Amicus Curiae Brief — Cruz v. BLUE CROSS AND BLUE SHIELD OF ILLINOIS

BEST AVAILABLE COPY

Nos. 04-1657 and 05-200 2 —-----*-~---- --—

In the Supreme Court of the Gnited States

JULIA CRUZ, AS REPRESENTATIVE

OF JOSE S. CRUZ, PETITIONER

v.

BLUE CROSS AND BLUE SHIELD OF ILLINOIS, ET AL.

EMPIRE HEALTHCHOICE ASSURANCE, INC. DBA

EMPIRE BLUE CROSS BLUE SHIELD, PETITIONER

5

DENISE F. MCVEIGH, AS ADMINISTRATRIX

OF THE ESTATE OF JOSEPH E. MCVEIGH

ON PETITIONS FOR WRITS OF CERTIORARI

TO THE UNITED STATES COURTS OF APPEALS

FOR THE SEVENTH AND SECOND CIRCUITS ‘4

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

MARK A. ROBBINS Solicitor General

General Counsel Counsel of Record

Counsel of Record PETER D. KEISLER

a Parana stinneltin’

Deputy General Counsel Denuty Solicit

— storia outta

Associate General Counsel ‘stant to the Solici

JILL GERSTENFIELD _ eanenet tgs

SUSAN WHITMAN MARK B. STERN

Attorneys ALISA B. KLEIN

Office of Personnel Attorneys

. Department of Justice

Washington, D.C. 20415 Washington, D.C. 20530-0001

(202) 514-2217

ALE LEA PTE ISH LIYE SERRE AB Ay PAD OR MAE LE SARA OE AEP NR is

MMA AE ¢

eRe ‘ ‘ a? i. :

QUESTION PRESENTED

Whether federal question jurisdiction exists over a

suit by a federal government contractor to enforce a

provision in a health benefits plan for federal employees

that is part of a government contract under the Federal

Employees Health Benefits Act of 1959, 5 U.S.C. 8901 et

seq.

TABLE OF CONTENTS

Page

CRD ssc Sp dunams pindaneinnbapeaeeeenwes he l

PPE CTT ERTE ET PP PEELS. TEC CT OPC EEL TEESE ]

RS DE OT Lee eT AN ere oe eens 10

A. The availability of a federal forum for FEHBA-

reiated reimbursement actions is a question

SS I I ko cdi pet fo ede die ks s tennaek co 11

B. The Seventh Circuit correctly concluded that a

federal forum is available .....................6. 15

C. The Second Circuit's McVeigh case provides

the better vehicle for review of this question ...... 19

OF AE PE fy Pre ay ge eT PRP err eee 20

TABLE OF AUTHORITIES

Cases:

American Surety Co.. v. Schulz, 273 U.S. 159 (1915) 2... 16

Arkansas Dep't of Health & Human Servs. v.

Ahlborn, cert. granted, 126 S. Ct. 26 (2005) .......... 15.

Botsford v. Blue Cross & Blue Shield of Montana,

314 F.3d 390 (9th Cir. 2002) amended on denial of

reh’g, 319 F.3d 1078 (9th Cir. 2003) ..... webatexe 13, 14

Boyle v. United Techs. Corp., 487 U.S. 500 (1988) ..... 6, 16

Bryan v. OPM, 165 F.3d 1315 (10th Cir. 1999) ..... 2... 14

Burgin v. OPM, 120 F.3d 494 (4th Cir. 1997)... 2.2.2... 14

Caterpillar, Inc. v. Williams, 482 U.S. 386 (1987) 22.2... 13

Caudill v. Blue Cross & Blne Shield of North

Carolina, 999 F.2d 74 (4th Cir. 1993) ......02.0..... 13

Chicago v. International Coll. of Surgeons, 522 U.S.

ok RRR ee eae ree Sitar aeons eae 19

(Il)

IV

Cases—Continued: Page

Christiansen v. National Sav. & Trust Co.,

GAs Fer ee a ee i ok bw a eles es 2

Colorado River Water Conservation Dist. v. United

Staak: AOA SOO Ca? oie sk Sooo ees oe 9

Goepel v. National Postal Mail Handlers Union,

36 F.3d 306 (3d Cir. 1994), cert. denied, 514 U.S.

gk RR rs Fides ee Ape Patt py CER ORL ap 13

Grable & Sons Metal Prods., Inc. v. Darue Engg &

See SAE, Ci Be a Fo sok ee 18

Howard v. Group Hosp. Serv., 739 F.2d 1508

POE WE SUNN Sans bay vo anea ec Gosia ae ta’ 13

Jackson Transit Auth. v. Local Div. 1285,

We 0k Eo eck awh beoneeeeaneeeas 15, 16, 17, 18

Machinists v. Central Airlines, Inc., 372 U.S. 682

WN air ais banksy oe kee eek A ee Ae 16

MedCenters Health Care v. Ochs, 26 F.3d 865

I OE ok er es aD aes die dens ‘yews Meee

Muratore v. OPM, 222 F.3d 918 (11th Cir. 2000) ...... 3,14

National Ass'n of Postal Supervisors v.

United States, 21 Cl. Ct. 310 (1990), aff'd,

946 F.2A B50 (fF etl. Cor. 1908) o.oo ra ccc ctec ees 3

Norfolk & Western RR. v. Nemitz, 404 U.S. 682

{_- SEONG a ape eens er a Se SPR R OE ger LAE RIG Soy ee 16

Sereboffv. Mid Atlantic Med. Servs., cert. granted,

Wa SG (ee. Fa SU os ba cvce dang vo casade cas 15

Smith v. Kansas City Title & Trust Co., 255 U.S. 180

£5 ESR CIOE GCI: Bo et Slap Os Aion Seal tesa es EAL aU oe 19

Statutes and regulations: Page

Administrative Procedure Act,

A ee OR ook once 0s nade Ok cae ee 14

eS air A Ed a BEE ER SAS REG ROKER CARS 3

CA We 4s cS tata eedea adeeb ccde es cere bens 3

Federal Employees Health Benefits Act .

SETI. Ce Ns in ce oa Rea vaca tans passim

SU. Be ii a PE eG eke eee 2

ET MOR cas da Sn bad conden c See 2

OT Ac MO io awk Sndlb nas Uiennenee Kees 4,16

AE! Shh. SDs bs bos eke nk ee 2

CA ai aR a oa Oa 3

hE) FG Be 6 hao wea hens aed re 4,9

SULT ee i vis 2onGandun ni eee a aceas 7,17

A RE Te as bso ks Fen oe Ca eh eee 2

5 U.S.C. 8906 (2000 & Supp. IT 2002) .............. 3

OU Be See Sick apes buku cde ewewiena sar 3

BE) Fn NES kn kadai end cae beh ea wana cake 3

5 U.S.C. 8906(f) (2000 & Supp. IT 2002) ............ 3

RL NA ick ne kas ba eed Nes Maen ME Wen 3

A Ne in Sabah awk cannes sneak eses vane’ 3

Ate OE ae meckd Se caked eae Veen Ee: i)

RET PR ON ha Sido soit deh adnate inewekens 2

STs SO aA Ss adteiseecicey vies 12, 18

Bare: WON 6 nos o.5 ce 5p 00s ate nda Kaen es 20

5 C.F.R.:

SIRS TIE ao ook ws SAGER ERA aw 3

TRIE fis cb pd dan wed hkn Wend hee aa Ras 14

Section 890 50R(e V2) - é ae R

VI

Regulations—Continued: Page

48 C.F.R.:

SIGE MNEs hd a niaveb deen ca crortnceceiabasne 3

RUD cs ceca teak fennekeahabwesenal 3

Miscellaneous:

re, SU EEN > Ga iN osthaneccdedddaapanada 14

H.R. Rep. No. 957, 86th Cong., Ist Sess. (1959) ......... 2

H.R. Rep. No. 282, 95th Cong., Ist Sess. (1977) ......... 4

H.R. Rep. No. 374, 105th Cong. Ist Sess. (1997) ......... 4

OPM Announces Smallest Average FEHB Preminm

Increase in Nine Years (Sept. 15, 2005)

<http:/www.opm.gov/news/ opm-announces-

smallest-average-F E HB-premium-increase-in-

TE UU og en Sah avipcdabeideecnnscces

In the Supreme Court of the Gnited States

No. 04-1657

JULIA CRUZ, AS REPRESENTATIVE

OF JOSE S. CRUZ, PETITIONER

wv.

BLUE CROSS AND BLUE SHIELD OF ILLINOIS, ET AL.

No. 05-200

EMPIRE HEALTHCHOICE ASSURANCE, INC. DBA EMPIRE

BLUE CRoss BLUE SHIELD, PETITIONER

v.

DENISE F. MCVEIGH, AS ADMINISTRATRIX

OF THE ESTATE OF JOSEPH EF. MCVEIGH

ON PETITIONS FOR WRITS OF CERTIORARI

TO THE UNITED STATES COURTS OF APPEALS

FOR THE SEVENTH AND SECOND CIRCUITS

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

This brief is submitted in response to the orders of

this Court inviting the Solicitor General to express the

views of the United States.

STATEMENT

These cases each present the question whether the

federal courts have federal-question jurisdiction over

cases brought to enforce the terms of contracts created

under the Federal Employees Health Benefits Act of

1959 (FEHBA), 5 U.S.C. 8901 et seq. The courts of ap-

i

2

peals reached different conclusions on the question, and

the issue merits the Court’s review.

1 a. Congress enacted the Federal Employees

Health Benefits Act to establish a comprehensive pro-

gram that would “assure maximum health benefits for

employees at the lowest possible cost to themselves and

to the Government.” H.R. Rep. No. 957, 86th Cong. Ist

Sess. 4 (1959). Today, approximately eight million fed-

eral employees, retirees, and their dependents receive

health insurance through plans under FEHBA, at a total

cost of about $31 billion per vear in premiums, $22 bil-

lion of which is paid by the federal government. OPM

Announces Smallest Average FEHB Premium Increase

in Nine Years (Sept. 15, 2005) <http:/Awww. opm.gov/

news/opm-announces-smallest-average-FEHB-

premium-increase-in-nine-years, 961.aspx>.

FEHBA delegates broad authority to the Office of

Personnel Management (OPM) to administer the Fed-

eral Employees Health Benefits Program, see 5 U.S.C.

8901-8913, and to promulgate regulations necessary to

carry out the statute’s objectives, see 5 U.S.C. 8913. In

particular, the statute gives OPM authority to contract

with carriers to offer health benefits plans to federal

employees, annuitants, and dependents. 5 U.S.C. 8902,

8903. Such plans must meet criteria established by

OPM, and each contract must contain “a detailed state-

ment of benefits offered and shall include such maxi-

mums, limitations, exclusions, and other definitions of

benefits as the Office considers necessary or desirable.”

5 U.S.C. 8902(d). Enrollees and beneficiaries are bound

by the terms of the contract. See Christiansen v. Na-

tional Sav. & Trust Co., 683 F.2d 520, 530 (D.C. Cir.

1982).

3

By statute, the government and the enrollee share

responsibility for premiums payable to the plan.

5 U.S.C. 8906 (2000 & Supp. II 2002). The employing

agency (or OPM for annuitants) pays 72% to 75% of the

premium as part of its payroll costs funded by general

appropriations. 5 U.S.C. 8906(b)(1), (b)(2) and (f). Pre-

miums are deposited into a special Treasury fund called

the Employees Health Benefits Fund. 5 U.S.C. s909%a).

Under the type of fee-for-service plan at issue in

these cases, the carrier draws against the Fund on a

“checks-presented” basis to pay for covered health care

services. 5 U.S.C. 8909(a); 48 C.F.R. 1632.170(b). Any

balance in the Fund is not the property of the carriers.

Rather, the carrier’s profit, if any, comes from a negoti-

ated service charge. See National Ass’n of Postal Su-

pervisors 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, 944 F.2d 859

(Fed. Cir. 1991); see also 48 C.F.R. 1615.902. Any sur-

plus attributable to a plan may be used, at OPM’'s dliscre-

tion, to lower future rates, reduce future government

and employee, contributions, increase plan benefits, or

make a refund to the government and plan enrollees. 5

U.S.C. 8909(b); 5 C.F.R. 890.503(¢)(2).

The government ultimately decides whether a claim

for medical services should be paid under the program.

5 U.S.C. 8902qj). If a carrier denies payment of a

claim, the enrollee may seek OPM review. 5 C.F.R.

890.105(a)(1). OPM’s determinations regarding the

claim are subject to judicial review in federal court un-

der the Administrative Procedure Act, 5 U.S.C. 701, 706.

See, ¢.g., Muratore v. OPM, 222 F.3d 918, 920 (11th Cir.

20)

4

FEHBA provides that “|t]he 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 thereun-

der, which relates to health insurance or plans.”

5 U.S.C. 8902(m). That provision was first enacted “to

establish uniformity in Federal employee health benefits

and coverage.” H.R. Rep. No. 282, 95th Cong., ist Sess.

1 (1977). It was broadened in 1998 “to strengthen the

ability of national plans to offer uniform benefits and

rates to enrollees regardless of where they may live”

and to “strengthen the case for trying FEHB program

claims disputes in Federal courts rather than state

courts.” H.R. Rep. No. 374, 105th Cong. Ist Sess. 9

(1997).

b. The largest plan in the FEHBA program is the

Blue Cross Blue Shield Service Benefit Plan. Pursuant

to 5 U.S.C. 8902(a), OPM has entered into annual con-

tracts with the Blue Cross Blue Shield Association, act-

ing on behalf of the Blue Cross Blue Shield affiliates in

these two cases and a number of others across the na-

tion. The contracts include a Statement of Benefits.’

The Statement of Benefits in turn has a reimbursement

' Petitioners in Cruz mistakenly assert (Pet. 14) that the Statement

of Benefits is not a part of the contract between OPM and Blue Cross.

The contract hetween OPM and Blue Cross provides that “|t}he Carner

shall provide the benefits as described in the Certified Brochure Text

found in Appendix A.” and that “[t |he Carrier's subrogation rights, pro-

cedures and policies, including recovery nights. shall be in accordance

with the Certified Brochure Text.” 04-1657 C_A. App. 354, 357. The

Certified Brochure Text is identical. other than in formatting, to the

Statement of Benefits. Indeed, it recites that it “is based on text in-

corperated inte the contract hetween OPM and | Blue Cross |.” 04-1657

CLA. App. 17.

5

provision requiring enrollees and beneficiaries who re-

ceive compensation from a third party for an injury or

illness to reimburse the plan for benefits paid.” If an

enrollee does not voluntarily reimburse the plan, the

contracts require Blue Cross to make a “reasonable ef-

fort to seek recovery of amounts * * * which it is entitled

to recover in cases which are brought to its attention,”

05-200 Pet. 5; see 04-1657 Resp. Br. 4 (petition stage),

and to “subrogate under a single, nation-wide policy to

ensure equitable and consistent treatment for all Mem-

bers under the contract,” 05-200 Pet. 5; see 04-1657

Resp. Br. 4 (petition stage).

2. No. 05-200. a. Joseph E. MeVeigh, an enrollee in

the FEHBA plan administered by Empire Healthchoice

Assurance, Inc., suffered injuries in an automobile acci-

dent in 1997 and received approximately $157,000 in

FEHBA benefits until his death in 2001. In 2003,

McVeigh’s estate recovered $3,175,000 in settlement of

its tort suit arising from the accident. When it learned

of the upcoming settlement, Empire, petitioner in No.

”

The provision in No. 05-200 states 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 iliness, 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.

(05-200 Pet. App. 4a. The provision in No. 04-1657 dates from an earlier

version of the contract hetween OPM and the national Blue Cross Blue

Shield Association and is worded differently. It has. however. the same

import. See 04-1657 Resp. Br. 3 (petition stage).

6

05-200, sought reimbursement for the benefits it had

provided to McVeigh, and McVeigh’s estate agreed to

place $100,000 in escrow pending litigation. On April 18,

2003, Empire commenced this action against McVeigh’s

estate in the United States District Court for the South-

ern District of New York, seeking a declaration that it

is entitled to approximately $157,000 from McVeigh’s

recovery as reimbursement. 05-200 Pet. App. 3a.

b. The district court granted McVeigh’s motion to

dismiss for lack of subject-matter jurisdiction. 05-200

Pet. App. 54a-62a. The court ruled that “Empire’s

claims * * * require determinations regarding the re-

spective rights and obligations of two private parties to

the health insurance contract at issue.” /d. at 59a. The

court rejected Empire’s claim that federal common law

governs the FEHBA contract, holding that “the only

federal interest Empire identifies is the potential recov-

ery by the United States Treasury of any reimburse-

ment paid by the McVeigh estate to Empire,” and that

the only “significant conflict” between state law and a

federal interest identified by Empire is “that the mere

act of applying state law will * * * undermine the federal

interest in uniformity.” /d. at 59a-60a. The court re-

jected Empire's arguments that the Statement of Bene-

fits itself created “federal law,” 7d. at 60a, and that

FEHBA’s preemption provision preempted any state

law that would otherwise be applicable, id. at 61a-62a.

ec. The court of appeals affirmed. 05-200 Pet. App.

la-45a. Noting that “FEHBA does not provide a federal

statutory cause of action” applicable to this case, the

court stated that “federal jurisdiction exists over this

dispute only if federal common law governs Empire's

claims.” /d. at 5a. Adopting the test from Boyle v.

Peapted Tech nologies Carn AST TTS ANN ANT (1988). the

OO

7

court stated that federal common law would be applica-

ble only if “the operation of state law would (1) signifi-

cantly conflict with (2) uniquely federal interests.” 05-

200 Pet. App. 6a (internal quotation marks and brackets

omitted). The court decided that it “need not address”

whether there are “uniquely federal interests” at stake

in this case because “Empire has failed to demonstrate

that the operation of New York state law creates ‘a:

actual, significant conflict’ with those interests.” /d. at

6a-7a. Although the court noted “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,” the court found that

possibility—and the consequent need to create federal

common law to fill the gap —“insufficient to confer fed-

eral jurisdiction.” Jd. at 8a.

The court also rejected the contention that federal

jurisdiction “exists pursuant to FEHBA’s preemption

proviciea.” 05-200 Pet. App. 10a. The court held that,

under Fk iu:.8A’s preemption provision, “(t]he federal

law preempting state law may be federal common law or

the FEHBA statute provisions themselves, but it must

be law—not {[FEHBA] contract terms.” /d. at 14a. The

court concluded that no preemption occurs here, because

FEHBA preempts only state laws that “relate[] to

health insurance or plans,” 5 U.S.C. 8902(m)(1), and

there was no showing that the dispute in this case “im-

* The court originally adopted that view driven by what it perceived

to be “serious constitutional problems” that would be raised if FE HBA

contract provisions could preempt state law. 05-200 Pet. App. 13a: see

id. at 26a (Sack, J., concurring); :d. at 35a-36a (Raggi, J., dissenting).

On petition for rehearing, the court tempered that rationale, noting that

its “discussion of the constitutional difficulties inherent in a literal

reading of § 8902(m)(1) was not an essential component” of its ultimate

conclusion. /d. at 4a.

8

plicates a specific state law or state common-law princi-

ple” that so relates. 05-200 Pet. App. 15a.

d. Judge Sack filed a concurring opinion identifying

“several issues” discussed by the court “that I think

we do not decide.” 05-200 Pet. App. 25a. Judge

Raggi dissented. /d. at 27a-45a. In her view, Section

8902(m)(1) “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.” /d. at 28a."

3. No. 04-1657. a. Jose S. Cruz, an enrollee in the

FEHBA plan administered by Blue Cross and Blue

Shield of Illinois, was injured in a car accident in 1998.

04-1657 Pet. App. la-2a, 3a. Blue Cross paid approxi-

mately $4600 in benefits to Cruz as a result of his inju-

ries. Cruz ultimately recovered $30,000 in settlement of

a lawsuit against the tortfeasor, of which he paid $10,000

in attorney’s fees. Blue Cross sought to collect the

$4600 from Cruz, but Cruz contended that Blue Cross

was entitled to less than $3121 under the state “common

fund” doctrine, which Cruz asserted would have re-

quired Blue Cross to shoulder some of the attorney’s

fees. Id. at 3a.

In October 2000, Cruz brought an individual and

class-action suit in state court against Blue Cross, as-

serting various claims under the state “common fund”

doctrine. 04-1657 Pet. App. 19a-20a. Blue Cross re-

moved the action to federal court, but the district court

ordered it remanded for lack of subject matter jurisdic-

* The government filed an amicus brief in support of the petition for

rehearing and rehearing en banc in McVeigh. 05-200 Pet. App. 65a-74a.

The panel issued an opinion denying rehearing, ‘d. at 46a-5la, and

: . ‘ ‘ ‘ ° . ‘ ’ a we at)

denied renearing er Gatic Without toptbboni, mi, at laa.

sy)

tion.” Blue Cross then filed its own action against Cruz

in the United States District Court for the Northern

District of Illinois, seeking reimbursement of the $4600

it had paid in benefits to Cruz. /d. at 4a.

b. The district court dismissed the case for lack of

subject matter jurisdiction. 04-1657 Pet. App. lfa-31a.

The court rejected Cruz’s contention that the case

“amounts to an ‘improper review” of the order remand-

ing Cruz’s previous case to state court. /d. at 22a. The

court explained that, while the remanded case raised a

claim under the Illinois common fund doctrine, the in-

stant case is an effort to “seek{] liability against Cruz

under federal common law for failure to reimburse | Blue

Cross].” Jd. at 23a. The court concluded, however, that

federal common law does not govern Blue Cross’s claim

and that the case therefore presents no federal question.

Id. at 26a-29a.

ec. The court of appeals reversed. 04-1657 Pet. App.

la-15a, Initially, the court agreed with the district’ court

that this case is not an improper attempt to appeal the

remand order in Cruz’s earlier lawsuit. /d. at 5a. More-

over, the court rejected Cruz’s argument that, because

FEHBA expressly confers jurisdiction on federal dis-

trict courts for actions against the United States under

the Act, 5 U.S.C. 8912, it must be read to foreclose ac-

tions by FEHBA carriers against enrollees or beneficia-

ries. /d. at 6a. It rejected as well Cruz’s argument that

this would be a proper case for abstention under Co/o-

rado River Water Conservation District vy. United

” The government has filed a Statement of Interest in the state-court

litigation, arguing, ivter alia, that Cruz's state-law claims are pre-

empted under 5 U.S.C. 8902¢m), and that federal law governs con-

: sate Fa ETE UD A oe pees ne

struction ‘aaa EHBA contrac i.

10

States, 424 U.S. 800, 818 (1976). 04-1657 Pet. App. 12a-

14a.

The court held that there is federal-question jurisdic-

tion in this case because “the FEHBA-created contract

provision in the Statement of Benefits preempts state

law with respect to reimbursement for benefits paid to

Cruz,” 04-1657 Pet. App. 15a, and, “with state law pre-

empted,” the court was required “to fill in [FEHBA’s]

interstices with federal common law,” id. at 12a. The

court noted that FEHBA’s preemption provision “dic-

tates that the contract terms trump state law when they

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

benefits including payments with respect to benefits.”

Id. at 8a-9Ya. The court concluded that state laws gov-

erning reimbursement do so relate. Applying such laws,

the court reasoned, would undermine the statutory goal

of uniformity, because “| fJederal employees in different

states would have different reimbursement obligations

and hence different net benefits.” /d. at 10a. Moreover,

“(tlhe cost-savings goal of Congress would also be

thwarted, because reimbursements from enrollees end

up in the federal fund used to pay FEHBA plan premi-

ums.” /bid.

DISCUSSION

In these two cases, the Second and Seventh Circuits

reached diametrically opposed conclusions on whether

the federal courts have jurisdiction over a suit by a

FEHBA insurance carrier to obtain reimbursement

from a FEHBA participant. The conflict in the circuits

is also reflected in a decision of the Eighth Circuit,

which has agreed with the Seventh Circuit's conclusion,

and the question can be expected to arise in the future

in those and other circuits. An important premise of the

1]

FEHBA program is that the benefits and terms of

FEHBA health plans for federal employees should be

nationally uniform. The circuit conflict not only threat-

ens the achievement of that goal, but also calls into ques-

tion the ability of the federal courts to exercise jurisdic-

tion over cases involving the interpretation of govern-

ment contracts involving federal employees—a matter

of considerable importance more generally. Accord-

ingly, further review is warranted. Although the Court

could grant review in both cases and consolidate them,

the McVeigh case appears to provide a more suitable

vehicle for review.

A. The Availability Of A Federal Forum For FEHBA-Re-

lated Reimbursement Actions Is A Question That Merits

Review

1. These two cases arise from remarkably similar

facts. Both cases involve enrollees in the Service Bene-

fit Plan, a FEHBA plan, who were involved in accidents

and received medical benefits from their plans on ac-

count of their injuries. In both cases, the enrollees ad-

vanced tort claims against the parties who caused the

accidents and ultimately received funds in settlement of

their claims. The plan's right to reimbursement in both

cases was governed by a Statement of Benefits that pro-

vided for reimbursement “in full for benefits [the plan]

paid” in the event of a recovery by the enrollee against

a third party. See 05-200 Pet. App. 4a n.2; see also 04-

1657 Pet. App. 3a (“Plan has the right to recover pay-

ments the Plan has made.”). The Statement of Benefits

is incorporated into and made a part of the contract be-

tween OPM and Blue Cross. See note 1, supra. Other

provisions in the contract provide that Blue Cross must

make a “reasonable effort to seek recovery of amounts

12

* * * it is entitled to recover in cases which are brought

to its attention,” 05-200 Pet. 5; see 04-1657 Resp. Br. 4

(petition stage), and to “subrogate under a single,

nation-wide policy to ensure equitable and consistent

treatment for all Members under the contract.” 05-200

Pet. 5; see 04-1657 Resp. Br. 4 (petition stage). In both

cases, the enrollees did not reimburse the Service Bene-

fit Plan for any of the medical benefits they had re-

ceived. In both eases, the Plan brought suit to recover

the funds due.

Faced with those virtually identical cases, the Sev-

enth Circuit held that “(t]he district court has federal

question subject matter jurisdiction over this case under

28 U.S.C. § 1331,” 04-1657 Pet. App. 15a, while the Sec-

~ ond Circuit “affirm[ed] the district court’s dismissal of

the action for lack of subject matter jurisdiction” under

Section 1331. 05-200 Pet. App. 2a. Indeed, the Second

Circuit was informed of the Seventh Circuit’s decision in

(Cruz in a petition for rehearing and issued a supplemen-

tary opinion in which it expressly “note[d] lits] disagree-

ment with the conclusions reached in * * * Cruz.” Id. at

50a. The Seventh Circuit was informed of the Second

Circuit’s decision in McVeigh in a petition for rehearing

en banc, but the court, after calling for a response, de-

nied the petition.

Nor is the circuit conflict confined to the Second and

Seventh Circuits. MedCenters Health Care v. Ochs, 26

F.3d 865, 867 (8th Cir. 1994), involved a fact-pattern

virtually identical to the facts of these cases, in which an

enrollee suffered injuries, received FEHBA benefits as

a result of those injuries, obtained a recovery from a

third party, and declined to reimburse the FEHBA plan.

The plan brought an action in federal court to obtain

reimbursement. Faced with a challenge to the district

13

court’s exercise of jurisdiction, the court of appeals

reached the same result as did the Seventh Circuit in

Cruz, concluding that “the District Court properly exer-

cised its authority to decide this case.” /bid.

2. Petitioner in Cruz asserts (Pet. 11) that Botsford

v. Blue Cross & Blue Shield of Montana, 314 F.3d 390

(9th Cir. 2002), amended on reh’g, 319 F.3d 1078 (9th

Cir. 2003), Goepel v. National Postal Mail Handlers

Union, 36 F.3d 306 (3d Cir. 1994), cert. denied, 514 U.S.

1063 (1995), and Howard v. Group Hospital Service, 739

F.2d 1508 (10th Cir. 1984), are also implicated in the

conflict in the circuits. Although the analysis in those

cases touches on some of the legal issues presented

here, each of the cited cases, as well as Candill v. Blue

Cross & Blue Shield of North Carolina, 999 F.2d 74 (4th

Cir. 1993), arose from suits for benefits under a FEHBA

plan by an enrollee or beneficiary against a FEHBA

carrier, rather than, as here, suits for reimbursement by

a FEHBA carrier under the contract against the

enrollee. In Botsford and Caudill, the court held that

federal-question jurisdiction was present, while in

Goepel and Howard, the court held that it was not.”

Although the law was unsettled at the time most of

those FEHBA benefits cases arose, it is now clear that

" The jurisdictional analysis in the cited cases may have been af-

fected by the fact that the plaintiffs in those cases generally were

attempting to plead state-law, not federal, claims. Under the well-

pleaded complaint rule, it is possible that a particular claim may be

outside federal jurisdiction (if pleaded by a party such as the enrollees

or beneficiaries in those cases seeking only to invoke state law), while

a closely related claim may be within federal jurisdiction (if pleaded by

a party such as the FEHBA carriers in these cases seeking to invoke

federal law). See Catermillar lnc. v. Williams, 482 US. 386, 399 (1US7).

Accordingly. the conflict among those cases does not necessanly impli-

cate the conflict between Cruz, McVeigh, and Ochs

14

FEHBA enrollees or beneficiaries who challenge a de-

nial of benefits under a FEHBA plan must sue OPM

itself—not the carrier—in a suit under the Administra-

tive Procedure Act.’ There is undoubtedly federal-ques-

tion jurisdiction over such a suit. See Botsford, 314 F.3d

at 398 (“FEHBA allows beneficiaries to sue the only

employer and plan administrator involved in FEHBA:

the United States.”).” Accordingly, the question that

arose in cases such as Botsford, Caudill, Goepel, and

Howard, concerning whether there is federal jurisdic-

tion over a claim by an enrollee or beneficiary for bene-

fits under a FEHBA plan is unlikely to arise in future

cases.

There has been no change in the law, however, that

would affect federal jurisdiction in FEHBA reimburse-

ment cases, such as the instant cases and Ochs. Cases

such as these can be expected to arise with considerable

frequency in the future. It is not uncommon for FEHBA

participants, as for others who have access to a third-

‘ OPM amended the regulations to provide for suit against OPM.

rather than against the insurance carrier, in 1995. See 60 Fed. Reg.

16,039 (1995) (amending 5 C.F.R. 890.107 to clarify that suit must be

brought against OPM); see also Muratore v. OPM, 222 F.3d 918, 920

(11th Cir. 2000); Bryan v. OPM, 165 F.3d 1315 (10th Cir. 1999); Burgin

v. OPM, 120 F.3d 494 (4th Cir. 1997).

“ Petitioner in (ruz mistakenly contends (Pet. 11) that Botsford

“squarely conflicts” with the Seventh Circuit's decision in Cruz.

Botsford held that the construction of a FEHBA contract is necessarily

governed by federal law. See 314 F.3d at 395 (“| A Ipplication of state

laws in cases involving denials of or disputes over benefits would

undermine congressional intent.”) Botsford therefore agreed with the

Fourth Circuit's decision in Caudill, and the holdings in both cases are

yenerally consistent with the Seventh Circuit's holding in Cruz. Goepel

and Howard found no federal jurisdiction in a similar context, and the

holdings in those cases are therefore generally consistent with the

second Circuit's decision in Jc eryh.

15

party source of payment for medical expenses, to obtain

payments for medical expenses caused by accident-re-

lated injuries and then recover from a tortfeasor for

those same injuries. Cf., e.g., Arkansas Dep't of Health

& Human Servs. vy. Ahlborn, cert. granted, No. 04-1506

(Sept. 27, 2005) (Medicaid); Sereboff v. Mid Atlantic

Med. Servs., cert. granted, No. 05-260 (Nov. 28, 2005)

(ERISA plan). Three circuits—two of them very re-

cently—have taken a position on the ability of a FEHBA

carrier to enforce its reimbursement provision in those

circumstances in federal court, and the question can be

expected to continue to arise in the future. The conflict

in the circuits creates a disuniformity in an area in which

Congress intended a uniform nationwide scheme. Ac-

cordingly, further review is warranted.

B. The Seventh Circuit Correctly Concluded That A Fed-

eral Forum Is Available

The Seventh Circuit in Cruz correctly concluded that

there is federal-question jurisdiction over a suit by a

FEHBA carrier for reimbursement of benefit payments,

and the Second Circuit in McVeigh accordingly erred.

Federal jurisdiction rests on two bases.

1. First, federal jurisdiction is present because a

suit to enforce a FEHBA contract necessarily sets forth

a federal claim. This Court held in Jackson Transit Au-

thority v. Local Division 1285, 457 U.S. 15, 22 (1982),

that because the federal statute at issue there contem-

plated collective-bargaining agreements between unions

and local transit authorities that received federal grants,

“jt is reasonable to conclude that Congress expected

** * the collective bargaining agreement, like ordinary

contracts, to be enforceable by private suit upon a

breach.” /d. at 20-21. Similarly here, because FEHBA

contemplates eontracts hetween OPM and insurance

16

carriers that are also binding on enrollees and beneficia-

ries, it is reasonable to conclude that Congress expected

the contracts to be enforceable by suit upon a breach.

The only remaining question is whether such contract

actions set forth federal, rather than state, claims. See

id. 21. Here, the pervasively federal character of the

relationship established by federal statute makes clear

that federal, rather than state, law governs.

The Court explained in Jackson Transit 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.” 457 U.S.

at 22 (citing, inter alia, Machinists v. Central Airlines,

Ine., 372 U.S. 682 (1963); Norfolk & Western R.R. v.

Nemitz, 404 U.S. 37 (1971); American Surety Co. v.

Schulz, 237 U.S. 159 (1915)). Such suits set forth federal

claims if Congress intended the contracts to be “cre-

ations of federal law” and “that the rights and duties

contained in those contracts be federal in nature.” 457

U.S. at 23.”

A FEHBA contract is undoubtedly a “creation[]} of

federal law.” See 5 U.S.C. 8902(a). The FEHBA carri-

ers in these cases are suing to enforce provisions of

FEHBA contracts, to which the government is a party

and in which the government has a substantial financial

interest. Cf. Boyle v. United Techs. Corp., 487 U.S. 500,

504 (1988) (“[O]bligations to and rights of the Unitea

States under its contracts are governed exclusively by

federal law.”). The suits were undertaken pursuant to

" As the Court explained in Jackson Transit. the question in this

context is not whether Congress conferred an implied private night of

action, “hut whether Congress intended such contract actions to set

forth federal. rather than state, claams. 4o4 US. at 21

17

the carriers’ express contractual obligation to the gov-

ernment to enforce those specific provisions. Moreover,

nationwide uniformity is a core purpose of the federal

program. In these circumstances, it is clear that Con-

gress intended that the “rights and duties contained in

those |FEHBA| contracts be federal in nature.” /ack-

son Transit, 457 U.S. at 23.

That conclusion is confirmed by FEHBA’s preemp-

tion provision, which provides that “[t]he terms of any

contract under |F EHBA] 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 * * * which relates to

health insurance or plans.” 5 U.S.C. 8902(m)(1). Terms

in FEHBA contracts that provide for reimbursement

“relate to the nature, provision, or extent of * * * bene-

fits (including payments with respect to benefits),” be-

cause they provide that the enrollee must return pay-

ments for benefits to the carrier under certain circum-

stances. Moreover, state laws that would govern the

reimbursement available to a FEHBA carrier “relate| |

to health insurance or pians.” Because state law on such

subjects therefore is preempted, it follows that these

subjects must be governed by federal law, including

FEHBA, the contracts with carriers that in turn bind

enrollees and beneficiaries, and federal common law

where necesary to fill in interstices. The suits contem-

plated by Congress to enforce a contract between OPM

and a carrier therefore necessarily arise under federal

law for purposes of the district courts’ jurisdiction under

28 U.S.C. 1331.

In Jackson Transit itself, the Court concluded that

the relevant contract was not governed by federal law,

hut the annosite is true here. The Court in Jackson

18

Transit observed that, although the contract in that case

between the local transit agency and its employees’ un-

ion was mandated by federal law, the “statutory lan-

guage provide[d] no definitive answer” to the question

whether Congress intended that the rights and duties

under that contract be controlled by federal law. 457

U.S. at 24. Reviewing the legislative history, however,

the Court found a “consistent theme” that “Congress

intended that labor relations between transit workers

and local governments would be controlled by state

law.” Jbid. Accordingly, the Court held that a suit to

enforce the contract did not present a federal question.

In this case, by contrast, the federal government is a

party to the contract, the federal interest and involve-

ment in the contract are far stronger than in Jackson

Transit, and there is nothing in the FEHBA statute or

legislative history cutting the other way. To the con-

trary, FEHBA’s preemption provision makes clear that

Congress intended federal law to govern, and the legis-

lative history shows that one of the purposes of the

broadening of that provision in 1998 was to reinforce the

basis for having disputes resolved in federal court. See

p. 4, supra. Under the Jackson Transit analysis, there-

fore, there is federal-question jurisdiction over these

cases.

2. Second, jurisdiction under 28 U.S.C. 1331 would

lie even over a state-law contract action seeking reim-

bursement here, because a federal question would be a

necessary and disputed ingredient. This Court ex-

plained in Grable & Sons Metal Products, Inc. v. Darne

Engineering & Manufacturing, 125 S. Ct. 2368, 2368

(2005), that federal-question jurisdiction will lie over a

state-law cause of action if the “state-law claim neces-

sarily raise|s| a stated federal issue, actually disputed

19

and substantial, which a federal forum may entertain

without disturbing any congressionally approved bal-

ance of federal and state judicial responsibilities.” See

Chicago v. International College of Surgeons, 522 U.S.

156 (1997); Smith v. Kansas City Title & Trust Co., 255

U.S. 180 (1921). Thus, even if the carrier’s suits in Cruz

and McVeigh rested only upon state-law causes of ac-

tion, it would nonetheless remain true that the construc-

tion and application of the FEHBA contract itself and

its reimbursement provisions—essential ingredients in

any such state-law cause of action—are matters of fed-

eral law; that those matters are “actually disputed” (be-

cause the enrollee presumably does not concede his lia-

bility for reimbursement in the amount sought); and that

recognizing the federal nature of the claim would not

alter any congressionally approved balance between

federal and state courts (because there is no basis for

believing that Congress intended that state courts alone

would adjudicate disputes arising under FEHBA con-

tracts). Accordingly, under Grable, federal jurisdiction

would lie in these cases, even if the FEHBA carriers’

claims necessarily rested on state-law causes of action.

C. The Second Circuit's McVeigh Case Provides The Better

Vehicle For Review Of This Question

Because both Cruz and McVeigh present the ques-

tion whether there is federal jurisdiction in very similar

factual settings, the Court could grant review in either

case. The Court could also grant review in both cases,

although the similarity between them suggests that do-

ing so would be unnecessary. The best course would

appear to be to grant the petition in McVeigh, which

appears to be the better vehicle, and hold Cruz for dis-

position in light of the decision in McVeigh. The Craz

case involves an unusual situation involving parallel

20

state litigation, which could be argued to raise additional

issues that are not independently worthy of plenary re-

view. See 04-1657 Pet. i (question presented includes

reference to “where a state court action was already

proceeding on the issue”)."" MeVeigh does not involve

that additional complication, and it would therefore ap-

pear to be the better vehicle for resolution of the ques-

tion presented.

CONCLUSION

The petition for a writ of certiorari in No. 05-200

should be granted. The petition in No. 04-1657 should

be held and then disposed of as appropriate in light of

this Court’s decision in No. 05-200.

Respectfully submitted.

PauL D. CLEMENT

MARK A. ROBBINS Solicitor General

General Counsel PETER D. KEISLER

Counsel of Record Assistant Attorney General

KATHIE ANN WHIPPLE EDWIN S. KNEEDLER

Deputy General Counsel Deputy Solicitor General

JAMES S. GREEN JAMES A. FELDMAN

Associate General Counsel Assistant to the Solicitor

JILL GERSTENFIELD General

SUSAN WHITMAN MARK B. STERN

Attorneys ALISA B. KLEIN

Office of Personnel Attorneys

Management

DECEMBER 2005

'’ In addition, the petitioner in Cruz argued to the court of appeals

that the case was an improper attempt to appeal the earlier order re-

jecting the removal of petitioner's case from state court and remanding

it back to that court. 04-1657 Pet. App. 5a; see 28 U.S.C. 1447(d). The

court of appeals correctly rejected that argument, and petitioner has

not renewed it in this Court. 04-1657 Pet. App. 5a