ERISA-California Court Of Appeal Rules That One Cause Of Action Is Preempted By ERISA, While Others Are Not, Depending On Whether A Federal Concern Is Implicated By The Cause Of Action In Question

In Morris B. Silver M.D., Inc. v. Int’l Longshore & Warehouse Union, 2016 Cal. App. LEXIS 706 (Court of Appeal of California, Second Appellate District, Division Seven 2016), Morris B. Silver M.D., Inc. (“Silver”) sued the International Longshore and Warehouse Union-Pacific Maritime Association Welfare Plan (the “Plan”) to recover payment for health care services provided to Plan policyholders. His causes of action were breach of oral contract, quantum meruit, promissory estoppel and interference with contractual relations. Until September 2012 the Plan regularly paid Silver’s invoices for service rendered to Plan policyholders. Beginning that month, however, the Plan stopped paying Silver, sending it and its policyholders explanation-of-benefits (EOB) forms indicating that the billed procedures were not covered and that neither the Plan nor the patient had any obligation to make payment to Silver. Silver’s action was dismissed by the lower trial court on the ground all of his state law causes of action were preempted by ERISA. The California Court of Appeal (the “Court”) reversed the order dismissing the lawsuit and remanded the case for further proceedings as set forth in it’s opinion.

In deciding to reverse the lower court on the ERISA preemption matter, the Court said that there are two types of preemption: first, preemption under section 514 of ERISA, known as conflict or ordinary preemption, and, second, complete preemption under section 502(a) of ERISA. Conflict preemption is an affirmative defense to a plaintiff’s state law cause of action that entirely bars the claim; that is, the particular claim involved cannot be pursued in either state or federal court. Complete preemption, in contrast, is a doctrine that recognizes federal jurisdiction over what would otherwise be a state law claim, an issue that typically arises when the defendant has removed the plaintiff’s state court lawsuit to federal court. This case involves conflict preemption.

The Court continued by stating that Silver’s causes of action for breach of oral contract, quantum meruit and promissory estoppel do not address an area of exclusive federal concern and are not preempted. Silver is not seeking compensation for the Plan’s decisions to deny coverage under the terms of an ERISA plan; his alleged right to reimbursement does not depend on the Plan’s terms. Rather, the claims are predicated on a garden-variety failure to make payment as promised for services rendered. To be sure, the claims would not exist but for an ERISA plan and are predicated on somebody’s interpretation of the plan. But the fact an ERISA plan is an initial step in the causation chain, without more, is too remote of a relationship with the covered plan to support a finding of preemption.

In contrast, said the Court, Silver’s claim for interference with contractual relations is predicated on the EOB the Plan sent to policyholders stating the “Total Patient Responsibility” for the amount charged by Silver was zero. Whether use of this EOB essentially constituted a tort—a question with wide-ranging implications for any plan using a similar form—is precisely the kind of decision that conflict preemption is intended to eliminate: one that could result in inconsistent directives among states and increased administrative and financial costs of complying with ERISA. As such, this cause of action addresses an area of exclusive federal concern—the manner in which adverse determinations are communicated to plan participants—and directly affects the relationship between the plan and participants. Accordingly, this cause of action is preempted.

 

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