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GROUP HOSPITALIZATION & MED. SERVS. v. RICHARDSON

November 14, 1996

GROUP HOSPITALIZATION AND MEDICAL SERVICES, INC., Plaintiff,
v.
THEODORE RICHARDSON, et al., Defendants.



The opinion of the court was delivered by: ROBERTSON

 This case presents a claim by a group health insurer for reimbursement of $ 140,003.99 it paid to Howard University for the hospitalization of defendant Theodore Richardson. Plaintiff Group Hospitalization and Medical Services Inc. (Blue Cross/Blue Shield or BCBS) claims that Richardson and his next friend recovered those expenses from Howard in a malpractice action and that BCBS is entitled to reimbursement by way of subrogation. Cross-motions for summary judgment have been presented. This memorandum explains the Court's decision to deny both motions, because (1) notwithstanding defendants' objections based on lack of diversity and ERISA preemption, this Court does have subject matter jurisdiction, and (2) BCBS has not demonstrated either that a participant in a group health insurance program has a contract-based duty to reimburse his medical expenses if he later recovers them in litigation, or that this participant was unjustly enriched by refusing to make reimbursement from his litigation recovery.

 Facts

 In March 1993, Richardson and his next friend Louise Dargans-Fleming filed a medical malpractice action against Howard University and the physicians who had treated Richardson for swollen glands. The complaint demanded $ 30 million in damages, including an unstated amount for "medical and related expenses for hospital costs [and] physician costs" resulting from the alleged malpractice. The malpractice suit was settled in March 1994 for $ 1,250,000.

 BCBS, asserting that Richardson and Dargans-Fleming had recovered Richardson's medical expenses in the settlement, made a subrogation demand for reimbursement of the $ 140,003.99 that it had paid to Howard. The demand was refused, and this action followed.

 Jurisdiction

 Defendants present two challenges to this Court's subject matter jurisdiction. First, they argue that plaintiff has failed to establish complete diversity. Second, they assert that Howard University's health care plan is a plan subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq, and that plaintiff's suit is preempted.

 a. Diversity. It is undisputed that plaintiff is a citizen of the District of Columbia, where it has its principal place of business, 28 U.S.C. § 1332(c), and that defendant Dargans-Fleming is a citizen of Florida. What is disputed is plaintiff's assertion that Richardson is also a citizen of Florida. The burden of establishing diversity lies with plaintiff. Cameron v. Hodges, 127 U.S. 322, 32 L. Ed. 132, 8 S. Ct. 1154 (1888). The citizenship of a party for purposes of diversity is determined at the time the action is filed. See Freeport McMoran, Inc. v. K N Energy, Inc. 498 U.S. 426, 112 L. Ed. 2d 951, 111 S. Ct. 858 (1991). Plaintiff relies upon two documents. The first is the malpractice complaint Richardson and Dargans-Fleming filed in March 1993, which recited that Richardson was a resident of Florida. The second is answers to interrogatories, completed in the malpractice case, listing a Florida address as Richardson's residence. Defendants have submitted no documentation or affidavits refuting this information. Nor do defendants proffer any evidence suggesting that Richardson changed his residence between March 1993 and the date this case was filed. Plaintiff has sustained its burden of establishing that Richardson was a citizen of Florida when this action was filed, and this court has subject-matter jurisdiction on the basis of diversity. 28 U.S.C. § 1332.

 b. ERISA. Defendants argue that, because the health services contract creates a "plan" subject to ERISA, any state common law cause of action is preempted and plaintiff may only bring its action under ERISA's umbrella. If plaintiff's health care services contract with Howard is a plan under § 3(1) of ERISA, 29 U.S.C. § 1002, ERISA's broad enforcement provisions preempt a state common law cause of action for breach of contract. Shaw v. International Assn. of Machinists and Aerospace Workers Pension Plan, 563 F. Supp. 653, 658-59 (C.D.Cal. 1983), aff'd 750 F.2d 1458 (9th Cir.), cert. denied, 471 U.S. 1137, 86 L. Ed. 2d 696, 105 S. Ct. 2678 (1985). Plaintiff declines to be drawn into a debate about what is or is not an ERISA plan. Its position is that, even if the health care plan is a plan subject to ERISA, plaintiff may nevertheless bring a breach of contract action based on federal common law. Under 28 U.S.C. § 1331, the federal courts have federal question jurisdiction over civil actions arising under federal common law. Congress intended that the federal courts create federal common law regarding ERISA. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 103 L. Ed. 2d 80, 109 S. Ct. 948 (1989). The existence of a federal common law remedy for refusal to honor a subrogation agreement cannot be doubted, see Provident Life & Accident Insurance Co. v. Waller, 906 F.2d 985 (4th Cir.), cert. denied, 498 U.S. 982, 112 L. Ed. 2d 524, 111 S. Ct. 512 (1990). This Court accordingly has federal question jurisdiction as well as diversity jurisdiction.

 Merits of BCBS Subrogation Claim

 Having paid the $ 140,003.99 medical bill for Richardson's hospitalization, BCBS asserts a subrogation right to $ 140,003.99 of the money Richardson recovered from Howard.

 "The right of subrogation is not founded on contract. It is a creature of equity; is enforced solely for the purpose of accomplishing the ends of substantial justice; and is independent of any contractual relations between the parties." Memphis & L.R.R. Co. v. Dow, 120 U.S. 287, 301-02, 30 L. Ed. 595, 7 S. Ct. 482 (1887), quoted in Pearlman v. Reliance Insurance Co., 371 U.S. 132, 137 n.12, 9 L. Ed. 2d 190, 83 S. Ct. 232 (1962). "Subrogation is the substitution of one person in the place of another with reference to a lawful claim, demand, or right so that the substituted party succeeds to the rights of the other." BLACK'S LAW DICTIONARY 1427 (6th ed. 1990), quoted in National Union Fire Ins. Co. V. Riggs National Bank, 646 A.2d 966, 968 (D.C.App. 1994). "Where one party has paid the debt of another, justice requires that the payor be able to recover his loss from the one who should have paid it, to prevent unjust enrichment.... The rights of the party who paid the debt in no way depend upon showing a contract provision or formal assignment; evidence of payment is sufficient." Id.

 BCBS has not established its entitlement to traditional, equitable subrogation on this record. It is not clear that the $ 140,003.99 BCBS paid was a "debt" of Richardson, or that Richardson "should have paid it," or that "unjust enrichment" would result if Richardson were not required to make reimbursement. Serious factual weaknesses in the BCBS case are evident from the record. The record does not establish that the $ 140,003.99 was included in the amount Howard paid to Richardson to settle the malpractice claim. It is true that Richardson's complaint sought recovery for "medical and related expenses for hospital costs [and] physician costs," but the settlement was for an undifferentiated lump sum. It is a reasonable inference from the record that both Howard and Richardson decided to forget about the medical bills in the negotiations that whittled Richardson's $ 30 million demand down to the $ ...


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