Opinion ID: 3065104
Heading Depth: 3
Heading Rank: 2

Heading: Application of Davila

Text: The two-prong test of Davila is in the conjunctive. A statelaw cause of action is preempted by § 502(a)(1)(B) only if both prongs of the test are satisfied. In the case before us, neither is satisfied. First, the Hospital could not have brought its state-law claim under § 502(a)(1)(B) of ERISA. Second, the Hospital seeks to remedy violations of legal duties that are independent of ERISA. The Hospital’s state court suit is therefore not completely preempted by § 502(a)(1)(B).
The question under the first prong of Davila is whether a plaintiff seeking to assert a state-law claim “at some point in time, could have brought [the] claim under ERISA § 502(a)(1)(B).” 542 U.S. at 210. For the reasons that follow, MARIN GENERAL v. MODESTO & EMPIRE TRACTION 13181 we conclude that the Hospital could not have brought its statelaw claims under § 502(a)(1)(B). [5] The Hospital’s complaint relies on California state law to allege breach of an implied contract, breach of an oral contract, negligent misrepresentation, quantum meruit, and estoppel. All of these claims arise out of the telephone conversation in which MBAMD allegedly agreed to pay 90% of the patient’s hospital charges. MBAMD has already paid the Hospital part of the patient’s charges. That payment was made to the Hospital in its capacity as an assignee of the patient’s rights under his ERISA plan. The Hospital is now seeking additional payment, in an amount necessary to bring the total payment up to 90% of its charges. The Hospital does not contend that it is owed this additional amount because it is owed under the patient’s ERISA plan. Quite the opposite. The Hospital is claiming this amount precisely because it is not owed under the patient’s ERISA plan. The Hospital is contending that this additional amount is owed based on its alleged oral contract with MBAMD. The Hospital’s state-law claims in this case thus are unlike those in Davila, where plaintiffs “complain[ed] only about denials of coverage promised under the terms of ERISAregulated employee benefit plans.” 542 U.S. at 211. Plaintiffs’ state-law claims for payment under the ERISA plans duplicated those that were available under § 502(a)(1)(B). Plaintiffs in Davila therefore could have, and should have, brought suit under § 502(a)(1)(B). Blue Cross of California v. Anesthesia Care Associates Medical Group, Inc., 187 F.3d 1045 (9th Cir. 1999), is analytically similar to the case now before us. Though decided earlier, Blue Cross is consistent with the Supreme Court’s decision in Davila. In Blue Cross, we decided “whether the claims of medical providers against a health care plan for breach of their provider agreements are preempted by 13182 MARIN GENERAL v. MODESTO & EMPIRE TRACTION [ERISA].” Id. at 1047. Providers of medical services (“Providers”) sued Blue Cross for breach of contract, alleging that Blue Cross had improperly changed the fee schedule according to which providers were to be compensated. Id. at 1048. Blue Cross argued that the “Providers’ right to receive reimbursement from Blue Cross depends upon the assignment of the right to benefits for payment for medical services from their patients, some of whom are beneficiaries of ERISAcovered health plans.” Id. at 1050. Therefore, Blue Cross argued, the Providers’ claims were unavoidably “claims for benefits under the terms of ERISA benefit plans and fall within § 502(a)(1)(B).” Id. We disagreed. We wrote that the Providers did not contend that Blue Cross had violated the terms of an ERISA plan, but rather that it had breached a separate contract. Id. at 1051. We explained that “the Providers are asserting contractual breaches . . . that their patient-assignors could not assert: the patients simply are not parties to the provider agreements between the Providers and Blue Cross.” Id. The patients in Blue Cross had assigned their ERISA rights to Providers, so Providers would have had standing to pursue those rights under § 502(a)(1)(B) had they wished to do so. Id. (discussing Ninth Circuit cases and explaining that a “provider-assignee stands in the shoes of the beneficiary, [and hence] has standing to sue under § 502(a)(1)(B) to recover benefits due under the plan”). But the court in Blue Cross explained that Providers were suing based upon different asserted legal obligations, namely the terms of the “executed provider agreements.” Id. The mere fact that Providers could have brought suit against Blue Cross under § 502(a)(1)(B) did not automatically mean that Providers could not bring some other suit against Blue Cross based on some other legal obligation. [6] As in Blue Cross, in the case before us the patient assigned to the Hospital any claim he had under his ERISA plan. Pursuant to that assignment, the Hospital was paid the money owed to the patient under the ERISA plan. The HospiMARIN GENERAL v. MODESTO & EMPIRE TRACTION 13183 tal now seeks more money based upon a different obligation. The obligation to pay this additional money does not stem from the ERISA plan, and the Hospital is therefore not suing as the assignee of an ERISA plan participant or beneficiary under § 502(a)(1)(B). Rather, the asserted obligation to make the additional payment stems from the alleged oral contract between the Hospital and MBAMD. As in Blue Cross, the Hospital is not suing defendants based on any assignment from the patient of his rights under his ERISA plan pursuant to § 502(a)(1)(B); rather, it is suing in its own right pursuant to an independent obligation. Defendants make two arguments, both of which fail. First, they argue that since the claims brought by the Hospital “relate to” the patient’s ERISA plan, they come within the scope of § 502(a)(1)(B). Second, they argue that because the Hospital had a right to sue under § 502(a)(1)(B) by virtue of its assignment from the patient, it could only bring suit under § 502(a)(1)(B). We address these arguments in turn. [7] First, defendants contend that because the state action “relates to” the patient’s ERISA plan, it is completely preempted. This argument is based on a misunderstanding of complete preemption under § 502(a)(1)(B). As we explain above, the question whether a law or claim “relates to” an ERISA plan is not the test for complete preemption under § 502(a)(1)(B). Rather, it is the test for conflict preemption under § 514(a). [8] A defense of conflict preemption under § 514(a) does not provide a basis for federal question jurisdiction under either § 1331(a) or § 1441(a). The Supreme Court has explained that, in cases such as this one, federal law becomes relevant only by way of a defense to an obligation created entirely by state law, and then only if [the Hospital] has made out a valid claim for relief under state law. The well-pleaded 13184 MARIN GENERAL v. MODESTO & EMPIRE TRACTION complaint rule was framed to deal with precisely this situation. . . . [S]ince 1887 it has been settled law that a case may not be removed to federal court on the basis of a federal defense including the defense of pre- emption . . . . Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 13 14 (1983) (citations omitted). See also Met. Life Ins. Co., 481 U.S. at 64 (“ERISA preemption [under § 514], without more, does not convert a state claim into an action arising under federal law.”). Defendants are free to assert in state court a defense of conflict preemption under § 514(a), but they cannot rely on that defense to establish federal question jurisdiction. Second, defendants argue that because the Hospital was assigned the patient’s rights to payment under his ERISA plan, it was prevented from seeking additional payment under state law. That is, they argue that because the Hospital could have brought a suit under § 502(a)(1)(B) for payments owed to the patient by virtue of the terms of the ERISA plan, this is the only suit the Hospital could bring. This argument is inconsistent with our analysis in Blue Cross. There we concluded that, even though the Providers had received an assignment of the patient’s medical rights and hence could have brought a suit under ERISA, there was “no basis to conclude that the mere fact of assignment converts the Providers’ claims [in this case] into claims to recover benefits under the terms of an ERISA plan.” 187 F.3d at 1052. [9] We conclude that the Hospital’s state-law claims based on its alleged oral contract with MBAMD were not brought, and could not have been brought, under § 502(a)(1)(B). Therefore, the Hospital’s state-law claims do not satisfy the first prong of Davila. MARIN GENERAL v. MODESTO & EMPIRE TRACTION 13185
The question under the second prong of Davila is whether “there is no other independent legal duty that is implicated by a defendant’s actions.” 542 U.S. at 210. If there is some other independent legal duty beyond that imposed by an ERISA plan, a claim based on that duty is not completely preempted under § 502(a)(1)(B). For the reasons that follow, we conclude that the Hospital’s claims in this suit are based on independent legal duties. In this suit now before us, the Hospital asserts state-law claims. These claims do not rely on, and are independent of, any duty under an ERISA plan. In Davila, plaintiffs argued that a state statute created an independent legal duty. But the Court noted that the statute did not create any legal duty where, as had occurred in Davila, there had been a denial of coverage under the terms of an ERISA plan. The state statute imposed only an obligation to make the payments required under the plan. Thus, in Davila, there was no independent legal duty imposed under state law. In this case, by contrast, the Hospital contends that MBAMD entered into an independent oral contract during the April 8 telephone call. The various state-law claims asserted by the Hospital all arise out what was allegedly said during that call. [10] Defendants contend that since the remedy the Hospital seeks — the payment of money — is the same as a possible remedy under § 502(a)(1)(B), the Hospital’s suit amounts to a claim under § 502(a)(1)(B). This misunderstands the nature of the second prong of the Davila test. Under this prong, we ask only whether “there is no other independent legal duty that is implicated” by a defendant’s actions. We do not ask whether that legal duty provides for a similar remedy, such as the payment of money. Defendants also continue to confuse conflict preemption under § 514(a) with complete preemption under § 502(a)(1)(B). It is not enough for complete preemption that the contract and tort claims “relate to” the underlying 13186 MARIN GENERAL v. MODESTO & EMPIRE TRACTION ERISA plan, or that ERISA § 502(a)(1)(B) may provide a similar remedy. The question under the second prong of Davila is whether the complaint relies on a legal duty that arises independently of ERISA. Since the state-law claims asserted in this case are in no way based on an obligation under an ERISA plan, and since they would exist whether or not an ERISA plan existed, they are based on “other independent legal dut[ies]” within the meaning of Davila. [11] We conclude that the Hospital’s state-law claims based on its alleged oral contract with EBAMD were based on an independent legal duty, and that the Hospital’s claims therefore do not satisfy the second prong of Davila.