In Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, the Sixth Circuit upheld a determination that Blue Cross Blue Shield functioned as an ERISA fiduciary and breached that fiduciary duty, justifying $5.1 million in damages and nearly a million dollars in pre-judgment interest. The plaintiff was an automotive supply company that contracted with Blue Cross Blue Shield, which functioned as a third-party administrator for the health benefits plan. The case involved certain “administrative fees” that Blue Cross collected from the plaintiff of which the plaintiff claimed to be unaware.
The Court first considered whether Blue Cross functioned as an ERISA fiduciary. Invoking a recent Sixth Circuit case (involving Blue Cross Blue Shield), the Court held that Blue Cross did constitute an ERISA fiduciary while serving as a third-party administrator in this case. The Court rejected Blue Cross’s attempts to characterize its arrangement with the plaintiff as a simple service agreement between two companies, because the plan’s terms establish that the beneficiaries have a reasonable expectation of the beneficial ownership interest in the funds rather than the plan.
On the merits of the fiduciary breach, the Sixth Circuit again turned to its prior decision involving Blue Cross Blue Shield as part of a basis for finding a breach. It rejected the argument that the fees at issue were simply “reasonable compensation” under ERISA. Because the fiduciary used the plan funds for its purposes, this constituted a breach that justified the substantial damages award under the circumstances.
With respect to pre-judgment interest, the plaintiff argued that the district court abused its discretion by failing to make sufficient findings of fact and that the interest calculation undercompensated the plaintiff for the lost value of the fees at issue. However, the Sixth Circuit found that the district court did not engage in a “mechanical application” of 28 U.S.C. § 1961, but instead utilized a blended rate for each of the years in question, with rates ranging from just above 6% to 0.14%. On balance, the Court found this not to constitute an abuse of discretion.
