Popovchak v. UnitedHealth Group Incorporated

Background

Alexandra Popovchak, Oscar Gonzalez, and Melanie Webb are beneficiaries of self-funded health benefit plans governed by the Employee Retirement Income Security Act (ERISA). The plans were administered by UnitedHealth Group Incorporated (UHG), United Healthcare Insurance Company (UHIC), United HealthCare Services, Inc. (UHS Inc.), and UnitedHealthcare Service LLC (UHS LLC), collectively referred to in the opinion as the defendants.

The plaintiffs alleged that the defendants improperly calculated “Eligible Expenses” for out-of-network medical services by using data from for-profit “Repricers,” rather than available data concerning providers’ actual charges and competitive fees in the relevant geographic area. They alleged that the defendants used the lower Repricer amounts to charge the plans “savings fees,” even when the defendants had not obtained corresponding discounts from the providers. The plaintiffs claimed that this reduced plan reimbursements and left them responsible for larger unpaid medical bills.

The amended complaint asserted claims for ERISA benefits, breach of fiduciary duty, self-dealing, and co-fiduciary liability. The defendants moved under Federal Rule of Civil Procedure 12(b)(1), which concerns subject-matter jurisdiction, and Rule 12(b)(6), which concerns whether a complaint adequately states a claim. They sought dismissal of all but part of Count I.

Benefits Claims

The court denied the motion to dismiss Popovchak’s benefits claim as untimely. Her Morgan Stanley plan required suit within six months after an administrative appeal was denied. The court held, however, that the defendants’ denial letter did not state that six-month period, as required by Department of Labor regulations. Because the defendants had not substantially complied with the notice requirements, the contractual six-month period was not triggered. The court instead applied New York’s six-year period for comparable contract claims and held that Popovchak’s claim was timely.

The court also denied the motion to dismiss Gonzalez’s benefits claim concerning services provided by Dr. Peter Frelinghuysen. Gonzalez alleged that he appealed the benefits determination at least twice. The court held that his receipt of a slightly revised benefits determination after the second appeal did not require another appeal, and that the complaint did not show a failure to exhaust the plan’s administrative procedures.

Fiduciary-Duty and Self-Dealing Claims

The court denied dismissal of the plaintiffs’ claim that the defendants breached their duty of loyalty by using Repricer data to collect savings fees that allegedly were not earned. The court found that this theory was distinct from a claim simply seeking unpaid benefits because it challenged an alleged scheme to enrich the defendants at the plans’ and participants’ expense. The court allowed the plaintiffs to pursue that theory under either ERISA Section 502(a)(3) or Section 502(a)(1)(B) at this stage because the appropriate remedy could not yet be determined.

The court granted dismissal of claims alleging that the defendants breached fiduciary duties by failing to follow the plans’ written terms or by applying those terms inconsistently. Those theories essentially challenged the defendants’ benefits determinations and duplicated the benefits claims.

Under ERISA Section 502(a)(2), the court denied dismissal of claims alleging breach of the duties of loyalty and care and self-dealing. The plaintiffs alleged that the defendants’ fee scheme harmed the plans themselves by transferring plan assets to the defendants. The court held that those allegations were sufficient at the pleading stage. The court granted dismissal of the Section 502(a)(2) claim based on failure to comply with plan terms because that claim duplicated the benefits claims.

The court addressed the co-fiduciary claim under ERISA Section 405(a) consistently with the surviving fiduciary-duty claims: dismissal was denied to the extent those claims survived and granted to the extent the underlying fiduciary-duty claims were dismissed.

Claims Against UHG and UHIC

The court granted the motion to dismiss all claims against UHG and UHIC. For benefits claims, the complaint did not adequately allege that either company exercised total control over the plaintiffs’ benefits determinations. The opinion identified UHS Inc. and UHS LLC as the entities that made the benefits determinations and decided the administrative appeals.

The court also held that the complaint did not identify factual allegations showing that UHG or UHIC personally engaged in the conduct supporting the fiduciary-duty claims. The plaintiffs’ allegations that all defendants acted together were treated as insufficient group pleading. UHG and UHIC were therefore terminated as defendants.

Jury Demand and Case Status

The court granted the motion to strike the jury demand without prejudice to the plaintiffs’ renewing the demand if they seek damages for breach of fiduciary duty. The court reasoned that ERISA benefits claims are generally equitable, while it was not yet clear whether the fiduciary-duty claims would seek legal damages.

The court directed the parties to submit a joint status update and proposed case-management plan, lifted the discovery stay, directed the Clerk to close the motion, and terminated UHG and UHIC as defendants. The opinion’s conclusion contains apparent OCR errors in several count labels; the dispositions above follow the substantive discussion and the stated rulings rather than those apparent typographical errors.