Hubbard v. Blue Cross & Blue Shield Ass'n ( 1995 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
Nos. 92-2903 and 92-2908
REBECCA T. HUBBARD and JIM HUBBARD,
Plaintiffs-Appellants,
VERSUS
BLUE CROSS & BLUE SHIELD ASSOCIATION, ET. AL.,
Defendants,
BLUE CROSS & BLUE SHIELD ASSOCIATION,
Defendant-Appellee.
Appeal from the United States District Court
For the Southern District of Texas
(January 12, 1995)
Before JONES and DeMOSS, Circuit Judges, and SCHWARTZ, District
Judge.*
DeMOSS, Circuit Judge:
Plaintiff Rebecca Hubbard1 was a beneficiary under a group
insurance policy regulated by the Employee Retirement Income
*
District Judge for the Eastern District of Louisiana, sitting
by designation.
1
The original plaintiffs were Rebecca Hubbard and her husband,
Jim Hubbard. For convenience this opinion uses the designation
"Hubbard."
Security Act ("ERISA").2 This appeal concerns whether Hubbard's
state-law fraudulent inducement claims -- brought against a third
party other than the insurer -- are preempted by ERISA. We hold
that one of Hubbard's claims is preempted by ERISA and that the
other claim is not preempted. We therefore AFFIRM the district
court's entry of judgment in favor of the defendant on one claim,
and REMAND the other claim back to the district court.
BACKGROUND
Hubbard's employer, Texas A&M Research Foundation, provided an
ERISA-regulated health benefits plan to its employees. Coverage was
provided by Blue Cross and Blue Shield of Texas ("Blue Cross of
Texas"), an entity not a party to this lawsuit. While Hubbard was
a beneficiary under the health plan, she contracted cancer.3 After
Blue Cross of Texas refused to provide coverage for certain
requested cancer treatments, Hubbard sued defendant-appellee Blue
Cross and Blue Shield Association ("the Association") in the
district court of Brazos County, Texas.4 Hubbard claims that (1)
2
29 U.S.C. § 1001 et seq. (West 1985 & Supp. 1994).
3
This was the second time Mrs. Hubbard had contracted cancer.
She had a bout with breast cancer in the early 1980s, but that
cancer had been pronounced cured well before she entered into the
Blue Cross of Texas plan.
4
The insurer, Blue Cross of Texas, and the defendant-appellee,
Blue Cross and Blue Shield Association, are separate legal entities
despite their similar names. The Association is incorporated in
Illinois and is the trademark corporation that administers the
licensing of the "Blue Cross" and "Blue Shield" registered
trademarks. The Association did not issue the Hubbards' insurance
policy and did not have the right or power to make coverage
decisions under that policy.
The insurer, a Texas corporation, was never a party to this
lawsuit. Hubbard settled her coverage dispute with Blue Cross of
2
the Association generated and disseminated secret policy
interpretation "guidelines" which were followed by Blue Cross of
Texas in denying coverage for Hubbard's treatment, and that the
Association willfully concealed such guidelines from Hubbard,
thereby fraudulently inducing her to participate in the Blue Cross
of Texas plan rather than procuring other, adequate, health
coverage; and (2) the Association disseminated advertisements in
Texas that portrayed Blue Cross of Texas "as an honest and
forthright company that would never engage in deceptive trade
practices," thus fraudulently inducing her into participating in
the "unsuitable" Blue Cross of Texas plan. Hubbard claimed that
both acts by the Association were in violation of the Texas
Deceptive Trade Practices Act, TEX. BUS. & COM. CODE ANN. § 17.41 et
seq. ("DTPA"), Texas Insurance Code Article 21.21 et seq., and the
Texas common law of fraud. Hubbard also alleged malpractice against
her physician, Richard A. Smith of Brazos County, Texas, claiming
he negligently failed to diagnose the cancer.
The Association removed the case to federal district court,
contending that Hubbard's state-law claims were completely
preempted by ERISA.5 The plaintiffs and defendant Smith moved to
Texas in a separate action. That settlement provided for a payment
of $12,500 to be divided among Hubbard, her minor children and her
attorney. Blue Cross & Blue Shield of Texas, Inc. v. Hubbard, Civ.
No. 3-91CV2651-R (N.D. Tex. May 4, 1993) (final judgment approving
settlement agreement).
5
Ordinarily, preemption of state law by federal law is a
defense to a plaintiff's state law claim, and therefore cannot
support federal removal jurisdiction under the "well-pleaded
complaint" rule. "Complete preemption," in contrast, exists when
the federal law occupies an entire field, rendering any claim a
3
remand the case to Texas state court. After initially denying both
motions, the court remanded the Hubbard's claims against Smith, but
refused to remand their case against the Association.
On October 8, 1992, the district court granted summary
judgment in favor of the Association on both of Hubbard's claims.
The district court's four-page order concluded that all of the
plaintiff's state-law fraudulent inducement claims were completely
preempted by ERISA.6 This appeal followed.
STANDARD OF REVIEW
We review a summary judgment de novo, under the same standard
employed by the district court, affirming if there is no genuine
issue of material fact and the movant is entitled to judgment as a
matter of law. FED. R. CIV. P. 56(c); United Fire and Cas. Co. v.
Reeder, 9 F.3d 15, 16 (5th Cir. 1993); Hibernia Nat. Bank v.
Carner, 997 F.2d 94, 97 (5th Cir. 1993).
ERISA PREEMPTION
The preemption clause in ERISA states that ERISA "shall
supersede any and all State laws insofar as they may now or
hereafter relate to any employer benefit plan." 29 U.S.C. §
plaintiff may raise necessarily federal in character. See Franchise
Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 24
(1983). Because ERISA preemption is so comprehensive, it can
provide a sufficient basis for removal to federal court even though
it is raised as a defense, notwithstanding the "well-pleaded
complaint" rule. See Metropolitan Life Ins. Co. v. Taylor, 481 U.S.
58, 66 (1987).
6
The district court also stated an alternate basis for its
judgment, finding that "Plaintiffs have failed to set forth in
their first amended complaint a factual basis for their state
claims."
4
1144(a)(expressly excepting two situations not applicable here).
State law causes of action such as Hubbard's are barred by §
1144(a) if (1) the state law claim addresses an area of exclusive
federal concern, such as the right to receive benefits under the
terms of an ERISA plan; and (2) the claim directly affects the
relationship between the traditional ERISA entities -- the
employer, the plan and its fiduciaries, and the participants and
beneficiaries. Weaver v. Employers Underwriters, Inc., 13 F.3d 172,
176 (5th Cir. 1994); Memorial Hosp. System v. Northbrook Life Ins.
Co., 904 F.2d 236, 245 (5th Cir. 1990). The language of the ERISA
preemption clause is deliberately expansive, and has been construed
broadly by federal courts. Corcoran v. United Healthcare, Inc., 965
F.2d 1321, 1328-29 (5th Cir. 1992). A state cause of action relates
to an employee benefit plan whenever it has "a connection with or
reference to such a plan." Id. at 1329 (citing Shaw v. Delta Air
Lines, Inc., 463 U.S. 85, 96-97 (1983)).
Hubbard makes two basic claims of fraudulent inducement. She
first alleges that the Association issued, and concealed, secret
coverage guidelines ("the secret guidelines claim"). Her second
claim alleged fraudulent inducement in connection with the
Association's advertisements for Blue Cross of Texas ("the
advertisement claim").7 If neither claim is preempted by ERISA,
then the district court lacks subject matter jurisdiction, because
both claims arise under state law and there is no diversity of
7
According to Hubbard's petition, both of these courses of
conduct by the Association are actionable under the Texas DTPA, the
Texas Insurance Code and the Texas common law of fraud.
5
citizenship. If there is no federal jurisdiction, the case must be
remanded to Texas state court.
However, we hold that Hubbard's claim involving the "secret
guidelines" is preempted by ERISA, thus a federal question exists
on that claim and the district court's exercise of jurisdiction was
proper. Entry of summary judgment for the Association on that claim
was also correct because ERISA provides no remedy. We hold that
Hubbard's second claim, involving the Association's advertising, is
not preempted by ERISA. We reverse the summary judgment as to the
advertising claim and remand that part of the case so that the
district court may exercise its discretion as to whether to accept
supplemental jurisdiction pursuant to 28 U.S.C. § 1367 or remand
the advertising claim to state court.
"SECRET GUIDELINES" CLAIM
Hubbard alleged that the Association "generated and
disseminated to [Blue Cross of Texas] certain guidelines or
criteria pertaining to how [Blue Cross of Texas] would interpret
the terms `experimental' and `medically necessary.'"
"[Blue Cross of Texas] looked to and relied upon certain
criteria and guidelines promulgated by [the Association]
in order to make determinations concerning whether
specific medical treatments were or were not excluded
from coverage by the above-noted policy language ... in
effect, [the Association] added verbiage to the
definitions of the aforementioned terms found in the
insurance policy."
It is clear that ERISA preempts a state law cause of action brought
by a plan beneficiary against the plan insurer alleging improper
processing of a claim for plan benefits. Memorial Hospital, 904
F.2d at 245. We have also held that ERISA preempts state law claims
6
of fraud, breach of contract or negligent misrepresentation that
have the effect of orally modifying the express terms of an ERISA
plan and increasing plan benefits for participants or beneficiaries
who claim to have been misled. Id. at 245. Hubbard's "secret
guideline" claim was brought against a third party, the
Association, rather than against the insurer. However, the essence
of Hubbard's claim is that her benefits under the plan were
improperly denied. Resolution of this claim would require an
inquiry into (1) whether the Association generated and disseminated
guidelines; (2) whether Blue Cross of Texas knew about those
guidelines; (3) whether Blue Cross of Texas employed the alleged
guidelines in Hubbard's case; and (4) whether the guidelines
materially affected the determination of non-coverage in Hubbard's
medical treatment. Such questions are intricately bound up with the
interpretation and administration of an ERISA plan. Accordingly, we
hold that the "secret guideline" claim relates to an employee
benefit plan and is preempted by ERISA. See Corcoran v. United
Healthcare Inc., 965 F.2d 1321, 1334 (5th Cir.)(holding that ERISA
preempted state law claims against a non-ERISA entity, the utility
review administrator for its decision that affected a benefit
determination under the ERISA plan). Because ERISA provides no
remedy on these facts, the district court correctly granted summary
judgment in favor of the Association on Hubbard's secret guideline
fraudulent inducement claim.
7
ADVERTISING CLAIM
Hubbard also alleged that the Association "distributed
advertisements designed to promote Blue Cross [of Texas] as an
honest and forthright company that would never engage in deceptive
trade practices." Hubbard claimed that she "relied upon the images
created by such advertising and [was] thereby induced to acquire
the services of Blue Cross [of Texas]." Hubbard claims that she was
damaged by the advertising in that she relied on the assurances of
quality coverage and thus chose not to procure other insurance
coverage to insure that the expensive medical treatments that she
needed could be paid for.
Hubbard relies heavily on our holding in Perkins v. Time Ins.
Co., 898 F.2d 470, 473 (5th Cir. 1990), which also involved
fraudulent inducement allegations against a third-party, non-ERISA
entity. In Perkins, the plaintiff claimed that an insurance agent
fraudulently induced him to surrender his previous insurance
coverage and elect to participate in a new ERISA plan. The agent
falsely assured the plaintiff that the new policy would cover his
daughter's impending treatment for congenital eye defects. In fact,
the treatment was not covered under the policy because the eye
problem was an excluded pre-existing condition. Perkins, 898 F.2d
at 472. We held that, although the claim against the insurer, Time
Insurance, was preempted by ERISA, the claim against the insurance
agent was not preempted.
"While ERISA clearly preempts Perkins' claims as they
relate to Time, the same cannot be necessarily said,
however, as regards [the insurance agent]'s solicitation
of Perkins, which allegedly induced him to forfeit an
8
insurance policy that covered his daughter's condition
for one that did not. While ERISA clearly preempts claims
of bad faith as against insurance companies for improper
processing of a claim for benefits under an employee
benefit plan, and while ERISA plans cannot be modified by
oral representations, we are not persuaded that his logic
should extend to immunize agents from personal liability
for their solicitation of potential participants in an
ERISA plan prior to its formation."
Perkins, 898 F.2d at 473. Thus, Perkins held that a state law
fraudulent inducement claim against a third party other than an
ERISA entity is not preempted by ERISA if it does not implicate the
plan's administration of benefits or "affect the relations among
the principal ERISA entities (the employer, the plan fiduciaries,
the plan and the beneficiaries)." Id. We reaffirmed the Perkins
rationale in Memorial Hospital, 904 F.2d at 247, where we stated
that courts are less likely to find preemption when the claim
merely affects relations between an ERISA entity and an outside
party, rather than between two ERISA entities. Memorial Hospital,
904 F.2d at 249 (citing Perkins, 898 F.2d at 473; Sommers Drug
Stores Co. Employee Profit Sharing Trust v Corrigan Enterprises,
Inc., 793 F.2d 1456, 1467 (5th Cir. 1986), cert. denied, 479 U.S.
1034 (1987).). Therefore, we hold that Hubbard's advertising claim
is not preempted by ERISA.
In light of this holding, we remand the advertising claim to
the district court so that the court can exercise its discretion
either to (1) accept supplemental jurisdiction over the state law
claim or (2) decline jurisdiction and remand the claim to state
court. A federal district court may entertain state law claims
pursuant to its "supplemental jurisdiction," provided that the
9
claims arise from the case or controversy over which the district
court had original jurisdiction. See 28 U.S.C. § 1367; Welch v.
Thompson, 20 F.3d 636, 644 (5th Cir. 1994). When all federal claims
are dismissed, the district court enjoys wide discretion in
determining whether to retain jurisdiction over the remaining state
law claims. Welch, 20 F.3d at 644; Burns-Toole v. Byrne, 11 F.3d
1270, 1276 (5th Cir. 1994)(both upholding district courts' refusal
to exercise jurisdiction); see also Rodriguez v. Pacificare of
Texas, Inc., 980 F.2d 1014, 1017-18 & n.3 (5th Cir. 1993)(upholding
district court's exercise of supplemental jurisdiction over non-
preempted state law claims when other state law claims by plaintiff
were preempted by ERISA).
CONCLUSION
Therefore, for the reasons stated in this opinion, we hold
that Hubbard's secret guideline claim is preempted by ERISA, and
that her claim alleging fraud in the Association's advertising was
not preempted. We therefore AFFIRM the district court's entry of
judgment in favor of the defendant on the secret guideline claim,
and REMAND the advertising claim back to the district court so that
the court can exercise its discretion as to whether to accept
jurisdiction or remand to state court.8
AFFIRMED in part, REVERSED and REMANDED in part.
8
"We expressly do not rule on the sufficiency of the pleading
of Hubbard's state law claims in this opinion since that issue is
not ripe for determination until the district court rules regarding
pendent jurisdiction."
wjl\opin\92-2903.opn
ace 10