Opinion ID: 3049625
Heading Depth: 2
Heading Rank: 3

Heading: ERISA Caselaw Supports Cedars-Sinai’s

Text: Contention that FEHBA Does Not Preempt its Claims Against PBP Health [6] Cedars-Sinai cites to several ERISA cases to support its position that its claims are not preempted by FEHBA.2 2 Because there is no Ninth Circuit authority discussing FEHBA preemption issues involving the claims of a third-party health care provider, CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS 9639 Cedars-Sinai first cites to The Meadows v. Employers Health Insurance Corp., 47 F.3d 1006 (9th Cir. 1995). In that case, we held that ERISA did not preempt the plaintiff health care provider’s state law claims for breach of contract, estoppel, and negligent misrepresentation. The claims arose out of the defendant health insurer’s representation to the plaintiff health care provider that the wife of one of defendant’s former employee’s was covered by the plan’s policy. See id. at 1007. After services were rendered, the defendant refused to reimburse or recognize an obligation to the plaintiff, despite prior assurances of coverage. See id. at 1008. we may look to analogous cases involving the application of ERISA’s preemption provision. See Botsford, 314 F.3d at 393-94 (recognizing that FEHBA’s preemption provision “closely resembles ERISA’s express preemption provision, and precedent interpreting the ERISA provision thus provides authority for cases involving the FEHBA provision”). Section 514(a) of ERISA provides that ERISA provisions “supersede any and all State law insofar as they may now or hereafter relate to any employee benefit plan . . . .” 29 U.S.C. § 1144(a) (emphasis added). Several years ago, the Supreme Court found the “relate to” language of § 514(a) to be vague and noted “our prior attempt[s] to construe the phrase ‘relate to’ d[o] not give us much help drawing the line here.” In order to evaluate whether the normal presumption against pre-emption has been overcome in a particular case, we concluded that we “must go beyond the unhelpful text and the frustrating difficulty of defining its key term, and look instead to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive.” De Buono v. NYSA-ILA Med. & Clinical Servs. Fund, 520 U.S. 806, 81314 (1997) (quoting N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655-56 (1995)). The Supreme Court’s efforts at interpreting the “relate to” language in § 514(a) have yielded the following two-part test: “A law ‘relate[s] to’ a covered employee benefit plan for the purposes of § 514(a) ‘if it [1] has a connection with or [2] [a] reference to such a plan.’ ” Blue Cross of Cal. v. Anesthesia Care Assocs. Med. Group, Inc., 187 F.3d 1045, 1052 (9th Cir. 1999) (quoting Cal. Div. of Labor Standards Enforcement v. Dillingham Constr., 519 U.S. 316, 324 (1997)) 9640 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS The Arizona Superior Court initially dismissed the plaintiff’s claims, noting that because the plaintiff had sued as an assignee of the former employee, the plaintiff’s claims were preempted. See id. The court went on to note that had the plaintiff not sued derivatively, it “might have had a claim based simply on the representations that the company made” to it. Id. Thereafter, the plaintiff filed a second action against the defendant for claims that were non-derivative and independent of those which the former employee might have had. See id. The case was removed to federal court and the district court found that ERISA did not preempt the plaintiff’s claims. See The Meadows v. Employers Health Ins., 826 F. Supp. 1225 (D. Ariz. 1993). We agreed. We recognized that ERISA preempts the state claims of a provider suing as an assignee of the beneficiary’s rights to benefits under an ERISA plan. See The Meadows, 47 F.3d at 1008 (citing Misic v. Bldg. Servs. Employees Health & Welfare Trust, 789 F.2d 1374, 1378 (9th Cir. 1986)). However, we held that ERISA does not preempt “claims by a third-party who sues an ERISA plan not as an assignee of a purported ERISA beneficiary, but as an independent entity claiming damages,” id., because such claims do not “relate” to ERISA preemption, id. at 1009. Here, Cedars-Sinai is suing as a third-party claiming damages, and not as an assignee of rights to benefits. Thus, The Meadows supports Cedars-Sinai’s position that its claims do not “relate to” FEHBA and consequently are not preempted by FEHBA. Cedars-Sinai also cites to Memorial Hospital System v. Northbrook Life Insurance Co., 904 F.2d 236 (5th Cir. 1990), a case we cited with approval in The Meadows. Like The Meadows, the plaintiff hospital in Memorial Hospital relied on the defendant employer and the employer’s health insurer’s representation that the employee’s wife was covered by the plan, stating that “it would not have extended treatment to CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS 9641 her without such assurances of payment.” Id. at 238. The plaintiff filed suit asserting a breach of contract claim for benefits (as the employee’s assignee) and claims for negligent misrepresentation and equitable estoppel (brought in its independent status as a third-party health care provider.) See id. at 239. The district court held that the plaintiff’s breach of contract claim was preempted because the claim “related to” a claim for benefits under an ERISA plan. See id. However, the district court held that the plaintiff’s third-party claims were not preempted because they were not assigned claims; they did not “relate to” the ERISA plan because the claims “could stand alone absent any issue regarding the application of a welfare benefit plan.” Id. The Fifth Circuit took up the appeal and affirmed in part and vacated in part. In Memorial Hospital, the court affirmed the district court’s finding that the plaintiff’s assigned claims were preempted, noting that “[i]t is clear that ERISA preempts a state law cause of action brought by an ERISA plan participant or beneficiary alleging improper processing of a claim for plan benefits,” id. at 245, and, as an assignee, “[the plaintiff] stands in the shoes of [the employee] and may pursue only whatever rights [the employee] enjoyed under the terms of the plan,” id. at 250. To better analyze the plaintiff’s non-derivative claims, the court in Memorial Hospital articulated a test, recognized by The Meadows and the cases discussed below, that emphasizes unifying characteristics of cases where ERISA preemption was found: (1) the state law claims address areas of exclusive federal concern, such as the right to receive benefits under the terms of an ERISA plan; and (2) the claims directly affect the relationship among the traditional ERISA entities — the employer, the plan and its fiduciaries, and the participants and beneficiaries. 9642 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS Memorial Hospital, 904 F.2d at 245. Applying this test, the court in Memorial Hospital held that the plaintiff’s non derivative claims were not preempted because those claims did not fit into either category.3 See id. at 245-46. Because the court found that the plaintiff’s non-derivative claims did not “relate to” the ERISA plan, and were consequently not preempted, Memorial Hospital supports CedarsSinai’s assertion that its non-derivative claims are not preempted by FEHBA. See also Cypress Fairbanks Med. Ctr. Inc., v. Pan American Life Ins. Co., 110 F.3d 280, 283 (5th Cir. 1997) (reinforcing Memorial Hospital’s holding that non- 3 The Memorial Hospital court asserted three justifications for its conclusion. First, it recognized the “commercial realities” facing third-party providers of health care services, noting that in situations in which it is not clear whether a patient is covered by a health insurance plan, “the provider wants to know if payment reasonably can be expected. Thus, one of the first steps in accepting a patient for treatment is to determine a financial source for the cost of care to be provided.” Id. at 246. Second, when an insurance company erroneously informs a health care provider that a patient is covered by health insurance, state law, which “allocat[es] . . . risks between commercial entities that conduct business in a state,” normally provides a remedy. Id. at 246-47. This is so, because “[a] provider’s state law action under these circumstances would not arise due to the patient’s coverage under an ERISA plan, but precisely because there is no ERISA plan coverage.” Id. at 246. Third, depriving an independent third-party provider of a state-law cause of action does not further, but rather defeats, Congress’s purpose behind enacting ERISA. The court recognized that third-party providers would be less likely to accept the risk of nonpayment, and as a result, might require patients to make up-front payments or subject those patients to other unnecessary inconveniences before treatment is offered. Id. at 247. Health care providers, like Cedars-Sinai, do not receive the same protections afforded traditional ERISA entities, and the Memorial Hospital court found that Congress could not have intended to shield plan administrators “from the consequences of their acts toward non-ERISA health care providers when a cause of action . . . would not relate to the terms or conditions of a welfare plan, nor affect — or affect only tangentially — the ongoing administration of the plan.” Id. at 250. CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS 9643 derivative third-party claims do not “relate to” ERISA and are, therefore, not preempted). Finally, Cedars-Sinai cites to Hoag Memorial Hospital v. Managed Care Administrators, 820 F. Supp. 1232 (C.D. Cal 1993). In Hoag, the plaintiff hospital brought an action against the defendant employer and the employer’s benefit plan, seeking recovery of fees for treatment for one of the defendant’s employees. See id. at 1233. The defendants had made representations to the plaintiff that the employee was covered, but later stated that an exclusion applied to deny coverage. See id. The plaintiff sued because the plan refused to reimburse it for any treatment. See id. Reviewing the plaintiff’s claims, the district court noted that the plaintiff’s initial complaint “suggested” that it may have been suing under the plan as the employee’s assignee. Id. at 1234. The plaintiff then amended its complaint to remove any derivative claims and to assert only third-party claims for damages based solely on the defendants’ alleged misrepresentations of coverage. See id. Relying heavily on Memorial Hospital, because there was no guiding Ninth Circuit precedent, the district court found that the plaintiff’s claims were not preempted by FEHBA. See id. at 1235-37. Because the plaintiff hospital was a third-party with nonderivative claims, the court found that the plaintiff’s claims did not “relate to” the ERISA plan. Id. at 1236 (“Hoag Memorial’s claims to recover promised payment from the employer and the administrator of the Plan must be distinguished from an action by an ERISA participant or beneficiary to recover benefits under the terms of the plan. It is this Court’s opinion that ERISA’s preemption provision was intended to preclude the latter, not the former.”). The district court’s holding in Hoag that third-party claims that do not involve assigned rights to benefits are not preempted by FEHBA is persuasive 9644 CEDARS-SINAI v. NAT’L LEAGUE OF POSTMASTERS and bolsters Cedars-Sinai’s position that its claims for reimbursement are not preempted.4