Opinion
Civil Action No. 5:02-0094.
April 25, 2002.
ORDER
Pending before the Court is the Defendant's Motion to Dismiss or, in the Alternative, Motion to Stay. The Defendant argues that the Employee Retirement Income Security Act of 1974 [hereinafter "ERISA"] preempts the Plaintiffs' claims. In addition, the Defendant argues that the Plaintiffs failed to exhaust their administrative remedies. As for the Motion to Stay, the Defendant argues that the health insurance contract requires the Plaintiffs to arbitrate their claims. The Plaintiffs counter that the claims are not preempted and that the arbitration clause is unconscionable and unenforceable. For the reasons that follow, the Court FINDS ERISA preemption and GRANTS in part Defendants' Motion to Dismiss.
The Plaintiffs make a cursory argument that ERISA may not cover the health insurance plan in question. However, from the record before the Court, the health insurance plan provided by the Defendant appears to be an employee benefit plan established by an employer engaged in commerce.
I. BACKGROUND
C. Adam Toney Discount Tires, Inc. employed the Plaintiffs. Pursuant to that employment, the employer purchased a health insurance plan for the benefit of its employees, including the Plaintiffs. The employer purchased the plan from the Defendant. At some point, the Plaintiffs filed claims for health benefits with the Defendant, and the Defendant failed to pay the sums requested by the Plaintiffs. When the Defendant failed to pay, the Plaintiffs filed suit.
Count One alleges a breach of contract; the Plaintiffs seek compensation for payments due under the terms of the insurance policy. Count Two alleges fraud due to the Defendant's failure to pay medical bills under the policy terms as represented to the Plaintiffs. Count Three claims unfair settlement practices and bad faith on the Defendant's part; Count Three stems from the Defendant's failure to pay medical bills under the health insurance policy terms.
After filing the Complaint in state court, the Defendant removed the case to this Court based on diversity jurisdiction. Now, the Motion to Dismiss is before the Court.
II. DISCUSSION
A. Rule 12(b)(6) Standard of Review
In ruling on the Motion to Dismiss, this Court is governed by Mylan Lab., Inc., v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993), in which the Fourth Circuit Court of Appeals held:
In general, a motion to dismiss for failure to state a claim should not be granted unless it appears certain that the plaintiff can prove no set of facts which would support its claim and would entitle it to relief. In considering a motion to dismiss, the court should accept as true all well-pleaded allegations and should view the complaint in a light most favorable to the plaintiff.
See also Hurt v. United States, 889 F. Supp. 248, 251 (S.D.W. Va. 1995). The Court has further held that, in light of the standard of review:
a Rule 12(b) motion should be granted only in very limited circumstances. The Supreme Court has explained that "the Federal Rules reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome and accept the principle that the purpose of pleading is to facilitate a proper decision on the merits."
Rogers v. Jefferson-Pilot Life Ins. Co., 883 F.2d 324, 325 (4th Cir. 1989) (quoting Conley v. Gibson, 355 U.S. 41, 48 (1957).
B. Preemption
The first step involves the issue of ERISA preemption. ERISA's "relate to" provision, 29 U.S.C. § 1144(a), provides that
Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title.
Thus, section 1144(a) establishes Congress' attempt to broadly preempt the field of law that deals with employee benefit plans.
Count One of the complaint in the present case claims a breach of contract. The Plaintiffs allege that the Defendant owes payment under the terms of the policy for medical care received. (Comp. ¶ 14.) The Plaintiffs seek damages in the form of payments that "should have been made under the terms of the policy. . . ." (Comp. ¶ 16.) Essentially, the Plaintiffs seek to recover benefits due to them under the terms of the plan; therefore, ERISA preempts Count One because Count One relates to an employee benefit plan.
Count Two claims fraud on the Defendant's part. The Plaintiffs alleged, without particularity, that the Defendant made fraudulent representations as to the health benefit coverage. (Comp. ¶ 19.) The representations were fraudulent because the "defendant did not intend to cover costs of medical bills for a sickness or injuries." Id.
Commons law causes of action based on the "improper processing of a claim for benefits" under an ERISA plan "relate to" an ERISA plan; therefore, ERISA preempts such causes of action. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48 (1987). One of the common law causes of action in Pilot Life was fraud in the inducement. Id. at 43. The Fourth Circuit recently elaborated on Pilot Life. "Generally speaking, ERISA preempts state common law claims of fraudulent or negligent misrepresentation when the false representations concern the existence or extent of benefits under an employee benefit plan." Griggs v. E. I. DuPont De Nemours Co., 237 F.3d 371, 378-79 (4th Cir. 2001).
In the present case, the Plaintiffs claim that certain representations made by the Defendant were fraudulent because the "defendant did not intend to cover costs of medical bills for a sickness or injuries." That claim concerns the existence and/or the extent of benefits due under the employee benefit plan; therefore, ERISA preempts Count Two because Count Two relates to an employee benefit plan.
Count Three sets forth a claim for unfair settlement practices in violation of the West Virginia Unfair Trade Practices Act [hereinafter "WVUTPA"]. Claims under the WVUTPA relating to the processing of benefits pursuant to an ERISA plan are preempted by ERISA. Coffman v. Metropolitan Life Ins. Co., 138 F. Supp.2d 764, 766 (S.D.W. Va. 2001) (Haden, J.). In Coffman, the plaintiff's claims followed most of the unlawful practices set forth in the WVUTPA. The claims related to the processing of the plaintiff's benefits. Because the claims related to the processing of the plaintiff's benefits, the court held the claims preempted by ERISA. Id. at 766-67.
As in Coffman, the claims in the present case follow the language set forth in the WVUTPA. In addition, the allegations state that the Defendant had a "contractual duty and obligation to pay the full amounts of the medical bills submitted by plaintiffs. . . ." (Comp. ¶ 25.) As in Coffman, the allegations in Count Three relate to the benefits due under the terms of the ERISA plan; therefore, ERISA preempts Count Three of the Plaintiffs' Complaint.
The Plaintiffs argue that the Supreme Court narrowed ERISA's "relate to" provision in several recent cases. Although the cases cited by the Plaintiffs show that section 1144(a) has limitations, the facts in those cases are distinguishable from the present case. See De Buono v. NYSA-ILA Med. Clinical Serv. Fund, 520 U.S. 806, 809 (1997) (finding no preemption when the state of New York imposed a tax on the income of medical facilities operating from ERISA funds); California Div. of Labor Standards Enforcement v. Dillingham Const., Inc., 519 U.S. 316, 319 (1997) (finding no preemption of California's prevailing state wage law to the extent that the law denies payment of an apprentice wage to an apprentice trained in an unapproved program); New York State Conference of Blue Cross Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 649 (1995) (finding no preemption when a state provides for surcharges on bills of patients whose commercial insurance coverage is purchased by employee health care plans governed by ERISA). In the present case, the Plaintiffs use the WVUTPA to attack the administration and processing of the employee benefit plan. Therefore, the cases cited by the Plaintiff finding no preemption are distinguishable.
Alternatively, the Plaintiffs argue in their response to the Motion to Dismiss that if ERISA preempts the WVUTPA claim, then ERISA's savings clause saves the claim because the WVUTPA regulates the business of insurance. ERISA's section 1144(b)(2)(A) permits the states to enact any law "which regulates insurance, banking, or securities." However, claims under the WVUTPA "relating to the improper processing or administration [of employee benefits] are not saved from preemption by the savings clause." Custer v. Pan Am. Life Ins. Co., 12 F.3d 410, 420 (4th Cir. 1993) (citing Ball v. Life Planning Serv., Inc., 421 S.E.2d 223, 227 (W.Va. 1992)). As set forth above, the Plaintiffs seek to attack the improper processing and/or administration of their employee benefits. Therefore, ERISA preempts Count Three, and ERISA's savings clause fails to negate that preemption.
In light of the holding in Custer, the Plaintiffs argue that the Supreme Court changed the pertinent analysis concerning the savings clause in Unum Life Ins. Co. of Am. v. Ward, 526 U.S. 358 (1999). However, Unum did not explicitly or implicitly overrule Custer; therefore, this Court will follow the holding as set forth in Custer.
Judge Niemeyer authored the opinion in Custer and, writing for the majority, applied Custer in Tri-State Mach., Inc. v. Nationwide Life Ins. Co., 33 F.3d 309 (4th Cir. 1993), finding the savings clause inapplicable to West Virginia's statutory unfair claims practices act. Judge Luttig's dissent and commentators offer a well-reasoned criticism of Judge Niemeyer's analysis. See Donald T. Bogan, ERISA: The Savings Clause, S 502 Implied Pre-emption, Complete Preemption, and State Law Remedies, 42 Santa Clara L. Rev. 105 (2001). Applying each of the factors in the three factor test and taking a common-sense view of West Virginia's statutory scheme, the critics of the Fourth Circuit's analysis make a compelling case for rejecting Judge Niemeyer's analysis. Even though it agrees with the criticism, this Court is constrained to apply the binding precedent.
C. Exhaustion of Remedies
ERISA claimants are generally required to exhaust their administrative remedies under their employee benefit plans before filing suit for the denial of benefits. See Hickey v. Digital Equipment Corp., 43 F.3d 941, 945 (4th Cir. 1995); Makar v. Health Care Corp. of the Mid-Atlantic, 872 F.2d 80, 82-83 (4th Cir. 1989); United Paperworkers Int'l Union Local 425 v. Champion Int'l Corp., 990 F. Supp. 423, 427 (E.D.N.C. 1998). The exhaustion requirement may be suspended, however, if the plaintiff makes a "clear and positive' showing of futility." Makar, 872 F.2d at 83 (quoting Fizer v. Safeway Stores, Inc., 586 F.2d 182, 183 (10th Cir. 1978)). Bare allegations of futility, without more, will not suffice. Id.
In the present case, the Defendant's policy sets forth a detailed appeals process for disputes related to the denial of claims. The appeals process begins with a review by a Technical Manager, an appeal to Appeal Review, and then arbitration. The Defendant alleges that the Plaintiffs failed to avail themselves of the administrative remedies prior to filing this suit. In response, the Plaintiffs fail to address the exhaustion of remedies requirement in either the Complaint or the Plaintiffs' Memorandum of Law in Opposition to Defendant's Motion to Dismiss. With no response, the Plaintiffs fail to make a clear and positive showing of futility in regard to the exhaustion of remedies requirement. Therefore, the Plaintiffs must return to the administrative appeals process to contest the denial of benefits due under the terms of the plan.
III. CONCLUSION
For the reasons stated above, the Court GRANTS in part the Defendants' Motion to Dismiss and DISMISSES WITHOUT PREJUDICE the Plaintiffs' Complaint. The Clerk is directed to forward a copy of this Order to counsel of record and any unrepresented parties and to publish the same at the Court's website.
The Court reaches its decision only on the exhaustion of remedies claim; therefore, the Court DENIES as moot the Defendant's other arguement for dismissal and the Defendant's Motion to Stay.