ENTRY ON PENDING MOTIONS

SARAH EVANS BARKER, United States District Judge

I. Introduction.

This case is before the court on two related motions: plaintiff's motion to remand the case to Marion County Superior Court on the ground that it states a cause of action under Indiana tort law, and, therefore, its removal to this court was improper; and defendant's motion for summary judgment on the grounds that the cause of action is completely preempted by ERISA and that the plaintiff is not entitled to relief under the federal statute. Although defendants have moved for summary judgment, the material facts are essentially uncontested so that the key issues raise pure matters of law.

This is a case of first impression in our circuit. It ultimately turns on the proper interpretation of Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000). The parties have crystallized the issues in well-prepared briefs. Based on our reading of Pegram and the parties' submissions, we conclude that the claims alleged in the complaint arise in an area that is not occupied by ERISA so that the case was improvidently removed. In other words, plaintiff's complaint is not subject to complete preemption by ERISA. Accordingly, we GRANT plaintiff's motion to remand and DENY defendants' motion for summary judgment.

I. Discussion.

A. Factual Background.

The essential facts of this case are undisputed. They are outlined in the parties' statements of fact, submitted pursuant to Local Rule 56.1, which we summarize as follows.

Judy Amburgey was employed by Spartech Corporation. Spartech maintained a health benefit plan for its employees. The plan was funded by a health insurance policy issued to Spartech by defendant First Allmerica Life Insurance Co. Seabury Smith served as the third-party administrator of the plan.

The plan is a "fee-for-service" plan and not an HMO arrangement. In other words, no entity provided both claims administration and patient treatment. Instead, beneficiaries of the plan such as Ms. Ambrugey were free to choose their health care providers and the policy then paid for covered procedures as expenses were incurred.

Ms. Ambrugey contracted leukemia. She was treated at the University of Texas M.D. Anderson Center in Houston. On August 10, 1999, Ms. Ambrugey's oncologist, Dr. Thomas Martin, wrote a letter marked "Urgent Review Requested," which Seabury Smith answered on August 25. Dr. Martin's letter described his diagnosis of Ms. Ambrugey's chronic myelogenous leukemia and stated that her case is unlikely to be cured by chemotherapy or radiation; instead, he wrote, "[t]he only documented therapy capable of curing this disease is bone marrow transplantation from a histocompatible donor." Pl. Ex. 1. Because of Ms. Ambrugey's "unstable medical condition," Dr. Martin asked the plan administrator for authorization of insurance coverage in order to proceed quickly with the transplantation process, beginning with the search for a compatible donor. Id.

On August 25, 1999, Andrea M. Salvati, a Vice President with Seabury Smith, wrote back to Dr. Martin denying coverage of the treatment. She stated that the transplant "cannot be considered a covered expense pursuant to the terms and conditions of the employee welfare benefit plan"; based on the review of the supporting documentation by "a board certified Oncologist," she wrote, the procedure was not covered because it was not "medically necessary." Pl. Ex. 2.

This initial denial was modified on September 23, 1999, when Dr. Sheila Donnelly, writing for Seabury Smith, gave "conditional approval" for the transplant. Pl. Ex. 3. Ms. Ambrugey died on October 7, 1999, before any transplant was undertaken.

III. Discussion.

The motions before us raise two related questions: whether defendants' removal of this case from Marion County Superior Court to this court was proper; and whether ERISA completely preempts plaintiff's state law claim. To answer either of these questions is to answer both. If the case arises under ERISA (as defendants claim), then it was properly removed to federal court and it is subject to summary adjudication as a matter of law. If the case does not arise under federal law (as plaintiff argues), then there was no basis for removal and our authority is limited to remanding it. These issues are best addressed in terms of defendants' argument for "complete preemption," which we will turn to shortly.

A case may be removed from a state to a federal court when the case could have been brought in a federal court originally. If the federal court would have had original jurisdiction by virtue of a federal question raised by the complaint — as defendants argue here — then removal would be proper under 28 U.S.C. § 1441(b). We note at the outset that plaintiff's "Complaint in Tort," on its face, alleges nothing but state law causes of action. It accuses defendants of breaching their duty to exercise fairness, reasonableness, and good faith in handling her insurance claim, and of negligence in making decisions affecting her medical treatment. Complaint ¶¶ 7-12. Nothing on the face of the complaint gives rise to an inference that it states a federal question.

But, argue defendants, plaintiff's lawsuit is really an ERISA breach-of-fiduciary-duty claim masquerading as a state tort cause of action. In other words, defendants argue, had plaintiff not artfully pleaded its cause of action to avoid ERISA, the federal court would have had original jurisdiction over it. Franchise Tax Board of California v. Construction Laborers Vacation Trust, 463 U.S. 1, 22, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). Defendants argue, in sum, that this matter is completely preempted by ERISA; it follows that its removal to federal court was proper and it may be summarily dismissed.

Generally, when a defendant argues for "preemption" it means one of two things: that federal law governs the cause of action; or that federal law not only governs the cause of action, but occupies the field in which the complaint allegations arise. The former meaning is usually referred to as "conflict preemption" and gives rise to a defense; the latter meaning is usually referred to as "complete preemption" and gives rise to original federal jurisdiction and the possibility of removal to federal court. The Supreme Court has noted that:

Federal pre-emption is ordinarily a federal defense to the plaintiff's suit. As a defense, it does not appear on the face of a well-pleaded complaint, and, therefore, does not authorize removal to federal court. Gully v. First National Bank, supra. One corollary of the well-pleaded complaint rule developed in the case law, however, is that Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character. For 20 years, this Court has singled out claims pre-empted by § 301 of the LMRA for such special treatment. Avco Corp. v. Machinists, 390 U.S. 557, 88 S.Ct. 1235, 20 L.Ed.2d 126 (1968).

Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64, 107 S.Ct. 1542, 1546, 95 L.E.2d 55 (1987). See Bartholet v. Reishauer A.G. (Zurich), 953 F.2d 1073 (7th Cir. 1992).

When a defendant uses preemption as a defense, the case is not removable to federal court, because the defense, and not the complaint, raises the federal issue; where that is true, a federal court would not have had original jurisdiction had it been filed there. In such a case, the defendant is free to argue in state court that federal law preempts the cause of action because federal law governs it. See, Lehmann v. Brown, 230 F.3d 916, 919-920 (7th Cir. 2000); Blackburn v. Sundstrand Corp., 115 F.3d 493, 495 (7th Cir.), cert. denied, 522 U.S. 997, 118 S.Ct. 562, 139 L.Ed.2d 403 (1997) (A defendant's federal defense to a claim arising under state law "does not create federal jurisdiction and therefore does not authorize removal."). This is often called "conflict preemption." Here, it is created by 29 U.S.C. § 1144(a). Speciale v. Seybold, 147 F.3d 612, (7th Cir. 1998).

By contrast, where, as here, a defendant argues that a federal law — ERISA — completely preempts a state cause of action it means that the case is federal by its very nature, regardless of how the complaint is styled. As Judge Easterbrook explained in Lehmann, 230 F.3d at 919-920:

Unfortunately "complete preemption" is a misnomer, having nothing to do with preemption and everything to do with federal occupation of a field. The name misleads because, when federal law occupies the field (as in labor law), every claim arises under federal law. See In re Amoco Petroleum Additives Co., 964 F.2d 706, 709-10 (7th Cir. 1992). Any attempt to present a state-law theory then is artful pleading to get around the federal ingredient of the claim; courts look at substance, see the importance of federal law to recovery, and permit removal. Franchise Tax Board of California v. Construction Laborers Vacation Trust, 463 U.S. 1, 22, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). ERISA occupies much of the field of pension and fringe benefits; the size and distribution of these benefits depends on federal law, so Metropolitan Life holds that a claim to benefits necessarily "arises under" federal law no matter how it is pleaded. State law is "completely preempted" in the sense that it has been replaced by federal law — but this happens because federal law takes over all similar claims, not because there is a preemption defense. See, e.g., Anderson v. Humana, Inc., 24 F.3d 889 (7th Cir. 1994) (discussing the provision of information to beneficiaries, another respect in which federal law has completely taken over).

There are two areas of federal law that completely — or, more precisely, almost completely — occupy their respective fields. One is labor relations, which is dominated by the National Labor Relations Act and the Labor Management relations Act; the second is ERISA. See, Rice v. Panchal, 65 F.3d 637, 643 (7th Cir. 1995). In Moran v. Rush Prudential HMO, Inc., 230 F.3d 959, 967 (7th Cir. 2000), affirmed, Rush Prudential HMO, Inc. v. Moran, 122 S.Ct. 2151 (June 20, 2002), the Seventh Circuit outlined the following criteria to consider in determining whether a claim is completely preempted by ERISA — that is, whether a state law claim should be "recharacterized" as an ERISA claim under § 502(a):

(1) "whether the plaintiff is eligible to bring a claim under that section"; (2) "whether the plaintiff's cause of action falls within the scope of an ERISA provision that the plaintiff can enforce via § 502(a)"; and (3) "whether the plaintiff's state law claim cannot be resolved without an interpretation of the contract governed by federal law." When all three factors are present, the state law claim is properly recharacterized as an ERISA claim under § 502(a). [Quoting Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1487 (7th Cir. 1996).]

The question in the instant case is whether plaintiff's cause of action satisfies these criteria so that its claim should be recharacterized as an ERISA claim, removed to federal court, and summarily adjudicated. Based on our understanding of Pegram, we conclude that plaintiff's cause of action does not "fall within the scope" of ERISA and thus fails to satisfy the second criterion.

Pegram was an ERISA breach-of-fiduciary-duty case that directly involved neither preemption nor removal. By the time the district court ruled on defendant's motion to dismiss, the case involved the straightforward question of whether an HMO breached its fiduciary duty to otherwise eligible beneficiaries by offering its employee physicians a financial incentive to deny benefits to the beneficiaries. The plaintiff argued that, since the HMO awarded bonuses to its physicians based on the value of the benefits they denied to beneficiaries, it created a financial incentive for the physicians to deny coverage whenever possible, thus breaching its duty to administer the plan for the benefit of the beneficiaries. The Supreme Court determined that offering such an incentive was not, as a matter of law, a fiduciary duty decision so that the complaint did not state a viable cause of action under ERISA.

In arriving at its decision, the Supreme Court focused on three kinds of decisions that HMOs make: eligibility or coverage decisions; treatment decisions; and mixed decisions of treatment and eligibility. Eligibility decisions are the most straightforward (and perhaps the most common): does the plan cover pregnancy? is this beneficiary eligible, under the plan, for such-and-such procedure? Eligibility and coverage questions are resolved by looking at the welfare benefit plan. Such decisions are the very stuff of ERISA, which completely preempts all coverage and eligibility decisions. E.g., Jass v. Prudential Health Care Plan, Inc., 88 F.3d 1482, 1487 (7th Cir. 1996).

Thus, for example, where a plaintiff alleges in a state breach of contract action that an employee welfare benefit plan unlawfully breached its agreement to provide benefits, the case is preempted by ERISA. Shannon v. Shannon, 965 F.2d 542, 546 (7th Cir. 1992), cert. denied, 506 U.S. 1028, 113 S.Ct. 677, 121 L.Ed.2d 599; Pryzbowski v. U.S. Healthcare, Inc., 245 F.3d 266, 278 (3d Cir. 2000). Similarly, where a plaintiff alleges in a state tort action that a plan representative negligently misrepresented coverage under the plan, such a claim is preempted by ERISA. Pohl v. National Benefits Consultants, Inc., 956 F.2d 126, (7th Cir. 1992). Both the contract and tort cases involve the plan's coverage or the beneficiary's eligibility (which are, often enough, opposite sides of the same coin) and those kinds of decisions are preempted.

At the opposite end of the spectrum from coverage or eligibility decisions are pure "treatment" decisions (which are rare in ERISA case law). The Third Circuit held, for example, that a plan's provision that all newborns were to be released from the hospital within twenty-four hours after birth was a "quality of care" (that is, a "treatment") decision. In re U.S. Healthcare, Inc., 193 F.3d 151, 153 (3d Cir. 1999). It also opined that "a claim alleging that a physician knowingly delayed in performing urgent surgery on a patient whose appendix was about to rupture would relate to the quality of care, and not be subject to removal on the basis of complete preemption." Pryzbowski, 245 F.3d at 273. The reason is that quality of care decisions are, like medical malpractice claims, among the fields "traditionally occupied by state regulation." Dukes, 57 F.3d at 357; Pryzbowski, 245 F.3d at 279.

For present purposes, the crucial (and most controversial) category in Pegram is the "mixed" eligibility and treatment decision, which includes an enormous number of decisions made by HMOs and other employee welfare benefit plans every day. Frequently, as here, these decisions involve the question of whether a particular procedure is "medically necessary." Some decision maker, often a physician, makes a determination as to whether the requested procedure is "medically necessary" and, in doing so, determines whether the patient is "eligible" for such "treatment." In other words, the decision inevitably involves both a decision as to eligibility/coverage and a decision as to treatment and the two parts are inextricably intertwined. About such decisions the Supreme Court wrote:

In practical terms, these eligibility decisions cannot be untangled from physicians' judgments about reasonable medical treatment, and in the case before us, Dr. Pegram's decision was one of that sort. She decided (wrongly, as it turned out) that Herdrich's condition did not warrant immediate action; the consequence of that medical determination was that Carle [the HMO] would not cover immediate care, whereas it would have done so if Dr. Pegram had made the proper diagnosis and judgment to treat. The eligibility decision and the treatment decision were inextricably mixed, as they are in countless medical administrative decisions every day.

Pegram, 530 U.S. at 229, 120 S.Ct. at 2154 (emphasis added). Such mixed decisions include:

physicians' conclusions about when to use diagnostic tests; about seeking consultations and making referrals to physicians and facilities other than Carle's; about proper standards of care, the experimental character of a proposed course of treatment, the reasonableness of a certain treatment, and the emergency character of a medical condition.

In view of the Court's outline, we think it evident that the decisions at issue in this case come under the heading of mixed decisions of eligibility and treatment. Pursuant to determinations made by physicians — "a board certified oncologist" in the first instance, and Dr. Sheila Donnelly in the second — Seabury Smith made two decisions: one denied Ms. Ambrugey coverage because the requested transplant procedure was not "medically necessary"; the second countermanded the first — in effect, finding it to be within the bounds of "medical necessity" — and gave "conditional approval" for the operation. Both decisions manifestly involved a question of coverage/eligibility — whether the costs of the bone marrow transplant operation would be covered or (essentially the same thing) whether Ms. Ambrugey was eligible for a transplant — and a treatment decision — whether a transplant was medically necessary.

It is the clear holding of Pegram that mixed decisions concerning eligibility and treatment are not fiduciary decisions for purposes of ERISA: "We hold that mixed eligibility decisions by HMO physicians are not fiduciary decisions under ERISA. 530 U.S. at 237, 120 U.S. at 2158. In the narrow sense, this means that a lawsuit alleging breach of fiduciary duty which involves a mixed decision is subject to dismissal pursuant to Rule 12(b)(6). It follows that the plaintiff's cause of action does not satisfy Rush's second criterion: that it "fall within the scope of an ERISA provision that the plaintiff can enforce via § 502(a)." Rush, 230 F.3d at 967; See, Rush, 122 S.Ct. at 2177, n. 7 (Thomas, J. dissenting).

Defendants present three arguments in support of complete preemption. First, plaintiff's cause of action is completely preempted because it "relates to" a welfare benefit plan. Second, plaintiff's complaint makes no sense under Indiana law. And third, the defendants here are not an HMO — they are, instead, a third-party administrator of the plan and, accordingly, have no role in patient "treatment."

Defendants' first argument glosses over the distinction between complete preemption — which is the only issue here — and conflict preemption pursuant to 29 U.S.C. § 1144(a). Because we conclude that plaintiff's cause of action is not completely preempted by ERISA and that we must, accordingly, remand this case to Marion Superior Court, we have no jurisdiction to hazard an opinion as to whether the cause of action is subject to an ERISA preemption defense in state court or plaintiff's corollary argument that it is "saved" by ERISA's insurance law exception. See Rush Prudential, 122 S.Ct. 2151. That being noted, we conclude the complete preemption part of our discussion by noting that both Pegram and the Seventh Circuit's decision in Lehmann lead to the proposition that, while a state court action involving a mixed decision may be subject to conflict preemption, it is not removable to federal court because ERISA simply doesn't occupy the field in which mixed decisions arise. In Lehmann, 230 F.3d at 920, which relies on Pegram, the Seventh Circuit observed:

When the complaint alleges that a welfare-benefit plan has committed a tort — for example, when a physician employed by a HMO that has been offered as a benefit to employees commits medical malpractice — the claim must arise under state law, because ERISA does not attempt to specify standards of medical care. See Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000). Claims outside the scope of ERISA arise independently of federal law, and the possibility that § 514(a) preempts one or another state-law theory is just a federal defense. [Emphasis added.]

In sum:

The district judge appears to have believed that any claim preempted by § 514(a) of ERISA, because "related to" a pension or welfare plan, may be removed to federal court. This, however, is not so. Following established precedent, we have distinguished between federal defenses, such as preemption, which must be presented to state court, and claims based on federal law, which are removable.

Id.

Defendants' second argument is related to the first and fares no better. They argue that plaintiff's complaint allegations do not state a cognizable medical malpractice case under Indiana law (indeed, that it doesn't even purport to do so); nor do they state a cognizable insurance action under Indiana law. From these facts they ask us to infer that plaintiff's cause of action must really be one for breach of fiduciary duty, but that such an action is preempted by ERISA. Even assuming that plaintiff's complaint allegations do not state a viable cause of action under Indiana law, we may not infer from that assumption that the claim gives rise to federal jurisdiction. The cause of action may, indeed, be invalid under Indiana law. Even so, once we decide that ERISA does not completely preempt the cause of action, our only mandate is to remand the case and make way for the state court to make that determination. Lehmann, 230 F.3d at 920. We hazard no opinion as to the merits of plaintiff's complaint allegations or as to the question of whether ERISA preempts the state cause of action because state law conflicts with ERISA. These are matters for the state court to decide. See, Vorhees v. Naper Aero Club, Inc., 272 F.3d 398 (7th Cir. 2001); Lehmann, 230 F.3d at 919-920.

Defendants' third argument — that this case involves not an HMO, but a third-party administrator — makes this case unique in our circuit. It has found support in one circuit court and several district court opinions. Corporate Health Ins. v. Texas Department of Insurance, 220 F.3d 641 (5th Cir. 2000); Rubin-Schneiderman v. Merit Behavioral Care Corp., 163 F. Supp.2d 227 (S.D.N.Y. 2001); Cicio v. Vytra Healthcare, ___ F. Supp.2d ___, 2001 WL 1860036 (E.D.N.Y., Sep 28, 2001); and Marks v. West Virginia Dept. of Health Human Resources, 181 F. Supp.2d 639 (S.D.W. Va., 2002) (relying on Rubin-Schneiderman). Rubin-Schneiderman and Cicio conclude that Pegram is essentially irrelevant to the question of complete preemption because Pegram involved an HMO, whereas these cases involve a third-party administrator and not an HMO. The nub of the district court cases is that, while an HMO provides both claims administration and treatment, a third-party administrator does not provide treatment. Instead, even though it appears to be making mixed decisions of eligibility and treatment, it is really serving in only an administrative capacity, because it provides no actual medical care. It is thus completely preempted because in the area of benefits administration ERISA occupies the field. Rubin-Schneiderman, 163 F. Supp.2d at 231; Cicio, 2001 WL 1860036 at *11.

We respectfully disagree for the following reasons. First, the Pegram court did not focus on the treatment of covered beneficiaries or on who provided the treatment. It focused on decisions: eligibility decisions, treatment decisions, and mixed decisions of treatment and eligibility. Regardless of who makes these decisions, they are all decisions which affect beneficiaries. We find no principled way to distinguish between a mixed decision of eligibility and treatment rendered by a physician employed by an HMO (as in Pegram) and a mixed decision of eligibility and treatment rendered by a physician engaged by a third-party administrator to make such decisions (as in the instant case). Although the Rubin-Schneiderman, Marks, and Cicio courts appear to have found this distinction determinative, we fail to see how, under the Pegram regime, the nature of the enterprise — HMO or third-party administrator — is a pertinent factor in determining whether ERISA completely occupies the field. Additionally, while two courts point to cases with similar facts that led to removal and dismissal, the cases they cite were decided before Pegram. E.g. Vytra, 2001 WL 1860036 at *4; Rubin-Schneiderman, 163 F. Supp.2d at 230.

Second, the Seventh Circuit in Lehmann — a post-Pegram decision — did not limit its holding to "HMOs" or to "medical malpractice" when it concluded that a complaint alleging that "a welfare-benefit plan" has committed "a tort" must arise under state law, because ERISA does not attempt to specify "standards of medical care." An HMO is merely one form of "welfare benefit plan"; others include the kind of plan at issue here. Similarly, medical malpractice is merely one example of a "tort" that is not preempted by ERISA. Presumably, others may be asserted which challenge decisions affecting "standards of medical care."

Once again, we offer no opinion as to the viability of plaintiff's state causes of action. Nor do we offer any opinion as to the soundness of defendant's preemption defense in state court. We merely find that ERISA does not occupy the territory in which plaintiff's cause of action arises so that its removal to this court was improvident.

IV. Conclusion.

Because we conclude that ERISA does not completely preempt plaintiff's state law causes of action, we GRANT plaintiff's motion to remand to Marion Superior Court and we DENY defendants' motion for summary judgment.

IT IS SO ORDERED