Source: http://openjurist.org/154/f3d/362
Timestamp: 2015-10-06 02:04:04
Document Index: 675858216

Matched Legal Cases: ['§ 1001', '§ 502', '§ 1291', '§ 1291', '§ 1292', '§ 1292', '§ 1291', '§ 1002', '§ 1104', '§ 1002', '§ 1109', '§ 1102', '§ 1104', '§ 3', '§ 1106', '§ 1109', '§ 1104']

154 F3d 362 Herdrich v. Pegram Md | OpenJurist
154 F. 3d 362 - Herdrich v. Pegram Md HomeFederal Reporter, Third Series154 F.3d
154 F3d 362 Herdrich v. Pegram Md 154 F.3d 362
22 Employee Benefits Cas. 1617
Cynthia HERDRICH, Plaintiff-Appellant,v.Lori PEGRAM, M.D., Carle Clinic Association, and HealthAlliance Medical Plans, Incorporated, Defendants-Appellees.
No. 97-1070.
Argued Dec. 2, 1997.Decided Aug. 18, 1998.
James P. Ginzkey (argued), Hayes, Hammer, Miles, Cox & Ginzkey, Bloomington, IL, for Plaintiff-Appellant.
Peter W. Brandt (argued), Livingston, Barger, Brandt & Schroeder, Bloomington, IL, for Defendants-Appellees.
The defendants-appellees, Carle Clinic Association, P.C. ("Carle"), Health Alliance Medical Plans, Inc. ("HAMP"), and Carle Health Insurance Management Co., Inc., operate a pre-paid health insurance plan which provides medical and hospital services. The plaintiff-appellant, Cynthia Herdrich ("Herdrich"), was covered under a plan subscription through her husband's employer, State Farm Insurance Company, an Illinois corporation. In March of 1992, Herdrich's appendix ruptured as the result of alleged improper medical treatment while she was in the care of Dr. Lori Pegram ("Pegram"), a physician who practiced under the plan.1 On October 21, 1992, Herdrich filed a two-count complaint, alleging medical negligence against the health plan operators. Herdrich later added counts III and IV, alleging state law fraud. The defendants, in response, contended that the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq., preempted counts III and IV, and successfully removed the case to federal court. They subsequently filed a motion for summary judgment as to counts III and IV. The trial judge granted the summary judgment motion on count IV only, and gave Herdrich leave to amend count III. In accordance with the court's instructions, Herdrich amended count III to allege that the defendants had breached their fiduciary duty to plan participants, in violation of ERISA. The defendants moved to dismiss the amended count III for failure to state a claim upon which relief could be granted. The court agreed and granted the motion. The remaining two medical negligence counts (I and II) went to trial before a jury. Herdrich prevailed on both of them. Thereafter, she filed a notice of appeal as to the trial court's dismissal of her amended count III. We reverse and remand this case to the district court (on count III) for a trial.
This appeal arises out of a complaint filed by Herdrich in the Circuit Court of McLean County, Illinois, on October 21, 1992, against Lori Pegram, M.D. and Carle Clinic Association. Counts I and II of the plaintiff's complaint were based upon a theory of professional medical negligence. Specifically, Herdrich alleged that she suffered a ruptured appendix and, in turn, contracted peritonitis due to Pegram's negligence in failing to provide her with timely and adequate medical care. On February 18, 1994, Herdrich was granted leave to amend the complaint. In her amended complaint, she added two counts (III and IV) of state law fraud against Carle and Health Alliance Medical Plans, Inc.2 The defendants removed the case to federal court, asserting that the two new counts were preempted by ERISA, and thereafter filed a motion for summary judgment as to counts III and IV only. The court granted summary judgment against Herdrich on count IV "to the extent [she] relies on § 502(a)(3)(B) [of ERISA] as a basis for monetary relief, as opposed to equitable relief," and that provision does not provide for extra-contractual damages. While the trial judge denied the defendants' summary judgment motion as to count III, he did conclude ERISA preempted that count, and granted Herdrich "leave to submit an amended Count III which clearly sets forth her basis for proceeding under ERISA, including the applicable civil enforcement provision." On September 1, 1995, Herdrich filed her amended count III in accordance with the court's instructions. In it, she averred that the defendants breached their fiduciary duty to plan beneficiaries by depriving them of proper medical care and retaining the savings resulting therefrom for themselves.3 The defendants thereafter moved, pursuant to Rule 12 of the Federal Rules of Civil Procedure, to dismiss Herdrich's amended count III for failure to state a claim upon which relief could be granted.
By agreement, the case--including the defendants' motion to dismiss--was assigned to a magistrate judge, who recommended that the amended count III be dismissed because, in his opinion, "[t]he plaintiff fail[ed] to identify how any of the defendants is involved as a fiduciary to the Plan." He did, however, recommend that the court afford Herdrich "one last opportunity" to re-plead her claim under ERISA. Herdrich promptly filed a Rule 72 objection to the magistrate's recommendation. Less than two weeks later, on April 15, 1996, the district court denied that objection and adopted the magistrate's recommendation as to count III. In so doing, it gave Herdrich 21 days from the entry of the order to re-plead her claim. Herdrich chose not to re-plead and stood on count III as amended.
The remaining counts, I and II, went to trial in early December 1996, and the jury returned a verdict in Herdrich's favor on both counts, awarding her $35,000 in compensatory damages. She then appealed the district court's earlier dismissal of her amended count III.
On appeal, Herdrich contends that the district court erred in dismissing the amended count III of her complaint for failing to sufficiently state a claim for breach of a fiduciary duty under ERISA. The defendants contend that we lack jurisdiction to hear this case due to Herdrich's failure to file a timely notice of appeal from the order of dismissal, entered April 15, 1996. The defendants further argue that Herdrich's request for damages is inappropriate insofar as beneficiaries under an ERISA benefits plan may not recover "anything other than the benefits provided expressly in the plan."
As an initial matter, we are called upon to determine whether or not we have jurisdiction to hear this appeal. The defendants contend that Herdrich's failure to file a notice of appeal within thirty days from the district court's April 15, 1996, order of dismissal leaves us without jurisdiction. See Fed. R.App. P. 4(a)(1) ("[I]n a civil case in which an appeal is permitted by law as of right from a district court to a court of appeals the notice of appeal ... must be filed with the clerk of the district court within 30 days after the date of entry of the judgment or order appealed from."). Alternatively, the defendants urge that jurisdiction is improper because the April 15 order was not a "final decision" for purposes of appealability, as required by 28 U.S.C. § 1291. We disagree and think it clear that Carle and HAMP have misconstrued the law in relation to both of their arguments.
This court has jurisdiction to hear appeals from the "final decisions" of the federal district courts. 28 U.S.C. § 1291. A "final" decision is defined as one that terminates the litigation. See Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 633, 89 L.Ed. 911 (1945). 28 U.S.C. § 1292 also gives us jurisdiction over appeals from specified interlocutory orders.4 Generally speaking, interlocutory appeals are disfavored, and appellate courts are reluctant to exercise their discretion to grant such requests, as they all too frequently cause unnecessary delays in lower court proceedings and waste the resources of an already overburdened judicial system. See Coopers & Lybrand v. Livesay, 437 U.S. 463, 473-74, 98 S.Ct. 2454, 2460-61, 57 L.Ed.2d 351 (1978). For these reasons, the preferred practice is to defer appellate review until the entry of a final judgment in order that we might rule on all issues at one time. See 437 U.S. at 475, 98 S.Ct. at 2461. "[E]ven if the district judge certifies the order under § 1292(b), the appellant still has the burden of persuading the court of appeals that exceptional circumstances justify a departure from the basic policy of postponing appellate review until after the entry of a final judgment." Id. (citation and internal quotation omitted).
A trial court's order dismissing a complaint is not a final judgment for purposes of appeal under 28 U.S.C. § 1291 because it does not terminate the litigation. See Paganis v. Blonstein, 3 F.3d 1067, 1070 (7th Cir.1993) ("The dismissal of a complaint does not end the litigation.... In contrast, a dismissal of the entire action ends the litigation and forces the plaintiff to choose between appealing the judgment or moving to reopen the judgment and amend the complaint pursuant to Fed.R.Civ.P. 59 or Rule 60.... Therefore, if a judgment entry dismisses only the complaint, it is not a final judgment.") (internal citations and quotations omitted). This is particularly true when one or more counts of a multiple count complaint and/or indictment are dismissed for whatever reason, and others are left intact. In such cases, an interlocutory appeal of the dismissal order is available only after the order is certified by the district court under section 1292(b), supra, or by entry of a partial final judgement under Rule 54 of the Federal Rules of Civil Procedure. See Principal Mut. Life Ins. Co. v. Cincinnati TV 64 Ltd. Partnership, 845 F.2d 674, 676 (7th Cir.1988) (district court order granting judgment on one count but dismissing nine other counts without prejudice and expressly providing plaintiff right to reinstate seven counts was not final appealable order because it did not "terminate the litigation"). Just because the district court failed to take either of these two courses of action in the instant case does not mean we are without jurisdiction over this appeal, for the court's April 15 order of dismissal became final, and thus appealable, upon entry of final judgment on December 15, 1996.
Contrary to the jurisdictional claims made in the defendants' brief, an order which is not a final judgment when entered becomes final or appealable upon the entry of a final judgment. The appeal of this judgment renews all issues previously pleaded and resolved by the trial court in litigation. See In the Matter of Grabill Corp., 983 F.2d 773, 775 (7th Cir.1993). In the case under consideration, the April 15, 1996, order dismissing Herdrich's amended count III was an interlocutory ruling, rather than a final decision, as it failed to dispose of all the issues before the court. That is, the plaintiff's counts I and II were not dismissed, and the litigation between Herdrich and the defendants was continuing. The trial court's order dismissing the plaintiff's amended count III did not become final until such time as the judgment was entered on December 5, 1996. Herdrich's appeal from the trial court's dismissal of count III of her complaint, filed on January 6, 1997, was timely in that she filed it within thirty days of the December 5 entry of judgment.
B. The Plaintiff Properly Stated a Claim Under ERISA
The defendants next contend that Herdrich has failed to state a cause of action for breach of a fiduciary duty under ERISA. As previously mentioned, the district court dismissed Herdrich's amended count III, finding that even as amended, the complaint did not state a claim upon which relief might be granted.
This court reviews dismissals of complaints de novo. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). "In appraising the sufficiency of the complaint we follow, of course, the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. A complaint must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory. See Sutliff, Inc. v. Donovan Cos., Inc., 727 F.2d 648, 654 (7th Cir.1984). But such allegations need only state a possible claim, not a winning claim. See, e.g., Conley, 355 U.S. at 45-46, 78 S.Ct. at 102; Trevino v. Union Pac. R.R. Co., 916 F.2d 1230, 1234 (7th Cir.1990) ("The federal rules do not require a plaintiff to allege sufficient facts to establish his right to a judgment. All it requires [sic] ... is a 'short and plain' ... statement of what his claim is.") (quoting Fed.R.Civ.P. 8(a)(2)). And this court has steadfastly held that a plaintiff's complaint "need not plead facts or legal theories; it is enough to set out a claim for relief...." Nance v. Vieregge, 147 F.3d 589, 590-91 (7th Cir.1998). Moreover, "[a] complaint may not be dismissed under Fed.R.Civ.P. 12(b)(6) just because it omits factual allegations...." La Porte County Republican Cent. Comm. v. Board of Comm'rs of the County of La Porte, 43 F.3d 1126, 1129 (7th Cir.1994).
ERISA is a statutory scheme which regulates all "private employee benefits plans, including both pension plans and welfare plans." District of Columbia v. Greater Washington Bd. Of Trade, 506 U.S. 125, 127, 113 S.Ct. 580, 582, 121 L.Ed.2d 513 (1992). The definition of a "welfare plan" includes "any plan, fund, or program" maintained for the purpose of providing medical or other health benefits for employees or their beneficiaries "through the purchase of insurance or otherwise." Id. (quoting 29 U.S.C. § 1002(1)). Importantly, ERISA establishes uniform standards, including rules relating to "reporting, disclosure, and fiduciary responsibility." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137, 111 S.Ct. 478, 482, 112 L.Ed.2d 474 (1990) (citation omitted).
In order to properly state a claim for breach of fiduciary duty under ERISA, the plaintiff's complaint must allege facts which set forth: (1) that the defendants are plan fiduciaries; (2) that the defendants breached their fiduciary duties; and (3) that a cognizable loss resulted. See 29 U.S.C. § 1104(a). We are of the opinion that Herdrich's pleadings have more than sufficiently alleged each of these three elements.
1. Fiduciary Status
As previously explained, the district court adopted the magistrate judge's recommendation that Herdrich's amended count III be dismissed for failure to allege that the defendants were fiduciaries because "none of the defendants is even mentioned in the Subscription Agreement attached to the complaint" and "the plaintiff fails to identify how any of the defendants is involved as a fiduciary to the Plan."5 We disagree with this determination.
ERISA defines the term "fiduciary" in 29 U.S.C. § 1002(21)(A), which reads, in relevant part:
Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority of control respecting management or disposition of its assets ... or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.
Congress, when it enacted ERISA, intended that this statutory definition of "fiduciary" be broadly interpreted. As stated by the Chairman of the House Committee on Education and Labor, 120 Cong. Rec. 3977, 3983 (February 25, 1974) reprinted, 2 Legislative History of the Employee Retirement Income Security Act of 1974 at 3293:
The Committee has adopted the view that the definition of fiduciary is of necessity broad.... A fiduciary need not be a person with direct access to the assets of the plan.... Conduct alone may in an appropriate circumstance impose fiduciary obligations. It is the clear intention of the Committee that any person with a specific duty imposed upon him by this statute be deemed to be a fiduciary....
Consistent with the expressed intent of Congress, this court has routinely construed the ERISA term, "fiduciary," broadly. See Chicago Bd. Options Exch., Inc. v. Connecticut Gen. Life Ins. Co., 713 F.2d 254, 260 (7th Cir.1983) ("It is clear that Congress intended the definition of fiduciary under ERISA to be broad...."). In so doing, we have emphasized the importance of discretionary control and authority in determining who is a plan fiduciary. See Harris Trust and Sav. Bank v. Provident Life and Accident Ins. Co., 57 F.3d 608, 613 (7th Cir.1995). In Harris Trust, for example, an employee's daughter lost her health insurance coverage when her father's company, Specialty Brands, Inc., was acquired by Campbell Soup. See id. at 611-12. The employee's new health plan was funded by Campbell and merely administered by Provident Life Insurance. See id. In concluding that Campbell was the plan fiduciary, we emphasized that it was Campbell, not Provident, who retained the right to direct and control the claims procedures and practices, as well as the right to decide all disputed and non-routine claims:
The undisputed evidence shows that the Campbell Plan was created and fully funded by Campbell. Provident was simply hired to administer the claims process under Campbell's direction and control in accordance with an Administrative Services Agreement. Pursuant to that agreement, Campbell, not Provident, dictates the claims administration procedures and practices which are to be followed, and all benefits eligibility determinations must be made in accordance with those procedures and practices. Campbell also retains the right under the agreement to decide all disputed and non-routine claims.
Id. at 613 (emphasis added). Thus, it was the retention of control of the claims process that brought about Campbell's fiduciary status.
In the case sub judice, the magistrate, in his report and recommendation, opined that "the plaintiff fails to identify how any of the defendants is involved as a fiduciary to the plan," and that the plaintiff's amended third count "merely repeats the statutory language of § 1109(a) with regard to fiduciaries." We do not agree that Herdrich's amended count III is as "bare-bones" as the magistrate characterizes it. Although the amended third count does repeat some of the statutory language of ERISA, it also alleges, as in Harris Trust, that the "defendants have the exclusive right to decide all disputed and non-routine claims under the plan." The defendant-physicians managed the Plan, including the doctor referral process, the nature and duration of patient treatment, and the extent to which participants were required to use Carle-owned facilities. In fact, the board of directors consisted exclusively of the Plan physicians who were thus in control of each and every aspect of the HMO's governance, including their own year-end bonuses. And, like in Harris Trust, Herdrich pleaded that the defendants had the exclusive right to decide all disputed and non-routine claims. In our view, this level of control satisfies ERISA's requirement that a fiduciary maintain "discretionary control and authority." We can reasonably infer that Carle and HAMP were plan fiduciaries due to their discretionary authority in deciding disputed claims.
In a last ditch effort, the defendants parrot the magistrate's observation that "none of the defendants is even mentioned in the Subscription Agreement attached to the complaint," and contend that they are not fiduciaries of the Plan because they are not specifically named in the Plan instrument, pursuant to § 1102(a)(2) of ERISA.6 But the fact of the matter is that HAMP is prominently identified in the first sentence on the first page of the Plan's Group Subscription Certificate. See Group Subscription Certificate ("Carle Care HMO, a product of Health Alliance Medical Plans, Inc., is organized as a health maintenance organization to do business as a prepaid health plan in Illinois and Indiana."). Moreover, a party's fiduciary status hinges not on whether it is named in the plan agreement, but rather on whether it satisfies the statutory definition of a fiduciary in section 1002(21)(A) of ERISA, quoted supra p. 369-70. Contrary to the defendants' assertion, and the magistrate's conclusion, Carle and HAMP are, in fact, fiduciaries.
Having determined that the defendants are fiduciaries under ERISA, we next consider whether the direct and inferential allegations contained in Herdrich's complaint are sufficient to establish the requisite breach of a fiduciary duty. An ERISA fiduciary must perform his duties in accordance with the standards set forth in 29 U.S.C. § 1104(a)(1), which provides:
A fiduciary breaches its duty of care under section 1104(a)(1)(A) whenever it acts to benefit its own interests. See James F. Forden et al., Handbook on ERISA Litigation § 3.03[A], at 3-53 (1994) (collecting cases). For example, ERISA expressly prohibits fiduciaries from "deal[ing] with the assets of the plan in his own interest or for his own account," or "receiv[ing] any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan." 29 U.S.C. § 1106(b). The requirement that an ERISA fiduciary act "with an eye single to the interests of the participants and beneficiaries," Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir.1982), is the most fundamental of his or her duties, and "must be enforced with uncompromising rigidity." NLRB v. Amax Coal Co., 453 U.S. 322, 329-30, 101 S.Ct. 2789, 2794-96, 69 L.Ed.2d 672 (1981) (citation and internal quotation omitted). This duty, the violation of which subjects a fiduciary to liability under 29 U.S.C. § 1109,7 is directed particularly at schemes "tainted by a conflict of interest and thus highly susceptible to self dealing," Lowen v. Tower Asset Management, Inc., 829 F.2d 1209, 1213 (2d Cir.1987), like the one at issue here.
We think a number of authorities are particularly instructive in assisting us to determine whether the allegations in Herdrich's complaint, and the logical inferences drawn therefrom, are sufficient to demonstrate that there was a breach of the defendants' fiduciary duty. In Dasler v. E.F. Hutton & Co., Inc., 694 F.Supp. 624 (D.Minn.1988), for example, the defendant brokerage firm acted as fiduciary for a profit-sharing plan. In his complaint, the plaintiff-beneficiary of the plan alleged that the defendant breached its ERISA-based fiduciary duty by engaging in excessive securities trading on behalf of the plan. See id. at 632. The court agreed, finding "that defendants considered their own interests and commission income when making investment decisions for the plan." Id. Similarly, in Anweiler v. American Elec. Power Serv. Corp., 3 F.3d 986, 991-92 (7th Cir.1993), this court held that the defendant fiduciary breached its duty of loyalty and care under ERISA when it misled its pension plan participants by failing to give them complete material information concerning the terms of reimbursement under the pension plan. And in Shea v. Esensten, 107 F.3d 625 (8th Cir.1997), the Eight Circuit concluded that the defendants therein, much like Carle and HAMP, breached their fiduciary duty by failing to disclose to plan participants a secret incentive structure that provided financial rewards to primary care physicians who minimized their use of tests and referrals. See id. at 628-29.
The Northern District of Illinois, in Ries v. Humana Health Plan, Inc., 1995 WL 669583 (N.D.Ill., 1995), faced facts similar to those at bar. In Ries, the defendant, Humana Health, obligated the participants in its health plan to fully reimburse the plan for the costs associated with his or her treatment if such costs were recovered, by way of settlement or judgment, from the party (other than the plan) who caused his or her injury or disease. See id. at * 1. The plan generally provided coverage for 80 percent of costs, while plan participants were obligated to finance 20 percent. Although Humana routinely collected a full 80 percent reimbursement from participants, Humana was in fact not paying 80 percent of the covered medical expenses, because it covertly arranged to receive a substantial discount for its share of the charges, unbeknownst to the plan participants. See id. at * 3. As a result, plan participants were paying more than 20 percent of the amounts received by the hospitals, and Hum ana was, in effect, recouping an additional bonus for itself by paying less than the 80 percent of the medical expenses, as set forth in the plan. The Ries court ruled that ERISA did not "permit a plan insurer to recoup more from its insureds than it actually pays out on their behalf under the terms of undisclosed discounting arrangements with health care providers." Id. at * 2 (emphasis added). The court went on to note that the "fiduciary's covert profiteering at the expense of insureds is inconsistent with its duties of acting 'solely in the interest of the participants and beneficiaries.' " Id. at * 7 (quoting 29 U.S.C. § 1104(a)(1)(A)).
Drawing parallels to the case under consideration, Herdrich sets forth, in the amended third count of her complaint, the intricacies of the defendants' incentive structure. The Plan dictated that the very same HMO administrators vested with the authority to determine w