Local 640 Trustees of IBEW v. CIGNA Health & Life Ins. Co.

Local 640 Trustees of IBEW and Arizona Chapter NECA Health and Welfare Trust Fund, Plaintiff, v. CIGNA Health and Life Insurance Company, Defendant.

No. CV-20-01260-PHX-MTL

United States District Court, D. Arizona

August 2, 2021

ORDER

Michael T. Liburdi, United Stales District Judge.

The Board of Trustees of the IBEW Local No. 640 and Arizona Chapter NECA Health and Welfare Trust Fund (the “Board†or the “Fund's Trustees†) brings this action as a fiduciary for a welfare benefit plan (the “Plan†). (Doc. 1.) Defendant Cigna Health and Life Insurance Company (“Cigna†) has moved to dismiss this case and compel arbitration. (Doc. 25.) Cigna's motion is fully briefed. (Docs. 25, 28, 29.) For the reasons given below, the Court will grant the motion to compel arbitration and dismiss this case.

I. BACKGROUND

The International Brotherhood of Electrical Workers, Local No 640 and the Arizona Chapter of the National Electrical Contractors Association established the IBEW Local No. 640 and Arizona Chapter NECA Health and Welfare Trust Fund (the “Fund”). (Doc. 1 ¶ 2.) The Fund allows employers and unions who are parties to collective bargaining agreements to pool their resources and share the costs of running welfare benefit plans. (Id. ¶ 3.) The Fund's Trustees adopted the Plan, which is an employee welfare benefit plan under § 3(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”). (Id. ¶¶ 4-5.)

Rather than purchase insurance coverage, the Fund's Trustees opted to self-fund the Plan. (Id. ¶ 8.) Accordingly, employers, employees, and retirees contribute to the Fund, and that money is then used to pay claims of Plan participants and beneficiaries. (Id. ¶¶ 25- 26.) The Board, “acting for the Fund as Plan sponsor, ” executed an Administrative Services Only Agreement (“ASO Agreement” or “Agreement”) with Cigna, which is one of the largest health service companies in the country. (Id. ¶¶ 12, 39; Doc. 26-1 at 4.) Under the terms of the Agreement, Cigna provided claims administration services to the Plan. (Doc. 1 ¶ 23; Doc. 26-1, Ex. A.) Consistent with the Agreement's terms, Cigna received and reviewed claims for Plan benefits, determined whether benefits were payable, and if so, disbursed payments to healthcare providers using money supplied by the Fund. (Doc. 1 ¶ 33.) In exchange for its services, Cigna received compensation from the Plan. (Id. ¶¶ 28, 32.) Because the ASO Agreement grants Cigna the authority to control the Plan's bank account, Cigna paid itself the amounts the Plan allegedly owed. (Id.)

Among the terms in the Agreement are mandatory dispute resolution procedures. (Doc. 26-1 at 9-10.) The procedures require “any dispute between the Parties arising from or relating to the performance or interpretation of [the ASO] Agreement” to “first be referred to an executive level employee of each Party who shall meet and confer with his/her counterpart to attempt to resolve the dispute.” (Id. at 9.) If the dispute is not resolved within 35 days of the request for executive review, “the disputing Party shall initiate mediation.” (Id. at 10.) If the dispute remains unresolved, it “shall be settled by binding arbitration.” (Id.) The term “Parties, ” as used in the Agreement, “refers to [the] Fund and CHLIC [i.e., Cigna], each a ‘Party' and collectively, the ‘Parties.'” (Id. at 4.)

In October 2019, counsel for the Fund and the Fund's Trustees provided Cigna written notice of a dispute and requested executive review under the terms of the ASO Agreement. (Doc. 26-1, Ex. C.) The Fund alleged that Cigna had breached its fiduciary duties under ERISA, breached the ASO Agreement, and engaged in overpayment and self-dealing. (Id. at 11-12.) To establish Cigna owed fiduciary duties under ERISA, the notice explained:

The Agreement expressly empowers Cigna with each individually sufficient discretionary power to establish ERISA fiduciary status. Foremost, Cigna has authority over the Fund's bank account, which is funded with ERISA-regulated monies deposited to pay the health expenses and the administrative costs of the Fund's enrollees. Additionally, the Agreement stipulates Cigna has the authority to “receive and review claims for Plan Benefits, ” “determine the Plan Benefits, if any, payable for such claims, ” and “disburse payments of Plan Benefits to claimants.” In sum, the Agreement grants Cigna both requisite discretionary powers necessary to find that Cigna is, as a claims administrator for a self-funded plan, an ERISA fiduciary. Cigna has the ability to determine claims and pay claims. Based on this clear reasoning, there can be no dispute that Cigna is an ERISA fiduciary to the Fund.

(Id. at 11 (footnote omitted) (second emphasis added).) The notice further alleged that Cigna had “pa[id] unreasonable or unnecessary fees, ” used “inflated and arbitrary billed charges in the calculation of its fees, ” and “pa[id] itself fees on claims that the Fund ha[d] already been billed for and [were] not supported by the Agreement.” (Id. at 12-13.) Additionally, the Fund noted that “Cigna's Cost Containment Fees [had] increased from roughly $34.50 [per employee per month (“PEPM”)] ¶ 2016, to $75 PEPM for 2017, to $112 PEPM for 2018 and to $122 PEPM for the first quarter of 2019” and argued Cigna “masked” those fees “as a claims expense.” (Id. at 13-14.) In the Fund's view, Cigna's actions “exacerbate[d] the breach and demonstrate[d] a willful disregard of Cigna's duty as a Plan fiduciary.” (Id. at 14.)

Cigna responded to the notice, and the Fund then sent Cigna a follow-up letter. (Doc. 27, Exs. D, E.) In its letter, the Fund maintained that “Cigna had a duty, as a fiduciary of the fund, to bring [certain] extreme fees to the attention of the trustees” and reasserted that “Cigna has breached its fiduciary duty to the Fund and violated the terms of the ASO Agreement.” (Id., Ex. E (emphasis added).) “Given the nature of [the] dispute, the amount at issue, and the parties' stated positions, ” the Fund believed the dispute would not likely be resolved by executive review, and thus the Fund “propose[d] that the parties agree to move directly to the required mediation.” (Id.)

Instead of engaging in mediation, the Fund's Trustees brought this lawsuit. In its Complaint, the Board, “as fiduciary of its welfare benefit Plan, ” asserts claims for breach of fiduciary duty and prohibited transactions under ERISA. (Doc. 1.) The Complaint alleges that Cigna “charged excessive fees to the Plan, ” including fees for “a so-called ‘cost containment service'” and “[h]idden [f]ees on in-network claims.” (Id. ¶¶ 60, 61, 78.) The Board alleges that Cigna “processed grossly inflated healthcare claims from [non-participating providers], and then used those inflated claims to calculate the amount of [h]idden [f]ees to pay itself.” (Id. ¶ 66.) The Complaint also alleges that “Cigna's fees for its so-called ‘cost containment program' have increased from roughly $34.50 per member, per month (“PMPM”) in 2016, to $75 PMPM for 2017, to $112 PMPM for the first quarter of 2019.” (Id. ¶ 124.) “These fees, ” says the Board, “are many, many times the market rate for out-of-network claims administration, violate Plan terms, and are indefensible under any circumstance.” (Id. ¶ 125.)

Relying on the ASO Agreement's arbitration clause, Cigna moves to compel arbitration and dismiss this case. (Doc. 25.) The motion is ripe for ruling. (Docs. 25, 28, 29.) The Court ordered supplemental briefing on the Supreme Court's decision in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S.Ct. 1637 (2020), which the parties timely submitted. (Docs. 37, 38.) The Court now rules.

II. LEGAL STANDARD

The Federal Arbitration Act (“FAA”) governs arbitration agreements in contracts involving interstate commerce. 9 U.S.C. § 2. By the FAA's terms, arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds that exist at law or in equity for the revocation of any contract.” Id. The FAA reflects the federal policy favoring arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The party seeking to compel arbitration bears the initial burden of demonstrating that a valid agreement exists to arbitrate the claims at issue. Bridge Fund Cap. Corp. v. Fastbucks Franchise Corp., 622 F.3d 996, 1005 (9th Cir. 2010) (noting “[t]he [party seeking arbitration] bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence”). If an arbitration clause is valid and enforceable, this Court must stay or dismiss the action to allow the arbitration to proceed. Kam-Ko Bio-Pharm Trading Co. Ltd-Australasia v. Mayne Pharma (USA), 560 F.3d 935, 940 (9th Cir. 2009). “The party resisting arbitration bears the burden[] of proving that the claims at issue are unsuitable for arbitration.” Munro v. Univ. of S. Cal., 896 F.3d 1088, 1091 (9th Cir. 2018) (quoting Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91 (2000)). Thus, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . . . .” Moses H. Cone Mem'l Hosp., 460 U.S. at 24-25.

Where no conflict between the FAA and the substantive statutory provision exists, the courts involvement is limited to “determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.” Munro, 896 F.3d at 1091 (internal quotations omitted). If the Court answers both questions in the affirmative, the FAA compels the enforcement of the arbitration agreement in accordance with its terms. Id.; see also Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). “There is no room for discretion[:]” the...