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Louisiana Health Service & Indemnity Co. v. Center for Restorative Breast Surgery, LLC

United States District Court, E.D. Louisiana

May 23, 2017

LOUISIANA HEALTH SERVICE & INDEMNITY COMPANY, ET AL., Plaintiffs
v.
CENTER FOR RESTORATIVE BREAST SURGERY, LLC, ET AL., Defendants

         SECTION: “E” (5)

          ORDER AND REASONS

          SUSIE MORGAN, UNITED STATES DISTRICT JUDGE

         Before the Court is a motion for preliminary and permanent injunctive relief filed by Louisiana Health Service & Indemnity Company d/b/a Blue Cross and Blue Shield of Louisiana and HMO Louisiana, Inc. (“Blue Cross Louisiana”).[1] The motion is opposed.[2]For the following reasons, the motion is GRANTED IN PART and DENIED IN PART.

         BACKGROUND

         This Court's lengthy history with this matter began when, on April 6, 2010, the Center for Restorative Breast Surgery, L.L.C. and St. Charles Surgical Hospital, filed suit in the Civil District Court for the Parish of Orleans, State of Louisiana. Blue Cross Louisiana removed the case to this Court on April 12, 2011 (“Blue Cross I”).[3]

         The members of the Center for Restorative Breast Surgery, L.L.C. (“Center”) are surgeons who perform post-mastectomy breast reconstruction medical services.[4] The St. Charles Surgical Hospital (“Hospital”) is a specialty surgical center where the physicians affiliated with the Center perform the surgeries.[5] The Center and the Hospital are out-of network healthcare providers with respect to all Blue Cross I defendants. The Blue Cross I Plaintiffs provided services to patients covered under insurance policies issued or administered by various Blue Cross defendants.[6]

         Final judgment was entered in Blue Cross I on March 31, 2017, [7] and the Blue Cross I Plaintiffs filed an appeal on April 21, 2017.[8]

         On February 3, 2017, the Blue Cross I Plaintiffs filed suit in the Civil District Court for the Parish of Orleans, State of Louisiana, against Blue Cross Louisiana (“Blue Cross II”).[9] The Blue Cross I Plaintiffs make claims in Blue Cross II on four counts: (1) breach of contract; (2) detrimental reliance; (3) negligent misrepresentation; and (4) fraud.

         On April 28, 2017, Blue Cross Louisiana filed suit in this Court against the Blue Cross I Plaintiffs under the All Writs Act[10] and the Anti-Injunction Act.[11] Blue Cross Louisiana seeks an injunction against the litigation filed by the Blue Cross I Plaintiffs in Blue Cross II.

         LAW AND ANALYSIS

         I. Jurisdiction

         Ancillary jurisdiction attaches to Blue Cross Louisiana's action for injunctive relief if this Court had jurisdiction over Blue Cross I.[12] “[A] federal district court can exercise ancillary jurisdiction over a second action in order to secure or preserve the fruits and advantages of a judgment or decree rendered by that court in a prior action.”[13] In Blue Cross I, this Court had federal question subject matter jurisdiction over the Blue Cross I Plaintiffs' claims arising under ERISA, and supplemental jurisdiction over the Blue Cross I Plaintiffs' state-law claims. Accordingly, the Court had jurisdiction over the original federal proceeding, and has ancillary jurisdiction over the instant action.

         II. The Relitigation Exception of the Anti-Injunction Act

         Under the Anti-Injunction Act, “[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.”[14] The exceptions are to be interpreted narrowly and are “not to be enlarged by loose statutory construction.”[15] Further, “[a]ny doubts as to the propriety of a federal injunction against state court proceedings should be resolved in favor of permitting the state courts to proceed in an orderly fashion to finally determine the controversy.”[16]

         Blue Cross Louisiana argues the last of the three exceptions-the “relitigation exception”-applies in this case, contending the doctrines of res judicata and collateral estoppel apply. The relitigation exception permits an injunction to prevent state litigation of a claim or issue “that was previously presented to and decided by the federal court.”[17]The exception is “founded in the well-recognized concepts of res judicata and collateral estoppel, ” but is “strict and narrow, ” requiring that “the claims or issues which the federal injunction insulates from litigation in state proceedings actually have been decided by the federal court.”[18] A federal district court is permitted, but not mandated, to enjoin duplicative state court proceedings.[19]

         The Fifth Circuit employs a four-part test to determine whether the relitigation exception is applicable when urged on the basis of res judicata or collateral estoppel:[20]

(1) The parties in the later action must be identical to (or at least in privity with) the parties in a prior action;
(2) The judgment in the prior action must have been rendered by a court of competent jurisdiction;
(3) The prior action must have concluded with a final judgment on the merits; and
(4) The same claim or cause of action must be involved in both suits.[21]

         At issue in this matter is the fourth prong-whether both suits involve the same claims or causes of action.[22] The relitigation exception requires that the claims or issues the federal injunction seeks to insulate from litigation in state proceedings “actually have been decided by the federal court.”[23] The Fifth Circuit employs a “transactional test, ” “asking whether the two claims are based on the same nucleus of operative fact.”[24] “In evaluating the res judicata effect of a prior claim on a subsequent one, the transactional test does not inquire whether the same evidence has been presented in support of the two claims, but rather asks whether the same key facts are at issue in both of them.[25] The Fifth Circuit has held that the preclusive effect of the transactional test “potentially extends beyond claims actually litigated to claims that could have been litigated.”[26] In this case, however, the issue of whether the claims for breach of oral contract, detrimental reliance, negligent misrepresentation, and fraud made in Blue Cross II were actually litigated or could have been litigated in Blue Cross I is irrelevant.[27] Three out of four of these claims were actually decided in Blue Cross I, and the fourth, fraud, was voluntarily dismissed.[28]

         “In determining which issues have been actually litigated, the federal court is free to go beyond the judgment and may examine the pleadings and the evidence in the prior action. If a question of fact is put in issue by the pleadings, is submitted to the jury or other trier of facts for its determination, and is determined, then that question of fact has been actually litigated.”[29] As explained below, the Blue Cross I Plaintiffs' claims in Blue Cross II for breach of contract, detrimental reliance, and negligent misrepresentation have been actually decided by this Court in Blue Cross I. As a result, the fourth prong of the Fifth Circuit's four-part test is satisfied, and the relitigation exception is applicable to these three claims or causes of action. The Court must now determine the appropriate scope of injunctive relief.

         III. The Blue Cross I Plaintiffs' Claims in Blue Cross II

         The Blue Cross I Plaintiffs filed a petition in Blue Cross II, alleging Blue Cross Louisiana failed to “pay [the Blue Cross I] Plaintiffs an appropriate amount of money for medical services provided by [the Blue Cross I] Plaintiffs, which Defendants agreed to pay.”[30] The Blue Cross I Plaintiffs further allege “Defendants required that [the Blue Cross I] Plaintiffs verify Defendants' agreement or offer to pay, and the percentage of the bill Defendants would pay by referring to Defendants' web portal, iLinkBlue.”[31] The Blue Cross I Plaintiffs allege their claims arise out of the statements made on verification telephone calls made to Blue Cross Louisiana and representations made on Blue Cross Louisiana's web portal, iLinkBlue.[32] The Blue Cross I Plaintiffs' claims in Blue Cross II consist of four counts: (1) breach of contract; (2) detrimental reliance; (3) negligent misrepresentation; and (4) fraud.[33]

         a. Breach of Contract

         In Blue Cross II, the Blue Cross I Plaintiffs allege contracts were formed between them and Blue Cross Louisiana.[34] The Blue Cross I Plaintiffs allege these contracts were formed when “Defendants communicate[d] to [the Blue Cross I] Plaintiffs the percentage of [the Blue Cross I] Plaintiffs' medical bill Defendants agree[d] to pay for services rendered to Defendants' customers over the telephone, and then through iLinkBlue.”[35]The Blue Cross I Plaintiffs further allege “Defendants wrote to [the Blue Cross I] Plaintiffs, expressly instructing [the Blue Cross I] Plaintiffs to refer to the iLinkBlue web portal for any information [the Blue Cross I] Plaintiffs sought from Defendants relating to monetary payments”[36] and “[the Blue Cross I] Plaintiffs verified Defendants' offer and terms through telephone calls, and thereafter, through viewing the offers on Defendants' iLinkBlue website.”[37]

         In Blue Cross I, the Fifth Amended Complaint alleged “[t]hrough [] verifications and pre-authorization of the procedures, the respective Defendants and [the Blue Cross I] Plaintiffs entered into bilateral onerous commutative oral contracts whereby [the Blue Cross I] Plaintiffs would provide their agreed upon covered and pre-authorized services at a predetermined rate that reflect the benefits provided by their subscribers' respective plans.”[38] The Blue Cross I Plaintiffs further alleged “[s]aid oral contracts created through the verification of benefits process were made directly with the respective Blue Cross Defendants, creating an independent legal duty on the part of said Defendants to tender the represented percentage to the Center and Hospital, based on the representation.”[39]

         The Court granted summary judgment in Blue Cross I with respect to the Blue Cross I Plaintiffs' breach of oral contract claim, finding the Blue Cross I Plaintiffs failed to introduce evidence of corroborating circumstances sufficient to establish an oral contract worth over $500.[40] The Court has actually decided that the Blue Cross I Plaintiffs may not recover for breach of oral contract worth over $500 based on the verification of benefits process.

         It is unclear whether the Blue Cross I Plaintiffs' allegations in Blue Cross II relate to oral contracts, written contracts, or both.[41] To the extent the Blue Cross I Plaintiffs seek to recover for breach of oral contract worth over $500 based on the verification of benefits process, such a cause of action has been actually decided by this Court. To the extent the Blue Cross I Plaintiffs make a claim for breach of oral contract in Blue Cross II, that claim arises out of the same nucleus of operative fact as their claim in Blue Cross I. As a result, the Blue Cross I Plaintiffs are enjoined from pursuing any claim in Blue Cross II relating to an oral contract worth over $500 between them and Blue Cross Louisiana based on the verification of benefits process.

         b. Detrimental Reliance

         In Blue Cross II, the Blue Cross I Plaintiffs allege “Defendants communicated to [the Blue Cross I] Plaintiffs via telephone and iLinkBlue web portal that Defendants agreed or offered to pay for . . . medical services” and “[the Blue Cross I] Plaintiffs reasonably relied, to their detriment, on representations and statements made by Defendants as to the existence and extent of Defendants' offer or agreement to pay for [the Blue Cross I] Plaintiffs' provision of medical services to Defendants' customers.”[42]

         In the Fifth Amended Complaint in Blue Cross I, the Blue Cross I Plaintiffs allege they “contacted the respective Defendant and with that Defendant's authorization received a representation that the proposed services were covered and preauthorized and that in exchange for said services, reimbursement . . . would be forthcoming.”[43] The Blue Cross I Plaintiffs allege they detrimentally relied on these representations because they “based their decisions to provide [] services on Defendants' representations of payment.”[44]

         The Court granted summary judgment in Blue Cross I on the Blue Cross I Plaintiffs' detrimental reliance claim.[45] The Court found there was no representation-and therefore could be no detrimental reliance-for those patients for whom the Blue Cross I Plaintiffs did not attempt to verify the eligibility and benefits by a telephone verification call or visiting the iLinkBlue web portal.[46] Similarly, the Court found Blue Cross Louisiana made no promise to pay a certain amount for services rendered by the Blue Cross I Plaintiffs on iLinkBlue, as the verification page contains no claim-specific payment information, and as a result there was no representation and there could be no detrimental reliance.[47] With respect to any patient for whom the Blue Cross I Plaintiffs made a verification telephone call to Blue Cross Louisiana, the Court found the Blue Cross I Plaintiffs could not have reasonably relied upon the representations made in the calls because disclaimers saying there was “no guarantee of payment” were played at the beginning of each call, and the Blue Cross I Plaintiffs did not request further assurance or clarification about the amount of the allowable charge.[48] Because the Court has actually decided that the Blue Cross I Plaintiffs cannot recover under this theory, and the Blue Cross I Plaintiffs' claims in Blue Cross II arise from the same nucleus of operative fact as their claims in Blue Cross I, the Blue Cross I Plaintiffs are enjoined from pursuing any claims under the theory of detrimental reliance for which: (1) there was no attempt to verify the patient's eligibility and benefits through a verification telephone call or visit to the iLinkBlue website; (2) there was an attempt to verify the patient's eligibility and benefits through iLinkBlue, but the verification page did not provide the amount the insurer will pay for a specific procedure; or (3) there was an attempt to verify the patient's eligibility and benefits through a verification telephone call, but a disclaimer stating there was “no guarantee of payment” was played at the beginning of the call, and the Blue Cross I Plaintiffs did not request further assurance or clarification about the amount of the allowable charge.

         c. Negligent Misrepresentation

         In Blue Cross II, the Blue Cross I Plaintiffs allege Blue Cross Louisiana has “a legal duty to supply correct information regarding the existence and extent to which Defendants have agreed or offered to pay to the Blue Cross I Plaintiffs for the provision of medical services.”[49] The Blue Cross I Plaintiffs further allege in Blue Cross II they “relied, to their detriment, on representations and statements made by Defendants as to the existence and extent of payment by Defendants for [the Blue Cross I] Plaintiffs' provision of medical services to Defendants' customers.”[50] The Blue ...


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