The United States District Court for the Northern District of Illinois denied a motion to dismiss the defendant health care provider's counterclaim that it was entitled to payment for services based on state law theories of negligent misrepresentation and promissory estoppel, disagreeing with the plaintiff's argument that the counterclaim was preempted by the Employee Retirement Income Security Act of 1974 (ERISA).
Grand Avenue Surgical Center, Ltd. (GASC), the defendant, engaged in a billing practice known as "fee forgiveness," in which it allegedly accepted amounts paid to it by CT General as full payment for its services, and waived or failed to collect charges billed to patients such as coinsurance rates, copayments, and amounts necessary to meet plan deductibles. CT General maintains that the defendant's fee forgiveness practice triggers two plan provisions under which coverage is excluded for: (1) charges which the plan members are not obligated to pay, for which they are not billed, or for which they would not have been billed except that they were covered under the plan; and (2) charges which would not have been made if the plan member had no insurance.
Based on these plan provisions, CT General claimed that GASC is not entitled to reimbursement on disputed or denied reimbursement claims. In its counterclaim for payment for services, GASC alleged that CT General confirmed eligibility, coverage and benefits before each plan member's scheduled procedure and failed to disclose any limitations or restrictions on coverage, and that it is entitled to payment based on state law theories of negligent misrepresentation and promissory estoppel.
CT General brought a motion to dismiss the defendant's counterclaim based on three arguments. First, CT General argued that the defendant's counterclaim was preempted by ERISA section 502(a). The court applied a two-part test established by the Supreme Court (the Davila test) to determine whether a state law claim falls within the scope of ERISA section 502(a). The court stated that the counterclaim was not preempted because under the first prong of the test, GASC's promissory estoppel counterclaim could not have been brought under ERISA section 502(a) as it did not arise from the terms of the plan but rather from alleged oral representations. It also failed the second prong of the test because the counterclaim implicated legal duties independent of ERISA. As neither prong of the test supports the preemption argument, the Court denied the motion to dismiss due to preemption under ERISA section 502(a).
Second, CT General argued that the defendant's counterclaim was preempted by ERISA section 514(a), which (subject to the savings clause that is not relevant here) preempts any and all state laws that relate to ERISA plans. The court disagreed, stating that ERISA section 514(a) does not preempt a state law claim that makes no reference to or functions irrespective of the existence of the ERISA plan, and that, here, the defendant's counterclaim was not premised on the existence of an ERISA plan. The Court denied the motion to dismiss due to preemption under ERISA section 514(a) because the counterclaim did not "relate" to an ERISA plan.
Third, CT General sought to dismiss the defendant's counterclaim for failure to state a claim upon which relief may be granted. The court held that because the preemption arguments did not apply here, whether GASC stated a plausible claim must be evaluated under Illinois law. Finding that a plausible claim existed under Illinois law, the court denied the motion to dismiss.
GASC's cross motion for partial summary judgment on the ERISA preemption defense was also denied as moot for the reasons above.