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Doctors Medical Center of Modesto, Inc. v. Principal Mutual Life Insurance Co.

August 28, 2008



Plaintiff Doctors Medical Center of Modesto, Inc. filed an action in state court to recover the remaining balance for medical treatment it provided to a subscriber of an ERISA plan that defendant Principal Mutual Life Insurance Company*fn1 administered. Defendant removed the case to federal court, and plaintiff now moves to remand the case to the state court.

I. Factual and Procedural Background

In 1986, plaintiff entered into a Hospital Services Agreement (HSA) with Stanislaus Foundation For Medical Care ("Stanislaus Foundation"), a nonprofit California corporation. (Compl. ¶ 5; id. Ex. A at HSA 6.) In the HSA, Stanislaus Foundation promised to execute independent contracts with insurance companies, self-insured groups, and employee welfare benefit plans (collectively, "Payors") in which the Payors would agree to promote and offer incentives for their subscribers to use plaintiff's hospital. (Id. Ex. A at HSA I.A.) In exchange, plaintiff promised to provide Payors' subscribers with health care services at a reduced rate established in the HSA. (Id. Ex. A at HSA I.B.) As the HSA contemplated, plaintiff had a pre-existing contractual relationship with only Stanislaus Foundation, but its operations were affected by Stanislaus Foundation's contracts with Payors ("Payor Agreements") and Payor's contracts with their subscribers ("Benefit Agreements"). (Id. Ex. A at HSA I; see also id. Ex. A at HSA II.A (indicating that the Benefit Agreements "establish[] a Payor's obligation to the Patient for payment for medical, hospital and other health benefits").)

With respect to payments, the HSA provided that "[Stanislaus] Foundation shall contractually require Payors to compensate [plaintiff] those amounts specified in Exhibit 'B' [of the HSA] . . . for those Health Care services provided to a Patient in accordance with an applicable Benefit Agreement." (Id. Ex. A at HSA VIII.A.) The HSA also stated that plaintiff could collect the co-payment indicated in a subscriber's Benefit Agreement directly from the subscriber and could collect any unpaid balance from the subscriber only if the Payor failed to pay the remaining balance within sixty days. (Id. Ex. A at HSA VIII.B.)

In 2000, plaintiff and Stanislaus Foundation executed a Hospital Rate Agreement Form, which included a reciprocity provision in which plaintiff agreed to provide services at the HSA rates to subscribers "covered under a Benefit Agreement administered by another Foundation for Medical Care," including Pacific Foundation for Medical Care ("Pacific Foundation"). (Id. Ex. A at Hospital Rate Agreement Form 2.)

Prior to the reciprocity agreement, Pacific Foundation had executed a written Payor Agreement with defendant. (Id. at ¶ 7.) Pursuant to plaintiff's reciprocity agreement, defendant was thus added to plaintiff's "Payor List" and was entitled to receive HSA's discounted rates for its subscribers. (Id. at ¶¶ 7-8.) On an unknown date, Pacific Foundation also allegedly executed an agreement with Stanislaus Foundation "that required" Pacific Foundation's Payors, such as defendant, to compensate plaintiff according to the amounts indicated in the HSA. (Id. at ¶ 10.)

For two days in January 2006, plaintiff treated patient J.L., a subscriber allegedly covered by an ERISA Benefit Agreement defendant administered. (Id. at ¶ 13.) Two days prior to J.L.'s admission on January 17, 2006, plaintiff contacted defendant to verify J.L.'s eligibility and received an authorization for benefits. (Id.) After plaintiff treated J.L., she paid $2,500.00 and plaintiff billed defendant $85,800.37 for the services rendered, which was automatically reduced to $64,350.28 per the HSA. (Id. at ¶ 14.) Defendant contended that it was responsible for only $31,820.15 and submitted that amount to plaintiff. (Id. at ¶ 15.) Plaintiff subsequently sent two appeals letters to defendant that requested the full $64,350.28, but defendant refused to increase its payment. (Id. at ¶ 16.)

On May 13, 2008, plaintiff filed a Complaint in state court, alleging claims for: 1) breach of written contract (referencing the HSA and defendant's Payor Agreement); 2) breach of implied contract; 3) negligent misrepresentation; and 4) quantum meruit. Defendant removed the case to this court, and plaintiff now moves to remand the case to the state court and requests attorney's fees pursuant to 28 U.S.C. § 1447(c).

II. Discussion

"Any civil action may be removed to federal district court so long as original jurisdiction would lie in the court to which the case is removed." Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1090 (9th Cir. 2003); 28 U.S.C. § 1441(a). When a plaintiff moves to remand a case, the defendant bears the burden of establishing that removal was proper. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). Any questions regarding the propriety of removal should be resolved in favor of the party moving for remand. Matheson, 319 F.3d at 1090. If removal was improper, "the district court lack[s] subject matter jurisdiction, and the action should [be] remanded to the state court." Toumajian v. Frailey, 135 F.3d 648, 653 (9th Cir. 1998) (citing 28 U.S.C. § 1447(c)).

"Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted). "A federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears." Stock W., Inc. v. Confederated Tribes of the Colville Reservation, 873 F.2d 1221, 1225 (9th Cir. 1989) (citing Cal. ex rel. Younger v. Andrus, 608 F.2d 1247, 1249 (9th Cir. 1979)). District courts "have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331.

"The presence or absence of federal question jurisdiction is governed by the 'well-pleaded complaint rule,' which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." California v. United States, 215 F.3d 1005, 1014 (9th Cir. 2000). "One corollary of the well-pleaded complaint rule developed in the case law, however, is that Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64 (1987). "In such a case, even if the only claim in a complaint is a state law claim, if that claim is one that is 'completely preempted' by federal law, federal subject matter jurisdiction exists and removal is appropriate." Toumajian v. Frailey, 135 F.3d 648, 653 (9th Cir. 1998) (citation omitted).

For ERISA to completely preempt a state law claim, not only must conflict preemption exist--which requires that "the state law claim 'relates to' an ERISA plan within the meaning of § 1144(a)"*fn2 --the claim must also "fall[] within the scope of ERISA's civil enforcement found in § 1132(a)." Toumajian, 135 F.3d at 654; see also Metro. Life Ins. Co., 481 U.S. at 64 ("ERISA pre-emption, without more, does not convert a state claim into an action arising under federal law.") (citation omitted); see also Toumajian, 135 F.3d at 654 ("[E]ven if the district court found that the Complaint contained a state law claim that 'relates to' an ERISA plan, and is thus preempted by § 1144(a), the complaint is not removable to the federal court unless it is also encompassed within ERISA's civil enforcement scheme."). Despite the exclusion of federal ERISA claims in a plaintiff's complaint, a state law claim will fall within the scope of § 1132(a) if it "can be reasonably characterized as a claim under any of ERISA's civil enforcement provisions . . . ." Toumajian, 135 F.3d at 654 (citations omitted).

"Section 1132(a) of ERISA, by its express terms, limits the causes of action that are available under the statute, as well as by whom and ...

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