• Marin General Hospital v. Modesto & Empire Traction Co. No. 07-16518 (9th Cir. 2009)
  • November 3, 2009 | Authors: Matthew T. Fornataro; Arthur N. Lerner
  • Law Firm: Crowell & Moring LLP - Washington Office
  • The Ninth Circuit Court of Appeals reversed a lower court and remanded the case to state court. The court held that because the state-law actions for breach of contract, negligent misrepresentation, quantum meruit, and estoppel rely on legal duties that are independent from duties under any benefit plan established under ERISA, they are not completely preempted. Thus, there was no federal question subject matter jurisdiction in federal court so removal from state court was improper.

    Marin General Hospital ("Marin") contended that is representative spoke to a representative of Medical Benefits Administrators of M.D. Inc. ("Medical Benefits") on April 8, 2004 to confirm that a prospective patient had health insurance through a plan provided by his employer, Modesto & Empire Traction Co., and administered by Medical Benefits. Marin contended that the Medical Benefits representative verbally verified the patient’s coverage, authorized treatment, and agreed to cover ninety-percent of the patient’s medical expenses. Marin sued Medical Benefits and Modesto & Empire in state court and the defendants successfully removed the case to the U.S. District Court for the Northern District of California, claiming that ERISA completely preempted the claims. The district court subsequently dismissed Marin’s complaint, concluding that the only remedy available was under ERISA § 502(a)(1)(B).

    The court first found the parties "have not clearly understood the difference between complete preemption under ERISA § 502(a), 29 U.S.C. § 1132(a), and conflict preemption under ERISA § 514(a), 29 U.S.C. § 1144(a)." Complete preemption under § 502(a) is a jurisdictional doctrine. A party seeking removal based on federal question jurisdiction must show either that the state-law causes of action are completely preempted by § 502(a) of ERISA, or that some other basis exists.

    In Aetna Health Inc. v. Davila (542 U.S. 200 (2004)), the Supreme Court set forth a two-prong test under § 502(a)(1)(B). First, whether the plaintiff seeking to assert a state-law claim could have brought the claim under ERISA. Have brought its state law claims under Section 502(a)(1)(B) because the hospital was seeking money owed to it based upon the alleged oral contract between it and Medical Benefits and, ere, Marin could not thus, was not suing as an assignee of an ERISA plan participant or beneficiary under § 502(a)(1)(B). The term "relates to" is not the test for complete preemption, but rather the test for conflict preemption.

    Second, whether there is no other independent legal duty that is implicated by a defendant’s actions. Here, Marin asserts claims that do not rely on and are independent of any duty under ERISA because they are based on the alleged oral contract between the parties. The question under this second prong is only whether there is no other legal duty that is implicated.

    Therefore, Marin’s state law claims were not completely preempted by § 502(a)(1)(B). They could not be brought under § 502(a)(1)(B), and they relied on independent legal obligations.