The district court erred in granting summary judgment to Aetna, as Peters produced sufficient evidence for a reasonable factfinder to conclude that Aetna was at least a functional fiduciary under ERISA and breached its corresponding fiduciary duties. Specifically, a reasonable factfinder could conclude that Aetna was unjustly enriched when avoiding payment of Optum’s administrative fee and causing Peters and the Plan to shoulder that expense and therefore award Peters surcharge and disgorgement.
Peters v. Aetna Inc. (4th Cir. June 22, 2021)
The Fourth Circuit Court of Appeals reversed a district court decision granting summary judgment to a claims administrator, Aetna, and one of its subcontractors, Optum. Aetna subcontracted with Optum to provide chiropractic and physical therapy services to members of a self funded plan it administered “for more cost-effective prices than Aetna alone could provide. Optum’s ‘downstream providers’ offered in-network services to Aetna insureds (including the Plan participants) at competitive rates. In exchange for Optum’s services, it was to be paid a fee.”
The problem arose in that the Aetna claims administration agreement specified that “Aetna shall be solely responsible for payments due such subcontractors.” Nonetheless, the Court found that Aetna requested Optum to “bury” its fee within the claims submitted by Optum’s providers. By doing so, the Court observed that the Plan and its participants effectively would pay part or all of Optum’s administrative fee.
The Plaintiff Had Article III Standing
The Plaintiff alleged that Aetna and Optum had overcharged her and the Plan, and this essentially formed the basis of her ERISA claims; however, the Plaintiff did not take into account the cumulative impact of her annual deductible and coinsurance payments, “as well as the effect of her other non-Optum medical services.” This led Defendants to argue that the bundling arrangement actually benefited the Plaintiff on the facts presented. And this led to an argument over standing. This argument also went to the basis of her personal restitution claim (although not to that on behalf of the plan as a whole).
The Fourth Circuit rejected the Defendant’s standing argument, however, stating:
Addressing the injury-in-fact requirement of Article III standing, Appellees assert that Peters did not suffer a financial loss and therefore cannot show injury to pursue the relief requested. . . . We, however, are persuaded that Peters suffered a financial injury sufficient to establish an injury-in-fact for the purposes of Article III standing. Our conclusion turns on the determination that the financial loss analysis must be conducted at the individual claims level rather than at the aggregate claims level. This is so because—in the context of standing, as opposed to the merits—the fact that Peters may have benefitted from the determination of certain claims does not offset the fact that she was harmed by others.
The Plaintiff Had Standing to Assert Claims for Surcharge, Disgorgement, and Declaratory and Injunctive Relief
Even if the Plaintiff failed to demonstrate a financial injury for standing purposes as to the restitution claim, the Court held that her allegations revolving around breach of fiduciary duty would separately provide her standing to pursue claims for surcharge, disgorgement, and declaratory and injunctive relief. “Even without a personal financial injury, Peters has standing to maintain her claims for surcharge, disgorgement, and declaratory and injunctive relief based on her allegations of breach of fiduciary duty.” Individualized financial injury was not required to possess standing for these claims.
Reversal of Summary Judgment On the Merits
The Court affirmed the district court’s judgment as to the Plaintiff’s personal restitution claim but left open the possibility of a restitution claim on behalf of the plan. On the merits of the remaining claims, however, the court ruled in favor of the Plaintiff, stating:
We next address the remaining merits issues concerning Peters’ request for surcharge, disgorgement, and declaratory and injunctive relief under § 502(a)(1) and (3). We proceed by considering, “first, whether [Aetna] was an ERISA fiduciary, and second, whether [Aetna’s] action amounted to a breach.” Pipefitters Local 636 Ins. Fund v. Blue Cross & Blue Shield of Mich., 722 F.3d 861, 865 (6th Cir. 2013). And we conclude that Peters has produced sufficient evidence to create genuine disputes of material fact that affect the requested relief of surcharge, disgorgement, and declaratory and injunctive relief so as to survive the motions for summary judgment.
Fiduciary Status of Aetna
The Court further held that the district court erred in granting summary judgment to Aetna, as Peters produced sufficient evidence for a reasonable factfinder to conclude that Aetna was at least a functional fiduciary under ERISA and breached its corresponding fiduciary duties. Specifically, a reasonable factfinder could conclude that Aetna was unjustly enriched when avoiding payment of Optum’s administrative fee and causing Peters and the Plan to shoulder that expense and therefore award Peters surcharge and disgorgement.
Party In Interest Status of Optum
Liability for ERISA violations can attach even if a party is not a fiduciary under ERISA’s prohibited transaction provisions. See, 29 U.S.C. § 1106(a)(1)(D). The district court had held that Optum could not be a party in interest as a matter of law because Optum had no “pre-existing relationship[s]” with either the Plan or Aetna. The Court reversed this holding as well.
Although Optum had no prior relationship with the Plan before entering a service agreement with Aetna, the Court noted that Optum could become a party in interest after the execution of the agreement. In other words, when Optum became a service provider to the plan (by making available its network of providers to plan members), Optum could become a party in interest by virtue of these actions.
Note: The case opinion moves from general statements of the law to specific issues and arguments and back again in a winding path to rather simply stated conclusions. On the claim of restitution, the Court agreed that the plaintiff’s individual claim failed but held open he possibility a claim could be sustained on behalf of the plan. The Court concluded that the district court did not frame the issue of damages properly and neither party did so either.
Adopting the framework in Donovan v. Bierwirth, 754 F.2d 1049 (2nd Cir. 1985), the Fourth Circuit directed the district court to look to trust law for guidance in order to determine the proper measure of damages.
Under Donovan, if the district court finds that the Plan sustained a financial injury, then restitution may be an available remedy for the Plan under § 502(a)(2). Correspondingly, if the district court determines that the Plan did not suffer an economic loss, then summary judgment in favor of Appellees as to a restitution claim would be appropriate. Accordingly, we affirm the district court’s judgment on Peters’ personal claim for restitution under § 502(a)(1) and (3), but vacate and remand to the district court this claim under § 502(a)(2) as to the Plan for examination in the first instance under Donovan.
On all other breach of fiduciary duty claims, the Court remanded the case to the district court for further proceedings.
Class certification – The Court also vacated the district court’s denial of class certification. On the whole, the Court found very little that the district court did correctly in its consideration of this issue.
We express no opinion on Peters’ ability to meet the full criteria of Rule 23 on remand, but nonetheless conclude that it was an abuse of discretion for the district court to disregard the available equitable remedies in support of its conclusion that Peters’ proposed classes failed to meet the commonality requirement for purposes of Rule 23(a) at this stage. Accordingly, we vacate and remand the district court’s order denying class certification, so that the district court may consider anew its analysis of all the Rule 23 requirements in conformity with this opinion.