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W.E. Aubuchon Co. v. Benefirst, LLC

United States District Court for the District of Massachusetts · Civil Procedure

Civil ProcedureERISA preemptionERISA fiduciary statusSummary judgmentERISApreemptionrelate toconnection with

Facts

Aubuchon sponsored two ERISA employee medical benefit plans and hired BeneFirst under Administrative Services Agreements to administer them. Aubuchon alleged that BeneFirst made a large error in reporting an expected stop-loss reimbursement, committed systemic claims-processing errors, and failed to maintain claim documentation. The agreements imposed performance standards for claims accuracy and required record maintenance, while also stating that Aubuchon retained final authority and responsibility for the plans. The SPD expressly named Aubuchon as a named fiduciary and plan administrator, but also stated that the term plan administrator included persons to whom authority was delegated and that BeneFirst had been delegated claims administration and day-to-day functions.

Issue

Were Aubuchon's state-law breach of contract claims against BeneFirst preempted by ERISA, and was BeneFirst an ERISA fiduciary either as a named fiduciary or as a functional fiduciary? More specifically, could BeneFirst avoid liability altogether by arguing both that ERISA preempted the contract claims and that it was not a fiduciary under ERISA?

Rule

A state-law claim is preempted by ERISA if it has a connection with or reference to an ERISA plan, but a plan's arm's-length contract claim against a third-party service provider is not preempted when enforcing the contract does not interfere with ERISA's objectives of uniform plan administration and does not require interpretation of plan terms. Under ERISA, fiduciary status may arise either by being named in the plan documents or functionally by exercising discretionary authority or meaningful control over plan management, administration, or assets; however, ordinary claims processing and related administrative tasks by a third-party administrator, especially where the sponsor retains final authority, are generally ministerial and do not create functional fiduciary status.

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Granite Works, Inc., in Manchester, New Hampshire, sponsors an employee health plan and hires HarborPoint Benefit Services, a private administrator, under a negotiated services agreement. The agreement requires a 97% claims-payment accuracy rate and preservation of claim files for three years; Granite Works sues in state court after an audit shows HarborPoint missed the accuracy benchmark and discarded records.

Is Granite Works's breach-of-contract claim most likely preempted by ERISA?

Explanation. The majority held that a plan's state-law contract claim against a non-fiduciary service provider is not preempted when it arises from a voluntary, arm's-length business contract and enforcing it does not interfere with ERISA's objective of uniform plan administration. Here, the claim is based on contractual accuracy and recordkeeping obligations, and liability can be shown through audit results and record failures rather than plan interpretation. (Derived from W.E. Aubuchon Co. v. Benefirst, LLC (n.d.).)