In light of health care reform, we anticipate ERISA preemption cases to start popping up more frequently. Two recent decisions demonstrate that ERISA preemption is complicated, except when it isn’t. In Liberty Mutual Ins. Co.v Donegan, Second Circuit Judge Dennis Jacobs explains the complicated nature of ERISA preemption. This opinion may be helpful for anyone to develop a better understanding of the topic and its history. (Shameless plug alert: you also may want to see the preemption chapter that I edit in ERISA: A Comprehensive Guide.)
Then there is the decision that demonstrates when preemption isn’t complicated. Seventh Circuit Court of Appeals Judge Richard Posner is blessed with the gift of being able to make even an ERISA opinion an interesting read, especially when he is annoyed. In Kolbe & Kolbe Health and Welfare Benefit Plan v. Medical College of Wisconsin, Inc., a plan paid $1.7 million for a child’s health care treatment, before concluding the child was not a dependent of the employee plan participant. Asserting both ERISA claims and state law breach of contract claims, the plan sought repayment. The district court dismissed the suit, and awarded attorneys’ fees to the hospital as Rule 11 sanctions for filing what the judge considered to be frivolous claims.
The 7th Circuit appellate court affirmed the dismissal of the ERISA claims, but reversed the dismissal of the breach of contract claim because it disagreed with the district court’s conclusion that the claim was preempted by ERISA. The appellate court also reversed the imposition of sanctions, on the grounds that the claims were colorable and had been made in good faith, and remanded the case for consideration of the breach of contract claim.
On remand, the district court issued summary judgment in favor of the hospital. The plan appealed, and this is where the hospital crossed a line: it cross-appealed, complaining about the district court’s refusal to sanction the plan under Rule 11 after the plan established that the breach of contract claim was preempted by ERISA. In other words, it ignored the appellate court’s ruling. As Judge Posner explained:
The hospital defied us. It is the hospital that is lucky to escape being sanctioned.
While we chose these cases to tee up the topic of ERISA preemption, there is another point we want to make with Kolbe & Kolbe. Clients want aggressive litigators. We get that. But if you are going to play in the litigation sandbox, you need to know when it is time to pick up your toys and go home. The hospital got to keep $1.7 million, and demanding Rule 11 sanctions here was like throwing sand in the other kid’s face.