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Kinsinger v. Smartcore, LLC

United States District Court, W.D. North Carolina, Charlotte Division

August 26, 2019



          Frank D. Whitney Chief United States District Judge.

         THIS MATTER is before the Court following a bench trial held before the undersigned on June 4, 2019. Plaintiffs, Eric Kinsinger and Denise Kinsinger, brought seven claims for relief: (1) failure to pay wages under the North Carolina Wage and Hour Act, (2) breach of contract, (3) wrongful denial of benefits under ERISA, (4) breach of fiduciary duty under ERISA, (5) legal and equitable relief on account of breach of fiduciary duty, (6) statutory penalties under ERISA § 502 for failure to provide documents, and (7) attorney's fees, interest and such other relief as proper under ERISA and North Carolina Law. (See generally Doc. No. 33). Pursuant to Rule 52(a)(1) of the Federal Rules of Civil Procedure, the following constitutes the Court's findings of fact and conclusions of law.

         I. Findings of Fact

         The Court makes the following factual findings based upon the testimony of Eric Kinsinger at trial, Plaintiff's trial exhibits, and undisputed facts submitted by the parties. The Court notes that in preparation for trial, parties submitted extensive stipulations of fact.[1]

         A. The Parties

         1. William H. Winn Jr. (“Winn”) was President of SmartCore, LLC (“SmartCore”). (Doc. No. 109, p. 3).

         2. Steven Matthew Good (“Good”) was a principal of SmartCore. Id.

         3. Good and Winn were the only members (owners) of SmartCore, were its sole managers, and controlled all management, operational, and employment aspects of SmartCore. Id. at 3-4.

         4. Good and Winn hired employees of SmartCore, including Eric Kinsinger, who was hired as a full-time employee of SmartCore in October 2014. Id. at 4.

         5. Good and Winn bargained with, and set terms and conditions of employment, for employees of SmartCore. Id.

         6. Good and Winn made the decision for SmartCore to cease active business activities. Id.

         B. Plan Organization and Funding

         7. SmartCore adopted a group health plan that provided payment for major medical benefits called the SmartCore, LLC Group Health Plan (“Plan”) on December 18, 2015, with an effective date of December 1, 2015. Id.; (Pl. Ex. A-I, p. 1).

         8. SmartCore was the Plan Sponsor and Plan Administrator. (Doc. No. 109, p. 3). Under the plan, SmartCore, would evaluate the costs of the Plan based on projected Plan expenses and would determine the amount to be contributed by the covered employees. (Pl. Ex. A-I, p. 9); (Pl. Ex. B, p. 8). The contributions received from “Eligible Employees” were to be used to cover Plan costs. (Pl. Ex. A-I, p. 9); (Pl. Ex. B, p. 8). SmartCore was to pay “Plan benefits and administration expenses directly from [SmartCore's] general assets.” (Doc. No. 109, p. 4); (Pl. Ex. A-I, p. 6).

         9. SmartCore withheld wages from Plaintiff and other employees to cover the costs of the Plan. (Doc. No. 109, p. 6); (See Pl. Ex. G).

         10. SmartCore entered into an administrative services agreement with Starmark, Inc. (“Starmark”). As the initial claims fiduciary for the Plan, Starmark determined eligibility benefits under the Plan. (Doc. No. 109, p. 4); (Pl. Ex. B., p. 2).

         11. SmartCore also purchased stop-loss insurance from Trustmark Life Insurance Company (“Trustmark”). Under that agreement, Trustmark reimbursed SmartCore for a certain portion of the “reasonable and customary fee actually paid by [SmartCore] for eligible benefits under the Plan” in exchange for monthly premiums. (Doc. No. 109, p. 4); see also (Pl. Ex. C) (“The Employer [SmartCore] is entitled to the reimbursement determined in this Contract if the Employer is eligible for insurance under the provision of this Contract.”).

         12. SmartCore agreed to pay Trustmark monthly premiums for (1) Trustmark's stop-loss insurance policy, (2) benefits paid under the plan administered by Starmark, and (3) Starmark's services (collectively, “Health Plan Expenses”). (Doc. No. 109, p. 4-5); (Pl. Ex. B, p. 5); (Pl. Ex. C, p. 4).

         13. SmartCore, LLC, under the direction of Defendants Good and Winn, stopped paying the premiums necessary to fund the Health Plan Expenses and benefits. (Doc. No. 109, p. 6). SmartCore, Good, and Winn instead used their employee's withholdings for other purposes. Id.

         14. On or about February 5, 2016, Starmark notified SmartCore it was cancelling the stop-loss insurance and its administrative services contract with SmartCore because SmartCore failed to make payments as required for Health Care Expenses. Id.; (Pl. Ex. E).

         C. Plan Participants

         15. Eric Kinsinger was a participant in the Plan because of his employment with SmartCore. (Doc. No. 109, p. 5).

         16. Denise Kinsinger was a participant in the Plan as a dependent of her husband, Eric. Id.

         17. Eric and Denise Kinsinger were covered under the “Plan” from its effective date of December 1, 2015, until Eric Kinsinger's resignation on or about February 29, 2016. Id.

         18. As of December 31, 2015, there were eighty-nine participants in the plan, fifty-seven of whom were employees while thirty-two of whom were dependents of employee participants. Id.; (Pl. Ex. D).

         D. Medical Treatment Incurred by Denise and Medical Necessity

         19. On December 9, 2015, Dr. Pillai diagnosed Denise with Menorrhagia and Adenomyosis, and recommended she be treated with a hysterectomy. (Doc. No. 109, p. 5); (Pl. Ex. Q, p. 11-16).

         20. Starmark, acting on behalf of the Plan, had Dr. Matthew Zawelinski, review Denise's claim. (Doc. No. 109, p. 5). Dr. Zawelinski determined that the procedure was medically necessary and eligible for benefits under the Plan. Id.; (Pl. Ex. O, p. 22).

         21. On January 8, 2016, Starmark granted pre-authorization for the procedure and notified Denise, Eric, and Carolina Healthcare System (“CHS”) of their decision. (Doc. No. 109, p. 6); (Pl. Ex. A-iii).

         22. On that same date, Denise received the hysterectomy. (Doc. No. 109, p. 6).

         23. On or about January 21, 2016, CHS billed the Plan $39, 931.45 for the hysterectomy and related treatment. Id.; (Pl. Ex. F). The Plan did not pay the bill. (Doc. No. 109, p. 7).

         E. SmartCore's handling of Plaintiffs' Medical Claim

         24. On February 19, 2016, SmartCore sent a letter to Eric Kinsinger, regarding “Cancellation of Medical Insurance Policy.” Id. The letter stated: “As you may know, our insurance was cancelled effective 1/1/2016 for non-payment. We were not made aware of this until 2/8/2016. We have made every effort to secure the funds to reinstate the insurance; however, at this time, we have not been able to do so.” Id. The letter did not provide information specific to Plaintiffs' claim, nor did it indicate whether the claim was denied. (Pl. Ex. J).

         25. At the end of February, SmartCore sent an undated letter to Eric Kinsinger and other participants, stating, “SmartCore intends to pay for any medical expense or benefit under the Medical Plan for which the services were provided between January 1, 2016 and February 29, 2016. (Pl. Ex. K).

         26. On March 31, 2016, SmartCore's Benefits Committee sent a letter to Eric wherein it identified itself as the Plan Administrator. (Pl. Ex. A-vii).

         27. The Benefits Committee consisted of Good and Winn. (Doc. No. 109, p. 7). Good and Winn were jointly the Plan Administrator on and after March 31, 2016 and were responsible for both evaluating and paying claims under the Plan. Id. at 7.

         28. The March 31 letter stated, “[t]he Benefit Committee believes that the surgery provided . . . to the Plan Participant [(Denise)], was not pre-certified as required under the Plan.”. (Pl. Ex. A-vii). The Committee then requested Plaintiffs to provide “information required for pre-certification” before it rendered a final decision. Id

         29. On June 3, 2016, Eric Kinsinger, through counsel, wrote the Benefits Committee and requested documents for the Plan. (Doc. No. 109, p. 8); (Pl. Ex. A-ix).

         30. Specifically, Eric Kinsinger requested the following documents in writing:

• The plan document (including any insurance policy/contract),
• The latest updated ...

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