Court Opinion

ID: 3037909
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:57:28.135285+00
Date Added: 2024-06-11T11:48:49.048452
License: Public Domain

United States Court of Appeals
                                FOR THE EIGHTH CIRCUIT

      _______________

        No. 04-2643
      _______________

Tracey Daley, and other similarly         *
situated persons,                         *
                                          *
      Appellant,                          *
                                          *
      v.                                  *
                                          *
Marriott International, Inc.,             *
                                          *
      Appellee.

      _______________
                                                  Appeals from the United States
        No. 04-2651                               District Court for the
      _______________                             District of Nebraska.

Tracey Daley,                             *
                                          *
      Appellant,                          *
                                          *
      v.                                  *
                                          *
Marriott Health Plan; Empire Blue         *
Cross/Blue Shield,                        *
                                          *
      Appellees.                          *
                                 ________________

                           Submitted: February 17, 2005
                               Filed: July 25, 2005
                               ________________

Before MORRIS SHEPPARD ARNOLD, BOWMAN, and GRUENDER, Circuit
      Judges.
                       ________________

GRUENDER, Circuit Judge.

       Tracey Daley (“Daley”) filed a complaint against the Marriott Health Plan (the
“Plan”)1 and Empire Blue Cross/Blue Shield (“Empire”) for breach of contract under
state law and breach of fiduciary duty under the Employee Retirement Income
Security Act, 29 U.S.C. §§ 1001-1461 (“ERISA”). Daley alleged that the Plan failed
to provide mental-health coverage in accordance with Nebraska’s mental-health
parity law. The Plan and Empire filed a motion for summary judgment. The district
court2 granted the motion because it concluded that the Nebraska mental-health parity
law is preempted by ERISA as to self-funded ERISA plans.

       In a separate action, Daley filed a similar complaint against Marriott
International, Inc. (“Marriott”), in its capacity as administrator of the Plan. Marriott
moved to dismiss the complaint based on the doctrine of res judicata. The district
court3 granted the motion and alternatively held that the Nebraska mental-health
parity law is preempted by ERISA as to Marriott’s self-funded ERISA plan.

      1
       Although Daley captioned the Plan as the “Marriott Health Plan,” the proper
legal name of the Plan is the “Marriott International, Inc. Medical Plan.”
      2
       The Honorable William Jay Riley, United States Circuit Judge for the Eighth
Circuit, sitting by designation.
      3
       The Honorable Laurie Smith Camp, United States District Judge for the
District of Nebraska.
                                          -2-
      Daley appeals both judgments. For the reasons discussed below, we affirm
both judgments.

I.    BACKGROUND

       Daley is an employee of Marriott Corporation, Inc., a subsidiary of Marriott.
Daley is a participant in the Plan, which is self-funded and sponsored by Marriott and
governed by ERISA.4 Marriott is the administrator of the Plan, and as such, under the
Plan it has the “sole and absolute final discretion to determine eligibility for plan
benefits, to construe the terms of the plan, and to resolve any factual issues relevant
to benefit eligibility or benefit enrollment.” Pursuant to an agreement with Marriott,
Empire performs third-party administrative and claims-processing services for the
Plan.

      Under the terms of the Plan, in-network outpatient mental-health visits are fully
covered, subject to a co-payment. Such coverage, however, is subject to a plan-year
maximum of thirty visits and a lifetime maximum of 200 visits.

      In 2000, Daley began receiving outpatient treatment for an unspecified mental-
health condition. In 2000 and 2001, she incurred claims exceeding the plan-year
maximum of thirty visits. Empire denied those claims and Daley’s appeals of those
claims on the basis that Daley’s visits exceeded the plan-year maximum. Daley
argued that Nebraska’s mental-health parity law, Neb. Rev. Stat. §§ 44-791 to 795
(2000), prohibited the Plan from imposing any limits on mental-health coverage.5

      4
        The record does not reflect whether Daley is still an employee of Marriott and
a participant in the Plan.
      5
        Neb. Rev. Stat. § 44-793(1)(a)(i) provides that a health insurance plan “shall
not establish any rate, term, or condition that places a greater financial burden on an
insured for access to treatment for a serious mental illness than for access to treatment
for a physical health condition . . . .” Section 44-792(4) defines “[r]ate, term, or
                                           -3-
The Plan, through Empire, took the position that the Nebraska mental-health parity
law does not apply to the Plan because the law is preempted by ERISA.

      Daley decided not to pursue an optional appeal of her denied claims to
Marriott. Instead, on January 20, 2003, Daley filed a complaint against the Plan and
Empire for breach of contract under state law and breach of fiduciary duty under
ERISA § 409, 29 U.S.C. § 1109, based on the Plan’s failure to provide mental-health
coverage in accordance with the Nebraska mental-health parity law.

       Daley made three attempts to amend her complaint to add Marriott as a
defendant. First, on August 29, 2003, Daley filed a motion to add Marriott as a
defendant. The magistrate judge6 denied the motion, citing Daley’s failure to comply
with Rule 15.1 of the Local Rules of the United States District Court for the District
of Nebraska, which requires the moving party to attach a proposed amended pleading
to the motion.7 Then, on December 26, 2003, Daley filed another motion to amend
her complaint seeking to add Marriott as a defendant, to expand the timeframe of
denied claims to 2003, and to add an allegation of untimely notices of those

condition” as “lifetime limits, annual payment limits, and inpatient or outpatient
service limits. Rate, term, or condition does not include any deductibles, copayments,
or coinsurance . . . .” In other words, the Nebraska law requires annual and lifetime
limits on mental-health benefits to be on par or better than limits on physical-health
benefits.
      6
      The Honorable F.A. Gossett, United States Magistrate Judge for the District
of Nebraska.
      7
       Rule 15.1 provides: “A party who moves for leave to amend a pleading
(including a request to add parties) shall attach to the motion an unsigned copy of the
proposed amended pleading. Except as provided in these rules or by leave of court,
the proposed amended pleading so submitted shall be a complete pleading which, if
allowed to be filed, shall supersede the pleading amended in all respects; no portion
of the prior pleading may be incorporated into the proposed amended pleading by
reference.”
                                          -4-
additional claim denials. The magistrate judge denied this motion because the
proposed amended complaint attached to the motion failed to reference Marriott, the
party Daley intended to add as a defendant.8 Finally, on January 23, 2004, Daley filed
a motion to reconsider the denial of her motion to amend and attached a corrected
proposed amended complaint which substituted Marriott as a defendant in place of
the Plan, expanded the timeframe of denied claims, and added an allegation of
untimely claim denials. The magistrate judge construed the motion as a renewed
motion for leave to amend and denied it.9

      8
       We note that in addition to failing to reference Marriott, the motion also was
untimely. The magistrate judge’s pre-trial scheduling order set August 29, 2003, as
the deadline for Daley to file any motions to add parties or amend pleadings.
      9
        On appeal, Daley argues that the magistrate judge erred in denying her motion
for leave to amend her complaint. We cannot review Daley’s challenge to the merits
of the magistrate judge’s order denying this nondispositive pretrial motion because
Daley failed to file any objections to such order with the district court. Under Rule
72(a) of the Federal Rules of Civil Procedure, if a party fails to file with the district
judge timely objections to an order of a magistrate judge on a nondispositive pretrial
motion, such party “may not thereafter assign as error a defect in the magistrate
judge’s order.” Fed. R. Civ. P. 72(a); See Lee/Millsap v. Wright, 121 Fed. Appx. 673,
674 (8th Cir. 2005) (unpublished per curiam) (citing Fed. R. Civ. P. 72(a), the Court
held that it could not review appellant’s challenge to the magistrate judge’s rulings
on nondispositive matters because appellant did not file objections to such rulings
with the district court); Reed v. Home Depot USA, Inc., 119 Fed. Appx. 16, 16 (8th
Cir. 2004) (unpublished per curiam) (same). Therefore, where, as here, the parties did
not consent to final disposition by a magistrate judge under 28 U.S.C. § 636(c), we
do not have jurisdiction to hear a direct appeal of a magistrate judge’s order on a
nondispositive pretrial matter. See United States v. Haley, 541 F.2d 678, 678 (8th
Cir. 1974) (noting that this Court has limited jurisdiction under 28 U.S.C. § 1291 to
hear appeals from final decisions of a district court, and in light of the fact that there
was no decision by a federal district court, the Court held that it was without
jurisdiction to hear a direct appeal from a decision of a magistrate judge). We agree
with the First Circuit’s conclusion in Pagano v. Frank, 983 F.2d 343, 346 (1st Cir.
1993), that “when . . . a litigant could have tested a magistrate’s ruling by bringing
it before the district judge, but failed to do so within the allotted ten-day period [in
                                           -5-
      The Plan and Empire moved for summary judgment, arguing that ERISA
preempts the Nebraska mental-health parity law. On June 1, 2004, the district court
granted the motion, concluding that Daley’s claims were based on a state law that, as
applied to self-funded ERISA plans, is preempted by ERISA. See Daley v. Marriott
Health Plan, No. 8:03CV26 (D. Neb. June 1, 2004) (“Daley I”).

       Meanwhile, on February 19, 2004, Daley filed a lawsuit against Marriott in its
capacity as Plan administrator (“Daley II”). The complaint in Daley II is the same as
the complaint filed in Daley I, except in the following respects: (1) Marriott, as
opposed to the Plan and Empire, is the named defendant in Daley II; (2) the Daley II
complaint contains an allegation of additional claim denials based on the plan-year
limit since the filing of Daley I; and (3) the Daley II complaint contains an allegation
of untimely notices of those additional claim denials. Marriott moved to dismiss
Daley II based on the doctrine of res judicata. On June 18, 2004, the district court
granted the motion on res judicata grounds and alternatively held, like the district
court in Daley I, that Daley failed to state a claim because her claim relied on a state
law that, as applied to self-funded ERISA plans, is preempted by ERISA.

      Daley now appeals the district court’s adverse grant of summary judgment in
Daley I. She also appeals the district court’s dismissal of Daley II.

II.   DISCUSSION

      A.     Daley I

      Daley argues that the district court erred in holding that the Nebraska mental-

Rule 72(a)], he cannot later leapfrog the trial court and appeal the ruling directly to
the court of appeals.”
                                          -6-
health parity law is preempted by ERISA.10 “Because ERISA preemption is a
question of federal law involving statutory interpretation, we review the district
court’s decision de novo.” Ark. Blue Cross & Blue Shield v. St. Mary’s Hosp., Inc.,
947 F.2d 1341, 1344 (8th Cir. 1991).

      Before addressing Daley’s argument that ERISA does not preempt the
Nebraska mental-health parity law, we must explain the analytical framework of
ERISA preemption. “ERISA comprehensively regulates employee pension and
welfare plans.” Baxter v. Lynn, 886 F.2d 182, 184 (8th Cir. 1989). “To meet the
goals of a comprehensive and pervasive Federal interest and the interests of
uniformity with respect to interstate plans, Congress included an express preemption
clause in ERISA for the displacement of State action in the field of private employee
benefit programs.” Wilson v. Zoellner, 114 F.3d 713, 715-16 (8th Cir. 1997) (internal
quotations omitted). Accordingly, ERISA broadly preempts “any and all State laws
insofar as they may now or hereafter relate to any employee benefit plan” governed
by ERISA. 29 U.S.C. § 1144(a).

      However, ERISA contains an exception to the general rule of preemption,
which is referred to as the “savings clause.” Under the savings clause, a state law that

      10
        In her opening brief to this Court, Daley states that the “primary issue” in this
case is whether the Nebraska mental health parity law is preempted by ERISA.
However, in her reply brief, Daley asserts for the first time that ERISA preemption
of the Nebraska law is not the issue in this case. She now claims that she is
attempting to enforce against the Plan the federal mental-health parity law set forth
in 29 U.S.C. § 1185a.
       We view this as “an attempt to amend one’s pleadings in an appellate brief.”
Dorothy J. v. Little Rock School Dist., 7 F.3d 729, 734 (8th Cir. 1993) (quoting
Hanson v. Town of Flower Mound, 679 F.2d 497, 504 (5th Cir. 1982)) (internal
quotation omitted). In her complaint, Daley merely alleged the Plan’s failure to
conform to the Nebraska mental-health parity law. Accordingly, we will not consider
this new claim which Daley did not raise in the district court. See Alexander v.
Pathfinder, Inc., 189 F.3d 735, 740 (8th Cir. 1999).
                                           -7-
regulates insurance is “saved” from ERISA preemption. 29 U.S.C. § 1144(b)(2)(A).11
ERISA’s “deemer clause,” in turn, “exempt[s] self-funded ERISA plans from state
laws that ‘regulat[e] insurance’ within the meaning of the savings clause.” FMC
Corp. v. Holliday, 498 U.S. 52, 61 (1990). The effect of the deemer clause is that
“self-funded ERISA plans are exempt from state regulation insofar as that regulation
‘relate[s] to’ the plans.” Id.12

       Daley cites three cases in support of her argument against ERISA preemption
of the Nebraska mental-health parity law: Express Scripts, Inc. v. Wenzel, 262 F.3d
829 (8th Cir. 2001) (holding that Missouri statutes regulating some aspects of how
Missouri HMOs provide prescription drugs through network pharmacies regulate
insurance and, therefore, fall within ERISA’s savings clause); Rush Prudential HMO,
Inc. v. Moran, 536 U.S. 355 (2002) (holding that Illinois statute requiring HMOs to

      11
        The savings clause provides: “Except as provided in subparagraph (B),
nothing in this subchapter shall be construed to exempt or relieve any person from
any law of any State which regulates insurance, banking, or securities.” 29 U.S.C.
§ 1144(b)(2)(A). In Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329,
341-42 (2003), the Supreme Court refined the analysis for determining whether a
state law regulates insurance for purposes of ERISA’s savings clause. A state law
must satisfy two requirements to be deemed a law which regulates insurance: (1) it
“must be specifically directed toward entities engaged in insurance”; and (2) it “must
substantially affect the risk pooling arrangement between the insurer and the insured.”
Id.
      12
         The deemer clause provides: “Neither an employee benefit plan . . . nor any
trust established under such a plan, shall be deemed to be an insurance company or
other insurer, bank, trust company, or investment company or to be engaged in the
business of insurance or banking for purposes of any law of any State purporting to
regulate insurance companies, insurance contracts, banks, trust companies, or
investment companies.” 29 U.S.C. § 1144(b)(2)(B). As we noted above, although
the Supreme Court refined the savings-clause analysis in Miller, 538 U.S. at 341-42,
“[n]othing in Miller indicates a change in the Court’s deemer-clause analysis.”
Prudential Ins. Co. of Am. v. Nat’l Park Med. Ctr., Inc., Nos. 04-1465/1644, slip op.
at 24 (8th Cir. June 29, 2005).
                                          -8-
provide independent medical review of certain claim denials is saved from
preemption because the statute regulates insurance within the meaning of ERISA’s
savings clause); and Miller, 538 U.S. 329 (holding that two Kentucky any-willing-
provider laws are saved from preemption because they regulate insurance within the
meaning of ERISA’s savings clause). Relying on these cases, Daley argues that the
Nebraska mental-health parity law is “saved” from ERISA preemption. Ultimately,
Daley’s argument is fatally flawed because it ignores the significance of the deemer
clause in cases where self-funded ERISA plans are concerned. See Prudential Ins.
Co., Nos. 04-1465/1644, slip op. at 23 (“The movants’ argument here fails because
it ignores the application of the deemer clause to self-funded ERISA plans, a non-
issue in Miller, but the controlling issue in this case with regard to the [plaintiff’s
self-funded ERISA] plan.”).

       Whether the Nebraska mental-health parity law is saved from preemption is not
the determinative issue. Because the law “relates to” an ERISA employee benefit
plan, ERISA’s deemer clause exempts Marriott’s self-funded Plan from application
of Nebraska’s mental-health parity law. See FMC Corp., 498 U.S. at 61. In addition,
because of the deemer clause, the Nebraska mental-health parity law cannot regulate
the Plan indirectly through Empire. See Prudential Ins. Co., Nos. 04-1465/1644, slip
op. at 23 (“The Supreme Court has noted repeatedly that because of the deemer
clause, statutes that indirectly regulate self-funded ERISA plans are not saved from
preemption to the extent such statutes apply to self-funded plans.”).13 Accordingly,
we affirm the decision of the district court in Daley I.

      B.     Daley II

     We now turn to the issue of whether the doctrine of res judicata bars Daley II.
We review de novo a dismissal based on res judicata grounds. Lundquist v. Rice

      13
        The additional argument advanced by Daley that summary judgment should
not have been granted because an issue of fact exists as to whether Empire is a
fiduciary under ERISA is, therefore, irrelevant.
                                          -9-
Mem’l Hosp., 238 F.3d 975, 976 (8th Cir. 2001) (per curiam). “Under the doctrine
of res judicata, a judgment on the merits in a prior suit bars a second suit involving
the same parties or their privies based on the same cause of action.” Landscape
Properties, Inc. v. Whisenhunt, 127 F.3d 678, 682 (8th Cir. 1997) (quoting Parklane
Hosiery Co. v. Shore, 439 U.S. 322, 326 n.5 (1979)) (internal quotation omitted).
Daley argues that res judicata dismissal of Daley II was improper because the claims
asserted in Daley II are much broader than those in Daley I, and Marriott was not a
defendant in Daley I. We reject both arguments and affirm the district court’s
dismissal of Daley II.

             1.    Same Cause of Action

             For purposes of res judicata, the term “cause of action” has been given
a “more practical construction” than the “rather rigid and technical construction” it
was given at common law. Ruple v. City of Vermillion, 714 F.2d 860, 861 (8th Cir.
1983).14 Therefore, under the “same cause of action” element of the doctrine of res
judicata, “whether a second lawsuit is precluded turns on whether its claims arise out
of the ‘same nucleus of operative facts as the prior claim.’” Costner v. URS

      14
        In Ruple, the Court explained that at common law,

      if someone brought debt to recover possession of a specific thing, and
      the action was dismissed, a second action, this time in the form of
      detinue, would not be barred. The second case, it was said, was on a
      different “cause of action.” . . . It is now said, in general, that if a case
      arises out of the same nucleus of operative fact, or is based upon the
      same factual predicate, as a former action, that the two cases are really
      the same “claim” or “cause of action” for purposes of res judicata. Since
      the forms of action have been abolished, and joinder of claims and
      amendment of pleadings are liberally permitted in both federal and state
      courts, there is no reason to give a claimant more than one fair chance
      to present the substance of his or her case.

Ruple, 714 F.2d at 861.
                                          -10-
Consultants, Inc., 153 F.3d 667, 673 (8th Cir. 1998) (quoting United States v. Gurley,
43 F.3d 1188, 1195 (8th Cir. 1994)). “Thus we have said that ‘[i]n the final analysis
the test would seem to be whether the wrong for which redress is sought is the same
in both actions.’” Roach v. Teamsters Local Union No. 688, 595 F.2d 446, 449 (8th
Cir. 1979) (quoting Woodbury v. Porter, 158 F.2d 194, 195 (8th Cir. 1946)).

             Daley argues that her additional allegations in Daley II–subsequent
mental-health benefit denials under the Plan since the filing of Daley I and untimely
notices of those denials–are new causes of action which should not be barred by res
judicata. We reject this argument because it improperly relies on a rigid and technical
view of the term “cause of action.” Taking a more practical view, the two additional
allegations in Daley II are part of the “same nucleus of operative facts” as Daley I:
the Nebraska mental-health parity law, the plan-year limit on outpatient mental-health
visits under the Plan, and the Plan’s denial of Daley’s claims for mental-health
benefits in excess of the plan-year limit. Regardless of the number of claim denials
and whether Daley received timely notice of those denials, the wrong for which she
seeks redress–the denial of her claims based on the plan-year limit–is the same in
both Daley I and Daley II. Therefore, we conclude that Daley II is based on the same
cause of action as Daley I.

             2.     Privity

             Although we conclude that Daley I and Daley II are based on the same
cause of action, the doctrine of res judicata will not bar Daley II against a defendant
which was not a party to Daley I. Marriott, the only named defendant in Daley II,
was not a party to the Daley I lawsuit in which the Plan and Empire were the named
defendants. An exception exists, however, when a defendant stands in privity with
a defendant in the prior suit. Headley v. Bacon, 828 F.2d 1272, 1275 (8th Cir. 1987).

            Daley argues that the doctrine of res judicata does not bar Daley II
against Marriott because Marriott, a non-party to Daley I, does not stand in privity

                                         -11-
with Empire. Daley does not address the issue of whether Marriott, the Plan
administrator, is in privity with the Plan. She misses the point that in order for her
argument to succeed, Marriott must not be in privity with either defendant in Daley
I. Daley’s argument fails, therefore, because we conclude that Marriott stands in
privity with the Plan.

              Marriott and the Plan are in privity because they have “a close
relationship, bordering on near identity.” Gurley, 43 F.3d at 1197 (quoting Headley,
828 F.2d at 1276) (internal quotations omitted). We focus not on the nature of their
relationship in general, but on the identity of their interests in Daley I. Headley, 828
F.2d at 1277; see Ruple, 714 F.2d at 862.

              In Daley I, Marriott’s interests as the administrator of the Plan were
identical to the Plan’s interests. The Plan provides that the Plan administrator “is
responsible for all discretionary matters arising in the interpretation, operation, and
administration of the Plan.” In addition, the Plan’s summary plan description
designates Marriott’s General Counsel as the agent for service of legal process and
states that only the Plan administrator or its officially designated representatives are
authorized to speak for the Plan. Therefore, in Daley I, Marriott, in its capacity as the
Plan administrator, was the entity concerned with ensuring that Plan benefits be
provided in accordance with the terms of the Plan. In fact, had Daley somehow
prevailed in Daley I, Marriott, the Plan administrator, would have been obligated to
disburse benefits under the Plan accordingly. Therefore, we conclude that the Plan
and Marriott are in privity for purposes of res judicata.

             Accordingly, because Daley II involves the same parties or their privies
and is based on the same cause of action as Daley I, we affirm the district court’s
dismissal of Daley II on res judicata grounds.

                                          -12-
III.   CONCLUSION

      For the reasons discussed above, we affirm the district courts’ judgments in
Daley I and Daley II.
                      ______________________________

                                       -13-