Breach of Fiduciary Duties
CalPERS’ Fiduciary Duties to Plaintiffs
CalPERS, its Board, and employees (collectively CalPERS) have mandatory fiduciary duties, including to place its Members’ interest before any other duty. (Cal. Const., art XVI, §17; O’Neal, supra, Hittle, supra, Probate Code, Gov’t Code, §20151.) Mandatory fiduciary duties include duties of loyalty, of good faith and fair dealing, to account, to inform, to not take advantage, and other duties. Id.
The fiduciary duties apply to the context of health benefits. Government Code, § 22792.
CalPERS also owes Plaintiffs mandatory duties to adequately and fully inform, especially about elections to benefits and contracts. (Hittle v. Santa Barbara Cnty. Employees Ret. Assn. (1985) 39 Cal.3d 374, 389-90.) CalPERS owes Plaintiffs a mandatory duty to provide timely and accurate information to its Members (In re Application of Smith, CalPERS’ Precedential Decision No. 99-01 (March 31, 1999) [“The duty to inform and deal fairly with members also requires that the information conveyed be complete and unambiguous”].)
CalPERS’ mandatory fiduciary and other duties include (i) the mandatory duty of loyalty of CalPERS’ board, officers and employees to discharge their duties solely in the interest of Members and beneficiaries, which requires a higher duty than the “prudent person” standard (Government Code, §20151); (ii) the mandate that CalPERS and its Board are a trust that must be administered solely for the benefit of members (California Constitution, O’Neal, supra, Hittle, supra, Probate Code, Government Code, §20170); (iii) mandatory duties to account (Government Code, §§20178, 20225); (iv) mandatory duties to correct (Government Code, §§20160, 20164)., and (v) fiduciary and other mandatory duties in the Probate Code and other enactments.
CalPERS breaches its fiduciary duties as described herein, in ways that directly and proximately harm Heinz and the class, who suffer damages as a result.
Specific Fiduciary Duties and Breaches Thereof
Duty to Deal Fairly and Act in Utmost Good Faith. Where a fiduciary relationship exists, the fiduciary must act with the utmost good faith for the benefit of the other party. (Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1160.)
CalPERS, however, has breached this duty by failing to act with the utmost good faith in the best interests of Plaintiffs, including as described throughout this Complaint.
CalPERS, however, has breached this duty by failing to act in the best interests of Plaintiffs
Duty of Loyalty. A fiduciary owes a duty of “undivided loyalty” to its beneficiary in all matters connected with the fiduciary relationship. (Gilman v. Dalby (2009) 176 Cal.App.4th 606, 614; White Mountains Reins. Co. of America v. Borton Petrini, LLP (2013) 221 Cal.App.4th 890, 902; see also Rest.3d, Agency, §§8.01-8.06.)
CalPERS’ reduced “Allowable Amount,” unreasonably low reimbursement, inadequate disclosure, and other acts or omissions, violates CalPERS’ fiduciary duties of loyalty and to act in the best interests of the member.
CalPERS owes Plaintiffs the mandatory duty of loyalty of CalPERS’ board, officers and employees to discharge their duties solely in the interest of Members and beneficiaries, which requires a higher duty than the “prudent person” standard (Gov’t Code, §20151); and the mandate that CalPERS and its Board are a trust that must be administered solely for the benefit of members (Gov’t Code, §20170). Under the California Constitution, as discussed supra, CalPERS, it’s Board, and its employees must place the interest of the Members first. (Cal. Const., art XVI, §17; O’Neal, supra, Hittle, supra, Probate Code, et al)
CalPERS (the agency, the Board, each Board member, and its employees and agents, et al), however, breaches this duty by dividing its loyalty between Plaintiffs and its contracted service providers (i.e. Anthem), including by placing the interest of the Anthem, and the pension system, before or greater than the interest of the Plaintiffs, including as described throughout this Complaint.
For example, although CalPERS could provide Anthem additional “compensation based on carrier performance” under Government Code Section 22864(b)(1), any “performance” based compensation paid to Anthem breach CalPERS duty of loyalty by compensating Anthem for reducing the reimbursement to class members.
For example, CalPERS’ offering or providing compensation to Anthem for any efforts or results that reduce the reimbursement to members for out-of-network medical services below the reasonable rates is a breach of CalPERS duty of loyalty to members.
For example, CalPERS’ establishing, administering, contracting, overseeing, or offering Anthem to administer a plan that provide Allowable Amounts and reimbursement at a rate substantially below the majority share of the UCR rates is a breach of the duty of loyalty.
Duty to Account. CalPERS is required to manage the subject matter of the relationship with due care, must account to the beneficiary, and must keep the beneficiary fully informed as to all matters pertinent to the beneficiary’s interest in the relationship. (Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621, 631.)
For the benefit of Members, Government Code sections impose on CalPERS mandatory duties to account (Gov’t Code, §§20178, 20225); and mandatory duties to correct (Gov’t Code, §§20160, 20164).
Duty to Disclose All Material Facts and Share All Material Information. CalPERS has a fiduciary duty to disclose fully all material facts concerning the transaction that might affect the principal’s decision. (Warren v. Merrill (2006) 143 Cal.App.4th 96, 109; see also Witkin, Summary of California Law, Agency and Employment, §63.) CalPERS breaches its fiduciary duty to disclose all material facts as described throughout this Complaint. (Cal. Const., art XVI, §17; O’Neal, supra, Hittle, supra, Probate Code, et al.)
A fiduciary’s failure to share all information that is material to the principal’s interests constitutes “constructive fraud,” and eliminates the need to prove actual fraudulent intent. (Michel v. Palos Verdes Network Group, Inc. (2007) 156 Cal.App.4th 756, 762.)
CalPERS breached this duty by failing to disclose material facts, including failing to disclose facts that indicate that the third subpart indicating an “appropriate” standard is fundamentally different from the other subparts (and overrides the examples) or otherwise provide notice that Anthem or CalPERS can greatly reduce the “Allowable Amount”.
Fiduciary Duty to Inform. CalPERS assumes the responsibility for correctly, accurately, timely, and adequately informing Plaintiffs of their rights and obligations.
CalPERS acknowledges, accepts , and has publicly taken on higher fiduciary standards around providing information, including a mandatory fiduciary duty to provide timely and accurate information to its members. (See In re Application of Smith (March 31, 1999) PERS Prec. Dec. No. 99–01 [“The duty to inform and deal fairly with members also requires that the information conveyed be complete and unambiguous”].)
The unreasonable process of setting, CalPERS’ delegation to Anthem, Anthem’s complete discretion, and lack of standards for the “Allowable Amount” rate were a material term that CalPERS failed to inform Plaintiffs of.
CalPERS’ publications, communications, and contracts failed to provide clear, conspicuous, and plain notice of the limitations, exclusions, coordination, offset, or the risk of loss. (Russell v. Bankers Life Co. (1975) 46 Cal.App.3d 405.)
The standardized forms and publications by which CalPERS sought to inform Plaintiffs about PPO insurance were inadequate, incomplete, and misleading and tantamount to the misrepresentation and concealment that are determined to be a wrongful breach of fiduciary duty in Hittle, supra, at 393-94.
Duty to Disclose Information That Was More Easily Available to CalPERS through Its Special Position, Special Knowledge, and Expertise. The low calculation of the “Allowable Amount” and reduced reimbursement was not patent or clear. The risk of a reduced reimbursement was not patent and not clear.
Through its special position as fiduciary, trustee, and sole provider of PPO health insurance, as well as its special expertise and knowledge, CalPERS was aware of the reduced reimbursement, and in far better position to explain and to disclose.
As the sole official information source about these benefits, CalPERS was in a far superior position to know, quantify, describe, disclose, understand, and explain the risks.
Duty to Correct. For the benefit of Members and their beneficiaries, Government Code sections 20160-20164 impose on CalPERS substantive mandatory duties to correct its errors or omissions throughout the lifetimes of CalPERS’ Members and their beneficiaries, including in this action (and not limited to the administrative process).
Further, as CalPERS’ and the OAH’s administrative process does not allow for class-wide relief (Rose v. City of Hayward, supra), CalPERS is under the mandatory duty to make such corrections in the context of this case, i.e., outside the administrative process.
Duty to Not Delegate Unreasonably. CalPERS breached its fiduciary duties, including when CalPERS calculated or allowed Anthem to calculate the “Allowable Amounts” for Non-PPO medical expenses at a different and lower amount often much less than, including at a fraction of, the “Allowable Amount” that Anthem calculated or provided for PPO providers.
CalPERS wrongly delegated power and discretion to Anthem to determine an “Allowable Amount” that is inconsistent with the terms, representations, reasonable understanding, and goals of providing PPO coverage. CalPERS delegated the final say to Anthem over the Allowable Amounts, which in these matters is analogous to a regulation, as Anthem determines the uniform and final reimbursement rates (which CalPERS fails to change or oversee).
CalPERS failed to establish suitable safeguards, oversight, and administration of the claims process. CalPERS failed to delegate appropriately or otherwise failed to guide the power’s use. CalPERS failed to protect against Anthem’s misuse of the claims process, misuse of the delegated power to calculate the “Allowable Amount,” or misuse of the delegated power to calculate the reimbursement. CalPERS may not delegate to Anthem the setting of the “Allowable Amount,” without standards, especially when the “Allowable Amount” is secretly reduced, and especially where CalPERS is likely the entity that is paying the claims. This is especially true if Anthem has the potential of receiving compensation from CalPERS for Anthem’s performance of the claims process, if the performance is related to Anthem’s reducing the payment of claims that are otherwise legally required, reasonable in amount, and/or justified, including under the EOC. The doctrine of unlawful delegation requires the Legislature or a regulatory agency to exercise the final say over whether any particular regulation becomes law. (Light v. State Water Resources Control Board (2014) 226 Cal. App. 4th 1463
Duty to Oversee Anthem and to Administer Correctly. CalPERS failed to evaluate and independently verify that Anthem has calculated the “Allowable Amount” consistently, appropriately, and correctly with the law, and the definition or at adequate UCR amounts.
Instead, In this case, CalPERS failed to investigate Anthem and determine whether the “Allowable Amount” was calculated properly.
CalPERS’ Breach of Its Fiduciary Duties
CalPERS breaches a range of fiduciary duties including, inter alia, (i) transferring risk and costs onto Plaintiff, including costs that should be reimbursed appropriately as determined under a correct calculation of the Allowable Amount; (ii) failing to disclose that it will pay lower reimbursements and reduced the “Allowable Amount” for out-of-network services; (iii) dividing its loyalty such that it benefited itself or Anthem or the employers at the expense of members and enrollees, including if CalPERS paid compensation to Anthem for reducing reimbursements; (iv) failing to calculate the “Allowable Amount” correctly; (v) failing to structure, administer, oversee, calculate, and provide a reasonable or appropriate “Allowable Amount” so that it is in members best interest; (vi) failing to provide commensurate reimbursements for in network and out-of-network medical services; (vii) failing to provide “specific notice” of any reduced reimbursement or reduced “Allowable Amount” for out-of-network services; (viii) entering into standardized transactions on non-negotiable form contracts by which CalPERS, the Board, or the Anthem obtains an advantage, including by insufficient consideration or undue influence; including by reducing its burden to reimburse for nonemergency out-of-network medical expenses; (ix) not providing due process or notice; (x) failing to act in good faith and deal fairly, including as CalPERS sold secretly less valuable PPO insurance to Plaintiffs who sought “out-of-network” coverage; and (xi) in other ways described in this Complaint.
CalPERS’ Breach Of Its Fiduciary Duties Caused Harm to Plaintiffs
Plaintiffs specifically suffer damages directly and proximately caused by CalPERS’ breaches of its fiduciary duties, including by CalPERS and/or Anthem (i) transferring medical expenses onto Plaintiffs; (ii) transferring costs onto Plaintiffs associated with “out-of-network” medical costs that it purported to cover; (iii) failing to disclose that it will pay reduced and arbitrarily calculated reimbursements; (iv) failing to disclose that the most significant cost of “out-of-network” medical expenses is the greatly reduced “Allowable Amount” (not the percentage increases in co-pay); (v) failing to adequately inform Members about the material terms of the PPO insurance; (vi) dividing its loyalty such that some of the Plaintiffs’ insurance premiums benefit Anthem; (vii) failing to disclose a change in the “Allowable Amount” under the third subpart; (viii) failing to calculate the reimbursement at the appropriate level or higher; (x) failing to calculate the term “Allowable Amount” consistent with the first two subparts; (xi) failing to disclose that the PPO arrangement is not a standard PPO coverage; (xii) failing to calculate the PPO premium such that the reduced reimbursement is apparent; (xiii) failing to disclose the reduced reimbursement and reduced “Allowable Amount” for “out-of-network” medical services; (xiv) failing to account; (xv) failing to account for the premiums that do not provide a standard PPO coverage; (xvi) failing to require Anthem to use usual, customary and reasonable (UCR) reimbursement rates and Allowable Amounts; (xvii) failing to oversee that Anthem acts on CalPERS’ behalf in the best interest of the member; (xviii) failing to act in good faith; (xix) failing to exercise appropriate care; (xx) failing to act to the fiduciary standard required; (xxi) failing to deal fairly; (xxi) taking an advantage for itself or Anthem or others; (xxii) allowing Anthem to determine the “Allowable Amount” without standards or guidelines; (xxiii) failing to investigate the basis for the allowable amounts provided under the PPO coverage; (xxiv) failing to return the premiums that are not associated with standard PPO Coverage; (xxv) filing to provide “specific notice” to those seeking “out-of-network” services that the PPO plan is very different and does not use usual, customary or reasonable reimbursement rates; (xxvi) failing to take into consideration Plaintiffs’ intent to seek appropriate standard reimbursement for “out-of-network” medical services; (xxv) failing to inform in a manner that is not inherently ambiguous or uninformative; (xxvi) breaching its duty of good faith and fair dealing when it acts with even the slightest misrepresentation, concealment, threat, or adverse pressure of any kind; (xxvii) breaching its duty of good faith and fair dealing when it seeks PPO coverage under a standardized form agreement that contains a three part “Allowable Amount” definition, where one subpart is dramatically different than the other subparts; (xxviii) misleading policyholders by failing to use real world or accurate examples that show that the “Allowable Amount” for in network and “out-of-network” medical care is significantly different; (xxix) breaching its duty of loyalty and requirement to contract with Anthem for industry standard reimbursements; (xxx) entering into standardized transactions on nonnegotiable form contracts by which CalPERS, the Board, or Anthem obtains an advantage from the class members; (xxxi) obtaining an advantage without sufficient consideration; (xxxii) retaining an advantage received by insufficient reimbursement, excess policy premiums, lack of consideration or undue influence; (xxxiii) adding adverse material terms to a voluntary contract after the fact; (xxiii) seeking to enforce a waiver; (xxxiv) not providing due process or notice; (xxxv) failing to take adequate precautions to protect Plaintiffs from Anthem’s secret under reimbursement practices or policies; (xxxvi) breaching its duty of good faith and fair dealing when it used the term “PPO” and represented and transacted purported PPO insurance on the same standardized forms that compared it to standard PPO insurance or HMO coverage; (xxxvii) breaching its duty of good faith and fair dealing when it sold nonstandard PPO insurance coverage specifically to those that it knew sought “out-of-network” coverage; (xxxix) breaching its duty of good faith and fair dealing when it sold PPO coverage that was not suitable to people seeking “out-of-network” coverage; and (xxxx) in other ways described in this Complaint.
Breach Proximately Caused Damage
CalPERS’ breach of fiduciary duty directly and proximately caused damage to class members, including when Plaintiffs are forced to accept reduced reimbursements and pay higher medical costs.
Each Plaintiff suffered damage at the time they signed CalPERS’ form contracts and then suffered increased reimbursement rates.
Each Plaintiff suffered reduced reimbursement and higher medical costs.
Amount of Damages. The beneficiary is entitled to recover in tort for all harm caused by the breach of duty arising from the fiduciary relationship. (See Fair v. Bakhtiari, supra, at 1153; Rest. 2d Torts, §874, comm. B.) Each Plaintiff is entitled to damages for all harm proximately caused by defendant’s breach of fiduciary duty. (Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1582; see also Civil Code, §3333.)
The amount of damages is the amount of the under-reimbursement with interest charged from the date of payment of the underpaid claim to the time when the claims is correctly paid, plus attorney fees and other costs.
Mandatory Fiduciary Duties Intended to Protect Against the Type of Injuries That Plaintiffs Suffered
The constitutional, statutory, and adopted fiduciary duties imposed upon CalPERS, its Board, and the CalPERS employees were intended to protect against the type of harm that Plaintiffs’ suffered.