Central Valley Ag Cooperative v. Daniel Leonard ( 2021 )

United States Court of Appeals
For the Eighth Circuit
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No. 19-3044
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Central Valley Ag Cooperative, for itself and as Fiduciary of the Central Valley
Ag Cooperative Health Care Plan
lllllllllllllllllllllPlaintiff - Appellant
Central Valley Ag Cooperative Health Care Plan
lllllllllllllllllllllPlaintiff
v.
Daniel K. Leonard; Susan Leonard; The Benefit Group, Inc.; Anasazi Medical
Payment Solutions, Inc., Advanced Medical Pricing Solutions, Inc.; Claims
Delegate Services, L.L.C.
lllllllllllllllllllllDefendants - Appellees
Linus G. Humpal
lllllllllllllllllllllDefendant
GMS Benefits, Inc.
lllllllllllllllllllllDefendant - Appellee
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No. 20-1378
___________________________
Central Valley Ag Cooperative, for itself and as Fiduciary of the Central Valley
Ag Cooperative Health Care Plan
lllllllllllllllllllllPlaintiff - Appellant
Central Valley Ag Cooperative Health Care Plan
lllllllllllllllllllllPlaintiff
v.
Daniel K. Leonard; Susan Leonard; The Benefit Group, Inc.; Anasazi Medical
Payment Solutions, Inc., Advanced Medical Pricing Solutions, Inc.; Claims
Delegate Services, L.L.C.
lllllllllllllllllllllDefendants - Appellees
Linus G. Humpal
lllllllllllllllllllllDefendant
GMS Benefits, Inc.
lllllllllllllllllllllDefendant - Appellee
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Appeals from United States District Court
for the District of Nebraska - Omaha
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Submitted: November 17, 2020
Filed: February 1, 2021
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Before BENTON, ERICKSON, and GRASZ, Circuit Judges.
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ERICKSON, Circuit Judge.
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Central Valley Ag Cooperative (“Central Valley”) is a large Nebraska
agricultural cooperative. In 2015 and 2016, Central Valley offered its employees the
opportunity to participate in a self-funded health care plan. Central Valley sued
various defendants who either marketed or administered those health care plans
alleging that the defendants breached various fiduciary duties and engaged in various
prohibited transactions, all in violation of the Employee Income Retirement Security
Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq. The district court1 granted
summary judgment in favor of all defendants and awarded them attorney’s fees.
Central Valley appeals. We affirm.
I. BACKGROUND
In 2014, Central Valley merged with United Farmers Cooperative. After the
merger, Central Valley wanted to adopt a single self-funded health care plan for all
of its employees. It sought out a broker, defendant Group Marketing Services, Inc.
(“GMS Benefits”), with whom United Farmers Cooperative had previously worked,
to provide it with options.
GMS Benefits offered Central Valley a choice of plans, including one that
relied on a Medical Bill Review (“MBR”) system, which Central Valley adopted for
2015. Under the MBR system, certain medical bills were sent to a reviewer and the
reviewer decided whether the medical bill contained errors or excessive charges. The
reviewer then made a recommendation to Central Valley as to how much of the bill
should be paid. The purpose of the MBR system was to reduce the amount paid to
medical providers, thereby reducing the cost of Central Valley’s self-funded health
care plan.
1
The Honorable Laurie Smith Camp, United States District Judge for the
District of Nebraska, now deceased.
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During 2015, each medical bill submitted to Central Valley’s health care plan
was forwarded to a third-party administrator, defendant The Benefit Group (“TBG”).
TBG in turn sent the bill to defendant Anasazi Medical Payment Solutions, Inc.
(“AMPS”), who actually reviewed the medical bill and made payment
recommendations. When AMPS completed its review, AMPS forwarded its
recommendations to TBG, and TBG in turn forwarded the recommendations to
Central Valley. In essence, TBG was a middle-man passing on the information it
received from AMPS. Once Central Valley received the recommendation, it decided
whether to pay the recommended amount or a greater or lesser amount. The final
payment amount was Central Valley’s call. When TBG was informed of Central
Valley’s decision, it paid that amount on Central Valley’s behalf.
AMPS and TBG were compensated for their work administering Central
Valley’s MBR plan. Specifically, AMPS earned 30% of the “savings” it achieved.
For example, if AMPS recommended that Central Valley pay only $900 of a $1,000
medical bill, and Central Valley paid only $900, then Central Valley “saved” a total
of $100. Central Valley kept $70, which represented 70% of the savings, while
AMPS received the other $30. AMPS paid 7.5% of the savings to TBG for its help
in administering the MBR plan. Central Valley has characterized this 7.5% as an
unauthorized “kickback” from AMPS to TBG, which it claims was not specified in
any of its contracts. Notably, though, Central Valley’s contracts made clear that
AMPS would receive 30% of any savings. And Central Valley’s contract with TBG
permitted TBG to collect additional fees from firms engaging in the MBR process,
which included AMPS.
In 2016, Central Valley abandoned the MBR plan and adopted a Reference
Based Reimbursement (“RBR”) system. Rather than relying on a review of
individual medical bills, the RBR plan utilized a “reference point” and established
a “permitted payment level” of the reference point. For example, Central Valley’s
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plan provided for payment of 160% of Medicare prices on hospital and facility
claims, but allowed the “claims delegate” to, “in its sole discretion,” adjust payment
upwards by 30% of the permitted payment level (i.e., pay up to 208% of the Medicare
prices). The “claims delegate” was AMPS’s subsidiary, defendant Claims Delegate
Services, LLC (“CDS”). The plan also allowed Central Valley and CDS to jointly
decide to pay as much of the medical bill as they believed appropriate.
The payment structure changed under the 2016 RBR plan. Under this plan,
Central Valley paid CDS 12.5% of the gross billed charges. CDS split its 12.5% with
TBG, keeping 10% for itself and paying the other 2.5% to TBG. So, for example, if
a $100,000 medical bill was handled by the plan, Central Valley paid $12,500 to
CDS, and CDS gave $2,500 to TBG. Central Valley claims the RBR payments
suffered from two fundamental flaws: (1) CDS should have received only 10% of
gross billed charges rather than the 12.5% it received; and (2) any “kickback” from
CDS to TBG was unauthorized and improper.
Central Valley filed suit against the various defendants involved in marketing
and administering the two health care plans. Central Valley took an expansive
approach in stating its claims, bringing a number of ERISA claims against the
defendants, alleging multiple breaches of fiduciary duties and alleging the defendants
engaged in a number of prohibited transactions. Central Valley also brought a claim
under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§ 1961 et seq., alleging the defendants engaged in a range of racketeering activity.
Central Valley amended its complaint three times; each amendment provided
new details or shifted its legal theories. The RICO claim was dismissed fairly early
in the litigation, when Central Valley agreed to dismiss the claim as a condition for
leave to file its third amended complaint. Central Valley’s ERISA claims did not
survive summary judgment, as the district court granted summary judgment in favor
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of the defendants on all claims. In addition, the court awarded attorney’s fees to the
defendants. Central Valley appeals the summary judgment and attorney’s fees
rulings.
II. DISCUSSION
A grant of summary judgment is reviewed de novo. Kalda v. Sioux Valley
Physician Partners, Inc., 481 F.3d 639, 643 (8th Cir. 2007). Summary judgment is
appropriate when the evidence, viewed in a light most favorable to the non-moving
party, shows no genuine issue of material fact and that the moving party is entitled
to judgment as a matter of law. Johnson v. Metro. Life Ins. Co., 437 F.3d 809,
812–13 (8th Cir. 2006).
A. Fiduciary Duties
For an ERISA plaintiff to state a claim against a defendant for breach of a
fiduciary duty, the plaintiff must first establish the existence of a fiduciary
relationship with the defendant. McCaffree Fin. Corp. v. Principal Life Ins. Co., 811
F.3d 998, 1002 (8th Cir. 2016). Central Valley concedes that, with one exception, no
defendant was a denominated fiduciary under the plans. Rather, it claims the non-
denominated defendants became de facto fiduciaries by their conduct.
Service providers involved in marketing or administering benefit plans under
ERISA can become fiduciaries in three manners. 29 U.S.C. § 1002(21)(A). They
may exercise discretionary authority or control over management of the plan or have
authority or control over the disposition of the plan’s assets. Id. They may “render[]
investment advice” about plan assets “for a fee or other compensation.” Id. Or they
may have “discretionary authority or discretionary responsibility” over the plan’s
“administration.” Id. The first and third alternatives are at issue here. The statute
makes plain that exercising “[d]iscretion is the benchmark for fiduciary status under
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ERISA.” Johnston v. Paul Revere Life Ins. Co., 241 F.3d 623, 632 (8th Cir. 2001)
(cleaned up). A service provider does not act with the “discretion” required to
establish a fiduciary relationship if its actions (1) conform to specific contract terms,
or (2) can be freely rejected by the plan sponsor. Rozo v. Principal Life Ins. Co., 949
F.3d 1071, 1074 (8th Cir. 2020). The district court concluded that only CDS had the
requisite discretion to be a fiduciary, but that CDS breached no fiduciary duty. We
agree.
1. 2015 MBR Plan
Central Valley asserts that, under the 2015 MBR plan, TBG and AMPS were
fiduciaries because (1) TBG exercised control over plan assets when it made
payments to providers; and (2) TBG and AMPS exercised control over plan assets
when they expanded the claims subject to MBR review, thereby increasing their
compensation. Central Valley’s assertions are not supported by the evidence in the
record.
TBG did not exercise control over plan assets when it made payments to
providers because Central Valley retained possession and had dominion over all plan
assets at all times, only granting TBG the authority to cut checks in the precise
amount approved by Central Valley. In light of Central Valley’s ability to “freely
reject” any payment recommendation it received from TBG, no fiduciary relationship
existed between TBG and Central Valley. Id. at 1073–74 (service provider is not a
fiduciary if a plan can freely reject its actions); see also IT Corp. v. Gen. Am. Life Ins.
Co., 107 F.3d 1415, 1419 (9th Cir. 1997) (“If a fiduciary tells a bookkeeping service
to send a check for $950 to Mercy Hospital, the bookkeeping service does not thereby
become a fiduciary.”).
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Similarly, TBG and AMPS did not exercise control over plan assets by making
undisclosed “kickback” payments. The contracts between the parties disclosed the
payments. AMPS was paid 30% of savings it achieved in administering the MBR
plan under its contract with Central Valley. TBG’s contract with Central Valley
permitted TBG to collect additional fees from firms involved in the MBR process like
AMPS. These disclosed “kickback” payments did not create a fiduciary relationship.
Central Valley’s second argument also fails because TBG and AMPS did not
possess the requisite discretion over the amount of compensation that they received
to become fiduciaries. While TBG and AMPS could increase the number of claims
that AMPS reviewed, that only had the potential to increase their compensation. It
is true that by reviewing more bills AMPS would be able to make more
recommendations to Central Valley, and could thereby potentially trigger more
“savings” for Central Valley (which determined AMPS’s compensation), but Central
Valley still had to approve AMPS’s recommendations. Thus, Central Valley
ultimately decided what portion of each medical bill was paid. Because Central
Valley made the final payment decisions, AMPS and TBG did not have discretion
over their compensation and were not fiduciaries. See Rozo, 949 F.3d at 1073–74.2
2. 2016 RBR Plan
Central Valley asserts that TBG, AMPS, and CDS were fiduciaries because
they exercised control over plan assets when they (1) decided and communicated
about benefits claims; and (2) increased their compensation by charging unauthorized
fees. Neither argument is persuasive.
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Central Valley also seeks to hold defendant GMS Benefits liable on the theory
that it knowingly participated in TBG or AMPS’s fiduciary duty breach. Because
TBG and AMPS are not fiduciaries, this argument necessarily fails.
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The record is plain that CDS exercised discretion in deciding some claims and
was a fiduciary. CDS, however, was the only defendant with the ability to exercise
this type of discretion. While TBG and AMPS communicated with both CDS and
Central Valley about claims, that communication is insufficient to trigger a fiduciary
duty unless it is coupled with discretionary control over the payment of claims. Here,
the record does not support a finding that TBG and AMPS exercised discretion over
the payment of claims, foreclosing the possibility of a fiduciary relationship. Id.
This leaves only the question of whether or not CDS breached its admitted
fiduciary duties. In order for Central Valley to prevail, it must show that CDS
violated a duty while acting in its role as a fiduciary. See, McCaffree Fin. Corp., 811
F.3d at 1002 (“[C]ourts assessing claims under ERISA must ask whether a person was
acting as a fiduciary . . . when taking the action subject to complaint.”) (cleaned up).
Here, the breaches of fiduciary duties alleged by Central Valley are completely
unrelated to CDS’s role as a fiduciary. The fiduciary duties owed by CDS to Central
Valley were limited to making benefit determinations on hospital and facility claims.
Central Valley has not pointed to any breach of this duty; rather, the bulk of Central
Valley’s allegations are against non-fiduciary TBG. Because none of Central
Valley’s allegations pertain to CDS’s fiduciary duty of making benefit determinations
on hospital and facility claims, Central Valley’s fiduciary duty claim against CDS
fails.
Central Valley also asserts that TBG, AMPS, and CDS were fiduciaries
because they exercised discretion over their compensation by charging unauthorized
fees. Central Valley relies on the plan documents, which provided for payment to
CDS in the amount of 10% of gross billed charges. Because CDS was paid 12.5%
of gross billed charges, Central Valley asserts the “extra” 2.5% was the result of the
defendants exercising their discretion to increase the fees. The record shows
otherwise. The record supports the district court’s finding that the 10% fee listed in
the RBR plan was a “scrivener’s error,” allowing the court to fix the error. See, e.g.,
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Young v. Verizon’s Bell Atl. Cash Balance Plan, 615 F.3d 808, 817–23 (7th Cir.
2010) (amending ERISA plan to fix scrivener’s error). The error contained in the
RBR plan is apparent when the communications between the parties and the
performance of the contract are examined. GMS Benefits provided a document
listing the different plan options for 2016 to Central Valley that included the RBR fee
as 12.5%. A later email between representatives at Central Valley and GMS Benefits
confirmed that the RBR fee was 12.5%. The course of performance between the
parties also supported a 12.5% fee, as Central Valley repeatedly made payments of
12.5% to CDS during the plan year. This course of conduct and communication
makes plain that the parties agreed to a 12.5% fee. No defendant had discretion to
set a higher fee, and no defendant set a higher fee. Because no defendant acted with
discretion with respect to compensation, no defendant became a fiduciary.
B. Prohibited Transactions
ERISA “regulates the conduct of plan fiduciaries, placing certain transactions
outside the scope of their lawful authority.” Lockheed Corp. v. Spink, 517 U.S. 882,
888 (1996); see also 29 U.S.C. § 1106. Before a plaintiff may establish a “prohibited
transaction,” it must first show that “a fiduciary caused the plan to engage in the
allegedly unlawful transaction.” Lockheed Corp., 517 U.S. at 888. Central Valley’s
claims against all non-CDS defendants necessarily fail, as no fiduciary relationship
existed.
The prohibited transactions claims against CDS also fail because Central
Valley does not explain how CDS engaged in any prohibited transaction in its role
as a fiduciary. See McCaffree Fin. Corp., 811 F.3d at 1002. Central Valley
improperly focuses on the 12.5% fee that it paid to CDS, and CDS’s alleged 2.5%
“kickback” to TBG. Because Central Valley’s allegations have nothing to do with
CDS’s role as a fiduciary, this claim fails. In addition, we can find nothing
“prohibited” about the transaction that Central Valley complains of when Central
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Valley agreed to pay CDS a 12.5% fee, and Central Valley’s contract with TBG
allowed TBG to receive additional fees from various types of entities, including CDS.
C. Attorney’s Fees
Central Valley appeals the district court’s award of attorney’s fees to the
defendants. An award of attorney’s fees is reviewed for an abuse of discretion.
Johnson v. Charps Welding & Fabricating, Inc., 950 F.3d 510, 525 (8th Cir. 2020).
ERISA allows “either party,” plaintiff or defendant, to recover attorney’s fees. Id.(quoting 29 U.S.C. § 1132(g)(1)). In determining whether to award a party attorney’s
fees, a court should consider (1) the degree of culpability or bad faith assignable to
the opposing party; (2) the ability of the opposing party to pay an award of attorney’s
fees; (3) the deterrent effect an award of attorney’s fees would have on others acting
under similar circumstances; (4) whether the party seeking fees sought to benefit plan
participants and beneficiaries or to resolve legal issues specific to ERISA; and (5) the
relative merits of the parties’ positions. Lawrence v. Westerhaus, 749 F.2d 494,
495–96 (8th Cir. 1984) (per curiam).
Here, the district court properly balanced the Westerhaus factors and did not
abuse its discretion in awarding defendants attorney’s fees. The court found that the
first, second, third, and fifth Westerhaus factors all supported an award of fees. As
to the first and fifth factors, the court explained that Central Valley’s “claims lacked
merit from the beginning of the lawsuit,” as “[t]he operative agreements and Plan
documents, along with facts established before litigation, showed a lack of any
evidence of breaches of fiduciary duties or prohibited transactions . . . .” The court
went on to note that Central Valley chose to pursue its “meritless litigation in an
almost haphazard fashion” over the course of years. As to the second factor, the court
found that Central Valley has the ability to satisfy an award of attorney’s fees, noting
Central Valley’s more than $1 billion in annual revenue, more than $500 million in
assets, and its own attorney’s fees of more than $1 million for this litigation. Finally,
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as to the third factor, the district court noted that awarding attorney’s fees to
defendants could “deter plan administrators from engaging in wasteful litigation
against processors who carry out their duties in good faith.” We find no error in the
court’s analysis.
Central Valley also argues that the district court should not have awarded
attorney’s fees which were incurred defending against the RICO claim. According
to Central Valley, such fees are not authorized under ERISA’s attorney’s fees
provision. We need not decide the issue because Central Valley waived the argument
below. While Central Valley filed a 62-page opposition to defendants’ motions for
attorney’s fees in the district court, it never made a specific RICO argument. Nor has
it identified which fees it believes are attributable to the RICO claim. Central Valley
cannot successfully make this new, undeveloped argument for the first time on
appeal. See, Eagle Tech. v. Expander Ams., Inc., 783 F.3d 1131, 1139 (8th Cir.
2015) (argument raised for the first time on appeal waived); Aaron v. Target Corp.,
357 F.3d 768, 779 (8th Cir. 2004) (same).
III. CONCLUSION
For the foregoing reasons, we affirm the district court’s grant of summary
judgment in favor of defendants and its award of attorney’s fees to defendants.
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