Seyfarth Synopsis: In an unpublished yet fascinating decision, the California Court of Appeal held that ERISA § 514 preempts state law causes of action premised on wrongful disclosure of protected private health information. Although not-binding as precedent, the decision is noteworthy to Plan sponsors and administrators because it demonstrates the expansive preclusive effect of federal law over state privacy and consumer protection statutes that impact ERISA benefit claims.
By Jonathan A. Braunstein and Michael W. Stevens
In an unpublished decision, the Fifth District of the California Court of Appeal held that ERISA Section 514 preempts state law causes of action for invasion of privacy and violations of unfair competition law arising from an underlying claim for ERISA plan benefits. See Weaver v. Healthcomp, Inc., No F075072, 2019 WL 151564.
Ms. Rose was a former employee of Harris Ranch Beef Company (Harris Ranch), and a participant in the Harris Farms Inc. Employee Health Care Plan (the plan), a self-insured ERISA employee health benefits plan for employees of Harris Farms and its related companies, including Harris Ranch. Harris Farms was the plan administrator and sponsor. HealthComp, Inc., was the plan’s third-party administrator; its services included case management.
In December 2011, Ms. Rose was diagnosed with liver failure; she needed a liver transplant and was placed the waiting list. Healthcomp assigned Rose a nurse case manager. Rose alleged the nurse case manager had Rose sign a form authorizing release of medical records, and the nurse case manager passed along to Rose’s employer medical information she received using the signed authorization. In December 2012, Harris Ranch terminated Rose’s employment, which Rose alleged occurred shortly after Harris Ranch received a report from the nurse case manager about Rose’s increased need for a liver transplant. Rose alleged defendant closed the nurse case management file after Rose’s termination but reopened it at Harris Ranch’s request after Rose filed a wrongful termination action against Harris Ranch. Defendant allegedly resumed accessing Rose’s medical records via the release and supplying her medical information to Harris Ranch.
The complaint alleged two causes of action: (1) invasion of privacy in violation of California Constitution, article I, section 1, and Civil Code section 56.20; and (2) unfair business practices in violation of California unfair competition law (Bus. & Prof. Code, § 17200 et seq.). Both causes of action were premised on defendants’ alleged improper disclosure or use of plaintiff’s personal health information. Defendants moved for summary judgment, asserting plaintiff’s two state law causes of action were preempted by ERISA section 514, 29 United States Code section 1144(a). Plaintiff opposed the motion. The trial court granted defendants’ motion and entered judgment in defendants’ favor. Plaintiff appealed.
The Court of Appeal affirmed. After engaging in an extensive analysis of ERISA preemption law, including the recent US Supreme Court decision in Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936 (2016), the Court of Appeal concluded that where “a plaintiff asserts state law claims based on alleged misconduct that was within the scope of the conduct regulated by ERISA, including the privacy protections required to be included in ERISA group health plans, invoking state law remedies for that alleged misconduct constitutes an impermissible attempt to enforce ERISA privacy rights by means of an alternative enforcement mechanism . . . the state law provisions have an impermissible connection with ERISA plans and are therefore preempted” (emphasis added).
The Court of Appeal found that regardless of“[w]hether the plan administrator is ‘managing’ the fiscal health of the plan or ‘administering’ claims, California privacy laws, if not preempted, would limit what private health information could be disseminated.” The Court concluded [Plaintiff’s] attempt to distinguish use of protected health information for administrative, as opposed to management, purposes does not change the analysis of the preemption issue.”
Though unpublished, Weaver is notable. Privacy issues and concerns are hot button topics. This case will certainly not be the last to present questions as to the scope of federal preemption of state privacy and consumer protection laws. Indeed, California just recently enacted its broad and comprehensive Consumer Privacy Act of 2018, which legislation will soon go into effect. It is only a matter of time before that new law confronts federal preemption head on. Stay tuned!