Attorneys for Appellants Attorneys for Appellees
David R. Frick Irwin B. Levin
Anthem Insurance Co., Inc. David J. Cutshaw
Indianapolis, Indiana Cohen & Malad, LLP
Indianapolis, Indiana
Thomas G. Stayton
John Joseph Tanner
Daniel R. Roy
Baker & Daniels
Indianapolis, Indiana
____________________________________________________________________________
__
In the
Indiana Supreme Court
_________________________________
No. 49S05-0310-CV-435
Associated Medical Networks, Ltd.,
Associated Insurance Companies, Inc., and
Anthem Health Systems, Inc., Appellants (Defendants below),
v.
Dr. William R. Lewis, Dr. Darryl Fortson and
Wabash Avenue Medical Center, and all others
similarly situated, Appellees (Plaintiffs
below).
_________________________________
Interlocutory Appeal from the Marion Superior Court, No. 49D12-9912-CP-1710
The Honorable Robyn L. Moberly, Judge
_________________________________
On Petition To Transfer from the Indiana Court of Appeals, No. 49A05-0203-
CV-122
_________________________________
March 31, 2005
Dickson, Justice.
This appeal challenges the trial court's determination that the
predominance and superiority requirements of Indiana Trial Rule 23(B)(3)
were satisfied for purposes of maintaining a class action. Concluding that
predominance was not established, we reverse the class certification.
The plaintiffs, Dr. William R. Lewis, Dr. Darryl Fortson, and Wabash
Avenue Medical Center (collectively, "the Providers"), brought this action
to compel the defendants, Associated Medical Networks, Ltd., Associated
Insurance Companies, Inc., and Anthem Health Systems, Inc. (collectively,
"Anthem"), for payment of medical expenses under assignments executed by
patients, and for certification as a class to proceed on behalf of all
other similarly situated health care providers.
The class certification was preceded by rather extensive litigation in
both the state and federal courts, as more fully described in the opinion
of the Court of Appeals. This interlocutory appeal is based on the trial
court's Order Certifying Plaintiff Class, which made the following findings
with respect to T.R. 23(B)(3), the focus of this appeal:
The elements of Rule 23(B)(3) are satisfied in the present
matter because common questions predominate over individual ones and a
class action is superior to other available methods for the fair and
efficient adjudication of this controversy. The Court notes that
individual class members do not appear to wish to control the
prosecution of separate actions, that no other litigation concerning
this controversy has been commenced, that it is desirable to
concentrate this litigation in a single forum, and that no
difficulties are likely to be encountered in the management of this
action as a class action. Defendants' common course of conduct in
paying patients of non-Network health care providers
directly is a predominant factual and legal issue.
Appellants' Appendix at 15. The court then defined and certified the
following plaintiff class:
Any and all health care providers in the State of Indiana, who have
ever had restrictions placed on their license to practice medicine by
the Health Professions Bureau, including their professional
associations, corporations, partnerships, associates, and partners, or
who, for any reason, were not preferred health care providers or
network providers, and to which Defendants and their predecessors
failed to forward checks for medical services rendered to patients
insured by Defendants or their predecessors (under health insurance
contracts which are not governed by ERISA or which are specifically
exempted from ERISA pursuant to 29 U.S.C. sec. 1003[1]) directly to
the health care provider, or otherwise include said health care
provider as a payee on said checks, and who were damaged
thereby.
Id. at 15-16 (footnote added). Anthem sought and received permission from
the trial court and the Court of Appeals to bring this interlocutory appeal
of the class certification order. The Court of Appeals affirmed the class
certification. Assoc. Med. Networks Ltd. v. Lewis, 785 N.E.2d 230 (Ind.
Ct. App. 2003). We granted transfer. 804 N.E.2d 752 (Ind. 2003).
As its sole contention in this interlocutory appeal, Anthem asserts
that the trial court erroneously found that the Providers satisfied the
"predominance" and "superiority" requirements of T.R. 23(B)(3). The
relevant language of T.R. 23(B) provides:
(B) Class actions maintainable. An action may be maintained as a
class action if the prerequisites of subdivision (A) are satisfied,
and in addition:
(1) * * *
(2) * * *; or
(3) the court finds that the questions of law or fact
common to the members of the class predominate over any
questions affecting only individual members, and that a class
action is superior to other available methods for the fair and
efficient adjudication of the controversy. The matters
pertinent to the findings include:
(a) the interest of members of the class in
individually controlling the prosecution or defense of
separate actions;
(b) the extent and nature of any litigation
concerning the controversy already commenced by or against
members of the class;
(c) the desirability or undesirability of
concentrating the litigation of the claims in the
particular forum;
(d) the difficulties likely to be encountered in the
management of a
class action.
For purposes of this opinion, the language of subsection (B)(3) stating the
requirement that certain questions "predominate over any questions
affecting only individual members" is referred to as the "predominance
requirement." And the language requiring that "a class action is superior
to other available methods for the fair and efficient adjudication of the
controversy" is referred to as the "superiority requirement."
The determination of whether an action is maintainable as a class
action is "committed to the sound discretion of the trial court." Northern
Ind. Public Service Co. v. Bolka, 693 N.E.2d 613, 615 (Ind. Ct. App. 1998),
trans. denied. Appellate courts reviewing a class certification employ an
abuse of discretion standard. Id. The trial court's certification
determination will be affirmed if supported by substantial evidence. Id.
A misinterpretation of law, however, will not justify affirmance under the
abuse of discretion standard. McCullough v. Archbold Ladder Co., 605
N.E.2d 175, 180 (Ind. 1993).
Predominance
As to the predominance requirement, Anthem principally contends that
the requirement is met only if the main issues in the case can be resolved
on a class-wide basis with generalized evidence. Anthem does not dispute
that it commonly pays health insurance claims directly to patients of
physicians that are not a member of one of Anthem's networks of preferred
health care providers. Appellants' Br. at 21. But it argues that finding
a common course of conduct alone does not satisfy the predominance
requirement, and that any such finding must have "value" in adjudicating
the individual claims of class members. Anthem asserts that the
generalized evidence here fails to prove any of six essential elements[2]
of the Providers' breach of contract claim based on assigned insurance
benefits, and thus each class member will have to separately prove each
element of the member's claim at trial. Because the questions common to
the class will not predominate over the individual issues at trial, Anthem
urges that the predominance requirement is not satisfied.
In response, the Providers primarily contend that, under Indiana case
law, merely showing a common course of conduct will establish predominance.
Asserting that Anthem admits "it engaged in a common course of conduct: it
does not pay non-participating health care providers who have obtained
assignment of benefits from their patients, but instead, pays their
patients directly in derogation of the assignments," Appellees' Br. at 13,
the Providers urge that the trial court was correct to thus find that a
"common course of conduct permeated each member's claim and predominated."
Id. at 13-14. The Providers argue that the existence of a common course of
conduct is sufficient to establish predominance without needing to prove
all or a major portion of the elements of each class member's claim. The
Providers do not dispute the existence of any of the six specific issues of
fact urged by Anthem, but assert that these do not defeat predominance and
may be handled in a claims process after the legal issues are resolved.
The Providers additionally emphasize that predominance can be
satisfied by either "questions of law or fact common to the members of the
class," T.R. 23(B)(3), and assert that predominance is satisfied by two
common legal issues that permeate all the class members' claim: (a)
"whether a physician can sue a health insurer directly when the insurer
pays a patient over an assignment of benefits," and (b) "whether a non-
assignment clause in Anthem's identical health insurance policies can
legally prevent direct recovery by the health care provider against the
health insurance company." Appellee's Br. at 14.
Anthem replies that the trial court, in its class certification
order, does not find predominance from, or even mention, either of the two
legal issues urged by the Providers. As to "whether a physician can sue a
health insurer directly," Anthem argues that this is not an issue in the
case because the Providers' complaint asserts "nothing more than a breach
of contract claim." Appellants' Reply Br. at 14-15. Anthem points out
that when it filed its motion for summary judgment, it did not challenge
the legal viability of the Providers' assignment of benefits theory.
Anthem further contends that the Providers' second alleged issue, regarding
an alleged non-assignment provision in its contracts, is not a common issue
because "only some of Anthem's health plans contain non-assignment
provisions" and that this question is therefore an individual rather than a
common issue. Id. at 15. Anthem emphasizes that "[a]lthough Anthem does
not dispute the [Providers'] legal theory, each class member still has to
prove every element of that cause of action with his or her own evidence."
Id.
We believe that the parties' arguments essentially present two
questions as to the issue of predominance under T.R. 23(B)(3):
(1) Can the existence of facts showing a common course of conduct, but
which do not resolve any of the elements for the relief sought in the
underlying claim, be sufficient to establish predominance?
(2) Are there issues of law common to the members of the class that
predominate over questions affecting only individual members?
Significantly, the trial court's determination that predominance was
satisfied was based upon Anthem's "common course of conduct in paying
patients of non-Network health care providers directly," which the trial
court found to be both a "factual and legal issue." Appellants' Appendix
at 15.
While not an issue in this case, the Indiana class action rule
requires the satisfaction of other prerequisites to maintain a class
action. One of these is that there must be "questions of law or fact
common to the class." Ind. T.R. 23(A)(2). This requirement of
"commonality" is then augmented by the "predominance" requirement of T.R.
23(B)(3), which requires not only the existence of "questions of law or
fact common to the members of the class," but also that questions must
"predominate over any questions affecting only individual members." Thus,
the language of the rule itself requires more than the mere existence of
questions of law or fact common to the class.
Understanding the meaning and application of this predominance
requirement has been the subject of several Indiana cases. One of the
earlier ones, Arnold v. Dirrim, 398 N.E.2d 426, 436 (1979), trans. not
sought, described the requirement as depending "on whether the claims of
the class members derive from a common nucleus of operative facts." But
then, after identifying the "essence of the class members' claims," it
found that the common nucleus of common facts "would be largely the same
for all class members." Id. This phrase "common nucleus of operative
facts" has been employed in subsequent decisions. In Skalbania v. Simmons,
443 N.E.2d 352, 358 (Ind. Ct. App. 1982), trans. denied, the court analyzed
each of several counts of the plaintiffs' complaint for damages to
determine whether for that count there existed a nucleus of facts common to
the class that was also the "focus of inquiry." In Conagra, Inc. v.
Farrington, 635 N.E.2d 1137, 1143 (Ind. Ct. App. 1994), trans. not sought,
which involved a suit alleging breach of contract, unjust enrichment,
fraud, negligence, and other counts, the common nucleus was that the "facts
surrounding the misconduct would be largely the same for all class members"
and that "injury and damages were common to the class." Similar fraud
theories were asserted in Edward D. Jones & Co. v. Cole, 643 N.E.2d 402,
405 (Ind. Ct. App. 1994), trans. denied, where the court found predominance
because the common nucleus involved the "existence and implementation of a
common scheme by Jones to defraud its clients." In Connerwood Healthcare,
Inc. v. Estate of Herron, 683 N.E.2d 1322, 1329 (Ind. Ct. App. 1997),
trans. denied, a class action seeking damages for personal injuries and
wrongful death of residents of a nursing facility, predominance was found
because the "common operative facts" involved allegations of food poisoning
following a common meal of scrambled eggs. And the common nucleus of
operative facts found to satisfy predominance in Bolka, 693 N.E.2d at 620,
was that damage to the plaintiffs' boats was caused by emissions from the
defendant's power plant.
We agree with the Court of Appeals in Wal-Mart Stores, Inc. v. Bailey,
808 N.E.2d 1198, 1206 (Ind. Ct. App. 2004), trans. pending:
The common theme throughout Bolka, Connerwood Healthcare, and
Skalbania is that the existence of a common course of conduct by the
defendant/defendants established that common issues predominated over
individual issues and thus warranted certification. In each case, it
is evident from this court's analysis and holding that the common
course of conduct could establish a main issue with respect to the
case, such as the negligence of the party. . . . [W]hile a common
nucleus of operative facts may satisfy the predominance
requirement, such is not necessarily so.
The court indicated its agreement with the assertion that "just because the
claims may arise from 'a common nucleus of operative facts' does not mean
that the common claims necessarily predominate." Id. at 1204.
These cases correctly require that there must be more than a mere
nucleus of facts in common with the plaintiff class. Predominance requires
more than commonality. Predominance cannot be established merely by facts
showing a common course of conduct, but the common facts must also actually
"predominate over any questions affecting only individual members." T.R.
23(B)(3).
Indiana's Trial Rule 23 is based upon Rule 23 of the Federal Rules of
Civil Procedure, and it is thus appropriate to consider federal court
interpretations when applying the Indiana rule. Hefty v. All Other Members
of Certified Settlement Class, 680 N.E.2d 843, 848 (Ind. 1997); Connerwood
Healthcare, 683 N.E.2d at 1325-26; Skalbania, 443 N.E.2d at 357. The text
of 23(B)(3) is identical in both rules. The Federal Advisory Committee
Notes, which supported the adoption of Rule 23, in discussing the
predominance requirement, states, "It is only where this predominance
exists that economies can be achieved by means of the class-action device."
Published in William F. Harvey, 2 Indiana Practice, Rules of Procedure
annotated 464. It is generally accepted that the analogous federal Rule
23(b)(3) "is designed to be a means of achieving economies of time, effort,
and expense." James Wm. Moore, 5 Moore's Federal Practice § 23.44[1], at
23-207, and cases cited therein at footnote 4. Other noted commentators
explain:
Thus the predominance test really involves an attempt to achieve a
balance between the value of allowing individual actions to be
instituted so that each person can protect his own interests and the
economy that can be achieved by allowing a multiple party dispute
to be resolved on a class action basis.
Charles Alan Wright, Arthur Miller, Mary Kay Kane, 7A Federal Practice and
Procedure §1777, at 518-19. Professor Moore's treatise provides a helpful
look at the problems of determining predominance under the heading "No
Bright Line Test Measures Predominance; Each Case Is Measured by Its Own
Facts:"
In a Rule 23(b)(3) class action, common questions of law or fact
must predominate over questions affecting only individual members.
There is no precise test for determining whether common questions of
law or fact predominate, however. Instead, the Rule requires a
pragmatic assessment of the entire action and all the issues involved.
In making that assessment, courts have enunciated a number of
standards, finding . . . predominance if:
( The substantive elements of class members' claims require the
same proof for each class member;
( The proposed class is bound together by a mutual interest in
resolving common questions more than it is divided by
individual interests.
( The resolution of an issue common to the class would
significantly advance the litigation.
( One or more common issues constitute significant parts of
each class member's individual cases.
( The common questions are central to all of the members'
claims.
( The same theory of liability is asserted by or against all
class members, and all defendants raise the same basic
defenses.
Courts generally agree that the predominance of common issues
does not mean that common issues merely outnumber individual issues.
Nor should a court determine predominance by comparing the time that
the common issues can be anticipated to consume in the litigation to
the time that individual issues will require. Otherwise, only the
most complex common issues could predominate, because only complex
issues tend to require
more time to litigate.
5 Moore's Federal Practice § 23.45[1], at 23-210 to 212 (footnotes
omitted).
The Providers do not dispute the issues of proof claimed by Anthem to
be necessary for the resolution of each claim for insurance benefits
asserted by each individual class member. The common course of conduct
alleged by the providers to satisfy the predominance requirement--that
Anthem does not pay non-participating health care providers who have
obtained assignment of benefits from their patients but instead directly
pays their patients--is not only undisputed, but also is not relevant to
any of the issues of proof in the causes of action asserted. Establishing
this common question will not establish any of the substantive elements of
any of the class members' claims, nor will it advance the litigation in any
respect. We perceive no economy of time, effort, or expense will be
achieved.
We thus conclude that Anthem's conduct in directly paying patients of
non-Network health care providers does not constitute a question of fact
that predominates over the questions affecting only individual class
members, as required by T.R. 23(B)(3).
As an alternative to this claimed common question of fact, however,
the Providers assert that predominance under the rule is satisfied by the
existence of questions of law common to members of the plaintiff class: (a)
whether a physician can sue a health insurer based on a patient's
assignment, and (b) whether Anthem's non-assignment clauses bar recovery in
such claims. The first is not a disputed question, however. Anthem
acknowledges its network policy of paying the claims from all non-network
providers directly to their patients. In addition, Anthem does not
challenge the legal viability of the Providers' assignment of benefits
theory. Among the issues Anthem identifies as elements at trial, it
asserts no general claim that a physician's suit cannot be based on an
assignment from a patient. To the extent that this first issue presents
any question, its resolution will not substantially advance the class
members' claims nor achieve any economy of time, effort, or expense. More
importantly, this first claimed question of law was not identified by the
trial court as an issue of law upon which it found predominance satisfied.
The first claimed question does not satisfy predominance.
As to the legal question regarding Anthem's non-assignment clauses,
Anthem contends in part that it is not a common issue because "only some of
Anthem's health plans contain non-assignment provisions." Appellant's
Reply Br. at 15. The trial court made no finding as to whether this is a
question of law "common to the members of the class" as required by T.R.
23(B)(3). In fact, the non-assignment clause question was not the basis
for the trial court's determination that predominance was satisfied. The
only finding made by the trial court to support its conclusion of
predominance was Anthem's "common course of conduct in paying patients of
non-Network health care providers directly," which the trial court found to
be both a "factual and legal issue." Appellants' Appendix at 15. The
trial court did not find predominance based upon any question regarding the
enforceability of Anthem's non-assignment clauses.
We conclude that the class certification in this case fails as a
matter of law to comply with the dominance requirement of T.R. 23(B)(3),
which is not satisfied by the trial court's finding of Anthem's common
course of conduct in directly paying patients of non-Network providers.
Superiority
A class certification based upon T.R. 23(B)(3) requires compliance
with both the predominance and the superiority requirements. Because we
conclude that the Providers failed to satisfy the predominance requirement,
the class certification fails, and we need not separately address whether
the superiority requirement was satisfied.
Conclusion
The trial court's Order Certifying Plaintiff Class is reversed, and
this cause is remanded for further proceedings.
Shepard, C.J., and Sullivan and Rucker, JJ., concur. Boehm, J., not
participating.
-----------------------
[1] This carve-out is the result of the case being first removed to
federal court by Anthem, then remanded back to state court after the
Providers filed an amended complaint to eliminate any claims pertaining to
patients with health insurance plans governed by ERISA.
[2] Anthem contends that each class member's contractual cause of
action consists of five elements, in addition to which a defense must be
considered as to each class member's claim. The alleged five elements are:
(1) the particular assignment was valid under Indiana law; (2) the
particular patients making the assignments had non-ERISA health plans; (3)
the assignment was in effect during a relevant time period; (4) the
provider gave notice to Anthem that they had obtained the assignment; (5)
the provider was not paid by the patient or Anthem. The sixth alleged
element of proof is Anthem's defense that most of its health insurance
plans prohibit the patient from assigning his or her right to the proceeds.