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Blue Cross & Blue Shield of Mississippi v. Sharkey-Issaquena Community Hospital

United States District Court, S.D. Mississippi, Northern Division

December 13, 2017




         Defendants in this ERISA case ask the Court to dismiss Plaintiff Blue Cross & Blue Shield of Mississippi's (“BCBS”) state-law claims against them, arguing that ERISA preempts the claims and that the claims are insufficiently pleaded. Defendant Sharkey-Issaquena Community Hospital (“Sharkey-Issaquena” or the “Hospital”) also asks the Court to send Blue Cross's case against it to arbitration. The Court concludes that the state-law claims are not preempted, they are otherwise properly pleaded, and there is no arbitration agreement. Defendants' motions to dismiss [9, 18] and Sharkey-Issaquena's Motion to Compel Arbitration [20] are denied.

         I. Facts and Procedural History

         In January 1995, Plaintiff Blue Cross and Defendant Sharkey-Issaquena entered into a Participating Hospital Agreement (“the Contract”) under which Sharkey-Issaquena agreed to provide hospital services to individuals insured under Blue Cross-issued health-insurance plans. Under the Contract, Blue Cross agreed to pay for services rendered by Sharkey-Issaquena in accordance with a payment program attached to the Contract.

         Blue Cross alleges that, beginning in February 2017, Sharkey-Issaquena began submitting claims for payment for laboratory services that “were not ordered by a licensed physician or other licensed health professional who has appropriate staff privileges at” Sharkey-Issaquena and/or that “were not performed at” Sharkey-Issaquena. Compl. [1] ¶ 13. Blue Cross explains this theory more fully in its responsive memorandum:

Defendants used [Sharkey-Issaquena] as a vehicle to disguise fraudulent claims, which misrepresented that laboratory testing services were performed by and at the Hospital, when in truth, all testing services were performed by independent, non-network laboratories in San Antonio, Texas. Sun Clinical Laboratory, LLC, Mission Toxicology Management Company, L.L.C., Mission Toxicology, L.L.C., Mission Toxicology II, LLC, and John Does 1-10 (collectively the “Non-Hospital Defendants”) completed, or caused to be completed, the laboratory tests at issue for patients from around the country who had no contact at all with [Sharkey-Issaquena] or its physicians. Then, Defendants fraudulently submitted claims to Blue Cross, misrepresenting that the tests had been performed at the Hospital, by the Hospital, and for the Hospital's patients (“Misrepresented Claims”).

         Pl.'s Mem. [28] at 2 (citations omitted). By doing so, Blue Cross says

[t]he Defendants exploited the fact that Blue Cross has a network contract with [Sharkey-Issaquena] pursuant to which Blue Cross pays [it] significantly more for lab services provided at and by the Hospital than Blue Cross would normally pay for claims submitted directly by independent laboratories that are not part of Blue Cross's network, if Blue Cross would have been contractually required to pay at all.

Id. (citation omitted).

         On May 4, 2017, Blue Cross filed this lawsuit against Sharkey-Issaquena and four off-site laboratories (“the Laboratories”) it alleges performed the services for which Sharkey-Issaquena wrongfully submitted claims. It asserts a breach-of-contract claim against Sharkey-Issaquena; common-law fraud, civil-conspiracy, negligent-misrepresentation, and unjust-enrichment claims against the Laboratories; and claims for injunctive and declaratory relief under ERISA against all Defendants. The Laboratories and Sharkey-Issaquena filed motions to dismiss the state-law claims, and Sharkey-Issaquena also moved to compel arbitration. The matters raised in the motions have been well briefed, and the Court is prepared to rule.

         II. Analysis

         A. Motions to Dismiss

         Defendants raise five arguments in their motions to dismiss: (1) Blue Cross's state-law claims are preempted by ERISA, under either the conflict- or complete-preemption doctrine; (2) Blue Cross may not assert ERISA claims premised on its status as a fiduciary and personal-interest claims in the same lawsuit; (3) the state-law claims otherwise fail to state a claim under Rule 12(b)(6); (4) any self-funded plans for which Blue Cross provides administrative services are necessary parties whose absence requires dismissal under Rule 12(b)(7); and (5) Blue Cross lacks standing to pursue claims for damages on behalf of self-funded plans. The Court will address each argument in turn.

         1. Preemption

         Defendants say Blue Cross's state-law claims should be dismissed because ERISA preempts them. “[T]here are two types of preemption under ERISA. First, ERISA may occupy a particular field, resulting in complete preemption under § 502(a), 29 U.S.C. § 1132(a).” Giles v. NYLCare Health Plans, Inc., 172 F.3d 332, 336 (5th Cir. 1999). Second, conflict preemption exists when a state law “relates to” an employee benefit plan. 29 U.S.C. § 1144(a). Defendants assert both.

         a. Complete Preemption

         Where complete preemption occurs, a pleaded state-law claim “is considered, from its inception, a federal claim” for purposes of federal jurisdiction. Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987); accord Giles, 172 F.3d at 337 (explaining that complete preemption “transmogrif[ies] a state cause of action into a federal one”). Complete preemption is thus “jurisdictional in nature rather than an affirmative defense to a claim under state law.” Johnson v. Baylor Univ., 214 F.3d 630, 632 (5th Cir. 2000) (quoting Heimann v. Nat'l Elevator Indus. Pension Fund, 187 F.3d 493, 500 (5th Cir. 1999)).

         In this case, Defendants seek dismissal. They have not filed a motion asking the Court to convert the state-law claims to federal claims for purposes of federal-question jurisdiction. Nor do they dispute that federal jurisdiction exists. As such, “a complete preemption analysis is not necessary.” Hall v NewMarket Corp., 747 F.Supp.2d 711, 715 (S.D.Miss. 2017).[1]

         b. Conflict Preemption

         Conflict preemption is an affirmative defense to a state-law claim. Bank of La. v. Aetna U.S. Healthcare Inc., 468 F.3d 237, 242 (5th Cir. 2006). Conflict preemption under ERISA originates in § 514(a) of the statute:

Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title.

29 U.S.C. § 1144(a). “A law ‘relates to' an employee benefit plan, in the normal sense of the phrase, 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).

         Courts considering whether a state law “relates to” an ERISA plan must “look both to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive, as well as to the nature of the effect of the state law on ERISA plans.” Egelhoff v. Egelhoff, 532 U.S. 141, 147 (2001) (internal quotation marks and citations omitted). Those objectives are memorialized in 29 U.S.C. § 1001(b), which states that Congress's goals were to

protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

         Based on these objectives, the Fifth Circuit has adopted “a two-part test when a defendant argues that a claim is preempted by ERISA.” E.I. DuPont de Nemours & Co. v. Sawyer, 517 F.3d 785, 799-800 (5th Cir. 2008).

A defendant pleading preemption must prove that: (1) the claim “addresses an area of exclusive federal concern, such as the right to receive benefits under the terms of the Plan; and (2) the claim directly affects the relationship among traditional ERISA entities-the employer, the plan and its fiduciaries, and the participants and beneficiaries.”

Bank of La., 468 F.3d at 242 (quoting Mayeux v. La. Health Serv. and Indem. Co., 376 F.3d 420, 432 (5th Cir. 2004)). And “[b]ecause ERISA preemption is an affirmative defense, [Defendants] bear the burden of proof on both elements.” Id.

         Defendants have not directly addressed these elements. Instead, they offer generalized arguments based on the phrases “relate to” and “connection with.” See Shaw, 463 U.S. at 97. While the term “relate to” is ‘broadly worded” and “clearly expansive, ” it “cannot be taken to extend to the furthest stretch of its indeterminacy, or else for all practical purposes pre-emption would never run its course.” Egelhoff, 532 U.S. at 146 (internal quotation marks and citation omitted). So to, “connection with” must not be given “an uncritical literalism that would make pre-emption turn on infinite connections.” Id. at 147 (internal quotation marks and citation omitted); see Shaw, 463 U.S. at 97. Thus, “preemption does not occur if the state law has only a tenuous, remote, or peripheral connection with covered plans, as is the case with many laws of general applicability.” Martco P'ship v. Lincoln Nat. Life Ins. Co., 86 F.3d 459, 462 (5th Cir. 1996) (citation omitted and punctuation altered).

         With these balances in place, the Court turns to Defendants' arguments. Defendants begin by observing Blue Cross's averment that its state-law claims “are so related to the federal claims that they form part of the same case or controversy.” Defs.' Mem. [10] at 5; accord Def.'s Mem. [19] at 5. True enough, Blue Cross pleaded the standard for supplemental jurisdiction under 28 U.S.C. § 1367 in the jurisdictional section of the Complaint. See Compl. [1] ¶ 10. But Defendants have not provided any authority suggesting that the test for supplemental jurisdiction supplants the Fifth Circuit's test for conflict preemption under ERISA. And as discussed below, it is not uncommon for a plan administrator to bring ERISA claims on behalf of plan beneficiaries while also pursuing state-law claims for its own non-ERISA losses arising from the same case or controversy. See, e.g., Conn. Gen. Life Ins. Co. v. Advanced Surgery Ctr. Of Bethesda, LLC, No. 14-2376, 2015 WL 4394408 (D. Md. July 15, 2015).

         Defendants next say that Blue Cross's state-law claims “relate to” ERISA plans “because [they] are premised on the very existence of the employee benefit plans.” Defs.' Mem. [10] at 6; accord Def.'s Mem. [19] at 6. In other words, “if [Blue Cross] did not administer the benefit plans, it could not have brought state law causes of action against the Defendants.” Defs.' Mem. [10] at 6; accord Def.'s Mem. [19] at 6. Again, Defendants have not explained how this argument addresses either prong of the Fifth Circuit's test for conflict preemption.

         Moreover, the Fifth Circuit has rejected conflict preemption even when the disputed contract would not have existed but for an ERISA plan. In Bank of Louisiana, the plaintiff bank entered three contracts with defendant Aetna-an administrative-services contract, whereby Aetna administered the bank's self-insured employee benefit plan; a stop-loss insurance policy that paid certain benefit claims from the underlying ERISA plan; and an extension of the stop-loss policy. 468 F.3d at 239-40. The bank sued Aetna, claiming that it breached the stop-loss extension by improperly delaying the processing and payment of benefit claims and by failing to honor other provisions of the stop-loss agreement. Id. at 240. Applying the first element of the conflict-preemption defense, the Fifth Circuit concluded that any alleged breach of the stop-loss agreement related to Aetna's processing of the benefit claims would touch an area of exclusive federal concern and was therefore preempted. Id.; see also Id. at 244 n.13. But other claims- like failing to reimburse the bank for amounts paid under the plan during the relevant time-did “not challenge any act or omission by Aetna in processing benefit claims or administering the Plan; rather, they call into question . . . the scope of the stop-loss extension.” Id. at 243. So even though the stop-loss extension existed because of the ERISA plan, certain claims did not “relate to” that plan.

         Likewise, other courts have rejected similar arguments that preemption exists when an ERISA plan forms the basis of the relationship between the plaintiff and the defendant. See, e.g., Conn. Gen. Life Ins. Co., 2015 WL 4394408, at *17 (finding that insurer's fraud-based claims for billing malfeasance did not “relate to” ERISA plans); Aetna Life Ins. Co. v. Huntington Valley Surgery Ctr., No. 2:13-CVv-3101, 2014 WL 4116963, at *6-7 (E.D. Penn. Aug. 20, 2014) (holding that carrier's billing-fraud claims were not conflict preempted despite existence of underlying ERISA plans); Ass'n of N.J. Chiropractors v. Aetna, Inc., No. 09-3761, 2012 WL 1638166, at *6 (D.N.J. May 8, 2012) (holding that “a number of cases . . . have held that ERISA does not completely preempt claims brought by an insurer who sues a provider for fraudulent or negligent misbilling”) (collecting cases). Like the carriers in these cases, Blue Cross's state-law claims are not based on the underlying ERISA plans.

         In reply, Defendants take a slightly different approach, arguing that they “cannot defend against [Blue Cross]'s state law claims without a review of ERISA-governed plan provisions.” Defs.' Reply [16] at 7. That argument would have sway if the state-law claims have “a connection with or reference to such a plan.” Shaw, 463 U.S. at 97. But beyond their conclusory arguments, Defendants have not shown how the ERISA plans are relevant to Blue Cross's state-law claims. In fact, none of the underlying ERISA plans appear in this record. See, e.g., Aetna Life Ins. Co., 2014 WL 4116963, at *6 (holding that preemption argument was premature because defendant had not yet reviewed the ERISA plans). And again, Defendants have not adequately addressed their burden under the Fifth Circuit's two-element test.

         Finally, Defendants argue that Blue Cross incorporates by reference the allegations regarding breaches of ERISA plans into its state-law counts. See, e.g., Def.'s Reply [31] at 2. Blue Cross does employ this standard pleading technique in its Complaint. But the alleged state-law breaches relate to the Contract and common law, and, as stated above, Defendants have not met their burden of showing that those claims relate to an ERISA plan. That observation remains true even though the Contract itself incorporates the various ERISA plans. See Bank of La., 468 F.3d at 242-44 (finding no conflict preemption where defendant insurer allegedly breached stop-loss insurance contract that covered certain claims from employee-benefit plan).

         Turning then to the actual test, the Court concludes that Defendants failed to show Blue Cross's state-law claims are preempted. To begin, the state-law claims for breach of contract, fraud, civil conspiracy, negligent misrepresentation, and unjust enrichment do not address areas of exclusive federal concern such as the right to receive benefits under the terms of the Plan. Instead, they are based on duties the parties owed each other under the Contract (Sharkey-Issaquena) or state law (the Laboratories). See, e.g., Bank of La., 468 F.3d at 243 (finding preemption for benefits-related-claims-handling decisions but no preemption for claims based on disputes over stop-loss coverage).

         As for the second element-whether the claims directly affect the relationship among traditional ERISA entities-“the critical distinction is not whether the parties to a claim are traditional ERISA entities in some capacity, but instead whether the relevant state law affects an aspect of the relationship that is comprehensively regulated by ERISA.” Id. To this end, “the critical determination is whether the claim itself created a relationship between the plaintiff and defendant that is so intertwined with an ERISA plan that it cannot be separated.” Id. (internal quotation marks and citation omitted).

         Bank of Louisiana is again instructive. There, the Fifth Circuit concluded that the first breach-of-contract claim regarding Aetna's claims-handling decisions was preempted because it related to Aetna's role as an ERISA fiduciary. Id. at 242. But other breach-of-contract claims- like those disputing whether the stop-loss extension covered claims during a certain time period-were not related to Aetna's fiduciary duties and were only tangentially related to the ERISA plan. Id. at 243-44. ...

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