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Rudel v. Hawaii Management Alliance Association

United States District Court, D. Hawaii

August 1, 2016

RANDY RUDEL, Plaintiff,


          J. Michael Seabright Chief United States District Judge


         This case arises from Defendant Hawaii Management Alliance Association’s (“HMAA”) lien for $400, 779.70 of the medical expenses it paid pursuant to Plaintiff Randy Rudel’s (“Plaintiff” or “Rudel”) HMAA benefit plan (the “Plan”) after Rudel was injured in a motorcycle crash. According to HMAA, the Plan entitles HMAA to reimbursement in light of Rudel’s $1, 500, 000 third-party tort settlement related to the motorcycle crash. Rudel initiated a state-court action to determine the validity of HMAA’s lien (the “Petition”), and HMAA removed the Petition to this court asserting that this matter is completely preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001 et seq. Doc. No. 1.

         Currently before the court is HMAA’s Objections to Magistrate Judge Barry M. Kurren’s March 31, 2016 Findings and Recommendation to Grant Plaintiff’s Motion to Remand (“F&R”). Doc. No. 18. The parties have extensively briefed this issue. First, the parties briefed Plaintiff’s Motion to Remand (the “Motion”) before Magistrate Judge Kurren. See Doc. Nos. 10, 12, 14. Then, after Magistrate Judge Kurren issued the F&R, Doc. No. 15, HMAA objected to the F&R in full, Doc. No. 18, and Plaintiff responded, Doc. No. 20. Meanwhile, another court in this district decided a substantially similar case, Noetzel v. Hawaii Medical Service Association, 2016 WL 1698264 (D. Haw. Apr. 27, 2016), and the court allowed the parties supplemental briefing to address Judge Susan Oki Mollway’s ruling in that case. See Doc. Nos. 22, 23, 24.

         The court has conducted a careful de novo review of parties’ briefing, the F&R, and the applicable law. See Fed. R. Civ. P. 72(b)(3); Local Rule (“LR”) 74.2. Because the Ninth Circuit has not yet decided the issue raised by the Motion, the court has also carefully reviewed both Judge Mollway’s April 27, 2016 Order as well as her July 27, 2016 Order Denying Reconsideration. See Noetzel v. Hawaii Med. Serv. Ass’n, 2016 WL 4033099 (D. Haw. July 27, 2016). The court fully concurs with both of Judge Mollway’s Noetzel orders and relies heavily upon them in this Order.

         Pursuant to LR 7.2(d), the court determines the Motion without a hearing. Moreover, because the parties are well-aware of the factual and procedural history of this case, as well as the applicable legal issues, the court’s Order directly focuses on the dispositive issue before the court: Does ERISA completely preempt the Petition? For the reasons that follow, the court answers that question in the affirmative, rejects the F&R, and DENIES the Motion.

         II. ANALYSIS

         Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), articulated a two-prong conjunctive test for deciding whether a state-law cause of action is completely preempted by ERISA. A state law claim is preempted if: (1) the plaintiff “could have brought his claim under ERISA §502(a)(1)(B)”; and (2) “there is no other independent legal duty that is implicated by a defendant’s actions.” Davila, 542 U.S. at 210. See also Fossen v. Blue Cross & Blue Shield of Montana, Inc., 660 F.3d 1102, 1107-08 (9th Cir. 2011). The court addresses each prong in turn.

         First, could Rudel have brought his claim under ERISA §502(a)(1)(B)? Section 502(a)(1)(B) provides that a Plan participant or beneficiary may bring a civil action “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). In determining whether § 502(a)(1)(B) applies, courts must avoid “distinguishing between pre-empted and non-preempted claims based on the particular label affixed to them” because doing so “would elevate form over substance and allow parties to evade the pre-emptive scope of ERISA.” Davila, 542 U.S. at 214 (internal quotations and citation omitted). Accordingly, the court “examine[s] the essence of a claim” when evaluating whether a claim falls within ERISA’s preemptive scope. Noetzel, 2016 WL 1698264, at *10.

         Rudel argues that it is “patently clear” his Petition is brought pursuant to Hawaii state law instead of ERISA. Doc. No. 10, Mot. at 7. According to Rudel, ERISA § 502(a)(1)(B) does not apply because the Petition does not seek to recover benefits under the terms of the Plan. Id. at 14. Rather, Rudel argues, the Petition only seeks to keep benefits already provided by HMAA. Id. Rudel misses the point. “Focusing on how a claim is pled risks missing the critical inquiry as to whether ‘an individual, at some point in time could have brought his claim under ERISA §502(a).’” Noetzel, 2016 WL 1698264, at *11 (citing Davila, 542 U.S. at 210).

         Here, HMAA’s lien places Rudel’s benefits “‘under something of a cloud.’” Id. at *9 (citing Arana v. Ochsner Health Plan, 338 F.3d 433, 438 (5th Cir. 2003) (en banc)). Rudel’s Petition seeks to remove the “cloud” by obtaining “recovery of the entire benefit provided by [HMAA], as opposed to the benefit minus the amount to be reimbursed to [HMAA].” Id. The essence of the Petition, therefore, is that “although the benefits have already been paid, [Rudel] has not fully ‘recovered them because [he] has not obtained the benefits free and clear of [HMAA’s] claims.” Id. (quoting Arana, 338 F.3d at 438).

         The fact that HMAA has “already provided the benefits to [Rudel] as opposed to having denied them in the first instance, does not change the nature of [his] claim[s], which, for all intents and purposes, seek[] to establish [his] entitlement to ERISA benefits.” Id. That is:

Congress could not have intended that § 502(a)(1)(B) be applied differently based solely on the timing of an ERISA plan provider’s repudiation of a benefit. Interpreting § 502(a)(1)(B) as providing no federal remedy when benefits are initially provided but later canceled or offset would undermine “the purpose of ERISA to provide a uniform regulatory regime over employee benefit plans.”

Id. at *10 (citing Davila, 542 U.S. at 208) (alterations omitted). To hold otherwise would, as Davila cautions against, elevate form over substance. ...

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