United Benefit Fund et al v. Magnacare Administrative Services LLC et al
Filing
18
MEMORANDUM & ORDER granting in part and denying in part 9 Motion to Dismiss. For the foregoing reasons, MagnaCare's motion to dismiss the Complaint in part is GRANTED IN PART AND DENIED IN PART. The Fund may file an Amended Complaint within twenty-one days from the date of this Memorandum and Order. So Ordered by Judge Joanna Seybert on 8/27/12. C/ECF (Valle, Christine)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-------------------------------------x
UNITED BENEFIT FUND, DAVID DeLUCIA,
as fund administrator of the United
Benefit Fund, ANDREW TALAMO, as
trustee of the United Benefit Fund,
and THOMAS D. AMBROSIO, as trustee
of the United Benefit Fund,
Plaintiffs,
MEMORANDUM & ORDER
11-CV-4115(JS)(GRB)
-againstMAGNACARE ADMINISTRATIVE
SERVICES LLC and MAGNACARE
LLC,
Defendants.
---------------------------------x
APPEARANCES
For Plaintiffs:
Andrew A. Gorlick, Esq.
Deke W. Bond, Esq.
Gorlick, Kravitz & Listhaus, PC
17 State Street, 4th Floor
New York, NY 10004
For Defendants:
Daly Temchine, Esq.
Epstein Becker Green, P.C.
1227 25th Street, N.W.
Washington, DC 20037
John William Cook, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
SEYBERT, District Judge:
Plaintiffs--an
employee
benefit
fund,
its
administrator, and its trustees (collectively, the “Fund”)--sued
Defendants MagnaCare Administrative Services LLL and MagnaCare
LLC (together, “MagnaCare”) alleging a breach of fiduciary duty
and
other
claims.
MagnaCare
moved
to
dismiss
the
Fund’s
Complaint in part (Docket Entry 9); for the following reasons,
the motion is GRANTED IN PART.
BACKGROUND
The Fund is a multi-employer employee benefit plan, as
defined by the Employee Retirement Income Security Act of 1974
(“ERISA”), that provides health benefits for individual members.
(Compl. ¶ 4.)
MagnaCare sells access to a network of medical
and diagnostic providers (the “PPO Network”).
The PPO Network’s
participating providers fall into three categories: preferred
medical providers, preferred diagnostic providers, and preferred
network hospitals.
In
2006,
(Id. ¶ 12.)
the
Fund
and
MagnaCare
entered
into
a
contract (the “Agreement”) whereby the Fund’s members would have
access to the PPO Network in exchange for a per-member monthly
access fee.
(Id. ¶¶ 9, 12-13.)
When a Fund member received
services from a medical provider, the doctor would submit a
claim to MagnaCare.
MagnaCare would “re-price” the claim and
forward the re-priced claim to the Fund so that the Fund could
pay the doctor directly.
different
for
“diagnostic”
(Id. ¶ 14.)
providers.
The arrangement was
When
a
Fund
member
received services from a diagnostic provider, the Fund paid a
fee (which was determined with reference to a schedule) directly
to MagnaCare.
MagnaCare, in turn, retained a portion of that
money as a management fee and forwarded the balance directly to
2
the diagnostic provider.1
(Id. ¶¶ 15.)
The management fee was
different than the monthly fee that the Fund paid so that its
members could access the PPO Network.
In March 2011, the Fund notified MagnaCare that it
intended
to
terminate
the
Agreement
contract’s termination provisions.
in
accordance
(See id. ¶ 24.)
with
the
In May and
June 2011, the Fund asked MagnaCare for copies of all bills that
had been submitted for payment, the amount MagnaCare paid in
response to those bills, and the amount charged to the Fund for
each
of
those
information.
notification
bills.
MagnaCare
refused
to
provide
this
Additionally, in May 2011, following the Fund’s
that
it
was
cancelling
the
contract,
MagnaCare
stopped processing and re-pricing claims for the Fund despite a
contractual obligation to do so during the Agreement’s ninetyday termination notice period.
(See id. ¶¶ 25-31.)
DISCUSSION
The Fund asserts claims for: (1) breach of fiduciary
duty; (2) breach of contract; (3) fraud; (4) unjust enrichment;
and (5) injunctive relief.
MagnaCare moves to dismiss all but
the breach of contract claim pursuant to Federal Rule of Civil
Procedure 12(b)(6).
1
The Fund had no way of knowing how much of its diagnostic fee
went towards paying the provider versus how much MagnaCare
retained as its fee.
3
I. Legal Standard Governing Motions to Dismiss
To survive a Rule 12(b)(6) motion, a plaintiff must
plead sufficient factual allegations in the complaint to “state
a claim [for] relief that is plausible on its face.”
Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955,
1974, 167 L. Ed. 2d 929, 949 (2007).
The complaint does not
need “detailed factual allegations,” but it demands “more than
labels
and
conclusions,
and
a
formulaic
recitation
the
Id. at 555.
elements of a cause of action will not do.”
of
In
addition, the facts pleaded in the complaint “must be enough to
raise
a
right
Determining
to
relief
whether
a
above
the
plaintiff
speculative
has
met
his
level.”
burden
Id.
is
“a
context-specific task that requires the reviewing court to draw
on its judicial experience and common sense.”
572 F.3d 66, 72 (2d Cir. 2009).
of
the
elements
of
a
cause
Harris v. Mills,
However, “[t]hreadbare recitals
of
action,
conclusory statements, do not suffice.”
supported
by
mere
Ashcroft v. Iqbal, 556
U.S. 662, 678, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009).
II. Application
The Court addresses the relevant claims in turn.
A. Breach of Fiduciary Duty
MagnaCare argues that it was not a fiduciary of the
Fund and thus owed it no duty.
purposes
of
this
motion,
an
The Court agrees.
ERISA
4
fiduciary
is
For the
one
who
“exercises any discretionary authority or discretionary control
respecting management of such plan,”
“exercises any authority
or control respecting management or disposition of its assets,”
or
“has
any
discretionary
authority
or
discretionary
responsibility in the administration of such plan.”
29 U.S.C. §
1002(21)(A).
In
this
case,
the
question
turns
on
whether
the
portion of the scheduled diagnostic fee that MagnaCare retained
as its management fee was a plan asset.
(See Pls. Opp. 9.)
The
Fund argues that it was, and it relies on Metzler v. Solidarity
of Labor Organizations Health & Welfare Fund, No. 95-CV-7247,
1998 WL 477964 (S.D.N.Y. Aug. 14, 1998) aff’d sub nom. Herman v.
Goldstein,
224
F.3d
128
(2d
Cir.
2000).
In
Metzler,
the
district court applied a two part test for determining whether
something
is
a
plan
asset
under
ERISA:
“(1)
a
documentary
approach, looking to the documents governing the relationship
between
the
Fund
and
the
employers
as
the
foundation
for
determining whether the item at issue is an asset of the plan,”
id. at *5; and “(2) a functional approach, assessing whether the
item
in
question
may
be
used
to
the
benefit
(financial
or
otherwise) of the fiduciary at the expense of plan participants
or
beneficiaries,”
(id.
(internal
quotation
marks
omitted)).
The court concluded that the defendant, MEDCO, was a fiduciary
under either test.
Under the documentary approach, the court
5
explained
that
under
the
relevant
trust
agreement
and
other
contracts, contributions to the trust were defined to include
MEDCO’s service fee.
the
court
found
Id. at *6.
that
MEDCO
Under the functional approach,
(who,
as
relevant
here,
had
discretion to set employers’ contributions and then retained the
portion that was not used for health benefits or other expenses
as
its
fee)
beneficiaries.
profited
at
the
expense
of
health
plan
Id. at *6-7.
The Second Circuit affirmed, focusing on the district
court’s documentary, not functional, analysis.
It found that
the assets at issue were not plan assets “substantially for the
reasons stated” in the district court’s order “analyzing the
terms of the documents governing the Fund.”
129.
Herman, 224 F.3d at
Thus, the contractual language was a critical issue in
that case.
Here, in contrast, the Fund has not alleged any
contractual basis for considering the scheduled diagnostic fee
as a plan asset.
And, in fact, the agreement between the Fund
and MagnaCare provides that the diagnostic fees “shall not be
considered for any purposes as Health Plan assets.”2
Attachment A § 1.3.3.)
(Agreement,
Moreover, the Fund has not alleged that
it was entitled (even on a contingent basis) to the return of
any
portion
of
the
diagnostic
fees
2
it
paid
MagnaCare--which
The agreement also provides that “[i]n determining diagnostic
payment, MagnaCare shall be performing [a] ministerial and not a
discretionary function.” (Agreement, Attachment A § 1.3.3.)
6
further distinguishes this case from Metzler, see Metzler, 1998
WL
477964,
at
*3
(explaining
that
MEDCO
accepted
lump
contributions from participating employers and then forwarded a
portion of that money to the fund)--or that it was contingently
liable to a diagnostic provider if MagnaCare failed to satisfy
its obligation to the provider directly.
In short, the Fund has
not plausibly alleged that the diagnostic fees retained their
character as fund assets once they were paid to MagnaCare.
Accordingly,
dismissed.
The
Complaint
to
Fund
correct,
the
will
if
breach
have
it
of
can,
duty
opportunity
an
fiduciary
to
the
claim
amend
shortcomings
is
its
described
above.
B. Fraud
The Fund’s fraud claim is dismissed for failure to
plausibly plead reasonable reliance.
Under New York law, “[t]he
elements of a cause of action sounding in fraud are a material
misrepresentation of an existing fact, made with knowledge of
the falsity, an intent to induce reliance thereon, justifiable
reliance
upon
the
misrepresentation,
and
damages.”
Circle
Assocs., L.P. v. Starlight Props., Inc., --- N.Y.S.2d ----, 2012
WL 3324289, at *1-2, 2012 N.Y. Slip Op. 05953
(2d Dep’t Aug.
15, 2012) (quoting Introna v. Huntington Learning Ctrs., Inc.,
78
A.D.3d
896,
898,
911
N.Y.S.2d
442
(2d
Dep’t
2010)).
According to the Fund, MagnaCare committed fraud by (a) telling
7
participating providers that active Fund members were no longer
active in the plan and then (b) continuing to accept fees from
the Fund on behalf of those supposedly inactive members.
Opp.
13.)
This
theory
offers
no
hint
why
the
Fund
(Pl.
would
continue to pay money on behalf of plan members whom MagnaCare
was falsely telling providers were no longer active.
Thus, the
Fund cannot be said to have reasonably relied on MagnaCare’s
alleged misstatements to providers.
The
dismissed.
been
a
Fund’s
fraudulent
concealment
claim
is
also
Because MagnaCare is not plausibly alleged to have
fiduciary,
it
had
no
duty
information that the Fund requested.
to
disclose
the
billing
See Lerner v. Fleet Bank,
N.A., 459 F.3d 273, 292 (2d Cir. 2006).
C. Unjust Enrichment
The Fund’s unjust enrichment claim is also dismissed.
Beyond a fiduciary obligation (which the Court already rejected)
and a contract obligation (which is not the subject of this
motion), the Fund has not alleged an obligation running from
MagnaCare to the Fund that would support an independent unjust
enrichment claim.
Corsello v. Verizon N.Y., Inc., 18 N.Y.3d
777, 790, 967 N.E.2d 1177, 944 N.Y.S.2d 732 (2012).
D. Injunctive Relief
MagnaCare also seeks to dismiss the Fund’s claim for
injunctive relief, which would essentially enjoin MagnaCare to
8
process
the
agreement.
Fund’s
claims
in
accordance
with
the
parties’
This request is tied closely with the Fund’s breach
of contract claim and, inasmuch as that claim is not a subject
of the pending motion, dismissing the Fund’s injunction request
would
be
premature.
See
Fox
Ins.
Co.
v.
Envision
Pharm.
Holdings, Inc., No. 09-CV-0237, 2009 WL 790312, at *7 (E.D.N.Y.
Mar. 23, 2009) (denying preliminary injunction but noting that
although injunctive relief is unusual in contract cases, it may
be appropriate in certain cases).3
CONCLUSION
For
the
foregoing
reasons,
MagnaCare’s
motion
to
dismiss the Complaint in part is GRANTED IN PART AND DENIED IN
PART.
The Fund may file an Amended Complaint within twenty-one
days from the date of this Memorandum and Order.
SO ORDERED.
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
Dated:
August
27 , 2012
Central Islip, New York
3
The Court notes that the ninety-day termination notice period
has run and thus it presumes the Agreement is likely no longer
operative. Nevertheless, the Court refrains from dismissing
this portion of the Fund’s case at this time.
9
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