Victory Medical Center Craig Ranch, LP et al v. Blue Cross and Blue Shield of Alabama et al
REPORT AND RECOMMENDATIONS re 23 Motion to Dismiss filed by CareFirst of Maryland, Inc., 25 Motion to Dismiss filed by Group Hospitalization and Medical Services, Inc. The United States District Clerk shall serve a copy of this report and recommendation on all parties by electronic transmittal to all parties represented by attorneys registered as a filing user with the clerk of court, or by mailing a copy by certified mail, return receipt requested, to those not registered. Signed by Judge Richard B. Farrer. (wg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
NEIL GILMOUR III, TRUSTEE FOR
THE GRANTOR TRUSTS FOR
VICTORY MEDICAL CENTER CRAIG
RANCH,LP., ET AL.,
BLUE CROSS AND BLUE SHIELD OF
ALABAMA ET AL.,
REPORT AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE
To the Honorable United States District Judge Fred Biery:
This Report and Recommendation concerns the Motions to Dismiss and Alternative
Motions to Transfer filed by Defendants Carefirst of Maryland, Inc. (“CFMI”) and Group
Hospitalization and Medical Services, Inc. (“GHMSI”). See Dkt. Nos. 23 & 25. All pretrial
matters in this ERISA litigation, which also involves pendant state law claims, have been
referred to the undersigned for disposition pursuant to Rules CV-72 and 1(c) & (d) to Appendix
C of the Local Rules for the United States District Court for the Western District of Texas. See
Dkt. No. 90. The undersigned has authority to enter this report and recommendation pursuant to
28 U.S.C. § 636(b)(1)(B).
CFMI and GHMSI’s motions are the first two of seven Rule 12 motions filed by some of
the 67 defendants in this complex multi-party litigation. The plaintiffs in this action, referred to
herein as “the Victory Plaintiffs,” are seven hospitals; two are plaintiffs in their own names and
the remaining five are represented by a bankruptcy trustee. In their motions, CFMI and GHMSI
challenge the Court’s personal jurisdiction over them as well as the propriety of venue in this
district. They seek dismissal under Rules 12(b)(2) & (b)(3) of all claims against them or,
alternatively, that the claims asserted against them be transferred to the District of Maryland (for
CFMI) and the District of Columbia (for GHMSI). The two motions at issue also raise arguments
for dismissal under Rule 12(b)(6). These Rule 12(b)(6) arguments are mirrored in some of the
other five Rule 12 motions that have been filed in this case but are not presently at issue.
Matters are further complicated here by the fact that this is one of two closely related
actions filed in this district involving a request to recoup payments on claims submitted in
connection with the treatment of patients at Victory hospitals across Texas. The first action,
which is referred to U.S. Magistrate Judge Elizabeth S. Chestney, involves claims against Aetna
Life Insurance Company. See Gilmour et al. v. Aetna Life Ins. Co., No. 5-17-cv-510-FB-ESC
(W.D. Tex. filed Jun. 8, 2017). Shortly after filing suit against Aetna, the Victory Plaintiffs filed
this substantially similar action against 67 BCBS affiliates. Both cases are pending before the
same District Judge, and both involve a variety of ERISA-related claims as well as pendant
claims under the Texas Insurance Code and Texas common law. Judge Chestney recently issued
her report and recommendation addressing several issues closely related to some of the Rule
12(b)(6) issues raised in this case. See id. at Dkt. No. 23. Judge Chestney’s report and
recommendation also addresses Rule 12(b)(1) issues that are also implicated in this litigation,
although no Rule 12(b)(1) issues are raised in the two motions that are the subject of this report
and recommendation. All of this is to say that the undersigned’s recommendation regarding the
two motions at issue is made in light of the somewhat parallel proceedings in Aetna, and with the
understanding that further action in this litigation will very likely depend in large part on the
District Court’s ruling on Judge Chestney’s report and recommendation.
After considering CFMI’s and GHMSI’s Motions, Dkt. Nos. 23 & 25, the Response filed
by the Victory Plaintiffs, Dkt. No. 126, CFMI’s and GHMSI’s Reply, Dkt. No. 129, the Victory
Plaintiffs’ Sur-Reply, Dkt. No. 133, the pleadings, and the entire case file, the undersigned finds
that the Court has personal jurisdiction over Defendants CFMI and GHMSI. Based on the current
record, however, CFMI’s and GHMSI’s venue objections are well-taken. Accordingly, the
undersigned recommends that the District Court: (1) DENY CFMI’s and GHMSI’s Motions in
so far as they challenge the Court’s personal jurisdiction; (2) GRANT the Motions to the extent
they challenge venue but permit the Victory Plaintiffs an opportunity to amend the Complaint to
address this issue, as well as to cure or clarify additional allegations, as requested in their
omnibus Response; and (3) DISMISS AS MOOT CFMI’s and GHMSI’s Rule 12(b)(6) motions,
without prejudice to their later re-filing.
Finally, to assist the Court and the parties in navigating this complex multi-party
litigation—and in light of Judge Chestney’s Aetna report and recommendation currently pending
with the District Court—the undersigned offers some additional recommendations on how this
litigation can be most efficiently managed going forward, as discussed in greater detail below.
Factual and Procedural Background
Plaintiff Neil Gilmour is a bankruptcy trustee for five hospitals that offered specialized-
surgical services. Two additional hospitals are plaintiffs in their own names. Defendants are 67
distinct Blue Cross Blue Shield affiliates (collectively, “BCBS Defendants”) that provide
healthcare insurance to individuals across the country through plans they administer.1
According to the live Complaint, the Victory Plaintiffs provided out-of-network medical
treatment to various patients insured by plans administered by the BCBS Defendants. See
Some BCBS Defendants both issue and administer the plans. See Compl. ¶ 100.
Compl. ¶¶ 96, 98. As out-of-network providers, the Victory Plaintiffs did not have contracts with
the BCBS Defendants to accept payments for less than the usual and customary charges for
services provided to patients. Id. The BCBS Defendants, it is alleged, charged and received
higher insurance premiums from plan subscribers (also called plan “beneficiaries”) in exchange
for including out-of-network coverage in their plans. Id. The basic thrust of the Victory
Plaintiffs’ Complaint is that each of the BCBS Defendants failed to pay or underpaid out-ofnetwork claims submitted by the Victory Plaintiffs on behalf of approximately 1,863 individuals
who received treatment and were covered by BCBS plans. Id. ¶¶ 105-109. According to the
Complaint, those claims were assigned and transferred to the Victory Plaintiffs, and they now
seek recompense for these claims from the BCBS Defendants. See id. ¶ 92.
CFMI and GHMSI filed their motions on July 14, 2017, see Dkt. No. 23 & 25, and five
other BCBS Defendants followed suit a few months later with similar, although not identical,
motions, see Dkt. Nos. 60-61, 63-64, 98. Altogether, there are seven different motions to dismiss
pending in this case. Some of the BCBS Defendants, like CFMI and GHMSI, challenge the
propriety of venue in this district, see Dkt. Nos. 23, 25, 64,2 while others do not. Some BCBS
Defendants raise (in motions that are not the subject of this recommendation) Rule 12(b)(1)
issues such as whether the Victory Plaintiffs have standing to bring claims as assignees and
whether they retained the right to bring claims against the BCBS Defendants after confirmation
of their bankruptcy reorganization plan. See Dkt. Nos. 60, 61, 63. Other BCBS Defendants
(including CFMI and GHMSI, depending on the argument) raise other threshold issues such as
whether the Victory Plaintiffs’ ERISA § 1132(a)(1)(B) and breach-of-contract claims necessarily
Only BCBS of Arizona argues that a forum-selection clause contained in its plan merits
dismissal or transfer of the Victory Plaintiffs’ claims against it. See Dkt. No. 64. On February 14,
2018, the Victory Plaintiffs and BCBS of Arizona filed a joint stipulated motion for dismissal
with prejudice. See Dkt. No. 135.
fail for failure to identify the particular plan terms allegedly breached, see Dkt. Nos. 23, 25, 60,
61, 63, and whether the Victory Plaintiffs properly exhausted their claims under ERISA, see Dkt.
No. 60. A majority of these issues, or ones substantially similar to them, are addressed in Judge
Chestney’s report and recommendation that is pending before the District Court in Aetna.
Altogether, the result is an administratively complex duo of cases, with the present case
presenting a patchwork of occasionally repetitive, often overlapping issues and arguments
addressed in various different motions and replies and also addressed, or partially addressed, by
the pending report and recommendation in Aetna.
The goal of this recommendation is to address some initial issues raised in the first two of
the Rule 12 motions that were filed with the Court in this case, and then to set the stage for a
more manageable next phase of this litigation.
Personal Jurisdiction. The personal jurisdiction analysis here is governed by ERISA’s
national service-of-process provision. See 29 U.S.C. § 1132(e)(2). The seminal case in this
circuit on this provision—not brought to the Court’s attention by any of the parties—is Bellaire
General Hospital v. Blue Cross Blue Shield, 97 F.3d 822, 825 (5th Cir. 1996) (providing that
where an ERISA action “is brought in a district court of the United States . . . [,] process may be
served in any other district where a defendant resides or may be found”) (citing 29 U.S.C.
§ 1132(e)(2)). A number of “circuits have held that national service of process provisions confer
nationwide jurisdiction.” Med. Mut. of Ohio v. deSoto, 245 F.3d 561, 568 n. 4 (6th Cir. 2001)
(citing Bellaire and cases from the Seventh, Eighth, and Second Circuits). The Fifth Circuit is
one of those circuits, notwithstanding its expression of “grave misgivings” about ERISA’s
national service-of-process provision. Dale v. Ala Acquisitions, Inc., 203 F. Supp. 2d 694, 699
n.4 (S.D. Miss. 2002). To sum up:
[T]his court is bound to follow the Fifth Circuit’s reluctant holding from Bellaire
that, in ERISA cases, so long as a defendant has established minimum contacts
with the United States, he is subject to the personal jurisdiction of this court, and
may be served with process anywhere the statute permits . . . No Supreme Court
decision or an en banc decision of the Fifth Circuit has overruled . . . Bellaire.
Verizon Employee Benefits Comm. v. Jaeger, No. CIV.A.3:05CV1860L, 2006 WL 2880451, at
*3 (N.D. Tex. Sept. 28, 2006).
Because both CFMI and GHMSI indisputably have minimum contacts with the United
States, see, e.g., Decl. of Wanda Lessner, the Court’s exercise of personal jurisdiction over them
is proper. CFMI’s and GHMSI’s arguments concerning a lack of personal jurisdiction are
Venue. The live Complaint invokes only the general venue statute, 28 U.S.C. § 1391, and
alleges venue is proper in this district because “a substantial part of the events or omissions
giving rise to the claims occurred in this district.” Compl. ¶ 3. The Victory Plaintiffs, however,
have apparently abandoned that position and argue in response to the motion to dismiss, and in
favor of venue in this district, only under ERISA’s venue provision. See Resp. at 20; Sur-Reply
ERISA’s venue provision provides that “[w]here an action under this subchapter is
brought in a district court of the United States, it may be brought in the district where the plan is
administered, where the breach took place, or where a defendant resides or may be found.” 29
U.S.C. § 1132(e)(2). The Victory Plaintiffs do not argue that CFMI or GHMSI reside or
administer the plans at issue in this district, or that a breach of a plan took place in this district.
See Resp. at 20; Sur-Reply at 6. Therefore, to establish the propriety of venue in this district
under § 1132(e)(2), the Victory Plaintiffs need to plead facts that could establish that CFI and
GHMSI “may be found” in this district.
The Fifth Circuit does not appear to have addressed the circumstances under which a
defendant “may be found” in a judicial district for purposes of § 1132(e)(2). The Seventh and
Ninth Circuits, however, have held that a party “can be found in a judicial district if it has the
sort of ‘minimum contacts’ with that district that would support the exercise of personal
jurisdiction.” Waeltz v. Delta Pilots Retirement Plan, 301 F.3d 804, 808 (7th Cir. 2002) (citing
with approval Varsic v. U.S. District Court for the Cent. District of Cal., 607 F.2d 245, 248 (9th
Cir. 1979)). Several district courts in the Fifth Circuit have reached a similar conclusion. See,
e.g., Nieves v. Houston Indus., 771 F.Supp. 159, 161 (M.D. La. 1991); Sanders v. State St. Bank
& Tr. Co., 813 F. Supp. 529, 533 (S.D. Tex. 1993); Wallace v. Am. Petrofina, Inc., 659 F.Supp.
829, 831-32 (E.D. Tex. 1987). The undersigned is persuaded that a defendant “may be found” for
purposes of § 1132(e)(2) in a judicial district where it has minimum contacts.3
According to the Victory Plaintiffs, CFMI and GHMSI (along with the other BCBS
Defendants) “may be found” in Texas by virtue of their agency relationship with BCBS Texas.
See Resp. at 20; Sur-Reply at 6. Specifically, the Victory Plaintiffs allege that “[t]he Blue Cross
Entities regularly used Blue Cross Blue Shield of Texas as an agent/representative while dealing
with Victory. This included, without limitation, much of the verification of coverage and
benefits, pre-certifications, administration of claims and appeals, and benefit/payment
Although these district courts held that a defendant “may be found” in a jurisdiction in which
the court possesses personal jurisdiction, they reached this conclusion without the benefit of the
Fifth Circuit’s opinion in Bellaire and only after conducting a district-specific minimum contacts
analysis. It also bears mentioning that the Victory Plaintiffs do not base their minimum-contacts
analysis for venue purposes on ERISA’s national service-of-process provision, see Sur-Reply at
6, and the undersigned agrees that to do so would be improper. See, e.g., Waeltz 301 F.3d at 80809 (rejecting plaintiff’s argument that because ERISA provides for nationwide personal
jurisdiction, it also permits nationwide venue).
determinations described herein.” Compl. ¶ 95. “The actions of an agent may establish minimum
contacts over a principal.” McFadin v. Gerber, 587 F.3d 753, 761 (5th Cir. 2009). Accordingly,
the Victory Plaintiffs allege that the BCBS “Defendants are liable for these acts, omissions, and
misrepresentations of their agent/authorized representative, Blue Cross Blue Shield of Texas.”
Compl. ¶ 95. These allegations, which in this procedural posture are taken as true, see Broadway
Nat’l Bank v. Plano Encryption Techs., LLC, 173 F. Supp. 3d 469, 473 (W.D. Tex. 2016), suffice
to show minimum contacts between the BCBS Defendants (via their alleged agent) and the state
of Texas. But there still remains an outstanding venue issue.
The parties have neglected to consider that venue is district-specific. See 29 U.S.C.
§ 1132(e)(2) (authorizing venue in an ERISA action “in the district where the plan is
administered, where the breach took place, or where a defendant resides or may be found”)
(emphasis added). Blue Cross Blue Shield of Texas, the “agent/representative” upon which the
Victory Plaintiffs base their venue argument, is located—according to the Victory Plaintiffs—in
Richardson, Texas, see Resp. at 20 n. 25, which is located partially in the Northern District of
Texas and otherwise in the Eastern District of Texas.4 Accordingly, the undersigned cannot say,
based on the parties’ arguments and the present record, that venue as to CFMI and GHMSI
properly lies in the Western District of Texas, and CFMI and GHMSI’s Rule 12(b)(3) motions
should be granted. See Broadway Nat’l Bank, LLC, 173 F. Supp. 3d at 473 & n.2 (finding that,
It may be possible that other grounds support proper venue in this district. Perhaps, for
example, plan beneficiaries who allegedly assigned their rights to the Victory Plaintiffs received
benefits or resided in the Western District of Texas and suffered a breach of the plan sufficient to
support venue here, at least as to those claims. See 29 U.S.C. § 1132 (e)(2); Brown Schs., 806 F.
Supp. at 151 (holding that where a plaintiff is an assignee, a breach took place either where the
beneficiary was to receive benefits or where the decision regarding payment was made,
regardless of where the assignee actually received payments). The undersigned expresses no
opinion on this unbriefed point.
once challenged, the burden of sustaining venue lies with the plaintiff and discussing a split of
authority on the issue within the Fifth Circuit).
The Victory Plaintiffs, however, should be afforded an opportunity to re-plead to provide
additional allegations and venue facts pertinent to whether venue is proper in this district, as they
have requested. See, e.g., Williams v. RIP Records, No. CIV.A. H-05-183, 2005 WL 1924181, at
*5 (S.D. Tex. Aug. 9, 2005) (recognizing that “[c]ourts can allow a party an opportunity to
amend his complaint to support the contention that venue is proper”) (citing Brown Schs., 806
F.Supp. at 148 (referencing a previous order allowing a party to amend its complaint and file
affidavits in support of its contention that venue was proper in the district)).
The Pending Rule 12(b)(6) Motions and Next Steps. Assuming the District Court agrees
with the undersigned’s recommendation on CFMI’s and GHMSI’s 12(b)(3) Motions, CFMI’s
and GHMSI’s Rule 12(b)(6) motions would be rendered moot. Accordingly, the undersigned
recommends that CFMI’s and GHMSI’s Rule 12(b)(6) motions be dismissed as moot, without
prejudice to re-filing at a later date if appropriate.
The Victory Plaintiffs also seek leave to amend their Complaint to address other issues
raised by various BCBS Defendants’ Rule 12(b)(6) arguments. See Resp. at 66. Insofar as the
District Court agrees that leave should be granted to amend the Complaint on the venue issue,
the undersigned believes leave should be granted to amend the Complaint to address these
additional issues as well. As a result, the other BCBS Defendants should expect their pending
Rule 12 motions will likewise soon be dismissed as moot, without prejudice to re-filing,
assuming the District Court agrees with the undersigned’s recommendations and the Complaint
A pause for such amendment will also provide the parties and the Court an opportunity to
streamline and manage this complex litigation, as follows:
The Amended Complaint ought to stand on its own, without referring to, adopting, or
incorporating by reference the original Complaint.
Once an Amended Complaint is on file, the various motions to dismiss filed by the
remaining BCBS Defendants, as already mentioned, should be dismissed as moot,
without prejudice to re-filing.
Further Rule 12 motions should await a ruling on the pending report and recommendation
in Aetna. In her report and recommendation, Judge Chestney addressed several threshold
issues that are also raised by several of the BCBS Defendants in this action. See Aetna
Life Ins. Co., No. 5-17-cv-510-FB-ESC (W.D. Tex. Jan. 19, 2018) at Dkt. No. 23. The
undersigned believes all involved would benefit from a decision from the District Court
on Judge Chestney’s pending report and recommendation before motions to dismiss are
further addressed by report and recommendation here. Accordingly, the parties should
refrain from filing any further Rule 12 motions in this action until after the District Court
issues a ruling on Judge Chestney’s pending report and recommendation in Aetna. At that
time, and depending on how the District Court rules on that report and recommendation,
the undersigned will very likely schedule a status conference in this litigation or
otherwise communicate with the parties about the best way to move forward with this
See Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 456 n.4 (2009) (“Normally, an
amended complaint supersedes the original complaint.”); see also Rodriguez v. Xerox Bus.
Servs., LLC, No. EP-16-CV-41-DB, 2016 WL 8674378, at *1 (W.D. Tex. June 16, 2016)
(recognizing that the filing of an amended complaint may moot a pending motion to dismiss).
case, including by extending or setting deadlines for the filing of Rule 12 motions, as
Moreover, if the BCBS Defendants wish later to file subsequent motions to dismiss, they
should first confer with one another and—if at all possible—aim to file an omnibus
motion to dismiss that collectively addresses those issues that are common to multiple
defendants. Arguments specific to certain defendants or groups of defendants—or
disagreements about arguments among defendants—could be addressed via separate
motions to dismiss or in separate sections of an omnibus motion. Filing in this form
would eliminate repetitive briefing and rescue the Court from the administrative task of
reviewing and organizing stacks of motions raising virtually identical (but perhaps
sometimes slightly different) arguments as to various different parties.6
The parties should also explore—if further Rule 12 motions are contemplated—whether
staged briefing, wherein the parties first brief certain threshold issues like subject-matter
jurisdiction, would be a more efficient and helpful approach to employ in this case.
Finally, the parties should also explore how this case ought to proceed in light of the
various venue issues raised by CFMI and GHMSI, as discussed herein.7
An eye should be kept on the rules governing the length of motions, and, should it become
necessary, an update from the BCBS Defendants explaining that an omnibus motion is
forthcoming and seeking leave to reasonably exceed the page limits would surely be wellreceived by the Court.
The undersigned notes that aside from CFMI, GHMSI, and BCBS of Arizona, none of the other
BCBS Defendants have challenged the propriety of venue in this district. While the remaining
BCBS Defendants appear to have waived the right to challenge venue, see Fed. R. Civ. P.
12(h)(1), the Court may raise venue sua sponte to ensure that this case proceeds in an efficient,
rather than piecemeal manner. See, e.g., Pers. Audio, LLC v. Google, Inc., No. 1:15-CV-350,
2017 WL 5988868, at *12 (E.D. Tex. Dec. 1, 2017); Dabbagui v. Halliburton Energy Serv., No.
3:16-CV-2739-B-BN, 2016 WL 6788071, at *2 (N.D. Tex. Oct. 25, 2016), report and
recommendation adopted, 2016 WL 6778393 (N.D. Tex. Nov. 15, 2016).
For the reasons discussed above, the undersigned recommends that the District Court
GRANT IN PART Defendant CFMI’s and GHMSI’s Motions to Dismiss and Alternative
Motions to Transfer, Dkt. Nos. 23 & 25, as follows: the District Court should (1) DENY CFMI’s
and GHMSI’s Rule 12(b)(2) motions; (2) GRANT CFMI’s and GHMSI’s Rule 12(b)(3)
motions; and (3) DISMISS AS MOOT CFMI’s and GHMSI’s 12(b)(6) motions, without
prejudice to their later re-filing.
The undersigned recommends that the Victory Plaintiffs be permitted to file an amended
complaint to address the venue issues discussed above and to cure or clarify other allegations, as
requested in their Response. The Victory Plaintiffs should be ordered to file the amended
complaint within 30 days from the date the District Court rules on this report and
recommendation. The District Court should also direct the parties to refrain from filing any
further Rule 12 motions in this case until they receive instructions on whether and how such
motions can be filed, which they will receive after a ruling is made on Judge Chestney’s report
and recommendation in Aetna (and likely after a status conference is held in this case, if one is
Instructions for Service and Notice of Right to Object/Appeal
The United States District Clerk shall serve a copy of this report and recommendation on
all parties by either (1) electronic transmittal to all parties represented by attorneys registered as
a “filing user” with the clerk of court, or (2) by mailing a copy by certified mail, return receipt
requested, to those not registered. Written objections to this report and recommendation must be
filed within fourteen (14) days after being served with a copy of same, unless this time period is
modified by the district court. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b). The objecting party
shall file the objections with the clerk of the court, and serve the objections on all other parties. A
recommendations to which objections are being made and the basis for such objections; the
district court need not consider frivolous, conclusory, or general objections. A party’s failure to
file written objections to the proposed findings, conclusions, and recommendations contained in
this report shall bar the party from a de novo determination by the district court. Thomas v. Arn,
474 U.S. 140, 149-52 (1985); Acuña v. Brown & Root, Inc., 200 F.3d 335, 340 (5th Cir. 2000).
Additionally, failure to timely file written objections to the proposed findings, conclusions and
recommendations contained in this report and recommendation shall bar the aggrieved party,
except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual
findings and legal conclusions accepted by the district court. Douglass v. United Servs. Auto.
Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).
IT IS SO ORDERED.
SIGNED this 6th day of March, 2018.
RICHARD B. FARRER
UNITED STATES MAGISTRATE JUDGE
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