Guardsmark v. Bluecross and Blueshield of Tenn., 01-2117 GA.

CourtUnited States District Courts. 6th Circuit. Western District of Tennessee
Writing for the CourtDonald
Citation169 F.Supp.2d 794
PartiesGUARDSMARK, INC., Guardsmark, Inc. Medical Plan, and Board of Trustees of the Guardsmark, Inc. Medical Plan Trust Fund, Plaintiffs, v. BLUECROSS AND BLUESHIELD OF TENNESSEE f.k.a. Memphis Hospital Service and Surgical Association, Inc. Defendant.
Docket NumberNo. 01-2117 GA.,01-2117 GA.
Decision Date22 October 2001
169 F.Supp.2d 794
GUARDSMARK, INC., Guardsmark, Inc. Medical Plan, and Board of Trustees of the Guardsmark, Inc. Medical Plan Trust Fund, Plaintiffs,
BLUECROSS AND BLUESHIELD OF TENNESSEE f.k.a. Memphis Hospital Service and Surgical Association, Inc. Defendant.
No. 01-2117 GA.
United States District Court, W.D. Tennessee, Western Division.
October 22, 2001.

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Jef Feibelman, W.J. Mchael Cody, Douglas F. Halijan, Burch, Porter & Johnson, Memphis, TN, Alan E. Schabes, Pete C. Elliott, Jeffrey D. Zimon, Mariann E. Butch, Anna K. Raske, Benesch, Friedlander, Coplan & Aronoff, Cleveland, OH, for Plaintiffs.

John I. Houseal, Jr., Larry Montgomery, Jeffrey A. Jarratt, Glankler, Brown, PLLC, Memphis, TN, for Defendant.

James Allen, Memphis, TN, pro se.


DONALD, District Judge.

Guardsmark, Inc. ("Guardsmark"), the Guardsmark, Inc. Medical Plan ("Plan"), and the Board of Trustees of the Guardsmark, Inc. Medical Plan Trust Fund ("Board") filed a complaint seeking: (1) damages for an alleged breach of fiduciary duty under the Employment Retirement Investment Security Act (ERISA); (2) equitable relief for alleged ERISA violations; (3) damages for alleged violation of ERISA's prohibited transaction provision; and (4) damages for alleged breach of contract. Defendant, BlueCross and BlueShield of Tennessee ("Defendant"), moved to dismiss Plaintiffs' complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court has jurisdiction pursuant to 28 U.S.C. § 1331.

For the following reasons, the Court GRANTS the motion to dismiss the state law breach of contract claims brought by Guardsmark and the Board, but DENIES the motion to dismiss Plaintiffs' remaining claims.

I. Background Facts

The following factual allegations are set forth in Plaintiffs' Complaint and are taken as true for purposes of this Order. On February 14, 2001, Guardsmark, the Plan, and the Board ("Plaintiffs") filed a complaint seeking damages and injunctive relief.

Guardsmark is a Delaware corporation and is the "plan administrator," "plan sponsor," and "fiduciary" of the Plan.1 The Plan is an "employee welfare benefit plan."2 The Board is the board of the trust fund established by Guardsmark to both fund and hold the assets of the Plan.

Defendant is a Tennessee corporation and the successor-in-interest to Memphis Hospital Service and Surgical Association, Inc. It has assumed all of the duties, obligations, and liabilities its predecessor owed to Plaintiffs.

Guardsmark and Defendant reached an "Agreement to Provide Certain Administrative Services Only" ("Agreement") on February 12, 1996. Guardsmark terminated the Agreement on October 31, 1999 after citing a series of unresolved problems with Defendant's services. The "runout period" lasted through January 31, 2000.

During this nearly five year period, Defendant served as a fiduciary by exercising discretionary authority to approve or deny claims. Defendant breached its fiduciary duties in this area by wrongfully approving and losing claims for payment. Defendant also served as a fiduciary by controlling Plan assets, as indicated by its preparation,

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approval, and disbursement of checks payable by the Plan and the Board. Defendant breached its fiduciary duties in this area by substantially overpaying claims and overcharging for its services.

Although both ERISA and the Agreement required Defendant to provide Plaintiffs with a complete history of claims paid, Defendant did not do so in 1998 and 1999. Defendant also failed to accurately report reinsurance claims and wrongfully withheld payment of prescription drug rebates. In addition, Defendant failed to maintain accurate records of the Plan's specific accumulator levels.3 Under ERISA, each of these failures represents a breach of fiduciary duty by Defendant.

Finally, the above-referenced facts are alleged to support Plaintiffs' claim that Defendant as a fiduciary, "party in interest,"4 or non-fiduciary, used Plan assets to secure unreasonable compensation for its services. ERISA prohibits fiduciaries, parties in interests, and non-fiduciaries from using or transferring Plan assets for this purpose.

On April 5, 2001, Defendant filed a motion to dismiss Plaintiffs' complaint for failure to state a claim upon which relief could be granted. Defendant denies it is a fiduciary under ERISA and, accordingly, asserts that Plaintiffs' claims under ERISA should be dismissed. Defendant also maintains that Plaintiffs' state law claims for breach of contract are preempted by ERISA.

II. Legal Standards

A. Motion to Dismiss

A party may bring a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). This motion only tests whether a cognizable claim has been pleaded in the complaint. Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir.1988). Essentially, it allows the court to dismiss meritless cases which would otherwise waste judicial resources and result in unnecessary discovery. See, e.g., Neitzke v. Williams, 490 U.S. 319, 326-27, 109 S.Ct. 1827, 1832, 104 L.Ed.2d 338 (1989).

The U.S. Supreme Court has held that "a complaint should not be dismissed for failure to state a claim 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, 2 L.Ed.2d 80 (1957); see also Neitzke, 490 U.S. at 326-27, 109 S.Ct. at 1832; Lewis v. ACB Business Services, Inc., 135 F.3d 389, 405 (6th Cir.1998). Thus, the standard to be applied when evaluating a motion to dismiss for failure to state a claim is very liberal in favor of the party opposing the motion. Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir.1976). Even if the plaintiff's chances of success are remote or unlikely, a motion to dismiss should be denied.

To determine whether a motion to dismiss should be granted, the court must first examine the complaint. The complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). The complaint must provide the defendant with "fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley, 355 U.S. at 47, 78 S.Ct.

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at 103; Westlake, 537 F.2d at 858. The complaint need not specify all the particularities of the claim and if the complaint is merely vague or ambiguous, a motion under Federal Rule of Civil Procedure 12(e) for a more definite statement is the proper avenue rather than under Federal Rule Civil Procedure 12(b)(6). 5A Wright, Miller & Kane, Federal Practice & Procedure § 1356 (West 1990). The plaintiff, however, has an obligation to allege the essential material facts of the case. Scheid, 859 F.2d at 436-37. All facts taken as true in the complaint must be "well-pleaded." Lewis, 135 F.3d at 405. "Well-pleaded facts" refers to those facts which are legally capable of being proved. 71 C.J.S. Pleading § 426 (1951).

In reviewing the complaint, the court must accept as true all factual allegations in the complaint and construe them in the light most favorable to the plaintiff. Windsor v. The Tennessean, 719 F.2d 155, 158 (6th Cir.1983). Indeed, the facts as alleged by the plaintiff cannot be disbelieved by the court. Neitzke, 490 U.S. at 327, 109 S.Ct. at 1832; Murphy v. Sofamor Danek Group, Inc., 123 F.3d 394, 400 (6th Cir.1997). Where there are conflicting interpretations of the facts, they must be construed in the plaintiff's favor. Sinay v. Lamson & Sessions Co., 948 F.2d 1037, 1039-40 (6th Cir.1991). However, legal conclusions or unwarranted factual inferences should not be accepted as true. Lewis, 135 F.3d at 405-06.

B. Fiduciary Status

ERISA reserves, in the first instance, fiduciary liability for "named fiduciaries," who are defined as either those individuals listed in plan documents or those who are otherwise identified as fiduciaries pursuant to a plan-specified procedure. 29 U.S.C. § 1102(a)(2); see also Beddall v. State Street Bank and Trust Co., 137 F.3d 12, 18 (1st Cir.1998).

Although the starting point for reasoned analysis of fiduciary status is the agreement between the parties, ERISA also extends fiduciary liability to functional fiduciaries. While not explicitly denominated as fiduciaries, these actors serve as fiduciaries by performing at least one of several enumerated functions with respect to a benefit plan. Chiera v. John Hancock Mutual Life Ins. Co., 2001 WL 111585 (6th Cir.2001); see also Beddall, 137 F.3d at 19. Under ERISA, a person functions as a fiduciary if he: (1) "exercises discretionary authority or discretionary control respecting the management of [an ERISA] plan" or (2) "exercises any authority or control respecting the management or disposition of its assets" or (3) "has any discretionary authority or discretionary responsibility in the administration of such plan." 29 U.S.C. § 1002(21)(A); see also Chiera, 2001 WL 111585.

Thus, the definition of a fiduciary under ERISA turns on function rather than form. Id.; see also Hamilton v. Carell, 243 F.3d 992, 998 (6th Cir.2001) (citing Mertens v. Hewitt Assocs., 508 U.S. 248, 262, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993) (ERISA "defines `fiduciary' not in terms of formal trusteeship, but in functional terms of control and authority over the plan...")).

Courts have distinguished between fiduciary functions like "managing" or "administering" a benefit plan and "purely ministerial functions" such as "business decisions"5 that merely have an effect on

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an ERISA plan. See Chiera, 2001 WL 111585 (citing Sengpiel v. B.F. Goodrich Co., 156 F.3d 660, 665 (6th Cir.1998)); Hamilton, 243 F.3d at 998; IT Corp. v. General American Life Ins. Co., 107 F.3d 1415, 1420 (9th Cir.1997).

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