The opinion of the court was delivered by: McKENNA, D.J.
The plaintiffs here move to amend their Third Amended Complaint ("TAC"), primarily in order to add claims under RICO and under both state and federal antitrust laws against specified defendants in this putative class action. As set forth in further detail in this Court's prior orders, the plaintiffs in this matter include subscribers to certain health plans ("Subscriber Plaintiffs"),*fn1 out-of-network medical care providers suing as assignees of their subscribers' benefit claims ("Provider Plaintiffs"),*fn2 and medical associations suing in their associational capacity on behalf of their members ("Medical Association Plaintiffs")*fn3 (all, collectively, "Plaintiffs").
Plaintiffs seek to assert these RICO and antitrust causes of action against defendants United Healthcare Corporation, United Healthcare Service Corporation, United Health Group Incorporated, United Healthcare Insurance Company, United Healthcare Insurance Company of New York, United Healthcare of the Midwest, Inc., United Healthcare Services of Minnesota, Inc., and Ingenix, Inc. (collectively, "United Healthcare" or "Defendants"). Defendants oppose Plaintiffs' motion for leave to amend on multiple grounds, including futility, excessive delay, bad faith, and undue prejudice.
Plaintiffs' motion for leave to amend the Third Amended Complaint and, in effect, to file a Fourth Amended Complaint is GRANTED to the extent that the proposed additional claims are based on injuries that occurred after July 15, 2000. However, any the proposed antitrust and RICO claims that are based on injuries that occurred before July 15, 2000 are time-barred.
This action involves certain health care plans either directly insured or administered by United Healthcare. These plans allow subscribers to obtain health care services from "out-of-network" or "non-participating" physicians; that is, physicians who "have not entered into contracts with United Healthcare to serve as part of its provider network." (TAC ¶1.) Under these health care plans, subscribers are reimbursed a certain percentage of the "usual, customary and reasonable" ("UCR") fees for such services based on United Healthcare's calculation of the UCR rates. (TAC ¶1.)
Plaintiffs' TAC alleges that Defendants violated ERISA, the terms of the health care plans, and, in the case of certain plaintiffs, New York's Deceptive Trade Practices statute and contract law.*fn4 (Pls.' Mot. for Leave to Amend 1.) The Proposed Fourth Amended Complaint ("PFAC") asserts additional claims against United Healthcare for antitrust and RICO violations based on Defendants' alleged "massive scheme to under-reimburse millions of beneficiaries (and their providers)," which Plaintiffs allege to be "maintain[ed] . . . through deception, concealment and the unlawful exercise of market power through [United Healthcare's] ownership and control of the data used by most insurers in setting UCR rates and [United Healthcare's] agreements and coordinated efforts with those insurers." (Pls.' Mot. for Leave to Amend 1.)
This Court has already considered multiple motions to dismiss in this action, including, most recently, a motion to dismiss the Third Amended Complaint. See Am. Med. Ass'n v. United Healthcare Corp., No. 00 Civ. 2800 (LMM), 2002 WL 31413668 (S.D.N.Y. Oct. 23, 2002) (the "October 2002 Order"). In the October 2002 Order, the defendants' motion to dismiss was granted as to certain portions of Plaintiffs' claims in the TAC and denied as to others.
The October 2002 Order also instructed the parties to begin "Stage One" discovery, which was "limited to the proper parties in this action as opposed to the merits of the case." October 2002 Order at *6.*fn5 Stage One discovery was completed on or about May 14, 2004, save for the resolution of a few outstanding discovery disputes. (Pls.' Mot. for Leave to Amend 4.)
Plaintiffs now seek to amend the TAC --- in effect, to file a fourth amended complaint -- by adding fifteen new causes of action. Ten of these, Counts XVI through XXV (the "Proposed Antitrust Claims"), allege violations of federal and state antitrust laws. Specifically, Counts XVI through XX allege violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, on behalf of various plaintiffs, and Counts XXI through XXV allege violations of New York's parallel antitrust statute, the Donnelly Act, NY Gen. Bus. Law §§ 340 et seq., on behalf of various New York-based plaintiffs. (PFAC ¶¶ 18-27.) Four of the remaining five proposed counts -- Counts XXV through XXIX -- are based on alleged violations of RICO, 18 U.S.C. § 1962(c), and are brought on behalf of various plaintiffs, and the fifth --Count XXX -- is based on alleged violations of Florida's RICO Act, Fla. Stat. §§ 895.01 et seq., and is brought on behalf of beneficiary class members residing in Florida (collectively, the "Proposed RICO Claims") (all, collectively, the "Proposed Amendments"). (PFAC ¶¶ 28-32.)
1. The Proposed Antitrust Claims Plaintiffs' Proposed Antitrust
Claims are based on United Healthcare's alleged illegal exercise of buying power and unlawful restraint of trade. (Pls.' Mot. for Leave to Amend 8.) Plaintiffs allege that United Healthcare owns and controls two databases, the Prevailing Healthcare Charges System ("PHCS") and the Medicode/MDR ("MDR") (collectively, the "UCR Databases"), which are used to establish UCR reimbursement rates on which United Healthcare bases its payments to out-of-network medical care providers. (PFAC ¶ 2.) Plaintiffs allege that United Healthcare manipulates those two databases "to reduce reimbursements paid to beneficiaries well below true UCR rates for out-of-network services that the beneficiaries are contractually entitled to receive." (Pls.' Mot. for Leave to Amend at 7-8.)
Plaintiffs allege that United Healthcare and the Health Insurance Association of America ("HIAA"), from which United Healthcare acquired the PHCS database in October 1998, "conspired and agreed to promote and use the UCR Databases to determine UCR in order to restrain trade and reduce competition." (Id. at 8.) The alleged purpose and effect of the alleged UCR antitrust scheme "is (1) to control and reduce reimbursements for out-of-network medical services; and (2) to facilitate United Healthcare's and co-conspiring insurers' concentration and exercise of collective buying power over in-network providers . . ." (Id. at 9.)
2. The Proposed RICO Claims
In addition to these antitrust claims, Plaintiffs also seek to assert five RICO claims against Defendants. All five Proposed RICO Claims are based on the same alleged enterprise: the "Out-of-Network Reimbursement Enterprise." Plaintiffs allege that this is an association-in-fact enterprise "comprised of [United Healthcare], the users of its UCR Databases, United Healthcare and the entities whose insurance healthcare plans [United Healthcare] administers either as a plan administrator or claims administrator." (PFAC ¶¶ 247, 269.) This enterprise has allegedly been used to execute fraudulent reimbursement schemes relating to UCR with predicate acts including "false and misleading mailings containing falsified UCR determinations and/or data and information relating to such determinations," "false and misleading wire communications," and "repeated instances of United Healthcare's conversion of plan assets resulting from under-reimbursements through the false payment schemes." (Pls.' Mot. for Leave to Amend 11.)
A. Legal Standard for Motions for Leave to Amend
Under Rule 15(a), leave to amend a pleading "shall be given freely when justice so requires." Fed. R. Civ. P. 15(a). The Supreme Court has interpreted Rule 15 to permit such amendments unless (1) the party seeking to amend has unduly delayed; (2) the party seeking to amend is acting with a dilatory motive; (3) the proposed amendment would cause undue prejudice to the opposing party; or (4) the proposed amendment would be futile. Foman v. Davis, 371 U.S. 178, 182 (1962). Whether to allow a party to amend its complaint is within the discretion of the district court. Id.
Defendants oppose Plaintiffs' motion for leave to amend for each of the four reasons articulated by the Supreme Court in Foman. Defendants argue that the motion should be denied because, first, Plaintiffs have unduly delayed; second, allowing the amendment would unduly prejudice Defendants; and, third, Plaintiffs have acted in bad faith. Fourth, Defendants assert that Plaintiffs' motion should be denied because amendment would be futile in that (1) the proposed claims in the amendment are time-barred; (2) the Proposed RICO Claims fail to state a claim upon which relief can be granted; and (3) the Provider and Medical Association Plaintiffs' Proposed RICO Claims are barred by the doctrine of res judicata. (Defs.' Mem. in Opp. 1-3; Defs.' Notice of Suppl. Auth. 2.) The Court will address these arguments seriatim.
Defendants first argue that Plaintiffs' motion for leave to amend the TAC should be denied because Plaintiffs have unduly delayed in seeking the amendment. In Foman, the Supreme Court held that, despite the liberal pleading standards set forth in Fed. R. Civ. P. 15, a party's motion for leave to amend a pleading may be denied if that party has shown "undue delay" in seeking the amendment. Foman, 371 U.S. at 182. As the Court of Appeals has explained, a district court "plainly has discretion . . . to deny leave to amend where the motion is made after an inordinate delay, no satisfactory explanation is offered for the delay, and the amendment would prejudice the defendant." Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 72 (2d Cir. 1990). When a "considerable period of time has passed between the filing of the complaint and the motion to amend, courts have placed the burden upon the movant to show some valid reason for his neglect and delay." Sanders v. Thrall Car Mfg. Co., 582 F.Supp. 945, 952 (S.D.N.Y. 1983), aff'd, 730 F.2d 910 (2d Cir. 1984). See also Cresswell, 922 F.2d at 72 ("The burden is on the party who wishes to amend to provide a satisfactory explanation for the delay.").
In this case, a significant amount of time passed between the January 9, 2002 filing of the TAC and the July 16, 2004 filing of the motion for leave to amend the TAC. To explain this two-and-a-half year delay, Plaintiffs assert that their proposed amendments are based on information acquired during Stage One discovery in late 2003 and early 2004.*fn6 (Pls.' Reply 13.) Plaintiffs aver that they acted promptly after learning the facts that underlie their proposed antitrust and RICO claims,*fn7 noting that they submitted a copy of the proposed amendment to United Healthcare on May 21, 2004 (approximately one month after the April 14, 2004 completion of Stage One discovery) and filed their motion for leave to amend shortly thereafter, on July 16, 2004. (Pls.' Reply 13.)*fn8 The Court is persuaded that the basis for Plaintiffs' Proposed Amendments was formed, at least in part, during Stage One discovery and finds this a satisfactory explanation for the delay in the filing of the Proposed Amendments.
Moreover, the Court notes that the cases cited by Defendants as exemplifying undue delay are all easily distinguishable from the case at hand. In each of these cases, the courts relied not only on the alleged delay but also on the procedural status of the case. In several instances, motions for leave to amend were denied because discovery had already been completed and post-discovery motions for summary judgment had been submitted. See, e.g., Cresswell, 922 F.2d at 72 (affirming denial of motion for leave to amend where discovery had closed and plaintiff offered no valid excuse for delay); Krumme v. Westpoint Stevens, Inc., 143 F.3d 71, 88 (2d Cir. 1998) (affirming denial of motion for leave to amend when the case was "near resolution and discovery had been completed"); C.L.-Alexanders Laing & Cruickshank v. Goldfield, 739 F.Supp. 158, 166 (S.D.N.Y. 1990) (denying motion for leave to amend six months after the close of discovery and after the submission of the defendant's post-discovery motion for summary judgment).*fn9
In other cases relied on by Defendants, courts denied motions for leave to amend because they were made following the deadline set by the trial court for such amendments.
See, e.g., Nas Electronics, Inc. v. Transtech Electronics PTE, Ltd., 262 F.Supp.2d 134, 150-51 (S.D.N.Y. 2003); Champlain Enterprises, Inc. v. United States, 945 F.Supp. 468, 475 (N.D.N.Y. 1996). Finally, in still other cases cited by Defendants, courts denied motions for leave to amend that were filed on the eve of trial. See Zahra v. Town of Southold, 48 F.3d 674, 686 (2d Cir. 1995) (affirming denial of motion for leave to amend because, inter alia, it was made three months before trial); Roorda v. American Oil Co., 446 F. Supp. 939, 947 (W.D.N.Y. 1978) (denying motion for leave to amend that was filed eleven days before trial was scheduled to begin).
Despite the length of time that has passed since the filing of the original complaint and of the TAC, the case at hand remains at an earlier procedural stage. Merits discovery is in the early stages and has, in fact, been stayed pending Stage One discovery, which was "limited to the proper parties in this action as opposed to the merits of the case." October 2002 Order at *6. No scheduling order or deadline for filing motions to amend the pleadings has expired. And, of course, this case is nowhere near to being on the eve of trial. The Court therefore finds that Plaintiffs have not unduly delayed and declines to exercise its discretion to deny Plaintiffs' motion for leave to amend because of delay.
In addition to undue delay, Defendants assert that Plaintiffs' motion for leave to amend should be denied because Plaintiffs acted with bad faith. Under Rule 15(a) as construed by the Supreme Court in Foman, a party's dilatory motive is a legitimate basis for a court's denying that party's motion to amend a pleading. Foman v. Davis, 371 U.S. 178, 182 (1962). "When it appears that leave to amend is sought in anticipation of an adverse ruling on the original claims . . . the court is free to deny leave to amend." PI, Inc. v. Quality Products, Inc., 907 F.Supp. 752 (S.D.N.Y. 1995) (citing Ansam Assocs., Inc. v. Cola Petroleum, Inc., 760 F.2d 442, 446 (2d Cir. 1985)). In PI, Inc., the plaintiff moved to amend its complaint following oral argument on the defendant's motion to dismiss. The PI, Inc. court found this to be "clearly a dilatory tactic to avoid the dismissal of this action," noting that this was "also the second time that the plaintiff has used the tactic of waiting for the defendants to file motions to dismiss before moving to amend the complaint." PI, Inc., 760 F.2d at 765.
Defendants point to two indicators of Plaintiffs' alleged bad faith. First, they note that Plaintiffs filed this motion "shortly after Defendants filed their summary judgment motion," which Defendants assert demonstrates "anticipation of an adverse ruling on the motion" that required Plaintiffs to make the present motion "in a transparent effort to salvage their complaint." (Defs.' Mem. in Opp. 50.) Second, Defendants argue that Plaintiffs' motion for leave to amend is "an apparent retaliatory strike" based on Defendants' antitrust counterclaims because it was filed approximately six weeks after completion of briefing on Plaintiffs' motion to dismiss Defendants' counterclaims. (Id. at 50-51.)
Unlike in PI, Inc., here the timing of Plaintiffs' filing of their motion for leave to amend the TAC is not "clearly a dilatory tactic." PI, Inc., 760 F.2d at 765. Defendants' assertion that Plaintiffs made this motion in anticipation of an adverse ruling on Defendants' summary judgment motion is belied by the fact that Plaintiffs provided a draft of the PFAC to Defendants on May 21, 2004 -- before Defendants had filed their motion for summary judgment. (Pls.' Reply 19; Quackenbos Decl. ¶ 20.) The PFAC therefore could not have been prepared "in anticipation of an adverse ruling" or "to salvage [the Plaintiffs'] complaint." (Defs.' Mem. in Opp. 50.)
Nor is there any indication -- other than Defendants' bald assertion -- that Plaintiffs filed this motion as some kind of retaliatory strike. The Court declines to base a finding of bad faith on such grounds in the absence of any evidence, particularly as Defendants appear to have misconstrued the underlying facts in presenting their first example of Plaintiffs' alleged bad faith. Plaintiffs' motion for leave to amend the TAC will not be denied on the basis of Defendants' unsupported allegations that Plaintiffs acted with dilatory motive or bad faith.
Third, Defendants urge the Court to deny Plaintiffs' motion for leave to amend on the grounds that permitting such amendment would result in undue prejudice to Defendants. In Foman, the Supreme Court held that leave to amend can be denied when the proposed amendment would cause undue prejudice to the opposing party. Foman v. Davis, 371 U.S. 178, 182 (1962). The Court of Appeals has advised that, "[i]n determining what constitutes 'prejudice,' [courts] consider whether the assertion of the new claim would: (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction." Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993).*fn10
Defendants argue that two of the three Block factors apply here because allowing an amendment to add the Proposed RICO Claims and the Proposed Antitrust Claims would require the expenditure of additional resources in discovery and trial preparation and would significantly delay the resolution of this dispute. The Court disagrees. First, while recognizing that allowing the Proposed RICO and Antitrust Claims will require additional discovery relating to those claims, the Court finds that such discovery does not create undue prejudice at this relatively early stage in the litigation. Permitting a party to amend its pleading will inevitably place some additional burden on the opposing party, but "courts have consistently held that such burden does not constitute impermissible prejudice." Sommer v. PMEC Assocs. & Co., No. 88 Civ. 2537, 1993 WL 361660, at *4 (S.D.N.Y. Sept. 14, 1993) (citing Morse/Diesel, Inc. v. Fidelity and Deposit Co. of Md., 715 F.Supp. 578, 581 (S.D.N.Y. 1989), International Bank v. Price Waterhouse and Co., 85 F.R.D. 140, 142 (S.D.N.Y. 1980)).
The cases cited by Defendants found undue prejudice where parties had completed discovery and were "on the eve of trial." Portsmouth Baseball Corp. v. Frick, 21 F.R.D. 318, 319 (S.D.N.Y. 1958). Here, the parties have completed only preliminary discovery as to the "proper parties in this action" and have not yet engaged in any significant discovery on the merits. October 2002 Order at *6. Nor does the fact that a summary judgment motion has been filed in this case indicate that Defendants would suffer undue prejudice if the Court granted ...