Lecza v. Healthsource CV-95-382-JM 03/27/97

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Adeline Lecza

v. Civil No. 95-382-JM

Healthsource, Inc., and Healthsource New Hampshire, Inc.

O R D E R

In its current posture, this class action presents

questions as to whether defendants Healthsource, Inc., and one of

its subsidiaries, Healthsource New Hampshire, Inc., have violated

the Employee Retirement Income Security Act of 1974 (ERISA),

et seg. In her amended complaint, the putative

class representative, plaintiff Adeline Lecza, alleges that

defendants have engaged in a pattern and practice of negotiating

with health care providers covert discount agreements which

benefit themselves but not the participants in and beneficiaries

of the health insurance plans defendants administer and/or

underwrite. Plaintiff avers that this pattern and practice

constitutes a breach of the express provisions of her self-funded

plan -- the Lockheed Medical Benefit Plans for Lockheed Sanders, Inc. (the Plan)-- and of certain fiduciary duties imposed upon

defendants by ERISA.1 She sues to recover benefits due and to

enforce the terms of the Plan.

Defendants have moved to dismiss on seven separate

grounds, including failure to exhaust administrative remedies.

See Drinkwater v. Metropolitan Life Ins. Co.,

, 825-

26 (1st Cir.) (administrative exhaustion reguired for ERISA

claims that are, at bottom, contract-based), cert. denied,

(1988). Plaintiff concedes that she has not availed

herself of the appeals process established by her Plan; she

argues, however, that she should be excused from exhaustion on

public policy grounds. She also contends in the alternative

that, with respect to her breach of fiduciary claims, the

exhaustion reguirement should not apply. After giving the matter

careful consideration, the court grants defendants' motion on

grounds of non-exhaustion.

I.

Taking plaintiff's allegations and all reasonable

inferences that may be drawn from these allegations as true,

e.g.. The Dartmouth Review v. Dartmouth College,

, 16

1Although defendants dispute it, plaintiff alleges that Healthsource New Hampshire is the administrator of the Lockheed Sanders Plan. Plaintiff further contends that, in all material respects, Healthsource New Hampshire acted under the direction of Healthsource, its parent company.

2 (1st Cir. 1989), the facts upon which resolution of defendants'

motion depends are as follows. Plaintiff received health care

services from St. Joseph Hospital in Nashua, New Hampshire, on

September 20-21, 1994. Plaintiff alleges that, at the time she

received these services, the Plan was obliged to pay 70% of the

"reasonable and customary charges" for the type of services

provided. Reasonable and customary charges were "[t]he

prevailing charges for the same service or supply being charged

in your geographic area by providers of similar professional

standing as determined by the administrator of the plan."

Healthsource New Hampshire determined that the

reasonable and customary charge for the services plaintiff

received was $2,161.10, and informed plaintiff of this

determination. It did not, however, issue payment2 in the amount

of $1,512.77 (70% of $2,161.10), as plaintiff expected under the

terms of her Plan. Instead, Healthsource New Hampshire, at the

behest of Healthsource, Inc., negotiated a secret agreement3 with

the hospital under which the total bill would be only $1,728.86.

2Plaintiff implies that Healthsource New Hampshire, and not the Plan (or some instrument thereof), held the moneys from which the Plan's obligations were paid. Defendants hotly dispute this.

3The agreement is alleged to be secret because the Explanation of Benefits sent to plaintiff misleadingly failed to make clear that the hospital in fact charged less than its usual and customary rate.

3 Healthsource New Hampshire then failed to pass along to plaintiff

a pro rata (or any other) share of the $432.24 saved; rather, it

directed plaintiff to pay a full 30% of the full reasonable and

customary charge ($648.33) and itself paid only the remaining

$1,080.53, which is a mere 50% of the reasonable and customary

charge for plaintiff's treatment. Plaintiff contends that

deceptive episodes of this precise nature have occurred so often

and have affected so many people that class-based relief against

defendants is warranted.

Plaintiff's Plan sets forth a procedure by which

participants and beneficiaries can challenge denials of benefit

claims.4 It provides:

If you submit a claim for benefits and it is denied, in whole or in part, you may submit a written reguest to Healthsource New Hampshire, Inc. Claims Review Committee for Sanders, reguesting a review. The Healthsource Committee will review your case and reply to you, in writing, within 90 days. This reply will cite specific reasons for the denial, the plan provisions on which the denial was based, and any additional information you should submit to have the claim reconsidered. If you are not satisfied with the reasons cited in the reply, you may further appeal by submitting, in writing, a reguest for final review of the denial of the claim to the Vice President, Human

4Although plaintiff did not attach the Plan as an exhibit to her amended complaint, the Plan's centrality to this litigation permits its consideration in connection with the instant motion. See Watterson v. Page,

(1st Cir. 1993) (in deciding a motion to dismiss, a court may consider documents central to a plaintiff's claim without regard to whether they were attached to or incorporated into the complaint).

4 Resources, Lockheed Sanders. The Vice President, Human Resources, will give you a final determination, generally within 60 days, with specific reasons for the decision. These steps must be followed in the order stated above.

The amended complaint is silent as to whether plaintiff attempted

to secure the benefits she believes are due her in accordance

with the Plan's appellate provisions. C f . Fed. R. Civ. P. 9(c)

("In pleading the performance or occurrence of conditions

precedent, it is sufficient to aver generally that all conditions

precedent have been performed or have occurred."). Plaintiff's

opposition papers make clear, however, that plaintiff has not yet

sought an administrative resolution of her claims.

II.

Plaintiff does not dispute that administrative

exhaustion of contract-based claims is ordinarily reguired in

this Circuit. See Drinkwater,

. Correctly noting

that exhaustion is not a jurisdictional prereguisite to filing

suit under ERISA, see, e.g., Horan v. Kaiser Steel Retirement

Plan,

(9th Cir. 1991), and that exhaustion is

excused in situations where pragmatic concerns favor immediate

institution of a lawsuit, see Drinkwater,

(exhaustion is not reguired when resort to the administrative

route would be futile or where the administrative remedy is

inadeguate), plaintiff instead argues that a waiver of the

5 exhaustion requirement is warranted here. In support of this

position, she asserts that defendants have not given either her

or the class adequate notice that benefits have been wrongfully

withheld. She also contends that exhaustion would be futile,

both for her personally and for the class as a whole.

To the extent that plaintiff's waiver argument rests on

inadequate personal notice and/or an assertion of futility with

respect to her own claim, it is without merit. Whatever

deficiencies there might have been in the Explanation of Benefits

which followed her hospital stay, it is clear that plaintiff now

knows of defendants' allegedly illicit actions. And the absence

of any limitation on the time within which plaintiff may file an

administrative claim under her Plan means that administrative

remedies remain available to her.5 Furthermore, there is no

reason to conclude that defendants will deny plaintiff's

administrative claim on the merits. Plaintiff admits as much

(and a good deal more); in her opposition papers, she states that

"she would likely prevail if an [administrative] appeal were to

be filed now" because granting her appeal would permit defendants

to "effectively terminate this putative class action by providing

a remedy to a single member of the class, and thereby avoid

defendants concede that plaintiff remains entitled to have her claim reviewed on the merits at the administrative level.

6 liability for harm caused to those class members who still do not

know they have been harmed." Regardless of whether her

prognostication of administrative success proves correct,

plaintiff certainly cannot contend that an administrative

rejection of her claim is foreordained.

To the extent that plaintiff's argument for waiver is

premised on concerns about the rights of other class members, it

would appear to be misplaced. If Healthsource New Hampshire has

the power to act and in fact did act in the manner plaintiff

alleges, it is a Plan fiduciary as a matter of law. See Varitv

Corp. v. Howe, 116 S. C t . 1065, 1071-73 (1996) (discussing how

discretionary management or administration of ERISA plans makes

the manager or administrator a plan fiduciary). As such, it

would have a clear fiduciary duty not to act in the manner

outlined by plaintiff. Because it would surely be a breach of

Healthsource New Hampshire's fiduciary duties to other Plan

beneficiaries and participants to use Plan assets to "buy off"

plaintiff without resolving the merits of her claims, an award of

benefits to plaintiff could only follow a determination that the

Plan's terms have been violated. Thus, a decision to award

benefits would be tantamount to a decision that all persons

situated similarly to plaintiff (whether in plaintiff's Plan or

in other plans with which it has similar relationships) are

7 entitled to similar benefits not yet paid. And given the

statutory, see generally

(a)(1)(A) (plan

fiduciaries must act "for the exclusive purpose of[] providing

benefits to participants and their beneficiaries") and common law

obligations imposed upon plan fiduciaries, as well as its own

role in the confusion over this matter,6 Healthsource New

Hampshire would be playing with fire if it were to determine that

plaintiff is entitled to benefits; pay her those benefits; but

then fail to notify other persons similarly situated to plaintiff

of their entitlement to wrongfully withheld benefits. "A

fiduciary has an obligation to convey complete and accurate

information material to the beneficiary's circumstance, even when

a beneficiary has not specifically asked for the information."

Barker v. American Mobil Power Corp.,

(9th

Cir. 1995) (finding a breach of duty where a plan fiduciary

failed to inform plaintiffs of suspicions he had concerning the

mismanagement of plan funds); see also, e.g.. United States v.

6Along these lines, the Court notes that the real issue in this case may be whether certain Plan provisions can be taken to provide support for defendants' (and, perhaps, Lockheed Sanders') actions, and more whether the Plan's summary plan description was and is sufficient to satisfy ERISA. See

(a)(1) ("The summary plan description . . . shall be written in a manner calculated to be understood by the average participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiariesof their rights and obligations under the Plan."). Phillips,

(11th Cir. 1994) (Part 1 of ERISA,

which imposes certain reporting and disclosure requirements on

plan fiduciaries, is designed, inter alia, to provide specific

data to plan participants and beneficiaries about the rights and

benefits to which they are entitled) (citing House Education and

Labor Committee, Employee Retirement Income Security Act of 1974,

H.Rep. No. 533, 93rd Cong., 2d Sess. (1974), reprinted in 1974

U.S.C.C.A.N. 4639, 4648-49), cert, denied, 115 S. C t . 1312

(1995); Rodriguez v. MEBA Pension Trust,

(4th

Cir.) ("Plan participants should not lose . . . benefits through

mistakes and misunderstandings. Congress promulgated the

fiduciary duty and other provisions of ERISA to ensure that plan

participants would receive effective notice of any plan changes

that might affect their . . . rights.") (citation, internal

quotation marks, and ellipses omitted), cert. denied,

(1989) .7

In the end, then, the court is of the opinion that

plaintiff's claim remains a suitable candidate for administrative

7Although it is not entirely clear whether Healthsource is a Plan fiduciary, Healthsource has only been sued for breach of fiduciary duty. Therefore, the success of any claim plaintiff might have against it depends necessarily on its fiduciary status. And if it is a Plan fiduciary, the above analysis would pertain to it with equal force. exhaustion.8 In so ruling, the court is mindful of the purposes

underlying the exhaustion reguirement:

By preventing premature judicial interference with a . . . plan's decision-making processes, the exhaustion reguirement enables plan administrators to apply their expertise and exercise their discretion to manage the plan's funds, correct errors, make considered interpretations of plan provisions, and assemble a factual record that will assist the court reviewing the administrators' actions. Indeed, the exhaustion reguirement may render subseguent judicial review unnecessary in many ERISA cases because a plan's own remedial procedures will resolve many claims.

Communication Workers of America v. AT&T C o .,

(D.C. Cir. 1994) (citation omitted). At this point in time, it

also has no reason to believe that defendants and Lockheed

Sanders (who though not named as a defendant, has an obvious

interest in a satisfactory resolution of this dispute) will fail

to honor any unfulfilled statutory and common law duties owed to

plaintiff and to those similarly situated, whether in plaintiff's

Plan or in other similar plans.

8In so ruling, the court obviously rejects plaintiff's contention that the "statutory claims" set forth in Counts II and III of the amended complaint should not be sent back to the administrative process. Given that defendants have discontinued the practice challenged here and would almost certainly be obliged, because of their fiduciary status, to afford class-wide relief, a payment of wrongfully withheld benefits would appear sufficient to afford all relief sought by plaintiff. Thus, to the extent that Counts II and III seek relief that is properly obtainable, they are nothing more than "simple contract claim[s] . . . dressed in statutory clothing." Drinkwater,

. As such, they should be exhausted.

10 Ill.

For the reasons stated, defendants' motion to dismiss

[document no. 28] is granted. All other pending motions are

mooted by this order. The Clerk's Office is directed to close

the case.

SO ORDERED.

James R. Muirhead United States Magistrate Judge

Date: March 27, 1997

cc: Paul McEachern, Esg. Edward J. Carnot, Esg. Michael C. Harvell, Esg. Arthur M. Kaufman, Esg.

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