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No. 95-4029MN

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Dianne L. Shea, individually *

and as trustee for the heirs of *

Patrick Joseph Shea, decedent; *

individually and derivatively *

on behalf of participants in *

the Seagate Group Health Plan, *

*

Appellant, *

* Appeal from the United States

v. * District Court for the District

* of Minnesota.

Sidney Esensten; Jeffrey A. *

Arenson; Family Medical Clinic, *

now known as Fairview Clinics, *

a Minnesota non-profit *

corporation; Medica, a *

Minnesota non-profit *

corporation, *

*

Appellees. *

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Submitted: November 21, 1996

 Filed: February 26, 1997

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Before FAGG, WOLLMAN, and HANSEN, Circuit Judges.

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FAGG, Circuit Judge.

After being hospitalized for severe chest pains during an overseas

business trip, Patrick Shea made several visits to his long-time family

doctor. During these visits, Mr. Shea discussed his extensive family

history of heart disease, and indicated he was suffering from chest pains,

shortness of breath, muscle tingling, and dizziness. Despite all the

warning signs, Mr. Shea's doctor said a referral to a cardiologist was

unnecessary. When Mr. Shea's symptoms did not improve, he offered to pay

for the cardiologist himself. At that point, Mr. Shea's doctor persuaded

Mr. Shea, who
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was then forty years old, that he was too young and did not have enough

symptoms to justify a visit to a cardiologist. A few months later, Mr.

Shea died of heart failure.

Mr. Shea had been an employee of Seagate Technologies, Inc. (Seagate)

for many years. Seagate provided health care benefits to its employees by

contracting with a health maintenance organization (HMO) known as Medica.

As part of its managed care product, Medica required Seagate's employees

to select one of Medica's authorized primary care doctors. Mr. Shea chose

his family doctor, who was on Medica's list of preferred doctors. Under

the terms of Medica's policy, Mr. Shea was insured for all of his medically

necessary care, including cardiac care. Before Mr. Shea could see a

specialist, however, Medica required Mr. Shea to get a written referral

from his primary care doctor. Unknown to Mr. Shea, Medica's contracts with

its preferred doctors created financial incentives that were designed to

minimize referrals. Specifically, the primary care doctors were rewarded

for not making covered referrals to specialists, and were docked a portion

of their fees if they made too many. According to Mr. Shea's widow Dianne,

if her husband would have known his doctor could earn a bonus for treating

less, he would have disregarded his doctor's advice, sought a

cardiologist's opinion at his own expense, and would still be alive today.

Initially, Mrs. Shea brought a wrongful death action in Minnesota

state court. Mrs. Shea alleged Medica's fraudulent nondisclosure and

misrepresentation about its doctor incentive programs limited Mr. Shea's

ability to make an informed choice about his life-saving health care.

Medica removed the case to federal court, contending Mrs. Shea's tort

claims were preempted by the Employee Retirement Income Security Act

(ERISA), 29 U.S.C. § 1144 (1994). Mrs. Shea filed a motion to remand, but

the district court denied the motion. Mrs. Shea then amended her complaint

to assert Medica's behind-the-scenes efforts to reduce
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covered referrals violated Medica's fiduciary duties under ERISA. See id.

§§ 1002(21), 1104(a)(1). Believing ERISA does not require an HMO to

disclose its doctor compensation arrangements because they are not

"material facts affecting a beneficiary's interests," the district court

dismissed Mrs. Shea's amended complaint for failing to state a claim. See

Fed. R. Civ. P. 12(b)(6). Mrs. Shea appeals. Having construed the pleaded

facts in the light most favorable to Mrs. Shea, we reverse the judgment of

the district court. See Alexander v. Peffer, 993 F.2d 1348, 1349 (8th Cir.

1993).

Because our removal jurisdiction is intertwined with the district

court's preemption ruling, we must first consider whether ERISA displaces

Mrs. Shea's tort claims against Medica. See Schroeder v. Phillips

Petroleum Co., 970 F.2d 419, 420 (8th Cir. 1992) (per curiam). ERISA

supersedes state laws insofar as they "relate to any employee benefit

plan." 29 U.S.C. § 1144(a). To this end, the language of ERISA's

preemption clause sweeps broadly, embracing common law causes of action if

they have a connection with or a reference to an ERISA plan. See Pilot

Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47-48 (1987). Here, Medica

administered Seagate's employee benefit plan, and Mrs. Shea maintains

Medica wrongfully failed to disclose a major limitation on her husband's

health care benefits. Along these lines, we have held that claims of

misconduct against the administrator of an employer's health plan fall

comfortably within ERISA's broad preemption provision. See Kuhl v. Lincoln

Nat'l Health Plan of Kansas City, Inc., 999 F.2d 298, 301-04 (8th Cir.

1993); see also Howe v. Varity Corp., 36 F.3d 746, 752-53 (8th Cir. 1994)

(ERISA preempts state fraudulent misrepresentation claims), aff'd, 116 S.

Ct. 1065 (1996).

After considering the factors that guide our inquiry, see Arkansas

Blue Cross & Blue Shield v. St. Mary's Hosp., Inc., 947 F.2d 1341, 1344-45

(8th Cir. 1991), we conclude the district court correctly decided that

ERISA preempts Mrs. Shea's state-law claims.
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The outcome of Mrs. Shea's lawsuit would clearly affect how Seagate's

ERISA-regulated benefit plan is administered, and if similar cases are

brought in state courts across the country, ERISA plan administrators will

inevitably be forced to tailor their plan disclosures to meet each state's

unique requirements. This result would be at odds with Congress's intent

to ensure "the nationally uniform administration of employee benefit

plans." New York State Conference of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co., 115 S. Ct. 1671, 1677-78 (1995). Thus, we agree with

the district court that Mrs. Shea's case was removable to federal court.

See Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64, 66-67 (1987)

(ERISA preemption supports removal); Anderson v. Humana, Inc., 24 F.3d 889,

891 (7th Cir. 1994) (plan participant's attacks on HMO's incentive

structure were both preempted and removable); Rodriguez v. Pacificare of

Texas, Inc., 980 F.2d 1014, 1016-17 (5th Cir. 1993) (state-law claims based

on HMO's refusal to provide referral letter were properly preempted and

removed). 

Having decided Mrs. Shea's case belongs in federal court, we turn to

Medica's contention that Mrs. Shea lacks standing to pursue an ERISA

remedy. ERISA authorizes current plan participants to assert a claim for

breach of fiduciary duty. See Adamson v. Armco, Inc., 44 F.3d 650, 654

(8th Cir.), cert. denied, 116 S. Ct. 85 (1995). According to Medica, Mr.

Shea was no longer a Seagate plan participant after he died. See 29 U.S.C.

§ 1002(7). Contrary to Medica's view, we have held that if the fiduciary's

alleged ERISA violation caused the former employee to lose plan participant

status, the former employee will nonetheless have standing to challenge the

fiduciary violation. See Adamson, 44 F.3d at 654-55; see also Swinney v.

General Motors Corp., 46 F.3d 512, 518-19 (6th Cir. 1995); Vartanian v.

Monsanto Co., 14 F.3d 697, 702 (1st Cir. 1994). Mrs. Shea contends that,

but for Medica's failure to disclose Mr. Shea's doctor's financial stake

in discouraging covered referrals to specialists, her husband would still

be alive and a current plan participant. Stated another way, Mr. Shea did
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not voluntarily relinquish his rights in the Seagate plan. See Adamson,

44 F.3d at 655. We are persuaded that Mrs. Shea, as the representative of

Mr. Shea's estate, has standing to assert her husband's ERISA claims. Any

other result would reward Medica for giving its preferred doctors an

incentive to make more money by delivering cheaper care to the detriment

of patients like Mr. Shea, and "ERISA should not be construed to permit the

fiduciary to circumvent [its] ERISA-imposed fiduciary duty in this manner."

Swinney, 46 F.3d at 518-19; see also Varity Corp. v. Howe, 116 S. Ct. 1065,

1068 (1996) (former plan participants tricked by a breach of a fiduciary

duty have standing to sue).

With the jurisdictional challenges out of the way, we next consider

whether Medica had a duty to disclose its referral-discouraging approach

to health care. ERISA requires plan fiduciaries to "discharge [their]

duties with respect to a plan solely in the interest of the participants

and beneficiaries." 29 U.S.C. § 1104(a)(1). In addition to ERISA's

express disclosure requirements, see 29 U.S.C. §§ 1021-1031, "`Congress

invoked the common law of trusts to define the general scope of [a

fiduciary's] . . . responsibility.'" Varity Corp., 116 S. Ct. at 1070

(quoting H.R.Rep. No. 93-533, at 3-5, 11-13 (1973)). In affirming our

decision in Varity Corp., the Supreme Court concluded that ERISA

fiduciaries must comply with the common law duty of loyalty, which includes

the obligation to deal fairly and honestly with all plan members. See id.

at 1074-75. Although the Supreme Court found it unnecessary to reach the

issue, our earlier opinion made clear that the duty of loyalty requires an

ERISA fiduciary to communicate any material facts which could adversely

affect a plan member's interests. See Varity Corp., 36 F.3d at 754. "The

duty to disclose material information is the core of a fiduciary's

responsibility, animating the common law of trusts long before the

enactment of ERISA." Eddy v. Colonial Life Ins. Co. of Am., 919 F.2d 747,

750 (D.C. Cir. 1990). 

 
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Although the district court acknowledged Medica's duty of loyalty,

the court felt the compensation arrangements between Medica and its doctors

were not material facts requiring disclosure. We disagree. From the

patient's point of view, a financial incentive scheme put in place to

influence a treating doctor's referral practices when the patient needs

specialized care is certainly a material piece of information. This kind

of patient necessarily relies on the doctor's advice about treatment

options, and the patient must know whether the advice is influenced by

self-serving financial considerations created by the health insurance

provider. The district court believed Seagate's employees already realized

their doctors' pocketbooks would be adversely affected by making referrals

to outside specialists. Even if the district court is right, Seagate's

employees still would not have known their doctors were penalized for

making too many referrals and could earn a bonus by skimping on specialized

care. Thus, we conclude Mr. Shea had the right to know Medica was offering

financial incentives that could have colored his doctor's medical judgment

about the urgency for a cardiac referral. Health care decisions involve

matters of life and death, and an ERISA fiduciary has a duty to speak out

if it "knows that silence might be harmful." Bixler v. Central Penn.

Teamsters Health & Welfare Fund, 12 F.3d 1292, 1300 (3d Cir. 1993); see

Restatement (Second) Of Trusts § 173 cmt. d (1959). Indeed, in this case

the danger to the plan participant's well being was created by the

fiduciary itself. If Mr. Shea had been aware of his doctor's financial

stakes, he could have made a fully informed decision about whether to trust

his doctor's recommendation that a cardiologist's examination was

unnecessary. 

 

In sum, we believe Mrs. Shea has stated a claim against Medica for

breaching the fiduciary obligation to disclose all the material facts

affecting her husband's health care interests. When an HMO's financial

incentives discourage a treating doctor from providing essential health

care referrals for conditions covered under the
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plan benefit structure, the incentives must be disclosed and the failure

to do so is a breach of ERISA's fiduciary duties. We thus reverse the

district court's order dismissing Mrs. Shea's amended complaint for failure

to state a claim on which relief can be granted and remand the case to the

district court for further proceedings. We decline Medica's invitation to

consider several remedy-related issues that were not addressed in the

district court's ruling.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.