The opinion of the court was delivered by: David N. Hurd, United States District Judge
On May 28, 2002, the plaintiffs commenced the instant action against
defendant claiming three causes of action: (1) that defendant Centrus
Pharmacy Solutions breached its fiduciary duty to the New York State
Teamsters Council Health and Hospital Fund (the "Fund") under the
Employee Retirement Income Security Act, 29 U.S.C. § 1001, et. seq.
("ERISA"); (2) that defendant engaged in a prohibited transaction with
the Fund in violation of 29 U.S.C. § 1106(a); and (3) state common
law breach of contract.
Defendant moves to dismiss the Complaint pursuant to Fed.R.Civ.P.
12(b)(6). Plaintiff opposes. Oral argument was heard on October 25, 2002
in Albany, New York. Decision was reserved.
The Fund is an employee benefit plan under 29 U.S.C. § 1002(3).
(Compl. at ¶ 4.) In or about November 1992, the Fund entered into a
Prescription Drug Services Agreement (the "Agreement") with defendant.
(Compl. at ¶ 6; Compl. at Ex. A.) Pursuant to the Agreement, defendant
was required to:
6. Verify the price computation of each prescription;
8. Submit statements of charges and bi-weekly reports;
10. Accumulate statistics for the Fund;
11. Provide reports to the Fund;
19. Maintain a network of provider pharmacies.
(Compl. at ¶ 8.) In exchange, the Fund paid defendant sixty-two cents for
each claim it processed.
In January 1999, defendant recommended a preferred formulary program
(the "program") to the Fund. Under the program, Fund participants would
be encouraged to use cheaper, preferred, formulary drugs for which they
would be responsible for paying a $4.00 co-payment, rather than the
standard $8.00 co-payment applicable to non-formulary, single source
brand name drugs. (Compl. at ¶¶ 10-11.) The Fund adopted the
recommendation and implemented it on May 1, 1999. (Compl. at ¶ 13.)
In implementing the plan, defendant improperly reduced the co-payment
for all drugs (including non-formulary, single source brand name drugs)
to $4.00. (Compl. at ¶ 14.) Because of this error, the Fund only
collected $4.00 for many drugs on which it should have collected $8.00.
(Id. at ¶ 15.) Accordingly, the Fund lost $4.00 on each non-formulary
drug claim processed by defendant. (Id.) The Agreement was terminated on
December 31, 2000. (Id. at ¶ 7.)
III. STANDARD OF REVIEW
In deciding a Rule 12(b)(6) motion, a court "must accept the
allegations contained in the complaint as true, and draw all reasonable
inferences in favor of the non-movant; it should not dismiss the
complaint `unless it appears beyond a
reasonable doubt that the
plaintiff[s] can prove no set of facts in support of [their] claim which
would entitle [them] to relief.'" Sheppard v. Beerman, 18 F.3d 147, 150
(2d Cir.) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)), cert.
denied, 513 U.S. 816 (1994); see also Kaluczky v. City of White Plains,
57 F.3d 202, 206 (2d Cir. 1995). Conclusory allegations that merely state
the general legal conclusions necessary to prevail on the merits and are
unsupported by factual averments will not be accepted as true. See,
e.g., Clapp v. Greene, 743 F. Supp. 273, 276 (S.D.N.Y. 1990), aff'd,
930 F.2d 912 (2d Cir.), cert. denied, 502 U.S. 868 (1991); Albert v.
Carovano, 851 F.2d 561, 572 (2d Cir. 1988). "`A court may dismiss a
complaint [under Fed. R. Civ. P. 12] only if it is clear that no relief
could be granted under any set of facts that could be proved consistent
with the allegations.'" Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002)
(quoting Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)).
Defendant's motion to dismiss presents two primary issues: (1) whether
it is a fiduciary within the meaning of ERISA; and (2) whether the facts
as alleged in the Complaint state a claim for a violation of
29 U.S.C. § 1106(a).
A. Whether Defendant is an ERISA Fiduciary
ERISA contains its own definition of the term "fiduciary." Pursuant to
29 U.S.C. § 1002(21)(A):
See also 29 C.F.R. § 2510.3-21; 29 C.F.R. § 2509.75-8. "[W]hether
. . . an . . . entity is an ERISA fiduciary must be determined by
focusing on the function performed, rather than on the title held." Blatt
v. Marshall & Lassman,
, 812 (2d Cir. 1987). "An entity
need not have absolute discretion with respect to a benefit plan in order
to be considered a fiduciary." Blatt, 812 F.2d at 812. An entity need
only have "sufficient control over at least a part of the [plan] assets
to create a fiduciary relationship." United States v. Glick,
528 (2d Cir. 1998).
29 C.F.R. § 2509.75-8; see also Geller v. County Line Auto Sales,
Inc., 86 F.3d 18, 21 (2d Cir. 1996). Thus, the Department of Labor states
that persons who "have no
power to make any decisions as to plan policy,
interpretations, practices, and procedures, but who perform the following
administrative functions for an employee benefit plan, within a framework
of policies, interpretations, rules, practices and procedures made by
other persons" are not plan fiduciaries:
1. Apply rules to determine eligibility for
participation or benefits;
2. Calculate services and compensation credits for
3. Prepare employee communications material;
4. Maintain participants' service and employment records;
5. Prepare reports required by government agencies;
6. Calculate benefits;
7. Orientate new participants and advise participants
of their rights and options under the plan;
8. Collect contributions and apply contributions as
provided in the plan;
9. Prepare reports concerning participant's benefits;
10. Process claims; and
11. Make recommendations to others for decisions with
respect to plan administration.
29 C.F.R. § 2509.75-8.
Upon review of the Agreement (which is annexed to the Complaint), it is
clear that the Fund bears ultimate responsibility for all decisions and
that defendant is merely carrying out its ministerial obligations under
the Agreement, subject to the Fund's control. For example, the Agreement
required defendant to maintain a computerized file containing a list of
employees, the coverage status of each employee and other information.
(Compl. at Ex. A, ¶ 3(A).) However, the list is to be compiled from
information "to be provided by the Trust Fund." (Id.) Similarly,
defendant was obligated to prepare identification cards for plan
participants "subject to the prior approval of the Trust Fund as to
content, style and format." (Id. at ¶ 3(B).) In paragraph 4, the
Agreement specified the details of how and when defendant was to
reimburse plan participants for the cost of prescription drugs and how
defendant was to pay pharmacies. (Id. at ¶ 4.) The Agreement also
dictated certain terms to be incorporated in any agreements between
defendant and provider pharmacies. (Id. at ¶ 5.) Additionally, defendant
was required to provide various reports and process claims.
The Agreement further required defendant to "determine whether such
claims qualify for reimbursement in accordance with the terms of the Plan
as provided in this Agreement as same may be amended from time to time by
the Trust Fund." (Id. (emphasis supplied).) Exhibit A to the Agreement
specifically delineated what prescription drugs are covered by the plan
and under what circumstances they are excluded. (See Compl. at Ex. A.) In
addition, defendant could make recommendations for changes in the Fund's
prescription drug program, but such recommendations had to be adopted by
the Fund before being implemented. (Compl. at ¶ 13.) The Agreement also
provided that defendant and the Fund were "independent contracting
entities" and that "[defendant] and none of its directors, officers,
agents and employees are Trustees of the Trust Fund as a result of
entering into this Agreement." (Id. at ¶ 15.) Furthermore, the Fund
retained the ultimate responsibility to "adjust the payments provided
hereunder or obtain refunds, as appropriate, in the event its examination
discloses any inaccuracies in processing of claims or reimbursements by
[defendant]." (Id. at ¶ 6(b).) Other provisions of the Agreement
similarly recognize that it is the Fund that is administering
and managing the plan. (See Compl. at Ex. A, pp. 2, 4, 13.)
It is clear from these provisions and the remainder of the Agreement
that the Fund retained control over the management and administration of
the plan. Each of the duties imposed upon defendant under the Agreement
as set forth supra at 2-3 were purely ministerial and did not involve the
exercise of discretion regarding the management or administration of the
plan, the disposition of plan assets, or the rendering of investment
advice for a fee or compensation. Defendant was merely performing
ministerial tasks virtually identical to those set forth in
29 C.F.R. § 2509.75-8 within a framework of policies made by the Fund
and, therefore, is not an ERISA fiduciary.
To the extent that Greenblatt v. Prescription Plan Servs. Corp.,
783 F. Supp. 814 (S.D.N.Y. 1992), suggests a different result, the
discussion in that case regarding the defendant's services as not being
purely ministerial is not persuasive, particularly in light of the
Department of Labor interpretive bulletin found at
29 C.F.R. § 2509.75-8. In addition, Greenblatt can be distinguished
by the fact that the defendant in that case retained actual control over
$150,000 of the plan's money. The Greenblatt court found that the
defendant's "ability to retain possession of the [cash] reserve despite
its clear post-termination obligation under the Contract demonstrates
[the defendant's] actual control over the disposition of Fund assets."
Id. at 821. No such similar facts are presented here.
Although defendant may have received monies from the Fund, it did not
retain any control over those monies. To the contrary, it merely took in
Fund monies and distributed them to the pharmacies to pay for the
participants' prescription drugs. The vast majority of cases hold that the
functions performed by defendant are ministerial. See Geller, 86 F.3d at
21 (guaranteeing eligibility and remitting premiums is not
discretionary); CSA 401(K) Plan v. Pension Professionals, Inc.,
195 F.3d 1135 (9th Cir. 1999) (preparation of financial reports is
ministerial); Pohl v. National Benefits Consultants, Inc., 956 F.2d 126
(7th Cir. 1992) (plan administrator performing functions spelled out in
29 C.F.R. § 2509.75-8 was not a fiduciary); Harris Trust and Sav.
Bank v. Provident Life and Acc. Ins. Co., 57 F.3d 608 (7th Cir. 1995)
(plan administrator that made eligibility determinations in accordance
with plan's claims administration procedure was not a fiduciary); Blatt,
812 F.2d at 812 ("[M]inisterial functions include the application of
rules determining eligibility for participation, calculation of services
and benefits, and collection of contributions.").
B. Prohibited Transactions
Plaintiffs' second cause of action alleges that defendant violated
29 U.S.C. § 1106(a)(1)(D) by improperly billing the Fund for the
difference in cost based on a $4.00 co-payment for non-formulary drugs,
rather than an $8.00 co-payment. Plaintiffs maintain that defendants
received funds that were in excess of those that were reasonable and
necessary to provide services to the Fund and that "by miscalculating and
misapplying the co-pay on non-preferred formulary drugs, its charges to
the Fund were not `reasonable.'" (Pl. Mem. of Law at 8.)
Section 406(a)(1)(D) of ERISA, 29 U.S.C. § 1106(a)(1)(D),
provides, in part, that:
Except as provided in section 1108 of this title: A
fiduciary with respect to a plan shall not cause the
plan to engage in a transaction, if he or she knows or
should know that such transaction constitutes a direct
or indirect transfer to,
or use by or for the benefit
of, a party in interest, of any asset of the plan.
Section 1108(b)(2) provides that:
The prohibitions provided in section 1106 of this
title shall not apply to any of the following
transactions: Contracting 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
The parties do not dispute that defendant was a service provider, and
thus was a party in interest as that phrase is defined in ERISA.
29 U.S.C. § 1002(14). Plaintiffs do not argue that defendant did not
provide services necessary to the operation of the plan. The dispute is
whether the exception at section 1108(b)(2) applies to the facts and
circumstances of this case.
Defendant received a flat rate of sixty-two cents for every claim it
processed regardless of whether it collected a $4.00 or $8.00 co-payment.
That was the fee negotiated in the Agreement. (Compl. at Ex. A, ¶ 1(B).)
Unlike the cases cited by plaintiffs where the court found that the
receipt of excessive compensation could constitute a violation of section
1106, see Nieto v. Ecker, 845 F.2d 868, 873 (9th Cir. 1988) (attorney who
was paid for services he did not render); Guardsmark, Inc. v. Bluecross
and Blueshield of Tenn,, 169 F. Supp.2d 794, 803 (W.D.Tenn. 2001)
(defendant received unreasonable compensation by overcharging for
administrative and run-out fees and wrongfully overpaying claims),
defendant did not realize any gain by its alleged mistakes or receive
Defendant did not receive compensation for services it did not perform
and it did not otherwise benefit from charging $4.00 rather than $8.00.
Although the Fund may have paid out more than it was obligated to,
defendant did not receive more than the contractually specified fee. The
amount of compensation or remuneration received by defendant did not
change as a result of its failure to collect the $8.00 co-payment. While
defendant may have improperly performed under the Agreement, it cannot be
said that its charges were unreasonable because the Agreement provided
for a payment of sixty-two cents regardless of what co-payment defendant
collected from the plan participants and defendant did process claims for
prescription drug benefits. See Rutledge v. Seyfarth, Shaw, Fairweather,
and Geraldson, 201 F.3d 1212, 1221-22 and 1222 n. 12 (9th Cir.) (noting
that a claim for "inadequate or improper performance" or "substandard
performance" as opposed to one for "excessive fees" does not implicate the
prohibited transactions provision.), opinion amended, 208 F.3d 1170 (9th
Cir.), cert. denied, 531 U.S. 992 (2000). Therefore, the complaint fails
to state a cause of action for violation of 29 U.S.C. § 1106(a)(1)(D).
Defendant is not an ERISA fiduciary because its services under the
Agreement were purely ministerial and did not involve the exercise of
discretion over the Fund's administration and/or management. Defendant
did not engage in a prohibited transaction with the Fund in violation of
29 U.S.C. § 1106(a)(1)(D) because it obtained reasonable compensation
for services necessary for the operation of the plan. Because the federal
causes of action are dismissed at this early stage, supplemental
jurisdiction over the state law cause of action will not be exercised.
Accordingly, it is
1. Defendant's motion to dismiss the Complaint is GRANTED;
2. The ERISA causes of action (First and Second) are DISMISSED with
3. The state common law breach of contract cause of action (Third) is
DISMISSED without prejudice.
The Clerk of the Court is directed to enter judgment accordingly.
IT IS SO ORDERED.
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