Walsh Chiropractic Ltd. v. Stratacare Inc.

Filing 59

ORDER, DENYING 41 MOTION to Certify Class filed by Walsh Chiropractic Ltd. Signed by Judge Michael J. Reagan on 9/14/2011. (mmr)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
WALSH CHIROPRACTIC, LTD., Individually )
and on Behalf of Others Similarly Situated,
)
)
Plaintiff,
)
)
vs.
)
)
STRATACARE, INC.,
)
)
Defendant.
)
)

Case No. 09-cv-1061-MJR

MEMORANDUM AND ORDER
Reagan, District Judge:
This action pertains to an alleged scheme known as a “silent PPO,” a term of art for
a specific kind of Preferred Provider Organization (“PPO”) abuse. A PPO is a managed care
technique encompassing numerous contracts between health care providers (such as Plaintiff Walsh
Chiropractic, Ltd. (“Walsh”)), payors (such as insurance carriers and employers), various third
parties, and the PPO network administrator. The PPO at issue here is administered by First Health
Group Corporation (“First Health”), which is not a party to this action. Defendant StrataCare, LLC
(“StrataCare”), is a software company; its software and personnel are used to facilitate the electronic
processing of transactions between the provider, the payor and the PPO administrator, First Health.
Plaintiff Walsh has filed a motion for class certification and memorandum in support
(Docs. 41 and 42).

Defendant StrataCare has filed a memorandum in opposition to class

certification (Doc. 44), to which Walsh has filed a reply (Doc. 46). An evidentiary hearing was held
on January 6, 2011 (Doc. 50 Transcript), and the Court accepted proposed findings of fact and
conclusions of law from each party (Docs. 51-1 and 52). The Court now rules as follows.
1

A. Procedural History and Background
On November 6, 2009, Plaintiff Walsh Chiropractic filed this putative class action
in the Third Judicial Circuit Court in Madison County, Illinois, alleging various breach of contract
theories and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act
(ICFA), 815 ILCS 501/1 et seq., (Doc. 9-1). On December 17, 2009, Walsh filed its First Amended
Class Action Complaint (Doc. 9-2), adding two additional counts: one for unjust enrichment and
the other alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18
U.S.C. §§ 1962(c), 1964(c). Defendant StrataCare removed this action to federal court on December
28, 2009, pursuant to 28 U.S.C. § 1441, alleging this Court has federal question, supplemental and
diversity jurisdiction under 28 U.S.C. §§ 1331, 1367(a) and 1332(a)(1), respectively (Doc. 9). On
motion by StrataCare (Doc. 20), all of Walsh’s contract claims (Counts I-IV) were dismissed, but
the action proceeds on the ICFA, RICO and unjust enrichment claims (Counts V-VII) (Doc. 38).
In analyzing the motion for class certification, the Court keeps in mind that it has
been found that the relationship between Walsh and StrataCare stems from two separate, though
related, contracts (see Doc. 38).1 The first specific contract at issue is the Provider Agreement that
Walsh entered into with First Health on March 13, 2002 (Doc. 32-1, pp. 1-10 (Ex. A)). Under this
contract, Walsh, as a provider, agrees to participate in the First Health PPO, and provide services
to “participating patients”—as defined by the contract—at discounted rates.

The Provider

Agreement further dictates that “First Health will offer to certain Payors the opportunity to contract

1

There are actually three relevant versions of the Provider Agreement, but the Court
considers reference to the Provider Group Agreement (Doc. 32-7, pp. 22-35) and the Participating
Clinic Group (Doc. 32-7, pp. 36-43) to be duplicative of the basic Provider Agreement. Like the
parties, for the sake of clarity, the Court will reference only the basic Provider Agreement (Doc. 321, pp. 1-10).
2

with First Health to utilize the services of the health care providers participating in the Preferred
Provider Panel” (Doc. 32-1, p. 1, § 1.5). First Health is required to provide Providers with a list of
all Payors, with whom it has entered into such agreements (Doc. 32-1, p. 1, § 1.5). For purposes of
the Provider Agreement:
“Payor” means any employer, trust fund, insurance carrier, health care
service plan, trust, nonprofit hospital service plan, a governmental unit, any
other entity which has an obligation to provide medical services or benefits
for such services to Participating Participants, or any other entity which has
contracted with First Health to use First Health’s PPO Plan.
Doc. 32-1, p. 1, § 2.7.
The second contract at issue is between StrataCare and First Health, entitled,
“Workers’ Compensation Managed Care Services Network Agreement” (“Network Access
Agreement”), signed on January 1, 2005 (Doc. 34-2). Per the Network Access Agreement, upon
execution of a form written agreement, referred to as an “Appendix II Agreement” (Doc. 34-2, pp.
16-19), StrataCare’s clients – referred to as “sub-clients”– are entitled to the discounted rates in the
Provider Agreements between First Health and Providers, such as Walsh.
In essence, Plaintiff claims that it was fraud for Defendant StrataCare to submit, or
cause to be submitted, thousands of misleading Explanations of Review (“EORs”) deceptively
claiming PPO discounts for medical services pursuant to First Health PPO network discounts when
neither StrataCare nor its clients were entitled to those discounts as legitimate First Health Payors.
From Walsh’s perspective, StrataCare took discounts beyond what was authorized by any
contractual authority, “without performing the associated obligation of ‘preferring’ the preferred
providers by channeling or steering patients to [Walsh], and because Defendant and its third-party
payor clients were not proper ‘Payors’ under [Walsh’s] and class members’ PPO provider

3

agreements”( Doc. 2-2, pp. 1-2).2
The Court ruled that, as pleaded, Walsh’s contract claims failed because: (1) the
Network Access Agreement did not incorporate, specifically or by reference, the Provider
Agreement between Walsh and First Health; (2) Walsh was not an intended third-party beneficiary
of the Provider Agreement between Walsh and First Health; (3) there was no implied contract; and
(4) there is no joint venture between StrataCare and First Health (see Doc. 38). Although all
contract claims were dismissed, the Court further ruled that the RICO claim was sufficiently
pleaded, based on an “association in fact;” the ICFA claim was plausible because, as pleaded,
StrataCare was the proximate cause of Walsh’s actual damages (i.e. not receiving full fees), and
Walsh’s patients may be affected by StrataCare’s allegedly fraudulent claims, via fee increases
needed to cover Walsh’s decreased income; and the unjust enrichment claim(s) could proceed,
premised upon the alleged fraud (see Doc. 38).
B. The Proposed Class
Plaintiff Walsh moves for class certification pursuant to Federal Rules of Civil
Procedure 23(a) and (b)(3), based on the predominance of questions of law and fact common to the
class. Without objection from StrataCare, Walsh has slightly narrowed the proposed class than from
what was delineated in the First Amended Class Action Complaint (Doc. 2-2). The revised proposed
class is:

2

From Walsh’s perspective, there was a uniform practice whereby Providers transmitted bills
to StrataCare; StrataCare transmitted the bills to First Health for repricing; First Health applied
discounts and returned the adjusted bill back to the Provider by way of an EOR transmitted by
StrataCare, which uniformly stated that, “PPO REDUCTION: First Health P & T The charges have
been priced in accordance with First Health owned network,” and that discounts were based on
“individual provider’s agreement with the preferred provider organization”(see Doc. 32-2, p. 5
Sample bill sent to Walsh).
4

All Illinois medical providers who:
(a)

entered into the First Health Network Participating Provider
Agreement, the First Health Network Participating Provider Group
Agreement, or the First Health Network Participating Clinic
Agreement;

(b)

provided medical services to an Illinois workers compensation
claimant; and

(c)

received partial payment from a StrataCare client based on access to
a First Health PPO discount through the Workers Compensation
Managed Care Services Agreement dated January 1, 2005, between
StrataCare and First Health.

Defendant StrataCare contends that the relevant time period should be limited to
between January 1, 2005, and January 1, 2009– the inclusive dates of Walsh’s contract with First
Health, and after which the Coventry-StrataCare Agreement took effect (see Doc. 44-6 at § 8.4).
C. Legal Standards for Class Certification
Rule 23 of the Federal Rules of Civil Procedure governs class actions. When a
plaintiff seeks class certification, the Court should not consider the merits of the case, although the
Court may look beyond the pleadings. Wiesmueller v. Kosobucki, 513 F.3d 784, 787 (7th Cir. 2008);
Chavez v. Illinois State Police, 251 F.3d 612, 629-630 (7th Cir. 2001); General Telephone Co. of
Southwest v. Falcon, 457 U.S. 147, 160 (1982). The Court may make whatever factual and legal
inquiries are necessary for the Rule 23 determination. See Szabo v. Bridgeport Machines, Inc., 249
F.3d 672, 675-676 (7th Cir. 2001).
Plaintiffs seeking class certification bear the burden of proving the action satisfies
the four requirements of Rule 23(a): numerosity, commonality, typicality, and adequacy of
representation. Harper v. Sheriff of Cook County, 581 F.3d 511, 513 (7th Cir. 2009). Once all of the

5

requirements of Rule 23(a) are satisfied, plaintiffs’ claims must fall within at least one subsection
of Rule 23(b). Arreola v. Godinez, 546 F.3d 788, 797 (7th Cir. 2008). In this case, Plaintiff Walsh
seeks to certify a class under Rule 23(b)(3).
“Certification under Rule 23(b)(3) requires that ‘the questions of law or fact common
to the members of the class predominate over any questions affecting only individual members, and
that a class action is superior to other available methods for the fair and efficient adjudication of the
controversy.’ ” Pella Corp. v. Saltzman, 606 F.3d 391, 393 (7th Cir. 2010) (quoting Fed.R.Civ.P.
23(b)(3)). Rule 23(b)(3) further provides:
The matters pertinent to these findings include:
(A)
the class members’ interests in individually controlling the
prosecution or defense of separate actions;
(B)
the extent and nature of any litigation concerning the controversy
already begun by or against class members;
(C)
the desirability or undesirability of concentrating the litigation of the
claims in the particular forum; and
(D)

the likely difficulties in managing a class action.

Fed.R.Civ.P. 23(b).
D. Analysis
StrataCare does not contest that Walsh can satisfy the four prerequisites for class
certification prescribed by Rule 23(a). Nevertheless, the Supreme Court and the Court of Appeals
for the Seventh Circuit have cautioned against “certification by default.”

6

The Supreme Court has made clear that a class “may only be certified if the
trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule
23(a) have been satisfied,” and “actual, not presumed, conformance with
Rule 23(a) remains ... indispensable.” [General Telephone Co. of Southwest
v. Falcon, 457 U.S. 147, 160-161 (1982)]. The requirement that the district
court conduct this “rigorous analysis,” among other things, serves the
important function of protecting absent class members whose rights may be
affected by the class certification.
Davis v. Hutchins, 321 F.3d 641, 649 (7th Cir. 2003). Accordingly, the Court will address each
of the four Rule 23(a) prerequisites for class certification.
1. Rule 23(a)(1)-Numerosity
Rule 23(a)(1) requires that the class be “so numerous that joinder of all members is
impracticable.” Fed. R. Civ. P. 23(a) (1). Plaintiffs “cannot rely on ‘mere speculation’ or
‘conclusory allegations’ as to the size of the putative class to prove that joinder is impractical for
numerosity purposes.” Arreola, 546 F.3d at 797 (citing Roe v. Town of Highland, 909 F.2d 1097,
1100 n. 4 (7th Cir. 1990)). However, if plaintiffs are unable to provide exact numbers, “a good faith
effort is sufficient to establish the number of class members.” Jenkins v. Mercantile Mortg. Co.,
231 F.Supp.2d 737, 744 (N.D.Ill. 2002) (citations omitted).
According to the deposition testimony of Doreen Corwin, Director of Network
Affairs for StrataCare, in her estimation there are “more than a thousand” First Health preferred
providers in Illinois from whom StratCare and/or its clients have taken PPO discounts. Doc. 32-3,
p. 17 (Corwin Dep., p, 63). Consequently, the numerosity requirement is satisfied.
2. Rule 23(a)(2)-Commonality
Rule 23(a)(2) requires that questions of law or fact common to the class must be

7

present. Rule 23(a)(2) insists that the class be “reasonably homogeneous.” Culver v. City of
Milwaukee, 277 F.3d 908, 910 (7th Cir. 2002) (citing Sosna v. Iowa, 419 U.S. 393, 403 n. 13 (1975)).
“The fact that there is some factual variation among the class grievances will not defeat a class
action.” Rosario v. Livaditis, 963 F.2d 1013, 1017-1018 (7th Cir. 1992) (citing Patterson v. General
Motors Corp., 631 F.2d 476, 481 (7th Cir. 1980)). “A common nucleus of operative fact is usually
enough to satisfy the commonality requirement of Rule 23(a)(2).” Id. (citing Franklin v. City of
Chicago, 102 F.R.D. 944, 949-50 (N.D.Ill.1984)); see also Keele v. Wexler, 149 F.3d 589, 594 (7th
Cir. 1998) (There need only be at least one question of law or fact common to the class).
At this juncture there is sufficient evidence that StrataCare employed a uniform
scheme to all potential class members, a scheme based on: (1) form provider agreements sufficiently
similar for purposes of 50 ILL.Admin. Code § 2051.55(c), that StrataCare did not file any
“substantial or material” variations with the Illinois Department of Insurance (see Docs. 32-7 - 328); and (2) common, standardized practices built into the StrataCare software, which generated the
EORs, each of which contained allegedly misleading language (see Doc. 32-6, pp. 3-5 (Sheila
Garcia Deposition, pp. 6-17)). The common use of the StrataCare software to create and transmit
EORs as described provides the common nucleus of fact necessary to satisfy Rule 23(a)(2).
However, it remains to be seen whether this common EOR process is sufficient for liability to attach
vis-a-vis the fraud claims– which highlights the common questions of law that will likely have to
be addressed. Whether these common issues predominate will be addressed below, relative to Rule
23(b)(3).
3. Rule 23(a)(3)- Typicality
Rule 23(a)(3) requires that” the claims or defenses of the of the representative parties

8

are typical of the claims or defenses of the class.” Fed.R.Civ.P. 23(a)(3) (emphasis added).3 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) (citations omitted). The
purpose of the typicality requirement is to ensure that the interests of the class representatives are
aligned with those of the class as a whole. See Insolia v. Philip Morris Inc., 186 F.R.D. 535, 544
(W.D.Wis.1998). As a result, a proposed class member’s claim is not typical if proof “would not
necessarily prove all the proposed class members’ claims.” Ruiz v. Stewart Assocs., 167 F.R.D. 402,
405 (N.D.Ill.1996). However, not every class member need suffer the same injury as the class
representatives, for typicality may be found even where “there are factual distinctions between the
claims of the named plaintiffs and those of the other class members.” Rosario v. Livaditis, 963 F.2d
1013, 1018 (7th Cir. 1992); De La Fuente, 713 F.2d at 232. As summarized by the Seventh Circuit
in Oshana v. Coca-Cola Co., 472 F.3d 506 (7th Cir. 2006):
A 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 her claims
are based on the same legal theory. Even though some factual variations may
not defeat typicality, the requirement is meant to ensure that the named
representative’s claims have the same essential characteristics as the claims
of the class at large.
472 F.3d at 514 (quotation marks and citations omitted).
Again, the StrataCare software and common method of processing the EORs provide
a common and typical practice, upon which all claims are based. Similarly, the Provider Agreement

3

Typicality is supposed to be determined with reference to the defendant’s actions, not the
defenses it may have against particular plaintiffs. CE Design Ltd. v. King Architectural Metals, Inc.,
637 F.3d 721 724-725 (7th Cir. 2011) (citing Wagner v. NutraSweet Co., 95 F.3d 527, 534 (7th Cir.
1996)).
9

“template” (as StrataCare describes it) that is the linchpin of StrataCare’s relationship with Walsh
is typical of the core agreement for the class of providers at large, even though providers often
negotiated contract terms, and agreements included individualized attachments or addendums (see
Doc. 34-8 (Affidavit of Brian Jans, ¶¶ 4- 9)). Therefore, in terms of the Provider Agreement, the
EOR process, and the common EOR language about the First Health discount having been taken,
Walsh’s evidence can prove the claims of the class, even though contract variations may affect the
calculation of damages. Therefore, for purposes of Rule 23(a)(3), typicality exists.
4. Rule 23(a)(4)- Adequacy of Representation
The final prerequisite of Rule 23(a) is that the named plaintiffs be adequate
representatives of the class. For example, if the named plaintiffs’ claims are not as strong, or if the
named plaintiffs are subject to a particular defense that would not defeat un-named class members’
claim, the named plaintiffs do not adequately represent the class. Randall v. Rolls-Royce Corp., 637
F.3d 818, 824 (7th Cir. 2011).
StrataCare did not address any of the Rule 23(a) criteria; rather, StrataCare elected
to focus on the Rule 23(b)(3) predominance issue. StrataCare analyzed the predominance issue by
examining the elements of proof required for each fraud claim, such as causation and deception,
which StrataCare contends are individualized inquiries. If StrataCare is correct, then Walsh would
not be an adequate representative for purposes of Rule 23(a)(4). Therefore, the Court will move on
to analyze whether individual or class issues predominate, as required by Rule 23(b)(3).

10

5. Rule 23(b)(3)
Plaintiff Walsh Chiropractic seeks to certify a single-state (Illinois) class under Rule
23(b)(3). “Certification under Rule 23(b)(3) requires that ‘the questions of law or fact common to
the members of the class predominate over any questions affecting only individual members, and
that a class action is superior to other available methods for the fair and efficient adjudication of the
controversy.’ ” Pella Corp. v. Saltzman, 606 F.3d 391, 393 (7th Cir. 2010) (quoting Fed.R.Civ.P.
23(b)(3)). Rule 23(b)(3) further provides:
The matters pertinent to these findings include:
(A) the class members’ interests in individually controlling the prosecution
or defense of separate actions;
(B) the extent and nature of any litigation concerning the controversy already
begun by or against class members;
(C) the desirability or undesirability of concentrating the litigation of the
claims in the particular forum; and
(D) the likely difficulties in managing a class action.
Defendant StrataCare counters that material differences regarding the elements of
liability and damages for each of the three fraud-based causes of action will require individualized
inquiries unsuitable for a class action. StrataCare asserts that individual inquiries will have to be
made regarding each provider, claimant, referral by a StrataCare client, medical treatment, bill, EOR
and payment.

11

a. Predominance
No class action is proper unless all litigants are governed by the same legal rules.
Otherwise the class cannot satisfy the commonality and superiority requirements of Fed.R.Civ.P.
23(a), (b) (3). State laws about fraud differ, therefore, the Court of Appeals for the Seventh Circuit
has held that suits alleging fraud– such as this action– may not proceed as nationwide classes. In
re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1015 (7th Cir. 2002) (citing Isaacs v. Sprint Corp.,
261 F.3d 679 (7th Cir. 2001); Szabo v. Bridgeport Machines, Inc., 249 F.3d 672 (7th Cir. 2001); In
re Rhone-Poulenc Rorer Inc., 51 F.3d 1293 (7th Cir. 1995)); see also Thorogood v. Sears, Roebuck
and Co. 547 F.3d 742 (7th Cir. 2008) (reversing certification of multi-state consumer class because
variances in state consumer fraud laws rendered the class unmanageable). Accordingly, Walsh has
proposed a class limited to providers in Illinois. Therefore, each claim–RICO, ICFA and unjust
enrichment– will be controlled by a single body of law. However, the elements of each claim frame
the inquiry regarding whether questions of law or fact common to the class predominate. Erica P.
John Fund, Inc., v. Halliburton Co., __U.S.__, 131 S.Ct. 2179, 2184 (2011). Therefore, each claim
will be analyzed in turn.
1. RICO
To establish a violation of RICO, Walsh must prove: (1) conduct; (2) of an enterprise;
(3) through a pattern; (4) of racketeering activity. Gamboa v. Velez, 457 F.3d 703, 705 (7th Cir.
2006); Midwest Grinding Co., Inc. v. Spitz, 976 F.2d 1016, 1019 (7th Cir. 1992). “Racketeering
activity” is defined to include any act which is indictable under 18 U.S.C. §§ 1341 (mail fraud) or
1343 (wire fraud), the two predicate offenses alleged by Walsh. 18 U.S.C. § 1961(1)(B). A “pattern
of racketeering activity” requires at least two predicate acts within a ten-year period. 18 U.S.C. §
12

1961(5). Establishing a pattern also requires a showing that “the racketeering predicates are related,
and that they amount to or pose a threat of continued criminal activity.” H.J. Inc. v. Northwestern
Bell Tel. Co., 492 U.S. 229, 239 (1989); Midwest Grinding, 976 F.2d at 1022. Furthermore, a
plaintiff must establish that the RICO violation was both the “but for” causation of injury, and the
proximate cause of injury. Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 265-268
(2006).
With respect to the “pattern of activity” element, the evidence produced allows the
RICO claim to now be clarified and the time frame of the proposed class narrowed. To show a
“pattern of racketeering activity” a civil RICO plaintiff no longer may merely allege two predicate
acts, “but must also satisfy the so-called ‘continuity plus relationship’ test.” Midwest Grinding, 976
F.2d at 1022. That is, “the predicate acts must be related to one another (the relationship prong) and
pose a threat of continued criminal activity (the continuity prong).” Id. “‘Continuity’ is both a
closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past
conduct that by its nature projects into the future with a threat of repetition.” H.J. Inc. v.
Northwestern Bell Tel. Co., 492 U.S. 229, 241 (1989). When deciding StrataCare’s motion to
dismiss, the Court noted that it was unclear whether Walsh pleaded an open-ended or closed-ended
pattern of activity (Doc. 38, p. 25). Now, the Court finds that Walsh’s RICO claim must be analyzed
as a closed-ended pattern of activity. As pleaded, the proposed class is limited to the First Health
PPO, and evidence has been produced establishing that Coventry Health Care, Inc., purchased First
Health and superseded and terminated the First Health PPO network agreements as of January 1,
2009 (see Doc. 44-6, p. 12, ¶ 8.4 (amendment only by written agreement)). Therefore, the relevant

13

period is between January 1, 2005, and January 1, 2009.4
Arguing that the RICO claim is appropriate for class action, Plaintiff Walsh relies
principally on Klay v. Humana, Inc., 382 F.3d 1241 (11th Cir. 2004), which involved HMO providers
who claimed they were underpaid by the HMO’s computer system. A RICO class action claim
based on mail and wire fraud was permitted to proceed without proof of individual reliance, based
on legitimate inferences drawn from common evidence (standardized misrepresentations), and
despite the need for individualized evidence of damages. Id. at 1259. Relative to EOB forms
claiming providers had been paid the proper amounts, the Court of Appeals for the Eleventh Circuit
stated:
The alleged misrepresentations in the instant case are simply that the
defendants repeatedly claimed they would reimburse the plaintiffs for
medically necessary services they provide to the defendants’ insureds, and
sent the plaintiffs various EOB forms claiming that they had actually paid the

4

Some panels of the Seventh Circuit Court of Appeals have not distinguished between closed
and open-ended periods of racketeering, and focus on the same factors in either case, including: “(1)
the number and variety of the predicate acts and the length of time over which they were committed;
(2) the number of victims; (3) the presence of separate schemes; and (4) the occurrence of distinct
injuries.” Gagan v. American Cablevision, Inc., 77 F.3d 951, 962-963 (7th Cir.1996)(citation
omitted). However, these factors are most commonly associated with a so-called “closed scheme.”
See Midwest Grinding, 976 F.2d at 1023-1024. Either way, most panels appear to agree that “[t]he
most relevant and dispositive factor is the number and variety of predicate acts and the length of
time over which they were committed.” Gagan, 77 F.3d at 963. In other words, in a closed-ended
pattern, “the predicate acts must extend over a substantial period of time.” Midwest Grinding, 976
F.2d at 1024 (quotations omitted). “[E]ach instance of false billing inflicted an injury separate and
independent of the previous and succeeding instances of false billing.” Gagan, 77 F.3d at 963,
quoting Liquid Air Corp. v. Rogers, 834 F.2d 1297 (7th Cir.1987) (where a single scheme of
fraudulent medical billing which lasted seven months and defrauded one victim established a pattern
of racketeering activity). Before the Court are two of Walsh’s EORs, received approximately six
months apart, allegedly evincing a misleading or deceptive claim to the First Health PPO discount
when none was warranted (Doc. 32-2). Unlike StrataCare, the Court does not perceive that
determining the viability of the closed-ended scheme is dispositive of the Rule 23(b)(3)
predominance question.
14

plaintiffs the proper amounts. While the EOB forms may raise substantial
individualized issues of reliance, the antecedent representations about the
defendants’ reimbursement practices do not. It does not strain credulity to
conclude that each plaintiff, in entering into contracts with the defendants,
relied upon the defendants’ representations and assumed they would be paid
the amounts they were due. A jury could quite reasonably infer that
guarantees concerning physician pay-the very consideration upon which
those agreements are based-go to the heart of these agreements, and that
doctors based their assent upon them.
Id. at 1259.
In 2006, two years after Klay, the United States Supreme Court decided Bridge v.
Phoenix Bond & Indemnity Co., 553 U.S. 639 (2008), pertaining to a RICO class action claim based
on mail fraud. The Supreme Court ruled that individual reliance is neither an element of a RICO
mail or wire claim, nor a requirement for establishing proximate cause. Id. at 649-650, 659. Bridge
would seem to support Walsh’s position, but, as StrataCare notes, the Supreme Court also stated:
“Of course, none of this is to say that a RICO plaintiff who alleges injury ‘by reason of’ a pattern
of mail fraud can prevail without showing that someone relied on the defendant’s
misrepresentations. In most cases, the plaintiff will not be able to establish even but-for causation
if no one relied on the misrepresentation.” Id. at 658 (emphasis in the original; internal citation and
quotation from Field v. Mans, 516 U.S. 59 (1995) omitted).
Walsh argues that causation is established because the discounts were taken
simultaneously with the transmittal of misleading EORs– making the fraud a fait accompli. This
gloss ignores that the standard EOR directed providers to call First Health with questions about the
EORs (Doc. 32-2, p. 5)– which Walsh did, although he did not follow through with a formal appeal
(Doc. 44-7, p. 6 (Walsh Deposition, p. 103))– and that the Provider Agreement contains an appeals
mechanism (Doc. 44-8, p. 27; Doc. 44-10, p. 8-9). Walsh, himself, did not find the EORs
misleading, he merely objected to the discount being taken (Doc. 44-7, pp. 29, 30 (Walsh
15

Deposition, pp. 260, 265)). Moreover, any inference of causation stemming from the common
evidence is undercut by Walsh’s acknowledgment that the causal chain was and could be broken by
a variety of factors, illustrating why the causation requirement renders the RICO claim unsuited for
class treatment due to the need for individualized inquiry.
Walsh has acknowledged that discounts were accepted for a variety of reasons
unrelated to the EOR. For example, Walsh could not say that he had never “balance billed” patients
to recoup the discount (Doc. 44-7, p. 3 (Walsh Deposition, p. 79)), thereby reducing any loss; he
would accept a discount if a network patient had been referred by an employer, even if financial
incentives were not used in the referral (Doc. 44-7, pp. 24-26 (Walsh Deposition, pp. 205-207));
and other benefits of the First Health Network included guaranteed payment of bills within 60 days,
and retention of patients (Doc. 44-7, pp. 20, 23(Walsh Deposition, pp. 174, 179)). Also, some
providers may have appreciated that StrataCare could fit within the definition of a “provider” under
the definition in the Provider Agreements (Doc. 32-1, p. 1, § 2.7). These issues will clearly
predominate, despite the relatively straightforward scheme based on the StrataCare software and
EOR transmittal. For these same reasons, Walsh is not an adequate representative for purposes of
Rule 23(a)(4).
2. ICFA
The elements of a successful claim under ICFA are: “(1) a deceptive or unfair act or
practice by the defendant; (2) the defendant’s intent that the plaintiff rely on the deceptive or unfair
practice; and (3) the unfair or deceptive practice occurred during a course of conduct involving trade
or commerce.” Siegel v. Shell Oil Co., 612 F.3d 932, 934 (7th Cir. 2010). Walsh also must show that
it suffered actual damages from StrataCare’s conduct. See Sound of Music Co. v. Minn. Mining &

16

Mfg. Co., 477 F.3d 910, 923 (7th Cir. 2007). In terms of causation, the plaintiff must actually be
deceived by the defendant’s misrepresentation– proximate causation. De Bouse v. Bayer, AG, 922
N.E.2d 309, 316 (2009); Avery v. State Farm Mutual Automobile Insurance Co., 835 N.E.2d 801,
856 (2005). More important to the case at bar, causation cannot be inferred; each member of the
class must prove that the misrepresentation deceived them. De Bouse, 922 N.E.2d at 315;
Barabara’s Sales, Inc. v. Intel Corp., 879 N.E.2d 910, 927 (2007); Oliviera v. Amoco oil Co., 776
N.E.2d 151, 154-155 (2001); see also Nagel v. ADM Investor Services, Inc., 217 F.3d 436, 443 (7th
Cir. 2000) (recognizing that predominance is a high hurdle in a fraud claim).
In Oshana v. Coca-Cola Co., 472 F.3d 506 (7th Cir. 2006), a putative ICFA class
action alleging that it was deceptive of Coca-Cola not to disclose that fountain Coke and bottled
Coke do not contain the same sweeteners, the Court of Appeals for the Seventh Circuit rejected the
plaintiffs’ argument that the failure to disclose was “per se deceptiveness” absolving the plaintiffs
from making individual proof of proximate causation. Similarly, because causation cannot be
inferred, Walsh is not saved by the theory that fraudulent discounts were taken simultaneously with
the transmittal of misleading EORs.
In Oshana v. Coca-Cola Co., 472 F.3d 506, 514-515 (7th Cir. 2006), Siegel v. Shell
Oil Co., 656F.Supp.2d 825, 832-833 (N.D.Ill. 2009), and more recently in Kremers v. Coca-Cola
Co., 712 F.Supp.2d 759, 768-771 (S.D.Ill. 2010), putative class actions foundered on the
individualized causation requirement because representative plaintiffs admitted that they were not
actually deceived by the alleged misrepresentations. The fact that Dr. Walsh has acknowledged that
he was not deceived by the EORs (Doc. 44-7, pp. 29, 30 (Walsh Deposition, pp. 260, 265))
highlights that individualized inquiries will be required.

17

The ICFA claim cannot be certified for class action because the need for
individualized proof of causation predominates– overwhelms– the otherwise straight forward EOR
scheme alleged by Walsh. Accordingly, Walsh is not an adequate representative for purposes of
Rule 23(a)(4), either.
3. Unjust Enrichment
The unjust enrichment claim is derrivative of the RICO and ICFA claims. See Clay
v. American Tobacco Co., 188 F.R.D. 483, 500 (S.D.Ill. 1999). However, given StrataCare’s role
as a conduit within the First Health PPO Network, Walsh’s unjust enrichment claim seemingly
presents the most appropriate cause of action.
Under Illinois law, to prevail on a claim of unjust enrichment “a plaintiff
must present evidence that the defendant unjustly retained a benefit to the
plaintiff’s detriment and that the defendant’s retention of that benefit violated
fundamental principles of justice, equity, and good conscience.” M & O
Insulation Co. v. Harris Bank Naperville, 335 Ill.App.3d 958, 270 Ill.Dec.
673, 783 N.E.2d 635, 639 (2002) (citing B & B Land Acquisition, Inc. v.
Mandell, 305 Ill.App.3d 1068, 239 Ill.Dec. 500, 714 N.E.2d 58, 63 (1999)).
Illinois law does not require wrongful conduct as a necessary element of a
claim for unjust enrichment. See Midcoast Aviation, Inc. v. General Elec.
Credit Corp., 907 F.2d 732, 738 n. 3 (7th Cir.1990) (quoting Partipilo v.
Hallman, 156 Ill.App.3d 806, 109 Ill.Dec. 387, 510 N.E.2d 8, 11 (1987)).
Kremers v. Coca-Cola Co., 712 F.Supp.2d 759, 774 -776 (S.D.Ill. 2010) (internal citations collecting
cases omitted). Nevertheless,“‘[u]njust enrichment is an equitable doctrine that ... depends upon the
analysis of each individual situation.’” Clay, 188 F.R.D. at 500 (quoting Hershey Foods Corp. v.
Ralph Chapek, Inc., 828 F.2d 989, 999 (3d Cir.1987).
Again, the evidence before the Court only serves to highlight the individualized
inquiries that will be necessary relative to causation and whether there was unjust enrichment. The
EOR directed providers to call First Health with questions about the EORs (Doc. 32-2, p. 5)– which
18

Walsh did– and the Provider Agreement contains an appeals mechanism (Doc. 44-8, p. 27; Doc.
44-10, p. 8-9); therefore, StrataCare may not have always retained a benefit to each Plaintiff’s
detriment. Also, as discussed above relative to the RIOCO claim, Walsh has acknowledged that the
causal chain was and could be broken by a variety of factors. Even in Klay v. Humana, 382 F.3d
1241, 1267 (11th Cir. 2004), where a RICO claim was certified, the unjust enrichment claim failed
to satisfy the Rule 23(b)(3) predominance requirement.
Therefore, the Court concludes that the unjust enrichment claim is unsuited for class treatment due
to the need for individualized inquiry. For the same reasons, Walsh cannot be said to be an
adequate representative for purposes of Rule 23(a)(4).
b. Superiority
Having concluded that none of the three fraud-based claims fully satisfy Rule 23(a),
and that individualized questions of law and fact predominate over those questions common to the
class, it is axiomatic that a class action is not superior to other available methods of fairly and
efficiently adjudicating the controversy relative to providers other than Walsh. Therefore, no
additional analysis of the relative superiority (or inferiority) of a class action is warranted.
E. Conclusion
For the reasons stated, Plaintiff Walsh’s motion for class certification (Doc. 41) is
DENIED.
IT IS SO ORDERED.
DATED: September 14, 2011
s/ Michael J. Reagan
MICHAEL J. REAGAN
UNITED STATES DISTRICT JUDGE
19