Opinion
No. C 01-03 18 SI
April 23, 2001
On April 20, 2001, the Court heard argument on plaintiffs motion for remand and defendant's motion for leave to amend. Having considered the arguments of counsel and the papers submitted, the Court hereby GRANTS plaintiffs motion to remand; DENIES defendant's motion for leave to amend; and REMANDS this action based on lack of federal jurisdiction.
BACKGROUND
On November 13, 2000, plaintiff Hill Physicians Medical Group, Inc. ("Hill Physicians") filed suit in the Superior Court of Contra Costa County against defendant PacifiCare of California ("PacifiCare"), asserting causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, unfair business practices and fraud, and for amounts due under the contract between the parties. On January 19, 2001, PacifiCare removed the suit to this court pursuant to 28 U.S.C. § 1331 and 1441. In the notice of removal, defendant asserted that the court had jurisdiction under 28 U.S.C. § 1331 and the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., specifically 29 U.S.C. § 1132(e)(1).
Hill Physicians is a physician-owned independent practice association ("IPA") incorporated in California. See Notice of Removal, Exh. A, Complaint ¶ 1. PacifiCare is a health care service plan, licensed by and incorporated in the State of California. Id. ¶ 2. Plaintiff alleges that PacifiCare contracts with employers and other groups ("plan subscribers") to provide health care services to employees of the plan subscribers and with the United States Department of Health and Human Services Health Care Financing Administration ("HCFA") to provide health care services to Medicare beneficiaries (collectively "members"). Id. ¶ 3. IPAs like Hill Physicians contract with PacifiCare to provide physician and other professional services to PacifiCare's subscribers in exchange for payment from PacifiCare. Id. ¶ 4.
In its complaint, plaintiff alleges that certain of PacifiCare's business practices, including PacifiCare's treatment of "net medical premiums," are unfair business practices in violation of California Business and Professions Code § 17200 et seq. Hill Physicians alleges that these practices "are likely to harm consumers (patients) in that said practices lead to unreasonable and inappropriate economic pressure on the medical groups and IPAs to limit the amounts and types of services provided to or medications prescribed for patients, and result in the availability of medications to patients being dictated by PacifiCare's financial considerations rather than the best interests of the patients." Id. ¶¶ 118, 119, 122.
The complaint also alleges that these practices "further harm consumers in that they contribute to PacifiCare achieving significant profits while medical groups and IPAs with which PacifiCare contracts suffer significant and inappropriate losses, thereby threatening the financial viability and continued existence of the medical groups and IPAs which provide or arrange for the provision of care to hundreds of thousands of patients. . . . Such acts by PacifiCare may cause IPAs and medical groups to go out of business, which will disrupt or destroy sensitive physician-patent relationships, in the name of achieving unfair profits for PacifiCare." Id. ¶ 123.
Defendant's notice of removal asserts that the allegations concerning PacifiCare's business practices arise under and are preempted by ERISA. Currently before the Court are plaintiffs motion to remand and defendant's motion to amend the notice of removal.
Defendant, whose motion to dismiss is currently scheduled to be heard on Friday May 18, 2001, requests that the Court consider PacifiCare "s motion to dismiss at the same time the Court considers plaintiffs motion to remand. However, "[u]pon removal, the district court must first determine whether the federal court has subject matter jurisdiction." Lyons v. Alaska Teamsters employer Service Corp., 188 F.3d 1170, 1171 (9th Cir. 1999). Until the Court finds that removal is proper, the Court does not have jurisdiction to consider the motion to dismiss.
LEGAL STANDARD
"The burden of establishing federal jurisdiction is placed on the party seeking removal, and the removal statute is strictly construed against removal jurisdiction." Salveson v. Western States Bankcard Ass'n, 731 F.2d 1423, 1426 (9th Cir. 1984) (citations omitted). The threshold requirement for removal under 28 U.S.C. § 1331 and 1441 is a finding that the complaint contains a cause of action that is within the original jurisdiction of the district court. See Toumajian v. Frailey, 135 F.3d 648, 653 (9th Cir. 1998). That issue turns on whether the complaint includes a claim that "aris[es] under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331 and 1441(b). Under the "well-pleaded" complaint rule, "a cause of action arises under federal law only when the plaintiffs' well-pleaded complaint raises issues of federal law." Metropolitan Life Ins. Co. v. Tayloi, 481 U.S. 58, 63 (1987).A corollary to this rule, known as the complete preemption doctrine, provides that "Congress may so completely preempt a particular area that a civil complaint raising this select group of claims is necessarily federal in character." Metropolitan Life Ins., 481 U.S. at 63-64. "In such a case, even if the only claim in a complaint is a state law claim, ifthat claim is one that is "completely preempted' by federal law, federal subject matter jurisdiction exists and removal is appropriate." Thiimajian, 135 F.3d at 653 (citing Metropolitan Life Ins., 481 U.S. at 63-64).
The federal courts have developed a two-prong test to determine complete preemption under ERISA: the state law claim must both (1) "relate to" an employee benefit plan, and (2) fall within the scope of ERISA's civil enforcement provisions. See Iliumajian, 135 F.3d at 654.
DISCUSSION
1. Motion to Remand
Plaintiff argues that this case was improperly removed because the claims against PacifiCare do not relate to an ERISA plan and do not fall within the scope of ERISA's civil enforcement provision, determine whether the federal court has subject matter jurisdiction." Lyons v. Alaska Teamsters employer Service Corp., 188 F.3d 1170, 1171 (9th Cir. 1999). Until the Court finds that removal is proper, the Court does not have jurisdiction to consider the motion to dismiss, and therefore, cannot be preempted under ERISA. 29 U.S.C. § 1132(a), 1144(a). Defendant argues that plaintiffs unfair business practices claim "relates to" employee benefit plans within the meaning of 29 U.S.C. § 1144(a), and that plaintiffs unfair business practices claim could have been brought under ERISA's civil enforcement provision, 29 U.S.C. § 1132; and therefore that preemption applies and removal was appropriate. The Court finds, however, that defendants have not met their burden of demonstrating federal jurisdiction in this case.
29 U.S.C. § 1144(a) provides in part that ERISA shall "supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered under ERISA.
In Blue Cross of California v. Anesthesia Care Associates Medical Group, 187 F.3d 1045 (9th Cir. 1999), a group of health care providers sued a health care plan for breach of their provider agreements. Blue Cross contended that the providers' fraud claims were preempted under ERISA's civil enforcement provision, 29 U.S.C. § 1132, and the complete preemption provision, 29 U.S.C. § 1144 (a). The Ninth Circuit rejected both arguments and found that: (1) the claims did not fall within § 1132's civil enforcement provision since the providers' claims arose from the terms of their provider agreements, could not be asserted by plan beneficiaries, and were not claims for benefits under the terms of the ERISA plans; and (2) the providers' claims did not "relate to" ERISA plans because they did not involve construction of the terms of ERISA-covered benefit plans, did not encroach on the relationship between beneficiaries and the plans, and concerned only promises that Blue Cross made as a health care plan provider to the participating physicians. Id. at 1050-54. Thus, the providers' state law claims had only a "tenuous, remote, or peripheral connection with covered plans," and therefore did not "relate to" an ERISA plan sufficient to justify preemption. Id. at 1054 (quoting New York State Conference ot Blue Cross Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 661 (1995)).
The Court finds that Blue Cross controls here. Plaintiffs claims relate solely to the Service Agreement between Hill Physicians and PacifiCare. The specific unfair business practice claim relates to PacifiCare's alleged manipulation of the "net medical premium" negotiated between Hill Physicians and PacifiCare. While plaintiff alleges that PacifiCare's conduct with respect to Hill Physicians and other IPAs harms consumers because the availability of medications is dictated by PacifiCare's financial considerations and PacifiCare's actions threaten the financial viability of Hill Physicians and other service providers, the claims brought here could not be asserted by plan beneficiaries and are not claims for benefits under the terms of the ERISA plans, and therefore, could not be brought under ERISA's civil enforcement provision. See 29 U.S.C. § 1132.
Additionally, the allegations do not involve construction of the terms of the ERISA-covered benefit plans, do not encroach on the relationship between beneficiaries and the plans, and concern only promises that PacifiCare made as a health care plan provider to its participating physicians. Such allegations have only a "tenuous, remote, or peripheral connection with covered plans," and therefore do not "relate to" an ERISA plan sufficient to justify preemption under 29 U.S.C. § 1144 (a). See Blue Cross, 187 F.3d l054. Because Hill Physicians' state law unfair business practices claim does not fall within the scope of ERISA's civil enforcement provision and does not "relate to" an employee benefit plan, the claim is not subject to complete preemption and remand is appropriate. Sec Luniajian, 135 F.3d at 654.
Defendant relies on the Supreme Court's decision in Pegram v. Herdrich, 530 U.S. 211 (2000), to argue that Hill Physicians' unfair business practices claim relates to "pure eligibility" decisions that implicate PacifiCare's ERISA fiduciary duties. Begram, however, dealt with when a plan beneficiary could sue her HMO for breach of fiduciary duty under ERISA. The Supreme Court held that the beneficiary had not stated a claim under ERISA, because the decisions she challenged involved mixed questions of treatment and eligibility, not pure eligibility decisions. The Supreme Court, after considerable analysis, found that Congress did not intend the category of fiduciary administrative functions under ERISA to encompass the kind of mixed determinations at issue in that case. Id. 532. The instant action is brought not by plan beneficiaries, but by separately contracting parties, and does not invoke review of "pure eligibility" decisions.
PacifiCare, in the supplemental opposition brief submitted after the hearing, attempts to distinguish Blue Cross by arguing that Hill Physicians' unfair business practices claim, unlike the fraud claim asserted in BlueCross, clearly bears on an ERISA regulated relationship. See Supplemental Opposition at 3. The Court disagrees. PacifiCare's argument improperly combines a discussion of whether Hill Physicians' claim falls within the scope of § 1132(a)(3) while citing to Blue Cross' discussion of preemption under § 1144(a). More importantly, as in Blue Cross, Hill Physician's unfair business practices claim would, at most, alter the economic arrangement between Hill Physicians and PacifiCare. The claim would not force PacifiCare to adopt a certain scheme of substantive coverage or encroach on relationships governed by ERISA. The claim, therefore, does not "relate to" ERISA sufficient for preemption under § 1144(a).
2. Motion to Amend
Almost two months after plaintiff filed its motion to remand, PacifiCare filed a motion seeking leave to amend the notice of removal to specify an additional ground for removal: preemption under the Medicare Act. Hill Physicians opposes the motion to amend, arguing that federal case law prohibits PacifiCare from substantively amending its petition to remove after the thirty-day period for amendment under 28 U.S.C. § 1442 has run. See, e.g., Barrow Dev. Co. v. Fulton, Ins., 418 F.2d 316, 317 (9th Cir. 1969) (notice of removal can be amended after § 1442's 30 day period only where party seeks to correct defects in form but not to add allegations of substance); see also O'Halloran v. Univ. of Washington, 856 F.2d 1375, 1381 (9th Cir. 1988) (the notice cannot be amended to add a separate "basis" for removal jurisdiction after the thirty day period); Kacludis v. GTE Sprint Communications Corp., 806 F. Supp. 866, 869-70 (N.D. Cal. 1992) (amendment permissible where the requisite jurisdictional allegations are not omitted entirely, but rather are merely defective in form because defendant failed to allege correct dates of residence in notice of removal based on diversity jurisdiction).
At the hearing on the motions, defendant argued that the motion for leave to amend the removal notice was only precautionary, as PacifiCare relied primarily on removal based on ERISA.
To support its argument that amendment of the removal notice to allege preemption under the Medicare Act is proper, PacifiCare relies on National Audubon Soc. v. Dep't of Water Power of City of Los Angeles, 496 F. Supp. 499, 504 (E.D. Cal. 1980) and Walker v. Gibson, 604 F. Supp. 916 (E.D. Il. 1985). In both of those cases, the defendants (or cross-defendants) removed the actions under federal question jurisdiction, 28 U.S.C. § 1441, but later sought to amend or opposed the motion to remand based on the existence of jurisdiction under 28 U.S.C. § 1442, which provides federal jurisdiction for certain actions against federal officers and agencies. In neither of these cases did the removing party add new facts or substitute an entirely different federal statute as a basis for asserting complete preemption not apparent on the face of the pleadings. The Court finds them inapplicable here. Even assuming PacifiCare's proposed amendment were otherwise permissible, the Court questions whether PacifiCare has demonstrated that this case would be removable under the cited provisions of the Medicare Act. PacifiCare asserts that Hill Physicians' claim for unfair business practices is preempted by 42 U.S.C. § 1395w-26 (b)(3), which provides that the standards established by the Secretary of Health and Human Services under the Medicare + Choice program supersede inconsistent state laws or regulations. 42 U.S.C. § 1395w-26 (b)(3)(A). Additionally, state standards relating to: (i) benefit requirements under the Medicare + Choice program; (ii) requirements relating to inclusion or treatment of providers in the program; and (iii) coverage determinations under the program, are superseded. 42 U.S.C. § 1395w-26 (b)(3)(B). PacifiCare argues that the relief Hill Physicians seeks by way of the unfair business practices claim relates to: (1) what benefits are available to consumers under the Medicare program; (2) requirements relating to inclusion or treatment of providers; and (3) coverage determinations. Complaint 122, 123, 125, 126, 143, 144.
However, a federal law preemption defense does not provide a basis to remove an action to federal court unless the federal law "completely" preempts state regulation, as under ERISA. See Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987) (noting that a federal defense, even the defense of preemption, does not generally support removal); but see Lyons, 188 F.3d at 1172 (recognizing that Supreme Court has acknowledged ERISA's complete preemption, so that ERISA claims are necessarily federal and removal is always permitted, even if the federal issue is raised as a defense and does not appear on the face of plaintiffs well-pleaded complaint). PacifiCare has not demonstrated that the Medicare Act completely preempts state regulation sufficient to justify removal.
Nor does it appear that Hill Physicians' unfair business practices claim relates to benefit determinations, requirements relating to the inclusion or treatment of providers, or coverage determinations under the Medicare + Choice program. Rather, as discussed above, Hill Physicians' unfair business practices claim stems from allegations that PacifiCare has deliberately manipulated the "net medical premiums." The allegations that specifically concern the Medicare Act deal only with PacifiCare's charge of an administrative fee to Hill Physicians for claims processing and that PacifiCare may have improperly processed certain claims. See Complaint ¶¶ 37-41, 82-89. These allegations do not implicate the cited Medicare Act provisions in a manner to justify removal based on preemption.
Accordingly, defendant's motion to amend its removal notice will be denied.
3. Plaintiff's Request for Fees and Costs
Plaintiff has requested an award under 28 U.S.C. § 1447 (c) to recover fees and costs incurred as a result of removal. Plaintiff also requests Rule 11 sanctions because, in light of controlling case law, defendant did not have an objectively reasonable basis for removing this action to federal court. The Court, after considering both requests, DENIES plaintiffs request for attorney fees and Rule 11 sanctions because defendant's conduct does not rise to a level to justify an award of attorney fees or the imposition of sanctions.
CONCLUSION
For the foregoing reasons, the Court GRANTS plaintiffs motion to remand and DENIES defendant's motion for leave to amend the removal notice. Plaintiffs request for attorney fees and Rule sanctions is DENIED. This action is REMANDED to the Superior Court for Contra Costa County.
IT IS SO ORDERED.