Marin General Hosp. v. Modesto & Empire Traction, No. 07-16518.

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: William A. Fletcher
• Citation: 581 F.3d 941
• Parties: MARIN GENERAL HOSPITAL, a non-profit California corporation, Plaintiff-Appellant, v. MODESTO & EMPIRE TRACTION COMPANY, a California corporation; Medical Benefits Administrators of MD, Inc., a Maryland corporation; Ronald J. Wilson, Defendants-Appellees.
• Docket Number: No. 07-16518.
• Decision Date: 10 September 2009

581 F.3d 941 MARIN GENERAL HOSPITAL, a non-profit California corporation, Plaintiff-Appellant,
v.
MODESTO & EMPIRE TRACTION COMPANY, a California corporation; Medical Benefits Administrators of MD, Inc., a Maryland corporation; Ronald J. Wilson, Defendants-Appellees. No. 07-16518. United States Court of Appeals, Ninth Circuit. Argued and Submitted February 10, 2009. Filed September 10, 2009.

[581 F.3d 943]

Viola Rita Brown, Gregory C. Lehman, Joy Young Stephenson, Barry Sullivan, Stephenson Acquisto & Colman, Burbank, CA, for the appellant.

Bradley Alan Post, Borton Petrini LLP, Fresno, CA, Christopher H. White, Ross Dixon & Bell, Daniel J. Zollner, Dykema Gossett, PLLC, Chicago, IL, for the appellees.

Appeal from the United States District Court for the Northern District of California, Susan Yvonne Illston, District Judge, Presiding. D.C. No. CV-07-01027-SI.

Before D.W. NELSON, W. FLETCHER and RICHARD C. TALLMAN, Circuit Judges.

WILLIAM A. FLETCHER, Circuit Judge:

We consider in this case whether § 502(a)(1)(B) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a)(1)(B), completely preempts a state-law action for breach of contract, negligent misrepresentation, quantum meruit and estoppel. Because the state-law claims could not be pursued under § 502(a)(1)(B), and because they rely on legal duties that are independent from duties under any benefit plan established under ERISA, we hold that they are not completely preempted. Because the claims are not completely preempted under § 502(a)(1)(B), there is no federal question subject matter jurisdiction in federal court. Removal from state court was therefore improper.

I. Background

According to its complaint, Marin General Hospital ("the Hospital") telephoned the Medical Benefits Administrators of MD, Inc., ("MBAMD") on April 8, 2004, to confirm that a prospective patient had health insurance through an ERISA plan provided by his employer, Modesto & Empire Traction Co. ("Modesto"). MBAMD was the administrator of Modesto's plan. According to the complaint, MBAMD orally verified the patient's coverage, authorized treatment, and agreed to cover 90% of the patient's medical expenses at the Hospital.

Between April 19 and April 24, 2004, the Hospital performed a lumbar fusion procedure on the patient. The Hospital then submitted a bill to MBAMD for $178,926.54. MBAMD paid the Hospital $46,655.54 and stated in a letter that the Hospital was not entitled to further payment. The Hospital sent MBAMD a letter stating that "[p]er your contract this claim should be paid at 90% of total charges."

581 F.3d 944

MBAMD denied that it had such a contract with the Hospital and refused to make additional payment.

On December 8, 2006, the Hospital filed suit in California state court against Modesto, MBAMD, and MBAMD's CEO and Chairman Ronald Wilson (collectively "defendants") for breach of an implied contract, breach of an oral contract, negligent misrepresentation, quantum meruit, and estoppel. Defendants removed the suit to federal district court on the ground that ERISA completely preempted the Hospital's claims. The Hospital moved to remand to state court, arguing that it alleged only state-law claims in its complaint, and that these claims were not completely preempted under ERISA. Defendants moved to dismiss, arguing that ERISA preempted the Hospital's state-law claims and that the Hospital failed to allege any cognizable claims under ERISA.

The court denied the Hospital's motion to remand and dismissed its complaint. The court concluded that the Hospital's only remedy was under § 502(a)(1)(B), a subsection of ERISA's civil remedy provision for plan participants and beneficiaries, and that the Hospital's complaint failed to sufficiently allege a cause of action under that subsection. The court granted the Hospital leave to amend. The Hospital's amended complaint, like its first complaint, alleged only state-law claims. The Hospital again moved for remand to state court, and defendants moved to dismiss. The court dismissed without leave to amend and entered judgment in favor of defendants. The Hospital timely appealed.

II. Standard of Review

The question in this case is whether the Hospital's state-law claims are completely preempted under § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), and thus whether the case was properly removed from state to federal court. Removal was proper only if the Hospital's claims are completely pre-empted. The existence of subject matter jurisdiction is a question of law that we review de novo. Nike, Inc. v. Comercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987, 990 (9th Cir.1994). The burden of establishing federal subject matter jurisdiction falls on the party invoking removal. Toumajian v. Frailey, 135 F.3d 648, 652 (9th Cir.1998).

III. Discussion

Defendants removed the Hospital's state court action to federal court based on federal question jurisdiction. 28 U.S.C. §§ 1331(a), 1441(a). Generally speaking, "[a] cause of action arises under federal law only when the plaintiff's well-pleaded complaint raises issues of federal law." Hansen v. Blue Cross of Cal., 891 F.2d 1384, 1386 (9th Cir.1989). "The well-pleaded complaint rule is the basic principle marking the boundaries of the federal question jurisdiction of the federal district courts." Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987) (internal quotation marks omitted). The Hospital's complaint asserts only state-law causes of action, and defendants' preemption defense would appear in its answer if it ever filed one. But defendants argue that the Hospital's suit comes within the exception to the well-pleaded complaint rule for state-law causes of action that are completely preempted by § 502(a) of ERISA. We agree with defendants that there is an exception to the well-pleaded complaint rule for state-law causes of action that are completely preempted by § 502(a). However, for the reasons that follow, we disagree with defendants' contention that the Hospital's causes of action are completely preempted.

A. Complete Preemption under ERISA

The parties in this case have not clearly understood the difference between complete

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preemption under ERISA § 502(a), 29 U.S.C. § 1132(a), and conflict preemption under ERISA § 514(a), 29 U.S.C. § 1144(a). We take this opportunity to make clear the difference between the two kinds of preemption, and to make clear the different jurisdictional consequences that result from these two kinds of preemption.

Complete preemption under § 502(a) is "really a jurisdictional rather than a preemption doctrine, [as it] confers exclusive federal jurisdiction in certain instances where Congress intended the scope of a federal law to be so broad as to entirely replace any state-law claim." Franciscan Skemp Healthcare, Inc. v. Cent. States Joint Bd. Health & Welfare Trust Fund, 538 F.3d 594, 596 (7th Cir. 2008). The Supreme Court first articulated, indeed created, the doctrine of complete preemption under § 502(a) of ERISA as a basis for federal question removal jurisdiction under 28 U.S.C. § 1441(a) in Metropolitan Life Insurance Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987). The Court held that § 502(a) reflected Congress's intent to "so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Id. at 63-64, 107 S.Ct. 1542. The Court explained that while "[f]ederal pre-emption is ordinarily a federal defense to the plaintiff's suit," id. at 63, 107 S.Ct. 1542, Congress had "clearly manifested an intent to make causes of action within the scope of the civil enforcement provisions of § 502(a) removable to federal court." Id. at 66, 107 S.Ct. 1542.

Complete preemption removal is an exception to the otherwise applicable rule that a "plaintiff is ordinarily entitled to remain in state court so long as its complaint does not, on its face, affirmatively allege a federal claim." Pascack Valley Hosp. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 398 (3d Cir.2004). The general rule is that a defense of federal preemption of a state-law claim, even conflict preemption under § 514(a) of ERISA, is an insufficient basis for original federal question jurisdiction under § 1331(a) and removal jurisdiction under § 1441(a). A provision of state law may "relate to" an ERISA benefit plan, and may therefore be preempted under § 514(a). See 29 U.S.C. § 1144(a) (the relevant provisions of ERISA "shall supersede any and all State laws insofar as they may ... relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b)" (emphasis added)). But a defense of conflict preemption under § 514(a) does not confer federal question jurisdiction on a federal district court.

A party seeking removal based on federal question jurisdiction must show either that the state-law causes of action are completely preempted by § 502(a) of ERISA, or that some other basis exists for federal question jurisdiction. If a complaint alleges only state-law claims, and if these claims are entirely encompassed by § 502(a), that complaint is converted from "an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule." Metro. Life, 481 U.S. at 65-66, 107 S.Ct. 1542. But "if the doctrine of complete preemption does not apply, even if the defendant has a defense of `conflict preemption' within the meaning of [§ 514(a)] because the plaintiff's claims `relate to' an ERISA plan, the district court[is] without subject matter jurisdiction[.]" Toumajian, 135 F.3d at 655.

We may have been partially responsible for the parties' confusion between complete preemption under § 502(a), which provides a basis for federal question removal jurisdiction, and conflict preemption under § 514(a), which does not. Some...