DeLuca v. Blue Cross Blue Shield of Michigan

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 10a0371p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiff-Appellant, -
ANTHONY DELUCA,
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No. 08-1085
v.
,
>
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Defendant-Appellee. -
BLUE CROSS BLUE SHIELD OF MICHIGAN,
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Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 06-12552—Patrick J. Duggan, District Judge.
Argued: March 9, 2009
Decided and Filed: December 8, 2010
Before: DAUGHTREY, ROGERS, and KETHLEDGE, Circuit Judges.

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COUNSEL
ARGUED: Stephen Wasinger, STEPHEN F. WASINGER PLC, Royal Oak, Michigan,
for Appellant. Evan Miller, JONES DAY, Washington, D.C., for Appellee.
ON BRIEF: Stephen Wasinger, STEPHEN F. WASINGER PLC, Royal Oak,
Michigan, for Appellant. Evan Miller, JONES DAY, Washington, D.C., E. Michael
Rossman, JONES DAY, Columbus, Ohio, Robert Hurlbert, DICKINSON WRIGHT,
PLLC, Bloomfield Hills, Michigan, K. Scott Hamilton, DICKINSON WRIGHT, PLLC,
Detroit, Michigan, Leo A. Nouhan, BLUE CROSS AND BLUE SHIELD OF
MICHIGAN, Detroit, Michigan, for Appellee.
DAUGHTREY, J., delivered the opinion of the court, in which ROGERS, J.,
joined. KETHLEDGE, J. (pp. 8–14), delivered a separate dissenting opinion.
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OPINION
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MARTHA CRAIG DAUGHTREY, Circuit Judge. The Employee Retirement
Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461, provides, in pertinent

1
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 2

part, that “a fiduciary shall discharge his duties with respect to a plan solely in the
interest of the participants and beneficiaries . . . .” 29 U.S.C. § 1104(a)(1). In this
putative class action appeal, plaintiff Anthony DeLuca and defendant Blue Cross Blue
Shield of Michigan (BCBSM) agree that, at least for certain purposes, BCBSM served
in a fiduciary capacity for a welfare benefit plan self-funded by Flagstar Bank for its
employees and their families. DeLuca contends that BCBSM’s fiduciary status should
have prevented it from engaging in contract negotiations with various hospitals that
would ultimately raise the costs that Flagstar Plan participants were required to pay for
hospitalization. The district court disagreed with the plaintiff’s assessment of BCBSM’s
dealings, holding that BCBSM was not acting as a fiduciary when negotiating system-
wide payment schedules for the various levels of its health insurance coverage, and
granted summary judgment for the defendant.

On appeal, DeLuca insists that the district court erred both in failing to hold that
BCBSM functioned as a fiduciary under 29 U.S.C. § 1002(21)(A) and in failing to
interpret the “broad language” of 29 U.S.C. § 1106(b) to impose fiduciary status on
BCBSM in virtually all its business dealings. DeLuca also faults the district court for
making erroneous factual findings in BCBSM’s favor to support the court’s grant of
summary judgment. We conclude that the district court determined correctly that
BCBSM was not acting in a fiduciary capacity in negotiating hospital reimbursement
rates and that there was no genuine dispute of material fact that would prevent entry of
summary judgment.

FACTUAL AND PROCEDURAL BACKGROUND

BCBSM is a non-profit health care corporation that provides a number of health
care services to employers and individuals. It offers three forms of health-care coverage:
a traditional open-access plan, a preferred provider (PPO) plan, and a health maintenance
organization (HMO) that BCBSM operates through a subsidiary, Blue Care Network.
In many cases, BCBSM offers insured health-care coverage, for which an employer or
individual pays a fixed premium and BCBSM bears the risk that actual expenses will
exceed that premium. BCBSM also administers self-insured plans, providing services
for a fee, and the plan then reimburses BCBSM for actual medical expenses. In that
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 3

case, the plan bears the risk that medical expenses will exceed expectations. For each
of its coverage options, BCBSM negotiates rates with Michigan health-care providers
such as doctors and hospitals. There are separate rates for each of its three coverage
options – the traditional plan, the PPO plan, and the HMO – but rates are standard within
each category. BCBSM’s status as a large purchaser of health-care services allows it to
negotiate favorable rates, and those favorable rates enable BCBSM to offer competitive
pricing for their insured plans and to attract customers for their self-insured plans.

Flagstar Bank has long maintained a self-insured health benefit plan for its
employees. In January 1996, Flagstar Bank entered into a contract with BCBSM, under
which BCBSM agreed to provide claims-processing and other administrative services
for the Flagstar Plan in return for a fee. The agreement stated:

BCBSM shall administer Enrollees’ health care Coverage(s) in
accordance with BCBSM’s standard operating procedures for
comparable coverage(s) offered under a BCBSM underwritten program,
any operating manual provided to [Flagstar Bank], and this Contract. . . .
The responsibilities of BCBSM pursuant to this Contract are limited to
providing administrative services for the processing and payment of
claims.

The contract also specified that “BCBSM will process and pay, and [Flagstar Bank] will
reimburse BCBSM for[,] all Amounts Billed related to Enrollees’ claims incurred during
the Term(s) of this Contract.” Flagstar Bank and BCBSM renewed the contract each
year preceding the filing date of the present action. In 2003, BCBSM and Flagstar Bank
entered into a “business associate addendum” to the administrative services contract, one
goal of which was “to comply with applicable requirements of . . . the Health Insurance
Portability and Accountability Act of 1996 and its implementing regulations.” The
addendum provided that BCBSM was responsible for “[e]stablishing, arranging, and
maintaining provider networks, including managed care point-of-service, preferred
provider, and traditional networks through contractual arrangements with preferred
participating hospitals, physicians, and other health care providers and with other Health
Plans within designated service areas.”
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 4

Prior to 2004, the rates paid by BCBSM’s traditional and PPO plans were lower
than the HMO rates for many health-care providers. Beginning around 2004, in an effort
to increase the HMO’s competitiveness and to simplify pricing structures, BCBSM
negotiated a series of letters of understanding with various hospitals that altered these
preexisting rate agreements. Typically, these agreements were structured to equalize the
rates paid by the HMO with those paid by the PPO plan. BCBSM agreed to make the
rate adjustments budget-neutral for the health-care providers by increasing the PPO and
traditional plan rates to make up for the decrease in the HMO rates. Some of these rate
adjustments were retroactive to the beginning of the year in which they were negotiated.

DeLuca, a practicing attorney in Grosse Point Park, Michigan, was a beneficiary
of the Flagstar Bank Group Health Plan through his wife’s participation as a Flagstar
Bank employee. In 2006, he filed the present action against BCBSM alleging that
BCBSM violated its duties as a fiduciary under two provisions of ERISA, 29 U.S.C.
§ 1104 and § 1106(b), by agreeing to increase its traditional and PPO plan rates in
exchange for decreases in the HMO rates. After the completion of discovery, the district
court granted BCBSM's motion for summary judgment, concluding that BCBSM was
not acting as a fiduciary for the Flagstar Plan when it negotiated the rate adjustments.
DeLuca now appeals, arguing that BCBSM was indeed acting as an ERISA fiduciary
under 29 U.S.C. § 1104 when it negotiated the rate changes and, alternatively, that
acting in a fiduciary capacity is not a required element of a liability claim under the
“other capacity” provision in 29 U.S.C. § 1106(b)(2), as long as BCBSM simply had the
status of a fiduciary.

DISCUSSION

As the Supreme Court has noted in Pegram v. Herdrich, 530 U.S. 211 (2000):

In general terms, fiduciary responsibility under ERISA is simply stated.
The statute provides that fiduciaries shall discharge their duties with
respect to a plan “solely in the interest of the participants and
beneficiaries,” § 1104(a)(1), that is, “for the exclusive purpose of
(i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan,”
§ 1104(a)(1)(A).
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 5

Id. at 223-24. The district court ruled that BCBSM did not violate 29 U.S.C. § 1104
because it was not acting as a fiduciary when negotiating the rate changes at issue in this
case. We agree. Although ERISA has strict fiduciary-duty provisions, those standards
apply only when an individual or entity is acting as a fiduciary, defined by 29 U.S.C.
§ 1002(21)(A) as follows:

[A] person is a fiduciary with respect to a plan to the extent (i) he
exercises any discretionary authority or discretionary control respecting
management of such plan or exercises any authority or control respecting
management or disposition of its assets . . . or (iii) he has any
discretionary authority or discretionary responsibility in the
administration of such plan.

BCBSM acted in two capacities during the course of its business relationship
with the Flagstar Plan. First, BCBSM acted as the administrator and claims-processing
agent for the plan. The parties do not dispute that BCBSM acted as a fiduciary in this
capacity by, for instance, making discretionary eligibility determinations. But a party
is subject to fiduciary liability under ERISA only when the party “was acting as a
fiduciary (that is, was performing a fiduciary function) when taking the action subject
to complaint.” Pegram, 530 U.S. at 226. For purposes of this case, therefore, BCBSM’s
liability under 29 U.S.C. § 1104 thus depends on whether BCBSM was a fiduciary in its
second capacity: as a distributor of health-care services, negotiating discounted rates for
such services and passing the savings along to Flagstar Bank.

We conclude, as did the district court, that BCBSM was not acting as a fiduciary
when it negotiated the challenged rate changes, principally because those business
dealings were not directly associated with the benefits plan at issue here but were
generally applicable to a broad range of health-care consumers. The Supreme Court has
recognized that ERISA “defines ‘fiduciary’ not in terms of formal trusteeship, but in
functional terms of control and authority over [a] plan.” Mertens v. Hewitt Assocs., 508
U.S. 248, 262 (1993); see also Smith v. Provident Bank, 170 F.3d 609, 613 (6th Cir.
1999) (“the definition of a fiduciary under ERISA is a functional one, is intended to be
broader than the common law definition, and does not turn on formal designations such
as who is the trustee”). As a result, in determining liability for an alleged breach of
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 6

fiduciary duty in an ERISA case, the courts “must examine the conduct at issue to
determine whether it constitutes ‘management’ or ‘administration’ of the plan, giving
rise to fiduciary concerns, or merely a business decision that has an effect on an ERISA
plan not subject to fiduciary standards.” Hunter v. Caliber Sys., Inc., 220 F.3d 702, 718
(6th Cir. 2000) (emphasis added) (internal quotation marks and alterations omitted)
(citing Sengpiel v. B.F. Goodrich Co., 156 F.3d 660, 665 (6th Cir. 1998)). In this case,
the “conduct at issue” clearly falls into the latter category, “a business decision that has
an effect on an ERISA plan not subject to fiduciary standards.”

Furthermore, a contrary analysis – one saddling BCBSM with the fiduciary
obligation to negotiate Flagstar-Plan-specific rates – would be self-defeating. The
financial advantage underlying BCBSM's rate negotiations arises from the market power
that BCBSM has as a large purchaser of health-care services. BCBSM is continuously
in the process of re-negotiating prices for its three health-care coverage options and,
thus, must continuously determine how much of that market power to allocate to
achieving discounted prices for each of these options. If, however, BCBSM would be
required to negotiate solely on a plan-by-plan basis, as a practical matter its economic
advantage in the market would be destroyed, damaging its ability to do business on a
system-wide basis, ultimately to the Flagstar Plan beneficiaries’ disadvantage.

DeLuca suggests two additional bases on which we might determine that
BCBSM acted as a fiduciary when negotiating the rate changes, neither of which we find
persuasive. First, DeLuca suggests that it is not proper in this case to consider
BCBSM’s claims-processing and rate-negotiating roles separately. But we are required
to do so under Pegram. See 530 U.S. at 226. Second, DeLuca argues that BCBSM was
acting as a fiduciary when it negotiated the rate changes because it “exercise[d] any
authority or control respecting management or disposition of [plan] assets.” 29 U.S.C.
§ 1002(21)(A). Even if BCBSM did have authority or control respecting plan assets, this
argument is also refuted by Pegram. As previously noted, that opinion holds that
liability for a breach of fiduciary duty can occur only when a party “was acting as a
fiduciary (that is, was performing a fiduciary function) when taking the action subject
to complaint.” Pegram, 530 U.S. at 226. DeLuca’s argument is not that BCBSM
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 7

unwisely invested, wrongly appropriated, or otherwise squandered plan assets under its
authority or control. Instead, the action subject to complaint in this case is BCBSM’s
negotiation of rates. Regardless of whether BCBSM exercised discretionary authority
or control over plan assets in some other contexts, the challenged rate negotiations were
not an exercise of such authority or control. BCBSM thus did not act as a fiduciary
when negotiating the rate changes.

BCBSM also did not engage in prohibited transactions in violation of 29 U.S.C.
§ 1106(b)(2). That section provides, “A fiduciary with respect to a plan shall not . . . in
his individual or in any other capacity act in any transaction involving the plan on behalf
of a party (or represent a party) whose interests are adverse to the interests of the plan
or the interests of its participants or beneficiaries.” DeLuca’s argument, as we
understand it, is that the terminology “in any other capacity” imposes liability on a
fiduciary even when not acting in a fiduciary capacity, at least with regard to those
activities prohibited by section 1106. Such an interpretation, however, flies in the face
of our holding that, “by its own terms, § 1106 applies only to those who act in a
fiduciary capacity.” Hunter, 220 F.3d at 724. Because BCBSM was not acting in a
fiduciary capacity when it negotiated the rate changes at issue in this case, BCBSM did
not violate § 1106(b)(2).

DeLuca also contends that in ruling favorably on BCBSM’s motion for summary
judgment, the district court erroneously found facts adverse to DeLuca. Because we do
not rely on any of the allegedly erroneous facts in reviewing the district court’s legal
conclusions, we need not address DeLuca’s arguments on this point. In addition, we
note that most of the allegedly disputed facts were based on conclusory statements by
DeLuca, rather than on evidence in the record.

CONCLUSION

For the reasons set out above, we AFFIRM the judgment of the district court.
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 8

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DISSENT
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KETHLEDGE, Circuit Judge, dissenting. The facts of this case are regrettable.
Flagstar Bank contracted with Blue Cross Blue Shield of Michigan (“Blue Cross”) to
administer Flagstar’s self-insured health-benefits plan. Among the “[s]ervices”—the
Contract between Flagstar and Blue Cross describes them as such—that Blue Cross
agreed to provide were “[e]stablishing, arranging, and maintaining provider networks
. . . through contractual arrangements with preferred participating hospitals, physicians,
and other health care providers[.]” One of the years in which Blue Cross agreed to
provide these “[s]ervices” was 2004. In the latter half of that year, however, Blue Cross
apparently concluded that its own wholly owned subsidiary, the Blue Care Network
(“BCN”) HMO, was not sufficiently profitable.

So, in approximately September of that year, Blue Cross circled back to many
of its participating hospitals and renegotiated the rates that those hospitals would charge
not only BCN, but also self-insured plans like the Flagstar Plan. Indeed that was the
idea: The decrease in BCN’s rates would be “budget neutral” for each hospital, Blue
Cross explained, because Blue Cross would agree to a commensurate increase in the
rates paid by the self-insured plans that Blue Cross represented. Many hospitals agreed
to the deal. The rate increases were also made retroactive to January 1 of that
year—about nine months before the deals were signed—which means the Flagstar Plan
(and others) was billed anew for services it had already paid for. Thus, in a nutshell,
Blue Cross lowered rates for its own subsidiary by effectively raising them for Flagstar
and other self-insured plans. The letter agreements between Blue Cross and the hospitals
spell out these facts in black and white.

But that does not mean that Flagstar knew about the deals. To the contrary, Blue
Cross has admitted (in interrogatory responses in this case) that it never told Flagstar it
had raised the Plan’s rates in order to lower them for its own subsidiary. And it appears
that Flagstar was otherwise clueless about the change, because Blue Cross did not
provide backup data for the bottom-line charges it sent Flagstar each month.
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 9

No one disputes that these facts would amount to a breach of fiduciary duty, in
the ERISA sense of the term, if Blue Cross’s duties to Flagstar with respect to
“[e]stablishing, arranging, and maintaining provider networks” were indeed fiduciary.
Whether they were, therefore, is the principal question presented here. The statute
provides:

[A] person is a fiduciary with respect to a plan to the extent (i) he
exercises any discretionary authority or discretionary control respecting
management of such plan or exercises any authority or control respecting
management or disposition of its assests . . . or (iii) he has any
discretionary authority or discretionary responsibility in the
administration of such plan.

29 U.S.C. § 1002(21)(A). We “employ[] a functional test to determine fiduciary
status[,]” rather than focus on titles (e.g., “trustee”) or on limiting language in the
parties’ agreement. Briscoe v. Fine, 444 F.3d 478, 486 (6th Cir. 2006).

Whether Blue Cross functioned as a fiduciary when it established and maintained
provider networks for Flagstar depends on how one characterizes their agreement.
DeLuca says—and I think no one disagrees—that the function of negotiating rates with
provider hospitals surely would have been fiduciary in nature had the Plan’s trustees kept
that function in-house; and in DeLuca’s view, the Contract merely delegated that
function from the trustees to Blue Cross. He therefore contends that Blue Cross was
acting as a fiduciary when, as part of the services it provided under the Contract, it
negotiated rates for the Plan. In contrast, Blue Cross argues that it actually provided a
product—off-the-shelf access to its provider network at whatever rates Blue Cross cared
to negotiate with them—rather than services.

The difference matters because, while selling a product tends not to create
fiduciary duties under ERISA, providing services quite frequently does. And that is
especially true for discretionary services that directly impact a plan’s finances. The nub
of this case, therefore, is which conception of the parties’ agreement is right.

I do not think this issue is one we can fairly decide—at least in Blue Cross’s
favor—as a matter of law. Each side has legitimate points to make about it. On the one
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 10

hand, there is the Contract’s own description of Blue Cross’s obligation: “[e]stablishing,
arranging, and maintaining provider networks[.]” (Emphasis added.) Those words
describe conduct rather than a commodity. And the Contract itself characterizes these
things as “Services” that “BCBSM [was] To Provide[.]” I do not think that
characterization is one that Blue Cross can brush off as a matter of law, particularly
given that the Contract itself recites that it “represents the entire understanding and
agreement of the parties[.]” In construing a contract, the words matter; and the words
here point clearly in the direction of services.

But, on the other hand, there is the reality that Blue Cross negotiates rates for its
self-insured customers in gross, rather than individually for each of them. That does tend
to make what Blue Cross provided here look less like negotiations and more like off-the-
shelf access to providers and rates. The majority seems to regard this fact as dispositive.
In doing so, however, I think the majority makes an assumption that we should not make
for purposes of summary judgment.

The assumption is that if, in fact, Blue Cross agreed to negotiate on Flagstar’s
behalf, it could only have conducted those negotiations on behalf of Flagstar alone.
(Blue Cross obviously did not negotiate for Flagstar alone, so the majority concludes that
it did not agree to negotiate for Flagstar at all.) I see no basis for that assumption. The
Contract nowhere prohibits Blue Cross from negotiating on behalf of all of its client
plans at once. So far as the Contract is concerned, Blue Cross’s obligation was simply
to establish, arrange, and maintain provider networks; and if Blue Cross discharged that
obligation at the same time it discharged the same obligation to other plans, the terms
of the Contract afforded Flagstar no reason to complain. So the possibility remains that
Blue Cross agreed to provide what the Contract says it agreed to provide: services. And
I otherwise see no basis in the record to decide, as a matter of law, that Flagstar agreed
to buy a product rather than services.

Not surprisingly, then, Blue Cross’s principal arguments on appeal concern not
the record, but policy. Blue Cross says we would disrupt its “business model”—and
thus, we are told, the health-insurance market in Michigan—if we deemed it an ERISA
fiduciary when it negotiates rates for ERISA health-benefit plans. The argument
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 11

assumes that ERISA itself might forbid Blue Cross from negotiating on behalf of its
client plans in gross if, in doing so, Blue Cross acts as a fiduciary. But here again I see
no basis for the assumption. If, as Blue Cross continually emphasizes in its brief, Blue
Cross obtains better rates for its client plans by negotiating for them in gross, I do not
think the statute’s standard of care for fiduciaries (set forth in 29 U.S.C. § 1104) would
require Blue Cross to negotiate on behalf of the plans individually, with worse results.
The fiduciary’s duty above all is one of loyalty; and I see no breach of that duty in
banding together with other plans to obtain a better result for all. What the statute would
require, of course, is that Blue Cross refrain from self-dealing—which is exactly what
DeLuca says happened here.

Another part of Blue Cross’s business model—as the letter deals themselves
illustrate—is to negotiate rates for its wholly owned subsidiary, BCN, at the same time
it negotiates rates for its client plans. Blue Cross suggests that this part of its model
would go out the window if it were deemed a fiduciary when it negotiates rates for the
plans. That marginal loss of leverage, Blue Cross suggests, would be a bad thing for the
plans. I believe the facts of this case suggest the contrary. Sometimes loyalty is more
important than leverage.

More fundamentally, I reject the unspoken premise of the preceding two
arguments, which is that we should be acutely concerned about Blue Cross’s business
model in the first place. Cases have consequences, and we should be mindful of them.
But our task in this case is not to divine the business model that best serves the plans’
interests and those of everyone else; our task, instead, is the comparatively simple one
of determining whether the letter deals violated ERISA. The wisdom of business models
can be determined elsewhere.

Thus, to summarize: The record here would allow a jury to find that Blue Cross
agreed to provide services rather than a product. Those services—“[e]stablishing,
arranging, and maintaining provider networks . . . through contractual arrangements”
with hospitals and other health-care providers—are highly discretionary and have a
direct impact on the Plan’s bottom line. Thus, if Blue Cross indeed provided those
services, it was an ERISA fiduciary when it did so. And a jury could surely find that
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 12

Blue Cross breached its fiduciary duties when it made the letter deals. Summary
judgment should not have been granted as to DeLuca’s claim under § 1104 of the statute.

* * *

The majority also affirms the district court’s grant of summary judgment as to
DeLuca’s claim under § 1106(b)(2). They do so for the same reason that they affirm as
to the § 1104 claim: Blue Cross, in their view, was not acting as a fiduciary when it
negotiated rates for the Plan. See Maj. Op. at 7. But DeLuca says that reasoning should
not apply to a § 1106(b)(2) claim. As an initial matter, it is undisputed that Blue Cross
is a fiduciary in its role as claims processor for the Plan. And in DeLuca’s view,
§ 1106(b)(2) (unlike § 1104) expressly allows a fiduciary to be held liable for certain
actions taken in its non-fiduciary capacity.

Section 1106(b)(2) provides in relevant part: “A fiduciary with respect to a plan
shall not . . . in his individual or in any other capacity act in any transaction involving
the plan on behalf of a party (or represent a party) whose interests are adverse to the
interests of the plan[.]” (Emphasis added.) DeLuca reads the italicized language to
mean that Blue Cross can be liable for actions taken “in [its] individual or in any other
capacity,” so long as the challenged actions meet the other requirements of the
subsection.

I have considerable sympathy for DeLuca’s reading of this language. The
subsection says that fiduciaries shall not take certain actions even in their individual or
other non-fiduciary capacities. If a fiduciary then takes such an action—even in its
individual capacity—a natural reading of the subsection is that it can be held liable for
doing so.

But there is caselaw to the contrary. In Pegram v. Herdrich, 530 U.S. 211
(2000), the Supreme Court stated that, “[i]n every case charging breach of ERISA
fiduciary duty, then, the threshold question is . . . whether that person was acting as a
fiduciary (that is, was performing a fiduciary function) when taking the action subject
to complaint.” Id. at 226 (emphasis added). But Pegram was only a § 1104 case, so that
statement is pure dicta as to § 1106(b)(2). A similar statement by our court, however,
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 13

cannot be so characterized. In Hunter v. Caliber System, Inc., 220 F.3d 702 (6th Cir.
2000), we said that, “by its own terms, § 1106 applies only to those who act in a
fiduciary capacity.” Id. at 724. The Hunter court characterized that statement as a
holding (albeit an alternative one), and I cannot fairly recast it as dicta. It is binding
precedent for our circuit.

That said, the statement strikes me as Orwellian as applied to § 1106(b)(2). In
the plainest conceivable English, the section bars fiduciaries from taking certain actions
even in their individual capacities; and yet, we are told, the section “applies only to those
who act in a fiduciary capacity.” Hunter, 220 F.3d at 724. Perhaps I am missing
something. Perhaps the subsection requires not only that the fiduciary act in a non-
fiduciary capacity on one side of a proscribed transaction, but that it also act in its
fiduciary capacity on the other. (If so, to my knowledge no court has explained why that
is so.) Or perhaps the statement just stands as a caution against overlong opinions with
numerous alternative holdings.

That caution applies with special force to cases interpreting large and complex
statutes like ERISA. Loose language in one case hardens into a holding in another, and
other courts follow suit. Eventually the caselaw takes on a life of its own, often lived at
variance with the rules laid down in the statute itself. We encountered precisely this
scenario in Central States, SE and SW Areas Pension Fund v. Int. Comfort Products,
LLC, 585 F.3d 281 (6th Cir. 2009), cert. denied, 131 S.Ct. 223 (2010), which was
another ERISA case where the caselaw had diverted from the statute’s terms. See id. at
287 (“The mere accumulation of contrary precedent in three other circuits does not, in
our view, give us license to disregard the plain language of [29 U.S.C.] § 1392(a)”).
And the problem is compounded here because the Supreme Court’s dicta in Pegram is
likely causing all the circuit courts to break one way. Perhaps eventually the Court will
take a § 1106(b)(2) case and decide whether the subsection means what it seems clearly
to say.

In the meantime, we have Hunter’s holding that § 1106(b)(2) imposes liability
only for actions taken by a fiduciary qua fiduciary. For the reasons already explained,
the majority and I disagree as to whether DeLuca can prove that Blue Cross acted as a
No. 08-1085 DeLuca v. Blue Cross Blue Shield of Michigan Page 14

fiduciary when it negotiated the Plan’s rates: they say as a matter of law that Blue Cross
did not, I say a jury could find otherwise. Hence I think DeLuca can prove this element
of his § 1106(b)(2) claim. I also think he can prove the claim’s other elements. Notably,
I think the letter agreements were transactions “involving the plan[.]” 29 U.S.C.
§ 1106(b)(2). In my view, transactions that have only some incidental effect upon a
plan—raising the cost of paper clips, when the plan happens to buy them—do not
“involve” the plan. But, at the same time, the statute’s text does not require that the plan
have been a party to the challenged transaction. What the statute requires, I think, is
something in between: a transaction that in some fashion acts directly upon a plan, even
if the plan is not a party to it. In my view, “budget-neutral” letter deals that achieve that
status expressly by raising rates on this Plan and others meet that requirement. Thus I
would reverse the district court’s entry of summary judgment on this claim as well, and
remand both claims for trial.

For these reasons, I respectfully dissent.