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Carducci v. Aetna U.S. Healthcare

March 3, 2003


The opinion of the court was delivered by: Simandle, District Judge

Under New Jersey law, a health insurer which paid benefits on behalf of an insured may not recoup those funds through a subrogation or reimbursement lien upon the insured's recovery from a third-party tortfeasor, and any such subrogation provision in a New Jersey insurance contract is therefore void. Perreira v. Rediger, 169 N.J. 399 (2001) (interpreting N.J.S.A. 2A:15-97). The principal issues in the present consolidated cases involve whether this prohibition of subrogation arising at state law applies to the health insurance contracts of New Jersey employee benefit plans governed under federal law through the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001, et seq., and thus whether the plaintiff-insureds are entitled to repayment of such subrogated funds, or whether such a claim is preempted by ERISA section 502(a), 29 U.S.C. §1132(a) (complete preemption) or by ERISA section 514(a), 29 U.S.C. §1144(a) (conflict preemption).

The present motion to dismiss thus requires the Court to consider the doctrines of complete preemption and conflict preemption under ERISA. Congress passed ERISA to "safeguard the establishment, operation, and administration of employee benefit plans," and included the statute's two preemption provisions to ensure that the federal ERISA statute would set "minimum standards [to] assur[e] the equitable character of such plans and their financial soundness." Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355 (2002) (quoting 29 U.S.C. §1001(a)). By preempting many state regulations, ERISA makes clear that the regulation of employee benefit plans is "exclusively a federal concern." Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981).

Complete preemption arises under ERISA section 502(a)'s civil enforcement provision; it completely preempts state law claims within its scope and converts them into federal ERISA claims. Conflict preemption arises under ERISA section 514(a); it expressly preempts any state law which relates to an ERISA plan unless the law "regulates insurance, banking, or securities."

The matter is presently before the Court on seven motions to dismiss by defendants in each of the seven consolidated actions other than Carducci itself. *fn1 [Docket Items 40-1, 42-1, 48-1, 50-1, 50-2, 52-1, and 54-1 in Carducci, et al. v. Aetna U.S. Healthcare, No. 01-4675.] The consolidated defendants assert that plaintiffs' complaints should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief may be granted because their state law claims are completely preempted and conflict preempted by ERISA.

The Court has considered the submissions of all of the parties and has decided that defendants' motions to dismiss on the basis of complete and conflict preemption must be denied. The Court will then consider, and deny, three additional arguments presented for dismissal, namely whether the 2001 Perreira case on which the claims are based should apply retrospectively, whether certain claims should be barred by the voluntary payment doctrine, and whether certain plaintiffs have standing to bring suit. Then, the Court will consider, and will grant, the motion for summary judgment brought in Bibbs.


On January 28, 2002, this Court granted the motion of defendants in six cases to consolidate their actions for the limited purpose of considering motions for remand and motions to dismiss. As a result, the cases of Levine v. United Healthcare Corp., Civ. No. 01-4964 (JBS); West v. Health Net of the Northeast, Civ. No. 01-5217 (JCL); Collins v. Oxford Health Plans, Civ. No. 01-5237 (JWB); Borgurski v. Horizon Blue Cross Blue Shield of New Jersey, Civ. No. 01-5339 (AMW); and Edmonson v. Horizon Blue Cross Blue Shield of New Jersey, Civ. No. 01-5812 (JBS), were consolidated under the caption of the earliest docket, Carducci, et al. v. Aetna U.S. Healthcare, No. 01-4675(JBS). Parties in another action, Bibbs v. AmeriHealth, Inc., Civ. No. 02-1155 (JBS), agreed to have their case consolidated under the Carducci docket for purposes of the remand motion; they have since joined the present motion to dismiss. *fn2 Parties in another action, Barbour v. Cigna Corp., Civ. No. 02-417 (JBS), agreed to consolidate under the Carducci docket for purposes of the motion to dismiss if defendant's motion to compel arbitration is not granted. *fn3

The present cases were consolidated because their motions to remand and motions to dismiss all dealt with similar issues arising under the Employee Retirement Income Security Act of 1974 ("ERISA"). Each was originally filed as a class action complaint in New Jersey Superior Court based on Perreira v. Rediger, 169 N.J. 399 (2001), where the New Jersey Supreme Court held that, under New Jersey statute N.J.S.A. 2A:15-97, a health insurer who expended funds on behalf of an insured may not recoup the funds through a subrogation or reimbursement liens if the insured recovers from a third-party tortfeasor. In the present cases, each plaintiff was insured under an employee benefit health plan which paid health benefits due to plaintiff's personal injuries, and where the plaintiff later recovered from a third party tortfeasor in connection with such injuries, the defendant insurers sought to enforce the plans' subrogation clauses to recoup from these plaintiffs the sums previously paid to them under the health benefit plans, by attaching subrogation or reimbursement liens to the plaintiffs' tort recoveries. Each plaintiff brought suit against his or her health insurer, alleging that it was unjustly enriched by subrogation and reimbursement liens placed on their personal injury lawsuit settlements.

On January 25, 2002 and on April 4, 2002, this Court heard oral argument on the remand motions. The issue was whether the monies that plaintiffs sought--which were monies that the insurers took pursuant to the subrogation clauses in the employee benefit healthcare contracts--were "benefits due" under ERISA section 502(a)(1)(B). This Court, in an Opinion and Order dated May 28, 2002, determined that the monies were "benefits due" under section 502(a)(1)(B), so that the state law unjust enrichment claims were completely preempted by federal law and were properly removed to federal court. See Carducci, et al. v. Aetna U.S. Healthcare, 204 F. Supp. 2d 796 (D.N.J. 2002). *fn4

In the May 28, 2002 Opinion and Order on the remand motions, this Court did not determine the issues presented in the present motions to dismiss, namely whether plaintiffs' state law unjust enrichment claims must be dismissed as completely preempted under section 502(a)(1)(B), or must be dismissed as conflict preempted under section 514(a). The Court will now consider these issues.


A. Motion to Dismiss Standard of Review

The Court must deny a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). A district court must accept any and all reasonable inferences derived from the facts and must view all allegations in the complaint in the light most favorable to the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994).

The plaintiff does not need to plead evidence or plead the facts that are the basis for the claim. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977); In re Midlantic Corp. Shareholder Litig., 758 F. Supp. 226, 230 (D.N.J. 1990). The question before the court is not whether plaintiffs will ultimately prevail; rather, it is whether they can prove any set of facts in support of their claims that would entitle them to relief. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). Therefore, in deciding a motion to dismiss, a court should look to the face of the complaint and decide whether, taking all of the allegations of fact as true and construing them in a light most favorable to the non-movant, plaintiff's allegations state a legal claim. Markowitz, 906 F.2d at 103.

B. Motion to Dismiss Analysis

The present motions require the Court to consider ERISA preemption. The Court has previously determined that plaintiffs' claims, although pleaded under state law, are section 502(a)(1)(B) claims for benefits, and therefore that these claims lie within the exclusive federal jurisdiction of section 502(a)(1)(B). See Carducci, 204 F. Supp. 2d at 803-04. The Court will now consider whether plaintiffs' claims must be dismissed because they are completely preempted, or whether plaintiffs' claims must be dismissed because they are conflict preempted under section 514(a).

1. Complete Preemption Dismissal under Section 502(a)

Based on this Court's previous determination that plaintiffs' claims are within the scope of jurisdiction described by section 502(a)(1)(B), defendants argue that this Court must dismiss them under section 502(a)(1)(B) for three reasons: (1) plaintiffs have only alleged state law causes of action and not section 502(a)(1)(B) claims, (2) plaintiffs have not joined the appropriate defendants, and (3) plaintiffs have not exhausted their plans' administrative remedies. This Court will consider each reason in turn and will find that they do not provide a basis for dismissal.

(a) Failure to allege ERISA cause of action

Defendants first seek dismissal because plaintiffs' complaints do not allege ERISA section 502(a)(1)(B) causes of action. They argue that because section 502(a)(1)(B) only allows a civil action "to recover benefits due . . . under the terms of [a] plan," plaintiffs needed to explicitly seek such benefits. Because plaintiffs, in their complaints, seek recovery based solely on state law, defendants argue that there is no section 502(a)(1)(B) action for this Court to consider. This Court disagrees and finds that its prior determination that plaintiffs' state law claims were 502(a)(1)(B) claims for benefits indeed allows the Court to consider them as 502(a)(1)(B) claims for benefits.

Congress provided for complete preemption of state law claims in ERISA section 502(a). Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 65-66 (1987). Complete preemption occurs when Congress passes a law that "so completely pre-empt[s] a particular area that any civil complaint raising this select group of claims is necessarily federal in character." Id. at 63. In effect, the complete preemption transforms the claim that is within the "select group" into a claim that is "federal in character." Darcangelo v. Verizon Communications Inc., 292 F.3d 181, 187 (4th Cir. 2002).

The complete preemption provided for in ERISA, therefore, means that when a plaintiff files a complaint that contains a state law claim that is within the scope of ERISA section 502(a), the claim is transformed into an ERISA section 502(a) federal claim. Id. The cause of action may then be removed to federal court without violating the well-pleaded complaint rule because the complaint contains the transformed federal claim on its face. Id. At that point, the federal court can either treat the claim as a federal claim under section 502(a), id. at 195, or can dismiss the complaint without prejudice to refiling a complaint that alleges an ERISA claim for benefits, Miller v. Aetna Healthcare, No. 01-2443, 2001 WL 1609681 at *2 (E.D. Pa. Dec. 12, 2001).

The United States District Court for the Eastern District of Pennsylvania has found that "[w]hen a plaintiff's claims are completely preempted by ERISA, dismissal without prejudice to assert an ERISA claim is an appropriate course." See Miller, 2001 WL 1609681 at *2. While there likely are many situations where a dismissal would be appropriate to allow the plaintiffs to replead their claims as ERISA claims, this Court finds that it is more appropriate in this case to treat the claims as ERISA claims.

The principal reason for this Court's decision is based on the extensive motion practice already engaged in by the parties. In Miller, the Court considered the motion to remand and the motion to dismiss simultaneously. Here, defendants have been aware that plaintiffs' claims are section 502(a) "claims for benefits" since this Court's decision in May 2002 on the remand motions, and have been aware that the basis for the claims for benefits are the reimbursement and subrogation provisions in their health insurance contracts. For purposes of this motion to dismiss, the defendants treated the claims as claims for benefits under section 502(a), stating that "it is instructive to consider the complaint as a claim for benefits." (Def.'s Br. in Levine at 10.) In view of this procedural history, the Court will not dismiss the present complaints and require the plaintiffs to refile complaints which allege section 502(a) claims, but will treat the complaints as alleging state claims now transformed into federal ERISA claims for benefits.

(b) Failure to plead plan as section 502(a)(1)(B) defendant

Defendants next argue that this Court must dismiss because they are not the proper defendants. Defendants first argue that plaintiffs may only proceed against employee benefit plans under section 502(a)(1)(B). (Defs.' Br. in Levine at 11.) Alternatively, defendants argue that even if plaintiffs could proceed against the administrators of their plans, plaintiffs never alleged that defendants were plan administrators in their complaints. (Defs.' Reply Br. in Levine at 6 n.3.)

Whether a plan administrator may be liable under section 502(a)(1)(B) is an issue that has divided the courts. See Hall v. Lhaco, Inc., 140 F.3d 1190, 1194 (8th Cir. 1998) (citing cases). Some courts find that "ERISA permits suits to recover benefits only against the plan as an entity" by linking section 502(a)(1)(B) which allows "a civil action . . . to recover benefits due . . . under the terms of [a] plan" with section 502(d) which states that:

An employee benefit plan may sue or be sued under this subchapter as an entity. . . . Any money judgment under this subchapter against an employee benefit plan shall be enforceable only against the plan as an entity and shall not be enforceable against any other person unless liability against such person is established in his individual capacity under this subchapter. Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1490 (7th Cir. 1996) (citing Gelardi v. Pertec Computer Corp., 761 F.2d 1323, 1324-25 (9th Cir. 1985)) (emphasis added); see also Guiles v. Metropolitan Life Ins. Co., No. 00-5029, 2002 WL 229696 (E.D. Pa. Feb. 13, 2002).

Other courts have found that the statutory language allows a plaintiff to proceed against an employee benefit plan, but does not limit the plaintiff to suits against plans. See Hamilton v. Allen Bradley Co., 244 F.3d 819, 824 (11th Cir. 2001); Taft v. Equitable Life Assurance Society, 9 F.3d 1469, (9th Cir. 1994); see also Vaughn v. Metropolitan Life Ins. Co., 87 F. Supp. 2d 421, 425 (E.D. Pa. 2000). Such courts find that a plaintiff may proceed against the plan or against the plan's administrator. Id. The Third Circuit has not determined whether a plaintiff may bring suit against a plan administrator under section 502(a)(1)(B).

This Court will allow suit against plan administrators under section 502(a)(1)(B) for two reasons. First, the Third Circuit has allowed suit against entities other than benefit plans under section 502. In Curcio v. John Hancock Mutual Life Ins. Co., 33 F.3d 226 (3d Cir. 1994), the Third Circuit considered whether a plaintiff could bring suit against a party other than the plan under section 502(a)(3)(B)'s equitable relief provision, *fn5 and concluded that the plaintiff could proceed against a plan administrator who was also a fiduciary. In Mitchell v. Eastman Kodak Co., 113 F.3d 433 (3d Cir. 2997), the Third Circuit never mentioned the present issue, but considered a 502(a)(1)(B) claim against a plan administrator.

Second, the language of section 502 supports this Court's result. It is true that section 502(d) explicitly permits suit against employee benefit plans. However, this Court does not read section 502(d) as a limitation on all section 502 actions. It is clear that section 502(c) allows suit against plan administrators and that section 502(a)(3) allows suit against fiduciary plan administrators. See 29 U.S.C. §1132(c); Curcio, 33 F.3d at 234-35. The language of section 502(d) also infers that liability against a person may be established under section 502, as it provides that judgments against a plan are not enforceable against any other person "unless liability against such person is established in his individual capacity under this subchapter." (emphasis added). Therefore, this Court finds that liability can be established against plan administrators under section 502(a)(1)(B). *fn6

The question remains as to whether defendants are plan administrators. Defendants argue that the action must be dismissed because plaintiffs did not allege that they are plan administrators. Plaintiffs argue that they included allegations in each complaint which support a finding that the defendants were plan administrators, because they claimed that defendants operate health benefit systems which supplied health insurance policies which covered plaintiffs. (See Edmonson Complaint ¶¶6-7; West Complaint ¶¶4-5; Collins Complaint ¶¶4-5; Bogurski Complaint ¶¶4-5; Levine Complaint ¶¶6-7; Bibbs Complaint ¶¶6-8.)

Whether a defendant is a plan administrator is a factual question which requires an inquiry into the plan document and the factual circumstances surrounding the administration of the plan. Hamilton, 244 F.3d at 824. To succeed on a motion to dismiss, plaintiffs only need to show that the pleadings, when viewed in the light most favorable to them, allege facts which warrant relief. Here, the Court has considered plaintiffs' complaints and has found that they include allegations that support a finding that defendants are plan administrators. Therefore, it is plausible that defendants may be held liable under section 502(a)(1)(B) and defendants' argument that they are the "wrong" defendants does not warrant relief on this motion to dismiss. *fn7 This Court will therefore deny dismissal on this ground, but will require plaintiffs to file a clarifying amendment to their pleadings within fourteen days from the date of this decision which clarifies that they have brought suit against defendants in their status as plan administrators.

(c) Failure to exhaust administrative remedies

Defendants next argue that this Court should dismiss under section 502(a)(1)(B) because plaintiffs did not exhaust administrative remedies before filing this action. Plaintiffs argue that they should be excused from the exhaustion requirement because the facts of their cases show that bringing their claims in the administrative process would have been futile.

Every employee benefit plan must provide administrative remedies for participants whose claims for benefits have been denied. ERISA §503; 29 U.S.C. §1133. Because of this, the Third Circuit generally requires exhaustion of the administrative process under the plan before legal action may be instituted. *fn8 D'Amico v. CBS Corp., 297 F.3d 287, 290-91 (3d Cir. 2002). Exhaustion is intended to "reduce the number of frivolous lawsuits under ERISA; to promote the consistent treatment of claims for benefits; to provide a non-adversarial method of claims settlement; and to minimize the costs of claims settlement for all concerned." Harrow v. Prudential Ins. Co., 279 F.3d 244, 249 (3d Cir. 2002) (quoting Amato v. Bernard, 618 F.2d 559, 567 (9th Cir. 1980)). It also helps ERISA plan trustees to "expertly and efficiently manage their funds" because it "prevent[s] premature judicial intervention in their decision-making process." Id.

The Third Circuit strictly enforces the exhaustion requirement, but recognizes an exception to it "when resort to the administrative process would be futile." Berger v. Edgewater Steel Co., 911 F.2d 911, 916 (3d Cir. 1990). For the exception to apply, the plaintiff must provide a "clear and positive showing of futility" to the district court." D'Amico, 297 F.3d at 293. To determine whether to excuse exhaustion, the court should consider:

(1) whether plaintiff diligently pursued administrative relief; (2) whether plaintiff acted reasonably in seeking immediate judicial review under the circumstances; (3) existence of a fixed policy denying benefits; (4) failure of the insurance company to comply with its own internal administrative procedures; and (5) testimony of plan administrators that any administrative appeal was futile. Harrow, 279 F.3d at 250.

If the court dismisses or grants summary judgment for failure to exhaust, it must do so without prejudice to plaintiff's refiling the claim after exhaustion of the administrative process. D'Amico, 297 F.3d at 294.

Here, plaintiffs readily admit that they never pursued their claims under their insurance policies' administrative processes, but they argue that it would have been futile to do so. This Court has considered the five factors of the futility exception and has decided that it cannot determine whether the futility exception to the exhaustion requirement applies at this stage because the inquiry requires factual determinations. At this motion to dismiss stage, it does seem clear that plaintiffs did not "diligently pursue administrative relief" because they did not pursue administrative relief at all. However, it is unclear whether plaintiffs "acted reasonably in seeking judicial relief" or whether plaintiffs would have obtained relief in the administrative process. Prior to the New Jersey Supreme Court's decision in Perreira v. Rediger, 169 N.J. 399 (2001), each defendant insurer had a fixed policy denying benefits taken pursuant to the reimbursement and subrogation provisions. Factual issues remain as to whether the insurers still had a fixed policy denying benefits after Perreira. This Court will not make the factual determination at this time, though it has been presented with information on the subject. See Bibbs, Def.'s Br., Ex. A, Brill Decl. ¶4 (stating that "[a]s a direct result of the New Jersey Supreme Court's decision in Perreira, AmeriHealth stopped enforcing the reimbursement/subrogation provisions . . . and has no plans to do so in the future." But see Bibbs, Def.'s Br., Ex. B, Biemer Decl., Ex. 2 (requesting payment of lien on January 2, 2002, six months after Perreira was decided on June 26, 2001). At this time, it is enough that plaintiffs have shown a set of facts under which they may be granted relief by showing that exhaustion may have been futile. Therefore, this Court will not dismiss the present action for failure to exhaust. A defendant asserting that exhaustion would not be futile as a matter of fact in its individual circumstances may bring a motion for summary judgment on this ground.

For all of these reasons, this Court will deny defendants' motion to dismiss plaintiffs' claims under ERISA section 502(a)(1)(B). The Court will next consider whether the claims should be dismissed under ERISA section 514(a).

2. Conflict Preemption Dismissal under Section 514(a)

Defendants next argue that this Court should dismiss these actions because plaintiffs' state law claims are conflict preempted by ERISA section 514(a). To determine whether the claims are conflict preempted, the Court must consider three clauses within section 514, namely the express preemption clause, the savings clause, and the deemer clause.

The express preemption clause, section 514(a), broadly preempts state regulations of employee benefit plans so that employee benefit plans are generally ...

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