Fadely v. Blue Cross and Blue Shield of Georgia, Inc.

Filing 20

ORDER denying 9 Motion to Dismiss. Signed by Judge Thomas W. Thrash, Jr on 10/18/11. (dr)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
JAMES G. FADELY,
Plaintiff,
v.

CIVIL ACTION FILE
NO. 1:11-CV-1409-TWT

BLUE CROSS AND BLUE SHIELD
OF GEORGIA, INC., et al.,
Defendants.

ORDER

This is an action brought pursuant to the Employee Retirement Income Security
Act of 1974 (“ERISA”). It is before the Court on the Defendant Encompass’ Motion
to Dismiss [Doc. 9]. For the reasons set forth below, the Court DENIES the
Defendant’s Motion to Dismiss.
I. Background
The Plaintiff, James G. Fadely, was employed by Crawford Communications
(“Crawford”) for several years. Crawford has since changed its name to Encompass
Digital Media, Inc. (“Encompass”). In 2009, shortly after his sixty-fifth birthday,
Crawford terminated Fadely. (Compl. ¶ 23.) Fadely had several substantial health
concerns at the time–he had had multiple heart attacks, open heart surgeries, and
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artery disease diagnoses. (Compl. ¶ 26.) After his termination, Fadely sought the
assistance of Crawford’s Human Resources department in determining whether he
should continue coverage of his health benefits pursuant to the Consolidated Omnibus
Budget Reconciliation Act of 1985 (“COBRA”) or simply enroll in Medicare.
(Compl. ¶ 28.) Fadely alleges that Crawford incorrectly advised him, telling him to
simply enroll in Medicare Part A–not Part B–and elect COBRA continuation
coverage. (Compl. ¶ 29.) Fadely followed Crawford’s advice, enrolling in COBRA
continuation coverage administered by Blue Cross and Blue Shield of Georgia (“Blue
Cross”); if not for Crawford’s advice, Fadely states that he would have enrolled in
Medicare Part B. (Compl. ¶¶ 30-32.)
After his termination, Fadely incurred substantial medical expenses. For a year,
Blue Cross paid each claim, and then allegedly without notifying Fadely, began to
recoup benefits paid to medical providers who treated Fadely. (Compl. ¶ 39.) Fadely
alleges that Blue Cross began recouping benefits paid to Fadely’s health care
providers as if he had coverage under Medicare Part B as primary coverage for the
period from May 1, 2009 to August 31, 2010. (Compl. ¶¶ 55-57.) Fadely incurred
substantial financial liability as a result of this recoupment of benefits, and did not
receive a response to his repeated inquiries to Encompass and Blue Cross regarding
his health care coverage.

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Fadely filed a Complaint in this Court on April 29, 2011 [Doc. 1]. He alleges
that Encompass and Blue Cross (“Defendants”) violated ERISA with the following
conduct: Defendants refused to provide requested information (“Count I”) (Compl.
¶¶ 122-28, 129-35); Defendants made misrepresentations (Compl. ¶¶ 136-44, 145-52);
Defendants breached their fiduciary duty based on a misrepresentation (Compl. ¶¶
153-57, 158-62); Defendants failed to timely notify Plaintiff of an adverse benefit
determination (Compl. ¶¶ 163-69); Defendants failed to reference the specific plan
provision on which the denial was based (Compl. ¶¶ 170-73, 174-78); and Defendants
failed to describe review procedures, including applicable time limits and the right to
bring a civil action. (Compl. ¶¶ 179-82.) Count I is alleged to be a violation of 29
U.S.C. § 1132(c); all other ERISA claims are brought seeking equitable relief under
29 U.S.C. § 1132(a)(3). If the Court finds that one or both of the Defendants is not
the type of entity against which relief may be sought under ERISA, the Plaintiff brings
Georgia state law claims for negligent misrepresentation against the Defendants
(Compl. ¶¶ 183-84, 185-85) and failure to exercise ordinary diligence in connection
with administration claims pursuant to O.C.G.A. § 51-1-48 against Blue Cross.
(Compl. ¶¶ 187-88.) On July 19, 2011, Blue Cross answered the Complaint while
asserting various defenses [Doc. 6]. On August 5, 2011, Encompass filed a Motion
to Dismiss [Doc. 9].

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II. Motion to Dismiss Standard
A complaint should be dismissed under Rule 12(b)(6) only where it appears that
the facts alleged fail to state a “plausible” claim for relief. Ashcroft v. Iqbal, 129 S.
Ct. 1937, 1949 (2009); Fed. R. Civ. P. 12(b)(6). A complaint may survive a motion
to dismiss for failure to state a claim, however, even if it is “improbable” that a
plaintiff would be able to prove those facts; even if the possibility of recovery is
extremely “remote and unlikely.” Bell Atlantic v. Twombly, 550 U.S. 544, 556
(2007). In ruling on a motion to dismiss, the court must accept the facts pleaded in
the complaint as true and construe them in the light most favorable to the plaintiff.
See Quality Foods de Centro America, S.A. v. Latin American Agribusiness Dev.
Corp., S.A., 711 F.2d 989, 994-95 (11th Cir. 1983); see also Sanjuan v. American Bd.
of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994) (noting that at the
pleading stage, the plaintiff “receives the benefit of imagination”). Generally, notice
pleading is all that is required for a valid complaint. See Lombard's, Inc. v. Prince
Mfg., Inc., 753 F.2d 974, 975 (11th Cir. 1985), cert. denied, 474 U.S. 1082 (1986).
Under notice pleading, the plaintiff need only give the defendant fair notice of the
plaintiff's claim and the grounds upon which it rests. See Erickson v. Pardus, 551 U.S.
89, 93 (2007) (citing Twombly, 127 S. Ct. at 1964).

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III. Discussion
A.

Standing

The Defendant argues that Fadely does not have standing to sue under ERISA.
Under ERISA, all “participants” have standing to bring civil actions to enforce their
rights under the terms of a covered benefit plan or to enforce ERISA’s provisions.
See 29 U.S.C. § 1132(a). A “participant” is defined under the statute as “any
employee or former employee of an employer ... who is or may become eligible to
receive a benefit of any type from an employee benefit plan which covers employees
of such employer ...” 29 U.S.C. § 1002(7). According to the Supreme Court, this term
also includes former employees who “have a reasonable expectation of returning to
covered employment or who have a colorable claim to vested benefits.” Firestone
Tire and Rubber Co. v. Bruch, 489 U.S. 101, 117 (1989) (citations and quotation
marks omitted).
Courts disagree about whether a plaintiff must continue to be a “participant” at
the time the complaint is filed, or whether it is sufficient for a plaintiff to have been
a “participant” at the time the alleged ERISA violations occurred. Compare Nechis
v. Oxford Health Plans, Inc., 421 F.3d 96, 101 (2d Cir. 2005) (holding that statutory
standing must be evaluated at the time the complaint is filed and participants can lose
standing to sue if their participant status is terminated before suit is filed) with Daniels

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v. Thomas & Betts Corp., 263 F.3d 66, 78 (3d Cir. 2001) (holding that statutory
standing is evaluated at the time of the ERISA violation, not when the complaint is
filed). The Eleventh Circuit appears to agree with the Third Circuit. In Piazza v.
EBSCO Indus., Inc., 273 F.3d 1341 (11th Cir. 2001), a class of plaintiffs brought a
claim for breach of fiduciary duty against their employer, EBSCO Industries. The
plaintiffs asserted that EBSCO Industries operated competing companies, which
reduced EBSCO’s profits, and consequently, reduced EBSCO’s profit-sharing
contributions to the plaintiffs’ ERISA retirement plan. The Eleventh Circuit found
that a plaintiff could represent a class in an ERISA claim for breach of fiduciary duty
for the period that he was a participant of the defendant’s plan, even though he no
longer was a participant when he filed the complaint. Id. at 1350-51.
Moreover, Varity Corp. v. Howe, 516 U.S. 489 (1996), appears to support the
argument that statutory standing is evaluated at the time of the ERISA violation in a
§ 1132(a)(3) case. In Varity, the employer made misrepresentations to the plaintiffs
while they were participants in an ERISA plan, which caused the plaintiffs to make
elections that caused them financial loss. Id. at 492-94. The plaintiffs brought suit
after their benefits were terminated and they were no longer covered under the plan.
Id. at 494. The Court allowed the plaintiffs to bring a claim under § 1132(a)(3) when
it specifically said that the plaintiffs would not be allowed to bring a claim under §

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1132(a)(1)(B). Id. at 515.
The Court will thus assess whether the Plaintiff was a “participant” in the
Defendant’s ERISA Plan when the allegedly impermissible conduct occurred. The
Plaintiff alleges that he was a participant in the Defendant’s COBRA Plan during all
of the conduct giving rise to the Complaint. Under COBRA, sponsors of ERISA
group health plans must offer plan beneficiaries the option to elect “continuation
coverage” for a limited period following employment termination. 29 U.S.C. §§
1161(a), 1162(2). Continuation coverage is defined as “coverage under the plan ...”
29 U.S.C. § 1162. “A claim regarding the allegedly wrongful denial of benefits to a
plaintiff covered under such a continuation of coverage is governed by ERISA.”
Mattive v. Healthsource of Savannah, Inc., 893 F. Supp. 1556, 1558 (S.D. Ga. 1995).
Therefore, the Plaintiff has standing to bring claims arising from conduct that occurred
while he was enrolled in the Defendant’s COBRA Plan, and Counts I-X cannot be
dismissed on these grounds.
B.

Administrator Liability

Encompass brings to the Court’s attention that “only a plan administrator can
be liable under § 1132(c) for statutory penalties.” Kennedy v. Metropolitan Life Ins.
Co., 357 F. Supp. 2d 1346, 1349 (M.D. Fla. 2005). However, 29 U.S.C. § 1132(c)
only refers to reporting requirements, such as the “refusal to supply requested

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information,” which is the basis for the Plaintiff’s claim in Count I. The Plaintiff
brings the rest of his ERISA claims against Encompass under 29 U.S.C. § 1132(a)(3).
29 U.S.C. § 1132(a)(3) provides that:
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.
29 U.S.C. § 1132(a)(3).
In Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238
(2000), the Court held that § 1132(a)(3) imposes no limits on “the universe of possible
defendants.” Id. at 246. The Harris Trust Court was faced with a violation of §
406(a), which prohibits fiduciaries from favoring other entities at the expense of the
ERISA plan’s beneficiaries. The Court held that ERISA’s authorization to a plan
“participant, beneficiary, or fiduciary” to bring a civil action for “appropriate
equitable relief” allowed a suit against a nonfiduciary that entered into a transaction
prohibited by § 406(a) with a plan fiduciary. Harris Trust, 530 U.S. at 238.
Nevertheless, the Court cannot determine which entity is the Plan Administrator
at this time. Encompass attached an affidavit to its Motion to Dismiss from its Senior
Vice President of Business & Legal Affairs, John Halpin. He states that “Encompass
lacks any ‘decisional control’ over any claims decisions made with respect to the

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Company Plan” (Halpin Aff. ¶ 6) and that “Encompass reserves no right to review or
overturn the claims decisions made by BCBSGA with regard to the Company Plan.”
(Id. at ¶ 8.) Blue Cross responded to Encompass’ Motion to Dismiss by arguing that
Encompass is the “Plan Administrator” and attaching the Blue Choice PPO Master
Contract, including the Group Application and the Certificate Booklet for the PPO
418 coverage [Doc. 16].
To resolve the issue of whether Encompass or Blue Cross is the Plan
Administrator would require the Court to convert Encompass’ Rule 12(b)(6) motion
into a summary judgment motion under Rule 56. The Court declines to do this. The
Plaintiff alleged that Encompass was the plan sponsor in the Complaint, and the Court
finds this sufficient to survive the Motion to Dismiss.
C.

Fiduciary Liability

Count V of the Complaint is a breach of fiduciary duty claim against
Encompass based on misrepresentation. “To establish liability for a breach of
fiduciary duty under any of the provisions of ERISA § 502(a), a plaintiff must first
show that the defendant is in fact a fiduciary with respect to the plan.” Cotton v.
Massachusetts Mut. Life Ins. Co., 402 F.3d 1267, 1277 (11th Cir. 2005) (citing Baker
v. Big Star Div. of the Grand Union Co., 893 F.2d 288, 289 (11th Cir. 1989)).
Encompass contends that it is not a fiduciary as defined by ERISA. ERISA defines

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a “fiduciary” as follows:
Except as otherwise provided in subparagraph (B), a person is a fiduciary
with respect to a plan 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, (ii) he renders investment advice for a fee or
other compensation, direct or indirect, with respect to any moneys or
other property of such plan, or has any authority or responsibility to do
so, or (iii) he has any discretionary authority or discretionary
responsibility in the administration of such plan. Such term includes any
person designated under section 1105(c)(1)(B) of this title.
29 U.S.C. § 1002(21)(A). “Under this definition, a party is a fiduciary only to the
extent that it performs a fiduciary function. As such, fiduciary status is not an all-ornothing concept, and a court must ask whether a person is a fiduciary with respect to
the particular activity at issue.” Cotton, 402 F.3d at 1277 (citations and quotation
marks omitted). Thus, a plan administrator may be a fiduciary with respect to certain
activities but not with respect to others.
Encompass argues that a party is not a “fiduciary” if it does not have the
authority to review benefit claims and denials. (Def.’s Mot. to Dismiss, at 8.) Yet
Encompass only cites cases in which the bases of the plaintiffs’ claims were for
wrongful denial of benefits and the entities were found to have no discretionary
authority or control for determining benefits. See Baker v. Big Star Div. of the Grand
Union Co., 893 F.2d 288 (11th Cir. 1989); Singleton v. Board of Trustees, 815 F.

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Supp. 448 (N.D. Ga. 1993). Thus, the defendants in these cases were not fiduciaries
with respect to the particular activity at issue; these cases do not provide guidance
beyond reaffirming the principle that fiduciaries must be fiduciaries with respect to
the particular activity at issue. See Cotton, 402 F.3d at 1277.
In the present case, the particular activity at issue is Encompass’ alleged
negligent misrepresentation. The Plaintiff argues that Encompass assumed a fiduciary
status when it advised the Plaintiff that he should elect COBRA and not Medicare Part
B. (Pl.’s Br. in Opp’n to Def.’s Mot. to Dismiss, at 20.) Thus, the Court must
consider whether Encompass acted as a fiduciary when it advised the Plaintiff as to
his health insurance options. In making this determination, the Court must consider
whether Encompass’ agent “exercise[d] any discretionary authority or discretionary
control respecting management of [the] plan” or “ha[d] any discretionary authority or
responsibility in the administration of [the] plan,” 29 U.S.C. § 1002(21)(A), or, on the
other hand, merely performed a “ministerial and not discretionary” function. Skilstaf,
Inc. v. Adminitron, Inc., 66 F. Supp. 2d 1210, 1216 (M.D. Ala. 1999).
The Plaintiff relies exclusively on Varity Corp. v. Howe, 516 U.S. 489 (1996),
for the proposition that an employer who advised employees to make certain elections
related to their employee benefits acted as a “fiduciary” in that context. Id. at 503.
The Varity Court held that such an act was an act of plan administration. Id. at 504.

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The Varity Court’s reasoning regarding what constitutes an act of plan administration
can be applied to the facts of this case, as illustrated in the following passage:
Conveying information about the likely future of plan benefits, thereby
permitting beneficiaries to make an informed choice about continued
participation, would seem to be an exercise of a power “appropriate” to
carrying out an important plan purpose. After all, ERISA itself
specifically requires administrators to give beneficiaries certain
information about the plan....To offer beneficiaries detailed plan
information in order to help them decide whether to remain with the plan
is essentially...plan-related activity.
Varity, 516 U.S. at 502-03.
In addition to being an act of “plan administration,” the act must be
“discretionary” to invoke fiduciary status under ERISA. See, e.g., Pohl v. National
Benefits Consultants, Inc., 956 F.2d 126, 129 (7th Cir. 1992) (“ERISA makes the
existence of discretion a sine qua non of fiduciary duty.”). Here this Court notes that
the Varity Court considered “the factual context in which the statements were made,”
and that the factual context in Varity is readily distinguishable from the factual context
in this case. Varity, 516 U.S. at 503. In Varity, officers of the Varity Corporation
called a meeting for present employees and engaged in “deliberate deception” by
persuading employees to accept a change in their benefit plan to the employees’
financial detriment and Varity Corporation’s financial gain. Id. at 493-94. In the
present case, the Plaintiff alleges that, as a former employee, he initiated contact with

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Crawford’s Human Resources Department to ask an employee in the department
whether he should elect COBRA continuation coverage. (Compl. ¶ 28.) In the eyes
of this Court, the primary factual distinction between Varity and the present case is
an intentional misrepresentation in the former and an allegedly negligent
misrepresentation in the latter. The Varity Court emphasized:
We accept the undisputed facts found, and factual inferences drawn, by
the District Court, namely, that Varity intentionally connected its
statements about Massey Combines' financial health to statements it
made about the future of benefits, so that its intended communication
about the security of benefits was rendered materially misleading. And
we hold that making intentional representations about the future of plan
benefits in that context is an act of plan administration.
Id. at 504 (emphasis in original). The Plaintiff has adequately pleaded a claim for
breach of fiduciary duty. Whether the facts of the case support such a claim may be
revisited at summary judgment.
D.

State Law Claims

The Plaintiff brings a state law claim for negligent misrepresentation against
Encompass in addition to maintaining an ERISA claim for negligent
misrepresentation. ERISA’s preemption section, 29 U.S.C. § 1144(a), states that
ERISA “shall supersede any and all State laws insofar as they may now or hereafter
relate to any employee benefit plan” covered by ERISA. The Supreme Court has
preserved and reinforced Congress’ broad view of ERISA preemption, interpreting the

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phrase “relate to” in ERISA’s preemption clause to include any state law claim that
“has a connection with or reference to” an employee benefits plan. New York State
Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645,
656 (1995) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97 (1983)). The
Court of Appeals for the Eleventh Circuit has further instructed that a “state law claim
‘relates to’ an ERISA benefit plan for purposes of ERISA preemption whenever the
alleged conduct at issue is intertwined with the refusal to pay benefits.” Franklin v.
QHG of Gadsden, Inc., 127 F.3d 1024, 1028 (11th Cir. 1998) (quoting Garren v. John
Hancock Mut. Life Ins. Co., 114 F.3d 186, 187 (11th Cir. 1997)). The Plaintiff’s state
law claims may be preempted if his ERISA claim survives. That is to be determined
later.
IV. Conclusion
For the reasons set forth above, the Court DENIES the Defendant’s Motion to
Dismiss [Doc. 9].
SO ORDERED, this 18 day of October, 2011.

/s/Thomas W. Thrash
THOMAS W. THRASH, JR.
United States District Judge

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