Arkansas Blue Cross and Blue Shield v. St. Mary's Hosp., Inc.

• Decision Date: 13 January 1992
• Docket Number: No. 91-1097,91-1097
• Citation: 947 F.2d 1341
• Parties: , 14 Employee Benefits Cas. 1814 ARKANSAS BLUE CROSS AND BLUE SHIELD, A Mutual Insurance Company, Appellant, v. ST. MARY'S HOSPITAL, INC., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1341

947 F.2d 1341

60 USLW 2324, 14 Employee Benefits Cas. 1814

ARKANSAS BLUE CROSS AND BLUE SHIELD, A Mutual Insurance Company, Appellant, v. ST. MARY'S HOSPITAL, INC., Appellee.

No. 91-1097.

United States Court of Appeals Eighth Circuit.

Submitted Sept. 11, 1991.

Decided Oct. 30, 1991.

Rehearing and Rehearing En Banc

Denied Jan. 13, 1992.

Chet Roberts, Little Rock, Ark., argued (Allan W. Horne and Robert D. Cabe, on brief), for appellant.

Charles Nestrud, Little Rock, Ark., argued (Janie W. McFarlin, on brief), for appellee.

Before BOWMAN, MAGILL, and LOKEN, Circuit Judges.

MAGILL, Circuit Judge.

Arkansas Blue Cross and Blue Shield (BCBS) appeals from a declaratory judgment of the district court holding that the Employee Retirement Income Security Act of 1974 (ERISA) does not preempt the Arkansas assignment statute, as the assignment statute applies to welfare benefits payable under ERISA plans. ¹ We reverse and remand to the district court for further proceedings consistent with this opinion.

I.

The Arkansas assignment statute provides that:

All bonds, bills, notes, agreements, and contracts, in writing, for the payment of money or property, or for both money and property, shall be assignable.

Ark.Code Ann. § 4-58-102 (1987) (emphasis added). As interpreted by the Arkansas Supreme Court, this statute forces BCBS, as an insurer of ERISA plans, to honor all assignments of insurance benefits made by plan beneficiaries. American Medical Int'l v. Arkansas Blue Cross & Blue Shield, 299 Ark. 514, 773 S.W.2d 831, 834 (1989). Prior to this state court interpretation of the assignment statute, BCBS had the contractual right to determine who received payment of welfare benefits:

No assignment of benefits under this Certificate shall be valid until approved and accepted by the Plan. The Plan reserves the right to make payment of benefits, in its sole discretion, directly to the provider of service or to you.

Arkansas Blue Cross & Blue Shield v. St. Mary's Hosp., Inc., No. LR-C-90-89, Mem. & Order at 2 n. 2 (E.D.Ark. Dec. 19, 1990). BCBS used this contractual right to disapprove assignments made to health care providers who refused to sign a participation agreement with BCBS. St. Mary's Hospital, Inc. (St. Mary's), appellee, was such a provider. When a plan beneficiary of a BCBS-insured plan received services from St. Mary's, BCBS would pay the insurance benefits directly to the beneficiary. St. Mary's thus had the inconvenience of attempting to collect from the beneficiary. St. Mary's challenged this BCBS practice in state court. American Medical Int'l, 773 S.W.2d at 834. The Arkansas Supreme Court found for St. Mary's, holding that the assignment statute gave insureds the unconditional right to assign their welfare benefits. Id.; see also American Medical Int'l v. Arkansas Blue Cross & Blue Shield, No. E 87-414 (Ark.Ch.Ct. Aug. 26, 1991) (interpreting supreme court's decision on remand). Consequently, BCBS now must pay plan welfare benefits to whomever the plan beneficiaries assign this right, including St. Mary's.

BCBS challenged this application of the assignment statute to ERISA plans by bringing a declaratory judgment action in federal district court. BCBS argues that ERISA preempts this application of the statute. The ERISA preemption provision provides that:

[T]he provisions of [ERISA] shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan....

29 U.S.C. § 1144(a) (emphasis added). St. Mary's brought a motion to dismiss BCBS's action for declaratory judgment and BCBS filed a cross-motion for summary judgment.

The district court granted St. Mary's motion to dismiss, ruling that the assignment statute does not "relate to" ERISA plans merely because it negates a plan provision and has some economic impact on the plan. The court also found that the assignment statute did not affect the relationship between the plan participants or impact the administration of the plan. Arkansas Blue Cross & Blue Shield, No. LR-C-90-89, Mem. & Order at 5-6. Because ERISA preemption is a question of federal law involving statutory interpretation, we review the district court's decision de novo. Boise Cascade Corp. v. Peterson, 939 F.2d 632, 636 (8th Cir.1991); Local Union 598, Plumbers & Pipefitters Indus. Journeymen & Apprentices Training Fund v. J.A. Jones Constr. Co., 846 F.2d 1213, 1218 (9th Cir.), aff'd mem., 488 U.S. 881, 109 S.Ct. 210, 102 L.Ed.2d 202 (1988). For the following reasons, we reverse.

II.

The first issue a court must address when deciding ERISA preemption cases, and the only issue before this court, is whether the state law in question "relates to" ERISA plans. ² The Supreme Court broadly interpreted the "relates to" language of the ERISA preemption provision in Shaw v. Delta Air Lines, 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). The Court gave effect to the plain meaning of this language and stated that a law "relates to" an employee benefit plan "if it has a connection with or reference to such a plan." Id. at 96-97, 103 S.Ct. at 2899-900. The Court, however, also noted that "[s]ome state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Id. at 100 n. 21, 103 S.Ct. at 2901 n. 21. The standard articulated in Shaw does not, and was not intended to, provide courts with a foolproof method for determining on which side of the preemption line a specific state statute falls.

Consequently, subsequent cases have relied on a variety of factors when determining whether a state statute of general application "relates to" ERISA plans. ³ These factors include whether the state law negates an ERISA plan provision, Baxter v. Lynn, 886 F.2d 182, 185 (8th Cir.1989), whether the state law affects relations between primary ERISA entities, Firestone Tire & Rubber Co. v. Neusser, 810 F.2d 550, 556 (6th Cir.1987); Sommers Drug Stores v. Corrigan Enters., 793 F.2d 1456, 1467 (5th Cir.1986), whether the state law impacts the structure of ERISA plans United Food & Commercial Workers v. Pacyga, 801 F.2d 1157, 1160 (9th Cir.1986), whether the state law impacts the administration of ERISA plans, Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9-10, 107 S.Ct. 2211, 2216-17, 96 L.Ed.2d 1 (1987), whether the state law has an economic impact on ERISA plans, Aetna Life Ins. Co. v. Borges, 869 F.2d 142, 147-48 (2d Cir.1989), whether preemption of the state law is consistent with other ERISA provisions, Mackey v. Lanier Collections Agency & Serv., 486 U.S. 825, 832-40, 108 S.Ct. 2182, 2186-90, 100 L.Ed.2d 836 (1988), and whether the state law is an exercise of traditional state power, Aetna Life Ins. Co., 869 F.2d at 148; Firestone Tire & Rubber Co., 810 F.2d at 555.

This court agrees that all these factors can be relevant to an ERISA preemption analysis. Like any list of factors, however, they only serve to focus and clarify the court's analysis. The court must still look to the totality of the state statute's impact on the plan--both how many of the factors favor preemption and how heavily each individual factor favors preemption are relevant.

We do not believe that any one factor, by itself, is determinative of the ERISA preemption issue before the court today. Rather, given the aggregate of these factors, we find that the Arkansas assignment statute "relates to" ERISA welfare benefit plans. We will discuss each of these factors in turn.

A. Negation of a Plan Provision

BCBS argues that because the assignment statute negates a proper provision of an ERISA plan, the statute "relates to" ERISA plans. According to BCBS, once the court finds that a state law invalidates a plan provision, the court need not further analyze the law's impact on the plan. We decline to adopt negation of a plan provision as determinative of the preemption issue. Adoption of this standard could open the door for abuse of the ERISA preemption provision. As the district court noted, if negation of a plan provision was the standard for ERISA preemption, parties could avoid any state law by including a contrary provison in an ERISA plan. Arkansas Blue Cross & Blue Shield, No. LR-C-90-89, Mem. & Order at 5. Additionally, we do not believe that the statutory language or case law mandates such a rule.

Although arguably any statute that negates a plan provision "relates to" the plan, the Supreme Court has rejected carrying this language to its logical limits. In Shaw, 463 U.S. at 100 n. 21, 103 S.Ct. at 2901 n. 21, the Court stated that "[s]ome state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Accordingly, a court must also address the relationship of the negated plan provision to the plan as a whole when determining if the state law's effect is "tenuous, remote, or peripheral."

Additionally, in FMC Corp. v. Holliday, --- U.S. ----, 111 S.Ct. 403, 112 L.Ed.2d 356 (1990), the Supreme Court implicitly rejected negation of a plan provision as a sufficient basis for preemption. In FMC, the Supreme Court was faced with a state statute that negated a subrogation provision contained in an ERISA plan. Rather than relying on negation of the plan provision as a sufficient basis for preemption, however, the Court analyzed the statute's impact on plan administration. Id. 111 S.Ct. at 408-09; see also MacLean v. Ford Motor Co., 831 F.2d 723 (7th Cir.1987) (court did not rely solely on the negation of a plan term in finding that ERISA preempted state testamentary law).

BCBS argues that the Eighth Circuit adopted a negation standard for preemption in Baxter, 886 F.2d at 185 (citing Davis v. Line Constr. Benefit Fund, 589 F.Supp. 146 (W.D.Mo.1984)). We do not read Baxter as adopting such a test. Although the Baxter court stated that "any provision of state law which conflicts with a proper provision...