Nott v. Aetna U.S. Healthcare, Inc., Civil Action No. 03-CV-4044.

• Court: United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
• Citation: 303 F.Supp.2d 565
• Docket Number: Civil Action No. 03-CV-4044.
• Parties: Arlene NOTT, on behalf of herself and all others similarly situated, v. AETNA U.S. HEALTHCARE, INC.
• Decision Date: 23 January 2004

303 F.Supp.2d 565

Arlene NOTT, on behalf of herself and all others similarly situated, v. AETNA U.S. HEALTHCARE, INC.

Civil Action No. 03-CV-4044.

United States District Court, E.D. Pennsylvania.

January 23, 2004.

Ronald J. Smolow, Smolow & Landis, Trevose, PA, for Plaintiff.

Raymond A. Quaglia, Ballard, Spahr, Andrews & Ingersoll, L LP, Philadelphia, PA, for Defendant.

MEMORANDUM AND ORDER

SAVAGE, District Judge.

In this putative class action removed from the state court, the plaintiff challenges defendant Aetna U.S. Healthcare, Inc.'s ("Aetna") right to enforce its contractual subrogation claim against plaintiffs tort recovery, contending that it violates the Pennsylvania Motor Vehicle Financial Responsibility Law's ("MVFRL") bar against subrogation. Aetna argues that the action is completely preempted because it arises under the Medicare Act, which permits private Medicare-substitute HMO insurance carriers to recoup medical expenses paid on behalf of an insured who later recovers those expenses from another source. In requesting remand, the plaintiff asserts that her complaint raises only state based claims and does not present any federal cause of action giving rise to federal question removal jurisdiction. In short, contrary to the defendant's position, the plaintiff maintains that her state court action is not completely preempted by federal law and, hence, was improperly removed.

At the heart of the case is the collision of two statutes, one federal and the other state. The Medicare Act allows a health insurer providing replacement coverage for Medicare-eligible persons to include in its insurance contract a right of subrogation against an insured's recovery from a third party for money previously paid for the insured's medical care. 42 U.S.C. §§ 1395w-22(a)(4), 1395mm(e)(4). In direct conflict with the federal statute, the Pennsylvania Motor Vehicle Financial Responsibility Law prohibits subrogation from an insured's recovery from a tortfeasor in a motor vehicle accident case. 75 PA. CONS.STAT. § 1720.

Our task is not to decide which statute will ultimately prevail. Rather, we must determine whether the federal or the state court has jurisdiction to resolve the conflict between the two statutes. Stated differently, we must decide whether the federal statute, the Medicare Act, completely preempts the state statute, the MVFRL, depriving the state court of jurisdiction. Thus, our inquiry is focused on jurisdiction and not on the merits of the plaintiff's claim.

We conclude that the Medicare Act does not completely preempt the plaintiff's state causes of action. Therefore, we shall remand this case to the state court for resolution of the statutory conflict, a task it is competent to perform.

I. Background

Under its "Golden Medicare Plan," Aetna paid a portion of Arlene Nott's ("Nott") medical costs for treatment of injuries she had sustained in a motor vehicle accident. After Nott settled her personal injury claim against the tortfeasor, Aetna asserted a subrogation lien against her tort recovery, seeking reimbursement of the medical expenses it had previously paid. Aetna's insurance contract gave it "the right to repayment of the full costs of all benefits provided by HMO on behalf of the Member that are associated with the injury or illness for which the third party is or may be responsible," which includes "payments made by a third-party tortfeasor or any insurance company on behalf of the third-party tortfeasor." Notice of Removal, Exh. A (Compl. Exh. A ("Evidence of Coverage"), at 53). Aetna later released the lien in consideration of Nott's $1,000 payment.

Nott then filed this action in the Pennsylvania Court of Common Pleas for Bucks County.¹ Alleging various state law causes of action against Aetna, Nott seeks the recovery of money paid to Aetna to satisfy its subrogation lien, a permanent injunction enjoining Aetna from placing subrogation liens on its insureds' third party motor vehicle accident recoveries, and a declaratory judgment declaring all pending subrogation liens void and unenforceable. Aetna removed this action under 28 U.S.C. § 1441, and then filed a motion to dismiss based on preemption grounds. Nott seeks remand.

II. The Statutes in Conflict

The competing statutes are in direct conflict. The federal law permits Aetna to recoup medical expenses from an insured's third party recovery. The state law prohibits such recoupment in motor vehicle accident cases. Both sections of the Medicare Act cited by Aetna, 42 U.S.C. §§ 1395w-22(a)(4) and 1395 mm(e)(4),² authorize but do not require, a Medicare HMO insurer to include in its contract a provision for reimbursement of money paid on behalf of its insured from the insured's recovery under another insurance policy or plan, including an automobile or liability insurance plan. Under the Pennsylvania MVFRL, 75 PA. CONS.STAT. § 1720, insurance companies may not subrogate against recoveries in claims arising out of motor vehicle accidents.³

III. Removal and Preemption

The removal inquiry begins with the well-pleaded complaint rule. Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987); Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 353-54 (3d Cir.1995). A federal court does not have subject matter jurisdiction over a case removed from state court unless an issue of federal law appears on the face of the plaintiffs properly pleaded state court complaint. Metro. Life Ins. Co., 481 U.S. at 63, 107 S.Ct. 1542; In re U.S. Healthcare, Inc., 193 F.3d 151, 160 (3d Cir.1999).

A narrow exception to the well-pleaded complaint rule is the doctrine of complete preemption, which transforms state law causes of action into exclusively federal claims because Congress intended that the statute completely supplant all state law causes of action. Caterpillar, Inc. v. Williams, 482 U.S. 386, 393, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987); Metro. Life Ins. Co., 481 U.S. at 63-66, 107 S.Ct. 1542; In re U.S. Healthcare, Inc., 193 F.3d at 160. Accordingly, regardless of a plaintiffs asserting only causes of action under state law in her complaint, any claim based on the preempted state law is considered a federal claim arising under federal law. Caterpillar, Ire., 482 U.S. at 393, 107 S.Ct. 2425.⁴

The complete preemption doctrine is stringently applied. Ry. Labor Executives Ass'n v. Pittsburgh & Lake Erie R.R. Co., 858 F.2d 936, 942 (3d Cir. 1988). Even if federal preemption is the only real issue in the case, there is no jurisdiction unless the preemption is complete. Caterpillar, Inc., 482 U.S. at 393, 107 S.Ct. 2425; Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 12-14, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983); Gully v. First Nat'l Bank, 299 U.S. 109, 113, 116, 57 S.Ct. 96, 81 L.Ed. 70 (1936). The fact that a state law cause of action requires reference to federal law is insufficient to establish complete preemption. Smith v. Indus. Valley Title Ins. Co., 957 F.2d 90, 93 (3d Cir.1992). "[A] defendant cannot, merely by injecting a federal question into an action that asserts what is plainly a state-law claim, transform the action into one arising under federal law, thereby selecting the forum in which the claim shall be litigated." Caterpillar, Inc., 482 U.S. at 399, 107 S.Ct. 2425; see also Dukes, 57 F.3d at 353-54; Goepel v. Nat'l Postal Mail Handlers Union, 36 F.3d 306, 310 n. 6 (3d Cir.1994). Hence, absent complete preemption, the fact that a defendant may eventually prove that the plaintiffs claims are preempted under federal law does not mean that they are removable. Caterpillar, Inc., 482 U.S. at 391, 107 S.Ct. 2425; Gully, 299 U.S. at 116-17, 57 S.Ct. 96; Ry. Labor Executives Ass'n, 858 F.2d at 940 (citing Franchise Tax Bd., 463 U.S. at 26, 103 S.Ct. 2841).

Conflict preemption is not synonymous with complete preemption.⁵ Ry. Labor Executives Ass'n, 858 F.2d at 939-41. Conflict preemption, unlike complete preemption, does not confer federal jurisdiction. Conflict preemption occurs when a federal affirmative defense to a state law claim is asserted. It is not a basis for removal. "Conflict preemption, also known as ordinary preemption, arises when a federal law conflicts with state law, thus providing a federal defense to a state law claim, but does not completely preempt the field of state law so as to transform a state law claim into a federal claim." Arana v. Ochsner Health Plan, 338 F.3d 433, 439 (5th Cir.2003); see also Krashna v. Oliver Realty, Inc., 895 F.2d 111, 114 n. 3 (3d Cir.1990).

Whether plaintiff's state law causes of action are preempted by operation of federal law under an ordinary conflict preemption analysis can be addressed by the state court. "State courts are competent to determine whether state law has been preempted by federal law and they must be permitted to perform that function in cases brought before them, absent a Congressional intent to the contrary." Ry. Labor Executives Ass'n, 858 F.2d at 942.

Before the extraordinary force of complete preemption can apply, two elements must exist: (1) the state law cause of action must be covered by the civil enforcement scheme created by the federal statute; and (2) Congress must have clearly intended that the federal statute would preempt all state law causes of action, thus permitting removal even when the plaintiff's complaint relies exclusively on state law. Goepel, 36 F.3d at 311; Allstate Ins. Co. v. 65 Sec. Plan, 879 F.2d 90, 93 (3d Cir.1989). If either element is absent, complete preemption does not apply and federal removal jurisdiction is lacking.

IV. The Medicare Act and Complete Preemption

If Nott's state law claims are completely preempted by operation of the Medicare Act, they are deemed federal and automatically recast as federal causes of action. Metro. Life Ins. Co., 481 U.S. at 63-64, 107 S.Ct. 1542; In re U.S. Healthcare, Inc., 193 F.3d at 160. Therefore, keeping in mind that ordinary conflict preemption alone...