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Sellers v. Anthem, Inc.

United States District Court, District of Columbia

June 6, 2018

JOSEPH SELLERS, JR., et al., Plaintiffs,
v.
ANTHEM LIFE INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION AND ORDER

          TIMOTHY J. KELLY UNITED STATES DISTRICT JUDGE

         Plaintiffs Joseph Sellers, Jr., and Richard McClees serve as trustees of the SMART Voluntary Short Term Disability Plan (the “VSTD Plan” or “Plan”). The VSTD Plan is an employee welfare benefit plan regulated under the Employee Retirement Income Security Act of 1974 (“ERISA”), Pub. L. No. 93-406, 88 Stat. 829. The Plan offers short-term disability benefits to certain rail and bus workers. From January 2010 through March 2016, Defendant Anthem Life Insurance Company (“Anthem”) underwrote disability insurance that the VSTD Plan provided, and processed claims for benefits.

         Plaintiffs contend that Anthem overcharged the VSTD Plan for those insurance services. In the instant lawsuit, they bring claims against Anthem for violations of ERISA's prohibited-transaction provisions, as well as claims for breach of contract and unjust enrichment. Anthem has moved to dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). ECF No. 15; see also ECF No. 15-1 (“Def.'s Br.”); ECF No. 17 (“Pls.' Opp'n”); ECF No. 18 (“Def.'s Reply”). For the reasons set forth below, the motion will be GRANTED IN PART and DENIED IN PART. Plaintiffs' ERISA claims will be dismissed for failure to state a claim. Plaintiffs' claims for breach of contract and unjust enrichment, however, will be allowed to proceed.

         I. Factual and Procedural Background

         The VSTD Plan was founded in October 2009 and was originally sponsored by the United Transportation Union (“UTU”). ECF No. 14 (“Am. Compl.”) ¶¶ 5, 7. In 2012, UTU merged into another union, the International Association of Sheet Metal, Air, Rail, and Transportation Workers (“SMART”). Id. ¶ 8. In 2014, Plaintiffs Sellers and McClees were appointed by SMART as trustees of the VSTD Plan, taking the seats formerly held by two UTU-appointed trustees, Malcolm Futhey (UTU's former president) and John Lesniewski. Id. ¶¶ 10, 74.

         Under both UTU and SMART, the VSTD Plan has provided short-term disability benefits to plan participants, who work for railroad and commuter-bus companies. Id. ¶ 12. The schedule of benefits differs for rail and bus employees. Id. ¶ 13. Nonetheless, the essential features of the benefits are the same: the Plan offers short-term disability insurance to eligible employees, and premiums are automatically deducted from plan participants' paychecks unless they affirmatively opt out of coverage. See Id. ¶¶ 14-15.

         The Plan engaged Anthem to provide short-term disability insurance to participating rail employees starting on January 1, 2010. Id. ¶ 18. The Plan paid Anthem the premiums deducted from participants' paychecks, and Anthem underwrote the benefits and processed claims. Id. ¶¶ 18, 22. Anthem offered its services through a series of one-year contracts. Id. ¶ 45. In 2011, Anthem, arguing that it was not being adequately compensated, successfully negotiated with the Plan for higher premiums starting in 2012. Id. ¶ 31. Anthem also “separately negotiated premiums to provide [short-term disability] benefits to bus industry participants” starting in 2012. Id. ¶ 32.

         Plaintiffs allege that Anthem “knowingly received] excessive compensation” during the period from 2012 through 2014. Id. ¶¶ 44-45. Specifically, they allege that the difference between the premiums Anthem received and the claims it paid ranged from $3.7 million to $7.1 million during those three years, representing “profit margins” of 26.2% to 49.8%. Id. ¶¶ 34-43. Plaintiffs also complain that, while Anthem was all too eager to seek premium increases when its profits were supposedly low, Anthem did not offer lower premiums when its profits were high. Id. ¶ 44.

         Plaintiffs allege that Anthem, in addition to charging unreasonable premiums, also engaged in another form of misconduct. Specifically, they allege that Anthem paid “kickbacks, ” disguised as commissions, to a former UTU employee named Edward Carney from 2010 through 2013. See Id. ¶¶ 61-81. During the period in question, Carney allegedly had “no business relationship with Anthem or the VSTD Plan.” Id. ¶ 61. Nonetheless, Anthem allegedly paid Carney hundreds of thousands of dollars per year from the premiums it received. Id. ¶¶ 62-65. Plaintiffs claim that Anthony Martella, who worked for a company that sold insurance to SMART members and “was in the position to steer the commission business to Carney, ” helped “to orchestrate the payments from Anthem to Carney” (although how, exactly, is unclear). Id. ¶¶ 71-72. In return, Carney allegedly passed on tens of thousands of dollars from the “kickbacks” he received to Martella. Id. ¶¶ 66-70, 73. Plaintiffs also allege that, in 2011, Carney “slipped $2, 000 into the coat pocket of then president of the UTU, Malcolm Futhey, ” who was also a trustee of the Plan at the time. Id. ¶ 74. Plaintiffs allege that the payments from Anthem to Carney “were not reasonable commissions” and “increased, dollar for dollar, the amount of the premiums paid by VSTD.” Id. ¶¶ 77-78.

         After taking office as trustees of the Plan in 2014, Plaintiffs sought to negotiate better rates. See Id. ¶ 51. Anthem responded by proposing what Plaintiffs characterize as a risk-sharing arrangement. Id. ¶ 53. Until that point, Anthem had borne the risk of loss in the event that claims exceeded premiums. Id. Anthem offered a deal under which Plaintiffs would pay higher premiums but receive quarterly refunds of 50% of the difference between premiums received and claims paid. Id. Plaintiffs evidently disliked this proposal but claim that, since it was too late to consider other offers, they accepted it by letter dated January 30, 2015. See Id. ¶ 55 & Ex. A. Plaintiffs allege that Anthem nonetheless failed to make any of the refund payments required under the agreement. Id. ¶ 60.

         According to Plaintiffs, Anthem subsequently took the view that the January 2015 letter had not caused a binding contract to form. See Id. ¶ 92. Anthem sought to continue negotiating, proposing an agreement under which the refunds for 2015 and 2016 would not be paid quarterly, but in a lump sum in 2017. See Id. ¶ 57. Anthem, for its part, claims that the parties ultimately did reach an agreement providing for a lump sum. See Def.'s Br. at 27. Anthem has provided what it asserts is the binding agreement, although it is signed only by the Plan and not by Anthem. See Def.'s Br. Ex. B (ECF No. 15-3).

         Plaintiffs assert five counts against Anthem. The first three arise under Section 406(a)(1) of ERISA, 29 U.S.C. § 1106(a)(1), and allege that the payments Anthem received from the Plan constituted unlawful “prohibited transactions.” Am. Compl. ¶¶ 82-102. Count IV alleges that Anthem breached its contract with the Plan by failing to make the quarterly refund payments that Plaintiffs claim are owed for 2015. Id. ¶¶ 103-109. Count V alleges in the alternative that, even if there was no written contract, Anthem was obligated to make the quarterly refund payments under a theory of unjust enrichment. Id. ¶¶ 110-114.

         Anthem has moved to dismiss the ERISA claims under Rule 12(b)(6). Those claims, Anthem argues, are improper because they seek legal (as opposed to equitable) relief that ERISA does not afford in this context. Def.'s Br. at 9-12. Anthem also argues that Plaintiffs fail to state a prohibited-transaction claim, and that two of the three claims are time-barred. Id. at 12-26, 28-30. Anthem has also moved to dismiss the two common law claims under Rule 12(b)(1). Anthem argues that it did not owe any payments until 2017, after this case was filed, and that as a result these claims are not ripe. See Def.'s Br. at 26-28.

         II. Legal Standard

         “A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of a plaintiff s complaint; it does not require a court to ‘assess the truth of what is asserted or determine whether a plaintiff has any evidence to back up what is in the complaint.'” Herron v. Fannie Mae, 861 F.3d 160, 173 (D.C. Cir. 2017) (quoting Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002)). “In evaluating a Rule 12(b)(6) motion, the Court must construe the complaint ‘in favor of the plaintiff, who must be granted the benefit of all inferences that can be derived from the facts alleged.'” Hettinga v. United States, 677 F.3d 471, 476 (D.C. Cir. 2012) (quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979)). “But the Court need not accept inferences drawn by plaintiff if those inferences are not supported by the facts set out in the complaint, nor must the court accept legal conclusions cast as factual allegations.” Id. “To survive a motion to dismiss, a complaint must have ‘facial plausibility, ' meaning it must ‘plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Id. (alteration in original) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).

         On a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), “plaintiffs bear the burden of establishing jurisdiction.” Knapp Med. Ctr. v. Hargan, 875 F.3d 1125, 1128 (D.C. Cir. 2017). District courts “may in appropriate cases dispose of a motion to dismiss for lack of subject matter jurisdiction under [Rule] 12(b)(1) on the complaint standing alone.” Herbert v. Natl Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992). In such cases courts must, as when reviewing a Rule 12(b)(6) motion, “accept[] as true all of the factual allegations contained in the complaint.” KiSKA Constr. Corp. v. WMATA, 321 F.3d 1151, 1157 (D.C. Cir. 2003). The Court may also rely, “where necessary, ” on “undisputed facts evidenced in the record.” Id. at 1157 n.7. But where the Court seeks to rely “upon its own resolution of disputed facts, ” it must provide an “explicit explanation of its findings” after affording appropriate “procedural protections” to the parties. Herbert, 974 F.2d at 197-98. While district courts “must go beyond the pleadings and resolve any disputed issues of fact the resolution of which is necessary to a ruling upon the motion to dismiss, ” Feldman v. FDIC, 879 F.3d 347, 351 (D.C. Cir. 2018) (quoting Phoenix Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C. Cir. 2000)), the district court “should usually defer its jurisdictional decision until the merits are heard” if the jurisdictional facts “are inextricably intertwined with the merits of the case.” Herbert, 974 F.2d at 198. HI. Analysis As explained below, the Court agrees with Anthem that Plaintiffs fail to state a prohibited-transaction claim under ERISA. Therefore, the first three counts of the Amended Complaint will be dismissed. However, the Court concludes that Plaintiffs' contract and unjust enrichment claims, as pleaded, are ripe and may proceed.

         A. Prohibited-Transaction Claims

         The Court will examine each of Plaintiffs' prohibited-transaction claims (Counts I, II, and III) in turn, concluding that each should be dismissed.

         1.Count I

         Section 406(a)(1) of ERISA prohibits certain transactions between benefit plans and “parties in interest, ” a term defined to include plan fiduciaries and persons “providing services to such plan.” See 29 U.S.C. §§ 1002(14)(A)-(B), 1106(a)(1). This provision “supplements the fiduciary's general duty of loyalty . . . by categorically barring certain transactions deemed ‘likely to injure the pension plan.'” Harris Tr. & Sav. Bank v. Salomon Smith Barney Inc., 530 U.S. 238, 241-42 (2000) (quoting Comm'r v. Keystone Consol. Indus., Inc., 508 U.S. 152, 160 (1993)). Among the transactions prohibited are “furnishing of goods, services, or facilities between the plan and a party in interest” and “transfer to . . . a party in interest, of any assets of the plan.” 29 U.S.C. § 1106(a)(1)(C)-(D). Section 408 of ERISA provides various exemptions to the transactions prohibited by Section 406, and authorizes the Secretary of Labor to institute further exemptions by regulation. See Id. § 1108.

         Plaintiffs allege that Anthem-merely by underwriting the insurance that the VSTD Plan provided, processing claims for benefits, and being paid for these services-engaged in prohibited transactions. As neither party disputes, those transactions caused Anthem to become a “party in interest, ” because it was “providing services” to the Plan. Am. Compl. ¶ 85 (citing 29 U.S.C. § 1002(14)). But under Plaintiffs' interpretation, these transactions were also prohibited because, absent an exemption, the statute prohibits “parties in interest” from either furnishing services to the Plan or receiving payments for those services. See Id. ¶ 84 (citing 29 U.S.C. § 1106(a)(1)(C)-(D)). That is, Plaintiffs claim, the very transactions that caused Anthem to be a “party in interest” were prohibited because Anthem was a “party in interest.” As such, under Plaintiffs' interpretation of the statute, ERISA categorically prohibits the provision of services to employee benefit plans in exchange for compensation, absent an exemption.

         Anthem argues that Plaintiffs' allegations are legally insufficient. In Anthem's view, the transactions at issue-its provision of services to the Plan in exchange for compensation-cannot both have caused Anthem to become a party in interest and constituted a prohibited transaction with a party in interest. See Def.'s Br. at 12-17. Rather, under its interpretation, “there must be a preexisting relationship between the entity and plan that arose outside of the allegedly prohibited transactions.” Id. at 13. Plaintiffs reject that reading of the statute, and also argue that, even if Anthem's initial contract with the Plan was not prohibited, then Anthem's renewal of that contract was, because Anthem was already a party in interest by that point. See Pls.' Opp'n at The Court agrees with Anthem and concludes that Plaintiffs' allegations are insufficient to state a claim under the statute. The Court will begin by examining Plaintiffs' theory that ERISA prohibits all furnishing of services in exchange for compensation. The Court will then examine Plaintiffs' alternative argument that ERISA prohibits the Plan's renewal of its contract with Anthem.

         a. Whether ERISA Prohibits All Furnishing of Services ...


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