Caudill v. Blue Cross and Blue Shield of North Carolina

• Decision Date: 09 July 1993
• Docket Number: No. 92-2259,92-2259
• Citation: 999 F.2d 74
• Parties: 16 Employee Benefits Cas. 2409 Crystal CAUDILL, Plaintiff-Appellant. v. BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, et al., Defendants-Appellees. Crystal CAUDILL, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, INC.; Blue Cross and Blue Shield Association, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 74

999 F.2d 74

16 Employee Benefits Cas. 2409

Crystal CAUDILL, Plaintiff-Appellant. v. BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, et al.,

Defendants-Appellees.

Crystal CAUDILL, Plaintiff-Appellant, v. BLUE CROSS AND BLUE SHIELD OF NORTH CAROLINA, INC.; Blue

Cross and Blue Shield Association, Defendants-Appellees.

No. 92-2259.

United States Court of Appeals Fourth Circuit.

Argued March 4, 1993.

Decided April 29, 1993.

Amended by Order Filed July 9, 1993.

Edward G. Connette, III, Lesesne & Connette, Charlotte, NC, argued (Roy D. Trest, Baxley & Trest, Shallotte, NC, on brief), for plaintiff-appellant.

Terry Bancroft Dowd, Miller & Chevalier, Chartered, Washington, DC; Mark Stanton Thomas, Maupin, Taylor, Ellis & Adams, P.A., Raleigh, NC, argued for defendants-appellees.

Before WIDENER and LUTTIG, Circuit Judges, and MacKENZIE, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.

OPINION

MacKENZIE, Senior District Judge:

Plaintiff-Appellant Crystal Caudill ("Caudill") is a federal employee with breast cancer. She seeks treatment called high dose chemotherapy with autologous bone marrow transplant support ("HDC-ABMT"). Defendant-Appellee Blue Cross/Blue Shield of North Carolina is her insurer pursuant to the Federal Employees Health Benefits Act (FEHBA), 5 U.S.C. §§ 8901-8913. The FEHBA authorizes the United States Office of Personnel Management ("OPM") to enter into annual procurement contracts with private carriers which then provide health plan benefits to government employees. 5 U.S.C. § 8903. The 1992 Government-Wide Service Benefit Plan ("Benefit Plan") is one such contract. See J.A. 59-94.

The Benefit Plan is a contract the government purchased from Blue Cross/Blue Shield Association ("BCBSA"), which sponsors the plan on behalf of various Blue Cross/Blue Shield companies across the country. Blue Cross/Blue Shield of North Carolina ("BCBS-NC") administers the plan in North Carolina. However, no insurance contract exists between Caudill and BCBS-NC because that company merely underwrote its pro rata share of the Benefit Plan for which BCBSA bargained with the government; it did not specifically underwrite benefits for Caudill. Thus, Caudill is not a party to the contract, but an enrollee, with her benefits subject to OPM regulation.

Congress delegated to OPM the authority to decide the benefits and exclusions in FEHBA plans and to negotiate and contract for any benefits, maximums, limitation and exclusions "it considers necessary or desirable." 5 U.S.C. § 8902(d). Because OPM has final authority over coverage, it publishes and distributes an annual Statement of Contract Benefits for each health benefit plan. 5 U.S.C. § 8907.

The FEHBA requires that a carrier pay a benefits claim if OPM finds that the contract allows an individual to receive a payment. 5 U.S.C. § 8902(j). OPM has established a mandatory administrative process for review of denied claims. 5 C.F.R. § 890.105. Individuals who disagree with OPM's decisions may then sue the carrier to recover compensation for the health care benefits. In the matter presently before the court, BCBS-NC denied coverage of the HDC-ABMT and Caudill then sought administrative review.

After OPM denied coverage, Caudill brought this action in North Carolina state court and obtained an ex parte temporary restraining order. J.A. 13-22. The July 2, 1992 order enjoined BCBS-NC from notifying the Duke University Medical Center, where Caudill was being treated, that her insurance did not cover HDC-ABMT and from denying coverage for her treatment. On July 7, 1992, defendants filed a notice of removal in the United States District Court for the Western District of North Carolina, alleging removal jurisdiction under 28 U.S.C. § 1441(b). J.A. 5-11. In response, Caudill filed a motion to remand and a motion for a preliminary injunction, both of which were denied. J.A. 32-36. The state court restraining order expired on July 12, 1992.

On August 24, 1992, the district court granted summary judgment for the defendants. The district court held that federal law preempted any state claims Caudill might have against the defendants and that her claim arose from federal law, giving the district court jurisdiction over the case. Finding that OPM's interpretation of the terms at issue in the Benefit Plan was reasonable, the district court granted summary judgment and dismissed the suit and Caudill now appeals.

I. FEDERAL JURISDICTION

28 U.S.C. § 1441(b) provides that a party may remove any suit filed in state court to federal court if the suit is "founded on a claim or right arising under the Constitution, treaties or laws of the United States." The test for determining the existence of federal question jurisdiction under the removal statute is identical to the jurisdictional test of 28 U.S.C. § 1331. Thus, the court must determine whether Caudill's claim "arose under" United States law. Of course, a cause of action arises under federal law only when the plaintiff's "well-pleaded complaint" raises federal issues; federal issues interposed as a defense generally do not create a cause of action "arising under" federal law. Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 152, 29 S.Ct. 42, 43, 53 L.Ed. 126 (1908).

Caudill asserts that this action is merely a state law claim for breach of the insurance contract that raises no federal questions. However, BCBS-NC claims that there are two bases for federal jurisdiction here. First, BCBS-NC invokes an exception to the well-pleaded complaint rule, contending that in passing the FEHBA, Congress intended complete preemption of this particular area, so that "any civil complaint raising this select group of claims is necessarily federal in character." Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987). Alternately, BCBS-NC asserts that this suit involves a federal question because it arises from a federal contract, giving rise to a uniquely federal interest so important that the "federal common law" supplants state law either partially or entirely regardless of Congress' intent to preempt the area involved. See Boyle v. United Tech. Corp., 487 U.S. 500, 504, 108 S.Ct. 2510, 2514, 101 L.Ed.2d 442 (1988). We hold that Boyle controls the outcome of this case. Litigation regarding this insurance contract is governed by "federal common law" that displaces state law. In light of this holding, we need not answer the question whether the FEHBA completely preempts state law claims under federal health insurance contracts.

The Supreme Court has held that some areas involving "uniquely federal interests" may be so important to the federal government that a "federal common law" related to those areas will supplant state law either partially or entirely. Id. This federal common law replaces state law to some extent regardless of whether Congress has shown any intent to preempt the area. Id. For example, federal common law governs the duties and obligations of the federal government under contracts to which it is a party, Clearfield Trust Co. v. United States, 318 U.S. 363, 366-67, 63 S.Ct. 573, 575, 87 L.Ed. 838 (1943), and the scope of civil liability for federal officials performing their duties, Westfall v. Erwin, 484 U.S. 292, 295, 108 S.Ct. 580, 583, 98 L.Ed.2d 619 (1988).

Courts utilize a two-part test for determining the applicability of federal common law. First, the matter must involve a uniquely federal interest. Boyle, 487 U.S. at 507, 108 S.Ct. at 2516. Determination of whether a significant federal interest exists in a dispute requires the court to ascertain whether the dispute " 'touch[es] the rights and duties of the United States.' " Id. at 506, 108 S.Ct. at 2515 (quoting Bank of America Nat. Trust & Sav. Ass'n v. Parnell, 352 U.S. 29, 33, 77 S.Ct. 119, 121, 1 L.Ed.2d 93 (1956)). Generally, when the interest of the United States is remote or speculative and the dispute involves only private parties, federal common law will not apply. Id. However, Boyle teaches that even when the dispute involves private parties, federal common law still may apply if the litigation would directly affect a federal interest. Id. at 507, 108 S.Ct. at 2516.

Boyle provides an excellent example of a case in which the United States has a significant interest despite the fact that the suit involves private parties. In that case, the plaintiff brought a wrongful death action under Virginia law in federal court against a government helicopter manufacturer after his son, a United States Marine pilot, died in a helicopter crash in waters near Virginia Beach. Id. at 502, 108 S.Ct. at 2513. One of the plaintiff's theories of liability was that the manufacturer had defectively designed the escape hatch in that it opened out instead of in, making it impossible to exit the helicopter when it was submerged. Id. at 503, 108 S.Ct. at 2513. The government contract had specified exactly that type of escape hatch. Id. at 509, 108 S.Ct. at 2517. The jury returned a verdict for the plaintiff, but on appeal the Supreme Court recognized the existence of a government contractor defense under the federal common law and remanded the case for reconsideration of whether that defense created a jury question or whether it entitled the manufacturer to judgment as a matter of law. Id. The Court reasoned that federal common law displaced state law despite the fact that the dispute involved only private parties because of the government's interest in being able to procure military equipment that meets its specifications at a reasonable price. Id. at 507, 108 S.Ct. at 2516.

The interest in this case is uniquely federal because it involves health benefits for federal employees across the country. The Boyle court noted that the United States had a strong interest in the potential liability of government contractors because that liability would affect not only the government's...