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Robert Poffenbarger and v. Hawaii Management Alliance Association

August 31, 2012

ROBERT POFFENBARGER AND
CLAREEN POFFENBARGER, PLAINTIFFS,
v.
HAWAII MANAGEMENT ALLIANCE ASSOCIATION, DBA HMAA, A HAWAII NONPROFIT CORPORATION; HAWAII-WESTERN MANAGEMENT GROUP, INC., DBA HWMG, A FOREIGN PROFIT CORPORATION; JOHN DOES 1-10; JANE DOES 1- 10; DOE PARTNERSHIPS 1-10; DOE CORPORATIONS 1-10; AND DOE GOVERNMENTAL ENTITIES 1- 10, DEFENDANTS.



The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge

ORDER DENYING PLAINTIFFS' MOTION TO REMAND TO STATE COURT

Before the Court is Plaintiffs Robert Poffenbarger's and Clareen Poffenbarger's ("Plaintiffs") Motion to Remand to State Court ("Motion"), filed on April 27, 2012. Defendants Hawaii Management Alliance Association, doing business as HMAA, a Hawaii Nonprofit Corporation ("HMAA"), and Hawaii-Western Management Group, Inc., doing business as HWMG, a Foreign Profit Corporation ("HWMG", collectively "Defendants"), filed their memorandum in opposition on July 27, 2012, and Plaintiffs filed their reply on August 6, 2012. This matter came on for hearing on August 20, 2012. Appearing on behalf of Plaintiffs was Mark Reck, Esq., and appearing on behalf of Defendants was Kenneth Mansfield, Esq. After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, Plaintiffs' Motion is HEREBY DENIED for the reasons set forth below.

BACKGROUND

Plaintiffs filed their Complaint in the instant action in state court on March 6, 2012. [Notice of Removal, filed 3/29/12, Exh. A (dkt. no. 1-2) at 5-18.] According to the Complaint, on December 1, 2010, Clareen Poffenbarger submitted an Enrollment Application for healthcare coverage through HMAA. Her employer, Jaro Baranik, doing business as La Boheme ("Baranik") submitted the application to HMAA. HMAA issued Clareen Poffenbarger a member identification card for coverage effective January 1, 2011 pursuant to an employee health and welfare benefit plan ("the Plan"). Clareen Poffenbarger maintained her employment and paid her premiums, as required to maintain her coverage. [Complaint at ¶¶ 9-14.]

On February 21, 2011, Clareen Poffenbarger was diagnosed with a brain tumor. She received treatment at Maui Memorial Medical Clinic ("MMMC") from February 21, 2011 to March 6, 2011, Stanford Medical Center ("Stanford") from March 7, 2011 to March 30, 2011, and Santa Clara Valley Medical Center ("SCVMC") from March 30, 2011 to June 1, 2011. On June 1, 2011, Clareen Poffenbarger returned home to Maui, where she received home health care through Hale Makua. HMAA authorized all of her treatment at MMMC, Stanford, and SCVMC, as well as her treatment through Hale Makua until June 30, 2011. [Id. at ¶¶ 16-21, 24-27, 29-30.]

During Clareen Poffenbarger's treatment at Stanford, HMAA began a review of her eligibility. HMAA sent Clareen Poffenbarger a letter dated May 16, 2011 verifying her coverage through June 30, 2011. [Id. at ¶¶ 22-23.] On June 3, 2011, HMAA issued her a Certificate of Group Coverage stating that her coverage began on January 1, 2011 and would end on June 30, 2011. [Id. at ¶ 28.]

On June 23, 2011, HMAA issued a letter rescinding Clareen Poffenbarger's coverage effective January 1, 2011. HWMG's Research & Investigation and Subrogation Supervisor signed the letter as HMAA's Third Party Administrator. Plaintiffs submitted a timely appeal to HMAA on September 2, 2011. HMAA issued a letter, dated October 19, 2011, upholding the rescission. HWMG's Customer Service Administrator signed the letter as HMAA's Third Party Administrator. [Id. at ¶¶ 31-35.]

The Complaint alleges the following claims: insurance bad faith against HMAA ("Count I"); violations of Hawai`i Revised Statutes Chapter 480 by HMAA and HWMG ("Count II"); breach of fiduciary duty by HMAA ("Count III"); breach of contract by HMAA and HWMG ("Count IV"); negligent misrepresentation by HMAA ("Count V"); negligent infliction of emotional distress ("NIED") against HWMG ("Count V");*fn1 NIED against HMAA ("Count VI"); and a claim based on HMAA's vicarious liability ("Count VII"). The Complaint seeks: general and special damages; treble damages pursuant to Haw. Rev. Stat. § 480-13; punitive damages; fees and costs; and any other legal and/or equitable relief the Court deems appropriate.

Defendants filed their Notice of Removal on March 29, 2012, based on federal question jurisdiction. Defendants assert that Plaintiffs' claims arise under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.

I. Motion

In the instant Motion, Plaintiffs argue that all of their claims arise under state common law or state statutes and that ERISA does not preempt their claims. Plaintiffs argue that, because Defendants unilaterally rescinded the insurance contract, Defendants are estopped from claiming that the case involves an insurance contract subject to ERISA.

In addition, Plaintiffs argue that their claims are exempt from preemption pursuant to 29 U.S.C. § 1144(b)(5) because Clareen Poffenbarger obtained the Plan pursuant to the Hawaii Prepaid Health Care Act ("HPHCA").*fn2 Plaintiffs argue that, because Clareen Poffenbarger was entitled to the Plan pursuant to the HPHCA, and this right is the basis of Plaintiffs' action, ERISA preemption does not apply.

Plaintiffs acknowledge that the Hawai`i Supreme Court has recognized that the exemption does not apply to all claims related to employee benefit plans which employers maintain to comply with the HPHCA. [Mem. in Supp. of Motion at 9 (citing Garcia v. Kaiser Found. Hosps., 90 Hawai`i 425, 435, 978 P.2d 863, 873 (1999)).] Plaintiffs, however, argue that Garcia is distinguishable because that case involved an action for monetary damages for the denial of benefits. Plaintiffs contend that the issue in their case is whether Clareen Poffenbarger was entitled to the Plan in the first instance.

Plaintiffs also argue that, even pursuant to Ninth Circuit case law, ERISA does not preempt their claims. Plaintiffs argue that the Ninth Circuit uses a "relationship test" to determine whether ERISA preemption applies. [Id. at 10 (citing Geweke Ford v. St. Joseph's Omni Preferred Care Inc., 130 F.3d 1355 (9th Cir. 1997)).] Plaintiffs assert that state laws which encroach upon relationships that ERISA regulates are preempted, but ERISA does not preempt claims based upon relationships in which the plan operates as any other commercial entity. [Id. at 10-11.] Plaintiffs argue that their claims are based upon contract and tort case law, as well as Chapter 480, and these are laws of general application which do not necessarily affect ERISA relationships. Plaintiffs emphasize that the merits of their claims will not require a determination of the contents, administration, creation, operation, or failure of the Plan.

Finally, Plaintiffs argue that their claims are outside of the scope of 29 U.S.C. § 1132. Plaintiffs are not seeking to recover Clareen Poffenbarger's benefits or rights under the Plan, nor are they seeking an injunction or other equitable relief to redress ERISA violations. Plaintiffs argue that the United States Supreme Court has held that § 1132(a)(3)(B) only authorizes claims for typical equitable relief, not claims that essentially seek compensatory damages. [Id. at 15.] Plaintiffs seek compensatory remedies and therefore ERISA preemption does not apply.

Plaintiffs urge the Court to grant the Motion and remand the case to the state court.

II. Memorandum in Opposition

In their memorandum in opposition, Defendants state that Clareen Poffenbarger did not disclose any conditions or symptoms in her Enrollment Application. [Mem. in Opp., Decl. of Paul Kaiser ("Kaiser Decl."), Exh. A (Clareen Poffenbarger's Enrollment Application).*fn3 ] HMAA states that, after its investigation, it rescinded Clareen Poffenbarger's coverage because she failed to disclose symptoms related to her later brain tumor diagnosis. Defendants argue that all of Plaintiffs' claims arise out of the allegedly wrongful rescission of the Plan, and ERISA preempts all of Plaintiffs' state law claims. [Mem. in Opp. at 2-3.]

Defendants argue that, although Plaintiffs have only pled state law claims, this case is subject to an exception to the well-pleaded complaint rule because of the ERISA enforcement scheme. Defendants argue that the Plan is clearly subject to ERISA because Clareen Poffenbarger's employer sponsored the Plan, provided a statement of rights under ERISA, and provided for an appeals process governed by ERISA. [Id. at 5-6 (citing Kaiser Decl., Exh. B (Group Services Agreement between Baranik and HMAA)).] Defendants argue that Plaintiffs have not provided any case law supporting Plaintiffs' argument that the rescission of Clareen Poffenbarger's Plan renders ERISA inapplicable. Further, the right of rescission arises under ERISA where the parties entered into an insurance contract based on false representations about health status, and federal courts have asserted jurisdiction over claims that the insurer wrongfully rescinded plans issued based on those representations. [Id. at 6-9 (some citations omitted) (citing Sec'y Life Ins. Co. of Am. v. Meyling, 146 F.3d 1184, 1191-93 (9th Cir. 1998) (per curiam); Werdehausen v. Benicorp Ins. Co., 487 F.3d 660, 663 (8th Cir. 2007)).] Defendants note that Werdehausen recognized that retroactive rescission for innocent material non-disclosures was permissible, but is not required, and the insurer is still subject to ERISA's fiduciary obligations. The Eighth Circuit remanded for a determination whether the insurer should have adjusted the premium instead of rescinding the insurance contract. [Id. at 9 (citing Werdehausen, 487 F.3d at 665-67).] Defendants argue that Plaintiffs' claims all arise from the rescission of the Plan, and Plaintiffs are actually seeking the right to recover benefits under the Plan. Thus, their claims are preempted by ERISA.

Defendants next argue that the Supreme Court's complete preemption doctrine applies because Plaintiffs could have brought their claims under ERISA § 502(a)(1)(B). Clareen Poffenbarger was a participant in an ERISA plan, and Plaintiffs' claims arise from an allegedly unlawful rescission and denial of benefits. [Id. at 10-11 (citing Aetna Health, Inc. v. Davila, 542 U.S. 200, 211 (2004)).] Further, all of Plaintiffs' claims relate to an ERISA employee benefit plan, and Plaintiffs seek remedies that are not authorized under ERISA's civil enforcement scheme. [Id. at 16.] Defendants also argue that the relationship test Plaintiffs rely upon may not be applicable after Davila. Even if the relationship test is still applicable, Defendants contend that Geweke is distinguishable on its facts. [Id. at 16 n.3.]

Defendants argue that each of Plaintiffs' claims either has an impermissible relationship with an ERISA plan or conflicts with ERISA's civil enforcement scheme. Insurance bad faith seeks general and punitive damages, which are not available under ERISA. Further, insurance bad faith has its roots in general contract law and is therefore not aimed directly at entities engaged in the insurance business. [Id. at 17-18.] Although Count I relies on several Hawai`i statutes, they are either irrelevant or are not directed specifically at entities in the insurance business. In addition, Plaintiffs' Chapter 480 claim is completely preempted because Chapter 480 is not directed at entities in the insurance business, and it provides for remedies not allowed under ERISA. Plaintiffs' tort and breach of contract claims are also preempted because tort and contract law provide for remedies not allowed under ERISA. [Id. at 19-20.] Finally, Defendants argue that Plaintiffs' Complaint does not rely on the HPHCA. Moreover, the HPHCA does not provide for a private right of enforcement, and the Hawai`i Supreme Court has held that the HPHCA does not prevent the application of ERISA preemption. [Id. at 21 (citing Garcia v. Kaiser Foundation Hospitals, 90 Hawai`i 425, 433, 978 P.2d 863, 871 (1999)).]

Defendants therefore urge the Court to deny the Motion.

III. Reply

In their reply, Plaintiffs argue that their claims do not have a connection with or a reference to an ERISA plan. They emphasize that their claims do not require an interpretation of the Plan, nor do their claims seek payment or reinstatement of benefits. Plaintiffs assert that an award of damages will not affect Plaintiffs' relationship with the Plan.

Plaintiffs further argue that Davila does not apply because Defendants owed Plaintiffs a duty of to provide a benefit plan mandated by Hawai`i law. The cancellation of the Plan violated a duty independent of ERISA. Further, insofar as Plaintiffs seek monetary damages that are unavailable under ERISA, ERISA does not preempt their claims. [Reply at 6.]

STANDARD

Defendants removed the instant case pursuant to 28 U.S.C. ยงยง 1441 and 1446. [Notice of Removal at 3-4.] Section ...


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