Health Care Service Corporation v. Pollitt (09-38)

Appealed from the United States Court of Appeals for the Seventh Circuit (March 10, 2009)

Oral argument: March 3, 2010

COMPLETE PRE-EMPTION, REMOVAL, FEDERAL OFFICER REMOVAL

In 2007, Juli Pollitt sued Health Care Service Corporation (“HCSC”) in state court for bad-faith insurance practices. HCSC removed the case to federal court, where it was dismissed because the court reasoned that the Federal Employees Benefit Act preempted the case. Pollitt appealed, and the Seventh Circuit vacated the lower court decision, holding that removal was inappropriate because the claim was not “completely preempted” by federal law. The Seventh Circuit added that whether the federal officer removal statute applied here was a question of fact and remanded the case for further proceedings. The Supreme Court decision will decide whether a government contractor who provides insurance coverage to federal employees is entitled to remove a suit under either the “complete preemption” doctrine or the federal officer removal statute. This decision is of great importance to all businesses that contract with the federal government.

• [Question(s) presented]

• [Issue(s)]

• [Facts]

• [Discussion]

• [Analysis]

Questions presented

1. Whether the Federal Employees Health Benefits Act ("FEHBA"), 5 U.S.C. §§ 8901-14, completely preempts -- and therefore makes removable to federal court -- a state court suit challenging enrollment and health benefits determinations that are subject to the exclusively federal remedial scheme established in FEHBA.

2. Whether the federal officer removal statute, 28 U.S.C. § 1442(a)(1), which authorizes federal removal jurisdiction over state court suits brought against persons "acting under" a federal officer when sued for actions "under color of [federal] ... office," encompasses a suit against a government contractor administering a FEHBA plan, where the contractor is sued for actions taken pursuant to the government contract.

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Issue

Whether a government contractor who provides insurance coverage to federal employees is entitled to remove a complaint against it to federal court under either the “complete preemption” doctrine with respect to the Federal Employees Health Benefits Act (“FEHBA”) or the federal officer removal statute?

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Facts

Respondent, Juli Pollitt (“Pollitt”), sued her health care insurance carrier, Petitioner, Health Care Service Corporation (“HCSC”), in state court for bad-faith conduct by insurers. See Pollitt v. Health Care Service Corp., 558 F.3d 615, 616 (7th Cir. 2009). Pollitt, a federal employee, receives health insurance benefits from her job, and HCSC manages her plan. See id. at 615. In July 2007, HCSC discontinued claim payments submitted on behalf of Pollitt’s son, Michael, and requested refunds from various health-care providers for services performed on Michael since 2003. See id. HCSC claims that it terminated coverage for Michael, because the Department of Labor (“DOL”) instructed it that Pollitt’s medical insurance covered Pollitt only and did not include other family members. See id. Pollitt’s complaint alleges that HCSC unilaterally came to this decision on its own, and the termination of Michael’s coverage combined with the subsequent demands for reimbursement from medical-care providers subjected her family to humiliation and expense. See id. In October 2007, HCSC began paying claims for Michael again, but Pollitt alleges that HCSC did not alert all the medical providers of the continued coverage, which caused them to persist in collecting back payments from Pollitt. See id. at 616.

HCSC removed the case from an Illinois state court to a federal district court in Illinois. See Pollitt v. Health Care Service Corp., 558 F.3d at 616. The district court dismissed the claim, holding that the Federal Employees Health Benefits Act (“FEHBA”) preempted the claim. See id. On appeal, the United States Court of Appeals for the Seventh Circuit vacated the lower court decision and remanded the case to the district court. See id. at 617. The Seventh Circuit reasoned that preemption is a defense, “and a federal defense does not allow removal.” See id. at 616. However, the court acknowledged that in a case of “complete preemption”—when federal law has completely occupied a field—then removal is proper. See id. The court ruled that federal law does not completely occupy the field in this case, but recognized another possible source of authority for removal in 28 U.S.C. § 1442(a)(1), which allows any defendant who acts under a federal officer and follows the direction issued by the federal officer to remove a suit to a federal court. See id. However, the court ruled that because the parties are in dispute as to whether the federal officer (the DOL in this case) instructed HCSC to act or not, the district judge should not have relied on only HCSC’s representation of the facts as a basis for removal. See id. The court remanded the case for further proceedings consistent with the order. See id. at 617. On October 13, 2009, the U.S. Supreme Court granted HCSC’s petition for certiorari to determine whether FEHBA completely preempts a state court suit challenging health-insurance coverage for federal workers, and whether 28 U.S.C. § 1442(a)(1) applies in a suit against a government contractor administering a FEHBA plan. See Question Presented.

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Discussion

In this case, the Supreme Court will decide whether the Federal Employees Health Benefits Acts (“FEHBA”) or the federal officer removal statute makes a state court suit removable to federal court. Petitioner, Health Care Service Corporation (“HCSC”). argues that it does, while Respondent, Juli Pollitt (“Pollitt”), argues against it.

In support of HCSC, amicus curiae Aetna attacks the decision reached by the United States Court of Appeals for the Seventh Circuit, arguing that the Seventh Circuit’s holding would create a hodgepodge of state-by-state decisions that would improperly impinge upon the administration and management of the Federal Employees Health Benefits Act (“FEHBA”). See Brief of Amicus Curiae Aetna, Inc. in Support of Petitioner at 28. The fear is that this would decentralize the current national and streamlined administration of federal employee benefits “into a state-by-state ad hoc benefit system.” Id. In support of HCSC, amicus Association of Federal Health Organizations additionally argue that allowing state adjudication would derail the FEHBA system by weakening the Office of Personnel Management’s (“OPM”) authority to interpret the provisions of FEHBA. See Brief of Amici Curiae Association of Federal Health Organizations, et al. (“AFHO”) in Support of Petitioner at 19.

Aetna further argues that it will be the federal government and its employees that will absorb the costs associated with such litigation. See Brief of Aetna at 28. Amici Alliance of Community Health Plans suggests that this cost will be borne out in the form of higher administrative costs, thus increasing the sum cost of federal health care benefits. See Brief of Amici Curiae Alliance of Community Health Plans (“ACHP”) in Support of Petitioner at 22. In light of the already heavy burden on America’s health care system, amici Aetna argues that this further administrative cost may price out many federal employees from affording health care. See Brief of Aetna at 28-29.

Pollitt counters that HCSC’s theory will allow any federal statute that authorizes administrative remedies to create complete preemption, thereby wreaking havoc on the jurisdictional division between state and federal courts. See Brief for Respondent, Juli Pollitt at 10. Pollitt argues that plaintiffs have always had the benefit of being the prime mover and with that the accompanying privilege of deciding where to bring his or her claim—if plaintiffs wish to avoid federal courts, then they can rely exclusively on state law in their claims. See id. at 23. She argues that defendants cannot circumvent this privilege by simply inserting a federal question into what is purely a state law claim, and thus hijacking plaintiffs’ right to forum choice. See id. Pollitt further argues that HCSC’s theory finds no support in congressional intent and will burden federal courts by expanding federal removal jurisdiction. See id. at 24.

In addition, Pollitt posits that in this situation, the government is in the role of employer and the insurance carriers are in the role of private contractors. See Brief for Respondent at 13. Pollitt argues that under HCSC’s argument, a private contractor would be able to invoke the protection of the federal removal statute when all it has done is provide services to the government. See id. HCSC’s theory would permit a “food services company [that provides cafeteria services to a federal agency] to remove from state court a simple negligence suit brought by federal employees suffering from food poisoning.” See id. at 47-48.

Both parties argue over the remedial ramifications that jurisdiction confers. Supporters of HCSC argue that the Seventh Circuit ruling would allow enrollees of federal health care plans to evade FEHBA’s remedial scheme and bring lawsuits against the individual carriers, consequentially hindering their ability to provide quality service. See Brief of ACHP at 10. Allowing enrollees to bring suits against carriers in state courts may also cause FEHBA health insurance costs to rise since state laws often allow for larger sums in damages than under FEHBA’s remedial plan. See Brief of AFHO at 20-21. Pollitt counters that there is no provision in FEHBA that requires available remedies to be exclusive to the federal plan, to the degree that any state law that implicates federal employee health benefits is closed off to the enrollee. See Brief for Respondent at 11. She states that such a reading of the rules would insulate insurers from any state laws seeking to protect people from bad-faith conduct by carriers, and also curtail the amount enrollees can recover—regardless of the level of injurious conduct—to the disputed amount of benefits. See id. at 32-33.

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Analysis

The federal removal statute allows defendants who have been sued in state court to remove the case to federal court if the plaintiff’s cause of action is one where the district courts of the United States have original jurisdiction. See 28 U.S.C. § 1441(a). In order to determine whether federal courts have jurisdiction over any given cause of action, courts typically analyze the plaintiff’s complaint using the “well-pleaded complaint” rule, which requires a complaint to invoke a federal issue on its face. See Well-Pleaded Complaint Rule, Glossary, Lawyers.com. The “complete preemption doctrine”—which occurs when a federal statue displaces a cause of action based on state law—provides one narrow exception to the well-pleaded complaint rule. See Brief for Petitioner, Health Care Service Corporation at 14. The federal officer removal statute provides another such exception by allowing a defendant to remove a case to federal court if the plaintiff’s complaint is against “the United States or any agency thereof or any officer (or any person acting under that officer) of the United States of any agency thereof.” 28 U.S.C. § 1442(a)(1).

Does the “complete pre-emption” doctrine provide a basis for removal to federal court under the Federal Employees Health Benefits Act of 1959 (“FEHBA”)?

Petitioner, Health Care Services Corporation (“HCSC”), argues that its removal to federal court was proper, because the complete pre-emption doctrine provides that a federal question exists if there is an exclusively federal cause of action for the asserted claims: when federal law completely displaces an area of state law, any claim that normally would have been considered in the realm of state law becomes a federal claim. See Brief for Petitioner, HCSC at 14–15. In such situations, HCSC argues, the Court must inquire as to whether federal law provides the relevant cause of action, whether the plaintiff’s claims fit that cause of action, and whether the cause of action is exclusive. See id. at 17. In that vein, HCSC first argues that FEHBA and the Administrative Procedures Act (“APA”) authorizes two potential remedies. See id. at 17–18. First, HCSC claims that FEHBA authorizes enrollment remedies, as § 8913(b) of FEHBA grants the Office of Personnel Management (“OPM”) the power to create regulations governing the procedure for enrollment disputes. See id. at 17. Second, HCSC claims that FEHBA authorizes benefits remedies because § 8902(i) of FEBA allows OPM to adjudicate benefits disputes. See id. at 18. As such, if a beneficiary seeks judicial review of the agency’s final decision, he or she may do so by filing a complaint in federal court against the OPM. See id. at 18. HCSC then argues that, in this case, federal remedies govern all of Respondent’s claims: Pollitt could have filed her enrollment grievances as a claim at her employment agency, her benefits claim as an appeal with the OPM, and her bad faith allegation as a combination of enrollment and benefits controversies. See id. at 19.

In return, Respondent, Juli Pollitt (“Pollitt”), argues that complete preemption does not provide a basis for removal under FEHBA. See Brief for Respondent, Juli A. Pollitt at 14. Pollitt argues that, in order for complete preemption doctrine to apply, the statute in question must explicitly provide the exclusive cause of action and set forth the proper procedures and remedies for it. See id. at 15. Pollitt urges that it is undisputed that FEHBA does not create such a cause of action, and therefore there is no way to transform her state claims into a claim “arising under” federal law. See id. at 18. Additionally, Pollitt contends that FEHBA’s grant of jurisdiction over FEHBA claims against the United States does not create a cause of action, but only creates an exception for the procedures under which a specific type of claim—those brought against the United States—should be governed. See id. at 19. Furthermore, Pollitt argues that the Court has never held that federal administrative remedies can substitute for and, therefore, preempt state law claims, and should not so hold now. See id. at 20. Even if the Court were to so hold, Pollitt argues, FEHBA’s remedial scheme is far too scant to be considered “exclusive” and therefore preemptory to any federal claim. See id. at 24.

HCSC additionally argues that the federal remedies for these disputes are exclusive: the intricacy of Congress’ enforcement scheme—a combination of regulations from the OPM, the APA, and FEHBA—implies that such a scheme is meant to be the sole means of enforcing the statute. See Brief for Petitioner at 22, 25. In addition, HCSC claims that Congress’ intended to establish uniformity in federal benefits disputes when it amended FEHBA’s pre-emption clause, thereby signifying the exclusivity of a federal remedy. See id. at 28. In response, Pollitt points out that the Court’s complete preemption jurisprudence has presumed in the past that Congress only intends to preempt state law when it explicitly states such an intention. See Brief for Respondent at 27–28. In turn, HCSC’s attempt to create a “comprehensive” scheme out of several different sources is problematic: it would allow agencies to expand or retract federal jurisdiction by issuing regulations. See id. at 31. Notwithstanding this argument, Pollitt argues that, in this instance, OPM has not created an exclusive regime affecting the removal jurisdiction to begin with. See id. at 31. Furthermore, Pollitt urges that HCSC’s argument allows administrative processes to extinguish state law without providing an adequate substitute. See id. at 32.

Does the Federal Officer Removal statute provide a basis for removal to federal court, where the defendant is a health insurance company engaged in providing healthcare to federal employees?

HCSC argues that federal officer removal should be interpreted broadly in order to allow those who assist the federal government in carrying out its functions to have claims against them heard in federal court. See Brief for Petitioner at 39. It states that to trigger the statute, the defendant must pass a three-prong test. See id. at 37. First, if the defendant is not a federal officer, the defendant must qualify as a “person acting under” a federal officer. See id. Second, there must be a “causal connection” between the conduct complained of and the defendant’s official authority. See id. Finally, the defendant must have “colorable federal defenses.” See id. at 39.

HCSC contends that it is “a person acting under” a federal officer because it was involved in assisting or helping to carry out the federal superior’s duties. See Brief for Petitioner at 40–41. Here, OPM is the “superior,” and entities like HCSC assist it to “carry out” its duties of providing health insurance for the government’s employees. See id. at 42. In response, Pollitt argues that HCSC was not “acting under” a federal officer. See Brief for Respondent at 41. Pollitt contends that FEHBA’s legislative history signifies that private contractors are entitled to the removal privilege only when they are assisting or exercising delegated power to fulfill a core governmental function. See id. at 42–43. Pollitt advances two arguments in favor of the proposition that the function of providing health insurance benefits to employees does not meet the standard of a sovereign function. See id. at 44-45. First, she argues that HCSC acting as a private contractor with the OPM does not require a delegation of power. See id. at 44. Second, she argues that furnishing health insurance is not a sovereign, governmental task. See id. at 45. Finally, Pollitt argues that HCSC also does not satisfy the first prong because OPM does not possess sufficient control over HCSC to deem the HCSC as being in subordination or control of a federal officer. See id. at 52.

In terms of the second prong, HCSC argues that the “causal connection” threshold is low and quite certainly met here, because Pollitt’s complaint clearly occurred as HCSC was performing its official duties. See Brief for Petitioner at 47. Finally, HCSC argues that it has colorable federal defenses: of conflict preemption, of express preemption, and of sovereign immunity. See id. at 48–53.

In turn, Pollitt urges that the history and intent of the federal officer removal statute signifies that the statute was meant to protect “weighty sovereign acts,” such as the enforcement of customs or ensuring compliance with prohibition laws. See Brief for Respondent at 49. Pollitt argues that this signifies Congress’ concern that, at critical points of national crisis, state courts may be used as a forum to hinder the enforcement of disfavored federal law. See id. at 50. As such, Pollitt argues that history forecloses the entitlement of removal for HCSC. See id. at 49.

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Conclusion

In Health Care Services Corporation v. Pollitt, the U.S. Supreme Court will decide if a private government contractor who provides health insurance benefits to federal employees is entitled to remove a cause of action against it to federal court using either the “complete preemption” exception or the federal officer removal statute. The Supreme Court's decision in this case will likely impact the procedures by which federal employees may assert their grievances against their insurance providers.

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Authors

Prepared by: Lilian Balasanian and Tamilia Chiu

Edited by: Lucienne Pierre

Additional Sources

• Wex: Law about Jurisdiction

• Wex: Law about Removal

• The National Underwriter: Labor’s Own Benefits Problems Reach Supreme Court

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Edited by