Kolbe & Kolbe Millwork Co., Inc. v. UMR, Inc.
Filing
11
ORDER granting 8 Motion to Remand; case remanded to Marathon County Circuit Court. Signed by District Judge Barbara B. Crabb on 12/31/13. (krj)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - KOLBE & KOLBE MILLWORK CO., INC.,
Plaintiff,
OPINION AND ORDER
v.
13-cv-584-bbc
UMR, INC.,
Defendant.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Plaintiff Kolbe & Kolbe Millwork Company, Inc. originally filed this civil action
against defendant UMR, Inc. in the Circuit Court for Marathon County, Wisconsin on July
31, 2013, alleging that defendant failed to execute its insurance claim duties under the
parties’ administrative services agreement. On August 16, 2013, defendant filed a notice of
removal in which it asserted that plaintiff’s claims are preempted by § 502(a) of the
Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a), giving
this court subject matter jurisdiction under 28 U.S.C. § 1331. Now before the court is
plaintiff’s motion for remand on the ground that this court lacks subject matter jurisdiction.
Dkt. #8.
Because I conclude that plaintiff’s breach of contract claim alleges a violation of a
duty independent of ERISA and does not fall within the scope of an ERISA provision that
plaintiff could enforce under § 502(a), I am granting plaintiff’s motion and remanding this
case. Contrary to defendant’s assertion, this court cannot exercise supplemental jurisdiction
1
over the remaining state law claim because it never had federal question jurisdiction over the
case.
I draw the following allegations of fact from plaintiff’s complaint and the
administrative services agreement submitted by defendant.
ALLEGATIONS OF FACT
Plaintiff Kolbe & Kolbe Millwork Company, Inc. is a manufacturer of specialty doors
and windows in Wausau, Wisconsin that sponsors a self-funded group health plan for its
employees. Defendant UMR, Inc. is the largest third-party administrator in the United
States and processes 65 million claims valued at more than $6.8 billion each year. Plaintiff
and defendant are parties to an administrative services agreement under which defendant
provides ministerial administrative services and claims administration in connection with
the operation and administration of the plan.
Defendant promised to comply with certain performance standards, which include
“administer[ing] all managed care Claims per the terms and conditions of any contract(s)
executed, directly or indirectly, between [plaintiff] and any third party health care related
provider.” Plaintiff contracted indirectly with various third-party health care providers to
provide services to beneficiaries under the plan at specified contractual rates. Defendant was
responsible for administering plaintiff’s provider contracts and paying them when they
submitted claims to the plan. Defendant made these payments using funds deposited by
plaintiff into an account established for this purpose. In the case of an overpayment,
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defendant was to seek a refund and agreed that it would be responsible for legal fees and
costs if the overpayment arose out of or was based on its intentional, willful, reckless or
negligent acts or omissions in the performance of its duties.
On August 2, 2007, K.G., a child of one of Kolbe’s employees, was born with serious
health conditions that required inpatient treatment at Children’s Hospital of Wisconsin, Inc.
by physicians of Medical College of Wisconsin, Inc. and Children’s Medical Group. K.G.’s
father did not answer certain questions regarding eligibility on the form seeking to add K.G.
to plaintiff’s plan. Children’s Hospital and Medical College submitted claims to defendant
for the services provided to K.G., seeking payment from plaintiff.
Plaintiff informed
defendant that K.G. might not be eligible for benefits under the plan and told defendant to
hold all claims until K.G.’s eligibility could be determined. In early December 2007, plaintiff
told defendant that it was still investigating K.G.’s coverage but that it understood that the
providers needed to be paid. Plaintiff authorized defendant to process the claims related to
K.G.’s care, provided that if the facts dictated that K.G. was not covered, the claims could
be reprocessed and refunds obtained.
Defendant sent checks to Medical College and
Children’s Hospital as payment for the services and continued to make additional payments,
ultimately paying Medical College $472,263.24 and Children’s Hospital $1,203,885.88 for
treatment provided to K.G.
Before making the payments, defendant did not indicate to either provider that
coverage was still being determined or confirm with either provider an understanding that
if facts dictated that K.G. was not covered under the plan, the claims could be reprocessed
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and plaintiff could obtain a refund. Defendant also did not review the relevant provider
contracts to determine whether refunds would be available under the terms of those
contracts if facts dictated that K.G. was not covered under the plan. Plaintiff would not have
made these payments if it had known that a refund would not be available if the facts
dictated that K.G. was not covered under the plan.
After plaintiff later determined that K.G. was not eligible under the plan, defendant
demanded that Medical College and Children’s Hospital return all overpayments made by
plaintiff with respect to services provided to K.G. Medical College refused to return any
overpayments and Children’s Hospital refused to return all but a small portion of the
overpayments. Plaintiff approved and hired outside legal counsel to pursue a refund but that
effort has not yet been successful.
Plaintiff filed suit against defendant in state court on July 31, 2013, alleging that
defendant breached its contractual duties by failing to inform Children’s Hospital and
Medical College before issuing payment that plaintiff was still investigating coverage for K.G.
and by failing to insure that a refund would be made if K.G. were later determined to be
ineligible for coverage. Defendant removed the case to this court on August 16, 2013,
asserting that ERISA preempts plaintiff’s state law breach of contract claim.
OPINION
Removal of an action originally filed in state court is permissible only where the
federal courts have original jurisdiction over the action. 28 U.S.C. § 1441(a). The burden
4
of establishing jurisdiction falls on the party seeking removal. Doe v. Allied-Signal, Inc., 985
F.2d 908, 911 (7th Cir. 1993). Defendant asserts that this court has jurisdiction over
plaintiff’s claims under ERISA, contending that the statute completely preempts plaintiff’s
state law claim. “Complete preemption, really a jurisdictional rather than a preemption
doctrine, confers exclusive federal jurisdiction in certain instances where Congress intended
the scope of a federal law to be so broad as to entirely replace any state-law claim. ERISA
is such an area.” Franciscan Skemp Healthcare, Inc. v. Central States Joint Board of Health
& Welfare Trust Fund, 538 F.3d 594, 596 (7th Cir. 2008). See also Aetna Health Inc. v.
Davila, 542 U.S. 200, 209 (2004) (“[A]ny state-law cause of action that duplicates,
supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear
congressional intent to make the ERISA remedy exclusive and is therefore pre-empted.”).
Complete
preemption
is
an
exception
to
the
ordinary
application
of
the
well-pleaded-complaint rule, which requires a court to look only to the complaint to
determine whether federal question jurisdiction exists. Id.
The parties disagree about the test to be applied in determining whether a claim is
completely preempted by ERISA. Defendant asks the court to rely on the three-part test set
forth in Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1487 (7th Cir. 1996).
However, in 2004, the U.S. Supreme Court announced a similar, but more abbreviated,
two-part analysis. Davila, 542 U.S. at 210. Since then , as plaintiff points out, the Court
of Appeals for the Seventh Circuit has noted that
While the Jass decision itself has not been called into question, we find that
the test outlined by the Supreme Court in Davila displaced the similar
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three-prong Jass analysis previously used in this circuit. Therefore, we are
using the two-pronged analysis from Davila rather than the three-part Jass test.
Regardless, the result would be the same.
Franciscan Skemp, 538 F.3d at 597 n.1. Although defendant attempts to distinguish Davila
on the ground that the claim in that case involved the denial of medical benefits and argues
that other courts have continued to rely on Jass, I agree with plaintiff that the court of
appeals has adopted the Davila analysis, notwithstanding the subject matter of the claim at
issue. Sullivan v. CUNA Mutual Insurance Society, 683 F. Supp. 2d 918, 936 (W.D. Wis.
2010) (applying Davila); Julka v. Standard Insurance Co., 2010 WL 376938, *2 (W.D. Wis.
Jan. 27, 2010) (same). Moreover, the parties acknowledge that the two tests are essentially
the same and are unlikely to yield conflicting results.
Under the Davila test, the court must determine (1) whether plaintiff’s claim could
have been brought under ERISA’s civil enforcement provision, § 502(a), 29 U.S.C. §
1132(a)(1)(b); and (2) whether defendant's actions implicate legal duties dependent solely
on ERISA and the plan. Davila, 542 U.S. at 210. If the answer to both questions is yes,
then plaintiff's state law claim is preempted and recharacterized as a claim under § 502(a)
of ERISA.
A. Section 502(a)
Defendant asserts that plaintiff’s claim satisfies the first factor of the Davila test
because it is preempted by § 502(a)(2), which provides in relevant part that a civil action
may be brought by a fiduciary “for appropriate relief under section 1109.” Section 1109
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establishes personal liability for fiduciaries who breach their obligations or responsibilities
to the plan and provides that the fiduciary restore to the plan “any profits . . . which have
been made through use of assets of the plan.” A person is a fiduciary with respect to an
ERISA plan to the extent that “(i) he exercises any discretionary authority or discretionary
control respecting management of such plan or exercises any authority or control respecting
management or disposition of its assets, . . . or (iii) he has any discretionary authority or
discretionary responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A).
Therefore, under defendant’s theory, both it and plaintiff would have to be fiduciaries and
defendant allegedly would have breached a fiduciary duty to the plan.
As defendant points out, plaintiff could fit the definition of a fiduciary in certain
circumstances. However, “not all decisions that affect plan assets fall within the scope of a
fiduciary's obligations.” Chesemore v. Alliance Holdings, Inc., 886 F. Supp. 2d 1007, 1041
(W.D. Wis. 2012). The Supreme Court has recognized that employers who sponsor ERISA
plans wear “‘two hats,’ acting as a fiduciary to the extent that they administer or manage the
plan and as an employer to the extent they engage in settlor functions such as establishing,
funding, amending or terminating” the plan. Id. (citing Pegram v. Herdrich, 530 U.S. 211,
225–27 (2000)). See also Sonoco Products Co. v. Physicians Health Plan, 338 F.3d 366,
373 (4th Cir. 2003) (plan sponsor acts in fiduciary capacity when pursuing legal action only
when its claims relate to carrying out its fiduciary responsibilities).
The complaint does not imply that plaintiff is suing in its capacity as an ERISA
fiduciary. Plaintiff is seeking to recover for its own injuries (a payment made out of its
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general operating account and costs associated with seeking a refund of that payment) and
not any injury to the plan or its participants and beneficiaries. Sonoco, 338 F.3d at 373
(plan sponsor not acting as a fiduciary where its claims “relate solely to its own injuries, and
not to its fiduciary responsibilities to the plan or to the plan’s participants and
beneficiaries”); Phipps Houses Services, Inc. v. New York Presbyterian Hospital, 2013 WL
1775388, *2 (S.D.N.Y. Apr. 25, 2013) (employer not acting as fiduciary in bringing claims
against hospital because employer seeking to vindicate right independent of plan and its
duties to plan will continue regardless whether it obtains relief); Taylor Chevrolet, Inc. v.
Medical Mutual Services, LLC, 2007 WL 1452618, *6 (S.D. Ohio May 15, 2007) (plaintiff
not asserting claims in fiduciary capacity on behalf of beneficiaries or participants because
it seeking to enforce its own rights under separate, distinct contract it had with defendant).
Although defendant argues that plaintiff is seeking to recover a plan “asset,” the only harm
suffered was by plaintiff. The plan beneficiaries suffered no harm; defendant paid all of the
claims submitted to the plan. Even though the amount of the reimbursement sought by
plaintiff may be dictated by what the ERISA plan paid out, it does not follow that plaintiff
is acting in its fiduciary capacity in asserting its breach of contract claim.
Defendant also asserts that plaintiff’s allegations are best framed as a breach of
defendant’s fiduciary obligations to the plan.
However, plaintiff has not alleged that
defendant failed to carry out its fiduciary duties of processing benefit claims and distributing
plan funds under the terms of the plan. Rather, the claim relates to the relationship between
the parties, which is independent of any duties either party had to the plan or its participants
8
and beneficiaries. Geweke Ford v. St. Joseph's Omni Preferred Care Inc., 130 F.3d 1355,
1359 (9th Cir. 1997) (third-party administrator’s “alleged failure was to file the claim with
[the excess liability insurer] properly and in a timely manner, it was not a failure to
administer the Plan”).
In addition, the administrative services agreement states that defendant was retained
to perform ministerial duties and is not a fiduciary with respect to the plan. Although such
language may not always be dispositive, defendant has failed to explain how it was acting as
a fiduciary to the plan when it allegedly failed to do what plaintiff asked to insure that
plaintiff could get a refund. Pegram, 530 U.S. at 225 (“the threshold question is not whether
the actions of some person employed to provide services under a plan adversely affected a
plan beneficiary's interest, but whether that person was acting as a fiduciary (that is, was
performing a fiduciary function) when taking the action subject to complaint”). Even if, as
defendant argues, the tasks that it allegedly failed to perform were not explicitly required
under the administrative services agreement, that does not mean that the plan required
them. The plan speaks only in general terms about the role of the third-party administrator.
Accordingly, I do not find that either party was acting as a fiduciary to the plan or its
beneficiaries under the circumstances alleged in the complaint.
B. Independent Legal Duties Factor
Defendant also fails to establish complete preemption under the second factor of the
Davila test because plaintiff is clearly seeking to enforce its rights under a separate
9
administrative services contract with defendant. Plaintiff alleges that defendant failed to
follow its directions and make it clear to K.G.’s providers that plaintiff was still investigating
coverage and would seek a refund if it later determined there was no coverage. Although the
plan states that plaintiff will use the services of a third party administrator, that is as far as
the plan goes with respect to the duties of the third party administrator. The parties’
respective obligations to each other flow directly from the administrative services agreement
and not the plan. Analytical Surveys, Inc. v. Intercare Health Plans, Inc., 101 F. Supp. 2d
727, 734 (S.D. Ind. 2000) (finding same where plaintiff’s relationships with defendants were
governed by two contracts independent of plan). Although defendant argues that the
administrative services agreement did not explicitly require it to perform the tasks that
plaintiff alleges it failed to perform, that question is a matter of contract interpretation for
the state court to decide.
Defendant further argues that an interpretation of the plan is necessary in this case
because plaintiff’s claim is based on the allegation that K.G. is not eligible for benefits.
However, as plaintiff points out, it is not suing defendant for paying third-party providers
for services provided to a person not covered by the plan. Rather, it is suing defendant on
the ground that it improperly processed payments and administered third-party provider
agreements in light of the eligibility determination made by plaintiff at the time. K.G.’s
actual eligibility for benefits is irrelevant to the determination whether defendant took care
to process the payments in a manner that would have insured a refund if it was later
determined that K.G. were ineligible. At most, defendant may seek to use K.G.’s eligibility
10
as a defense to the claim that plaintiff was entitled ultimately to an overpayment. However,
the fact that defendant might be able to raise the plan as a defense to the breach of contract
action does not confer jurisdiction on this court. Caterpillar, Inc. v. Williams, 482 U.S. 386,
398-99 (1987) (“[A] defendant cannot, merely by injecting a federal question into an action
that asserts what is plainly a state-law claim, transform the action into one arising under
federal law, thereby selecting the forum in which the claim shall be litigated.”). I conclude
that the administrative services agreement provides an independent basis for what plaintiff
contends are defendant’s legal obligations.
C. Supplemental Jurisdiction
In a final argument, defendant asks this court to exercise supplemental jurisdiction
over those components of plaintiff’s claims that the court may find are not entirely covered
by ERISA. The supplemental jurisdiction statute provides that “in any civil action of which
the district courts have original jurisdiction, the district courts shall have supplemental
jurisdiction over all other claims that are so related to claims in the action within such
original jurisdiction.” 28 U.S.C. § 1367(a). Because I have found that this court never had
original jurisdiction over any claims in this action, the court does not have the authority to
exercise supplemental jurisdiction over the remaining state law claim. United Mine Workers
of America v. Gibbs, 383 U.S. 715, 725 (1966) (in order to exercise supplemental
jurisdiction, “federal claim must have substance sufficient to confer subject matter
jurisdiction on the court”); Taylor v. Appleton, 30 F.3d 1365, 1370 n.5 (11th Cir. 1994)
11
(“Before a federal court can exercise supplemental jurisdiction, it must first have either
diversity or federal question jurisdiction.”). As a result, defendant’s request is improper and
will be denied.
ORDER
IT IS ORDERED that plaintiff Kolbe & Kolbe Millwork Co., Inc.’s motion to
remand, dkt. #8, is GRANTED.
This case is REMANDED to the Circuit Court for
Marathon County, Wisconsin.
Entered this 31st day of December, 2013.
BY THE COURT:
/s/
BARBARA B. CRABB
District Judge
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