Opinion
03 Civ. 2728 (DLC)
September 18, 2003
Kieran X. Bastible, Morrison, Cohen, Singer Weinstein, LLP, New York, NY, for Plaintiff
Anthony F. Shelley, Miller Chevalier Chartered, Washington, DC, of Counsel
Victor A. Carr Stock Carr, Esqs. St. Mineola, NY, for Defendant
OPINION ORDER
This case raises the issue of whether there is federal subject matter jurisdiction over a contract suit filed by the administrator of a federal employee health benefits plan against a beneficiary. Plaintiff Empire HealthChoice Assurance, or Empire Blue Cross Blue Shield ("Empire"), underwrites and administers a health benefits plan for federal employees and their dependents. It has brought suit to obtain reimbursement for benefits that it paid on behalf of one of its beneficiaries to cover medical care he received following his injury in an accident. It claims an entitlement to money paid to the beneficiary's estate to settle a lawsuit over the accident brought on behalf of the beneficiary. For the following reasons, the defendant's motion to dismiss for lack of subject matter jurisdiction is granted.
Pursuant to the Federal Employees Health Benefit Act, 5 U.S.C. § 8901 et seq.("FEHBA"), the United States Office of Personnel Management ("0PM") is responsible for establishing and regulating federal health benefits plans. 0PM entered a contract with the Blue Cross Blue Shield Association ("BCBSA") to create a Service Benefit Plan for federal employees. Empire is the entity that administers the BCBSA Service Benefit Plan in New York ("Plan").
Defendant Denise Finn McVeigh ("McVeigh") is the administratrix of the estate of Joseph E. McVeigh ("Estate"). Joseph E. McVeigh ("Decedent") had been enrolled in the Empire Plan. In 1997, the Decedent suffered injuries in an accident. Empire paid $157,309.06 in benefits for Decedent's medical treatment between 1997 and 2001, the year of his death. McVeigh filed a tort action in state court on her own behalf and on Decedent's behalf against the third parties who allegedly had caused Decedent's injuries. A suit on behalf of the McVeigh's minor child also was filed in state court. In March 2003, the litigants entered a stipulation settling the lawsuits for a total of $3,175,000.
Before the settlement had been entered, Empire became aware that McVeigh had reached an agreement with the defendants in the state court action. Empire notified McVeigh's counsel that it had a lien on the Estate's share of the settlement for $157,309.06, the amount paid out in benefits under Empire's Plan. McVeigh disputed the existence of the lien. Since the dispute between Empire and McVeigh had not been resolved at the time the stipulation was entered, McVeigh agreed to place $100,000 of the Estate's portion of the settlement funds in escrow pending resolution of Empire's claims. Empire agreed that it would assert its claim by filing suit within thirty days of the March 19, 2003 settlement hearing. This is that lawsuit.
Empire's claim to $157,309.06 from the McVeigh Estate arises from the Plan. The Plan contains subrogation and right-of-recovery provisions which entitle the local BCBSA administrator to reimbursement if the Plan participant recovers compensation from a third party for injuries suffered for which the administrator paid benefits. The Plan provides that "the Plan is subrogated to [the participant] and [his] dependent's present and future claims against a third party." It also provides that "All recoveries from a third party (whether by lawsuit, settlement, or otherwise) must be used to reimburse the Plan for benefits paid." It provides that the Plan will have a lien on recoveries obtained from third parties, and that participants are required to notify the Plan of any recovery from third parties and "to reimburse the Plan to the extent of benefits paid by the Plan."
Empire asserts two causes of action. First, Empire claims McVeigh breached the terms of the Plan by refusing to reimburse Empire the amount Decedent received in benefits, and by rejecting Empire's assertion of a lien. Second, Empire seeks a judgment declaring that pursuant to the Plan, FEHBA and its regulations, and federal common law, it is entitled to reimbursement from McVeigh for the amount of benefits paid. The complaint does not assert diversity jurisdiction. McVeigh moves to dismiss for lack of subject matter jurisdiction, for failure to state a claim, and on the ground that the action is time-barred by the statute of limitations; in the alternative, she moves for summary judgment.
Discussion
Empire claims that federal jurisdiction over this action exists because resolution of the claims will require construction of FEHBA and the regulations and contracts promulgated thereunder and because the action implicates federal common law. Neither argument is compelling, and each is addressed below.
Pursuant to Section 1331 of Title 28 of the United States Code ("Section 1331"), federal courts have jurisdiction over actions "arising under the Constitution, laws, or treaties of the United States."Id. Federal question jurisdiction is "limited," and "must be determined by reference to the well-pleaded complaint." Merrell Dow Pharm. v. Thompson, 478 U.S. 804, 807-08 (1986) (citation omitted). The "vast majority" of the cases in which there is federal question jurisdiction are cases in which "federal law creates the cause of action," id. at 808 (citation omitted), although there may also be jurisdiction where resolution of a claim necessarily turns on construction of federal law.Id. The fact that a court must interpret federal law or federal regulations to determine the merits of the action is not ordinarily sufficient, however, to confer federal jurisdiction. Id. at 813-14. Any other rule would undercut the Congressional determination not to create a private right of action. Id. at 812. Therefore, "where state law creates the cause of action, we ask whether that cause of action poses a substantial federal question." D'Alessio v. New York Stock Exchange, 258 F.3d 93, 99 (2d Cir. 2001) (citation omitted).
If federal common law governs a case, there is subject matter jurisdiction just as there is when a federal statute governs the case.See Woodward Governor Co. v. Curtiss-Wriqht Flight Sys., Inc., 164 F.3d 123, 126 (2d Cir. 1999) (citing Illinois v. City of Milwaukee, 406 U.S. 91, 100 (1972)). There is, however, "no federalgeneral common law." Id., (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)) (emphasis supplied byWoodward). Instead, federal common law applies only to the few cases raising "uniquely federal interests." Boyle v. United Tech. Corp., 487 U.S. 500, 504 (citation omitted); see also Woodward Governor Co., 164 F.3d at 126-27. Such interests arise only in limited areas, such as "(1) the obligations to, and rights of, the United States under its contracts; (2) the liability of federal officers for official acts; and (3) civil liabilities arising out of federal procurement contracts relating to national defense." Woodward Governor Co., 164 F.3d at 127 (citing Boyle, 487 U.S. at 504-06)).
A federal common law rule of decision will not be created unless "there is a significant conflict between some federal policy or interest and the use of state law." O'Melveny Myers v. FDIC, 512 U.S. 79, 87 (1994) (citation omitted). "[A]n actual, significant conflict between a federal interest and state law must be `specifically shown,' and not generally alleged." Woodward Governor Co., 164 F.3d at 127 (quoting Atherton v. FDIC, 519 U.S. 213, 214 (1997)). Without a significant conflict, "a mere federal interest in uniformity is insufficient to justify displacing state law in favor of a federal common law rule." B.F. Goodrich v. Betkowski, 112 F.3d 88, 90 (2d Cir. 1997) (per curiam).
The FEHBA does not purport to create a private cause of action under federal law. It provides only that "[t]he district courts of the United States have original jurisdiction . . . of a civil action or claimagainst the United States founded on this chapter." 5 U.S.C. § 8912 (emphasis supplied). Nor does FEHBA completely preempt relevant state or local law relating to health insurance or plans. The FEHBA preemption provision provides only that
The provisions of any contract under this chapter which relate to the nature or extent of coverage or benefits (including payments with respect to benefits) shall supersede and preempt any State or local law, or any regulation issued thereunder, which relates to health insurance or plans to the extent that such law or regulation is inconsistent with such contractual provisions.5 U.S.C. § 8902(1) (emphasis supplied).
The FEHBA gives 0PM authority to contract with qualified carriers, 5 U.S.C. § 8902(a), but does not dictate the terms of the contracts. For example, the statute requires that each contract entered pursuant to FEHBA shall include a statement of benefits, Id. at § 8902(d), but does not set forth the specific benefits or provisions to be included in each contract. It provides, inter alia, that "the [0PM] may prescribe reasonable minimum standards for health benefits plans . . . and for carriers offering the plans," Id. at § 8902(e), but does not define those standards. Sections 8903 and 8903a of FEHBA set forth the types of health benefits plans the 0PM may contract for, but they do not set forth detailed provisions to be included in each contract. See id. at §§ 8903(1)-(4) 8903a(a)-(d). Similarly, Section 8904 sets forth the types of benefits to be provided under the various plan types, but does not detail the provisions to be included in each statement of benefits. See id. at § 8904(1)-(4).
Empire's claims for breach of contract and for declaratory judgment require determinations regarding the respective rights and obligations of two private parties to the health insurance contract at issue. This is insufficient to create federal jurisdiction. Instead of alleging the "uniquely federal interest" required to establish federal jurisdiction arising under federal common law, Boyle, 487 U.S. at 504, the only federal interest Empire identifies is the potential recovery by the United States Treasury of any reimbursement paid by the McVeigh estate to Empire. In addition, Empire has not identified "an actual, significant conflict" between state law and any federal interest. Woodward Governor Co., 164 F.3d at 127. Instead, Empire suggests that the mere act of applying state law will create a conflict because it will undermine the federal interest in uniformity. As the Second Circuit has made clear, however, an interest in uniformity is insufficient by itself to give rise to federal jurisdiction. See B.F. Goodrich v. Betkowski, 112 F.3d 88, 91 (2d Cir. 1997) (per curiam).
Empire does not argue that it is anything but a private entity, and does not attempt to invoke Section 8912 of FEHBA, which creates federal jurisdiction over claims arising under the statute against the United States.
Empire's alternative argument that the Statement of Benefits is itself "federal law," and equivalent to a federal regulation, is similarly unavailing. Even the mandatory incorporation of federal standards into a contract does not transform that contract into a regulation, nor create federal jurisdiction over an action for breach of the contract. See Jackson Transit Auth. v Local Div. 1285, Amalgamated Transit Union, AFL-CFO-CLC, 457 U.S. 15, 22-23 (1982); J.A. Jones Constr. Co. v. City of New York, 753 F. Supp. 497, 501 (S.D.N.Y. 1990). "Because a federal court should exercise extreme caution before assuming jurisdiction not clearly conferred by Congress, we should not condone the implication of federal jurisdiction over contract claims in the absence of unambiguous expression of congressional intent." Jackson Transit, 457 U.S. at 30 (Powell, J., concurring).
Empire relies heavily on the Second Circuit's decision in Marcus v. AT T Corp, 138 F.3d 46 (2d Cir. 1998), in which the court held that federal jurisdiction existed over an action for breach of the warranties contained in certain tariffs required by the Federal Communications Act to be filed with the Federal Communications Commission. Id. at 56. The tariffs "conclusively and exclusively enumerate the rights and liabilities of the contracting parties," and are the governing "law." Id. (citation omitted) (emphasis in original). Although the Plan was established pursuant to the 0PM's obligations under FEHBA, no federal statute or regulatory scheme sets out the terms of the Plan, or the rights and obligations of its participants, and the Plan is not filed with or enforced by any regulatory agency. 0PM's authority under federal law to contract for health benefits plans does not convert the terms of the plans themselves into federal law or otherwise confer federal jurisdiction over an action for breach of a plan's provisions. See Goepel v. National Postal Mail Handlers Union, 36 F.3d 306, 313 (5th Cir. 1994) (breach of contract claim by enrollee to recover benefits). But see Caudill v. Blue Cross Blue Shield of North Carolina, 999 F.2d 74, 78-79 (4th Cir. 1993). The other cases on which Empire relies are also inapposite. In MedCenters Health Care v. Ochs, 26 F.3d 865 (8th Cir. 1994), the Eighth Circuit found that federal law applied pursuant to FEHBA's partial preemption provision because the contract provisions had been shown to conflict with the applicable state law. Id. at 866-67. In Tackitt v. Prudential Ins. Co., 758 F.2d 1572 (11th Cir. 1985), the plaintiff directly challenged 0PM's decision to approve a change in a benefits plan. Id. at 1575. Here, however, Empire seeks to enforce the terms of the Plan, not to challenge the validity of any federal agency action.
Finally, Empire argues briefly that federal law preempts its state law claims. FEHBA's partial preemption provision does not create jurisdiction over this lawsuit. Unlike ERISA, FEHBA preempts state law only if that law is inconsistent with the terms of a FEHBA benefit or coverage contract. See 5 U.S.C. § 8902(1). Since there has been no identification of inconsistency here, there is no preemption.
Empire omits from its argument — and from its quotations — the text of the statute which provides that preemption exists only "to the extent that such [State or local] law or regulation is inconsistent with such contractual provisions." 5 U.S.C. § 8902(m)(1).
Conclusion
This breach of contract and declaratory judgment action between private parties does not raise a federal question. The motion to dismiss for lack of subject matter jurisdiction is granted. The Clerk of Court shall close the case.
SO ORDERED