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High Crest Functional Medicine, LLC v. Horizon Blue Cross Blue Shield of New Jersey, Inc.

United States District Court, D. New Jersey

March 30, 2017

High Crest Functional Medicine, LLC, et al.,
v.
Horizon Blue Cross Blue Shield of New Jersey, Inc., et al.,

          MEMORANDUM OPINION AND ORDER

          MADELINE COX ARLEO UNITED STATES DISTRICT JUDGE

         Dear Counsel:

         This matter comes before the Court by way of motions to dismiss by Defendant The Okonite Company, Inc. (“Okonite”), Dkt. No. 57, and Defendants Novartis Pharmaceuticals Corporation (“Novartis”), NRG Energy, Inc. (“NRG”) and Public Service Electric and Gas Company (“PGE&G”) (collectively, the “Novartis Defendants”), Dkt. No. 62, against Plaintiffs High Crest Functional Medicine, LLC, Immunogen Diagnostics, LLC, Dr. Michael Segal, D.O., and Neelendu Bose (“Plaintiffs”). For the reasons set forth below, the motions are granted in part and denied in part.

         I. Background

         Plaintiffs, several medical providers, bring this ERISA suit against a group of employer-plan sponsors and Horizon Blue Cross Blue Shield of New Jersey (“Horizon”), the sponsors' third-party claims administrator, for wrongful denial of claims payments and self-dealing.

         Around 2011, Plaintiffs performed out-of-network medical services for ERISA plan participants (“Participants”) who work for Okonite and the Novartis Defendants. Am. Compl. ¶¶ 1, 6, Dkt. No. 19. The Participants assigned their rights to Plaintiffs, who submitted the medical claims to Horizon. Id. ¶ 2. Horizon refused to pay. Id. ¶ 8. Instead, it put Plaintiffs on “prepayment review” while purporting to conduct an investigation into Plaintiffs' business practices. Id. Over the following months, Horizon repeatedly requested new information about the claims, leaving the claims pending past the ERISA-mandated claims review time period. Id. ¶ 53. This practice continued for over a year, so Plaintiffs sued Horizon in 2012 (the “2012 Action”). Id. ¶ 89. Horizon then began denying or underpaying the claims without a legitimate reason. Id. ¶¶ 97-99. In 2015, Plaintiffs and Horizon dismissed the 2012 Action without prejudice pursuant to a tolling and case management agreement. Id. ¶ 95. But that same year, Plaintiffs filed the instant case (under a new case number) against Horizon, also naming Okonite, the Novartis Defendants, and several other alleged plan sponsors.

         Plaintiffs allege that Horizon had a financial motive for to delay, deny, and underpay the claims. The motive stems from the administrative services contracts (“ASCs”) that Horizon entered into with Okonite and the Novartis Defendants. Id. ¶ 9. The ASCs permit Horizon to bill the employer-sponsors for the full amount of the services rendered by the medical providers, but then negotiate with the providers for a lower payment amount. Id. ¶ 10. The ASCs permit Horizon to keep the difference between the amount received from the sponsors and the amount paid to the providers. Id. Horizon does not have to disclose the negotiated difference to anyone. Id. ¶ 11. Thus, Plaintiffs allege, Horizon delayed, denied, and underpaid their claims because Horizon could keep the money paid by the sponsors. See id. ¶ 12. According to Plaintiffs, this constituted a breach of fiduciary duty and self-dealing on Horizon's part, which also implicated Okonite and the Novartis Defendants as co-fiduciaries of the plans.

         In relevant part, Plaintiffs assert claims for (1) wrongful denial of benefits and unreasonable claims review under 29 U.S.C. § 1133 against only Horizon (Count One); (2) breach of fiduciary duty against all defendants under 29 U.S.C. § 1104 (Count Two); (3) engaging in prohibited transactions under 29 U.S.C. § 1106 against all defendants (Count Three); and (4) failure to provide plan documents under 29 U.S.C. § 1132(c) against all defendants (Count Four). It appears from the Amended Complaint that Plaintiffs assert Counts One and Four under ERISA section 502(a)(1)(B) because they seek monetary damages and penalties, and Counts Two and Three under section 502(a)(3) because they seek equitable relief. 29 U.S.C. § 1132(a)(1)(B), (a)(3).

         Okonite and the Novartis Defendants filed two separate motions to dismiss Counts Two, Three, and Four, the only counts asserted against them.

         II. Okonite's Motion to Dismiss

         A. Counts Two (Breach of Fiduciary Duty) and Three (Prohibited Transactions)

         1. Duplicative Relief

         Okonite argues that Counts Two and Three must be dismissed because they are duplicative of the relief sought under Count One. Relying on Varity Corp. v. Howe, 516 U.S. 489 (1996), Okonite contends that equitable relief under § 502(a)(3) is not available because Plaintiffs' alleged injuries can be addressed in a benefits claim under § 502(a)(1)(B). The Court disagrees.

         In Varity, the Supreme Court stated that § 502(a)(3) is a “catchall” provision that allows “appropriate equitable relief for injuries caused by [ERISA] violations that § 502 does not elsewhere adequately remedy.” Id. at 512. However, several courts in this district and circuit have found that Varity “does not establish a bright line rule precluding the assertion of alternative claims under sections 502(a)(1)(B) and 502(a)(3) at the motion to dismiss stage.” See, e.g., Lipstein v. United Healthcare Ins. Co., No. 11-1185, 2011 WL 5881925, at *3 (D.N.J. Nov. 22, 2011) ...


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