Transitional Hospitals Corp. v. Blue Cross & Blue Shield of Texas, Inc. , 164 F.3d 952 ( 1999 )

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.
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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
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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
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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
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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).
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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 . . . .
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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.
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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.
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