Blue Cross & Blue Shield of R.I. v. Korsen

• Citation: 746 F.Supp.2d 375
• Decision Date: 27 October 2010
• Docket Number: C.A. No. 09–317L.
• Court: U.S. District Court — District of Rhode Island
• Parties: BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Plaintiff,v.Jay S. KORSEN and Ian D. Barlow, Defendants.

746 F.Supp.2d 375

BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Plaintiff,

v.Jay S. KORSEN and Ian D. Barlow, Defendants.

C.A. No. 09–317L.

United States District Court, D. Rhode Island.

Oct. 27, 2010.Opinion Denying Reconsideration and Motion to Certify Order for Immediate Appeal Jan. 19, 2011.

R. Daniel Prentiss, R. Daniel Prentiss, P.C., Providence, RI, for Plaintiff.Alan R. Tate, Christy B. Durant, Tate & Elias, LLC, Providence, RI, D. Brian Hufford, Robert J. Axelrod, Susan J. Weiswasser, Pomerantz Haudek Grossman & Gross LLP, New York, NY, for Defendants.

MEMORANDUM AND ORDER

RONALD R. LAGUEUX, Senior District Judge.

This matter is before the Court on Defendants' objection to Magistrate Judge Almond's Report and Recommendation (“R & R”), recommending that this lawsuit be remanded to State court. Plaintiff Blue Cross & Blue Shield of Rhode Island (hereinafter “Blue Cross”) filed its Amended Complaint in Rhode Island Superior Court in June 2009, alleging four state common law causes of action. Defendants then removed the case to this Court, claiming that it was a federal matter. Arguing that this Court lacks subject matter jurisdiction, Blue Cross moved to remand the case to State court. Magistrate Judge Almond heard Plaintiff's motion, along with Defendants' objection, and issued his R & R in November 2009.

After reviewing this matter, this Court rejects the R & R and determines that federal subject matter jurisdiction does exist for the reasons explained below. Consequently, Plaintiff's Motion to Remand is denied.

Background

Plaintiff Blue Cross is a Rhode Island health insurance company. Defendants are two health care providers, who formerly shared a practice: Jay S. Korsen is a chiropractor and Ian D. Barlow, an occupational therapist. According to Blue Cross, it entered into two separate Provider Agreements with Korsen and Barlow in 2001 and 2003, respectively, for them to provide medical services to Blue Cross subscribers. According to the Provider Agreements, Defendants were to bill Blue Cross for their services using an agreed-upon code (“CPT Code”) to indicate which service was provided; Blue Cross would then compensate Defendants according to a schedule of discounted rates. Blue Cross alleges that Defendants purposely miscoded services which resulted in Blue Cross paying them over $400,000 for services that were not covered by “the applicable BCBSRI subscriber contracts.” (Amended Complaint, ¶ 7). Specifically, Blue Cross alleges that, between 2003 and 2009, Defendants treated patients using motorized massage equipment, but then coded the services as “mechanical traction” in order to obtain compensation for an unauthorized service.

Blue Cross discovered the alleged miscoding when it conducted an audit of Korsen's practice (“Back to Health Chiropractic”), which consisted of a visit to Defendants' office in March 2009. According to the follow-up letter sent by Blue Cross to Defendants on April 20, 2009, “The meeting involved a discussion of your operations, a tour of your facility and the rendering of Mechanical Traction as it related to the high volume of claims submitted by Back to Health Chiropractic.” Blue Cross explained that the information provided by Defendants concerning their massage equipment had been reviewed by its medical advisors. The letter continued:

The result of this review is that both the Omega Massage Chair and the Thomas Tables do not render traction. Although the manufacturers may label this “intermittent segmental traction,” medically, it is not traction ... [T]his service is not medically necessary as there is a lack of published peer-reviewed literature to support its efficacy.

Blue Cross' Response to Defendants' Objection, Doc. # 33–1, p. 41. Blue Cross stated its conclusion that the miscoding was an “intentional misrepresentation” and demanded repayment of $412,952.93. According to Defendants, an attachment to the letter listed each instance when a bill had been submitted to Blue Cross for mechanical traction—charges which pertained to 1,561 patients in many separate health care plans offered by different employers, all administered by Blue Cross.¹ Defendants allege that they tried to get Blue Cross to reconsider its demand, by appealing both to Blue Cross directly and to the employers of their patients. They claim that Blue Cross ignored these efforts and instead began to recoup the disputed funds by withholding payment on other unrelated claims subsequently submitted by Defendants.

The dispute culminated when Blue Cross filed the present lawsuit. Count I alleges that Defendants breached their Provider Agreements, by submitting claims for unauthorized services, and, in the case of Defendant Korsen, by terminating the Provider Agreement without proper notice to Blue Cross. Count II is for fraud based on false and fraudulent claims submitted by Defendants for compensation. In Count III, Blue Cross alleges that Defendant Korsen made defamatory statements accusing Blue Cross of embezzling funds from him. Count IV states a claim for tortious interference with advantageous relationships, alleging that Korsen communicated directly with entities that do business with Blue Cross in an effort to damage its business relationships. Defendants removed the case to this Court arguing that Blue Cross' state law claims for breach of contract and fraud (Counts I and II) are completely preempted by the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001, et seq. Defendants then answered the complaint in this Court, and filed counterclaims asserting that Blue Cross' retention of compensation allegedly owed to them for unrelated services rendered to other patients constituted a violation of ERISA §§ 1132(a)(3) and 1133. Blue Cross has moved to dismiss the counterclaims; however, that Motion is not presently before the Court.

Standard of Review

This Court has the authority to review a ruling or recommendation of a magistrate judge pursuant to Fed.R.Civ.P. 72. If a magistrate judge rules on an issue that is not dispositive of a litigant's case in chief, and there is an objection, a district judge may review the ruling to determine if it is clearly erroneous or contrary to law. Fed.R.Civ.P. 72(a). If the magistrate judge issues a report and recommendation on a dispositive motion, the district judge's review of the contested matter will be de novo. Fed.R.Civ.P. 72(b)(3). The issue of whether to characterize a magistrate judge's ruling (or recommendation) on a motion to remand as dispositive or non-dispositive has divided courts across the country, and has not been explicitly resolved by the First Circuit. Unauthorized Practice of Law Committee v. Gordon, 979 F.2d 11, 13 (1st Cir.1992). Before Gordon reached the appellate court, this writer had determined that the magistrate judge's remand ruling in that case was non-dispositive. On appeal, the First Circuit concluded it did not have jurisdiction to review the ruling. Id.; see also Cok v. Family Court of R.I., 985 F.2d 32, 34 (1st Cir.1993). In Delta Dental of R.I. v. Blue Cross & Blue Shield of R.I., 942 F.Supp. 740, 745 (D.R.I.1996), this writer again held that “a motion to remand is nondispositive and can be determined by a magistrate judge by final order.” This holding has not been disturbed by the First Circuit. At any rate, in the present case, employing either a de novo or ‘clearly erroneous' standard of review, the R & R must be rejected because Defendants have made a colorable showing that federal subject matter jurisdiction exists for Plaintiff's complaint.

Removal of a case to federal court from state court, pursuant to 28 U.S.C. § 1441(b), is proper where the federal court has original subject matter jurisdiction over the lawsuit, founded on federal law. ² When a plaintiff counters removal with a motion to remand, under 28 U.S.C. § 1447(c), the defendant has the burden to establish federal jurisdiction. Danca v. Private Health Care Systems, Inc., 185 F.3d 1, 4 (1st Cir.1999). According to Danca, defendants must make a “colorable” showing that federal jurisdiction exists. Id. Ordinarily, a court must look at the plain language of the well-pleaded complaint to determine if a question of federal law is implicated. Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 10, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983). However, in certain instances, such as the present case where the preemptive powers of ERISA are at issue, the analysis becomes more complex, as explained herein. Danca, 185 F.3d at 4.

ERISA preemption

ERISA derives its preemptive power from section § 514, 29 U.S.C. § 1144(a). It will preempt or “supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” This means that, when charged with a state cause of action that ‘relates to’ an employee benefit plan, a defendant may raise ERISA § 514 preemption as an affirmative defense. This type of preemption is sometimes referred to as “conflict preemption.” See Children's Hospital Corp. v. Kindercare Learning Centers, Inc., 360 F.Supp.2d 202, 207 (D.Mass.2005).

If a court with proper jurisdiction, including a state court, determines that ERISA does indeed preempt the state cause of action, that court must dismiss the state claim. Id. However, § 514 preemption does not provide a basis for federal jurisdiction, and consequently does not provide a basis for removal. Id.; see also Morris v. Highmark Life Insurance Co., 255 F.Supp.2d 16, 20 (D.R.I.2003); Harvey v. Life Ins. Co. of North America, 404 F.Supp.2d 969, 973 (E.D.Ky.2005); Pascack Valley Hosp. v. Local 464A UFCW Welfare Reimb. Plan, 388 F.3d 393, 398 (3rd Cir.2004).

What is at stake before the Court today is federal jurisdiction. Consequently, the parties' arguments concerning whether or not the claims in the complaint are preempted because they “relate to” an employee benefit plan are not relevant at this point in the analysis....