Petition for Writ of Certiorari — Empire Healthchoice Assurance, Inc. v. McVeigh

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05-200 AUG B- cS

No. OFFICE OF THE 6 ULsik

IN THE

Supreme Court of the United States

EMPIRE HEALTHCHOICE ASSURANCE, INC.,

doing business as Empire Blue Cross Blue Shield,

Petitioner,

Vv.

DENISE FINN MCVEIGH, as administratrix of

the Estate of Joseph E. McVeigh,

Respondent.

: On Petition for a Writ of Certiorari to the

United States Court of Appeals for the Second Circuit

PETITION FOR A WRIT OF CERTIORARI

KATHLEEN M. SULLIVAN ANTHONY F. SHELLEY

QUINN EMANUEL Counsel of Record

URQUHART OLIVER ALAN I. HOROWITZ

& HEDGES, LLP LAURA G. FERGUSON

555 Twin Dolphin Drive MILLER & CHEVALIER

Redwood Shores. CA 94065 CHARTERED

(650) 801-5000 655 15th Street. NW. Ste. 900

Washington, D.C. 20005

(202) 626-5800

QUESTION PRESENTED

Whether federal question jurisdiction exists over a suit by a

federal government contractor to enforce, on behalf of the

United States, a provision in a health benefits plan for federal

employees that is part of a government contract established

pursuant to the Federal Employees Health Benefits Act.

PARTIES TO THE PROCEEDING

All of the parties to the proceeding are identified in the case

caption.

STATEMENT PURSUANT TO RULE 29.6

Empire HealthChoice Assurance, Inc., doing business as Em-

pire Blue Cross Blue Shield, is wholly owned by WellChoice,

Inc. through WellChoice Holdings of New York, Inc. Well-

Choice, Inc. is a publicly traded company, and no publicly held

company owns ten percent or more of its stock. Neither Em-

pire HealthChoice Assurance, Inc., nor WellChoice Holdings

of New York, Inc., is publicly traded.

lil

TABLE OF CONTENTS

Page

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PARTIES TO THE PROCEEDING...................cccececeseseeeeees il

STATEMENT PURSUANT TO RULE 29.6..........0.0.......... li

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STATUTORY PROVISIONS INVOLVED ......................... ]

TT deulitassntecditntipishshinintiniblibandeheipddiniasheeoaiondatnigtebiicesea 2

A. The Statutory, Regulatory, and Contractual

ERENT RU "TEE SUN oN ae EE Se WCU Pr TNO 3

1. The Service Benefit Plans ......:........scccccccccccscesseeees 3

2. Plan Benefits Terms and Limitations................... 4

Pi. Re II iaicticiicta ceded sbastoninisiaierscacbseciadiiscadingds 5

4. FEHBA’s Preemption Provision.......................00++ 6

EE. TER PUCOCOTE IO oes cence ncivenscsvsscosecpeeseseseesseneess 7

REASONS FOR GRANTING THE PETITION................. 10

A. The Court of Appeals” Decision Creates Clear

RAD BA TINO SII cisctscrinessicsctiindinphincetoncadic cries 10

B. The Court of Appeals’ Decision Potentially

Throws into Disarray a Nationwide Program

Affecting Millions of People .........................0.0. em

C. The Court of Appeals Wrongly Concluded That

The Federal Courts Lack Federal Question

Jurisdiction Over Suits by Carriers to Enforce

FEHBA Contract Provisioms................ccccceeceecseseeeees 15

1. Federal Jurisdiction Flows from FEHBA’s

PLOSCIMPTION PLOVISION...........0.0cesreceeverersessresosesees 15

2. Federal Jurisdiction Exists Because Congress

Intended That Federal Law Would Govern

Suits to Enforce the Contracts Contemplated

3. Federal Jurisdiction Exists Because, Under

Boyle, Federal Common Law Controls

i OO... si cocinstbsshinticutiiieshdisntiandesseninditibiahsteiieiiniaais. 21

D. The Court Should Resolve the Circuit Conflict

by Granting Certiorari in This Case................:.:0000 25

CONCLUSION..........sssssssessscsessessnsesssesesssesssennsssesnnsnvesseeesse 26

TABLE OF AUTHORITIES

Page

CASES

American Airlines, Inc. v. Wolens,

513 U.S. 219 (1995).............000: TER WERE ek NR, APES 24

Blue Cross & Blue Shield of Fla., Inc. v.

Dep't of Banking & Fin.,

Fe ee Be CE HU ees BOD nncdcniceccsinccnsccctnsseccacsons 12

Blue Cross & Blue Shield of Illinois. v. Cruz,

396 F.3d 793 (7th Cir. 2005), petition for

cert. filed, No. 04-1657 (June 6, 2005)......11, 18, 24, 25

Botsford v. Blue Cross & Blue Shield of Montana,

Inc., 314 F.3d 390 (9th Cir. 2002) .0.0.......cccccceceeeeceeeeees 18

Boyle v. United Technologies Corp.,

I Rs a ceehodedl passim

Caudill v. Blue Cross & Blue Shield of N.C., Inc.,

999 F.2d 74 (4th Cir. 1993) ..........ccccccccesesssseeereeees passim

FMC Corp. v. Holliday,

RE ER A 5 SOE SR Pe SO 17

Grable & Sons Metal Products, Inc. v. Darue Engi-

neering. & Manufacturing,

ET ETS TREE C EN Oe a ON eT 21

Hayes v. Prudential Ins. Co.,

819 F.2d 921 (Sila Cir. 1987) .................ccccesseccceees. 12,17

Illinois v. Milwaukee,

I cchichosens 21

Jackson Transit Authority v. Local Division 1285,

ENTE SESS Se ee ae 19. 20

MedCenters Health Care v. Ochs.

I i cemonaintel 11, 24

Muratore v. United States OPM,

Bae ee FO G8 ee Gels NOD sre seecceesctezessnsecssinnernensennes 4

Nesseim v. Mail Handlers Benefit Plan,

FS a Re CPD viieecintetincbigtinpecicciinititintion 12

Pilot Life Ins. Co. v. Dedeaux,

SE SPs SE GET Picedicnunyctnctnsntiisedntnvitneeenvinnetnsationtbeanend 17

Rocky Mountain Hosp. & Med. Serv. v. Phillips,

Pe CI en hecbeictcntaieenietbcscsevasdantieomiapebivetis 14

Rocky Mountain Hosp. & Med. Serv. v. Phillips,

a Se ee iesscinteccccciletiiicinhunsiaeniioliimesinintedi 14

Tackitt v. Prudential Ins. Co..,

FO Oe COEF Ch Oe Ce SOUP scccnssctcsseseninrinitecsiansnintn 12

United States v. County of Allegheny,

322 U.S. 174 (1944), overruled on other

grounds, United States v. City of Detroit,

Fe ahs insects tegtateninpsapitoriencsiornadiiciitiaininitaniuiiiins 19

United States v. Little Lake Misere Land Co..,

SR le I eaten caciendinihiaiienstntitedidniiendigegetdasitnastin 18

STATUTES

Be ca Oe ili uliascitbnnsticiiaibiinsineditpiinciidinletthditininadiinliglinabilt 14

Federal Employees Health Benefits Act.

rea ae ese deiccivsiteneiiciniipeidiumnideiiadisdnciouideitiiphaedia 20

5 U.S.C. § 8902(d)..................00 CSOT IE PLES eo OS 4

Ds Oe ee iccrscsecpstttisntcsccnninenndvensinias 15

5 U.S.C. § 8902(m)(1) (2000)... ceeeeeeseceneees passim

Pins See iicincinihinisiaciictaniniaitiaadainbidaletstnandednthahaiaal 4, 20

Peas Oe ee aitidstpssicicinedpcieslasbiicbnadetinineniabielaeisnisigiuain 5

a Sr ctsinnidsnvananithedscietinginiunesebidmeitinbied sald 3

OER ELAS eRe etre ne 5.6

Vil

ies ae eee csinnicirsitcatamepesbdinidiiniapettiatieiictitidatniapcinaniadiatiinas 14

Be pees Tr ea aniedibttanieninnedsiatiiberiadiagebipdiibaasiegninmpdpilinipeseeis 14

ee tb cciiesiaticeriicisalebiadcialaneiicaiabstunisiediititalas ianihadhiiiinttanais 14

I i a 14

ee I Pintcindribaitietesthiicanigiiclsichtadilinnigintatibuaticiidegacni l

yg NE ole ERR RRR ERMC r oe 8s Ee 8.17

REGULATIONS

es Se itiisiishecsechsteindinsgbticininstnicsbitaitasnisbicninidininis 6

ee ee Be Se eiinitinctbbesenibnicascadunssettncsnastainbbencsiatenal 6

CS RT EEE Oe EEN Se eee ae 5

a Sh: Ee CD ahntitrctcticinialetatuistntnapiadiiniinaiotings 14

LEGISLATIVE HISTORY

Federal Employees Health Care Protection Act of

1998, Pub. L. No. 105-266, § 3(c), 112 Stat. 2363........ 7

H.R. Rep. No. 86-957 (1959), reprinted in 1959

eg nna TE cidinincinanlidipheutncieiedidiphiinddsdibésinidnentntbgepteicaaiaes 3

8 TEESE CT ae PT 15

H.R. Rep. No. 105-374 (1997)......... bicsshihasitinaeictacinds 7, 16, 18

S. Rep. No. 95-903 (1978), reprinted in 1978

Snares We eeaeciabicilindpnnrenidbadiibdiaiidnsdniindenieeisbaiosbion’ 15

MISCELLANEOUS

Patricia G. Tobin,

The Rawlings & Assocs. National Subrogation

Be Fe Fe OR thtenctteiceseetnnitesteibctitedcarususs 24

vill

TABLE OF APPENDICES

Appendix A -- Opinion of the United States Court

of Appeals for the Second Circuit,

See INN Ca SII dicicininiernsniennicicciicensdnntenikinicieiioes la

Appendix B -- Opinion of the United States Court

of Appeals for the Second Circuit Denying

Petition for Panel Rehearing,

Be IEE Bis TUE trthitnitcncviipibiacdinguprindtingnateneindninns 46a

Appendix C -- Order of the United States Court

of Appeals for the Second Circuit Denying Petition

for Panel Rehearing and Petition for Rehearing

En Banc, Dated May 10, 2005.00.00... ccceceeeceseeeeeeeeees 52a

Appendix D -- Memorandum Opinion and Order

of the United States District Court for the

Southern District of New York,

- Dated September 18, 2003.........00:......ccesccccoroscessseessees S4a

Appendix E -- Judgment of the United States District

Court for the Southern District of New York,

SS CTI hak IO erntecceenctessinvinisibtrintvsiovnaiin 63a

Appendix F -- Brief for the United States As Amicus

Curiae Supporting Appellant's Petition for

Rehearing and Rehearing En Banc, LMA

Dated February 17, 2005 ................c00:c000--- DY *

Empire HealthChoice Assurance, Inc. (“Empire”) petitions

for a writ of certiorari to review the judgment of the United

States Court of Appeals for the Second Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1 a-45a) is re-

ported at 396 F.3d 136. The opinion of the court of appeals

denying petitioner’s petition for panel rehearing (Pet. App. 46a-

51a) is reported at 402 F.3d 107. The order of the court of

appeals denying petitioner's petition for panel rehearing and for

rehearing en banc (Pet. App. 52a-53a) is not reported. The

opinion of the district court is not reported but can be found at

2003 U.S. Dist. LEXIS 16276 (Pet. App. 54a-62a).

JURISDICTION

The judgment of the court of appeals was entered on January

14, 2005. Petitioner timely filed a petition for rehearing and

for rehearing en banc. The court of appeals denied the petition

for rehearing and for rehearing en banc on May 10, 2005. The

jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

The Federal Employees Health Benefits Act, 5 U.S.C.

§§ 8901-8914, provides in pertinent part:

5 U.S.C. § 8902(a):

The Office of Personne! Management may contract with

qualified carriers offering plans described by section 8903 or

8903a of this title, without regard to section 5 of title 41 or

other statute requiring competitive bidding. Each contract shall

be for a uniform term of at least 1 year. but may be made

automatically renewable from term to term in the absence of

notice of termination by either party.

5 U.S.C. § 8902(d):

Each contract under this chapter shall contain a detailed

statement of benefits offered and shall include such maximums,

limitations, exclusions, and other definitions of benefits as the

Office considers necessary or desirable.

5 U.S.C. § 8902(m)(1):

The terms of any contract under this chapter which relate to

the nature, provision, or extent of coverage or benefits (includ-

ing payments with respect to benefits) shall supersede and

preempt any State or local law, or any regulation issued there-

under, which relates to health insurance or plans.

STATEMENT ,

In this action, a divided court of appeals held that the federal

courts lack subject matter jurisdiction over a suit to enforve the

terms of a health benefits plan governed by the Federal Em-

ployees Health Benefits Act (“FEHBA”), 5 U.S.C. §§ 8901-

8914. The suit was commenced by Empire, which administers,

in parts of New York. the largest plan in the FEHBA program:

the Service Benefit Plan (or the “Plan”). Local Blue Cross and

Blue Shield entities, including Empire, administer the Plan in

their particular localities pursuant to a federal government

contract entered on their behalf by the Blue Cross and Blue

Shield Association (“BCBSA”) with the United States Office

of Personnel Management (“OPM”). The Service Benefit Plan

provides health benefits to over 4 million federal employees

and annuitants and their dependents. Overall, approximately

8.5 million individuals obtain health benefits coverage through

FEHBA-governed plans.

The particular Service Benefit Plan terms involved in this

controversy concern reimbursement of benefits. Reimburse-

ment is a species of subrogation and arises when the Plan has

paid benefits to an enrollee for injuries and the enrollee then

also collects from a third party in connection with those same

injuries. In such circumstances, the Plan's provisions mandate

that the enrollee must reimburse the Plan for the benefits it has

paid.

Here, after Empire brought suit to enforce the reimbursement

terms against the estate of an enrollee who refused to comply

with those terms, the court of appeals rejected federal question

jurisdiction. It did so notwithstanding that the money collected

through reimbursement inures to the benefit of the United

States, the reimbursement terms were promulgated by OPM

and are part of the government contract with BCBSA, FEHBA

contains a broad preemption provision displacing state law that

relates to health benefits, and other courts of appeals have

reached the opposite result on the same issue. The Court

should grant the petition for certiorari to resolve the resulting

conflict in the circuits and to correct an erroneous decision that

threatens turmoil in a significant national federal program.

A. The Statutory, Regulatory, and Contractual Scheme

1. The Service Benefit Plan. Congress enacted FEHBA in

1959 to provide “a measure of protection for civilian Govern-

ment employees against the high, unbudgetable, and, therefore,

financially burdensome costs of medical services through a

comprehensive government-wide program of insurance for

federal employees . . . . the costs of which [would] be shared by

the Government, as employer, and its employees.” .:.R. Rep.

No. 86-957, at 1 (1959), reprinted in 1959 U.S.C.C.A.N. 2913,

2914. Overall, Congress sought to “assure maximum health

benefits for employees at the lowest possible costs to them-

selves and to the Government.” /d. at 4, reprinted in 1959

U.S.C.C.A.N. at 2916.

To achieve these goals, FEHBA delegates expansive author-

ity to OPM. The statute “*gives OPM the authority to

administer the program by contracting with qualified private

carriers to offer a variety of health care plans, 5 U.S.C. § 8902,

distributing information on the available plans to eligible em-

ployees, [5 U.S.C.] § 8907. by promulgating necessary

regulations [5 U.S.C.] § 8913, and by interpreting the plans to

determine the carrier’s liability in an individual case, [5 U.S.C.]

§ 8902(j)..” Muratore v. United States OPM, 222 F.3d 918,

920 (11th Cir. 2000) (quoting Kobleur v. Group Hosp. & Med.

Servs., 954 F.2d 705, 709 (11th Cir. 1992)) (brackets in origi-

nal).

One plan for which OPM has contracted is the Service Bene-

fit Plan, a nationwide fee-for-service plan expressly described

in FEHBA. 5 U.S.C. § 8903(1). In 1960, OPM contracted

with BCBSA to provide the Service Benefit Plan. In signing

the contract, BCBSA acts on behalf of the local Blue Cross and

Blue Shield companies who administer the Plan in their respec-

tive localities. OPM and BCBSA annually renegotiate the

government contract for the Service Benefit Plan, including the

premium rates and the scope of benefits to be provided under -

the Plan.

2. Plan Benefits Terms and Limitations. By statute, each

FEHBA contract, including the Service Benefit Plan, “shall

contain a detailed statement of benefits offered and shall in-

clude such maximums, limitations, exclusions, and other

definitions of benefits as [OPM] considers necessary or desir-

able.” 5 U.S.C. § 8902(d). The Statereni of Benefits for the

Service Benefit Plan is attached ic and incorporated into the

OPM-BCBSA contract and is the official description of bene-

fits and other Plan terms. Court of Appeals App. (“J.A.”) A30-

31, A293-94, A703. Consistent with OPM’s obligation to

provide information to enrollees about coverage, FEHBA

mandates that a copy of the Statement of Benefits “shall be

issued” to “[e}ach individual enrollee.” 5 U.S.C. § 8907(b).

Of particular relevance to this case are the terms in the Ser-

vice Benefit Plan’s Statement of Benefits concerning

reimbursement. The Statement of Benefits provides (J.A.

A785):

If another person or entity . . . causes you to suffer an in-

jury or illness, and if we pay benefits for that injury or

illness, you must agree to the following:

All recoveries you obtain (whether by lawsuit, settlement,

or otherwise) . . . must be used to reimburse us in full for

benefits we paid. Our share of any recovery extends only

to the amount of benefits we have paid or will pay to you

or, if applicable, to your heirs, administrators, successors,

or assignees ....

The OPM-BCBSA contract also elsewhere directly addresses

reimbursement. It requires the carrier to make “reasonable

effort to seek recovery of amounts to which it is entitled to

recover in cases which are brought to its attention.” J.A. A140,

A310. Furthermore, the contract mandates that all BlueCross

and Blue Shield entities “shall subrogate under a single, nation-

wide policy to ensure equitable and consistent treatment for all

Members under the contract.” /d.

3. Plan Funding. The Plan’s funding is delineated both in

FEHBA and OPM’s regulations. The United States itself, in an

amicus brief in support of Empire in the proceedings below,

has succinctly detailed the Plan’s fiscal operations (Pet. App.

69a):

- By statute, the government and the enrollee share respon-

sibility for premiums payable to the plan. 5 U.S.C.

§ 8906. The employing agency (or OPM for annuitants)

pays 72% to 75% of the premium as part of its payroll

costs funded by general appropriations. Id.

§§ 8906(b)(1), (b)(2), (f). Premiums are deposited into a

special Treasury fund called the Federal Employees

Health Benefits Fund. /d. § 8909(a).

Under the type of plan at issue in this litigation, the car-

rier draws against the Fund on a “checks-presented”™ basis

to pay for covered health care services. /d. § 8909(a): 48

C.F.R. § 1632.170(b). Any balance in the Fund is not the

property of [the] carrier. Rather. the carrier's profit. if

any. comes from a negotiated service charge. See Na-

tional Ass'n of Postal Supervisors v. United States, 21 Cl.

Ct. 310, 315 (1990) (“The service charge is the only profit

element of FEHBA. * * * [The] carrier may not make a

profit on the premium charges themselves.”), aff'd mem.,

944 F.2d 859 (Fed. Cir. 1991); see also 48 C.F.R.

§ 1615.902. Any surplus in a plan’s contingency reserves

may be used, at OPM’s discretion, to defray future rates,

reduce future government and employee contributions,

increase plan benefits, or refund the monies to the gov-

ernment and plan enrollees. 5 U.S.C. § —— 5 C.F.R.

§ 890.503(c)(2).

Under this fiscal regime, money collected under the Plan’s

reimbursement terms does not belong to the carrier, but instead

inures to the government’s benefit. Pursuant to the BCBSA-

OPM contract, the carrier must, and does, credit all reimburse-

ment amounts to the Treasury fund, the source for the benefits

in the first place. J.A. A877. As a result, the United States has

said: Because “the carrier has no property interest in any bal-

ance remaining in the Treasury fund after benefits are paid out

and reimbursements received,” the “requirement that enrollees

reimburse the carrier for monies obtained in tort suits is... a

critical feature of the federal health benefits program that inures

to the benefit of the government.” Pet. App. 74a.

4. FEHBA’s Preemption Provision. FEHBA contains an

express preemption provision, codified at 5 U.S.C.

§ 8902(m)(1). As amended in 1998, the preemption provision

currently provides:

The terms of any contract under this chapter which relate

to the nature, provision, or extent of coverage or benefits

(including payments with respect to benefits) shall super-

sede and preempt any State or local law, or anv regulation

issued thereunder, which relates to health insurance or

plans.

5 U.S.C. § 8902(m)(1) (2000) (codifying Federal Employees

Health Care Protection Act of 1998. Pub. L. No. 105-266.

§ 3(c). 112 Stat. 2363 (1998)).

In enacting the current preemption language, which

“broaden[ed]” an earlier version of the preemption clause,

Congress sought to ensure “the ability of national plans to offer

uniform benefits and rates to enrollees regardless of where they

may live.” H.R. Rep. No. 105-374, at 9 (1997) (J.A. A886).

Congress added that the amendment “will strengthen the case

for trying FEHB program claims disputes in Federal courts

rather than State courts” and “will also prevent carriers’ cost-

cutting initiatives from being frustrated by State laws.” Jd.

B. The Proceedings Below

Joseph McVeigh, a Plan enrollee livin g in New York, was

injured in an accident in 1997. The Plai paid benefits of ap-

proximately $157,000 in connection with those injuries.

Subsequently, Mr. McVeigh filed a state tort action against the

third parties that allegedly caused his injuries, and his estate

pursued that action after his death in 2001. His spouse and his

child brought additional actions on their own behalf. In 2003,

the parties to the state tort actions announced a settlement of

$3.175,000.

When the estate refused to reimburse the Plan for the benefits

paid to Mr. McVeigh, Empire brought suit in the United States

District Court for the Southern District of New York. Seeking

reimbursement of $157,000, Empire’s complaint asserts claims

for breach of the Plan terms and for declaratory relief. Empire

invoked the district court’s federal question jurisdiction, alleg-

ing that the “action is founded on [FEHBA];: on federal

contracts and regulations established pursuant to FEHBA; and

on federal common law.” J.A. A7. The district court dis-

missed the case for lack of subject matter jurisdiction. Pet.

App. 62a.

A divided court of appeals affirmed. Pet. App. la-45a.

Judge Sotomayor wrote the majority opinion (id. at 2a-24a),

with Judge Sack submitting a separate concurring opinion. /d.

at 25a-26a. Judge Raggi dissented. /d. at 27a-4Sa.

The majority determined that federal question jurisdiction

was absent because state law governed the controversy, not-

withstanding FEHBA’s express preemption provision. That

provision states that contract terms “preempt any State or local

law . . . which relates to health insurance or plans” (5 U.S.C.

§ 8902(m)(1)), but the majority construed the “relates to”

qualifier as applying only to those state laws that specifically

regulate health insurance or plans, excluding from FEHBA’s

preemptive scope state laws of general application, such as

state contract law. Pet. App. 14a-19a. The majority recognized

that, in interpreting similar language in the preemption provi-

sion in the Employee Retirement Income Security Act

(“ERISA”), 29 U.S.C. § 1144(a), this Court had reached an

exactly opposite conclusion — namely, that state laws of general

application are preempted. But the court of appeals viewed

ERISA precedent as irrelevant to construing FEHBA’s

preemptive scope. Pet. App. 19a-21a. Judge Sotomayor added

that, in her view, the preemption clause is “probably unconsti-

tutional” as written because it provides that FEHBA contract

provisions preempt state law; contract terms are not, she said,

“Laws of the United States” capable of superseding state law

within the meaning of the Supremacy Clause (U.S. Const. Art.

VI, cl. 2). Pet. App. 11a.

The majority also found that federal jurisdiction could not be

founded on federal common law, because it believed Empire

could not satisfy the two-part test enunciated in Boyle v. United

Technologies Corp., 487 U.S. 500 (1988), for creating federal

common law. In Boyle, the Court required a government con-

tractor. in order to establish a federal common law defense in a

diversity suit, to show, first, the existence of “uniquely federal

interests” in the dispute and, second, a “significant conflict”

between the application of state law and federal policy or ob-

jectives. Jd. at 507-08. The majority reasoned that Empire

failed the second prong of the Boy/e test because it purportedly

had not established an “actual. significant conflict with [fed-

eral] .. . interests.” Pet. App. 6a-7a (internal quotation marks

omitted). The majority rejected the argument that the applica-

tion of state law rules would upset Congress’s desire for

consistent, uniform FEHBA plan administration, asserting that

state contract law was ““‘not at its core diverse, nonuniform, and

confusing.”” Jd. at 8a (quoting Am. Airlines, Inc. v. Wolens,

513 U.S. 219, 233 n.8 (1995)).

In his concurrence, Judge Sack wrote separately “to identify

several issues that I think we do not decide.” /d. at 25a.

Among those issues was, he said, the constitutionality of FE-

HBA’s preemption section, though he added that he found

Judge Sotomayor’s analysis “persuasive” and that the statute

might be “unavoidably unconstitutional.” Jd. at 26a (emphasis

in original). Judge Sack also emphasized that Empire, under

Boyle, had plainly shown “uniquely federal interests” to be

involved in its suit, but not the requisite “significant conflict.”

Id. at 25a.

Judge Raggi dissented, concluding that federal jurisdiction

existed by virtue of the preemption provision. By providing for

preemption, Judge Raggi explained, “Congress has identified a

unique federal interest in ensuring national uniformity in the

construction and enforcement of [FEHBA contract] terms.” Jd.

at 35a. In addition, by amending the preemption provision in

1998 to eliminate the need for a conflict between the contract

terms and state law, “Congress has implicitly authorized courts

to employ federal common law to resolve disputes concerning

coverage and benefits, even in the absence of the conflict gen-

erally required by Boyle.” Id. Judge Raggi also rejected the

majority’s position that ERISA precedent should not be used to

determine the reach of FEHBA’s preemption provision, noting

that the “statutes” preemption clauses are notably similar” and

“the objectives of the two [preemption] laws are virtually

. identical” — namely, to ensure uniformity. /d. at 39a.

Empire filed a petition for rehearing and rehearing en banc.

The United States, which did not participate in the proceedings

at earlier stages, filed a brief as amicus curiae supporting Em-

pire’s petition. See Pet. App. 65a-79a. Noting that carriers

pursue reimbursement “on behalf of the United States” (id. at

73a), the United States argued that “suits to enforce contracts

‘contemplated by federal statutes’ set forth federal claims and ©

state federal causes of action if Congress intended that the

contracts be ‘creations of federal law,’ and that ‘the rights and

duties contained in those contracts be federal in nature.’” Pet.

App 72a (quoting Jackson Transit Auth. v. Local Division

1285, 457 U.S. 15, 22-23 (1982)).

The panel denied rehearing by a 2-1] vote, issuing a supple-

mental opinion that reaffirmed its previous rulings on the

preemption provision and the Boyle test. Pet. App. 46a-5 la.

The supplemental opinion also rejected the United States’

arguments, finding that the preemption provision does not

reflect the necessary Congressional intent to federalize FEHBA

contract disputes when the carrier brings the action. /d. at 50a.

REASONS FOR GRANTING THE PETITION

The court of appeals’ decision in this case creates a clear con-

flict with numerous other circuits, threatens to cast the

administration of an important federal program into disarray,

and seriously errs in both its statutory and Boyle analyses. The

Court should grant certiorari to resolve the circuit conflict and

to undo the damage engendered by the court of appeals” erro-

neous determination.

A. The Court of Appeals’ Decision Creates Clear Con-

flicts in the Circuits

The court of appeals readily acknowledged that its decision

conflicts with multiple decisions of other courts of appeals. On

the specific question whether federal question jurisdiction

exists over FEHBA reimbursement suits, the court of appeals’

decision conflicts with decisions of two other circuits. In Blue

Cross & Blue Shield of Illinois v. Cruz, 396 F.3d 793 (7th Cir.

2005). petition for cert. filed, No. 04-1657 (June 6, 2005). the

Seventh Circuit recently reached the opposite result in precisely

the same context in which the question is presented here, hold-

ing that federal common law governs a carrier’s suit to enforce

the reimbursement provision in the Service Benefit Plan. The

Eighth Circuit also has ruled that federal jurisdiction exists

over a FEHBA plan’s suit for reimbursement. MedCenters

Health Care v. Ochs, 26 F.3d 865, 867 (8th Cir. 1994). The

holding in this case cannot be squared with these decisions.

The conflict with Cruz is especially stark. In Cruz, the Sev-

enth Circuit explained that, under the FEHBA preemption

provision, 5 U.S.C. § 8902(m)(1), FEHBA contract provisions

preempt state subrogation law, thus-vindicating “Congress’s

clear intent... to make benefits uniform for FEHBA plan

enrollees of different states.” 396 F.3d at 799. The court then

proceeded to hold that federal common law must govern the

dispute: “With no explicit statutory cause of action on which

to rely and with state law preempted, Congress’s clear intent to

have uniform subrogation rules per the terms of the FEHBA-

created contract require a judicially-crafted cause of action.”

Id. at 799-800 (internal quotation and citation omitted). Con-

versely, the Second Circuit held that the preemption clause can

apply only to “a specific state law or state common-law princi-

ple ‘relat{ing}] to health insurance,” and therefore cannot

preempt state subrogation law. Pet. App. 15a.

Although Cruz was decided after the Second Circuit issued

its decision in this case, the Second Circuit addressed Cruz in

the supplemental opinion issued on denial of panei rehearing,

and it explicitly acknowledged that the two decisions are irrec-

oncilable. The Second Circuit noted its “disagreement with the

conclusions reached in” Cruz and added that the “Cruz court

rested its holding on arguments that we addressed and squarely

rejected in our original opinion.” Pet. App. 50a.

More broadly, the court of appeals’ crabbed construction of

FEHBA’s preemption clause also conflicts with decisions in

other circuits involving FEHBA disputes outside of the

reimbursement area. Contrary to the Second Circuit’s holding

bursement area. Contrary to the Second Circuit’s holding that

the FEHBA preemption clause cannot encompass state “laws of

general application that make absolutely no reference to health

insurance or plans” (Pet. App. 16a), numerous other courts of

appeals have held that FEHBA preempts state laws of gen-ral

application. See Nesseim v. Mail Handlers Benefit Plan, 995

F.2d 804, 806-07 (8th Cir. 1993) (state contract law); Hayes v.

Prudential Ins. Co., 819 F.2d 921, 926 (9th Cir. 1987) (state

contract, tort, consumer protection, and fraud laws); Blue Cross

& Blue Shield of Fla., Inc. v. Dep't of Banking & Fin., 79}

F.2d 1501, 1504-05 (11th Cir. 1986) (state unclaimed property

law); Tackitt v. Prudential Ins. Co., 758 F.2d 1572, 1575 (11th

Cir. 1985) (state contract law).

Furthermore, in its Boyle analysis, the Second Circuit's deci-

sion conflicts with Caudill v. Blue Cross & Blue Shield of N.C..,

Inc., 999 F.2d 74 (4th Cir. 1993). The Fourth Circuit found a

“significant conflict between federal interests and state law”

because “[a]pplication of state law . . . would result in a patch-

work quilt of benefits that varied from state to state.” /d at

78-79. The court specifically noted the absence of “any spe-

cific conflict between federal interest and state law,” but

concluded that “that fact is not important here” because

“{w]hen the federal interest requires the application of a uni-

form rule. federal common law displaces state law entirely.”

Id. at 79. The Second Circuit, by contrast, held that a conflict

is not demonstrated under Boyle merely where application of

different state laws “would undermine the federal interest in

uniformity.” Pet. App. 7a. The Second Circuit acknowledged

that its application of Boyle was irreconcilable with that of the

Fourth Circuit, stating that “[t}he Fourth Circuit reached a

different conclusion in Caudill” with respect to the uniformity

analysis. /d.; see also id. at 9a (“we again part ways with the

Fourth Circuit’s holding in Caudill” with respect to state court

jurisdiction over federal common law issues).

B. The Court of Appeals’ Decision Potentially Throws

into Disarray a Nationwide Federal Program Affect-

ing Millions of People

It is important for this Court to grant certiorari to eliminate

these conflicts and the attendant uncertainty and disparate

treatment that will result if the court of appeals’ decision is

allowed to stand. About 8.5 million enrollees receive health

benefits through FEHBA plans, encompassing the employees

and annuitants (and their families) of all branches of the federal

government. The FEHBA program spawns numerous disputes

— involving, for instance, enrollment and coverage, as well as

subrogation and reimbursement — that are litigated in courts all

across the country, due to the nationwide nature of the pro-

gram.

The court of appeals’ decision creates a cloud of uncertainty

over much of this litigation. The government, carriers, and

enrollees now cannot be confident of the scope of FEHBA

preemption and whether a FEHBA dispute belongs in federal

or state court. In particular, they cannot predict whether FE-

HBA preempts state laws of general application, such as

contract and tort doctrines, consumer protection laws, and anti-

discrimination rules, which can be used to challenge enrollment

criteria. And the court of appeals’ musings that FEHBA’s

preemption provision might be unconstitutional raise a new

threshold issue that potentially could beleaguer every FEHBA

preemption dispute.

These uncertainties will interfere with the timely and efficient

resolution of FEHBA controversies, raising the cost to enrol-

lees and, ultimately, to the United States, which subsidizes the

FEHBA program. Moreover, the court’s holding that FEHBA

disputes should be relegated to state court and the vagaries of

state law will contravene Congress’s desire that FEHBA plan

benefits and administration should be uniform regardless of the

enrollee’s place of residence. “This situation would be funda-

mentally unfair to many federal employees covered by Blue

Cross contracts because enrollees in some states would pay

higher premiums to cover services provided only to enrollees in

other states.” Caudill, 999 F.2d at 79. And even if the differ-

ent path taken by the court of appeals is confined to the Second

Circuit, there will remain a discrepancy in treatment between

residents of the Second Circuit and other FEHBA enrollees.

These daunting problems are not limited to FEHBA plans.

At least five other federal programs involving government

benefits contain preemption provisions modeled on FEHBA’s.

See, e.g., 5 U.S.C. § 8709 (life insurance for federal employ-

ees); id. § 8959 (dental benefits for federal employees); id.

§ 8989 (vision benefits for federal employees); id. § 9005

(long-term care insurance for federal employees); 10 U.S.C.

§ 1103 (health benefits for dependents of military personne]).

The Court should grant certiorari to resolve the serious difficul-

ties created by the court of appeals’ decision and to prevent

those difficulties from spilling into other federal benefits pro-

grams. ~

This Court has previously recognized the importance of re-

solving any jurisdictional uncertainties under the FEHBA

program. In 1995, in a controversy also involving the Service

Benefit Plan, the Court granted certiorari to resolve whether

state law contract suits brought by enrollees against carriers to

obtain FEHBA benefits involve federal questions removable to

federal court. Rocky Mountain Hosp. & Med. Serv. v. Phillips.

513 U.S. 1071 (1995). During the pendency of that case, OPM

amended its regulations to clarify that such suits can be pursued

only against OPM in federal court. See 60 Fed. Reg. 16,037

(1995). With the jurisdictional uncertainty presumably re-

solved by regulation, the carrier voluntarily dismissed its case

in this Court. See Rocky Mountain Hosp. & Med. Serv. vy.

Phillips, 514 U.S. 1048 (1995). Though the context now is

marginally different. the concerns raised by uncertain federal

jurisdiction in FEHBA disputes remains the same. As it did in

Rocky Mountain, the Court should grant certiorari here.

C. The Court of Appeals Wrongly Concluded That the

Federal Courts Lack Federal Question Jurisdiction

Over Suits by Carriers to Enforce FEHBA Contract

Provisions

The court of appeals erred in rejecting federal court jurisdic-

tion in this case for at least three distinct reasons: (1)

FEHBA’s preemption clause displaces state laws that relate to

health insurance or plans, even if the state laws are of general

application, thereby leaving federal law to govern FEHBA

disputes; (2) this case involves enforcement of a federal gov-

ernment contract entered into pursuant to FEHBA and intended

by Congress to be governed by federal law; and (3) the dispute

satisfies the two-part test in Boyle v. United Technologies

Corp., 487 U.S. 500 (1988), for the application of federal

common law.

1. Federal Jurisdiction Flows from FEHBA’s

Preemption Provision

Federal jurisdiction lies here because of the operation of

FEHBA’s broad preemption clause. As originally enacted, that

clause provided that FEHBA contract provisions relating to

benefits and coverage “preempt any state or local law... .

which relates to health insurance or plans fo the extent that

such law or regulation is inconsistent with such contractual

provisions.” 5 U.S.C. § 8902(m)(1) (1994) (emphasis added).

In enacting this provision, Congress was concerned that the

imposition of state law requirements on FEHBA contracts “can

be expected to result” in “[i]ncreased premium costs to both the

Government and enrollees, and [a] lack of uniformity of bene-

fits for enrollees in the same plan which would result in

enrollees in some States paying a premium based, in part, on

the cost of benefits provided only to enrollees in other States.”

H.R. Rep. No. 95-282. at 1, 4 (1977): accord S. Rep. No. 95-

903, at 2 (1978). reprinted in 1978 U.S.C.C.A.N. 1412, 1413.

Subsequently, Congress determined that this preemption pro-

vision was not a sufficient bulwark against the interference of

state law in the operation of the FEHBA program. Accord-

ingly. in 1998, Congress expanded FEHBA’s preemption

provision by removing the final clause requiring that there be

inconsistency between state law and FEHBA contract provi-

sions in order for there to be preemption. The preemption

provision now provides simply that FEHBA contract provi-_

sions “which relate to the nature or extent of coverage or

benefits (including payments with respect to benefits)” shall

preempt state law “which relates to health insurance or plans.”

5 U.S.C. § 8902(m)(1) (2000).

The amendment’s purpose was to “confirm[ ] the intent of

Congress that ... FEHBA program contract terms which relate

to the nature, provision, or extent of coverage or benefits (in-

cluding payments with respect to benefits) completely displace

State or local law relating to health insurance or plans.” H.R.

Rep. No. 105-374, at 16 (1997) (J.A. A893) (emphasis added).

Likewise, as already noted, Congress intended the amendment

to “strengthen the ability of national plans to offer uniform

benefits and rates” and to “strengthen the case for trying FEHB

program claims disputes in Federal courts rather than State

courts.” Jd.

The reimbursement provision in the Plan’s Statement of

Benefits preempts state law under this preemption clause. The

reimbursement provision relates to the “extent of coverage or

benefits (including payments with respect to benefits)” because

it involves the return of benefits payments to the Plan. Absent

reimbursement, the net benefits paid to an enrollee who subse-

quently collects from a third party would increase. In addition,

state law used in the reimbursement context, whether it is a

cause of action or a rule of decision, “relates to health insur-

ance or plans,” for it is being utilized to effectuate (when the

Plan relies on state law) or to limit (when the enrollee relies on

state law) a reimbursement requirement in an insurance ar-

rangement or health plan. As such, the “state law claims refer

to the plan, and therefore fall under the preemption clause.”

Hayes v. Prudential Ins. Co., 819 F.2d 921, 926 (9th Cir.

1987).

The court of appeals rejected Empire’s reading of the pre-

emption provision, holding that it cannot apply to state laws of

general application (such as contract law) not specifically

targeted at health insurance or health plans. See Pet. App. 14a-

23a. The court of appeals acknowledged that its construction

was narrower than the interpretation this Court has given to a

similar preemption provision in ERISA, which preempts state

laws “insofar as they may now or hereafter relate to any em-

ployee benefit plan.” 29 U.S.C. § 1144(a). For example, in

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

held that ERISA preempts state contract and tort doctrines

invoked to obtain benefits, finding state law there to have a

“connection with or reference to... a plan.” Jd. at 47 (internal

quotation marks omitted); see also id. at 47-48 (“In particular

we have emphasized that the pre-emption clause is not limited

to ‘state laws specifically designed to affect employee benefit

plans.””’) (quoting Shaw v. Delta AirLines, Inc., 463 U.S. 85, 98

(1983)). Similarly, in FMC Corp. v. Hollid7. 498 U.S. 52, 59-

64 (1990), the Court interpreted the ERISA preemption provi-

sion to preempt state law subrogation doctrines.

Despite the nearly identical language in the two preemption

provisions, the court of appeals stated that it was “reluctant to

rely on ERISA-based precedent to justify an expansive inter-

pretation of FEHBA’s preemption provision.” Pet. App. 19a.

According to the court of appeals, “ERISA is significantly

more comprehensive than FEHBA. in that it contains multiple

preemption provisions and a detailed civil enforcement

scheme.” /d. But that is a misreading of the breadth of FE-

HBA’s statutory and regulatory scheme: FEHBA regulates the

plans it creates from cradle to grave and interposes a federal

agency — OPM — to supervise all aspects of a carrier’s admini-

stration of a plan. Furthermore, the court of appeals ignored

that Congress was impelled to amend the FEHBA preemption

provision precisely because it was troubled by emerging court

decisions holding that FEHBA’s preemptive scope was nar-

rower than ERISA’s. As the Ninth Circuit explained in

Botsford v. Blue Cross & Blue Shield of Montana, Inc., 314

F.3d 390, 399 (9th Cir. 2002), “Congress amended the [FE-

HBA preemption] statute after numerous courts had found that

FEHBA did not completely preempt state laws, but ERISA did.

Thus, Congress replaced FEHBA’s original preemption clause

with ERISA’s.”

Perhaps most important, the court of appeals’ decision pro-

duces the absurd result that state law plays a greater role in

regulating the federal government’s own health benefits plans

than it does for private employer plans governed by ERISA.

As the Seventh Circuit observed in Cruz, “if Congress intended

to preempt state law when-regulating private employers, it

would be strange to leave regulation to the individual states

when the employer is the United States itself.” 396 F.3d at

799.

Because the effect of the FEHBA preemption provision is to

“completely displace State or local law” (H.R. Rep. No. 105-

374, at 16 (J.A. A893)), federal law fills the void and governs

this lawsuit. Federal courts have the power “to declare, as a

matter of common law or ‘judicial legislation,’ rules which

may be necessary to fill in interstitially or otherwise effectuate

the statutory patterns enacted in the large by Congress.”

United States v. Little Lake Misere Land Co., 412 U.S. 580,

593 (1973): accord Cruz, 396 F.3d at 799-800. With state law

preempted, and federal law filling the void, the district court

had federal question jurisdiction over Empire’s suit.

2. Federal Jurisdiction Exists Because Congress In-

tended that Federal Law Would Govern Suits to

Enforce the Contracts Contemplated by FEHBA

Even without regard to the terms of the preemption clause,

federal question jurisdiction exists here because this is a suit to

enforce the terms of a government contract that Congress

contemplated would be governed by federal law. This Court

long ago observed that disputes involving the “validity and

construction of contracts through which the United States is

exercising its constitutional functions, their consequences on

the rights and obligations of the parties, the titles or liens which

they create or permit, all present questions of federal law not

controlled by the law of any State.” United States v. County of

Allegheny, 322 U.S. 174, 183 (1944), overruled on other

grounds, United States v. City of Detroit, 355 U.S. 466 (1958).

Hence, it is now settled that “obligations to and rights of the

United States under its contracts are governed exclusively by

federal law.” Boyle v. United Technologies Corp., 487 U.S.

500, 504 (1988) (citing United States v. Little Lake Misere

Land Co., 412 U.S. at 592-94; Priebe & Sons, Inc. v. United

States, 322 U.S. 407, 411 (1947); Clearfield Trust Co. v.

United States, 318 U.S. 363, 366-67 (1943)).

This principle ordinarily comes into play in cases in which

the government ‘s a party, but the court of appeals erred in

finding the principle automatically inapplicable when the gov-

ernment is not a party. To the contrary, this Court emphasized

in Jackson Transit Authority v. Local Division 1285, 457 U.S.

15, 22 (1982), that “suits to enforce contracts contemplated by

federal statutes may set forth federal claims and . . . private

parties in appropriate cases may sue in federal court to enforce

contractual rights created by federal statutes.” Indeed, federal

jurisdiction can exist even where the contract is between two

private parties; if the contract was specifically contemplated by

federai statute, “the critical factor is the congressional intent

behind the particular provision at issue.” /d. Congress must

intend that the contractual provisions “be creations of federal

law” and that the “rights and duties contained in those contracts

be federal in nature.” /d. at 23 (internal quotation and citation

omitted).

In Jackson Transit, which involved a collective bargaining

agreement between a municipality and a labor union that was

yas 20

contemplated by a federal funding statute, the Court concluded

that state law governed the suit to enforce the contract. That

conclusion was based on extensive, highly specific, legislative

history that manifested Congress’s clear intent that those col-

lective bargaining agreements be governed by state law. See

id. at 24-27. But this case stands in sharp contrast to Jackson

Transit, and there can be little doubt that, as the United States

itself argued in support of Empire on rehearing below, Con-

gress intended FEHBA contract disputes to be governed by

federal law.

Both the nature of the FEHBA contract and the subject of the

lawsuit present a much stronger case here for the application of

federal common law than did the contract dispute in Jackson

Transit. While the contract in Jackson Transit was “contem-

plated” by federal statute, it was a contract between private

parties. Here, although the court of appeals mistakenly charac-

terized the contract at issue as “privately-negotiated” (Pet. App.

12a), the suit seeks to enforce a government contract between

OPM and BCBSA. That contract was not merely “contem-

plated” by Congress; it and other FEHBA health benefits

contracts are the essential components of the scheme created by

FEHBA. Congress specified in detail in the statute what kind

of contracts can be entered and the terms OPM can include in

those contracts, making them “creations of federal law.” Jack-

son Transit, 457 U.S. at 23: see 5 U.S.C. §§ 8902. 8903.

Additionally, although the suit in Jackson Transit sought

merely to vindicate a private plaintiff's rights, the suit here

seeks to vindicate the rights of the United States, since it seeks

funds to be returned to the Treasury under the reimbursement

provision.

Empire's suit also satisfies Jackson Transits requirement

that the “rights and duties contained in those contracts be fed-

eral in nature.” See 457 U.S. at 23. The FEHBA program is

purely a creation of federal law, designed to serve the interests

of the federal government and its employees. FEHBA con-

tracts reflect the United States’ strong interest in controlling the

costs for providing health benefits to its employees and in

ensuring that the level of benefits in a particular plan does not

vary according to the state in which the employee resides.

With respect to the reimbursement provision, the United States

has an obvious interest in seeing that funds covered by that

provision are returned to the U.S. Treasury. Thus, the nature of

the contract at issue here is plainly federal, and FEHBA’s

broad preemption provision explicitly evinces Congress’s

intent that the contract be governed by federal law.

Indeed, even if Empire’s suit rested on a state law cause of

action, jurisdiction would still lie in the federal courts because

the suit concerns enforcement of a federal contract that lies at

the heart of an important federal program. As the Court re-

cently reconfirmed in Grable & Sons Metal Products, Inc. v.

Darue Engineering & Manufacturing, 125 S. Ct. 2363, 2367

(2005), “in certain cases federal question jurisdiction will lie

over state-law claims that implicate significant federal issues.”

If state law claims “turn on substantial questions of federal law,

[the claims] justify resort to the experience, solicitude, and

hope of uniformity that a federal forum offers on federal is-

sues.” /d. FEHBA is a federal program created by Congress

that provides benefits solely to federal employees, annuitants,

and their families. A substantial FEHBA contract issue em-

bedded in a state law claim therefore belongs in federal court

because its resolution there does not “disturb[ ] any congres-

sionally approved balance of federal and state judicial

responsibilities.” /d. at 2368.

3. Federal Jurisdiction Exists Because, Under Boyle,

Federal Common Law Controls the Case

Still another basis for federal question jurisdiction derives

from the analysis in Boyle v. United Techs. Corp., 487 U.S. 500

(1988). This Court has held that “§ 1331 jurisdiction will

support claims founded upon federal common law.” J/linois v.

Milwaukee, 406 U.S. 91, 100(1972). Boyle articulates, in turn,

a two-part test for the creation of federal common law: first,

the case must implicate “uniquely federal interests,” Boyle, 487

U.S. at 504; second, there must be a “significant conflict”

between “an identifiable federal policy or interest and the

[operation] of state law” or the application of state law must

“frustrate specific objectives of federal legislation.” Jd. at 507

(internal quotation marks and citations omitted).

Boyle was a diversity action involving the rights and liabili-

ties of a federal government contractor, and the Court held that

federal common law applied. The plaintiffs there sued the

government contractor under state law for wrongful death,

where a military aircraft manufactured by the contractor had

crashed, killing the pilot. Applying the first part of the test, the

Court held that the suit implicated uniquely federal interests,

“even though the dispute is one between private parties.” Jd. at

506. “The imposition of liability on Government contractors

will directly affect the terms of Government contracts: either

the contractor will decline to manufacture” the item as speci-

fied by the government or “‘it will raise its price. Either way,

the interests of the United States will be directly affected.” Jd.

at 507. With respect to the second part of the test, the Court

found state law liability potentially in conflict with a policy

embodied in the Federal Tort Claims Act shielding the gov-

ernment from liability when exercising discretionary functions,

and the Court created a federal common law defense for the

contractor insulating it from liability under similar circum-

stances.

Empire’s suit here satisfies both parts of the Boyle test. On

the first part, as Judge Sack’s concurrence expressly acknowIl-

edges (Pet. App. 25a), suits for reimbursement involve

uniquely federal interests. The carrier pursues such actions on

behalf of the United States, in order to obtain funds inuring to

the government’s benefit. Indeed, the federal interest here is

even stronger than in Boyle. Whereas in Boyle the uniquely

federal interest was simply that the government might feel the

effects of any judgment because contractors may seek to

“pass[] through” the costs of tort liability through future higher

prices, the federal interest here ultimately is more concrete: the

money at issue is directly credited to the Treasury and avail-

able, dollar for dollar, for the United States’s use in connection

with the Plan. Boyle, 487 U.S. at 511.

On the “conflict” prong of the analysis, the Court emphasized

in Boyle that the conflict between the application of state law

and federal policy “need not be as sharp” for the application of

federal common law “as that which must exist for ordinary pre-

emption when Congress legislates ‘in a field which the States

have traditionally occupied.’” Jd. at 507 (quoting Rice v. Santa

Fe Elevator Corp., 331 U.S. 218, 230 (1947)). As the Court

explained, the “fact that the area in question /s one of uniquely

federal concern changes what would otherwise be a conflict

that cannot produce pre-emption into one that can.” /d. at 508

(emphasis in original). The Court added that, “[i]n some cases,

for example, where the federal interest requires a uniform rule,

the entire body of state law applicable to the area conflicts and

is replaced by federal rules.” /d.

In this case, there is the requisite conflict between federal

objectives and the operation of state law. A central policy

embodied in FEHBA is the need for uniformity in FEHBA-

plan administration. Indeed, Congress’s stated purpose for

enacting both FEHBA’s original preemption provision and the

amendment in 1998 was to ensure uniformity in benefits and

rates. Moreover. the OPM-BCBSA contract expressly states

that the carrier shall subrogate under a “single, nation-wide

policy” to ensure “equitable and consistent treatment for all

Members.” J.A. A140, A310. The application of state law

poses an unavoidable conflict with the federal objective of

uniformity. The Fourth Circuit cogently expressed this point

when it upheld federal court jurisdiction over FEHBA disputes

in Caudill v. Blue Cross & Blue Shield of North Carolina. Inc.,

999 F.2d 74. 79 (4th Cir. 1993): “As an employer, the federal

government has an overwhelming interest in ensuring that all

of its employees subject to a particular health insurance policy

are treated equally regardless of the state in which they live,

and the application of state law interferes with this interest.”

The court of appeals did not question that Empire’s action

involved uniquely federal interests. Nor did it dispute the

federal goal of uniformity in FEHBA-plan administration.

Rather, seizing on this Court’s observation in a footnote in

American Airlines, Inc. v. Wolens, 513 U.S. 219, 233 n.8

(1995), that contract law is “not at its core diverse, nonuniform,

and confusing,” the court of appeals erroneously held that there

is no conflict here between the federal objective of uniformity

and the application of state contract law. However, because

this case involves uniquely federal interests, the conflict neces-

sary for the displacement of state law need not be as

pronounced as would be required for preemption in areas

where, as in Wolens, there typically is a heavy presumption

against preemption. The court of appeals erred in resolving the

conflict issue by reference to a statement in a preemption case

like Wolens, where no uniquely federal interests wei at issue.

In any event, it is not just state contract law that is relevant to

reimbursement actions. State law on subrogation is undeniably

diverse, with some states forbidding subrogation entirely. See

Patricia G. Tobin, The Rawlings & Assocs. National Subroga-

tion Law Manual 1998, at 51-53 (1997); see also Cruz, 396

F.3d at 796, 800-01 (Illinois common fund doctrine asserted as

partial defense to reimbursement claim); MedCenters Health

Care v. Ochs, 26 F.3d 865, 867 (8th Cir. 1994) (Minnesota

“full-recovery rule” asserted as defense to reimbursement

claim). Federal common law must govern a FEHBA carrier’s

action for reimbursement to ensure that divergent state rules on

subrogation do not thwart the uniform administration Congress

intended.

In sum, because FEHBA reimbursement is an area of

uniquely federal concern and the operation of state law in

reimbursement disputes conflicts with the Congressional desire

for uniformity, Empire has satisfied the Boyle test. Federal

common law therefore controls the dispute, meaning that it

raises a federal question.

D. The Court Should Resolve the Circuit Conflict by

Granting Certiorari in This Case

As already noted, the court of appeals’ decision in this case

directly conflicts with the Seventh Circuit’s decision in Blue

Cross & Blue Shield of Illinois v. Cruz, 396 F.3d 793 (7th Cir.

2005), petition for cert. filed, No. 04-1657 (June 6, 2005). We

believe that Empire’s action presents a better vehicle for re-

solving the circuit conflict than does Cruz and, accordingly,

submit that the Court should grant certiorari in this case rather

than Cruz for the purpose of reviewing the issues.

The question whether federal jurisdiction exists over a car-

rier’s suit to enforce the Plan’s reimbursement terms is cleanly

presented in this case. In Cruz, there are parallel state court

proceedings that the Cruz petitioner insists complicate resolu-

tion of the federal case. Indeed, petitioner's “Questions

Presented” in Cruz occupy an entire page and emphasize

whether federal jurisdiction exists “where a state court action

was already proceeding on the issue.” Pet. for Writ of Cert.,

Cruz, No. 04-1657, at i (June 6, 2005). Although we believe

the Seventh Circuit correctly ruled in Cruz that the parallel

state court action does not affect federal jurisdiction, Empire's

case avoids the issue altogether because it has no competing

state court proceedings.

In addition, the Second Circuit decision portends greater mis-

chief befalling the FEHBA program. The Seventh Circuit's

Cruz opinion is a sparer decision, nowhere seeking to draw a

distinction between laws of general and specific application for

preemption purposes, nowhere questioning the constitutionality

of FEHBA’s preemption clause, and principally addressing

only preemption as a basis for federal jurisdiction (and only

briefly addressing Boyle). In light of the more numerous deci-

sional bases invoked by the Second Circuit, some of which

might be deemed to remain intact even if the Court were to

grant the petition in Cruz and affirm, the Court should review

the Second Circuit’s determination.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted,

ANTHONY F. SHELLEY

Counsel of Record

ALAN I. HOROWITZ

LAURA G. FERGUSON

MILLER & CHEVALIER

CHARTERED

655 15th Street, NW, Suite 900

Washington, D.C. 20005

(202) 626-5800

KATHLEEN M. SULLIVAN

QUINN EMANUEL URQUHART

OLIVER & HEDGES, LLP

555 Twin Dolphin Drive

Redwood Shores, CA 94065

(650) 801-5000

AUGUST 2005

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August Term, 2003

(Argued: May 15, 2004 Decided: January 14, 2005)

Docket No. 03-3098

EMPIRE HEALTHCHOICE ASSURANCE, INC..,

doing business as Empire Blue Cross and Blue Shield,

Plaintiff-Appellant,

DENISE FINN MCVEIGH. as administratrix of the Es:ate

of Joseph E. McVeigh,

Defendant-Appellee.

Before: SACK, SOTOMAYOR and RAGGI, Circuit Judges.

Empire HealthChoice Assurance, Inc. (“Empire”) appeals

from a judgment entered in the United States District Court

for the Southern District of New York (Cote. J.) dismissing

for lack of subject matter jurisdiction Empire’s claims

against Denise Finn McVeigh for reimbursement of

insurance benefits. Because the Federal Employees Health

Benefits Act does not contain an affirmative grant of

authority to federal courts to make federal common law. and

because there is no demonstrated conflict with state law that

would require federal common-law rule-making in this case,

we find that Empire’s contract claims arise under state law.

AFFIRMED.

Judge Sack concurs in Judge Sotomayor’s opinion and in a

separate opinion. Judge Raggi dissents in a separate

opinion.

SOTOMAYOR, Circuit Judge:

Empire HealthChoice Assurance, Inc. (“Empire”) appeals

from a judgment entered in the United States District Court

for the Southern District of New York (Cote. J.) dismissing

for lack of subject matter jurisdiction Empire’s contract

action against Denise McVeigh, as administratrix of Joseph

McVeigh’s estate. for reimbursement of insurance benefits.

Because the Federal Employees Health Benefits Act, 5

U.S.C. §§ 8901-8914, does not affirmatively authorize the

creation of federal common law in this case, federal

common-law rule-making is only appropriate if the operation

of state law would “‘significant[ly] conflict’” with “uniquely

federal interest[s].” Boyle v. United Techs. Corp., 487 U.S.

500. 507, 508 (1988). Because no such conflict has been

demonstrated in this dispute, Empire's action arises-under

state, not federal, law. Accordingly, we affirm the district

court’s dismissal of the action for lack of subject matter

jurisdiction. See 28 U.S.C. § 1331; Empire HealthChoice

Assurance v. McVeigh, No. 03 Civ. 2728, 2003 WL

22171693 (S.D.N.Y. Sept. 18, 2003).

BACKGROUND

The Federal Employees Health Benefits Act (“FEHBA”™)

charges the United States Office of Personnel Management

(“OPM”) with negotiating and regulating health benefits

plans for federal employees. See 5 U.S.C. § 8902(a).

Pursuant to FEHBA. OPM entered into a contract in 1960

with the Blue Cross and Blue Shield Association

(“BCBSA”) to establish a nationwide fee-for-service health

plan (the “Plan”), the terms of which are renegotiated

annually.' Plaintiff-appellant Empire is the entity that

administers the Plan to federal employees in New York

State.

Defendant-Appellee Denise Finn McVeigh (“McVeigh”)

administers the estate of Joseph E. McVeigh (“Decedent’”), a

former enrollee in the Plan. The Decedent suffered injuries

in an accident in 1997 and received $157,309.06 in benefits

from the Plan between 1997 and 2001, the year of his death.

McVeigh subsequently brought state tort actions on behalf of

herself, the Decedent and a minor child against the parties

who had allegedly caused Decedent’s injuries. McVeigh

received $3,175,000 when the lawsuit settled in 2003.

Prior to the entry of the settlement. Empire became aware

of the agreement and notified McVeigh that it had a lien on

the Decedent's share of the settlement for $157,309.06.

McVeigh agreed to place $100,000 of the Decedent's share

of the settlement funds into escrow pending resolution of

Empire's claims.

On April 18, 2003, Empire filed suit against McVeigh for

$157,309.06 in the United States District Court for the

Southern District of New York. The complaint was based on

a subrogation and reimbursement provision contained in the

Statement of Benefits of the Plan. Under this provision, an

enrollee who receives benefits in connection with an injury

| The contract is negotiated between OPM and BCBSA. Federal

employees like Joseph McVeigh do not enter into a contract for

health benefits with BCBSA or any other Blue Cross and Blue

Shield entity, but instead enroll in the Plan pursuant to the contract

between BCBSA and OPM. While OPM is a party to the FEHBA

contract, we emphasize that the dispute in this case is between two

private parties: Empire and Denise Finn McVeigh.

in addition to compensation from a third party must

reimburse the Plan the amount of benefits paid.2? Empire's

complaint alleged that McVeigh breached this provision and

sought a judgment declaring that pursuant to the Plan,

FEHBA, its regulations and federal common law, Empire

was entitled to reimbursement from McVeigh for the amount

of benefits paid for Decedent's injuries.

McVeigh moved for dismissal of the action on the grounds

that, inter alia, the district court lacked subject matter

jurisdiction. In response, Empire claimed that the court had

jurisdiction under 28 U.S.C. § 1331 because federal common

law governed its reimbursement claim. In the alternative,

Empire argued that the Plan itself constituted federal law.

District Court Judge Denise Cote rejected both of Empire’s

theories and granted McVeigh’s motion to dismiss for lack

of subject matter jurisdiction on September 18, 2003. See

Empire HealthChoice Assur., 2003 WL 22171693, at *3-*5.

DISCUSSION

We review de novo a district court's legal conclusions with

respect to its subject matter jurisdiction. Gualandi v. Adams,

2 The provision provides in relevant part:

If another person or entity . . . causes you to suffer

an injury or illness, and if we pay benefits for that

injury or illness, you must agree to the following:

All recoveries you obtain (whether by lawsuit.

settlement. or otherwise), no matter how described or

designated, must be used to reimburse us in full for

benefits we paid. Our share of any recovery extends only

to the amount of benefits we have paid or will pay to you

or, if applicable. to your heirs, administrators,

successors, Or assignees.

385 F.3d 236, 240 (2d Cir. 2004). Empire claims that federal

jurisdiction exists pursuant to 28 U.S.C. § 1331, which

grants federal district courts original jurisdiction over “all

civil actions arising under the Constitution, laws, or treaties

of the United States.” Section 1331 jurisdiction -- that is,

federal question jurisdiction -- “exists where a well-pleaded

complaint ‘establishes either that federal law creates the

cause of action or that the plaintiffs right to relief

necessarily depends on resolution of a substantial question of

federal law.*” Greenberg v. Bear, Stearns & Co., 220 F.3d

22, 25 (2d. Cir. 2000) (quoting Franchise Tax Bd. v. Constr.

Laborers Vacation Trust, 463 U.S. 1, 27-28 (1983)): see also

Marcus v. AT&T Corp., 138 F.3d 46. 52 (2d Cir. 1998).

Though the plaintiff is generally “the master of the

complaint,” id, a plaintiff cannot create federal jurisdiction

under § 1331 simply by alleging a federal claim where in

reality none exists. See Perpetual Securities, Inc. v. Tang,

290 F.3d 132, 137 (2d Cir. 2002). Subject matter jurisdiction

will lie only where the court determines that “‘the substance

of [the plaintiff's] allegations raises a federal question.”

D'Alessio v. New York Stock Exchange, Inc., 258 F.3d 93,

100 (2d Cir. 2001) (emphasis omitted) (citation omitted).

The existence of a federal question must be determined

solely by reference to the plaintiff's own claim -- not by

reference to “statements raised in anticipation or avoidance

of possible defenses that may be interposed.” Briarpatch

Lid.. L.P v. Phoenix Pictures, Inc., 373 F.3d 296, 304 (2d

Cir. 2004): see also Caterpillar Inc. v. Williams, 482 U.S.

386, 393 (1987).

FEHBA does not provide a federal statutory cause of

action for insurance carriers to vindicate their rights under

FEHBA-authorized contracts. Thus. federal jurisdiction

exists Over this dispute only if federal common law governs

Empire’s claims. See Woodward Governor Co. v. Curtiss-

Wright Flight Sys., Inc., 164 F.3d 123, 126 (2d Cir. 1999)

(“It is beyond dispute that if federal common law governs a

case, that case presents a federal question within the subject

matter jurisdiction of the federal courts, just as if the case

were governed by a federal statute.”). The ability of federal

courts to fashion federal common law, however, is “severely

limited.” Jn re Gaston & Snow, 243 F.3d 599, 606 (2d Cir.

2001); see also O'Melveny & Myers v. FDIC, 512 U.S. 79.

87 (1994) (stating that the “cases in which judicial creation

of a special federal rule would be justified... are... few

and restricted” (citation and internal quotation marks

omitted)). Absent congressional authorization, see Texas

Indus. v. Radcliff Materials, Inc., 451 U.S. 630, 641 (1981),

courts may only create federal common law where the

operation of state law would (1) “‘significant[ly] conflict”

with (2) “‘uniquely federal interests.” Boyle v. United

Techs. Corp., 487 U.S. 500, 507, 508 (1988); see also

O'Melveny, 512 U.S. at 87; Woodward, 164 F.3d at 127.

These circumstances were present, for instance. in Boyle,

where the Supreme Court held that federal common law

provided a defense shielding a federal defense contractor

from liability under state law for defective design. 487 U.S.

at 509-12. The “state-imposed duty of care.” the Court

found. was “precisely contrary” to a duty imposed by the

government contract. /d. at 509.

Empire argues that its contract dispute with McVeigh

satisfies the “uniquely federal interests” prong of Boyle.

Reimbursement, Empire explains, directly affects the United

States Treasury and the cost of providing health benefits to

federal employees. Moreover, Empire contends, Congress

has expressed its interest in maintaining uniformity among

the states with respect to the benefits of its health plans.

We need not address these arguments. because we find that

regardless of the strength or importance of the federal

interests at stake, Empire has failed to demonstrate that the

operation of New York state law creates an “an actual.

significant conflict” with those interests. Woodward, 164

F.3d at 127: see also id. (“{I]n disputes between two private

parties, federal courts . . . have shown a marked reluctance to

displace state law by finding a significant conflict with a

federal interest.”). Tellingly, Empire's briefs on appeal fail to

~ mention a single state law or state-imposed duty that runs

contrary to the federal interests asserted in this case.

Because it cannot identify any way in which the operation

of state law creates an actual conflict, Empire is left to

speculate about the various harms that “might” result from

State-by-state adjudication of suits brought by insurance

carriers under FEHBA-authorized contracts. Empire argues,

for example, that state law would undermine the federal

interest in uniformity because enrollees in some states

“might” successfully avoid reimbursement while others

would have to repay. Empire also contends that uncertainties

associated with the application of state law “might” reduce

the source of funds available to defray overall costs of

paying benefits. These speculations do not suffice to satisfy

the conflict prong of Boyle. See Woodward, 164 F.3d at 127

(“[AJn actual. significant conflict between a federal interest

and state law must be specifically shown, and not generally

alleged.” (internal quotation marks and citation omitted)).

The Fourth Circuit reached a different conclusion in

Caudill v. Blue Cross & Blue Shield of North Carolina, Inc.,

999 F.2d 74 (4th Cir. 1993). The Caudill court found that the

application of state law “would result in a patchwork quilt of

benefits that varied from state to state under the same

contract because of the vast differences in the common law

of contracts from state to state.” /d. at 79. Thus, the court

held that the case presented a significant conflict between the

federal interest in uniformity and state law. /d.: see also id. at

79 (“[T]he very application of state contract law would

undermine the uniformity envisioned by Congress when it

delegated the authority to interpret health benefit contracts to

OPM.”). The Caudill court, however, cited no sources for its

sweeping claim that “vast difference[s]” existed in the

common law of contracts among the states. /d. The Supreme

Court reached the opposite conclusion less than two years

later in a dispute involving the Airline Deregulation Act of

1978. See American Airlines, Inc. v. Wolens, 513 U.S. 219,

233 n.8 (1995). In Wolens, the Court observed that

“[b]ecause contract law is not at its core diverse,

nonuniform, and confusing,” there was “no large risk of

nonuniform adjudication inherent’ in _ [sjtate-court

enforcement of the terms of a uniform agreement prepared

by an airline and entered into with its passengers

nationwide.” Jd. (second alteration in original) (internal

quotation marks and citations omitted). In light of Wolens,

we see no reason to assume as a general matter that a conflict

necessarily exists between the operation of state contract law

and the federal interests in uniformity underlying FEHBA.

Because Empire has not demonstrated an “actual,

significant” conflict between New York state law and the

federal interests underlying FEHBA, see Woodward. 164

F.3d at 127, we hold that the dispute between Empire and

McVeigh fails to satisfy the conflict prong of Boyle.

We recognize the possibility that at a later stage in the

proceedings, a significant conflict might arise between New

York state law and the federal interests underlying FEHBA.

such tha’ the dispute would satisfy both prongs of Boy/e. If.

for example. McVeigh were to defend herself in reliance

upon a state law that was meant to advance a particular state

policy, Empire could argue that such state law—whether

statutory or common law—conflicts with federal interests

and requires the application of federal common law. This

possibility. however, is insufficient to confer federal

jurisdiction. See Briarpatch Ltd., 373 F.3d at 304 (“The

claims established by the well-pleaded complaint must

necessarily be determined from the plaintiff's statement of

his or her own claim, not including statements raised in

anticipation or avoidance of possible defenses that may be

interposed.) (emphasis added); see also Aetna Health Inc. v.

Davila, 124 S. Ct. 2488, 2494 (2004): City of Rome v.

Verizon Communications Inc., 362 F.3d 168, 177 (2d Cir.

2004). Thus, it would be up to the state court to apply federal

common law. See Charles Dowd Box Co., Inc. v. Courtney.

368 U.S. 502, 507-508 & n.4 (1962) (stating that state courts

are competent to enforce federal rights and noting that

“{i]ndeed, Congress has so arranged the limited jurisdiction

of federal courts that some federal laws can be enforced only

in state courts.” (citations omitted)): see also Local 174,

Teamsters, Chauffeurs, Warehousemen & Helpers v. Lucas

Flour Co., 369 U.S. 95, 103-04 (1962) (holding that a state

court exercising jurisdiction over suit arising from collective

bargaining agreement must apply federal common law).

By finding that satisfaction of the two-prong Boyle test

does not necessarily create federal jurisdiction under 28

U.S.C. § 1331, we again part ways with the Fourth Circuit's

holding in Caudill. The Caudill court conflated the

preemption and jurisdiction analyses by holding that a

significant conflict with uniquely federal interests was

sufficient to confer subject matter jurisdiction on the federal

court.> See 999 F.2d at 78-79. We agree with the criticism

Caudill has received for giving short shrift to the well-

pleaded complaint rule. See Goepel v. Nat'l Postal Mail

Handlers Union, 36 F.3d 306, 314-15 (3d Cir. 1994)

(rejecting Caudill’s reasoning); 15 James Wm. Moore, et al..

Moore's Federal Practice § 103.45[3][c] (3d ed. 2004)

3 In Bovle. the Court did not refer to the well-pleaded complaint

rule because jurisdiction was based on the parties’ diversity. See

487 U.S. at 502.

10a

(commenting that Caudill is “fatally flawed if the validity of

the pleaded complaint rule . . . [is] accepted”).4

Cc.

Empire also argues -- and our dissenting colleague agrees

-- that federal jurisdiction exists pursuant to FEHBA’s

preemption provision, 5 U.S.C. § 8902(m)(1).° Before

explaining why we disagree, we discuss first a peculiar

feature of § 8902(m)(1) which receives very little judicial

attention. Though courts generally decide FEHBA cases as if

§ 8902(m)(1) were a preemption provision like any other,

see, e.g., Hayes v. Prudential Ins. Co. of Am., 819 F.2d 921,

926 (9th Cir. 1987) (discussing earlier version of §

8902(m)); Blue Cross & Blue Shield of Fla., Inc. v. Dep't of

Banking and Fin., 791 F.2d 1501, 1504-05 (11th Cir. 1986)

(same), the provision is in fact quite unusual, because it

provides that certain types of contract terms will “supersede

4 Nothing in this analysis contravenes our decision in Woodward,

164 F.3d 123. Woodward did not go so far as to hold that

satisfaction of Boyle provides federal question jurisdiction.

Instead, it held that where the plaintiff fails to satisfy Boyle there

is clearly no basis for federal question jurisdiction. There is

nothing in the case that precludes us from clarifying that, even in

cases in which Boyle is satisfied, courts must still ask the

secondary question of whether the federal common law issue

appears on the face of the plaintiff's well-pleaded complaint.

> Section 8902(m)(1) provides:

The terms of any contract under this chapter which relate

to the nature, provision, or extent of coverage or benefits

(including payments with respect to benefits) shall

supersede and preempt any State or local law, or any

regulation issued thereunder, which relates to health

insurance or plans.

5 U.S.C. § 8902(m)(1).

lla

and preempt” state laws in a particular field. 5 U.S.C. §

8902(m)(1). Normally, preemption clauses provide that

federal /aw will preempt state law. A typical provision might

provide for preemption, for example, by expressly stating

that the statute’s provisions preempt state law, see, e.g.,

Employee Retirement Income Security Act (ERISA) §

514(a), 29 U.S.C. § 1144(a); 1976 Copyright Act § 301, 17

U.S.C. § 301(a), or by prohibiting state law from interfering

with a policy established in federal law, see, e.g.,

Communications Act § 253, 47 U.S.C. § 253. Regardless of

a given provision’s struccure or wording, however, we

generally take for granted that it is /aw, and not a mere

contract term, that carries the preemptive force. See

generally Sprint Spectrum L.P. v. Mills, 283 F.3d 404, 414-

16 (2d Cir. 2002) (summarizing preemption doctrine).

Though § 8902(m)(1)’s plain language differs from typical

preemption provisions by unambiguously providing for

preemption by contract, such a literal reading of the

provision is highly problematic, and _ probably

unconstitutional, because only federal law may preempt state

and local law. The constitutionality of federal preemption is.

after all, grounded in the Supremacy Clause of the

Constitution, which provides that “the Laws of the United

States . . . shall be the supreme Law of the Land .. . any

Thing in the Constitution or Laws of any State to the

Contrary notwithstanding." U.S. Const. Art. VI. cl. 2.

(emphasis added); see Sprint Spectrum, 283 F.3d at 414-15

(“The foundation of preemption doctrines is the Supremacy

Clause, which invalidates state laws that interfere with, or

are contrary to. federal law.” (citations. alterations and

internal quotation marks omitted)). There is no

constitutional basis for making the terms of contracts with

private parties similarly “supreme” over state law. See

Arthur D. Little, Inc. v. Comm'r of Health and Hosps., 481

N.E.2d 441, 452 (Mass. 1985) (“{T]his court has been unable

12a

to locate authority in this or any other jurisdiction which

supports the proposition that a contract to which the Federal

government is a party somehow constitutes Federal law for

the purposes of the supremacy clause.”).

Taken literally, therefore, FEHBA’s preemption provision

may fail to withstand constitutional scrutiny unless FEHBA-

authorized contracts themselves are “Laws of the United

States.” They are not. “Law” connotes a policy imposed by

the government, not a privately-negotiated contract. See

Wolens, 513 U.S. at 229 n.5 (1995) (finding that “the word

series ‘law, rule, regulation, standard, or other provision’” as

used in a federal statute “connotes official, government-

imposed policies, not the terms of a private contract.”

(citation and internal quotation marks omitted)); see also id

at 241 (O’Connor, J., concurring in the judgment in part and

dissenting in part) (“To be sure, the terms of private

contracts are not ‘laws’... .”). Under FEHBA, the

government does not impose contract terms as i. would

impose a law. Rather, the OPM negotiates the contract terms

privately with insurance providers, see generally Doe v.

Devine, 703 F.2d 1319, 1321-23 (D.C. Cir. 1983), who are

under no obligation to enter into the contracts in the first

place. Cf Evanns v. AT&T Corp., 229 F.3d 837. 840 n.9 (9th

Cir. 2000) (“*[A] tariff. required by law to be filed, is not a

mere contract. It is the law.’” (quoting Carter v. Am. Tel. &

Tel. Co., 365 F.2d 486, 496 (Sth Cir.1966))): Marcus v.

AT&T Corp., 138 F.3d 46, 56 (2d Cir. 1998) (distinguishing

between laws and “mere contracts”) (internal quotation

marks and citation omitted). Empire’s attempt to portray

FEHBA contracts as “law” is unavailing.®

on Marcus, in which this Court found that federal tariffs filed by

AT&T with the FCC were themselves federal law. See 138 F.3d

(footnote continued on next page)

l3a

The fact that a literal reading of § 8902(m)(1) raises

serious constitutional problems does not, however, require us

to invalidate the provision. “[{[W]here an otherwise

acceptable construction of a statute would raise serious

constitutional problems,” we may “construe the statute to

avoid such problems unless such construction is plainly

contrary to the intent of Congress.” Edward J. DeBartolo

Corp. v. Fla. Gulf Coast Bldg. & Constr. Trades Council,

485 U.S. 568, 575 (1988). This canon of statutory

construction, known as “constitutional avoidance.” is

grounded in “respect for Congress, which we assume

legislates in the light of constitutional limitations.” United

States v. Pettus, 303 F.3d 480, 486 (2d Cir. 2002) (citation

and internal quotation marks omitted). Here, we can

reasonably construe § 8902(m)(1) as requiring that, in cases

involving the “terms of any contract under [FEHBA] which

relate to the nature, provision, or extent of coverage or

benefits,” federal law “shall supersede and preempt any State

or local law. or any regulation issued thereunder, which

relates to health insurance or plans.” 5 U.S.C. § 8902(m)(1).

This construction is as faithful as constitutionally possible to

the provision’s plain language and respects Congress's stated

intent to maintain “uniformity” in FEHBA benefits and to

“displace State or local law relating to health insurance or

plans.” H.R. Rep. No. 105-374. at 9, 16 (1997); see also S.

(footnote continued from previous page)

at 56. Marcus, however, relied on an entire body of law standing

for the proposition that “federal tariffs are the law, not mere

contracts.” Id. (citation and internal quotation marks omitted).

There is no comparable case law surrounding FEHBA-authorized

contracts. Moreover, AT&T was required by law to file the tariffs

that were at issue in Marcus. This makes the tariffs fundamentally

different from a FEHBA contract, which the government does not

impose but rather negotiates with willing insurance companies.

l4a

Rep. No. 105-257, at 15 (1997). The federal law preempting

state law may be federal common law or the FEHBA statute

provisions themselves, but it must be law -- not contract

terms.

Turning to the effect of § 8902(m)(1) on the instant case,

we disagree with the argument put forth by Empire and the

dissent that the provision somehow authorizes by itself the

exercise of federal jurisdiction. In our view. § 8902(m)(1).

which makes no reference to a federal night of action or to

federal jurisdiction, is simply a limited preemption clause

that the instant dispute does not trigger.’ Reading §

8902(m)(1) as conferring federal jurisdiction over contract

disputes between private parties strains the language of the

? Notably, FEHBA does contain a provision authorizing federal

jurisdiction over FEHBA-related civil actions or claims “against

the United States.” 5 U.S.C. § 8912 (emphasis added). Of course.

the grant of federal jurisdiction over one category of claims does

not necessarily strip federal courts of their jurisdiction over

another category of claims. See Verizon Maryland, Inc. v. Pub.

Serv. Comm'n, 535 U.S. 635, 643-44 (2002). Nevertheless, §

8912 does demonstrate that Congress considered jurisdictional

issues in enacting FEHBA and did not hesitate expressly to confer

federal jurisdiction where it found it necessary to do so.

The OPM has also moved to expand federal jurisdiction. As

noted by our dissenting colleague. the OPM modified FEHBA

regulations in 1995 to provide that legal actions seeking review of

final action by the OPM for a denial of health benefits “must be

brought against OPM and not against the carrier or carriers

subcontractors.” 5 C.F.R. § 890.107. Read together with 5 U.S.C.

§ 8912. the new regulation ensures that suits brought by

beneficiaries for denial of benefits will land in federal court.

There is. however, no analogous regulation opening federal courts

to insurance carriers seeking reimbursement from beneficiaries.

l5a

provision and undermines the presumption against federal

preemption that should guide our analysis in this case. See

Gerosa v. Savasta & Co., Inc., 329 F.3d 317, 323 (2d Cir.

2003) (noting that there is an “assumption that Congress

does not intend to supplant state law” (citation and internal

quotation marks omitted)).

Two independent conditions must be satisfied in order to

trigger preemption under § 8902(m){1). First, preemption

only occurs when the FEHBA contract terms at issue “‘relate

to the nature, provision, or extent of coverage or benefits.” 5

U.S.C. § 8902(m)(1). Second, federal law may only preempt

state or local laws if those laws “relate[{] to health insurance

or plans.’ Jd Empire completely ignores the existence of

this second condition, arguing erroneously that because the

contract provisions at issue relate to benefits, they

necessarily supersede “all state law.” Without any showing

that the dispute implicates a specific state law or state

common-law principle “relat{[ing] to health insurance,”

§ 8902(m)(1) does not authorize federal preemption of state

law in this case.?

8 We agree with Empire that the District Court erroneously relied

on a version of the preemption provision that is no longer in effect.

See Empire HealthChoice Assur., 2003 WL 22171693, at *3. Even

applying the proper provision, however. Empire's argument fails.

9 The suit will certainly trigger FEHBA’s preemption provision at

a later stage if McVeigh defends herself by reference, for example.

to a state health insurance law. Such a possibility of preemption,

however, is insufficient to establish federal jurisdiction. As

discussed in Section B. supra, the well-pleaded complaint rule

precludes a party from invoking federal jurisdiction merely

because it anticipates a defense that will be preempted by federal

law. Briarpatch Lid., 373 F.3d at 304; see also Davila, 124 S. Ct.

at 2494: City of Rome, 362 F.3d at 177. If McVeigh does not

defend in reliance upon some state law relating to health

(footnote continued on next page)

16a

Judge Raggi argues in dissent that the case satisfies the

second condition for § 8902(m)(1) preemption on the ground

that the phrase “state or local law . . . which relates to health

insurance or plans” encompasses laws of general application

that make absolutely no reference to health insurance or

plans but are used in a given case to “construe or enforce”

FEHBA plans. Post at [14]. In our view, this reading of §

8902(m)(1), renders the second limiting condition

meaningless. This is because every state or local law applied

to a dispute satisfying the first condition (that is, every state

law applied to a dispute involving a contract term relating to

coverage or benefits) will ipso facto affect the construction

or enforcement of that term. Thus, under the dissent’s

reasoning, FEHBA contract terms will preempt every state or

local law so long as the first requirement is satisfied. This

strips the second limiting condition of any force

whatsoever. !°

Judge Raggi contests this characterization of her analysis.

explaining that under her interpretation, the second limiting

condition might still impose meaningful limits on

(footnote continued from previous page)

insurance, or in reliance on some state common law principle that

would clearly run counter to federal policy, then state law could

resolve whether McVeigh has breached her obligations. See

Wallis v. Pan Am Petroleum Corp., 384 U.S. 63. 71 (1966)

(finding no authority to fashion federal common law where “there

has been no showing that state law is not adequate to achieve” the

federal interest).

!0 If Congress had not wished to limit the types of state laws

subject to preemption, it could have quite easily provided that

“federal law shall govern the interpretation and enforcement of

contract terms under this chapter which relate to the nature,

provision, or extent of coverage or benefits.”

17a

preemption “where general state or local law affects FEHBA

coverage or benefits only tangentially, without attempting to

construe or enforce those plan terms.” Post at [15]. Even in

such circumstances, however, the second limiting condition

would likely have no meaning that is independent and

distinct from the first limiting condition, which requires that

the contract terms at issue specifically relate to health

coverage in order for preemption to occur. 5 U.S.C. §

8902(m)(1). In other words, under the circumstances

described by Judge Raggi, in which FEHBA coverage is

only affected “tangentially,” it is highly unlikely that either

condition for § 8902(m){1) preemption will be met. Thus,

Judge Raggi’s argument does not explain how the second

limiting condition carries any independent meaning.

Perhaps, under Judge Raggi’s interpretation, the second

condition might have independent meaning in a dispute that

(1) centers on contract terms specifically relating to health

coverage but (2)does not involve the enforcement or

construction of those contract terms. We find it difficult.

however, to imagine such a case.!!

In defense of her position, Judge Raggi observes that many

Supreme Court and Second Circuit cases construe the term

'! Judge Raggi’s discussion of ERISA-related precedent on this

point does not support her argument, because ERISA contains no

provision that is analogous to the first limiting condition contained

in 5 U.S.C. § 8902(m)(1). See post at [15] (citing Mackey vy.

Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 841 (1988);

New York State Conference of Blue Cross & Blue Shield Plans v.

Travelers Ins. Co., 514 U.S. 645, 660-661 (1995)): 29 U.S.C. §

1144(a). Thus, while the cases cited by Judge Raggi demonstrate

that § 8902(m)(1)’s second condition, as she interprets it, might

impose meaningful limits on preemption, they do not demonstrate

that the second condition imposes any limits not already imposed

by the first condition.

18a

“relates to” quite broadly. See post at [12-13]. The cases she

cites, however, are not directly applicable because they did

not involve FEHBA. As this Court, our sister circuits and

the Supreme Court have all recognized, the precise meaning

of the vague term “relates to” depends on the larger statutory

context. See, e.g., Gerosa, 329 F.3d at 323 (stating that

“ERISA’s nearly limitless ‘relates to’ language offers no

meaningful guidelines to reviewing judges,” and that we

must therefore “*go beyond the unhelpful text . . . and look

instead to the objectives of the ERISA statute as a guide to

the scope of the state law that Congress understood would

survive’” (quoting New York State Conference of Blue Cross

& Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645,

655-56 (1995))): Roach v. Mail Handlers Benefit Plan, 298

F.3d 847, 850 (9th Cir. 2002) (**[RJelates to” must be read in

the context of the presumption that in fields of traditional

state regulation the historic police powers of the States [are]

not to be superseded by [a] Federal Act unless that was the

clear and manifest purpose of Congress. Here, this means

that we must presume that Congress did not intend [FEHBA]

to preempt the quintessentially state-law standards of

reasonable medical care, because § 8902(m)(1) does not

indicate a clear and manifest intent to preempt this area of

state law.” (second and third alterations in original) (citations

and internal quotation marks omitted)). The Supreme Court

has specifically warned against overly-broad interpretations

- of the term, noting that “[i]f ‘relate[s] to’ were taken to

extend to the furthest stretch of its indeterminancy, then for

all practical purposes pre-emption would never run its

course, for really, universally, relations stop nowhere.”

Travelers Ins. Co.. 514 U.S. at 655 (citation and internal

quotation marks omitted). To define “relate[s] to” so

broadly “would be to read Congress's words of limitation as

19a

' mere sham, and to read the presumption against pre-emption

out of the law whenever Congress speaks to the matter with

generality.” Jd!

We should be especially reluctant to rely on ERISA-based

precedent to justify an expansive interpretation of FEHBA’s

preemption provision, given the fundamental differences

between ERISA and FEHBA. ERISA is significantly more

comprehensive than FEHBA, in that it contains multiple

preemption provisions and a detailed civil enforcement

scheme intended to completely supplant state law. See Pilot

Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987). The

Supreme Court has relied heavily on ERISA’s civil

enforcement provisions, as well as those provisions’

unambiguous legislative history, to support holdings that

broadly construe ERISA’s preemptive reach. See Davila, 124

S. Ct. at 2500 (stating that the Court’s understanding of

!2 Judge Raggi explains that “relate to” is “synonymous with the

phrases ‘in connection with,” ‘associated with,” ‘with respect to,”

and ‘with reference to.” Post at [12]. The Supreme Court.

however, has recognized the limited usefulness of such definitions.

In Travelers Insurance Co., a case involving ERISA, the Court

wrote:

{We must determine] whether the surcharge laws have a

“connection with” the ERISA plans, and here an

uncritical literalism is no more help than in trying to

construe “relate to.” For the same reasons that infinite

relations cannot be the measure of pre-emption, neither

can infinite connections. We simply must go beyond the

unhelpful text and the frustrating difficulty of defining

its key term, and look instead to the objectives of the

ERISA statute as a guide to the scope of the state law

that Congress understood would survive.

514 U.S. at 656.

20a

ERISA’s preemptive effect is informed by _ the

“overpowering federal policy” embodied in ERISA’s civil

enforcement provision, which was intended to create “an

exclusive federal remedy”); Pilot Life, 481 U.S. at 55

(quoting the ERISA Conference Report’s statement that all

suits to enforce benefits rights “are to be regarded as arising

under the laws of the United States”) (emphasis omitted): see

also Ingersoll-Rand Co. v. McClendon, 498 U.S. 133. 138

(1990) (noting that ERISA’s “deliberately expansive

language was designed to establish pension plan regulation

as exclusively a federal concern” (citation and internal

quotation marks omitted)): Pilot Life, 481 U.S. at 46 (noting

ERISA sponsors’ emphasis on the “breadth and importance

of [ERISA’s] preemption provisions”). Given ERISA’s

comprehensive civil enforcement mechanisms and a

legislative history “fully confirm{ing]” that ERISA’s

remedies were meant to be exclusive, Pilot Life, 481 U.S. at

54, we reject Empire’s and Judge Raggi’s suggestion that we

should rely on ERISA-related precedent to determine the

preemptive reach of FEHBA. See Ingersoll-Rand Co., 498

U.S. 133: Devlin v. Transp. Communications Int'l] Union,

173 F.3d 94, 98 (2d Cir. 1999).!3

The non-ERISA cases on which Judge Raggi relies in her

dissent similarly fail to justify the excessively broad

interpretation of “relate to” that she favors. In Coregis

'3 Furthermore, Judge Raggi may overstate the degree to which

FEHBA’s preempticn provision is similar to ERISA’s. — In

comparing the wording of the two provisions, Judge Raggi omits

mention of the first limiting condition of 5 U.S.C. § 8902(m)(1).,

which requires that the preempting contract term “relate to .. .

[health] coverage or benefits.” See post at [14]. ERISA’s

provision contains no analogous requirement. See 29 U.S.C. §

| 144(a): see also note 11. supra.

2la

Insurance Co. v. American Health Foundation, Inc., 241

F.3d 123 (2d Cir. 2001), for example, the issue was whether

certain lawsuits were “related to” a company’s financial

failure within the meaning of an insurance policy. We noted

that the “[l]Jawsuits are related to the Companies’ financial

failure by the very wording of the complaints, which

explicitly refer to, discuss, and seek redress for that failure.”

Id. at 131. In the instant case. neither Empire nor Judge

Raggi has cited any state law that “explicitly refers to” or

“discuss[es]” health insurance or plans. Coregis’s rationale

therefore does not apply.!4

14 Judge Raggi also cites Celotex Corp. v. Edwards, 514 U.S. 300

(1995) and Kamagate v. Ashcroft, 335 F.3d 144 (2d Cir. 2004).

See post at [12]. In interpreting the term “relate to” in Celotex,

however, the Supreme Court did not have to contend with the

general presumption against federal preemption. On the contrary,

the Court analyzed the term with the understanding that “Congress

intended to grant comprehensive jurisdiction to the bankruptcy

courts so that they might deal efficiently and expeditiously with ail

matters connected with the bankruptcy estate.” /d at 308

(emphasis added) (citations and internal quotation marks ornitted).

Kamagate also fails to support Judge Raggi’s argument because it

involved a context in which Congress intended to give the term

“relate to” an expansive meaning. See Kamagate, 385 F.3d at 154

(“Congress intended to give inclusive meaning in the immigration

laws to the phrase ‘relating to.”” (quoting /n re Beltran, 20 1. & N.

Dec. 521, 525-26 (B.1.A. 1992)).

The Eighth Circuit precedent discussed by Judge Raggi is also

distinguishable, see post at [19], because the case involved state

law principles that were established in the context of health

insurance and that were found to be inconsistent with FEHBA.

See MedCenters Health Care v. Ochs, 26 F.3d 865, 866-67 (8th

Cir. 1994) (citing Westendorf v. Stasson, 330 N.W.2d 699, 703

(Minn. 1983)).

22a

To the extent we should rely on case law interpreting

preemption provisions appearing in other statutes, we find

American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995),

more relevant and more instructive. Wolens involved the

Airline Deregulation Act (ADA), which bars states from

““enact[ing] or enforc[ing] any law relating to [air carrier]

rates, routes, or services.”” Jd. at 221-22 (quoting 49 U.S.C.

App. § 1305(a)(1), now codified as amended at 49 U.S.C.

41713(b)). The plaintiffs in Wolens were airline customers

who brought state law claims for consumer fraud and breach

of contract after the airline retroactively took away their

frequent flyer miles. The Supreme Court held that the

consumer fraud claims, which were brought under a state

statute, were preempted, but that the breach of contract

action was not. The airline had argued that in passing the

ADA, Congress provided that questions of the airline’s nights

and obligations would be matters of federal and not state

law. The Court disagreed, stating:

[It is not] plausible that Congress meant to channel

into federal courts the business of resolving,

pursuant to judicially fashioned federal common

law, the range of contract claims relating to airline

rates, routes, or services. The ADA contains no hint

of such a role for the federal courts. In this regard,

the ADA contrasts markedly with the ERISA,

which does channel civil actions into the federal

courts, under a comprehensive scheme detailed in

the legislation, designed to promote prompt and fair

claims settlement.

Id. at 232 (citation and internal quotation marks omitted).!>

'3 Judge Raggi correctly notes that the ADA, unlike ERISA and

FEHBA, was aimed at encouraging competition rather than

uniformity. See post at [16-17]. Nevertheless. in distinguishing

(footnote continued on next page)

23a

Adopting this same reasoning, we do not believe that

FEHBA reveals a congressional objective to resolve all

manner of breach of contract suits relating to the Service

Benefit Plan in federal court.!®

(footnote continued from previous page)

the ADA from ERISA, the Wolens court relied heavily on

ERJSA’s civil enforcement scheme. 513 U.S. at 232. If this is the

key factor distinguishing the ADA from ERISA, then FEHBA

would seem to resemble the former more than the latter.

16 Judge Raggi cites a House Report stating that the purpose of the

1998 FEHBA amendments was. in part, to “strengthen the case for

trying FEHB program claims disputes in Federal courts rather than

State courts” and to “completely displace State or local law

relating to health insurance or plans.” H.R. Rep. No. 105-374, at 9,

16 (1997): see post at [11-12]. Notably, the Report refers to

displacing state and local law “relating to health insurence or

plans,” and not to generally applicable state law that may have an

effect on benefits or coverage in some cases. /d. at 16. (emphasis

added). As for the language that relates to bringing claims in

federal court, it is something of a mystery what the authors of the

report meant by “strengthen the case.” This ambiguous wording

seems to imply a recognition that the 1998 amendments did not

guarantee federal jurisdiction. Given that (1) section 8902(m)(1)

is by its plain and unambiguous terms a preemption provision and

not a grant of jurisdiction, and (2) the legislative history provides

only limited and equivocal support for a contrary conclusion. we

do not find that the committee reports cited by Judge Raggi

support her broad reading of § 8902(m)(1). See Padilla v.

Rumsfeld, 352 F.3d 695, 718 (2d Cir. 2003) (“If the plain language

is unambiguous, judicial inquiry ends. except in rare and

exceptional circumstances, and legislative history is instructive

only upon the most extraordinary showing of contrary

intentions.”) (citation and internal quotation marks omitted). rev ‘d

on other grounds, 124 S. Ct. 2711 (2004). The 1998 amendments

certainly do expand the preemptive reach of FEHBA, but §

(footnote continued on next page)

24a

CONCLUSION

If Congress intended for this case to be heard in federal

court, it could have created a private right of action for suits

against FEHBA beneficiaries; it could have vested

jurisdiction over these claims in the federal courts; or it

could have included an affirmative grant of authority to the

federal courts to create a body of federal common law.

Congress did none of these things.

The preemption provision does not manifest an intent to

supplant all state law with federal common law in cases

involving FEHBA-authorized contract provisions. Section

8902(m)(1) plainly establishes that only state laws “relat[ing]

to health insurance or plans” are subject to preemption. We

decline Empire’s suggestion that we read this phrase out of

the provision. Moreover, even if federal law is likely to

preempt McVeigh’s defenses and thereby to affect the

outcome of the case, this is insufficient to create federal

jurisdiction. The well-pleaded complaint rule requires that

the complaint itself arise under federal law in order for there

to be federal jurisdiction. See Briarpatch Ltd., 373 F.3d at

304. Empire's claims are breach-of-contract claims arising

under state law. There is no indication that state law

conflicts meaningfully with or is inadequate to achieve the

federal interest in this case. Accordingly, we AFFIRM the

district court's ruling that Empire’s claims arise under state

law.

(footnote continued from previous page)

8902(m)(1) remains a preemption clause, not a grant of federal

jurisdiction.

25a

SACK, Circuit Judge, concurring:

I concur. I think, for the reasons elaborated by Judge

Sotomayor in the principal opinion, that the Boyle test is

applicable here and that Empire has failed to satisfy the

second prong of that test because it has not demonstrated that

there is a "significant conflict . . . between an identifiable

federal policy or interest and the operation of state law."

Boyle v. United Techs. Corp.. 487 U.S. 500, 507 (1988)

(citation and internal quotation marks omitted). I alsc agree

with Judge Sotomayor's explanation as to why 5 U.S.C. §

8902(m)(1) does not itself authorize the exercise of tederal

jurisdiction over the cause of action asserted by Empire.

I write separately, though, simply to identify several issues

that I think we do not decide.

First, Empire has made a substantial showing that the first

part of the Boyle test has been met because this case

implicates “uniquely federal interests," id at 504 (citation

and internal quotation marks omitted). in providing uniform

healthcare coverage for federal employees and in decreasing

the administrative costs associated with such insurance. It

may well be that, as in Boyle, "the interests of the United

States will be directly affected." id. at 507. by the outcome of

this litigation and of litigation like it. It is Empire's inability

to meet the second. "significant conflict." part of the test that

leads me to join in Judge Sotomayor's opinion affirming the

district court's dismissal for lack of subject matter

jurisdiction.

Second, a future litigant in a similar action may, unlike

Empire here, be able to point to specific ways in which the

operation of state contract law, or indeed of other laws of

general application. would conflict materially with the

federal policies underlying FEHBA in the circumstances

presented. In that case. presumably, the second part of the

Boyle test would be met and, if that litigant's well-pleaded

26a

complaint arises under federal law, a federal court would

have subject matter jurisdiction.

Third, there is no need for us to decide what course to take

if, "at a later stage in the proceedings, a significant conflict

might arise between New York state law and the federal

interests underlying FEHBA, such that the dispute vould

satisfy both prongs of Boyle." Opinion of Judge Sotomayor,

Part B, ante at [8]. This portion of the opinion therefore does

not seem to me to set forth a part of our holding on this

appeal.

Fourth, and similarly, although I find Judge Sotomayor's

discussion in Section C of the principal opinion of the proper

reading of section 8902(m)(1) to be both interesting and

persuasive, it is not necessary to our resolution of this

appeal. It seems to me to be possible, notwithstanding that

analysis, that the statute is unavoidably unconstitutional

because contract terms are not "Laws of the United States,"

that are "the supreme Law of the Land." /d. at [11] (quoting

U.S. Const. Art. VI, cl. 2). On the other hand, even if the

Statute does attempt to render contract terms “supreme”

despite the fact that they are not strictly "law," perhaps the

statute nonetheless would bear constitutional scrutiny. Still,

in either case we must affirm because, for reasons spelled out

largely in parts A and D of the principal opinion, the district

court rightly ruled that it does not have subject matter

jurisdiction under either Boyle or the statute as written. This

discussion in the principal opinion, whatever its merits,

therefore seems to me also to be dicta. It is possible that our

views would turn out to be otherwise were we to confront a

different situation in which this issue actually required our

resolution. Should that day come. | do not think that the

panel that considers the issue will be bound by our analysis

here.

27a

RAGGI, Circuit Judge, dissenting:

In this contract action, Plaintiff-Appellant Empire

HealthChoice Assurance, Inc., sues Denise McVeigh, as

administratrix of Joseph McVeigh’s estate, for breach of the

reimbursement provision of a federal employee health

insurance plan that had covered her husband before his

death.'? The court today rules that this dispute cannot be

heard in federal court for lack of subject matter jurisdiction.

See 28 U.S.C. § 1331. Specifically, it rejects Empire's

argument that the case arises under federal common law,

concluding that Empire fails to satisfy the “significant

conflict” prong of the test established in Boyle v. United

Technologies, 487 U.S. 500, 507 (1988) (holding that federal

courts may create federal common law only where the

operation of state law would (1) “significantly conflict” with

(2) “uniquely federal interests”). I respectfully disagree.

Congress has itself addressed the Boyle factors in its 1998

amendment to the preemption provision of the Federal

Employees Health Care Protection Act (“FEHBA”), 5 U.S.C.

§ 8902(m)(1), thereby eliminating the need for courts to

consider the question. Section 8902(m)(1) now states: “The

terms of any contract under this chapter which relate to the

nature, provision, or extent of coverage or benefits

(including payments with respect to benefits) shall supersede

and preempt any State or local law. or any regulation issued

thereunder, which relates to health insurance of plans.” 5

1? The statement of benefits for the plan applicable to this case

contains the following reimbursement provision: “[a]ll recoveries

from a third party (whether by lawsuit, settlement, or otherwise),

no matter how described or designated, must be used to reimburse

{the insurer] for benefits . . . paid.” 2001 Statement of Benefits, at

86; see also 2000 Statement of Benefits, at 45: 1999 Statement of

Benefits, at 12: 1998 Statement of Benefits. at 12; 1997 Statement

of Benefits. at 12.

28a

U.S.C. § 8902(m)(1). I conclude, for reasons discussed in

this dissent, that this language requires courts to construe or

enforce any term in a FEHBA plan that relates to health

insurance coverage or benefits by reference to uniform

federal common law, not state law.

1. Federal Question Jurisdiction

Under 28 U.S.C. § 1331, federal district courts have

original jurisdiction of “all civil actions arising under the

Constitution, laws, or treaties of the United States.” An

action “arises under” federal law for purposes of § 1331

jurisdiction only when a plaintiff's well-pleaded complaint

alleges a cause of action raising a federal question. See

Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 7 (2003):

Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). Such

a federal question is presented when the complaint invokes

federal law as the basis for relief, see Merrell Dow Pharm.

Inc. v. Thompson, 478 U.S. 804, 808 (1986); American Well

Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260 (1916)

(Holmes, J.) (a “suit arises under the law that creates the

cause of action”), or when a “substantial. disputed question

of federal law is a necessary element of” a well-pleaded

state-law claim, Franchise Tax Bd. v. Construction Laborers

Vacation Trust, 463 U.S. 1. 13 (1983); see also Marcus v.

AT&T Corp., 138 F.3d 46, 56 (2d Cir. 1998).

Empire contends that § 1331 jurisdiction is proper in this

case because federal common law governs all disputes

involving the enforcement of FEHBA contracts. See Illinois

v. City of Milwaukee, 406 U.S. 91, 100 (1972) (holding that

§ 1331 jurisdiction extends to causes of action governed by

federal common law): Woodward Governor Co. v. Curtiss

Wright Flight Sys., Inc.. 164 F.3d 123. 126 (2d Cir. 1999)

(same). Alternatively, Empire argues that even if its claims

do arise under state law, they are nevertheless properly heard

in federal court because their resolution turns upon an

interpretation of the operative Plan. which. Empire submits.

29a

is itself federal law. Because I agree with Empire’s first

argument, I find it unnecessary to address the second.

Il. Federal Common Law

As the majority observes, neither FEHBA nor its

regulations expressly provide a federal cause of action for

insurance carriers to vindicate their rights under FEHBA

contracts. This does not mean that carriers are without a

remedy for FEHBA-based disputes. Congress is understood

to legislate against the pre-existing backdrop of the common

law. See Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501

U.S. 104, 108 (1991); United States v. Nucci, 346 F.3d 419,

423 (2d Cir. 2004); see also Kolstad v. American Dental

Ass'n, 527 U.S. 526, 539 (1999) (“[W]here Congress

borrows terms of art in which are accumulated the legal

tradition and meaning of centuries of practice, it presumably

knows and adopts the cluster of ideas that were attached to

each borrowed word in the body of learning from which it

was taken and the meaning its use will convey to the judicial

mind unless otherwise instructed.” (internal quotation marks

omitted)). It is an elementary common-law principle that a

party to a valid contract is bound by its terms and is subject

to suit for their enforcement. See. eg, Mobil Oil

Exploration & Producing Southeast, Inc. v. United States,

530 U.S. 604, 607-08 (2000): Gerrish Corp. v. Universal

Underwriters Ins. Co., 947 F.2d 1023, 1028 (2d Cir. 1991).

See generally O.W. Holmes, The Common Law 227-40

(1881) (describing the characteristics of contracts). Nothing

in FEHBA suggests that FEHBA contracts are to be treated

differently. The Act does not, for example. provide a

comprehensive remedial scheme that supplants a common-

law action. cf Massachusetts Mut. Life Ins. Co. v. Russell,

473 U.S. 134, 147 (1985), nor does it contain an express

provision precluding such an action, see United States v.

Nucci, 364 F.3d at 423. Thus, it is reasonable to conclude

that FEHBA contracts are enforceable through common-law

30a

breach of contract actions. See Jackson Transp. Auth. v.

Local Div. 1285, Amalgamated Transit Union, 457 U.S. 15,

20 (1982) (concluding that although the Urban Mass

Transportation Act did not provide a cause of action to

enforce contracts entered into pursuant to the Act, “it is

reasonable to conclude that Congress expected [these

contracts], like ordinary contracts, to be enforceable by

private suit upon a breach”).

That insurance carriers are able to bring breach of contract

actions to vindicate FEHBA rights does not, however, mean

that these actions are necessarily federal. The presumption,

in fact. is to the contrary. As the Supreme Court declared in

Erie R.R. Co. v. Tompkins, “there is no federal general

common law.” 304 U.S. 64, 78 (1938). Thus, contract

actions are usually creatures of state law, see Caceres

Agency, Inc. v. Trans World Airways, Inc.,. 594 F.2d 932,

934 (2d Cir. 1979); see also Aronson v. Quick Point Pencil

Co., 440 U.S. 257. 262 (1979).-and; accordingly. absent

diversity in citizenship among the parties. are ordinarily not

subject to federal jurisdiction, see Nolan v. Meyer, 520 F.2d

1276, 1280 (2d Cir. 1975).

Since issuing Erie, however, the Supreme Court has made

clear that federal common law displaces state law in certain

narrow circumstances. See Texas Indus., Inc. v. Radcliff

Materials, Inc.. 451 U.S. 630, 640-41 (1981); see also

Hinderlider v. La Plata River & Cherry Creek Ditch Co..,

304 U.S. 92, 110 (1938) (decided the same day as Erie and

declaring that “whether the water of an interstate stream

must be apportioned between the two States is a question of

‘federal common law’”). See generally Henry J. Friendly, /n

Praise of Erie -- And of the New Federal Common Law, 39

N.Y.U. L. Rev. 383. 405 (1964) (remarking on the various

“specialized” categories of federal common law).

Specifically, courts may fashion federal common law

(1) when “Congress has given [them] the power” to do so,

3la

Texas Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. at

640-41; or (2)if Congress has not’ granted such

authorization, when (a) a case involves an area of “uniquely

federal interests” and (b) the application of state law would

“significantly conflict” with federal policies in this area,

Boyle v. United Techs., 487 U.S. at 507-08; accord

Woodward Governor Co. v. Curtiss Wright Flight Sys., Inc.,

164 F.3d at 127; see also Atherton v. FDIC, 519 U.S. 213,

218 (1997); O'Melveny & Myers v. FDIC, 512 U.S. at 87.

A. Empire’s Reliance on Boyle to Invoke Federal

Common Law

Empire relies on Boyle v. United Technologies to support

its claim that this contract dispute arises under ‘ederal

common law. Specifically, it urges this court to follow the

Fourth Circuit’s application of Boyle in Caudill v. Blue

Cross & Blue Shield of North Carolina, 999 F.2d 74 (4th

Cir. 1993). Although I do not think that Boyle analysis is

necessary to reach this conclusion, | think it useful to begin

with a brief discussion of Empire’s Caudill-based argument.

In Caudill, Blue Cross had removed to federal court a state

action filed by a FEHBA plan enrollee challenging Blue

Cross’s denial of benefits.!8 Noting that federal removal

18 It is worth noting that at the time Caudill filed his state court

action, OPM regulations provided that “litigation to recover on [a

FEHBA benefits} claim should be brought against the carrier, not

against OPM.” 5 C.F.R. § 890.107 (1994). On March 29, 1995,

however, OPM amended the regulation to bring. virtually all

benefit claims by beneficiaries into federal courts: “A legal action

to review final action by OPM involving such denial of health

benefits must be brought against OPM and not against the carrier

or carrier's subcontractors.” 5 C.F.R. § 890.107(c); 60 Fed. Reg.

16.037. 16,039 (March 19, 1995) (interim rule); 61 Fed. Reg.

15.177 (April 5, 1996) (final rule): see also 5 U.S.C. § 8912

(providing that “{t}he district courts of the United States have

(footnote continued on next page)

32a

jurisdiction is limited to state court actions-“of which the

district courts of the United States have original

jurisdiction,” 28 U.S.C. § 1441, the Fourth Circuit ruled that

removal was proper because Caudill’s claim, although

pleaded under state law, actually arose under federal

common law. See Caudill v. Blue Cross & Blue Shield of

North Carolina, 999 F.2d at 77. Applying the Boyle

standard, the court found that (1) Caudill’s claim implicated

unique federal interests because, if her suit were successful,

it would hinder OPM’s ability to enter into future FEHBA

contracts and might result in costs being passed through to

the federal government, and (2) the use of state law would

undermine the federal interest in ensuring that federal

employees receive uniform health benefits. See id. at 78-79.

The latter interest in uniform treatment of enrollees was

evinced, the court explained, by FEHBA’s preemption

provision, which, at that time, stated that “[t]he provisions of

any contract under this chapter which relate to the nature or

extent of coverage or benefits . . . shall supersede and

preempt any State or local law . . . which relates to health

insurance or plans to the extent that such law or regulation is

inconsistent with such contractual provisions.” 5 U.S.C. §

8902(m)(1) (1997).

As the majority notes, Caudill has been criticized by courts

and commentators. That criticism, however, is not leveled at

its conclusion that federal common law governs FEHBA

claims, but at its failure to adhere to the well-pleaded

complaint rule. See Goepel v. Nat'l Postal Mail Handlers

Union, 36 F.3d 306, 314-15 (3d Cir. 1994); see also 15

James Wm. Moore et al., Moore's Federal Practice

(footnote continued from previous page)

original jurisdiction . . . of a civil action or claim against the

United States founded on [FEHBA]”).

33a

§ 103.45[3][c] (3d ed. 1997) (commenting that Caudill’s

holding “is fatally flawed if the validity of the well-pleaded

complaint rule . . . [is] accepted”). The criticism is not

without force. Under the well-pleaded complaint rule, a

plaintiff, as master of his claim, may avoid federal

jurisdiction by relying exclusively on state law in his

complaint. See Caterpillar Inc. v. Williams, 482 U.S. at

392. It appears that Caudill’s complaint pleaded claims

under only state law, see Caudill, 999 F.2d at 77. and. thus.

on its face, presented no federal claim justifying removal.

Although Blue Cross’s contention that federal common law

governed Caudill’s state claims may have provided the

insurer with a federal defense to the claims that it could raise

in the state action. this was not a ground for the removal! of

those state claims to federal court. See Caterpillar Inc. v.

Williams, 482 U.S. at 393.

Thus it appears that in Caudill, removal would have been

proper only if Blue Cross had demonstrated that plaintiff's

State claims were “completely preempted” by federal law.

City of Rome v. Verizon Communications, Inc., 362 F.3d

168, 176-77 (2d Cir. 2004). “[C]omplete preemption”

occurs when Congress manifests its intent that federal law

displace state law by enacting a “federal statute [that] . . .

provide[s}] the exclusive cause of action for the claim

asserted and also set[s] forth procedures and remedies

governing that cause of action”; in such cases, the claim,

although pleaded in terms of state law. actually arises under

federal law. Beneficial Nat'l Bank v. Anderson, 539 U.S. at

8; City of Rome v. Verizon Communications, Inc., 362 F.3d

at 177. As the Third Circuit has pointed out, however,

FEHBA did not provide a cause of action to vindicate the

rights at issue in Caudill’s state-law claims. See Goepel v.

Nat I Postal Mail Handlers Union, 36 F.3d at 315. Thus. by

finding removal proper. the Caudill court implicitly extended

the complete preemption doctrine to claims that arise under

34a

federal common law but for which Congress has not

manifested an intent to provide an exclusive cause of action.

See id. at 314-15 (criticizing Caudill for expanding the

complete preemption doctrine).

In this case, unlike in Caudill, the propriety of applying

federal common law does not depend on complete

preemption. Empire’s complaint does not plead claims in

terms of state law; rather, it relies exclusively upon federal

law. Thus, this court need not decide whether a state-law

claim to enforce the terms of a FEHBA plan may be

recharacterized as arising under federal law. It need decide

only whether federal common law does in fact govern claims

to enforce rights under a FEHBA plan. If it does, then this

case arises under federal law and the district court had

jurisdiction to hear it.

1 conclude that federal common law does govern the

parties’ dispute in this casé, but I do not rely on Boyle.

Instead. I conclude that in amending § 8902(m)(1) in 1998.

Congress itself addressed the Boyle factors, making the

analysis undertaken in Caudill unnecessary. The amendment

necessarily grants courts the power to develop uniform

federal common law to construe and enforce the coverage

and benefit terms of FEHBA plans.

B. Congressional Authorization in § 8902(m)(1) for

Federal Common Law _ to Construe_and_ Enforce

FEHBA Plans

In 1998. Congress amended FEHBA’s preemption

provision by striking the clause alluded to in Caudill.

providing for preemption of state laws only “to the extent

{they are] inconsistent with” a contractual term. see Federal

Employees Health Care Protection Act of 1998, Pub. L. No.

105-266, § 3(c). 112 Stat. 2363, 2366 (1998). and enacting a

more expansive provision that reads in full: “The terms of

any contract under this chapter which relate to the nature,

provision, or extent of coverage or benefits (including

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payments with respect to benefits) shall supersede and

preempt any State or local law, or any regulation issued

thereunder, which relates to health insurance or plans.” 5

U.S.C. § 8902(m)(1).

The amendment thus effectively legislates both Boyle

factors. First, by providing for FEHBA coverage and

benefits terms to “supersede” certain state and local laws,

Congress has identified a unique federal interest in ensuring

national uniformity in the construction and enforcement of

such terms. Second, by amending § 8902(m)(1) to eliminate

the need for any judicial finding of conflict between contract

terms and certain state and local laws. Congress has

implicitly authorized courts to employ federal common law

to resolve disputes concerning coverage and benefits. even in

the absence of the conflict generally required by Boyle.

As the majority observes, a literal reading of § 8902(m)(1)

could give rise to constitutional concerns. The Supremacy

Clause makes plain that the terms of a federal contract

cannot by themselves preempt state law: only federal law can

preempt state law. See U.S. Const. Art. VI, cl. 2. Because

courts assume that Congress legislates in light of

constitutional limitations, see Rust v. Sullivan, 500 U.S. 173,

191 (1991). however. it is reasonable to conclude that the

operation of federal law is _ necessarily implicit in

§ 8902(m)(1), see generally Edward J. Bartolo Corp. v.

Florida Gulf Coast Bidg. Constr. Trades Council, 485 U.S.

568. 575 (1988) (noting that where “an otherwise acceptable

construction” of a statute is available that is not “plainly

contrary to the intent of Congress.” courts may adopt that

construction to avoid serious constitutional doubts): accord

Jones v. United States. 526 U.S. 227. 239-40 (1999).

Mindful of this principle. I read § 8902(m)(1) to mean that

any terms in a FEHBA plan that relate to coverage or

benefits are to be construed according to uniform federal

36a

law, and that /aw will, in turn, supersede any state or local

law that relates to health insurance or health plans.

My colleagues in the majority apparently agree that the

application of federal law is implicit in § 8902(m)(1)’s

preemption of certain state laws. Where we disagree is in

our assessment of whether that preemption is limited to laws

specifically addressing “health insurance or plans,” or

whether it also extends to general state and local law,

including contract law, when an action is brought to construe

and enforce a coverage or benefits term in a FEHBA health

insurance plan. I conclude that such actions necessarily arise

under federal common law because § 8902(m)(1) precludes

any state law. including contract law, from construing or

enforcing the coverage or benefit terms of FEHBA plans.

When the application of state contract law would have that

effect, the law “relates to health insurance or plans.”

Unlike its predecessor, which limited preemption to state

laws that actually conflicted with the terms of a FEHBA

contract, the 1998 amendment to § 8902(m)(1) precludes

state laws that relate to health insurance or plans from

playing any role in construing such coverage or benefits

terms. See Botsford v. Blue Cross & Blue Shield of Montana,

Inc., 314 F.3d 390, 393-94 (9th Cir. 2002); see also Russello

v. United States, 464 U.S. 16, 23-24 (1983) (when Congress

deletes limiting language. “it may be presumed that the

limitation was not intended”). While this amendment, on its

face. indicates Congress’s intent significantly to expand §

8902(m)(1) preemption, a House Report confirms the

breadth of the new provision, explaining that the amendment

was intended “to strengthen the ability of national plans to

offer uniform benefits and rates to enrollees regardless of

where they live” and to “strengthen the case for trying FEHB

program claims disputes in Federal courts rather than State

courts.” by “completely displac{ing}] State or local law

relating to health insurance or plans.” H.R. Rep. No. 105-

37a

374, at 9, 16 (1997); see also S. Rep. No. 105-257, at 15

(1997) (amendment “removes the language dealing with

inconsistencies, thereby giving the federal contract

provisions clear authority”).

Although FEHBA does not define what it means for a state

or local law to “relate[] to health insurance or plans,” the

Supreme Court has, in other contexts, recognized that the

common meaning of the phrase “relate to” is expansive: ““to

stand in some relation; to have bearing or concern, to pertain;

refer; to bring into association with or connection with.””

Morales v. Trans World Airlines, Inc.. 504 U.S. 374, 383

(1992) (quoting BLACK’S LAW DICTIONARY 1158 (5th

ed. 1979)) (discussing the phrase “relating to” in the context

of the Airline Deregulation Act of 1978). Our court has also

concluded that the phrase does not imply a causal

connection; rather, it is synonymous with the phrases “in

connection with,” “associated with,” “with respect to,” and

' “with reference to.” Coregis Ins. Co. vy. American Health

Found., Inc., 241 F.3d 123, 128-29 (2d Cir. 2001)

(interpreting insurance contract); accord Kamagate vy.

Ashcroft, 385 F.3d 144, 154 (2d Cir. 2004) (applying broad

definition to removal statute); see Ingersoll-Rand Co. v.

McClendon, 498 U.S. 133, 139 (1990) (applying same

definition in ERISA context); see also Celotex Corp. v.

Edwards. 514 U.S. 300. 308 n.5 (1995) (stating that

proceedings “related to” a bankruptcy include “suits between

third parties which have an effect on the bankruptcy estate”).

In the ERISA context, the Supreme Court has ruled that

“[{u]nder this “broad common-sense meaning,” a state law

may ‘relate to’ a benefit plan, and thereby be pre-empted.

even if the law is not specifically designed to affect such

plans, or the effect is only indirect.” I/ngersoll-Rand Co. v.

McClendon, 498 U.S. at 139 (quoting Pilot Life Ins. Co. v.

Dedeaux. 481 U.S. 41, 47 (1987)). Recognizing the

potential all-encompassing breadth of this definition, the

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Court has increasingly focused on ERISA’s objective to

establish a uniform system of benefits in determining

whether a particular state law “relates to” a plan. In light of

this federal interest in uniformity, the Court has concluded

that a state law of general application “relates to” an ERISA

plan where application of the different states’ laws could

yield inconsistent benefit outcomes in similar cases. See

New York State Conference of Blue Cross & Blue Shield

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

(“[L]aws providing alternative enforcement mechanisms also

relate to ERISA plans... .”); see also Ingersoll-Rand Co. v.

McClendon, 498 U.S. at 139. Following these decisions, our

court has concluded that ERISA preempts_ generally

applicable state contract law when that law is relied upon to

enforce a benefits plan. See Devlin v. Transp.

Communications Int’l Union, 173 F.3d 94, 101 (2d Cir.

1999).

This precedent supports the conclusion that FEHBA

preemption is not limited to state and local laws that

expressly regulate health insurance or plans.!? Nor is it

limited to specialized state rules applicable only to insurance

plans. for example, a rule of decision providing for

ambiguities in an insurance policy to be resolved in favor of

the insured. See. e.g.. City of Burlington v. Indemnity Ins.

Co. of N. Am., 332 F.3d 38, 45 (2d 9 Cir. 2003); Mostow v.

State Farm Ins. Cos., 88 N.Y.2d 321, 326, 645 N.Y.S.2d

19 Where Congress has intended to limit preemption to laws

specifically regulating particular conduct, it has so indicated. See.

e.g. 7 U.S.C. § 27fic) (limiting preemption to state laws that

“prohibit{ | or regulate{ | gaming or the operation of bucket shops”

in certain contexts): 8 U.S.C. § 1188(h)(2) (limiting preemption to

state or local laws “regulating admissibility of nonimmigrant

workers’ ).

39a

421, 423 (1996). Rather, FEHBA preemption also extends

to general laws that can reasonably be understood to “relate

to health . . . plans” whenever such laws would attempt to

construe or enforce the coverage or benefits terms of

FEHBA health plans.

The majority concludes that ERISA precedent is not

helpful in determining the preemptive reach of § 8902(m)(1).

Certainly, ERISA is a more comprehensive remedial statute

than FEHBA, but that does not warrant a different

conclusion with respect to preemption. The statutes’

preemption clauses are notably similar. ERISA preemption

applies to “any and all State laws insofar as they may now or

hereafter relate to any employee benefit plan described in

{the statute].” 29 U.S.C. § 1144(a) (emphasis added).

FEHBA preemption applies to “any State or local law, or any

regulation issued thereunder, which relates to health

insurance or plans.” 5 U.S.C. § 8902(m)\(1) (emphasis

added). More important, the objectives of the two laws are

virtually identical. FEHBA -- in particular, its ame.uded

preemption provision-- is designed “to offer umform

benefits” to tens of thousands of federal employees across

the nation. H.R. Rep. No. 105-374, at 9.

The majority suggests that construing § 8902(m)(1) to

apply to state contract law renders meaningless the statute's

limitation of federal preemption to state or local law that

“relates to health insurance or plans.” I cannot agree. Here

again, ERISA precedent is instructive in distinguishing

between generally applicable state laws that “relate to”

health plans and laws that tangentially implicate such pians

without relating to them. For example, in Mackey v. Lanier

Collection Agency & Service. Inc., 486 U.S. 825, 841 (1988).

the Supreme Court concluded that ERISA preemption of

state laws that “relate to any employee benefit plan” did not

extend to a state’s garnishment statute. even though the

garnishment would operate on ERISA benefits In that case,

40a

State law did not attempt to construe the benefits afforded

under an ERISA plan; it merely authorized the garnishment

of whatever benefits were payable thereunder. Similarly, in

New York State Conference of Blue Cross & Blue Shield

Plans v. Travelers Ins. Co., 514 U.S. at 660-61, the Court

noted that generally applicable state quality control and

workplace regulations may tangentially affect what benefits

an ERISA plan will be able to afford, but they do not attempt

to construe the benefits provided by any particular plan.

Application of these decisions to this case suggests that

where a state law of general application would be employed

to construe the rights enforceable under the coverage or

benefits terms of a FEHBA plan, such a law “relates to

health insurance or plans” and is properly preempted by

federal law. But where general state or local law affects

FEHBA coverage or benefits only tangentially, without

attempting to construe or enforce those plan terms,

preemption may not be warranted. Put another way,

§ 8902(m)(1) contemplates that the coverage and benefits

terms of FEHBA plans will always be construed only by

reference to uniform federal common law. That law will

then preempt any state or local laws that relate to health

insurance or plans, both (1) laws specifically denominated as

such and (2) general laws that are fairly deemed to “relate[ |

to health insurance or plans” in those cases where such laws

would attempt to construe the coverage or benefits terms of

such a plan.

American Airlines, Inc. v. Wolens, 513 U.S. 219 (1995). is

not to the contrary. The question in that case was whether the

Airline Deregulation Act's preemption clause. which forbids

states from enacting or enforcing “any law . . . relating to {air

carrier] rates, routes, or services.” 49 U.S.C. App. §

1305(ay(1) (1993) (now codified with technical changes at

49 U.S.C. § 41713), preempts a state law contract action to

enforce rates, routes. and services set forth in an agreement

4la

between private parties. The Supreme Court said the answer

was no. Wolens, 513 U.S. at 228-29. It explained that the

Deregulation Act preempted only state-imposed, as opposed

to privately contracted-for, rates, routes, and services.

Moreover, the purpose of the Deregulation Act was to

encourage competition in these areas, which anticipated a

variety of private contractual arrangements. In this context.

the Court observed that it was not “plausible that Congress

meant to channel into federal courts the business of

resolving, pursuant to judicially fashioned federal common

law, the range of contract claims relating to airline rates,

routes, or services.” /d. at 232. In so ruling, the Court

specifically distinguished the Deregulation Act from ERISA.

See id. (noting that ERISA “does channel civil actions into

federal court . . . under a comprehensive scheme . . . to

promote prompt and fair claims settlement” (internal

citations omitted)). Precisely because ERISA’s objective is

uniformity rather than competition, it makes sense to

conclude that Congress intended contract claims arising

under that statute to be reviewed according to a single

national legal standard.

The same conclusion obtains as to FEHBA. The 1995

amendment to 5 C.F.R. § 890.107 channels the vast majority

of benefits claims -- those by plan beneficiaries -- into

federal court. See 5 C.F.R. § 890.107(c). As for any

remaining FEHBA actions, Congress’s expectation when it

amended 5 U.S.C. § 8902(m)(1) in 1998 was to “strengthen

the case for trying FEHB program disputes in Federal courts

rather than state courts.” H.R. Rep. No. 105-374, at 9, 16.

Further, as already discussed. FEHBA’s preemption

provision and its uniformity objective have more in common

with ERISA than with the Deregulation Act in signaling

Congress's intent to have the coverage and benefits terms of

FEHBA health insurance plans construed according to

uniform federal common law. FEHBA does not simply bar

42a

states from enacting laws with respect to the coverage and

benefit terms of federal health plans. It contemplates that the

coverage and benefits terms of FEHBA plans will

themselves supersede any state laws that relate to health

insurance or health plans, something possible under the

Supremacy Clause only if the construction and enforcement

of those plan terms are the exclusive province of federal

common law.

I recognize that in Wolens the Supreme Court observed

that “contract law is not at its core ‘diverse, nonuniform, and

confusing.” 513 U.S. at 233 n8& (quoting Cipollone v.

Liggett Group, Inc., 505 U.S. 504, 529 (1992) (plurality

opinion)). Thus, the Court anticipated no serious risk of

nonuniform adjudication in the enforcement of a nationwide

contract by the various states. The amendment to §

8902(m)(1). however, makes plain that Congress was not

limiting FEHBA preemption to state laws that might conflict

with the terms of federal-employee health plans. Rather.

Congress has made clear that it deems any state laws relating

to health insurance or health plans. even those that are

consistent with federal law, as an obstacle to the wniform

construction and enforcement of FEHBA plans. Cy

Ingersoll-Rand Co. v. McClendon. 498 U.S. at 139 (“Pre-

emption is also not precluded simply because a state law is

consistent with ERISA’s substantive requirements.” ).

Here. Empire seeks to enforce a FEHBA pian term that

expressly conditions the receipt of benefits on an enrollee’s

duty to reumburse the insurer if he recovers in tort from the

third party causing his injuries. Becawse the operative Plan's

reimbursement requirement plainly “relates to” the provision

of imsurance benefits. | conclude that under the broad

preemption prowiseon of § $902(m)1). Empire cannot look

to state contraet law to construe or enforce its mghts. See

Haves y. Prudential Ins. Co. of Am., 819 F.2d 921. 926 (9th

Cir. 1987) (holdeng that state law contract and tort claims.

43a

which expanded obligations under the terms of a FEHBA

plan, were preempted under the earlier version of §

8902(m)(1)). In that context, state contract law qualifies as a

law that “relates to health insurance or plans,” which is

necessarily preempted by federal common law construing

FEHBA coverage and benefits terms.

The 1998 amendment to § 8902(m)(1) was surely not

designed to expand federal preemption of state law in order

to leave insurance carriers without any means to enforce

their rights under FEHBA plans. For reasons already

discussed, I assume that Congress intended FEHBA

contracts to be enforceable. See Jackson Transp. Auth. v.

Local Div. 1285, Amalgamated Transit Union, 457 U.S. at

20. Because I conclude that Congress expressly proscribed

the use of state contract law to construe rights relating to

FEHBA benefits or coverage, it logically follows that

Congress was thereby authorizing courts to look to federal

common law both to construe those rights uniformly and to

resolve insurance carriers’ FEHBA claims. See, e.g., /tar-

Tass Russian News Agency v. Russian Kurier, Inc., 153 F.3d

82. 90 (2d Cir. 1998) (stating that when a statute recognizes

rights but fails to provide necessary principles for their

enforcement. courts must “fill the interstices of the Act by

developing federal common law”).

This conclusion is consistent with MedCenters Health

Care v. Ochs, 26 F.3d 865. 867 (8th Cir. 1994). Relying on

the pre-1998 preemption provision of FEHBA, the Eighth

Circuit rejected a jurisdictional challenge to a FEHBA

carrier's contract claim for restitution, holding that federal

law gowerns such claims. Although the decision is brief. |

can only assume that its respected author, Judge Richard

Arnold, thought it so obvious that Congress had authorized

federal common law to resolve FEHBA coverage or benefits

disputes that the point merited little discussion. See also

Tackitt v. Prudential Ins. Co., 758 F.2d 1572 (11th Cir.

44a

1985) (citing FEHBA’s former preemption provision for

proposition that federal law controls interpretation of

FEHBA contracts). Cf Goepel v. Nat'l Postal Mail

Handlers Union, 36 F.3d at 309 n.3, 315 (recognizing that

FEHBA claims may be governed by federal common law,

but declining to reach the issue).

In sum, because (1) Empire’s contract action seeks to

enforce the benefits terms of a FEMBA plan:

(2) § 8902(m)(1) contemplates that such benefits terms will

uniformly be construed and enforced according to federal

common law; and (3) any state law, including contract law.

invoked to construe and enforce such benefits terms qualifies

as a law that “relates to health insurance or plams” preempted

by federal common law, | conclude that Enypure’s action is a

case arising under federal common law over which the

district court could properly exercise jurisdiction.

€. 5 U.S.C. nF | Jurisdiction

in this C

Ms. McVeigh insists that, even if Empire's claims arise

under federal common law, the district court cannot exercise

§ 1331 jurisdiction over them because federal jurisdiction

over FEHBA claims is limited to that expressly conferred in

5 U.S.C. § 8912 (vesting federal courts with “original

jurisdiction . . . of a civil action or claim against the United

States founded on” FEHBA). Because the majority

concludes that Empire’s claims do not arise under federal

common law, it does not reach this issue. Because | reach a

different conclusion with respect to the application of federal

common law, I write briefly to explain why I reject

Ms. McVeigh’s § 8912 argument.

Absent some indication to the contrary, statutes vesting

courts with jurisdiction over certain matters do not strip

courts of their jurisdiction over others. As the Supreme

Court stated in Verizon Marviand, Inc. v. Public Service

Commission of Maryland, “{t\he mere fact that some acts are

45a

made reviewable [under a statute] should not suffice to

support an implication of exclusion as to others.” 535 U.S.

635, 643-44 (2002) (internal quotation marks omitted).

Section 8912 does not purport to deprive federal courts of §

1331 jurisdiction. It simply authorizes federal jurisdiction

over FEHBA claims against the United States. See Rice v.

Office of Servicemembers’ G-oup Life Ins., 260 F.3d 1240,

1244-46 (10th Cir. 2001) (holding that 38 U.S.C. § 1975,

which grants district courts “original jurisdiction of any civil

action or claim against the United States founded upon [the

Servicemen’s Group Life Insurance Act (SGLIA)}.” does not

preclude § 1331 jurisdiction of SGLIA suits against parties

other than the United States). Indeed, without the provision,

sovereign immunity would bar such claims. See Adeleke v.

United States, 355 F.3d 144, 150 (2d Cir. 2004). But

nothing in § 8912 evinces Congress’s intent to limit § 1331°s

jurisdictional grant in FEHBA cases involving parties other

than the United States.

For all these reasons, I conclude that this suit to enforce the

terms of a FEHBA plan does arise under federal common

law, and | dissent from the majority's conclusion that the

case was properly dismissed for lack of subject matter

jurisdiction.

46a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

August Term, 2004

{Petition for rehearing filed: January 28, 2005]

[Decided: March 16, 2005]

Docket No. 03-9098

EMPIRE HEALTHCHOICE ASSURANCE, INC.,

doing business as Empire Blue Cross and Blue Shield,

Plaintiff-Appellant,

DENISE FINN MCVEIGH, as administratrix of the Estate

of Joseph E. McVeigh,

Defendant-Appellee.

Before: SACK, SOTOMAYOR and RAGGI, Circuit Judges.

ON PETITION FOR REHEARING BY THE PANEL

SOTOMAYOR.,. Circuit Judge:

Appellant Empire HealthChoice Assurance, Inc.

(“Empire”) petitions the panei for rehearing to reconsider its

decision in Empire HealthChoice Assurance, Inc v.

47a

McVeigh, 396 F.3d 136 (2d Cir. 2005). The Association of

Federal Health Organizations (“AFHO”) and the United

States have each submitted briefs as amicus curiae in support

of Empire's petition. We assume familiarity with our

original decision and its underlying facts. Because Empire

and its amici have failed to demonstrate “point{s] of law or

fact that . . . the court has overlooked or misapprehended.”

the petition is denied. Fed. R. App. P. 40(a): see Treadway

Cos., Inc. v. Care Corp., 638 F.2d 357. 386 (2d Cir. 1980).

Empire contends that our original decision improperly

disregarded the principle “that suits to determine the rights of

the United States under its contracts are governed by federal

common law.” Appellant's Petition for Rehearing and

Rehearing En Banc at 8. This argument misses the point.

however, because Empire has not brought suit to determine

the rights of the United States. Rather. Empire seeks to

vindicate its own rights against another private party. This

distinguishes the instant case from the precedents cited by

Empire, which involved suits to which the United States was

itself a party.! See United States v. Seckinger, 397 U.S. 203

(1970): United States v. County of Allegheny, 322 US. 174

(1944), abrogated on other grounds by United States v. City

of Detroit, 355 U.S. 466 (1958); Clearfield Trust Co. vy.

United States, 318 U.S. 363 (1943); Up State Fed Credit

Union vy. Walker, 198 F.3d 372 (2d Cir. 1999).2, A monetary

' For substantially the same reasons, we reject the AFHO brief's

suggestion that Empire has brought suit “to vindicate [the] rights

. of the federal government.” Brief of the Association of

Federal Health Organizations at 6.

- Empire also relies on Bovie v. United Technologies Corp., 487

U.S. 500 (1988). Our previously issued opinion, however. already

provides a comprehensive explanation of why Boyle does not

establish that we have jurisdicuon over Empire's claims.

48a

recovery by Empire might benefit the United States, but this

is insufficient to require displacement of state law. See

Boyle v. United Techs. Corp, 487 U.S. 500. 507 (1988):

Empire, 396 F.3d at 140-42.5

Building on Empire’s argument, the government argues

that “suits to enforce contracts ‘contemplated by federal

statutes’” such as the Federal Employees Health Benefits Act

(“FEHBA”). 5 U.S.C. §§ 8901-8914. state a federal claim if

“Congress intended that the contracts be ‘creations of federal

law’ and that ‘the rights and duties contained in those

contracts be federal in nature.” Brief of the United States at

8-9 (quoting Jackson Trans. Auth. v. Local Div. 1285, 457

U.S. 15, 22-23 (1982)). In Jackson Transit, the Supreme

Court held that “suits to enforce contracts contemplated by

federal statutes may set forth federal claims.” and that

“private parties in appropriate cases may sue in federal court

to enforce contractual rights created by federal statutes.”

457 U.S. at 22 (emphasis added). The “critical factor” in

determining “the scope of rights and remedies under a

federal statute,” the Court held, was “congressional intent.”

Id. at 22-23. In the instant case, the “critical factor” of

congressional intent is embodied in FEHBA’s preemption

provision, 5 U.S.C. § 8902(m)(1). which addresses the extent

to which federal law will govern FEHBA-related claims.

3 In an attempt to remedy its earlier failure to satisfy the “conflict”

prong of Bovle, Empire’s petition for rehearing cites to a

responsive pleading filed by McVeigh in the district court that had

relied on a New York State statute of limitations. Empire did not

raise this argument in its briefs on appeal. however. and we

therefore will not consider it. See Anderson v. Branen, 27 F.3d 29,

30 (2d Cir. 1994) (per curiam). In any event, the argument could

not have made a difference under the original opinion’s analysis.

as Empire concedes.

49a

For reasons explained in Part D of the panel’s original

majority opinion, see Empire, 396 F.3d at 145-49, that

preemption provision, while broad, does not confer federal

jurisdiction over Empire’s claims. See also Miree v. DeKalb

County, 433 U.S. 25, 26-30 (1977) (holding that state law.

rather than federal common law, controlled a dispute where

“only the rights of private litigants [were] at issue,’ even

though the dispute required interpretation of a federal

contract and implicated federal operations “of considerable

magnitude”’).4

Misconstruing Part C of our principal opinion, Empire

takes particular issue with what it regards as the panel's

conclusion that § 8902(m)(1) is unconstitutional. We held

no such thing. Instead, we interpreted the provision so as to

avoid declaring it unconstitutional. Moreover, our

discussion of the constitutional difficulties inherent in a

literal reading of § 8902(m)(1) was not an_ essential

component of our holding that § 8902(m)(1) does not

authorize jurisdiction. Even if a literal reading posed no

constitutional concern, our analysis in part D of the principal

opinion makes clear that the provision does not create

+ The government also argues that federal jurisdiction exists

because federal law is a “necessary element” of the claim for

relief. Brief of the United States at 2-3. In so arguing. the

government relies on Christianson v. Colt Industries Operating

Group, 486 U.S. 800 (1988), which simply reiterated the principle

that federal jurisdiction “extends over only those cases in which a

well-pleaded complaint establishes either that federal law creates

the cause of action or that the plaintiff's right to relief necessarily

depends on resolution of a substantial question of federal law.” /d

at 808 (citation and internal quotation marks omitted). For reasons

explained in this opinion as well as in our original opinion.

Empire's claim does not satisfy this test.

50a

jurisdiction here. Reconsideration of the constitutional issue

therefore could not affect the outcome of the case.°

Finally, we note our disagreement with the conclusions

reached in Blue Cross and Blue Shield of Illinois v. Cruz.

396 F.3d 793 (7th Cir. 2005), which the Seventh Circuit

decided ten days after we issued our original decision in

Empire. The Cruz court rested its holding on arguments that

we addressed and squarely rejected in our original opinion.

We have considered the remaining arguments set forth by

Empire and its amici and find them to be without merit. By

emphasizing such factors as the potential practical effects of

our original holding on the administration of FEHBA

programs, Empire and its amici present, at most, cogent

arguments for why, as a policy matter, federal jurisdiction

should be extended to cover Empire's claims. Such policy

arguments, however, are for Congress rather than the courts

to consider, for it is well-established that federal courts will

not assume jurisdiction over contract disputes “in the

absence of an unambiguous expression of congressional

intent.” Jackson Transit, 457 U.S. at 30 (Powell. J.. joined

by O°Connor, J., concurring); see also id. (“By enforcing

contract rights not within the jurisdictional grant conferred

by Congress, as much as by improperly inferring a right of

action, a court of limited jurisdiction necessarily extends its

authority to embrace a dispute Congress has not assigned it

to resolve. . . . This runs contrary to the established principle

that [t]he jurisdiction of the federal courts is carefully

guarded against expansion by judicial interpretation... .”

(alterations in original) (citation and internal quotation marks

> For similar reasons. contrary to Empire's contention, 28 U.S.C.

§$ 2403 imposed no obligation to allow intervention by the

government.

| Sla

omitted)). The instant case provides no reason to depart

from these principles.

For the reasons discussed, the petition for rehearing is

DENIED.

Judge Raggi votes to grant rehearing for the reasons stated

in her original dissent.

52a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Thurgood Marshall U.S. Court House

40 Foley Square

New York 10007

Roseann B. MacKechnie

CLERK

At a stated term of the United States Court of Appeals for

the Second Circuit, held at the Thurgood Marshall United

States Courthouse, Foley Square, in the City of New York,

on the 10" dav of May two thousand five.

EMPIRE HEALTHCHOICE ASSURANCE. INC.,

doing business as Empire Blue Cross And Blue Shield,

Plaintiff-Appellant,

v. 03-9098

DENISE FINN MCVEIGH. as administratrix of the Estate

of Joseph E. McVeigh,

Defendant-Appellee.

A petition for panel rehearing and a petition for rehearing

en banc having been filed herein by the appellant Empire

Healthchoice. Upon consideration by the panel that decided

the appeal, it is Ordered that said petition for rehearing is

DENIED.

53a

It is further noted that the petition for rehearing en banc

has been transmitted to the judges for the court in regular

active service and to any other judge that heard the appeal

and that no such judge has requested that a vote be taken

thereon.

For the Court,

Roseann B. MacKechnie, Clerk

By: /s/

Motion Staff Attorney

54a

APPENDIX D

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

EMPIRE HEALTHCHOICE ASSURANCE

d/b/a Empire Blue Cross and Blue Shield,

Plaintiff.

Vv.

DENISE FINN MCVEIGH, as administratrix of the Estate

of Joseph E. McVeigh,

Defendant.

OPINION & ORDER

(03 Civ. 2728 (DLC)

DENISE COTE. District Judge

This case raises the issue of whether there is federal

subject matter jurisdiction over a contract suit filed by the

administrator of a federal employee health benefits plan

against a beneficiary. Plaintiff Empire HealthChoice

Assurance. or Empire Blue Cross Blue Shield ("Empire").

underwrites and administers a health benefits plan for tederal

employees and their dependents. It has brought suit to obtain

reimbursement for benefits that it paid on behalf of one of its

55a

beneficiaries to cover medical care he received following his

injury in an accident. It claims an entitlement to money paid

to the beneficiary's estate to settle a lawsuit over the accident

brought on behalf of the beneficiary. For the following

reasons, the defendant's motion to dismiss for lack of subject

matter jurisdiction is granted.

Pursuant to the Federal Employees Health Benefit Act, 5

U.S.C. § 8901 et seg. ("FEHBA"), the United States Office

of Personnel Management ("OPM") is responsible for

establishing and regulating federal health benefits plans.

OPM entered a contract with the Blue Cross Blue Shield

Association ("BCBSA") to create a Service Benefit Plan for

federal employees. Empire is the entity that administers the

BCBSA Service Benefit Plan in New York ("Plan").

Defendant Denise Finn McVeigh ("McVeigh") is the

administratrix of the estate of Joseph E. McVeigh ("Estate").

Joseph E. McVeigh ("Decedent") had been enrolled in the

Empire Plan. In 1997, the Decedent suffered injuries in an

accident. Empire paid $157,309.06 in benefits for

Decedent's medical treatment between 1997 and 2001, the

year of his death. McVeigh filed a tort action in state court

on her own behalf and on Decedent's behalf against the third

parties who allegedly had caused Decedent's injuries. A suit

on behalf of the McVeigh's minor child also was filed in

state court. In March 2003, the litigants entered a stipulation

settling the lawsuits for a total of $3,175,000.

Before the settlement had been entered, Empire became

aware that McVeigh had reached an agreement with the

defendants in the state court action. Empire notified

McVeigh's counsel that it had a lien on the Estate's share of

the settlement for $157,309.06,

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