Health Reform WK-EDGE Federal action against non-compliant group health plan for ACA violations dismissed
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Wednesday, January 11, 2017

Federal action against non-compliant group health plan for ACA violations dismissed

An action against a group health plan whose terms violated both ERISA and ACA was properly dismissed under Article III of the Constitution due to lack of constitutional standing by the participants, a federal Appeals Court has ruled. The mere fact that the participants paid money into a non-compliant plan did not satisfy the injury-in-fact requirement of constitutional harm necessary to establish standing (Soehnlen v. Fleet Owners Insurance FundDecember 21, 2016, per curiam).

Background. An Ohio dairy company contracted with an employee benefits plan for the purpose of providing medical coverage for its employees. The terms of the agreement were recited in a Participation Agreement signed in April, 2014. The company, its president and an employee filed suit on their own behalf and on behalf of a class of similarly situated employees alleging that prior to entering into the agreement, they received assurances from individual trustees of the plan that the plan would comply in all respects with federal law including ERISA and the Patient Protection and Affordable Care Act (ACA) (P. L. 111-148). They further alleged that notwithstanding the ACA’s statutory requirement mandating that all group health plans eliminate per-participant and per-beneficiary pecuniary caps for annual and lifetime benefits, the plan maintained such restrictions. Consequently, the company purchased supplemental health insurance benefits to fully cover its employees. The plan trustees did not dispute the existence of benefit caps within the plan, but argued that the plan was exempt from those requirements. The seven count complaint filed against the plan alleged violations of ERISA, ACA, the Taft-Hartley Labor Management Relations Act, and breach of contract claims. The federal district court dismissed the complaint for failure to state a claim and for lack of standing. The appellate court affirmed the decision.

ERISA rights allegedly violated. The complaint alleged that by failing to comply with the ACA provisions enjoining annual and life-time limitations on benefits, the plan violated the participants’ ERISA rights. They filed suit for monetary and injunctive relief under ERISA, which permits a civil action to be brought in federal court by a participant or beneficiary of a benefits plan in order to recover benefits due under the terms of the plan, and, to enforce rights under the terms of the plan, or to clarify rights to future benefits under the terms of the plan. The district court dismissed the first two claims of the complaint for lack of standing.

Standing relative to Article III elements. The court noted that even if a party has a cause of action arising under a given statute, federal courts only have the power to hear the case as authorized by Article III, and therefore with regard to a claim arising under ERISA, the elements of Article III standing must be met. The participants were required to show that they possessed a sufficient personal stake in the outcome of the controversy as to warrant the exercise of a federal court’s remedial powers. The appellate court found that the element of injury-in-fact was required to be pleaded as a de facto injury, and that merely alleging a violation of their ERISA rights did not satisfy that obligation. Even assuming that an injury was sufficiently particularized in the complaint, the participants still needed to show that the deprivation of a statutory right was accompanied by some concrete interest.

Class action does not confer standing. The participants argued that certain members of their class suffered from conditions that previously required medical expenses in excess of the benefit caps imposed by the plan. They also claimed that some of the employees will in the future choose to delay important medical procedures in order to avoid exceeding the cap. However, the court ruled that notwithstanding the allegations of class claims, the participants were demonstrate individual standing with regard to the plan, and that the requisite standing cannot be acquired merely by virtue of bringing a class action. They noted that the individual participants never showed precisely what concrete harm they suffered as a result of the violations of their ERISA rights. By merely arguing that the pecuniary limitations imposed by the plan existed, without alleging anything further, they could not satisfy the concreteness prong of the injury-in-fact requirement of Article III.

Payment into plan not an injury. The participants cited their remitting of funds into a non-compliant plan as a constitutional injury. The court ruled that the mere fact of paying into a non-compliant plan, if an injury at all, was neither concrete nor particularized but rather conjectural and hypothetical and therefore did not satisfy the injury-in-fact requirement.

Monetary and injunctive relief. The participants sought injunctive, monetary, declaratory, and equitable relief because of the plan’s refusal to provide the benefits and coverage mandated by ACA and ERISA. The court dismissed the requests for monetary relief by again citing a lack of individual harm. They likewise dismissed the request for injunctive relief by noting that a party who brings a suit in a representative capacity for breach of fiduciary duty and seeks recovery on behalf of the plan as a whole, must still show individual constitutional injury.

Prospective liability not an injury. Although ERISA imposes on plan fiduciaries a duty to act in accordance with the documents and instruments governing the plan, it was not sufficient to merely allege the plan’s deficiency. Rather, the participants needed to show that a specific fiduciary duty or right owed to them was infringed. Although misconduct by the administrators of a benefit plan can create an injury if the misconduct creates or enhances a risk of default by the entire plan, the participants in this case made no showing of actual or imminent injury to the plan itself. The complaint alleged that the actions of the plan’s fiduciaries exposed the plan to prospective liability in the amount of $15,000,000. The participants argued that the risk of an enforcement action was itself sufficient to constitute an injury, however, the court found that in the absence of any evidence that penalties had been levied, paid, or even contemplated, the risk-based theories of standing were unpersuasive.

False representations regarding ACA compliance. The complaint alleged that representatives of the plan made false statements while knowing that the representations were false. The court referenced the heightened pleading standard required for fraud claims, and ruled that the only specificity included in the complaint referred to a promise that the plan would comply in all respects with ERISA and welfare benefit laws, including without limitation the ACA, but at no point were specific statements from particular trustees at specific times identified which constituted the purportedly false promises and assurances which the participants claimed they relied upon. Because the ‘time, place, and content’ of the alleged misrepresentations were not pleaded, the court dismissed the false representation claims.

For the above reasons, the appellate court affirmed the dismissal of all seven counts of the complaint.

The case is No. 16-3124.

Attorneys: Keith L. Pryatel (Kastner Westman & Wilkins, LLC) for Daniel P. Soehnlen. Eric G. Serron (Steptoe & Johnson LLP) for Fleet Owners Insurance Fund.

Companies: Fleet Owners Insurance Fund

Cases: CaseDecisions NewsFeed AgencyNews EmployerMandateNews GeneralNews HealthInsuranceExchangeNews IndividualMandateNews InsurerNews LargeEmployerNews PenaltyNews ProgramIntegrityNews KentuckyNews MichiganNews OhioNews TennesseeNews

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