Case Title: Cervantes v. Health Plan of Nevada

Citation: 127 Nev. Adv. Op. No. 70

Docket Number: 

State: nevada

Court: Nevada Supreme Court

Date: 2011-10-27T00:00:00Z

Document:
9 0 >

127 Nev., Advance Opinion 7O
IN THE SUPREME COURT OF THE STATE OF NEVADA.

MARGERITA CERVANTES AND No, 56166
JAIME RODRIGUEZ,

Appellants,

HEALTH PLAN OF NEVADA, INC;

SIERRA HEALTH SERVICES, INC; FILED
SIERRA HEALTH AND LIFE,

INSURANCE COMPANY, INC.; SIERRA. oct 27 201,
HEALTH-CARE OPTIONS, INC.; AND

PRIME HEALTH,

Respondents,

 

Appeal from a district court summary judgment in a tort

action. Eighth Judicial District Court, Clark County; Doug Smith, Judge.
Affirmed,

Matthew L. Sharp Ltd. and Matthew L. Sharp, Reno; Friedman Rubin and

William S. Cummings, Anchorage, Alaska,
for Appellants.

Jones Vargas and Constance L. Akridge, Las Vegas; Bryan Cave LLP and
J. Alex Grimsley, Lawrence G. Scarborough, and Meridyth M. Andresen,
Phoonix, Arizona,

for Respondents.

BEFORE THE COURT EN BANC.
OPINION
By the Court, DOUGLAS, J.:
Appellant Margerita Cervantes allegedly contracted hepatitis
C as a result of treatments she received at the Endoscopy Center of
Southern Nevada (ECSN). She obtained treatment at ECSN as part of the

Hi 33. S27
_ sere orm

 
health care benefits she received through her union, the Hotel Employees
and Restaurant Employees International Union Welfare Fund (Culinary
Union). ‘The Culinary Union operated a self-funded Employee Retirement
Income Security Act (ERISA) health care plan and retained respondents
Health Plan of Nevada, Inc.; Sierra Health Services, Inc; Sierra Health

and Life Insurance Company, Inc.; Sierra Health-Care Options, Ine.; and

 

Prime Health (collectively, HPN) as its agents to assist in establishing a
network of the plan’s chosen medical providers.

Cervantes filed a lawsuit alleging that HPN is responsible for
her injurie

ECSN and referred her to a blatantly unsafe medical provider. In

 

because it failed to ensure the quality of care provided by

response, HPN argued, among other things, that Cervantes’ claims were
preempted by ERISA section 514.

‘The district court, having considered the parties’ contentions,
concluded that Cervantes’ claims were preempted by ERISA section
514(a). In this appeal, we consider whether ERISA section 514 precludes
state law claims of negligence and negligence per se against a managed
care organization’ (MCO) contracted by an ERISA plan to facilitate the
development of the ERISA plan's network of health care providers. We
conclude that such claims are precluded by ERISA section 514, and
therefore, we affirm the district court's grant of summary judgment.

INRS 695G.050 defines a “managed care organization” as “any
insurer or organization authorized pursuant to this title to conduct
business in this State that provides or arranges for the provision of health
care services through managed care.”

2Appellants also argue that the distriet court abused its discretion in
refusing to allow them to conduct NRCP 56() discovery and in concluding
continued on next page . .

 

 
FACTS AND PROCEDURAL HISTORY

Cervantes received health care benefits through the Culinary
Union's self-funded plan, which engaged HPN to assist in establishing «
network of the plan's chosen medical providers. Specifically, the Culinary
Union contracted with Sierra Health-Care Options to be the network
manager for the Plan's provider network. The President of Sierra Health-
Care Options explained in an affidavit that the contract provided that the
Culinary Union “would select certain outpatient providers with whom it
wanted to contract and [HPN] would negotiate contracts with those
providers. Thereafter, Prime Health would sign the contract on behalf of
the (Culinary Union].”

In 2007, Cervantes received treatment at ECSN and allegedly
contracted hepatitis C as a result of her treatment there. After she was
diagnosed with hepatitis C, Cervantes commenced an action against HPN,
asserting claims for negligence and negligence per se. Her husband,
appellant Jaime Rodriguez, asserted a claim for loss of consortium.
Cervantes claimed that HPN breached a duty of care to her because it

~ continued
that HPN owed them no duty of care. Because we conclude that

appellants’ claims are preempted by ERISA section 514, we do not reach
the other issues presented,

Moreover, although appellants now contend that they should have
been given an opportunity to conduct additional discovery on the
relationship between HPN and the Culinary Union, they never advanced
this contention before the district court. ‘The failure to raise an argument
in the district court proceedings precludes a party from presenting the
argument on appeal. Mason v. Cuisenaire, 122 Nev. 43, 48, 128 P.3d 446,
449 (2006). Therefore, appellants waived this issue.

 

 
failed to maintain a quality assurance program as required by NRS
Chapter 695G and accompanying regulations, and they were negligent in
referring her to an unsafe medical provider.*

In its answer, HPN asserted a number of affirmative defenses
and subsequently sought summary judgment from the district court,
arguing, among other things, that Cervantes’ claims were preempted by
the relevant provisions of ERISA, specifically, sections 602(a) and 514(a).
29 U.S.C, §§ 1132(a), 1144(a) (2006). Cervantes opposed the motion and
sought a continuance to obtain discovery to respond to the motion.

‘The district court denied Cervantes’ request for NRCP 56(f)
discovery and granted HPN’s motion for summary judgment, In so doing,
the district court determined, among other things, that appellants’ claims
were preempted by ERISA section 514(a). Cervantes and Rodriguez
appealed.

DISCUSSION

We review a district court’s grant of summary judgment de
nove. Wood v, Safeway, Inc,, 121 Nev. 724, 729, 121 P.3d 1026, 1029
(2005). Summary judgment is appropriate when no genuine issues of
material fact remain and the moving party is entitled to judgment as a
matter of law. Id, Furthermore, whether state law is preempted by a
federal statute is a question of law that we also review de novo.
Nanopierce Tech, v. Depository Trust, 123 Nev. 362, 370, 168 P.3d 73, 79
(2007).

‘See NRS Chapter 695G and NAC Chapter 695C for the relevant
statutes and regulations governing MCOs.

 

 
Cervantes argues that the district court erred in concluding
that ERISA section 514(a) preempted her negligence claim‘ because her
claims are not related to the ERISA plan and NRS Chapter 695G and
NAC Chapter 695C only have an incidental effect on the plan. Cervantes
cites two federal district court cases, with fact patterns similar to the facts
here, in which the federal courts concluded that ERISA section 514(a)
preemption did not apply: Insco v. Aetna Health & Life Ins. Co., 673 F.
Supp. 2d 1180 (D. Nev. 2009), and Sadler v, Health Plan of Nevada, Inc.,
2:08-cv-00466-RLH-LRL (D. Nev. June 28, 2008). Both Insco and Sadler
involved patients who sued an MCO after contracting a blood-borne
disease after treatment at ECSN and who alleged that the MCO was

negligent in directing them to ECSN for care.

‘Although Cervantes pleaded negligence and negligence per se in
her complaint as separate causes of action, they are in reality only one
cause of action. Negligence per se is only a method of establishing the
duty and breach elements of a negligence claim. See Black's Law
Dictionary 1135 (@th ed. 2009). Because Cervantes’ general negligence
and negligence per se theories are based on her claim that HPN failed to
evaluate, audit, monitor, and supervise ECSN, whether they are
preempted by ERISA necessarily stand or fall together. We therefore do
not consider Cervantes’ theories of negligence separately.

Although Insco and Sadler involved similar questions, Insco is
factually distinguishable because the ERISA plan had purchased
insurance from the defendant for its member rather than establish its own
network of providers. Insco, 673 F. Supp. 2d at 1183. Moreover, we are
not persuaded by the reasoning in Sadler because no facts regarding the
relationship between the plan and the defendant were provided, and it
failed to distinguish between an entity acting as an HMO or MCO and an
entity acting solely as an administrative agent.

 

 
 

In resolving this matter, we first consider the scope of ERISA
section 514(a)’s preemptive effect. Thereafter, we consider whether
section 514(a) preempts the application of NRS Chapter 695G. and
accompanying regulations,
Preemption under ERISA

The Employee Retirement Income Security Act, codified at 29
U.S.C. §§ 1001-1461, was enacted to “protect... the interests of
participants in employee benefit plans and their beneficiaries,” by setting
out substantive regulatory requirements for employee benefit plans, and
to “provid[e] for appropriate remedies, sanctions, and ready access to
Federal courts.” Aetna Health Inc, v, Davila, 542 U.S. 200, 208 (2004)
(quoting 29 § U.S.C. 10010). As part of its comprehensive pension
reform, Congress provided for expansive preemption of otherwise
applicable state laws so that regulation of employee benefit plans “is
exclusively a federal concern.” Id, (internal quotations omitted).

‘The preemptive effect of ERISA comes from sections 502 and
514(a) of the Act. Cleghorn v. Blue Shield of California, 408 F.3d 1222,
1225 (Gth Cir. 2005), Like the district court, we start—and necessarily
end—our analysis with section 514(@).

Preemption under ERISA section 514(a)

ERISA section 514(a) preempts alll state laws that “relate to”
any employee benefit plan; however, laws that regulate insurance,
banking, or securities are exempted from this preemption. 29 U.S.C. §
1144 (2006) (exempting laws regulating insurance, banking, or securities
from this preemption); Cleghorn, 408 F.3d at 1225. Section 514(a)'s
sweeping “relate[d] to” language cannot be read with “uncritical
literalism.” New York State Conference of Blue Cross & Blue Shield Plans
xy. Travelers Ins. Co., 514 U.S. 645, 655-56 (1995). ‘The United States

 
9

Supreme Court noted that if the statute's “relate{d] to” language is taken
to extend to the furthest reaches imaginable, Congress's words of
limitation would hold no meaning. Id. at 655 ¢“frleally, universally,
relations stop nowhere” (quoting H. James, Roderick Hudson xli (New
York ed., World's Classics 1980))). Furthermore, the Court emphasized
that the intent of Congress is the touchstone to preemption analysis and
that, absent a clear and manifest intent of Congress, there is a
presumption that federal laws do not preempt the application of state or
local laws regulating matters that fall within the traditional police powers
of the state, including health and safety matters.° Id, at 656, 661; De

 

“Cervantes also claims that this court has adopted the following test
to determine whether a state law is preempted under ERISA section
514(a):

“[Wle find that laws that have been ruled
preempted are those that provide an alternative
cause of action to employees to collect benefits
protected by ERISA, refer specifically to ERISA
plans and apply solely to them, or interfere with
the calculation of benefits owed to an employee.
‘Those that have not been preempted are laws of
general application—often traditional exercises of
state power or regulatory authority—whose effect
on ERISA plans is incidental.”

Mack_v, Estiate_of Mack, 125 Nev. 80, 98, 206 P.3d 98, 110 (2009)
(alteration in original) (quoting Aetna Life Ins. Co. v. Borges, 369 F.2d
142, 146 (2d Cir. 1989)). ‘This is a misreading of our decision. In Mack, we
merely noted that the Second Circuit's decision was informative of
whether ERISA section 514(a) preempted the application of our slayer
statute. Id, However, the ultimate question of whether a state statute is
preempted is a question of congressional intent. Id,

 
oS

Buono v, NYSA-ILA Medical and Clinical Services Fund, 520 U.S. 806,
814 (1997).

Remarking that it is necessary to turn from the unhelpful text
of ERISA when determining the scope of ERISA’s preemptive effect, the
United States Supreme Court instructed that courts must be guided by
the objectives of ERISA. Travelers, 514 U.S. at 656. In its analysis of
ERISA section 514(a), the Court found that the statute was intended

“to ensure that plans and plan sponsors would be
subject to a uniform body of benefits law; the goal
was to minimize the administrative and financial
burden of complying with conflicting directives
among States or between States and the Federal
Government... [and to prevent] the potential for
conflict in substantive law... requiring the
tailoring of plans and employer conduct to the
peculiarities of the law of each jurisdiction.”

Id. at 656-57 (quoting Ingersoll-Rand Co, v. McClendon, 498 U.S. 13, 142
(1990). ‘The Court explained that the basic purpose of ERISA section
514(a) was to avoid multiplicity of regulation. Id, at 657. In Shaw v.
Delta Air_Lines, Inc., 463 U.S. 85, 96-97 (1983), the Supreme Court
explained that a law “relate{s] to” a covered employee benefit plan “if it
[()] has a connection with or {(2)] reference to such a plan.” California
Div. of Labor Standards Enforcement v. Dillingham Constr. N.A., Inc., 519
U.S. 316, 324 (1997). ‘Thus, in determining whether a state law would
survive section 514(a) preemption, a court must look at the “actual
operation of the state statute.” De Buono, 520 U.S. at 815.

“Reference to”

A law references an ERISA plan when it “acts immediately
and exclusively upon ERISA plans” or “where the existence of ERISA
plans is essential to the law’s operation.” Dillingham, 519 U.S. at 324-25.

 
one a

We look to the statutory language and the operation of the statute to
determine whether a state law is preempted by ERISA section 514(a)'s
“reference to” prong.

Initially, we observe, and the parties do not contend otherwise,
that ERISA section 514(a)'s “reference to” analysis is not applicable in this
case. NRS 695G.180 requires that all MCOs create a quality assurance
program. ‘The application of this statute, and relevant regulations, is not
predicated on the existence of an ERISA plan. NRS 695G.180. It applies
to all MCOs that are authorized to provide health caro services through
ERISA

managed care, regardless of whether it hi jatus or hi

     

any
relationship with an ERISA plan. Therefore, Nevada's quality assurance
laws and regulations are not preempted by ERISA section 14's “reference

to” prong of preemption analy:

 

Even when a law does not reference an ERISA plan, it is
preempted if it has an impermissible connection with an ERISA plan. Id.
at 325. In cases in which it considered whether a state law has a
forbidden connection with ERISA plans, the United States Supreme Court
has consistently found statutes that “mandate[] employee benefit
structures or their administration” are preempted by ERISA section
514(@). Travelers, 514 U.S. at 657-58 (holding that ERISA section 514(@)
does not preempt a New York statute requiring a surcharge on commercial
insurers and health management organizations); see also FMC Corp. v.
Holliday, 498 U.S. 52 (1990) (holding a Pennsylvania statute that
precluded reimbursement to an ERISA plan operator from the beneficiary
in the event of recovery from a third party to be preempted by ERISA
section 514(a)); Shaw, 463 U.S. 85 (holding that ERISA preempts state
laws regulating benefit plans that prohibit discrimination based on

9

 

 
0 008

 

pregnancy and that require specific benefits be paid); Alessi v. Raybestos-
‘Manhattan, Inc, 451 U.S. 504 (1981) (finding that New Jersey could not
prohibit plans from setting off workers’ compensation payments against
‘employees’ retirement benefits or pensions). However, nothing in the
language of ERISA suggests that Congress sought to displace general
health care regulations, ‘Travelers, 514 U.S. at 661. Notably, a mere
influence or an indirect economic effect on an ERISA plan will not trigger
section 514(a) preemption. Id, at 659-60.

In applying ERISA section 514(a), the Court of Appeals for the
Ninth Circuit has identified a number of factors to aid in determining

whether a state law has a “connection with” ERISA plans:

 

() whether the state law regulates the types of
benefits of ERISA employee welfare benefit plans;

(whether the state law requires the
establishment of a separate employee benefit plan
to comply with the law;

(B)whether the state law imposes reporting,
disclosure, funding, or vesting requirements for
ERISA plans; and

(@) whether the state law regulates certain ERISA
relationships, including the relationships between
an BRISA plan and employer and, to the extent an
‘employee benefit plan is involved, between the
‘employer and employee.

Oper, Eng. Health & Welfare v, WJ Contracting Co,, 135 F.3d 671, 678
(Oth Cir. 1998) (quotation omitted). Significantly, the Third, Fifth, Ninth,
and Tenth Circuits also agree that ERISA preempts suits predicated on
administrative decisions made while administering an ERISA plan. Bui v.
American Telephone & Telegraph Co, Inc,, 310 F.3d 1143, 1147-48 & n.11
(Oth Cir. 2002). The Ninth Circuit explained that subjecting
administrative decisions to individual states’ laws would undermine

 

10

 
90

Congress's purpose to have uniform administration of ERISA benefits.”
Id, at 1148.
Courts agree that Congress did not intend for ERISA to

preempt state medical malpractice laws, a traditional field of state

 

regulation. Id. at 1147. However, they distinguish between actions taken
in the capacity of medical care providers and actions taken in the capacity
of plan administrator. Id, at 1147-48 & n.11, For instance, the Bui court
concluded that while the selection and retention of medical providers is an
administrative decision preempted by ERISA section 514(a), a negligent-
provision-of-services claim is not preempted. Id, at 1148-50.

We agree with the analyses adopted by the federal cireuit

 

courts and conclude that when a plaintiffs claim is predicated on

 

administrative decisions made in the course of administering an ERISA
plan, the claim is necessarily preempted. However, when the conduct
complained of is not performed in the capacity of the ERISA plan, plan
administrator, or plan agent, these claims are not preempted by ERISA
section 514(a) because the relationship with the ERISA plan is too
tangential. Extending section 514(a)'s preemption to these claims based
on actions taken outside of an ERISA plan's administration would not
further Congress's purpose of uniformity and would intrude unduly into
matters that fall within the traditional police power of the state.

"The Ninth Circuit observed that without preemption, Congress's
intent would be subverted because: (1) administrators would have to
follow individual state laws and not federal laws, (2) it would interfore
with the relationship between the administrator and beneficiaries, and (8)
it would provide an alternative enforcement mechanism. Bui, 310 F.3d at
114s,

ul

 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  

 

limited instances
A claim predicated upon NRS Chapter 695G may be

preempted if the MCO acts merely as an administrator or agent of the
ERISA plan. If an MCO acts merely as an administrator or agent of an
ERISA plan, then application of the quality assurance statutes and
regulations to the MCO would be a direct regulation of the ERISA plan's
benefit structure. This would impose a duty on the ERISA plan to monitor
its service providers. In effect, the ERISA plan would be required to
provide as a benefit a quality assurance program to its members due to
Nevada law. Imposition of such a requirement falls squarely within the
scope of prohibited connection with an ERISA plan.

However, if the MCO’s acts are independent of an ERISA plan,
then ERISA section 514(a) would not preempt the application of NRS
Chapter 695G. There is undoubtedly a strong possibility that NRS
Chapter 695G will have an effect on an ERISA plan if it elects to merely
purchase an insurance plan from an MCO or to lease access to the MCO’s
existing network of providers. The ERISA plan may experience high cost
due to the quality assurance requirement and may have less options
regarding what insurance plan or network is available; however, these
would merely be indirect economic effects. See Travelers, 514 US. at 659
Such an indirect economic effect does not trigger section 514(a)'s
preemption because it “does not bind plan administrators to any particular
IRS Chapter 695G serves only to
regulate one of the many products that an ERISA plan might choose to
purchase. Washington Physicians Service Ass'n v. Gregoire, 147 F.3d
1039, 1044-45 (9th Cir. 1998). “The mere fact that many ERISA plans
choose to buy health insurance for their plan members does not cause a

 

choice.” Id. Moreover, in such capacity,

12

 

   

 
regulation of health insurance automatically to ‘relate to’ an employee
benefit plan—just as a plan's decision to buy an apple a day for every
employee, or to offer employees a gym membership, does not cause all
state regulation of apples and gyms to ‘relate to! employee benefit plans.”
Id, at 1045,

In the instant case, the question of whether Cervantes’ claims
are preempted under ERISA section 514(a)

 

‘related to” prong depends

 

upon a determination of whether HPN merely facilitated the selection of

 

providers by the Culinary Union Plan or if HPN leased out it

 

existing

  

is undisputed that the ERISA plan “would select
certain outpatient providers with whom it wanted to contract and [HPN]
would negotiate contracts with those providers. Thereafter, Prime Health
would sign the contract on behalf of the [ERISA plan].”* ‘Thus, because
the Culinary Union selected its own providers, HPN's acts with ECSN are
not independent of the ERISA plan, Rather, it was an administrative
decision made by an ERISA plan that is subject to ERISA section 514(a)
preemption,

Unlike quality of care claims that are traditionally left to state
regulation, the quality assurance statute imposes a monitoring
requirement upon the ERISA plan that is separate and apart from a claim

concerning the quality of care. Rather, this imposition necessarily

As noted above, Cervantes failed to assert below that additional
jscovery was necessary to further explore the relationship between the
Culinary Union Plan and HPN.

 

 

 
 
     
   
  
   

interferes with the plan's administrative decision making and requires the
plan to provide this additional monitoring benefit.

Because we conclude that the selection and retention of ECSN
was an administrative decision by an ERISA plan, Cervantes’ state law
claims are preempted by ERISA section 514(a), and HPN was entitled to
judgment as a matter of law. Accordingly, we affirm the district court’s

summary judgment.

 

Parraguirre

 

"Because Rodriguez's claim for loss of consortium is derivative of
Cervantes’ claim for negligence, we also affirm summary judgment on that

claim. Turner v. Mandalay Sports Entm’t, 124 Nev, 213, 221-22, 180 P.3d
1172, 1178 (2008)

4