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Elite Medical Supply of New York, LLC v. State Farm Mutual Insurance Co.

United States District Court, W.D. New York

March 3, 2014

ELITE MEDICAL SUPPLY OF NEW YORK, LLC, Plaintiff,
v.
STATE FARM MUTUAL INSURANCE COMPANY, and STATE FARM FIRE AND CASUALTY, Defendants.

DECISION AND ORDER

RICHARD J. ARCARA, District Judge.

This action is an insurance dispute over nonpayment for durable medical equipment that was removed from state court pursuant to 28 U.S.C. § 1441 based upon federal diversity jurisdiction under 28 U.S.C. § 1332. It was referred to Magistrate Judge Leslie G. Foschio for pretrial proceedings, and is before the Court for review of a January 8, 2014 Report and Recommendation of the Magistrate Judge on a motion pursuant to 28 U.S.C. § 1447 to remand the action to state court that recommends the Court abstain from exercising its subject matter jurisdiction and that it remand the action to state court.

For the reasons that follow, the Court finds it lacks authority to abstain from exercising its subject matter jurisdiction. The limited discretion the Court has to abstain and remand to state court is not available because this action includes a demand for money damages. See e.g., Allstate Insurance Co., v. Elzanty, 915 F.Supp.2d 273, 289-92 (E.D.N.Y. 2013) (denying Burford [1] abstention); State Farm Mutual Auto. Ins. v. Schepp, 616 F.Supp.2d 340, 347 (E.D.N.Y. 2008) (denying Brillhart-Wilton [2] abstention). Accordingly, pursuant to 28 U.S.C. § 636(b)(1) and Fed.R.Civ.P. 72(b), the Report and Recommendation is not adopted and the motion to remand is denied.

BACKGROUND

The action was begun in the Supreme Court of the State of New York, County of Erie, as a special proceeding under Article 78 of the N.Y. C.P.L.R. by plaintiff, Elite Medical Supply of New York, LLC ("Elite"), a durable medical equipment supplier, on about August 6, 2013. Dkt. No. 1, Ex. 3. Plaintiff Elite petitioned for Article 78 review of the denial of approximately 180 claims for reimbursement for neuro-muscular stimulation units plaintiff submitted as assignee of injured persons to State Farm Mutual Insurance Company and State Farm Fire and Casualty (collectively, the "State Farm defendants") under New York's Comprehensive Motor Vehicle Insurance Reparations Act, N.Y. Ins. L. §§ 5101 et seq., and applicable regulations, see 11 N.Y.C.R.R. Part 65 (collectively, the "No-Fault Law"). Dkt. No. 1, Ex. 3. The Article 78 petition seeks "annulment" of "arbitrary and capricious" insurance claim denials by defendants, and also seeks money damages. Id. at p. 11.

Plaintiff Elite is a supplier of neuro-muscular stimulation units known as Elite Multi Mode Stimulators ("MMS") upon order by a physician or chiropractor. It is a citizen of New York, with one member, and is located in this District.

Plaintiff Elite charged $995 for each MMS pursuant to certain maximum permissible charge provisions of the No-Fault Law that apply to a manufacturer. See 11 N.Y.C.R.R. § 68.2 and 12 N.Y.C.R.R. § 442.2(a)(2). According to plaintiff, $995 is the usual and customary price charged to the general public for the MMS.

The State Farm defendants are citizens of Illinois with their principal places of business in Illinois. Apparently in about July, 2012, defendants began declining to pay plaintiff Elite's claims for reimbursement for MMS under the No-Fault Law because, defendants primarily contend, plaintiff is reselling neuro-muscular stimulation units it purchases from a manufacturer. Defendants contend that since plaintiff does not make the MMS, plaintiff is limited by maximum permissible charge provisions of the No-Fault Law to charging insured persons no more than what plaintiff paid, plus 50 percent, per MMS. See 12 N.Y.C.R.R. § 442.2(a)(1).

There is no dispute among the parties that plaintiff Elite assembles and relabels a neuro-muscular stimulation unit, lead wires, batteries, a charger, manuals, and a carrying case that it has purchased from others, and then sells the kit as an MMS. Plaintiff includes free battery replacements and free electrode replacements with each MMS.

Plaintiff Elite contends that, as a kit assembler and re-labeler, it qualifies as a manufacturer that may, consistent with the No-Fault Law, charge the State Farm defendants, among others, the usual and customary price charged to the general public for an MMS just as if it was actually making every item. Defendants insist that, because plaintiff does not actually make the MMS, the No-Fault Law requires plaintiff to charge no more than its purchase price, plus 50%, which would be much less than $995 per MMS.

The State Farm defendants removed plaintiff Elite's Article 78 special proceeding from state court to this Court pursuant to 28 U.S.C. § 1441 by notice dated September 11, 2013. Defendants invoked the Court's original subject matter jurisdiction under 28 U.S.C. § 1332 based upon the diversity of citizenship of the parties and the amount in controversy being greater than $75, 000. Defendants also immediately moved to dismiss the action pursuant to Fed.R.Civ.P. 12(b)(6), or to require plaintiff to replead under Fed.R.Civ.P. 81(c), on the ground that an Article 78 proceeding is not a permissible procedural means to adjudicate an arms-length commercial dispute among private parties.

In response to the State Farm defendants' notice of removal, plaintiff Elite moved on September 30, 2013 to remand the action to state court on the ground that federal courts lack subject matter jurisdiction over Article 78 special proceedings. Plaintiff argued its Article 78 proceeding "seeks a determination that [the State Farm defendants ] violated New York State laws and Regulations in denying Elite's claims for reimbursement... based entirely on [defendants'] interpretations of New York laws and regulations" properly handled in state courts. Dkt. No. 11, p. 6 (citing Hermann v. Brooklyn Law School, 432 F.Supp. 236, 240 (E.D.N.Y. 1976)).[3]

The State Farm defendants opposed plaintiff Elite's motion to remand the action to state court on the ground that the Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332 in light of the diversity of citizenship of the parties and the amount in controversy. Defendants pressed their characterization of the dispute as "a commercial breach of contract dispute for damages...." Dkt. No. 14, p. 10.

The January 8, 2014 Report and Recommendation recognized that plaintiff Elite's action is within the Court's diversity jurisdiction under 28 U.S.C. § 1332. The Report and Recommendation raised for the first time the question whether the Court should abstain from exercising its subject matter jurisdiction. Dkt. No. 16, pp. 6 - 9. Relying on a decision from the Eastern District of New York to abstain in a case also pending on diversity jurisdiction, Herrmann v. Brooklyn Law School, 432 F.Supp. 236 (E.D.N.Y. 1976), and upon a set of considerations that routinely lead courts to decline to exercise supplemental jurisdiction over Article 78 proceedings pursuant to 28 U.S.C. § 1367, the Magistrate Judge recommended the "court should ...


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