Empire Healthchoice Assurance v. McVeigh, Denise (06/15/2006)

Question presented: Whether federal question jurisdiction exists over a suit by a federal government contractor to enforce a provision in a health benefits plan for federal employees that is part of a government contract under the Federal Employees Health Benefits Act of 1959, 5 U.S.C. 8901 et seq.?

BY PETER SACHS, MEDILL NEWS SERVICE

Joseph McVeigh was a passenger in a leased Mercedes when another car hit it on a Long Island road in 1997, sending McVeigh to the hospital to endure brain surgery and several months of recovery and rehabilitation. McVeigh, a successful supervising attorney for the Environmental Protection Agency's office in Manhattan, returned to work after the accident, determined to resume his job but unable to keep up with the tasks required.

Because McVeigh was a federal employee, the Federal Employee Health Benefits Act (FEHBA) covered all of his medical expenses, totaling more than $157,000. Empire Healthchoice Assurance, a subsidiary of Blue Cross and Blue Shield of America, was contracted by FEHBA to provide coverage.

Four years later, McVeigh died of a seizure related to the head injuries he suffered in the accident. Shortly after McVeigh's death, his wife Denise filed a wrongful death suit against the drivers of both cars and the company that leased the Mercedes in which McVeigh was riding. The parties in the suit settled in 2003. McVeigh received about $3.18 million, most of which came from the unlimited insurance policy carried by the leasing company.

Part of Empire's contract with its customers states that if someone who receives benefits from Empire also gets payment from a third party, such as through a legal settlement, then Empire must be reimbursed for the benefits it paid out. McVeigh's estate put $100,000 in escrow as part of the settlement, planning to reimburse Empire for the benefits. But Empire never intervened in the case to claim its money and it was not a party in the lawsuit, so the money remains in escrow to this day.

The disparity between the $100,000 set aside and the $157,000 that Empire says it is owed results from a disagreement between parties about items on the medical bills, said Victor Carr, a lawyer for McVeigh's estate. He said that the same $15,000 charge for brain surgery appeared three times on the bill, along with several other unrelated charges. But he conceded, "We've never really contested the fact that they [Empire] have a right to be reimbursed something."

Rather than file suit against McVeigh's estate in Suffolk County, where McVeigh's lawsuit took place, Empire chose to sue in U.S. District Court for the Southern District of New York. The court dismissed Empire's case on the grounds that the court lacked subject matter jurisdiction, since it viewed the issue as a state, not a federal, problem.

FEHBA contains a preemption provision that allows federal law to supercede state laws when the two disagree on certain narrowly defined issues related to health insurance coverage and benefits. But Empire is a private company, under contract with the federal government to provide health coverage.

The legal gray area emerges since the reimbursement disagreement arises from Empire's own contract with its customers. Because it is operating under the purview of the federal government, does Empire's contract fall under federal law? The district court in New York said it did not.

On Jan. 14, 2005, a divided 2nd Circuit Court of Appeals panel affirmed the district court's dismissal of Empire's case.

Citing the 1988 U.S. Supreme Court opinion in Boyle v. United Technologies Corp., the 2nd Circuit majority said two independent conditions must be met for there to be federal jurisdiction over the case. First, there must be a "significant conflict" between federal and state laws on the matter at hand. Second, the issue itself must involve "uniquely federal interests." As the complainant, the burden to prove that the Boyle test had been met fell upon Empire.

The appeals court agreed that the second part of the Boyle test was fulfilled, since FEHBA is a federal program. But the majority did not think that Empire proved there was significant conflict between federal law and New York state law. Empire's argument was that allowing such cases to be resolved in state courts would create a "patchwork" of conflicting precedents. This would jeopardize the integrity of FEHBA itself, potentially endangering the health insurance coverage of the 8-million-odd federal employees covered by FEHBA, Empire argued.

The 2nd Circuit rejected Empire's argument though, since the company presented no actual evidence that such things would occur. Writing for the majority, Judge Sonia Sotomayor acknowledged that in the future, "a significant conflict might arise between New York state law and federal interests underlying FEHBA … satisfy[ing] both prongs of Boyle."

Citing Congress' revision of the FEHBA preemption clause in 1998, Judge Reena Raggi wrote in dissent that "Congress has identified a unique federal interest in ensuring national uniformity in the construction and enforcement of such terms," thereby making moot the Boyle test, since the revision cleared up any earlier ambiguity.

The 2nd Circuit denied Empire's petition for a rehearing by a vote of 2-1.

In a further wrinkle, on appeal to the U.S. Supreme Court, Empire and the U.S. government have argued that this case should be combined with another similar one, Blue Cross & Blue Shield of Illinois v. Cruz out of the 7th Circuit Court of Appeals. In Cruz, a similar set of circumstances unfolded, with the victim of an accident refusing to repay Blue Cross after receiving money from a settlement. But the 7th Circuit ruled in January 2005 that the case did in fact satisfy Boyle, and was therefore a matter of federal jurisdiction.

The disagreement between the two cases, which the 2nd Circuit recognized in its ruling but refused to reconcile, points to underlying issues of Congressional intent. FEHBA's provision is silent on how contract disputes should be resolved. However, in the Employee Retirement Income Security Act (ERISA) passed in 1974, Congress explicitly stated the contract issues should be resolved in federal courts. The disparity leads Empire to argue that, since the acts contain similar language, FEHBA should be read to mean essentially the same thing as ERISA. Conversely, McVeigh's attorneys argue that laws regarding Congressional intent must be read at face value, without other assumed meanings.

The Court granted certiorari on Jan. 6, 2006, but it declined to indicate whether it would grant certiorari in Cruz or merge it with this case.

On June 15, 2006, a divided Court sided 5-4 with McVeigh, holding that the federal courts lack jurisdiction over suits filed by a federal government contractor to enforce a provision in a health benefits plan for federal employees that is part of a government contract under the Federal Employees Health Benefits Act of 1959.

Writing the majority opinion, Justice Ruth Bader Ginsburg reasoned that state courts in which personal-injury suits are lodged are competent to apply federal law and would seem best positioned to determine the lawyer's part in obtaining, and fair share in, the tort recovery.

Justice Stephen Breyer wrote the dissent for himself and Justices Anthony Kennedy, David Souter and Samuel Alito.

Attorneys in this case:Attorneys for Petitioner:Anthony F. ShelleyMiller & Chevalier, Chartered(202) 626-5800655 Fifteenth Street, NWSuite 900Washington, DC 20005-5701Party name: Empire Healthchoice Assurance, Inc.

Attorneys for Respondent:Harry Raptakis88 Second Street(516) 739-5140Mineola, NY 11501Party name: Denise F. McVeigh, as Administratrix of the Estate of Joseph E. McVeigh

Other:Paul D. Clement, Solicitor GeneralPETER D. KEISLER, Assistant Attorney GeneralEDWIN S. KNEEDLER, Deputy Solicitor GeneralJAMES A. FELDMAN, Assistant to the Solicitor GeneralMARK B. STERNALISA B. KLEIN