U.S. DISTRICT COURT

INSURANCE – Health Insurance – Eating Disorders – Jurisdiction

Beye v. Horizon Blue Cross Blue Shield et al., etc., Civil Nos. 06-5337, 06-6219; U.S. District Court (DNJ); opinion by Hochberg, U.S.D.J.; decided August 1, 2008. DDS No. 23-7-1474 [36 pp.]

Defendants’ motion to dismiss non-ERISA plaintiffs’ claim under the New Jersey Mental Health Parity Law is denied without prejudice subject to a determination that the court has jurisdiction pursuant to the Class Action Fairness Act.

These cases are class actions brought on behalf of class members who are covered by the Employee Retirement Income Security Act and non-ERISA health insurance policies issued by defendant Horizon. All four named plaintiffs have been denied coverage under their plans by Horizon for their daughters who suffer from eating disorders. The Magellan defendants are administrators of the mental health benefits provided by the Horizon plans pursuant to the Magellan defendants’ managed care service agreement (MCS agreement) with Horizon.

As in DeVito v. Aetna, the gravamen of plaintiffs’ claims is that Horizon improperly denied coverage for treatment sought for their daughters’ eating disorders by improperly classifying eating disorders as “non-Biologically Based Mental Illnesses.” Plaintiffs’ claims are based on the language of their respective insurance policies, three of which contain language substantially similar to that contained in the New Jersey Mental Health Parity Law.

Plaintiffs Beye and Drazin received coverage for their daughters’ eating disorder treatments as non-BBMIs. Both plaintiffs exhausted the limited benefits and allege that Horizon’s treatment of eating disorders as non-BBMIs improperly limited the amount of coverage to which they are entitled. Plaintiffs Byram and Sedlak’s daughters were denied coverage as “not medically necessary,” and their daughters therefore did not receive even the limited coverage available for treating non-BBMIs.

The court has jurisdiction over plaintiffs Drazin and Byram’s claims pursuant to ERISA. Plaintiffs assert jurisdiction in this court over non-ERISA plaintiffs Sedlak and Beye pursuant to the Class Action Fairness Act.

Held: The state law claims brought by the ERISA plaintiffs are pre-empted by ERISA. The state law claims brought by the non-ERISA plaintiffs may go forward, subject to a determination that the court has jurisdiction; however, it is unclear whether there is an implied right of action under the New Jersey Mental Health Parity Law.

The court first determined that abstention under Burford, as to either the ERISA or non-ERISA plaintiffs, does not apply.

Both Horizon and Magellan move to dismiss all claims brought by non-ERISA plaintiff Sedlak and ERISA plaintiff Byram, both of whom were denied benefits as “not medically necessary.” Byram and Sedlak have alleged that defendants’ “medical necessity” determination is pretextual and intertwined with defendants’ allegedly improper treatment of eating disorders as non-BBMI.

Horizon and Magellan move to dismiss the state and common-law claims of the two ERISA plaintiffs, Byram and Drazin. ERISA plaintiff Drazin concedes that his Parity Law claim and his New Jersey Consumer Fraud Act claim are pre-empted by ERISA. Plaintiff Byram argues that because her contract contains language that provides rights substantially similar to those provided by the Parity Law, she may also pursue her claim under the Parity Law.

In DeVito, the court was explicit that all Parity Law claims are pre-empted as to ERISA plaintiffs who have contractual rights coterminous with those arguably provided by the Parity Law. To the extent that the Parity Law may provide an implied right of action, those Parity Law claims are dismissed as pre-empted with respect to ERISA plaintiffs Byram and Drazin.

Byram’s misrepresentation claims are entirely dependent on her rights to benefits under the terms of her ERISA plan and unquestionably “relate to” her claim for benefits under ERISA.

Because the issue has not been fully briefed, the court does not reach the question of whether the Parity Law provides an implied cause of action for the non-ERISA plaintiffs. The court reserved judgment on this question in DeVito after concluding that, if there were an implied cause of action under the Parity Law, it would be pre-empted by ERISA § 514(a). Here, the question is not yet squarely presented because, at this stage of the case, the court is not yet certain of its jurisdiction over the non-ERISA plaintiffs.

Plaintiffs assert that this court has jurisdiction over the non-ERISA plaintiffs pursuant to CAFA, 28 U.S.C. § 1332(d). Plaintiffs have demonstrated minimal diversity and alleged that the class consists of at least 100 members and the amount in controversy exceeds $5 million. Defendants take issue with plaintiffs’ jurisdictional allegations, but, at this stage, do not offer evidence to refute plaintiffs’ assertions.

CAFA also provides a “home-state controversy” exception, and a “local controversy” exception, under which the court shall decline to exercise jurisdiction if, among other things, greater than two-thirds of the plaintiff classes are citizens of the state in which the action was filed. Magellan asserts that more than two-thirds of the plaintiff class is from New Jersey and Horizon is the primary defendant, and therefore CAFA’s “home state controversy exception” applies. Horizon made a similar argument that only 29.7 percent of Horizon’s insureds are citizens of a state other than New Jersey, and that there is “no reason why the citizenship of the putative class would be any different from the citizenship of Horizon’s insureds generally.”

During the pendency of this motion, the parties completed discovery. The court will provide defendants with 30 days to move for dismissal for lack of subject-matter jurisdiction over the non-ERISA plaintiffs. Alternatively, if there is no dispute between the parties as to this court’s jurisdiction over the non-ERISA plaintiffs, the parties shall file a joint statement setting forth the factual basis for the court’s jurisdiction (or lack thereof), along with accompanying proof. In the interim, the court will deny defendants’ motion to dismiss the non-ERISA plaintiffs’ Parity Law claim without prejudice to re-raising it in a subsequent motion for summary judgment if the court concludes that it has jurisdiction.

- By Debra McLoughlin