Hubbard v. Blue Cross & Blue Shield Ass'n

• Decision Date: 12 January 1995
• Docket Number: Nos. 92-2903,92-2908,s. 92-2903
• Citation: 42 F.3d 942
• Parties: , 18 Employee Benefits Cas. 2825, Pens. Plan Guide P 23905R Rebecca T. HUBBARD and Jim Hubbard, Plaintiffs-Appellants, v. BLUE CROSS & BLUE SHIELD ASSOCIATION, et al., Defendants, Blue Cross & Blue Shield Association, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 942

42 F.3d 942

63 USLW 2492, 18 Employee Benefits Cas. 2825,

Pens. Plan Guide P 23905R

Rebecca T. HUBBARD and Jim Hubbard, Plaintiffs-Appellants, v. BLUE CROSS & BLUE SHIELD ASSOCIATION, et al., Defendants Blue Cross & Blue Shield Association, Defendant-Appellee.

Nos. 92-2903, 92-2908.

United States Court of Appeals Fifth Circuit.

Jan. 12, 1995.

Jeff Murphrey, Tekell, Book & Matthews, Houston, TX, for appellants.

Denise A. Bretting, Daniel J. Sheehan, Jr., Sheehan, Young & Culp, P.C., Dallas, TX, for appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before JONES and DeMOSS, Circuit Judges, and SCHWARTZ, District Judge. ^*

DeMOSS, Circuit Judge:

Plaintiff Rebecca Hubbard ¹ was a beneficiary under a group insurance policy regulated by the Employee Retirement Income Security Act ("ERISA"). ² This appeal concerns whether Hubbard's state-law fraudulent inducement claims--brought against a third party other than the insurer--are preempted by ERISA. We hold that one of Hubbard's claims is preempted by ERISA and that the other claim is not preempted. We therefore AFFIRM the district court's entry of judgment in favor of the defendant on one claim, and REMAND the other claim back to the district court.

BACKGROUND

Hubbard's employer, Texas A & M Research Foundation, provided an ERISA-regulated health benefits plan to its employees. Coverage was provided by Blue Cross and Blue Shield of Texas ("Blue Cross of Texas"), an entity not a party to this lawsuit. While Hubbard was a beneficiary under the health plan, she contracted cancer. ³ After Blue Cross of Texas refused to provide coverage for certain requested cancer treatments, Hubbard sued defendant-appellee Blue Cross and Blue Shield Association ("the Association") in the district court of Brazos County, Texas. ⁴ Hubbard claims that (1) the Association generated and disseminated secret policy interpretation "guidelines" which were followed by Blue Cross of Texas in denying coverage for Hubbard's treatment, and that the Association willfully concealed such guidelines from Hubbard, thereby fraudulently inducing her to participate in the Blue Cross of Texas plan rather than procuring other, adequate, health coverage; and (2) the Association disseminated advertisements in Texas that portrayed Blue Cross of Texas "as an honest and forthright company that would never engage in deceptive trade practices," thus fraudulently inducing her into participating in the "unsuitable" Blue Cross of Texas plan. Hubbard claimed that both acts by the Association were in violation of the Texas Deceptive Trade Practices Act, TEX.BUS. & COM.CODE ANN. Sec. 17.41 et seq. ("DTPA"), Texas Insurance Code Article 21.21 et seq., and the Texas common law of fraud. Hubbard also alleged malpractice against her physician, Richard A. Smith of Brazos County, Texas, claiming he negligently failed to diagnose the cancer.

The Association removed the case to federal district court, contending that On October 8, 1992, the district court granted summary judgment in favor of the Association on both of Hubbard's claims. The district court's four-page order concluded that all of the plaintiff's state-law fraudulent inducement claims were completely preempted by ERISA. ⁶ This appeal followed.

                Hubbard's state-law claims were completely preempted by ERISA. 5  The plaintiffs and defendant Smith moved to remand the case to Texas state court.  After initially denying both motions, the court remanded the Hubbard's claims against Smith, but refused to remand their case against the Association
                

STANDARD OF REVIEW

We review a summary judgment de novo, under the same standard employed by the district court, affirming if there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. FED.R.CIV.P. 56(c); United Fire and Cas. Co. v. Reeder, 9 F.3d 15, 16 (5th Cir.1993); Hibernia Nat. Bank v. Carner, 997 F.2d 94, 97 (5th Cir.1993).

ERISA PREEMPTION

The preemption clause in ERISA states that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employer benefit plan." 29 U.S.C. Sec. 1144(a) (expressly excepting two situations not applicable here). State law causes of action such as Hubbard's are barred by Sec. 1144(a) if (1) the state law claim addresses an area of exclusive federal concern, such as the right to receive benefits under the terms of an ERISA plan; and (2) the claim directly affects the relationship between the traditional ERISA entities--the employer, the plan and its fiduciaries, and the participants and beneficiaries. Weaver v. Employers Underwriters, Inc., 13 F.3d 172, 176 (5th Cir.1994); Memorial Hosp. System v. Northbrook Life Ins. Co., 904 F.2d 236, 245 (5th Cir.1990). The language of the ERISA preemption clause is deliberately expansive, and has been construed broadly by federal courts. Corcoran v. United Healthcare, Inc., 965 F.2d 1321, 1328-29 (5th Cir.1992). A state cause of action relates to an employee benefit plan whenever it has "a connection with or reference to such a plan." Id. at 1329 (citing Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 2899-2900, 77 L.Ed.2d 490 (1983)).

Hubbard makes two basic claims of fraudulent inducement. She first alleges that the Association issued, and concealed, secret coverage guidelines ("the secret guidelines claim"). Her second claim alleged fraudulent inducement in connection with the Association's advertisements for Blue Cross of Texas ("the advertisement claim"). ⁷ If neither claim is preempted by ERISA, then the district court lacks subject matter jurisdiction, because both claims arise under state law and there is no diversity of citizenship. If there is no federal jurisdiction, the case must be remanded to Texas state court.

However, we hold that Hubbard's claim involving the "secret guidelines" is preempted by ERISA, thus a federal question exists on that claim and the district court's exercise of jurisdiction was proper. Entry of summary judgment for the Association on that claim was also correct because ERISA provides no remedy. We hold that Hubbard's second claim, involving the Association's advertising,

is not preempted by ERISA. We reverse the summary judgment as to the advertising claim and remand that part of the case so that the district court may exercise its discretion as to whether to accept supplemental jurisdiction pursuant to 28 U.S.C. Sec. 1367 or remand the advertising claim to state court.

"SECRET GUIDELINES" CLAIM

Hubbard alleged that the Association "generated and disseminated to [Blue Cross of Texas] certain guidelines or criteria pertaining to how [Blue Cross of Texas] would interpret the terms 'experimental' and 'medically necessary.' "

"[Blue Cross of Texas] looked to and relied upon certain criteria and guidelines promulgated by [the Association] in order to make determinations concerning whether specific medical treatments were or were not excluded from coverage by the above-noted policy language ... in effect, [the Association] added verbiage to the definitions of the aforementioned terms found in the insurance policy."

It is clear that ERISA preempts a state law cause of action brought by a plan beneficiary against the plan insurer alleging improper processing of a claim for plan benefits. Memorial Hospital, 904 F.2d at 245. We have also held that ERISA preempts state law claims of fraud, breach of contract or negligent misrepresentation that have the effect of orally modifying the express terms of an ERISA plan and increasing plan benefits for participants or beneficiaries who claim to have been misled. Id. at 245. Hubbard's "secret guideline" claim was brought against a third party, the Association, rather than against the insurer. However, the essence of Hubbard's claim is that her benefits under the plan were improperly denied. Resolution of this claim would require an inquiry into (1) whether the Association generated and disseminated guidelines; (2) whether Blue Cross of Texas knew about those guidelines; (3) whether Blue Cross of Texas employed the alleged guidelines in Hubbard's case; and (4) whether the guidelines materially affected the determination of non-coverage in Hubbard's medical treatment. Such questions are intricately bound up with the interpretation and administration of an ERISA plan. Accordingly, we hold that the "secret guideline" claim relates to an employee benefit plan and is preempted by ERISA. See Corcoran v. United Healthcare Inc., 965 F.2d 1321, 1334 (5th Cir.) (holding that ERISA preempted state law claims against a non-ERISA entity, the utility review administrator for its decision that affected a benefit determination under the ERISA plan). Because ERISA provides no remedy on these facts, the district court correctly granted summary judgment in favor of the Association on Hubbard's secret guideline fraudulent inducement claim.

ADVERTISING CLAIM

Hubbard also alleged that the Association "distributed advertisements designed to promote Blue Cross [of Texas] as an honest and forthright company that would never engage in deceptive trade practices." Hubbard claimed that she "relied upon the images created by such advertising and [was] thereby induced to acquire the services of Blue Cross [of Texas]." Hubbard claims that she was damaged by the advertising in that she relied on the assurances of quality coverage and thus chose not to procure other insurance coverage to insure that the expensive medical treatments that she needed could be paid for.

Hubbard relies heavily on our holding in Perkins v. Time Ins. Co., 898 F.2d 470, 473 (5th Cir.1990), which also involved fraudulent inducement allegations against a third-party, non-ERISA entity. In Perkins, the plaintiff claimed that an insurance agent fraudulently induced him to surrender his previous insurance coverage and elect to participate in a new ERISA plan. The agent falsely...