Complaint, the United Defendants are connected through a complex series of corporate relationships linking each to the other as parent, subsidiary or affiliate relationships which Plaintiffs have yet to fully disentangle (Docs. 38 at 10-12; 112 at 10-11; 116 Ex. E). Yet, the Complaint is sufficient to "give the defendant[s] fair notice of what [each] ... claim is and the grounds upon which it rests." Erickson, 127 S.Ct. at 2200 (internal citation omitted). To demand that Plaintiffs parse through the complex corporate web uniting the United Defendants would effectively require a "heightened fact pleading of specifics" and "detailed factual allegations," both of which Bell Atlantic rejected. 127 S.Ct. at 1964-65, 1974. Defendants further argue "Plaintiffs' failure to provide even the most basic information as to the timing of the events from which their claims arise improperly hinders the Defendants' ability to discern whether Plaintiffs' claims may be barred by a limitations period," suggesting the omission renders the Complaint fatally defective (Doc. 110 at 11). The Court does not agree. The Complaint includes a satisfactory date range the " six years prior to March 7, 2008 " (Doc. 38 at 29). Plaintiffs are not required to plead dates with sufficient detail to assist Defendants with an affirmative defense. See Fed. R. Civ. P. 8(c) (placing the burden of raising an affirmative defense on the defendant); U.S. v. McGee, 993 F.2d 184, 187 (9th Cir. 1993) (A plaintiff "is not required to plead on the subject of an anticipated affirmative defense."). Even if the pled date range leaves Defendants unsure as to whether the statute of limitations applies, Defendants need only raise the defense in the most summary manner to preserve it. See Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th Cir. 1979) (requiring a minimal statement in the answer to preserve an affirmative defense). In this way, Defendants' Bell Atlantic challenge seeking to dismiss the United Defendants fails. - 14 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 D. Legal Challenges 1. Count I Breach of Fiduciary Duty a. Plaintiffs' Causes of Action Count I alleges the United Defendants are administrators and fiduciaries of the Plans and breached the duty to administer the Plans "solely in the interest of the participants and beneficiaries." 29 U.S.C. 1104(a)(1), ERISA 404(a)(1). Three categories of fiduciary breach are asserted: (1) failure to properly determine Plan participants' and beneficiaries' benefits claims (Doc. 38 at 112-16), (2) failure to provide Plan participants and beneficiaries with requested information (Doc. 38 at 118), and (3) improper delegation of Plan administrative duties (Doc. 138 at 117).8 Title 29 U.S.C. 1109(a), ERISA 409(a), establishes liability and damages: Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. Title 29 U.S.C. 1132(a)(2), ERISA 503(a)(2) establishes the cause of action: "A civil action may be brought . . . by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title." Title 29 U.S.C. 1132(a)(3), ERISA 503(a)(3) provides an alternative cause of action: "A civil action may be brought . . . by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this Plaintiffs specifically contend the United Defendants did not administer the Plans "for the exclusive purpose of: providing benefits to participants and their beneficiaries; and defraying reasonable expenses of administering the plan . . . with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims . . . [and] in accordance with the documents and instruments governing the plan . . . " 29 U.S.C. 1104(a)(1)(A)-(B), (D). 8 - 15 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 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" (Doc. 112 at 17-18). Count I alleges causes of action under 1132(a)(2)-(a)(3). b. Motion to Dismiss The breach of fiduciary duty claim is challenged on three grounds. First, Defendants argue none of the factual allegations pled by Plaintiffs, that is factual allegations (1)-(3) above, implicate a fiduciary duty contemplated by 1104 (Docs. 110 at 12-13, 15; 123 at 6-7). Second, Defendants argue 1132(a)(2)-(a)(3) are improper causes of action because Plaintiffs may only sue under 1132(a)(2)-(3) if no other subsection of 1132 applies to the factual allegations and, according to Defendants, other subsections of 1132 are applicable (Docs. 110 at 13-15; 123 at 4-5). Third, Defendants argue in the alternative 1132(a)(2) is an improper cause of action because it requires Plaintiffs to plead harm to a Plan itself and the factual allegations only plead harm to Plan participants and beneficiaries (Doc. 123 at 5-6). i. Fiduciary Duty Challenge Defendants first argue claims determination is not a fiduciary duty contemplated in 1104, but rather is an administrative duty, citing ERISA's distinction of fiduciary duties from claims administration duties (Doc. 123 at 6). See Mass. Mut. Life Ins. Co. v. Russell, 105 S. Ct. 3085, 3090-91 (1985) (noting the statutory division between fiduciary duties, 29 U.S.C. 1101-1114, and claims administration duties, 29 U.S.C. 1132(a)-1133). In support, Defendants also cite Jebian v. Hewlett-Packard Co. Employee Benefits Org. Income Prot. Plan, 349 F.3d 1098, 1105 (9th Cir. 2003) and Blau v. Del Monte Corp., 748 F.2d 1349, 1353 (9th Cir. 1985). Yet, Massachusetts Mutual recognizes "a plan administrator's refusal to pay contractually authorized benefits,"if "willful and part of a larger systematic" design, could constitute a "breach of fiduciary obligations." 105 S. Ct. at 3092; see also Metro. Life Ins. Co. v. Glenn, 128 S.Ct. 2343, 2350 (2008) (ERISA "sets forth a special standard of care - 16 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 upon a plan administrator, namely, that the administrator `discharge [its] duties' in respect to discretionary claims processing `solely in the interests of the participants and beneficiaries' of the plan") (citing 29 U.S.C. 1104(a)(1)); 29 C.F.R. 2509.75-8 (describing "the final authority to authorize or disallow benefit payments in cases where a dispute exists as to the interpretation of plan provisions" as a fiduciary responsibility).9 Jebian and Blau are distinguishable, as they hold an individual's claim to wrongfully denied benefits does not implicate a fiduciary duty, while Plaintiffs' fiduciary duty claim alleges a systematic failure to properly determine benefits, as described in Massachusetts Mutual. Accordingly, Plaintiffs' allegations of improper claims determination implicate an ERISA fiduciary duty. Defendants next argue the United Defendants' failure to reasonably delegate Plan administration responsibilities to an appropriate third-party does not implicate a fiduciary duty contemplated in 1104. This argument is also unavailing. While Defendants cite no law supporting this position, Plaintiffs do (Doc. 110 at 15). See e.g. Donovan v. Mazzola, 716 F.2d 1226, 1233-34 (9th Cir. 1983) (an employee welfare benefit plan administrator's decision to hire an unqualified consultant to help administer the plan breached a fiduciary duty under 1104(a)); Pilkington PLC v. Perelman, 72 F.3d 1396, 1397-98 (9th Cir. 1995) (plan administrator's delegation of certain benefit disbursement responsibilities to a thirdparty, when guided by improper motivation, breached a fiduciary duty under 1104(a)). Settled law has also determined that a plan administrator's failure to disclose required documents implicates a fiduciary duty contemplated by 1104. See Hughes Salaried Retirees Action Comm. v. Adm'r of Hughes Non-Bargaining Ret. Plan, 72 F.3d 686, 693 (9th Cir. 1995) (en banc) (failure to disclose information is a fiduciary duty covered See also 29 U.S.C. 1104(b), (c) (establishing the Secretary of Labor as the administrator of the ERISA fiduciary responsibility statute by empowering the Secretary to issue interpretive regulations); Chevron U.S.A., Inc., 104 S. Ct. at 2782-83 (requiring judicial deference to an executive agency's plausible interpretation of a statute, if the agency is designated by Congress as the statute's administrator). 9 - 17 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 under 1104(a) if the information "relates to the provision of benefits or the defrayment of expenses"). ii. Challenge to Application of 1132(a)(2)-(3) Defendants next argue 1132(a)(2)-(3) are inappropriate causes of action to seek redress for the alleged breaches of fiduciary duty because 1132(a)(2)-(3) may only be invoked if no other 1132 cause of action is applicable (Docs. 110 at 13-15; 123 at 4-5). With respect to 1132(a)(3), Defendants are correct. The Supreme Court has interpreted this cause of action as a "catchall" provision or "a safety net, offering appropriate equitable relief for injuries caused by violations that [ 1132] does not elsewhere adequately remedy." Varity Corp. v. Howe, 116 S.Ct. 1065, 1078 (1996) (emphasis added). All three of the factual allegations are more appropriate for resolution under different 1132 causes of action and thus cannot be the foundation for the 1132(a)(3) claim. Plaintiffs may more appropriately seek to remedy improperly determined claims via 1132(a)(1)(B), a cause of action "to recover benefits due to [a participant or beneficiary] under the terms of his plan, to enforce [] rights under the terms of the plan, or to clarify [] rights to future benefits under the terms of the plan." 29 U.S.C. 1132(a)(1)(B). See also Johnson v. Buckley, 356 F.3d 1067, 1077-78 (9th Cir. 2004) ("[W]hen relief is available under section 1132(a)(1), courts will not allow relief under 1132(a)(3)'s `catch-all provision.'") (quoting Varity, 116 S.Ct. at 1078). As discussed below in Subsection iii, Plaintiffs may also seek redress for improperly determined claims via 1132(a)(2). See Bowles v. Reade, 198 F.3d 752, 759-60 (9th Cir. 1999) (applying same logic to prohibit a 1132(a)(3) cause of action that could have been brought under 1132(a)(2)). Thus, 1132(a)(3) is inappropriate for the claims determination allegations Plaintiffs may more appropriately seek redress for the alleged failure to disclose information via 1132(c). See 29 U.S.C. 1132(c) (an administrator "who fails or refuses to comply with a request for any information which such administrator is required by this - 18 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 subchapter to furnish to a participant or beneficiary . . . may in the court's discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper."). Lastly, as discussed below in Subsection iii, Plaintiffs may seek redress for the improper delegation of Plan administrative duties under 1132(a)(2). See Bowles, 198 F.3d at 759-60. Plaintiffs respond that Federal Rule of Civil Procedure 8(d)(2)-(3) permits raising 1132(a)(3) claims in the alternative (Doc. 112 at 17 n.27). To the extent Plaintiffs' reading of the Federal Rules of Civil Procedure is at odds with Supreme Court and Ninth Circuit interpretations of ERISA, it is not persuasive. The 1132(a)(3) cause of action in Count I will thus be dismissed. Defendants also argue 1132(a)(2) is an inappropriate cause of action for the claims determination and information disclosure allegations, which should be raised under 1132(a)(1)(B) and 1132(c), respectively, because a cause of action under 1132(a)(2) should only be allowed if no other cause of action is available under 1132 (Doc. 123 at 45). Defendants offer no legal support for this position. Section 1132(a)(2) is not a catch-all or safety net provision, but rather is a distinct cause of action designed to redress a breach of fiduciary duty that has harmed a plan. See Cinelli v. Sec. Pac. Corp., 61 F.3d 1437, 1445 (9th Cir. 1995) (section 1132(a)(2), read with its companion section 29 U.S.C. 1109, "only allows recovery for injury to the plan itself," not for injury to a beneficiary or a class of beneficiaries). Accordingly, a plaintiff is permitted to file concurrent claims under 1132(a)(1)(B) and 1132(a)(2), to recover improperly denied benefits owed to the individual through 1132(a)(1)(B) and seek additional redress for harms inflicted upon the plan through 1132(a)(2). Similar logic applies to concurrent suits under 1132(c) and 1132(a)(2), the former designed to remedy harms to an individual wrongfully denied information and the - 19 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 latter designed to remedy harms suffered by the plan as a whole. Thus, Plaintiffs' 1132(a)(2) cause of action will not be dismissed on this ground. iii. Challenge to Application of 1132(a)(2) Defendants, in the alternative, argue Plaintiffs may not seek relief under 1132(a)(2) because the provision requires allegations of harm suffered by a plan and, according to Defendants, the Complaint only alleges harm suffered by a class of individuals, not the Plans (Docs. 110 at 15 n.16; 123 at 5-6). An action under 1132(a)(2) must allege an injury and a remedy corresponding to a plan. See 29 U.S.C. 1132(a)(2) ("A civil action may be brought . . . by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title"); Cinelli, 61 F.3d at 1445 ("We recently clarified that 29 U.S.C. 1109 governing liability for breach of fiduciary obligations under ERISA only allows recovery for injury to the plan itself.") (emphasis added). Suits by individuals or classes of individuals to compel payment of improperly denied claims or adherence to plan obligations do not meet this threshold. See Ford v. MCI Commc'ns Corp. Health and Welfare Plan, 399 F.3d 1076, 1082 (9th Cir. 2005) (an individual is "foreclosed from seeking and receiving an individual remedy for damages under 29 U.S.C. 1109(a) because that type of remedy is not consistent with ERISA's emphasis on the relationship between a fiduciary and the employee benefit plan as a whole.") (internal citation omitted); Cinelli, 61 F.3d at 1445 (same analysis for class actions). However, individuals may sue for breach of fiduciary duty on behalf of a plan if the rights of plan participants and beneficiaries are violated in a willful and systematic way and remedies are sought to redress harms caused to the plan. Mass. Mut. Ins. Co., 3085 S. Ct. at 3092 ("If the plan administrator's refusal to pay contractually authorized benefits had been willful and part of a larger systematic breach of fiduciary obligations," an individual plaintiff may seek appropriate remedies for the benefit of the plan, such as removal of the administrator, "pursuant to [1132(a)(2)] and [1109]."). - 20 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Concerning the United Defendants' alleged failure to disclose required information, Plaintiffs do not sufficiently plead the harm that such failure has inflicted on the Plans and thus this allegation is inappropriate for 1132(a)(2). Cinelli, 61 F.3d at 1445 ("We recently clarified that 29 U.S.C. 1109 governing liability for breach of fiduciary obligations under ERISA only allows recovery for injury to the plan itself."). Plaintiffs' post hoc explanation that "requiring the United Defendants to furnish documents required to be provided under ERISA also benefits the Plans because it allows for more efficient administration of the Plans and the fulfillment of their purpose" is not mentioned in the Complaint and is not persuasive (Doc. 112 at 19). The United Defendants' alleged improper denial of claims and negligent delegation of administrative duties, however, were willful and systematic, as contemplated in Massachusetts Mutual, and thus are appropriate bases for a 1132(a)(2) claim. The Complaint alleges a systematic effort by the United Defendants to improperly delay or deny benefit claims filed by Plan participants and beneficiaries (Doc. 38 at 36-41). The Complaint also alleges United Defendants delegated administration of the Plans' provider compensation rates to a third party with the intent to miscalculate the rates and insufficiently compensate providers for properly performed services (Doc. 38 at 41-42). According to the Complaint, this systematic denial of benefits and undercompensation of providers constitutes a breach of fiduciary duty harmful to the Plans (Doc. 38 at 42-43). Defendants respond that Plaintiffs offer only "conclusory allegation[s]" concerning harms inflicted upon the Plans. (Doc. 110 at 15 n.16). The Court disagrees. Under Plaintiffs' theory, "[m]onies payable as reimbursement for covered health care benefits under an employee welfare benefit plan become plan assets within a reasonable time after the responsible fiduciary knew, or should have known, that" the benefit or compensation was owed to the plan participant or beneficiary (Doc. 38 at 43). Thus, when the United Defendants willfully and systematically failed to disburse benefits rightly payable to Plan participants and beneficiaries, this money became Plan assets and Defendants converted the - 21 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 assets by failing to disburse them as required by the terms of the Plans (Doc. 38 at 42-44). Similarly, when the United Defendants negligently delegated Plan administration responsibilities to a third party that insufficiently compensated Plan service providers, the monies that should have been disbursed to the providers were Plan assets which Defendants converted (Doc. 38 at 42-44). While Plaintiffs' theories of asset transfer between the United Defendants and the Plans and corresponding financial harm suffered by the Plans are novel, they are not conclusory. Because neither party sufficiently briefed the issue and the burden of the motion rests on Defendants, Plaintiff's theories will be allowed to stand until properly argued in future proceedings.10 Furthermore, the requested remedies bolster the argument that Plaintiffs, at least in part, seek to redress harms inflicted upon the Plans. See Horan v. Kaiser Steel Ret. Plan, 947 F.2d 1412, 1417-18 (9th Cir. 1991) (courts distinguish what types of actions implicate harm to a plan from those merely alleging harm to an individual or class of individuals by examining the requested remedy). Here, Plaintiffs seek injunctive relief to prevent the United Defendants from serving as Plan administrators and fiduciaries or, in the alternative, compel them to honor the terms of the Plans (Doc. 38 at 48 10, 11). Such injunctive relief falls squarely within the terms of 1109, implicating both a breach of fiduciary duty and Plaintiffs do offer Ninth Circuit precedent interpreting a different ERISA fiduciary duty provision, 29 U.S.C. 1106, and suggesting a broad definition of what constitutes a plan asset supportive of Plaintiffs' theory that monies properly payable to Plan participants or service providers are Plan assets. See Acosta v. Pac. Enter.'s, 950 F.2d 611, 620 (9th Cir. 1991) ("Appellees argue that the term `assets of the plan' encompasses only financial contributions received by the plan administrators. We decline to cabin the term in such a restricted definition. Congress' imposition of a broad duty of loyalty upon fiduciaries of employee benefit plans counsels a more functional approach."); Kayes v. Pac. Lumber Co., 51 F.3d 1449, 1467 (9th Cir. 1995) ("Therefore, in this circuit there is a twofold functional test as to whether an item in question constitutes an `asset of the plan': (1) whether the item in question may be used to the benefit (financial or otherwise) of the fiduciary, and (2) whether such use is at the expense of the plan participants or beneficiaries.") (citing Acosta). At first blush, monies designated as payments to Plan participants, beneficiaries, or service providers and wrongfully held by a Plan administrator/fiduciary would seem to benefit the fiduciary at the expense of Plan participants or beneficiaries, as required in Acosta and Kayes, and constitute a Plan asset, which may be converted. 10 - 22 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 harm to the Plans. See 29 U.S.C. 1109(a) (an ERISA fiduciary in breach "shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary" to remedy the breach's impact on the plan). Defendants, citing Cinelli, respond that the allegations and causes of action "impermissibly conflate[] harm to plan participants with harm to the plan itself" (Doc. 123 at 6). 61 F.3d at 1445. Cinelli is distinguishable. The plaintiffs in Cinelli clearly sought a remedy pertaining only to individual plan participants or beneficiaries and not to the plan itself. See 61 F.3d at 1440 (plaintiff class sought benefits from improperly terminated life insurance plan); see also e.g. Huntsinger v. Shaw Group, Inc., 410 F. Supp. 2d 968, 97475 (D. Or. 2006) (desired redress for ERISA fiduciary breach, although characterized as restitution to the plan, was improper because the remedy was actually individual compensation for improperly denied benefits); Ehrman v. Standard Ins. Co., 2007 WL 1288465, *2 (N.D.Cal. 2007) (plaintiff's conclusory claim that the desired remedy would benefit the plan as a whole was undermined by the nature of the remedy compensation for underpayment of benefits to plan participants and beneficiaries). Here, Plaintiffs have described a reasonable theory through which the United Defendants' actions have harmed the Plans and seek remedies which clearly will benefit the Plans. Cinelli is inapplicable. In this way, the allegations concerning improper claims determinations and delegation of plan administrative duties are appropriate subjects for an action under 1132(a)(2). c. Conclusion Accordingly, a 1132(a)(2) cause of action alleging the improper determination of Plan benefit claims has been properly pled (Doc. 38 at 112-16). A 1132(a)(2) cause of action alleging the improper delegation of Plan administration duties has also been properly pled (Doc. 138 at 117). Plaintiffs have failed to properly plead either a breach of fiduciary duty cause of action under 1132(a)(3) or a 1132(a)(2) cause of action alleging failure to disclose requested information (Doc. 138 at 117). - 23 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2. Count II Prohibited Fiduciary Transactions a. Causes of Action Count II recasts the allegations of improper claims determination and delegation of Plan administrative duties as prohibited fiduciary transactions under 29 U.S.C. 1106, ERISA 406. With respect to claims determination, Plaintiffs argue (1) the United Defendants systematically and willfully failed to pay Plan participants' and beneficiaries' claims; (2) the withheld funds were Plan assets; and (3) Defendants illegally loaned, transferred or retained these assets, all of which are prohibited transactions under 1106 (Doc. 38 at 43). See 29 U.S.C. 1106(a)(1)(B), (a)(1)(D), (b)(1). With respect to the delegation of Plan administrative duties, Plaintiffs claim Defendants delegated the calculation of provider compensation rates to a third party for the improper purpose of underpaying the providers and generating revenue for Defendants (Doc. 38 at 43-44). According to Plaintiffs, the delegation constituted a "transaction involving the plan on behalf of a party . . . whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries" and thus was a prohibited transaction under 29 U.S.C. 1106(b)(2). Plaintiffs also claim the United Defendants are liable for the prohibited transactions as co-fiduciaries under 29 U.S.C. 1105, ERISA 405 (Doc. 38 at 44). b. Motion to Dismiss i. Section 1106 Claims Defendants argue "Plaintiffs here have not alleged any transactions prohibited by ERISA 406 [ 1106]" (Doc. 110 at 17). According to Defendants, the Supreme Court and Ninth Circuit have narrowly defined what constitutes a prohibited transaction and the allegations of flawed benefits determinations and provider compensation do not meet this definition (Doc. 110 at 16-17). See Lockheed Corp. v. Spink, 116 S.Ct. 1783 (1996); Wright v. Or. Metallurgical Corp., 360 F.3d 1090 (9th Cir. 2004). Plaintiffs, distinguishing - 24 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Lockheed and Wright, respond that the Ninth Circuit's expansive definition of plan asset under 1106, as well as ERISA's broad remedial purpose, allows application of 1106 to the factual allegations (Doc. 112 at 20-24). Neither Lockheed nor Wright specifically excludes all transactions involving benefits determinations and provider compensation from the scope of 1106, as argued by Defendants. See Lockheed, 116 S. Ct. 1791 (describing 1106(a)(1) prohibited transactions generally as "commercial bargains that present a special risk of plan underfunding because they are struck with plan insiders, presumably not at arm's length"); Wright, 360 F.3d at 1101 (similar description of prohibited transactions under 1106(b)). While Lockheed holds a fiduciary's payment of benefits pursuant to the terms of a plan may not constitute a prohibited transaction, it is silent as to whether improper benefits determinations or provider compensation, under different factual circumstances, could implicate a 1106 prohibited transaction. See 116 S. Ct. at 1792 ("In short, whatever the precise boundaries of the prohibition in [ 1106(a)(1)(D)], there is one use of plan assets that it cannot logically encompass: a quid pro quo between the employer and plan participants in which the plan pays out benefits to the participants pursuant to its terms."). Wright is also silent on the question of transactions involving benefits determinations or provider compensation and simply holds a fiduciary's decision to lawfully maintain plan assets in a particular investment is not a prohibited transaction. See 360 F.3d at 1101. While Defendants cite non-binding precedent which exclude all transactions involving benefits determinations and provider compensation from the scope of 1106, these cases are short on justification and not persuasive.11 Defendants cite Francia v. Wonderoast, Inc. Profit Sharing Plan No. 001, 1995 WL 625705, *14 (W.D.N.Y. 1995) and Andersen v. Chrysler Corp., 99 F.3d 846, 850 (7th Cir. 1996) for the position that denial of benefits cannot constitute a prohibited transaction under 1106 (Docs. 110 at 17 n. 17; 123 at 7 n.12). However, both courts' justifications for the cited legal conclusion amount to little more than ipse dixit logic and fail to convince the Court as to the propriety of the holdings. Defendants also cite Am. Med. Ass'n v. United Healthcare Corp., 2002 WL 31413668, *10-11 (S.D.N.Y. 2002) for the position that improper determination of provider compensation rates 11 - 25 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Given 1106's remedial design and Congress' intent for ERISA to afford robust protection to plan participants and beneficiaries, 1106 must be read broadly. See Leigh v. Engle, 727 F.2d 113, 126 (7th Cir. 1984) ("[W]e believe that the protective provisions of [ 1106(a)(1)(D)] and (b)(1) should be read broadly in light of Congress' concern with the welfare of plan beneficiaries. We read those provisions dealing with the use of plan assets for the benefit of `parties in interest' and plan fiduciaries as a gloss on the duty of loyalty required by [29 U.S.C. 1104]."); Acosta v. Pac. Enter.'s, 950 F.2d 611, 620 (9th Cir. 1991) ("In light of Congress' overriding concern with the protection of plan participants and beneficiaries, courts have generally construed the protective provisions of [ 1106(b)] broadly.") (citing Leigh with approval). Under the Leigh and Acosta rubric, Plaintiffs effectively plead the alleged facts into 1106's prohibited transaction requirements. Plaintiffs' characterization of improper benefits determinations and provider compensation as loans, transfers, or retention of Plan assets is far from obvious. Yet, Plaintiffs provide legal support for the position that improperly withheld claims and provider compensation are Plan assets and, from there, adequately allege the United Defendants loaned, transferred, or retained these assets in contravention of 1106 (Doc. 38 at 43-44). See supra note 10. Although Plaintiffs' use of 1106 may be novel, Defendants have not met the burden of demonstrating this application of 1106 runs so contrary to established law that Plaintiffs have failed to state a claim. Thus, the 1106 claim will be sustained.12 cannot constitute a prohibited transaction (Doc. 110 at 17). This holding is unpersuasive because it is rooted in Second Circuit precedent construing 1106 very narrowly, which the Ninth Circuit has not adopted. Defendants also argue Plaintiffs' 1106 allegations are deficient because they do not allege harm to any of the Plans (Doc. 112 at 17 n.18; 123 at 8 n.14). While Defendants may or may not be correct, the argument relies on factual details concerning how each Plan collects contributions and disburses benefits i.e. whether the Plans are self-funded or fully-insured. These facts are not mentioned in the Complaint, nor do Defendants support the argument with citation to another appropriate factual source. This argument must be saved until motion for summary judgment. 12 - 26 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii. Section 1105 Claim Defendants' first argument for dismissing the 1105 claim simply repeats the same Bell Atlantic argument previously rejected above in Section IV.C.2, that the Complaint "improperly lumps together several distinct entities without alleging any specific acts by most of them tied to the administration or management of the benefit plan at issue" (Doc. 110 at 18). Defendants' second argument is: "Plaintiffs fail[ed] to allege that any of the United Defendants had knowledge of another fiduciary's breach, knowingly participated in or concealed a breach by some other United Defendant, or enabled such a breach by an active failure to comply with its own fiduciary obligations under the plan," as required by 1105(a) (Doc. 110 at 18). As mentioned above in Section IV.C.2, Plaintiffs are still sorting through the complex affiliations linking the United Defendants. Plaintiffs have sufficiently pled facts implicating the five United Defendants and put each on notice concerning potential exposure to fiduciary liability. To require Plaintiffs to plead as Defendants suggest, fleshing out the specific relationships between each Defendant and differentiating those which actually breached a fiduciary duty from those which were merely complicit in the breaches, would effectively require a "heightened fact pleading of specifics" and "detailed factual allegations," both of which Bell Atlantic rejected. 127 S.Ct. at 1964-65, 1974. 3. Count III Knowing Participant Liability Count III seeks equitable relief against any United Defendant which is determined not to be a Plan fiduciary but which was complicit in the other Defendants' fiduciary breach(es) (Docs. 38 at 44; 112 at 24-25). See 29 U.S.C. 1132(a)(3), ERISA 503(a)(3) ("A civil action may be brought . . . by a participant, beneficiary, or fiduciary (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"). Defendants move to dismiss Count III because a plaintiff may only seek relief under 1132(a)(3) when no other - 27 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1132 cause of action is available and, according to Defendants, Count III may be pled under a different subsection of 1132 (Doc. 110 at 19-20). Defendants also challenge Count III for failing to seek equitable relief, as required by the statute (Doc. 110 at 20). As mentioned above, 1132(a)(3) is a "catchall" provision or "a safety net, offering appropriate equitable relief for injuries caused by violations that [ 1132] does not elsewhere adequately remedy." Varity, 116 S.Ct. at 1078. Count III satisfies Varity because Plaintiffs are employing 1132(a)(3) to seek relief in the alternative against any non-fiduciary United Defendant which knowingly participated in a fiduciary breach and against which no other cause of action is available (Doc. 112 at 24-25). See Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 120 S.Ct. 2180, 2189-91 (2000) (Section 1132(a)(3) cause of action is appropriate to prevent a non-fiduciary from benefitting from a fiduciary's breach). However, 1132(a)(3) also requires Plaintiffs to plead equitable relief, a requirement which is not satisfied and the lack of which is fatal to Count III. See 29 U.S.C. 1132(a)(3) ("A civil action may be brought . . .(A) to enjoin any act or practice . . . or (B) to obtain other appropriate equitable relief"). Plaintiffs argue the Complaint's request for disgorgement of ill-gotten profits and a constructive trust satisfies 1132(a)(3)'s equitable relief requirement (Docs. 38 at 3, 7; 112 at 25). However, "disgorgement of ill-gotten profits" and "constructive trust" are not talismanic phrases which, without more, constitute equitable relief. The Supreme Court's jurisprudence has been clear: "for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession." Great-West Life & Annuity Ins. Co. v. Knudson, 122 S.Ct. 708, 714-15 (2002) (emphasis added); accord Peralta v. Hispanic Bus., Inc., 419 F.3d 1064, 1075 (9th Cir. 2005). The Complaint fails to identify any specific fund or property held by one of the United Defendants that rightfully belongs to Plaintiffs or the Plans. See Bast v. Prudential Ins. Co. of Am., 150 F.3d 1003, 1011 (9th Cir. 1998) (rejecting a 1132(a)(3) claim, despite a request to impose a constructive trust on ill-gotten profits, - 28 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 because the claimant did not refer to "an identifiable portion of the beneficiaries' pension plans [that] had been improperly taken"). Even a liberal reading of the Complaint only alleges the United Defendants improperly disposed of Plan assets which have since become part of one of the Defendant's, or a third party's, general funds. Nowhere do Plaintiffs mention any specific and identifiable set of assets upon which a proper constructive trust could be imposed.13 Plaintiffs further argue "fiduciary debarment" is an equitable remedy which will satisfy 1132(a)(3) (Doc. 112 at 25). Yet, Plaintiffs forget that Count III applies only to non-fiduciaries, otherwise a 1132(a)(2) breach of fiduciary duty claim would be the proper cause of action, and it defies logic to argue that debarment of a fiduciary is an appropriate equitable remedy to redress a wrong committed by a non-fiduciary. Plaintiffs also suggest the requests to "[e]njoin the United Defendants from continuing to deny coverage under the Plans For Decompression Therapy in violation of ERISA," "[d]eclare that Decompression Therapy is a covered benefit under the Plans," and "[e]njoin the United Defendants from any further violations of ERISA" are equitable remedies that satisfy 1132(a)(3) (Docs. 38 at 4748 4-5, 10; 112 at

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