Challenge to NY Subrogation Ban Rejected; No Eligible Defendant
Thompson Publishing January 2011 Volume. 19, No. 1
New York late in 2009 barred subrogation and reimbursement rights for insured health plans. While it seems clear that the New York law does not apply to self-insured ERISA health plans, a health insurer’s preemptive attempt to force the issue was rejected by the U.S. District Court for Western New York. Citizen suits against states are barred by the 11th Amendment of the U.S. Constitution, and a lawsuit to compel a government official is limited to targeting only the official who has purview for enforcement of the challenged provision — and then only if the official actively enforced it, the court said. New York’s Attorney General (now Governor) Andrew Cuomo (D) has done nothing to challenge any self-insured ERISA plan’s use of subrogation and has said he had no intention of doing so.
Early Challenge to New York Anti-subrogation Law Fails
As we reported in the September 2010 Newsletter, New York amended its General Obligations Law as of Nov. 12, 2009 to bar subrogation and reimbursement rights under insured health plans. It seems clear that the New York law does not apply to self-insured ERISA health plans. But the first explicit attempt to establish that apparent fact has failed on procedural grounds (failure to name a proper defendant). The case is HealthNow New York, Inc. v. New York, et al., 2010 WL 3607619 (W.D. N.Y., Sept. 13, 2010).
The Facts
HealthNow, a non-profit health service corporation licensed in New York State, provides medical coverage through self-insured group health plans in New York. Its plan documents provide for subrogation and reimbursement of the medical expenses it pays when its covered members pursue recovery from any third party. HealthNow claims to have more than 1,300 outstanding claims for such reimbursement, representing nearly $14 million in benefits. It brought this action on April 26, 2010 alleging that the state’s anti-subrogation law:
• is preempted by ERISA;
• applies only to contractual subrogation and reimbursement rights and not to equitable subrogation rights; and
• violates the U.S. Constitution’s Due Process and Contracts clauses.
The defendants (the State of New York and former Attorney General (now Governor) Andrew Cuomo (D)) moved to dismiss the case. They claimed that the court lacks jurisdiction to hear the complaint because the 11th Amendment to the U.S. Constitution bars suits against the state, and because a well-recognized exception to that Amendment does not apply to state officers, including the attorney general.
The attorney general had done nothing to challenge HealthNow’s — or any other self-insured ERISA plan’s — use of subrogation and he said he had no intention to do so.
The Decision
HealthNow conceded that the 11th Amendment immunity applies in this case, and so it withdrew its claim against the state, leaving only its claim against the attorney general. It continued to assert that the attorney general is a proper party because he is not protected by the immunity granted by the 11th Amendment under the case of Ex parte Young, 209 U.S. 123 (1908). In that case, the U.S. Supreme Court carved out an exception to the 11th Amendment allowing a plaintiff to proceed against an individual state officer in his official capacity when a complaint alleges an ongoing violation of federal law and seeks relief properly characterized as prospective. Under that rule, if the attorney general sought to prevent HealthNow from enforcing its subrogation and reimbursement provisions against a self-insured ERISA plan, a lawsuit against him apparently would not violate the 11th Amendment.
However, the court concluded that to fall within the Ex parte Young exception, a state officer must have some connection with enforcement of a statute. Absent that, anyone could evade the impact of the 11th Amendment by making a state officer a party as a state representative, which would have the effect of making the state a party.
That led the court to conclude that it is not enough to bring an action against the attorney general in this case merely because he has general authority to enforce state laws. Instead, the state officer must have both a “particular duty to enforce the statute in question” and a “demonstrated willingness to exercise that duty.” In this case, the attorney general claimed that he has no authority to seek an injunction against HealthNow to stop it from bringing an action for its claimed subrogation rights and to challenge the anti-subrogation law itself because petitioning the government through a lawsuit is a protected First Amendment activity.
Since the New York anti-subrogation law did not delegate enforcement to the attorney general, and since he had no intention of enforcing the law against HealthNow (or anyone else), he was not a proper party to the lawsuit. His general authority to investigate and enforce state laws simply was not deemed a sufficient connection for him to be a proper party to the lawsuit.
As a result, the complaint did not name a proper party to the action, so the court dismissed the case without prejudice (which means that it would be free to bring the action again if it could identify a proper party that might seek to enforce the statute against it).
Implications
It appears clear that the New York law is not drafted to attempt to be enforced against self-insured ERISA plans. This case was an unsuccessful attempt to have the anti-subrogation law declared invalid or inapplicable to self-insured ERISA plans. It’s unlikely that New York, or any future attorney general, will seek to enforce the statute against a self-insured ERISA plan. When and if a future attorney general or other state official takes the unlikely attempt to prevent HealthNow or any other self-insured ERISA plan from asserting its right to reimbursement, such an action would be permissible.
It is possible (though it certainly is not probable) that a plan participant of a self-insured ERISA health plan might raise this issue alleging that the New York anti-subrogation law applies to such plans. If that occurs, HealthNow or some other similar plan will have to
litigate the merits of such an argument and would likely seek to remove the case to a federal court. If so, it is unlikely that such an argument will be successful.
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