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The U.S. Court of Appeals for the 6th Circuit has reversed a lower court ruling that certified a class of self-insured union benefit funds in a suit against Blue Cross Blue Shield of Michigan. At issue in the case, brought pursuant to the Employee Retirement Income Security Act (ERISA), was a fee Blue Cross collected from the funds for the state of Michigan to subsidize health insurance coverage for senior citizens. The split Aug. 12 ruling in Pipefitters Local 636 Insurance Fund v. Blue Cross Blue Shield of Michigan reversed an order by Judge Arthur Tarnow of the Eastern District of Michigan. The Pipefitters Fund and several trustees sued Blue Cross in September 2004 alleging that Blue Cross breached its fiduciary duty under ERISA by charging and failing to disclose this fee, which it collected from June 2002 to January 2004. Specifically, the Pipefitters Fund claimed that the fee violated the Michigan Nonprofit Health Care Corporation Reform Act, which bars some cost shifting between self-funded subscribers and Blue Cross. The fee was intended to fund an “Other-Than-Group” (OTG) subsidy for clients that weren’t under Blue Cross’ group insurance coverage. The Pipefitters Fund was a Blue Cross group insurance customer before it became self-insured in June 2002. In January 2004, Blue Cross stopped charging the fee to the Pipefitters Fund. According to the 6th Circuit ruling, Blue Cross regularly collected the fee from group clients, but not always from self-insured clients. An amicus brief submitted by Michigan’s insurance commissioner stated that the OTG subsidy was ultimately used to reduce insurance coverage costs for Michigan senior citizens. It is a so-called “Medigap” subsidy that funds Medicare coverage gaps. The district court initially dismissed the claim, but in 2007, the 6th Circuit found that the Pipefitters Fund had sufficiently claimed that Blue Cross breached its fiduciary duty under ERISA by charging the OTG fee. The Pipefitters’ Fund sought class certification for all similarly situated self-insured employee health and welfare plans or groups that contracted with Blue Cross for administrative services for their plans and were improperly charged the OTG subsidy. In September 2009, Tarnow ruled that class certification was appropriate under one provision of Federal Rule of Civil Procedure 23 because “the individual actions would create the risk of inconsistent adjudication that would establish incompatible standards of conduct.” He also found that another Rule 23 provision supported certification because “it’s a common question whether Blue Cross controlled assets and whether the assessment was consonant with Michigan statute.” His order defined the class as all entities that currently have or previously an administrative-services contract with Blue Cross and were charged an OTG fee. At issue before the 6th Circuit was whether Blue Cross was a fiduciary as defined by ERISA with respect to the OTG fees it charged to class members and whether it breached its fiduciary duty to the class by assessing the OTG fee. Senior Judge Richard Suhrheinrich authored the ruling, joined by Judge John Rogers. Judge Eric Clay dissented in part. Suhrheinrich wrote that a class action is not a superior method of adjudication of the case. Citing the U.S. Supreme Court’s recent ruling in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011), he determined that “there is no common contention capable of classwide resolution such ‘that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.’” Suhrheinrich found that the district court ignored “the critical, factual threshold issue specific to each and every class member of whether [Blue Cross] was acting as an ERISA fiduciary in each individual, contractual relationship with each plan member when it imposed the OTG fee.” Such an analysis would mean examining the contract terms and funding arrangements of 550 to 875 class members, Suhrheinrich wrote He also noted the Michigan insurance commissioner’s claim that Blue Cross “would potentially be forced to stop collecting more than $100 million dollars annually,” which would raise premiums for insurance customers, cut Medigap coverage or lead to a premium hike for the state’s senior citizens if the case were to proceed as a class action. “The serious financial repercussions to Michigan’s elderly population further support a conclusion that a class action is not a superior method of resolving the Fund’s allegation,” Suhrheinrich wrote. He further observed that class members stand to collect high potential damage awards, such as the $280,000 claimed by the Pipefitters Fund: “These are not the types of awards that would preclude individual class members from seeking relief through litigation.” Clay wrote that he agreed with the majority’s ruling that the case should not be certified under a class under the provision of Rule 23 that allows a class action when “inconsistent or varying adjudications with respect to individual class members…would establish incompatible standards of conduct for the party opposing the class.” But he opposed the majority’s ruling rejecting certification under a different provision of Rule 23, which allows certification when common questions of law or fact predominate and a class action is superior to other available options “for fairly and efficiently adjudicating the controversy.” Clay wrote that the case should be remanded for further factual development to determine how much individualized inquiry into each class member’s contract would be necessary for a class action. “In its certification inquiry in the instant case, the district court did not discuss the particularities of the class’ claims against Defendant to elucidate what pieces of evidence would be necessary to prove class members’ claims, and the extent to which this evidence would require individualized inquiries,” Clay wrote. “The district court’s failure to develop and analyze the record impedes our ability to thoroughly review whether the district court’s certification of the class was an abuse of discretion.” Blue Cross spokesperson Helen Stojic, said in an e-mailed statement that “Blue Cross is pleased with the judge’s decision.” The company’s lawyers at Detroit-based Dickinson Wright did not respond to requests for comment. Ronald Lederman, a partner at Southfield, Mich.-based Sullivan, Ward, Asher & Patton who argued for the Pipefitters Fund, declined to comment without his client’s permission. The Pipefitters Fund did not return a call for comment. The Michigan Office of Financial and Insurance Regulation submitted an amicus brief supporting Blue Cross because the class certification could impede the office’s collection of the Medigap funds, “which would adversely affect the health care of Michigan senior citizens.” Officials at the state agency, which has a new commissioner since it filed the amicus brief, was not available for immediate comment. Sheri Qualters can be contacted at [email protected].

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