The Grand Traverse Band of Ottawa and Chippewa Indians, and Its Employee Welfare Plan v. Blue Cross and Blue Shield of Michigan
OPINION and ORDER Granting Defendant's 94 Motion to Dismiss. Signed by District Judge Judith E. Levy. (SBur)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
Grand Traverse Band of Ottawa
and Chippewa Indians and its
Employee Welfare Plan,
Blue Cross Blue Shield of
Case No. 14-cv-11349
Judith E. Levy
United States District Judge
Mag. Judge Mona K. Majzoub
Munson Medical Center,
OPINION AND ORDER GRANTING DEFENDANT’S MOTION TO
This ERISA case has been pending for over three years, and is
currently before the Court on defendant Blue Cross Blue Shield of
Michigan’s motion to dismiss the amended complaint filed by plaintiffs
Grand Traverse Band of Ottawa and Chippewa Indians and its Employee
Welfare Plan. (Dkt. 94.)
For the reasons set forth below, the motion is granted.
Plaintiffs are a federally-recognized tribe and have filed suit
against Blue Cross Blue Shield of Michigan (“BCBSM”) for breach of
fiduciary duty under ERISA and have also brought five state-law claims
allegedly relating to a contract between the tribe, BCBSM, and Munson
Plaintiffs’ initial complaint was partially dismissed without
prejudice to amend and clarify which actions of defendant are the subject
of ERISA claims and which are the subject of state-law claims. (See Dkts.
ERISA Agreement Between Plaintiffs and BCBSM
Plaintiffs maintain a self-funded employee welfare plan (“Plan”)
governed by the Employee Retirement Income Security Act (“ERISA”), 29
U.S.C. § 1001 et seq. (Dkt. 90 at 1.) The Plan covers three groups of
Plaintiffs appear to seek leave to amend the complaint in the response brief to
defendant’s motion to dismiss. (Dkt. 96 at 21 n.7.) The Sixth Circuit has held that a
party may not request “leave to amend in a single sentence without providing grounds
or a proposed amended complaint” in a response brief. Evans v. Pearson Enter., Inc.,
434 F.3d 839, 853 (6th Cir. 2006). Accordingly, plaintiff’s request for leave to amend
Members of the Tribe who are employed by the Tribe (Group
Members of the Tribe who are not employed by the Tribe
(Group #01020); and
Employees of the Tribe who are not members of the Tribe
In 2000, plaintiffs hired BCBSM to “provide administrative services
for the processing and payment of claims” under the plan. (Dkt. 90-2 at
In 2007, new federal regulations implementing section 506 of the
Medicare Prescription Drug, Improvement, and Modernization Act of
2003 went into effect (hereinafter “MLR regulations”). These regulations
stated that “[a]ll Medicare-participating hospitals . . .must accept no
more than the rates of payment under the methodology described in this
section as payment in full for all terms and services authorized by IHS,
Tribal, and urban Indian organization entities.” 42 C.F.R. § 136.30(a);
see also id. § 136.32. And “if an amount has been negotiated with the
hospital or its agent,” the tribe “will pay the lesser of” the amount
determined by the methodology or the negotiated amount. Id. § 136.30(f).
None of the parties disputes that these regulations apply to plaintiffs.
Plaintiffs allege that defendant was “well aware of the MLR
regulations” and “systematically failed to take advantage of MLR
discounts available to Plaintiffs.” (Dkt. 90 at 3.) And “[a]s administrator
of an ERISA plan, BCBSM owed a number of fiduciary duties” to plaintiff
that were breached due to this failure to take advantage of the MLR
(Id. at 2, 4–5, 18.)
Plaintiffs seek restitution, statutory
attorney fees, and other damages, costs, and interest permitted by law.
(Id. at 23.)
Facility Claims Processing Agreement with Plaintiffs,
BCBSM, and Munson Medical Center
After the 2007 MLR regulations went into effect, plaintiffs allege
they “asked BCBSM to ensure that Plaintiffs were obtaining MedicareLike Rate discounts” for Groups #01019 and 01020. (Dkt. 90 at 14.)
BCBSM said “it could not adjust its entire system to calculate MLR on
those claims eligible for MLR discounts, but . . . could provide GTB a rate
which . . . would be ‘close to that which would be payable under the New
Regulations’ by providing a discount on Plaintiffs’ claims for hospital
services at Munson Medical Center” to Group #01020. (Id. at 15.)
“In reliance on this representation,” plaintiffs and BCBSM entered
into a Facility Claims Processing Agreement (“FCPA”) with Munson
Medical Center, effective March 1, 2009. (Dkt. 90 at 6; Dkt. 90-4.) The
recitals to the FCPA indicate the purpose of the agreement was to
facilitate the following: (1) “Munson desires to afford GTB most of the
pricing benefits under the New Regulations”; and (2) “BCBSM is willing
to accommodate the desire of both Munson and GTB by processing claims
. . . at a price they believe is close to that which would be payable under
the New Regulations.” (Dkt. 90-4 at 2.) This agreement applies only to
Group #01020, members of the Tribe who are not employed by the Tribe.
(Id.) Under the terms of the FCPA, Munson Medical Center agreed to
accept as payment in full the discounted rate set by defendant. (Dkt. 90
at 6; Dkt. 90-4 at 3.)
The initial discount rate was eight percent, and defendant was to
recalculate the rate each year in accordance with the formula set forth in
the FCPA. (Dkt. 90-4 at 3.) Specifically, defendant was required to first
calculate two ratios: (i) ratio of all BCBSM PPO payments to all BCBSM
PPO charges for Munson claims for the prior calendar year, and (ii) ratio
of all payments to all charges for all Medicare claims that Munson
reported on its Medicare cost report for its prior calendar year. The new
discount for the upcoming year would be the percentage difference
between (i) and (ii), if positive. (Id.) The FCPA also states that the
“arrangement . . . does not require BCBSM to process Munson Claims as
if they were, in all other respects, actual Medicare Claims,” and “GTB
[plaintiff] acknowledges that this arrangement described in this
Agreement is satisfactory to it and is in lieu of any claim that the New
Regulations apply to any Claims and that Munson and BCBSM are
relying on this representation by GTB.” (Id. at 4.)
Plaintiffs claim that, in 2012, they “decided to . . . obtain a
comparison of the costs of going with a different third-party
administrator,” and after an audit, discovered they were “not paying
anything ‘close to MLR’ on claims.” (Dkt. 90 at 16.)
Because plaintiffs were allegedly not receiving the promised
discount that would make their payments “close to MLR,” they filed suit
alleging five state-law claims: breach of Health Care False Claims Act;
breach of contract, and alternatively, covenant of good faith and fair
dealing; breach of common law fiduciary duty; fraud/misrepresentation;
and silent fraud. (Dkt. 90 at 22.)
Under Fed. R. Civ. P. 12(b)(6), “[a] complaint must state a claim
that is plausible on its face.” Johnson v. Moseley, 790 F.3d 649, 652 (6th
A plausible claim need not contain “detailed factual
allegations,” but it must contain more than “labels and conclusions” or “a
formulaic recitation of the elements of a cause of action.” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). In other words, a plaintiff must
plead facts sufficient to “allow the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ctr.
for Bio-Ethical Reform, Inc. v. Napolitano, 648 F.3d 365, 369 (6th Cir.
2011). And a court considering a motion to dismiss must “construe the
complaint in the light most favorable to the plaintiff and accept all
allegations as true.” Keys v. Humana, Inc., 684 F.3d 605, 608 (6th Cir.
Defendant argues the amended complaint should be dismissed
because the ERISA count is either time-barred or fails as a matter of law,
and the remaining state law claims are either preempted by ERISA or
improperly duplicative of other counts. (Dkt. 94.)
A. Count I: ERISA Violation
Defendant argues that the ERISA count fails as a matter of law and
Whether Plaintiffs State an ERISA Claim
Defendant argues that there is no fiduciary duty to obtain or pursue
MLR under ERISA, and that it was not acting as a fiduciary when
negotiating payment rates with providers. (Dkt. 94 at 17–24.)
First, defendant argues there is no fiduciary duty to pursue MLR,
as set forth by Judge Ludington in Saginaw Chippewa Indian Tribe of
Mich. et al. v. Blue Cross Blue Shield of Mich., Case No. 16-cv-10317,
2016 WL 6276911 (E.D. Mich. Aug. 3, 2016) (“SCI Tribe”). In that case,
plaintiffs pleaded a breach of fiduciary duty for “paying excess claim
amounts to Medicare-participating hospitals for services authorized by a
tribe or tribal organization carrying out a CHS program.” (Case No. 16cv-10317, Dkt. 7 at 31.)
And the SCI Tribe court interpreted the
complaint as alleging an independent fiduciary duty to pursue MLR. SCI
Tribe, 2016 WL at *3 (“[Plaintiff] claims . . . that the MLR regulations
may have significant and material effects on the rates paid by its plan
members, so BCBSM had a duty to be aware of those effects.”).
Fiduciary duties under ERISA include three components: “(1) the
duty of loyalty, which requires ‘all decisions regarding an ERISA plan ...
be made with an eye single to the interests of the participants and
beneficiaries’; (2) the ‘prudent person fiduciary obligation,’ which
requires a plan fiduciary to act with the ‘care, skill, prudence, and
diligence of a prudent person acting under similar circumstances,’ and
(3) the exclusive benefit rule, which requires a fiduciary to ‘act for the
exclusive purpose of providing benefits to plan participants.’” Pipefitters
Local 636 Ins. Fund v. Blue Cross & Blue Shield of Mich., 722 F.3d 861,
867 (6th Cir. 2013) (quoting James v. Pirelli Armstrong Tire Corp., 305
F.3d 439, 448–49 (6th Cir. 2012)).
In this case, plaintiffs have made allegations similar to those
considered by the SCI Tribe court. But construing the complaint in the
light most favorable to plaintiffs, the allegations do not assert a fiduciary
duty to obtain MLR, but instead a fiduciary duty to, among other things,
preserve plan assets and make decisions with the care of a prudent
person, which, as set forth above, are established fiduciary duties. Thus,
the issue of whether defendant should have sought a discounted rate in
connection with the MLR regulations appears to be a question of fact, not
In a similar case, Little Band of Ottawa Indians and its Emp.
Welfare Plan v. Blue Cross Blue Shield of Mich., 183 F. Supp. 3d 835 (E.D.
Mich. 2016), Judge Lawson held that plaintiffs stated a claim because
they pleaded defendant “knew that the payments should have been
capped” but failed to ensure the rates “were appropriately capped,” and
rejected BCBSM’s argument that “its fiduciary duty did not extend to
ensuring that claims were paid at appropriate rates” because that
argument was “merely a factual rebuttal to the breach of duty claim.” Id.
The Court agrees with Judge Lawson’s analysis. Plaintiffs in this
case allege that defendant failed to act as a prudent person, to preserve
plan assets, and act for the exclusive purpose of providing benefits to
beneficiaries—in other words, breached a fiduciary duty—by failing to
pursue an avenue to significantly reduce payments by the Plan (in this
case “systematically fail[ing] to take advantage of MLR discounts
available to Plaintiffs” (Dkt. 90 at 3)) despite knowing the regulations
required providers to accept MLR as full payment even where the parties
had negotiated service rates.
Similarly, the plaintiffs in Little Band alleged that they “should
have been paying no more than Medicare-Like Rates (“MLR”) for all
levels of care furnished by Medicare-participating hospitals.”
Band, 183 F. Supp. 3d at 843. That there is also a separate contract at
issue in this case does not alter this analysis. The FCPA is a contract
separate from the ERISA plan, and the breach of contract claim therefore
is distinct from the ERISA claim, which arises from the ERISA plan and
Medicare regulations applicable to those plans, and not the FCPA.
Moreover, as the Supreme Court has recognized, “[t]here is more to
plan (or trust) administration than simply complying with the specific
duties imposed by the plan documents or statutory regime; it also
includes the activities that are ‘ordinary and natural means’ of achieving
the ‘objective’ of the plan.” Varity Corp. v. Howe, 516 U.S. 489, 504 (1996).
Here, although the plan does not expressly require pursuit of MLR, it is
plausible that, in deciding whether to pay claims and whether the
negotiated rate should apply, defendant should have requested the
provider accept MLR as payment in full as an “ordinary and natural
means” of preserving plan assets and providing benefits to plan
beneficiaries. Accordingly, defendant’s motion to dismiss on this ground
Second, defendant argues it was not acting as a fiduciary with
respect to negotiating payment rates with providers, and therefore
cannot be held liable for breach of fiduciary duty based on failing to
To state a claim for breach of fiduciary duty, a plaintiff must allege
that a defendant was acting as a fiduciary with respect to the conduct at
issue. Pegram v. Herdrich, 530 U.S. 211, 746–47 (2000). A fiduciary is
defined as one who “exercises any discretionary authority or . . . control
respecting management of [a] plan, or . . . disposition of its assets,” and
who “has any discretionary authority or . . . responsibility in the
administration of [a] plan.” Akers v. Palmer, 71 F.3d 226, 231 (6th Cir.
1995) (citing 29 U.S.C. § 1002(21)(A)(i)).
Neither party appears to
dispute that defendant exercised discretionary authority or control over
the plan and its assets; they disagree as to whether defendant was acting
in a fiduciary capacity by failing to obtain MLR for plan participants.
Defendant argues that the Pegram precedent is fatal to plaintiffs’ claims,
and also that obtaining MLR is analogous to negotiating rates, which the
Sixth Circuit has held is not subject to breach of fiduciary duty claims.
DeLuca v. Blue Cross & Blue Shield of Mich., 628 F.3d 743, 747 (6th Cir.
But defendant’s reliance on Pegram and DeLuca is misplaced. In
Pegram, the plaintiff argued her physician breached a fiduciary duty
under ERISA by making treatment decisions while simultaneously
subject to a financial incentive to withhold or reduce treatment. Pegram,
530 U.S. at 226. The Supreme Court held that such claims were not
cognizable as breach of fiduciary duty claims because “these eligibility
determinations cannot be untangled from physicians’ judgments about
reasonable medical treatment.” Id. at 229.
The circumstances at issue in Pegram are significantly different
than the allegations in this case. Here, the parties are not debating
whether certain services were medically necessary or covered by the
Rather, plaintiffs’ allegations address only whether
defendant failed to preserve plan assets by continually and consistently
overpaying claims that defendant found eligible for coverage. In other
words, the parties in this case do not dispute whether treatment should
have been given or if claims were eligible for coverage under the terms of
the Plan, as was the case in Pegram.
Thus, this is not a claim where
“eligibility decisions cannot be untangled from physicians’ judgments
about reasonable medical treatment.” 530 U.S. at 229.
In DeLuca, plaintiff alleged that defendant breached its fiduciary
duties by agreeing to increase the rates for PPO plans in exchange for
decreases in HMO rates as a means of “equaliz[ing] the rates paid”
between the types of plans. DeLuca, 628 F.3d at 746. The Sixth Circuit
held that defendant “was not acting as a fiduciary when it negotiated the
challenged rate changes, principally because those business dealings
were not directly associated with the benefits plan at issue but were
generally applicable to a broad range of health-care consumers.” Id. at
747. More broadly, “a business decision that has an effect on an ERISA
plan” is not subject to fiduciary standards, but conduct that “constitutes
‘management’ or ‘administration’ of the plan” does. Id.
Again, plaintiffs’ allegations in this case vary from those addressed
by the DeLuca court. Here, plaintiffs are not seeking rate renegotiation
on behalf of their individual Plan or arguing that the rate negotiations
constituted self-dealing, as in DeLuca. Instead, plaintiffs allege that
defendant knew providers were required to accept MLR by regulation in
lieu of other rates established via contract, and systematically failed to
invoke the regulation, which would have preserved plan assets. In other
words, their argument is that defendant “squandered plan assets under
its authority or control,” which the DeLuca court indicated would
implicate fiduciary concerns. See DeLuca, 628 F.3d at 747–48. Moreover,
the allegations involve the “trustee’s most defining concern historically”:
“the payment of money in the interest of the beneficiary.” Pegram, 530
U.S. at 231.
Defendant next argues that permitting this cause of action would
create a “novel cause of action not expressly authorized by the text of
[ERISA],” and “the Supreme Court has repeatedly warned courts against
permitting” such suits. Clark v. Feder Semo and Bard, P.C., 739 F.3d 28,
29 (D.C. Cir. 2014).
But permitting this cause of action would not create a novel cause
of action of the kind at issue in Clark or the Supreme Court cases cited
by the Clark court. In Clark, plaintiff attempted to argue the plan
administrator breached its fiduciary duty pursuant to 29 U.S.C. § 1344,
which imposed enforcement obligations on the Secretary of the Treasury.
The D.C. Circuit held that section 1344’s “authority for the Secretary”
could not become “the source of a duty for a plan fiduciary.” Clark, 739
F.3d at 30. And in Great-West Life & Annuity Insurance Co. v. Knudson,
534 U.S. 204 (2002), relied on by the Clark court, the Supreme Court held
that plaintiffs were not entitled to damages under section 502(a)(3)(A)
because the text envisioned only injunctive or “appropriate equitable
relief.” 534 U.S. at 209–10.
By contrast, requiring defendant to take into account regulations
that directly affect how it administers and manages plan assets would
not create new remedies or conflict with statutory text that entrusts
enforcement to an agency.
Instead, as the Clark court pointed out,
“general principles of fiduciary law imported into ERISA . . . set bounds
on the distributions [fiduciaries] authorize,” 739 F.3d at 30, which is
precisely the type of action at issue here.
Moreover, alleging that
defendant should have taken the MLR regulations into account when
determining how much to pay out of plan assets boils down to a basic
legal proposition that is neither novel nor controversial: fiduciaries must
administer plans in compliance with federal laws. And although ERISA
is a comprehensive regime, “the existence of duties under one federal
statute does not, absent express congressional intent to the contrary,
preclude the imposition of overlapping duties under another federal
statutory regime.” In re WorldCom, Inc., 263 F. Supp. 2d, 745, 766–67
(S.D.N.Y. 2003) (rejecting argument that “tension between the federal
securities laws and ERISA” required dismissal, and holding ERISA
fiduciaries cannot transmit false information to plan participants); see
also In re The Goodyear Tire & Rubber Co. ERISA Litig., 438 F. Supp. 2d
783, 792 (N.D. Ohio 2006) (“compliance with securities laws does not
negate their requirement to comply with other laws, such as ERISA”).
In sum, plaintiffs assert that defendant acted as a fiduciary in
determining how much to pay on claims that it knew were subject to the
MLR regulations because it had discretion to pay the lower rate rather
than the contractual rate, as the MLR regulations clearly state. And for
the reasons set forth above, defendant has failed to demonstrate that
such allegations are barred by precedent or would improperly interfere
with ERISA’s statutory regime. Accordingly, plaintiffs have sufficiently
pleaded that defendant was acting as a fiduciary when it paid out claims
eligible for MLR, and defendant’s motion to dismiss this claim as to
Group #01020 on this ground is denied.
Whether the ERISA Claim is Time-Barred
Defendant next argues that the ERISA claim is barred by the
statute of limitations because plaintiffs had actual knowledge by March
2009 that they were not receiving Medicare-Like Rates (“MLR”), when
they entered into the FCPA with the intention of obtaining MLR for
Group #01020. (Dkt. 94 at 13.)
Plaintiffs claim they did not know the “full extent of BCBSM’s
wrongful conduct until 2013” because defendant misrepresented to
plaintiff that the FCPA discount would provide them with rates close to
MLR. (Dkt. 90 at 18; Dkt. 96 at 16.) They further argue that because of
these representations, the six-year period applies, or equitable tolling
“ERISA specifies a three- or six-year limitations period for claims
of breach of fiduciary duty.” Durand v. Hanover Ins. Grp., Inc., 806 F.3d
367, 376 (6th Cir. 2015) (citing 29 U.S.C. § 1113).
limitations applies “after (A) the date of the last action which constituted
a part of the breach or violation, or (B) in the case of an omission the
latest date on which the fiduciary could have cured the breach or
violation.” Id. Thus, when the duty at issue is a continuing duty, such
as the duty to inform, “so long as the alleged breach of the continuing
duty occurred within six years of suit, the claim is timely.” Tibble v.
Edison Int’l, ___ U.S. ___, 135 S. Ct. 1823, 1828–29 (2015); Durand, 806
F.3d at 376.
“[A]n accelerated three-year limitations period is triggered as of ‘the
earliest date on which the plaintiff had actual knowledge of the breach.”
Id. “Actual knowledge means ‘knowledge of the facts or transaction that
constituted the alleged violation,’” and a plaintiff is deemed to have
actual knowledge “when he or she has ‘knowledge of all the relevant facts,
not that the facts establish a cognizable legal claim.’” Brown v. Owens
Coring Inv. Rev. Cmte., 622 F.3d 564, 570 (6th Cir. 2010).
Additionally, “in the case of fraud or concealment, such action may
be commenced not later than six years after the date of discovery of such
breach or violation.” 29 U.S.C. § 1119.
First, with respect to Group #01019, the complaint indicates that
prior to entering into the FCPA in March 2009, plaintiffs asked defendant
to ensure they were receiving MLR, and were informed “BCBSM replied
that it could not adjust its entire system.” Nothing in the complaint
shows that defendant represented to plaintiff at that time or at a later
date that it would pursue MLR for Group #01019.2 Plaintiffs argue the
burden is on defendant to prove the limitations period has expired, but
when the face of the complaint indicates the claim is untimely, a plaintiff
has an “obligation to plead facts in avoidance of the statute of limitations
defense.” Bishop v. Lucent Tech., Inc., 520 F.3d 516, 520 (6th Cir. 2008).
And because plaintiffs did not plead facts in the complaint that would
plausibly indicate they lacked actual knowledge in 2009 or that
defendant made misrepresentations to them regarding MLR for Group
#01019, the claim should have been brought by March 1, 2012 at the
latest. Accordingly, the ERISA claim as it pertains to Group #01019 is
Next, with respect to Group #01020, plaintiffs argue that they
relied on defendant’s representation that they would receive rates close
to MLR, as evidenced by their decision to sign the FCPA, and defendant
Plaintiffs also attempt to introduce evidence not referred to in the complaint to
argue defendant “consistently represented to Plaintiffs that BCBSM was developing
a process to provide Medicare-Like Rate pricing to all Plan participants who were
tribal members.” (Dkt. 96 at 18.) But on a motion to dismiss, the Court may consider
only the allegations in the complaint. Thus, the issue is whether it is clear from the
face of the complaint that plaintiffs had actual knowledge in 2009 or 2013.
concealed from them the fact that they were not receiving such rates.
But, as plaintiffs have taken pains to make clear, the FCPA is not
governed by ERISA and is separate from the original agreement entered
into with defendant. (See Dkt. 90 at 6 (“Plaintiffs’ claims for breach of
fiduciary duty under ERISA are separate and distinct from Plaintiffs’
claim for breach of the FCPA”; describing FCPA as “separate contractual
agreement”).) In fact, plaintiffs entered in to the FCPA because they
knew they were not receiving MLR under the Plan governed by ERISA.
Thus, any fraud or concealment would relate to the FCPA, and not the
ERISA claim, and the three-year statute of limitations applies.
Plaintiffs argue that the ERISA claim is broader than the breach of
contract issue because the FCPA applied to services only from Munson
Medical Center, while the Plan applied to all Medicare-participating
hospitals. (Dkt. 90 at 6.) While this is true, as with Group #01019, the
complaint alleges nothing that would permit the inference that plaintiffs
lacked knowledge with respect to these other providers by March 2009.
In sum, plaintiffs had actual knowledge by March 1, 2009 that they
were not receiving MLR for Group #01020, and because the case was filed
in 2014, the ERISA claim as to Group #01020 is untimely.
B. Counts II-VI: State Law Claims
Defendant argues that ERISA preempts Count II, part of Count III
(good faith and fair dealing), and Count IV. (Dkt. 94 at 24.) Defendant
also argues that Counts V and VI are improperly duplicative of the
breach of contract claim. (Id. at 26.)
Plaintiffs concur that ERISA preempts Counts II and IV (Dkt. 96
at 29), and these counts are dismissed.
Count III: Breach of Contract and Implied Covenant of Good
Faith and Fair Dealing
Defendant argues ERISA preempts plaintiffs’ claim that it
breached the implied covenant of good faith and fair dealing, and also
that Michigan does not recognize this covenant as an independent cause
of action. Defendant does not challenge the breach of contract claim.
Plaintiffs make no argument as to why their claim under the implied
covenant should not be dismissed.
Under Michigan law, there is no independent cause of action for a
breach of the implied covenant of good faith and fair dealing.
implied covenant “applies to the performance and enforcement of
contracts,” and a breach of this covenant may be invoked as a breach of
contract claim only when one party “makes its performance a matter of
its own discretion.” Stephenson v. Allstate Ins. Co., 328 F.3d 822, 826
(6th Cir. 2003). “Discretion arises when the parties have agreed to defer
decision on a particular term of the contract,” id. at 826, or “omits terms
or provides ambiguous terms.” Wedding Belles v. SBC Ameritech Corp.,
Inc., Case No. 250103, 2005 WL 292270, at *1 (Mich. App. Feb. 8, 2005).
“Whether a performance is a matter of a party’s discretion depends on
the nature of the agreement.” ParaData Comp. Networks, Inc. v. Telebit
Corp., 830 F. Supp. 1001, 1005 (E.D. Mich. 1993). A party may not invoke
the implied covenant of good faith and fair dealing to override express
contract terms.” Stephenson, 328 F.3d at 826; Gen. Aviation v. Cessna
Aircraft Co., 915 F.2d 1038, 1041 (6th Cir. 1990).
Here, the FCPA does not leave defendant with discretion as to
whether to pay the discount or how to calculate it. There is a formula for
calculating the discount, and defendant is obligated to pay that amount.
Further, no terms appear to be omitted. Thus, plaintiffs may not rely on
the implied covenant as an alternative to their breach of contract claim.
Accordingly, defendant’s motion to dismiss this part of Count III is
Counts V and VI: Fraud and Silent Fraud
Defendants argue that Counts V and VI must be dismissed as
improperly duplicative of plaintiffs’ breach of contract claim. (Dkt. 94 at
Under Michigan law, “[w]hen a contract governs the relationship
between the parties, the plaintiff must allege a ‘violation of a legal duty
separate and distinct from the contractual obligation’ to support a fraud
claim.” Gregory v. CitiMortgage, Inc., 890 F. Supp. 2d 791, 802 (E.D.
Mich. 2012) (quoting Rinaldo’s Const. Corp. v. Mich. Bell Tel. Co., 454
Mich. 65, 84 (1997)).
Here, plaintiffs argue defendant breached the contract by failing to
provide it with the FCPA discount. They separately argue that defendant
is liable for fraud and silent fraud by (1) representing repeatedly to
plaintiffs between 2009 and 2012 that the FCPA discount would be close
to MLR while knowing this to be false; and (2) failing to disclose that the
FCPA discount was not close to MLR despite being obligated to do so.
But any obligation to provide rates close to MLR and any obligation to
disclose such discrepancies between the FCPA and MLR rates arise
solely from the existence of the FCPA. Thus, there is no legal basis or
duty separate from the contract that would permit plaintiff to plead fraud
and silent fraud claims. Leonor v. Provident Life and Acc. Co., Case No.
12-cv-15343, 2013 WL 1163375, at *2–3 (E.D. Mich. Mar. 20, 2013)
(alleged fraud that plaintiff would receive benefits arose from contractual
obligation to pay plaintiff and fraud claim was not actionable; collecting
cases holding the same). Accordingly, defendant’s motion to dismiss
these counts is granted.
For the reasons set forth above, defendant’s motion to dismiss (Dkt.
94) is GRANTED as to Count I, Count II, Count III (implied covenant of
good faith and fair dealing only), Count IV, Count V, and Count VI.
IT IS SO ORDERED.
Dated: July 21, 2017
Ann Arbor, Michigan
s/Judith E. Levy
JUDITH E. LEVY
United States District Judge
CERTIFICATE OF SERVICE
The undersigned certifies that the foregoing document was served
upon counsel of record and any unrepresented parties via the Court’s
ECF System to their respective email or First Class U.S. mail addresses
disclosed on the Notice of Electronic Filing on July 21, 2017.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?