Ray v. Tabriz

110 F.4th 949

Pearl RAY and Andrew Ray, Sr., Plaintiffs-Appellees, v. Muhammad TABRIZ, Defendant Appeal of: Blue Cross and Blue Shield Association.

No. 23-3285

United States Court of Appeals, Seventh Circuit

Argued May 30, 2024

Decided August 2, 2024

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:23-cv-01467 — Virginia M. Kendall, Chief Judge.

Christopher Patrick Ford, Attorney, Law Office of Christopher Patrick Ford, Chicago, IL, for Plaintiffs-Appellees.

Adam P. Feinberg, Attorney, Miller & Chevalier Chartered, Washington, DC, for Blue Cross and Blue Shield Association.

Anthony M. Pinto, Attorney, Donohue, Brown, Mathewson & Smyth LLC, Chicago, IL, for Defendant.

Before St. Eve, Kirsch, and Kolar, Circuit Judges.

Kirsch, Circuit Judge.

Pearl Ray and her husband, Andrew Ray, Sr., sued medical providers in Illinois state court, alleging that the providers' medical malpractice injured her and that Andrew consequently suffered a loss of consortium. The plaintiffs settled with all but one of the defendants.

Under the Federal Employees Health Benefits Act (FEHBA), 5 U.S.C. §§ 8901 et seq., the Office of Personnel Management (OPM) may contract with private carriers for federal employees' health insurance. 5 U.S.C. § 8902(a). Since before the alleged malpractice, Pearl has been enrolled in the Service Benefit Plan (the "Plan"), a federal health benefits plan. FEHBA governs the Plan, and Blue Cross and Blue Shield Association (BCBSA) is the Plan's carrier. The Plan's terms, as well as OPM regulations, provide that a Federal Employees Health Benefits (FEHB) carrier is entitled to full reimbursement for benefits paid to an enrollee to treat an injury or illness if the enrollee makes a monetary recovery from a third party in connection with the same injury or illness. For instance, in 2015, OPM promulgated a regulation providing that a FEHB carrier is entitled to pursue reimbursement recoveries, 5 C.F.R. § 890.106(a), and that a carrier's reimbursement right supersedes other parties' rights, id. § 890.106(e).

After the plaintiffs reached the settlement (making a recovery from third parties), and under these reimbursement provisions, BCBSA asserted a reimbursement lien on the settlement for the benefits it paid in connection with Pearl's medical malpractice injuries. The plaintiffs subsequently filed a motion for lien adjudication, arguing that Illinois's common fund doctrine reduces the reimbursement amount BCBSA receives by a proportionate amount of the plaintiffs' attorney's fees and costs. BCBSA removed the case to federal court under 28 U.S.C. §§ 1441 and 1442, arguing that the court had federal question jurisdiction over the entire action and that the motion for adjudication was removable on federal officer grounds. The plaintiffs moved to remand. In response, BCBSA did not argue that the court could exercise jurisdiction over just the motion on federal officer grounds if it lacked federal question jurisdiction over the entire case. Instead, BCBSA asserted that it could remove only the motion for adjudication if § 1442 were the only basis for removal but that there was an alternate removal basis: federal question jurisdiction.

The court denied the remand motion but later granted the plaintiffs' motion to reconsider, remanding the entire case because the court concluded that it lacked federal question jurisdiction. It stated it remanded the entire case because in "agree[ing] with the Rays that under 28 U.S.C. § 1442(d)(1), only the Motion for Adjudication, and not the entire case, could be removed to federal court unless there was a separate basis for removal[,] ... BCBSA hung its hat on federal question jurisdiction." BCBSA appealed. On appeal, it argues that the court has federal question jurisdiction over the case, 28 U.S.C. §§ 1331 and 1441, and that the motion for adjudication was removable under the federal officer removal statute, id. § 1442(a)(1). We address these arguments in turn, reviewing the district court's order de novo. Ruppel v. CBS Corp., 701 F.3d 1176, 1180 (7th Cir. 2012).

I

The party seeking removal to federal court must establish that removal is proper. Id. BCBSA first contends that removal was proper under § 1441, which allows for the removal of suits over which federal courts have original jurisdiction. It argues that federal common law governs the action and thus that the district court has federal question jurisdiction under § 1331. Downey v. State Farm Fire & Cas. Co., 266 F.3d 675, 680 (7th Cir. 2001) ("Sometimes the federal interest in a controversy is so dominant that federal law applies—activating federal-question jurisdiction under § 1331—even if the national government is not a party."); see also Nat'l Farmers Union Ins. Cos. v. Crow Tribe of Indians, 471 U.S. 845, 850, 105 S.Ct. 2447, 85 L.Ed.2d 818 (1985) ("It is well settled that [§ 1331's] statutory grant of 'jurisdiction will support claims founded upon federal common law as well as those of a statutory origin.'") (quotation omitted). But a court may create federal common law only when state law would sit in "significant conflict" with "uniquely federal interests." Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 688, 126 S.Ct. 2121, 165 L.Ed.2d 131 (2006) (cleaned up).

BCBSA asserts that federal common law displaces the Illinois common fund doctrine and governs the action because the common fund doctrine significantly conflicts with uniquely federal interests in FEHBA reimbursement disputes. In BCBSA's view, the common fund doctrine, which "allows a person who incurs attorney's fees in obtaining a judgment or settlement that confers a benefit on another to deduct a portion of the fee," conflicts with both the Plan's reimbursement provision and OPM's regulation. Blue Cross Blue Shield of Ill. v. Cruz (Cruz II), 495 F.3d 510, 511 (7th Cir. 2007). But the Supreme Court stated in Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 126 S.Ct. 2121, 165 L.Ed.2d 131 (2006), that though FEHBA reimbursement disputes implicate "distinctly federal interests" (like the OPM-BCBSA contract's negotiation by a federal agency), federal common law does not govern them because "countervailing considerations control"—namely that a reimbursement right predicated on a FEHBA authorized contract "is not a prescription of federal law." Id. at 696, 126 S.Ct. 2121. Instead, such claims, which "seek[ ] recovery from the proceeds of state-court litigation, are the sort ordinarily resolved in state courts." Id. at 683, 126 S.Ct. 2121; see alsoid. at 692, 126 S.Ct. 2121 (noting the Plan's provisions on reimbursement and subrogation "depend upon a recovery from a third party under terms and conditions ordinarily governed by state law"). The Court concluded, "Had Congress found it necessary or proper to extend federal jurisdiction further, in particular, to encompass contract-derived reimbursement claims between carriers and insured workers, it would have been easy enough for Congress to say so. We have no warrant to expand Congress' jurisdictional grant 'by judicial decree.'" Id. at 696, 126 S.Ct. 2121 (citations omitted).

We then squarely addressed the issue in Blue Cross Blue Shield of Illinois v. Cruz (Cruz II), 495 F.3d 510 (7th Cir. 2007). In Cruz II, Blue Cross and Blue Shield of Illinois argued that its contract with OPM "involves a unique federal interest that has to be protected against conflicting state laws, such as Illinois's common fund doctrine, and that achieving this purpose requires that all disputes arising from the contract be resolved under federal common law." Id. at 512 (citation omitted). But we rejected this argument, holding that there was no unique federal interest in "whether a state's common fund doctrine should be allowed to override a term in the insurance contract" and thus that there was no federal question jurisdiction over Blue Cross's reimbursement suit. Id. at 512-14. We reasoned that Blue Cross's argument "ignores the principle that jurisdictional provisions should be simple and clear so that a party is not placed in the position of filing a suit in one court only to discover after years of litigating there that it has to start over in another court because the first court lacked jurisdiction." Id. at 513.

We also explained that our decision in Blue Cross & Blue Shield of Illinois v. Cruz (Cruz I), 396 F.3d 793 (7th Cir. 2005), erroneously applied federal common law to a FEHBA reimbursement dispute against Blue Cross in which the defendant sought application of Illinois's common fund doctrine, id. at 796. Cruz II, 495 F.3d at 513. In Cruz I, we found a conflict between state law and the federal policy of uniform healthcare benefits and thus applied federal common law. 396 F.3d at 799 (vacated, Cruz v. Blue Cross & Blue Shield of Ill., 548 U.S. 901, 126 S.Ct. 2964, 165 L.Ed.2d 947 (2006), and abrogated by McVeigh, 547 U.S. 677, 126 S.Ct. 2121). But that use of federal common law was misplaced: McVeigh, which succeeded Cruz I, distinguished between benefits and reimbursement. Cruz II, 495 F.3d at 513. As we noted, the Plan determines the benefits amount, which is uniform across states and unaffected by the common fund doctrine. Id. The common fund doctrine only "affects how much of a tort judgment or other judgment against (or settlement with) a third party the plaintiff gets to keep and how much he must give the insurer. The disuniformity that results is not a disuniformity in benefits." Id.

In response, BCBSA argues that Cruz II does not survive the Supreme Court's decision in Coventry Health Care of Missouri, Inc. v. Nevils, 581 U.S. 87, 137 S.Ct. 1190, 197 L.Ed.2d 572 (2017), and that the common fund doctrine significantly conflicts with an OPM regulation promulgated in 2015. Both arguments fail. First, Cruz II survives Nevils, as does McVeigh. In Nevils, the Court held that under FEHBA's express preemption provision, 5 U.S.C. §...