Lazorko v. Pennsylvania Hospital

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit

12-26-2000

Lazorko v. PA Hospital
Precedential or Non-Precedential:

Docket 98-1776

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Filed December 26, 2000

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 98-1776/1777/1790

JONATHAN LAZORKO, Administrator of the Estate of
PATRICIA NORLIE, a/k/a PATRICIA NORLIE-LAZORKO;
JONATHAN LAZORKO, Personal Representative of
PATRICIA NORLIE-LAZORKO

v.

PENNSYLVANIA HOSPITAL; INSTITUTE OF
PENNSYLVANIA; DAVID E. NICKLIN, M.D.; UNIVERSITY
CITY FAMILY MEDICINE; U.S. HEAL THCARE,
t/a/ HMO-PA

Jonathan Lazorko, Administrator of the Estate of
Patricia Norlie, a/k/a Patricia Norlie-Lazorko;
Jonathan Lazorko, Personal Representative of
Patricia Norlie-Lazorko and John J. O'Brien, III,
Esquire,

Appellants (98-1776)

JONATHAN LAZORKO, Administrator of the Estate of
PATRICIA NORLIE, a/k/a PATRICIA NORLIE-LAZORKO;
JONATHAN LAZORKO, Personal Representative of
PATRICIA NORLIE-LAZORKO

Appellants (98-1777)

v.

PENNSYLVANIA HOSPITAL; INSTITUTE OF
PENNSYLVANIA; DAVID E. NICKLIN, M.D.; UNIVERSITY
CITY FAMILY MEDICINE; U.S. HEAL TH CARE,
t/a/ HMO-PA
JONATHAN LAZORKO, Administrator of the Estate of
PATRICIA NORLIE, a/k/a PATRICIA NORLIE-LAZORKO;
JONATHAN LAZORKO, Personal Representative of
PATRICIA NORLIE-LAZORKO

v.

PENNSYLVANIA HOSPITAL; INSTITUTE OF
PENNSYLVANIA; DAVID E. NICKLIN, M.D.; UNIVERSITY
CITY FAMILY MEDICINE; U.S. HEAL TH CARE,
t/a/ HMO-PA

U.S. Healthcare,

Appellant (98-1790)

Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 96-cv-04858)
District Judge: Honorable Louis H. Pollak

Argued on June 26, 2000

Before: ROTH and GARTH, Circuit Judges,
STANTON,* District Judge

(Opinion filed: December 26, 2000)

John J. O'Brien, III, Esquire
(Argued)
O'Brien & O'Brien
257 East Lancaster Avenue
Suite 201
Wynnewood, PA 19096

Attorney for Appellants/
Cross Appellees
_________________________________________________________________

* Honorable Louis L. Stanton, District Court Judge for the Southern
District of New York, sitting by designation.
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 Barbara S. Magen, Esquire
Adrian R. King, Sr., Esquire
Douglas A. Brockman, Esquire
Post & Schell
1800 John F. Kennedy Boulevard
19th Floor
Philadelphia, PA 19103

Attorneys for Appellees
Pennsylvania Hospital and
Institute of Pennsylvania

Rawle & Henderson LLP
Carl D. Buchholz, III, Esquire
(Argued)
Angela M. Heim, Esquire
The Widener Building, 16th Floor
One South Penn Square
Philadelphia, PA 19107

Attorneys for Appellee/Cross
Appellant United States Healthcare
Systems of Pennsylvania, Inc.,
t/a/ U.S. Healthcare

OPINION OF THE COURT

ROTH, Circuit Judge:

Patricia Norlie-Lazorko committed suicide in July 1993,
allegedly as a consequence of her untreated mental illness.
Her husband, Jonathan Lazorko, brought suit in state
court against Dr. David Nicklin, Patricia's doctor; University
City Family Medicine, Nicklin's employer; Pennsylvania
Hospital; the Institute of Pennsylvania; and U.S.
Healthcare, Inc., the health maintenance or ganization
(HMO) administering Lazorko's health benefits. After a
series of removals of the case to the U.S. District Court and
remands to state court, Lazorko appeals the dismissal of
his direct claims against U.S. Healthcar e and the District
Court's award of sanctions against him for including two
purportedly frivolous allegations in his complaint. U.S.

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Healthcare cross-appeals the District Court's remand to
state court of the vicarious liability claims against it.

Following our recent decision in In r e U.S. Healthcare,
Inc., 193 F.3d 151 (3d Cir. 1999), 1 we will affirm the
remand to state court of the vicarious liability claims
against U.S. Healthcare. We will, however, reverse the
judgment of the District Court, dismissing the dir ect claims
against U.S. Healthcare (Count I of the Complaint), and we
will remand these claims to the District Court for remand
to the state court. As for sanctions, Lazorko's attorney
appealed only the interim decision sanctioning him, not the
subsequent award to U.S. Healthcare of a specified amount
of attorney's fees. We will ther efore dismiss the appeal of
sanctions for lack of appellate jurisdiction.

I. Background

Norlie-Lazorko suffered from depr ession and
schizophrenia. In late 1992, she attempted suicide and was
hospitalized for six months. She was dischar ged from the
hospital in June 1993 but again began contemplating
suicide. Although she asked to be rehospitalized, Dr.
Nicklin denied her request. On July 4, 1993, Norlie-Lazorko
committed suicide.

Following his wife's death, Jonathan Lazorko, as
administrator of her estate, brought suit in Pennsylvania
state court. Lazorko alleged as to U.S. Healthcar e that
under state law it was directly and vicariously liable for his
wife's death because the HMO imposed financial
disincentives on Dr. Nicklin that discouraged him from
recommending her for additional treatment.

Based on this claim, U.S. Healthcare removed the case to
federal court in the Eastern District of Pennsylvania,
pursuant to 28 U.S.C. S 1446(b). U.S. Healthcare argued
that the denial of the hospitalization request was
completely preempted by ERISA under S 502(a)(1)(B), which
gives a member of an ERISA plan an exclusive federal
_________________________________________________________________

1. In re U.S. Healthcare was decided after the District Court's opinions
in
this case. Hence, the District Court did not have that decision available
to it.

4
remedy for claims alleging the denial of benefits guaranteed
by that plan. Lazorko moved to remand the case to state
court. The District Court rejected Lazorko's motion,
construing his direct liability claims as being for the
improper denial of benefits, and thus completely preempted
under ERISA. Lazorko v. Pennsylvania Hosp., et al., No. 95-
CV-6151, slip op. at 2 (E.D. Pa. Nov. 21, 1995) (Lazorko I).
In a subsequent decision, the District Court dismissed the
claims that were preempted by ERISA's civil remedy and
remanded the rest of the case to state court. Lazorko v.
Pennsylvania Hosp., et al., No. 95-CV-6151, slip op. at 2-3
(E.D. Pa. Jan. 4, 1996) (Lazorko II).

On this first remand, the state court dismissed four
counts of Lazorko's complaint. Three other counts, which
alleged intentional misrepresentation, fraud, and violation
of the state consumer protection law, wer e stricken without
prejudice to amending. Lazorko did amend, but he left
intact his central contention that U.S. Healthcar e's
financial penalties interfered with Dr . Nicklin's professional
judgment, causing Norlie-Lazorko's death.

U.S. Healthcare removed the case to federal court a
second time.2 In response, Lazorko moved again for a
remand. Again, however, the District Court denied the
remand motion, concluding as it had previously that
Lazorko's direct negligence claims against U.S. Healthcare
for denial of hospital benefits were completely preempted by
ERISA's S 502(a)(1)(B). The court did grant the motions to
dismiss of the other defendants.3Lazorko v. Pennsylvania
Hosp., et al., CA No. 96-4658, slip op. at 8 (E.D. Pa. Mar.
28, 1997) (Lazorko III).

Following the second removal to federal court, Lazorko
amended his complaint twice more. Although he added new
facts, he did not change his central contention. Mor eover,
rather than add a new claim, based on ERISA, to his
existing claims of direct and vicarious liability, Lazorko
instead moved to strike U.S. Healthcare's ERISA defenses,
_________________________________________________________________

2. This time, the case was assigned to a dif ferent district judge.

3. The other defendants are not parties to this appeal since Lazorko has
not appealed the dismissal of the claims against them.

5
asserting that U.S. Healthcare had not shown that his
health plan qualified as an ERISA plan. U.S. Healthcare
moved for summary judgment, arguing that, because his
state law claims related to an ERISA plan, they were
superseded by ERISA's express preemption clause, S 514(a),
29 U.S.C. S 1144(a).

The District Court denied Lazorko's motion to strike U.S.
Healthcare's ERISA defenses, reasoning that, under the law
of the case, earlier proceedings had established the
existence of a plan. Lazorko v. Pennsylvania Hosp., et al.,
CA No. 96-4858, slip op. at 4-6 (E.D. Pa. June 30, 1998)
(Lazorko IV). The District Court then granted summary
judgment for U.S. Healthcare on preemption grounds on all
of Lazorko's direct liability claims against the HMO,
including the claims in Counts II, III and IV for intentional
misrepresentation, fraud, and violation of Pennsylvania's
consumer protection law.4 The court remanded Lazorko's
vicarious liability claims against U.S. Healthcar e, however,
because they alleged medical malpractice, an ar ea of tort
law traditionally regulated by the states, which did not
implicate the regulation of employer plans and, thus, was
outside the scope of ERISA's express pr eemption.

U.S. Healthcare also moved to sanction Lazorko's
attorney, alleging that he had failed to r easonably
investigate several of the charges levied against U.S.
Healthcare, including the allegations that the company
issued sham benefit policies and that it intentionally denied
patients treatment so as to maximize pr ofits. The District
Court granted U.S. Healthcare's motion in a second June
30, 1998, order, which struck the of fending allegations
from the complaint and awarded the costs incurred to
defend against the challenged allegations.5 On July 24 and
_________________________________________________________________

4. Because Lazorko has not briefed or argued that his claims against
U.S. Healthcare, contained in Counts II, III and IV, are directed at the
quality, rather than the quantity, of benefits r eceived under his plan,
we
will affirm the dismissal of these counts. Our discussion in this opinion
of the direct claims against U.S. Healthcar e will be in reference only to
those claims alleged in Count I.

5. The offending allegations appear in paragraphs 25 and 39 of the
Complaint. The District Court did not err in striking these paragraphs.

6
29, Lazorko appealed both of the June 30 orders. U.S.
Healthcare cross-appealed the remand to the state court of
the vicarious liability claims against it.

Following a hearing on the amount of sanctions, the
District Court awarded U.S. Healthcare costs of $2,452.50
in an order filed on August 3, 1998. Lazorko did not appeal
this order.

II. Jurisdiction and Standard of Review

The District Court purportedly had removal jurisdiction
under 28 U.S.C. S 1441(a) by virtue of ERISA's complete
preemption provision, S 502(a)(1)(B), codified at 29 U.S.C.
S 1132(a)(1)(B), which satisfies the "arising under"
requirement for federal question jurisdiction under 28
U.S.C. S 1331. See Metropolitan Life Ins. Co. v. General
Motors Corp., 481 U.S. 58, 64-66 (1987). W e have appellate
jurisdiction under 28 U.S.C. S 1291. W e review the District
Court's decision to remand under S 1367(c)(3) for abuse of
discretion, but have plenary review of the underlying basis
for remand to the extent that question is a legal one. See In
re U.S. Healthcare, 193 F.3d at 160 (citing Englehardt v.
Paul Revere Life Ins. Co., 139 F.3d 1346, 1351 n.4 (11th
Cir. 1998)).

Although the District Court relinquished jurisdiction over
this case when it either dismissed or remanded all the
claims before it, it still had jurisdiction to order sanctions.
Moreover, a district court has jurisdiction to impose Rule
11 sanctions on litigants and attorneys appearing before it
even if the court is subsequently determined to have lacked
_________________________________________________________________

The court had S 502(a) removal jurisdiction and, therefore, could rule on
and strike them. We will affirm the District Court's determination that
Lazorko's attorney failed to satisfy the "stop, think, investigate and
research" rule before including these paragraphs in his Complaint. See
Gaiardo v. Ethyl Corp., 838 F.2d 479, 482 (3d Cir. 1987). Because
Lazorko's attorney had no basis to assert the claims in paragraphs 25
and 39, the District Court was within its authority to strike them, as
well as to impose sanctions. We will affir m the striking of paragraph 25.
We need not affirm the striking of paragraph 39 because we are affirming
the dismissal of Count III, of which paragraph 39 is a part.

7
subject matter jurisdiction over the claim in which the
sanctionable conduct occurred. See W illy v. Coastal Corp.,
503 U.S. 131, 139 (1992); In re Jaritz Industries, Ltd., 151
F.3d 93, 96 (3d Cir. 1998) (relying on Willy).

Concerning the award of sanctions, while we review a
district court's decision to impose sanctions for abuse of
discretion, we have plenary review of the question of our
jurisdiction over the appeal of the award. See Shareholders
v. Sound Radio, 109 F.3d 873, 878 (3d Cir . 1997). An
appellate court lacks jurisdiction over an appeal that is
untimely filed, including premature appeals. See Hindes v.
Federal Deposit Ins. Corp., 137 F.3d 148, 155 (3d Cir.
1998). An award of sanctions is not a final order, and thus
not appealable, until the district court deter mines the
amount of the sanction. See Napier v. Thirty or More
Unidentified Federal Agents, Employees or Officers, 855
F.2d 1080, 1089 (3d Cir. 1988). The District Court did not
make this determination until its subsequent order, filed on
August 3, 1998. Consequently, plaintiff 's July 29 notice of
appeal of the June 30 sanctions order was pr emature and
untimely.

Nor does the fact that the District Court subsequently
entered its final order on the sanctions motion on August
3, 1998, cure this premature appeal and make it timely. A
premature appeal can be cured by a subsequent final order
if the untimely appealed decision would otherwise
constitute a final judgment. See Fed. R. App. P. 4(a)(2).
Because Rule 11 sanctions awards are interlocutory in
nature, this rule does not extend to them. See FirsTier
Mortgage Co. v. Investors Mortgage Ins. Co., 498 U.S. 269,
275-76 (1991). Thus, we lack jurisdiction over the
sanctions order because plaintiff 's counsel failed to timely
appeal that order once it had become final. W e will,
therefore, dismiss that portion of the appeal.

III. The Direct Claims Against U.S. Healthcare

A defendant may remove to federal court an action that
a plaintiff originally files in state court if the federal court
also has jurisdiction at the time of filing. See 28 U.S.C.
S 1441(c). Whether removal is proper is governed by the

8
"well-pleaded complaint" rule. If a federal question appears
on the face of the plaintiff 's complaint, the defendant may
remove the case to federal court. If, however , the defendant
merely has a federal law defense, he may not r emove the
case, although he may assert the federal defense in state
court. See Franchise Tax Bd. of Cal. v. Construction
Laborers Vacation Trust for S. Cal., 463 U.S. 1, 9-12 (1983);
Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 152
(1908).

One exception to this rule is for matters that Congr ess
has so completely preempted that any civil complaint that
falls within this category is necessarily federal in character.
Complete preemption creates removal jurisdiction even
though no federal question appears on the face of the
plaintiff 's complaint. One example of complete preemption
is a claim for denial of benefits under an ERISA plan. Such
a claim comes under ERISA's civil enforcement provision,
S 502(a)(1)(B). See Metropolitan Life Ins. Co., 481 U.S. at 63-
64.

Complete preemption contrasts, however, with another
form of preemption, substantive pr eemption, which
displaces state law but does not, as a defense, confer
federal question jurisdiction. ERISA also contains an
express preemption provision, S 514(a), that creates
substantive preemption by trumping "any and all State
laws [that] . . . relate to" an ERISA plan. 29 U.S.C.
S 1144(a). Unlike the scope of S 502(a)(1)(B), which is
jurisdictional and creates a basis for r emoval to federal
court, S 514(a) merely governs the law that will apply to
state law claims, regardless of whether the case is brought
in state or federal court.

Much of the District Court's discussion in Lazorko IV
centered on the scope of S 514(a). W e do not need, however,
to review those conclusions because our intervening
decision in In re U.S. Healthcare convinces us that
Lazorko's direct claims against U.S. Healthcar e are not
completely preempted. These direct claims, as they are
presently pled, challenge the soundness of a medical
decision by a health care provider rather than the
administration of benefits under an ERISA plan. Thus,
Lazorko does not seek a remedy for the administrative

9
denial of a benefit under S 502(a)(1)(B). For that reason, the
removal of Lazorko's action to the federal court on the basis
of complete preemption was improper .

This conclusion follows from our decision in In re U.S.
Healthcare. There, the plaintif fs, like Lazorko, challenged
U.S. Healthcare's financial incentive structure. They
claimed it contributed to their newborn daughter's death
because she was prematurely dischar ged from the hospital
in order that the hospital might avoid monetary penalties.
Thus, the infant was denied essential post-natal car e. See
193 F.3d at 156. The plaintiffs br ought their suit against
the HMO in New Jersey state court, alleging a variety of
state law claims aimed at the influence which U.S.
Healthcare's financial incentive system had on medical
decisions. As in the case before us, U.S. Healthcare
removed the case to federal court, claiming that the failure
to provide adequate post-natal care constituted a denial of
benefits that was completely preempted by ERISA.

Relying on our earlier decision in Dukes v. U.S.
Healthcare, Inc., 57 F.3d 350 (3d Cir. 1995), we reasoned
that the refusal to offer additional car e, whether couched in
terms of direct or vicarious liability, could be a question of
the quality of care provided. As such, it did not amount to
a claim that benefits to which the plaintif fs were otherwise
entitled had been denied by U.S. Healthcare when
administering a plan. Instead, the claim concer ned
decisions of treatment that were akin to claims for medical
malpractice. See In re U.S. Healthcar e, 193 F.3d at 161-62,
164. We had concluded in Dukes that a claim for vicarious
liability against an HMO for a doctor's malpractice fell
outside the scope of ERISA's complete preemption clause.
In In re U.S. Healthcare, we extended that ruling to
encompass claims that an HMO was directly liable for
arranging inadequate care. In doing so, we r easoned that
financial incentives that discouraged care did not deny plan
benefits but instead affected the quality of the care
provided. See id. at 162-63, 164. Thus, we held that
decisions to deny a particular request in the course of
providing treatment could be a claim about the quality --
and not the quantity -- of benefits provided. (In all but the
details, Lazorko's claims against U.S. Healthcar e fall

10
squarely within this rubric. On appeal, Lazorko argues that
his liability claims amount to ones of quality because U.S.
Healthcare implicitly caused Dr. Nicklin to misdiagnose
and/or mistreat the severity of Ms. Norlie-Lazorko's illness.
Thus, such a claim does not fall within the complete
preemption scope of S 502(a)(1)(B).6

U.S. Healthcare counters with two basic ar guments,
neither of which we find persuasive. First, it ar gues that Dr.
Nicklin's refusal to hospitalize Patricia Norlie-Lazorko
amounts to a denial of benefits because hospitalization is a
benefit under Jonathan Lazorko's HMO plan. W e reject this
characterization of the claim. Lazorko is not ar guing that
his plan is supposed to permit hospitalizations for mental
illness and that U.S. Healthcare refused his wife's request
for guaranteed service. Instead, he is arguing that, when
confronted with his wife's requests for additional treatment,
Dr. Nicklin, influenced by U.S. Healthcar e's financial
incentives that penalized a decision to grant additional
hospitalizations, made the medical decision not to r eadmit
her to the hospital. Because Lazorko's claim is one
concerning the propriety of care rather than the
administration of that care, the claim is not completely
preempted. In other words, the claim her e is that the denial
of Norlie-Lazorko's request for hospitalization occurred in
the course of a treatment decision, not in the
administration of the Lazorkos' plan generally. See In re
U.S. Healthcare, 193 F.3d at 164.

U.S. Healthcare's second contention is that, in light of
the recent Supreme Court decision in Pegram v. Herdrich,
120 S.Ct. 2143 (2000), subjecting an HMO to liability is
improper because Pegram recognized the centrality of
financial incentives to the operation of an HMO. Pegram,
however, does not alter our analysis. In evaluating the
question of the circumstances under which an HMO owes
a fiduciary duty to the members of an ERISA plan, the
_________________________________________________________________

6. In making this argument, however , Lazorko continues to hedge against
the existence of a plan, on which he bases his ar gument that ERISA
does not govern this case. As the District Court correctly noted, however,
the record evidence supports the existence of a plan, as does the law of
the case doctrine. See Lazorko IV, slip op. at 4-6.

11
Pegram court held that mixed eligibility decisions by an
HMO (i.e., decisions involving not only the coverage of a
particular treatment by the plan but the r easonable medical
necessity for the treatment) are not fiduciary decisions
under ERISA. The decision in question here, the need to
hospitalize Patricia Norlie-Lazorko, appears to be just such
a mixed eligibility decision and to the extent that the mixed
decision implicates the quality of the care r eceived by
Norlie-Lazorko, Pegram does not foreclose the direct claims
against U.S. Healthcare.

Before our decision in In re U.S. Healthcare, it was not
clear whether the denial of a particular type of benefit, such
as hospitalization, fell within S 502(a)(1)(B)'s narrow but
exclusive scope. This ambiguity was articulated in Dukes:
drawing the line between the denial of benefits under a
plan and the provision of substandard car e is difficult. See
Dukes, 57 F.3d at 358. In ruling on Lazorko's claims here,
however, the District Court did not have the benefit of our
further analysis in In re Healthcar e. We now conclude that
Lazorko's claim, as it has been pled, falls on the standard
of care, not the denial of benefits, side of the line.

We note, moreover, that since our decision in In re U.S.
Healthcare, our district courts have consistently applied its
reasoning to determine whether it is the quality of care
provided or the denial of a plan benefit that is implicated
when treatment is refused. See, e.g., Tiemann v. U.S.
Healthcare, 93 F.Supp.2d 585 (E.D. Pa. 2000) (classifying
failure to diagnosis and treat disease pr operly as question
of benefit quality not quantity); Berger v. Livengrin
Foundation, 2000 WL 325957 (E.D. Pa. Mar . 27, 2000)
(concluding that refusal to provide inpatient care was
question of quality of treatment and not denial of benefit
due under plan).

Because we conclude that Lazorko's case is not subject to
complete preemption, it follows that it was improperly
removed from state court. We must therefore vacate the
dismissal by the District Court of the direct claims in Count
I of the Fourth Amended Complaint and remand those
claims to the District Court for remand to state court.
When the underlying federal subject matter jurisdiction
upon which to remove a case from state court does not

12
exist, the entire case must be remanded. See 28 U.S.C.
S 1447(c).

On remand, it will be for the state court to further
determine whether a S 502 claim of denial of a benefit
provided by his plan is lodged in the heart of Lazorko's
direct claims in Count I. If such a claim should materialize,
that claim will have to be removed once mor e to federal
court. Moreover, on remand the state court will also have
the task to determine to what extent, if any, Lazorko's
claims against U.S. Healthcare are substantively preempted
under S 514. See Dukes, 57 F.3d at 355 ("When the
doctrine of complete preemption does not apply, but the
plaintiff 's state claim is arguably preempted under S 514(a),
the district court, being without removal jurisdiction,
cannot resolve the dispute regarding preemption.").

IV. Conclusion

Because Lazorko requests relief for the consequences of
U.S. Healthcare's provision of inadequate services and not
for the denial of benefits under his health car e plan, Count
I of his Complaint was improperly removed to federal court.
Consequently, we will vacate the District Court's dismissal
of Lazorko's direct claims against U.S. Healthcare and
remand Count I to the District Court for r emand to the
state court for further proceedings. We will affirm the
dismissal of the direct claims against U.S. Healthcare in
Counts II, III and IV. On U.S. Healthcar e's cross-appeal, we
will affirm the District Court's remand to the state court of
the vicarious claims against U.S. Healthcare. Finally, we
will affirm the District Court's dismissal of paragraph 25 of
the Complaint. At the same time, we will dismiss Lazorko's
appeal of the award of sanctions against his attorney
because he failed to timely appeal the final sanctions order.
Thus, we lack jurisdiction over the order .

A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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