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        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT     United States Court of Appeals
                                                                          Fifth Circuit

                                                                         FILED
                                                                    December 19, 2017
                                 No. 16-20398
                                                                      Lyle W. Cayce
                                                                           Clerk
CONNECTICUT GENERAL LIFE INSURANCE COMPANY; CIGNA
HEALTH AND LIFE INSURANCE COMPANY,

             Plaintiffs - Appellants

v.

HUMBLE SURGICAL HOSPITAL, L.L.C.,

             Defendant - Appellee




                Appeal from the United States District Court
                     for the Southern District of Texas


Before BARKSDALE, DENNIS, and CLEMENT, Circuit Judges.
EDITH BROWN CLEMENT, Circuit Judge:
      We are tasked with deciding whether the district court erred when it
granted judgment for Humble Surgical Hospital (“Humble”) on its claims for
damages against the Connecticut General Life Insurance Company and its
parent-corporation, Cigna Health and Life Insurance Company, (collectively,
“Cigna”) under the Employee Retirement Income Security Act of 1974 (ERISA)
§§ 502(a)(1)(B) and 502(a)(3). The district court failed to apply the required
abuse of discretion analysis; other courts have upheld Cigna’s interpretation
of its insurance plans; and there was substantial evidence supporting Cigna’s
interpretation. Accordingly, we reverse the district court. Moreover, as Cigna
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is not a named plan administrator, we reverse the district court’s award of
ERISA penalties against Cigna. We vacate in part the district court’s dismissal
of Cigna’s claims against Humble. Finally, we vacate the district court’s award
of attorneys’ fees and remand for further consideration.
                          FACTS AND PROCEEDINGS
      Cigna is a managed healthcare company that oversees both ERISA and
welfare benefit plans, as well as private policies for health insurers. Humble is
a five-bed, physician-owned hospital in Harris County, Texas, that is
considered an “out-of-network” provider under Cigna insurance plans.
Between 2010 and the commencement of this suit in 2016, it performed
hundreds of non-emergency procedures on Cigna members.
      As part of its admissions process, Humble required patients to sign a
form that included an irrevocable “Assignment of Benefits”—which made
Humble the beneficiary of ERISA plans and non-ERISA contracts. The
admissions form also included a personal guarantee that the patient would
“pay . . . for all services and products administered to the patient.” For each
claim submitted to Cigna, Humble certified that it had previously acquired this
assignment of benefits.
      For several months after Humble opened, Cigna processed Humble’s
claims without dispute, relying on two third-party repricing entities to
negotiate “allowable” amounts and pricing agreements. Then in October
2010—after processing a $168,980 charge for “a fairly noncomplex, outpatient
surgical procedure”—Cigna began flagging Humble’s claims and funneling
them through its Special Investigations Unit. As part of its investigation,
Cigna sent surveys to all of its members who had received treatment at
Humble and had their claims paid by Cigna. On the basis of 113 members’
responses, Cigna concluded that Humble was engaged in “fee-forgiving”—i.e.,


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waiving patients’ co-insurance or deductible fees. Cigna also concluded that
Humble was intentionally inflating its prices to increase reimbursement fees.
      In 2011, Cigna forwarded Humble an inquiry, seeking an explanation of
Humble’s collection policy regarding patient deductibles, co-pays, and co-
insurances. It further requested the patient ledgers of ten specific patients. In
response, Humble assured Cigna that “it is the policy of [Humble] to hold its
patients responsible for the full payment of their respective out-of-network
responsibilities and obligations for services rendered at our facility.” It also
provided Cigna with a summary chart containing “collection notes” for each of
the specified accounts. Nevertheless, Cigna continued to suspect Humble was
engaged in fee-forgiving, and refused to process Humble’s claims without proof
that the member had fully paid his co-pay or co-insurance. If a member paid
less than his full co-pay or co-insurance, Cigna would pay what it deemed to be
its “proportionate share,” in accordance with Cigna’s own interpretation of the
exclusionary language contained in its self-funded plans. 1
      Cigna sued Humble, seeking over $5 million in alleged overpayments.
Humble then counterclaimed under ERISA and Texas state common law,
alleging among other things: (1) underpayment, nonpayment, or delayed
payment of 595 claims; (2) breach of fiduciary duty; and (3) failure to comply
with requests for plan documents.
      After a nine-day bifurcated bench trial, Humble moved for Judgment on
Partial Findings, which the district court granted. The district court concluded
that Cigna’s claims and defenses failed as a matter of law. The district court
awarded Humble $11,392,273 in damages and $2,299,000 in penalties.




      1  For a detailed explanation of how Cigna calculated its “proportionate share,” see
North Cypress Medical Center Operating Co. v. Cigna Healthcare, 781 F.3d 182, 189–190 (5th
Cir. 2015).
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      Both parties then moved for attorneys’ fees. The district court denied
Cigna’s motion and awarded Humble $2,743,790 in attorneys’ fees. Cigna
timely appealed.
                             STANDARD OF REVIEW
      “On appeal from a bench trial, this court review[s] the factual findings of
the trial court for clear error and conclusions of law de novo.”         George v.
Reliance Standard Life Ins. Co., 776 F.3d 349, 352 (5th Cir. 2015) (internal
quotation marks omitted) (alterations in original). “Under de novo review, we
apply the same standard to the Plan Administrator’s decision as did the district
court.” Id. (quoting Holland v. Int’l Paper Co. Ret. Plan, 576 F.3d 240, 246 (5th
Cir. 2009)). “[W]hen an administrator has discretionary authority with respect
to the decision at issue, the standard of review should be one of abuse of
discretion.” Vega v. Nat’l Life Ins. Servs., Inc., 188 F.3d 287, 295 (5th Cir. 1999)
(en banc), overruled on other grounds by Metro. Life Ins. Co. v. Glenn, 554 U.S.
105 (2008).
                                   DISCUSSION
                   I. Cigna’s Exclusionary Language Defense
      Cigna contends that “[t]he district court’s judgment that Cigna
underpaid Humble’s claims should be reversed.” Cigna does not dispute that
it consistently refused to pay the billed charges on hundreds of its member
accounts for medical procedures performed at Humble. Instead, Cigna raised
its interpretation of the exclusionary language in its plans as an affirmative
defense. Cigna argues that the district court erred by concluding that this
defense failed as a matter of law. We agree.
      Because “the various plans at issue vest [Cigna] with discretionary
authority to determine eligibility for benefits,” we apply the abuse of discretion
standard—as the district court should have. The Fifth Circuit has adopted a
multi-step process for determining whether a plan administrator such as Cigna
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abused its discretion in construing a plan’s terms. “The first question is
whether Cigna’s reading of the plans is ‘legally correct.’” N. Cypress Med. Ctr.
Operating Co. v. Cigna Healthcare, 781 F.3d 182, 195 (5th Cir. 2015). “If so,
the inquiry ends and there is no abuse of discretion.” Stone v. UNOCAL
Termination Allowance Plan, 570 F.3d 252, 257 (5th Cir. 2009) (citing Crowell
v. Shell Oil Co., 541 F.3d 295, 312 (5th Cir. 2008)). “Alternatively, if the court
finds [Cigna’s] interpretation was legally incorrect, the court must then
determine whether [Cigna’s] decision was an abuse of discretion.” Id. “This is
the functional equivalent of arbitrary and capricious review: ‘[t]here is only a
semantic, not a substantive, difference between the arbitrary and capricious
and the abuse of discretion standards in the ERISA benefits review context.’”
Anderson v. Cytec Indus., Inc. 619 F.3d 505, 512 (5th Cir. 2010) (quoting
Meditrust Fin. Servs. Corp. v. Sterling Chems., Inc., 168 F.3d 211, 214 (5th Cir.
1999)). “A decision is arbitrary if it is made without a rational connection
between the known facts and the decision.” Id. (internal quotation marks
omitted). Finally, we determine whether Cigna’s “decision to deny benefits”
was “supported by substantial evidence.” Id. (citing Ellis v. Liberty Life
Assurance Co. of Bos., 394 F.3d 262, 273 (5th Cir. 2004)). We are not “confined
to this test” and may “skip the first step if” it “can more readily determine that
the decision was not an abuse of discretion.” Holland, 576 F.3d at 246 n.2.
      Cigna contends that “the district court failed to apply this court’s three-
step abuse-of-discretion inquiry” correctly, arguing that “the district court got
the first step wrong, and it failed to apply the second and third steps at all.”
Cigna is correct that the district court failed to consider whether Cigna’s
interpretation was arbitrary or whether it was supported by substantial
evidence. We perform this analysis here.




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                              A. Legal Correctness
      Each of the relevant plans at issue contains the following provision:
“Payment for the following is specifically excluded from this plan: . . . charges
which you [the member] are not obligated to pay or for which you are not billed
or for which you would not have been billed except that they were covered
under this plan.” Cigna has interpreted this language to mean that its
“obligation to reimburse a plan member is . . . limited to the expenses actually
incurred by the member, meaning that the member is obligated to pay for the
services. Thus, if the member has no obligation to pay, then Cigna has no
obligation to pay.”
      Although the Fifth Circuit has previously suggested (without deciding)
that this reading might be legally incorrect, N. Cypress, 781 F.3d at 196, here
we “skip” this step. Holland, 576 F.3d at 246 n.2.
                             B. Abuse of Discretion
      We agree with Cigna’s argument that, even if its construction of the
plans’ exclusionary language was legally incorrect, its interpretation still fell
within its broad discretion. The Supreme Court has explained that deference
to the plan administrator’s decisions “serves the interest of uniformity, helping
to avoid a patchwork of different interpretations of a plan, like the one here,
that covers employees in different jurisdictions—a result that ‘would introduce
considerable inefficiencies in benefit program operation, which might lead
those employers with existing plans to reduce benefits, and those without such
plans to refrain from adopting them.’” Conkright v. Frommert, 559 U.S. 506,
517 (2010) (quoting Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11 (1987)).
As such, a plan administrator does not abuse its discretion when construing
plan provisions unless its interpretation is “arbitrary or capricious.” Meditrust,
168 F.3d at 214 (quoting Penn v. Howe-Baker Eng’rs, Inc., 898 F.2d 1096, 1100
(5th Cir. 1990)). As noted earlier, “[a] decision is arbitrary only if made without
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a rational connection between the known facts and the decision.” Id. at 215
(internal quotations omitted). In making this inquiry, we ordinarily would
consider “whether Cigna had a conflict of interest, as well as the internal
consistency of the plan and the factual background of the determination and
any inferences of lack of good faith.” N. Cypress, 781 F.3d at 196 (internal
quotation marks omitted) (footnote omitted).
      We need not review these factors today, however. Other courts have held
that, where an administrator’s interpretation is supported by prior case law, it
cannot be an abuse of discretion—even if the interpretation is legally incorrect.
See, e.g., Hinkle ex rel. Estate of Hinkle v. Assurant Inc., 390 F. App’x 105, 108
(3d Cir. 2010) (holding that usually “where the courts of appeals are in
disagreement on an issue, a decision one way or another cannot be regarded as
arbitrary or capricious”); McGuffie v. Anderson Tully Co., No. 3:13-cv-
888(DCB)(MTP), 2014 WL 4658971, at *3–4 (S.D. Miss. Sept. 17, 2014)
(holding that administrator did not abuse its discretion where “case law
supports the Plan’s interpretation . . . prior to suit” and the administrator’s
decision is supported by substantial evidence). We do not adopt this reasoning
as a bright-line rule because even if a legally incorrect interpretation is
supported by prior case law, employing the interpretation could cause a plan
administrator to abuse its discretion. Under the present circumstances,
however, we conclude Cigna did not abuse its discretion.
      At least two other courts have effectively or explicitly concluded that the
provision at issue here was legally correct. Kennedy v. Connecticut General Life
Insurance Co. concerned the interpretation of a nearly-identical exclusionary
provision—“[n]o payment will be made for expenses incurred . . . (5) for charges
which the Employee or Dependent is not legally required to pay.” 924 F.2d 698,
701 (7th Cir. 1991) (alteration in original). There, the Seventh Circuit stated
the provision “means that the patient must be legally responsible for the whole
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charge.” Id. Likewise, a district court from the Southern District of Texas
concluded that Cigna’s interpretation of this exact provision was legally
correct. Although the Fifth Circuit vacated this opinion on other grounds in
2015, N. Cypress, 781 F.3d at 196, it was good law for most of the relevant
period that Cigna was interpreting the disputed plan language here.
      In these circumstances, we agree with a district court that stated, “the
fact that [at least] two courts have upheld interpretations similar to that of
[Cigna] is dispositive of the issue”—“arguably the fact that two courts have
found [Cigna’s] interpretation of the policy language reasonable itself
establishes that the interpretation does not constitute an abuse of discretion.”
Fitzgerald v. Colonial Life & Acc. Ins. Co., No. JFM-12-38, 2012 WL 1030261,
at *3 (D. Md. Mar. 26, 2012).
                            C. Substantial Evidence
      Because we agree that Cigna’s interpretation fell within its discretion,
we must decide whether Cigna’s “sweeping response to [Humble’s] charges was
based on substantial evidence.” N. Cypress, 781 F.3d at 196 (internal quotation
marks omitted). In other words, having concluded that Cigna could interpret
its plan to prohibit fee-forgiving, we must decide whether there was
substantial evidence that Humble actually engaged in fee-forgiving. The
district court did not address this question.
      “Substantial   evidence   is   more   than   a   scintilla,   less   than   a
preponderance, and is such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion.” Corry v. Liberty Life Assurance
Co. of Bos., 499 F.3d 389, 398 (5th Cir. 2007) (internal quotations omitted). In
making this inquiry, we are “constrained to the evidence before the plan
administrator.” Killen v. Reliance Standard Life Ins. Co., 776 F.3d 303, 312
(5th Cir. 2015) (quoting Vega, 188 F.3d at 299).


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      As part of its investigation, Cigna sent surveys to members who had
received medical treatment at Humble, requesting “additional information.”
Among other things, the surveys asked what the member had been told
regarding “responsibility for any non-paid costs, i.e., deductible, coinsurance.”
Cigna received 154 responses. Many members indicated that Humble had
informed them that they would not be charged their full member cost-share.
For example, Member “R.R.” received $25,191.00 worth of care at Humble. She
spoke with Humble before the surgery and four months after surgery and was
informed that “everything was covered [at] 100%.” Under her insurance plan,
she should have been billed $2,745.83. Likewise, Member “M.N.” was charged
just $276 for $27,600.00 worth of treatment and told that this amount “was all
[he] was responsible for.” Humble should have charged M.N. $6,974.49 under
the plan. Cigna argues that “[t]hese records clearly supported Cigna’s belief
that Humble was fee-forgiving.” We agree. Accordingly, we reverse the district
court’s judgment that Cigna underpaid Humble’s claims and abused its
discretion under ERISA § 502(a)(1)(B). 2
                            D. Breach of Fiduciary Duty
      Cigna further argues that “[t]he district court’s holding that Cigna
breached its fiduciary duties under ERISA § 502(a)(3) . . . should be reversed
for the same reasons Humble’s 502(a)(1)(B) claims should have failed.” We
agree that the two claims succeed or fail in tandem as the exclusionary
language defense applies equally to both. For the reasons described above, we
reverse the district court on this issue as well.




      2  In light of this reversal, we do not address Cigna’s alternative arguments that
Humble did not receive valid assignments from patients and that Humble failed to exhaust
its administrative remedies.
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                              II. ERISA Penalties
      Cigna argues that “the district court’s assessment of ERISA penalties
should be reversed” because “the penalty applies only to named plan
administrators, which Cigna is not.” We agree.
      This issue references Humble’s ERISA § 502(c) claim. Under § 502(c),
“[a]ny administrator . . . who fails or refuses to comply with a request for any
information which such administrator is required by [ERISA] to furnish to a
participant or beneficiary . . . may in the court’s discretion be personally liable
to such participant or beneficiary” for civil penalties up to $100 per day. 29
U.S.C. § 1132(c)(1). ERISA defines the term “administrator” as “the person
specifically so designated by the terms of the instrument under which the plan
is operated,” or, “if an administrator is not so designated, the plan sponsor.”
Id. § 1002(16)(A).
      The district court acknowledged that “the evidence establishes that
Cigna is not the ‘designated’ or named plan administrator.” And Cigna is not
the “plan sponsor” or employer. Nevertheless, the district court concluded that
Cigna “became the de facto plan administrator by way of its conduct and
admissions under an ERISA-estoppel theory.” The district court then found
that Cigna had violated § 502(c) for 220 days and assessed $2,299,000 in
penalties—$25 per day per claim on 418 claims.
      The Fifth Circuit has never adopted the de facto plan administrator
theory. The closest it came was in Fisher v. Metropolitan Life Insurance Co.,
895 F.2d 1073, 1077 (5th Cir. 1990), where the court opined that the argument
“has intuitive appeal,” but later refused to “resolve the question.” Id. But “[t]he
de facto administrator argument has been flatly rejected by at least eight
circuits.” Elite Ctr. for Minimally Invasive Surgery, LLC v. Health Care Serv.
Corp., 221 F. Supp. 3d 853, 861 (S.D. Tex. 2016) (collecting cases). Another two
circuits “have refused to extend the de facto administrator doctrine to an
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insurance company involved in claims handling,” such as Cigna. Id. We find
these cases persuasive. See, e.g., Coleman v. Nationwide Life Ins. Co., 969 F.2d
54, 62 (4th Cir. 1992) (“While it is true that an insurer will usually have
administrative responsibilities with respect to the review of claims under the
policy, that does not give this court license to ignore the statute’s definition of
plan administrator and to impose on [the insurer] the plan administrator’s
notification duties.”). And we see no reason to create a circuit split.
Accordingly, we reverse the district court’s award of ERISA § 502(c) penalties
to Humble. 3
                                     III. Cigna’s Claims
       Cigna argues that “[t]he district court committed several reversible
errors in dismissing Cigna’s claims.” It specifically contends that the district
court erred by dismissing its fraud claims. 4
       Under Texas law, fraud occurs when: (1) a party makes a material
misrepresentation; (2) the misrepresentation is made with knowledge of its
falsity or made recklessly without any knowledge of its truth and as a positive
assertion; (3) the misrepresentation is made with the intention that it should
be acted on by the other party; and (4) the other party relies on the
misrepresentation and thereby suffers. United Teacher Assocs. Ins. Co. v.
Union Labor Life Ins. Co., 414 F.3d 558, 566 (5th Cir. 2005) (citing Ernst &


       3  Because we reverse the district court’s award of ERISA § 502(c) penalties, we do not
address Humble’s alternative argument that these penalties are inappropriate because
Humble never gave Cigna written release authorizations from plan members.
        4 Cigna also argues that the district court “construed too narrowly the overpayment

recovery language in the plans . . . to deny Cigna’s ERISA § 502(a)(3) claim.” In a footnote,
Cigna argues that the district court’s “requirement that tracing be accomplished at trial . . .
was also premature.” Because both of these issues are insufficiently briefed, we consider them
abandoned. Yohey v. Collins, 985 F.2d 222, 224–25 (5th Cir. 1993) (finding arguments
abandoned when brief fails to contain “the reasons [appellant] deserves the requested relief
with citation to the authorities, statutes and parts of the record relied on.” (internal quotation
marks omitted)).

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Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001)). Fraud
can also occur through non-disclosure of material facts when the non-disclosing
party had a duty to disclose. White v. Zhou Pei, 452 S.W.3d 527, 537 (Tex. Ct.
App. 2014).
      At trial, Cigna argued that Humble had committed fraud by:
(1) “inflat[ing] the total billed charges on its UB-04s to cover” a 30% kickback
to the referring physicians; and (2) misrepresenting its “actual charges by
billing Cigna for amounts Humble never intended to collect from members.”
But the district court’s fraud analysis focused only on Cigna’s first theory,
dismissing Cigna’s fraud claim on grounds that “Cigna ha[d] not proffered a
written agreement that . . . gives rise to a duty to disclose the [Use
Agreements].” The district court failed to address whether Cigna had proven
that Humble affirmatively misrepresented the actual charges by overbilling
Cigna. Because this failure constitutes error, we vacate the district court’s
dismissal and remand these issues to the district court for further
consideration.
      Cigna also argues that the district court erred by “refus[ing] to let Cigna
present evidence of” Humble’s alleged kickbacks to referring physicians. “We
review exclusions of evidence for abuse of discretion.” Hesling v. CSX Transp.,
Inc., 396 F.3d 632, 643–44 (5th Cir. 2005). “Furthermore, even if abuse of
discretion in the . . . exclusion of evidence is found, the error is reviewed under
the harmless error doctrine.” United States v. Jimenez Lopez, 873 F.2d 769,
771 (5th Cir. 1989). “[E]videntiary rulings must be affirmed unless they affect
a substantial right of the complaining party.” Id. Cigna, however, has not
identified in its brief how the excluded evidence relates to an allegedly material
misrepresentation or omission. The district court did not abuse its discretion
with respect to this issue.


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                              IV. Attorneys’ Fees
      Finally, Cigna argues that “the attorneys’ fee award should be reversed.”
“This court reviews an award of attorneys’ fees for abuse of discretion,
reviewing factual findings for clear error and legal conclusions de novo.”
LifeCare Mgmt. Servs. LLC v. Ins. Mgmt. Adm’rs. Inc., 703 F.3d 835, 846 (5th
Cir. 2013) (citing Dearmore v. City of Garland, 519 F.3d 517, 520 (5th Cir.
2008)). “Pursuant to 29 U.S.C. § 1132(g)(1) of ERISA, this court in its discretion
may allow a reasonable attorney’s fee and costs of action to either party so long
as the party has achieved some degree of success on the merits.” Id. (internal
quotation marks omitted).
      The district court’s grant of Humble’s motion for attorneys’ fees below
was based on across-the-board success: “[o]n the merits, Humble successfully
defended against Cigna’s suit and achieved success on its own cause of action.”
We vacate and remand for reconsideration in light of this opinion and further
proceedings below.
                                 CONCLUSION
      For the aforementioned reasons, we (1) REVERSE the district court’s
decision with respect to Cigna’s exclusionary language defense; (2) REVERSE
the district court’s ERISA penalty determination; (3) VACATE IN PART the
district court’s dismissal of Cigna’s claims and REMAND for further factual
findings pursuant to this opinion; and (4) VACATE the district court’s award
of attorneys’ fees and REMAND for reconsideration.




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