Amicus Curiae Brief — Cigna Healthcare of Texas, Inc., Dba Cigna Corp. v. Calad

Supreme Court, U.S,

pty

FILED

/

(gy C4 ) 3 200

Nos. 02-1845 and BEC 1 3 2003

»

In the Supreme Court of the Giuted-

AETNA HEALTH INC., FKA AETNA U.S. HEALTHCARE

INC. AND AETNA U.S. HEALTHC ARE OF

NORTH TEXAS INC., PETITIONER

v.

JUAN DAVILA

CIGNA HEALTHCARE OF TEXAS, INC., DBA CIGNA

CORPORATION, PETITIONER

v.

RUBY R. CALAD, ET AL.

ON WRITS OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES AS

AMICUS CURIAE SUPPORTING PETITIONERS

PAUL D. CLEMENT

Acting Solicitor General

HOWARD M. RADZELY Counsel of Record

Solicitor of Labor EpWIN S. KNEEDLER

ALLEN H. FELDMAN Deputy Solicitor Geneval

Associate Solicitor JAMES A. FELDMAN

NATHANIEL I. SPILLER Assistant to the Solicitor

Deputy Associate Solicitor General

EDWARD D. SIEGER Department of Justice

Attorney Washington, D.C. 20530-0001

Department of Labor (202) 514-2217

Washington, D.C. 20210

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QUESTION PRESENTED

Under Metropolitan Life Insurance Co. v. Taylor, 481

U.S. 58 (1987), certain state-law claims can be removed from

state to federal court if they fall within the scope of the civil

enforcement provisions of the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. 1132(a), and are

thereby “completely preempted.” The question presented is

whether ERISA completely preempts state-law claims by an

ERISA plan participant or beneficiary against a health

maintenance organization (HMO) where the claims challenge

an HMO’s decision to deny coverage of treatment or care

that was prescribed by the claimant’s physician but that the

HMO decided was not authorized under the plan’s “medical

necessity” proviso.

(I)

TABLE OF CONTENTS

Interest of the United States ......00ccccccsccccsccccsersccevssossecsssesseesesees 1

Statement: 2

1. Aenta Health Inc. Vv. Davila o......c.cccccccccccceeeeeeeeeeneeees 2

2. Cigna HealthCare of Texas, Inc. v. Calad ................ 4

5

6

3. The court of appeals’ decision ............ccsseseseesnensneesees

I IEEIIIIIID ccsncessersesesssnsessasesenscessscsnensnssssssesscssscscsnseentts

Argument:

ERISA completely preempts respondents’ state-

law claims because they fall within the scope of

Section 502(a) ' 9

A. State-law claims within the scope of Section 502(a)

are removable from state to federal court .............+-+. 9

B. Respondent’s claims fall within the scope of

Section 502(a)(1)(B) 12

C. The fact that plaintiffs’ actions are tort-based

underscores their complete preemption ............0:0-++++« 17

D. Pegram v. Herdrich does‘not bar complete pre-

emption of respondents’ claims .............0sss0sssssseeesnees 21

E. Complete preemption effectuates the congres-

sional balance between providing prompt and

appropriate remedies for claimants and

encouraging the formation and growth of employee

ID crnscnsccsnrescesnsassescscemsrenerenenessnsssesrscsesmnssseaces

Conclusion

& F

TABLE OF AUTHORITIES

Cases:

Allis-Chalmers Corp. v. Lueck, 471 U.S. 202

(1985) ps nsesaueasesussunagasaseseusscsussnnstseneseneesns 19

Beneficial Nat'l Bank v. Anderson, 123 S. Ct. 2058

TE crietateesrerneenemnssonnevecnnssensesencesascacesee menentenemmmenen 9,10, 15

(IIT)

IV

Cases—Continued: Page

Black & Decker Disability Plan v. Nord, 538 U.S.

822 (2003) 27

Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574

(7th Cir. 2000) 28

Caterpillar Inc. v. Williams, 482 U.S. 386 (1987) ........... 10

Cicio v. Does, 321 F.3d 83 (2d Cir.), petition for cert.

filed, No. 03-69 (July 11, 2003) 21

Dardinger v. Anthem Blue Cross & Blue Shield,

781 N.E.2d 121 (Ohio 2002) on 30

Franchise Tax Bd. v. Construction Laborers

Vacation Trust, 463 U.S. 1 (1983) .........c.cceccsesesesererseeneees 12

Great-West Life & Annunity Ins. Co. v. Knudson,

534 U.S. 204 (2002) 27

Healthcare Inc., In re, 193 F.3d 151 (3d Cir. 1999),

cert. denied, 530 U.S. 1242 (2000) . 29

Heasley v. Belden & Blake Corp., 2 F.3d 1249 (3d

Cir. 1993) 16

Ingersoll-Rand Co. v. McClendson, 498 U.S. 133

(1990) 7, 11, 18, 26, 29

Kekis v. Blue Cross & Blue Shield of Utica-

Watertown, Inc., 815 F. Supp. 571 (N.D.N.Y.

1993) 16

Kopicki v. Fitzgerald Auto. Family Employee

Benefits Plan, 121 F. Supp. 2d 467 (D. Md. 2000) .......... 16

Kulakowski v. Rochester Hosp. Serv. Corp.,

779 F. Supp. 710 CW.D.N.Y. 1991) ....ccccecsessessecsesseeneeneeneens 16-17

Lockheed Corp. v. Spink, 517 U.S. 882 (1996) .........0cc0c000 26

Marro v. K-III Communications Corp., 943 F.

ee 16

Massachusetts Mut. Life Ins. Co. v. Russell,

473 U.S. 134 (1985) ....... suamnaseseonenenenatenanegesennnatanesmescsensemenes 21

Mattive v. Healthsource of Savannah, Inc.,

893 F. Supp. 1559 (S.D. Ga. 1995) ...........ccccccecnsseceesesneneeneees 16

Mertens v. Hewitt Assocs., 508 U.S. 248 (1993) «0.0.0... 27

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58

EE ne 4,6, 10, 11, 12, 13, 15, 18, 20

Cases—Continued: Page

Pegram v. Herdrich, 530 U.S. 211 (2000) ....... 8, 21, 22, 23, 24

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987) .... passim

Pryzbowski v. U.S. Healthcare, Inc., 245 F.3d 266

(3d Cir. 2001) 16, 28, 29

Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355

(2002) sd 8, 12,

18, 19, 20, 21, 23, 28

Shannon v. Jack Eckerd Corp., 113 F.3d 208 (11th

Cir. 1997), cert. denied, 522 U.S. 1111 (1998) ................... 17

Shaw v. Delta Air Lines, Inc., 463 U.S. 85

(1983) seiecueaieicliehainitiibiiapiatatii 26

Strom v. Goldman Sach & Co., 202 F.3d 138 (2d Cir.

1999) eocenebanaaaiaitiianesmaaiainidiiaass 28

UNUM Life Ins. Co. v. Ward, 526 U.S. 358 (1999) ......... 12

U.S. Healthcare, Inc., In re, 193 F.3d 151 (3d

Cir. 1999), cert. denied, 530 U.S. 1242 (2000) ................... 29

Varity Corp. v. Howe, 516 U.S. 489 (1996) ......... 17, 24-25, 27

Villazon v. Prudential Health Care Plan, Inc.,

843 So. 2d 842 (Fla. 2003) _ 29

White v. Caterpillar, Inc., 765 F. Supp. 1418

(W.D. Mo.), aff’d, 985 F.2d 564 (8th Cir. 1991) ............. 17, 27

Wilson v. Group Hospitalization & Med. Servs.,

Inc., 791 F. Supp. 309 (D.D.C. 1992), appeal

dismissed, 995 F.2d 306 (D.C. Cir. 1993) 7 - 16,27

Statutes and regulations:

Employee Retirement Income Security Act of 1974,

hs Cg ID, cccceptrccinesceiatscincstcnattintnccineeien 6

BD WEALD, BERR GD ccccenecnssssnsnnszsennnsnscecsnsnsnssnensnsnssmanmecensnss 26

ST, TD ccceererssereseerseeteenntenetnmmnaen 1

Un 24

TS | 21

BD DEG. GED ccccennennssssmnssenssnensnsssscscemscmesesennmemmen 21

29 U.S.C. 1132(a) (§ 502(a)) ............. 1, 4, 7, 8, 10, 12, 13, 26

29 USC. 1132(aX(1)(B) (§ 502(a)(1)(B)) enusenvasnssessese passim

Statutes and regulations—Continued: Page

29 U.S.C. 1132(a)(2) (§ 502(a)(2)) ........recresseseresernssnesneneens 6, 21

29 U.S.C. 1132(a)(3) (§ 502(a)(3)) 5, 17, 20, 27

29 U.S.C. 1132(g) 27

29 U.S.C. 1133 (§ 508) ...........c.cscssseeseeeees 9, 28

29 U.S.C. 1133(1) ...... 26°

29 U.S.C. 1133(2) (§ 50B(2)) ........ssescseesseessneerneeeneces 24, 25, 26

Sf 1

PGE. TECTED cccenmces 12,14

29 U.S.C. 1144 (D2) A) .....ccsceceeseeeseeeees 12

Se. SD ereessnnenn 26

28 U.S.C. 1441(b) 9-10

Texas Health Care Liability Act, Tex. Civ. Prac. & Rem.

Code Ann. (West Supp. 2004):

By NINDS scnenninstassessssenreenteeiesicenimameneeenmenten 3

§ 88.001(5) 3

§ 88.002(a) 3

§ 88.002(c) 3

29 C.F.R.:

Section 2560.503-1(f)(2)(i) ......... 28

Section 2560.503-1(f)(2)(ii)(A) . 28

Section 2560.503-1(g)(1) (2000) . 25

Section 2560.503-1(g)(1)(i) 26, 28

Section 2560.503-1(h)(1) 25, 26

Section 2560.503-1(h)(2)(iv) ....... 26

Section 2560 .503-1(h)(3)(ii) 25

Section 2560.503-1(7)(1)(ii) «.........00+. 25

Section 2560.503-1(j)(1) ...........00+ 26

Section 2560.503-1(j)(5)(ii) ........ 26

Miscellaneous:

Gail B. Agrawal & Mark A. Hall, What If You Could

See Your HMO? Managed Care Liability Beyond

the ERISA Shield, 47 St. Louis U.L.J. 235 (2003) ...... 29, 30

George G. Bogert & George T. Bogert, The Law

of Trusts and Trustees (rev. 2d ed. 1995) ...........ccccceseseeees 28

Vi

Vil

Miscellaneous—Continued:

66 Fed. Reg. 35,886 (2001) ...........:secsessssesnesneneencnnenensnennsnnes

Restatement (Second) of the Law of Trusts (1959) .......

United States General Accounting Office, Employer-

Based Managed Care Plans: ERISA’s Effect on

Remedies for Benefit Denials and Medical Mal-

practice (July 1998) (GAO/HEHS-98- 154) .............

Jn the Supreme Court of the Anited States

No. 02-1845

AETNA HEALTH INC., FKA AETNA U.S. HEALTHCARE

INC. AND AETNA U.S. HEALTHCARE OF

NORTH TEXAS INC., PETITIONER

Vv.

JUAN DAVILA

No. 03-83

CIGNA HEALTHCARE OF TEXAS, INC., DBA CIGNA

CORPORATION, PETITIONER

Vv.

RuBY R. CALAD, ETAL.

ON WRITS OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES AS

AMICUS CURIAE SUPPORTING PETITIONERS

INTEREST OF THE UNITED STATES

This case concerns the scope of “complete preemption” un-

der Section 502(a) of the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. 1132(a), as applied

to state-law claims against a health maintenance organiza-

tion (HMO). Because the Secretary of Labor has primary

authority for enforcing and administering Title I of ERISA,

see 29 U.S.C. 1002(13), 1136(b), which includes Section

502(a), the United States has a substantial interest in

(1)

2

ensuring that ERISA’s complete preemption principle is

appropriately applied.

STATEMENT

1. Aetna Health Inc. v. Davila

a. Petitioner Aetna Health Inc.’s predecessors provided

HMO coverage to respondent Juan Davila pursuant to an

ERISA plan sponsored by Davila’s employer. 02-1845 Pet.

App. 4a, 67a. The agreement between Aetna and the em-

ployer provided that Aetna would contract with participat-

ing physicians who were independent contractors and solely

responsible for health services rendered to covered patients.

Id. at 98a. The agreement gave Aetna “complete authority

to review all claims for Covered Benefits,” including “dis-

cretionary authority to determine whether and to what

extent eligible individuals and beneficiaries are entitled to

coverage and construe any disputed or doubtful terms under

thle] Group Agreement.” Jd. at 102a.

The agreement required benefits to be “[mJedically [nJec-

essary” to be covered and specified that “(flor the purpose of

coverage, [Aetna] may determiné whether any benefit pro-

vided under the [Certificate of Coverage] is [mlJedically

[njecessary.” 02-1845 Pet. App. 122a. Among other things,

“medically necessary” means that a service or supply “must

* * * be no more costly * * * than any equally effective

service or supply” in satisfying certain standards of medical

efficacy. Jd. at 122a-123a. The agreement pr vided that its

coverage “does not restrict a Member’s ability to receive

health care benefits that are not, or might not be, [clovered

[bjenefits.” Jd. at 177a.

b. In April 2000, Davila’s primary care physician pre-

scribed Vioxx for Davila’s arthritis. 02-1845 Pet. App. 67a,

76a. Aetna refused to pay for the prescription, which led the

physician to contact Aetna concerning the refusal. Jd. at 77a.

In May 2000, an Aetna representative informed the physi-

3

cian that, under its formulary policy, Aetna would approve

Vioxx only if Davila “has a diagnosis of osteoarthritis or

acute pain and has a contraindication, intolerance, allergy to

or a documented adequate trial” of at least two other

covered drugs. /d. at 80a; see id. at 4a, 67a-68a. Davila be-

gan taking one of those other drugs (a generic drug, napro-

syn), which allegedly led to a hospitalization for bleeding

ulcers, a near-heart attack, and internal bleeding. /d. at 5a,

68a, 77a.

After his hospitalization, Davila sued Aetna in Texas state

court for violations of the Texas Health Care Liability Act

(THCLA), Tex. Civ. Prac. & Rem. Code Ann. §§ 88.001 et

seq. (West Supp. 2004) (reproduced at 02-1485 Pet. App. 56a-

63a). See id. at 68a-70a. The THCLA requires a health

insurance carrier, HMO, or other managed care entity “to

exercise ordinary care when making health care treatment

decisions” and imposes liability for damages for harm to an

insured or enrollee proximately caused by its failure to exer-

cise such care. Tex. Civ. Prac. & Rem. Code Ann. § 88.002(a)

(West Supp. 2004). The THCLA defines “(health care treat-

ment decision” to mean

a determination made when medical services are actually

provided by the health care plan and a decision which

affects the quality of the diagnosis, care, or treatment

provided to the plan’s insureds or enrollees.

Id. § 88.001(5). It is a defense to an action asserted against

an insurer, HMO, or other managed care entity that neither

it nor any of its employees or agents “controlled, influenced,

or participated in the health care treatment decision” and

“did not deny or delay payment for any treatment prescribed

or recommended by a provider to the insured or enrollee.”

Id. § 88.002(c).

Davila alleged that Aetna’s adherence to its policies on the

use of Vioxx amounted to a failure to use ordinary care in

making a health care treatment decision that affected the

d

quality of the treatment Davila received. 02-1845 Pet. App.

68a-69a. He further alleged that Aetna was liable for puni-

tive damages because Aetna knew its policy involved a risk

of serious injury or death. Jd. at 70a-71a.

ce. Aetna removed the action to federal court based on

the “complete preemption” doctrine recognized in Metropoli-

tan Life Insurance Co. v. Taylor, 481 U.S. 58 (1987). 02-1845

Pet. App. 89a. Under that doctrine, a state-law claim that

falls within the scope of the civil enforcement provisions in

Section 502(a) of ERISA, 29 U.S.C. 1132(a), is deemed to be

a federal claim subject to removal. Taylor, 481 U.S. at 65-67.

Aetna argued that Davila’s state-law claims were within the

scope of Section 502(a) because they were based on Aetna’s

“allegedly wrongful conduct of denying benefits.” 02-1845

Pet. App. 87a.

Davila filed a motion to remand the case to state court,

which the district court denied. 02-1845 Pet. App. 30a-35a.

The district court reasoned that while ERISA would not

completely preempt a claim challenging the quality of medi-

cal care a participant received, the claim here, “fairly con-

strued, actually challenges the administration of health bene-

fits under an ERISA plan.” Jd. at 33a-34a. Because Davila

chose not to refile his state-law claims as ERISA claims, the

district court dismissed his state-law claims with prejudice.

Id. at 34a-35a.

2. CIGNA HealthCare of Texas, Inc. v. Calad

a. Ruby Calad became a member of CIGNA Health-

Care’s HMO through an ERISA plan provided by her hus-

band’s employer. 03-83 Pet. App. 3a, 33a. Under the plan,

hospital benefits would not be paid for any day in excess of

the number of days certified through a pre-admission certi-

fication (PAC) or continued stay review (CSR). CIGNA

Opp. Mot. Remand App. 22.

In September 1999, Calad was admitted to a hospital for a

hysterectomy. Cause No. 00-09041 Pl. Orig. Pet. para. 4.

5

During pre-authorization procedures, CIGNA allegedly in-

formed her that it authorized only one day of hospitalization

following the surgery. 03-83 Pet. App. 34a. On the second

day after surgery, a CIGNA representative allegedly in-

formed Calad’s treating physician that CIGNA would not

extend her hospital stay unless she had hemorrhaging, fever,

or high blood pressure; without those symptoms, Calad

would have to pay the cost of an extended hospitalization.

Id. at 34a-35a. Calad was discharged, but she suffered

complications that caused her to return to the emergency

room a few days later. Jd. at 3a. Alleging that she did not

qualify for a continued hospital stay under CIGNA’s medical

necessity criteria and was unable to pay for the hospitaliza-

tion, she sued CIGNA in state court under the THCLA for

failing to use ordinary care in its medical decisions. See id.

at 3a, 30a, 35a.

CIGNA removed the action to federal court under the

complete preemption doctrine. See 03-83 Pet. App. 30a-31a.

The district court denied Calad’s- motion to remand and

dismissed her state-law claims with prejudice because she

chose not to amend her pleading to bring an ERISA claim.

Id. at 40a. :

3. The court of appeals’ decision

The Fifth Circuit consolidated appeals by Davila and

Calad and reversed the district courts’ refusals to remand

their claims to state court. 02-1845 Pet. App. 2a-3a. Re-

moval of the claims by Davila and Calad was improper, the

court held, because their claims were not covered by rele-

vant provisions of Section 502(a) authorizing a suit for

breach of fiduciary duty or a claim for benefits. Id. at 10a- -

20a.

In particular, the court concluded that respondents’ claims

were not within Section 502(a)(3) of ERISA, 29 U.S.C.

1132(a)(3), which authorizes suits to enjoin violations of

ERISA or the plan or to obtain “other appropriate equitable

6

relief” to redress such violations or enforce ERISA or the

plan, because respondents sought damages rather than equi-

table relief. 02-1845 Pet. App. 10a. The court also concluded

that the claims were not within the scope of Section 502(a)(2)

of ERISA, 29 U.S.C. 1132(a)(2), which authorizes a plan par-

ticipant, beneficiary, or fiduciary or the Secretary to obtain

“appropriate relief” for the plan against a fiduciary who

breaches ERISA duties, because petitioners “were not act-

ing as plan fiduciaries when denying [respondents] medical

treatment.” 02-1845 Pet. App. 12a.

Finally, the court of appeals concluded that the claims by

Davila and Calad did not fall within the scope of Section

502(a)(1)(B) of ERISA, 29 U.S.C. 1132(a)(1)(B), which allows

a suit by a plan participant or beneficiary “to recover bene-

fits due to him under the terms of his plan, to enforce his

rights under the terms of the plan, or to clarify his rights to

future benefits under the terms of the plan.” 29 U.S.C.

1132(a)(1)(B); see 02-1845 Pet. App. 15a-20a. The court

reasoned that Section 502(a)(1)(B) “creates a cause of action

for breach of contract,” which permits patients to obtain the

benefits due “[w]hen a plan administrator incorrectly inter-

prets the plan to deny benefits.” Jd. at 16a. “(B]y contrast,”

the court held, “{respondents] assert tort claims; they have

not sued their ERISA plan administrator, nor do they

challenge his interpretation of the plan.” [bid.

SUMMARY OF ARGUMENT

A. The Employee Retirement Income Security Act of

1974, 29 U.S.C. 1001 et seq., “completely preempts” respon-

dents’ state-law claims. In Pilot Life Insurance Co. v. Ded-

eaux, 481 U.S. 41 (1987), the Court concluded that ERISA’s

civil enforcement provisions provide an exclusive set of

remedies and therefore preempt state-law claims that fall

within the scope of those provisions. In Metropolitan Life

Insurance Co. v. Taylor, 481 U.S. 58 (1987), decided the

same day as Pilot Life, the Court held that such state-law

7

claims are “completely preempted”—i.e., are removable from

state to federal court as a jurisdictional matter and pre-

empted by federal law on the merits. “Complete preemp-

tion” reflects a Congressional intent for Section 502(a) to

provide the exclusive remedies for claims that fall within the

scope of that section.

B. Respondents’ state-law claims are completely pre-

empted because they fall within the scope of Section

502(a)(1)(B) of ERISA, 29 U.S.C. 1132(a)(1)(B). That pro-

vision affords plan participants and beneficiaries a cause of

action to obtain benefits or enforce rights under an ERISA

plan. The state-law claims in these cases clearly attempt to

enforce rights under an ERISA plan, because petitioners’

liability is dependent on a showing that respondents were

entitled to have petitioners pay for benefits under the plans.

Because respondents’ state-law claims thus fall within the

scope of Section 502(a)(1)(B) of ERISA, they are subject to

complete preemption, and the federal courts accordingly had

removal jurisdiction over these cases.

C. The court of appeals held that respondents’ claims are

not completely preempted because they sound in tort, while

Section 502(a)(1)(B), in the court’s view, creates a cause of

action for breach of contract. That distinction is untenable;

this Court has repeatedly held—in Pilot Life, in Taylor, and

in Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990)—

that tort-based claims are preempted or completely pre-

empted by ERISA’s civil enforcement provisions in Section

502(a). The Court has never suggested that preemption

under Section 502(a) depends on the categorization of a claim

as contract-based or tort-based. To the contrary, the Court

has stated that Section 502(a) provides exclusive remedies;

the fact that a plaintiff seeks tort-type remedies or other

remedies not authorized in Section 502(a) only reinforces the

conclusion that the plaintiff’s claim is preempted or com-

pletely preempted. Although the court of appeals purported

8

to find support for its view in Rush Prudential HMO, Inc. v.

Moran, 536 U.S. 355 (2002), that case supports and reaffirms

the conclusion that state-law claims seeking remedies not

authorized by Section 502(a) of ERISA are preempted under

the principles of Pilot Life, Taylor, and Ingersoll-Rand.

D. Pegram v. Herdrich, 530 U.S. 211 (2000), does not

alter that conclusion. In Pegram, the Court held that an

HMO physician, who was both treating the patient and de-

ciding whether treatment was covered by a plan, was not

acting as an ERISA fiduciary when she made a “mixed” eli-

gibility and treatment decision. Pegram’s conclusion about

the existence of a fiduciary duty under ERISA, however, has

little to do with whether respondents’ claims fall within the

scope of a Section 502(a)(1)(B) claim for benefits. Moreover,

Pegram’s holding that a physician making a medical

necessity determination is not an ERISA fiduciary is prop-

erly limited to cases, such as Pegram itself, in which the

physician is a treating physician serving simultaneously in a

medical-treatment and benefits-determination role. ERISA

and the governing regulations of the Secretary of Labor

make clear that where, as here, the HMO and its representa-

tives are not treating the patient but are making benefits

determinations under an ERISA plan, they may serve in an

ERISA fiduciary capacity.

E. ERISA is designed to provide participants and bene-

ficiaries with the benefits promised by their plans and other

appropriate equitable relief. While the remedies available

under Section 502(a) of ERISA are not as broad as the tort

remedies and punitive damages sought by respondents,

ERISA’s civil enforcement scheme—which the complete

preemption doctrine makes exclusive—nonetheless effectu-

ates the congressional balance between providing prompt

and appropriate remedies for claimants and encouraging the

formation and growth of employee benefit plans. The

ERISA regime protects claimants and permits remedies

9

that are effective for most claimants, including an injunction

ordering an HMO to pay for proposed treatment before it is

provided, appropriate equitable relief to redress violations of

ERISA or an ERISA plan, important procedural protections

under the recently revised claims regulations promulgated

by the Department of Labor pursuant to Section 503 of the

Act, 29 U.S.C. 1133, independent review of HMO medical-

necessity decisions if state law so provides, and a possible

state-court suit against a treating physician for malpractice

and against an HMO when it is vicariously liable for a

treating physician’s decisions. Permitting state-law damage

actions concerning what are at bottom coverage disputes in

addition to those protections and remedies under ERISA

itself would undermine the exclusivity of the remedies

ERISA does provide. It would also undermine the uniform

administration of plans operating in more than one State

Moreover, by increasing costs through awards of or expo-

sure to punitive damages and other state-law remedies in

ways that cannot readily be predicted or budgeted, allow-

ance of state-law damage actions against HMOs or other in-

surers for an allegedly wrongful denial of a claim for benefits

could frustrate ERISA’s goal of promoting the interests of

employees in having their employers provide and maintain

adequate health plans.

ARGUMENT

ERISA COMPLETELY PREEMPTS RESPONDENTS’

STATE-LAW CLAIMS BECAUSE THEY FALL WITHIN

THE SCOPE OF SECTION 502(a)

A. State-Law Claims Within The Scope Of Section 502(a)

Are Removable From State To Federal Court

1. Under 28 U.S.C. 1441(b), “[a] civil action filed in a

state court may be removed to federal court if the claim is

one ‘arising under’ federal law.” Beneficial Nat’l Bank v.

Anderson, 123 S. Ct. 2058, 2062 (2603). Ordinarily, Section

10

1441(b) authorizes removal only when the federal question

appears on the face of a well-pleaded compiaint, but not

when preemption is simply raised as a federal defense to a

plaintiff’s suit. Metropolitan Life Ins. Co. v. Taylor, 481

U.S. 58, 63 (1987). But certain statutes so completely occupy

an area Congress has chosen to regulate exclusively as

federal law, with a federal cause of action, “that any civil

complaint raising this select group of claims is necessarily

federal in character.” Taylor, 481 U.S. at 63-64. With re-

spect to those statutes, a claim that on its face raises only

state-law claims but that also falls within the scope of the

federal cause of action will be considered to raise the federal

claim. See, e.g., Beneficial Nat'l Bank, 123 S. Ct. at 2063;

Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987);

Taylor, 481 U.S. at 65.

2. ERISA’s enforcement provisions have such a “com-

plete preemption” effect. That conclusion follows from two

basic premises. The first premise, established by Pilot Life

Insurance Co. v. Dedeaux, 481 U.S. 41 (1987), is that

ERISA’s civil enforcement provisions—and, in particular,

Section 502(a)(1)(B) of ERISA, 29 U.S.C. 1132(a)1)(B)—

provide an exclusive remedy; they therefore preempt any

state-law claims that fall within their scope. The second

premise, established by this Court’s decision the same day in

Taylor, is that the preemptive force of ERISA’s civil en-

forcement provisions gives rise to complete preemption, and

thus federal removal jurisdiction over claims that are

pleaded under state law but that fall within the scope of

Section 502(a).

a. In Pilot Life, an ERISA plan participant unsuccess-

fully sought disability benefits from the ERISA plan’s in-

surer for a back injury at work. 481 U.S. at 43. The partici-

pant brought state-law tort and contract claims against the

insurer in state court, seeking compensatory and punitive

damages for the failure to provide benefits. Jd. at 43-44.

1]

This Court held that suits “asserting improper processing of

claims under ERISA-regulated plans [are to] be treated as

federal questions governed by § 502(a)” of ERISA, and are

preempted. /d. at 56.

The Court’s conclusion in Pilot Life was based largely on

its determination that “ERISA’s civil enforcement remedies

were intended to be exclusive.” 481 U.S. at 54. ERISA’s

civil enforcement scheme was carefully crafted by Congress,

balancing “the need for prompt and fair claims settlement

procedures against the public interest in encouraging the

formation of employee benefit plans.” Jbid. The Court

concluded that “{t]he policy choices reflected in the inclusion

of certain remedies and the exclusion of others under the

federal scheme would be completely undermined if ERISA-

plan participants and beneficiaries were free to obtain reme-

dies under state law that Congress rejected in ERISA.”

Ibid. See also Ingersoll-Rand Co. v. McClendon, 498 U.S.

133, 145 (1990) (state-law cause of action preempted because

it “purports to provide a remedy for the violation of a right

* * * exclusively enforced by § 502(a)[3]”).

b. Taylor was decided the same day as Pilot Life. As in

Pilot Life, an ERISA plan participant sought disability

benefits for a back injury he had suffered at work. 481 U.S.

at 61. As in Pilot Life, the insurer of the ERISA plan found

that the plaintiff was not disabled and therefore not eligible

for benefits. [bid. Unlike in Pilot Life, the plaintiff brought

suit in state court, asserting state-law “contract and tort”

claims, id. at 62, and seeking both the disability benefits that

he believed had been wrongfully denied and damages for his

“mental anguish.” Ibid. The insurer removed the case to

federal court.

This Court held that “this suit, though it purports to raise

only state law claims, is necessarily federal in character by

virtue of the clearly manifested intent of Congress,” and that

it was accordingly “removable to federal court by the defen-

12

dants” under the complete preemption doctrine. Taylor, 481

U.S. at 67. The Court noted that its companion decision in

Pilot Life held that “state common law causes of action

asserting improper processing of a claim for benefits under

an employee benefit plan regulated by [ERISA] are pre-

empted by the Act.” /d. at 60. Although a mere preemption

defense is not ordinarily a sufficient basis for removal juris-

diction, the Court explained that Congress had “clearly

manifested an intent to make causes of action within the

scope of the civil enforcement provisions of § 502(a) remov-

able to federal court.” Jd. at 66. Accordingly, the Court held

that it was appropriate “to recharacterize a state law

complaint displaced by § 502(a)(1)(B) as an action arising

under federal law.” Jd. at 64.'

B. Respondents’ Claims Fall Within The Scope Of Section

502(a)(1)(B)

1. Pilot Life and Taylor establish that claims that fall

within the scope of Section 502(a)(1)(B) are subject to com-

plete preemption. In each of those cases, the plaintiffs could

not have been successful on their contract and tort claims

unless they could show that they were in fact entitled to

have the defendants pay for benefits under their ERISA

plans. In Pilot Life, for example, the plaintiff sought, inter

! In contrast to “complete preemption” of state causes of action that

fall within the scope of Section 502(a) under Taylor, “ordinary” pre-

emption of state law under Section 514(a) of ERISA, 29 U.S.C. 1144(a),

does not by itself permit removal of a state-court action to federal court.

Taylor, 481 U.S. at 64; Franchise Tax Bd. v. Construction Laborers Vaca-

tion Trust, 463 U.S. 1 (1983). A state law may be saved from “ordinary”

preemption under ERISA’s insurance saving clause, see 29 U.S.C.

1144(b)(2)(A), even in a case in which the underlying claim is removable

from state to federal court under the complete preemption doctrine. That

would occur, for example, if the state law’s sole effect is to add a

mandatory plan term that is enforceable only through an ERISA Section

502(a) action. See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355,

379-380 (2002); see also UNUM Life Ins. Co. v. Ward, 526 U.S. 358, 376-

377 (1999).

13

-

alia, “{djamages for failure to provide benefits under the

insurance policy.” 481 U.S. at 43. In Taylor, the plaintiff

sought, inter alia, “compensatory damages for money con-

tractually owed Plaintiff.” 481 U.S. at 61. In both cases, the

plaintiffs’ claims obviously could not have been successful if

it were ultimately determined that they were not entitled to

the benefits at issue.

Because the plaintiffs in Pilot Life and Taylor brought

claims that depended on a showing that they were entitled to

have the defendants pay for benefits under their ERISA

plans, the Court had no difficulty in concluding in each case

that the plaintiff’s claims fell within the scope of Section

502(a)(1)(B). Indeed, the showing of entitlement to payment

that plaintiffs had to make in Pilot Life and Taylor was

essentially the same showing that would have been required

for them to bring a successful suit under Section

502(a)(1)(B), which creates a cause of action “to recover

benefits due [a participant] under the terms of his plan” or

“to enforce his rights under the terms of the plan.” 29 U.S.C.

1132(a)(1)(B). Accordingly, the state-law claims in those

cases were squarely preempted.

2. Just as in Pilot Life and Taylor, respondents’ claims

fall within the scope of Section 502(a)(1)(B) because they re-

quire adjudication of respondents’ entitlement to have peti-

tioners pay for benefits under their ERISA plans. They also

seek remedies additional to those provided under Section

502(a)(1)(B). They are therefore completely preempted.”

a. Respondent Davila’s state-law action alleges that

Aetna, through its prescription drug formulary policies,

“controlled, influenced, participated in and made decisions

2 Because the state-law claims in these cases depend on a showing that

respondents were entitled to benefits under their ERISA plans, these

cases do not present the question whether a state-law claim that does not

require adjudication of rights under an ERISA plan may nonetheless fall

within the scope of Section 502(a) and therefore be completely preempted.

14

which affected the quality of the diagnosis, care, and treat-

ment provided to” him; that Aetna thereby “violat[ed] the

duty of ordinary care” set forth in Texas law; and that

“{s]uch violation of ordinary care was the proximate cause of

{Davila’s] damages.” 02-1845 Pet. App. 69a. In particular,

Davila alleges that Aetna did not exercise due care when it

concluded that he could not obtain Vioxx under the plan

unless and until he had first tried other medications to treat

his condition. /d. at 67a-69a.

As was true of the claims in Pilot Life and Taylor,

Davila’s state-law claim necessarily requires adjudication of

Davila’s right to obtain payment for Vioxx under his ERISA

plan. Specifically, Davila’s claim requires a showing that

Davila was entitled to payment for Vioxx either under the

literal terms of the plan or under any provision of law incor-

porated into the plan—i.e., any federal law applicable to the

plan or any state law applicable to the plan that is not

preempted (or saved from preemption) under Section 514(a).

If he was not so entitled, then Aetna’s failure to pay for the

drug was both justified and not the proximate cause of any

injuries Davila suffered. In other words, Davila’s state-law

claim depends on the showing that would have been neces-

sary under Section 502(a)(1)(B) of ERISA “to recover

benefits due to him under the terms of his plan” or “to

enforce his rights under the terms of the plan.” 29 U.S.C.

1132(a)(1)(B).

Under the principles of Pilot Life and Taylor, claims like

Davila’s that require a showing that the claimant could have

recovered on a Section 502(a)(1)(B) claim are subject to

complete preemption under ERISA. That is more, not less,

clear when such state-law claims involve remedies not avail-

able under Section 502(a)(1)(B). Although Davila has pur-

ported to plead his claim under an alternative state-law

cause of action that provides for remedies in addition to

those available under ERISA, his claim nonetheless “is in

15

reality based on federal law” and is therefore completely

preempted. Beneficial Nat'l Bank, 123 8. Ct. at 2063.

b. Similarly, Calad’s claim in No. 03-83 is completely pre-

empted. The basis for her state-law complaint is an asserted

right under her ERISA plan to obtain what she viewed as

medically necessary treatment—in her case, more than one

day of hospitalization after a hysterectomy, as recommended

by her treating physician. Calad alleged that CIGNA inter-

fered with that right by informing Calad and her treating

physician that CIGNA would not pay for an extended hospi-

tal stay because she did not qualify under CIGNA’s medical

necessity criteria for extended hospital coverage. 03-83 Pet.

App. 34a-35a. If Calad did not have a legal right under her

ERISA plan to payment for a medically necessary additional

period in the hospital, then her state-law claim would fail.

Accordingly, her state-law claim, like Davila’s, depends on a

showing that she was entitled to payment under her ERISA

plan for the additional medica] treatment she sought. It fol-

lows that Calad’s complaint, like Davila’s, is subject to re-

moval under the complete preemption doctrine.

ce. These cases differ from Pilot Life and Taylor in that

the benefits involved here are health care benefits, rather

than disability benefits, and the defendants here are HMOs,

rather than traditional insurers. Those facts, however, have

no bearing on the analysis. Congress “expressed an intent

that the civil enforcement provisions of ERISA § 502(a) be

the exclusive vehicle for actions by ERISA-plan participants

* * * asserting improper processing of a claim for benefits,

and that varying state causes of action for claims within the

scope of § 502(a) would pose an obstacle to the purposes and

objectives of Congress.” Pilot Life, 481 U.S. at 52; see

Taylor, 481 U.S. 63. That rationale applies regardless of

whether the defendant is a traditional insurer making a post-

treatment coverage decision under a fee-for-services plan (as

in Pilot Life and Taylor) or an HMO making a pre-certifica-

16

tion coverage decision (as here), and regardless of whether

the claims involve disability benefits (as in Pilot Life and

Taylor) or medical benefits (as here). Accordingly, the ra-

tionale of Pilot Life and Taylor applies here, and respon-

dents’ claims are completely preempted.*

3. If any doubt remained as to whether respondents’

state law claims fall within the scope of Section 502(a)(1)(B)

of ERISA, the ability of claimants who are similarly situated

to respondents to sue under ERISA confirms that respon-

dents’ claims are completely preempted. As the Third Cir-

cuit noted in holding that ERISA completely preempted a

state-law claim against an HMO for denying treatment by an

out-of-network provider, “(t]here have been numerous cases

in which [federal] courts have issued preliminary injunctions

under similar circumstances.” Pryzbowski v. U.S. Health-

care, Inc., 245 F.3d 266, 274 (3d Cir. 2001). There are also

3 By requiring that claims challenging HMO coverage decisions be

brought under Section 502(a)(1)(B), the complete preemption doctrine en-

sures that ERISA standards—including the federal common law that

Congress expected would apply to benefit claims, see Pilot Life, 481 U.S.

at 56—will continue to apply to HMO coverage decisions in the same way

they apply to coverage decisions by traditional insurers, such as Blue

Cross and Blue Shield, and companies that administer self-insured plans.

See, e.g., Kopicki v. Fitzgerald Auto. Family Employee Benefits Plan, 121

F. Supp. 2d 467, 470 (D. Md. 2000) (pre-treatment coverage decision by

company administering self-insured plan); Kekis v. Blue Cross & Blue

Shield of Utica-Watertown, Inc., 815 F. Supp. 571, 573-576 (N.D.N-Y.

1993) (pre-treatment coverage decision by Blue Cross/Blue Shield).

4 See, e.g., Heasley v. Belden & Blake Corp., 2 F.3d 1249, 1253 (3d Cir.

1993) (participant’s challenge to administrator’s decision not to pre-

authorize liver transplant); Kopicki v. Fitzgerald Auto. Family Employee

Benefits Plan, 121 F. Supp. 2d at 470-471 (beneficiary's challenge to

administrator’s decision not to pre-authorize stem cell treatment for

cancer); Marro v. K-11] Communications Corp., 943 F. Supp. 247, 248-249

(E.D.N.Y. 1996) (similar); Mattive v. Healthsource of Savannah, Inc., 893

F. Supp. 1559, 1562-1563 (S.D. Ga. 1995) (similar); Kekis, 815 F. Supp. at

576-577 (similar); Wilson v. Group Hospitalization & Med. Servs., Inc., 791

F’. Supp. 309, 310 (D.D.C. 1992) (similar), appeal dismissed, 995 F.2d 306

(D.C. Cir. 1993); Kulakowski v. Rochester Hosp. Serv. Corp., 779 F. Supp.

17

cases in which a claimant obtains treatment recommended

by a treating physician despite a refusal by a managed care

entity to pay for it, and later challenges the HMO’s denial of

benefits under ERISA. See, e.g., Shannon v. Jack Eckerd

Corp., 113 F.3d 208, 209 (11th Cir. 1997), cert. denied, 522

U.S. 1111 (1998); United States General Accounting Office,

Employer-Based Managed Care Plans: ERISA’s Effect on

Remedies for Benefit Denials and Medical Malpractice 12

(July 1998) (GAO/HEHS-98-154) (GAO Report) (“A health

plan’s decision to deny coverage does not preclude the at-

tending physician from providing treatment—if the patient

ean obtain other funding to pay for it.”); 02-1845 Pet. App.

177a; 03-83 Pet. App. 34a-35a. The fact that Section

502(a)(1)(B) provides remedies for the precise types of

wrongs respondents allege confirms that respondents’ state-

law claims fall within the scope of that provision and are

therefore completely preempted.”

C. The Fact That Plaintiffs’ Actions Are Tort-Based

Underscores Their Complete Preemption

1. The court of appeals held that respondents’ claims are

not completely preempted—indeed, are not preempted at all

—because the fact that they are tort-based makes their

“claims of HMO medical malpractice differ fundamentally

710, 711-712 (W.D.N.Y. 1991) (similar); White v. Caterpillar, Inc., 765 F.

Supp. 1418, 1419-1420 (W.D. Mo.) (similar), aff'd, 985 F.2d 564 (8th Cir.

1991).

5 If, contrary to our argument, respondents’ state-court actions fell

outside the scope of Section 502(a)(1)(B), they may nevertheless be com-

pletely preempted because they would fall within the scope of Section

502(a)(3) of ERISA, 29 U.S.C. 1132(a)(3). Section 502(a)(3) allows a par-

ticipant or beneficiary to sue to enjoin a violation of ERISA or of the plan,

or to obtain “other appropriate equitable relief” to redress such a violation

or to enforce any provisions of ERISA or the plan. 29 U.S.C. 1132(a)(3).

Section 502(a)(3) thus allows participants and beneficiaries to obtain

individual relief for a breach of a fiduciary obligation. Varity Corp. v.

Howe, 516 U.S. 489, 507-515 (1996). See also note 13, infra.

18

from * * * § 502(a)(1)(B) claims.” 02-1845 Pet. App. 16a.

The court reasoned that “Section 502(a)(1)(B) * * * creates

a cause of action for breach of contract,” while respondents

“assert tort claims.” Ibid. The court went on to emphasize

the remedies sought and noted that “Calad is not requesting

the value of an extra night at the hospital, and Davila is not

requesting reimbursement for the more expensive drug the

HMO denied.” /d. at 17a. -Because respondents “are not

seeking reimbursement for benefits denied them,” ibid., the

court concluded that their claims are not preempted or

completely preempted by Section 502(a)(1)(B).

The court’s conclusion is inconsistent with Pilot Life,

Taylor, and Ingersoll-Rand, each of which involved claims

that were directly pleaded as tort or tort-like claims and

each of which involved claims for damages that extended

beyond the benefits or rights due.° In each of those cases,

the Court held that the plaintiff’s claims were preempted,

and nothing in the Court’s analysis or result suggested that

the label placed upon the plaintiff’s claim in those cases—

whether contract, tort, or some mixture of the two—had any

relevance at all to the question. “Any.other result would

elevate form over substance and allow parties to evade the

requirements of [the federal statute] by relabeling their

contract claims as claims for tortious breach of contract.”

® See Pilot Life, 481 U.S. at 43 (plaintiff pled claims for “Tortious

Breach of Contract,” “Breach of Fiduciary Duties,” and “Fraud in the

Inducement,” and sought compensatory and punitive damages); Taylor,

481 U.S. at 61, 62 (noting that plaintiff sought “compensation for mental

anguish caused by breach of * * * contract” and holding that plaintiff's

“common law contract and tort claims are pre-empted by ERISA”);

Ingersoll-Rand, 498 U.S. at 136 (Plaintiff “sought compensatory and

punitive damages under various tort and contract theories.”); see also

Rush, 536 U.S. at 377 (“In Pilot Life, an ERISA plan participant who had

been denied benefits sued in a state court on state tort and contract

claims.”); id. at 379 (noting that in Ingersoll-Rand, the court “had no

trouble finding that Texas’s tort of wrongful discharge * * * conflicted

with ERISA enforcement”).

Ae

19

Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 211 (1985)

(holding that complete preemption under Section 301 of the

LMRA, which provides for enforcement of contract rights

under a collective bargaining agreement, applies to state-law

tort claims). Indeed, the fact that the state-law claims pro-

vide additional tort-based remedies rather than merely

duplicating the remedies typically available under Section

502(a)(1)(B) only underscores the rationale for finding those

claims preempted. Although the labels placed on the

plaintiffs’ claims in Pilot Life and subsequent cases thus had

no significance, the fact that the plaintiffs in those cases

sought tort-like remedies that extended beyond those

authorized in Section 502(a)(1)(B) was at the heart of the

Court’s conclusion that the claims conflicted with Congress’s

tailoring of remedies in ERISA and therefore were pre-

empted or completely preempted.

2. The court of appeals recognized that Pilot Life “in-

cludes some expansive language” that “arguably supports”

complete preemption, 02-1845 Pet. App. 19a, but the court

believed that this Court’s more recent decision in Rush Pru-

dential HMO, Inc. v. Moran, 536 U.S. 355 (2002), “indicates

that Pilot Life does not sweep so broadly.” As support for

that contention, the court of appeals noted that this Court in

Rush had characterized Ingersoll-Rand as a case in which

the “state law duplicated the elements of a claim available

under ERISA” and had stated that the state law thus “con-

verted the remedy from an equitable one under § 1132(a)(3)

* * * into a legal one for money damages.” 02-1845 Pet.

App. 19a-20a (quoting Rush, 536 U.S. at 379). In the court of

appeals’ view, that reference in Rush generated a rule that

“the test employed for ‘complete preemption’” is that

“States may not duplicate the causes of action listed in

ERISA § 502(a).” Id. at 20a.

The court of appeals’ reasoning is faulty. Nothing in Rush

suggests that complete preemption is limited to such cases

20

of “duplication.” And in any event, the sense in which the

claim in Ingersoll-Rand “duplicated” the ERISA cause of

action is identical to the sense in which the claims in Pilot

Life, Taylor, and this case do. As explained above, the

plaintiff’s claim in each case “duplicate[s]” an ERISA claim

because it cannot succeed without essentially proving the

elements of an ERISA claim. The fact that the plaintiffs in

_ Ingersoll-Rand and other cases prior to Rush might have

had to prove additional facts or elements beyond those re-

quired by Section 502(a)(1)(B) or Section 502(a)(3) to obtain

the additional forms of recovery they sought under state law

did not prevent preemption of the state-law claims. It is

typically true that a plaintiff seeking to recover compensa-

tory or punitive damages must prove facts beyond those

necessary to establish a violation of a substantive duty by

the defendant. That aspect of the cases therefore was of no

significance. What was significant was that, with respect to

claims that required proof of the essential elements of an

ERISA claim, state law provided for remedies beyond those

available under ERISA, thus making the preemption of the

state law particularly clear. See Pilot Life, 481 U.S. at 54-57;

Taylor, 481 U.S. at 63, 64-65; Ingersoll-Rand, 498 U.S. at

144-145. Similarly here, the fact that respondents would

have to prove additional facts or elements to obtain the com-

pensatory and punitive damages they seek—remedies not

available under Section 502(a)(1)(B)—does not prevent pre-

emption of their state-law claims.

Far from casting doubt on those earlier precedents, this

Court’s decision in Rush relied upon and reinforced them.

The Court emphasized that the state statute providing for

independent review of HMO medical necessity determina- '

tions in that case “provides no new cause of action under

state law and authorizes no new form of ultimate relief.” 536

U.S. at 379. Because “the relief ultimately available [after

the independent review] would still be what ERISA author-

21

izes in a suit for benefits under § 1132(a),” the Court

explained that Rush “does not involve the sort of additional

claim or remedy exemplified in Pilot Life [and] Ingersoll-

Rand.” Id. at 380. On that basis, the Court held that the

state-law independent-review scheme did not fall within

Pilot Life’s rule of categorical preemption. Jbid. In this

case, by contrast, respondents plainly do seek remedies be-

yond those provided by Section 502(a)(1)(B). Accordingly,

the Court’s reasoning in Rush supports and reaffirms the

conclusion that under Pilot Life, Taylor, and Ingersoll-

Rand, respondents’ claims are completely preempted.

D. Pegram v. Herdrich Does Not Bar Complete Pre-

emption Of Respondents’ Claims

The court of appeals suggested briefly that this Court’s

concern in Pegram v. Herdrich, 530 U.S. 211 (2000), that

“ERISA should not be interpreted to preempt state mal-

practice laws or to create a federal common law of medical

malpractice” supports its conclusion that the state-law

claims in this case are not completely preempted. 02-1845

Pet. App. 20a; see also Cicio v. Does, 321 F.3d 83, 100-104 (2d

Cir. 2003), petition for cert. filed, No. 03-69 (July 11, 2003).

That suggestion is mistaken.’

1. In Pegram, an ERISA plan participant contended that

an HMO had violated its fiduciary duties under ERISA by

structuring its operations so that its physician-owners re-

7 The court of appeals relied more extensively on Pegram for its

conclusion that the claims here are not preempted by Section 502(a)(2) of

ERISA, 29 U.S.C. 1132(a)(2). 02-1845 Pet. App. 12a-15a. That provision

does not preempt respondents’ actions for reasons independent of

Pegram. Section 502(a)(2) allows a participant or beneficiary to sue a

fiduciary for “appropriate relief” under Section 409 of ERISA, 29 U.S.C.

1109, including “removal of [a breaching) fiduciary,” 29 U.S.C. 1109(a).

Section 502(a)(2), however, provides relief to the plan, rather than to

individuals. Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140

(1985). Because the claimants here seek only individual relief, their claims

do not fall within the scope of Section 502(a)(2).

22

ceived greater profits if they held down the HMO’s medical

treatment expenses. The plaintiff alleged that the plan’s

physicians acted in a fiduciary capacity when they made

“mixed eligibility and treatment decisions,” 530 U.S. at 229

—decisions that mix questions concerning “the plan’s cover-

age of a particular condition or medical procedure for its

treatment” with “choices about how to go about diagnosing

and treating a patient’s condition,” id. at 228. This Court

held that “mixed eligibility [and treatment] decisions by

HMO physicians are not fiduciary decisions” that are subject

to suit under Section 502(a)(2) for breach of a fiduciary duty

under ERISA. 7d. at 237.

2. Pegram is inapposite here. Even if HMO coverage

decisions by a non-treating physician were “mixed” eligibil-

ity and treatment decisions under Pegram (but see pp. 23-25,

infra), there would be no reason for the Court to read

Pegram to foreclose complete preemption of respondents’

state-law claims. The Court in Pegram stated that it was

not addressing preemption issues. See 530 U.S. at 229 n.9.

Moreover, this case does not turn on whether any particular

decision was or was not a fiduciary decision under ERISA. It

does not matter in this case whether the HMO representa-

tives who decided not to pay for respondents’ requested

medical treatment made a fiduciary decision under ERISA

or a “mixed” eligibility and treatment decision that was not a

fiduciary act under Pegram. In either event, the state-law

actions brought by respondents fall within the scope of

Section 502(a)(1)(B) and seek to add to ERISA’s remedies by

permitting a plan participant to recover damages, including

punitive damages, for a denial of benefits. A wrongful denial

of benefits is actionable under Section 502(a)(1)(B) regard-

less of whether it constitutes a fiduciary breach. Accord-

ingly, those state-law actions fall within the scope of Section

502(a)(1)(B), and are removable to federal court, regardless

23

of the fiduciary or non-fiduciary nature of the decisions

attacked by respondents.

3. In any event, as the government pointed out in its

brief as amicus curiae in Rush, Pegram’s holding that “mixed

eligibility [and treatment] decisions by HMO physicians are

not fiduciary decisions” under ERISA, 530 U.S. at 237,

should not be extended beyond decisions made by treating

physicians who are also making HMO eligibility decisions.

See U.S. Br. at 7-11, Rush, supra (No. 00-1021). Although

some statements in Pegram, if read in isolation, might sug-

gest a broader application of the “non-fiduciary” rule, the

better reading of Pegram is that it addresses only mixed

decisions made by treating physicians.”

That limitation of Pegram to treating physicians serving

dual roles makes sense. When the same doctor decides both

treatment and eligibility questions, as may occur in a staff-

model HMO, the treatment decision truly is “practically

inextricable” from the eligibility decision. In HMOs such as

those in this case, however, the treatment and coverage

questions are separate, with a contract physician deciding

the appropriate treatment and the HMO independently de-

ciding whether to pay for it. The coverage decision may, as

in Pegram, turn on a determination of medical necessity, but

8 The plaintiff's claim in Pegram grew out of a decision made by her

treating physician, see 530 U.S. at 215, 217, 231, and there is no indication

that she then sought review through the plan’s appeal process. Further-

more, although the Court in Pegram did not regard the plaintiff's claim of

fiduciary breach as limited to a single incident of poor treatment, see id. at

226, the Court did appear to view her claim as involving only an attack on

the compensation policies as they affected treating physicians. See, e.g.,

id. at 228 (noting that treatment and eligibility decisions are “practically

inextricable from one another * * * not merely because” they are “made

by the same person, the treating physician,” but also “because a great

many * * * coverage questions are not simple yes-or-no questions”)

(emphasis added); id. at 232 (“physicians through whom HMOs act make

just the sorts of decisions made by licensed medical practitioners millions

of times every day”).

24

in the end it is a decision on whether the HMO will pay

under the terms of the plan, not whether the physician may

provide the recommended treatment anyway (with some

other source of funds) outside the plan. See GAO Report 12

(a health plan’s decision to deny coverage does not preclude

the attending physician from providing treatment if the

patient can pay for it). Under the Pegram categorization,

therefore, the HMO’s decision is an “eligibility” determina-

tion that is subject to ERISA fiduciary duty standards, not a

“mixed” decision outside those standards.

Pegram also must be read against the background of pro-

visions of ERISA itself and longstanding Labor Department

regulations and interpretations that provide that plan ad-

ministrators who make coverage decisions on review of the

denials of claims for benefits are plan fiduciaries. Whatever

else HMOs do to provide health care to the participants and

beneficiaries of an ERISA plan they service, acting as the

entity that determines eligibility for plan benefits in a given

case is at the core of what HMOs do.” ERISA makes clear

that an entity responsible for that determination must be an

ERISA fiduciary. See 29 U.S.C. 1002(21)(A)(iii) (a fiduciary

includes a person to the extent “he has any discretionary

authority or discretionary responsibility in the administra-

tion of such plan”); Varity Corp., 516 U.S. at 511 (“a plan

® See Pegram, 530 U.S. at 219 (citations omitted):

At the least, HMOs, like traditional insurers, will in some fashion

make coverage determinations, scrutinizing requested services

against the contractual provisions to make sure that a request for

care falls within the scope of covered circumstances (pregnancy, for

example), or that a given treatment falls within the scope of the care

promised (surgery, for instance). They customarily issue general

guidelines for their physicians about appropriate levels of care. * * *

And they commonly require utilization review (in which specific treat-

ment decisions are reviewed by a decisionmaker other than the

treating physician) and approval in advance (precertification) for

many types of care, keyed to standards of medical necessity or the

reasonableness of the proposed treatment.

25

administrator engages in a fiduciary act when making a dis-

cretionary determination about whether a claimant is enti-

tled to benefits under the terms of the plan documents”); ac-

cord id. at 530 (Thomas, J., dissenting). Construing Pe-

gram to mean that HMO representatives are not ERISA

fiduciaries when they decide on behalf of the plan whether to

pay for treatment that a primary care physician recommends

would- thus conflict with the statutory and administrative

framework for claims adjudication generally.

E. Complete Preemption Effectuates The Congressional

Balance Between Providing Prompt And Appropriate

Remedies For Claimants And Encouraging The For-

mation And Growth of Employee Benefit Plans

ERISA does not provide the full range of remedies avail-

able under state tort law and does not provide at all for puni-

tive damages. In some circumstances, moreover, a denial of

coverage by an HMO may result in a denial of treatment—if

time constraints effectively preclude a suit for injunctive

relief under ERISA and the claimant cannot afford to pay

for treatment from other funds and then later seek recovery

from the HMO. Those features of ERISA’s enforcement

scheme, however, do not mean that this Court should refuse

to apply the complete preemption doctrine to HMO coverage

decisions that may in turn have an effect on a claimant’s

10 See also 29 U.S.C. 1133(2) (“{iJn accordance with regulations of the

Secretary [of Labor], every employee benefit plan shall * * * afford a

reasonable opportunity to any participant whose claim for benefits has

been denied for a full and fair review by the appropriate named fiduciary

of the decision denying the claim”) (emphasis added). Section 503(2) also

requires ERISA plans to decide claims “{iJn accordance with regulations

of the Secretary.” 29 U.S.C. 1133(2). The Secretary has made clear that

claimants must have an opportunity to appeal “an adverse benefit deter-

mination to an appropriate named fiduciary.” 29 C.F.R. 2560.503-1(h)(1)

(emphasis added); see also 29 C.F.R. 2560.503-1(h)(3)(ii) and (¢)(1)(ii)); 29

C.F.R. 2560.503-1(g)(1) (2000) (superseded regulation, requiring appeal to

fiduciary or person designated by the fiduciary).

26

ability to obtain medical treatment. Such a refusal would

upset the balance reflected in ERISA’s civil enforcement

provisions between providing prompt and appropriate

remedies for claimants and encouraging the formation and

growth of employee benefit plans.

1. In enacting ERISA, Congress intended generally to

promote the interests of participants and beneficiaries in

employee benefit plans, 29 U.S.C. 1001(b), but Congress

stopped short of requiring employers to establish such plans.

Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996). Congress

also did not require employers that offer plans to “provide

any particular benefits.” Shaw v. Delta Air Lines, Inc., 463

U.S. 85, 91 (1983)."" Accordingly, the “comprehensive civil

enforcement scheme’” in Section 502(a) of ERISA, 29 U.S.C.

1132(a), “represents a careful balancing of the need for

prompt and fair claims settlement procedures against the

public interest in encouraging the formation of employee

benefit plans.” IJngersoll-Rand, 498 U.S. at 144 (quoting

Pilot Life, 481 U.S. at 54).

The balance Congress struck provides effective remedies

for most claimants who promptly and properly seek them.”

1! One of the very few exceptions is 29 U.S.C. 1185(a), which requires

group health plans and health insurance issuers to provide at least 48

hours of hospitalization after childbirth, if they offer maternity benefits.

ERISA does not require minimum periods of hospitalization for other

benefits a plan chooses to provide, such as coverage for respondent

Calad’s hysterectomy.

12 HMOs must provide claimants with “full and fair review” of a denial

of a claim for benefits. 29 U.S.C. 1133(2); 29 C.F.R. 2560.503-1(h)(1). Such

review must “take[] into account all comments, documents, records, and

other information submitted by the claimant relating to the claim.” 29

C.F.R. 2560.503-l(h\(2)(iv). The plan administrator’s decision must also

provide the “specific reasons” for any adverse determination (29 U.S.C.

1133(1); 29 C.F.R. 2560.503-l(g)(1)(i) and (j)(1)), and the claimant must be

furnished, or afforded the right to obtain, an “explanation of the scientific

or clinical judgment” for certain determinations by group health and dis-

ability plans. 29 C.F.R. 2560.503-1(j)(5)(ii). See generally U.S. Amicus Br.

27

First, under Section 502(a)(1)(B), Congress has allowed

claimants to sue not just for benefits that are due, but also to

enforce their rights under the plan and clarify rights to

future benefits. 29 U.S.C. 1132(a)(1)(B). Thus, a claimant

may bring an action under Section 502(a)(1)(B) to challenge a

pre-treatment denial of coverage by asking a court to order a

managed care company (or other entity that administers a

health plan) to pay for proposed treatment. See note 4,

supra. Successful claimants may be awarded attorneys’ fees.

See 29 U.S.C. 1132(g). District courts have been able to act

quickly to provide relief to such claimants when necessary.

See, e.g., Wilson v. Group Hospitalization & Med. Servs.,

Inc., 791 F. Supp. 309, 310 (D.D.C. 1992) (April 13, 1992 tem-

porary restraining order prevented insurer from refusing to

pay for April 14, 1992 treatment), appeal dismissed, 995 F.2d

306 (D.C. Cir. 1993); White v. Caterpillar, Inc., 765 F. Supp.

1418, 1418-1419 (W.D. Mo.) (action brought June 13, 1991;

preliminary injunction issued June 26, 1991), aff’d, 985 F.2d

564 (8th Cir. 1991). Further remedies may also be available

under Section 502(a)(3) of ERISA, which provides, inter

alia, for “appropriate equitable relief” to “redress” viola-

tions of ERISA (including its fiduciary-duty provisions, see

Varity Corp., 516 U.S. at 507-515) or of an ERISA plan.”

at 8-11, 15-17, Black & Decker Disability Plan v. Nord, 538 U.S. 822 (2003)

(No. 02-469).

13 Although this Court has construed Section 502(a)(3) not to authorize

an award of money damages against a non-fiduciary, it has also recognized

that the “equitable relief” authorized by Section 502(a)(3) means relief

typically available in equity. See Great-West Life & Annuity Ins. Co. v.

Knudson, 534 U.S. 204, 210, 217 (2002); Mertens v. Hewitt Assocs., 508

U.S. 248, 248-250, 256-258 (1993). Neither Great-West nor Mertens in-

volved actions against a fiduciary. After Great-West, the government has

taken the position in several cases pending in the courts of appeals that

Section 502(a)(3) allows at least some forms of “make-whole” relief against

a breaching fiduciary in light of the general availability of such relief in

equity at the time of the divided bench. See generally Sec’y of Labor

Amicus Br. at 19-23, Mathews v. Chevron Corp., Nos. 02-15936 & 02-16209

28

Second, Congress required plans to establish a claims pro-

cedure in accordance with regulations of the Secretary of

Labor. 29 U.S.C. 1133. The Department of Labor’s new

claims regulations, applicable to plan years beginning July 1,

2002, see 66 Fed. Reg. 35,886 (2001), specifically address

managed care decision-making by including short time

frames for a group health plan’s decisions on claims. See 29

C.F.R. 2560.503-1(f)(2)i) (decision no later than 72 hours

after receipt of claim for urgent care claims); 29 C.F.R.

2560.503-1(f)(2)(iii)(A) (not later than 15 days for a pre-ser-

vice claim, subject to one extension for matters beyond

plan’s control). Those new regulations may reduce the need

for and incidence of court challenges. See Pryzbowski v.

U.S. Healthcare, Inc., 245 F.3d 266, 275 (3d Cir. 2001).

Third, States may provide for an independent review of

HMO medical necessity decisions. Rush, 536 U.S. at 359-360.

(9th Cir. filed Nov. 25, 2002). Historically, a beneficiary's claim against a

trustee for a breach of trust was typically remedied exclusively in the

courts of equity because the beneficiary had only an equitable, not a legal

interest, in the trust and its assets. See Restatement (Second) of the Law

of Trusts §§ 2 cmts. e and f, 197 (1959). A beneficiary therefore could

maintain a suit in equity to obtain various forms of relief, including to com-

pel the trustee to perform his duties as trustee, to enjoin the trustee from

committing a breach, and “to compel the trustee to redress a breach of

trust.” Jd. § 199(a)-(c). The trustee’s liability in the everit of a breach gave

rise to various alternative remedies, including a remedy that “will put [the

beneficiary} in the position in which he would have been if the trustee had

not committed the breach of trust.” Jd. § 205 & cmt. a. A monetary

recovery in those circumstances did not require a showing of unjust en-

richment. See, e.g., id. § 205, cmt. ¢; Strom v. Goldman, Sachs & Co., 202

F.3d 138 (2d Cir. 1999); Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574

(7th Cir. 2000); see generally George G. Bogert & George T.’ Bogert, The

Law of Trusts and Trustees 861, at 3-4 (rev. 2d ed. 1995). Neither Great-

West nor Mertens supports the proposition that Congress intended that

the courts should ignore that settled trust-law understanding dating from

the days of the divided bench. There is no occasion for the Court to ad-

dress that issue here. Judicial acceptance of this position would, however,

provide an effective remedy in many cases where the remedy under

Section 502(a)(1)(B) may be inadequate.

29

Such review also decreases the chances that a claimant will

be harmed by an erroneous HMO coverage decision. See

GAO Report 24 (external review procedure “could resolve

disputes before harm occurred and could prevent the need

for lawsuits later on”); Gail B. Agrawal & Mark A. Hall,

What If You Could Sue Your HMO? Managed Care Liabil-

ity Beyond the ERISA Shield, 47 St. Louis U. L.J. 235, 278

(2003)).

Finally, claimants may also sue their treating physicians

for malpractice if the physicians’ actions of commission or

omission fall below the standards set for appropriate medical

care. See, e.g., Pryzbowski, 245 F.3d at 279. Courts have also

held that HMOs may be sued under state law, without pre-

emption by ERISA, when they are vicariously liable for a

treating physician’s decisions. See, e.g., In re U.S. Health-

care, Inc., 193 F.3d 151, 162 (3d Cir. 1999), cert. denied, 530

U.S. 1242 (2000); Villazon v. Prudential Health Care Plan,

Inc., 843 So. 2d 842, 851-854 (Fla. 2003). In addition, HMOs

like petitioner Aetna and CIGNA in this case have an incen-

tive to inform participants clearly that they provide only

coverage, not treatment, and that an HMO determination

not to provide coverage does not preclude claimants from

obtaining care recommended by a treating physician through

other sources of funds.

2. Failing to find preemption of state remedies would

“completely undermine[]” Congress’s decision to include

certain remedies and exclude others under ERISA itself.

Ingersoll-Rand, 498 U.S. at 144 (quoting Pilot Life, 481 U.S.

at-54). As employers have noted, imposition of liability

under state law could prevent employers from designing in-

novative health plans that are consistent across state

borders and could make employers less willing to provide

health benefits because of the higher costs associated with

them. GAO Report 22; see also id. at 27. That result would

30

frustrate ERISA’s broader goal of promoting the interests

of participants and beneficiaries.

Indeed, permitting such suits against HMOs that provide

health care through ERISA plans could easily lead to large

punitive damage awards—something that ERISA itself,

with its tailored remedies, does not allow. See Dardinger v.

Anthem Blue Cross & Blue Shield, 781 N.E.2d 121, 140-145

(Ohio 2002) ($30 million punitive damage award); Gail B.

Agrawal & Mark A. Hall, supra, 47 St. Louis U. L.J. at 240

n.16 (reporting punitive damage awards of $77 million and

$120 million, and an award of $80 million that was set aside

on appeal for improper jury instructions and evidentiary

errors). There is nothing in ERISA or in this Court’s

precedents that requires such a result. —

CONCLUSION

The judgment of the court of appeals should be reversed.

Respectfully submitted.

PAUL D. CLEMENT

Acting Solicitor General”

HOWARD M. RADZELY oan KNEEDLER

Solicitor of Labor Deputy Solici

y Solicitor General

—_ rh amma JAMES A. FELDMAN

ssociale Solicr Assistant to the Solicitor

NATHANIEL I. SPILLER General

Deputy Associate Solicitor

EDWARD D. SIEGER

Attorney

Department of Labor

DECEMBER 2003

* The Solicitor General is recused in this case.