Bast v. Prudential Ins. Co. of America

• Decision Date: 02 June 1998
• Docket Number: No. 97-35429,97-35429
• Citation: 150 F.3d 1003
• Parties: 22 Employee Benefits Cas. 1268, 98 Cal. Daily Op. Serv. 4155, 98 Daily Journal D.A.R. 5767, 98 Daily Journal D.A.R. 8433 Roger Timothy BAST, individually and as Personal Representative for the Estate of Rhonda Rae Fleming Bast; Douglas Glenn Bast, a minor child, Plaintiffs-Appellants, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, an insurance corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1003

150 F.3d 1003

22 Employee Benefits Cas. 1268, 98 Cal. Daily

Op. Serv. 4155,

98 Daily Journal D.A.R. 5767,

98 Daily Journal D.A.R. 8433

Roger Timothy BAST, individually and as Personal

Representative for the Estate of Rhonda Rae

Fleming Bast; Douglas Glenn Bast, a minor child, Plaintiffs-Appellants, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, an insurance

corporation, Defendant-Appellee.

No. 97-35429.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 7, 1998.

Decided June 2, 1998.

As Amended Aug. 3, 1998.

Michael Fleming, Seattle, Washington, for plaintiffs-appellants.

Jerry Spoonemore, Montgomery, Purdue, Blankinship and Austin, Seattle, Washington, for defendant-appellee.

Jane Shapira, Northwest Women's Law Center, Seattle, Washington, for the amicus curiae.

Appeal from the United States District Court for the Western District of Washington; Thomas S. Zilly, District Judge, Presiding. D.C. No. CV-96-00057-Z.

Before: THOMPSON and TASHIMA, Circuit Judges and STAGG, District Judge. ^*

DAVID R. THOMPSON, Circuit Judge:

Roger Timothy Bast, individually and as the personal representative of the estate of his late wife, Rhonda Rae Fleming Bast, and their minor son, Douglas Glenn Bast ("the Basts") appeal the district court's grant of summary judgment in favor of Prudential Insurance Company ("Prudential"). The Basts argue that Prudential acted in bad faith and breached its fiduciary duty to Rhonda Bast by delaying authorization for a potentially life-saving medical procedure. The district court held that all of the Basts' state law claims were preempted by the Employee Retirement Income Security Act ("ERISA") and that ERISA provides no remedy for Prudential's alleged bad faith denial of benefits.

We have jurisdiction pursuant to 28 U.S.C. § 1291 and we affirm. Although this case presents a tragic set of facts, the district court properly concluded that under existing law the Basts are left without a remedy.

I BACKGROUND

Rhonda Bast was an employee of Cole National Corporation ("Cole"). Cole provided major medical benefits for its employees under the "Cole National Corporation Group Benefit Plan" (the "Plan"). Prudential acted as the administrator of this health insurance plan. Additionally, Prudential provided excess insurance coverage to Cole to cover benefits in excess of certain specified limits. During the relevant time period all of Rhonda Bast's benefits were paid for by Cole out of its general assets.

In December 1990, Rhonda Bast was diagnosed with breast cancer and she underwent a left modified radical mastectomy in January 1991. In August 1991, she was diagnosed with a secondary malignancy in her left lung. Her oncologist recommended that she undergo an autologous bone marrow transplant procedure ("ABMT") and high dose chemotherapy at the Fred Hutchinson Cancer Research Center ("the Center").

On September 9, 1991, the Center contacted Prudential to request pre-authorization for the withdrawal, processing and storage of Rhonda Bast's bone marrow. On September 13, Prudential informed the Center that the bone marrow procedure was not covered by the Plan. This was confirmed in a letter dated September 19th. However, on September 12th, Rhonda Bast, at her own expense, had her bone marrow harvested for processing and storage.

On December 31, 1991, Prudential issued a complete denial of coverage for the ABMT procedure. The denial letter stated that the procedure was not covered because it appeared to be "investigational and/or experimental in nature." The Plan excluded coverage for procedures that were educational, experimental, or investigational in nature.

Rhonda Bast contacted an attorney who sent letters to Prudential on February 13 and 14, 1992. The February 13th letter stated that several other insurers had paid for the ABMT procedure and stated that Rhonda Bast "needs her bone marrow transplant in April [1992]. Without it she will most likely die." The February 14th letter provided a list of cases in which insurance companies had been required to pay for the ABMT procedure.

Rhonda Bast's claim was further reviewed by Prudential on February 28, 1992. On that date, Prudential's medical director informed Rhonda Bast's claim consultant that "while the protocol is clearly investigational, since it is a NCI [National Cancer Institute] sponsored trial, and according to the rules established in a recent GCLM [Group Claim Division Memorandum], it is eligible for benefits." On that same day, the claim consultant called the Center and advised it that the ABMT procedure and high dose chemotherapy would be covered under the Plan. Prudential also mailed a letter confirming the coverage, and in early March 1992, Prudential reimbursed the Basts for the costs of the harvesting and storage procedure.

Prudential's authorization of the ABMT came too late. In April 1992, Rhonda Bast underwent an MRI scan of her brain which showed that the cancer had metastasized to her brain. The spread of the cancer disqualified her from participating in the ABMT procedure. Her health declined steadily and she died in January 1993.

On January 10, 1996, Rhonda Bast's husband and minor son filed the complaint in this case against Prudential. The complaint alleged causes of action for breach of contract, loss of consortium, loss of income, emotional distress, breach of the duty of good faith and fair dealing, violation of the Washington Consumer Protection Act and the Washington Insurance Code, and ERISA.

Prudential filed an unsuccessful motion to dismiss, followed by an unsuccessful first motion for summary judgment. Subsequently, however, the district court granted Prudential's second summary judgment motion, holding that ERISA preempted the Basts' state law claims, and that they had no ERISA remedy. The district court dismissed the Basts' complaint with prejudice, and this appeal followed.

II DISCUSSION

We review de novo a grant of summary judgment. Forsyth v. Humana, Inc., 114 F.3d 1467, 1474 (9th Cir.), cert. denied, --- U.S. ----, 118 S.Ct. 559, 139 L.Ed.2d 401 (1997); Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1996). We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact for trial. Forsyth, 114 F.3d at 1474.

Whether ERISA preempts a plaintiff's state law claims is a question of law we review de novo. Ward v. Management Analysis Co. Employee Disability Benefit Plan, 135 F.3d 1276, 1279 (9th Cir.1998); Spain v. Aetna Life Ins. Co., 11 F.3d 129 (9th Cir.1993).

A. Government Exemption

The Basts first argue that the district court improperly granted summary judgment because there is an issue of fact as to whether the Plan was managed by an agency of the government. ERISA exempts from preemption any plan that is established or maintained by the U.S. government, a state government or by any agency or instrumentality of the government. 29 U.S.C. § 1002(32); 29 U.S.C. § 1003(b)(1).

The Basts argue that during the relevant time period, the Plan was "maintained" by the Resolution Trust Company ("RTC"), which is arguably an agency of the U.S. government. They ground this argument on the fact that from 1992 to 1995, the RTC was the receiver for a failed savings and loan association which owned shares in Cole. The S & L's shares represented about 28% of Cole's stock. The RTC was allowed to elect three members to the seven member board of directors of Cole. The RTC, however, exercised no control over Cole or the Plan, and no government employee served as a fiduciary under the Plan.

The RTC's involvement with Cole did not convert Cole's private benefit plan into a government benefit plan. The Plan was established and paid for by Cole, a private entity, for the benefit of its employees. Cf. Silvera v. The Mutual Life Ins. Co., 884 F.2d 423, 427 (9th Cir.1989) (holding that where a governmental entity purchases a benefit plan on behalf of government employees and delegates Cole's employee benefit plan is not a government plan and is not exempt from ERISA on that basis. The issues then become whether ERISA preempts the Basts' state law claims, and if it does, whether it provides a remedy.

the administration to a private insurer, the plan is a government plan exempt from ERISA); and see McGraw v. Prudential Ins. Co., 137 F.3d 1253 (10th Cir.1998) (holding that a public trust that exercised control over the beneficiary's employment did not change the benefit plan into a government plan because the trust did not establish the Plan or control it).

B. ERISA Preemption

ERISA regulates employee benefit plans in order to promote the interests of employees and their beneficiaries. Ward, 135 F.3d at 1287. Under section 514(a), a state law cause of action is preempted by ERISA if it "relates to" an employee benefit plan. 29 U.S.C. § 1144(a); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987). "A law relates to an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990) (quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983)). A state law may relate to a benefit plan even if the law "is not specifically designed to affect such plans, or the effect is only indirect." Id.

In more recent decisions, however, the Supreme Court has limited the scope of the "relate to" provision of ERISA. See De Buono v. NYSA-ILA Med. and Clinical Serv. Fund, 520 U.S. 806, ----, 117 S.Ct. 1747, 1751, 138 L.Ed.2d 21 (1997); New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995). Courts must "go beyond the unhelpful text and the frustrating difficulty of defining its key term ["relate to"], and look instead to the objectives of the ERI...