Marcella v. Capital Dist. Physicians'

• Decision Date: 05 June 2002
• Docket Number: Docket No. 99-7560.
• Parties: Carol P. MARCELLA, Plaintiff-Appellant, v. CAPITAL DISTRICT PHYSICIANS' HEALTH PLAN, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

Page 42

293 F.3d 42

Carol P. MARCELLA, Plaintiff-Appellant, v. CAPITAL DISTRICT PHYSICIANS' HEALTH PLAN, INC., Defendant-Appellee.

Docket No. 99-7560.

United States Court of Appeals, Second Circuit.

Argued: January 10, 2002.

Decided: June 5, 2002.

Frances K. Browne, Rosenman & Colin LLP, New York, N.Y. (Martin E. Karlinsky, James S. Frazier, on the brief), for the appellant.

Brian M. Culnan, Iseman, Cunningham, Riester & Hyde, LLP, Albany, NY, for the appellee.

Before: WALKER, Chief Judge, F.I. PARKER, and SOTOMAYOR, Circuit Judges.

SOTOMAYOR, Circuit Judge.

Plaintiff Carol Marcella purchased health insurance coverage from defendant Capital District Physicians' Health Plan, Inc. ("CDPHP") under a group health policy offered through the Latham Area Chamber of Commerce (the "Chamber"). After defendant refused to pay for plaintiff's out-of-plan surgery for a brain tumor, plaintiff sued CDPHP in New York Supreme Court raising various state-law claims. CDPHP removed to the United States District Court for the Northern District of New York, citing ERISA preemption as the basis for federal jurisdiction. The district court (Kahn, J.) agreed with defendant that plaintiff's claims were preempted by ERISA, denied plaintiff's motion to remand, and granted CDPHP summary judgment on all claims. We hold that because plaintiff's claims did not relate to an ERISA plan, there was no basis for federal jurisdiction. Accordingly, we reverse and remand with instructions to return this case to state court for further proceedings.

BACKGROUND

From 1981 through approximately April 1997, plaintiff, a resident of Schenectady County, New York, worked as a real estate broker affiliated with a franchise of Prudential Realty, known first as "Blake Realty" and then "Manor Homes by Blake" (hereinafter "Prudential"). Beginning in 1988, plaintiff and Prudential entered into an annually-renewed series of "Statements of Understanding" which declared plaintiff to be an independent contractor and recited various terms of their relationship (such as paying plaintiff only on commission and allowing her to set her own work hours).

Prudential was, at all times, a member of the Chamber. CDPHP, a health services provider incorporated in New York, entered into a contract with the Chamber by which CDPHP made available its "Emerald 15" HMO plan (the "Chamber Plan") to members of the Chamber and their employees. The Chamber was named as the policyholder under the contract and was responsible for collecting premiums on behalf of the plan subscribers and forwarding them to CDPHP. The Chamber also set the rules (subject to CDPHP approval) by which individuals would be deemed eligible to participate in the plan.

In June 1994, plaintiff applied to enroll, and was accepted by CDPHP, in the Chamber Plan. The application form had a space for "Employer," in which the name "Prudential" was entered, but plaintiff claims she left this space blank and does not know who filled it in. It is undisputed that, from that point on, plaintiff was a subscriber to the Chamber Plan. She states, however, that she, not Prudential, paid all of her own premiums to the Chamber for remittance to CDPHP, and defendant does not dispute this.

In 1995, plaintiff began operating a photoglazing business under the name of "Lasting Memories," and she (d/b/a Lasting Memories) joined the Chamber as an individual member in October 1995. As far as can be determined from the record, defendant was not notified that plaintiff had joined the Chamber. Plaintiff claims that from that point on she had access to the Chamber Plan by virtue of her own membership in the Chamber, not through Prudential.

In February 1996, plaintiff began suffering from headaches and consulted CDPHP-participating physicians in Albany, who told her that she suffered from a brain tumor (meningioma) and advised surgical removal. Not satisfied that the in-plan physician was sufficiently experienced to perform the operation, plaintiff arranged for the removal of her tumor at Brigham & Women's Hospital in Boston, which is not part of the CDPHP network. Plaintiff requested in advance that defendant approve the out-of-plan operation, but CDPHP refused. Informed that her surgery needed to be performed immediately, plaintiff took out a loan to pay for it herself. Following the successful removal of her tumor in Boston, plaintiff sought reimbursement from defendant, which denied the claim on the ground that any out-of-plan surgery must be approved ahead of time. Plaintiff's intraplan appeals were all denied.

Having exhausted her administrative remedies, plaintiff filed suit against CDPHP on March 19, 1997, in New York Supreme Court, Schenectady County, claiming breach of contract, intentional infliction of emotional distress, and prima facie tort, all under New York law. No ERISA or other federal law claim was made. On April 24, 1997, defendant removed the case to federal district court on the ground of ERISA preemption.

Plaintiff moved to remand, and the motion was referred — not by consent of the parties — to Magistrate Judge David Hurd. On August 25, 1997, Magistrate Judge Hurd issued an order denying the motion to remand without prejudice to refiling "upon submission of additional evidence regarding plaintiff's relationship with Prudential Manor Homes, Inc." Plaintiff renewed the motion in September 1997. Following court-ordered limited discovery (including a deposition of plaintiff) on the relationship between plaintiff and Prudential, Magistrate Judge Hurd again issued an order denying the motion to remand. The order first stated, with no explanation, that the Chamber Plan was a "qualified ERISA employee welfare benefit plan." Second, the order stated that, because plaintiff's application to CDPHP had "Prudential" listed as her "Employer," and because she became a member of CDPHP through her affiliation with Prudential, she was estopped from asserting that she was not an employee of Prudential and therefore a valid participant in the Chamber Plan. The magistrate judge held that therefore plaintiff's claims necessarily arose under ERISA and that the district court had jurisdiction. Plaintiff did not file any objections to this ruling with the district court.

In May 1998, defendant moved for summary judgment on all claims, asserting that plaintiff's state-law claims must all be dismissed as preempted by ERISA. In a decision dated April 7, 1999, Judge Kahn granted the motion and dismissed all claims. Marcella v. Capital Dist. Physicians Health Plan, 47 F.Supp.2d 289 (N.D.N.Y.1999). Judge Kahn first held that Magistrate Judge Hurd's decisions in the remand order — namely, that the Chamber Plan was a qualified ERISA plan, that plaintiff was an employee of Prudential, and that jurisdiction was therefore proper — were "law of the case." Noting, however, that Magistrate Judge Hurd had not specifically addressed whether each of plaintiff's claims was preempted by ERISA, Judge Kahn addressed each one in turn and found them preempted, rejecting plaintiff's argument (apparently the sole one raised in opposition to the motion) that CDPHP should be deemed an insurance company and that therefore ERISA's "savings clause," 29 U.S.C. § 1144(b)(2)(A), spared plaintiff's claims from preemption. This appeal followed.

DISCUSSION

I. Removal Jurisdiction and ERISA Preemption

We begin by reiterating the basic principles of federal removal jurisdiction as they relate to the special case of ERISA. A defendant may remove from state court to federal court "any civil action... of which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). Normally, a defense that plaintiff's claims are preempted by federal law will not suffice to confer federal question jurisdiction, which must be determined by reference to the allegations that "appear on the face of a well-pleaded complaint." Plumbing Indus. Bd. v. E.W. Howell Co., 126 F.3d 61, 66 (2d Cir.1997); see also Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987) ("Federal pre-emption is ordinarily a federal defense to the plaintiff's suit. As a defense, it does not appear on the face of a well-pleaded complaint, and, therefore, does not authorize removal to federal court."). However, in the case of state-law claims falling within the scope of the civil enforcement provisions of § 502 of ERISA, Congress has manifested its intent that such claims be removable, on the ground that such claims are "of necessity so federal in character that [they] arise[ ] under federal law for purposes of 28 U.S.C. § 1331." Plumbing Indus. Bd., 126 F.3d at 66; see also Taylor, 481 U.S at 63-67, 107 S.Ct. 1542. In such "complete preemption" cases, the burden is on the defendant, as the party asserting federal jurisdiction, to demonstrate the propriety of removal. Grimo v. Blue Cross/ Blue Shield of Vt., 34 F.3d 148, 151 (2d Cir.1994); see also Linardos v. Fortuna, 157 F.3d 945, 947 (2d Cir.1998) ("It is also hornbook law that the party invoking federal jurisdiction bears the burden of proving facts to establish that jurisdiction.").

In order for a claim to be completely preempted by ERISA so as to support removal, the defendant must demonstrate that "(1) the state law cause of action is preempted by ERISA, and (2) that cause of action is `within the scope' of the civil enforcement provisions of ERISA § 502(a), 29 U.S.C. § 1132(a)." E.W. Howell, 126 F.3d at 66. In this case, plaintiff does not dispute that, if her policy with CDPHP was part of an ERISA plan, not only are her state-law claims preempted by ERISA § 514(a), 29 U.S.C. § 1144(a) (ERISA "supersede[s] any and all State laws insofar as they ... relate to any employee benefit plan"), but also that her claim for benefits under that plan would be within the scope of the civil enforcement provisions of § 502. Thus, the sole question upon which the jurisdiction of the district court turns is...