Chan Healthcare Group PS v Liberty Mutual Fire Insurance Co., 2017 WL 24619 (9th Cir. Jan. 3, 2017).

The Ninth Circuit found that the statutory exception to the general rule that remand orders are not reviewable on appeal applied only to orders granting or denying remand of diversity class actions brought and removed under CAFA–not on federal question jurisdiction.

In this series of interrelated lawsuits, healthcare providers brought putative class actions against automobile insurers alleging that insurers violated various statutes when they reimbursed less than the amount billed for health services through their use of health databases. 

This action arose when attorney David Breskin, who represented the plaintiff Dr. David Kerbs in previous litigation and who represented Chan Healthcare Group, PS (“Chan”) in two ongoing disputes, filed a putative class action on behalf of Dr. Kerbs in Washington state court against Safeco Insurance Company of Illinois, Inc. and Safeco Insurance Company of America (collectively “Safeco”).  Dr. Kerbs alleged that Safeco violated Washington law by using a computerized bill review system that automatically reduced the amounts paid to medical providers pursuant to Personal Injury Protection coverage in automobile insurance contracts.  The superior court certified a class of Washington health care providers who submitted claims to Safeco for payment under their patients’ Personal Injury Protection policies and received “less than the amount billed based solely on a computerized reduction.”  Dr. Kerbs and Safeco reached a class-wide settlement agreement in which Safeco agreed to pay the class members for its past conduct, and agreed to stop using the computerized bill-review system and start using the “FAIR Health database” to determine the proper amount of reimbursement (the “Kerbs settlement”).

Separately, Lebanon Chiropractic Clinic, P.C. (“Lebanon”) commenced a class action lawsuit in Illinois state court based on the same allegedly improper reductions of reimbursements to medical providers.  The lawsuit named Safeco and its parent, Liberty Mutual Fire Insurance Company and Liberty Mutual Insurance Company (collectively, “Liberty”) as defendants.  The lawsuit challenged Safeco’s and Liberty’s review and payment practices in multiple states, including both Illinois and Washington.  Subsequently, Lebanon, Safeco, and Liberty reached a settlement agreement similar to the settlement agreement reached in Kerbs (the “Lebanon settlement”).

Dr. Kerbs’ attorney, Breskin, objected to the Lebanon settlement, contending that the proposed settlement conflicted with the Kerbs settlement in the earlier Washington case.  He petitioned the Washington state court to reopen the Kerbs case and enjoin the proposed Lebanon settlement in Illinois, but was unsuccessful.  Although the Illinois court concluded that there was no conflict between the proposed Lebanon settlement and the Kerbs settlement, it ordered that the proposed Lebanon settlement “include specific language that the Lebanon settlement would not conflict in any way with the Kerbs settlement.”  Dr. Kerbs’ appeal was unsuccessful.

While the Lebanon appeal in Illinois was still pending, the attorney Breskin filed two new class action lawsuits in Washington state court on behalf of Chan against Safeco (the “Safeco case”), and on behalf of Chan against Liberty (the “Liberty case”).  The complaints made similar allegations that Safeco’s and Liberty’s use of the FAIR Health database to set reimbursement amounts violated various Washington statutes.  All parties agreed that, on the face of the complaint in the Liberty case, there was no basis for federal jurisdiction.  Subsequently, Chan sought a declaratory judgment that the Illinois settlement was unenforceable in Washington.  After Liberty responded that it “might elect simply to forego raising Lebanon as a defense in this case,” Chan argued that “the Lebanon agreement could not be applied to bar Chan’s Washington state law claim against Liberty consistent with Chan’s due process rights.”

Liberty removed the case to federal court explaining that Chan’s reply brief revealed that Chan was raising a standalone federal due process claim, thus creating federal question jurisdiction under 28 U.S.C. § 1331. Chan challenged the timeliness of Liberty’s removal and also argued that there was no federal question jurisdiction because its federal due process claim was not raised as an affirmative claim, but instead as a defense in response to Liberty’s assertion of the Illinois settlement.  The district court granted Chan’s motion to remand based solely on the ground that removal was untimely and explicitly declined to reach whether federal question jurisdiction was present.  The district court also awarded fees to Chan.

Liberty petitioned for review of the district court’s remand order and appealed the fee award. The Ninth Circuit dismissed Liberty’s petition for permission to appeal, but vacated the district court’s fee award.

The Ninth Circuit noted that the default rule on remand orders is that “[a]n order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise.” The Ninth Circuit further noted that 28 U.S.C. § 1453(c)(1) entitled Review of Remand Orders, provides that, when a case is removed “under this section,” “a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action.”

Chan argued that § 1453(c)(1) was limited to diversity actions under CAFA.  Liberty argued that there was no CAFA-based limitation and that all class actions were covered by that grant of jurisdiction.

The Ninth Circuit noted that § 1453(c) is designed to provide a limited means, subject to strict timing controls on both the parties and the court, for appellate review of remand orders in cases removed under § 1453(b). The Ninth Circuit stated that in examining the scope of appellate jurisdiction under § 1453, it looks to the text, structure, and purpose behind the statute.  The Ninth Circuit found that, in subsection (c), the statute spells out particularized requirements for appellate review: Section 1447 shall apply to any removal of a case under this section, except that notwithstanding section 1447(d), a court of appeals may accept an appeal from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed if application is made to the court of appeals not more than 10 days after entry of the order.  The Court noted that the subsection (c) circumscribed its applicability to a case removed “under this section,” presumably meaning § 1453.  The Ninth Circuit thus opined that § 1453(c)(1)’s use of “removal of a case under this section” limited the universe of appealable orders to those in class action cases brought under CAFA.  The Ninth Circuit explained that the word “section” was best understood to reference an entire statutory section and, because the statute used the phrase “under this section,” it referred to the statutory section in which the language appeared, namely, § 1453.  The Ninth Circuit further noted that § 1453(a), particularly when read in conjunction with the  section as a whole, supported the reading that § 1453’s reach was limited to CAFA-related diversity cases.

Finally, the Ninth Circuit found that § 1453(d) further solidified the targeted nature of § 1453, which stated that § 1453 “shall not apply to any class action that solely involves” three enumerated classes of state- and federal-law claims involving securities and corporate governance. The Court opined that subsection (d) exactly mirrored a CAFA provision, § 1332(d)(9), which placed those same three categories of claims outside of CAFA’s minimal diversity provision.  The Ninth Circuit further opined that the overlapping scope of those two provisions buttressed the conclusion that the statutes both operated in the CAFA diversity sphere.  Additionally, the Court found that CAFA’s legislative history supported its conclusion that the limited grant of appellate review was tied to CAFA’s minimal diversity provisions, and that the Fifth, Sixth, and Eighth Circuits had all concluded that the review provisions of § 1453(c) were limited to class actions brought under CAFA.

The Ninth Circuit therefore ruled that it lacked jurisdiction to review the district court’s remand order in the class action predicated on federal question jurisdiction and dismissed Liberty’s appeal.

-Melissa M. Grand