Electrostim Med. Servs., Inc. v. Health Care Serv. Corp.

• Decision Date: 16 June 2015
• Docket Number: No. 13-20649,13-20649
• Parties: ELECTROSTIM MEDICAL SERVICES, INCORPORATED, Plaintiff - Appellant, v. HEALTH CARE SERVICE CORPORATION, a Mutual Legal Reserve Company, Defendant - Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

ELECTROSTIM MEDICAL SERVICES, INCORPORATED, Plaintiff - Appellant, v. HEALTH CARE SERVICE CORPORATION, a Mutual Legal Reserve Company, Defendant - Appellee.

No. 13-20649

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

June 16, 2015

Appeals from the United States District Court for the Southern District of Texas.

USDC No. 4:11-CV-2745

Before PRADO, ELROD, and GRAVES, Circuit Judges.

PER CURIAM:^*

Electrostim Medical Services, Inc. (Electrostim) appeals the district court's dismissal of its second amended complaint. For the reasons explained below, we affirm in part and reverse in part the district court's judgment of dismissal, and we remand this case for further proceedings.

I.

Electrostim appeals from a judgment of dismissal for failure to state a claim upon which relief can be granted; therefore, "we accept all well-pleaded facts as true and view those facts in the light most favorable to the plaintiff." Montoya v. FedEx Ground Package Sys., Inc., 614 F.3d 145, 146 (5th Cir. 2010) (internal quotation marks and alterations omitted). Electrostim is a Florida medical-equipment company that provides electro-stimulating devices and related services to patients in different states. Blue Cross Blue Shield of Texas (BCBSTX) is a division of Health Care Service Corp. (HCSC) that does business in Texas. In 2007, Electrostim and BCBSTX entered into a participating-provider agreement under which BCBSTX agreed to pay Electrostim for properly submitted claims for "Covered Services rendered to Subscribers." The agreement defined "Covered Services" as "those health services specified and defined as Covered Services under the terms of a Subscriber's Health Plan." "Subscribers" included the patients to whom Electrostim supplied equipment and services and who were also beneficiaries of insurance policies administered by BCBSTX or another Blue Cross Blue Shield entity. BCBSTX terminated its provider agreement with Electrostim effective August 1, 2010. Electrostim's lawsuit concerns claims that arose both before and after the effective date of the termination.

Electrostim sued BCBSTX in state court, alleging that BCBSTX wrongfully terminated the provider agreement. Electrostim then amended its complaint to seek relief for its unpaid claims, asserting claims for: breach of the provider agreement; unjust enrichment; breach of implied contract; third-party beneficiary rights; quantum meruit; suit on account; violation of prompt-payment statutes; violation of ERISA, 29 U.S.C. § 1132(a); breach of ERISA fiduciary duty, 29 U.S.C. § 1109; and declaratory judgment. The first amended complaint did not identify the claims that BCBSTX allegedly failed to pay toElectrostim. BCBSTX removed to the U.S. District Court for the Southern District of Texas on the basis of diversity and moved for dismissal. During that motion's pendency, BCBSTX prepared a spreadsheet of all the claims that it believed were at issue.

When Electrostim provided its own spreadsheets that did not correspond with the one provided by BCBSTX, the district court held a hearing, which took place on August 2, 2012. The court dismissed the first amended complaint by oral pronouncement, ordering Electrostim to file a second amended complaint that clarified the source and nature of the claims and what the causes of action were. It also ordered Electrostim to provide a complete list of the healthcare claims at issue. The district court did not elaborate on all of the defects that it perceived in the first amended complaint, and no written dismissal order followed the oral pronouncement that the district court made at the hearing. Rather, at the hearing, the district court focused on its perception that the complaint lacked clarity as to the causes of action and claims in dispute, and the consequent difficulty of determining preemption issues. In fact, the district court specifically stated that Electrostim "may have a breach of contract claim."

Electrostim's second amended complaint asserted the same causes of action as the previous one and yet again did not identify the healthcare claims at issue. At a hearing held on August 29, 2012, the district court ordered the parties to exchange additional information regarding the claims, and in particular, it ordered BCBSTX to provide specific information about the reasons for claim denials. BCBSTX then moved to dismiss the second amended complaint for failure to state a claim.

In October 2012, BCBSTX identified approximately 8,800 claims that Electrostim had submitted during the relevant time period before terminationof the provider agreement. Of these pre-termination claims, BCBSTX had denied 2,296 without any payment:¹

• 77 claims for patients covered by BCBSTX plans, namely:

• 74 claims under the federal employee program for which BCBSTX served as administrator;

• 1 claim under a Texas state government plan for which BCBSTX served as administrator;

• 2 claims under employer-sponsored plans for which BCBSTX served as administrator; and

• 2,219 "BlueCard" claims for patients who had healthcare plans administered by Blue Cross Blue Shield entities other than BCBSTX and for which the decision to deny coverage was made by an entity other than BCBSTX.

BCBSTX also identified 273 claims that Electrostim submitted to BCBSTX for products and services rendered after termination of the provider agreement. In addition to these post-termination claims, Electrostim contended that its lawsuit also put at issue around 20,000 other post-termination claims that had been submitted to, and denied by, Blue Cross Blue Shield entities other than BCBSTX. Electrostim contended that it would have submitted these claims to BCBSTX had the provider agreement not been terminated.

At a hearing held on February 25, 2013, the district court discussed, among other things, the 20,000 post-termination claims that Electrostim had submitted to entities other than BCBSTX, advising Electrostim that either those claims would have to be submitted to BCBSTX, or Electrostim mightwish to add the other entities as defendants. However, at a hearing held on April 23, 2013, the district court suggested that submitting the additional 20,000 post-termination claims to BCBSTX would be a waste of time because, as the parties agreed, the proper entities to review these claims were those located in the states in which the patients resided or received services, and many of Electrostim's patients resided and received services in states other than Texas. The district court did not, however, order Electrostim to refrain from submitting the additional 20,000 claims to BCBSTX. Indeed, the district court opined that Electrostim's lawsuit was not ripe as to the 20,000 additional claims because they had not been submitted to (and denied by) BCBSTX, suggesting that Electrostim might still wish to submit the 20,000 additional claims to BCBSTX so that they could be made a part of the lawsuit. Even so, Electrostim never submitted these additional claims to BCBSTX.²

At the April 23, 2013 hearing, the district court determined, with Electrostim's consent, that it would consider BCBSTX's spreadsheets to be incorporated in the second amended complaint for the purpose of resolving the motion to dismiss. Thereafter, the district court received supplemental briefing by both parties that focused on the two broad categories of claims at issue (pre-termination and post-termination). With the benefit of this supplemental briefing, the district court granted BCBSTX's motion to dismiss. The court concluded that each count of the complaint failed to state a plausible claim for relief, and it entered an order of dismissal with prejudice. After thedistrict court denied Electrostim's motion to amend the judgment, Electrostim timely appealed.

II.

We conduct a de novo review of a district court's Rule 12(b)(6) dismissal, applying the same standard that the district court used. Gen. Elec. Capital Corp. v. Posey, 415 F.3d 391, 395 (5th Cir. 2005). To assess a complaint's legal sufficiency under Rule 12(b)(6), we must accept all well-pleaded factual allegations and, viewing them in the light most favorable to the plaintiff, determine whether the plaintiff has stated a "plausible"—as opposed to merely "speculative" or "conceivable"—claim that he is entitled to relief. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In so doing, we disregard a complaint's unsupported legal conclusions, for "'a formulaic recitation of the elements of a cause of action'" will not suffice to state a plausible claim. Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). Rather, a complaint must allege "enough factual matter (taken as true) to suggest" the elements required for a claim. Twombly, 550 U.S. at 556.

When a complaint has properly been dismissed, the district court has discretion whether to grant leave to amend, and we will not disturb the district court's ruling unless it abused that discretion. Simmons v. Sabine River Auth. La., 732 F.3d 469, 478 (5th Cir. 2013). That discretion, however, is limited because under Rule 15, the district court "should freely give leave when justice so requires." Fed. R. Civ. P. 15(a)(2). "[U]nless there is a substantial reason to deny leave to amend, the discretion of the district court is not broad enough to permit denial." Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 598 (5th Cir. 1981); see also id. at 598-600 (holding that a district court erred in denying leave to amend where amendment would not be futile, the plaintiff did not unduly delay, there were not repeated failures to cure the deficiency, and noprejudice would result to the opposing party). Repeated failure to cure a complaint's deficiencies and futility of amendment are legitimate considerations for denying leave to amend. In re Southmark Corp., 88 F.3d 311, 314-15 (5th Cir. 1996).

III.

Before we discuss the claims that are at issue in this appeal, we identify those...