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Saginaw Chippewa Indian Tribe of Michigan v. Blue Cross Blue Shield of Michigan

United States District Court, E.D. Michigan, Northern Division

May 16, 2017



          THOMAS L. LUDINGTON United States District Judge

         On January 29, 2016, Plaintiffs Saginaw Chippewa Indian Tribe of Michigan and the Welfare Benefit Plan (“Plaintiffs”) brought suit against Blue Cross Blue Shield of Michigan (“BCBSM”). Plaintiffs' suit takes issue with BCBSM's management of Plaintiffs' “self-insured employee benefit Plan.” Am. Compl. at 1, ECF No. 7. The remaining Counts involve hidden fees which BCBSM allegedly charged Plaintiffs. See ECF No. 22. Plaintiffs contend that “BCBSM's liability for the Hidden Fees is a foregone conclusion.” Pl. Objs. at 3, ECF No. 69. To support that assertion, Plaintiffs rely upon Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, where the Sixth Circuit held that the district court properly entered judgment for Hi-Lex on a similar theory. 751 F.3d 740 (6th Cir. 2014). Regardless of whether Hi-Lex is determinative of BCBSM's liability, the current dispute is centered on the parties' ongoing dispute over the appropriate prejudgment interest rate. Although prejudgment interest will become relevant only if Plaintiffs prevail upon their hidden fees claim, the issue arises now because Plaintiffs are seeking discovery related to prejudgment interest.

         From January 26, 2017, to March 1, 2017, six motions to compel and a motion for a protective order were filed. ECF Nos. 37, 39, 41, 45, 47, 58, 63. All seven motions were referred to Magistrate Judge Patricia T. Morris. On March 2, 2017, she held a hearing and, the next day, issued an order resolving the referred motions “[f]or the reasons stated on the record.” ECF No. 65. On March 17, 2017, Plaintiffs filed objections, ECF No. 69, to Judge Morris's denial of their motion to compel discovery related to the rate of return on BCBSM's investments, ECF No. 39. A week later, BCBSM filed a motion to strike the prejudgment interest rate analysis of Plaintiff's expert, Neil Steinkamp. ECF No. 72. For the reasons stated below, the objections will be overruled and the motion to strike will be denied.


         For purposes of the objections and motion to strike, the details of Plaintiffs' alleged injuries are not relevant.[1] It is sufficient to note that Plaintiffs are alleging that BCBSM has breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by charging hidden fees and that successful ERISA plaintiffs may recover prejudgment interest, in the district court's discretion. In the event Plaintiffs succeed on the merits of their claims, they intend to seek prejudgment interest at a rate based on BCBSM's actual rate of return on investments.

         To enable a calculation of that rate of return, Plaintiffs filed a motion to compel discovery related to the financial rate of return that BCBSM earned on the access fees. Mot. Compel. Disc. Rate, ECF No. 39. In the motion, Plaintiffs conceded that “BCBSM comingled the money taken from Plaintiffs with other monies, which makes it impossible to ‘trace' Plaintiff's precise funds.” Id. at 4. But they contend that “[i]nsurance industry standards and legal presumptions provide for this scenario and conclude that: BCBSM would have invested its excess capital into more-risky investments than its typical reserves.” Id. (emphasis omitted). Thus, Plaintiffs reasoned, the “stolen money” would have been used “in the most beneficial way possible.” Id. at 6. BCBSM asserted that, because the funds were commingled, discovery should be limited to “Plaintiffs' ‘overall' rate of return on all of BCBSM's investments.” Id. (emphasis omitted). Plaintiffs requested that “BCBSM should be ordered to produce documents relating to the rates of return that BCSBM earned on specific investments.” Id. (emphasis in original).

         In the written order that followed the hearing on the motion to compel, Judge Morris denied Plaintiffs' request to compel discovery related to the rate of return on specific investments. The denial was based on “the reasons stated on the record” and Judge Morris's prior analysis in other access fee cases. ECF No. 65 at 2. Judge Morris's most detailed treatment of the request for discovery related to rate of return came in Stone Transport Holding Inc., et al, v. Blue Cross & Blue Shield of Michigan, Case No. 1:14-cv-13407. In that case, Judge Morris denied the plaintiff's motion to compel discovery on the rate of return BCBSM earned on specific investments. ECF No. 30.

         In the Stone Transport order, Judge Morris concluded that “at least some of the information sought is relevant and that discovery is not premature, ” despite the fact that liability had not yet been conclusively established. Order Deny Mot. Compel at 9, ECF No. 30. She further reasoned that “[t]he fact that misappropriated funds are commingled with others in accounts is not enough alone to preclude equitable relief if tracing is possible.” Id. at 28. However, Judge Morris emphasized that “if there were truly no way to see how Blue Cross's alleged breach led to increased profits, then Plaintiff[']s request would resemble the proverbial fishing expedition.” Id. at 32. In other words, if the tracing of assets would be purely “speculative, ” a “lengthy and fruitless tramp through Blue Cross's archives” would be unjustified. Id. at 36. Ultimately, Judge Morris ordered BCBSM to produce “general information on its investments from the account, ” but denied the plaintiff's request to compel disclosure of information regarding individual investments. Id. at 39.


         Federal Rule of Civil Procedure 72(a) provides:

When a pretrial matter not dispositive of a party's claim or defense is referred to a magistrate judge to hear and decide, the magistrate judge must promptly conduct the required proceedings and, when appropriate, issue a written order stating the decision. A party may serve and file objections to the order within 14 days after being served with a copy. . . . The district judge in the case must consider timely objections and modify or set aside any part of the order that is clearly erroneous or is contrary to law.


         Unless the reviewing court “is left with the definite and firm conviction that a mistake has been committed” or concludes that the order “contradicts or ignores applicable precepts of law, ” the magistrate judge's order should stand. Heights Cmty. Cong. v. Hilltop Realty, Inc., 774 F.2d 135, 140 (6th Cir. 1985); Gandee v. Glaser, 785 F.Supp. 684, 686 (S.D. Ohio 1992) (internal citations omitted).


         The crux of Plaintiffs' objections is that Judge Morris's decision has incorrectly limited the scope of discovery, which will have the effect of preventing “this Court from exercising its full discretion regarding the appropriate prejudgment interest rate.” Objs. at 1, ECF No. 69. Plaintiffs contend that this narrowing of discovery will effectively prevent the Plaintiffs from providing the Court with specific information regarding BCBSM's actual rate of return on the access fees. Plaintiffs further argue that Judge Morris incorrectly applied the law related to the scope of discovery. They assert that Judge Morris conceded that the information sought was relevant and that BCBSM should not be shielded from a means of discovery simply because the method was unusual. Given those conclusions, Plaintiffs assert that Judge Morris's refusal to allow discovery on the rate of return for specific investments was error. Finally, Plaintiffs argue that Judge Morris's decision improperly decided a substantive ...

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