Depot, Inc. v. Caring for Montanans, Inc.

Decision Date06 February 2019
Docket NumberNo. 17-35597,17-35597
Citation915 F.3d 643
Parties 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.
CourtU.S. Court of Appeals — Ninth Circuit

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.

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

BYBEE, Circuit Judge:

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 plaintiffsERISA 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 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 defendants used to purchase "additional insurance products that [plaintiffs] did not request or authorize." Plaintiffs further allege that defendants took efforts to conceal these surcharges. Beginning in 2009, defendants began "channeling the kickbacks to the Chamber through an insurance agent and channeling a share of the [surcharges] into a ‘rate stabilization’ account." And beginning in 2012, defendants began "making cryptic notations that itemized certain charges on the bills" in an effort to "reduce [their] own legal risk."

In February 2014, the Montana Commissioner of Securities and Insurance fined BCBSMT $250,000 for illegal insurance practices under Montana law, including billing in excess of the actual medical premium and paying kickbacks to the Chamber. See Mont. Code Ann. §§ 33-18-208, 33-18-212. After the Commissioner’s findings were publicly released in March 2014, a group of Chamber Choices participants filed a class action suit against defendants in state court alleging claims of breach of fiduciary duty, breach of contract, unfair and deceptive trade practices, and unjust enrichment. Mark Ibsen, Inc. v. Caring for Montanans, Inc. , 383 Mont. 346, 371 P.3d 446, 448 (2016). After defendants unsuccessfully tried to remove the case to federal court, the state trial court dismissed the lawsuit, finding that the plaintiffs’ claims were based on statutory violations and that the relevant state statute did not provide a private right of action. Id. at 448–49. The Montana Supreme Court affirmed. Id. at 455.

B. Procedural History

Plaintiffs filed this lawsuit in federal court in June 2016. In their original complaint, plaintiffs raised two ERISA claims: a breach of fiduciary duty claim under 29 U.S.C. § 1132(a)(2), and a prohibited interested-party transaction claim under 29 U.S.C. § 1132(a)(3). Plaintiffs also raised state-law claims for breach of contract, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, unjust enrichment, and unfair trade practices under the Montana Unfair Trade Practices and Consumer Protection Act, Mont. Code Ann. § 30-14-101 et seq.

The district court dismissed the original complaint without prejudice. The court concluded that defendants did not satisfy ERISA’s definition of a "fiduciary" for purposes of the breach of fiduciary duty claim, and that plaintiffs were not seeking "appropriate equitable relief" as required for the prohibited transaction claim. The court also concluded that plaintiffs’ state-law claims were preempted by ERISA because they constituted "alternative enforcement mechanisms" to the prohibited transaction claim.

Plaintiffs filed their amended complaint in March 2017. As before, plaintiffs assert two claims under ERISA: a breach of fiduciary duty claim under 29 U.S.C. § 1132(a)(2), and a prohibited transaction claim under 29 U.S.C. § 1132(a)(3). Plaintiffs also assert state-law claims for fraudulent inducement, constructive fraud, negligent misrepresentation, unjust enrichment, and unfair trade practices. The district court dismissed all of the claims, this time with prejudice. The court concluded that plaintiffs failed to remedy the defects in their ERISA claims and that plaintiffs’ state-law claims (including the new fraud claims) were still preempted by ERISA. The court also concluded that plaintiffs’ allegations of fraud do not satisfy the heightened pleading requirements under Federal Rule of Civil Procedure 9(b). Plaintiffs timely appealed, and we have jurisdiction pursuant to 28 U.S.C. § 1291.

II. STANDARD OF REVIEW

On appeal, plaintiffs challenge the district court’s dismissal of their ERISA claims as well as the dismissal of their state-law claims. We review de novo a district court’s order granting a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Santomenno v. Transamerica Life Ins. Co. , ...

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