Kirby v. Blue Cross and Blue Shield of Texas

Filing 33

ORDER GRANTING 22 Motion to Dismiss; Plaintiff Kerri Kirby's claims are DISMISSED WITH PREJUDICE. Signed by Judge Sam Sparks. (kkc)

IN THE UNITED STATES DISTRICT COU
JAN 27 AM 10:
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

KERRI KIRBY,
Plaintiff,
Case No. A-14-CA-892-SS

-vs-

HEALTH CARE SERVICE CORP., an Illinois
Mutual Legal Reserve Company that Operates as
Blue Cross Blue Shield of Texas,
Defendant.

ORDER
BE IT REMEMBERED on the 8th day of January 2015, the Court held a hearing in the

above-styled cause, and the parties appeared by and through counsel. Before the Court is Defendant
Health Care Service Corporation, an Illinois Mutual Legal Reserve Company that Operates as Blue
Cross Blue Shield of Texas's Motion to Dismiss [#22], Plaintiff Kern Kirby's Response [#27]
thereto, Defendant's Reply [#30] thereto, and Plaintiff's Supplemental Response [#32] filed
following hearing. Having reviewed the file, the documents, and the governing law, the Court now

enters the following opinion and orders GRANTThG the motion.

Background
Plaintiff Kern Kirby, a retired teacher insured through the Teacher Retirement System of
Texas (TRS), a state agency, brings this suit for wrongful denial of insurance benefits against
Defendant Health Care Service Corporation, better known as Blue Cross Blue Shield of Texas
(BCBS), the administrator of her TRS insurance plan (TRS Plan or Plan). Kirby claims BCBS

wrongfully denied her claim for reimbursement in connection with a spinal fusion surgery she

I

underwent in Germany in October 2012; BCB S claims planned medical procedures outside the
United States are not covered under the TRS Plan.
Kirby filed this action in state court on August 21, 2014, see Notice Removal [#1], Ex. A at
8

(Orig. Pet.), and BCBS removed to this Court on September 24, 2014, invoking this Court's

diversity jurisdiction.

See Notice

Removal [#1] at 1-2. Kirby thereafter filed her First Amended

Complaint, which asserts claims for breach of contract, breach of the duty of good faith and fair
dealing, violations of the Texas Insurance Code, and violations of the Texas Deceptive Trade

Practices Act (DTPA), and seeks economic and statutory damages.

See

First Am. Compl. [#11].

BCBS is not the insurer of Kirby's TRS Plan; rather, BCBS merely administers the plan

pursuant to an Administrative Services Agreement (ASA or Agreement) with TRS.
[#21-1] (sealed), Ex.

1

See Riley Decl.

(ASA) at 1_2.1 The Plan is funded exclusively by the Texas School

Employees Uniform Group Coverage Trust Fund (Trust Fund), a trust established by the State of

Texas.

See

TEx.

INS.

CODE §

1579

et seq.

BCBS claims because the TRS Plan is funded

exclusively by the Trust Fund and because TRS is a state agency which has not consented to suit

Kirby's First Amended Complaint alleges she holds a group insurance policy "insured by BCBS." First Am.
Compl. [#11] ¶ 7. BCBS has submitted under seal the Agreement between TRS and BCBS, which makes plain Kirby's
allegation she is "insured by BCBS" is inaccurate. See ASA at 1-2. BCBS contends this Court may consider the
Agreement without converting its motion into a motion for summary judgment because Fifth Circuit precedent allows
"documents that a defendant attaches to a motion to dismiss [to be] considered part of the pleadings if they are referred
to in the plaintiff's complaint and are central to her claim." Mot. Dismiss [#22] at 2 n. 1 (quoting Collins v. Morgan
Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000)). In BCBS's view, Kirby's complaint refers to BCBS's
involvement with the TRS Plan and that involvement is central to Kirby's wrongful-denial claims. Id. Unfortunately,
in making those arguments, BCBS cites not to the First Amended Complaint, the live pleading at the time BCBS filed
its motion, but to the Original Petition Kirby filed in state court. See Orig. Pet. Further, the language BCBS cites as
"refer[ring] to BCBS 's involvement with the TRS Plan" is the language stating Kirby is "insured by BCBS." See First
Am. Compl. [#11] ¶ 7; Orig. Pet. ¶ 6.01. Plaintiff, however, has not objected to this Court's consideration of the
Agreement, and concedes in her Response the TRS Plan "is funded exclusively by the Texas School Employees Uniform
Group Coverage Trust Fund." Resp. [#27] at 1. Further, the Court agrees BCBS's involvement with the TRS Plan is
central to Kirby's claims. Accordingly, the Court will consider the Agreement without converting the motion to a motion
for summary judgment.

-2-

under these circumstances, BCBS, like TRS, is immune from suit under the Eleventh Amendment
and principles of sovereign immunity. For the reasons set forth below, the Court agrees.

Analysis
I.

Legal Standard
Federal Rule of Civil Procedure 8(a)(2) requires a complaint to contain "a short and plain

statement of the claim showing that the pleader is entitled to relief."

FED.

R.

Civ. P.

8(a)(2). A

motion under Federal Rule of Civil Procedure 1 2(b)(6) asks a court to dismiss a complaint for
"failure to state a claim upon which relief can be granted."

FED. R. CIV. P.

12(b)(6). The plaintiff

must plead sufficient facts to state a claim for relief that is facially plausible. Ashcroft v. Iqbal, 556

U.s. 662, 678 (2009); Bell Atl. Corp.

v.

Twombly, 550 U.S. 544, 570 (2007). "A claim has facial

plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged." Iqbal, 566 U.S. at 678. Although
a plaintiffs factual allegations need not establish that the defendant is probably liable, they must

establish more than a "sheer possibility" that the defendant has acted unlawfully. Id. Determining

plausibility is a "context-specific task," and must be performed in light of a court's "judicial
experience and common sense." Id. at 679.
In deciding a motion to dismiss under Rule 12(b)(6), a court generally accepts as true all

factual allegations contained within the complaint. Leatherman

v.

Tarrant Cnty. Narcotics

Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993). However, a court is not bound to
accept legal conclusions couched as factual allegations. Papasan

v.

Allain, 478 U.S. 265, 286

(1986). Although all reasonable inferences will be resolved in favor of the plaintiff, the plaintiff

must plead "specific facts, not mere conclusory allegations." Tuchman v. DSC Commc 'ns Corp.,
-3-

14 F.3d 1061, 1067 (5th Cir. 1994). In deciding a motion to dismiss, courts may consider the

complaint, as well as other sources such as documents incorporated into the complaint by reference,
and matters of which a court may take judicial notice. Tellabs, Inc.

v.

Makor Issues & Rights, Ltd.,

551 U.S. 308, 322 (2007).

II.

Application
The Eleventh Amendment provides:
The Judicial power of the United States shall not be construed to
extend to any suit in law or equity, commenced or prosecuted against
one of the United States by Citizens of another State, or by Citizens
or Subjects of any Foreign State.

U.S. CONST.

amend. XI. Although "Eleventh Amendment immunity" is a misnomer, because the

phrase has become a term of art, this Court will use it also. See Alden

v.

Maine, 527 U.S. 706, 713

(1999). It is well-settled Eleventh Amendment immunity applies not only to actions where a state
is actually named as a defendant, but also to "certain actions against state agents and state

instrumentalities." Regents of the Univ. of Calif

v.

Doe, 519 U.S. 425, 429 (1997). Eleventh

Amendment immunity has been extended to state agents and instrumentalities where granting

immunity "protect[s] the state treasury from liability that would have [} essentially the same practical
consequences as a judgment against the State itself." Lake Cnty. Estates, Inc.

PlanningAgency, 440 U.S. 391,401 (1979) (citing Ford Motor Co.
464 (1945)).

Tn

v. Dep

v.

Tahoe Reg '1

't ofTreas., 323 U.S. 459,

determining whether a state instrumentality may invoke immunity, "courts must

review the relationship between the state and the entity in question, examining the essential nature

of the proceeding, the nature of the entity created by state law, and whether a money judgment

El

against the instrumentality would be enforceable against the state." Sw. Bell Tel. Co.

v.

City

ofEl

Paso, 243 F.3d 936, 938 (5th Cir. 2001).2
BCBS claims it is entitled to immunity because the TRS Plan is funded entirely by the Trust

Fund, and any judgment in this case would necessarily implicate the state treasury. In support of its
position, BCBS relies heavily upon Foster v. Teacher Retirement System, 273 S.W.3d 883 (Tex.

App.Austin 2008), in which

a Texas appellate court found Aetna, the private-company

administrator of a TRS Plan, was immune from suit. Id. at 890. The Foster court first examined the
relationship between Aetna and TRS, explaining under their contract, "Aetna was functioning as an
agent for TRS" and "TRS agreed to indemnify Aetna for.

.

.

losses or obligations incurred by Aetna

in connection with its actions[,]" save gross negligence or criminality. Id. at 889. Based on that
relationship, the Foster court reasoned Aetna's role was "comparable to the 'fiduciary

intermediaries' in federal cases" which found "a private company is protected by Eleventh
Amendment immunity if the suit amounts to one seeking to recover money from the state." Id. In
such situations, the court explained, only where the plaintiff alleges an intermediary took actions

clearly outside the scope of its authority or engaged in criminal or fraudulent conduct would the
intermediary not be entitled to immunity. Id. at 890. Finally, the court noted the Plan was "fully

funded by the State" and a holding Aetna was not immune "would implicate State funds and expose
Aetna to liability from which its principal is protected[.]" Id.

2

The Fifth Circuit has further refined the analysis, suggesting examination of a variety of factors: (1) whether
state statutes and case law view the entity as an arm of the state; (2) the source of the entity's funding; (3) the entity's
degree of local autonomy; (4) whether the entity is concerned primarily with local as opposed to statewide problems;
(5) whether the entity has the authority to sue and be sued in its own name; and (6) whether the entity has the right to hold
and use property. City ofElPaso, 243 F.3d at 938 (citing Clark v. Tarrant Cnty., 798 F.2d 736, 744-45 (5th Cir. 1986)).
The second factorthe source of the entity's fundingis the weightiest factor. Id. (citing Doe, 519 U.. at 429).

-5-

The Foster court's analysis tracks the proper (and relevant) factors to consider in deciding

the immunity question: the court explores the relationship between the state and Aetna and asks
whether a money judgment against Aetna would be enforceable against the state. See City of El

Paso, 243 F.3d at 938. BCBS urges Foster is dispositive of the immunity question presented here.
Despite the facial similarities between the parties in this case and in Foster, however, Foster does
not map onto this case as seamlessly as BCBS urges for two reasons. First, the agreement between
BCBS and TRS is materially different from the contract between the parties in Foster. Here, unlike
in Foster, TRS and BCBS expressly agreed BCBS is not an agent of TRS, and BCBS agreed to

indemnify TRS for liabilities, judgments, and the like arising from BCBS's performance of the
Agreement. ASA at 18, 5.
Second, the "federal cases discussing immunity under the Eleventh Amendment" upon which

the Foster court relied were either abrogated by or implicitly rejected in United States ex rel. Barron
v.

Deloitte & Touche, L.L.P., 381 F.3d 438 (5th Cir. 2004), in which the Fifth Circuit held a

Medicaid intermediary for the state was not entitled to immunity. BCBS and the Foster court, for
example, each cite St. Joseph Hospital

v.

Electronic Data Systems Corporation, 573 F.Supp. 443

(S.D. Tex. 1983), for the proposition "[u]nder federal case law, a private company is protected by

Eleventh Amendment immunity if the suit amounts to one seeking to recover money from the state,"
see Mot. Dismiss [#22] at 4; Foster, 273 S.W.3d at 889, but Barron abrogated St. Joseph, as well
as two cases similar to St. Joseph previously decided by this Court. See Barron, 381 F.3d at 442

(disagreeing with the reasoning of Tex. Hosp. Ass 'n

v.

Nat '1 Heritage Ins. Co., 802 F. Supp. 1507

(W.D. Tex. 1992), and US. ex rel. Churchill v. Texas, 2000 WL 33706360 (W.D. Tex. Nov. 15,

2000)). Additionally, in finding the Medicaid intermediary was not shielded by state immunity, the

Barron panel relied in part on a clause in the intermediary's contract with the state in which the
intermediary agreed "to pay its own judgments and indemnify the State from any liability" arising
from the intermediary's performance. Id. at 440 & n.7. As previously noted, the Agreement

between BCBS and TRS contains a similar indemnity clause.
Nevertheless, the Court finds Barron distinguishable from this case, and, conducting the
analysis in accord with Foster and City ofEl Paso, finds BCBS is a state instrumentality entitled to

immunity from suit. First, although the Agreement disclaims an agency relationship between BCBS
and TRS, BCBS does not have a great deal of autonomy thereunder. The Agreement provides "TRS

has final decision-making authority and discretion to determine and interpret the intent, scope,
design, meaning, and implementation" of the TRS Plan, "including but not limited to the issue as
to whether or not coverage exists under [the TRS Plan] in a particular situation." Id. at 14-15.

Further, BCBS's role is to "assist TRS" and to "execute, apply, and carry out TRS decisions and
guidelines." Id. at 15. It thus appears to the Court the relationship between BCBS and TRS is such

that BCBS is subordinate to TRS, and BCBS's decisions may at any time be overridden by TRS.
The buck stops with TRS, not with BCBS, concerning all decisions related to the Plan.
Second, the presence of the indemnity clause is not enough to resolve the immunity question

against BCBS, as the Supreme Court has held "[t]he Eleventh Amendment protects the State from

the risk of adverse judgments even though the State may be indemnified by a third party." See Doe,
519 U.S. at 431. Additionally, the factual scenario the Barron court confronted was different than

the one before the Court in a manner relevant to application of the indemnity clause: Barron was a
qui tam action under the False Claims Act in which the relators alleged the Medicaid intermediary

-7-

acquiesced in fraudulent billing practices, see Barron, 381 F.3d at 439, while here, there is no
allegation of fraud or wrongful conduct.
Finally, setting the indemnity clause aside, it appears under the Agreement, any judgment in

this case would be the legal responsibility of TRS. The Agreement provides the "[Trust] Fund will
be solely responsible for all funding, payments, and liabilities that are associated with or are the

responsibility of TRS-ActiveCare." ASA at 11.

Further, as noted above, TRS is ultimately

responsible for decisions concerning whether coverage exists under the Plan under a particular
scenario, and "TRS is ultimately responsible and liable for payment of Claims." Id. at 15. As this
suit concerns allegedly wrongful failure to pay a claim, any judgment in this case would be a liability

"associated with or.. . the responsibility of' TRS. Accordingly, the Court finds a judgment against
BCBS would be the responsibility of TRS, and thus, would implicate the state treasury.
The parties' rather spare briefing does not engage with the above, instead focusing primarily
on Kirby's claim ajudgment against the Trust Fund should not be considered ajudgment against the

state treasury for Eleventh Amendment purposes because Plan members and participants also pay

into the Fund. That argument may be easily dispensed with, however, as while Kirby is correct
monies paid into the Trust Fund come from employees and participating entities as well as from the
state, see

TEx. INS.

CODE

§

1579.302 (stating the Trust Fund is composed of inter alia, "all

contributions made to the fund.

. .

from employees, participating entities, and the state"), she cites

no authority for the proposition monies so paid do not thereby become state property, and the Court

can see no reason to conclude they do not. Additionally, on this point Foster is less fraught, as the

Foster court certainly did implicitly agree the Trust Fund was comprised of state funds. See Foster,
273 S.W.3d at 890. Kirby's first argument is therefore rejected.

Kirby's second argument against BCBS's claim of immunity is the Agreement is
"ambiguous" with respect to the source of funds for payments made to BCBS. Kirby does not object
to any of the provisions previously outlined by the Court; rather, she states the Agreement describes

the Trust Fund as the "sole and exclusive source" for payment of claims in one provision and in
another, states payments to BCBS are subject to appropriation of adequate funds by the Texas

Legislature. See Resp. [#27] at 4. The Court disagrees with Kirby's characterization of these
provisions as ambiguous. A plain reading of the Agreement reveals the first provision is concerned
with the source of funding for TRS and for payments to BCBS, while the second places a limit on

payments to BCBS. This plain reading is confirmed by the statutory provision describing the
composition of the Trust Fund, which states it is composed in part of monies "appropriated by the
legislature for contingency reserves, administrative expenses, or other expenses[.]"
§

TEx. INS. CODE

1579.302 (emphasis added). Kirby's second argument is therefore rejected.

Kirby's final argument was raised for the first time in her "Supplemental Response to
Defendant's Motion to Dismiss," filed the week following hearing on the motion.

In her

Supplemental Response, Kirby claims BCBS waived any claim to Eleventh Amendment immunity
when it voluntarily removed this case to federal court. Supp. Resp. [#3 2] at
v.

1.

Kirby cites Lapides

Board of Regents of the University System of Georgia, 535 U.S. 613 (2002) in support of her

argument. The Supreme Court, however, expressly limited the holding of Lapides "to the context

of state-law claims[] in respect to which the State has explicitly waived immunity from state-court
proceedings." Lapides, 535 U.S. at 617. As there is no dispute in this case the Texas legislature has
not consented to suit against TRS, see Mot. Dismiss [#22] at 5-6, Lapides does not apply, and in any
event, Kirby has pointed the Court to no legal authority suggesting an instrumentality of the state for

immunity purposes may waive the state's immunity. Kirby's final argument against immunity is
therefore rejected.

Conclusion
The Court finds BCBS is a state instrumentality shielded by state sovereign immunity.

Kirby's pleadings therefore fail to state a claim upon which relief may be granted.
Accordingly:
IT IS ORDERED that Defendant Health Care Service Corporation, an Illinois Mutual

Legal Reserve Company that Operates as Blue Cross Blue Shield of Texas's Motion to

Dismiss [#22] is GRANTED; and
IT IS FINALLY ORDERED that Plaintiff Kern Kirby's claims are DISMISSED

WITH PREJUDICE.
SIGNED this the

day of January 2015.

SA'r
UNITED STATES DISTRICT JUDGE

892 mtd ord

ba.frrn

10