NYSA-ILA Medical and Clinical Services Fund by Bowers v. Axelrod

• Decision Date: 23 June 1994
• Docket Number: NYSA-ILA,No. 1294,D,1294
• Parties: MEDICAL AND CLINICAL SERVICES FUND, By Its Trustees, John BOWERS, James Capo, Frank Lonardo, William P. Lynch, M. Brian Maher, James P. Melia, Gerald Owens, and Peter Vickers, Plaintiffs-Appellants, v. David AXELROD, M.D., in his capacity as New York State Commissioner of Health; Lorna H. McBarnette, in her capacity as New York State Executive Deputy Commissioner of Health; Steven C. Anderman, in his capacity as Deputy Director, Division of Health Care Financing, Office of Health Systems Management, New York State Department of Health, Defendants-Appellees. ocket 93-7221.
• Court: U.S. Court of Appeals — Second Circuit

Page 823

27 F.3d 823

63 USLW 2024

NYSA-ILA MEDICAL AND CLINICAL SERVICES FUND, By Its Trustees, John BOWERS, James Capo, Frank Lonardo, William P Lynch, M. Brian Maher, James P. Melia, Gerald Owens, and Peter Vickers, Plaintiffs-Appellants, v. David AXELROD, M.D., in his capacity as New York State Commissioner of Health; Lorna H. McBarnette, in her capacity as New York State Executive Deputy Commissioner of Health; Steven C. Anderman, in his capacity as Deputy Director, Division of Health Care Financing, Office of Health Systems Management, New York State Department of Health, Defendants-Appellees.

No. 1294, Docket 93-7221.

United States Court of Appeals Second Circuit.

Argued March 10, 1994.

Decided June 23, 1994.

Donato Caruso, New York City (C. Peter Lambos, Lambos & Giardino, Thomas W. Gleason, Ernest L. Mathews, Jr., Kevin Marrinan, Gleason & Mathews, of counsel), for plaintiffs-appellants.

Jane Lauer Barker, Asst. Atty. Gen., New York City (G. Oliver Koppell, Atty. Gen. of the State of New York, of counsel), for defendants-appellees.

Before WALKER and JACOBS, Circuit Judges, and ZAMPANO, District Judge. ^*

WALKER, Circuit Judge:

The Trustees of NYSA-ILA Medical & Clinical Services Fund (the "Fund") brought this suit seeking a declaration that the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1001 et seq., preempts New York Public Health Law Sec. 2807-d to the extent the latter provision taxes contributions and other payments for health care benefits received by two medical centers operated by the Fund. The Fund now appeals from a judgment of the United States District Court for the Southern District of New York (John S. Martin, Jr., Judge ) holding that ERISA does not preempt the state tax and granting summary judgment to defendant state health care officials. We reverse.

BACKGROUND

The Fund is an ERISA-regulated multiemployer, labor-management trust fund established through collective bargaining to administer an employee welfare benefit plan that provides medical, dental, and other health care services to ERISA plan participants, consisting primarily of longshore workers, and their dependents. The Fund provides these health care benefits through three medical centers that it owns and operates, two in New York and one in New Jersey. The centers provide treatment exclusively to plan participants and beneficiaries.

In 1990, the State of New York enacted a Health Facility Assessment ("HFA"), which imposed a tax on the gross receipts from patient care services and general operations of all hospitals in New York State. N.Y.Pub.Health Law Sec. 2807-d. The HFA was enacted to help eliminate the State's budget deficit for the 1990-91 fiscal year. The HFA became effective January 1, 1991, and was supposed to expire on April 1, 1992, but has subsequently been amended to remain in force on and after that date. 1992 N.Y.Laws, ch. 41, Secs. 54, 163. The HFA applies to a wide range of medical facilities, including diagnostic and treatment centers such as the medical centers operated by the Fund. N.Y.Pub.Health Law Sec. 2801(1). The amount of the assessment, which varies by type of facility, is six-tenths of one percent for the Fund's medical centers. Id. Sec. 2807-d(2)(c). For purposes of the assessment, "gross receipts" are defined as "all monies received for or on account of hospital and health related services" with only limited exceptions. Id. Sec. 2807-d(3)(c).

The Fund's medical centers receive income from a variety of sources. The bulk of their costs are covered by employer contributions remitted to the Fund which are then transferred to the centers on an as-needed basis to pay for the centers' payroll and other operating expenses. However, the centers obtain additional revenue from certain employer payments made directly to the centers, employee co-payments, other fee-for-service payments, patient registration fees, payments from workers' compensation carriers, and such miscellaneous sources as the sale of scrap or waste, fees for reproducing medical records, and supplier rebates. For the period from January 1, 1991 to November 30, 1991, the Fund's two New York medical centers reported combined assessable income of $1,177,670 and paid assessments totalling $7,066. The Fund discontinued filing HFA reports with the New York State Department of Health after November 1991 and has paid no assessments since that time.

The medical centers did not include in their assessable income monies transferred from the Fund to the centers, and the State defendants have not contested the exclusion of these payments in this case. However, the question of whether monies transferred from the Fund to the centers are assessable has never, to our knowledge, been litigated or definitively resolved. Since early 1992, the Fund has restructured its payment procedures so that certain employer contributions and registration fees that were formerly paid directly to the medical centers are now remitted to the Fund itself. The Fund believes that this restructuring avoids the effect of the HFA, but is unwilling to redirect to the Fund all payments now received by the medical centers until this case has been decided.

The Fund instituted this suit in April 1992 asserting that ERISA preempts the HFA insofar as it imposes a levy on contributions and payments for health care benefits provided by the Fund. The Fund does not challenge imposition of the HFA on the centers' miscellaneous revenue earned from activities unrelated to the health care services provided to participants and beneficiaries, such as the income derived from the sale of scrap, records reproduction fees, and supplier rebates. The Fund sought declaratory and injunctive relief as well as restitution of a substantial portion of the HFA assessments it had previously paid.

On cross-motions for summary judgment, the district court ruled that the HFA is a tax of general application that is not preempted by ERISA because it has only an incidental impact on ERISA plans. The district court reasoned that the minimal tax imposed by the HFA "is not great enough to pose a serious economic threat to the plan which might trigger preemption." NYSA-ILA Medical & Clinical Servs. Fund v. Axelrod, 92 Civ. 2279 (JSM), slip op. at 8 (S.D.N.Y. Feb. 18, 1992). Accordingly, the district court entered judgment dismissing the action and this appeal ensued. We review the district court's decision de novo. See Westinghouse Elec. Corp. v. New York City Transit Auth., 14 F.3d 818, 821 (2d Cir.1994).

DISCUSSION

ERISA was enacted in 1974 "to promote the interests of employees and their beneficiaries in employee benefit plans," including both pension and welfare plans. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90, 103 S.Ct. 2890, 2896, 77 L.Ed.2d 490 (1983). An "employee welfare benefit plan" is defined in the statute as

any plan, fund, or program ... established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, ... medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment....

29 U.S.C. Sec. 1002(1). The parties do not dispute that the Fund qualifies as an employee welfare benefit plan that fulfills its institutional mission by providing medical benefits directly to plan participants and their beneficiaries through Fund-operated medical centers.

One of ERISA's main objectives was to eliminate state regulation of employee benefit plans. See Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138, 111 S.Ct. 478, 482, 112 L.Ed.2d 474 (1990); Shaw, 463 U.S. at 99, 103 S.Ct. at 2901 (quoting legislative history). To accomplish this, Congress enacted an express preemption clause that is "deliberately expansive." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987). It provides that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by the law. 29 U.S.C. Sec. 1144(a). The Supreme Court has observed that "[a] law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Shaw, 463 U.S. at 96-97, 103 S.Ct. at 2900. Preemption thus applies even where a state law was not specifically designed to regulate the terms and conditions of employee benefit plans or does not relate to those subjects covered by ERISA, such as reporting, disclosure, and fiduciary responsibilities. See Ingersoll-Rand Co., 498 U.S. at 137-39, 111 S.Ct. at 481-83; FMC Corp. v. Holliday, 498 U.S. 52, 58-59, 111 S.Ct. 403, 407-08, 112 L.Ed.2d 356 (1990); Shaw, 463 U.S. at 98, 103 S.Ct. at 2900-01. Indeed, even where a state law has no express link to an employee benefit plan, it can be preempted " 'insofar as' the law applies to benefit plans in particular cases." Morgan Guar. Trust Co. v. Tax Appeals Tribunal, 80 N.Y.2d 44, 49, 587 N.Y.S.2d 252, 599 N.E.2d 656 (1992) (quoting Shaw, 463 U.S. at 97 n. 17, 103 S.Ct. at 2900 n. 17).

ERISA preemption is not without limitations, however. The Supreme Court has recognized that ERISA preemption will not apply to state laws that "affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Shaw, 463 U.S. at 100 n. 21, 103 S.Ct. at 2901 n. 21. When it announced this limitation, the Court "express[ed] no views about where it would be appropriate to draw the line," id., but it has subsequently observed that this limitation will apply "with many laws of general applicability," District of Columbia v. Greater Wash. Bd. of Trade, --- U.S. ----, ---- n. 1, 113 S.Ct. 580, 583 n. 1, 121 L.Ed.2d 513 (1992). There are a number of cases...