|||U.S. Court of Appeals, Fifth Circuit
|||198 F.3d 552, 2000.C05.0042001 <http://www.versuslaw.com>
|||January 04, 2000
|||MARY ELLEN EHLMANN; ET AL, PLAINTIFFS,
MARY ELLEN EHLMANN; ET AL, PLAINTIFFS-APPELLANTS,
KAISER FOUNDATION HEALTH PLAN OF TEXAS; ET AL, DEFENDANTS,
KAISER FOUNDATION HEALTH PLAN OF TEXAS; ET AL, DEFENDANTS-APPELLEES.
|||Before Reynaldo G. Garza, Jolly, and Wiener, Circuit Judges.
|||The opinion of the court was delivered by: Reynaldo G. Garza, Circuit
|||Appeal from the United States District Court for the Northern District
|||I. FACTUAL AND PROCEDURAL BACKGROUND
|||In April 1997, the plaintiff ERISA plan members*fn1,
(hereinafter "Ehlmann") sued the defendant HMOs (hereinafter "Kaiser") under
the Employee Retirement Insurance Security Act, 29 U.S.C.A. §1991 et
sq., alleging that Kaiser breached its statutory fiduciary duties to act
solely in the interests of, and for the benefit of, Ehlmann. Ehlmann asserts
that as an ERISA fiduciary, Kaiser owes duties of loyalty that requires
it not to mislead and to fully disclose material information. In particular,
Ehlmann claims that Kaiser had a duty to disclose the fact that it maintains
financial incentive arrangements, which Ehlmann claims harm patients by
causing physicians to keep usage of health care, referrals, and testing
to a minimum.*fn2
According to Ehlmann, Kaiser has a broad duty to disclose these financial
incentive arrangements, even in the absence of a specific inquiry or other
special circumstances. At trial, Ehlmann sought an injunction requiring,
inter alia, that Kaiser modify its member handbooks and/or physician directories
to fully disclose to all plan members the bonus arrangements between the
HMOs and their contracting physicians. Ehlmann also alleges that Kaiser
made misleading representations to ERISA plan members and that a conflict
of interests arises for HMOs between the ERISA fiduciary duties and the
drive for HMO health plan profits.
|||The district court entered an agreed scheduling order staying discovery,
class certification, and notice procedures pending full briefing and determination
of any motion to dismiss under Rule 12(b)(6). Kaiser then filed a Joint
Motion to Dismiss to which Ehlmann responded. The district court later entered
its final judgment, opinion and order, agreeing with Kaiser that it has
no duty to disclose. Ehlmann argues that the district court's order failed
to discuss or even mention the two other grounds pleaded as claims for breach
of ERISA fiduciary duties: misrepresentation and conflicts of interests.
This appeal followed.
|||A. Duty to Disclose
|||Ehlmann alleges that Kaiser violated its fiduciary duty, imposed by Section
404 of ERISA, 29 U.S.C. § 1104, to disclose its physician compensation
scheme. According to Ehlmann, this duty to disclose is broad and requires
disclosure even absent specific inquiry. The district court dismissed this
claim, finding that since ERISA imposed no such duty, Ehlmann could prove
no set of facts in which that duty was breached. This court reviews a district
court's decision to grant a motion to dismiss de novo and applies that same
standard as the district court. Holt Civic Club v. City of Tuscaloosa, 439
U.S. 60, 66 (1978); Fontana v. Barham, 707 F.2d 221, 227 (5th Cir. 1983),
cert. denied, 464 U.S. 1043 (1984). Therefore, this court must affirm the
dismissal if it appears to a certainty that Ehlmann is not entitled to recover
under any state of facts that could be proved in support of the non-disclosure
|||Whether ERISA imposes on HMOs a fiduciary duty to disclose physician compensation
schemes is an issue of first impression in this court. We hold that the
district court correctly dismissed Ehlmann's claim for the breach of such
a duty to disclose because ERISA imposes no such duty.
|||It is for Congress to determine whether to impose such a duty to disclose
under ERISA and this court will not encroach on that authority by imposing
a duty which Congress has not chosen to impose. However, ERISA nowhere contains
any specific reference to a duty to disclose physician compensation plans.
Ehlmann argues that such a duty should be implied from the general fiduciary
duty wording of Section 404. Section 404(a) provides a "Prudent man standard
of care," by which a fiduciary is required to "discharge his duties with
respect to a plan solely in the interests of the plan participants and beneficiaries"
and for the "exclusive purpose of . . . providing benefits to participants
. . . and defraying reasonable expenses of administering the plan." 29 U.S.C.
|||Ehlmann's argument is unavailing. Given the canon of statutory construction
that the specific language in a statute rules the general, see Morales v.
Trans World Airlines, Inc, 504 U.S. 374, 384 (1992), this court should not
add to the specific disclosure requirements that ERISA already provides.
While § 404 makes no reference to any duty to disclose, ERISA contains
numerous other provisions detailing an HMO's disclosure duties, and these
provisions do not reference physician reimbursement plans. See 29 U.S.C.
§§ 1021 - 1031. For example, Section 102, 29 U.S.C. § 1022,
requires that material provisions of a plan be summarized in a manner understandable
to the average plan participant. Moreover, extensive United States Department
of Labor (DOL) regulations which implement this requirement, see 29 C.F.R.
§ 2520.102-3, nowhere suggest that physician compensation arrangements
are among the items to be disclosed.
|||That Congress and DOL were so capable of enumerating disclosure requirements
when they wanted to means that the absence of one regarding physician compensation
plans was probably intentional.*fn3
This fact, along with the general principle of statutory construction that
more specific provisions in a statute govern over those generally worded,
counsels against judicial intervention to add a disclosure requirement to
those already provided. As the Sixth Circuit stated, "[i]t would be strange
indeed if ERISA's fiduciary standards could be used to imply a duty to disclose
information that ERISA's detailed disclosure provisions do not require to
be disclosed." Sprague v. General Motors Corp., 133 F.3d 388, 405 (6th Cir.),
cert. denied, 118 S.Ct. 2312 (1998). See also Faircloth v. Lundy Packing
Co., 91 F.3d 648 (4th Cir. 1996) (in accord). Today we heed the Supreme
Court's warning that where ERISA provides a section specifically dealing
with a particular information scheme, courts should not supplement that
scheme by reference to a far away provision in another part of the statute.*fn4
See Curtis-Wright v. Schoonejongen, 514 U.S. 73, 84 (1995).
|||This warning is particularly apt in light of the legislative history of
ERISA, a history which runs against Ehlmann's overly broad construction
of Section 404. As Ehlmann describes it, Congress intended Section 404 to
incorporate the common law of trusts. Ehlmann further argues that this common
law may include fiduciary duties above and beyond those specifically enumerated
in the disclosure requirements, such as a duty to disclose physician compensation
plans. However, Congress intended that Section 404 incorporate the core
principles of fiduciary conduct developed in the common law of trusts with
modifications appropriate for the world of employment benefit plans. Donovan
v. Cunningham, 716 F.2d 1455, 1464 (5th Cir. 1983). Thus we interpret ERISA's
fiduciary standards while bearing in mind the special nature and purpose
of employment benefit plans. Id. In enacting the specific disclosure provisions
of ERISA, Congress has made the modifications it deems appropriate. Thus,
this court will not add a specific disclosure requirement to those already
|||So far we have explained why the text, structure and legislative history
of ERISA do not support the imposition of a broad duty to disclose physician
compensation plans. In addition, the cases cited by Ehlmann for the proposition
that Section 404 imposes such a duty all involved the failure to disclosure
material information after a specific inquiry or some other special circumstance
not present in this case. See McDonald v. Provident Indemnity Life Ins.
Co., 60 F.3d 234 (holding that the fiduciary duties of Section 404 required
disclosure of a rate schedule change resulting in prohibitive premiums given
the extreme impact that change could have on small employers such as the
plaintiff); Shea v. Esensten, 107 F.3d 625, 628 (8th Cir. 1997), cert. denied,
118 S.Ct. 297 (1997) (holding that Section 404 required disclosure of a
physician compensation arrangement where the plan participant asked his
doctor whether he should see a heart specialist regarding his heart condition,
was told not to, and subsequently died of a heart attack, and where the
compensation arrangement discouraged the kind of referral the plan participant
|||Clearly these cases, which adopt a case by case or ad hoc approach, do
not warrant the wholesale judicial legislation of a broad duty to disclose
that would apply regardless of special circumstance or specific inquiry.
Indeed, the Shea court did not address the problems of statutory interpretation
at issue in using a general fiduciary duty provision to overwrite the express
disclosure requirements of Sections 101-111. In contrast, Ehlmann would
have us hold that, even absent specific inquiry or special circumstance,
an HMO's fiduciary obligations under ERISA include a broad duty to disclose
to all plan members the details of its physician compensation and reimbursement
schemes. We hold today that no such duty exists and therefore affirm the
dismissal of Ehlmann's duty-to-disclose claim. We do not pass on what sort
of disclosure, if any, that Section 404 might require given a specific inquiry
from a plan member or given some other special circumstance.
|||B. Misrepresentation and Conflict of Interest.
|||Ehlmann asserts that the district court erred when it ignored or dismissed
without explanation its misrepresentation and conflicts of interest claims.
However, after reviewing Ehlmann's complaint, we conclude that these claims
were not pled as causes of action independent of the duty-to-disclose claim,
which we have just dismissed. Therefore, Ehlmann's conflict of interest
and misrepresentation claims are hereby dismissed without prejudice since
they were not properly pled as separate claims.
|||The dismissal of Ehlmann's ERISA claims against Kaiser is hereby AFFIRMED.
|||*fn1 . Plaintiffs
are participants and beneficiaries of employee welfare benefit plans as
defined under ERISA. "ERISA" refers to the Employee Retirement Insurance
Security Act. Plaintiffs' employers retained the defendant HMOs to arrange
for or provide the welfare benefit plans' health care. "Ehlmann" will refer
to the plaintiff class while "Kaiser" will refer to the class of defendant
|||*fn2 . The arrangements,
also referred to as physician compensation or reimbursement plans, allegedly
include a bonus and incentive structure to reduce treatment through "withhold"
provisions which require that a portion of the contracting physicians' pay
be withheld pending a review of the contracting physicians' medical costs.
Additionally, the HMOs are alleged to have used "referral funds" to pressure
their contracting physicians to keep down medical costs by limiting treatment
to their plan-member patients. A "referral fund" is alleged to be an additional
percentage of per-patient compensation from which amounts for every referral,
laboratory or diagnostic test, emergency treatment, or hospitalization are
deducted against the possible bonus amount available to the physician who
provides or authorizes the service for his patients.
|||*fn3 . Ehlmann attempts
to explain Congress's omission of a specific requirements that HMOs disclose
their physician compensation plans. Ehlmann argues that at the time Congress
crafted ERISA's disclosure requirements, the health care system did not
contain the same incentives to cut back on healthcare that are present today.
However, Congress and the Department of Labor are surely aware of these
changes and have chosen not to supplement ERISA's disclosure requirements.
|||*fn4 . In order
to avoid this conclusion, Ehlmann argues that a distinction must be drawn
between ERISA administrators and fiduciaries. Under Ehlmann's reasoning,
ERISA administrators have the aforementioned specific reporting and disclosure
requirements, but fiduciaries are not statutorily so circumscribed. Therefore,
regarding fiduciaries, there are no specific reporting requirements to "rule"
the general requirements of § 404. This argument is unavailing for
the reasons already discussed. First, given that Congress was so specific
in detailing the reporting requirements of administrators, its failure to
address the same regarding fiduciaries suggests that the omission was intentional
and that ERISA imposes no reporting requirements outside those specifically
enumerated at 29 U.S.C. §§ 1021 - 1031. Second, nothing in §
404 provides a basis for reading in the duty to disclose sought by Ehlmann.
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