Appalachian Reg'l Healthcare v. Coventry Health

• Decision Date: 11 September 2013
• Docket Number: Civil Action No. 5:12–CV–114–KSF.
• Parties: APPALACHIAN REGIONAL HEALTHCARE, et al., Plaintiff v. COVENTRY HEALTH AND LIFE INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

970 F.Supp.2d 687

APPALACHIAN REGIONAL HEALTHCARE, et al., Plaintiff

v.COVENTRY HEALTH AND LIFE INSURANCE COMPANY, et al., Defendants.

Civil Action No. 5:12–CV–114–KSF.

United States District Court,

E.D. Kentucky,

Central Division,

at Lexington.

Sept. 11, 2013.

Allison Brown Vermilion, Carole D. Christian, Christopher A. Melton, John W. Woodard, Jr., Mickey T. Webster, Stephen R. Price, Sr., Wyatt, Tarrant & Combs, LLP, Louisville, KY, for Plaintiff.

Jason S. Morgan, Lisa English Hinkle, Stephen Garrett Amato, McBrayer, McGinnis, Leslie & Kirkland, PLLC, Lexington, KY, Amy Denise Cubbage McBrayer, McGinnis, Leslie & Kirkland, PLLC, Louisville, KY, Catherine Elaine York, Christina Heavrin, D. Brent Irvin, Mary Stewart Tansey, Cabinet for Health & Family Services, Frankfort, KY, Peter T. Wechsler, U.S. Department of Justice, Washington, DC, for Defendants.

OPINION AND ORDER

KARL S. FORESTER, Senior District Judge.

This matter is before the Court on the Cabinet's motion for summary judgment. For the reasons discussed below, the motion will be granted in part and denied in part.

I. BACKGROUND

The initial background facts of this case are set forth in the Court's June 20, 2012 Opinion, 2012 WL 2359439, granting a preliminary injunction [DE 67] and will not be repeated here. Subsequently, Coventry's agreement to include ARH in its network expired October 31, 2012. ARH's motion for summary judgment regarding rates to be paid by Coventry for out-of-network emergency and non-emergency services was granted. DE 130. King's Daughters' motion to file an Intervening Complaint was granted. DE 132. ARH's motion to file a Second Amended Complaint was granted, adding the Centers for Medicare and Medicaid Services (“CMS”) and alleging that the granting of Kentucky's Section 1915(b) Waiver violated the Administrative Procedure Act. [DE 133]. Effective January 1, 2013, the Cabinet granted Coventry and WellCare a 7.7 percent rate increase. Kentucky Spirit cancelled its contract with Kentucky effective July 1, 2013. The Court is not aware of any contract having been entered into with a replacement managed care organization (“MCO”).

ARH's First Amended Complaint alleged four claims against the Cabinet: (1) ARH is the third-party beneficiary of the contract between the Cabinet and Coventry, and the Cabinet breached the network adequacy and prompt pay provisions; (2) the Cabinet is conspiring with Coventry to effectuate an unconstitutional taking of ARH's property; (3) the Cabinet is liable for payments for non-emergency services provided to Coventry's members; and (4) the Cabinet breached a provider agreement. The Claims against Coventry include: (1) breach of contract for failure to meet prompt pay requirements; (2) declaratory and injunctive relief regarding prompt pay requirements; (3) bad faith in performance of the Letter of Agreement between Coventry and ARH; (4) declaratory relief requiring Coventry to pay ARH the reasonable value of its services; (5) violation of Kentucky's Any Willing Provider Laws; (6) tortious interference with ARH's existing and prospective contractualrelationships; and (7) outrageous conduct. DE 5.

The Cabinet's motion for summary judgment focuses on the defense of sovereign immunity. DE 57. Coventry did not move to dismiss or seek summary judgment on the First Amended Complaint.

II. ANALYSISA. Summary Judgment Standard

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); Redding v. St. Eward, 241 F.3d 530, 532 (6th Cir.2001). In reviewing a motion for summary judgment, “this Court must determine whether ‘the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.’ ” Patton v. Bearden, 8 F.3d 343, 346 (6th Cir.1993) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251–52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). The evidence, all facts, and any inferences that may permissibly be drawn from the facts must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Once the moving party shows an absence of evidence to support the nonmoving party's case, the nonmoving party must present “significant probative evidence” to demonstrate that “there is [more than] some metaphysical doubt as to the material facts.” Moore v. Philip Morris Companies, Inc., 8 F.3d 335, 340 (6th Cir.1993). Conclusory allegations are not enough to withstand a motion for summary judgment. Id. at 343. “The mere existence of a scintilla of evidence in support of the [nonmoving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmoving party].” Anderson v. Liberty Lobby, Inc., 477 U.S. at 252, 106 S.Ct. 2505. “If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.” Id. at 249–50, 106 S.Ct. 2505 (citations omitted).

The Cabinet asserts sovereign immunity under the Eleventh Amendment as a defense to all counts of the Amended Complaint. Generally, the Eleventh Amendment bars suits brought in federal court against states and their agencies. Will v. Michigan Dept. of State Police, 491 U.S. 58, 66, 109 S.Ct. 2304, 105 L.Ed.2d 45 (1989). A state's immunity, however, “comes with a host of exceptions.” Ernst v. Rising, 427 F.3d 351, 359 (6th Cir.2005). First, a state may waive the protection of Sovereign Immunity by a voluntary appearance and defense on the merits. Lawson v. Shelby County, Tennessee, 211 F.3d 331, 334 (6th Cir.2000). Second, “Congress ... may abrogate the sovereign immunity of the states through statute.” Id. Third, “a federal court may enjoin a ‘state official’ from violating federal law.” Id. at 335, (citing Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908)). ARH does not rely on any statute that might abrogate the state's immunity, but it argues that the Cabinet consented to suit through its litigation conduct or, alternatively, that the Ex parte Young exception applies.

B. Litigation Conduct Waiver

ARH claims the Cabinet waived its sovereign immunity defense by its participation in this litigation. In particular, ARH notes that the Cabinet filed a general notice of appearance; responded to ARH's motion for preliminary injunction and addressed the merits of several claims; participated in settlement negotiations pursuant to an Order of this Court; participated in a telephonic status conference; actively participated in a preliminary injunction hearing regarding termination of the Letter of Agreement between Coventry and ARH; and entered into an Agreed Order, all before raising sovereign immunity as a defense. DE 80 at 8–15.

It is true that a state “appearing without objection and defending on the merits in a case over which the district court otherwise has original jurisdiction is a form of voluntary invocation of the federal court's jurisdiction that is sufficient to waive a State's defense of Eleventh Amendment immunity.” Ku v. State of Tennessee, 322 F.3d 431, 435 (6th Cir.2003). It is also true that the “test for determining whether a State has waived its immunity from federal-court jurisdiction is a stringent one.” Atascadero State Hospital v. Scanlon, 473 U.S. 234, 241, 105 S.Ct. 3142, 87 L.Ed.2d 171 (1985), superseded by statute on other grounds, Rehabilitation Act Amendments of 1986.

In Ku, the state initially was brought in involuntarily as a defendant. Rather than asserting its Eleventh Amendment immunity defense, however, it “engaged in extensive discovery and then invited the district court to enter judgment on the merits.” Ku, 322 F.3d at 435. Only after judgment was entered adversely to the state, did it raise the defense of sovereign immunity. The court held the defense was waived. Id.

In Lapides v. Board of Regents of the University of Georgia, 535 U.S. 613, 619–20, 122 S.Ct. 1640, 152 L.Ed.2d 806 (2002), the court found waiver when the state voluntarily appeared in federal court by removing the plaintiff's case. In Hill v. Blind Industries and Services of Maryland, 179 F.3d 754, 758 (9th Cir.1999), the court found waiver when the state did not assert sovereign immunity until the first day of trial. The relevant inquiry in cases of litigation conduct “must focus on the litigation act the State takes that creates the waiver.” Lapides, 535 U.S. at 620, 122 S.Ct. 1640.

In the present case, ARH filed its Complaint on April 16 and its Amended Complaint on April 26, 2012. ARH filed its motion for preliminary injunction on May 1, and the matter was set for an expedited hearing on May 4, in light of Coventry's stated intention to cancel its agreement with ARH on that date. The parties were ordered to negotiate in the interim. The parties agreed on May 4 to extend the contract until June 30 and to negotiate further. The Cabinet agreed that termination of the Coventry–ARH agreement would be a “for cause” basis for members to transfer to another managed care organization. DE 28. On May 18, the Cabinet filed its Answer to the Amended Complaint and asserted its sovereign immunity and governmental immunity defenses. DE 34. On June 11, 2012, the Cabinet moved for summary judgment based on immunity. DE 57. It asserted its sovereign immunity at an evidentiary hearing on June 12. DE 60 at 175:20—177:5.

The Cabinet did not gain any unfair tactical advantage by briefly defending itself on an emergency basis. Rather, the Cabinet's arguments merely explained its understanding of the current agreement. The injunctive relief was primarily aimed at Coventry, not the Cabinet. The...