Opinion
8:99CV141
February 16, 2000.
MEMORANDUM AND ORDER
I. Introduction
Before me is the defendant's motion for partial dismissal (Filing No. 8) of the plaintiff's amended complaint (Filing No. 6). The defendant's motion is supported by a brief and an "appendix of evidence and supplementary materials" (Filing No. 9) as well as a reply brief with attachments. The plaintiff has submitted a responsive brief with attachments.
Since the filing of the defendant's motion for partial dismissal, the plaintiff has filed a motion (Filing No. 24) to file a second amended complaint (Filing No. 25). This second amended complaint adds no new substantive allegations to the prior complaint but merely a) substitutes the correct United Health Care subsidiary as the defendant, and b) renumbers the counts so that there are no longer two Count IIIs. The plaintiff's motion to file a second amended complaint is granted; this memorandum and order addresses the allegations raised in this complaint.
Plaintiff's amended complaint raises several claims on behalf of herself and the class of individuals who are covered members of a health plan governed by the Employment Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., and administered or insured by the defendant: Count I is a claim for benefits under ERISA § 502(a)(1)(B); Count II alleges a breach of fiduciary duty under ERISA §§ 409(a) and 409(b); Count III alleges a RICO violation under 18 U.S.C. § 1916 — 1968; Count IV asks for a declaratory judgment under ERISA § 502(a)(1)(B); and Count V asks for an accounting under ERISA § 502(a)(1)(B). The defendant moves, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss Counts II, III, and V of the plaintiff's amended complaint. I have reviewed the record, the parties' briefs, the defendant's index of evidence, and the applicable law, and I conclude that the defendant's motion to dismiss Counts II, III, and V should be granted.
II. Factual Background
The plaintiff generally alleges that under the terms of her health care plan with the defendant, she and other subscribers agreed to pay a portion or "co-payment" of the amounts charged by health care providers or hospitals for medical services rendered to plan subscribers; the plan would cover the remaining charges. The plaintiff believed that the amount of the co-payment was based on public contracts which the defendant had negotiated with health care providers to provide specified medical services for discounted rates.
The plaintiff alleges that the defendant actually charged plan subscribers a co-payment that was an additional ten percent above the rate contracted in the various discount agreements. The plaintiff alleges that the defendant held this ten percent as a reserve to pay to health care providers who met certain additional criteria. If the provider did not meet the criteria, the plaintiff alleges, then the defendant would keep the reserve. The plan subscribers, however, allegedly never knew about these additional discounts nor did they receive the benefit of any additional discount through reduced co-payments.
III. Standard of Review
According to Rule 12(b) of the Federal Rules of Civil Procedure, if a movant who seeks to dismiss a complaint for failure to state a claim asks the court to consider matters outside the pleadings, the court may treat the motion as one for summary judgment. Fed.R.Civ.P. 12(b). The Eighth Circuit considers the phrase "matters outside the pleadings" to include "any written or oral evidence in support of or in opposition to the pleading that provides some substantiation for and does not merely reiterate what is said in the pleadings." Hamm v. Rhone-Poulene Rorer Pharmaceuticals, Inc., No. 98-1063 at 7 (8th Cir. August 11, 1999) ( quoting Gibb v. Scott, 958 F.2d 814, 816 (8th Cir. 1992)).
The defendant in this case submitted an appendix of evidence and supplementary materials in support of its motion to dismiss (Filing No. 9) consisting of affidavits — two from its employees and one from its counsel — as well as copies of complaints and orders from three federal district court cases. The defendant also attached to its reply brief an appellant's reply brief filed in the Eighth Circuit LaBarre case, discussed below, and two more federal district court orders. Not to be outdone, the plaintiff has likewise attached to her responsive brief orders from two different federal district court cases. To avoid converting this motion to dismiss into one for summary judgment, I have excluded from consideration the affidavits included in the defendant's appendix. The various orders, however, need not be excluded because they represent no more than persuasive authority submitted by the parties in a helpful effort to delineate the issues underlying the motion to dismiss.
In deciding whether to dismiss a complaint under Rule 12(b)(6), all facts alleged in the plaintiff's complaint are assumed to be true. The trial court then liberally construes those allegations, De Wit v. Firstar Corp., 879 F. Supp. 947, 959 (N.D.Iowa 1995), making all reasonable inferences in favor of the non-moving party, McCormack v. Citibank, N.A., 979 F.2d 643, 646 (8th Cir. 1992). Dismissal is the exception rather than the rule; it occurs "only in the "unusual case' where the complaint on its face reveals some insuperable bar to relief," De Wit at 959 ( citing Fusco v. Xerox Corp., 676 F.2d 332 (8th Cir. 1982)), such as a missing allegation about an element necessary to obtain relief or an affirmative defense or other bar. See Doe v. Hartz, 134 F.3d 1339, 1341 (8th Cir. 1998). The court does not determine whether the plaintiff will ultimately prevail, but rather whether the plaintiff is entitled to present evidence in support of her claim. Swartzbaugh v. State Farm Ins. Cos., 924 F. Supp. 932 (E.D.Mo. 1995). "[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 (1957).
IV. Discussion A. Count II: Breach of Fiduciary Duty
The plaintiff's second cause of action, brought pursuant to ERISA §§ 406(b) and 409(a), alleges that the defendant breached its fiduciary duty to the plaintiff by 1) failing to administer the plan according to its terms in that, because of the ten percent reserve never disclosed to plan participants, it paid a lower percentage of participants' fees for medical services than promised and hence caused plan participants to pay a higher co-payment or deductible; 2) affirmatively misleading plan participants, sponsors, and subscribers through issuing incorrect and deceptive "explanation of benefits," thereby inducing subscribers to pay more in deductibles and co-payments than required under the plan; 3) interpreting the plan in an arbitrary and capricious manner; and 4) failing to disclose to plan participants that it had used their market power to secure for itself additional discounts from health care providers, thereby deceptively causing participants to pay higher co-payments and deductibles based on the charges that did not include these additional discounts. Flg. No. 25, Second Amended Complaint, 11-12, 35a-d [hereafter, Second Amended Complaint].
The defendant argues that the plaintiff cannot use ERISA §§ 406(b) (governing fiduciary conduct) and 409(a) (providing liability for breach of fiduciary duty), 29 U.S.C. § 1106 and 1109, to recover for individual damages for breach of fiduciary duty. While ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), does permit a plaintiff to pursue a cause of action for breach of fiduciary duty under ERISA § 409, the defendant believes that section 409 permits recovery only when it will inure to the benefit of the plan as a whole. Because the plaintiff alleges that only she and the class — rather than the plan as a whole — have incurred damages as a result of the defendant's breach of fiduciary duty, Second Amended Complaint at 12, 36, the defendant argues that the plaintiff's claim for breach of fiduciary duty must be dismissed.
ERISA § 409, on which Count II of the amended complaint rests, does not provide the plaintiff with a cause of action against the defendant. The United States Supreme Court said, in a case brought by former members of an ERISA employee benefit plan, that employees could not proceed under ERISA § 502(a)(2), which is "tied to section 409, [because section 502(a)(2)] does not provide a remedy for individual beneficiaries." Varity Corp. v. Howe, 516 U.S. 489, 515 (1996). Varity was based in part on the holding in Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 144 (1985), in which the Court held that ERISA § 409 authorizes relief for breach of fiduciary duty only to the plan itself, not to an individual attempting to recover damages. Individuals seeking damages for themselves based on breach of fiduciary duty must avail themselves of ERISA § 502(a)(3), which authorizes A appropriate' equitable relief" but only in cases where the statute does not otherwise provide "adequate relief for a beneficiary's injury." Varity Corp. v. Howe, 516 U.S. at 515. Despite her "preliminary statement" that plaintiff brings this action pursuant to " 29 U.S.C. § 1132(a)(1)(B) [ERISA § 502(a)(1)B)], 1132(a)(3) [ERISA § 502(a)(3)], 1109(a) [ERISA § 409(a)], and 1106(b) [ERISA § 406(b)]," Second Amended Complaint at 3, 5, an examination of the allegations in Count II shows that the plaintiff firmly grounds her claim for breach of fiduciary duty on ERISA § 409 rather than on ERISA § 502(a)(3). Consequently, under the rule of both Russell and Varity, the plaintiff and her class, as individuals, are precluded from pursuing a claim for breach of fiduciary duty under ERISA § 409.
Further, this result would occur even if the plaintiff had brought her claim and those of the class for breach of fiduciary duty under ERISA § 502(a)(3). The plaintiff has not alleged that the relief which she and the class seek in Count II, "damages in an amount which will be proven at trial," Second Amended Complaint at 12, 36, would differ in any way from her claim for benefits made in Count I of her amended complaint pursuant to ERISA § 502(a)(1)(B). In Count I, the plaintiff seeks the return of excess co-payments paid by the plaintiff and members of the class. Section 502(a)(1)(B) authorizes a plan participant to "recover benefits due him under the terms of this plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B). Although plaintiff argues that she is seeking damages in Count II for the defendant's alleged deception rather than for excess co-payments, Plaintiff's Brief at 5, she in fact seeks to enforce her right under the terms of the plan to have co-payments based on openly negotiated discount agreements between the defendant and health care providers. These damages are compensatory and hence are not recoverable under section 502(a)(3). Kerr v. Charles F. Vatterott Co., 1999 WL 493996, *4 (8th Cir. 1999). Thus, the equitable claim for breach of fiduciary duty in Count II would still be subject to dismissal because the plaintiff's claim for benefits in Count I is exactly the sort of "adequate relief" the statute provides for individuals' injuries.
The Eighth Circuit has adopted this approach, despite the plaintiff's protestations to the contrary, holding that a plaintiff seeking individual relief under ERISA § 502(a)(3) under a breach of fiduciary duty theory did not have a cause of action when the alleged breach of fiduciary duty was a failure to distribute benefits in accordance with the plan. Wald v. Southwestern Bell Corp. Customcare Med. Plan, 83 F.3d 1002, 1006 (8th Cir. 1996). The court said that the plaintiff's claim for benefits under ERISA § 502(a)(1)(B) gave the plan participant adequate relief. Because the participant sought no different relief under the ERISA § 502(a)(3) claim, the claim for equitable relief based on a breach of fiduciary duty theory was inappropriate. But see Hall v. Lhaco, Inc., 140 F.3d 1190, 1197 (8th Cir. 1998) (plaintiff could bring claim for benefits under both § 502(a)(1)(B) and § 502(a)(3) because different relief was sought under each section).
The district court cases which the plaintiff provided are inapposite because they deal primarily with exhaustion of administrative remedies. The first, Drazen v. Physicians Health Plan, 4:95CV2198 at 7 (E.D.Mo. 1996), is a summary judgment decision that does not even directly address the issues involved in an ERISA claim for breach of fiduciary duty. The second, Burris v. IASD Health Servs. Corp., 4-94-CV-10845 at 23 (S.D.Iowa 1995), is a pre- Varity decision dismissing a plaintiff's ERISA claims for future injunctive relief because she was no longer a plan participant, but allowing the plaintiff to proceed with ERISA claims for declaratory relief and other equitable remedies, including restitution and constructive trust. The decision turned on the exact language of the plan, which the court considered despite the prohibition in Rule 12(b) on matters outside the pleadings because a copy of the plan had been incorporated into the plaintiff's complaint and then was cited in the defendant's brief. In the present case, interpretation of the language of the plan is simply not at issue.
The cases provided by the defendant, however, are directly on point. Indeed, they involve not only the same issues raised under the present ERISA claim for breach of fiduciary duty but also the same defendant. In Sinclair v. United HealthCare of Georgia, Inc., 1:96-cv-3412 at 5 (N.D.Ga. 1997), the plaintiffs brought an action alleging that their co-payments were higher than required by their plan because the defendant had failed to disclose to them secret discount agreements with health care providers. The district court dismissed the plaintiffs' equitable cause of action for breach of fiduciary duty brought pursuant to ERISA § 409(a), 29 U.S.C. § 1109, because they had an adequate remedy under ERISA § 502(a)(1)(B). In Donner v. United HealthCare Corp., IP 97-1052-C M/S at 1 (S.D.Ind. 1997), the district court summarily ordered the plaintiffs' breach of fiduciary duty causes of action dismissed "[i]n accordance with the reasoning in Sinclair v. United HealthCare of Georgia. The plaintiffs had alleged that they were forced to pay co-payments in excess of the percentage they were required to pay under the plan because the defendants had secret discount arrangements with health care providers.
Finally, in Kennedy v. United HealthCare of Ohio, Inc., 186 F.R.D. 364 (S.D.Ohio 1999), the plaintiffs alleged that they paid more than their percentage share of medical expenses under the plan because of secret agreements between the defendant and health care providers. The district court dismissed plaintiffs' equitable claims brought under ERISA § 502(a)(3) for breach of fiduciary duty and an accounting because the plaintiffs had an adequate remedy in their claim for benefits under ERISA § 502(a)(1)(B).
Despite the plaintiff's assertion that all of these cases are wrongly decided because they are based on Varity dicta, I am nevertheless persuaded that the plaintiff's equitable claim for breach of fiduciary duty based on ERISA § 409 is barred, first, because section 409 does not create a remedy for individuals but only for the plan itself, and second, because the plaintiff has an adequate remedy in her claim for benefits under ERISA § 502(a)(1)(B). Accordingly, Count II of the plaintiff's second amended complaint is dismissed.
B. Count V: Accounting
The plaintiff asks that the defendant be required pursuant to ERISA §§ 502(a)(1) and 502(a)(3), 29 U.S.C. § 1132(a)(1) and 1132(a)(3), to account for and disgorge all amounts it improperly retained as a result of its "tortious, contract-breaching, statutorily-prohibited, inequitable conduct." Second Amended Complaint at 16, 50.
ERISA § 502(a)(1), however, does not authorize a cause of action for an accounting. Sub-section (A) allows a participant or beneficiary to recover liquidated damages for a plan administrator's failure to provide certain information on request. Sub-section (B) permits a plan participant to enforce the terms of the plan. Since that is the relief sought under Counts I and II, and for the reasons discussed in previous section, no accounting is possible under section 502(a)(1).
The plaintiff fares no better with ERISA § 502(a)(3). Sub-section (A) authorizes a participant to seek an injunction for acts that violate ERISA or the plan, but it does not authorize an accounting. Sub-section (B) permits a participant to seek equitable relief for harm suffered as the result of the defendant's alleged breach of fiduciary duty. Recovery is limited to A appropriate equitable relief,' which includes injunctive, restitutionary, and mandamus relief, but does not include compensatory damages." Kerr v. Charles F. Vatterott Co., 1999 WL 493996 at *4. But, as discussed above, equitable relief such as an accounting is appropriate only when a plaintiff has no other ERISA remedy. Since in Count I the plaintiff makes a claim for benefits pursuant to ERISA § 502(A)(1)(B), any claim for equitable relief is barred, and the plaintiff's claim for an accounting by the defendant must fail. See also Sinclair v. United HealthCare of Georgia, Inc., 1:96-cv-3412 at 6 (dismissing plaintiffs' claim for an accounting because plaintiffs had other ERISA remedies); Kennedy v. United HealthCare of Ohio, Inc., 98CV000128 at 6 (dismissing plaintiffs' claim for an accounting made under ERISA § 502(a)(3) because they had available to them relief under ERISA § 1132(a)(1)(B)).
Accordingly, Count V of the plaintiff's amended complaint is dismissed.
C. Count III: RICO Violations
The plaintiff's Count III alleges that the defendant engaged in a pattern of racketeering in violation of 18 U.S.C. § 1962(c) by using the mail to send to participants misleading and fraudulent documents, thereby causing the plaintiff and other participants to make excessive co-payments under the plan. Second Amended Complaint at 13-14, §§ 39-41. The plaintiff also alleges that the defendant, in violation of 18 U.S.C. § 1962(a), used and invested the income it derived from its pattern of racketeering activity to operate the enterprise which caused the plaintiff's damage. Second Amended Complaint at 15, 45.
A threshold issue is whether the plaintiff's RICO claims are barred by the McCarran-Ferguson Act. The act provides in relevant part that a federal statute may not "invalidate, impair or supersede" a state law enacted to regulate "the business of insurance" unless the federal law "specifically relates to the business of insurance." 15 U.S.C. § 1012(b).
In a case in which beneficiaries of health insurance policies issued by a Nevada insurance company challenged a concealed discount given to the insurer by a hospital for charges incurred by the beneficiaries, the Supreme Court held that RICO is not a law that A specifically relates to the business of insurance. Humana, Inc. v. Forsyth, 119 S.Ct. 710, 716 (1999). In determining in turn whether applying RICO to the alleged scheme would "impair" Nevada law, the Court observed that generally, the McCarran-Ferguson Act would not preclude application of a federal law which did not conflict directly with state regulation and which, when applied, would not "frustrate [a] declared state policy or interfere with a State's administrative regime." Id. at 717. The Court then ruled that a private suit under RICO by policy holders would not "impair" Nevada law because Nevada law allowed individuals to sue for unfair insurance practices, including an insurer's misrepresentation about pertinent facts or policy provisions, as well as for violation of other Nevada statutory and common law. Id. at 718. Therefore, "because RICO advances the State's interest in combating insurance fraud, and does not frustrate any articulated Nevada policy," the Court held that the McCarran-Ferguson Act did not "block the respondent policy beneficiaries' recourse to RICO in this case." Id. at 719.
The Eighth Circuit recently re-examined the interplay between the McCarran-Ferguson Act and RICO in a case brought by a used car buyer who claimed that insurers schemed to sell her higher-priced insurance when she had in fact directed the assignee of her retail installment contract to instead purchase lower-priced insurance. The court held that the McCarran-Ferguson Act precluded application of RICO to the insurers because their activities were governed by Minnesota insurance statutes that permitted no private cause of action for violations, but only administrative recourse. LaBarre v. Credit Acceptance Corp., 175 F.3d 640, 643 (8th Cir. 1999) (reconsideration denied, July 28, 1999). The court observed that "the extraordinary remedies of RICO would frustrate, and perhaps even supplant, Minnesota's carefully developed scheme of regulation." Id. ( quoting Doe v. Norwest Bank Minnesota, 107 F.3d 1297, 1308 (8th Cir. 1997). The court allowed the RICO claim against the assignee to proceed, however, because its activities were not governed by Minnesota's insurance statutes and did not involve the business of insurance within the framework of the McCarran-Ferguson Act. Id.
The issue here, therefore, is whether the plaintiff's RICO claim is barred because the defendant's conduct in allegedly charging the plaintiff excess co-payments is governed by Nebraska insurance statutes that do not permit private causes of action. The defendant argues that no private cause of action exists because the Nebraska Unfair Insurance Trade Practices Act, Neb. Rev. Stat. Ann. §§ 44-1521 to 44-1535 (Michie 1995 1998 Supp.), which mirrors nearly exactly the Minnesota statutes examined in LaBarre, recognizes no private cause of action. While the Eighth Circuit has ruled that the Nebraska Unfair Insurance Trade Practices Act "does not contemplate a private cause of action," Allied Financial Servs., Inc. v. Foremost Ins. Co., 418 F. Supp. 157, 162 (D.Neb. 1976), the Nebraska Supreme Court, however, has not passed directly on the issue of whether the Unfair Insurance Trade Practices Act allows a private cause of action.
The plaintiff does not directly address the apparent lack of a private cause of action under the Nebraska insurance statutes. Instead, the plaintiff asserts that a private cause of action exists under the Nebraska Consumer Protection Act, enacted in 1974 after the events leading to litigation in Allied Financial Services. The act provides in part that "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce" are unlawful. Neb. Rev. Stat. Ann. § 59-1602 (Michie 1995). Private civil actions are allowed to recover actual damages brought about by violations of sections 59-1602 to 59-1606. Neb. Rev. Stat. Ann. § 59-1609 (Michie 1995).
Exactly the same argument lies at the heart of a Nebraska Federal District Court ERISA suit brought to recover the costs of an insured's health care which the defendant allegedly had unlawfully refused to pay. Judge Urbom observed that
[w]hile it may be that § 59-1602 itself is broad enough to encompass the prohibitions of § 44-1525, I can find nothing that suggests that the remedy of the Consumer Protection Act was intended to modify the scope of the Trade Practices Act. I therefore find that no private cause of action exists in the Trade Practices Act, and accordingly dismiss the plaintiff's [action for misrepresentation brought under the Unfair Competition and Trade Practices Act, Neb. Rev. Stat. § 44-1525(2)].Lincoln Gen. Hosp. v. Nebraska St. Ed. Ass'n Health Care Program Plan, CV89-L-533 at 3 (D.Neb. 1990) (unpublished). Even prior to this decision, the Nebraska Supreme Court likewise had declined the invitation to limit Allied Financial Services when asked to consider the same issue, i.e., whether the Nebraska Consumer Protection Act, when combined with the Nebraska Unfair Competition and Trade Practices Act, provides a private cause of action. See White v. Medico Life Ins. Co., 327 N.W.2d 606, 611 (Neb. 1982).
I will adhere to the combined rulings in LaBarre, Allied Financial Services, and Lincoln General Hospital. I conclude, first, that the Nebraska Consumer Protection Act does not give the plaintiff the statutory private cause of action withheld in the Nebraska Unfair Competition and Trade Practices Act. Second, I conclude that this lack of a private cause of action draws this case within the ambit of LaBarre. As a consequence, the McCarran-Ferguson Act precludes application of RICO to the defendant in this case. For purposes of this suit, permitting the plaintiff to pursue a RICO claim against the defendant would "frustrate" or "supplant" Nebraska's insurance regulatory scheme that remains unmodified despite the passage of the more general Consumer Protection Act.
Since my resolution of this threshold matter is dispositive of the plaintiff's RICO claim, I need not address the other arguments the parties have raised. I therefore grant the defendant's motion to dismiss Count III of the plaintiff's second amended complaint.
IT IS ORDERED that
1. The plaintiff's motion (Filing No. 24) to file a second amended complaint is granted;
2. The defendant's motion (Filing No. 8) to dismiss with prejudice Counts II, V, and III is granted.