Stanford Hospital and Clinics v. Hawaii Management Alliance Association

Filing 19

ORDER DENYING DEFENDANT'S MOTION TO DISMISS AND VACATING HEARING by Judge William Alsup [denying 8 Motion to Dismiss] (whasec, COURT STAFF) (Filed on 12/11/2012)

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1 2 3 4 5 6 7 IN THE UNITED STATES DISTRICT COURT 8 FOR THE NORTHERN DISTRICT OF CALIFORNIA 9 11 For the Northern District of California United States District Court 10 STANFORD HOSPITAL AND CLINICS, 12 13 14 15 16 17 18 19 20 21 22 No. C 12-05273 WHA Plaintiff, v. HAWAII MANAGEMENT ALLIANCE ASSOCIATION, doing business as HAWAII MEDICAL ASSURANCE ASSOCIATION, a Hawaii domestic mutual benefit society, and DOES 1 THROUGH 25, INCLUSIVE, ORDER DENYING DEFENDANT’S MOTION TO DISMISS AND VACATING HEARING Defendants. / INTRODUCTION In this contract dispute action, defendant seeks to dismiss plaintiff’s complaint. For the following reasons, defendant’s motion is DENIED. STATEMENT 23 Plaintiff Stanford Hospital and Clinics, a medical care provider, entered into a preferred 24 hospital agreement with Private Health Care Systems, a non-party to this civil action, to provide 25 medical care at reduced rates to covered individuals. The complaint alleges that Hawaii 26 Management Alliance Association, doing business as Hawaii Medical Assurance Association, 27 a plan administrator, agreed to be bound by the terms of the preferred hospital agreement and 28 thereby gained access to the reduced rates negotiated by Stanford and Private Health Care 1 Systems. Under the terms of the preferred hospital agreement, Hawaii Medical was obligated to 2 reimburse Stanford for these discounted-rate medical services. 3 In March 2011, Stanford provided medical services to a covered individual and submitted 4 a claim directly to Hawaii Medical. The complaint alleges that Hawaii Medical verified via 5 phone to Stanford that the covered individual had active healthcare coverage. The complaint 6 further alleges that Hawaii Medical then refused to pay for the care after the services were 7 provided, thereby violating the preferred hospital agreement and an oral contract. 8 Stanford commenced this action by filing a complaint against Hawaii Medical in the contract, (2) breach of oral contract, (3) negligent misrepresentation and (4) quantum meruit. 11 For the Northern District of California Superior Court of California, County of Santa Clara alleging claims for: (1) breach of written 10 United States District Court 9 Hawaii Medical removed and filed a motion to dismiss the complaint, arguing that Stanford’s 12 state-law claims are preempted by ERISA. Stanford responds that its claims are not preempted 13 because they are based on both the preferred hospital agreement and the oral representations 14 Hawaii Medical made to Stanford and, as such, are independent of the plan. 15 ANALYSIS 16 There are two types of preemption under ERISA: (1) complete preemption under 17 Section 502(a), and (2) conflict preemption under Section 514(a). Complete preemption applies 18 where a complaint asserts a state-law claim that falls within the scope of one of the civil 19 enforcement provisions of ERISA. Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004). 20 In contrast, the conflict preemption provision under Section 514(a) of ERISA preempts state 21 laws “insofar as they . . . relate to any employee benefit plan.” Hawaii Medical contends that 22 Stanford’s state-law claims are preempted under both complete and conflict preemption. 23 This order disagrees. COMPLETE PREEMPTION. 24 1. 25 The Supreme Court has held that a state-law claim is completely preempted by ERISA 26 if: (1) an individual at some point in time could have brought the claim under ERISA 27 Section 502(a)(1)(B), and (2) where there is no other independent legal duty that is implicated 28 by a defendant’s actions. A state-law claim is only completely preempted if both prongs are 2 1 satisfied. Davila, 542 U.S. at 210. Hawaii Medical has failed to satisfy either prong of the 2 Davila test. 3 As to the first prong, ERISA Section 502(a)(1)(B) provides that a “participant or 4 beneficiary” of an ERISA plan may bring a civil action “to recover benefits due to him under 5 the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights 6 to future benefits under the terms of the plan . . . .” Blue Cross of Cal. v. Anesthesia Care 7 Assocs. Med. Grp., Inc., 187 F.3d 1045, 1051 (9th Cir. 1999). Here, Stanford is not suing 8 as a beneficiary or as an assignee of the covered individual’s rights under the plan but, rather, 9 pursuant to contractual rights allegedly conferred by the preferred hospital agreement and oral representations made by Hawaii Medical. 11 For the Northern District of California United States District Court 10 Hawaii Medical asserts that complete preemption applies because Stanford is attempting 12 to recover benefits for the treatment of a patient who is covered by an ERISA plan. Our court of 13 appeals’ decision in Blue Cross is controlling. Like here, Blue Cross involved medical providers 14 who were seeking contract damages from an insurer based upon a breach of the provider 15 agreements. The insurer argued that because the patients were beneficiaries of ERISA health 16 plans, the hospitals were claiming benefits under ERISA plans. In rejecting that argument, 17 the appellate decision found that the claims, “which arise from the terms of their provider 18 agreements and could not be asserted by their patient-assignors, are not claims for benefits under 19 the terms of the ERISA plans, and hence do not fall within [Section] 502(a)(1)(B).” Id. at 1050. 20 So too here. Based on the allegations in the complaint, the covered individual could not have 21 asserted the claims made by Stanford as she was not a party to the preferred hospital agreement 22 or the oral contract between Stanford and Hawaii Medical. The mere fact that the patient treated 23 by Stanford was covered by an ERISA plan does not mean, in and of itself, that the claims could 24 have been brought under Section 502(a)(1)(B). 25 As to the second prong, Stanford’s allegations implicate an independent legal duty. 26 Where a medical provider predicates its suit against an insurer on an agreement other than the 27 health plan, its claims are not preempted. Marin Gen. Hosp. v. Modesto & Empire Traction Co., 28 581 F.3d 941, 950–51 (9th Cir. 2009). Here, Stanford’s claims are based on Hawaii Medical’s 3 1 failure to pay for medical services rendered in violation of the preferred hospital agreement and 2 oral representations. The complaint therefore alleges the existence of such an independent duty. 3 Accordingly, Stanford’s claims are not subject to complete preemption. 4 2. CONFLICT PREEMPTION. 5 The conflict preemption provision of Section 514(a) of ERISA preempts state laws state-law claim “relates to” an employee benefit plan governed by ERISA “if it has a connection 8 with or reference to such plan.” New York State Conference of Blue Cross & Blue Shield 9 Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995). Under the relationship test, courts “look 10 to whether the state law encroaches on relationships regulated by ERISA, such as between plan 11 For the Northern District of California “insofar as they . . . relate to any employee benefit plan.” The Supreme Court determined that a 7 United States District Court 6 and plan member, plan and employer, and plan and trustee.” Blue Cross, 187 F.3d at 1053. 12 State-law claims did not “relate to” an ERISA plan where the “adjudication of the claim required 13 no interpretation of the plan, no distribution of benefits, and no dispute regarding any benefits 14 previously paid.” Peralta v. Hispanic Business, Inc., 419 F.3d 1064, 1069 (9th Cir. 2005). 15 Here, the complaint alleges that both a separate written and verbal contract, which 16 Hawaii Medical and Stanford are both a party to, exists (Compl. ¶¶ 7, 8, 11). Hawaii Medical’s 17 duty to reimburse Stanford for the covered individual’s care arises from those contracts (id. at 18 ¶¶ 16, 22). The complaint makes no reference to the effect of the ERISA plan on Stanford’s 19 claims and whether or not the preferred hospital agreement or oral agreement is impacted by 20 the ERISA plan. Stanford also stresses in its opposition that it is not seeking to recover as 21 an assignee of the covered individual’s benefits but, rather, pursuant to the separate contracts 22 between Stanford and Hawaii Medical. 23 Our court of appeals has held that conflict preemption is not applicable to state-law 24 claims that are: (1) asserted by hospitals directly against plan administrators based upon 25 contracts between the two parties, and (2) where the interpretation of the contracts did not 26 implicate an ERISA plan. See Blue Cross, 187 F.3d at 1045; The Meadows v. Employers 27 Health Ins., 47 F.3d 1006 (9th Cir. 1995). Hawaii Medical argues that these decisions are 28 distinguishable because Stanford’s claims cannot exist without the plan. There is no connection 4 1 between Stanford and Hawaii Medical except for the connection arising through the patient’s 2 enrollment in the plan. Accordingly, Hawaii Medical argues that Stanford’s claims relate to 3 the plan because disposition of the claims will require interpretation of the plan’s provisions. 4 Hawaii Medical relies on a factually similar decision which found that the plaintiff’s claims 5 were subject to conflict preemption. See Fresno Community Hosp. and Medical Center v. Souza, 6 2011 WL 2120272 (E.D. Cal. July 23, 2007) (Judge Lawrence J. O’Neill). In Souza, as here, a 7 medical provider asserted state-law claims against plan administrators for failure to pay for care 8 provided to a patient pursuant to the terms of a preferred hospital agreement. 9 That decision, however, relied upon the express language of the preferred hospital agreement which stated that the agreement was subject to the exclusions and limitations of 11 For the Northern District of California United States District Court 10 the ERISA plan. The decision concluded that disposition of the state-law claims required 12 an application of the ERISA plan and, thus, the “relates to” requirement was satisfied. 13 The holding in Souza points to the exact problem with Hawaii Medical’s argument here. 14 Applying the analysis in Souza would require this order to look outside the four corners of the 15 complaint. Contrary to Hawaii Medical’s arguments, whether or not the patient is covered by 16 an ERISA plan is not dispositive. What is essential are the terms and conditions of the preferred 17 hospital agreement and oral agreement between the parties. If those agreements are subject to 18 the limitations of the ERISA plan or that Stanford’s claims otherwise require an interpretation of 19 the ERISA plan, then Hawaii Medical has a strong conflict preemption argument. Neither party, 20 however, has appended the preferred hospital agreement. Thus, based on this record at this stage 21 in the litigation, it would be premature to make such a finding. This order, therefore, finds that 22 based on the record, it is plausible for plaintiff to prove a set of facts that would defeat Hawaii 23 Medical’s preemption argument. Hawaii Medical may, of course, raise its preemption argument 24 again in a timely motion for summary judgment. 25 26 27 28 5 1 2 CONCLUSION For the reasons stated above, Hawaii Medical’s motion to dismiss is DENIED. 3 The answer is due on December 21, 2012. The hearing scheduled for December 20, 2012, 4 is VACATED. 5 6 IT IS SO ORDERED. 7 8 Dated: December 11, 2012. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6

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