Beaver v. Magellan Health Services Inc., A-1311-12T3; Appellate Division; opinion by Kennedy, J.A.D.; decided and approved for publication December 11, 2013. Before Judges Parrillo, Kennedy and Guadagno. On appeal from the Law Division, Middlesex County, L-3465-12. [Sat below: Judge Happas.] DDS No. 07-2-2221 [23 pp.]

Plaintiff Irvin Beaver, a former public employee, received health insurance coverage for himself and his family through the NJ Plus and, later, the NJ Direct health benefits programs, which were administered by Horizon Blue Cross/Blue Shield of New Jersey on behalf of the State Health Benefits Program. That program, and its governing body, the State Health Benefits Commission (SHBC), were pursuant to the New Jersey Health Benefits Program Act, N.J.S.A. 52:14-17.24 to -45.

Horizon hired Magellan Health Services Inc. and Magellan Behavioral Inc. to manage mental health and substance abuse benefits for eligible NJ Plus members. Although the state contracts with health insurers to administer various benefit plans, the SHBC alone has the authority and responsibility to make payments on claims, to limit or exclude benefits, and to make final adjudications regarding disputes between plan members and administrators.

In February 2008, plaintiff’s son, a minor, was admitted to the Caron Foundation, a residential treatment facility for substance abuse. Initially, Caron prescribed 31 days of inpatient care but later revised its recommendation to include an additional 90 days of inpatient treatment.

Plaintiff submitted a claim for coverage. Magellan advised that it would not authorize residential treatment as of Feb. 25, because plaintiff’s son “no longer shows evidence” that he needs residential treatment. After plaintiff challenged the denial, Magellan undertook a “Level 1 appeal review” and affirmed the denial, citing a telephone conversation between its physician adviser and one of the son’s doctors at Caron who allegedly agreed that outpatient care was appropriate.

After learning that Magellan’s adviser had, in fact, not spoken to the identified Caron physician but to another of the son’s doctors, who alleged he never stated that only outpatient treatment was required, plaintiff sought further review. Horizon’s Member Appeals Subcommittee then overturned the denial of coverage for Feb. 26 to March 4, but denied coverage thereafter.

Plaintiff next appealed to the SHBC, which upheld the denial of benefits after March 4. 2008.

Plaintiff pursued a further appeal and the matter was transferred to the Office of Administrative Law. After an evidentiary hearing, the administrative law judge recommended denial of the appeal. The SHBC adopted the ALJ’s findings and conclusions.

Plaintiff filed a notice of appeal from the SHBC’s final decision. but later voluntarily withdrew his appeal.

Plaintiff then filed a complaint in the Law Division against Horizon and Magellan, seeking “relief for defendants’ denial of substance abuse treatment as a violation of plaintiff’s health plan.” He asserted causes of action for breach of contract, breach of fiduciary duty, violation of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -184, and unjust enrichment.

Defendants moved to dismiss. The motion judge held that plaintiff should have filed the action in the Appellate Division and that a transfer to the Appellate Division was time-barred, and dismissed the complaint.

On appeal, plaintiff argues that his complaint does not challenge the SHBC’s final administrative action, but rather is a separate action alleging statutory and common-law causes of action against Magellan and Horizon.

Held: Plaintiff’s claims in the Law Division are predicated on the contention that defendants wrongly denied coverage—an issue fully adjudicated on the administrative appeal before the SHBC and as to which plaintiff abandoned his appeal. Thus, his complaint in the Law Division must be dismissed for lack of jurisdiction. To hold otherwise would permit him to collaterally attack a state administrative determination in the Law Division. The Law Division is without jurisdiction to adjudicate such claims.

The panel observes that the New Jersey Constitution of 1947 provides that persons aggrieved by action or inaction of state or local administrative agencies can seek review in the Superior Court in the manner provided by rules of the Supreme Court. Pursuant to that authority, the court adopted Rules 2:2-3 and 2:2-4, with the intent that every proceeding to review the action or inaction of a state administrative agency would be by appeal to the Appellate Division.

However, some actions or inactions of state agencies and officers do not constitute “administrative” agency action or inaction that is subject to review by the Appellate Division. These include tortious conduct that subjects a state agency or officer to liability under the Tort Claims Act or a breach of contract under the Contractual Liability Act.

The panel says plaintiff framed his claims as those alleging breach of contract, breach of fiduciary duty, consumer fraud under the CFA, and unjust enrichment in a thinly disguised effort to fit within the Law Division’s jurisdiction. Ordinarily, if properly pleaded and substantively based, these claims might be sufficient to vest the Law Division with jurisdiction. However, the panel says its exclusive jurisdiction does not turn on the theory of the challenging party’s claim or the nature of the relief sought.

Here, stripped to their barest essentials, plaintiff’s claims, sounding in tort and contract, amount to no more than a collateral challenge to the SHBC final agency action upholding the limitation of coverage for plaintiff’s health benefit claims. Notwithstanding his energetic arguments to the contrary, the complaint is squarely predicated on the contention that defendants wrongfully denied coverage for the health-care claims advanced. Indeed, absent an attack on that final agency action, his tort and contract claims are patently without basis in fact or law.

Finally, the panel says plaintiff’s focus on the errant claim of Magellan’s physician adviser that a Caron physician had agreed that the son needed only outpatient treatment is unavailing. That claim was addressed and corrected by Horizon’s Member Appeals Subcommittee. Plaintiff thus challenged that claim on the administrative level and succeeded.

For appellant—Justin Lee Klein (Wilentz Goldman & Spitzer, and Hobbie, Corrigan & Bertucio; Klein, Angelo J. Cifaldi and Jacqueline DeCarlo on the brief). For respondents—Thomas F. Quinn (Wilson, Elser, Moskowitz, Edelman & Dicker; Quinn and Joanna Piorek on the brief).