Tuesday, June 30, 2020
Contrary to all prior Federal circuit courts that have decided the question, the Texas Supreme Court, in Texas Mut. Ins. Co. v. PHI Air Medical, LLC, 2020 WL 3477002, has decided that the Airline Deregulation Act (ADA) does not preempt state regulation of air ambulance costs. As many readers will know, the air ambulance expense associated with transport of employees suffering work-related injuries has been a heavily litigated matter for a number of years. (I have written about the issue here, and here, and here, and here.) All federal circuit courts considering the issue have concluded that air ambulance services fall under the ADA and that the ADA preempts state regulation of air ambulance rates. The controversy has intensified as air ambulance service providers charge tens of thousands of dollars per trip while state workers’ compensation systems wish to pay far less.
The ADA preemption provision is modelled on ERISA’s preemption language and I have been pointing out for years that while ERISA preemption seemed to be loosening (in particular, read Souter’s opinion in the Travelers case) ADA preemption analyses seem to have been ignoring these parallel ERISA developments. The same is true of FAAA preemption, which has been “butting heads” with the California “ABC” employee definition under AB5. In short, the argument goes, forcing interstate trucking outfits to treat truckers as employees may raise costs which in turn may have an impact on trucking prices.
I gave a CLE presentation on this topic in Wyoming last week focused on the 10th Circuit’s 2017 EagleMed case, which Texas Mutual necessarily carefully distinguished. (Interestingly, Texas Mutual intervened in the EagleMed case and lost despite raising the same arguments as in the Texas state case). One point I made in the CLE was that state authorities could have avoided federal courts by seeking declaratory judgment in state court on purely state law grounds under the well-pleaded complaint rule. Federal preemption in such cases is raised as a defense in the state proceeding, which cannot involuntarily be removed to federal court on that basis. The exception to this rule is known as “complete preemption.” Complete preemption occurs only under Section 502 of ERISA, Section 301 of the Labor Management Relations Act, and under certain provisions of the National Bank Act of 1864. Under complete preemption doctrine, when state law pleadings raise preemption issues under the federal statutes I just mentioned, the case is immediately removable to federal court despite sounding in state law.
I do not have time to parse the Texas Mutual case (Tom Robinson does a really nice job here), but suffice it to say it is completely at odds with the federal circuits, and it would not surprise me if the U.S. Supreme Court took it up. The two underlying issues are the sweep of the ADA preemption provision (how much actual impact on “airline prices” must be shown?); and the extent to which the McCarran-Ferguson Act of 1945—a statute creating a presumption that federal statutes not be interpreted to interfere with traditional state regulation of the “business of insurance”—"reverse preempts” ADA preemption of state airline regulation. (It is not every day that I get to write the words “preemption” and “presumption” so often in the same sentence). While I am with the Texas Mutual dissenters on that question (M-F probably does not apply—though I would probably focus on an implied repeal theory), the real issue there is whether the federal courts will continue to treat ADA preemption like the Supreme Court did early-on in its ERISA preemption cases (see e.g. Shaw v. Delta Airlines). If they do, McCarran-Ferguson arguments will certainly not prevail at the federal level.
Of course, the federal courts may eventually come to accept the argument that ADA and FAAAA preemption should be tracking ERISA’s Traveler’s case (as I’ve argued in the past) which seemed to reinvigorate the idea that there is a “presumption against preemption.” And, for those readers who may not recall the puzzle, it is extremely unclear how the broad ERISA preemption provision ever came into existence.
Michael C. Duff