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Medical Benefits Administrators of MD, Inc. v. Sierra Railroad Co.

September 1, 2009

MEDICAL BENEFITS ADMINISTRATORS OF MD, INC., A MARYLAND CORPORATION; AND CUSTOM RAIL EMPLOYER WELFARE TRUST FUND, PLAINTIFFS,
v.
SIERRA RAILROAD COMPANY, N/K/A SIERRA NORTHERN RAILWAY; VANNA M. WALKER; AMBER A. GILLES AND DAVID N. MAGAW, DEFENDANTS.



The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge

MEMORANDUM AND ORDER

This matter is before the court on plaintiffs Medical Benefits Administrators of MD, Inc. ("MBA") and Custom Rail Employer Welfare Trust Fund's ("CREW") (collectively, "plaintiffs") motion for summary judgment against defendants Sierra Railroad Company ("Sierra") and Vanna M. Walker ("Walker") (collectively, "defendants") as to Count I of the First Amended Complaint ("FAC"), seeking equitable restitution pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA") Section 502(a)(3) (codified at 29 U.S.C. § 1132(a)(3)).*fn1 This action proceeds against Sierra and Walker solely on Count I of the FAC under ERISA; previously, the court dismissed plaintiffs' state law claims as preempted by ERISA, and it dismissed named defendants Amber Gilles ("Gilles") and David Magaw ("Magaw") since plaintiffs asserted only state law claims against these individuals. (Mem. & Order, filed Oct. 5, 2007 ["Oct. 5 Order"].) Plaintiffs contend they are entitled to restitution of the monies they paid for Walker's medical expenses because said payments were made as a result of the fraudulent and wrongful acts of Sierra and Walker. Defendants oppose the motion, arguing that triable issues of fact remain as to whether they made any misrepresentation of fact or intended to wrongfully obtain benefits for an employee they knew was ineligible under the subject policy.

For the reasons set forth below, the court DENIES plaintiffs' motion for summary judgment.

BACKGROUND*fn2

CREW is a multiple employer welfare arrangement for certain railroad employers which has established an Employee Welfare Benefit Plan (the "Plan") within the meaning of ERISA, 29 U.S.C. § 1001 et. seq. CREW provides health benefits to qualified and properly enrolled active employees of participants and is a fiduciary as defined by ERISA. (RUF ¶ 5.) The Plan is administered by MBA, which is also a fiduciary under ERISA. (RUF ¶s 6, 13.)

Sierra is a short line railroad company in California that qualifies to participate in CREW through membership in the Small Railroad Business Owners Association of America. (RUF ¶ 7.) On July 17, 2003, Sierra submitted a Group Benefit Plan Questionaire (the "Questionaire") to MBA for participation in CREW. (RUF ¶ 18.) Magaw, Sierra's Vice President, signed the Questionaire and attached a list of Sierra's fifty employees, thirty-five of which were to be enrolled in CREW. (RUF ¶ 11, 18.) Walker was not disclosed as an employee and coverage was not requested on her behalf by Sierra. (RUF ¶ 29.) In the Questionaire, Sierra represented that during the previous 12 months, none of its employees, seeking coverage, had been hospitalized, had incurred medical claims in excess of $5,000.00 or had any "major conditions," such as cancer, or expected to be hospitalized within the next 12 months. (RUF ¶ 46.)

Under the subject Plan, only "Active Employees" are eligible to participate in the CREW Plan. The CREW Summary Plan Description provides that an eligible employee is one who works normally at least 24 hours per week and is on the regular payroll of the employer for that work or is under a contract or a full-time written appointment with a member employer. (RUF ¶ 15.)

In response to the Questionnaire, CREW began discussions with Sierra, and Sierra was required to submit supplemental lists of employees who were eligible for the Plan. (RUF ¶s 21-22.)

From July through December 2003, Gilles, Sierra's Human Resources Director, submitted lists of employees to CREW for consideration and rating of the Plan. (RUF ¶s 10, 28.) Gilles also submitted information to CREW regarding which employees were covered under Sierra's existing employee benefit plan with Kaiser Permanente, which did not include Walker as of January 1, 2004. (RUF ¶ 29.)

On December 10, 2003, Magaw signed the Participation Application and Agreement (the "Agreement") between Sierra and CREW, and Gilles faxed it to CREW. (RUF ¶ 31.) The Agreement certified that Sierra read and understood that CREW would rely on the information set forth by Sierra as a basis for approval. (RUF ¶s 32-37.) On January 1, 2004, the Plan between CREW and Sierra became effective. (RUF ¶ 38.)

On January 7, 2004, Gilles submitted an Employee Enrollment Form ("Enrollment Form"), signed by Walker, seeking to add Walker as an enrollee in CREW and verifying that all the information contained therein was correct. (RUF ¶ 77.) The Enrollment Form stated that Walker resided at 333 Crescent Drive, Grand Prairie, Texas, and that she was currently "Employed Full Time" as a "Safety Manager" by "Sierra Railroad Company," and that she was hired by Sierra on "12/19/02." With the exception that she resided in Grand Prairie, Texas, plaintiffs contend none of these statements were true. (RUF ¶ 78.) Plaintiffs assert Walker was not then, and never had been, employed by Sierra: she had been a part time, independent contractor for Yolo Shortline from 2002 through May 2003; she was on active duty in the Army reserves in May 2003; she was not employed by any entity from June through December 2003; and she was not a "full time employee" of any Sierra-related entity in 2004, having only worked a total of 45 hours for entities affiliated with Midland Railroad Enterprises from January 19, 2004 through July 2004. (RUF ¶ 67, 79.)

Defendants dispute plaintiffs' contentions, asserting that Sierra recruited Walker in late-2003 to work for Sierra and its related companies as their safety manager, and that Walker moved to California for this express purpose. (RUF ¶s 16, 78-79.) Defendants maintain that at the time they sought to enroll Walker in the CREW Plan, both Sierra and Walker anticipated that Walker would be a "full-time" employee as defined by the Summary Plan Description; namely, she would "normally" work 24 hours or more per week. (RUF ¶ 61.) Defendants also state that each of the above referenced companies was either merged with or a wholly owned subsidiary of Sierra. Over the years, Walker performed services for each company, including Sierra. (RUF ¶s 55-60, 65.) The services to the various companies were pursuant to a contract with Sierra, and thus, defendants assert Walker was eligible under the terms of the Plan. (RUF ¶s 16, 50.)

On January 7, 2004, Walker told Gilles she had been diagnosed and treated for cancer.*fn3 Gilles called CREW to ask if pre-existing conditions were covered, but Walker does not recall Gilles telling CREW that Walker had been diagnosed and treated for cancer. (RUF ¶ 71.) Magaw asserts at the time Walker applied for enrollment in the CREW Plan, he did not know she had cancer. (RUF ¶ 70.) Neither Walker nor Gilles disclosed Walker's illness prior to her enrollment in CREW. (RUF ¶ 94.)

After Walker enrolled in CREW, she, along with healthcare providers, began submitting claims for medical benefits stemming from her treatment of multiple myeloma, with which she had been diagnosed ...


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