915 F.3d 643 (9th Cir. 2019), 17-35597, Depot, Inc. v. Caring for Montanans, Inc.

Docket Nº:17-35597
Citation:915 F.3d 643
Opinion Judge:BYBEE, Circuit Judge:
Party Name:The DEPOT, INC.; Union Club Bar, Inc.; Trail Head, Inc., Plaintiffs-Appellants, v. CARING FOR MONTANANS, INC., FKA Blue Cross Blue Shield of Montana, Inc.; Health Care Services Corporation, Defendants-Appellees.
Attorney:Kenneth J. Halpern (argued), Rachana A. Pathak, Dana Berkowitz, and Peter K. Stris, Stris & Maher LLP, Los Angeles, California; John Morrison, Morrison Sherwood Wilson & Deola PLLP, Helena, Montana; for Plaintiffs-Appellants. Anthony F. Shelley (argued) and Theresa Gee, Miller & Chevalier Charter...
Judge Panel:Before: William A. Fletcher and Jay S. Bybee, Circuit Judges, and Larry A. Burns, District Judge.
Case Date:February 06, 2019
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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915 F.3d 643 (9th Cir. 2019)

The DEPOT, INC.; Union Club Bar, Inc.; Trail Head, Inc., Plaintiffs-Appellants,

v.

CARING FOR MONTANANS, INC., FKA Blue Cross Blue Shield of Montana, Inc.; Health Care Services Corporation, Defendants-Appellees.

No. 17-35597

United States Court of Appeals, Ninth Circuit

February 6, 2019

Argued and Submitted December 7, 2018 Seattle, Washington

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Kenneth J. Halpern (argued), Rachana A. Pathak, Dana Berkowitz, and Peter K. Stris, Stris & Maher LLP, Los Angeles, California; John Morrison, Morrison Sherwood Wilson & Deola PLLP, Helena, Montana; for Plaintiffs-Appellants.

Anthony F. Shelley (argued) and Theresa Gee, Miller & Chevalier Chartered, Washington, D.C.; Michael David McLean and Stefan T. Wall, Wall McLean & Gallagher, PLLC, Helena, Montana; for Defendant-Appellee Caring for Montanans, Inc.

Stanley T. Kaleczyc (argued), M. Christy S. McCann, and Kimberly A. Beatty, Browning Kaleczyc Berry & Hoven P.C., Helena, Montana, for Defendant-Appellee Health Care Services Corporation.

Appeal from the United States District Court for the District of Montana, Dana L. Christensen, Chief Judge, Presiding, D.C. No. 9:16-cv-00074-DLC.

Before: William A. Fletcher and Jay S. Bybee, Circuit Judges, and Larry A. Burns,[*] District Judge.

SUMMARY[**]

Employee Retirement Income Security Act

The panel affirmed in part and reversed in part the district court's dismissal of an action brought under ERISA and Montana state law against health insurance companies and remanded for further proceedings.

The companies marketed health insurance plans, branded "Chamber Choices," to members of the Montana Chamber of Commerce. Three small employers, Chamber members that provided their employees with healthcare coverage under Chamber Choices plans, alleged misrepresentations in the marketing of the plans.

Affirming the district court's dismissal of the ERISA claims, the panel held that plaintiffs failed to state a claim for breach of fiduciary duty under 29 U.S.C. § 1132(a)(2) in defendants' alleged charging of excessive premiums. The panel held that, in secretly charging excessive premiums, defendants did not act as fiduciaries of the plans because they did not exercise discretion over plan management or control over plan assets. Plaintiffs also failed to state a claim for equitable relief under § 1132(a)(3) for prohibited transactions in imposing unreasonable charges for kickbacks and unrequested benefits because plaintiffs' requested relief of restitution or disgorgement was not equitable in nature.

The panel reversed the dismissal of plaintiffs' state-law claims, based on defendants' alleged misrepresentations that the premiums charged reflected the actual medical premium amount. The panel held that ERISA did not expressly preempt the state-law claims because the claims did not have a reference to or an impermissible connection with an ERISA plan, and therefore did not "relate to" an ERISA plan. The state-law claims also were not conflict-preempted by ERISA. The panel nonetheless agreed with the district court that plaintiffs' allegations did not state with particularity the circumstances of the alleged fraud, as required by Federal Rule of Civil Procedure 9(b). The panel therefore reversed the dismissal with prejudice of the state-law claims so that plaintiffs could amend their complaint to state the fraud allegations with greater particularity. The panel noted, however, that the district court was also free on remand to decline to exercise supplemental jurisdiction over the state-law claims.

OPINION

BYBEE, Circuit Judge:

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Plaintiffs are three small employers in Montana who are members of the Montana Chamber of Commerce. Defendants are health insurance companies that marketed fully insured health insurance plans to the Chamber’s members branded "Chamber Choices." From 2006 until 2014, plaintiffs provided their employees with healthcare coverage under Chamber Choices plans, and did so based on defendants’ representations that the monthly premiums would reflect only the cost of providing benefits. But according to plaintiffs, these representations were false— defendants padded the premiums with hidden surcharges, which they used to pay kickbacks to the Chamber and to buy unauthorized insurance products.

Upon learning of these surcharges, plaintiffs filed suit against defendants, asserting two claims under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., as well as several state-law claims based on defendants’ misrepresentations. The district court dismissed all of the claims, concluding that plaintiffs failed to state actionable claims under ERISA while at the same time concluding that plaintiffs’ state-law claims are preempted by ERISA. We affirm the district court’s dismissal of plaintiffs’ ERISA claims, reverse the dismissal of plaintiffs’ state-law claims, and remand.

I. BACKGROUND

A. Factual Background

Plaintiffs are three small businesses operating in Montana.1 The Depot, Inc. is a steakhouse; Union Club Bar, Inc. is a bar; and Trail Head, Inc. is a sporting goods retailer. During the period relevant to this lawsuit, plaintiffs were members of the Montana Chamber of Commerce. Blue Cross Blue Shield of Montana ("BCBSMT")— an insurance company that is now known as Caring for Montanans, Inc. ("CFM")— marketed "fully-insured" group health insurance plans to the Chamber’s employer-members known as "Chamber Choices." Health Care Service Corp. ("HCSC") purchased the health insurance business of BCBSMT in July 2013 and marketed the Chamber Choices plans thereafter.

From 2006 to 2014, plaintiffs enrolled in Chamber Choices plans and paid monthly premiums to defendants in exchange for health insurance coverage for their employees. Coverage for plaintiffs’ employees hinged on plaintiffs paying the required monthly premiums. According to plaintiffs, "[i]n the course of marketing Chamber Choices," defendants represented that the premiums would be equal to the "actual medical premium"— i.e., "the cost of providing insurance benefits to covered individuals plus administrative costs" and "[not] for any purpose other than to pay

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for the purchased health insurance coverage." Plaintiffs accordingly relied on that representation in choosing to participate.

All parties agree that each Chamber Choices plan constituted an "employee welfare benefit plan" subject to ERISA. 29 U.S.C. § 1002(1); see Fossen v. Blue Cross & Blue Shield of Mont., Inc., 660 F.3d 1102, 1109-10 (9th Cir. 2011). According to the Member Guide for one of the Chamber Choices plans2 — which provides a summary of benefits available to covered employees for the relevant year— the employers (i.e., plaintiffs), not BCBSMT, were the named "plan administrator[s]" and fiduciaries under ERISA. Defendants, however, performed most of the claim management and administration duties. Plaintiffs’ role was limited to deducting monthly premiums from their employees’ wages to send to defendants for coverage and notifying defendants if an employee lost eligibility for coverage. The Member Guide also purported to allow defendants to make changes to the terms of the policy in the following modification provision: [BCBSMT] may make administrative changes or changes in dues, terms or Benefits in the Group Plan by giving written notice to the Group and/or purchasing pool member at least 60 days in advance of the effective date of the changes. Dues may not be increased more than once during a 12-month period, except as allowed by Montana law.

The requirement that enrollees receive 60 days’ advance notice of modifications is consistent with federal and state laws governing group health plans, including plans not subject to ERISA. See 29 C.F.R. § 2590.715-2715(b) (requiring 60 days’ advance notice of "any material modification ... in any of the terms of the plan or coverage"); Mont. Code Ann. § 33-22-107(3)(a) (requiring 60 days’ advance notice of "a change in rates or a change in terms or benefits").

Plaintiffs allege that, while they subscribed to Chamber Choices plans, defendants unlawfully padded the premiums with two surcharges without plaintiffs knowledge or consent. First, from 2006 to 2014, defendants secretly embedded a surcharge into the premiums, which they used to pay kickbacks to the Chamber. These kickbacks were designed to persuade the Chamber to continue to market defendants plans to its members. Second, from 2008 to 2014, defendants secretly embedded an additional surcharge into the premiums that...

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