Dale Fossen, et al v. Blue Cross and Blue Shield of

Filing

FILED OPINION (MARY M. SCHROEDER, MILAN D. SMITH, JR. and ROGER T. BENITEZ) AFFIRMED IN PART; REVERSED IN PART; REMANDED., Judge: MDS Authoring, Each party shall bear its own costs. FILED AND ENTERED JUDGMENT. [7931527]

Case: 10-36001

10/18/2011

ID: 7931527

DktEntry: 49-1

Page: 1 of 21

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DALE FOSSEN; D AND M FOSSEN,
INC.; LARRY FOSSEN; L AND C
FOSSEN, INC.; MARLOWE FOSSEN; M
AND C FOSSEN, INC.; FOSSEN
BROTHERS FARMS, a Partnership,
Plaintiffs-Appellants,
v.
BLUE CROSS AND BLUE SHIELD OF
MONTANA, INC., a health service
corporation,
Defendant-Appellee.




No. 10-36001
D.C. No.
6:09-cv-00061-CCL
OPINION



Appeal from the United States District Court
for the District of Montana
Charles C. Lovell, Senior District Judge, Presiding
Argued and Submitted
August 4, 2011—Seattle, Washington
Filed October 18, 2011
Before: Mary M. Schroeder and Milan D. Smith, Jr.,
Circuit Judges, and Roger T. Benitez, District Judge.*
Opinion by Judge Milan D. Smith, Jr.

*The Honorable Roger T. Benitez, United States District Judge for the
Southern District of California, sitting by designation.

19049

Case: 10-36001

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

BLUE SHIELD

Page: 2 of 21

19053

COUNSEL
Lawrence A. Anderson (argued), Great Falls, Montana; John
M. Morrison (argued), Morrison, Motl & Sherwood, PLLP,
Helena, Montana, for the plaintiffs-appellants.
Michael F. McMahon and Bernard F. Hubley, McMahon,
Wall & Hubley Law Firm, PLLC, Helena, Montana; Anthony
F. Shelley (argued) and Jeffrey M. Hahn, Miller & Chevalier
Chartered, Washington, DC, for the defendant-appellee.
Mark G. Arnold and Jeffrey J. Simon, Husch Blackwell LLP,
St. Louis, Missouri, for amicus curiae National Association of
Insurance Commissioners.
Jesse Laslovich and Christina Lechner Goe, Office of the
Commissioner of Securities and Insurance, Montana State
Auditor, Helena, Montana, for amicus curiae Monica J. Lindeen, Commissioner of Securities and Insurance, Montana
State Auditor.
M. Patricia Smith, Timothy D. Hauser, Elizabeth Hopkins,
and Uchenna Evans (argued), United States Department of
Labor, Washington, DC, for amicus curiae Hilda L. Solis,
Secretary of the United States Department of Labor.

OPINION
M. SMITH, Circuit Judge:
This appeal presents the question of whether a provision of
the federal Health Insurance Portability and Accountability
Act (HIPAA), Pub. L. No. 104-191, 110 Stat. 1936 (1996),
preempts Montana’s “little HIPAA” law, Mont. Code Ann.
§ 33-22-526(2)(a), for purposes of both conferring federal
subject matter jurisdiction and defeating state-law causes of

Case: 10-36001

19054

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

Page: 3 of 21

BLUE SHIELD

action on the merits. The federal and state HIPAA provisions
at issue prohibit certain health insurers from charging different premiums to “similarly situated” participants on account
of a participant’s “health status-related factor.” 29 U.S.C.
§ 1182(b)(1); Mont. Code Ann. § 33-22-526(2)(a). We affirm
the district court and hold that federal HIPAA preempts the
Montana law, both jurisdictionally and on the merits, because
Montana’s HIPAA provision is identical to, and expressly
relies upon, federal law. However, federal law does not preempt a claim for relief under a separate Montana unfair insurance practices statute that bars insurers from engaging in
“unfair discrimination” when charging policy premiums to
similarly situated individuals. Mont. Code Ann. § 33-18206(2).
BACKGROUND
Plaintiffs-Appellants (collectively, Fossens) are three brothers, Dale, Larry, and Marlowe Fossen, their three corporations
(which they jointly own with their spouses), and Fossen
Brothers Farms (a partnership of the three corporations). In
2004, Fossen Brothers Farms applied to Blue Cross and Blue
Shield of Montana (Blue Cross) to obtain health insurance
coverage for the Fossen Brothers Farms’s three employees.
From 2004 through May 2009, Blue Cross provided coverage
to Fossen Brothers Farms through the Associated Merchandisers Inc., Health First Plan (Associated Merchandisers
Plan), and from June 2009 through the time this lawsuit was
filed, Blue Cross provided coverage through the Montana
Chamber Choices Group Benefit Plan (Chamber Choices
Plan).
In 2006, Blue Cross informed the Fossens that their premium was increasing by over 20%. The Fossens learned that
Blue Cross was imposing different increases (and even
decreases in some cases) on other plan members. After the
Fossens complained to the Montana Insurance Commissioner,
Blue Cross reduced the proposed increase to 4%. For the 2008

Case: 10-36001

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

BLUE SHIELD

Page: 4 of 21

19055

plan year, however, Blue Cross increased the Fossens’ premiums over 40%. The Fossens complained again to the insurance commissioner, but apparently to no avail. They then
filed this lawsuit in state court in September 2009.
The Fossens’ complaint asserted three substantive causes of
action. First, they alleged that Blue Cross’s 40% premium
increase violated a provision of Montana’s “little HIPAA”
statute that prohibits “group health plan[s]” (and insurers
offering coverage through group health plans) from imposing
a “premium or contribution that is greater than the premium
or contribution for a similarly situated individual” on account
of “any health status-related factor of the individual . . . .”
Mont. Code Ann. § 33-22-526(2)(a). Second, the Fossens
asserted that Blue Cross’s premium increase violated a provision of Montana’s Unfair Trade Practices Act, Mont. Code
Ann. §§ 33-18-101 et seq., which prohibits insurers from
engaging in “any unfair discrimination between individuals of
the same class and of essentially the same hazard in the
amount of premium, policy fees, or rates charged for any policy or contract of disability insurance . . . . ,” Mont. Code
Ann. § 33-18-206(2); see also Mont. Code Ann. § 33-1207(1) (defining “disability insurance” as including insurance
against medical expenses resulting from accident or sickness).
Third, the Fossens claimed that the premium increase constituted a breach of their contract with Blue Cross, which allegedly incorporated by reference both the Montana HIPAA
provision and the unfair practices provision.1 The complaint
sought two forms of relief—declaratory relief that Blue Cross
violated the law and restitutionary relief through a return of
overcharged premiums—and sought certification as a class
action.
Blue Cross timely removed the complaint to federal court,
1

The complaint also mentioned, in passing, Montana Code Annotated
§ 33-22-1809. However, the Fossens’ briefs do not discuss this statute, so
we do not consider it here.

Case: 10-36001

19056

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

Page: 5 of 21

BLUE SHIELD

asserting that the Fossens’ little HIPAA claim was completely
preempted by the Employee Retirement Income Security Act
of 1974 (ERISA), Pub. L. No. 93-406, 88 Stat. 829. Federal
HIPAA, which is part of ERISA (as amended), contains a provision similar to the Montana HIPAA statute raised in the
complaint. As with the Montana HIPAA statute, federal
HIPAA prohibits “group health plan[s]” (and insurers offering
coverage through group health plans) from charging different
“premium[s] or contribution[s]” to “similarly situated
individual[s]” on account of “any health status-related factor
in relation to the individual[s] . . . .” 29 U.S.C. § 1182(b)(1).2
Blue Cross argued that ERISA’s “complete preemption” doctrine, as articulated in Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 66-67 (1987), and subsequent cases, conferred federal jurisdiction over the Fossens’ nominal state-law
claims. The district court agreed with Blue Cross, and denied
the Fossens’ motion to remand. The court then granted Blue
Cross’s motion for summary judgment. The court noted that
all of the Fossens’ claims were premised on an underlying
violation of federal HIPAA, and, finding no violation of that
statute, the court held that the Fossens’ claims failed as a matter of law. The court also declined to allow the Fossens to
amend their complaint to state a breach of contract theory
(first argued in the Fossens’ summary judgment briefs) premised on Blue Cross’s alleged promise not to increase their premiums by a greater amount than any other members of the
Associated Merchandisers Plan. The Fossens timely appealed
the district court’s decision.
2

Both state and federal law define “health status-related factor” as
including “Health status,” “Medical condition (including both physical
and mental illnesses),” “Claims experience,” “Receipt of health care,”
“Medical history,” “Genetic information,” “Evidence of insurability
(including conditions arising out of acts of domestic violence),” and “Disability.” 29 U.S.C. § 1182(a)(1); see also id. § 1191b(d)(2); Mont. Code
Ann. § 33-22-526(1)(a).

Case: 10-36001

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

BLUE SHIELD

Page: 6 of 21

19057

JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction over the district court’s final judgment. 28 U.S.C. § 1291. We review the district court’s exercise of subject matter jurisdiction de novo, placing the burden
“on the party invoking removal.” Marin Gen. Hosp. v.
Modesto & Empire Traction Co., 581 F.3d 941, 944 (9th Cir.
2009). We review de novo the district court’s grant of Blue
Cross’s motion for summary judgment, and examine the evidence in a light most favorable to the Fossens. FTC v. Stefanchik, 559 F.3d 924, 927 (9th Cir. 2009). We review the
district court’s denial of leave to amend the complaint for
abuse of discretion. AmerisourceBergen Corp. v. Dialysist
West, Inc., 465 F.3d 946, 949 (9th Cir. 2006).
DISCUSSION
I.

ERISA Preemption

“There are two strands of ERISA preemption: (1) ‘express’
preemption under ERISA § 514(a), 29 U.S.C. § 1144(a); and
(2) preemption due to a ‘conflict’ with ERISA’s exclusive
remedial scheme set forth in [ERISA § 502(a),] 29 U.S.C.
§ 1132(a).” Paulsen v. CNF Inc., 559 F.3d 1061, 1081 (9th
Cir. 2009) (citing Cleghorn v. Blue Shield of Cal., 408 F.3d
1222, 1225 (9th Cir. 2005)), cert. denied, 130 S. Ct. 1053
(2010). HIPAA contains an additional express preemption
provision relevant here: ERISA § 731(a), 29 U.S.C.
§ 1191(a), which is described in greater detail below.
[1] All of these preemption provisions defeat state-law
causes of action on the merits. See, e.g., Pilot Life Ins. Co. v.
Dedeaux, 481 U.S. 41, 57 (1987) (§ 514(a) preemption);
Cleghorn, 408 F.3d at 1227 (§ 502(a) preemption). Conflict
preemption under ERISA § 502(a), however, also confers federal subject matter jurisdiction for claims that nominally arise
under state law. See, e.g., Marin Gen., 581 F.3d at 945. Ordinarily, federal question jurisdiction does not lie where a

Case: 10-36001

19058

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

Page: 7 of 21

BLUE SHIELD

defendant contends that a state-law claim is preempted by
federal law. Aetna Health Inc. v. Davila, 542 U.S. 200, 207
(2004); Marin Gen., 581 F.3d at 945. But state-law claims
may be removed to federal court if the “complete preemption”
doctrine applies. Marin Gen., 581 F.3d at 945; see also
Davila, 542 U.S. at 207-08. Relevant to this case, ERISA
§ 502(a) “ ‘set[s] forth a comprehensive civil enforcement
scheme’ ” that completely preempts state-law “ ‘causes of
action within the scope of th[es]e civil enforcement provisions
. . . .’ ” Davila, 542 U.S. at 208-09 (quoting Metro. Life, 481
U.S. at 66; Pilot Life, 481 U.S. at 54); see also Marin Gen.,
581 F.3d at 945.3
[2] Following Davila, we have distilled a two-part test for
determining whether a state-law claim is completely preempted by ERISA § 502(a): “a state-law cause of action is
completely preempted if (1) ‘an individual, at some point in
time, could have brought the claim under ERISA
§ 502(a)(1)(B),’ and (2) ‘where there is no other independent
legal duty that is implicated by a defendant’s actions.’ ”
Marin Gen., 581 F.3d at 946 (alteration omitted) (quoting
Davila, 542 U.S. at 210). Because this “two-prong test . . . is
in the conjunctive[,] [a] state-law cause of action is preempted
3

In pertinent part, ERISA § 502(a) provides:
A civil action may be brought—
(1) by a participant or beneficiary— . . .
(B) to recover benefits due to him under the terms of his
plan, to enforce his rights under the terms of the plan,
or to clarify his rights to future benefits under the terms
of the plan; . . .
(3) by a participant, beneficiary, or fiduciary (A) to enjoin
any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to
enforce any provisions of this subchapter or the terms of the
plan . . . .

29 U.S.C. § 1132(a) (footnote omitted).

Case: 10-36001

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

BLUE SHIELD

Page: 8 of 21

19059

by § 502(a)(1)(B) only if both prongs of the test are satisfied.”
Id. at 947; see also Montefiore Med. Ctr. v. Teamsters Local
272, 642 F.3d 321, 328 (2d Cir. 2011) (noting that Davila test
is conjunctive). Both Davila and Marin General Hospital discussed complete preemption by reference to § 502(a)(1)(B)
but not the other subparts of § 502(a). The complete preemption doctrine applies to the other subparts of § 502(a) as well.
See Metro. Life, 481 U.S. at 66 (“Congress has clearly manifested an intent to make causes of action within the scope of
the civil enforcement provisions of § 502(a) removable to federal court.”); Sorosky v. Burroughs Corp., 826 F.2d 794, 799
(9th Cir. 1987) (holding that complete preemption “is applicable to the section 502(a)(3) claims alleged in this case”).
Express preemption under ERISA § 514 is also governed in
relevant part by a two-prong test. Under § 514(a), ERISA
broadly preempts “any and all State laws insofar as they may
now or hereafter relate to any [covered] employee benefit
plan . . . .” 29 U.S.C. § 1144(a). But this broad preemption
provision is tempered by a savings clause in § 514(b), which
spares “any law of any State which regulates insurance, banking, or securities.” Id. § 1144(b)(2)(A). “To fall under the savings clause, a regulation must satisfy a two-part test laid out
in Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S.
329, 342 (2003).” Standard Ins. Co. v. Morrison, 584 F.3d
837, 842 (9th Cir. 2009), cert. denied, 130 S. Ct. 3275 (2010).
“ ‘First, the state law must be specifically directed toward
entities engaged in insurance.’ ” Id. (quoting Ky. Ass’n of
Health Plans, 538 U.S. at 342). Second, “it ‘must substantially affect the risk pooling arrangement between the insurer
and the insured.’ ” Id. (quoting Ky. Ass’n of Health Plans, 538
U.S. at 342).
[3] In addition to these generally applicable preemption
provisions, ERISA also contains a HIPAA-specific preemption clause. Under that clause, federal HIPAA does not “supersede any provision of State law which establishes,
implements, or continues in effect any standard or require-

Case: 10-36001

10/18/2011

19060

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

Page: 9 of 21

BLUE SHIELD

ment solely relating to health insurance issuers in connection
with group health insurance coverage except to the extent that
such standard or requirement prevents the application of a
requirement of” federal HIPAA. 29 U.S.C. § 1191(a)(1). The
provision’s plain terms appear to permit “state laws that are,
generally speaking, more favorable to the insured.” Plumb v.
Fluid Pump Serv., Inc., 124 F.3d 849, 862 n.10 (7th Cir.
1997) (dictum); accord H.R. Rep. No. 104-736, at 205 (1996)
(Conf. Rep.) (noting that HIPAA’s drafters “intend the narrowest preemption,” and to allow “[s]tate laws which are
broader than federal requirements”).4
II.

Federal Subject Matter Jurisdiction

We apply the two-part Davila test to determine whether
ERISA § 502(a) completely preempts the Fossens’ state-law
claims and confers federal jurisdiction. See Marin Gen., 581
F.3d at 945. We initially focus our attention on the Fossens’
state HIPAA cause of action.
A.

First Prong of Davila

[4] Under Davila, the first question is whether the Fossens
could have brought their complaint under § 502(a). We agree
with Blue Cross that the Fossens could have done so. They
are suing for restitution of premiums they allegedly overpaid
in violation of Montana’s HIPAA statute. As the district court
correctly recognized, the Fossens’ claim under Montana
HIPAA could also have been brought under federal HIPAA,
because the relevant state and federal HIPAA provisions are
identical. Both statutes apply to “group health plan[s]” and
4

The Secretary of Labor has promulgated a preemption regulation under
HIPAA, but that provision’s preemptive power is limited to the Secretary’s own regulations. See 45 C.F.R. § 146.143(a) (preempting state laws
that “prevent[ ] the application of a requirement of this part”; that is, Code
of Federal Regulations, title 45, part 146, “Requirements for the Group
Health Insurance Market”). Because the Secretary’s regulations are not at
issue here, we need not consider their preemptive effect, if any.

Case: 10-36001

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

BLUE SHIELD

Page: 10 of 21

19061

insurance companies “offering health insurance coverage in
connection with a group health plan.” 29 U.S.C. § 1182(b)(1);
Mont. Code Ann. § 33-22-526(2)(a). Both statutes bar such
entities from requiring individuals to pay insurance “premium[s] or contribution[s]” that are greater than other plan participants’ premiums on account of “any health status-related
factor.” 29 U.S.C. § 1182(b)(1); Mont. Code Ann. § 33-22526(2)(a). Thus, the Fossens’ suit for return of premiums
could have been brought under ERISA as well as state law.
See 29 U.S.C. § 1132(a)(3)(A), (B)(ii) (allowing ERISA plan
participants to sue “to enjoin any act or practice which violates any provision of [ERISA],” and “to obtain other appropriate equitable relief . . . to enforce any provisions of
[ERISA]”); Werdehausen v. Benicorp Ins. Co., 487 F.3d 660,
668 (8th Cir. 2007) (holding that violations of 29 U.S.C.
§ 1182 may be remedied through ERISA § 502(a)); see also
Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204,
214 (2002) (holding that ERISA permits suits for equitable
restitution “to restore to the plaintiff particular funds or property in the defendant’s possession”).
The Fossens raise two related objections to this line of reasoning: first, they contend that their claims fall outside the
scope of ERISA because they are suing with respect to Blue
Cross’s multiple employer welfare arrangement (MEWA)level contracts,5 which are not necessarily governed by
ERISA; and second, they argue that the Montana HIPAA provision is not identical to the federal provision because the language of the Montana statute could be construed differently
5

In a nutshell, the Fossens contend that separate contracts/plans exist
with respect to (1) the individual Fossens’ relationship with Fossen Brothers Farms, and (2) Fossen Brothers Farms’s relationship with Associated
Merchandisers Inc., Montana Chamber Choices Trust, and Blue Cross.
The Fossens appear to concede that the first relationship constitutes an
ERISA plan, but they argue that the second relationship is the only one at
issue in this lawsuit, and it is a “multiple employer welfare arrangement”
rather than an ERISA plan.

Case: 10-36001

19062

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

Page: 11 of 21

BLUE SHIELD

from the language of the federal statute. We disagree with
both arguments.
[5] We need not delve too deeply into the Fossens’ distinction between MEWA-level plans and ERISA plans, as it is
clear that at least part of this lawsuit involves an ERISA plan
and falls within the scope of § 502(a). An ERISA plan exists
because the individual Fossens’ employer, Fossen Brothers
Farms, pays its employees’ insurance premiums and acts as
the administrator of the insurance plan. Those facts are identical to the facts we relied upon in Crull v. GEM Insurance Co.,
58 F.3d 1386, 1390 (9th Cir. 1995), to conclude that an
employer’s conduct creates an ERISA plan. See also Credit
Managers Ass’n of S. Cal. v. Kennesaw Life & Accident Ins.
Co., 809 F.2d 617, 625 (9th Cir. 1987) (noting that “[a]n
employer . . . can establish an ERISA plan rather easily . . .
unless it is a mere advertiser who makes no contributions on
behalf of its employees”). Because at least some of the contracts at issue in this action are ERISA plans,6 this lawsuit
falls within the scope of ERISA § 502(a). The individual
Fossens are the participants in the ERISA plan, and they are
suing Blue Cross (the plan’s third-party insurance company)
to enforce rights that are provided by ERISA. See 29 U.S.C.
§ 1182(b)(1). That is enough to bring a suit within the scope
of ERISA § 502(a). See Cyr v. Reliance Standard Life Ins.
Co., 642 F.3d 1202, 1207 (9th Cir. 2011) (en banc) (permitting § 502(a)(1)(B) suit for benefits against plan’s third-party
insurer).
In their second argument against complete preemption, the
Fossens suggest that Montana HIPAA’s use of the term
“group health plan” could be construed differently from fed6

The Fossens neither alleged nor submitted evidence showing that the
terms of the purported MEWA-level plans differ from the terms of the
ERISA plan. See Cinelli v. Sec. Pac. Corp., 61 F.3d 1437, 1441 (9th Cir.
1995) (“[I]t is clear that an insurance policy may constitute the ‘written
instrument’ of an ERISA plan.”).

Case: 10-36001

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

BLUE SHIELD

Page: 12 of 21

19063

eral HIPAA’s use of that term, and that Blue Cross’s MEWA
plans should be deemed “group health plans” under state law
but not federal law. But neither the Fossens nor the amici
have offered a plausible explanation for how Montana
HIPAA’s use of “group health plan” can be interpreted differently from ERISA’s use of that term. Indeed, both Montana
law and federal law contain identical definitions of “group
health plan.” Federal HIPAA defines “group health plan” as
“an employee welfare benefit plan” that provides medical care
payments to employees. 29 U.S.C. § 1191b(a)(1). (The definition of “employee welfare benefit plan” appears at 29 U.S.C.
§ 1002(1).) Montana HIPAA is identical: it defines “group
health plan” as “an employee welfare benefit plan, as defined
in 29 U.S.C. § 1002(1),” that provides medical care payments
to employees. Mont. Code Ann. § 33-22-140(11) (emphasis
added). We are unaware of any canon of statutory construction that allows us to ignore the Montana legislature’s explicit
incorporation of ERISA’s definition of an operative term. Cf.
State v. Tower, 881 P.2d 1317, 1319 (Mont. 1994) (“When
Montana’s legislature adopts a statute from a sister state,
Montana courts follow the general rule of also adopting the
construction which has been placed upon that statute by the
highest court of the sister state.”).
[6] In sum, because the Fossens “ ‘could have brought
[their] claim under ERISA § 502(a)[ ],’ ” the first prong of
Davila has been satisfied. Marin Gen., 581 F.3d at 946 (quoting Davila, 542 U.S. at 210).
B.

Second Prong of Davila

To apply the second part of Davila’s § 502(a) conflict preemption test, we must determine whether the state-law claims
“arise independently of ERISA or the plan terms.” Davila,
542 U.S. at 212. In other words we must ask whether or not
an “independent legal duty . . . is implicated by [the] defendant’s actions.” Id. at 210.

Case: 10-36001

19064

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

Page: 13 of 21

BLUE SHIELD

This question requires a practical, rather than a formalistic,
analysis because “[c]laimants simply cannot obtain relief by
dressing up an ERISA benefits claim in the garb of a state law
tort.” Cleghorn, 408 F.3d at 1225 (quoting Dishman v.
UNUM Life Ins. Co. of Am., 269 F.3d 974, 983 (9th Cir.
2001)). As the Davila Court warned, “distinguishing between
pre-empted and non-pre-empted claims based on the particular label affixed to them would elevate form over substance
and allow parties to evade the pre-emptive scope of ERISA
simply by relabeling their . . . claims.” Davila, 542 U.S. at
214 (internal quotation marks omitted).
[7] Consistent with this practical approach, the Supreme
Court has held that § 502(a) preempts various state laws that,
at first glance, appear to be independent of ERISA. For example, in Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 143
(1990), the Court addressed a state-law wrongful discharge
claim arising out of a “termination motivated by an employer’s desire to prevent a pension from vesting.” The Court held
that this claim was conflict preempted because, although the
claim was nominally premised on a state-law tort duty that
was separate from ERISA, the claim was identical to “a right
expressly guaranteed by [ERISA] § 510 and exclusively
enforced by § 502(a).” Id. at 145. Similarly, in Davila, the
Court addressed a state law that imposed a duty on insurers
to use ordinary care when making medical treatment decisions. 542 U.S. at 204-06. The Court rejected the court of
appeals’s reasoning that the plaintiff “request[ed] ‘tort damages’ arising from ‘an external, statutorily imposed duty of
‘ordinary care.’ ” Id. at 206 (quoting Roark v. Humana, Inc.,
307 F.3d 298, 309 (5th Cir. 2002)). Instead, the Court refused
to “elevate form over substance,” and held the state-law cause
of action merely duplicated rights and remedies available
under ERISA, and therefore was preempted. Id. at 214; see
also Cleghorn, 408 F.3d at 1226 (holding that state-law statutory claim was completely preempted under Davila because
“the factual basis of the complaint . . . was the denial of reimbursement of plan benefits to Cleghorn”).

Case: 10-36001

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

BLUE SHIELD

Page: 14 of 21

19065

[8] As in Davila and Ingersoll-Rand, the Fossens’ statelaw HIPAA claim is identical to the federal-law HIPAA claim
they could have filed. The state-law claim, although purportedly separate and distinct from ERISA, “falls squarely within
the ambit” of federal HIPAA. Ingersoll-Rand, 498 U.S. at
142. Indeed, the state statute is expressly dependent on federal
law (and thus is not “independent” of federal law for purposes
of Davila) because the statute, by its very terms, applies only
to ERISA plans. See Mont. Code Ann. § 33-22-526(2)(a) (law
applies only with respect to “group health plan”); Mont. Code
Ann. § 33-22-140(11) (defining “group health plan” as “an
employee welfare benefit plan, as defined in 29 U.S.C.
§ 1002(1)”). As in Cleghorn, the Fossens’ state-law HIPAA
claim “ ‘exist[s] here only because of [Blue Shield’s] administration of ERISA-regulated benefit plans.’ ” Cleghorn, 408
F.3d at 1226 (quoting Davila, 542 U.S. at 213). Accordingly,
the second prong of Davila has been satisfied, and the
Fossens’ state HIPAA claim is completely preempted by
ERISA § 502(a).
[9] In an effort to avoid complete preemption, the Fossens
and amici argue that § 502(a) conflict preemption does not
apply because the state HIPAA law is exempted from express
preemption under ERISA § 514 and § 731. But as the Court
stressed in Davila, § 502(a) conflict preemption is distinct
from express preemption. 542 U.S. at 214 n.4, 217-18. By
explicitly decoupling the § 502(a) complete preemption and
§ 514 express preemption analyses, Davila’s reasoning abrogated our prior statement that:
Complete preemption can be invoked only when two
conditions are satisfied: (1) ERISA expressly preempts the state law cause of action under 29 U.S.C.
§ 1144(a) (i.e. “conflict preemption”) and (2) that
cause of action is encompassed by the scope of the
civil enforcement provision of ERISA, 29 U.S.C.
§ 1132(a) (i.e. “displacement”).

Case: 10-36001

19066

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

Page: 15 of 21

BLUE SHIELD

Abraham v. Norcal Waste Sys., Inc., 265 F.3d 811, 819 (9th
Cir. 2001); see also Funkhouser v. Wells Fargo Bank, N.A.,
289 F.3d 1137, 1141-42 (9th Cir. 2002); Rutledge v. Seyfarth,
Shaw, Fairweather & Geraldson, 201 F.3d 1212, 1216 (9th
Cir. 2000), amended, 208 F.3d 1170 (9th Cir. 2000); Emard
v. Hughes Aircraft Co., 153 F.3d 949, 953 (9th Cir. 1998),
abrogated on other grounds by Egelhoff v. Egelhoff ex rel.
Breiner, 532 U.S. 141 (2001); Toumajian v. Frailey, 135 F.3d
648, 654 (9th Cir. 1998); Buster v. Greisen, 104 F.3d 1186,
1188 (9th Cir. 1997).
[10] Because this test for complete preemption cannot be
reconciled with the language or holding of Davila (which
found complete preemption under § 502(a) to be independent
of express preemption under ERISA § 514), our pre-Davila
cases articulating this complete preemption test are no longer
good law. See Miller v. Gammie, 335 F.3d 889, 900 (9th Cir.
2003) (en banc); accord Cleghorn, 408 F.3d at 1226 n.6
(“[W]e need not decide whether California’s section
1371.4(c) is excepted from preemption under section
514(b)(2)(A) as a state regulation of insurance. Preemption
under ERISA section 502(a) is not affected by that exception.” (citation omitted)).
[11] Whether or not the state HIPAA statute is exempt
from § 514 and § 731 express preemption, it may still be conflict preempted under § 502(a)—and we hold that it is.
Although the Secretary of Labor’s contrary opinion is entitled
to respectful consideration, see generally United States v.
Mead Corp., 533 U.S. 218, 227-28 (2001) (summarizing the
Court’s applications of “Skidmore” deference, see Skidmore v.
Swift & Co., 323 U.S. 134, 139-40 (1944)), we decline to
defer to a position that fails to grapple with the full implications of conflict preemption cases such as Davila, IngersollRand, and Cleghorn.
Much of the Secretary’s conflict-preemption discussion
focuses on Congress’s intent, expressed in ERISA § 731, to

Case: 10-36001

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

BLUE SHIELD

Page: 16 of 21

19067

allow states to expand upon the rights created by federal
HIPAA. We express no opinion about whether our holding
would apply to a state HIPAA statute that provided additional
protections beyond federal HIPAA and was not exactly identical to federal HIPAA. Cf. H.R. Rep. No. 104-736, at 205
(1996) (Conf. Rep.) (stating the conference committee’s
intent to preserve “[s]tate laws which are broader than federal
requirements” (emphasis added)). Likewise, we need not
decide whether Blue Cross is correct that, under the logic of
UNUM Life Insurance Co. of America v. Ward, 526 U.S. 358,
377 n.7 (1999), a plaintiff may vindicate a non-preempted
state-HIPAA right by “appl[ying] [the] saved state insurance
law as a relevant rule of decision in his § 502(a) action”; the
Fossens have neither pleaded this theory in their complaint
nor asserted it in their briefs.
C.

Summary

[12] Because the Fossens’ state HIPAA cause of action
could have been brought under ERISA § 502(a), and because
that cause of action is identical to and expressly dependent
upon ERISA, the district court properly denied the Fossens’
motion to remand and exercised jurisdiction over this case.7
7

Although the district court did not explicitly discuss supplemental
jurisdiction, the court evidently concluded that any non-preempted statelaw claims were “so related to claims in the action within such original
jurisdiction that they form part of the same case or controversy.” 28
U.S.C. § 1367(a); see also 28 U.S.C. § 1441(c). We agree with that conclusion, but add that the district court is free to reexamine this issue on
remand. See Carlsbad Tech., Inc. v. HIF Bio, Inc., 129 S. Ct. 1862,
1866-67 (2009) (collecting authorities); Acri v. Varian Assocs., Inc., 114
F.3d 999, 1000 (9th Cir. 1997) (en banc).

Case: 10-36001

10/18/2011

19068

III.

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

Page: 17 of 21

BLUE SHIELD

Summary Judgment

A.

HIPAA

[13] Because the Fossens’ state-law HIPAA claim is
conflict-preempted by § 502(a), it fails on the merits. See,
e.g., Cleghorn, 408 F.3d at 1227. The district court proceeded
cautiously and construed the Fossens’ state HIPAA claim as
a federal HIPAA claim. The court then held that Blue Cross
did not violate HIPAA as a matter of law. But because the
Fossens never requested that the district court recharacterize
their state-law claim in this manner, the court need not have
taken this extra step; it simply could have granted summary
judgment for Blue Cross on account of § 502(a) conflict preemption. Compare Stewart v. U.S. Bancorp, 297 F.3d 953,
959 (9th Cir. 2002) (holding that plaintiffs bear the “burden
to amend their complaint” to assert claims that are not preempted by ERISA), with Crull, 58 F.3d at 1391 (“In their
motion opposing summary judgment, the Crulls asked that,
should the District Court find their state law claims preempted, they be given relief under ERISA’s civil enforcement
scheme instead . . . .”). In any event, because the Fossens’
briefs do not contest the district court’s conclusions under
federal law, they have waived such arguments. Greenwood v.
FAA, 28 F.3d 971, 977 (9th Cir. 1994).
B.

Unfair Insurance Practices

The Fossens do, however, contest the district court’s grant
of summary judgment on their statutory unfair insurance practices claim. We reverse the district court’s grant of summary
judgment and remand this claim for further consideration.
1.

Preemption

To determine whether the Fossens’ state-law unfair insurance practices claim is preempted by ERISA on the merits,
we must consider express preemption under ERISA § 514 and

Case: 10-36001

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

BLUE SHIELD

Page: 18 of 21

19069

conflict preemption under ERISA § 502(a). See Paulsen, 559
F.3d at 1081.
[14] With respect to preemption under § 514, the state statute meets both parts of Kentucky Ass’n of Health Plans v. Miller’s standard governing the § 514(b)(2)(A) exception to
preemption: the state statute is “specifically directed toward
entities engaged in insurance” and it “substantially affect[s]
the risk pooling arrangement between the insurer and the
insured.” Morrison, 584 F.3d at 842 (internal quotation marks
omitted).8 The statute is plainly directed at insurance companies because it regulates insurance rates and premiums, Mont.
Code Ann. § 33-18-206(2), and, in fact, the statute appears in
a section of the Montana Code entitled “Insurer’s Relations
with Insured and Claimant,” Mont. Code Ann. tit. 33, ch. 18,
pt. 2. Moreover, the statute affects the risk-pooling arrangement because it regulates insurers’ ability to obtain a premium
that accurately reflects the risk being insured. See Morrison,
584 F.3d at 844 (“Insurance companies’ core function is to
accept a number of risks from policyholders in exchange for
premiums.”); see also Ky. Ass’n of Health Plans, 538 U.S. at
338-39 (stating that laws that “alter the scope of permissible
bargains between insurers and insureds . . . substantially
affect[ ] the type of risk pooling arrangements that insurers
may offer”). The statute is therefore exempt from § 514(a)
preemption because it falls within the insurance savings
clause of § 514(b)(2)(A).
[15] With respect to conflict preemption, the unfair insurance practices statute does not run afoul of § 502(a) and Davlia because the Fossens seek relief (restitution) that is
consistent with ERISA’s enforcement scheme, cf. Elliot v.
Fortis Benefits Ins. Co., 337 F.3d 1138, 1147 (9th Cir. 2003)
(holding that Montana cause of action for claims-processing
violation was preempted by § 502(a) because it permitted
8

The parties do not dispute that the statute “relate[s] to” an ERISA plan.
29 U.S.C. § 1144(a).

Case: 10-36001

10/18/2011

19070

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

Page: 19 of 21

BLUE SHIELD

remedies unavailable under ERISA), and because the state
anti-discrimination rule is completely “independent” of
ERISA, Davila, 542 U.S. at 210. We agree with the Third Circuit’s analysis of a nearly identical New Jersey statute: conflict preemption is inappropriate because no “provision of
ERISA expressly guarantees th[e] same right” as the state
statute. PAS v. Travelers Ins. Co., 7 F.3d 349, 356 (3d Cir.
1993). Unlike the state-law HIPAA claim, the unfair insurance practices statute applies without regard to the existence
of an ERISA plan. Cf. Cleghorn, 408 F.3d at 1226 (holding
that second prong of Davila was satisfied where the state statute applied “because of [Blue Shield’s] administration of
ERISA-regulated benefit plans”). Also, the unfair insurance
practices statute creates a right that is separate from and could
not possibly be remedied under ERISA. Whereas HIPAA
(both the state and federal versions) prohibits plans and their
insurers from charging different premiums on account of
“health status-related factor[s],” 29 U.S.C. § 1182(b)(1);
Mont. Code Ann. § 33-22-526(2)(a), the unfair insurance
practices statute applies more broadly to bar “any unfair discrimination” with respect to premiums, Mont. Code Ann.
§ 33-18-206(2) (emphasis added); see, e.g., McCarter v. Glacier Gen. Assurance Co., 546 P.2d 249, 251 (Mont. 1976).
Because these statutes are not identical in scope (as is the case
with the state and federal HIPAA provisions), they are not
conflict preempted.
2.

Merits

With respect to the merits of this claim, we disagree with
Blue Cross’s argument that the unfair insurance practices
claim is “inextricably intertwined” with the state HIPAA
claim and accordingly fails as a matter of law. Fairly read, the
Fossens’ complaint seeks to remedy distinct violations of both
state HIPAA and state unfair insurance practices statutes.
These separate statutes require separate legal analyses. Neither the district court’s decision nor the parties’ briefs provide
the necessary analysis of this claim. We remand so that the

Case: 10-36001

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

BLUE SHIELD

Page: 20 of 21

19071

district court may consider the merits of the unfair insurance
practice claim in the first instance. See Golden Gate Hotel
Ass’n v. City & Cnty. of S.F., 18 F.3d 1482, 1487 (9th Cir.
1994). The Fossens’ breach of contract claim, as pleaded in
the complaint, is premised in part on the state unfair insurance
practices claim, and accordingly survives summary judgment
along with the unfair insurance practices claim.
IV.

Leave to Amend

The Fossens further contend that they should be allowed to
amend their complaint to state a breach of contract claim
related to Blue Cross’s agent’s representations prior to their
initial purchase of a Blue Cross policy. We disagree. The district court was within its discretion when it declined to give
the Fossens leave to amend, as they first asserted this theory
in opposition to summary judgment. See La Asociacion de
Trabajadores de Lake Forest v. City of Lake Forest, 624 F.3d
1083, 1089 (9th Cir. 2010); see also AmerisourceBergen, 465
F.3d at 953 (stating that “an eight month delay between the
time of obtaining a relevant fact and seeking a leave to amend
is unreasonable,” and that a plaintiff may not “drastically
change[ ] its litigation theory” “twelve months into the litigation”).
CONCLUSION
[16] The district court properly exercised jurisdiction over
this matter because the Fossens’ Montana HIPAA claim is
completely preempted by ERISA § 502(a). We reverse and
remand the district court’s grant of summary judgment to
Blue Cross with respect to the Fossens’ unfair insurance practices claim and part of the related breach of contract claim (as
pleaded in the complaint). The district court did not abuse its
discretion by declining to permit the Fossens to amend their
complaint.

Case: 10-36001

19072

10/18/2011

ID: 7931527

FOSSEN v. BLUE CROSS

AND

DktEntry: 49-1

Page: 21 of 21

BLUE SHIELD

We remand so that the district court may address the state
unfair insurance practices claim in the first instance. Each
party shall bear its own costs.
AFFIRMED in part, REVERSED in part, and
REMANDED.