287 F.3d 110 (2nd Cir. 2002), 00-7986, Connecticut v. Physicians Health Services Of Connecticut, Inc.

Docket Nº:00-7986
Citation:287 F.3d 110
Party Name:Connecticut v. Physicians Health Services Of Connecticut, Inc.
Case Date:March 27, 2002
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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287 F.3d 110 (2nd Cir. 2002)

State of CONNECTICUT, Plaintiff-Appellant,



No. 00-7986.

United States Court of Appeals, Second Circuit

March 27, 2002

Argued: May 1, 2001.

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Richard Blumenthal, Connecticut Attorney General; (Charles C. Hulin, Assistant Connecticut Attorney General, of counsel), Hartford, CT, for Plaintiff-Appellant.

Daly D.E. Temchine, Epstein, Becker, & Green, Washington, DC.; (Stephanie W. Kanwit, Epstein, Becker & Green, Washington, DC. and Davis S. Poppick, Epstein,

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Becker & Green, Stamford, CT, of counsel), for Defendant-Appellee.

William F. Hanrahan, Jon W. Breyfogle, Jennifer E. Eller, Groom Law Group, Washington, DC; Louis Saccoccio, American Association of Health Plans, Washington, DC, for Amicus Curiae American Association of Health Plans.

Before: KEARSE and SACK, Circuit Judges, and RAKOFF, District Judge. [*]

SACK, Circuit Judge.

On December 14, 1999, the State of Connecticut brought this suit for equitable relief in the United States District Court for the District of Connecticut against Physicians Health Services of Connecticut, Inc. ("PHS"), an insurance company offering managed care plans to Connecticut residents. The State seeks an order pursuant to Section 502(a)(3) of the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1132(a)(3), 1 enjoining the defendant PHS from using a drug "formulary"--a list of drugs preapproved by PHS for reimbursement--that allegedly prevents plan enrollees from receiving drugs prescribed for them by their physicians that are medically necessary or preferable to a comparable listed drug. Under § 1132(a)(3), "a participant, beneficiary, or fiduciary" may bring a civil action for equitable relief to redress violations of ERISA or the terms of an ERISA-regulated plan. The State asserts standing to sue in its capacity as parens patriae, and as the assignee of eight individual participants in PHS plans who have purportedly assigned to the State their right to seek "appropriate equitable relief" with respect to "any cause of action" they may have as plan participants or beneficiaries. Compl., Exs. 1-8 ¶ 2. The district court (Stefan R. Underhill, Judge) granted the defendant's motion to dismiss the State's complaint for lack of standing. Connecticut v. Physicians Health Servs. of Conn., Inc., 103 F.Supp.2d 495 (D.Conn.2000) ("PHS"). The court, in a thorough and careful opinion, held that the State did not meet the requirements for standing under § 1132(a)(3). Id. at 511. The State filed a timely appeal.

We conclude that the State as assignee of the plan participants' rights to bring equitable actions against the defendant lacks standing under Article III of the Constitution. We further hold that the State cannot bring this suit in a parens patriae capacity. Because Congress "carefully drafted" § 1132, parties other than those explicitly named therein--plan participants, beneficiaries, and fiduciaries--may not bring suit. Pressroom Unions-Printers League Income Sec. Fund v. Cont'l Assurance Co., 700 F.2d 889, 893 (2d Cir.), cert. denied, 464 U.S. 845, 104 S.Ct. 148, 78 L.Ed.2d 138 (1983). The State in its parens patriae capacity is not one of these enumerated parties. We therefore affirm the district court's grant of the defendant's motion to dismiss all the State's claims for lack of standing.


In its complaint filed on December 14, 1999, the State alleges that PHS's drug formulary system violates provisions of ERISA that impose on PHS: (1) a fiduciary duty to administer its health care plans solely in the interests of the plan participants; (2) a duty to disclose the full details of its plans to plan participants; and (3) a

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duty to provide plan participants with adequate notice of reasons for denials of claims for reimbursement. Compl. ¶ ¶ 83-90. The State asserts that PHS's drug formulary system injures plan participants by denying them "access to safe, effective, and medically necessary" drugs prescribed by their doctors. Id. ¶ 83. The details of the State's allegations are set forth in the district court's opinion. See PHS, 103 F.Supp.2d at 497-500. Because we do not reach the merits of the claims, we need describe them no further here.

Relying on 29 U.S.C. § 1132(a)(3), 2 which allows "a participant, beneficiary, or fiduciary" of an ERISA-regulated plan to bring a civil action for injunctive and other equitable relief, the State seeks an order:

1. requiring the defendant to provide its enrollees with the prescription medications ordered by the attending physician unless the defendant submits to the Court, and the Court approves, a plan for substituting the defendant's preferred medications for those prescribed while insuring [sic] that (i) the substitution is approved by the attending physician, and (ii) the enrollee experiences no unreasonable delay before receiving an appropriate medication; and

2. requiring the defendant to comply with the dictates of ERISA and disclose to enrollees information sufficient to inform them fully and accurately, prior to their enrollment or re-enrollment in the plan, concerning the true nature of the prescription drug benefit to which they are entitled; and

3. requiring that whenever an enrollee requests coverage of a prescription drug by presenting a completed prescription form to a participating pharmacy and coverage is denied, the defendant shall give the enrollee a written denial notice setting forth the specific reason for the denial, and the steps necessary to file an appeal[.]

Compl. ¶ 91. The complaint also requests "[s]uch other and further relief as the Court may deem necessary and proper." Id. 3

The State advances two theories of standing. First, it asserts standing as the assignee of the rights of eight plan participants as individuals and as representatives of a class consisting of all Connecticut residents enrolled in PHS's managed care plans. Second, it asserts standing in its parens patriae capacity to protect its interest in the health and well-being of its citizens. Each of these plan participants executed a document purporting to assign to the State his or her right to sue for injunctive or other equitable relief pursuant to 29 U.S.C. § 1132(a)(3). The right to sue for money damages was not assigned and remains with the plan participants. Attached to the complaint are copies of these assignments. Each states:

I hereby assign to the State of Connecticut any cause of action I may have arising

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from my status as a participant in or beneficiary of an employee welfare benefit plan established pursuant to the Federal Employee Retirement Income Security Act of 1974 ("ERISA"), upon the following conditions:

1. I believe my managed care organization has improperly and illegally obstructed my access to safe and effective prescription medications. I believe many other Connecticut residents have been injured in a similar way. I cannot afford to hire private attorneys to protect my rights under ERISA.

2. By this assignment I intend to empower the State of Connecticut, by and through the Attorney General, to take action to protect me, and people like me, pursuant to 29 U.S.C. § 1132(a)(3), which provides that I, or my assignee, may bring an action to enjoin any act or practice which violates the terms of my health care plan, or to obtain other appropriate equitable relief to redress such violations or to enforce provisions of ERISA or the plan. I agree to cooperate with the Attorney General's Office in any such action, and I agree that the facts of my case should be made public. I am willing, if necessary, to testify under oath.

3. Any positive result the Attorney General is able to obtain will help me, and other people in my position, to receive the medically necessary prescription medications to which we are entitled and which are essential to our health and well-being.

Compl., Exs. 1-8. In exchange for this assignment, the State neither promised to prosecute the assignors' claims nor provided other consideration.

On January 24, 2000, PHS filed a motion to dismiss the complaint pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure on the grounds that: (1) the State lacked standing to bring this action; (2) the assignor-plan participants had not suffered any injuries compensable under ERISA; and (3) the State failed to state a cause of action under ERISA. On July 13, 2000, the district court granted the defendant's motion to dismiss, holding that the State lacked standing to pursue its claims either as parens patriae or as the assignee of the named participants--either individually or as representatives of a class. PHS, 103 F.Supp.2d at 497. The district court concluded that "Congress carefully limited the persons authorized to" sue under § 1132(a)(3) to "either 'a participant, beneficiary, or fiduciary' " and that "[t]he State does not meet any of these statutory requirements of standing, and cannot overcome its omission from section [1132(a)(3)] either through the doctrine of parens patriae or through the assignment of rights from persons who would have standing." Id. The district court did not address PHS's other asserted grounds for dismissal.

This appeal followed. The sole issue before us is whether the State has standing in either of the two capacities it asserted in the district court.


I. Standard of Review

Because "standing is challenged on the basis of the pleadings, we 'accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party.' " United States v. Vazquez, 145 F.3d 74, 81 (2d Cir. 1998) (quoting Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975)). This appeal depends solely on questions of law, which we review de novo. See Makarova v. United States, ...

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