Jahnke v. Blue Cross & Blue Shield of Kansas

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No. 111,769

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

SAMUEL R. JAHNKE AND SONS AND MARY K. JAHNKE, EXECUTOR OF THE ESTATE OF
SAMUEL R. JAHNKE,
Appellees,

v.

BLUE CROSS AND BLUE SHIELD OF KANSAS, INC.,
Appellant.


SYLLABUS BY THE COURT

1.
The issue of subject matter jurisdiction may be raised at any time, in any manner,
before any court, even for the first time on appeal.

2.
The absence of a private right of action defeats the court's subject matter
jurisdiction.

3.
Kansas courts generally use a two-part test in determining whether a private right
of action is created. First, the party must show that the statute was designed to protect a
specific group of people rather than to protect the general public. Second, the court must
review legislative history in order to determine whether a private right of action was
intended.

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4.
The Kansas Small Employer Health Care Act, K.S.A. 40-2209b et seq., does not
provide a private right of action.

Appeal from Geary District Court; BENJAMIN J. SEXTON, judge. Opinion filed June 26, 2015.
Judgment vacated and appeal dismissed.

Jeremy K. Schrag, of Kutak Rock LLP, of Wichita, Tory M. Bishop and Kathryn E. Jones, of the
same firm, of Omaha, Nebraska, and Scott H. Raymond of Blue Cross Blue Shield of Kansas, Inc., for
appellant.

Mark Edwards and Peter Charles Rombold, of Hoover, Schermerhorn, Edwards, Pinaire &
Rombold, of Junction City, for appellees.

Before MALONE, C.J., ARNOLD-BURGER and GARDNER, JJ.

GARDNER, J.: Rarely do we permit a party to raise a new issue on appeal, but we
must do so here. At oral argument, counsel for Blue Cross and Blue Shield of Kansas,
Inc. (BCBS) alleged, for the first time in this case, that this court lacks subject matter
jurisdiction because the only statute which BCBS allegedly violated does not provide a
private right of action. Because we agree that both the district court and this court lack
subject matter jurisdiction, we vacate the judgment entered by the district court and
dismiss this appeal.

Procedural summary

Samuel Jahnke (Jahnke) brought suit against Blue Cross and Blue Shield of
Kansas, Inc., due to BCBS's refusal to pay medical bills he incurred for his treatment,
including surgery, of a brain tumor. BCBS denied benefits for the medical costs
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associated with the surgery because the costs had been incurred during the policy's 240-
day waiting period for the treatment of tumors and growths. The Jahnkes claim that the
240-day waiting period violated the Kansas Small Employer Health Care Act, K.S.A. 40-
2209b et seq., (the Act) which relates to "health benefits plans covering small
employers." K.S.A. 40-2209c.

BCBS removed this action to federal court on the basis that the Jahnkes' claims
were preempted by the Employee Retirement Income Security Act of 1974 (ERISA), 29
U.S.C. §§ 1001-1461 (2006). The federal court disagreed, finding no federal subject
matter jurisdiction, and remanded the case to the state district court.

Upon remand, the Jahnkes and BCBS filed cross-motions for summary judgment.
The district court granted BCBS's motion for summary judgment on Count I pursuant to
the agreement of the parties but granted the Jahnkes' motion for summary judgment on
Count II. In doing so, the district court adopted the federal court's ruling that ERISA did
not apply due to the safe habor exemption. The district court ruled the policy was subject
to the Act, the Act restricted waiting periods to 90 days' maximum, and BCBS's 240-day
waiting period violated the Act. The court awarded the Jahnkes damages in the amount of
$99,459.97, plus interest. Following a subsequent motion and hearing, the court awarded
$93,839.51 in attorney fees to the Jahnkes.

BCBS appeals. In it's briefs, it argues: (1) the district court erred in granting
summary judgment to the Jahnkes because the policy's 240-day waiting period does not
violate K.S.A. 40-2209f(f); (2) the district court erred in denying summary judgment to
BCBS on the basis of ERISA preemption because the safe harbor exemption does not
apply; (3) the district court erred in awarding attorney fees to the Jahnkes because BCBS
did not act without just cause or excuse in denying the claim.

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The farming enterprise

The facts are largely undisputed. Samuel R. Jahnke & Sons is a family farming
enterprise that employed Samuel R. Jahnke, his wife Mary, and their sons Matthew and
Eric. The ownership of Jahnke & Sons was divided equally among the family, with
Samuel and Mary owning a one-third interest, Matthew owning a one-third interest, and
Eric and Kristel Jahnke owning a one-third interest.

Since March 30, 2007, Jahnke & Sons has been a Subchapter S Corporation, thus
Jahnke and Sons' income, losses, deductions, and credits passed through to the corporate
owners or shareholders who then paid taxes on the corporation's income on their
individual tax returns. As an S corporation, Jahnke & Sons did not pay any taxes; rather,
all of Jahnke & Sons' tax liability was passed through to its shareholders. Each of the
three Jahnke households, as equal shareholders, claimed one-third of Jahnke & Sons'
income and expenses on their personal tax returns.

The health insurance policies

On September 1, 2005, BCBS issued a policy of health insurance for the
employees of Jahnke & Sons and their family members. From 2005 to 2008, the owners
of Jahnke & Sons were covered by a group policy issued by BCBS. On September 1,
2008, the Jahnkes elected to cancel their group insurance policy and purchase new
individual policies for the purpose of dropping unneeded maternity coverage and
lowering their premiums. The new policies, which became effective September 1, 2008,
deleted maternity coverage but included different terms and conditions.

Jahnke acknowledged and agreed to the different coverage and new conditions by
signing the Enrollment Confirmation Form which expressly set out the new policy's
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waiting periods. That form specifically notified Jahnke of a 240-day waiting period for
the "[t]reatment of tumors or growths," stating:

"B. Waiting Periods. The Insured must have had continuous coverage for 240 days
dating from the date this coverage becomes effective for the conditions named below
before benefits are available.
"1. Removal of tonsils and or adenoids.
"2. Treatment of tumors or growths.
"3. Treatment for a hernia.
"4. Treatment for conditions of the gall bladder, rectum, or genito-urinary tract."

Payment of the premiums

Each of the three shareholders of Jahnke & Sons claimed a self-employed health
insurance deduction on their personal tax returns for one-third of the total health
insurance premiums paid by Jahnke & Sons. Jahnke & Sons paid its employees' health
insurance premiums directly to BCBS "out of the corporate account" and "out of the
corporate cash." However, the insurance premiums paid by Jahnke & Sons were
allocated equally to the three shareholders as distributions despite the fact that the
shareholders' actual individual premium amounts were unequal. The actual amounts of
the premium payments were not reported as income on the employees' W-2 forms.

Reference to individual policies as a group policy

In the correspondence to the Jahnkes noting the change in coverage, BCBS
identified the policy as Group Number M008395, projected to be effective on September
1, 2008. When the coverage was changed, BCBS identified the group name as Samuel R.
Jahnke & Sons. The package code was identified as "First Choice Business," not "True
Group," "First Choice Individual," or "Plan 65." The reissued policy was prefaced by and
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delivered to Jahnke & Sons under a group name and with a specified group number.
Correspondence regarding the policy also specified the group name. The BCBS member
summary for the policy provided:

"BLUE CHOICE COMP MAJOR MEDICAL OPTION/PLAN 1, DRUG EMPLOYEE
GROUP (1-4),
"CANCELLED: SYSTEM ASSIGNED — GROUP ID CHANGED TO A NEW
GROUP ID."

BCBS admits that its correspondence often referred to the policy as a group policy, but it
contends such references were for mere convenience and are immaterial because the
policy was an individual policy which it never treated as a group policy.

The denial of coverage

On or about April 19, 2009, approximately 11 days before expiration of the 240-
day waiting period, Jahnke underwent an operation to remove a brain tumor. BCBS
denied the subsequent related claim under the policy's 240-day waiting period for the
treatment of tumors or growths.

After BCBS denied coverage, Jahnke exhausted the internal appeals set forth in
the BCBS policy. Before his death, Jahnke filed this case against BCBS in the district
court, asserting two claims. Count I of the petition alleged that the policy violated K.S.A.
40-2209(a)(8) in failing to waive the preexisting conditions exclusion. Count II alleged
that the policy's 240-day waiting period violated K.S.A. 40-2209f(f)'s provision that
health benefit plans covering small employers cannot have a waiting period longer than
90 days.

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The federal court proceedings

After conducting limited discovery, BCBS removed this action to the United
States District Court for the District of Kansas, alleging preemption by the Employee
Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461 (2006).

The federal court granted summary judgment to BCBS on Count I based on its
"determination that the policy at issue was an individual rather than a group plan." The
Jahnkes have since abandoned this theory of relief.

As to Count II, the federal court denied summary judgment, finding a question of
material fact as to whether K.S.A. 40-2209f(f) applied to the policy because the evidence
failed to establish beyond a reasonable doubt that the Samuel Jahnke policy was issued to
him totally independent of the small employer group. See K.S.A. 40-2209e(d), (a). The
federal court found a material question of fact as to whether Jahnke & Sons contributed
to payment of the policy premiums such that ERISA's safe harbor exemption would
apply. In addition, the federal court found that BCBS "did not act arbitrarily or
capriciously" when it denied the claim. Samuel R. Jahnke & Sons, Inc. v. Blue Cross/Blue
Shield of Kansas, No. 10-4098-JTM, 2011 WL 4526778 (D. Kan. 2011) (unpublished
opinion).

The court later held an evidentiary hearing on the application of ERISA's "safe
harbor" provision, 29 C.F.R. § 2510.3-l(j). It ultimately found that the payments to BCBS
for the Jahnkes' health insurance had not been made by an employer but had been paid by
the individual shareholders of Jahnke & Sons. Accordingly, ERISA's safe harbor
exemption applied and the action was not preempted by ERISA. Because no federal
question provided a basis for subject matter jurisdiction, the federal court remanded this
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action to the state district court. Samuel R. Jahnke & Sons, Inc. v. Blue Cross/Blue Shield
of Kansas, No. 10-4098-JTM, 2012 WL 3234757 (D. Kan. 2012) (unpublished opinion).

Proceedings on remand

On remand, the parties filed cross-motions for summary judgment. The Jahnkes
had abandoned Count I, so the district court granted summary judgment in favor of
BCBS on that count pursuant to the agreement of the parties.

As to Count II, the Jahnkes argued that the policy's 240-day waiting period
violated K.S.A. 40-2209e and K.S.A. 40-2209f(f) because Kansas law places a 90-day
limitation on waiting periods. BCBS argued that the Jahnkes' state law claims were
preempted by ERISA, that their policy was not subject to the Kansas Small Employer
Health Care Act, and that even if the policy were subject to that Act it did not violate
K.S.A. 40-2209f(f).

The district court granted summary judgment in favor of the Jahnkes on the
remaining issues, adopting the federal court's findings and analysis with respect to
ERISA preemption. The court ruled that the policy was exempt from ERISA because the
small employer, Jahnke & Sons, had made no contribution to the payment of the policy's
premiums. The district court found the policy, although it was an individual and not a
group policy, was subject to the Act because the focus is not on whether a policy was
issued for a group in terms of coverage, but simply to a group otherwise authorized to
supply coverage. The district court concluded that the insurance policy's 240-day waiting
period violated K.S.A. 40-2209f(f) because it exceeded the statutory 90-day maximum
and found that insurance coverage for the treatment of the brain tumor should have
become effective December 10, 2008.

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After a hearing, the court awarded the Jahnkes damages in the amount of
$99,459.97, plus interest in the amount of $44,945.57 from March 30, 2009, and
continuing at the legal rate of interest. The Jahnkes then moved for attorney fees pursuant
to K.S.A. 40-256. BCBS did not contest the reasonableness of the amount of the attorney
fees sought but alleged no fee award was proper. The court granted the Jahnkes' request
for attorney fees because the evidence, taken in its totality, revealed that the denial of
coverage was "without just cause or excuse." The court thus awarded fees in an amount
over $93,000. BCBS timely appealed from the judgment.

Appellate oral argument

At oral argument of this case, counsel for BCBS began by notifying the court and
opposing counsel that it wished to raise a new argument on appeal. Neither the court nor
opposing counsel had any prior notice of this new argument. BCBS contended that the
Jahnkes had no private right of action under the Act, including K.S.A. 40-2209f, thus the
district court lacked and this court lacks subject matter jurisdiction. This court ordered
supplemental briefing, and the parties responded. BCBS contends that violations of the
Act may be enforced only by the Commissioner of Insurance, divesting this court of
subject matter jurisdiction. The Jahnkes respond that the issue of subject matter
jurisdiction cannot be raised this late in the case, and that this is a simple breach of
contract action for which a private right of action clearly exists.

Breach of contract

We first address the Jahnkes' assertion that they have stated a claim for breach of
contract, in which case this court obviously has subject matter jurisdiction.

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The Jahnkes point to various oral arguments and communications between the
parties which refer to this case, in its earlier stages, as a breach of contract case, or to
policy language giving the insured a right to sue in court after exhausting BCBS's internal
appeal procedure for claims alleging breach of contracts. But that focus is misdirected.
Our determination of the nature of the case is based on the pleadings that the Jahnkes
filed in this case, since no pretrial order was entered.

The Jahnkes' petition alleges no constitutional or common-law violations and no
breach of contract. It states, in Count II:

"Plaintiffs have exhausted all of their administrative remedies as required by the
Contract[;] BCBS has issued different policies to members of the Jahnke group that set
forth different waiting periods[;] a group policy should have uniform provisions[;]
Plaintiffs are clearly the type of small business that is provided protection pursuant to
K.S.A. 40-2209[;] K.S.A. 40-2209f(f) specifically provides for a ninety (90) day waiting
period for certain conditions[;] the policy issued to Jahnke by BCBS is in clear violation
of Kansas statutes[; and] Plaintiffs have been damaged in an amount in excess of
$75,000.00 as a result of the denial of coverage."

We recognize that "a host of Kansas decisions have interpreted the provisions of
K.S.A. 60-208 to provide for a liberal construction of the pleadings with the emphasis on
substance rather than form." Oller v. Kincheloe's, Inc., 235 Kan. 440, 446, 681 P.2d 630
(1984). And we may permit issues not raised by the pleadings to be treated as if they
were raised by the pleadings when such issues are tried by express or implied consent of
the parties. K.S.A. 60-215(b).

But here, the parties submitted the case via cross-motions for summary judgment
on Count II on the sole legal theory that the policy breached the statute, not that BCBS
breached the policy. This case has been subject to multiple evidentiary hearings, both in
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federal and state court, in which the Jahnkes' sole claim under Count II was that BCBS
violated the Act. We find no breach of contract included in Count II of the petition, and
no such claim has been tried by express or implied consent of the parties. Nor is any such
breach apparent from the facts, as the 240-day waiting period for tumors was clearly
disclosed and unambiguously stated in the policy, and Jahnke's treatment for his tumor
indisputably fell within that 240-day period. Under these circumstances, we find no merit
to the Jahnkes' claim that this is a breach of contract case. Therefore, if the Jahnkes have
no private right of action under the Act, then they cannot prevail.

Accordingly, we must determine whether we have jurisdiction to reach the alleged
violation of K.S.A. 40-2209f(f), the 90-day maximum waiting period prescribed by
statute.

Subject matter jurisdiction

The Jahnkes contend that it is too late in the day to raise the issue of subject matter
jurisdiction. Although we share the Jahnkes' view that this issue should have been raised
years ago, we cannot find it time-barred.

The issue of subject matter jurisdiction may be raised at any time, in any manner,
before any court. State v. Ernesti, 291 Kan. 54, 60, 239 P.3d 40 (2010); Mid-Continent
Specialists, Inc. v. Capital Homes, 279 Kan. 178, 185, 106 P.3d 483 (2005). Moreover,
this court has an independent duty to determine whether subject matter jurisdiction exists.
See Associated Wholesale Grocers, Inc. v. Americold Corporation, 293 Kan. 633, 637,
270 P.3d 1074 (2011).

Whether jurisdiction exists is a question of law over which this court's scope of
review is unlimited. Frazier v. Goudschaal, 296 Kan. 730, 743, 295 P.3d 542 (2013).
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Parties cannot confer subject matter jurisdiction by consent, waiver, or estoppel, and a
failure to object will not invest the court with the requisite jurisdiction. Ryser v. State,
295 Kan. 452, 456, 284 P.3d 337 (2012). Moreover, if the district court lacks jurisdiction
to enter an order, an appellate court does not acquire jurisdiction over the matter on
appeal. 295 Kan. at 456.

Subject matter jurisdiction authorizes the court to hear and determine a case. See
State v. Bickford, 234 Kan. 507, 508-09, 672 P.2d 607 (1983). Subject matter jurisdiction
is ordinarily conferred by statute. Kingsley v. Kansas Dept. of Revenue, 288 Kan. 390,
395, 204 P.3d 562 (2009).

"A court must be vested with subject matter jurisdiction in order for it to properly act in a
case. State v. Bickford, 234 Kan. 507, 508-09, 672 P.2d 607 (1983). Subject matter
jurisdiction is vested by statute and establishes the court's authority to hear and decide a
particular type of case. Kingsley v. Kansas Dept. of Revenue, 288 Kan. 390, 395, 204
P.3d 562 (2009). Proceedings conducted or decisions made by a court are legally void
when there is an absence of subject matter jurisdiction. Bickford, 234 Kan. at 509."
Bradley v. Bear, 46 Kan. App. 2d 1008, 1012, 272 P.3d 611 (2012).

"Which party should win a lawsuit is an altogether different question from that of
whether the court has the power to say who wins." Frazier v. Goudschaal, 296 Kan. 730,
743, 295 P.3d 542 (2013). Subject matter jurisdiction refers to the power of a court to
hear and decide a particular type of action. Wichita Eagle & Beacon Publishing Co. v.
Simmons, 274 Kan. 194, 205, 50 P.3d 66 (2002). Jurisdiction over subject matter is the
power to decide the general question involved and not the exercise of that power.
Babcock v. City of Kansas City, 197 Kan. 610, 618, 419 P.2d 882 (1966).

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The parties tacitly agree that the absence of a private right of action defeats the
court's subject matter jurisdiction. Although we find no Kansas case so stating, cases
sufficiently analogous to ours support that conclusion. Kansas courts have often held that
a failure to exhaust administrative remedies warrants dismissal based on a lack of subject
matter jurisdiction. See, e.g., Dean v. State, 250 Kan. 417, 427-28, 826 P.2d 1372, cert.
denied 504 U.S. 973 (1992) (so stating); Zarda v. State, 250 Kan. 364, 374, 826 P.2d
1365 (1992) (finding plaintiffs had a clear and certain statutory remedy for full, adequate,
and complete relief so the district court lacked jurisdiction to grant such relief, and
properly dismissed that part of plaintiffs' action). Similarly, exhaustion of administrative
remedies is a precondition to judicial review under the Kansas Judicial Review Act
(KJRA). Jones v. State, 279 Kan. 364, 368, 109 P.3d 1166 (2005). Strict compliance with
the pleading requirements of K.S.A. 77-614(b) is necessary before a court may exercise
subject matter jurisdiction over a petition for judicial review. Kingsley v. Kansas Dept. of
Revenue, 288 Kan. 390, 408-09, 204 P.3d 562 (2009) (finding no subject matter
jurisdiction to consider a petition when a person does not exhaust all available
administrative remedies under the Kansas Judicial Review Act). The Kansas Supreme
Court has recently held that a party's failure to comply with the notice requirement in
K.S.A. 2012 Supp. 12-105b(d) for claims against a municipality under the Kansas Tort
Claims Act implicates subject matter jurisdiction. Sleeth v. Sedan City Hospital, 298 Kan.
853, 862-63, 317 P.3d 782 (2014).

Kansas appellate courts may exercise jurisdiction only under circumstances
allowed by statute. Flores Rentals v. Flores, 283 Kan. 476, 481, 153 P.3d 523 (2007), as
modified (May 11, 2007). Thus, if a statute requires that violations of the statute's
provisions be enforced exclusively by a governmental entity, as BCBS contends here, this
court lacks subject matter jurisdiction over a claim brought by a private party. See
Nichols v. Kansas Political Action Committee, 270 Kan. 37, 50-51, 11 P.3d 1134 (2000)
(affirming dismissal for lack of subject matter jurisdiction where statute provided no
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private right of action); see also K.S.A. 20-301 (providing for "general original
jurisdiction of all matters, both civil and criminal, unless otherwise provided by law")
(emphasis added). Such a statute affects the court's power to hear and decide a particular
type of action. "Appellate courts and administrative tribunals have jurisdiction to
entertain an appeal only if an appeal is prescribed by statute. McDonald v. Hannigan, 262
Kan. 156, 160, 936 P.2d 262 (1997)." Wasson v. United Dominion Industries, 266 Kan.
1012, 1018-19, 974 P.2d 578, 583 (1999). Here, no appeal to this court is prescribed by
the Act or other statute.
Accordingly, for this court to have subject matter jurisdiction over the Jahnkes'
claim that BCBS violated their right under the statute, we must find that they have a
private right to enforce that statute by bringing this action in court.

Private right of action

Some statutes expressly impose personal liability on persons or entities for
violation of the provisions thereof, or for failure to perform specified duties. For example,
the Kansas Supreme Court found a private right of action under the federal Telephone
Consumer Protection Act, 47 U.S.C. § 227(b)(3) (2006), which provided that for each
violation a person is entitled to $500 or actual damages, whichever is greater, as well as
treble damages if the violation is willful or knowing. Critchfield Physical Therapy v. The
Taranto Group, Inc., 293 Kan. 285, 291, 263 P.3d 767 (2011).

"Most statutes do not, however, explicitly confer on potential plaintiffs a civil
remedy." Shirley v. Glass, 297 Kan. 888, 894, 308 P.3d 1 (2013). Nor does the statute
allegedly violated here−K.S.A. 40-2209f. Nonetheless, a private right of action may be
implied. In such cases, a two-part test guides our determination:

15

"The determination of whether a private right of action exists under a statute is a
question of law. Kansas courts generally use a two-part test in determining whether a
private right of action is created. First, the party must show that the statute was designed
to protect a specific group of people rather than to protect the general public. Second, the
court must review legislative history in order to determine whether a private right of
action was intended. See Nichols v. Kansas Political Action Committee, 270 Kan. 37, 11
P.3d 1134 (2000) (quoting Nora H. Ringler Revocable Family Trust v. Meyer Land and
Cattle Co., 25 Kan. App. 2d 122, 126, 958 P.2d 1162, rev. denied 265 Kan. 886 [1998])
(the Ringler test)." Pullen v. West, 278 Kan. 183, 194, 92 P.3d 584 (2004).

To determine whether the legislature intended to grant a private cause of action for
a violation of a statute, we primarily look to the form or language of the statute.

"'Generally, the test of whether one injured by the violation of a statute may
recover damages from the wrongdoer is whether the legislature intended to give such a
right. While, in some cases, statutes expressly impose personal liability on persons or
entities for violation of the provisions thereof, or for failure to perform specified duties,
the absence of such express provisions does not necessarily negate a legislative intent that
the statute shall affect private rights. The legislative intent to grant or withhold a private
cause of action for a violation of a statute, or the failure to perform a statutory duty, is
determined primarily from the form or language of the statute. The nature of the evil
sought to be remedied and the purpose the statute was intended to accomplish may also
be taken into consideration. The generally recognized rule is that a statute which does not
purport to establish a civil liability but merely makes provision to secure the safety or
welfare of the public as an entity is not subject to construction establishing a civil
liability.

"'The question whether a liability arising from the breach of a duty prescribed by
statute accrues for the benefit of an individual specially injured thereby, or whether such
liability is exclusively of a public character, depends upon the nature of the duty imposed
and the benefits to be derived from its performance, and the relevancy of the rule laid
down by the statute to private rights. 73 Am. Jur. 2d, Statutes §§ 431 and 432, pp. 529-
16

30.' Greenlee v. Board of Clay County Comm'rs, 241 Kan. 802, 804, 740 P.2d 606
(1987)." Pullen, 278 Kan. at 194.

Where the plain language of the statute is unambiguous, we do not speculate as to
the legislative intent behind it.

"[T]he fundamental goal of statutory construction is to ascertain the intent of the
legislature. State v. Williams, 298 Kan. 1075, 1079, 319 P.3d 528 (2014). But in
determining legislative intent, the starting point is not legislative history; rather, we first
look to the plain language of the statute, giving common words their ordinary meaning.
See Graham v. Dokter Trucking Group, 284 Kan. 547, 556-57, 161 P.3d 695 (2007) . . . ;
see also Wabaunsee County, 299 Kan. at 957 . . . . If the plain language of a statute is
unambiguous, we do 'not speculate as to the legislative intent behind it and will not read
into the statute something not readily found in it.' Cady v. Schroll, 298 Kan. 731, 738-39,
317 P.3d 90 (2014)." University of Kan. Hosp. Auth. v. Board of Comm'rs of Unified
Gov't., 301 Kan. 993, 998-99, 348 P3d 602 (2015).

Other Kansas cases

Our analysis is informed by other Kansas cases which have examined whether a
private right of action exists.

In Pullen, the Kansas Supreme Court found the provisions of the Kansas Fire
Prevention Act (KFPA) and National Fire Prevention Association pamphlet 1123 (NFPA
1123) do not expressly create a private cause of action. 278 Kan. at 200-01. Disobeying
the requirements for permits, licenses, and safety procedures is wrong only because the
state fire marshal adopted NFPA 1123 as a regulation through the authority granted by
the legislature. The provisions of the KFPA create criminal and administrative penalties
for violations of NFPA 1123. Accordingly, Pullen failed to demonstrate that the
legislature intended to create a private cause of action.
17


Similarly, in Nichols, 270 Kan. at 50-51, the Kansas Supreme Court found no
private right of action because the legislature had designed a comprehensive scheme for
enforcement of the Campaign Finance Act, evidencing its intent that alleged violations of
that Act be processed by the Commission rather than by the courts.

The Court of Appeals found a private right of action, however, in Dietz v.
Atchison, Topeka & Santa Fe Rwy. Co., 16 Kan. App. 2d 342, 823 P.2d 810 (1991), rev.
denied 250 Kan. 804 (1992). There, survivors of a truck driver who was killed by driving
his truck into the side of a moving train brought a wrongful death action. The deceased
had violated a Kansas Corporation Commission regulation requiring drivers hauling
hazardous materials to stop, look, and listen at railroad crossings. The relevant statute
stated:

"Any public utility or common carrier which shall violate any of the provisions of law for
the regulation of such public utilities or common carriers shall forfeit, for every offense, to
the person, company or corporation aggrieved thereby, three times the actual damages
sustained by the party aggrieved, together with the costs of suit, and a reasonable attorney
fee, to be fixed by the court." K.S.A. 66-176.

We held that a plain reading of the statute indicated the legislature's intent to create, on
behalf of "any person or corporation" injured as a direct result of a common carrier's
violation of provisions of law regulating common carriers, an individual right of action
against the common carrier. 16 Kan. App. 2d at 347.

Similarly, in Nora H. Ringler, Revocable Family Trust v. Meyer Land and Cattle
Co., 25 Kan App 2d 122, 129, 131-32, 958 P.3d 1162 (1998), we determined that K.S.A.
1994 Supp. 65-171d, which contained distance requirements between livestock feeding
facilities and habitable buildings, was intended to protect a particular class of persons.
18

We then found that the legislature, knowing of KDHE's limited resources and citizens'
complaints that small feedlots were causing considerable nuisance problems, intended to
allow private citizens to enforce the distance requirements by injunctive relief.

Who is this Act designed to protect?

We first review the enabling legislation to determine whom the statute was
designed to protect. K.S.A. 40-2209b states the purpose of the Small Employer Health
Care Act:

"The purpose and intent of this act are to promote the availability of health
insurance coverage to small employers regardless of their health status or claims
experience, to prevent abusive rating practices, to require disclosure of rating practices to
purchasers, to establish rules regarding renewability of coverage, to establish limitations
on the use of pre-existing condition exclusions, to provide for development of 'basic' and
'standard' health benefit plans to be offered to all small employers, to provide for
establishment of a reinsurance program, and to improve the overall fairness and
efficiency of the small group health insurance market."

From this and other language used in the Act, see K.S.A. 40-2209g(a)(3), (d), we
find that the purpose of the Act is to enhance the efficiency and fairness of the small
employer health insurance marketplace, which primarily benefits small employers.
Nothing in the Act itself indicates an intent to protect a specific group of persons which
would include Jahnke.

Nor does the specific statute Jahnke relies on demonstrate an intent to protect a
specific group of persons. That statute, K.S.A. 40-2209f(f), places a 90-day limitation on
"waiting periods," stating:

19

"In the absence of the small employer's decision to the contrary, all health benefit
plans shall make coverage available to all the eligible employees of a small employer
without a waiting period. The decision of whether to impose a waiting period for eligible
employees of a small employer shall be made by the small employer, who may only
choose from the waiting periods offered by the carrier. No waiting period shall be greater
than 90 days and shall permit coverage to become effective no later than the first day of
the month immediately following completion of the waiting period." (Emphasis added.)
K.S.A. 40-2209f(f).

The Act then defines "waiting period" by stating: "For the purposes of this section, the
term 'waiting period' means with respect to a group policy the period which must pass
before the individual is eligible to be covered for benefits under the terms of the policy."
K.S.A. 40-2209f(j). In setting limits on what small employer health benefits plans can do
and mandating what they shall do with respect to group policy waiting periods, this
statute reflects regulation of an industry primarily for the protection of small employers,
and only incidentally, if at all, for the benefit of their individual employees.

Does legislative history show an intent to create a private right of action?

Two provisions of the Act are particularly relevant in determining whether the
legislature intended to create a private right of action. The first states: "Violations of this
act shall be treated as violations of the unfair trade practices act and subject to the
penalties prescribed by K.S.A. 40-2407 and 40-2411 and amendments thereto." K.S.A.
40-2209o. The second provides: "The commissioner may adopt rules and regulations
necessary to carry out the provisions of this act." K.S.A. 40-2209n. This language has
remained unchanged since the Act was enacted, yet we find no precedent interpreting it.

20

Federal court interpretation

The United States District Court for the District of Kansas has held, however, that no
private right of action exists under the Kansas Unfair Trade Practices Act (KUTPA) statutes
referenced above. In Earth Scientists (Petro Services) Ltd. v. U.S. Fidelity & Guaranty Co.,
619 F. Supp. 1465, 1468 (D. Kan. 1985), Judge O'Connor examined K.S.A. 40-2407 and 40-
2411, and found that the overriding goal of the KUTPA is to provide the public with the
benefits that flow from a well-regulated insurance industry. He concluded that the statute vests
all power under the Act in the Commissioner of Insurance, who has the sole duty to enforce it,
noting:

"Nowhere in the Act is there a provision for the recovery of monetary damages, which the
plaintiff in this case is seeking. As the above quoted sections reveal, the Act provides only for
'cease and desist' orders, $100 monetary penalties, suspension of the insurer's license, refund of
any premium and public notification of the insurer's violation, none of which the plaintiff is
seeking." Earth Scientists, 619 F. Supp. at 1469.

The Earth Scientists decision was based largely on the plain meaning of the KUTPA:

"The purpose of this act is to regulate trade practices in the business of insurance
. . . by defining, or providing for the determination of, all such practices in this state
which constitute unfair methods of competition or unfair or deceptive acts or practices
and by prohibiting the trade practices so defined or determined." K.S.A. 40-2401.

The court found no private right of action primarily because the KUTPA vests all power
and duty to enforce the Act in the Commissioner of Insurance. See Earth Scientists, 619
F. Supp. at 1468-69.

21

In Spencer v. Aetna Life & Casualty Ins. Co., 227 Kan. 914, 611 P.2d 149 (1980),
our Supreme Court addressed whether the tort of bad faith was actionable in Kansas. In
doing so, the court discussed the provisions of the KUTPA and the insured's possible
remedies. The court concluded it would not recognize the tort of bad faith, reasoning:

"We are of the opinion the legislature has intended to provide a remedy for an
insured who has problems with his insurance company. He can maintain an action on the
contract for his policy benefits, with costs, interest and attorneys' fees under arbitrary
circumstances. He may also report the company to the Department of Insurance under the
Uniform Trade Practices Act for improper handling of claims pursuant to K.S.A. 40-
2409(9). The company's actions are reviewable by the Department and punishable if
found improper. The legislature has provided several remedies for an aggrieved insured
and has dealt with the question of good faith first party claims. Statutory law does not
indicate the legislature intended damages for emotional suffering to be recoverable by an
aggrieved insured through a tort of bad faith. Where the legislature has provided such
detailed and effective remedies, we find it undesirable for us to expand those remedies by
judicial decree." 227 Kan. at 926.

The Earth Scientists court relied on our Supreme Court's reasoning in Spencer to
conclude that it would not expand the KUTPA to imply a private cause of action. The
remedies are thus limited to: (1) a suit for breach of the insurance contract; and (2) a
report to the Commissioner of Insurance who may proceed under the KUTPA. Earth
Scientists, 619 F. Supp. at 1470. The Earth Scientists court found it significant that the
KUTPA contained no language authorizing a private cause of action:

"Additionally, the Kansas Legislature has specifically provided for private causes of
action in similar-type statutes enacted to protect the public. See, e.g., Open Records Act,
K.S.A. 45-222 (Supp.1984); Public Meetings Act, K.S.A. 75-4320 (1984); Uniform
Trade Secrets Act, K.S.A. 60-3320 to 3330 (1983); Restraint of Trade Statutes, K.S.A.
50-108, -115, -137 (1983); Kansas Consumer Protection Act, K.S.A. 50-634 (1983); and
22

Uniform Consumer Credit Code, K.S.A. 16a-5-203 (1981). It is clear that had the Kansas
Legislature intended a private cause of action for KUTPA violations, it would have
expressly provided for the same." 619 F. Supp. at 1471.

For additional support that the KUTPA was not intended to provide for a private
cause of action, the Earth Scientists court noted:

"A second rule of statutory construction provides that when the Kansas
Legislature adopts a statute from a uniform law, it carries with it the construction placed
on that statute by the drafters, except when contrary to the Kansas Constitution or public
policy. Matter of Reed's Estate, 233 Kan. 531, 541, 665 P.2d 824 . . . cert. denied, 464
U.S. 978, 104 S. Ct. 417, 78 L. Ed. 2d 354 (1983). As noted earlier, KUTPA was
patterned after model legislation drafted by the National Association of Insurance
Commissioners. The NAIC has consistently argued that the legislation was not intended
to create a private cause of action. Schroer & Hulsey, Unfair Claims Settlements, 5 J.
KTLA No. 4, 8, 8-9 (1982); Shernoff, Insurance Company Bad Faith Law, Trial, May
1981 at 23-24." 619 F. Supp. at 1471.

The Kansas Uniform Trade Practices Act

Here, the Act expressly states that violations of the Act shall be treated as
violations of the KUTPA and subject to the penalties prescribed therein. K.S.A. 40-
2209o. The specific provisions of the KUTPA relevant in this case follow.

K.S.A. 40-2402(b): "'Commissioner' shall mean the commissioner of insurance of
this state."

K.S.A. 40-2405: "The commissioner shall have power to examine and investigate into
the affairs of every person engaged in the business of insurance in this state."

23

K.S.A. 40-2406(a): "Whenever the commissioner has reason to believe that any such
person has been engaged or is engaging in this state in any unfair method of competition
or any unfair or deceptive act or practice . . . and that a proceeding by the commissioner
in respect thereto would be to the interest of the public, the commissioner shall issue and
serve upon such person a statement of the charges in that respect and conduct a hearing
thereon in accordance with the provisions of the Kansas administrative procedure act."

K.S.A. 40-2407(a): "[T]he commissioner shall render an order requiring such person
to cease and desist from engaging in such method of competition, act or practice and if
the act or practice is a violation of K.S.A. 40-2404 . . . may in the exercise of discretion
order any one or more of the following: (1) Payment of a monetary penalty of not more
than $1,000 . . . (2) suspension or revocation of the person's license if such person knew
or reasonably should have known such person was in violation of this act; or (3) redress
of the injury by requiring the refund of any premiums paid by, the payment of any
moneys withheld from, any consumer and appropriate public notification of the
violation."

K.S.A. 40-2411: "Any person who violates a cease and desist order of the
commissioner . . . may be subject at the discretion of the commissioner to any one or
more of the following: (a) A monetary penalty of not more than $10,000 for each and
every act or violation . . .; or (b) suspension or revocation of such person's license; (c)
redress of the injury by requiring the refund of any premiums paid by, the payment of any
moneys withheld from, any consumer and appropriate public notification of the
violation."

K.S.A. 40-2412: "The powers vested in the commissioner by this act, shall be
additional to any other powers to enforce any penalties, fines or forfeitures authorized by
law with respect to the methods, acts and practices hereby declared to be unfair or
deceptive."

Given this statutory language, which is substantially unchanged from the date Judge
O'Connor reviewed it, we find the rationale of Earth Scientists persuasive and agree that
24

KUTPA affords no private right of action. This Act, in mandating that its violations
"shall be treated as violations of the unfair trade practices act" and subject to its penalties,
expresses clear legislative intent that it creates no private right of action. See K.S.A. 40-
2209o

The Act's other enforcement provisions

Other provisions of the Act support our conclusion that no private right of action is
intended. The Act's references to enforcement and the administration of the Act refer
exclusively to the Commissioner of Insurance. See K.S.A. 40-2209d(k)(1) (deemed by
the commissioner to be in hazardous financial position); K.S.A. 40-2209g(c) and (d)
(commissioner may adopt rules and regulations and approve the establishment of
additional classes of businesses to enhance the efficiency and fairness of the small
employer marketplace); K.S.A. 40-2209h(a)(10) (commissioner may establish regulations
to assure that rating practices used are consistent with the purposes of the Act); K.S.A.
40-2209h(c) (the commissioner may suspend the application of subsection [a][1] for a
specified time period and under certain conditions); K.S.A. 40-2209j (carriers must file
actuarial certificate with commissioner demonstrating compliance with the Act); K.S.A.
40-2209m(g) (commissioner may adopt rules and regulations setting forth additional
standards to provide for the fair marketing and broad availability of health benefit plans
to small employers). Further, judicial review is available for decisions, actions, or orders
of the Insurance Commissioner. See K.S.A. 40-2407(b); 40-2408(a), (b); Golden Rule
Ins. Co. v. Tomlinson, 300 Kan. 944, 335 P.3d 1178 (2014) (resolving petition for judicial
review of Kansas Insurance Department's order which found insurer in violation of the
Unfair Trade Practices Act). These statutes evidence the court's lack of authority to
decide actions brought directly in court by private parties who have not followed the
statutorily authorized route of complaining to the Insurance Commissioner, obtaining an
agency decision, then pursuing judicial review in court.
25


Additionally, courts generally presume that the legislature acts with full
knowledge of existing law. In re Adoption of H.C.H., 297 Kan. 819, 831, 304 P.3d 1271
(2013). When the legislature fails to modify a statute to avoid a standing judicial
construction of the statute, this court may presume that the legislature intended the statute
to be interpreted as it had been in the past. Cady v. Schroll, 298 Kan. 731, 737, 317 P.3d
90 (2014).

Accordingly, we presume the legislature knew when it enacted the Act 7 years
after the Earth Scientists decision that the KUTPA did not contain a private cause of
action, yet it made sure to align the Act's remedies and penalties with the KUTPA. See
K.S.A. 40-2209o. Since that time, the legislature has had many opportunities to add a
provision creating a private cause of action under the KUTPA but has not done so. We
therefore find no private right of action under the Kansas Small Employer Health Care
Act.

We thus conclude that in this Act, as in the KUTPA, the legislature provided no
express or implied private cause of action. Because neither this court nor the district court
has subject matter jurisdiction over the Jahnkes' direct action in court, we must dismiss
this appeal and vacate the judgment entered by the district court.

ERISA preemption

Nonetheless, we briefly address BCBS's contention that ERISA preempts this state
court action. Both the federal court and the district court addressed this issue, rejecting
BCBS's claim of ERISA preemption. Suffice it to say that we have reviewed the record
of the evidentiary hearing held in federal court and agree, for the reasons stated by Judge
Marten, that ERISA's safe harbor exemption applied, precluding federal subject matter
26

jurisdiction. See Samuel R. Jahnke & Sons, Inc. v. Blue Cross/Blue Shield of Kansas, No.
10-4098-JTM, 2011 WL 4526778, at *8 (D. Kan. 2011) (unpublished opinion); Samuel
R. Jahnke & Sons, Inc. v. Blue Cross/Blue Shield of Kansas, No. 10-4098-JTM, 2012 WL
3234757 (D. Kan. 2012) (unpublished opinion). We do so recognizing that his decision is
not binding on us. See McIntosh v. Atchison, Topeka & Santa Fe Rwy. Co., 19 Kan. App.
2d 814, Syl. ¶¶ 3, 4, 877 P.2d 11, rev. denied 255 Kan. 1002 (1994).

The facts show that BCBS did not raise a material question of fact that Jahnke &
Sons contributed to payment of the premiums. Rather, the evidence shows that even
though the premiums were paid via a corporate check, the entire amount was passed on to
the shareholders. Jahnke & Sons did not absorb any costs of the premiums but was a
mere conduit for premium payments. We do not believe that a mistake, if any, by the
shareholders in claiming a personal deduction on their tax returns is determinative of
whether the employer contributed to the premiums. The entire amount of the premiums
was paid by the three shareholders, not by Jahnke & Sons. That the premiums were
allocated equally among the shareholders is not determinative, as that fact does not show
that Jahnke & Sons absorbed any portion of the premiums' costs. We find the federal
court decision persuasive in its analysis of ERISA and adopt its rationale here, finding the
safe harbor exemption of 29 C.F.R. § 2510.3-1(j) applicable.

Judgment vacated and appeal dismissed.