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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

January 17, 2018

SAGINAW CHIPPEWA INDIAN TRIBE OF MICHIGAN, el al., Plaintiffs,
v.
BLUE CROSS BLUE SHIELD OF MICHIGAN, Defendant.

          ORDER DENYING DEFENDANT'S MOTION FOR ATTORNEY FEES, GRANTING IN PART PLAINTIFFS'S MOTION FOR ATTORNEY FEES, AND GRANTING IN PART MOTION TO REVIEW TAXED BILL OF COSTS

          HONORABLE THOMAS L. LUDINGTON UNITED STATES DISTRICT JUDGE.

         On January 29, 2016, Plaintiffs Saginaw Chippewa Indian Tribe of Michigan and the Welfare Benefit Plan (“Plaintiffs” or “the Tribe”) brought suit against Blue Cross Blue Shield of Michigan (“BCBSM”). Plaintiffs' suit took issue with BCBSM's management of Plaintiffs' “self-insured employee benefit Plan.” Am. Compl. at 1, ECF No. 7. On April 10, 2017, the parties filed cross motions for partial summary judgment on the remaining claims. See ECF No. 79, 81. Both Defendant's and Plaintiffs' motions for partial summary judgment were granted in part. ECF No. 112. Now, both parties have filed motions for attorney fees and costs. ECF Nos. 118, 119. BCBSM has also filed a motion, ECF No. 123, seeking review of the taxed bill of costs issued against it, ECF No. 120. BCBSM seeks an award of attorney fees and costs in the amount of $1, 588, 720.31 and $17, 734.83, respectively. BCBSM also seeks sanctions against the Tribe in the amount of $493, 055 in fees and $8, 658.54 in costs. The Tribe seeks an award of $1, 179, 721.13 in fees and nontaxable costs. For the reasons that follow, BCBSM's motion for attorney fees and costs will be denied, the Tribe's motion for attorney fees and costs will be granted in part, and BCBSM's motion for review of the bill of costs will be granted in part.

         I.

         The procedural history and underlying facts were summarized in the July 14, 2017, opinion and order. ECF No 112. That summary will be adopted as if restated in full in this order. For clarity, several relevant facts will be repeated here.

         A.

         This action is one of many that has been brought against BCBSM alleging that BCBSM breached its fiduciary duty by charging its clients “hidden fees.” In Hi-Lex Controls Inc. et. al v. BCBSM, 2013 WL 2285453, No. 11-12557 (E.D. Mich. May 23, 2013), Plaintiff Hi-Lex Inc. brought suit on a “hidden fees” theory. After a bench trial, United States District Judge Roberts entered judgment for Hi-Lex. In the findings of fact, Judge Roberts explained that, to regain financial stability, BCBSM started charging various fees to self-funded customers in the early 1990s. After receiving extensive complaints from customers, the fees were replaced with a “‘hidden' administrative fee buried in marked-up hospital claims.” Id. at 8. These charges were invisible to the consumer and were never disclosed. BCBSM had “complete discretion to determine the amount of the Disputed Fees, as well as which of its customers paid them.” Id. at 11. As a result of the hidden nature of the fees, the savings from using BCBSM as an administrator appeared greater to customers than they truly were. Judge Roberts found that BCBSM was an ERISA fiduciary and that BCBSM violated its fiduciary duties through fraudulent concealment and self-dealing. On appeal, Judge Robert's decision was affirmed. Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, 751 F.3d 740 (6th Cir. 2014). The Hi-Lex decision has been treated as establishing BCBSM's liability as an ERISA fiduciary for charging the hidden fees.

         B.

         Typically, BCBSM has settled post-Hi-Lex cases alleging that BCBSM charged hidden fees. This suit proceeded to the summary judgment stage, however, because the Tribe has two health insurance group policies associated with BCBSM. Specifically, the Tribe has a health insurance policy for its employees (which includes some individuals who are not members of the Tribe), and a health insurance policy for its members (a group which excludes some employees of the Tribe). At summary judgment, the parties disputed whether the two policies should be construed as a single plan or two separate plans and, relatedly, whether the two policies were both covered by ERISA.[1]

         Both the Tribe and BCBSM agreed that, if the plans were considered separately under ERISA, “the Employer Plan is governed by ERISA and BCBSM is liable for the hidden fees paid for the Tribe for that plan.” July 14, 2017, Op. & Order at 16. In response to the Tribe's argument that the two benefit policies should be construed as alternative coverage options, not separate plans, BCBSM did briefly argue that such a holding would mean ERISA did not cover the (combined) plan. But that argument was not the focus of the briefing on the motions for summary judgment. The Court concluded that both plans should be analyzed separately under ERISA. Accordingly, and because BCBSM admitted to charging hidden fees under the Employee Plan, judgment on those uncontested claims was entered for the Tribe. Id. at 17.

         The contested issues in the motions for summary judgment were three-fold. First, the parties disputed whether the two policies were a single plan with multiple coverage options or two separate plans. As already explained, the Court found that the two policies represented two separate plans. The second issue was whether the Member Plan, considered on its own, was covered by ERISA. The Court concluded that “the Member Plan must have been created to provide healthcare coverage to non-employee members” and thus did not qualify as an ERISA plan. Id. at 23. Third, the parties disputed whether BCBSM's operation of its Physician Group Incentive Program (PGIP) violated BCBSM's fiduciary duties. By way of summary explanation, the PGIP was a program wherein BCBSM reallocated payments to specific providers that would have otherwise been shared among all providers, thus creating performance incentives. After finding that “[t]he Tribe is . . . effectively challenging BCBSM's negotiation and administration of a performance-based rewards program with its in-network physicians, ” the Court held that BCBSM's operation of PGIP did not violate its fiduciary duties. Id. at 30.

         Accordingly, the Court granted both motions for summary judgment in part. Judgment was entered for the Tribe on its access fee claims related to the Employee Plan. Judgment was granted for BCBSM on the Tribe's claims related to the Member Plan and PGIP.

         Now, both BCBSM and the Tribe have moved for an award of attorney fees. ECF No. 118, 119. Plaintiffs and Defendant both assert that they achieved substantial success on the merits and thus that the opposing party should cover their fees and costs. BCBSM has also requested review of the Taxed Bill of Costs issued by the Clerk's Office directing BCBSM to pay $5, 248.75 of the Tribe's deposition costs. ECF No. 123.

         II.

         Both BCBSM and the Tribe seek an award of fees and costs, relying upon 29 U.S.C. § 1132(g). Pursuant to § 1132(g), “the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.” The party seeking fees need not be a “‘prevailing party' to be eligible for an attorney's fees award.” Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 252 (2010). Rather, they must simply achieve “some success on the merits.” Id. at 256. Importantly, there is “no presumption as to whether attorney fees will be awarded.” Foltice v. Guardsman Prod., Inc., 98 F.3d 933, 936 (6th Cir. 1996). One purpose of awarding attorney fees is to punish bad faith litigants, but punishment is not the only legitimate purpose. Armistead v. Vernitron Corp., 944 F.2d 1287, 1304 (6th Cir. 1991). Rather, “[t]he authorization was intended to enable pension claimants to obtain competent counsel and to distribute the economic burden of litigation in a fair manner.” Ford v. N.Y. Cent. Teamsters Pension Fund, 506 F.Supp. 180, 182 (W.D.N.Y. 1980). When determining whether to award fees, courts consider the following five factors:

(1) the degree of the opposing party's culpability or bad faith; (2) the opposing party's ability to satisfy an award of attorney's fees; (3) the deterrent effect of an award on other persons under similar circumstances; (4) whether the party requesting fees sought to confer a common benefit on all participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and (5) the relative merits of the parties' positions.

Sec'y of Dep't of Labor v. King, 775 F.2d 666, 669 (6th Cir. 1985).

         “The King factors-as they have been dubbed in this Circuit-are not statutory and thus should be viewed flexibly, with no one factor being “‘necessarily dispositive.'” Geiger v. Pfizer, Inc., 549 F. App'x 335, 338 (6th Cir. 2013) (quoting Foltice, 98 F.3d at 937.

         III.

         BCBSM contends that it obtained “some success on the merits” because it prevailed in defending against the Tribe's claims regarding the Member Plan, PGIP, and the Medicare-like Rates. Hardt, 560 U.S. at 256. The Tribe argues that it achieved some success on the merits because it obtained an $8.5 million judgment on its claims involving the Employee Plan.

         The initial question is whether either party has achieved “some” success on the merits. That standard requires a showing of more than “trivial success on the merits, or purely procedural victories.” Ruckelshaus v. Sierra Club, 463 U.S. 680, 688 n.9 (1983). But a district court has discretion to award attorney fees “if the court can fairly call the outcome of the litigation some success on the merits without conducting a ‘lengthy inquir[y] into the question whether a particular party's success was ‘substantial' or occurred on a ‘central issue.'” Hardt, 560 U.S. at 255 (quoting Ruckelshaus, 463 U.S. at 688 n.9).

         Here, both parties can fairly be said to have achieved partial success. The Tribe obtained an $8.5 million dollar judgment, while BCBSM successfully defended against claims of liability for access fee payments made by the Member Plan, for the PGIP program, and for the failure to pay Medicare-like rates.[2] It is unclear whether BCBSM is arguing that the Tribe did not achieve even “some” success on the merits. BCBSM devotes significant portions of its briefing to the assertion that liability for the claim on which the Tribe prevailed, access fee payments for the Employee Plan, was uncontested by BCBSM. However, in the “Argument” section of its response brief, BCBSM simply argues that the Tribe is not entitled to attorney fees when the King factors are considered. See Def. Resp. Pl. Mot. at 14, ECF No. 125. The only issue which the Tribe prevailed upon was not meaningfully contested at summary judgment. For that reason, the success achieved by the Tribe was modest. The Tribe did, nevertheless, receive a substantial judgment on part of its claims. The Supreme Court has instructed lower courts to not engage in a “lengthy inquiry” into whether some success was achieved. Given that admonition, an $8.5 judgment on a largely uncontested claim is sufficient to constitute “some success on the merits.”

         A.

         BCBSM's motion for attorney fees will be considered first. As an initial matter, the Tribe argues that “this Court has no authority to award attorneys' fees and costs to BCBSM related to claims raised by the Member Group” because the Court held that “ERISA does not apply to any claim raised by the Member Group.” Pl. Resp. Def. Mot. at 15, ECF No. 124. That proposition is incorrect. See Moore v. Lafayette Life Ins. Co., 458 F.3d 416, 441 (6th Cir. 2006) (holding that the district court had authority to impose attorney fees against the plaintiff even though the district court concluded that the plaintiff was “ineligible to recover benefits under an ERISA cause of action”). See also Credit Managers Ass'n of S. California v. Kennesaw Life & Acc. Ins. Co., 25 F.3d 743, 747 (9th Cir. 1994) (“[I]t would be unjust to permit CMA to insulate itself from liability for attorney's fees simply because it failed to produce sufficient evidence to prevail on its claims.”).

         The Tribe further argues that attorney fees are rarely rewarded for prevailing Defendants in ERISA actions. In support of that proposition, the Tribe cites several cases from other Courts of Appeal. See Toussaint v. JJ Weiser, Inc., 648 F.3d 108, 111 (2d Cir. 2011) (“‘[T]he five factors very frequently suggest that attorney's fees should not be charged against ERISA plaintiffs.'”) (quoting Salovaara v. Eckert, 222 F.3d 19, 28 (2d Cir. 2000)); Marquardt v. N. Am. Car Corp., 652 F.2d 715, 720-21 (7th Cir. 1981) (“Although the five factors used as guidelines above do not explicitly differentiate between plaintiffs and defendants, consideration of these factors will seldom dictate an assessment of attorneys' fees against ERISA plaintiffs.”); Gray v. New England Tel. & Tel. Co., 792 F.2d 251, 258 (1st Cir. 1986) (noting that the factors governing ERISA attorney fee awards are biased towards a “prevailing plaintiff more strongly than a prevailing defendant” but noting that defendants are not barred from receiving attorney fees); Operating Engineers Pension Tr. v. Gilliam, 737 F.2d 1501, 1506 (9th Cir. 1984) (explaining that the relevant “factors very frequently suggest that attorney's fees should not be charged against ERISA plaintiffs”).

         Neither party has identified Sixth Circuit authority which expressly considers this issue. But, as BCBSM points out, the Sixth Circuit has affirmed awards of attorney fees against ERISA plaintiffs. See Moore, 458 F.3d at 445-46. In Moore, the Sixth Circuit considered the King factors and concluded that the district court did not abuse its discretion by awarding attorney fees to the defendant. The Moore opinion emphasized that “[t]he district court need not determine that the entire matter was pursued in bad faith to find some level of culpability on the part of Plaintiff for the unnecessary scope of litigation.” Id. at 445. Similarly, the Sixth Circuit explained, approvingly, that the district court's “objective was not to deter plaintiffs from bringing colorable claims for benefits, but from unnecessarily expanding the scope and complexity of litigation.” Id. at 446. But see Huizinga v. Genzink Steel Supply & Welding Co., 984 F.Supp.2d 741, 745 (W.D. Mich. 2013) (explaining that fee awards are often unwarranted for ERISA defendants and declining to grant the defendant's motion for fees after consideration of the King factors).

         Moore makes clear that the King factors govern regardless of the party moving for attorney fees. As other courts of appeal have observed, the relevant factors will often weigh against imposing attorney fees on a non-prevailing ERISA plaintiff. These cases do not suggest that the King factors are inapplicable. Rather, the best approach is to consider the policies and protections that ERISA was meant to effectuate while reviewing the King factors.

         1.

         The first factor to consider is the “degree of the opposing party's culpability or bad faith.” King, 775 F.2d at 669. BCBSM contends that the Tribe unnecessarily expanded the scope and complexity of the litigation, citing Moore, 458 F.3d at 446, by asserting “their meritless argument that there was just one ERISA-governed plan sponsored by the Tribe.” Def. Mot. Fees at 13. BCBSM argues that there was “clear legal authority” which demonstrated the frivolity of that position. Id. The company additionally asserts that the Tribe demonstrated bad faith behavior when they “baseless[ly] deni[ed]” BCBSM's requests for admissions seeking to establish that the Tribe had two plans with BCBSM. Id. BCBSM similarly faults the Tribe for refusing to admit that it had two separate plans during early mediation sessions and thus preventing an expeditious settlement. Finally, BCBSM argues that the Tribe's PGIP claim was manifestly foreclosed by controlling Sixth Circuit authority.

         While considering these arguments, it must be remembered that “the course of litigation is rarely predictable.” Christiansburg Garment Co. v. Equal Employment Opportunity Comm'n, 434 U.S. 412, 422 (1978). “Even when the law or the facts appear questionable or unfavorable at the outset, a party may have an entirely reasonable ground for bringing suit.” Id. at 701. Accordingly, “the mere fact that an action is without merit does not amount to bad faith.” BDT Prod., Inc. v. Lexmark Int'l, Inc., 602 F.3d 742, 753 (6th Cir. 2010).

         The Tribe's assertion that ERISA applied to both the Member and Employee Plans, though ultimately unpersuasive, was not made in bad faith. The questions of law implicated by the Tribe's argument were complex. The Court's analysis of ERISA's application to the Member Plan spanned over fifteen pages in the July 14, 2017, Op. & Order. See Id. at 10-26. After the applicable statutory definitions and judicial interpretations were summarized and parsed, the Court concluded that ERISA's protections did not cover the Member Plan. But that conclusion was based, in large part, on the Tribe's dual role as employer and sovereign. Native American Tribes are not for-profit businesses, and that difference was determinative here. Accordingly, there was a significant factual and legal distinction between the present case and the other access fee cases which BCBSM is currently defending. BCBSM makes much of the Court's “strong language” rejecting the Tribe's “one plan” argument. Def. Mot. Fees at 14. But the focus on the Court's conclusions, as opposed to the depth of its analysis, is unhelpful post hoc reasoning. See Christiansburg, 434 U.S. at 421- 22 (“[A] district court [must] resist the understandable temptation to engage in post hoc reasoning by concluding that, because a plaintiff did not ultimately prevail, his action must have been unreasonable or without foundation”). After the work of reviewing and interpreting the relevant legal authority is completed, the application to a particular case will often be evident. A party did not necessarily litigate in bad faith simply because, in retrospect, the ultimate resolution was not a close question. BCBSM is correct that the Tribe's claim was questionable from the outset, but, especially given the complex legal and factual issues involved, the company has not shown that the Tribe brought the Member Plan claims in bad faith.

         For similar reasons, BCBSM's assertion that the Tribe denied certain requests for admission in bad faith is not convincing. BCBSM argues that the Tribe refused to admit “incontrovertible” facts, like that “there is no requirement that a participant be a current or former ‘employee' of Plaintiff Saginaw Chippewa Indian Tribe of Michigan . . . to participate in the welfare benefit plan associated with . . . Group Number 61672. Pl. Resp. Def. Sec. RTA at 7, ECF No. 118, Ex. I. In the Tribe's response, it denied the request

because the request is premised on the false assumption that the enrollees in Group Number 61672 are participants in a plan that is different than the plan that is associated with the enrollees of Group Number 52885. . . . [I]n that sense, some participants are required to be an employee to be a part of the welfare benefit plan, and thus the request is denied.

Id.

         The other requests for admission which BCBSM identifies likewise sought resolution of legally determinative factual issues. As explained above, the Tribe's factual and legal arguments regarding the significance of the two plans it maintained with BCBSM were rejected. But the distinctions and arguments the Tribe relied upon were not so manifestly meritless as to constitute bad faith, culpable behavior.[3]

         Because the Tribe's argument, at summary judgment, that the Member Plan was covered by ERISA was not made in bad faith, the Tribe cannot be faulted for refusing to settle at “two early mediation sessions.” Def. Mot. Fees at 14. Indeed, BCBSM seems to imply that this case, like most access fees cases BCBSM is defending, should have been settled. But BCBSM can hardly assert an entitlement to settlement, especially because this case involved facts which differentiated it from other access fee cases.

         The Tribe's arguments regarding its PGIP claim came closest to evidencing bad faith. Both the complaint and the Tribe's briefing at the summary judgment stage advanced an understanding of PGIP which was unsupported by the evidence presented. In dismissing the Tribe's PGIP claim, the Court explained that “the Tribe misconstrues the operation of PGIP.” July 14, 2017, Op. & Order at 28. At summary judgment, BCBSM presented unrefuted evidence that PGIP was funded “by an internal reallocation of fees which would have been collected [from customers like the Tribe] anyway.” Id. For that reason, the Court found that “the Tribe's assertion that PGIP violates BCBSM's fiduciary duty is puzzling.”

         Importantly, the Tribe's allegations framing its PGIP claim were not legally deficient. As recognized in the July 14, 2017, opinion and order, the Tribe's allegations “properly frame[d] the factual predicate that the Tribe would have to show to establish an ERISA fiduciary violation.” Id. at 29. But the Tribe could not corroborate those assertions with evidence. The Tribe primarily relied upon two pieces of evidence in advancing its PGIP claim. A January 3, 2005, letter prepared by BCBSM did “suggest that the PGIP payment was added onto the yearly fee update, as opposed to contained within it.” Id. at 31 (emphasis in original). Because deposition testimony clarified that, “for 2005, the amount of the fee update was reduced by the amount of the PGIP payment, ” the letter was insufficient to demonstrate a genuine issue of material fact. The Tribe also referenced an email drafted by an employee which analogized the PGIP payments to the hidden access fee payments which BCBSM has admitted liability for. The employee later clarified that she had no direct knowledge of the program (and the Tribe declined to depose her). Given the dearth of any other supporting evidence in the record, the Court dismissed the Tribe's PGIP claim.

         However, the Court's opinion and order dismissing the Tribe's PGIP claim was the first instance, in any of the many cases currently being brought against BCBSM, where the PGIP claim was considered on its merits at summary judgment. In Moore, the Sixth Circuit affirmed an award of attorney fees against an ERISA plaintiff. In so holding, the Court noted that “Plaintiff unnecessarily prolonged litigation by filing unreliable briefs and pursuing arguments even after their rejection by the court.” 458 F.3d at 445 (emphasis added). In this instance, the Tribe's PGIP claim had not been previously rejected by this or any other court. The Tribe was entitled to judicial consideration of its PGIP claim, despite the tenuous factual support for the claim. Accordingly, the Tribe did not act in bad faith when it sought adjudication of whether genuine issues of material fact existed.

         Given the barebones evidentiary support for the Tribe's PGIP claim, the Tribe's decision to advance that claim through summary judgment approached the bounds of good faith advocacy. That said, the Tribe was advancing a colorable legal theory and, although it fell short of identifying sufficient supporting evidence to demonstrate a genuine issue of material fact, the Tribe did proffer some supporting evidence. The Tribe's “one plan” argument, similarly, was colorable. The Tribe did not act culpably or in bad faith while litigating this suit. The legal and factual support for the Tribe's claims, however, was limited, and so this factor does not strongly weigh against a fee award.

         2.

         The second factor to consider is whether the Tribe has the ability to satisfy an attorney fees award. The Tribe does not contest that it has the financial resources to satisfy an award, but alleges that an award is “not an appropriate use of plan assets” because all assets of the Plaintiff Welfare Benefit Plan should be used “for the exclusive benefit of plan participants and beneficiaries.” Pl. Resp. Mot. Fees at 6, ECF No. 124 (citing 29 U.S.C. § 1103(c)).[4] At this stage, an exhaustive inquiry into whether the Benefit Plan can be required to use plan assets ...


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