Marquette General Hospital, Inc. v. Starmark Insurance Co.
Filing
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OPINION; signed by Judge Gordon J. Quist (Judge Gordon J. Quist, jmt)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
NORTHERN DIVISION
___________________________
MARQUETTE GENERAL
HOSPITAL, INC.,
Plaintiff,
Case No. 2:11-CV-31
-vs-
HON. GORDON J. QUIST
STARMARK INSURANCE CO.,
Defendant.
_____________________________/
OPINION
Plaintiff, Marquette General Hospital, Inc. (“MGHI”) filed a one-count complaint in the
Marquette Circuit Court against Defendant, Trustmark Life Insurance Company1 (“Trustmark”),
seeking to recover medical benefits under a Trustmark group insurance policy (the “Policy”) for
medical services MGHI provided to the minor children of Joshua and Andrea Osborn. MGHI
attached to its complaint a copy of the assignment it had received from the Osborns, which indicated
that the insurance policy was issued to Joshua Osborn’s employer, Shute Oil Company, Inc.
Trustmark removed the case to this Court on January 24, 2011, pursuant to 28 U.S.C. § 1441(a) and
(b), on the basis of both federal question jurisdiction under 28 U.S.C. § 1331 and diversity
jurisdiction under 28 U.S.C. § 1332. With regard to federal question jurisdiction, Trustmark alleged
that MGHI’s claims are completely preempted by the Employee Retirement Income Security Act
of 1974 (“ERISA”), as amended, 29 U.S.C. § 1001, et seq.
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In its complaint, MGHI incorrectly identified Trustmark as Starmark Insurance Co. Although neither party
has moved to amend the caption, for purposes of the instant motions the Court will refer to Defendant as Trustmark.
Trustmark has now moved to dismiss MGHI’s complaint on the grounds that the sole state
law claim MGHI asserts is preempted by ERISA and any claim for medical benefits is time-barred
under the Policy’s three-year limitations period. In response, MGHI has moved for remand to state
court. For the reasons that follow, the Court will deny MGHI’s motion to remand and grant
Trustmark’s motion to dismiss, but will allow MGHI an opportunity to file a motion for leave to
amend its complaint to allege a breach of contract claim based upon the alleged preferred provider
agreement between Upper Peninsula Managed Care, LLC, d/b/a the U.P. Health Plan (“UPHP”) and
Trustmark.
I. MOTION TO REMAND
MGHI’s entire complaint states as follows:
1.
Plaintiff is a medical care facility located in the city of Marquette in the state
of Michigan.
2.
On information and belief, defendant, [Trustmark] is a medical insurance
company which provided medical benefits for the family of Joshua and
Andrea M. Osborn.
3.
Attached hereto as Exhibit A is an assignment for authorization to sue
defendant insurance company for medical benefits provided to the minor
children of Mr. and Mrs. Osborn.
4.
Between the dates of January 19, 2006 and February 12, 2007 Plaintiff
provided medical services to the minor children of Andrea and Joshua
Osborn.
5.
A copy of itemized statements of account are available upon request.
6.
The defendant made partial payments for the services provided to the minor
children of Mr. and Mrs. Osborn, but has failed and refused to pay the
balance due. There now remains due the sum of $132,276.32.
7.
This matter is within the jurisdiction of this court.
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(Compl., dkt. no. 1-3.) The assignment attached to the complaint states: “At the time the services
were provided, we [the Osborns] were insured by [Trustmark], Group ID: SM72598X, ID: 01507573. The employer was Shute Oil Company, Inc.”
As courts of limited jurisdiction, “federal court[s] must proceed with caution in deciding that
[they have] subject matter jurisdiction.” Musson Theatrical, Inc. v. Fed. Express Corp., 89 F.3d
1244, 1252 (6th Cir. 1996). Removal statutes are thus strictly construed to promote comity and
preserve jurisdictional boundaries between state and federal courts. Alexander v. Elec. Data Sys.
Corp., 13 F.3d 940, 949 (6th Cir. 1994). “The removing party bears the burden of demonstrating
federal jurisdiction, and all doubts should be resolved against removal.” Harnden v. Jayco, Inc., 496
F.3d 579, 581 (6th Cir. 2007) (citing Eastman v. Marine Mech. Corp., 438 F.3d 544, 549-50 (6th
Cir. 2006)).
A.
Federal Question Jurisdiction
The existence of federal question jurisdiction is determined by examining the plaintiff’s
well-pleaded complaint. Federal question jurisdiction arises where a “well-pleaded complaint
establishes either that federal law creates the cause of action or that the plaintiff’s right to relief
necessarily depends on resolution of a substantial question of federal law.” Franchise Tax Bd. v.
Constr. Laborers Vacation Trust, 463 U.S. 1, 27-28, 103 S. Ct. 2841, 2856 (1983). Under this rule,
the plaintiff is the master of his claim and can avoid federal court jurisdiction by relying exclusively
on state law. Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S. Ct. 2425, 2429 (1997). Where
the plaintiff relies exclusively on state law to establish its claim, removal is not permitted even
where the claim is subject to a federal defense. City of Warren v. City of Detroit, 495 F.3d 282, 286
(6th Cir. 2007). As the Supreme Court has explained:
Although such allegations show that very likely, in the course of the litigation, a
question under the Constitution would arise, they do not show that the suit, that is,
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the plaintiff’s original cause of action, arises under the Constitution. For better or
worse, under the present statutory scheme as it has existed since 1887, a defendant
may not remove a case to federal court unless the plaintiff’s complaint establishes
that the case arises under federal law.
Franchise Tax Bd., 463 U.S. at 10, 103 S. Ct. at 2846-47 (quotation marks, citations, and edits
omitted). This rule applies to any federal defense, “including the defense of pre-emption, even if
the defense is anticipated in the plaintiff’s complaint, and even if both parties concede that the
federal defense is the only question truly at issue.” Caterpillar, 482 U.S. at 393, 107 S. Ct. at 2430.
The complete preemption doctrine is a limited exception to the well-pleaded complaint rule.
See AmSouth Bank v. Dale, 386 F.3d 763, 776 (6th Cir. 2004). Complete preemption derives from
the premise that “Congress may so completely pre-empt a particular area that any civil complaint
raising this select group of claims is necessarily federal in nature.” Metro. Life Ins. v. Taylor, 481
U.S. 58, 63-64, 107 S. Ct. 1542, 1546 (1987). ERISA is one the few federal statutes to which the
Supreme Court has applied complete preemption. See Gentek Bldg Prods., Inc. v. Sherwin-Williams
Co., 491 F.3d 320, 325 (6th Cir. 2007). A state law claim will be completely preempted only if it
falls within ERISA’s civil enforcement provision set forth in § 502(a), 29 U.S.C. § 1132(a). Metro.
Life, 481 U.S. at 67, 107 S. Ct. at 1548.
ERISA is also one of the few federal statutes where complete preemption and ordinary, or
conflict, preemption may arise. See Taylor Chevrolet Inc. v. Med. Mut. Servs. LLC, 306 F. App’x
207, 210 (6th Cir. 2008). Pursuant to 29 U.S.C. § 1144(a), “any and all State laws insofar as they
may now or hereafter relate to any employee benefit plan” are preempted. Because preemption
under § 1144(a) is a defense, it “does not create a federal cause of action itself, and cannot convert
a state cause of action into a federal cause of action under the well-pleaded complaint rule.” Warner
v. Ford Motor Co., 46 F.3d 531, 534 (6th cir. 1995). See also Roddy v. Grand Trunk W. R.R. Inc.,
395 F.3d 318, 323 (6th Cir. 2005) (“Complete preemption that supports removal and ordinary
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preemption are two distinct concepts.”). Thus, “no removal jurisdiction exists under § 1144.”
Warner, 46 F.3d at 534. Because the issue here is whether removal was proper, the focus is on
complete preemption rather than ERISA preemption under § 1144.2
In Aetna Health Inc. v. Davila, 542 U.S. 200, 124 S. Ct. 2488 (2004), the Court summarized
complete preemption for purposes of ERISA as follows:
[I]f an individual brings suit complaining of a denial of coverage for medical care,
where the individual is entitled to such coverage only because of the terms of an
ERISA-regulated employee benefit plan, and where no legal duty (state or federal)
independent of ERISA or the plan terms is violated, then the suit falls “within the
scope of” ERISA § 502(a)(1)(B). In other words, if an individual, at some point in
time, could have brought his claim under ERISA § 502(a)(1)(B), and where there
was no other independent legal duty that is implicated by a defendant’s actions, then
the individual’s cause of action is completely pre-empted by ERISA § 502(a)(1)(B).
Id. at 210, 124 S. Ct. at 2496. Thus, complete preemption requires two inquiries: (1) whether the
plaintiff could have brought its claim under § 502(a); and (2) whether any other legal duty supports
the plaintiff’s claim.
With regard to the first inquiry, generally, only certain persons – the Secretary of Labor,
participants, beneficiaries, and fiduciaries – have statutory standing to bring an action under §
1132(a). See Local 6-0682 Int’l Union of Paper v. Nat’l Indus. Grp. Pension Plan, 342 F.3d 606,
609 n.1 (6th Cir. 2003). Although MGHI does not fall into any of these categories, it nonetheless
has standing to bring an ERISA claim because it has a valid assignment of ERISA benefits from the
Osborns. See Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1277 (6th Cir. 1991)
(holding that a healthcare provider has standing to assert a claim under ERISA if it has received a
valid assignment of benefits from a participant or beneficiary). Regarding the second inquiry –
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The Policy, an employer-sponsored plan, is an “employee welfare benefit plan” under ERISA. See 29 U.S.C.
§ 1002(1); Libbey-Owens-Ford Co. v. Blue Cross & Blue Shield Mut. of Ohio, 982 F.2d 1031, 1034 (6th Cir. 1993)
(noting that “employee welfare benefit plans may be created through the mere purchase of a group health insurance
policy when the owner does not retain control, administrative power, or responsibility for benefits”). MGHI does not
dispute that the Policy is an ERISA welfare benefit plan.
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whether any other legal duty supports MGHI’s claim, MGHI’s claim is for recovery of medical
benefits to which the Osborns are entitled under the Policy. This is a quintessential claim for
benefits under ERISA § 502(a)(1)(b). No other legal duty is implicated by these allegations.
MGHI contents that its claim is not completely preempted because it is a simple collection
action subject to state collection law. Yet, it is a collection action seeking to recover benefits from
an ERISA plan. As the Court recognized in Davila, a plaintiff’s label or characterization of its claim
is irrelevant to determining whether a claim is or is not preempted. See Davila, 542 U.S. at 214, 124
S. Ct. at 2498. The cases MGHI cites are inapposite to the issue of removal jurisdiction because
they concerned ERISA’s preemption provision rather than complete preemption. See, e.g., N.Y.
State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 115 S. Ct.
1671 (1995) (holding that ERISA § 514(a) did not preempt a New York statute requiring hospitals
to collect surcharges from patients covered by a commercial insurer but not from patients insured
by a Blue Cross/Blue Shield plan); Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825,
108 S. Ct. 2182 (1988) (holding that a state statute that singled out ERISA employee welfare benefit
plans for protective treatment under state garnishment procedures was not preempted by § 514(a)).
MGHI’s reliance on Marquette General Hospital, Inc. v. Aetna Health, Inc., No. 2:09-CV-135, 2009
WL 4021119 (W.D. Mich. Nov. 19, 2009) is puzzling, because MGHI’s state court allegations in
that case were very similar to its state court allegations in the instant case, and the court in that case
concluded that removal was proper.
MGHI also contends that the liability it seeks to enforce against Trustmark arises not from
the Policy, but from its separate provider agreement with Trustmark through UPHP. Although
MGHI refers to this separate contract at various points throughout its briefs, no such claim is alleged
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in the complaint. The only claim set forth in the complaint is a claim for benefits from an ERISA
plan. Removal was thus proper based on federal question jurisdiction.
B.
Diversity Jurisdiction
Trustmark also alleged that removal was proper based on diversity jurisdiction. Trustmark
established diversity in its notice of removal by alleging that MGHI is a citizen of the State of
Michigan and Trustmark is a citizen of Illinois. (Notice of Removal ¶ 4a. and b.) MGHI asserts that
there is no diversity jurisdiction not because the parties are citizens of the same state, but because
the “direct action” provision in 28 U.S.C. § 1332(c)(1) imputes the Osborns’ residency to Trustmark.
MGHI’s argument ignores the plain language of the “direct action” provision as well as controlling
Sixth Circuit authority.
Section 1332(c)(1) provides, in pertinent part,
that in any direct action against the insurer of a policy or contract of liability
insurance, whether incorporated or unincorporated, to which action the insured is not
joined as a party-defendant, such insurer shall be deemed a citizen of the State of
which the insured is a citizen, as well as of any State by which the insurer has been
incorporated and of the State where it has its principal place of business.
28 U.S.C. § 1332(c)(1). This provision does not apply in this case for two reasons. First, this is not
an action against “the insurer of a policy or contract of liability insurance.” Rather, the Policy is a
health insurance policy. Second, the Sixth Circuit has held that the “direct action” provision does
not apply to disputes between an insured and his or her own insurance company. Lee-Lipstreu v.
Chubb Grp. of Ins. Cos., 329 F.3d 898, 899-300 (6th Cir. 2003); see also Estate of Monahan v. Am.
States Ins. Co., 75 F. App’x 340, 343 (6th Cir. 2003) (“Section 1332(c)(1) refers to situations where
the plaintiff is suing the tortfeasor’s insurer, rather than suing the tortfeasor directly, on the issue of
liability.”). Here, MGHI is not an injured party suing the Osborns’ liability insurer. Rather,
notwithstanding MGHI’s protestations to the contrary, it is suing Trustmark as an assignee of the
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Osborns, asserting whatever rights they have against Trustmark. See Ward v. Sun Valley Foods Co.,
212 F. App’x 386, 391 (6th Cir. 2006) (“Indeed, it is a fundamental rule of the law of contract that
the assignee stands in the shoes of the assignor, possessing the same rights and remaining subject
to the same defenses as the assignor.”).
II. MOTION TO DISMISS
In its motion to dismiss, Trustmark contends that MGHI’s complaint is subject to dismissal
because it is preempted by ERISA’s preemption provision under 29 U.S.C. § 1144(a). Having
already concluded that MGHI’s claim is completely preempted, the Court need not address ERISA
preemption. In cases such as this, where the plaintiff’s state law claim is preempted by ERISA, the
plaintiff should be afforded an opportunity to amend its complaint to request appropriate relief under
ERISA § 502(a). See Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1491 (7th Cir. 1996);
Alley v. Resolution Trust Corp., 984 F.2d 1201, 1202 (D.C. Cir. 1993). However, Trustmark also
contends that dismissal is warranted because MGHI’s claim is barred by the three-year period of
limitation set forth in the Policy.
The Policy contains the following provision:
E.
LEGAL ACTION
No legal action may be brought to recover on the Contract within 60 days after
written proof of loss has been given as required. No such action may be brought
after 3 years from the time written proof is required to be given.
(Policy at 27.) Regarding proofs of loss, the Policy states:
3.
PROOFS OF LOSS
For Basic or Long Term Disability Benefits, written proof of loss must be
given within 90 days after the end of each period for which benefits are
payable. For any other loss, written proof must be given within 90 days after
the loss. If it was not reasonably possible to given written proof in the time
required, the claim will not be reduced or denied for this reason if the proof
is filed as soon as reasonably possible. The proof required must be given no
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later than 12 months from the time specified, unless the claimant was legally
incapacitated.
(Id.) MGHI alleges that the date of the last service it provided to the Osborns’ children was
February 12, 2007. Under the Proof of Loss provision, written proof of loss was due not later than
May 12, 2007. MGHI had three years from that date to file its complaint – May 12, 2010. However,
MGHI did not file its complaint until December 22, 2010, more than seven months late.
MGHI does not argue that the three-year period is unreasonable, likely because such an
argument would fail. See Rice v. Jefferson Pilot Fin. Ins., 578 F.3d 450, 454 (6th Cir. 2009) (finding
three-year limitations period in ERISA plan was reasonable). It argues, however, that its claim is
not untimely because the claim was filed within three years of Trustmark’s denial. MGHI contends
that because Trustmark did not deny payment until May 20, 2008, or later, it filed suit within the
three-year period.
MGHI’s argument finds no support in the language of the Policy or the law. The Policy’s
language is clear: the three years begins to run from the date proof of loss is required to be given,
which, for purposes of this case, is 90 days after the loss, i.e., when the medical services were
rendered. Moreover, MGHI’s argument is contrary to Sixth Circuit authority governing contractual
limitations periods under ERISA. In Rice, supra, the disability policy at issue provided that “‘[n]o
legal action may be brought more than three years after proof of claim is required to be given.” 578
F.3d at 455 (alteration and italics in original). The court rejected the application of the clear
repudiation rule for determining when the claim accrued, noting that application of such rule would
be contrary to the language of the parties’ contract. Id. Moreover, the court distinguished Wilkins
v. Hartford Life & Accident Insurance Co., 299 F.3d 945 (8th Cir. 2002), upon which the district
court relied in ignoring the contractual accrual provision, noting that Wilkins held that the clear
repudiation rule applies when an ERISA claim is governed by a state, rather than contractual, statute
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of limitations. Id. The court concluded that the contractual accrual provision was both permissible
and reasonable: “Although there are situations in which a contractual accrual date for ERISA claims
could be unreasonable, there is nothing in the language of the contract in this case to suggest that
the contractual accrual date is unreasonable.” Id. at 455-56 (internal citation omitted). Accordingly,
under Rice, the contractual accrual provision controls, rendering MGHI’s claim untimely.
Because a claim for benefits under the Policy is time-barred, any amendment by MGHI to
assert a claim under ERISA would be futile. As noted above, however, in its briefs MGHI
references an unpled breach of contract claim against Trustmark based upon MGHI’s preferred
provider contract through UPHP. MGHI contends that the preferred provider contract is an
independent obligation of Trustmark that does not implicate ERISA or the Policy. This may or may
not be true. Courts confronted with similar arguments by health care providers have distinguished
between provider claims asserting a right to payment, which depend upon patient assignments and
require interpretation of the ERISA plan at issue to determine whether the claim is covered, and
provider claims asserting that the ERISA plan failed to pay the claim at the correct rate under the
provider agreement, which arise out of separate agreements. The former types of claims are
preempted, while the latter are not. See Conn. State Dental Ass’n v. Anthem Health Plans, Inc., 591
F.3d 1337, 1348-50 (11th Cir. 2009); Lone Star OB/GYN Assocs. v. Aetna Health Inc., 579 F.3d 525,
530-31, 533 (5th Cir. 2009).
MGHI has not filed a motion for leave to amend its complaint, supported with a proposed
amended complaint, making it difficult for the Court to determine whether MGHI is complaining
about denials of coverage – a claim that would likely be preempted by ERISA – or simply about
Trustmark’s failure to pay the claims at the rate set forth in the provider agreement, which would
not be preempted. MGHI’s state court complaint suggests that MGHI is actually complaining about
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denials of claims rather than the proper rate of payment. (Compl. ¶ 6.) In any event, the Court will
allow MGHI an opportunity to move for leave to file an amended complaint setting forth a state
court breach of contract claim, supported by a proposed amended complaint setting forth the precise
nature of the claim or claims. MGHI must also attach to its proposed amended complaint a copy
of the relevant contract upon which its claim is based. Trustmark will be granted an opportunity to
respond to the motion, in which it may address whether MGHI’s claim is preempted by ERISA.
III. CONCLUSION
For the foregoing reasons, the Court will deny MGHI’s motion to remand and grant
Trustmark’s motion to dismiss. MGHI will be afforded an opportunity to file a motion for leave to
amend its complaint to allege a state law breach of contract claim as set forth above.
An Order consistent with this Opinion will be entered.
Dated: May 26, 2011
/s/ Gordon J. Quist
GORDON J. QUIST
UNITED STATES DISTRICT JUDGE
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