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Hartland Lakeside Joint No. 3 School District v. Wea Insurance Corp.

United States Court of Appeals, Seventh Circuit

June 27, 2014

HARTLAND LAKESIDE JOINT NO. 3 SCHOOL DISTRICT, OCONOMOWOC AREA SCHOOL DISTRICT, and ARROWHEAD UNION HIGH SCHOOL DISTRICT, Plaintiffs-Appellants,
v.
WEA INSURANCE CORPORATION, et al., Defendants-Appellees

Argued May 23, 2014

Appeal from the United States District Court for the Eastern District of Wisconsin. No. 12-C-154 -- William E. Callahan, Jr., Magistrate Judge.

For Hartland Lakeside Joint No. 3 School District, Oconomowoc Area School District, ARROWHEAD UNION HIGH SCHOOL DISTRICT, on their own behalf and on behalf of all others similarly situated, Plaintiff - Appellant: Thomas L. Shriner Jr., Attorney, Foley & Lardner Llp, Milwaukee, WI.

For Wea Insurance Corporation, Wisconsin Education Association Insurance Trust, Patricia Barrette, Lisa Glaser, Margaret Guertler, Defendants - Appellees: Stephen A. DiTullio, Attorney, Joseph A. Ranney III, Attorney, Scott M. Paler, Attorney, Dewitt Ross & Stevens S.C., Madison, WI.

Before BAUER and EASTERBROOK, Circuit Judges, and ST. EVE, District Judge.[*]

OPINION

Page 1033

Easterbrook, Circuit Judge.

Section 1102 of the Patient Protection and Affordable Care Act, 42 U.S.C. § 18002, provides $5 billion to reimburse employers and their proxies for some outlays on early retirees' medical care. WEA Insurance, which administers health-care programs on behalf of many school districts in Wisconsin, told them that it would collect on their behalf. It decided to use the federal money to reduce premiums in future years. The school districts contended that WEA should have rebated premiums for the years in which the retirees received the medical care that led to the federal payments. The difference matters to school districts that want to switch carriers. WEA's plan to cut future rates, rather than provide rebates, gave it a competitive advantage: a district that switched to another insurer would never see a penny of the federal money.

Three districts that did switch filed this suit, in Wisconsin court, contending that state law requires WEA to apply the receipts so that the school districts whose expenses justified the federal payments receive the economic benefit. The school districts characterize WEA's choice to allocate none of the money to districts that switch carriers as a form of conversion. All of the complaint's claims arise under state law, and all litigants are citizens of Wisconsin. WEA nonetheless removed to federal court, contending that § 18002 and its implementing regulations, 45 C.F.R. § § 149.1 to 149.700, are the crux of the litigation. A magistrate judge, presiding by consent under 28 U.S.C. § 636(c), denied the districts' motion to remand. (E.D. Wis. Apr. 24, 2012). The judge certified the issue under 28 U.S.C. § 1292(b), but a motions panel declined to accept the interlocutory appeal. After the magistrate judge ruled in WEA's favor on the merits, the school districts appealed from the final decision. Subject-matter jurisdiction is our first order of business.

Removal was proper if, and only if, the school districts' claim arises under federal law. 28 U.S.C. § § 1331, 1441. Yet the complaint relies entirely on state law, and although WEA contends that federal law is material to the suit, the existence of a federal issue rarely allows removal. See, e.g., Gunn v. Minton, 133 S.Ct. 1059, 185 L.Ed.2d 72 (2013); Bennett v. Southwest Airlines Co., 484 F.3d 907, rehearing denied, 493 F.3d 762 (7th Cir. 2007).

" Rarely" differs from " never," and WEA relies on Grable & Sons Metal Prods. v. Darue Eng'g & Mfg., 545 U.S. 308, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005), for the proposition that, when the principal issue is federal, removal is permitted. The magistrate judge agreed, writing that WEA has a good defense if federal law (including the regulations) allows insurers to collect the payments as the effective sponsors of the health-care plans. The magistrate judge did not conclude that federal law occupies the field (the misleadingly named doctrine that " complete preemption" supplies federal jurisdiction); nothing in § 18002 suggests that all claims related to its benefits necessarily are federal. Instead the judge thought that a federal issue is itself enough for federal jurisdiction.

Grable announced a multi-factor approach that has been hard to use consistently. Its application here is doubtful, since WEA does not contend that the only material issue is federal. To make such an argument, it would have to concede that the school districts have a good claim under state law. Yet far from conceding this, WEA denies that the districts have valid state-law claims. Thus even from WEA's perspective, the case contains non-trivial issues of both state and federal law.

Page 1034

Moreover, it is difficult to see a federal defense. There is no doubt a federal issue. The school districts have argued that WEA, as an insurer rather than either a sponsor or fiduciary of a welfare-benefit plan governed by ERISA, see Wisconsin Education Association Insurance Trust v. Iowa State Board of Public Instruction, 804 F.2d 1059 (8th Cir. 1986), is ineligible to collect funds under § 18002 except as the school districts' agent. See 42 C.F.R. § 423.882. If that's so, then it is easy to classify ...


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