W.E. Aubuchon Co., Inc. v. Benefirst, LLC
| Decision Date | 12 June 2009 |
| Docket Number | Civil Action No. 05-40159-FDS. |
| Citation | 661 F.Supp.2d 37 |
| Parties | W.E. AUBUCHON CO., INC.; Aubuchon Distribution, Inc.; W.E. Aubuchon Co. Inc. Employee Medical Benefit Plan; and Aubuchon Distribution, Inc. Employee Medical Benefit Plan, Plaintiffs, v. BENEFIRST, LLC, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Louis M. Ciavarra, Colleen E. Cushing, James P. Hoban, Ryan T. Killman, Douglas T. Radigan, Bowditch & Dewey LLP, Worcester, MA, for Plaintiffs.
Eric L. Brodie, Stephen D. Rosenberg, The McCormack Firm, LLC, Richard J. Poliferno, Long & Leahy, Boston, MA, for Defendants.
MEMORANDUM ON THE COURT'S ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
This is a dispute arising out of the administration of two employee medical benefit plans. Defendant BeneFirst, LLC, a third-party administrator, was hired by plaintiffs W.E. Aubuchon Co., Inc., and Aubuchon Distribution, Inc., the employer sponsors of the relevant benefit plans. The plans are qualified employee benefit plans within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.
According to plaintiffs—and for these purposes, the Court will assume that it is true—BeneFirst made claim processing errors amounting to millions of dollars in additional costs during the period it served as the third-party administrator to the plans. Plaintiffs have sued for breach of contract under state law and for breach of fiduciary duty under ERISA. The parties agree that the two sets of claims are mutually exclusive—that is, plaintiffs can bring either state-law contract claims or ERISA fiduciary claims, but not both.
BeneFirst has moved for summary judgment in its favor. First, it contends that plaintiffs' state-law claims for breach of contract are preempted by ERISA, and therefore must be dismissed. Second, it contends that it is not a "fiduciary" within the meaning of ERISA, and therefore cannot be found liable for breach of fiduciary duty. BeneFirst thus contends, in essence, that plaintiffs' claims fall into a no-man's land between ERISA and state law, and that plaintiffs can bring no claims of any nature against it for any malfeasance of any kind.
For the reasons set forth below, the Court will grant defendant's motion for summary judgment as to those portions of Counts 1 and 2 that assert a claim that defendant acted as a functional fiduciary, and otherwise deny the motion.
Except where noted, the following facts are presented in the light most favorable to the non-moving parties.
Plaintiffs W.E. Aubuchon Co., Inc., and Aubuchon Distribution, Inc., are Massachusetts corporations that own and operate a chain of hardware stores in New England and New York. The two corporations sponsor the W.E. Aubuchon Co., Inc. Employee Medical Benefit Plan and the Aubuchon Distribution Inc. Employee Medical Benefit Plan, respectively. These plans provide medical benefits to qualifying employees of the Aubuchon entities. The plans are covered by ERISA. The Aubuchon companies do not administer their own plans, but instead employ a third-party administrator.
In 2001, Aubuchon retained the services of BeneFirst LLC as administrator of both plans. BeneFirst served as the administrator for the W.E. Aubuchon Plan from July 1, 2001, through December 31, 2004, at which point it was terminated. Bene-First was the administrator for the Aubuchon Distribution Plan for only one year, from July 1, 2001, through June 30, 2002; at the end of the 2002 plan year, the company's employees became covered under a union medical benefit plan.1
The arrangement between the Aubuchon entities and BeneFirst was governed by separate Administrative Services Agreements ("ASAs"), one for each plan. No signed copies of the ASAs between the Aubuchon entities and BeneFirst have been produced. However, the parties agree that an unsigned copy of the ASA for the Distribution plan, submitted to the Court as an exemplar, embodies the essential terms of both agreements.2 For the sake of convenience, the Court will refer to the companies, the plans, and the ASAs in the singular as "Aubuchon," the "Plan," and the "ASA."
The ASA outlines the roles and responsibilities of the parties with regard to administering the Plan. In the section captioned "Claims Administration," the ASA sets forth various obligations of the Plan Sponsor [Aubuchon] and the Plan Administrator [BeneFirst]. Among other things, it imposes the following obligation on Aubuchon:
The Plan Sponsor shall:
1. Retain the final authority and responsibility for the Benefit Plan and its operations. The Plan Sponsor gives the Plan Administrator the authority to act on behalf of the Plan Sponsor in connection with the Benefit Plan but only [as] expressly stated in this Agreement or as mutually agreed upon in writing by the Plan Sponsor and the Plan Administrator[.]
(ASA at I.A.1).
It also imposes the following obligation on BeneFirst:
The Plan Administrator, as Agent of the Plan Sponsor, shall:
1. Pay plan benefits in its usual and customary manner subject to and in accordance with this Agreement to or on behalf of persons entitled to receive plan benefits;
...
3. Maintain, for the duration of this Agreement and for two (2) years thereafter, adequate records of all transactions between Plan Sponsor, the Plan Administrator and plan participants. The records are the property of the Plan Sponsor. The Plan Sponsor has the right of continuing access to their records[.]
(ASA at I.B).
The same section also provides that BeneFirst will notify beneficiaries of claim denials; refer certain matters to the plan sponsor for determination; and assist the plan sponsor with the design and development of the plans and preparation of plan documents, both initially and in connection with any revisions.
The section captioned "Plan Administrator Liability" includes the following:
B. The Plan Administrator will use reasonable care and due diligence in the exercise of its powers in the performance of its duties under this Agreement. The Plan Administrator will not be liable for any mistake of judgement or other actions taken in good faith.
C. If it is determined that any payment has been made under this Agreement to an ineligible employee or dependent, or if it is determined that more or less than the correct amount has been paid by the Plan Administrator, the Plan Administrator will make a diligent effort to recover the payment made to an ineligible person but, the Plan Administrator will not be required to initiate court proceedings for any such recovery.
(ASA at IV.B-C).
The section captioned "Performance Standards" includes the following:
B. The Plan Administrator warrants that the following claims accuracy standards will be in place at all times:
1. Claim Financial Accuracy. The Claim Accuracy Ratio shall average .98 or greater as indicated by the Plan Administrator Claims Audit Reports (as measured year-to-date by the said monthly reports). Financial accuracy will be calculated by dividing the number of claims audited with no financial error by the total number of claims audited.
2. Claims Payment Accuracy. The total number of claims audited accurately divided by the total number of claims audited shall average .95 or greater as indicated by the Plan Administrator Claims Audit Reports (as measured year-to-date by the said monthly reports).
3. Claims Coding Accuracy. The total number of correct coding entries audited divided by the total number of coding entries audited shall average .95 or greater as indicated by the Plan Administrator Claims Audit Reports (as measured year-to-date by the said monthly reports).
(ASA at VI.B).
The ASA also authorizes BeneFirst to pay itself commissions from certain premiums it collected on behalf of the Plan before paying the net amounts over to Aubuchon. Aubuchon agreed to pay fees in return for the services BeneFirst provided and to maintain a bank account on which BeneFirst was a signatory for purposes of paying claims.
Successive Summary Plan Descriptions ("SPDs") were published for the Plan. Although the record is incomplete, the parties do not appear to dispute that the relevant provisions in the SPD are identical across all iterations.3 The Introduction to the SPD provides as follows:
In any event where a question may arise as to a claim for benefits or denial of a claim for benefits, the Employer, Plan Administrator, Contract Administrator, and such other individuals as may be party to or associated with the Plan will be guided solely by this Plan Document, which is also the Summary Plan Description.
The Plan Administrator has full discretionary authority to interpret this plan and its provisions and regulations with regard to eligibility, coverage, benefit entitlement, benefit determination and general administrative matters.
...
The Plan is administered through the Benefits Manager of the Company. The Company has retained the services of an independent Contract Administrator (contract administrator) to assist it in administering the Plan.
Like the ASA, the SPD also addresses the respective roles and responsibilities of BeneFirst and Aubuchon:
The Plan is self-administered by the Employer, which is a "named fiduciary" and the "plan administrator" under ERISA. The Employer has delegated claims administration and other day-to-day functions for all benefits except prescription drug benefits to the following Contract Administrator ...: BeneFirst, LLC....
The General Plan Provisions provide the following definitions:
Contract Administrator. BeneFirst, LLC, together with any other of its programs, units, or divisions that is designated to perform claims administration functions under the Plan ... is the Contract Administrator.
...
Plan Administrator. W.E. Aubuchon Co., Inc. The Term Plan Administrator...
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