Sixth Circuit Reverses District Court and Holds Plaintiff Plausibly Alleged Fiduciary Status of TPA and ERISA Remedies

On May 21, 2025, the U.S. Court of Appeals for the Sixth Circuit issued a decision in Tiara Yachts, Inc. v. Blue Cross Blue Shield of Michigan, No. 24-1223, reversing the district court's decision granting Blue Cross Blue Shield of Michigan's (BCBSM) motion to dismiss and remanding the case back to the district court. The plaintiff, the sponsor of a self-funded health benefits plan administered by BCBSM (Plan), asserts in its complaint that BCBSM, serving as the plan's third-party administrator (TPA), breached its ERISA fiduciary duties and engaged in prohibited transactions when it (1) allegedly overpaid some claims for services from non-participating providers using a "flip logic" across one of its claims processing platforms, and (2) allegedly clawed back claim overpayments and retained a percentage of the recoveries through a Shared Savings Program (SSP) set forth in the parties' agreement. 

The district court granted BCBSM's motion to dismiss because it found that: (1) Tiara Yachts had not adequately pled that BCBSM was acting as an ERISA fiduciary when allegedly overpaying claims or through its claim recovery efforts, and (2) Tiara Yachts could not recover under either ERISA section 502(a)(2), because it did not adequately plead that it was seeking relief on behalf of the Plan (rather than as the employer), or section 502(3), because this provision does not provide for recovery of overpayments to providers, which the court construed as monetary (not equitable) relief. The court also stated prospective equitable relief the plaintiff sought was rendered moot due to the end of the parties' contractual relationship. The Sixth Circuit, in large part, reversed both holdings. 

First, the Sixth Circuit examined whether BCBSM's alleged overpayment of claims and/or recovery efforts "involved either control over plan assets or discretionary authority over plan management or administration." The court emphasized that control over plan assets need not be discretionary to confer ERISA fiduciary status and found that the facts alleged were adequate to plead that BCBSM controlled and "fail[ed] to preserve" plan assets when using the "flip logic" claims-processing procedures. The court rejected the district court's conclusion that the "allegations about flip logic and claims-processing issues are fully matters of contract" and distinguished this case from DeLuca v. Blue Cross Blue Shield of Michigan, 628 F.3d 743, 747 (6th Cir. 2010), which held that a TPA was not acting as a fiduciary when it negotiated provider rate changes that applied across its book of business. Here, the Sixth Circuit found that BCBSM was not acting as a "distributor of healthcare services," but rather as a claims processor with control over plan assets. The court also distinguished the case from Massachusetts Laborers' Health & Welfare Fund v. Blue Cross Blue Shield of Massachusetts, 66 F.4th 307, 324 (1st Cir. 2023), because there, unlike here, the TPA "lacked the final authority to approve claims" (internal quotation marks omitted).

With respect to the allegations related to BCBSM's claim recovery efforts, the court, as a threshold matter, rejected BCBSM's argument that these legal claims sounded in fraud and were therefore subject to a heightened pleading standard. Moving to the merits, the court found that the plaintiff's allegations were sufficient to state that BCBSM exercised fiduciary discretion over and set its own compensation under the SSP because, even though the terms of the SSP set forth BCBSM's compensation as a percentage of recoveries, BCBSM allegedly controlled the number and amount of overpayments by the Plan on which its compensation was based by virtue of its control over the claims-processing apparatus. The Sixth Circuit did not find persuasive BCBSM's arguments that third-parties identified and clawed back overpayments through the SSP and that such recoveries were contingent upon "providers' willingness... to return excessive claims payments, which was outside BCBSM's control" (internal quotation marks omitted). 

Lastly, stating it would not "elevate form over substance," the Sixth Circuit rejected the district court's holding that Tiara Yachts could not recover pursuant to ERISA section 502(a)(2) because Tiara Yachts did not specifically seek recovery on behalf of the Plan in its complaint. According to the court, the plaintiff could pursue under ERISA sections 409 and 502(a)(2) losses to the Plan caused by a fiduciary breach, such as amounts allegedly overpaid by the Plan. The court also found, however, that Tiara Yachts' request for equitable relief in the form of restitution of funds BCBSM allegedly overpaid and never recovered under section 502(a)(3) was not proper because the alleged overpayments to providers were not in BCBSM's possession. By contrast, the plaintiff's request for "restitution or disgorgement of BCBSM's SSP profits" from BCBSM under section 502(a)(3) was deemed properly pled. 

Among other things, this decision demonstrates the key roles plan design, plan contract terms, and distinguishing facts play when courts decide and advance cases asserting fiduciary status of TPAs and other plan service providers. 

Departments of Justice and Labor Tell SCOTUS There's No Need to Take Up Mulready PBM Law Cert. Petition

On May 27, 2025, the U.S. Solicitor General and Acting Solicitor of Labor filed the government's brief in Mulready v. Pharmaceutical Care Management Association, No. 23-1213 (U.S), telling the high court it should deny the petition for a writ of certiorari filed by the Insurance Commissioner of Oklahoma and supported by 31 states and the District of Columbia seeking to overturn the Tenth Circuit's 2023 decision holding parts of Oklahoma's Right to Pharmacy Choice Act preempted by ERISA and the Medicare statute. The government stated in its brief that neither the ERISA nor the Medicare preemption questions warranted further review. As to ERISA preemption, the government emphasized that ERISA preempts state laws like the one at issue that govern central matters of plan administration, even when the laws do so by regulating third parties, such as pharmacy benefit managers (PBMs). The government also rejected the petitioner's argument that the Oklahoma PBM law was a mere "cost regulation" like the law held not preempted in Rutledge v. Pharmaceutical Care Management Association, 592 U.S. 80 (2020). In addition, while the government maintained in its brief, as it did below, that the Oklahoma law's pharmacist probationary status provision was not preempted by ERISA, contrary to the Tenth Circuit's holding, it stated that any tension between the Tenth's Circuit's holding and that of the Eighth Circuit in Pharmaceutical Care Management Association v. Wehbi, 18 F.4th 958 (8th Cir. 2021) involving a different accreditation provision was not sufficient to warrant review. The brief further stated that the fact that neither the district court nor the Tenth Circuit addressed the ERISA preemption savings-clause argument, the latter on the basis that the petitioner did not preserve that argument for appeal, served as a further basis warranting denial of the petition. Lastly, the brief asserted that the Tenth Circuit's holding that the Oklahoma law's "any willing provider" pharmacy network provision was preempted under the Medicare statute, which the government stated was a correct holding and not in conflict with other circuits, also did not warrant further review. 

A decision on the pending petition may be issued before the end of the Supreme Court's term next month.

Ninth Circuit Upholds Decision Reaffirming Private Fund Investments in 401(k) Plans

On May 22, 2025, the Ninth Circuit issued an opinion in Anderson, et al., v. Intel Corporation Investment Policy Committee, et al., No. 22-1628 (9th Cir. 2025), affirming the district court's decision dismissing the plaintiffs' claims against Intel, its benefits committees, and board (Intel) focused on private equity fund investment options in company's 401(k) plan (the Plan). The plaintiffs in Intel, originally filed in 2019 and consolidated with a similar action (Sulyma v. Intel Corporation Investment Policy Committee, et al.) in 2020, alleged that Intel breached ERISA's duties of prudence and loyalty by causing the Plan to invest "large allocations" of its assets in hedge funds and private equity funds. The plaintiffs asserted that the defendants' inclusion of hedge funds and private equity funds as part of a risk mitigation strategy for the Plan violated ERISA because more traditional investment options could have provided higher returns and lower fees. On January 8, 2022, the district court dismissed the plaintiffs' claims for failure to state a claim and the plaintiffs appealed.

The Ninth Circuit agreed with the district court that the duty of prudence allows a fiduciary the discretion to make a "range of reasonable judgments based on her experience and expertise," which includes making a strategic decision on what type of funds to include in a plan's investment lineup. The Ninth Circuit rejected the plaintiffs' circumstantial allegations that Intel's investment decisions must have been the result of a flawed process because the private equity and hedge funds did not perform as well as and cost more than some of the comparator funds the plaintiffs selected. In rejecting these claims, the court noted that Intel disclosed the investment strategy involving these private equity and hedge funds — which the court also noted were permissible investments under ERISA — and advised participants that the purpose of the strategy was to "reduce investment risk by investing in assets whose returns are less correlated to equity markets." The court also noted that the comparators chosen by the plaintiffs were not meaningful benchmarks or comparable because they did not have "similar risk-mitigation strategies and objectives" as the Plan funds at issue. Further, the court stated that the plaintiffs' comparator funds "were not truly comparable because they had different aims, different risks, and different potential returns." 

The Ninth Circuit also agreed with the district court that the plaintiffs' duty of loyalty claim, which was based on the Plan's inclusion of private equity and hedge funds that invest in companies in which Intel itself invested, could not stand as pleaded. The court rejected the plaintiffs' argument that Intel could potentially benefit financially from the inclusion of these funds in the Plan. The court agreed with the district court that a duty of loyalty claim requires a plausible allegation of "a real conflict of interest, rather than the mere potential for a conflict of interest."  

This decision reaffirms that fiduciaries can in some circumstances utilize private equity and hedge funds as investment options for ERISA plans, consistent with the U.S. Department of Labor (DOL) June 2020 information letter regarding private equity investments as designated investment alternatives and a DOL December 2021 supplemental letter that emphasizes that fiduciaries must have an appropriate level of expertise to select and monitor these type of investments. It also reaffirms that a plaintiff's claims should not survive dismissal when based on comparators that are not meaningful benchmarks.

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