Franks v. Prudential Health Care Plan, Inc., Civ.A. SA99CA1324FB.

Citation164 F.Supp.2d 865
Decision Date28 February 2001
Docket NumberNo. Civ.A. SA99CA1324FB.,Civ.A. SA99CA1324FB.
PartiesTimothy FRANKS, and Similarly Situated Persons, Plaintiffs, v. PRUDENTIAL HEALTH CARE PLAN, INC., a Texas Corporation d/b/a Prucare; and Healthcare Recoveries, Inc., a Delaware Corporation, Defendants.
CourtUnited States District Courts. 5th Circuit. Western District of Texas

Frank Herrera, Jr., Law Offices of Frank Herrera, San Antonio, TX, Charles

A. Mathis, Jr., Herman, Middleton, Casey & Kitchens, Atlanta, GA, Donald M. Kresen, Gold, Khourney & Turak, L.C., Moundsville, WV, Faye R. Rosenberg, Herman Middleton Casey & Kitchens, LLP, Savannah, GA, David A. McKay, Atlanta, GA, for Timothy Patrick Franks.

Frank Herrera, Jr., Law Offices of Frank Herrera, San Antonio, TX, Charles A. Mathis, Jr., Herman, Middleton, Casey & Kitchens, Atlanta, GA, Donald M. Kresen, Gold, Khourney & Turak, L.C., Moundsville, WV, for Esteban Briones, plaintiff.

J. Hoke Peacock, III, Susman Godfrey L.L.P., Houston, TX, for Prudential Health Care Plan, Inc., Healthcare Recoveries, Inc.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' RENEWED MOTION TO DISMISS

BIERY, District Judge.

This case presents issues of first impression within the Fifth Circuit, as well as issues for which there appear to be established precedents. The Court will of course abide by the judicial chain of command in those areas in which there is binding authority. In uncharted Fifth Circuit waters, this Court will seek guidance from reasonableness, common sense and non-binding precedents, and will fathom an educated prediction of what conclusion the appellate court will reach.

Plaintiff Franks was involved in an automobile accident and settled with the third-party tortfeasor. Defendant Prudential Health Care Plan, Inc. ("Prudential"), a health maintenance organization ("HMO"), requested Mr. Franks to reimburse Prudential out of his settlement proceeds the value of the medical services Prudential provided to him in relation to the accident. Mr. Franks complied with Prudential's request, but later filed suit arguing Prudential had no right to reimbursement. Mr. Franks also alleges Prudential, through its collection agent, defendant HealthCare Recoveries, Inc. ("HRI"), recovered more in reimbursement for his medical treatment than it had paid out and therefore more than it was entitled to collect

Mr. Franks contends equitable considerations run in his favor, while defendants contend it is they who possess equitable appeal. In reality, the issues presented must be resolved on legal, not equitable, grounds. Mr. Franks maintains Prudential's reimbursement practice results in a windfall to defendants as they are collecting twice: once from the member who prepaid Prudential and again from the member's tort settlement. Defendants respond it is Mr. Franks who would obtain a double recovery: once from Prudential for medical care and again from the tortfeasor with whom he settled. While the Court is sympathetic to Mr. Franks' desire to retain all the proceeds from the settlement which he negotiated with the party who injured him, contractual and precedential considerations weigh in favor of Prudential which agreed with Mr. Franks to receive the "reasonable value" of any recovery he may obtain from a third-party tortfeasor.

The First Circuit Court of Appeals has determined an HMO reimbursement clause is enforceable. See Harris v. Harvard Pilgrim Health Care, Inc., 208 F.3d 274, 278-79 (1st Cir.2000). The Eighth Circuit Court of Appeals has upheld "reasonable value" language in an HMO subrogation provision. Ince v. Aetna Health Mgmt., Inc., 173 F.3d 672, 676 (8th Cir. 1999). This Court believes the Fifth Circuit will agree with these cases. Under the dictates of judicial economy, it thus makes more sense to address these issues now and, if this Court is in error, the matter can proceed on remand. If this Court were to decline to follow these appellate decisions, certify the class, proceed through possibly years of litigation, and the Fifth Circuit follows Harris and Ince, valuable time and resources are wasted.

Before the Court are Defendants' Renewed Motion to Dismiss (marked "Received" by the District Clerk on May 2, 2000), defendants' Memorandum of Law in Support of Defendants' Renewed Motion to Dismiss (marked "Received" by the District Clerk on May 2, 2000), plaintiff Franks' response (marked "Received" by the District Clerk on June 7, 2000), defendants' reply (marked "Received" by the District Clerk on June 21, 2000), plaintiff Franks' supplemental brief (marked "Received" by the District Clerk on June 27, 2000), the Court's October 20, 2000, Order Requesting Further Briefing from Plaintiff Franks (docket no. 42), plaintiff Franks' response (docket no. 45), defendants' response (marked "Received" by the District Clerk on December 14, 2000) and plaintiff Franks' reply to defendants' response (docket no. 47).1 After careful consideration, the Court is of the opinion the renewed motion to dismiss should be granted in part and denied in part. Specifically, the Court is of the opinion Mr. Franks' claims, with the exception of his request for common fund attorneys' fees, should be dismissed.2

I. BACKGROUND

Plaintiff Franks was enrolled in a Prudential HMO through his employer, ATC Long Distance.3 In early 1995, Mr. Franks was involved in a traffic accident. The providers in Prudential's network furnished medical care to Mr. Franks for injuries he sustained in the accident. In 1996, Mr. Franks settled his personal injury claims with the other driver's insurance company.

Sometime thereafter, Prudential, through HRI, asked Mr. Franks to reimburse Prudential $2,074.98 out of his settlement proceeds, the value of the medical services Prudential provided to him in relation to the accident. After the settlement was finalized, Mr. Franks and his attorney complied with Prudential's request.

Prudential based its right to reimbursement upon plan documents in effect at the time of Mr. Franks' injury in early 1995, and on May 26, 1995, the date he received the last of his accident-related medical treatment. That contractual document between Prudential and Mr. Franks' employer provided that Prudential was entitled to be reimbursed "the reasonable cash value" of the medical services it provided to Mr. Franks for injuries caused by third-parties. On July 1, 1995, Prudential changed the plan documents. Under this new arrangement, Prudential remained entitled to recover the reasonable cash value of medical services from Mr. Franks' settlement, but this applies only if Mr. Franks "received any services, supplies or other benefits to which [he] is not entitled by the terms of the Group Health Care coverage and of the Group Contract."

In September of 1999, Mr. Franks filed this proposed class action alleging Prudential lacks enforceable rights of reimbursement. He also maintains Prudential recovered more in reimbursement for his medical treatment than Prudential had to pay in cash for that treatment. He contends Prudential inflated its reimbursement request to him by: 1) obtaining discounts from its healthcare providers for his medical treatment, while asking him to refund Prudential for the cost of non-discounted treatment; 2) compensating some of his healthcare providers via capitation or per diem rates, while asking him to reimburse Prudential for the cash value of such medicals services; and 3) by failing to give him credit for membership fees and co-payments. Mr. Franks maintains Prudential improperly sought reimbursement from him for the amount its providers typically "bill" for their services, instead of the amount Prudential actually "paid" for them. Suit was filed in federal court with Mr. Franks seeking a declaratory judgment and alleging twenty-four claims under state and federal law. Specifically, Mr. Franks alleges the following causes of action: breach of contract (count I), breach of implied covenant of good faith and fair dealing (court II), bad faith (count III), breach of fiduciary duty (count IV), accounting (count V), unconscionability (count VI), intentional misrepresentation (count VII), misrepresentation and negligence (count VIII), wrongful conversion (count IX), unjust enrichment (count X), fraud (count XI), negligence and gross negligence (count XII), insurance code violations (count XIII), enforcement of the terms of the plan documents under section 502(A)(1)(B) of the Employee Retirement Income Security Act ("ERISA") (count XIV), breach of fiduciary duty under section 502(A)(3) of ERISA (count XV), unjust enrichment under the common-law of ERISA (count XVI), a "billed v. paid" accounting claim (count XVII), violation of the Racketeering, Influence and Corrupt Organization Act ("RICO") section 1962(a)(count XVIII), violation of RICO section 1962(b) (Count XIX), violation of RICO section 1962(c) (count XX), violation of RICO section 1962(d) (count XXI), violation of RICO section 1962(d) (count XXII), violation of RICO section 1962(d) (count XXIII), and conspiracy to commit unfair debt collection practices violations under federal law (count XXIV).

Defendants move to dismiss under rule 12(b)(6) alleging Mr. Franks has failed to state a claim upon which relief can be granted. Defendants contend:

• Mr. Franks' claims fail because Prudential had the right to seek reimbursement for "reasonable" values.

• The terms of Mr. Franks' plan documents must be enforced as written, and Mr. Franks can demonstrate no reason for this Court to invalidate those documents.

• As an independent matter, ERISA preempts all of Mr. Franks' state law claims.

• Mr. Franks' plan defeats his claim for "common fund" attorneys' fees.

Mr. Franks maintains Prudential's documents do not defeat his claim. He also argues Prudential and HRI have no right to pursue and obtain reimbursement from plan members like himself. Alternatively, Mr. Franks contends, if Prudential can seek reimbursement,...

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