Safelite Grp., Inc. v. Rothman

• Decision Date: 23 January 2017
• Docket Number: Case No. 15–cv–1878 (SRN/KMM)
• Citation: 229 F.Supp.3d 859
• Parties: SAFELITE GROUP, INC. and Safelite Solutions LLC, Plaintiffs, v. Michael ROTHMAN, in his official capacity as the Commissioner of the Minnesota Department of Commerce, Defendant.
• Court: U.S. District Court — District of Minnesota

229 F.Supp.3d 859

SAFELITE GROUP, INC. and Safelite Solutions LLC, Plaintiffs,

v.Michael ROTHMAN, in his official capacity as the Commissioner of the Minnesota Department of Commerce, Defendant.

Case No. 15–cv–1878 (SRN/KMM)

United States District Court, D. Minnesota.

Signed January 23, 2017

Jay P. Lefkowitz, Christian R. Reigstad, and Steven J. Menashi, Kirkland & Ellis 601 Lexington Ave., New York, NY 10022; John E. Iole, Jones Day, 500 Grant St., Ste. 4500, Pittsburgh, PA 15219; Emily Unger and Richard D. Snyder, Fredrikson & Byron, PA, 200 S. 6th St., Ste. 4000, Minneapolis, MN 55402 for Plaintiffs.

Oliver J. Larson and Michael J. Tostengard, Minnesota Attorney General's Office, 445 Minnesota St., Ste. 1800, St. Paul, MN 55101 for Defendant.

MEMORANDUM OPINION AND ORDER

SUSAN RICHARD NELSON, United States District Judge

This matter is before the Court on the Motion for Summary Judgment filed by Plaintiffs Safelite Group, Inc. and Safelite Solutions LLC ("Pls.' Mot. for Summ. J.") [Doc. No. 69]. For the reasons set forth below, Plaintiffs' Motion is granted in part and denied in part.

I. BACKGROUND

A. Facts

The material facts of this matter are undisputed. Rather, the parties dispute the legal significance of certain facts and which facts are relevant. The Court notes these disputes where necessary to its analysis.

1. The Parties and Relevant Third Parties

Plaintiffs Safelite Group, Inc. and Safelite Solutions LLC (collectively, "Safelite") are nationwide companies that provide two relevant services—auto-glass replacement and repair and claims administration services for insurance companies. (First Decl. of Brian D. O'Mara ("First O'Mara Decl.") at ¶ 3 [Doc. No. 15].) Safelite provides these services in Minnesota, including claims administration for third-party insurers Auto Club Group, Inc. ("AAA"), USAA, and American Family Insurance ("American Family"). (Id. at ¶¶ 3, 6; Decl. of Oliver J. Larson ("Larson Decl.") [Doc. No. 77], Ex. 3 ("Fleischhacker Dep.") at 53¹ [Doc. No. 78]; Hr'g Tr. dated 8/5/2016 ("Hr'g Tr.") at 42 [Doc. No. 88].) In its claims administration role (sometimes referred to as being a "third-party administrator"), Safelite oversees a network of non-Safelite auto-glass replacement and repair shops (the "Network"). (First O'Mara Decl. at ¶ 7.) There is no cost for an auto-glass shop ("shop" or "vendor") to apply to or join the Network. (Id. ) However, important to the present matter, a shop must agree and adhere to pricing-terms for its repair work (i.e., agree to charge only certain amounts for particular repair or replacement jobs) before being allowed to join the Network.² (Id. ) Shops that are not part of Safelite's Network are generally referred to as "non-Network" or "independent" shops.

Third-parties Alpine Glass, Inc. ("Alpine") and BuyRite Auto Glass, Inc. d/b/a/ Rapid Glass ("Rapid") are Minnesota glass shops owned by Michael Reid ("Reid") and Rick Rosar ("Rosar"), respectively. (Larson Decl., Ex. 6 ("Reid Dep.") at 10 [Doc. No. 78], Ex. 7 ("Rosar Dep.") at 11 [Doc. No. 78].) Alpine and Rapid (collectively, the "Minnesota Shops") are non-Network shops. (Reid Dep. at 51; Rosar Dep. at 29.) The Minnesota Shops belong to the Minnesota Glass Association ("MGA"), which at the relevant time employed Michael Schmaltz ("Schmaltz") as its executive director. (See Larson Decl., Ex. 5 ("Schmaltz Dep.") at 10, 14 [Doc. No. 78].)

During the relevant period, Martin Fleischhacker ("Fleischhacker") was the Director of Investigations for Minnesota's Department of Commerce (the "DOC"). (See Fleischhacker Dep. at 11.) Theodore "T.J." Patton was a DOC Investigator. (See Larson Decl., Ex. 4 ("Patton Dep.") at 10 [Doc. No. 78].)

2. Balance Billing

In Minnesota, insureds have the right to select whatever shop they wish to perform auto-glass repair or replacement work. See Minn. Stat. § 72A.201, subd. 6(7), (14). However, insurers are only required to pay the selected shop a "competitive price that is fair and reasonable within the local industry at large[,]" for the work performed. Minn. Stat. § 72A.201, subd. 6(14). If a shop and an insurer disagree on the fair price, the issue is subject to arbitration. See Minn. Stat. §§ 65B.525, 72A.201, subd. 6(14). This system creates the potential for shops to pursue insureds for the difference between what the shop charges and the insurer pays—a practice known as "balance billing." The DOC acknowledges that balance billing is legal in Minnesota. (Fleischhacker Dep. at 69–70, 74; Patton Dep. at 135.) To the best of their knowledge, Reid and Rosar agree this practice is legal. (Reid Dep. at 59; Rosar Dep. at 42–44.)

In the case of shops within Safelite's Network, the price for auto-glass repair work is set by contracts between the insurers and the shops. (First O'Mara Decl. at ¶ 7.) Thus, when an insured selects a Network shop, he/she is only charged the amount the insurer is willing to pay and there is no risk of balance billing. However, non-Network shops are free to charge whatever price they wish, even if it is more than the insurer considers fair and will pay. (See Reid Dep. at 58; Rosar Dep. at 40–41.) It is possible that a non-Network shop may balance bill the insured the difference between the price it charges and the amount the insurer ultimately pays. (See Reid Dep. at 60; Rosar Dep. at 50–51.) At least some Minnesota non-Network shops reserve the right to bill customers for amounts not paid by insurers. (See Decl. of Christian Reigstad ("Reigstad Decl.") [Doc. No. 72], Exs. 5–17³ ("Non–Network Shop Invoices With Balance Billing Language") at 1–27 [Doc. No. 72–2]; Fleischhacker Dep. at 106.) Others do not. (See Larson Decl., Ex. 15 ("Non–Network Shop Invoices Without Balance Billing Language") at 17–40 [Doc. No. 84].)

Reid and Rosar testified that their shops do not balance bill. (Reid Dep. at 59; Rosar Dep. at 51–52.) Instead, they write off the amount they are short paid or take assignment of the policy and attempt to collect the difference from insurers through arbitration. (Larson Decl., Ex. 10 ("Reid Aff.") at ¶ 7 [Doc. No. 80]; Rosar Dep. at 129–30.) Reid, Rosar, and Schmaltz claim that no Minnesota shops actually practice balance billing, but admit they do not know the billing practices of all—or even most—shops. (See Reid Aff. at ¶ 8; Reid Dep. at 61, 68–69; Rosar Dep. at 47–50; Schmaltz Dep. at 107–08.) However, there is evidence in the record that on at least two occasions, non-Network shops balance billed an insured and attempted to collect on that bill. (Reigstad Decl., Exs. 41, 42 ("NCA Collection Letters") [Doc. No. 72–7].)

3. Safelite's Claims Administration and the Relevant Statutory Provisions

Safelite, in conjunction with the insurers for whom it provides claims administration services, develops scripts to use when insureds call to report an auto-glass claim. (First O'Mara Decl. at ¶ 8 [Doc. No. 43].) Minnesota law also requires Safelite to make certain statements and refrain from certain behavior during these calls. See Minn. Stat. § 72A.201, subd. 6. The Court turns to the provisions of that statute that are relevant here.

First, although Safelite is not prohibited from recommending a vendor to an insured, before doing so, it must "offer [the] insured the opportunity to choose the vendor." Minn. Stat. § 72A.201, subd. 6(14). Furthermore, if Safelite does recommend a vendor, it must also give this advisory: "Minnesota law gives you the right to go to any glass vendor you choose, and prohibits me from pressuring you to choose a particular vendor." Id. (hereinafter, the "Mandatory Advisory"). Second, Safelite is prohibited from "engaging in any act or practice of intimidation, coercion, threat, incentive, or inducement for or against an insured to use a particular company or location to provide the motor vehicle glass repair or replacement services or products." Minn. Stat. § 72A.201, subd. 6(16) (hereinafter, the "Anti–Coercion Provision").

Safelite avers that its scripts and claims administration processes in Minnesota comply with these statutory requirements. (See First O'Mara Decl. at ¶ 9.) According to Safelite, insureds often ask for shop recommendations. (See id. ¶ 10.) When this occurs, Safelite will recommend one of its own shops, or a shop within the Network. (Id. at ¶ 11.) If the insured announces he/she has already selected a non-Network shop, Safelite informs the insured that he/she may be balance billed for any difference between what that shop charges and what the insurer pays. (Reigstad Decl., Ex. 19 ("Sample Safelite Script") at MN0027⁴ [Doc. No. 72–3] ("[I]f you still wish to use this shop, you may be responsible for any additional charges."), Ex. 44 ("Safelite's American Family Script") at MN0012 (same) [Doc. No. 72–10] ). Safelite's scripts also communicate the Mandatory Advisory. (See Sample Safelite Script at MN0020; Safelite's American Family Script at MN0008.)

4. The Minnesota Shops' Early Efforts to Have Safelite Investigated

The Minnesota Shops believe Safelite is responsible for driving down the price of auto-glass repair and replacement in Minnesota and taking business from them by "steering" customers to Safelite or Network shops. (Reid Dep. at 21–22; Rosar Dep. at 82, 113–114.) Relevant here, the Minnesota Shops believe that Safelite tells insureds that they will or may be balance billed by non-Network shops in an effort to encourage them to choose Safelite or Network shops. (Reid Dep. at 22; Rosar Dep. at 114.) Since the early 2000s, the Minnesota Shops—along with their attorney, Charles Lloyd ("Lloyd"), and Schmaltz—have regularly complained to the DOC about Safelite. (See Rosar Dep. at 124; Schmaltz Dep. at 126; Fleischhacker Dep. at 31.) The DOC did not act on any of the Minnesota Shops' early complaints because it lacked "evidence of deceptive or misleading statements made as part of [Safelite's alleged] steering efforts." (Larson Decl., Ex. 8 ("Fleischhacker Decl.") at ¶ 3 [Doc. No. 79]; see Fleischhacker Dep. at 60; ...