UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLUMBIA 

 

Civil Action No. 16-2428 (TJK) 

JOSEPH SELLERS, JR., et al., 

Plaintiffs, 

v. 

ANTHEM LIFE INSURANCE COMPANY, 

Defendant. 

MEMORANDUM OPINION AND ORDER 

Plaintiffs Joseph Sellers, Jr., and Richard McClees serve as trustees of the SMART 

Voluntary Short Term Disability Plan (the “VSTD Plan” or “Plan”). The VSTD Plan is an 

employee welfare benefit plan regulated under the Employee Retirement Income Security Act of 

1974 (“ERISA”), Pub. L. No. 93-406, 88 Stat. 829. The Plan offers short-term disability benefits 

to certain rail and bus workers. From January 2010 through March 2016, Defendant Anthem 

Life Insurance Company (“Anthem”) underwrote disability insurance that the VSTD Plan 

provided, and processed claims for benefits. 

Plaintiffs contend that Anthem overcharged the VSTD Plan for those insurance services. 

In the instant lawsuit, they bring claims against Anthem for violations of ERISA’s prohibitedtransaction provisions, as well as claims for breach of contract and unjust enrichment. Anthem 

has moved to dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). ECF No. 

15; see also ECF No. 15-1 (“Def.’s Br.”); ECF No. 17 (“Pls.’ Opp’n”); ECF No. 18 (“Def.’s 

Reply”). For the reasons set forth below, the motion will be GRANTED IN PART and 

DENIED IN PART. Plaintiffs’ ERISA claims will be dismissed for failure to state a claim. 

Plaintiffs’ claims for breach of contract and unjust enrichment, however, will be allowed to 

proceed. 
2 

Factual and Procedural Background 

The VSTD Plan was founded in October 2009 and was originally sponsored by the 

United Transportation Union (“UTU”). ECF No. 14 (“Am. Compl.”) ¶¶ 5, 7. In 2012, UTU 

merged into another union, the International Association of Sheet Metal, Air, Rail, and 

Transportation Workers (“SMART”). Id. ¶ 8. In 2014, Plaintiffs Sellers and McClees were 

appointed by SMART as trustees of the VSTD Plan, taking the seats formerly held by two UTUappointed trustees, Malcolm Futhey (UTU’s former president) and John Lesniewski. Id. ¶¶ 10, 

74. 

Under both UTU and SMART, the VSTD Plan has provided short-term disability 

benefits to plan participants, who work for railroad and commuter-bus companies. Id. ¶ 12. The 

schedule of benefits differs for rail and bus employees. Id. ¶ 13. Nonetheless, the essential 

features of the benefits are the same: the Plan offers short-term disability insurance to eligible 

employees, and premiums are automatically deducted from plan participants’ paychecks unless 

they affirmatively opt out of coverage. See id. ¶¶ 14-15. 

The Plan engaged Anthem to provide short-term disability insurance to participating rail 

employees starting on January 1, 2010. Id. ¶ 18. The Plan paid Anthem the premiums deducted 

from participants’ paychecks, and Anthem underwrote the benefits and processed claims. Id.

¶¶ 18, 22. Anthem offered its services through a series of one-year contracts. Id. ¶ 45. In 2011, 

Anthem, arguing that it was not being adequately compensated, successfully negotiated with the 

Plan for higher premiums starting in 2012. Id. ¶ 31. Anthem also “separately negotiated 

premiums to provide [short-term disability] benefits to bus industry participants” starting in 

2012. Id. ¶ 32. 

Plaintiffs allege that Anthem “knowingly receiv[ed] excessive compensation” during the 

period from 2012 through 2014. Id. ¶¶ 44-45. Specifically, they allege that the difference 
3 

between the premiums Anthem received and the claims it paid ranged from $3.7 million to $7.1 

million during those three years, representing “profit margins” of 26.2% to 49.8%. Id. ¶¶ 34-43. 

Plaintiffs also complain that, while Anthem was all too eager to seek premium increases when its 

profits were supposedly low, Anthem did not offer lower premiums when its profits were high. 

Id. ¶ 44. 

Plaintiffs allege that Anthem, in addition to charging unreasonable premiums, also 

engaged in another form of misconduct. Specifically, they allege that Anthem paid “kickbacks,” 

disguised as commissions, to a former UTU employee named Edward Carney from 2010 through 

2013. See id. ¶¶ 61-81. During the period in question, Carney allegedly had “no business 

relationship with Anthem or the VSTD Plan.” Id. ¶ 61. Nonetheless, Anthem allegedly paid 

Carney hundreds of thousands of dollars per year from the premiums it received. Id. ¶¶ 62-65. 

Plaintiffs claim that Anthony Martella, who worked for a company that sold insurance to 

SMART members and “was in the position to steer the commission business to Carney,” helped 

“to orchestrate the payments from Anthem to Carney” (although how, exactly, is unclear). Id.

¶¶ 71-72. In return, Carney allegedly passed on tens of thousands of dollars from the 

“kickbacks” he received to Martella. Id. ¶¶ 66-70, 73. Plaintiffs also allege that, in 2011, 

Carney “slipped $2,000 into the coat pocket of then president of the UTU, Malcolm Futhey,” 

who was also a trustee of the Plan at the time. Id. ¶ 74. Plaintiffs allege that the payments from 

Anthem to Carney “were not reasonable commissions” and “increased, dollar for dollar, the 

amount of the premiums paid by VSTD.” Id. ¶¶ 77-78. 

After taking office as trustees of the Plan in 2014, Plaintiffs sought to negotiate better 

rates. See id. ¶ 51. Anthem responded by proposing what Plaintiffs characterize as a risksharing arrangement. Id. ¶ 53. Until that point, Anthem had borne the risk of loss in the event 
4 

that claims exceeded premiums. Id. Anthem offered a deal under which Plaintiffs would pay 

higher premiums but receive quarterly refunds of 50% of the difference between premiums 

received and claims paid. Id. Plaintiffs evidently disliked this proposal but claim that, since it 

was too late to consider other offers, they accepted it by letter dated January 30, 2015. See id.

¶ 55 & Ex. A. Plaintiffs allege that Anthem nonetheless failed to make any of the refund 

payments required under the agreement. Id. ¶ 60. 

According to Plaintiffs, Anthem subsequently took the view that the January 2015 letter 

had not caused a binding contract to form. See id. ¶ 92. Anthem sought to continue negotiating, 

proposing an agreement under which the refunds for 2015 and 2016 would not be paid quarterly, 

but in a lump sum in 2017. See id. ¶ 57. Anthem, for its part, claims that the parties ultimately 

did reach an agreement providing for a lump sum. See Def.’s Br. at 27. Anthem has provided 

what it asserts is the binding agreement, although it is signed only by the Plan and not by 

Anthem. See Def.’s Br. Ex. B (ECF No 15-3). 

Plaintiffs assert five counts against Anthem. The first three arise under Section 406(a)(1) 

of ERISA, 29 U.S.C. § 1106(a)(1), and allege that the payments Anthem received from the Plan 

constituted unlawful “prohibited transactions.” Am. Compl. ¶¶ 82-102. Count IV alleges that 

Anthem breached its contract with the Plan by failing to make the quarterly refund payments that 

Plaintiffs claim are owed for 2015. Id. ¶¶ 103-109. Count V alleges in the alternative that, even 

if there was no written contract, Anthem was obligated to make the quarterly refund payments 

under a theory of unjust enrichment. Id. ¶¶ 110-114. 

Anthem has moved to dismiss the ERISA claims under Rule 12(b)(6). Those claims, 

Anthem argues, are improper because they seek legal (as opposed to equitable) relief that ERISA 

does not afford in this context. Def.’s Br. at 9-12. Anthem also argues that Plaintiffs fail to state 
5 

a prohibited-transaction claim, and that two of the three claims are time-barred. Id. at 12-26, 28-

30. Anthem has also moved to dismiss the two common law claims under Rule 12(b)(1). 

Anthem argues that it did not owe any payments until 2017, after this case was filed, and that as 

a result these claims are not ripe. See Def.’s Br. at 26-28. 

Legal Standard 

“A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of a plaintiff’s complaint; it 

does not require a court to ‘assess the truth of what is asserted or determine whether a plaintiff 

has any evidence to back up what is in the complaint.’” Herron v. Fannie Mae, 861 F.3d 160, 

173 (D.C. Cir. 2017) (quoting Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002)). “In 

evaluating a Rule 12(b)(6) motion, the Court must construe the complaint ‘in favor of the 

plaintiff, who must be granted the benefit of all inferences that can be derived from the facts 

alleged.’” Hettinga v. United States, 677 F.3d 471, 476 (D.C. Cir. 2012) (quoting Schuler v. 

United States, 617 F.2d 605, 608 (D.C. Cir. 1979)). “But the Court need not accept inferences 

drawn by plaintiff if those inferences are not supported by the facts set out in the complaint, nor 

must the court accept legal conclusions cast as factual allegations.” Id. “To survive a motion to 

dismiss, a complaint must have ‘facial plausibility,’ meaning it must ‘plead[] factual content that 

allows the court to draw the reasonable inference that the defendant is liable for the misconduct 

alleged.’” Id. (alteration in original) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). 

On a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), 

“plaintiffs bear the burden of establishing jurisdiction.” Knapp Med. Ctr. v. Hargan, 875 F.3d 

1125, 1128 (D.C. Cir. 2017). District courts “may in appropriate cases dispose of a motion to 

dismiss for lack of subject matter jurisdiction under [Rule] 12(b)(1) on the complaint standing 

alone.” Herbert v. Nat’l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992). In such cases courts 

must, as when reviewing a Rule 12(b)(6) motion, “accept[] as true all of the factual allegations 
6 

contained in the complaint.” KiSKA Constr. Corp. v. WMATA, 321 F.3d 1151, 1157 (D.C. Cir. 

2003). The Court may also rely, “where necessary,” on “undisputed facts evidenced in the 

record.” Id. at 1157 n.7. But where the Court seeks to rely “upon its own resolution of disputed 

facts,” it must provide an “explicit explanation of its findings” after affording appropriate 

“procedural protections” to the parties. Herbert, 974 F.2d at 197-98. While district courts “must 

go beyond the pleadings and resolve any disputed issues of fact the resolution of which is 

necessary to a ruling upon the motion to dismiss,” Feldman v. FDIC, 879 F.3d 347, 351 (D.C. 

Cir. 2018) (quoting Phoenix Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C. Cir. 

2000)), the district court “should usually defer its jurisdictional decision until the merits are 

heard” if the jurisdictional facts “are inextricably intertwined with the merits of the case.” 

Herbert, 974 F.2d at 198. 

Analysis 

As explained below, the Court agrees with Anthem that Plaintiffs fail to state a 

prohibited-transaction claim under ERISA. Therefore, the first three counts of the Amended 

Complaint will be dismissed. However, the Court concludes that Plaintiffs’ contract and unjust 

enrichment claims, as pleaded, are ripe and may proceed. 

A. Prohibited-Transaction Claims 

The Court will examine each of Plaintiffs’ prohibited-transaction claims (Counts I, II, and 

III) in turn, concluding that each should be dismissed. 

1. Count I 

Section 406(a)(1) of ERISA prohibits certain transactions between benefit plans and 

“parties in interest,” a term defined to include plan fiduciaries and persons “providing services to 

such plan.” See 29 U.S.C. §§ 1002(14)(A)-(B), 1106(a)(1). This provision “supplements the 

fiduciary’s general duty of loyalty . . . by categorically barring certain transactions deemed 
7 

‘likely to injure the pension plan.’” Harris Tr. & Sav. Bank v. Salomon Smith Barney Inc., 530 

U.S. 238, 241-42 (2000) (quoting Comm’r v. Keystone Consol. Indus., Inc., 508 U.S. 152, 160 

(1993)). Among the transactions prohibited are “furnishing of goods, services, or facilities 

between the plan and a party in interest” and “transfer to . . . a party in interest, of any assets of 

the plan.” 29 U.S.C. § 1106(a)(1)(C)-(D). Section 408 of ERISA provides various exemptions 

to the transactions prohibited by Section 406, and authorizes the Secretary of Labor to institute 

further exemptions by regulation. See id. § 1108. 

Plaintiffs allege that Anthem—merely by underwriting the insurance that the VSTD Plan 

provided, processing claims for benefits, and being paid for these services—engaged in 

prohibited transactions. As neither party disputes, those transactions caused Anthem to become 

a “party in interest,” because it was “providing services” to the Plan. Am. Compl. ¶ 85 (citing 29 

U.S.C. § 1002(14)). But under Plaintiffs’ interpretation, these transactions were also prohibited 

because, absent an exemption, the statute prohibits “parties in interest” from either furnishing 

services to the Plan or receiving payments for those services. See id. ¶ 84 (citing 29 U.S.C. 

§ 1106(a)(1)(C)-(D)). That is, Plaintiffs claim, the very transactions that caused Anthem to be a 

“party in interest” were prohibited because Anthem was a “party in interest.” As such, under 

Plaintiffs’ interpretation of the statute, ERISA categorically prohibits the provision of services to 

employee benefit plans in exchange for compensation, absent an exemption. 

Anthem argues that Plaintiffs’ allegations are legally insufficient. In Anthem’s view, the 

transactions at issue—its provision of services to the Plan in exchange for compensation—cannot 

both have caused Anthem to become a party in interest and constituted a prohibited transaction 

with a party in interest. See Def.’s Br. at 12-17. Rather, under its interpretation, “there must be a 

preexisting relationship between the entity and plan that arose outside of the allegedly prohibited 
8 

transactions.” Id. at 13. Plaintiffs reject that reading of the statute, and also argue that, even if 

Anthem’s initial contract with the Plan was not prohibited, then Anthem’s renewal of that 

contract was, because Anthem was already a party in interest by that point. See Pls.’ Opp’n at 

15. 

The Court agrees with Anthem and concludes that Plaintiffs’ allegations are insufficient 

to state a claim under the statute. The Court will begin by examining Plaintiffs’ theory that 

ERISA prohibits all furnishing of services in exchange for compensation. The Court will then 

examine Plaintiffs’ alternative argument that ERISA prohibits the Plan’s renewal of its contract 

with Anthem. 

a. Whether ERISA Prohibits All Furnishing of 

Services in Exchange for Payment 

The core of the parties’ dispute is whether ERISA categorically prohibits all provision of 

services to plans in exchange for compensation absent an exemption. Section 3, the definitional 

section of ERISA, defines a “party in interest” as including “any fiduciary” of a plan and any 

“person providing services to such plan.” 29 U.S.C. § 1002(14)(A)-(B). Section 406 prohibits 

“furnishing of goods, services, or facilities between the plan and a party in interest” and “transfer 

to, or use by or for the benefit of a party in interest, of any assets of the plan.” Id.

§ 1106(a)(1)(C)-(D). Neither party disputes that Anthem, by providing services to the Plan 

(some of which also caused Anthem to take on fiduciary responsibilities), became a “party in 

interest” under Section 3. Viewed in isolation, as Plaintiffs urge, these subsections of Section 3 

and Section 406 could be read to prohibit Anthem, a “party in interest,” from providing services 

to the Plan or being paid for those services. 

But the flawed nature of Plaintiffs’ interpretation becomes apparent when the Court 

looks—as it must—beyond the particular subsections they cite to the overarching text, structure 
9 

and purpose of the statute. “[T]o prevent statutory interpretation from degenerating into an 

exercise in solipsism, [courts] must not be guided by a single sentence or member of a sentence, 

but look to the provisions of the whole law.” Hearth, Patio & Barbecue Ass’n v. U.S. Dep’t of 

Energy, 706 F.3d 499, 504 (D.C. Cir. 2013) (first alteration in original) (quoting Cty. of L.A. v. 

Shalala, 192 F.3d 1005, 1014 (D.C. Cir. 1999)). 

The Court starts with the text of Section 406(a)(1), which categorically prohibits five 

types of transactions: 

A fiduciary with respect to a plan shall not cause the plan to 

engage in a transaction, if he knows or should know that such 

transaction constitutes a direct or indirect— 

(A) sale or exchange, or leasing, of any property between 

the plan and a party in interest; 

(B) lending of money or other extension of credit between 

the plan and a party in interest; 

(C) furnishing of goods, services, or facilities between the 

plan and a party in interest; 

(D) transfer to, or use by or for the benefit of a party in 

interest, of any assets of the plan; or 

(E) acquisition, on behalf of the plan, of any employer 

security or employer real property in violation of section 

1107(a) of this title. 

29 U.S.C. § 1106(a)(1). 

As the text of Section 406(a)(1) shows, Congress drew a distinction between prohibiting 

certain transactions with anyone, and prohibiting those transactions with a party in interest. 

Subsection (E) is the first kind of prohibition: it prohibits plans from acquiring employer 

securities (that is, securities “issued by an employer of employees covered by the plan,” 29 

U.S.C. § 1107(d)(1)), under certain conditions, from anyone. Subsections (A) through (D), by 

contrast, are more limited. They do not categorically prohibit plans from engaging in certain 
10 

types of transactions with any person or entity. They do not, for example, prohibit the 

“furnishing of services to the plan in exchange for compensation,” full stop. Rather, they only 

prohibit such transactions with “a party in interest.” If this limitation is to be given any meaning, 

Subsections (A) through (D) cannot be read to categorically prohibit the very transactions that 

cause a person to obtain the status of a party in interest. Otherwise, Subsections (A) through (D) 

would be just like Subsection (E): they would prohibit plans from engaging in certain forms of 

economic activity with anyone, regardless of that person or entity’s relationship to the plan. 

Therefore, Section 406(a)(1) does not admit of Plaintiffs’ interpretation, which is, as 

another court has observed, grounded in circular reasoning: the transactions were prohibited 

because Anthem was a party in interest, and Anthem was a party in interest because it engaged in 

the prohibited transactions. See Sacerdote v. N.Y. Univ., No. 16-cv-6284 (KBF), 2017 WL 

3701482, at *13 (S.D.N.Y. Aug. 25, 2017). Rather, the statute only prohibits such service 

relationships with persons who are “parties in interest” by virtue of some other relationship—for 

example, with the employer who sponsors the plan. It does not prohibit a plan from paying an 

unrelated party, dealt with at arm’s length, for services rendered. 

A close reading of ERISA’s exemptions from these prohibitions further confirms that 

Plaintiffs’ reading of Section 406(a)(1) is untenable. For example, Plaintiffs’ reading fits poorly 

with the exemption codified by Section 408(b)(5). That exemption provides that plans may 

purchase life insurance, health insurance, and annuities from a licensed insurer if (i) “no more 

than adequate consideration” is paid and (ii) the insurer is the employer sponsoring the plan (or 

one of certain other interested entities). 29 U.S.C. § 1108(b)(5). If all furnishing of insurance 

services in exchange for payment were prohibited, as Plaintiffs claim, then prong (ii) of this 

exemption would make no sense: why exempt only insurers that have a clear conflict of interest, 
11 

allowing them to sell insurance for “no more than adequate consideration,” while completely 

prohibiting contracts with other, disinterested insurers? This exemption makes perfect sense, 

however, if Congress was specifically concerned that Section 406(a)(1) might steer plans away 

from prohibited (but potentially efficient) transactions with interested insurers, particularly 

employers that are insurers, and toward nonprohibited (but potentially less efficient) transactions 

with insurers that are not parties in interest.1 Accordingly, Congress authorized the otherwise 

prohibited dealings with those interested insurers, provided that plans pay “no more than 

adequate consideration”—a safeguard plans do not need when contracting with disinterested 

insurers. 

Similarly, Section 408(b)(6)’s exemption underscores the conclusion that Plaintiffs’ 

reading is not sustainable. That exemption covers “any ancillary service by a bank,” but only if 

that bank is a fiduciary. 29 U.S.C. § 1108(b)(6). Such “ancillary services” may be offered only 

for reasonable compensation and if accompanied by certain other safeguards. See id. Under 

Plaintiffs’ reading, this exemption would be meaningless because the core service provided by 

the bank—that is, the service that caused the bank to become a fiduciary—would remain 

prohibited. Banks would never have occasion to provide “ancillary” services, because they 

would be prohibited from providing the antecedent core service. But Section 408(b)(6) makes 

perfect sense if Section 406(a)(1) allows the fiduciary to provide one service to the plan (and 

 

1

 This reading is confirmed by ERISA’s legislative history. The conference report explains that, 

“if the employer is an insurer qualified to do business in a State (or the District of Columbia),” 

then “it would be contrary to normal business practice to require the plan of an insurance 

company to purchase its insurance from another insurance company.” H.R. Rep. No. 93-1280, at 

314 (1974) (Conf. Rep.), as reprinted in 1974 U.S.C.C.A.N. 5038, 5094. 
12 

thereby to become a party in interest) and prohibits only the furnishing of other, additional

services.2

Plaintiffs’ reading also frustrates the well-accepted purpose of both Section 406(a)(1) and 

the statute as a whole. Section 406(a)(1) is intended to “prohibit certain transactions that 

‘generally involve uses of plan assets that are potentially harmful to the plan.’” Danza v. Fidelity 

Mgmt. Trust Co., 533 F. App’x 120, 125 (3d Cir. 2013) (quoting Lockheed Corp. v. Spink, 517 

U.S. 882, 893 (1996)). That is, it prohibits “commercial bargains that present a special risk of 

plan underfunding because they are struck with plan insiders, presumably not at arm’s length.” 

Lockheed, 517 U.S. at 893. And the Supreme Court has cautioned against extending Section 

406(a)(1) to prohibit transactions that “cannot reasonably be said to share that characteristic.” Id. 

Contracting at arm’s length with unrelated service providers plainly does not share that 

characteristic: it is not a deal struck with “plan insiders.” And prohibiting such contracts would 

make little sense, as it would turn Section 406(a)(1) into “a statutory provision that proscribes [a] 

retirement pension plan’s most basic operations.” Sacerdote, 2017 WL 3701482, at *14. 

Indeed, Plaintiffs’ interpretation is “potentially harmful” to plans because it discourages service 

providers from contracting with them in the first place. A change of heart (or leadership) could 

easily inspire plans to claim that the service provider’s bargained-for compensation was 

unreasonable, and because the Section 408 exemptions are generally considered to be affirmative 

 

2

 Here too, the legislative history confirms this reading of the statute. In discussing this 

exemption, the conference report notes that “generally a fiduciary is not to be able to provide 

‘multiple services’ to a plan” absent an exemption. H.R. Rep. No. 93-1280, at 314 (1974) (Conf. 

Rep.) (emphasis added), as reprinted in 1974 U.S.C.C.A.N. 5038, 5095; see also 120 Cong. Rec. 

29,932 (1974) (statement of Sen. Harrison A. Williams) (explaining the need for exemptions 

where “a fiduciary also provides other services to a plan” (emphasis added)), as reprinted in

1974 U.S.C.C.A.N. 5038, 5187. As this implies, ERISA does not prohibit a fiduciary from 

providing a single service. 
13 

defenses, service providers would be unable to ward off such lawsuits until after costly 

discovery, at the earliest. See id. at *13. The potential for strike suits would serve only to 

narrow the pool of available service providers, ultimately to the detriment of ERISA plans. 

These considerations confirm what the entire text and structure of the statute compel: that a 

plaintiff cannot allege a prohibited transaction merely by claiming that the defendant provided 

services to an ERISA plan in exchange for bargained-for consideration.3

The reading proposed by Plaintiffs would also create a conflict between ERISA’s 

prohibited-transaction provisions and widely accepted law concerning the setting of fiduciary 

compensation. While the D.C. Circuit has not yet addressed the issue, other circuits have 

concluded that ERISA does not generally impose a duty on plan fiduciaries relating to the setting 

of their compensation. See Abraha v. Colonial Parking, Inc., 243 F. Supp. 3d 179, 185-86 

(D.D.C. 2017) (collecting cases). That is, if a plan fiduciary negotiates the terms of its 

compensation with the plan at arm’s length, and then adheres to those terms, its receipt of that 

compensation is unrelated to its fiduciary role and thus cannot be in breach any of its fiduciary 

 

3

 Plaintiffs argue that the Department of Labor has taken a different view, quoting the following 

language from a Department of Labor regulation: “[A] service relationship between a plan and a 

service provider would constitute a prohibited transaction, because any person providing services 

to the plan is defined by ERISA to be a ‘party in interest’ to the plan.” Reasonable Contract or 

Arrangement Under Section 408(b)(2), 77 Fed. Reg. 5632, 5632 (Feb. 3, 2012). As an initial 

matter, it is not at all clear that this passing comment, found in a regulation relating to the 

exemption for service contracts in Section 408(b)(2) of ERISA, represents the Department of 

Labor’s considered interpretation of the prohibited-transaction provisions of Section 406(a)(1). 

Even if it did, however, the Court would not defer to the Department’s interpretation, because—

as explained above—no ambiguity on this point remains after considering ERISA’s “text, 

structure, purpose, and legislative history.” Loving v. IRS, 742 F.3d 1013, 1016 (D.C. Cir. 2014) 

(quoting Pharm. Research & Mfrs. of Am. v. Thompson, 251 F.3d 219, 224 (D.C. Cir. 2001)). 
14 

duties. See id.4

 Plaintiffs’ theory would effectively unravel this rule: because fiduciaries are 

“parties in interest,” plans could always seek to claw back fiduciaries’ compensation under 

Section 406(a)(1). 

Finally, it bears noting that the Court’s reading of the statute does not render toothless 

ERISA’s inclusion of service providers as parties in interest. For example, a prohibited 

transaction does occur when a service provider receives payments beyond its bargained-for 

compensation with the plan. In particular, a plan’s fiduciaries may not improperly benefit a 

service provider with unauthorized or sham payments. See Lockheed, 517 U.S. at 895 n.8. 

Courts have thus found that attorneys engage in prohibited transactions when they obtain loans 

from ERISA plans they represent, Nieto v. Ecker, 845 F.2d 868, 873 (9th Cir. 1988), or are “paid 

for services they did not render,” Concha v. London, 62 F.3d 1493, 1503-04 (9th Cir. 1995) 

(citing Nieto). See also Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 590, 600-01 (8th Cir. 

2009) (plan trustee allegedly received “kickbacks” from mutual funds in exchange for their 

inclusion in plan’s 401(k) program).5

 But Count I is not based on any such allegation—rather, it 

is based purely on Anthem’s receipt of bargained-for consideration as a service provider. See

 

4

 Of course, if a fiduciary has the ability to change its own compensation, its exercise of that 

ability does implicate its fiduciary duties. See Abraha, 243 F. Supp. 3d at 186. That nuance, 

however, is not relevant to this case. 

5

 Some language in Braden provides support to Plaintiffs’ reading of the statute. See 588 F.3d at 

600-01. Nonetheless, the Court interprets Braden to stand for the less sweeping proposition for 

which it is cited above. Braden involved “kickback” payments alleged not to have been bona 

fide compensation for services rendered. See id. at 590. Indeed, the implication in that case was 

that the trustee had, in its fiduciary capacity, exercised control over its own compensation 

through the alleged kickback scheme. See Laboy v. Bd. of Trs. of Bldg. Serv. 32 BJ SRSP, 513 F. 

App’x 78, 80 (2d Cir. 2013) (interpreting Braden as based on the plan trustee’s alleged selfdealing); Sacerdote, 2017 WL 3701482, at *14 (similar). Moreover, Braden only addressed 

fiduciary liability, not the circumstances under which a service provider could be held liable in a 

nonfiduciary capacity. See 588 F.3d at 600-01. 
15 

Am. Compl. ¶¶ 85-87. Plaintiffs do make such allegations in Count III, which concerns the 

alleged payments to Carney and is discussed below. 

Although few courts have analyzed this interpretive question in depth, the Court’s 

conclusion is in accord with the weight of the authority on point. Indeed, the Court has 

identified only one circuit-level decision that squarely addresses this issue, an unpublished Third 

Circuit decision that similarly accepts Anthem’s interpretation of the statute. Danza, 533 F. 

App’x at 125-26. There is also a published Eighth Circuit decision that offers some support for 

Plaintiffs’ interpretation, although, as explained above, that case is distinguishable. Braden, 588 

F.3d at 600-01; see supra note 5. In addition, there are a few unpublished district court opinions 

that support Plaintiffs’ interpretation. Divane v. Nw. Univ., No. 16-cv-8157, 2018 WL 2388118, 

at *10 (N.D. Ill. May 25, 2018); Comerica Bank for DALRC Retiree Benefit Tr. v. Voluntary 

Emp. Benefits Assocs., Inc., No. 1:09-cv-1164 (WSD), 2012 WL 12948705, at *18 & n.27 (N.D.

Ga. Jan. 11, 2012); Ronches v. Dickerson Emp. Benefits, Inc., No. 2:09-cv-4279 (MMM) 

(PJWx), 2009 WL 10669571, at *17-18 (C.D. Cal. Oct. 30, 2009). The weight of authority, 

however, appears to support Anthem’s reading. Patrico v. Voya Fin., Inc., No. 16-cv-7070 

(LGS), 2018 WL 1319028, at *7 (S.D.N.Y. Mar. 13, 2018); Cunningham v. Cornell Univ., No. 

16-cv-6525 (PKC), 2017 WL 4358769, at *10 (S.D.N.Y. Sept. 29, 2017); Sweda v. Univ. of Pa., 

No. 16-cv-4329, 2017 WL 4179752, at *11 (E.D. Pa. Sept. 21, 2017); Sacerdote, 2017 WL 

3701482, at *13-14; Fite v. Merrill Lynch & Co, No. 8:10-cv-008 (DOC) (ANx), 2010 WL 

11556808, at *7 (C.D. Cal. Nov. 2, 2010); UFCW Local 56 Health & Welfare Fund v. 

Brandywine Operating P’ship, L.P., No. 05-cv-2435 (JEI), 2005 WL 3555390, at *2-4 (D.N.J. 

Oct. 28, 2005). 
16 

For these reasons, the prohibited-transaction claim in Count I must be dismissed. The 

only “transaction” alleged is that Anthem insured the short-term disability benefits for the Plan’s 

participants. And Anthem, like all insurers, made money by collecting more in premiums than it 

paid in claims. That is not a prohibited transaction under ERISA. 

b. Whether ERISA Prohibits the VSTD Plan’s Renewal of its 

Contract with Anthem 

Plaintiffs claim that, even if the foregoing analysis is true, it does not warrant dismissal of 

Count I because Anthem engaged in additional transactions with the Plan after becoming a party 

in interest that: (1) renewed the contract at higher rates effective on January 1, 2012, and (2) 

expanded its insurance coverage to include bus workers in addition to rail workers, also effective 

on January 1, 2012. See Pls.’ Opp’n at 11-13. But on examination, neither of these theories 

alters the analysis set forth above. 

Plaintiffs’ first theory is that Anthem’s renewal of the contract is a prohibited transaction 

even if the original contract is not. See id. at 11. This theory, however, suffers from the same 

flaw discussed above. But for the renewal agreement, Anthem would have ceased to be a party 

in interest at the end of the initial contract. Therefore, Plaintiffs seek, once again, to prohibit the 

same transactions that caused Anthem to be a party in interest.

This theory appears to respond to cases holding that the absence of a “prior relationship” 

meant there was no prohibited transaction. Fite, 2010 WL 11556808, at *7; see also Danza, 533 

F. App’x at 125 (no prohibited transaction where the defendant “was not a party in interest at the 

time the [relevant agreement] was signed”). But the “prior relationship” formulation is 

imprecise. ERISA does not necessarily prohibit plans from dealing with persons they have dealt 

with previously. This is apparent from the definition of “party in interest,” which includes 

persons “providing services” to the plan but not persons who “have provided” such services in 
17 

the past. See 29 U.S.C. § 1002(14). Nor does Section 406(a)(1) prohibit the plan from 

“negotiating” or “signing” services contracts with parties in interest. Rather, what it prohibits is 

the performance of those contracts: the “furnishing of goods, services, or facilities between the 

plan and a party in interest,” 29 U.S.C. § 1106(a)(1)(C) (emphasis added), and the “transfer” of 

plan assets to pay for them, id. § 1106(a)(1)(D).6

 Because the performance of a renewal contract 

typically occurs after the initial contract ends, and thus after the service provider has ceased to be 

a party in interest by virtue of the initial contract, signing the renewal contract does not cause a 

prohibited transaction to occur. And neither does performance of the renewal contract, since (as 

explained above) the furnishing of services to a plan cannot both cause the service provider to be 

a party in interest and constitute a prohibited transaction under Section 406(a)(1). 

Again, ERISA’s purpose and structure confirm what its text provides. Prohibiting the 

renewal of agreements with service providers who have no other relationship to the plan would 

do nothing to prevent “sweetheart deals” of the type Congress sought to avoid. Fite, 2010 WL 

11556808, at *7. Such a rule would, however, encourage service providers to lock ERISA plans 

into long-term contracts, something that ERISA is generally understood to discourage. See

Comerica Bank, 2012 WL 12948705, at *18 n.27 (“[T]he legislative history reveals Congress 

was specifically concerned with the danger that a Plan would become locked into a long-term, 

disadvantageous service contract, and thus the DOL regulations define such contracts as 

unreasonable.”).7

 In light of all of the above, Plaintiffs’ first theory does not save their claim. 

 

6

 For this reason, the Court disagrees with a prior district court case that, failing to appreciate this 

nuance in the statutory text, held that renewals do constitute prohibited transactions. See Brock 

v. Gerace, 7 Empl. Benefits Cas. (BNA) 1713, 1715-16 (D.N.J. 1986). 

7

 Interpreting ERISA to prohibit contract renewals would also conflict with widely-accepted law 

concerning the setting of fiduciary compensation, which holds that plan fiduciaries may freely 
18 

Plaintiffs’ second theory is that the Plan engaged in a prohibited transaction when it 

expanded the scope of Anthem’s services to cover short-term disability insurance for bus 

workers in addition to rail workers. See Pls.’ Opp’n at 11. This theory also fails. 

Plaintiffs’ second theory effectively posits that, even if Anthem’s initial provision of 

insurance to rail workers was not prohibited because that transaction was what caused Anthem to 

become a party in interest, Anthem’s provision of insurance to bus workers was a separate 

transaction, one prohibited by Section 406(a) because Anthem was already a party in interest by 

virtue of the rail-worker insurance. The Court has identified only one potential basis for this 

theory in the statute: a prohibition, suggested by ERISA’s structure and legislative history, 

against providing “multiple services” to a plan. As discussed above, the exemption in Section 

408(b)(6) suggests that, while fiduciary banks can provide one service to a plan, they cannot 

provide additional, ancillary services to that plan absent an exemption. See supra pp. 11-12. 

ERISA’s legislative history similarly suggests that fiduciaries cannot simultaneously provide 

“multiple services” that are qualitatively different. See supra note 2; see also H.R. Rep. No. 93-

1280, at 309 (1974) (Conf. Rep.), as reprinted in 1974 U.S.C.C.A.N. 5038, 5090 (stating that 

“brokerage houses” would be prohibited from providing “both discretionary investment 

management and brokerage services to the same plan”). 

But even assuming that a “multiple services” claim is cognizable under Section 

406(a)(1), it cannot be based on a change in the quantity of a single service provided. That 

would require interpreting Section 406(a)(1) to mean that, because a service provider has 

furnished a certain amount of a service at a previous point in time, it cannot now furnish a 

 

negotiate their compensation provided they do so at arm’s length. See supra pp. 13-14. Courts 

applying this law do not appear to treat renewals differently from initial agreements. See, e.g., 

Schulist v. Blue Cross of Iowa, 717 F.2d 1127, 1129-30, 1132 (7th Cir. 1983). 
19 

greater amount of that service. Nothing in ERISA’s text, structure, purpose, or legislative history 

suggests that result. To the contrary, as already explained, ERISA’s prohibition against 

transactions with service providers is not based on prior relationships. The fact that a service 

provider previously furnished a different amount of the service in question is simply not relevant 

under Section 406(a)(1). Rather, unless one accepts Plaintiffs’ flawed and circular reading of the 

statute, what matters is whether the service provider, at the time it is furnishing that service, has a 

separate relationship with the plan that makes it a party in interest. Under the “multiple services” 

theory, such a separate relationship would exist if the service provider were simultaneously 

furnishing a different service of a fiduciary nature. But it is not enough to furnish a single 

service, even if the quantity changes over time. 

Plaintiffs’ second theory fails because it rests on just such a quantitative change, not any 

allegation that Anthem simultaneously provided two qualitatively different services to the Plan. 

Plaintiffs claim that Anthem, when it renewed its contract with the VSTD Plan for the 2012 

calendar year, agreed to provide the same type of insurance to a larger number of Plan 

participants. The only alleged difference between the insurance offered to rail and bus 

employees is that each had a different “schedule of benefits” and different premiums. Am. 

Compl. ¶¶ 13, 32. The renewal thus left unchanged the nature of the services furnished: insuring 

plan participants’ short-term disability benefits. Indeed, Plaintiffs themselves describe this 

change as merely having “increase[d] the scope of [Anthem’s] services.” Pls.’ Opp’n at 11. 

In sum, Plaintiffs’ two alternative theories cannot save their claim. These theories 

ultimately rest on the same flawed interpretation of Section 406(a)(1): that Anthem, by providing 

disability insurance to the Plan, both became a service provider to the plan and engaged in a 

prohibited transaction. Therefore, Count I must be dismissed. 
20 

2. Count II 

Count II alleges that Anthem’s receipt of premiums for the 2015 calendar year was a 

prohibited transaction because it falls outside the scope of the exemption in Section 408(b)(2), 

which covers “[c]ontracting or making reasonable arrangements” for necessary services “if no 

more than reasonable compensation is paid therefor.” 29 U.S.C. § 1108(b)(2). Specifically, 

Count II asserts that Section 408(b)(2) “requires the existence of a contract or written 

agreement,” meaning that Anthem cannot rely on Section 408(b)(2) if it is right that there was no 

binding contract in place at the time. See Am. Compl. ¶¶ 92-93. This count appears to be 

pleaded in the alternative to Plaintiffs’ breach of contract claim (Count IV), which alleges that 

there was a binding contract in place at the time. See id. ¶ 106. 

Count II effectively relies on the same theory as Count I to explain why the payments to 

Anthem were prohibited under Section 406(a)(1): that Anthem was a service provider and thus a 

party in interest. See id. ¶ 93. Count II simply offers a different reason why, in Plaintiffs’ view, 

those transactions fail to qualify for the exemption in Section 408(b)(2): while Count I asserts 

that Anthem cannot rely on the exemption because its compensation was unreasonably high, see 

id. ¶¶ 87-90, Count II asserts that the exemption does not apply because Anthem received its 

compensation outside the scope of a binding contract, see id. ¶¶ 92-95. But whether an 

exemption applies is irrelevant unless there is a prohibited transaction. See, e.g., Nat’l Sec. Sys., 

Inc. v. Iola, 700 F.3d 65, 98 (3d Cir. 2012) (explaining that ERISA’s exemptions do “not create 

independent affirmative duties”). Because Count II is entirely derivative of the prohibitedtransaction theory in Count I, it must be dismissed for the same reasons set forth above. 

3. Count III 

Count III is different from Counts I and II: it arises from the payments made through 

Anthem to Carney. The Court concludes that this claim fails as well, but for a different reason: 
21 

assuming that Plaintiffs do properly allege that prohibited transactions occurred, they provide no 

basis for recovery from Anthem because it did not retain the proceeds of these transactions, nor 

have Plaintiffs sufficiently pleaded that Anthem otherwise profited from them. 

Plaintiffs allege that Anthem paid “kickbacks” in the form of commission payments to 

Carney, who was not actually providing “broker services” as he apparently claimed. Am. 

Compl. ¶ 79. These payments may have constituted prohibited transactions on the theory that 

they were “sham” compensation for services not actually rendered. See supra pp. 14-15. 

Moreover, Plaintiffs claim that, on at least one occasion, Carney passed some of this money on 

to Futhey, the VSTD Plan trustee who allegedly caused the transactions to occur. See Am. 

Compl. ¶ 74. Thus, the transactions could also potentially constitute prohibited fiduciary selfdealing. See 29 U.S.C. § 1106(b); Iola, 700 F.3d at 97. Plaintiffs assert that the transactions 

were in fact prohibited and that Anthem should be required to disgorge the full amount of the 

Carney payments. Am. Compl. ¶ 100. 

In order to recover that amount, however, Plaintiffs must show that the payments to 

Carney—or profits or proceeds deriving from them—remain in Anthem’s possession. Plaintiffs 

seek to hold Anthem liable as a nonfiduciary participant in prohibited transactions. See Am. 

Compl. ¶ 97; Pls.’ Opp’n at 7-9. Such liability arises from Section 502(a)(3) of ERISA, which 

authorizes suits for “appropriate equitable relief.” 29 U.S.C. § 1132(a)(3). And such relief 

consists of “restitution of the [unlawfully obtained] property (if not already disposed of) or 

disgorgement of proceeds (if already disposed of), and disgorgement of the third person’s profits 

derived therefrom.” Harris Trust, 530 U.S. at 250; see also Montanile v. Bd. of Trs. of Nat’l 

Elevator Indus. Health Benefit Plan, 136 S. Ct. 651, 658 (2016) (holding equitable recovery 

under ERISA extends only to funds in defendant’s possession and traceable to the unlawfully 
22 

obtained assets); Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 215 (2002) 

(explaining that Harris Trust established an equitable remedy for “specific property (or its

proceeds) held by the defendant”). At a minimum, Plaintiffs must allege that Anthem profited or 

earned some other benefit from the Carney payments that it can be required to disgorge. See

Spear v. Fenkell, No. 13-cv-2391, 2016 WL 5661720, at *31-34 (E.D. Pa. Sept. 30, 2016) 

(discussing potential availability of accounting and disgorgement as equitable remedies after 

Montanile). 

In this case, Anthem plainly has not retained the allegedly unlawful payments 

themselves—it passed them on to Carney. Plaintiffs have in fact affirmatively alleged that 

Anthem did not retain any portion of the payments. They claim that the “payments to Carney 

increased, dollar for dollar, the amount of premiums paid by VSTD,” and that Anthem’s 

premiums declined by the exact amount of Carney’s commission when those payments ceased. 

Am. Compl. ¶ 78. And while Plaintiffs argue that profits can be recovered in equity even if they 

are not directly traceable to the prohibited transactions, see Pls.’ Opp’n at 20, Plaintiffs have not 

provided any basis to conclude that Anthem’s profits resulted directly or indirectly from the 

Carney payments. 

Plaintiffs do allege, in conclusory fashion, that Anthem benefited insofar as the 

“commission payments allowed Anthem to secure the business of providing [short-term 

disability] benefits to the Plan.” Am. Compl. ¶ 97. But the Amended Complaint is devoid of 

any concrete facts that explain or support this allegation. Rather, in Plaintiffs’ telling, Anthem 

served as nothing more than a middleman passing along payments orchestrated by others, 

including Futhey, who chose Carney to receive the payments. See id. ¶¶ 72, 74, 78. And 

Anthem continued to receive the VSTD Plan’s business long after the payments to Carney 
23 

ended. See id. ¶¶ 59, 61. There are, of course, cases where a kickback scheme draws the 

legitimacy of an entire contract into question. See, e.g., Stuart Park Assocs. Ltd. P’ship v. 

Ameritech Pension Tr., 51 F.3d 1319, 1325-26 (7th Cir. 1995). But Plaintiffs have not 

adequately alleged Anthem’s participation in a scheme that tainted its entire contract with the 

Plan, such that it was not an arm’s-length bargain. The Court notes that Carney (a former UTU 

employee) is not alleged to have been a party in interest to the VSTD Plan; nor is his alleged coconspirator, Martella (who sold insurance products to SMART members). See Am. Compl. 

¶¶ 61, 71. Plaintiffs thus fail to explain how the payments to Carney amounted to “kickbacks,” 

in the sense of corrupt payments to Plan insiders. The one exception is the alleged $2,000 

payment from Carney to Futhey, the only true “kickback” alleged in the complaint. See id. ¶ 74. 

However, there is no allegation that Anthem caused, knew about, or had reason to know about 

the payment to Futhey. See id. Therefore, the allegations in the complaint do not implicate any 

of the premiums that Anthem actually retained. 

Finally, Plaintiffs argue that the availability of equitable relief is often a factual issue not 

fit for resolution on a motion to dismiss. See Pls.’ Opp’n at 21-22. But here, Plaintiffs’ own 

pleadings establish that the funds they seek are not recoverable from Anthem in equity; rather, 

Plaintiffs seek legal relief from Anthem’s general assets. Therefore, Plaintiffs’ claim can be 

resolved on a motion to dismiss. See Cent. States, Se. & Sw. Areas Health & Welfare Fund v. 

Gerber Life Ins. Co., 771 F.3d 150, 159-60 (2d Cir. 2014). 

In short, while Plaintiffs have alleged that Anthem served as a conduit for improper 

payments, they cannot recover those funds from Anthem because it no longer has them or any 

proceeds or profits relating to them. Therefore, Count III must be dismissed. 
24 

B. Contract and Unjust Enrichment Claims 

The Court disagrees with Anthem, however, that Plaintiffs’ contract claims are unripe. 

“‘The ripeness doctrine generally deals with when a federal court can or should decide a case,’ 

and has both constitutional and prudential facets.” Perry Capital LLC v. Mnuchin, 864 F.3d 591, 

632 (D.C. Cir. 2017) (citation omitted) (quoting Am. Petrol. Inst. v. EPA, 683 F.3d 382, 386 

(D.C. Cir. 2012)). “Ripeness ‘shares the constitutional requirement of standing that an injury in 

fact be certainly impending.’” Id. (quoting Nat’l Treasury Emps. Union v. United States, 101 

F.3d 1423, 1427 (D.C. Cir. 1996)). In general, “claims for breach of contract ‘cannot be 

described as premature since they speak of damages that have already been suffered and are 

being suffered.’” RDP Techs., Inc. v. Cambi AS, 800 F. Supp. 2d 127, 135 (D.D.C. 2011) 

(quoting Casanova v. Marathon Corp., 256 F.R.D. 11, 15 (D.D.C. 2009)). 

Here, Anthem claims that the Plan has not yet suffered any injury related to its contract 

claims, because the refund payments that Anthem owes the Plan have not yet come due. See

Def.’s Br. at 27-28. In support of this contention, Anthem attaches a contract executed by the 

Plan (but not by Anthem) under which the refund payment would not be due until March 2017, 

after this lawsuit was filed, “at the earliest.” See id. & Ex. B. Anthem accuses Plaintiffs of 

mischaracterizing the agreement, and claims that the Court can properly consider the text of the 

contract in deciding this motion to dismiss. See id. at 27 & n.8. 

Anthem’s argument fails because, under Plaintiffs’ theory, the alleged breach of contract 

has already occurred. Plaintiffs allege that, after months of negotiations, the Plan accepted 

Anthem’s terms for coverage in 2015 by a letter dated January 30, 2015, attached as Exhibit A to 

their complaint. See Am. Compl. ¶¶ 104-106 & Ex. A. The letter purports to memorialize the 

“Trustees’ understanding that . . . the amount of the 50% sharing would be transferred to [the 

Plan] quarterly.” See id. Ex. A. Plaintiffs further allege that Anthem failed to make these 
25 

quarterly payments when required. See id. ¶ 108. And Plaintiffs specifically dispute that the 

contract attached by Anthem to its motion to dismiss represents the binding agreement between 

the parties. See Pls.’ Opp’n at 27. Thus, Anthem has merely raised a factual dispute over which 

document represents the parties’ binding agreement, and Plaintiffs have pleaded a claim for 

breach of contract that is ripe. Plaintiffs’ claim for unjust enrichment—which they plead in the 

alternative on the assumption that there was no binding contract—is ripe for similar reasons. 

Therefore, Anthem’s motion to dismiss Counts IV and V will be denied. 

Conclusion and Order 

For all of the above reasons, Anthem’s motion to dismiss (ECF No. 15) is GRANTED 

IN PART and DENIED IN PART. Counts I, II, and III of Plaintiffs’ Amended Complaint are 

DISMISSED for failure to state a claim on which relief can be granted. Counts IV and V, 

however, may proceed. 

SO ORDERED. 

/s/ Timothy J. Kelly 

TIMOTHY J. KELLY 

United States District Judge 

Date: June 6, 2018