Preemption by Any Other Name Would Smell as Sweet: The Exemption for “Pervasive and Intricate Regulation” by Another Field of Law

by Ellis & Winters LLP
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Courts often opine on the relationship between N.C. Gen. Stat. § 75-1.1 and other bodies of law. In a recent case, a federal court announced a rare holding of that type: a holding that another body of law regulates an area so pervasively that applying section 75-1.1 is impossible.

A slow-developing fact pattern

Hagy v. Advance Auto Parts, Inc. arose from a subrogation dispute. In 2009, an employee of Advance Auto Parts, Jesse Worley, was injured on the job. He received medical and disability benefits through the North Carolina Workers’ Compensation Act. 

Worley’s employment later ended, but his medical needs continued. He argued that his post-employment medical issues stemmed from his workplace accident. Advance Auto disagreed and refused further payments. 

Worley pursued a claim before the North Carolina Industrial Commission. After the commission decided in Worley’s favor, the parties settled that workers’-compensation dispute.

Shortly after that settlement, Worley died. His daughter became the personal representative of his estate.

In late 2014, the federal Medicare agency reported that it had paid tens of thousands of dollars for Worley’s medical care, but had not been reimbursed by Advance Auto—the party that was primarily responsible, under workers’-compensation law, for these medical expenses.

Based on this failure to reimburse Medicare, the Worley estate sued Advance Auto and related parties. The estate’s primary claim arose from the Medicare Secondary Payer Act—a statute that creates a private cause of action for double damages. The estate also claimed that Advance Auto’s failure to reimburse Medicare violated section 75-1.1.

Advance Auto moved to dismiss this 75-1.1 claim. Magistrate Judge David Keesler recommended that the district court dismiss the 75-1.1 claim because any failure to reimburse Medicare had not injured Worley. According to the complaint, Worley received medical care, and he was not responsible for any of the resulting bills.

Judge Keesler also recommended dismissing the 75-1.1 claim on a broader basis. He held that the Medicare statutes pervasively regulate reimbursement of Medicare outlays. He saw a “problematic overlap” between these statutes and section 75-1.1. That overlap, in Judge Keesler’s view, barred the Worley estate’s 75-1.1 claim.

Yes, Medicare is pervasive and intricate

The Worley estate objected to Judge Keesler’s recommendation to dismiss the 75-1.1 claim. The estate argued that Judge Keesler had mistakenly applied federal preemption. The estate went on to argue that allowing recovery under section 75-1.1 is consistent with the Medicare statutes.

District Judge Robert Conrad, however, dismissed the estate’s 75-1.1 claim. The court held that the issue here is not preemption, but the scope of section 75-1.1 itself.

As the court explained, section 75-1.1 does not apply when other bodies of law already create a “pervasive and intricate” regulatory scheme. Courts have applied this type of 75-1.1 exemption to (among other claims) securities disputes, commodities disputes, tax disputes, and some employment-related cases.

The Hagy court held that this type of exemption defeated the Worley estate’s claims. The Medicare statutes and regulations are “convoluted and complex,” especially when Medicare acts as a secondary payer of medical expenses. In that situation, federal law creates robust remedies and clear guidelines on when those remedies apply. In view of those remedies, the Hagy court held that the Medicare laws create a “pervasive and intricate” regulatory scheme that crowds out private claims under section 75-1.1.

The court also observed that Worley and Advance Auto did not have the type of relationship that one typically sees in a 75-1.1 claim. For example, Worley was not a consumer of Advance Auto’s products or a competitor of the company. This relationship-based reasoning might need further development, given how many 75-1.1 claims between companies and former employees have succeeded.

For all of these reasons, the district court held that the Worley estate’s claim fell outside the scope of section 75-1.1. Having dismissed the claim on that basis, the court didn’t decide whether the estate had alleged a qualifying injury.

The future of the “pervasive and intricate regulation” doctrine

It’s hard to know how far the reasoning in Hagy will extend. Courts have applied categorical exemptions from section 75-1.1 in relatively few fields. Medicare, moreover, seems like an especially strong candidate for an exemption: It involves an especially detailed regulatory structure. Indeed, it even offers a private claim for double damages.

In view of these points, further arguments will be needed before defendants can extend the Hagy exemption to less-heavily regulated fields.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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