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Sixth Circuit Affirms Federal Court Ruling in Hi-Lex, BCBSM Case

June 23, 2014

On May 14, 2014, the Court of Appeals for the Sixth Circuit affirmed a $6.1 million fraud judgment against Blue Cross Blue Shield of Michigan (“BCBSM”). The Sixth Circuit agreed with the position advocated by Varnum attorneys Perrin Rynders and Aaron Phelps, holding that “BCBSM committed fraud by knowingly misrepresenting and omitting information” about the fees charged in its contract documents.

The Sixth Circuit’s ruling confirmed a judgment in favor of Hi-Lex Controls, Inc., and its self-insured employee health plan. Varnum attorneys representing Hi-Lex showed that BCBSM actively concealed the amount of fees charged to its self-insured customers from approximately 1994 to 2012. For example, an internal BCBSM memo stated that BCBSM had become “its own worst enemy” because the surcharges and subsidies it assessed were “highlighted for all to see.” Thus, the memo provided a solution: a change to BCBSM’s fee structure such that the fees were “no longer visible to the customer.” This resulted in millions of secretly—and fraudulently—retained funds.

After a three-week trial handled by Rynders and Phelps, U.S. District Court Judge Victoria A. Roberts determined that BCBSM’s retention of these hidden fees constituted a breach of its fiduciary duties and illegal self-dealing in violation of the Employee Retirement Income Security Act (“ERISA”). Judge Roberts entered a $6.1 million dollar judgment in favor of Hi-Lex, which the Sixth Circuit affirmed.

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