Appeals About Issues Decided by State Agency Must Go to the Appellate Division, Not the Law Division

Beaver v. Magellan Health Services, Inc.. 433 N.J. Super. 430 (App. Div. 2013).  “Under what circumstances may a litigant pursue common law and statutory causes of action in the Law Division, rather than appeal from State final agency determination, where the merits of the agency determination are at issue?”  So begins this opinion by Judge Kennedy.

Plaintiff, a former public employee, had health insurance coverage through the State Health Benefits Program.  By statute, that Program is governed by the State Health Benefits Commission (“SHBC”), a State agency.  SHBC, in turn, contracts with private health insurers, such as defendant Horizon Blue Cross Blue Shield of New Jersey, to administer the Program.  But SHBC “alone has the authority and responsibility to make payments on claims and to limit or exclude benefits.  N.J.S.A. 52:14-17.29(B).  Additionally, the SHBC has final authority to adjudicate disputes between plan members and State-contracted claims administrators, and may refer such disputes to the Office of Administrative Law (OAL) for an evidentiary hearing.”

Horizon hired defendant Magellan to manage substance abuse benefits for Program members and their dependents.  Magellan declined to authorize certain substance abuse treatment for plaintiff’s son.  Plaintiff challenged that decision through two levels of internal appellate review within Magellan and Horizon, and plaintiff succeeded in overturning part of Magellan’s original denial.  To the extent that those internal appeals did not succeed, however, plaintiff exercised the right to appeal to SHBC.  That appeal proceeded through the OAL process.  Ultimately, however, the agency affirmed the benefits administrator’s decision.  Plaintiff filed an appeal to the Appellate Division from the SHBC ruling, but later voluntarily dismissed that appeal.

Four days before that voluntary dismissal, plaintiff instituted a separate action in the Law Division.  In that action, plaintiff sued only Magellan and Horizon, asserting (on theories of breach of contract, breach of fiduciary duty, consumer fraud, and unjust enrichment) that those parties had wrongfully denied the substance abuse treatment.   Defendants moved to dismiss the case for lack of jurisdiction and failure to state a claim.  The Law Division granted dismissal on grounds of lack of jurisdiction.  Plaintiff appealed, but the Appellate Division affirmed.

Judge Kennedy observed that a dismissal for lack of jurisdiction, under Rule 4:6-2(a), is a purely legal issue that is reviewed de novo.  Thus, the issue of whether plaintiff’s complaint stated a claim was not before the Appellate Division.

Plaintiff contended that his Law Division complaint was not challenging the ultimate SHBC benefits decision, but was merely asserting contract and tort claims against the claims administrators.  Judge Kennedy did not accept that purported distinction.  “[P]laintiff has explicitly stated that his claim is brought to recover ‘unpaid benefits’ under the Program.  Accordingly, to recover, plaintiff must necessarily secure a reversal of the SHBC final agency action upholding the denial of those same benefits.  Plaintiff cannot avoid this obvious conclusion by cloaking his claims under the mantle of contract and tort.”  The contract and tort claims were “no more than a collateral challenge” to the final agency action.  As such plaintiff’s Law Division case ran squarely into Rules 2:2-3 and 2:2-4, which provide that appeals from final (or interlocutory) decisions of State administrative agencies are within the purview of the Appellate Division.  The Law Division had no jurisdiction over plaintiff’s claims.