Monterey Peninsula Horticulture, Inc., et al v. Employee Benefit Management Services, Inc., No. 5:2020cv01660 - Document 19 (N.D. Cal. 2020)
Court Description: ORDER DENYING DEFENDANT'S MOTION TO DISMISS. Re: Dkt. No. 9 . EBMS must answer the complaint by 6/26/2020. Signed by Judge Nathanael Cousins. (lmh, COURT STAFF) (Filed on 5/27/2020)
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Monterey Peninsula Horticulture, Inc., et al v. Employee Benefit Management Services, Inc. Doc. 19 Case 5:20-cv-01660-NC Document 19 Filed 05/27/20 Page 1 of 6 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 10 MONTEREY PENINSULA HORTICULTURE, INC. dba Rocket Farms, et al., United States District Court Northern District of California 11 12 Plaintiffs, 13 v. Case No. 20-cv-01660-NC ORDER DENYING DEFENDANT’S MOTION TO DISMISS Re: Dkt. No. 9 14 EMPLOYEE BENEFIT MANAGEMENT SERVICES, INC., 15 Defendant. 16 17 18 In this lawsuit, plaintiffs Monterey Peninsula Horticulture (“MPH”) and its 19 employee benefit plan accuse EBMS of failing to properly administer their health benefit 20 plan. EBMS now moves to dismiss, arguing the parties’ agreement mandates mediation 21 and because it is not a fiduciary. Neither argument is persuasive, however, and the Court 22 DENIES EBMS’s motion to dismiss. 23 I. 24 25 26 Background The factual allegations in MPH’s complaint are taken as true for the purposes of this motion to dismiss. MPH is a farming corporation that employs 350 full-time workers. See Dkt. No. 1 27 (“Compl.”) ¶ 4. In 2014, MPH implemented a self-funded health benefit plan (“Plan”) for 28 its employees pursuant to ERISA § 3(21)(A)(i) and (iii). Id. ¶¶ 4, 6. MPH hired EBMS, a Dockets.Justia.com Case 5:20-cv-01660-NC Document 19 Filed 05/27/20 Page 2 of 6 1 United States District Court Northern District of California 2 third-party administrative services company, to administer the Plan. Id. ¶¶ 5, 6. Relevant here, the parties executed an Administrative Services Agreement (“ASA”) 3 and a Claims Delegate Service Agreement (“CDSA”). Id. ¶¶ 11, 18. Under those 4 agreements, EBMS was required to “assist in the preparation of a Plan Document, 5 summaries of benefits, identification cards, and other material necessary to the operation of 6 the Plan.” Id. ¶ 11. EBMS was also required to cooperate with MPH in the defense of any 7 lawsuit arising out of related matters. Id. ¶¶ 11, 14, 16. The ASA further required EBMS 8 to process, adjudicate, and pay provider claims in accordance with the Plan Document. Id. 9 ¶¶ 11, 13. EBMS’s duty to process claims was further described in the CDSA, which 10 specifically required EBMS to perform “[t]he first level of review” for provider appeals. 11 Id. ¶ 19. Finally, EBMS had authority and control over Plan assets by determining to 12 whom and in what amounts payments will be made. Id. ¶ 32. 13 Despite the parties’ agreement, EBMS allegedly failed to fulfill its obligations. Id. 14 ¶¶ 23–35. EBMS failed to prepare a Summary Plan Description (“SPD”) that complied 15 with federal law and further failed to administer the Plan in accordance with the SPD. Id. 16 ¶¶ 23–24. EBMS also misrepresented the Plan’s benefit levels to healthcare providers. Id. 17 ¶ 28. In particular, MPH alleged that EBMS misrepresented to healthcare providers that 18 the Plan would cover between 70 to 100% of all billed charges. Id. Under the SPD, 19 however, benefits were capped at 140% or 150% of Medicare rates. Id. ¶¶ 26–28. 20 After EBMS failed to fulfill its obligations under the ASA and CDSA, MPH was 21 sued by various healthcare providers to recover monies on alleged underpaid services. Id. 22 ¶ 36. MPH then sued EBMS for indemnity in January 2019. Id. ¶¶ 37, 38. EBMS 23 successfully sought dismissal pending resolution of the parties’ contractual mediation 24 requirement. Id. ¶ 38. In December 2019, the parties finally met for mediation. Id. 25 Mediation was ultimately unsuccessful. Id. 26 MPH now sues EBMS for (1) breach of fiduciary duty; (2) breach of written 27 contract; (3) indemnification; and (4) negligence. See generally id. EBMS seeks to 28 dismiss the complaint, arguing that MPH failed to mediate in good faith and that it is not a 2 Case 5:20-cv-01660-NC Document 19 Filed 05/27/20 Page 3 of 6 1 fiduciary. See Dkt. No. 9. All parties have consented to the jurisdiction of a magistrate 2 judge. See Dkt. Nos. 12, 13. 3 II. United States District Court Northern District of California 4 Legal Standard A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal 5 sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). On a 6 motion to dismiss, all allegations of material fact are taken as true and construed in the 7 light most favorable to the non-movant. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337– 8 38 (9th Cir. 1996). The Court, however, need not accept as true “allegations that are 9 merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re 10 Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). Although a complaint need 11 not allege detailed factual allegations, it must contain sufficient factual matter, accepted as 12 true, to “state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 13 550 U.S. 544, 570 (2007). A claim is facially plausible when it “allows the court to draw 14 the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft 15 v. Iqbal, 556 U.S. 662, 678 (2009). 16 III. Discussion 17 18 A. Whether MPH Mediated in Good Faith EBMS first argues that MPH’s complaint must be dismissed because MPH failed to 19 satisfy the parties’ contractual mediation requirement. See Dkt. No. 9 at 10–11. 20 According to EBMS, MPH did not send a corporate representative to the parties’ 21 mediation and only sent legal counsel. Id. This, EBMS argues, suggests that MPH did not 22 mediate its dispute in good faith. Id. 23 On a motion to dismiss, however, the Court is limited to the factual allegations in 24 the complaint. The complaint alleged that “the parties met in Billings, Montana before 25 mediator Richard Mainland.” Compl. ¶ 38. It further alleged that the parties continued the 26 mediation process after their initial meeting, albeit with little success. Id. These 27 allegations plausibly suggest that MPH satisfied its contractual obligation to mediate its 28 dispute. EBMS’s assertion that MPH failed to send a corporate representative to the 3 Case 5:20-cv-01660-NC Document 19 Filed 05/27/20 Page 4 of 6 1 mediation is a fact outside the four corners of the complaint and the Court may not 2 consider it on a motion to dismiss. 3 4 and consider EBMS’s factual assertions, EBMS would still be unsuccessful. According to 5 MPH, the parties agreed that MPH’s corporate representative could attend the mediation 6 by phone and personal attendance was not required. See Dkt. No. 14 at 3–4. MPH further 7 asserts that its counsel had full settlement authority. Id. at 4. These assertions raise 8 genuine disputes of material fact as to whether EBMS waived personal attendance if it was 9 necessary and whether MPH mediated in good faith. These disputes preclude summary 10 11 United States District Court Northern District of California Even if the Court were to convert this motion to a motion for summary judgment 12 13 14 judgment. Accordingly, the Court DENIES EBMS’s motion to dismiss for failure to mediate in good faith. B. Whether EBMS Owed a Fiduciary Duty Next, EBMS argues that, pursuant to the terms of the ASA, it did not owe a 15 fiduciary duty to MPH and MPH’s first claim must be dismissed. See Dkt. No. 9 at 11–13. 16 EBMS points to four provisions in the ASA explicitly disclaiming any fiduciary 17 relationship in support of its argument. See id. at 11–12. 18 ERISA provides for two types of fiduciaries. See Depot, Inc. v. Caring for 19 Montanans, Inc., 915 F.3d at 643, 653 (9th Cir. 2019). A party “designated ‘in the plan 20 instrument,’ as a fiduciary is a ‘named fiduciary.’” Id. (quoting 29 U.S.C. § 1102(a)(2)). 21 A party that, as relevant here, is a “functional fiduciary” if it exercises discretionary 22 authority or discretionary control respecting management of a plan or exercises any 23 authority or control over the disposition of its assets. Id. (citing 29 U.S.C. § 1002(21)(A)). 24 “[T]hird-party administrators are not fiduciaries if they merely perform ministerial 25 functions, including the preparation of financial reports.” CSA 401(K) Plan v. Pension 26 Prof’ls, Inc., 195 F.3d 1135, 1138 (9th Cir. 1999). But “‘[a]ny’ control over disposition of 27 plan money makes the person who has the control a fiduciary.” IT Corp. v. Gen. Am. Life 28 Ins. Co., 107 F.3d 1415, 1421 (9th Cir. 1997). 4 Case 5:20-cv-01660-NC Document 19 Filed 05/27/20 Page 5 of 6 United States District Court Northern District of California 1 Here, MPH does not allege that EBMS is a named fiduciary. Rather, it contends 2 that EBMS is a functional fiduciary. In particular, MPH alleged that EBMS had authority 3 and control over Plan assets by determining the amount and recipient of benefit payments. 4 See Compl. ¶ 32. The parties’ ASA specifically provides that EBMS was responsible for 5 “issu[ing] checks from [MPH]’s Account to pay approved claims.” Id., Ex. 2 at 5. 6 These allegations plausibly suggest that EBMS had “any” control over the 7 disposition of Plan assets. 29 U.S.C. § 1102(21)(A). EBMS’s alleged authority to issue 8 checks from an account funded by the Plan “is authority or control respecting management 9 or disposition of its assets.” IT Corp., 107 F.3d at 142 (quotation marks omitted); see also 10 Depot, Inc., 915 F.3d at 658 (“Premiums paid under a self-funded plan are therefore 11 contributions from employees earmarked and held in trust by the employer for the 12 employees’ later benefit . . . are therefore assets of the plan.”). Such authority or control 13 “cannot be reconciled with holding that it is a non-fiduciary as a matter of law.” Id. 14 Although the parties’ agreement provides that EBMS has no “final discretionary authority 15 or control over the management or disposition of Plan assets . . .” (Compl., Ex. 2 at 6), 16 MPH’s allegations, which must be taken as true at this stage of the proceedings, suggest 17 that EBMS had practical control over Plan assets and “any” control over disposition of 18 plan money is enough to impose a fiduciary duty. IT Corp., 107 F.3d at 1421. 19 Accordingly, the Court DENIES EBMS’s motion to dismiss MPH’s first claim for 20 breach of fiduciary duty. 21 IV. Conclusion 22 23 24 The Court DENIES EBMS’s motion to dismiss. EBMS must answer the complaint by June 26, 2020. The parties must file a joint status report setting forth with specificity the parties’ 25 proposal(s) for resolving the issues in this case by June 5, 2020. The report must include a 26 proposal for global mediation as to this case and Salinas Valley Memorial Healthcare 27 System v. Monterey Peninsula Horticulture, Inc., et al., Case No. 5:17-cv-07076-SVK. 28 5 Case 5:20-cv-01660-NC Document 19 Filed 05/27/20 Page 6 of 6 1 IT IS SO ORDERED. 2 3 4 Dated: May 26, 2020 _____________________________________ NATHANAEL M. COUSINS United States Magistrate Judge 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6
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