QR. 1-1, Notice of Removal, Ex. B at 43.)

Plaintiff characterizes its Complaint as one that solely asserts state law claims regarding
“who is entitled to what portion of a third-party tort recovery.” Plaintiff claims that under these
circumstances, there is not complete preemption and therefore this Court does not have subject
matter jurisdiction over the action. Defendant counters that the Plaintiff's claim is completely
preempted in that her claims are properly recharacterized as arising under federal law. Defendant
is correct. Accordingly, removal was proper.

ANALYSIS

This case is the latest example of the tension between the well-pleaded complaint rule and
the complete preemption exception as it relates to ERISA. According to the well-pleaded
complaint doctrine, “‘a cause of action arises under federal law only when the plaintiff's well-
pleaded complaint raises issues of federal law.” Metropolitan Life Ins. Co. v. Taylor, 481 U.S.
58, 63, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987) (citations omitted). Therefore, the plaintiff
is “master of the complaint.” Caterpillar Inc. v. Williams, 482 U.S. 386, 398-99, 107 S.Ct. 2425,
2433, 96 L.Ed.2d 318 (1987). In this role, the plaintiff controls the litigation through the issues it
raises in its complaint, in contrast to those that the defendant includes in its response. Jass v.
Prudential Health Care Plan, Inc., 88 F.3d 1482, 1486 (7" Cir. 1996). The plaintiff is then able
to, “by eschewing claims based on federal law, choose to have the cause heard in state court.”
Caterpillar, 482 U.S. at 399, 107 S.Ct. at 2433. These rules prevent the defendant from being in
control of the litigation and obtaining a transfer to federal court under the guise of federal
preemption simply by raising a federal question as a defense. Speciale v. Seybold, 147 F.3d 612,

615 (7" Cir. 1998).



compelling the defendant to pay all medical bills for the underlying injury. Id, at 1002. Judge
Moran synthesized the Seventh Circuit’s opinions for “guiding principles”:

First, if resolving the state law claim involves a purely factual

inquiry that does not require any interpretation of the contract, then

the state law remedy is “independent” for preemption purposes. A

need to simply refer to the contract will not kick in preemption, but

a need to interpret the contract term will. Second, if the plaintiff's

“tight” is rooted in the contract, then resolution of a claim based on

that right would require interpretation of contract and preemption

is appropriate. Jd. at 1003.
The court looked to the “express language of [the] pleading” in determining that it was a claim to
recover benefits due under the plan. In contrast to Speciale and Blackburn, Judge Moran refused
to remand the case, because Scianna required an assessment of the contractual tights of the
parties. Jd. at 1005 (“We retain jurisdiction over all questions concerning the parties’ rights,
benefits and obligations under the plan.”).

It is clear that the second and third Jass factors merge when the plaintiff solely seeks to
adjudicate a lien or apportion funds, and that remand is appropriate. Where the complaint or
petition requires a contract interpretation, the cause of action is completely preempted. See, e.g.,
Scianna, 56 F.Supp.2d at 1005; Cortez v. Michael Reese Health Plan, Inc., 980 F.Supp. 277,
279-80 (N.D. Ill. 1997) (holding that the “case involves the interpretation of an ERISA plan
reimbursement provision” and therefore was subject to the complete preemption doctrine). In
contrast, where no contract interpretation is needed, the cause of action is must be remanded.
See, e.g., Speciale, 147 F.3d at 617; Blackburn, 115 F.3d at 495.

In any event, the Complaint filed in state court satisfies each of these two separate Jass

elements. Coughlin, on behalf of herself and the putative class members, seeks a determination



following issues, among others, predominate over any other questions affecting only the
individual class members:

(a) whether [HCSC] has any basis for asserting and collecting

reimbursement claims in excess of its net costs of benefits

provided to class members;

(b) whether any contract provision [HCSC] might rely upon in

asserting and collecting reimbursement claims in excess of its net

cost of benefits provided to class members would be

unconscionable or otherwise unenforceable;

(g) whether plaintiff and the other class members, as third-party

beneficiaries, have a right to only have reimbursements asserted

against them for amounts no greater than what [HCSC] actually

paid in benefits;

(i) whether [HCSC] should be permanently enjoined from

continuing to collect reimbursement liens in amounts in excess of

its net cost of benefits provided.
(Id.) Plaintiff maintains that “[i]n the absence of a class action, [HCSC] will be able to continue
to violate the rights of the members of the class and unjustly enrich itself at the cost of the class
members.” (Id. { 28.)
I. Application of the Law to the Allegations

The Seventh Circuit has used a three factor test to determine whether a claim is

completely preempted: (1) whether the plaintiff is eligible to bring a claim under § 502(a); (2)
whether the plaintiffs causes of action are enforceable through § 502(a); and (3) whether the
plaintiff's state law claims cannot be resolved without interpreting the plan, which is governed by
federal law. Jass, 88 F.3d at 1487. When all three factors exist, the state law claims are
completely preempted and properly recharacterized as an ERISA claim under § 502(a). Jd. at

1489-90.



The complete preemption doctrine is an exception to the well-pleaded complaint rule. If
Congress has completely preempted a given area of law, a plaintiff's state law complaint can be
removed and recharacterized as a federal claim. Lister v. Stark, 890 F.2d 941, 943 (7" Cir.
1989). Falling under this complete preemption doctrine are all state actions that are within the
scope of § 502(a)' of ERISA. Taylor, 481 U.S. at 67, 107 S.Ct. at 1548.

While Coughlin presented the causes of action on behalf of herself and the putative class
members purportedly under state common law, if it “is within the scope of § 502(a) it is
completely preempted regardless of how [sJhe has characterized it.” Rice v. Panchal, 65 F.3d
637, 642 (7" Cir. 1995); Jass, 88 F.3d at 1488. See also Doe v. Allied-Signal, Inc., 985 F.2d 908,
911 (7" Cir. 1993) (plaintiff cannot “deny a defendant access to federal court if the actual nature
of the complaint is federal” and thereby avoid complete preemption). “Therefore, a federal court
may, in some situations, look beyond the face of the complaint to determine whether a plaintiff
has artfully pleaded his suit so as to couch a federal claim in terms of state law.” Burda v. M.
Ecker Co., 954 F.2d 434, 438 n.3 (7 Cir. 1992). Any analysis of complete preemption must
begin with a review of the complaint. Varco v. Lapsis, 172 F.Supp.2d 985, 988 (N.D. Ill. 2001).
I Coughlin’s Characterization of the Complaint

Attempting to show that her Complaint is deserving of a class action treatment, Coughlin
alleges the specific common issues of law and fact. (R. 1-1, Compl. § 25.) In doing so, she

essentially admits that her state law claims are completely preempted. Coughlin states that the

' Section 502 is codified as 29 U.S.C. § 1132. It states in relevant part that “[a] civil
action may be brought (1) by a participant or beneficiary ... (B) to recover benefits due to him
under the terms of his plan, to enforce is 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).

5



Sundstrand be responsible for a portion of their attorney’s fees and expenses under Illinois’
common fund doctrine. The Seventh Circuit found that there was no complete preemption of the
state appropriation doctrine. “[N]either the original tort action nor the petition to adjudicate
adverse claims to the settlement fund sought a payment from the plan. Section 502 is irrelevant.”
Id. at 495,

In 1998, the Seventh Circuit was confronted with another adjudication of liens case in
Speciale. In that case, the plaintiff suffered injuries as a result of an automobile accident.
Speciale, 147 F.3d at 613. The plaintiff's employer’s health plan paid a major portion of her
medical expenses. Fifteen other providers filed medical liens as well. After settling the personal
injury lawsuit, the plaintiff attempted to adjudicate the liens in state court. Her employer
removed the issue to federal court for a determination of the parties’ respective rights. The Court
of Appeals found that the case should have been remanded to state court because only the
apportionment of funds was at issue — there was no need to interpret the contract. “The
plaintiff's personal injury case has been settled. [The plan’s administrator’s] subrogation right
has not been questioned. What remains is simply a determination on the apportionment of the
funds under state law.” Jd. at 617.

What Blackburn and Speciale stand for is that an adjudication of a lien, without more, is
not completely preempted by § 502(a). This proposition comes to light in a district court case
that followed. In Scianna ex rel. Urso v. Furlong, 56 F.Supp.2d 1000 (N.D. Ill. 1999), the
plaintiff filed a petition to approve of a settlement and adjudicate a purported lien by the
defendant employee benefits plan. Jd. at 1001. In the prayer for relief, the petition asked for an

order (1) denying the defendant any right to reimbursement from the settlement funds and (2)



Miffute Order Form (66/97)

United States District Court, Northern District of Illinois

Name of Assi Sitting Judge If Oth
ror Magiatate Judge Amy J. St. Eve than Assigned Judge
CASE NUMBER 02 C 53 DATE 10/1/2002
CASE Candice Coughlin vs. Health Care Service Corp.
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented,]
DOCKET ENTRY:
q@) Oo Filed motion of [ use listing in “Motion” box above.]
(2) 0 Brief in support of motion due
(3) o Answer brief to motion due . Reply to answer brief due .
(4) Oo Ruling/Hearing on set for at
(5) QO Status hearing[held/continued to] [set for/re-set for] on set for at
(6) aq Pretrial conference[held/continued to] [set for/re-set for] on set for at ‘
(7) a Trial[set for/re-set for] on at
(8) 0 [Bench/Jury trial] [Hearing] held/continued to at
(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OFRCP4(m) CLocal Rule 41.1. CFRCP41(a)(1) [ FRCP41(a)(2).

ao [Other docket entry] | Enter Memorandum Opinion and Order. Coughlin’s claims on behalf of

herself and the putative class are completely preempted. As such, they are within this court’s subject

matter jurisdiction. Plaintiff's Motion to Remand is hereby denied. Plaintiff's request for costs and

attorney’s fees is also denied. : ¢

Ques ons

(1) ff [For further detail see order attached to the original minute order.]

No notices required, advised in open court.
No notices required.

Notices mailed by judge's staff.

Notified counsel by telephone.

YW | Docketing to mail notices.
Mail AO 450 form.
Copy to judge/magistrate judge.
courtroom
THe! deputy’s
initials -
Date/time received in
central Clerk's Office



unenforceable certainly requires an interpretation of the Plan itself. See Moran v. Rush
Prudential HMO, Inc., 230 F.3d 959 (7" Cir. 2000) (complete preemption where “the extent and
enforceability” of a plaintiff's rights “necessarily requires an examination on the contract.”),
aff'd, __U.S,__, 122 S.Ct, 2151, 153 L.Ed.2d 375 (2002).

Blackburn and Speciale do not provide otherwise. The disputes in those cases simply
called for allocation of the settlement funds based on state law. Here, HCSC has already offset
its lien by its portion of the attomney’s fees, as required by the common fund doctrine. No other
liens on the settlement have been brought to the attention of this Court. The only question is
whether the reimbursement HCSC seeks is allowable under the specific language of the Plan and
whether those terms are enforceable. To answer that question, the Court must interpret the
Plan’s provisions. Thus, Plaintiffs claims are completely preempted by § 502(a) of ERISA.

CONCLUSION

Coughlin’s claims on behalf of herself and the putative class are completely preempted.
As such, they are within this court’s subject matter jurisdiction. Plaintiff's Motion to Remand is
denied. Plaintiff's request for costs and attorney’s fees is also denied.

DATED: October 1, 2002 ENTERED

AMY J. ST.

United States District Court Judge

11



of whether (1) “plaintiff and the other putative class members ... have a right to only have
reimbursements asserted against them for amounts no greater than what [HCSC] actually paid in
benefits”; and (2) “[HCSC] should be permanently enjoined from continuing to collect
reimbursement liens in amounts in excess of its net cost of benefits provided.” (R. 1-1, Compl. q
25.) In asking for this relief, Coughlin has destroyed her argument that the claims do not fit
within the scope of § 501(a)(1)(B). Certainly, with these requested determinations, Coughlin
seeks, on behalf of herself and the putative class members, both to “enforce [their] rights under
the terms of the plan” and to “clarify [their] rights to future benefits under the terms of the plan.”
See § 501(a)(1)(B).

B. Coughlin’s Claims must be Resolved by Interpreting the Contract, which is
Governed by Federal Law.

Coughlin argues that the language of the Plan and of the plans covering other class
members “are not at issue in the case because such provisions allow the conduct complained of
herein.” (R. 12-1, Mem. in Supp. of Mot. to Remand at 4.) She further argues that “even if these
provisions purported to allow such misconduct they would be unenforceable.” (/d.) These
arguments are inconsistent with Coughlin’s Complaint, which calls for an interpretation of the
plan to ultimately resolve the case. In the Complaint, Coughlin admits that the dominant issues
include whether (1) “[HCSC] has any basis for asserting and collecting reimbursement claims in
excess of its net costs of benefits provided to class members;” and (2) “any contract provision
[HCSC] might rely upon in asserting and collecting reimbursement claims in excess of its net
cost of benefits provided to class members would be unconscionable or otherwise
unenforceable.” (R. 1-1, Compl. | 25.) Deciding whether HCSC had a contractual basis to

assert and collect funds in excess of its costs and whether a contractual provision is

10



Section 502(a)(1) allows any “participant or beneficiary” to bring a civil action, Coughlin
alleges that she and the putative class members are beneficiaries or participants, (R. 1-1, Compl.
{1 4, 21), thus they are entitled to bring suit under § 502(a). Coughlin disputes, however, the
outcome of the last two factors of the test: (1) whether the Coughlin and the putative class
members bring causes of action that are enforceable through § 502(a)(1)(B); and (2) whether the
claims require an interpretation of the plan itself. As illustrated below, recent Seventh Circuit
case law has merged the two factors for cases arising in this context.

A. The Causes of Action are Enforceable through § 502(a).

Under § 502(a)(1)(B), a plaintiff may bring a cause of 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
tights to future benefits under the terms of the plan.” Jd. This issue has been the subject of many
controversies over the years and has led to an evolution of ERISA law.’ As the law stands today,
a simple adjudication of a lien is not enough to allow for complete preemption by § 502(a).

In Blackburn y, Sundstrand Corp., the Seventh Circuit addressed the issue of § 502(a)
preemption. 115 F.3d 493 (7" Cir. 1997). In that case, the defendant Sundstrand paid part of the
cost of the plaintiffs’ medical care that treated their personal injuries. After the plaintiffs settled
the underlying state tort action, Sundstrand and the plaintiffs’ lawyer maintained claims against

the settlement. The plaintiffs filed a state court petition to apportion the fund and asked that

2 In 1996, the Musinski court was presented with this issue of whether a simple
adjudication of a lien is enough to allow for complete preemption. See Musinski v. Staudacher,
928 F.Supp. 739, 743-44 (N.D. Ill. 1996). The court found complete preemption. Later,
Muskinski was followed as precedent in Fravel v. Stankus, 936 F.Supp. 474, 477-78 (N.D. Ill.
1996). The resolution of the issue did not last long, however, as our Court of Appeals abrogated
Musinski and Fravel the next year in Blackburn v. Sundstrand Corp., 115 F.3d 493 (7° Cir.
1997).



(id. J 12.) Coughlin eventually settled the personal injury case for $150,000. (id. § 11.) HCSC
agreed to comply with Illinois’ common fund doctrine by reducing its claimed lien by one-third
to pay its share of the attorney’s contingency fee. (Id. 4 15.)

Over this period of time, HCSC sent Coughlin an itemization of services provided to
Coughlin that it claimed to have paid. (R. 1-1, Compl. { 13.) Suspecting that HCSC was not
providing its actual out of pocket costs related to Coughlin’s medical treatment — and believing
that HCSC only had the right to collect on the lien what it paid for those services — Coughlin
requested further documentation from HCSC. (Id. ] 14.) Specifically, Coughlin asked to see the
contracts that HCSC had with the health care providers and documentation that would
demonstrate whether HCSC received discounts or refunds not otherwise evidenced by its
itemization of services. (Id.) HCSC refused Coughlin’s demand and re-sent her the itemization.
(ia)

The reimbursement provision in the applicable HCSC Plan states:

If you or one of your covered dependents are injured by the act of
omission of another person and benefits have been provided for
that injury under this Certificate, you agree:

- to immediately reimburse the Plan for any payments
received, whether by action at law, settlement or
otherwise, to the extent that the Plan has provided
benefits to you or your covered dependents; and

- that the Plan will have a lien to the extent of
benefits provided. Such lien may be filed with the
person whose act caused the injury, the person’s
agent or a court having jurisdiction in the matter.

For purposes of this provision, the cost of benefits provided will be

the charges that would have been billed if you had not been
enrolled in this benefit program.



similarly situated” and sought class certification. (/d. at 1.) Defendant removed the action to
federal court, claiming the state law claims were completely preempted by § 502(a) of ERISA.
Q. 1-1, Notice of Removal.) Plaintiff then filed a Motion to Remand, arguing that her causes of
action are only state law claims that are not completely preempted by ERISA. (R. 12-1, Mot. to
Remand.)

Plaintiff's Complaint broadly alleges that HCSC realizes unfair and illegal profits by
failing to adjust claimed reimbursement liens to reflect actual costs to the company. (R. 1-1,
Compl. ¥ 1.) Plaintiff contends that, as the administrator of plans, HCSC enters into agreements
with health care providers to provide services to HCSC members. (/d. 49.) According to the
Complaint, HCSC “negotiates significant discounts” for those services, (/d.) Plaintiff claims
that these discounts can come in various forms, including “up-front” reductions in the amount
charged or billed by the providers and “back-end” refunds to HCSC. (/d.) Presumably, these
discounts are not passed onto the participants in the HCSC plans.

The allegations specific to plaintiff Coughlin provide more context. Coughlin was
injured in a fall outside of her apartment on February 2, 2000. (R. 1-1, Compl. 46.) At the time,
she was insured under an HMO plan (the “Plan”) that HCSC administered. (/d. | 7.) Coughlin
received benefits from the Plan for medical treatment related to her injuries. (/d.) According to
the Complaint, HCSC claimed to cover and pay $23,632.85 of the $23,761.60 in health care
provider charges. (Jd. 12.) Coughlin was only required to pay $128.75. (Id.)

Meanwhile, Coughlin pursued tort claims against a third-party and its insurer for the
injuries and damages she sustained in her fall. (R. 1-1, Compl. J 10.) HCSC asserted a lien for

$23,632.85 — the same amount as the purported benefits it claimed it paid related to the accident.



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

CANDICE COUGHLIN, individually
and on behalf of all others similarly
situated,

Plaintiff,

No. 02 C0053 Loe
Ocr tery

v. * age
HEALTH CARE SERVICE CORPORATION,

a mutual legal reserve company, d/b/a BLUE
CROSS BLUE SHIELD OF ILLINOIS,

wee yw ewer

Defendant.
MEMORANDUM OPINION AND ORDER

Plaintiff Candice Coughlin originally filed her Complaint in state court on behalf of
herself and a putative class of similarly situated plaintiffs. Defendant Health Care Service
Corporation (“HCSC”) removed the action to federal court, alleging that the Employment
Retirement Income Security Act of 1974 (ERISA) completely preempted the lawsuit and allowed
for removal. (R. 1-1, Notice of Removal.) Coughlin now moves to remand the case to state
court. (R. 12-1, Mot. to Remand.) Because this Court finds Coughlin’s claims to be completely
preempted by § 502(a), Coughlin’s Motion to Remand is denied.

BACKGROUND

Coughlin brought her complaint in state court seeking a declaration of unjust enrichment,
the establishment of a constructive trust, judgments of breach of covenants and contracts, and
judgment of a violation of Illinois’ Consumer Fraud Act and similar statutes enacted by other

states. (R. 1-1, Compl.) Coughlin filed the lawsuit on behalf of herself and “all persons