Health Care Service v. Tap Pharmaceutical Products

• Decision Date: 01 August 2003
• Docket Number: Civil Action No. 1:03-CV-166.
• Parties: HEALTH CARE SERVICE CORPORATION, Plaintiff, v. TAP PHARMACEUTICAL PRODUCTS, INC., Abbott Laboratories, and Takeda Chemical Industries, Ltd., Defendants.
• Court: U.S. District Court — Eastern District of Texas

274 F.Supp.2d 807

HEALTH CARE SERVICE CORPORATION, Plaintiff, v. TAP PHARMACEUTICAL PRODUCTS, INC., Abbott Laboratories, and Takeda Chemical Industries, Ltd., Defendants.

Civil Action No. 1:03-CV-166.

United States District Court, E.D. Texas, Beaumont Division.

August 1, 2003.

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J. Hoke Peacock, III and Michael A. Lee of Susman Godfrey, LLP, Houston, TX, for Plaintiffs.

Lawrence Louis Germer and Kelli Burris Smith of Germer, Bernsen & Gertz, Beaumont, TX, for Defendants TAP Pharmaceutical Products, Inc.

Walter Joshua Crawford, Jr. of Crawford & Olesen, LLP, Beaumont, TX, for Abbott Laboratories.

Gene M. Williams of Mehaffy & Weber, Beaumont, TX, for Takeda Chemical Industries, Ltd.

MEMORANDUM OPINION AND ORDER

RON CLARK, District Judge.

HCSC, an administrator of employer sponsored benefits plans, has moved to remand a suit in which it claimed defendant drug companies engaged in a pattern of overcharging for, and encouraging the over-prescription of, Lupron, a prostate drug [Doc. # 6]. This court must reject HCSC's claim that even though it is a plan administrator, it is not an ERISA fiduciary. If HCSC's allegations are correct, defendants are deemed to be fiduciaries of the plans from which they improperly obtained funds and are equitably required to disgorge these funds. Accordingly, this is a case of complete preemption of a suit to obtain equitable redress for an alleged prohibited practice under ERISA.

Additionally, if HCSC's allegations are true, potentially millions of dollars of overcharges on this single drug have been mulcted from plans paid for by employers, and intended to benefit hardworking employees and their dependents. The national policy implications for employees, employers, and benefit plans are multiplied if similar activity has occurred with other medications. No one can deny that protection of plan assets for the benefit of participants and beneficiaries was a central goal of Congress in enacting ERISA. HCSC's action for restitution due to defendants' unjust enrichment is governed by federal common law, and it "arises under" federal law for purposes of maintaining subject matter jurisdiction in this court. HCSC's motion to remand is denied.

I. FACTUAL AND PROCEDURAL BACKGROUND

On July 12, 2002, HCSC filed its Plea in Intervention (hereinafter referred to as HCSC's "Complaint") in a state court class action in which individuals were suing defendants TAP, Abbott and Takeda Chemical Industries ("Takeda") for allegedly promoting unnecessary prescriptions, and overcharging for a drug called Lupron. HCSC alleged that through its divisions (various Blue Cross and Blue Shield organizations), it was the third-party payor of many of the alleged unnecessary or inflated charges for Lupron.

On that same day, the State District Court severed HCSC's resulting in a new action with HCSC as the only plaintiff, and TAP, Abbott, and Takeda as defendants. HCSC alleges state law claims of civil conspiracy, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, unjust enrichment, fraud, and violation of the Illinois Antitrust Act. Six months after HCSC filed its Complaint, and four months after defendants had answered, TAP served HCSC with discovery. The response to the discovery was received by defendants on February 18, 2003. Defendants filed their Notice of Removal [Doc. # 1] on March 20, 2003. HCSC has moved to remand asserting federal preemption does not apply and that the notice of removal was filed too late.

II. PREEMPTION OF STATE LAW CLAIMS

Although HCSC's Complaint purported to raise only state law causes of action defendants removed this case by invoking federal jurisdiction under the Employee Retirement Income Security Act of 1974 ("ERISA"), §§ 502, 514, 29 U.S.C. §§ 1132, 1144.¹ An action filed in state court may be removed to federal court if the claim is one "arising under" federal law. See 28 U.S.C. § 1441(b).

Under the well-pleaded complaint rule, a case does not "arise under" federal law and is not removable if the complaint asserts only state law causes of action. Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 10, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). An anticipated federal defense, including a defense of preemption, will not support removal either. Caterpillar Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987).

A. Claims Under ERISA 29 U.S.C. § 1132(a) Are Preempted

State law claims that seek relief within the scope of the civil enforcement provisions of ERISA § 502(a), 29 U.S.C. § 1132(a), can be characterized as claims arising under federal law. See Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 64-66, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987). A federal court has "complete preemption" jurisdiction over such claims, and the action can properly be removed to federal court.² Arana v. Ochsner Health Plan, 338 F.3d 433 (5th Cir.2003)(citing Metro. Life Ins. Co. v. Taylor, 481 U.S. at 66).

ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), provides:

A civil action may be brought —

* * *

(3) by a ... fiduciary ... (A) to enjoin any act or practice which violates any provision of [ERISA] or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of [ERISA] or the terms of the plan.... (Emphasis added).

As will be discussed, HCSC, as a plan administrator, is a fiduciary. This suit seeks to obtain equitable relief to redress violations of the "prohibited transactions" provisions of ERISA, 29 U.S.C. § 1106. The claims are therefore within the scope of 29 U.S.C. § 1132 and complete preemption jurisdiction applies.

I. HCSC is an ERISA Fiduciary

The court must determine the status, under ERISA, of HCSC and defendants to determine whether the action brought is, in reality, one to redress violations of ERISA, or to enforce any provisions of ERISA. If HCSC is a fiduciary, and its suit redresses transactions prohibited by ERISA, then this is a case arising under Federal law and removal was proper.

ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), defines a fiduciary as follows:

[A] person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, ... or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.

The term "fiduciary" is liberally construed in keeping with the remedial purpose of ERISA. Am. Fed. of Unions Local 102 Health & Welfare Fund v. Equitable Life Assurance Soc'y of the U.S., 841 F.2d 658, 662 (5th Cir.1988).

HCSC is a fiduciary. HCSC admits that it provides health insurance through its Blue Cross and Blue Shield divisions, and that those divisions "administered self-funded plans, or provided coverage through employer-sponsored benefit plans" — activities at the "core" of Blue Cross and Blue Shield. (Mot. to Remand at 5, n. 1; see also HCSC Resp. to TAP's First Set of Interr. ¶¶ 1, 8.) HCSC asserts that it "seeks recovery of monetary damages from overpaying" for Lupron — overpayments which were obviously made from the self-funded plans which HCSC administers. (Mot. to Remand at 13.) Remarkably, however, HCSC denies that it brings its claims for damages on behalf of those same self-funded plans which suffered as a result of the above overpayments. Moreover, HCSC opines that "[j]ust because [it] may act as a plan fiduciary in carrying out some of its administrative functions in no way means that it acts as a plan fiduciary in all of its functions." (HCSC's Reply to Defs.' Resp. to HCSC's Mot. to Remand at 8, n. 6.)

HCSC's argument is untenable, and the court is not persuaded. "ERISA's duty of loyalty is the highest known to the law." Bussian v. RJR Nabisco, Inc., 223 F.3d 286, 294 (5th Cir.2000). "Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior" of a fiduciary. 223 F.3d at 294 (citing Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, 546 (1928))(Cardozo, J.).

The Supreme Court recognized the source of ERISA's duty of loyalty in the common law of trusts and noted that even where a fiduciary may "wear two hats," ERISA requires that the fiduciary "wear the fiduciary hat when making fiduciary decisions." Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct. 2143, 2151-52, 147 L.Ed.2d 164 (2000). The election of HCSC, as a plan administrator, to recover plan funds wrongfully paid out is a fiduciary decision and requires that HCSC performs that duty solely in the interest of the plan's participants and beneficiaries — not in the interest of HCSC. "[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries." 29 U.S.C. § 1104(a)(1)(A).

By analogy, the duty of utmost loyalty HCSC has to its plan beneficiaries is similar to the duty of loyalty a guardian of an estate has to a minor. Consider the following scenario: a child requires medical care for the treatment of cancer and the guardian pays the medical bills from the child's estate. After the child's treatment ends, the guardian discovers that a third party wrongfully overcharged the child's estate for cancer drug treatments, and sues the third party to recover the overpayments. It would be an almost criminal breach of fiduciary duty for the guardian to claim that he was not bringing suit on behalf of the child's estate — but on his own behalf — simply because payments for medical treatment had ceased. HCSC provides no evidence of how it has ceased to be a fiduciary in this action simply because certain plan payments for the drug Lupron have ceased. Any awards from this action need to go back into the employers health care plans for the benefit of employees not into the administrator's...