Priddy et al v. Health Care Service Corporation

Filing 74

OPINION: The Plaintiffs' Motion to Certify the Class 22 is ALLOWED. (SEE WRITTEN OPINION) Entered by Judge Richard Mills on 10/7/2016. (GL, ilcd)

E-FILED

Tuesday, 11 October, 2016 12:47:19 PM
Clerk, U.S. District Court, ILCD

IN THE UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
SUSAN PRIDDY, et al.,
Plaintiffs,
v.
HEALTHCARE SERVICES
CORPORATION, an Illinois Mutual
Reserve Insurance Company,
Defendant.

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NO. 14-3360

OPINION
RICHARD MILLS, U.S. District Judge:
This is a class action case.
In an Order entered on March 22, 2016, the Court Allowed in part
and Denied in part the Defendant’s Motion to Dismiss the Plaintiffs’ First
Amended Complaint.
Pending before the Court is the Plaintiffs’ Motion to Certify a Class.
It will be so ordered.
I. BACKGROUND
This is an action pursuant to the Employee Retirement Income

Security Act (“ERISA), 29 U.S.C. §§ 1132(a)(1)(B) and 1132(a)(3). The
Plaintiffs also seek relief under the statutory and common law of the State
of Illinois.
Following the Court’s ruling on the Defendant’s Motion to Dismiss,
eight individuals remain as Plaintiffs. Plaintiffs Susan Priddy, Craig Fischer
and Suraj Demla purchased individual policies from Defendant Health Care
Services Corporation (“the Defendant” or “HCSC”), an insurance company
licensed by the State of Illinois. Plaintiffs Jan Yard, Mark Schacht, M.D.,
Neil Friedman, M.D., Jeffrey Rose and Michael Beiler obtained coverage
through a plan purchased by their employers.
The Plaintiffs allege that, through its Blue Cross and Blue Shield
divisions, HCSC offers health insurance policies in Illinois, Montana, New
Mexico, Oklahoma and Texas for individuals and groups. HCSC enters
into financial arrangements with drug providers in order to manage
pharmaceutical prices.
Based on their Amended Complaint and the Court’s Order on the
Defendant’s Motion to Dismiss, the Plaintiffs request class certification

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under Rule 23 for the following counts of the Amended Complaint:
(a) Count 1, to the extent it alleges breach of fiduciary duty
against HEALTH CARE SERVICE CORPORATION (HCSC)
as an Illinois Mutual Insurance Company and breach of its
fiduciary duty under ERISA, 29 U.S.C. § 1104(a)(1) and 29
U.S.C. § 1106(b)(1) and Illinois common law with respect to its
placing its officers and directors on various boards of its
affiliates and other entities owned or controlled by HCSC;
(b) Plaintiffs allegations under Counts I and II, to the extent
that they allege violations under ERISA, 29 U.S.C. § 1106(a)(1)
and (b) by HCSC’s engaging in “prohibited transactions” by
HCSC’s non-disclosure of the terms of the contracts that it
entered into with providers;
(c) With respect to Count II, to the extent that it alleged
violations of ERISA, 29 U.S.C. § 1106 by HCSC’s utilizing plan
assets to the detriment of plan participants;
(d) With respect to Count III as to its request for appointment
of a receiver under 29 U.S.C. § 1109(a);
(e) With respect to Count VI as to its allegations that
Defendant, HCSC, breached its common law fiduciary duty;
and with respect to Count VII as to the allegations that there
should be an accounting under Illinois Law.
The Plaintiffs seek to bring this class under Federal Rule of Civil
Procedure 23 on behalf of themselves and as representatives of four classes
of similarly situated persons and entities, defined as follows:

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(a)

All individuals who sponsored benefit plans providing
themselves and any of their employees with healthcare
coverage obtained by the purchase of insurance coverage
or administration of self-funded plans by Defendant,
HCSC, or through a benefit plan underwritten,
administered or otherwise provided by Defendant, HCSC
in the States of Illinois, Texas, Montana, New Mexico and
Oklahoma.

(b)

All individuals and their beneficiaries who are or, at all
times relevant to this cause of action, were recipients of
health care coverage provided to them and their
beneficiaries through their employers by health care
coverage plans underwritten, administered, or otherwise
provided by Defendant HCSC in the States of Illinois,
Texas, Montana, New Mexico and Oklahoma.

(c)

All individuals and their beneficiaries who, at all times
relevant to this cause of action, obtained health care
coverage by individual purchase of such coverage from
Defendant, HCSC, or through a benefit plan
underwritten, administered, or otherwise provided by
Defendant, HCSC, but not subject to ERISA in the States
of Illinois, Texas, Montana, New Mexico and Oklahoma.

(d)

All individuals and their beneficiaries who are, or at all
times relevant to this cause of action, were covered by
health care insurance solely within the borders of the
State of Illinois and therefore are protected by the power
of the Illinois Department of Insurance to regulate policies
issued within its borders by a health care insurer such as
Defendant HCSC.

Excluded from the Class are: (1) Defendant, Defendant’s
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agents, subsidiaries, parents, successors, predecessors, and any
entity in which Defendant or its parents have a controlling
interest, and those entities’ current and former employees,
officers, and directors; (2) the Judge to whom this case is
assigned and the Judge’s immediate family; (3) any person who
executes and files a timely request for exclusion from the Class;
(4) any person who has had their claims in this matter finally
adjudicated and/or otherwise released; and (5) the legal
representatives, successors and assigns of any such excluded
person.
II. DISCUSSION
A. Legal standard
Under Rule 23(a), a class action is appropriate only if:
(1) the class is so numerous that joinder of all members is
impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are
typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect
the interests of the class.
Fed. R. Civ. P. 23(a). “To certify a class, a district court must find that
each requirement of Rule 23(a) (numerosity, commonality, typicality and
adequacy of representation) is satisfied as well as one subsection of Rule
23(b).” Harper v. Sheriff of Cook County, 581 F.3d 511, 513 (7th Cir.
2009). The class cannot be certified if any requirement is not met. See id.
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The class must be defined in a clear manner based on objective
criteria. Mullins v. Direct Digital, LLC, 795 F.3d 654, 659 (7th Cir. 2015).
A class defined too vaguely does not satisfy the “clear definition”
component. See id. at 659. A court must “be able to identify who will
receive notice, who will share in any recovery, and who will be bound by a
judgment.” See id. at 660. “To avoid vagueness, class definitions generally
need to identify a particular group, harmed during a particular time frame,
in a particular location, in a particular way.” Id. Moreover, classes should
not be defined by subjective criteria, such as a person’s state of mind. See
id. Instead, classes should be defined objectively such as by conduct. See
id.
A court cannot simply assume the truth of the matters as asserted by
the plaintiff. See Messner v. Northshore University HealthSystem, 669
F.3d 802, 811 (7th Cir. 2012). “If there are material factual disputes, the
court must receive evidence and resolve the disputes before deciding
whether to certify the class.” Id. (internal quotation marks and citation
omitted). A plaintiff meets its burden by proving any disputed requirement

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by a preponderance of the evidence. See id.
The Plaintiffs allege that because all prospective class members are
either insureds or beneficiaries of various health insurance policies issued
by Defendant HCSC through various wholly-owned or controlled entities,
with similar contractual provisions, individual class members will not be
required to present evidence that varies from class member to class member.
Moreover, there are common aggregation-enabling issues in this case. The
Plaintiffs assert that because of common contractual provisions and a
common ownership of the Defendant, there will be more questions
common to the class under the applicable standard.
B. Rule 23(a) requirements
(1)
As for numerosity, the Plaintiffs state the exact number of class
members is unknown at this time. Because the Defendant has a significant
percentage of the market share in health insurance coverage in the five
jurisdictions, the Plaintiffs estimate the affected participants and
beneficiaries to be well in to the millions, thereby making individual joinder

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impracticable.

The Plaintiffs allege that class members can be easily

identified through the Defendant’s records.
The Defendant disputes that the number of class members would be
well in excess of ten million and further denies that members can be
identified through its records.

As the Plaintiffs allege, however, the

Defendant does not suggest in its Answer or Brief that the number is too
small to permit class certification. If, for example, the Defendant alleged
there were only ten members of the putative class, then the Court would
have to receive evidence to resolve the dispute. See Szabo v. Bridgeport
Machines, Inc., 249 F.3d 672, 676 (7th Cir. 2001). According to its
website, www.hcsc.com, HCSC has more than 15 million individuals who
receive coverage through one or more of its policies or plans that HCSC
administers.
The Plaintiffs further assert that because the Defendant is able to
identify several of the named Plaintiffs as policy owners or employees
covered by a group plan, the Defendant would be able to identify all
putative class members by reference to its records.

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Although the precise number of affected insureds cannot be
determined, based on a common sense analysis, the Court finds that the
number of putative class members in each of the separate classes is
sufficient to satisfy the numerosity prong of Rule 23.
(2)
The Plaintiffs further assert there are several questions of law and fact
common to the claims of the Plaintiffs and the class members, which
predominate over any questions that may affect individual Class Members.
These include the following questions:
a.

Is Defendant’s practice of artificially inflating coinsurance
payments made by its insureds to retain a benefit for itself
and retaining rebates and profits derived from affiliates
and related to entities a violation of ERISA as well as the
Common Law and Statutory Law of the State of Illinois,
including but not limited to the Unfair and Deceptive
Trade Practices Act, 215 ILCS 5/154.6?

b.

Have Defendant’s insureds and Plan Participants paid
inflated amounts of premiums, administration fees, copayments and coinsurance both for medical services as
well as for prescription drugs as a result of the practices
described above?

c.

Has Defendant’s conduct in refusing to share with its
insureds/owners profits and benefits derived from the
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activities of or profits obtained from its affiliates and
subsidiaries, said affiliates and subsidiaries obtained by
Defendant through the use of premiums paid by its
insureds/owners?
d.

Are the Plaintiffs entitled to relief, including
compensatory damages, reformation, disgorgement and
attorneys fees?

The Defendant asserts that Plaintiffs have not established that these
questions are common to even one of the classes they seek to certify, let
alone specify to which of the four classes each question would apply. The
Plaintiffs do not show how the common questions of law or fact relate to
the specific claims or how the issues they identify are “central” to the
validity of the claims.
The Defendant further notes that the Plaintiffs’ proposed classes are
not limited to people who are insured by HCSC, or to people who paid
premiums. Three of the four classes include people whose health benefits
are self-funded by their employers, or are only administered by the
Defendant. Two of the classes also include “beneficiaries” of benefit plans
purchased by others. The Defendant contends that Plaintiffs have not
identified the classes with respect to the different counts, given that they
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have not factually developed each of the counts.
“A common nucleus of operative fact is usually enough to satisfy the
commonality requirement of Rule 23(a)(2).” Keele v. Wexler, 149 F.3d
589, 594 (7th Cir. 1998) (citation omitted). “Common nuclei of fact are
typically manifest where . . . the defendants have engaged in standardized
conduct toward members of the class.” Id.
In their Complaint, the Plaintiffs allege that the putative classes fall
into three general groups based on how they obtained coverage or
purchased insurance from HCSC. These include those who purchased
individual coverage from the Defendant, those who obtained HCSC
coverage through their employment and a third group which included
employers who purchased coverage for the employees in the second group
but were not themselves obtaining healthcare coverage from HCSC. The
Court previously found that the employer class members lacked standing
to pursue an ERISA action and they were dismissed as parties.
Because the contract language and the treatment of the putative class
members in both classes rests on a uniform corporate policy and

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documentation, the Court concludes that the commonality prong is met.
(3)
In considering typicality, courts should focus on whether the
representative plaintiffs’ “claims have the same essential characteristics as
the claims of the class at large. A plaintiff’s claim is typical if it arises from
the same event or practice or course of conduct that gives rise to the claims
of other class members and his or her claims are based on the same legal
theory.” De La Fuente v. Stokely-Van Camp, Inc., 713 F.2d 225, 232 (7th
Cir. 1983) (internal quotation marks and citation omitted). The typicality
requirement may be met even if there are factual differences between the
claims of the named plaintiffs and those of other class members. See id.
It is the similarity of legal theories that is important. See id. The named
representatives’ claims must “have the same essential characteristics as the
claims of the class at large.” Id.
As for defenses, “[t]ypicality under Rule 23(a) should be determined
with reference to the company’s actions, not with respect to particularized
defenses it might have against certain class members.”

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Wagner v.

NutraSweet Co., 95 F.3d 527, 534 (7th Cir. 1996). The Plaintiffs note
that in its Answer, the Defendant raised general affirmative defenses but
did not direct those to one or more distinct groups of Plaintiffs.
As for adequacy of representation, the Plaintiffs state they will fairly
and adequately represent and protect the interests of the Classes as defined
above. Counsel is competent and experienced in class actions.
The Court’s Opinion eliminated two of the originally proposed classes
based on a lack of standing. The Defendant contends the Plaintiffs have
neither identified which named Plaintiff is the class representative for each
of the classes they seek to have certified nor identified, for each putative
class, a named representative with claims that are characteristic of the
claims of the class at large.
The Plaintiffs allege that Plaintiff Priddy, an individual policyholder
who resides in Illinois, is capable of being an appropriate representative for
the two individual non-ERISA classes, and Plaintiff Beiler, who obtained his
policy through his employer, is capable of being the class representative for
the ERISA class participants. The Court concludes that Plaintiffs have

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demonstrated that Plaintiffs Priddy and Beiler are capable of representing
the interests of the proposed classes.
The named Plaintiffs seeking to represent the interests of the classes
have no interest antagonistic to any of the proposed classes or any of their
members. The Defendant has no defenses unique to any individual or
separate group of the Plaintiffs.
Because the representatives’ claims appear to arise from the same
event or course of conduct giving rise to the claims of the class and it
appears the claims are all based on the same legal theories, the Court
concludes that Plaintiffs have established the typicality and adequacy of
representation components of Rule 23(a).
C. Rule 23(b) requirements
To satisfy Rule 23(b)(3), the Court must “find[] that the questions
of law or fact common to class members predominate over any questions
affecting only individual members, and that a class action is superior to
other available methods for fairly and efficiently adjudicating the
controversy.” Fed. R. Civ. P. 23(b). This means a proposed class “must

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prove the existence of a common question, and one that predominates over
individual questions, but it need not prove that the answer to that question
will be resolved in its favor.” Bell v. PNC Bank, Nat. Ass’n, 800 F.3d 360,
376 (7th Cir. 2015) (emphasis in original).
The Plaintiffs allege that common issues predominate because: (1)
members of each class share the same basis of their relationship with HCSC
which also forms the nature and extent of the damages they seek; (2) all
members of the classes are treated the same by an insurance carrier who
must submit its policy forms to regulatory authorities and verify to them
uniformity in their application to all HCSC insureds; (3) members of each
class share the same state law as HCSC operates under; (4) liability will be
established using common, non-individualized proof; and (5) damages can
be calculated using a common objective formula for all members of each
class.
The Court believes that the common issues and common evidence
outweigh any potential individualized issues that may apply to the class
members’ claims. Moreover, the Court is not aware of any interest that

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would be promoted by directing the claims to be prosecuted individually.
Accordingly, the Court concludes that class proceedings are superior
to all other available methods for the fair and just resolution of the
controversy, given that joinder of all parties appears to be impracticable.
Moreover, it would be extremely difficult, if not impossible, for the
individual members of the class to individually obtain their sought-after
relief because, according to the Plaintiffs, the damages suffered by
individual class members, though neither small not minimal, are likely to
be proportionately burdensome–particularly regarding the cost of
individually conducting the complex litigation necessitated by the
Defendant’s actions. Even if class members were willing or able to pursue
such individual litigation, therefore, a class action would still be preferable
given that a multiplicity of individual actions would likely increase the
expense and time of litigation given the complex legal and factual
controversies as alleged in the Complaint.
The Court believes it is likely that fewer management difficulties
would result from a class action.

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Other benefits include a single

adjudication and comprehensive supervision by a single court, resulting in
reduced time, effort and expense for all parties and the Court and, further,
resulting in the uniformity of decisions.
For all of these reasons, the Court concludes that a class action is
superior to other available methods for adjudicating the action.
Several attorneys from multiple law firms are listed as counsel for the
Plaintiffs. The Plaintiffs state these attorneys include James Horstman,
Alexandra de Saint Phalle, Mark Debofsky and Jonathan Novoselsky. The
Court further finds that group of counsel and their law firms are competent
to adequately represent the Plaintiffs’ classes.
Based on the foregoing, the Court will certify the class pursuant to the
provisions of Federal Rule of Civil Procedure 23.
Ergo, the Plaintiffs’ Motion to Certify the Class [d/e 22] is
ALLOWED.
The Classes are certified as follows:
(a)

All individuals who sponsored benefit plans providing
themselves and any of their employees with healthcare coverage
obtained by the purchase of insurance coverage or
administration of self-funded plans by Defendant, HCSC, or
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through a benefit plan underwritten, administered or otherwise
provided by Defendant, HCSC, in the States of Illinois, Texas,
Montana, New Mexico and Oklahoma.
(b)

All individuals and their beneficiaries who are or, at all
times relevant to this cause of action, were recipients of
health care coverage provided to them and their
beneficiaries through their employers by health care
coverage plans underwritten, administered, or otherwise
provided by Defendant HCSC in the States of Illinois,
Texas, Montana, New Mexico and Oklahoma.

(c)

All individuals and their beneficiaries who, at all times
relevant to this cause of action, obtained health care
coverage by individual purchase of such coverage from
Defendant, HCSC, or through a benefit plan
underwritten, administered, or otherwise provided by
Defendant, HCSC, but not subject to ERISA in the States
of Illinois, Texas, Montana, New Mexico and Oklahoma.

(d)

All individuals and their beneficiaries who are, or at all
times relevant to this cause of action, were covered by
health care insurance solely within the borders of the
State of Illinois and therefore are protected by the power
of the Illinois Department of Insurance to regulate policies
issued within its borders by a health care insurer such as
Defendant HCSC.

Excluded from the Class are: (1) Defendant, Defendant’s
agents, subsidiaries, parents, successors, predecessors, and any
entity in which Defendant or its parents have a controlling
interest, and those entities’ current and former employees,
officers, and directors; (2) the Judge to whom this case is
assigned and the Judge’s immediate family; (3) any person who
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executes and files a timely request for exclusion from the Class;
(4) any person who has had their claims in this matter finally
adjudicated and/or otherwise released; and (5) the legal
representatives, successors and assigns of any such excluded
person.
As requested, Plaintiffs Susan Priddy and Michael Beiler are
appointed as representatives of the Class.
Counsel for the Named Plaintiffs are appointed as Counsel for the
Class.
This case is referred to United States Magistrate Judge Tom SchanzleHaskins for the purpose of determining whether additional discovery is
necessary and the entering of a scheduling order.
ENTER: October 7, 2016
FOR THE COURT:
/s/ Richard Mills
Richard Mills
United States District Judge

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