198 F.3d 552 (5th Cir. 2000), 98-11020, Ehlmann v Kaiser Foundation Health Plan TX

Docket Nº:98-11020
Citation:198 F.3d 552
Party Name:MARY ELLEN EHLMANN; ET AL, Plaintiffs, MARY ELLEN EHLMANN; ET AL, Plaintiffs-Appellants, v. KAISER FOUNDATION HEALTH PLAN OF TEXAS; ET AL, Defendants, KAISER FOUNDATION HEALTH PLAN OF TEXAS; ET AL, Defendants-Appellees.
Case Date:January 04, 2000
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 552

198 F.3d 552 (5th Cir. 2000)

MARY ELLEN EHLMANN; ET AL, Plaintiffs,

MARY ELLEN EHLMANN; ET AL, Plaintiffs-Appellants,

v.

KAISER FOUNDATION HEALTH PLAN OF TEXAS; ET AL, Defendants,

KAISER FOUNDATION HEALTH PLAN OF TEXAS; ET AL, Defendants-Appellees.

No. 98-11020

United States Court of Appeals, Fifth Circuit

January 4, 2000

Page 553

George Paker Young (argued), Donna Ruth Peery, Friedman, Young & Suder, Fort Worth, TX, John Lee Malesovas, David Glenn Tekell, Malesovas & Martin, Waco, TX, for Plaintiffs-Appellants.

John Anthony Scully, Cooper & Scully, Dallas, TX, for Kaiser Foundation Health Plan of Texas.

J. Hoke Peacock, III, Susman Godfrey, Houston, TX, Mark A. Evetts, Susman Godfrey, Dallas, TX, for Nylcare of Texas, Inc. and Nylcare Health Plan of the Southwest Inc.

Tracy Walters McCormack, Akin, Gump, Strauss, Hauer & Feld, Austin, TX, for Prudential Health Care Plan Inc.

Robert N. Eccles (argued), O'Melveny & Myers, Washington, DC, for Cigna Healthcare of Texas Inc.

John Bruce Shely, Andrews & Kurth, Houston, TX, for Aetna U.S. Healthcare.

Appeal from the United States District Court for the Northern District of Texas

Before REYNALDO G. GARZA, JOLLY, and WIENER, Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

I. FACTUAL AND PROCEDURAL BACKGROUND

In April 1997, the plaintiff ERISA plan members1, (hereinafter "Ehlmann") sued

Page 554

the defendant HMOs (hereinafter "Kaiser") under the Employee Retirement Insurance Security Act, 29 U.S.C.A. §1991 et sq., alleging that Kaiser breached its statutory fiduciary duties to act solely in the interests of, and for the benefit of, Ehlmann. Ehlmann asserts that as an ERISA fiduciary, Kaiser owes duties of loyalty that requires it not to mislead and to fully disclose material information. In particular, Ehlmann claims that Kaiser had a duty to disclose the fact that it maintains financial incentive arrangements, which Ehlmann claims harm patients by causing physicians to keep usage of health care, referrals, and testing to a minimum.2 According to Ehlmann, Kaiser has a broad duty to disclose these financial incentive arrangements, even in the absence of a specific inquiry or other special circumstances. At trial, Ehlmann sought an injunction requiring, inter alia, that Kaiser modify its member handbooks and/or physician directories to fully disclose to all plan members the bonus arrangement between the HMOs and their contracting physicians. Ehlmann also alleges that Kaiser made misleading representations to ERISA plan members and that a conflict of interests arises for HMOs between the ERISA fiduciary duties and the drive for HMO health plan profits.

The district court entered an agreed scheduling order staying discovery, class certification, and notice procedures pending full briefing and determination of any motion to dismiss under Rule 12(b)(6). Kaiser then filed a Joint Motion to Dismiss to which Ehlmann responded. The district court later entered its final judgment, opinion and order, agreeing with Kaiser that it has no duty to disclose. Ehlmann argues that the district court's order failed to discuss or even mention the two other grounds pleaded as claims for breach of ERISA fiduciary duties: misrepresentation and conflicts of interests. This appeal followed.

II. DISCUSSION

A. Duty to Disclose

Ehlmann alleges that Kaiser violated its fiduciary duty, imposed by Section 404 of ERISA, 29 U.S.C. § 1104, to disclose its physician compensation scheme. According to Ehlmann, this duty to disclose is broad...

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