Document: 530 U.S. 1120 S.Ct. 1942147 L.Ed.2d 1 NOTICE: This opinion is subject to formal revision before publication in the preliminary print of United States Reports. Readers are requested notify Reporter Decisions, Supreme Court States, Washington, D. C. 20543, any typographical or other errors, order that corrections may be made goes press.PEGRAM et al.v.HERDRICH No. 98-1949. SUPREME COURT OF THE UNITED STATES Argued February 23, 2000 Decided June 12, CERTIORARI TO APPEALSFOR SEVENTH CIRCUIT Syllabus Petitioners (collectively Carle) function as a health maintenance organization (HMO) owned by physicians providing prepaid medical services participants whose employers contract with Carle for coverage. Respondent Herdrich was covered through her husband's employer, State Farm Insurance Company. After petitioner Pegram, physician, required wait eight days an ultrasound inflamed abdomen, appendix ruptured, causing peritonitis. She sued state court for, inter alia, fraud. responded Employee Retirement Income Security Act 1974 (ERISA) preempted fraud counts and removed case federal court. The District granted summary judgment on one count, but leave amend other. Her amended count alleged provision under terms rewarding physician owners limiting care entailed inherent anticipatory breach ERISA fiduciary duty, since created incentive make decisions physicians' self-interest, rather than plan participants' exclusive interests. Carle's motion dismiss ground not acting fiduciary. Seventh Circuit reversed dismissal. Held: Because mixed treatment eligibility HMO ERISA, does claim. Pp. 5-25. (a) Whether when its depends some background fact law about organizations, benefit plans, obligation, meaning Herdrich's allegations. defining feature receipt fixed fee each patient enrolled provide specified if needed. Like risk bearing HMOs take steps control costs. These measures commonly complemented specific financial incentives physicians, them decreasing utilization health-care services, penalizing excessive treatment. Hence, physician's interest lies less care, more. argues scheme annually paying profit resulting from their own rationing distinguishes generally, so reviewing decision standard would open door claims against HMOs. However, inducement ration very point scheme, necessarily raises risks while reducing others. Thus, legal principle purporting draw line between good bad embody socially acceptable turn facts readily accessible courts social judgments wisely unless resort cannot had legislature. position derive sound differentiate like HMOs, this assumes listed claim standards all such judged same claims. 5-9. (b) Under someone capacity manager, administrator, adviser "plan," accordingly charged duty discharging obligations Farm's plan. common understanding "plan" decided upon advance. Here comprises set rules beneficiary's rights enforcement. When benefits employees agreement may, here, elements setting out which beneficiaries will entitled care. ERISA's fiduciaries shall discharge duties respect "solely beneficiaries," 29 U.S.C. 1104(a)(1), rooted trusts, also have interests adverse beneficiaries. every charging threshold question whether actions person adversely affected interest, performing taking action complaint. 9-13. (c) became fiduciary, it contracted Farm. It then breached act solely beneficiaries' making affecting influenced ultimately profited choices minimize provided. lists decisions: relying coverage determinations. 13-18. (d) Congress did intend treated extent makes physicians. unlikely thought trustee's most concern payment money only limited resemblance concern. Consideration consequences contrary view no doubt Congress's intent. Recovery for-profit warranted simply showing generally affect decisions, derogation patient's without possibility conflict. And profits what proprietary organization, remedy-return benefit-would nothing elimination HMO. Judiciary has warrant precipitate upheaval follow refusal Congress, promoted formation 27 years, choose restrict approval certain preferred forms, congressional policy were entertain portending wholesale attacks existing because structure. Circuit's attempt confine cases where sole purpose delaying withholding increase reward lead fatal difficulties. HMO's defense acted reasons. For practical purposes, boil down malpractice claim, traditional standard. value attorney's fees they won. A suit applying reasonable skill. would, turn, seem preempt even though absent clear manifestation purpose, New York Conference Blue Cross & Shield Plans v. Travelers Ins. Co., 514 645. 18-25. 154 F.3d 362, reversed. Souter, J., delivered unanimous Court. Opinion Justice Souter employees, acts within (ERISA), 88 Stat. 832, amended, § 1001 seq. (1994 ed. Supp. III). We hold not. 2 * Petitioners, Clinic Association, P. C., Health Alliance Medical Plans, Inc., Management Inc. organized profit. Its Respondent, Cynthia Herdrich, 3 events began Lori Pegram,1 examined who experiencing pain midline area groin. Six later, Dr. Pegram discovered six centimeter mass abdomen. Despite noticeable inflammation, diagnostic procedure at local hospital, more , performed facility staffed 50 miles away. Before over, See 365, n. (CA7 1998). 4 malpractice, she later added two state-law new counts, court,2 sought counts. second remaining. alleging these participants.3 5 relief 1109(a), provides 6 "[a]ny breaches responsibilities, obligations, imposed subchapter personally liable losses breach, restore been use assets equitable remedial deem appropriate, including removal fiduciary." 7 moved failure could granted, motion, accepting Magistrate Judge's determination "involved [in events] as" App. Pet. Cert. 63a. original tried jury, prevailed both, receiving $35,000 compensation injury. F.3d, 367. appealed dismissal Appeals Circuit, held challenged allegations sufficient claim: 8 "Our stand proposition existence automatically gives rise duty. Rather, we can level where, pleaded trust longer exists (i.e., delay necessary to, withhold administering proper increasing bonuses)." Id., 373. 9 certiorari, 527 1068 (1999), now reverse Appeals. II 10 11 Traditionally, provided "fee-for-service" basis. charges much general physical exam, vaccination, tonsillectomy, on. bills or, there insurance doctor willing, submits bill insurer, agreement. Cf. R. Rosenblatt, S. Law, Rosenbaum, Law American Care System 543-544 (1997) (hereinafter Rosenblatt) (citing Weiner de Lissovoy, Razing Tower Babel: Taxonomy Managed 18 J. Politics, Policy 75, 76-78 (Summer 1993)). In fee-for-service system, less, long forthcoming. check obligation exercise skill interest. 12 Beginning late 1960's, insurers others developed models delivery, Rosenblatt 546. thus promised: participant never gets sick, keeps regardless, becomes expensively ill, responsible agreed cost exceeds participant's premiums. 13 risk-bearing At least, insurers, fashion determinations, scrutinizing contractual provisions sure request falls scope circumstances (pregnancy, example), given promised (surgery, instance). They customarily issue guidelines appropriate levels id., 568-570. require review (in reviewed decisionmaker treating physician) advance (precertification) many types keyed necessity reasonableness proposed Andreson, Is Utilization Review Practice Medicine?, Implications Administrators, 19 Legal Med. 431, 432 (Sept. cost-controlling found treatment, see 563-565; John K. Iglehart, Report: System-Managed Care, 327 England 742, 742-747 (1992). influence (like converse, incentive) professional degree Brief Association Amicus Curiae 17-21. 14 adequacy counter self-interest matter form organization. popular unnecessary useless services; today, doctors observers argue often ignore individual needs improve HMOs' bottom lines. See, e. g., 375-378 various critics HMOs).4 case, instance, Pegram's getting insistence done distant Carle, reflected expenses, blinded need immediate diagnosis B 15 focuses scheme's "year-end distribution," 3, supra, owners. particular device distinguish complaint structures. While agreed, think otherwise, written. 16 Although true relationship sparing subtle survive connecting rationing. essence salaries membership fees. Orentlicher, Paying Physicians More To Do Less: Financial Incentives Limit 30 U. Rich. L. Rev. 155, 174 (1996). suggest desirable organizational schemes; be. e.g., Grumbach, Osmond, Vranigan, Jaffe, Bindman, Primary Physicians' Experience Managed-Care Systems, 339 Eng. 1516 (1998) (arguing quality satisfaction preferable productivity). But whatever HMO, must ration. 17 Since (ruptured appendixes likely; appendectomies so), embody, effect, risk. valid conclusion sort however, probably ready access: correlations rates models, similar involving And, course, assuming material obtained litigation this, unacceptably risky structure (and consequent vulnerability Herdrich's) depend expenditure light associated complicated factfinding debatable reason legislative process, forum comprehensive investigations value, optimum expenditure. Turner Broadcasting System, FCC, 512 622, 665-666 (1994) (opinion Kennedy, J.) ("Congress far better equipped judiciary `amass evaluate vast amounts data' complex dynamic presented here" (quoting Walters National Assn. Radiation Survivors, 473 305, 331, (1985))); Patsy Board Regents Fla., 457 496, 513 (1982) ("[T]he relevant considerations do invariably direction, vehement disagreement over validity assumptions underlying them. difficulty considerations, Congress' superior institutional competence pursue debate, judicial solutions preferable" (footnote omitted)). think, then, HMOs.5 reason, proceed assumption violate owner employee C requirements ERISA. 1002(21)(A)(i)-(iii), Herdich's 85a-86a. definition welfare circular: "any plan, fund, program - established purchase otherwise medical, surgical, hospital benefits." §1002(1)(A). One left word referring advance, Webster's International Dictionary 1879 (2d 1957); Jacobson Pomfret, Form, Function, Torts: Achieving Fairness Equity Jurisprudence, 35 Houston 985, 1050 (1998). define beneficiary Rules governing collection premiums, benefits, submission claims, resolution disagreements entitlement sorts constitute Hansen Continental 940 F.2d 971, 974 (CA5 1991). documents up not, such, employer pays premiums D 20 As just noted, apply managing, advising, addressed being "discretionary authority discretionary responsibility administration [an ERISA] plan," 1002(21)(A)(iii). already suggested, although merely administers exercises business, still 21 terms, stated. statute §1104(a)(1), is, "for (i) beneficiaries; (ii) defraying expenses §1104(a)(1)(A).6 responsibilities familiar ring source trusts. Central Southeast Southwest Areas Pension Fund Transport, 472 559, 570 (1985) ("[R]ather explicitly enumerating powers trustees fiduciaries, invoked trusts responsibility"). (understood once distinct equity) loyalty guarantee interests: "The fundamental owed trustee loyalty- . administer beneficiaries." 2A A. Scott W. Fratcher, Trusts §170, 311 (4th 1987) Scott); G. Bogert Bogert, Trustees §543 (rev. 2d 1980) ("Perhaps he display throughout complete exclude selfish consideration third persons"); 570-571; Meinhard Salmon, 249 N. Y. 458, 464, 164 E. 545, 546 (1928) (Cardozo, ("Many forms conduct permissible workaday world those arm's length, forbidden bound ties. something stricter morals market place. Not honesty alone, punctilio honor sensitive, behavior"). 22 Beyond statement responsibility, analogy problematic. characteristically wears his hat takes beneficiary, whereas wear different hats. 23 Speaking trustee, Professor Scott's treatise admonishes "is permitted place himself Scott, 311. Employers, example, disadvantage beneficiaries, (e.g., firing reasons unrelated plan), sponsors modifying allowed generous benefits). Nor apparent conclude, argues, tension sponsor, exclusion persons 24 require, hats time, decisions. Hughes Aircraft Co. Jacobson, 525 432, 443-444 (1999); Varity Corp. Howe, 516 489, 497 describe administrators managers advisers. Instead defines "to extent" relation 1002(21)(A). employed (that function) E 25 identify claimed difficult understand. breach. complain actions, oral argument counsel confirmed brought, different, sick day life. Tr. Oral Arg. 53-54. 26 What owners, emphasizes threat year-end distribution derived spread subscription income administration. 86a. payout detail was, sponsor free adopt employer's content themselves acts. Lockheed Spink, 517 882, 887 (1996) ("Nothing requires establish plans. mandate kind plan").7 Likewise violation incorporators payout. incorporation preceded 1109(b) (no liability preceding status). 28 nub once, administrator compromised, readiness amounted obligation. F pleadings parsed carefully understand behalf nature.8 help keep arguably administrative mind. Dukes Healthcare, 57 350, 361 (CA3 1995) (discussing dual medical/administrative roles HMOs). call pure "eligibility decisions" plan's condition "Treatment decisions," contrast, how go diagnosing patent's condition: constellation symptoms, response? practically inextricable another, amici both sides agree. Washington Foundation 12; Policy, Ethics Scholars Amici 10. because, Carle's, person, physician. great possibly questions simple yes-or-no questions, appendicitis (when dispute appendicitis), acupuncture unchallenged). when-and-how question. conditions options indisputably compensable, decide cases. be, say, option another circumstances, needed promptly, meet requirement pay time case. Government brief alludes example discusses emergency situation giving emergency, 20-21.9 untangled us, sort. (wrongly, turned out) action; consequence cover treat. inextricably mixed, countless day. 31 kinds mentioned character conclusions tests; seeking consultations referrals facilities Carle's; experimental course condition. 32 read reference variety called covers undisputed appendicitis. claiming discrete separate judgments; rejecting closest comes stating pure, unmixed allegation determines "which Plan extent," vague statement, interpret isolation, complaint, refer thoroughly judgment. 5A Wright Miller, Federal Procedure §1357, pp. 320-321 (1990) (noting that, clarify broader allegations, used whole). Any lingering uncertainty mind dispelled brief, explains allegation, others, targets 19; 3.10 III 33 Based our matters discussed, begin ever nature. law, attach managing distributing property Trustees, §§551, 741-747, 751-775, 781-799; §§176, 181, §§188-193, 3A §232. buy, sell, lease investment property, lend borrow, things conserve nurture assets. income, distribute remainders termination. historically beneficiary. 34 Mixed have, usual business trustees. sure, regular trustees) resources accordance entitlements expressed written instrument (embodying plan). objects private public plans Private poor; thousands independent hospitals privately publicly accountable charitable foundations grants stimulate services. beyond rapidly wanes. Traditional buy consume well. judgments, reaching make, definition. Indeed, whom licensed practitioners millions times day, possible setting: proprietorships, hospitals, military field settings bear departments operate turns factors controlling amount quarterly distribution. least questionable took concentrated fiduciaries' focusing pension retirees faced payments expected, mismanagement too deprived benefits. Rep. 93-127, p. (1973); 93-383, 95. focus Our intended category functions encompass determinations here hardens into conviction consider view. 36 First, ask applied should applied, directed injured patient, mechanics relief, seems seeks return pockets participants. 1109(a) (return remedy). remedy effect might entail tell nonprofit schemes recognition theory.11 enough recognize years practices. Maintenance Organization 1973, 87 914, 42 300e seq., assume several times, recently 1996. 110 1976, codified ed, If wishes practice so. allowing organizations structure, untethered concrete harm. 37 purport quite broadside attack entails, 373, attention flow extending theory 38 obliged exclusively translates rule applicable practice. give sparingly, imposing him default rule, whenever reasonably disagree options, treat aggressively. all, came groups consistently aggressive results perceived justified marginal expense intervention; surgery best surgeons urging operate. translate allow recovery resulted outcome patient. easy allege, find, economic well factfinder convert guarantor recovery. 39 difficulties led try "the purpose" reward, ibid. egregious examples entails erroneous corruption further fatal. condemns "an eye single" toward interests, Donovan Bierwirth, 680 263, 271 (CA2 1982). Appeals's straight undivided loyalty, reasons, plausibility customary circumstances. That, law. Keeton, Dobbs, Owens, Prosser Keeton Torts §32, 188-189 (5th 1984). malprac- tice traditionally 40 having action? available diversity formulaic addition bring federal-question jurisdiction. offer plaintiff defendant direct liability, deeper pocket seen know enacted poor sued, federalize name reason. difficult, fact, find advantage across board, except guise eligible awards 1132(g)(1). But, again, fairly create plaintiffs suing enough, 41 mischief indeed, mere replication defendants. first instance committed employee, basic analysis charge exercising way described therefore deemed CFR §§2509.75-5, Question D1; 2509.75-8, D-3 (1993) (stating interpreting fiduciary). Hence too, result, raise puzzling preemption. On face, prescription preemption cause 1144 (preempting laws "relate [an] plan"). 645, 654-655 (1995), throws cold water theory; there, regulation, purpose. convergence positing; subsumed struggle problem, ask, gained opening courthouse doors save random fortuities favorable scheduling, ancillary opportunity seek haphazard boons prospect defined nor efficiency fiduciary-malpractice jurisdiction pose welcoming unheard-of litigation. IV fails 43 ordered. NOTES: petitioner, unclear us retains contest propriety properly removed. explain, violations, jurisdiction, regardless correctness removal. Grubbs General Elec. Credit Corp., 405 699 (1972); Mackay Uinta Development 229 173 (1913). these: "11. Defendants [U.S.C. §]1109(a) obligated "a. of: "i. "ii. Plan; "b. skill, prudence, diligence prevailing prudent man enterprise aims. "12. duty: CARLE owner/physicians officers directors HAMP CHIMCO receive distribution, based large part upon, supplemental CHIMCO; Both controlled fund CARLE: contracting contemplated owner/physicians: "(1) "(2) CARLE; "(3) non-emergency consultation and/or non-contracted disputed non-routine determining: extent; is; experimental; "(4) customary; "(5) emergency." App There are, perspectives, endorse neither side debate today. certainly capable distinction dismiss; accepted reasoning, complaints flavor stage. addition, "(B) aims; "(C) diversifying investments losses, clearly so; "(D) instruments insofar consistent chapter." 1104(a)(1). design following awkward enough. lawfully bonus denied 10th received defend attentive carrying duties. important Farm, analyzed were. judicially estopped denying status sucessfully defended Judicial estoppel prevents party phase contradictory prevail phase. Rissetto Plumbers Steamfitters Local 343, 94 597, 605 (CA9 1996). initial allege disclose limit alleges avoid incentives. argued characteristics information affects Glaziers Glassworkers Union 252 Annuity Newbridge Securities, 93 1171, 1179-1181 1996) disclosure fiduciary); cf. 505 (holding prospects power, change). coextensive disclosure, contesting suits 1132(a)(1)(B). occasion discuss who, text, reimbursement interaction causes action, infra, 24-25. Though involves Rule Civil 12(b)(6), construed generously, unclear. Procedure, §1364, 480-481 (1990); Southern Overseas Agencies, Wah Kwong Shipping Group Ltd., 181 410, 428, 1999); Alicke MCI Communications 111 909, 911 (CADC 1997); Early Bankers Life Cas. 959 79 1992). portend end well, doctors' salaries. easily excessively high funded nonprofits actually Pulvers Kaiser Plan, 99 Cal. 3d 560, 565, 160 Rptr. 392, 393-394 (1979) (rejecting incentives). Brody, Agents Without Principals: Economic Convergence Nonprofit For-Profit Organizational Forms, 457, 493, 152 ways providers employees).

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