Richland Hospital, Inc. v. Ralyon ( 1987 )

Moyer, C.J.

This case presents two issues of first impression. The first is whether the concurrent subject matter jurisdiction vested in state courts under the Employee Retirement Security Act (“ERISA”), Section 1001 et seq., Title 29, U.S. Code, includes claims for benefits, punitive damages and attorney fees. Second, we must determine whether ERISA pre-empts a state common-law action asserting express, willful and malicious misrepresentation of benefit coverage under a self-insured employee benefit plan.

To protect plan participants and beneficiaries, ERISA comprehensively regulates employee benefit plans, including those providing medical, surgical, or hospital benefits by requiring the reporting and disclosure of financial and other pertinent information; by establishing uniform standards for fiduciaries of employee benefit plans; and by providing for appropriate remedies in both state and federal courts. Sections 1001(b),³ 1132 and 1144, Title 29, U.S. Code.

A

Carter-Jones and the Carter Plan properly raise, for the first time in this appeal, the question of the trial court’s subject matter jurisdiction to determine the issues upon which it rendered judgment. Baltimore & Ohio RR. Co. v. Hollenberger (1907), 76 Ohio St. 177, 81 N.E. 184; Jenkins v. Keller (1966), 6 Ohio St. 2d 122, 35 O.O. 2d 147, 216 N.E. 2d 379; Civ. R. 12(H)(3).

It is clear from the record that the Carter Plan was organized under ERISA⁴ and is subject to its provision regarding the jurisdiction of federal and state courts to hear causes of action brought under the Act. The first question for decision is whether there is concurrent state court jurisdiction of the Ralyons’ claims for indemnification (benefits) from Carter-Jones in the amount of their medical bills, punitive damages, and attorney fees.⁵

ERISA vests state and federal courts with concurrent subject matter jurisdiction of certain enumerated civil actions brought by participants or beneficiaries against an employee benefit plan. Section 1132(e)(1), Title 29, U.S. Code states:

“(e) Jurisdiction

“(1) Except for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, or fiduciary. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions under subsection (a)(1)(B) of this section.”

Subsection (a)(1)(B) provides:

“(a) Persons empowered to bring a civil action

“A civil action may be brought—

“(1) by a participant or beneficiary - <<* * #

“(B) 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.”

The controlling language of Sections 1132(e)(1) and (a)(1)(B), Title 29, U.S. Code, expressly limits the types of actions that may be brought against benefit plans in state courts to the recovery of benefits due under the plan, the enforcement of rights under the plan, or the clarification of rights to future benefits under the plan. Any action that is not included in subsection (a)(1)(B) falls within the exclusive subject matter jurisdiction of federal courts. The plain language of subsection (a)(1)(B) establishes that state courts clearly have jurisdiction concurrent with that of the federal courts to award benefits due under the terms of a self-insured employee benefit plan adopted pursuant to ERISA. Thus, we conclude that the Ralyons’ claim for indemnification for medical benefits allegedly due, but refused after proper demand, was properly filed in the common pleas court.

ERISA expressly authorizes state and federal courts, in their discretion, to award reasonable attorney fees and costs to either party in actions brought under ERISA. Massachusetts Mut. Life Ins. Co. v. Russell (1985), 473 U.S. 134, 147.

The statutory authority is found in Section 1132(g)(1), Title 29, U.S. Code, which provides in part:

“(g) Attorney’s fees and costs; awards in actions involving delinquent contributions

“(1) In any action under this sub-chapter (other than an action described in paragraph (2)) by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney’s fee and costs of action to either party.”

Therefore, the Ralyons’ request for attorney fees was properly before the court.

By contrast, however, application of the plain language of Section 1132 (a)(1)(B) leads us to further conclude that state courts have no jurisdiction to award extracontractual punitive damages in actions to recover benefits due under an employee benefit plan adopted pursuant to ERISA. Subsection (a)(1)(B) expressly limits the actions cognizable in state courts and only provides for the enforcement of contractual rights as remedies. If available under ERISA, the award of extracontractual punitive damages lies within exclusive federal jurisdiction. While the court in Massachusetts Mut. Life Ins. Co. v. Russell, supra, held that individual beneficiaries and participants could not recover extracontractual punitive damages for breach of fiduciary duty under Section 1109(a), Title 29, U.S. Code, it left unanswered their availability under Section 1132(a)(3), Title 29, U.S. Code. Id. at 139, fn. 5. Several lower federal courts have proceeded to recognize the availability of such damages under subsection 1132(a)(3). See Smith v. ABS Industries, Inc. (N.D. Ohio 1986), 653 F. Supp. 94. The trial court, therefore, lacked jurisdiction to consider the Ralyons’ claim for extracontractual punitive damages.

B

Having determined the scope of concurrent jurisdiction vested in state courts, we next apply ERISA’s preemption provisions to this case.

Section 1144(a), Title 29, U.S. Code, provides that state laws that “relate to” employee benefit plans are superseded by ERISA:

“[Section] 1144. Other laws

“(a) Supersedure; effective date “Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section •1003(a) of this title and not exempt under section 1003(b) of this title. This section shall take effect on January 1, 1975.”

This pre-emption provision encompasses “* * * all laws, decisions, rules, regulations, or other State action having the effect of law, of any State * * *.” Section 1144(c)(1), Title 29, U.S. Code.

The United States Supreme Court has broadly interpreted Section 1144(a), Title 29, U.S. Code, Shaw v. Delta Air Lines, Inc. (1983), 463 U.S. 85, 98, to pre-empt state laws that are consistent with ERISA’s substantive requirements, Metropolitan Life Ins. Co. v. Massachusetts (1985), 471 U.S. 724, 739, and state laws indirectly bearing on employee benefit plans, Alessi v. Raybestos-Manhattan, Inc. (1981), 451 U.S. 504, 525. See, also, Pilot Life Ins. Co. v. Dedeaux (1987), 481 U.S. _, 95 L.Ed. 2d 39:

“A law ‘relates to’ an employee benefit plan, in the normal sense of the phrase [and is therefore pre-empted], if it has a connection with or reference to such a plan.” Shaw v. Delta Air Lines, supra, at 96-97. See, also, Metropolitan Life Ins. Co. v. Massachusetts, supra, at 739; Pilot Life Ins. Co. v. Dedeaux, supra, at 48.

Applying this statutory language as interpreted, a state common-law claim asserting express, willful and malicious misrepresentation against a self-insured employee benefit plan is clearly pre-empted by ERISA. In the context of the cause sub judice, ERISA requires pre-emption of such state claims brought against an employer for acts undertaken in the administration of a benefit plan.' While the Ralyons’ claim of misrepresentation is founded in part upon fiduciary misconduct, their claim implicitly relies upon and “relates to” the language of the plan under which they claim entitlement to benefits.⁶ As none of the exceptions to pre-emption under Section 1144(b), Title 29, U.S. Code, apply to the Carter Plan, pre-emption is mandated.⁷ Pilot Life Ins. Co. v. Dedeaux, supra; cf. O’Grady v. Firestone Tire & Rubber Co. (S.D. Ohio 1986), 635 F. Supp. 81, 83 (equitable estoppel claim preempted).

Furthermore, to the extent the Ralyons’ claim predicates recovery upon breaches of fiduciary duties (express, willful and malicious misrepresentation of coverage followed by denial of benefits), state courts have no jurisdiction to grant relief.⁸ “That the federal courts have exclusive jurisdiction over ERISA claims for breach of fiduciary duties is settled.” Central States Southeast & Southwest Areas Health & Welfare Fund v. Old Security Life Ins. Co. (C.A. 7, 1979), 600 F. 2d 671, 676, and cases cited. See, also, Spitzer v. Dytronics Co. (1984), 13 Ohio App. 3d 275, 13 OBR 340, 468 N.E. 2d 1135; Sections 1132(e)(1) and (a)(3), Title 29, U.S. Code.

Noting that the Ralyons’ cross-complaint sounded in both tort and contract, the court of appeals also concluded that, in addition to their claim for misrepresentation, the Ralyons were entitled to recovery based upon contract principles. The court of appeals declared that the plan’s definition of “hospital” was void, finding that the plan’s requirement that surgical facilities be operated continuously on the hospital premises was contrary to state statutory definitions of “hospital,” and thus contrary to law. By excising the plan’s limiting definition of hospital,⁹ the medical bills incurred by the Ralyons at Richland Hospital were deemed by the court of appeals to be covered by the plan.

This application of state law cannot stand under ERISA’s pre-emption provisions. The parties to an ERISA plan may define the terms and conditions under which benefits are made available. Metropolitan Life Ins. Co. v. Massachusetts, supra, at 735; Shaw v. Delta Air Lines, Inc., supra, at 91. The application of these terms and conditions is controlled by federal, not state, law. The appellate court’s use of a state statutory definition of “hospital” to interpret the contract threatens the plan trustees with conflicting and inconsistent state regulation, and illustrates Congress’ purpose in preempting state laws relating to employee benefit plans. Shaw v. Delta Air Lines, Inc., supra, at 98-99. While state trial courts can award benefits due under ERISA plans, their rationale must be consistent with federal law. Accordingly, the alternative contract rationale urged in support of the Ralyons’ cause of action is pre-empted. The effect of pre-emption in this instance is to vacate the award of benefits because the award is based upon state law.¹⁰

Some trial courts, presented with state law claims pre-empted by ERISA, have nonetheless proceeded to consider the underlying facts alleged as the basis for an ERISA claim. O’Grady v. Firestone Tire & Rubber Co., supra, at 83-84. Cf. Reed v. Standard Slag Co. (Apr. 28, 1987), Scioto App. No. CA 1585, unreported. As in O’Grady v. Firestone Tire & Rubber Co., supra, the underlying facts, here, state a claim for arbitrary and capricious denial of benefits. However, because the record before us is insufficient to enable us to consider issues other than pre-empted issues of state law, we decline to consider, in the first instance, the substantive issues arising under ERISA. Cf. Pilot Life Ins. Co. v. Dedeaux, supra, at 54 (upon finding state law claims pre-empted, judgment reversed). Wallingford v. Local Union 407 Insurance Fund (Dec. 4, 1986), Cuyahoga App. Nos. 51084 and 51176, unreported, at 9-10 (cause reversed and remanded; under Civ. R. 8, the operative facts pleaded formed a sufficient basis for remand for further proceedings).

The foregoing analysis compels us to vacate the award of benefits and to conclude that the trial court had no jurisdiction to award punitive damages. We further conclude that there remains no basis upon which to sustain the award of attorney fees to the Ralyons.

Accordingly, the judgment of the court of appeals is reversed and the cause is remanded to the trial court with instructions to dismiss the claim for punitive damages and conduct further proceedings on the claim for arbitrary and capricious denial of benefits in light of ERISA and consistent with this opinion.

Judgment reversed and cause remanded.

Locher, Holmes and Wright, JJ., concur. Sweeney, Douglas and H. Brown, JJ., dissent.

3 “[Section] 1001. Congressional findings and declaration of policy:

U* 4c 4c

“(b) Protection of interstate commerce and beneficiaries by requiring disclosure and reporting, setting standards of conduct, etc., for fiduciaries

“It is hereby declared to be the policy of this chapter to protect interstate commerce and the interests of participants in employee benefit plans and their beneficiaries, by requiring the disclosure and reporting to participants and beneficiaries of financial and other information with respect thereto, by establishing standards of conduct, responsibility, and obligation for fiduciaries of employee benefit plans, and by providing for appropriate remedies, sanctions, and ready access to the Federal courts.

4 Sections 1002(1) and 1003(a)(1), Title 29, U.S. Code, read:

“1002. Definitions

“For purposes of this subchapter:

“(1) The terms ‘employee welfare benefit plan’ and ‘welfare plan’ mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 186(c) of this title (other than pensions on retirement or death, and insurance to provide such pensions).”

“1003. Coverage

“(a) Except as provided in subsection (b) of this section and in sections 1051, 1081, and 1101 of this title, this subchapter shall apply to any employee benefit plan if it is established or maintained—

“(1) by any employer engaged in commerce or in any industry or activity affecting commerce * * *.”

5 While the dissent seeks to characterize the Ralyons’ cross-claim against Carter-Jones as one outside the scope of ERISA, the Ralyons’ allegations of express, willful, and malicious misrepresentation, and request for indemnification from Carter-Jones against the claims of the plaintiffs, of necessity, concern the company’s fulfillment of its duties under the plan, require reconsideration of the benefit provisions of the plan offered to employees, and, further, implicate the fiduciary duties owed under ERISA by Vincent Graham, whose communication with the hospital forms the basis of this claim. See footnote 1, supra. Consequently, the claims relate to administration of the plan and fall within the broad scope of ERISA.

6 See footnote 5, supra.

7 We acknowledge that Provience v. Valley Clerks Trust Fund (E.D. Calif. 1981), 509 F. Supp. 388, upon facts similar to those sub judice, held that state common-law causes of action for fraud, bad faith, and intentional infliction of emotional harm were not pre-empted by ERISA. However, in light of the broad interpretations of ERISA’s pre-emption provisions in Section 1144(a), Title 29, U.S. Code, Provience v. Valley Clerks Trust Fund, supra, certainly represents a minority view, as noted in Ogden v. Michigan Bell Tel. Co. (E.D. Mich. 1983), 571 F. Supp. 520, 523, and Gordon v. Matthew Bender & Co., Inc. (N.D. Ill. 1983), 562 F. Supp. 1286, 1293, if not contrary to law. See Pilot Life Ins. Co. v. Dedeaux, supra.

8 Allegedly wrongful fiduciary acts of Carter-Jones and the trustees which were brought out by the evidence included the failure of Carter-Jones to provide Ken Ralyon a plan summary; the actions of the trustee representing medical coverage to the hospital and inducing reliance by the Ralyons to their detriment; and various failures of the plan trustees to insulate the claim review procedure from the interests of Carter-Jones. Relevant statutory and fiduciary duties under ERISA would include Section 1021, Title 29, U.S. Code, duty of disclosure and reporting; and Section 1104, Title 29, U.S. Code, fiduciary duties.

9 The plan’s definition of “hospital” states, in pertinent part, that an institution is a hospital if:

“2) It fully meets all the following tests:

“a) It maintains on the premises, diagnostic and therapeutic facilities for surgical and medical diagnosis and treatment of sick and injured persons * * *

ii* * *

“c) It is operated continuously with organized facilities for operative surgery on the premises.”

10 We note that no cases in the developing federal common law of ERISA have been found recognizing contract principles which permit a different result. For example, federal courts have refused to apply common-law theories of oral modification, Nachwalter v. Christie (C.A. 11, 1986), 805 F. 2d 956; Murphy v. Curran Contracting Co. (N.D. Ill. 1986), 648 F. Supp. 986; equitable estoppel, O’Grady v. Firestone Tire & Rubber Co., supra; but, compare, Dockray v. Phelps Dodge Corp. (C.A. 9, 1986), 801 F. 2d 1149 (equitable estoppel applied to ERISA actions involving pension plans); promissory estoppel, United Electrical Radio & Machine Workers of America v. Amcast Industrial Corp. (S.D. Ohio 1986), 634 F. Supp. 1135; or improper processing of benefit claims, Pilot Life Ins. Co. v. Dedeaux, supra; in reviewing the award or denial of benefits under benefit plans (other than pension plans). Misrepresentation theories have been applied to determine pension benefits, Dockray v. Phelps Dodge Corp., supra; cf. Darden v. Nationwide Mut. Ins. Co. (C.A. 4, 1986), 796 F. 2d 701, but not other benefit determinations.