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Rice v. Panchal

September 12, 1995




Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 94 C 3921--Paul E. Plunkett, Judge.

Before COFFEY, FLAUM, and MANION, Circuit Judges.

MANION, Circuit Judge.



David Rice ("Rice") filed a medical malpractice complaint in the circuit court for Cook County, Illinois against Doctors Kanu Panchal (Panchal) and Rodrigo Sotillo (Sotillo) for injuries he received as a result of their allegedly negligent treatment. Rice had sought medical treatment under a welfare benefits plan that named Sotillo as a designated care provider, so Rice also sued the plan administrator, the Prudential Insurance Company of America ("Prudential"). Rice alleged that Prudential was liable for the medical malpractice of Sotillo under the state law theory of respondeat superior. Prudential removed the complaint to federal court under the doctrine of complete preemption, and later, the district court dismissed Rice's complaint against Prudential on the grounds that he had no remedy under ERISA. Rice appeals, alleging that there was no federal jurisdiction because his state law claim was not subject to complete preemption under ERISA. For the reasons given below, we reverse the district court.

I. Background

Handy Andy, Inc. ("Handy Andy") provides its employees with welfare benefits pursuant to an ERISA welfare benefits plan (the "Plan"). The Plan is a group insurance contract issued by Prudential. By its terms, the Plan pays specified portions of costs incurred to receive medical services from "Prudential Health Care Providers." The Plan provides for insurer administration. Prudential, the insurer, administers the Plan and is a named fiduciary with respect to medical benefits. Pursuant to its responsibilities under the Plan, Prudential disseminated a list of Prudential Health Care Providers; Sotillo was on that list.

David Rice is an employee of Handy Andy and a participant in the Plan. Initially, Rice received treatment from Sotillo. Later, Sotillo referred Rice to Panchal, who is not a Prudential Health Care Provider, and Rice was treated by Panchal. Rice became seriously handicapped and brought a medical malpractice action against Panchal and Sotillo in the circuit court for Cook County, Illinois. In his complaint, Rice also alleged that Prudential was liable for the medical malpractice of Sotillo under the state law doctrine of respondeat superior. According to his complaint, Prudential owed Rice a duty to use reasonable care and breached that duty through Sotillo, its agent.

Prudential removed the case to the federal court, alleging federal question jurisdiction under ERISA's complete preemption provision, asserting that Rice's state law claim was preempted by ERISA. The district court agreed and dismissed Rice's claim against Prudential. On appeal, Rice argues that the district court did not have federal question jurisdiction because ERISA does not completely preempt claims against ERISA plan administrators premised on the state law doctrine of respondeat superior. The Secretary of Labor (the "Secretary") has appeared as amicus curiae to second Rice's cause.

II. Analysis

This case requires us to explore the difference between "conflict preemption" under sec. 514(a), see Ingersoll-Rand v. McClendon, 498 U.S. 133, 145 (1990), and "complete preemption" under sec. 502(a), see Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987), of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. sec. 1001 et seq. But in order to understand the importance of this distinction it is necessary to begin with the principles governing the removal jurisdiction of federal courts under 28 U.S.C. sec. 1441. Under that section "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States. . . ." 28 U.S.C. sec. 1441(b). Whether removal was proper in this case depends upon whether we have "federal question" jurisdiction under 28 U.S.C. sec. 1331, which gives federal courts jurisdiction over cases that "arise under the Constitution, laws, or treaties of the United States." 28 U.S.C. sec. 1331.

Ordinarily a court determines whether there is federal question jurisdiction by examining the plaintiff's well-pleaded complaint, for "[i]t is long-settled law that a cause of action arises under federal law only when the plaintiff's well pleaded complaint raise issues of federal law." Taylor, 481 U.S. at 63. In contrast, "[t]he presence of a federal question . . . in a defensive argument does not overcome the paramount policies embodied in the well-pleaded complaint rule--that the plaintiff is the master of the complaint, thE4$a federal question must appear on the face of the complaint, and that the plaintiff may, by eschewing claims based on federal law, choose to have the cause heard in state court." Caterpillar Inc. v. Williams, 482 U.S. 386, 398-99 (1987) (emphasis supplied). Put another way, federal preemption that merely serves as a defense to a state law action (sometimes called "conflict preemption") does not confer federal question jurisdiction. Franchise Tax Bd. of State of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 9-12, 25-27 (1983); Lister v. Stark, 890 F.2d 941, 943 & n.1 (7th Cir. 1989), cert. denied, 498 U.S. 1011 (1990). Thus the defendant cannot cause a transfer to federal court simply by asserting a federal question in his responsive pleading.

The application of the complete preemption doctrine in the ERISA context originated in Franchise Tax Board, supra, where the Supreme Court observed that an action "that was not only preempted by ERISA but came within the scope of sec. 502(a)" might be subject to complete preemption. Franchise Tax Board, 463 U.S. at 24. Later, in Taylor, supra, the Court held that a plaintiff's common law claims were completely preempted by ERISA, because they were within the scope of sec. 502(a)(1)(B). Taylor, 481 U.S. at 64, 66. These cases establish that, under ERISA, sec. 502(a) provides the basis for complete preemption whereas sec. 514(a) provides the basis for conflict preemption. *fn1

The difference between complete preemption under sec. 502(a) and conflict preemption under sec. 514(a) is important because complete preemption is an exception to the well-pleaded complaint rule that has jurisdictional consequences. Lister, 890 F.2d at 943 & n.1. If a state law claim has been "displaced," see Taylor, 481 U.S. at 60, and therefore completely preempted by sec. 502(a), then a plaintiff's state law claim is properly "recharacterized" as one arising under federal law. Taylor, 481 U.S. at 64; Sofo v. Pan-American Life Ins. Co., 13 F.3d 239, 241 (7th Cir. 1994); Bartholet v. Reishauer A.G. (Zurich), 953 F.2d 1073, 1075 (7th Cir. 1992). *fn2 But state law claims that are merely subject to "conflict preemption" under sec. 514(a) are not recharacterized as claims arising under federal law; in such a situation, the federal law serves m3hxPdefense to the state law claim, and therefore, under the well-pleaded complaint rule the state law claims do not confer federal question jurisdiction. Thus, complete preemption under sec. 502(a) creates federal question jurisdiction whereas conflict preemption under sec. 514(a) does not. See Lister, 890 F.2d at 943 and n.1. The difference in language between secs. 502(a) and 514(a) underscores the significant difference in the scope of the two sections. See Harris v. Provident Life and Acc. and Ins. Co., 26 F.3d 930, 933-34 (9th Cir. 1994); Warner v. Ford Motor Co., 46 F.3d 531, 534 (6th Cir. 1995); Dukes v. U.S. Healthcare, 57 F.3d 350, 355 (3d Cir. 1995); Lupo v. Human Affairs Intern., Inc., 28 F.3d 269, 273 (2d Cir. 1994). If a claim is within the scope of sec. 502(a), then a participant's ability to ...

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