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, has decided that the Airline Deregulation Act (ADA) does not pre-empt state regulation of air ambulance costs.

Michael C. Duff

As many readers will know, the air ambulance expense associated with the transport of workers suffering job-related injuries has been a heavily litigated matter for a number of years. All federal circuit courts considering the issue have concluded that air ambulance services fall under the ADA and that the law pre-empts 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 pre-emption provision is modeled on ERISA’s pre-emption language, and I have been pointing out for years that while ERISA pre-emption seemed to be loosening (in particular, read Souter’s opinion in the Travelers case). ADA pre-emption analyses seem to have been ignoring these parallel ERISA developments.

The same is true of FAAA pre-emption, which has been “butting heads” with the California ABC employee definition under AB 5. In short, the argument goes, forcing interstate trucking outfits to treat truckers as employees may raise costs that in turn may have an impact on trucking prices.

I recently gave a CLE presentation on this topic in Wyoming 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 pre-emption 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 pre-emption.” Complete pre-emption 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 pre-emption doctrine, when state law pleadings raise pre-emption 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, 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 pre-emption 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 pre-empts” ADA pre-emption of state airline regulation. (It is not every day that I get to write the words “pre-emption” 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 pre-emption like the Supreme Court did early-on in its ERISA pre-emption cases (see Shaw v. Delta Air Lines). If it does, 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 pre-emption 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 pre-emption.” And, for those readers who may not recall the puzzle, it is extremely unclear how the broad ERISA pre-emption provision ever came into existence.   

Michael C. Duff is associate dean for student programs and external relations, and is professor of law, at the University of Wyoming College of Law. This entry is republished from the Workers' Compensation Law Professors blog, with permission.