Sonoco Products Co. v. Physicians Health Plan

• Decision Date: 31 July 2003
• Docket Number: No. 02-2137.,02-2137.
• Citation: 338 F.3d 366
• Parties: SONOCO PRODUCTS COMPANY, Plaintiff-Appellant, v. PHYSICIANS HEALTH PLAN, INCORPORATED, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 366

338 F.3d 366

SONOCO PRODUCTS COMPANY, Plaintiff-Appellant, v. PHYSICIANS HEALTH PLAN, INCORPORATED, Defendant-Appellee.

No. 02-2137.

United States Court of Appeals, Fourth Circuit.

Argued: May 7, 2003.

Decided: July 31, 2003.

COPYRIGHT MATERIAL OMITTED

ARUED:

Manton McCutchen Grier, HAYNSWORTH SINKLER BOYD, P.A., Columbia, South Carolina, for Appellant.

Jeffrey Stuart Patterson, NELSON, MULLINS, RILEY & SCARBOROUGH, L.L.P., Columbia, South Carolina, for Appellee.

ON BRIEF:

H. Simmons Tate, Jr., HAYNSWORTH SINKLER BOYD, P.A., Columbia, South Carolina; James C. Cox, Jr., SALEEBY & COX, P.A., Hartsville, South Carolina, for Appellant. C. Mitchell Brown, Elizabeth, H. Campbell, NELSON, MULLINS, RILEY & SCARBOROUGH, L.L.P., Columbia, South Carolina, for Appellee.

Before KING and SHEDD, Circuit Judges, and Frank W. BULLOCK, Jr., United States District Judge for the Middle District of North Carolina, sitting by designation.

Reversed and remanded by published opinion. Judge King wrote the opinion, in which Judge Shedd and Judge Bullock joined.

OPINION

KING, Circuit Judge:

In January of 2001, Sonoco Products Company ("Sonoco") initiated this lawsuit against Physicians Health Plan, Incorporated ("PHP")¹ in South Carolina state court. After PHP removed the case to federal court, asserting that Sonoco's claims were completely preempted by ERISA,² Sonoco sought a remand to state court. Sonoco Prods. Co. v. Physicians Health Plan, Inc., CA-01-521-4-25, Order (D.S.C. May 28, 2002) (the "Order"). Though the district court denied the motion to remand, id., it certified the remand issue for interlocutory appeal under 28 U.S.C. § 1292(b), Sonoco Prods. Co. v. Physicians Health Plan Inc., CA-01-521-4-25, Order (D.S.C. Sept. 12, 2002) (the "Revised Order"), and we granted Sonoco permission to pursue the interlocutory appeal, Sonoco Prods. Co. v. Physicians Health Plan, Inc., 02-250, Order (4th Cir. Oct. 3, 2002). Because Sonoco's claims are not completely preempted, we reverse the denial of Sonoco's motion to remand, and we remand to the district court for such further proceedings as may be appropriate.

I.

A.

Sonoco, a manufacturing business headquartered in Hartsville, South Carolina, sponsors an ERISA-governed health care plan (the "Plan") for its employees.³ On September 13, 1999, Sonoco and PHP, a South Carolina for-profit health maintenance organization, entered into a two-year contract (the "Contract"), effective through December 31, 2001. Under the Contract, PHP was obligated, inter alia, (1) to provide insurance benefits for Sonoco's South Carolina employees, retirees, and their families (the "Plan Beneficiaries"), and (2) to limit any premium increases for 2001 to no more than nine percent.

On January 1, 2000, pursuant to the Contract, PHP began to provide insurance coverage to the Plan Beneficiaries. By letter of August 23, 2000, however, PHP advised Sonoco that, as of the end of December 2000, it was cancelling the Contract. PHP offered new contract terms to Sonoco for 2001, under which insurance premiums could increase by as much as eighty-five percent. Sonoco declined PHP's offer and now alleges that it was compelled to secure alternative insurance coverage for 2001 at substantially higher rates than those agreed upon in the Contract.

B.

On January 19, 2001, Sonoco filed its complaint against PHP in the Court of Common Pleas for Darlington County, South Carolina (the "Complaint"). The Complaint asserts two state-law causes of action: (1) breach of contract, and (2) breach of contract accompanied by a fraudulent act (collectively, the "breach of contract claims").⁴ Sonoco sought to recover damages for the difference between the premiums agreed upon in the Contract and the sum Sonoco paid for the comparable insurance coverage purchased when PHP repudiated its contractual obligations. On February 23, 2001, PHP removed the proceeding to federal court in South Carolina, and it then filed a motion to dismiss. On March 19, 2001, Sonoco moved for a remand to the state court.

The district court referred both the motion to remand and the motion to dismiss to a magistrate judge, who recommended that the court deny remand and grant dismissal on the ground that Sonoco's claims were "preempted" by ERISA. See Sonoco Prods. Co. v. Physicians Health Plan, Inc., CA-01-521-4-25, Report and Recommendation (D.S.C. Jan. 29, 2002) (recommending denying motion to remand); Sonoco Prods. Co. v. Physicians Health Plan, Inc., CA-01-521-4-25, Report and Recommendation (D.S.C. Feb. 25, 2002) (recommending granting motion to dismiss). The district court accepted the recommendation of the magistrate judge on the remand issue, but it rejected the recommendation to dismiss. Order at 3. Accordingly, by its Order of May 28, 2002, the court denied both the motion to remand and the motion to dismiss. Id. While the court agreed with the magistrate judge that Sonoco's claims were preempted by ERISA, the court gave Sonoco thirty days to amend its Complaint to assert an ERISA claim. Id.

On June 7, 2002, Sonoco filed a motion to alter or amend the Order, requesting that the court certify the remand decision for immediate appeal under 28 U.S.C § 1292(b).⁵ On June 21, 2002, prior to the court's ruling on the § 1292(b) issue, Sonoco complied with the Order and filed an amended complaint asserting ERISA claims (the "Amended Complaint"). On September 12, 2002, the court certified the remand issue for a § 1292(b) interlocutory appeal, deeming it to be a "controlling question of law as to which there is substantial ground for difference of opinion and [in which an] immediate appeal from [the][O]rder may materially advance the ultimate termination of the litigation." Revised Order at 2. On October 3, 2002, we granted Sonoco permission to appeal. Sonoco Prods. Co. v. Physicians Health Plan, Inc., 02-250, Order (4th Cir. Oct. 3, 2002).

II.

We review de novo questions of subject matter jurisdiction, "including those relating to the propriety of removal." Mayes v. Rapoport, 198 F.3d 457, 460 (4th Cir.1999). The burden of demonstrating jurisdiction resides with "the party seeking removal." Mulcahey v. Columbia Organic Chems. Co., Inc., 29 F.3d 148, 151 (4th Cir.1994). We are obliged to narrowly interpret removal jurisdiction because the removal of proceedings from state courts raises "significant federalism concerns." Id.

III.

On appeal, Sonoco maintains that the district court erred in declining to remand this case to state court. Specifically, it asserts that the court applied an incorrect legal standard in its preemption analysis and that, using the proper standard, remand is appropriate. PHP responds that, even if the court erred in its preemption analysis, the breach of contract claims are nonetheless completely preempted, and the motion to remand was properly denied.

A.

Before addressing whether the district court erred in denying the motion to remand, we briefly review the scope of removal jurisdiction generally, and with respect to ERISA specifically. Typically, an action initiated in a state court can be removed to federal court only "if it might have been brought in [federal court] originally." Darcangelo v. Verizon Communications, Inc., 292 F.3d 181, 186 (4th Cir.2002) (internal quotation marks omitted) (alternation in original). The federal courts possess original jurisdiction over, among other things, "civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. Generally, "a cause of action arises under federal law only when the plaintiff's well-pleaded complaint raises issues of federal law." Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987).

In analyzing whether the district court erred in denying the motion to remand, we must first distinguish between ordinary preemption (also known as "conflict preemption") and the jurisdictional doctrine of "complete preemption." Under ordinary or conflict preemption, "state laws that conflict with federal laws are preempted, and preemption is asserted as `a federal defense to the plaintiff's suit.'" Darcangelo, 292 F.3d at 186-87 (quoting Taylor, 481 U.S. at 63, 107 S.Ct. 1542). Because conflict preemption constitutes a defense to a cause of action, the Supreme Court has recognized that it normally "`does not appear on the face of a well-pleaded complaint, and, therefore, does not authorize removal to federal court.'" Id. (quoting Taylor, 481 U.S. at 63, 107 S.Ct. 1542).

The jurisdictional doctrine of complete preemption, by contrast, does provide a basis for federal jurisdiction: where "Congress `so completely preempt[s] a particular area that any civil complaint raising this select group of claims is necessarily federal in character,'" the state law claims are converted into federal claims, which may be removed to federal court. Id. (quoting Taylor, 481 U.S. at 63-64, 107 S.Ct. 1542) (alteration in original). As Judge Luttig recently observed in King v. Marriott International, Inc., 337 F.3d 421, 425, No. 02-2139, slip op. at 5 (4th Cir.2003), when complete preemption exists, "the plaintiff simply has brought a mislabeled federal claim, which may be asserted under some federal statute."

In the ERISA context, the doctrines of conflict preemption and complete preemption are important, and they are often confused. Section 514 of ERISA defines the scope of ERISA's preemption of conflicting state laws: state laws are superseded insofar as they "relate to" an ERISA plan. 29 U.S.C. § 1144(a). The fact that a state law claim is "preempted" by ERISA — i.e., that it conflicts with ERISA's exclusive regulation of employee welfare benefit plans — does not, however, provide a basis for removing the claim to federal court. The only state law claims properly removable to federal court are those that are "completely preempted" by ERISA's civil enforcement provision, § 502(a).⁶ Darcangelo, 292 F.3d at 187 (emphasizing...