Speciale v. Seybold, 97-3057

• Decision Date: 22 June 1998
• Docket Number: No. 97-3057,97-3057
• Citation: 147 F.3d 612
• Parties: 22 Employee Benefits Cas. 132 Kimberly SPECIALE, Plaintiff-Appellant, v. Katherine SEYBOLD, Defendant, Administrative Committee of the Wal-Mart Stores, Inc. Associates Health and Welfare Plan, Respondent-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 612

147 F.3d 612

22 Employee Benefits Cas. 132

Kimberly SPECIALE, Plaintiff-Appellant, v. Katherine SEYBOLD, Defendant,

Administrative Committee of the Wal-Mart Stores, Inc.

Associates Health and Welfare Plan, Respondent-Appellee.

No. 97-3057.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 25, 1998.

Decided June 22, 1998.

James E. Ocasek (argued), Cooney & Conway, Chicago, IL, for Plaintiff-Appellant.

John J. Mangan, Rooks, Pitts & Poust, Lisle, IL, for Defendant.

William A. Chittenden, III, Douglas J. Varga (argued), Peterson & Ross, Chicago, IL, for Respondent-Appellee.

Before POSNER, Chief Judge, WOOD, Jr., and DIANE P. WOOD, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

Kimberly Speciale ("Speciale") suffered injuries as the result of an automobile accident with Katherine Seybold ("Seybold"). The major portion of Speciale's medical expenses was paid by Speciale's health plan offered by her employer, Wal-Mart Stores, Inc. ("Wal-Mart"). The remaining providers filed medical liens.

After filing a tort claim against Seybold in state court, Speciale agreed to settle the claim for $45,000. Speciale then filed a Motion to Adjudicate Liens. Asserting ERISA preemption, Wal-Mart's plan administrator removed the adjudication issue to the district court for a determination of the parties' respective rights. The district court awarded Wal-Mart the full amount of the settlement less a reasonable attorney's fee, leaving the other lienholders unpaid. Speciale appeals, alleging that the cause was erroneously removed to the federal court and should have remained in the state court for lien adjudication.

I. BACKGROUND

Wal-Mart Stores, Inc. provides its employees with welfare benefits through Wal-Mart Stores, Inc. Associates Group Health Plan (the "Plan"), a self-funded employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461. The administrator of this Plan is the respondent, Administrative Committee of the Wal-Mart Stores, Inc. Associates Health and Welfare Plan. The Plan includes a provision requiring participants to reimburse the Plan for "benefits paid by the Plan to the extent of any payment made by a person responsible for the condition giving rise to the medical expenses paid."

Speciale was an employee of Wal-Mart and a participant in the Plan. As a result of the automobile accident, Speciale sustained injuries and incurred medical expenses totaling $70,563.91. The Plan paid $54,051.07 towards the costs of Speciale's medical care, with a remaining $16,512.84 left unpaid. The fifteen unpaid providers filed medical liens as allowed under the Illinois statutes.

Speciale filed a personal injury action against Seybold in an Illinois state court and accepted $45,000 in settlement. Wal-Mart sent Speciale a notice stating that, pursuant to the terms of the Plan, it was entitled to reimbursement from the settlement between Speciale and Seybold. Speciale filed a motion to adjudicate which notified the court of the agreed-upon settlement and requested the court to apportion the fund. In the motion, Speciale listed sixteen providers, including Wal-Mart, who were asserting claims against the settlement fund. Wal-Mart, acting independently, removed the action to the federal district court under 28 U.S.C. § 1441(b), maintaining that because the Plan arose under and was governed by ERISA, Speciale's motion to adjudicate was completely preempted. The district court concluded that the claim was preempted under section 502(a) of ERISA, 29 U.S.C. § 1132(a), and entered judgment in favor of Wal-Mart, requiring Speciale to reimburse Wal-Mart for the full amount of her settlement, less a reasonable attorney's fee. ¹

On appeal, Speciale argues that the district court did not have federal jurisdiction based on ERISA preemption because the motion to adjudicate fell under her well-pleaded complaint which alleged a state law claim of personal injury, neither of which presented a federal question nor permitted complete preemption under ERISA.

II. ANALYSIS

The determination of jurisdiction on removal involving an ERISA issue is based upon the well-pleaded complaint rule, the ERISA "complete preemption" exception to that rule and the defense of "conflict preemption" under ERISA, see Blackburn v. Sundstrand Corp., 115 F.3d 493 (7th Cir.1997); Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482 (7th Cir.1996); Rice v. Panchal, 65 F.3d 637 (7th Cir.1995), and requires us to begin with the principles governing removal jurisdiction of the federal courts under 28 U.S.C. § 1441. Rice, 65 F.3d at 639. Under that statute, "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant ... to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a). District courts have original jurisdiction over cases concerning a "federal question," that is, cases "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331.

In determining federal jurisdiction, the court generally first reviews the plaintiff's complaint, because "[i]t is a long settled law that a cause of action arises under federal law only when the plaintiff's well-pleaded complaint raises issues of federal law." Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S.Ct. 1542, 1546, 95 L.Ed.2d 55 (1987) (citations omitted). As we stated in Jass, "The issues raised in the plaintiff's complaint, not those added in the defendant's response, control the litigation." Jass, 88 F.3d at 1482. The Supreme Court emphasized that "[t]he paramount policies embodied in the well-pleaded complaint rule [are] that the plaintiff is master of the complaint ... and that the plaintiff may, by eschewing claims based on federal law, choose to have the cause heard in state court." Caterpillar, Inc. v. Williams, 482 U.S. 386, 398-99, 107 S.Ct. 2425, 2433, 96 L.Ed.2d 318 (1987). This prevents the defendant from controlling the litigation and obtaining a transfer to federal court by federal preemption when the defendant raises a federal question in the responsive pleadings. See Jass, 88 F.3d at 1486; Rice, 65 F.3d at 639.

In Avco Corp. v. Aero Lodge No. 735, etc., 390 U.S. 557, 88 S.Ct. 1235, 20 L.Ed.2d 126 (1968), the Supreme Court created an exception to the well-pleaded complaint rule where Congress has completely preempted a given area of state law. Although the "complete preemption" doctrine has become fully accepted, confusion remains because the complete preemption doctrine "is not a preemption doctrine but rather a federal jurisdiction doctrine." Lister v. Stark, 890 F.2d 941, 943 n. 1 (7th Cir.1989); Jass, 88 F.3d at 1487. Complete preemption permits "recharacterization" of a plaintiff's state law claim as a federal claim so that removal is proper. Lister, 890 F.2d at 943. Whether or not a cause of action has been completely preempted is determined by the intent of Congress. Taylor, 481 U.S. at 66, 107 S.Ct. at 1547-48. In Taylor, the Supreme Court expanded the "complete preemption" exception to include all state actions falling within the scope of § 502(a) ² of ERISA. Id. at 67, 107 S.Ct. at 1548. Therefore, "federal subject matter jurisdiction exists if the complaint concerns an area of law 'completely preempted' by federal law, even if the complaint does not mention a federal basis of jurisdiction." Jass, 88 F.3d at 1487 (construing Rice, 65 F.3d at 642).

However, there is a second federal "preemption" doctrine. This doctrine serves as a defense to a state law action but does not confer federal question jurisdiction. This doctrine is known as "conflict preemption." Conflict preemption is based upon § 514(a) ³ of ERISA. "Complete preemption" under § 502(a) encompasses all claims by a participant or beneficiary to enforce his rights under an ERISA plan whereas "conflict preemption" under § 514(a) preempts any state law that may "relate to" an ERISA plan, but is not a basis for federal jurisdiction. See Jass, 88 F.3d at 1488.

Wal-Mart argues that complete preemption under § 502(a) has occurred. In determining whether a claim is within the scope of § 502(a), three factors are examined:

(1) whether the "plaintiff" [i]s eligible to bring a claim under that section; (2) whether the plaintiff's cause of action falls within the scope of an ERISA provision that the plaintiff can enforce via § 502(a), and (3) whether the plaintiff's state law claim cannot be resolved without an interpretation of the contract governed by federal law.

Jass, 88 F.3d at 1487 (internal quotation marks and citations omitted). Although Speciale was a plaintiff entitled to bring a claim under the Wal-Mart plan, her claim of personal injury was not a cause of action that falls within the scope of an ERISA provision nor did her state law claim require resolution of an interpretation of the contract governed by federal law. Where the plaintiff seeks recovery for breach of a duty imposed by state law, and the claim does not involve the interpretation of contract terms, there is no complete preemption. Rice, 65 F.3d at 644. Where state law "has the effect of creating a qualitative standard (e.g., 'bad faith,' 'improper') by which the performance of a contract is evaluated, then that state law is completely preempted." Id. In Rice, the plaintiff filed a cause of action against his insurer, an ERISA health care benefits plan, claiming the plan was liable for the medical malpractice of one of the plan's providers under the state law of respondeat superior. Id. at 638. In examining this theory of agency and tort liability, we held that the plaintiff's claim "did not involve the interpretation of the ERISA plan, and cannot be recharacterized as a suit within the scope of § 502(a)(1)(B)." Id. at 645. As in Rice, where we recognized...