Dykema Excavators, Inc. v. Blue Cross & Blue Shield Mich.

• Decision Date: 16 January 2015
• Docket Number: Case No. 13–12151.
• Citation: 77 F.Supp.3d 646
• Parties: DYKEMA EXCAVATORS, INC. and Dykema Excavators, Inc. Welfare Benefits Plan, Plaintiffs, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN, Defendant.
• Court: U.S. District Court — Eastern District of Michigan

77 F.Supp.3d 646

DYKEMA EXCAVATORS, INC. and Dykema Excavators, Inc. Welfare Benefits Plan, Plaintiffs

v.BLUE CROSS AND BLUE SHIELD OF MICHIGAN, Defendant.

Case No. 13–12151.

United States District Court, E.D. Michigan, Southern Division.

Signed Jan. 16, 2015.

Benjamin A. Anderson, Kyle Patrick Konwinski, Perrin Rynders, Stephen F. MacGuidwin, Aaron M. Phelps, Varnum, Riddering, Grand Rapids, MI, for Plaintiffs.

Donovan Solanus Asmar, Michael R. Colasanti, Rebecca D. O'Reilly, Bodman PLC, Detroit, MI, G. Christopher Bernard, James J. Carty, Matthew R. Rechtien, Bodman PLC, Ann Arbor, MI, Thomas P. Van Dusen, Bodman PLC, Troy, MI, for Defendant.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS AND GRANTING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT

DAVID M. LAWSON, District Judge.

This case is one of over thirty pending in this district in which defendant Blue Cross & Blue Shield of Michigan (BCBSM) is being sued by various businesses to recover funds BCBSM illegally billed and retained in violation of its third-party administrator (TPA) agreements and in breach of its fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. The parties sometimes refer to those funds as “hidden fees.” The bellwether case, Hi–Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, No. 11–12557, was tried to a conclusion and resulted in a judgment in favor of the plaintiff. BCBSM appealed that judgment and moved to stay the present case, predicting that the outcome of that appeal would determine the fate of the present litigation. The stay was dissolved after the court of appeals affirmed. See Hi–Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, 751 F.3d 740 (6th Cir.), cert. denied, ––– U.S. ––––, 135 S.Ct. 404, 190 L.Ed.2d 291 (2014). Thereafter, BCBSM moved to dismiss this case based on its statute of limitations defense, and plaintiffs Dykema Excavators, Inc. and the Dykema Excavators, Inc. Welfare Benefits Plan moved for partial summary judgment. After hearing oral argument on November 17, 2014, the Court now concludes that the plaintiffs' claims are not time-barred, and Hi–Lex requires that the plaintiffs be able to recover a portion of the hidden fees they seek. Therefore, the Court will grant the plaintiff's motion for partial summary judgment and deny the defendant's motion to dismiss counts I and II of the amended complaint. However, counts III through IX, which plead preempted state law claims, will be dismissed.

I.

Plaintiff Dykema is a “self-funded” customer of BCBSM. That means that Dykema pays the medical care costs of its employees from its own revenue (up to a stop-loss limit), instead of purchasing health insurance for them. Dykema signed a contract with BCBSM over ten years ago, renewed annually, for BCBSM to act as third-party administrator for health care claims. The parties refer to their contract as the Administrative Services Contract (ASC). Under the ASC, BCBSM receives, processes, and pays health care claims from Dykema's employees; provides Dykema with stop-loss insurance coverage; and allows Dykema's employees access to BCBSM's provider networks and their discounted rates. BCBSM submitted regular statements to Dykema stating the amount paid for healthcare and charging various fees authorized by the ASC. Dykema remitted on those statements. Dykema alleges that BCBSM substantially overstated the amounts owing by adding administrative charges that never were disclosed and that it never agreed to pay. BCBSM contends that it disclosed the hidden fees and that Dykema waited too long after it should have known of them to file its lawsuit.

On October 4, 2013, in its motion to stay proceedings in this case pending the outcome of the Hi–Lex appeal, BCBSM asserted that proceedings should be stayed because “[a]ny appellate decision in Blue Cross's favor on the issues identified ... will, under stare decisis, control this case, and supersede the judgment, because both sets of plaintiffs are similarly situated.” Def.'s Mot. to Stay [dkt. # 13] at 6. BCMSM asserted that the plaintiffs in both Hi–Lex and this matter were “parties to materially indistinguishable ASC contracts with Blue Cross,” and “the ASC (and related contractual documents) [are] indistinguishable from the 2002 ASC that will be at issue in the Hi–Lex appeal.” Ibid. BCBSM maintained that “if the Sixth Circuit finds that the 2002 ASC disclosed the Disputed Fee, stare decisis will mandate the same conclusion in this case.” Ibid.

In its opinion in Hi–Lex, the Sixth Circuit summarized the context of the parties' dispute over the fees charged under the administrative service contracts as follows:

The terms under which BCBSM served as the [Hi–Lex] Health Plan's [Third Party Administrator (TPA) ] are set forth in two Administrative Services Contracts (ASCs) the parties entered into in 1991 and 2002, respectively. The parties renewed those terms each year from 1991 to 2011 by executing a “Schedule A” document.

Under the ASCs, BCBSM agreed to process healthcare claims for Hi–Lex's employees and grant those employees access to BCBSM's provider networks. In exchange for its services, BCBSM received compensation in the form of an “administrative fee”—an amount set forth in the Schedule A on a per employee, per month basis.

In 1993, BCBSM implemented a new system whereby it would retain additional revenue by adding certain mark-ups to hospital claims paid by its ASC clients. These fees were charged in addition to the “administrative fee” that BCBSM collected from Hi–Lex under a separate portion of the ASC. Thus, regardless of the amount BCBSM was required to pay a hospital for a given service, it reported a higher amount that was then paid by the self-insured client. The difference between the amount billed to the client and the amount paid to the hospital was retained by BCBSM. This new system was termed “Retention Reallocation.”

The fees involved in this new system have been termed “Disputed Fees” by the district court. They include:

A. Charges for access to the Blue Cross participating provider and hospital network (Provider Network Fee);B. Contribution to the Blue Cross contingency reserve (contingency/risk fee);

C. Other Than Group subsidy (OTG fee); and

D. A retiree surcharge.

Hi–Lex, 751 F.3d at 743. The Sixth Circuit observed regarding the proceedings below that

[t]he district court dismissed the [plaintiffs'] state law claims as preempted, but granted Hi–Lex summary judgment on its claim that BCBSM functioned as an ERISA fiduciary and that BCBSM had violated ERISA by self-dealing. Furthermore, after a nine-day bench trial, the district court ruled that BCBSM had violated its general fiduciary duty under § 1104(a) and that Hi–Lex's claims were not time-barred. The court awarded Hi–Lex $5,111,431 in damages and prejudgment interest in the amount of $914,241.

Ibid.

In their amended complaint, the plaintiffs allege that Blue Cross charged them the same four types of undisclosed fees under their service contract as those that the Sixth Circuit found the defendant liable for in Hi–Lex, denominating them, as noted above, as “hidden fees.” According to the plaintiffs, those fees secretly were added to the disclosed “Administrative Service Fee” that was specified in the Schedule A documents, which were executed annually. Dykema asserts that the “Hidden Fees” were not disclosed in any of the periodic statements, reporting forms, or settlement reports that Blue Cross supplied to the plaintiffs, but instead were buried within the number reported as “Amounts Billed” by health care providers, rather than itemized in areas reserved for reporting “costs” or “fees.” The parties do not appear to dispute that the claims relating to these four specific categories of hidden fees are factually and legally congruent in all material respects to the claims discussed in Hi–Lex. However, BCBSM takes issue with the date on which the plaintiffs say they first were presented with a full disclosure of the amount and nature of the hidden fees in a document called the “Value of Blue” report that Blue Cross began delivering to customers in 2007.

Dykema also makes an additional claim in this case. It contends that while the Hi–Lex litigation was pending, it learned of a similar “fee retention” scheme carried out by BCBSM that involved burying undisclosed overcharges within the listings of payments made to doctors, under the auspices of a “Physician Group Incentive Program” (PGIP). According to the plaintiffs, under the PGIP, BCBSM reported that it paid higher amounts to doctors than it actually paid, then kept the difference. The plaintiffs allege that the PGIP scheme is nearly identical to the other hidden fees scheme, and BCBSM has not explained how it used the overcharged funds.

The plaintiffs filed their complaint in this case on May 15, 2013. On October 29, 2013, the Court granted BCBSM's motion to stay pending the outcome of the Hi–Lex appeal. After the Sixth Circuit affirmed in Hi–Lex, the Court dissolved the stay and reopened the case, and the plaintiff filed its amended complaint on June 10, 2014. BCBSM filed its motion to dismiss on June 17, 2014 based on its statute of limitations affirmative defense. Discovery closed on December 12, 2014. The plaintiffs filed their motion for partial summary judgment on August 5, 2014, seeking judgment as a matter of law on their claims for ERISA breach of fiduciary duty (Count I) and self-dealing (Count II), as to the four categories of fees they refer to as hidden fees, but not as to the PGIP fees.

II. Motion to dismiss

A. Statute of limitations

BCBSM has filed its motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). “A motion to dismiss based on the expiration of the statute of limitations is analyzed under Rule 12(b)(6).” Moseke v. Miller & Smith, Inc., 202 F.Supp.2d 492, 501 (E.D.Va.2002). “Like other Rule 12(b)(6) motions to dismiss, a motion to...