Court Opinion

ID: 6832
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:21:48+00
Date Added: 2024-06-11T09:37:56.174277
License: Public Domain

UNITED STATES COURT OF APPEALS
                           For the Fifth Circuit

                         Nos. 92-2903 and 92-2908

                 REBECCA T. HUBBARD and JIM HUBBARD,

                                                  Plaintiffs-Appellants,

                                  VERSUS

            BLUE CROSS & BLUE SHIELD ASSOCIATION, ET. AL.,

                                                                Defendants,

                BLUE CROSS & BLUE SHIELD ASSOCIATION,

                                                        Defendant-Appellee.

             Appeal from the United States District Court
                  For the Southern District of Texas
                            (January 12, 1995)

Before JONES and DeMOSS, Circuit Judges, and SCHWARTZ, District
Judge.*
DeMOSS, Circuit Judge:

        Plaintiff Rebecca Hubbard1 was a beneficiary under a group

insurance    policy   regulated   by   the   Employee    Retirement   Income

    *
     District Judge for the Eastern District of Louisiana, sitting
by designation.
    1
     The original plaintiffs were Rebecca Hubbard and her husband,
Jim Hubbard. For convenience this opinion uses the designation
"Hubbard."
Security Act ("ERISA").2 This appeal concerns whether Hubbard's

state-law fraudulent inducement claims -- brought against a third

party other than the insurer -- are preempted by ERISA. We hold

that one of Hubbard's claims is preempted by ERISA and that the

other claim is not preempted. We therefore AFFIRM the district

court's entry of judgment in favor of the defendant on one claim,

and REMAND the other claim back to the district court.

                               BACKGROUND

     Hubbard's employer, Texas A&M Research Foundation, provided an

ERISA-regulated health benefits plan to its employees. Coverage was

provided by Blue Cross and Blue Shield of Texas ("Blue Cross of

Texas"), an entity not a party to this lawsuit. While Hubbard was

a beneficiary under the health plan, she contracted cancer.3 After

Blue Cross    of   Texas   refused   to   provide   coverage   for   certain

requested cancer treatments, Hubbard sued defendant-appellee Blue

Cross and Blue Shield Association ("the Association") in the

district court of Brazos County, Texas.4 Hubbard claims that (1)

     2
        29 U.S.C. § 1001 et seq. (West 1985 & Supp. 1994).
    3
     This was the second time Mrs. Hubbard had contracted cancer.
She had a bout with breast cancer in the early 1980s, but that
cancer had been pronounced cured well before she entered into the
Blue Cross of Texas plan.
    4
     The insurer, Blue Cross of Texas, and the defendant-appellee,
Blue Cross and Blue Shield Association, are separate legal entities
despite their similar names. The Association is incorporated in
Illinois and is the trademark corporation that administers the
licensing of the "Blue Cross" and "Blue Shield" registered
trademarks. The Association did not issue the Hubbards' insurance
policy and did not have the right or power to make coverage
decisions under that policy.
     The insurer, a Texas corporation, was never a party to this
lawsuit. Hubbard settled her coverage dispute with Blue Cross of

                                     2
the     Association      generated      and      disseminated       secret     policy

interpretation "guidelines" which were followed by Blue Cross of

Texas in denying coverage for Hubbard's treatment, and that the

Association     willfully       concealed      such   guidelines    from     Hubbard,

thereby fraudulently inducing her to participate in the Blue Cross

of    Texas   plan     rather   than   procuring       other,   adequate,     health

coverage; and (2) the Association disseminated advertisements in

Texas    that   portrayed       Blue   Cross    of    Texas   "as   an   honest   and

forthright company that would never engage in deceptive trade

practices," thus fraudulently inducing her into participating in

the "unsuitable" Blue Cross of Texas plan. Hubbard claimed that

both acts by the Association were in violation of the Texas

Deceptive Trade Practices Act, TEX. BUS. & COM. CODE ANN. § 17.41 et

seq. ("DTPA"), Texas Insurance Code Article 21.21 et seq., and the

Texas common law of fraud. Hubbard also alleged malpractice against

her physician, Richard A. Smith of Brazos County, Texas, claiming

he negligently failed to diagnose the cancer.

       The Association removed the case to federal district court,

contending      that     Hubbard's     state-law       claims   were     completely

preempted by ERISA.5 The plaintiffs and defendant Smith moved to

Texas in a separate action. That settlement provided for a payment
of $12,500 to be divided among Hubbard, her minor children and her
attorney. Blue Cross & Blue Shield of Texas, Inc. v. Hubbard, Civ.
No. 3-91CV2651-R (N.D. Tex. May 4, 1993) (final judgment approving
settlement agreement).
         5
       Ordinarily, preemption of state law by federal law is a
defense to a plaintiff's state law claim, and therefore cannot
support federal removal jurisdiction under the "well-pleaded
complaint" rule. "Complete preemption," in contrast, exists when
the federal law occupies an entire field, rendering any claim a

                                          3
remand the case to Texas state court. After initially denying both

motions, the court remanded the Hubbard's claims against Smith, but

refused to remand their case against the Association.

     On   October    8,   1992,    the   district   court   granted    summary

judgment in favor of the Association on both of Hubbard's claims.

The district court's four-page order concluded that all of the

plaintiff's state-law fraudulent inducement claims were completely

preempted by ERISA.6 This appeal followed.

                            STANDARD OF REVIEW

     We review a summary judgment de novo, under the same standard

employed by the district court, affirming if there is no genuine

issue of material fact and the movant is entitled to judgment as a

matter of law. FED. R. CIV. P. 56(c); United Fire and Cas. Co. v.

Reeder, 9 F.3d 15, 16 (5th Cir. 1993); Hibernia Nat. Bank v.

Carner, 997 F.2d 94, 97 (5th Cir. 1993).

                             ERISA PREEMPTION

     The preemption clause in ERISA states that ERISA "shall

supersede any and all State laws insofar as they may now or

hereafter   relate   to   any     employer   benefit   plan."   29    U.S.C. §

plaintiff may raise necessarily federal in character. See Franchise
Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 24
(1983). Because ERISA preemption is so comprehensive, it can
provide a sufficient basis for removal to federal court even though
it is raised as a defense, notwithstanding the "well-pleaded
complaint" rule. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S.
58, 66 (1987).
      6
      The district court also stated an alternate basis for its
judgment, finding that "Plaintiffs have failed to set forth in
their first amended complaint a factual basis for their state
claims."

                                         4
1144(a)(expressly excepting two situations not applicable here).

State law causes of action such as Hubbard's are barred by §

1144(a) if (1) the state law claim addresses an area of exclusive

federal concern, such as the right to receive benefits under the

terms of an ERISA plan; and (2) the claim directly affects the

relationship          between   the   traditional      ERISA    entities      --   the

employer, the plan and its fiduciaries, and the participants and

beneficiaries. Weaver v. Employers Underwriters, Inc., 13 F.3d 172,

176 (5th Cir. 1994); Memorial Hosp. System v. Northbrook Life Ins.

Co., 904 F.2d 236, 245 (5th Cir. 1990). The language of the ERISA

preemption clause is deliberately expansive, and has been construed

broadly by federal courts. Corcoran v. United Healthcare, Inc., 965
F.2d 1321, 1328-29 (5th Cir. 1992). A state cause of action relates

to an employee benefit plan whenever it has "a connection with or

reference to such a plan." Id. at 1329 (citing Shaw v. Delta Air

Lines, Inc., 463 U.S. 85, 96-97 (1983)).

     Hubbard makes two basic claims of fraudulent inducement. She

first alleges that the Association issued, and concealed, secret

coverage guidelines ("the secret guidelines claim"). Her second

claim       alleged     fraudulent    inducement      in   connection      with    the

Association's          advertisements    for   Blue     Cross    of   Texas       ("the

advertisement claim").7 If neither claim is preempted by ERISA,

then the district court lacks subject matter jurisdiction, because

both claims arise under state law and there is no diversity of

        7
       According to Hubbard's petition, both of these courses of
conduct by the Association are actionable under the Texas DTPA, the
Texas Insurance Code and the Texas common law of fraud.

                                          5
citizenship. If there is no federal jurisdiction, the case must be

remanded to Texas state court.

     However, we hold that Hubbard's claim involving the "secret

guidelines" is preempted by ERISA, thus a federal question exists

on that claim and the district court's exercise of jurisdiction was

proper. Entry of summary judgment for the Association on that claim

was also correct because ERISA provides no remedy. We hold that

Hubbard's second claim, involving the Association's advertising, is

not preempted by ERISA. We reverse the summary judgment as to the

advertising claim and remand that part of the case so that the

district court may exercise its discretion as to whether to accept

supplemental jurisdiction pursuant to 28 U.S.C. § 1367 or remand

the advertising claim to state court.

                      "SECRET GUIDELINES" CLAIM

     Hubbard   alleged      that    the    Association       "generated    and

disseminated   to   [Blue   Cross   of    Texas]   certain    guidelines   or

criteria pertaining to how [Blue Cross of Texas] would interpret

the terms `experimental' and `medically necessary.'"

     "[Blue Cross of Texas] looked to and relied upon certain
     criteria and guidelines promulgated by [the Association]
     in order to make determinations concerning whether
     specific medical treatments were or were not excluded
     from coverage by the above-noted policy language ... in
     effect, [the Association] added verbiage to the
     definitions of the aforementioned terms found in the
     insurance policy."

It is clear that ERISA preempts a state law cause of action brought

by a plan beneficiary against the plan insurer alleging improper

processing of a claim for plan benefits. Memorial Hospital, 904
F.2d at 245. We have also held that ERISA preempts state law claims

                                     6
of fraud, breach of contract or negligent misrepresentation that

have the effect of orally modifying the express terms of an ERISA

plan and increasing plan benefits for participants or beneficiaries

who claim to have been misled. Id. at 245. Hubbard's "secret

guideline"   claim   was   brought       against   a   third   party,   the

Association, rather than against the insurer. However, the essence

of Hubbard's claim is that her benefits under the plan were

improperly denied. Resolution of this claim would require an

inquiry into (1) whether the Association generated and disseminated

guidelines; (2) whether Blue Cross of Texas knew about those

guidelines; (3) whether Blue Cross of Texas employed the alleged

guidelines in Hubbard's case; and (4) whether the guidelines

materially affected the determination of non-coverage in Hubbard's

medical treatment. Such questions are intricately bound up with the

interpretation and administration of an ERISA plan. Accordingly, we

hold that the "secret guideline" claim relates to an employee

benefit plan and is preempted by ERISA. See Corcoran v. United

Healthcare Inc., 965 F.2d 1321, 1334 (5th Cir.)(holding that ERISA

preempted state law claims against a non-ERISA entity, the utility

review administrator for its decision that affected a benefit

determination under the ERISA plan). Because ERISA provides no

remedy on these facts, the district court correctly granted summary

judgment in favor of the Association on Hubbard's secret guideline

fraudulent inducement claim.

                                     7
                           ADVERTISING CLAIM

     Hubbard   also   alleged    that     the    Association   "distributed

advertisements designed to promote Blue Cross [of Texas] as an

honest and forthright company that would never engage in deceptive

trade practices." Hubbard claimed that she "relied upon the images

created by such advertising and [was] thereby induced to acquire

the services of Blue Cross [of Texas]." Hubbard claims that she was

damaged by the advertising in that she relied on the assurances of

quality coverage and thus chose not to procure other insurance

coverage to insure that the expensive medical treatments that she

needed could be paid for.

     Hubbard relies heavily on our holding in Perkins v. Time Ins.

Co., 898 F.2d 470, 473 (5th Cir. 1990), which also involved

fraudulent inducement allegations against a third-party, non-ERISA

entity. In Perkins, the plaintiff claimed that an insurance agent

fraudulently   induced   him    to   surrender    his   previous   insurance

coverage and elect to participate in a new ERISA plan. The agent

falsely assured the plaintiff that the new policy would cover his

daughter's impending treatment for congenital eye defects. In fact,

the treatment was not covered under the policy because the eye

problem was an excluded pre-existing condition. Perkins, 898 F.2d

at 472. We held that, although the claim against the insurer, Time

Insurance, was preempted by ERISA, the claim against the insurance

agent was not preempted.

     "While ERISA clearly preempts Perkins' claims as they
     relate to Time, the same cannot be necessarily said,
     however, as regards [the insurance agent]'s solicitation
     of Perkins, which allegedly induced him to forfeit an

                                      8
     insurance policy that covered his daughter's condition
     for one that did not. While ERISA clearly preempts claims
     of bad faith as against insurance companies for improper
     processing of a claim for benefits under an employee
     benefit plan, and while ERISA plans cannot be modified by
     oral representations, we are not persuaded that his logic
     should extend to immunize agents from personal liability
     for their solicitation of potential participants in an
     ERISA plan prior to its formation."

Perkins, 898 F.2d at 473. Thus, Perkins held that a state law

fraudulent inducement claim against a third party other than an

ERISA entity is not preempted by ERISA if it does not implicate the

plan's administration of benefits or "affect the relations among

the principal ERISA entities (the employer, the plan fiduciaries,

the plan and the beneficiaries)." Id. We reaffirmed the Perkins

rationale in Memorial Hospital, 904 F.2d at 247, where we stated

that courts are less likely to find preemption when the claim

merely affects relations between an ERISA entity and an outside

party, rather than between two ERISA entities. Memorial Hospital,
904 F.2d at 249 (citing Perkins, 898 F.2d at 473; Sommers Drug

Stores Co. Employee Profit Sharing Trust v Corrigan Enterprises,

Inc., 793 F.2d 1456, 1467 (5th Cir. 1986), cert. denied, 479 U.S.
1034 (1987).). Therefore, we hold that Hubbard's advertising claim

is not preempted by ERISA.

     In light of this holding, we remand the advertising claim to

the district court so that the court can exercise its discretion

either to (1) accept supplemental jurisdiction over the state law

claim or (2) decline jurisdiction and remand the claim to state

court. A federal district court may entertain state law claims

pursuant to its "supplemental jurisdiction," provided that the

                                9
claims arise from the case or controversy over which the district

court had original jurisdiction. See 28 U.S.C. § 1367; Welch v.

Thompson, 20 F.3d 636, 644 (5th Cir. 1994). When all federal claims

are    dismissed,      the   district   court   enjoys   wide   discretion   in

determining whether to retain jurisdiction over the remaining state

law claims. Welch, 20 F.3d at 644; Burns-Toole v. Byrne, 11 F.3d
1270, 1276 (5th Cir. 1994)(both upholding district courts' refusal

to exercise jurisdiction); see also Rodriguez v. Pacificare of

Texas, Inc., 980 F.2d 1014, 1017-18 & n.3 (5th Cir. 1993)(upholding

district court's exercise of supplemental jurisdiction over non-

preempted state law claims when other state law claims by plaintiff

were preempted by ERISA).

                                   CONCLUSION

        Therefore, for the reasons stated in this opinion, we hold

that Hubbard's secret guideline claim is preempted by ERISA, and

that her claim alleging fraud in the Association's advertising was

not preempted. We therefore AFFIRM the district court's entry of

judgment in favor of the defendant on the secret guideline claim,

and REMAND the advertising claim back to the district court so that

the court can exercise its discretion as to whether to accept

jurisdiction or remand to state court.8

        AFFIRMED in part, REVERSED and REMANDED in part.

       8
      "We expressly do not rule on the sufficiency of the pleading
of Hubbard's state law claims in this opinion since that issue is
not ripe for determination until the district court rules regarding
pendent jurisdiction."

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