Kelly v. Blue Cross & Blue Shield of Rhode Island

• Decision Date: 24 February 1993
• Docket Number: Civ. A. No. 91-0005L.
• Parties: Michael A. KELLY, Individually and as Personal Representative of The Estate of Regina Kelly, v. BLUE CROSS & BLUE SHIELD OF RHODE ISLAND.
• Court: U.S. District Court — District of Rhode Island

814 F. Supp. 220

Michael A. KELLY, Individually and as Personal Representative of The Estate of Regina Kelly, v. BLUE CROSS & BLUE SHIELD OF RHODE ISLAND.

Civ. A. No. 91-0005L.

United States District Court, D. Rhode Island.

February 24, 1993.

Edward L. Gnys, Jr., Gunning, LaFazia & Gnys, Providence, RI, for plaintiffs.

Matthew F. Medeiros, Genevieve M. Domenico, Flanders & Medeiros, Providence, RI, for defendants.

MEMORANDUM AND ORDER

LAGUEUX, Chief Judge.

This matter is before the Court on the motion of defendant Blue Cross & Blue Shield of Rhode Island ("Blue Cross") for partial summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Specifically, Blue Cross seeks to strike the state law claims and jury demand asserted by plaintiff, Michael A. Kelly, in Counts I, II, and III of the Amended Complaint. Blue Cross argues that the underlying case, arising from Blue Cross's decision to deny reimbursement for Regina Kelly's medical treatment, is controlled by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. (1992). It, therefore, contends that plaintiff's state law claims are preempted and his demand for a jury is unavailing. Despite claims under ERISA in Count IV of the Amended Complaint, plaintiff now asserts, in response to defendant's motion, that ERISA is inapplicable and defendant's motion should be denied.

BACKGROUND

At its core, this litigation involves a dispute over a health care insurance contract between Blue Cross and Regina Kelly, plaintiff's late wife. The present motion is to determine whether the means for resolving that dispute are confined to those available under ERISA or, if instead, state laws apply.

In 1989, Regina Kelly, a citizen of South Carolina, discovered she had breast cancer. In May of that year, Mrs. Kelly underwent a bone marrow rescue procedure called an Autologous Bone Marrow Transplant ("ABMT") at the Medical University of South Carolina. Essentially, doctors withdrew her bone marrow, preserved the marrow under extreme cold (cryopreservation), and then administered chemotherapy. After the chemotherapy was completed, the patient's own preserved marrow was reinfused into her bones.

At the time of this treatment, Regina Kelly had a health care insurance contract with defendant, Blue Cross. This coverage was paid for entirely by Academic Enterprises, Incorporated, a corporation which owns and operates several schools located in Rhode Island and Connecticut. Academic Enterprises has paid since 1975, and presently plans to continue paying, one hundred percent of the Blue Cross premiums for its eligible employees.¹ An employee's eligibility for the health care insurance coverage, as well as for the dental, life, and long term disability insurance offered by the corporation, is based on the number of hours the employee works, as determined by the formula devised by the owner of the corporation. Regarding health care, the eligible employee may choose from one of several group plans offered by the corporation, including the corporation's group plan with Blue Cross.² Regina Kelly was the sole owner and Chairman of the Board of Academic Enterprises, and, thus, the corporation considered her a full-time employee eligible for the benefits.

After her ABMT, the Medical University of South Carolina submitted a claim on Regina Kelly's behalf for reimbursement from Blue Cross for her medical treatment. On October 16, 1989, Blue Cross rejected Mrs. Kelly's claim. Despite her objection, Blue Cross declined to reimburse her for the costs of the ABMT, characterizing the treatment as investigative and/or experimental and, therefore, not covered by her agreement with Blue Cross. Regina Kelly appealed that decision within defendant's corporate structure in accordance with the contractual requirements of the agreement. Defendant refused to reverse its determination and denied the appeal.

Unable to resolve the dispute, Regina Kelly filed suit in this Court on January 4, 1991. Jurisdiction was based on the diversity between the South Carolina plaintiff and the Rhode Island defendant and an amount in controversy allegedly exceeding $50,000. The two count Complaint alleged that defendant breached its contractual duties and intentionally or negligently inflicted mental and emotional harm on Regina Kelly. In the Complaint, Regina Kelly sought compensatory and punitive damages and also claimed a trial by jury under each count.

Subsequent to the commencement of this action, Regina Kelly died. In the Amended Complaint, filed on March 6, 1992, Michael A. Kelly, Regina's husband, who was also a citizen of South Carolina, was substituted as plaintiff, individually and as personal representative of the estate of Regina Kelly. The Amended Complaint asserted claims by Michael Kelly against Blue Cross for negligent breach of contract, for infliction of mental and emotional harm upon Michael and Regina Kelly, and for both a declaratory judgment of Blue Cross's responsibility to pay for Regina Kelly's treatment and a claim for attorney's fees under ERISA. In response, Blue Cross filed this motion for partial summary judgment seeking to strike plaintiff's state law claims and jury demand. Blue Cross first argues that ERISA applies. It then contends both that ERISA supersedes state laws, such as the ones relied on by plaintiff, which relate to any ERISA employee benefit plan and that the application of ERISA requires a decision in equity by the Court, thus eliminating plaintiff's right to a jury.

After hearing oral arguments, the Court took this matter under advisement. It is now in order for decision. The Court concludes that ERISA does not apply to plaintiff's claims. Therefore, the Court denies defendant's motion for partial summary adjudication and to strike plaintiff's jury demand.

DISCUSSION

I. Partial Summary Judgment Standard

Defendant has moved for summary judgment on the first three counts of the Amended Complaint and to strike plaintiff's demand for a jury trial. Rule 56(c) of the Federal Rules of Civil Procedure sets forth the standard for ruling on a summary judgment motion:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

In determining whether summary adjudication is appropriate, the court must view the facts on the record and all inferences therefrom in the light most favorable to the nonmoving party. Continental Casualty Co. v. Canadian Universal Ins. Co., 924 F.2d 370, 373 (1st Cir.1991). Additionally, the moving party bears the burden of showing that no evidence supports the non-moving party's position. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). In this case, defendant must prove the facts necessary to establish that ERISA preempts plaintiff's state law claims. Kanne v. Connecticut General Life Ins. Co., 859 F.2d 96, 99 n. 4 (9th Cir.1988), cert. denied, 492 U.S. 906, 109 S.Ct. 3216, 106 L.Ed.2d 566 (1989); Doe v. Blue Cross & Blue Shield of Rhode Island, No. 91-0492P (D.R.I. April 19, 1992) (Order Affirming Memorandum and Order of Magistrate Judge). The party opposing summary judgment need only show that there are material questions of fact which must be resolved before the Court can decide the related legal issues, Mack v. Great Atlantic & Pacific Tea Co., 871 F.2d 179, 181 (1st Cir.1989), or that the law does not support the moving party's position.

In this case, no material facts regarding the issue of ERISA applicability are in dispute. However, the law dictates that the moving party is not entitled to an adjudication as a matter of law. Instead, as discussed below, the Court concludes that ERISA is inapplicable and, therefore, denies defendant's motion to strike plaintiff's state law claims and jury demand.

II. ERISA

Arguing that Regina Kelly obtained her Blue Cross health care coverage pursuant to an employee benefit plan established by her employer, Academic Enterprises, Blue Cross concludes that ERISA preempts plaintiff's state law claims and forecloses any jury trial option he might have otherwise enjoyed. Plaintiff, on the other hand, contends that Regina Kelly's insurance coverage was not part of an employee benefit plan, and that state law, rather than ERISA, controls the contractual relationship between Blue Cross and Mrs. Kelly.

The Court agrees with Blue Cross that ERISA broadly preempts state law claims relating to employee benefit plans brought by ERISA participants and beneficiaries. 29 U.S.C. § 1144(a); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987). However, after reviewing the facts and arguments presented by each side, the Court concurs with plaintiff's view that ERISA does not apply to this case. More specifically, the Court concludes that Regina Kelly was an employer, not an employee, under ERISA, and therefore her insurance could not have been obtained as a part of an ERISA employee benefit plan. Further, even if it had been part of an ERISA plan, as neither she nor her husband could be participants or beneficiaries with rights to sue under ERISA, ERISA does not preclude their state law claims.

A. Employee Benefit Plan

To decide whether ERISA preempts plaintiff's state law claims and jury trial demand, the Court must first determine the scope of ERISA's application, if any, to this case. Blue Cross argues that ERISA applies because Regina Kelly received her Blue Cross health insurance as a part of an "employee benefit plan" that was "established or maintained ... by an employer engaged in commerce or in an industry or activity affecting commerce," as required for ERISA coverage in 29 U.S.C. § 1003(a).³ The parties do not dispute Academic Enterprises's status as an ...