can be divided into those that concern IBC's control over plan
assets and those that relate to IBC's administration or
management of the plan.
In evaluating plaintiffs' position that IBC controlled plan
assets, it must be emphasized that the Fund is a fully insured
employee welfare plan, not a self-funded plan. Under the latter,
it would be the Fund that retains the risk of providing and
paying for health benefits for its participants. In contrast, in
a fully-insured arrangement with a health insurance company such
as IBC, the risk is passed from the Fund to the insurer. In this
case, the Fund paid IBC premiums for which IBC agreed to provide
health benefits under an insurance policy. Through this exchange,
the Fund shifted the risk from itself to IBC. Consequently, the
money IBC used to pay the medical providers was the money IBC
received in consideration for insuring the Fund's participants.
IBC was exercising control over its own assets, not those of the
Plaintiffs also argue that IBC exercised control over the plan
assets because IBC's decisions affected the amount of money the
Fund maintained in a reserve account. Carlo Simone, Sr., the
Fund's office manager responsible for the day-to-day running of
the Fund, explained that the collective bargaining agreement
between Local 286 and the participating employers required a
reserve "equal to three times the sum of the monthly cost of all
benefits provided." (Simone Decl. ¶ 5). Plaintiffs maintain
that an increase in premiums paid to IBC required a corresponding
increase in the Fund's reserves. IBC, however, has no direct
control over the level of reserves required. As noted above, that
ratio is determined exclusively by the collective bargaining
agreement. The latter also dictates how the reserve funds are
spent. IBC has no authority over the money in the reserve
IBC simply had no control or authority over any of the Fund's
assets. It managed and controlled only its own money. We reject
the plaintiffs' contention that IBC was an ERISA fiduciary
because it "exercise[d] authority or control respecting the
management or disposition of [the plan's] assets."
29 U.S.C. § 1002(21)(A)(i).
Plaintiffs next argue that IBC was a fiduciary to the Plan
because it exercised the requisite discretion and control over
the Plan's administration. 29 U.S.C. § 1002(21)(A)(iii). In
this respect, plaintiffs assert that IBC provided notifications
to the Fund and its participants, kept records, and processed
There is no evidence before us that IBC's notification
functions involved discretion or control sufficient to render IBC
a plan fiduciary. The Department of Labor regulations state that
"a person who performs purely ministerial functions . . . is not
a fiduciary because such a person does not have discretionary
authority or control." 29 C.F.R. § 2509.75-8, D-2.
"Ministerial functions" include "[p]reparation of employee
communications material; . . . [p]reparation of reports
required by government agencies; . . . [and][p]reparation of
reports concerning participants' benefits." Id. The record
establishes that IBC creates and provides notifications to Plan
beneficiaries only if the Plan asks for them. (Park Dep.
105:20-106:17). In short, IBC performed this notification function
"within a framework of policies, interpretations, rules,
practices and procedures made by other persons."
29 C.F.R. § 2509.75-8, D-2A. Thus, IBC cannot be a fiduciary for notifying
participants of their benefits or the amount paid to providers.
We turn to other aspects of plan administration. The Summary
Plan Description for the Fund states, "The Trustees shall have
the sole and absolute discretion to determine eligibility for
benefits under the Plan and to construe and interpret the plan of
benefits. . . . Any construction, interpretation or application
of the Plan by the Trustees shall be final, conclusive and
binding . . . on any person claiming benefits." The Summary Plan
however, must be read in conjunction with the program
descriptions and the parties' contracts. Those documents appear
to give IBC control over the claims appeal procedure.
Specifically, IBC notifies participants if their claims have been
denied. IBC provides particiipants with a "fuller explanation of
the rejection" of claim denials by means of a 1-800 telephone
number. Finally, IBC determines the outcome of a claims appeal.
The record also contains evidence that IBC performed
record-keeping as part of its claims processing. Record-keeping
that involves "administering the day-to-day aspects of . . . claims
review procedures" can establish fiduciary status. Sixty-Five
Security Plan v. Blue Cross and Blue Shield of Greater New York,
583 F. Supp. 380, 387-88 (S.D.N.Y. 1984).
Even assuming that IBC exercised discretion over certain of the
plan's administrative functions, it does not become liable as an
ERISA fiduciary unless there is a nexus between the alleged
breach and the discretionary authority exercised. Therefore, we
must "ask whether [IBC] is a fiduciary with respect to the
particular activity at issue." Coleman v. Nationwide Life
Insurance Co., 969 F.2d 54, 61 (4th Cir. 1992). In this case, the
breach of fiduciary duty alleged is IBC's failure to disclose or
pass on the full benefits of all discounts that IBC was receiving
from medical providers. Plaintiffs essentially claim that IBC did
not negotiate a fair and accurate rate of premiums with the Fund.
There are no allegations that IBC has failed to cover properly or
pay the claims of the plan participants. That IBC might have
exercised discretion or control over the processing of claims or
the keeping of records is not dispositive because plaintiffs have
not produced any evidence showing a connection between these
functions and the breach of fiduciary duty alleged in the second
Contrary to plaintiffs' contention, IBC did not perform a
discretionary function with respect to the administration of the
plan when it negotiated contract terms. In Schulist v. Blue Cross
of Iowa, 717 F.2d 1127 (7th Cir. 1983), the court held that "[a]s
to the terms and conditions upon which it became a[n insurance]
provider, [Blue Cross/Blue Shield] entered into an arm's length
bargain presumably governed by competition in the
marketplace. . . . [Blue Cross/Blue Shield] was not a fiduciary
under ERISA with respect to . . . its compensation as a provider
of Plan benefits." Id. at 1132. Thus, Blue Cross "did not in
these respects incur the obligations of a fiduciary." Id.
Similarly, the Second Circuit has concluded that a person
negotiating a contract with a welfare or health plan
has no authority over or responsibility
to the plan and presumably is unable to
exercise any control over the trustees'
decision whether or not, and on what
terms, to enter into an agreement with
[them]. Such a person is not an ERISA
fiduciary with respect to the terms of
the agreement for his compensation.
F.H. Krear, 810 F.2d at 1259. In a similar vein, the same
circuit has held that "there was no fiduciary duty under ERISA at
that point to negotiate a premium favorable to" a welfare fund.
Srein v. Soft Drink Workers Union, Local 812, 93 F.3d 1088,
1096 (2d Cir. 1996). We agree.
IBC proposed to plaintiffs terms under which it would provide
medical insurance. The plaintiffs' Fund was free to reject those
terms and purchase insurance from another provider. In fact, the
Fund threatened to do so. (Def.'s Ex. F at 3; Mahady Decl. ¶
4). The Fund was also free to request premiums lower than those
suggested by IBC, and, again, did so. (Deft's Ex. G; Simone Dep.
I at 24:12-19). Succinctly put, contract negotiation is not
discretionary plan administration.
Plaintiffs have no evidence that IBC breached any relevant
ERISA fiduciary duty with respect to plan assets or plan
administration. We will grant IBC's motion
for summary judgment as to Count I of plaintiffs' second amended
Count II of plaintiffs' second amended complaint alleges that
IBC "has and continues to engage in a transaction prohibited
by . . . 29 U.S.C. § 1106, and not exempted by . . .
29 U.S.C. § 1108(b)(2)."
Section 1106(a) provides, in relevant part, "A fiduciary with
respect to a plan shall not cause the plan to engage in a
transaction, if he knows or should know that such transaction
constitutes a direct or indirect . . . furnishing of goods,
services, or facilities between the plan and a party in
interest." 29 U.S.C. § 1106(a)(1)(D). This definition of
prohibited transactions, however, is limited under a section of
ERISA, entitled "Exemptions from prohibited transactions."
29 U.S.C. § 1108. It states in relevant part:
The prohibitions provided in section 1106 of this
title shall not apply to . . . [c]ontracting or
making reasonable arrangements with a party in
interest for office space, or legal, accounting,
or other services necessary for the establishment
or operation of the plan, if no more than reasonable
compensation is paid therefor.
29 U.S.C. 1108(b)(2). To enforce these prohibitions, ERISA allows
a civil action to be brought "by a participant, beneficiary, or
fiduciary (A) to enjoin any act or practice which violates any
provision of this subchapter or the terms of the plan, or (B) to
obtain other appropriate equitable relief (i) to redress such
violations or (ii) to enforce any provisions of this subchapter."
29 U.S.C. § 1132(a)(3).
As noted above, IBC has not breached any relevant fiduciary
duty under ERISA. Plaintiffs, however, complain that IBC is a
party in interest to a prohibited transaction and is liable under
ERISA for this reason. "The term 'party in interest' means, as to
an employee benefit plan . . . a person providing services to
such plan." 29 U.S.C. § 1002(14)(B). Plaintiffs maintain that
IBC was party to an agreement for the direct furnishing of
services which resulted in more than reasonable compensation for
IBC. In sum, by failing to pass on the full amount of the
discounts it received from medical providers, the Fund
purportedly overpaid IBC for health insurance.
As an initial matter, IBC contends that as a party in interest
and not a fiduciary, it cannot be held liable for its
participation in any alleged prohibited transactions. See Harris
Trust and Savings Bank v. Salomon Brothers, Inc., 184 F.3d 646
(7th Cir. 1999). This contention, however, ignores the applicable
case law in this circuit. In Reich v. Compton, 57 F.3d 270 (3d
Cir. 1995), the Third Circuit held that the Secretary of Labor
"can bring an action . . . against a nonfiduciary who
participates in a transaction prohibited" by ERISA. Id. at 286.
Although its holding specifically addressed the Secretary's
ability to bring a civil action under section 1132(a)(5), the
court noted that it saw "no reason to distinguish between
[section 1132(a)(3)] and [section 1132(a)(5)] on this issue."
Id. at 286 n. 21; see Mertens v. Hewitt Associates,
508 U.S. 248, 260, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993). Thus,
a party in interest to a prohibited transaction, as well as a
plan's fiduciary, is subject to liability under ERISA.
ERISA's provisions concerning prohibited transactions seek to
prevent plan fiduciaries from "engaging in certain types of
transactions that had been used in the past to benefit other
parties at the expense of the plans' participants and
beneficiaries." Compton, 57 F.3d at 275; see Lockheed Corp.
v. Spink, 517 U.S. 882, 888, 116 S.Ct. 1783, 135 L.Ed.2d 153 (1996).
Section 1106 fulfills this purpose in two parts. Section 1106(b)
outlines per se prohibitions against self-dealing transactions
that have a "high probability of corruption and loss of plan
assets." Kouba v. Joyce, No. 83 C 451, 1987 WL 33370, at *4
(N.D.Ill.Dec. 31, 1987); see 29 U.S.C. § 1106(b).
Section 1106(a) forbids "sweetheart" deals between fiduciaries and
parties in interest to an ERISA plan. Significantly, however, it only
outlaws transactions such as "furnishing of . . . services . . . between
the plan and a party in interest" where the fiduciary "knows or should
know" that they are prohibited. Id.; Kouba, 1987 WL 33370, at *4.
Plaintiffs have not alleged, much less produced any evidence,
that the Fund's fiduciaries knew or should have known that the
agreements with IBC for the provisions of health insurance were
unreasonable under §§ 1106(a) and 1108. In fact, paintiffs
consistently deny having actual or constructive knowledge that
their transactions with IBC were prohibited. They allege that
IBC's receipt of unreasonable compensation was concealed from
them. According to plaintiffs, they did not know and should not
have known: (1) that IBC received additional discounts from their
providers; (2) that the premium proposals did not include these
greater discounts; or (3) that IBC was retaining those greater
discounts for themselves. Nowhere do plaintiffs assert that
"sweetheart" deals or self-dealing on the part of the Fund was
Whether IBC's conduct turns out to be wrongful under some other
statute or legal principle is not now before us. Plaintiffs have
not alleged or produced any evidence of a prohibited transaction
as defined under § 1106 of ERISA. ERISA's "detailed
enforcement scheme provides 'strong evidence that Congress did
not intend to authorize other remedies that it simply forgot to
incorporate expressly.'" Mertens, 508 U.S. at 254, 113 S.Ct.
2063 (quoting Massachusetts Mutual Life Insurance Co. v.
Russell, 473 U.S. 134, 146-47, 105 S.Ct. 3085, 87 L.Ed.2d 96
(1985)). We decline, therefore, to rewrite or expand ERISA's
prohibited transactions provisions to eliminate the "knows or
should know" language of § 1106(a).
Accordingly, we will also grant IBC's motion for summary
judgment as to Count II of plaintiffs' second amended complaint.
AND NOW, this 29th day of September, 1999, for the reasons set
forth in the accompanying Memorandum, it is hereby ORDERED that:
(1) the motion of defendant Independence Blue Cross for summary
judgment as to Counts I and II of plaintiffs' second amended
complaint is GRANTED; and
(2) judgment is entered in favor of defendant Independence Blue
Cross and against plaintiffs Mitchell Marks, Joseph Liberatore,
John Corabi, and Paper Converters Local 286 Welfare Trust Fund
on Counts I and II of plaintiffs' second amended complaint.
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