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Metcalf v. Blue Cross Blue Shield of Michigan

United States District Court, D. Oregon

November 5, 2014


Order Filed: August 27, 2014

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[Copyrighted Material Omitted]

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For Plaintiff: Steven P. Krafchick, KRAFCHICK LAW FIRM, PLLC, Seattle, Washington.

For Defendants: Robert B. Miller, KILMER VOORHEES & LAURICK, P.C., Portland, Oregon.

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Michael H. Simon, United States District Judge.

United States Magistrate Judge Janice M. Stewart issued Findings and Recommendation in this case on August 27, 2014. Dkt. 24 (hereinafter " F& R" ). Judge Stewart recommended that Defendants' motion to dismiss for failure to state a claim be denied as to Claims 1 and 2 and granted as to Claim 3, with leave to replead as a separate ERISA violation.

Under the Federal Magistrates Act (" Act" ), the Court may " accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate." 28 U.S.C. § 636(b)(1)(C). If a party files objections to a magistrate's findings and recommendations, " the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." Id.; Fed.R.Civ.P. 72(b)(3). For those portions of a magistrate's findings and recommendations to which neither party has objected, the Act does not prescribe any standard of review. See Thomas v. Arn, 474 U.S. 140, 152, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985) (" There is no indication that Congress, in enacting [the Act], intended to require a district judge to review a magistrate's report to which no objections are filed." ). Nor, however, does the Act " preclude further review by the district judge[] sua sponte. . . under a de novo or any other standard." Thomas, 474 U.S. at 154. Indeed, the Advisory Committee Notes to Fed.R.Civ.P. 72(b) recommend that " [w]hen no timely objection is filed," the Court review the magistrate's recommendations for " clear error on the face of the record."

Defendants timely filed an objection, Dkt. 26, to which Plaintiff Metcalf (" Metcalf" ) responded. Dkt. 28. Defendants object to the portion of Judge Stewart's F& R recommending that Defendants' motion be denied as to Claims 1 and 2. As no party has objected to the portion of the F& R regarding Claim 3, the Court reviews that portion for clear error on the face of the record. As no such error is apparent, the Court adopts that portion of the F& R. The Court reviews de novo the portion of the F& R regarding Claims 1 and 2 and

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adopts that portion as supplemented below.


Robert Metcalf is a chiropractor in North Carolina. He regularly treats individual participants enrolled in Defendant Daimler Trucks North America LLC Group Health Plan (" Plan" ). Healthcare providers who participate in the Plan are paid directly by the Plan; non-participating providers are typically paid by their patients, who must then file a claim with the Plan for reimbursement. Metcalf does not participate in the Plan. Instead, he makes the following arrangement with his patients: They assign their right to reimbursement directly to Metcalf and authorize him to pursue their claims on their behalf, as well as any other rights they have under the Plan in connection with his services. Both patient and provider benefit from this arrangement: Metcalf's patients get treated without having to pay out of pocket, and Metcalf streamlines his cash flow.

Insurance plans, however, typically incentivize healthcare providers to participate--and thereby subject the providers to cost constraints--with the promise of " quick, certain and direct payment from the insurer." [1] That incentive is reduced if non-participating providers may strike a deal with their patients, as Metcalf has done. The Employee Retirement Income Security Act of 1974 (" ERISA" ),[2] the federal law governing employer health insurance plans, is silent as to whether healthcare benefits may be assigned.[3] Accordingly, the consensus among the federal courts is that ERISA neither mandates nor prohibits the assignability of healthcare benefits; Congress intended that issue to be open to bargaining between insurer and insured. See F& R at 7-8 (collecting cases).

The Plan at issue in this case does not contain an anti-assignment clause. The assignments to Metcalf were, therefore, valid.[4] But Metcalf alleges that although he regularly pursued claims on behalf of his patients insured by the Plan, Defendants have refused to pay him. Accordingly, he asserts four claims for relief, two of which are at issue here: first, his claim under 29 U.S.C. § 1132(a)(1)(B), for denying claims for benefits; and second, his claim under § 1132(a)(3), for failing to conduct a full and fair review of his claims.


Defendants argue that Metcalf failed to state a claim for relief because he is not a statutory " beneficiary," has standing only derivative of his assignors, and has no right upon which to sue. The arguments in Defendants' Objection all depend on one basic factual premise: that Defendants have already paid all benefits owed--not to Metcalf, but to the participants, his patients.[5] Defendants argue that they have

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thereby discharged their obligations under ERISA and the Plan.

The Court's analysis proceeds as follows. First, regardless of the merits of Defendants' argument, several parts of Metcalf's claims survive. Next, as a matter of statutory interpretation, the assignee of a participant is a " beneficiary" under ERISA with an independent cause of action. Finally, under federal common law, an ERISA obligation may not be discharged, in the presence of a valid assignment, by paying the participant-assignor rather than the assignee.

A. The Benefits at Issue

Defendants' basic factual premise--that they have already paid the benefits owed--is contested: Metcalf alleges that some of the several hundred claims for benefits at issue were not paid to anyone. Dkt. 1 at 8. At this stage of the litigation, the Court must accept that well-pleaded material allegation as true. See Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012). Furthermore, in addition to payment of past benefits, Metcalf seeks injunctive relief for any future benefits his patients may assign him, Dkt. 1 at 18, as well as retrospective and prospective relief regarding his entitlement to Explanations of Benefits and other procedural rights. Dkt. 1 at 15-16, 18. Whether Defendants paid some past benefits directly to participants does not affect this portion of Metcalf's claims. Therefore, with respect to his requests for injunctive relief for future benefits, relief regarding procedural rights, and unpaid benefits, Metcalf's claims survive: The only portion of Metcalf's claims for relief still in question is that concerning past benefits that Defendants have already paid.

B. Beneficiaries under ERISA

The ERISA provisions under which Metcalf brings his claims, 29 U.S.C. § 1132(a)(1)(B) and § 1132(a)(3), allow suit to be brought by a " beneficiary." Defendants argue that Metcalf is not a " beneficiary" as defined by the statute. The litigation thus far has addressed this issue as a matter of standing. In fact, however, it is a question on the merits. After the Supreme Court's recent decision in Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014), the question is properly addressed as whether ERISA provides Metcalf with a cause of action.

1. Statutory Standing

Defendants argue that Metcalf lacks statutory standing under ERISA because he is not a statutory " beneficiary." If Metcalf lacks standing under ERISA, Defendants assert, he has standing only as an assignee, derivative of his assignors' standing. Because his assignors have been paid, they have no injury, and therefore no standing--and thus Metcalf has no standing, Defendants maintain. If Defendants are correct that Metcalf lacks standing to bring a claim, then any inquiry into the merits of an assignee's rights under ERISA is foreclosed.

In Lexmark, the Supreme Court clarified its jurisprudence on the requirement of statutory " standing" --by eliminating it. Although the court below had analyzed the issue and the parties had presented the question in terms of the plaintiff's " standing to sue under the Lanham Act," 134 S.Ct. at 1385, the Supreme Court recast the issue as a question on the merits:

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whether the plaintiff had a statutory cause of action. See id. at 1387 (" In sum, the question this case presents is . . . whether Static Control has a cause of action under the statute." ) The Court expressly abjured both the " standing" label and the jurisdictional nature of the inquiry. Id. n.4.[6]

After Lexmark, the jurisdictional standing analysis under these circumstances is simply the familiar constitutional standing inquiry: whether Metcalf has " suffered or [is] imminently threatened with a concrete and particularized 'injury in fact' that is fairly traceable to the challenged action of the defendant and likely to be redressed by a favorable judicial decision." See id. at 1386 (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)). That requirement is surely satisfied here. The remaining inquiry is simply " whether a legislatively conferred cause of action encompasses [Metcalf's] claim." [7] See id. at 1387.

2. Cause of Action

Whether Congress has provided Metcalf with a cause of action boils down to the original question--whether the term " beneficiary" in § § 1132(a)(1)(B) & (a)(3) encompasses assignees--albeit now as a question on the merits, to be answered using " traditional tools of statutory interpretation." See Lexmark, 134 S.Ct. at 1387. The plain text of the statute defines a " beneficiary" as " a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder." 29 U.S.C. § 1002(8). To Judge Stewart, this definition was " sufficiently broad to include a person such as Metcalf who has been designated by participants . . . to receive benefits and pursue claims." F& R at 9. As a matter of plain text, this Court agrees.

Defendants, however, object that such an interpretation is precluded by Misic v. Bldg. Serv. Emps. Health & Welfare Trust, 789 F.2d 1374 (9th Cir. 1986). Plaintiffs respond that Judge Stewart's interpretation is required by Misic. But Misic neither precludes nor requires such an interpretation. Misic analyzed the issue under the rubric of standing; the court did not reach the statutory interpretation of " beneficiaries" because the doctor-assignee had, in his complaint, alleged that he was " stand[ing] in the shoes of the [b]eneficiaries." Id. at 1378 (quoting the complaint) (second alteration in original). That is, he had alleged that his standing was derivative. Misic held only that that allegation adequately established standing. The court expressed no opinion on whether Dr. Misic could have alleged standing in his own right, nor on whether an assignee could be a " beneficiary" under ERISA.[8]

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In most cases, Misic has provided sufficient authority for assignees to bring suit. Accordingly, the Ninth Circuit has not had occasion to address squarely whether the statutory definition of " beneficiary" encompasses assignees. By making payments directly to individual participants, Defendants have sidestepped the reasoning of Misic, which raises the question anew. But the Sixth Circuit, addressing this specific question, concluded that " [a] health care provider may assert an ERISA claim as a 'beneficiary' of an employee benefit plan if it has received a valid assignment of benefits." Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1277 (6th Cir. 1991). This authority is persuasive and comports with the plain text of the statutory definition.

In addition to analyzing the plain text and precedent, Lexmark directs that " a statutory cause of action extends only to plaintiffs whose interests 'fall within the zone of interests protected by the law invoked.'" 134 S.Ct. at 1388 (quoting Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984)). The breadth of the zone-of-interests test " varies according to the provisions of law at issue." Id. at 1389 (quoting Bennett v. Spear, 520 U.S. 154, 164, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997)). To determine which interests Congress intended to protect, Lexmark looked to the Lanham Act's statement of policy.

ERISA's statement of policy provides that the purpose of the law is " to protect . . . the interests of participants in employee benefit plans and their beneficiaries." 29 U.S.C. § 1001(b). In addition, Congress intended that assignability be a freely bargainable term in a healthcare plan. Davidowitz v. Delta Dental Plan of Cal., 946 F.2d 1476, 1480-81 (1991). Taken together, these two propositions support the conclusion that where participants in a plan have bargained for the right to assign benefits, permitting an assignee to sue under ERISA protects not only the assignee, but the participant as well. Therefore, the interests of the assignee of a participant are well within the zone of interests protected by ERISA.[9]

In sum, the plain text of the statute encompasses assignees, who have been " designated by a participant" to become " entitled to a benefit" under a healthcare plan. See 29 U.S.C. § 1002(8). This interpretation is supported by persuasive authority. See Cromwell, 944 F.2d at 1277. And the interests of an assignee fall within the zone of interests protected by ERISA. Therefore, the assignee of a participant has a cause of action as a " beneficiary" under § § 1132(a)(1)(B) & (a)(3).

C. ERISA Assignments as a Matter of Federal Common Law

Given its silence regarding whether healthcare benefits can be assigned, it is unsurprising that ERISA is also silent ...

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