Brown Schools, Inc. v. Florida Power Corp.

• Decision Date: 05 October 1992
• Docket Number: Civ. No. A-92-CA-251.
• Citation: 806 F. Supp. 146
• Parties: The BROWN SCHOOLS, INC. d/b/a The Oaks Treatment Center, Plaintiff, v. FLORIDA POWER CORPORATION, The Florida Power Corporation Employee Benefit Plan, and Aetna Life Insurance Company, Defendants.
• Court: U.S. District Court — Western District of Texas

806 F. Supp. 146

The BROWN SCHOOLS, INC. d/b/a The Oaks Treatment Center, Plaintiff, v. FLORIDA POWER CORPORATION, The Florida Power Corporation Employee Benefit Plan, and Aetna Life Insurance Company, Defendants.

Civ. No. A-92-CA-251.

United States District Court, W.D. Texas, Austin Division.

October 5, 1992.

Mark Douglas Herbert, Thomas D. Hollaway, Sullins, Johnston, Rohrbach & Magers, Houston, Tex., for plaintiff.

Richard D. Milvenan, Vinson & Elkins, Austin, Tex., Marylin E. Culp, Carlton, Field, Ward, Emmanuel, Tampa, Fla., John Bruce Shely, Rosemarie Donnelly, Andrews & Kurth, L.L.P., Houston, Tex., for defendants.

ORDER

SPARKS, District Judge.

Before the Court are Defendants Florida Power Corporation ("FPC") and the Florida Power Corporation Employee Benefit Plan's ("the Plan") Motion to Transfer Pursuant to 28 U.S.C. § 1404(a) and Motion to Dismiss Pursuant to 29 U.S.C. § 1132(e)(2) and to Dismiss Counts I through V with prejudice, reasserted in their Rule 10(c) Motion, filed September 17, 1992. Also before the Court is Defendant Aetna Life Insurance Company's Motion to Dismiss Pursuant to Rule 12(b), filed June 12, 1992. Having reviewed these motions, Plaintiff's Responses, the file, and applicable law, the Court determines that venue is improper in this district under 29 U.S.C. § 1132(e) and also that venue in the Middle District of Florida is proper and more convenient. Therefore, the Court will transfer venue to the Middle District of Florida pursuant to 28 U.S.C. § 1404(a) and 28 U.S.C. § 1406.

BACKGROUND

Plaintiff's First Amended Complaint contains two causes of action, equitable estoppel and a claim for ERISA benefits under 29 U.S.C. § 1132.¹ These claims are based on the Defendant Plan's failure to pay for all of the services received by Sandra Ord, the daughter of an FPC employee, while a resident patient at Plaintiff's hospital in Texas. Sandra Ord and her father are Florida residents, as are FPC and the Plan.

On April 19, 1990, Sandra Ord was admitted to Plaintiff's hospital for in-patient treatment. On that same day, Mr. Ord, the policy holder under the Plan, assigned his rights to benefits under the Plan to Plaintiff. On June 25, 1990, the Ords were informed that after July 1, 1990, the Plan would no longer pay for Sandra Ord's treatment as it had been determined that such treatment was no longer medically necessary. See Exhibit B to Supplemental Affidavit of Robert L. Hoke in Support of the Motion to Dismiss and Motion to Transfer, filed June 15, 1992. Sandra Ord continued to receive in-patient treatment at Plaintiff's hospital until January 21, 1991; however, Plaintiff only received payment for Sandra Ord's treatment from April 19, 1990, through July 1, 1990.

In its complaint, Plaintiff asserts that prior to Sandra Ord's admission, an Aetna representative represented to Plaintiff that Sandra Ord "was covered under their plan" and that "benefits under the terms of The Plan for treatment of Sandra Ord's conditions were payable at the rate of eighty percent (80%) until the patient had incurred $1,500.00 in out-of-pocket expense, then The Plan would pay at one hundred percent (100%) thereafter, with no maximum benefit." Plaintiff's First Amended Complaint, para. 11. Thus, Plaintiff's contend that Defendants are equitably estopped from denying benefits for Sandra Ord's treatment and that Plaintiff is entitled to recover the complete costs for Ms. Ord's treatment under the Plan. Id. at para.'s 17 & 18-22.

In their motions to dismiss, Defendants argue Plaintiff's state law causes of action, now reduced to a claim for equitable estoppel, are preempted under the terms of the Employee Retirement Income Security Act of 1974 ("ERISA"); venue is improper under ERISA (29 U.S.C. § 1132(e)); and Plaintiff has failed to state a claim for relief against Defendant Aetna.

On August 20, 1992, this Court held a hearing to consider Defendants' motions, at which time the Court gave the Plaintiff an opportunity to amend its complaint and file affidavits in support of its contention that venue is proper in the Western District of Texas. The Court also invited counsel for the Defendants to respond to Plaintiff's amended complaint once filed by way of a letter brief. The parties have complied. Plaintiff filed an amended complaint on August 27, 1992, and Defendants have responded thereto.

VENUE

A. Venue under 29 U.S.C. § 1132(e)

Plaintiff, a Texas corporation with offices in Travis County, Texas, filed suit in this Court alleging that jurisdiction and venue are proper under 29 U.S.C. § 1132(e)(2) because "the breach of contract complained of herein occurred in this district." Plaintiff's First Amended Complaint, para. 5. Section 1132(e)(2) allows an ERISA action to "be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found...." As the Plan is administered in Florida and none of the Defendants reside or may be found in Texas, the place of the breach provision is Plaintiff's only potential source for venue in Texas.

Plaintiff alleges that the breach "took place" in the Western District of Texas because an Aetna representative allegedly represented to the Oaks that Sandra Ord's hospitalization was covered as alleged in Plaintiff's complaint and presumably because payments under the Plan were actually sent to Plaintiff in Texas. See Plaintiff's First Amended Complaint, para.'s 11.

Generally, the place of breach of an ERISA plan under 29 U.S.C. § 1132 is where the recipient of benefits "actually acquires his due," i.e., receives payment of benefits, see Wallace v. American Petrofina, Inc., 659 F.Supp. 829, 832 (E.D.Tex. 1987), or where the decision to deny benefits is made. See Helder v. Hitachi Power Tools, USA Ltd., 764 F.Supp. 93, 95 (E.D.Mich.1991); McFarland v. Yegen, 699 F.Supp. 10, 13 (D.N.H.1988). However, breach of a fiduciary duty, as opposed to the plan itself, takes place "where the defendants commit or fail to commit the actions their duties require." McFarland, 699 F.Supp. at 13 (Plaintiffs did "not allege that they were not given the benefits due them ... rather, they alleged that disloyal conduct of the defendant caused the ERISA plan to lose most of its value). Thus, in this case, if Plaintiff has a cause of action against Aetna for equitable estoppel or receipt of benefits under 29 U.S.C. 1132, the breach may have taken place of Texas.

In order to determine if venue is proper, the Court must first decide if Plaintiff's equitable estoppel cause of action is preempted. If so, Aetna's alleged misrepresentation to Plaintiff could not itself be considered a "breach", and therefore, could not be considered a basis for venue under 29 U.S.C. § 1132(e). Second, if Plaintiff's cause of action for equitable estoppel is preempted, the Court must determine if the fact "benefits" under the Plan were sent directly to Plaintiff in Texas under the assignment means the alleged breach of the Plan took place in Texas for purposes of ERISA's venue provision.

1. Preemption of Equitable Estoppel Claim

The Fifth Circuit has held that equitable estoppel, except in instances regarding interpretation of ambiguities within a written ERISA plan, is preempted under ERISA. See e.g., Williams v. Bridgestone/Firestone, Inc., 954 F.2d 1070, 1072-73 (5th Cir.1992); Rodrigue v. Western & Southern Life Ins. Co., 948 F.2d 969, 971 (5th Cir.1991); Hermann Hospital v. MEBA Medical & Benefits Plan, 845 F.2d 1286, 1290 (5th Cir.1988) ("Hermann I"). However, whether or not a health care provider who is an assignee of ERISA rights can assert ERISA causes of action as an assignee and assert a state cause of action for equitable estoppel as an independent health care provider is an open, and somewhat confused, question in the Fifth Circuit at this time.

In Hermann I, a hospital (Hermann) brought state and ERISA claims (including a claim of equitable estoppel) against MEBA, an ERISA plan, after MEBA delayed approval (or denial) for two years despite an MEBA representative's verification of the assignor's coverage at the time the assignor entered the hospital and assigned her rights to Hermann. Hermann, 845 F.2d at 1286-87. The Fifth Circuit held that Hermann had "no standing as a `non-enumerated party' to pursue an action described in § 1132(a)" and that Hermann's state causes of action, including equitable estoppel, breach of contract, and fraud, were preempted. Id. at 1289-90. "Adopting Hermann's position would allow parties that lacked standing e.g., health care providers to sue under ERISA to circumvent its enforcement provisions by filing suit in state courts under state law." Id. The Fifth Circuit stood by this holding in its decision in "Hermann II." See Hermann Hosp. v. MEBA Medical & Benefits Plan, 959 F.2d 569, 577-79 (5th Cir.1992) ("Hermann II").

However, in a similar case, Memorial Hospital System v. Northbrook Life Ins. Co., decided after Hermann I but before Hermann II, the Fifth Circuit held that a hospital in its independent status could maintain a state cause of action for negligent misrepresentation under article 21.21 of the Texas Insurance Code in addition to its ERISA claims brought as assignee of ERISA plan benefits. Memorial, 904 F.2d 236, 250 (5th Cir.1990). In Memorial, the hospital relied on the representation of a representative of the assignor's employer that the assignor was covered, and stated that "it would not have extended treatment to her without such an assurance of payment." Id. at 238. Despite this representation, the administrator of the ERISA plan ultimately denied coverage under a preexisting condition clause in the insurance policy. Id.

Contrasted with its holding in Hermann I, the Fifth Circuit held that Memorial's article 21.21 claim (basically a claim for negligent misrepresentation) was not preempted because

Memorial neither seeks benefits from the plan nor claims that the plan acted improperly in

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