Danca v. Private Health Care Systems, Inc.

United States Court of Appeals

For the First Circuit

No. 98-1754

PAMELA DANCA, JOSEPH DANCA, JR., KATELYN J. DANCA

AND LISA A. DANCA,

Plaintiff, Appellants,

v.

PRIVATE HEALTH CARE SYSTEMS, INC.,

AND PHOENIX HOME LIFE MUTUAL INSURANCE CO.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Patti B. Saris, U.S. District Judge]

Before

Stahl, Circuit Judge,

Bownes, Senior Circuit Judge,

and Lipez, Circuit Judge.

Leonard F. Zandrow, Jr., with whom John W. Brister and Brister

& Zandrow, L.L.P. were on brief, for appellants.

Nicholas P. Hansen, with whom Van Aaron Hughes and Ireland,

Stapleton, Pryor & Pascoe, P.C. were on brief, for Private

Healthcare Systems, Inc.

Albert Zakarian, with whom Day, Berry & Howard LLP was on

brief, for Phoenix Home Life Mutual Insurance Company.

August 2, 1999

STAHL, Circuit Judge. In this difficult case, plaintiffs

Pamela Danca and members of her family (collectively, plaintiffs)

seek to hold defendants-appellees Phoenix Home Life Mutual

Insurance Company (Phoenix) and Private Healthcare Systems Inc.

(PHSI) responsible for allegedly negligent medical decisionmaking

in the course of a precertification requirement apparently mandated

by an ERISA-governed health plan. After careful consideration, we

affirm the decision of the district court that the state law claims

be dismissed.

I.

Introduction

Because the record is largely undeveloped, we cull our

factual recitation from the district court's opinion and the

appellate briefs, as supplemented by the state court complaint.

Pamela Danca is a beneficiary of a health insurance

policy governed by the Employee Retirement Income Security Act

(ERISA), 29 U.S.C. 1001 et seq. Phoenix is the insurance company

that provided the policy and PHSI is the utilization review firm

hired by Phoenix to assess physicians' recommendations for a

proposed course of medical treatment for plan beneficiaries. Such

assessments, called precertification or prospective utilization

review, are apparently required by the terms of the ERISA plan.

According to defendants, failure to obtain precertification may

result in reduced payment (or no payment at all) for the services

for which precertification should have been sought. In such an

event, the beneficiary would be liable for the cost of the

treatment.

Danca, who had a long history of mental illness that had

been treated on occasions prior to those in dispute here, sought

care for a new episode of mental illness on September 21, 1994.

Her physician recommended inpatient psychiatric care at McLean

Hospital. His recommendation was apparently based on the fact that

Danca had previously been successfully treated at McLean. After

consultation with the physician regarding this recommendation and

its rationale, defendants denied precertification for treatment at

McLean and instead precertified Danca's admission to Emerson

Hospital.

The precise nature of the consultation and the extent of

defendants' participation in the medical decisionmaking is not

clear on the record before us. Typically, utilization review firms

have a set of guidelines and protocols that guide such

decisionmaking, see Andrews-Clarke v. Travelers Ins. Co., 984 F.

Supp. 49, 50 n.9 (D. Mass. 1997), and we therefore assume that was

probably the case here. Thus, it appears that defendants decided,

in light of Danca's medical record and after some consultation with

her treating physician, that Emerson Hospital was appropriate for

her condition.

According to plaintiffs, Emerson Hospital turned out to

be inappropriate and provided Danca with inadequate care. Among

other things, plaintiffs claim that Emerson failed to provide

treatment similar to that which had proven helpful at McLean

Hospital for earlier episodes of her mental illness. Danca

subsequently required additional hospitalization. She was treated

at a third facility, where the care was also alleged to have been

inadequate. Danca, allegedly as a result of the totality of her

inadequate care, attempted suicide by self-immolation, causing

severe burns and permanent disfiguring injuries.

Plaintiffs filed suit in Massachusetts Superior Court

against numerous physicians and the health care facilities at which

they allege Danca was inadequately treated. Plaintiffs also filed

suit against Phoenix and PHSI.

Plaintiffs amended the complaint once in the state court.

The amended complaint alleged a number of ways in which the actions

or inactions of defendants resulted in Danca's injuries.

Defendants removed the suit to federal district court, claiming

federal question jurisdiction. Plaintiffs never challenged the

removal on jurisdictional grounds and the district court apparently

accepted the removal as proper.

Plaintiffs subsequently amended the complaint again.

Phoenix and PHSI then moved to dismiss the state law claims against

them, asserting that the claims were preempted by ERISA. See 29

U.S.C. 1144(a), ERISA 514 (ERISA "shall supersede any and all

State laws insofar as they may now or hereafter relate to any

employee benefit plan.") (hereinafter, "ERISA 514 Preemption").

The district court agreed and dismissed these claims. After

further procedural machinations unimportant for the purpose of this

opinion, Danca filed a timely notice of appeal from the order of

dismissal.

II.

Jurisdiction of the District Court

A threshold issue in this case, as in every case, is

subject matter jurisdiction. Because of the importance of the

issue, and because the district court apparently did not directly

address the question, we review it at some length. Our focus is on

the doctrine of complete preemption, which controls the question of

subject matter jurisdiction. We find the case was properly removed

to the district court.

Under our dual-sovereign system, the plaintiff is the

"master to decide what law he will rely upon." Fair v. Kohler Die

& Specialty Co., 228 U.S. 22, 25 (1913). Plaintiff has the

prerogative to rely on state law alone although both federal and

state law may provide a cause of action. See Caterpillar Inc. v.

Williams, 482 U.S. 386, 392 (1987). Nevertheless, within thirty

days of receipt of proper service of the complaint and summons, see

Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., U.S. ,

119 S. Ct. 1322, 1328-30 (1999), defendants may remove an action

from the state court in which it was filed to the appropriate

federal district court, provided that the defendant can show some

basis for federal jurisdiction, see 28 U.S.C. 1441(a) & 1446(a).

The removal statute does not in itself create

jurisdiction. Indeed, removal statutes are strictly construed, see

Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09 (1941),

and defendants have the burden of showing the federal court's

jurisdiction, see BIW Deceived v. Local S6, Industrial Union of

Marine and Shipbuilding Workers of America, IAMAW District Lodge 4,

132 F.3d 824, 831 (1st Cir. 1997). Defendants here claim federal

question jurisdiction as the basis for removal. See 28 U.S.C.

1446(a) & 1331. Defendants must therefore make a "colorable"

showing that a basis for federal jurisdiction exists. BIW

Deceived, 132 F.3d at 832; see also Burns v. Windsor Ins. Co., 31

F.3d 1092, 1097 (11th Cir. 1994) (remanding where federal

jurisdiction not clearly shown).

Jurisdiction is normally ascertained from the face of the

state court complaint that triggered the removal. See Franchise

Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 9-10

(1983) (describing the "well-pleaded complaint" rule). Here, the

state court complaint alleged only causes of action under state

law. On its face, then, the complaint presents no federal

question.

But there is an exception to this practice of focusing on

the face of the complaint. Where a claim, though couched in the

language of state law, implicates an area of federal law for which

Congress intended a particularly powerful preemptive sweep, the

cause is deemed federal no matter how pleaded. See Metropolitan

Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64 (1987). This exception

to the well-pleaded complaint rule is called "complete preemption."

We pause here to emphasize the difference between

complete preemption, a concept associated with jurisdiction, and

the affirmative federal defense of ERISA 514 preemption.

Standing alone, the likelihood or even certainty of defendants'

raising a colorable ERISA 514 preemption defense is no basis for

federal jurisdiction. See Taylor, 481 U.S. at 64 ("ERISA

preemption, without more, does not convert a state law claim into

an action arising under federal law."). ERISA 514 is not

relevant to the complete preemption analysis; courts look instead

only to ERISA 502(a), see Jass v. Prudential Health Care Plan, 88

F.3d 1482 (7th Cir. 1996) (referring to 502 and not 514 for

complete preemption analysis); Dukes v. U.S. Healthcare, Inc., 57

F.3d 350 (3d Cir. 1995) (same); Lupo v. Human Affairs Int'l, Inc.,

28 F.3d 269 (2d Cir. 1994) (same); Tolton v. American Biodyne,

Inc., 48 F.3d 937 (6th Cir. 1995) (same), which contains ERISA's

exclusive civil enforcement provisions, see 29 U.S.C. 1132(a).

To establish complete preemption, defendants must show

that the state cause of action falls within the scope of ERISA

502(a). See Taylor, 481 U.S. at 66. For this to occur, the

state law must be properly characterized as an "alternative

enforcement mechanism" of ERISA 502(a) or of the terms of an

ERISA plan. See New York State Conf. of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., 514 U.S. 645, 658 (1995). ERISA

502(a) provides for, inter alia, a cause of action by a participant

or beneficiary "to recover benefits due . . . under the terms of

the plan, to enforce . . . rights under the terms of the plan, or

to clarify . . . rights to future benefits under the terms of the

plan." 29 U.S.C. 1132(a)(1)(B). It therefore follows that state

law tort suits that allege the improper processing of a claim for

benefits under an ERISA-covered plan, for example, fall within the

scope of 502(a). See Pilot Life Ins. Co. v. Dedeaux, 481 U.S.

41, 56 (1987). But "Section 502(a) . . . does not purport to reach

every question relating to plans covered by ERISA." Franchise Tax

Bd., 463 U.S. at 25. We must therefore look beyond the face of the

complaint "to determine whether the real nature of the claim is

federal, regardless of plaintiff's [state law] characterization."

Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 397 n.2

(1981).

Although we recognize that the allegedly negligent

decisionmaking and consultation at issue here may be characterized

as medical in nature, this fact alone does not remove the state

causes of actions from the scope of 502(a). Nor does the fact

that the allegedly negligent conduct was not in itself a final

"benefits" determination, but only part of a precertification

decision, control. See Terry v. Bayer Corp., 145 F.3d 28, 35 (1st

Cir. 1998) (when examining an ERISA 502(a) claim, "[w]e must

focus . . . in the usual case . . . on the determinations of the

final decisionmaker [not the third-party administrator hired to

evaluate medical basis of treatment requests]."). What matters, in

our view, is that the conduct was indisputably part of the process

used to assess a participant's claim for a benefit payment under

the plan. As such, any state-law-based attack on this conduct

would amount to an "alternative enforcement mechanism" to ERISA's

civil enforcement provisions contained in ERISA 502(a), 29 U.S.C.

1132(a), because "all suits brought by beneficiaries or

participants asserting improper processing of claims under ERISA-

regulated plans [should] be treated as federal questions governed

by 502(a)." Pilot Life, 481 U.S. at 56. Pilot Life, for

example, involved repeated terminations and reinstatements of

disability benefits over the course of five years. Id. at 43.

Plaintiffs in that case alleged not simply an entitlement to

benefits under the plan, but bad faith on the part of the insurance

company in its conduct while arriving at its final benefits

conclusions. Id. at 48. Plaintiffs' claims here similarly attack

the conduct -- albeit conduct that is quasi-medical in nature -- of

the defendants in the course of processing a claim for benefits.

We therefore find that defendants have made a colorable showing

that plaintiffs' claims, particularly the allegations that

defendants (1) failed to follow Danca's physician's recommendations

and (2) failed to ensure that the evaluation of treatment requests

in the course of precertification were made and overseen by capable

personnel in a competent manner, are alternative enforcement

mechanisms under ERISA 502(a) and therefore completely preempted.

See Jass, 88 F.3d at 1489; see also Taylor, 481 U.S. at 66. They

thus raise a federal question justifying removal. See 28 U.S.C.

1441.

III.

Jurisdiction on Appeal

Although plaintiffs filed the notice of appeal in this

case, they now contest our jurisdiction. Plaintiffs hope that, if

we stay the appeal until the state court has resolved the claims

against the hospital and physician defendants, the law will have

changed in their favor in the interim. At oral argument,

plaintiffs' position proved not to be "jurisdictional" at all.

Rather, it boiled down to this: that this court may exercise its

discretion to stay this appeal pending the outcome of the state

case. Even assuming plaintiffs' view on the law were correct, we

would not exercise our discretion in this manner.

IV.

ERISA 514 Preemption

ERISA preempts all state laws that "relate to" employee

welfare benefit plans. See 29 U.S.C. 1144(a). In its recent

cases, the Supreme Court has made clear that ERISA preempts, inter

alia, two kinds of state laws: (1) laws that amount to "alternative

enforcement mechanisms" to those in ERISA 502(a), see New York

State Conference of Blue Cross & Blue Shield Plans v. Travelers

Ins. Co., 514 U.S. 645, 658 (1995) (citing Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133 (1990)); and (2) laws that present the

threat of conflicting and inconsistent regulation that would

frustrate uniform national administration of ERISA plans, see id.

at 656-58.

As we stated in our discussion of complete preemption,

supra Part II, we find that the tort claims alleging negligence in

defendants' (1) failing to follow Danca's physician's

recommendations and (2) failing to ensure that the evaluation of

treatment requests in the course of precertification were made and

overseen by capable personnel in a competent manner, are

alternative enforcement mechanisms under ERISA 502(a). As such,

they are both completely preempted, justifying removal, and

preempted by ERISA 514, justifying dismissal. See Travelers, 514

U.S. at 658.

The remaining counts against defendants allege negligence

in the supervision and training of the personnel responsible for

precertification, and negligent infliction of emotional distress.

We take no position on whether these claims, too, constitute

"alternative enforcement mechanisms," because we find that they

indisputably create a threat of conflicting and inconsistent state

and local regulation of the administration of ERISA plans. See id.

at 656-58 (noting that "the basic thrust of the preemption clause,

then, was to avoid a multiplicity of regulation in order to permit

the nationally uniform administration of employee benefit plans").

Different states could apply different standards for what

constitutes a negligent precertification training or supervisory

practice. This in turn could affect how defendants carry out their

claims assessment duties, by requiring different administrative

procedures in different jurisdictions. The preemption clause was

designed to avoid precisely such a result. See, e.g., FMC Corp. v.

Holliday, 498 U.S. 52, 60 (1990) (calling for preemption to avoid

"patchwork" regulation and inefficient benefit programs); Shaw v.

Delta Air Lines, Inc., 463 U.S. 85, 99-100 (finding law preempted

because it introduced threat of conflicting state law that would

increase administrative burden on plan administrators); see also

120 Cong. Rec. 29197 (1974) (describing preemption as the "crowning

achievement" of ERISA and stating that its purpose is to

"eliminat[e] the threat of conflicting and inconsistent State and

local regulation") (statement of co-sponsor Rep. Dent).

V.

Conclusion

We conclude that ERISA 514 preempts the state tort

claims leveled in this case against these defendants. The decision

of the district court is therefore affirmed.