Fossen v. Blue Cross & Blue Shield of Montana, Inc.

• Decision Date: 18 October 2011
• Docket Number: No. 10–36001.,10–36001.
• Citation: 11 Cal. Daily Op. Serv. 12883,51 Employee Benefits Cas. 2697,660 F.3d 1102,2011 Daily Journal D.A.R. 15359
• Parties: Dale FOSSEN; D and M Fossen, Inc.; Larry Fossen; L and C Fossen, Inc.; Marlowe Fossen; M and C Fossen, Inc.; Fossen Brothers Farms, a Partnership, Plaintiffs–Appellants, v. BLUE CROSS AND BLUE SHIELD OF MONTANA, INC., a health service corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

11 Cal. Daily Op. Serv. 12,883

2011 Daily Journal D.A.R. 15,359

51 Employee Benefits Cas. 2697

660 F.3d 1102

Dale FOSSEN; D and M Fossen, Inc.; Larry Fossen; L and C Fossen, Inc.; Marlowe Fossen; M and C Fossen, Inc.; Fossen Brothers Farms, a Partnership, Plaintiffs–Appellants,

v.BLUE CROSS AND BLUE SHIELD OF MONTANA, INC., a health service corporation, Defendant–Appellee.

No. 10–36001.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 4, 2011.Filed Oct. 18, 2011.

Preempted

MCA 33–22–526(2)(a) Lawrence A. Anderson (argued), Great Falls, MT; John M. Morrison (argued), Morrison, Motl & Sherwood, PLLP, Helena, MT, for the plaintiffs-appellants.

Michael F. McMahon and Bernard F. Hubley, McMahon, Wall & Hubley Law Firm, PLLC, Helena, MT; Anthony F. Shelley (argued) and Jeffrey M. Hahn, Miller & Chevalier Chartered, Washington, DC, for the defendant-appellee.Mark G. Arnold and Jeffrey J. Simon, Husch Blackwell LLP, St. Louis, MO, for amicus curiae National Association of Insurance Commissioners.Jesse Laslovich and Christina Lechner Goe, Office of the Commissioner of Securities and Insurance, Montana State Auditor, Helena, MT, for amicus curiae Monica J. Lindeen, Commissioner of Securities and Insurance, Montana State Auditor.M. Patricia Smith, Timothy D. Hauser, Elizabeth Hopkins, and Uchenna Evans (argued), United States Department of Labor, Washington, DC, for amicus curiae Hilda L. Solis, Secretary of the United States Department of Labor.Appeal from the United States District Court for the District of Montana, Charles C. Lovell, Senior District Judge, Presiding. D.C. No. 6:09–cv–00061–CCL.Before: MARY M. SCHROEDER and MILAN D. SMITH, JR., Circuit Judges, and ROGER T. BENITEZ, District Judge.^*

OPINION

M. SMITH, Circuit Judge:

This appeal presents the question of whether a provision of the federal Health Insurance Portability and Accountability Act (HIPAA), Pub.L. No. 104–191, 110 Stat.1936 (1996), preempts Montana's “little HIPAA” law, Mont.Code Ann. § 33–22–526(2)(a), for purposes of both conferring federal subject matter jurisdiction and defeating state-law causes of action on the merits. The federal and state HIPAA provisions at issue prohibit certain health insurers from charging different premiums to “similarly situated” participants on account of a participant's “health status-related factor.” 29 U.S.C. § 1182(b)(1); Mont.Code Ann. § 33–22–526(2)(a). We affirm the district court and hold that federal HIPAA preempts the Montana law, both jurisdictionally and on the merits, because Montana's HIPAA provision is identical to, and expressly relies upon, federal law. However, federal law does not preempt a claim for relief under a separate Montana unfair insurance practices statute that bars insurers from engaging in “unfair discrimination” when charging policy premiums to similarly situated individuals. Mont.Code Ann. § 33–18–206(2).

BACKGROUND

Plaintiffs–Appellants (collectively, Fossens) are three brothers, Dale, Larry, and Marlowe Fossen, their three corporations (which they jointly own with their spouses), and Fossen Brothers Farms (a partnership of the three corporations). In 2004, Fossen Brothers Farms applied to Blue Cross and Blue Shield of Montana (Blue Cross) to obtain health insurance coverage for the Fossen Brothers Farms's three employees. From 2004 through May 2009, Blue Cross provided coverage to Fossen Brothers Farms through the Associated Merchandisers Inc., Health First Plan (Associated Merchandisers Plan), and from June 2009 through the time this lawsuit was filed, Blue Cross provided coverage through the Montana Chamber Choices Group Benefit Plan (Chamber Choices Plan).

In 2006, Blue Cross informed the Fossens that their premium was increasing by over 20%. The Fossens learned that Blue Cross was imposing different increases (and even decreases in some cases) on other plan members. After the Fossens complained to the Montana Insurance Commissioner, Blue Cross reduced the proposed increase to 4%. For the 2008 plan year, however, Blue Cross increased the Fossens' premiums over 40%. The Fossens complained again to the insurance commissioner, but apparently to no avail. They then filed this lawsuit in state court in September 2009.

The Fossens' complaint asserted three substantive causes of action. First, they alleged that Blue Cross's 40% premium increase violated a provision of Montana's “little HIPAA” statute that prohibits “group health plan [s]” (and insurers offering coverage through group health plans) from imposing a “premium or contribution that is greater than the premium or contribution for a similarly situated individual” on account of “any health status-related factor of the individual....” Mont.Code Ann. § 33–22–526(2)(a). Second, the Fossens asserted that Blue Cross's premium increase violated a provision of Montana's Unfair Trade Practices Act, Mont.Code Ann. §§ 33–18–101 et seq. , which prohibits insurers from engaging in “any unfair discrimination between individuals of the same class and of essentially the same hazard in the amount of premium, policy fees, or rates charged for any policy or contract of disability insurance....,” Mont.Code Ann. § 33–18–206(2); see also Mont.Code Ann. § 33–1–207(1) (defining “disability insurance” as including insurance against medical expenses resulting from accident or sickness). Third, the Fossens claimed that the premium increase constituted a breach of their contract with Blue Cross, which allegedly incorporated by reference both the Montana HIPAA provision and the unfair practices provision.¹ The complaint sought two forms of relief—declaratory relief that Blue Cross violated the law and restitutionary relief through a return of overcharged premiums—and sought certification as a class action.

Blue Cross timely removed the complaint to federal court, asserting that the Fossens' little HIPAA claim was completely preempted by the Employee Retirement Income Security Act of 1974 (ERISA), Pub.L. No. 93–406, 88 Stat. 829. Federal HIPAA, which is part of ERISA (as amended), contains a provision similar to the Montana HIPAA statute raised in the complaint. As with the Montana HIPAA statute, federal HIPAA prohibits “group health plan[s]” (and insurers offering coverage through group health plans) from charging different “premium[s] or contribution[s]” to “similarly situated individual[s]” on account of “any health status-related factor in relation to the individual [s]....” 29 U.S.C. § 1182(b)(1).² Blue Cross argued that ERISA's “complete preemption” doctrine, as articulated in Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 66–67, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987), and subsequent cases, conferred federal jurisdiction over the Fossens' nominal state-law claims. The district court agreed with Blue Cross, and denied the Fossens' motion to remand. The court then granted Blue Cross's motion for summary judgment. The court noted that all of the Fossens' claims were premised on an underlying violation of federal HIPAA, and, finding no violation of that statute, the court held that the Fossens' claims failed as a matter of law. The court also declined to allow the Fossens to amend their complaint to state a breach of contract theory (first argued in the Fossens' summary judgment briefs) premised on Blue Cross's alleged promise not to increase their premiums by a greater amount than any other members of the Associated Merchandisers Plan. The Fossens timely appealed the district court's decision.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction over the district court's final judgment. 28 U.S.C. § 1291. We review the district court's exercise of subject matter jurisdiction de novo, placing the burden “on the party invoking removal.” Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 944 (9th Cir.2009). We review de novo the district court's grant of Blue Cross's motion for summary judgment, and examine the evidence in a light most favorable to the Fossens. FTC v. Stefanchik, 559 F.3d 924, 927 (9th Cir.2009). We review the district court's denial of leave to amend the complaint for abuse of discretion. AmerisourceBergen Corp. v. Dialysist West, Inc., 465 F.3d 946, 949 (9th Cir.2006).

DISCUSSION

I. ERISA Preemption

“There are two strands of ERISA preemption: (1)'express' preemption under ERISA § 514(a), 29 U.S.C. § 1144(a); and (2) preemption due to a ‘conflict’ with ERISA's exclusive remedial scheme set forth in [ERISA § 502(a),] 29 U.S.C. § 1132(a).” Paulsen v. CNF Inc., 559 F.3d 1061, 1081 (9th Cir.2009) (citing Cleghorn v. Blue Shield of Cal., 408 F.3d 1222, 1225 (9th Cir.2005)), cert. denied, ––– U.S. ––––, 130 S.Ct. 1053, 175 L.Ed.2d 882 (2010). HIPAA contains an additional express preemption provision relevant here: ERISA § 731(a), 29 U.S.C. § 1191(a), which is described in greater detail below.

All of these preemption provisions defeat state-law causes of action on the merits. See, e.g., Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 57, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) (§ 514(a) preemption); Cleghorn, 408 F.3d at 1227 (§ 502(a) preemption). Conflict preemption under ERISA § 502(a), however, also confers federal subject matter jurisdiction for claims that nominally arise under state law. See, e.g., Marin Gen., 581 F.3d at 945. Ordinarily, federal question jurisdiction does not lie where a defendant contends that a state-law claim is preempted by federal law. Aetna Health Inc. v. Davila, 542 U.S. 200, 207, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004); Marin Gen., 581 F.3d at 945. But state-law claims may be removed to federal court if the “complete preemption” doctrine applies. Marin Gen., 581 F.3d at 945; see also Davila, 542 U.S. at 207–08, 124 S.Ct. 2488. Relevant to this case, ERISA § 502(a) “ ‘set[s] forth a comprehensive civil enforcement scheme’ ” that completely preempts state-law “ ‘causes of action within the scope of th[es]e civil enforcement provisions....' ” Davila, 542...