Hannan et al v. Hartford Financial Services Inc. et al
Filing
68
ORDER granting 55 Motion to Dismiss; granting 57 Motion to Dismiss. See attached memorandum of opinion. The Clerk is directed to close this case. ORDER granting 67 Motion to Withdraw as Attorney. Attorney Michael C. Higgins terminated. Signed by Judge Vanessa L. Bryant on 3/29/16. (Shechter, N.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
PATRICK HANNAN, DAWN LEMIEUX,
NICOLE GROOMES, AND PEGGY HORN
on behalf of themselves and others
similarly situated,
Plaintiffs,
v.
THE HARTFORD FINANCIAL SERVICES,
Inc., FAMILY DOLLAR STORES, INC.,
FAMILY DOLLAR STORES INC. GROUP
INSURANCE PLAN & PLAN
ADMINISTRATORS,
Defendants.
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CIVIL ACTION NO.
3:15-CV-0395 (VLB)
March 29, 2016
MEMORANDUM OF DECISION GRANTING DEFENDANTS’ MOTIONS TO DISMISS
PLAINTIFF’S AMENDED COMPLAINT [Dkt. 55, 57]
I.
Introduction
Plaintiffs, who are participants in the Family Dollar Stores Inc. Group
Insurance Plan (“the Plan”), bring this purported class action against Defendants
Family Dollar Stores, Inc. (“Family Dollar”), the Plan and Plan Administrators
(collectively, the “Family Dollar Defendants”) and the Hartford Financial Services,
Inc. (“The Hartford”), alleging four violations of ERISA, 29 U.S.C. § 1104-1106, for
(1) breach of fiduciary duty as to both Defendants (Counts I and II), (2) cofiduciary liability as to both Defendants (Count III), (3) knowing participation in a
breach of fiduciary duty against The Hartford only (Count IV), (4) prohibited
transactions against both Defendants (Count V), and (5) “federal common law
unjust enrichment under ERISA” against the Family Dollar Defendants only
(Count VI).
Factual Background
The following facts and allegations are taken from the Complaint.
Defendant Family Dollar Stores, Inc. operates a chain of discount stores in
various locations, and employs people throughout the United States. [Compl. ¶
13]. Defendant Family Dollar contracted with Defendant Hartford to provide
group life insurance coverage to Family Dollar employees under the Family Dollar
Stores, Inc. Group Insurance Plan (the “Plan”). [Id. ¶¶ 13, 16]. The Plan is an
employee welfare benefit plan under ERISA that offers both basic insurance for
all employees and supplemental life insurance for those employees that elect it.
Compl. ¶¶ 14, 17-18. See 29 U.S.C. § 1002(1).
Family Dollar employees are automatically enrolled in the employer-paid
basic group life insurance policy at no cost to the employee. [Id. ¶ 17]. Family
Dollar also offers employees the opportunity to purchase employee-paid
supplemental life insurance coverage. [Id. ¶ 18]. Plaintiffs allege that Hartford
and Family Dollar acted improperly when they negotiated the premiums for both
the basic and the supplemental life insurance coverage. [Id. ¶ 20]. Specifically,
Plaintiffs allege that Family Dollar negotiated a discount on the basic life
insurance premium paid by Family Dollar; and that the Hartford offset some of
this discount by increasing the supplemental life insurance premium charged to
the Family Dollar employees who purchased supplemental coverage. [Id. ¶¶ 4,
20, 21]. Plaintiffs describe this arrangement as an inappropriate “cross-
subsidization and kickback scheme” that results in “overcharging” the
employees who purchase supplemental coverage” with premiums that were
“higher than called for” by “underwriting and actuarial pricing projections.” [Id.
¶¶ ¶¶ 14, 17-19, 22].
Family Dollar’s Open Enrollment Guide states that “[a]ll full-time Team
Members are automatically enrolled in a basic life insurance plan at no cost to the
Team Member.” [Id. ¶ 17]. The Complaint alleges that this statement was a
misrepresentation because it implied that “Family Dollar pays the entire cost for
the basic group life insurance,” without disclosing “the inflated charges built into
the supplemental life insurance policies in order to subsidize the basic life
insurance.” [Compl. ¶¶4, 45(a)-(f), 59]. Plaintiffs do not allege, however, that they
paid more for supplemental life insurance than Hartford actually charged the Plan
for that coverage. Plaintiffs also do not allege that either Family Dollar or
Hartford ever advertised or marketed the supplemental premiums offered by the
Plan as involving ‘favorable’ or below-market rates. Perhaps most importantly,
Plaintiffs do not allege that Defendants ever represented that Family Dollar paid
the entire cost of the basic life insurance coverage out of its own non-Plan
revenues. The sole allegation in the Complaint is that Defendants represented
that the basic life insurance coverage was “non-contributory” and offered “at no
cost to the participant.” [Id. ¶ 17].
II.
Standard of Review
a. Failure to State a Claim, Fed. R. Civ. P. 12(b)(6)
“‘To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its
face.’” Sarmiento v. U.S., 678 F.3d 147 (2d Cir. 2012) (quoting Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009)). While Rule 8 does not require detailed factual
allegations, “[a] pleading that offers ‘labels and conclusions’ or ‘formulaic
recitation of the elements of a cause of action will not do.’ Nor does a complaint
suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”
Iqbal, 556 U.S. at 678 (citations and internal quotations omitted). “Where a
complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it
‘stops short of the line between possibility and plausibility of ‘entitlement to
relief.’” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). “A
claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. (internal citations omitted).
In considering a motion to dismiss for failure to state a claim, the Court
should follow a “two-pronged approach” to evaluate the sufficiency of the
complaint. Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010). “A court ‘can
choose to begin by identifying pleadings that, because they are no more than
conclusions, are not entitled to the assumption of truth.’” Id. (quoting Iqbal, 556
U.S. at 679). “At the second step, a court should determine whether the ‘wellpleaded factual allegations,’ assumed to be true, ‘plausibly give rise to an
entitlement to relief.’” Id. (quoting Iqbal, 556 U.S. at 679). “The plausibility
standard is not akin to a probability requirement, but it asks for more than a sheer
possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (internal
quotations omitted).
III.
Discussion
A person is a fiduciary with respect to a given ERISA plan only “to the
extent (i) he exercises any discretionary authority or discretionary control
respecting management of such plan or exercises any authority or control
respecting management or disposition of its assets . . . or (iii) he has any
discretionary authority or discretionary responsibility in the administration of
such plan.” 29 U.S.C. § 1002(21)(A).
Defendant Hartford urges dismissal of Count II of the Complaint – alleging
that Hartford breached its fiduciary duties under 29 U.S.C. § 1004 – by first
arguing that it is not a fiduciary with respect to negotiation of the Plan premiums
because “[i]t is well-established that a company that is proposing to provide
services to a plan is not acting as a fiduciary when negotiating the terms of its
contract and its proposed compensation.” [Dkt. 58, Def.’s Mem. at 6, citing F.H.
Krear & Co .v. Nineteen Named Trs., 810 F.2d 1250, 1259 (2d Cir. 1987) (“[w]hen a
person who has no relationship to an ERISA plan is negotiating a contract with
that plan . . . and presumably is unable to exercise any control over the trustees’
decision whether or not, and on what terms, to enter into an agreement with him .
. . [he] is not an ERISA fiduciary with respect to the terms of the agreement for his
compensation”)].
Plaintiffs respond only that the conduct alleged concerns plan
administration, and not negotiation, because “the scheme as a whole is a
prohibited transaction under ERISA,” and that “the matters complained of
occurred after plan formation,” 1 [Pl.’s Opp. Mem. at 5-6], an admission that
immediately appears at odds with a central premise of the Complaint, that
Hartford breached fiduciary duties “by entering into a cross-subsidization
scheme.” [Compl. ¶ 52] (emphasis added). Later, Plaintiffs more directly
concede that “plaintiffs here are not challenging the right of Hartford and Family
Dollar to negotiate premiums, but rather their concealing (sic) the scheme and
making false representations.” [Id. at 10-11]. But regardless of whether Plaintiffs
have conceded the claim, Hartford is correct that with respect to an agreement to
provide a service to an ERISA plan, where a term of the agreement is “bargained
for at arm’s length, adherence to that term is not a breach of fiduciary duty” and
that no discretion is exercised “when an insurer merely adheres to a specific
contract term.” Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 302
F.3d 18, 29 (2d Cir. 2002).
And even if Hartford could be held liable for its role in negotiating the Plan
and its basic and supplemental premium rate structure, the rate structure
described in the Complaint is simply not a rate structure that is prohibited by
1
Plaintiffs also argue that the supplemental life insurance premiums are “plan
assets” as defined by 29 C.F.R. §2510.3-102. To the extent this is an attempt to
argue, without citation to legal authority, that Hartford breached a fiduciary duty
through improper handling of plan assets, such a claim must fail. See United
States v. Glick, 142 F.3d 520, 528 (2d Cir. 1998) (holding that “the mere deduction
of [a service provider’s compensation] from [plan] assets does not, in itself,
create a fiduciary relationship” as between the service provider and the plan).
ERISA or a violation of either Defendant’s fiduciary duties. On the contrary,
another court in this Circuit examined an identical basic/supplemental rate
structure in an ERISA plan and found identical fiduciary duty claims to be entirely
without merit.
In Amantangelo v. Nat’l Grid USA Serv. Co., plaintiffs alleged that their
employer’s life insurance plan offered two options: Plan A, which included
supplemental coverage, and Plan B, which offered a basic level of coverage. No.
04-CV-246S, 2011 WL 3687563 at *1 (W.D.N.Y. Aug. 23, 2011). The Amantangelo
plaintiffs alleged that the employer charged premiums for Plan A supplemental
coverage in excess of what the insurance company charged the employer and
used the excess to offset the employer’s obligation to pay the Plan B premiums.
Id. The Plan B basic coverage was advertised as being provided “at no cost to
you.” Id.
The Amantangelo court flatly rejected plaintiffs’ fiduciary duty claims,
holding that “Defendants did not use Plaintiffs’ payments other than to pay
liabilities under a single [ERISA] plan.” Id. at *7. The court noted that ERISA’s
fiduciary duty provisions are simply “not implicated” where an employer “makes
a decision regarding the form or structure of the Plan[,] such as who is entitled to
receive Plan benefits and in what amounts or how such benefits are calculated.”
Id. at *6, citing Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 444 (1999).
Plaintiffs in Amantangelo appealed to the Second Circuit, which issued a
Summary Order affirming the District Court’s decision. Argay v. Nat’l Grid USA
Serv. Co., 503 F. App’x 40 (2d Cir. 2012). The Second Circuit found that the
employer did not act as a fiduciary “in setting premiums for Plan A participants”
and further found that “none of Plaintiffs’ payments inured to the benefit of
Defendants because they were used to offset Defendants’ total liabilities under a
single welfare plan.”2 Id.
Plaintiffs in the instant case nonetheless urge that Amantangelo can be
distinguished because there “the insurance carrier [which profited frim the sale
of the policies from the scheme] was not a party to the lawsuit.” [Pl.’s Mem. at
13]. This is a distinction the materiality of which the Plaintiff fails to establish. As
noted above, in Harris Trust & Sav. Bank v. John Hancock, supra., the court held
that an insurance company which negotiated the sale of and then sold insurance
to an ERISA plan owed no fiduciary duty to the plan beneficiaries and was not
liable to them for adherence to the terms of an agreement entered into through an
arms-length negotiations. Plaintiffs do not challenge the nature of the
negotiations nor does it specify any other legal duty it claims the Hartford owed
the plan beneficiaries.
Plaintiffs also argue that here, unlike in Amantangelo, it cannot be said that
“all Plaintiffs’ contributions were used to offset Defendants’ total insurance
premium liabilities.” [Pl.’s Mem. at 13] (emphasis added). That line of reasoning
would necessitate both the suspension of logic as well as pure speculation. It
would require this Court to assume, without any factual support, that Hartford is a
philanthropic institution which provides group life insurance products to
2
In regard to the misrepresentation and non-disclosure claims, the court
concluded by stating “[w]e have considered Plaintiffs’ remaining arguments and
find them to be without merit.” 503 F. App’x at 42.
employers gratis. Insurance is a financial product which is structured, offered
and sold by insurance companies for the primary purpose of making a profit.
Even a mutual insurance company, which has no stockholders and is owned
instead by its policyholders, exists to make a profit. In this case, as in
Amantangelo, all of Plaintiffs’ contributions to the Plan were used to offset the
employer’s insurance premium liabilities under the Plan and simultaneously to
generate a profit for the insurance company which supplied the life insurance
policies. The fact that Hartford profits from the relationship and does not allocate
all of Plaintiffs’ premiums to offsetting its liabilities is neither unique nor
improper.
Counts I and II also allege that both Defendants violated fiduciary duties by
misrepresenting or omitting “information . . . that participants who purchased
supplemental group life insurance coverage . . . were being charged excessive
premiums higher than Defendant Hartford considered necessary, so as to provide
a kickback to Family Dollar to lower the amount it paid for basic group life
insurance for all participants.” [Compl. ¶¶ 45(b), 52(c)]. In addition, Counts I and
II also allege that both defendants “falsely” described the basic life insurance
coverage as “non-contributory” and that the supplemental group life insurance
was “surprisingly affordable” because it was “sponsored by Family Dollar at
reduced group rates.” [Compl. ¶¶ 45(d)-(e), 52(e)-(f)].
The Amantangelo court considered an identical omission claim and held
that the defendant employer “did not have a duty to disclose the proportion by
which Plan A and Plan B contributions were paying for Defendants' premium
liabilities under Prudential's group insurance policy.” 2011 WL 3687563 at *9.
The court explained that [t]he affirmative duty to disclose under ERISA is limited
to only a few circumstances” and noted that “[c]ourts in similar contexts have
found that plan administrators are under no obligation to disclose costcontainment mechanisms or financial incentives for cost savings.” Id., citing
Nechis v. Oxford Health Plans, Inc., 421F.3d 96, 102–03 (2d Cir. 2005) (plan
administrators not required to disclose actuarial valuation reports); Weiss v.
CIGNA Healthcare, Inc., 972 F.Supp. 748, 755 (S.D.N.Y.1997) (plan administrators
not required to disclose physician compensation agreements).
Plaintiffs here argue that their misrepresentation claims distinguish the
instant case from Amantangelo, because in that case “there was an absence of a
showing or claim of affirmative misrepresentations regarding the plan.” [Pl.’s
Opp. Mem. at 12]. Plaintiffs accuse the Amantangelo court of “myopically
view[ing] the matter simply as one where the plan sponsor was not obliged to
inform participants of potential plan changes, instead of one where two
fiduciaries were obliged to communicate honestly and fairly about the operation
of the plan.” [Id.]. Plaintiffs cite McConocha v. Blue Cross & Blue Shield of Ohio,
898 F.Supp. 545 (N.D. Ohio 1995), in support of their misrepresentation claims
against Hartford and Family Dollar.
In McConocha, the defendant health insurer represented that policyholders
would be responsible for a 20% co-payment for their medical expenses. 898 F.
Supp. at 547. However, the insurer determined the co-payments based on the
total amount billed by the healthcare providers, rather than the discounted
amount that was actually paid to the providers by the insurer. Id. Thus,
policyholders actually paid well over 20% of the discounted charges ultimately
assessed by the providers. Id. Plaintiffs fail to mention that courts have actually
split on the outcome in so-called “80/20 cases,” with some courts rejecting
claims similar to those alleged in McConocha. See Alves v. Harvard Pilgrim
Health Care, Inc., 294 F. Supp. 2d 198, 211 (D. Mass. 2002) (listing 80/20 cases and
describing different outcomes and reasoning).
More importantly, McConocha is plainly inapposite. The issue in an 80/20
case is whether the insurer has misrepresented the amounts that a policyholder
would be liable to pay under a given plan for future medical expenses. Here,
however, the sole allegation that Plaintiffs can raise is that Hartford and Family
Dollar misrepresented how Plaintiffs’ premiums would be allocated by the plan
sponsor after they were assessed. In short, Plaintiffs impermissibly challenge
“the form or structure of the Plan such as who is entitled to receive Plan benefits
and in what amounts, or how such benefits are calculated.” Hughes Aircraft Co.
v. Jacobson, 525 U.S. 432, 444 (1999).
Further, there simply are no misrepresentations alleged here. 3 See Alves,
294 F. Supp. 2d at 211 (copayment provisions not misleading if they
“unambiguously specify how much a prospective member must pay for future
medications”). There are no allegations in the Complaint which suggest that the
statement that the supplemental plan would be “contributory” and the basic plan
3
Plaintiffs would also have to allege facts showing that the misstatements were
material to a plan participant’s decision about whether to purchase insurance.
See Caputo v. Pfizer, Inc., 267 F.3d 181, 191 (2d. Cir. 2001).
“non-contributory” was false or misleading. Similarly, there are no allegations
that Family Dollar’s statement that supplemental premiums were “surprisingly
affordable” was false or misleading.
The employees in McConocha, were required to pay more absolute dollars
than that which was represented to them because the method of calculating copays was not accurately disclosed. By contrast, the Plaintiffs here were not
required to pay an amount in excess of the amount disclosed. Plaintiffs do not
allege that the premiums they were charged were higher than those which were
quoted. Nor do they allege that they were only allowed to purchase the basic life
insurance benefit unless they also purchased the supplemental life insurance
benefit. The basic life insurance policy was available – with automatic enrollment
– to all Plaintiffs even if no employee chose to purchase the supplemental life
insurance policy. Unlike the plaintiffs in McConocha , Plaintiffs in the instant
case received that which was disclosed at the price that was disclosed.
As such, Count I and Count II, alleging breach of fiduciary duties by both
Defendants, must be dismissed.
Neither Defendant can be found to have violated a fiduciary duty,
consequently, Count III and Count IV, which allege co-fiduciary liability and
knowing participation as to each defendant for the same conduct previously
alleged, must also be dismissed. Similarly, Count V, which alleges that Hartford’s
sale of insurance constituted a prohibited transaction under 29 U.S.C. § 1106(a) &
(b), must also be dismissed, as Plaintiffs have failed to plausibly allege that
Hartford breached any fiduciary duty owed to Plaintiffs by engaging in selfdealing with regard to plan assets. See Amantangelo, 2011 WL 3687563 at *7
(“[b]ecause here all contributions were used for the purposes of paying
Defendants' premium liabilities to Prudential, Defendants' have engaged in no
unlawful transaction”).
Finally, Plaintiffs conceded that Count VI must be dismissed by failing to
raise any argument challenging Family Dollar’s assertion that no independent
federal common law cause of action for unjust enrichment exists where ERISA
already provides the sole and exclusive remedy for the conduct alleged. See
Ludwig v. NYNEX Serv. Co., a wholly owned subsidiary of NYNEX Corp., 838 F.
Supp. 769, 793 (S.D.N.Y. 1993) (following the reasoning of Ingersoll–Rand Co. v.
McClendon, 498 U.S. 133, 142, 111 S.Ct. 478, 484, 112 L.Ed.2d 474 (1990) and its
progeny).
IV.
Conclusion
For the foregoing reasons, the Court GRANTS the Defendants’ Motions to
Dismiss the Complaint in its entirety. The Clerk is directed to close this case.
IT IS SO ORDERED.
________/s/______________
Hon. Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut: March 29, 2016
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