GS Labs. v. Medica Ins. Co.

• Decision Date: 12 April 2023
• Docket Number: 22-cv-2988 (SRN/TNL)
• Parties: GS Labs, Inc., Plaintiff, v. Medica Insurance Company, Defendant.
• Court: U.S. District Court — District of Minnesota

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GS Labs, Inc., Plaintiff, v. Medica Insurance Company, Defendant.

No. 22-cv-2988 (SRN/TNL)

United States District Court, D. Minnesota

April 12, 2023

Kyle R. Kroll, Christianna L. Finnern, David A. Aafedt, and Thomas H. Boyd, Winthrop & Weinstine, PA, 225 S. 6th St., Ste 3500, Minneapolis, MN 55402, for Plaintiff

Jamie R. Kurtz, Jeffrey Sullivan Gleason, and Stephanie Alicia Chen, Robins Kaplan LLP, 800 LaSalle Ave., Ste. 2800 Minneapolis, MN 5402, for Defendant

ORDER ON DEFENDANT'S MOTION TO DISMISS

SUSAN RICHARD NELSON, UNITED STATES DISTRICT JUDGE

This matter is before the Court on Defendant Medica Insurance Company's Motion to Dismiss [Doc. No.10]. Based on a review of the files, submissions, and proceedings herein, and for the reasons below, the Court grants Defendant's Motion to Dismiss.

I. BACKGROUND

Plaintiff GS Labs, Inc. (“GS Labs”), a provider of COVID-19 diagnostic testing, first filed suit against Medica in this Court in October 2021. (See GS Labs v. Medica Ins. Co., (“GS Labs I”), No. 21-cv-2400 (SRN/TNL), Compl. [Doc. No. 1].)^[1] GS Labs alleged that Medica refused to fully reimburse it at the publicly-posted cash price for COVID-19 diagnostic testing that GS Labs had provided to over 16,000 Minnesotans insured by Medica. (Id. ¶¶ 1-2.) GS Labs asserted two federal claims for the violation of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, as well as state law claims for unjust enrichment, negligence per se, and punitive damages. (Id. ¶ 59-133.)

GS Labs moved for partial summary judgment and Medica moved to dismiss under Rule 12(b)(6) for failure to state a claim. (GS Labs I, Doc. Nos. 8, 29.) This Court granted Medica's motion and denied GS Labs' motion on September 20, 2022. (GS Labs I, Doc. No. 54.) Specifically, the Court held that “there is no private right of action or remedy under the CARES Act for diagnostic-testing providers to recover reimbursement for COVID-19 testing at the publicly-posted cash price.” GS Labs I, No. 21-cv-2400 (SRN/TNL), 2022 WL 4357542, at *11 (D. Minn. Sept. 20, 2022). Because GS Labs' CARES Act claims for monetary and declaratory relief failed as a matter of law, the Court dismissed them with prejudice. Id. at *12-13. The Court declined to exercise supplemental jurisdiction over GS Labs' remaining state law claims and dismissed them without prejudice. Id. On October 19, 2022, GS Labs appealed to the Eighth Circuit Court of Appeals (GS Labs I, Doc Nos. 58, 61), where the appeal is pending.

Three weeks later, on November 9, 2022, GS Labs sued Medica again, this time in Hennepin County District Court. (See Compl. [Doc. No. 1-1].) Medica removed the case to federal court, resulting in the instant lawsuit, “GS Labs II.” (Notice of Removal [Doc. No. 1] ¶¶ 7-8.)

In its Complaint, GS Labs largely repeats the factual allegations from its first complaint, verbatim. (See Compl. ¶¶ 1-2, 4, 9-14, 16-27, 29-30, 32-39, 41-55.) However, GS Labs also alleges that when Medica's insureds scheduled testing appointments, they assigned to GS Labs any rights they held under insurance plans issued or facilitated by Medica, allowing GS Labs to pursue statutory and contractual claims on the insureds' behalf. (Id. ¶¶ 56-63, 128-36.) GS Labs also alleges that Medica, in its capacity as an administrator, intentionally caused third-party health plan providers to refuse to reimburse GS Labs for diagnostic testing provided to members of those plans. (Id. ¶¶ 64-82.)

In addition to reasserting the unjust enrichment and negligence per se claims that this Court dismissed without prejudice in GS Labs I, GS Labs now asserts claims for tortious interference with prospective economic advantage, breach of contract, and a claim under Section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (“ERISA”). (Id. ¶¶ 83-136.)

In a similar case in this District, albeit brought by an insurer, BCBSM, against GS Labs, GS Labs asserted counterclaims identical to the claims it had asserted in GS Labs I, but also later included a counterclaim arising under ERISA. See BCBSM, Inc. v. GS Labs, LLC. No. 22-cv-513 (ECT/DJF), 2023 WL 2044329, at *1 (D. Minn. Jan. 30, 2023). As in the instant case, the dispute in BCBSM centers on the insurer's refusal to reimburse GS Labs for COVID-19 testing at GS Labs' requested rate. Id. at *1-2. In January 2023, Judge Tostrud ruled that GS Labs had failed to state a claim under the CARES Act, but had plausibly alleged a cause of action under ERISA. Id. at *4, *10-12.

In the instant case, Medica now moves to dismiss, arguing that res judicata bars GS Labs' claims for tortious interference (Count III), breach of contract (Count IV), and underpayment of ERISA benefits (Count V). (Def.'s Mem. [Doc. No. 12] at 6-9; Def.'s Reply [Doc. No. 20] at 1-6.) GS Labs argues in response that res judicata is inapplicable. (Pl.'s Opp'n [Doc. No. 17] at 35-41.)

II. DISCUSSION

A. Standard of Review

When considering a motion to dismiss under Rule 12(b)(6), the Court accepts the facts alleged in the complaint as true, and views those allegations in the light most favorable to the plaintiff. Hager v. Ark. Dep't of Health, 735 F.3d 1009, 1013 (8th Cir. 2013). However, the Court need not accept as true wholly conclusory allegations or legal conclusions couched as factual allegations. Id.

“Dismissal on the basis of res judicata at the pleading stage is appropriate if the defense is apparent on the face of the complaint.” Magee v. Hamline Univ., 775 F.3d 1057, 1058-59 (8th Cir. 2015) (quoting C.H. Robinson Worldwide, Inc. v. Lobrano, 695 F.3d 758, 763-64 (8th Cir. 2012)). The “face of the complaint” includes public records, materials attached to the complaint, and materials embraced by the complaint. C.H. Robinson, 695 F.3d at 764. Because GS Labs I is a matter of public record, the Court finds it appropriate to consider the ruling and associated documents, as well the ruling in BCBSM. See Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).

B. Res Judicata

While res judicata encompasses both issue preclusion and claim preclusion, Medica asserts only claim preclusion here. Claim preclusion prohibits a party from filing sequential lawsuits when claims asserted in a subsequent suit were or could have been raised in a prior suit. Magee, 775 F.3d at 1059; Jaakola v. U.S. Bank Nat'l Tr. Ass'n, 609 Fed. App'x 877, 979-80 (8th Cir. 2015). The doctrine of claim preclusion therefore promotes finality, “encourages reliance on judicial decisions, bars vexatious litigation and frees the courts to resolve other disputes.” Brown v. Felsen, 442 U.S. 127, 131 (1979).

To establish claim preclusion, Medica must show: “(1) the first suit resulted in a final judgment on the merits; (2) the first suit was based on proper jurisdiction; (3) both suits involve the same parties (or those in privity with them); and (4) both suits are based upon the same claims or causes of action.” Magee, 775 F.3d at 1059 (quoting Yankton Sioux Tribe v. U.S. Dep't of Health & Human Servs., 533 F.3d 634, 639 (8th Cir. 2008)).

Here, GS Labs appears not to dispute that GS Labs I satisfies the second and third elements: the Court had proper jurisdiction over a lawsuit against the same party, Medica. (See Pl.'s Opp'n at 35-41.) The success of Medica's Motion to Dismiss therefore hinges on the first and fourth elements of claim preclusion.

1. Final Judgment on the Merits

The Court's Order in GS Labs I dismissed the CARES Act claims with prejudice under Rule 12(b)(6) and dismissed the unjust enrichment, negligence per se, and punitive damages claims without prejudice. GS Labs I, 2022 WL 4357542 at *13. Medica argues that the Order was a “final judgment on the merits” and precludes all of GS Labs' claims in the present suit, while GS Labs argues that the Order does not constitute a “final judgment on the merits” for any of its claims. (Def.'s Mem. at 7-8; Def.'s Reply at 1-2; Pl.'s Opp'n at 36-37.) The answer lies somewhere in the middle.

a. Claims Subject to Preclusion

As to the dismissal with prejudice, “it is well-established that a Rule 12(b)(6) dismissal is a ‘judgment on the merits' for res judicata purposes unless the plaintiff is granted leave to amend or the dismissal is reversed on appeal.” United States v. Maull, 855 F.2d 514, 516 n.3 (8th Cir. 1988); Glick v. Ballentine Produce, Inc., 397 F.2d 590, 593 (8th Cir. 1968) (“[A] dismissal for failure to state a cause of action is a final judgment on the merits sufficient to raise the defense of res judicata in a subsequent action between the parties.”); Risby v. Johnson, No. SACV 16-02275 AG (JCGx), 2017 WL 8793329, at *2 (C.D. Cal. June 5, 2017) (“[T]his Court's previous order . . . concluding that federal law did not create a private right of action . . . was a final adjudication on the merits.”). No exceptions are present here: the Court did not grant GS Labs leave to amend its complaint and, although an appeal is currently pending, the Eighth Circuit has not reversed GS Labs I. In short, the dismissal of the CARES Act claim with prejudice is a judgment on the merits entitled to preclusive effect.

However a dismissal without prejudice does not function as a judgment on the merits for res judicata purposes, particularly when based on jurisdictional considerations. Both the Eighth Circuit and secondary authorities are in accord on this point. See Al-Saadoon v. Barr, 973 F.3d 794, 801 (8th Cir. 2020) (“Ordinarily, a judgment dismissed without prejudice [for lack of subject matter jurisdiction] does not create a res judicata bar.”); Pilgrim v. State Farm Mut. Auto. Ins. Co., No. 4:05-cv-00522, 2005 WL 8164520 (W.D. Ark. Sept. 1, 2005) (holding that res judicata did not bar new state law claims where the court in the first...