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Sixth Circuit Rules That Administrative Exhaustion Would Be Futile In Class Action Breach Of Fiduciary Duty Case


HLD, v. 33, n. 6 (June 2005)

Sixth Circuit Rules That Administrative Exhaustion Would Be Futile In Class Action Breach Of Fiduciary Duty Case


The Sixth Circuit found class action plaintiffs' claim for plan-wide injunctive relief was not a repackaged individual-benefit claims and met the futility exception to exhaustion of the administrative remedies requirement. In addition, the appeals court found that one plaintiff exhausted the administrative-review procedures in relation to his individual-benefit claim, while the other plaintiffs did not.

John Hill, Franchot Barnes, Francesca Barnes, and Glory Celestine (Plaintiffs) brought a putative class action in federal district court against Blue Cross and Blue Shield of Michigan (BCBSM), the third-party administrator for their employer-sponsored health insurance program (Program), alleging that BCBSM's handling of their claims for emergency-medical-treatment expenses resulted in the wrongful denial of benefits and constituted a breach of BCBSM's fiduciary duties to Program members under the Employee Retirement Income Security Act of 1974 (ERISA).

Plaintiffs alleged that BCBSM violated the program's emergency-medical-treatment provisions by utilizing an automated claims-processing system that made determinations based on a physician's final diagnosis rather than the claimant's signs and symptoms at the time of treatment, in conflict with program documents. The district court granted BCBSM's motion to dismiss Plaintiffs' suit without prejudice on the ground that Plaintiffs failed to exhaust administrative remedies available under the program prior to filing suit. Plaintiffs appealed.

After recognizing that Plaintiffs properly pleaded BCBSM's status as an ERISA fiduciary by alleging it "had discretion to grant or deny Plaintiffs' claims," the appeals court found that the district court erred in dismissing their fiduciary-duty claims as repackaged individual-benefit claims because Plaintiff's alleged defects in the claims-handling procedures, seeking plan-wide injunctive relief, rather than individual-benefit payments. The appeals court noted that the facts were distinguishable from prior case law rejecting fiduciary-duty claims that were actually "exhausted individual-benefit claims in disguise." Specifically, the appeals court noted that "an award of benefits to a particular Program participant based on an improperly denied claim for emergency-medical-treatment expenses will not change the fact that BCBSM is using an allegedly improper methodology for handling all of the Program's emergency-medical-treatment claims."

The appeals court next concluded that dismissal of Plaintiffs' fiduciary-duty claims for failure to exhaust administrative remedies was improper, finding that it would be futile to require exhaustion of these claims. The court found that it was reasonable to infer from BCBSM's alleged decision not to modify its claims-handling process--as it had done in other instances--that it had already reached a determination of the issue that would be presented in an administrative review proceedings. Also significant, the appeals court found, was the fact that BCBSM represented that it lacked the authority to institute the claims-handling changes sought by Plaintiffs based on provisions in its collective bargaining agreement.

The appeals court then found that the district court erred in dismissing Plaintiffs' individual claims for reimbursement of the emergency-medical-treatment expenses. Based on the Program documents, the court reversed the decision of the district court, finding that Plaintiff Hill adequately pleaded exhaustion of the administrative-review procedures available to him by simply alleging that he contacted his local union-benefits representative. In doing so, the appeals court said that it was insignificant whether or not Hill's union representative then submitted it to BCBSM, as required in the administrative review procedures, noting that "requiring Hill to plead with particularity the layers of review his claim received would be too great an onus on beneficiaries at the motion-to-dismiss stage."

            With respect to the other Plaintiffs' individual-benefit claims, however, the appeals court found that they had not sufficiently alleged that they exhausted the available administrative remedies, noting that the only allegation made was that they "have spent a significant amount of time and resources attempting to resolve emergency medical benefit disputes with BCBSM and, thereby, have exhausted the administrative remedies available to them." Recognizing that Plaintiffs must therefore establish that exhaustion was not required, the appeals court dismissed plaintiffs' futility argument, finding that they "failed to allege that BCBSM would not conduct further review of their individual claims and remedy any improper claims denials," had they used the administrative-review procedures available to them. In doing so, the appeals court remarked that allegations that BCBSM avoided lawsuits by paying claims only in response to inquiries was not sufficient for properly pleading the futility exception.  

            The court also rejected the Plaintiffs' argument that they should not be required to exhaust administrative remedies for their individual claims because they were "intertwined" with their fiduciary claims. Citing case law where courts recognized this argument in instances where it would "further judicial economy or the interests of justice," the appeals court found this case distinguishable noting that the individual claims would require an examination of facts and circumstances pertaining to their signs and symptoms at the time emergency medical treatment was provided and would not automatically be deemed meritorious and requiring payment, even if BCBSM's methodology for processing the claims was found to violate the terms of the program. 

Finally, the appeals court reversed the district court's order dismissing Plaintiffs' claim for restitution and restoration to the Program for the "millions of dollars that BCBSM earned and/or that plan sponsors have saved" under its claim handling procedures, finding, as before, that exhaustion would be futile because BCBSM was certain to deny any claim for restitution.

            Hill v. Blue Cross and Blue Shield of Mich., No. 03-2607 (6th Cir. May 13, 2005). To read the case, go to



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