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Peterson v. UnitedHealth Group Inc.

United States District Court, D. Minnesota

April 12, 2019

Louis J. Peterson, D.C., on behalf of Patients, E, I, K L, N, P, Q, and R, and on behalf of all others similarly situated, Plaintiff,
v.
UnitedHealth Group Inc., United HealthCare Services, Inc., United HealthCare Insurance Company, United Healthcare Service LLC, Defendants. Riverview Health Institute, on its own behalf and on behalf of all others similarly situated, Plaintiff,
v.
UnitedHealth Group, Inc., United HealthCare Services, Inc., United HealthCare Insurance Company, Optum, Inc., Defendants.

          ORDER

          BECKY R. THORSON UNITED STATES MAGISTRATE JUDGE.

         These two cases are brought by Dr. Louis Peterson and Riverview Health Institute-two healthcare providers-on behalf of certain of their patients against UnitedHealth Group Inc. and various of its affiliates (collectively “United” or “Defendants”). United acts as the administrator for numerous health plans governed by the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. 1001 et seq. According to Plaintiffs, United has wrongfully failed to pay them and other providers who have treated patients enrolled in United-administered plans. Instead of paying the providers what they are owed, Plaintiffs allege, United withholds some or all of their payments in order to offset overpayments that United claims to have made to the providers in connection with their treatment of different patients enrolled in different plans. Plaintiffs allege that this practice-known as “cross-plan offsetting”-violates ERISA and the terms of the plans.

         This matter is before the Court on Plaintiffs' Motions for Leave to File Second Amended Complaints (Civ. No. 14-2101, Doc. No. 193; Civ. No. 15-3064, Doc. No. 132). Defendants consent to certain of the proposed amendments but not to others. In particular, Defendants consent to amendments that add new at-issue offsets, “clean up” existing allegations, amend the class definition in Peterson, and remove the class allegations from Riverview. Defendants oppose the proposed amendments that bring new causes of action, liability theories, and claims for relief; in particular, Defendants oppose the addition of a claim for fiduciary breach under ERISA § 1132(a)(2) in Peterson, and any related theories in both cases outside of those previously alleged for the purpose of Plaintiffs' § 1132(a)(1)(B) claims. For those amendments that Defendants agree to, an Amended Complaint may be filed in conformity with those agreed-upon proposed amendments on or before April 17, 2019. This Order addresses the remaining proposed amendments that are contested by Defendants. Those amendments include: in the Peterson Complaint, paragraphs 6, 18, 21, 26, 30, 31, 33, 40, 49, 50, 51, 52, 55, 56, 57, 58, and Prayer for Relief sub-sections (B), (C), (F), and (H); in the Riverview Complaint, paragraphs 6, 39, 40, 42, 48, 51, 52, 53, 54, and Prayer for Relief sub-sections (A), and (B). The Court held a hearing on Plaintiffs' motions on March 27, 2019. (Civ. No. 14-2101, Doc. No. 206; Civ. No. 15-3064, Doc. No. 143.) As further stated below, Plaintiffs unduly delayed seeking the contested amendments, and the Defendants would be prejudiced if the amendments are allowed at this stage of the proceedings. Therefore, Plaintiffs' motions are denied.

         BACKGROUND

         The following summary is provided as context for what Plaintiffs knew about the basis for a fiduciary-based cause of action and when they knew it, and to emphasize what Plaintiffs have communicated about what Phase I of this case was supposed to encompass. This background highlights Plaintiffs' undue delay in bringing a § 1132(a)(2) breach of fiduciary duty cause of action or alleging other related facts, theories, and requests for relief, and underscores why Defendants would be prejudiced by Plaintiffs adding such allegations and claims now.

         I. Early Motions to Dismiss in Peterson

         Plaintiffs filed their initial Complaint in the Peterson case almost five years ago on June 23, 2014, bringing three counts - (1) for benefits due under ERISA § 1132; (2) for injunctive and declaratory relief under ERISA § 1132; and (3) for notice and appeal rights under ERISA § 1132. In their fact section of that initial Complaint, Plaintiffs alleged that “Defendants are ERISA fiduciaries with respect to the United Plans, ” and stated that “United's actions also violate its fiduciary duties and other obligations under ERISA” (Civ. No. 14-2101, Doc. No. 1, Compl. ¶¶ 2, 7), however, they asserted no specific cause of action for breach of fiduciary duties pursuant to § 1132(a)(2).

         Defendants moved to dismiss soon thereafter, and Plaintiffs filed a First Amended Class Action Complaint as a matter of right pursuant to Federal Rule of Civil Procedure 15 on September 10, 2014. The First Amended Class Action Complaint dropped the third count but retained the first two counts. Count I was amended to more specifically state a claim for benefits due under ERISA § 1132(a)(1)(B) (hereinafter “the § 1132(a)(1)(B) benefits cause of action”). Count II was amended to more specifically state a claim for injunctive and declaratory relief under ERISA § 1132(a)(3) (hereinafter “the § 1132(a)(3) injunctive and declaratory relief cause of action”). Plaintiffs retained factual allegations regarding Defendants being fiduciaries who violated fiduciary duties similar to those referenced above. (Civ. No. 14-2101, Doc. No. 33, Am. Compl. ¶ 2 (“Defendants are ERISA fiduciaries with respect to all United Plans.”); ¶ 6 (“These offsets violate the terms of the United Plans, and United's application of this policy violates ERISA as well as United's fiduciary duties as a claims administrator.”); see also Am. Compl. ¶¶ 53-55, 58 (making allegations about United's duties as a fiduciary).) Again, Plaintiffs failed to assert a separate cause of action for breach of fiduciary duties.

         On October 8, 2014, Defendants moved to dismiss the First Amended Class Action Complaint. (Civ. No. 14-2101, Doc. No. 39.) In addition to raising arguments about standing and lack of requisite authorization, Defendants argued that Plaintiffs failed to allege sufficient facts to plausibly establish an ERISA violation. Within their argument, Defendants asserted that Plaintiffs' Complaint could be read as “purport[ing] to assert that ERISA prohibits plans from reallocating overpayments through offsets without regard to plan language” (i.e., a per se violation), which they asserted failed as a matter of law. (Civ. No. 14-2101, Doc. No. 41, Mem. of Law in Supp. of Defs.' Mot to Dismiss at 22.) In their response, Plaintiffs argued among other things that if no plan language authorized cross-plan offsets, then Defendants' offset practice nonetheless violated ERISA, citing common law responsibilities of ERISA fiduciaries.[1] (Civ. No. 14-2101, Doc. No. 51, Pls.' Opp'n to Defs.' Mot. to Dismiss First Am. Compl. 11-12.) Still, no effort was made to assert a § 1132(a)(2) cause of action.

         II. Introduction of Threshold Issues

         At the hearing on Defendants' motion to dismiss, United States District Judge Patrick J. Schiltz inquired as to whether this case should proceed with identifying and deciding threshold issues:

THE COURT: . . . But, essentially, it seems to boil down to was there authority in the plan. You've heard me say it's just not something I'm going to take on in a Rule 12 motion.
Is there any reason that we could not do the kind of staged discovery that I suggest, which is you identify the threshold issues; we have a limited discovery on those; we bring those here; if you survive that, then we go into the much more complicated issues of liability and damage?[2]
MR. COWART:[3] No, Your Honor. I think that would be fine with us.
THE COURT: Okay. I'd like you to try to . . . But let's try to actually discover everything that's involved in this case. Could be a pretty long, expensive discovery, but let's try to identify threshold issues, get those teed up as quickly as we can. I'll have you back here. We'll take care of those. If there's still a case, we'll turn to the next phase.
MR. COWART: That sounds reasonable, Your Honor.

(Civ. No. 14-2101, Doc. No. 60 at 43-44.)

         On January 23, 2015, Judge Schiltz granted Defendants' motion in part, dismissing two of the three original named Plaintiffs for lack of standing, but finding that Dr. Peterson had standing to proceed. (Civ. No. 14-2101, Doc. No. 56.) Defendants answered the Amended Complaint on February 2, 2015. (Civ. No. 14-2101, Doc. No. 61.) The undersigned held a Pretrial Scheduling Conference on March 30, 2015, after the parties had submitted their Joint Rule 26(f) Report. (Civ. No. 14-2101, Doc. Nos. 63, 64.) In the Joint Rule 26(f) Report, Plaintiff stated that “[t]he only disputed factual issue is whether United Plans permit the offset policy, and that issue can be resolved through review of relevant Plan documents.” (Civ. No. 14-2101, Doc. No. 63 at 4.) In their Report, the parties agreed “on the (a) scope of the threshold issues which will be the subject of the first phase of this staged discovery, and (b) a plan and schedule for conducting that discovery.” (Civ. No. 14-2101, Doc. No. 63 at 6.) They also agreed “that the focus of this first phase of staged discovery would be on identifying representative Plans and patients of Dr. Peterson covered by those representative Plans, and testing Dr. Peterson's authorization (and hence derivative standing) to bring those claims.” (Id.) The parties then composed the agreed-upon threshold issues:

         1. Agreed threshold issues:

a. Whether, as Plaintiff contends, plan language in “representative” United Plans did not authorize United's cross-plan offsets, which Plaintiff contends renders the cross-plan offsets illegal; or whether, as United contends, plan language in “representative” United Plans supports United's defense that those United Plans expressly or impliedly authorized cross-plan offsets. In support of this defense, United relies on the legal standard set forth in Quality Infusion Care, Inc. v. Health Care Serv. Corp., 628 F.3d 725 (5th Cir. 2010). Tr. 27, 28; 51.
b. Whether Dr. Peterson's standing in this action is supported by authorized representative forms signed by patients who have authorized-and continue to authorize-Dr. Peterson's bringing the claims in this action on their behalf, notwithstanding Defendants' assertion of a conflict of interest. Tr. 27-28; 51.

(Doc. No. 63 at 6.)[4]

         A Pretrial Scheduling Order issued in April 2015.[5] (Case No. 14-2101; Doc. No. 65.) The Scheduling Order allowed for two months of discovery, and set a dispositive motion heard-by date on the threshold issues for September 30, 2015. In a status report to the Court on April 27, 2015, Plaintiff represented that he did not anticipate adding additional parties and made no mention of needing to add additional claims or causes of action. (Case No. 14-2101; Doc. No. 66.) On June 19, 2015, the parties then stipulated to Plaintiff filing a Second Amended Complaint, which dropped several patients on whose behalf Dr. Peterson had sued but retaining the same two counts from their previous Complaint - a § 1132(a)(1)(B) benefits cause of action and a § 1132(a)(3) injunctive and declaratory relief cause of action. (Case No. 14-2101; Doc. No. 74, Stipulation, approved by the Court at Doc. No. 76; see also Doc. No. 77, Second Am. Compl.)

         III. Complaint Filed in Riverview Included a § 1132(a)(2) Fiduciary Breach Cause of Action

         One month later, on July 15, 2015, Plaintiff filed its initial Complaint in the Riverview case, bringing three counts: (1) for benefits due under ERISA § 1132(a)(1)(B) (hereinafter “the § 1132(a)(1)(B) benefits cause of action”); (2) for injunctive and declaratory relief under ERISA § 1132(a)(3) (hereinafter “the § 1132(a)(3) injunctive and declaratory relief cause of action”); and (3) for fiduciary breach under ERISA §§ 1132(a)(2) and 1109 (hereinafter “the § 1132(a)(2) fiduciary breach cause of action). (Civ. No. 15-3064, Doc. No. 1.) The Riverview case was then reassigned to United States District Judge Schiltz and the undersigned as a related case with Peterson. (Civ. No. 15-3064, Doc. No. 12.) The Court extended the deadline for answering the Complaint to September 21, 2015, and on that date, Defendants filed a motion to dismiss. (Civ. No. 15-3064, Doc. Nos. 21, 26.) After Defendants moved to dismiss, Plaintiff voluntarily dismissed its § 1132(a)(2) fiduciary breach cause of action.[6] (Civ. No. 15-3064, Doc. No. 36.) Plaintiff did not seek to add the § 1132(a)(2) fiduciary breach cause of action in the Peterson case at that time.

         IV. First Motion for Summary Judgment in the Peterson case

         In August 2015, the parties filed cross-motions for summary judgment in the Peterson case, which were heard by Judge Schiltz on September 30, 2015. (Civ. No. 14-2101, Doc. Nos. 83, 89.) In Plaintiff's motion, he argued that United's interpretation of the plan terms was not “reasonable” under the Finley test, [7] “especially because United's boundless discretionary theory violates a fiduciary's duty of loyalty to administer an ERISA plan ‘with an eye single to the interests of the participants and beneficiaries.'” (Civ. No. 14-2101, Doc. No. 91, Pl's Mem. in Supp. of Cross-Mot. for Summ. J. on Phase 1 Issues (“Pl's Mem. on SJ #1”) 2 (citation omitted); see also Id. at 2-3 (citing case for the proposition that blurring lines between separate plans constitutes a breach of fiduciary duties).) Plaintiff made the argument that “this case is about the rule of law and whether United can do what it wants, when it wants, without regard to plan terms, trust law principles, the Finley factors, or other restraints on a fiduciary's powers. (Id. at 3-4.) Among other arguments under Finley, Plaintiff argued that the Finley factor considering “conflicts with the substantive or procedural requirements of the ERISA statute” weighed in his favor “[e]ven on the limited Phase I record.” (Id. at 16.) Plaintiff argued that it was “clear that United's interpretation of unidentified Exemplar Plan terms as permitting cross-plan offsets conflicts with fundamental principles of ...


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