ERISA Preempts State Law

Brainbuilders LLC appealed an order dismissing plaintiff’s complaint against defendants IBEW Local Union 456 Welfare Fund (the Plan), Trustees of the IBEW Local Union 456 Welfare Fund (Trustees or Plan Sponsor), I E Shaffer & Co., and Penn Medicine Princeton Health Princeton Employee Assistance Program (Penn Medicine).

In Brainbuilders, LLC, v. IBEW Local Union 456 Welfare Fund, Trustees Of The IBEW Local Union 456 Welfare Fund, I. E. Shaffer & Co., and Princeton Healthcare System, a New Jersey nonprofit corporation, d/b/a Penn Medicine Princeton Health Princeton Employee Assistance Program, No. A-3484-20, Superior Court of New Jersey, Appellate Division (May 24, 2022) the appellate court applied ERISA preemption to resolve the dispute.

FACTS

Judge Craig L. Wellerson dismissed the complaint after he concluded that the parties’ dispute over payment for medical services that plaintiff, an out-of-network provider, provided to a patient was preempted by federal law because its resolution required consideration of the subject Plan’s terms, which had to be resolved in accordance with the Employment Retirement Income Security Act of 1974 (ERISA).

On appeal, plaintiff contends the judge erred because its claim arose from a “single case agreement [(SCA)]” and reference to the Plan’s terms was not required in order to resolve plaintiff’s breach of contract based claims under state law.

The Plan is a health benefits plan sponsored by the Trustees and governed by ERISA. I E Shaffer is the third-party administrator of the Plan. It arranged with Penn Medicine to manage the mental health benefits provided under the Plan. The Plan provides benefits to participants and their qualified dependents for services rendered by in-network and out-of-network providers as detailed in the Plan’s terms.

Plaintiff is an out-of-network provider. It provides services to children with autism spectrum disorders, including applied behavioral analysis (ABA) services.

The parties’ dispute in this matter centered on whether an authorization for payment of benefits to plaintiff contained a clerical error in the approved period of time that the services were to be performed. A participant (the Participant) in the Plan sought services from plaintiff for his son (the Patient), who was also covered by the Plan.

On April 30, 2020, Penn Medicine emailed to Gitty Herzl, plaintiff’s Authorizations Manager, that plaintiff’s request was reviewed and was authorized. After evaluating the Patient, on May 13, 2020, pursuant to the authorization, plaintiff completed another request for authorization, this time requesting authorization for services outlined in its accompanying initial treatment plan which listed goals for the Patient, most of which had target dates between May 2020 and November 2020.

On May 27, 2020, Penn Medicine emailed Herzl approval and plaintiff provided services to the Patient and was reimbursed by the Plan. In September 2020, plaintiff’s Director of Finances, Simon Nussbaum, requested Penn Medicine to pay increased rates retroactively for plaintiff’s treatment of the Patient. Penn Medicine coordinated with I E Shaffer to authorize payments at increased rates retroactively from April 30, 2020, through November 10, 2020, when the Trustees would next meet and could review the increased rate request and make a final determination.

On September 29, 2020, Penn Medicine issued a “revised authorization”. That authorization, which plaintiff referred to as the initial SCA, included the following disclaimer:

Insurance coverage has been verified with I E Shaffer and the patient is currently eligible for benefits. Please be aware that all payments are based on the patient’s insurance eligibility and the [P]lan’s provisions at the time the service is rendered and final claim submission is received at I E Shaffer. [(Emphasis added).]

On November 10, 2020, the Trustees met and denied plaintiff’s rate increase request.

On January 5, 2021, Plaintiff sued and claimed defendants “anticipatorily repudiated and breached their contract with” plaintiff.

After considering arguments, the judge issued an oral decision granting defendants’ motion to dismiss on the grounds that plaintiff’s claims were preempted by ERISA. In granting the motion, the judge explained that because the parties disagreed as to whether the authorization that stated it lapsed in 2021 contained an alleged clerical error, in order to resolve it, reliance on the Plan’s governing provision was required.

ANALYSIS

The dispute is whether or not that was a clerical error. The court was satisfied that all of the language of the Plan is critical to the determination of whether or not the plaintiff has a right to be reimbursed, and the court is well satisfied that the claims of reimbursement are so tied to the language of the Plan that it is inescapable for the court to conclude other than that the dispute relates to the Plan itself. Accordingly, the court granted defendant’s motion to dismiss the plaintiff’s complaint.

ERISA preemption can have profound consequences because the remedies under ERISA are far more limited than under state common law causes of action. ERISA preemption is an affirmative defense. Any state law claims that “relate to” an ERISA plan are preempted.

On appeal, plaintiff argues its claims are not preempted by ERISA because its agreement with defendants is independent from the Plan since it is an out-of-network provider and the parties’ obligations to one another are limited to payment for services as agreed to in what it identifies as the parties’ SCA.

The appellate court agreed with Judge Wellerson’s determination that the dispute over whether a clerical error occurred bears much more than a remote relationship to the Plan.

Any agreement by Penn Medicine to pay plaintiff was reached entirely in writing after plaintiff submitted several requests for authorization that referenced and were required by the Plan. The SCA also referenced the Plan, and plaintiff’s complaint did so as well.

Therefore, resolution of the parties’ dispute would not be limited to merely looking up payment rates of corresponding procedure codes in the ERISA Plan. Rather, it would at the very least require a court to refer to, interpret, and apply the clerical error provision of the Plan-clearly not a cursory task such as verifying payment rates in a chart.

ERISA is a federal program. Disputes over plan benefits are subject to federal law. State law with regard to ERISA is preempted by Federal law and the disputes over an ERISA plan belongs in federal court and the rights the plaintiff might have are limited and that is why the plaintiff tried state court. Plaintiff’s attempt failed because of preemption.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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