Colleton Regional Hosp. v. MRS Med. Review Systems

• Decision Date: 28 October 1994
• Docket Number: C.A. No. 2:94-749-22 and 6:93-3254-22.
• Citation: 866 F. Supp. 896
• Parties: COLLETON REGIONAL HOSPITAL, Plaintiff, v. MRS MEDICAL REVIEW SYSTEMS, INC., Georgia-Pacific Corporation, John Hancock Mutual Insurance Company, Sandoz Chemicals, Inc., and Fringe Benefit Review, Inc., Defendants. GREENVILLE HOSPITAL SYSTEM, Plaintiff, v. MRS MEDICAL REVIEW SYSTEMS, INC., Spartan Express, Fringe Benefit Review, Inc., Central Transport, Inc., Mohawk Industries, Inc., Fieldcrest Cannon, Inc., Bigelow Sanford, and Old Dominion Freight Line, Inc., Defendants.
• Court: U.S. District Court — District of South Carolina

866 F. Supp. 896

COLLETON REGIONAL HOSPITAL, Plaintiff, v. MRS MEDICAL REVIEW SYSTEMS, INC., Georgia-Pacific Corporation, John Hancock Mutual Insurance Company, Sandoz Chemicals, Inc., and Fringe Benefit Review, Inc., Defendants.

GREENVILLE HOSPITAL SYSTEM, Plaintiff, v. MRS MEDICAL REVIEW SYSTEMS, INC., Spartan Express, Fringe Benefit Review, Inc., Central Transport, Inc., Mohawk Industries, Inc., Fieldcrest Cannon, Inc., Bigelow Sanford, and Old Dominion Freight Line, Inc., Defendants.

C.A. Nos. 2:94-749-22 and 6:93-3254-22.

United States District Court, D. South Carolina, Charleston and Greenville Divisions.

October 28, 1994.

M. Annette Roney, Charleston, SC, for plaintiffs.

J. Marshall Allen and David S. Cox, Charleston, SC, for defendants.

ORDER

CURRIE, District Judge.

These actions arise from the review and adjustment of Plaintiffs' bills by Defendant MRS Medical Review Systems, Inc. ("MRS"). Jurisdiction is based upon the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA"). This matter is before the court on the motion to dismiss of MRS. The court has reviewed the record and heard oral argument. For reasons discussed below, the court concludes that MRS is not an ERISA fiduciary and that ERISA does not provide for equitable relief against a nonfiduciary who knowingly participates in a fiduciary's breach of duty. Accordingly, the motion of MRS is granted.

I. BACKGROUND

A. PARTIES

Plaintiffs are South Carolina corporations operating hospitals in South Carolina. Amended Complaint at ¶¶ 1, 2. These hospitals provide medical and hospital services to patients including participants and beneficiaries ("insureds") of various employers' self-funded employee benefit plans. Amended Complaint at ¶¶ 15-17, 19. Some of these various employers include Defendants Georgia-Pacific Corporation, Sandoz Chemicals, Inc., Spartan Express, Central Transport, Inc., Mohawk Industries, Inc., Bigelow Sanford, and Old Dominion Freight Line, Inc. Amended Complaint at ¶¶ 4, 6, 8-10, 12, 13, 16, 17, 19. Defendants John Hancock Mutual Insurance Company, Fringe Benefit Review, Inc., and Fieldcrest Cannon, Inc. are the plan administrators of the plans under which the insureds were covered. Amended Complaint at ¶¶ 5, 7, 11, 16, 18, 20. MRS, a Georgia corporation with its principal place of business in Georgia, is a utilization review company. MRS reviews claims submitted to employee benefit plans retrospectively, allegedly to determine whether the medical charges are reasonable and customary. Amended Complaint at ¶ 3.

B. PROCEDURAL HISTORY

Each Plaintiff¹ originally brought an action, under diversity jurisdiction, against only MRS alleging state law causes of action for tortious interference with contracts, defamation, violation of the South Carolina Unfair Trade Practices Act, bad faith refusal to pay claims, and improper claims practices. Plaintiffs' complaints were identical except for the identity of the plaintiff. MRS filed identical motions to dismiss in each action. The actions were consolidated with the consent of all parties pursuant to Fed.R.Civ.P. 42(a).

After a hearing on the motion, the court issued an order ruling that ERISA preempted Plaintiffs' state law causes of action. Instead of dismissing the complaints, however, the court granted Plaintiffs leave to amend to attempt to state causes of action for equitable relief under ERISA and to state causes of action against plan sponsors or any other fiduciaries of the various plans. On July 18, 1994, Plaintiffs filed their amended complaint.

C. PLAINTIFF'S CAUSES OF ACTION

Plaintiffs assert three causes of action. The first two causes of action, breach of fiduciary duties in violation of 29 U.S.C. § 1104(a)(1) and 29 U.S.C. § 1106, are against all Defendants. The third cause of action, knowingly participating in a breach of fiduciary duty under ERISA, is solely against MRS.

II. MOTION TO DISMISS STANDARD

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of a complaint. Schatz v. Rosenberg, 943 F.2d 485, 489 (4th Cir.1991), cert. denied, ___ U.S. ____, 112 S.Ct. 1475, 117 L.Ed.2d 619 (1992). When reviewing a motion to dismiss it is inappropriate for a court to rely upon facts outside of the complaint. The court's inquiry is limited to whether Plaintiffs' allegations constitute "`a short and plain statement of the claim showing that the pleader is entitled to relief.'" Bolding v. Holshouser, 575 F.2d 461, 464 (4th Cir.) (quoting Fed.R.Civ.P. 8(a)(2)), cert. denied, 439 U.S. 837, 99 S.Ct. 121, 58 L.Ed.2d 133 (1978). In deciding a Rule 12(b)(6) motion to dismiss a court should not dismiss a complaint "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Republican Party of North Carolina v. Martin, 980 F.2d 943, 952 (4th Cir), cert. denied, ___ U.S. ____, 114 S.Ct. 93, 126 L.Ed.2d 60 (1993). The court must view the facts in the light most favorable to the non-moving party in determining whether a case should be dismissed. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Martin, 980 F.2d at 952.

III. PLAINTIFFS' ALLEGATIONS REGARDING MRS

On various occasions, patients who belonged to employee benefit plans were admitted to one of Plaintiffs' hospitals for medical treatment. Amended Complaint at ¶¶ 15-17, 19. They assigned their rights under their plans to the Plaintiff who provided them with medical treatment. Amended Complaint at ¶ 21. The patients incurred medical bills and expenses for treatment for which Plaintiffs submitted statements to the plan sponsors or administrators of the various employee benefit plans for payment. Amended Complaint at ¶ 22.

MRS provided adjustment services and legal advice to the plan sponsors or administrators. Amended Complaint at ¶ 3. MRS would review the statements submitted by Plaintiffs to determine the reasonableness of the charges. Amended Complaint at ¶¶ 23, 32. After its review, MRS would "induce," "recommend," "advise," "encourage," or "incite" the plan sponsors or administrators to refuse payment in full or to partially deny benefits allegedly based on the reasonableness of the charges. Amended Complaint at ¶¶ 23, 32, 56. Based upon MRS's review and advice, the plan sponsors and administrators refused to pay some or all benefits under the plans. Amended Complaint at ¶¶ 23, 28, 45, 46, 56. Plaintiffs allege that MRS engaged in unreasonable review practices leading to the improper reduction of benefits. Amended Complaint at ¶ 35.

IV. ISSUES PRESENTED

The issues presented by the motion to dismiss of MRS are: (1) whether Plaintiffs' Amended Complaint can support causes of action under ERISA against MRS as a fiduciary and (2) whether ERISA authorizes a cause of action for equitable relief against a nonfiduciary for knowing participation in a fiduciary's breach of fiduciary duty.

V. DISCUSSION

A. MRS IS NOT AN ERISA FIDUCIARY

Plaintiffs contend that MRS is a fiduciary as defined by ERISA and liable for breach of fiduciary duty under ERISA. The court determines that this contention is without merit.²

"Fiduciary" as used throughout ERISA is defined as follows:

A person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan....

29 U.S.C. § 1002(21)(A). ERISA also designates as fiduciaries persons named as fiduciaries in the plan instrument or persons identified as fiduciaries pursuant to a procedure spelled out in the plan. See 29 U.S.C. § 1102(a)(2); 29 U.S.C. § 1105(c)(1). Labor Department guidelines regarding the determination of fiduciary status provide further guidance. These guidelines clearly state that persons who determine plan eligibility, calculate benefits, advise plan participants of their rights and options, prepare reports concerning participants' benefits, process claims, or make recommendations to others for decisions with respect to plan administration are not fiduciaries under ERISA. 29 C.F.R. § 2509.75-8, D-2 (1993); Baxter v. C.A. Muer Corp., 941 F.2d 451, 455 (6th Cir.1991). Applying these standards, courts have held that professionals who render specialized services to employee benefit plans are not ERISA fiduciaries unless there is a showing of discretionary control as spelled out in 29 U.S.C. § 1002(21)(A). Toomey v. Jones, 855 F.Supp. 19, 23 (D.Mass.1994) (collecting cases).

Plaintiffs base their claim that MRS is a fiduciary on the allegation that "MRS reviewed the bills submitted by the Plaintiff Hospitals for the reasonableness of charges and exercised discretionary authority over the administration of the plans by determining and advising the plan administrators and sponsors how much of the claims to pay." Amended Complaint at ¶ 32. This allegation describes exactly the type of ministerial activity contemplated by the statutory definition and the Labor Department regulations as nonfiduciary. If the court were to accept Plaintiffs' argument, a wide variety of professionals, including lawyers and accountants, would become fiduciaries under ERISA because such professionals "recommend," "advise," and "encourage" their clients everyday. Nowhere do Plaintiffs allege that MRS had discretionary authority respecting the actual management of the plan. Nor do they allege that MRS had control regarding the disposition of plan assets. In fact, Plaintiffs admit that the plan sponsors...