Norman Hobbs v. Blue Cross Blue Shield

                                                                       [PUBLISH]

                IN THE UNITED STATES COURT OF APPEALS

                         FOR THE ELEVENTH CIRCUIT                    FILED
                                                            U.S. COURT OF APPEALS
                                                              ELEVENTH CIRCUIT
                          _________________________            DECEMBER 21, 2001
                                                               THOMAS K. KAHN
                                 No. 01-10019                       CLERK
                          _________________________

                       D. C. Docket No. 99-01161-CV-S-N

NORMAN HOBBS, individually,
and on behalf of a class of similarly
situated persons, SAMUEL IRVINE,
individually, and on behalf of a class
of similarly situated persons,

                                                          Plaintiffs-Appellants,

      versus

BLUE CROSS BLUE SHIELD OF
ALABAMA,

                                                          Defendant-Appellee.

                           ________________________

                Appeal from the United States District Court for the
                        for the Middle District of Alabama
                          ________________________
                               (December 21, 2001)

                              AMENDED OPINION
Before BIRCH, COX and ALARCÓN*, Circuit Judges.

ALARCÓN, Circuit Judge:

       Norman Hobbs and Samuel Irvine appeal from the denial of their motion to

remand this action to state court. They contend that the district court erred in

recharacterizing their state insurance law claim against Blue Cross and Blue Shield

of Alabama (“Blue Cross’) as “arising under” the Employee Retirement Income

Security Act of 1974 (“ERISA”)1 because they lack standing under ERISA to bring

an action for the payment of their services as physician assistants.

       Hobbs and Irvine also argue that the district court erred in dismissing this

action on the merits, and in denying their motion to require Blue Cross to pay costs

and attorney’s fees2 incurred as the result of the erroneous removal of this action

from state court. We reverse the order denying the motion to remand and the

dismissal of this action on the merits because we conclude that the district court



*
       Honorable Arthur L. Alarcón, U.S. Circuit Judge for the Ninth Circuit, sitting by
designation.
1
       Employment Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1461.
2
        There is no consistency among federal statutes, rules, and cases with respect to using the
term “attorney fees,” “attorneys fees,” “attorney’s fees,” or “attorneys’ fees.” The removal
statute at issue in this case, 28 U.S.C. § 1447(c), uses the term “attorney fees.” We note,
however, that the Supreme Court Style Manual prefers the use of the phrase “attorney’s fees” in
all opinions. See Stallworth v. Greater Cleveland Reg’l Transit Auth., 105 F.3d 252, 253 n.1
(6th Cir. 1997). Therefore, we choose to use the term “attorney’s fees” in this opinion except
when quoting other authorities.

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erred in determining that this action was properly removed from state court as a

recharacterized claim under ERISA. We also vacate the order denying costs and

attorney’s fees with instructions.

                                          I

      Hobbs and Irvine are licensed physician assistants pursuant to Alabama law.

On August 26, 1999, they filed an action in the Circuit Court of Alabama seeking

compensatory and punitive damages as well as injunctive relief against Blue Cross

for its failure to comply with Alabama Code § 27-51-1. They filed the complaint

individually and as representatives of a class of similarly situated Alabama

physicians and physician assistants.

      Hobbs and Irvine alleged that Blue Cross refused to include a provision in its

health insurance policies for the payment of medical or surgical services provided

by licensed physician assistants in violation of Ala. Code § 27-51-1(a). That

statute provides in pertinent part:

             An insurance policy or contract providing for third-party
             payment or prepayment of health or medical expenses
             shall include a provision for the payment to a supervising
             physician for necessary medical or surgical services that
             are provided by a licensed physician assistant practicing
             under the supervision of the physician, and pursuant to
             the rules, regulations, and parameters for physician
             assistants, if the policy or contract pays for the same care



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             and treatment provided by a licensed physician or doctor
             of osteopathy.

Ala. Code § 27-51-1(a).

      Hobbs and Irvine are citizens of Alabama. Blue Cross is a not-for-profit

corporation having its principal place of business in Birmingham, Alabama. Thus,

Hobbs and Irvine’s state law claim is not removable under the district court’s

diversity jurisdiction. See 28 U.S.C. § 1332.

      Blue Cross filed a notice of removal in the United States District Court for

the Middle District of Alabama in which it alleged that the court had federal

question jurisdiction because the state law claim set forth in the complaint was

completely preempted under ERISA. Hobbs and Irvine filed a motion for remand.

They argued that their state law claim is not preempted pursuant to

29 U.S.C. § 1144(a) because that statute limits its scope to “any and all State laws

insofar as they may now or hereafter relate to any employee benefit plan,” and is

not applicable to state laws that apply to all insurance policies and contracts,

irrespective of the existence of an ERISA plan. Hobbs and Irvine also contended

that Ala. Code § 27-51-1 comes within the saving clause contained in

29 U.S.C. § 1144(b)(2)(A) which exempts from preemption “any law of any State

which regulates insurance.” Hobbs and Irvine did not assert before the district

court that it lacked subject matter jurisdiction to consider this matter as involving a

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recharacterized ERISA claim because Blue Cross had failed to demonstrate that

Hobbs and Irvine had standing to sue under an ERISA plan.3

       The district court denied the motion to remand without discussing whether

the state law claim filed by Hobbs and Irvine pursuant to Ala. Code § 27-51-1

could be recharacterized as an artfully pleaded ERISA claim if they did not have

standing to prosecute a cause of action under ERISA. See Hobbs v. Blue Cross &

Blue Shield of Ala., 100 F. Supp. 2d 1299, 1302-09 (M.D. Ala. 2000). The district

court dismissed the action on the merits on the basis that “the plaintiffs’ claims [as]

stated in the complaint are not cognizable under ERISA.”

                                                 II

       Hobbs and Irvine argue for the first time in this appeal that their state law

claims are not completely preempted because they lack standing to bring an ERISA

claim as they are not participants or beneficiaries of an employee health benefit

plan. Because federal courts are courts of limited jurisdiction, we must determine

in each appeal whether subject matter jurisdiction exists over a pending action

whether or not this issue was raised before. See Univ. of S. Ala. v. Am. Tobacco




3
         After Hobbs and Irvine filed their motion to remand their state law claim to state court,
all parties consented to jurisdiction by a United States Magistrate Judge, pursuant to 28 U.S.C.
§ 636(c)(1).

                                                 5
Co., 168 F.3d 405, 409-10 (11th Cir. 1999) (“[A] federal court is obligated to

inquire into subject matter jurisdiction sua sponte whenever it may be lacking.”).

      Under the doctrine of complete preemption, a plaintiff must have standing to

sue under a relevant ERISA plan before a state law claim can be recharacterized as

arising under federal law, subject to federal court jurisdiction. Butero v. Royal

Maccabees Life Ins. Co., 174 F.3d 1207, 1211-12 (11th Cir. 1999).

      The only parties that have standing to sue under ERISA are those listed in

the civil enforcement provision of ERISA, codified at 29 U.S.C. § 1132(a). See

Cagle v. Bruner, 112 F.3d 1510, 1514 (11th Cir. 1997) (per curiam). The civil

enforcement provision provides, in relevant portion:

      (a)    Persons empowered to bring a civil action
             A civil action may be brought–
             (1) by a participant or beneficiary–
                   (A) for the relief provided for in subsection (c) of this
                          section, or
                   (B) to recover benefits due to him under the terms of his
                          plan, to enforce his rights under the terms of the
                          plan, or to clarify his rights to future benefits under
                          the terms of the plan; . . . .

29 U.S.C. § 1132(a). Thus, “ERISA’s civil enforcement section permits two

categories of individuals to sue for benefits under an ERISA plan–plan

beneficiaries and plan participants.” Engelhardt v. Paul Revere Life Ins. Co.,

139 F.3d 1346, 1351 (11th Cir. 1998).


                                           6
      Under ERISA, a “participant” is “any employee or former employee of an

employer, or any member or former member of an employee organization, who is

or may become eligible to receive a benefit of any type from an employee benefit

plan which covers employees of such employer or members of such organization,

or whose beneficiaries may be eligible to receive any such benefit.” 29 U.S.C.

§ 1002(7). A “beneficiary” is “a person designated by a participant, or by the

terms of an employee benefit plan, who is or may become entitled to a benefit

thereunder.” 29 U.S.C. § 1002(8); Engelhardt, 139 F.3d at 1351.

      Healthcare providers such as physician assistants generally are not

considered “beneficiaries” or “participants” under ERISA. Cf. Cagle, 112 F.3d at

1514 (stating that healthcare providers lack independent standing under ERISA).

Blue Cross contends that Hobbs and Irvine have standing under ERISA because

they “are seeking benefits as purported assignees of their patients’ benefits under

ERISA-governed Blue Cross plans.” Blue Cross maintains that pursuant to this

court’s decision in Cagle v. Bruner, 112 F.3d 1510 (11th Cir. 1997), Hobbs and

Irvine have derivative standing to sue on behalf of their patients. In Cagle, this

court held that a healthcare provider had derivative standing to bring an action

against an ERISA plan insurance fund where the record showed that the minor

patient’s father signed a form assigning his right to payment of medical benefits to


                                          7
the healthcare provider. 112 F.3d at 1512-16. This court explained that “if

provider-assignees can sue for payment of benefits, an assignment will transfer the

burden of bringing suit from plan participants and beneficiaries to ‘providers[,

who] are better situated and financed to pursue an action for benefits owed for their

services.’” Id. at 1515 (alteration in original) (internal citation omitted).

      More recently, this court held that “neither 1132(a) nor any other ERISA

provision prevents derivative standing based upon an assignment of rights from an

entity listed in that subsection.” HCA Health Servs. of Ga., Inc. v. Employers

Health Ins. Co., 240 F.3d 982, 991 (11th Cir. 2001) (quoting Cagle, 112 F.3d at

1515). In HCA Health Services, “the patient assigned to the medical center his

right to recover 80% of the costs of the surgery from the insurance company.” Id.

at 985.

      Thus, while this court has allowed healthcare providers to use derivative

standing to sue under ERISA, it has only done so when the healthcare provider had

obtained a written assignment of claims from a patient who had standing to sue

under ERISA as a “beneficiary” or “participant.” See Cagle, 112 F.3d at 1512-13

(patient’s father signed form assigning to hospital right to payment of dependent

son’s medical benefits under ERISA-governed health plan); see also HCA Health

Servs., 240 F.3d at 986, 989 (medical center obtained written assignment to receive


                                            8
payment from participant’s ERISA-governed insurance benefits). Here, Blue

Cross failed to demonstrate, in response to the motion to remand, that Hobbs and

Irvine obtained an assignment of benefits from their patients. Indeed, Blue Cross

admitted at oral argument that it does not know whether Hobbs and Irvine received

an assignment from an ERISA beneficiary or participant. Because Blue Cross

failed to present proof of an assignment, its reliance on Cagle and HCA Health

Services is misplaced.

      As the party seeking removal, Blue Cross had the burden of producing facts

supporting the existence of federal subject matter jurisdiction by a preponderance

of the evidence. Pacheco de Perez v. AT&T Co., 139 F.3d 1368, 1373 (11th Cir.

1998); Burns v. Windsor Ins. Co., 31 F.3d 1092, 1094 (11th Cir. 1994). Without

proof of an assignment, the derivative standing doctrine does not apply.

      Blue Cross argues that the district court had subject matter jurisdiction in

this matter because Hobbs and Irvine “plausibly” possess derivative standing to

bring an action under ERISA as assignees of their patients. Blue Cross relies on

this court’s decision in Blue Cross & Blue Shield of Alabama v. Sanders, 138 F.3d

1347 (11th Cir. 1998). The Sanders decision is readily distinguishable and

inapposite.




                                          9
      In Sanders, participants in an employee health benefits plan filed an action

in state court to recover damages resulting from personal injuries suffered by Mrs.

Sanders in an automobile accident. The Sanderses did not include a claim for

medical expenses. They received a default judgment of $200,000. Blue Cross, as

the claims administrator of the plan, requested that the Sanderses reimburse the

fund in the amount of $12,678.89. The Sanderses refused. Id. at 1350.

      Blue Cross filed an action in federal court on behalf of the health benefits

plan seeking a declaration that the health benefits plan was entitled to

reimbursement of the $12,678.89. Id. In their answer to the complaint, the

Sanderses admitted that Blue Cross was a fiduciary seeking equitable relief under

29 U.S.C. § 1132(a)(3). Id.

      The district court granted summary judgment to Blue Cross. Id. at 1351. On

appeal, the Sanderses asserted for the first time that the district court did not have

subject matter jurisdiction because Blue Cross was not a fiduciary under 29 U.S.C.

§ 1132(a)(3) and the relief sought in the complaint was not equitable. Id.

      This court rejected the Sanderses’ jurisdictional challenge to the district

court’s judgment. Id. at 1353. Relying on the Supreme Court’s decision in

Bell v. Hood, 327 U.S. 678 (1946), and its progeny, this court concluded that a

federal court has subject matter jurisdiction if the claims are “neither ‘immaterial


                                           10
and made solely for the purpose of obtaining jurisdiction’ nor ‘wholly insubstantial

and frivolous.’” Id. at 1352-53 (quoting Bell, 327 U.S. at 682-83). This court

concluded that Blue Cross satisfied its burden of showing that Blue Cross was

likely a fiduciary under 29 U.S.C. § 1132(a)(3) because the health benefit plan

provided that “Blue Cross has full authority to determine payment eligibility for

submitted claims and to review denied claims.” Id. at 1352 n.4. This court also

noted that “the Sanderses waived the particular failure to state a claim defense that

is implicit in their subject matter jurisdiction argument–namely, the defense that

Blue Cross is not a ‘fiduciary,’ see 29 U.S.C. § 1132(a)(3), seeking ‘equitable

relief,’ see 29 U.S.C. § 1132(a)(3)(B).” Id. at 1354.

      Here, unlike the circumstances in Sanders, Hobbs and Irvine did not concede

that they had derivative standing as assignees of their patients. In their motion to

remand, Hobbs and Irvine contended that “Blue Cross’ failure to provide any

factual or legal support for its ‘pre-emption’ theories renders the Notice of

Removal fatally defective and requires remand.” They did not expressly argue,

however, that the district court lacked subject matter jurisdiction because Blue

Cross failed to meed its burden of demonstrating that Hobbs and Irvine lacked

standing to file an action under ERISA.




                                          11
      In Sanders, Blue Cross filed its ERISA claim in federal court. This court

determined that Blue Cross had met its burden of demonstrating that it plausibly is

a fiduciary by pointing to the Sanderses’ admission in its answer and by reference

to the terms of the health benefits plan. In the instant matter, Blue Cross removed

the matter to federal court. It failed to set forth facts in the notice of removal

demonstrating that Hobbs and Irvine had received assignments of their patients’

claims under an employee benefit plan. It also failed to present any evidence, or

cite to the record, to support its argument that Hobbs and Irvine had received

assignments from their patients.

      Blue Cross has failed to meet its burden of demonstrating that ERISA

completely preempts Hobbs and Irvine’s state law claims. Accordingly, the district

court lacked subject matter jurisdiction over this action. It erred in denying the

motion to remand.

      Because the district court did not have subject matter jurisdiction over

Hobbs and Irvine’s state law claims, the district court also erred in dismissing this

action on the merits. Thus, we also lack the power to determine whether Hobbs

and Irvine’s state law claims “relate to” an ERISA plan or come within ERISA’s

saving clause.

                                           III


                                           12
      Finally, Hobbs and Irvine also seek reversal of the order denying their

motion to award them costs and attorney’s fees. An order remanding a case to

state court “may require payment of just costs and any actual expenses, including

attorney fees, incurred as a result of the removal.” 28 U.S.C. § 1447(c). We

review the district court’s denial of Hobbs and Irvine’s motion to tax costs and

attorney’s fees for abuse of discretion. Fowler v. Safeco Ins. Co. of Am., 915 F.2d

616, 617 (11th Cir. 1990).

      The district court did not set forth the basis for its denial of the motion to tax

costs and attorney’s fees. Thus, we cannot tell from the record whether it was

premised upon its erroneous determination that removal was proper because Hobbs

and Irvine’s state law claims were completely preempted. Under these

circumstances, we deem it appropriate to vacate the order denying the motion to

tax costs and attorney’s fees with instructions that the district court reconsider the

question whether the motion should be granted in light of the fact that this matter

must be remanded to state court because the district court lacked federal question

subject matter jurisdiction.

                                      Conclusion

      Hobbs and Irvine do not have standing to present an ERISA claim because

they are not participants or beneficiaries in an employee health care plan. Blue


                                          13
Cross failed to demonstrate that Hobbs and Irvine had standing based on an

assignment of their patients’ claims and benefits. Thus, this matter was improperly

removed to federal court because it did not have subject matter jurisdiction. The

order denying the motion to remand and the dismissal of this action are

REVERSED. Because the district court lacked subject matter jurisdiction, the

order dismissing this action on the merits is REVERSED. The district court is

requested to enter an order remanding this action to state court.

      Because we cannot discern from this record whether the district court

properly exercised its discretion in denying the motion to tax costs and attorney’s

fees, we VACATE the order denying that motion and REMAND with instructions

to reconsider the motion to tax costs and attorney’s fees and set forth the basis for

its disposition of this motion in its order.

      REVERSED in part with instructions to remand to state court, VACATED

in part with instructions to reconsider the motion to tax costs and attorney’s fees.




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