Liberty Wellness Chiropractic v. Empire Healthchoice Assurance Inc.

Background

Liberty Wellness Chiropractic operates chiropractic clinics and alleged that Empire Healthchoice HMO, Inc. and Empire Healthchoice Assurance, Inc. underpaid, delayed, or improperly denied payment for covered services. Liberty alleged that Empire placed a physician and later the practice on prepayment review, requiring medical records with each claim, and that Empire denied or delayed claims. Liberty also alleged that it obtained assignments of benefits and authorizations allowing it to pursue patients’ claims.

The Second Amended Complaint listed 1,842 claims and asserted five counts: recovery of benefits under Section 502(a) of the Employee Retirement Income Security Act (ERISA); violation of New York’s prompt-payment law; tortious interference with a prospective economic advantage; breach of contract for claims under non-ERISA plans; and unjust enrichment for claims under non-ERISA plans.

Conversion of the Motion

Empire moved to dismiss under Rule 12(b)(6), which tests whether a complaint states a legally sufficient claim. Along with its motion, Empire submitted the health-benefit plans governing the listed claims and a chart summarizing whether each plan was an ERISA plan, a Federal Employees Program plan, or another type of plan; whether it contained an anti-assignment provision; and whether it imposed a contractual deadline for filing suit.

The court ruled that the claims chart was not part of, or integral to, Liberty’s complaint. Because the chart contained substantial factual information relevant to the 1,842 claims, the court chose to consider it through a motion for summary judgment under Rule 56 rather than exclude it from consideration. Summary judgment is a decision based on the evidence showing whether a claim can proceed when there is no genuine dispute about a material fact. The court therefore converted Empire’s motion to dismiss into a motion for summary judgment and denied the motion to dismiss.

Legal Principles Announced for Later Claim-by-Claim Review

ERISA standing and assignments. The court stated that healthcare providers are not themselves ERISA plan participants or beneficiaries, but may sue under ERISA when patients validly assign their benefit claims to them. An unambiguous anti-assignment provision in an ERISA plan invalidates a patient’s assignment and prevents Liberty from maintaining a claim based on that plan. The court also stated that appointment as an authorized representative does not overcome an unambiguous anti-assignment provision or independently create a right to sue under ERISA Section 502(a)(1)(B).

The court did not determine which particular claims were governed by plans containing enforceable anti-assignment provisions. Empire must establish that a specific claim is governed by such a plan, and Liberty may challenge any ambiguity in the provision by showing a genuine factual dispute.

ERISA preemption. ERISA preemption generally displaces state laws that relate to an employee benefit plan. The court stated that Liberty’s state-law claims are preempted when they seek payment of benefits under ERISA plans or depend on the terms and administration of those plans. Liberty’s breach-of-contract and unjust-enrichment claims were expressly limited to non-ERISA plans, so Liberty must identify which claims arise under those plans. The court stated that the tortious-interference claim and New York prompt-payment claim are preempted to the extent they concern benefits under ERISA plans.

Federal Employees Program plans. The court also stated that the Federal Employees Health Benefits Act preempts Liberty’s state-law claims to the extent they relate to services provided under Federal Employees Program plans. The court did not determine how many of the 1,842 claims involved such plans. It also stated that it did not need to decide Empire’s separate sovereign-immunity argument.

Exhaustion and failure to state a claim. Exhaustion of administrative remedies is an affirmative defense, meaning a defense that generally cannot support dismissal unless it appears on the face of the complaint. Because the motion was converted to summary judgment, the court allowed limited discovery about exhaustion for claims that remain potentially viable after applying the standing and preemption principles. The court stated that Empire’s argument that Liberty failed to state a claim became moot because the motion was converted.

Order and Next Steps

The court gave Liberty 120 days to conduct discovery about the applicable plans, the claims chart, and exhaustion. After that period, Empire must supplement its converted summary-judgment motion and identify, separately for each patient claim and each cause of action, why judgment should be entered against Liberty. Liberty must identify a genuine dispute of material fact for any claim it contends should proceed. The order did not enter judgment on any individual claim or determine the ultimate amount, if any, owed by Empire.