Judge Ann Donnelly of the Eastern District of New York has dismissed a court case involving HealthCap, the captive insurance company of Preferred Home Care of New York and Edison Home Health Care, where it was accused of violating the Employee Retirement Income Security Act (ERISA).
The plaintiffs, Mariya Kobryn, Ivan Kobryn and Ynes Gonzalez de Fuente, filed an amended complaint against Preferred Home Care of New York and Edison Home Health Care, alleging that it “misappropriated employee benefit plan assets” in violation of the New York Home Care Worker Wage Parity Act and ERISA.
Mariya Kobryn, Ivan Kobryn and Ynes Gonzalez de Fuente are certified home health aides employed by Preferred Home Care of New York and Edison Home Health Care.
Background
Under New York's Wage Parity Law, home health care workers must earn a ‘minimum rate,’ which consists of a cash portion and a benefit portion.
Employers may pay the benefits portion, which is set at $4.09 per hour in New York City and $3.22 per hour in Nassau, Suffolk, and Westchester Counties, in cash, or through "any combination of cash, health, education, or pension benefits; wage differentials; supplements in lieu of benefits; or compensated time off”.
The defendants provided health benefits through a welfare benefit plan. The plan is a self-funded employee health benefit plan under ERISA, which means that Edison and Preferred fund a trust that pays the cost of covered medical claims.
The plan automatically enrols employees and requires 20 percent coinsurance and copays of $15 to $40 with an out-of-pocket maximum of $6,600 for an individual and $13,200 for family coverage.
On 1 February 2016, the defendants' trust entered into an agreement with HealthCap in which HealthCap agreed to assume a 75 percent share of the plan's welfare benefit obligations.
However, the plaintiffs allege that this arrangement, in which they state as “a so-called captive insurance scheme was designed to refund benefit dollars to the employer defendants”.
The plaintiffs outlined to the court that “in a captive insurance scheme, the employer pays premiums to the captive insurer, which then uses the premiums to establish a reserve to pay covered medical claims”.
They added: “Meanwhile, the captive insurer invests the reserve amount and returns investment profits and excess premiums to the employer.”
The plaintiffs alleged that this arrangement violates ERISA, and does not provide them with the benefits portion they are owed under the New York Wage Parity Law.
In addition, Mariya Kobryn, Ivan Kobryn and Ynes Gonzalez de Fuente alleged that while they are participants in this plan, they don’t use it due to "high out-of-pocket costs" and "have had difficulty accessing benefits from it”.
Kobryn also alleged that his healthcare provider informed him he was not covered for cataract or glaucoma surgery or prescription eye drops under the plan.
The plaintiffs argued that they have been harmed by the "wrongful use of plan assets for defendants' personal gain" because they were deprived of "their right to benefit exclusively from those plan assets...cash and/or benefits that they are owed...[and] legal and equitable rights to assets that are wrongfully being retained by defendants."
On 26 June 2019, the defendants moved to dismiss the action, arguing, in part, that the plaintiffs do not have constitutional standing to bring their claims under ERISA Sections 502(a)(2) or (a)(3).
Two days later, the Supreme Court granted certiorari to review Thole v. US Bank, in which the Eighth Circuit held that ERISA plan participants in an overfunded defined benefit plan do not have statutory standing to bring claims under ERISA Sections 502(a)(2) or (a)(3).
In its opinion granting certiorari, the Supreme Court directed the parties to brief and argue "[w]hether the petitioners have demonstrated Article III standing”.
The defendants moved to stay this action pending the Supreme Court's decision on constitutional standing.
On 13 February 2020, Judge Donnelly granted the motion for the defendants to stay the action pending the then-Supreme Court's forthcoming decision in Thole v. US Bank.
Proceedings
In the recent case, the defendants used the Thole v US Bank Supreme Court case as their defence.
For the ERISA claim, in order to establish constitutional standing, the plaintiff must prove: “injury in fact, which must be (a) concrete and particularised, and (b) actual or imminent; a causal connection between the injury and the defendant’s conduct; and that the injury is likely to be redressed by a favourable decision”.
The defendants say that Thole requires dismissal of the plaintiffs’ ERISA claims.
According to the defendants, “[w]inning or losing the ERISA claims will not increase plaintiffs’ health benefits, and will not result in any money flowing to the plaintiffs as participants” in the plan”.
The plaintiffs responded stating that they are in a different position than the Thole plaintiffs because of their state law claim under New York’s Wage Parity Law.
However, for the defendants’ ERISA violations, the plaintiffs argue, they would have received additional benefits under the Wage Parity Law in the form of cash compensation or improved benefits.
If they prevail, Mariya Kobryn, Ivan Kobryn and Ynes Gonzalez de Fuente said they will receive tangible benefits because the defendants will have to return money to the plan.”
Judge Donnelly ruled that she agreed “that Thole is dispositive”.
She noted that as in Thole, the plaintiffs are participants in a form of defined benefit plan; plan participants are guaranteed certain health benefits, regardless of the plan’s funding.
In addition, the judge stated that while the plaintiffs cite the plan’s high out of pocket costs and accessibility issues, they do not claim that they were denied any of the healthcare benefits promised under the plan.
She explained that the plaintiffs have not alleged that plan management was “so egregious that it substantially increased the risk that the plan and the employer would fail and be unable to pay the participants’ future pension benefits”.
“In fact, the plaintiffs concede that the plan was overfunded by $22.8 million”, the judge noted.
Judge Donnelly added: “The plaintiffs’ ERISA claims are dismissed for lack of subject matter jurisdiction.”
In addition, she declined to exercise jurisdiction over the plaintiff’s Wage Parity Law claim, which arises under New York state law.
She stated: “Where a court dismisses all claims over which it has original jurisdiction, it may, in its discretion, decline to exercise supplemental jurisdiction over remaining claims.”
In her conclusion, Judge Donnelly ordered the defendants motion to dismiss the case.