VIRGINIA ACADEMY v. GROUP HOSPITALIZATION

• Decision Date: 14 July 2005
• Docket Number: No. 03-CV-392.,03-CV-392.
• Citation: 878 A.2d 1226
• Parties: VIRGINIA ACADEMY OF CLINICAL PSYCHOLOGISTS, et al., Appellants, v. GROUP HOSPITALIZATION AND MEDICAL SERVICES, INC., d/b/a Blue Cross/Blue Shield of the National Capital Area, et al., Appellees.
• Court: D.C. Court of Appeals

878 A.2d 1226

VIRGINIA ACADEMY OF CLINICAL PSYCHOLOGISTS, et al., Appellants, v. GROUP HOSPITALIZATION AND MEDICAL SERVICES, INC., d/b/a Blue Cross/Blue Shield of the National Capital Area, et al., Appellees.

No. 03-CV-392.

District of Columbia Court of Appeals.

Argued June 22, 2004.

Decided July 14, 2005.

Dwight P. Bostwick, with whom A. Katherine Toomey, Washington, DC, Russ Newman, Shirley Ann Higuchi and Alan Nessman were on the brief, for appellants.

Keara M. Gordon, New York, NY, and Paul W. Jacobs, II, Richmond, VA, with whom David Clarke, Jr., Reston, VA, Sara Z. Moghadam, Washington, DC, Jonathan M. Joseph and Roman Lifson, Richmond, VA, were on the brief, for appellees.

Before SCHWELB and WASHINGTON, Associate Judges, and STEADMAN, Senior Judge.¹

STEADMAN, Senior Judge.

This lawsuit arose from the marketing and management of mental health care benefits under the Capital Choice Triple Option ("Capital Choice") health insurance plan. The plaintiffs consisted of three groups; namely, two individual subscribers to the Capital Choice Plan, six clinical psychologists who provided services under the plan, and a professional association of clinical psychologists. They sued the appellee insurance companies and insurance benefit administrators for, inter alia, common law fraud based on two alleged misrepresentations about the scope of mental health coverage under the Capital Choice plan.

The principal issues on appeal are whether the trial court erred in (1) granting summary judgment on the common law fraud count; and (2) denying a motion to amend the complaint to include a claim for fraud under the District of Columbia Consumer Protection Procedures Act.² We affirm.

I. Facts

Marjorie Burdetsky switched jobs in the fall of 1997 and had to choose a health insurance provider for herself and her husband, Joaquin Araya, through her new employer, the Arlington County, Virginia government. At the time, Araya was receiving mental health treatment. Burdetsky's options included three types of plans from Blue Cross Blue Shield of the National Capital Area (Blue Cross)³: a managed care (HMO) option, preferred provider organization (PPO) option, or an indemnity plan.⁴ Blue Cross also offered a hybrid insurance plan, the Capital Choice Triple Option plan, under which Burdetsky and her husband could choose among the three different types of insurance coverage (HMO, PPO, and indemnity) each time they sought medical care. Burdetsky also had the choice of a plan offered by another insurance company, Kaiser Permanente. Burdetsky chose the Capital Choice Triple Option plan, which had lower co-payments than the Blue Cross PPO or indemnity plans and more mental health benefits than the Kaiser Permanente plan.⁵ Burdetsky completed an enrollment form on December 1, 1997, and her insurance coverage became effective on January 1, 1998.

Health Management Strategies International, Inc. ("HMS"), as the administrator of mental health benefits for the Capital Choice plan, was charged with creating and maintaining the mental health provider panel for the Capital Choice plan and assessing the needs of subscribers for services under the plan. By contracting to be in HMS' network, providers agreed to see patients with Capital Choice insurance and comply with administrative procedures required by HMS. The providers were then paid according to a contracted-for fee schedule.

In the fall of 1997, while Burdetsky was choosing among her health insurance options, HMS implemented a new fee schedule that reduced the amount providers were paid by the insurance company for their services. On November 24, 1997, HMS mailed a letter to every provider on the mental health panel explaining that there would be a 30-40% cut in their reimbursement rates effective January 1, 1998. Approximately 100 mental health professionals out of a total panel of approximately 1000 providers left the provider network as a result of the rate cut. The six clinical psychologists who are appellants here were among those who had contracted with HMS to provide mental health services to patients covered by the Capital Choice plan and were affected by the rate cut. Before being covered under the Capital Choice plan, Burdetsky's husband, Joaquin Araya, had already been receiving treatment beginning in July 1997 from Dr. John Gualtieri, a clinical psychologist and a provider appellant, for depression and post-traumatic stress disorder. Dr. Gualtieri was listed as both an HMO and a PPO provider in the Capital Choice plan materials. In January 1998, Dr. Gualtieri's treatment of Araya continued, now under the HMO portion of the new Capital Choice insurance plan. The plan also offered the opportunity to receive services from Dr. Gualtieri under the PPO coverage at a higher rate of co-payment than under the HMO. After February 6, 1998, Araya's treatment with Dr. Gualtieri continued but under the PPO coverage, despite that fact that the insurance benefits booklet relating to the Capital Choice plan stated that mental health treatment was covered in full under the HMO for "up to 52 visits" per calendar year.⁶

The instant litigation began in December 1998 when a wide-ranging nine-count complaint was filed by all appellants alleging two counts of fraudulent misrepresentation, four counts of breach of contract, two counts of breach of implied contract, and one count of tortious interference with a business relationship. The claims and their resolution in the course of the extended trial court proceedings were as follows:

Count Description of Plaintiff Group Resolution Cause of Action ----------------------------------------------------------------------- One Fraudulent Burdetsky & Araya Summary judgment for Misrepresentation defendants ----------------------------------------------------------------------- Two Breach of Contract Burdetsky & Araya Settled ----------------------------------------------------------------------- Three Breach of Implied Burdetsky & Araya Settled Contract ----------------------------------------------------------------------- Four Breach of Contract Psychologists Abandoned (patient care) ----------------------------------------------------------------------- Five Breach of Implied Dr. Gualtieri, Summary judgment for Contract Dr. Chilstrom defendants ----------------------------------------------------------------------- Six Breach of Contract Dr. Potter Summary judgment for (wrongful defendants termination) ----------------------------------------------------------------------- Seven Breach of Contract Psychologists Settled (implementation of rate reduction) ----------------------------------------------------------------------- Eight Fraudulent Dr. Potter Summary judgment for Misrepresentation defendants ----------------------------------------------------------------------- Nine Tortious Dr. Gualtieri, Summary judgment for Interference with Dr. Chilstrom, defendants Business Araya Relationship -----------------------------------------------------------------------

The only resolutions of these claims challenged on appeal relate to the grant of summary judgment on Burdetsky and Araya's common law fraud claim and the refusal to allow an amendment to the complaint, described in the following paragraph.

The common law fraud claim filed in December 1998 by Burdetsky and Araya was based on two specific instances of alleged misrepresentation by appellees: (1) the informational materials for the plan say that the HMO will cover up to 52 medically necessary sessions but Araya received only 5 HMO covered sessions under the Capital Choice plan before being induced to switch to the PPO coverage; and (2) the size and stability of the panel of providers was falsely represented because appellees had just embarked on a rate cut that consumers were not warned about when they were recruited with materials that included the large provider list. Appellants unsuccessfully sought leave to amend the complaint in May 2001 to include two claims under the D.C. Consumer Protection Procedures Act ("CPPA"), D.C.Code §§ 28-3901 et seq. (2001), based on the same misrepresentations alleged in the common law fraud claim. The consumers wanted to bring a direct action under the statute, alleging that failure to provide a large, stable panel of psychologists and up to 52 treatment sessions per year through the HMO plan, after representing that the HMO would provide those benefits, constituted unlawful trade practices under the statute. The consumers, psychologists, and appellant Virginia Academy of Clinical Psychologists ("VACP")⁷ sought to pursue a representative cause of action under the statute seeking injunctive and declaratory relief all based on the same type of alleged unlawful trade practices but as applied to a broad range of subscribers. The trial court denied the motion to amend in October 2001 on the grounds of undue delay in seeking leave to amend that "was not satisfactorily explained" and prejudice to appellees if the new CPPA claims were permitted at that point in the litigation.

The trial court granted summary judgment for the appellees on the common law fraud claim on June 26, 2002. The trial court ruled that "there is simply insufficient evidence to permit a finding that the defendants acted fraudulently." In particular, the trial court concluded that the appellants did not demonstrate reliance upon the alleged misrepresentations of the appellees in choosing their health insurance plan.⁸ The trial court entered a final order and judgment on March 19, 2003 dismissing all remaining claims as moot pursuant to the parties' settlement agreement entered into on March 14, 2003.⁹

II. Summary Judgment

In Weakley v. Burnham Corp., 871 A.2d 1167 (D.C.2005), we recently had occasion to reiterate basic principles governing summary judgment. "In order to be entitled to summary judgment, [the defendants] must demonstrate that there is no...