Manderson v. Fairview Health Services

Background

The plaintiffs, David Manderson and David Frary, sued as trustees of the I.B.E.W. 292 Health Care Plan (the “Plan”). The Plan is a multiemployer medical-benefits plan subject to the Employee Retirement Income Security Act of 1974 (ERISA). Fairview Health Services provided medical treatment to a Plan beneficiary in 2017 and 2018. Fairview submitted claims totaling $3,638,778.23, but the Plan alleges that the claims were submitted after deadlines in the Plan documents and in the provider-network agreement.

The Plan alleged that BCBSM, Inc., which processed claims and provided access to a provider network, improperly processed and forwarded Fairview’s claims instead of adjudicating and denying them. The Plan also alleged that BCBSM failed to cooperate fully with the Plan and coordinated with Fairview while seeking defense and indemnification from the Plan. Fairview had sent BCBSM a notice of arbitration and later threatened to sue the Plan over the denied claims.

Claims and motions

The Plan asserted claims against Fairview under ERISA section 502(a)(3) and the Declaratory Judgment Act. It sought declarations that Fairview’s claims were governed by ERISA, that the Plan was not required to arbitrate, that the claims were untimely and were Fairview’s responsibility, and that Fairview should be barred from seeking payment or compelling arbitration.

The Plan asserted a breach-of-contract claim against BCBSM based on the Termination Agreement. It sought damages and declarations that it had no duty to defend or indemnify BCBSM concerning Fairview’s claims or any alleged breach of the separate agreement between BCBSM and Fairview.

Fairview moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which challenges subject-matter jurisdiction. It argued that the dispute involved only state-law contract claims and that the Plan had not presented a real controversy supporting a declaratory judgment. BCBSM moved under Rule 12(b)(1) and Rule 12(b)(6), which tests whether a complaint adequately states a legally plausible claim. BCBSM argued that the court lacked supplemental jurisdiction over the contract claim and that the complaint did not adequately allege a breach, a basis for avoiding the Plan’s defense and indemnification duties, or damages.

Court’s analysis

The court treated both defendants’ jurisdictional challenges as facial attacks because the defendants relied on the complaint and documents incorporated into it rather than presenting outside evidence. At that stage, the court accepted the complaint’s factual allegations as true and drew reasonable inferences for the Plan.

As to Fairview, the court held that the complaint adequately alleged federal-question jurisdiction through ERISA section 502(a)(3). The complaint alleged that the claims arose under the Plan documents, that the Plan denied them under those documents, and that Fairview sought payment for benefits provided under them. The court also accepted, at this stage, the allegation that the plaintiffs were ERISA fiduciaries who could bring the claim.

The court separately held that the complaint alleged an actual controversy supporting declaratory relief. Fairview had threatened litigation concerning claims exceeding $3.6 million and allegedly sought to force the Plan and its agents into arbitration. The court concluded that the dispute was sufficiently definite and immediate to proceed, while noting that Fairview could later make a factual challenge to jurisdiction if the facts developed differently.

As to BCBSM, the court held that the contract claim and the claims against Fairview arose from a common nucleus of operative fact. The claims concerned who was responsible for the costs of Fairview’s services and would involve overlapping questions about the Plan documents, the Master Agreement, the Termination Agreement, and the timing of claim submissions. The court therefore held that it could exercise supplemental jurisdiction over the BCBSM claim. In its discussion, the court stated that this denial of the jurisdictional motion was without prejudice and could be revisited if later facts or discretionary considerations supported declining supplemental jurisdiction.

The court also held that the complaint plausibly alleged a breach of contract. It sufficiently alleged that BCBSM breached duties to adjudicate claims under the Plan documents and to cooperate with the Plan. The court found that whether the cited contractual exception applied, whether BCBSM’s alleged breaches were material, and whether those breaches directly caused the dispute or relieved the Plan of defense and indemnification duties were factual issues not suitable for resolution on a motion to dismiss.

The court further concluded that the complaint adequately alleged damages or an invasion of legal rights. It explained that, under its understanding of Minnesota law, nominal damages can be sufficient for a breach-of-contract claim when a party’s legal rights were invaded, even without proof of actual loss. The Plan alleged that BCBSM invaded its contractual rights to proper claim adjudication and cooperation. The court also held that the Plan did not need to allege that it had already incurred damages to seek a declaratory judgment about its prospective defense and indemnification obligations.

Disposition

The court denied BCBSM’s motion to dismiss and denied Fairview’s motion to dismiss. The court’s discussion specifies that BCBSM’s Rule 12(b)(1) jurisdictional motion was denied without prejudice; it denied BCBSM’s Rule 12(b)(6) motion. The court ordered the parties to meet and confer and file a joint report about future case management within 14 days. It ordered Fairview and BCBSM to serve their answers within 28 days.

The order did not decide whether Fairview’s claims were ultimately timely, whether either defendant was ultimately liable, whether the Plan had a duty to defend or indemnify BCBSM, or whether arbitration would ultimately be required.