Ana Painter v. Golden Rule Ins. Co. ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 96-3114
No. 96-3454
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Ana Painter, *
*
Plaintiff - Appellant, *
* Appeals from the United States
v. * District Court for the
* Eastern District of Missouri.
Golden Rule Insurance Company, *
*
Defendant - Appellee. *
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Submitted: April 14, 1997
Filed: August 14, 1997
___________
Before LOKEN, JOHN R. GIBSON, and MAGILL, Circuit Judges.
___________
LOKEN, Circuit Judge.
Ana Painter claimed health insurance benefits under a conversion
policy issued by Golden Rule Insurance Company (“Golden Rule”). Golden
Rule denied coverage on the ground that Painter’s cancer treatments were
experimental and not medically necessary. The resulting dispute has now
spawned two appeals without resolving the
coverage question. In No. 96-3114, Painter appeals the district court’s1
dismissal of her state law claims for malicious prosecution and breach of
fiduciary duty as preempted by the Employee Retirement Income Security Act
(“ERISA”), 29 U.S.C. §§ 1001 et seq. In No. 96-3454, Painter appeals the
amount of attorney’s fees awarded after Golden Rule’s declaratory judgment
action was dismissed because the parties had not exhausted their
contractual remedies. We affirm both decisions.
I. Background.
In 1991, Golden Rule paid Painter’s claims for ovarian cancer medical
treatments under a group policy purchased by her employer, M.D. Care, Inc.
The group policy was part of an employee welfare benefit plan governed by
ERISA. After Painter’s cancer went into remission, she requested that the
group policy cover high dose chemotherapy and peripheral stem cell infusion
treatments. Golden Rule denied that request. Painter’s employment with
M.D. Care terminated in August 1992; her continuation coverage under the
group policy terminated in February 1993, when M.D. Care canceled the group
policy. At that point, Painter exercised her “health insurance conversion
privilege” under the group policy and purchased an individual “Conversion
Policy” from Golden Rule.2
1
The HONORABLE GEORGE F. GUNN, JR., United States District Judge for
the Eastern District of Missouri.
2
The Consolidated Omnibus Budget Reconciliation Act of 1985 amended ERISA
to require most sponsors of ERISA group health plans to provide “continuation
coverage” upon termination of employment, see 29 U.S.C. §§ 1161-63, and to provide
“the option of enrollment under a conversion health plan otherwise generally available
[to employees] under the plan,” § 1162(5). The parties assume that M.D. Care was
required to provide Painter’s continuation and conversion benefits. That assumption
does not affect our resolution of the issues presented by these appeals. See Glass v.
United of Omaha Life Ins. Co., 33 F.3d 1341, 1343-45 (11th Cir. 1994).
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The First Lawsuit. Painter then proceeded with high dose
chemotherapy cancer treatment and submitted a claim for those expenses
under the Conversion Policy. Golden Rule denied coverage on the ground
that this treatment was experimental and not medically necessary. When
Painter threatened to assert a variety of legal claims, Golden Rule
commenced a declaratory judgment action in federal court, seeking a
declaration that it is not obligated under the Conversion Policy to pay
Painter’s claims for these additional cancer treatments. After Painter
moved to dismiss on a variety of grounds, Golden Rule conceded that the
parties had not exhausted the Conversion Policy’s procedure for determining
medical necessity. The district court then dismissed the declaratory
judgment action without prejudice, ordering Golden Rule to pay Painter’s
“reasonable attorney’s fees and costs incurred in defending this action.”
Painter applied for an award of $102,619.75 in attorney’s fees and now
appeals the district court’s award of $37,493.35 (our case No. 96-3454).
The Second Lawsuit. In December 1995, without exhausting the
Conversion Policy’s medical necessity procedures, Painter commenced an
action in state court, seeking compensatory and punitive damages under
state law on the theory that Golden Rule’s actions in denying coverage and
commencing the declaratory judgment action constituted malicious
prosecution and breach of fiduciary duty. After Golden Rule removed the
action, the district court granted Golden Rule’s motion to dismiss,
concluding that “a conversion policy obtained by an employee pursuant to
an ERISA plan is within the scope of ERISA, and state law claims relating
to the conversion policy are subject to ERISA’s preemption provision.”
Painter appeals (our case No. 96-3114). We review an ERISA preemption
ruling de novo. See Arkansas Blue Cross & Blue Shield v. St. Mary’s Hosp.,
Inc., 947 F.2d 1341, 1344 (8th Cir. 1991), cert. denied, 504 U.S. 957
(1992).
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II. No. 96-3114 -- The ERISA Preemption Issue.
Painter argues that ERISA does not preempt her state law claims
because the Conversion Policy is an individual contract that does not
implicate administration of M.D. Care’s group health plan. After M.D. Care
terminated the group policy, Golden Rule had no relationship with M.D. Care
or its ERISA plan. Therefore, Painter concludes, her state law claims do
not “relate to” M.D. Care’s plan within the meaning of ERISA’s express
preemption provision, 29 U.S.C. § 1144(a), and those claims should avoid
ERISA preemption like the malicious prosecution claim in Nill v. Essex
Group, Inc., 844 F. Supp. 1313, 1318-20 (N.D. Ind. 1994).
The Supreme Court has decided sixteen ERISA preemption cases since
the statute was enacted in 1974. See California Div. of Labor Stds.
Enforcement v. Dillingham Constr., N.A., Inc., 117 S. Ct. 832, 842-43
(1997) (Scalia, J., concurring). Most involved the proper scope of “relate
to” preemption under § 1144(a), and the Court has struggled, particularly
in its more recent decisions, with the inherent vagueness of that key
statutory phrase. Compare New York State Conf. of Blue Cross & Blue Shield
Plans v. Travelers Ins. Co., 115 S. Ct. 1671, 1676-80 (1995), with
Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739 (1985).
However, some ERISA cases involve the distinct question of conflict
preemption -- whether a state law is preempted because it conflicts with
a specific portion of the complex ERISA statute. If there is a conflict,
state law is preempted, whether or not “the statutory phrase ‘relate to’
provides further and additional support for the pre-emption claim.” Boggs
v. Boggs, 117 S. Ct. 1754, 1761 (1997). In our view, this is a case of
conflict preemption.
To define the conflict between ERISA and Painter’s state law claims,
we must address an underlying legal issue -- if Golden Rule denies
Painter’s claim for medical benefits after the Conversion Policy’s
contractual remedies have been exhausted, would a suit by Painter for
wrongful denial of benefits be governed by ERISA’s remedial
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provisions? In Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 43 (1987), the
Supreme Court held that ERISA remedies preempt “state common law tort and
contract actions asserting improper processing of a claim for benefits
under an insured employee benefit plan.” The Court explained:
The deliberate care with which ERISA’s civil enforcement
remedies were drafted and the balancing of policies embodied in
its choice of remedies argue strongly for the conclusion that
ERISA’s civil enforcement remedies were intended to be
exclusive. This conclusion is fully confirmed by the
legislative history of the civil enforcement provision.
Id. at 54. See also Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142-45
(1990); Kuhl v. Lincoln Nat’l Health Plan of Kansas City, 999 F.2d 298,
302-04 (8th Cir. 1993), cert. denied, 510 U.S. 1045 (1994). Thus, if ERISA
provides Painter remedies for the wrongful denial of Conversion Policy
benefits, then her state law claims for tortious mishandling of her benefit
claim are conflict-preempted.
We conclude that Painter’s claim for benefits under the Conversion
Policy is governed by ERISA. The issue turns on three statutory
provisions. First, the ERISA provision governing claims for plan benefits,
29 U.S.C. § 1132(a)(1)(B), provides that an ERISA “participant” may sue “to
recover benefits due to him under the terms of his plan.” Second, the
definition of “participant” in 29 U.S.C. § 1002(7) includes “any employee
or former employee of an employer . . . who is or may become eligible to
receive a benefit of any type from an employee benefit plan.” (Emphasis
added.) In other words, a former employee such as Painter may be an ERISA
participant entitled to sue for benefits under § 1132(a)(1)(B).
That leaves the question whether Painter’s Conversion Policy benefits
are “due [her] under the terms of [her] plan” within the meaning of
§ 1132(a)(1)(B). ERISA defines an “employee welfare benefit plan,” such
as M.D. Care’s group health plan, to
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mean “any plan, fund, or program . . . established or maintained by an
employer . . . for the purpose of providing for its participants . . .
through the purchase of insurance or otherwise, (A) medical, surgical, or
hospital care or benefits.” 29 U.S.C. § 1002(1). The group health policy
M.D. Care purchased from Golden Rule either was itself an ERISA plan, or
was part of a broader plan if M.D. Care’s total plan or program included
other components. A suit to recover benefits due Painter under that group
policy, including continuation benefits due her as a former employee, would
be governed by § 1132(a)(1)(B). Here, of course, the group policy has
expired, and Painter is seeking medical benefits under Golden Rule’s
separate Conversion Policy. But the Conversion Policy came into being as
a result of Painter exercising her right under the group policy to obtain
this specific insurance policy. Thus, the right to a Conversion Policy
was part of the plan or program “established” by M.D. Care to provide
medical benefits for its current and former employees. As such, the
Conversion Policy is a component of M.D. Care’s ERISA plan. A suit to
recover Conversion Policy benefits is governed by § 1132(a)(1)(B).
Because Painter’s underlying claim for Conversion Policy benefits is
governed by ERISA, her state law claims for Golden Rule’s alleged
mishandling of that claim are preempted under Pilot Life. This conclusion
is consistent with the overwhelming majority of preemption decisions
involving conversion policies and the ERISA plans which gave them birth.
See Peterson v. American Life & Health Ins. Co., 48 F.3d 404, 407-08 (9th
Cir.), cert. denied, 116 S. Ct. 377 (1995); Glass v. United of Omaha Life,
33 F.3d at 1346-47; Greany v. Western Farm Bureau Life Ins. Co., 973 F.2d
812, 817 (9th Cir. 1992); Howard v. Gleason Corp., 901 F.2d 1154, 1157-58
(2d Cir. 1990); Reynolds v. Massachusetts Cas. Ins. Co., 900 F. Supp. 915,
922 (E.D. Tenn. 1995), rev’d on other grounds, 113 F.3d 1450 (6th Cir.
1997); Klosterman v. Western Gen. Mgmt., Inc., 805 F. Supp. 570, 573-74
(N.D. Ill. 1992); Beal v. Jefferson-Pilot Life Ins. Co., 798 F. Supp. 673,
677 (S.D. Ala. 1992); Nechero v. Provident Life & Accident Ins. Co., 795
F. Supp. 374, 379-80 (D.N.M. 1992); Mays v. Unum Life Ins. Co. of America,
1995 WL 317102, 3 (N.D. Ill. 1995); but see Mimbs v. Commercial Life Ins.
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Co., 818 F. Supp. 1556, 1562-63 (S.D. Ga. 1993). The district court
correctly concluded that ERISA preempts Painter’s state law claims.
III. No . 96-3454 -- The Attorney Fee Issue.
When Golden Rule filed its declaratory judgment action, Painter moved
to dismiss on many grounds, including (i) ERISA does not govern claims
under the Conversion Policy, (ii) in any event, ERISA does not afford
Golden Rule standing to seek a declaratory judgment construing the
Conversion Policy,3 and (iii) failure to exhaust the Policy’s procedure for
an independent determination of what is medically necessary. Golden Rule
promptly admitted lack of exhaustion and moved to stay or voluntarily
dismiss its declaratory judgment action for this purpose. Painter instead
urged the court to dismiss for lack of subject matter jurisdiction.
After moving the case toward trial for one year, the district court
referred the pending stay and dismissal motions to a magistrate judge, who
recommended that the court (i) voluntarily dismiss the action under Fed.
R. Civ. P. 41(a)(2) for failure to exhaust contract remedies, and (ii)
order Golden Rule to pay Painter’s reasonable costs and attorney fees
because it had filed a premature declaratory judgment action. The district
court adopted that recommendation, granted Golden Rule’s voluntary
dismissal motion, dismissed the case without prejudice, and ordered Golden
Rule to pay Painter’s “reasonable attorney’s fees and costs incurred in
defending this action.” However, while the court’s Order dismissed the
action pursuant to Rule 41(a)(2), its accompanying Memorandum declared that
it “lacks subject matter jurisdiction over this case, as applicable
[contract] remedies have not been exhausted.”
3
Though this issue is not before us, we refer the interested reader to the thorough
discussion and contrary conclusion in Connecticut Gen. Life Ins. Co. v. Cole, 821 F.
Supp. 193, 196-98 (S.D.N.Y. 1993).
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Counsel for Painter then applied for an award of $102,619.75 in
attorney fees. Golden Rule argued that the court had no power to award
attorney fees after dismissing for lack of subject matter jurisdiction.
Recognizing its prior error, the court ruled that failure to exhaust
contract remedies is not a jurisdictional defect depriving the court of
power to condition voluntary dismissal on the payment of Painter’s
reasonable attorney fees. After soliciting further billing information
from Painter’s attorneys, the court concluded that much of the fee request
was excessive under Rule 41(a)(2) standards. See generally Kern v. TXO
Prod. Corp., 738 F.2d 968, 972-73 (8th Cir. 1984). The court awarded
Painter fees of $37,493.35. She appeals that award.
Painter’s argument on appeal is virtually incoherent. Apparently,
she argues that the district court’s initial voluntary dismissal order was
a final order making Painter a prevailing party under ERISA, that the order
stated she would be paid all her attorney fees, that she therefore gave up
her right to appeal the order, and that the district court’s subsequent
order reducing her fees was contrary to this law of the case. The argument
has many fatal flaws. First, it is not clear from the record on appeal
that the district court’s initial voluntary dismissal order was a final
order, and Painter made no effort to clarify that issue, then or now.
Second, Painter was not a prevailing party under ERISA. As Part II of this
opinion makes clear, the district court properly denied her motion to
dismiss for lack of ERISA subject matter jurisdiction. We also reject
Painter’s suggestion that dismissal of Golden Rule’s declaratory judgment
action was inevitable. The district court never considered Golden Rule’s
alternative motion to stay the action while contract remedies were
exhausted; had Golden Rule pressed that point after the court corrected its
subject matter jurisdiction ruling, a stay might have been granted.
Finally, the district court’s initial order expressly stated that it was
dismissing under Rule 41(a)(2); if Painter’s attorneys construed that order
as authorizing a fee award on some other basis, they have only themselves
to blame.
For these reasons, we find no error of law in the district court’s
analysis of the Rule 41(a)(2) attorney fee issue. After careful review of
the record, we conclude that
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the court did not abuse its considerable discretion in reducing Painter’s
initial fee request.
IV. Conclusion.
Painter concludes her brief in No. 96-3114 by suggesting that if her
state law claims are preempted by ERISA, the district court erred in not
granting her leave to amend her complaint to assert new claims under ERISA.
Painter never made this request to the district court, either before or
after that court ruled on the preemption issue. Even now, she does not
advise this court what ERISA claims she wishes to assert. In the first
lawsuit, Painter fought Golden Rule’s declaratory judgment action in the
district court for nearly three years without asserting ERISA claims of her
own.4 We ordinarily do not consider issues raised for the first time on
appeal. See Miller v. Federal Emergency Mgmt. Agency, 57 F.3d 687, 689
(8th Cir. 1995). Painter has given us no good reason to depart from this
practice here.
The judgments of the district court are affirmed.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
4
Painter’s challenge to Golden Rule’s declaratory judgment action is one of many
roadblocks her attorneys have erected to avoid prompt resolution of the Conversion
Policy coverage issue that is the core of this dispute. We think it deplorable that the
coverage issue is not yet ripe for decision. But because this is the result of Painter’s
litigation strategy, we will refrain from attacking the resulting impasse sua sponte.
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