PrevMED, Inc. et al v. First Continental Life & Accident Insurance Co. et al
Filing
67
MEMORANDUM OPINION AND ORDER denying 64 Motion for Leave to File Original Counterclaim and Amend Scheduling Order (Discovery due by 8/10/2016. Designation of Rebuttal Expert Witnesses due by 8/24/2016. Dispositive Motion Filing due by 9/29/2016.) (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
United States District Court
Southern District of Texas
ENTERED
July 08, 2016
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
PREVMED, INC. ,
MID-AMERICA HEALTH, INC.,
and MID-AMERICA PROFESSIONAL
GROUP, P.C.,
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Plaintiffs,
v.
MNM-1997, INC. d/b/A
ORAQUEST DENTAL PLANS,
FIRST CONTINENTAL LIFE &
ACCIDENT INSURANCE CO.,
d/b/a FCL DENTAL,
JAMES AMOS TAYLOR, and
SEUNG YOP "PAUL" KWAUK,
Defendants.
David J. Bradley, Clerk
CIVIL ACTION NO. H-15-2856
MEMORANDUM OPINION AND ORDER
Plaintiffs,
PrevMED,
Inc.
( "PrevMED") ,
Mid-America Health,
Inc.
( "MAH'') , and Mid-America Professional Group,
have
brought
Oraquest
suit
Dental
against
Plans
defendants,
("OraQuest"),
MNM-1997,
First
P. C.
( "MAPG") ,
Inc.,
Continental
d/b/a
Life
&
Accident Insurance Co., d/b/a FCL Dental ( "FCL") , James Amos Taylor
("Taylor"),
and Seung Yop "Paul" Kwauk
("Kwauk"),
arising from
termination of a contract for the provision of dental services to
patients at skilled nursing facilities
("SNFs").
Pending before
the court is Defendant First Continental Life Accident Insurance
Co.'s Amended and Supplemental Motion for Leave to File Original
Counterclaim and Amend Scheduling Order (Docket Entry No. 64).
For
the reasons explained below, the defendants' motion to amend their
pleadings to add original counterclaims will be denied, but because
plaintiffs agree to extend by sixty
(60)
days the deadlines for
completing discovery and filing dispositive motions, the existing
scheduling orders will be amended accordingly.
I.
A.
Factual and Procedural Background
Factual Background
Plaintiff MAPG is a clinician-owned professional group that
employs dentists and dental hygienists to provide dental services
to patients at SNFs.
dental
services
to
Plaintiff PrevMED markets and sells MAPG's
SNFs
and
their
Plaintiff
residents.
provides dental practice management services for MAPG.
MAH
PrevMED,
MAPG, and MAH market themselves to SNFs under the PrevMED brand.
In March 2011 PrevMED entered into a contract
with
defendant
organization
the
("HMO").
underwriting
a
Oraquest,
registered
Under the Contract,
insurer
for
insurance
health
("Contract")
maintenance
Oraquest agreed to be
policies
issued
to
SNF
residents that covered the on-site dental health services provided
by PrevMED.
Plaintiffs allege that
PrevMED is not a licensed insurer and does not issue the
Policy.
Rather, the Policy is underwritten by an
insurer.
SNF patients who wish to purchase the Policy
enter into a contract with the insurer.
According to
that contract, the insurer receives premiums from SNF
patients, a portion of which is distributed to PrevMED
for the treatment of the patients. The patients then are
-2-
treated by MAPG clinicians
covered by their policies. 1
and
have
those
services
From April 2011 until September 30, 2014, MAPG and its clinicians
were
providers
in
OraQuest' s
HMA network,
enabling
PrevMED
to
receive reimbursement for services rendered. 2
Plaintiffs allege that PrevMED and OraQuest operated under the
Contract for over three years, during which OraQuest paid PrevMED
for its services according to the compensation schedule included in
the Contract.
On September 29,
2014, however,
President of defendant FCL and CEO of OraQuest,
that,
as of October 1,
2014,
serves that MAPG rendered.
from
the
Texas
informed PrevMED
OraQuest would no longer pay for
Plaintiffs allege that, by terminating
the Contract without sufficient notice,
PrevMED
defendant Taylor,
market,
at
OraQuest effectively cut
least
temporarily,
because
PrevMED could not immediately negotiate inclusion in another HMO
network.
Plaintiffs
allege
that
without
OraQuest' s
payments,
PrevMED's only source of compensation for services was directly
from SNF patients,
Because
PrevMED
who would be required to pay out-of-pocket.
could
not
afford
to
provide
services
without
compensation on a prolonged basis, it was forced to cease all Texas
operations on October 1, 2014.
1
Plaintiffs'
2
Id. at 7-8 ':II 16.
Amended Complaint,
':II 15.
-3-
Docket
Entry No.
14,
p.
7
Plaintiffs allege that in the months preceding the termination
of the Contract defendants embarked on
coup," with the aim of "cut[ting]
over PrevMED's business. 3
achieve this,
a
"carefully orchestrated
out the middleman" and taking
According to the amended complaint, to
OraQuest approached several PrevMED clinicians and
urged them to violate their contractual obligations to PrevMED by
providing dental services to PrevMED-contracted SNFs as part of a
new OraQuest
provider
team.
Taylor,
and defendant Kwauk,
member
of
employees
OraQuest's
and
OraQuest's
falsely
affiliation
board
Plaintiffs
that
OraQuest,
Chief Operating Officer of FCL and
directors, 4
of
represented
with
allege
PrevMED
contacted
PrevMED
that
the
termination
did
not
affect
of
PrevMED
employees' provision of services, and that dentists and hygienists
should continue with their regularly-scheduled visits.
Plaintiffs
allege that Ora Quest also made false statements to SNFs claiming
continued affiliation with PrevMED and causing SNFs to believe that
OraQuest had "bought out PrevMED" and that OraQuest would be "using
the same
service providers. " 5
Plaintiffs
allege that OraQuest
requested PrevMED's marketing and scheduling materials and a list
a facilities served by PrevMED providers so that it could pass
itself off as PrevMED or an affiliate, mimic the PrevMED services,
3
Id.
at p. 2.
4
Id.
at 4 err 7.
5
Id.
at 17 err 35.
-4-
send
OraQuest
providers
to
PrevMED
appointments,
PrevMED's role in their existing business relationship.
and
usurp
Plaintiffs
allege that FCL officers Taylor and Kwauk were key instigators of
the
alleged misrepresentations,
and
that many of
the
acts
and
misrepresentations alleged were made by FCL employees from their
FCL email accounts. 6
Plaintiffs
similarly
used
allege
false
that
on
a
pretenses
different
to
usurp
occasion,
the
OraQuest
business
contractual counterparty: Group Benefit Services,
Inc.
of
a
("GBS").
Plaintiffs allege that from April 2011 until September 2013, GBS
served as OraQuest's third-party administrator.
terminating
its
"audit" of GBS' s
relationship
records,
with
GBS,
OraQuest
Shortly before
conducted
an
requesting via emails sent on May 2,
2013, and May 3, 2013, a list of all members since inception of the
policy, a list of all nursing home facilities, monthly disbursement
schedules since inception, copies of all monthly bank statements,
sample documents submitted to the processing center and various
other
categories
of
information.
Once
OraQuest
obtained
this
information- which was necessary for Ora Quest to take over GBS's
third-party administrator role
OraQuest terminated its third-
party administrator arrangement with GBS.
6
Id. at 20-23
~~
42-44.
7
Id. at 23-25
~~
45-47.
-5-
7
B.
Procedural Background
On November
7,
2014,
plaintiffs
filed
suit
in the
Dallas
Division of the Northern District of Texas against OraQuest for
breach of contract, and against all the defendants for violation of
the
Lanham
Influenced
§
Act,
and
15
U.S.C.
Corrupt
1125,
§
Organizations
violation
Act
the
Racketeer-
("RICO"),
18
U.S.C.
1962(c), aiding and abetting breach of fiduciary duty, tortious
interference with existing and prospective contractual relations,
"passing
off,"
misappropriation,
civil
conspiracy,
and
unjust
enrichment (Docket Entry No. 1).
On December 19, 2014, defendants filed Defendants' Unopposed
Motion to Extend Time to Respond to Plaintiffs' Complaint (Docket
Entry No. 8).
Defendants'
On the same day, the court entered an Order Granting
Unopposed
Motion
to
Extend
Time
to
Respond
to
Plaintiffs' Complaint that extended the response date to January
30, 2015 (Docket Entry No. 9).
On
January
30,
2015,
defendants
filed
Defendants'
Rule
12 (b) (6) Motion to Dismiss (Docket Entry No. 10).
On
February
20,
2015,
plaintiffs
filed
Plaintiffs'
First
Amended Complaint (Docket Entry No. 14), adding a cause of action
against all the defendants for violation of the Texas Insurance
Code
§
541, reasserting RICO claims against Taylor and Kwauk, and
reasserting
all
the
other
causes
of
action
original complaint (Docket Entry No. 14).
-6-
alleged
in
their
On March 12,
2015,
Motion to Extend Time
Complaint
defendants
filed
to Respond to
(Docket Entry No.
17),
Defendants'
Plaintiffs'
Unopposed
First Amended
in which defendants urged the
court to deem as timely filed a motion to dismiss attached thereto.
The same day the court entered an Order denying without prejudice,
defendants'
initial January 30,
2015, motion to dismiss
(Docket
Entry No. 18), and an Order Granting Defendants' Unopposed Motion
to Extend Time to Respond to Plaintiffs'
(Docket Entry No.
19) ,
First Amended Complaint
directing the clerk of court to docket
separately Defendants' Rule 12(b) (6) Motion to Dismiss Plaintiffs'
Defendants' newly
First Amended Complaint and Brief in Support.
filed motion sought dismissal of the RICO claims asserted against
Taylor and Kwauk,
and the Texas Insurance Code claims asserted
against all of the defendants (Docket Entry No. 20).
On April
13,
2015,
the
court
entered
a
Scheduling
Order
pursuant to which motions to amend pleadings and join parties were
due by September 11, 2015, discovery was to be completed by May 20,
2016,
and dispositive motions
were
to be
filed
July
29,
2016
(Docket Entry No. 25).
On July 10,
2015,
the court granted defendants'
motion to
dismiss the RICO claims asserted against Taylor and Kwauk, and the
Texas Insurance Code claims asserted against all of the defendants
(Docket Entry No. 35).
-7-
On July 24, 2015, defendants filed a motion to transfer this
action from the Dallas Division of the Northern District of Texas,
to the Houston Division of the Southern District of Texas (Docket
Entry No.
36).
Defendants also filed an Answer to Plaintiffs'
First Amended Complaint on the same day (Docket Entry No. 38).
On September 30, 2015, the court granted defendants' motion to
transfer (Docket Entry No. 43), and on October 1, 2015, this case
was assigned to this court
(Docket Entry No.
46).
On October 2,
2015,
the court entered an Order stating that "[t] he April 13,
2015,
Scheduling Order
(Docket Entry No.
25)
will
continue
in
effect" (Docket Entry No. 47).
On February 16,
2016,
the parties filed a
Joint Motion to
Amend Scheduling Order (Docket Entry No. 55), asking the court to
extend the deadline$ as follows:
(1) disclosure of expert witnesses
from March 11, 2016, to April 22, 2016;
expert
witnesses
from
April
15,
(2) disclosure of rebuttal
2016,
to
May
27,
2016;
and
(3) completion of discovery from May 20, 2016, to June 10, 2016.
The court granted the motion the same day (Docket Entry No. 56).
On April 26, 2016, FCL filed Defendant First Continental Life
Accident
Insurance
Co.'s
Motion
for
Leave
Counterclaim and Amend Scheduling Order
to
File
Original
(Docket Entry No.
58) ,
seeking to assert original counterclaims for fraudulent inducement,
fraudulent
misrepresentation,
breach
interference with existing contracts.
-8-
of
contract,
Plaintiffs
and
tortious
responded on
May 17,
2016,
Defendants'
by filing
Plaintiffs'
Response
in Opposition to
Motion for Leave to File Original Counterclaim and
Amend Scheduling Order (Docket Entry No. 61).
On May 16,
2016,
defendants
filed an Unopposed Motion to
Modify Scheduling Order to Extend Deadline to Designate Rebuttal
Experts (Docket Entry No. 59), from May 27, 2016, to June 24, 2016,
which the court granted the next day (Docket Entry No. 60).
On June 10,
completed -
2016 -
the date by which discovery was to be
FCL filed Defendant First Continental Life Accident
Insurance Co.'s Amended and Supplemental Motion for Leave to File
Original Counterclaim and Amend Scheduling Order
No. 64).
(Docket Entry
This motion seeks leave to file original counterclaims
for fraudulent inducement, fraudulent misrepresentation, breach of
contract, and tortious interference with existing contracts, and
also asks the court to extend the deadlines
discovery from June
10 to August
10,
2016,
for
completion of
and to extend the
deadlines for filing dispositive motions and challenges to experts
from July 29 to September 29, 2016.
Plaintiffs responded on June 27, 2016, by filing Plaintiffs'
Response in Opposition to Defendant First Continental Life and
Accident Insurance Company's Amended and Supplemental Motion for
Leave to File Original Counterclaim and Amend Scheduling Order
(Docket Entry No. 66), opposing defendants' motion to amend their
pleadings to file original counterclaims, but agreeing to extend
the
deadlines
for
completing
discovery
motions by sixty (60) days.
-9-
and
filing
dispositive
II.
Where
deadline
a
Standards of Review
scheduling order
for
amendments
to
has
been
entered establishing a
pleadings
Federal
Rule
of
Civil
Procedure 15(a) provides the standard for requests to amend that
are filed before the scheduling order's deadline has expired, and
Federal Rule of Civil Procedure 16(b)
requests
to amend that
deadline has expired.
Motor Co.,
are
filed
provides the standard for
after the
scheduling order's
Marathon Financial Ins., Inc., RRG v. Ford
591 F.3d 458,
470
(5th Cir.
2009);
Fahim v. Marriott
Hotel Services, Inc., 551 F.3d 344, 348 (5th Cir. 2008).
Rule 15(a) provides that "the court should freely give leave
when justice so requires."
Fed. R. Civ. P. 15(a) (2).
"A decision
to grant leave is within the discretion of the court, although if
the court 'lacks a substantial reason to deny leave, its discretion
is not broad enough to permit denial.'"
State of Louisiana v.
Litton Mortgage Co., 50 F.3d 1298, 1302-03 (5th Cir. 1995)
(quoting
Jamieson By and Through Jamieson v. Shaw, 772 F.2d 1205, 1208 (5th
Cir. 1985)).
Rule 15(a) provides "a strong presumption in favor of
granting leave to amend."
Financial Acquisition Partners, LP v.
Blackwell,
291
440
F.3d
278,
(5th
Cir.
2006).
Nevertheless,
"[d]enial of leave to amend may be warranted for undue delay, bad
faith
or
failure
dilatory motive
to
cure
on
deficiencies,
the
part
undue
of
prejudice
party, or futility of a proposed amendment."
-10-
the movant,
to
the
repeated
opposing
United States ex rel.
Steury v. Cardinal Health, Inc., 625 F.3d 262, 270 (5th Cir. 2010)
(citing Foman v. Davis, 83 S.Ct. 227, 230 (1962)).
"Rule 16(b)
entered,
it
provides that once a scheduling order has been
'may be modified only for good cause and with the
judge's consent.'"
P. 16 (b) (4)).
Marathon, 591 F.3d at 470 (quoting Fed. R. Civ.
"The good cause standard requires the 'party seeking
relief to show that the deadlines cannot reasonably be met despite
the
diligence
of
the
party
needing
the
extension.'"
S&W
Enterprises L.L.C. v. SouthTrust Bank of Alabama, NA, 315 F.3d 533,
535
(5th Cir.
Federal
2003)
Practice
(quoting
and
6A Charles Alan Wright,
Procedure
§
1522.1
(2d
al.,
1990)).
ed.
et
To
determine whether the moving party has established good cause,
courts consider four factors:
to timely move
amendment;
(4)
for
leave
"(1) the explanation for the failure
to
amend;
( 2)
the
importance
of the
(3) potential prejudice in allowing the amendment; and
the availability of a continuance to cure such prejudice."
Marathon, 591 F.3d at 470 (quoting Southwestern Bell Telephone Co.
v. City of El Paso, 346 F.3d 541, 546 (5th Cir. 2003).
establishes
good cause
to
extend the
scheduling
analyze the motion to amend under Rule 15(a).
If a movant
order,
courts
S&W Enterprises, 315
F.3d at 535.
III.
FCL
fraudulent
seeks
leave
inducement,
to
Analysi.s
assert
fraudulent
-11-
original
counterclaims
misrepresentation,
breach
for
of
contract, and tortious interference with existing contracts, and
also asks
the court to extend the deadlines
for
completion of
discovery from June 10, 2016, to August 10, 2016, and for filing
dispositive motions from July 29, 2016, to September 29, 2016.
FCL
argues that its requests to file original counterclaims and extend
deadlines meet the requirements of both Rule 15 (a)
and 16 (b) . 8
Plaintiffs urge the court to deny FCL's motion because FCL dies not
meet Rule 16(b)'s requirement to show good cause. 9
A.
Rule 16(b) (4) Applies
The record before the court shows that the scheduling order
entered on April 13, 2015, established a deadline of September 11,
2015, to file motions seeking leave to amended pleadings
(Docket
Entry No. 25); that defendants answered plaintiffs' First Amended
Complaint on July 24,
2015
(Docket Entry No.
38);
and that the
court's scheduling order was amended twice thereafter on February
16, 2016, and on May 17, 2016 (Docket Entry Nos. 56 and 60), but
that neither amendment changed the deadline to amend pleadings.
Nevertheless,
on June 10,
2016 -
the date discovery was to be
8
Defendant First Continental Life Accident Insurance Co.'s
Amended and Supplemental Motion for Leave to File Original
Counterclaim and Amend Scheduling Order ("FCL's Amended Motion to
File Original Counterclaim"), Docket Entry No. 64, p. 4 ~ 8.
9
Plaintiffs'
Response in Opposition to Defendant First
Continental Life and Accident Insurance Company's Amended and
Supplemental Motion for Leave to File Original Counterclaim and
Amend Scheduling Order ("Plaintiffs' Response in Opposition"),
Docket Entry No. 66, p. 1.
-12-
completed - FCL filed the pending motion for leave to file original
counterclaims
seeking
to
add
four
counterclaims,
extend
the
deadline for discovery from June 10 to August 10, 2016, and extend
the
deadline
September 29,
for
filing
2016.
dispositive
motions
from
July
29
to
Because the deadline for filing motions to
amend the pleadings expired nine months earlier on September 11,
2015,
FCL must show good cause to amend the court's scheduling
order.
Fed. R. Civ. P. 16(b) (4).
See Southwestern Bell, 346 F.3d
at 546; S&W Enterprises, 315 F.3d at 535.
B.
FCL Fails to Show Good Cause
1.
FCL Has Provided No Reasonable Explanation for Delay
FCL's amended motion for leave to file original counterclaims
states that during the initial months after this action was filed,
defendants channeled their resources towards defeating plaintiffs'
RICO claims and having the action transferred to this court. 1 °
states
that
once
the
defendants
started taking
depositions
FCL
in
October of 2015,
it became clear that Plaintiffs'
breach of their
agreement with OraQuest, in fact, involved perpetuating
a fraud on OraQuest.
Much of the evidence cited in
OraQuest' s proposed original counterclaim is based on
Plaintiffs' internal communications produced in documents
in November and December 2015 (only four to five months
ago) and testimony of Mr. Murphy, taken on February 3,
2016 (only two months ago).
Thus, OraQuest now seeks
1
°FCL's Amended Motion to File Original Counterclaim, Docket
Entry No. 64, p. 3 ~~ 1-3.
-13-
leave from this Court to file the original counterclaim
attached hereto as Exhibit A. 11
FCL adds that
5.
On April 26, 2016, OraQuest filed its motion for
leave to file original counterclaim and amend
scheduling
order
[Dkt.
58],
which
included
counterclaims setting forth the claims arising from
OraQuest's good faith belie[f] that Plaintiffs had
perpetrated a fraud on OraQuest.
6.
On May 5, 2016, OraQuest issued a subpoena on
Ms. Anna Krenzien for a deposition to take place on
her first available date on June 8, 2016.
On June
8, 2016, OraQuest deposed Ms. Anna Krenzien, and
learned for the first time that PrevMED had not
merely
been
intentionally
misrepresenting
OraQuest's
dental
policy,
but
was
actually
partnering with a competing dental provider, Mobile
Dental, in order to avoid providing the services it
had contracted to provide. Given that Ms. Krenzien
was only one of the liaisons between PrevMED and
Mobile Dental, she was only able to provide a
window into what appears to be a carefully designed
scheme to defraud OraQuest and even, potentially,
Medicaid. 12
Asserting that they "have no objection to a 60-day extension
of time during which Defendant[s] may conduct discovery related to
the allegations made by Krenzien and the subsequent delay of the
dispositive motion deadlines," 13 plaintiffs nevertheless urge the
11
Id. at
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