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Su v. BCBSM, Inc.

U.S. District Court, District of Minnesota

Su v. BCBSM, Inc.

Trial Court Opinion

                   UNITED STATES DISTRICT COURT                          
                      DISTRICT OF MINNESOTA                              
JULIE A. SU, Acting Secretary of Labor,                                  
                                      Civil No. 24-99 (JRT/TNL)          
                       Plaintiff,                                        

v.                                                                       
                                 MEMORANDUM OPINION AND ORDER            
BCBSM, INC.,                      DENYING DEFENDANT’S MOTION TO          
                                            DISMISS                      
                      Defendant.                                         

    Dana Marie Florkowski and Geoffrey Forney, UNITED STATES DEPARTMENT  
    OF LABOR, PLAN BENEFITS SECURITY DIVISION, 200 Constitution Avenue   
    Northwest, Suite N-4611, Washington, DC 20210, for Plaintiff.        

    Anthony  F.  Shelley  and  Rebecca  Tweedie,  MILLER  &  CHEVALIER   
    CHARTERED,  900  Sixteenth  Street  Northwest,  Washington,  DC  20006; 
    Danielle W. Fitzsimmons, Kevin P. Hickey, and Peggah Navab, BASSFORD 
    REMELE, 100 South Fifth Street, Suite 1500, Minneapolis, MN 55402, for 
    Defendant.                                                           


    Defendant  BCBSM,  Inc.  administers  self-funded  ERISA  plans  for  employers, 
including by establishing rates that the self-funded plans agree to pay network providers.  
BCBSM agreed to reimburse providers in its network for their MNCare Tax liabilities and 
passed along those reimbursement expenses to the plans.  Acting Secretary of Labor Julie 
A. Su (“the Secretary”) brought this action pursuant to her ERISA enforcement authority, 
alleging that the plans did not agree to the tax reimbursements, that reimbursement was 
a gratuitous offer by BCBSM, and that BCBSM thus engaged in prohibited transactions 
and violated its fiduciary duties by using plan assets to pay the providers’ MNCare Taxes 
without the plans’ knowledge or consent.  BCBSM now moves to dismiss, arguing the 
Secretary does not have standing because she has not pled a concrete injury caused by 

BCBSM’s billing practices, and alternatively fails to state a claim because BCBSM was not 
acting as a fiduciary and did not violate any duties.  Many issues in this case present close 
calls.  But the Court will deny BCBSM’s Motion to Dismiss and allow the action to proceed. 
                          BACKGROUND                                     

I.   PLAN ADMINISTRATION                                                  
    BCBSM is a third-party administrator (“TPA”) for approximately 370 self-funded 
employee healthcare plans (“the plans”) in Minnesota.  (Compl. ¶¶ 4, 7, Jan. 12, 2024, 
Docket No. 1.)  BCBSM’s relationship with the plans is governed by service agreements 

(“SA”) and Summary Plan Descriptions (“SPD”).  (Compl. ¶¶ 9, 11–14; Decl. Doreen A. 
Mohs Supp. Mot. Dismiss (“Mohs Decl.”), Ex. 1 (“SA”), Mar. 18, 2024, Docket No. 14; Resp. 
Opp’n Mot. Dismiss, Ex. 1 (“SPD”), Apr. 15, 2024, Docket No. 25.)  BCBSM also contracts 
with healthcare providers who enter BCBSM’s network and accept negotiated rates as 

payment for their health services.  (Compl. ¶ 10.)                        
    BCBSM performs two primary services for the plans.  First, the plans receive access 
to BCBSM’s provider network and negotiated rates.  (SA at 12–13.)  Second, BCBSM 
administers employee claims for coverage.  (Id. at 9–11.)  When an employee submits a 

claim, BCBSM approves or denies the claim after applying plan criteria.  (Id. at 9–10.)  It 
acts as a named fiduciary of the plans when deciding whether to approve a claim.  (Id. at 
10, 25.)  If BCBSM approves a claim, it pays the negotiated amount to the provider from 
its own funds.  (Id. at 10, 12.)  The plan must then reimburse BCBSM for claim payments 
on a weekly basis.  (Id. at 25, 47.)                                      

II.  MNCARE TAX PAYMENTS                                                  
    Since 1994, Minnesota has taxed providers’ gross revenues from patient services.  
Minn. Stat. 295.52; (Compl. ¶ 18.)  The current rate for the MNCare Tax is 1.8%.
Minn. Stat. § 295.52
 subd. 2.  BCBSM agreed to cover network providers’ MNCare Tax liabilities 

as follows:                                                               
         For all Health Services paid based upon a “fixed fee” method    
         (e.g.,  fee  schedule  amounts,  per  diem  amounts,  per  case 
         amounts,  etc.) . . .  Blue  Cross  shall  add  an  amount      
         representing the tax to such fixed payments (e.g., if the fee   
         schedule  amount  is  $100.00  and  the  then-  current  tax    
         percentage is 2.0%, Blue Cross shall pay Provider $102.00).     
         For all Health  Services paid at Regular Billed  Charge  or a   
         percentage of Regular Billed Charge, the amount billed to Blue  
         Cross by Provider shall be deemed to include the then current   
         tax amount and Blue Cross shall not increase its payment by     
         the applicable tax percentage amount for such claims (e.g. if   
         Provider is paid on a 70% of Regular Billed Charge basis, and   
         Provider’s Regular Billed Charges is $100.00, Blue Cross shall  
         reimburse the Provider $70.00).                                 
(Mohs Decl., Ex. 4 at 10.)                                                
    Although the MNCare Tax is levied on providers, they may transfer liability to third-
party payees, either explicitly or by raising prices.
Minn. Stat. § 295.582
 subd. 1(a)(1), 
1(c)(1), 1(e); Boyle v. Anderson,
68 F.3d 1093, 1098
 (8th Cir. 1995).  Nonetheless, the 
Secretary alleges that BCBSM did not disclose, and the plans never agreed to pay, the 
MNCare Tax reimbursement.  (Compl. ¶ 23.)  The Secretary alleges that BCBSM, not the 
plans, was liable for BCBSM’s agreement with providers to pay the tax.  (Id. ¶¶ 21, 39.)  
Accordingly, the Secretary alleges that BCBSM violated its fiduciary duties and engaged in 

prohibited  transactions  by  recouping nearly $67 million from  the  plans for  its own 
MNCare reimbursement liabilities between 2016 and 2020.  (Id. ¶¶ 2, 34–56.) 
    The Secretary brought this action pursuant to her statutory enforcement authority, 
seeking to recover MNCare Tax payments billed to the plans from 2016 through 2020 and 

to enjoin BCBSM from reinstating such practices.  (Id. ¶ 3; id. at 12);
29 U.S.C. § 1132
(a)(2), 
(a)(5).  BCBSM moves to dismiss the Secretary’s Complaint under Federal Rule of Civil 
Procedure 12(b)(1) for lack of standing and Rule 12(b)(6) for failure to state a claim.  (Mot. 

Dismiss, Mar. 18, 2024, Docket No. 9.)                                    
                         12(B)(1) MOTION                                 
I.   STANDARD OF REVIEW                                                   
    The Constitution limits federal-court jurisdiction to cases or controversies.  Spokeo, 
Inc. v. Robins,
578 U.S. 330, 337
 (2016) (citing U.S. Const. art. III, § 2).  Accordingly, the 

Secretary must demonstrate standing to sue by showing that BCBSM caused an injury in 
fact that is likely to be redressed by the relief sought.  Id. at 338.    
    A Rule 12(b)(1) motion challenges the Court’s subject matter jurisdiction, including 
for lack of standing, and requires the Court to examine whether it has authority to decide 

the claims.   Damon v. Groteboer,
937 F. Supp. 2d 1048, 1063
 (D. Minn. 2013).  The party 
seeking  to  invoke  a  federal  court’s  subject  matter  jurisdiction  bears  the  burden  of 
showing that the court has jurisdiction.  Schubert v. Auto Owners Ins. Co.,
649 F.3d 817, 822
 (8th Cir. 2011).  That party must meet its burden “in the same way as any other matter 
on which the plaintiff bears the burden of proof, i.e., with the manner and degree of 

evidence required at the successive stages of the litigation.”  Lujan v. Defs. of Wildlife,
504 U.S. 555, 561
 (1992).  Thus, “[a]t the pleading stage, general factual allegations of injury 
resulting from the defendant’s conduct may suffice.”
Id.
  A court must dismiss an action 
if it lacks subject matter jurisdiction.  Fed. R. Civ. P. 12(h)(3).       

II.  ANALYSIS                                                             
    The Secretary’s theory of standing is simple and suffices at the pleading stage.  
According to the Secretary, BCBSM charged the plans nearly $67 million dollars for 
MNCare Tax liabilities that the plans did not owe and did not agree to pay.  That is a 

concrete injury, caused by BCBSM’s billing practices and redressable by a damages award.  
See TransUnion LLC v. Ramirez,
594 U.S. 413, 425
 (2021) (“If a defendant has caused . . . 
monetary injury to the plaintiff, the plaintiff has suffered a concrete injury in fact under 

Article III.”).                                                           
    BCBSM’s counterargument that the alleged injury is too speculative is intuitively 
appealing.  If the rates BCBSM paid to providers were all negotiated, how those rates were 
itemized was likely not all that impactful to the final numbers.  Cf. Knox v. Serv. Emps. Int’l 

Union, Loc. 1000,
567 U.S. 298
, 317 n.6 (2012) (emphasizing the fungibility of money).  
Take the following hypothetical example.  Say HealthPartners has a sticker price of $150 
to administer an HPV vaccination.  HealthPartners joins BCBSM’s network and negotiates 
a $100 rate for HPV vaccinations.  Under the provider agreement, BCBSM will additionally 
pay $1.80 to cover HealthPartners’s 1.8% percent tax liability on the $100 bill.  What 
matters to HealthPartners is the total payment of $101.80.  Whether that is calculated as 

$100 for services plus $1.80 for tax or $101.80 for services with no tax compensation does 
not matter.  So if BCBSM was not allowed to pay the $1.80 for tax compensation, their 
negotiations likely would have resulted in a $101.80 total payment for services with no 
tax compensation.1                                                        

    Thus, under the Secretary’s theory of how the billing should have worked—with 
no tax liability—the healthcare providers would have negotiated higher base level rates 
for services and the ERISA plans would have ultimately paid the same amount of money.  

Likewise, the plans would not have balked at paying $101.80 for services, and thus were 
not injured by paying $100 for services plus $1.80 for taxes.  All that may well turn out to 
be  true.  But BCBSM’s  theory presents a  question  of  fact  that  is inappropriate  for 
judgment  on  the  pleadings.    The  Court  cannot  be  sure  that  BCBSM’s  hypothetical 

negotiations would have worked so neatly in practice, or that the plans would have no 
objections.  The Court will thus allow the parties a chance to develop the record before 
ruling on this fact-bound issue.                                          
    BCBSM also leans on Thole v. U.S. Bank N.A.,
590 U.S. 538
 (2020) to contest the 

Secretary’s standing.  There, participants in a defined-benefit plan brought an ERISA 


    1 See Minn. Stat. 295.582 subd. 1(e) (“Nothing in this section limits the ability of” a 
healthcare provider to “recover all or part of” their MNCare Tax “obligation by other methods, 
including increasing fees or charges.”).                                  
action for plan mismanagement.
Id.
 at 540–41.  Nonetheless, their benefits were fixed 
and did not depend on plan performance, they had consistently received their monthly 

benefits,  and  there  were  no  indications  that  future  payments  were  at  risk.
Id.
  
Emphasizing that “[t]here is no ERISA exception to Article III,” the Supreme Court found 
the plaintiffs lacked standing because they had not suffered any losses.
Id. at 541, 547
.  
Unlike the plaintiffs in Thole, the Secretary alleges losses here—the nearly $67 million of 

improperly billed MNCare Taxes.                                           
    Finally, BCBSM claims that the plans did not suffer injuries because the plan 
documents  required  the  plans  to  pay  whatever  amounts  BCBSM  negotiated  with 

providers, including MNCare Tax expenses.  In other words, there was no injury because 
the Secretary is wrong on the merits.  Because the Court will not collapse the merits of 
the case into a standing question, see Peters v. Aetna Inc.,
2 F.4th 199, 217
 (4th Cir. 2021), 
the Court will address this argument in the breach section, below.        

                         12(B)(6) MOTION                                 
I.   STANDARD OF REVIEW                                                   
    In reviewing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the 
Court considers all facts alleged in the Complaint as true to determine if the Complaint 
states a “claim to relief that is plausible on its face.”  Braden v. Wal-Mart Stores, Inc.,
588 F.3d 585, 594
 (8th Cir. 2009) (quoting Ashcroft v. Iqbal,
556 U.S. 662, 678
 (2009)).  The 
Court construes the Complaint in the light most favorable to the plaintiff, drawing all 
reasonable inferences in the plaintiff’s favor.  Ashley Cnty. v. Pfizer, Inc.,
552 F.3d 659, 665
 
(8th Cir. 2009).  Although the Court accepts the Complaint’s factual allegations as true, it 
is “not bound to accept as true a legal conclusion couched as a factual allegation,” Bell 

Atl. Corp. v. Twombly,
550 U.S. 544, 555
 (2007), or mere “labels and conclusions or a 
formulaic recitation of the elements of a cause of action,” Iqbal,
556 U.S. at 678
 (quotation 
omitted).  Instead, “[a] claim has facial plausibility when the plaintiff pleads factual 
content that allows the court to draw the reasonable inference that the defendant is 

liable for the misconduct alleged.”
Id.
                                  
    At the motion to dismiss stage, the Court may consider the allegations in the 
Complaint as well as “those materials that are necessarily embraced by the pleadings.” 
Schriener v. Quicken Loans, Inc.,
774 F.3d 442, 444
 (8th Cir. 2014).  The Court may also 

consider exhibits attached to the pleadings, as long as those documents do not conflict 
with the Complaint.2  Porous Media Corp. v. Pall Corp.,
186 F.3d 1077, 1079
 (8th Cir. 1999). 
II.  ANALYSIS                                                             

    The Secretary plausibly alleges BCBSM was a functional fiduciary because it had 
authority and control over plan assets.  And she plausibly alleges that BCBSM breached 
its fiduciary duties and engaged in prohibited transactions.  Accordingly, the Court will 
deny BCBSM’s motion to dismiss for failure to state a claim.              





    2 The Court relies on the SA, SDP, and other contractual materials attached as exhibits by 
both parties.                                                             
    A.   Fiduciary Status                                                
    As an initial matter, BCBSM must have been acting as a fiduciary when it took the 

challenged actions to be liable for a breach of fiduciary duties.  See McCaffree Fin. Corp. 
v. Principal Life Ins. Co.,
811 F.3d 998, 1002
 (8th Cir. 2016).  An entity may act as a named 
fiduciary,
29 U.S.C. § 1102
(a)(2), or as a functional fiduciary,
29 U.S.C. § 1002
(21)(A).  
Though BCBSM was not acting as a named fiduciary when it charged the plans for MNCare 

Tax  reimbursements,  the  Secretary  plausibly  alleges  that  BCBSM  was  a  functional 
fiduciary.                                                                
         1.   Named Fiduciary                                            
    An entity that “is named in the plan instrument” as a fiduciary incurs fiduciary 

obligations under ERISA.  See
29 U.S.C. § 1102
(a)(2).  But fiduciary status is not all or 
nothing.  Rather, fiduciary liability only attaches if a “person was acting as a fiduciary (that 
is, was performing a fiduciary function) when taking the action subject to complaint.”  
Pegram v. Herdrich,
530 U.S. 211, 226
 (2000).  BCBSM is shielded by that piecemeal 

fiduciary inquiry.  The SA clarifies that “Blue Cross agrees to act as the named fiduciary of 
the  Plan  for  purposes  of  Claims,  Adverse  Benefit  Determinations  and  subrogation 
services  . . . .    Employer  retains  fiduciary  obligations  for  all  matters  not  specifically 
delegated to Blue Cross.  (SA at 25.)  “Claims” is a narrowly defined term.  A Claim is a 

“request for payment or medical services that are covered or alleged to be covered under 
the Plan.”  (Id. at 4.)  “Claims Paid,” on the other hand, is “[t]he dollar amount Blue Cross 
pays under the Plan.”  (Id.)                                              
    “Claims” concerns whether BCBSM approves payment, whereas “Claims Paid” 
concerns the amount of payment.  BCBSM only expressly shoulders fiduciary status for 

“Claims,” not “Claims Paid.”  Therefore, it only acts as a named fiduciary when deciding 
whether to issue payment, not when deciding the amount of payment.  Because the 
decision to pay the MNCare Tax affects the amount rather than approval of payment, it 
is not covered under BCBSM’s limited acceptance of named fiduciary responsibilities.3  

Fiduciary status may still attach based on a functional inquiry.  But BCBSM was not acting 
as a named fiduciary when paying providers’ MNCare Tax obligations.       
         2.   Functional Fiduciary                                       
    Even if unnamed, ERISA imposes fiduciary duties on any entity that “exercises any 

discretionary authority or discretionary control respecting management of [a] plan or 
exercises any authority or control respecting management or disposition of its assets.”
29 U.S.C. § 1002
(21)(A).  While BCBSM did not act with discretionary authority respecting 

management  of  the  plans,  it  exercised  authority  over  plan  assets  and  thus  was  a 
functional fiduciary.                                                     
              a.   Discretionary Authority Over Plan Management          
    The Secretary first argues that BCBSM exercised discretionary authority over plan 
management by unilaterally paying MNCare Tax reimbursements without the plans’ 



    3 Additional provisions within the SA reinforce the Court’s interpretation.  (See SA at 12 
(“In negotiating, contracting, or enforcing” provider agreements, “Blue Cross owes no duties or 
obligations to Employer.”).)                                              
knowledge or consent.  But even if the contracts did not allow BCBSM to bill the plans for 
providers’  tax  liabilities,  BCBSM  would  still  not  necessarily  exercise  discretionary 

management authority when doing so.  A TPA does not exercise discretion simply by 
breaching a contract or violating plan terms.  See Mass. Laborers’ Health & Welfare Fund 
v. Blue Cross Blue Shield of Mass.,
66 F.4th 307, 321
 (1st Cir. 2023) (“The complaint’s 
allegations concern actions alleged to violate BCBSMA’s contractual obligations, but as to 

which BCBSMA had no discretion.”).  But see Peters,
2 F.4th at 231
 (provider acted with 
discretionary authority when it passed along a fee “without authority under the Plan and 
in direct violation of” plan documents).                                  

    More relevant to the Court’s analysis is whether BCBSM engaged in discretionary 
management functions when negotiating provider rates, including tax reimbursements.  
BCBSM’s rate negotiation is “independent from the relationship between” itself and the 
plans.  See Mass. Laborers’,
66 F.4th at 310
; accord DeLuca v. Blue Cross Blue Shield of 

Mich.,
628 F.3d 743, 747
 (6th Cir. 2010); (SA at 12 (“In negotiating, contracting, or 
enforcing  [provider]  agreements,  Blue  Cross  owes  no  duties  or  obligations  to 
Employer.”).)  As the Sixth Circuit has explained, assigning fiduciary status for TPA-wide 
negotiations “would be self-defeating.”  DeLuca,
628 F.3d at 747
.         

         The financial advantage underlying BCBSM’s rate negotiations    
         arises from the market power that BCBSM has as a large          
         purchaser of health-care services.  BCBSM is continuously in    
         the process of re-negotiating prices for its three health-care  
         coverage  options  and,  thus,  must  continuously  determine   
         how  much  of that  market  power  to  allocate  to  achieving  
         discounted prices for each of these options.  If, however,      
         BCBSM would be required to negotiate solely on a plan-by-       
         plan basis, as a practical matter its economic advantage in the 
         market  would  be  destroyed,  damaging  its  ability  to  do   
         business on a system-wide basis, ultimately to the [employee    
         plan’s] disadvantage.
Id.
    Accordingly,  the  Court  finds  that  BCBSM  did  not  operate  in  a  discretionary 
management capacity when negotiating reimbursement rates.                 
              b.   Authority or Control Over Plan Assets                 
    Nonetheless, the Secretary plausibly alleges that BCBSM acted as a functional 
fiduciary because it exercised authority or control over plan assets.   BCBSM was a 
fiduciary to the extent it exercised  any authority or control over the plans’ assets, 
regardless of whether that authority or control was discretionary.  See FirsTier Bank, N.A. 
v. Zeller,
16 F.3d 907, 911
 (8th Cir. 1994); Mass. Laborers’, 66 F.4th at 324–25.  A TPA is a 
functional  fiduciary  if  it  “has  the  ability  to  convey  plan  funds  unilaterally.”    Mass. 

Laborers’,
66 F.4th at 327
 (citing Bd. of Trs. of Bricklayers & Allied Craftsmen Loc. 6 of N.J. 
Welfare Fund v. Wettlin Assocs., Inc.,
237 F.3d 270, 271, 275
 (3d Cir. 2001)); see also Hi-
Lex Controls, Inc. v. Blue Cross Blue Shield of Mich.,
751 F.3d 740
, 746–47 (6th Cir. 2014) 

(assigning fiduciary status when BCBS paid claims from plans’ accounts).  So when a TPA 
has “relatively unconstrained check-writing authority over an account containing plan 
assets,” it acts as a fiduciary when it writes those checks.  Mass. Laborers’,
66 F.4th at 327
 
n.21.  On the contrary, a TPA that requires a plan’s authorization to dispose of plan funds 

does not exercise authority or control over those funds.
Id.
 at 327 & n.21. 
    This  case  presents  facts  closer  to  the  former  scenario,  with  BCBSM  having 
unfettered check-writing authority.  To be sure, BCBSM does not draw those checks 

directly from the plans’ accounts.  It spends its own funds, and the plans are then 
contractually obligated to reimburse BCBSM.  (See SA at 25–26.)  The question, then, is 
whether BCBSM’s authority to unilaterally encumber a plan’s assets is equivalent for 
ERISA purposes to directly spending that plan’s assets.                   

    There is no principled reason to treat BCBSM’s unilateral encumbrance of plan 
funds any differently than if it directly spent the plans’ assets.  But see Mass. Laborers’,
66 F.4th at 329
 (hypothesizing that fiduciary duties would not attach if TPAs for self-

funded plans would “pay claims in advance and only later be reimbursed by the plans”).  
In both situations, the triggering events are the same—BCBSM decides to pay a claim—
and the end result is the same—the plans’ funds are depleted by the amount BCBSM pays.  
According to BCBSM, adding the middle step of reimbursement dissolves the fiduciary 

duty that would attach if BCBSM had written a check directly from the plan’s account.  
Under BCBSM’s theory, any TPA could dodge otherwise applicable fiduciary duties by 
adding that rote reimbursement step.  Cf. Cnty. of Maui v. Haw. Wildlife Fund,
590 U.S. 165
, 180 (2020) (warning against interpretations that “open a loophole allowing easy 

evasion of the statutory provision’s basic purposes”).4                   


    4 As the First Circuit noted, adopting the reimbursement approach is not a complete 
loophole because it “would force the TPA to play the role of an unsecured lender to the plan.”  
Mass. Laborers’,
66 F.4th at 329
 (cleaned up).  Thus, the TPA would have to weigh the benefit of 
    Trust law confirms that an encumbrance, not just direct spending, is significant for 
fiduciary purposes.  See Firestone Tire & Rubber Co. v. Bruch,
489 U.S. 101
, 110–11 (1989) 

(instructing courts to apply principals of trust law in interpreting ERISA’s responsibility 
provisions).                                                              
         [A] trustee has power to borrow money for trust purposes and    
         to  pledge,  mortgage,  grant  a  deed  of  trust,  or  otherwise 
         encumber trust property.  The trustee has a duty to exercise    
         caution as well as the duty to exercise care and skill in deciding 
         whether and under what terms to borrow money for trust          
         purposes or to grant a security interest in trust property.     
Restatement (Third) of Trusts § 86, cmt. d (2007).  Whenever BCBSM pays a claim, plan 
funds are automatically encumbered under the reimbursement provision of the SA.  The 
Secretary has thus plausibly alleged that BCBSM exercises authority over plan funds when 
it decides to pay a claim and owes the plans corresponding duties as a functional fiduciary. 
    B.   Breach                                                          
    ERISA requires fiduciaries to discharge their duties “for the exclusive purpose of 
providing  benefits  to  participants  and  their  beneficiaries  and  defraying  reasonable 
expenses of administering the plan.”
29 U.S.C. § 1104
(a)(1)(A).  If the plans did not owe 

the MNCare Tax, BCBSM’s use of plan assets to pay the tax would not benefit the plans 
and their participants.  BCBSM argues that it was statutorily and contractually authorized 
to reimburse providers for its MNCare Tax liabilities, agreed to do so as part of its 



shedding its fiduciary status against the risk of non-payment from the plan.  Nonetheless, where 
those “loans” are repaid every week, BCBSM’s exposure is minimal.         
negotiated rates with those providers, and thus comported with its fiduciary duties.  
BCBSM may well prove as much at later stages of this action.  But whether BCBSM fairly 

negotiated to pay the MNCare Tax, and thus whether it was authorized to use plan funds 
to do so, presents a question of fact that cannot be resolved on a motion to dismiss. 
    Begin with statutory authorization.  Minnesota law allows providers to pass along 
their tax obligations to self-insured plans, either explicitly or by increasing fees or charges.
Minn. Stat. § 295.582
 subd. 1; Boyle,
68 F.3d at 1098
 (“The law permits a provider to 
transfer the expense of the provider tax to third party purchasers such as . . . self-insured 
employee health plans.”).  ERISA does not preempt such pass-throughs.  Boyle,
68 F.3d at 1110
.    But  the  Secretary  claims  Minnesota  law  only  authorizes  transfer  of  the  tax 
obligation to plans if the providers explicitly request such transfer.  See Minn. Dep’t of 
Com., Ins. Bulletin 94-3 ¶ 1 (July 18, 1994) (“If requested to do so, an insurer must 
reimburse a provider.”) (emphasis added).  The Secretary alleges the providers never 

issued that request.  “Rather, BCBSM unilaterally volunteered to compensate network 
providers for their liability under the MNCare Tax and then caused the Plans to pay the 
tax.”  (Compl. ¶ 21.)  Taking the factual allegations from the Complaint as true, the 
Secretary plausibly alleges that the unilateral compensation offer was not authorized by 

statute.                                                                  
    Contractually, BCBSM points the Court to the provision of the SA allowing BCBSM 
to negotiate rates with network providers and obligating the plans to reimburse BCBSM 
at the negotiated rates.  (SA at 12–13, 25.)  Because MNCare Tax coverage was bargained 
for in the provider agreements, BCBSM contends the plans authorized such payments.  

But the plan documents only authorize BCBSM to file for reimbursement of Claims Paid.  
(Id. at 47.)  The SA references “medical services” when defining a “Claim,” (id. at 4,) and 
the  SDP  defines  a  “Claim”  as  “payment  or  reimbursement  of  the  charges  or  costs 
associated with a covered service,” (SDP at 92.)  A covered service, in turn, is a “health 

service or supply” that is “performed and billed by an eligible provider.”  (Id. at 93.)  The 
Secretary argues that a claim, then, only includes medical goods or services, not taxes. 
    The Court will leave for further factual development the question of whether the 

taxes were fairly part of the anticipated negotiated rates, or too attenuated from medical 
services for the plans to be liable.  Where the Secretary alleges that BCBSM discretely 
passed along the provider taxes without the plans’ knowledge, the Court finds it at least 
plausible  that  the  taxes  should  not  have  been  included  in  the  negotiated  rate  as 

understood by the parties.                                                
    C.   Prohibited Transactions                                         
    ERISA prohibits a fiduciary from dealing with plan assets for its own interests or for 
the benefit of any party whose interests are adverse to the plan.
29 U.S.C. § 1106
(b).  

Because the Secretary plausibly alleges that the plans were not liable for the MNCare 
Taxes, she also plausibly alleges BCBSM engaged in a prohibited transaction.  In the 
provider agreement, BCBSM agreed to cover network providers’ MNCare Tax liability.  If 
the plans were not in turn liable to BCBSM, BCBSM would be left holding the bill.  The 
Secretary thus plausibly alleges that BCBSM improperly used plan assets to cover its own 
liabilities.  Accordingly, the Court will deny BCBSM’s Motion to Dismiss the Secretary’s 

prohibited transaction counts.                                            
    D.   Remedy                                                          
    BCBSM contends that, even if the Secretary alleged a breach, she fails to state a 
claim because no remedies are available.                                  

    BCBSM  claims  that  damages  and/or  restitution  are  unavailable  because  the 
Secretary does not plausibly allege that the plans would have rejected the tax payments 
had they been aware of them.  Likewise, there is the possibility that the negotiated 
amount for services would have increased by the disallowed amount of tax coverage to 

result  in  the  same  total  costs  to  the  plans.    As  in  the  12(b)(1)  analysis,  this  is  a 
(counter)factual dispute that the Court will not resolve on the pleadings.  The Secretary 
plausibly alleges that the plans should be reimbursed for all tax payments, though that 

allegation may be undermined upon further factual development.            
    The record is also insufficient for the Court to hold as a matter of law that injunctive 
relief is unavailable.  This action covers billing from 2016 through 2020.  Though the 
Complaint does not say as much, it appears that BCBSM ceased the challenged billing 

practices in 2020.  Even if it did, though, there is no indication why it changed its practices 
or if it is likely to revert to its pre-2020 scheme.  Accordingly, it is difficult to predict based 
on the current record whether “the likelihood of further violations is sufficiently remote 
to  make  injunctive  relief unnecessary.”  See  United States v.  Concentrated Phosphate 
Export Ass’n, Inc.,
393 U.S. 199, 203
 (1968). 
                                CONCLUSION 
     Under pleading standards, the Secretary has standing to pursue this action because 
she  plausibly  alleges  that  self-funded  plans  were  financially  harmed  by  BCBSM’s 
passalong of network providers’ tax liabilities.  She also states a claim upon which relief 

can be granted because she plausibly alleges BCBSM exercised authority and control over 
plan assets and failed to act in the plans’ best interests.  Accordingly, the Court will deny 
BCBSM’s Motion to Dismiss.

ORDER

     Based on the foregoing, and  all the files,  records, and  proceedings herein,  IT IS 
HEREBY ORDERED that Defendant’s Motion to Dismiss [Docket No. 9] is DENIED. 

DATED:  August 22, 2024                               a. (aban 
at Minneapolis, Minnesota.                         JOHN R. TUNHEIM 
                                            United States District Judge 

                                    -18-

Trial Court Opinion

                   UNITED STATES DISTRICT COURT                          
                      DISTRICT OF MINNESOTA                              
JULIE A. SU, Acting Secretary of Labor,                                  
                                      Civil No. 24-99 (JRT/TNL)          
                       Plaintiff,                                        

v.                                                                       
                                 MEMORANDUM OPINION AND ORDER            
BCBSM, INC.,                      DENYING DEFENDANT’S MOTION TO          
                                            DISMISS                      
                      Defendant.                                         

    Dana Marie Florkowski and Geoffrey Forney, UNITED STATES DEPARTMENT  
    OF LABOR, PLAN BENEFITS SECURITY DIVISION, 200 Constitution Avenue   
    Northwest, Suite N-4611, Washington, DC 20210, for Plaintiff.        

    Anthony  F.  Shelley  and  Rebecca  Tweedie,  MILLER  &  CHEVALIER   
    CHARTERED,  900  Sixteenth  Street  Northwest,  Washington,  DC  20006; 
    Danielle W. Fitzsimmons, Kevin P. Hickey, and Peggah Navab, BASSFORD 
    REMELE, 100 South Fifth Street, Suite 1500, Minneapolis, MN 55402, for 
    Defendant.                                                           


    Defendant  BCBSM,  Inc.  administers  self-funded  ERISA  plans  for  employers, 
including by establishing rates that the self-funded plans agree to pay network providers.  
BCBSM agreed to reimburse providers in its network for their MNCare Tax liabilities and 
passed along those reimbursement expenses to the plans.  Acting Secretary of Labor Julie 
A. Su (“the Secretary”) brought this action pursuant to her ERISA enforcement authority, 
alleging that the plans did not agree to the tax reimbursements, that reimbursement was 
a gratuitous offer by BCBSM, and that BCBSM thus engaged in prohibited transactions 
and violated its fiduciary duties by using plan assets to pay the providers’ MNCare Taxes 
without the plans’ knowledge or consent.  BCBSM now moves to dismiss, arguing the 
Secretary does not have standing because she has not pled a concrete injury caused by 

BCBSM’s billing practices, and alternatively fails to state a claim because BCBSM was not 
acting as a fiduciary and did not violate any duties.  Many issues in this case present close 
calls.  But the Court will deny BCBSM’s Motion to Dismiss and allow the action to proceed. 
                          BACKGROUND                                     

I.   PLAN ADMINISTRATION                                                  
    BCBSM is a third-party administrator (“TPA”) for approximately 370 self-funded 
employee healthcare plans (“the plans”) in Minnesota.  (Compl. ¶¶ 4, 7, Jan. 12, 2024, 
Docket No. 1.)  BCBSM’s relationship with the plans is governed by service agreements 

(“SA”) and Summary Plan Descriptions (“SPD”).  (Compl. ¶¶ 9, 11–14; Decl. Doreen A. 
Mohs Supp. Mot. Dismiss (“Mohs Decl.”), Ex. 1 (“SA”), Mar. 18, 2024, Docket No. 14; Resp. 
Opp’n Mot. Dismiss, Ex. 1 (“SPD”), Apr. 15, 2024, Docket No. 25.)  BCBSM also contracts 
with healthcare providers who enter BCBSM’s network and accept negotiated rates as 

payment for their health services.  (Compl. ¶ 10.)                        
    BCBSM performs two primary services for the plans.  First, the plans receive access 
to BCBSM’s provider network and negotiated rates.  (SA at 12–13.)  Second, BCBSM 
administers employee claims for coverage.  (Id. at 9–11.)  When an employee submits a 

claim, BCBSM approves or denies the claim after applying plan criteria.  (Id. at 9–10.)  It 
acts as a named fiduciary of the plans when deciding whether to approve a claim.  (Id. at 
10, 25.)  If BCBSM approves a claim, it pays the negotiated amount to the provider from 
its own funds.  (Id. at 10, 12.)  The plan must then reimburse BCBSM for claim payments 
on a weekly basis.  (Id. at 25, 47.)                                      

II.  MNCARE TAX PAYMENTS                                                  
    Since 1994, Minnesota has taxed providers’ gross revenues from patient services.  
Minn. Stat. 295.52; (Compl. ¶ 18.)  The current rate for the MNCare Tax is 1.8%.
Minn. Stat. § 295.52
 subd. 2.  BCBSM agreed to cover network providers’ MNCare Tax liabilities 

as follows:                                                               
         For all Health Services paid based upon a “fixed fee” method    
         (e.g.,  fee  schedule  amounts,  per  diem  amounts,  per  case 
         amounts,  etc.) . . .  Blue  Cross  shall  add  an  amount      
         representing the tax to such fixed payments (e.g., if the fee   
         schedule  amount  is  $100.00  and  the  then-  current  tax    
         percentage is 2.0%, Blue Cross shall pay Provider $102.00).     
         For all Health  Services paid at Regular Billed  Charge  or a   
         percentage of Regular Billed Charge, the amount billed to Blue  
         Cross by Provider shall be deemed to include the then current   
         tax amount and Blue Cross shall not increase its payment by     
         the applicable tax percentage amount for such claims (e.g. if   
         Provider is paid on a 70% of Regular Billed Charge basis, and   
         Provider’s Regular Billed Charges is $100.00, Blue Cross shall  
         reimburse the Provider $70.00).                                 
(Mohs Decl., Ex. 4 at 10.)                                                
    Although the MNCare Tax is levied on providers, they may transfer liability to third-
party payees, either explicitly or by raising prices.
Minn. Stat. § 295.582
 subd. 1(a)(1), 
1(c)(1), 1(e); Boyle v. Anderson,
68 F.3d 1093, 1098
 (8th Cir. 1995).  Nonetheless, the 
Secretary alleges that BCBSM did not disclose, and the plans never agreed to pay, the 
MNCare Tax reimbursement.  (Compl. ¶ 23.)  The Secretary alleges that BCBSM, not the 
plans, was liable for BCBSM’s agreement with providers to pay the tax.  (Id. ¶¶ 21, 39.)  
Accordingly, the Secretary alleges that BCBSM violated its fiduciary duties and engaged in 

prohibited  transactions  by  recouping nearly $67 million from  the  plans for  its own 
MNCare reimbursement liabilities between 2016 and 2020.  (Id. ¶¶ 2, 34–56.) 
    The Secretary brought this action pursuant to her statutory enforcement authority, 
seeking to recover MNCare Tax payments billed to the plans from 2016 through 2020 and 

to enjoin BCBSM from reinstating such practices.  (Id. ¶ 3; id. at 12);
29 U.S.C. § 1132
(a)(2), 
(a)(5).  BCBSM moves to dismiss the Secretary’s Complaint under Federal Rule of Civil 
Procedure 12(b)(1) for lack of standing and Rule 12(b)(6) for failure to state a claim.  (Mot. 

Dismiss, Mar. 18, 2024, Docket No. 9.)                                    
                         12(B)(1) MOTION                                 
I.   STANDARD OF REVIEW                                                   
    The Constitution limits federal-court jurisdiction to cases or controversies.  Spokeo, 
Inc. v. Robins,
578 U.S. 330, 337
 (2016) (citing U.S. Const. art. III, § 2).  Accordingly, the 

Secretary must demonstrate standing to sue by showing that BCBSM caused an injury in 
fact that is likely to be redressed by the relief sought.  Id. at 338.    
    A Rule 12(b)(1) motion challenges the Court’s subject matter jurisdiction, including 
for lack of standing, and requires the Court to examine whether it has authority to decide 

the claims.   Damon v. Groteboer,
937 F. Supp. 2d 1048, 1063
 (D. Minn. 2013).  The party 
seeking  to  invoke  a  federal  court’s  subject  matter  jurisdiction  bears  the  burden  of 
showing that the court has jurisdiction.  Schubert v. Auto Owners Ins. Co.,
649 F.3d 817, 822
 (8th Cir. 2011).  That party must meet its burden “in the same way as any other matter 
on which the plaintiff bears the burden of proof, i.e., with the manner and degree of 

evidence required at the successive stages of the litigation.”  Lujan v. Defs. of Wildlife,
504 U.S. 555, 561
 (1992).  Thus, “[a]t the pleading stage, general factual allegations of injury 
resulting from the defendant’s conduct may suffice.”
Id.
  A court must dismiss an action 
if it lacks subject matter jurisdiction.  Fed. R. Civ. P. 12(h)(3).       

II.  ANALYSIS                                                             
    The Secretary’s theory of standing is simple and suffices at the pleading stage.  
According to the Secretary, BCBSM charged the plans nearly $67 million dollars for 
MNCare Tax liabilities that the plans did not owe and did not agree to pay.  That is a 

concrete injury, caused by BCBSM’s billing practices and redressable by a damages award.  
See TransUnion LLC v. Ramirez,
594 U.S. 413, 425
 (2021) (“If a defendant has caused . . . 
monetary injury to the plaintiff, the plaintiff has suffered a concrete injury in fact under 

Article III.”).                                                           
    BCBSM’s counterargument that the alleged injury is too speculative is intuitively 
appealing.  If the rates BCBSM paid to providers were all negotiated, how those rates were 
itemized was likely not all that impactful to the final numbers.  Cf. Knox v. Serv. Emps. Int’l 

Union, Loc. 1000,
567 U.S. 298
, 317 n.6 (2012) (emphasizing the fungibility of money).  
Take the following hypothetical example.  Say HealthPartners has a sticker price of $150 
to administer an HPV vaccination.  HealthPartners joins BCBSM’s network and negotiates 
a $100 rate for HPV vaccinations.  Under the provider agreement, BCBSM will additionally 
pay $1.80 to cover HealthPartners’s 1.8% percent tax liability on the $100 bill.  What 
matters to HealthPartners is the total payment of $101.80.  Whether that is calculated as 

$100 for services plus $1.80 for tax or $101.80 for services with no tax compensation does 
not matter.  So if BCBSM was not allowed to pay the $1.80 for tax compensation, their 
negotiations likely would have resulted in a $101.80 total payment for services with no 
tax compensation.1                                                        

    Thus, under the Secretary’s theory of how the billing should have worked—with 
no tax liability—the healthcare providers would have negotiated higher base level rates 
for services and the ERISA plans would have ultimately paid the same amount of money.  

Likewise, the plans would not have balked at paying $101.80 for services, and thus were 
not injured by paying $100 for services plus $1.80 for taxes.  All that may well turn out to 
be  true.  But BCBSM’s  theory presents a  question  of  fact  that  is inappropriate  for 
judgment  on  the  pleadings.    The  Court  cannot  be  sure  that  BCBSM’s  hypothetical 

negotiations would have worked so neatly in practice, or that the plans would have no 
objections.  The Court will thus allow the parties a chance to develop the record before 
ruling on this fact-bound issue.                                          
    BCBSM also leans on Thole v. U.S. Bank N.A.,
590 U.S. 538
 (2020) to contest the 

Secretary’s standing.  There, participants in a defined-benefit plan brought an ERISA 


    1 See Minn. Stat. 295.582 subd. 1(e) (“Nothing in this section limits the ability of” a 
healthcare provider to “recover all or part of” their MNCare Tax “obligation by other methods, 
including increasing fees or charges.”).                                  
action for plan mismanagement.
Id.
 at 540–41.  Nonetheless, their benefits were fixed 
and did not depend on plan performance, they had consistently received their monthly 

benefits,  and  there  were  no  indications  that  future  payments  were  at  risk.
Id.
  
Emphasizing that “[t]here is no ERISA exception to Article III,” the Supreme Court found 
the plaintiffs lacked standing because they had not suffered any losses.
Id. at 541, 547
.  
Unlike the plaintiffs in Thole, the Secretary alleges losses here—the nearly $67 million of 

improperly billed MNCare Taxes.                                           
    Finally, BCBSM claims that the plans did not suffer injuries because the plan 
documents  required  the  plans  to  pay  whatever  amounts  BCBSM  negotiated  with 

providers, including MNCare Tax expenses.  In other words, there was no injury because 
the Secretary is wrong on the merits.  Because the Court will not collapse the merits of 
the case into a standing question, see Peters v. Aetna Inc.,
2 F.4th 199, 217
 (4th Cir. 2021), 
the Court will address this argument in the breach section, below.        

                         12(B)(6) MOTION                                 
I.   STANDARD OF REVIEW                                                   
    In reviewing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the 
Court considers all facts alleged in the Complaint as true to determine if the Complaint 
states a “claim to relief that is plausible on its face.”  Braden v. Wal-Mart Stores, Inc.,
588 F.3d 585, 594
 (8th Cir. 2009) (quoting Ashcroft v. Iqbal,
556 U.S. 662, 678
 (2009)).  The 
Court construes the Complaint in the light most favorable to the plaintiff, drawing all 
reasonable inferences in the plaintiff’s favor.  Ashley Cnty. v. Pfizer, Inc.,
552 F.3d 659, 665
 
(8th Cir. 2009).  Although the Court accepts the Complaint’s factual allegations as true, it 
is “not bound to accept as true a legal conclusion couched as a factual allegation,” Bell 

Atl. Corp. v. Twombly,
550 U.S. 544, 555
 (2007), or mere “labels and conclusions or a 
formulaic recitation of the elements of a cause of action,” Iqbal,
556 U.S. at 678
 (quotation 
omitted).  Instead, “[a] claim has facial plausibility when the plaintiff pleads factual 
content that allows the court to draw the reasonable inference that the defendant is 

liable for the misconduct alleged.”
Id.
                                  
    At the motion to dismiss stage, the Court may consider the allegations in the 
Complaint as well as “those materials that are necessarily embraced by the pleadings.” 
Schriener v. Quicken Loans, Inc.,
774 F.3d 442, 444
 (8th Cir. 2014).  The Court may also 

consider exhibits attached to the pleadings, as long as those documents do not conflict 
with the Complaint.2  Porous Media Corp. v. Pall Corp.,
186 F.3d 1077, 1079
 (8th Cir. 1999). 
II.  ANALYSIS                                                             

    The Secretary plausibly alleges BCBSM was a functional fiduciary because it had 
authority and control over plan assets.  And she plausibly alleges that BCBSM breached 
its fiduciary duties and engaged in prohibited transactions.  Accordingly, the Court will 
deny BCBSM’s motion to dismiss for failure to state a claim.              





    2 The Court relies on the SA, SDP, and other contractual materials attached as exhibits by 
both parties.                                                             
    A.   Fiduciary Status                                                
    As an initial matter, BCBSM must have been acting as a fiduciary when it took the 

challenged actions to be liable for a breach of fiduciary duties.  See McCaffree Fin. Corp. 
v. Principal Life Ins. Co.,
811 F.3d 998, 1002
 (8th Cir. 2016).  An entity may act as a named 
fiduciary,
29 U.S.C. § 1102
(a)(2), or as a functional fiduciary,
29 U.S.C. § 1002
(21)(A).  
Though BCBSM was not acting as a named fiduciary when it charged the plans for MNCare 

Tax  reimbursements,  the  Secretary  plausibly  alleges  that  BCBSM  was  a  functional 
fiduciary.                                                                
         1.   Named Fiduciary                                            
    An entity that “is named in the plan instrument” as a fiduciary incurs fiduciary 

obligations under ERISA.  See
29 U.S.C. § 1102
(a)(2).  But fiduciary status is not all or 
nothing.  Rather, fiduciary liability only attaches if a “person was acting as a fiduciary (that 
is, was performing a fiduciary function) when taking the action subject to complaint.”  
Pegram v. Herdrich,
530 U.S. 211, 226
 (2000).  BCBSM is shielded by that piecemeal 

fiduciary inquiry.  The SA clarifies that “Blue Cross agrees to act as the named fiduciary of 
the  Plan  for  purposes  of  Claims,  Adverse  Benefit  Determinations  and  subrogation 
services  . . . .    Employer  retains  fiduciary  obligations  for  all  matters  not  specifically 
delegated to Blue Cross.  (SA at 25.)  “Claims” is a narrowly defined term.  A Claim is a 

“request for payment or medical services that are covered or alleged to be covered under 
the Plan.”  (Id. at 4.)  “Claims Paid,” on the other hand, is “[t]he dollar amount Blue Cross 
pays under the Plan.”  (Id.)                                              
    “Claims” concerns whether BCBSM approves payment, whereas “Claims Paid” 
concerns the amount of payment.  BCBSM only expressly shoulders fiduciary status for 

“Claims,” not “Claims Paid.”  Therefore, it only acts as a named fiduciary when deciding 
whether to issue payment, not when deciding the amount of payment.  Because the 
decision to pay the MNCare Tax affects the amount rather than approval of payment, it 
is not covered under BCBSM’s limited acceptance of named fiduciary responsibilities.3  

Fiduciary status may still attach based on a functional inquiry.  But BCBSM was not acting 
as a named fiduciary when paying providers’ MNCare Tax obligations.       
         2.   Functional Fiduciary                                       
    Even if unnamed, ERISA imposes fiduciary duties on any entity that “exercises any 

discretionary authority or discretionary control respecting management of [a] plan or 
exercises any authority or control respecting management or disposition of its assets.”
29 U.S.C. § 1002
(21)(A).  While BCBSM did not act with discretionary authority respecting 

management  of  the  plans,  it  exercised  authority  over  plan  assets  and  thus  was  a 
functional fiduciary.                                                     
              a.   Discretionary Authority Over Plan Management          
    The Secretary first argues that BCBSM exercised discretionary authority over plan 
management by unilaterally paying MNCare Tax reimbursements without the plans’ 



    3 Additional provisions within the SA reinforce the Court’s interpretation.  (See SA at 12 
(“In negotiating, contracting, or enforcing” provider agreements, “Blue Cross owes no duties or 
obligations to Employer.”).)                                              
knowledge or consent.  But even if the contracts did not allow BCBSM to bill the plans for 
providers’  tax  liabilities,  BCBSM  would  still  not  necessarily  exercise  discretionary 

management authority when doing so.  A TPA does not exercise discretion simply by 
breaching a contract or violating plan terms.  See Mass. Laborers’ Health & Welfare Fund 
v. Blue Cross Blue Shield of Mass.,
66 F.4th 307, 321
 (1st Cir. 2023) (“The complaint’s 
allegations concern actions alleged to violate BCBSMA’s contractual obligations, but as to 

which BCBSMA had no discretion.”).  But see Peters,
2 F.4th at 231
 (provider acted with 
discretionary authority when it passed along a fee “without authority under the Plan and 
in direct violation of” plan documents).                                  

    More relevant to the Court’s analysis is whether BCBSM engaged in discretionary 
management functions when negotiating provider rates, including tax reimbursements.  
BCBSM’s rate negotiation is “independent from the relationship between” itself and the 
plans.  See Mass. Laborers’,
66 F.4th at 310
; accord DeLuca v. Blue Cross Blue Shield of 

Mich.,
628 F.3d 743, 747
 (6th Cir. 2010); (SA at 12 (“In negotiating, contracting, or 
enforcing  [provider]  agreements,  Blue  Cross  owes  no  duties  or  obligations  to 
Employer.”).)  As the Sixth Circuit has explained, assigning fiduciary status for TPA-wide 
negotiations “would be self-defeating.”  DeLuca,
628 F.3d at 747
.         

         The financial advantage underlying BCBSM’s rate negotiations    
         arises from the market power that BCBSM has as a large          
         purchaser of health-care services.  BCBSM is continuously in    
         the process of re-negotiating prices for its three health-care  
         coverage  options  and,  thus,  must  continuously  determine   
         how  much  of that  market  power  to  allocate  to  achieving  
         discounted prices for each of these options.  If, however,      
         BCBSM would be required to negotiate solely on a plan-by-       
         plan basis, as a practical matter its economic advantage in the 
         market  would  be  destroyed,  damaging  its  ability  to  do   
         business on a system-wide basis, ultimately to the [employee    
         plan’s] disadvantage.
Id.
    Accordingly,  the  Court  finds  that  BCBSM  did  not  operate  in  a  discretionary 
management capacity when negotiating reimbursement rates.                 
              b.   Authority or Control Over Plan Assets                 
    Nonetheless, the Secretary plausibly alleges that BCBSM acted as a functional 
fiduciary because it exercised authority or control over plan assets.   BCBSM was a 
fiduciary to the extent it exercised  any authority or control over the plans’ assets, 
regardless of whether that authority or control was discretionary.  See FirsTier Bank, N.A. 
v. Zeller,
16 F.3d 907, 911
 (8th Cir. 1994); Mass. Laborers’, 66 F.4th at 324–25.  A TPA is a 
functional  fiduciary  if  it  “has  the  ability  to  convey  plan  funds  unilaterally.”    Mass. 

Laborers’,
66 F.4th at 327
 (citing Bd. of Trs. of Bricklayers & Allied Craftsmen Loc. 6 of N.J. 
Welfare Fund v. Wettlin Assocs., Inc.,
237 F.3d 270, 271, 275
 (3d Cir. 2001)); see also Hi-
Lex Controls, Inc. v. Blue Cross Blue Shield of Mich.,
751 F.3d 740
, 746–47 (6th Cir. 2014) 

(assigning fiduciary status when BCBS paid claims from plans’ accounts).  So when a TPA 
has “relatively unconstrained check-writing authority over an account containing plan 
assets,” it acts as a fiduciary when it writes those checks.  Mass. Laborers’,
66 F.4th at 327
 
n.21.  On the contrary, a TPA that requires a plan’s authorization to dispose of plan funds 

does not exercise authority or control over those funds.
Id.
 at 327 & n.21. 
    This  case  presents  facts  closer  to  the  former  scenario,  with  BCBSM  having 
unfettered check-writing authority.  To be sure, BCBSM does not draw those checks 

directly from the plans’ accounts.  It spends its own funds, and the plans are then 
contractually obligated to reimburse BCBSM.  (See SA at 25–26.)  The question, then, is 
whether BCBSM’s authority to unilaterally encumber a plan’s assets is equivalent for 
ERISA purposes to directly spending that plan’s assets.                   

    There is no principled reason to treat BCBSM’s unilateral encumbrance of plan 
funds any differently than if it directly spent the plans’ assets.  But see Mass. Laborers’,
66 F.4th at 329
 (hypothesizing that fiduciary duties would not attach if TPAs for self-

funded plans would “pay claims in advance and only later be reimbursed by the plans”).  
In both situations, the triggering events are the same—BCBSM decides to pay a claim—
and the end result is the same—the plans’ funds are depleted by the amount BCBSM pays.  
According to BCBSM, adding the middle step of reimbursement dissolves the fiduciary 

duty that would attach if BCBSM had written a check directly from the plan’s account.  
Under BCBSM’s theory, any TPA could dodge otherwise applicable fiduciary duties by 
adding that rote reimbursement step.  Cf. Cnty. of Maui v. Haw. Wildlife Fund,
590 U.S. 165
, 180 (2020) (warning against interpretations that “open a loophole allowing easy 

evasion of the statutory provision’s basic purposes”).4                   


    4 As the First Circuit noted, adopting the reimbursement approach is not a complete 
loophole because it “would force the TPA to play the role of an unsecured lender to the plan.”  
Mass. Laborers’,
66 F.4th at 329
 (cleaned up).  Thus, the TPA would have to weigh the benefit of 
    Trust law confirms that an encumbrance, not just direct spending, is significant for 
fiduciary purposes.  See Firestone Tire & Rubber Co. v. Bruch,
489 U.S. 101
, 110–11 (1989) 

(instructing courts to apply principals of trust law in interpreting ERISA’s responsibility 
provisions).                                                              
         [A] trustee has power to borrow money for trust purposes and    
         to  pledge,  mortgage,  grant  a  deed  of  trust,  or  otherwise 
         encumber trust property.  The trustee has a duty to exercise    
         caution as well as the duty to exercise care and skill in deciding 
         whether and under what terms to borrow money for trust          
         purposes or to grant a security interest in trust property.     
Restatement (Third) of Trusts § 86, cmt. d (2007).  Whenever BCBSM pays a claim, plan 
funds are automatically encumbered under the reimbursement provision of the SA.  The 
Secretary has thus plausibly alleged that BCBSM exercises authority over plan funds when 
it decides to pay a claim and owes the plans corresponding duties as a functional fiduciary. 
    B.   Breach                                                          
    ERISA requires fiduciaries to discharge their duties “for the exclusive purpose of 
providing  benefits  to  participants  and  their  beneficiaries  and  defraying  reasonable 
expenses of administering the plan.”
29 U.S.C. § 1104
(a)(1)(A).  If the plans did not owe 

the MNCare Tax, BCBSM’s use of plan assets to pay the tax would not benefit the plans 
and their participants.  BCBSM argues that it was statutorily and contractually authorized 
to reimburse providers for its MNCare Tax liabilities, agreed to do so as part of its 



shedding its fiduciary status against the risk of non-payment from the plan.  Nonetheless, where 
those “loans” are repaid every week, BCBSM’s exposure is minimal.         
negotiated rates with those providers, and thus comported with its fiduciary duties.  
BCBSM may well prove as much at later stages of this action.  But whether BCBSM fairly 

negotiated to pay the MNCare Tax, and thus whether it was authorized to use plan funds 
to do so, presents a question of fact that cannot be resolved on a motion to dismiss. 
    Begin with statutory authorization.  Minnesota law allows providers to pass along 
their tax obligations to self-insured plans, either explicitly or by increasing fees or charges.
Minn. Stat. § 295.582
 subd. 1; Boyle,
68 F.3d at 1098
 (“The law permits a provider to 
transfer the expense of the provider tax to third party purchasers such as . . . self-insured 
employee health plans.”).  ERISA does not preempt such pass-throughs.  Boyle,
68 F.3d at 1110
.    But  the  Secretary  claims  Minnesota  law  only  authorizes  transfer  of  the  tax 
obligation to plans if the providers explicitly request such transfer.  See Minn. Dep’t of 
Com., Ins. Bulletin 94-3 ¶ 1 (July 18, 1994) (“If requested to do so, an insurer must 
reimburse a provider.”) (emphasis added).  The Secretary alleges the providers never 

issued that request.  “Rather, BCBSM unilaterally volunteered to compensate network 
providers for their liability under the MNCare Tax and then caused the Plans to pay the 
tax.”  (Compl. ¶ 21.)  Taking the factual allegations from the Complaint as true, the 
Secretary plausibly alleges that the unilateral compensation offer was not authorized by 

statute.                                                                  
    Contractually, BCBSM points the Court to the provision of the SA allowing BCBSM 
to negotiate rates with network providers and obligating the plans to reimburse BCBSM 
at the negotiated rates.  (SA at 12–13, 25.)  Because MNCare Tax coverage was bargained 
for in the provider agreements, BCBSM contends the plans authorized such payments.  

But the plan documents only authorize BCBSM to file for reimbursement of Claims Paid.  
(Id. at 47.)  The SA references “medical services” when defining a “Claim,” (id. at 4,) and 
the  SDP  defines  a  “Claim”  as  “payment  or  reimbursement  of  the  charges  or  costs 
associated with a covered service,” (SDP at 92.)  A covered service, in turn, is a “health 

service or supply” that is “performed and billed by an eligible provider.”  (Id. at 93.)  The 
Secretary argues that a claim, then, only includes medical goods or services, not taxes. 
    The Court will leave for further factual development the question of whether the 

taxes were fairly part of the anticipated negotiated rates, or too attenuated from medical 
services for the plans to be liable.  Where the Secretary alleges that BCBSM discretely 
passed along the provider taxes without the plans’ knowledge, the Court finds it at least 
plausible  that  the  taxes  should  not  have  been  included  in  the  negotiated  rate  as 

understood by the parties.                                                
    C.   Prohibited Transactions                                         
    ERISA prohibits a fiduciary from dealing with plan assets for its own interests or for 
the benefit of any party whose interests are adverse to the plan.
29 U.S.C. § 1106
(b).  

Because the Secretary plausibly alleges that the plans were not liable for the MNCare 
Taxes, she also plausibly alleges BCBSM engaged in a prohibited transaction.  In the 
provider agreement, BCBSM agreed to cover network providers’ MNCare Tax liability.  If 
the plans were not in turn liable to BCBSM, BCBSM would be left holding the bill.  The 
Secretary thus plausibly alleges that BCBSM improperly used plan assets to cover its own 
liabilities.  Accordingly, the Court will deny BCBSM’s Motion to Dismiss the Secretary’s 

prohibited transaction counts.                                            
    D.   Remedy                                                          
    BCBSM contends that, even if the Secretary alleged a breach, she fails to state a 
claim because no remedies are available.                                  

    BCBSM  claims  that  damages  and/or  restitution  are  unavailable  because  the 
Secretary does not plausibly allege that the plans would have rejected the tax payments 
had they been aware of them.  Likewise, there is the possibility that the negotiated 
amount for services would have increased by the disallowed amount of tax coverage to 

result  in  the  same  total  costs  to  the  plans.    As  in  the  12(b)(1)  analysis,  this  is  a 
(counter)factual dispute that the Court will not resolve on the pleadings.  The Secretary 
plausibly alleges that the plans should be reimbursed for all tax payments, though that 

allegation may be undermined upon further factual development.            
    The record is also insufficient for the Court to hold as a matter of law that injunctive 
relief is unavailable.  This action covers billing from 2016 through 2020.  Though the 
Complaint does not say as much, it appears that BCBSM ceased the challenged billing 

practices in 2020.  Even if it did, though, there is no indication why it changed its practices 
or if it is likely to revert to its pre-2020 scheme.  Accordingly, it is difficult to predict based 
on the current record whether “the likelihood of further violations is sufficiently remote 
to  make  injunctive  relief unnecessary.”  See  United States v.  Concentrated Phosphate 
Export Ass’n, Inc.,
393 U.S. 199, 203
 (1968). 
                                CONCLUSION 
     Under pleading standards, the Secretary has standing to pursue this action because 
she  plausibly  alleges  that  self-funded  plans  were  financially  harmed  by  BCBSM’s 
passalong of network providers’ tax liabilities.  She also states a claim upon which relief 

can be granted because she plausibly alleges BCBSM exercised authority and control over 
plan assets and failed to act in the plans’ best interests.  Accordingly, the Court will deny 
BCBSM’s Motion to Dismiss.

ORDER

     Based on the foregoing, and  all the files,  records, and  proceedings herein,  IT IS 
HEREBY ORDERED that Defendant’s Motion to Dismiss [Docket No. 9] is DENIED. 

DATED:  August 22, 2024                               a. (aban 
at Minneapolis, Minnesota.                         JOHN R. TUNHEIM 
                                            United States District Judge 

                                    -18-

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