Dianne L. Shea v. Sidney Esensten , 208 F.3d 712 ( 2000 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
________________
No. 99-1388
________________
Dianne L. Shea, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Sidney Esensten; Jeffrey A. *
Arenson; Family Medical Clinic, *
P.A., a Minnesota Non-Profit Corp., *
Family Medical Clinic; Fairview, A *
Minnesota Non-Profit Corp.; *
Medica, a Minnesota Non-Profit *
Corp.; United Healthcare, United *
Healthcare Corp., a Minnesota Non- *
Profit Corp.; Secretary of Labor; *
Allina Health System Corp., *
*
Appellees. *
*
----------------------------------------- *
Secretary of Labor, *
*
Amicus on Behalf of *
Appellant. *
________________
Submitted: November 18, 1999
Filed: March 31, 2000
________________
Before BOWMAN, LAY, and HANSEN, Circuit Judges.
________________
HANSEN, Circuit Judge.
Dianne L. Shea brought this wrongful death suit in state court after her husband's
death due to heart failure, and the case now has been twice removed to federal court.
In this latest removal proceeding, the district court dismissed the tort claim of count III
(alleging negligent misrepresentation for the failure of Mr. Shea's physicians to disclose
a conflict of interest) as preempted by ERISA.1 The district court also dismissed a
corporate party (Fairview) on statute of limitations grounds. Mrs. Shea appeals the
preemption issue, joined by the Secretary of Labor as amicus curiae,2 and the
defendants move to dismiss the appeal as moot. We affirm in part, reverse in part, and
deny the motion to dismiss the appeal.
I.
Patrick Shea died of a heart attack at the age of 40 after being assured by his
family doctors that a referral to a cardiologist was unnecessary given his age and
symptoms. Although Mr. Shea offered to pay for the referral himself when his
symptoms did not seem to be improving, his physicians persuaded him to trust their
judgment that neither his age nor his symptoms justified a visit to a cardiologist.
Following her husband's death due to heart failure, Mrs. Shea initially brought a
wrongful death action in state court against two physicians (Sidney Esensten and
Jeffrey Arenson); the Family Medical Clinic, now known as Fairview Clinics (the
1
The Employee Retirement Income Security Act of 1974 (codified as amended
at 29 U.S.C. §§ 1001-1461 (1994 & Supp. III 1997) and in scattered sections of Title
26 U.S.C.).
2
The Secretary of Labor is charged with interpreting and enforcing all provisions
of Title I of ERISA. See 29 U.S.C. §§ 1132(a)(2), (5), and 1135.
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Clinic); and Medica (her husband's health maintenance organization (HMO), with
whom his employer contracted to provide employee health care). Dianne Shea alleged
in her suit that certain financial incentives built into Medica's contract with Mr. Shea's
physicians were designed to minimize referrals to specialists. She further alleged that
if her husband had known of these incentives, he would not have trusted his physicians'
medical advice so completely but would have sought out the life-saving opinion of a
specialist at his own expense.
Medica initially removed the case to federal court, contending that Mrs. Shea's
tort claims were preempted by ERISA, 29 U.S.C. § 1144. Mrs. Shea then amended her
claim to state that Medica breached its fiduciary duties under ERISA by not disclosing
to plan participants the financial incentives designed to reduce referrals that it included
in its physician contracts. The district court dismissed Medica, concluding that Mrs.
Shea's state tort claims against Medica as the plan administrator were preempted by
ERISA and that the amended complaint asserting a breach of fiduciary duty failed to
state a claim, see Fed. R. Civ. P. 12(b)(6). The district court remanded to state court
the remaining state law claims.
Mrs. Shea appealed to this court. We reversed the district court's Rule 12(b)(6)
dismissal of Medica, concluding that Mrs. Shea's amended complaint adequately stated
a claim of breach of fiduciary duty against Medica. See Shea v. Esensten, 107 F.3d
625 (8th Cir.) (Shea I), cert. denied, 522 U.S. 914 (1997). Specifically, we held that
a plan administrator has a fiduciary duty to disclose all material facts affecting a plan
participant's health care interests, including financial incentives that might discourage
a treating physician from providing essential referrals for covered conditions. See id.
at 629. Medica ultimately settled the claim against it.
Meanwhile, the remanded state tort action proceeded against the doctors and the
Clinic in state court. Mrs. Shea moved to amend her complaint to add as a defendant
Fairview, a Minnesota non-profit corporation that owns and operates the Clinic. The
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second amended complaint included count I, alleging medical negligence; count II,
alleging breach of contract; count III, alleging fraud and negligent misrepresentation
based on the doctors' failure to disclose the conflict of interest created by their
contractual incentives; count IV, alleging the joint and several liability of Fairview for
damages awarded in counts I through III; and count V, seeking punitive damages
against all defendants.
Before the state court ruled on the motion to amend, Fairview removed the
second amended complaint to federal court. The doctors and the Clinic then moved the
federal district court for a partial dismissal. The district court dismissed count II, the
breach of contract claim, without resistance by Mrs. Shea, and it is not at issue in this
appeal. The district court dismissed count III, the fraud and negligent
misrepresentation claim, as preempted by ERISA after concluding that the claim relates
to the ERISA plan because it involves an administrative denial of benefits, not a
medical decision. Fairview moved for and received a complete dismissal on statute of
limitations grounds. The district court then remanded to state court the remaining
negligence claim against the doctors and the Clinic as stated in count I. A state court
jury ruled in favor of the doctors and the Clinic on that medical negligence claim.
Mrs. Shea now appeals the district court's conclusions on ERISA preemption and
the statute of limitations. The defendants move to dismiss the appeal as moot.
II.
A. Motion to Dismiss
We begin by addressing the pending motion to dismiss. After this appeal was
filed, Mrs. Shea's medical negligence claim of count I was brought to trial in state court
where a jury resolved the claim in favor of the defendants, specifically finding that the
doctors did not provide Mr. Shea with negligent care or treatment. The doctors and the
Clinic then moved to dismiss the present appeal as moot, asserting that after the jury
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verdict, Mrs. Shea would not be able to prove that her husband was denied appropriate
care, which they assert is an essential element of Mrs. Shea's remaining claim of fraud
and negligent misrepresentation. Mrs. Shea resists the motion, asserting the appeal is
not moot because the state jury verdict has yet to be tested by post trial motions and
state appellate procedures. She further contends that even if the jury verdict withstands
post trial and appellate scrutiny, her negligent misrepresentation claim does not
automatically fail in light of the jury's determination that the physicians provided
adequate care because the negligent misrepresentation claim carries its own,
independent injury.
"Under Article III of the Constitution, federal courts may adjudicate only actual,
ongoing cases or controversies. It is of no consequence that the controversy was live
at earlier stages in this case; it must be live when we decide the issues." Doe v.
Lafleur, 179 F.3d 613, 615 (8th Cir. 1999) (internal quotations omitted). If this case
is indeed moot, we must dismiss the appeal to avoid rendering a merely advisory
opinion. See id. However, we agree with Mrs. Shea's assertion that the appeal is not
moot. The state court judgment is not yet final. Also, in spite of the jury's conclusion
in favor of the doctors on the negligent treatment claim, we believe that a jury could
nevertheless consistently conclude that the defendants are liable on the independent
negligent misrepresentation claim of count III.
Count III asserts a claim of negligent misrepresentation based on the physicians'
failure to disclose a financial incentive to minimize referrals to specialists, which she
asserts amounts to a conflict of interest. In Minnesota, the tort of negligent
misrepresentation occurs when a person making a representation "ha[s] not discovered
or communicated certain information that the ordinary person in his or her position
would have discovered or communicated." Safeco Inc. Co. of Am. v. Dain Bosworth
Inc., 531 N.W.2d 867, 870 (Minn. Ct. App. 1995). State professional ethics standards
for physicians mandate disclosure of conflicts of interest, and the Minnesota courts
have noted that "a physician's advice about treatment options should be free from
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self-serving financial considerations." D.A.B. v. Brown, 570 N.W.2d 168, 172 (Minn.
Ct. App. 1997). "It is well accepted that patients deserve medical opinions about
treatment plans and referrals unsullied by conflicting motives." Id. at 170. Minnesota
law indicates that the breach of a doctor's state-imposed ethical duty to disclose
financial incentives is a medical malpractice claim, requiring a showing of actual harm
to state a cause of action. See id. at 171.
In count III, Mrs. Shea asserts that Mr. Shea's physicians negligently or
fraudulently failed to disclose a financial conflict of interest in violation of state
professional ethics and that this failure to disclose adversely influenced his decision to
seek the advice of a specialist. She asserts that regardless of the quality of the actual
treatment rendered by Mr. Shea's physicians (already adjudicated in state court to have
been adequate), their failure to disclose a financial incentive caused Mr. Shea the
independent injury of having been prevented from making an informed choice of
whether to seek what might have been a life-saving referral at his own expense.
Because Mrs. Shea's negligent misrepresentation claim of count III asserts a distinct
and independent injury from the negligent treatment claim asserted and adjudicated in
count I, the state jury verdict in favor of the physicians on count I does not necessarily
preclude a finding in favor of Mrs. Shea on count III. Therefore, we deny the
defendants' motion to dismiss this appeal as moot.
B. ERISA Preemption
Moving to the merits of the appeal, we first consider whether the district court
correctly concluded that Mrs. Shea's claim in count III is preempted by ERISA.
Because the issue of ERISA preemption is a question of law involving statutory
interpretation, we review de novo the district court's decision to dismiss a claim on
grounds of preemption. See Prudential Ins. Co. of Am. v. National Park Med. Ctr.,
Inc., 154 F.3d 812, 818 (8th Cir. 1998).
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Congress included an express preemption clause in ERISA, which provides that
ERISA supersedes all state laws insofar as they "relate to" an employee benefit plan
under ERISA. 29 U.S.C. § 1144(a); see Wilson v. Zoellner, 114 F.3d 713, 716 (8th
Cir. 1997). The Supreme Court has constructed a two-part inquiry for determining
whether a state law is preempted under this "relates to" provision. Under this analysis,
a state law "relates to" an ERISA plan within the meaning of § 1144(a) if it (1)
expressly refers to an ERISA plan, or (2) has a connection with such a plan. See
California Div. of Labor Standards Enforcement v. Dillingham Constr., N. A., Inc., 519
U.S. 316, 324 (1997); Wilson, 114 F.3d at 716.
We first conclude that there is no express reference to an ERISA plan here.
Minnesota's law of negligent misrepresentation is a tort law of general application. "[I]t
makes no reference to and functions irrespective of the existence of an ERISA plan."
Wilson, 114 F.3d at 717 (discussing Missouri's state law of negligent
misrepresentation). The defendants assert that an express reference to an ERISA plan
is at issue here because Mrs. Shea's claim would not exist absent an express reference
to the incentives created by the ERISA plan's contract with Mr. Shea's physicians. We
believe, however, that the defendants place too much emphasis on this reference to the
plan in the lawsuit. It is true that to prove her claim, Mrs. Shea must demonstrate that
the physicians' contract, which happens to be an ERISA plan in this case, created
certain financial incentives for Mr. Shea's physicians. This is the evidentiary
foundation for demonstrating a conflict of interest that the physicians may have been
required to disclose under state law. This reference to the ERISA contract terms is not
an express state law reference that "relates to" an ERISA plan within the meaning of
the preemption clause, because the contract creating the financial incentive must be
referenced regardless of whether or not that contract stems from an ERISA plan. The
express reference to the ERISA plan that will arise in this tort suit is necessary to
demonstrate the origin of the physician's potential conflict of interest under state law,
but the plan itself is peripheral to the ultimate issue of whether the physicians violated
the state ethical duty to disclose a financial conflict of interest. See New York State
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Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 661
(1995) (noting that there is no preemption "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") (internal quotations omitted). Accordingly, we conclude that the state
law negligent misrepresentation claim of count III is not subject to ERISA preemption
on the basis of an express reference to ERISA.
"A law that does not refer to ERISA plans may yet be pre-empted if it has a
'connection with' ERISA plans." California Div. of Labor Standards Enforcement, 519
U.S. at 325. To determine the existence of this forbidden connection, the Supreme
Court directs us to "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." Id. (internal quotations and citation
omitted). In addressing the effect of the state law on an ERISA plan, we consider a
variety of factors, including:
[1] whether the state law negates an ERISA plan provision, [2] whether
the state law affects relations between primary ERISA entities, [3]
whether the state law impacts the structure of ERISA plans, [4] whether
the state law impacts the administration of ERISA plans, [5] whether the
state law has an economic impact on ERISA plans, [6] whether
preemption of the state law is consistent with other ERISA provisions,
and [7] whether the state law is an exercise of traditional state power.
Wilson, 114 F.3d at 717 (quoting Arkansas Blue Cross & Blue Shield v. St. Mary's
Hosp., Inc., 947 F.2d 1341, 1344-45 (8th Cir. 1991)).
Considering the Arkansas Blue Cross & Blue Shield factors, we first note that
allowing this state tort suit to proceed would not negate any ERISA plan provision and
would not affect the relations between primary ERISA entities. Physicians are
responsible to follow their state law ethical rules regardless of any contractual relation
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with or obligation to an ERISA entity. Merely requiring physicians to disclose financial
conflicts of interest that might affect a patient's treatment options does not alter or
affect any plan provision, it simply discloses its existence. Additionally, nothing new
will be required of an ERISA entity by allowing this tort suit against physicians for their
violation of ethical duties imposed by state law. (The ERISA fiduciary is already
obligated to make this type of disclosure according to Shea I.)
Similarly, allowing a state tort claim to proceed against a physician for failure
to disclose a conflict of interest would not impact the structure, administration, or
economics of any ERISA plan. Mrs. Shea's claim does not attack the validity of a term
of the ERISA plan nor is she making a claim for benefits under the plan. Contrary to
the defendants' assertions, she does not assert in count III that her husband was denied
a referral or "benefit" to which he was entitled under the plan. Mr. Shea made no
request for a referral of the plan administrator. Furthermore, his physicians were not
plan administrators, and their medical advice cannot be classified as an administrative
denial of plan benefits. Mr. Shea relied on his physicians' advice that a referral to a
specialist was not medically necessary given his symptoms. Count III asserts that he
would not have relied so completely on their medical advice had he known of their
financial conflict of interest. The Minnesota courts have held that "a physician's advice
about treatment options should be free from self-serving financial considerations, [and]
any cause of action based on that conduct necessarily flows from the therapeutic
relationship" or "the process of rendering medical treatment." D.A.B., 570 N.W.2d at
172. Mrs. Shea's claim stems from "the process of rendering medical treatment," id.,
and therefore, it would not affect the structure, administration or economics of the
ERISA plan.
The district court concluded that the negligent misrepresentation claim of count
III was preempted for the same reason that Mrs. Shea's claim against Medica, a plan
fiduciary, was preempted in Shea I. We respectfully disagree with this analysis. Our
opinion in Shea I mandates that ERISA fiduciaries must disclose financial incentives
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that discourage a treating physician from providing referrals. 107 F.3d at 628-29. The
physicians being sued in this case, however, are not ERISA fiduciaries. Cf. Hull v.
Fallon, 188 F.3d 939, 943(8th Cir. 1999) (holding state law malpractice claim against
a physician was preempted where the physician, acting as the plan administrator,
denied a thallium stress test as a plan benefit), cert. denied, 68 U.S.L.W. 3433, 2000
WL 220289 (U.S. Feb. 28, 2000) (No. 99-1083). We conclude that the analysis of
Shea I does not apply to the present situation because here we are not dealing with the
responsibilities of a plan fiduciary. While our opinion in Shea I altered the
administration of an ERISA plan by creating a duty to disclose on the part of plan
administrators, a lawsuit to enforce an independent state-created duty to disclose on the
part of the physicians (in a situation where the ERISA fiduciary failed to make proper
disclosure) will not impact the structure, administration, or economics of the ERISA
plan in any meaningful way. None of the above-listed factors favors preemption.
Finally, "[a]s is always the case in our pre-emption jurisprudence, where federal
law is said to bar state action in fields of traditional state regulation we have worked
on the assumption that the historic police powers of the States were not to be
superseded by the Federal Act unless that was the clear and manifest purpose of
Congress." California Div. of Labor Standards Enforcement, 519 U.S. at 325 (internal
quotations and alterations omitted). "[T]he historic police powers of the State include
the regulation of matters of health and safety." De Buono v. NYSA-ILA Med. and
Clincial Servs. Fund, 520 U.S. 806, 814 (1997). State regulation of the ethical
responsibilities imposed upon physicians lies within this category. Nothing in ERISA
attempts to preempt the entire field of health care or the regulation of professional
standards for physicians. See Boyle v. Anderson, 68 F.3d 1093, 1110 (8th Cir. 1995)
(stating, "'nothing in the language of the Act or the context of its passage indicates that
Congress chose to displace general health care regulations, which historically has been
a matter of local concern'") (quoting Travelers Ins. Co., 514 U.S. at 661), cert. denied,
516 U.S. 1173 (1996). After considering the nature and effect of the state law suit
involved here and finding that none of the Arkansas Blue Cross and Blue Shield factors
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listed above favor preemption in this case, we conclude that there is no impermissible
connection between the negligent misrepresentation claim and the ERISA plan to
justify preemption of count III.
C. Statute of Limitations
The district court granted summary judgment in favor of Fairview, concluding
that Mrs. Shea's attempt to amend the complaint to join this defendant to the suit was
untimely. Mrs. Shea argues that the addition of this defendant should relate back to the
original date of filing, because the two-year statute of limitations had run by the time
she sought to add this defendant.
An amendment to a pleading relates back to the date of the original pleading if
the party has received notice of the action so it will not be prejudiced in maintaining a
defense on the merits, and if the party knew or should have known that but for a
mistake concerning the identity of the proper party, the action would have been brought
against this party in the first instance. See Fed. R. Civ. P. 15(c)(3). The determination
of whether an amended pleading should be allowed and whether it relates back to the
date of the original pleading are matters within the sound discretion of the trial court.
See Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330 (1971); see also
Marchant v. City of Little Rock, Ark., 741 F.2d 201, 206 (8th Cir. 1984).
The district court found that Mrs. Shea did not bring the case against the wrong
parties; she merely asserts she lacked knowledge of the financial and management
relationship between the Clinic and Fairview. We agree with the district court that this
asserted lack of knowledge does not satisfy the Rule 15 requirement that the plaintiff
show an error concerning the identity of the proper party or that Fairview should have
known that the suit would have been brought against it but for a mistake in identifying
the proper party. There was no mistake here. Mrs. Shea did not bring the suit against
the wrong parties. She knew before the expiration of the statute of limitations that
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Fairview owned the Clinic. She knew the identity of Fairview but chose not to bring
Fairview into the suit at that time. We find no abuse of discretion in the district court's
conclusion that there is no relation back to the date of the original pleading in this
situation.
D. Motion to Strike
Also pending is the defendants' motion to strike portions of the appellant's brief
and appendix, specifically pages 376-504 of Mrs. Shea's appendix and any references
to these documents in her brief. Fairview joined the motion but noted that pages 400-
427 were before the district court at the time of its summary judgment ruling in March
1998. With this exception, we agree that the other documents at issue are not part of
the record on appeal because they were not before the district court at the time it
entered its summary judgment ruling. On appeal from a summary judgment ruling, the
record before us includes evidentiary materials that were before the trial court when it
made the summary judgment ruling, and we will not consider materials that became
part of the district court file subsequent to that ruling. Barry v. Barry, 78 F.3d 375, 379
(8th Cir. 1996).
Mrs. Shea asserts that the information was not before the district court in a more
timely manner because the doctors refused to produce the documents earlier. When
she requested permission of the district court to file a motion to reconsider in light of
this new evidence, however, the district court denied the request noting that the
summary judgment decision in this case was based on ERISA preemption, which is a
question of law, not on the basis of insufficient evidence. Because the appeal involves
a question of law, we conclude that Mrs. Shea has not offered a compelling reason why
we should consider these records that were not submitted with the initial motion for
summary judgment. We therefore grant the defendants' motion to strike material that
was not before the district court at the time of its summary judgment ruling. We note
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that we did not consider the improper references to this material in our determination
of this appeal.
III.
Accordingly, we deny the motion to dismiss the appeal as moot, we grant the
motion to strike portions of the appellant's brief and appendix, and we reverse the
district court's determination that count III is preempted by ERISA. Because the basis
for removal no longer exists, we remand to the district court with instructions to remand
count III to the state court. In all other respects, we affirm the judgment of the district
court.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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