Blue Cross & Blue Shield v. Nielsen

United States Court of Appeals,
Eleventh Circuit.
No. 96-6560.
BLUE CROSS AND BLUE SHIELD OF ALABAMA, INC., Plaintiff-Counter-Defendant-
Appellee,
v.
John O. NIELSEN, D.M.D., Individually and on behalf of all other persons who are similarly
situated, Defendant-Appellant,
Kenneth O. Friday, George R. Bolling, individually and on behalf of all others similarly situated,
Intervenor-Defendants-Counterclaimants-Appellants,
Complete Health, Inc., Samuel W. Sullivan, M.D., Movants.
July 10, 1997.
Appeal from the United States District Court for the Northern District of Alabama. (No. CV-94-L-
1265-S), Seybourn H. Lynne, Judge.
Before CARNES, Circuit Judge, and HENDERSON and GIBSON*, Senior Circuit Judges.
CARNES, Circuit Judge:
This appeal concerns the proper construction and application of three Alabama acts
governing the relationship between insurers and health care providers in the state. The disposition
of this appeal depends upon the resolution of these issues: (1) is Blue Cross and Blue Shield of
Alabama (Blue Cross) exempt from the application of the three Alabama acts by the terms of
previously enacted Alabama statutes; (2) if Blue Cross is exempt from the application of the three
Alabama Acts due to the terms of those previously enacted statutes, are those exempting statutes
violative of the Alabama Constitution; and (3) are those three acts preempted by the Employee
Retirement Income Security Act (ERISA) insofar as they relate to ERISA-governed health benefit
plans?
Although the third issue involves a question of federal law, its existence in and relevance to
this case is entirely dependent upon the answers to the first two issues, each of which involve only
*
Honorable Floyd R. Gibson, Senior U.S. Circuit Judge for the Eighth Circuit, sitting by
designation.
questions of state law. Not only is this case fraught with unsettled issues of Alabama law, but the
decision of those state law issues will affect the insurance rights of more than half of Alabama's
population. For these reasons, we conclude that it is imperative for us to certify the Alabama law
issues to the highest court of the state and thereby provide it with an opportunity to authoritatively
decide its own state law.
I. BACKGROUND
A. FACTS
Blue Cross is a not-for-profit corporation organized and existing under Alabama Code §§
10-4-100 to -115 for the purpose of providing health care service plans to subscribers.1 It furnishes
health benefits to approximately 2.2 million people in Alabama,2 which is more than half of the
state's population.3
In order to contain or reduce the cost of providing health care benefits to subscribers, Blue
Cross enters into contracts with various health care providers. Providers that have contracts with
Blue Cross are known as "network providers." Network providers usually agree to perform services
for Blue Cross subscribers at discounted rates, and they agree to submit to Blue Cross' quality
review, dispute resolution, and cost containment procedures.
In its health plans, Blue Cross reserves the right not to honor assignments of benefits. It also
reserves the right to choose to pay either the provider or the subscriber, when a subscriber receives
1
Section 10-4-100 of the Alabama Code provides:
Any nonstock corporations organized not for profit for the purpose of
establishing, maintaining and operating a health care service plan under which
health services are furnished to such of the public who become subscribers to
such plan pursuant to contracts are authorized and shall be governed by the
provisions of this article.
Ala.Code § 10-4-100 (1975).
2
Blue Cross informed the Court of this fact at oral argument.
3
In July, 1996, the United States Census Bureau estimated Alabama's population at 4,273,084.
See U.S. Bureau of the Census, Estimates of the Population of States: Annual Time Series, July
1, 1990 to July 1, 1996 (released December 30, 1996)
.
medical services from a non-network provider. However, if a claim is received from a network
provider for services to a subscriber who has network benefits, Blue Cross will pay benefits directly
to the network provider. Blue Cross guarantees that network providers will be paid for their services
within a specified period of time; no such guarantee is made to other providers.
The Alabama Legislature has forbidden many of the "managed care" practices that Blue
Cross employs, at least when they are utilized by other insurance companies. For instance, in 1984,
the Legislature enacted the Dental Care Services Act (the Dental Act). See 1984 Ala.Acts 411. That
act prohibits health plans and health insurance policies from denying any dentist's request to become
a network provider so long as the dentist is practicing within the scope of his or her license. See
Ala.Code § 27-19A-3(2) (Supp.1996). The Dental Act also prohibits a health plan from limiting the
patient's selection of a dentist and from reviewing the necessity or quality of any service performed
by a dentist. See Ala.Code § 27-19A-3(1), (3) (Supp.1996). It declares void all terms of plans
inconsistent with the Act and criminalizes willful violations of it. See Ala.Code §§ 27-19A-5, -8
(Supp.1996).
The Pharmaceutical Insurance Coverage Act (the Pharmacy Act), enacted in 1988, see 1988
Ala.Acts 379, prohibits health plans from denying a pharmacist's request to become a provider
member of the health plan, so long as the pharmacist is properly licensed. See Ala.Code § 27-45-
3(2) (Supp.1996). It also prohibits health plans from limiting a patient's selection of a pharmacist.
See Ala.Code § 27-45-3(1) (Supp.1996).
The Assignment Act, enacted in 1994, see 1994 Ala.Acts 638, requires all entities providing
health insurance or health benefit plans to reimburse, within a specified time period, all health care
providers for their performance of covered services. See Ala.Code § 27-1-19(a) (Supp.1996). The
Assignment Act also requires insurers or other entities providing health care plans to honor all
assignments of benefits, notwithstanding any terms of the insurance or health plans to the contrary.
See Ala.Code § 27-1-19(d) (Supp.1996). Health care providers, as assignees, are provided a right
to sue to collect the assigned payment. See id.
We will refer to the Dental Act, the Pharmacy Act, and the Assignment Act collectively as
"the Alabama Provider Acts."
B. PROCEDURAL HISTORY
Blue Cross filed this action, seeking declarations that the Assignment Act is preempted by
ERISA insofar as it relates to ERISA-governed plans, and that because of Alabama Code § 10-4-115
and § 27-1-4, Blue Cross is not bound by the Assignment Act. Blue Cross also sought to
permanently enjoin the enforcement of the Assignment Act against it and its employee welfare
benefit plan sponsors. Blue Cross named John O. Nielsen, D.M.D., a licensed dentist practicing in
Alabama, as a defendant. Blue Cross sued Nielsen both individually and as the representative of a
class of all health care providers who have claimed or may claim in the future rights under the
Assignment Act.
Kenneth O. Friday, a licensed Alabama dentist, and George R. Bolling, a licensed Alabama
pharmacist, filed a motion to intervene in this case as defendants and as class representatives. After
the district court granted that motion, Friday and Bolling counterclaimed against Blue Cross for
damages arising out of Blue Cross' alleged violation of the Dental Act and the Pharmacy Act.
Friday and Bolling also sought an injunction to prevent Blue Cross from excluding them from
participating as network providers in Blue Cross health benefit plans.
Blue Cross filed a motion for summary judgment on its complaint and Friday and Bolling's
counterclaims. The district court certified three defendant classes for the purposes of deciding Blue
Cross' motion and then granted summary judgment to Blue Cross on the first two counts of its
complaint and on the intervenors' complaint. The court held that ERISA preempts the Alabama
Provider Acts insofar as they relate to ERISA plans. It also held that § 10-1-115 and § 27-1-4 of the
Alabama Code exempt all Blue Cross plans from the applicability of the Alabama Provider Acts,
anyway. Finally, the court rejected the defendants' argument that the exempting statutes violate the
Alabama Constitution.
The defendants, whom we will refer to hereafter as "the providers," timely appealed the
district court's grant of summary judgment in favor of Blue Cross.
II. DISCUSSION
We begin our discussion by describing the parties' positions on the state law issues.
A. THE STATE STATUTORY CONSTRUCTION AND INTERPRETATION ISSUES
First, Blue Cross contends that the Alabama Provider Acts do not apply to it, because two
Alabama statutes purport to exempt Blue Cross from otherwise applicable regulation under
Alabama's Insurance Code, Title 27 of the Code of Alabama. In 1939, the Alabama Legislature
enacted what is now section 10-4-115 of the Alabama Code, which presently provides that:
[n]o statute of this state applying to insurance companies shall be applicable to any
corporation organized under the provisions of this article [tit. 10, ch. 4, art. 6] and
amendments thereto or to any contract made by such corporation unless expressly mentioned
in this article and made applicable; except, that such corporation shall be subject to the
provisions regarding annual premium tax to be paid by insurers on insurance premiums.
Ala.Code § 10-4-115 (1975).4 Blue Cross is organized pursuant to Alabama Code §§ 10-4-100 to
-115. Thus, the language of § 10-4-115 appears to exempt Blue Cross from insurance regulatory
laws enacted after 1939, except where the Alabama Legislature has expressly amended §§ 10-4-100
to -115 to make such Laws applicable to Blue Cross.
In addition, since 1971 the Insurance Code (Title 27), which now includes the Alabama
Provider Acts, has contained a provision specifying that that entire title shall not apply to:
...
(2) Non-profit corporations for establishment of hospitalization plan under § 10-4-100, et
seq., except to the extent now or hereafter provided in such laws....
Ala.Code § 27-1-4 (1975).5 Because Blue Cross is a § 10-4-100 corporation, the language of § 27-1-
4
The original statutory provision provided as follows:
No statute of this state applying to insurance companies shall be applicable to any
corporation organized under the provisions of this article and amendments thereto
or to any contract made by such corporation unless herein expressly mentioned
and made applicable.
1940 Ala.Code tit. 28, § 316. The exception for insurance premium tax laws was added
in 1969. See 1969 Ala.Acts 27 § 1. The Legislature made technical amendments to the
exception clause in 1993. See 1993 Ala.Acts 679 § 8. That clause is not involved in the
issues before us.
5
The predecessor to § 27-1-4 contained language identical to the current provision, except that
it did not cross-reference §§ 10-4-100, et seq. See 1971 Ala.Acts 407 § 12. Instead, it
cross-referenced "Title 28, Chapter 10, Article 3 of the Alabama Code, 1940," which is the
predecessor to §§ 10-4-100, et seq. See 1971 Ala.Acts 407 § 12.
4, too, seems to preclude the Alabama Provider Acts from applying to Blue Cross unless the
Legislature amends §§ 10-4-100 to -115 to specify that they do apply. None of the Alabama
Provider Acts expressly amended those sections.
Faced with § 10-4-115 and § 27-1-4 (hereinafter, "the exempting statutes") the providers
offer several principles of statutory interpretation that, they claim, cause the Alabama Provider Acts
to trump the previously enacted exempting statutes. First, the providers argue that courts must give
effect to legislative intent as expressed in the plain language of the Alabama Provider Acts. The
providers note that the Assignment Act purports to cover "non-profit health service organizations,"
see Ala.Code § 27-1-19(a) (Supp.1996), while the Dental Act and the Pharmacy Act purport to apply
to all "employee benefit plans" and "health insurance polic[ies]," see Ala.Code §§ 27-19A-2(3), 27-
45-3 (Supp.1996). That plain albeit generic language in the Alabama Provider Acts clearly covers
Blue Cross and its health plans, the providers argue, and that manifest legislative intent must be
given effect, notwithstanding any indication to the contrary in the exemption statutes.
The providers also contend that, if read literally, § 10-4-115 would lead to an absurd result.
The result would be absurd, they say, because that exempting statute purports to reach all legislation
applying to insurance companies, not just insurance regulatory legislation. The providers claim that
the Alabama Legislature could not have intended to provide Blue Cross with such sweeping
exemptions from otherwise applicable law. Because the plain language of § 10-4-115 would lead
to an absurd result, the providers suggest that the statute should be read narrowly, citing Abramson
v. Hard, 229 Ala. 2, 155 So. 590, 593 (1934) (holding that courts should look beyond plain meaning
of statute when such a construction of the statute would lead to absurd results). However, the
providers do not make a parallel argument that a literal interpretation of § 27-1-4 would lead to
absurd results.
Next, the providers contend that the latest expression of legislative will governs the
interpretation of conflicting statutes. See e.g., State v. Crenshaw, 287 Ala. 139, 249 So.2d 622, 624
(1971) (holding that where two provisions in a statute are in irreconcilable conflict, the latest
expression of legislative will controls). The providers maintain that the Alabama Provider Acts are
in direct conflict with the exempting statutes regarding the applicability to Blue Cross of the
Alabama Provider Acts. Because all of those acts were enacted after the exempting statutes, they
are the more recent expression of legislative will and therefore prevail over the conflicting language
of the previously enacted exempting statutes, it is argued.
Winding up their statutory construction arguments, the providers urge us to treat the
exempting statutes as rules of statutory construction that merely prevent insurance laws from
unintentionally covering Blue Cross. They win under such an approach, they say, because the
Alabama Provider Acts demonstrate clear legislative intent to cover Blue Cross. In other words, the
providers claim that the Alabama Provider Acts' intentional coverage of Blue Cross overcomes what
are merely codified rules of statutory construction contained in the exempting statutes.
Not surprisingly, Blue Cross cites several different statutory construction principles in its
arguments against the applicability of the Alabama Provider Acts. According to Blue Cross, we
should begin our analysis with the principle that lawmakers are presumed to know the existing law
when they act. See, e.g., Ex Parte Louisville & N.R. Co., 398 So.2d 291, 296 (Ala.1981) (presuming
state legislature knew, when it enacted taxing statute, that state was precluded by the Commerce
Clause from taxing certain transactions covered by the statute). In accordance with that principle,
Blue Cross contends that we should assume that the Alabama Legislature was aware of the explicit
amendment requirement in the exempting statutes when it enacted the Alabama Acts. Blue Cross
further argues that application of this principle of Alabama statutory construction law is supported
by the history of the exempting statutes. In compliance with the exempting statutes, the relevant
article (Title 10, Chapter 4, Article 6) of the Alabama Code has been amended twice to make
insurance regulation expressly applicable to corporations organized under that chapter. See 1993
Ala.Acts 679; 1969 Ala.Acts 27. Blue Cross claims that those amendments demonstrate that the
Alabama Legislature knows how to amend the Code in compliance with the exempting statutes when
it intends for new laws to apply to Blue Cross. The Legislature did not do so when it enacted the
Alabama Provider Acts, and that failure is telling, Blue Cross says.
According to Blue Cross, in deciding whether it is exempt from the application of the
Alabama Provider Acts, we should not apply the principle that the later expression of legislative
intent controls. That principle applies only when statutes are inescapably repugnant to each other,
see, e.g., Ex parte Jones, 212 Ala. 259, 102 So. 234, 235 (1924), and the exemption statutes and the
Alabama Provider Acts are not inescapably repugnant, the argument runs, but may instead be read
to be consistent with each other.
Escape from any apparent conflict between the exempting statutes and the Alabama Provider
Acts is possible, Blue Cross suggests, if we give the more specific enactments greater weight than
the general ones. By "specific," we understand Blue Cross to mean "specifically applicable." Blue
Cross claims that the exempting statutes apply only to it and a narrow class of not-for-profit
corporations. By contrast, the Alabama Provider Acts apply to all health insurance companies,
providers of benefit plans, and so forth. Because the exempting statutes are more specifically
applicable to Blue Cross, it claims that those statutes provide the most reliable indication of the
Alabama Legislature's intent regarding regulation of Blue Cross.
Blue Cross also points out that implied repeals are disfavored under Alabama law, and that
a later statute does not impliedly repeal an earlier one unless the later statute demonstrates an
unambiguous legislative intent to do so. See Shepherd v. Clements, 224 Ala. 1, 141 So. 255, 256
(1931) (recognizing presumption that general law does not impliedly repeal local statute).
According to Blue Cross, the Alabama Legislature did not clearly demonstrate through use of
generic phrases such as "non-profit health service organizations," "health plans," or otherwise that
it intended to make the Alabama Provider Acts applicable to Blue Cross.
B. THE STATE CONSTITUTIONAL ISSUES
The statutory construction issues we have discussed are not the only state law issues at play
in this case. Alabama constitutional law issues loom as well. If the exempting statutes, §§ 10-4-115
and 27-1-4, are interpreted to prevent the Alabama Provider Acts from applying to Blue Cross, then
the providers contend that the exempting statutes violate the Alabama Constitution for two reasons.
The first reason, according to the providers, is that the exempting statutes are an attempt by earlier
legislatures to impose a requirement for the passage of legislation on subsequent legislatures which
is over and beyond those requirements found in the Alabama Constitution. In Tayloe v. Davis, 212
Ala. 282, 102 So. 433 (1924), the Court held that a section of a budget act that imposed a
super-majority voting requirement for amending the act violated the Alabama Constitution. See id.The same is true of the exempting statutes, according to the providers.
In response, Blue Cross points out that Alabama applies a strong presumption of
constitutionality to its statutes. See, e.g., The City of Birmingham v. Graffeo, 551 So.2d 357, 363
(Ala.1989) ("Every presumption is in favor of the constitutionality of an act of the legislature and
this Court will not declare it invalid unless in its judgment, the act clearly and unmistakably comes
within the inhibition of the Constitution.") (citing Mobile Housing Board v. Cross, 285 Ala. 94, 229
So.2d 485, 487 (1969)). Blue Cross contends that Tayloe cannot be used to overcome that
presumption in this case, because the statute struck down in Tayloe violated a specific provision in
the Alabama Constitution: the majority vote rule. According to Blue Cross, the exempting statutes
at issue here do not violate any specific provision in the Alabama Constitution.
Moreover, Blue Cross argues that the exempting statutes do not require subsequent Alabama
legislatures to satisfy burdensome extra-constitutional procedures in enacting laws; instead, those
statutes merely require subsequent legislatures to make explicitly clear their intent to regulate Blue
Cross, either by amending Title 10, Chapter 4, Article 6, or perhaps by mentioning Blue Cross in
the new act. At least implicit in Blue Cross' position is the premise that the Alabama Constitution
permits a legislature to impose explicitness requirements upon the enactments of future legislatures.
Even if they lose their Tayloe doctrine argument, the providers have another arrow in their
state constitutional quiver, a second reason the exempting statutes are unconstitutional. Article IV,
§ 108 of the Alabama Constitution, specifies that:
The operation of a general law shall not be superseded for the benefit of any individual,
private corporation, or association; nor shall any individual, private corporation, or
association be exempted from the operation of any general law except as in this article
provided.
Ala. Const. art. IV, § 108. According to the providers, the exempting statutes run afoul of that
constitutional prohibition by affording Blue Cross a greater immunity from legislation affecting
insurance companies than that which is available to other insurance companies. Blue Cross responds
that the providers' argument misses the mark, because Blue Cross is not an insurance company.
Instead, it is a special purpose corporation established and regulated by Alabama Code §§ 10-4-100
to -115, which Blue Cross contends exempts a class of corporations, including itself, from insurance
regulation. Because the exempting statutes do not exempt only Blue Cross from regulation under
the Insurance Code, they do not run afoul of Article IV, § 108. Or so Blue Cross says.
C. WHY CERTIFICATION OF THE STATE LAW ISSUES IS APPROPRIATE
There is no way for us to avoid the state law issues in this case. We have not yet decided
the ERISA preemption issue, the only federal question in the case, and we do not mean to imply any
view on it. However, even if we were to assume for present purposes that each of the Alabama
Provider Acts is preempted by ERISA, the same state law issues would remain for decision. The
reason is that ERISA covers only employee benefit plans. See 29 U.S.C. § 1003. Blue Cross offers
some insurance policies and plans that do not fall within the scope of ERISA; they are governed by
state law free of ERISA. Nevertheless, those non-ERISA policies and plans are within the scope
of the pleadings and the district court's decision in this case by virtue of pendent jurisdiction, see 28
U.S.C. § 1367(a), and the state law issues must be decided before we can dispose of that part of this
appeal. So, the state law issues are unavoidable. The question is who should decide those issues,
and we do not think that is a close question at all.
The final arbiter of state law is the state supreme court, which is another way of saying that
Alabama law is what the Supreme Court says it is. See, e.g., Sultenfuss v. Snow, 35 F.3d 1494, 1504
(11th Cir.1994) (Carnes, J., dissenting) ("From our perspective, state law is what the state supreme
court says it is, and a state supreme court's pronouncements on the subject are binding on every state
and federal court."). Because the only authoritative voice on Alabama law is the Alabama Supreme
Court, it is axiomatic that that court is the best one to decide issues of Alabama law.
Having the most authoritative voice on Alabama law decide the state law issues in this case
is especially important because the decision will affect the rights of so many of the state's citizens,
perhaps more than half. Adjustment of the rights and interests of insurers, health care providers, and
insureds is a subject matter that falls squarely within the zone of traditional state regulatory
concerns. The question to be decided is exactly how the State of Alabama has chosen to regulate
its largest health insurer.
At the threshold, the answer to that question depends upon reconciliation of the competing
trajectories of a number of canons of statutory construction. Given the nature of the overlapping and
somewhat contradictory canons of statutory construction arguably applicable to this case, and the
competing interests and policies at stake, the task is less like applying a scientific formula and more
like painting a picture. We could take up the brush ourselves, but we are not at all confident our
painting would resemble the one the Alabama Supreme Court would have produced.
It is even more imperative that any state constitutional law issues in this case be decided by
the state supreme court. Given the sensitivity of such matters and how closely they sound to the
heart of a state's self-government, a federal court should not purport to hold that a state statute
violates the state constitution, except as an unavoidable matter of last resort. Federalism and comity
require at least that much deference to state courts on ultrasensitive state law matters.
For all of these reasons, we conclude that it would be irresponsible of us not to give the
Alabama Supreme Court an opportunity to decide the difficult, sensitive, and dispositive Alabama
law issues presented in this appeal.6 Fortunately, we have a procedure for giving it that opportunity.
Certification of state law issues to state supreme courts is a valuable tool for promoting the interests
of cooperative federalism. We, more than any other circuit, use that tool. See Jona Goldschmidt,
American Judicature Society, Certification of Questions of Law: Federalism in Practice 28 (1995)
(noting that during a five-year period "the Eleventh Circuit has by far certified the most questions
(49) of any circuit," with the average number certified by all circuit courts during the same period
being 14.5). We will use it here.
We realize, of course, that the last two times this Court certified questions of state law to the
6
By "dispositive" we mean that regardless of which way the Alabama Supreme Court decides
the state law issues, its decision will dispose of the part of this case involving all of Blue Cross'
non-ERISA policies and plans. As to the ERISA-governed policies and plans, if the Alabama
Supreme Court decides in Blue Cross' favor on both issues we certify, its decision will moot the
ERISA preemption issue and dispose of the remainder of the case. If the Alabama Supreme
Court decides either certified question in favor of the providers, we will decide the ERISA
preemption issue upon return of the answers to us.
Alabama Supreme Court, it declined to answer them, see Moreno v. Nationwide Ins. Co., 114 F.3d
168 (11th Cir.1997); Colonial Properties v. Vogue Cleaners, 86 F.3d 210, 211 (11th Cir.1996), as
it has every right to do. In the absence of any clearer indication than that, we will not assume the
Alabama Supreme Court has, for whatever reason, adopted a policy or practice against answering
certified questions from this Court. Perhaps this case, as compelling an example of the need for
certification of state law issues as we have seen, will provide a clearer indication of whether the
procedure is still viewed with favor by our state court colleagues.
D. THE CERTIFIED QUESTIONS
For the foregoing reasons, we certify to the Alabama Supreme Court the following questions:
(1) Is Blue Cross and Blue Shield of Alabama exempted by § 10-4-115 and § 27-1-4 of the Alabama
Code from the application of § 27-1-19, §§ 27-19A-1 to -11, and §§ 27-45-1 to -9?
(2) If the answer to the first question is in the affirmative as to any of those three acts, are § 10-4-
115 and § 27-1-4 invalid under the Alabama Constitution to that extent?
Our statement of the questions to be certified is not meant to limit the scope of inquiry by
the Supreme Court of Alabama:
[T]he particular phrasing used in the certified question is not to restrict the Supreme Court's
consideration of the problems involved and the issues as the Supreme Court perceives them
to be in its analysis of the record certified in this case. This latitude extends to the Supreme
Court's restatement of the issue or issues and the manner in which the answers are to be
given, whether as a comprehensive whole or in subordinate or even contingent parts.
Martinez v. Rodriquez, 394 F.2d 156, 159 n. 6 (5th Cir.1968) (citations omitted).
The entire record in this case, together with copies of the briefs of the parties and amici
curiae, is transmitted herewith.
QUESTIONS CERTIFIED.