Hi-Lex Controls, Inc. v. Blue Cross and Blue Shield of Mich. ( 2014 )


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  •                          RECOMMENDED FOR FULL-TEXT PUBLICATION
    Pursuant to Sixth Circuit I.O.P. 32.1(b)
    File Name: 14a0100p.06
    UNITED STATES COURT OF APPEALS
    FOR THE SIXTH CIRCUIT
    _________________
    HI-LEX CONTROLS, INC., HI-LEX AMERICA, INC.,          ┐
    and HI-LEX CORPORATION HEALTH AND WELFARE             │
    BENEFIT PLAN,                                         │
    │       Nos. 13-1773/1859
    Plaintiffs-Appellees/Cross-Appellants,
    │
    >
    │
    v.
    │
    │
    BLUE CROSS BLUE SHIELD OF MICHIGAN,                   │
    Defendant-Appellant/Cross-Appellee.       │
    ┘
    Appeal from the United States District Court
    for the Eastern District of Michigan at Detroit
    No. 2:11-cv-12557—Victoria A. Roberts, District Judge.
    Argued: March 19, 2014
    Decided and Filed: May 14, 2014
    BEFORE: KEITH, SILER, and ROGERS, Circuit Judges.
    _________________
    COUNSEL
    ARGUED: Robin Springberg Parry, UNITED STATES DEPARTMENT OF LABOR,
    Washington, D.C., for Amicus Curiae. James J. Walsh, BODMAN PLC, Ann Arbor, Michigan,
    for Appellant/Cross-Appellee. Perrin Rynders, VARNUM, Grand Rapids, Michigan, for
    Appellees/Cross-Appellants. ON BRIEF: James J. Walsh, G. Christopher, Bernard, Rebecca
    D’Arcy O’Reilly, BODMAN PLC, Ann Arbor, Michigan, for Appellant/Cross-Appellee. Perrin
    Rynders, Aaron M. Phelps, Stephen F. MacGuidwin, VARNUM, Grand Rapids, Michigan, for
    Appellees/Cross-Appellants. Robin Springberg Parry, UNITED STATES DEPARTMENT OF
    LABOR, Washington, D.C., Ronald S. Lederman, Gerard J. Andree, SULLIVAN, WARD,
    ASHER & PATTON, P.C., Southfield, Michigan, for Amici Curiae.
    1
    Nos. 13-1773/1859      Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.       Page 2
    _________________
    OPINION
    _________________
    SILER, Circuit Judge. The Hi-Lex corporation, on behalf of itself and the Hi-Lex Health
    & Welfare Plan, filed suit in 2011 alleging that Blue Cross Blue Shield of Michigan (BCBSM)
    breached its fiduciary duty under the Employee Retirement Income Security Act of 1974
    (ERISA) by inflating hospital claims with hidden surcharges in order to retain additional
    administrative compensation. The district court granted summary judgment to Hi-Lex on the
    issue of whether BCBSM functioned as an ERISA fiduciary and whether BCBSM’s actions
    amounted to self-dealing. A bench trial followed in which the district court found that Hi-Lex’s
    claims were not time-barred and that BCBSM had violated ERISA’s general fiduciary
    obligations under 29 U.S.C. § 1104(a). The district court also awarded pre- and post-judgment
    interest. We AFFIRM.
    I.
    Hi-Lex is an automotive supply company with approximately 1,300 employees. BCBSM
    is non-profit entity regulated by the state of Michigan that contracts to serve as a third-party
    administrator (TPA) for companies and organizations that self-fund their health benefit plans.
    Since 1991, BCBSM has been the contracted TPA for Hi-Lex’s Health and Welfare
    Benefit Plan (Health Plan). The terms under which BCBSM served as the Health Plan’s TPA are
    set forth in two Administrative Services Contracts (ASCs) the parties entered into in 1991 and
    2002, respectively. The parties renewed those terms each year from 1991 to 2011 by executing a
    “Schedule A” document.
    Under the ASCs, BCBSM agreed to process healthcare claims for Hi-Lex’s employees
    and grant those employees access to BCBSM’s provider networks. In exchange for its services,
    BCBSM received compensation in the form of an “administrative fee” – an amount set forth in
    the Schedule A on a per employee, per month basis.
    In 1993, BCBSM implemented a new system whereby it would retain additional revenue
    by adding certain mark-ups to hospital claims paid by its ASC clients. These fees were charged
    Nos. 13-1773/1859       Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.        Page 3
    in addition to the “administrative fee” that BCBSM collected from Hi-Lex under a separate
    portion of the ASC. Thus, regardless of the amount BCBSM was required to pay a hospital for a
    given service, it reported a higher amount that was then paid by the self-insured client. The
    difference between the amount billed to the client and the amount paid to the hospital was
    retained by BCBSM. This new system was termed “Retention Reallocation.”
    The fees involved in this new system have been termed “Disputed Fees” by the district
    court. They include:
    A. Charges for access to the Blue Cross participating provider and hospital network
    (Provider Network Fee);
    B. Contribution to the Blue Cross contingency reserve (contingency/risk fee);
    C. Other Than Group subsidy (OTG fee); and
    D. a retiree surcharge.
    Hi-Lex asserts that it was unaware of the existence of the Disputed Fees until 2011, when
    BCBSM disclosed to the company in a letter the existence of the fees and described them as
    “administrative compensation.”
    Following the disclosure, Hi-Lex sued BCBSM, alleging violations of ERISA as well as
    various state law claims.     The district court dismissed the company’s state law claims as
    preempted, but granted Hi-Lex summary judgment on its claim that BCBSM functioned as an
    ERISA fiduciary and that BCBSM had violated ERISA by self-dealing. Furthermore, after a
    nine-day bench trial, the district court ruled that BCBSM had violated its general fiduciary duty
    under § 1104(a) and that Hi-Lex’s claims were not time-barred. The court awarded Hi-Lex
    $5,111,431 in damages and prejudgment interest in the amount of $914,241.
    BCBSM asserts that the district court erred by (1) finding the company was an ERISA
    fiduciary, (2) ruling that BCBSM had breached its fiduciary duty under ERISA § 1104(a),
    (3) holding that BCBSM had conducted “self-dealing” in violation of ERISA § 1106(b)(1), and
    (4) concluding that Hi-Lex’s claims were not time-barred. Hi-Lex cross-appealed, arguing that
    the district court abused its discretion by ordering an insufficient prejudgment interest award.
    Nos. 13-1773/1859       Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.        Page 4
    II.
    We review a district court’s summary judgment rulings de novo. Pipefitters Local 636
    Ins. Fund v. Blue Cross & Blue Shield of Mich., 
    722 F.3d 861
    , 865 (6th Cir. 2013) (Pipefitters
    IV).   The same standard applies when this court reviews “a district court’s determination
    regarding ERISA-fiduciary status.” McLemore v. Regions Bank, 
    682 F.3d 414
    , 422 (6th Cir.
    2012). After a bench trial, a court’s legal conclusions are reviewed de novo while its factual
    findings are reviewed for clear error. James v. Pirelli Armstrong Tire Corp., 
    305 F.3d 439
    , 448
    (6th Cir. 2002).
    III.
    A.     BCBSM’s ERISA Fiduciary Status
    A threshold issue in this case is whether BCBSM functioned as an ERISA fiduciary for
    Hi-Lex’s Health Plan. In relevant part, ERISA provides that
    a person is a fiduciary with respect to a plan to the extent (i) he exercises any
    discretionary authority or discretionary control respecting management of such
    plan or exercises any authority or control respecting management or disposition
    of its assets, . . . or (iii) he has any discretionary authority or discretionary
    responsibility in the administration of such plan.
    29 U.S.C. § 1002(21)(A) (emphasis added). The term person is defined broadly to include a
    corporation such as BCBSM. 
    Id. § 1002(9).
    In Briscoe v. Fine, we found this statute “impose[d]
    fiduciary duties not only on those entities that exercise discretionary control over the disposition
    of plan assets, but also impose[d] such duties on entities or companies that exercise ‘any
    authority or control’ over the covered assets.” 
    444 F.3d 478
    , 490-91 (6th Cir. 2006). Applying
    that standard, we recently held that BCBSM functioned as an ERISA fiduciary when it served as
    a TPA for a separate client under the same ASC terms at issue here. See Pipefitters 
    IV, 722 F.3d at 865-67
    . In that case, we found that BCBSM functioned as an ERISA fiduciary with respect to
    hidden OTG fees that it unilaterally added to hospital claims subsequently paid by the Pipefitters
    Fund. 
    Id. at 866-67.
    BCBSM argues that the decisions in 
    McLemore, 682 F.3d at 422-24
    , and Seaway Food
    Town, Inc. v. Med. Mut. of Ohio, 
    347 F.3d 610
    , 616-19 (6th Cir. 2003), support its right to collect
    fees per the terms of its contract with Hi-Lex. In Seaway, however, we qualified our holding by
    Nos. 13-1773/1859           Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.                    Page 5
    noting that while simple adherence to a contract’s term giving a party “the unilateral right to
    retain funds as compensation” does not give rise to fiduciary status, a “term [that] authorizes [a]
    party to exercise discretion with respect to that right” 
    does. 347 F.3d at 619
    . Acknowledging
    this, BCBSM argues that it exercised no discretion with respect to the Disputed Fees because
    they were part of the standard pricing arrangement for the company’s entire ASC line of
    business. The record, though, supports a finding that the imposition of the Disputed Fees was
    not universal. The district court cited an email in which BCBSM’s underwriting manager, Cindy
    Garofali, acknowledged that individual underwriters for BCBSM had the “flexibility to
    determine” how and when access fees were charged to self-funded ASC clients. Moreover,
    Garofali admitted during testimony at trial that the Disputed Fees were sometimes waived
    entirely for certain self-funded customers. See also Pipefitters Local 636 Ins. Fund v. Blue Cross
    & Blue Shield of Mich., 213 F. App’x 473, 475 (6th Cir. 2007) (Pipefitters I) (noting that self-
    insured clients were not always required to pay the Disputed Fees). The district court did not err
    in finding that the Disputed Fees were discretionarily imposed.1
    BCBSM also attempts to distinguish this case from Pipefitters IV by arguing that the
    funds which paid the Disputed Fees were Hi-Lex’s corporate assets, not “plan assets” subject to
    ERISA protections. In Pipefitters IV, corporate funds from several employers were first pooled
    together in a trust account, the Pipefitters Fund, which then remitted funds to BCBSM in its
    capacity as a TPA. In this case, the funds Hi-Lex sent to BCBSM in its role as TPA came not
    from a formal trust account, but from a combination of the company’s general funds and Hi-Lex
    employee contributions.
    Department of Labor regulations state that employee contributions constitute plan assets
    under ERISA once they are “segregated from the employer’s general assets.”                               29 C.F.R.
    § 2510.3-102(a)(1).       Thus, the health care contributions deducted from Hi-Lex employees’
    1
    Counsel for BCBSM acknowledged as much during oral argument in Pipefitters IV. “But Your Honor,
    again, I really need to stress, getting caught up in the Hi-Lex case I think is a mistake because the fees are totally
    different. It’s not … that … those are about fees where there is discretion.” Oral Argument at 22:28, Pipefitters IV,
    
    722 F.3d 861
    (6th Cir. 2013).
    Nos. 13-1773/1859            Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.               Page 6
    paychecks and sent to BCBSM to pay claims and administrative costs qualify as plan assets.2
    See U.S. Dep’t of Labor, Advisory Op. No. 92-24A, 
    1992 WL 337539
    , *2 (Nov. 6, 1992) (AO
    92-24A) (“all amounts that a participant pays to or has withheld by an employer for purposes of
    obtaining benefits under a plan will constitute plan assets”); see also United States v. Grizzle,
    
    933 F.2d 943
    , 946-47 (11th Cir. 1991) (finding that plan assets may be composed of employee
    contributions even before their delivery to the plan). BCBSM correctly notes, though, that
    employee contributions represented only a fraction of the funds it received from Hi-Lex and
    those contributions first began in 2003—several years after the Disputed Fee compensation
    system was initiated. The pertinent question, then, is whether the employer contributions that
    Hi-Lex sent to BCBSM must also be considered plan assets.
    “[T]he assets of an employee benefit plan generally are to be identified on the basis of
    ordinary notions of property rights.” AO 92-24A at *2. Under this analysis, “the assets of a
    welfare plan generally include any property, tangible or intangible, in which the plan has a
    beneficial ownership interest.” 
    Id. Making the
    plan assets’ determination “therefore requires
    consideration of any contract or other legal instrument involving the plan, as well as the actions
    and representations of the parties involved.” 
    Id. Furthermore, the
    “drawing benefit checks on a
    TPA account, as opposed to an employer account, may suggest to participants that there is an
    independent source of funds securing payment of their benefits under the plan.” 
    Id. In this
    case, the Summary Plan Description (SPD) – which ERISA requires to be
    distributed to plan participants3 – establishes that Hi-Lex’s intention was to place plan assets for
    its self-funded Health Plan with BCBSM in its capacity as TPA. The SPD specifically notes that
    Hi-Lex “is not [a] direct payor of any benefits” and “no special fund or trust” exists from which
    self-insured benefits are paid.4 Instead, the SPD states that a TPA (designated later in the
    document as BCBSM) has been hired, and it “reviews [plan participant’s] claims and pays
    2
    BCBSM’s contention that it lacked notice of any employee contributions in the funds it received from Hi-
    Lex is not supported by the record. The Summary Plan Description (SPD) states that Hi-Lex and its employees
    “share the cost of participating in the Plan.”
    3
    See 29 U.S.C. § 1024(b).
    4
    ERISA permits this arrangement. See 29 U.S.C. § 1103(b).
    Nos. 13-1773/1859           Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.                  Page 7
    benefits from the money we provide.”                  Moreover, although the SPD gives final claims
    determination to Hi-Lex, the document makes clear that enrollees must make their initial benefit
    claims to BCBSM, which has both the funds and the discretion to pay claims.5 The language in
    the ASC does nothing to alter the understanding that BCBSM in its role as TPA would be
    holding funds to pay the healthcare expenses of Plan beneficiaries – a group the ASC terms
    “enrollees.”6 Indeed, the quarterly statements received by Hi-Lex show that the funds it sent to
    BCBSM were, predictably, spent covering the health expenses and administrative costs of plan
    beneficiaries.
    While BCBSM attempts to characterize its arrangement with Hi-Lex as a service
    agreement between two companies – with no thought toward ERISA and its protections – that
    argument is unavailing. The SPD contains an entire section disclosing plan beneficiaries’ rights
    under ERISA, including the right to sue “the fiduciaries” (plural) if they “misuse the Plan’s
    money.” If BCBSM’s interpretation of the parties’ arrangement were accurate, there would only
    be a single fiduciary, Hi-Lex, the named Plan Administrator. Additionally, although the ASC
    lacks any specific reference to plan assets, it does recognize that BCBSM may have certain
    responsibilities “under ERISA” that it cannot contract around.7                     Furthermore, in practice,
    BCBSM annually submitted data to Hi-Lex especially designed for use on the company’s
    ERISA-mandated DOL 5500 forms.8 Collectively, these “actions and representations” establish
    that BCBSM, Hi-Lex and the company’s employees all understood that BCBSM would be
    holding ERISA-regulated funds to pay the health expenses and administrative costs of enrollees
    in the Hi-Lex Health Plan. As a result, Hi-Lex’s Plan beneficiaries had a reasonable expectation
    of a “beneficial ownership interest” in the funds held by BCBSM.
    5
    BCBSM maintained exclusive check-writing authority over the Comerica Bank account into which Hi-
    Lex’s funds were wired as mandated by the Schedule A.
    6
    Although the ASC was made between the “Group” (Hi-Lex) and BCBSM, its provisions regarding health
    claims processing and payment correlate with those found in the SPD.
    7
    A fiduciary is established under ERISA by a party’s functional role and that responsibility cannot be
    abrogated by contract. See Mertens v. Hewitt Assocs., 
    508 U.S. 248
    , 262 (1993); 
    Briscoe, 444 F.3d at 492
    .
    8
    The Form 5500 Series is required by the Department of Labor to fulfill certain reporting requirements
    under ERISA’s Titles I and IV.
    Nos. 13-1773/1859      Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.         Page 8
    BCBSM makes much of the fact that neither it nor Hi-Lex had a separate bank account
    set aside exclusively for the funds intended to pay enrollee health expenses. BCBSM cannot,
    however, cite any case law requiring such an arrangement for the existence of ERISA plan
    assets. Our court has found that plan assets can exist when a company directly funds an ERISA
    plan from its corporate assets and the contracted TPA holds those funds in a general account.
    See Libbey-Owens-Ford Co. v. Blue Cross & Blue Shield Mut. of Ohio, 
    982 F.2d 1031
    , 1036 (6th
    Cir. 1993) (finding that Blue Cross was a fiduciary “because [it] could earmark the funds that
    Libbey-Owens-Ford allocated to the plan”).
    Finally, trust law, which BCBSM acknowledges should guide the court in its fiduciary
    analysis, favors Hi-Lex’s position.
    When one person transfers funds to another, it depends on the manifested
    intention of the parties whether the relationship created is that of trust or debt. If
    the intention is that the money shall be kept or used as a separate fund for the
    benefit of the payor or one or more third persons, a trust is created.
    Restatement (Third) of Trusts § 5 cmt. k (2003) (emphasis added); see also Firestone Tire and
    Rubber Co. v. Bruch, 
    489 U.S. 101
    , 110-11 (1989) (noting the value of trust law in interpreting
    ERISA’s responsibility provisions). Thus, while a formal trust was never created in this case,
    common law supports the conclusion that BCBSM was holding the funds wired by Hi-Lex “in
    trust” for the purpose of paying plan beneficiaries’ health claims and administrative costs.
    Accordingly, the district court did not err in finding that BCBSM held plan assets of the Hi-Lex
    Health Plan and, in doing so, functioned as an ERISA fiduciary.
    B.     ERISA’s Statute of Limitations
    A separate threshold issue in this case involves ERISA’s statute of limitations for actions
    brought under 29 U.S.C. §§ 1104(a) and 1106(b). “[T]he statute requires that a claim be brought
    within three years of the date the plaintiff first obtained ‘actual knowledge’ of the breach or
    violation forming the basis for the claim.” Cataldo v. U.S. Steel Corp., 
    676 F.3d 542
    , 548 (6th
    Cir. 2012). “‘Actual knowledge’ means ‘knowledge of the underlying conduct giving rise to the
    alleged violation,’ rather than ‘knowledge that the underlying conduct violates ERISA.’” 
    Id. (quoting Wright
    v. Heyne, 
    349 F.3d 321
    , 331 (6th Cir. 2003)). However, the statute provides an
    Nos. 13-1773/1859          Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.                 Page 9
    exception for a case involving “fraud or concealment,” extending the filing period to a date no
    later than six years after the time of discovery of the violation. See id.; 29 U.S.C. § 1113.
    In this case, the district court found that Hi-Lex obtained knowledge of the Disputed Fees
    in August 20079 – a finding the company does not dispute. Since Hi-Lex filed suit in June 2011,
    it must avail itself of ERISA’s “fraud or concealment” exception or its action is time-barred.
    BCBSM asserts that the district court erred by not finding that Hi-Lex had actual knowledge of
    the Disputed Fees before August 2007 or, alternatively, that the company’s failure to exercise
    due diligence led to its lack of knowledge regarding the fees.
    1.      Timeframe for Actual Knowledge
    There is no evidence in the record that any ASC signed before 2002 contained language
    pertaining to the Disputed Fees. The Schedule As from 1995 to 2002 contained a single sentence
    that BCBSM contends relates to the Disputed Fees: “Your hospital claims cost reflects certain
    charges for provider network access, contingency, and other subsidies as appropriate.” This
    statement, however, did not appear in the “Administrative Charge” section of the document
    where other recurring expenses related to BCBSM’s compensation are located. It also omitted
    the critical fact that the Disputed Fees would be retained by BCBSM as additional compensation
    and not paid to hospitals.
    In 2002, language was added to the ASC that BCBSM contends further explains the
    Disputed Fees:
    The Provider Network Fee, contingency, and any cost transfer subsidies or
    surcharges ordered by the State Insurance Commissioner as authorized pursuant
    to 1980 P.A. 350 will be reflected in the hospital claims cost contained in
    Amounts Billed.
    This language, though, is similarly opaque and misleading. See Pipefitters 
    IV, 722 F.3d at 867
    .
    The phrase “ordered by the State Insurance Commissioner” is not accurate because the Insurance
    Commissioner neither ordered BCBSM customers to pay these fees nor had the authority to do
    so. Additionally, because the phrase “Amounts Billed” is defined in the ASC to mean “the
    9
    The district court held that Hi-Lex should have discovered the Disputed Fees when a “Value of Blue” pie
    chart that depicted the charges was presented to the company as part of an annual settlement meeting with BCBSM
    on August 21, 2007.
    Nos. 13-1773/1859           Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.                Page 10
    amount [Hi-Lex] owes in accordance with BCBSM’s standard operating procedures for payment
    of Enrollees’ claims,” this term provides no notice that BCBSM will be retaining additional
    administrative compensation from these charges.10 Furthermore, even to the extent that the
    contract documents provide some hint about additional fees, those documents describe only what
    might happen in the future. Every year, however, Hi-Lex received DOL 5500 certification sheets
    from BCBSM which purported to show the administrative compensation that BCBSM was
    actually receiving. The 5500 Forms, though, indicated that BCBSM was not retaining any
    administrative compensation beyond that clearly delineated in the ASC and Schedule As.11 The
    district court did not err in finding that Hi-Lex gained knowledge of the Disputed Fees beginning
    in August 2007.
    2.      Fraud or Concealment Exception
    Unless ERISA’s “fraud or concealment” exception applies, Hi-Lex’s action is time-
    barred because it was filed in June 2011, more than three years after the company acquired
    knowledge of the Disputed Fees. Other circuit courts have split when interpreting the scope of
    the fraud or concealment exception. Compare Larson v. Northrop Corp., 
    21 F.3d 1164
    , 1174
    (D.C. Cir. 1994) (finding that § 1113 requires a defendant to have actively engaged in
    concealment), with Caputo v. Pfizer, Inc., 
    267 F.3d 181
    , 192-93 (2d Cir. 2001) (holding that the
    fraud or concealment provision applies to actions for breach of fiduciary duty in which the
    underlying action itself sounds in fraud). We have not yet taken a position on these two
    competing interpretations. See 
    Cataldo, 676 F.3d at 548-51
    (noting that an “open question”
    exists in the Sixth Circuit on the scope of the fraud or concealment exception). To resolve this
    case, though, it remains unnecessary for us to take sides because, as the district court found,
    BCBSM breached its fiduciary duty by committing fraud and then acting to conceal that fraud.
    10
    Language in a Schedule A from 2006 did note that “[a] portion of [Hi-Lex’s] hospital savings has been
    retained by BCBSM” to cover provider network costs. However, even assuming that language provided actual
    knowledge to Hi-Lex, it did so within the 6-year statute of limitations period under ERISA’s “fraud or concealment”
    exception.
    11
    In the certifications provided by BCBSM to help prepare DOL 5500s, the Disputed Fees were included
    on the line for “Claims Paid.” The “Administration” section that should have included all administrative fees listed
    only those fees disclosed by BCBSM. Lines for “Other Expenses” and “Risk and Contingency” were either marked
    zero or not applicable each year.
    Nos. 13-1773/1859       Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.      Page 11
    BCBSM committed fraud by knowingly misrepresenting and omitting information about
    the Disputed Fees in contract documents. Specifically, the ASC, the Schedule As, the monthly
    claims reports, and the quarterly and annual settlements all misled Hi-Lex into believing that the
    disclosed administrative fees and charges were the only form of compensation that BCBSM
    retained for itself.
    BCBSM also “engaged in a course of conduct designed to conceal evidence of [its]
    alleged wrong-doing.” 
    Larson, 21 F.3d at 1172
    . After rumors emerged that BCBSM had
    “hidden fees” in the early 2000s, representatives from BCBSM told various insurance brokers
    that customers got 100% of the hospital discounts and that “Blue Cross does not hold anything
    back.” BCBSM made similar assurances to Hi-Lex, stating in an annual renewal document,
    “Your BCBSM Administrative Fee is all-inclusive.” BCBSM also gave a misleading response to
    a Request for Proposal (RFP) issued by Hi-Lex by denying that it charged “Access Fees.” This
    response helped sustain the illusion that BCBSM was more cost-competitive than other TPAs
    who responded to the RFP. Finally, the Form 5500 certification sheets that BCBSM provided to
    Hi-Lex every year concealed the additional administrative compensation that was being taken in
    the form of the Disputed Fees.
    3.      Due Diligence
    A common requirement of both the Caputo and Larson standards for determining “fraud
    or concealment,” is that an ERISA plaintiff’s failure to discover a fiduciary violation must not
    have been attributable to a lack of due diligence on his part. See 
    Larson, 21 F.3d at 1172
    (finding that plaintiffs must not have been on notice about evidence of a fiduciary breach,
    “despite their exercise of diligence”); 
    Caputo, 267 F.3d at 192-93
    (holding that “plaintiffs’ action
    [was] timely because it was brought within six years of when, with due diligence, they should
    have discovered the fraud”).
    BCBSM argues that Hi-Lex failed to exercise due diligence because the company’s
    finance officials, Thomas Welsh and John Flack, did not thoroughly read the 2002 ASC or the
    annual Schedule A renewal documents.          While that assertion is accurate, it represents an
    incomplete picture of the actions of those officials.      The district court found that “Welsh
    carefully reviewed all financial reports from BCBSM” and maintained that “financial data in a
    Nos. 13-1773/1859      Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.     Page 12
    master spreadsheet.” Moreover, after a healthcare consultant, hired by Hi-Lex, raised a question
    about ambiguous language in the Schedule A, “Welsh diligently followed up with BCBSM, only
    to never get a response.” Later, Hi-Lex’s RFP specifically asked TPAs whether they charged
    any “Network Access/Management Fees” or “Other Fees” and BCBSM answered “N/A.” Hi-
    Lex officials reasonably relied on their consultant who interpreted that response to mean there
    were no Disputed Fees in addition to BCBSM’s disclosed Administrative Fees. When Flack
    assumed the CFO role from Welsh, he continued to review the monthly claims reports from
    BCBSM and record the data into the master spreadsheet. As before, though, none of those
    reports gave any indication that claims included administrative fees paid to BCBSM. The
    district court did not err in finding that Hi-Lex acted with diligence in reviewing the
    administrative costs of its health plan until BCBSM presented its Value of Blue Report in August
    2007.
    Moreover, if Hi-Lex had not acted diligently, the Supreme Court has held that when a
    “discovery of the facts constituting the violation” provision exists in a statute of limitations,
    courts must also examine whether “a hypothetical reasonably diligent plaintiff would have
    discovered [those facts].” Merck & Co. v. Reynolds, 
    559 U.S. 633
    , 646-47 (2010). The district
    court correctly found that such a company would not have discovered the Disputed Fees until
    August 2007.
    The contract documents (ASC and Schedule As until 2006) fail to reference or explain
    the Disputed Fees in a way that a reasonable reader would understand that those fees involved
    additional compensation for BCBSM. Indeed, BCBSM’s own account manager, Sandy Ham,
    who read and signed multiple Schedule As from 1999 to 2005, testified that she did not
    understand anything about the Disputed Fees, including their existence.        Additionally, six
    insurance brokers, who had years of experience working with self-funded customers, testified at
    trial that they had no understanding of the fees until 2007 when BCBSM began disclosing more
    information. If health industry experts and BCBSM’s account manager – who was tasked with
    explaining contract documents to customers – did not understand that the Disputed Fees were
    being authorized by contract documents, then a “reasonably diligent” CFO could not be expected
    to know about them. Besides the contract documents, BCBSM made discovery of its Disputed
    Nos. 13-1773/1859      Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.      Page 13
    Fee practice more difficult for a hypothetical diligent customer by not separately accounting for
    those fees in its monthly, quarterly, and annual claims reports or in the information sheets it
    provided to help customers prepare DOL 5500 Forms. Finally, according to BCBSM’s own
    survey of its self-insured customers, a substantial majority – 83% – did not know the Disputed
    Fees were being charged.
    The claims in this case did not violate ERISA’s statute of limitations because Hi-Lex can
    validly invoke the extended six-year period permitted by the fraud or concealment exception.
    IV.
    A.     § 1106(b)(1)
    A fiduciary with respect to an ERISA plan “shall not deal with the assets of the plan in
    his own interest or for his own account.” 29 U.S.C. § 1106(b)(1). As interpreted by this court,
    that statute contains an “absolute bar against self dealing.” Brock v. Hendershott, 
    840 F.2d 339
    ,
    341 (6th Cir. 1988). Because this case involves the same ASC, same defendant, and same
    allegations, our decision in Pipefitters IV controls with respect to the § 1106(b)(1) claim. See
    Pipefitters 
    IV, 722 F.3d at 868
    (holding that BCBSM’s use of fees it discretionarily charged “for
    its own account” is “exactly the sort of self-dealing that ERISA prohibits fiduciaries from
    engaging in”).
    BCBSM argues it is entitled to present a “reasonable compensation” defense under
    29 U.S.C. §§ 1108(b)(2) and (c)(2). In support, it cites Harley v. Minn. Mining & Mfg. Co.,
    
    284 F.3d 901
    , 908-09 (8th Cir. 2002). However, the majority of courts that have examined this
    statutory interpretation issue have held that § 1108 applies only to transactions under § 1106(a),
    not § 1106(b). See, e.g., Nat’l Sec. Sys., Inc. v. Iola, 
    700 F.3d 65
    , 93-96 (3d Cir. 2012); Patelco
    Credit Union v. Sahni, 
    262 F.3d 897
    , 910-11 (9th Cir. 2001); Chao v. Linder, 
    421 F. Supp. 2d 1129
    , 1135-36 (N.D. Ill. 2006); LaScala v. Scrufari, 
    96 F. Supp. 2d 233
    , 238 (W.D.N.Y. 2000);
    Daniels v. Nat’l Emp. Benefits Servs., Inc., 
    858 F. Supp. 684
    , 693 (N.D. Ohio 1994); Donovan v.
    Daugherty, 
    550 F. Supp. 390
    , 404 n.3 (S.D. Ala. 1982); Gilliam v. Edwards, 
    492 F. Supp. 1255
    ,
    1262 (D.N.J. 1980); Marshall v. Kelly, 
    465 F. Supp. 341
    , 353 (W.D. Okla. 1978).                The
    Department of Labor agrees with these courts. See 29 C.F.R. § 2550.408b-2(a)(3) (ERISA
    “section 408(b)(2) does not contain an exemption from acts described in section 406(b)(1)”).
    Nos. 13-1773/1859       Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.      Page 14
    We decline BCBSM’s invitation to apply the reasonable compensation provisions found in
    §§ 1108(b)(2) and (c)(2) to the self-dealing restriction in § 1106(b)(1).
    B.     § 1104(a)
    ERISA imposes three broad duties on qualified fiduciaries: (1) the duty of loyalty,
    (2) the prudent person fiduciary obligation, and (3) the exclusive benefit rule. Pirelli Armstrong
    Tire 
    Corp., 305 F.3d at 448-49
    . Collectively, these duties serve the goal of ensuring that ERISA
    fiduciaries act “solely in the interest of [plan] participants and beneficiaries.”       29 U.S.C.
    § 1104(a)(1). Our analysis of the § 1104(a) claim in Pipefitters IV is again determinative for this
    case. 
    See 722 F.3d at 867-69
    . There, as here, when a “fiduciary uses a plan’s funds for its own
    purposes, . . . such a fiduciary is liable under § 1104(a)(1) and § 1106(b)(1).” 
    Id. at 868
    (citing
    Guyan Int’l, Inc. v. Prof’l Benefits Adm’rs, Inc., 
    689 F.3d 793
    , 798-99 (6th Cir. 2012)).
    V.
    After ruling for the plaintiffs in this case, the district court awarded prejudgment interest
    in accordance with 28 U.S.C. § 1961. Although ERISA does not require a prejudgment interest
    award to prevailing plaintiffs, this court has “long recognized that the district court may do so at
    its discretion in accordance with general equitable principles.” Caffey v. Unum Life Ins. Co.,
    
    302 F.3d 576
    , 585 (6th Cir. 2002) (quoting Ford v. Uniroyal Pension Plan, 
    154 F.3d 613
    , 616
    (6th Cir. 1998)).
    Hi-Lex asserts that the district court abused its discretion in two respects: (1) the court
    failed to make specific findings of fact with respect to its decision regarding prejudgment
    interest, and (2) the § 1961 interest calculation undercompensates Hi-Lex for the lost interest
    value of the Disputed Fees.
    Hi-Lex, through its expert, Neil Steinkamp, was the only party to offer testimony
    regarding prejudgment interest. BCBSM relies on its critique of Steinkamp’s analysis, noting
    that he produced no evidence to support his conclusion that Hi-Lex would have invested the
    savings from the Disputed Fees in corporate bonds. The district court’s relevant factual finding
    was that Steinkamp’s prejudgment interest rate computation would overcompensate Hi-Lex for
    its loss. Moreover, Hi-Lex’s contention that Drennan v. Gen. Motors Corp., 
    977 F.2d 246
    (6th
    Nos. 13-1773/1859       Hi-Lex Controls, et al. v. Blue Cross Blue Shield of Mich.       Page 15
    Cir. 1992), requires reversal on this point is incorrect. That case stands for the proposition that a
    district court errs by not making findings of fact when deciding whether to award discretionary
    prejudgment interest. The issue here is whether the court made sufficient findings with respect to
    its prejudgment interest calculation.
    In Schumacher v. AK Steel Corp. Ret. Accumulation Pension Plan, we held that
    [a] proper determination of pre-judgment interest involves a consideration of
    various case-specific factors and competing interests to achieve a just result.
    While we have upheld awards of pre-judgment interest calculated pursuant to
    28 U.S.C. § 1961, a mechanical application of the rate at the time of the award
    amounts to an abuse of discretion.
    
    711 F.3d 675
    , 686 (6th Cir. 2013) (emphasis added). The Schumacher court found that a district
    court’s use of a single rate – 0.12% – calculated at the time of the award under § 1961
    represented an abuse of discretion.
    In this case, however, the district court did not use a single rate in calculating the
    prejudgment interest. Instead, the court utilized a blended rate for each of the 17 years during
    which the Disputed Fees were charged – a range from 6.13% to 0.14%. Thus, on the $5,111,431
    damages award, the district court calculated the prejudgment interest at $914,241. Because the
    district court avoided a mechanical application of § 1961, it did not abuse its discretion in
    calculating the prejudgment interest award.
    VI.
    For the foregoing reasons, we AFFIRM the judgment of the district court.