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Group Hospitalization and Medical Services v. Merck-Medco Managed Care

December 15, 2003


The opinion of the court was delivered by: Jerome B. Simandle United States District Judge


It is well-established that solely state law causes of action are nonetheless preempted by the Employee Retirement Income Security Act ("ERISA") and subject to the exclusive jurisdiction of the federal court if the cause of action falls within the scope of ERISA's civil enforcement provision, ERISA § 502(a), 29 U.S.C. § 1132(a). The issue presented here is whether the state law fiduciary duty claims of a plaintiff who administers ERISA employee benefit plans in which it alleges that the defendants breached their fiduciary duties to plaintiff by failing to perform functions imposed by their contractual agreements are completely preempted as ERISA fiduciary duty claims pursuant to ERISA § 502(a)(2), when neither party asserts that the defendants are ERISA fiduciaries and when the claims focus on defendants' alleged breach of ministerial tasks imposed by their agreements.

For the following reasons, the Court finds that these claims are not completely preempted by ERISA and that, therefore, they do not provide this Court with federal jurisdiction. Accordingly, this Court will grant the plaintiff's motion to remand this action to state court.


This matter involves the contractual relationship between plaintiff Group Hospitalization and Medical Services, d/b/a CareFirst Blue Cross Blue Shield ("CareFirst"), and defendants Merck-Medco Managed Care ("Medco"), PAID Prescriptions, and National Rx from 1991 through 1999. CareFirst, one of three wholly-owned affiliates of CareFirst, Inc., an independent, not-for-profit company that provides health care and related services to nearly 3.2 million members in Maryland, Virginia, Delaware and the District of Columbia, (Complaint ¶8), entered the first contract with Medco in 1991 in an effort to contain its drug benefit costs. Medco, a pharmacy benefit management company which provides prescription drug benefit management services to "more than 65 million plan beneficiaries" through a retail pharmacy service managed by PAID Prescriptions and a mail-order pharmacy service managed by National Rx, (id. ¶¶ 9-11), represented that it could "manage CareFirst's cost of providing prescription drug benefits," (id. ¶¶17-19).

The parties entered their first agreement in 1991, (id. ¶15), then agreed to an Addendum to the agreement in 1994, to an Integrated Prescription Drug Program Master Agreement in 1995, and to four amendments to the Integrated Prescription Agreement between 1996 and 1999, (id. ¶¶15-16). The term of the agreements ended on December 31, 1999. (Id. ¶16.)

Under the agreements, Medco agreed to reduce CareFirst's costs by, among other things, ensuring specified drug pricing, (id. ¶¶21-27), utilizing drug switching from certain "target" drugs to therapeutically equivalent "preferred" drugs, (id. ¶¶28-31), substituting generic drugs when authorized, (id. ¶43-44), passing through to CareFirst one-hundred percent of rebates received from manufacturers for drugs dispensed through CareFirst's program, (id. ¶¶32-34), and complying with certain contractually-specified "performance standards" regarding the handling and processing of identity cards, payments, management reports, and customer service telephone calls, (id. ¶¶37-39).

CareFirst filed the present complaint on August 22, 2003 in the New Jersey Superior Court, Camden County, alleging that it has learned since the expiration of its agreements with Medco, that Medco did not comply with the terms of their agreements, (id. ¶¶5, 7), but had instead "charged CareFirst for brand drugs where cheaper, approved generic substitutes were available," (id. ¶46), "regularly and systematically overbilled CareFirst for reimbursement for drugs dispensed through its Mail Program at rates other than those specified in the Agreement," (id. ¶58), retained "substantial monies which should have been due to CareFirst" from manufacturer rebate agreements, (id. ¶64), "used its switch program to shift cost-effective, initially-prescribed products to more expensive Merck products," (id. ¶73), allowed "unauthorized switches based on approval received from nurses and receptionists" rather than from physicians as required, (id. ¶79), and did not comply with certain "performance standards," (id. ¶¶87-92). CareFirst's complaint includes eight state law causes of action, and explicitly states that "[n]o ERISA-based allegations are made in this complaint and none of the causes of action asserted herein are premised on ERISA." (Id. ¶3.) *fn1

Defendants removed the lawsuit from state court on August 22, 2003, asserting that plaintiff's breach of fiduciary duty state law claims are completely preempted by ERISA section 502(a)(2) because they fall within the scope of ERISA's fiduciary duty provision. (Notice of Removal ¶¶3-4.)

Plaintiff then filed the present motion to remand on October 14, 2003, asserting that the defendants "have no valid basis for removing this action to federal court" because their claims are state law claims and are not subject to ERISA's complete preemption provision because defendants have long asserted that they are not ERISA fiduciaries and, therefore, cannot be charged with an ERISA fiduciary duty claim. (Pl. Br. at 4-6.)

The Court heard oral argument on November 13, 2003 and defendants reinforced their long-standing position that they are not ERISA fiduciaries. They assert, though, that the claims against them are still completely preempted by ERISA because plaintiff has included allegations which, if true, would classify them as performing the functions of ERISA fiduciaries.

This Court has considered the positions of the parties and finds, for the following reasons, that defendants have not established that this Court has federal question jurisdiction. Instead, the Court finds that federal question jurisdiction here is, at best, doubtful because neither party asserts that the plaintiff could sustain ERISA section 502(a)(2) claim. Therefore, this Court will grant plaintiff's motion to remand this matter to New Jersey Superior Court.


A. Burden of Proof

The burden of proof is essential to the determination of this motion, as it is defendants' burden, as the party which removed this action to federal court, to establish that federal jurisdiction exists. See Boyer v. Snap-on Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990). The Third Circuit has counseled that any doubts as to jurisdiction upon removal "should be resolved in favor of remand." Id. (quoting Steel Valley Auth. v. Union Switch & Signal Div., 809 F.2d 1006, 1010 (3d Cir. 1987)). A plaintiff's motion to remand, thus, "effectively forces defendant -- the party who invoked the Federal Court's removal jurisdiction -- to prove whatever is necessary to support the petition, e.g., the existence of diversity, the amount in controversy or the federal nature of the claim." Wuerl v. Int'l Life Science Church, 758 F. Supp. 1084, 1086 (W.D. Pa. 1991). Any doubts as to whether the federal court has jurisdiction must be resolved in favor of remand because "lack of jurisdiction would make any decree in the case void and the continuation of the litigation in federal court futile." Brown v. Francis, 75 F.3d 860, 864-65 (3d Cir. 1996).

In this case, defendants assert that federal jurisdiction is based on complete preemption under ERISA, an exception to the general "well-pleaded complaint" rule which provides that federal question jurisdiction exists only when an issue of federal law appears on the face of a complaint. *fn2 Pryzbowski v. U.S. Healthcare, Inc., 245 F.3d 266, 271 (3d Cir. 2001). Complete preemption applies when Congress so pervasively occupies a particular field that any complaint that comes within the scope of the federal cause of action is deemed to "arise under" federal law and provide the court with federal question jurisdiction. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987); Pryzbowski, 245 F.3d at 271 (quoting Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for S. Cal., 463 U.S. 1, 24 (1983)).

Here, the parties agree that plaintiff has solely alleged state law causes of action in its complaint. Defendant, though, asserts that its state law breach of fiduciary duty claim, even though plead as a state law cause of action, provides a basis for federal jurisdiction because it is ...

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