New West Health Services v. Express Scripts Senior Care
Filing
34
ORDER granting 9 Motion to Remand; granting 9 Motion to Expedite. Clerk to mail certified copy of this Order to Clerk of Montana First Judicial District Court, Lewis and Clark County, Montana. Signed by Judge Charles C. Lovell on 6/11/2013. (MKB)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
HELENA DIVISION
*******
NEW WEST HEALTH SERVICES,
CV 13-35-H-CCL
Plaintiff,
-v-
ORDER
EXPRESS SCRIPTS SENIOR CARE,
INC.,
Defendant.
*******
Before the Court is Plaintiff’s Motion to Remand and request for expedited
ruling. Plaintiff also seeks its attorney fees and costs incurred as a result of the
alleged improper removal. Plaintiff asserts that the amount in controversy in this
case does not exceed the sum or value of $75,000 as is required by 28 U.S.C.
§ 1332(a). Defendant opposes remand.
Complaint
Plaintiff’s Complaint for Injunctive Relief and Declaratory Judgment is filed
against Defendant Express Scripts Senior Care, Inc. (“Express Scripts”). Plaintiff
New West Health Services (“New West”) is a Montana corporation, and Express
Scripts is a Delaware corporation with its principal place of business in St. Louis,
Missouri. New West and Express Scripts entered into an agreement, effective on
January 1, 2010 (the “Agreement”), whereby Express Scripts provided New West
with management of prescription drug services to New West’s members. The
Agreement was terminated on December 31, 2012.
New West alleges that Express Scripts has failed to abide by the Agreement
when it refused to make its records available for an independent audit required by
a federal agency, the Centers for Medicare and Medicaid Services (“CMS”). New
West alleges that Article III, Section 3.7(f)(ii) of the Agreement requires Express
Scripts to make its records available for government auditing purposes “for a
period of ten (10) years from the date of termination or expiration of the
Agreement, or from the date of completion of any audit, whichever is later.” (ECF
2
No. 4, Compl. at ¶ 15.) The Agreement provides for payment to Express Scripts,
but no additional compensation is specified for Express Scripts’ provision of data
for audit purposes. New West asserts that Express Scripts must make the data
available for audit purposes at no extra cost to New West.
For the year 2012 (as in each prior year of the Agreement), New West is
required to submit certain data within Express Scripts’ possession to independent
auditing and reporting to CMS by June 30 (the “2012 Data Validation Audit”) of
the year following. In the two prior years, Express Scripts provided its
information for New West’s Data Validation Audit without extra charge to New
West. (ECF No. 4, Compl. at ¶ 16.) Apparently, this is the final data validation
audit to be conducted under the Agreement, because the Agreement terminated at
the end of 2012.
In addition to this annual data validation audit, CMS has also notified New
West that it requires a financial audit of New West’s 2011 Medicare prescription
drug program (the “2011 Financial Audit”). New West has selected an
independent auditor, HealthyPeople LLC (“HealthyPeople”) to conduct an audit
3
of the financial data in the possession of Express Scripts.
According to the Complaint, Express Scripts will not cooperate in making
its data available for either the 2012 Data Validation Audit or the 2011 Financial
Audit, without further compensation. However, with the June 30, 2013, deadline
for completion of the data validation audit and report to CMS approaching, the
parties have been engaging in settlement negotiations.
Express Scripts has proposed that it make the necessary data available for
audit purposes for additional compensation. (ECF No. 4, Compl. at ¶¶20-23.) The
first proposal Express Scripts submitted to New West, on December 3, 2012,
would have provided complete post-termination data support and services for the
sum of $720,000. (ECF No. 4, Compl. at ¶ 21.) The second proposal Express
Scripts submitted would have required New West to pay $38,000 for the 2012
Data Validation Audit services and an additional unspecified amount (at $150 per
hour) for the 2011 Financial Audit. (ECF No. 4, Compl. at ¶ 23.) New West
rejected Express Scripts’ proposals for additional compensation for posttermination data and support services. As of the filing of the Complaint, Express
4
Scripts had already released to HealthyPeople the data necessary for preparation of
the 2012 Data Validation Audit, but Express Scripts has threatened to sue
HealthyPeople if it releases the data to CMS without Express Scripts’ permission
(which has not been granted). (ECF No. 4, Compl. at ¶ 25.)
New West continues to refuse to pay Express Scripts additional
compensation for the financial audit services for which New West claims it has
already contracted and paid. New West has claimed that if Express Scripts does
not provide the data it needs to comply with the current audits, New West will fail
the audits and incur sanctions, fines, administrative oversight costs, and possibly
prevent New West from expanding its services and products. To prevent any such
damages from accruing, New West therefore requested a preliminary injunction
compelling Express Scripts to immediately provide data and support to New West
and HealthyPeople to comply with the 2012 Data Validation Audit and the 2011
Financial Audit. New West further requested a declaratory judgment compelling
Express Scripts to provide New West with data and support without further
compensation pursuant to the Agreement. In the alternative, New West requests a
5
declaratory judgment that requires Express Scripts to provide New West with data
and support but sets the amount of reasonable compensation New West owes
Express Scripts therefor. New West seeks reasonable costs and attorney fees
pursuant to the Agreement, Article VII, Section 7.3(d)(I).
Notice of Removal
Defendant Express Scripts removed the case to federal district court on May
24, 2013. Express Scripts asserts that the amount in controversy exceeds $75,000
because Express Scripts is being “required to provide services to New West over
the next several years, without compensation.” (ECF No. 1, Notice of Removal at
¶ 13.) Citing the “either viewpoint rule,” and In re Ford Motor Co./Citibank
(South Dakota), N.A., 264 F.3d 952, 958 (9th Cir. 2001), Express Scripts contends
that, from its viewpoint, the pecuniary result that would be directly produced by a
judgment in favor of New West would be in excess of $75,000. Express Scripts
estimates that the 2012 Data Validation Audit fee at the rate of $150/hour would
be from $24,600 to $81,600, and the 2011 Financial Audit fee at the rate of
$150/hour would be from $33,450 to $35,850. Express Scripts also believes that
6
CMS is likely to require another audit in 2014 that would again require
approximately $30,000 in services provided by Express Scripts.1
Motion for Remand
Plaintiff New West challenges the amount in controversy and requests
remand on the ground that Defendant Express Scripts improperly removed this
case. New West asserts that on May 21, 2013, three days prior to removal,
Express Scripts offered to provide New West with data and support for the two
audits for a sum between $42,450 and $44,850. (ECF No. 10 at 3-4, citing 2nd.
Aff. A. Beattie, ¶ 8.) New West concludes that this offer of settlement shows that
removal is not proper as the amount in controversy requirement cannot be met.
Legal Standard
District courts have original jurisdiction over “all civil actions where the
matter in controversy exceeds the sum or value of $75,000, exclusive of interests
and costs, and is between . . . citizens of different states.” 28 U.S.C. § 1332(a)(1).
1
Federal regulations require that one-third of the plan sponsors (such as Plaintiff New
West) be chosen annually for a financial audit. 42 C.F.R. § 423.504(d)(1). The last possible
financial audit for New West under the Agreement would occur in 2014 (for the 2012 plan year).
7
The burden to establish jurisdiction is on the party seeking removal, and the
removal statute is strictly construed against removal jurisdiction. Valdez v.
Allstate Ins. Co., 372 F.3d 1115, 1117 (9th Cir. 2004). If there is any doubt as to
the right of removal, federal jurisdiction must be rejected. Gaus v. Miles, Inc., 980
F.2d 564, 566 (9th Cir. 1992).
When removal is sought in a diversity jurisdiction case and the initial
pleadings seeks nonmonetary relief, removal is proper if the district court finds, by
the preponderance of the evidence, that the amount in controversy exceeds the
$75,000 threshold. 28 U.S.C. § 1446(c)(2)(B). The removing defendant bears the
burden of establishing that it is “more likely than not” that the amount in
controversy exceeds that amount. Sanchez v. Monumental Life Ins. Co., 102 F.3d
398, 404 (9th Cir. 1996). The facts cited in the removal petition must be based on
more than conclusory or speculated assertions. Lowdermilk v. U.S. Bank Nat’l
Ass’n, 479 F.3d 994, 1002 (9th Cir. 2007). However, when the complaint is
unclear or vague as to the amount in controversy, a district court may estimate the
amount in its analysis under the preponderance of the evidence standard. See
8
Guglielmino v. McKee Foods Corp., 506 F.3d 696, 700-01 (9th Cir. 2007). It is
always the defendant’s burden to establish that removal is proper. See MooreThomas v. Alaska Airline, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009).
Discussion
Plaintiff moves to remand, disputing that the amount in controversy exceeds
$75,000. Plaintiff argues that Defendant’s recent settlement offer to perform the
immediately required services for less than $50,000 is conclusive evidence as to
the value of the amount in controversy. Defendant contends that the value of its
post-termination services to New West for the next ten years is $720,000.
“In actions seeking declaratory or injunctive relief, it is well established that
the amount in controversy is measured by the value of the object of the litigation.”
Cohn v. Petsmart, Inc., 281 F.3d 837, 840 (9th Cir. 2002) (citation and internal
quotation marks omitted). Here, the object of the litigation is the value of
Defendant’s services sought by Plaintiff to be compelled over a period of ten years
following termination of the Agreement. Even assuming, arguendo, that the tenyear post-termination services have been previously purchased by New West, the
9
intrinsic value of those services is not zero (as Plaintiff argues).
The parties appear to be in agreement that during the current year alone the
value of Defendant’s services for the two audits is between $40,000 and $50,000.
The need for future services during the subsequent ten-year period cannot be
specified because it will depend on the auditing requirements of the federal
oversight agency. However, any declaration that Defendant is required to provide
the current services without compensation will inevitably result in a decision that
any and all future services for the ten-year period will also be uncompensated.
Defendant cites Lodal, Inc. v. Home Insurance Co. of Illinois, 1998 WL
393766 (6th Cir. 1998) (incurring current defense costs of $25,000 in pending
lawsuit, when jurisdictional amount was $50,000); Ministry of Health Province of
Ontario, Canada v. Shiley Inc., 858 F.Supp. 1426, 1431 (C.D. Cal. 1994) (finding
future liability potentially greater than jurisdictional threshold amount); and
Mazucco v. Kraft Global Foods, Inc., 2011 WL 6935320 (D. N.J. 2011) (right to
future payments calculated in jurisdictional analysis). These cases support the
inclusion of Plaintiff’s potential demands for future services in the Court’s
10
jurisdictional analysis. Even if New West only required one additional year of
service out of the approximately ten years remaining, that additional service could
easily increase the total value of services at stake to in excess of the $75,000
threshold.
In short, the Court does not find the removal of this case to be unreasonable
under all these circumstances (shifting though they may be since the complaint
was filed in state court). In addition, the Court also takes into consideration the
value of attorneys fees (when provided for by contract) in estimating the amount in
controversy. See Galt G/S v. JSS Scandinavia, 142 F.3d 1150, 1155-56 (9th Cir.
1998) (citing 14 C. Wright & A. Miller, Federal Practice and Procedure, § 3712).
As of the time of removal, Plaintiff incurred attorney fees for preparation of the
Complaint, for briefing and hearing Plaintiff’s application for preliminary
injunction (filed prior to removal), and for settlement negotiations. Plaintiff files
no affidavit stating its attorney fees as of the time of removal, but it is clear that
such fees are not trivial, and when added to the audit expenses (both current and
future) they could easily cause the amount in controversy to exceed $75,000.
11
Finally, the Court does not disregard entirely Defendant’s original valuation of its
post-termination services at $720,000, which was made prior to the termination of
the parties’ agreement and prior to the filing of the Complaint.
Despite the closeness of the amount-in-controversy question and the
potential strength of Express Scripts argument, with the filing of Plaintiff’s Reply
Brief (ECF No. 31), it has become clear that the value of the object of the
litigation is not necessarily as large as the removal papers first indicated. It
appears highly unlikely that there will be any future audits, other than the aforementioned thirty-percent chance of one more financial audit to be conducted in
2014. Beyond that, it appears that the current audit preparation and attorney fees
are essentially the object of this litigation. Additionally, Plaintiff now informs the
Court that the parties have recently settled their dispute regarding the 2012 Data
Validation Audit. The settlement requires New West to pay Express Scripts
$1,500 for the data that New West needs for its 2012 Data Validation Audit.
Although a settlement offer is not conclusive as to value, it is relevant evidence “if
it appears to reflect a reasonable estimate of the plaintiff’s claim.” Cohn v.
12
Petsmart, Inc., 381 F.3d 837, 840 (9th Cir. 2002). It appears that, over the course
of settlement negotiations, Express Scripts has significantly reduced the scope of
services it has offered to New West, so it is not so much the dollar value of the
service that has changed but the nature of the service itself. Combining the $1,500
settlement offer with the remaining financial audit services settlement offer yields
a litigation valuation of approximately $37,350, plus attorney fees as of the time of
removal.
Although the Court has felt strongly from the outset that this was a case
requiring exercise of federal jurisdiction, enough doubt as to the right of removal
has arisen that the Court concludes that federal jurisdiction must be rejected.
Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).
Conclusion
Given all these circumstances, the Court finds that Defendant has failed to
establish by a preponderance of the evidence that the amount in controversy
exceeds $75,000. Therefore, this Court lacks diversity jurisdiction. However, and
although the motion for remand should be granted, the Court does not believe that
13
the removal itself was either improper or in bad faith. The Court finds that
Defendant possessed an objectively reasonable basis for removal, and Plaintiff’s
request for attorney fees will therefore be denied.
Accordingly,
IT IS HEREBY ORDERED that Plaintiff’s Motion for Expedited Ruling
(ECF No. 9) is GRANTED, and Plaintiff’s Motion to Remand (ECF No. 9) is
GRANTED.
The Clerk is directed forthwith to notify counsel and to mail a certified copy
of this Order to the Clerk of the Montana First Judicial District Court, Lewis and
Clark County, Montana.
Done and Dated this 11th day of June, 2013.
14
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?