1

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

UPMC PRESBY SHADYSIDE, )

)

Plaintiff, ) 1:05-cv-68

v. )

)

WHIRLEY INDUSTRIES, INC., )

et al., )

MEMORANDUM OPINION

McLAUGHLIN, SEAN J., District J.

This case comes before the Court having been removed from the Court of

Common Pleas of Allegheny County, Pennsylvania. Plaintiff’s complaint asserts

common law breach of contract claims against Defendants Whirley Industries, Inc.

(“Whirley”) and Benefits Services, Inc. (“BSI”) arising from Plaintiff’s efforts to recoup

certain medical expenses incurred in connection with the treatment of one of Whirley’s

employees. Defendants filed a motion to dismiss the complaint, and Plaintiff has

moved to remand the matter to the Court of Common Pleas. For the reasons that

follow, Defendants’ motion to dismiss will be denied and Plaintiff’s motion to remand will

be granted.

I. BACKGROUND

Plaintiff, UPMC Presby Shadyside (“UPMC”), is a Pennsylvania corporation

operating as a hospital in Pittsburgh. Whirley is a Pennsylvania corporation which

operates out of Warren, Pennsylvania and provides traditional health insurance

coverage or self insured health care coverage for its employees. BSI acts as the agent

and third party administrator on behalf of Whirley for purposes of processing and

administering health care coverage to Whirley’s employees.

During the time period from November 30 through December 23, 2003, one of

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Whirley’s employees sought medical treatment at UPMC. The employee in question

was a participant in the “Whirley Industries, Inc. Employee Benefit Plan” prepared and

administered by BSI. On December 23, 2003, UPMC mailed claims to BSI in the

amount of $226,732.75 relative to the employee’s treatment. Partial payments of

$70,000.00 and $50,059.92 were made to UPMC on January 30, 2004 and March 12,

2004, respectively. 

In total, UPMC claims that Defendants improperly discounted some $106,672.83

from the payments due. According to UPMC, the deficiency results from a combination

of two types of discounts, both of which UPMC contends were improperly taken, to wit:

(i) discounts taken for timely payment (which payments, according to UPMC, were in

fact untimely) and (ii) discounts taken based upon Defendants’ own conclusion,

following an independent audit, that certain of UPMC’s charges exceeded that which is

“reasonable and customary.”

UPMC contends that, in taking the allegedly improper discounts, Defendants

breached the terms of a “Memorandum of Understanding” (“MOU”) to which UPMC and

Crawford Health Plan/Vantage (“Vantage”), a Preferred Provider Organization (“PPO”)

are signatories. (See Ex. A to Pl.’s Br. in Supp. of Remand [Doc. # 6].) UPMC

represents that it commonly offers prompt payment discounts through PPOs, which

then enter into repricing contracts and negotiate volume-based discounts on behalf

their clients (presumably, companies like Whirley) who generally lack the patient

volume to be able to negotiate discounts independently. According to UPMC, the

negotiated discounts are typically leased by the PPO to its client base. (See Pl.’s Br. in

Supp. of Remand and in Opp. to Removal [Doc. # 6] at unnumbered p. 2.) 

By its terms, the MOU applies to “[Vantage’s] self-funded employer groups” for

“covered services” received at UPMC and allows for a 20% discount of UPMC’s billed

charges if payment is received within thirty (30) days after billing. (Id.) In relevant part,

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the MOU states as follows:

Effective March 1, 2000, this Memorandum of Understanding (MOU) is entered into between

UPMC Presbyterian and UPMC Shadyside (herein referred to as “provider”) and Crawford

Health Plan/Vantage (herein referred to as “PPO”) and confirms our intention of formalizing a

signed contract.

The terms of this MOU shall apply to PPO’s self-funded employer groups for covered

services received at Provider.

1. Inpatient and outpatient claims will [be] paid at 80% of Provider’s billed charges.

2. PPO shall remit payment on clean claims to Provider within thirty (30) calendar days

of the receipt of the billing statement, including all interim bills. Interim bills are

produced every fourteen (14) days or upon the accumulation of $75,000 in posted

charges. If payment is not made within the thirty (30) calendar day period, all

discount arrangements will be considered null and void and Provider’s customary

charges shall be due.

***

4. PPO agrees to comply with Provider’s Chart Audit Policies, attached as Exhibit I and

Exhibit II.

5. Neither Provider nor PPO may assign, transfer or subcontract its obligations under

this MOU to another party without the written consent of both parties.

6. Provider agrees to send Claims to:

Vantage Health Care Network 

***

This MOU shall be in effect until such time as PPO and Provider enter into the Definitive

Agreement; provided however, that either party may terminate this MOU at any time upon not

less than thirty (30) days prior written notice to the other party. ***

(Id.) 

On February 8, 2005 UPMC sued Whirley and BSI in the Allegheny County

Court of Common Pleas, asserting one claim against each Defendant for alleged

breach of contract. Defendants then removed the action to this Court on the theory that

UPMC’s claims are subject to complete preemption under the civil enforcement

provision of ERISA, 29 U.S.C. § 1132. Defendants now argue that UPMC’s claims

must be dismissed due to its failure to have exhausted its administrative remedies

under ERISA. UPMC denies that complete preemption applies and moves to remand

the action back to state court.

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II. DISCUSSION

A civil action filed in state court is removable to federal court if the claim is one

“arising under” federal law. 28 U.S.C. §§ 1331, 1441(a). See Pascack Valley Hospital,

Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 398 (2004),

petition for cert. filed, 73 USLW 3661 (Apr. 29, 2005)(NO. 04-1452). Under the “wellpleaded complaint” rule, the plaintiff is generally entitled to remain in state court

provided the complaint does not affirmatively allege a federal claim on its face. Id.

(citing Beneficial Nat’l Bank v. Anderson, 539 U.S. 1, 6 (2003)). To support removal, a

right or immunity created by the Constitution or federal law must be an essential

element of the plaintiff’s cause of action. Id. (quoting Franchise Tax Bd. of Cal. v.

Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 10-11 (1983)). 

Because federal preemption is normally considered a defense to suit, it is not

construed as appearing on the face of a well-pleaded complaint, and therefore does not

generally authorize removal to federal court. Metropolitan Life Ins. co. v. Taylor, 481

U.S. 58, 63 (1987); Pascask Valley Hosp., 388 F.3d at 398. However, an exception

supporting removal exists if the civil action “falls within the narrow class of cases to

which the doctrine of ‘complete preemption’ applies.” Pascask Valley Hosp., at 399

(citing Aetna Health Inc. v. Davila, 542 U.S. 200, 124 S. Ct. 2488, 2494 (2004); Metro

Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64 (1987)). This doctrine recognizes that

“Congress may so completely pre-empt a particular area that any civil complaint raising

this select group of claims is necessarily federal in character.” Id. (quoting Taylor, 481

U.S. at 63-64). That is because “[w]hen the federal statute completely pre-empts the

state-law cause of action, a claim which comes within the scope of that cause of action,

even if pleaded in terms of state law, is in reality based on federal law.” Anderson, 539

U.S. at 8.

Section 502(a) of ERISA – the statute’s civil enforcement provision – is one such

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provision “with such ‘extraordinary pre-emptive power’ that it ‘converts an ordinary state

common law complaint into one stating a federal claim for purposes of the well-pleaded

complaint rule.’” Pascask Valley Hosp., 388 F.3d at 399-400 (quoting Davila, 124 S. Ct.

at 2495). In relevant part, § 502(a) allows an ERISA plan “participant” or “beneficiary”

to file a civil action “to recover benefits due to him under the terms of his plan, to

enforce his rights under the terms of the plan, or to clarify his rights to future benefits

under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B). Thus, state law actions that

are within the scope of § 502(a) are removable to federal court. Pascack, 388 F.3d at

399-400 (citations omitted). 

The question for this Court is whether Plaintiff has asserted claims falling within

ERISA’s civil enforcement provision such that the doctrine of complete preemption

applies. In determining whether a plaintiff has artfully pled his suit so as to couch a

federal claim in terms of state law, we are permitted to look beyond the face of the

complaint. Pascack, 388 F.3d at 400 (citing Pryzbowski v. U.S. Healthcare, Inc., 245

F.3d 266, 268, 274 (3d Cir. 2001)). See also AETNA Health, Inc. v. Davila, 542 U.S.

200, — , 124 S. Ct. 2488, 2496 (2004) (to determine whether a cause of action falls

within the scope of § 502(a)(1)(B), courts must examine the complaint, the statute on

which the state law claims are based, and the various plan documents).

Recently, the Supreme Court revisited the topic of complete preemption in

AETNA Health Inc. v. Davila, supra. Davila involved consolidated cases in which two

individuals, Juan Davila and Ruby Calad, sued their respective HMOs for alleged

failures to exercise ordinary care in the handling of coverage decisions, thereby

allegedly violating the Texas Health Care Liability Act (THCLA). Davila’s claim arose

out of his HMO’s refusal to pay for Vioxx after it was prescribed by his treating

physician. Calad’s claim arose from her HMO’s refusal to pay for an extended hospital

stay despite her physician’s recommendation that she remain hospitalized for an

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extended period following surgery. The Supreme Court was asked to decide whether

these state law claims fell within the scope of § 502(a)(1)(B) of ERISA, such that they

would be completely preempted.

The Court noted, with respect to ERISA’s civil enforcement provision:

This provision is relatively straightforward. If a participant or

beneficiary believes that benefits promised to him under the terms of the

plan are not provided, he can bring suit seeking provision of those benefits. 

A participant or beneficiary can also bring suit generically to “enforce his

rights” under the plan, or to clarify any of his rights to future benefits. Any

dispute over the precise terms of the plan is resolved by a court under a de

novo review standard, unless the terms of the plan “giv[e] the administrator

or fiduciary discretionary authority to determine eligibility for benefits or to

construe the terms of the plan.” ...

It follows that if an individual brings suit complaining of a denial of

coverage for medical care, where the individual is entitled to such

coverage only because of the terms of an ERISA-regulated employee

benefit plan, and where no legal duty (state or federal) independent of

ERISA or the plan terms is violated, then the suit falls within the scope of

ERISA § 502(a)(1)(B). ... In other words, if an individual, at some point in

time, could have brought his claim under ERISA § 502(a)(1)(B), and where

there is no other independent legal duty that is implicated by a defendant’s

actions, then the individual’s cause of action is completely pre-empted by

ERISA § 502(a)(1)(B).

Davila, at 2497 (internal quotation and citation omitted). Applying this standard, the

Supreme Court observed that both plaintiffs’ claims involved the denial of coverage

allegedly promised under their respective ERISA-regulated benefit plans. The Court

concluded that the claims were completely preempted by § 502(a)(1)(B).

Soon after Davila was decided by the Supreme Court, the Third Circuit was faced

with an assertion of § 502(a) pre-emption in Pascack Valley Hospital, Inc. v. Local 464A

UFCW Welfare Reimbursement Plan, supra. In Pascack Valley Hospital, the plaintiff

was part of a network of hospitals that had agreed to accept discounted payment for

medical services provided to beneficiaries of group health plans in exchange for the

plans’ promise to encourage beneficiaries to use network hospitals. Pursuant to this

scheme, the network hospitals, including the plaintiff, did not contract directly with the

plans, but instead entered into individual contracts with MagNet, Inc., an independent

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consultant, which in turn entered into separate individualized contracts with the various

plans. The dispute in the case focused on a 1995 “Subscriber Agreement,” which

MagNet had entered into with the defendant, Local 464A UFCW Welfare

Reimbursement Plan (the “Plan”). Under the terms of the Subscriber Agreement, the

Plan had to remit payment to the Pascack Valley Hospital for “covered services”

rendered to “eligible persons” within a 30-day window or else the discounted rate offered

by the hospital would be forfeited. See 388 F.3d at 396. The underlying dispute arose

from medical services that were rendered in 1999 to two individuals who were eligible for

coverage under the defendant Plan. After the Hospital submitted its claims for those

services, the Plan remitted payment based upon the discounted rate. The Hospital

subsequently sued the Plan for alleged breach of the Subscriber Agreement on the

theory that the Plan’s payments had been made outside of the 30-day window and thus

had been improperly discounted. The Plan removed the suit to federal court and the

Hospital moved to remand.

The question facing the court of appeals was whether the Hospital’s claims were

completely preempted by § 502 of ERISA such that removal of the case to federal court

was proper. The court began its analysis with Davila’s premise that the case was

removable “only if (1) the Hospital could have brought its breach of contract claim under

§ 502(a), and (2) no other legal duty support[ed] the Hospital’s claim.” Id. at 400. The

court of appeals first concluded that the Hospital, being neither a “participant” nor a

“beneficiary” under the Plan, could not have brought its claims under ERISA because it

lacked standing. The court declined to resolve whether, as a matter of law, the Hospital

could have obtained § 502(a) standing by virtue of an assignment from the relevant

participant or beneficiary since there was no evidence indicating that, in fact, such an

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 The court noted, however, that “[a]lmost every circuit to have considered the

question has held that a health care provider can assert a claim under § 502(a) where a

beneficiary or participant has assigned to the provider that individual’s right to benefits

under the plan.” 388 F.3d at 401 n. 7 (citing Tango Transport v. Healthcare Fin. Servs.,

322 F.3d 888, 891 (5th Cir. 2003) (collecting cases)).

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assignment had occurred.1 Id. at 400-401.

The court of appeals next concluded that the Hospital’s state law claims were

predicated on a legal duty independent of ERISA. The court acknowledged that the

Hospital’s claims derived from an ERISA plan and existed “only because” of that plan. 

Id. at 402 (quoting Davila, supra, at 2500). But the “crux” of the dispute, the court noted,

was the meaning of § 2.1 of the Subscriber Agreement, governing payment for “Covered

Services furnished to Eligible Persons.” “Were coverage and eligibility disputed in this

case,” the court wrote, ”interpretation of the Plan might form an ‘essential part’ of the

Hospital’s claims.” Id. at 402.

Coverage and eligibility, however, are not in dispute. Instead, the

resolution of this lawsuit requires interpretation of the Subscriber

Agreement, not the Plan. The Hospital’s right to recovery, if it

exists, depends entirely on the operation of third-party contracts

executed by the Plan that are independent of the Plan itself. 

Id. at 402. The court found instructive the decision of the Ninth Circuit Court of Appeals

in Blue Cross of California v. Anesthesia Care Associates Medical Group, Inc., 187 F.3d

1045 (9th Cir. 1999):

In [Anesthesia Care Associates], the court held that claims asserted

by health care providers against a health care plan for breach of their

provider agreements were not completely pre-empted under ERISA. Id. at

1051-52. The court reached this conclusion notwithstanding “the fact that

these medical providers obtained assignments of benefits from

beneficiaries of ERISA-covered health care plans.” Id. at 1047, 1052.

The litigation in Anesthesia Care arose from a fee dispute between

four health care providers and Blue Cross. Id. at 1048. Blue Cross had

entered into “provider agreements” with physicians in which Blue Cross

agreed to identify the providers in the information it distributed to

beneficiaries of the plan and to direct beneficiaries to those providers. In

return, the providers agreed to accept payment for services rendered to

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beneficiaries according to specified fee schedules. When Blue Cross

attempted to change the fee schedules, the providers filed a class action in

state court alleging a breach of the provider agreements. Id. at 1049. The

Ninth Circuit held that “the Providers' claims, which arise from the terms of

their provider agreements and could not be asserted by their

patient-assignors, are not claims for benefits under the terms of ERISA

plans, and hence do not fall within § 502(a)(1)(B).” Id. at 1050. The court

explained:

[T]he Providers are asserting contractual breaches... that

their patient-assignors could not assert: the patients simply

are not parties to the provider agreements between the

Providers and Blue Cross. The dispute here is not over the

right to payment, which might be said to depend on the

patients' assignments to the Providers, but the amount, or

level, of payment, which depends on the terms of the

provider agreements.

Id. at 1051 (first emphasis added). Because the Providers asserted “state

law claims arising out of separate agreements for the provision of goods

and services,” the court found “no basis to conclude that the mere fact of

assignment converts the Providers' claims into claims to recover benefits

under the terms of an ERISA plan.” Id. at 1052. 

The Third Circuit found important similarities between the facts in Pascack Valley

Hospital and those involved in the Anesthesia Care Associates case: “(1) the Hospital’s

claims in [Pascack Valley] arise from the terms of a contract - the Subscriber Agreement

- that is allegedly independent of the Plan; (2) the participants and beneficiaries of the

Plan do not appear to be parties to the Subscriber Agreement; and (3) ‘(t)he dispute

here is not over the right to payment, which might be said to depend on the patients’

assignments to the (Hospital), but the amount, or level, of payment, which depends on

the terms of the (Subscriber Agreement).’” Id. at 403-04 (quoting Anesthesia Care

Associates Medical Group, Inc., supra, at 1051) (alterations and emphasis in the

original). 

Defendants in this case contend that the reasoning of Pascack Valley militates

against a remand and in favor of exercising federal jurisdiction in this case. We do not

agree. Under Davila and Pascack Valley Hospital, as we have seen, complete

preemption applies only if: (1) the Plaintiff could have brought its claims under

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§502(a)(1)(B) of ERISA and (2) no other legal duty independent of ERISA is implicated

by the Defendants’ action. See Davila, supra, at 2497; Pascack Valley Hospital, supra,

at 400. Because we conclude that UPMC’s claims are predicated on legal duties

allegedly independent of ERISA or the Whirley Plan, it necessarily follows that the

claims are not completely preempted by § 502(a)(1)(B). 

At the outset we note, as do the parties, that UPMC’s claims are comprised of two

elements: allegedly improper discounts taken on the basis of prompt payment and

allegedly improper discounts taken on the basis of charges in excess of what is

reasonable and customary. Because the parties have addressed each component

separately, we will do the same.

With respect to the first component of UPMC’s claims – prompt pay discounts –

we find that Pascack Valley’s reasoning supports UPMC’s argument in favor of remand.

It is true in this case, as it was in Pascack Valley, that the Plaintiff’s breach of contract

claims exist only because of the fact that the Hospital rendered treatment to a patient

covered by an ERISA plan. See 388 F.3d at 402. However, the “crux” of the “prompt

payment discount” dispute is whether Defendants breached provisions of the MOU;

there is no contention that Defendants’ rights and obligations relative to the prompt

payment discount derive from the ERISA plan. Thus, this portion of UPMC’s claim

depends entirely on the operation of an agreement independent of the Plan itself. 

Moreover, because the employee-participant in question was never a party to the MOU

upon which UPMC sues, it is undisputed that the employee-participant could not have

asserted UPMC’s claim to recover the prompt payment discounts that were, allegedly,

wrongfully taken. Finally, insofar as the claim for recovery of prompt payment discounts

is concerned, the dispute is not over the right to payment (i.e., coverage and eligibility

under the Plan are not in dispute), but the amount or level of payment, which depends

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 Although Defendant BSI admits that it availed itself of the prompt payment

discount, it denies that such discounts were taken pursuant to the terms of the MOU. 

Instead, BSI suggests, the discounts were taken pursuant to a “customary course of

dealing” with UPMC. (See Tr. of 3/31/05 Hearing [Doc. No. 15] at p. 22.) However, as

we discuss more fully, infra, there is at least some evidence of record suggesting that

Vantage, the PPO which negotiated the pricing arrangement with UPMC, acted as

Defendants’ agent (or with the apparent authority to conduct itself as Defendants’

agent) in entering into the MOU. Regardless, even if we were to accept BSI’s

representation at face value, it still bespeaks the existence of an implied agreement

with UPMC, the terms of which would give rise to enforceable legal rights and duties

quite independent of the ERISA Plan itself. See, e.g., Crawford's Auto Center, Inc. v.

Com., Pennsylvania State Police, 655 A.2d 1064, 1066 (Pa. Cmwlth. 1995) (“An implied

contract is one where the parties assent to formation of a contract, but instead of being

expressed in words, the intention to incur an obligation is inferred from the conduct of

the parties in light of the surrounding circumstances, including the course of dealing.”). 

Thus, our analysis on this point would be no different.

3

 When the MOU was originally made part of the record in this case, the Chart

Audit Policies were not included. This Court has since directed that they be produced

and, because they form part of the basis of this Memorandum Opinion and Order, they

will be made part of the record.

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on the terms of the MOU.2 See Pascack Valley Hospital, 388 F.3d at 403-04 (citation

omitted). These factors lead us to conclude that UPMC’s claim to recover the allegedly

improper prompt payment discounts is not preempted by § 502(a)(1)(B).

We next consider that component of UPMC’s claims which is premised on the

allegation that Defendants took improper discounts for amounts that Defendants

perceived to be in excess of “reasonable and customary” charges. UPMC contends that

Defendants breached the Memorandum of Understanding when they hired a third party

to conduct an audit of UPMC’s charges and deducted from payment those amounts they

considered to be excessive. Under the terms of the MOU, which apply to Vantage’s

“self-funded employer groups,” the PPO (i.e. Vantage) is required to comply with

UPMC’s “Chart Audit Policies,” which are referenced as exhibits to the MOU.3 Those

policies strictly limit the conditions under which UPMC will submit to, or recognize, audits

of its records. Because the audit conducted by Defendants failed to comply with

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UPMC’s Chart Audit Policies, it is UPMC’s view that the resulting deductions constitute a

breach of the MOU. In short, UPMC maintains that this component of its breach of

contract claim is premised upon legal duties independent of ERISA, thus defeating

complete preemption.

Whirley contends that the factors discussed in Pascack Valley Hospital militate in

favor of exercising federal jurisdiction in this case. Whirley first argues that the portion of

UPMC’s claim premised on allegedly improper discounts for excessive medical charges

derives solely from the ERISA Plan, as opposed to the MOU. Whirley reasons that,

because the Plan allows only for payment of charges which are “reasonable and

customary,” this dispute ultimately involves interpretation of the Plan document. We are

not persuaded. To be sure, UPMC aims to recover full payment on its billed charges

and, in that vein, it would likely argue that the amounts billed were both “reasonable” and

“customary.” Nonetheless, as framed by the complaint, the dispute is not whether, in

fact, UPMC’s charges were “reasonable and customary” within the meaning of the Plan,

but whether Defendants had the right under the MOU to make deductions from UPMC’s

charges based on their unilateral determination that various charges exceeded that

which is “reasonable and customary.” (See Complaint ¶¶ 11, 16, 21, 25.) In sum, we

find that UPMC’s breach of contract claim is premised upon the terms of the MOU, a

document which purports to create legal duties independent of the Plan.

Whirley next maintains that the employee in question who received treatment at

UPMC and assigned UPMC his rights under the Plan could have brought suit himself to

enforce full payment of UPMC’s bills. Thus, Whirley seeks to distinguish this case from

Pascack Valley, where the plan participants and beneficiaries were not parties to the

Subscriber Agreement and therefore could not have sued under that agreement to

enforce the rights that Pascack Valley Hospital was seeking to enforce. It is true, as was

the case in Pascack Valley, that there is a “convergence” here between the Plaintiff’s

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breach of contract claims and a claim for benefits under § 502(a)(1)(B):

Because the Plan is a reimbursement plan, the payments made to

the Hospital are the benefits received by [the participants/

beneficiaries] under the Plan. As a result, it would appear that any

claims the Hospital could have obtained by assignment from [the

participants/beneficiaries] would be for the same amount as the

breach of contract claims that are the subject of this appeal. 

Moreover, had the Hospital successfully sued [the participants/

beneficiaries] for the payments due, it would appear that any claims

for reimbursement that [participants/beneficiaries] would have

against the Plan would be claims for benefits under § 502(a). 

Indeed, one of the principal reasons why courts have allowed

participants and beneficiaries to assign their claims under § 502(a)

is to avoid the necessity of providers suing patients in the first

instance.

388 F.3d at 404. 

Ultimately, however, the legal duties that UPMC claims were breached derive not

from the Plan, but from the terms of the MOU. It is implicitly, if not expressly, UPMC’s

theory that, in entering into the pricing agreement embodied in the MOU, and in

consideration for the discounted rates offered by UPMC therein, Defendants agreed to

assume certain legal obligations – among them, the duty to comply with UPMC’s Chart

Audit Policies in resolving potential payment disputes. That policy provides, inter alia,

that all audits are restricted to the verification of charges, that UPMC will not discuss with

any third-party auditor the “reasonableness” of any charge, that UPMC will not disclose

financial data or reports regarding its costs or pricing policies to outside parties absent a

contractual agreement with that party, and that requests for review of medical necessity

will be addressed as a separate issue. (See Exhibit I, “Audit Policy” at II(D).) It is further

UPMC’s theory that Defendants materially breached the terms of the MOU and the

Chart Audit Policies by conducting their own internal audit and withholding payment

based on the results of that audit. When UPMC’s claims are viewed in this light, it

becomes apparent that they are not claims that could be asserted by the plan participant

or beneficiary under § 502(a)(1)(B) of ERISA. Thus, the second factor discussed in

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Pascack Valley weighs in favor of UPMC’s motion for remand.

We further conclude that the third factor discussed in Pascack Valley likewise

supports UPMC’s position. There does not appear to be any serious dispute here that

the Whirley employee in question was eligible to receive benefits under the Whirley plan

and that the services received through UPMC were covered by the plan. Thus, as was

the case in Pascack Valley Hospital, the dispute here “is not over the right to payment,

which might be said to depend on the patient[’s] assignment[] to the Hospital, but the

amount, or level of payment. 388 F.3d at 403-04. 

Whirley concedes that the dispute here is over the amount of payment due to

UPMC, but it insists that determination of the amount due depends on the terms of the

ERISA plan rather than the MOU, i.e., “was Whirley correct in its decision to conduct an

audit of the UPMC bill and, if so, did the deducted charges fit within the definition of

reasonable and customary set forth in the Plan.” (Whirley Indus.’ Br. in Opp. to Pet. to

Remand [Doc. No. 9] at p. 9.) Once again, however, UPMC’s claim is premised not

upon the assertion that Defendants failed to pay all “reasonable and customary” charges

due under the plan, but upon the assertion that Defendants’ conduct breached the terms

of UPMC’s Chart Audit Policies, incorporated by reference into the MOU, when it

withheld payments based upon its own internal audit of UPMC’s bill. Thus, resolution of

UPMC’s claims requires interpretation of the MOU and – as in Pascack Valley – the

Plaintiff’s “right to recovery, if it exists, depends entirely on the operation of [a]...

contract[]” allegedly executed by the Defendants independently of the Plan itself. 388

F.3d at 402. Otherwise stated, the Plan’s provisions relative to payment of “reasonable

and customary” charges are not an essential element of UPMC’s breach of contract

claims; they are instead an essential element of Whirley’s and BSI’s defense to the

contract claims. However, potential defenses, even when anticipated in the complaint,

are not relevant under the well-pleaded complaint rule. Pascack Valley Hospital, 388

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F.3d at 399 (citing Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S.

Cal. 463 U.S. 1, 10-12 (1983)).

All of this is not to say that the Plan language is entirely irrelevant to the present

dispute. As we have noted, the Hospital’s claims against Defendants here exist only

because it provided medical services to an individual covered by Whirley’s employee

benefit plan, accord Pascack Valley Hospital, 388 F.3d at 402, and in that sense, it might

be said that Plaintiff’s claims “relate” to an ERISA plan within the meaning of § 514(a),

29 U.S.C. § 1144(a). It may be true, therefore, that under ERISA’s “conflict pre-emption”

provision, the federal common law of ERISA displaces state law in interpreting the terms

of the MOU. See id. at 398 n. 4. However, “[t]he possibility – or even likelihood – that

ERISA’s pre-emption provision, 29 U.S.C. § 1144(a), may pre-empt the Hospital’s state

law claims is not a sufficient basis for removal.” Id. at 398 (citing Franchise Tax Bd. of

Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. at 12). 

The Court acknowledges Defendants’ argument that, because the Defendants

are not formal signatories to the MOU, that document cannot give rise to any

independent legal duties in this case. Defendants also dispute whether the MOU is a

contract at all; according to Defendants, its terms are too indefinite to constitute any

legally enforceable agreement. It appears that a similar attack was lodged regarding the

Subscriber Agreement at issue in Pascack Valley Hospital. See 388 F.3d at 401 n. 8

(noting defendant’s argument, inter alia, that it had no direct contractual relationship with

the Hospital). Nonetheless, the Third Circuit declined to resolve the parties’ disputes

concerning the merits (or lack thereof) of the plaintiff’s breach of contract claims, noting

that – while the defendant’s interpretation of the Subscriber Agreement might give rise to

certain affirmative defenses that would entitle it to judgment on the breach of contract

claims in a court of competent jurisdiction – “[i]t does not ... convert those breach of

contract claims into derivative claims for benefits under § 502(a).” 388 F.3d at 401. The

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16

Third Circuit’s approach suggests that it is the nature of the Plaintiff’s claims, as framed

by the complaint, and not the merits of the claims, that determine whether the claims are

removable. See id. at 402 (“The Hospital’s right to recover, if it exists, depends entirely

on the operation of third-party contracts executed by the Plan that are independent of

the Plan itself.”) (emphasis added).

In any event, however, there is evidence in the record which arguably belies the

Defendants’ contention that they are not bound by the terms of the MOU. The

Memorandum of Understanding expressly states that its terms shall apply to Vantage’s

self-funded employer groups – including, presumably, Whirley Industries and/or its Plan

– “for covered services received at Provider.” In consideration for the prompt payment

of its billed charges (and other terms and conditions), UPMC grants Defendants a

discounted rate. There is no dispute but that Defendants availed themselves of the

discounted rate. In addition, the record suggests that BSI viewed Vantage as its agent

for purposes of procuring the discounted rate; BSI’s “Provider Remittance Summary”

forms state that “[c]harges have been processed based on a fee arrangement

negotiated through Vantage Healthcare Network.” (See BSI’s Br. Opposing Remand

[Doc. 10] at Ex.s 2, 4.) Alternatively, UPMC might argue that Vantage possessed

apparent authority to act as Defendants’ agent in negotiating the terms set forth in the

MOU, thereby giving rise to legal obligations on their part. See, e.g., Felix v. Fraternal

Order of Police, Philadelphia Lodge No. 5, 759 A.2d 34, 39 (Pa. Cmwlth. 2000)(“An

entity's liability is not limited to such acts of its agents as are expressly authorized or

necessarily implied, but extents [sic] to contracts negotiated by its agent acting within the

apparent scope of authority.”) Further, we note that Whirley’s Plan expressly

encourages its participants to utilize the services of PPOs, including Vantage, in order to

promote cost effective health care:

PREFERRED PROVIDER ORGANIZATION (PPO)

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A Preferred Provider Organization (PPO) is a group of Hospitals, Physicians and other health

care providers who have agreed to work with an organization to help control health costs by

negotiating reduced fees. The PPO helps employers contain the skyrocketing cost of

providing health benefits. The PPO encourages Covered Persons to be cost-minded and help

stabilize health care coverage costs both to you and to your benefit plan. The PPO also

protects your freedom to choose any Physician or Hospital you desire. Alternatives to the PPO

include reducing your benefits and increasing your cost. The PPO is a much more attractive

solution. The PPO will save you money. The PPO providers have agreed to charge costeffective rates. You can use any Physician and any health care facility that qualifies under

your health plan the same as you have in the past. You make the choice of using or not using

a Preferred Provider each time you require services. .....

(Whirley Industries, Inc. Employee Benefit Plan, attached as Exhibit to Whirley

Industries’ Br. in Opp. to Pet. to Remand [Doc. 9], at p. 8.) Taken together, the record at

least provides fodder for an argument that the MOU – while perhaps not an integrated

contract itself – comprises part of a contractual arrangement, independent of the Plan,

whereby UPMC offers discounted rates for its medical services in exchange for (among

other things) the Defendants’ prompt payment of billed charges, Defendants’ compliance

with UPMC’s chart audit policies, and Defendants’ cooperation in encouraging plan

participants and beneficiaries to choose PPO-affiliated hospitals (like UPMC).

For present purposes, we need not, and do not, decide the merits of either

Plaintiff’s contract claims or Defendants’ defenses thereto. As the parties seeking

removal, Defendants bear the burden of proving that UPMC’s claims against them are

ERISA claims. See Pascack Valley Hospital, 388 F.3d at 401. Accordingly, Defendants

bear the burden of demonstrating that the factors outlined in Davila and Pascack Valley

Hospital are satisfied. Because we find that Defendants have not satisfied their burden

on this record, we will grant UPMC’s motion to remand. Defendants’ attacks on the

merits of UPMC’s breach of contract claim, including their assertion that the document

does not legally bind them, is more suitable for resolution in state court. UPMC has

disavowed any intention to proceed as an assignee-beneficiary under § 502(a)(1)(B)

under ERISA. Accordingly, as master of its own complaint, UPMC will stand or fall in

state court on the merits of its contract claims. See, e.g., Children’s Hospital Corp. v.

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18

Kindercare Learning Center, 360 F. Supp. 2d 202, 207 (D. Mass. 2005) (“[T]he fact that

Children’s Hospital could have sued as an assignee is not the test for complete

preemption. As a master of its own complaint, Children’s Hospital had the right to assert

independent causes of action regardless of the assignment.”).

III. CONCLUSION

For the reasons set forth above, Plaintiff’s motion to remand will be granted and

Defendants’ motion to dismiss will be denied. An appropriate order follows.

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IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

UPMC PRESBY SHADYSIDE, )

)

Plaintiff, ) 1:05-cv-68

v. )

)

WHIRLEY INDUSTRIES, INC., )

et al., )

O R D E R

AND NOW, to wit, this 23nd day of September, 2005, for the reasons set forth in

the accompanying Memorandum Opinion,

IT IS HEREBY ORDERED that the Defendants’ motion to dismiss [Doc. # 2] is

DENIED and Plaintiff’s motion to remand [Doc. # 6] is GRANTED. The Clerk is hereby

directed to remand this case to the Allegheny County Court of Common Pleas forthwith.

s/ Sean J. McLaughlin

United States District Judge

cm: All counsel of record.

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