« Howard Delivery Service v. Zurich American Insurance | Main | Hudson v. Michigan »

Supreme Court Decision Update - Empire HealthChoice Assurance, Inc. v. McVeigh

supreme1.jpgIn Empire HealthChoice Assurance, Inc. v. McVeigh (PDF of the opinion), the Supremes decided to resolve an issue that lower federal courts have disagreed on. That issue relates to whether federal courts have jurisdiction over claims brought by health insurance companies, against federal employees, to get reimbursed for prior payments made by the company to the employee.

QuizLaw Analysis: While it takes a long, long time to get there (just look at the length of this entry), the ultimate gist of this case is rather simple. When a health insurance company is looking to get reimbursed by a beneficiary to a federal health insurance plan (because it paid benefits to the beneficiary and the beneficiary later got his/her own payments from a third party), it must file its lawsuit in state court.

In 1997, Joseph McVeigh was involved in an accident which caused him serious injury. Between 1997 and 2001, when he died, he received over $150,000 from his health insurance plan (we’ll go into much more detail about this plan, to your chagrin, in a moment). Meanwhile, after Joseph died, his wife filed a lawsuit on behalf of his estate, herself, and their child. This lawsuit was against the folks who she alleged were the cause of Joseph’s accident, and they ultimately settled out-of-court for about $3.1 million. After the case was settled, Joseph’s insurance company filed a federal lawsuit against McVeigh to reclaim the $150,000+ it had paid out under the plan.

Ok, here come the chagrining details about this insurance policy. Joseph McVeigh had been a federal employee. Federal employees are covered by a nationwide health care plan provided by Blue Cross Blue Shield Association (“BCBSA”) and administered, locally, by various companies. Empire HealthChoice Assurance, Inc. (“Empire”) administers the plan for folks in New York, so they’re the company who paid benefits to McVeigh and then later sued his wife and estate. Now, the reason Empire sued is because the plan includes a “reimbursement provision.” Basically, this provision says that when someone is injured by another person and gets money from that person (by lawsuit, settlement, etc.), they are obligated to reimburse Empire for any benefits Empire paid-out for the injury. If the insured person does not provide such a reimbursement, Empire is required to take “reasonable efforts” to recover the money in question. It was with this provision in mind that Empire sued McVeigh.

Bare in mind, the issue here is not whether, and to what extent, Empire is entitled to reimbursement. Rather, we have to peel back another layer of this damn onion. This federal plan is covered by something known as the Federal Employees Health Benefits Act of 1959 (FEHBA). That is, FEHBA instructs a federal agency to enter into a health plan for federal employees, and places various requirements on the subsequent plan. It was under the auspices of this statute that the plan with BCBSA came about.

Now, we can finally get to the legal issue of this case. McVeigh filed a motion to dismiss, arguing that the federal courts did not have subject matter jurisdiction over this case. Empire argued that the court did have jurisdiction over the case pursuant to every civil procedure student’s friend, 28 U.S.C. § 1331, which grants federal courts jurisdiction over all cases which either raise a claim that comes from federal law or which require the courts to resolve an important federal question. Empire said there were two reasons this case qualified for federal jurisdiction - either because federal common law covered the reimbursement claim or, alternatively, because the plan itself was federal law. The District Court didn’t buy either argument, and dismissed the case. On appeal, the Second Circuit affirmed the District Court’s dismissal of the lawsuit.

Now at the Supreme Court, Justice Ginsburg wrote the majority opinion, joined by Chief Justice Roberts and Justices Stevens, Scalia and Thomas, and she affirmed the Second Circuit’s decision. Interestingly, the substantive portion of Ginsburg’s opinion begins, not by addressing her arguments for affirming the Second Circuit, but by addressing and refuting some of the dissent’s argument. We’ll discuss this below, when we turn to the dissent’s decision. After talking to the dissent, Ginsburg turned to the first of Empire’s two arguments, which was that it was bringing a federal claim because Congress intended the vindication of contract rights under FEHBA to be federal. Empire relied on a specific provision of FEHBA for this argument, a provision which says that any health contract entered into pursuant to the statute supersedes and preempts state law on matters of “coverage or benefits.” The Second Circuit didn’t buy this argument, finding that the provision simply preempts the application of state law but does not affirmatively create a federal cause of action (unlike another section of FEHBA which explicitly authorizes certain federal claims against the federal government). The Supremes don’t buy this argument either. There’s no question that FEHBA does not explicitly create a federal cause of action for providers to sue beneficiaries in federal court to get a contractual reimbursement. Nor does it appear that Congress intended this to be a federal claim. The reimbursement claim is not a “creature of federal law,” even though it involves federal interests (the federal interest being that any reimbursements actually go into a federal fund). A strong reason for finding that Congress did not intend this to be a federal claim is that Congress did consider federal jurisdiction in other places, and conferred such jurisdiction where it deemed it necessary (this is the reasoning the Second Circuit used). The preemption provision Empire points to is simply a choice-of-law provision, saying federal law trumps state law with regard to issues of coverage or benefits. While it is not even clear if this covers Empire’s reimbursement claim, the Supremes say it doesn’t matter. If the claims don’t fall under this provision, then there is certainly no federal jurisdiction. But even if the claims are covered by this provision (that is, if the reimbursement claims relate to “coverage or benefits”), Congress did not offer anything to explicitly suggest that this provision was broadly conferring federal jurisdiction.

The other argument raised in Empire’s favor (it was actually argued by the federal government) was that there is federal jurisdiction because Empire’s claim can only be resolved by federal law. Empire’s claim was not initially triggered by any actions taken by a federal department or agency, but by the private settlement of McVeigh’s state court personal-injury lawsuit. The “bottom-line practical issue [of the claim] is the share of that settlement properly payable to Empire.” This is a fact-based issue, and its resolution would not govern a broad swath of other cases. While the feds have a strong interest in the case, Ginsburg does not believe these interests make this into a “federal case.”

Meanwhile, Justice Breyer filed a dissenting opinion, joined by Justices Kennedy, Souter and Alito. Breyer believes that, unlike Ginsburg, he can find a basis for conferring federal jurisdiction to this case. Most of the facts are federal-related - it’s a federal health insurance program governed by federal statute, implemented by a federal agency, covering federal employees, largely funded by federal money and involving a federal fund. To Breyer, it’s clear that Empire’s claim arises under federal common law because it involves a federal contract and the Supremes have previously ruled that “obligations to and rights of the United States under its contracts are governed exclusively by federal law.” And while he admits that it may be overbroad to say that any case arising under federal common law is a jurisdictional federal case, his research has not found any case ruling that a case did not arise under federal law where the claim was covered by federal common law. More importantly, Breyer believes: (i) that the feds are the real party in interest in this case, since any money recovered by Empire would have to be put into a federal fund; and (ii) the health insurance system at issue here is a federal program which needs nationwide uniformity. And Breyer rejects Ginsburg’s argument that Congress would have explicitly created federal jurisdiction here if it wanted to, as it did with the other FEHBA section, because Congress’ failure to do so may have been inadvertent or due to the belief that it was already covered by federal jurisdiction. Addressing the majority’s second analysis, Breyer believes the federal interests in this case are significant enough to confer federal jurisdiction. He believes this because of the strong federal interest in uniform application and operation of the health insurance plan, and in applying a uniform set of rules regarding reimbursement.

As mentioned above, Ginsburg actually began her opinion by addressing Breyer. Specifically, she looked at a 1943 case which Breyer relied on in making many of the above argument. That case, Clearfield Trust Co. v. United States, involved the federal government suing a bank to get back some money after someone forged a government check. Back in ‘43, the Supremes ruled that there was federal jurisdiction because the U.S. was the plaintiff and because “the rights and duties of the United States on commercial paper” was a federal issue, not a state one. Breyer relies on this decision and some of its progeny to argue that resolving claims relating to a federal health insurance plan is also an explicit federal issue conferring federal jurisdiction. But Ginsburg pooh-poohs this because the whole issue of reimbursement is closely tied to an initial tort recovery from a third-party, which is a state law issue. And, Ginsburg concludes, there’s no conflict between these state law issues and other federal issues which arise out of the federal health insurance program.