United States District Court, Northern District of Illinois, Eastern Division
October 2, 2002
CANDICE COUGHLIN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
HEALTH CARE SERVICE CORPORATION, A MUTUAL LEGAL RESERVE COMPANY, D/B/A BLUE CROSS BLUE SHIELD OF ILLINOIS, DEFENDANT
The opinion of the court was delivered by: St. Eve, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Candice Coughlin originally filed her Complaint in state
court on behalf of herself and a putative class of similarly situated
plaintiffs. Defendant Health Care Service Corporation ("HCSC") removed the
action to federal court, alleging that the Employment Retirement Income
Security Act of 1974 (ERISA) completely preempted the lawsuit and allowed
for removal. (R. 1-1, Notice of Removal.) Coughlin now moves to remand
the case to state court. (R. 12-1, Mot. to Remand.) Because this Court
finds Coughlin's claims to be completely preempted by § 502(a),
Coughlin's Motion to Remand is denied.
Coughlin brought her complaint in state court seeking a declaration of
unjust enrichment, the establishment of a constructive trust, judgments
of breach of covenants and contracts, and judgment of a violation of
Illinois' Consumer Fraud Act and similar statutes enacted by other
states. (R. 1-1, Compl.) Coughlin filed the lawsuit on behalf of herself
and "all persons similarly situated" and sought class certification.
(Id. at 1.) Defendant removed the action to federal court, claiming the
state law claims were completely preempted by § 502(a) of ERISA. (R.
1-1, Notice of Removal.) Plaintiff then filed a Motion to Remand, arguing
that her causes of action are only state law claims that are not
completely preempted by ERISA. (R. 12-1, Mot. to Remand.)
Plaintiff's Complaint broadly alleges that HCSC realizes unfair and
illegal profits by failing to adjust claimed reimbursement liens to
reflect actual costs to the company. (R. 1-1, Compl. ¶ 1.) Plaintiff
contends that, as the administrator of plans, HCSC enters into agreements
with health care providers to provide services to HCSC members. (Id.
¶ 9.) According to the Complaint, HCSC "negotiates significant
discounts" for those services. (Id.) Plaintiff claims that these
discounts can come in various forms, including "up-front" reductions in
the amount charged or billed by the providers and "back-end" refunds to
HCSC. (Id.) Presumably, these discounts are not passed onto the
participants in the HCSC plans.
The allegations specific to plaintiff Coughlin provide more context.
Coughlin was injured in a fall outside of her apartment on February 2,
2000. (R. 1-1, Compl. ¶ 6.) At the time, she was insured under an
HMO plan (the "Plan") that HCSC administered. (Id. ¶ 7.) Coughlin
received benefits from the Plan for medical
treatment related to her
injuries. (Id.) According to the Complaint, HCSC claimed to cover and pay
$23,632.85 of the $23,761.60 in health care provider charges. (Id.
¶ 12.) Coughlin was only required to pay $128.75. (Id.)
Meanwhile, Coughlin pursued tort claims against a third-party and its
insurer for the injuries and damages she sustained in her fall. (R. 1-1,
Compl. ¶ 10.) HCSC asserted a lien for $23,632.85 — the same
amount as the purported benefits it claimed it paid related to the
accident. (Id. ¶ 12.) Coughlin eventually settled the personal
injury case for $150,000. (Id. ¶ 11.) HCSC agreed to comply with
Illinois' common fund doctrine by reducing its claimed lien by one-third
to pay its share of the attorney's contingency fee. (Id. ¶ 15.)
Over this period of time, HCSC sent Coughlin an itemization of services
provided to Coughlin that it claimed to have paid. (R. 1-1, Compl. ¶
13.) Suspecting that HCSC was not providing its actual out of pocket
costs related to Coughlin's medical treatment — and believing that
HCSC only had the right to collect on the lien what it paid for those
services — Coughlin requested further documentation from HCSC.
(Id. ¶ 14.) Specifically, Coughlin asked to see the contracts that
HCSC had with the health care providers and documentation that would
demonstrate whether HCSC received discounts or refunds not otherwise
evidenced by its itemization of services. (Id.) HCSC refused Coughlin's
demand and re-sent her the itemization. (Id.)
The reimbursement provision in the applicable HCSC Plan states:
If you or one of your covered dependents are injured
by the act of omission of another person and benefits
have been provided for that injury under this
Certificate, you agree:
— to immediately reimburse the Plan for any
payments received, whether by action at
law, settlement or otherwise, to the extent
that the Plan has provided benefits to you
or your covered dependents; and
— that the Plan will have a lien to the extent
of benefits provided. Such lien may be filed
with the person whose act caused the
injury, the person's agent or a court having
jurisdiction in the matter.
For purposes of this provision, the cost of benefits
provided will be the charges that would have been
billed if you had not been enrolled in this benefit
(R. 1-1, Notice of Removal, Ex. B at 43.)
Plaintiff characterizes its Complaint as one that solely asserts state
law claims regarding "who is entitled to what portion of a third-party
tort recovery." Plaintiff claims that under these circumstances, there is
not complete preemption and therefore this Court does not have subject
matter jurisdiction over the action. Defendant counters that the
Plaintiff's claim is completely preempted in that her claims are properly
recharacterized as arising under federal law, Defendant is correct.
Accordingly, removal was proper.
This case is the latest example of the tension between the well-pleaded
complaint rule and the complete preemption exception as it relates to
ERISA. According to the well-pleaded complaint doctrine, "a cause of
action arises under federal law only when the plaintiff's well-pleaded
complaint raises issues of federal law." Metropolitan Life Ins. Co. v.
Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987)
(citations omitted). Therefore, the plaintiff is "master of the
complaint." Caterpillar Inc. v. Williams, 482 U.S. 386,
398-99, 107 S.Ct. 2425, 2433, 96 L.Ed.2d 318 (1987). In this role, the
plaintiff controls the litigation through the issues it raises in its
complaint, in contrast to those that the defendant includes in its
response. Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482,
1486 (7th Cir. 1996).
The plaintiff is then able to, "by eschewing claims based on federal
law, choose to have the cause heard in state court." Caterpillar, 482
U.S. at 399, 107 S.Ct. at 2433. These rules prevent the defendant from
being in control of the litigation and obtaining a transfer to federal
court under the guise of federal preemption simply by raising a federal
question as a defense. Speciale v. Seybold, 147 F.3d 612, 615 (7th
The complete preemption doctrine is an exception to the well-pleaded
complaint rule. If Congress has completely preempted a given area of
law, a plaintiff's state law complaint can be removed and recharacterized
as a federal claim. Lister v. Stark, 890 F.2d 941, 943 (7th Cir.
1989). Falling under this complete preemption doctrine are all state
actions that are within the scope of § 502(a)*fn1 of ERISA. Taylor,
481 U.S. at 67, 107 S.Ct. at 1548.
While Coughlin presented the causes of action on behalf of herself and
the putative class members purportedly under state common law, if it "is
within the scope of § 502(a) it is completely preempted regardless of
how [s]he has characterized it." Rice v. Panchal, 65 F.3d 637, 642 (7th
Cir. 1995); Jass, 88 F.3d at 1488. See also Doe v. Allied-Signal, Inc.,
985 F.2d 908, 911 (7th Cir. 1993) (plaintiff cannot "deny a defendant
access to federal court if the actual nature of the complaint is federal"
and thereby avoid complete preemption). "Therefore, a federal court may,
in some situations, look beyond the face of the complaint to determine
whether a plaintiff has artfully pleaded his suit so as to couch a
federal claim in terms of state law," Burda v. M. Ecker Co., 954 F.2d 434,
438 n. 3 (7th Cir. 1992). Any analysis of complete preemption must
begin with a review of the complaint. Varco v. Lapsis, 172 F. Supp.2d 985,
988 (N.D. Ill. 2001).
I. Coughlin's Characterization of the Complaint
Attempting to show that her Complaint is deserving of a class action
treatment, Coughlin alleges the specific common issues of law and fact.
(R. 1-1, Compl. ¶ 25.) In doing so, she essentially admits that her
state law claims are completely preempted. Coughlin states that the
following issues, among others, predominate over any other questions
affecting only the individual class members:
(a) whether [HCSC] has any basis for asserting and
collecting reimbursement claims in excess of its net
costs of benefits provided to class members;
(b) whether any contract provision [HCSC] might rely
upon in asserting and collecting reimbursement claims
in excess of its net cost of benefits provided to
class members would be unconscionable or otherwise
(g) whether plaintiff and the other class members, as
third-party beneficiaries, have a right to only have
reimbursements asserted against them for amounts no
greater than what [HCSC] actually paid in benefits;
(i) whether [HCSC] should be permanently enjoined from
continuing to collect reimbursement liens in amounts
excess of its net cost of benefits provided.
(Id.) Plaintiff maintains that "[i]n the absence of a class action,
[HCSC] will be able to continue to violate the rights of the members of
the class and unjustly enrich itself at the cost of the class members."
(Id. ¶ 28.)
II. Application of the Law to the Allegations
The Seventh Circuit has used a three factor test to determine whether a
claim is completely preempted: (1) whether the plaintiff is eligible to
bring a claim under § 502(a); (2) whether the plaintiff's causes of
action are enforceable through § 502(a); and (3) whether the
plaintiff's state law claims cannot be resolved without interpreting the
plan, which is governed by federal law. Jass, 88 F.3d at 1487. When all
three factors exist, the state law claims are completely preempted and
properly recharacterized as an ERISA claim under § 502(a). Id. at
Section 502(a)(1) allows any "participant or beneficiary" to bring a
civil action. Coughlin alleges that she and the putative class members
are beneficiaries or participants, (R. 1-1, Compl. ¶¶ 4, 21), thus
they are entitled to bring suit under § 502(a). Coughlin disputes,
however, the outcome of the last two factors of the test: (1) whether the
Coughlin and the putative class members bring causes of action that are
enforceable through § 502(a)(1)(B); and (2) whether the claims
require an interpretation of the plan itself. As illustrated below,
recent Seventh Circuit case law has merged the two factors for cases
arising in this context.
A. The Causes of Action are Enforceable through § 502(a).
Under § 502(a)(1)(B), a plaintiff may bring a cause of action "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." Id. This issue has been the
subject of many controversies over the years and has led to an evolution
of ERISA law.*fn2 As the law stands today, a simple adjudication of a
lien is not enough to allow for complete preemption by § 502(a).
In Blackburn v. Sundstrand Corp., the Seventh Circuit addressed the
issue of § 502(a) preemption. 115 F.3d 493 (7th Cir. 1997). In that
case, the defendant Sundstrand paid part of the cost of the plaintiffs'
medical care that treated their personal injuries. After the plaintiffs
settled the underlying state tort action, Sundstrand and the plaintiffs'
lawyer maintained claims against the settlement. The plaintiffs filed a
state court petition to apportion the fund and asked that Sundstrand be
responsible for a portion of their attorney's fees and expenses under
Illinois' common fund doctrine. The Seventh Circuit found that there was
no complete preemption of the state appropriation doctrine. "[N]either
the original tort action nor the petition to adjudicate adverse claims to
the settlement fund sought a payment from the plan. Section 502 is
irrelevant." Id. at 495.
In 1998, the Seventh Circuit was confronted with another adjudication
of liens case in Speciale. In that case, the plaintiff
as a result of an automobile accident. Speciale, 147 F.3d at 613. The
plaintiff's employer's health plan paid a major portion of her medical
expenses. Fifteen other providers filed medical liens as well. After
settling the personal injury lawsuit, the plaintiff attempted to
adjudicate the liens in state court. Her employer removed the issue to
federal court for a determination of the parties' respective rights. The
Court of Appeals found that the case should have been remanded to state
court because only the apportionment of funds was at issue — there
was no need to interpret the contract. "The plaintiffs personal injury
case has been settled. [The plan's administrator's] subrogation right has
not been questioned. What remains is simply a determination on the
apportionment of the funds under state law." Id. at 617.
What Blackburn and Speciale stand for is that an adjudication of a
lien, without more, is not completely preempted by § 502(a). This
proposition comes to light in a district court case that followed. In
Scianna ex rel. Urso v. Furlong, 56 F. Supp.2d 1000 (N.D. Ill. 1999), the
plaintiff filed a petition to approve of a settlement and adjudicate a
purported lien by the defendant employee benefits plan. Id. at 1001. In
the prayer for relief, the petition asked for an order (1) denying the
defendant any right to reimbursement from the settlement funds and (2)
compelling the defendant to pay all medical bills for the underlying
injury. Id. at 1002. Judge Moran synthesized the Seventh Circuit's
opinions for "guiding principles":
First, if resolving the state law claim involves a
purely factual inquiry that does not require any
interpretation of the contract, then the state law
remedy is "independent" for preemption purposes. A
need to simply refer to the contract will not kick in
preemption, but a need to interpret the contract term
will. Second, if the plaintiff's "right" is rooted in
the contract, then resolution of a claim based on that
right would require interpretation of contract and
preemption is appropriate. Id. at 1003.
The court looked to the "express language of [the] pleading" in
determining that it was a claim to recover benefits due under the plan.
In contrast to Speciale and Blackburn, Judge Moran refused to remand the
case, because Scianna required an assessment of the contractual rights of
the parties. Id. at 1005 ("We retain jurisdiction over all questions
concerning the parties' rights, benefits and obligations under the
It is clear that the second and third Jass factors merge when the
plaintiff solely seeks to adjudicate a lien or apportion funds, and that
remand is appropriate. Where the complaint or petition requires a
contract interpretation, the cause of action is completely preempted.
See, e.g., Scianna, 56 F. Supp.2d at 1005; Cortez v. Michael Reese Health
Plan, Inc., 980 F. Supp. 277, 279-80 (N.D. Ill. 1997) (holding that the
"case involves the interpretation of an ERISA plan reimbursement
provision" and therefore was subject to the complete preemption
doctrine). In contrast, where no contract interpretation is needed, the
cause of action is must be remanded. See, e.g., Speciale, 147 F.3d at
617; Blackburn, 115 F.3d at 495.
In any event, the Complaint filed in state court satisfies each of
these two separate Jass elements. Coughlin, on behalf of herself and the
putative class members, seeks a determination of whether (1) "plaintiff
and the other putative class members . . . have a right to only have
reimbursements asserted against them for amounts no greater than what
[HCSC] actually paid in benefits"; and (2) "[HCSC] should be permanently
enjoined from continuing to collect reimbursement liens in amounts in
excess of its net cost of
benefits provided." (R. 1-1, Compl. ¶ 25.)
In asking for this relief; Coughlin has destroyed her argument that the
claims do not fit within the scope of § 501(a)(1)(B). Certainly, with
these requested determinations, Coughlin seeks, on behalf of herself and
the putative class members, both to "enforce [their] rights under the
terms of the plan" and to "clarify [their] rights to future benefits
under the terms of the plan." See § 501(a)(1)(B).
B. Coughlin's Claims must be Resolved by Interpreting the Contract,
which is Governed by Federal Law.
Coughlin argues that the language of the Plan and of the plans covering
other class members "are not at issue in the case because such provisions
allow the conduct complained of herein." (R. 12-1, Mem. in Supp. of Mot.
to Remand at 4.) She further argues that "even if these provisions
purported to allow such misconduct they would be unenforceable." (Id.)
These arguments are inconsistent with Coughlin's Complaint, which calls
for an interpretation of the plan to ultimately resolve the case. In the
Complaint, Coughlin admits that the dominant issues include whether (1)
"[HCSC] has any basis for asserting and collecting reimbursement claims
in excess of its net costs of benefits provided to class members;" and
(2) "any contract provision [HCSC] might rely upon in asserting and
collecting reimbursement claims in excess of its net cost of benefits
provided to class members would be unconscionable or otherwise
unenforceable." (R. 1-1, Compl. ¶ 25.) Deciding whether HCSC had a
contractual basis to assert and collect funds in excess of its costs and
whether a contractual provision is unenforceable certainly requires an
interpretation of the Plan itself. See Moran v. Rush Prudential HMO,
Inc., 230 F.3d 959 (7th Cir. 2000) (complete preemption where "the
extent and enforceability" of a plaintiff's rights "necessarily requires
an examination on the contract."), aff'd, ___ U.S. ___, 122 S.Ct. 2151,
153 L.Ed.2d 375 (2002).
Blackburn and Speciale do not provide otherwise. The disputes in those
cases simply called for allocation of the settlement funds based on state
law. Here, HCSC has already offset its lien by its portion of the
attorney's fees, as required by the common fund doctrine. No other liens
on the settlement have been brought to the attention of this Court. The
only question is whether the reimbursement HCSC seeks is allowable under
the specific language of the Plan and whether those terms are
enforceable. To answer that question, the Court must interpret the Plan's
provisions. Thus, Plaintiff's claims are completely preempted by §
502(a) of ERISA.
Coughlin's claims on behalf of herself and the putative class are
completely preempted. As such, they are within this court's subject
matter jurisdiction. Plaintiff's Motion to Remand is denied. Plaintiff's
request for costs and attorney's fees is also denied.