Botsford v. Blue Cross and Blue Shield of Montana

• Decision Date: 23 December 2002
• Docket Number: No. 01-36019.,01-36019.
• Citation: 314 F.3d 390
• Parties: Bruce F. BOTSFORD, Plaintiff-Appellee, v. BLUE CROSS AND BLUE SHIELD OF MONTANA, INC.; Blue Cross and Blue Shield Association, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

314 F.3d 390

Bruce F. BOTSFORD, Plaintiff-Appellee, v. BLUE CROSS AND BLUE SHIELD OF MONTANA, INC.; Blue Cross and Blue Shield Association, Defendants-Appellants.

No. 01-36019.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 7, 2002.

Filed December 23, 2002.

Anthony F. Shelley (argued), Miller & Chevalier, Chartered, Washington, DC, Bradley J. Luck, Garlington, Lohn & Robinson PLLP, Missoula, Montana, for the appellants.

Michael J. Lilly, Berg, Lilly & Tollefsen, P.C., Bozeman, Montana, for the appellee.

Appeal from the United States District Court for the District of Montana; Donald W. Molloy, Chief District Judge, Presiding. D.C. No. CV-00-00119-DWM.

Before TROTT, T.G. NELSON, and THOMAS, Circuit Judges.

OPINION

T.G. NELSON, Circuit Judge:

Defendants, Blue Cross and Blue Shield of Montana, Inc. ("Blue Cross") appeal the district court's dismissal of Bruce F. Botsford's suit against them for lack of jurisdiction. Because we conclude that the Federal Employees Health Benefits Act¹ (FEHBA) completely preempts Botsford's claim against Blue Cross, and that his claim thus arose under federal law, we reverse and remand.

I. BACKGROUND

After undergoing a $3,036.00 medical procedure and submitting the requisite paperwork to his FEHBA-covered health plan, Botsford received a reimbursement check for only $915.74 from Blue Cross. The physician who had performed Botsford's procedure was a non-participating provider, and the plan would not pay his bill in full. Botsford paid his physician and did some research. Convinced that Blue Cross had not followed the method of determining reimbursement set forth in the brochure describing benefits that he had received, Botsford brought this suit.

Botsford filed six claims in federal court alleging various state common law causes of action, such as fraud, negligent misrepresentation, and breach of contract. He also alleged one state statutory claim. In that claim, Botsford alleged that Blue Cross had violated the Montana Unfair Trade Practices Act² by misrepresenting the policy regarding reimbursement of non-participating providers.

Eventually, Botsford moved to dismiss voluntarily and without prejudice all claims except the state-law fraud claim. The district court granted his motion. Then, Blue Cross moved to dismiss the fraud claim, asserting that FEHBA, and the regulations promulgated pursuant to it, preempted that claim. The court, at that point, questioned whether federal jurisdiction over the case existed.

The district court concluded that it lacked jurisdiction. The court reasoned that Botsford's complaint was inherently a dispute over a contract, not a dispute involving a constitutional provision, federal law, or treaty. Although Blue Cross presented a federal defense, the court noted that a federal defense alone does not confer federal jurisdiction. Accordingly, the district court dismissed for lack of jurisdiction. Blue Cross appealed.

II. STANDARD OF REVIEW

We review the district court's decision regarding the absence of subject matter jurisdiction de novo.³ Similarly, we review the district court's determination of complete preemption de novo.⁴

III. DISCUSSION

A federal defense to a state-law claim does not confer jurisdiction on a federal court.⁵ Thus, a plaintiff may generally avoid federal jurisdiction through artful pleading of solely state-law claims. An exception to this general proposition exists, however. If federal law completely preempts a plaintiff's state-law claim, that plaintiff may not escape federal jurisdiction no matter how careful his or her pleading. "In such instances, any claim purportedly based on that preempted state law is considered, from its inception, a federal claim, and therefore arises under federal law."⁶

To preempt state-law causes of action completely, federal law must both: (1) conflict with state law (conflict preemption) and (2) provide remedies that displace state law remedies (displacement).⁷ For the reasons set forth below, we conclude that FEHBA's express preemption clause conflicts with the Montana statute in question, Montana Code Section 33-18-201(1). Moreover, FEHBA provides remedies that displace Montana state-law remedies.

A. Conflict Preemption.

We conclude that Montana Code Section 33-18-201(1) conflicts with, and is therefore preempted by, FEHBA. Thus, Botsford's claim satisfies the first prong of complete preemption: conflict preemption.

FEHBA contains an express preemption clause which reads as follows:

The terms of any contract under this chapter which relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans.⁸

Originally, FEHBA's preemption provision was narrower. It specified that only state and local laws and regulations that were "inconsistent with such contractual provisions" were preempted.⁹ In 1998, however, after courts had rejected complete preemption based on the old clause, Congress amended FEHBA and adopted the preemption provision set forth above.¹⁰ The new provision closely resembles ERISA's express preemption provision,¹¹ and precedent interpreting the ERISA provision thus provides authority for cases involving the FEHBA provision.¹² Therefore, in our discussion of conflict preemption, except when we consider the different goals of the two statutes, we refer to ERISA and FEHBA cases interchangeably.

The interpretation of the broad preemption clauses contained in ERISA and FEHBA has evolved from a plain language interpretation in which the statutes would have preempted nearly everything,¹³ to a more pragmatic interpretation in which courts seek to preserve the goals of Congress when it passed the statutes, while maintaining state control in traditional fields of state regulation.¹⁴ In recent years, the Supreme Court has limited the broad language of the preemption clause, particularly the term "relates to." 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."¹⁵ Each of these terms, "connection with" and "reference to," has its own definition.¹⁶ This case turns on the "connection with" prong, so we proceed to it now.

To determine whether Montana state law has a "connection with" Botsford's FEHBA plan, we must "look both to the `objectives of the [FEHBA] statute as a guide to the scope of the state law that Congress understood would survive,' as well as to the nature of the effect of the state law on[FEHBA] plans."¹⁷

Congress's stated goal when it enacted FEHBA in 1959 was to provide "a measure of protection for civilian Government employees against the high, unbudgetable, and, therefore, financially burdensome costs of medical services through a comprehensive government-wide program of insurance for federal employees ..., the costs of which will be shared by the Government, as employer, and its employees."¹⁸ Thus, Congress wished to create a cost-efficient, comprehensive form of medical insurance for federal employees. It also wished to achieve uniform administration of FEHBA plans.¹⁹ To achieve these ends, Congress created the Office of Personnel Management (OPM), and vested it with the power to contract with private insurers on behalf of federal employees and to promulgate regulations to enforce the statutory scheme.²⁰

In light of the above goals, courts have held that FEHBA preempts disputes over a "denial of benefits" and "the nature or extent of coverage for benefits."²¹ The application of different state standards would disrupt the nationally uniform administration of benefits which FEHBA provides. Such disruption would increase administrative costs and, ultimately, increase the cost of health care to federal employees and the Government. Thus, application of state laws in cases involving denials of or disputes over benefits would undermine congressional intent.

A dispute over benefits — precisely the kind of dispute that FEHBA preempts — underlies Botsford's claim. Botsford asserts that Blue Cross did not pay him the amount to which he was entitled under his FEHBA plan. "[A]n assertion that the plan failed to live up to its contractual duty in ways that [state] law would deem appropriate" is, at its root, "a demand for contractual benefits that were not realized."²² Thus, although Botsford stated his claim as a breach of state law, it really amounts to an alternative method of remedying a contractual breach.²³

As Botsford's claim centers on a dispute over the amount of benefits he received, his case differs materially from cases such as Roach v. Mail Handlers Benefit Plan, CNA²⁴ and Abraham v. Norcal Waste Systems, Inc.²⁵ In those cases, the dispute did not revolve around a breach of the plan in question.

In Roach, the dispute centered on the negligent provision of medical care.²⁶ There was no dispute over the fact that the plaintiff was entitled to, and had received, FEHBA benefits. The only question was whether medical personnel had engaged in medical malpractice.²⁷ Thus, the argument in Roach was not over what benefits were due, but over whether medical personnel providing the benefits received had acted negligently. The FEHBA plan was thus involved only tangentially.²⁸

In Abraham, the plaintiffs had unwittingly traded stock for unsecured notes in the defendant corporation.²⁹ They sued the defendant for fraud after it defaulted on the notes.³⁰ Although the defendant was also plaintiffs' employer and the administrator of the ERISA plan, ERISA did not preempt their fraud claims because those claims did "not remotely concern" ERISA.³¹

Thus, the plaintiffs' claims in Roach and Abraham were independent of their FEHBA and ERISA plans. The disputes in those cases, in marked contrast to this one, had nothing to do with disputes over benefits or coverage. Because the...