Jass v. Prudential Health Care Plan, Inc.

• Decision Date: 08 July 1996
• Docket Number: No. 95-2471,95-2471
• Citation: 88 F.3d 1482
• Parties: 20 Employee Benefits Cas. 1580, Pens. Plan Guide P 23922N Betty JASS, Plaintiff-Appellant, v. PRUDENTIAL HEALTH CARE PLAN, INCORPORATED, a corporation, Karen Margulis and Peter J. Anderson, M.D., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1482

88 F.3d 1482

20 Employee Benefits Cas. 1580, Pens. Plan Guide P 23922N

Betty JASS, Plaintiff-Appellant, v. PRUDENTIAL HEALTH CARE PLAN, INCORPORATED, a corporation, Karen Margulis and Peter J. Anderson, M.D.,

Defendants-Appellees.

No. 95-2471.

United States Court of Appeals,

Seventh Circuit.

Argued Nov. 28, 1995.

Decided July 8, 1996.

Cornelius T. Ducey, Jr. (argued), Timothy L. Donaho, Jr., Ducey Law Firm, Belleville, IL, John T. Papa, Callis, Papa, Hale, Jensen, Jackstadt, Bailey & Halloran, Granite City, IL, for Plaintiff-Appellant.

Richard J. Pautler, Lewis Mills (argued), Peper, Martin, Jensen, Maichel & Hetlage, St. Louis, MO, Russell Scott, Dunham, Boman & Leskera, Belleville, IL, for Prudential Health Care Plan, Inc.

James E. Neville, Shari M. Brunton, Neville, Richards, Defranco & Wuller, Belleville, IL, for Karen Margolis.

Charlene A. Cremeens, Cremeens & Associates, Belleville, IL, for Peter J. Anderson.

Before MANION, ROVNER, and EVANS, Circuit Judges.

MANION, Circuit Judge.

Betty Jass underwent knee replacement surgery but was dissatisfied with the result. She sued Prudential Health Care Plan ("PruCare"), the administrator of her husband's employee benefit plan, and Karen Margulis, a nurse employed by PruCare, for vicarious liability and negligence. PruCare removed the case to federal court asserting diversity and federal question jurisdiction. Jass moved to remand. Before the district court ruled on her motion to remand, Jass amended her complaint and added a negligence claim against Dr. Peter Anderson, the treating physician who, like Jass, resided in Illinois. Even though diversity no longer existed, the district court concluded that it had federal question jurisdiction because ERISA preempted the claims against PruCare and Margulis. The district court dismissed those claims as preempted, and then remanded the remaining count against Dr. Anderson to state court. Jass appeals, claiming that the district court did not have jurisdiction over the claims against Margulis or PruCare because the pleadings in her complaint alleged only state law claims. ¹

We conclude that Jass' state law negligence claim against Margulis and her vicarious liability claim against PruCare for Margulis' alleged negligence are within the scope of § 502(a) of ERISA and therefore completely preempted. Because complete preemption is an exception to the well-pleaded complaint rule, the district court had jurisdiction over those claims. The district court also properly dismissed those claims because as written Jass failed to state a claim for which ERISA provides relief. However, because we recharacterized Jass' vicarious liability claim against PruCare for Margulis' alleged negligence as a denial of benefits claim, Jass should be given the opportunity to amend her complaint to request appropriate relief under ERISA. Further, we conclude that, while the vicarious liability claim against PruCare for Dr. Anderson's alleged negligence is not within the scope of § 502(a), it is preempted by § 514 of ERISA because it "relate[s] to" the underlying benefit plan. Preemption under § 514, known as "conflict preemption," provides a defense to Jass' state law claims against PruCare for Dr. Anderson's alleged negligence. Thus, this claim was also properly dismissed. We therefore affirm in part and remand in part.

I. Factual Background

Betty Jass participated in an employee benefit plan sponsored by her husband's employer, Granite City Steel Corporation. The defendant, PruCare, administered the plan at issue. This plan was governed by the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 ("ERISA"). As part of the benefit plan, PruCare provided participants a list of physicians. If the participant received treatment from a listed physician, PruCare paid a higher percentage of the medical expenses. Dr. Peter J. Anderson was a physician named in PruCare's list of participating physicians.

On January 8, 1992, Jass was admitted to St. Elizabeth's Hospital in Granite City, Illinois, under the care of Dr. Anderson, who performed a complete knee replacement surgery for Jass. Jass claims that her condition required a course of physical therapy to rehabilitate her knee, but that Karen Margulis, an agent of PruCare, determined that such treatment was not necessary, and as a result Jass was prematurely discharged from the hospital without the necessary rehabilitation. Jass claims that this denial of necessary treatment caused her to suffer permanent injury to her knee.

Based on the above facts, Jass filed a complaint in state court stating a claim of negligence against Karen Margulis and a vicarious liability claim against PruCare for Margulis and Dr. Anderson's alleged negligence. ² With Margulis' consent, PruCare removed the case to federal court, asserting both diversity jurisdiction and federal question jurisdiction premised on ERISA preemption. Jass moved to remand the complaint contesting both bases of jurisdiction. ³

While her motion to remand was pending, Jass amended her complaint to state a claim for medical malpractice against Dr. Anderson. This joinder destroyed diversity because both Jass and Dr. Anderson were Illinois citizens. Normally, when a plaintiff seeks to join a non-diverse party, the court may either deny joinder or permit joinder and remand the entire action to state court. See 28 U.S.C. § 1447(e) ("If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.") But in this case, the district court concluded that joinder of Dr. Anderson, while destroying diversity jurisdiction, did not destroy subject matter jurisdiction because, owing to ERISA preemption, federal question jurisdiction still existed over Jass' claims against Margulis and PruCare. Also relying on ERISA preemption, the court dismissed Jass' claims against PruCare and Margulis. Because it had dismissed the underlying federal claims, the district court refused to exercise supplemental jurisdiction over Dr. Anderson and instead remanded the remaining case against him to state court. Jass appeals.

II. Analysis

A. Overview

On appeal, Jass argues that the district court erred in concluding it had jurisdiction over her claims against Margulis and PruCare based on ERISA preemption because the well-pleaded complaint alleged only state-law claims of negligence and vicarious liability, neither of which presents a federal question.

This presents several difficult and technical issues. To sort them out we will first need to examine the well-pleaded complaint rule and the "complete preemption" exception to that rule. After determining how that exception applies to ERISA, we consider the difference between the jurisdictional doctrine of "complete preemption" and the defense of "conflict preemption." After setting forth the interplay between the well-pleaded complaint rule, and complete and conflict preemption under ERISA, we address whether subject matter jurisdiction exists over Jass' claims against PruCare and Margulis. These claims total four: (1) the negligence claim against Margulis; (2) the vicarious liability claim against PruCare for Margulis' alleged negligence; (3) the vicarious liability claim against PruCare for Dr. Anderson's alleged negligence; and (4) the vicarious liability claim against PruCare for Dr. Anderson's alleged negligence, under the alternative theory of ostensible agency. Finally, we consider the propriety of the district court's dismissal of each of these claims.

B. The Well-Pleaded Complaint Rule and Complete Preemption

For federal question jurisdiction to exist, a case must arise "under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. Naturally courts begin with a review of the complaint. "Ordinarily a court determines whether there is federal question jurisdiction by examining the plaintiff's well-pleaded complaint, for '[i]t is long-settled law that a cause of action arises under federal law only when the plaintiff's well-pleaded complaint raises issues of federal law.' " Rice v. Panchal, 65 F.3d 637, 639 (7th Cir.1995) (quoting Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987)). "Thus the defendant cannot cause a transfer to federal court simply by asserting a federal question in his responsive pleading." Rice, 65 F.3d at 639. The issues raised in the plaintiff's complaint, not those added in the defendant's response, control the litigation.

Although a preemption defense cannot be the basis for original federal jurisdiction, "the Supreme Court has fashioned an exception to this rule where Congress has completely preempted a given area of state law." Lister v. Stark, 890 F.2d 941, 943 (7th Cir.1989). This exception was first announced in Avco Corp. v. Aero Lodge No. 735, etc., 390 U.S. 557, 88 S.Ct. 1235, 20 L.Ed.2d 126 (1968), when the Supreme Court held that state law claims within the scope of § 301 of the Labor Management Relations Act were removable to federal court.

Since Avco, the "complete preemption" doctrine has become a mainstay of jurisdictional jurisprudence, although "[t]he use of the term 'complete preemption' is unfortunate since the complete preemption doctrine is not a preemption doctrine but rather a federal jurisdiction doctrine.' " Lister, 890 F.2d at 943 n. 1. This jurisdictional doctrine provides that "to the extent that Congress has displaced a plaintiff's state law claim, that intent informs the well-pleaded complaint rule, and a plaintiff's attempt to utilize the displaced state law is properly 'recharacterized' as a complaint arising under federal law." Rice, 65 F.3d at 640 n. 2 (citing Taylor, 481 U.S. at 64, 107 S.Ct. at 1547). Thus, federal subject matter jurisdiction exists if the complaint concerns an area of law "completely preempted" by...