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On July 29, the 3rd U.S. Circuit Court of Appeals affirmed an earlier holding that narrowed removal jurisdiction establishing that status as an ERISA qualified plan does not guarantee removal of claims to federal court. Community Medical Center v. Local 464A UFCW Welfare Reimbursement Plan, Case No. 04-1613, affirming Pascack Valley Hospital, Inc. v. Local 464A UFCW Welfare Reimbursement Plan, 388 F.3d 393 (2004). Community Hospital also provided further clarification about the nature of removal and assignment of rights under ERISA. The facts are as follows: In 1995, the Plan entered into a contract with a provider of a preferred provider network to access the network. The hospital also had a contract with the PPO network making it a preferred provider. There was no direct contract between the hospital and the Plan. The principle benefit to being in the network was a prompt-pay discount for claims paid within a set period of time. After an audit was conducted in 2003, the hospital determined that the Plan had taken discounts on claims in 1999 that it should not have taken because payment was made beyond the prompt-pay period. Suit for breach of contract was instituted in state court. The Plan removed the case to federal court, citing federal question jurisdiction and ERISA pre-emption and subsequently moved for summary judgment on the issue of pre-emption. The hospital sought remand. The District Court denied remand and granted summary judgment in favor of the Plan on the issue of complete pre-emption of the breach of contract claim and awarded attorney fees in favor of the Plan. The hospital appealed from the denial of the remand and the award of fees. In a decision authored by Judge McKee, the court first affirmed its conclusion in Pascack Valley that �502(a) of ERISA governed the removability of the case. Since a hospital is not an entity designated as a “beneficiary” under ERISA, a hospital would not have standing to sue under �502(a). As a result, the claims are not under ERISA and are not pre-empted by ERISA so as to support removal jurisdiction. The court then considered the issue of “assignment” and standing that would support removal had the claim of the hospital been brought as a claim for benefits. The court openly questioned the existence of the alleged assignment and also the “terms and parameters” of the assignment. The court determined that, if removal were to be considered at all, it could only be predicated on the existence of an assignment. Since the Plan was seeking the removal, it bore the burden of establishing that an assignment existed and also that what was assigned was the right to pursue a claim as a beneficiary. Lack of proof on these issues was fatal to the removal jurisdiction. The case was then remanded to the District Court with instructions to remand the case to state court. The award of attorney fees was reversed as well. With Pascack Valley, the Court generally applied the doctrine of “complete pre-emption” as articulated in Aetna Health Inc. v. Davila, 542 U.S. 200 (2004). The two-prong Davila test determines that removal is appropriate if: (1) the hospital could have brought its breach of contract claim under �502(a) and (2) no other legal duty supported the claim. Under the first step of this analysis, the Court determined that it was not clear from the record that the claim could have been brought under �502(a) since it was not clear that the hospital had standing. A hospital does not have standing to seek relief under ERISA’s civil enforcement provision in its own right, but may obtain that right if it receives an assignment from a participant or beneficiary. When turning to the second prong of the Davila test, the court clearly made its most significant ruling in finding that the claims of the hospital were not “completely pre-empted” because they were predicated on a legal duty independent of ERISA. The resolution of this lawsuit required interpretation of the documents comprising the preferred provider agreements, not the plan itself. The court determined that the hospital’s right of recovery depends on the operation of these third-party contracts executed by the plan. These contracts are independent of the plan itself. In Community Medical Center, the court focused more on the practical application of the first prong of the Davila test by searching for the existence and meaning of the “assignment” to see if the hospital could bring the claim. Since there was no clear proof that the right to pursue a claim for benefits was assigned, the first prong of the test failed and removal was rejected. Clearly, this leaves open the issue of what is being assigned. There is a question of whether the right to obtain benefits can be assigned to a hospital or is the “assignment” merely a mechanism for directing payment from the plan to the provider. The language of the “assignment” itself will clearly dictate the status of the hospital as beneficiary or merely as payee. Because the court does not get past the first prong of the Davila test, there is no discussion of the issue of whether there is a separate legal basis on which to bring the claim as there was in Pascack Valley. However, it appears certain that the mere fact that an ERISA welfare benefit plan is named as a defendant in a collection litigation will not support removal of the case to federal court. The 3rd Circuit has now affirmed its position that unless the claim is a “claim for benefits” under ERISA, the case must remain in state court. Keith McMurdy is a principal at Grotta, Glassman & Hoffman of Roseland, N.J. He represented the hospital in Community Medical Center v. Local 464A UFCW Welfare Reimbursement Plan , discussed in the article.

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