Franciscan Skemp Hea v. Central States Joint ( 2008 )


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  •                             In the
    United States Court of Appeals
    For the Seventh Circuit
    ____________
    No. 07-3456
    FRANCISCAN SKEMP HEALTHCARE, INCORPORATED,
    Plaintiff-Appellant,
    v.
    CENTRAL STATES JOINT BOARD HEALTH AND
    WELFARE TRUST FUND,
    Defendant-Appellee.
    ____________
    Appeal from the United States District Court
    for the Western District of Wisconsin.
    No. 07 C 387—John C. Shabaz, Judge.
    ____________
    ARGUED MAY 9, 2008—DECIDED JULY 31, 2008
    ____________
    Before FLAUM, KANNE, and TINDER, Circuit Judges.
    TINDER, Circuit Judge. This is a case about ERISA pre-
    emption. The plaintiff-appellant, Franciscan Skemp
    Healthcare, Inc. (“Franciscan Skemp”), is a healthcare
    provider in La Crosse, Wisconsin. The defendant-appellee,
    Central States Joint Board Health and Welfare Trust Fund
    (“Central States”), is an employee benefit plan. Sherry
    Romine, through her employment, was a Central States
    plan participant. She came to Franciscan Skemp in
    October 2003 seeking medical treatment. Before providing
    2                                             No. 07-3456
    services, Franciscan Skemp called Central States to verify
    Central States’s coverage of Romine and the relevant
    services. A Central States representative made oral repre-
    sentations that they were covered. Franciscan Skemp
    treated Romine. Following unsuccessful efforts to receive
    payment from Central States, after submitting a claim for
    benefits, Franciscan Skemp learned that Central States
    would not pay—it turns out that Romine lost her benefits,
    effective September 30, 2003, for failing to pay COBRA
    premiums. When Franciscan Skemp called in October
    to verify coverage, the Central States representative
    failed to disclose that Romine’s coverage was subject to
    COBRA and that the coverage could be retroactively
    canceled.
    Franciscan Skemp brought suit against Central States
    in Wisconsin state court in May 2007, alleging claims of
    negligent misrepresentation and estoppel under the laws
    of that state. Central States filed a notice purporting to
    remove the case to federal court on the grounds that the
    claims were subject to the Employee Retirement Income
    Security Act (“ERISA”), conferring exclusive federal
    jurisdiction, and then moved to dismiss in district court
    for failure to state a claim under ERISA. Franciscan
    Skemp opposed the motion to dismiss and brought its
    own motion to remand to state court. The district court
    concluded that the state-law claims were completely
    preempted by ERISA, thus establishing exclusive federal
    jurisdiction. After recharacterizing the claims as ones
    arising under ERISA, the district court also dismissed
    them for failure to state a claim. We are now presented
    with Franciscan Skemp’s appeal. We review the legal
    question of whether there was federal jurisdiction, and
    proper removal, de novo. Alexander v. Mount Sinai Hosp.
    Med. Ctr., 
    484 F.3d 889
    , 891 (7th Cir. 2007).
    No. 07-3456                                               3
    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: “[T]he
    ERISA civil enforcement mechanism is one of those
    provisions with such ‘extraordinary pre-emptive power’
    that it ‘converts an ordinary state common law com-
    plaint into one stating a federal claim for purposes of the
    well-pleaded complaint rule.’ ”Aetna Health Inc. v. Davila,
    
    542 U.S. 200
    , 209 (2004) (quoting Metro. Life Ins. Co. v.
    Taylor, 
    481 U.S. 58
    , 65-66 (1987)). Complete preemption,
    therefore, creates an exception to the ordinary applica-
    tion of the well-pleaded-complaint rule—that a court
    only looks to the complaint to determine whether there
    is federal-question jurisdiction. Artful pleading on the
    part of a plaintiff to disguise federal claims by cleverly
    dressing them in the clothing of state-law theories will
    not succeed in keeping the case in state court. In these
    instances, the federal law has effectively displaced any
    potential state-law claims. “ ‘When the federal statute
    completely pre-empts the state-law cause of action, a
    claim which comes within the scope of that cause of
    action, even if pleaded in terms of state law, is in reality
    based on federal law.’ ” Davila, 
    542 U.S. at 207-08
     (quoting
    Beneficial Nat’l Bank v. Anderson, 
    539 U.S. 1
    , 8 (2003)).
    Accordingly, such claims are removable.
    Of course the difficulty arises in drawing the line be-
    tween what is completely preempted and what escapes the
    cast of the federal net. The Supreme Court in Davila used
    a two-part analysis for determining when a claim has
    been completely preempted by ERISA:
    [I]f an individual brings suit complaining of a denial
    of coverage for medical care, where the individual is
    4                                                    No. 07-3456
    entitled to such coverage only because of the terms of
    an ERISA-regulated employee benefit plan, and
    where no legal duty (state or federal) independent of
    ERISA or the plan terms is violated, then the suit falls
    “within the scope of” ERISA § 502(a)(1)(B) . . . . In other
    words, if an individual, at some point in time, could
    have brought his claim under ERISA § 502(a)(1)(B), and
    where there is no other independent legal duty that
    is implicated by a defendant’s actions, then the individ-
    ual’s cause of action is completely pre-empted by
    ERISA § 502(a)(1)(B).
    Davila, 
    542 U.S. at 210
    .1
    Under the district court’s and Central States’s reasoning,
    Franciscan Skemp could have brought its state-law
    claims of negligent misrepresentation and estoppel under
    ERISA § 502(a)(1)(B).2 Franciscan Skemp took an assign-
    ment of benefits from Romine and filed a claim form
    with Central States. The filing of the form and the language
    on the form demonstrate an assignment of benefits. Once
    Romine’s assignee, Franciscan Skemp stands in her
    shoes and is an ERISA beneficiary. As a beneficiary,
    1
    The district court used the test from Jass v. Prudential Health
    Care Plan, Inc., 
    88 F.3d 1482
     (7th Cir. 1996). 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 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.
    2
    We use the citation form “ERISA § 502(a)(1)(B)” because
    that is the more common practice. The official U.S.C. cite is 
    29 U.S.C. § 1132
    (a)(1)(B).
    No. 07-3456                                                5
    Franciscan Skemp was entitled to bring a claim under
    ERISA. Franciscan Skemp requested that Central States
    be “estopped from denying coverage benefits for the
    Romine medical services” and that a “judgment [be
    entered] against defendant for the services provided by
    Franciscan Skemp as would otherwise be covered by
    defendant’s plan.” The district court found that “[t]hese
    requests establish that the gravamen of plaintiff’s cause
    of action is a desire to recover benefits it believes are due
    to it under the terms of the Plan.” Section 502(a)(1)(B) of
    ERISA provides that a beneficiary can bring an action to
    “recover benefits due to him under the terms of his
    plan.” Therefore, the argument goes, Franciscan Skemp’s
    claims are within ERISA § 502’s scope.
    What the district court and Central States too easily
    overlook, however, is that Franciscan Skemp is not bring-
    ing these claims as Romine’s assignee. Admittedly at
    first glance it looks like a claim that would arise under
    ERISA—a beneficiary’s assignee bringing an action to
    recover plan benefits. But upon closer examination, that
    is not at all what is happening here.
    Franciscan Skemp is bringing these claims of negligent
    misrepresentation and estoppel, not as Romine’s assignee,
    but entirely in its own right. These claims arise not from
    the plan or its terms, but from the alleged oral representa-
    tions made by Central States to Franciscan Skemp. Francis-
    can Skemp could bring ERISA claims in Romine’s shoes
    as a beneficiary for the denial of benefits under the plan;
    but it has not. In fact, Franciscan Skemp does not at all
    dispute Central States’s decision to deny Romine coverage.
    Franciscan Skemp acknowledges that Romine is not
    entitled to benefits, because she failed to make her COBRA
    premium payments. It would be odd indeed, then, to
    6                                              No. 07-3456
    conclude that Franciscan Skemp is standing in Romine’s
    shoes as a beneficiary seeking benefits when Franciscan
    Skemp acknowledges that Romine is not actually en-
    titled to any benefits. Franciscan Skemp is basing its
    claims on a conversation to which Romine was not even a
    party. Thus Franciscan Skemp is not and could not be
    “standing in her shoes” or asserting her rights. Franciscan
    Skemp is bringing its own independent claims, and these
    claims are simply not claims to “enforce the rights under
    the terms of the plan.” ERISA § 502(a)(1)(B).
    What of the claim form then? We do not quarrel with the
    determination below that the claim form evidences an
    assignment of benefits; we just disagree with the import
    of that determination. The claim form was filed before
    Franciscan Skemp was aware that Romine hadn’t made
    her payments and that Central States would deny cover-
    age. At that point in time, it was perfectly logical for
    Franciscan Skemp to file the form as Romine’s assignee.
    Upon learning that Central States would not pay due to
    Romine’s failure to pay COBRA premiums, Franciscan
    Skemp then asserted its own rights by bringing this
    lawsuit. Simply because at one point in time Franciscan
    Skemp acknowledged an assignment from Romine does
    not mean that it simultaneously and implicitly gave up
    any claim(s) it had against Central States apart from that
    assignment.
    Central States also makes much of the references in
    the complaint to the plan and the request that Central
    States pay “to the extent said services would otherwise
    have been covered.” These references, however, are
    solely for the purpose of identifying a damages amount;
    they do not convert the claims into ones for plan benefits.
    Franciscan Skemp seeks damages, not wrongfully denied
    benefits.
    No. 07-3456                                                7
    Therefore, under the first consideration from Davila,
    the claims are not preempted because they could not
    have been brought under ERISA § 502(a)(1)(B). This is not
    a beneficiary’s claim—a beneficiary whom all agree is not
    even entitled to benefits. Moreover, Franciscan Skemp is
    not suing “to recover benefits due to him under the
    terms of his plan, to enforce his rights under the terms of
    the plan, or to clarify his rights to future benefits under
    the terms of the plan,” which is precisely all § 502(a)(1)(B)
    provides. Franciscan Skemp is seeking damages arising
    from alleged misrepresentations made by Central States
    to Fransiscan Skemp in response to its inquiry—a wrong
    not within § 502’s scope.
    Analysis under the second step in the Davila
    test—whether there is an independent legal duty impli-
    cated by the defendant’s actions—also undercuts finding
    the claims completely preempted. The claims of negligent
    misrepresentation and estoppel derive from duties im-
    posed apart from ERISA and/or the plan terms; Wisconsin
    state law defines those duties. For instance, Wisconsin’s
    Civil Jury Instruction regarding Negligent Misrepresenta-
    tion includes the following:
    Representations of fact do not have to be in writing
    or by word of mouth, but may be acts or conduct on
    the part of (defendant), or even by silence if there is
    a duty to speak. [A duty to speak may arise when
    information is asked for; or where the circumstances
    would call for a response in order that the parties may
    be on equal footing; or where there is a relationship of
    trust or confidence between the parties.]
    Wis. Civil Jury Instructions 2403 (1993); cf. Kaloti Enters.,
    Inc. v. Kellog Sales Co., 
    283 Wis. 2d 555
    , ¶¶ 13-20, 
    699 N.W.2d 205
    , ¶¶ 13-20 (Wis. 2005) (describing the duty to
    8                                                  No. 07-3456
    disclose in misrepresentation-based torts); Tietsworth v.
    Harley-Davidson, Inc., 
    270 Wis. 2d 146
    , ¶¶ 13-14, 
    677 N.W.2d 233
    , ¶¶ 13-14 (Wis. 2004) (explaining that “ ‘silence,
    a failure to disclose a fact, is not an intentional misrepre-
    sentation unless the seller has a duty to disclose’ ” and
    “[t]he existence and scope of a duty to disclose are ques-
    tions of law for the court” (quoting and citing Ollerman
    v. O’Rourke Co., 
    94 Wis. 2d 17
    , 26, 
    288 N.W.2d 95
     (Wis.
    1980))). See also, e.g., Milas v. Labor Ass’n of Wisconsin, Inc.,
    
    214 Wis. 2d 1
    , ¶ 16, 
    571 N.W.2d 656
    , ¶ 16 (Wis. 1997), for
    the elements of an estoppel claim. Whether Franciscan
    Skemp can prevail on these claims is an issue for another
    day and another court, but the relevant legal duties,
    logically implicated by these facts, are entirely independent
    from ERISA and any plan terms. Therefore, under both
    Davila prongs in the test for complete preemption, Francis-
    can Skemp’s state-law claims survive.
    Decisions from other circuits also support this out-
    come. The Eighth Circuit in In Home Health, Inc. v. Pruden-
    tial Insurance Co. of America, 
    101 F.3d 600
    , 604-07 (8th Cir.
    1997), found that ERISA did not preempt a state tort
    claim against an administrator of an ERISA plan brought
    by a healthcare provider “not as an assignee of an ERISA
    beneficiary but as an independent entity claiming dam-
    ages.” 
    Id. at 604
    . The court also noted that “[a] majority [of
    other circuits] have concluded [that] providers’ state
    law claims are not preempted by ERISA.” Id.; see also
    Meadows v. Employers Health Ins., 
    47 F.3d 1006
     (9th Cir.
    1995). In Meadows, a healthcare provider similarly re-
    ceived assurance of coverage and provided treatment, but
    received no payment. The provider brought a claim
    alleging negligent misrepresentation, estoppel, and
    breach of contract. The action was removed on the basis
    No. 07-3456                                                  9
    of ERISA preemption, and the court dismissed without
    prejudice, explaining that because the healthcare provider
    sued derivatively, ERISA preempted the state-law
    claims. Meadows, 
    47 F.3d at 1008
    . The healthcare provider
    then filed a new suit, but this time suing not as an assignee
    or subrogee but as “a third-party health care provider
    for claims that were non-derivative and independent
    of those which the [patient] might have had.” 
    Id.
     It was a
    suit for damages, not for policy benefits. 
    Id.
     On appeal,
    the Ninth Circuit concluded that the claims were not
    completely preempted, explaining, “[T]he claims arose
    because there was not plan coverage for the [patient],
    which was the very fact misrepresented . . . .” 
    Id. at 1010
    . In
    Hospice of Metro Denver v. Group Health Insurance of
    Oklahoma, Inc., 
    944 F.2d 752
     (10th Cir. 1991), the court
    specifically pointed out that the references in the com-
    plaint to the ERISA plan did not automatically make the
    claims ERISA claims. It concluded, “those references
    provide a background factual explanation of Blue Cross’s
    decision to deny benefits . . . . [The patient/beneficiary] is
    not a party to this action, and his right to receive benefits
    under the plan is not at issue.” 
    Id. at 754
    . These cases,
    and others, from our sister circuits bolster our con-
    clusion in this case that Franciscan Skemp’s state-law
    claims are not completely preempted by ERISA. See also
    Mem’l Hosp. Sys. v. Northbrook Life Ins. Co., 
    904 F.2d 236
    , 243-50 (5th Cir. 1990).
    These decisions were criticized by Central States in
    part because they were pre-Davila. We do not find any
    concrete reason to suppose that the conclusions reached
    in these cases have been deemed incorrect by Davila.
    Moreover, we cite these cases not for their analytical
    10                                                    No. 07-3456
    frameworks, where we might find disagreement3 and
    where we opt for the method outlined in Davila, but for
    the inherent logic of their outcomes, which supports
    the notion that state-law claims brought by third-party
    healthcare providers, in situations analogous to the one
    with which we are now faced, are independent of ERISA
    and not completely preempted.4
    Central States does urge Cromwell v. Equicor-Equitable
    HCA Corp., 
    944 F.2d 1272
     (6th Cir. 1991), as support for
    its position. However, as the Eighth Circuit noted, this
    case is somewhat of an exception to the trend. See In
    Home Health, 
    101 F.3d at 604-05
    . In Cromwell the Sixth
    Circuit found that a healthcare provider’s state-law
    claims of negligent misrepresentation and estoppel were
    essentially claims for ERISA plan benefits and thus pre-
    empted. Cromwell is distinguishable at the outset because
    the court found that the appellants “clearly claimed to be
    3
    Admittedly some of these cases apply, in whole or in part,
    what we consider conflict preemption analysis rather than
    complete preemption analysis. However, given the similar
    underlying policy considerations and that conflict preemption
    in a general sense (apart from its savings clause) is broader than
    complete preemption, a finding that these state-law claims
    survive even conflict preemption is informative to our discus-
    sion. See Cotton v. Mass. Mut. Life Ins. Co., 
    402 F.3d 1267
    , 1281-82
    (11th Cir. 2005). However, we explicitly note that by making
    this observation we are not implying that the presence (or
    absence) of either conflict or complete preemption is a prerequi-
    site (or a bar) for finding the other. Cf. Davila, 
    542 U.S. at
    214
    n.4, 216-18.
    4
    At least one district court has reached the same result we
    reach here post-Davila. See Children’s Hosp. Corp. v. Kindercare
    Learning Ctrs., Inc., 360 F. Supp. 2d. 202 (D. Mass. 2005).
    No. 07-3456                                                 11
    entitled to benefits due them from the . . . plan as beneficia-
    ries by virtue of the assignment of benefits clause.” Id. at
    1278; see In Home Health, 
    101 F.3d at 605
     (“Cromwell is
    distinguishable from the present case because Home
    Health is not seeking benefits as the assignee of an ERISA
    beneficiary.”). In the instant case as in In Home Health
    and unlike Cromwell, Franciscan Skemp is not seeking
    benefits as Romine’s assignee or “by virtue of an assign-
    ment.”
    Moreover, even aside from that facial difference, the
    reasoning in Cromwell is simply not persuasive. As the
    dissenting judge in Cromwell opined, in accord with our
    analysis in this case, “[A] claim of promissory estoppel
    raised by a third-party health care provider is asserted
    precisely because that provider is not entitled to benefits
    under the plan.” Cromwell, 
    944 F.2d at 1283
     (Jones, J.
    dissenting). He also criticized the majority’s focus on the
    alleged “assignment,” 
    id. at 1281-82, 1283-84
    , and con-
    cluded that “the Fifth Circuit’s analysis in Memorial
    Hospital is correct, and [he] would follow it to find no
    preemption of Cromwell’s promissory estoppel and
    negligent misrepresentation claims.” 
    Id. at 1284
    . The
    dissenting judge also quoted a rather persuasive passage
    from Memorial Hospital:
    If a patient is not covered under an insurance policy,
    despite the insurance company’s assurances to the
    contrary, a provider’s subsequent civil recovery
    against the insurer in no way expands the rights of
    the patient to receive benefits under the terms of the
    health care plan. If the patient is not covered under
    the plan, he or she is individually obligated to pay
    for the medical services received. The only question
    is whether the risk of nonpayment should remain
    12                                              No. 07-3456
    with the provider or be shifted to the insurance com-
    pany, which through its agents misrepresented to the
    provider the patient’s coverage under the plan. A
    provider’s state law action under these circum-
    stances would not arise due to the patient’s coverage
    under an ERISA plan, but precisely because there is
    no ERISA plan coverage.
    Mem’l Hosp., 
    904 F.2d at 246
    , quoted in Cromwell, 
    944 F.2d at 1284
     (Jones, J. dissenting). The criticism of the Cromwell
    reasoning found in its dissent and in other circuits’ cases
    plus our own application of the Supreme Court’s Davila
    test in this case compels us to conclude that Cromwell is a
    poorly reasoned outlier in the face of the strong trend in
    the bulk of the cases considering healthcare-provider
    claims in contexts similar to the case currently before us.
    In sum, proper analysis of Franciscan Skemp’s claims
    against the broad reach of ERISA under the test outlined
    by the Supreme Court in Davila leads to the conclusion
    that ERISA does not completely preempt the claims at
    issue in this case. Fransiscan Skemp is not bringing these
    claims as a beneficiary, nor is it standing in the shoes of a
    beneficiary. It is not arguing about plan terms. It is not
    seeking to recover plan benefits and even acknowledges
    that under the plan Romine is entitled to nothing.
    Fransiscan Skemp is bringing state-law claims based on
    the alleged shortcomings in the communications between
    it and Central States. There are no grounds for removal.
    This case belongs in state court.
    We, of course, make no comment on the ultimate suc-
    cess or failure of these state-law claims, nor do we pass
    judgment on any potential conflict, sometimes called
    defensive, preemption argument. See ERISA § 514(a), 
    29 U.S.C. § 1144
    (a). Conflict preemption, unlike complete
    No. 07-3456                                                    13
    preemption, actually is a true preemption doctrine and is
    an issue left to the state court in this case, since conflict
    preemption does not provide an independent basis for
    federal jurisdiction/removal. See Ervast v. Flexible Prods.
    Co., 
    346 F.3d 1007
    , 1012-15 (11th Cir. 2003) (“Whether
    complete preemption applies is a jurisdictional issue,
    which must be addressed first and is separate and distinct
    from whether a defendant’s ERISA § 514 . . . preemption
    defenses apply . . . .”); see also Jass, 
    88 F.3d at 1487-88
     (“[W]e
    noted that the state law claim may be susceptible to
    ‘conflict preemption’ under § 514(a), but merely as a
    defense and not a basis for federal jurisdiction.”); Cotton,
    
    402 F.3d at
    1281 n.14 (“[A] federal court’s order
    remanding a case to state court based on the inapplica-
    bility of the complete preemption doctrine leaves open
    the question whether the plaintiff’s claims are neverthe-
    less defensively preempted.”).
    We REVERSE the denial of the motion to remand and
    VACATE the order dismissing the claims as the trial court
    lacked jurisdiction to enter that order. Upon return of this
    case to the district court, it is to be remanded to the
    state court from which it was removed.
    USCA-02-C-0072—7-31-08