Lakeland Regional Health System v. Whi

• Citation: 604 F.Supp.2d 983
• Decision Date: 26 March 2009
• Docket Number: No. 1:08-cv-72.,1:08-cv-72.
• Parties: LAKELAND REGIONAL HEALTH SYSTEM, a Michigan corporation, Lakeland Hospitals at Niles and St. Joseph, Inc., a Michigan corporation,<SMALL><SUP>1</SUP></SMALL> and Lakeland Regional Health System Group Health Plan, an Erisa self-funded employer group health plan, Plaintiffs, v. WALGREENS HEALTH INITIATIVES, INC., f/k/a WHP Health Initiatives, Inc., a foreign corporation, and Rite-Aid Corporation, a foreign corporation, Defendants.
• Court: U.S. District Court — Western District of Michigan

Page 983

604 F.Supp.2d 983

LAKELAND REGIONAL HEALTH SYSTEM, a Michigan corporation, Lakeland Hospitals at Niles and St. Joseph, Inc., a Michigan corporation,¹ and Lakeland Regional Health System Group Health Plan, an Erisa self-funded employer group health plan, Plaintiffs, v. WALGREENS HEALTH INITIATIVES, INC., f/k/a WHP Health Initiatives, Inc., a foreign corporation, and Rite-Aid Corporation, a foreign corporation, Defendants.

No. 1:08-cv-72.

United States District Court, W.D. Michigan, Southern Division.

March 26, 2009.

Peter A. Smit, Beverly Holaday, Varnum Riddering Schmidt & Howlett LLP, Grand Rapids, MI, for Plaintiffs.

Bruce W. Neckers, David E. Bevins, Rhoades McKee PC, Kevin A. Rynbrandt, Rynbrandt & Associates, Grand Rapids, MI, for Defendants.

OPINION and ORDER

Granting Defendant WHI's Motion to Dismiss Count 3; Directing Defendant WHI to File an Answer to Counts 1 and 2

PAUL L. MALONEY, Chief Judge.

This is an ERISA action with pendent tort and contract claims under Michigan law. Defendant Walgreens Health Initiatives Inc.'s ("WHI") has filed a Rule 12(b)(6) motion to dismiss count 3, negligence, for failure to state a claim on which relief can be granted. WHI contends that the negligence claim does not allege any duty independent and distinct from the contractual duties the breach of which is the subject of count 2. The plaintiffs filed an opposition brief, WHI filed a reply, and plaintiffs with leave of court filed a sur-reply. Having considered the briefs and determined that oral argument is unnecessary, the court will grant the motion and dismiss count 3.

BACKGROUND

Plaintiffs Lakeland Regional Health System, doing business as Lakeland HealthCare, and Lakeland Hospitals at Niles and Saint Joseph, Inc., doing business as Lakeland Regional Medical Center (collectively "Lakeland") are Michigan corporations with their principal places of business in Michigan. See Complaint filed January 18, 2008 ("Comp") ¶¶ 1-2. In 1996, Lakeland instituted the Lakeland Regional Health System Group Health Plan ("the Plan") as a self-funded employer group health plan within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA"). Lakeland is the Plan sponsor. Comp ¶ 3 and Ex 1. Defendant Walgreen's Health Initiatives, Inc. ("WHI") is an Illinois corporation with its principal place of business in Illinois, and defendant Rite-Aid Corporation ("Rite-Aid") is a Delaware corporation with its principal place of business in Pennsylvania. Comp ¶¶ 4-5.

Lakeland's Plan includes a prescription-drug benefit. After the beneficiary makes a co-payment, the Plan pays the remaining charges for eligible drugs that are prescribed by a physician, physician's assistant, or nurse practitioner who is acting within the scope of his/her license. Comp ¶ 9. In 2000, the Plan and WHI entered into a one-year Prescription Services Agreement ("the agreement") which called for WHI to provide prescription benefit management and claim-processing services to the Plan. The agreement provided that it would automatically renew indefinitely for one-year periods unless the parties terminated the agreement according to its terms. Comp ¶¶ 10-11. WHI agreed to provide "general support and consultative services regarding pharmacy benefit design and implementation, formulary management, administrative and claims processing services, standard reporting packages, marketing, quality management, and utilization functions. Comp ¶ 12 & Ex 2.

In order to implement the agreement, defendant WHI entered into Pharmacy Network Agreements with a number of community retail pharmacies, including Rite-Aid. Under a pharmacy network agreement, a pharmacy agrees to "cooperate with and support" WHI's drug-utilization review program, use its professional judgment to act on review information provided by WHI, and exercise professional judgment in dispensing—or refusing to dispense—covered drugs. Comp ¶¶ 13-15. The pharmacy network agreement requires a participating pharmacy (such as Rite-Aid) to indemnify and hold harmless the Plan sponsor (Lakeland) from any liability which may result or arise out of, inter alia, actual or alleged malpractice, negligence or misconduct by the pharmacy, or from the sale or dispensing of a covered drug to a Plan participant. Comp ¶ 16.

Relying on a police report, Lakeland alleges that from August 2005 to August 2007, Brian Hart, the husband of former Lakeland employee Cindy Hart, forged 53 prescriptions for narcotic drugs in his name and his wife's name, and he filled those prescriptions at four pharmacies. Comp ¶¶ 17-18 and 21. The total cost of narcotics dispensed under prescriptions for Brian and Cindy Hart during that period was about $625,000, of which the Plan paid about $620,000. Comp ¶¶ 19-20. Brian Hart was arrested in August 2007 when it was discovered that he had forged a prescription for an opioid pain medication, Fentora. Comp ¶ 18.

JURISDICTION

The court has uncontested federal-question jurisdiction pursuant to 28 U.S.C. § 1331 due to Lakeland's assertion of an ERISA claim. Based on uncontested allegations in Lakeland's complaint, it appears that the court also has jurisdiction pursuant to 28 U.S.C. § 1332, due to complete diversity of citizenship of the parties and more than $75,000 at stake exclusive of attorneys' fees and costs and interest. See Comp ¶¶ 1-7. Pursuant to 28 U.S.C. § 1367, the court has the authority and discretion to exercise supplemental jurisdiction over Lakeland's state-law claims.

CHOICE OF LAW

The Prescription Services Agreement between plaintiff Lakeland's Plan and defendant Walgreens states that Illinois law should govern. When interpreting contracts in a diversity action—or state-law claims that are pendent to a federal claim—federal courts generally enforce the parties' contractual choice of law. Amerisure Mut. Ins. Co. v. Carey Transp., Inc., 578 F.Supp.2d 888, 897 (W.D.Mich. 2008) (Maloney, C.J.) (citing Savedoff v. Access Group, Inc., 524 F.3d 754, 762 (6th Cir.2008) (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 596, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991) & M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972))).

Here, however, the parties do not seek enforcement of their choice-of-law provision for purposes of this motion. WHI contends that Michigan law governs the tort issues in this case, see WHI's MTD at 5 n. 4 (citing Allmand Assocs., Inc. v. Hercules, Inc., 960 F.Supp. 1216, 1223 n. 3 (E.D.Mich.1997) and Imaging Fin. Servs., Inc. v. Lettergraphics/Detroit, Inc., 178 F.3d 1294, 1999 WL 115473 (6th Cir.1999) (applying Michigan law to defendant's third-party tort claims where the contracts involved contained provisions selecting Massachusetts and New York law)), and plaintiff Lakeland's brief also proceeds under Michigan law.

Accordingly, the court will apply Michigan law to the determination of whether Lakeland has a cognizable tort cause of action against WHI. See, e.g., Savedoff, 524 F.3d at 762 ("As the parties do not dispute that the student loan contracts at issue are governed by Ohio law, we apply Ohio law to the parties' contractual dispute."); State Farm Fire & Cas. Co. v. Liberty Ins. Underwriters, Inc., 2009 WL 702863, *4 (W.D.Mich. Mar. 16, 2009) (Maloney, C.J.) ("As the parties do not dispute that the interpretation of the policies is governed by Michigan substantive law, the court applies Michigan law to this dispute."); Amerisure, 578 F.Supp.2d at 897 ("As the parties do not dispute that the Amerisure-Carey policy is governed by Michigan substantive law, the court applies Michigan law to this dispute.").

PROCEDURAL HISTORY

Lakeland asserts one federal statutory claim and four claims under state common law. Invoking 29 U.S.C. § 1104 and § 1132(a)(2), count one claims that WHI breached its fiduciary duty under ERISA by failing to exercise due care in monitoring the drugs dispensed under the plan. See Comp ¶¶ 23-25. Specifically, Lakeland alleges that WHI knew or had reason to know that the Harts were filling an unusual and excessive number of prescriptions, over an extended period of time, for narcotics that are known to have a high potential for abuse. See Comp ¶¶ 26-30.

Count two alleges that WHI breached its agreement with the Plan by failing to implement quality-management and utilization-management measures that would have led to the investigation of the many forged narcotic prescriptions filled by the Harts, see Comp ¶¶ 33-34, and count three alleges that WHI was negligent for the same reason, including by failing to audit the pharmacies that dispensed the drugs to the Harts, Comp ¶¶ 36-44.

Counts four and five allege that Rite-Aid was negligent, and breached its duty to the Plan as third-party beneficiary of the WHI-Rite Aid pharmacy network agreement. See Comp ¶¶ 46-62. Lakeland seeks more than $600,000 in damages as reimbursement for its payment towards the Harts' fraudulent prescriptions, plus attorneys fees and costs, and interest, see Comp ¶¶ 31, 35, 45, 54 and 62, and it demands a jury trial, Comp at 12.

In April 2008, Rite-Aid timely filed an answer and affirmative defenses with regard to all counts, and WHI filed only a motion to dismiss count three, Lakeland's negligence claim.

LEGAL STANDARD:

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

This court assesses a Rule 12(b)(6) motion to dismiss for failure to state a claim on which relief can be granted under the same standard as a Rule 12(c) motion for judgment on the pleadings. Griffin v. Reznick, 2008 WL 4741738, *2 (W.D.Mich. Oct. 28, 2008) (Maloney, C.J.) (citing Zeigler v. Miskiewicz, 2008 WL 650335, *2 (S.D.Ohio Mar. 5, 2008) (citing Lindsay v. Yates, 498 F.3d 434, 438 (6th Cir.2007))). Such motions turn on legal issues, not an assessment of the evidence. Griffin, 2008 WL 4741738 at *2 (citing Technology Recycling Corp. v. City of Taylor, 186 Fed. Appx. 624, 640 n. 5 (6th Cir.2006) (Griffin, J.) ("Tech Rec") and Thomas v....