Estate of Close v. Cigna Health & Life Ins. Corp.

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ESTATE OF CHARLES T. CLOSE, Plaintiff, v. CIGNA HEALTH AND LIFE INSURANCE CORPORATION, Defendant.

No. 22-CV-7449 (RA)

United States District Court, S.D. New York

December 21, 2023

OPINION & ORDER

RONNIE ABRAMS, UNITED STATES DISTRICT JUDGE

Plaintiff the Estate of Charles T. Close (the “Estate”) brought this action against Defendant Cigna Health and Life Insurance Corporation (“Cigna”), the claims administrator and fiduciary of Mr. Close's health insurance plan. The Estate alleges that Cigna owes it $686,723.14 in wrongly denied insurance claims. See Employee Retirement Income Security Act (“ERISA”) § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). Cigna, in turn brought a counterclaim against the Estate, asserting that Mr Close was over-reimbursed by $357,683.98 in wrongly approved claims. See ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). Now before the Court is the Estate's motion to dismiss Cigna's counterclaim. For the reasons that follow, the motion is granted.

BACKGROUND

Charles T. Close, an acclaimed American artist specializing in photorealistic portraits, was paralyzed in 1988 after a rare spinal artery rupture. Dkt. No. 5 (“Compl.”) ¶¶ 10-11. Mr. Close was later diagnosed with Alzheimer's disease in 2013 and frontotemporal dementia in 2015. Id. ¶ 18. By 2015, Close was under the care and supervision of at-home nurses to support his daily medical needs. Id. ¶ 19. At that time, Close was a plan participant of an ERISA-governed health insurance plan (“Plan”), which Cigna administered. Id. ¶ 20. In 2017, Cigna, acting as a fiduciary of the Plan, began a post-payment review of various paid claims from 2015 to 2017. Dkt. No. 27 (“Def. Am. Answer”) ¶¶ 4, 23; Compl. ¶ 28. In 2018, Cigna notified Close that it had determined he had been improperly over-reimbursed by $357,683.98 for services that did not qualify under the Plan. Def. Am. Answer ¶ 11. Cigna's investigation concluded that Close's “claims for purported home health care” were not eligible for reimbursement under the Plan because they were “custodial services” and not medically necessary. Id. ¶¶ 8-9, 19, 26. As a result, Cigna “placed a flag” on Close's Cigna ID number, which required Close to provide additional medical records to support any future claims. Id. ¶ 12. Close appealed Cigna's determination several times, but Cigna denied each appeal. Id. ¶¶ 16-19; Compl. ¶ 34. The Estate asserts that Cigna refused to pay for Close's medical treatments from 2017 until Close's death in 2021. Id. ¶ 23.

In 2022, the Estate filed this action against Cigna pursuant to Section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B). Id. ¶ 1. The Estate alleges that Cigna violated the Plan by wrongly denying Close's “medically necessary, skilled nursing and related healthcare claims.” Id. ¶ 42. Since 2017, the Estate asserts, Cigna has made no payments and now owes the Estate at least $686,723.14. Id. In 2023, Cigna filed a counterclaim against the Estate for $357,683.98 in over-reimbursed claims pursuant to Section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3). See Def. Am. Answer ¶¶ 21-32. Cigna argues that it “was induced to make the payments by means of incorrect, unsupported information” that Close provided and that the Plan provides a right to recover overpayments. Id. The Estate now brings a motion to dismiss Cigna's counterclaim, arguing that the Court lacks subject matter jurisdiction and that Cigna's counterclaim should be dismissed under Rule 12(b)(6).

LEGAL STANDARD

Federal courts are “courts of limited jurisdiction and must independently verify the existence of subject-matter jurisdiction before proceeding to the merits.” Singh v. United States Citizenship & Immigr. Servs., 878 F.3d 441, 445 (2d Cir. 2017), as amended (Jan. 9, 2018). “A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it.” Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000); see Fed.R.Civ.P. 12(b)(1). In resolving a Rule 12(b)(1) motion, a district court may refer to evidence outside the pleadings. Makarova, 201 F.3d at 113. The party asserting subject matter jurisdiction “has the burden of proving by a preponderance of the evidence that it exists.” Id.

A motion to dismiss counterclaims pursuant to Rule 12(b)(6) is decided under the same standard as that of a motion to dismiss the claims in a complaint. See Cityside Archives, Ltd. v. Weiss, 2020 WL 3972310, at *3 (S.D.N.Y. July 13, 2020) (citation omitted); Taupita Inv., Ltd. v. Benny Ping Wing Leung, 2017 WL 3600422, at *6 (S.D.N.Y. Aug. 17, 2017). To survive a motion to dismiss, a counterclaim must include “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim has “facial plausibility” when the pleaded factual content “allows the court to draw the reasonable inference” that the moving party is liable for the alleged misconduct. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To make that determination, the Court must “accept[] all factual allegations as true .. but [is] not required to credit conclusory allegations or legal conclusions couched as factual ... allegations.” Dane v. UnitedHealthcare Ins. Co., 974 F.3d 183, 189 (2d Cir. 2020) (internal quotation marks omitted). Courts limit their consideration to “the factual allegations in the Answer, the Counterclaims, and those documents attached as exhibits or incorporated by reference.” Gortat v. Capala Bros., Inc., 585 F.Supp.2d 372, 375 (E.D.N.Y. 2008) (citing Faconti v. Potter, 242 F. App'x. 775, 777 (2d Cir. 2007)), aff'd, 568 Fed.Appx. 78 (2d Cir. 2014).

DISCUSSION

I. Subject Matter Jurisdiction

The Estate first argues that the Court lacks subject matter jurisdiction to hear Cigna's counterclaim due to the “probate exception.” Dkt. No. 30 (“Pl. Br.”) at 10. The probate exception is a judicially-created doctrine with a “distinctly limited scope,” barring federal courts from hearing certain probate matters. Marshall v. Marshall, 547 U.S. 293, 310 (2006) (citing Markham v. Allen, 326 U.S. 490, 494 (1946)); see Woitovich v. Schoenfeld, 2022 WL 17979571, at *2 (S.D.N.Y. Dec. 28, 2022). The exception “reserves to state probate courts” the power to annul a will and administer a decedent's estate, and it “precludes federal courts from endeavoring to dispose of property that is in the custody of a state probate court.” Marshall, 547 U.S. at 311-12. But “where exercise of federal jurisdiction will result in a judgment that does not dispose of property in the custody of a state probate court, even though the judgment may be intertwined with and binding on those state proceedings, the federal courts retain their jurisdiction.” Lefkowitz v. Bank of New York, 528 F.3d 102, 106 (2d Cir. 2007).

The Court has subject matter jurisdiction over Cigna's counterclaim. As an initial matter, the Estate relies on federal question jurisdiction to bring its ERISA claim, see 28 U.S.C. § 1331, and both parties agree that the Court has subject matter jurisdiction over the Estate's claim. See Def. Am. Answer ¶ 2.^[1] Accepting as true the facts pled by both parties, the probate exception to subject matter jurisdiction is inapplicable. Cigna does not ask the Court to probate or annul a will or to administer an estate. Nor is there a plausible allegation that the res at issue-$357,683.98 that Cigna provided to Mr. Close between 2015 and 2017-is “in the custody” of any state probate court. Marshall, 547 U.S. at 312. Even if the Court were to take judicial notice of any open probate proceedings for Mr. Close's estate, see Dkt. No. 36 (“Pl. Reply Br.”) at 8-9, this fact alone does not erase federal jurisdiction. Indeed, given the fungible nature of money, it is entirely speculative to assume that various payments Close received as early as 2015 are necessarily now in the custody of a state probate court. See Montanile v. Bd. of Trustees of Nat. Elevator Indus. Health Benefit Plan, 577 U.S. 136, 144-45 (distinguishing between “specifically identified funds that remain in the defendant's possession” and “traceable items that the defendant purchased with the funds” from “nontraceable items,” including purchases from someone's general assets). At this juncture, therefore, the Court retains jurisdiction. Lefkowitz, 528 F.3d at 106 (“[I]f jurisdiction otherwise lies, then the federal court may, indeed must, exercise it.”).^[2]

II. Equitable or Legal Relief

The Estate next asserts that Cigna fails to state a claim under ERISA because it seeks legal, rather than equitable, relief. The Court agrees.

Section 502(a)(3) of ERISA allows plan fiduciaries to bring a civil action to either (1) enjoin any act that violates the terms of the plan, or (2) “obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of . the terms of the plan.” 29 U.S.C.A. § 1132(a)(3). To properly state a claim, a party must therefore establish that the relief sought is equitable in nature. Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356, 361 (2006). Because “‘[e]quitable' relief must mean something less than all relief[,]” Mertens v. Hewitt Assocs., 508 U.S. 248, 258 n.8 (1993), the U.S. Supreme Court has held “that the term ‘equitable relief' in § 502(a)(3) must refer to ‘those categories of relief that were typically available in equity.'” Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210 (2002) (quoting Mertens, 508 U.S. at 256); see id. at 217 (discussing the “law-equity dichotomy” between common law courts of equity and courts of law).

For example, a fiduciary seeking “to impose personal liability” on a plan participant “for a contractual obligation to pay money” cannot...