IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION
KENNETH RAYMOND KOENIG,
RICHARD POWELL, CHRISTOPHER
ERNEST REED, ANDREW D. NOVAK,
MELINDA KAY FARNED,
VICTORIA CANALES DIZON,
NORTH CYPRESS MEDICAL CENTER
OPERATING COMPANY, LTD. AND
NORTH CYPRESS MEDICAL CENTER
OPERATING COMPANY GP, LLC.
VS.
AETNA LIFE INSURANCE COMPANY

C.A. No. ____________

PLAINTIFFS ORIGINAL COMPLAINT

TO THE HONORABLE JUDGES OF SAID COURT:
COME NOW Plaintiffs, KENNETH RAYMOND KOENIG, RICHARD POWELL,
CHRISTOPHER ERNEST REED, ANDREW D. NOVAK, MELINDA KAY FARNED,
VICTORIA CANALES DIZON, NORTH CYPRESS MEDICAL CENTER OPERATING
COMPANY, LTD. and NORTH CYPRESS MEDICAL CENTER OPERATING
COMPANY GP, LLC, (collectively, Plaintiffs and "North Cypress") and file this Complaint
complaining of Defendant, AETNA LIFE INSURANCE COMPANY and would show the
following:
PARTIES
1.

Plaintiffs, Kenneth Raymond Koenig, Richard Powell, Christopher Ernest Reed,

Andrew D. Novak, Melinda Kay Farned and Victoria Canales Dizon are residents of Texas who
have received medical services at North Cypress Medical Center and are Aetna insureds,
participants and/or dependents.

2.

Plaintiff North Cypress Medical Center Operating Company, Ltd. is a Texas

limited partnership doing business in Harris County, Texas and is the lawful assignee of all of
the claims asserted herein.
3.

Plaintiff North Cypress Medical Center Operating Company GP, LLC is a Texas

limited liability company doing business in Harris County, Texas and is the General Partner of
North Cypress Medical Center Operating Company, Ltd.
4.

Defendant Aetna Life Insurance Company (Aetna or Defendant) is a business

entity doing business in Texas, and during all material times acted as either the third party
administrator of various employers healthcare plans or as an insurer of various healthcare
insurance policies. Aetna may be served with process by serving its agent for service of process,
CT Corporation System, 350 North St. Paul Street, Dallas, Texas 75201.

JURISDICTION AND VENUE

5.

Plaintiffs claims arise in part under 29 U.S.C. 1001 et seq., Employment

Retirement Income Security Act (ERISA), under 28 U.S.C. 1331 (federal question
jurisdiction) and under 28 U.S.C. 1332 (diversity of citizenship).
6.

Venue is appropriately established in this Court under 28 U.S.C. 1391 because

Defendant Aetna conducts a substantial amount of business in this district and a substantial part
of the events or omissions giving rise to the claims occurred in this district.
INTRODUCTION
7.

Plaintiffs assert claims sounding in ERISA as well as applicable state law.

8.

Plaintiffs bring this action pursuant to healthcare plans directly insured and/or

administered by Aetna. The plans at issue, PPO and POS permit subscribers to obtain healthcare
services from facilities such as North Cypress which have not entered into contracts with Aetna

(referred to as out-of-network, non-participating or non-par providers). Aetna is required

under the terms of its healthcare contracts to promptly pay benefits for such out-of-network and
emergent care services based on the usual, customary and reasonable rate or the Maximum
Reimbursable Charge (MRC) for that service and/or the rate as defined in the particular Aetna
Plan(s) and/or policies.
9.

Generally, a patients healthcare benefit plan is governed by the applicable

provisions of ERISA, 29 U.S.C. 1001 et seq. The patients ERISA health plan is interpreted
by the plan administrator, which is the employer and not by a third party administrator such as
Aetna unless such authority has been delegated or assigned to Aetna by the Plan Sponsor. In
some of the Plans at issue herein, there is no Discretionary Authority provision which means
that Aetna cannot lawfully interpret the provisions of the Plans even though it has done so in all
such Plans at issue in this case. The employee member pays a part of the cost of the insurance.
The Plan provides the employee member certain benefits, which includes the right to go to a
doctor or facility of his/her choice to treat illness and to obtain reimbursement.
10.

With regard to all Aetna beneficiaries/members/subscribers, North Cypress

requires that they sign documents whereby the employee member or subscriber agrees to be
personally responsible for all charges of North Cypress. As a part of these documents, North
Cypress obtains an Assignment of Benefits and Rights that makes North Cypress the beneficiary
of the ERISA plan and the non-ERISA contracts. North Cypress does not waive a deductible or
co-payment by the acceptance of the Assignment. With this beneficiary status conferred upon
North Cypress also comes the standing to sue Aetna under ERISA as well as pursuant to nonERISA contracts together with the insured patient Plaintiffs.

APPLICABLE FACTS
Background:
11.

When Aetna does not directly insure such group health plans, it functions as the

third party plan administrator as that term is defined under ERISA, and thus assumes all
obligations imposed by ERISA on such plan administrators. Aetna also acts as a direct insurer
for numerous patients who receive benefits at North Cypress.
12.

Aetna also functions as a fiduciary for self-funded health plans and is obligated to

comply with ERISAs fiduciary duties. At times, Aetna exercises discretionary authority and
control in its interactions with self-funded health plans and their subscribers, pursuant to rights
granted by the Plan Sponsor.
13.

A self-funded health benefit plan is an insurance plan in which a plan sponsor

(such as an employer or a union) acts as the insurer and makes payments on claims out of funds
maintained for this purpose. Many plan sponsors retain the services of an insurance company
such as Aetna to administer their self-funded health benefit plans. In administering the selffunded plans that are at issue in this action, Aetna exercises discretionary authority over the
management of the plans and the disposition of plan assets; exercises discretionary authority to
adjudicate claims; and exercises discretionary authority to make coverage and reimbursement
decisions that are (for all practical purposes) final.
14.

Based

upon

information

and

belief,

Aetna

has

entered

into

ASO

Agreements/contracts, pursuant to which Aetna administers those Plan Sponsors self-funded

health benefit plans.
15.

Under present information and belief, some ASO Agreements/contracts between

Aetna and Plan Sponsors include the delegation to Aetna by the Plan Sponsor of discretionary

authority over each Plan Sponsors self-funded health benefit plan to determine eligibility and
enrollment for coverage under the Plan according to the information provided by the Employer,
make factual determinations and to interpret the provisions of the Plan to make coverage
determinations on claims for Plan Benefits, to conduct a full and fair review each claim which
has been denied, to decide level one mandatory appeals of Urgent Care Claims, and to conduct
both mandatory levels of appeal determinations for all Concurrent, Pre-service and Post-service
claims and to notify the Member or the Members authorized representatives of its decision.
Most of these obligations are required of the plan administrator by the applicable provisions of
ERISA.
16.

Under information and belief, the ASO Agreements/contracts between Aetna and

the Plan Sponsors include provisions pursuant to which Aetnas compensation for administering
each plan sponsors self-funded health benefit plan is determined as a percentage of the net
savings or the recovery that Aetna generates for the Plan.
17.

The foregoing contractual provisions, as well as Plaintiffs dealings with Aetna as

described herein, demonstrate that (i) Aetna exercises discretionary authority and/or
discretionary control respecting management of the self-funded health benefit plans that Aetna
administers (which the Plan Sponsors with whom Aetna contracts have unequivocally yielded to
Aetna); (ii) Aetna exercises authority and/or control respecting management or disposition of the
assets of the self-funded health benefit plans that Aetna administers and which the Plan Sponsors
with whom Aetna contracts have unequivocally yielded to Aetna); and, (iii) Aetna has
discretionary authority and/or discretionary responsibility in the administration of the self-funded
health benefit plans that Aetna administers and which the Plan Sponsors with whom Aetna
contracts have unequivocally yielded to Aetna.

18.

Aetnas discretionary authority over the self-funded health benefit plans, as well

as the compensation structure under which Aetnas compensation increases as a function of net
savings or recovery to the plan, incentivizes Aetna to make benefits determinations not based on
the terms of the Plans, but rather, based on maximizing profit to Aetna.
19.

By making claim determinations without valid or appropriate data and/or reasons

to support reduced payments, Aetna violated its fiduciary obligations under ERISA as well as
disclosure and other statutory obligations.
20.

When Aetna insures a plan directly, as well as when it exercises discretionary

authority or control, Aetna is an ERISA fiduciary. Aetna therefore owes fiduciary duties to all
members and subscribers in its ERISA plans and also to North Cypress as a beneficiary and
assignee of the Assignment of Benefits and Rights signed by Aetnas members/subscribers who
procure and receive services at North Cypress.
Improper Claims Determinations:
21.

In August, 2012, Aetna intentionally targeted North Cypress and the Plaintiff

patients by blacklisting North Cypress from payment procedures. Aetna distributed a letter to
member-insureds informing them that North Cypress would not be covered by any out-ofnetwork benefits. At the same time, in this targeted attack, Aetna substantially increased the
medical records requests in order to intentionally stall payments based upon the pretext that
expenses require further review. In numerous appeals that have been made therefrom, Aetna
has systematically failed to ever respond and produce copies of the requested plans and/or
policies. Further, as of April 1, 2011, Aetna refused to cover day out-of-network services
provided by North Cypress.

22.

By not paying or apparently, by threatening not to pay North Cypress for the

Plaintiff patients' proper claims made for healthcare services

rendered to Aetna

insureds/members/subscribers, Aetna is committing an act of coercion or intimidation. The

practice of intentionally under-paying out-of-network providers is nothing new to Aetna or
entities that have assisted Aetna with regard to payment of claims such as Ingenix. Ingenix was
forced to close down the database that Aetna and other payors were using to systematically
stick consumers with billions of dollars that the insurance industry should have been paying.
See Hearing before the United States Senate Committee on Commerce, Science and
Transportation, S. Hrg. 11-37, Part 2 (March 31, 2009).
23.

After receiving a demand from North Cypress to cease and desist these activities,

Aetna resumed normal payments to North Cypress on many of the claims; however, many such
claims remain outstanding for the goods and services provided.

Document Requests/Civil Penalties:

24.

The civil enforcement section of ERISA, particularly 502(c), codified at 29

U.S.C. 1132(c)(1)(B) provides the following:

Any administrator who fails to refuses to comply with a request for any
information which such administrator is required by this subchapter to
furnish to a participant or beneficiary (unless such failure or refusal results
from matters reasonably beyond the control of the administrator) by
mailing the material requested to the last known address of the requesting
participant or beneficiary within thirty (30) days after such request may in
the courts discretion be personally liable to the participant or beneficiary
in the amount of up to $100 a day from the date of such failure or refusal,
and the court may in its discretion order such relief as it deems proper.
25.

When a doctor or hospital, that is a healthcare provider, holds valid Assignments

of Benefits and Rights, they are proper beneficiaries for the purposes of this Section. It has been

well established that an assignee of a beneficiary in an ERISA-governed insurance policy has

standing to sue under ERISA. See Herman Hosp. v. MEBA Med. & Benefits Plan, 845 F.2d
1286, 1289 (5th Cir. 1988); Tango Transp. v. Healthcare Fin. Servs., Inc., 322 F.3d 888 (5th Cir.
2003); I. V. Servs. of Am., Inc. v. Trustees of the Am. Consulting Engrs Council Ins. Trust Fund,
136 F.3d 114 (2d Cir. 1998).
26.

In Total Sleep Diagnostics, Inc., et al v. United Healthcare Ins. Co., et al, No. 06-

4153, 2009 WL 928646 (E.D. La. March 31, 2009), the United States District Court for the
Eastern District of Louisiana held that an assignee such as North Cypress is entitled to seek
penalties and relief for failure to produce plan documents under 104(b)(4), 29 U.S.C. 1024(b)
and 29 U.S.C. 1132(c) and that the assignee has an alternative means for seeking documents
under 503.
27.

North Cypress has requested from Aetna both plan and plan associated documents

on claims made by North Cypress. Aetna refused to provide such documents. North Cypress is
entitled to the requested plan documents and associated documents and that a civil penalty of
$100 per day for failure to timely comply with the request under 29 U.S.C. 1132(c) be imposed
until the documents are produced.
COUNT 1
AETNAS FAILURE TO COMPLY WITH
GROUP PLANS IN VIOLATION OF ERISA:
PROVIDERS CLAIMS AS ASSIGNEE
28.

The allegations contained in paragraphs 1 through 27 are re-alleged and

incorporated herein as if set forth verbatim.

29.

Plaintiffs are entitled to enforce the terms of the plans, as assignees of directly

insured subscribers/members under 29 U.S.C. 1132(a)(1)(B), for whom Aetna has made claims

determinations without valid data and/or has done so in an arbitrary fashion, and to obtain
appropriate relief under such provision. Under 502(a) of ERISA, Plaintiffs (as beneficiaries
and assignees) are entitled to recover benefits due to Plaintiffs and/or the patients from whom
Plaintiffs received Assignments of Benefits, under the terms of the plans between the patients
and Aetna.
30.

Under 502(a) of ERISA, Plaintiffs are further entitled to enforce the rights of

Plaintiffs and/or the patients from whom Plaintiffs received Assignments of Benefits, under the
terms of the plans between the patients and Aetna.
31.

Under 502(a) of ERISA, Plaintiffs are entitled to clarify the rights to future

benefits of Plaintiffs and/or the patients from whom Plaintiffs received Assignments of Benefits,
under the terms of the plan between the patients and Aetna.
32.

Aetna acted as fiduciary to beneficiaries, including Plaintiffs and/or to the patients

who made the Assignments of Benefits to Plaintiffs because Aetna exercised discretion in
determining whether plan benefits would be paid, and/or the amounts of plan benefits that would
be paid, to those plan beneficiaries. As a fiduciary under ERISA, Aetna is subject to a civil
action under 502(a) of ERISA. In violation of ERISA, Aetna failed to make payments of
benefits to Plaintiffs and/or the patients from whom Plaintiffs received Assignments of Benefits,
as required under the terms of the plans between the patients and Aetna. In further violation of
ERISA, Aetna failed to provide Plaintiffs and/or the patients from whom Plaintiffs received
Assignments of Benefits with all rights under the terms of the plan between the patients and
Aetna, as required by ERISA. Aetna failed to make clear to Plaintiffs, and/or the patients from
whom Plaintiffs received Assignments of Benefits, their rights to future benefits under the terms
of the plan between the patients and Aetna, as required by ERISA

33.

Aetna breached the terms of the plans of such directly insured members and

subscribers in whose shoes the assignee facility (North Cypress) stands, by making claims
determinations that had the effect of reimbursing less than the stated percentage of their
providers actual charges without valid evidence or information to substantiate such
determinations and/or in an arbitrary fashion.
34.

As a proximate result of Aetnas wrongful acts, Plaintiffs have been damaged in

the amount in excess of the jurisdictional limits of this Court.

COUNT 2
AETNAS BREACH OF FIDUCIARY DUTIES UNDER ERISA
35.

The allegations contained in paragraphs 1 through 34 are re-alleged and

incorporated herein as if set forth verbatim.

36.

The Plaintiffs and North Cypress, as the assignee of ERISA subscribers/members

is entitled to assert a claim for relief under Aetnas breach of the fiduciary duties of loyalty and
care under 29 U.S.C. 1132(a)(3).
37.

Aetna acted as fiduciary to beneficiaries, such as Plaintiffs and/or to the patients

who made the Assignments of Benefits to Plaintiffs, in connection with the beneficiaries group
health plans, as such term is understood under ERISA 3(21)(A), 29 U.S.C. 1002(21)(A). In
its capacity as the insurer, plan administrator, claims administrator and/or fiduciary of ERISA
group plans, Aetna is a fiduciary.
38.

Aetna breached its duties to the Plaintiffs by making reduced MRC

determinations without valid data or evidence to substantiate such determinations and/or doing
so in an arbitrary fashion, by omitting material information about its determinations from its
members and/or by making misrepresentations about its MRC determinations. Specifically,

10

Aetna acted as fiduciary to beneficiaries such as Plaintiffs and/or to the patients who made the
Assignments of Benefits to Plaintiffs because Aetna exercised discretion in determining whether
plan benefits would be paid, and/or the amounts of plan benefits that would be paid, to those plan
beneficiaries. The exercise of discretion in such determinations of plan benefits is an inherently
fiduciary function that must be carried out in accordance with the terms of the plan, not to
maximize profit to Aetna through a compensation structure that increases Aetnas profit as lower
plan benefits are paid.
39.

By engaging in the conduct described above, Aetna failed to act with the care,

skill, prudence and diligence that a prudent plan administrator would use in the conduct of an
enterprise of like character or to act in accordance with the documents and instruments governing
the plan. Fiduciaries must ensure that they are acting in accordance with the documents and
instruments governing the plan. ERISA 404(a)(1)(B) and (D), 29 U.S.C. 1104(a)(1)(B)
and (D).
40.

Aetna violated its fiduciary duty of care by, among other things, determining

whether plan benefits would be paid, and/or determining the amounts of plan benefits that would
be paid, to those plan beneficiaries based on maximizing profit to Aetna, rather than based on the
terms of the plans and applicable statutes and regulations.
41.

As a fiduciary of a group health plans under ERISA, Aetna owes beneficiaries a

duty of loyalty, defined as an obligation to make decisions in the interest of beneficiaries, and to
avoid self-dealing or financial arrangements that benefit the fiduciary at the expense of
beneficiaries.

Aetna cannot, for example, make benefit determinations for the purpose of

maximizing profit to Aetna at the expense of beneficiaries.

11

42.

Aetna violated its fiduciary duty of loyalty by, among other things, determining

whether plan benefits would be paid, and/or determining the amounts of plan benefits that would
be paid, to those plan beneficiaries based on maximizing profit to Aetna, rather than based on the
terms of the plans and applicable statutes and regulations.
43.

Plaintiffs are entitled to assert a claim for relief for Aetnas violation of its

fiduciary duties under ERISA 502(a)(3), 29 U.S.C. 1132(a)(3), including restitution,

injunctive and declaratory relief, and its removal as a breaching fiduciary.
44.

As a direct and proximate cause of Aetnas ERISA breaches, the assignee North

Cypress has been and continues to be damaged in an amount in excess of the jurisdictional limits
of the Court.
COUNT 3
AETNAS FAILURE TO PROVIDE
FULL AND FAIR REVIEW UNDER ERISA
45.

The allegations contained in paragraphs 1 through 44 are re-alleged and

incorporated herein as if set forth verbatim.

46.

Aetna functions as the plan administrator within the meaning of such terms

under ERISA when it insures a group health plan, or when it is designated as a plan administrator
for such plan. As such, Plaintiffs are entitled to assert a claim for relief under 29 U.S.C.
1132(a)(3).
47.

Although Aetna was obligated to do so, it failed to provide a full and fair

review and otherwise failed to make necessary disclosures pursuant to 29 U.S.C. 1133 (and its
regulations).
48.

Plaintiffs were proximately harmed by Aetnas failure to comply with 29 U.S.C.

1133 and has been damaged in an amount in excess of the jurisdictional limits of the Court.

12

COUNT 4
AETNAS VIOLATIONS OF CLAIMS
PROCEDURE VIOLATIONS UNDER ERISA
49.

The allegations contained in paragraphs 1 through 48 are re-alleged and

incorporated herein as if set forth verbatim.

50.

Aetna is an insurance company that is subject to regulation under the insurance

laws of more than one state, including the State of Texas. Further, Aetna processes benefit
claims for self-funded plans providing claims filing and notices of decisions to policyholders in
such plans.
51.

Aetna is an insurance company which therefore must comply with claims

procedures defined by law (e.g., 29 CFR 2560.503-1) for subscribers and members. Plaintiffs
are therefore entitled to seek additional relief if an insurance company failed to comply with
federal law. 29 U.S.C. 1132(a)(3).
52.

Aetna violated these claims procedure regulations by engaging in conduct that

rendered its claims procedures and appeals process unfair to subscribers and their assignees.
53.

As a proximate result of its violation of such regulations, Plaintiffs have been

harmed in an amount in excess of the jurisdictional limits of this Court.

COUNT 5
TEXAS INSURANCE CODE
54.

The allegations contained in paragraphs 1 through 53 are re-alleged and

incorporated herein as if set forth verbatim.

55.

The acts and omissions also constitute violations of Texas common law and the

Texas Insurance Code. By arbitrarily delaying and failing to timely pay clean claims, Aetna is in
violation of the Texas Prompt Pay Statute, Tex. Ins. Code 843.338 and 843.351. For failure

13

to timely pay clean claims, Aetna is also liable for statutory penalties pursuant to Tex. Ins. Code
843.342. Further, the acts and omission constitute an illegal boycott or an act of coercion in
violation of Tex. Ins. Code 541.003, as an act of unfair competition within the state of Texas.
See also, Tex. Ins. Code 541.054.
56.

As a proximate result of its violations of such regulations and laws, Plaintiffs have

been harmed in an amount in excess of the jurisdictional limits of this Court.

COUNT 6
BREACH OF CONTRACT
57.

The allegations contained in paragraphs 1 through 56 are re-alleged and

incorporated herein as if set forth verbatim.

58.

Aetna is liable to Plaintiffs for breaches of non-ERISA contracts with its insureds.
COUNT 7
REQUEST FOR INFORMATION

59.

The allegations contained in paragraphs 1 through 58 are re-alleged and

incorporated herein as if set forth verbatim.

60.

The acts and omissions on the part of Aetna in failing to comply with the request

for information pursuant to 29 U.S.C. 1132(c)(1)(B) provides a civil penalty/sanction in the

amount of $100 a day for such failure or refusal to provide the requested documents. As such,
Plaintiffs are not only entitled to the requested documents through the appropriate Order of this
Court, but is also entitled to the $100 per day civil penalty.

14

COUNT 8
RULE 54(c) RELIEF
61.

The allegations contained in paragraphs 1 through 60 are re-alleged and

incorporated herein as if set forth verbatim.

62.

Plaintiffs are also entitled to all relief whether or not requested herein pursuant to

Rule 54(c), Fed. R. Civ. P., which is supported by the facts, allegations presented herein and
evidence presented in an amount in excess of the jurisdictional limits of this Court.
COUNT 9
DAMAGES
63.

The allegations contained in paragraphs 1 through 62 are re-alleged and

incorporated herein as if set forth verbatim.

64.

The Plaintiffs are entitled to compensatory damages in an amount in excess of the

jurisdictional limits of this Court.

COUNT 10
ATTORNEYS FEES
65.

The allegations contained in paragraphs 1 through 64 are re-alleged and

incorporated herein as if set forth verbatim.

66.

Pursuant to ERISA 17.41, Tex. Bus. & Comm. Code, 38.001, et seq., Tex.

Civ. Prac. & Rem. Code, the Plaintiffs are entitled to the award of attorneys fees in the amount
of at least $250,000.

15

COUNT 11
PUNITIVE/EXEMPLARY DAMAGES
67.

The allegations contained in paragraphs 1 through 66 are re-alleged and

incorporated herein as if set forth verbatim.

68.

The acts and omissions on the part of Aetna was committed with malice and were

intentional in nature, justifying the imposition of punitive and exemplary damages against Aetna,
jointly and severally, in an amount in excess of the jurisdictional limits of this Court.
WHEREFORE, PREMISES CONSIDERED, Plaintiffs KENNETH RAYMOND
KOENIG, RICHARD POWELL, CHRISTOPHER ERNEST REED, ANDREW D.
NOVAK, MELINDA KAY FARNED, VICTORIA CANALES DIZON, NORTH
CYPRESS MEDICAL CENTER OPERATING CO., LTD. and NORTH CYPRESS
MEDICAL CENTER OPERATING COMPANY GP, LLC pray that upon final hearing
hereof that they have judgment of and against Defendant Aetna Life Insurance Company for
damages requested herein, attorneys fees, both pre-judgment and post-judgment interest at the
highest rates allowed by law; taxable costs; the entry of an Order requiring Aetna to produce the
requested plan and associated documents; all relief pursuant to Rule 54(c), Fed. R. Civ. P. and,
such other and further relief to which they may show themselves justly entitled.
Respectfully submitted,
/s/ J. Douglas Sutter
By:_________________________________
J. DOUGLAS SUTTER
State Bar No. 19525500
Federal ID No. 3791
ATTORNEYS IN CHARGE FOR PLAINTIFFS

16

OF COUNSEL
KELLY, SUTTER & KENDRICK, P.C.
3050 Post Oak Blvd., Suite 200
Houston, Texas 77056
(713) 595-6000 Telephone
(713) 595-6001 Facsimile

JURY DEMAND
Plaintiffs hereby demand a trial by jury for all claims and causes of action.

/s/ J. Douglas Sutter

________________________________
J. DOUGLAS SUTTER

17