Issues
Do the federal courts have jurisdiction over cases brought to enforce provisions of contracts created under the Federal Employees Health Benefits Act?
This case derives from a reimbursement action brought by Empire HealthChoice Assurance, a private healthcare provider, against a federal employee who received health care benefits under the terms of a contract brought into being by the Federal Employees Health Benefits Act. The District and Circuit courts held that federal law did not govern the action, and that the action should have been raised under state contract law in state court. The Supreme Court must now decide whether the Federal Employees Health Benefits Act creates a federal common law basis for Empire’s claim, and thus whether the federal courts have jurisdiction over cases brought to enforce provisions of contracts created under the Act.
Questions as Framed for the Court by the Parties
Whether federal question jurisdiction exists over a suit by a federal government contractor to enforce, on behalf of the United States, a provision in a health benefits plan for federal employees that is part of a government contract established pursuant to the Federal Employees Health Benefits Act.
Facts
Joseph McVeigh was injured in a car accident in 1997. Mayer, Brown, Rowe, & Maw’s Supreme Court Docket Report at 2 (Jan. 6, 2006) (“Docket Report”). As a federal employee, Mr. McVeigh was eligible for and enrolled in a Service Benefit Plan (“the Plan”) offered by the Blue Cross and Blue Shield Association (“Blue Cross”). Empire HealthChoice Assurance v. McVeigh, 396 F.3d 136, 139 (2d Cir. 2005) [hereinafter “Empire I”]. In New York State, Empire HealthChoice Assurance (“Empire”) administers the Plan to federal employees for Blue Cross. Id. As a result of his injuries, Mr. McVeigh received a little over $150,000 in benefits from Empire between 1997 and 2001, the year of his death. Id. After her husband’s death, Mrs. McVeigh (the respondent in this case) brought state tort claims on behalf of her husband, herself, and a minor child against the parties allegedly responsible for her husband’s injury and death. Id. That case was settled out of court, awarding Mrs. McVeigh $3,175,000. Id.
When Empire became aware of the settlement, but before Mrs. McVeigh received the settlement money, Empire informed her that it had a lien on Mr. McVeigh’s share of the settlement for an amount equivalent to the benefits he received between 1997 and 2001. Id. Empire based its lien on a provision in the Plan that requires beneficiaries of the Plan to reimburse Empire for the full amount of any benefits received in the event that those beneficiaries receive compensation, either through suit or settlement, from a third party. Id. Mrs. McVeigh set aside $100,000 in an escrow account pending resolution of Empire’s claim, and Empire filed suit. Id.
The Plan, in this case, is the product of a fairly complicated relationship between the federal government and Blue Cross. In 1959, Congress passed the Federal Employees Health Benefits Act (“FEHBA”) in order to provide “a comprehensive government-wide program of insurance for federal employees . . . , the costs of which [would] be shared by the Government, as employer, and its employees.” Petition for a Writ of Certiorari, at 3. Under FEHBA, the task of negotiating and regulating all health benefit plans for federal employees falls to the United States Office of Personnel Management (“OPM”). Id. Just one year after Congress passed FEHBA, in 1960, OPM entered into the contract with Blue Cross that established the Plan. Id. At present, the Plan covers approximately four million federal employees and their dependents. Id. at 2.
The Federal District Court dismissed Empire’s suit for reimbursement, holding it lacked the subject matter jurisdiction to hear Empire’s contract claim. Empire I at 138. On appeal, the Circuit Court affirmed, holding that, on the one hand, FEHBA does not create a federal common law claim and that, on the other, the case did not require federal common law rulemaking because there was no apparent conflict between the state law and unique federal interests. Id.
Analysis
Empire relies on Jackson Transit Auth. v. Local Div. 1285, Amalgamated Transit Union, AFL-CIO-CLC for the proposition that suits to enforce contracts that are predicated on federal statutes present claims that fall exclusively under the jurisdiction of the federal courts. Brief for Petitioner at 14-15 (citing Jackson Transit Auth. v. Local Div. 1285, Amalgamated Transit Union, AFL-CIO-CLC, 457 U.S. 15, 22 (1982)). In order to determine whether or not Empire is in fact suing to enforce a contract contemplated by FEHBA, the test from Jackson Transit Auth. examines whether or not Congress intended to create a federal contract, with rights and duties sounding explicitly in federal law. Brief for Petitioner at 16.
Empire argues that it has met the Jackson Transit Auth. standard because the current action is for the enforcement of a reimbursement clause in the contract creating the Service Benefit Plan, and OPM entered the contract under the mandate of FEHBA. Brief for Petitioner at 17-18. FEHBA explicitly details both the contract at issue here and the Statement of Benefits, as the latter is incorporated into the main contract and it contains the reimbursement requirement that underlies Empire’s current claim. Brief for Petitioner at 5, 11; 5 U.S.C. §§ 8903(1), 8902(d)). As for Congressional intent, Empire asserts that there is statutory evidence signifying that Congress clearly meant for contracts creating FEHBA plans and controlling their implementation to fall under federal jurisdiction. Brief for Petitioner at 11, 20. Furthermore, Empire notes that FEHBA provides comprehensive guidelines for regulating FEHBA plans from start to finish, describing FEHBA plan terms and funding sources, in addition to appointing OPM as the sole regulatory authority, suggesting that Congress did not intend for state law to play a role in Empire’s current claim. Brief for Petitioner at 11, 19-20.
Empire also argues that FEHBA’s expansive preemption provision displacing state law regarding health insurance or plans reaffirms the federal nature of Empire’s suit. Brief for Petitioner at 21; 5 U.S.C. § 8902(m)(1). Created in 1978 to establish uniformity in benefit compensation and amended in 1998, the preemption provision was expanded to prevent courts from interpreting the provision too narrowly and applying state rather than federal law. Brief for Petitioner at 11, 24. Empire notes that FEHBA’s preemption provision is rather expansive for two specific reasons: (1) FEHBA’s provision mirrors ERISA’s preemption provision, which the Court has viewed as expansive and (2) the legislative history surrounding the 1998 amendment evinces Congressional desire to expressly displace state law to resolve suits like the case at bar solely in federal courts. Brief for Petitioner at 22-24; H.R. Rep. No. 105-374, at 16 (1997). Moreover, Empire cites Jackson Transit Auth. for the proposition that congressional intent is consistent with Empire’s suit, since a FEHBA contract is not unlike other contracts that are enforceable by private suit when breached. Brief for Petitioner at 16; Jackson Transit Auth., 457 U.S. at 20-21.
Empire can also argue that the general principles that the Court has developed for the application of federal common law to issues stemming from federal programs warrants federal jurisdiction here. Brief for Petitioner at 32. In what is known as the “first holding” of Clearfield Trust Co. v. United States, the Court held that controversies implicating strong federal interests should be resolved by federal common law in federal courts. Brief for Petitioner at 12, 34; Clearfield Trust Co. v. United States, 318 U.S. 363 (1943). Clearfield Trust's “second holding” provides that state law must yield to the federal rule of decision when a strong federal interest in uniformity would be undermined by applying state law. Brief for Petitioner at 12, 34; Clearfield Trust Co. v. United States, 318 U.S. 363 (1943). Empire argues that the Clearfield Trust holdings are especially applicable where the strong federal interest at issue is the enforcement the United States’ contractual rights. Brief for Petitioner at 12-13; United States v. Little Lake Misere Land Co., 412 U.S. 580, 593-94 (1973).
As per Clearfield Trust's first holding, Empire maintains that federal law must be applied to the case at bar since the suit is based on contractual obligations running to the United States, in addition to the fact that Empire’s suit has long term ramifications for a national program intertwined with important United States’ interests. Brief for Petitioner at 39-40. Empire argues that its suit is based on federal common law as important government interests like financial compensation, contractual rights and program administration are at stake, satisfying Clearfield Trust's first holding. Brief for Petitioner at 39-40. Alternatively, Empire argues that under Clearfield Trust's second holding, which requires the Court to determine whether state or federal rule should function as the applicable federal rule of decision, a uniform federal rule of law is needed in the case at bar because FEHBA’s preemption clause and its comprehensive administrative framework clearly illustrate Congress’ preference for one uniform standard regarding FEHBA contract disputes. Brief for Petitioner at 41-42.
McVeigh argues that Empire has failed to demonstrate that its suit implicates strong federal interests because the record does not suggest that the case at bar would significantly alter the federal employee health insurance scheme, as this case is not about coverage or benefits and it is doubtful that the resolution of the instant case will affect the health benefits of federal employees in general. Brief for Respondent at 3, 21. As for Empire’s argument that its suit has direct implications for the United States Treasury, McVeigh counters that within the limited circumstances presented in the case at bar, denying Empire’s reimbursement claim by finding a lack of federal jurisdiction will not materially harm the United States Treasury or the FHEBA scheme. Brief for Respondent at 3, 25. In short, McVeigh strongly maintains that Empire’s suit can proceed in state court rather than federal court without actual prejudice to Empire or the United States’ financial interests. Brief for Respondent at 3, 25.
McVeigh also argues that Congress did not intend to preclude state court adjudication of all claims stemming from FEHBA authorized contracts since Congress could have explicitly included statutory language conferring exclusive jurisdiction on the federal courts, as Congress has done so in the past with other federal statutes. Brief for Respondent at 3, 13-14. Moreover, McVeigh notes that Congress could have easily provided for exclusive federal jurisdiction for all claims arising out of the FEHBA statute, but deliberately chose to omit such language because it only intended for a narrow class of FEHBA contract claims to warrant the sole application of federal law. Brief for Respondent at 4, 13. McVeigh asserts that the only express conferral of exclusive jurisdiction authorized by Congress here relates to FEHBA claims where a cause of action lies against the United States, as opposed to Empire’s expansive reading of the federal jurisdiction mandated by FEHBA. (Brief for Respondent at 17-18).
McVeigh further argues that FEHBA’s jurisdiction limiting language is rather clear and unambiguous, therefore a strict construction of FEHBA warrants the Court finding that only claims against the United States are confined to the federal judiciary. Brief for Respondent at 4, 7. Additionally, McVeigh compares FEHBA’s jurisdictional language to that of similar statutes like the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., reaching the conclusion that it is fairly obvious when Congress intends to expand jurisdiction under a statute. Brief for Respondent at 4, 14-15. As for Empire’s preemption argument, McVeigh again argues that if Congress had intended for all of the provisions of the health benefit plan to displace state law, it would have stated so in unequivocal terms. Brief for Respondent at 4, 8. However, McVeigh asserts that Congress did not do this in the case at bar, instead choosing to limit FEHBA’s preemption provision to contract terms directly related to the scope of coverage or benefits, which are not at issue here. Brief for Respondent at 4, 8.
McVeigh maintains that absent Congressional intent and authorization to expand federal jurisdiction, it is inappropriate for the Court to preempt state law in favor of federal common law given that Empire has failed to carry its burden of proof regarding the detrimental affect that state court adjudication would have on the FEHBA scheme. Brief for Respondent at 21. McVeigh argues that Empire has failed to meet the standard for litigating FEHBA claims in federal court, as provided by Boyle v. United Techs. Corp., 487 U.S. 500 (1988). Brief for Respondent at 5, 20. McVeigh notes that under Boyle's analytical framework Empire has the burden of demonstrating a material conflict between an express federal policy or strong government interest and state law or, alternatively, that applying state law would undercut FEHBA’s policy goals, in order for federal law to preempt state law to the advantage of a federal employee. Brief for Respondent at 5, 19-20. However, McVeigh argues that the frustration of FEHBA’s purpose would entail a limitation or denial of coverage to a federal employee rather than the denial of reimbursement in the instant case. Brief for Respondent at 5. In the case at bar, McVeigh maintains that since Empire’s suit does not implicate the scope or coverage of for a federal employee that Boyle cannot be satisfied here, while Empire has not shown that state law lacks the cohesiveness necessary to adjudicate the present action without substantially undermining FEHBA’s uniformity purposes. Brief for Respondent at 20-22.
Discussion
This case presents a fairly obscure question of the federal courts’ power to hear cases between two parties with claims arising from the terms of a contract established under federal law. There are, essentially, two ways federal law could be found to have jurisdiction here. First, if FEHBA creates a basis in federal common law (as opposed to state contract law) for Empire’s claim, or, second, if a strong federal interest justifies pre-emption of state law by federal law. See Empire I at 140.
As with any issue concerning federal employees, the interests in this case are legion. For example, while the Blue Cross Plan in this case covers four million individuals, all FEHBA-governed plans combined provide health benefits to some eight million individuals. Brief for a Writ of Certiorari at 2. Furthermore, the question of whether FEHBA’s pre-emption clause establishes a federal common law cause of action has even farther-reaching implications: five other federal programs—governing life insurance, dental benefits, vision benefits, long-term care benefits, and health benefits for dependents of military personnel—contain pre-emption clauses modeled on the clause in FEHBA. Id. at 14. Thus, the Court’s interpretation of FEHBA’s pre-emption clause could impact the law governing claims arising under five other federal programs.
Because this case could potentially impact the benefits of millions of individuals, Empire argues that the application of a federal common law would provide an essential uniformity of interpretation of claims arising out of FEHBA. Brief for Petitioner at 21. FEHBA is a source of numerous claims around the country and, at present, claimants do not know whether to bring their claims in state or federal courts. Petition for a Writ of Certiorari at 13. Moreover, application of state law to FEHBA-based claims would result in inconsistent results across the country; such inconsistency would raise administrative costs and, in some cases, result in certain individuals paying higher premiums to cover services offered in other states. Brief for Petitioner at 21–22.
In addition, Empire points out that, although it is responsible for pursuing reimbursement of benefits paid out under the plan, funds collected under the reimbursement provision are paid back into a Treasury fund that is the Government’s property. Id. at 39. As established by FEHBA, monies in that fund are used to pay for health care services and do not constitute a profit for carriers like Empire. Id. In fact, surplus monies in the fund are used at OPM’s discretion. Id. Thus, application of a uniform federal common law that would keep costs down would have direct impact on a strictly federal financial interest. Id. at 40.
Yet, as Mrs. McVeigh points out, neither Empire nor the Government (in its amicus brief in favor of granting the writ) forward any data or statistics to prove that application of state law would increase the burden on the Treasury. Brief for Respondent at 25. Mrs. McVeigh goes on to assert that treatment of FEHBA-based claims in state court might actually be faster and less expensive. Id. at 37. Making reference to New York law, which would govern in this case, she points to procedures aimed to streamline such claims: a “simple motion” and a filing fee of forty five dollars would have initiated Empire’s action. Id.
Mrs. McVeigh also argues that application of a broad federal law to reimbursement claims could have detrimental effect on the individuals FEHBA aims to protect, federal employees. In particular, she argues that plan administrators could place liens on proceeds from individuals’ personal injury settlements without regard to what the payments were intended to compensate. Id. at 35. Moreover, because state laws are better suited to addressing the particular circumstances of individuals within their jurisdiction, they are more likely to protect their citizens from such claims; recognition of a federal law governing these issues would silence those state laws and eliminate the protections they offer. Id.
Interestingly, ten days after the Second Circuit decided this case, the Seventh Circuit delivered an opinion addressing a very similar question of the federal courts’ jurisdiction to hear and arriving at a diametrically opposite conclusion. See Blue Cross & Blue Shield of Illinois v. Cruz, 396 F.3d 793 (7th Cir. 2005) [hereinafter “Cruz”]. In its amicus brief in support of the writ of certiorari, the Government briefed both cases, but argued that the Seventh Circuit had arrived at the correct decision; as a result, the Government suggested that the Court only grant certiorari in the present case to correct the Second Circuit’s decision. Brief for the United States as Amicus Curiae at 19. As the adage goes, the Supreme Court doesn’t grant cert. to affirm. In the present case, it seems on track to rule in favor of federal jurisdiction.
Conclusion
In this case, the Supreme Court must decide whether federal question jurisdiction exists over a suit by a federal government contractor to enforce, on behalf of the United States, a provision in a health benefits plan for federal employees that is part of a government contract established pursuant to the Federal Employees Health Benefits Act (FEHBA). Empire HealthChoice Assurance argues that the Act requires the application of uniform federal law because this is consistent with Congressional intent to create a national regulatory scheme for millions of federal workers. McVeigh counters that there is no reason to conclude that Congress intended to confer exclusive federal jurisdiction here and that State courts could adjudicate the present lawsuit without undermining the Act's administrative scheme. In short, this case is about federalism and whether or not there is materially conflict between state and federal law in the FEHBA context. If the Court rules that this lawsuit does not warrant exclusive federal jurisdiction, federal government contractors will have to pursue reimbursement suits in either state or federal courts without the luxury of a uniform body of law. On the other hand, if the Supreme Court decides that the present action raises a federal question that is inappropriate for state court adjudication, then future litigants like McVeigh will have to defend this type of FEHBA lawsuit in the federal courts and can no longer rely on the convenience of state courts or state contract law.Written by:
Miles Norton
Nick Wimbush