Federal Court Keeps TPA As Third-Party Defendant in Suit Between Stop Loss Carrier and Group: A Walk Through the Procedural Thicket

MyHealthGuide Source: Thomas A. Croft, Esq., 1/10/2015, StopLossLaw.com Article

Case: Unimerica Insurance Company v. GA Food Services, Inc., et al., No. 8:14-cv-2419-T-33TBM, In the United States District Court for the Middle District of Florida, Tampa Division, December 10, 2014) Court Ruling

This case is a federal civil procedure professor’s dream. One can easily imagine it as a part of a first-year law student’s final exam. I discuss it because the backdrop for all the procedural issues is a stop loss dispute between a carrier and a group and its TPA, and it illustrates just how convoluted things can become in such controversies. I will do my best to keep things simple.

Case Background

Our story begins in Minnesota, where the carrier filed suit against the group (“GA Food”) to obtain a refund of a portion of claims paid respecting a Plan beneficiary with end stage renal disease in the amount of $248,887. After paying the claim, it was learned that the individual became eligible for Medicare and lost coverage under the Plan during the time the claims were incurred (according to the carrier), resulting in a refund due for the amount the carrier had paid. After learning of the Medicare issue, the carrier applied an offset to another claim, leaving a net amount of refund alleged to be due of $129,655.

TThe carrier, a Wisconsin corporation, sued in federal court in Minnesota, where it had its principal place of business. There was federal jurisdiction in Minnesota because of “diversity,” in that GA Food was a Florida corporation with its principal place of business in St. Petersburg, Florida.
• [Note: for there to be subject matter jurisdiction in federal court for a case based on state law, the dispute must involve a certain minimum amount and be between citizens of different states. Corporations are deemed to be citizens of both their state of incorporation and the state where their principal place of business exists.]
GA Food filed a motion to transfer the case to federal court in the Middle District of Florida. One federal court may transfer a case to another federal court under a federal statute, 28 U.S. C. §1404, to any other federal district “where it might have been brought” for “the convenience of parties and witnesses,” even over the objection of one the parties. The Minnesota Court found that a transfer to the Middle District of Florida would serve the interests of justice, noting that the case involved a coverage dispute involving a Florida corporation and a Florida employee under a stop loss policy issued under Florida law. The Court also noted that the TPA (not yet a party to the case in any way nor yet asked by either existing party to be added as a party to the case) was BCBSF–a Florida corporation based in Jacksonville, Florida, and that non-party witnesses (presumably from BCBSF) were located there. Finally, the Court noted that the substantive law of Florida would likely apply to the dispute (probably due to a Florida choice of law provision in the stop loss policy).

Accordingly, the Minnesota Court sent the case to the Middle District of Florida, but did not specify to which division of that District it should go.
• [Many federal districts have “divisions” established by statute, which require that cases arising in specified counties be tried in the division encompassing that county].
TPA Added as Third Party Defendant
This case landed in the Jacksonville division. On its own motion, the Jacksonville federal court noted in an order that “no relevant conduct between the two current parties [i.e., Unimerica and GA Foods] is alleged to have occurred in the Jacksonville Division.” The Jacksonville Court noted that GA Food’s principal place of business was in St. Petersburg–a part of the Tampa Division–and that “the only reference made to the Jacksonville Division is in contracts between [GA Foods] and businesses not party to this case [i.e., BCBSF]. Ultimately, the case was transferred to the Tampa Division, but not before GA Foods filed a motion to add BCBSF as a third-party defendant. The motion was not decided before the transfer to the Tampa Division, however.
• The apparent theory of the motion to add BCBSF was that it was liable to GA Foods in the event that GA Foods was ultimately found liable to Unimerica for the refund, allegedly because it either breached its Administrative Agreement with GA Foods in paying the claim in the first place, or negligently did so. The Tampa federal court granted permission for GA Foods to file its third-party complaint, and then BCBSF moved to dismiss it on several grounds.
First, BCBSF contended that it was not properly added under Federal Rule of Civil Procedure 14(a), which governs third-party actions, arguing that this dispute was between a stop loss carrier and an insured under a policy to which BCBSF was not a party, and, accordingly, it could not be liable under that policy for any refunds and was improperly added to the case under Rule 14. Further, BCBSF argued that the Court should not exercise jurisdiction over GA Foods’ claim due to “exceptional circumstances” and “compelling reasons” for declining jurisdiction under 28 U.S.C. § 1367(c)(4).

The nuances of Rule 14(a) and Section 1367 are the subject of a great deal of case law and scholarly jurisprudence, and are well beyond the scope of the instant article. However, in brief, the Tampa Court concluded that, because the stop loss policy and the Administrative Agreement between GA Foods and BCBSF both incorporated the Plan Document, the parties were sufficiently “inextricably intertwined” such that the requisites of Rule 14(a) were satisfied.

Under Section 1367, a federal court can decline to exercise jurisdiction over a third-party claim for a “compelling reason,” as BCBSF argued it should in this case. Here, that reason was that there was a provision in the Administrative Agreement between GA Foods and BCBSF that stated that “all actions or proceedings instituted by [GA Foods] or [BCBSF] hereunder shall be brought in a court of competent jurisdiction in Duval County, Florida.” Ironically, Duval County is the county seat of Jacksonville, Florida, whence this case came.

Here is where the analysis gets somewhat dicey. The Tampa Court concluded that the clause quoted above (“the forum selection clause”) did not apply for three reasons.
• First, the Court observed that the forum selection clause did not literally apply because neither GA Foods nor BCBSF “instituted the action”–Unimerica did.
• Second, the Court noted that GA Foods had in fact filed its motion to add BCBSF while the case was still before the Jacksonville Division of the Court, such that the “third-party proceedings” were initiated there, notwithstanding that GA Foods motion to add BCBSF was not granted until after the case had been transferred to the Tampa Division.
• Third, the Tampa Court concluded that it was not clear that the forum selection clause applied to “third-party actions being brought supplementary to already initiated proceedings,” as here.
Lastly, BCBSF challenged the third-party complaint on the grounds that it failed to state a claim upon which relief could be granted under Federal Rule of Civil Procedure 12(b)(6). In other words, BCBSF argued that an exculpatory provision in the Administrative Agreement operated to relieve it of any possible liability to GA Foods, even if all the other factual allegations in the third-party complaint were true. The Court determined that its interpretation of this exculpatory provision at this stage of the proceedings would be premature, and denied the BCBSF’s Rule 12(b)(6) motion.

So that, boys and girls, is how a Minnesota case ended up in Tampa. And the merits of the case have not yet even begun to be addressed.

About the Author

Thomas A Croft is a magna cum laude graduate of Duke University (1976) and an honors graduate of Duke University School of Law (1979), where he earned membership in the Order of the Coif, reserved for graduates in the top 10% of their class. He returned to Duke Law in 1980 as Lecturer and Assistant Dean (1980-1982) and as Senior Lecturer and Associate Dean for Administration (1982-1984). He also taught at the University of Arkansas-Little Rock law school, where he was an Associate Professor of Law (1990-91), earning teacher of the year honors.

Until 2004, when he specialized in medical stop loss litigation and consulting, Tom practiced general commercial litigation. He was a partner in the litigation section of a major Houston firm in the late 1980s, and moved to the Atlanta area in 1991. He has been honored as a Georgia “Super-Lawyer” by Atlanta Magazine for the last eight years running, and holds an AV® Preeminent rating from Martindale-Hubble®.

Tom currently consults extensively on medical stop loss claims and related issues, as well as with respect to HMO Excess Reinsurance, Medical Excess of Loss Reinsurance, and Provider Excess Loss Insurance. He maintains an extensive website analyzing more than one hundred cases and containing more than fifty articles published in the Self-Insurer Magazine over many years. See www.stoplosslaw.com. He regularly represents and negotiates on behalf of stop loss carriers, MGUs, Brokers, TPAs, and Employer Groups informally, as well as in litigated and arbitrated proceedings, and has mediated as an advocate in many stop-loss related mediations. Tom can be reached at tac@xsloss.com.