|||UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT
|||March 31, 2000
|||DIANNE L. SHEA, APPELLANT,
SIDNEY ESENSTEN; JEFFREY A. ARENSON; FAMILY MEDICAL CLINIC, P.A., A MINNESOTA NON-PROFIT CORP., FAMILY MEDICAL CLINIC; FAIRVIEW, A MINNESOTA NON-PROFIT CORP.; MEDICA, A MINNESOTA NON-PROFIT CORP.; UNITED HEALTHCARE, UNITED HEALTHCARE CORP., A MINNESOTA NON-PROFIT CORP.; SECRETARY OF LABOR; ALLINA HEALTH SYSTEM CORP., APPELLEES.
SECRETARY OF LABOR, AMICUS ON BEHALF OF APPELLANT.
|||Before Bowman, Lay, and Hansen, Circuit Judges.
|||The opinion of the court was delivered by: Hansen, Circuit Judge.
|||Appeal from the United States District Court for the District of Minnesota.
|||Submitted: November 18, 1999
|||Dianne L. Shea brought this wrongful death suit in state court after her
husband's death due to heart failure, and the case now has been twice removed
to federal court. In this latest removal proceeding, the district court
dismissed the tort claim of count III (alleging negligent misrepresentation
for the failure of Mr. Shea's physicians to disclose a conflict of interest)
as preempted by ERISA. *fn1 The district
court also dismissed a corporate party (Fairview) on statute of limitations
grounds. Mrs. Shea appeals the preemption issue, joined by the Secretary
of Labor as amicus curiae, *fn2 and the
defendants move to dismiss the appeal as moot. We affirm in part, reverse
in part, and deny the motion to dismiss the appeal.
|||Patrick Shea died of a heart attack at the age of 40 after being assured
by his family doctors that a referral to a cardiologist was unnecessary
given his age and symptoms. Although Mr. Shea offered to pay for the referral
himself when his symptoms did not seem to be improving, his physicians persuaded
him to trust their judgment that neither his age nor his symptoms justified
a visit to a cardiologist. Following her husband's death due to heart failure,
Mrs. Shea initially brought a wrongful death action in state court against
two physicians (Sidney Esensten and Jeffrey Arenson); the Family Medical
Clinic, now known as Fairview Clinics (the
|||Clinic); and Medica (her husband's health maintenance organization (HMO),
with whom his employer contracted to provide employee health care). Dianne
Shea alleged in her suit that certain financial incentives built into Medica's
contract with Mr. Shea's physicians were designed to minimize referrals
to specialists. She further alleged that if her husband had known of these
incentives, he would not have trusted his physicians' medical advice so
completely but would have sought out the life-saving opinion of a specialist
at his own expense.
|||Medica initially removed the case to federal court, contending that Mrs.
Shea's tort claims were preempted by ERISA, 29 U.S.C. § 1144. Mrs. Shea
then amended her claim to state that Medica breached its fiduciary duties
under ERISA by not disclosing to plan participants the financial incentives
designed to reduce referrals that it included in its physician contracts.
The district court dismissed Medica, concluding that Mrs. Shea's state tort
claims against Medica as the plan administrator were preempted by ERISA
and that the amended complaint asserting a breach of fiduciary duty failed
to state a claim, see Fed. R. Civ. P. 12(b)(6). The district court remanded
to state court the remaining state law claims.
|||Mrs. Shea appealed to this court. We reversed the district court's Rule
12(b)(6) dismissal of Medica, concluding that Mrs. Shea's amended complaint
adequately stated a claim of breach of fiduciary duty against Medica. See
Shea v. Esensten, 107 F.3d 625 (8th Cir.) (Shea I), cert. denied, 522 U.S.
914 (1997). Specifically, we held that a plan administrator has a fiduciary
duty to disclose all material facts affecting a plan participant's health
care interests, including financial incentives that might discourage a treating
physician from providing essential referrals for covered conditions. See
id. at 629. Medica ultimately settled the claim against it.
|||Meanwhile, the remanded state tort action proceeded against the doctors
and the Clinic in state court. Mrs. Shea moved to amend her complaint to
add as a defendant Fairview, a Minnesota non-profit corporation that owns
and operates the Clinic. The second amended complaint included count I,
alleging medical negligence; count II, alleging breach of contract; count
III, alleging fraud and negligent misrepresentation based on the doctors'
failure to disclose the conflict of interest created by their contractual
incentives; count IV, alleging the joint and several liability of Fairview
for damages awarded in counts I through III; and count V, seeking punitive
damages against all defendants.
|||Before the state court ruled on the motion to amend, Fairview removed
the second amended complaint to federal court. The doctors and the Clinic
then moved the federal district court for a partial dismissal. The district
court dismissed count II, the breach of contract claim, without resistance
by Mrs. Shea, and it is not at issue in this appeal. The district court
dismissed count III, the fraud and negligent misrepresentation claim, as
preempted by ERISA after concluding that the claim relates to the ERISA
plan because it involves an administrative denial of benefits, not a medical
decision. Fairview moved for and received a complete dismissal on statute
of limitations grounds. The district court then remanded to state court
the remaining negligence claim against the doctors and the Clinic as stated
in count I. A state court jury ruled in favor of the doctors and the Clinic
on that medical negligence claim.
|||Mrs. Shea now appeals the district court's conclusions on ERISA preemption
and the statute of limitations. The defendants move to dismiss the appeal
|||A. Motion to Dismiss
|||We begin by addressing the pending motion to dismiss. After this appeal
was filed, Mrs. Shea's medical negligence claim of count I was brought to
trial in state court where a jury resolved the claim in favor of the defendants,
specifically finding that the doctors did not provide Mr. Shea with negligent
care or treatment. The doctors and the Clinic then moved to dismiss the
present appeal as moot, asserting that after the jury verdict, Mrs. Shea
would not be able to prove that her husband was denied appropriate care,
which they assert is an essential element of Mrs. Shea's remaining claim
of fraud and negligent misrepresentation. Mrs. Shea resists the motion,
asserting the appeal is not moot because the state jury verdict has yet
to be tested by post trial motions and state appellate procedures. She further
contends that even if the jury verdict withstands post trial and appellate
scrutiny, her negligent misrepresentation claim does not automatically fail
in light of the jury's determination that the physicians provided adequate
care because the negligent misrepresentation claim carries its own, independent
|||"Under Article III of the Constitution, federal courts may adjudicate
only actual, ongoing cases or controversies. It is of no consequence that
the controversy was live at earlier stages in this case; it must be live
when we decide the issues." Doe v. Lafleur, 179 F.3d 613, 615 (8th
Cir. 1999) (internal quotations omitted). If this case is indeed moot, we
must dismiss the appeal to avoid rendering a merely advisory opinion. See
id. However, we agree with Mrs. Shea's assertion that the appeal is not
moot. The state court judgment is not yet final. Also, in spite of the jury's
conclusion in favor of the doctors on the negligent treatment claim, we
believe that a jury could nevertheless consistently conclude that the defendants
are liable on the independent negligent misrepresentation claim of count
|||Count III asserts a claim of negligent misrepresentation based on the
physicians' failure to disclose a financial incentive to minimize referrals
to specialists, which she asserts amounts to a conflict of interest. In
Minnesota, the tort of negligent misrepresentation occurs when a person
making a representation "ha[s] not discovered or communicated certain
information that the ordinary person in his or her position would have discovered
or communicated." Safeco Inc. Co. of Am. v. Dain Bosworth Inc., 531
N.W.2d 867, 870 (Minn. Ct. App. 1995). State professional ethics standards
for physicians mandate disclosure of conflicts of interest, and the Minnesota
courts have noted that "a physician's advice about treatment options
should be free from self-serving financial considerations." D.A.B.
v. Brown, 570 N.W.2d 168, 172 (Minn. Ct. App. 1997). "It is well accepted
that patients deserve medical opinions about treatment plans and referrals
unsullied by conflicting motives." Id. at 170. Minnesota law indicates
that the breach of a doctor's state-imposed ethical duty to disclose financial
incentives is a medical malpractice claim, requiring a showing of actual
harm to state a cause of action. See id. at 171.
|||In count III, Mrs. Shea asserts that Mr. Shea's physicians negligently
or fraudulently failed to disclose a financial conflict of interest in violation
of state professional ethics and that this failure to disclose adversely
influenced his decision to seek the advice of a specialist. She asserts
that regardless of the quality of the actual treatment rendered by Mr. Shea's
physicians (already adjudicated in state court to have been adequate), their
failure to disclose a financial incentive caused Mr. Shea the independent
injury of having been prevented from making an informed choice of whether
to seek what might have been a life-saving referral at his own expense.
Because Mrs. Shea's negligent misrepresentation claim of count III asserts
a distinct and independent injury from the negligent treatment claim asserted
and adjudicated in count I, the state jury verdict in favor of the physicians
on count I does not necessarily preclude a finding in favor of Mrs. Shea
on count III. Therefore, we deny the defendants' motion to dismiss this
appeal as moot.
|||B. ERISA Preemption
|||Moving to the merits of the appeal, we first consider whether the district
court correctly concluded that Mrs. Shea's claim in count III is preempted
by ERISA. Because the issue of ERISA preemption is a question of law involving
statutory interpretation, we review de novo the district court's decision
to dismiss a claim on grounds of preemption. See Prudential Ins. Co. of
Am. v. National Park Med. Ctr., Inc., 154 F.3d 812, 818 (8th Cir. 1998).
|||Congress included an express preemption clause in ERISA, which provides
that ERISA supersedes all state laws insofar as they "relate to"
an employee benefit plan under ERISA. 29 U.S.C. § 1144(a); see Wilson v.
Zoellner, 114 F.3d 713, 716 (8th Cir. 1997). The Supreme Court has constructed
a two-part inquiry for determining whether a state law is preempted under
this "relates to" provision. Under this analysis, a state law
"relates to" an ERISA plan within the meaning of § 1144(a) if
it (1) expressly refers to an ERISA plan, or (2) has a connection with such
a plan. See California Div. of Labor Standards Enforcement v. Dillingham
Constr., N. A., Inc., 519 U.S. 316, 324 (1997); Wilson, 114 F.3d at 716.
|||We first conclude that there is no express reference to an ERISA plan
here. Minnesota's law of negligent misrepresentation is a tort law of general
application. "[I]t makes no reference to and functions irrespective
of the existence of an ERISA plan." Wilson, 114 F.3d at 717 (discussing
Missouri's state law of negligent misrepresentation). The defendants assert
that an express reference to an ERISA plan is at issue here because Mrs.
Shea's claim would not exist absent an express reference to the incentives
created by the ERISA plan's contract with Mr. Shea's physicians. We believe,
however, that the defendants place too much emphasis on this reference to
the plan in the lawsuit. It is true that to prove her claim, Mrs. Shea must
demonstrate that the physicians' contract, which happens to be an ERISA
plan in this case, created certain financial incentives for Mr. Shea's physicians.
This is the evidentiary foundation for demonstrating a conflict of interest
that the physicians may have been required to disclose under state law.
This reference to the ERISA contract terms is not an express state law reference
that "relates to" an ERISA plan within the meaning of the preemption
clause, because the contract creating the financial incentive must be referenced
regardless of whether or not that contract stems from an ERISA plan. The
express reference to the ERISA plan that will arise in this tort suit is
necessary to demonstrate the origin of the physician's potential conflict
of interest under state law, but the plan itself is peripheral to the ultimate
issue of whether the physicians violated the state ethical duty to disclose
a financial conflict of interest. See New York State Conference of Blue
Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 661 (1995)
(noting that there is no preemption "if the state law has only a tenuous,
remote, or peripheral connection with covered plans, as is the case with
many laws of general applicability") (internal quotations omitted).
Accordingly, we conclude that the state law negligent misrepresentation
claim of count III is not subject to ERISA preemption on the basis of an
express reference to ERISA.
|||"A law that does not refer to ERISA plans may yet be pre-empted if
it has a 'connection with' ERISA plans." California Div. of Labor Standards
Enforcement, 519 U.S. at 325. To determine the existence of this forbidden
connection, the Supreme Court directs us to "look both to the objectives
of the ERISA statute as a guide to the scope of the state law that Congress
understood would survive as well as to the nature of the effect of the state
law on ERISA plans." Id. (internal quotations and citation omitted).
In addressing the effect of the state law on an ERISA plan, we consider
a variety of factors, including:
||| whether the state law negates an ERISA plan provision,  whether
the state law affects relations between primary ERISA entities,  whether
the state law impacts the structure of ERISA plans,  whether the state
law impacts the administration of ERISA plans,  whether the state law
has an economic impact on ERISA plans,  whether preemption of the state
law is consistent with other ERISA provisions, and  whether the state
law is an exercise of traditional state power.
|||Wilson, 114 F.3d at 717 (quoting Arkansas Blue Cross & Blue Shield
v. St. Mary's Hosp., Inc., 947 F.2d 1341, 1344-45 (8th Cir. 1991)).
|||Considering the Arkansas Blue Cross & Blue Shield factors, we first
note that allowing this state tort suit to proceed would not negate any
ERISA plan provision and would not affect the relations between primary
ERISA entities. Physicians are responsible to follow their state law ethical
rules regardless of any contractual relation with or obligation to an ERISA
entity. Merely requiring physicians to disclose financial conflicts of interest
that might affect a patient's treatment options does not alter or affect
any plan provision, it simply discloses its existence. Additionally, nothing
new will be required of an ERISA entity by allowing this tort suit against
physicians for their violation of ethical duties imposed by state law. (The
ERISA fiduciary is already obligated to make this type of disclosure according
to Shea I.)
|||Similarly, allowing a state tort claim to proceed against a physician
for failure to disclose a conflict of interest would not impact the structure,
administration, or economics of any ERISA plan. Mrs. Shea's claim does not
attack the validity of a term of the ERISA plan nor is she making a claim
for benefits under the plan. Contrary to the defendants' assertions, she
does not assert in count III that her husband was denied a referral or "benefit"
to which he was entitled under the plan. Mr. Shea made no request for a
referral of the plan administrator. Furthermore, his physicians were not
plan administrators, and their medical advice cannot be classified as an
administrative denial of plan benefits. Mr. Shea relied on his physicians'
advice that a referral to a specialist was not medically necessary given
his symptoms. Count III asserts that he would not have relied so completely
on their medical advice had he known of their financial conflict of interest.
The Minnesota courts have held that "a physician's advice about treatment
options should be free from self-serving financial considerations, [and]
any cause of action based on that conduct necessarily flows from the therapeutic
relationship" or "the process of rendering medical treatment."
D.A.B., 570 N.W.2d at 172. Mrs. Shea's claim stems from "the process
of rendering medical treatment," id., and therefore, it would not affect
the structure, administration or economics of the ERISA plan.
|||The district court concluded that the negligent misrepresentation claim
of count III was preempted for the same reason that Mrs. Shea's claim against
Medica, a plan fiduciary, was preempted in Shea I. We respectfully disagree
with this analysis. Our opinion in Shea I mandates that ERISA fiduciaries
must disclose financial incentives that discourage a treating physician
from providing referrals. 107 F.3d at 628-29. The physicians being sued
in this case, however, are not ERISA fiduciaries. Cf. Hull v. Fallon, 188
F.3d 939, 943(8th Cir. 1999) (holding state law malpractice claim against
a physician was preempted where the physician, acting as the plan administrator,
denied a thallium stress test as a plan benefit), cert. denied, 68 U.S.L.W.
3433, 2000 WL 220289 (U.S. Feb. 28, 2000) (No. 99-1083). We conclude that
the analysis of Shea I does not apply to the present situation because here
we are not dealing with the responsibilities of a plan fiduciary. While
our opinion in Shea I altered the administration of an ERISA plan by creating
a duty to disclose on the part of plan administrators, a lawsuit to enforce
an independent state-created duty to disclose on the part of the physicians
(in a situation where the ERISA fiduciary failed to make proper disclosure)
will not impact the structure, administration, or economics of the ERISA
plan in any meaningful way. None of the above-listed factors favors preemption.
|||Finally, "[a]s is always the case in our pre-emption jurisprudence,
where federal law is said to bar state action in fields of traditional state
regulation we have worked on the assumption that the historic police powers
of the States were not to be superseded by the Federal Act unless that was
the clear and manifest purpose of Congress." California Div. of Labor
Standards Enforcement, 519 U.S. at 325 (internal quotations and alterations
omitted). "[T]he historic police powers of the State include the regulation
of matters of health and safety." De Buono v. NYSA-ILA Med. and Clincial
Servs. Fund, 520 U.S. 806, 814 (1997). State regulation of the ethical responsibilities
imposed upon physicians lies within this category. Nothing in ERISA attempts
to preempt the entire field of health care or the regulation of professional
standards for physicians. See Boyle v. Anderson, 68 F.3d 1093, 1110 (8th
Cir. 1995) (stating, "'nothing in the language of the Act or the context
of its passage indicates that Congress chose to displace general health
care regulations, which historically has been a matter of local concern'")
(quoting Travelers Ins. Co., 514 U.S. at 661), cert. denied, 516 U.S. 1173
(1996). After considering the nature and effect of the state law suit involved
here and finding that none of the Arkansas Blue Cross and Blue Shield factors
listed above favor preemption in this case, we conclude that there is no
impermissible connection between the negligent misrepresentation claim and
the ERISA plan to justify preemption of count III.
|||C. Statute of Limitations
|||The district court granted summary judgment in favor of Fairview, concluding
that Mrs. Shea's attempt to amend the complaint to join this defendant to
the suit was untimely. Mrs. Shea argues that the addition of this defendant
should relate back to the original date of filing, because the two-year
statute of limitations had run by the time she sought to add this defendant.
|||An amendment to a pleading relates back to the date of the original pleading
if the party has received notice of the action so it will not be prejudiced
in maintaining a defense on the merits, and if the party knew or should
have known that but for a mistake concerning the identity of the proper
party, the action would have been brought against this party in the first
instance. See Fed. R. Civ. P. 15(c)(3). The determination of whether an
amended pleading should be allowed and whether it relates back to the date
of the original pleading are matters within the sound discretion of the
trial court. See Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S.
321, 330 (1971); see also Marchant v. City of Little Rock, Ark., 741 F.2d
201, 206 (8th Cir. 1984).
|||The district court found that Mrs. Shea did not bring the case against
the wrong parties; she merely asserts she lacked knowledge of the financial
and management relationship between the Clinic and Fairview. We agree with
the district court that this asserted lack of knowledge does not satisfy
the Rule 15 requirement that the plaintiff show an error concerning the
identity of the proper party or that Fairview should have known that the
suit would have been brought against it but for a mistake in identifying
the proper party. There was no mistake here. Mrs. Shea did not bring the
suit against the wrong parties. She knew before the expiration of the statute
of limitations that Fairview owned the Clinic. She knew the identity of
Fairview but chose not to bring Fairview into the suit at that time. We
find no abuse of discretion in the district court's conclusion that there
is no relation back to the date of the original pleading in this situation.
|||D. Motion to Strike
|||Also pending is the defendants' motion to strike portions of the appellant's
brief and appendix, specifically pages 376-504 of Mrs. Shea's appendix and
any references to these documents in her brief. Fairview joined the motion
but noted that pages 400-427 were before the district court at the time
of its summary judgment ruling in March 1998. With this exception, we agree
that the other documents at issue are not part of the record on appeal because
they were not before the district court at the time it entered its summary
judgment ruling. On appeal from a summary judgment ruling, the record before
us includes evidentiary materials that were before the trial court when
it made the summary judgment ruling, and we will not consider materials
that became part of the district court file subsequent to that ruling. Barry
v. Barry, 78 F.3d 375, 379 (8th Cir. 1996).
|||Mrs. Shea asserts that the information was not before the district court
in a more timely manner because the doctors refused to produce the documents
earlier. When she requested permission of the district court to file a motion
to reconsider in light of this new evidence, however, the district court
denied the request noting that the summary judgment decision in this case
was based on ERISA preemption, which is a question of law, not on the basis
of insufficient evidence. Because the appeal involves a question of law,
we conclude that Mrs. Shea has not offered a compelling reason why we should
consider these records that were not submitted with the initial motion for
summary judgment. We therefore grant the defendants' motion to strike material
that was not before the district court at the time of its summary judgment
ruling. We note that we did not consider the improper references to this
material in our determination of this appeal.
|||Accordingly, we deny the motion to dismiss the appeal as moot, we grant
the motion to strike portions of the appellant's brief and appendix, and
we reverse the district court's determination that count III is preempted
by ERISA. Because the basis for removal no longer exists, we remand to the
district court with instructions to remand count III to the state court.
In all other respects, we affirm the judgment of the district court.
|||A true copy.
|||CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
|||*fn1 The Employee Retirement Income
Security Act of 1974 (codified as amended at 29 U.S.C. §§ 1001-1461 (1994
& Supp. III 1997) and in scattered sections of Title 26 U.S.C.).
|||*fn2 The Secretary of Labor is charged
with interpreting and enforcing all provisions of Title I of ERISA. See
29 U.S.C. §§ 1132(a)(2), (5), and 1135.
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