Phillips v. Kaiser Foundation Health Plan, Inc., 2011 WL 3047475 (N.D. Cal. July 25, 2011).
Red Rover. Red Rover. Send Trover Right Over. In this case, a District Court in California held that if the defendants engaged in conduct that could be alleged to have injured consumers throughout the country or broadly throughout several states, the case would not qualify for the local controversy exception, even if it was brought only as a single-state class action.
The plaintiff, a disgruntled enrollee in Kaiser’s Medicare Advantage Plan (“MAP”), was injured in a car accident, received medical treatment paid for by Kaiser via her MAP, and then got a $100,000 settlement from a liability insurer in connection with the car accident.
As would be expected, Kaiser attempted to recover a substantial portion of that settlement pursuant to its rights under the Medicare statutes as a secondary payer to a third party source of funds (liability insurance).
Naturally, the plaintiff was not excited about sharing the settlement. So, the plaintiff filed a putative class action against Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals, The Permanente Medical Group, Inc., Healthcare Recoveries, Inc., and a company called Trover Solutions, Inc. (collectively “Kaiser”) alleging that it had and continued to act illegally in its demand for and collection of repayments for medical services arising out of personal injury claims at rates in excess of applicable Medicare rates. The plaintiff further alleged that Kaiser claimed this right of recovery through a common pattern and practice of deception by omission, misleading reasonable California consumers into entering into contracts for medical services with the Kaiser thereby violating the Unfair Competition Law and provisions of § 1770 of the Consumer Legal Remedies Act.
Kaiser removed this action from the state court to the federal district court pursuant to CAFA.
The plaintiff moved to remand, which the District Court denied.
Regarding the amount in controversy, the Court noted that the crux of the plaintiff’s and putative class members’ claim for money damages was a restitutionary theory that Kaiser collected more by way of reimbursement than what it was permitted to collect under the Medicare secondary payer statute and/or its contract with plan enrollees. Thus, putative class members primarily sought as money damages the difference between what Kaiser obtained from them and what Kaiser would have obtained if Kaiser collected an amount calculated using Medicare fee-for-service (“FFS”) program guidelines.
The plaintiff conceded at oral argument that that amount — the difference between what Kaiser obtained by reimbursement and what it would have obtained under FFS guidelines — was likely greater than $5 million. In addition, the declaration Kaiser provided established that well over $5 million constituted the total outstanding in-plan charges and that Kaiser recovered the sum over $5 million during the class period. Accordingly, the Court concluded that Kaiser had carried its burden of showing that it was more likely than not that more than $5 million was at stake.
Next, the Court found that the local controversy exception to CAFA, 28 U.S.C. § 1332(d)(4) did not apply here. The Court stated that CAFA’s legislative history shows that Congress did not intend for plaintiffs to defeat federal jurisdiction by filing essentially national or regional class actions limited to plaintiffs from one state. (Yea!!! Another court has examined CAFA’s legislative history!!) If the defendants engaged in conduct that could be alleged to have injured consumers throughout the country or broadly throughout several states, the case would not qualify for this exception, even if it was brought only as a single-state class action. In other words, this provision looks at where the principal injuries were suffered by everyone who was affected by the alleged conduct — not just where the proposed class members were injured.
Here, the plaintiff alleged that Kaiser was seeking secondary payer recovery from enrollees beyond that which is authorized under the Medicare Act and without proper disclosure to prospective enrollees that it would do so. Although the plaintiff presented the attack through the vehicle of California’s consumer protection law, the same theory would support liability under other state’s consumer protection laws as well and was based on an essentially federal question regarding the extent of Kaiser’s secondary payer rights. Thus, the Court concluded that this case was not ‘local’ under § 1332(d)(4) even though it had been defined narrowly to include only California plaintiffs.
Next, the Court found that all ‘primary defendants’ are not residents of the same state in which the action was filed because the defendant, Trover, is not a California resident. Although the plaintiff argued that Trover was not a ‘primary defendant,’ such was belied by her complaint. Both of her causes of action were asserted against all the defendants, and there was no indication that the plaintiff would not seek recovery against Trover if the defendants were found liable. Although Trover’s actions were alleged to have been done pursuant to its relationship with Kaiser, Trover was a separate legal entity and thus a ‘primary defendant,’ the Court concluded. In other words, the court sang, “Red rover, red rover, send Trover right over!”
Finally, for the same reason, the Court refused to decline jurisdiction under its discretionary exception pursuant to § 1332(d)(3).