The opinion of the court was delivered by: McKENNA, D.J.
Defendants*fn1 here move for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Plaintiffs, who include subscribers to certain health plans ("Subscriber Plaintiffs")*fn2, out-of-network medical care providers suing as assignees of certain subscribers' benefits claims ("Provider Plaintiffs")*fn3, and medical associations suing in their associational capacity on behalf of their members ("Medical Association Plaintiffs")*fn4 (all, collectively, "Plaintiffs"), oppose Defendants' motion for summary judgment. For the reasons set forth herein, Defendants' motion for summary judgment is GRANTED IN PART and DENIED IN PART.
In this action, Plaintiffs challenge Defendants' practices in relation to decisions involving the "usual, customary, and reasonable" ("UCR") rates paid by Defendants for out-of-network medical services in connection with certain health care plans. All of the Subscriber Plaintiffs are participants or beneficiaries in one of four employer-sponsored health care plans ("Employer Plans"): Subscriber Plaintiffs Taylor, Wilson, Oborski, Steinberg, Coull, and the Grishams are participants or beneficiaries of the Employer Plan sponsored by American Airlines ("American Airlines Plan"); Subscriber Plaintiff Mitchell was a participant in the Employer Plan sponsored by Osram Sylvania ("Osram Plan"); Subscriber Plaintiff Domina is a participant in the Employer Plan sponsored by Chase Manhattan Bank ("Chase Plan"); and the Finleys were participants in the Employer Plan sponsored by Professional Engineering Consultants ("PEC Plan"). (Defs.' Statement of Undisputed Facts ("Defs.' Statement") No. 3.) Each of these Employer Plans authorizes its subscribers to obtain health care services from "out-of-network" physicians who do not participate in a network of providers maintained by one of the United Defendants. (Id.) Subscribers are then reimbursed a certain percentage of the "usual, customary and reasonable" fees for such services based on United Healthcare's calculation of the UCR rates.*fn5
Plaintiffs allege that Defendants' practices in determining UCR rates, including Defendants' alleged reliance on the Prevailing Healthcare Charges System ("PHCS") database, violate ERISA, the terms of the Employer Plans themselves, and, in the case of certain plaintiffs, New York's Deceptive Trade Practices statute and contract law. This Court recently authorized Plaintiffs to assert additional claims against United Defendants for antitrust and RICO violations based on their alleged scheme to under-reimburse beneficiaries and medical care providers by manipulating UCR data. See Am. Med. Ass'n v. United Healthcare Corp., No. 00 Civ. 2800 (LMM), 2006 WL 3833440 (Dec. 29, 2006). A comprehensive fourth amended complaint has yet to be filed.
This action was initially filed in New York state court and was removed to this Court in April 2000. In the intervening years this Court has addressed several motions, including multiple motions to dismiss. Most recently, the Court granted in part and denied in part both a motion to dismiss the Counterclaim Complaint, see Am. Med. Ass'n v. United Healthcare Corp., No. 00 Civ. 2800 (LMM), 2007 WL 683974 (S.D.N.Y. March 5, 2007), and a motion for leave to amend the Third Amended Complaint, see Am. Med. Ass'n v. United Healthcare Corp., No. 00 Civ. 2800 (LMM), 2006 WL 3833440 (S.D.N.Y. Dec. 29, 2006).
In its memorandum and order addressing Defendants' motion to dismiss the Third Amended Complaint, the Court noted its concerns relating to certain preliminary issues raised by Defendants, such as whether Plaintiffs had exhausted their administrative remedies, whether various Plaintiffs had standing, and whether Defendants were proper parties to certain of Plaintiffs' claims. 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"). Given the procedural posture of the case on that motion to dismiss, the Court accepted the Plaintiffs' allegations as true and, for the most part, denied Defendants' motion to dismiss on those preliminary issues. However, recognizing that proceeding to merits discovery represented a massive undertaking for all parties, the Court ordered the parties to proceed only with what it termed "Stage One" discovery. Stage One discovery was "limited to the proper parties in this action as opposed to the merits of the case." October 2002 Order at *6.*fn6
Stage One discovery has now been completed, and before the Court here is what may be termed Defendants' Stage One summary judgment motion; that is, Defendants' motion for summary judgment based on whether there are disputed issues of material fact regarding those preliminary issues for which discovery was conducted during Stage One.
A. Defendants' Motions to Strike
In conjunction with their reply memorandum of law in this summary judgment motion, Defendants submitted both a Motion to Strike Plaintiffs' Responses to Defendants' Statement of Undisputed Facts and a Motion to Strike the Affidavits of D. Brian Hufford and Barry M. Epstein. Because the outcome of these motions could affect the facts considered in deciding this summary judgment motion, the Court addresses them as a preliminary matter here.
1. The Motion to Strike Plaintiffs' Responses to Defendants' Statement of Undisputed Facts
Defendants argue that Plaintiffs' counterstatement of facts fails to comply with Local Rule 56.1 because it contains mischaracterizations of the record, includes arguments and legal conclusions, and neglects to cite admissible evidence.
Rule 56.1 of the Local Civil Rules of the United States District Courts for the Southern and Eastern Districts of New York establishes rules both parties must satisfy when a summary judgment motion is filed. Rule 56.1(a) requires a party moving for summary judgment to submit a short, concise statement that, in numbered paragraphs, sets forth each material fact in the case.
Rule 56.1(b) requires a party opposing a motion for summary judgment to include a counterstatement of material facts. Rule 56.1(d) requires that each statement filed pursuant to Rules 56.1(a) and (b) cite to admissible evidence in the record.
"Local Rule 56.1 is designed to place the responsibility on the parties to clarify the elements of the substantive law which remain at issue because they turn on contested facts." Monahan v. New York City Dep't of Corrections, 214 F.3d 275, 292 (2d Cir. 2000). When parties decline to file Rule 56.1 statements, or when the statements they file lack citations or are in some other way deficient, courts are "free to disregard" the assertions therein. Holtz v. Rockefeller & Co., Inc., 258 F.3d 62, 73 (2d Cir. 2001). However, "[a] district court has broad discretion to determine whether to overlook a party's failure to comply with local court rules." Id. As the Court of Appeals in this Circuit has recognized, "while a court 'is not required to consider what the parties fail to point out' in their Local Rule 56.1 statements, it may in its discretion opt to 'conduct an assiduous review of the record' even where one of the parties has failed to file such a statement." Id. (citations omitted). See also Derienzo v. Metropolitan Transp. Authority, 404 F.Supp.2d 555 (S.D.N.Y. 2005).
Here, Plaintiffs filed a response to Defendants' statement of undisputed facts, thereby satisfying the formal requirement of Local Rule 56.1(b). Defendants accurately point to certain portions of Plaintiffs' response that lack citations to the record. However, for the most part Plaintiffs' factual responses refer the Court to admissible evidence and thereby comply with Local Rule 56.1(d). To the extent that they do not contain citations to admissible evidence in the record, the Court finds it not unduly burdensome to seek to fill such gaps by its own perusal of the record, especially as the extensive briefing on the motion for summary judgment provides significant guidance through repeated citations to the record.
Because the Court experiences minor inconvenience, rather than undue burden, as a result of Plaintiffs' occasional failure to cite admissible evidence in the response to the statement of undisputed facts, it chooses to exercise its discretion "to overlook" any such "failure to comply with local court rules." Holtz, 258 F.3d at 73. For this reason, and because the Court finds Defendants' other objections*fn7 to Plaintiffs' response unavailing, Defendants' Motion to Dismiss Plaintiffs' Response to Defendants' Statement of Undisputed Facts is DENIED.
2. The Motion to Strike the Affidavits
Defendants also move to strike the affidavits of D. Brian Hufford ("Hufford Affidavit") and Barry M. Epstein ("Epstein Affidavit"), which Plaintiffs submitted in conjunction with their opposition to Defendants' motion for summary judgment. Defendants argue that both affidavits violate Fed. R. Civ. P. 56(e). Plaintiffs, in addition to opposing the motion to strike, submitted revised versions of both the Hufford Affidavit ("Revised Hufford Affidavit") and the Epstein Affidavit ("Revised Epstein Affidavit"). Defendants counter that even the revised affidavits should be stricken because the Revised Epstein Affidavit is not based on personal knowledge and because both affidavits mischaracterize evidence and rely on inadmissible hearsay.
Rule 56(e) provides, in relevant part, that "[s]supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein." Fed. R. Civ. P. 56(e).
To the extent that the Revised Hufford and Epstein Affidavits contain argument or facts of which the affiants do not have personal knowledge, the Court disregards them. The majority of both revised affidavits appears, however, to be based on personal knowledge of the record and to set forth (and cite to) admissible evidence. The Court will consider those portions of the revised affidavits that comply with Rule 56(e) and, of course, the exhibits attached to both affidavits. The motions to strike both affidavits are therefore DENIED.
B. Summary Judgment Standard
Federal Rule of Civil Procedure 56(c) provides that summary judgment should be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). "A dispute is not 'genuine' unless 'the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Nabisco, Inc. v. Warner-Lambert Co., 220 F.3d 43, 45 (2d Cir. 2000) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). "A fact is 'material' for these purposes if it 'might affect the outcome of the suit under the governing law.'" Overton v. N.Y. State Div. of Military & Naval Affairs, 373 F.3d 83, 89 (2d Cir. 2004) (quoting Anderson, 477 U.S. at 248).
The party seeking summary judgment bears the burden of showing that no genuine factual dispute exists. See Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 202 (2d Cir. 1995). After the moving party has made such a showing, the burden shifts to the nonmoving party to raise a triable issue of fact. Anderson, 477 U.S. at 250. On a motion for summary judgment, a court must view the record in the light most favorable to the nonmoving party, resolving all ambiguities and drawing all reasonable inferences in that party's favor. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
C. Exhaustion of Administrative Remedies
Defendants first argue that summary judgment should be granted on the vast majority of Plaintiffs' claims because the Subscriber Plaintiffs have not exhausted their administrative remedies. (Defs.' Mem. in Supp. 6.)
Defendants contend that, "[o]ut of a total of 9,489 claims determinations, all of Plaintiffs combined asserted appeals for only 135 individual claims" (the "135 Fully Appealed UCR Claims") and that Defendants are entitled to summary judgment for all of the Subscriber Plaintiffs' ERISA claims except for the 135 Fully Appealed UCR Claims. (Defs.' Mem. in Supp. 8.) The question on this motion is whether Plaintiffs have presented evidence to create a triable issue of fact as to whether these claims were exhausted or, if not, whether their failure to satisfy the exhaustion requirement should be excused.
Stage One discovery has revealed three general groupings of Subscriber Plaintiffs and claims in regards to administrative exhaustion: the 135 Fully Appealed UCR Claims made by Subscriber Plaintiffs Domina, Oborski, Taylor, Wilson, and the Finleys; claims made by Subscriber Plaintiff Mitchell that were fully appealed; and claims by those same plaintiffs and by Subscriber Plaintiffs Steinberg, Grisham, and Coull that were not fully appealed.
1. ERISA's Exhaustion Requirement
"ERISA requires both that employee benefit plans have reasonable claims procedures in place, and that plan participants avail themselves of these procedures before turning to litigation." Eastman Kodak Co. v. STWB, Inc., 452 F.3d 215, 219 (2d Cir. 2006) (citing 29 C.F.R. § 2560.503-1 and Jones v. UNUM Life Ins. Co. of Am., 223 F.3d 130, 140 (2d Cir. 2000)). As this Court observed in its October 2002 Order, "[t]he Second Circuit has recognized "the firmly established policy favoring exhaustion of administrative remedies in ERISA cases.'" Oct. 2002 Order at *4 (quoting Kennedy v. Empire Blue Cross and Blue Shield, 989 F.2d 588, 594 (2d Cir. 1993) (internal citation omitted)). This exhaustion requirement serves to "(1) uphold Congress' desire that ERISA trustees be responsible for their actions, not the federal courts; (2) provide a sufficiently clear record of administrative action if litigation should ensue; and (3) assure that any judicial review of fiduciary action (or inaction) is made under the arbitrary and capricious standard, not de novo." Davenport v. Harry N. Abrams, Inc., 249 F.3d 130, 133 (2d Cir. 2001); see also Kennedy, 989 F.3d at 594.
The parties dispute whether the administrative exhaustion requirement in ERISA cases is jurisdictional in nature, with Defendants asserting that "exhaustion [is] a jurisdictional prerequisite to bringing suit under ERISA" and Plaintiffs countering that whether to require exhaustion "lies within the sound discretion of the court." (Defs.' Mem. in Supp. 7; Pls.' Mem. in Opp. 11.) The Second Circuit resolved this issue after this motion was fully submitted, holding that "a failure to exhaust ERISA administrative remedies is not jurisdictional, but is an affirmative defense." Paese v. Hartford Life Accident Ins. Co., 449 F.3d 435, 446 (2d Cir. 2006).
While the ERISA exhaustion requirement is not jurisdictional, neither is it an insignificant procedural hurdle. Claimants may be exempted from the administrative exhaustion requirement only by making a "'clear and positive showing' that pursuing available administrative remedies would be futile." Kennedy, 989 F.2d at 594 (internal citation omitted). See also Eastman Kodak, 452 F.3d at 594 ("Unless a 'clear and positive showing' is made that it would be futile for the claimant to pursue her claim through the internal claims process, 'that remedy must be exhausted prior to the institution of litigation.'" (internal citations omitted)).
2. Exhaustion of the 135 Fully Appealed UCR Claims
The Court first addresses the status of the 135 Fully Appealed UCR Claims. Defendants do not dispute that Plaintiffs Domina, Taylor, Oborski, Wilson, and the Finleys pursued each required level of appeal regarding the issue of UCR reimbursement and therefore fully exhausted their administrative remedies for these particular claims.*fn8 (See Epstein Aff. Ex. 2.) However, although Defendants concede that Plaintiffs satisfied the procedural requirements to exhaust administrative remedies for these 135 Fully Appealed UCR Claims, they nonetheless assert that they are entitled to summary judgment on these claims because Plaintiffs, Defendants argue, did not assert "a flaw in the PHCS database or that any purported flaw caused an underpayment" during the appeals process. (Defs.' Mem. in Supp. 10.)
Defendants thus contend that they are entitled to summary judgment because Plaintiffs failed to exhaust not the claims themselves but rather the underlying issue of the PHCS database and related methodology. (Defs.' Reply 7.) They further assert that the Court's review of these appeals should be limited to evidence in the administrative record, which Defendants note does not include information regarding the PHCS database and underlying data.
The Court need not decide the scope of its review of the administrative appeals determinations in order to determine whether Plaintiffs adequately raised the issue of the PHCS database and UCR determinations in their 135 Fully Exhausted UCR Claims, and it declines to do so at this phase of the litigation.*fn9 The question in this Stage One summary judgment motion is limited to whether Plaintiffs have introduced evidence to create an issue of fact as to whether the UCR calculation rates and methodology were raised in their administrative appeals.
Plaintiffs have presented evidence that the Subscriber Plaintiffs involved in the 135 Fully Appealed UCR Claims did raise the issue of the UCR calculation and methodology in their appeals. For instance, Subscriber Plaintiff Wilson argued in one appeal that "[t]he determination of usual and prevailing is flawed." (Kemper Aff. Ex. 29.) Subscriber Plaintiffs David and Colleen Finley challenged a determination of reasonable and customary fees by stating: "Please explain in detail why United Healthcare considers my doctors' charges to be above 'Reasonable and Customary.' I would also like to see any studies or other back-up information that United Healthcare is relying upon." (Epstein Aff. Ex. 41.) One of Subscriber Plaintiff Oborski's appeals requested "the basis for your conclusion in determining UCR" and, at a later stage, stated "[p]lease provide a satisfactory answer, as well as the underlying data, to support any 'reasonable charge' that is less" than a figure that Oborski believed to be reasonable. (Epstein Aff. Ex. 42.) Plaintiffs have pointed to such evidence for other Subscriber Plaintiffs as well. (See Pls.' Response to Defs.' Statement of Undisputed Facts No. 11.)
The Court finds that this evidence is sufficient to create an issue of fact as to whether Plaintiffs raised the PHCS issue in their administrative appeals of the 135 Fully Appealed UCR Claims. Defendants' motion for summary judgment as to the PHCS issue in the 135 Fully Appealed UCR Claims is therefore DENIED.
3. Exhaustion of Plaintiff Mitchell's Appealed Claims
Both parties agree that Subscriber Plaintiff Mitchell "appealed several of his claims for benefits under ERISA § 502(a)(1)(B) to completion under the relevant administrative remedies under the Osram Plan." (Defs.' Statement No. 9; see also Pls.' Response No. 9.) Defendants argue, however, that Plaintiff Mitchell did not exhaust the issue of UCR reimbursement rates in his appeals. Unlike with the 135 Fully Appealed UCR Claims, here Defendants argue not that Plaintiff Mitchell failed to specifically challenge the PHCS database and methodology but rather that the subject matter of his appeals was United Healthcare's determination regarding the "medical necessity" of various medical services provided. Defendants seek summary judgment on Plaintiff Mitchell's claims, arguing that he failed to exhaust his administrative remedies because, although he completed the necessary appeals, he "did not contest whether he was reimbursed at the 'reasonable charge' as defined in the Osram Plan." (Defs.' Statement No. 9.) Plaintiffs challenge Defendants' characterization of the basis of Plaintiff Mitchell's appeals, "disput[ing] that Mitchell did not raise the issue of UCR in his appeals to Osram." (Pls.' Response No. 9.)
Plaintiffs have not identified any specific instance of Mitchell's raising the issue of UCR reimbursement rates in his appeals, and the majority of the appeals documentation appears to involve evaluations of medical necessity rather than of UCR reimbursement rates. For instance, a letter of appeal prepared by Mitchell's attorney, which summarizes Mitchell's medical condition in detail and chronicles United Healthcare's response, notes that United Healthcare unquestioningly paid for the treatments . . . throughout 1996 and early 1997. Then in the first half of 1997 United refused payments for the exact same treatments for which they had previously paid. For the greater part of 1997 and all of 1998 United Health Care has refused to pay for Mr. Mitchell's treatment alleging that these treatments were not medically necessary. (Kemper Aff. Ex. 6.)
However, Plaintiffs do point to somewhat ambiguous references to reimbursement amounts in documents submitted in conjunction with Mitchell's appeals, including: Mitchell's letter complaining that the reimbursement amount of $82 for a procedure was "ridiculous" (Kemper Aff. Ex. 6); Mitchell's letter requesting that United Healthcare "straighten out all of 1997 bills" (Kemper Aff. Ex. 6); a letter by Mitchell's attorney noting "confusion concerning what are covered services under his health care insurance and the appropriate reimbursements for same" (Epstein Aff. Ex. 37 (emphasis added)); and Mitchell's letter inquiring "[w]hen surgery is covered, why is it that United always picks the lower cost one?") (Epstein Aff. Ex. 37.)
A review of the claim summary record for the time period at issue in the above-cited letters buttresses Plaintiffs' interpretation as to the basis of at least some of Mitchell's appeals. The record includes not only claims that were denied in full, as one would expect when the basis for the denial was lack of medical necessity, but also claims that were allowed in part, that is, claims where United Healthcare paid some but not all of the amount claimed. (Epstein Aff. Ex. 1.) Without additional information about the specific claims, the Court cannot conclude that Defendants have met their burden of showing that there is no issue of fact as to the subject of Mitchell's appeals requesting that United HealthCare "straighten out all of 1997 bills." (Kemper Aff. Ex. 6, Letter of April 14, 1998 to Lisa Vasas.)
As noted above, a court considering a motion for summary judgment must view the record in the light most favorable to the nonmoving party, resolving all ambiguities and drawing all reasonable inferences in that party's favor. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Resolving all ambiguities in the appeals record in Plaintiff Mitchell's favor, the Court finds that Plaintiffs have presented sufficient evidence to create a question of fact as to the basis for at least some of Plaintiff Mitchell's appealed claims and have therefore met ...