Dialysis Newco, Incorporated v. Commty Hlth Sys Tr ( 2019 )

Case: 18-40863 Document: 00515113959 Page: 1 Date Filed: 09/11/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 11, 2019
No. 18-40863
Lyle W. Cayce
Clerk
DIALYSIS NEWCO, INC., doing business as DSI Laredo Dialysis,
Plaintiff – Appellee,
v.
COMMUNITY HEALTH SYSTEMS GROUP HEALTH PLAN; COMMUNITY
HEALTH SYSTEMS, INC.; MEDPARTNERS ADMINISTRATIVE
SERVICES, L.L.C.,
Defendants – Appellants.
Appeals from the United States District Court
for the Southern District of Texas
Before ELROD, GRAVES, and OLDHAM, Circuit Judges.
JENNIFER WALKER ELROD, Circuit Judge:
This case involves a three-way dispute between an ERISA plan and its
administrator, a third-party processor, and a healthcare provider. At its core,
this is a contract dispute over whether the administrator and the third-party
processer underpaid the provider for hemodialysis treatments received by an
employee of the administrator. The district court determined that the provider
had standing to bring this lawsuit because an anti-assignment provision in the
plan was ambiguous or, in the alternative, because the anti-assignment
provision was rendered unenforceable by a Tennessee statute. Holding that
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the plan’s anti-assignment provision is not ambiguous and that the Tennessee
statute is preempted by ERISA, we REVERSE, VACATE, and RENDER.
I.
The Employee Retirement Income Security Act of 1974 (ERISA) 1 is “[a]n
ambitious statutory scheme” that is “designed ‘to protect the interests of
participants in employee benefit plans and their beneficiaries’ by (1) ‘requiring
the disclosure and reporting to participants and beneficiaries’; (2) ‘establishing
standards of conduct, responsibility, and obligation for fiduciaries of employee
benefit plans’; and (3) ‘providing for appropriate remedies, sanctions, and
ready access to the Federal courts.’” Tolbert v. RBC Capital Mkts. Corp., 758
F.3d 619, 621 (5th Cir. 2014) (alteration omitted) (quoting 29 U.S.C. § 1001(b)).
Community Health Systems, Inc. is the administrator of an employee
health plan governed by ERISA. The plan gives the administrator authority
to construe any disputed or ambiguous terms. The administrator delegated
the processing of medical claims received under the plan to MedPartners
Administrative Services, L.L.C., a third-party processor. MedPartners’s
responsibilities included making initial benefit determinations and handling
first-level appeals; the administrator had authority over second-level appeals
and retained “final discretionary authority” to determine benefits eligibility.
MedPartners, in turn, subcontracted with Global Excel Management, Inc., for
processing claims.
The administrator employed an individual referred to in the briefings as
“H.S.” In 2012, H.S. began receiving hemodialysis from Dialysis Newco, Inc.,
a healthcare provider located in Laredo, Texas, that was out-of-network for the
plan. The plan stated that medical benefits “must not exceed the Usual and
1 Pub. L. No. 93-406, 88 Stat. 829 (codified as amended at 29 U.S.C. § 1001 et seq.).
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Customary Charges.” Usual and Customary Charges were defined by the plan
as follows:
Usual and Customary Charge. Usual Charge means the
amount ordinarily charged by a Provider for any given service, and
Customary Charge means a charge that falls within the range of
the Usual Charges for any given service within the geographic area
in which the service is rendered.
On the first day of his treatment, H.S. executed a document styled as an
“Assignment of Benefits,” which gave the provider the right to submit claims
and receive benefits on his behalf. For the first three months, the provider was
paid 100% of its billed amount. However, starting with treatment given in
December 2012, MedPartners and Global Excel changed course and
determined that the Usual and Customary Charge was capped at 200% of what
Medicare paid. At issue in this case is payment for more than 100 dialysis
treatments provided to H.S. between December 2012 and November 2013. Of
the $844,472.02 billed by the provider for those treatments, the administrator
paid $68,278.48 (roughly 8%), leaving a balance of $776,193.54.
The provider submitted first-level appeals contesting that it had been
underpaid, and Global Excel, with MedPartner’s approval, denied those
appeals. Notwithstanding the language of the plan, a denial letter sent to the
provider stated that “the ‘customary’ charge is what providers typically accept
as payment from all payors, which is on average 200% of the US ESRD
Medicare allowable.” In March 2014, the provider filed a second-level appeal
with the administrator, but the administrator never responded. In November
2015, H.S. executed a second document styled as an “Assignment of Benefits,”
which gave the provider the right to pursue any legal claims arising out of the
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medical services it provided. Four days later, the provider brought this lawsuit
under ERISA, seeking payment of the $776,193.54 balance. 2
In the district court, the appellants responded by arguing that the
provider lacked standing to bring the lawsuit because the plan contained an
anti-assignment provision. However, the district court determined that the
anti-assignment provision was unenforceable for two independent reasons.
First, the district court concluded that the language of the anti-assignment
provision was ambiguous and, as such, it would be construed against the plan.
Second, the district court concluded that even if the anti-assignment provision
was not ambiguous, the plan’s choice of law provision invoked the laws of
Tennessee, and a Tennessee statute invalidated any language in the plan that
would prohibit assignment to a healthcare provider. The district court rejected
the appellants’ argument that the Tennessee statute would itself be preempted
by ERISA. Having determined that the provider had standing to sue, the
district court found that the appellants had abused their discretion by reading
a 200%-of-what-Medicare-pays rule into the plan and remanded the claims
back to the administrator to determine whether the provider’s charges were
“usual and customary” as that term is defined by the plan.
The district court denied the appellants’ motion to certify an
interlocutory appeal on the question of the provider’s standing. Thereafter,
prior to the standing question reaching us on appeal, the district court
rendered judgment on a wide host of other issues that the parties also now
contest before us on appeal, including: questions of administrative exhaustion;
questions of whether the 200%-of-what-Medicare-pays rule was a permissible
reading; questions of whether the district court’s subsequent interpretations of
the plan were supported by the administrative record; and questions of joint
2 The beneficiary of the plan, H.S., is not himself a party to this lawsuit.
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and several liability. Because we hold that the district court erred in its
determination that the provider had standing to bring the lawsuit in the first
place, we reverse, vacate, and render on that ground without reaching any of
the other issues that were argued on appeal.
II.
We review a district court’s grant of summary judgment in ERISA cases
de novo, applying the same standards as the district court. Humana Health
Plan, Inc. v. Nguyen, 785 F.3d 1023, 1026 (5th Cir. 2015). Summary judgment
is appropriate “if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a).
III.
ERISA does not supply the provider with a basis for bringing its claim
directly against the appellants; instead, the provider’s standing to bring this
lawsuit must be derived from the beneficiary and it is subject to any
restrictions contained in the plan. If the provider lacks standing to bring the
lawsuit due to a valid and enforceable anti-assignment clause, then federal
courts lack jurisdiction to hear the case. See LeTourneau Lifelike Orthotics &
Prosthetics, Inc. v. Wal-Mart Stores, Inc., 298 F.3d 348, 353 (5th Cir. 2002).
As such, we address two issues related to the provider’s standing argued
by the parties on appeal. First, we address whether the district court erred by
determining that the plan’s anti-assignment clause is ambiguous and invalid.
And second, we address whether the district court erred by determining, in the
alternative, that even if the plan’s anti-assignment clause is unambiguous it is
rendered unenforceable by Tennessee law. 3
3 Before the district court, the appellants also argued that the “Assignment of
Benefits” executed by H.S. were insufficient to give the provider standing to sue for unpaid
benefits. The appellants do not raise that contention on appeal; however, as it goes to
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A.
We first address whether the district court erred by determining that the
plan’s anti-assignment clause is ambiguous and invalid.
We have previously noted “Congress’s intent that employers remain free
to create, modify and terminate the terms and conditions of employee benefits
plans without governmental interference.” LeTourneau, 298 F.3d at 352
(citation omitted). As such, we have held that when an ERISA plan contains
a valid anti-assignment provision, a putative assignment to a healthcare
provider is invalid and cannot bestow the provider with standing to sue under
the plan. Id. at 352–53.
When interpreting an ERISA plan, the provisions are read “not in
isolation, but as a whole.” Dallas Cty. Hosp. Dist. v. Assocs.’ Health and
Welfare Plan, 293 F.3d 282, 288 (5th Cir. 2002). The provisions are to be read
according to their plain meaning and as they are likely to be “understood by
the average plan participant.” Walker v. Wal-Mart Stores, Inc., 159 F.3d 938,
940 (5th Cir. 1998) (quoting 29 U.S.C. § 1022(a)(1)).
“When an ERISA plan lawfully delegates discretionary authority to the
plan administrator, a court reviewing the denial of a claim is limited to
assessing whether the administrator abused that discretion.” Ariana M. v.
Humana Health Plan of Tex., Inc., 884 F.3d 246, 247 (5th Cir. 2018) (en banc)
(citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)).
Accordingly, we have generally held that where, as here, a plan delegates
authority to construe ambiguous terms to the administrator, courts will defer
standing, we will address it briefly. We have squarely held—at least in the absence of an
enforceable anti-assignment provision—that a direct-payment authorization may give a
provider derivative standing to sue for unpaid benefits. See, e.g., Tango Transp. v. Healthcare
Fin. Servs., L.L.C., 322 F.3d 888, 889–94 (5th Cir. 2003). Thus, the district court correctly
determined that the “Assignment of Benefits” executed by H.S. could have given the provider
derivative standing in the absence of an enforceable anti-assignment provision.
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to the administrator’s “interpretive discretion” of those ambiguous terms. See
Porter v. Lowe’s Co., Inc.’s Bus. Travel Acc. Ins. Plan, 731 F.3d 360, 365 n.13 (5th Cir.
2013); Smith v. Life Ins. Co. of N. Am., 459 F. App’x 480, 484 (5th Cir. 2012)
(unpublished) (quoting High v. E–Systems, Inc., 459 F.3d 573, 578–79 (5th Cir.
2006)). 4 However, we have also held in broad terms that when construing an
anti-assignment clause, “any ambiguities will be resolved against the [p]lan.”
See Dallas Cty., 293 F.3d at 288 (5th Cir. 2002) (citing McCall v. Burlington
Northern/Santa Fe Co., 237 F.3d 506, 512 (5th Cir. 2000)).
Although the parties to this case did not offer any structured arguments
disputing the district court’s determination that ambiguities in the anti-
assignment clause should be construed against the plan, we have in the past
noted that there is potentially some tension in our caselaw regarding when and how
ambiguities in an ERISA plan will be construed against the plan. 5 We need not
address here if ambiguity in an ERISA plan’s anti-assignment clause should be
construed against the plan, because we hold that the anti-assignment clause at issue
in this case unambiguously prohibits assignment.
“Federal common law governs the interpretation of all ERISA-regulated
plan provisions.” Ramirez v. United of Omaha Life Ins. Co., 872 F.3d 721, 725
4 See also Fleisher v. Standard Ins. Co., 679 F.3d 116, 124 (3rd Cir. 2012) (“[E]very
Court of Appeals to have addressed the issue has concluded that a court reviewing a benefits
decision for abuse of discretion cannot apply the principle that ambiguous plan terms are
construed against the party that drafted the plan.” (citing the First, Second, Fourth, Sixth,
Seventh, Ninth, Tenth, and Eleventh Circuits)); cf. Ramirez v. United of Omaha Life Ins. Co.,
872 F.3d 721, 725 (5th Cir. 2017) (stating that “[i]f the [ERISA] policy language is ambiguous,
then the court should construe the policy against the drafter . . . under the rule of contra
proferentem”).
5See Rhorer v. Raytheon Eng’rs & Const’rs, Inc., 181 F.3d 634, 642 (5th Cir. 1999),
abrogated on other grounds by CIGNA Corp. v. Amara, 563 U.S. 421 (2011) (“[O]ther circuits
have held that contra proferentem does not apply when the plan administrator has expressly
been given discretion to interpret the plan. . . . But . . . this Court uses a unique two-step
approach to apply the abuse of discretion standard, and contra proferentem may properly be
used under the first step.”); see also Spacek v. Maritime Ass’n, 134 F.3d 283, 298 n.14 (5th
Cir. 1998), abrogated on other grounds by Cent. Laborers’ Pension Fund v. Heinz, 541 U.S.
739 (2004).
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(5th Cir. 2017). We may consider analogous state law as a guide when
determining the applicable federal common law. See Wegner v. Standard Ins.
Co., 129 F.3d 814, 818 (5th Cir. 1997). The ERISA plan at issue invokes the
laws of Tennessee, and under analogous Tennessee law “[a] contract is
ambiguous only when it . . . may fairly be understood in more ways than one[,]”
but “[a]mbiguity . . . does not arise . . . merely because the parties may differ
as to interpretations of certain . . . provisions[,] . . . [and] court[s] will not use
a strained construction of the language to find an ambiguity where none
exists.” Maggart v. Almany Realtors, Inc., 259 S.W.3d 700, 704 (Tenn. 2008)
(citation omitted); accord Ramirez, 872 F.3d at 727–28 (looking to very similar
Texas law as a guide for determining whether an ERISA plan was ambiguous).
The anti-assignment clause at issue here is reproduced in its entirety
below, with annotations added to number each sentence:
Assignment
[1] No Covered Person shall have the right to assign, alienate,
transfer, sell, hypothecate, mortgage, encumber, pledge, commute,
or anticipate any benefit payment under the Plan to a third party,
and such payment shall not be subject to any legal process to levy
execution upon or attachment or garnishment proceedings against
for the payment of any claims. [2] Benefit payments under the
Plan may not be assigned, transferred, or in any way made over to
another party by a Covered Person. [3] Nothing contained in this
Plan shall be construed to make the Plan or the Plan Sponsor liable
to any third party to whom a Covered Person may be liable for
medical care, treatment, or services. [4] If authorized in writing by
a Covered Person, the Plan Administrator may pay a benefit
directly to a provider of medical care, treatment, or services
instead of the Covered Person as a convenience to the Covered
Person; when this is done, all of the Plan’s obligation to the
Covered Person with respect to such benefit shall be discharged by
such payment. [5] However, the Plan reserves the right to not
honor any assignment to any third party, including but not limited
to, any provider. [6] The foregoing does not preclude any
assignment of payment to Medicaid to the extent required by law.
[7] The Plan will not honor claims for benefits brought by a third-
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party; such third-party shall not have standing to bring any such
claim either independently, as a Covered Person or beneficiary, or
derivatively, as an assignee of a Covered Person or beneficiary.
The parties contend that our analysis of that clause should be guided by
two of our prior ERISA decisions. The appellants contend that our analysis
should be guided by our decision in LeTourneau, which deemed a similarly-
worded anti-assignment clause to be valid and enforceable. 298 F.3d at 349,
353. The appellee contends that our analysis should instead be guided by our
decision in Dallas County, which deemed an anti-assignment clause to be
ambiguous and invalid because another part of the plan expressly authorized
assignments. 293 F.3d at 287, 289. The district court concluded that this case
was more like Dallas County. We disagree.
In LeTourneau, a healthcare provider with direct-payment authorization
from the beneficiary sued a plan administrator for expenses related to a
prosthetic leg, which the administrator declined to pay on the basis that the
expenses were not covered services under the plan. 298 F.3d at 349–50. Like
the plan at issue in this case, the plan in LeTourneau had very clear language
that the benefits could not be assigned, id. at 349 (“Medical coverage benefits
of this Plan may not be assigned, transferred or in any way made over to
another party by a participant.”), and that any purported assignments would
not be honored, id. (“Except as permitted by the Plan or as required by state
Medicaid law, no attempted assignments of benefits will be recognized by the
Plan.”). Also like the plan at issue in this case, the plan at issue in LeTourneau
allowed the administrator to directly pay the healthcare provider for covered
services if authorized in writing by the beneficiary. Id. at 349 n.2. Given that
language, we stated: “[a]pplying universally recognized canons of contract
interpretation to the plain wording of the instant anti-assignment clause leads
inexorably to the conclusion that any purported assignment of benefits from
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[the beneficiary] to [the provider] would be void.” Id. at 352. Accordingly, we
reversed and vacated the district court’s judgment, holding: “[b]ecause [the
provider] had neither direct nor derivative standing to bring this suit, the
district court lacked jurisdiction to hear it.” Id. at 353.
Here, the district court’s order conceded that at first glance LeTourneau
appears to support the appellants’ position. Nonetheless, the district court’s
order attempted to distinguish LeTourneau on the ground that that case dealt
with the scope of coverage and not with whether the anti-assignment provision
was ambiguous. We do not think that distinction can bear the weight that the
district court’s order places on it. While it is true that the dispute in
LeTourneau was over whether the services were covered expenses, that case
held that the provider lacked standing to challenge the scope of such coverage
precisely because of the anti-assignment provision. Id. Indeed, in LeTourneau
we expressly declined to consider any of the district court’s findings vis-à-vis
the scope of coverage. Id. Thus, LeTourneau supports the appellant’s
argument that an anti-assignment clause with language like the one at issue
in this case is unambiguous and valid.
In reading LeTourneau to the contrary, the district court’s order quotes
that opinion as stating: “[T]he contents of the entry form signed by [the
participant] . . . did effectively assign to [LeTourneau] her right to receive
payments for duly covered claims.” See 298 F.3d at 352. The district court’s
order suggests that this language means that had the service in question been
covered by the plan, the provider would have been entitled to repayment.
However, the portion of LeTourneau omitted by the ellipsis reads as follows:
“although ineffective to assign her other contractual or statutory rights under
ERISA[.]” Id. When taken as a whole, we believe the better reading of that
sentence is that even though the provider could have received payment for
covered services notwithstanding the anti-assignment clause, the anti-
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assignment clause prohibited it from exercising any right to go to court to
challenge the administrator’s interpretation of “covered services.” It is hard to
see why that same logic would not in this case also prohibit a provider from
going to court to challenge the administrator’s interpretation of “usual and
customary charges.” After all, whether or not the service was covered was the
point of dispute in LeTourneau, but we held that the provider lacked standing
to bring that challenge. 6
Turning next to Dallas County, we disagree with the district court
order’s conclusion that that case is controlling here. Like this case, the plan at
issue in Dallas County “contain[ed] sweeping language forbidding the
assignment of benefits.” 293 F.3d at 288. However, unlike this case, the plan
at issue in Dallas County contained a separate provision—the “Network
Assignment” clause—which authorized making assignments to healthcare
providers “[i]n the clearest of terms.” Id. Given that language, we held that
the Network Assignment clause “plainly” allowed for assignments, that any
ambiguity in relation to the anti-assignment clause was construed against the
plan, and that the provider therefore had standing to sue for the allegedly
unpaid benefits. Id. at 288–89.
In this case, the district court’s order concluded that Dallas County
controlled because the sentence in the anti-assignment clause of the plan that
authorized direct-payment authorizations (sentence 4), was found to be in
6 The district court and the appellees assert that a footnote from our opinion in Harris
Methodist Fort Worth v. Sales Support Services, Inc., 426 F.3d 330, 336 n.4 (5th Cir. 2005),
construed LeTourneau differently. Without commenting on whether the Harris Methodist
footnote actually supports the proposition that the district court and appellees cite it for, we
note that the holding of LeTourneau was that the provider lacked standing to challenge the
plan’s scope of coverage. LeTourneau, 298 F.3d at 353. To the extent that a footnote in Harris
Methodist can be construed as saying that LeTourneau held anything to the contrary, our
circuit’s Rule of Orderliness dictates that the earlier opinion would control over a later
mischaracterization of that opinion. See, e.g., Harvey v. Blake, 913 F.2d 226, 228 n.2 (5th
Cir. 1990) (“When two panel opinions appear in conflict, it is the earlier which controls.”).
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conflict with the rest of the sentences in that clause, which prohibited
assignment. However, to the extent that the district court’s order understood
Dallas County as holding that a clear direct-payment authorization and a clear
anti-assignment provision were in conflict, the district court’s order was
mistaken. The textual conflict in Dallas County was not between the sentence
permitting direct payment authorizations and the sentences prohibiting
assignment; the conflict there was between the sentence allowing assignment
and the sentences prohibiting assignment. Indeed, Dallas County suggested
that the result might have been different if the Network Assignment clause in
that case had permitted direct-payment authorizations rather than
assignments. Id. at 288 (“Despite the Plan’s assertion that the provision
merely authorizes direct payment to network provisions, we find that the Plan
clearly speaks in terms of assignment[.]”).
In short, the district court order’s ambiguity analysis erred by failing to
see the degree of distinction between a direct-payment authorization and a full-
on assignment of benefits. A direct-payment authorization means only that
the beneficiary tells the administrator to forward the checks owed to him or
her on to the provider instead. An assignment of benefits is more than that.
An assignment means that the provider has stepped into the metaphorical
shoes of the beneficiary and is capable of exercising all the legal rights enjoyed
by the beneficiary under the plan, to include suing the plan and/or its
administrator over disputes that might arise in the plan’s interpretation. As
the Seventh Circuit has observed, an “assignment” is “distinct from merely an
authorization for direct payment.” Principal Mut. Life Ins. Co. v. Charter
Barclay Hosp., Inc., 81 F.3d 53, 56 (7th Cir. 1996) (Posner, C.J.). Accord, e.g.,
Univ. Spine Ctr. v. Aetna, Inc., No. 18-2842, 2019 WL 2149590, at *2 (3rd Cir.
May 16, 2019) (unpublished); Spinedex Physical Therapy USA Inc. v. United
Healthcare of Ariz., Inc., 770 F.3d 1282, 1296 (9th Cir. 2014); Physicians
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Multispecialty Grp. v. Health Care Plan of Horton Homes, Inc., 371 F.3d 1291,
1295–96 (11th Cir. 2004). Thus, a direct-payment authorization and a
prohibition against the assignment of benefits are distinct concepts, and they
can exist side-by-side without being in conflict or causing ambiguity.
Appellees cite Hermann Hosp. v. MEBA Med. & Benefits Plan, 959 F.2d
569, 573 (5th Cir. 1992), overruled by Access Mediquip, L.L.C. v.
UnitedHealthcare Ins. Co., 698 F.3d 229 (5th Cir. 2012), for the proposition
that the right to receive direct payment necessarily includes the right to sue
for non-payment. This statement is incorrect as a matter of law and Hermann
is inapposite as a matter of fact.
As a matter of law, the Hermann court explained that the “right to sue
for denial of coverage is separate and distinct from the right to sue to recover
payment for plan benefits[.]” Hermann, 959 F.2d at 573. As a matter of fact,
the dialysis patient in this case executed an “Assignment of Benefits” that
authorized DSI only to submit claims on his behalf and allowed C.H.S. to make
direct payments to DSI (a direct-payment authorization). In Hermann, the
“document expressly assigned to [the provider] ‘all rights, title and interest in
the benefits payable for services rendered’ while reserving to [the patient] only
the right to sue ‘should coverage be denied.’” Id. Second, DSI filed this lawsuit
just four days after H.S. signed a second “Assignment of Benefits” which
assigned H.S.’s rights to medical benefits and reimbursement and authorized
DSI to bring suit against a plan or administrator in H.S.’s name with
derivative standing. In Hermann, the benefits plan postponed payments on
Hermann’s claims for three years while it investigated the claim. Id. at 574.
Accordingly, the court held that the plan was estopped from asserting the anti-
assignment clause. Id. We reiterate the right to receive direct payment is
separate from the right to sue for those payments.
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Appellee offers a slightly more nuanced argument for why Dallas County
should guide this case. Appellee observes that in at least two places the
language of the plan at issue in this case appears to acknowledge that
assignments might be made. First, the fifth sentence of the anti-assignment
clause states: “the Plan reserves the right to not honor any assignment to any
third party[.]” Second, a separate provision of the plan, in discussing the
administrator’s ability to recover payments previously made, states: “You must
produce and deliver to the Plan Administrator all assignments and other
documents as requested by the Plan Administrator for the purpose of enforcing
rights under this provision[.]” However, the language of the plan here is
distinguishable from the language at issue in Dallas County in a very
important way. In Dallas County, the plan expressly stated, “[i]n the clearest
of terms,” that “assignment may be made directly to the provider.” 293 F.3d
at 288. In this case, the most that can be said is that the Plan might agree to
pay a third-party provider as a convenience to the Covered Person. But it no
event (1) is the Plan obligated to do that, or (2) is the Plan liable to the third-
party provider.
Thus, we conclude that LeTourneau provides a better framework than
does Dallas County for analyzing the ambiguity (or lack thereof) of the anti-
assignment language at issue in this case. Moreover, even without resorting
to those cases, we believe that the plan’s plain language, as it would be
understood by an average plan participant, unambiguously prohibits the
assignment of a beneficiary’s legal rights. The anti-assignment clause at issue
here articulates that the assignment of legal rights is prohibited in no less than
five different ways (see sentences 1, 2, 3, 5, and 7). An average plan participant
would understand that language to mean exactly what is says: “Nothing
contained in this Plan shall be construed to make the Plan or the Plan Sponsor
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liable to any third party to whom a Covered Person may be liable for medical
care[.]”
We hold that the plan’s anti-assignment clause unambiguously prohibits
the beneficiary from assigning his or her right to sue under the plan to a third-
party provider. Therefore, if the anti-assignment clause is enforceable, the
provider lacked standing to bring the suit, and the district court lacked
jurisdiction to adjudicate it. See LeTourneau, 298 F.3d at 353.
B.
We will now address whether the plan’s anti-assignment clause is
rendered unenforceable by a Tennessee statute.
The plan’s choice-of-law provision invokes the laws of Tennessee. Tenn.
Code Ann. § 56-7-120(a) (2012) 7 states:
Notwithstanding any law, rule, or regulation to the contrary,
whenever any policy of insurance issued in this state provides for
coverage of health care rendered by a provider covered under title
63, the insured or other persons entitled to benefits under the
policy shall be entitled to assign these benefits to the healthcare
provider and such rights must be stated clearly in the policy. 8
However, subject to certain exemptions, 9 ERISA preempts “any and all
State laws insofar as they may now or hereafter relate to any employee benefit
plan[.]” 29 U.S.C. § 1144(a) (emphases added). Because ERISA preempts any
7The language of § 56-7-120 has since been modified in ways that do not impact the
outcome of this case. See 2019 Tenn. Pub. Acts, Ch. 239, § 1 (eff. Apr. 30, 2019).
8 Before the district court, the parties disputed whether the plan’s choice of law
provision was enforceable, and, if it was, whether Tenn. Code Ann. § 56-7-120(a)(1) (2012)
was applicable. However, the parties do not raise these arguments on appeal.
9 29 U.S.C. § 1144(a) cross-references to 29 U.S.C. § 1003(b) for a list of employee
benefits plans exempt from preemption (including government plans, church plans,
workmen’s compensation plans, foreign plans, and unfunded excess benefits plans). Section
1144(b)(2)(A) exempts from preemption state laws regulating insurance, banking, and
securities. No party offers a structured argument on appeal that the ERISA plan or the
Tennessee statute at issue would fall under any such exemptions.
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state law that “may . . . relate to” employee benefit plans, the Supreme Court
has noted that ERISA’s preemption clause has a “broad scope.” See Gobeille v.
Liberty Mut. Ins. Co., 136 S. Ct. 936, 943, 945 (2016) (holding that a Vermont
statute imposing reporting requirements on ERISA plans was preempted
because “[d]iffering, or even parallel, regulations from multiple jurisdictions
could create wasteful administrative costs and threaten to subject plans to
wide-ranging liability”).
There are two categories of state laws preempted by ERISA. First, there
is the “reference to” category, wherein “a State’s law acts immediately and
exclusively upon ERISA plans or where the existence of ERISA plans is
essential to the [state] law’s operation[.]” Id. at 943 (citation and ellipses
omitted). Second, there is the “connection with” category, wherein a state law
“governs a central matter of plan administration or interferes with nationally
uniform plan administration.” Id. (citation, quotation marks, and ellipses
omitted).
The district court’s order concluded that Tenn. Code Ann. § 56-7-120(a)
was not preempted by ERISA by relying on our decision in La. Health Serv. &
Indem. Co. v. Rapides Healthcare Sys., 461 F.3d 529 (5th Cir. 2006). Rapides
held that a Louisiana statute which required insurance companies to honor
direct-payment authorizations was not preempted by ERISA. Id. at 530–31,
541. Rapides reasoned that the Louisiana statute did not impermissibly
interfere with nationally uniform plan administration because: (1) it did not
create any new obligations, it merely changed who the benefits flowed to; and
(2) the burden on plan administrators would be minimal because healthcare
providers would likely be more efficient in processing claims than would be the
average plan participant. Id. at 539. The district court concluded that for
similar reasons Rapides was controlling in this case. The district court further
concluded that the Supreme Court’s then-recent decision in Gobeille did not
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impact the preemption analysis for this case because the text of ERISA is silent
on assignments (unlike reporting requirements) and because the Tennessee
statute purportedly does not expose plans to additional liability.
The question of whether Tenn. Code Ann. § 56-7-120(a) is preempted by
ERISA appears to be one of first impression, as the parties do not identify any
other judicial opinions addressing the question. However, simply as a matter
of plain and ordinary meaning, it seems to us that a state statute requiring
plan administrators to honor assignments made to third-party healthcare
providers would necessarily “relate to” the administration of those plans. As
such, and for the following reasons, we hold that that Tenn. Code Ann. § 56-7-
120(a) is preempted by ERISA, and that the district court erred in reaching a
determination to the contrary.
We begin by addressing the district court order’s conclusion that our
opinion in Rapides is controlling for this case. We disagree. As the appellants
and amici observe, Rapides is distinguishable from this case in important
ways. As discussed in the previous section of this opinion, a direct-payment
authorization and an assignment of the legal right to bring a lawsuit are
distinct concepts. The Louisiana statute at issue in Rapides required
administrators to honor direct-payment authorizations; however, the
Tennessee statute at issue in this case requires administrators to honor
assignments and all the legal rights that flow therefrom—to include liability
to be sued by a third party not otherwise in contractual privity with the plan.
Moreover, the Louisiana statute at issue in Rapides did not purport to require
that plans include specific language, whereas the Tennessee statute does. See
Tenn. Code Ann. § 56-7-120(a) (2012) (requiring that the right of assignment
must be “stated clearly in the policy”); see also Operating Eng’rs Health &
Welfare Tr. Fund v. JWJ Contracting Co., 135 F.3d 671, 679 (9th Cir. 1998)
(noting that a state law “relates to” ERISA if it “tell[s] employers how to write
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ERISA benefit plans” (citation omitted)). Those facts distinguish this case from
Rapides and push this case towards one wherein the state statute “governs a
central matter of plan administration.” See Gobeille, 136 S. Ct. at 943.
Furthermore, in light of subsequent Supreme Court authority, we
conclude that it would be ill-advised to extend Rapides’s reasoning to the facts
of this case. 10 As the appellants and amici observe, Rapides was built upon a
starting presumption against ERISA preemption. And for good reason—
Supreme Court precedent at the time required as much. See Rapides, 461 F.3d
at 537 (“[W]e start with the assumption that ‘the historic police powers of the
States were not to be superseded by [ERISA] unless that was the clear and
manifest purpose of Congress.’” (quoting N.Y. State Conf. of Blue Cross & Blue
Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995))); id. at 540
(declining to follow decisions from the Eighth and Tenth Circuits because they
were decided pre-Travelers and did not apply a presumption against ERISA
preemption); id. at 541 (“[T]he Supreme Court requires our analysis to start
with the assumption that ERISA was not intended to derogate the historic
police powers of the states.” (citing Travelers, 514 U.S. at 654–55)).
However, the Supreme Court has since changed its position on the
presumption against preemption where there is an express preemption clause.
In Gobeille, an ERISA case, the majority’s only mention of a presumption
against preemption was to reject that any such presumption would control the
10 Though not dispositive to our inquiry, the appellants contend that applying Rapides
to the facts of this case would put this circuit directly into conflict with at least two other
circuits. See St. Francis Reg’l Med. Ctr. v. Blue Cross & Blue Shield of Ks., Inc., 49 F.3d 1460
(10th Cir. 1995); Ar. Blue Cross & Blue Shield v. St. Mary’s Hosp., Inc., 947 F.2d 1341 (8th
Cir. 1991). Rapides itself recognized some tension. See 461 F.3d at 539–40 (acknowledging
that those circuits had concluded that ERISA preempted “similar” statutes). The direct-
payment authorization versus assignment language provides a reasoned ground for
distinction. However, applying Rapides’s reasoning to the anti-assignment provision in this
case would seemingly turn that tension into an outright split.
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outcome of that case. 136 S. Ct. at 946. Justice Thomas authored a separate
concurrence observing that Travelers departed from the statutory text and has
become difficult to reconcile with the Court’s other preemption jurisprudence.
Id. at 947–49 (Thomas, J., concurring). Only two Justices, writing in dissent,
expressed support for Travelers and asserted that “[t]he presumption against
preemption should thus apply full strength[.]” Id. at 954 (Ginsburg, J.,
dissenting). Then, a few months later, a majority of the Supreme Court
expressly held in Puerto Rico v. Franklin California Tax-Free Trust, a
bankruptcy case, that “because the statute contains an express pre-emption
clause, we do not invoke any presumption against pre-emption but instead
focus on the plain wording of the clause[.]” 136 S. Ct. 1938, 1946 (2016)
(citation and quotation marks omitted). Franklin then referenced Gobeille in
a “see also” citation for that proposition. Id.
ERISA similarly contains an express preemption clause, see 29 U.S.C.
§ 1144(a), so Franklin would seem to direct that we should not apply a
presumption against preemption in this case. Appellee argues that we should
not read Franklin broadly, and that Franklin’s language about not presuming
preemption where there is an express preemption clause should apply only to
bankruptcy cases. However, we do not read the clear language of Franklin’s
holding on this point as being so limited. Neither have several other circuits.
See Watson v. Air Methods Corp., 870 F.3d 812, 817 (8th Cir. 2017) (citing
Franklin for the proposition that there is no presumption against preemption
under the Airline Deregulation Act’s express preemption clause); EagleMed
LLC v. Cox, 868 F.3d 893, 903 (10th Cir. 2017) (same); Atay v. Cty. of Maui,
842 F.3d 688, 699 (9th Cir. 2016) (same under the Plant Protection Act); but
see Shuker v. Smith & Nephew, PLC, 885 F.3d 760, 771 n.9 (3d Cir. 2018)
(declining to apply Franklin’s holding on this point to the Food, Drug, and
Cosmetic Act because the case involved products liability claims historically
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regulated by the states). Given that Franklin specifically references Gobeille—
an ERISA case—when holding that there is no presumption of preemption
when the statute contains an express preemption clause, we conclude that
holding is applicable here. As such, because Rapides was built upon a
presumption against preemption that the Supreme Court appears to have
walked back from, we decline to extend Rapides’s reasoning to the facts of this
case. 11
Furthermore, we disagree with the district court order’s conclusion that
the Supreme Court’s decision in Gobeille, which dealt with duplicative
reporting requirements, is inapposite to this case because the text of ERISA is
“silent” on assignments. The Supreme Court, this court, and other courts have
long held that state laws can intrude upon central matters of plan
administration or interfere with nationally uniform plan administration even
when the text of ERISA itself does not mention the particular aspect in
question. See, e.g., Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98 (1983)
(rejecting the argument that ERISA’s preemption clause can “be interpreted to
pre-empt only state laws dealing with the subject matters covered by ERISA—
reporting, disclosure, fiduciary responsibility, and the like”); Tingle v. Pacific
Mut. Ins. Co., 996 F.2d 105, 109 (5th Cir. 1993) (rejecting the argument that
there could not be preemption because “ERISA is silent” concerning the issue);
Metro. Life Ins. Co. v. Johnson, 297 F.3d 558, 567 (7th Cir. 2002) (“The
11We are careful to note, however, that this opinion should not be read as concluding
that Rapides has been abrogated or is otherwise bad law. Rapides rested its holding on the
Supreme Court’s decision in Travelers, and Travelers has not been directly overruled by the
Supreme Court. As such, we merely recognize the tension between Rapides and intervening
Supreme Court decisions, and we decline to extend Rapides further. Cf. Agostini v. Felton,
521 U.S. 203, 237 (1997) (“[I]f a precedent of this Court has direct application in a case, yet
appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should
follow the case which directly controls, leaving to this Court the prerogative of overruling its
own decisions.” (citation omitted)).
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Supreme Court has recognized . . . situations where ERISA preempts state law
but is silent on a topic[.]”); St. Francis Reg’l Med. Ctr. v. Blue Cross & Blue
Shield of Ks., Inc., 49 F.3d 1460, 1464 (10th Cir. 1995) (“ERISA preempts state
law on the issue of the assignability of benefits . . . [even though] ERISA itself
is silent on the issue[.]”).
Instead, a good lens for analyzing this case is provided by our opinion in
Texas Pharmacy Ass’n v. Prudential Ins. Co. of Am., 105 F.3d 1035 (5th Cir.
1997). In that case, a Texas statute purported to require that ERISA plans
deal with any provider of pharmaceutical services that was selected by a
beneficiary and was willing to abide by the terms of the plan. Id. at 1036–37.
Noting that ERISA’s preemption clause is “deliberately expansive,” we held
that “the Texas statute relates to ERISA plans because it eliminates the choice
of one method of structuring benefits, by prohibiting plans from contracting
with pharmacy networks that exclude any willing provider.” Id. at 1037
(quotation marks and citations omitted). As was the case in Texas Pharmacy,
the Tennessee statute at issue here purports to eliminate the choice of one
method of structuring benefits, by forcing plan administrators to interact
with—and potentially be sued by—providers who are not in their networks nor
otherwise in contractual privity with them.
Therefore, we conclude that Tenn. Code Ann. § 56-7-120(a) “relate[s] to”
ERISA plans because it impacts a “central matter of plan administration” and
“interferes with nationally uniform plan administration.” See 29 U.S.C.
§ 1144(a); Gobeille, 136 S. Ct. at 943. Mandating that plan administrators
must assume liability to be sued by third-party providers who are not in privity
of contract with them impacts a central matter of plan administration.
Furthermore, because states could—and seemingly already do—impose
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different requirements on when such assignments would have to be honored, 12
permitting Tenn. Code Ann. § 56-7-120(a) to govern this plan would interfere
with nationally uniform plan administration. To hold otherwise would prevent
“ERISA’s express pre-emption clause [from] receiv[ing] the broad scope
Congress intended[.]” See Gobeille, 136 S. Ct. at 943.
* * * *
In summary, we hold that the anti-assignment clause of the ERISA
benefits plan at issue in this case is unambiguous and that the Tennessee
statute purporting to invalidate any such anti-assignment clauses is itself
preempted by ERISA. Accordingly, we REVERSE the district court’s judgment
on the issue of whether the appellee had standing to bring this lawsuit,
VACATE the district court’s subsequent judgments in this case, and RENDER
judgment that the case shall be dismissed for lack of jurisdiction.
12Compare, e.g., Tenn. Code Ann. § 56-7-120(a) (discussing requirements for providing
the administrator with notice of such assignments), with Tex. Ins. Code § 1204.053(a) (not
discussing similar notice requirements).
22