United States District Court, E.D. Pennsylvania
January 23, 2004.
ARLENE NOTT, on behalf of herself and all others similarly situated,
AETNA U.S. HEALTHCARE, INC.
The opinion of the court was delivered by: TIMOTHY SAVAGE, District Judge
MEMORANDUM AND ORDER
In this putative class action removed from the state court, the
plaintiff challenges defendant Aetna U.S. Healthcare, Inc.'s ("Aetna")
right to enforce its contractual subrogation claim against plaintiffs
tort recovery, contending that it violates the Pennsylvania Motor Vehicle
Financial Responsibility Law's ("MVFRL") bar against subrogation. Aetna
argues that the action is completely preempted because it arises under
the Medicare Act, which permits private Medicare-substitute HMO insurance
carriers to recoup medical expenses paid on behalf of an insured who
later recovers those expenses from another source. In requesting remand,
the plaintiff asserts that her complaint raises only state based claims
and does not present any federal cause of action giving rise to federal
question removal jurisdiction. In short, contrary to the defendant's
position, the plaintiff maintains that her state court action is not
completely preempted by federal law and, hence, was improperly removed.
At the heart of the case is the collision of two statutes, one federal
and the other state. The Medicare Act allows a health insurer providing
replacement coverage for
Medicare-eligible persons to include in its insurance contract a right of
subrogation against an insured's recovery from a third party for money
previously paid for the insured's medical care.
42 U.S.C. § 1395w-22(a)(4), 1395mm(e)(4). In direct conflict with the
federal statute, the Pennsylvania Motor Vehicle Financial Responsibility
Law prohibits subrogation from an insured's recovery from a tortfeasor in
a motor vehicle accident case. 75 PA. CONS. STAT. § 1720.
Our task is not to decide which statute will ultimately prevail.
Rather, we must determine whether the federal or the state court has
jurisdiction to resolve the conflict between the two statutes. Stated
differently, we must decide whether the federal statute, the Medicare
Act, completely preempts the state statute, the MVFRL, depriving the
state court of jurisdiction. Thus, our inquiry is focused on jurisdiction
and not on the merits of the plaintiff's claim.
We conclude that the Medicare Act does not completely preempt the
plaintiff's state causes of action. Therefore, we shall remand this case
to the state court for resolution of the statutory conflict, a task it is
competent to perform.
Under its "Golden Medicare Plan," Aetna paid a portion of Arlene Nott's
("Nott") medical costs for treatment of injuries she had sustained in a
motor vehicle accident. After Nott settled her personal injury claim
against the tortfeasor, Aetna asserted a subrogation lien against her
tort recovery, seeking reimbursement of the medical expenses it had
previously paid. Aetna's insurance contract gave it "the right to
repayment of the full costs of all benefits provided by HMO on behalf of
the Member that are associated with the injury or illness for which the
third party is or may be responsible," which includes "payments
made by a third-party tortfeasor or any insurance company on behalf
of the third-party tortfeasor." Notice of Removal, Exh. A (Compl. Exh. A
("Evidence of Coverage"), at 53). Aetna later released the lien in
consideration of Nott's $1,000 payment.
Nott then filed this action in the Pennsylvania Court of Common Pleas
for Bucks County.*fn1 Alleging various state law causes of action
against Aetna, Nott seeks the recovery of money paid to Aetna to satisfy
its subrogation lien, a permanent injunction enjoining Aetna from placing
subrogation liens on its insureds' third party motor vehicle accident
recoveries, and a declaratory judgment declaring all pending subrogation
liens void and unenforceable. Aetna removed this action under
28 U.S.C. § 1441, and then filed a motion to dismiss based on
preemption grounds. Nott seeks remand.
II. The Statutes in Conflict
The competing statutes are in direct conflict. The federal law permits
Aetna to recoup medical expenses from an insured's third party recovery.
The state law prohibits such recoupment in motor vehicle accident cases.
Both sections of the Medicare Act cited by Aetna,
42 U.S.C. § 1395w-22(a)(4) and 1395 mm(e)(4),*fn2 authorize, but do
a Medicare HMO insurer to include in its contract a provision for
reimbursement of money paid on behalf of its insured from the insured's
recovery under another insurance policy or plan, including an automobile
or liability insurance plan. Under the Pennsylvania MVFRL, 75 PA. CONS.
STAT. § 1720, insurance companies may not subrogate against
recoveries in claims arising out of motor vehicle accidents.*fn3
III. Removal and Preemption
The removal inquiry begins with the well-pleaded complaint rule.
Metro. Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987); Dukes v. U.S.
Healthcare, Inc., 57 F.3d 350, 353-54 (3d Cir. 1995). A federal court
does not have subject matter jurisdiction over a case removed from state
court unless an issue of federal law appears on the face of the
plaintiff's properly pleaded state court complaint. Metro. Life Ins. Co.,
481 U.S. at 63; In re U.S.Healthcare, Inc., 193 F.3d 151, 160 (3d Cir.
A narrow exception to the well-pleaded complaint rule is the doctrine
preemption, which transforms state law causes of action into exclusively
federal claims because Congress intended that the statute completely
supplant all state law causes of action. Caterpillar, Inc. v. Williams,
482 U.S. 386, 393 (1987); Metro. Life Ins. Co., 481 U.S. at 63-66; In re
U.S. Healthcare, Inc., 193 F.3d at 160. Accordingly, regardless of a
plaintiffs asserting only causes of action under state law in her
complaint, any claim based on the preempted state law is considered a
federal claim arising under federal law. Caterpillar, Inc., 482 U.S. at
The complete preemption doctrine is stringently applied. Ry. Labor
Executives Ass'n v. Pittsburgh & Lake Erie R.R. Co., 858 F.2d 936,
942 (3d Cir. 1988). Even if federal preemption is the only real issue in
the case, there is no jurisdiction unless the preemption is complete.
Caterpillar, Inc., 482 U.S. at 393; Franchise Tax Bd. v. Constr. Laborers
Vacation Trust, 463 U.S. 1, 12-14 (1983); Gully v. First Nat'l Bank,
299 U.S. 109, 113, 116 (1936). The fact that a state law cause of action
requires reference to federal law is insufficient to establish complete
preemption. Smith v. Indus. Valley Title Ins. Co., 957 F.2d 90, 93 (3d
Cir. 1992). "[A] defendant cannot, merely by injecting a federal question
into an action that asserts what is plainly a state-law claim, transform
the action into one arising under federal law, thereby selecting the
forum in which the claim shall be litigated." Caterpillar, Inc., 482
U.S. at 399; see also Dukes, 57 F.3d at 353-54; Goepelv. Nat'l Postal
Mail Handlers Union, 36 F.3d 306, 310 n.6 (3d Cir. 1994). Hence, absent
complete preemption, the fact that a defendant may eventually prove that
the plaintiff's claims are preempted under federal law does not mean that
they are removable. Caterpillar, Inc., 482 U.S. at 391; Gully, 299 U.S.
at 116-17; Ry. Labor Executives Ass'n, 858 F.2d at 940 (citing Franchise
Tax Bd., 463 U.S. at 26).
Conflict preemption is not synonymous with complete preemption.*fn5
Ry. Labor Executives Ass'n, 858 F.2d at 939-41. Conflict preemption,
unlike complete preemption, does not confer federal jurisdiction.
Conflict preemption occurs when a federal affirmative defense to a state
law claim is asserted. It is not a basis for removal. "Conflict
preemption, also known as ordinary preemption, arises when a federal law
conflicts with state law, thus providing a federal defense to a state law
claim, but does not completely preempt the field of state law so as to
transform a state law claim into a federal claim." Arana v. Ochsner
Health Plan, 338 F.3d 433, 439 (5th Cir. 2003); see also Krashna v.
Oliver Realty, Inc., 895 F.2d 111, 114 n.3 (3d Cir. 1990).
Whether plaintiff's state law causes of action are preempted by
operation of federal law under an ordinary conflict preemption analysis
can be addressed by the state court. "State courts are competent to
determine whether state law has been preempted by federal law and they
must be permitted to perform that function in cases brought before them,
absent a Congressional intent to the contrary." Ry. Labor Executives
Ass'n, 858 F.2d at 942.
Before the extraordinary force of complete preemption can apply, two
must exist: (1) the state law cause of action must be covered by the
civil enforcement scheme created by the federal statute; and (2) Congress
must have clearly intended that the federal statute would preempt all
state law causes of action, thus permitting removal even when the
plaintiff's complaint relies exclusively on state law. Goepel, 36 F.3d at
311; Allstate Ins. Co. v. 65 Sec. Plan, 879 F.2d 90, 93 (3d Cir. 1989).
If either element is absent, complete preemption does not apply and
federal removal jurisdiction is lacking.
IV. The Medicare Act and Complete Preemption
If Nott's state law claims are completely preempted by operation of the
Medicare Act, they are deemed federal and automatically recast as federal
causes of action. Metro. Life Ins. Co., 481 U.S. at 63-64; In re U.S.
Healthcare, Inc., 193 F.3d at 160. Therefore, keeping in mind that
ordinary conflict preemption alone cannot support federal question
removal, we shall examine the pertinent provisions of the Medicare Act to
determine whether they completely preempt the state court action.*fn6
A. Absence of Civil Enforcement Scheme
An analysis of the language of the two statutory provisions cited by
the defendant, sections 1395w-22(a)(4) and 1395mm(e)(4), reveals that
Congress did not create a federal scheme under the Medicare Act for the
civil enforcement of a Medicare-substitute HMO's
subrogation rights arising out of its own contract. Rather, the Act
merely permits HMOs to include a right of subrogation in their own
contracts with Medicare beneficiaries.
A comparison between the language of sections 1395w-22(a)(4) and
1395mm(e)(4) with the language of section 1395y(b)(2)(B)(ii), which is
not implicated in this case,*fn7 also demonstrates the absence of a
civil enforcement scheme in the sections Aetna claims completely preempt
plaintiffs state law claims. Section 1395y(b)(2)(B)(ii) states that: "In
order to recover payment under this subchapter for such an item or
service, the United States may bring an action against any entity which
is required or responsible (directly, as a third-party administrator, or
otherwise) to make payment with respect to such item or service (or any
portion thereof) under a primary plan . . . or against any other entity
(including any physician or provider) that has received payment from that
entity with respect to the item or service. . . ." Thus, section
1395y(b)(2)(B)(ii) explicitly provides that the United States may
institute a civil action to recoup Medicare payments it made.
There is no similar provision creating a cause of action that HMOs can
use to pursue their private contract rights. In the removal context, the
absence of an express remedial provision, like the one created by
1395y(b)(2)(B)(ii), defeats any complete preemption argument.
Consequently, we conclude that while granting statutory permission to
include recovery provisions in their contracts, Congress did not create a
mechanism for the private enforcement of subrogation rights of Medicare
Recently, in a case factually similar to the one before us, the Sixth
Circuit held that section 1395mm(e)(4) does not provide a private right
of action. Care Choices HMO v.
Engstrom, 330 F.3d 786, 791 (6th Cir. 2003). Plaintiff Care Choices HMO,
a Medicare secondary payer, claimed that because its agreement with its
insured included a subrogation provision, its contract action seeking
subrogation presented a federal question, establishing federal
jurisdiction. The issue in Care Choices HMO was federal question
jurisdiction under 28 U.S.C. § 1331 and not removal jurisdiction
under 28 U.S.C. § 1441. Nevertheless, although the complete
preemption doctrine was not implicated, the Sixth Circuit's analysis of
whether a right of action exists under section 1395mm(e)(4), one of the
statutes relied upon by Aetna, is relevant in analyzing whether Congress
intended to create a federal remedial scheme for private health
The Sixth Circuit found that section 1395mm(e)(4) created no explicit
right of action because it contains no civil enforcement measure. Care
Choices HMO, 330 F.3d at 789. Analyzing the purpose of section
1395mm(e)(4), it also determined that there is no implied right of
action. Id. at 789-90. The Court held that Congress only intended section
1395mm(e)(4) to permit a right of reimbursement within private insurance
agreements with Medicare beneficiaries, and did not create any federally
enforceable cause of action. Id. at 791. Thus, it found that federal
question jurisdiction was lacking. Id.
Both provisions in the Medicare Act relied upon by Aetna, sections
1395w-22(a)(4) and 1395mm(e)(4), are almost identical. There is no
federal cause of action created by either subsection, let alone one whose
pervasive federal character displaces all state causes of action.
Aetna concedes that Nott's claims arise under a private contract
between an insurer and its insured. Brief in Opposition, at 10 n.10
(stating that this case involves "a contractual right of
reimbursement"). The fact that a state law contract action requires
reference to Medicare benefits does not transform the lawsuit into
one "arising under" the Medicare Act. See Smith, 957 F.2d at 93.
We conclude that the Medicare Act permits, but does not mandate, HMO
insurers to contract for subrogation rights. The pertinent provisions
state that an eligible organization or a Medicareਚ≱ organization
"may . . .; charge or authorize the provider of such services to charge"
insurance carriers, employers, or individuals who have received payment
for the medical services rendered. 42 U.S.C. § 1395w-22(a)(4),
1395mm(e)(4) (emphasis added). This permissive language cannot be
construed, explicitly or implicitly, as creating a mechanism for
enforcing the contractual right to reimbursement if the insurer does
include a subrogation provision. Once bargained for, the contractual
right of reimbursement is not transformed into a federal right
enforceable under the Medicare Act merely because the contract relates to
an insurer's Medicare plan.
The right to subrogation remains a contract dispute between a private
insurer and its insured.
B. Lack of Congressional Intent
There must also be an "affirmative indication of requisite
Congressional intent to permit removal" of state law causes of action
before complete preemption can apply. Ry. Labor Executives Ass'n, 858
F.2d at 942-43. The Supreme Court has stated that "the touchstone of the
federal district court's removal jurisdiction is . . .; the intent of
Congress." Metro. Life Ins. Co., 481 U.S. at 66. A search of the
legislative history fails to reveal any evidence of an express
congressional intent that sections 1395w-22(a)(4) and 1395mm(e)(4)
completely preempt any state law cause of action. Nor has Aetna directed
our attention to any such statement of Congressional intent. See
Allstate, 879 F.2d at 94.
Because there is no explicit private cause of action created in the
Medicare Act in favor of HMOs, the Sixth Circuit, in Care Choices HMO,
analyzed whether there was an implicit one that would permit the court to
exercise its original subject matter jurisdiction. It found none. Care
Choices HMO, 330 F.3d at 788-91. The fact that the legislation must be
evaluated to determine whether an implied right exists militates against
a finding that Congress clearly intended the Medicare Act to completely
preempt state law contract actions dealing with an HMO's subrogation
Aetna's argument notwithstanding, there is no comparison between the
Medicare and ERISA statutes.*fn8 There is no language in the Medicare
Act similar to that of section 502(a) of ERISA, where Congress explicitly
created a civil enforcement scheme.*fn9 Nor is there any language in the
legislative history of the Medicare Act indicating any Congressional
intent that the Medicare Act completely preempt a plaintiff's state law
cause of action.*fn10 Thus, the element of clear Congressional intent
necessary for application of
complete preemption is missing.
Although the Medicare Act permits HMOs to contract with their insureds
for subrogation, it does not provide a mechanism for them to enforce
their private contractual rights. Therefore, this action is not
completely preempted and the well-pleaded complaint rule warrants that it
be remanded to the state court pursuant to 28 U.S.C. § 1447(c) for
lack of subject matter jurisdiction.*fn11
AND NOW, this 23rd day of January, 2004, upon consideration of
Plaintiffs Motion for Remand, Attorney's Fees and Costs (Docket No. 5),
Aetna's Brief in Opposition to
Plaintiff's Motion for Remand (Docket No. 7), Plaintiff's Reply
Memorandum in Support of
Plaintiff's Motion for Remand (Docket No. 8), and Plaintiff's Motion
for Leave to File Correction to Plaintiff's Memorandum of Law in Support
of Motion for Remand (Docket No. 10), it is ORDERED that plaintiff's
motion is GRANTED IN PART and DENIED IN PART.
IT IS FURTHER ORDERED that:
1. This action is REMANDED to the Court of Common Pleas of Bucks County
pursuant to 28 U.S.C. § 1447(c).
2. The plaintiff's request for attorney fees and costs is DENIED.