Cigna Healthcare of St. Louis, Inc. v. Kaiser

• Decision Date: 16 January 2002
• Docket Number: No. 01C5130.,01C5130.
• Citation: 181 F.Supp.2d 914
• Parties: CIGNA HEALTHCARE OF ST. LOUIS, INC., et al., Plaintiffs, v. Timothy N. KAISER, M.D., et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

181 F.Supp.2d 914

CIGNA HEALTHCARE OF ST. LOUIS, INC., et al., Plaintiffs, v. Timothy N. KAISER, M.D., et al., Defendants.

No. 01C5130.

United States District Court, N.D. Illinois, Eastern Division.

January 16, 2002.

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Ira H. Raphaelson, O'Melveny & Myers, Washington, DC, Joseph J. Duffy, William Paul Ziegelmueller, Stetler & Duffy, Ltd., Chicago, IL, for plaintiffs.

Judy Lynn Cates, Carr, Korein, Tillery, Kunin, Montroy, Cates, Katz & Glass LLC, Belleville, IL, Debra Brewer Hayes, Dennis C. Reich, Reich & Binstock, Houston, TX, Vincent J. Connelly, Debra L. Bogosavljevic, Mayer, Brown & Platt, Edwin Earl Brooks, Andrew J. Abrams, Katten, Muchin & Zavis, Chicago, IL, for defendants.

MEMORANDUM OPINION AND ORDER

CASTILLO, District Judge.

This dispute formally began on May 26, 2000 when Defendant Timothy N. Kaiser, M.D., on behalf of certain healthcare providers, filed a class action suit against CIGNA HealthCare of St. Louis, Inc. ("CHCSL"), CIGNA HealthCare of Texas, Inc. ("CHCTX"), and CIGNA Corporation ("CIGNA Corp.") (collectively "CIGNA") in the Circuit Court of Madison County, Illinois.¹ Thereafter, on July 3, 2001, CIGNA filed a class action petition in this Court to compel arbitration of the state court dispute with a sub-class of providers pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 4. (R. 1, Class Action Pet.) We dismissed the petition without prejudice due to jurisdictional concerns. (R. 2, July 6, 2001 Minute Order.) Under the direction of the Court, both CIGNA and several of the named Defendants filed briefs with the Court addressing: (1) whether this Court has subject matter jurisdiction over the petition to compel arbitration; and (2) whether this Court should abstain from exercising jurisdiction given the pending state court proceeding in Madison County, Illinois.² For the reasons set out herein, the Court concludes that although we have jurisdiction over the petition to compel arbitration pursuant to 28 U.S.C. § 1332, we will abstain from exercising jurisdiction under the doctrine set forth in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), and its progeny. As such, this action is stayed, and CIGNA retains full rights to reinstate this suit in the event of a material change in circumstances. (R. 1, Class Action Pet.)

RELEVANT FACTS

I. The Parties

CIGNA Corp. is a Delaware corporation with its principal place of business in Pennsylvania. CIGNA Corp. is the parent corporation of numerous health care subsidiaries, including CHCSL and CHCTX. CHCSL, a wholly-owned subsidiary of CIGNA Corp., is a Missouri corporation with its principal place of business in Missouri. CHCTX, a wholly-owned subsidiary of CIGNA Corp., is a Texas corporation with its principal place of business in Texas. CIGNA HealthCare of Illinois ("CHCIL"), an unnamed party to this action, is also a wholly-owned subsidiary of CIGNA Corp., incorporated in Delaware, with its principal place of business in Illinois. (R. 15, Pls.' Reply at 2.) Certain subsidiaries of CIGNA Corp., such as CHCSL and CHCTX, market and operate health care entities, including Preferred Provider Organizations ("PPOs").

Defendant Timothy N. Kaiser is a physician licensed to practice medicine in Illinois who practices and resides in Madison County, Illinois. Defendants Northwestern Medical Faculty Foundation and Midwest Neoped Associates are associations of physicians incorporated in Illinois with their principal places of business in Illinois. Defendants Northwestern Memorial Hospital, Evanston Northwestern HealthCare Corporation and Edward Hospital are also incorporated in Illinois and maintain their principal places of business in Illinois.

II. The Underlying State Court Action

On May 26, 2000, Dr. Kaiser, along with Dr. Corrigan and on behalf of all providers who have entered into PPO Managed Care Agreements ("Agreements") with CHCSL, CHCTX or one of its affiliates, filed a class action complaint against CIGNA in the Circuit Court of Madison County, Illinois. The plaintiffs alleged that CIGNA breached the Agreements by using ClaimCheck, a claims processing computer software that allegedly reduced the payments due to the providers. (R. 1, Ex. A, State Class Action Compl. ¶¶ 32-41.) As certified by the Madison County Circuit Court on April 20, 2001, the class of providers includes those providers who, from May 26, 1990 to the present, executed a PPO Agreement with CIGNA and submitted claims pursuant to the Agreements that were audited by ClaimCheck prior to any payment. (R. 1, Ex. B, Am. Order of Class Certification.) Currently, the state action is in the discovery phase. (See R. 13, Exs. 11, 12, 13, 14.) Provider contract files are being collected and placed in a document depository in Belleville, Illinois, and CIGNA is currently cataloging those providers with arbitration clauses in their Agreements and those providers with Program Requirement clauses. (R. 13, Defs.' Resp., Ex. 15, July 18, 2001 Matoesian Order; Ex. 16, Chart of "Providers with Arbitration Agreements.")

Judge Matoesian, presiding over the Madison County suit, has repeatedly ordered that CIGNA's participation in discovery shall not prejudice their right to seek enforcement of any valid arbitration clause. (R. 21, State Court Record, Aug. 17, 2001 Matoesian Order, Nov. 28, 2001 Matoesian Order.) In fact, soon after the Court dismissed the petition to compel arbitration, CIGNA filed a FAA motion in the Madison County action to compel arbitration of the claims of seven class members. (R. 13, Defs.'s Resp., Ex. 3, Mot. to Compel Arbitration and Dismiss.) In the state court motion to compel arbitration, CIGNA seeks to compel arbitration of the claims of seven class members whose Agreements make reference to dispute resolution procedures in accordance with Program Requirements. (Id., Ex. 3 at 2-3.) CIGNA also seeks the appointment of a special master to make recommendations with respect to the arbitration obligations of all the providers and to resolve the issue of arbitrability of the claims of those providers who have dispute resolution provisions incorporated into their Agreements by reference to Program Requirements. (Id., Ex. 3 at 3.)

III. CIGNA's Motion to Compel Arbitration

On July 3, 2001, more than one year after the filing of the Madison County lawsuit, CIGNA filed a class action petition against Defendants with this Court. CIGNA sought to create a defendant subclass of providers — those whose Agreements contain or contained an arbitration provision in the text of the Agreement — to compel members of the subclass to proceed with individual arbitrations and to enjoin them from pursuing their claims in the Madison County class action. The Court dismissed the lawsuit without prejudice on July 6, 2001 with directions to brief the jurisdictional issues.

DISCUSSION

I. Subject Matter Jurisdiction

The FAA does not create independent federal question jurisdiction under 28 U.S.C. § 1331. A federal district court has jurisdiction over a petition filed under the FAA only when the plaintiffs establish an independent basis of jurisdiction, such as diversity of citizenship. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). CIGNA claims that this Court has diversity jurisdiction under 28 U.S.C. §§ 1332 and 1367. Provider Defendants dispute that jurisdiction exists under §§ 1332 and 1367 and argue that: (1) CIGNA has failed to join CHCIL, an indispensable party under Federal Rule of Civil Procedure 19 whose joinder would destroy diversity jurisdiction; (2) CIGNA has failed to join Dr. Suzanne LeBel Corrigan, also an indispensable party whose joinder would destroy diversity jurisdiction; and (3) CIGNA cannot meet the minimum amount in controversy — $75,000 — required for diversity jurisdiction. Fed.R.Civ.P. 19. We are unpersuaded by the Provider Defendants' arguments that this Court lacks subject matter jurisdiction, and we find that diversity jurisdiction exists pursuant to 28 U.S.C. § 1332.

A. CHCIL Is Not an Indispensable Party Under Rule 19

Provider Defendants argue that the Court lacks subject matter jurisdiction over this dispute because CHCIL is an indispensable party under Rule 19 whose joinder would destroy diversity jurisdiction. Fed.R.Civ.P. 19. Deciding whether a party should be joined under Rule 19 is a two-step inquiry. Davis Cos. v. Emerald Casino, Inc., 268 F.3d 477, 481 (7th Cir. 2001). First, we must determine whether a party is necessary or one that should be joined if feasible. Id. (citations omitted). Second, if we conclude that CHCIL is a necessary party, but cannot be joined, we must go on to decide whether, "in equity and good conscience," the action should proceed in CHCIL's absence or be dismissed because of CHCIL's indispensability. Fed.R.Civ.P. 19(b). Rule 19(a) lists the criteria for determining whether a party is necessary. The Seventh Circuit has concluded that a party to a contract is a necessary party under Rule 19(a). United States ex rel. Hall v. Tribal Dev. Corp., 100 F.3d 476, 478-479 (7th Cir.1996) (tribe was a necessary party under Rule 19(a) as it was party to contract at issue in recision action). See also Burger King Corp. v. Am. Nat'l Bank and Trust Co., 119 F.R.D. 672, 675 (N.D.Ill.1988) ("If the absent party has a legally protected interest in the subject matter of the action — i.e. he is a party to a contract at issue — he falls squarely within the terms of Rule 19(a)(2).").

CHCIL, as a party to certain Agreements, is necessary.³ CHCIL's interest may be impaired or impeded by the disposition of this action as required by Rule 19(a)(2)(i). In their federal petition, CIGNA asks the Court to enter an order pursuant to 9 U.S.C. § 4 directing the putative defendant class members who wish to pursue claims to proceed with "individual arbitrations with P...