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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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California

United States District Court

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STANFORD HOSPITAL AND CLINICS,

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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

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Plaintiff Stanford Hospital and Clinics, a medical care provider, entered into a preferred

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hospital agreement with Private Health Care Systems, a non-party to this civil action, to provide

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medical care at reduced rates to covered individuals. The complaint alleges that Hawaii

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Management Alliance Association, doing business as Hawaii Medical Assurance Association,

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a plan administrator, agreed to be bound by the terms of the preferred hospital agreement and

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thereby gained access to the reduced rates negotiated by Stanford and Private Health Care

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Systems. Under the terms of the preferred hospital agreement, Hawaii Medical was obligated to

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reimburse Stanford for these discounted-rate medical services.

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In March 2011, Stanford provided medical services to a covered individual and submitted

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a claim directly to Hawaii Medical. The complaint alleges that Hawaii Medical verified via

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phone to Stanford that the covered individual had active healthcare coverage. The complaint

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further alleges that Hawaii Medical then refused to pay for the care after the services were

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provided, thereby violating the preferred hospital agreement and an oral contract.

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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.

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For the Northern District of California

Superior Court of California, County of Santa Clara alleging claims for: (1) breach of written

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United States District Court

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Hawaii Medical removed and filed a motion to dismiss the complaint, arguing that Stanford’s

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state-law claims are preempted by ERISA. Stanford responds that its claims are not preempted

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because they are based on both the preferred hospital agreement and the oral representations

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Hawaii Medical made to Stanford and, as such, are independent of the plan.

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ANALYSIS

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There are two types of preemption under ERISA: (1) complete preemption under

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Section 502(a), and (2) conflict preemption under Section 514(a). Complete preemption applies

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where a complaint asserts a state-law claim that falls within the scope of one of the civil

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enforcement provisions of ERISA. Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004).

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In contrast, the conflict preemption provision under Section 514(a) of ERISA preempts state

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laws “insofar as they . . . relate to any employee benefit plan.” Hawaii Medical contends that

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Stanford’s state-law claims are preempted under both complete and conflict preemption.

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This order disagrees.
COMPLETE PREEMPTION.

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1.

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The Supreme Court has held that a state-law claim is completely preempted by ERISA

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if: (1) an individual at some point in time could have brought the claim under ERISA

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Section 502(a)(1)(B), and (2) where there is no other independent legal duty that is implicated

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by a defendant’s actions. A state-law claim is only completely preempted if both prongs are
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satisfied. Davila, 542 U.S. at 210. Hawaii Medical has failed to satisfy either prong of the

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Davila test.

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As to the first prong, ERISA Section 502(a)(1)(B) provides that a “participant or

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beneficiary” of an ERISA plan may bring a civil action “to recover benefits due to him under

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the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights

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to future benefits under the terms of the plan . . . .” Blue Cross of Cal. v. Anesthesia Care

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Assocs. Med. Grp., Inc., 187 F.3d 1045, 1051 (9th Cir. 1999). Here, Stanford is not suing

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as a beneficiary or as an assignee of the covered individual’s rights under the plan but, rather,

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pursuant to contractual rights allegedly conferred by the preferred hospital agreement and oral
representations made by Hawaii Medical.

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For the Northern District of California

United States District Court

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Hawaii Medical asserts that complete preemption applies because Stanford is attempting

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to recover benefits for the treatment of a patient who is covered by an ERISA plan. Our court of

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appeals’ decision in Blue Cross is controlling. Like here, Blue Cross involved medical providers

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who were seeking contract damages from an insurer based upon a breach of the provider

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agreements. The insurer argued that because the patients were beneficiaries of ERISA health

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plans, the hospitals were claiming benefits under ERISA plans. In rejecting that argument,

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the appellate decision found that the claims, “which arise from the terms of their provider

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agreements and could not be asserted by their patient-assignors, are not claims for benefits under

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the terms of the ERISA plans, and hence do not fall within [Section] 502(a)(1)(B).” Id. at 1050.

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So too here. Based on the allegations in the complaint, the covered individual could not have

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asserted the claims made by Stanford as she was not a party to the preferred hospital agreement

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or the oral contract between Stanford and Hawaii Medical. The mere fact that the patient treated

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by Stanford was covered by an ERISA plan does not mean, in and of itself, that the claims could

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have been brought under Section 502(a)(1)(B).

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As to the second prong, Stanford’s allegations implicate an independent legal duty.

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Where a medical provider predicates its suit against an insurer on an agreement other than the

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health plan, its claims are not preempted. Marin Gen. Hosp. v. Modesto & Empire Traction Co.,

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581 F.3d 941, 950–51 (9th Cir. 2009). Here, Stanford’s claims are based on Hawaii Medical’s
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failure to pay for medical services rendered in violation of the preferred hospital agreement and

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oral representations. The complaint therefore alleges the existence of such an independent duty.

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Accordingly, Stanford’s claims are not subject to complete preemption.

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2.

CONFLICT PREEMPTION.

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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

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with or reference to such plan.” New York State Conference of Blue Cross & Blue Shield

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Plans v. Travelers Ins. Co., 514 U.S. 645, 656 (1995). Under the relationship test, courts “look

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to whether the state law encroaches on relationships regulated by ERISA, such as between plan

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For the Northern District of California

“insofar as they . . . relate to any employee benefit plan.” The Supreme Court determined that a

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United States District Court

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and plan member, plan and employer, and plan and trustee.” Blue Cross, 187 F.3d at 1053.

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State-law claims did not “relate to” an ERISA plan where the “adjudication of the claim required

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no interpretation of the plan, no distribution of benefits, and no dispute regarding any benefits

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previously paid.” Peralta v. Hispanic Business, Inc., 419 F.3d 1064, 1069 (9th Cir. 2005).

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Here, the complaint alleges that both a separate written and verbal contract, which

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Hawaii Medical and Stanford are both a party to, exists (Compl. ¶¶ 7, 8, 11). Hawaii Medical’s

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duty to reimburse Stanford for the covered individual’s care arises from those contracts (id. at

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¶¶ 16, 22). The complaint makes no reference to the effect of the ERISA plan on Stanford’s

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claims and whether or not the preferred hospital agreement or oral agreement is impacted by

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the ERISA plan. Stanford also stresses in its opposition that it is not seeking to recover as

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an assignee of the covered individual’s benefits but, rather, pursuant to the separate contracts

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between Stanford and Hawaii Medical.

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Our court of appeals has held that conflict preemption is not applicable to state-law

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claims that are: (1) asserted by hospitals directly against plan administrators based upon

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contracts between the two parties, and (2) where the interpretation of the contracts did not

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implicate an ERISA plan. See Blue Cross, 187 F.3d at 1045; The Meadows v. Employers

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Health Ins., 47 F.3d 1006 (9th Cir. 1995). Hawaii Medical argues that these decisions are

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distinguishable because Stanford’s claims cannot exist without the plan. There is no connection
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between Stanford and Hawaii Medical except for the connection arising through the patient’s

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enrollment in the plan. Accordingly, Hawaii Medical argues that Stanford’s claims relate to

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the plan because disposition of the claims will require interpretation of the plan’s provisions.

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Hawaii Medical relies on a factually similar decision which found that the plaintiff’s claims

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were subject to conflict preemption. See Fresno Community Hosp. and Medical Center v. Souza,

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2011 WL 2120272 (E.D. Cal. July 23, 2007) (Judge Lawrence J. O’Neill). In Souza, as here, a

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medical provider asserted state-law claims against plan administrators for failure to pay for care

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provided to a patient pursuant to the terms of a preferred hospital agreement.

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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

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For the Northern District of California

United States District Court

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the ERISA plan. The decision concluded that disposition of the state-law claims required

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an application of the ERISA plan and, thus, the “relates to” requirement was satisfied.

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The holding in Souza points to the exact problem with Hawaii Medical’s argument here.

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Applying the analysis in Souza would require this order to look outside the four corners of the

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complaint. Contrary to Hawaii Medical’s arguments, whether or not the patient is covered by

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an ERISA plan is not dispositive. What is essential are the terms and conditions of the preferred

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hospital agreement and oral agreement between the parties. If those agreements are subject to

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the limitations of the ERISA plan or that Stanford’s claims otherwise require an interpretation of

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the ERISA plan, then Hawaii Medical has a strong conflict preemption argument. Neither party,

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however, has appended the preferred hospital agreement. Thus, based on this record at this stage

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in the litigation, it would be premature to make such a finding. This order, therefore, finds that

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based on the record, it is plausible for plaintiff to prove a set of facts that would defeat Hawaii

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Medical’s preemption argument. Hawaii Medical may, of course, raise its preemption argument

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again in a timely motion for summary judgment.

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CONCLUSION
For the reasons stated above, Hawaii Medical’s motion to dismiss is DENIED.

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The answer is due on December 21, 2012. The hearing scheduled for December 20, 2012,

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is VACATED.

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IT IS SO ORDERED.

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Dated: December 11, 2012.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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For the Northern District of California

United States District Court

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