Trustmark Life Ins. v. Univ. of Chicago Hosp.

• Decision Date: 20 March 2000
• Docket Number: PLAINTIFF-APPELLEE,Nos. 98-3137,V,DEFENDANT-APPELLANT,CROSS-APPELLAN,CROSS-APPELLEE,s. 98-3137
• Citation: 207 F.3d 876
• Parties: (7th Cir. 2000) TRUSTMARK LIFE INSURANCE COMPANY, f/k/a BENEFIT TRUST LIFE INSURANCE COMPANY,/THE UNIVERSITY OF CHICAGO HOSPITALS,/& 98-3248
• Court: U.S. Court of Appeals — Seventh Circuit

Page 876

207 F.3d 876 (7th Cir. 2000)

TRUSTMARK LIFE INSURANCE COMPANY, f/k/a BENEFIT TRUST LIFE INSURANCE COMPANY, PLAINTIFF-APPELLEE/CROSS-APPELLANT,

V.

THE UNIVERSITY OF CHICAGO HOSPITALS, DEFENDANT-APPELLANT/CROSS-APPELLEE.

Nos. 98-3137 & 98-3248

U.S. Court of Appeals, Seventh Circuit

Argued September 30, 1999

Decided March 20, 2000

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 94 C 4692--David H. Coar, Judge. [Copyrighted Material Omitted] William A. Chittenden, III, Elizabeth Doolin (argued), Peterson & Ross, Chicago, IL, for Plaintiff-Appellee.

Kelly Ann Giampa, Bollinger, Ruberry & Garvey, Chicago, IL, James D. Holzhauer, Steffen N. Johnson (argued), Mayer, Brown & Platt, Chicago, IL, for Defendant-Appellant.

Before Harlington Wood, Jr., Coffey, and Evans, Circuit Judges.

Harlington Wood, Jr., Circuit Judge.

Trustmark Life Insurance Company ("Trustmark"), formerly known as Benefit Trust Life Insurance Company, brought an action under the Employee Retirement Income Security Act, 29 U.S.C. sec. 1001, et seq. ("ERISA"), against the University of Chicago Hospitals & Health System ("UCH") to recover payment made for breast cancer treatment of Grace Fuja, one of Trustmark's insureds. On July 24, 1998, the district court entered final judgment in favor of Trustmark as to recovery and denied UCH's state-law defenses as preempted under ERISA. UCH appealed and Trustmark cross-appealed the district court's denial of attorney's fees, costs, and prejudgment interest. We reverse.

I. BACKGROUND

Mrs. Fuja was a participant in an ERISA-governed employee welfare benefit plan (the "Plan") sponsored by her employer Emsco Management Services, Inc. and insured by Benefit Trust Life Insurance Company, now known as Trustmark Life Insurance Company. As a breast cancer patient who had not responded to standard treatment, Mrs. Fuja sought high dose chemotherapy with autologous bone marrow transplant ("HDC/ABMT") treatment. Trustmark denied precertification for HDC/ABMT treatment, claiming it was not "medically necessary" as defined under the Plan. Mrs. Fuja sought injunctive relief against Trustmark's refusal to cover the HDC/ABMT treatment, and on December 22, 1992, the district court in that case enjoined Trustmark from denying coverage. See Fuja v. Benefit Trust Life Ins. Co., 809 F. Supp. 1333 (N.D. Ill. 1992), rev'd, 18 F.3d 1405 (7th Cir. 1994). On or about December 29, 1992, in a telephone conference, a Trustmark executive stated that Trustmark would comply with the court order, precertification would not be necessary, and Trustmark would pay for the treatment, without specifying any conditions or that payment would be subject to appeal. In a follow-up letter sent to UCH that same day, Trustmark confirmed those statements, specifying that "Benefit Trust Life Insurance Company will comply with the court's order" and treatment would be paid under Plan benefits, again without attaching any conditions to the payment, which allowed for a $250.00 yearly deductible, 70% of the next $5,000.00, and 100% thereafter for each calendar year.

In addition, after receiving notice from Mrs. Fuja that she might not be able to pay her deductible and copayment obligations, UCH decided to waive Mrs. Fuja's deductible and co-pay. Prior to entering the hospital for treatment on January 7, 1993, Mrs. Fuja signed an Admission and Out-Patient Agreement with an Authorization and Release of Benefits clause which stated that Mrs. Fuja would be financially responsible for the balance owed if her insurance did not pay the full amount due, which amount might include the costs of collection and/or reasonable attorney's fees.

Less than a month after its unconditional statement of payment, on January 20, 1993, Trustmark filed its notice of appeal. During this period, Mrs. Fuja remained hospitalized until her death in March 1993. Shortly thereafter, Trustmark paid the sum of $362,232.97 to UCH for Mrs. Fuja's treatment, again without specifying any conditions. Nearly a year later, on March 18, 1994, this court reversed the district court's judgment, holding that Mrs. Fuja's HDC/ABMT treatment did not fall within the parameters of "medically necessary" procedures as defined in the Plan policy because the treatment was "furnished in connection with medical... research." Fuja v. Benefit Trust Life Ins. Co., 18 F.3d 1405, 1410 (7th Cir. 1994).

Trustmark subsequently filed an action in district court pursuing recovery of the amount paid to UCH for Mrs. Fuja's HDC/ABMT treatment under sec. 502(a)(3).¹ The district court granted summary judgment in favor of Trustmark, finding a violation of the Plan under ERISA sec. 1132 (a)(3) because this court had already determined that Trustmark was not required to pay for the treatment under the Plan. The district court ordered UCH to reimburse the full amount to Trustmark. UCH appealed the summary judgment finding and Trustmark cross-appealed from the district court's denial of attorney's fees, costs, and prejudgment interest.

As there are no disputes as to the issues of material facts, summary judgment is appropriate in this case. However, for the reasons set forth below, we reverse the judgment of the district court in favor of Trustmark. We affirm the denial of attorney's fees, costs, and prejudgment interest.

II. ANALYSIS

A. Subject Matter Jurisdiction

Before reviewing the merits of Trustmark's claim, we must first decide whether it was properly before the district court. ERISA regulates both employee pension plans and employee welfare benefit plans. 29 U.S.C. sec.sec. 1002(3) & 1003(a). Participants, beneficiaries or fiduciaries of these plans (and the Secretary of Labor) may sue under ERISA. 29 U.S.C. sec. 1132(a). In Central States, Southeast and Southwest Areas Health & Welf. Fund v. Neurobehavioral Assocs., 53 F.3d 172, 173 (7th Cir. 1995) (hereinafter "Neurobehavioral Assocs."), a welfare fund brought an action under sec. 502(a)(3) to recover a mistaken overpayment made to a medical care provider for the medical treatment of one of its members. The court found that the claim fell directly within sec. 502(a)(3) of ERISA's civil enforcement provision. Id. at 176. The panel stated, "A medical care provider who receives benefits from the fund at the behest of a participant is a beneficiary." Id. at 173 (citation omitted). A dispute over restitution, "undoubtedly an equitable action," id. at 174 (citation omitted), "between a fiduciary [the fund plan] and a beneficiary [a medical care provider]... is of primary concern under ERISA."² Id. "Forcing trustees of a plan to pay benefits which are not part of the written terms of the program disrupts the actuarial balance of the Plan and potentially jeopardizes the pension rights of others legitimately entitled to receive them." Id. (quoting Cummings v. Briggs & Stratton Retirement Plan, 797 F.2d 383, 389 (7th Cir. 1986)). The court noted in Neurobehavioral Assocs. that the state law claim made by the trustees of the plan would be preempted by ERISA. Id. at 175.

Like Neurobehavioral Assocs., UCH is a medical care provider who received benefits from a welfare fund at the behest of a Plan participant, Mrs. Fuja, and is therefore recognized as a beneficiary. Mrs. Fuja sued the Plan in order to have those benefits paid. Fuja, 809 F. Supp. at 1342-43. This circuit then determined that the payment of those benefits was not authorized by the Plan. Fuja, 18 F.3d at 1412. The conclusion was that the Plan language unambiguously excluded coverage for any treatment "in connection with medical or other research." Id. Therefore, subject matter jurisdiction was proper under ERISA.

B. Common Law Defenses

Although we have determined that Trustmark's action for recovery of ERISA benefits should be resolved in a federal forum, we must next determine the validity of UCH's defenses based on common law principles. UCH argues the defenses of breach of contract and promissory estoppel. We will review each claim in order to determine whether such common law principles are applicable under ERISA. We note, given the particular circumstances, that the law of the case doctrine does not foreclose consideration of these issues.

This circuit has already determined that all common law concepts are not automatically inapplicable in the ERISA context. Thomason v. Aetna Life Ins. Co., 9 F.3d 645, 647 (7th Cir. 1993). In passing ERISA, Congress expected that "a federal common law of rights and obligations under ERISA-regulated plans would develop." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56 (1987). Courts may develop a federal common law where ERISA itself "does not expressly address the issue...." Thomason, 9 F.3d at 647 (citation omitted). State common law may be used as a basis in constructing a federal common law that implements the policies underlying ERISA where it is not inconsistent with congressional policy concerns. Id. (citations omitted).

1. Breach of Contract

UCH's primary argument is that the letter from Trustmark promising payment constitutes a private contract which bypasses the Plan. After careful scrutiny of the district court record, we find that UCH has waived this argument as it was not raised at the district court level. See Mouton v. Vigo County, 150 F.3d 801, 803 (7th Cir. 1998) (citations omitted). Although UCH repeatedly discussed the contractual arrangements between Mrs. Fuja and itself (as pertaining to the deductible and copayment waiver), there was never any assertion or discussion that the statements or letter created an independent contractual arrangement, implied or explicit, between UCH and Trustmark. Throughout the district court proceedings, UCH described itself as an independent third party who provided the HDC/ABMT treatment at the direct behest of Mrs. Fuja. UCH repeatedly insisted it had no knowledge of the dispute between Mrs. Fuja and Trustmark. UCH did assert on several...