Complete Versus Conflict Preemption In ERISA Cases

Article originally appeared in DRI: The Voice of the Defense Bar on 08/10/17

Both state and federal courts have original jurisdiction over ERISA benefits actions. See29 U.S.C. § 1132(e)(1), ERISA § 502(e)(1). But litigants (and defendants in particular) have historically preferred the federal courts, such that the federal courts typically have more experience with, and are better equipped to handle, ERISA's peculiarities. When a claimant sues in state court, however, removal to federal court should not be a forgone conclusion just because ERISA issues may be involved. Because only certain types of cases are subject to removal and because of rigid time and procedural requirements, an analysis of whether to remove a case involving ERISA issues must be prompt and informed. This article provides a reminder and summary of one key consideration—complete versus conflict preemption.

Removal And The Well-Pleaded Complaint Rule

Under the removal statute, "any civil action brought in a State court of which the district courts have original jurisdiction may be removed by the defendant" to federal court. 28 U.S.C. § 1441(a). The "original jurisdiction" referred to is federal question jurisdiction, which covers cases "arising under the Constitution, laws, or treaties of the United States." Id.§ 1331.

Ordinarily, whether a case "arises under" federal law is determined by the "well-pleaded complaint rule." That is, "a defendant may not generally remove a case to federal court unless the plaintiff's complaint establishes that the case 'arises under' federal law." Aetna Health, Inc. v. Davila, 542 U.S. 200, 207 (2004) (quoting Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 10 (1983)). "The [well pleaded complaint] rule makes the plaintiff the master of the claim; he or she may avoid federal jurisdiction by exclusive reliance on state law." Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987). Thus, where a plaintiff properly pleads only state law causes of action, there will generally be no federal question jurisdiction. The fact that federal law may provide a defense to a state law claim is insufficient to create federal question jurisdiction, even if the federal defense is anticipated in the plaintiff's complaint. See Gutierrez v. Flores, 543 F.3d 248, 252 (5th Cir.2008); Firstenberg v. City of Santa Fe, N.M., 696 F.3d 1018, 1025 (10th Cir. 2012).

Complete Preemption: A Corollary to the Well-Pleaded Complaint Rule

A corollary or exception to the well-pleaded complaint rule exists "[w]hen a federal statute wholly displaces [a] state-law cause of action through complete pre-emption." Davila, 542 U.S. at 207 (quoting Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 8 (2003)). Under the complete-preemption doctrine, a select collection of claims, regardless of how they are pled, are "necessarily federal" and removable to federal court. Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 64-65 (1987). For these claims, federal law does not simply preempt state law—it replaces it. One court explained that "[p]reemption is what wipes out the state law, but the foundation of removal [under complete preemption] is the creation of federal law to replace state law." Bartholet v. Reishauer A.G. (Zurich), 953 F.2d 1073, 1075 (7th Cir. 1992); see also Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009) (complete preemption displaces state law claims and substitutes a federal claim). Therefore, where a plaintiff's state-law cause of action is removed on the basis of complete preemption, the federal court will "re-characterize" the claim as a federal claim, thereby making the claim "arise under" federal law. Cavallaro v. UMass Mem'l Healthcare, Inc., 678 F.3d 1, *4 (1st Cir. 2012).

In its true sense, complete preemption is a "misnomer, having nothing to do with preemption and everything to do with federal occupation of a field." Lehmann v. Brown, 230 F.3d 916, 919 (7th Cir. 2000). It is a jurisdictional doctrine, distinct from "ordinary," "conflict," or "defense" preemption. As the Tenth Circuit explained, complete preemption is not "a crude measure of the breadth of the preemption (in the ordinary sense) of a state law by a federal law, but rather as a description of the specific situation in which a federal law not only preempts a state law to some degree but also substitutes a federal cause of action for the state cause of action, thereby manifesting Congress's intent to permit removal." Schmeling v. NORDAM, 97 F.3d 1336, 1342 (10th Cir. 1996).By determining that a state law claim is completely preempted, a federal court is finding that Congress intended to give the defendant not just a preemption defense, but a right to remove the claim to federal court.

Preemption and ERISA

ERISA can preempt state law in two ways. First, as discussed, it can occupy an entire field, i.e., "complete preemption." Second, it can provide a defense to a state law claim, i.e., "conflict preemption." Which form of preemption applies to a plaintiff's state law claims is vital to the decision and consequence of removal.

Complete Preemption under ERISA § 502(a)(1)(B). In 1987, the Supreme Court considered in Metropolitan Life Insurance Company v. Taylor whether to extend the complete-preemption doctrine to certain ERISA claims. There, General Motors had created an employee benefit plan insured by MetLife. After General Motors terminated an employee's benefits under the plan, the employee sued in state court, asserting state-law contract and tort claims. Defendants General Motors and MetLife removed the case to federal court, arguing that the plaintiff's claims were completely preempted by ERISA. Following conflicting decisions by the district court and the Sixth Circuit, the Supreme Court granted certiorari to determine whether the plaintiff's state law claims were completely preempted under ERISA § 502(a), i.e., 29 U.S.C. § 1132(a).

ERISA § 502(a) enumerates ten scenarios in which a civil action may be brought under ERISA. The most typical scenario (§ 502(a)(1)(B)) authorizes a civil action by a participant or beneficiary to recover benefits due under the terms of a plan, to enforce or clarify rights to future benefits under the terms of a plan, or to enforce the terms of a plan. In Taylor, the Supreme Court looked to Congressional intent and found that the legislative history evinced Congress's intent to displace state law actions falling within § 502(a)(1)(B). 481 U.S. at 64-66. The Court ruled that, because the employee was a beneficiary of an ERISA-regulated plan and had brought suit to essentially enforce the terms of that plan, the claims fell within the ambit of § 502(a)(1)(B) and were therefore completely preempted and subject to removal. Id. at 66-67.

Nearly two decades after Taylor, the Supreme Court further defined the breadth and depth of the complete preemption doctrine in Aetna Health Inc. v. Davila. There, the Court framed a two-part test for analyzing complete preemption under ERISA:

[W]here the individual is entitled to such coverage only because of the terms of an ERISA-regulated employee benefit plan, and where no legal duty (state or federal) independent of ERISA or the plan terms is violated, then the suit falls "within the scope of" ERISA § 502(a)(1)(B). In other words, if an individual, at some point in time, could have brought his claim under ERISA § 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).

542 U.S. at 210 (citation omitted). To determine whether a state law cause of action falls within the scope of § 502(a)(1)(B), a court examines the plaintiff's allegations, the statutes on which the state law causes of action are based, and the plan documents. Id. at 211. The particular label affixed by a plaintiff to a claim, regardless of how artful, is immaterial. Id. at 214-15.

Since Davila, most of the circuit courts have recognized and applied the Supreme Court's two-part complete preemption test. See Negron-Fuentes v. UPS Supply Chain Solutions, 532 F.3d 1, *7 (1st Cir. 2008) (analyzing whether the plaintiff's claims are "in substance duplicated or supplanted by the ERISA cause of action …or instead whether all are directed at violation of a legal duty … independent of ERISA or the plan terms"); Montefiore Med. Ctr. v. Teamsters Local 272, 642 F.3d 321, 328 (2d Cir.2011); Pascack Valley Hosp. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 400 (3d Cir. 2004); Lone Star OB/GYN Assocs. v. Aetna Health Inc., 579 F.3d 525, 530 (5th Cir. 2009); Gardner v. Heartland Indus. Partners, LP, 715 F.3d 609, 613 (6th Cir. 2013); Franciscan Skemp Healthcare, Inc. v. Cent. States Joint Bd. Health & Welfare Trust Fund, 538 F.3d 594, 597 (7th Cir. 2008); Treasurer, Trustees of Drury Indus., Inc. Health Care Plan & Trust v. Goding, 692 F.3d 888, 897 (8th Cir. 2012); Marin General Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 946, 950 (9th Cir. 2009); Hansen v. Harper Excavating, Inc., 641 F.3d 1216, 1221-23 (10th Cir. 2011); Borrero v. United Healthcare of New York, Inc., 610 F.3d 1296, 1301 (11th Cir. 2010).

When both prongs of the Davila test are satisfied, federal question jurisdiction exists via the complete preemption doctrine and removal is proper. If a plaintiff moves to remand, all a defendant need do is demonstrate that at least one of the plaintiff's claims are completely preempted by ERISA§ 502(a)(1)(B), and the Court may not remand.

Conflict Preemption under ERISA § 514(a). The second form of ERISA preemption, which is commonly referred to as "ordinary," "conflict," or "defense" preemption, constitutes true preemption. It "allows a defendant to defeat a plaintiff's state-law claim on the merits by asserting the supremacy of federal law as an affirmative defense." Cmty. State Bank v. Strong, 651 F.3d 1241, 1261 n.16 (11th Cir. 2011).

Conflict preemption exists in the ERISA context when a state law claim "relates to" an ERISA plan under § 514(a)'s express preemption language. See29 U.S.C. § 1144(a) (ERISA provisions "shall supersede any and all state laws insofar as they may now or hereafter relate to any [ERISA] employee benefit plan"). A state cause of action "relates to" an ERISA plan whenever it has "a connection with or reference to such a plan." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97 (1983). The Supreme Court has "observed repeatedly that this broadly worded provision is 'clearly expansive.'" Egelhoff v. Egelhoff, 532 U.S. 141, 146 (2001) (quoting N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995)).

Unlike complete preemption, the presence of preemption under § 514(a) does not establish federal question jurisdiction or provide a basis for removal. Taylor, 481 U.S. at 64; Giles v. NYL Care Health Plans, Inc., 172 F.3d 332, 337 (5th Cir. 1999). Thus, "[s]tate law claims which fall outside of the scope of § 502, even if preempted by § 514(a), are still governed by the well-pleaded complaint rule and, therefore, are not removable under [] complete-preemption principles." Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, 355 (3d Cir. 1995). Where a lawsuit is removed based on conflict preemption under § 514(a), a federal court "lacks power to do anything other than remand to the state court where the preemption issue can be addressed and resolved. Id.

Case Studies Post-Davila

The first part of the Davila test is whether the plaintiff "could have brought his claim under § 502(a)(1)(B)." This prong is satisfied upon a showing that: (a) the claimant is the type of party who can bring a claim pursuant to § 502(a)(1)(B) and (b) the actual claim asserted can be construed as a colorable claim for benefits pursuant to § 502(a)(1)(B). Montefiore, 642 F.3d at 328. Where a claimant is not a party that could bring a claim pursuant to ERISA's civil enforcement mechanism, the first part of the Davila cannot be not satisfied and complete preemption will not exist. Similarly, where a claim is brought "solely pursuant to an independent duty that has nothing to do with ERISA," the claim fails the first part of the Davila test. Id.

In Montefiore, for example, a New York hospital sued an ERISA plan in state court, asserting state-law claims for breach of contract and unjust enrichment. The hospital sought more than $1 million for alleged unreimbursed medical services provided by the hospital to plan beneficiaries. Pursuant to an agreement with the Plan, the hospital provided medical services to plan beneficiaries and the Plan reimbursed costs for services directly to the hospital. The Plan removed the case, claiming complete preemption. The trial court denied a motion to remand and the hospital appealed.

The Court first analyzed whether the hospital is the type of party allowed to bring a claim under § 502(a)(1)(B), even though it was not a "participant or beneficiary." The Court found that the hospital had standing because the plan participants had validly assigned their claims to the hospital. Id. at 325-326. The Court then turned to whether the actual claims asserted by the hospital could be construed as colorable claims for benefits under § 502(a)(1)(B). Although the hospital argued that its claims "are simply contract and quasi-contract claims that have nothing to do with ERISA," the Court disagreed, looking past the allegations in the complaint, and finding that the hospital's claims included claims that could be classified as "right to payment" claims that could be brought pursuant to § 502(a)(1)(B). Id. at 331-332.

The second part of the Davila test is whether another independent legal duty is implicated by a defendant's actions. This part of the test can be more complicated, since whether a duty is "independent" does not depend merely on whether the duty nominally arises from a source other than ERISA or an ERISA plan's terms.

In Davila itself, for example, a Texas statute imposed a duty on HMOs to "exercise ordinary care when making health care treatment decisions." 542 U.S. at 212 (quoting Tex. Civ. Prac. & Rem. Code Ann. § 88.002(a)). The plaintiff brought a state-law claim, alleging that Aetna breached its duty under the Texas statute by failing to provide coverage for certain prescription drugs. Aetna argued that the claim was completely preempted under § 502(a)(1)(B). The plaintiffs argued that their claim arose under the Texas statute. The Supreme Court disagreed with the plaintiffs, holding that the duty of ordinary care under the Texas statute excluded any "obligation on the part of [an HMO] to provide to an insured or enrollee treatment which is not covered by the health care plan of the entity." 542 U.S. at 213 (quoting§ 88.002(d)). Aetna's duty under the Texas statute was conditioned upon the terms of the ERISA plan, and the Court held that the state-law duty was not independent of the plan for purposes of complete preemption and removal.

The Second Circuit recently reached the same conclusion in Arditi v. Lighthouse International, 676 F.3d 294 (2d Cir.2012). There, the plaintiff's employment agreement with his employer (Lighthouse) recited Lighthouse's obligations to the plaintiff (Arditi) under a pension plan. When Lighthouse denied pension benefits to Arditi, he brought a state-law claim for breach of the employment agreement. The Second Circuit held that Lighthouse's duty under the contract was entirely derivative of its duty under the plan. Absent any duty under the plan, there was no duty under the contract, and thus the contractual duty was not "separate and independent" of the plan for purposes of complete preemption. Id. at 300.

The contrary, however, was true in Stevenson v. Bank of New York Co., Inc., 609 F.3d 56 (2d Cir. 2010) and Marin General Hospital v. Modesto & Empire Traction Co. In Stevenson, a bank asked Stevenson, a senior executive, to transfer to an affiliated bank in Switzerland. Stevenson was a participant in the bank's ERISA plan, and would lose that status if he transferred to the Swiss bank. To induce Stevenson to accept the transfer, the bank promised to maintain Stevenson's status as a plan participant while he was in Switzerland. The bank later reneged on the promise.

Stevenson sued for breach of contract, arguing that the bank's promise was independent of the plan. The Second Circuit agreed, finding that the bank's obligation to maintain Stevenson's status as a participant did not derive from the plan, but instead arose from a "separate promise" made by the bank. 609 F.3d at 60. Although the bank's promise referred to its plan "as a means of establishing the value of that promise," the court concluded that the promise was not dependent on the plan for purposes of complete preemption. Id. at 60–61. The plan's terms were relevant to the "extent of [Stevenson's] damages," but not to the existence of the duty itself. Id. at 61. The court consequently vacated the trial court's ruling on a motion to dismiss (as the Court lacked jurisdiction) and ordered the matter remanded.

Marin had a similar outcome. There, a plaintiff hospital called a patient's ERISA insurer and reached an oral agreement that the hospital would be reimbursed for 90% of the costs of the patient's care. 581 F.3d at 949. When the insurer was billed $178,926.54, it paid the hospital only $46,655.14—apparently the amount due under the ERISA plan—and said it would pay no more. The hospital sued in state court for the remainder, and the insurer removed to federal court, asserting complete preemption.

The Ninth Circuit held that complete preemption did not apply. The Court reasoned that the hospital was not suing for benefits under ERISA, or for any violation of ERISA. It was suing under an independent duty, an oral contract—expressly outside of the ERISA plan—for reimbursement of 90% of the hospital costs. The hospital claimed no right to payment under ERISA, and did not claim any violation of ERISA, breach of any ERISA duty, or anything else regarding ERISA. The Court concluded that "the Hospital's state-law claims based on its alleged oral contract with MBAMD were not brought, and could not have been brought, under § 502(a)(1)(B)." Id. at 949.


ERISA preemption issues can be complicated, but understanding the difference between complete and conflict preemption is critical to the removal decision. An incorrect removal decision, where the two-part Davila test is not satisfied, will likely result in remand and may result in an award of attorneys' fees incurred as a result of the improper removal. See 28 U.S.C. § 1447(c) ("An order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.").

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