:: Counterclaims Do Not Support Removal to Federal Court

Defendant further asserts that removal is appropriate because defendants have asserted counterclaims under ERISA § 502(a); defendants have expressly asserted ERISA preemption under § 514 as an affirmative defense in their answer to the amended petition; and the resolution of the claims in this case will have an economic impact on the Plan.

 

None of these asserted bases establish federal jurisdiction for purposes of removal.  See Vaden v. Discover Bank, 556 U.S. 49, 60-62 & n.17 (2009) (while complete preemption doctrine permits a plaintiff’s cause of action to be recast as a federal claim for relief, counterclaims that rely exclusively on federal substantive law do not qualify a case for federal court cognizance) . . .

 

Roberts v. Scarcello, No. 16-2720-JWL, 2017 WL 169035, at *3 (D. Kan. Jan. 17, 2017)

This recent case illustrates a common misconception.  Not all cases that involve an ERISA issue may be removed to federal court.

Generally, a defendant may not remove a case to federal court unless the plaintiff’s complaint establishes that the case “arises under’ federal law.” The existence of a federal defense normally does not create statutory “arising under” jurisdiction.  See, Aetna Health Inc. v. Davila, 542 U.S. 200, 207 (2004).

An important distinction that helps in understanding which claims support removal –

Although courts and parties often confuse § 514 preemption with § 502(a) complete preemption, the Supreme Court has held that the two are distinct concepts, with only the latter supporting removal.

Felix v. Lucent Techs., Inc., 387 F.3d 1146, 1156 (10th Cir. 2004).
Thus, when a complaint contains only state causes of action that the defendant argues are merely conflict-preempted under § 514, the court must remand for want of subject matter jurisdiction. Only state court actions that originally could have been filed in federal court may be removed to federal court by the defendant.

:: No Fault Carrier’s Claim Defeated By Health Plan’s ERISA Defense

When Timothy Van Camp (“Van Camp”) suffered injuries in a motor vehicle accident, he was insured by both Appellant Farm Bureau General Insurance Company of Michigan (“Farm Bureau”), a no-fault auto insurer, and an ERISA1 plan administered by Appellee Blue Cross Blue Shield of Michigan (“BCBSM”).

BCBSM contends that its Plan does not cover the medical services received by Van Camp because those services were not medically necessary. Although Farm Bureau had not yet paid for Van Camp’s medical bills, Farm Bureau brought an action under federal common law and, in the alternative, under ERISA § 502(a). Farm Bureau sought a declaration of coverage and reimbursement or recoupment from BCBSM for the cost of Van Camp’s medical care.

The district court dismissed Farm Bureau’s claims. Because Farm Bureau has no standing to bring a claim under federal common law or ERISA § 502(a), we affirm.

FARM BUREAU GENERAL INSURANCE COMPANY OF MICHIGAN, Plaintiff-Appellant, v. BLUE CROSS BLUE SHIELD OF MICHIGAN, Defendant-Appellee., No. 15-2323, 2016 WL 3924243, at *1 (6th Cir. July 21, 2016)

Farm Bureau first filed in state court.  Blue Cross removed the case to federal court on the grounds that the claims related to an ERISA plan.

No Fault Carrier Argues

Farm Bureau amended its complaint to seek:

(1) a declaratory judgment stating that BCBSM is first in priority to reimburse Van Camp’s medical claims,

(2) recoupment from BCBSM under federal common law for the payments that Farm Bureau made toward Van Camp’s medical claims, and

(3) as an alternative to its first two claims, equitable subrogation to the remedies available to Van Camp as a Plan participant or beneficiary under ERISA §§ 502(a)(1)(B) and 502(a)(3) (codified at 29 U.S.C. §§ 1132(a)(1)(B) and 1132(a)(3)).

Health Plan Responds

Blue Cross filed a motion to dismiss, asserting:

(1)  the dispute between the parties was an ERISA denial-of-benefits action under § 502(a)(1)(B), not a priority dispute governed by federal common law or an action for equitable subrogation under § 502(a)(3),

(2)  Farm Bureau lacked standing to bring an ERISA denial-of-benefits action because Farm Bureau had not paid Van Camp’s claims and, thus, was not a subrogee, and

(3)  even if Farm Bureau were a subrogee, Farm Bureau had failed to exhaust its administrative remedies prior to filing suit.

The Court Rules In Favor of Health Plan

Farm Bureau’s federal-common-law claim fails because it lacked standing to bring its claims. (See #2 above)

 The fact that Farm Bureau, a non-participant, non-beneficiary, and non-assignee, has no standing to assert a claim under ERISA § 502(a)(1)(B), is not evidence of an interstice. It is evidence of Congress’ intention to prohibit all but a narrow range of potential plaintiffs from bringing suit under § 502(a). What Farm Bureau sees as an interstice is, in reality, a deliberate limitation. The Court utilizes federal common law to fill inadvertent gaps, not to open avenues for relief that Congress intentionally closed. The Court declines to circumvent the clear wording of § 502(a).

Farm Bureau cannot bring a claim under federal common law to recoup the amount denied by the Plan when the ERISA provision that specifically provides for the recovery of denied benefits—§ 502(a)(1)(B)—would prohibit Farm Bureau’s claim.

Note:  The Court distinguished other cases relied on by Farm Bureau, stating that:

Here, by contrast, there is no coordination-of-benefits dispute. (Appellant Br. at vi.) And more fundamentally, there is no interstice in ERISA’s coverage. An ERISA provision—§ 502(a)(1)(B)—already addresses disputes over denial of benefits, see Weiner, 108 F.3d at 92, and Farm Bureau has no standing to bring a claim under that section because it is not a participant, beneficiary, or assignee, see 29 U.S.C. § 1132(a)(1)(B).

These cases were Prudential Property and Casualty Insurance v. Delfield Company Group Health Plan and Auto Owners Insurance Company v. Thorn Apple Valley, Inc.—who were permitted to bring federal-common-law claims purportedly because they failed to fall within any of the plaintiff categories elucidated in ERISA § 502(a).

In a nutshell:

We permitted the plaintiffs in Thorn Apple Valley and Delfield to bring claims under federal common law because their claims required the court to interpret conflicting coordination-of-benefit clauses. See Delfield, 187 F.3d 637 (Table), 1999 WL 617992, at *3; Thorn Apple Valley, 31 F.3d at 374. This Court relies on federal common law when addressing coordination-of-benefits disputes because neither ERISA nor any other federal statute “addresses the resolution of [a] conflict between [coordination-of-benefits] clauses.” Thorn Apple Valley, 31 F.3d at 374.

:: ERISA Preemption of Subrogation Challenges – Characterization of The Complaint (Part 2)

Mr. Cox contends that his state law employment claims are not removable to federal court. [Filing No. 14.] Mr. Cox emphasizes that his Statement of Claims “clarified that it is not his intention to assert a claim under ERISA § 502 for benefits per se.” Instead, Mr. Cox seeks damages from what he contends was his misclassification as an independent contractor.

Mr. Cox emphasizes that he “does not seek actual plan benefits in this case; rather, he seeks damages based in part on the value of such benefits that would have and should have been provided for him had he been properly classified during his working relationship with Defendants.”

Cox v. Gannett Co., Inc., 2016 WL 1425525, at *3 (S.D. Ind. Apr. 12, 2016)

The district court in Elizabeth Noetzel v. Hawaii Medical Service Association criticized the Second Circuit’s opinion in Wurtz v. Rawlings Co., LLC for failing to look at what the participant’s claim “really” is about. (See discussion in :: ERISA Preemption of Subrogation Challenges – A Conflict of Opinions (Part 1)).

In Cox v. Gannett Co., Inc., the district court provides an example how, in the ERISA removal and preemption context, the words chosen in the complaint and in briefing are of great importance.

The Davila Preemption Test

To set the stage, recall the two requirements for preemption stated in Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004).

“[I]f an individual, at some point in time, could have brought his claim under ERISA [civil enforcement provision] § 502(a)(1)(B), and where there is no other independent legal duty that is implicated by a defendant’s actions, then the individual’s cause of action is completely pre-empted by ERISA § 502(a)(1)(B).”’

Colorable Claim Under ERISA

In Cox, the plaintiff, treated as an independent contractor, but arguing he met the definition of an “employee”,  brought state law employment law claims against his employer.  He also sought the value of lost benefits through state law remedies.

To avoid preemption, he argued he “is not now and never was a participant or beneficiary in the ERISA plan” at issue because he was characterized as an independent contractor.  To the contrary, the court held that his allegations in the complaint were sufficient to make a colorable claim that he was a “participant” under ERISA for purposes of a civil enforcement action.

No Independent Legal Duty

To avoid preemption he emphasized that he did not seek the benefits per se – just the value of the benefits.

Mr. Cox appears to argue that because he brings state law claims for Defendants’ alleged violations under various Indiana statutes unrelated to ERISA benefits—specifically, a failure to pay overtime claim, an unlawful deduction from wages claim, and a violation of Indiana’s wage payment statute—ERISA preemption does not apply to his action. Mr. Cox ignores, however, that he specifically requests employment benefits through his common law claims for fraud and unjust enrichment.

The court rejected this argument and held that since the plaintiff pointed to no other independent legal duty implicated by Defendants’ actions with regard to his claim for unpaid benefits under those common law theories, his argument regarding the second requirement of ERISA preemption failed as well.

Seventh Circuit Authority

In the prior post, we noted that Blackburn v. Sundstrand Corp., 115 F.3d 493 (7th Cir.1997) and Speciale v. Seybold, 147 F.3d 612 (7th Cir.1998) presented a sort of odd set of cases in the ERISA subrogation line of authorities.  In those two cases, the ERISA fiduciaries lost in their effort to convert a state law issue into a federal preemption case.

Yet in Cox, the district court cited Seybold in support of its removal and preemption of state law claims.  “Complete preemption permits ‘recharacterization’ of a plaintiff’s state law claim as a federal claim so that removal is proper.” Speciale v. Seybold, 147 F.3d 612, 615 (7th Cir. 1998).  So how should one view the Seventh Circuit cases in this context?

The Seventh Circuit makes a distinction between a challenge to ERISA subrogation and a state law action to apportion settlement or recovery proceeds.  The Court notes that “both of these earlier cases we held that a petition to apportion claims to a settlement fund between an ERISA plan subrogation claim and other lienholders was not preempted by ERISA’s civil enforcement provision and the allocation of the funds was a matter for determination in the state court.” Hart v. Wal-Mart Stores, Inc. Associates’ Health & Welfare Plan, 360 F.3d 674, 676 (7th Cir. 2004).

Note – Is the Seventh Circuit’s distinction persuasive?  Have federal courts in the Seventh Circuit retreated from this position?  These are questions we will take up in the next post.

 

 

:: District Court Holds Plaintiff’s State Law Claims Preempted

This court does not agree that Plaintiff’s negligence cause of action nor his bad faith cause of action is directed specifically towards entities engaged in insurance. With regard to the bad faith claim in particular, all contracts—not just those pertaining to insurance—in South Carolina contain an implied covenant of good faith and fair dealing, the breach of which can give rise to a common law cause of action. Adams v. G.J. Creel & Sons, 465 S.E.2d 84, 85 (S.C. 1995).

Finally, this court does not find persuasive Plaintiff’s argument that his causes of action, because they “tell [insurers and insureds] what bargains are acceptable,” (ECF No.16 at 11), “substantially” affect the risk pooling arrangement between the insurer and insured. Kentucky Ass’n of Health Plans, Inc., 538 U.S. at 342.

Hendrix v. Res. Real Estate Mgmt., Inc., No. 3:15-CV-01173-JMC, 2016 WL 1045739, at *8 (D.S.C. Mar. 16, 2016)

This case presented a dispute over denied benefits provided under a group insurance policy.  The plaintiff filed several state law claims and marshaled various theories in an attempt to avoid ERISA preemption.

Savings clause argument (29 U.S.C. § 1144(b)(2)(A))

Plaintiff argued that his state law causes of action for bad faith, attorneys’ fees, and negligence and recklessness survived ERISA preemption under the savings clause as applied in Unum Life Insurance Co. of America v. Ward, 526 U.S. 358 (1999).  (The Unum cased involved California’s notice-prejudice rule, under which insurer must show that it was prejudiced by untimely proof of claim before it can avoid liability.)

. . . rejected by the Court

Plaintiff’s state law causes of action, even if one could find that they “regulate insurance,” do not survive ERISA preemption under Unum Life Insurance Co. of America v. Ward, 526 U.S. 358 (1999). See Aetna Health Inc. v. Davila, Aetna health Inc., 542 U.S. 200, 208 (2004) (“Under ordinary principles of conflict pre-emption…even a state law that can arguably be characterized as ‘regulating insurance’ will be preempted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA’s remedial scheme.”).

And neither are Plaintiff’s claims saved from ERISA preemption under Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329, 342 (2003). This is because this court is not persuaded by Plaintiff’s argument that from a “common sense view,” the laws from which his state causes of action spring regulate insurance and substantially affect risk pooling.

Fraudulent procurement argument

The Plaintiff also argued that his bad faith failure to pay, negligence and recklessness, and liability for attorneys’ fees should not be preempted by ERISA because of fraudulent procurement, citing Coyne & Delany Co. v. Selman, 98 F.3d 1457, 1469 (4th Cir. 1996).

The Court rejected this argument as well.

Because all of Plaintiff’s causes of action seek benefits—not insurance—under the plan, this court furthermore does not accept Plaintiff’s argument that ERISA preemption is not appropriate here because some of the state law claims involve “fraudulent act[s] in the procurement of an insurance policy.”

Regulatory exception argument

In cases of limited employer involvement, an insurance arrangement may be excluded from ERISA.  The Plaintiff argued this position, but since the employer paid the premiums and showed other involvement, the Court held the exceptions inapplicable.

29 C.F.R. § 2510.3-1(j) does not shield Plaintiff’s claims from ERISA coverage here because he does not satisfy all of the regulatory conditions, as he is required to do so for these exceptions to apply. See, e.g., Hansen v. Continental Ins. Co., 940 F.2d 971 (5th Cir. 1991) (“Group insurance plans which meet each of these [29 C.F.R. § 2510.3-1(j)] criteria are excluded from ERISA coverage.”); Vazquez v. Paul Revere Life Ins. Co., 289 F. Supp. 2d 727 (E.D. Va. 2001).

In sum, this court concludes that ERISA governs Plaintiff’s claims here and furthermore preempts them. Removal therefore was proper.

Note:  The Court applied the Fourth Circuit test for preemption stated in Sonoco Prod. Co. v. Physicians Health Plan, Inc., 338 F.3d 366, 372 (4th Cir. 2003):

(1) the plaintiff must have standing under [ERISA] § 502(a) to pursue its claim; (2) its claim must fall[ ] within the scope of an ERISA provision that [it] can enforce via § 502(a); and (3) the claim must not be capable of resolution without an interpretation of the contract governed by federal law, i.e., an ERISA-governed employee benefit plan.

 

:: Pre-Litigation Document Exchange Does Not Trigger Federal Claim Removal Deadline

[T]he Eleventh Circuit has not appeared to have addressed the issue of whether “other papers” under 28 U.S.C. § 1446(b)(2) can include documents provided prior to the commencement of litigation, and indeed, a number of Circuit Courts of Appeal have provided that the answer to this question is “no.”  . . . “As other courts have recognized, if pre-suit documents were allowed to trigger the thirty-day limitation in 28 U.S.C. § 1446(b), defendants would be forced to ‘guess’ [*9]  as to an action’s removability, thus encouraging premature, and often unwarranted, removal requests.”

S. Broward Hosp. Dist. v. Coventry Health & Life Ins. Co., 2014 U.S. Dist. LEXIS 160463 (S.D. Fla. Nov. 13, 2014)

In this provider reimbursement case, an interesting procedural issue overlays the application of the two factor ERISA removal test set forth in Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004).

General Rule For Removal

The removal statute, 28 U.S.C. § 1146,  states that a notice of removal shall be filed within thirty days after the receipt by the defendant of a copy of the initial pleading.  But what if the initial state court pleading does not indicate a basis for removal?

“Other Paper” Hints

The statute contains a solution to that situation in subpart (2) which states that “a notice of removal may be filed within 30 days after receipt by the defendant, through service of otherwise, of a copy of an amended pleading, motion, order or other paper from which it may be first ascertained that the case is one which is or has become removable.”  (emphasis added)

The emphasized language brings a  factual component to the removal question.

Provider Reimbursement Overlay

Provider reimbursement cases can be particularly troublesome because not all such cases permit removal.

For example, in provider reimbursement cases, right of payment cases are removable but rate of payment cases are not under the two prong Davila test.   The Court in the case at bar stated the problem this way:

To address whether the claim falls within the scope of ERISA, the Eleventh Circuit has adopted a distinction between two types of claims: “those challenging the ‘rate of payment’ pursuant to the provider-insurer agreement, and those challenging the ‘right to payment’ under the terms of an ERISA beneficiary’s plan.”  “[A] ‘rate of payment’ challenge does not necessarily implicate an ERISA plan, but a challenge to the ‘right of payment’ under an ERISA plan does.”

Continue reading

:: Federal Court Removal Deadline Triggered By Deposition Exhibit

Tyson takes issue with the Magistrate Judge’s conclusion that removal was untimely. The Magistrate Judge found that Tyson was on notice of the removability of the action on December 30, 2008. Rao’s deposition was taken on that date and, during the deposition, an offer letter (to Rao from his current employer Foster Farms) was introduced as a deposition exhibit by Tyson.

Rao v. Tyson Foods, 2009 U.S. Dist. LEXIS 49466 (E.D. Cal. June 12, 2009)

The jousting in this dispute over a non-competition clause involves several noteworthy issues.  Though this is a diversity case, the question of timely removal offers some insights.  In addition, the case reflects competing efforts at controlling venue, with the employer, Tyson, suing in Arkansas, and the employee seeking declaratory relief in before a California court.

The plaintiff, Shivram Rao (“Rao”), filed a civil action against his former employer, Defendant Tyson Foods, Inc. seeking declaratory relief invalidating a non-competition clause.  The action was initially filed in state court, but was removed by Tyson on the basis of diversity jurisdiction. Rao filed a motion to remand.

The removal came up in this way.   On December 30, 2008, Tyson took Rao’s deposition.  Tyson introduced an offer letter from Rao’s new employer, Foster Farms, as an exhibit.

The parties at the deposition also stipulated that the amount of compensation in the offer letter was the amount that Rao was receiving at the time of the deposition. The offer letter shows that Rao’s salary with Foster Farms easily exceeeds the jurisdictional minimum for this Court.

Since the notice of removal was filed on February 12, 2009, if the letter constitutes an “other paper” under 28 U.S.C. § 1446(b), then Tyson’s removal was untimely.

[Background note:  28 U.S.C.A. § 1446(b) states that notice of removal may be filed within 30 days after receipt by the defendant of a copy of an amended pleading, motion, order, or other paper from which it may first be ascertained that the case is or has become removable.]

The district court agreed with the magistrate judge that the deposition exhibit was notice that the case was removable.

. . .  the Ninth Circuit has held that a settlement letter, Cohn v. Petsmart, Inc., 281 F.3d 837, 840 (9th Cir. 2002), as well as a letter sent between attorneys in preparation for mediation, Babasa v. Lenscrafters, Inc., 498 F.3d 972, 975 (9th Cir. 2007), were sufficient to put the respective defendants on notice that the amount in controversy exceeded that required for federal diversity jurisdiction. In this case, the offer letter was made an exhibit to Rao’s deposition and the parties stipulated that the amounts stated therein represent Rao’s current compensation. The offer letter expressly identifies Rao’s salary and the dollar value of other benefits and thus, is sufficiently similar to the settlement letter of Cohn and the letter in preparation of mediation in Babasa to put Tyson on notice of the value of the declaratory relief to Rao. This objection is overruled.

Note: For some discussion of the ERISA parallel to the timeliness issue, see the discussion in :: Challenge To Factual Basis Set Forth In Removal Notice Rejected

Under the complete preemption doctrine, the basis for removal will often not be apparent from the face of the complaint. Cf. Peters v. Lincoln Elec. Co., 285 F.3d 456 (6th Cir. 2002) (plaintiff’s responses to deposition questioning may constitute an “other paper”.

Conflicting Authorities – The district court noted that the authorities are split on the issue, stating:

Tyson is correct that some courts hold that a deposition is not an “other paper” or that courts have indicated that the issue is unclear. E.g., Kiedaisch v. Nike, Inc., 2004 U.S. Dist. LEXIS 2828, *5 n.1 (D. N.H. 2004); Smith v. Equitable Life Assur. Co., 148 F.Supp.2d 1247, 1253 (N.D. Ala. 2001); O’Brien v. Powerforce, Inc., 939 F.Supp. 774, 781 (D. Haw. 1996); Fillmore v. Bank of Am., N.T. & S.A., 1991 U.S. Dist. LEXIS 6640, *9 n.4 (N.D. Cal. 1991).

But the court found that the Ninth Circuit’s position was clear based upon Karambelas v. Hughes Aircraft, 992 F.2d 971 (9th Cir. 1993), a decision which rejected the argument that deposition testimony triggered the 30-day clock on the facts presented:

However, in Karambelas v. Hughes Aircraft, 992 F.2d 971 (9th Cir. 1993), the Ninth Circuit addressed whether the plaintiff’s deposition testimony could form the basis for removal. Karambelas held that the particular deposition testimony was too speculative to show that the plaintiff was alleging an ERISA claim and thus, removal was improper. See id. at 974-75.

And from the Karambelas opinion:

We are also aware of the authorities which permit removal based upon facts developed at a deposition.  [*7] See, e.g., Felton, 940 F.2d at 507; 3 Zawacki v. Penpac, Inc., 745 F. Supp. 1044, 1047 (M.D. Pa. 1990); Riggs v. Continental Baking Co., 678 F. Supp. 236, 238 (N.D. Cal. 1988); Brooks v. Solomon Co., 542 F. Supp. 1229, 1230-31 (N.D. Ala. 1982).

The Ninth Circuit distinguished these authorities, the district court observed, stating:

The Ninth Circuit distinguished those cases because the testimony was clear and non-speculative, unlike Karambelas’s deposition. See id. at 974-75. Riggs, Zawacki, and Brooks are all lower court cases that expressly held that a deposition can constitute an “other paper” under § 1446(b). Zawacki, 745 F.Supp. at 1047; Riggs, 678 F.Supp. at 238; Brooks, 542 F.Supp. at 1230-31. Felton did not expressly discuss § 1446(b) because the plaintiffs in that case had failed to preserve any error associated with removal. See Felton, 940 F.2d at 907. Nevertheless, the Karambelas court characterized Felton as a case that permits removal based upon facts developed at a deposition. Thus, the Ninth Circuit acknowledged cases that expressly hold that depositions are “other papers” under § 1446(b), characterized one of its own prior cases as an authority that permits removal  based on facts from a deposition, examined Karambelas’s deposition testimony, and ultimately distinguished the quality of Karambelas’s deposition testimony from those in Felton, Zawaki, Riggs, and Brooks; the Ninth Circuit did not indicate that depositions were not “other papers.” In light of Karambelas, the law does not seem unclear in the Ninth Circuit — depositions, if sufficiently definite/non-speculative, may form the basis for removal and thus, is an “other paper” under 28 U.S.C. § 1446(b). That lower courts from other jurisdictions have concluded that depositions are not “other papers” does not make the law in the Ninth Circuit “unclear.”

Comment – This area of the law is quite tricky.  For example, Tyson offered the letter as an exhibit.  Other than the stipulation at the deposition, I am not sure why the 30-day clock did not begin to run even earlier, i.e., when Tyson first obtained the letter (presumably in discovery).

Attorneys’ Fees – A mistake here may result in an award of attorneys’ fees against the loser as this case illustrates.

In light of Karambelas, Tyson does not have a reasonable basis for contending that the amended complaint, and not the offer letter received at and made an exhibit to the deposition, triggered the 30 day removal deadline of § 1446(b).

Opinion – I posted the opinion on erisaboard.com this morning for those interested in reading the case.

:: Reformation Remedy Held Viable Against ERISA Plan

An Arizona district court refused to dismiss claims for reformaion of an insurance policy in Carbajal v. Dorn, 2009 U.S. Dist. LEXIS 32688 (D. Ariz. Apr. 14, 2009). The opinion provides an interesting perspective on viable claims under ERISA outside the context of a simple claim for benefits.

The dispute arose over life insurance policies issued by Liberty under the terms of an employee benefit plan operated by the plaintiffs’ employer. The policies insured the lives of Plaintiffs Michael and Mary Carbajal (the “Liberty policies”). Claims of wrongdoing were leveled by the plaintiffs at the insurance agents as follows:

David Dorn and the Dorn Agency were Plaintiffs’ agents for purchase of the life insurance policies. Plaintiffs allege that the Dorn defendants conspired with Danny Carbajal (Michael’s brother and Mary’s son) to fraudulently change the ownership of and beneficiary designations on the Liberty policies. Id. Plaintiffs filed suit in Arizona state court on January 9, 2009, alleging breach of fiduciary duty and negligence against the Dorn defendants, and seeking judicial reformation of the Liberty policies to reflect Michael and Mary Carbajal as owners of the policies with their choice of beneficiaries. Id. PP 43-56.

Removal Of The Case

Liberty removed the case  alleging federal question jurisdiction under the Employee Retirement Income Security Act of 1974 (ERISA). Liberty simultaneously moved to dismiss Plaintiffs’ claims against it, arguing that it was not a proper defendant.

Plaintiffs’ Claim for Reformation Under ERISA

Liberty argued that Plaintiffs’ claims arose under 29 U.S.C. § 1132(a)(1)(B), which permits an ERISA plan participant or beneficiary to bring a civil action “to recover benefits due” under the terms of a plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan. This would end the case since actions brought under § 1132(a)(1)(B) “may be enforced ‘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.'”

 (The defendant cited Everhart v. Allmerica Fin. Life Ins. Co., 275 F.3d 751, 753 (9th Cir. 2001) and Ford v. MCI Commc’ns Corp. Health and Welfare Plan, 399 F.3d 1076, 1081 (9th Cir. 2005) (noting that under section 1132(a)(1)(B), a claimant “may not sue the plan’s insurer for additional ERISA plan benefits”  for this proposition.) 

On the other hand, liability under § 1132(a)(3) is not limited to the plan itself or its fiduciary.

Thus, the plaintiffs countered that they were not seeking damages from Liberty, but only equitable reformation of the insurance policies. If ERISA preemption applied to their claims, the plaintiffs argued that preemption would convert their equitable state claims to claims pursuant to 29 U.S.C. § 1132(a)(3), not claims arising under 1132(a)(1)(B).

The court framed the issue this way:

The question, then, is whether Plaintiffs’ claim for reformation of the policies falls within section 1132(a)(1)(B) or 1132(a)(3). The Court finds both Everhart and Ford distinguishable. In both those cases, plaintiff beneficiaries brought suit under section 1132(a)(1)(B) seeking recovery of benefits under their ERISA plans. See Everhart, 275 F.3d at 753; Ford, 399 F.3d at 1078. 2 That is not the case here. Reformation is a remedy that “can only be characterized as arising under 29 U.S.C. § 1132(a)(3).” Ross v. Rail Car America Group Disability Income Plan, 285 F.3d 735, 740-41 (8th Cir. 2002) (stating that Plaintiff’s request to reform his employer disability plan was not one for benefits under section 1132(a)(1)).

The court held of the plaintiff’s on this critical issue, stating that “Plaintiffs’ claims against Liberty seek equitable relief within the scope of section 1132(a)(3).”

Section 1132(a)(3) Claims Against Non-Fiduciaries

As a fallback position, citing the Ford decision, Liberty argued that, assuming Plaintiffs’ claims are for equitable relief under § 1132(a)(3), “the defendant must be an ERISA fiduciary” to establish a claim for relief. This argument was rejected for several reasons:

#1 Ford’s statement that section 1132(a)(3) relief may only be had against an ERISA fiduciary is in direct conflict with the Ninth Circuit’s opinion in Everhart, which held that “[l]iability under § 1132(a)(3) is not limited to the plan itself or its fiduciary.” Everhart, 275 F.3d at 753 (citing Harris Trust, 530 U.S. at 247). Until an en banc panel reverses course, this Court must follow the Ninth Circuit’s earlier decision in Everhart. See Miller v. Gammie, 335 F.3d 889, 899 (9th Cir. 2003) (holding that neither a district court nor a three-judge panel may overrule a prior decision of the court unless it has been “undercut by higher authority to such an extent that it has been effectively overruled”).

#2 Ford also relies for the quoted proposition on Mathews v. Chevron Corp., 362 F.3d 1172 (9th Cir. 2004), which in turn relies on the United States Supreme Court’s 1996 decision in Varity Corp. v. Howe in stating that “[t]o establish an action for equitable relief under ERISA section . . . 1132(a)(3), the defendant must be an ERISA fiduciary acting in its fiduciary capacity [internal citation omitted], and must ‘violate [] ERISA-imposed fiduciary obligations.'” Mathews, 362 F.3d at 1178 (citing Varity Corp., 516 U.S. at 498, 506). This Court does not believe Varity Corp. can fairly be read to stand for the proposition that equitable relief may only be had against ERISA fiduciaries.

# 3 Even if Mathews contains a fair reading of Varity Corp., the Supreme Court’s subsequent decision in Harris Trust made clear that status as a fiduciary is not required for claims under section 1132(a)(3). See Harris Trust, 530 U.S. at 241 (finding that section 1132(a)(3) “admits of no limit . . . on the universe of possible defendants”). This Court is persuaded that Everhart correctly followed current Supreme Court precedent in finding that section 1132(a)(3) does not limit the reach of equitable remedies to the plan or its fiduciary.

Note: The “catch all” civil remedies provision, 29 U.S.C. 1132(a)(3), provides that a participant, beneficiary, or fiduciary of an ERISA plan may bring a civil action “(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” 29 U.S.C. § 1132(a)(3). It has often been noted in past commentary that the choice of remedies is ever so critical in ERISA cases. In this case, the plaintiffs began in state court, so the complete preemption of their claims actually worked to their advantage in allowing some flexibility in argument as to how their state law claims should be recharacterized. An interesting outcome thus developed from what one might had anticipated to be a mundane preemption case.

:: Strategic Decisions In Pleading (And Defending) Provider Reimbursement Claims – A Case Study

St. Luke’s may amend within thirty days. If St. Luke’s amends to assert an ERISA claim, the personal jurisdiction issue is far simpler.  “[U]nder ERISA’s nationwide service of process provision,” 29 U.S.C. § 1132(e)(2), “[a] court may exercise personal jurisdiction over the defendant if it determines that the defendant has sufficient ties to the United States.” . . . Because BCBSLA has sufficient contacts with the United States, this court would have personal jurisdiction if St. Luke’s were to amend to assert claims under ERISA.

St. Luke’s Episcopal Hosp. v. La. Health Serv. & Indem. Co., 2009 U.S. Dist. LEXIS 388 (S.D. Tex. Jan. 6, 2009) (citations omitted)

This recent opinion from the Southern District of Texas provides an excellent insight into the strategic decisions involved in provider reimbursement litigation. In the final analysis, the provider’s attempt to assert state law remedies in state court against the Blue Cross defendant failed for want of jurisdiction. All was not lost, however, since the ruling left open the avenue for an amended complaint stating a claim under ERISA on principles of derivative standing (via assignment of benefits).

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:: Discovery Responses Do Not Support Removal & ERISA Preemption

In the case at bar, Plaintiff is no longer  a participant in Defendant’s ERISA plan and he does not allege a wrongful withholding of benefits.  . . . Plaintiff does not claim that Defendant promised him continued participation in an ERISA plan. Plaintiff stated at his deposition that he thought that Defendant was at least partially motivated to fire him in order to avoid paying him higher pension benefits, which he would have accrued had he continued to work for Defendant.  However, Plaintiff’s statement does not automatically give rise to ERISA preemption.

Black v. Lear, 2008 U.S. Dist. LEXIS 86985 ( E.D. Mich. Oct. 28, 2008)

Plaintiffs walk a fine line when asserting claims under the ADA and state wrongful discharge laws.  This recent district court opinion exemplifies a successful avoidance of ERISA preemption, but not without the trouble of removal and remand.

The problem lies in the natural consequence of termination.  Aside from loss of wages and compensation benefits, the plaitntiff will lose participation in employee benefit plans.  If that becomes an important aspect of the case, the defendant should remove the case as more properly stating an ERISA Section 510 claim.

The trade is not an even one.   ERISA will preempt state law claims while offering in return a weapon with less range, less punch and prone to frequent operator error.

The Snare Is Laid

The motion practice associated with removal of claims offers a journey through one of the last remaining wilderness preserves where trial by ambush may be robustly pursued.  The stakes are high on either side.  If the defendant does not remove within 30 days, the right is lost.  If the plaintiff inadvertently triggers removal, then the complaint is restated as a set of ERISA claims which, as noted above, have inherent limitations.

In this instance, the parties began stalking the issue in depositions.

On July 24, 2008, Defendant deposed Plaintiff. (Def.’s Br. 1). During the deposition Defendant asked Plaintiff whether he claimed that Defendant terminated him to avoid paying him higher pension benefits. (Black Dep. 94-95). Plaintiff answered: “Seems reasonable, yes, to assume that. I don’t know why Lear terminated me. I worked 35 years for the company.” (Id. at 95).

When Defendant asked Plaintiff a second time whether he claimed that he was fired to prevent him from earning higher pension benefits, Plaintiff responded, “That’s right.” (Id.at 98). Defendant followed up by asking Plaintiff if he knew of any facts that support his claim. (Id.) Plaintiff answered, “The only fact I know is that I’m not working there anymore.” Defendant pressed Plaintiff for other facts and Plaintiff said, “And I won’t accrue those benefits.”

In addition, the defendant developed the issue somewhat further by a set of requests for admissions directed a eliciting admissions as to the nature of claims asserted:

The second request asked Plaintiff to admit whether he alleges that Defendant intentionally terminated his employment with the purpose to deprive him of benefits under the Lear Corporation Pension Plan. (Id.) Plaintiff responded: “Denied, such may or may not have been the sole basis. The Complaint alleges multiple basis [sic] for Plaintiff’s termination.” (Id.)

The Claims Evaluated

The defendant having acquired all that could be adduced on the issue, then turned to federal court for an assessment of the results. The plaintiff filed a motion to remand.  The issue was then joined on whether the plaintiff had, in effect, plead an ERISA Section 510 claim.

The district court framed the issue with reference to the key Supreme Court opinion –

In Metropolitan Life Insurance, the United States Supreme Court held that ERISA preempts state common law claims when the action is to recover benefits, enforce rights, or clarify future benefits under an ERISA plan. 481 U.S. at 63-64.

– and then dialed in the applicable Sixth Circuit authority:

In accordance  with Metropolitan Life Insurance, the Sixth Circuit held in Peters v. Lincoln Electric Company, 285 F.3d 456, 467 (2002), that ERISA completely preempted the plaintiff’s state law breach of promise claim because the plaintiff asserted that the defendant breached a promise to continue his participation in an ERISA regulated benefit plan. In Peters, the plaintiff filed a complaint against his former employer alleging age discrimination, breach of contract, detrimental reliance and breach of public policy. Id. at 464.

During the plaintiff’s deposition, the defendant asked the plaintiff a series of questions designed to uncover the specific “unbroken promises” for which the plaintiff sought relief. Id. The plaintiff testified that one of the promises he sued to enforce was the defendant’s promise to continue his participation in its supplemental executive pension plan. Id. at 466.

The Facts Differ

The district court found the Peters case distinguishable.  In the court’s view, the plaintiff had avoided the preemption trip wire and thus was entitled to return to state court.

In the case at bar, Plaintiff is no longer a participant in Defendant’s ERISA plan and he does not allege a wrongful withholding of benefits. See Sears, 884 F.Supp. at 1131-32. Moreover, unlike in Peters, Plaintiff does not claim that Defendant promised him continued participation in an ERISA plan. 285 F.3d at 468. Plaintiff stated at his deposition that he thought that Defendant was at least partially motivated to fire him in order to avoid paying him higher pension benefits, which he would have accrued had he continued to work for Defendant. (Black’s Dep. 95, 98).

However, Plaintiff’s statement does not automatically give rise to ERISA preemption. Plaintiff’s wrongful discharge and age discrimination claims may give rise to an award of damages based on the value of the increased pension benefits Plaintiff would have received if he was not terminated, but he is only seeking the value of the employment he lost, not the benefits themselves. See Morningstar, 662 F.Supp. at 557. The gravamen of Plaintiff’s complaint is his claim that he was discharged in violation of his employment contract, against public policy and as a result of age discrimination. Plaintiff assures the Court that he is not asserting a purposeful deprivation  of benefits claim. (Plaintiff’s Br. 4).

Because the essence of Plaintiff’s state law claims are not for the recovery of an ERISA plan benefit, and Plaintiff only seeks to recovery the value of the benefits he lost as a consequence of his termination, there is no ERISA cause of action. Defendant, therefore, has failed to show that subject matter jurisdiction lies with this Court, and this matter must be remanded to the Wayne County Circuit Court.

Note: The case gives a good discussion of the line of demarcation.  The issue turns on the facts, so analogy to caselaw can be difficult.  This excerpt probably offers the most important guidance that may be gleaned from the opinion and, for that reason, I’ll quote the entire passage:

Both the Sixth Circuit and courts in the Eastern District of Michigan have held that a plaintiff’s state sex, age and race employment discrimination claims are not preempted when the action is merely peripherally related to the ERISA plan in question. See Wright, 262 F.3d at 613 (“‘[e]ven if an action refers to a plan, . . . the action will not relate to the plan for preemption purposes when the action only peripherally affects the plan.” (quoting Crabbs v. Copperweld Tubing Products Company, 114 F.3d 85 (6th Cir. 1997)); Yageman v. Vista Maria, Sisters of the Good Shepherd, 767 F.Supp. 144, 145 (E.D. Mich. 1991)  (Duggan, J.) (holding that plaintiff’s loss of pension benefits was a mere consequence of, and not a motivating factor behind, his termination and, therefore, no ERISA action existed); Sears v. Chrysler Corp., 884 F.Supp. 1125, 1131-32 (E.D. Mich. 1995) (Rosen, J.) (holding that a former employee, who sought to recover the value of the benefits she would have received under the ERISA plan, is not a plan participant and cannot state a § 1132(a)(1)(B) ERISA claim); Morningstar v. Meijer, Inc., 662 F.Supp. 555, 556-57 (E.D. Mich. 1987) (Churchill, J.) (concluding that the plaintiff’s state law claim for breach of employment contract was not preempted when the plaintiff was not a plan participant, did not allege that the defendant fired her to prevent her benefits from vesting, to keep her from exercising rights under the plan or for any other improper purpose, and only sought to recover the value of the benefits).

Thus, in instances where a plaintiff is not a plan participant and is not alleging a wrongful withholding of benefits but seeks damages for the loss of ERISA benefits, an ERISA cause of action does not exist, and removal is improper.

See also – For more on Section 510, see :: Sixth Circuit Permits Claims Under Tolle Rule But Finds Wrong Without Remedy

For more on the timing and factual issues attending ERISA removal, see :: Challenge To Factual Basis Set Forth In Removal Notice Rejected

:: Third Circuit Remands Health Care Provider’s Reimbursement Litigation To State Court

This is not the typical case, like in Metropolitan Life, where an employee brings state common law claims against his employer and insurer to recover benefits allegedly due. Here the plaintiff is a hospital seeking payment of its bill from both the insurer and the employee. Does ERISA completely preempt Cooper Hospital’s claims, thereby providing the basis for federal question subject matter jurisdiction? Cooper Hosp. University Medical Center v. Seafarers Health and Health and Benefits Plan, — F.Supp.2d —-, 2007 WL 2331928 (D.N.J.) (August 17, 2007)

When does a health care provider stand in the shoes of a patient and thus become subject to federal court jurisdiction and the formidable defenses of ERISA preemption? This was the question before the district court in Cooper Hospital where the self-funded ERISA health plan declined to pay a substantial portion of billed charges on the view that the charges exceeded what was “reasonable and customary”.


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:: The Hazards Of Improper Removal of State Law Cases To Federal Court

District courts may award “just costs and any actual expenses, including attorney’s fees” incurred as a result of a defective removal to federal court . . . Koresko failed to obtain the unanimous consent of all defendants before seeking to remove the case to federal court. Therefore, his removal was procedurally defective. Step Plan Services, Inc. v. Koresko, Slip Copy, 2007 WL 760590 C.A.3 (Pa.) (March 14, 2007)

Step Plan Services, Inc. v. Koresko illustrates the stakes involved in ERISA removal decisions. The successful defendant gains the advantages of ERISA preemption of state law claims and, depending on whether the claims can be cast as ERISA claims or not, perhaps complete victory on a subsequent motion to dismiss or for summary judgment.

On the other hand, if a case is improvidently removed, the mistake can be costly. In Koresko, for example, the plaintiff sought attorneys fees and costs following the granting of its motion to remand the case to state court.

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:: Provider Claims Against Aetna Remanded To State Court: A Suggested Checklist of Removal Factors

In Somerset Orthopedic Associates, P.A. v. Aetna Life Ins. Co., Slip Copy, 2007 WL 432986 (D.N.J.), a healthcare provider sued to recover for services provided to a beneficiary of a group health plan. The Defendant removed the case, asserting federal question jurisdiction under ERISA.

The case provides another chapter in the continuing development of provider/payer caselaw deriving from the important Third Circuit opinion in Pascack Valley Hospital, Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393 (3d Cir.2004). The issue holds something of interest for both sides of payment disputes as the outcome will determine both the forum and the remedies available to the litigants.

ERISA’s Claim For Benefits Framework

To establish a frame of reference, provider payment disputes are decided in terms of Section 502(a) of ERISA which allows “a participant or beneficiary” to bring a civil action:

to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B).

As is frequently noted in such litigation, the statute by its terms, limits standing to participants and beneficiaries. To bridge that gap, a provider must obtain standing under ERISA, if an all, by an assignment. Continue reading

:: Provider Claims Against Blue Cross Dismissed As Preempted

ERISA provides a narrow channel for advancing claims for benefits. The recent case, Gregory Surgical Services, LLC v. Horizon Blue Cross Blue Shield 2006 WL 3751385 (D.N.J.) (December 19, 2006) illustrates the hazards of relying upon state law in negotiating that channel.

The case involves claims by an ambulatory surgical care center against Blue Cross Blue Shield of New Jersey. The healthcare provider had no contract with Blue Cross and was therefore a “non-participating provider”. Complaining of inadequate reimbursement for services, it filed suit in State court. The short, unpublished opinion provides a good outline of what can go wrong when the healthcare provider’s collection case turns into an ERISA claim for benefits case.

  • ERISA Plan + State Law Remedies = Removal

In Gregory Surgical Services, the provider took its dispute with Blue Cross to State Court. Blue Cross removed the case to federal court.

In December of 2005, GSS filed a Complaint in New Jersey Superior Court alleging that it had received inadequate reimbursements from Horizon for services it provided to Horizon subscribers. In January of 2006, Horizon removed the action to federal court, pursuant to the Employee Income Retirement Security Act of 1974, 29 U.S.C. § 1001, et seq. (“ERISA”).

  • ERISA Plan + State Law Remedies = Motion To Dismiss

A complaint that only states State law remedies will offer little grist for the ERISA mill. Therefore, the removal to federal court will be quickly followed by a motion to dismiss. In Gregory Surgical Services, Blue Cross filed a motion to dismiss the plaintiff’s complaint simultaneously with its notice of removal.

At the same time, Horizon filed a motion to dismiss, or in the alternative for summary judgment. In an order dated June 1, 2006, this Court granted Horizon’s motion to dismiss without prejudice, finding that GSS had failed to allege facts sufficient for this Court to infer that it has standing to pursue its claims.

  • Amended Complaint – ERISA Remedies = Case Dismissed

The healthcare provider amended its complaint, but still failed to state its claims in terms of a proper ERISA claim. In fact, Blue Cross properly raised the issue of whether the provider had standing to assert any claims against the ERISA plan.

On July 7, 2006, GSS filed its First Amended Complaint, asserting causes of action against Horizon for (1) violation of N.J. ADMIN. CODE § 11:21-7.13(a); (2) violation of N.J. ADMIN. CODE § 11:21-7.13(a); and (3) unjust enrichment. In its First Amended Complaint, GSS also sets forth allegations, which purport to establish its standing.

Here, GSS has failed to replead its state law claims, pursuant to ERISA. Accordingly, all of its claims are preempted, and fail to state claims upon which relief may be granted. Thus, this Court must dismiss GSS’s First Amended Complaint, pursuant to FED.R.CIV.P. 12(b)(6). See Stewart, 297 F.3d at 959. (“the district court had no other alternative but to dismiss the case, finding the only claims Plaintiffs presented were preempted”).

The district court noted that, once a court has found that a plaintiff’s claims are preempted, it is the plaintiff’s burden to amend the complaint. (citing Cross v. County of Alameda, No. C 02-1024 MMC, 2002 WL 1940302 (N.D.Cal. Aug. 14, 2002) (“Once removal has been accomplished, however, if the defendant raises preemption as a defense to the state law claims, the district court is not required to rewrite the complaint to state a federal claim. Rather, at that stage of the proceedings, the plaintiff has the burden to amend his complaint to survive the defendant’s motion to dismiss”)

Despite having already given the plaintiff one opportunity to amend, the district court gave the plaintiff another 45 days to amend its complaint. The court thus gave the healthcare provider a reprieve from the “harsh remedy” of dismissing the complaint with prejudice. The court denied the Blue Cross motion to dismiss as moot.

Note: A court may, on its own motion, dismiss a claim pursuant to FED.R.CIV.P. 12(b)(6). See Bryson v. Brand Insulations, Inc., 621 F.2d 556, 559 (3d Cir.1980) (“The district court may on its own initiative enter an order dismissing the action provided that the complaint affords a sufficient basis for the court’s actions.”). In this case, the district court exercised that discretion, and showed considerable restraint in permitting the plaintiff another attempt at amending its complaint.

The facts missing from the healthcare providers’ complaint are those that show it is entitled to state a claim under Section 502(a)(3). That provision does not include healthcare providers in the potential plaintiff class. Therefore, the healthcare provider must allege facts showing that it is a proper assignee of the participant’s claims. See, e.g.,

While seemingly simple in concept, suits by healthcare providers against health plans for payment for services rendered to ERISA plan participants have been troubling to federal courts. For example, while providers routinely obtain assignment of benefits from plan participants, courts have struggled with whether such assignments should elevate providers to claimant status under 29 U.S.C. § 1132(a). See, e.g., LeTourneau Lifelike Orthotics & Prosthetics, Inc. v. Wal-Mart Stores, Inc. 298 F.3d 348 (5th Cir. 2002) :: Participant Benefit Assignments Do Not Foreclose Hospital’s State Law Claims Against Health Plan

As an assignee of the ERISA beneficiary’s rights, the hospital then had a very limited array of options. On the positive side, the hospital could pursue the claim for benefits against the plan. Of course, that action is constrained by all of the typical limitations of claims for benefits such as the rules permitting deference to plan interpretations and decisions of plan administrators, limitation of discovery and evidence to the administrative record, preclusion of extra-contractual damages, and so forth. :: Hospital’s ERISA Claims Against TPA and PPO Network Dismissed

Since the healthcare provider was a “non-participating provider”, it may not have had the option of basing a claim on a separate agreement, such as a managed care contract. In some cases, this approach has avoided preemption of State law claims and, therefore, any independent arrangements outside an assignment claim under the plan are worth careful review.

:: Challenge To Factual Basis Set Forth In Removal Notice Rejected

Notwithstanding Defendant Patten Seed’s failure to fully support its Notice of Removal with facts demonstrating that ERISA preemption exists in this case, the Court will not, at this time, adopt the “well-pleaded notice-of-removal” rule oft-applied in the Northern District of Alabama. Because neither the Supreme Court nor the Eleventh Circuit has ever pronounced a “well-pleaded notice-of-removal” rule, the Court cannot, in good conscience, remand this case to the state court solely because Defendants did not fully expound on the basis for this Court’s ERISA-based federal-question jurisdiction in their Notice of Removal. Sumter Regional Hosp. v. Patten Seed Co. Slip Copy, 2006 WL 3490797 (M.D.Ga.) (December 01, 2006)

The recent case of Sumter Regional v. Patten Seed raises the question of what facts must be asserted to support removal of a putative ERISA case to federal court. While the complete preemption doctrine undoubtedly permits removal of an ERISA case notwithstanding the wording of the complaint, what facts must be alleged to invoke federal question jurisdiction? Continue reading