In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 03-4170

BLUE CROSS AND BLUE SHIELD OF ILLINOIS,

a Division of Health Care Service Corporation,

a Mutual Legal Reserve Company; and BLUE

CROSS BLUE SHIELD ASSOCIATION,

Plaintiffs-Appellants,

v.

JULIA CRUZ as Representative

of JOSE S. CRUZ,

Defendant-Appellee.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 01 C 9821—Amy J. St. Eve, Judge.

____________

ARGUED OCTOBER 25, 2004—DECIDED JANUARY 24, 2005

____________

Before POSNER, KANNE, and WILLIAMS, Circuit Judges.

KANNE, Circuit Judge. Jose S. Cruz was injured in a car

accident. Cruz’s insurer, Blue Cross and Blue Shield of

Illinois, a division of Health Care Service Corporation

(“Blue Cross”), paid for the treatment of his injuries. Cruz

was enrolled in Blue Cross’s Service Benefit Plan provided
2 No. 03-4170

for government employees and their dependents under the

Federal Employees Health Benefits Act (“FEHBA”). Cruz

sued the tortfeasor responsible for his injuries and recovered money in excess of his medical expenses in a settlement agreement. Pursuant to the Statement of Benefits in

the Service Benefit Plan, Blue Cross filed suit demanding

reimbursement for the benefits paid to Cruz. The district

court dismissed the suit for lack of subject matter jurisdiction. Because we find that FEHBA preempts state law on

this matter, we reverse.

I. History

FEHBA was enacted in 1959 to provide health insurance

to federal employees, bridging the gap between the government and private employers with respect to healthcare

benefits. The current version of FEHBA (effective in 1998)

authorizes the United States Office of Personnel

Management (“OPM”) to contract with qualified insurance

carriers for coverage of federal employees and their dependents under various health benefits plans. OPM contracted

with Blue Cross and Blue Shield Association (“Blue Cross

Association”) to create the Service Benefit Plan, which is administered by Blue Cross in Cruz’s home state of Illinois.

FEHBA requires that the contracts between insurance

carriers and OPM contain a detailed Statement of Benefits

including maximums, limitations, and other terms related

to benefits. The Statement of Benefits is incorporated into

the federal contracts by reference and is the official description of benefits and Plan terms.

The Statement of Benefits in the Service Benefit Plan

contains a provision regarding subrogation and right-ofrecovery as follows:

The Plan has the right to 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
No. 03-4170 3

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.

The Plan does not include a provision for sharing fees associated with recovery. Under Illinois law, however, the common fund doctrine provides that parties recovering money

from a common fund are to share any fees associated with

recovery on a pro rata basis.

We now return to the specifics of Cruz’s case. Blue Cross

paid $4,682.20 in benefits to cover the injuries resulting

from his May 9, 1998, car accident. Cruz hired his own

attorney to bring the lawsuit, and recovered $30,000 in a

settlement agreement. Cruz paid one-third of this amount

($10,000) in attorney’s fees.

As mandated by the Service Benefit Plan, Cruz notified

Blue Cross of his settlement agreement in March 2000.

Cruz and Blue Cross were unable to agree on the amount

that Blue Cross should be reimbursed. Cruz believed that

the Illinois common fund doctrine should be applied, and

thus that Blue Cross was entitled to $3,121.47 and a pro

rata reduction for out-of-pocket costs. In April 2000, Blue

Cross sent Cruz a letter demanding $3,500 as its net share

of the recovery. In September 2000, Blue Cross sent another

letter demanding the total amount of the benefits paid to

Cruz, namely, $4,682.20. To date, Blue Cross has not been

reimbursed for any benefits paid to Cruz.

On October 10, 2000, Cruz and two other individuals filed

a state court action against Blue Cross in the Circuit Court

of Cook County, Illinois. Cruz and the other plaintiffs

sought recovery against Blue Cross under both the Illinois

common fund doctrine and the Illinois Consumer Fraud and

Deceptive Practices Act. Blue Cross removed the action to

federal court on November 1, 2001. The Northern District

of Illinois then granted Cruz’s motion to remand the case to

state court based on lack of subject matter jurisdiction.
4 No. 03-4170

Cruz’s suit in state court is still pending. The suit giving

rise to this appeal was commenced on December 21, 2001,

when Blue Cross and Blue Cross Association filed a complaint in federal court demanding reimbursement for the

benefits paid to Cruz. The district court dismissed for lack

of subject matter jurisdiction.

Plaintiffs contend on appeal that the district court erred

in granting Cruz’s motion to dismiss, claiming that subject

matter jurisdiction exists because state law is preempted by

FEHBA and thus federal common law controls.

II. Analysis

We review a district court’s decision as to whether subject

matter jurisdiction exists de novo and its factual findings

for clear error. See Scott v. Trump Ind., Inc., 337 F.3d 939,

942 (7th Cir. 2003), cert. denied, 124 S. Ct. 940 (2003).

A. The Remand Order

Cruz first argues that the instant suit was improperly

filed in the district court because it was really an appeal of

the Remand Order sending Cruz’s state court action (which

had been removed by Blue Cross) back to state court. Such

appeals are prohibited under 28 U.S.C. § 1447(d). The district court correctly rejected this argument, stating that

“ ‘the [Remand] [O]rder doesn’t conclude the issue whether

the district court has jurisdiction over [Plaintiffs’] new and

materially identical suit.’ ” Blue Cross & Blue Shield of Ill.

v. Cruz, No. 01 C 9821, 2003 WL 22715815, at *4 (N.D. Ill.

Nov. 17, 2003) (citing Health Cost Controls of Ill., Inc. v.

Washington, 187 F.3d 703, 708-09 (7th Cir. 1999)). On its

face, the complaint filed by Blue Cross and Blue Cross

Association seeks to hold Cruz liable for reimbursement of

benefits paid under a FEHBA contract. Although Cruz is

free to assert the Illinois common fund doctrine as a partial
No. 03-4170 5

defense, it does not control this case, and the Remand Order

does not preclude federal subject matter jurisdiction. See

Adkins v. Ill. Cent. R.R. Co., 326 F.3d 828, 836 (7th Cir.

2003) (jurisdiction is determined by the well-pleaded

complaint rule).

B. Cause of Action under FEHBA

Cruz also argues that because FEHBA explicitly creates

a cause of action against the United States, it forecloses

federal subject matter jurisdiction over actions against any

other party. FEHBA does contain a provision granting federal jurisdiction over suits against the United States.

5 U.S.C. § 8912 (“The district courts of the United States

have original jurisdiction, concurrent with the United States

Court of Federal Claims, of a civil action or claim against

the United States founded on this chapter.”). Contrary to

Cruz’s assertion, however, FEHBA’s jurisdictional provision

for suits against the United States is not automatically a bar

to federal jurisdiction over actions brought against other

parties. See Teamsters Nat’l Auto. Transporters Indus.

Negotiating Comm. v. Troha, 328 F.3d 325, 330 (7th Cir.

2003) (“[T]he limitation [of the jurisdictional provision of

the Labor Management Relations Act] is more aptly described not in terms of parties but in terms of the purpose

of a lawsuit.”) (citations omitted), cert. denied, 540 U.S. 826

(2004).

Under Cruz’s theory, the federal courts would never have

subject matter jurisdiction over any suits against a private

party, including those brought by enrollees against carriers.

This position has been rejected by other courts. See, e.g.,

Botsford v. Blue Cross & Blue Shield of Mont., Inc., 314

F.3d 390, 397-99 (9th Cir. 2002) (holding that the district

court had jurisdiction over enrollee’s claim against carrier

because FEHBA preempted state law claim), amended by

319 F.3d 1078 (9th Cir. 2003); McCoy v. Unicare Life &
6 No. 03-4170

1 Goepel v. Nat’l Postal Mail Handlers Union, 36 F.3d 306 (3d Cir.

1994); Mooney v. Blue Cross of W. Pa., 678 F. Supp. 565 (W.D. Pa.

1988). But see Ramirez v. Humana, Inc., 119 F. Supp. 2d 1307

(M.D. Fla. 2000).

Health Ins. Co., No. 04 C 1126, 2004 WL 2358277, at *4-5

(N.D. Ill. Oct. 18, 2004) (denying motion to remand malpractice suit brought by enrollee against carrier to state

court because FEHBA completely preempted claim). Cruz

cites several FEHBA cases brought against private party

defendants that were dismissed because they did not name

the United States as defendant, but his reliance is misplaced.

In the most recent case cited by Cruz, Botsford, the Ninth

Circuit actually held that the district court had jurisdiction

over the case. See 314 F.3d at 398-99. The court’s position

that the case should be dismissed by the district court on

remand is consistent with the interpretation that § 8912

requires an enrollee suing for benefits to sue OPM or the

United States and not the individual carrier. See id. at 398.

Other cases cited by Cruz1

 pre-date the 1998 Amendment to

FEHBA, which broadened its preemption provision and is

discussed below.

C. FEHBA’s Preemption Provision

Section 1331 of 28 U.S.C. confers federal question subject

matter jurisdiction on cases that arise “under the

Constitution, laws, or treaties of the United States.” Even

if a federal statute does not explicitly create a cause of action, a claim may arise under federal law if the statute completely preempts state law in a particular area. See U.S.

Const. art. VI, cl. 2; see also Metro. Life Ins. Co. v. Taylor,

481 U.S. 58, 62-64 (1987) (holding that employee’s state law

claims were preempted by ERISA and were therefore federal

causes of action).
No. 03-4170 7

We start our preemption analysis with the presumption

that Congress does not intend to supplant state law. See

N.Y. State Conference of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co., 514 U.S. 645, 654 (1995). As noted by the

Supreme Court, Congress must have shown that its “clear

and manifest purpose” was to preempt state law in order to

support a finding of federal jurisdiction over fields such as

health insurance contracts that are traditionally regulated

by the states. Id. at 655 (quoting Rice v. Santa Fe Elevator

Corp., 331 U.S. 218, 230 (1947)).

The starting point in assessing Congress’s intent is the

text of the statute in question. See, e.g., Time Warner Cable

v. Doyle, 66 F.3d 867, 875 (7th Cir. 1995). FEHBA does

have an explicit preemption provision. The language of the

preemption provision is as follows:

The terms of any contract under this chapter which relate to the 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) (2000).

In this case, Blue Cross and Blue Cross Association have

filed a complaint demanding reimbursement for benefits

paid pursuant to the Statement of Benefits, part of the

FEHBA-authorized Service Benefit Plan contract. The

FEHBA preemption provision dictates that the contract

terms trump state law when they relate to the nature, provision, or extent of coverage or benefits including payments

with respect to benefits. Whether there is federal subject

matter jurisdiction, then, depends on whether the reimbursement provision of the Statement of Benefits “relates

to” the nature, provision, or extent of coverage or benefits.

The Supreme Court interpreted the words “relate to” in

the context of the ERISA preemption provision in Travelers.
8 No. 03-4170

514 U.S. 645 (1995). As the Court pointed out, if “relate to”

were taken to its furthest literal interpretation, there would

be no limit to the preemption provision. Id. at 655-56. “Preemption would never run its course, for [r]eally, universally,

relations stop nowhere[.]” Id. at 655 (internal quotes and

citation omitted). An enrollee’s reimbursement obligation

after recovery from a third party affects the amount of net

benefits received from the carrier, so it certainly satisfies

the literal definition of being “related to” the extent of coverage or benefits. We therefore must examine the purpose

of the preemption provision and of the entire Act to determine whether subrogation rules are within the scope of state

law that Congress meant to preempt with FEHBA-created

contract terms. See id. at 656.

As originally enacted in 1978, § 8902(m)(1) only required

federal preemption of state or local laws “to the extent that

such law[s] or regulation[s] [were] inconsistent with such

contractual provisions.” 5 U.S.C. § 8902(m)(1) (1994).

Congress broadened the preemption provision in 1998, intending to expand federal jurisdiction over FEHBA claims

even when state law does not conflict with FEHBA contract

provisions. The broadening of the preemption provision was

meant to “strengthen the ability of national plans to offer

uniform benefits and rates to enrollees regardless of where

they may live.” H.R. Rep. No. 105-374, at 9 (1998) (emphasis

added). Congress also wanted to “strengthen the case for

trying FEHBA program claims disputes in Federal courts

rather than State courts.” Id. Uniform administration and

cost-savings were major goals of Congress in initially enacting FEHBA as well. H.R. Rep. No. 86-957, at 1 (1959).

If FEHBA contract provisions do not preempt state law

regarding subrogation, the practical effect is that federal

employees in different states paying the same premiums

would not be required to repay benefits after recovery from

third parties according to the same rules. Federal employees in different states would have different reimbursement
No. 03-4170 9

2 We disagree with the district court’s view that “FEHBA’s preemption provision is much more narrow [than ERISA’s].” Cruz,

2003 WL 22715815, at *6. As noted by the Ninth Circuit, “[t]he

new provision closely resembles ERISA’s express preemption

provision, and precedent interpreting the ERISA provision thus

provides authority for cases involving the FEHBA provision.”

Botsford, 314 F.3d at 393-94; see also Corporate Health Ins., Inc.

v. Tex. Dep’t of Ins., 215 F.3d 526, 539 (5th Cir. 2000), vacated on

other grounds, 536 U.S. 935 (2002).

obligations and hence different net benefits. This is contrary to the uniformity goal of FEHBA in general and its

preemption provision in particular. The cost-savings goal of

Congress would also be thwarted, because reimbursements

from enrollees end up in the federal fund used to pay

FEHBA plan premiums. Reimbursements ultimately keep

costs down for both the government and enrollees.

Because Congress’s clear intent was to make benefits uniform for FEHBA plan enrollees of different states, state law

regarding subrogation is preempted by the reimbursement

provision in the Service Benefit Plan. We note that the same

result has been reached by this court and others when confronted by the subrogation question in the ERISA context.

See Admin. Comm. of the Wal-Mart Stores, Inc. Assocs.

Health & Welfare Plan v. Varco, 338 F.3d 680, 687-89, 691

(7th Cir. 2003), cert. denied, 124 S. Ct. 2904 (2004); Arana

v. Ochsner Health Plan, Inc., 338 F.3d 433, 437-40 (5th Cir.

2003) (en banc), cert. denied, 540 U.S. 1104 (2004). While

ERISA and FEHBA are obviously different statutes, if

Congress intended to preempt state law when regulating

private employers, it would be strange to leave regulation

to the individual states when the employer is the United

States itself.2

The district court and the parties addressed the question

of whether federal common law should be applied in this

case under the Boyle test. Boyle states that federal common
10 No. 03-4170

law should be created if “uniquely federal interests” are involved and if state law “significantly conflicts” with federal

policy or objectives. See Boyle v. United Techs. Corp., 487

U.S. 500, 507 (1987). We believe that this case satisfies the

Boyle test: the impact of reimbursement on the federal treasury creates a significantly federal interest, see, e.g.,

Caudill v. Blue Cross & Blue Shield of N.C., Inc., 999 F.2d

74, 78 (4th Cir. 1993), and, as discussed above, the federal

policy of uniform healthcare benefits for FEHBA plan enrollees is in conflict with state law. Because we hold that

the FEHBA-created contract provision preempts state subrogation law, however, the Boyle analysis is unnecessary.

We are not required to imply a “new” cause of action under

FEHBA, but simply to “fill in [FEHBA’s] interstices with

federal common law.” See UIU Severance Pay Trust Fund v.

Local Union No. 18-U, United Steelworkers, 998 F.2d 509,

512 (7th Cir. 1993). With no explicit statutory cause of

action on which to rely and with state law preempted,

Congress’s clear intent to have uniform subrogation rules

per the terms of the FEHBA-created contract require “a

judicially-crafted cause of action.” Id. at 512-13.

D. The Colorado River Doctrine

Finally, we do not believe that the district court could

properly accept Cruz’s invitation to abstain from exercising

jurisdiction in favor of the state court suit under the

Colorado River doctrine. In Colorado River, the Supreme

Court held that a federal court may dismiss a suit in exceptional circumstances where there is a concurrent state

proceeding. See Colo. River Water Conservation Dist. v.

United States, 424 U.S. 800, 818 (1976). The Court set out

ten factors to be considered in deciding whether a federal

action should be dismissed in favor of a parallel state

action:

1) whether the state has assumed jurisdiction over

property; 2) the inconvenience of the federal forum; 3)
No. 03-4170 11

the desirability of avoiding piecemeal litigation; 4) the

order in which jurisdiction was obtained by the concurrent forums; 5) the source of governing law, state or

federal; 6) the adequacy of state-court action to protect

the federal plaintiff’s rights; 7) the relative progress of

state and federal proceedings; 8) the presence or absence of concurrent jurisdiction; 9) the availability of

removal; and 10) the vexatious or contrived nature of

the federal claim.

LaDuke v. Burlington N. R.R. Co., 879 F.2d 1556, 1559 (7th

Cir. 1989) (citation omitted).

Of these ten factors, “[p]articular weight must be given to

the presence of a federal question in the case[.]” Sverdrup

Corp. v. Edwardsville Cmty. Unit Sch. Dist. No. 7, 125 F.3d

546, 549 (7th Cir. 1997). We have already determined that

the FEHBA contract provision preempts state law with respect to subrogation, so a federal question does exist in this

case. The rest of the Colorado River factors also weigh in

favor of exercising jurisdiction.

The state court has not assumed jurisdiction over any

property, and the federal court in the Northern District of

Illinois cannot be more inconvenient for the parties than

the state forum (Circuit Court of Cook County). Abstention

would not necessarily lead to “piecemeal litigation,” because

the issue in the state court suit brought by Cruz is whether

he is entitled to keep some of the benefits paid to him to

offset his attorney’s fees, not whether he must reimburse

Blue Cross based on the subrogation clause in the Service

Benefit Plan. Because there are no compulsory counterclaims in Illinois, see Wilson v. M.G. Gulo & Assocs., Inc., 691

N.E.2d 875, 877-78 (Ill. App. Ct. 1998), Blue Cross’s claim for

the principal amount of reimbursement would not necessarily be resolved in Cruz’s state court suit.

The order in which jurisdiction was obtained and the relative progress of the state and federal proceedings might

initially seem to favor abstention. Cruz filed his state court
12 No. 03-4170

action more than a year prior to the commencement of this

action. As Blue Cross and Blue Cross Association point out,

however, the state court suit is essentially a defense to their

claim for reimbursement. We agree that it would be more

logical for Cruz to raise his offset claim in response to Blue

Cross’s and Blue Cross Association’s suit for reimbursement

as a partial defense. Also, the state suit has been stayed at

its preliminary stages, so its progress is not so great as to

merit abstention.

The state court action will not adequately protect Blue

Cross’s and Blue Cross Association’s interests, in part because Cruz’s state court action seeks to declare illegal the

Service Benefit Plan terms regarding subrogation that OPM

promulgated. OPM would be unable to participate as a party

in a state court suit under 5 U.S.C. § 8912. Resolving the

case in federal court would eliminate this potential problem

because it would allow OPM to participate in the event that

Cruz raises the legality of the contract subrogation provision.

In sum, the Colorado River doctrine is to be invoked only

in exceptional cases, and this is not such a case. Sverdrup,

125 F.3d at 549-50 (“This circuit has recognized consistently

that the primary duty of the district court is to exercise the

jurisdiction vested in it by law; ‘the presumption is against

abstention.’ ”) (quoting Allendale Mut. Ins. Co. v. Bull Data

Sys., 10 F.3d 425, 430 (7th Cir. 1993)).

III. Conclusion

With FEHBA, Congress intended to create cost-efficient

and uniform health insurance benefits for employees of the

United States and their dependents throughout the country.

The Act’s express preemption provision dictates that the

terms of contracts created under FEHBA preempt state law

when such terms are related to benefits and coverage.

Congress intended for terms related to subrogation to be

included in this realm. Thus, the FEHBA-created contract
No. 03-4170 13

provision in the Statement of Benefits preempts state law

with respect to reimbursement for benefits paid to Cruz.

The district court has federal question subject matter jurisdiction over this case under 28 U.S.C. § 1331. Accordingly,

we REVERSE the district court’s finding to the contrary and

REMAND for further proceedings consistent with this opinion.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—1-24-05