Even if exhaustion of administrative remedies were required for these claims, however, ERISA plan beneficiaries are not required to exhaust their claims if they can demonstrate that exhaustion â€˜would be wholly futile.â€™ â€œ Bridgeman v. Group Health Plan, Inc., 2007 WL 1527545, *4-5 (E.D.Mo. May 23, 2007) (quoting Burds v. Union Pacific Corp., 223 F.3d 814, 817 n. 4 (8th Cir.2000)). â€œThis futility exception is particularly appropriate where the past pattern of a plan administrator, as well as its position on the merits of a current matter in litigation, reveal that any further administrative review would provide no relief.â€
Starbird v. Mercy Health Plans, Inc.. Slip Copy, 2008 WL 2157100 (E.D.Mo.) (May 22, 2008)
In this recent decision, the plaintiffs alleged that the defendant HMO’s routinely overcharged for services. The defendants met these claims with a motion to dismiss for lack of subject matter jurisdiction and failure to exhaust administrative remedies. The plaintiffs prevailed on most issues in an decision that sheds light on Article III standing requirements and application of the futility doctrine.
The plaintiffs alleged that the defendants routinely imposed co-payments for covered services that exceeded the amount that should have been passed along to them under the terms of the plan.
Illustrative of plaintiffs’ allegations are the co-payments charged to Donald Starbird for chiropractic services. Under the terms of his health plan, Mr. Starbird was required to make a $40 co-payment for chiropractic care. The charge for a single session with his chiropractor was only $34.74. Plaintiffs claim Mr. Starbird’s co-payment for this service should not have exceeded $17.37 ( i.e., fifty percent of $34.74), however, Mr. Starbird’s chiropractor charged him the full $34.74 as his co-payment.
The defendants first set up an argument based upon Article III standing requirements.
Assuming plaintiffs can plead sufficient facts to establish statutory standing, i.e., their HMO plans are governed by ERISA, the Court must consider whether plaintiffs have constitutional standing to bring their claims. [A] â€œplaintiff must have suffered an injury in fact-an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.â€ Id. (citations omitted).
Defendants argue plaintiffs’ complaint must be dismissed because they have failed to plead sufficient facts establishing that they suffered an injury in fact and, consequently, plaintiffs do not have constitutional standing to maintain this action.At the outset, the Court notes that its analysis of plaintiffs’ complaint is hampered by plaintiffs’ attempt to state causes of action under the enforcement provisions of both 29 U.S.C. Â§ 1132(a)(3) and 29 U.S.C. Â§ 1132(a)(1)(B). Under ERISA, determining whether plaintiffs have alleged the requisite injury in fact depends upon the civil enforcement provision of Â§ 1132 under which plaintiffs intend to bring their claims.
The court addressed the standing argument by reference to the specific statutory claims.
The court noted that [c]ourts have recognized that under Â§ 1132(a)(3), a plan participant or beneficiary may have Article III standing to obtain injunctive relief related to ERISA’s disclosure and fiduciary duty requirements without a showing of individual harm. Thus, the court concluded that the plaintiffs did not need to plead they were individually injured ( e.g., charged excess co-payments) to proceed with their claims for injunctive relief under Â§ 1132(a)(3); rather, they only needed to allege violations of the fiduciary duty owed to them as participants or beneficiaries of ERISA plans.
The plaintiffs also sought relief pursuant to Â§ 1132(a)(1)(B). Section 1132(a)(1)(B) provides ERISA participants with a civil cause of action to recover benefits, enforce rights to benefits, or clarify rights to future benefits under ERISA plans.
Since, as to some of the plaintiffs, the complaint failed to allege specific instances of excessive co-payments, the court deemed the allegations insufficient to alleged an injury in fact. Nonetheless, the court permitted the plaintiffs an opportunity to amend the complaint to cure this defect.
Failure To Exhaust Administrative Remedies
This familiar defense presented one of the most interesting aspects of the decision. The court noted that:
In two recent cases involving similar allegations of defendants imposing excessive co-payments in violation of ERISA, courts denied defendants’ motions to dismiss for failure to exhaust administrative remedies. See Bridgeman, 2007 WL 1527545, *4-5; Holling-Fry v.. Coventry Health Care, 2007 WL 2908753, *2-3 (W.D.Mo. Oct. 4, 2007). In both cases, the courts held that such exhaustion was not necessary because â€œ[t]he resolution of the question whether [defendant] is violating a Missouri regulation by charging too high a co-payment does not depend on the plan administrator’s discretion.â€ Bridgeman, 2007 WL 1527545 at *5.
Based on this observation, the court stated that “any factual record before the administrator would not aid the court in judicial review. Id.
Here too, the resolution of whether defendants are violating Missouri regulations and ERISA does not depend on the plan administrator’s discretion.
But there was more to the ruling against the defendants on this issue. Citing the allegations of fiduciary breach, the court held that:
Additionally, pursuant to Â§ 1132(a)(1)(B) and (a)(3), plaintiffs have brought this action, in part, to enforce ERISA’s fiduciary provisions and to obtain â€œother appropriate equitable relief.â€ . . . Plaintiffs are not merely seeking a return of wrongfully denied benefits.
Plaintiffs allege defendants are employing a defective claims processing system that routinely imposes excessive co-payments. If administrative remedies resulted in an award to the individual plaintiffs of wrongfully denied benefits, this relief would not remedy defendants’ allegedly defective claims processing system. Merely eliminating the individual plaintiffs’ claims for wrongful denial of benefits (by paying these benefits) does not grant plaintiffs the relief to which they allegedly are entitled under ERISA, and therefore exhaustion is futile.
Note: The court noted the tension between Â§ 1132(a)(1)(B) and Â§ 1132(a)(3), stating:
Several courts, including the Eighth Circuit, have held that an ERISA plaintiff with an adequate remedy under Â§ 1132(a)(1)(B) cannot alternatively plead and proceed under Â§ 1132(a)(3). See Antolik v.. Saks, Inc., 463 F.3d 796, 803 (8th Cir.2006) (â€œ[W]here a plaintiff is proved adequate relief by the right to bring a claim for benefits under … Â§ 1132(a)(1)(B), the plaintiff does not have a cause of action to seek the same remedy under Â§ 1132(a)(3)(B) .â€) (citing Varity Corp. v. Howe, 516 U.S. 489, 514 (1996)); see also Katz v. Comprehensive Plan of Group Ins., 197 F.3d 1084, 1088-89 (11th Cir.1999).
The Futility Doctrine – The futility doctrine, so helpful to the plaintiffs in this case, was described as follows:
ERISA plan beneficiaries are not required to exhaust their claims if they can demonstrate that exhaustion â€˜would be wholly futile.â€™ â€œ Bridgeman v. Group Health Plan, Inc., 2007 WL 1527545, *4-5 (E.D.Mo. May 23, 2007) (quoting Burds v. Union Pacific Corp., 223 F.3d 814, 817 n. 4 (8th Cir.2000)). â€œThis futility exception is particularly appropriate where the past pattern of a plan administrator, as well as its position on the merits of a current matter in litigation, reveal that any further administrative review would provide no relief.â€
More On Standing – The court distinguished the requirements for Article III standing when injunctive relief is the object by stating:
In Count III, it appears plaintiffs seek relief for alleged breaches of fiduciary duties pursuant to Â§ 1132(a)(3). Courts have recognized that under Â§ 1132(a)(3), a plan participant or beneficiary may have Article III standing to obtain injunctive relief related to ERISA’s disclosure and fiduciary duty requirements without a showing of individual harm. See Central States Se. & Sw. Areas Health & Welfare Funds v. Merck-Medco Managed Care, LLC, 433 F.3d 181, 199-200 (2d Cir.2005); Horvath v. Keystone Health Plan East, Inc., 333 F.3d 450, 456 (3d Cir.2003); Banyai v. Mazur, 2007 WL 959066, *4-5 (S.D.N.Y. Mar. 29, 2007); cf. Harley v. Minnesota Mining and Mfg. Co., 284 F.3d 901, 905-06 (8th Cir.2002) (finding under separate provision, Â§ 1132(a)(2), no constitutional standing where the â€œloss did not cause actual injury to plaintiff’s interests in the planâ€ and determining that the â€œlimits on judicial power imposed by Article III counsel against permitting participants or beneficiaries who have suffered no injury in fact from suing to enforce ERISA fiduciary duties on behalf of the Planâ€). The Horvath court explained that because the disclosure requirements and fiduciary duties contained in ERISA create certain rights, including the right to receive information and have defendant act as a fiduciary, plaintiffs need not demonstrate actual harm in order to have standing to seek injunctive relief. Horvath, 333 F.3d at 456 (citing Gillis v. Hoechst Celanese Corp., 4 F.3d 1137, 1148 (3d Cir.1993) (finding â€œERISA does not require that harm be shown before a plan participant is entitled to an injunction ordering the plan administrator to comply with ERISA’s reporting and disclosure requirementsâ€)).