Court Opinion

ID: 16760
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:57:35+00
Date Added: 2024-06-11T16:46:39.270385
License: Public Domain

UNITED STATES COURT OF APPEALS

                            FOR THE FIFTH CIRCUIT

                                No. 98-50158

                  TRANSITIONAL HOSPITALS CORPORATION,

                                                        Plaintiff-Appellant,

                                     VERSUS

 BLUE CROSS AND BLUE SHIELD OF TEXAS, INC, (in Re: Isaac Davis);
   COMMUNITY INSURANCE, INC; ANTHEM INSURANCE COMPANIES, INC;
 ARMCO, INC; ARMCO, INC. BENEFIT PLANS ADMINISTRATIVE COMMITTEE,

                                                     Defendants-Appellees.

            Appeal from the United States District Court
                  for the Western District of Texas

                              January 25, 1999
Before REYNALDO G. GARZA, STEWART and PARKER, Circuit Judges.
ROBERT M. PARKER, Circuit Judge.

     Plaintiff-Appellant Transitional Hospitals Corporation (“THC”)

appeals   the    district    court’s    grant   of   summary   judgment   for

Defendants-Appellees, Blue Cross and Blue Shield of Texas, Inc.

(“Blue Cross”), Community Insurance, Inc. (“Community”), Anthem

Insurance Companies, Inc. (“Anthem”), Armco, Inc. (“Armco”), and

Armco,    Inc.   Benefit     Plans     Administrative    Committee   (“Armco

                                        1
Administrative Committee”). We affirm in part, reverse in part and

remand to the district court.

                   FACTS AND PROCEEDINGS BELOW

      The district court accepted the following facts as true for

purposes of summary judgment analysis.   Isaac Davis (now deceased)

was a retiree of Armco and a participant in Armco’s self-funded

employee welfare benefit plan subject to the Employee Retirement

Income Security Act, 29 U.S.C. § 1001, et seq., (“ERISA”).    Davis,

a 70-year-old male, was an inpatient at THC-Houston, a long-term

acute care hospital facility in Houston, Texas from December 28,

1993 thru July 15, 1994.   He incurred hospital expenses of over

$494,000, of which nearly $225,000 remain unpaid.      THC received

$1,255 from Blue Cross, and $69,000 from Medicare.        THC took

another $160,000 in Medicare contractual write-offs.

      THC alleges that the defendants misrepresented that Armco’s

ERISA plan would reimburse THC for 100% of Davis’s hospital bills

after exhaustion of his Medicare benefits.   THC maintains that the

defendants made the misrepresentations before Davis was admitted as

a transfer patient to the hospital and again several months later

when his Medicare benefits were exhausted.   When THC presented the

defendants with the bill, defendants determined that THC was a

nonparticipating hospital under Armco’s ERISA plan.          THC was

therefore entitled to collect only $1,255,1 which has been paid.

  1
   The Plan provides:

                                2
     THC sued Blue Cross, Community and Anthem in state court in

Travis County, Texas, alleging breach of contract, common law

misrepresentation and statutory misrepresentation under the Texas

Insurance Code, Art. 21.21.         Defendants removed the action to

federal court on the ground that THC’s claims were preempted by

ERISA.    THC subsequently amended its complaint to add Armco and

Armco Administrative Committee as parties and to assert a claim

under    29   U.S.C.   §   1132(a)(1)(B),   ERISA’s   civil   enforcement

     1.0 Benefits In Participating Hospitals
     When you are admitted for treatment as an inpatient to a
  Participating Hospital of a Blue Cross Plan, which is under
  contract to provide benefits under the Program, benefits will
  be provided for semiprivate room accommodations and all other
  services provided by the hospital for the diagnosis and
  treatment of your condition including treatment in an
  intensive care unit.
  ...
  1.2 Benefits in Other Hospitals
     Throughout the United States, Blue Cross Plans which are
  not under contract to provide benefits under the Program, and
  most of their participating hospitals, have agreed to provide
  service benefits for subscribers of other Blue Cross Plans who
  are hospitalized in their areas. When you are admitted to
  such a participating hospital of a Blue Cross Plan, you will
  receive the benefits which subscribers of such Plan are
  entitled to receive, but for the number of days for which you
  are eligible under the Program as set out below.

  1.3 If you are admitted to an accredited hospital which is
  neither a Participating Hospital nor covered under a Blue
  Cross reciprocal arrangement, you will be entitled to benefits
  for covered hospital services in accordance with the following
  schedule:

     (a) up to $25.00 for the first day of hospitalization and

     (b) up to $10.00 per day for each additional day of
     hospitalization, for the remaining number of days for
     which you are eligible under the Program as set out
     below.

                                     3
provision.

     The district court granted summary judgment for defendants on

all claims.     We review the grant of summary judgment de novo,

applying the same standards as the district court.                See Duffy v.

Leading Edge Products, Inc., 44 F.3d 308, 312 (5th Cir. 1995).

                             ERISA PREEMPTION

     The dispositive issue before this court is whether ERISA

preempts THC’s state-law claims relating to the defendants’ alleged

negligent    misrepresentations    regarding        Davis’s    coverage   under

Armco’s ERISA plan. ERISA, 29 U.S.C. § 1144(a), preempts all state

laws insofar as they “relate to any employee benefit plan covered

by the Act.”    State law “relates to” an ERISA plan “if it has a

connection with or reference to such a plan.”                Shaw v. Delta Air

Lines, Inc., 463 U.S. 85, 96-97 (1983).          However, some state laws

may affect an ERISA plan in “too tenuous, remote or peripheral a

manner to warrant a finding that the law 'relates to' the plan.”

Id. at 100 n.21

     ERISA does not preempt state law when the state-law claim is

brought by an independent, third-party health care provider (such

as   a   hospital)      against   an       insurer     for     its   negligent

misrepresentation regarding the existence of health care coverage.

See Memorial Hosp. System. V. Northbrook Life Ins. Co., 904 F.2d
236, 243-46 (5th Cir. 1990).           However, a hospital’s state-law

claims   for   breach   of   fiduciary      duty,    negligence,     equitable

                                       4
estoppel, breach of contract, and fraud are preempted by ERISA when

the hospital seeks to recover benefits owed under the plan to a

plan participant who has assigned her right to benefits to the

hospital.   See Hermann Hosp. v. MEBA Medical & Benefits Plan, 845
F.2d 1286, 1290 (5th Cir. 1988)(Hermann I).

      In Cypress Fairbanks Med. Center, Inc. v. Pan-American Life

Ins. Co., 110 F.3d 280 (5th Cir.), cert. denied, 118 S. Ct. 167

(1997), this court discussed what some lower courts characterized

as tension between Memorial and our earlier holding in Hermann I

and determined that the cases were consistent with one another.

Id.   Cypress examined the scope of the holding in Memorial: did

Memorial preclude ERISA preemption for all claims brought by third

party providers of medical services or does Memorial require a

fact-sensitive inquiry into whether the medical provider could be

properly characterized as an independent, third-party provider or

as an assignee asserting a derivative claim for ERISA benefits?

See Cypress, 110 F.3d at 284.

      Cypress begins by reexamining the basis of our holding in

Hermann I. Hermann Hospital provided medical services to a patient

after Hermann was informed by the insurance company that the

patient was covered by a health plan governed by ERISA.    See id.

The insurance company neither declined nor tendered payment, but

told Hermann that the claim was being investigated.        See id.

Hermann filed suit alleging state-law causes of action for breach

                                5
of   fiduciary   duty,   negligence,      equitable   estoppel,   breach   of

contract, and fraud.     See id.   Hermann did not assert violations of

Texas's Insurance Code.        See id.     Important to our determination

that Hermann's claims were preempted was our reading of the Supreme

Court's decisions in Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41

(1987) and Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58

(1987).   See Cypress, 110 F.3d at 284.         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.      Cypress then examines the underpinnings of our

Memorial decision.       Cypress, 110 F.3d at 284. In Memorial, 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.”

Memorial, 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 dependant on and derived from the

rights of the plan beneficiaries to recover benefits under the

terms of the plan.”      Id.   Cypress then concludes:

      [T]he 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

                                     6
      not, the provider of health services acts as an
      independent, third party subject to [the] holding in
      Memorial.

Id. at 285.    The patient in Cypress had no coverage at all under

the health care policy in question and we therefore held that there

was no ERISA preemption.

      It is undisputed that Davis was entitled to benefits under the

ERISA plan of $25 for the first day of hospitalization and $10 for

each day thereafter up to 120 days.           In fact, the Armco plan paid

$1,255   to   THC   in    accordance   with      the   terms   of    the   policy.

Defendants’ payment amounted to about .5% of the total amount

claimed by THC. THC characterizes the benefits paid as de minimus,

and argues that de minimus coverage should be treated the same as

“no   coverage”     for    purposes    of     ERISA     preemption     analysis.

Defendants argue that the language in Cypress asking whether there

was coverage      “at    all”   precludes   an    exception    for    de   minimus

coverage.

      Both arguments miss the mark.2          Cypress speaks in terms of no

coverage “at all” because that was the fact scenario presented to

the court for consideration in that case, which placed the case

clearly within Memorial's purview and precluded preemption. We did

not intend, nor did we have the authority, to disregard the

  2
   The fact that no party advocated the precise basis of our
decision notwithstanding, we must inquire, sua sponte, concerning
the existence of subject matter jurisdiction. Marathon Oil Co. v.
A.G. Ruhrgas, 145 F.3d 211, 217 (5th Cir.), cert. granted, ___ U.S.
___, 1998 WL 651066 (1998).

                                       7
analytical framework constructed in Hermann I and Memorial.              That

framework requires, when there is some coverage, that the court

take the next analytical step and determine whether the claim in

question is dependent on, and derived from the rights of the plan

beneficiaries to recover benefits under the terms of the plan.            See

Cypress, 110 F.3d at 284; see also Lordmann Enterprises, Inc. v.

Equicor, Inc., 32 F.3d 1529 (11th Cir. 1994)(holding that ERISA

does not preempt state-law claim of negligent misrepresentation).

THC's state-law claims alleging common law misrepresentation and

statutory misrepresentation under the Texas Insurance Code Art.

21.213 are not dependent on or derived from Davis's right to

recover benefits under the Armco plan.        Rather, THC alleged that,

“[t]o the extent that Davis is not covered by the Policy as

represented    by    Blue   Cross       to    THC,”     Defendants      made

misrepresentations   actionable     under    common   law   and   the   Texas

Insurance Code. On the other hand, THC's breach of contract claims

based on defendants' alleged failure to pay the full amount of

  3
   Art. 21.21, Sec. 3. of the Texas Insurance Code provides,

      No person shall engage in this state in any trade
      practice which is defined in this Act as . . . an unfair
      method of competition or an unfair or deceptive act or
      practice in the business of insurance.

Sec. 4. defines unfair methods of competition, including:

      (1) Making . . . any . . . statement misrepresenting the
      terms of any policy issued . . . or the benefits or
      advantages promised thereby . . . .

                                    8
benefits due under the terms of the policy are preempted.                       We must

therefore       reverse     the    district      court's     summary    judgment     for

defendants based on preemption of THC's misrepresentation claims,

and affirm summary judgment for defendants on THC's contract

claims.

                                     ERISA CLAIMS

     THC       appeals     the    district    court’s       holding    that   the   plan

administrator did not act arbitrarily or capriciously by paying THC

the nonparticipating hospital rate in accordance with the plain

language of the plan.             We agree that THC did not raise a genuine

issue of material fact concerning benefits due to THC as Davis's

assignee under the ERISA plan. The maximum benefits to which Davis

was entitled under the plan for his hospitalization at THC are set

forth     in     §   1.3     of    the   plan,        the    section     relating     to

nonparticipating          hospitals;     it      is   undisputed      that    the   plan

administrator paid those benefits in full.                     Therefore, we affirm

the district court’s grant of summary judgment for defendants on

THC’s civil enforcement action under 29 U.S.C. § 1132, which moots

THC’s arguments concerning who has standing to bring a § 1132

action.

                      RELATIONSHIP AMONG PLAN ENTITIES

     The district court’s order does not purport to resolve issues

concerning alleged agency relationships that may have existed

between the various defendants.                  This opinion likewise does not

reach the question.

                                             9
                               CONCLUSION

      The district court’s summary judgment for defendants based on

preemption of THC's misrepresentation claims is REVERSED.               The

district   court’s   summary   judgment     for    defendants   based    on

preemption of THC's contract claims is AFFIRMED.         Summary judgment

on the issue of THC’s civil enforcement action pursuant to 29

U.S.C. § 1132 is also AFFIRMED.    We REMAND the case to the district

court which may exercise or decline to exercise its supplemental

jurisdiction over the remaining claims.4          See 28 U.S.C. §1367(c).

      REVERSED in part, AFFIRMED in part, and REMANDED.

  4
   We note that the procedural posture of this case is
distinguishable from Cypress, in that the Cypress plaintiff
asserted no ERISA preempted contract cause of action. See Cypress,
110 F.3d at 281-82. THC's preempted contract claims vested the
federal court with supplemental jurisdiction over its remaining
claims. See 28 U.S.C. § 1367.

                                   10