Howard v. Group Hosp. Service

• Citation: 739 F.2d 1508
• Decision Date: 06 August 1984
• Docket Number: No. 82-1397,82-1397
• Parties: Lloyde E. HOWARD, Plaintiff-Appellant, v. GROUP HOSPITAL SERVICE, an Oklahoma Corporation, d/b/a Blue Cross and Blue Shield of Oklahoma, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 1508

739 F.2d 1508

Lloyde E. HOWARD, Plaintiff-Appellant, v. GROUP HOSPITAL SERVICE, an Oklahoma Corporation, d/b/a Blue

Cross and Blue Shield of Oklahoma, Defendant-Appellee.

No. 82-1397.

United States Court of Appeals, Tenth Circuit.

Aug. 6, 1984.

Donald R. Wilson of Fenton, Fenton, Smith, Reneau & Moon, Oklahoma City, Okl. and Porta, Bass & Bass, El Reno, Okl., for plaintiff-appellant.

E. Bryan Henson of Chapel, Wilkinson, Riggs, Abney & Henson, Tulsa, Okl., for defendant-appellee.

Before BARRETT, DOYLE and LOGAN, Circuit Judges.

LOGAN, Circuit Judge.

Plaintiff Lloyde E. Howard brought suit against Group Hospital Service, d/b/a Blue Cross and Blue Shield of Oklahoma (Blue Cross), in an Oklahoma state court for damages in tort and contract resulting from Blue Cross' failure to pay claims under a Federal Employee Health Benefits Program (FEP) medical insurance policy. Blue Cross refused to pay a portion of claims made for treatment of Howard's wife for nervous and mental problems on the basis that there was no medical necessity for the treatment. Blue Cross removed the case to the United States District Court, alleging federal question jurisdiction under 28 U.S.C. Sec. 1441(b). The federal district court denied plaintiff's motion to remand the case. Howard appeals from a jury verdict awarding him $1,649.00. The cause was submitted on the briefs by agreement of the parties. Because we find that the trial court did not have subject matter jurisdiction, we consider only this jurisdictional issue and order that the case be returned to the trial court for remand to the state court.

Under 5 U.S.C. Secs. 8901-13 the Office of Personnel Management (OPM) contracts for and approves health benefit plans covering federal employees. The federal government subsidizes the subscription charge, but never pays more than seventy-five percent of a participant's costs. 5 U.S.C. Sec. 8906(b). Blue Cross has a contract with the OPM setting forth an approved plan. Howard chose the Blue Cross option and hence is a third party beneficiary of the contract between Blue Cross and the federal government. He is also a contracting party because he pays for medical coverage.

Blue Cross argues, citing Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943), that because a government agency is a party to the FEP contract, federal law should apply to the interpretation of the medical necessity provision to promote uniformity of decision and interpretation of the contract. In Clearfield the federal government brought suit seeking reimbursement for funds paid to Clearfield Trust Company. Clearfield, as agent for J.C. Penney Company, negotiated a government check issued to an individual without knowledge that the payee's endorsement had been forged. The district court applied Pennsylvania law to bar the government from recovering because the government had unnecessarily delayed in giving notice of the forgery to Clearfield Trust. The Supreme Court held that the district court erroneously applied state law because the "rights and duties of the United States on commercial paper which it issues are governed by federal rather than local law." Id. at 366, 63 S.Ct. at 575. The Court stated, "The authority to issue the check had its origin in the Constitution and the statutes of the United States and was in no way dependent on the laws of Pennsylvania or of any other state." Id.

In Clearfield the United States was a party to the litigation, and an important question affecting its liability in many similar situations was at stake. We believe the instant case is more like Miree v. DeKalb County, 433 U.S. 25, 97 S.Ct. 2490, 53 L.Ed.2d 557 (1977), in which the Supreme Court discussed the scope of Clearfield. In Miree the petitioners--the survivors of deceased passengers in an air crash, the assignee of the aircraft owner, and a burn victim--claimed that they had standing to sue as third party beneficiaries of contracts between DeKalb County and the Federal Aviation Administration. Their complaint alleged that DeKalb County had entered into six grant agreements with the FAA under the terms of which DeKalb County agreed to "take action to restrict the use of land adjacent to or in the immediate vicinity of the Airport to activities and purposes compatible with normal airport operations including landing and takeoff of aircraft." Id. at 27, 97 S.Ct. at 2492. The Court held that federal law did not govern the petitioners' claim. The Court wrote,

"The litigation before us raises no question regarding the liability of the United States or the responsibilities of the United States under the contracts. The relevant inquiry is a narrow one: whether petitioners as third-party beneficiaries of the contracts have standing to sue respondent. While federal common law may govern even in diversity cases where a uniform national rule is necessary to further the interests of the Federal Government, Clearfield Trust Co. v. United States, 318 U.S. 363 [63 S.Ct. 573, 87 L.Ed. 838] (1943), the application of federal common law to resolve the issue presented here would promote no federal interests even approaching the magnitude of those found in Clearfield Trust:

'The issuance of commercial paper by the United States is on a vast scale and transactions in that paper from issuance to payment will commonly occur in several states. The application of state law, even without the conflict of laws rules of the forum, would subject the rights and duties of the United States to exceptional uncertainty. It would lead to great diversity in results by making identical transactions subject to the vagaries of the laws of the several states. The desirability of a uniform rule is plain.' Id. at 367 .

But, in this case, the resolution of petitioners' breach-of-contract claim against the respondent will have no direct effect upon the United States or its Treasury. The Solicitor General, waiving his right to respond in these cases, advised us:

'In the course of the proceedings below, the United States determined that its interests would not be directly affected by the resolution of these issue[s] and therefore did not participate in briefing or argument in the court of appeals. In view of these considerations, the United States does not intend to respond to the petitions unless it is requested to do so by the Court.'

The operations of the United States in connection with FAA grants such as these are undoubtedly of considerable magnitude. However, we see no reason for concluding that these operations would be burdened or subjected to uncertainty by variant state-law interpretations regarding whether those with whom the United States contracts might be sued by third-party beneficiaries to the contracts. Since only the rights of private litigants are at issue here, we find the Clearfield Trust rationale inapplicable."

Id. at 28-30, 97 S.Ct. at 2493-94 (footnotes omitted). See also Bank of America Nat. Trust & Sav. Ass'n v. Parnell, 352 U.S. 29, 33-34, 77 S.Ct. 119, 121, 1 L.Ed.2d 93 (1956). Similarly, in the case at bar the federal government is responsible for contracting for or approving health benefits plans, 5 U.S.C. Sec. 8903, but the FEP would not be significantly hindered by different state law interpretations of the medical necessity provision in the Blue Cross plan nor would disputes regarding those provisions involve anyone but private litigants.

United States v. Carson, 372 F.2d 429 (6th Cir.1967), upon which Blue Cross relies, is also distinguishable. Carson held that federal law governed an action in which the government brought suit for conversion against a person who had obtained a federal loan and had sold property in which the United States had a security interest. The court stated,

"Clearfield and the cases cited therein emphasize that the federal courts should determine the governing rule or law 'according to their own standards' in areas where constitutionally valid federal legislative programs have been commenced. Where a decision is likely to have a substantial effect on the implementation of a federal program, then a federal court should declare a rule consistent with the program's demands."

Id. at 432. Unlike Carson, a suit brought under an FEP policy for denial of a claim based on lack of medical necessity is not against the United States and does not seek funds from the United States Treasury. Further, the dispute in Carson arose out of the Bankhead-Jones Farm Tenant Act, which established an extensive federal lending program to promote the efficient and productive use of agricultural resources. The act requires that the government loans be adequately secured. 7 U.S.C. Sec. 1946. Also a uniform federal rule governing the liability of livestock brokers dealing tortiously with mortgaged property helps prevent the unjustifiable defeat of United States security interests. 372 F.2d at 433. The same concerns are not involved in the case at bar.

As we understand Clearfield, Miree, and Parnell, when the federal government has an articulable interest in the outcome of a dispute, federal law governs. Thus, if diverse resolutions of a controversy would frustrate the operations of a federal program, see Carson, 372 F.2d at 432, conflict with a specific national policy, see Bartsch v. Metro-Goldwyn-Mayer, Inc., 391 F.2d 150, 153 (2d Cir.), cert. denied, 393 U.S. 826, 89 S.Ct. 86, 21 L.Ed.2d 96 (1968), ¹ or have some direct effect on the United States or its treasury, then federal law applies.

"In deciding whether rules of federal common law should be fashioned, normally the guiding principle is that a significant conflict between some federal policy or interest and the use of state law in the premises must first be specifically shown. It is by no means enough that, as we may assume, Congress could under the Constitution readily enact a complete code of law governing transactions in federal mineral leases among private parties. ...