Hi-Lex Controls Inc. v. Blue Cross & Blue Shield of Mich., Case No: 11-12557
| Decision Date | 23 May 2013 |
| Docket Number | Case No: 11-12557 |
| Parties | HI-LEX CONTROLS INCORPORATED, HI-LEX AMERICA, INCORPORATED and HI-LEX CORPORATION HEALTH AND WELFARE PLAN, Plaintiffs, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN, Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
Hon. Victoria A. Roberts
FINDINGS OF FACT AND CONCLUSIONS OF LAW
I. TABLE OF CONTENTS 1
II. INTRODUCTION 4
III. FINDINGS OF FACT 6
IV. CONCLUSIONS OF LAW 42
I. INTRODUCTION
This is an action for alleged violations of the Employee Retirement Income Security Act of 1974 ("ERISA"). Plaintiffs filed suit on June 13, 2011. It is one in a series involving Administrative Service Contracts ("ASC") with Blue Cross and Blue Shield of Michigan ("BCBSM") for claims administration services and network access for self-funded employee health benefit plans. Under the ASCs, BCBSM serves as third-party administrator for Plaintiffs' employee health benefit plans. It processes and pays employee health claims; provides access to its network of physicians, hospitals, pharmacies, etc. for covered employees; and negotiates with hospitals and health care providers throughout the state. Plaintiffs reimburse BCBSM for claims paid on their behalf.
This case concerns certain fees that BCBSM allocated to itself as additional compensation ("Disputed Fees"). In essence, Plaintiffs argue that they did not know about the Disputed Fees until recently, and that BCBSM employed different ways to hide them. BCBSM says that it did not breach any duties in collecting the disputed fees because they were fully disclosed and Plaintiffs agreed to pay them.
Plaintiffs allege violations of §1104(a)--breach of fiduciary duty (Count One)--and § 1106(b)--self dealing (Count Two)—under ERISA.
On September 7, 2012, the Court issued an order addressing the parties' cross-motions for summary judgment. The Court found that BCBSM is a fiduciary under ERISA, that the Disputed Fees were paid from plan funds, and that relief is available to Plaintiffs under ERISA.
The Court granted summary judgment to Plaintiffs on Count Two--ERISA prohibited transaction (self-dealing)--finding that BCBSM committed a per se breach of Section 1106(b)(1) when it allocated Disputed Fees to itself. The Court held that the self-dealing claim would proceed to trial on damages. It also held that Count One--ERISA breach of fiduciary duty-would proceed to trial because several issues of material fact remained regarding whether BCBSM breached its fiduciary duty.
In its September 7, 2012 ruling, the Court found genuine issues of fact related to BCBSM's statute of limitations defense. It recognized that resolution of the statute of limitations was necessary to determine the extent of BCBSM's liability under Count II, and the extent of its liability, if any, under Count I. The applicable statute of limitations also governs the amount of damages Plaintiffs would be able to collect from BCBSM.
BCBSM filed a second motion for summary judgment grounded on a statute of limitations affirmative defense. The Court denied it on April 17, 2013; it held numerous issues of material fact had to be decided before the Court could determine the appropriate statute of limitations.
The Court conducted a bench trial. It began on April 23, 2013 and continued for nine non-consecutive days, ending on May 8, 2013.
II. FINDINGS OF FACT
1. Since at least 1991, BCBSM has served as the third party administrator of Plaintiffs' self-insured employee benefit plan, the Hi-Lex Corporation Health and Welfare Benefit Plan (the "Plan"). (Stipulated Fact ("SF") 2).
2. The terms under which BCBSM served as the Plan's third-party administrator are set forth in the parties' 1991 and 2002 ASCs. (SF 3).
3. The parties renewed the ASCs each year from 1991 through 2011 by executing a Schedule A document (the "Schedule As"). (SF 3). The ASCs and Schedule As are boilerplate documents created by BCBSM and used by BCBSM for the vast majority of its self-insured ASC customers. Id.
4. The Court admitted into evidence as joint exhibits, the 2002 ASC and a number of the Schedule As. Neither party can locate the 1991 ASC and certain Schedule As, but the parties crafted a stipulation concerning the relevant aspects of the Schedule As. (SF 4).
5. Pursuant to the ASCs and Schedule As, BCBSM administered the health care claims on behalf of the Plan from the Plan's assets. (SF 5).
6. The Plan's assets were pre-supplied by Plaintiffs; BCBSM wired funds to a BCBSM bank account. (Joint Trial Exhibit ("JTE") 1 at 8-9). That bank account and the Plan assets held in that account were under BCBSM's sole control.
7. The monies Plaintiffs provided to BCBSM also included employee contributions to their health care coverage under the Plan.
8. In exchange for its services to the Plan, BCBSM received an administrative fee in a per employee, per month amount set forth in the Schedule As ("Administrative Fee"). (JTE 2 - 11).
9. In 1987 and 1988, BCBSM was in poor financial shape. (Testimony of John Paul Austin, BCBSM's former chief actuary ("Austin Test.")).
10. To regain financial stability, BCBSM started charging various fees of its self-funded customers such as Plaintiffs: the "Plan-Wide Viability Surcharge," "Other Than Group Subsidy," and "Group Retiree Surcharge." .
11. BCBSM received "tremendous complaints from customers" in response to the new fees. (Austin Test.) This stemmed, in part, from the fact that "[t]he billing of these amounts to customers was an add-on to the bill, highlighted for all to see . . . ." (JTE 80 at 276, ¶2) (emphasis added).
12. BCBSM was unable to convince customers that the subsidies were fair:
The advent of self-funding as an alternative to insured programs has highlighted administrative fees as a cost and a concern to customers purchasing a BCBSM ASC plan. Citing BCBSM's high costs, many customers have complained and have threatened to leave if relief was not provided. Indeed, some customers have cancelled BCBSM coverage for this reason. Many arguments have been presented to customers dissatisfied with our administrative costs. The costs of managing a network of hospitals and doctors as large as the Blue network, focusing on total costs and not just the small percentage reflective of administrative costs and the wide range of services provided by BCBSM have all been used at various stages to address case specific concerns. These arguments have been met with moderate success.
(JTE 80 at 277, ¶1) (emphasis added).
13. The charges were so unpopular that, in 1989 alone, BCBSM lost 225,000 members. (Austin Test.).
14. Many other customers refused to pay the fees. Mr. Austin confirmed that roughly half of these "add-on" fees were not being paid; it was BCBSM's policy not to sue customers. (Id.)
15. BCBSM was under enormous financial pressure. (Austin Test.).
16. According to BCBSM, these fees made it a "challenge to maintain customer relationships." (JTE 80 at 276, ¶2). By disclosing the fees, BCBSM was "its own worst enemy." (Id.)
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