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Noetzel v. Hawaii Medical Service Association

United States District Court, D. Hawaii

April 27, 2016



Susan Oki Mollway United States District Judge


Defendant Hawaii Medical Service Association objects to the Magistrate Judge’s Findings & Recommendation (“F & R”) to Grant Plaintiff Elizabeth Noetzel’s Motion to Remand.

Noetzel initially asked a state court to determine that HMSA, which had paid Noetzel’s medical bills pursuant to a health plan, was not entitled to be reimbursed from a settlement Noetzel reached with a third-party tortfeasor. HMSA removed the action to federal court on the ground that Noetzel’s state court action was “completely preempted” by § 502(a) of the Employee Retirement Income Security Act of 1974. The F & R, concluding that HMSA had failed to establish that Noetzel’s claim was completely preempted, recommended that the action be remanded.

This court rejects the F & R and denies Noetzel’s Motion to Remand.


On September 2, 2010, Noetzel was in a motor vehicle accident involving a large truck owned by Kuwayne Trucking Inc. See ECF No. 1-2, PageID # 12. Noetzel suffered severe head, neck, and back injuries in the accident. See id.

HMSA provided Noetzel with medical insurance coverage for these injuries pursuant to its Preferred Provider Plan. See ECF No. 1, PageID # 3; ECF No. 1-2, PageID # 13. The Plan is an employee welfare benefit plan provided to Noetzel by her employer pursuant to ERISA. See ECF No. 1, PageID # 3.

Noetzel filed a motor vehicle tort action in Hawaii state court against Kuwayne Trucking and the employee who was operating the truck that struck her. See ECF No. 1-2, PageID # 13. The parties entered into a confidential settlement agreement. See id. Upon learning of the settlement, HMSA notified Noetzel that it intended to seek reimbursement from the settlement for the health benefits provided to her, pursuant to the reimbursement terms of its Plan. See id., PageID #s 13-14. According to the reimbursement terms in the Plan’s “Guide to Benefits, ” HMSA

shall have a right to be reimbursed for any benefits we provide, from any recovery received from or on behalf of any third party or other source of recovery in connection with the injury or illness, including, but not limited to, proceeds from any:
Settlement, judgment, or award;
. . . .
We shall have a first lien on such recovery proceeds, up to the amount of total benefits we pay or have paid related to the injury or illness. You must reimburse us for any benefits paid, even if the recovery proceeds obtained (by settlement, judgment, award, insurance proceeds, or other payment):
Do not specifically include medical expenses;
Are stated to be for general damages only; Are for less than the actual loss or alleged loss suffered by you due to the injury or illness;
Are obtained on your behalf by any person or entity, including your estate, legal representative, parent, or attorney; Are without any admission of liability, fault, or causation by the third party or payor.
Our lien will attach to and follow such recovery proceeds even if you distribute or allow the proceeds to be distributed to another person or entity. Our lien may be filed with the court, any third party or other source of recovery money, or any entity or person receiving payment regarding the illness or injury.

ECF No. 10-2, PageID # 158.

On July 2, 2015, Noetzel filed a Petition for Determination of Validity of Claim of Lien of HMSA in state court. See ECF No. 1-2. The Petition sought a determination by the state court, pursuant to Haw. Rev. Stat. §§ 431:13-1-3(a)(10) and 663-10, that HMSA was not entitled to reimbursement from the settlement proceeds because HMSA’s lien “seeks reimbursement from settlement funds that do not correspond to special damages recovered in the subject settlement.” See id., PageID # 15. Noetzel notes that Haw. Rev. Stat. § 663-10 refers to recovery by an insurer like HMSA of benefits paid equivalent to the special damages in a settlement. See id., PageID # 14.

HMSA removed the action to federal court on August 7, 2015, asserting that the court has original jurisdiction over this matter pursuant to 28 U.S.C. § 1331, because Noetzel’s state law claims are “completely preempted” by ERISA § 502(a), 29 U.S.C. § 1132(a). See ECF No. 1, PageID #s 3-4.

In response, Noetzel filed a Motion to Remand on August 24, 2015, in which she argued that her state law action is not completely preempted by ERISA, and that, therefore, the court lacks federal subject matter jurisdiction over the matter. See ECF No. 6.

In the F & R, the Magistrate Judge made findings and recommended that the Motion to Remand be granted. See ECF No. 16, PageID # 236. The F & R concluded that, under the two-part test set forth by the United States Supreme Court in Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004), Noetzel’s action was not completely preempted by ERISA § 502(a). See ECF No. 16, PageID #s 238-43. The F & R relied on Wurtz v. Rawlings Co., LLC, 761 F.3d 232 (2d Cir. 2013), in holding that HMSA had failed to meet the first prong of the Davila test, which asks whether the “individual, at some point in time, could have brought the claim under ERISA § 502(a).” See ECF No. 16, PageID #s 241-43. Because the F & R found this first prong dispositive, it did not address the second Davila prong, which requires a court to consider whether an independent legal duty is implicated by a defendant’s actions. See id., PageID #s 238-43. See Davila, 542 U.S. at 210.

HMSA objects to the F & R. See ECF No. 17.

III. Standard of Review.

“This Court treats a motion to remand as a dispositive motion, requiring the issuance of a findings and recommendation by the magistrate judge.” PSC Indus. Outsourcing, LP v. Burlington Ins. Co., Civ. No. 10-00751 ACK-BMK, 2011 WL 1793333, at *3 (D. Haw. May 10, 2011) (citing Keown v. Tudor Ins. Co., 621 F.Supp.2d 1025, 1029 (D. Haw. 2008)); see also Eggs ‘N Things Int’l Holdings Pte. Ltd. v. ENT Holdings LLC, No. CIV. 11-00626LEK-KSC, 2012 WL 665038, at *1 (D. Haw. Feb. 29, 2012).

Congress has empowered magistrate judges, upon referral of dispositive pretrial motions by district judges, to conduct hearings and issue findings and recommendations regarding dispositive pretrial motions. See 28 U.S.C. § 636(b)(1)(B); see also Fed.R.Civ.P. 72(b) (promulgating rule).

A district judge reviews a magistrate judge’s findings and recommendation prior to ruling on the motion, and may accept, reject, or modify, in whole or in part, the findings and recommendation made by the magistrate judge. Fed.R.Civ.P. 72(b). If a party timely objects to portions of the findings and recommendation, the district judge reviews those portions of the findings and recommendation de novo. Fed.R.Civ.P. 72(b)(3); Local Rule 74.2. The district judge may consider the record developed before the magistrate judge. Local Rule 74.2. The district judge also has discretion to receive further evidence. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b)(3); Local Rule 74.2; see also United States v. Raddatz, 447 U.S. 667, 676 (1980) (district judge has wide discretion in deciding whether to allow new evidence).

The de novo standard requires the district court to consider a matter anew and arrive at its own independent conclusions, but a de novo hearing is not ordinarily required. United States v. Remsing, 874 F.2d 614, 617 (9th Cir. 1989); United States v. Boulware, 350 F.Supp.2d 837, 841 (D. Haw. 2004); Local Rule 74.2.

The district judge may accept the portions of the findings and recommendation to which the parties have not objected as long as it is satisfied that there is no clear error on the face of the record. See United States v. Bright, Civ. No. 07-00311 ACK/KSC, 2009 WL 5064355, at *3 (D. Haw. Dec. 23, 2009); Stow v. Murashige, 288 F.Supp.2d 1122, 1127 (D. Haw. 2003); Fed.R.Civ.P. 72(b) advisory committee’s note.


A. Complete Preemption Under ERISA § 502(a).

Noetzel seeks to have this action remanded to state court for lack of subject matter jurisdiction. See ECF No. 6. Noetzel argues that this court lacks subject matter jurisdiction because no federal question appears on the face of Noetzel’s petition, and the petition is not completely preempted by ERISA § 502(a). See id., PageID # 96.

Removal of a matter from state to federal court is proper when the federal court has original jurisdiction; that is, the removed claims must “aris[e] under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. An action “arises under” federal law when “federal law creates the cause of action.” Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 808 (1986).

The well-pleaded complaint rule “provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff’s properly pleaded complaint.” Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009); see also Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987). If the allegations stated on the face of a well-pleaded complaint present only state law claims, removal is generally improper.

“There is an exception, however, to the well-pleaded complaint rule. ‘[W]hen a federal statute wholly displaces the state-law cause of action through complete pre-emption, ’ the state claim can be removed.” Davila, 542 U.S. at 207; see also Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 945 (9th Cir. 2009) (“Complete preemption removal is an exception to the otherwise applicable rule that a ‘plaintiff is ordinarily entitled to remain in state court so long as its complaint does not, on its face, affirmatively allege a federal claim.’” (quoting Pascack Valley Hosp. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393, 398 (3d Cir. 2004))). “This is so because ‘[w]hen the federal statute completely pre-empts the state-law cause of action, a claim which comes within the scope of that cause of action, even if pleaded in terms of state law, is in reality based on federal law.” Davila, 542 U.S. at 208.

The term “complete preemption” is actually a misnomer in the § 502(a) context. “Complete preemption under § 502(a) is ‘really a jurisdictional rather than a preemption doctrine, [as it] confers exclusive federal jurisdiction in certain instances where Congress intended the scope of a federal law to be so broad as to entirely replace any state-law claim.’” Marin Gen. Hosp., 581 F.3d at 945 (quoting Franciscan ...

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