Pennsylvania Psychiatric v. Green Spring Health

Decision Date06 February 2002
Docket NumberNo. 00-3403.,00-3403.
Citation280 F.3d 278
PartiesPENNSYLVANIA PSYCHIATRIC SOCIETY, Appellant, v. GREEN SPRING HEALTH SERVICES, INC.; Magellan Health Services, Inc.; Highmark, Inc.; Keystone Health Plan West, Inc.; Keystone Health Plan Central, Inc.; Keystone Health Plan East, Inc.
CourtU.S. Court of Appeals — Third Circuit

Philip H. Lebowitz (Argued), Pepper Hamilton, Philadelphia, PA, Attorney for Appellant.

John R. Leathers (Argued), Buchanan Ingersoll, Pittsburgh, PA, Attorney for Appellees, Green Spring Health Services, Inc. and Magellan Health Services, Inc.

Gerri L. Sperling, Springer Bush & Perry, Pittsburgh, PA, Attorney for Appellees Highmark, Inc. and Keystone Health Plan West, Inc.

Carleton O. Strouss, Kirkpatrick & Lockhart, Harrisburg, PA, Attorney for Appellee, Keystone Health Plan Central, Inc.

Thomas S. Biemer, John J. Higson, Dilworth Paxson, Philadelphia, PA, Attorneys for Appellee, Keystone Health Plan East, Inc.

Jack R. Bierig, Sidley Austin Brown & Wood, Chicago, IL, Attorney for Amici Curiae Appellant, The American Medical Association and Pennsylvania Medical Society.

Before SCIRICA, NYGAARD and BARRY, Circuit Judges.


SCIRICA, Circuit Judge.

The Pennsylvania Psychiatric Society sued several managed health care organizations on behalf of its member psychiatrists and their patients. The gravamen of its complaint was that the managed health care organizations impaired the quality of health care provided by psychiatrists to their patients by refusing to authorize necessary psychiatric treatment, excessively burdening the reimbursement process and impeding other vital care.

The principal issue on appeal is whether the Pennsylvania Psychiatric Society has properly pleaded associational and third-party standing. Finding the Society would require significant individual participation to establish its member psychiatrists' claims, the District Court dismissed its complaint for lack of associational standing.1 The District Court also found the Society's member psychiatrists lacked third-party standing to pursue their patients' claims. As an alternative ground for dismissal, the District Court held the mandatory arbitration provision in the psychiatrists' contracts barred the Society from advancing their members' claims in court.

We believe the District Court's dismissal under Fed.R.Civ.P. 12(b)(6) was premature. For this reason, we will vacate and remand for further proceedings.


The District Court had subject matter jurisdiction under 28 U.S.C. § 1331 because certain claims asserted by the Pennsylvania Psychiatric Society arose under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461.2 We have jurisdiction under 28 U.S.C. § 1291.


The Pennsylvania Psychiatric Society, a nonprofit corporation representing licensed psychiatrists in Pennsylvania, filed suit on behalf of its member psychiatrists and their patients who subscribe to managed health care plans administered by Green Spring Health Services.

There are several defendants. Green Spring Health Services, Inc. provides a network of psychiatrists as well as administrative services for managed health care plans; Magellan Health Services, Inc. is its corporate parent. Keystone Health Plan West, Inc., Keystone Health Plan Central, Inc., and Keystone Health Plan East, Inc. are health maintenance organizations that contract with Green Spring Health Services to provide mental health and substance abuse services to their subscribers. Highmark, Inc. is the parent company of Keystone Health Plan West (these managed care organizations collectively are referred to as "the MCOs"). Green Spring Health Services, Magellan Health Services and Highmark choose which psychiatrists to credential to provide these services.

Green Spring Health Services administers the psychiatric and substance abuse services for the employee benefit plans provided by the health management organizations. For this purpose, it enters into contracts with psychiatrists (the "Provider Agreement") to form a provider network to service the plans. In particular, the Provider Agreement assures that Green Spring Health Services will not undermine the psychiatrists' responsibility to provide patients with the mental health services they require. For most disputes arising between credentialed psychiatrists and Green Spring Health Services, the Provider Agreement also contains a mandatory arbitration clause that requires exhaustion of internal review procedures before seeking binding arbitration.

Alleging the MCOs unfairly profit at the expense of the psychiatrists and their patients, the Pennsylvania Psychiatric Society asserts several tort and breach of contract claims for impeding necessary psychiatric treatment. The Pennsylvania Psychiatric Society contends the MCOs refused to authorize and provide reimbursement for medically necessary mental health treatment; interfered with patients' care by permitting non-psychiatrists to make psychiatric treatment decisions; violated Provider Agreements by improperly terminating relationships with certain psychiatrists; and breached the contractual duties of good faith and fair dealing by failing to timely pay psychiatrists and by referring patients to inconvenient treatment locations, thereby depriving some patients access to treatment.

On the basis of these allegations, the Pennsylvania Psychiatric Society claims the MCOs tortiously interfered with the psychiatrists' livelihood as well as the psychiatrist-patient relationship. In addition, the Society asserts the MCOs fraudulently misrepresented the quality of care their plans would provide to subscribers and the benefits psychiatrists would receive for providing their services. Finally, on behalf of its members' patients, the Society alleges the MCOs made false representations to their subscribers in violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Const. Stat. Ann. § 201-1 et seq. (West 2001).

The complaint sought declaratory relief, injunctive relief, and damages. The Pennsylvania Psychiatric Society does not appeal the dismissal of its damages claims.

The suit commenced in state court but was removed to federal court on grounds that ERISA preempted all or, at least, some of the Society's claims. Recommending dismissal, the Magistrate Judge issued a Report and Recommendation finding the Society lacked standing to assert the claims of its members and their patients. As an alternative ground for dismissal, the Magistrate Judge found the mandatory arbitration clause in the psychiatrists' contracts foreclosed advancing the claims in court. The District Court adopted the Magistrate Judge's Report. The Pennsylvania Psychiatric Society timely appealed.


The Pennsylvania Psychiatric Society's ability to press the claims of its members and their patients initially hinges on whether it meets the constitutional requirements for associational standing. For its part, the Society seeks only to pursue claims on behalf of its members and their patients; it does not allege direct injury to itself.

Our review of a dismissal under Fed. R.Civ.P. 12(b)(6) for lack of standing is plenary. ACLU-NJ v. Township of Wall, 246 F.3d 258, 261 (3d Cir.2001); Gen. Instrument Corp. v. Nu-Tek Elecs. & Mfg., Inc., 197 F.3d 83, 86 (3d Cir.1999). On appeal, we must accept as true all material allegations of the complaint and draw all reasonable inferences in a light most favorable to plaintiff. Maio v. Aetna, Inc., 221 F.3d 472, 481-82 (3d Cir.2000). "`The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.'" In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir.1997) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)). Therefore, we may affirm the district court only if we believe that the association would be entitled to no relief under any set of facts consistent with its allegations. Allegheny Gen. Hosp. v. Philip Morris, Inc., 228 F.3d 429, 434-35 (3d Cir.2000); City of Pittsburgh v. West Penn Power Co., 147 F.3d 256, 262 n. 12 (3d Cir.1998).


To satisfy the "case or controversy" standing requirement under Article III, § 2 of the United States Constitution, a plaintiff must establish that it has suffered a cognizable injury that is causally related to the alleged conduct of the defendant and is redressable by judicial action. Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180-81, 120 S.Ct. 693, 145 L.Ed.2d 610 (2000) (discussing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)); The Pitt News v. Fisher, 215 F.3d 354, 359 (3d Cir.2000). Associations may satisfy these elements by asserting claims that arise from injuries they directly sustain. See, e.g., Babbitt v. United Farm Workers Nat'l Union, 442 U.S. 289, 299 n. 11, 99 S.Ct. 2301, 60 L.Ed.2d 895 (1979). Absent injury to itself, an association may pursue claims solely as a representative of its members. See, e.g., New York State Club Ass'n, Inc. v. City of New York, 487 U.S. 1, 108 S.Ct. 2225, 101 L.Ed.2d 1 (1988); Pub. Interest Research Group of N.J., Inc. v. Magnesium Elektron, Inc., 123 F.3d 111 (3d Cir.1997). By permitting associational standing, we "recognize[] that the primary reason people join an organization is often to create an effective vehicle for vindicating interests that they share with others." Int'l Union, United Auto., Aerospace & Agric. Implement Workers v. Brock, 477 U.S. 274, 290, 106 S.Ct. 2523, 91 L.Ed.2d 228 (1986); see also Joint Anti-Fascist Refugee Comm. v. McGrath, 341 U.S. 123, 187, 71 S.Ct. 624, 95 L.Ed. 817 (1951) (Jackson, J., concurring) (noting purpose of joining an association "often is to permit the association ... to vindicate the interests of all")....

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