Opinion
A166579
11-22-2023
IN RE ESSURE PRODUCT CASES. LHC Group, Inc., Plaintiff and Appellant, v. Bayer Corporation, Defendant and Respondent.
Law Offices of Jessica A. Schaps, and Jessica A. Schaps, Sacramento; Bienstock, and Theodore Martin Bienstock; Weisbrod Matteis & Copley, Shane Welch for Appellants. DLA Piper, Brooke Kim, San Diego, Stanley J. Panikowski, Justin R. Sarno, Los Angeles, Iiana H. Eisenstein for Respondents. Orrick, Herrington & Sutcliffe, Andrew D. Silverman for amicus curiae on behalf of Respondent.
Trial Court: Alameda County, Trial Judge: Hon. Evelio Grillo (Alameda County Super. Ct. No. RG16804878)
Law Offices of Jessica A. Schaps, and Jessica A. Schaps, Sacramento; Bienstock, and Theodore Martin Bienstock; Weisbrod Matteis & Copley, Shane Welch for Appellants.
DLA Piper, Brooke Kim, San Diego, Stanley J. Panikowski, Justin R. Sarno, Los Angeles, Iiana H. Eisenstein for Respondents.
Orrick, Herrington & Sutcliffe, Andrew D. Silverman for amicus curiae on behalf of Respondent.
RODRIGUEZ, J.
LHC Group, Inc. (LHC) is the administrator of a self-insured employee welfare benefit plan, LHC Group Benefit Plan (Plan), which is governed by the Employment Retirement Income Security Act of 1974 (ERISA). (29 U.S.C. § 1001.) LHC — on behalf of itself and as a subrogee of Plan participants — sued Bayer Corporation (Bayer) seeking damages related to the manufacture and sale of Essure, an allegedly defective birth control device. The trial court sustained Bayer’s demurrer without leave to amend, concluding ERISA preempts LHC’s claims because they relate to an employee benefit plan. (29 U.S.C. § 1144(a).) It further concluded that, due to differences in implanting the devices and injuries, LHC misjoined participants’ claims into a single case. Finally, the court struck LHC’s claims for punitive damages because they are not authorized under the Plan’s subrogation clause. LHC appealed.
In the published portion of our opinion, we hold LHC’s state law claims do not "relate to" an ERISA plan and are therefore not preempted by ERISA. We reverse the order dismissing the complaint but affirm the order striking the request for punitive damages.
The following facts are based on the allegations in LHC’s complaint because this appeal follows a ruling on a demurrer. (Doe v. Google, Inc. (2020) 54 Cal.App.5th 948, 952, 268 Cal.Rptr.3d 783.)
In April 2021, LHC filed a complaint against Bayer alleging tort claims such as negligence, strict products liability, concealment, and negligent misrepresentation, as well as quasi-contract and unjust enrichment claims related to Essure, a permanent female birth control implanted into the patient’s fallopian tubes through a disposable delivery system. According to LHC, Bayer failed to comply with its responsibilities to warn about apparent serious health risks after the device was approved for sale. Specifically, Bayer received — but did not disclose — thousands of complaints of serious injuries, such as perforation of the uterus or fallopian tubes, device migration or fracture, prolonged bleeding, and unintended pregnancies. In addition, Bayer failed to disclose to the U.S. Food and Drug Administration (FDA) that the frequency and severity of these complications were greater than expected, and Essure must be removed through major surgery.
Upon becoming aware of this information, the FDA categorized Essure as a restricted device. In 2016, it required Essure to include a "black box warning and Patient Decision Checklist" — to notify patients and physicians of serious health risks — and additional warnings regarding long-term risks — device removal could require surgery, removal of fallopian tubes, or hysterectomy. In July 2018, Bayer notified the FDA it would no longer sell or distribute Essure in the United States after December 2018.
LHC brought its claims both as its participants’ subrogee and in its own right. Relevant here, the Plan included a subrogation clause noting "each Covered Person agrees that the Plan will have the right of subrogation with respect to the full amount of benefits paid to or on behalf of a Covered Person as the result of an injury, illness, disability or death that is or may be the responsibility of any Third Party." LHC sought medical expenses it actually paid for injured Plan participants, damages LHC itself suffered, and punitive damages. Attached to the complaint were participant identification numbers and the associated total costs resulting from Essure injuries. It did not seek any declaratory or injunctive relief, or any relief from or against Plan participants.
Bayer filed a demurrer, which the trial court sustained without leave to amend. The court concluded ERISA preempted LHC’s claims because they "relate to" the Plan — the subrogation clause — and the court would need to interpret the Plan to determine LHC’s ability to sue Bayer on behalf of Plan participants. The court also found LHC’s claims had an impermissible connection with the Plan because they interfere both with the ability of Plan participants to assert claims on their own behalf and uniform plan administration. In addition, the court determined LHC’s claims on behalf of 231 injured women were misjoined into a single case. LHC’s ability to recover on behalf of each Plan participant "would depend on whether each plan participant had a meritorious claim against Bayer." Finally, the court struck LHC’s request for punitive damages, noting LHC, as a subrogee, could only recover as damages actual payments for medical expenses it made to Plan participants related to their injuries.
DISCUSSION
[1–3] LHC contends the trial court erred in sustaining the demurrer. Rulings on a demurrer are reviewed de novo, assuming the truth of the factual allegations and those reasonably inferred from the pleadings. (Regents of University of California v. Superior Court (2013) 220 Cal. App.4th 549, 558, 163 Cal.Rptr.3d 205.) We also review de novo whether ERISA preempts state law — an issue of statutory construction and an affirmative defense that would entirely bar the state claims. (Morris B. Silver M.D., Inc. v. International Longshore & Warehouse etc. (2016) 2 Cal.App.5th 793, 805, 206 Cal.Rptr.3d 461 (Silver); Port Medical Wellness Inc. v. Connecticut General Life Insurance Co. (2018) 24 Cal.App.5th 153, 171–172, 233 Cal.Rptr.3d 830.) LHC bears the burden of demonstrating the court erroneously sustained the demurrer. (Keyes v. B o wen (2010) 189 Cal.App.4th 647, 655, 117 Cal. Rptr.3d 207.)
I.
LHC argues the trial court erred by concluding ERISA preempts its claims because they "relate to" — have a "reference to" or "connection with" — an ERISA plan. We agree.
[4–8] "ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." (Shaw v. Delta Air Lines, Inc. (1983) 463 U.S. 85, 90, 103 S.Ct. 2890, 77 L.Ed.2d 490 (Shaw).) It contains expansive preemption provisions, designed to ensure employee benefit plan regulation is an exclusively federal concern. (29 U.S.G. § 1144; Marshall v. Bankers Life & Casualty Co. (1992) 2 Cal.4th 1045, 1050, 10 Cal.Rptr.2d 72, 832 P.2d 573; Ingersoll-Rand Co. v. McClendon (1990) 498 U.S. 133,1 38, 111 S.Ct. 478, 112 L.Ed.2d 474 (Ingersoll-Rand).) At issue here, ERISA preempts "any and all State laws insofar as they … relate to any employee benefit plan," with exceptions not relevant here. (29 U.S.G. § 1144(a), (b)(2)(A).) Any state-law claim that falls within the scope of ERISA’s remedies "is preempted as conflicting with the intended exclusivity of the ERISA remedial scheme." (Paulsen v. CNF Inc. (9th Cir. 2009) 559 F.3d 1061, 1084 (Paulsen).) There are two categories of state laws conflict-preempted under ERISA: if it has a "reference to" an ERISA plan, or "if it has a connection with" such a plan. (Shaw, at pp. 96–97, 103 S.Ct. 2890.) Bayer must overcome "the starting presumption that Congress does not intend to supplant state law." (New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co. (1995) 514 U.S. 645, 654, 115 S.Ct. 1671, 131 L.Ed.2d 695 (Travelers).)
This is one of ERISA’s two preemption provisions. (Clegho rn v. Blue Shield of California (9th Cir. 2005) 408 F.3d 1222, 1225.) The second — not at issue in this appeal — is the complete preemption provision in section 502, subdivision (a) of ERISA. (29 U.S.C. § 1132(a).) The sole purpose of section 502 "is to ensure that federal courts remain the sole forum and the sole vehicle for adjudicating claims for benefits under ERISA." (Rudel v. Haw. Mgmt. All. Ass’n. (9th Cir. 2019) 937 F.3d 1262, 1269.) "Therefore, any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy [in section 502] conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted." (Aetna Health Inc . v. Davila (2004) 542 U.S. 200, 209, 124 S.Ct. 2488, 159 L.Ed.2d 312.)
[9–11] First, relying entirely on the Plan’s subrogation clause, Bayer argues ERISA preempts LHC’s tort claims, such as negligence, strict products liability, concealment, and negligent misrepresentation, and quasi-contract and unjust enrichment claims on behalf of its members because they reference an ERISA plan. Not so. "ERISA’s preemptive scope is broad, but not all-encompassing." (Nevill v. Shell Oil Co. (9th Cir. 1987) 835 F.2d 209, 212; Travelers, supra, 514 U.S. at pp. 655–656, 115 S.Ct. 1671 [counseling against extending the phrase "relate to" to "the furthest stretch of its indeterminacy"].) A state law has a "reference to" ERISA plans where it "acts immediately and exclusively upon ERISA plans" or "where the existence of ERISA plans is essential to the law’s oper- ation.’ " (Gobeille v. Liberty Mutual Insurance Co. (2016) 577 U.S. 312, 319–320, 136 S.Ct. 936, 194 L.Ed.2d 20 (Gobeille).) Claims affecting an ERISA plan in at most, a tenuous, remote, or peripheral manner do not "relate to" an ERISA plan. (Silver, supra, 2 Cal.App.5th at p. 805, 206 Cal.Rptr.3d 461.)
[12–14] Generally, claims based on common law negligence principles, such as the ones at issue here, do not act " ‘immediately and exclusively’ on ERISA plans." (Paulsen, supra, 559 F.3d at pp. 1066, 1082.) Indeed, LHC’s tort claims — based on Bayer’s failure to warn about Essure’s alleged defects — make "no reference to" and "indeed function[ ] irrespective of, the existence of an ERISA plan." (Ingersoll-Rand, supra, 498 U.S. at p. 139, 111 S.Ct. 478.) Negligence law in failure-to-warn cases requires plaintiffs "to prove that a manufacturer or distributor did not warn of a particular risk for reasons which fell below the acceptable standard of care." (Anderson v. Owens-Corning Fiberglas Corp. (1991) 53 Cal.3d 987, 1002, 281 Cal. Rptr. 528, 810 P.2d 549.) Strict liability claims require a plaintiff to prove "the defendant did not adequately warn of a particular risk that was known or know-able in light of the generally recognized and prevailing best scientific and medical knowledge available at the time of manufacture and distribution." (Ibid.) Nothing suggests the existence of an ERISA plan is a critical factor in establishing Bayer’s liability under any of the traditional state laws of general application. (Contra Ingersoll-Rand, at pp. 139–140, 111 S.Ct. 478 [ERISA preempted claim employer principally terminated employee to avoid contributing to pension fund since "the existence of a pension plan is a critical factor in establishing liability under the State’s wrongful discharge law"].)
[15, 16] True, LHC could not allege its claims in the absence of the Plan’s subrogation clause. (Silver, supra, 2 Cal.App.5th at p. 807, 206 Cal.Rptr.3d 461.) By itself, however, this is insufficient to demonstrate the existence of the Plan is "essential" to LHC’s claims. (See, e.g., Ingersoll-Rand, supra, 498 U.S. at p. 139, 111 S.Ct. 478 [the "fact that collection might burden the administration of a plan did not, by itself, compel pre-emption"].) ERISA does not preempt "run-of-the-mill state-law claims" such as "torts committed by an ERISA plan," even though those claims may obviously affect and involve ERISA plans as well as their trustees. (Mackey v. Lanier Collection Agency & Service, Inc. (1988) 486 U.S. 825, 833, 841, 108 S.Ct. 2182, 100 L.Ed.2d 836 [ERISA did not preempt the state’s statutory general garnishment procedures despite being used to collect judgments against ERISA plan participants].) Subrogation simply "places the insurer in the shoes of its insured to the extent of its payment." (Progressive West Ins. Co. v. Superior Court. (2005) 135 Cal.App.4th 263, 272, 37 Cal.Rptr.3d 434.) Neither party disputes the terms of the Plan, nor do LHC’s claims turn on an analysis of those terms. Without more, the subrogation clause does not warrant preemption. (Cf. Silver, supra, 2 Cal.App.5th at p. 807, 206 Cal.Rptr.3d 461 [that "ERISA plan is an initial step in the causation chain, without more, is too remote of a relationship with the covered plan to support a finding of preemption"].)
At oral argument. Bayer argued for the first time that California law regarding subrogation bars LHC’s claims against third party tortfeasors. We express no opinion on this issue.
[17] Central States, Southeast and Southwest Areas Health and Welfare Fund v. Health Special Risk, Inc. (N.D. Tex., June 13, 2013, Civ. A. No. 3:11-cv-2910-D) 2013 WL 2656159, 2013 U.S. Dist. LEXIS 83400 (Central States) — holding a state-law subrogation claim is conflict-preempted under ERISA because it addresses the right to receive plan benefits — does not alter our conclusion. We are not bound by lower federal court decisions, even on federal questions. (Barrett v. Rosenthal (2006) 40 Cal.4th 33, 58, 51 Cal.Rptr.3d 55, 146 P.3d 510.) Nor is Central States persuasive. (Central States, supra, * 3, 2013 U.S. Dist. LEXIS 8340 at * 14.) The court relied entirely on Arana v. Ochsner Health Plan (5th Cir. 2003) 338 F.3d 433 (Arana), a case addressing whether "ERISA completely preempted the state-law claim of a plan beneficiary seeking a declaratory judgment that he was not obligated to reimburse his ERISA plan from proceeds of a tort action settlement for health benefits paid by the plan." (Central States, supra, * 4, 2013 U.S. Dist. LEXIS 8340 at * 16, italics added.)
[18] Bayer’s attempt to extract preemption principles from Arana is inapt — no comparable dispute exists here. LHC alleges it was liable for its injured members’ medical treatment and hospital expenses due to Essure — that is, LHC bore the costs of Essure. Unlike the ERISA plan in Arana, LHC does not seek plan benefits, or any declaratory or injunctive relief from or against any Plan participants. (LHC Grp., Inc. v. Bayer Corp. (N.D. Cal., Mar. 14, 2022, No. 21-cv-03877-HSG) 2022 WL 774298, 2022 U.S. Dist. LEXIS 44929 (LHC Grp., Inc.).) Rather, LHC seeks damages from a third party in the amount of the health care costs incurred by injured members, to which LHC was subrogated. Where the state-law claims do not entail interpreting an ERISA plan, dictate any distribution of benefits, and the claimant has "already paid ERISA benefits" and does not dispute "the correctness of the benefits paid," the claim is not preempted. (Providence Health Plan v. McDowell (9th Cir. 2004) 385 F.3d 1168, 1172.)
[19–22] Second, LHC’s claims do not have an impermissible connection with an ERISA plan. In reaching this conclusion, we presume Congress did "not intend to supplant" state laws "regulating a subject of traditional state power" unless they result in direct regulation of a fundamental ERISA function. (Gobeille, supra, 577 U.S. at p. 325, 136 S.Ct. 936.) An impermissible connection exists where the state law governs a " ‘central matter of plan administration,’ " " ‘interferes with nationally uniform plan administration,’ " (id. at p. 320, 136 S.Ct. 936) forces "an ERISA plan to adopt a certain scheme of substantive coverage," or restricts "its choice of insurers." (Travelers, supra, 514 U.S. at p. 668, 115 S.Ct. 1671.) Critical to this determination is whether the state law bears on an ERISA-regulated relationship — that is, a relationship between the plan and plan member, plan and employer, and employer and employee. (WSB Elec. v. Curry (9th Cir. 1996) 88 F.3d 788, 794.)
As a preliminary matter, LHC’s tort and quasi-contract claims involve areas traditionally regulated by the state. (Geweke Ford v. St. Joseph’s Omni Preferred Care Inc. (9th Cir. 1997) 130 F.3d 1355, 1359 [contract law traditionally regulated by states]; Keams v. Tempe Technical Inst, Inc. (9th Cir. 1994) 39 F.3d 222, 226 [negligence and negligent misrepresentation traditionally regulated by states].) Bayer must accordingly overcome the considerable presumption that Congress did not intend to supplant those laws. (Gobeille, supra, 577 U.S. at p. 325, 136 S.Ct. 936.) It fails to do so.
[23] To begin, LHC’s claims against Bayer, a third-party pharmaceutical company rather than Plan participants, do not bear on any of these ERISA-regulated relationships. (Bafford v. Northrop Grumman Corp. (9th Cir. 2021) 994 F.3d 1020, 1031 [plan beneficiaries’ professional negligence claims against outside administrator for grossly overestimating monthly benefits not conflict preempted under ERISA].) Indeed, state-law negligence claims generally do "not encroach on any actuary-participant relationship governed by ERISA when asserted against a non-fiduciary actuary." (Paulsen, supra, 559 F.3d at p. 1083.) Rather, state-law claims that arise from ordinary relationships with an ERISA-regulated entity and "do not touch on [ERISA] status," as is the case here, are not preempted. (Abraham v. Norcal Waste Systems, Inc. (9th Cir. 2001) 265 F.3d 811, 822 [ERISA does not "regulate those relationships where a plan operates like any other commercial entity," such as "the plan and the landlords from whom it leases its office space"], abrogated on other grounds by Fossen v. Blue Cross & Blue Shield of Mont., Inc. (9th Cir. 2011) 660 F.3d 1102, 1112.)
While LHC’s claims depend in part on its subrogation rights, this does not directly affect the relationship between the Plan and its participants, as Bayer contends. Although the trial court may be required to review the subrogation clause, LHC’s claims do not address an area of exclusive federal concern, such as seeking plan benefits. (LHC Grp., Inc., supra, at * 1, 2022 U.S. Dist. LEXIS 44929 at * 2; Silver, supra, 2 Cal.App.5th at p. 804, 206 Cal. Rptr.3d 461.) It simply seeks to recover damages that it and its participants sustained from Bayer’s failure to warn about Essure — claims assigned to LHC through the subrogation clause to enforce on behalf of Plan participants. (LHC Grp., Inc., at * 1, 2022 U.S. Dist. LEXIS 44929, at ** 2–3; Garbell v. Conejo Hardwoods, Inc. (2011) 193 Cal.App.4th 1563, 1571, 122 Cal.Rptr.3d 856.)
Nor does the possibility that the trial court may need to consider the Plan’s relationship to its participants — specifically, how to address competing privacy interests of participants in different states — render LHC’s claims a matter of federal concern. Leaving aside Bayer’s failure to support this assertion with any case law or statutory authority, LHC’s claims have "‘a tenuous, remote, or peripheral connection with" the Plan and its participants’ privacy rights, "as is the case with many laws of general applicability." (Travelers, supra, 514 U.S. at p. 661, 115 S.Ct. 1671.) The claims do not threaten to impose different regulatory requirements on the Plan’s operation, such as by requiring it to maintain different sets of records in different states, making different sets of benefits available, or complying with different fiduciary standards. (Fort Halifax Parking Co. v. Coyne (1987) 482 U.S. 1, 9, 107 S.Ct. 2211, 96 L.Ed.2d 1.) Nor do they bind the Plan to do anything. (Howard Jarvis Taxpayers Association v. Cal. Secure Choice Ret. Sav. Program (9th Cir. 2021) 997 F.3d 848, 858 ["ERISA applies to ‘plans, rather than simply to benefits,’" thus indicating the distinction between state laws that are beyond ERISA’s preemptive scope].) Rather, the claims are remote from that with which ERISA is concerned — "reporting, disclosure, fiduciary responsibility, and the like." (Shaw, supra, 463 U.S. at p. 98, 103 S.Ct. 2890.)
Because regulating the negligent behavior of third parties does not target any aspect of an ERISA-occupied field or impede ERISA’s objectives, LHC’s claims do not have an impermissible "connection with" ERISA plans. None of Bayer’s cited authorities — which address disputes between ERISA-related parties or ERISA-centric issues — persuade us otherwise. (See, e.g., Oregon Teamster Employers Trust v. Hillsboro Garbage Disposal, Inc. (9th Cir. 2015) 800 F.3d 1151, 1156 [ERISA preempted plan’s claims that defendant breached terms of the ERISA plan and court was required to analyze the plan to establish whether beneficiaries were eligible plan participants]; Wise v. Verizon Communications, Inc. (9th Cir. 2010) 600 F.3d 1180, 1191 [preemption applied to beneficiary’s state claims against employer resulting in loss of insurance benefits, as claims depended on the existence of an ERISA-covered plan to demonstrate damages].)
In sum, ERISA does not preempt LHC’s claims.
See footnote * , ante.
DISPOSITION
The judgment dismissing the complaint is reversed. The order striking LHC’s request for punitive damages is affirmed. LHC is entitled to costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).
WE CONCUR:
TUCHER, P. J.
FUJISAKI, J.