United States District Court, D. Alaska
ORDER RE CROSS-MOTIONS FOR SUMMARY JUDGMENT
Sharon
L. Gleason UNITED STATES DISTRICT JUDGE
Order
Before the Court at Docket 86 is Ray Klein, Inc. d/b/a
Professional Credit Service's (“PCS”) Motion
for Summary Judgment. At Docket 96 is Defendant Board of
Trustees of the Alaska Electrical Health and Welfare
Fund's (“Fund”) Motion for Summary Judgment,
filed under seal. Both motions have been fully
briefed.[1] Oral argument was not requested and was
not necessary to the Court's decision. As indicated by
the Court on the record at the recent court hearing in this
matter, summary judgment will be granted to the Fund.
I.
Background
The
Alaska Electrical Health and Welfare Fund
(“Fund”) is a self-insured joint labor-management
welfare trust fund created pursuant to Section 302(c) of the
Labor Management Relations Act (“LMRA”), 29
U.S.C. § 186(c), and ERISA, 29 U.S.C. § 1001,
et seq.[2] The Fund provides medical, prescription
drug, dental, vision, and disability benefits to Plan
Participants: electrical workers and their dependents
(“Eligible Persons”) in Alaska.[3] The Fund's
Summary Plan Description (“Plan”) states that the
Fund will pay a percentage of the medically necessary
healthcare costs by Eligible Persons for “Covered
Charges.”[4] The Plan defines these “Covered
Charges” as “the actual costs charged for
services to the extent that such charges are Usual,
Customary, and Reasonable [(“UCR”)] for the area
and the type of service.”[5]
In June
2009, the Fund entered into a Master Services Agreement
(“MSA”) with Viant Payment Systems, Inc., Beech
Street Corporation, and ppoNEXT, Inc. (collectively referred
to as “Beech Street”).[6] Under the terms of that
agreement, the Fund agreed to pay Beech Street a specific
dollar amount per Plan Participant per month in exchange for
access to the discounts that Beech Street had negotiated with
participating providers.[7]The MSA also provides that the Fund is
obligated to pay Beech Street's participating providers,
pursuant to the Fee Schedule of the Facility Service
Agreement.[8] The MSA states, “A Payor must pay a
Participating Provider the amount payable under the
applicable Plan for Covered Services.”[9] Providence Health
and Services (“Providence”) is a participating
provider in the Beech Street Network.[10]
On
March 16, 2014, Baby B and Baby P (the “Twins”)
were born at Providence Alaska Medical Center in
Anchorage.[11] The Twins are qualified as Eligible
Persons under the Fund's Master Service
Agreement.[12] The Twins were born approximately 13
weeks premature, and required extensive care and treatment at
Providence. Providence billed the Fund $1, 627, 835.71 for
Baby B and $2, 410, 629.05 for Baby P, which totals $4, 038,
464.76.[13]
The
instant dispute arose when the Fund, after a review by its
medical consultants, denied $1, 192, 297.45 of the billed
charges, asserting that they were not covered under the
Fund's plan.[14] Plaintiff PCS, on behalf of Providence,
seeks a judgment from the Fund for this amount.[15] PCS asserts
that “[t]he Fund failed to pay sums due, or delayed
payment, for Covered Services provided to Eligible Persons
under the Agreement.”[16]PCS alleges breach of contract
and breach of the covenant of good faith and fair dealing by
the Fund for its refusal to pay the remaining
charges.[17]
II.
Standard for Summary Judgment
Federal
Rule of Civil Procedure 56(c) directs a court to grant
summary judgment if the movant “show[s] that there is
no genuine issue as to any material fact and that [the
movant] is entitled to a judgment as a matter of law.”
The burden of showing the absence of a genuine dispute of
material fact initially lies with the moving
party.[18] If the moving party meets the burden,
the non-moving party must present specific factual evidence
demonstrating the existence of a genuine issue of
fact.[19] The non-moving party may not rely on
mere allegations or denials. Rather, the party must
demonstrate that enough evidence supports the alleged factual
dispute to require a finder of fact to make a determination
at trial between the parties' differing versions of the
truth.[20]
When
considering a motion for summary judgment, a court views the
facts in the light most favorable to the non-moving party and
draws “all justifiable inferences” in the
non-moving party's favor.[21] To reach the level of a
genuine dispute, the evidence must be such “that a
reasonable jury could return a verdict for the non-moving
party.”[22] If the evidence provided by the
non-moving party is “merely colorable” or
“not significantly probative, ” summary judgment
is appropriate.[23]
The
basis for the Court's jurisdiction in this case is
diversity under 28 U.S.C. § 1332.[24] A federal
court sitting in diversity jurisdiction generally applies the
substantive law of the forum state.[25] However, “ERISA
preemption is a question of federal law.”[26]
III.
Discussion
The
Fund asserts that because PCS's claims relate to an ERISA
plan, the claims are preempted.[27] “ERISA's
preemption provision, 29 U.S.C. § 1144(a), provides that
ERISA's provisions shall generally ‘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.'”[28] The Ninth Circuit has held that
“[a] common law claim ‘relates to' an ERISA
plan ‘if it has a connection with or reference to such
a plan.'”[29] “In determining whether a common
law claim has ‘reference to' an ERISA plan, the
focus is whether the claim is premised on the existence of an
ERISA plan, and whether the existence of the plan is
essential to the claim's survival.”[30] “In
evaluating whether a claim has a ‘connection with'
an ERISA plan, we use a ‘relationship test' that
focuses whether the ‘claim bears on an ERISA-regulated
relationship, e.g., the relationship between plan
and plan member, between plan and employer, between employer
and employee.”[31]
Here,
PCS's claims against the Fund are based on its assertion
that the Fund “failed to pay sums due, or delayed
payment, for Covered Services provided to Eligible Persons
under the Agreement.”[32] PCS's briefing on the
summary judgment motions focuses on the Master Services
Agreement executed between the Fund and Beech Street and its
affiliates.[33] The MSA states:
A Payor must pay a Participating Provider the amount payable
under the applicable Plan for Covered Services within 30
calendar days of receipt of a complete or clean claim (as
that term is defined under applicable law) from the
Participating Provider or within the timeframe required by
the applicable state's prompt payment of claims law.
Timely payment of the Fee Schedule will be payment in full
for Covered Services. In the event of failure to timely pay,
the Provider Contract discount may be rescinded and, in such
event, Payor will pay the Participating Provider the amount
payable under the applicable Plan without the application of
the Fee Schedule.[34]
The MSA in turn defines “Covered Services” as
“health care services provided pursuant to an Eligible
Person's Plan.”[35] The Plan, in turn, defines
Covered Charges as “the actual costs charged for
services to the extent that such charges are Usual,
Customary, and Reasonable for the area and type of
service.”[36]
As
covered dependents of a Fund participant, the Twins'
treatment at Providence resulted in a total of $4, 038,
464.76 in charges. PCS seeks payment of the disputed portion
of those charges. The Fund defends by asserting that the
disputed charges “were not a covered benefit under the
Fund's plan.”[37] The dispute here centers on whether
certain services provided to the Twins by Providence were not
“Usual, Customary, and Reasonable for the area and type
of Service, ” so as to fall outside the Plan's
definition of Covered Charges.[38]
PCS's
Complaint asserts that the Fund's denials of payment are
not warranted and constitute a breach of
contract.[39] There is no dispute that the Plan at
issue is governed by ERISA. However, PCS maintains that
“[s]ince the Fund is not relying on Plan language due
to the complete and total silence of the Plan on the issue of
billing guidelines and practices, PCS's claim does not
relate to Plan terms; and therefore ERISA preemption does not
apply.”[40] And yet, PCS's Complaint
acknowledges the central role that the Plan plays in the
dispute between the Fund and PCS, as it alleges that
“[p]arties like the Fund (‘Payors') are
responsible for the payment of medical services covered by
the Payor's plan (‘Covered Services') that are
medically necessary (‘Medically Necessary') on
behalf of the plan's beneficiaries (‘Eligible
Persons').”[41]
In
arguing against preemption, PCS describes its case as
follows:
PCS is suing the Fund not for “covered services”
as the Defendant claims in their Motion, but as an assignee
of the independent third-party medical provider under the
various contract agreements that were formed between each
party and the intermediary. The issue in this case is damages
for medical services that were performed but not paid under
the terms of the contracts, which provided a discounted rate
for services under terms of those plans and therefore not
subject to ERISA preemption.[42]
However, PCS is unable to escape the fact that the terms of
the Fund's ERISA Plan dictate the services the Fund
covers, which eviscerates PCS's arguments that its claims
do not relate to the Fund's Plan. PCS also rejects the
Fund's objections based on the Fund's argument that
the charges do not meet the UCR standard set forth by the
Plan, asserting that the charges are in line with Medicare
guidelines.[43] However, even if the Fund's UCR
standards are vague, as PCS seems to suggest, it does not
mean that the Fund's standards are not determinative of
the disputed charges.
In
Shaw v. Delta Air Lines, Inc., the Supreme Court
presented a broad view of ERISA preemption under ERISA §
514(a), 29 U.S.C. § 1144(a).[44] In Shaw, the
plaintiff employees claimed that their ERISA plans “did
not provide benefits to employees disabled by pregnancy as
required by the New York Human Rights Law and the State's
Disability Benefits Law.”[45] Defendants argued that
the claims were preempted; Plaintiffs argued that because
their claims fell within the preemption exception of §
514(d), which states that § 514(a) “shall not be
construed to alter, amend, modify, invalidate, impair, or
supersede any law of the United States.”[46] Plaintiffs
asserted that in their case, “preemption of state fair
employment laws would impair and modify Title VII because it
would change the means by which it is enforced.” In
holding the plaintiffs' claim were preempted, the Court
held, “We have no difficulty in concluding that the
Human Rights Law and Disability Benefits Law ‘relate
to' employee benefit plans.”[47] The Court
recognized that “Congress used the words ‘relate
to' in § 514(a) in their broad
sense.”[48]
While
PCS acknowledges the importance of Shaw as a central
preemption case, it asserts that the Fund “fail[s] to
cite other important cases that help further clarify the
limits of preemption and distinguish types of cases that fall
outside of preemption.”[49] PCS cites The Meadows v.
Employers Health Insurance for its statement that
“courts have held that ERISA does not preempt a
third-party provider's independent state law claims
against a plan precisely because those claims do not
‘relate to' the administration of an ERISA
plan.”[50] In that case, which PCS acknowledges is
“not directly on point, ” an ERISA plan
misrepresented to a provider that an individual was a covered
participant, resulting in a suit by the provider for breach
of contract, estoppel, and misrepresentation.[51] The Ninth
Circuit affirmed the district court's ruling that the
claims were not preempted because the “state law claims
for misrepresentation and estoppel ‘make no reference
to' and ‘function irrespective of' the
existence of an ERISA plan.” Here, the same cannot be
said of PCS's claims, which depend on obligations of the
Fund that are outlined in the Plan documents. Furthermore,
the Ninth Circuit stated in The Meadows that,
“In the instant case, that the [individuals] were not
beneficiaries of any plan at the time Employers Heath
misrepresented the existing coverage is further reason to
conclude that The Meadows' claim does not ‘relate
to' the provisions of the ERISA
plan.”[52] Finally, the court noted that “the
district court's decision is also in line with several
policy considerations that militate against preemption”
but which do not apply in the instant case, such as the Fifth
Circuit's “observ[ation] that insulating plan
fiduciaries from the consequences of their own
misrepresentations to third-party providers does not further
any of ERISA's objectives.”[53]
PCS
also cites Blues Cross of California v. Anesthesia Care
Associates and Catholic Healthcare West-Bay Area v.
Seafarers Health & Benefits Plan, two cases in which
claims involving ERISA plans were held not preempted under
§ 1144.[54] In Anesthesia Care, four
medical care providers were in a dispute with an insurance
company whose Prudent Buyer Plan covered private employer
subscribers and their employees, similar to the Fund in this
case.[55] However, unlike the instant case, the
dispute did not involve medical costs relating to individual
beneficiaries. Instead, the case involved “changes in
the fee schedules that Blue Cross allegedly made in 1993,
1994, and 1995.”[56] Although “[e]ach of the
Providers ha[d] some patients who [were] enrolled in the
Prudent Buyer Plan as part of a health benefit plan covered
by ERISA, ” the connection between the cause of action
and the ERISA plan was more tenuous than here.[57] The court
held that provider's claims were not preempted because
they “arise from Blue Cross' alleged breach of the
provider agreements' provisions regarding fee schedules,
and the procedure for setting them, not what charges are
‘covered' under the Prudent Buyer
Plan.”[58] Here, by contrast, what charges are
covered under the Plan is at the heart of the dispute. Unlike
Anesthesia, the instant dispute “encroaches on
relationships regulated by ERISA, such as between plan and
plan member, plan and employer, and plan and
trustee.”[59]
Similarly,
Catholic Healthcare West-Bay Area v. Seafarers Health
& Benefits Plan is distinguishable from the present
case. There, St. Mary's Medical Center brought state law
claims against Seafarers Health and Benefits Plan for breach
of implied contract, negligent misrepresentation, estoppel,
quantum meruit, and indebitatus assumpsit.[60] The Ninth
Circuit held that the claims were not preempted, because
“where a third party medical provider sues an ERISA
plan based on contractual obligations arising directly
between the provider and the ERISA plan (or for
misrepresentations of coverage made by the ERISA plan to the
provider), no ERISA-governed relationship is
implicated[.]”[61]Notably, in that case, the plaintiff
represented to the court that “any claims it might have
had under Seafarers' plan either have been resolved or
waived[.]”[62] Here, however, PCS's claims directly
invoke the Plan, whose terms are essential in determining the
amounts allegedly owed by the Fund for the Twins'
healthcare costs.[63] Thus, declining to recognize preemption
in this case would permit an “end-run around ERISA by
wholesale incorporation of an ERISA plan into the terms of an
implied contract” that the Ninth Circuit warned against
in its Seafarers decision.[64]
The
situation in this case is more akin to that in Lodi
Mem'l Hosp. Ass'n v. Tiger Lines, LLC.
In Lodi, a hospital filed an action for quantum
meruit and violations of California's Unfair Competition
Law, asserting that it was owed reimbursement for medical
services provided to beneficiaries of an ERISA
plan.[65] Although the hospital attempted to frame
its claim as being sufficiently independent from the ERISA
plan to avoid preemption under 29 U.S.C. § 1144, the
district court disagreed. The court held:
Absent any basis independent from the provisions of the Plan
for Plaintiff's claim that it is owed more for services
provided than it has already received, a contention Plaintiff
has not made as stated above, the viability of both of
Plaintiff's claims must necessarily rest on a claim that
Plaintiff is owed more under the provisions of the Plan
itself. Such a claim, however, premised on Defendants'
obligations to provide benefits to patients pursuant to the
terms of the Plan, clearly relates to ERISA. As such, both of
Plaintiff's current causes of action conflict with ERISA
and those claims must be dismissed on that
basis.[66]
The
Plan that governs the Twins' coverage is critical to the
determination of what amounts are payable to Providence by
the Fund for the healthcare provided to the
twins.[67]Thus, the same logic as Lodi
applies. The amounts PCS claims are owed by the Fund depend
on the Plan's definitions of the scope of covered charges
and therefore dictates the amount of the Twins' medical
charges that the Fund would cover.[68] Therefore, the
“claim bears on an ERISA-regulated relationship,
e.g., the relationship between plan and plan
member[.]”[69] Despite PCS's assertions of an
independent basis for its claims, the dispute is not
“merely between a health plan and a
hospital.”[70] Without the Plan, PCS would not have a
claim against the Fund, whose selective coverage of the
Twins' medical expenses is the sole source of the instant
dispute. Resolving the merits of the dispute would require
reference to and interpretation of the Plan. It is clear that
“the claim is premised on the existence of an ERISA
plan” and has a “connection with or reference
to” an ERISA plan.[71] Accordingly, PCS's state law
claims relate to an ERISA plan and are preempted under 29
U.S.C. § 1144(a).[72]
IV.
Conclusion
For the
foregoing reasons, IT IS ORDERED that Defendant's Motion
for Summary Judgment at Docket 96 is GRANTED and
Plaintiff's Motion ...