Opinion ID: 739080
Heading Depth: 2
Heading Rank: 2

Heading: post-memorial tension in our case law

Text: 18 After we decided Memorial, some lower courts within our Circuit encountered a tension in our cases between Memorial and Hermann Hosp. v. MEBA Medical & Benefits Plan, 845 F.2d 1286 (5th Cir.1988) (Hermann I ) and Hermann Hosp. v. MEBA Medical & Benefits Plan, 959 F.2d 569 (5th Cir.1992) (Hermann II ). 5 In Hermann I and Hermann II, we held that a third-party provider's state-law claims were preempted by ERISA. It therefore became unclear whether our holding in Memorial applied to all third-party providers of medical services (contra to Hermann I and Hermann II ) or whether Memorial invited lower courts to conduct a fact-sensitive inquiry into whether the third-party provider, under the unique circumstances of each case, could properly be characterized as an independent, third-party provider or as an assignee asserting a derivative claim for ERISA benefits. Accordingly, we take this opportunity to clarify the scope of Memorial in light of Hermann I and Hermann II and conclude that the cases are consistent with another. 19 In Hermann I, 845 F.2d 1286, Hermann Hospital provided a patient medical services after Hermann was informed by MEBA (the insurance company) that the patient was covered by a health plan governed by ERISA. The patient, who had died, assigned her rights to the benefits of the health plan to Hermann. MEBA neither declined nor tendered payment, but told Hermann that the claim was being investigated. Hermann then filed suit, alleging state-law causes of action for breach of fiduciary duty, negligence, equitable estoppel, breach of contract, and fraud. Hermann did not assert violations of Texas's Insurance Code. We held that Hermann's claims were preempted by ERISA. Id. at 1290. An important element of our holding in Hermann I was our reading of the Supreme Court's decisions in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) and Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987). These cases, we reasoned, stood for the proposition that where a claim relates to an employee benefit plan governed by ERISA and are based upon state law of general application and not a law regulating insurance, that state-law cause of action is preempted by ERISA. Hermann I, 845 F.2d at 1290. 20 In Hermann II, 959 F.2d 569, we did nothing more than hold that our preemption determination in Hermann I was the law of the case in Hermann II. Id. at 578. Accordingly, Hermann II adds nothing to our understanding of ERISA preemption. 21 However, we did clarify the meaning of Hermann I in Memorial. In footnote 20, we distinguished Hermann I on the ground that the hospital was aggrieved over a plan's delay in processing its claim and was seeking recovery of plan benefits allegedly owed to its assignor. 904 F.2d at 249 n. 20. We further suggested that Hermann I did not control the situation faced by Memorial Hospital because the claims in Hermann I were dependent on, and derived from, the rights of the plan beneficiaries to recover benefits under the terms of the plan. Id. Stated differently, Hermann Hospital was not an independent, third-party provider of medical services, but rather more akin to a first-party beneficiary whose causes of action are normally preempted by ERISA. 6 Because Hermann I was decided before Memorial, Hermann II did not discuss ERISA preemption, and because we have never questioned the holding or analytical underpinnings of Memorial, our understanding of Hermann I as expressed in Memorial is the law of this Circuit. 22 As such, the difference between Hermann I and Memorial has nothing to do with the bare existence of an ERISA plan. Rather, the proper inquiry is whether the beneficiary under the ERISA plan was covered at all by the terms of the health care policy, because if the beneficiary was not, the provider of health services acts as an independent, third party subject to our holding in Memorial. This is no doubt what our district courts have understood Memorial to mean. 7 III. APPLICATION OF MEMORIAL TO CYPRESS'S STATE-LAW CAUSE OF ACTION FOR MISREPRESENTATION 23 Pan-American and National argue that Memorial does not control this case because in its pleadings, Cypress admitted that it was inquiring about the extent rather than the existence of coverage for Schwartz. In addition, Pan-American and National argue that because an ERISA plan was in place and Schwartz was enrolled in the plan, Cypress's state-law claim should be preempted by ERISA. 24 The defendants' position is unavailing because Schwartz, although enrolled in the plan, was not covered by the health care plan insured by Pan-American and National. It is undisputed that National refused to pay Cypress because coverage [was] rescinded as of [the] effective date. Admittedly, because no discovery took place in this case, the record is unclear as to the meaning of this phrase. Nor does the record reveal the precise reasons behind National's refusal to pay for Schwartz's services. Nonetheless, Cypress has asserted, and the defendants do not dispute, that coverage was denied because Schwartz was not covered by the health plan. Indeed, neither National, Pan-American, nor the record suggest that coverage rescinded means anything else than Schwartz was not covered by the plan at the time of his hospitalization. As such, Cypress's cause of action does not relate to ERISA, but rather arises under state law. Memorial is therefore triggered. Cypress's state-law claim under § 21.21 for misrepresentation is not preempted by ERISA. 25 Finally, the district court's reasoning is of no help to the defendants. 8 As we have pointed out, the district court concluded that for ERISA purposes, third-party providers such as Cypress are on no better footing than first-party beneficiaries. We rejected that premise in Memorial, where we reasoned as follows: 26 We have held under different circumstances that ERISA preemption may occur even though ERISA itself could not offer an aggrieved employee a remedy for alleged misrepresentations. That principle should not be extended, however, to encompass third-party providers, particularly when to do so would run counter to one of Congress's overriding purposes in enacting ERISA. 27 904 F.2d at 248 (emphasis added) (footnote omitted). The district court's reasoning to the contrary is foreclosed by Memorial.