Decision Date09 January 2003
Docket NumberNo. 1 CA-CV 02-0121.,1 CA-CV 02-0121.
Citation204 Ariz. 174,61 P.3d 468
PartiesAnnette Louise SATTERLY and Richard Wesley Satterly, wife and husband; Cheryl Louise Magby, adult individual; Altagracia Madrid, adult individual; Bonnie Verla Fernandez and Kenneth James Fernandez, wife and Husband; Colleen Ann Audis and Archie Leon Audis, wife and husband, Plaintiffs-Appellants, v. LIFE CARE CENTERS OF AMERICA, INC., a.k.a. Life Care Centers of America DBA Las Fuentas Care Center, a Tennessee corporation, Defendant-Appellee.
CourtArizona Court of Appeals

Snyder and Wenner, P.C. By David A. Wenner, Phoenix, and Copple, Chamberlin, Boehm & Murphy, P.C. By Scott E. Boehm, Phoenix and Siegel, Brill, Greupner, Duffy & Foster By Jordan M. Lewis, Milwaukee, WI, Attorneys for Plaintiffs-Appellants.

Bonnett, Fairbourn, Friedman & Balint, P.C. By Tara L. Jackson, Phoenix, Attorneys for Defendant-Appellee.



¶ 1 This appeal challenges the dismissal of the complaint based upon lack of subject matter jurisdiction. For the reasons that follow, we affirm.


¶ 2 In May 1998, Life Care Centers of America, Inc., dba Las Fuentes Care Center ("Las Fuentes") entered into a group service agreement with Premier Healthcare of Arizona ("Premier") to provide health insurance for Las Fuentes employees. Premier's group insurance plan (the "Plan") provided that Las Fuentes would pay the monthly premiums with deductions from the employee payroll and with its own contributions.

¶ 3 On July 6, 2001, a group of Las Fuentes employees ("Plaintiffs") filed a class action against Las Fuentes alleging that the company had, at some unknown point, stopped remitting the payroll deductions to Premier. The complaint asserts state law claims of breach of contract, breach of fiduciary duty, fraud, negligent misrepresentation, conversion, accounting, and negligence. The Plaintiffs seek special, general, and punitive damages as well as attorneys' fees.

¶ 4 Las Fuentes moved to dismiss the complaint,1 arguing that the Plan was an "employee welfare benefit plan" under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001 to 1461 (1999) and that ERISA completely preempts all of Plaintiffs' state law claims. The trial court agreed and dismissed the complaint without prejudice. This appeal followed.


¶ 5 We review de novo the trial court's dismissal for lack of subject matter jurisdiction. Ariz. Soc'y of Pathologists v. Ariz. Health Care Cost Containment Sys. Admin., 201 Ariz. 553, 556, ¶ 13, 38 P.3d 1218, 1221 (App.2002). The related question of preemption is also an issue subject to de novo review. Toumajian v. Frailey, 135 F.3d 648, 652 (9th Cir.1998).

I. ERISA Completely Preempts the Plaintiffs' Claims.

¶ 6 Complete preemption under ERISA occurs when: (1) ERISA preempts the cause of action, and (2) the cause of action falls within the scope of ERISA's civil enforcement scheme. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 66, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987). Not only does complete preemption displace state substantive law, but it also recharacterizes state law claims as arising under federal law for purposes of determining federal question jurisdiction. Id. at 65-67, 107 S.Ct. 1542. In this case, complete preemption exists because the Plaintiffs' claims are preempted and fall within the scope of 29 U.S.C. § 1132(a).

A. The Plaintiffs' Claims Relate to an ERISA Plan and are Preempted.

¶ 7 ERISA preempts all state laws, and state law causes of action, "insofar as they may now or hereafter relate to any employee benefit plan...." 29 U.S.C. § 1144(a); see also 29 U.S.C. § 1144(c)(1) (defining state laws as "all laws, decisions, rules, regulations, or other State action having the effect of law, of any State."). The preemption clause "is conspicuous for its breadth" and "[i]ts `deliberately expansive' language was designed to `establish ... plan regulation as exclusively a federal concern.'" Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990), superseded on other grounds, Mertens v. Hewitt Assocs., 508 U.S. 248, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993)


¶ 8 The United States Supreme Court has explained that a state law claim "relates to" a benefit plan "if it has a connection with or reference to such a plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). More recently, the Court has looked to ERISA's objectives when undertaking this analysis. Cal. Div. Of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc., 519 U.S. 316, 325, 117 S.Ct. 832, 136 L.Ed.2d 791 (1997) (concluding that a state prevailing wage law had only an indirect economic impact on ERISA plans, and therefore was not preempted). These objectives include the creation of a uniform body of benefits law to minimize administrative and financial burdens of complying with varied state laws, Ingersoll, 498 U.S. at 142, 111 S.Ct. 478, and the advancement of ERISA's broad remedial purposes. Barnes v. Indep. Auto. Dealers Ass'n of Cal. Health & Welfare Benefit Plan, 64 F.3d 1389, 1392 (9th Cir.1995) ("ERISA is remedial legislation which should be liberally construed in favor of protecting participants in employee benefit plans.")(quoting Batchelor v. Oak Hill Med. Group, 870 F.2d 1446, 1449 (9th Cir. 1989)).

¶ 9 In the analogous case of Robinson v. Linomaz, the plaintiffs sued under theories of fraud, breach of fiduciary duty, and negligence to recover medical costs resulting from the defendants' cancellation of a health insurance policy. 58 F.3d 365, 367 (8th Cir.1995). The defendants moved to dismiss arguing that ERISA preempted the state law claims; however, as in this case, the plaintiffs contended that their claims did not relate to an ERISA plan. Id. at 367, 370. The Eighth Circuit upheld the dismissal because it found an analysis of the plaintiffs' claims, which stemmed from the termination of the underlying ERISA plan, required reference to the plan's terms and the statute. Id. at 370.2

¶ 10 In the instant case, the Plaintiffs assert claims for breach of contract, breach of fiduciary duty, fraud, negligent misrepresentation, conversion, negligence, and accounting. ERISA makes clear that Las Fuentes has a fiduciary duty to remit insurance payments, in a timely fashion, to the insurer. See Mira v. Nuclear Measurements Corp., 107 F.3d 466, 469, 471 (7th Cir.1997)

(holding that an employer who contributed two-thirds of monthly plan payments and deducted the remaining one-third from employee paychecks had a fiduciary duty under ERISA to forward the premiums to the health insurer in a timely manner). Each claim asserted by the Plaintiffs derives from Las Fuentes' alleged failure to remit the insurance premiums to Premier. As a result of that failure, Plaintiffs sustained damage. To evaluate the Plaintiffs' claims and Las Fuentes' obligations, the trial court must refer to the terms of the Plan.

¶ 11 In summary, the existence of the health plan is a critical factor in establishing liability under the various state causes of action asserted by Plaintiffs. Ingersoll-Rand v. McClendon, 498 U.S. at 139-40, 111 S.Ct. 478. As a result, these causes of action relate "not merely to the [health care] benefits but to the essence of the [health plan] itself." Id., 498 U.S. at 139-40, 111 S.Ct. 478.3

¶ 12 In a supplemental citation of authority, the Plaintiffs direct us to a recent Ninth Circuit Court of Appeals case as support for their position that ERISA does not preempt their state law contract and tort claims. In Bui v. American Telephone & Telegraph Company, Inc., 310 F.3d 1143 (9th Cir.2002), the court held that state law medical malpractice claims were not preempted by ERISA. The Bui court recognized the distinction between providing medical advice and treatment (an area traditionally governed by state law and standards of practice) and health plan administrative functions and decisions (an area consistently considered to be preempted by ERISA). Accordingly, the Bui court reversed the district court's ruling that ERISA preempted the malpractice claims, but affirmed the application of and preemption by ERISA concerning breach of contract and other tort claims arising out of administrating the employee health plan. The "bright line" test utilized by the court in determining preemption was as follows: "If a claim involves a medical decision made in the course of treatment, ERISA does not preempt it; but if a claim involves an administrative decision made in the course of administering an ERISA plan, ERISA preempts it." 310 F.3d at 1149.

¶ 13 Here, the Plaintiffs' claims do not involve any allegation of negligent medical advice or treatment. Instead, the claims focus on the administrative failure to remit premiums to the insurer, an obligation not only required by the terms of the Plan agreement, but obviously a necessary part of the administration of an ERISA plan. As such, these claims are preempted by ERISA. Id. at 1151; see also Greany v. W. Farm Bureau Life Ins. Co., 973 F.2d 812, 818 (9th Cir.1992)

(holding preempted a plan's failure to procure the proper coverage and services.).

B. Plaintiffs Qualify As "Plan Participants" Under ERISA

¶ 14 In an effort to avoid preemption, the Plaintiffs alternatively argue that they are not Plan "participants" within the meaning of ERISA. Further, they argue that their lack of participation strips them of standing to assert an ERISA claim in Federal Court. We reject both arguments.

¶ 15 ERISA broadly defines a plan participant to include "any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit." 29 U.S.C. §...

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