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BONSER v. NEW JERSEY

April 1, 1985

LEO BONSER, Administrator, UNITED INDUSTRIAL WORKERS OF NORTH AMERICA WELFARE and PENSION FUND, ROBERT and THERESA ELIA, FREDERICK E. DOLL and BRYAN VARN, Plaintiffs,
v.
STATE OF NEW JERSEY, SHIRLEY A. MEYER, Comm'r NEW JERSEY DEPARTMENT OF HEALTH, DOROTHY POWERS, Chairman, NEW JERSEY STATE HOSPITAL RATE SETTING COMMISSION, NEWCOMB HOSPITAL, JOHN F. KENNEDY MEMORIAL HOSPITAL and JOHN F. KENNEDY MEDICAL CENTER, Defendants



The opinion of the court was delivered by: COHEN

 This action, challenging the constitutionality of New Jersey's hospital rate setting system, is presently before the Court on the motions of plaintiffs seeking a preliminary injunction, an injunction to stay certain New Jersey state court proceedings, certification of both a plaintiff class and a defendant class, and leave of the Court to amend the complaint.

 INTRODUCTION

 Plaintiffs in this matter are Leo Bonser, the Administrator of the United Industrial Workers of North America Welfare and Pension Fund (hereinafter the Fund) and several individuals who, through union membership, are beneficiaries of the Fund. Defendants are the State of New Jersey, the Commissioner of its Department of Health, the Chairman of the State Hospital Rate Setting Commission and several hospitals located in New Jersey. Each of the individual plaintiffs is also a defendant, or potential defendant, in other legal actions commenced in the state courts by the hospitals seeking to collect for services performed but which remain unpaid by the Fund.

 The ultimate issue in this case concerns the validity of an amendment to the New Jersey Health Care Facilities Planning Act of 1971, N.J.S.A. 26:2H-1 et seq. (West Supp. 1984-85) (Planning Act), which created a Hospital Rate Setting Commission (the Commission) to determine and approve a schedule of rates for hospital services based on a patient's diagnosis rather than the specific costs incurred in the patient's treatment.

 In practice, this system works in the following fashion: when a patient is diagnosed upon admission to a hospital, that diagnosis is compared with a list of approximately 350 Diagnosis Related Groups (DRG's) and his or her bill is calculated based upon the DRG into which he or she is placed. In addition, the DRG amount is multiplied by a "payor factor" which creates a difference between the amounts charged to various payors such as the Fund and, for example, Blue Cross. *fn1"

 The reasoning behind, and the goal of, the DRG system is to encourage hospitals to treat their patients in the most efficient and cost effective manner possible. In essence, if a hospital can treat a patient for less money than that authorized by the Commission, it can retain the excess. If, however, the hospital's costs exceed those authorized, it may not bill the Fund for the additional amount. Moreover, the DRG system provides for an administrative appeals process whereby the bill for an individual, properly within a particular DRG, can be appealed in order to avoid grossly excessive or inequitable charges. *fn2"

 The primary basis of plaintiffs' attack on the DRG system is that it is allegedly preempted by the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West Supp. 1984). ERISA is a comprehensive body of federal law, designed to promote and protect the interests of employees and their beneficiaries in pension and welfare benefit plans, which supersedes any and all state laws insofar as they relate to any employee benefit plan described in the Act. Id. § 1144(a). In addition, plaintiffs contend that the DRG system is preempted by the National Labor Relations Act, 29 U.S.C.A. § 141 et seq. (West Supp. 1984), and violates the equal protection and due process clauses of the United States and New Jersey Constitutions, as well as the supremacy clause of the United States Constitution.

 Plaintiffs, by their motions, seek injunctions of two types, each initially requiring a separate analysis. First, they seek to have this Court enjoin any further proceedings in several New Jersey state court collection actions brought by the defendant hospitals against a number of the individual beneficiaries of the Fund who are plaintiffs herein. Second, plaintiffs seek a preliminary injunction enjoining the State of New Jersey and the defendant hospitals from any further implementation or enforcement of the DRG system. We shall first consider the request for an injunction to stay the state court proceedings.

 INJUNCTION TO STAY STATE COURT PROCEEDINGS

 We begin with the Anti-Injunction Act which states that "[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." 28 U.S.C.A. § 2283 (West Supp. 1984). The Supreme Court has stated that the test to be applied in determining whether Congress has expressly authorized an exception to the Anti-Injunction Act is "whether an Act of Congress, clearly creating a federal right or remedy enforceable in a federal court of equity, could be given its intended scope only by the stay of a state court proceeding." Mitchum v. Foster, 407 U.S. at 238.

 It can hardly be contested that ERISA does not create a federal right or remedy enforceable in a federal court of equity. See Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 522-23, 68 L. Ed. 2d 402, 101 S. Ct. 1895 (1981). Thus, the first prong of the Mitchum test is satisfied. Satisfaction of the second prong, namely, that the Act could be given its intended scope only by imposing the requested stay, is less clear. The Sixth Circuit, in discussing this second prong, concluded that

 
When a district court finds that an action in a state court will have the effect of making it impossible for a fiduciary of a pension plan to carry out its responsibilities under ERISA, the anti-injunction provisions of § 2283 do not prohibit it from enjoining the state court proceedings.

 General Motors Corp. v. Buha, 623 F.2d 455, 459 (6th Cir. 1980) (citations omitted). The issue in Buha was whether pension benefits from an ERISA covered plan were subject to garnishment by a creditor of a plan beneficiary. Certainly, the plan administrator in Buha would have been frustrated in his attempts to carry out his responsibilities if third parties were allowed to garnish the benefits of a plan beneficiary.

 In the instant case, the state court proceedings which plaintiffs seek to enjoin are collection actions brought by hospitals in New Jersey to recover from several individual Fund beneficiaries the difference between the DRG amount billed and the "actual costs" incurred which were paid by the Fund.

 It is somewhat unclear at this point whether ERISA can be given its intended scope only through a stay of the state court actions. Were this Court to eventually find the DRG system to be preempted by ERISA, the issue presently being litigated in the state courts (the validity of the debt) could be rendered moot. However, should we eventually find that ERISA has not preempted the DRG system, then the actions in state court would be entirely appropriate. It must be noted that this matter is before us on plaintiffs' motion for a preliminary injunction. The preemption issue is the ultimate issue of the case and one that we need not decide at this juncture.

 Assuming, arguendo, that ERISA falls within an exception to the Anti-Injunction Act, we must nonetheless consider the propriety of the issuance of a stay. As the Third Circuit has recently stated:

 Spartacus, Inc. v. Borough of McKees Rocks, 694 F.2d 947, 949 (3d Cir. 1982) (citations omitted). Accordingly, if a movant is unable to show either of the first two ...


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