United States District Court, District of Columbia
MEMORANDUM OPINION AND ORDER
TIMOTHY J. KELLY UNITED STATES DISTRICT JUDGE
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.
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.
Factual and Procedural Background
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.
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.
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.
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.
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. ¶¶
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.
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).
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.
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.
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)).
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.
Court will examine each of Plaintiffs'
prohibited-transaction claims (Counts I, II, and III) in
turn, concluding that each should be dismissed.
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.
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
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.
Whether ERISA Prohibits All Furnishing of Services ...