1. Case Name: Beye et al., v. Horizon Blue Cross Blue Shield et al., United States District Court for the District of New Jersey, August 1, 2008. 568 F. Supp. 2d 556.

2. Lawyers:

  • Counsel for Plaintiff
    • For Dawn Beye: Beth G. Baldinger, Eric D. Katz, David A. Mazie, Mazie, Slater, Katz & Freeman, LLC
    • For Foley Plaintiffs: Bruce Heller Nagel, Randee M. Matloff, Elliott Louis Pell, Nagel Rice, LLP
    • For Ronald Drazin, Ronald Sedlak et al: Bruce Heller Nagel, Randee M. Matloff, Nagel Rice, LLP  For Beye Plaintiffs: David A. Mazie, Eric D. Katz, Mazie, Slater, Katz & Freeman, LLC.
  • Defendant:
    • For Horizon BCBS of New Jersey: David Jay, Philip R. Sellinger, Laurie Ann Poulos, Greenberg Traurig, LLP
    • For Magellan Health Services, Inc.: Thomas F. Quinn, Wilson, Elser, Moskowitz, Edelman & Dicker, LLP

3. Format: Published opinion and order.

4. Outline:

  • Type of Treatment Services Denied: All four named Plaintiffs have daughters who suffer from eating disorders, and in all cases coverage for treatment of these disorders has been denied by Defendants.
  • ERISA Claim? Yes.
  • Class Action/or Individual Action: Class action.
  • Defendant: Defendant Horizon is the insurer of Plaintiff’s policies. Defendant Magellan is the administrator of the mental health benefits provided by Defendant Horizon.
  • Type of Insurance Plan: Unclear.
  • Type of Coverage Denial: Claims deal with both administrative denials and denials based on medical necessity.
  • Causes of Action: See below in Legal Issues & Causes of Action (#6) and in Miscellaneous (#13)

5. Legal Pointer: Plaintiffs are suing their insurance company and the company’s mental health benefits claims administrator for improperly denying coverage for eating disorders.

6. Legal Issues and Causes of Action: Plaintiffs argue that Defendants improperly denied coverage for treatment for their daughters’ eating disorders by improperly categorizing eating disorders as non-biologically based mental illnesses.

  • Ruling: The Defendants motion to dismiss is denied in part and granted in part. See Miscellaneous (#13).

7. Narrative Case Description: There are four named Plaintiffs: Beye, Byram, Drazin and Sedlak. Three of the Plaintiffs’ policies cover treatment for biological based mental illness (BBMI) at parity with other illnesses, as required by the New Jersey Mental Health Parity Law. Three policies also contain limitations for non-BBMIs (Byram, Beye and Drazin). Plaintiffs Beye and Drazin received coverage for the eating disorders as non-BBMIs but exhausted coverage. Plaintiffs Byram and Sedlak’s claims were denied as not medically necessary.

The Court first considers whether to abstain from considering Plaintiffs claims pursuant to the holding of Burford v. Sun Oil Co. Relying upon the holding in DeVito v. Aetna, the Court decides that abstention is not appropriate in this case.

The Court then considers whether to dismiss the claims of Plaintiff Byram, Beye and Sedlak for failure to appeal their adverse IURO decisions to the appellate division. Beneficiaries of ERISA plans are not required to appeal an adverse IURO ruling before filing suit. Likewise, non-ERISA plaintiffs are required to appeal adverse IURO rulings before filing suit.

Next, the Court considers whether to dismiss all claims brought by Plaintiffs Byram and Sedlak whose claims were deemed not medically necessary. Defendants argue that medical necessity is a threshold that participants must meet as coverage for non-medically necessary services is categorically denied. Defendants further this argument by stating that because the coverage was deemed not medically necessary, the classification as a BBMI/non-BBMI never occurred and therefore, Plaintiffs have failed to state a claim upon which relief may be granted. Plaintiffs argue that the medical necessity determination is pretextual and intertwined with Defendants’ improper treatment of eating disorders as non-BBMI. The Court states that the Plaintiffs must demonstrate a connection between the claims and the Defendant’s improper treatment of eating disorders, but that dismissal at this stage is not appropriate.

The Court then considers whether ERISA preempts the common law and state claims. These are claims 1, 2, 4, 5, 6, 7, 8, 9 and 10 of the Beye complaint and counts 2 and 4 of the Foley complaint.  In determining whether ERISA preempts the claims, the question is whether Plaintiffs’ claims “relate to” an ERISA benefit plan. Plaintiff Drazin concedes his claims are preempted by ERISA. Plaintiff Byram argues that because the language in her contract provides rights substantially similar to the NJ Parity Law that she may also pursue her claim under the Parity Law. The Court holds that based on the language, the ERISA plaintiffs may pursue their contractual claim to benefits but that the Parity Law claims are dismissed and preempted.

Plaintiff Byram also argues that she may pursue her state law claims for unjust enrichment, misrepresentation and consumer fraud because these claims are independent of the ERISA relationship. The Court finds that the misrepresentation claims are entirely dependent on her rights under her ERISA plan. As such, the Court grants Defendant’s motion to dismiss Byram’s state law claims Counts 5, 7 and 8 as preempted. The Court also grants Defendants motion to dismiss the ERISA claims of non-ERISA Plaintiffs.

The Court then moves on to the Plaintiffs Parity Law Claims. The Plaintiffs argue for an implied private cause of action. The Court disagrees and grants Defendant’s motion to dismiss these claims. In so deciding, the Court considers the test for whether a statute provides an implied cause of action, “whether: 1) the Plaintiff is a member of the class for whose special benefit the statute was enacted, 2) there is any evidence that the Legislature intended to create a private right of action under the statute, and 3) it is consistent with the underlying purposes of the legislative scheme to infer the existence of such a remedy.”

The Court also considers whether it has jurisdiction over the non-ERISA Plaintiffs. Defendants argue the Court does not have jurisdiction, but states there has not been sufficient evidence offered to refute the Plaintiff’s arguments. The Court reminds the parties that federalism and comity dictate that federal courts be less inclined to increase state law liability by finding implied rights in state law. The Court does not believe it has been adequately briefed and declines to reach the question of whether the Parity Law provides an implied cause of action for the non-ERISA Plaintiffs.

Finally, the Court moves on to consider other claims. Defendant Horizon moves to dismiss common law claims of Plaintiffs Beye and Sedlak. The Court denies these motions without prejudice as it chooses to wait until issuing a finding on whether the Court has jurisdiction over the non-ERISA plaintiffs.

Defendant Magellan moves to dismiss all claims against Magellan Health Services, Inc. and Magellan Behavioral Health Inc. because the entities are not signatories to the agreement with Horizon. The Court denies this motion because Plaintiffs have alleged these entities are involved in the improper claims processing.

Defendant Magellan also moves to dismiss Plaintiff Drazin’s claims of breach of fiduciary duty under ERISA because it is not a fiduciary. The Court denies this motion because the determination of whether an party is an ERISA fiduciary is a functional one that is not typically resolved at the motion to dismiss stage.

Finally, the Court considers Defendant Magellan’s motion to dismiss claims arising before January 5, 2004 when the entity declared bankruptcy. The Foley ERISA Plaintiffs argue that their ERISA breach of fiduciary claims and non-ERISA breach of fiduciary duty claims did not arise until the plan participants had notice of the breach. The Court finds that the ERISA Plaintiffs’ claims accrued at the time Defendants denied their benefits. For the non-ERISA Plaintiffs, the breach of fiduciary duty arises when the act or injury occurs.  Here, for the non-ERISA Plaintiffs, the act or injury occurred when the claims were denied. Thus, the Court grants the motion to dismiss the claims prior to January 5, 2004.

8. Additional Comments: The Court heavily relies upon DeVito v. Aetna in its decision.

9. Website: http://www.leagle.com/decision/20081124568azfsupp2d556_11073/BEYE%20v.%20HORIZON%20BLUE%20CROSS%20BLUE%20SHIELD%20OF%20N.J.

10. Practical Implications and Lessons Learned:

11. All Legal Theories Presented in Case: See Miscellaneous

12. Successful Legal Theories in Case: See Miscellaneous

13. Miscellaneous

  • Plaintiffs in this Case:
    • Plaintiff Beye:
      • Policy contains limitation for non-BBMI
      • Non-ERISA plaintiff
      • Did not appeal adverse IURO decision to the Appellate division
    • Plaintiff Byram:
      • Policy contains limitation for non-BBMI
      • ERISA plaintiff
      • Did not appeal adverse IURO decision to the Appellate division
      • Claims denied as not medically necessary
    • Plaintiff Drazin:
      • Policy contains limitation for non-BBMI
      • ERISA plaintiff
    • Plaintiff Sedlak:
      • Non-ERISA plaintiff
      • Did not appeal adverse IURO decision to the Appellate division
      • Claims denied as not medically necessary
    • Plaintiff Foley: terminated as a Representative Plaintiff but claims are addressed, in part, in the order
  • Counts
    • Count 1: Common law breach of contract
    • Count 2: Common law breach of implied duty of good faith and fair dealing
    • Count 3:
    • Count 4: Violations of New Jersey’s Parity Law
    • Count 5: Violations of New Jersey Consumer Fraud Act
    • Count 6: Violations of the Pennsylvania Unfair Trade Practices and Consumer Protections Law
    • Count 7: Common law unjust enrichment
    • Count 8: Common law misrepresentation
    • Count 9: Tortious interference with contract rights
    • Count 10: Third party beneficiary breach of contract
  • Holdings
    • Plaintiff Beye Counts 1,2,4,5,7,8,9,10 are dismissed
    • Plaintiff Foley Counts 2, 4, are dismissed
    • To the extent Beye and Foley assert ERISA claims on behalf of non-ERISA Plaintiffs, those claims are dismissed
    • Defendants motion to dismiss the non-ERISA Plaintiffs claim under the Parity Law are denied but the motion may be raised again
    • Defendants motion to dismiss other common law and state claims brought by non-ERISA plaintiffs are denied but the motion may be raised again
    • Claims against Magellan arising before January 5, 2004 are dismissed
    • Defendants motion to dismiss is denied in all other respects
    • Defendants may submit a motion on the issue of subject matter jurisdiction over the non-ERISA Plaintiffs by September 2, 2008
    • If parties are not in disagreement as to the existence of CAFA jurisdiction over the non-ERISA Plaintiffs, the parties shall submit a joint statement setting forth the rationale by Sept. 2, 2008


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