Davidowitz v. Delta Dental Plan of California, Inc.

• Decision Date: 28 October 1991
• Docket Number: No. 90-16841,90-16841
• Citation: 946 F.2d 1476
• Parties: , 14 Employee Benefits Cas. 1617 Fred DAVIDOWITZ, D.D.S., Morris Davidowitz, D.D.S., Donald Dobbs, D.D.S., Waltraut Grau, D.D.S., and Jeffrey P. Alexander, D.D.S., Plaintiffs-Appellees, v. DELTA DENTAL PLAN OF CALIFORNIA, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1476

946 F.2d 1476

60 USLW 2325, 14 Employee Benefits Cas. 1617

Fred DAVIDOWITZ, D.D.S., Morris Davidowitz, D.D.S., Donald Dobbs, D.D.S., Waltraut Grau, D.D.S., and Jeffrey P. Alexander, D.D.S., Plaintiffs-Appellees, v. DELTA DENTAL PLAN OF CALIFORNIA, INC., Defendant-Appellant.

No. 90-16841.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 18, 1991.

Decided Oct. 28, 1991.

M. Laurence Popofsky, Judith Z. Gold, Heller, Ehrman, White & McAuliffe, and Peter F. Sloss, San Francisco, Cal., for defendant-appellant.

Arthur Fine and Douglas W. Bordewieck, Mitchell, Silberberg & Knupp, Los Angeles, Cal., for plaintiffs-appellees.

Thomas W. Brunner, Wiley, Rein & Fielding, Washington, D.C., for Nat. Health Care Anti-Fraud Ass'n, as amicus.

Richard C. Johnson, Saltzman & Johnson, San Francisco, Cal., for Northern California Area Retail Clerks Unions, as amicus.

Appeal from the United States District Court for the Northern District of California.

Before GOODWIN and SNEED, Circuit Judges, and TAYLOR ^*, District Judge.

TAYLOR, District Judge:

This case presents the issue, on apparent first impression, whether ERISA affirmatively mandates assignability of welfare benefit plan payments notwithstanding an express plan term prohibiting assignment. ERISA expressly provides pension plan benefits are non-assignable, but is silent on welfare plan benefits. While Ninth Circuit authority holds ERISA's silence does not bar assignments, this Court concludes ERISA's silence cannot be interpreted to affirmatively mandate an absolute right to assign. We reverse.

I. BACKGROUND

Appellant, Delta Dental Plan of California ["Delta" ], is a nonprofit health care service plan, regulated by the State of California, California Health and Safety Code §§ 1340-1399.64 (West 1991) and providing dental benefits to employees under a welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 ["ERISA" ], 29 U.S.C. §§ 1001-1461 (1988). The employees are beneficiaries of plan contracts entered into by their employers and Delta, usually under a collective bargaining agreement. Under these plans, Delta agrees to pay a percentage of the beneficiary's reasonable dental bill (typically 70%), and the beneficiary pays the "co-payment" balance (typically 30%).

Some of the dental service providers participate ["participating dentists"], while others do not ["non-participating dentists"]. A beneficiary is free to go to either a participating or non-participating dentist; in either case, Delta pays the same percentage of the bill. However, Delta pays participating dentists directly, while non-participating dentist must collect from the beneficiary. ¹ In consideration for direct Delta payment, participating dentists agree to bill and attempt to collect the co-payment from beneficiaries, and to meet Delta quality standards. Neither obligation applies to non-participating dentists.

To circumvent non-direct payment, some non-participating dentists ask beneficiaries to assign their rights to receive Delta's checks to the dentists; in exchange, these dentists typically waive the co-payment. Delta's benefit plans expressly prohibit such assignments by beneficiaries, ² and Delta refuses to mail indemnity checks to these dentists.

Delta says its main purpose for including non-assignment clauses is to police co-payment waivers by non-participating dentists. Co-payments, Delta argues, introduce beneficiary cost-sensitivity into the dental services market, which is lacking if a third party pays the entire cost of dental treatment. Beneficiaries who must pay some portion of their own dental bills are more inclined, Delta asserts, to shop competitively for dental services, and not over-use them.

Appellees, a group of non-participating dentists, sought a preliminary injunction ordering Delta to honor beneficiary assignments. Under ERISA, a beneficiary has standing to bring a civil action for non-payment. 29 U.S.C. § 1132(a). A health care provider with an allegedly valid assignment has the same standing. Misic v. Building Service Employees Health & Welfare Trust, 789 F.2d 1374, 1377-79 (9th Cir.1986). The district court granted the injunction request, Davidowitz v. Delta Dental Plan of California, 753 F.Supp 304 (N.D.Cal.1990), and this appeal followed.

"Ordinarily, the grant or denial of a preliminary injunction is a matter within the discretion of the district court, and it will not be reversed absent an abuse of that discretion. [Citation omitted.] An exception to this rule applies when such grant or denial is based upon an erroneous legal premise; the order is then reviewable as is any other conlcusion of law." Douglas v. Beneficial Finance Co. of Anchorage, 469 F.2d 453, 454 (9th Cir.1972). ³ The district court approached the main issue in this case as a question of law: "The central question is whether an employee dental benefit plan provider may prevent beneficiaries from assigning their right to payment to dentists." On appeal, both sides have focused on this central legal question, and on the trial court's legal premise that ERISA prohibits non-assignment clauses. Thus, this Court reviews this central question as any other conclusion of law. ⁴

II. DISCUSSION

Section 206(d)(1) of ERISA states a "pension plan shall provide that benefits provided under the plan may not be assigned or alienated." 29 U.S.C. § 1056(d)(1) (emphasis added). But, ERISA is silent about assignment and alienation of welfare plans, such as Delta's.

This Court has held ERISA's express bar on assignments of pension plan benefits, and silence on welfare plan benefit assignments, means ERISA does not preclude welfare plan benefit assignments. Misic, Supra; see also, Mackey v. Lanier Collections Agency, 486 U.S. 825, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988). Here, the contested issue of first impression is whether this Court should also conclude that ERISA prohibits welfare plan non-assignment clauses, and beneficiaries have an absolute right to assign irrespective of contrary language in the plan.

As a general rule of law, where the parties' intent is clear, courts will enforce non-assignment provisions. See, RESTATEMENT (SECOND) OF CONTRACTS § 322 comment a (1981).

Four state courts have held that similar non-assignment provisions in non-ERISA health benefit plans help keep medical costs down, do not violate public policy, and, are enforceable. See, Parrish v. Rocky Mountain Hosp. & Medical Servs. Co., 754 P.2d 1180 (Colo.Ct.App.1988); Kent General Hosp., Inc. v. Blue Cross & Blue Shield of Delaware, Inc., 442 A.2d 1368 (Del.1982); Augusta Med. Complex, Inc. v. Blue Cross of Kansas, Inc., 230 Kan. 361, 634 P.2d 1123 (1981); Obstetricians-Gynecologists, P.C. v. Blue Cross & Blue Shield of Nebraska, 219 Neb. 199, 361 N.W.2d 550 (1985).

Other than the district court below, apparently the only federal court to have ruled directly on whether assignment of ERISA welfare plan benefits can be prohibited is the district court for the District of Columbia in Washington Hospital Center Corp. v. Group Hospitalization and Med. Services, Inc., 758 F.Supp. 750 (D.D.C.1991). In a test case ⁵ of a Blue Cross anti-assignment clause, Washington Hospital held in a well-reasoned opinion that, while the Congressional silence on non-assignability of ERISA welfare benefits means that assignments are not barred, this does not suggest an affirmative policy favoring assignments so strong as to invalidate otherwise valid non-assignment clauses. The court held such clauses are valid and not contrary to public policy.

The Seventh Circuit was presented with the "waived co-payment" problem in Kennedy v. Connecticut General Life Ins. Co., 924 F.2d 698 (7th Cir.1991). Like the case at bar, the plaintiff health care provider in Kennedy sued under a waiver of co-payments and an assignment, where the plan had a non-assignment clause. The court noted the value of such co-payment and non-assignment provisions: "Co-payments sensitize employees to the costs of health care, leading them not only to use less but also to seek out providers with lower fees.... [which] makes medical insurance less expensive and enables employers to furnish broader coverage (or to pay higher wages coupled with the same level of coverage)." Id. at 699. The court noted that, if waiver of co-payments is allowed, "[p]atients prefer the lower outlays, but waivers annul the benefits of the co-payment system." Id. The health insurer "wants assurance that the patient has given enough thought to the need for (and price of) this medical care to be willing to pay. Patients who pay nothing have no reason to moderate their demands for medical service, and providers may inflate the bill...." Id. at 701. Kennedy held that the health care provider could not recover because he had waived payment direct from the patient and, under the policy, the insurer had no obligation to pay a charge which the patient was not legally obligated to pay. Thus, the court never reached the question of the non-assignment clause validity.

The issue in this case is basically the same as in Kennedy, and was squarely presented below. Therefore, we decide it in this case.

1. Appellees' argument that ERISA mandates assignability.

Appellees present three arguments to support their contention that ERISA mandates assignability:

a. The garnishment analogy.

Appellees analogize to creditor garnishment cases, and cite Mackey, supra, where a creditor obtained a money judgment against an ERISA welfare plan ⁶ and then successfully invoked Georgia's general garnishment statute to reach plan funds. The Supreme Court held ERISA did not forbid garnishment of an ERISA welfare benefit plan. Three months later, in Franchise Tax Board v. Construction Laborers Vacation Trust, 204 Cal.App.3d 955, 251 Cal.Rptr. 597 (1988), a California appellate court upheld a state tax levy on the taxpayer's ERISA plan benefits, despite a non-assignment clause...