Blue Cross & Blue Shield of Mississippi, A Mutual Insurance Company v. Sharkey-Issaquena Community Hospital et al
Filing
32
ORDER denying 9 Motion to Dismiss; denying 18 Motion to Dismiss; denying 20 Motion to Compel for the reasons set out in the Order. The parties are directed to contact the chambers of United States Magistrate Judge F. Keith Ball within 10 days of the entry of this Order to set the case for a case-management conference. Signed by Chief District Judge Daniel P. Jordan III on December 13, 2017.(SP)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION
BLUE CROSS & BLUE SHIELD OF
MISSISSIPPI, A MUTUAL INSURANCE
COMPANY
V.
PLAINTIFF
CIVIL ACTION NO. 3:17-CV-338-DPJ-FKB
SHARKEY-ISSAQUENA COMMUNITY
HOSPITAL, ET AL.
DEFENDANTS
ORDER
Defendants in this ERISA case ask the Court to dismiss Plaintiff Blue Cross & Blue
Shield of Mississippi’s (“BCBS”) state-law claims against them, arguing that ERISA preempts
the claims and that the claims are insufficiently pleaded. Defendant Sharkey-Issaquena
Community Hospital (“Sharkey-Issaquena” or the “Hospital”) also asks the Court to send Blue
Cross’s case against it to arbitration. The Court concludes that the state-law claims are not
preempted, they are otherwise properly pleaded, and there is no arbitration agreement.
Defendants’ motions to dismiss [9, 18] and Sharkey-Issaquena’s Motion to Compel Arbitration
[20] are denied.
I.
Facts and Procedural History
In January 1995, Plaintiff Blue Cross and Defendant Sharkey-Issaquena entered into a
Participating Hospital Agreement (“the Contract”) under which Sharkey-Issaquena agreed to
provide hospital services to individuals insured under Blue Cross-issued health-insurance plans.
Under the Contract, Blue Cross agreed to pay for services rendered by Sharkey-Issaquena in
accordance with a payment program attached to the Contract.
Blue Cross alleges that, beginning in February 2017, Sharkey-Issaquena began
submitting claims for payment for laboratory services that “were not ordered by a licensed
physician or other licensed health professional who has appropriate staff privileges at” SharkeyIssaquena and/or that “were not performed at” Sharkey-Issaquena. Compl. [1] ¶ 13. Blue Cross
explains this theory more fully in its responsive memorandum:
Defendants used [Sharkey-Issaquena] as a vehicle to disguise fraudulent claims,
which misrepresented that laboratory testing services were performed by and at
the Hospital, when in truth, all testing services were performed by independent,
non-network laboratories in San Antonio, Texas. Sun Clinical Laboratory, LLC,
Mission Toxicology Management Company, L.L.C., Mission Toxicology, L.L.C.,
Mission Toxicology II, LLC, and John Does 1-10 (collectively the “Non-Hospital
Defendants”) completed, or caused to be completed, the laboratory tests at issue
for patients from around the country who had no contact at all with [SharkeyIssaquena] or its physicians. Then, Defendants fraudulently submitted claims to
Blue Cross, misrepresenting that the tests had been performed at the Hospital, by
the Hospital, and for the Hospital’s patients (“Misrepresented Claims”).
Pl.’s Mem. [28] at 2 (citations omitted). By doing so, Blue Cross says
[t]he Defendants exploited the fact that Blue Cross has a network contract with
[Sharkey-Issaquena] pursuant to which Blue Cross pays [it] significantly more for
lab services provided at and by the Hospital than Blue Cross would normally pay
for claims submitted directly by independent laboratories that are not part of Blue
Cross’s network, if Blue Cross would have been contractually required to pay at
all.
Id. (citation omitted).
On May 4, 2017, Blue Cross filed this lawsuit against Sharkey-Issaquena and four offsite laboratories (“the Laboratories”) it alleges performed the services for which SharkeyIssaquena wrongfully submitted claims. It asserts a breach-of-contract claim against SharkeyIssaquena; common-law fraud, civil-conspiracy, negligent-misrepresentation, and unjustenrichment claims against the Laboratories; and claims for injunctive and declaratory relief
under ERISA against all Defendants. The Laboratories and Sharkey-Issaquena filed motions to
dismiss the state-law claims, and Sharkey-Issaquena also moved to compel arbitration. The
matters raised in the motions have been well briefed, and the Court is prepared to rule.
2
II.
Analysis
A.
Motions to Dismiss
Defendants raise five arguments in their motions to dismiss: (1) Blue Cross’s state-law
claims are preempted by ERISA, under either the conflict- or complete-preemption doctrine; (2)
Blue Cross may not assert ERISA claims premised on its status as a fiduciary and personalinterest claims in the same lawsuit; (3) the state-law claims otherwise fail to state a claim under
Rule 12(b)(6); (4) any self-funded plans for which Blue Cross provides administrative services
are necessary parties whose absence requires dismissal under Rule 12(b)(7); and (5) Blue Cross
lacks standing to pursue claims for damages on behalf of self-funded plans. The Court will
address each argument in turn.
1.
Preemption
Defendants say Blue Cross’s state-law claims should be dismissed because ERISA
preempts them. “[T]here are two types of preemption under ERISA. First, ERISA may occupy
a particular field, resulting in complete preemption under § 502(a), 29 U.S.C. § 1132(a).” Giles
v. NYLCare Health Plans, Inc., 172 F.3d 332, 336 (5th Cir. 1999). Second, conflict preemption
exists when a state law “relates to” an employee benefit plan. 29 U.S.C. § 1144(a). Defendants
assert both.
a.
Complete Preemption
Where complete preemption occurs, a pleaded state-law claim “is considered, from its
inception, a federal claim” for purposes of federal jurisdiction. Caterpillar Inc. v. Williams, 482
U.S. 386, 393 (1987); accord Giles, 172 F.3d at 337 (explaining that complete preemption
“transmogrif[ies] a state cause of action into a federal one”). Complete preemption is thus
“jurisdictional in nature rather than an affirmative defense to a claim under state law.” Johnson
3
v. Baylor Univ., 214 F.3d 630, 632 (5th Cir. 2000) (quoting Heimann v. Nat’l Elevator Indus.
Pension Fund, 187 F.3d 493, 500 (5th Cir. 1999)).
In this case, Defendants seek dismissal. They have not filed a motion asking the Court to
convert the state-law claims to federal claims for purposes of federal-question jurisdiction. Nor
do they dispute that federal jurisdiction exists. As such, “a complete preemption analysis is not
necessary.” Hall v NewMarket Corp., 747 F. Supp. 2d 711, 715 (S.D. Miss. 2017).1
b.
Conflict Preemption
Conflict preemption is an affirmative defense to a state-law claim. Bank of La. v. Aetna
U.S. Healthcare Inc., 468 F.3d 237, 242 (5th Cir. 2006). Conflict preemption under ERISA
originates in § 514(a) of the statute:
Except as provided in subsection (b) of this section, the provisions of this
subchapter and subchapter III shall supersede any and all State laws insofar as
they may now or hereafter relate to any employee benefit plan described in
section 1003(a) of this title and not exempt under section 1003(b) of this title.
29 U.S.C. § 1144(a). “A law ‘relates to’ an employee benefit plan, in the normal sense of
the phrase, if it has a connection with or reference to such a plan.” Shaw v. Delta Air
Lines, Inc., 463 U.S. 85, 96–97 (1983).
Courts considering whether a state law “relates to” an ERISA plan must “look both to the
objectives of the ERISA statute as a guide to the scope of the state law that Congress understood
would survive, as well as to the nature of the effect of the state law on ERISA plans.” Egelhoff
1
Even assuming Defendants had asked the Court to recharacterize the claims for
purposes of jurisdiction, the Court would find that Defendants failed to satisfy either prong of the
complete-preemption analysis. See Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004)
(establishing two-prong test for compete preemption); see also Aetna Health Inc. v. Health Goals
Chiropractic Ctr. Inc., No. 10-5216, 2011 WL 1343047 (D.N.J. Apr. 7, 2011) (rejecting similar
complete-preemption arguments).
4
v. Egelhoff, 532 U.S. 141, 147 (2001) (internal quotation marks and citations omitted). Those
objectives are memorialized in 29 U.S.C. § 1001(b), which states that Congress’s goals were to
protect interstate commerce and the interests of participants in employee benefit
plans and their beneficiaries, by requiring the disclosure and reporting to
participants and beneficiaries of financial and other information with respect
thereto, by establishing standards of conduct, responsibility, and obligation for
fiduciaries of employee benefit plans, and by providing for appropriate remedies,
sanctions, and ready access to the Federal courts.
Based on these objectives, the Fifth Circuit has adopted “a two-part test when a
defendant argues that a claim is preempted by ERISA.” E.I. DuPont de Nemours & Co.
v. Sawyer, 517 F.3d 785, 799–800 (5th Cir. 2008).
A defendant pleading preemption must prove that: (1) the claim “addresses an
area of exclusive federal concern, such as the right to receive benefits under the
terms of the Plan; and (2) the claim directly affects the relationship among
traditional ERISA entities—the employer, the plan and its fiduciaries, and the
participants and beneficiaries.”
Bank of La., 468 F.3d at 242 (quoting Mayeux v. La. Health Serv. and Indem. Co., 376
F.3d 420, 432 (5th Cir. 2004)). And “[b]ecause ERISA preemption is an affirmative
defense, [Defendants] bear the burden of proof on both elements.” Id.
Defendants have not directly addressed these elements. Instead, they offer
generalized arguments based on the phrases “relate to” and “connection with.” See Shaw,
463 U.S. at 97. While the term “relate to” is ‘broadly worded” and “clearly expansive,” it
“cannot be taken to extend to the furthest stretch of its indeterminacy, or else for all
practical purposes pre-emption would never run its course.” Egelhoff, 532 U.S. at 146
(internal quotation marks and citation omitted). So to, “connection with” must not be
given “an uncritical literalism that would make pre-emption turn on infinite connections.”
Id. at 147 (internal quotation marks and citation omitted); see Shaw, 463 U.S. at 97.
Thus, “preemption does not occur if the state law has only a tenuous, remote, or
5
peripheral connection with covered plans, as is the case with many laws of general
applicability.” Martco P’ship v. Lincoln Nat. Life Ins. Co., 86 F.3d 459, 462 (5th Cir.
1996) (citation omitted and punctuation altered).
With these balances in place, the Court turns to Defendants’ arguments.
Defendants begin by observing Blue Cross’s averment that its state-law claims “are so
related to the federal claims that they form part of the same case or controversy.” Defs.’
Mem. [10] at 5; accord Def.’s Mem. [19] at 5. True enough, Blue Cross pleaded the
standard for supplemental jurisdiction under 28 U.S.C. § 1367 in the jurisdictional
section of the Complaint. See Compl. [1] ¶ 10. But Defendants have not provided any
authority suggesting that the test for supplemental jurisdiction supplants the Fifth
Circuit’s test for conflict preemption under ERISA. And as discussed below, it is not
uncommon for a plan administrator to bring ERISA claims on behalf of plan beneficiaries
while also pursuing state-law claims for its own non-ERISA losses arising from the same
case or controversy. See, e.g., Conn. Gen. Life Ins. Co. v. Advanced Surgery Ctr. Of
Bethesda, LLC, No. 14-2376, 2015 WL 4394408 (D. Md. July 15, 2015).
Defendants next say that Blue Cross’s state-law claims “relate to” ERISA plans “because
[they] are premised on the very existence of the employee benefit plans.” Defs.’ Mem. [10] at 6;
accord Def.’s Mem. [19] at 6. In other words, “if [Blue Cross] did not administer the benefit
plans, it could not have brought state law causes of action against the Defendants.” Defs.’ Mem.
[10] at 6; accord Def.’s Mem. [19] at 6. Again, Defendants have not explained how this
argument addresses either prong of the Fifth Circuit’s test for conflict preemption.
Moreover, the Fifth Circuit has rejected conflict preemption even when the disputed
contract would not have existed but for an ERISA plan. In Bank of Louisiana, the plaintiff bank
6
entered three contracts with defendant Aetna—an administrative-services contract, whereby
Aetna administered the bank’s self-insured employee benefit plan; a stop-loss insurance policy
that paid certain benefit claims from the underlying ERISA plan; and an extension of the stoploss policy. 468 F.3d at 239−40. The bank sued Aetna, claiming that it breached the stop-loss
extension by improperly delaying the processing and payment of benefit claims and by failing to
honor other provisions of the stop-loss agreement. Id. at 240. Applying the first element of the
conflict-preemption defense, the Fifth Circuit concluded that any alleged breach of the stop-loss
agreement related to Aetna’s processing of the benefit claims would touch an area of exclusive
federal concern and was therefore preempted. Id.; see also id. at 244 n.13. But other claims—
like failing to reimburse the bank for amounts paid under the plan during the relevant time—did
“not challenge any act or omission by Aetna in processing benefit claims or administering the
Plan; rather, they call into question . . . the scope of the stop-loss extension.” Id. at 243. So even
though the stop-loss extension existed because of the ERISA plan, certain claims did not “relate
to” that plan.
Likewise, other courts have rejected similar arguments that preemption exists when an
ERISA plan forms the basis of the relationship between the plaintiff and the defendant. See, e.g.,
Conn. Gen. Life Ins. Co., 2015 WL 4394408, at *17 (finding that insurer’s fraud-based claims
for billing malfeasance did not “relate to” ERISA plans); Aetna Life Ins. Co. v. Huntington
Valley Surgery Ctr., No. 2:13-CVv-3101, 2014 WL 4116963, at *6−7 (E.D. Penn. Aug. 20,
2014) (holding that carrier’s billing-fraud claims were not conflict preempted despite existence
of underlying ERISA plans); Ass’n of N.J. Chiropractors v. Aetna, Inc., No. 09-3761, 2012 WL
1638166, at *6 (D.N.J. May 8, 2012) (holding that “a number of cases . . . have held that ERISA
does not completely preempt claims brought by an insurer who sues a provider for fraudulent or
7
negligent misbilling”) (collecting cases). Like the carriers in these cases, Blue Cross’s state-law
claims are not based on the underlying ERISA plans.
In reply, Defendants take a slightly different approach, arguing that they “cannot defend
against [Blue Cross]’s state law claims without a review of ERISA-governed plan provisions.”
Defs.’ Reply [16] at 7. That argument would have sway if the state-law claims have “a
connection with or reference to such a plan.” Shaw, 463 U.S. at 97. But beyond their conclusory
arguments, Defendants have not shown how the ERISA plans are relevant to Blue Cross’s statelaw claims. In fact, none of the underlying ERISA plans appear in this record. See, e.g., Aetna
Life Ins. Co., 2014 WL 4116963, at *6 (holding that preemption argument was premature
because defendant had not yet reviewed the ERISA plans). And again, Defendants have not
adequately addressed their burden under the Fifth Circuit’s two-element test.
Finally, Defendants argue that Blue Cross incorporates by reference the allegations
regarding breaches of ERISA plans into its state-law counts. See, e.g., Def.’s Reply [31] at 2.
Blue Cross does employ this standard pleading technique in its Complaint. But the alleged statelaw breaches relate to the Contract and common law, and, as stated above, Defendants have not
met their burden of showing that those claims relate to an ERISA plan. That observation
remains true even though the Contract itself incorporates the various ERISA plans. See Bank of
La., 468 F.3d at 242–44 (finding no conflict preemption where defendant insurer allegedly
breached stop-loss insurance contract that covered certain claims from employee-benefit plan).
Turning then to the actual test, the Court concludes that Defendants failed to show Blue
Cross’s state-law claims are preempted. To begin, the state-law claims for breach of contract,
fraud, civil conspiracy, negligent misrepresentation, and unjust enrichment do not address areas
of exclusive federal concern such as the right to receive benefits under the terms of the Plan.
8
Instead, they are based on duties the parties owed each other under the Contract (SharkeyIssaquena) or state law (the Laboratories). See, e.g., Bank of La., 468 F.3d at 243 (finding
preemption for benefits-related-claims-handling decisions but no preemption for claims based on
disputes over stop-loss coverage).
As for the second element—whether the claims directly affect the relationship among
traditional ERISA entities—“the critical distinction is not whether the parties to a claim are
traditional ERISA entities in some capacity, but instead whether the relevant state law affects an
aspect of the relationship that is comprehensively regulated by ERISA.” Id. To this end, “the
critical determination is whether the claim itself created a relationship between the plaintiff and
defendant that is so intertwined with an ERISA plan that it cannot be separated.” Id. (internal
quotation marks and citation omitted).
Bank of Louisiana is again instructive. There, the Fifth Circuit concluded that the first
breach-of-contract claim regarding Aetna’s claims-handling decisions was preempted because it
related to Aetna’s role as an ERISA fiduciary. Id. at 242. But other breach-of-contract claims—
like those disputing whether the stop-loss extension covered claims during a certain time
period—were not related to Aetna’s fiduciary duties and were only tangentially related to the
ERISA plan. Id. at 243–44. As such, those breach-of-contract claims did not affect the
relationship among traditional ERISA entities and were not preempted. Id.
Here, Blue Cross was not acting as a plan fiduciary with respect to the specific breaches
it alleges—claims seeking damages for Blue Cross’s losses in paying claims that it says were not
covered by the Contract or were fraudulently submitted. See id. at 243 (holding that “a party
may qualify as an ERISA fiduciary with regard to some claims but not others”). And it is
beyond dispute that Defendants were not ERISA entities as to these alleged breaches. See id.
9
Other courts have reached the same result. See, e.g., Arapahoe Surgery Ctr. v. Cigna
Healthcare, Inc., No. 13-CV-3422, 2015 WL 1041515, at *7 (D. Colo. Mar. 6, 2015) (finding no
conflict preemption because Cigna’s state-law claims were “based on whether [the providers,
who were not ERISA entities,] made material misrepresentations”); Advanced Surgery Ctr. Of
Bethesda, LLC, 2015 WL 4394408, at *17 (rejecting conflict preemption and noting that
“[a]lthough some of the allegations in the complaint reference ERISA plans, the core allegations
of misconduct that the Cigna entities have pled for their state law causes of action relate to the
fraudulent or negligent misrepresentations”); Conn. Gen. Life Ins. Co. v. True View Surgery Ctr.,
128 F. Supp. 3d 501, 517 (D. Conn. 2015) (rejecting conflict preemption because “[t]he crux of
the state fraud claim is the surgical centers’ alleged misconduct—the fraudulent billing
practices—and not the terms of the ERISA-governed plans”); United Healthcare Servs., Inc. v.
Sanctuary Surgical Centre, 5 F. Supp. 3d 1350, 1362–63 (S.D. Fla. 2014) (finding no conflict
preemption because “this case involves state law tort claims lodged solely against non-ERISA
entities”); Aetna Life Ins. Co., 2014 WL 4116963, at *6–7; Fustok v. UnitedHealth Grp., Inc.,
No. 12-CV-787, 2013 WL 2189874, at *5–6 (S.D. Tex. May 20, 2013) (applying Fifth Circuit
case to similar billing-fraud claim and finding no conflict preemption); Ass’n of N.J.
Chiropractors, 2012 WL 1638166, at *6; Health Goals Chiropractic Ctr., Inc., 2011 WL
1343047, at *5; see also Pl.’s Mem. [14] at 14 n.3 (collecting additional cases). The Court
concludes that the state-law claims are not conflict preempted. The motions to dismiss are
denied as to the preemption arguments.2
2
Defendants cite three Fifth Circuit cases that found conflict preemption because the
state-law claims “relate[d] to” ERISA plans. See Lee v. EI. DuPont deNemours & Co., 894 F.2d
755 (5th Cir. 1990); Cefalu v. B.F. Goodrich Co., 871 F.2d 1290 (5th Cir. 1989); Degan v. Ford
Motor Co., 869 F.2d 889 (5th Cir. 1989). But in each case, the plaintiff sought “to recover
benefits defined by their former employer’s ERISA plan, benefits to which they would have
10
2.
Ability to Bring State-Law and ERISA Claims
Defendants argue that Blue Cross “cannot assert federal claims as an ERISA fiduciary
and also assert state claims on its own behalf.” Defs.’ Mem. [10] at 10 (capitalization omitted);
accord Def.’s Mem. [19] at 12. But the Fifth Circuit has explained that “a party may qualify as
an ERISA fiduciary with regard to some claims but not others.” Bank of La., 468 F.3d at 243
(citing Pegram v. Herdrich, 530 U.S. 211, 225–26 (2000)). And suits of this nature are fairly
common. See Arapahoe Surgery Ctr., LLC, 2015 WL 1041515, at *7 (rejecting conflictpreemption defense and stating that “the availability of a remedy under ERISA is not relevant to
the preemption analysis”) (citation and internal quotation marks omitted); see also Advanced
Surgery Ctr. of Bethesda, LLC, 2015 WL 4394408, at *15−19 (finding no preemption in carrier’s
billing-fraud case that included state-law and ERISA claims); True View Surgery Ctr., 128 F.
Supp. 3d at 517 (same); Nutrishare, Inc. v. Conn. Gen. Life Ins. Co., No. 2:13-CV-2378, 2014
WL 1028351, at *6 (E.D. Cal. Mar. 14, 2014) (same). Defendants have not offered compelling
contrary authority.
3.
Failure to State a Claim
Defendants say that Blue Cross’s state-law claims against them do not survive scrutiny
under Rule 12(b)(6). Under Rule 12(b)(6), the “court accepts ‘all well-pleaded facts as true,
viewing them in the light most favorable to the plaintiff.’” Martin K. Eby Constr. Co. v. Dall.
Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004) (quoting Jones v. Greninger, 188 F.3d
become entitled but for a misrepresentation by their employer, during their employment, on
which they relied to their detriment.” Lee, 894 F.2d at 757. As the damages were based on the
plan benefits, the Fifth Circuit found that ERISA preempted the state-law claims. This case is
different. Blue Cross is not seeking benefits under a plan, it seeks damages for payments made
based on alleged fraud and breach of contract.
11
322, 324 (5th Cir. 1999) (per curiam)). But “the tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of
the elements of a cause of action, supported by mere conclusory statements, do not suffice.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007)). To overcome a Rule 12(b)(6) motion, a plaintiff must plead “enough facts to state a
claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. “Factual allegations
must be enough to raise a right to relief above the speculative level, on the assumption that all
the allegations in the complaint are true (even if doubtful in fact).” Id. at 555 (citations and
footnote omitted). The Court will address each state-law claim separately.
a.
Breach-of-Contract Claim against Sharkey-Issaquena
Sharkey-Issaquena says Blue Cross’s breach-of-contract claim “fails to address how [it]
breached” the Contract. Def.’s Mem. [19] at 14. In response, Blue Cross explains that SharkeyIssaquena
breached the Contract by knowingly authorizing the Non-Hospital Defendants to
bill Blue Cross in [Sharkey-Issaquena’s] name, by submitting or authorizing the
submission of claims for Hospital Services when they were not for Hospital
Services, and by accepting the contractual rate of payment for millions of dollars’
worth of those Misrepresented Claims.
Pl.’s Mem. [28] at 7.
Turning then to the Contract, the parties dispute the following provisions:
2.12 “Hospital Service(s)” means those services and supplies provided by
HOSPITAL to Subscribers and other patients. Hospital Services do not include
services performed by an organization or facility not itself licensed by the state as
a general acute hospital.
....
3.1
HOSPITAL shall provide to Subscribers, insofar as facilities of
HOSPITAL permit, Hospital Services which are Medically Necessary when such
services are ordered by a licensed physician or other licensed health professional
who has appropriate staff privileges at HOSPITAL.
12
....
4.1
PLAN agrees to make its payments due under this Agreement directly to
HOSPITAL for Covered Services provided to each Subscriber.
....
5.1
PLAN shall pay directly to HOSPITAL for and in behalf of Subscriber the
Payment Amount calculated in accordance with the terms of Plain’s Participating
Hospital Policies and Procedures and the Payment Program, as set forth in
Attachments A and B, for Services rendered by HOSPTIAL to Subscriber.
....
4.1.11 Network Hospital should make every effort to file an accurate and
complete claim. A corrected claim should only be submitted when there will be a
change in the allowable amount or payment amount. If the Network Hospital
needs to refile a corrected claim, Network Hospital must submit corrected claim
within twelve (12) months after payment of original claim. Only one corrected
claim will be accepted.
Contract [25].
Collectively, these provisions at least suggest that Blue Cross did not agree to pay for
services provided by off-premises laboratories using Sharkey-Issaquena’s billing code. More
specifically, the billing requirements state that the Hospital “is responsible for providing all
information necessary to adjudicate [a] claim[,]” and is “to make every effort to file an accurate
and complete claim.” Contract [25] ¶ 4.1 & Attachment A ¶ 4.1.11. The allegations of the
Complaint must be viewed in the light most favorable to Blue Cross, and in that light, they at
least state a plausible breach of paragraph 4.1.11. Sharkey-Issaquena’s motion to dismiss the
breach-of-contract claim is therefore denied.3
3
The Hospital may be correct that Blue Cross could have done a better job identifying
the specific contract provisions in its Complaint. But the Complaint did provide the factual basis
for the claim, and Blue Cross incorporated the disputed Contract. At the Rule 12(b)(6) stage, the
“standard simply calls for enough fact to raise a reasonable expectation that discovery will reveal
evidence of the necessary claims or elements.” In re S. Scrap Material Co., LLC, 541 F.3d 584,
13
Alternatively, Sharkey-Issaquena argues that paragraph 3.1 of the Contract is
procedurally and/or substantively unconscionable. That provision provides: “HOSPITAL shall
provide to Subscribers, insofar as facilities of HOSPITAL permit, Hospital Services which are
Medically Necessary when such services are ordered by a licensed physician or other licensed
health professional who has appropriate staff privileges at HOSPITAL.” Contract [25] ¶ 3.1.
Unconscionability is “an absence of meaningful choice on the part of one of the parties,
together with contract terms which are unreasonably favorable to the other party.” East Ford,
Inc. v. Taylor, 826 So. 2d 709, 715 (Miss. 2002). “Procedural unconscionability may be proved
by showing a lack of knowledge, lack of voluntariness, inconspicuous print, the use of complex
legalistic language, disparity in sophistication or bargaining power of the parties and/or a lack of
opportunity to study the contract and inquire about the contract terms.” Citigroup Global
Markets, Inc. v. Braswell, 57 So. 3d 638, 645 (Miss. Ct. App. 2011). On the other hand,
“[s]ubstantive unconscionability is present when there is a one-sided agreement whereby one
party is deprived of all the benefits of the agreement.” Vicksburg Partners, L.P. v. Stephens, 911
So. 2d 507, 521 (Miss. 2005), overruled on other grounds by Covenant Health & Rehab. of
Picayune, LP v. Estate of Moulds ex rel. Braddock, 14 So. 3d 695, 706 (Miss. 2009). At this
stage in the proceedings, the Court cannot say that paragraph 3.1 of the Contract is procedurally
or substantively unconscionable.
Starting with procedural unconscionability, Sharkey-Issaquena says that the Contract was
“presented [to it] on a ‘take it or leave it basis,’” and that “[t]he disparity in bargaining power
587 (5th Cir. 2008) (citation and internal quotation marks omitted). And for the reasons stated,
the Court finds that Blue Cross has pleaded a plausible breach-of-contract claim. Even if it had
not, the Court would grant Blue Cross leave to amend. See Hart v. Bayer Corp., 199 F.3d 239,
248 n.6 (5th Cir. 2000).
14
between [Blue Cross] and [it,] a small hospital . . . effectively precluded any sort of negotiation
or voluntary assent to the subject provision.” Def.’s Mem. [19] at 18. But none of these alleged
facts are apparent from the face of the Complaint or the Contract. Sharkey-Issaquena’s
procedural-unconscionability argument is not appropriate at the Rule 12(b)(6) stage and is
premature.
Looking to substantive unconscionability, Sharkey-Issaquena says paragraph 3.1
“provides [Blue Cross] with absolute discretion in denying any claim submitted.” Def.’s Mem.
[19] at 18. But paragraph 3.1 does no such thing; it merely obligates Sharkey-Issaquena to
provide “Hospital Services” to Blue Cross subscribers. Moreover, Blue Cross’s ability to deny
submitted claims is not related to its claim that Sharkey-Issaquena has submitted improper
claims under the Contract. Sharkey-Issaquena has not demonstrated unconscionability at this
stage.
b.
Fraud and Negligent-Misrepresentation Claims against the
Laboratories
The Laboratories say Blue Cross’s fraud and negligent-misrepresentation claims against
them are deficient under Federal Rules of Civil Procedure 9(b) and 12(b)(6). To state a claim for
fraud under Mississippi law, a plaintiff must plead:
(1) a representation, (2) its falsity, (3) its materiality, (4) the speaker’s knowledge
of its falsity or ignorance of its truth, (5) his intent that it should be acted on by
the hearer and in the manner reasonably contemplated, (6) the hearer’s ignorance
of its falsity, (7) his reliance on its truth (8) his right to rely thereon, and (9) his
consequent and proximate injury.
In re Miss. Medicaid Pharm. Average Wholesale Price Litig., 190 So. 3d 829, 835 (Miss. 2015)
(quoting Franklin v. Lovitt Equip. Co., Inc., 420 So. 2d 1370, 1373 (Miss. 1982)). To state a
claim for negligent misrepresentation, a plaintiff must plead:
(1) a misrepresentation or omission of a fact; (2) that the representation or
omission is material or significant; (3) that the person/entity charged with the
15
negligence failed to exercise that degree of diligence and expertise the public is
entitled to expect of such persons/entities; (4) that the plaintiff reasonably relied
upon the misrepresentation or omission; and (5) that the plaintiff suffered
damages as a direct or proximate result of such reasonable reliance.
Holland v. Peoples Bank & Trust, 3 So. 3d 94, 101 (Miss. 2008).
The Laboratories contend that Blue Cross has not provided “any information relating to
the individual instances of alleged fraud,” including “the identity or quantity of these supposedly
fraudulent transactions,” thus “mak[ing] it impossible for [the Laboratories] to identify what
specific conduct was involved in this alleged fraudulent scheme.” Defs.’ Mem. [10] at 13; see
also id. at 16–17 (addressing negligent-misrepresentation claim).
The Court concludes that Blue Cross has sufficiently pleaded plausible fraud and
negligent-misrepresentation claims. Blue Cross has alleged that every bill submitted by the
Laboratories using Sharkey-Issaquena’s billing credentials misrepresented that the services
rendered were covered and reimbursable under the Contract. See Compl. [1] ¶¶ 13–15. Under
these circumstances, that allegation provides sufficient information to put the Laboratories on
notice of the complained-of conduct. See Fustok, 2013 WL 2187874, at *5 & n.1 (citing United
States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009)). Blue Cross has satisfied
its burden at the pleading stage as to the fraud and negligent-misrepresentation claims.
c.
Civil-Conspiracy Claim against the Laboratories
The Laboratories say that because Blue Cross’s civil-conspiracy claim “is entirely
predicated on its fraud claim,” the alleged pleading deficiencies in the latter similarly doom the
former. Defs.’ Mem. [10] at 14. But the Court has found Blue Cross’s fraud claim sufficiently
pleaded.
The Laboratories also assert that Blue Cross “has not provided sufficient factual
information to support its conspiracy claim.” Id. In particular, they say Blue Cross’s “allegation
16
regarding a purported ‘meeting of the minds’ between the parties to the alleged conspiracy” is
lacking. Id. at 15. “Under Mississippi law, ‘[a] conspiracy is a combination of persons for the
purpose of accomplishing an unlawful purpose or a lawful purpose unlawfully.’” Gallagher
Basset Servs., Inc. v. Jeffcoat, 887 So. 2d 777, 786 (Miss. 2004) (quoting Levens v. Campbell,
733 So. 2d 753, 761 (Miss. 1999)).
Blue Cross says—and the Court agrees—that “the Complaint clearly and repeatedly
states that the Defendants agreed on how to carry out their deceptive plan.” Pl.’s Mem. [14] at
21; see, e.g., Compl. [1] ¶ 15 (alleging that Sharkey-Issaquena “entered into a contract with one
or more entities and/or individuals through which it is allowing these entities and/or individuals
to submit claims to Blue Cross for payment using [Sharkey-Issaquena]’s name and billing
information even though the laboratory services were not performed at or by [SharkeyIssaquena]”); id. ¶ 17 (explaining that Sharkey-Issaquena “is being ‘reimbursed’ by one or more
of the third party entities for this ‘arrangement’”); id. ¶ 46 (alleging that the Laboratories “agreed
and conspired to engage in a course of conduct, jointly and severally, to commit a fraud on Blue
Cross by submitting claims to Blue Cross for payment for laboratory services under [SharkeyIssaquena]’s name and using [its] billing number which were fraudulently misrepresented as
having been performed at [Sharkey-Issaquena], ordered by a licensed physician or other licensed
health professional who has appropriate staff privileges at [Sharkey-Issaquena], and performed at
[Sharkey-Issaquena], for the purpose of receiving payments from Blue Cross to which they were
not entitled”). Blue Cross’s allegations survive the Rule 12(b)(6) challenge.
d.
Unjust-Enrichment Claim against the Laboratories
Finally, the Laboratories argue that the unjust-enrichment claim is insufficiently pleaded.
“Unjust enrichment applies to situations where there is no legal contract and the person sought to
17
be charged is in possession of money or property which in good conscience he should not return
but should deliver to another.” Beasley v. Sutton, 192 So. 3d 325, 332 (Miss. Ct. App. 2015)
(internal quotation marks and citations omitted). As with Blue Cross’s other state-law claims
against the Laboratories, the Complaint states sufficient facts to survive the Rule 12(b)(6)
motion: it alleges that the Laboratories wrongfully obtained money from Blue Cross in payment
of insurance claims that were improper and fraudulent. And Blue Cross seeks return of those
funds. The motion to dismiss is denied as to the unjust-enrichment claim.
4.
Rule 12(b)(7)
Defendants next argue that “[a]ny self-funded plans and their administering employers
for which [Blue Cross] seeks to recover are necessary persons who must be joined to [Blue
Cross’s] claims under [Federal] Rule [of Civil Procedure] 19(a).” Defs.’ Mem. [10] at 18;
accord Def.’s Mem. [19] at 19.
Rule 19(a) requires joinder of a person “who is subject to service of process and whose
joinder will not deprive the court of subject-matter jurisdiction” if:
(A) in that person’s absence, the court cannot accord complete relief among
existing parties; or
(B) that person claims an interest relating to the subject of the action and is so
situated that disposing of the action in the person’s absence may:
(i) as a practical matter impair or impede the person’s ability to protect the
interest; or
(ii) leave an existing party subject to a substantial risk of incurring double,
multiple, or otherwise inconsistent obligations because of the interest.
Fed. R. Civ. P. 19(a)(1). Dismissal under Rule 12(b)(7) for failure to join an indispensable party
is within the Court’s discretion. HS Res., Inc. v. Wingate, 327 F.3d 432, 438 (5th Cir. 2003).
Defendants claim that the self-funded plans are necessary parties under both sections of
Rule 19(a)(1). First, under Rule 19(a)(1)(A), they say that “complete relief cannot be accorded
18
in the[] absence” of the self-funded plans given that “[t]he plan-administering employers bear
ultimate responsibility for the payment of benefits under their . . . plans, and, consequently, any
recovery of alleged overpayments made to Defendants arising out of those plans would belong
‘in good conscience’ to them, not [Blue Cross.]” Defs.’ Mem. [10] at 20; accord Def.’s Mem.
[19] at 20. Second, Defendants say Rule 19(a)(1)(B) is met because “[t]he absence of the selffunded plans and their administering employers . . . creates a substantial risk of future liability,
litigation, and vexation between Defendants and them, including a substantial risk that
Defendants could incur double, multiple, or otherwise inconsistent obligations.” Defs.’ Mem.
[10] at 19–20; accord Def.’s Mem. [19] at 20.
Notably, Defendants do not identify with particularity any self-funded plans they believe
should be joined as a party. Nor do they show whether those plans are subject to service of
process in this Court.
“When faced with a motion under Rule 12(b)(7), the district court will decide whether the
absent person should be joined as a party. If it decides that question in the affirmative, the
district judge will order the individual or entity who is not before the court brought into the
action, if such joinder is feasible.” 5C Charles Alan Wright & Arthur R. Miller, Federal
Practice & Procedure § 1359 (3d ed. 2016); see Nat’l Cas. Co. v. Gonzales, 637 F. App’x 812,
814–15 (5th Cir. 2016). Only where joinder is not feasible does the Court consider “whether to
proceed without him or to dismiss the action.” Id. “[T]he burden is on the party moving under
Rule 12(b)(7) to show the nature of the unprotected interests of the absent individuals or
organizations and the possibility of injury to them or that the parties before the court will be
disadvantaged by their absence.” Id. And “‘courts are reluctant to grant motions to dismiss of
this type.’. . . ‘In general, dismissal is warranted only when the defect is serious and cannot be
19
cured.’” Cooper v. Kliebert, Nos. 14-507, 15-751, 2016 WL 3892445, at *6 (M.D. La. July 18,
2016) (quoting 5C Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure §
1359 (3d ed. 2016)).
On the record before it, the Court cannot say Defendants have met their burden to
establish that any self-funded plans are necessary parties under Rule 19 or that they cannot be
joined so as to warrant dismissal. And Blue Cross argues that, even if any self-funded plans are
necessary parties under Rule 19, dismissal is not warranted because the defect is not incurable:
Defendants’ “concerns can be dealt with by simply omitting the claims paid by self-insured plans
from the damages calculation.” Pl.’s Mem. [14] at 9. At least on this record, the Court would
agree. The motions under Rule 12(b)(7) are denied.
5.
Standing
In a somewhat related argument, the Laboratories contend that Blue Cross lacks standing
to pursue claims arising out of payments made on behalf of self-funded plans. “[T]he
‘irreducibile constitutional minimum’ of standing consists of three elements. The plaintiff must
have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the
defendant, and (3) that is likely to be redressed by a favorable decision.” Spokeo, Inc. v. Robins,
136 S. Ct. 1540, 1547 (2016) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)).
Blue Cross says that it has standing to bring all of the claims asserted in this case as it has
suffered an injury in fact as a result of Defendants’ conduct: its “administrative agreements
contractually obligate it to administer and pay claims appropriately, whether fully insured or selfinsured, and Blue Cross bears a risk of loss if inappropriate claims are paid.” Pl.’s Mem. [14] at
7. Assuming Blue Cross actually pleaded claims based on self-funded plans, the Court
concludes that it has met its burden to establish standing at this stage. See Lujan, 504 U.S. at
20
561; see also Conn. Gen. Life Ins. Co., 128 F. Supp. 3d at 509 (finding standing as to carrier’s
billing-fraud claims regarding self-funded plans because carrier “expended its own time and
resources in investigating the surgical centers’ billing practices”); Arapahoe Surgery Center,
LLC, 2015 WL 1041515, at *3 (finding standing for carrier’s billing-practices claims regarding
self-funded plans); Aetna Life Ins. Co., 2014 WL 4116963, at *4 (finding standing at the
pleading stage based on allegation that insurer was directly harmed by defendants’ conduct
including harms resulting from payments relating to self-funded plans).
B.
Motion to Compel Arbitration
Finally, Sharkey-Issaquena says that Blue Cross is obligated to arbitrate its claims against
it pursuant to the Contract. “When adjudicating a motion to compel arbitration, [a court] first
must determine whether the parties agreed to arbitrate the dispute in question.” Safer v. Nelson
Fin. Grp., Inc., 422 F.3d 289, 293 (5th Cir. 2005). In making this determination, a court “must
decide: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether
the dispute in question falls within the scope of that arbitration agreement.” Id. (internal
quotation marks and citation omitted).
Here, Sharkey-Issaquena points to article VII of the Contract, which provides:
7.1 PLAN and HOSPITAL agree to meet and confer in good faith to resolve any
problems or questions that may arise under this Agreement.
7.2 In the event any problem or question is not satisfactorily resolved, either
party may appeal as provided in Plan’s Participating Hospital Policies and
Procedures set out in Attachment A hereto.
7.3 The appeal decision shall be final and binding on both PLAN and
HOSPITAL, but shall have no effect, relevance, or bearing on any decision
involving a Participating Hospital other than HOSPITAL.
Contract [25] ¶¶ 7.1–7.3 (emphasis added).
21
It is axiomatic that “a party cannot be required to submit to arbitration any dispute which
he has not agreed so to submit.” AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643,
648 (1986) (internal quotation marks and citation omitted). And though the Contract broadly
requires the parties “to meet and confer in good faith to resolve any problems or questions that
may arise” thereunder, it contains no provision mandating arbitration. Indeed, paragraph 7.2
says the parties “may” appeal. Contract [25] ¶ 7.1.
Moreover, the Appeal Procedures set forth in the Policies and Procedures attached to the
Contract state:
APPEAL PROCEDURES
A Network Hospital may electronically submit an appeal for the following items
with regard to the Percent of Charge program:
1.
Utilization Management decisions
2.
Medical Necessity decisions
3.
Audit Reviews
4.
Reimbursement Calculations
Appeal of Utilization Management/Medical Necessity Decisions
The Network Hospital may request an appeal of Utilization Management and
Medical Necessity decisions using the procedures outlined in the “Appendix A Utilization Management Program”, which is part of this manual.
Appeal of Audits Reviews
The Network Hospital may appeal a determination made during an Audit Review.
The Network Hospital must notify BCBSMS, as directed by BCBSMS, within
thirty (30) days of the payment/adjustment on the appealed claim. This
notification and any added information the Network Hospital provides will be
reviewed by BCBSMS.
Appeal of Reimbursement Calculations
The Network Hospital may appeal the pricing of a claim if it feels the payment on
the Remittance Statement is incorrect based upon the appropriate rates and related
time period. The Network Hospital must notify BCBSMS via the online
22
submission of appeals process located on myBlueProvider, within one year of the
process date of the disputed claim. This appeal will be reviewed by Provider
Appeals and its decision shall be final.
Id., Attachment A ¶ 4.2. So while it permits Sharkey-Issaquena to submit various appeals under
the Contract, it contains no provision permitting or requiring Blue Cross to engage in alternative
dispute resolution as to any issues it may have with Sharkey-Issaquena.
Significantly, and as Sharkey-Issaquena acknowledges, the Contract does not use the
word arbitrate or any derivative thereof. And it contemplates litigation, explaining that “[i]n the
event that either Plan or Hospital initiate any action, suit, or proceedings to enforce the
provisions of this Agreement, each party shall bear its own costs and attorney fees.” Id. ¶ 9.5.
Sharkey-Issaquena provides no binding authority suggesting that the Contract requires
arbitration. The Court therefore concludes that the parties never agreed that Blue Cross would be
required to arbitrate claims like the ones it asserts against Sharkey-Issaquena here. SharkeyIssaquena’s motion to compel arbitration is denied.4
III.
Conclusion
The Court has considered all arguments. Those not specifically addressed would not
have changed the outcome. For the foregoing reasons, the Court denies Defendants Mission
Toxicology II, LLC, Mission Toxicology Management Company, L.L.C., Mission Toxicology,
L.L.C., and Sun Clinical Laboratory, LLC’s Motion to Dismiss [9]; Defendant Sharkey-
4
Sharkey-Issaquena does cite two 1940s cases out of New York state court as well as an
unpublished decision of the Michigan Court of Appeals. Def.’s Reply [30] at 2–3 (citing
Mencher v. B & S Abeles & Kahn, 84 N.Y.S.2d 718 (1948); In re Hub Indus., 54 N.Y.S.2d 106
(1944); Kohler Oil Co. v. B & D Party Store, Inc., No. 273243, 2007 WL 4548416 (Mich. Ct.
App. Dec. 27, 2007)). Those cases say the word “arbitrate” is not necessary “if the court is able
to determine from the agreement that it was the intention of the parties that the controversy
would be settled by arbitration.” In re Hub Indus., 54 N.Y.S.2d at 108. Even if those cases
controlled, the Court would still find that the Contract here does not show the parties’ clear intent
to settle the instant dispute by arbitration.
23
Issaquena Community Hospital’s Motion to Dismiss [18]; and its Motion to Compel Arbitration
and Dismiss [20]. The parties are directed to contact the chambers of United States Magistrate
Judge F. Keith Ball within 10 days of the entry of this Order to set the case for a casemanagement conference.
SO ORDERED AND ADJUDGED this the 13th day of December, 2017.
s/ Daniel P. Jordan III
CHIEF UNITED STATES DISTRICT JUDGE
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