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Benjamin Yocum & Heather, Ltd. v. Black Wolf Consulting, Inc.

United States District Court, S.D. Ohio, Western Division

May 30, 2018

BENJAMIN YOCUM & HEATHER LTD, et al., Plaintiff,
v.
BLACK WOLF CONSULTING, INC., et al., Defendants.

          Dlott, J.

          MEMORANDUM OPINION AND ORDER

          STEPHANIE K. BOWMAN UNITED STATES MAGISTRATE JUDGE.

         Plaintiffs filed suit against multiple Defendants in state court on November 14, 2017. On December 18, 2017, Defendant Benefits Plan Administrators, Inc. (“BPA”) removed the action to this Court, asserting that federal question jurisdiction exists under ERISA, 29 U.SC. § 1001, et seq. and 28 U.S.C. § 1331. On December 19, 2017, the Court referred this case to the undersigned magistrate judge in order to rule upon all non-dispositive pretrial motions, and to recommend disposition of all dispositive motions. (Doc. 5).

         Currently pending is Defendant BPA's motion to stay proceedings in this case pending resolution of Acosta, Secretary of Labor, United States Dept. of Labor v. AEU Benefits, LLC, et al., N.D.Ill. No. 1:17-cv-7931 (the “DOL Action”) or further order from the court in that case. To the extent that this Court would decline to enter a stay, Defendant alternatively moves to dismiss all of Plaintiff's claims as preempted by ERISA, and for failure to state a claim for relief. (Doc. 11). For the reasons that follow, the undersigned recommends that a stay be imposed.

         I. Background

         This is a case in which a small business purchased what it assumed to be good health care insurance coverage for its employees, and ended up greatly disappointed. As it turns out, Plaintiffs were not alone, a circumstance that led to the DOL Action.

         Plaintiffs include a law firm and various individuals connected to that firm, [1] who participated in a health benefits insurance plan (the “Plan”) for which Defendant BPA acted as the third-party administrator. Aside from Defendant BPA, Plaintiffs have named as additional Defendants: the Plan Administrator (SD Trust Advisors, L.L.C.), the aggregator (Black Wolf Consulting Inc.), the advisory services company (AEU Benefits, LLC), a John Doe Bermuda Trust allegedly holding and investing Plaintiffs' premium payments for the Plan, and John Does 1-5 who allegedly acted as “agents” for the Plan.

         Plaintiffs allege that between December 1, 2016 and September 30, 2017, they paid premiums to Black Wolf Consulting for the Plan. (Doc. 4, Complaint at ¶13). During the same period, they incurred medical expenses, relying on the insurance coverage of the Plan. (Id. at ¶15). Plaintiffs submitted their claims for payment to BPA, who assured Plaintiffs that the claims were being processed. (Id. at ¶¶16-17). Plaintiffs allege that “many of these claims were not processed, or were allegedly processed but benefit payments were not made per contract (e.g. failure to pay after exhaustion of deductible by the participant).” (Id. at ¶ 17). Plaintiffs allege that more than $97, 000 in total unpaid claims have been submitted to BPA. (Id. at ¶ 19). Plaintiffs allege that they have been damaged financially due to the unpaid claims, including damage to their credit ratings. (Id. at ¶¶20, 21). In addition, Plaintiffs allege that they have not been provided with the “proper paperwork and information” such that they could obtain deductible “credits” with their new health insurer, from whom they obtained coverage starting on October 1, 2017. (Id. at ¶22).

         Plaintiffs' complaint sets forth seven causes of action against all Defendants, pleading all claims collectively without differentiation among the Defendants. Although Plaintiff includes a factual allegation that the law firm entered into a contract with “Defendants [sic] BPA, whereby BPA was to administer the [Plan], ” Plaintiffs allege that all Defendants “are in breach of contract by their actions and inactions as pled herein, including, but not limited to, failure to timely pay and/or process claims as submitted.” (Id. at ¶26). Plaintiffs also allege that they are either “in direct contact [sic] with Defendants and/or are intended third party beneficiaries of Defendants who are in contract with each other, to provide health benefits and related services to Plaintiffs.” (Id. at ¶ 24).

         In Count II, Plaintiffs assert “fraud, ” alleging that all Defendants promised “they would pay the benefits promised when they had no intention to do so.” (Id. at ¶ 30). Count III, for misrepresentation, alleges that all Defendants “supplied false information …and made affirmative false statements to Plaintiffs about their [Plan], coverage and timely processing of claims.” (Id. at ¶34). Count IV alleges “unjust enrichment” based upon Plaintiffs' payment of premium funds to “Defendants” although they earlier allege they paid premiums only to Black Wolf. (Id. at ¶¶11, 38-40). Count V asserts civil theft, based upon Defendants' retention of Plaintiff's premiums without providing services. (Id. at ¶¶41-45). Count VI alleges that all Defendants had a fiduciary relationship “with respect to Plaintiffs and the handling of their [Plan].” (Id. at ¶47). Last, Count VII asserts bad faith based upon all Defendants' alleged refusal to pay and process Plaintiffs' claims. (Id. at ¶¶49-52). Plaintiffs seek compensatory damages in the amount of a return of their premium payments, and/or their unpaid claims and related ongoing damages, treble damages on the compensatory sum, punitive damages, interest, and attorney's fees.

         Plaintiffs filed their case in state court on November 14, 2017. Less than two weeks earlier, the Secretary of the United States Department of Labor filed a federal complaint against many of the same Defendants in the Northern District of Illinois, alleging multiple breaches of ERISA by Defendants AEU Holdings, LLC, AEU Benefits LLC, and Black Wolf Consulting in the operation of a multi-employer welfare arrangement (“MEWA”) to provide health and welfare benefits for employer-sponsored ERISA-covered employee benefit plans (“Participating Plans”).[2] The Plan that Plaintiffs purchased was among the Participating Plans that is the subject of the DOL Action.

         The DOL Action alleges that the defendants improperly used the assets of the Participating Plans to pay themselves excessive fees and expenses, resulting in over $26 million in unpaid, processed claims, covering the time period of January 1, 2016 to October 2, 2017. (DOL Action Compliant at ¶7). Two third-party claims administrators, including BPA, are referenced in the DOL Action. Unlike Plaintiffs herein, DOL does not assert wrong-doing by those administrators, and neither is named as a defendant. Instead, DOL alleges that as of October 6, 2017, there were approximately $15 to $16 million of unpaid claims processed by Tall Tree Administrators, Inc., which served as the AEU Plan's claims administrator from January 1, 2016 until December 1, 2016. (DOL Complaint at ¶68). After BPA took over from Tall Tree, unpaid claims continued to accrue, resulting in a total of $11, 761, 545.41 in unpaid claims administered by BPA as of October 2, 2017. (Id. at ¶84). Among other relief, the DOL seeks recovery of all monies due and owed to all Participating Plans for the payment of claims.

         By the time the DOL filed suit, other plaintiffs (besides Plaintiffs herein, who filed suit after the DOL Action) were already pursuing claims against the same defendants in several courts. In part to preserve remaining assets, the DOL sought and obtained a preliminary injunction, which was first entered on November 15, 2017 - the day after the Plaintiffs filed suit in the Hamilton County Court of Common Pleas. The preliminary injunction includes a Stay Order that impacts the AEU Plan, all Participating Plans, and their participants who have suffered unpaid claims. On November 21, 2017, Plaintiffs gave notice of the Stay Order to the Hamilton County Court of Common Pleas by filing a Notice of Partial Stay, which Notice concedes that the DOL Stay Order applies to claims against Black Wolf, S.D. Trust Advisors, and AEU Benefits. (Doc. 1-3 at PageID 30). However, the Notice states that Plaintiffs' claims against BPA “are not subject to the Order and may proceed.” (Id.)

         Disagreeing with Plaintiffs' position, Defendant BPA has moved to stay proceedings in this case based on the Stay Order in the DOL Action. Despite conceding the applicability of the Stay Order to all other Defendants, Plaintiffs argue that they should be permitted to continue to ...


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