Budd v. Caring for Montanans, Inc.

KEVIN BUDD, RAY LEE, MARTIN MANGAN, SHIRLEY MANGANand KENNETH WALSH on behalf of themselves and all others similarly situated, Plaintiffs, v. CARING FOR MONTANANS, INC., BLUE CROSS BLUE SHIELD

of MONTANA, INC., HEALTH CARE SERVICES CORPORATION, INC.,

and JOHN DOES 3 through 20, Defendants.

TYSON S. PALLISTER, Plaintiff, v. CARING FOR MONTANANS, INC., BLUE CROSS BLUE SHIELD

of MONTANA, INC., HEALTH CARE SERVICES CORPORATION, INC.,

and JOHN DOES 3 through 20, Defendants.

This Document Relates To: BOTH ACTIONS

No. CV-09-25-BU-SEH

No. CV-09-62-H-SEH

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MONTANA BUTTE DIVISION

December 27, 2016

OPINION AND ORDER

Background

On August 26, 2016, Plaintiffs moved for Class Certification.¹ Defendant Caring for Montanans, Inc. ("CFM") responded on September 9, 2016.² Plaintiffs filed a reply.³ Both CFM and Plaintiffs responded to the Court's Order⁴ requesting additional information as to one of Plaintiffs' fiduciary duty claims.⁵ A hearing on the motion was held on December 5, 2016. The matter is fully submitted.

This seven-year old action arises from CFM's (formerly known as Blue Cross Blue Shield of Montana, Inc. ("BCBSMT")) denial of medical benefits to Plaintiffs on the basis of policy exclusionary language subsequently deemed invalid by the Montana Supreme Court in BCBSMT v. Montana State Auditor and Commissioner of Insurance.⁶ The exclusionary language essentially denied coverage if the insured was injured and the responsible party's automobile or premise liability insurance would apply. In an opinion entered on September 24, 2009, the State Auditor court found the exclusion to be invalid and did notcomport with Montana law.

Multiple lawsuits were filed following the State Auditor decision. Both of the above-captioned matters were originally commenced in state court and removed to this Court, which, in turn, remanded all state law claims back to state court. State court class action litigation ensued. Proceedings in this Court were stayed pending resolution of the state court actions. After two interlocutory appeals, the Montana Supreme Court, on May 24, 2016, affirmed the state district court's approval of a Stipulation and Settlement Agreement ("Settlement Agreement") between BCBSMT and the state court class.⁷

This Court lifted its stay on July 5, 2016, to address any remaining claims solely within the jurisdiction of the federal courts under the Employee Retirement Income Security Act ("ERISA").⁸ Plaintiffs Pallister, Walsh, and the Mangans are known members of the state court class. Plaintiff Budd was denied class membership for lack of standing because CFM had paid his claims in full shortly after he filed suit. Plaintiffs apprised the Court that Plaintiff Lee is not appropriately a party to this lawsuit.⁹ He will be dismissed. Plaintiffs now seek certification for two different classes.

Discussion

"The class action is 'an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.'"¹⁰ "In order to justify a departure from that rule, 'a class representative must be part of the class and "possess the same interest and suffer the same injury" as the class members.'"¹¹ The Court has broad discretion in deciding whether to certify a class.¹² In exercising its discretion, the Court may need "'to probe behind the pleadings before coming to rest on the certification question' . . . ."¹³ This probe may well "entail some overlap with the merits of the plaintiff's underlying claim."¹⁴

Federal Rule of Civil Procedure 23 governs class certification. Its application involves distinct sets of requirements and accompanying analyses: Rule 23(a) requirements and Rule 23(b) requirements. The party seeking class action bears the burden of demonstrating he or she has met the requirements ofboth.¹⁵

"Rule 23(a) ensures that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate."¹⁶ The Rule has four elements:

(1) the class is so numerous that joinder of all members is impracticable;

(2) there are questions of law or fact common to the class;

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

The four elements are commonly referred to as "numerosity," "commonality," "typicality," and "adequate representation," respectively.¹⁷ All four Rule 24(a) elements must be found to be present before proceeding to the Rule 23(b) analysis.

I. Certification for Class (a) is Improper because Plaintiffs Lack Standing to Assert the Proposed Class's Claims

Article III of the United States Constitution gives this Court jurisdiction only over "cases and controversies."¹⁸ "[T]he doctrine of standing serves toidentify those disputes which are appropriately [to be] resolved through the judicial process."¹⁹ To establish standing, "[t]he plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision."²⁰ "To establish injury in fact, a plaintiff must show that he or she suffered 'an invasion of a legally protected interest' that is 'concrete and particularized' and 'actual or imminent, not conjectural or hypothetical.'"²¹ "The party invoking federal jurisdiction bears the burden of establishing [each of] these elements."²²

Plaintiffs provide the following definition for its first proposed class, identified as Class (a):

(a) CFM state class action members who were ERISA insureds and have breach of fiduciary duty claims against CFM for: (1) failing to provide notice regarding the settlement in [Diaz v. BCBSMT²³]; and (2) proposing to give ERISA beneficiaries' funds to Montana Healthcare Foundation.²⁴

The Court will address each. However, neither alleged action by CFM ((1) or (2)) gives rise to a cognizable injury to Plaintiffs.

Plaintiffs allege a breach of fiduciary duty arose when CFM failed to tell the state court class members of the Diaz case, in which plaintiffs received 100% of their wrongfully denied benefits. They argue such a duty is derived from the duty of loyalty set forth in 29 U.S.C. § 1104(a).²⁵ However, § 1104(a), i.e. the "Prudent man standard of care," primarily sets forth a fiduciary's duties in handling plan assets such as minimizing expenses of administering the plan, diversifying plan investments, and managing the plan in accordance with the governing documents. It does not impose any duty to disclose information of any sort to plan participants or beneficiaries.

On the other hand, § 1021 of ERISA imposes on fiduciaries of a plan the duty to disclose and report certain information to plan participants and beneficiaries. Such information includes summary plan descriptions and annual financial reports. It does not include information regarding a lawsuit in which the participants and beneficiaries have no interest. The Diaz class was comprised solely of State of Montana employees.²⁶ None of the Plaintiffs in this case werestate employees or participants in the Diaz plan. In other words, the outcome of Diaz was entirely irrelevant to Plaintiffs' recovery. CFM had no duty to disclose anything about Diaz to Plaintiffs.

Even if there were some duty to disclose Diaz, Plaintiffs fail to show how a failure to disclose caused them any injury. Plaintiffs may understandably feel slighted by the fact they recovered 50-75% of their denied claims, while Diaz class members recovered 100%. But the bottom line is that the Montana Supreme Court in In re BCBSMT approved the Settlement Agreement as fair and reasonable.²⁷ This Court should not and will not now engage in a collateral attack of that decision.

CFM had no fiduciary duty to disclose to Plaintiffs the Diaz case. Even if they did, Plaintiffs were not injured by a lack of disclosure. As such, Plaintiffs have no standing to assert the claim. Such claim cannot serve as the basis for a class action lawsuit.

The second claim of Class (a) is that CFM's potential transfer of $150,000,000 to the Montana Healthcare Foundation ("MHF") breaches a fiduciary duty owed to Plaintiffs. Curiously lacking from Plaintiffs' complaint is any mention of this now asserted fiduciary claim.²⁸ Plaintiffs' failure to plead itprocedurally bars its use as a basis to certify a class. The claim fails on substantive grounds as well.

The crux of Plaintiffs' argument is that they should recover the remaining 25-50% of their claims before a third-party, MHF, receives anything. Plaintiffs assert CFM is proposing to give away "state class action members' money."²⁹ However, those funds do not belong to Plaintiffs. Under the Settlement Agreement, Plaintiffs are entitled to 50-75% of their claims and no more.

Settlements necessarily involve compromise by all parties. An unfortunate reality of many class action settlements is that individual claims may be compromised in a class settlement process approved by the court. Moreover, all of the state court class action members were given the notice and opportunity required by the Due Process Clause to opt out of the class and any future settlement. None of them decided to do so or to pursue individual claims.³⁰ They cannot now be heard to complain.

ERISA imposes certain fiduciary duties on those who manage plan participants' assets.³¹ Plaintiffs consistently cite to and argue from casesconcerning ERISA pension plans. This case involves an ERISA "welfare plan,"³² specifically a health care plan. The distinction, although not discussed at length by either party to this lawsuit, is paramount and appears directly in numerous provisions of ERISA.³³

In its most basic form, ERISA pension plans function as follows: the employee or employer makes contributions into the plan; fiduciaries (trustees), who are bound by duties set forth in ERISA, manage the plan's assets by making investments...