Will the Supreme Court End Confusion Caused by Empire v. McVeigh?

By Cory Bilton

Supreme Court - 2

While the nation looks to the Supreme Court to take a stand on historic social issues, some personal injury attorneys are hopeful that the Court will take a stand for state laws that protect injury victims from unfair subrogation practices. My interests fall into both categories. For attorneys unaware that an interesting subrogation case is being considered, you should check out the briefs for Aetna v. Kobold or Coventry v. Nevils. The two cases ask the Court to resolve the same issue: do the terms of a FEHBA plan preempt state laws regulating subrogation and reimbursement?

If you are interested in background on the FEHBA lien debate, take a look at my post from early last year after the Nevils decision came down of the Supreme Court of Missouri.

What Happened in Aetna v. Kobold?

Aetna Life Insurance Company v. Kobold comes to the Supreme Court after a decision from the Court of Appeals of Arizona (an intermediate level appellate court in Arizona). Arizona, like Missouri, has a state anti-subrogation statute. Aetna provided health benefits to Kobold, who was a federal employee injured in a motorcycle accident. When Kobold recovered money from the person that injured him, Aetna demanded full reimbursement of the health benefits according to the terms FEHBA policy, despite Arizona’s anti-subrogation law. The Court of Appeals of Arizona held that the FEHBA preemption statute, 5 USC § 8902(m)(1), does not preempt Arizona’s anti-subrogation law, because the state law does not “relate to the nature, provision, or extent of coverage or benefits . . . .” Since the court ruled the anti-subrogation law is not preempted, it stopped Aetna’s attempt to recover from Kobold.

In asserting its claim for subrogation, Aetna had been relying upon the Office of Personnel Management’s (OPM) June 18, 2012 letter advising FEHBA carriers, like Aetna, that they are entitled to receive subrogation recoveries regardless of state law. To this, the Court of Appeals of Arizona said:

The letter does not appear to be the result of a formal rulemaking or adjudication process, and we see nothing in the FEHBA to indicate that Congress intended to delegate to the OPM the authority to make determinations having the force of law. Therefore, the letter does not command the deference prescribed by Chevron. . . . Nor are we otherwise required to accept the letter’s interpretation.

Have Any Courts Decided FEHBA Does Preempt State Anti-Subrogation Laws?

The only case that supports FEHBA’s power to preempt state anti-subrogation laws, post Empire v. McVeigh, appears to be a 2013 opinion, Calingo v. Meridian Resource Company, out of the US District Court for the Southern District of New York. In that case, which has been brought to your attention if you have argued this issue with a FEHBA carrier lately, the court deferred to the interpretation in the OPM letter referenced in Kobold (the court actually reversed its own previous decision after reading the OPM letter).

So in the judicial matchup, you have a state supreme court and an intermediate appellate court in Arizona on one side of the debate and you have a federal district court in New York on the other side. If this qualifies as a split of opinion in the Supreme Court’s eyes, then the issue is whether the OPM’s letter to its FEHBA carriers is a binding interpretation of the law.

What’s Happening in the Supreme Court?

In the late spring of 2014, Coventry Health, the FEHBA carrier in the Nevils case, filed its petition for a writ of certiorari with the Supreme Court. Aetna followed with its petition about six weeks later. In October of 2014, the Supreme Court asked the Solicitor General to file a brief to give the views for the United States. At the current moment, these briefs have not been filed yet. No oral arguments have been set yet. So we wait.

What’s going to Happen?

Possibility #1: The Supreme Court can deny certiorari. Since Kobold and Nevils are coming to the Supreme Court after other courts already sided with the injured individuals, their briefs argue that the Supreme Court should not take up this issue. Although the Court is waiting for the solicitor general to weigh in on the current debate, I don’t think that makes it certain the Court wants to grant cert here. Presumably, the solicitor general’s argument is going to share some characteristics with its argument in Empire v. McVeigh, and the Court’s majority did not side with the solicitor general that time. I’m doubtful the court will hear anything new from the solicitor general this time.

If the Supreme Court ultimately denies certiorari on the narrow issue presented in Kobold and Nevils, I think that’s a win for injured people everywhere. Since the cases come to the Supreme Court where FEHBA fails to preempt state anti-subrogation statutes, the Court’s silence passively indicates the Kobold and Nevils decisions were correct.

Possibility #2: The Supreme Court grants certiorari and later holds that FEHBA does preempt state anti-subrogation laws. While this is a possible outcome, the opinion will have to be very carefully reasoned to square itself with Empire v. McVeigh. The majority in McVeigh said that federal courts lack subject matter jurisdiction when a FEHBA carrier tries to subrogate against its beneficiary. If the Court holds that anti-subrogation statutes are preempted by FEHBA in Kobold and Nevils, then it seems FEHBA carriers should be able to bring claims against beneficiaries in federal court. If this possibility turns into reality, the opinion will involve some mental gymnastics for sure.

If the Court chooses preemption, it will also strengthen OPM’s power to informally interpret laws through letters. This seems to be an ideologically barbed concept. And ideology played a role in the 5-4 decision in McVeigh, so OPM’s rulemaking authority may be a decisive subissue in the Kobold and Nevils case.

Possibility #3: The Supreme Court grants certiorari and later holds that FEHBA does not preempt state anti-subrogation laws. This would be a huge and definitive win for people injured in accidents. But other than clarity, I’m not sure what purpose the Supreme Court would have for granting cert just to reach this outcome. As I mentioned above, it’s questionable whether the Court thinks there is a legitimate split of judicial opinion on the issue of FEHBA preemption. Since the Court can reach the practical effect of this outcome by just denying certiorari (which also has the added benefit of allowing members of the Court to change their minds later), this possibility seems to me an unlikely outcome at this point.

If certiorari is granted in Kobold and Nevils, I look forward to attending the oral arguments. It’s not often that an issue before the Supreme Court has the potential to make such a big difference for people injured in accidents.

Please read my disclaimer.