LDFS LLC v. IEC Group Incorporated

Filing 17

ORDER: IT IS ORDERED granting Defendant's Motion to Dismiss for Failure to Join an Indispensable Party (Doc. 11 ). Plaintiff's claims are dismissed. IT IS FURTHER ORDERED directing the Clerk to enter judgment accordingly and close this case. Signed by Judge John J Tuchi on 7/27/2017. (REK)

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NOT FOR PUBLICATION

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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LDFS LLC,

No. CV-17-08046-PCT-JJT
Plaintiff,

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v.

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IEC Group Incorporated,

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ORDER

Defendant.

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At issue is Defendant IEC Group Incorporated’s Motion to Dismiss for Failure to

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Join a Necessary and Indispensable Party (Doc. 11, MTD). After considering the Motion,

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Plaintiff’s Response (Doc. 12, Resp.), and Defendant’s Reply (Doc. 15, Reply), the Court

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found this matter appropriate for resolution without oral argument. See LRCiv 7.2(f). For

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the reasons that follow, the Court will grant Defendant’s Motion.

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I.

BACKGROUND

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Plaintiff alleges the following facts in the Complaint. (Doc. 1, Compl.) Plaintiff

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LDFS LLC d/b/a U.S. Renal Care Flagstaff Dialysis (“LDFS”) is the owner of a dialysis

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center in Flagstaff, Arizona known as “DSI Flagstaff.” (Compl. ¶ 8.) Defendant IEC

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Group, Inc. d/b/a AmeriBen (“AmeriBen”) is a Third-Party Administrator that hired CSG

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Consulting, Inc. (“CSG”) as a medical fee negotiator. (Compl. ¶¶ 9-10.) LDFS alleges

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that it negotiated a pricing agreement through CSG with AmeriBen related to payments

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to LDFS for services provided to a patient at DSI Flagstaff. (Compl. ¶ 3.) LDFS alleges

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that CSG was acting as AmeriBen’s agent and was authorized “to negotiate with and

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enter into agreements with providers regarding the payment level for services provided to

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dialysis patients whose claims were to be processed and paid by AmeriBen.”

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(Compl. ¶ 10.) This pricing agreement provides that AmeriBen would pay LDFS for its

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services at an amount equal to 60 percent of LDFS’s billed charges. (Compl. ¶ 4.)

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AmeriBen has not paid LDFS for certain services and, as a result, LDFS now raises two

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state law claims against AmeriBen. The first is a breach of contract claim for the failure

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to pay the full amount of bills under the pricing agreement. The second claim is for

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damages arising from two checks sent from AmeriBen to LDFS that bounced.

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Because this is a Federal Rule of Civil Procedure 12(b)(7) motion to dismiss for

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failure to join an indispensable party, Defendant AmeriBen attached evidence to its

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Motion that introduces the role of an absent party, the Tuba City Regional Healthcare

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Corporation (“TCRHCC”). The TCRHCC is a non-profit healthcare corporation

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incorporated under Navajo Nation laws and owned by the Navajo Nation. (MTD at 2.)

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TCRHCC provided the health care plan covering the patient treated at DSI Flagstaff.

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(MTD at 4.)

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First, AmeriBen attached to its Motion a “Third-Party Administrative and

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Utilization Managements Services Agreement” (“TPA Agreement”) between AmeriBen,

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as Third Party Administrator, and TCRHCC, as Plan Sponsor and/or Administrator of the

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Plan. (Doc. 11-1, Decl. of Bryan Hall (“Hall Decl.”) ¶ 4 & Ex. 1 (“TPA Agreement”).) In

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the TPA Agreement, AmeriBen and TCRHCC agreed that AmeriBen is solely an

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independent contractor and is not a fiduciary of the Plan or an employee or agent.

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(TPA Agreement ¶ 3.1.) The TPA Agreement states that AmeriBen has no responsibility

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for any funding of Plan benefits and that TCRHCC is solely responsible for the

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negotiation and substance of any contracts with stop-loss insurers, pharmacy benefit

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management companies, preferred provider organizations, and any other third-party

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service provider organizations or vendors directly contracted by TCRHCC.

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(TPA Agreement ¶¶ 3.4, 3.5.) The Agreement also states that TCRHCC will be bound by

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the terms of the agreements between any third-party service providers or vendors that

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directly contract with AmeriBen. (TPA Agreement ¶ 3.6.) Moreover, all Plan benefit

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payments made by AmeriBen will take the form of checks drawn on an account

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designated by TCRHCC for such purpose, and TCRHCC will establish, maintain, and

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reconcile this account. (TPA Agreement ¶ 5.1.) Finally, the Agreement states that

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TCRHCC, “and not AmeriBen, has the final discretionary authority to determine what

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benefits will be paid by the Plan.” (TPA Agreement Art. IV.)

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Second, AmeriBen attached to its Motion a letter from CSG to LDFS evidencing

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the pricing agreement related to payment for costs of services at DSI Flagstaff.

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(Hall Decl. ¶ 7 & Ex. 2 (“CSG Letter”).) This letter expressly states that “this agreement

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does not constitute a guarantee of benefits.” (CSG Letter.) Third, AmeriBen attached a

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letter from LDFS to TCRHCC—not AmeriBen—requesting an appeal and demanding

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payment from TCRHCC for services at DSI Flagstaff. (Hall Decl. ¶ 10 & Ex. 3 (“USRC

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Letter”) at 1.) Finally, AmeriBen attaches the two bounced checks that were written to

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LDFS. (Hall Decl. ¶¶ 12-13 & Ex. 4 (“Bounced Checks”).)

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II.

LEGAL STANDARDS

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Rule 12(b)(7) of the Federal Rules of Civil Procedure allows a court to dismiss a

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case for failure to join a party under Rule 19. Rule 19(a)(1)(A) provides that a person

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“must be joined as a party” if “in that person’s absence, the court cannot accord complete

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relief among existing parties.” Further, Rule 19(a)(1)(B) provides that a person “must be

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joined as a party” if “that person claims an interest relating to the subject of the action

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and is so situated that disposing of the action in the person’s absence may: (i) as a

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practical matter impair or impede the person’s ability to protect the interest; or (ii) leave

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an existing party subject to a substantial risk of incurring double, multiple, or otherwise

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inconsistent obligations because of the interest.” If that required person cannot be joined,

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then “the court must determine whether, in equity and good conscience, the action should

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proceed among the existing parties or should be dismissed.” Fed. R. Civ. P. 19(b).

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Rule 19 provides a three step process for determining whether the court should

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dismiss an action for failure to join a purportedly indispensable party. United States v.

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Bowen, 172 F.3d 682, 688 (9th Cir. 1999). “First, the court must determine whether the

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absent party is ‘necessary[.]’ . . . If the absent party is ‘necessary,’ the court must then

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determine whether joinder is ‘feasible.’ Finally, if joinder is not ‘feasible,’ the court must

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decide whether the absent party is ‘indispensable[.]’” Id. (internal citations omitted). In

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order to determine ‘indispensability,’ the court must determine “whether ‘in equity and

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good conscience’ the action can continue without” the necessary party. Id. (internal

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citations omitted).

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The court may consider a movant’s exhibits attached to its Rule 12(b)(7) motion

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because the movant bears the burden to show “the nature of the interest possessed by an

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absent party and that the protection of that interest will be impaired by the absence.”

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Citizen Potawatomi Indian Tribe of Okla. v. Collier, 17 F.3d 1292, 1293 (10th Cir. 1994).

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(citations omitted).

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III.

ANALYSIS

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A.

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The first issue to resolve is whether TCRHCC is a necessary party to LDFS’s two

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claims. First, the gravamen of the breach of contract claim is the alleged failure to pay

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LDFS for certain dialysis treatment costs at DSI Flagstaff. Any agreement to pay LDFS

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for such services is authorized and controlled by the TPA Agreement between AmeriBen

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and TCRHCC. Underlying the pricing agreement between AmeriBen and LDFS is the

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core issue of eligibility for coverage, which is determined by TCRHCC. Indeed, the

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pricing agreement expressly states that it “does not constitute a guarantee of benefits.”

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(CSG Letter.) The evidence shows that TCRHCC, not AmeriBen, determines what

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payments will be made. (TPA Agreement Art. V.) Although the issue LDFS raises in its

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breach of contract claim—the enforceability of the pricing agreement—will affect the

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determination of the amount to be paid, the question of whether payment should be made

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necessarily involves TCRHCC. Therefore, TCRHCC is a necessary party to the

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resolution of this claim.

TCRHCC is a Necessary Party

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Second, the gravamen of the claim for bounced checks is the insufficient amount

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of funds in the account on which the checks were written. The evidence shows that the

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funds are from TCRHCC’s account. (Bounced Checks; TPA Agreement ¶ 5.1.) Even if

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AmeriBen wrote the checks, TCRHCC, as account holder, is a necessary party to LDFS’s

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claim under Rule 19.

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B.

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The Court must next determine whether it is feasible to join TCRHCC as a party

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to this lawsuit. AmeriBen states that it is not feasible to join TCRHCC because the

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Navajo Nation enjoys sovereign immunity from LDFS’s claims. (MTD at 7.) At this

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stage, it is not clear to the Court whether sovereign immunity applies because any

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number of waivers may exist. Indeed, as AmeriBen states, LDFS’s claims may actually

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fall under an Employment Retirement Income Security Act (ERISA) plan, which may in

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turn waive sovereign immunity for TCRHCC. (MTD at 7.) Further, as LDFS states,

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AmeriBen submitted only excerpts of the TPA Agreement between AmeriBen and

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TCRHCC, and missing portions may contain a waiver of sovereign immunity.

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(Resp. at 9-10.) Therefore, the Court cannot yet determine if LDFS’s claims against

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TCRHCC would be barred by the doctrine of sovereign immunity.

It is not Feasible to Join TCRHCC

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What is clear to the Court is that joinder of TCRHCC would destroy federal

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diversity jurisdiction under 28 U.S.C. § 1332, which is the basis for subject matter

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jurisdiction in this case. AmeriBen provides evidence that TCRHCC is a tribal entity

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located in Arizona. (MTD at 7.) As the Ninth Circuit has found, Indian tribes and their

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entities are not state citizens. Am. Vantage Cos., Inc. v. Table Mtn. Rancheria, 292 F.3d

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1091, 1095 (9th Cir. 2002). Consequently, presence of a tribal entity destroys diversity

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jurisdiction. Id. (citing Ninigret Dev. Corp. v. Narragansett Indian Wetuomuck Hous.

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Auth., 207 F.3d 21, 27 (1st Cir. 2000)). Therefore, because the sole jurisdictional basis of

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this action is diversity of the parties, joining TCRHCC in this action is not feasible.

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....

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....

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C.

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The last step in the three part process is to determine whether “in equity and good

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conscience,” the action can continue without the necessary party. Bowen, 172 F.3d at

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688. To make this determination, the Court considers four factors: (1) the prejudice to

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any party or to the absent party; (2) whether relief can be shaped to lessen prejudice; (3)

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whether an adequate remedy, even if not complete, can be awarded without the absent

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party; and (4) whether there exists an alternative forum.” Dawavendewa v. Salt River

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Project Agric. Improvement & Power Dist., 276 F.3d 1150, 1161-62 (9th Cir. 2002).

TCRHCC is an Indispensable Party

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First, there is a significant likelihood of prejudice to Defendant AmeriBen. If this

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case continues without TCRHCC, AmeriBen may be forced to bear the expense and

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burden of bringing a separate action to enforce its rights under the TPA Agreement.

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(MTD at 8.) Under this Agreement, AmeriBen bears no responsibility for payment or

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authorization of benefits and is entitled to indemnification by TCRHCC. (TPA

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Agreement ¶ 3.4, Art. IV.) As a matter of equity, the first factor weighs in favor of

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finding TCRHCC’s indispensability.

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Indeed, the only way relief can be shaped to lessen the prejudice against

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AmeriBen would be if TCRHCC became a Defendant in the suit. Moreover, in view of

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the evidence before the Court, LDFS has no remedy without TCRHCC. The claims in

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LDFS’s Complaint center around (1) benefit payments that can only be authorized by

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TCRHCC, and (2) the checks that were drawn from TCRHCC’s account, which only it

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has the authority to “establish, maintain and reconcile.” (MTD at 9 & TPA Agreement

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¶ 1.) In other words, because AmeriBen has no authority over the authorization of benefit

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payments or the accounts from which the checks were drawn, LDFS cannot find relief

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without joining TCRHCC in the suit. Therefore, the second and third factors also weigh

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in favor of finding TCRHCC’s indispensability.

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Finally, LDFS is able to bring these claims through an alternative forum of either

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state or tribal court. Because the Court has concluded that joining TCRHCC would

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destroy federal diversity jurisdiction, state court may provide an alternative forum to

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bring LDFS’s state law claims. Alternatively, the location of the conduct that serves as

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the basis of these claims may compel LDFS to exhaust its remedies in tribal court before

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proceeding in state or federal court. See Williams v. Lee, 358 U.S. 217, 223 (1959)

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(holding that state courts had no jurisdiction over a civil claim against a tribal member for

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a transaction occurring on the Navajo reservation); Window Rock Unified School Dist. v.

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Reeves, No. 13-16259, 2017 U.S. App. WL 2784165, at *26 (9th Cir. June 28, 2017)

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(finding if the conduct at issue in a civil lawsuit occurred on tribal land over which the

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tribe has the right to exclude, such that tribal court jurisdiction is at least colorable or

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plausible, exhaustion in the tribal forum is required before bringing suit in federal district

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court); Marcean v. Blackfeet Housing Authority, 540 F.3d 916, 920-21 (9th Cir. 2008);

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Sharber v. Spirit Mountain Gaming, Inc., 343 F.3d 974, 976 (9th Cir. 2003) (finding

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tribal exhaustion requirements apply equally to questions of tribal sovereign immunity).

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Because LDFS can bring these claims in an alternative forum, the fourth factor also

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weighs in favor of finding TCRHCC’s indispensability. TCRHCC is indispensable but

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cannot be joined in this suit, and the Court will therefore grant AmeriBen’s Motion to

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Dismiss.

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IT IS ORDERED granting Defendant’s Motion to Dismiss for Failure to Join an
Indispensable Party (Doc. 11). Plaintiff’s claims are dismissed.
IT IS FURTHER ORDERED directing the Clerk to enter judgment accordingly
and close this case.
Dated this 27th day of July, 2017.

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Honorable John J. Tuchi
United States District Judge

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