Court Denies BCBS Michigan’s Motion For Leave To Assert Counterclaims

Court Denies BCBS Michigan’s Motion For Leave To Assert Counterclaims

We wrote about this case in a previous post, Burroughs Corporation, et al. v. Blue Cross Blue Shield of Michigan and Hi-Lex Controls Inc., et al. v. Blue Cross Blue Shield of Michigan. In those cases, a U.S. District Court in Michigan found that Blue Cross Blue Shield of Michigan (BCBSM) engaged in breaches of fiduciary duty and prohibited transactions in connection with the compensation that it received from the Burroughs and Hi-Lex health plans.  The Burroughs and Hi-Lex decisions are significant in their own right, because they resulted in a finding of a prohibited transaction against a major insurance company acting as claims administrator.

Consequently,  BCBSM now asks the Court for leave to assert counterclaims against Plaintiffs for breach of fiduciary duties under ERISA §§ 404(a), 406(a), and 510(a).  BCBSM alleges that the Plan Administrator must be equally guilty of BCBSM’s failed fiduciary duties to return hidden money to the plan assets.

Hi-Lex Controls Incorporated et al v. Blue Cross and Blue Shield of Michigan

According to the complaint: ” Defendant (BCBSM) claims that Plaintiffs are fiduciaries and responsible for Defendant’s alleged violations. Defendant says that its claims against Plaintiffs matured after the Court’s September 7, 2012 Order because it established Defendant’s standing to bring the counterclaims as an ERISA fiduciary and provided the threshold determination that plan assets were involved. Defendant seeks contribution and indemnification to the extent that Defendant and Plaintiffs share overlapping liability to the Plans and that Plaintiffs may have benefitted as a result of payment of the Disputed Fees.

Plaintiffs argue that the Court should not grant leave for Defendant to file its counterclaims because they would be futile as a matter of law; they say contribution and indemnification are neither allowed under ERISA nor appropriate in these cases.”

The complaint further states: “Plaintiffs direct the Court to numerous decisions –most of them by district courts in the Sixth Circuit– which have held that a breaching fiduciary may not seek contribution or indemnification under ERISA. Plaintiffs also further the rationale adopted by Kim v. Fujikawa, 871 F.2d 1427 (9th Cir. 1989), which held that ERISA cannot be read as providing for an equitable remedy of contribution in favor of a breaching party, because § 1109 only establishes remedies for the benefit of the plan, and that implying a right to contribution is inappropriate where there is no indication that Congress intended to allow it. Id.”

The court goes on to say : “ERISA does not explicitly authorize a right of contribution or indemnification among fiduciaries, and there is no controlling precedent on the issue. But, the Court is persuaded by the reasoning in Fujikawa and by the majority of decisions within the Sixth Circuit and other jurisdictions, which hold that contribution and indemnification are not allowed under ERISA.”

“Indeed, the purpose of ERISA–to protect the interests of the Plans’ participants–would not be served nor would the Plans benefit if a counterclaim to include Plaintiffs as counter-defendants for the same breach of fiduciary duty claim which Plaintiffs seek to enforce was allowed.”

“Accordingly, Defendant’s proposed counterclaims would be legally insufficient and futile. The Court need not address Plaintiffs’ other arguments for futility.

Defendant’s motion is DENIED.



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