California Spine and Neurosurgery Institute v. National Association of Letter…

Background

The National Association of Letter Carriers Health Benefit Plan administered a Federal Employees Health Benefits Act plan under a contract with the Office of Personnel Management. The plan used funds held in a federal Treasury account. The plan contracted with Cigna Health & Life Insurance Company to assist with administration, including providing access to Cigna’s provider network, repricing claims, and determining medical necessity. The contract reserved eligibility and benefit-coverage decisions to the plan.

The dispute arose after California Spine performed three surgical procedures on a federal employee identified as “J.R.” California Spine alleged that it was outside Cigna’s provider network and contacted Cigna about coverage before performing the surgery. According to the complaint, a Cigna representative said reimbursement would be based on “usual and customary” rates, and Cigna later sent a letter approving the surgery as eligible for coverage. California Spine billed $37,000. The plan determined that the allowed amount was $6,907, including $2,072.10 in coinsurance owed by J.R., and the plan and Cigna paid California Spine $4,834.90.

California Spine sued the plan and Cigna in California state court, asserting promissory estoppel and quantum meruit claims. It alleged that the defendants owed the remaining amount because of the promise to pay usual and customary rates. The defendants removed the case under the federal-officer removal statute, 28 U.S.C. § 1442(a). California Spine moved to remand the case to state court.

Federal-Officer Removal

The federal-officer removal statute permits a person acting under the authority of a federal officer or agency to remove a state-court case involving acts taken under that authority. The defendant must show that it is a person covered by the statute, that a causal connection exists between the plaintiff’s claims and actions taken under federal direction, and that the defendant has a colorable federal defense. A colorable defense is one that is reasonably arguable; the defendant need not prove at the removal stage that it will ultimately prevail.

The court found that NALC Health and Cigna were covered persons and that the claims arose from actions taken while administering the federal employee health plan. The Office of Personnel Management controlled important aspects of the plan, including the benefits offered and the federal funds used to pay benefits and administration expenses. The court concluded that NALC Health was acting as the government’s agent and that Cigna was assisting with that work as NALC Health’s subcontractor. The coverage representations and payment decisions underlying California Spine’s claims therefore occurred while the defendants were acting under federal authority.

Federal Defenses

The defendants asserted two possible federal defenses: preemption and sovereign immunity. Preemption means that federal law displaces a state-law claim. Sovereign immunity generally protects the United States from suit when the United States is the real party in interest, including when a judgment would be paid from the federal Treasury.

The court held that the defendants did not have a colorable preemption defense to the quantum meruit claim because Ninth Circuit precedent in a prior related proceeding held that similar reimbursement claims by a provider against a Federal Employees Health Benefits Act carrier were not preempted. Judge Chhabria criticized that precedent’s analysis, including its treatment of the Federal Employees Health Benefits Act’s preemption provision as interchangeable with the Employee Retirement Income Security Act’s preemption provision. But the court stated that it was bound by the Ninth Circuit’s holding.

The court nevertheless held that NALC Health and Cigna had a colorable sovereign-immunity defense to both claims. The evidence indicated that a judgment could be charged to the Office of Personnel Management’s federal account as a benefit cost or administrative expense. The contract also allowed certain erroneous benefit payments and related corrective administrative costs to be charged to that account. The court emphasized that it was deciding only whether the defense was colorable, not whether the defendants would ultimately prevail.

Disposition

Because the defendants were acting under federal authority and had a colorable sovereign-immunity defense, the court concluded that they properly removed the case under 28 U.S.C. § 1442(a). The court held that it had subject-matter jurisdiction and denied California Spine’s motion to remand. The opinion did not decide the ultimate merits of California Spine’s promissory estoppel or quantum meruit claims.