Fealy v. ISP2 OAKLAND, INC.

Background

Josephine Fealy was a former employee of ISP2 Oakland, Inc. After leaving her employment in October 2018, she elected to continue her employer-sponsored health coverage through COBRA, with coverage from Kaiser. She submitted payments for November and December 2018 premiums through WageWorks.

In November 2018, WageWorks and Kaiser told Fealy that her insurance was not shown as active. After discussions with an ISP2 human-resources representative over several months, Fealy learned in January 2019 that ISP2 had changed its health coverage from Kaiser to Anthem. Kaiser covered her November medical expenses but did not cover expenses from procedures she underwent in December 2018. Her December payment was returned on April 20, 2019, and the opinion states that her December medical expenses were unpaid, in collection, and totaled $43,276.90.

Claims and Motions

Fealy asserted two claims under the Employee Retirement Income Security Act of 1974 (ERISA). Count One sought recovery of plan benefits under ERISA Section 502(a)(1)(B) against the ISP2 Health Plan. Count Two sought relief for breach of fiduciary duty and declaratory relief under ERISA Section 502(a)(3) against the “Plan Fiduciaries,” including WageWorks and Doe 1.

The ISP2 Health Plan and WageWorks each moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not adequately state a legally recognizable claim.

ISP2 Health Plan’s Motion

The ISP2 Health Plan argued that Fealy failed to exhaust the plan’s administrative remedies and failed to plead an exception to that requirement. The court explained that ERISA claimants generally must use available plan procedures before filing in federal court, unless the plan failed to establish or follow reasonable claims procedures.

The complaint alleged only that Fealy was “informed” that she had exhausted her administrative remedies. It did not describe the plan’s procedures or the steps she took. Fealy argued that exhaustion was unnecessary because her claim concerned an alleged statutory violation involving failure to notify her about the coverage change. The court found that theory difficult to reconcile with Count One, which sought plan benefits and alleged that the plan administrators’ denial was arbitrary and capricious.

The court held that the complaint’s allegations were confusing and required dismissal as to the ISP2 Health Plan. If Fealy intended to pursue a theory that did not require exhaustion, she needed to plead that theory against the plan. If she intended to pursue the benefits claim, she needed more than conclusory allegations about exhaustion.

WageWorks’ Motion

WageWorks argued that it could not be sued for breach of fiduciary duty because it was not an ERISA fiduciary. The court explained that ERISA fiduciaries include people named as fiduciaries by a benefit plan and others who exercise discretionary control or authority over the plan’s management, administration, or assets. A third-party administrator is not a fiduciary when it merely performs administrative tasks or processes claims.

Although the complaint alleged that WageWorks was a named third-party administrator with discretionary authority, it provided no supporting facts. The allegations that WageWorks told Fealy her insurance was inactive and had some role in administering her COBRA coverage did not show discretionary authority. The court therefore concluded that Fealy had not adequately alleged that WageWorks was an ERISA fiduciary and granted WageWorks’ motion to dismiss.

The court did not address WageWorks’ separate argument that equitable relief under ERISA Section 502(a)(3) was unavailable because Section 502(a)(1)(B) provided an adequate remedy.

Disposition

Judge Richard Seeborg granted the motions to dismiss against both the ISP2 Health Plan and WageWorks. The order stated that the dismissal was with leave to amend and directed that any amended complaint be filed within three weeks of the order.