Montague v. Dixie National Life Insurance Company et al

Filing 47

ORDER granting without prejudice 10 Motion to Dismiss by Scott H. Richardson; granting without prejudice with leave to amend 21 Motion to Dismiss by USHealth Group Inc; finding as moot 23 Motion to Stay Proceedings Pending Outcome of Appeal of Related Case by Dixie National Life Insurance Company, National Foundation Life Insurance Company, USHealth Group Inc. Signed by Honorable Joseph F Anderson, Jr on 02/26/10.(bshr, )

IN THE UNITED STATES DISTRICT COURT F O R THE DISTRICT OF SOUTH CAROLINA C O L U M B IA DIVISION P h yllis Gather Montague, on behalf of h e rs e lf and all others similarly situated, ) ) ) P l a in tif f , ) ) vs. ) ) D ix ie National Life Insurance Company; ) N a tio n a l Foundation Life Insurance ) C o m p a n y; USHealth Group, Inc.; and ) S c o tt H. Richardson, in his official ) c a p ac ity as Director of the South ) C a ro lin a Department of Insurance, ) ) D e f e n d a n ts . ) ) C / A No.: 3:09-687-JFA

ORDER

T h is matter comes before the court on the motion to dismiss [dkt. # 10] of defendant S c o tt H. Richardson ("Richardson"); the motion to dismiss [dkt. # 21] of defendant USHealth G ro u p , Inc ("USHealth"); and the motion of defendants USHealth, National Foundation Life In su ra n c e Company ("National"), and Dixie National Life Insurance Company ("Dixie") to s ta y [dkt. # 23]. The motions have been fully briefed, and the court finds that oral argument w o u ld not aid in the decisional process. This order serves to announce the ruling of the c o u rt. I. F a c tu a l and Procedural Background T h is suit is a follow-on suit from Ward v. Dixie Nat'l Life Ins. Co., 2007 WL 4 2 9 3 3 1 9 (4th Cir. 2007)(unpublished) ("Ward I"). As in Ward I, the plaintiff, here Phyllis G a th e r Montague ("Montague"), alleges that defendants National and Dixie breached the

term s of her supplemental insurance policy by not paying "actual charges." Here, however, M o n tagu e also seeks to hold USHealth, National's parent company, liable for National's alleged breach of contract through piercing its corporate veil. Specifically, Montague asserts, b a se d on its information and belief, that USHealth, as sole shareholder of National, has failed to observe corporate formalities, exercised total dominion and control over National, s ip h o n e d off assets, and exists as a mere facade for the operations of USHealth. (Compl. ¶¶ 3 2 ­ 3 5 .) USHealth moves to dismiss all claims against USHealth pursuant to Rule 12(b)(6). F e d . R. Civ. P. 12(b)(6). Richardson's involvement in this action stems from his August 28, 2008 promulgation in his official capacity of a bulletin entitled "Compliance With S.C. Code Ann. § 38-71-242." M o n tag u e alleges that Richardson and his staff worked closely with National and Dixie "to d e v e l o p a strategy through which § 38-71-242 would be used both to thwart payment of d a m a g e s incurred by the Plaintiff class in the [Ward I] litigation and to enable [National and D ix i e ] to have a pretext upon which to avoid paying future `actual charges' benefits to class m e m b e r s ." (Compl. ¶ 27.) Specifically, Montague asserts that "[a]ttorneys representing [N atio n al and Dixie] drafted a proposed insurance bulletin for Director Richardson's s ig n a tu re ," which he then issued, with minor changes, as Bulletin 2008-15 on August 28, 2 0 0 8 . (Id. ¶¶ 28, 30.) Montague contends that National, on or about October 13, 2008, is s u e d a notice to its specified disease policy holders, the putative class in this case, in d ic a tin g that it would decline to pay benefits "based on the amounts billed to insured by

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th e ir medical providers" in reliance on the guidance in Bulletin 2008-15. (Id. ¶ 31.) R ic h a rd s o n now moves to dismiss Montague's request for declaratory and injunctive relief p u rs u a n t to Rule 12(b)(6). Fed. R. Civ. P. 12(b)(6). II. D is c u ss io n A. S ta n d a rd of Review

U n d e r the Fed. R. Civ. P. 8(a)(2), a pleading must contain a "short and plain statement o f the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Recent S u p r e m e Court caselaw has interpreted this rule to require "sufficient factual matter, a c c e p ted as true, to `state a claim to relief that is plausible on its face.'"Ashcroft v. Iqbal, _ _ U .S ._ _ , 129 S. Ct 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 5 4 4 , 547 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content th a t allows the court to draw the reasonable inference that the defendant is liable for the m is c o n d u c t alleged." Iqbal, 129 S. Ct at 1949. Recitals of the elements of a cause of action b o lste re d only by conclusory statements will fail to insulate a pleader from a motion to d is m is s . Id. Pursuant to Iqbal and Twombly, this court must undertake a two-prong approach in d e t e rm in i n g the sufficiency of plaintiff's complaint. First, bearing in mind that a court must a c ce p t as true all factual allegations in the complaint, this court must segregate allegations th a t are factually supported and those which are mere legal conclusions and not entitled to a presumption of truth. Iqbal, 129 S. Ct. at 1950. Second, this court must determine whether

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th e remaining factual allegations in the complaint state a plausible claim for relief, based on " ju d ic ia l experience and common sense." Id. B. M o n tag u e Seeks to Pierce USHealth's Corporate Veil

U S H e a lth moves to dismiss Montague's claim requesting the court to pierce its c o rp o ra te veil. However, the parties sharply disagree over the applicable law. USHealth a rg u e s that Texas law applies, while Montague contends that federal common law supplies th e appropriate standard. In order to determine whether federal law applies to the instant veil piecing claim, the c o u rt must determine whether "federal interests are sufficiently implicated to warrant the p rotec tio n of federal law." United States v. Kimbell Foods, Inc., 440 U.S. 715, 727 (1979). T h is is often the case where government rights "arise from and bear heavily upon a federal p ro g ra m " enacted "in the exercise of a constitutional function or power." Id. T h e case at bar involves neither a government program, a federal statute, an assertion o f government rights, nor the exercise of a constitutional function by the federal government. A c c o rd in g ly, the court finds the authority cited in Montague's brief inapposite to the facts a s pled. Also, while issues in this case may well turn on this court's, as well as the Fourth C ir c u it' s, interpretation of the contracts clause, the rights sought to be vindicated in this case b y Montague, at bottom, arise under South Carolina contract law. As the court is unpersuaded to apply federal veil piercing law, the court will apply the la w of Texas, the state of USHealth's incorporation. See In re Cambridge Biotech Corp., 186

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F .3 d 1356, 1376 n.11 (Fed. Cir. 1999) ("When a court considers disregarding the corporate e n tity, i.e., `piercing the corporate veil,' the court applies the law of the state of in c o rp o ra tio n ." ); see also CTS Corp v. Dynamics Corp. of America, 481 U.S. 69, 89 (1987 (" N o principle of corporation law and practice is more firmly established than a State's a u th o rity to regulate domestic corporations . . . ."); Resolution Trust Corp. v. Latham & W a tk i n s , 909 F. Supp. 923, 935 (S.D.N.Y. 1995) (application of the law of the state of in c o rp o ra tio n is the well-settled choice of law rule); Janet C. Alexander, Unlimited S h a re h o ld e r Liability Through a Procedural Lens, 106 Harv. L. Rev. 387, 411 (1992) (d is c u ss in g limited liability as a creation of state corporation law and the application of the in te rn a l affairs doctrine to veil-piercing jurisprudence). Texas provides a statute directly on p o in t. Tex. Bus. Orgs. Code. Ann. §§ 21.223-225 (Vernon 2007). Section 21.223 bars any su it proceeding on an alter ago theory, allowing an individual shareholder to be held liable o n ly where the plaintiff establishes actual fraud for personal benefit on the part of that s p e c if ic shareholder. Id. § 21.223(b). The court has reviewed Montague's complaint, finds no mention of fraud or facts s u p p o r tin g an inference of fraud therein, and hereby dismisses Montague's claim against U S H e a lth . Moreover, no matter whether federal common law or South Carolina law apply, th e result would be the same. The court finds that Montague's claims constitute a formulaic re c itatio n of legal elements or conclusions bereft of facts that would allow the court to c o n c lu d e that the complaint plausibly states a claim for relief under any conceivably

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a p p lic a b le law. However, because Rule 15 requires the court to grant leave to amend when ju s tic e so requires, and because Iqbal was decided well after the complaint was filed, the c o u rt's dismissal of this claim shall be without prejudice. C. D e c la ra to ry and Injunctive Relief against Richardson

M o n ta g u e seeks a declaratory judgment to determine whether "Bulletin 2008-15 e x c ee d s the scope of authority of [Richardson], violates the constitutions of the United States a n d state of South Carolina, and/or is inconsistent with the plain language of S.C. Code Ann. § 38-71-242," and prays for injunctive relief. (Compl. ¶ 40, 43.) Montague contends that R ic h a r d s o n ' s issuance of Bulletin 2008-15 is an ultra vires action for the following reasons: (1 ) lack of statutory or constitutional authority; (2) violation of the Contracts Clause of the U n ite d States Constitution; (3) violation of the Contracts Clause of the South Carolina C o n s titu tio n ; and (4) lack of consistency with the plain language and legislative intent of S.C. C o d e Ann. § 38-71-242. (Id. ¶ 44.) Richardson moves to dismiss the declaratory judgment a n d accompanying request for injunction pursuant to Rule 12(b)(6). Under the Declaratory Judgment Act, 28 U.S.C. § 2201, federal courts have the d is c re tio n to decide whether to hear a declaratory judgment action "[i]n a case of actual c o n tro v e rs y" in order to "declare the rights and legal relations of any interested party." 28 U .S .C . §2201. Two requirements must be met in order for a federal court to have jurisdiction o v e r a declaratory judgment action. White v. Nat'l Union Fire Ins. Co., 913 F.2d 165, 167 (4 th Cir. 1990). First, the dispute must be a case or controversy within the meaning of

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A rtic le III of the United States Constitution. Second, the court must exercise its discretion to decide whether the judgment will serve a useful purpose in clarifying the legal relations in issue or afford relief from the uncertainty, insecurity, and controversy giving rise to the p ro c e ed in g . Id. In determining whether a case or controversy exists, the court must consider w h e th e r the dispute "is definite and concrete, touching the legal relations of parties having a d v e rs e interests." Id. at 169. B u lle tin 2008-15 was promulgated, ostensibly, pursuant to the power of Richardson, in his official capacity, to regulate the insurance industry in South Carolina and apprise the in d u s try of any relevant changes in the law. Assuming, without deciding, that Richardson h a s the power to issue such a bulletin, the court must determine whether the bulletin has the a b ility to affect the rights and legal relations of the parties. The South Carolina Administrative Procedures Act (the "APA"), S.C. Code Ann. § 1 -2 3 -1 0 (4 )(2 0 0 5 ), generally governs whether actions taken by state agencies carry the force o f law. The APA specifies that "policy or guidance issued by an agency" do not have the f o rc e of law while "regulations" do. Id. Gadson v. Mikasa Corp., 628 S.E.2d 262, 269 (S.C. A p p . 2006) ("Regulations authorized by the legislature have the force of law."). A regulation c o m p ris e s "each agency statement of general public applicability that implements or p re sc rib e s law or policy or practice requirements of any agency." Id. South Carolina re q u ire s the following to enact a regulation: In order to promulgate a regulation, the APA generally requires a state agency to give notice of a drafting period during which public comments are accepted 7

o n a proposed regulation; conduct a public hearing on the proposed regulation o v e rs e e n by an administrative law judge or an agency's governing board; p o s s ib ly prepare reports about the regulation's impact on the economy, en v iro n m en t, and public health; and submit the regulation to the Legislature f o r review, modification, and approval or rejection. S lo a n v. S.C. Bd. of Physical Therapy Exam'rs, 636 S.E.2d 598, 609 (S.C. 2006). South C a ro lin a Supreme Court has explicitly found that "[a]n Interpretive Bulletin is not binding o n the courts" and do not have the force of law Garris v. Cincinnati Ins. Co., 311 S.E.2d 723, 7 2 6 (S.C. 1984) (superceded by statute on other grounds). N o indication appears in Montague's complaint or in her response to Richardson's m o tio n to dismiss that the above procedure was followed in the creation and issuance of B u lle tin 2008-15. Instead, Bulletin 2008-15 appears to be a mere statement of policy g u idan ce ; lacking force of law and expressly contemplated in S.C. Code Ann. § 1-23-10(4). N o facts in the complaint allow the court to infer that the procedures set forth in the APA p r e c e d e d the issuance of Bulletin 2008-15 nor does Montague direct the court to an express g ra n t of authority from the legislature to issue the bulletin. In the absence of facts pled to e sta b lis h that Bulletin 2008-15 carries the force of law, the court finds that it cannot affect th e legal relationship between any of the parties to this case. Because Bulletin 2008-15 c a n n o t affect legal rights, this court finds that it does not constitute a case or controversy for th e purposes of Article III and dismisses all claims against Richardson for want of ju r is d ic tio n . See Golden v. Zwickler, 394 U.S. 103 (1969) ("[C]oncrete legal issues, p rese n ted in actual cases, not abstractions, are requisite. This is as true of declaratory

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ju d g m e n ts as any other field."). D. M o tio n to Stay

U S H e a lth , National, and Dixie jointly moved [dkt. # 23] this court to stay all p ro c e e d in g s pending the outcome of Ward v. Dixie Nat'l Life Ins. Co., __F.3d__, 2010 WL 4 3 2 1 7 9 (4 th Cir. 2010) (Ward II). That case now been decided and the court finds the motion to stay moot. III. C o n c lu s io n F o r the foregoing reasons, USHealth's motion to dismiss is granted without prejudice w ith leave to amend [dkt. # 21]; Richardson's motion to dismiss is granted without prejudice f o r want of jurisdiction [dkt. # 10]; and USHealth, National, and Dixie's motion to stay is m o o t [dkt. # 23]. IT IS SO ORDERED.

F eb rua ry 26, 2010 C o lu m b ia , South Carolina

J o s e p h F. Anderson, Jr. U n ite d States District Judge

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