Atrium Medical Center v. United Healthcare Services, Inc.

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

ATRIUM MEDICAL CENTER, Case No. 19-cv-680

Plaintiff, Dlott, J.

Litkovitz, M.J.

v.

UNITEDHEALTHCARE INSURANCE REPORT AND

COMPANY, et al., RECOMMENDATION

Defendants.

This matter is before the Court on defendant UnitedHealthcare Insurance Company

(United)’s Motion to Dismiss (Doc. 21), plaintiff Atrium Medical Center (Atrium)’s response in

opposition (Doc. 25), and United’s reply (Doc. 26). The Court recommends that the motion be

granted and that Atrium’s claim against United be dismissed with prejudice.

I. Background1

Atrium is a hospital that provided emergency medical services to United’s insured, Khron

Powell, between June 12, 2017 through June 18, 2017. Atrium was not an “in-network provider”

or a “contracted provider” with United during this period. On June 12, 2017, Mr. Powell

executed a document titled “General Consent and Agreement” (Doc. 19), which included a

“FINANCIAL AGREEMENT AND ASSIGNMENT” provision.2 Therein, Mr. Powell

purported to “assign to [Atrium] all insurance and other benefits to which [he was] entitled for

the services provided by [Atrium].” (Id. at PAGEID #: 64). The Certificate of Coverage, Riders,

Amendments, and Notices for Mr. Powell’s group policy (Policy) with United, however,

contains an anti-assignment provision:

1 Unless otherwise noted, background facts are taken from Atrium’s amended complaint (Doc. 15) and amendment

thereto (Doc. 19), which are accepted as true for purposes of this motion.

2 Atrium refers to this document as “Exhibit A” in its amended complaint (see Doc. 15 at ¶ 7), but it was not initially

attached thereto. Atrium corrected the omission by later filing the document as an amendment to its amended

complaint. (See Doc. 19).

You may not assign your Benefits under the Policy to a non-Network provider

without our consent. When an assignment is not obtained, we will send the

reimbursement directly to you (the Subscriber) for you to reimburse them upon

receipt of their bill. We may, however, in our discretion, pay a non-Network

provider directly for services rendered to you. In the case of any such assignment

of Benefits or payment to a non-Network provider, we reserve the right to offset

Benefits to be paid to the provider by any amounts that the provider owes us.

(Doc. 21-1, Ex. 1 to Stalinski Aff. at PAGEID #: 131).3

Upon Mr. Powell’s discharge from Atrium, a corresponding claim for $197,628.26 was

billed to United. United unilaterally paid $51,371.53 of the claim and directed Atrium to seek

the amounts of $4,462.85 and $1,242.32 directly from Mr. Powell (the Policy’s coinsurance and

deductible amounts, respectively). United then denied the $140,551.56 claim balance without

reason or explanation despite Atrium’s repeated inquiries.

On July 12, 2019, Atrium filed an action in the Court of Common Pleas for Warren

County, Ohio. The state court complaint alleged that Atrium provided medical services to

United’s insured, United improperly denied $146,256.73 of the related claim, and United ignored

Atrium’s efforts to appeal. (Doc. 2 at PAGEID #: 18). United removed the case to this Court

pursuant to 28 U.S.C. §§ 1331, 1332, and 1441 on the grounds that there is diversity of

citizenship between the parties and Atrium’s claim is preempted by the Employee Retirement

Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq. (Doc. 1).

Following removal, the Court granted leave to Atrium to amend its complaint. (See

Docs. 14, 15, 19). The amended complaint contains three counts, and only the first pertains to

United. It does not invoke ERISA or any specific cause of action but generally alleges that

United improperly denied $140,551.56 of Atrium’s claim, that United is indebted to Atrium for

3 The Court considers the Policy a pleading for purposes of United’s motion to dismiss because it is “referred to in

[the] complaint and central to the claim.” Armengau v. Cline, 7 F. App’x 336, 344 (6th Cir. 2001) (citation omitted).

Atrium “concedes [that] the Certificate of Coverage controls United’s payment obligations.” (Doc. 25 at PAGEID

#: 262).

the unpaid services rendered to Mr. Powell, and that United has failed to pay this debt

notwithstanding repeated appeals to United and requests for explanation regarding its

calculations. United moved to dismiss the amended complaint with prejudice for lack of

standing, failure to state a claim for relief, and failure to exhaust administrative remedies.

II. Standard of review

United argues that this matter should be dismissed because Atrium has neither direct nor

derivative standing under § 502(a) of ERISA. While United frames the question of Atrium’s

standing as a matter of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1), the issue of

standing raised by United is a question of “statutory standing” under ERISA (i.e., whether

Atrium is a beneficiary or participant who may sue under 29 U.S.C. § 1132(a)(1)(B)) and not

Article III standing under the Constitution. See Bridges v. American Elec. Power Co., Inc., 498

F.3d 442, 444 (6th Cir. 2007). Therefore, the appropriate standard of review is that for a motion

to dismiss under Fed. R. Civ. P. 12(b)(6).4

In deciding a motion to dismiss under Rule 12(b)(6), the Court must accept all factual

allegations as true and make reasonable inferences in favor of the non-moving party. Keys v.

Humana, Inc., 684 F.3d 605, 608 (6th Cir. 2012) (citing Harbin-Bey v. Rutter, 420 F.3d 571, 575

(6th Cir. 2005)). Only “a short and plain statement of the claim showing that the pleader is

4 Although the Sixth Circuit has sometimes referred to statutory standing in the ERISA context as jurisdictional, see

Roberts v. Hamer, 655 F.3d 578, 581 n.2 (6th Cir. 2011), the Court believes that it would not do so in this case. In

Bridges, 498 F.3d at 445, the Sixth Circuit adopted the Seventh Circuit’s analysis of ERISA statutory standing from

Harzewski v. Guidant Corp., 489 F.3d 799 (7th Cir. 2007), which held:

[e]xcept in extreme cases illustrated by our example of the attempt of the plan participant’s

creditor to enforce a claim to ERISA benefits, the question whether an ERISA plaintiff is a

“participant” entitled to recover benefits under the Act should be treated as a question of statutory

interpretation fundamental to the merits of the suit rather than as a question of the plaintiff’s right

to bring the suit.

Id. at 803-04. Atrium does not take such an extreme position.

entitled to relief” is required. Id. (quoting Fed. R. Civ. P. 8(a)(2)). “[T]he statement need only

give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Id.

(internal quotation marks omitted) (quoting Erickson v. Pardus, 551 U.S. 89, 93 (2007)).

Although the plaintiff need not plead specific facts, the “[f]actual allegations must be enough to

raise a right to relief above the speculative level” and to “state a claim to relief that is plausible

on its face.” Id. (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)). “A

plaintiff must ‘plead[] factual content that allows the court to draw the reasonable inference that

the defendant is liable for the misconduct alleged.’” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662,

678 (2009)).

III. Analysis

A. Statutory standing

United first argues that Atrium does not have statutory standing to bring an ERISA claim

because there is no contractual relationship between United and Atrium, and therefore Atrium is

neither a plan participant nor a beneficiary who may bring suit to recover benefits under the

Policy. (Doc. 21 at 7) (citing Brown v. BlueCross BlueShield of Tenn., Inc., 827 F.3d 543, 545-

46 (6th Cir. 2016)). United also argues that Atrium does not have derivative standing under

ERISA because there has been no valid assignment of Mr. Powell’s benefits to Atrium as the

Policy expressly prohibits an assignment of benefits without United’s consent. While Atrium

does not mention ERISA in its complaint or response in opposition, it nevertheless argues that to

the extent that the Policy’s anti-assignment provision is enforceable, equitable doctrines prevent

United’s assertion thereof.

As a threshold matter, the Court must address whether ERISA preempts Atrium’s cause

of action against United. The Court then turns to the standing issues raised by United and

Atrium’s defenses thereto.

1. Preemption

ERISA allows for complete preemption. Loffredo v. Daimler AG, 500 F. App’x 491, 495

(6th Cir. 2012) (citing Aetna Health, Inc. v. Davila, 542 U.S. 200, 209 (2004)). A claim is

completely preempted by section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), if both

prongs of a two-factor test are satisfied: “(1) the plaintiff complains about the denial of benefits

to which he is entitled ‘only because of the terms of an ERISA-regulated employee benefit plan’;

and (2) the plaintiff does not allege the violation of any ‘legal duty (state or federal) independent

of ERISA or the plan terms.’” Hogan v. Jacobson, 823 F.3d 872, 879 (6th Cir. 2016) (quoting

Gardner. Heartland Indus. Partners, LP, 715 F.3d 609, 613 (6th Cir. 2013)).

Atrium’s claim against United satisfies both prongs. As to the first, its claim lacks any

state-law label and, “in essence[,]” seeks “the recovery of an ERISA plan benefit.” S. Ohio Med.

Ctr. v. Griffith, No. 1:19-cv-261, 2019 WL 5884280, at *5 (S.D. Ohio Nov. 12, 2019), report

and recommendation adopted, 2020 WL 581836 (S.D. Ohio Feb. 6, 2020) (quoting K.B. by &

through Qassis v. Methodist Healthcare - Memphis Hosps., 929 F.3d 795, 800-01 (6th Cir.

2019)). The sole relationship between Atrium and United is the Policy and whether and to what

extent United must pay the benefits delineated therein to Atrium. As to the second, Atrium

makes no argument that its claim is based on a legal duty independent of ERISA. It readily

acknowledges that “[t]he crux of [its] claim is that United has failed to act in accordance with the

Certificate of Coverage.” (Doc. 25 at PAGEID #: 262). Atrium’s claim is completely preempted

by ERISA. See Penny/Ohlmann/Nieman, Inc. v. Miami Valley Pension Corp., 399 F.3d 692, 699

(6th Cir. 2005) (“[B]ecause the contract at issue in the breach-of-contract claim is the ERISA

plan itself, the claim is clearly preempted.”) (quoting Darcangelo v. Verizon Commc’n, Inc., 292

F.3d 181, 194 (4th Cir. 2002)).

While the prevailing practice in the context of a completely preempted claim is to grant

leave to amend the complaint accordingly, this is not a requirement. See Ackerman v. Fortis

Benefits Ins. Co., 254 F. Supp. 2d 792, 818 (S.D. Ohio 2003) (citation omitted). Some courts

have “simply recognized the existence of the ERISA claim.” Id. (citations omitted). Cf.

Loffredo, 500 F. App’x at 495 (“[C]omplete preemption amounts to an exception to the well-

pleaded complaint rule that converts a state-law claim that could have been brought under § 1132

into a federal claim . . . and makes the recharacterized claims removable to federal court. . . .”)

(citations omitted) (emphasis added). The parties take no position on this point. For purposes of

its Report and Recommendation, the Court recasts Atrium’s claim against United as one arising

under 29 U.S.C. § 1132.

2. Derivative standing

Only plan participants and beneficiaries have standing to sue for civil enforcement of

benefit plans. Brown, 827 F.3d at 545 (citing 29 U.S.C. § 1132(a)(1)(B)). Merely having a right

to payment does not confer standing, derivative or otherwise. Id. at 545-46. See also Merrick,

175 F. Supp. 3d at 116 (“‘[R]ight to payment’ under the plan ‘does not a beneficiary make.’”)

(quoting Rojas v. Cigna Health and Life Ins. Co., 793 F.3d 253, 258 (2d Cir. 2015)). Atrium

does not allege that it has a contractual relationship with United such that it is a participant or

beneficiary with direct standing to sue under ERISA. Rather, Atrium alleges that Powell

assigned his right to benefits under the Policy to Atrium, thereby conferring derivative standing

on Atrium.

The Sixth Circuit recognizes derivative standing for health care providers but “only when

a patient ‘actually convey[s]’ a ‘valid assignment of benefits’ under the plan.” Brown, 827 F.3d

at 546 (quoting Cromwell v. Equicor–Equitable HCA Corp., 944 F.2d 1272, 1277 (6th Cir.

1991)). United contends that Atrium does not have a valid assignment of benefits because the

Policy expressly prohibits an assignment of benefits without United’s consent. United argues

that the anti-assignment provision contained in the Policy is enforceable and precludes statutory

standing.

Every Circuit that has considered the question has upheld the enforceability of anti-

assignment provisions in ERISA plans. See Am. Orthopedic & Sports Med. v. Indep. Blue Cross

Blue Shield, 890 F.3d 445, 453 (3d Cir. 2018) (collecting cases); Griffin v. Comm. of the UAW

Retiree Med. Benefits Trust, No. 16-12002, 2016 WL 6777854, at *2 (E.D. Mich. Nov. 16, 2016)

(citing Physicians Multispecialty Grp. v. Health Care Plan of Horton Homes, Inc., 371 F.3d

1291, 1295 (11th Cir. 2004) (collecting cases)). Courts within the Sixth Circuit have enforced

these provisions as well. See, e.g., Riverview Health Inst. LLC v. Med. Mut. of Ohio, No. 3:07-

cv-354, 2008 WL 4449482, at *8-9 (S.D. Ohio Sept. 30, 2008), aff’d, 601 F.3d 505 (6th Cir.

2010) (denying leave to amend to add estoppel claim because the policy at issue contained an

unambiguous anti-assignment provision); Children’s Hosp. Med. Ctr. of Akron v. Youngstown

Assocs. in Radiology, Inc. Welfare Plan, No. 4:11-cv-506, 2018 WL 4539282, at *3 (N.D. Ohio

Sept. 21, 2018) (dismissing complaint due to lack of standing in view of unambiguous anti-

assignment clause). Atrium does not argue otherwise, and the Court therefore finds that the anti-

assignment provision in the Policy is enforceable.

Atrium nevertheless argues that United’s course of dealing (i.e., making a payment of

benefits to and interacting with Atrium notwithstanding the anti-assignment provision) either

estops United from asserting or demonstrates waiver of United’s right to assert the anti-

assignment provision. As further basis for the application of estoppel, Atrium argues that

“[United] failed to disclose the anti-assignment provision in response to any of Atrium’s appeal

attempts and it failed to indicate the provision’s existence on any explanations of payment.”

(Doc. 25 at PAGEID #: 261).

i. Estoppel

Estoppel is available in ERISA cases but “cannot be applied to vary the terms of

unambiguous plan documents; estoppel can only be invoked in the context of ambiguous plan

provisions.” Sprague v. Gen. Motors Corp., 133 F.3d 388, 404 (6th Cir. 1998) (citing Fink v.

Union Central Life Ins. Co., 94 F.3d 489, 492 (8th Cir. 1996) and Hudson v. Delta Air Lines,

Inc., 90 F.3d 451, 458 n.12 (11th Cir. 1996)).5 Discussing estoppel in the context of an anti-

assignment provision, the Sixth Circuit has since remarked that “[n]o language in Sprague

suggests that an insurer has an affirmative duty to make health care providers or its insureds

aware of this kind of language.” Riverview, 601 F.3d at 522.

As noted above, the Policy’s anti-assignment provision reads:

You may not assign your Benefits under the Policy to a non-Network

provider without our consent. When an assignment is not obtained, we will

send the reimbursement directly to you (the Subscriber) for you to reimburse them

upon receipt of their bill. We may, however, in our discretion, pay a non-

Network provider directly for services rendered to you. In the case of any such

assignment of Benefits or payment to a non-Network provider, we reserve the

right to offset Benefits to be paid to the provider by any amounts that the provider

owes us.

5 In Bloemker v. Laborers’ Local 265 Pension Fund, 605 F.3d 436, 443 (6th Cir. 2010), the Sixth Circuit declined to

enforce this limitation “because neither of the rationales invoked by Sprague to justify its general prohibition against

application of estoppel to unambiguous provisions is sufficient to outweigh the extraordinary circumstances

presented by this case.” The Bloemker court established “extraordinary circumstances” as a necessary element to

bypass the ambiguity requirement set out in Sprague. Id. at 443-44. In Bloemker, the plaintiff had begun receiving

early retirement benefits in a certain amount pursuant to written confirmation of that amount. Id. at 438. Nearly two

years later, he was informed that he had been overpaid and was required to repay the excess. Id. The complaint at

bar does not allege any such extraordinary circumstances.

(Doc. 21-1, Ex. 1 to Stalinski Aff. at PAGEID #: 131) (emphasis added).

Consistent with Sprague, United contends estoppel does not apply because the Policy

contains an unambiguous anti-assignment provision. United cites two cases in which courts have

examined identical provisions: Merrick, 175 F. Supp. 3d at 114, and Aviation W. Charters, Inc.

v. United Healthcare Ins. Co., No. cv-14-00338, 2014 WL 5814232, at *3 (D. Ariz. Nov. 10,

2014). Like here, the plaintiffs in Merrick cited United’s “long-standing pattern and practice of

directly paying Plaintiffs for services provided under the plan” notwithstanding the anti-

assignment provision to support their estoppel claim. Id. at 120. Far from exhibiting

extraordinary circumstances, such as “intentional inducement or deception,” the court found that

the payments from United to the plaintiffs were “entirely routine. . . .” Id. at 121. The court

concluded, “[t]he fact that United made direct payments to Plaintiffs, as it was explicitly

authorized to do under the plan, does not estop it from raising the anti-assignment provision to

challenge Plaintiffs’ standing.” Id. (citation omitted) (emphasis added). In Aviation W., the

court did not discuss whether the plaintiff had alleged extraordinary circumstances but found

nothing ambiguous about the anti-assignment provision. 2014 WL 5814232 at *3. The court

found that the references in the provision to assignment and direct payment were “alternatives,

not equivalents.” Id. Moreover, it found that reading an exercise of discretion to pay directly

(one alternative) as overruling the consent-to-assignment requirement (another alternative)

“would be illogical.” Id.

Atrium argues that United’s failure to disclose the anti-assignment provision and

United’s course of dealing with Atrium are grounds to estop United from enforcing the anti-

assignment provision. Atrium cites two cases in support of this position: Productive MD, LLC v.

Aetna Health, Inc., 969 F. Supp. 2d 901 (M.D. Tenn. 2013), and Spectrum Health v. Valley

Truck Parts, No. 1:07-cv-1091, 2008 WL 2246048 (W.D. Mich. May 30, 2008). In Productive,

the court considered hundreds of claims for which a health care provider sought payment. Id. at

922. During an eight-year period, the insurance company paid professional components of these

claims but denied technical components, even where all parts of the claims would have violated

the applicable insurance policies’ anti-assignment provisions. Id. at 922-23, 927. The plaintiff

alleged that this disparate treatment was intended as punishment for refusing to join the

defendant’s provider network. Id. at 908. The court concluded that these unique facts justified

the plaintiff’s detrimental reliance for purposes of estoppel. Id. at 921-22, 927.6 In Spectrum,

the court did not consider an anti-assignment provision but remarked, in a footnote, that “[e]ven

if the Court were to conclude that Spectrum did not obtain a valid assignment from Clark, the

Court would nonetheless conclude that Defendants are estopped from raising the issue of

Spectrum’s right or authorization to pursue a claim for payment of benefits.” 2008 WL 2246048

at *4 n.4 (citing Hermann Hosp. v. MEBA Med. & Benefits Plan, 959 F.2d 569, 574 (5th Cir.

1992)). It found that the defendant’s failure to raise the validity of an assignment clause for

more than a year and a half of dealing with the alleged assignee would have established estoppel.

Id.

The cases cited by Atrium are not persuasive. The Court agrees with the two decisions

cited by United that the anti-assignment provision in the Policy is unambiguous. Atrium has

alleged no extraordinary circumstances that would upset the ordinary rule that estoppel is

unavailable to alter the meaning of an unambiguous policy term. To the extent that Atrium relies

on a duty of United to affirmatively disclose the anti-assignment provision in its course of

6 While it does not cite Bloemker, see supra n.4, or discuss extraordinary circumstances as such, Productive hints at

the distinction drawn in that case: “the alleged factual circumstances here present a much more compelling case for

the application of the estoppel doctrine than the circumstances at issue in Riverview.” Id. at 922.

dealing, the argument is foreclosed by Riverview. 601 F.3d at 522. Atrium cannot overcome its

statutory standing deficiency via estoppel.

ii. Waiver

Atrium also argues that it has statutory standing in this lawsuit because United waived its

right to assert the anti-assignment provision of the Policy. Atrium alleges that United forfeited

its right to assert this defense when it made payments to Atrium under the Policy and interacted

with Atrium despite the anti-assignment provision.

The Sixth Circuit has not ruled on whether the theory of waiver may be applied in the

ERISA context. See Trane U.S. Inc. v. Neblett, 291 F. Supp. 3d 848, 852 (M.D. Tenn. 2018);

Schornhorst v. Ford Motor Co., 606 F. Supp. 2d 658, 670 (E.D. Mich. 2009). See also

Badalament v. United of Omaha Life Ins. Co., No. 05-cv-74932, 2007 WL 1006908, at *4 (E.D.

Mich. Mar. 30, 2007) (“The federal common law of ERISA for waiver is not well-developed.”).

As a general matter, district courts are to “apply federal common law rules of contract

interpretation in making [their] determination[s].” Univ. Hosps. of Cleveland v. S. Lorain

Merchs. Ass’n Health & Welfare Benefit Plan & Tr., 441 F.3d 430, 437 (6th Cir. 2006) (quoting

Perez v. Aetna Life Ins. Co., 150 F.3d 550, 556 (6th Cir. 1998)). To the extent that ERISA is

silent, federal common law should “fill the statutory gap.” Trane, 291 F. Supp. 3d at 852

(quoting Patterson v. Chrysler Grp., LLC, 845 F.3d 756, 762 (6th Cir. 2017)). See also

Armistead v. Vernitron Corp., 944 F.2d 1287, 1298 (6th Cir. 1991), abrogated on other grounds

by M & G Polymers USA, LLC v. Tackett, 574 U.S. 427 (2015) (citing Lingle v. Norge Div. of

Magic Chef, Inc., 486 U.S. 399, 403 (1988) and discussing the incorporation of equitable

estoppel, “ERISA authorize[s] the federal courts to fashion a body of federal common law to

enforce the agreement that these statutes bring within their jurisdiction”).

Most circuits that have considered waiver in the ERISA context have either applied it or

indicated a willingness to apply it under appropriate circumstances.7 See, e.g., Am. Orthopedic,

890 F.3d at 454 (holding that “routine processing of a claim form, issuing payment at the out-of-

network rate, and summarily denying the informal appeal” did not demonstrate “an evident

purpose to surrender” an objection to a provider’s standing in a federal lawsuit such that waiver

could apply) (quoting Brown v. City of Pittsburgh, 186 A.2d 399, 401 (Pa. 1962)). Some circuits

have explicitly set an enhanced standard under which waiver can apply in the ERISA context,

holding that waiver will not be found unless the circumstances show either a detriment to the

plaintiff or a benefit to the defendant to justify the waiver. See Thomason v. Aetna Life Ins. Co.,

9 F.3d 645, 649 (7th Cir. 1993) (“The waiver that plaintiff [sought] . . . [wa]s a something-for-

nothing kind of waiver whereby [the insurer] will be held to the terms of its misleading

representations for no reason other than that it made them.”); Gordon v. Deloitte & Touche, LLP

Grp. Long Term Disability Plan, 749 F.3d 746, 753 (9th Cir. 2014) (agreeing with Thomason

that wavier in the ERISA context requires “something more” than a misrepresentation); Glass v.

United of Omaha Life Ins. Co., 33 F.3d 1341, 1348 (11th Cir. 1994) (declining to find waiver of

eligibility requirement where it was not shown that defendant knew the insured was ineligible or

that the insurer unjustly benefitted from the mistake).

Though not always explicitly stated as such, decisions in other circuits seem consistent

with this enhanced showing. The Second, Fifth, and Ninth Circuits have found waiver in

situations where insurers received an accompanying benefit in the form of reduced

administrative expense or premiums. See Lauder v. First Unum Life Ins. Co., 284 F.3d 375, 378

7 Only the Fourth Circuit has denied outright the application of waiver (and estoppel) in the ERISA context. White

v. Provident Life & Acc. Ins. Co., 114 F.3d 26, 29 (4th Cir. 1997) (“[F]ederal common law under ERISA . . . does

not incorporate the principles of waiver and estoppel. . . . ERISA . . . does not provide for such unwritten

modifications of ERISA plans.”) (citation omitted).

(2d Cir. 2002) (holding that insurer waived its right to assert lack of disability in denying a

claim, where the plaintiff had proffered evidence of her disability and the insurer initially had

requested medical records, but the insurer ultimately canceled the request to save administrative

expense); Pitts By & Through Pitts v. Am. Sec. Life Ins. Co., 931 F.2d 351, 353, 357 (5th Cir.

1991) (where insurance policy required at least ten employees, and yet insurer accepted and

cashed insurance premium checks “after learning beyond all doubt” that only one employee

remained on the group policy, insurer waived its right to enforce the ten-employee requirement);

Salyers v. Metro. Life Ins. Co., 871 F.3d 934, 938, 941 (9th Cir. 2017) (citing Pitts favorably and

finding wavier where the insurer accepted premiums despite knowing that the insured did not

meet the evidence of insurability requirement).

Within the Sixth Circuit, district courts have taken different approaches. Some courts

have concluded that wavier is never available in the ERISA context. See, e.g., Tendercare

(Mich.), Inc. v. Dana Corp., No. 02-72263, 2002 WL 31545992, at *4 (E.D. Mich. Oct. 18,

2002) (“[I]t is black letter law that standing cannot be waived.”) (citation omitted); Griffin v.

Comm. of the UAW Retiree Med. Benefits Tr., No. 16-12002, 2016 WL 6777854, at *3 (E.D.

Mich. Nov. 16, 2016) (“[C]ourts do not recognize waiver in the ERISA context.”) (citation

omitted). Others have entertained or applied the doctrine. See, e.g., Trane, 291 F. Supp. 3d at

853 (finding that waiver could apply if a plaintiff showed either detrimental reliance or

consideration, but the plaintiff had not established waiver in this case); Agee v. Jennie Stuart

Med. Ctr., No. 5:05-cv-154, 2007 WL 923090, at *6 (W.D. Ky. Mar. 23, 2007) (same);

Schornhorst, 606 F. Supp. 2d at 671-72 (discussing the split in authority but ultimately finding

“insufficient basis for application of the doctrine of waiver.”); and Health Cost Controls v.

Wardlow, 825 F. Supp. 152, 156-57 (W.D. Ky. 1993) (“HCC intentionally relinquished a known

right, and thereby waived the protection of its reimbursement provision.”).

The Court finds that the Sixth Circuit would likely join the majority of circuits that have

(or have been willing to) apply waiver in the ERISA context. The Sixth Circuit has defined

waiver as “the intentional relinquishment or abandonment of a known right.” PolyOne Corp. v.

Westlake Vinyls, Inc., 937 F.3d 692, 697 (6th Cir. 2019) (quoting United States v. Olano, 507

U.S. 725, 733 (1993)) (quotation marks and citation omitted).8 Even without reaching the

question of whether an enhanced waiver analysis is warranted, the Court concludes that waiver is

inapplicable to this case even under its basic definition, and United did not abandon its right to

assert the anti-assignment provision of the Policy to show Atrium’s lack of statutory standing in

this case.

None of Atrium’s allegations demonstrate that United intentionally relinquished the anti-

assignment provision. Particularly without any legal duty to volunteer the fact of anti-

assignment provision, United’s failure to advise Atrium of this provision falls short of an

“intentional relinquishment” thereof. Atrium also implies that because United “conducted

business as usual in processing and paying” part of the claim at issue, United waived

enforcement of the anti-assignment provision. (Doc. 25 at PAGEID #: 261). But as the Court

has already determined, the plan unambiguously provides that United had the option of paying

claims directly without assigning benefits. To interpret United’s direct payment as intentionally

relinquishing the right to enforce the anti-assignment provision would effectively write out the

8 To the extent that Wisconsin (see Doc. 21-1 at PAGEID #: 90) or Ohio law would apply on the question of waiver,

the outcome would be the same as the standards for waiver are identical. See Brunton v. Nuvell Credit Corp., 785

N.W.2d 302, 311 (Wis. 2010) (“[W]aiver is the intentional relinquishment or abandonment of a known right.”)

(quoting State v. Ndina, 761 N.W.2d 612, 670 (Wis. 2009)); State ex rel. Wallace v. State Med. Bd. of Ohio, 732

N.E.2d 960, 965 (Ohio 2000) (“‘Waiver’ is defined as a voluntary relinquishment of a known right.”).

alternative nature of the provision. See Sprague, 133 F.3d at 404 (“[T]o enforce something other

than the plan documents themselves . . . would not be consistent with ERISA.”). Cf. Am.

Orthopedic, 890 F.3d at 454 (an insurer’s routine claim processing and payment do not rise to

the level of a “clear, unequivocal, and decisive act” demonstrating intentional surrender of a

known right). Atrium cannot overcome its statutory standing deficiency via waiver.

In sum, Atrium’s state law claim against United is preempted by ERISA. To proceed,

Atrium is therefore required to demonstrate ERISA statutory standing. Because it is not an

ERISA plan participant or beneficiary, Atrium’s only avenue to statutory standing as a health

care provider is derivative. While a valid assignment of benefits under an ERISA plan may

establish derivative standing, Atrium has failed to establish a valid assignment under the United

Policy. The Policy’s anti-assignment provision is enforceable and forecloses derivative standing

for Atrium. Short of equitable relief in the form of estoppel or waiver, which are unavailable for

the reasons discussed above, Atrium has no statutory standing to bring a claim against United.

B. Failure to exhaust

Assuming, arguendo, that Atrium has derivate standing to assert a claim against United,

United argues that Atrium’s claim should nevertheless be dismissed for failure to state a claim

upon which relief can be granted. In the alternative, United argues that Atrium’s claim should be

dismissed because it has failed to exhaust its administrative remedies. For purposes of the

pending motion, even if the Court were to find that Atrium has statutory standing and raises a

plausible ERISA claim, it nevertheless has failed to exhaust its administrative remedies under the

Policy.

While the ERISA statute does not contain an administrative exhaustion requirement, the

Sixth Circuit has “read an exhaustion requirement into the statute.” Hitchcock v. Cumberland

Univ. 403(b) DC Plan, 851 F.3d 552, 560 (6th Cir. 2017) (quoting Fallick v. Nationwide Mut.

Ins. Co., 162 F.3d 410, 418 (6th Cir. 1998)). Administrative exhaustion “enables plan fiduciaries

to efficiently manage their funds; correct their errors; interpret plan provisions; and assemble a

factual record which will assist a court in reviewing the fiduciaries’ actions.” Ravencraft v.

UNUM Life Ins. Co. of Am., 212 F.3d 341, 343 (6th Cir. 2000) (quoting Makar v. Health Care

Corp. of Mid-Atl. (CareFirst), 872 F.2d 80, 83 (4th Cir. 1989)) (emphasis deleted). Dismissal

without prejudice is appropriate to the extent that a plaintiff has not established exhaustion. See

Falandays v. Penn Treat Am. Corp., 114 F. App’x 738, at *1 (6th Cir. 2004); Borman v. Great

Atl. & Pac. Tea Co., 64 F. App’x 524, 529 (6th Cir. 2003); Weiner v. Klais and Co., Inc., 108

F.3d 86, 88, 91 (6th Cir. 1997), abrogated on other grounds by Swierkiewicz v. Sorema N.A., 534

U.S. 506 (2002).

The entirety of Atrium’s allegations in the amended complaint related to exhaustion are

that “[United] has . . . repeatedly ignored [Atrium]’s appeal efforts and requests for explanations

regarding the calculation of rate of payment.” (See Doc. 15 at ¶ 14). In its response to the

motion to dismiss, Atrium alleges that “[i]t is unclear what additional attempts [it] needed to

make to exhaust its administrative remedies.” (See Doc. 25 at PAGEID #: 262).

The Policy contains a detailed “Questions, Complaints and Grievances” section, which

sets forth the internal grievance procedure that must be followed to contest any adverse action

taken by United. (See Doc. 21-1 at PAGEID #: 132-35). Atrium’s complaint and response in

opposition make no mention of this grievance procedure section, nor does Atrium allege the

specific actions it took to exhaust United’s internal grievance procedure. Atrium’s threadbare

allegations do not demonstrate exhaustion.

Atrium contends that if the Court finds it failed to exhaust its administrative remedies, the

Court should excuse the non-exhaustion based on futility. The Court finds that Atrium has not

established the futility exception to exhaustion.

Exhaustion may be excused if a plaintiff demonstrates futility—that “resorting to the

plan’s administrative procedure would simply be futile or the remedy inadequate.” Coomer, 370

F.3d at 505 (quoting Fallick, 162 F.3d at 419). Futility must be shown by a “clear and positive

indication . . . that [a plaintiff’s] claim will be denied on appeal” and “not merely . . . doubt[] that

an appeal will result in a different decision.” Id. (quoting Fallick, 162 F.3d at 419). Denial of

benefits alone is insufficient to demonstrate futility. Id. Generally, the Sixth Circuit has applied

the futility exception to exhaustion:

(1) when the “Plaintiffs’ suit [is] directed to the legality of [the plan], not to a

mere interpretation of it,” Costantino v. TRW, Inc., 13 F.3d 969, 975 (6th Cir.

1994) (emphases omitted); see also Fallick, 162 F.3d at 420, and (2) when the

defendant “lacks the authority to institute the [decision] sought by Plaintiffs,” Hill

v. Blue Cross & Blue Shield of Mich., 409 F.3d 710, 719 (6th Cir. 2005).

Dozier v. Sun Life Assur. Co. of Can., 466 F.3d 532, 535 (6th Cir. 2006).

Atrium argues that where, as here, an insurer has failed to comprehend the nature of the

plaintiff’s claim, courts will not require exhaustion based on futility. Atrium analogizes its

position to that of the plaintiffs in Costantino, 13 F.3d at 975, arguing that United “repeatedly

misunderstands or mischaracterizes Atrium’s claim.” (Doc. 25 at PAGEID #: 263).

Constantino is distinguishable. In Constantino, the plaintiffs challenged the legality of

the ERISA Plan, not the defendant’s interpretation of the Plan. The Sixth Circuit reasoned that

if the plaintiffs were to resort to the administrative process, the defendant “would merely

recalculate their benefits and reach the same result.” Costantino, 13 F.3d at 975. The court

therefore excused exhaustion of administrative remedies because it would be futile.

Here, in contrast, Atrium does not dispute the legality of United’s Policy but rather

United’s calculation of benefits under the Policy. Atrium’s amended complaint contains

allegations related entirely to calculations and payments under the Policy and not its legality.

(See Doc. 15 at ¶ 14) (“[United] has improperly denied this claim, without reason, and repeatedly

ignored [Atrium]’s appeal efforts and requests for explanations regarding the calculation of rate

of payment.”).

Atrium’s allegations are far more like those made in Borman, where the Sixth Circuit

refused to excuse exhaustion based on futility:

Borman vaguely alleged in his complaint that he had engaged in a “lengthy

period” of fruitless discussions concerning his benefit claims in controversy, and

had filed some sort of unspecified claim, with unnamed officers of A&P. He has

further asserted that the defendants had not timely informed him of the available

internal claim and review procedures, nor had they referred him to the Pension

Committee. However, in the trial court, Borman filed no affidavit nor produced

any other evidence in opposition to the Eckert affidavit and the documents offered

by the defendants in support of their motion to dismiss the complaint. Most

importantly, Borman failed to evince, or even allege, that he had made any effort

to adhere to A&P’s formal written internal benefit claim and review procedures,

or had even inquired of any A&P agent about those procedures.

64 F. App’x at 528. See also Riverview, 2008 WL 4449482 at *7 (“While Plaintiffs describe

some efforts to obtain payments from Medical Mutual of Ohio, there are no allegations detailing

any efforts to pursue administrative remedies under any of ERISA plans.”).

Like the plaintiff in Borman, Atrium generally alleges that United ignored Atrium’s

“appeal efforts” and requests for information without alleging a factual basis for such efforts and

requests. Atrium’s allegations do not engender a “clear and positive indication” of futility such

that the Court is convinced to excuse the exhaustion requirement. Coomer, 370 F.3d at 505

(quoting Fallick, 162 F.3d at 419). The Court concludes that even if Atrium has statutory

standing to bring suit, and even if Atrium has stated a plausible claim for relief under 29 U.S.C. §

1132, it has failed to demonstrate administrative exhaustion or futility thereof.9

C. Dismissal with prejudice

Were Atrium’s only deficiency its procedural failure to exhaust, dismissal without

prejudice would be appropriate. See Ravencraft, 212 F.3d at 344 (vacating and remanding

decision of the district court to dismiss a case with prejudice, where the dismissal had been based

solely on failure to exhaust). The Court also recommends here, however, that the Atrium’s claim

against United be dismissed with prejudice for lack of statutory standing. Atrium was on notice

of United’s desire to seek dismissal with prejudice and failed to respond with any indication that

it could cure a statutory standing defect. Dismissal with prejudice is appropriate. See DaVita,

Inc. v. Marietta Mem’l Hosp. Emp. Health Benefit Plan, No. 2:18-cv-1739, 2019 WL 4574500,

at *7 (S.D. Ohio Sept. 20, 2019), appeal docketed No. 19-3049 (6th Cir. Oct. 23, 2019)

(dismissing claims for which the plaintiffs had no statutory standing under ERISA with

prejudice); Merrick, 175 F. Supp. 3d at 126 (same); Martin v. Gen. Motors Corp., 753 F. Supp.

1347, 1358 (E.D. Mich. 1991) (determination that the plaintiff lacked standing under ERISA was

a decision on the merits warranting dismissal with prejudice).

9 In the context of ERISA, the Sixth Circuit has upheld dismissal at the pleading stage based on failure to exhaust.

See Hill v. Blue Cross and Blue Shield of Mich., 409 F.3d 710, 721, 723 (6th Cir. 2005) (affirming dismissal

pursuant to Fed. R. Civ. P. 12(b)(6) motion where certain plaintiffs had “not sufficiently alleged that they exhausted

the administrative remedies available to them.”).

IT IS THEREFORE RECOMMENDED THAT:

United’s motion to dismiss (Doc. 21) be GRANTED and count one of amended

complaint against United be DISMISSED WITH PREJUDICE. "°

Karen L. Litkovitz

United States Magistrate Judge

10 Atrium voluntarily dismissed defendant URSA Major Corporation without prejudice. (Doc. 33). Therefore, the

only remaining defendant in this case is Khron Powell, who has not responded to the complaint despite being served

with process. (Doc. 31).

20

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

ATRIUM MEDICAL CENTER, Case No. 19-cv-680

Plaintiff, Dlott, J.

Litkovitz, M.J.

vs.

UNITED HEALTHCARE INSURANCE

COMPANY, et al.,

Defendants.

NOTICE

Pursuant to Fed. R. Civ. P. 72(b), WITHIN 14 DAYS after being served with a copy of

the recommended disposition, a party may serve and file specific written objections to the

proposed findings and recommendations. This period may be extended further by the Court on

timely motion for an extension. Such objections shall specify the portions of the Report objected

to and shall be accompanied by a memorandum of law in support of the objections. If the Report

and Recommendation is based in whole or in part upon matters occurring on the record at an oral

hearing, the objecting party shall promptly arrange for the transcription of the record, or such

portions of it as all parties may agree upon, or the Magistrate Judge deems sufficient, unless the

assigned District Judge otherwise directs. A party may respond to another party’s objections

WITHIN 14 DAYS after being served with a copy thereof. Failure to make objections in

accordance with this procedure may forfeit rights on appeal. See Thomas v. Arn, 474 U.S. 140

(1985); United States v. Walters, 638 F.2d 947 (6th Cir. 1981).