Schwartz , M.D. v. Associated Employers Group Benefit Plan and Trust et al

Filing 23

ORDER, For the foregoing reasons, IT IS HEREBY ORDERED, The motions to dismiss are DENIED as to Counts 1 and The motions to dismiss are GRANTED as to Count 3. Signed by Judge Susan P. Watters on 1/16/2018. (EMH)

FILED

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION

JAN 1 7 2018
Clerk, U S District Court
District Of Montana
Billings

LAUREN F. SCHWARTZ, M.D. on
assignment of AMANDA S.,

CV 17-142-BLG-SPW

Plaintiff,
OPINION AND ORDER
vs.
ASSOCIATED EMPLOYERS
GROUP BENEFIT PLAN AND
TRUST, and EMPLOYEE BENEFIT
MANAGEMENT SYSTEMS,
Defendants.
Before the Court is a motion to dismiss filed by Defendant Associated
Employers Group Benefit Plan ("AEG") (Doc. 12) and a motion to dismiss filed by
Defendant Employee Benefit Management Systems ("EBMS") (Doc. 10). For the
foregoing reasons, the motions are granted in part and denied in part.
I.

Facts alleged in complaint
Lauren Schwartz is a neurosurgeon from New Jersey. (Doc. 1 at ,r,r 1, 10).

In July 2013, while volunteering at a Montana Camp Mak-A-Dream, she
befriended a young woman named Amanda. (Doc. 1 at ,r 8). As a child, Amanda
was diagnosed with a brain tumor which required surgery and a brain shunt. (Doc.
1 at ,r 9). Amanda asked Schwartz to be her doctor because her Montana doctor
was not experienced with her condition. (Doc. 1 at ,r 10). Schwartz believed
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Amanda would be better off receiving treatment closer to home. (Doc. 1 at ,r 14).
Schwartz discussed insurance coverage with Amanda's mother, who stated
Amanda was insured through EBMS. (Doc. 1 at ,r 13). Schwartz reached out to
several doctors on Amanda's behalf but they either failed to respond or declined to
provide treatment. (Doc. 1 at ,r,r 14-19).
In March 2014, Amanda's condition worsened. (Doc. 1 at ,r 20). Out of fear
Amanda was dying, Amanda's mother contacted Schwartz. (Doc. 1 at ,r 20).
Schwartz told Amanda's mother to contact Amanda's doctor and request a CT
Scan to determine if there was bleeding in Amanda's head. (Doc. 1 at ,r 21). After
Amanda underwent a CT Scan, a nurse called Schwartz and said Amanda's
condition was "out of their league." (Doc. 1 at ,r 22). Schwartz contacted
Hackensack University Medical Center in New Jersey. (Doc. 1 at ,r 23). Schwartz
explained Amanda had difficulty receiving treatment close to home and needed
emergency treatment. (Doc. 1 at ,r 23). Hackensack agreed to accept Amanda.
(Doc. 1 at ,r 23).
Schwartz contacted EBMS and stated Amanda needed to travel to New
Jersey on an emergency flight under medical observation. (Doc. 1 at ,r 24). EBMS
administers claims under a healthcare plan provided by AEG. (Doc. 1 at ,r,r 2-3).
Schwartz explained to EBMS that she does not accept Medicare or Medicaid and
was relying on EBMS to cover Amanda's treatment, including surgery. (Doc. 1 at

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,r 24).

EBMS told Schwartz Amanda's treatment would be reimbursed in full.

(Doc. 1 at ,r,r 24-25).
Amanda was flown to New Jersey on an emergency flight. (Doc. 1 at ,r 26).
Upon landing, Amanda was rushed to the Hackensack emergency room in unstable
condition. (Doc. 1 at ,r,r 26-27). Schwartz then took Amanda to the operating
room and performed brain surgery. (Doc. 1 at ,r,r 28-30). A few hours after
surgery, Amanda developed acute severe meningitis and began having seizures.
(Doc. 1 at ,r 30). Amanda was returned to the operating room for more surgery.
(Doc. 1 at ,r,r 30-31 ). Due to the extensive surgeries and complications, Amanda
underwent a detailed course of treatment for the next month. (Doc. 1 at ,r 31 ).
During Amanda's rehabilitation, Schwartz spoke with EBMS about paying for
Amanda's treatment. (Doc. 1 at ,r 33). EBMS again stated Schwartz would be
reimbursed in full. (Doc. 1 at ,r 33).
At some point on the day Amanda arrived at Hackensack, she signed
Hackensack's general admission consent form. (Docs. 1 at ,r 34; 1-2). The form
had Schwartz's and Amanda's names at the top. (Doc. 1-2). Amanda initialed the
form at the bottom. (Doc. 1-2). The form's assignment of benefits clause stated "I
authorize my health insurance benefits to be paid directly to Hackensack
University Medical Center." (Doc. 1-2). The form's financial agreement clause

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stated "I understand that the Medical Center bill applies only to hospital charges
and does not include any charges or fees by physicians." (Doc. 1-2).
Schwartz submitted a bill to AEG and EBMS in the amount of $476,448.00
for Amanda's treatment. (Doc. 1 at ,r 35). AEG and EBMS paid Schwartz
$31,946.51, but refused to pay the rest. (Docs. 1 at ,r,r 37, 40). Schwartz appealed
the adverse decision but AEG and EBMS continued to refuse to pay the remainder.
(Doc. 1 at ,r,r 38-40). Schwartz filed suit to collect the remaining balance. (Doc.
1).
Schwartz's complaint contains three counts. Under count one, Schwartz
claims she is entitled to the remaining balance because Amanda assigned Schwartz
the rights to medical payments for the treatment. Under count two, Schwartz
claims she is entitled to the remaining balance because EBMS promised Schwartz
would be reimbursed in full for the treatment and Schwartz relied on that promise
to her detriment. Under count three, Schwartz claims she is entitled to the
remaining balance because AEG and EBMS breached their fiduciary duties to
Amanda. The parties have stipulated to the dismissal of count three. The parties
have also stipulated that Amanda's insurance policy is governed by the Employee
Retirement Income Security Act (ERISA).

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II.

Law
A motion to dismiss for failure to state a claim is governed by Fed. R. Civ.

P. 12(b)(6). To survive a motion to dismiss, "a complaint must contain sufficient
factual matter, accepted as true, to 'state a claim to relief that is plausible on its
face."' Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic

Corporation v. Twombly, 550 U.S. 544, 570 (2007)). "A claim has facial
plausibility when the pleaded factual content allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged."

Iqbal, 556 U.S. at 678. The complaint is construed in the light most favorable to
the non-moving party. Davis v. HSBC Bank Nevada, NA., 691 F.3d 1152, 1159
(9th Cir. 2012).
In determining a motion to dismiss, a district court may consider documents
attached to the complaint and documents "whose contents are alleged in a
complaint and whose authenticity no party questions." Knievel v. ESPN, 393 F.3d
1068, 1076 (9th Cir. 2005).

III.

Discussion
AEG and EBMS argue count one should be dismissed because Amanda

assigned Hackensack, not Schwartz, the rights to medical payments for treatment.
EBMS argues it should be dismissed as a party because it is a third-party plan

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administrator. ABG and BBMS argue count two should be dismissed because it is
a state law claim preempted by BRISA.

A.

Construing the complaint in Schwartz's favor, Schwartz's name
on the form and the circumstances of the agreement make it
plausible Amanda assigned Schwartz the rights to medical
payments

BRISA provides a federal cause of action to enforce provisions of an BRISA
plan. Spinedex Physical Therapy USA Inc. v. United Healthcare ofArizona, Inc.,
770 F.3d 1282, 1288 (9th Cir. 2014) (citing 29 U.S.C. § l 132(e)(l)). Only plan
participants, beneficiaries, fiduciaries, and the Secretary of Labor are empowered
to bring a civil action under BRISA. Spinedex, 770 F.3d at 1288-1289. However,
plan participants and beneficiaries may assign their rights to their health care
provider. Misic v. Bldg. Serv. Employees Health & Welfare Trust, 789 F.2d 1374,
1378-1379 (9th Cir. 1986). As an assignee, the provider has standing to assert the
claims of the assignor. Misic, 789 F.2d at 1379. An BRISA plan or plan
administrator may not assert in court for the first time a reason for the denial of
benefits that it knew of or should have known of during the administrative process.

Spinedex, 770 F.3d at 1296.
When interpreting an assignment of rights under an BRISA plan, courts
apply BRISA, federal common law, and contract principles derived from state law.

See Gilliam v. Nevada Power Co., 488 F.3d 1189, 1194 (9th Cir. 2007); Spinedex,
770 F.3d at 1292 (interpreting assignment of rights under federal common law);
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Eden Surgical Center v. B. Braun Medical, Inc., 420 Fed.Appx. 696, 697 (9th Cir.

2011) (same). Generally, a contract is the manifestation of mutual assent on the
part of two or more persons. Restatement (Second) of Contracts § 3. A contract
may be stated in words either oral or written, or may be inferred wholly or partly
from conduct. Restatement (Second) of Contracts § 4. The terms of a contract
should be give their plain and ordinary meaning. Gilliam, 488 F.3d at 1194. When
disputes arise, courts should first look to explicit language of the agreement to
determine, if possible, the clear intent of the parties. Gilliam, 488 F .3d at 1194.
However, the intended meaning of "even the most explicit language" can be
understood only in light of the circumstances and context of the agreement.
Gilliam, 488 F.3d at 1194; see Restatement (Second) of Contracts§ 202(1)

("Words and other conduct are interpreted in the light of all the circumstances, and
if the principle purpose of the parties is ascertainable it is given great weight.").
The motions to dismiss count one present a close a call. Under general
contract principles, it's questionable whether the form even constitutes a contract
between Amanda and Schwartz. Other than Schwartz's name at the top, the form
otherwise appears to be a contract between Amanda and Hackensack. However,
construing the complaint in Schwartz's favor, the Court holds it is plausible
Amanda assigned Schwartz the rights to medical payments for two reasons.

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First, it is plausible Amanda assigned Schwartz the rights to medical
payments either with the form or through an implied or partially integrated
agreement, of which the form may constitute evidence. The complaint alleges
Amanda was flown to New Jersey because of a medical emergency, upon landing
was rushed to the emergency room in unstable condition, and was then taken to the
operating room for brain surgery. Schwartz performed complicated brain surgery
and provided complicated treatment for the next month. The form assigning rights
to medical payments contains Schwartz's and Amanda's names at the top and
Amanda's initials at the bottom. Schwartz had previously discussed compensation
with Amanda's mother and with EBMS. Considering the emergency
circumstances of the alleged agreement, Gilliam, 488 F.3d at 1194, and the fair
inference that Amanda intended her doctor to be compensated for life-saving brain
surgery, Davis, 691 F.3d at 1159, it is plausible that Amanda and Schwartz
intended to assign Schwartz the right to payment for the emergency brain surgery
and treatment provided-either through the form itself or as a partially integrated
or implied agreement, of which the form may constitute evidence.
Second, it is plausible AEG and EBMS waived the right to challenge the
assignment of rights to medical payments. The complaint alleges Schwartz
requested reimbursement numerous times, including exhausting the administrative
process. The complaint further alleges Schwartz was at one point paid $31,946.51.

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The complaint does not state why AED and EBMS denied Schwartz's claim for
reimbursement. Construing these allegations in Schwartz's favor, it is plausible
that AED and EBMS are asserting in court for the first time that the reason for the
denial of benefits was an invalid assignment of rights. Spinedex, 770 F.3d at 1296.
The motion to dismiss count one is denied.

B.

Construing the complaint in Schwartz's favor, it is plausible that
EBMS is liable as a fiduciary of the plan because it may exercise
discretionary authority or control in the administration of the
plan

Under ERISA, suits to recover benefits may be brought "against the plan as
an entity and against the fiduciary of the plan." Spinedex, 770 F.3d at 1297 (citing

Hall v. Lhaco, Inc., 140 F.3d 1190, 1194 (8th Cir. 1998)). Defendants for
improper denial of benefits may include ERISA plans, plan administrators, iqsurers
or other entities responsible for payment of benefits, and de facto plan
administrations that improperly deny or cause improper denial of benefits.

Spinedex, 770 F.3d at 1297 (citing Cyr v. Reliance Standard Life Insurance Co.,
642 F.3d 1202, 1203-1204 (9th Cir. 2011) (en bane)). A fiduciary is any entity that
"exercises discretionary authority or discretionary control respecting management
of such plan or exercises any authority or control respecting management or
disposition of its assets ... [or] has any discretionary authority or discretionary
responsibility in the administration of such plan." Spinedex, 770 F.3d at 1298

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(citing 29 U.S.C. § 1002(21)(A) and Lifecare Mgmt. Servs. LLC v. Ins. Mgmt.
Adm 'rs Inc., 703 F.3d 835, 844-845 (5th Cir. 2013)).
Here, construing the complaint in Schwartz's favor, it is plausible EBMS
exercised discretionary authority or control over the plan. The complaint alleges
EBMS repeatedly assured Schwartz she would be compensated for treating
Amanda, EBMS denied Schwartz's request for compensation multiple times,
EBMS denied Schwartz's administrative appeals, and EBMS at some point paid
Schwartz $31,946.51. Accepting these facts as true, it is plausible EBMS has or
had discretionary authority in the administration of the plan. The motion to
dismiss EBMS as a party is denied.

C.

Construing the complaint in Schwartz's favor, it is plausible that
Schwartz's promissory estoppel claim is not preempted because
Schwartz is an independent third-party claiming damages for
alleged misrepresentations

ERISA contains two primary preemption provisions: complete preemption
under 29 U.S.C. § 1132(a) and conflict preemption under 29 U.S.C. § l 144(a).
Marin General Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 944-945
(9th Cir. 2009). AEG and EBMS argue Schwartz's promissory estoppel claim is
preempted under conflict preemption.
Conflict preemption exists when a state law claim "relates to" an ERISA
plan, in which case, the state law claim may not be brought. Marin, 581 F.3d at
946. A claim "relates to" an ERISA plan if it has either a "reference to" or
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"connection with" such a plan. Paulsen v. CNF Inc., 559 F.3d 1061, 1081-1082
(9th Cir. 2009) (citing Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139
(1990)).
To determine whether a claim has a "reference to" an ERISA plan, courts
ask whether ( 1) the claim acts immediately and exclusively upon ERISA plans or
(2) the existence ofERISA plans is essential to the claim's operation. Paulsen,
559 F.3d at 1082. To determine whether a claim has a "connection with" an
ERISA plan, courts look both to the objectives of ERISA and the nature and effect
of the claim on an ERISA plan. Paulsen, 559 F.3d at 1082.
AEG and EBMS cite De Voll v. Burdick Painting, Inc., 35 F.3d 408,412 (9th
Cir. 1994), for the proposition that the Ninth Circuit has categorically ruled state
law promissory estoppel claims are preempted. In De Voll, a plan participant sued
his employer and ERISA plan for promissory estoppel. 35 F.3d at 411. The Ninth
Circuit held the plan participant's promissory estoppel claim was preempted,
stating "ERISA preempts common law theories of breach of contract implied in
fact, promissory estoppel, estoppel by conduct, fraud and deceit, and breach of
contract." DeVoll, 35 F.3d at 412.
If Schwartz was a plan participant, the Court would agree with AEG and
EBMS that her promissory estoppel claim is preempted under De Voll. However,

De Voll is inapplicable to Schwartz's promissory estoppel claim because Schwartz

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is not a plan participant. In regard to her promissory estoppel claim, she is an
independent entity claiming damages, not a plan participant claiming ERISA
benefits.
The distinction is important because "the basic thrust of the [conflict
preemption clause] is to avoid a multiplicity of regulation in order to permit the
nationally uniform administration of employee benefit plans." Paulsen, 559 F.3d
at 1082 (internal quotation and citation omitted). "Congress did not intend ERISA
to preempt areas of traditional state regulation that are quite remotes from the areas
with which ERISA is expressly concerned-reporting, disclosure, fiduciary
responsibility, and the like." Paulsen, 559 F.3d at 1082. The Ninth Circuit often
employs a "relationship test" to determine conflict preemption, under which a state
law claim is preempted when the claim bears on an BRISA-regulated relationship
such as between plan and plan member. Paulsen, 559 F.3d at 1082.
As the Ninth Circuit and several others have explained, a third-party
provider's claim for damages does not implicate a relationship Congress sought to
regulate under ERISA. See The Meadows v. Employers Health Ins., 47 F .3d 1006,
1008 (9th Cir. 1995); Memorial Hospital System v. Northbrook Life Ins. Co., 904
F.2d 236,245 (5th Cir. 1990); Fugarino v. Hartford Life and Acc. Ins. Co., 969
F.2d 178, 186 (6th Cir. 1992); Hospice ofMetro Denver, Inc v. Group Health Ins.,
944 F.2d 752, 756 (10th Cir. 1991).

12

In situations nearly identical to Schwartz's claim for promissory estoppel,
the Ninth Circuit has held BRISA does not preempt claims by a healthcare provider
who sues an BRISA plan under state law promissory estoppel for
misrepresentations about payment for medical treatment. Meadows, 47 F.3d at
I 008-1010, and Catholic Healthcare West-Bay Area v. Seafarers Health &

Benefits Plan, 321 Fed.Appx.563 (9th Cir. 2008).
In Meadows, the insurer of an BRISA plan repeatedly confirmed to a
healthcare provider that it provided coverage for two prospective patients. 47 F.3d
at 1007-1008. The healthcare provider relied on the insurer's representation and
treated the two patients. 47 F.3d at 1008. The insurer subsequently refused to pay
for the two patients' treatment. 47 F.3d at 1008. The healthcare provider sued the
insurer under state law promissory estoppel. 47 F.3d at 1008. The Ninth Circuit
held BRISA did not preempt the claim because the healthcare provider was an
independent third-party claiming damages for alleged misrepresentations. 47 F.3d
at 1011.
The Ninth Circuit reaffirmed Meadows' holding in Catholic Healthcare. In

Catholic Healthcare, a healthcare provider sued an BRISA plan for state law
promissory estoppel based on alleged misrepresentations about payment for
medical treatment. 312 Fed.Appx.563 at 1. The Ninth Circuit held BRISA did not

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preempt the claim because the healthcare provider was an independent third-party
claiming damages for alleged misrepresentations. 312 Fed.Appx.562 at 1-2.
Here, the complaint alleges EBMS represented to Schwartz at least three
different times that it would reimburse her in full for Amanda's treatment and that
Schwartz relied on those representations when she treated Amanda. The complaint
does not state Schwartz and AEG and EBMS had any contractual relationship
under the ERISA plan, or even discussed the ERISA plan. Schwartz's claim is
based solely on her reliance on EBMS' s alleged representations that she would be
reimbursed in full for Amanda's treatment. A straightforward application of
Meadows and Catholic Healthcare leads to the conclusion that Schwartz's

promissory estoppel claim is not preempted because she is an independent thirdparty claiming damages for alleged misrepresentations.
However, complicating the analysis is that Schwartz is attempting to bring
both a derivative suit under ERISA and an independent claim for damages. The
healthcare providers in Meadows and Catholic Healthcare did not make a claim
for ERISA benefits under an assignment of rights and instead pursued only state
law claims independent of the ERISA plan. It's unclear whether a healthcare
provider is required to pursue one route or the other. The decision of the
healthcare providers in Meadows and Catholic Healthcare appears to be strategic
rather than forced; the healthcare providers wanted to remain in state court. In

14

Catholic Healthcare, the Ninth Circuit suggested the healthcare provider "could
have brought an BRISA claim derivatively as an assignee," but did not state what
legal effect that decision would have on the promissory estoppel claim. At least
one district court has read Meadows and Catholic Healthcare to allow a healthcare
provider to proceed simultaneously with a derivative claim for BRISA benefits and
an independent claim for state law promissory estoppel. Nationwide DME, LLC v.
Cigna Health and Life Insurance Company, 136 F.Supp.3d 1079 (D. Ariz. 2015).
Absent precedent prohibiting otherwise, the Court will allow Schwartz to
proceed on her state law promissory estoppel claim because the facts as alleged in
the complaint support the claim and Meadows and Catholic Health expressly hold
BRISA does not preempt promissory estoppel claims by independent third-parties
claiming damages for misrepresentations. The motion to dismiss count two is
denied.

IV.

Conclusion and Order
For the foregoing reasons, IT IS HEREBY ORDERED:
1. The motions to dismiss are DENIED as to Counts 1 and 2.
2. The motions to dismiss are GRANTED as to Count 3.

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DATED this

/4_ ~ f January, 2 0 1 ~
-~"'----'----'-~------"------"----"-/.,-~~~-~--"----

/SUSAN P. WATTERS
United States District Judge

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