covered under federal health insurance is consistent with FEHBA’s preemption provision. The
Court does not read these cases to mandate the application of federal common law to
reimbursement disputes among private parties.

Furthermore, the parties do not dispute the interpretation of any contract terms. Instead,
Plaintiffs claim they are entitled to reimbursement under the terms set forth in the Statement of
Benefits. Defendant Cruz does not dispute the reimbursement provision, but rather contends that
the illinois common fund doctrine applies and precludes full reimbursement. Thus, even under a
broad reading of Harris, federal common law would not apply because the parties are not asking
the Court to interpret the Statement of Benefits.

CONCLUSION

Defendant’s motion to dismiss is granted.

Dated: November 14, 2003 ENTERED:

(Mh. €

AMY J. st BYE

United States District Court Judge

13


HCSC in the Circuit Court of Cook County, Illinois. Doyle, et al. v. Blue Cross Blue Shield of
Illinois, No. 00H14182 (the “State Court Action”). In the State Court Action, Cruz and the other
plaintiffs sought recovery against HCSC under the Illinois “common fund” doctrine and under
the Illinois Consumer Fraud and Deceptive Practices Act. On November 1, 2000, HCSC
removed the action to federal court. Cruz subsequently filed a motion to remand the action to
state court on the basis that the federal court lacked subject matter jurisdiction over the plaintiffs”
claims. The federal court granted Cruz’s motion and remanded the case to the state court. See
Doyle et al. v. Blue Cross Blue Shield of Illinois, 149 F. Supp.2d 427 (N.D. Ill. 2001) (the
“Remand Order”).

HCSC and BCBSA subsequently filed this separate action against Defendant Cruz in
federal court. Plaintiffs allege that Defendant has breached his obligation under the Service
Benefit Plan because he has refused to reimburse HCSC from his settlement proceeds. Plaintiff
alleges that Defendant has refused to pay back any amount he received in benefits.

ANALYSIS
I. Legal Standards

Defendant seeks to dismiss this case under both Rule 12(b)(1) for lack of subject matter
jurisdiction and Rule 12(b)(6) for failure to state a claim. A Rule 12(b)(1) motion to dismiss
tests the federal jurisdiction of a complaint. See Fed. R.Civ P. 12(b)(1). It is well settled that
federal jurisdiction is limited to cases of “actual controversy.” Arizonans for Official English v.
Arizona, 520 U.S. 43, 67, 117 S. Ct. 1055, 1069, 137 L. Ed. 2d 170 (1997). Plaintiffs bear the
burden of proving the existence of subject matter jurisdiction. Int'l Harvester Co. v. Deere &

Co., 623 F.2d 1207, 1210 (7" Cir, 1980). In analyzing a Rule 12(b)(1) motion, the Court may


Cir. 1992). As the Seventh Circuit has articulated, federal common law applies to “essentially
two categories: ‘those in which a federal rule of decision is necessary to protect uniquely federal
interests and those in which Congress has given the courts the power to develop substantive
law.” Turner/Ozanne v. Hyman/Power, 111 F.3d 1312, 1320 (7" Cir. 1997) (quoting Texas
Indus. v. Radcliff Materials, Inc., 451 U.S. 630, 640, 101 S, Ct. 2061, 2066, 68 L. Ed. 2d 500
(1981)). See also Transit Exp., Inc. v. Ettinger, 246 F.3d 1018, 1023 (7 Cir. 2001). Plaintiff is
not advocating that Congress gave federal courts the power to develop substantive law in this
area, thus the Court must determine if federal common law is necessary to protect a unique
federal interest.

A, Unique federal interest

Plaintiffs contend that the FEHBA program is an area of uniquely federal concern
because it involves the United States Treasury. Plaintiffs argue that the reimbursement money
they seek from Defendant Cruz belongs, at least in part, to the United States Treasury because the
United States subsidizes its. employees’ health benefits. Numerous courts have rejected the
argument that such a possible impact on the federal treasury alone is sufficient to create a unique
federal interest. See Howard v. Group Hosp. Service, 739 F.2d 1508, 1511 (10" Cir. 1984)
(“State court awards of monetary judgments in FEP benefits actions do not have a sufficiently
direct effect on the federal treasury to necessitate federal jurisdiction.”); Lambert v. Mail
Handlers Benefit Plan, 886 F.Supp. 830, 837 (M.D. Ala. 1995) (“Although it is true that the
federal treasury pays a large percentage of the bills for the plan at issue, this alone does not
suffice.”); linois Psychiatric Hosp. Co., Inc. v. Health Care Service Corp., No. 92 C 2880, 1992

WL 166823 at *2 (N.D. Ill. July 9, 1992) (“Any potential effect state court monetary judgments



U.S.C. § 1331. Under 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).

Iii. The Remand Order

Defendant argues that the filing of this case amounts to an “improper review” of the
Remand Order. He essentially contends that Plaintiffs’ suit constitutes an appeal of the Remand
Order which is prohibited under 28 U.S.C. § 1447(d),

Defendant Cruz’s state court complaint rested on the Illinois common fund doctrine.
{Ilinois’ common fund doctrine “permits a party who creates, preserves, or increases the value of
a fund in which others have an ownership interest to be reimbursed from that fund for litigation
expenses incurred, including counsel fees.” Scholtens v. Schneider, 173 \.2d 375, 385, 219 I.
Dec. 490, 671 N.E.2d 657, 662 (1996) (citing Brundidge v. Glendale Federal Bank, F.S.B., 168
Ill.2d 235, 213 Ill. Dec. $63, 659 N.E.2d 909 (1995)). In state court, Cruz seeks to have
attorneys’ fees excluded from any subrogation recovery by Plaintiffs.

In order to determine if remand of the state court action was appropriate, the district court
applied the well-pleaded complaint rule which required it to look at the face of Cruz’s state court
complaint to determine if federal jurisdiction existed. Indeed, ‘federal jurisdiction depends upon
the claim, not upon defenses, even [] preemption defenses.” 324 F.3d 544, 549 (7" Cir. 2003).
In the Remand Order, the district court concluded neither complete preemption nor federal

common law applied to Cruz’s complaint alleging that the Service Benefit Plan violated the


look beyond the pleadings. See Long v. Shorebank Dey. Corp., 182 F.3d 548, 554 (7" Cir.
1999); Int'l Harvester Co., 623 F.2d at 1210. The Court must accept all well-pleaded factual
allegations as true and draw all reasonable inferences in favor of the plaintiff. Long, 182 F.3d at
554; Neiman v. Rudolf Wolff & Co., Ltd., 619 F.2d 1189, 1190 (7" Cir. 1980).

The purpose of a motion to dismiss under Rule 12(b)(6) is to “test the sufficiency of the
complaint, not to decide the merits” of the case. Triad Associates, Inc. v. Chicago Housing
Auth., 892 F.2d 583, 586 (7" Cir. 1989), When deciding a motion to dismiss pursuant to Rule
12(b)(6), the Court views “the complaint in the light most favorable to the plaintiff, taking as true
all well-pleaded factual allegations and making all possible inferences from those allegations in
his or her favor.” Lee v. City of Chicago, 330 F.3d 456, 459 (7" Cir. 2003) (citations omitted).
Dismissal is appropriate only where it appears beyond doubt that under no set of facts would
plaintiff's allegations entitle him to relief. See Henderson v. Sheahan, 196 F.3d 839, 846 (7" Cir.
1999); Kennedy v. National Juvenile Detention Ass'n, 187 F.3d 690, 695 (7" Cir. 1999).

i. Federal Jurisdiction

Cruz first challenges the Court’s subject matter jurisdiction over this action. “It is
axiomatic that a federal court must assure itself that it possesses jurisdiction over the subject
matter of an action before it can proceed to take any action respecting the merits of the action.
The requirement that jurisdiction be established as a threshold matter ‘springs from the nature
and limits of the judicial power of the United States’ and is ‘inflexible and without exception.”
Cook v. Winfrey, 141 F.3d 322, 325 (7" Cir. 1998) (quoting Steel Co. v. Citizens for a Better
Environment, 523 U.S. 83, 94 (1998)). Under 28 U.S.C. § 1331, federal courts have jurisdiction

over “all civil actions arising under the Constitution, laws, or treaties of the United States.” 28



United States is a party. FEHBA does not provide for a private cause of action. /d. See, e.g.,
Goepel v. National Postal Mail Handlers Union, 36 F.3d 306, 312-13 (3" Cir. 1994) (“FEHBA
does not create a cause of action vindicating a beneficiary’s interest.”); Empire HealthChoice
Assur. v. McVeigh ex rel. Estate of McVeigh, No. 03 C 2728, 2003 WL 22171693 at *3
(S.D.N.Y. Sept. 18, 2003) (“The FEHBA does not purport to create a private cause of action
under federal law”), Ramirez v. Humana, Inc., 119 F. Supp.2d 1307, 1312 (M.D. Fla. 2000)
(same). Given that the United States is not a party to this dispute, Plaintiffs cannot find
jurisdiction in FEHBA.
Vv. Federal Common Law

Plaintiffs argue that federal common law provides a remedy in this case. It is clear that
“{tJhere is no federal general common law.” Moriarty v. Svec, 164 F.3d 323, 328 (7" Cir. 1998)
citing Erie Railroad Co, v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). The
Supreme Court has acknowledged, however, that a “few areas, involving uniquely federal
interests, are so committed by the Constitution and laws of the United States to federal control
that state law is pre-empted and replaced, where necessary, by federal law of a content prescribed
(absent explicit statutory directive) by the courts — so-called ‘federal common law.” Boyle v.
United Techs. Corp., 487 U.S. 500, 504, 108 S. Ct. 2510, 2514, 101 L. Ed. 2d 442 (1988)
(internal quotation and citation omitted). In order to determine if federal common law applies, a
“uniquely federal interest” must be at issue, and a “significant conflict” must exist “between an
identifiable federal policy or interest and the application of state law to the dispute or the
application of state law would frustrate specific objectives of federal legislation.” /d., 487 U.S. at

507, 108 S. Ct. at 2515, See also Northrop Corp. v, AIL Systems, Inc,, 959 F.2d 1424, 1427 (7"


© Minute OFder Form (06/97)

Se United States District Court, Northern District of Illinois
Ny

Name of Assigned Judge Amy J. St. Eve Sitting Judge if Other

or Magistrate Judge _— than Assigned Judge
CASE NUMBER 01 C 9821 DATE 11/14/2003

CASE BCBS vs. Cruz
TITLE
[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.]
DOCKET ENTRY:
() oO Filed motion of [ use listing in “Motion” box above.]
(2) oO Brief in support of motion due
(3) oO Answer brief to motion due. . Reply to answer brief due
@ oa Ruling/Hearing on set for at
(5) Q Status hearing[held/continued to] [set for/re-set for] on set for at
(6) oO Pretrial conference[held/continued to] (set for/re-set for] on set for at
(7) im Trial[set for/re-set for] on at
(8) oO [Bench/Jury trial] [Hearing] held/continued to at
(9) im This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
COFRCP4(m) (CLocal Rule 41.1 CIFRCP41(a)(1) [/FRCP41(a)(2).

ao {Other docket entry] | Enter Memorandum Opinion and Order. Defendant’s motion to dismiss

stricken. Any other pending motions are denied as moot,

(ent

a1) {For further detail see order attached to the original minute order.]

Plaintiffs complaint is granted. Status hearing set for 11/25/03 is stricken. Any other pending dates are

No nolices required, advised in open court.

No notices required.
req umber of notices

Notices mailed by judge's staf. NOV 17 2003

Notified counsel by telephone. dare docketed

Y | Docketing to mail notices. A
v | Mail AO 450 form. . . . docketing Beputy init

Copy to judge/magistrate judge.

courtroom date muiled notice
THY deputy’s
initials

Date/time received in

central Clerk’s Office railing deputy initials



nature, provision, or extent of coverage or benefits (including

payments with respect to benefits) shall supersede and preempt any

State or local law, or any regulation issued thereunder, which relates

to health insurance or plans.
5 U.S.C. § 8902(m)(1). The express language of this statute limits preemption to “coverage or
benefits.” It does not cover reimbursement based on a beneficiary’s recovery from a third party
tortfeasor. It similarly does not pertain to the !linois common fund doctrine. Furthermore, as
the Seventh Circuit stated in Blackburn v. Sundstrand Corp., 115 F.3d 93, 495 (7" Cir. 1997),
“[mJost applications [of the common fund doctrine] have nothing to do with health insurance in
general.”

Plaintiffs’ reliance on the Seventh Circuit’s recent decision in Administrative Committee
of the Wal-Mart Stores, Inc. Associates Health & Welfare Plan v. Varco, 338 F.3d 680 (7" Cir.
2003), is misplaced. Varco involved an ERISA plan that specifically provided that it “does not
pay for nor is [it] responsible for the participant’s attorney’s fees. Attorney’s fees are to be paid
solely by the participant.” Jd. at 689. The Seventh Circuit held that the Illinois common fund
doctrine expressly conflicted with these terms of the ERISA plan and thus it was preempted by
ERISA’s conflict preemption provision. /d. ERISA “shall supersede any and all State laws
insofar as they may now or hereafter relate to any employee benefit plan....” 29 U.S.C. §
1144(a). Congress’s broad intent to preempt is clear from the face of ERISA’s preemption
provision. In contrast, FEHBA’s preemption provision is much more narrow.

Plaintiffs argue that the reasoning in Caudill v. Blue Cross and Blue Shield of North

Carolina, 999 F.2d 74 (4” Cir. 1993), strengthens their preemption argument. In Caudill, the

Fourth Circuit found that federal jurisdiction existed over a claim under FEHBA regarding the

i


in FEHBA benefits actions may have on the federal treasury is not sufficiently direct to
necessitate federal jurisdiction.”). The Court agrees.

B. Uniformity

Plaintiffs further argue that federal common law is appropriate here to effectuate
Congress’s statutory design, namely, cost containment and the uniform application of FEHBA
benefits. FEHBA, however, does not expressly provide for a cause of action in this case. If
Congress wanted to advance these interests, it could have done so by specifically providing for a
private cause of action where such interests are threatened. See, e.g., Am. Paper Inst., Inc. v. U.S.
Envtl. Prot. Agency, 890 F.2d 869, 877 (7" Cir, 1989) (“Congress could easily have provided
jurisdiction for all types of restrictions on point sources by providing a general jurisdiction
provision in the Act.”),

Furthermore, Plaintiff's uniformity argument is undermined by the express language of
the Statement of Benefits that HCSC distributes to participants of the Service Benefit Plan. That
document expressly allows for payment of attorneys’ fees or costs associated with a claim if the
Plan gives prior approval of such payment. This is not a term dictated by FEHBA. Given that a
carrier can make that determination on a case-by-case basis and that FEHBA does not provide
any specific guidelines for the payment of attorneys’ fees in connection with third-party
recoveries, uniformity is certainly not advanced by the imposition of federal common law.

Cc. Preemption

Plaintiffs also assert that FEHBA’s preemption provision mandates a federal common
law remedy in this case. FEHBA’s preemption provision states:

The terms of any contract under this chapter which relate to the

10


Illinois common fund doctrine. Doyle, 149 F.Supp.2d at 433-435. The district court noted that
BCBS “will still be able to raise ordinary preemption as a defense to plaintiff's claims in state
court.” fd. at 434.

The Remand Order does not control this case. Plaintiffs filed a separate action now
before this Court. Although Cruz contends that Plaintiffs’ action for reimbursement is really one
to litigate the application of the Illinois common fund doctrine, the face of the complaint seeks
liability against Cruz under federal common law for failure to reimburse Plaintiffs under the
Service Benefit Plan for amounts he recovered from a third-party tortfeasor. Plaintiff’s action is
not limited to the Illinois common fund doctrine. It is uncontested that Cruz has not paid any
amount of reimbursement to Plaintiffs. As the Seventh Circuit has articulated, “the [Remand]
[O]rder doesn’t conclude the issue whether the district court has jurisdiction over [Plaintiffs]
new and materially identical suit.” Health Cost Controls of Illinois, Inc. v. Washington, 187 F.3d
703, 708-09 (7" Cir. 1999). If Cruz wants to assert the Illinois common fund doctrine as a partial
defense to this action, he is free to do so but that defense will not dictate whether federal
jurisdiction exists, See Adkins v. Illinois Cent. R. Co., 326 F.3d 828, 836 (7" Cir. 2003)
(jurisdiction determined by well-pleaded complaint rule). Accordingly, the Remand Order does
not preclude this Court’s jurisdiction.

IV. FEHBA

AJthough the complaint alleges that FEHBA provides a basis for jurisdiction in this case,
Plaintiffs conceded at oral argument that it does not. FEHBA provides that “the district courts of
the United States have original jurisdiction . . . of a civil action or claim against the United States

founded on this chapter.” 5 U.S.C. § 8912. Thus, FEHBA only creates a cause of action if the


Plan to the extent of benefits paid by the Plan.” It states that “[a]1l recoveries from a third party .
_ must be used to reimburse the Plan for benefits paid.” It informs the beneficiary that “the Plan
shall have a lien on the proceeds of [a claim against a third party] in order to reimburse itself to
the full amount of benefits it is called upon to pay.” With respect to attorneys’ fees, it provides:
“Any reduction of the Plan’s claim for payment of attorney’s fees or costs associated with the
claim is subject to prior approval by the Plan.”

Il. Claim Reimbursement

Defendant submitted claims to HCSC for the cost of the treatment he received as a result
of his May 1998 accident. In response, HCSC paid $4,682.20 in benefits provided to Defendant
under the Service Benefit Plan.

In March 2000, Defendant informed HCSC that he had settled with the third party
involved in the May 9, 1998, accident in the amount of $30,000. As set forth in the Service
Benefit Plain, Plaintiffs had asserted a lien against any recoveries Defendant Cruz might obtain
in connection with the accident. On April 6, 2000, HCSC sent a letter to Cruz through his
attorney indicating that it would agree to a reimbursement amount of $3,500 in immediate
fulfillment of Defendant’s lien obligation. Plaintiff refused to apply the Illinois common fund
doctrine or to credit the amount it sought in reimbursement for the attorneys’ fees and out-of-
pocket costs incurred by Defendant in obtaining recovery from the third party. On September 13,
2000, HCSC sent another letter to Cruz’s attorney requesting payment of the full amount of the
lien obligation, namely, $4,682.20.

Ill. State Court Action

On October 10, 2000, Cruz and two other individuals filed a state court action against



health benefit plans for federal employees and their dependents. The Service Benefit Plan was
created by a contract between the United States Office of Personnel Management (“OPM”) and
BCBSA pursuant to the Federal Employees Health Benefits Act (“FEHBA”), 5 U.S.C. §§ 8901-
8914, Pursuant to FEHBA, OPM has the authority to establish federal heath benefit plans and to
contract with qualified carriers to execute such plans. Jd. Plaintiff HCSC is the Blue Cross and
Blue Shield entity that administers the Service Benefit Plan in Illinois. Under Plaintiff's contract
with OPM, Plaintiff is required to seck reimbursement in appropriate cases where a beneficiary
of the plan has recovered from a third party.

FEHBA requires that each contract OPM enters with a service carrier such as HCSC
“contain a detailed statement of benefits offered” and ‘include such maximums, limitations,
exclusions, and other definitions of benefits as [OPM] considers necessary or desirable.” 5
U.S.C. §8902(d). FEHBA does not dictate the terms of the statement of benefits or address the
issue of subrogation.

1, The Service Benefit Plan

The Statement of Benefits in the Service Benefit Plan contains a subrogation and right-of-

recovery provision. That provision provides:
This subrogation and right of recovery provision applies when you or
your dependent are sick or injured as a result of the act or omission
of another person or party. The Plan has the right fo recover
payments the Plan has made to you or your dependent from a third
party or third party’s insurer because of illness or injury caused by a
third party. In addition to its right of recovery, the Plan is subrogated
to you and your dependent’s present and future claims against a third

party. Third party means another person or organization.

The Plan requires beneficiaries to notify it of any third party recoveries and “to reimburse the


UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION DOCKETED

BLUE CROSS AND BLUE SHIELD ) NOV 17 2003
OF ILLINOIS, a division of HEALTH )
CARE SERVICE CORPORATION, )
A Mutual Legal Reserve Company; and )
BLUE CROSS AND BLUE SHIELD )
ASSOCIATION, )
)

Plaintiffs, ) No. 01 C 9821

)
v. )
)
JOSE A. CRUZ, )
)
Defendant. )
)

MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Judge:

Plaintiffs Blue Cross and Blue Shield of Mlinois, a division of Health Care Service
Corporation (“HCSC”) and Blue Cross and Blue Shield Association (“BCBSA”) filed a one-
count complaint against Defendant Jose Cruz for breach of obligations under Cruz’s Federal
Employees Health Benefits Act plan. Defendant seeks to dismiss Plaintiff's complaint pursuant
to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) for lack of jurisdiction and failure to
state a claim upon which relief can be granted. As discussed below, Defendant’s motion is
granted.

BACKGROUND
On approximately May 9, 1998, Defendant Cruz was injured in an automobile accident.

At the time, Defendant was enrolled in the Service Benefit Plan, one of the federal government’s

S"(



extent of benefits coverage for a breast cancer patient, and thus the defendants had properly
removed it. The Caudill court held that federal jurisdiction existed under Boyle because a
uniquely federal interest existed ~ “imposition of state law liability here would seriously damage
nol only the government’s ability to enter into contracts with health insurers, but also would
affect the price paid for such contracts.” 999 F.2d at 78. The Court further noted that FEHBA’s
preemption provision buttressed the Boyle analysis because it supported Congress’s intent for
uniformity in this area. Plaintiffs argue that this reasoning supports federal jurisdiction in this
case. This Court declines to extend the Fourth Circuit’s reasoning to this case involving
reimbursement. See also Doyle, 149 F.Supp.2d at 436 (declining to apply Caudill in the removal
context).

D. Harris

Plaintiff also argues that the Seventh Circuit held in Harris v. Mutual of Omaha Cos., 992
F.2d 706, 711 (7" Cir. 1993), that courts should apply federal common law to claims pertaining
to FEHBA health plans. In Harris, the Seventh Circuit stated, in a footnote, “[w]e see no reason
to disagree with our colleagues in the Eleventh Circuit that federal law applies” to the
“interpretation of government health insurance contracts.” Harris, 992 F.2d at 711 (citing
Tackitt v. Prudential Ins. Co. of Am,, 758 F.2d 1572, 1575 (11" Cir. 1985) (quotations omitted)).
Harris, unlike this case, involved the issue of whether the plaintiff's government health
insurance contract provided for the coverage of certain medical procedures recommended by one
of her physicians. Similarly, the Tackitt court, upon which the Seventh Circuit relied, held that
federal law applied in a case involving the interpretation of “benefit” under a health insurance

contract. The application of federal common law to the interpretation of what benefits are

12