Case: 11-30610 Document: 00511593819 Page: 1 Date Filed: 09/06/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 6, 2011
No. 11-30610 Lyle W. Cayce
Clerk
OPELOUSAS GENERAL HOSPITAL AUTHORITY, a Public Trust, d/b/a
Opelousas General Health System,
Plaintiff-Appellee
v.
FAIRPAY SOLUTIONS, INC., LEMIC INSURANCE COMPANY, AND
ZURICH AMERICAN INSURANCE COMPANY
Defendants-Appellants
Appeal from the United States District Court
for the Western District of Louisiana
Before HIGGINBOTHAM, DAVIS, and ELROD, Circuit Judges.
PER CURIAM:
Defendants FairPay Solutions, Inc. (FairPay), LEMIC Insurance Company
(LEMIC) and Zurich American Insurance Company (Zurich) appeal the
judgment of the district court holding that the local controversy exception to
federal court jurisdiction under the Class Action Fairness Act applies to this
class action suit filed by Opelousas General Hospital Authority (Opelousas
General) and remanding this case to Louisiana state court. Based on our
conclusion that Opelousas General failed in its burden to establish that the
conduct of LEMIC, the sole local defendant, forms a significant basis of the
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No. 11-30610
claims of the potential class, we vacate the remand order and direct that the case
be reinstated on the district court’s docket.
I.
Plaintiff Opelousas General Hospital sued three defendants in Louisiana
state court for violations of the Louisiana Racketeering Act. The plaintiff class
argues that FairPay, a Texas bill review company, reviews the bills from
Louisiana hospitals (the plaintiff class) and calculates a recommended payment
below the rate required by the Louisiana Workers’ Compensation Act.1 Zurich
and LEMIC, insurance companies based in Illinois and Louisiana respectively,
apply FairPay’s recommended payment when reimbursing the plaintiff
hospitals.2 The plaintiff alleges an enterprise between all three defendants to
misappropriate funds using FairPay’s under-calculation, arguing that the
Louisiana’s Racketeering Act makes each member of the enterprise liable in
solido for the acts of the other.3
Defendants removed the case to federal court, asserting jurisdiction under
the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2) (CAFA), and diversity
jurisdiction because of the fraudulent joinder of LEMIC. Plaintiff requested
discovery to assist in briefing the remand issues. After discovery, Plaintiff
moved to remand under CAFA’s local controversy exception. The district court
concluded that the local controversy exception applied and granted the motion
1
Plaintiff argues that Louisiana law requires the employer (or its insurer) to pay 90%
of the billed charges. Defendants respond that Louisiana law allows the payment of the mean
of the usual and customary charge, which is what FairPay’s calculation purports to achieve.
2
Along with the payment, LEMIC and Zurich pass along to the hospitals an
Explanation of Review form, which states the payment reflects the mean of the usual and
customary charge.
3
The contractual relationship between FairPay and LEMIC forms only through two
third-parties, both operating outside of Louisiana. Also, FairPay presents evidence that
LEMIC had no knowledge of FairPay prior to this litigation and there existed no
communication between LEMIC and Zurich.
2
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No. 11-30610
to remand at a hearing, followed by a written order. It did not mention the
defendants’ arguments of fraudulent misjoinder. The defendants requested
permission to appeal, which this court granted.
II.
We review de novo whether the local controversy exception to CAFA
jurisdiction should apply in this case. Preston v. Tenet Healthsystem Mem. Med.
Center, Inc., 485 F.3d 793, 796 (5th Cir. 2007); Admiral Ins. Co. v. Abshire, 574
F.3d 267, 272, n.5 (5th Cir. 2009). The plaintiffs bear the burden of establishing
that they fall within CAFA’s local controversy exception. Preston, 485 F.3d at
797; Frazier v. Pioneer Americas, LLC, 455 F.3d 542, 546 (5th Cir. 2006). Other
courts addressing this question recognize that the exception is intended to be
narrow, “with all doubts resolved in favor of exercising jurisdiction over the
case.” Evans v. Walter Indus. Inc., 449 F.3d 1159, 1163 (11th Cir. 2006);
Westerfield v. Independent Processing, LLC, 621 F.3d 819, 822 (8th Cir.
2010)(narrow exception).
Only two aspects of the local controversy exception are at issue in this
case.4 The parties have stipulated that more than two-thirds of the members of
4
The pertinent provisions of 28 U.S.C. § 1332(d)(4) read as follows:
(4) A district court shall decline to exercise jurisdiction under paragraph (2) -
(A)(i) over a class action in which--
(I) greater than two-thirds of the members of all proposed plaintiff classes in the
aggregate are citizens of the state in which the action was originally filed;
(II) at least 1 defendant is a defendant-
(aa) from whom significant relief is sought by members of the plaintiff
class;
(bb) whose alleged conduct forms a significant basis for the claims
asserted by the proposed plaintiff class; and
(cc) who is a citizen of the State in which the action was originally filed;
and
(III) principal injuries resulting from the alleged conduct or any related conduct
of each defendant were incurred in the State in which the action was originally
filed; and
(ii) during the 3-year period preceding the filing of that class action, no other class
action has been filed asserting the same or similar factual allegations against any of
3
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the proposed plaintiff class are citizens of Louisiana, that the injuries resulting
from the alleged conduct of the defendants were incurred in Louisiana, and that
no other class action has been filed in the last three years asserting the same or
similar factual allegations against any of the defendants. Under the remaining
two factors, the local controversy exception requires the district court to remand
a class action that otherwise satisfies CAFA’s jurisdictional requirements if at
least one local defendant is a defendant from whom significant relief is sought
by members of the class and whose alleged conduct forms a significant basis for
the claims asserted. 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa) and (bb). Because
failure of either element will require reversal, we elect to focus on the second
element - whether the alleged conduct of Louisiana defendant LEMIC forms a
significant basis for the claims asserted by the proposed plaintiff class.
As a preliminary matter, Opelousas General argues that our inquiry
should be limited solely to the allegations of the complaint and that extrinsic
evidence should not be considered. This argument is based on the statute’s use
of the works “sought” and “alleged” in the key provisions of the local controversy
exception. 28 U.S.C. § 1332(d)(4)(A)(i)(II)(aa) and (bb); Coleman v. Estes Exp.
Lines, Inc., 631 F.3d 1010, 1019 (9th Cir. 2011); Kaufman v. Allstate New Jersey
Insurance Company, 561 F.3d 144 (3d Cir. 2009). Whatever the merits of that
argument, Opelousas General did not object to the use of extrinsic evidence
before the district court and in fact requested discovery and relied on the results
of its own discovery as well as the affidavits submitted by the defendants to
establish the local controversy exception. We do not consider arguments on
appeal not presented to the district court. AG Acceptance Corp., 564 F.3d 695,
700 (5th Cir. 2009). Also the doctrine of judicial estoppel bars Opelousas
the defendants on behalf of the same or other persons . . . .
§ 1332(d)(4)(A).
4
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General from asserting a position in this appeal that is contrary to the position
it previously took in the district court. Ergo Science, Inc. v. Martin, 73 F.3d 595,
598 (5th Cir. 1996).
Whether we limit our inquiry to the allegations of the complaint or
examine the evidence before the district court, we conclude that Opelousas
General, who has the burden of proof, has failed to establish that LEMIC’s
conduct forms a significant basis for the claims asserted. The plain text of 28
U.S.C. § 1332(d)(A)(i)(II)(bb)
relates the alleged conduct of the local defendant, on one hand, to all
the claims asserted in the action, on the other. The provision does
not require that the local defendant’s alleged conduct form a basis
of each claim asserted; it requires the alleged conduct to form a
significant basis of all the claims asserted.
Kaufman, 561 F.3d at 156. Opelousas General’s complaint contains no
information about the conduct of LEMIC relative to the conduct of the other
defendants, FairPay and Zurich, as it relates to the claims of the putative class
of Louisiana hospitals or even lead plaintiff Opelousas General. The allegations
center on the legality of FairPay’s calculations of payments owed on the workers’
compensation claims submitted by the plaintiff hospitals. FairPay recommends
reduced reimbursement amounts at rates that FairPay claims meet the
requirements of the LWCA. The plaintiffs allege that the recommended
reimbursements do not meet the statutory requirements of the LWCA and that
Fairpay and the Defendant Insurers, LEMIC and Zurich, achieve the lower
reimbursement rate by using a different calculation than the one specified by the
LWCA. The plaintiffs further allege that this scheme is a racketeering activity
requiring the joint efforts of all of the defendants, rendering them liable in
solido. Clearly nothing in the complaint distinguishes the conduct of LEMIC
from the conduct of the other defendants. The complaint makes no effort to
quantify or even estimate the alleged illegal underpayments made by LEMIC
5
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versus those made by Zurich. The complaint therefore does not allege facts
describing LEMIC’s conduct so as to establish that LEMIC’s conduct forms a
significant basis of the plaintiff’s claims.
We reach the same result if we look to the evidence submitted by the
parties, which adds little to the above analysis. The foundation of plaintiff’s
claims rest on the allegation that FairPay’s review of the claims for
reimbursement does not comply with Louisiana law and that LEMIC’s and
Zurich’s reliance on FairPay’s reimbursement recommendation results in them
underpaying Louisiana hospitals for the workers’ compensation outpatient
services. Other than conclusory arguments, Opelousas General presents nothing
to support any direct contact or communication between the defendants as a
group to support its claim of an illegal racketeering enterprise to accomplish
these underpayments and the evidence submitted by the defendants tends to
show that no enterprise exists. The plaintiff submitted a single Explanation of
Reimbursement on which plaintiffs allege that LEMIC misrepresented the
method of calculation of the reimbursement. The form also refers questions to
FairPay. Although Opelousas General argues that LEMIC and Zurich occupy
identical roles in the enterprise, none of this evidence connects LEMIC to Zurich
or provides any basis to compare LEMIC’s conduct to that of the other
defendants to determine whether LEMIC’s conduct is significant to the plaintiff’s
claims.
Nor does it establish that LEMIC’s conduct affected all or a significant
portion of the putative class. Kaufman, 561 F.3d at 156, citing Evans, 449 F.3d
at 1167 (“[T]he significant basis provision could be satisfied even if not every
member of the putative class had a claim against the local defendant, as long as
a ‘significant number or percentage of putative class members’ did have such a
claim.”) As described by Opelousas General, FairPay is the hub of the alleged
enterprise and LEMIC and Zurich are the spokes. FairPay submitted an
6
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affidavit stating that LEMIC is one of more that 100 insurers across the country
for whom FairPay reviewed charges by Louisiana hospitals for Louisiana
workers’ compensation outpatient services. The plaintiff class asserts claims for
all of those charges based on FairPay’s conduct. However only two insurers,
LEMIC and Zurich, are named as defendants. These facts fail to establish that
LEMIC’s conduct forms a significant basis of the plaintiff’s claims.5
Opelousas General argues that because the Louisiana Racketeering Act
imposes solidary liability on all the defendants who are part of an enterprise
violating the act, LEMIC’s conduct is necessarily significant because it is equally
liable with the other defendants for the entirety of the alleged harm. This
argument conflates the requirement that the local defendant’s conduct form a
significant basis of the claims with the requirement that the local defendant be
one from whom significant relief is sought. The Eleventh Circuit noted in a
similar case in which the plaintiffs were alleging joint and several liability
against the defendants that “the mere fact that relief might be sought against
[the local defendant] for the conduct of others (via joint liability) does not convert
the conduct of others into the conduct of [the local defendant] so as to also satisfy
the ‘significant basis’ requirement.” Evans, 449 F.3d at 1167, n.7. Opelousas
General cannot rely on its claims of a racketeering enterprise to fill the gaps in
proof it is required to provide to establish that LEMIC’s conduct forms a
significant basis for the claims asserted by the proposed plaintiff class.
5
Both Opelousas General and FairPay submitted statistical evidence in support of their
respective positions. We decline to consider those statistics. Opelousas General’s statistics
on the number of claims within its counsel’s office that involve LEMIC and Zurich do not
purport to be a representative sample of the putative class. We similarly disregard the
statistics submitted by FairPay that recommended bill reductions attributable to LEMIC for
relevant charges represented 6.9% of the bill reductions recommended by FairPay to all
insurers. FairPay did not provide a comparable statistic for Zurich, the other insurer
defendant.
7
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This opinion should not be read to require a definitive analysis of the
measure of damages caused by each defendant. But more detailed allegations
or extrinsic evidence detailing the local defendant’s conduct in relation to the
out-of-state defendants must be provided than plaintiffs produced in this case
to establish this statutory exception.6
III.
Plaintiff Opelousas General failed to meet its burden to establish that the
conduct of LEMIC, the local defendant, forms a significant basis for the claims
asserted by the plaintiff class and thus that the local controversy exception to
CAFA jurisdiction applies in this case. Accordingly we vacate the judgment of
the district court remanding this case to state court and direct that the case be
reinstated on the district court’s docket.
6
Given this disposition of the appeal, we do not reach appellants’ fraudulent joinder
argument.
8