Kolbe & Kolbe Millwork Co. v. UMR, Inc.

KOLBE & KOLBE MILLWORK CO., INC., Plaintiff, v. UMR, INC., Defendant.

13-cv-584-bbc

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN

Entered: December 31, 2013

OPINION AND ORDER

Plaintiff Kolbe & Kolbe Millwork Company, Inc. originally filed this civil action against defendant UMR, Inc. in the Circuit Court for Marathon County, Wisconsin on July 31, 2013, alleging that defendant failed to execute its insurance claim duties under the parties' administrative services agreement. On August 16, 2013, defendant filed a notice of removal in which it asserted that plaintiff's claims are preempted by § 502(a) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a), giving this court subject matter jurisdiction under 28 U.S.C. § 1331. Now before the court is plaintiff's motion for remand on the ground that this court lacks subject matter jurisdiction. Dkt. #8.

Because I conclude that plaintiff's breach of contract claim alleges a violation of a duty independent of ERISA and does not fall within the scope of an ERISA provision that plaintiff could enforce under § 502(a), I am granting plaintiff's motion and remanding this case. Contrary to defendant's assertion, this court cannot exercise supplemental jurisdictionover the remaining state law claim because it never had federal question jurisdiction over the case.

I draw the following allegations of fact from plaintiff's complaint and the administrative services agreement submitted by defendant.

ALLEGATIONS OF FACT

Plaintiff Kolbe & Kolbe Millwork Company, Inc. is a manufacturer of specialty doors and windows in Wausau, Wisconsin that sponsors a self-funded group health plan for its employees. Defendant UMR, Inc. is the largest third-party administrator in the United States and processes 65 million claims valued at more than $6.8 billion each year. Plaintiff and defendant are parties to an administrative services agreement under which defendant provides ministerial administrative services and claims administration in connection with the operation and administration of the plan.

Defendant promised to comply with certain performance standards, which include "administer[ing] all managed care Claims per the terms and conditions of any contract(s) executed, directly or indirectly, between [plaintiff] and any third party health care related provider." Plaintiff contracted indirectly with various third-party health care providers to provide services to beneficiaries under the plan at specified contractual rates. Defendant was responsible for administering plaintiff's provider contracts and paying them when they submitted claims to the plan. Defendant made these payments using funds deposited by plaintiff into an account established for this purpose. In the case of an overpayment,defendant was to seek a refund and agreed that it would be responsible for legal fees and costs if the overpayment arose out of or was based on its intentional, willful, reckless or negligent acts or omissions in the performance of its duties.

On August 2, 2007, K.G., a child of one of Kolbe's employees, was born with serious health conditions that required inpatient treatment at Children's Hospital of Wisconsin, Inc. by physicians of Medical College of Wisconsin, Inc. and Children's Medical Group. K.G.'s father did not answer certain questions regarding eligibility on the form seeking to add K.G. to plaintiff's plan. Children's Hospital and Medical College submitted claims to defendant for the services provided to K.G., seeking payment from plaintiff. Plaintiff informed defendant that K.G. might not be eligible for benefits under the plan and told defendant to hold all claims until K.G.'s eligibility could be determined. In early December 2007, plaintiff told defendant that it was still investigating K.G.'s coverage but that it understood that the providers needed to be paid. Plaintiff authorized defendant to process the claims related to K.G.'s care, provided that if the facts dictated that K.G. was not covered, the claims could be reprocessed and refunds obtained. Defendant sent checks to Medical College and Children's Hospital as payment for the services and continued to make additional payments, ultimately paying Medical College $472,263.24 and Children's Hospital $1,203,885.88 for treatment provided to K.G.

Before making the payments, defendant did not indicate to either provider that coverage was still being determined or confirm with either provider an understanding that if facts dictated that K.G. was not covered under the plan, the claims could be reprocessedand plaintiff could obtain a refund. Defendant also did not review the relevant provider contracts to determine whether refunds would be available under the terms of those contracts if facts dictated that K.G. was not covered under the plan. Plaintiff would not have made these payments if it had known that a refund would not be available if the facts dictated that K.G. was not covered under the plan.

After plaintiff later determined that K.G. was not eligible under the plan, defendant demanded that Medical College and Children's Hospital return all overpayments made by plaintiff with respect to services provided to K.G. Medical College refused to return any overpayments and Children's Hospital refused to return all but a small portion of the overpayments. Plaintiff approved and hired outside legal counsel to pursue a refund but that effort has not yet been successful.

Plaintiff filed suit against defendant in state court on July 31, 2013, alleging that defendant breached its contractual duties by failing to inform Children's Hospital and Medical College before issuing payment that plaintiff was still investigating coverage for K.G. and by failing to insure that a refund would be made if K.G. were later determined to be ineligible for coverage. Defendant removed the case to this court on August 16, 2013, asserting that ERISA preempts plaintiff's state law breach of contract claim.

OPINION

Removal of an action originally filed in state court is permissible only where the federal courts have original jurisdiction over the action. 28 U.S.C. § 1441(a). The burdenof establishing jurisdiction falls on the party seeking removal. Doe v. Allied-Signal, Inc., 985 F.2d 908, 911 (7th Cir. 1993). Defendant asserts that this court has jurisdiction over plaintiff's claims under ERISA, contending that the statute completely preempts plaintiff's state law claim. "Complete preemption, really a jurisdictional rather than a preemption doctrine, confers exclusive federal jurisdiction in certain instances where Congress intended the scope of a federal law to be so broad as to entirely replace any state-law claim. ERISA is such an area." Franciscan Skemp Healthcare, Inc. v. Central States Joint Board of Health & Welfare Trust Fund, 538 F.3d 594, 596 (7th Cir. 2008). See also Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004) ("[A]ny state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted."). Complete preemption is an exception to the ordinary application of the well-pleaded-complaint rule, which requires a court to look only to the complaint to determine whether federal question jurisdiction exists. Id.

The parties disagree about the test to be applied in determining whether a claim is completely preempted by ERISA. Defendant asks the court to rely on the three-part test set forth in Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1487 (7th Cir. 1996). However, in 2004, the U.S. Supreme Court announced a similar, but more abbreviated, two-part analysis. Davila, 542 U.S. at 210. Since then , as plaintiff points out, the Court of Appeals for the Seventh Circuit has noted that

While the Jass decision itself has not been called into question, we find that the test outlined by the Supreme Court in Davila displaced the similarthree-prong Jass analysis previously used in this circuit. Therefore, we are using the two-pronged analysis from Davila rather than the three-part Jass test. Regardless, the result would be the same.

Franciscan Skemp, 538 F.3d at 597 n.1. Although defendant attempts to distinguish Davila on the ground that the claim in that case involved the denial of medical benefits and argues that other courts have continued to rely on Jass, I agree with plaintiff that the court of appeals has adopted the Davila analysis, notwithstanding the subject matter of the claim at issue. Sullivan v. CUNA Mutual Insurance Society, 683 F. Supp. 2d 918, 936 (W.D. Wis. 2010) (applying Davila); Julka v. Standard Insurance Co., 2010 WL 376938, *2 (W.D. Wis. Jan. 27, 2010) (same). Moreover, the parties acknowledge that the two tests are essentially the same and are unlikely to yield conflicting results.

Under the Davila test, the court must determine (1) whether plaintiff's claim could have been brought under ERISA's civil enforcement provision, § 502(a), 29 U.S.C. § 1132(a)(1)(b); and (2) whether defendant's actions implicate legal duties dependent solely on ERISA and the plan. Davila, 542 U.S. at 210. If the answer to both questions is yes, then plaintiff's state law claim is preempted and recharacterized as a claim under § 502(a) of ERISA.

A. Section 502(a)

Defendant asserts that plaintiff's claim satisfies the first factor of the Davila test because it is preempted by § 502(a)(2), which provides in relevant part that a civil action may be brought by a fiduciary "for appropriate relief under section 1109." Section 1109establishes personal liability for fiduciaries who breach their obligations or responsibilities to the plan and provides that the fiduciary restore to the plan "any profits . . . which have been made through use of assets of the plan." A person is a fiduciary with respect to an ERISA plan to the extent that "(i) he exercises any discretionary authority...