Speights v. BlueCross BlueShield of South Carolina
Filing
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ORDER denying 6 Motion to Remand Signed by Honorable David C Norton on January 16, 2018.(span, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
BEAUFORT DIVISION
DANIEL E. SPEIGHTS, individually and
on behalf of others similarly situated
Plaintiff,
vs.
BLUECROSS BLUESHIED OF SOUTH
CAROLINA
Defendants.
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No. 9:17-cv-00594
ORDER
This matter comes before the court on plaintiff Daniel E. Speights’s (“Speights”)
motion to remand, ECF No. 6. For the reasons set forth below, the court denies the
motion without prejudice.
I. BACKGROUND
Speights is a law partner in the Speights & Runyon Attorneys at Law law firm,
and has been insured under the group account, Speights & Runyan Attorneys at Law,
Group Number 05-43967-00 (“the Plan”). On February 3, 2014 Speights was diagnosed
with cancer that was life threatening and referred to treatment at M.D. Anderson Cancer
Center in Houston, Texas, an approved provider under the Plan. Speights was at M.D.
Anderson Cancer Center from early February 2014 until June 2014, and then from July
2014 until September 2014. On April 24, 2014, M.D. Anderson Cancer Center
authorized a plan of treatment that was particularly time-sensitive, given the advanced
stage of cancer that Speights was in. Speights contacted BlueCross about coverage for
the treatment plan, but received no approval from April 24–27. On August 28, 2014
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BlueCross denied coverage for the treatment plan, stating that the treatment plan involved
“proton radiation” of the cancer that was an “experimental treatment” under the Plan.
Speights wired $74,100 from his own bank account to M.D. Anderson Cancer Center to
proceed with the treatment.
Speights filed this case in the Court of Common Pleas for Hampton County,
alleging a number of claims, including claims for breach of contract and bad faith refusal
to pay health insurance benefits against defendant BlueCross BlueShield of South
Carolina (“BlueCross”). Namely, Speights alleges claims for: (1) declaratory judgment
that the Plan is ambiguous and BlueCross has interpreted it in a manner that is
inconsistent with the language of the Plan and public policy considerations; (2) that
BlueCross was negligent in selling a Plan which is ambiguous and vague and in
promoting and selling health care coverage that contradicts the “purpose of procuring a
health care policy”; (3) breach of contract because BlueCross interpreted the Plan in
contravention of South Carolina law; (4) breach of express warranty because the Plan
warrants to provide payment for health care that is medically necessary, which BlueCross
did not provide; (5) unfair trade practices because he has been injured by BlueCross’s
unfair and deceptive actions in interpreting the Plan; (6) unjust enrichment because
BlueCross used the ambiguous contract language in the Plan to reduce the scope of the
coverage provided for in the Plan; and (7) outrage, because BlueCross’s actions against
Speights arose out of a business relationship and that BlueCross’s actions were made in
“callous disregard to insureds who have contracted for insurance.” Speights files the
complaint as a proposed class action, asserting claims on behalf of a class of consumers
defined as “all consumers who have purchased and/or been insured by [BlueCross]
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insurance and [BlueCross] has denied requests to pay for healthcare approved and/or
requested by treating physicians.”
BlueCross removed the case on March 3, 2017, alleging that all of Speights’s
claims are preempted by the Employee Retirement Income Security Act of 1974, as
amended (“ERISA) 29 U.S.C. §1001 et seq. because all of the claims arise out of the
denial of health insurance benefits under the Plan. Speights then filed the instant motion
to remand on April 3, 2017, to which BlueCross responded on April 14, 2017. Speights
replied on May 5, 2017. The motion has been fully briefed and is now ripe for the court’s
review.
II. STANDARD
As the parties seeking to invoke the court’s jurisdiction, defendants have the
burden of proving jurisdiction upon motion to remand. Dixon v. Coburg Dairy, Inc., 369
F.3d 811, 816 (4th Cir. 2004) (citing Mulcahy v. Columbia Organic Chems. Co., 29 F.3d
148, 151 (4th Cir. 1994)). In deciding the motion, the federal court should construe
removal jurisdiction strictly in favor of state court jurisdiction. Id. “If federal
jurisdiction is doubtful, a remand is necessary.” Mulcahy, 29 F.3d at 151 (citations
omitted).
III. DISCUSSION
The issue before the court is whether Speights’s claims are preempted by
ERISA. 1 BlueCross contends that Speights’s claims are preempted because they all arise
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The court notes that Speights is a named partner in the Speights & Runyan law
firm, the same law firm that is representing him in the instant litigation and the same law
firm that housed the group health care plan at the center of this litigation. Indeed, the
Plan was issued in the name of Speights & Runyon which is a general partnership
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out of BlueCross’s alleged denial of health insurance benefits under the Speights &
Runyan Attorneys at Law group health care plan. 2 ECF No. 1 at 2. BlueCross concedes
that the complaint does not present questions of federal law “on its face” but argues that
Speights’s claims for breach of contract and bad faith refusal to pay under the Plan are
both governed by ERISA, and so while the complaint is inarticulately pleaded it is
ultimately governed by ERISA. ECF No. 1 at 2.
As an initial matter, although the breach of contract claim certainly seems to
incorporate allegations of bad faith it does not appear that the complaint asserts a separate
bad faith claim. The complaint does, however, assert a claim for breach of contract.
Specifically, the complaint states that BlueCross breached the Plan by failing to pay for
proton radiation treatment at M.D. Anderson Cancer Center, even though a team of five
oncologists at M.D. Anderson included the proton radiation treatment in Speights’s
“medically necessary” treatment plan. Speights alleges that the denial of coverage for the
consisting solely of Speights and C, Alan Runyon. ECF Pl.’s Mot. 1. It is entirely
possible that this is an issue that has been worked out by the parties. However, it is also
possible that as the case progresses the law firm Speights & Runyon may be a witness, if
the law firm is required to present a Rule 30(b)(6) witness to testify on the law firm’s
behalf. If the outcome of the case turns on the interpretation of the group healthcare plan,
then the law firm could become an interested party that is adverse to the interests of
Speight as its client. Also, any employer that establishes or mantains an employee
benefit plan is a plan sponsor. 29 U.S.C. § 1002(16)(B). If Speights & Runyan exercised
any “discretionary authority” over the management or administration of the Plan it could
be acting as a fiduciary, thus opening up possible conflicts between Speights’s role as a
beneficiary of the Plan and his representation by a fiduciary of the Plan. This possible
professional responsibility issue does not affect the court’s authority to decide the matter
at hand, but may become of interest as the case proceeds.
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While Speights asserts that BlueCross breached the Plan, and so breached its
contract “a contract of insurance sold to a plan is not itself ‘the plan.’” Wallace v.
Reliance Standard Life Ins. Co., 318 F.3d 723, 724 (7th Cir. 2003). Therefore, the
contract that BlueCross allegedly breached is not the Plan itself but a contract to provide
insurance coverage.
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proton radiation under the “experimental services” provision of the Plan is a breach of
contract. BlueCross contends that this claim is preempted by ERISA. As the court
explains below, the breach of contract claim seeks to enforce the provisions of the Plan
and so is preempted by ERISA’s civil enforcement plan.
A.
Preemption of Breach of Contract Claim under ERISA
The Fourth Circuit has held that parties cannot “avoid ERISA’s preemptive reach
by recasting otherwise preempted claims as state-law contract and tort claims.”
Wilmington Shipping Co. v. New England Life Ins. Co., 496 F.3d 326, 341 (4th Cir.
2007) (citing Aetna Health Inc. v. Davila, 542 U.S. 200, 214 (2004)). Section 514 of
ERISA defines the scope of ERISA’s preemption of conflicting state laws. 3 It states that
state laws are superseded if they “relate to” an ERISA plan. 29 U.S.C. § 1144(a). In
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987), the U.S. Supreme Court held that
state common law cause of actions based on the alleged improper processing of a benefit
claim under an employee benefit plan fell under ERISA’s preemption clause, § 514(a).
The breach of contract claims in the complaint certainly “relate to” ERISA, as the claim
is about benefits denied under the Plan. However, “ERISA pre-emption [of a state
claim], without more, does not convert a state claim into an action arising under federal
law.” Darcangelo v. Verizon Commc’ns, Inc., 292 F.3d 181, 187 (4th Cir. 2002). The
Fourth Circuit has held that the “only state law claims properly removable to federal
court are those that are “completely preempted” by ERISA’s civil enforcement provision,
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As an initial matter, there does not appear to be any dispute between the parties
that the Plan is an employee welfare benefit plan that is governed by ERISA.
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§ 502(a).” Sonoco Prod. Co. v. Physicians Health Plan, Inc., 338 F.3d 366, 371 (4th Cir.
2003). Therefore, the court must also determine whether Speights’s breach of contract
claim “fits within” the scope of § 502(1), and if it is properly “converted into [a federal
claim].” Darcangelo v. Verizon Commc’ns, Inc., 292 F.3d 181, 186 (4th Cir. 2002).
While the jurisprudence about whether a claim is preempted under ERISA under the
doctrines of conflict and complete preemption is somewhat convoluted, it is clear that a
court addressing preemption of a state law claim under ERISA should determine whether
the claim is subject to conflict preemption under § 514, and therefore barred. The court
must then also determine whether the claim is subject to complete preemption under
§ 502 and therefore should be converted to a federal claim. Gross v. St. Agnes Health
Care, Inc., 2013 WL 4925374, at *9 (D. Md. Sept. 12, 2013) (citing Marks v. Watters,
322 F.3d 316, 323 (4th Cir. 2003)).
1.
Preemption under ERISA § 514(a)
Courts that have confronted similar breach of contract claims have determined
that these claims are preempted by ERISA § 514. In Gross v. St. Agnes Health Care,
Inc., 2013 WL 4925374, at *6 (D. Md. Sept. 12, 2013) the court held that where breach
of contract claim was based on factual premise that defendants failed to provide life
insurance benefits under a life insurance policy, the breach of contract claim was
preempted under § 514. Here, Speights’s breach of contract claim is also based on the
premise that BlueCross failed to provide health insurance benefits under the Plan, and so
it is preempted under § 514. Darcangelo, 292 F.3d at 194 (finding that a breach of
contract action to enforce the payment of benefits under an ERISA plan is “clearly
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preempted” under § 514); See also Stiltner v. Beretta U.S.A. Corp., 74 F.3d 1473, 1480
(4th Cir. 1996) (finding breach of contract claim likely preempted by “ERISA § 514(a),
because it seeks to recover benefits of a sort which are already provided by an ERISA
plan, even though it seeks to recover them not from the plan itself, but from the employer
directly”).
2.
Preemption under ERISA § 502
The Fourth Circuit “has recognized three ‘essential requirements' for complete
preemption”:
(1) the plaintiff must have standing under § 502(a) to pursue [her] claim;
(2) [her] claim must “fall[ ] within the scope of an ERISA provision that
[she] can enforce via § 502(a)”; and[,] (3) the claim must not be capable of
resolution “without an interpretation of the contract governed by federal
law,” i.e., an ERISA-governed employee benefit plan.
Sonoco Prods. Co., 338 F.3d at 372. Here, Speights is a beneficiary of the Plan and so
has standing to pursue an ERISA claim under § 502(a)(3). See 29 U.S.C. § 1132(a)(3)
(stating that only participants, beneficiaries, and fiduciaries can pursue claims under §
502(a)(3)). The contract that Speights references is the Plan itself seeks alternative
enforcement to ERISA’s exclusive enforcement mechanism, and so clearly “relate[s] to
any employee benefit plan” as defined in 29 U.S.C. § 1144. Finally, Speights’s claim is
not capable of resolution without an interpretation of the Plan, an ERISA-governed
employee benefit plan.
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Therefore, the court finds that the breach of contract claim is also completely
preempted under § 502, at which point it would be converted to a federal claim. 4 In Bd.
of Trustees for Hampton Roads Shipping Ass’n-Int’l Longshoremen’s Ass’n v. Stokley,
618 F. Supp. 2d 546, 553 (E.D. Va. 2009), the court held that a plan administrator’s statelaw breach-of-contract claim against employee for repayment of paid benefits was
preempted by § 502(a). Similarly, in Puller v. Unisource Worldwide, Inc., 2009 WL
331291, at *5 (E.D.Va. Feb. 9, 2009) the court held that “[w]hen a plaintiff brings an
action to enforce a contract and that contract is an ERISA-covered plan, it ‘is of necessity
an alternative enforcement mechanism for ERISA § 502 and is therefore ‘relate[d] to’ an
ERISA plan and preempted.” Since § 502 completely preempts Speights’s breach of
contract claim, federal question jurisdiction has been established. Accordingly, the court
denies the motion to remand.
B.
Concurrent Jurisdiction over ERISA Claims
Speights contends that even if the court determines that the breach of contract
claim is preempted by ERISA, ERISA “specifically provides” that state court has
concurrent jurisdiction over ERISA claims. ECF No. 6 at 6. Based on principles of
comity and state law concerns, Speights argues that the court should remand the breach
of contract claim to state court. Id. State courts may have concurrent jurisdiction over
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In part due to the Fourth Circuit’s rather convoluted jurisprudence in this area of
law, it is not clear if a claim needs to be both completely preempted under § 502 and
preempted under conflict preemption as set forth in § 514 for it to be preempted under
ERISA. In an abundance of caution, the court analyzes the breach of contract claim
under both statutory provisions and determines that it is preempted under both statutory
provisions.
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ERISA claims, but courts interpreting ERISA have repeatedly made note of the
Congressional intent that the federal government should have exclusive regulation of
employee welfare benefit plans. Pilot Life, 481 U.S. at 45–46. In line with this, the court
retains jurisdiction over this action.
C.
Remanding “Remaining” Causes of Action
Finally, Speights argues that even if the breach of contract claim is governed by
ERISA, since BlueCross at no point asserts that the remaining six causes of action the
case should be remanded in part—at least as to those claims that the court does not have
independent federal jurisdiction over—those causes of action “must” be returned to state
court. Pl.’s Mot. 6. However, this misinterprets the removal statute. 28 U.S.C.A. §
1441, the statute governing removal of civil actions, provides:
Whenever a separate and independent claim or cause of action, which would
be removable if sued upon alone, is joined with one or more otherwise nonremovable claims or causes of action, the entire case may be removed and
the district court may determine all issues therein, or, in its discretion, may
remand all matters not otherwise within its original jurisdiction.
It is entirely within the court’s discretion to determine whether Speights’s remaining
claims, for negligence, unjust enrichment, unfair trade practices, and others, should be
severed and remanded to state court. Since, as explained above, the breach of contract
claim is preempted by the federal ERISA statute, the court has supplementary jurisdiction
over the remaining claims in the complaint. Therefore, the court denies the motion to
remand, and retains jurisdiction over all of the claims.
A review of the complaint demonstrates that every claim in the complaint arises
from the same set of facts—that BlueCross sold a Plan to Speights & Runyan law firm,
and that the Plan was deficient in providing coverage. This certainly fulfills the standard
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for the claims to arise from the “common nucleus of operative fact” as required for the
court to exercise supplementary jurisdiction over any claims in the complaint that the
court does not have independent federal jurisdiction over. The path that Speights asks the
court to take—to retain only those claims that are preempted by ERISA, and to remand
the remainder of the claims to state court—would wreak havoc on docket control and
judicial efficiency. In essence, it would lead to claims that are fractured between state
and federal court and a duplicity of judicial proceedings. In addition to the legal
argument that the court has discretion to retain jurisdiction over the entire claim, from a
policy perspective Speights’s proposed remedy is an untenable solution.
Ultimately, all of Speights’s claims are about the denial of health insurance
benefits under an ERISA-regulated plan. As the Supreme Court has stated, there is a
“clear expression of congressional intent that ERISA’s civil enforcement scheme be
exclusive” and that ERISA’s preemption provisions are designed to “establish pension
plan regulation as exclusively a federal concern.” Pilot Life Ins. Co., 481 U.S. at 45
(internal citations and quotations omitted). As explained above, the court has federal
question jurisdiction over the breach of contract claim because it is preempted by ERISA.
The court has pendent jurisdiction over the remaining claims. 5
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Furthermore, while neither party briefs this issue, the breach of contract claim is
not the only federal claim that may be completely preempted by ERISA. In Singh v.
Prudential Health Care Plan, Inc., 335 F.3d 278 (4th Cir. 2003), the Fourth Circuit held
that unjust enrichment claims for benefits due under the terms of an ERISA plan were
subject to removal jurisdiction. Speights alleges an unjust enrichment claim against
BlueCross here, alleging that BlueCross collects a full premium payment in exchange for
providing a full scope of coverage but employs “vague and ambiguous contract
language” to reduce the scope of the coverage. Even if the breach of contract claim were
not preempted, the unjust enrichment claim may very well be.
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The court denies the motion to remand in full, but without prejudice. The court
will first rule on the declaratory judgment claim, which necessarily involves interpreting
the Plan. Until the court has interpreted the Plan, discovery on the remaining claims is
stayed. After the court interprets the Plan, Speights may refile a motion to remand as to
the remaining claims.
IV. CONCLUSION
For the reasons set forth above, the court denies the motion to remand and retains
jurisdiction over the entire case.
AND IT IS SO ORDERED.
DAVID C. NORTON
UNITED STATES DISTRICT JUDGE
January 16, 2018
Charleston, South Carolina
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