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Biorx LLC v. Voith Holding Inc.

United States District Court, E.D. Wisconsin

June 27, 2016

BIORX LLC, Plaintiff,


          William C. Griesbach, United States District Court Chief Judge.

         BioRx LLC filed a complaint in Wisconsin state court against Voith Holding Inc. and Voith Paper Fabric & Roll Systems Inc. (collectively “Voith”), alleging common law breach of contract, promissory estoppel, negligent misrepresentation, and unjust enrichment, as well as a violation of North Carolina’s “pharmacy of choice” statute, N.C. G.S. § 58-51-37. BioRx’s claims arise out of Voith’s refusal to pay nearly $900, 000 for hemophilia medication and related services provided for the care and treatment of the son of one of its employees. Voith removed the case from state court pursuant to 28 U.S.C. § 1441(a) alleging BioRx’s state law claims are “completely preempted” by the Employee Retirement Income Security Act of 1974 (ERISA). Shortly thereafter, Voith filed a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). BioRx filed an opposition to Voith’s motion and moved to remand the case to state court pursuant to 28 U.S.C. § 1447. For the reasons below, the motion for remand will be granted and the motion to dismiss denied.


         According to the allegations in the complaint, in late 2012, one of Voith’s employees identified BioRx, a “specialty pharmacy, ” as a potential hemophilia therapy provider for her son. In early 2013, BioRx inquired of representatives of Voith and the third-party administrator of Voith’s group employee medical benefit plan (United Heathcare) whether Voith would cover the cost of the medication and treatment. BioRx alleges that Voith assured BioRx it would pay for the medication and informed BioRx that no additional approvals would be required in order to ensure the medications were covered as long as they were billed in a certain way.

         In reliance on these alleged representations and promises for payment, BioRx began delivering medication to the employee for treatment of her son on January 25, 2013. BioRx alleges that Voith paid BioRx nearly $700, 000 for continued deliveries through April 2013 before denying payment for the first time in June. BioRx nevertheless continued making the deliveries even after Voith denied payment until October 21, 2013, because of the patient’s need for the medication and its belief, based on the earlier representations and the parties’ course of dealing, that the denial was an “error” by United Healthcare that would be rectified. Ultimately, BioRx delivered product valued at almost $900, 000 for which Voith denied and continues to deny payment.

         The complaint is somewhat vague about the terms of Voith’s benefit plan, but there is no claim the BioRx is entitled to payment under the terms of the plan. BioRx alleges that it does not hold and has never held any assignment of any claim Voith’s employee may have under the terms of the plan, and that BioRx’s claims do not require any interpretation of the terms of the plan but instead arise independently out of common law and statutory duties. The parties’ briefing suggests agreement that the medications provided were not covered under the plan but the existence of a factual dispute over whether BioRx was promised payment in the absence of coverage.

         BioRx filed suit in Wisconsin state court (in the venue in which Voith’s principal place of business is located) and Voith removed the action to federal court. As noted above, the complaint contains only state law claims, namely, breach of contract, promissory estoppel, negligent misrepresentation, and unjust enrichment under Wisconsin law, and a violation of North Carolina’s “pharmacy of choice” statute, N.C. G.S. § 58-51-37, which generally prohibits a benefit plan from limiting or restricting an eligible employee’s choice of pharmacy where the pharmacy has agreed to participate in the benefit plan according to the terms thereof. Thus, unless BioRx’s claims are preempted by ERISA, federal jurisdiction is lacking.


         Subject matter jurisdiction is the first issue in every federal case. A defendant in state court may remove a civil action to the federal district court embracing the place where the action is pending if the district court has original jurisdiction over the action. 28 U.S.C. § 1441(a). If original jurisdiction is lacking, the case must be remanded to state court. 28 U.S.C. § 1447(c).

         The proponent of federal jurisdiction, here the removing party, bears the burden of establishing the federal jurisdiction. Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 758 (7th Cir. 2009). The parties in this case are non-diverse (each having dual citizenship including the State of Delaware) so Voith alleges jurisdiction exists under 28 U.S.C. § 1331, which confers on district courts original jurisdiction over cases “arising under” federal law.

         “A claim usually arises under the law that creates the right of recovery, for only when a well-pleaded complaint depends on a proposition of federal law does the claim arise under federal law.” Lehman v. Brown, 230 F.3d 916, 919 (7th Cir. 2000). “One corollary of the well-pleaded complaint rule developed in the case law, however, is that Congress may so completely pre-empt a particular area that any civil complaint raising this select group of claims is necessarily federal in character.” Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63-64 (1987). “In these instances, the federal law has effectively displaced any potential state-law claims. ‘When the federal statute completely pre-empts the state-law cause of action, a claim which comes within the scope of that cause of action, even if pleaded in terms of state law, is in reality based on federal law.’” Franciscan Skemp Healthcare, Inc. v. Central States Joint Bd. Health and Welfare Trust Fund, 538 F.3d 594, 596 (7th Cir. 2008) (quoting Aetna Health Inc. v. Davila, 542 U.S. 200, 207-08 (2004)).

         “Complete preemption” is not to be confused with “conflict preemption.” The former means that Congress has not merely preempted a state law (including a state common law cause of action) to some degree; it means Congress effectively substituted a federal cause of action for a state cause of action. Wright & Miller, 14B Fed. Prac. & Proc.: Juris. § 3722.2, at 403 (4th ed. 2009). The consequence of complete preemption is that the plaintiff’s claim may be removed to federal court, where it will proceed as if styled as the federal cause of action in the first instance. Conflict preemption is a broader concept. See Franciscan Skemp, 538 F.3d at 600 n.3 (citing Cotton v. Mass. Mut. Life Ins. Co., 402 F.3d 1267, 1281-82 (11th Cir. 2005)). A state law claim may be subject to a federal preemption defense, i.e. conflict preemption, but that is a substantive defense, not a basis for removal. A preemption defense is not a basis for removal because the federal question arises from the defense, not the claim itself.

         Here, Voith argues the doctrine of complete preemption applies. In other words, Voith claims BioRx’s state law claims are in reality federal claims arising under Section 502(a)(1)(B) of ERISA. That provision provides a cause of action to a “participant” or “beneficiary” of an employee benefit plan to recover benefits due under the terms of the plan, to enforce rights under the terms of the plan, or to clarify rights to future benefits under the terms of the plan. 29 U.S.C. § 1132(a)(1)(B). Section 502(a)(1)(B) has been deemed to completely preempt analogous state law claims. See Davila, 542 U.S. at 209; Metro. Life Ins., 481 U.S. at 65-66. State law claims that are not completely preempted under this provision, however, may still be subject to conflict preemption under ERISA § 514(a), which provides that ERISA supersedes all state laws that “relate to” employee benefit plans, 29 U.S.C. § 1144(a), but as noted above, conflict preemption is a substantive defense, not a basis for federal jurisdiction.

         The parties agree the test for whether ERISA § 502(a)(1)(B) completely preempts a given state ...

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