ILWU-PMA Welfare Plan Board of Trustees et al v. Connecticut General Life Insurance Company et al

Filing 60

ORDER GRANTING PLAINTIFFS MOTION FOR LEAVE TO FILE A SECOND AMENDED COMPLAINT by Hon. William Alsup granting 55 Motion for Leave to File.(whalc1, COURT STAFF) (Filed on 2/11/2016)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California

United States District Court

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ILWU-PMA WELFARE PLAN BOARD
OF TRUSTEES and ILWU-PMA
WELFARE PLAN,

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No. C 15-02965 WHA

Plaintiffs,
v.

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CONNECTICUT GENERAL LIFE INS.
COMPANY, GREAT-WEST LIFE &
ANNUITY INSURANCE COMPANY,
and CAREWISE HEALTH, INC., f/k/a
SHPS Health Management Solutions, Inc.,

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Defendants.

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/

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ORDER GRANTING
PLAINTIFFS’ MOTION FOR
LEAVE TO FILE A SECOND
AMENDED COMPLAINT

INTRODUCTION
In this action for breaches of various duties relating to the administration of an ERISA

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employee welfare benefit plan, an order granted in part and denied in part defendants’ motion to

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dismiss. Plaintiffs now seek leave to file a second amended complaint. For the reasons stated

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below, plaintiffs’ motion is GRANTED.

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STATEMENT
The facts of this case have been detailed in a prior order (Dkt. No. 53). Briefly, plaintiff

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ILWU-PMA Welfare Plan is an “employee welfare benefit plan” and a “multi-employer plan,”

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as defined by the Employee Retirement Income Security Act of 1974, and plaintiff ILWU-PMA

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Welfare Plan Board of Trustees is the “named fiduciary and plan administrator” of the Plan
(Amd. Compl. ¶¶ 4–5).

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This matter concerns plaintiffs’ relationship with certain third-party vendors that

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provided services that assisted plaintiffs in administering a healthcare indemnity program on

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behalf of the Plan’s members. Specifically, defendant Carewise Health, Inc., negotiated

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discounts on fees from out-of-network healthcare providers, and defendants Great-West Life &

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Annuity Insurance Company and Connecticut General Life Insurance Company processed and

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paid members’ claims under the indemnity program according to a scheme for reimbursement

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developed by the Plan. The instant motion only relates to plaintiffs’ agreement with

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Connecticut General. Plaintiffs allege that Connecticut General disregarded the scheme for

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claims processing established by the Plan and failed to properly maintain records of the
processed claims, among other contractual breaches.

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For the Northern District of California

United States District Court

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Plaintiffs commenced this action in June 2015 and filed their first amended complaint in

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September 2015. Defendants each separately moved to dismiss the first amended complaint in

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October 2015. The order on defendants’ motions to dismiss allowed the Board’s claims under

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ERISA, both plaintiffs’ indemnity claims against Great-West and Connecticut General, and

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both plaintiffs’ breach of contract claims against Great-West and Carewise to proceed.

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Plaintiffs’ breach of contract claim against Connecticut General and their negligence and Unfair

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Competition Law claims against all defendants were dismissed although plaintiffs could seek

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leave to amend those claims. All other claims were dismissed without leave to amend.

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Plaintiffs timely sought leave to file a second amended complaint within fourteen days

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of the order on defendants’ motions to dismiss. Plaintiffs only seek leave to amend their claim

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for breach of contract against Connecticut General. This order follows full briefing and oral

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argument.

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ANALYSIS

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“Five factors are taken into account to assess the propriety of a motion for leave to

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amend: bad faith, undue delay, prejudice to the opposing party, futility of amendment, and

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whether the plaintiff has previously amended the complaint. Futility alone can justify the denial

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of a motion to amend.” Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004) (internal

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citation omitted). Connecticut General limits its opposition to plaintiffs’ motion to futility. The
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test for futility is whether the proposed amended complaint would survive a motion to dismiss.

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Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988). In considering a motion for

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leave to amend, all inferences should be drawn in favor of granting the motion. Griggs v. Pace

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American Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999).

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A prior order dismissed plaintiffs’ breach of contract claim against Connecticut General

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because the complaint failed to allege facts that plausibly showed that plaintiffs performed their

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contractual obligations or that their performance was excused — a necessary element of their

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breach of contract claim against Connecticut General. See First Commercial Mortgage Co. v.

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Reece, 89 Cal. App. 4th 731, 745 (2001). Plaintiffs’ proposed second amended complaint

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For the Northern District of California

United States District Court

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includes the following allegation (Second Amd. Compl. ¶ 122):
Notwithstanding [Connecticut General]’s failures and its breach of
its contractual duties under the [agreement] the Plan and the Board
performed all of their material obligations under the [agreement].
In particular, the Plan and the Board established the necessary
banking arrangements, made all necessary payments to
[Connecticut General], handled member enrollment, furnished
information when requested by [Connecticut General], distributed
[summary plan descriptions] to members, and otherwise performed
their obligations. To the extent the Plan and the Board failed to
perform any of their obligations under the [agreement] such failure
to perform was excused by [Connecticut General]’s failures and
breach of its own contractual duties.

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Connecticut General argues that this proposed allegation is inadequate inasmuch as it omits
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certain responsibilities under the agreement, and it offers only the conclusion that plaintiffs’
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performance was excused without alleging facts to support that conclusion. This order holds
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that plaintiffs have adequately pled their breach of contract claim against Connecticut General,
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as now discussed.
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Connecticut General argues that plaintiffs failed to allege that they “retain[ed]
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responsibility for all Plan benefit claims and all expenses incident to the Plan,” a duty created
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by the agreement between the parties (Maddigan Decl., Exh. A § 5.3). Connecticut General
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omits critical language from that provision of its agreement with plaintiffs. The excerpted
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sentence actually reads, “[e]xcept as otherwise explicitly provided in this Contract, [plaintiffs]
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shall retain responsibility for all Plan benefit claims and all expenses incident to the Plan”
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(ibid.) (emphasis added). The excluded prefatory clause is critical, because the agreement in
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fact required Connecticut General to undertake the bulk of the responsibility for claims

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adjudication, the derogation of which forms the basis for plaintiffs’ breach of contract claim

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(Amd. Compl. ¶¶ 20–23).

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Connecticut General also points to language indicating that “[a]ny review by

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[Connecticut General] of a claim or of charges declined is made as a service for [plaintiffs],

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who retain[] the final responsibility for determining [their] liability under the Plan” (id. § 2).

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Connecticut General argues that if plaintiffs had in fact retained “final responsibility,” then it

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could never have acted as a fiduciary. Thus, Connecticut General contends that by proceeding

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with claims for both breach of contract and breach of fiduciary duties under ERISA, plaintiffs
have been forced to plead “alternative factual versions of reality” rather than merely

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For the Northern District of California

United States District Court

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“alternative legal theories,” rendering the legal theory posed in the proposed second amended

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complaint implausible in light of plaintiffs’ claims for breach of fiduciary duties. Connecticut

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General’s argument fails for three reasons.

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First, as it did in its motion to dismiss, Connecticut General ignores that its authority

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over the disposition of plan assets (i.e., the ability to write checks) is a sufficient basis to

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conclude it acted as a de facto fiduciary under ERISA whether or not it possessed or exercised

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discretionary authority over other aspects of plan administration. IT Corp. v. General American

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Life Insurance Co., 107 F.3d 1415, 1421 (9th Cir. 1997). Second, plaintiffs alleged that

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Connecticut General acted to undermine plaintiffs’ authority over plan assets by disregarding

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the established standards for adjudicating claims. Connecticut General’s alleged usurpation of

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plaintiffs’ authority excused any failure by plaintiffs to exercise a duty to retain “final

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responsibility” over the adjudication of claims. Third, it is not apparent from the quoted

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language (or the agreement as a whole) that the parties intended to impose on plaintiffs a duty to

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retain final authority over claims adjudication. At the pleading stage, it is plausible that the

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quoted language retained a “veto power” for plaintiffs over any adjudication made by

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Connecticut General rather than imposing a duty. Indeed, the purpose of the agreement

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between the parties appears to have been to delegate the responsibility for claims adjudication

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to Connecticut General.
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At this stage, plaintiffs’ proposed second amended complaint plausibly alleges that they

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performed their duties under the agreement with Connecticut General or that such performance

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was excused. Accordingly, the proposed amendment would not be futile.

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CONCLUSION

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For the reasons stated above, plaintiffs’ motion for leave to file a second amended

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complaint is GRANTED. There will be no further Rule 12 motions.

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IT IS SO ORDERED.

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Dated: February 11, 2016.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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For the Northern District of California

United States District Court

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