Ninth Circuit Affirms Dismissal of Putative ERISA Class Action Against MEWA Manager for Lack of Article III Standing

In Winsor v. Sequoia Benefits & Ins. Servs., LLC, No. 21-16992, __F.4th__, 2023 WL 2397497 (9th Cir. Mar. 8, 2023), the court held that participants in the RingCentral health and welfare benefit plan—which participated in the Tech Benefits Program, a Multiple Employer Welfare Arrangement (MEWA)—lack Article III standing to sue the MEWA manager for breach of fiduciary duty under ERISA arising from an alleged unlawful kickback scheme and excessive administrative fees.

Plaintiffs alleged that Defendants Sequoia Benefits and Insurance Services, LLC, and Gregory S. Golub (collectively “Sequoia”) were fiduciaries of the Tech Benefits Program because they exercised control over plan assets through their operation of the program. Plaintiffs alleged that Sequoia violated its fiduciary duties by: “(1) by receiving and retaining commission payments from insurers, which plaintiffs regard as kickbacks; and (2) by negotiating allegedly excessive administrative fees with insurers, which led to higher commissions for Sequoia.”

The district court dismissed Plaintiffs’ complaint for lack of Article III standing because it found that Plaintiffs did not allege facts indicating that Sequoia’s conduct led Plaintiffs to pay higher contributions or receive less in benefits. Plaintiffs then filed an amended complaint alleging that they were injured because Sequoia’s breach of fiduciary duty required them to pay higher contributions towards their benefits and interfered with their equitable ownership interest in the Tech Benefits Program trust fund. For relief, Plaintiffs sought either an equitable remedy of direct disgorgement to Plaintiffs of Sequoia’s improper profits or reimbursement by Sequoia to the RingCentral plan. Plaintiffs claimed that the RingCentral plan would “likely refund” them the portion of their contributions attributable to the alleged misconduct. The district court dismissed the amended complaint for lack of standing and did not give leave to amend. The court found again that Plaintiffs did not allege any facts supporting the inference that had Sequoia not charged commissions to the insurers, or charged less in commissions, that Plaintiffs would have paid less towards their health benefits. The court also found that Plaintiffs’ theory of injury based on an equitable ownership interest in the program’s assets was foreclosed by Thole v. U. S. Bank N.A, 207 L. Ed. 2d 85, 140 S. Ct. 1615, 1619 (2020).

In affirming the district court’s decision, the Ninth Circuit noted that it is Plaintiffs’ burden to establish each of the three elements of Article III standing. “They must sufficiently allege (i) that [they] suffered an injury in fact that is concrete, particularized, and actual or imminent; (ii) that the injury was likely caused by the defendant; and (iii) that the injury would likely be redressed by judicial relief.” The court reasoned that Plaintiffs do not support their claim that they experienced an out-of-pocket injury of paying higher contributions because of Sequoia’s actions because Plaintiffs do not allege that RingCentral has changed or would change employee contribution rates based on Sequoia’s conduct or that employee contribution rates are tied to overall premiums. There are no facts showing that RingCentral, who alone determined the share of employee contributions, based those contributions on overall premium costs. “Given RingCentral’s discretion in setting employee contributions, and the fact that, as alleged, RingCentral determined those contributions based not on a ‘specific formula or set of factors,’ but on ‘various factors and discussion’—which in some instances resulted in employees paying nothing—we lack a sufficient basis to draw the inference that plaintiffs seek.” Plaintiffs’ complaint fails to adequately plead causation, which is the second element of Article III standing.

The court also found that Plaintiffs’ second redressability theory, that awarding damages to the RingCentral plan would redress their injury, is foreclosed by the court’s decision in Glanton ex rel. ALCOA Prescription Drug Plan v. AdvancePCS Inc., 465 F.3d 1123, 1125 (9th Cir. 2006). There is no basis for Plaintiffs’ claim that if RingCentral received money from Sequoia that it would “likely” remit that money to Plaintiffs as there is nothing in the plan document or in law that would require this or make it probable.

Lastly, the court agreed that the Thole decision foreclosed Plaintiffs’ second theory of injury, that they retained an equitable ownership interest in the Tech Benefits Program, which was harmed by Sequoia’s alleged conduct. As in Thole, the court rejected Plaintiffs’ analogy to trust law because program participants are not similarly situated to the beneficiaries of a private trust or to participants in a defined-contribution plan. The program is a large pool of money not divided into individual accounts and Plaintiffs do not own beneficial interests that increase or decrease depending on the management of trust assets. Plaintiffs were entitled to insurance benefits that Sequoia purchased for them and Plaintiffs received those benefits. Because the court found that Plaintiffs lack Article III standing, the court did not reach Sequoia’s argument that it is not an ERISA fiduciary.