:: State Court Lien Adjudication Claim Subject to Removal and ERISA Preemption

This case arises from Defendant Hawaii Management Alliance Association’s (“HMAA”) lien for $400,779.70 of the medical expenses it paid pursuant to Plaintiff Randy Rudel’s (“Plaintiff” or “Rudel”) HMAA benefit plan (the “Plan”) after Rudel was injured in a motorcycle crash.

According to HMAA, the Plan entitles HMAA to reimbursement in light of Rudel’s $1,500,000 third-party tort settlement related to the motorcycle crash.   Rudel initiated a state-court action to determine the validity of HMAA’s lien . . . HMAA removed the Petition to this court asserting that this matter is completely preempted by [ERISA]

Rudel v. Hawaii Mgmt. All. Ass’n, No. CV 15-00539 JMS-RLP, 2016 WL 4083320, at *1 (D. Haw. Aug. 1, 2016)

This case is quite similar to another recent case,  Noetzel v. Hawaii Med. Serv. Ass’n, 2016 WL 4033099 (D. Haw. July 27, 2016).   [Analyzed here]  As in that case, the question is whether an ERISA plan participant may avoid ERISA’s preemptive provisions by filing a state court petition to adjudicate a health plan’s reimbursement provisions.

Two Prong Test

The Court turned to the now familiar two prong test set forth in Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) for deciding whether a state-law cause of action is completely preempted by ERISA. A state law claim is preempted if: (1) the plaintiff “could have brought his claim under ERISA § 502(a)(1)(B)”; and (2) “there is no other independent legal duty that is implicated by a defendant’s actions.” Davila, 542 U.S. at 210.

#1

Could Rudel have brought his claim under ERISA § 502(a)(1)(B)? That question sums up the first issue since the challenge in state court could really be construed as a claim for benefits undiminished by the offsetting reimbursement claim.

Section 502(a)(1)(B) provides that a Plan participant or beneficiary may 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).

Rudel argues that it is “patently clear” his Petition is brought pursuant to Hawaii state law instead of ERISA. According to Rudel, ERISA § 502(a)(1)(B) does not apply because the Petition does not seek to recover benefits under the terms of the Plan. Rather, Rudel argues, the Petition only seeks to keep benefits already provided by HMAA.

Rudel misses the point. “Focusing on how a claim is pled risks missing the critical inquiry as to whether ‘an individual, at some point in time could have brought his claim under ERISA § 502(a).’ ” Noetzel, 2016 WL 1698264, at *11 (citing Davila, 542 U.S. at 210).Here, HMAA’s lien places Rudel’s benefits “ ‘under something of a cloud.’ ” Id. at *9 (citing Arana v. Ochsner Health Plan, 338 F.3d 433, 438 (5th Cir. 2003) (en banc)). Rudel’s Petition seeks to remove the “cloud” by obtaining “recovery of the entire benefit provided by [HMAA], as opposed to the benefit minus the amount to be reimbursed to [HMAA].”

The essence of the Petition, therefore, is that “although the benefits have already been paid, [Rudel] has not fully ‘recovered them because [he] has not obtained the benefits free and clear of [HMAA’s] claims.” Id. (quoting Arana, 338 F.3d at 438).The fact that HMAA has “already provided the benefits to [Rudel] as opposed to having denied them in the first instance, does not change the nature of [his] claim[s], which, for all intents and purposes, seek[ ] to establish [his] entitlement to ERISA benefits.” Id.

(emphasis added)

# 2

Does state law impose an independent legal duty?  This is the second prong issue.  The Court concluded that it did not.

The Court noted that:

. . . [s]tate law legal duties are not independent of ERISA where interpretation of the terms of the benefit plan forms an essential part of the claim, and legal liability can exist only because of the defendant’s administration of ERISA-regulated benefit plans.” Id. at *13 (citing Davila, 542 U.S. at 213) (some quotations, alterations, and citations omitted).

And the Court found that interpretation of plan terms formed an “essential part” of  state law Petition.  Furthermore,

Rudel’s Petition is dependent on ERISA because Rudel “would have no claim in the absence of the ERISA Plan itself.” Id. That is, Rudel’s Petition is challenging the validity of the Plan’s request for reimbursement, and “legal liability can exist only because of the defendant’s administration of ERISA-regulated benefit plans.” Noetzel, 2016 WL 1698264, at *13. Ultimately, any legal duty HMAA might have “is entirely dependent on the ERISA Plan.” Id. at *14.

Thus, the state law claim was properly removed to federal court and preempted by ERISA.

 
Note:   A conflict in the federal courts exists on the first prong query.  The Court noted that:
In reaching this conclusion, the court is well aware that Wurtz v. Rawlings Co., LLC, 761 F.3d 232 (2d Cir. 2014) –– the case the F&R relied upon in finding that Rudel’s claim was not within the scope of § 502(a)(1)(B) –– “is the only decision cited to the court which interpreted and analyzed” Davila’s two-prong test.
But the court finds Wurtz unpersuasive because it “flouts the direction in Davila to examine the essence of a claim in determining whether it is completely preempted by § 502(a).” Noetzel, 2016 WL 1698264, at *10. As such, the court finds that the first prong of Davila is satisfied.

 Rudel v. Hawaii Mgmt. All. Ass’n, No. CV 15-00539 JMS-RLP, 2016 WL 4083320, at *2 (D. Haw. Aug. 1, 2016)