Appendix — Aetna U.S. Healthcare v. Lazorko

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APPENDIX A

UNITED STATES COURT OF APPEALS,

THIRD CIRCUIT.

Jonathan LAZORKO, Administrator of the Estate of

Patricia Norlie, a/k/a

Patricia Norlie-Lazorko; Jonathan Lazorko, Personal

Representative of Patricia

Norlie-Lazorko,

V.

PENNSYLVANIA HOSPITAL; Institute of

Pennsylvania; David E. Nicklin, M.D.;

University City Family Medicine; U.S. Healthcare, t/a/

HMO-PA, Jonathan

Lazorko, Administrator of the Estate of Patricia Norlie,

a/k/a Patricia Norlie-

Lazorko; Jonathan Lazorko, Personal Representative of

Patricia Norlie-Lazorko

and John J. O’Brien, III, Esquire, Appellants.

Jonathan Lazorko, Administrator of the Estate of

Patricia Norlie, a/k/a

Patricia Norlie-Lazorko; Jonathan Lazorko, Personal

Representative of Patricia

Norlie-Lazorko, Appellants,

v.

Pennsylvania Hospital; Institute Of Pennsylvania; David

E. Nicklin, M.D.;

University City Family Medicine; U.S. Healthcare, t/a/

HMO-PA.

Jonathan LAZORKO, Administrator of the Estate of

Patricia Norlie, a/k/a

Patricia Norlie-Lazorko; Jonathan Lazorko, Personal

Representative of Patricia

Norlie-Lazorko,

Vv.

Pennsylvania Hospital; Institute of Pennsylvania;

David E. Nicklin, M.D.;

University City Family Medicine; U.S. Healthcare, t/a/

HMO-PA, U.S.

Healthcare, Appellant.

Nos. 98-1776, 98-1777 and 98-1790.

Argued June 26, 2000.

Filed Dec. 26, 2000.

* * * * *

OPINION OF THE COURT

ROTH, Circuit Judge:

Patricia Norlie-Lazorko committed suicide in July

1993, allegedly as a consequence of her untreated

mental illness. Her husband, Jonathan Lazorko, brought

suit in state court against Dr. David Nicklin, Patricia’s

doctor; University City Family Medicine, Nicklin’s

employer; Pennsylvania Hospital; the Institute of

Pennsylvania; and U.S. Healthcare, Inc., the health

maintenance _ organization (HMO) administering

Lazorko’s health benefits. After a series of removals of

the case to the U.S. District Court and remands to State

court, Lazorko appeals the dismissal of his direct claims

against U.S. Healthcare and the District Court’s award

of sanctions against him for including two p

frivolous allegations in his complaint. U.S. Healthcare

cross-appeals the District Court’s-remand to state court

of the vicarious liability claims against it.

Following our recent decision in In re US

Healthcare, Inc., 193 F.3d 151 (3d Cir. 1999)! we will

affirm the remand to state court of the vicarious liability

claims against U.S. Healthcare. We -will, however,

reverse the judgment of the District Court, dismissing

the direct claims against U.S. Healthcare (Count I of the

Complaint), and we will remand these claims to the

District Court for remand to the state court. As for

sanctions, Lazorko’s attorney appealed only the interim

decision Sanctioning him, not the subsequent award to

U.S. Healthcare of a specified amount of attorney’s fees.

We will therefore dismiss the appeal of sanctions for

lack of appellate jurisdiction.

I. Background -—

Norlie-Lazorko suffered from depression and

schizophrenia. In late 1992, she attempted suicide and

was hospitalized for six months. She was discharged

| In re U.S. Healthcare was decided after the District Court’s

opinions in this case. Hence, the District Court did not have

that decision available to it.

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from the hospital in June 1993 but again began

contemplating suicide. Although she asked to be

rehospitalized, Dr. Nicklin denied her request. On

July 4, 1993, Norlie-Lazorko committed suicide.

Following his wife’s death, Jonathan Lazorko, as

administrator of her estate, brought suit in Pennsylvania

state court. Lazorko alleged as to U.S. Healthcare that

under state law it was directly and vicariously liable for

his wife’s death because the HMO imposed financial

disincentives on Dr. Nicklin that discouraged him from

recommending her for additional treatment.

Based on this claim, U.S. Healthcare removed the

case to federal court in the Eastern District of

Pennsylvania, pursuant to 28 U.S.C. § 1446(b). U.S.

Healthcare argued that the denial of the hospitalization

request was completely preempted by ERISA under

§ 502(a)(1)(B), which gives a member of an ERISA plan

an exclusive federal remedy for claims alleging the

denial of benefits guaranteed by that plan. Lazorko

moved to remand the case to state court. The District

Court rejected Lazorko’s motion, construing his direct

liability claims as being for the improper denial of

benefits, and thus completely preempted under ERISA.

Lazorko v. Pennsylvania Hosp., et al., No. 95-CV- 6151,

slip op. at 2, 1995 WL 696888 (E.D. Pa. Nov. 22, 1995)

(Lazorko I). In a subsequent decision, the District Court

dismissed the claims that were preempted by ERISA’s

civil remedy and remanded the rest of the case to state

court. Lazorko v. Pennsylvania Hosp., et al., No. 95-

CV-6151, slip op. at 2-3, 1996 WL 7992 (E.D. Pa. Jan.

4, 1996) (Lazorko II).

On this first remand, the state court dismissed four

counts of Lazorko’s complaint. Three other counts,

Sa

which alleged intentional misrepresentation, fraud, and

violation of the state consumer protection law, were

stricken without prejudice to amending. Lazorko did

amend, but he left intact his central contention that U.S.

Healthcare’s financial penalties interfered with Dr.

Nicklin’s professional judgment, causing Norlie-

Lazorko’s death.

U.S. Healthcare removed the case to federal court a

second time.? In response, Lazorko moved again for a

remand. Again, however, the District Court denied the

remand totion, concluding as it had previously that

Lazorko’s direct negligence claims against U.S.

Healthcare for denial of hospital benefits were

completely preempted by ERISA’s § 502(aX(1)(B). The

court did grant the motions to dismiss of the other

defendants.3 Lazorko v. Pennsylvania Hosp., et al., CA

No. 96-4658, slip op. at 8 (E.D. Pa. Mar. 28, 1997)

(Lazorko III).

Following the second removal to federal court,

Lazorko amended his complaint twice more. Although

he added new facts, he did not change his central

contention. Moreover, rather than add a new claim,

based on ERISA, to his existing claims of direct and

vicarious liability, Lazorko instead moved to strike U.S. |

Healthcare’s ERISA defenses, asserting that U.S.

Healthcare had not shown that his health plan qualified

2 This time, the case was assigned to a different district judge.

3 The other defendants are not parties to this appeal since

Lazorko has not appealed the dismissal of the claims against

them.

as an ERISA plan. U.S. Healthcare moved for summary

judgment, arguing that, because his state law claims

related to an ERISA plan, they were superseded by

ERISA’s express preemption clause, § 514(a), 29 U.S.C.

§ 1144(a).

The District Court denied Lazorko’s motion to strike

U.S. Healthcare’s ERISA defenses, reasoning that,

under the law of the case, earlier proceedings had

established the existence of a plan. Lazorko v.

Pennsylvania Hosp., et al., CA No. 96-4858, slip op. at

4-6, 1998 WL 405055 (E.D. Pa. June 30, 1998)

(Lazorko IV). The District Court then granted summary

judgment for U.S. Healthcare on preemption grounds on

all of Lazorko’s direct liability claims against the HMO,

including the claims in Counts II, III and IV for

intentional misrepresentation, fraud, and violation of

Pennsylvania’s consumer protection law.4 The court

remanded Lazorko’s vicarious liability claims against

U.S. Healthcare, however, because they alleged medical

malpractice, an area of tort law traditionally regulated by

the states, which did not implicate the regulation of

employer plans and, thus, was outside the scope of

ERISA’s express preemption.

4 Because Lazorko has not briefed or argued that his claims

against U.S. Healthcare, contained in Counts II, IT] and IV, are

directed at the quality, rather than the quantity, of benefits

received under his plan, we will affirm the dismissal of these

counts. Our discussion in this opinion of the direct claims

against U.S. Healthcare will be in reference only to those

claims alleged in Count I.

7a

U.S. Healthcare also moved to sanction Lazorko’s

attorney, alleging that he had failed to reasonably

investigate several of the charges levied against U.S.

Healthcare, including the allegations that the

issued sham benefit policies and that it intentionally

denied patients treatment so as to maximize profits. The

District Court granted U.S. Healthcare’s motion in a

second June 30, 1998, order, which struck the offending

allegations from the complaint and awarded the costs

incurred to defend against the challenged allegations.5

On July 24 and 29, Lazorko appealed both of the June

30 orders. U.S. Healthcare cross-appealed the remand to

the state court of the vicarious liability claims against it.

Following a hearing on the amount of sanctions, the

District Court awarded U.S. Healthcare costs of

$2,452.50 in an order filed on August 3, 1998. Lazorko

did not appeal this order.

5 The offending allegations appear in paragraphs 25 and 39 of

the Complaint. The District Court did not err in striking these

paragraphs. The court had § 502(a) removal jurisdiction and,

therefore, could rule on and strike them. We will affirm the

District Court’s determination that Lazorko’s attorney failed to

Satisfy the “stop, think, investigate and research” rule before

including these paragraphs in his Complaint. See Gaiardo v.

Ethyl Corp., 835 F.2d 479, 482 (3d Cir. 1987). Because

Lazorko’s attorney had no basis to assert the claims in

paragraphs 25 and 39, the District Court was within its

authority to strike them, as well as to impose sanctions. We

will affirm the striking of paragraph 25. We need not affirm

the striking of paragraph 39 because we are affirming the

dismissal of Count III, of which paragraph 39 is a part.

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II. Jurisdiction and Standard of Review

The District Court purportedly had removal

jurisdiction under 28 U.S.C. § 1441(a) by virtue of

ERISA’s complete preemption provision,

§ 502(a)(1)(B), codified at 29 U.S.C. § 1132(a)(1)(B),

which satisfies the “arising under” requirement for

federal question jurisdiction under 28 U.S.C. § 1331.

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

64- 66, 107 S. Ct. 1542, 95 L.Ed.2d 55 (1987). We have

appellate jurisdiction under 28 U.S.C. §1291. We

review the District Court’s decision to remand under

§ 1367(c)(3) for abuse of discretion, but have plenary

review of the underlying basis for remand to the extent

that question is a legal one. See In re U.S. Healthcare,

193 F.3d at 160 (citing Engelhardt v. Paul Revere Life

Ins. Co., 139 F.3d 1346, 1351 n.4 (11th Cir. 1998)).

Although the District Court relinquished jurisdiction

over this case when it either dismissed or remanded all

the claims before it, it still had jurisdiction to order

sanctions. Moreover, a district court has jurisdiction to

impose Rule 11 sanctions on litigants and attorneys

appearing before it even if the court is subsequently

determined to have lacked subject matter jurisdiction

over the claim in which the sanctionable conduct

occurred. See Willy v. Coastal Corp., 503 U.S. 131,

139, 112 S.Ct. 1076, 117 L.Ed.2d 280 (1992); Jn re

Jaritz Industries, Ltd., 151 F.3d 93, 96 (3d Cir. 1998)

(relying on Willy).

Concerning the award of sanctions, while we review

a district court’s decision to impose sanctions for abuse

of discretion, we have plenary review of the question of

our jurisdiction over the appeal of the award. See

Shareholders v. Sound Radio, 109 F.3d 873, 878 (3d

Cir. 1997). An appellate court lacks jurisdiction over an

appeal that is untimely filed, including premature

appeals. See Hindes v. Federal Deposit Ins. Corp., 137

F.3d 148, 155 (3d Cir. 1998). An award of sanctions is

not a final order, and thus not appealable, until the

district court deter mines the amount of the sanction.

See Napier v. Thirty or More Unidentified Federal

Agents, Employees or Officers, 855 F.2d 1080, 1089 (3d

Cir. 1988). The District Court did not make this

determination until its subsequent order, filed on August

3, 1998. Consequently, plaintiffs July 29 notice of

appeal of the June 30 sanctions order was premature and

untimely.

Nor does the fact that the District Court

subsequently entered its final order on the sanctions

motion on August 3, 1998, cure this premature appeal

and make it timely. A premature appeal can be cured by

a subsequent final order if the untimely appealed

decision would otherwise constitute a final judgment.

See Fed. R. App. P. 4(a)(2). Because Rule 11 sanctions

awards are interlocutory in nature, this rule does not

extend to them. See FirsTier Mortgage Co. v. Investors

Mortgage Ins. Co., 498 U.S. 269, 275-76, 111 S. Ct.

648, 112 L.Ed.2d 743 (1991). Thus, we lack jurisdiction

over the sanctions order because plaintiff's counsel

failed to timely appeal that order once it had become

final. We will, therefore, dismiss that portion of the

appeal.

Ifl. The Direct Claims Against U.S. Healthcare

A defendant may remove to federal court an action

that a plaintiff originally files in state court if the federal

court also has jurisdiction at the time of filing. See 28

10a

U.S.C. § 1441(c). Whether removal is proper is

governed by the 8 “well-pleaded complaint” rule. Ifa

federal question appears on the face of the plaintiff's

complaint, the defendant may remove the case to federal

court. If, however, the defendant merely has a federal

law defense, he may not remove the case, although he

may assert the federal defense in state court. See

Franchise Tax Bd. of Cal. v. Construction Laborers

Vacation Trust for S. Cal., 463 U.S. 1, 9-12, 103 S. Ct.

2841, 77 L.Ed.2d 420 (1983); Louisville & Nashville

R.R. Co. v. Mottley, 211 U.S. 149, 152, 29 S. Ct. 42, 53

L.Ed. 126 (1908).

One exception to this rule is for matters that

Congress has so completely preempted that any civil

complaint that falls within this category is necessarily

federal in character. Complete preemption creates

removal jurisdiction even though no federal question

appears on the face of the plaintiffs complaint. One

example of complete preemption is a claim for denial of

benefits under an ERISA plan. Such a claim comes

under ERISA’s’ civil enforcement provision,

§ 502(a)(1)(B). See Metropolitan Life Ins. Co., 481 U.S.

at 63-64, 107 S. Ct. 1542.

Complete preemption contrasts, however, with

another form of preemption, substantive preemption,

which displaces state law but does not, as a defense,

confer federal question jurisdiction. ERISA also

contains an express preemption provision, § 514(a), that

creates substantive preemption by trumping “any and all

State laws [that] . . . relate to” an ERISA plan. 29

U.S.C. § 1144(a). Unlike the scope of § 502(a)(1)(B),

which is jurisdictional and creates a basis for removal to

federal court, § 514(a) merely governs the law that will

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apply to state law claims, regardless of whether the case

is brought in state or federal court.

Much of the District Court’s discussion in Lazorko

IV centered on the scope of § 514(a). We do not need,

however, to review those conclusions because our

intervening decision in Jn re U.S. Healthcare convinces

us that Lazorko’s direct claims against U.S. Healthcare

are not completely preempted. These direct claims, as

they are presently pled, challenge the soundness of a

medical decision by a health care provider rather than

the administration of benefits under an ERISA plan.

Thus, Lazorko does not seek a remedy for the

administrative denial of a benefit under § 502(a)(1)(B).

For that reason, the removal of Lazorko’s action to the

federal court on the basis of complete preemption was

improper.

This conclusion follows from our decision in Jn re

U.S. Healthcare. There, the plaintiffs, like Lazorko,

challenged U.S. Healthcare’s - financial incentive

structure. They claimed it contributed to their newborn

daughter’s death because she was prematurely

discharged from the hospital in order that the hospital

might avoid monetary penalties. Thus, the infant was

denied essential post-natal care. See 193 F.3d at 156.

The plaintiffs brought their suit against the HMO in

New Jersey state court, alleging a variety of state law

claims aimed at the influence which U.S. Healthcare’s

financial incentive system had on medical decisions. As

in the case before us, U.S. Healthcare removed the case

to federal court, claiming that the failure to provide

adequate post-natal care constituted a denial of benefits

that was completely preempted by ERISA.

12a

Relying on our earlier decision in Dukes v. US.

Healthcare, Inc., 57 F.3d 350 (3d Cir. 1995), we

reasoned that the refusal to offer additional care,

whether couched in terms of direct or vicarious liability,

could be a question of the quality of care provided. As

such, it did not amount to a claim that benefits to which

the plaintiffs were otherwise entitled had been denied by

U.S. Healthcare when administering a plan. Instead, the

claim concerned decisions of treatment that were akin to

claims for medical malpractice. See In re US.

Healthcare, 193 F.3d at 161-62, 164. We had concluded

in Dukes that a claim for vicarious liability against an

HMO for a doctor’s malpractice fell outside the scope of

ERISA’s complete preemption clause. In Jn re U.S.

Healthcare, we extended that ruling to encompass

claims that an HMO was directly liable for arranging

inadequate care. In doing so, we reasoned that financial

incentives that discouraged care did not deny plan

benefits but instead affected the quality of the care

provided. See id. at 162-63, 164. Thus, we held that

decisions to deny a particular request in the course of

providing treatment could be a claim about the quality--

and not the quantity--of benefits provided. In all but the

details, Lazorko’s claims against U.S. Healthcare fall

squarely within this rubric. On appeal, Lazorko argues

that his liability claims amount to ones of quality

because U.S. Healthcare implicitly caused Dr. Nicklin to

misdiagnose and/or mistreat the severity of Ms. Norlie-

Lazorko’s illness. Thus, such a claim does not fall

13a

within the complete preemption scope of

§ 502(a)(1)B).6

U.S. Healthcare counters with two basic arguments,

neither of which we find persuasive. First, it argues that

Dr. Nicklin’s refusal to hospitalize Patricia Norlie-

Lazorko amounts to a denial of benefits because

hospitalization is a benefit under Jonathan Lazorko’s

HMO plan. We reject this characterization of the claim.

Lazorko is not arguing that his plan is supposed to

permit hospitalizations for mental illness and that U.S.

Healthcare refused his wife’s request for guaranteed

service. Instead, he is arguing that, when confronted

with his wife’s requests for additional treatment, Dr.

Nicklin, influenced by U.S. Healthcare’s financial

incentives that penalized a decision to grant additional

hospitalizations, made the medical decision not to

readmit her to the hospital. Because Lazorko’s claim is

one cohcerning the propriety of care rather than the

administration of that care, the claim is not completely

preempted. In other words, the claim here is that the

denial of Norlie-Lazorko’s request for hospitalization

occurred in the course of a treatment decision, not in the

administratica of the Lazorkos’ plan generally. See Jn

re U.S. Hecithcare, 193 F.3d at 164.

6 In making this argument, however, Lazorko continuesto hedge

against the existence of a plan, on which he bases his argument

that ERISA does not govern this case. As the District Court

correctly noted, however, the record evidence supports the

existence of a plan, as does the law of the case doctrine. See

Lazorko IV, slip op. at 4-6.

14a

U.S. Healthcare’s second contention is that, in light

of the recent Supreme Court decision in Pegram v.

Herdrich, 530 U.S. 211, 120 S. Ct. 2143, 147 L.Ed.2d

164 (2000), subjecting an HMO to liability is improper

because Pegram recognized the centrality of financial

incentives to the operation of an HMO. Pegram,

however, does not alter our analysis. In evaluating the

question of the circumstances under which an HMO

owes a fiduciary duty to the members of an ERISA plan,

the Pegram court held that mixed eligibility decisions by

an HMO (i.e., decisions involving not only the coverage

of a particular treatment by the plan but the reasonable

medical necessity for the treatment) are not fiduciary

decisions under ERISA. The decision in question here,

the need to hospitalize Patricia Norlie-Lazorko, appears

to be just such a mixed eligibility decision and to the

extent that the mixed decision implicates the quality of

the care received by Norlie-Lazorko, Pegram does not

foreclose the direct claims against U.S. Healthcare.

Before our decision in Jn re U.S. Healthcare, it was

not clear whether the denial of a particular type of

benefit, such as_ hospitalization, fell within

§ 502(a)(1)(B)’s narrow but exclusive scope. This

ambiguity was articulated in Dukes: drawing the line

between the denial of benefits under a plan and the

provision of substandard care is difficult. See Dukes, 57

F.3d at 358. In ruling on Lazorko’s claims here,

however, the District Court did not have the benefit of

our further analysis in Jn re U.S. Healthcare. We now

conclude that Lazorko’s claim, as it has been pled, falls

on the standard of care, not the denial of benefits, side of

the line.

15a

We note, moreover, that since our decision in Jn re

U.S. Healthcare, our district courts have consistently

applied its reasoning to determine whether it is the

quality of care provided or the denial of a plan benefit

that is implicated when treatment is refused. See, é.g.,

Tiemann v. U.S. Healthcare, 93 F. Supp.2d 585 (E.D.

Pa. 2000) (classifying failure to diagnosis and treat

disease properly as question of benefit quality not

quantity); Berger v. Livengrin Foundation, 2000 WL

325957 (E.D. Pa. Mar. 27, 2000) (concluding that

refusal to provide inpatient care was question of quality

of treatment and not denial of benefit due under plan).

Because we conclude that Lazorko’s case is not

subject to complete preemption, it follows that it was

improperly removed from state court. We must

therefore vacate the dismissal by the District Court of

the direct claims in Count I of the Fourth Amended

Complaint and remand those claims to the District Court

for remand to state court. When the underlying federal

subject matter jurisdiction upon which to remove a case

from state court does not exist, the entire case must be

remanded. See 28 U.S.C. § 1447(c).

On remand, it will be for the state court to further

determine whether a § 502 claim of denial of a benefit

provided by his plan is lodged in the heart of Lazorko’s

direct claims in Count I. If such a claim should

materialize, that claim will have to be removed once

more to federal court. Moreover, on remand the state

court will also have the task to determine to what extent,

if any, Lazorko’s claims against U.S. Healthcare are

substantively preempted under § 514. See Dukes, 57

F.3d at 355 (“When the doctrine of complete preemption

does not apply, but the plaintiff's state claim is arguably

16a

preempted under § 514(a), the district court, being

without removal jurisdiction, cannot resolve the dispute

regarding preemption.”).

IV. Conclusion

Because Lazorko requests relief for the

consequences of U.S. Healthcare’s provision of

inadequate services and not for the denial of benefits

under his health care plan, Count I of his Complaint was

improperly removed to federal court. Consequently, we

will vacate the District Court’s dismissal of Lazorko’s

direct claims against U.S. Healthcare and remand Count

I to the District Court for remand to the state court for

further proceedings. We will affirm the dismissal of the

direct claims against U.S. Healthcare in Counts II, III

and IV. On U.S. Healthcare’s cross-appeal, we will

affirm the District Court’s remand to the state court of

the vicarious claims against U.S. Healthcare. Finally,

we will affirm the District Court’s dismissal of

paragraph 25 of the Complaint. At the same time, we

will dismiss Lazorko’s appeal of the award of sanctions

against his attorney because he failed to timely appeal

the final sanctions order. Thus, we lack jurisdiction over

the order.

APPENDIX B

UNITED STATES DISTRICT COURT,

E.D. PENNSYLVANIA.

Jonathan LAZORKO, Administrator of the Estate of

, Patricia Norlie, a/k/a Patricia Norlie-Lazorko

V.

PENNSYLVANIA HOSPITAL; Institute of

Pennsylvania; David E. Nicklin, M.D.;

University City Family Medicine;

U.S. Healthcare, t/a/ HMO-PA.

No. 95-CV-6151.

November 22, 1995.

MEMORANDUM AND ORDER

RELLY, J.

Before the Court is Plaintiff's Motion to Remand

this Action to the Common Pleas Court of Philadelphia

County. This action was commenced on July 3, 1995 by

a Summons which merely set forth the identity of the

parties. A Civil Cover Sheet attached to the Summons

identified the type of action as Malpractice/Medical.

There is nothing in either document indicating that this

case involves an allegation of the denial of benefits

under an employee welfare plan and consequently would

be removable subject to § 502(a)(i)(B) of ERISA. On

September 1, 1995, plaintiff filed a complaint setting

forth, inter alia, plaintiffs allegations against defendant,

U.S. Healthcare, ta HMO-PA, which alleged denial of

the medical benefits under plaintiffs employer benefit

plan. This action is completely preempted by ERISA.

18a

Defendant, U.S. Healthcare, filed its Notice of Removal

on September 29, 1995, timely, pursuant to 28 U.S.C.

§ 1446(b). Accordingly, it is ORDERED that plaintiffs

“Motion to Remand to the Philadelphia Court of

Common Pleas” is DENIED.

19a

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF

PENNSYLVANIA

JONATHAN LAZORKO,

Administrator of the Estate of

PATRICIA NORLIE, a/k/a

PATRICIA NORLIE-

LAZORKO, et. al.

‘Civil Action No.

= * 96-4858

PENNSYLVANIA

HOSPITAL, et. al.

MEMORANDUM

Pollak, J. . March 28, 1997

Plaintiff Jonathan Lazorko alleges in essence that

defendant Pennsylvania Hospital provided inadequate

care to plaintiff's late wife Patricia Norlie-Lazorko; that

United States Health Care Systems of Pennsylvania, Inc.

(“U.S. Healthcare”) pressured Pennsylvania Hospital to

provide minimal care in order to save money; and that as

a result of the substandard care, Ms. Norlie-Lazorko

committed suicide. The Amended Complaint asserts

causes of action for negligence, breach of warranty,

breach of written agreements, negligent

misrepresentation, intentional misrepresentation, fraud,

violations of the Unfair Trade Practices and Consumer

Protection Law, 73 PS. § 201-1 et seq., and breach of the

20a

doctor-patient relationship. Before the court are

plaintiffs motion to remand and _ defendants

Pennsylvania Hospital and The Institute of Pennsylvania

Hospital’s motion to dismiss pursuant to Fed. R. Civ. P.

12(b) (6).

This case has a complicated procedural history- The

original complaint was filed in the Philadelphia Court of

Common Pleas in 1995. Defendant U.S. Healthcare

then removed the action to the United States District

Court for the Eastern District of Pennsylvania, where it

was assigned to Judge James McGirr Kelly under docket

no. 95-6151. On November 21, 1995, Judge Kelly

denied plaintiff's motion to remand, reasoning that the

action was completely preempted by the employee

Retirement Income Security Act of 1974 (“ERISA”).

See Answer to Motion to Remand, Exhibit C. On

January 4, 1996, Judge Kelly granted U.S. Healthcare’s

motion to dismiss “to the extent that [plaintiff's claims)

set forth a state-law cause of action for denial of medical

benefits by Defendant ... because they are preempted

by section 502(a)(1)(B) of ERISA.”. Answer to Motion

to Remand, Exhibit A. Judge Kelly then remanded the

remaining state law claims for lack of subject matter

jurisdiction.

On remand, Pennsylvania Hospital filed preliminary

objections to the complaint, which were sustained by the

Philadelphia Court of Common Pleas on May 21, 1996.

The court’s order dismissed counts II (breach of

warranty), III (breach of written agreements), IV

(negligent misrepresentation), and VIII (breach of

doctor-patient relationship) for failure to state a cause of

action, among other reasons. See Motion to Dismiss,

Exhibit C. The court also struck counts V (intentional

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misrepresentation), VI (fraud), and VII (Unfair Trade

Practices and Consumer Protection Law), as well as

plaintiff's requests for punitive damages under those

counts, without prejudice to the filing of an amended

complaint within 20 days of the order.

Plaintiff then filed his Amended Complaint on

June 12, 1996 in the Court of common Pleas; this

Amended Complaint adds factual allegations but asserts

the identical causes of action as those asserted in the

initial complaint. See Answer to Motion to Remand,

Exhibit B. Defendant Pennsylvania Hospital then filed

preliminary objections to the Amended Complaint.

Defendant U.S. Healthcare then again removed the

action to this court on July 10, 1996; the Clerk’s Office

(probably erroneously) assigned the case to me instead

of Judge Kelly.? Apparently unaware of the removal,

the Philadelphia Court of Common Pleas issued an order

on August 12, 1996 addressing the preliminary

objections. The court purported to strike counts II, I,

IV, and VIII8 of the Amended Complaint, as well as the

allegations of gross negligence in paragraphs 24 and 29.

7 By letter of December 2, 1996, plaintiff's counsel requests that

I consolidate this case with No. 95-6151, to “avoid any future

confusion.” I do not anticipate future confusion; No. 95-6151

is closed.

8 The copy of the August 12, 1996 order provided to this court

unambiguously recites that Count VIII was dismissed; the

docket sheet also provided to this court, which recites that

Count VII was dismissed and which says nothing about the

dismissal of count viii, is therefore in error.

22a

Plaintiff then sought to correct the deficiencies in

his Amended Complaint by filing a Second Amended

Complaint. He apparently first sought to file this

document in state court, but was unable to do so because

the case had been removed to federal court. On October

7, 1996, plaintiff filed the Second Amended Complaint

in this court. Defendant U.S. Healthcare filed an answer

to the Second Amended Complaint on October 16, 1996.

Federal Rule of Civil Procedure 15(a) specifies that after

the first responsive pleading has beer: served a plaintiff

may only amend a complaint “by leave of court or by

written consent of the adverse party.” As no such

permission was sought in this case, the Second

Amended Complaint will be dismissed without

prejudice to its being filed in conformity with Rule 15.9

9 U.S. Healthcare’s answer to the Second Amended Complaint

will likewise be dismissed.

Counsel for U.S. Healthcare wrote to the court on October 15,

1996, stating that “[w]e believe that the voluntary filing of this

federal court action by plaintiff now renders moot the whole

issue of whether removal of tie state court action was proper.”

Plaintiff's counsel then wrote on November 7, 1996 to explain

that the Philadelphia Court of Common Pleas had ruled on

defendant Pennsylvania Hospital's preliminary objections on

August 26, 1996—actually, order was signed on August 12

and was filed on August 26, according to the docket—ordering

plaintiff to file a Second Amended Complaint. Plaintiff's

counsel argued that because he had filed the Second Amended

Complaint under court order, he had not waived plaintiff's

motion to remand.

I note that- the copy -of the order that plaintiff's counsel has

supplied does not indicate any direction—or even

[Footnote continued on next page]

With this background, I proceed to address the

motion to remand. U.S. Healthcare asserts that, despite _

the complaint’s appearing to allege exclusively state law

violations, this court has subject matter jurisdiction

pursuant to the “complete preemption” exception to the

well-pleaded complaint rule. See Dukes v. US.

Healthcare, Inc., 57 F.3d 350, 354 (36 Cir.), cert. denied,

116 S. Ct. 564 (1995). Under this exception, “Congress

may so completely pre-empt a particular area that any

civil complaint raising this select group of claims is

necessarily federal in character.” Metropolitan Life

Insurance Co. v. Taylor, 481 U.S. 58, 63-64 (1987).

Metropolitan Life held that causes of actions within the

scope of ERISA’s civil enforcement provision, §

502(a(1)(B), 29 USC. § 1132(a)(1)(8), were

removable to federal court. See Id. at 66. That section

provides that “A civil action may be brought (1) by a

participant or beneficiary . . . (B) to recover benefits due

to him under the terms of his plan, to enforce his rights

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

future benefits under the terms of the plan.” USS.

Healthcare has provided an affidavit Stating that it

insured plaintiff and his wife under a welfare benefit

plan provided by plaintiffs employer, Prudential

Insurance Company, and that the plan was offered

pursuant to ERISA. See Affidavit of Wendy S.

[Footnote continued from previous page]

permission—to file another complaint. However, regardless of

the propriety or impropriety of the filing the Second Amended

Complaint, plaintiff has not waived his motion to remand.

Such motions test the subject matter jurisdiction of the court,

which cannot be waived.

24a

Laurento, attached as Exhibit E to the Answer to the

Motion for Remand.

A preliminary issue raised but not decided in Dukes

is whether the ERISA benefit that a plaintiff is due is the

health care itself or simply membership in the health

care plan. See Dukes, 57 F.3d at 356. I am hampered

by lack of briefing—indeed, by a lack of information of

any sort—about the relationship between plaintiff, his

employer, the nature of his plan benefits, and his rights

under his plan. As did the Dukes court, I will therefore

assume that medical care is the ERISA plan benefit to

which plaintiff has a claim. Because the “complete

preemption’s question is jurisdictional, however, I will

entertain another motion to remand if presented with

evidence showing that the benefit to which plaintiff is

entitled is membership in U.S. Healthcare and not the

medical care itself.

Dukes held that a challenge to the quality of a

benefit received pursuant to an ERISA plan is not within

the scope of § 502(a)(1)(B), and therefore may not be

removed to federal court. That case involved two

consolidated medical malpractice actions: one in which

a hospital refused to perform a blood test that allegedly

would have revealed the patient’s extremely high blood

sugar level in time to prevent his death, and the other in

which a doctor allegedly ignored symptoms of

preeclampsia that led to the stillbirth of plaintiffs’ child.

The court noted that

Instead of claiming that the welfare plans

in any way withheld some quantum of

plan benefits due, the plaintiffs in both

cases complain about the low quality of

the medical treatment that they actually

25a

received and argue that the U.S.

Healthcare HMO should be liable under

agency and negligence principles.

.. Congress sought to assure that

promised benefits would be available

when plan participants had need of them

and § 502 was intended to provide each

individual participant with a remedy in the

event that promises made by the plan were

not kept.... Quality control of benefits,

such as the health care benefits provided

here, is a field traditionally occupied by

State regulation and we interpret the

silence of Congress as reflecting an intent

that it remain such.

Id. at 357. The court did note, however, that

[there may well be cases in-which the

quality of a patient’s medical care or the

skills of the personnel provided to

administer that care will be so low that the

treatment received simply will not qualify

as health care at all. In such a case, it well

may be appropriate to conclude that the

plan participant or beneficiary has been

denied benefits due under the plan.

Id. at 358.

The Dukes court concluded that the cases before it

were not such cases: “[T]here is no allegation here that.

the 13140s denied anyone any benefits they were due

under the plan. Instead, the plaintiffs here are

26a

attempting to hold the HMOs liable for their role as the

arrangers of their decedents’ medical treatment.” Id. at

361. Finally, the court noted that “[t]he only possible

exception is Dukes’ allegation that the Germantown

Hospital refused to perform blood studies on Darryl.

Still, on the record before the court, there is no

indication that the hospital refused to perform those

studies because of the ERISA plan’s refusal to pay.” Id.

at 361 n.8.

Despite plaintiff's repeated assertion that his claim

against U.S. Healthcare is based on agency principles

alone, the complaint clearly shows that plaintiff is

alleging that U.S. Healthcare itself refused to provide

care. The Amended Complaint states that Ms. Norlie-

Lazorko was admitted to Pennsylvania Hospital on

June 10, 1993 following a suicide attempt, and that she

was discharged on June 12 with a diagnosis including

depression and schizophrenia. It then states that “[f]rom

June 12, 1993 to July 4, 1993, the decedent sought

treatment from the defendants and was refused.”

Amended-Complaint 410. The complaint also states

that “[t]he minimal treatment received by Mrs. Lazorko

shows either implied or expressed directives from U.S..

Healthcare to the defendants not to give the appropriate

treatment.” § 25. Finally, the complaint states that

“(t]he defendants receive benefits from U.S. Healthcare

if they cut back on the appropriate treatment to a patient

such as Mrs. Lazorko,” § 26, and that “[t}he pressure

from U.S. Healthcare resulted in Mrs. Lazorko’s death.”

431.

Because plaintiff alleges that U.S. Healthcare

refused to provide medical care, this court has

jurisdiction under the “complete preemption” exception

27a

to the well-pleaded complaint rule. The motion to

remand will therefore be denied.

Next to be considered is the motion to dismiss filed

by defendants Pennsylvania Hospital and The Institute

of Pennsylvania Hospital. Plaintiff's response to this

motion makes it clear that plaintiff acknowledges that

several of the counts are defective. Plaintiff's

States that “[s]ince the defendant’s [sic] Motion to

Dismiss is identical to their Preliminary Objections the

plaintiff incorporates by reference the answer filed in the

Philadelphia Court of Common Pleas to the Preliminary

Objections.” The answer to the Preliminary Objections

begins by apologizing for filing the Amended Complaint

without withdrawing the counts previously dismissed by

the court. The answer then states that the objections to

Counts II, III, IV, and VIII are moot and that plaintiff

will file a Second Amended Complaint without those

counts. Because plaintiff is not now defending Counts

II, Il, IV, and VIII of the Amended Complaint, the

motion to dismiss will be granted as to those counts.

The motion to dismiss Count I, alleging negligence,

will be denied. The Amended Complaint states that Ms.

Norlie-Lazorko was admitted to Pennsylvania Hospital

on June 10, 1993, that she was discharged on June 12,

and that from June 12 to July 4, she sought treatment

from the defendants and was refused. The moving

defendants assert that “the plain allegations of the

Amended complaint establish that plaintiffs decedent

was not a patient at either Pennsylvania Hospital or The

Institute of Pennsylvania Hospital.” This argument does

not meet plaintiff's allegation that Ms. Norlie-Lazorko

sought treatment in the days immediately after she was

discharged as a patient of Pennsylvania Hospital and

28a

that defendants refused her treatment. Plaintiff's

allegation is sufficient to withstand a motion to dismiss.

The motion to dismiss counts V and VI will also be

granted. Count V alleges intentional misrepresentation;

Count VI alleges fraud. Defendants argue that these

counts have not been pleaded with particularity, as

required by Federal Rule of Civil Procedure 9(b). See

also Penna. R. Civ. P. 1019(b) (requiring averments of

fraud to be made with particularity). The Amended

Complaint states that “(t)he defendants intentionally

concealed and/or destroyed evidence in the form of

medical records,” § 18, and that “Mrs. Lazorko was

never informed that she would receive substandard care

at the directive of U.S. Healthcare.” 427. It also states

that

29. There are no medical records

' which contain any Utilization Review

stickers. Either the hospital administrator

did not review Mrs. Lazorko’s care and

therefore did not properly supervise the

staff or her treatment was reviewed and

that evidence has been removed or

destroyed because it shows that an

economic decision was made on Mrs.

Lazorko’s treatment. The missing

Utilization Review stickers show either

gross negligent supervision or destruction

of evidence.

Finally, the complaint states that “[t]he Defendants

engaged in willful concealment of their misconduct.”

§ 40. |

29a

Under Pennsylvania law, which governs the

misrepresentation and fraud claims, “[t}he deliberate

nondisclosure of a material fact is the same as culpabie

misrepresentation.” lla i !

Organization of Pennsylvania,

regarding the alleged deliberate nondisclosures that form

the basis of Counts V and VI.

Nonetheless, the complaint does not state a claim

with respect to Counts V and VI. One element of both

intentional misrepresentation and fraud is justifiable

reliance. See id. Plaintiff does not plead that either be

or his wife relied on defendants’ alleged

misrepresentations. For this reason, Counts V and VI

will be dismissed.

The same holds true for Count VII, which alleges a

violation of the Unfair Trade Practices and Consumer

Protection Law. Plaintiff does not specify which of the

actions prohibited by that statute he is alleging. His

answer to the motion to dismiss regarding this count

states that

In this case medical records are

missing, Utilization Review stickers are

missing and the plaintiffs were never told

of the practice to reduce treatment for

bonuses. Had the plaintiffs had [sic]

known that the Doctors and Hospital

received money not to treat patients[,] they

would have walked out the door[;] instead

Mrs. Lazorko is now dead.

30a

Based on this allegation, the only plausible statutory

provision that plaintiffs may be asserting is 73 P.S.

§ 201-2(4)(xvii). This provision defines as an unfair or

deceptive act or practice “[eJngaging in any other

fraudulent conduct which creates a likelihood of

confusion or of misunderstanding.”

In order to assert a cause of action under 5 201-2(4)

(vii), a plaintiff must also plead the elements of common

law fraud, including justifiable reliance. See Prime

Meats, Inc. v. Yochim, 619 A.2d 769, 773 (Pa. Super.

Ct. 1993), citing Rizzo v. Michener, 584 A.2d 973, 980

(Pa. Super. Ct. 1990). Plaintiffs failure to plead

reliance on defendants’ alleged misrepresentations is

therefore fatal to his claim in Count VII.

Finally, the motion to dismiss the claims for

punitive damages is moot because counts V, VI, VII, and

Vili—the only counts asserting a claim for punitive

damages—will be dismissed as discussed above.

An appropriate order follows.

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF

PENNSYLVANIA

JONATHAN LAZORKO,

Administrator of the Estate of

PATRICIA NORLIE, a/k/a

PATRICIA NORLIE-

LAZORKO, et. al.

Civil Action No.

ii * 96-4858

3la

PENNSYLVANIA

HOSPITAL, et. al.

On -consideration of plaintiff's motion to remand

(document no. 4) and defendant U.S. Healthcare’s |

response thereto, and defendants Pennsylvania Hospital

and The Institute of Pennsylvania Hospital’s motion to

dismiss (document no. 3) and plaintiff's response

thereto, and for the reasons set forth in the

accompanying memorandum, it is hereby ORDERED

that:

1. The motion to remand is DENIED;

2. The motion to dismiss is GRANTED in part and

DENIED in part;

3. Counts II, III, IV, V, VI, VII, and VIII are

DISMISSED;

4. The motion to dismiss Count I is DENIED; and

5. The purported Second Amended Complaint filed

on October 7, 1996, and the Answer by U.S. Healthcare

to the Second Amended Complaint, filed on October 16,

1996, are DISMISSED as improperly filed.

March 28, 1997

Pollak, J.

32a

APPENDIX D

UNITED STATES DISTRICT COURT,

E.D. PENNSYLVANIA.

Jonathan LAZORKO, Administrator of the Estate of

Patricia Norlie, a/k/a Patricia Norlie-Lazorko

v.

PENNSYLVANIA HOSPITAL, et al.

No. Civ.A. 96-4858.

June 30, 1998.

OPINION

POLLAK, J.

Before the court are two motions: (1) plaintiffs

motion to strike defendant U.S. Healthcare’s ERISA

defenses, and (2) defendant U.S. Healthcare’s motion

for summary judgment.

INTRODUCTION

This is a medical malpractice action arising out of

the suicide of Patricia Norlie-Lazorko. Plaintiff Jonathan

Lazorko, the administrator of the decedent’s estate, has

sued Dr. David Nicklin, M.D., University City Family

Medicine, U.S. Healthcare, Pennsylvania Hospital, and

the Institute of Pennsylvania Hospital.

This case has had a tortuous procedural history.

Plaintiff originally filed suit in the Court of Common

33a

Pleas for Philadelphia County in 1995. Defendant U.S.

Healthcare removed, and the case was assigned to Judge

James McGirr Kelly under docket no. 95-6151. Plaintiff

moved to remand the case. Judge Kelly denied this

motion on November 21, 1995, on the ground that

plaintiffs’ claims were completely preempted by the

Employee Retirement Income Security Act of 1974

(“ERISA”). On January 4, 1996, Judge Kelly granted

U.S. Healthcare’s motion to dismiss in part. Judge

Kelly’s memorandum and order stated that the

complaint was dismissed “to the extent that [plaintiff's

claims] set forth a state-law cause of action for denial of

medical benefits by Defendant . . . because they are

preempted by section 502(a\1)(B) of ERISA.” Judge

Kelly then remanded the remaining state law claims for

lack of subject matter jurisdiction.

Upon remand, Pennsylvania Hospital filed

preliminary objections to the complaint in the Court of

Common Pleas, which the court sustained on May 21,

1996. The court dismissed four counts of the complaint

and struck three others, without prejudice to the filing of

an amended complaint.

Plaintiff then filed an amended complaint which

added factual allegations but raised the same causes of

action that were asserted in the initial complaint. After

plaintiff filed the amended complaint, defendant

Pennsylvania Hospital filed preliminary objections to

the amended complaint. On July 10, 1996, defendant

U.S. Healthcare again removed the case to this court

and, upon removal, the case was assigned to me.

Notwithstanding that the case had been removed, the

Court of Common Pleas proceeded to address

Pennsylvania Hospital’s preliminary objections and

34a

issued an order purporting to strike four counts of the

amended complaint (the same four counts that the court,

in ruling on the original complaint, had dismissed on

May 21, 1996). Plaintiff responded by filing a second

amended complaint in the Court of Common Pleas; next

plaintiff filed that second amended complaint in this

court, without first obtaining leave. Thereafter, plaintiff

moved to remand the case to the Court of Common

Pleas. In March 1997, I denied plaintiff's motion to

remand on the ground that the first amended complaint

raised claims for which there was removal jurisdiction

under Employee Retirement Income Security Act of

1974 (“ERISA”). And because the second amended

complaint was filed without leave of court, I dismissed

the second amended complaint in the same order.

Plaintiff, with leave of court, then filed another

amended complaint, ‘labeled “Third Amended

Complaint.” At a subsequent pretrial conference, I

directed plaintiff to file a Fourth Amended Complaint in

order to clarify the nature of each of plaintiff's claims

and the basis for the court’s jurisdiction over each claim,

questions that remained cloudy after the filing of the

Third Amended Complaint. Plaintiff promptly filed his

Fourth Amended Complaint, followed by a “Corrected

Fourth Amended Complaint.” The dispositive motions

currently under consideration relate to this most recent

incarnation of plaintiff's complaint.

The Corrected Fourth Amended Complaint differs

very little from its predecessors (although it is devoid of

the four counts that the Court of Common Pleas

dismissed on May 21, 1996). Plaintiff alleges that as a

result of the defendants’ failure to diagnose and treat

Patricia Norlie Lazorko, she committed suicide.

35a

Specifically, the complaint avers that Ms. Lazorko had

been admitted to the Pennsyivania Hospital for

approximately six months as a result of a suicide

in 1992, and that from June 12, 1993 (the date of her |

discharge from Pennsylvania Hospital) to July 4, 1993

(the date of her suicide) she sought treatment from the

defendants and was refused. Plaintiff ascribes this

refusal largely to U.S. Healthcare—the Health

Maintenance Organization (HMO) that provided health

insurance to the decedent—because U.S. Healthcare

declined to authorize treatment. The complaint recites

four causes of action: “Trespass,” “Intentional

Representation,” “Fraud,” and “Statutory Violations.”!0

The latter-most count makes reference to Pennsylvania’s

Unfair Trade Practices and Consumer Protection Law,

73 P.S. 201-11 et seq. (“SUTPCPL”).

I. Plaintiff's Motion to Strike

On December 1, 1997, well after the deadline for

pretrial motions had passed in this case, plaintiff filed a

paper entitled “Plaintiffs Motion to Strike the Alleged

ERISA defenses.” In this remarkably brief document 6!

10 Both the “Fraue” count and the “Statutory Violations” count

bear the legend “Count III.” Following the “Statutory

Violations” count appears a section labeled “Count IV

Jurisdiction,” which states that this court does not have

jurisdiction over the subject matter because “(t]he defendants;

conduct does not comply with any Federal statute.” This last

section does not appear to be a claim for relief, but rather an

effort to comply with this court’s instruction that the Fourth

Amended Complaint clarify the jurisdictional issues in this

case.

36a

1/4 pages including caption and signature line) plaintiff

appears to be arguing that U.S. Healthcare has not

shown that the insurance contract that covered the

decedent was an ERISA plan.!!

In denying plaintiff's motion to remand, this court

has previously determined, on the basis of the sworm

statements of U.S. Healthcare’s in-house counsel, that

the insurance plan covering the decedent was provided

by plaintiff's employer and that it was offered pursuant

to ERISA.!2_ As U.S. Healthcare points out, plaintiff's

own deposition testimony about his insurance plan lends

support to the proposition that the U.S. Healthcare

policy at issue here was an “employee benefits plan”

within the contemplation of ERISA.!3 Plaintiff cites

11 Plaintiffs motion (which is not accompanied by a

memorandum of law) consists of two quotations from case law

followed by the declaratory sentence--”To date, the defendant

U.S. Healthcare has not met the ERISA burden”--and the

request for relief.

12 It is to be noted that Judge James McGirr Kelly’s orders of

November 21, 1995 and January 4, 1996--which denied

plaintiff's motion to remand and dismissed plaintiff's claims

against the HMO, respectively--were also premised on the

existence of an ERISA plan.

13 Plaintiff's deposition contained the following exchange:

Q. In 1993, your employer was Prudential; is that right?

A. Right.

Q. The Healthcare benefits you had in 1993 were

through whom?

A. Through my employer.

[Footnote continued on next page]

37a

two cases for the Proposition that an employer must

have some minimal level of involvement with a plan

beyond simply purchasing insurance in order to

implicate ERISA. But plaintiff has not articulated an

argument or pointed to evidence that in any way

undermines the conclusion that this plan is governed by

ERISA. This court’s finding that plaintiff's plan is

governed by ERISA thus remains the law of the case.

Consequently, plaintiff's motion to strike will be denied.

II. Defendant U.S. Healthcare’s Motion for

Summary Judgment

Defendant U.S. Healthcare argues that all of the

claims raised in plaintiff's complaint are preempted by

Section 514(a) of the Employee Retirement Income

Security Act of 1974 (“ERISA”), 29 U.S.C. § 1144(a).

Section 514(a) states in relevant part that ERISA “shall

supersede any and all State laws insofar as they may

now or hereafter relate to an employee benefit plan.” !4

29 U.S.C. § 1144(a).

[Footnote continued from previous page]

Q. Prudential?

A. Right.

Q. And was Patricia a member through your plan?

A. Right.

14 The question under consideration in this motion is one of so-

called “conflicts preemption” under section 5 14(a) of ERISA--

that is, the extent to which federal law displaces state law. This

question is to be distinguished from the one of so-called (not

very happily) “complete preemption.” “Complete preemption”

[Footnote continued on next page]

38a

ERISA’s broad preemption language has been given

a correspondingly expansive reading by the Supreme

Court. See, e.g., Pilot Life Ins. Co. v. Deac..sx, 481 U.S.

41, 46, 107 S. Ct. 1549, 95 L.Ed.2d 39 (1987) (common-

law tort claims based on insurance company’s failure to

pay disability benefits preempted under the “deliberately

expansive” language of ERISA § 514(a)); Shaw vy.

Delta Air Lines, Inc., 463 U.S. 82 (1983) (state anti-

discrimination statutes requiring insurance plans to grant

disability benefits to pregnant women preempted). The

preemptive force of § 514(a) is not, however, without

limitation; in recent years, the Supreme Court’s ERISA

preemption cases, while not expressly disavowing the

Court’s earlier pronouncements regarding the expansive

reach of ERISA preemption, have sounded a cautionary

tone. In New York State Conf. of Blue Cross and Blue

Shield Plan v. Travelers Ins. Co., 514 U.S. 645, 656,

115 S. Ct. 1671, 131 L.Ed.2d 695 (1995), and California

Div. of Labor Enforcement v. Dillingham Constr. N.A.,

Inc., 519 U.S. 316, 117 S. Ct. 832, 838, 136 L.Ed.2d 791

[Footnote continued from previous page]

relates solely to jurisdiction--that is, a state claim that is

subject to “complete preemption” can confer removal

jurisdiction even if no federal cause of action would appear on

the face of a well-pleaded complaint. There is complete

preemption--and thus federal removal jurisdiction--over state

claims when they fall within the ambit of ERISA’s civil

enforcement provision, codified at 29 U.S.C. § 1132(a)(1)(B).

By Memorandum and Order dated March 31, 1997, I denied

plaintiff's motion to remand, finding that the direct negligence

claims asserted by plaintiff in his First Amended Complaint

amounted to claims for benefits under an ERISA plan and thus

there was a basis for federal jurisdiction.

39a

(1997), the Court has warned against utilizing an

“uncritical literalism” when deciding the reach of

ERISA preemption; rather, the Court has instructed,

preemption under ERISA is to be determined with

reference to ERISA’s statutory objectives. Hence

emphasis has moved away from construing the

capacious language of § 514(a)— “any and all State

laws insofar as they may now or hereafter relate to an

employee benefit plan,” a phrase that, as Justice Souter,

writing for the Court in Travelers, acknowledged, has a

potentially limitless scope (514 U.S. at 656)—and

toward an examination of whether a_ particular

invocation of state law meaningfully implicates

Congress’s purposes in enacting ERISA: “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.” 524 U.S. at 656; see also Dillingham, 117

S. Ct. at 843 (Scalia, J. concurring, joined by Ginsburg,

J.) (“The statutory text provides an illusory test, unless

the Court is willing to decree a degree of preemption

that no sensible person could have intended”).

In enacting ERISA, Congress sought to regulate

employee benefits plans in a comprehensive way;

however, ERISA does not effectuate this regulatory goal

“by requiring employers to provide any given set of

minimum benefits, but instead controls the

administration of benefit plans.” Travelers, 514 U.S. at

651. ERISA’s preemption provision establishes the

regulation of employee benefits plans within its ambit

“as exclusively a federal concern,” Alessi v. Raybestos-

Manhattan, Inc., 451 U.S. 504, 523, 101 S. Ct. 1895, 68

L.Ed.2d 402 (1981), in order to ensure national

uniformity in the administration of such employee

benefits plans. Travelers, 514 U.S. at 657.

Accordingly, the court’s task in ascertaining

whether claims are preempted by ERISA is to examine

the nature of the claims—and the state laws underlying

them—with an eye to whether allowing those claims to

go forward would have a significant impact upon the

administration of an ERISA plan.

Count I of the Corrected Fourth Amended

Complaint raises claims of both direct and vicarious

liability against U.S. Healthcare. The direct tort claims

attack U.S. Healthcare’s decision to deny coverage for

Patricia Norlie Lazorko when she sought treatment after

her discharge from the hospital. Plaintiff alleges that

U.S. Healthcare’s financial incentive system resulted in

an economically motivated decision to refuse Ms.

Norlie-Lazorko needed care, and that this refusal

permitted her mental condition to go _ untreated,

ultimately leading to her suicide. Hence plaintiff's direct

claims against U.S. Healthcare claims seek tort recovery

for a denial of plan benefits based upon U.S.

Healthcare’s administration of the insurance plan. Cf

Turner v. Fallon Community Health Plan, 127 F.3d 196,

199 (Ist Cir. 1997), cert. denied, 523 U.S. 1072, 118

S. Ct. 1512, 140 L.Ed.2d 666 (1998). Consequently, the

direct negligence claims in Count I of the Corrected

Fourth Amended Complaint are preempted under

ERISA. See Andrews-Clark v. Travelers Ins. Co., 984

F. Supp. 49, 58 (D. Mass. 1997).

Plaintiff's allegation that U.S. Healthcare is liable

under agency principles merits further consideration.

The Third Circuit has not yet had occasion to rule on

4la

whether vicarious liability claims are preempted, and

those courts that have ruled on the issue are divided.

Compare Pacificare of Oklahoma, Inc. v. Burrage, 59

F.3d 151, 153-54 (10th Cir. 1995); Lancaster v. Kaiser

Foundation Health Plan of Mid-Atlantic States, Inc.,

958 F. Supp. 1137, 1143 (E.D. Va. 1997); Chaghervand

v. CareFirst, 909 F. Supp. 304 (D. Md. 1995); Kearney

v. U.S. Healthcare, Inc., 859 F.Supp. 182 (E.D. Pa.

1994); Independence HMO, Inc. v. Smith, 733 F. Supp.

983 (E.D. Pa. 1990) (ERISA does not preempt vicarious

liability claims against an HMO), with Jass v.

Prudential Health Care Plan, Inc., 88 F.3d 1482 (7th

Cir. 1996); Clark v. Humana Kansas City, Inc., 975

F. Supp. 1283 (D. Kan. 1997); Schwartz v. FHP Intern.

Corp., 947 F.Supp. 1354 (D. Ariz. 1996) (ERISA

preempts both direct and vicarious liability claims).

In line with the reasoning in cases such as

Pacificare of Oklahoma, Inc. v. Burrage, 59 F.3d 151,

153-54 (10th Cir. 1995), Kearney v. U.S. Healthcare,

Inc., 859 F.Supp. 182 (E.D. Pa. 1994), and

Independence HMO, Inc. v. Smith, 733 F. Supp. 983

(E.D. Pa. 1990), I conclude that ERISA does not

preempt plaintiff's claim that U.S. Healthcare is

vicariously liable for any malpractice committed by its

agents.'5 A claim of vicarious liability for the

15 Judge Waldman’s discussion in Kearney merits quotation at

some length:

[A] claim that one was denied a promised benefit is

preempted. A claim that one received a promised service

from a provider who performed that service negligently is

another matter.

42a

negligence of those asserted to be agents of an HMO

does not implicate the regulation of employer plans in

the same way that plaintiff's direct negligence claims

do. In suing on vicarious liability principles, plaintiff

seeks to vindicate rights under state tort law to recover

for alleged breaches of a physician’s duty of care (to the

extent that state-law agency principles will impute such

a breach to the HMO). This is not a claim to recover

damages for the denial of benefits. Nor is it one that

otherwise implicates the administration of the plan in a

meaningful way since it does not rest on a law that

“mandate[s] employee benefit structures or their

administration.” See Travelers, 514 U.S. at 658.

That one may refer to the contents of a plan to

adduce evidence that it held out a particular person as its

employee or agent to help sustain a cause of action does

not implicate the concerns underlying the ERISA

preemption provision. .. .

A state law vicarious liability claim for malpractice

is based on common law tort and agency principles, and

does not require a finding that a plan was wrongfully

administered or that promised benefits were not

provided. To present such a claim, a plaintiff whose

employer enrolled him in an HMO would have to show

nothing more than would a plaintiff who secured an

HMO membership for himself. Unless we are going to

create a two track system of justice in which ERISA

plan entities operate in “a fully insulated legal world,”

such a claim should not be preempted. See United Wire

v. Morristown Mem. Hosp., 995 F.2d 1179, 1193 (3d

Cir. 1993) ] (quoting Rebaldo v. Cuomo, 749 F.2d 133

(2d Cir. 1984)). Kearney, 859 F.Supp. at 186-87

(footnote omitted).

43a

To be sure, if HMOs absorb some liability for torts

committed by doctors within their plans it is to be

expected that costs will rise. Thus state-law claims of

vicarious liability have th: potential to have an.

economic effect on ERISA plans. Such an effect,

however, is indirect and does not, therefore, require

preemption. In holding that a New York s

statute was not preempted under ERISA, the Supreme

Court noted in Travelers:'6

16 The statute at issue in Travelers required hospitals to exact

surcharges from patients covered by commercial insurers but

not from patients insured by a Blue Cross/Blue Shield plan.

The statute also placed surcharges on certain HMOs,

surcharges that varied according to the number of Medicaid

recipients covered by tlie HMO.

Indeed, to read the pre-emption provision as displacing all

state laws affecting costs and charges on the theory that

they indirectly relate to ERISA plans that purchase

insurance policies or HMO memberships that would cover

such services, would effectively read the limiting language

| in § 514(a) out of the statute, a conclusion that would

| violate basic principles of statutory interpretation and

could not be squared with our prior pronouncement that

“[p]reemption does not occur . . . if the state law has only a

tenuous, remote, or peripheral connection with covered

plans, as is the case with many laws of general

applicability.” While Congress’s extension of pre-emption

to all “state !aws relatins to benefit plans” was meant to

sweep more broadiy than “state laws dealing with the

subject matters covered by ERISA[,] reporting, disclosure,

fiduciary responsibility, and the like,” nothing in the

language of the Act or the context of its passage indicates

that Congress chose to displace general health care

[Footnote continued on next page]

iinet

The remaining counts of the Corrected Fourth

Amended Complaint—those alleging intentional

misrepresentation, fraud, and _ violations of

Pennsylvania’s Unfair Trade Practices and Consumer

Protection Law—all focus on U.S. Healthcare’s

decisions in administering the relevant benefits plan.

Because these counts seek damages under state law for

the administration of an ERISA plan, they implicate the

statutory objectives of ERISA in a meaningful way and

are, therefore, preempted.!7? See Travelers, 514 U.S. at

[Footnote continued from previous page]

regulation, which historically has been a matter of local

concern.

514 U.S. at 661 (citations omitted); see also Dillingham, 117

S. Ct. at 840 (discussing Travelers ) (“Indeed, if ERISA were

concerned with any state action--such as medical-care quality

standards or workplace regulation--that increased the costs of

providing certain benefits, and thereby potentially affected the

choices made by ERISA plans, we would scarcely see the end

of ERISA’s pre-emptive reach. . . .”).

17 The “Intentional Misrepresentation” and “Fraud” counts, as

they relate to U.S. Healthcare, appear to center on the U.S.

Healthcare’s alleged failure to disclose its incentive structure

(or other unspecified aspects of its plan administration that

plaintiff deems to be misconduct). Because disclosure

requirements are directly addressed by ERISA—see 29 U.S.C.

§§ 1002(21), 1104(a)(1), 1144(a)}—state-law causes of action

for a plan’s non-disclosure run afoul of ERISA § 514(a).

Plaintiffs UTPCPL claim appears to be a reiteration of

plaintiff's direct negligence and misrepresentation claims, and

is therefore preempted for the same reasons that the

“Trespass,” “Intentional Misrepresentation,” and “Fraud”

counts are preempted. Plaintiff urges that Shea v. Esensten,

[Footnote continued on next page]

657; Anderson v. Humana Inc., 24 F.3d 889, 892 (7th

Cir. 1994).

In sum, under the statute as written and the pertinent

Supreme Court authority interpreting it, all of plaintiff's

[Footnote continued from previous page]

107 F.3d 625 (8th Cir. 1997), supports his claim of fraudulent

misrepresentation. Shea, however, offers plaintiff little solace

given the posture of this case. The plaintiff in Shea brought a

wrongful death action in state court against an HMO, alleging

fraudulent nondisclosure and misrepresentation with respect to

the HMO’s financial incentive scheme (pursuant to which

doctors were allegedly rewarded for minimizing referrals to

specialists and punished for making too many referrals). After

the HMO removed, plaintiff amended her complaint to add a

claim under ERISA’s civil enforcement provision. The district

court, concluding that all state-law claims were preempted and

that plaintiff had failed to state a claim under ERISA,

dismissed the complaint. The Eighth Circuit reversed, in part,

holding that although plaintiff's state-law claims were indeed

preempted, plaintiff had stated a claim under ERISA:

[W]e believe Mrs. Shea has stated a claim against Medica

for breaching the fiduciary obligation to disclose all the

material facts affecting her husband’s health care interests.

When an HMO’s financial incentives discourage a treating

doctor from providing essential health care referrals for

conditions covered under the plan benefit structure, the

incentives must be disclosed and the failure to do so is a

breach of ERISA’s fiduciary duties. Id. at 629. Although

plaintiff has raised claims very similar to those brought in

Shea, he has not alleged a violation of ERISA. To the

contrary, although plaintiff has had a number of

opportunities to amend his complaint—after the ERISA

preemption issue had been raised on a number of

occasions—he has elected not to include ERISA claims in

his complaint.

46a

direct claims against U.S. Healthcare are preempted, but

plaintiff may proceed against U.S. Healthcare on his

vicarious liability claims (as expressed in paragraph 14

of the Fourth Amended Complaint). However, U.S.

Healthcare urges in the alternative that it is entitled to

summary judgment on the merits of the vicarious

liability claims because plaintiff has not pointed to any

evidence establishing that an agency relationship exists

between U.S. Healthcare and the hospital or the doctor.

Whatever the merits of this argument, it is not

appropriate for this court to decide this question of state

law. Since plaintiff's direct negligence claims must be

dismissed on preemption grounds--and since those

claims formed the basis for this court’s removal

jurisdiction--I will decline to exercise supplemental

jurisdiction over what is now solely a medical

malpractice case based upon state law. See 28 U.S.C.

§ 1367(c)(3); Borough of West Mifflin v. Lancaster, 45

F.3d 780, 787 (3d Cir. 1995) (“[I]n a case that has been

removed from a state court, a remand to that court is a

viable alternative to a dismissai without prejudice.”).

Although pretrial proceedings in this case have dragged

on for a period of years, the case remains in pretrial

(discovery has yet to be completed). Thus there are no

circumstances decisively counseling toward retention of

federal jurisdiction over this matter. See Borough of

West Mifflin, 45 F.3d at 788 (“[W]here the claim over

which the district court has original jurisdiction is

dismissed before trial, the district court must decline to

decide the pendent state.claims unless considerations of

judicial economy, convenience, and fairness to the

parties provide an affirmative justification for doing

so.”). Accordingly, the case will be remanded to the

Court of Common Pleas for Philadelphia County.

47a

CONCLUSION

For the foregoing reasons, defendant U.S.

Healthcare’s motion for summary judgment is granted in

part and denied in part and piaintiff’s motion to strike

will be denied. Because only state-law issues between

nondiverse parties remain, this matter will be remanded

to the Court of Common Pleas for Philadelphia County.

An appropriate order follows.

ORDER

For the reasons set forth in the accompanying

opinion, it is hereby ORDERED that:

1. Defendant U.S. Healthcare’s motion for

summary judgment is GRANTED in part and DENIED

in part;

2. Plaintiff's direct liability claims against U.S.

Healthcare are hereby DISMISSED;

3. Plaintiff's motion to strike is DENIED; and

4. This case is REMANDED to the Court of

Common Pleas for Philadelphia County.

48a

APPENDIX E

UNITED STATES DISTRICT COURT,

E.D. PENNSYLVANIA.

Jonathan LAZORKO, Administrator of the Estate of

Patricia Norlie, a/k/a

Patricia Norlie-Lazorko

v.

PENNSYLVANIA HOSPITAL, et al.

No. CIV.A. 96-4858.

Aug. 10, 1998.

John J. O’Brien, III, Wynnewood, for Jonathan Lazorko,

Administrator of the Estate of Patricia Norlie, a/k/a

Patricia Norlie-Lazorko, Jonathan Lazorko, Personal

Representative of Patricia Norlie-Lazorko, Plaintiffs.

Adrian R. King, Post & Schell, P.C., Peter J. Hoffman,

Mc Kissock & Hoffman, P.C., Phila, Raymond F.

Conlin, Mc Kernan and Mc Cartin, Ft. Washington, Carl

D. Buchholz, III, Rawle & Henderson, Angela M. Heim,

Rawle and Henderson, Phila, for Pennsylvania Hospital,

Institute of Pennsylvania, David E. Nicklin, M.D.,

University City Family Medicine, U.S. Healthcare t/a

HMO-PA, Defendants.

MEMORANDUM/ORDER

POLLAK, J.

*1 This is a medical malpractice action stemming

from the suicide of the decedent, Patricia Norlie-

Lazorko. On June 30, 1998, I filed an opinion and order

49a

granting defendant U.S. Healthcare’s motion for

summary judgment in part, denying it in part, and

remanding the case to the Court of Common Pleas for

Philadelphia County. In that opinion, I concluded that |

while plaintiff's claims that U.S. Healthcare is directly

liable to plaintiff are preempted by the Employee

Retirement and Income Security Act of 1974

(“ERISA”), 29 U.S.C. § 1001 et seq., plaintiff's claims

based upon a theory of vicarious liability are not

preempted by ERISA. Currently before the court is U.S.

Healthcare’s motion for reconsideration, or in the

alternative for allowance of interlocutory appeal under

28 U.S.C. § 1292(b).

The June 30, 1998 opinion fully sets forth my

reasons for concluding that claims of vicarious liability

are not preempted under ERISA. I adhere to those

reasons and will not undertake here to elaborate upon

them. Accordingly, defendant’s motion for

reconsideration is hereby DENIED.

U.S. Healthcare also requests, in the alternative, that

I certify an interlocutory appeal pursuant to 28 U.S.C.

§ 1292(b) has merit. The statute provides:

When a district judge, in making in a civil

action an order not otherwise appealable

under this section, shall be of the opinion

that such order involves a controlling

question of law as to which there is

substantial ground for difference of

opinion and that an immediate appeal from

the order may materially advance the

ultimate termination of the litigation, he

shall so state in writing in such order. The

Court of Appeals which would have

50a

jurisdiction of an appeal of such action

may thereupon, in its discretion, permit an

appeal to be taken from such order, if

application is made to it within ten days

after the entry of the order: Provided,

however, That application for an appeal

hereunder shall not stay proceedings in the

district court unless the district judge or

the Court of Appeals or a judge thereof

shall so order.

28 U.S.C. § 1292(b).

To be sure, courts are divided on the question of

whether ERISA preempts medical malpractice claims

based upon vicarious liability; therefore, my June 30,

1998 opinion and order “involves a controlling issue of

law as to which there is substantial ground for difference

of opinion.” However, I am not convinced that

“immediate appeal from the order may materially

advance the ultimate termination of the litigation.” The

issue which U.S. Healthcare wishes to appeal pertains to

U.S. Healthcare; interlocutory appellate consideration of

that issue would not per.*in to the other four defendants,

and thus would seem unlikely to “advance the ultimate

termination of the litigation.” Indeed, given that this

case has now been remanded to the Court of Common

Pleas, to extricate from this multi-defendant state-court

litigation one issue involving one defendant and transfer

that issue to a federal appellate court would invite

confusion and delay in proceedings that have had more

than their share of both. Accordingly, U.S. Healthcare’s

request for certification of interlocutory appeal is hereby

DENIED.

5la

APPENDIX F

THE HEALTH MAINTENANCE

ORGANIZATION OF PENNSYLVANIA

GROUP MASTER CONTRACT

United States Health Care Systems of Pennsylvania,

Inc., d/b/a The Health Maintenance Organization of

Pennsylvania (referred to in this Contract as “HMO”),

operates a comprehensive prepaid program of health

care which provides health care services and benefits to

Members in order to protect and promote their health

and preserve and enhance patient dignity.

* * *£* * *

Under the Contract, the Subscriber engages HMO to

make arrangements through which medical and hospital

benefits may be accessed in accordance with the

covenants and conditions hereunder provided ard in

reliance upon the statements of each Subscriber in

his/her Enrollment Application.

* *¢ * *© *

SECTION IX — GENERAL PROVISIONS

oe oe

H. Independent Contractor Relationship.

1. No Participating Provider or other provider,

institution, facility or agency is an agent or

employee of HMO. Neither HMO nor any

employee of HMO is an agent or employee or

52a

any Participating Provider or other provider,

institution, facility or agency.

* * * * *

Participating Physicians maintain the

physician-patient relationship with Members

and are solely responsible to Member for all

medical services which are rendered by

Participating Physicians.

o> .6 2 Ge