In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-4170
BLUE CROSS AND BLUE SHIELD OF ILLINOIS,
a Division of Health Care Service Corporation,
a Mutual Legal Reserve Company; and BLUE
CROSS BLUE SHIELD ASSOCIATION,
Plaintiffs-Appellants,
v.
JULIA CRUZ as Representative
of JOSE S. CRUZ,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 01 C 9821—Amy J. St. Eve, Judge.
____________
ARGUED OCTOBER 25, 2004—DECIDED JANUARY 24, 2005
____________
Before POSNER, KANNE, and WILLIAMS, Circuit Judges.
KANNE, Circuit Judge. Jose S. Cruz was injured in a car
accident. Cruz’s insurer, Blue Cross and Blue Shield of
Illinois, a division of Health Care Service Corporation
(“Blue Cross”), paid for the treatment of his injuries. Cruz
was enrolled in Blue Cross’s Service Benefit Plan provided
2 No. 03-4170
for government employees and their dependents under the
Federal Employees Health Benefits Act (“FEHBA”). Cruz
sued the tortfeasor responsible for his injuries and recov-
ered money in excess of his medical expenses in a settle-
ment agreement. Pursuant to the Statement of Benefits in
the Service Benefit Plan, Blue Cross filed suit demanding
reimbursement for the benefits paid to Cruz. The district
court dismissed the suit for lack of subject matter jurisdic-
tion. Because we find that FEHBA preempts state law on
this matter, we reverse.
I. History
FEHBA was enacted in 1959 to provide health insurance
to federal employees, bridging the gap between the govern-
ment and private employers with respect to healthcare
benefits. The current version of FEHBA (effective in 1998)
authorizes the United States Office of Personnel
Management (“OPM”) to contract with qualified insurance
carriers for coverage of federal employees and their depend-
ents under various health benefits plans. OPM contracted
with Blue Cross and Blue Shield Association (“Blue Cross
Association”) to create the Service Benefit Plan, which is ad-
ministered by Blue Cross in Cruz’s home state of Illinois.
FEHBA requires that the contracts between insurance
carriers and OPM contain a detailed Statement of Benefits
including maximums, limitations, and other terms related
to benefits. The Statement of Benefits is incorporated into
the federal contracts by reference and is the official de-
scription of benefits and Plan terms.
The Statement of Benefits in the Service Benefit Plan
contains a provision regarding subrogation and right-of-
recovery as follows:
The Plan has the right to recover payments the Plan
has made to you or your dependent from a third party
or third party’s insurer because of illness or injury
No. 03-4170 3
caused by a third party. In addition to its right of re-
covery, the Plan is subrogated to you and your depend-
ent’s present and future claims against a third party.
The Plan does not include a provision for sharing fees asso-
ciated with recovery. Under Illinois law, however, the com-
mon fund doctrine provides that parties recovering money
from a common fund are to share any fees associated with
recovery on a pro rata basis.
We now return to the specifics of Cruz’s case. Blue Cross
paid $4,682.20 in benefits to cover the injuries resulting
from his May 9, 1998, car accident. Cruz hired his own
attorney to bring the lawsuit, and recovered $30,000 in a
settlement agreement. Cruz paid one-third of this amount
($10,000) in attorney’s fees.
As mandated by the Service Benefit Plan, Cruz notified
Blue Cross of his settlement agreement in March 2000.
Cruz and Blue Cross were unable to agree on the amount
that Blue Cross should be reimbursed. Cruz believed that
the Illinois common fund doctrine should be applied, and
thus that Blue Cross was entitled to $3,121.47 and a pro
rata reduction for out-of-pocket costs. In April 2000, Blue
Cross sent Cruz a letter demanding $3,500 as its net share
of the recovery. In September 2000, Blue Cross sent another
letter demanding the total amount of the benefits paid to
Cruz, namely, $4,682.20. To date, Blue Cross has not been
reimbursed for any benefits paid to Cruz.
On October 10, 2000, Cruz and two other individuals filed
a state court action against Blue Cross in the Circuit Court
of Cook County, Illinois. Cruz and the other plaintiffs
sought recovery against Blue Cross under both the Illinois
common fund doctrine and the Illinois Consumer Fraud and
Deceptive Practices Act. Blue Cross removed the action to
federal court on November 1, 2001. The Northern District
of Illinois then granted Cruz’s motion to remand the case to
state court based on lack of subject matter jurisdiction.
4 No. 03-4170
Cruz’s suit in state court is still pending. The suit giving
rise to this appeal was commenced on December 21, 2001,
when Blue Cross and Blue Cross Association filed a com-
plaint in federal court demanding reimbursement for the
benefits paid to Cruz. The district court dismissed for lack
of subject matter jurisdiction.
Plaintiffs contend on appeal that the district court erred
in granting Cruz’s motion to dismiss, claiming that subject
matter jurisdiction exists because state law is preempted by
FEHBA and thus federal common law controls.
II. Analysis
We review a district court’s decision as to whether subject
matter jurisdiction exists de novo and its factual findings
for clear error. See Scott v. Trump Ind., Inc., 337 F.3d 939,
942 (7th Cir. 2003), cert. denied, 124 S. Ct. 940 (2003).
A. The Remand Order
Cruz first argues that the instant suit was improperly
filed in the district court because it was really an appeal of
the Remand Order sending Cruz’s state court action (which
had been removed by Blue Cross) back to state court. Such
appeals are prohibited under 28 U.S.C. § 1447(d). The dis-
trict court correctly rejected this argument, stating that
“ ‘the [Remand] [O]rder doesn’t conclude the issue whether
the district court has jurisdiction over [Plaintiffs’] new and
materially identical suit.’ ” Blue Cross & Blue Shield of Ill.
v. Cruz, No. 01 C 9821, 2003 WL 22715815, at *4 (N.D. Ill.
Nov. 17, 2003) (citing Health Cost Controls of Ill., Inc. v.
Washington, 187 F.3d 703, 708-09 (7th Cir. 1999)). On its
face, the complaint filed by Blue Cross and Blue Cross
Association seeks to hold Cruz liable for reimbursement of
benefits paid under a FEHBA contract. Although Cruz is
free to assert the Illinois common fund doctrine as a partial
No. 03-4170 5
defense, it does not control this case, and the Remand Order
does not preclude federal subject matter jurisdiction. See
Adkins v. Ill. Cent. R.R. Co., 326 F.3d 828, 836 (7th Cir.
2003) (jurisdiction is determined by the well-pleaded
complaint rule).
B. Cause of Action under FEHBA
Cruz also argues that because FEHBA explicitly creates
a cause of action against the United States, it forecloses
federal subject matter jurisdiction over actions against any
other party. FEHBA does contain a provision granting fed-
eral jurisdiction over suits against the United States.
5 U.S.C. § 8912 (“The district courts of the United States
have original jurisdiction, concurrent with the United States
Court of Federal Claims, of a civil action or claim against
the United States founded on this chapter.”). Contrary to
Cruz’s assertion, however, FEHBA’s jurisdictional provision
for suits against the United States is not automatically a bar
to federal jurisdiction over actions brought against other
parties. See Teamsters Nat’l Auto. Transporters Indus.
Negotiating Comm. v. Troha, 328 F.3d 325, 330 (7th Cir.
2003) (“[T]he limitation [of the jurisdictional provision of
the Labor Management Relations Act] is more aptly de-
scribed not in terms of parties but in terms of the purpose
of a lawsuit.”) (citations omitted), cert. denied, 540 U.S. 826
(2004).
Under Cruz’s theory, the federal courts would never have
subject matter jurisdiction over any suits against a private
party, including those brought by enrollees against carriers.
This position has been rejected by other courts. See, e.g.,
Botsford v. Blue Cross & Blue Shield of Mont., Inc., 314
F.3d 390, 397-99 (9th Cir. 2002) (holding that the district
court had jurisdiction over enrollee’s claim against carrier
because FEHBA preempted state law claim), amended by
319 F.3d 1078 (9th Cir. 2003); McCoy v. Unicare Life &
6 No. 03-4170
Health Ins. Co., No. 04 C 1126, 2004 WL 2358277, at *4-5
(N.D. Ill. Oct. 18, 2004) (denying motion to remand mal-
practice suit brought by enrollee against carrier to state
court because FEHBA completely preempted claim). Cruz
cites several FEHBA cases brought against private party
defendants that were dismissed because they did not name
the United States as defendant, but his reliance is misplaced.
In the most recent case cited by Cruz, Botsford, the Ninth
Circuit actually held that the district court had jurisdiction
over the case. See 314 F.3d at 398-99. The court’s position
that the case should be dismissed by the district court on
remand is consistent with the interpretation that § 8912
requires an enrollee suing for benefits to sue OPM or the
United States and not the individual carrier. See id. at 398.
Other cases cited by Cruz1 pre-date the 1998 Amendment to
FEHBA, which broadened its preemption provision and is
discussed below.
C. FEHBA’s Preemption Provision
Section 1331 of 28 U.S.C. confers federal question subject
matter jurisdiction on cases that arise “under the
Constitution, laws, or treaties of the United States.” Even
if a federal statute does not explicitly create a cause of ac-
tion, a claim may arise under federal law if the statute com-
pletely preempts state law in a particular area. See U.S.
Const. art. VI, cl. 2; see also Metro. Life Ins. Co. v. Taylor,
481 U.S. 58, 62-64 (1987) (holding that employee’s state law
claims were preempted by ERISA and were therefore federal
causes of action).
1
Goepel v. Nat’l Postal Mail Handlers Union, 36 F.3d 306 (3d Cir.
1994); Mooney v. Blue Cross of W. Pa., 678 F. Supp. 565 (W.D. Pa.
1988). But see Ramirez v. Humana, Inc., 119 F. Supp. 2d 1307
(M.D. Fla. 2000).
No. 03-4170 7
We start our preemption analysis with the presumption
that Congress does not intend to supplant state law. See
N.Y. State Conference of Blue Cross & Blue Shield Plans v.
Travelers Ins. Co., 514 U.S. 645, 654 (1995). As noted by the
Supreme Court, Congress must have shown that its “clear
and manifest purpose” was to preempt state law in order to
support a finding of federal jurisdiction over fields such as
health insurance contracts that are traditionally regulated
by the states. Id. at 655 (quoting Rice v. Santa Fe Elevator
Corp., 331 U.S. 218, 230 (1947)).
The starting point in assessing Congress’s intent is the
text of the statute in question. See, e.g., Time Warner Cable
v. Doyle, 66 F.3d 867, 875 (7th Cir. 1995). FEHBA does
have an explicit preemption provision. The language of the
preemption provision is as follows:
The terms of any contract under this chapter which re-
late to the nature, provision, 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.
5 U.S.C. § 8902(m)(1) (2000).
In this case, Blue Cross and Blue Cross Association have
filed a complaint demanding reimbursement for benefits
paid pursuant to the Statement of Benefits, part of the
FEHBA-authorized Service Benefit Plan contract. The
FEHBA preemption provision dictates that the contract
terms trump state law when they relate to the nature, pro-
vision, or extent of coverage or benefits including payments
with respect to benefits. Whether there is federal subject
matter jurisdiction, then, depends on whether the reim-
bursement provision of the Statement of Benefits “relates
to” the nature, provision, or extent of coverage or benefits.
The Supreme Court interpreted the words “relate to” in
the context of the ERISA preemption provision in Travelers.
8 No. 03-4170
514 U.S. 645 (1995). As the Court pointed out, if “relate to”
were taken to its furthest literal interpretation, there would
be no limit to the preemption provision. Id. at 655-56. “Pre-
emption would never run its course, for [r]eally, universally,
relations stop nowhere[.]” Id. at 655 (internal quotes and
citation omitted). An enrollee’s reimbursement obligation
after recovery from a third party affects the amount of net
benefits received from the carrier, so it certainly satisfies
the literal definition of being “related to” the extent of cov-
erage or benefits. We therefore must examine the purpose
of the preemption provision and of the entire Act to deter-
mine whether subrogation rules are within the scope of state
law that Congress meant to preempt with FEHBA-created
contract terms. See id. at 656.
As originally enacted in 1978, § 8902(m)(1) only required
federal preemption of state or local laws “to the extent that
such law[s] or regulation[s] [were] inconsistent with such
contractual provisions.” 5 U.S.C. § 8902(m)(1) (1994).
Congress broadened the preemption provision in 1998, in-
tending to expand federal jurisdiction over FEHBA claims
even when state law does not conflict with FEHBA contract
provisions. The broadening of the preemption provision was
meant to “strengthen the ability of national plans to offer
uniform benefits and rates to enrollees regardless of where
they may live.” H.R. Rep. No. 105-374, at 9 (1998) (emphasis
added). Congress also wanted to “strengthen the case for
trying FEHBA program claims disputes in Federal courts
rather than State courts.” Id. Uniform administration and
cost-savings were major goals of Congress in initially en-
acting FEHBA as well. H.R. Rep. No. 86-957, at 1 (1959).
If FEHBA contract provisions do not preempt state law
regarding subrogation, the practical effect is that federal
employees in different states paying the same premiums
would not be required to repay benefits after recovery from
third parties according to the same rules. Federal employ-
ees in different states would have different reimbursement
No. 03-4170 9
obligations and hence different net benefits. This is con-
trary to the uniformity goal of FEHBA in general and its
preemption provision in particular. The cost-savings goal of
Congress would also be thwarted, because reimbursements
from enrollees end up in the federal fund used to pay
FEHBA plan premiums. Reimbursements ultimately keep
costs down for both the government and enrollees.
Because Congress’s clear intent was to make benefits uni-
form for FEHBA plan enrollees of different states, state law
regarding subrogation is preempted by the reimbursement
provision in the Service Benefit Plan. We note that the same
result has been reached by this court and others when con-
fronted by the subrogation question in the ERISA context.
See Admin. Comm. of the Wal-Mart Stores, Inc. Assocs.
Health & Welfare Plan v. Varco, 338 F.3d 680, 687-89, 691
(7th Cir. 2003), cert. denied, 124 S. Ct. 2904 (2004); Arana
v. Ochsner Health Plan, Inc., 338 F.3d 433, 437-40 (5th Cir.
2003) (en banc), cert. denied, 540 U.S. 1104 (2004). While
ERISA and FEHBA are obviously different statutes, if
Congress intended to preempt state law when regulating
private employers, it would be strange to leave regulation
to the individual states when the employer is the United
States itself.2
The district court and the parties addressed the question
of whether federal common law should be applied in this
case under the Boyle test. Boyle states that federal common
2
We disagree with the district court’s view that “FEHBA’s pre-
emption provision is much more narrow [than ERISA’s].” Cruz,
2003 WL 22715815, at *6. As noted by the Ninth Circuit, “[t]he
new provision closely resembles ERISA’s express preemption
provision, and precedent interpreting the ERISA provision thus
provides authority for cases involving the FEHBA provision.”
Botsford, 314 F.3d at 393-94; see also Corporate Health Ins., Inc.
v. Tex. Dep’t of Ins., 215 F.3d 526, 539 (5th Cir. 2000), vacated on
other grounds, 536 U.S. 935 (2002).
10 No. 03-4170
law should be created if “uniquely federal interests” are in-
volved and if state law “significantly conflicts” with federal
policy or objectives. See Boyle v. United Techs. Corp., 487
U.S. 500, 507 (1987). We believe that this case satisfies the
Boyle test: the impact of reimbursement on the federal trea-
sury creates a significantly federal interest, see, e.g.,
Caudill v. Blue Cross & Blue Shield of N.C., Inc., 999 F.2d
74, 78 (4th Cir. 1993), and, as discussed above, the federal
policy of uniform healthcare benefits for FEHBA plan en-
rollees is in conflict with state law. Because we hold that
the FEHBA-created contract provision preempts state sub-
rogation law, however, the Boyle analysis is unnecessary.
We are not required to imply a “new” cause of action under
FEHBA, but simply to “fill in [FEHBA’s] interstices with
federal common law.” See UIU Severance Pay Trust Fund v.
Local Union No. 18-U, United Steelworkers, 998 F.2d 509,
512 (7th Cir. 1993). With no explicit statutory cause of
action on which to rely and with state law preempted,
Congress’s clear intent to have uniform subrogation rules
per the terms of the FEHBA-created contract require “a
judicially-crafted cause of action.” Id. at 512-13.
D. The Colorado River Doctrine
Finally, we do not believe that the district court could
properly accept Cruz’s invitation to abstain from exercising
jurisdiction in favor of the state court suit under the
Colorado River doctrine. In Colorado River, the Supreme
Court held that a federal court may dismiss a suit in ex-
ceptional circumstances where there is a concurrent state
proceeding. See Colo. River Water Conservation Dist. v.
United States, 424 U.S. 800, 818 (1976). The Court set out
ten factors to be considered in deciding whether a federal
action should be dismissed in favor of a parallel state
action:
1) whether the state has assumed jurisdiction over
property; 2) the inconvenience of the federal forum; 3)
No. 03-4170 11
the desirability of avoiding piecemeal litigation; 4) the
order in which jurisdiction was obtained by the concur-
rent forums; 5) the source of governing law, state or
federal; 6) the adequacy of state-court action to protect
the federal plaintiff’s rights; 7) the relative progress of
state and federal proceedings; 8) the presence or ab-
sence of concurrent jurisdiction; 9) the availability of
removal; and 10) the vexatious or contrived nature of
the federal claim.
LaDuke v. Burlington N. R.R. Co., 879 F.2d 1556, 1559 (7th
Cir. 1989) (citation omitted).
Of these ten factors, “[p]articular weight must be given to
the presence of a federal question in the case[.]” Sverdrup
Corp. v. Edwardsville Cmty. Unit Sch. Dist. No. 7, 125 F.3d
546, 549 (7th Cir. 1997). We have already determined that
the FEHBA contract provision preempts state law with re-
spect to subrogation, so a federal question does exist in this
case. The rest of the Colorado River factors also weigh in
favor of exercising jurisdiction.
The state court has not assumed jurisdiction over any
property, and the federal court in the Northern District of
Illinois cannot be more inconvenient for the parties than
the state forum (Circuit Court of Cook County). Abstention
would not necessarily lead to “piecemeal litigation,” because
the issue in the state court suit brought by Cruz is whether
he is entitled to keep some of the benefits paid to him to
offset his attorney’s fees, not whether he must reimburse
Blue Cross based on the subrogation clause in the Service
Benefit Plan. Because there are no compulsory counter-
claims in Illinois, see Wilson v. M.G. Gulo & Assocs., Inc., 691
N.E.2d 875, 877-78 (Ill. App. Ct. 1998), Blue Cross’s claim for
the principal amount of reimbursement would not necessar-
ily be resolved in Cruz’s state court suit.
The order in which jurisdiction was obtained and the rela-
tive progress of the state and federal proceedings might
initially seem to favor abstention. Cruz filed his state court
12 No. 03-4170
action more than a year prior to the commencement of this
action. As Blue Cross and Blue Cross Association point out,
however, the state court suit is essentially a defense to their
claim for reimbursement. We agree that it would be more
logical for Cruz to raise his offset claim in response to Blue
Cross’s and Blue Cross Association’s suit for reimbursement
as a partial defense. Also, the state suit has been stayed at
its preliminary stages, so its progress is not so great as to
merit abstention.
The state court action will not adequately protect Blue
Cross’s and Blue Cross Association’s interests, in part be-
cause Cruz’s state court action seeks to declare illegal the
Service Benefit Plan terms regarding subrogation that OPM
promulgated. OPM would be unable to participate as a party
in a state court suit under 5 U.S.C. § 8912. Resolving the
case in federal court would eliminate this potential problem
because it would allow OPM to participate in the event that
Cruz raises the legality of the contract subrogation provi-
sion.
In sum, the Colorado River doctrine is to be invoked only
in exceptional cases, and this is not such a case. Sverdrup,
125 F.3d at 549-50 (“This circuit has recognized consistently
that the primary duty of the district court is to exercise the
jurisdiction vested in it by law; ‘the presumption is against
abstention.’ ”) (quoting Allendale Mut. Ins. Co. v. Bull Data
Sys., 10 F.3d 425, 430 (7th Cir. 1993)).
III. Conclusion
With FEHBA, Congress intended to create cost-efficient
and uniform health insurance benefits for employees of the
United States and their dependents throughout the country.
The Act’s express preemption provision dictates that the
terms of contracts created under FEHBA preempt state law
when such terms are related to benefits and coverage.
Congress intended for terms related to subrogation to be
included in this realm. Thus, the FEHBA-created contract
No. 03-4170 13
provision in the Statement of Benefits preempts state law
with respect to reimbursement for benefits paid to Cruz.
The district court has federal question subject matter juris-
diction over this case under 28 U.S.C. § 1331. Accordingly,
we REVERSE the district court’s finding to the contrary and
REMAND for further proceedings consistent with this opinion.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—1-24-05