Schwartz v. Fhp Intern. Corp.

• Decision Date: 19 November 1996
• Docket Number: No. CIV-96-1362-PHX-ROS.,CIV-96-1362-PHX-ROS.
• Citation: 947 F.Supp. 1354
• Parties: Diane SCHWARTZ and Joel Schwartz, a married couple, Plaintiffs, v. FHP INTERNATIONAL CORPORATION, a Delaware corporation; FHP, Inc, a Delaware corporation; FHP of Arizona, Inc., an Arizona corporation; Ultralink, Inc., a Delaware corporation, et al., Defendants.
• Court: U.S. District Court — District of Arizona

947 F.Supp. 1354

Diane SCHWARTZ and Joel Schwartz, a married couple, Plaintiffs, v. FHP INTERNATIONAL CORPORATION, a Delaware corporation; FHP, Inc, a Delaware corporation; FHP of Arizona, Inc., an Arizona corporation; Ultralink, Inc., a Delaware corporation, et al., Defendants.

No. CIV-96-1362-PHX-ROS.

United States District Court, D. Arizona.

November 19, 1996.

COPYRIGHT MATERIAL OMITTED

John J. Reiner, Los Angeles, CA, for Diane Schwartz, Joel Schwartz.

John C. West, Richard Kenneth Delo, Doyle Winthrop Oberbillig & West P.C., Phoenix, AZ, for FHP International Corporation, FHP Inc., Ultralink Inc.

ORDER

SILVER, District Judge.

Plaintiffs Diane and Joel Schwartz have filed a Motion to Remand this action to state court. Defendants FHP International, FHP, Inc., FHP of Arizona, and Ultralink, Inc. ("FHP") have filed a Motion to Dismiss Plaintiffs' state law causes of action.

FACTUAL BACKGROUND

Plaintiff Diane Schwartz was eligible to receive, selected and received FHP's HMO benefit coverage under the Group Service Agreement issued by FHP, Inc. to Xerox corporation, as a dependent of her husband, Xerox employee Joel Schwartz.

Plaintiff Diane Schwartz began to receive medical care from FHP physicians beginning in 1993. According to Plaintiff, she told her general practitioner, Dr. Lawrence Grass, during her 1994 checkup that she had a family history of cancer and that she believed she had found a lump in her left breast. Plaintiff claims that Dr. Grass told her it was nothing, but that during the next year she felt the lump increase in size and sought a mammogram. Dr. Denise Smith, the radiologist, read the results as normal. Finally, Plaintiff was examined by a surgeon, Dr. Christi Bourne, who did not perform a breast biopsy although she noted that there was a mass of considerable size in Plaintiff's left breast. In early 1996, Plaintiff's breast cancer was detected. Plaintiff alleges that the oncologist, Dr. Martin Langford, placed her on an atypical and ineffective chemotherapy regimen.

On February 20, 1996, Plaintiffs filed their original Complaint in Superior Court, Maricopa County. On March 22, 1996, Plaintiffs filed their First Amended Complaint against Defendants: FHP International; FHP, Inc.; FHP of Arizona; Ultralink, Inc.; Arizona Primary Care Physicians; Estate of Lawrence E. Grass, M.D.; Valley Radiologists, Ltd.; Valley Surgical Clinic; Palo Verde Hematology/Oncology; John C. Lincoln Hospital; Denise and John Doe Smith; Christi Bourne, M.D.; Martin B. Langford, M.D.; and other unknown defendants.

Count One of the Complaint alleges medical malpractice against all Defendants except Defendants FHP.

Count Two alleges Defendants FHP breached their contract by breaching their promise to provide Plaintiffs access to health care practitioners possessing the degree of skill and knowledge possessed by medical practitioners in the community; to refer Plaintiffs to specialists when medically indicated; to perform tests and procedures required to ensure Plaintiff's health; to authorize indicated therapeutic treatment promptly; and to inform Plaintiff of all reasonable diagnostic and treatment options.

Count Three alleges that Defendants FHP breached the implied covenant of good faith and fair dealing by not providing Plaintiffs with the benefits of their agreement with Defendants.

Count Four alleges fraud on the part of Defendants FHP by misrepresenting to Plaintiffs that Plaintiffs would receive referrals and specialist care when required.

Count Five alleges intentional misrepresentation by all Defendants by making intentional misrepresentations regarding Plaintiff Diane Schwartz's medical condition and recommended medical treatment.

Count Six alleges intentional infliction of emotional distress by all Defendants by advancing their own monetary interests to the detriment of Plaintiff Diane Schwartz's health.

On June 5, 1996, Defendants FHP filed a notice of removal to federal district court pursuant to 28 U.S.C. §§ 1331, 1441(a), (b), and (c) and 29 U.S.C. § 1132. Defendants FHP alleged that removal to federal court was appropriate based upon federal question jurisdiction under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq ("ERISA").

On June 12, 1996, Defendants FHP filed a Motion to Dismiss Plaintiffs' state law causes of action on the grounds that all Plaintiffs' state law claims are preempted by ERISA.

On July 5, 1996, Plaintiffs filed a Motion to Remand the complaint to Maricopa County. Plaintiffs argue that the removal was defective because Defendants did not obtain the consent of all Defendants as required by 28 U.S.C. §§ 1446(a)-(b). Plaintiffs further argue that there is no federal question jurisdiction because: (1) medical malpractice claims and claims of vicarious liability for negligence are not preempted; and (2) any benefits that Plaintiffs received from FHP were not pursuant to an ERISA plan.

Plaintiffs characterize their complaint as divisible into two types of claim: (1) the allegation of medical malpractice against Plaintiff Diane Schwartz's doctors and the allegation of vicarious liability for the doctors' negligence against FHP, allegations relating to the "quality" of care; and (2) allegations of breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, and intentional infliction of emotional distress against FHP, allegations relating to the "quantity" of care. Plaintiffs dispute that any of their claims are preempted by federal law.

LEGAL DISCUSSION

A. MOTION TO REMAND

Plaintiffs' motion for remand places the burden of establishing federal jurisdiction on Defendants FHP. Gaus v. Miles, Inc., 980 F.2d 564 (9th Cir.1992). Because the parties are non-diverse and Plaintiffs argue there is no federal question presented, Plaintiffs' Motion for Remand is based on a challenge to the subject matter jurisdiction of the Court. Pursuant to Fed.R.Civ.P. 43(e), the Court may rely on affidavits when hearing a motion challenging its subject matter jurisdiction. See 9 Charles A. Wright & Arthur R. Miller § 2416 at 604.

Plaintiffs have not alleged causes of action under ERISA. However, under the complete-preemption doctrine, removal to federal court is appropriate where the complaint raises claims that fall within ERISA's broad preemptive scope, even though the plaintiff does not allege federal question jurisdiction. Metropolitan Life Insurance Company v. Taylor, 481 U.S. 58, 63-64, 107 S.Ct. 1542, 1546-1547, 95 L.Ed.2d 55 (1987); Pilot Life Insurance Company v. Dedeaux, 481 U.S. 41, 46, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987); Clorox v. United States District Court, 779 F.2d 517, 521 (9th Cir. 1985).

B. ERISA PREEMPTION

ERISA supersedes all state laws insofar as they "relate to any employee benefit plan" with the exception of any state law that "regulates insurance." 29 U.S.C. § 1144(a)-(b). 29 U.S.C. § 1002(1) defines "employee welfare benefit plan" as:

any plan, fund or program which ... is ... established or maintained by an employer ... for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment. ...

See Crull v. GEM Insurance Company, 58 F.3d 1386, 1389 (9th Cir.1995).

To meet its burden of establishing that federal jurisdiction is appropriate under the complete preemption doctrine, Defendants must show: (1) that Plaintiffs' health insurance plan was an "employee benefit plan" within the meaning of 29 U.S.C. § 1002(1); and (2) that Plaintiffs' claims arise out of state laws that "relate to" the ERISA plan.

1. Employee Welfare Benefit Plan

The existence of an ERISA plan is a question of fact, to be answered in light of all the surrounding facts and circumstances from the point of view of a reasonable person. Kanne v. Connecticut General Life Insurance Company, 867 F.2d 489, 492 (9th Cir.1988). According to the affidavit of Pamela Stanhope, FHP, Inc.'s Commercial Business Manager, submitted by Defendants FHP in support of their Motion to Dismiss, Plaintiffs' HMO was established by Plaintiff Joel Schwartz's employer, Xerox corporation, for the purpose of providing employees and eligible dependents with medical benefits. Plaintiffs have offered no evidence to contradict this affidavit testimony. Accordingly, it appears that the FHP HMO is an "employee welfare benefit plan." See Crull, 58 F.3d at 1389 ("even if an employer does not more than arrange for a `group type insurance plan', it can establish an ERISA plan, unless it is a mere advertiser who makes no contributions on behalf of its employees" (citations omitted)).

However, certain group insurance plans are excluded from ERISA's definition of "employee welfare benefit plan" if they meet four criteria:

(1) No contributions are made by an employer or employee organization;

(2) Participation is completely voluntary for employees and members;

(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and

(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, or administrative services actually rendered in connection with payroll deductions or dues checkoffs.

29 C.F.R. § 2510.3-1(j). Kanne 867 F.2d at 492. To qualify for the exception, each criterion must be met. If any criterion is not met, the group insurance plan will not qualify for the exception. Id.

Pamela Stanhope's affidavit states that Xerox Corporation signed a Group Service Agreement with FHP, Inc. to provide HMO medical benefits to the eligible...