Providence Health Plan, an Oregon Non-Profit Corporation v. Gary McDowell Roselea McDowell Providence Health Plan, an Oregon Non-Profit Corporation v. Gary McDowell Roselea McDowell

Citation: 385 F.3d 1168Docket: 02-35263

Court: Court of Appeals for the Ninth Circuit; October 1, 2004; Federal Appellate Court

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Providence Health Plan initiated two legal actions against Gary and Roselea McDowell concerning health benefits paid to them after an automobile accident. The first action, McDowell I, was filed in state court for breach of contract but was removed to federal court and dismissed due to being completely preempted by the Employee Retirement Income Security Act of 1974 (ERISA). The second action, McDowell II, was directly filed in federal court under ERISA's civil enforcement provision but was also dismissed, as the district court found that Providence failed to state a valid claim.

The McDowells had health coverage through SelectCare, which merged with Providence in 1997, transitioning their insurance solely to Providence by January 2000. Their insurance contract included a reimbursement clause entitling Providence to recover any benefits paid from any third-party settlements, minus reasonable attorney fees.

After the McDowells were injured in an accident on February 13, 2000, Providence paid a total of $32,429.18 for their medical care. The McDowells signed agreements directing their attorney to reimburse Providence from any recovery against the at-fault driver. They later settled for approximately $500,000, after which Providence sought reimbursement of $21,727.55, which the McDowells did not pay. Providence subsequently filed its breach of contract claim in October 2001, asserting their right to reimbursement based on the contractual agreement. The appellate court reversed the dismissal of McDowell I but affirmed the dismissal of McDowell II.

The McDowells removed their contract action to federal court, asserting that the claim was preempted by the Employee Retirement Income Security Act (ERISA), while Providence sought to remand the case. The district court denied the remand and granted the McDowells' motion, ruling that it had jurisdiction and that ERISA preemption applied. Subsequently, Providence filed a second action in the District of Oregon under ERISA's civil enforcement provision, seeking specific performance related to an insurance contract's reimbursement clause. The district court dismissed this action, determining that Providence was essentially pursuing monetary relief disguised as an equitable claim. Providence appealed both dismissals, which are currently under review.

The appellate court will conduct a de novo review regarding the dismissals and the subject matter jurisdiction. Providence argues that the district court lacked removal jurisdiction for the breach of contract action, which must be preempted by ERISA and fit within ERISA's enforcement provisions to be removable. ERISA's preemption clause generally supersedes state laws related to employee benefit plans, although the Supreme Court has clarified that "relate to" should be interpreted practically, considering the actual relationship of the claim to the plan. A claim is deemed to "relate to" an ERISA plan if it references or is connected to the plan, particularly if the plan's existence is essential to the claim. Courts utilize a relationship test to assess whether a claim significantly impacts a relationship governed by ERISA.

The district court incorrectly classified Providence's breach of contract action as related to an ERISA plan, asserting it sought enforcement of a reimbursement provision. However, Providence's claim does not possess the necessary connection to an ERISA plan; it merely seeks to enforce a contractual reimbursement provision without requiring plan interpretation or dictating benefit distributions. Providence has already paid ERISA benefits to the McDowells, who do not contest the payment's correctness. Instead, Providence alleges that the McDowells violated two promises: to reimburse Providence for funds received from a non-ERISA third party and to instruct their lawyer to reimburse Providence in the event of a settlement. This reimbursement claim, stemming from a third-party settlement, does not relate to the ERISA plan.

Furthermore, Providence's action fails to meet the criteria for removal jurisdiction, as it does not fall under ERISA's civil enforcement provision, 29 U.S.C. § 1132(a). Although Providence, as a fiduciary, can seek relief for violations of the plan under § 1132(a)(3), this provision allows only for equitable relief, whereas Providence seeks monetary damages based on state law. This distinction aligns with recent Supreme Court rulings, such as Great-West Life & Annuity Insurance Co. v. Knudson, which clarified that § 1132(a)(3) does not empower a fiduciary to enforce a reimbursement provision, and acknowledged the potential for alternative remedies outside ERISA. Additionally, prior circuit decisions have consistently ruled that insurers cannot rely on ERISA’s equitable relief provisions to claim reimbursement from their insureds, reinforcing the conclusion that Providence must pursue its claims under state law.

The decision conflicts with rulings from several states regarding ERISA preemption, particularly in cases like Liberty Northwest Insurance Corporation v. Kemp and Jefferson-Pilot Life Insurance Co. v. Krafka, which held that insurer reimbursement actions are preempted by ERISA. However, the court aligns with rulings from states like Washington that found no preemption in similar contexts, specifically citing Behavioral Sciences Institute v. Great-West Life, where a self-insured employer's action against a reinsurer was not preempted.

Providence's breach of contract claim is determined to be non-preempted under ERISA sections 1144 and 1132(a), leading to a lack of removal jurisdiction for the district court, necessitating remand to state court. Following the dismissal of McDowell I, Providence attempted to bring a federal suit under ERISA for specific performance of the reimbursement provision, which the district court dismissed, labeling the action as an improper attempt to seek monetary relief.

The court upheld the dismissal based on claim preclusion, stating that all conditions were met: identity of claims, final judgment on the merits, and identity or privity of parties, meaning the current action is barred. Additionally, the court found that Providence's claim for equitable relief does not fit within ERISA's provisions, as it fundamentally seeks monetary reimbursement rather than true equitable relief. The Supreme Court's ruling in Great-West supports this conclusion, clarifying that claims for monetary reimbursement are considered legal, not equitable, under ERISA.

Petitioners claim a contractual entitlement to funds for benefits conferred, seeking legal restitution rather than equitable remedies like a constructive trust or equitable lien. The Supreme Court's ruling in Great-West clarifies that monetary damages sought by Providence against the McDowells constitute a legal remedy, rejecting Providence's characterization of the claim as equitable. The court reverses the district court's dismissal of McDowell I, remanding it to state court, while affirming the dismissal of McDowell II, with costs awarded to appellant Providence Health Plan. The panel denies appellees' petition for rehearing, with a dissent from Judge Thomas and others, expressing concern that the decision alters ERISA law significantly, allowing preempted state lawsuits while restricting plan participants' rights to assert claims based on the same plan documents. The dissent emphasizes ERISA's intent to create a uniform federal law for employee benefit plans, cautioning against interpreting extra-statutory remedies too broadly.

ERISA features a broad preemption clause that supersedes all state laws relating to employee benefit plans, as established in case law such as Security Life Ins. Co. of America v. Meyling and others. The Ninth Circuit has consistently ruled that state law claims by plan participants against third-party insurers are preempted by ERISA, as are insurers' reimbursement claims against participants. This case represents a significant shift from established precedent by allowing ERISA insurers to pursue independent reimbursement claims from plan participants, which contradicts prior rulings and the Supreme Court's decision in Aetna Health Inc. v. Davila. The decision creates inconsistencies between federal and state courts regarding reimbursement claims and undermines the intended uniformity of ERISA, as it enables insurers to sue participants without allowing participants to counter-sue for breaches of contract or bad faith. This outcome is seen as inequitable, favoring insurers while restricting participants' rights. The author expresses concern that this ruling deviates from the established understanding of ERISA preemption and calls for an en banc rehearing to address the issue. Judge Noonan concurs with Judge Thomas but does not dissent from the outcome.