Delta Dental v. Blue Cross & Blue Shield

• Decision Date: 26 September 1996
• Docket Number: C.A. No. 95-0546L.
• Citation: 942 F.Supp. 740
• Court: U.S. District Court — District of Rhode Island
• Parties: DELTA DENTAL OF RHODE ISLAND, Plaintiff, v. BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Defendant.

942 F.Supp. 740

DELTA DENTAL OF RHODE ISLAND, Plaintiff, v. BLUE CROSS & BLUE SHIELD OF RHODE ISLAND, Defendant.

C.A. No. 95-0546L.

United States District Court, D. Rhode Island.

September 26, 1996.

William R. Landry, Blish & Cavanagh, Providence, RI, for Plaintiff.

Steven E. Snow, Partridge, Snow & Hahn, Providence, RI, for Defendant.

MEMORANDUM AND ORDER

LAGUEUX, Chief Judge.

This case involves an antitrust action brought by Delta Dental of Rhode Island ("Delta Dental") alleging anticompetitive practices by defendant Blue Cross & Blue Shield of Rhode Island ("Blue Cross") in the market for prepaid dental services in Rhode Island. Delta Dental initiated this suit in Rhode Island Superior Court, relying exclusively on state law in asserting that Blue Cross has engaged in predatory pricing and other exclusionary practices in violation of the Rhode Island Antitrust Act, R.I.Gen. Laws § 6-36-1 et seq. Delta Dental further claims that the challenged practices violate Rhode Island's common law doctrines of unfair competition and tortious interference with contractual relations.

On the motion of Blue Cross, the case was removed to this District Court pursuant to 28 U.S.C. § 1441(b). Subsequently, Magistrate Judge Timothy M. Boudewyns entered an order dated February 22, 1996 remanding the action to the state court, upon a finding that no federal question existed to support jurisdiction under 28 U.S.C. § 1331. The matter is now before this Court on the appeal of Blue Cross from the Magistrate Judge's remand order. For the reasons that follow, the Magistrate Judge's Order is affirmed.

I. Facts and Procedural Background

The following facts are not in dispute, unless otherwise noted. The somewhat tortured relationship between the parties dates back to Delta Dental's entry into the Rhode Island dental services market in the early 1970's. Because Delta Dental, as a new provider, had little administrative structure to speak of, it turned to Blue Cross' established health care network (which did not at that time include a dental benefits package) to provide the necessary support and administration. In June of 1973, the parties agreed to jointly develop a prepaid dental benefits plan for the Rhode Island market. Pursuant to the agreement between the parties (the "Administrative Agreement"), Delta Dental determined all professional matters regarding the plan's coverage, such as fee schedules and benefits structures. Blue Cross assumed the management duties for the plan, including the maintenance of enrollment records and administration of claims.

The relationship between the parties broke down in the early 1990's. Complaining that Delta Dental was interfering with the effective administration of the plan,¹ Blue Cross terminated the Administrative Agreement on December 13, 1991, effective January 13, 1993. According to Delta Dental, however, Blue Cross' true motive for termination was a desire to develop its own dental benefits plan to compete with the Delta Dental plan. Delta Dental asserted that a program to develop such a competing plan had already been initiated prior to the December 1991 notice of termination, in violation of a noncompetition clause in the Administrative Agreement.

These events culminated in the parties' first trip to this federal court. In 1992, Blue Cross filed an action against Delta Dental here, seeking damages, declaratory relief, and injunctive relief for alleged violations of both federal and state antitrust laws. Delta Dental of Rhode Island v. Blue Cross & Blue Shield of Rhode Island, C.A. No. 92-0336L (D.R.I. filed June 22, 1992). At the heart of that case was the assertion that Delta Dental had provided false and misleading information to the dental community and potential customers — first to discourage Blue Cross from entering the market, and then to discourage customers from purchasing Blue Cross' dental plan² — all in an effort to protect and maintain its dominance of Rhode Island's dental care financing market.³ Blue Cross maintained that these and other practices violated sections 1 and 2 of the Sherman Act, 15 U.S.C. § 1 et seq., as well as §§ 6-36-4 and 6-36-5 of the Rhode Island Antitrust Act, supra.

Delta Dental denied the allegations in Blue Cross' complaint, and asserted as an additional defense the McCarran-Ferguson Act's "business of insurance" exemption from antitrust scrutiny, 15 U.S.C. § 1012. Moreover, Delta Dental filed numerous counterclaims stemming from the Administrative Agreement, including claims for breach of contract, conversion, breach of fiduciary duty, and intentional interference with contractual and business relations.

This initial dispute was eventually resolved by a settlement approved by this Court on April 20, 1994. However, this second round of litigation between the parties commenced in September 1995, when Delta Dental filed the present action against Blue Cross in the Rhode Island Superior Court in and for the County of Providence. The complaint alleges that Blue Cross has engaged in exclusionary and predatory practices since its entry into Rhode Island's prepaid dental benefits market in January 1993. Specifically, Delta Dental asserts that Blue Cross has engaged in illegal cross-subsidization and predatory pricing in an effort to achieve a monopoly. According to the complaint, Blue Cross has deliberately driven dental insurance prices to unprofitably low levels, choosing to operate at a loss in dental insurance while covering these losses with the profits generated by its other health care service plans. Delta Dental avers that Blue Cross is willing to sustain such losses until all competitors, unable to cover similar losses, are driven from the Rhode Island market.

Delta Dental asserts that the challenged conduct violates the Rhode Island Antitrust Act, supra. In addition, Delta Dental has asserted claims under the state common law doctrines of unfair competition, interference with contractual relations, and interference with prospective contractual relations, on the theory that Blue Cross has used the challenged practices to take former and prospective customers away from Delta Dental. Blue Cross has filed counterclaims against Delta Dental under federal and state antitrust law, as well as state tort theories of intentional interference with current contractual and prospective business relations.

While Delta Dental's complaint is based entirely on state law, Blue Cross removed the action to this Court under the "artful pleading" doctrine enunciated in Federated Dept. Stores, Inc. v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981). The crux of the argument is that while Delta Dental could have brought its claims in federal court under the Sherman Act, it instead chose to bring its claim exclusively under the state antitrust statute, allegedly in order to deprive Blue Cross of certain federal defenses as well as to avoid the res judicata effects of the previous federal litigation between the parties.

After a hearing before Magistrate Judge Timothy M. Boudewyns, the case was remanded to Providence County Superior Court. In his order of February 22, 1996, the Magistrate Judge concluded that: (1) no federal question was presented in the complaint, (2) the "artful pleading" exception to the well-pleaded complaint rule was inapplicable in this instance, and, (3) the action was not barred by the doctrine of res judicata, since the present case involved conduct that arose after the settlement of the previous litigation in this Court.

Blue Cross filed a timely appeal from the Magistrate Judge's order remanding the case to state court. After hearing arguments of counsel, the Court took the matter under advisement. The matter is now in order for decision.

II. The Nature of the Motion to Remand

As an initial matter, this Court must determine the proper standard of review to be applied to this appeal of the Magistrate Judge's remand order. To this end, the Court must decide whether a motion to remand is best characterized as a "dispositive" or "nondispositive" motion within the meaning of 28 U.S.C. § 636(b)(1), Rule 72 of the Federal Rules of Civil Procedure, and Local Rules 32(b) and 32(c).

Under 28 U.S.C. § 636(b)(1)(A), the district court may refer to a magistrate judge for hearing and determination any pending pretrial matter, with the exception of eight motions specifically listed therein:

a judge may designate a magistrate to hear and determine any pretrial matter pending before the court, except a motion for injunctive relief, for judgment on the pleadings, for summary judgment, to dismiss or quash an indictment or information made by the defendant, to suppress evidence in a criminal case, to dismiss or to permit maintenance of a class action, to dismiss for failure to state a claim upon which relief can be granted, and to involuntarily dismiss an action.

A magistrate judge's determination of a matter not within the eight exceptions can be appealed to the district court under a "clearly erroneous or contrary to law" standard. 28 U.S.C. § 636(b)(1)(A) (1994).

As for the eight motions excepted by § 636(b)(1)(A), the district court may also refer these matters to a magistrate judge under § 636(b)(1)(B). In such cases, however, the magistrate judge may file only proposed findings of fact and recommendations for disposition with the district court. 28 U.S.C. § 636(b)(1)(B) (1994). A party may serve and file objections to the proposed findings and recommendations, which the district court reviews de novo. Id.

Rule 72 of the Federal Rules of Civil Procedure implements the two-tiered structure outlined by § 636(b)(1); it does so, however, using slightly different terminology. Instead of listing the eight matters excepted in § 636(b)(1)(A), Rule 72 characterizes pretrial motions as either "dispositive of a claim or defense of a party" or not dispositive. For dispositive matters the provisions of § 636(b)(1)(B) apply, by which...