S. Coast Specialty Surgery Ctr. v. Blue Cross of Cal., No. 22-55717, __ F. 4th __, 2024 WL 105317 (9th Cir. Jan. 10, 2024) (Before Circuit Judges Graber, Mendoza, Jr., and Desai).

South Coast Specialty Surgery Center sought reimbursement from Blue Cross of California, the insurer and claims administrator under a number of ERISA-governed healthcare plans, for the cost of medical services provided to plan participants. After the district court agreed with Blue Cross that South Coast lacked standing to sue for benefits because it was neither a plan participant nor a beneficiary and dismissed the suit, South Coard appealed to the Ninth Circuit, which had little trouble reversing the district court under longstanding circuit precedent.  

The salient factual point was that South Coast had obtained an assignment of benefits from each of the plan participants who received its services. Each assignment stated that it “authorize[s] my Insurance Company to pay by check made payable and directly to: [South Coast] for the medical and surgical benefits allowable, and otherwise payable to me under my current insurance policy, as payment toward the total charges for the services rendered.” It further authorized South Coast “to file a claim with my insurance company on my behalf.”

The district court construed this assignment as giving South Coast the right to receive direct payment from Blue Cross but not the right to sue for nonpayment of benefits. The Ninth Circuit disagreed.

As an initial matter, the court noted that in the past it had referred to the right to sue under ERISA as an issue of “standing.” But this was, the court concluded, a misnomer when considering whether Congress has authorized a party such as South Coast to sue, as distinct from an Article III inquiry into whether South Coast had a sufficient injury to sue, which no party disputed.

With that, the court moved on to the matter at hand. Acknowledging that the district court correctly concluded that South Coast lacked direct authority under ERISA to sue because it was neither a plan participant nor a beneficiary, the court nevertheless pointed out that ERISA permits participants and beneficiaries to assign their claims and to bestow derivative standing on an entity such as South Coast. This was well established in previous decisions from the Ninth Circuit, such as Spinedex Physical Therapy USA Inc. v. United Healthcare of Ariz., Inc.770 F.3d 1282, 1289 (9th Cir. 2014), which Blue Cross did not challenge.   

Finally, applying normal contract law principles, the Ninth Circuit concluded that the forms signed by plan participants at issue in the case constituted valid assignments of the right to sue for nonpayment of benefits. The form clearly “conveys that South Coast and its patients intended that it operate as a valid assignment for the payment of insurance benefits.” Moreover, while the form did “not expressly state that South Coast could sue insurers on its patients’ behalf,” the court concluded that the “scope of South Coast’s patients’ assignment of benefits clearly and necessarily includes the right to sue for non-payment of benefits under section 502(a) of ERISA.”

Thus, the court rejected Blue Cross’ contrary construction – that the participants had assigned the right to receive payment but not the right to sue – as one that makes “neither textual nor practical sense,” and that would “stym[y] Congress’s purpose in enacting ERISA.” The court concluded that: “[c]onstruing an assignment of benefits as including the right to sue for non-payment thus increases patient access to healthcare and transfers any responsibility of litigating unpaid claims to the provider-an entity that is much better positioned to pursue those claims in the first place.” A nice place to end the decision and begin the year. 

Below is a summary of this past week’s notable ERISA decisions by subject matter and jurisdiction.

Attorneys’ Fees

Second Circuit

Chung v. Provident Life & Cas. Ins. Co., No. 21 Civ. 9344 (AKH), 2024 WL 78366 (S.D.N.Y. Jan. 4, 2024) (Judge Alvin K. Hellerstein). The court awarded $374,754.13 in attorneys’ fees following success by the plaintiff in obtaining a post-trial judgment awarding him disability benefits. The plaintiff had apparently already paid his attorneys on an hourly basis and submitted those payments, along with the hourly rates and experience of the attorneys at Riemer Hess who represented him. The court found the amount sought to be reasonable and in fact $30,000 less than what the court described as a presumptively reasonable fee using an unexplained metric employed by that court. The court also awarded $681.63 in costs and 114,332.90 in prejudgment interest at a rate of 9% per annum.

Rhodes v. First Reliance Standard Life Ins. Co., No. 22 Civ. 5264 (AKH), 2024 WL 911322 (S.D.N.Y. Dec. 27, 2023) (Judge Alvin K. Hellerstein). Following a decision concluding that First Reliance had violated ERISA’s claims procedure and thus denied plaintiff full and fair review of his claim for benefits, the court awarded $121,999.28 in attorneys’ fees. This amount included a 10% reduction to account for any inefficiencies in litigating the case and was based on what the court determined to be a reasonable hourly rate by attorneys at Riemer Hess based on their experience and capabilities. The court, however, denied a requested $917.65 in costs, concluding that this amount expended “to keep the medical file current” was better seen as “legal work-up,” and as such was not recoverable.    

Pension Benefit Claims

Seventh Circuit

Lucero v. Credit Union Ret. Plan Ass’n, No. 22-cv-208-jdp, 2024 WL 95327 (W.D. Wis. Jan. 9, 2024) (Judge James D. Peterson). Plan participants in the Credit Union Retirement Plan Association 401(k) Plan, a multiple-employer plan with over 100 employer sponsors, sued a number of plan entities for fiduciary breaches in failing to control the plan’s recordkeeping costs. In this decision, the district court recognized that although in most circumstances, a case challenging fees charged to a 401(k) plan would be an obvious candidate for class certification, this was not such a situation. That is because rather than charging fees to all plan participants using one formula, the plan allowed separate employers to negotiate their own fees with the recordkeeper, resulting in fees that varied widely. In fact, the recordkeeping fees charged to several of the named plaintiffs were within the range that plaintiffs identified in their complaint as reasonable and, for this reason, the district court agreed with the defendants that these plaintiffs lacked standing to sue for the recovery of overly high fees. For similar reasons – because the fees at issue varied so substantially among proposed class members at least until 2021 – the court concluded that the claims of the remaining plaintiff, Brenda Lucero, were not typical of claims of the class members and Ms. Lucero was no adequate to represent the class. After 2021, fees were uniformly assessed but, as it turns out, none of the named plaintiffs were still participants in the plan at that point.  So a class could not be certified for that time period either.  The court therefore denied class certification, stating that the case could proceed on Ms. Lucer’s individual claim alone, although the court also appeared to leave open the possibility of a motion for the opportunity to propose a different, narrower class or to seek to add additional class representatives.        

Provider Claims

Fifth Circuit

Angelina Emergency Med. Assocs. P.A. v. Health Care Serv. Corp., No. 3:18-CV-0425-X, 2024 WL 102666 (N.D. Tex. Jan. 9, 2024) (Judge Brantley Starr). In this decision granting Defendants’ motion for summary judgment with respect to 182 bellweather claims in a massive lawsuit on behalf of over 50 physician associations challenging over 250,000 allegedly underpaid healthcare claims by over 50 Blue Cross entities, the court begins by analogizing the case to Frankenstein’s monster. One suspects that the judge enjoyed Poor Things, which will likely be an Oscar contender, or perhaps he is a Mel Brooks fan. In either case, the judge notes that, despite his resounding ruling in favor of Blue Cross, the monster lawsuit is (to quote another delightful movie) not dead yet. With respect to many of the claims, the court concluded that it lacked subject matter jurisdiction over these claims for one of several reasons having to do with the assignment. First, several of the assignments state that they assign the participants’ claims to the “facility” or the “facility-based physician,” neither of which, in the court’s view, includes the physician associations that brought suit under Texas law. Some of the other assignments, in the court’s estimation, did not assign the right to file suit but only a   right to be an “authorized representative.” Numerous other claims, the court concluded, lacked either a written assignment of benefits or adequate proof that such an assignment existed. In addition, the court concluded that a significant majority of the bellweather claims were precluded by anti-assignment provisions in the governing plans. Although the court recognized that in the Fifth Circuit a party could be estopped from asserting an anti-assignment clause, the court found that the plaintiffs failed to establish such estoppel because any reliance on defendants’ conduct in not asserting the anti-assignment clauses would not be reasonable in light of the clarity of the anti-assignment language. The court concluded that numerous other claims were precluded by the plaintiffs’ failure to exhaust administrative remedies (which the court concluded was contractually required even with respect to several non-ERISA claims) or to show the patent futility of doing so. Finally, the court found that two remaining claims were untimely under the applicable four-year statute of limitations.       

Statute of Limitations

Seventh Circuit

Estate of Maribeth Presnal v. Dearborn Nat’l Life Ins. Co., No. 3:23-cv-0290-HAB, 2024 WL 124787 (N.D. Ind. Jan. 11, 2024) (Judge Holly A. Brady). A widower, Edwin Presnal, was denied benefits under his deceased wife’s, Maribeth Presnal’s, life insurance plan because she was required, but failed, to convert her policy to a personal policy when she ceased employment shortly before her death. He brought suit on behalf of her estate, claiming that her employer and plan sponsor/administrator, Beacon Healthcare System, Inc., breached its fiduciary duty in failing to conduct an exit interview with her when she terminated employment due to cognitive difficulties and failed to inform Maribeth or Edwin of their conversion rights under the plan. Plaintiff also claimed that Maribeth’s cognitive condition tolled her time to make payments and convert her policy. The court concluded that Beacon had no duty to inform plaintiffs of Maribeth’s conversion rights, essentially because she had not asked about them and because the court, although “sympathetic with Plaintiffs’ predicament” was concerned with overburdening plan administrators. The court thus granted Beacon’s motion to dismiss the breach of fiduciary duty claim. Nevertheless, the court held that plaintiff stated a “plausible claim that Maribeth’s right to convert or make her premium payments was equitably tolled because of her mental capacity,” and refused to grant defendants’ motion to dismiss with respect to this claim.