Avera McKennan Hospital v. EMC - Employers Mutual Casualty Company et al

Filing 24

ORDER denying 11 Motion to Dismiss; denying 15 Motion for Hearing. Signed by U.S. District Judge Lawrence L. Piersol on 9/7/2018. (JLS)

UNITED STATES DISTRICT COURT

DISTRICT OF SOUTH DAKOTA

SOUTHERN DIVISION
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AVERA MCKENNAN HOSPITAL,

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CIV 18-4007

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Plaintiff,

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MEMORANDUM OPINION AND ORDER

DENYING MOTION TO DISMISS

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vs.

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EMC - EMPLOYERS MUTUAL

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CASUALTY COMPANY,dba EMC
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RISK SERVICES, LLC, and JOHN/JANE *
DOES 1-3,
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Defendants.

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Defendant EMC - Employers Mutual Casualty Company("EMC"), has moved the Court
based upon the abstention doctrine for an Order dismissing or, in the alternative, staying this action
pending resolution ofa lawsuit in Minnesota.(Doc. 11.) For the reasons set forth below,the motion
is denied.
BACKGROUND

On July 4, 2015, Marlyn and Kathlene Bootsma were injured in a motorcycle accident in
Minnesota. The Bootsmas were treated at Avera McKennan Hospital ("Avera") in Sioux Falls.
Avera filed a hospital lien under South Dakota law but it did not submit the Bootsmas' bills to the

Bootsmas' health insurer, BlueCross BlueShield ofMinnesota("BCBS"). EMC,the insurer for the
negligent driver, paid the Bootsmas $500,000 to settle the case against its insured. The lawyer for
the Bootsmas placed the disputed fimds into his trust account, and the Bootsmas sued Avera in
Minnesota state court to determine the proper distribution of the funds. In the Minnesota case, the
Bootsmas claim that Avera breached its contract with BCBS by failing to submit the hospital bills
within 120 days, and thus Avera has waived its right to recover payment for the hospital bills.
Bootsmas allege that they are third party beneficiaries to the BCBS contract and were damaged by

Avera's breach ofthat contract, and they also assert a cause ofaction against Avera for slander upon
their credit and reputations.

The case before this Court is an action to enforce a hospital lien in the amount of
$142,026.62 under South Dakota's hospital lien statute,SDCL § 44-12-8. Avera sued the tortfeasor's
insurer,EMC,claiming that EMC impaired Avera's lien on settlement proceeds when EMC settled
with the Bootsmas without paying Avera for the medical services it provided. Avera brought this
lawsuit against EMC in state court in South Dakota. EMC removed the action to this Court hased

on diversity ofcitizenship pursuant to 28 U.S.C.§ 1332. EMC now asks the Court to dismiss or stay
the action.

DISCUSSION

EMC requests dismissal or stay ofthis action under either the Wilton abstention doctrine or

the Colorado River abstention doctrine. Avera argues that the Wilton abstention doctrine does not
apply here and that the Colorado River factors weigh against abstention.

Wilton Abstention Doctrine

Federal courts have a "virtually unflagging obligation" to decide cases within the scope of
their jurisdietion.Afoto v. Lynch,

U.S.

, 135 S.Ct. 2150,2156(2015)(quoting Co/o. River

Water Conservation Dist. v. United States,424 U.S.800,817(1976));see also Sprint Comm'ns,Inc.
V. Jacobs,571 U.S.69,72(2013)("In the main,federal courts are obliged to decide cases within the
scope of federal jurisdiction. Abstention is not in order simply because a pending state-court
proceeding involves the same subject matter."). The Supreme Court has,however,established certain
exceptions to the general rule requiring district courts to exercise their jurisdiction. Sprint, 571 U.S.
at 72. Brillhart v. Excess Ins. Co. Of American, 316 U.S. 491 (1942), exemplifies one such
exception: because ofthe text ofthe Declaratory Judgment Act, abstention is at times permissible
for actions brought in pursuit of a declaratory judgment. The Eighth Circuit has explained what is
often referred to as the BrillhartAVilton abstention doctrine:

the test articulated in Colorado River for a federal court to abstain when there are

parallel state proceedings does not apply to actions under the Declaratory Judgment
KctSee Wilton,5\5 \].S). at 286,115 S.Ct.2137. Federal courts have more discretion

to abstain in an action when a party seeks reliefunder the Declaratory Judgment Act.
See Wilton, 515 U.S. at 286-87, 115 S.Ct. 2137; Brillhart, 316 U.S. at 494-95,62
S.Ct. 1173. This broader discretion arises out of the Declaratory Judgment Act's

language that a court "may declare the rights and other legal relations of any
interested party seeking such declaration." 28 U.S.C. § 2201(a)(emphasis added).
The Supreme Court has noted that it has "repeatedly characterized the Declaratory
Judgment Act as 'an enabling Act, which confers a discretion on the courts rather
than an absolute right upon the litigant'" Wilton, 515 U.S. at 287, 115 S.Ct. 2137
(quoting Pm£»/?c Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 241, 73 S.Ct.

236, 97 L.Ed. 291 (1952)). In emphasizing the imiqueness of the Declaratory
Judgment Act, the Court commented that its "textual commitment to discretion, and
the breadth of leeway we have always understood it to suggest, distinguish the
declaratory judgment context from other areas of the law in which concepts of
discretion surface." Id. at 286-87, 115 S.Ct. 2137. Therefore, in a declaratory
judgment action, a federal court has broad discretion to abstain from exercising
jurisdiction even ifthere are no exceptional cireumstances as articulated in Colorado
River.See Scottsdalelns. Co. v. DetcoIndus.,Inc.,426 F.3d 994,997(8th Cir.2005).
Royal Indent. Co. v. Apex Oil Co., 511 F.3d 788, 792-93 (8th Cir. 2008).

Accordingly,federal courts possess broad discretion to abstaui from exercising jurisdiction
over declaratory judgment lawsuits. See Wilton, 515 U.S. at 289 (stating district court Brillhart
abstention decisions are reviewed only for abuse ofdiscretion). And where there exists a "parallel"
state court action to the federal declaratoryjudgment action, and the federal ease involves questions

of state law, the district court's discretion is at its peak due to principles offederalism and comity.
See Lexington Ins. Co. v. Integrity Land Title Co., 721 F.3d 958,967-68(8th Cir. 2013)(detailing
the difference in court discretion when there is a parallel state court proceeding). However, the
present case is not the type for which Brillhart/Wilton abstenti,on is warranted. Avera does not

request a declaratoryjudgment, the Minnesota case is not a parallel state court proceeding,' South

'The Eighth Circuit has taken the position that, if the state court proceeding is not parallel
to the declaratory judgment action in federal court, the court's broad discretion to abstain under
Brillhart/Wilton is greatly reduced.See Scottsdale ins. Co. v. Detco Indus.Inc.,426 F.3d 994,998-99
(8th Cir. 2005); Lexington, 721 F.3d at 968.

Dakota hospital lien law is at issue here and the substantive law at issue in the Minnesota action is
Minnesota contract and tort law.^

Colorado River Abstention Doctrine

EMC maintains that this Court should abstain because Avera's suit parallels the Bootsmas'
Minnesota suit and because "exceptional circumstances" warrant application of Colorado River

abstention. Avera maintains the federal and state cases are not parallel and that, even if they were,
there are no exceptional circumstances warranting abstention.

The Supreme Court has made it clear that "[a]bstention from the exercise of federal
jurisdiction is the exception, not the rule." Colorado River,424 U.S. at 813. Before a federal court

can abstain under the Colorado River doctrine,there must be(A)parallel proceedings in federal and
state court and(B)exceptional circumstances warranting abstention. See id. at 742.

The threshold issue under the Colorado River abstention doctrine is whether parallel
proceedings were pending in the Minnesota state court at the time this case was removed to federal
district court. Fru-Con Constr. Corp. v. Controlled Air, Inc., 574 F.3d 527, 537 (8th Cir. 2009)
(citing Scottsdale Ins. Co. v. Detco Indus., Inc., 426 F.3d 994, 996 (8th Cir. 2005)). The Eighth
Circuit requires more precision than "substantially similar parties litigating substantially similar
issues" in determining whether state and federal proceedings are parallel for purposes of the
Colorado River doctrine. Fru-Con, 51A F.3d at 535. The Eighth Circuit has clarified that:
The pendency of a state claim based on the same general facts or subject matter as
a federal claim and involving the same parties is not alone sufficient. Rather, a
substantial similarity must exist between the state and federal proceedings, which
similarity occurs when there is a substantial likelihood that the state proceeding will
fully dispose of the claims presented in the federal court. This analysis focuses on
matters as they currently exist, not as they could be modified. Moreover,in keeping

^ Federal district courts sitting in diversity must apply the choice-of-law rules ofthe state in
which the court sits.Domaw V. jE'meraowE'/ec. Co.,23 F.3d 1354,1358(8th Cir. 1994). Atthis point
neither party has argued that Minnesota rather than South Dakota law would apply in this lien
enforcement action where a South Dakota hospital provided services in South Dakota.
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with the Supreme Court's charge to abstain in limited instances only, jurisdiction
must be exercised ifthere is any doubt as to the parallel nature ofthe state and federal
proceedings.
Id. (internal citations omitted).

EMC argues that the identical issues are dispositive ofboth actions and that the Minnesota
proceedings will fully dispose ofall claims presented in federal court. According to EMC,"IfAvera
McKennan has no right to collect because ofits refusal to submit the claim to Blue Cross,then it has

no valid lien because the Bootsmas obligation to Avera McKennan has been extinguished."(Doc.
21 at 8.)

The Eighth and Fourth Circuit Courts have considered abstention in somewhat analogous
circumstances. In Judge Beam's plurality opinion in Fru-Con, the Eighth Circuit considered the
question ofwhether a lien foreclosure action in state court was parallel to a separate action in federal
court seeking contract damages. There, a contractor and a subcontractor entered into an agreement
that contained law and forum selection clauses requiring all disputes between the parties to be
governed by Missouri law and to be brought in Missouri state court or a federal district court in

Missouri. 574 F.3d at 530. A dispute arose between the parties, the subcontractor recorded a
construction lien on March 1, 2007, and then filed suit in Nebraska state court to foreclose the

construction lien. Id. at 530-31. However,the contractor had previously filed a breach of contract
claim against the subcontractor in a federal district court in Missouri. The contractor also filed a

counterclaim in the Nebraska state court action alleging breach ofcontract. The subcontractor filed
a motion to abstain or dismiss in federal court, and the contractor filed a motion to dismiss or stay

in state court. The federal district court in Missouri granted the motion to abstain and dismissed the
contractor's breach of contract action, but only after the Nebraska state court retained jurisdiction
over the lien foreclosure action. Id. at 532.

Judge Beam found that the federal and state court actions were not parallel for purposes of
the Colorado River abstention doctrine because the subcontractor sought to foreclose a lien, while

the contractor sought common law contract damages.^
In sum,the state lien foreclosure proceeding will not dispose ofthe federal contract
action and the sources oflaw,remedies sought, elements ofproof,review on appeal,
and events giving rise to each cause of action are different. Additionally, [the
subcontractor] has never asserted the lien foreclosure claim in the federal district
court. So,as to the lien foreclosure,there is neither similar claims nor similar parties
in both state and federal courts as required for parallelism.
Fru-Con, 574 F.3d at 537. Judge Beam further found that even though the contractor had filed a
counterclaim in the Nebraska state court action, which made the breach of contract claim pending
in both actions, parallelism still did not exist; there was nothing in the federal district court record
that concerned the counterclaim,the subcontractor conceded that the counterclaim was not filed with

the federal district court, and it was not mentioned in the briefs to the appellate court. Id. at 537 n.
8. Further, at the time the federal district court abstained, the counterclaim was not yet filed in state
court. Finally, Judge Beam noted that parallelism did not exist because "enforcement, or not, ofthe
contractual forum selection clause was a federal court procedural matter governed by federal law."
Id. at 538. In order for parallelism to exist between the state and federal proceedings,"[t]he state
court proceeding must present to the federal court the same issues, not governed byfederal law,

between the same parties." Id. (internal citations omitted)(emphasis in original).

Similarly, in Gannett Co. v. Clark Const. Grp., Inc., 286 F.3d 737, 740(4th Cir. 2002), the
Fourth Circuit held that, although Gannett and Clark were both parties in a federal contract action

^ The other two judges on the panel agreed that a lien foreclosure action and a suit for breach
ofcontract are not parallel proceedings for purposes ofthe Colorado River abstention doctrine. Id.
at 540-41 (Bye, J., concurring; Shepherd, J., dissenting). Judges Bye and Shepherd decided,
however, that the non-parallel state and federal proceedings became parallel when the contractor
filed the breach of contract counterclaim in state court. Judge Bye concurred with Judge Beam's
reversal ofthe district court only because he concluded that the district court abused its discretion
by abstaining under the Colorado River factors. In contrast. Judge Shepherd in his dissent voted to
affirm the district court's decision that the case presented the type ofexceptional circumstances that
warrant abstention under Colorado River in order to avoid piecemeal litigation.

and a state lien action,the actions"involve[d] different issues with different requisites ofproof."Id.
at 742. The court noted that the lien action required the equity court to ascertain the validity and
amount of the imderlying debt, which involved establishing that a contract existed for the work
performed.Id. The"enforcement ofthe mechanic's lien[wa]s not,however,dependent on questions
ofbreach ofcontract, which[could] be resolved only through the separate breach ofcontract action,
in that [the parties] had not asserted their breach of contract claims in the[]lien action." Id. The

Fourth Circuit further noted that the breach of contract action and the lien action sought different
remedies: the lien action sought a lien and foreclosure on the property, whereas the breach of
contract action sought compensatory damages for the alleged breach of contract. Id. at 743.

Applying the reasoning ofthe Eighth and Fourth Circuits on parallelism to the present case,
Avera's federal court lien action and the Bootsmas' Minnesota state court breach ofcontract action

are not parallel. The lien action is based on only one issue: enforeement of a hospital lien in the
amount of $142,026.26, plus interest, pursuant to SDCL § 44-12-8. The state court action is
premised on Minnesota breach of contract law and tort law of slander upon credit and reputation.
While EMC believes that Avera will be estopped from enforcing its statutory lien if it is found to
have breached the contract with BCBS,the lien action still raises an issue not raised in the breach
ofcontract action. Thus,there is substantial doubt that resolution ofthe state court breach ofcontract

action would result in a complete resolution ofthe federal lien action. In such a situation, the issues

in the two actions cannot be considered parallel and Colorado River abstention is not appropriate.
Fru-Con, 574 F.3d at 535 ("Jurisdiction must be exercised if there is any doubt as to the parallel
nature ofthe state and federal proceedings.").

Even if the two cases were parallel, "exceptional circumstances" do not exist to justify
abstention. There are essentially six non-exhaustive factors to be considered in determining whether
exceptional circumstances warrant abstention under the Colorado River doctrine:
(1) whether there is a res over which one court has established jurisdiction,(2)the
inconvenience of the federal forum,(3) whether maintaining separate actions may
result in piecemeal litigation, unless the relevant law would require piecemeal
litigation and the federal court issue is easily severed,(4)which case has priority-not

necessarily which case was filed first but a greater emphasis on the relative progress
made in the cases,(5) whether state or federal law controls, especially favoring the
exercise ofjurisdiction where federal law controls, and(6)the adequacy ofthe state
forum to protect the federal plaintiffs rights.
Fru-Con,574 F.3d at 534 {citing Mountain Pure,LLC v. Turner Holdings, LLC,439 F.3d 920,926

(8th Cir. 2006)). These factors are not to be applied as a "mechanical checklist." Moses H. Cone
Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 16 (1983); Federated Rural Flee. Ins.
Corp. V. Ark. Flee. Cooperatives, Inc., 48 F.3d 294, 297(8th Cir. 1995). Instead, the factors must
be carefully balanced with the balance weighed heavily in favor ofthe exercise ofjurisdiction.

1)RES OR PROPERTY OVER WfflCH ONE COURT HAS ESTABLISHED JURISDICTION

EMC asserts that the res is the money held in the lawyer's trust account in Minnesota. But
Avera is not asking for the payment to come from those funds; instead it seeks enforcement of its

lien directly from EMC for its failure to secure Avera's hospital lien. This factor does not weigh in
favor of abstention.

2)INCONVENIENCE OF THE FEDERAL FORUM

The parties agree that this factor is neutral because neither forum is inconvenient.

3)PIECEMEAL LITIGATION

The most predominant factor for the court to consider is whether retaining jurisdiction will
result in piecemeal litigation.Federated RuralFlee.,48 F.3d at 297(citing

77. Cone,460 U.S.

at 16, 21)."'Piecemeal litigation occurs when different tribunals consider the same issue, thereby

duplicating efforts and possibly reaching different results.'"Keating v. Univ. ofS.D.,386 F.Supp.2d
1096,1103(D.S.D.2005){qpotingLaDukev. BurlingtonN. R.R. Co.,879F.2d 1556,1560(7thCir.
1989)). As noted above,the federal court action will not resolve the same issues as the state action

and therefore abstention will not avoid piecemeal litigation. The enforceability ofAvera's statutory
lien against EMC is a relatively clear-cut issue compared to the contract and tort issues present in
the Minnesota state court action. Because the state action does not include Avera's statutory lien

claim asserted in the federal litigation, the state forum is not adequate to protect that potential

recovery. Accordingly, this factor weighs in favor of retaining jurisdiction.

EMC contends that the courts could reach different conclusions on identical issues. But the

only issue before this Court is the enforcement of Avera's statutory lien pursuant to South Dakota

law, an issue that is not pending in Minnesota state court. Even if this Coxirt were to find that
Avera's statutory lien is enforceable and the Minnesota court were to find that Avera waived its right
to collect from the Bootsmas' settlement proceeds, those findings are not necessarily inconsistent,
and the consequences would not be such that it would rise to the level of "extraordinary
circumstance" warranting abstention."'[T]he potential for conflict' between a federal action and a
parallel state action, standing alone, does not 'justify staying ofthe exercise offederal jurisdiction'
under the Co/orac?o

abstention doctrine."

iSyi'. Corp. v. ColonialDirectFin. Group,

Inc., 188 F.Supp.2d 1102, 1118-19 (N.D.Iowa 2002){quoting Federated Rural Elec., 48 F.3d at
297). This factor does not weigh in favor of abstention.

4)PRIORITY

The priority of the cases arguably weighs slightly in favor of abstention because the

Minnesota case has reached the summaryjudgment stage. Jonathan Ellis, Avera Asks Judge to Seal
Documents in Billing Dispute Case, July 20, 2018, SlOUX FALLS Argus Leader. The state court

action in Minnesota is more complex and likely will take longer to resolve. This factor is neutral and
does not weigh in favor of or against abstention.

5)STATE OR FEDERAL LAW CONTROL

When federal law controls most ofthe parties' claims,that factor is a"major consideration"
against abstention. Cedar Rapids Cellular Tel., L.P. v. Miller, 280 F.3d 874, 879 (8th Cir. 2002).
This is not a consideration in this case because South Dakota substantive law will apply to Avera's

statutory lien claim and Minnesota law will apply to the Bootsmas' Minnesota breach of contract
case.This case is in federal court solely because EMC removed it based on diversityjurisdiction,and

there is no federal substantive law at issue."[T]he fact that state law governs this case does not

provide a reason for abstention."Federated RuralElec.,48 F.3d at 299.This Cotui regularly decides
questions of South Dakota law. EMC has not shown any reason that the enforceability ofAvera's
hospital lien pursuant to South Dakota law would be better decided by the Minnesota state court.
This factor is not afforded any weight under the circumstances.

6)ADEQUACY OF STATE FORUM TO PROTECT FEDERAL PLAINTIFF'S RIGHTS
The claim in this federal proceeding is based on South Dakota law, and it is the type oflaw

routinely applied by this federal court in exercising diversity jurisdiction. The parties' interests are
adequately protected here and this factor does not create the extraordinary circumstance necessary
for abstention.

In conclusion,after considering and carefully balancing the Colorado River factors,the Court

finds that exceptional circumstances do not exist that warrant abstention. The balance weighs in
favor of exercising federal court jurisdiction. Accordingly,

IT IS ORDERED that EMC's Motion to Dismiss(doc. 11)and Motion for Hearing
(doc. 15) are denied.
Dated this

day of September, 2018.
BY THE COURT:

iwrence L. Piersol

nited States District Judge
ATTEST:

MATTHEW W.THELEN,CLERK

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