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North Shore-Long Island Jewish Health Sys., Inc. v. Multiplan, Inc.

United States District Court, E.D. New York

February 13, 2015

NORTH SHORE-LONG ISLAND JEWISH HEALTH SYSTEMS, INC., Plaintiff,
v.
MULTIPLAN, INC., TEAMSTERS LOCAL 210 AFFILIATED HEALTH & INSURANCE FUND and LOCAL 812 HEALTH FUND, Defendants. MULTIPLAN, INC., Third-Party Plaintiff, TEAMSTERS LOCAL 210 AFFILIATED HEALTH & INSURANCE FUND and LOCAL 812 HEALTH FUND, Third-Party Defendants

For North Shore-Long Island Jewish Health Systems, Inc., Plaintiff: Timothy F. Butler, LEAD ATTORNEY, Tibbetts Keating & Butler, New York, NY; Thomas Bigley Noonan, Tibbetts, Keating & Butler, LLC, New York, NY.

For MultiPlan, Inc., Defendant, ThirdParty Plaintiff: James Edward Gross, LEAD ATTORNEY, Law Office of James Edward Gross, Albany, NY; Errol J. King, PRO HAC VICE, Malcolm L. Leatherman, Baker Donelson Bearman Caldwell & Berkowitz, PC, Baton Rouge, LA; Layna Cook, Baker Donelson, Baton Rouge, LA.

For Teamsters Local 210 Affiliated Health & Insurance Fund, ThirdParty Defendant: Thomas Albert Thompson, LEAD ATTORNEY, Law Offices of Thomas A. Thompson, Yarmouth, ME.

For Local 812 Health Fund, ThirdParty Defendant: Barry I. Levy, LEAD ATTORNEY, Brian Laurence Bank, Michelle A. Bholan, Rivkin Radler LLP, Uniondale, NY.

REPORT AND RECOMMENDATION

A. KATHLEEN TOMLINSON, United States Magistrate Judge.

I. Preliminary Statement

Plaintiff North Shore Long Island Jewish Health Care System (" Plaintiff" or " North Shore") operates health care facilities, including twelve hospitals in the State of New York. See Second Amended Complaint (" Compl.") [DE 54] ¶ 1. Defendant MultiPlan, Inc. (" MultiPlan") is a preferred provider organization, commonly referred to as a " PPO." Id. ¶ 2. According to the Second Amended Complaint, MultiPlan entered into a contract with North Shore providing, inter alia, for MultiPlan's clients to gain access to North Shore's healthcare network at discounted reimbursement rates. Id. ¶ 5. In turn, MultiPlan made these special rates available to other health plans for their respective members. Id. The crux of North Shore's allegations is that MultiPlan withheld the fact that a non-party called Crossroads Healthcare Management, LLC (" Crossroads") was not excluded from MultiPlan's network, despite North Shore's explicit directive that it would not renew its contract with MultiPlan if Crossroads was not excluded. Id. ¶ ¶ 14-29.

MultiPlan subsequently commenced a third-party action against Teamsters Local 812 Health Fund (" Local 812") and Teamsters Local 210 Affiliated Health & Insurance Fund (" Local 210"), asserting, inter alia, that, as subscribers with access to MultiPlan's Preferred Payment Rates, the Locals breached their respective contractual obligations to pay claims for services rendered by medical providers in MultiPlan's network within thirty (30) days, in compliance with the contract rates. Third-Party Plaintiff MultiPlan thus asserts that Local 812 and Local 210 breached their contracts with MultiPlan, compelling them to indemnify MultiPlan for any liability it incurs to North Shore and, moreover, to pay MultiPlan's attorneys' fees and costs in defending against North Shore's claims.

Subsequently, on February 13, 2014, Local 812 served a Fourth-Party Complaint against Crossroads, arising out of an indemnification clause contained within a 2002 Administrative Services Agreement executed between Local 812 and Crossroads. See DE 83. That fourth-party action was later voluntarily dismissed, without prejudice, by Local 812 on May 28, 2014. See DE 116.

Third-Party Defendant Local 812 has moved to sever and to stay MultiPlan's Third-Party Complaint, pursuant to Rules 14(a)(4) and 21, pending the resolution of Plaintiff's first-party claims against MultiPlan. MultiPlan opposes the motion. Separately, Proposed Intervenor Crossroads has moved to intervene as of right, pursuant to Rule 24(a) or, alternatively, for permissive intervention, pursuant to Rule 24(b). See DE 18. Judge Bianco referred both motions to this Court for a Report and Recommendation. For the reasons set forth below, the Court respectfully recommends to Judge Azrack[1] that Local 812's motion to sever and to stay Multiplan's third-party action be DENIED and that Crossroads' motion for intervention be GRANTED, in part, and DENIED, in part.

II. Background

A. The Second Amended Complaint

Plaintiff North Shore is a not-for-profit corporation which operates health care facilities, including 12 hospitals in the State of New York. See Compl. ¶ 1. Defendant MultiPlan is a Preferred Provider Organization, or PPO. Id. ¶ 2. Defendants - - Teamsters Local 210 Affiliated Health and Insurance Fund (" Local 210") and Local 812 Health Fund (" Local 812") - - are self-funded health insurance plans which provide health care coverage to their union members. Id. ¶ ¶ 3-4. The original action here involves North Shore's " contractual relationship with MultiPlan whereby [North Shore] agreed to provide health services to MultiPlan members at special rates." Id. ¶ 5. In turn, MultiPlan " made these special rates available to other health plans for their respective members." Id. North Shore alleges, upon information and belief, that MultiPlan charged a fee to the other health plans (hereafter, " MultiPlan's Clients") for access to North Shore's facilities at the special rates provided by North Shore to MultiPlan and for the use of MultiPlan's network. Id.

On or about June 1, 2007, North Shore entered into a contract with MultiPlan (" 2007 Participation Provider Agreement") which provided, inter alia, for MultiPlan's members and clients to access North Shore's health care network at agreed upon special rates (hereafter, " Preferred Payment Rates"). Id. ¶ 7. According to the 2007 Participation Provider Agreement, the Preferred Payment Rates were only available to MultiPlan's Clients if they paid North Shore within thirty days from the receipt of claims. Id. ¶ 8. Between May 8, 2008 and June 30, 2010, North Shore executed multiple amendments to the 2007 Participation Provider Agreement that were acknowledged by MultiPlan. Id. ¶ ¶ 9-13.

During the relevant period covered by this action, MultiPlan, upon information and belief, entered into an agreement with Crossroads. Id. ¶ 14. That agreement (hereafter, the " MultiPlan Network Agreement") permitted Crossroads to be eligible to access Preferred Payment Rates for its members. Id. Both Local 210 and Local 812 were, upon information and belief, members of Crossroads. Id. ¶ 15. Between 2007 and the present, Crossroads' members received health care services at North Shore hospitals, generating fees and charges. Id. ¶ 16.

However, North Shore alleges that during the period at issue, MultiPlan had " actual and constructive notice that Crossroads was in breach of the terms and conditions of the MultiPlan Network Agreement in that Crossroads failed to comply with the terms and conditions in the 2007 Participation Provider Agreement, which allowed Crossroads and its members, such as Local 210 and Local 812, to be eligible for Preferred Payment Rates." Id. ¶ 17. During this same period, North Shore's representatives had advised MultiPlan that Crossroads was " repeatedly underpaying claims for health care services rendered by [North Shore] and was failing to pay claims in a timely fashion and not within 30 days as required by the 2007 Participation Agreement as amended." Id. ¶ 18. Further, North Shore informed MultiPlan that if Crossroads and its members remained non-compliant by failing to pay claims, North Shore would then exercise its rights to exclude Crossroads from eligibility for Preferred Payments Rates, pursuant to the 2007 Participation Agreement. Id. ¶ 19.

On September 10, 2007, MultiPlan received written notification from North Shore (the " 9/10/07 Crossroads Exclusion Notification") that North Shore was henceforth excluding Crossroads and its members from eligibility for Preferred Payment Rates with North Shore, in compliance with the 2007 Participation Provider Agreement. Id. ¶ 20. Having received the 9/10/07 Crossroads Exclusion Notification, MultiPlan did not advise North Shore that " any further action or process was required of it in order for the exclusion of Crossroads and its members to become effective." Id. ¶ 22. In fact, MultiPlan's agent acknowledged that the 9/10/07 Crossroads Exclusion Notification was accepted and deemed effective as of September 10, 2007 and excluded Crossroads and its members from coverage. Id. ¶ 23. Thus, as of September 10, 2007, MultiPlan had " actual and constructive knowledge that Crossroads and its members would henceforth be considered by [North Shore] as out-of-network and thus would be charged North Shore's usual non-discounted rates." Id. ¶ 25.

Notwithstanding the foregoing factual allegations, " MultiPlan deliberately failed to advise Crossroads of the 9/10/07 Crossroads Exclusion Notification." Id. ¶ 27. As of the date of the Complaint, North Shore alleges that MultiPlan had failed to advise Crossroads or its members that it had accepted and deemed effective North Shore's request to exclude Crossroads and its members from eligibility for Preferred Payment Rates." Id. ¶ 28. Further, upon information and belief, North Shore claims that " MultiPlan failed to advise Crossroads or its members of their out-of-network status subject to North Shore's usual non-discounted rates." Id. ¶ 29.

Based on the actions stated above, North Shore asserts the following claims against Defendants: (1) breach of contract against MultiPlan, id. ¶ ¶ 30-37; (2) breach of the covenant of good faith and fair dealing against MultiPlan, id. ¶ ¶ 38-43; (3) fraud against MultiPlan, id. ¶ ¶ 44-75; (5) breach of contract against Local 210 and Local 812, id. ¶ ¶ 76-82; [2] (6) unjust enrichment against Local 210 and Local 812, id. ¶ ¶ 83-90; (7) quantum meruit against Local 210 and Local 812, id. ¶ ¶ 91-99; (8) third-party beneficiary claim against Local 210 and Local 812, id. ¶ ¶ 100-108; (9) failure to abide by the terms of a plan in violation of the Employee Retirement Insurance Security Act (" ERISA") against Local 210 and Local 812, id. ¶ ¶ 109-116.

B. MultiPlan's Third-Party Complaint

In 1997, MultiPlan and Local 812 entered into an " Agreement for Client Access to Facility and Practitioner Networks, " (the " Local 812 Agreement"), effective November 1, 1997. See Third-Party Complaint annexed to the Notice of Removal as Ex. " E" (" Third-Party Compl.") ¶ 3 [DE 1]. According to the Local 812 Agreement, MultiPlan agreed to provide Local 812 access to MultiPlan's network of health care providers, including MultiPlan facilities and practitioners, and for those providers to provide health care services to individuals covered by the self-funded health plan sponsored by Local 812. Id. ¶ 4. Further, Local 812 " expressly agreed to certain obligations in the Local 812 Agreement, including but not limited to, paying MultiPlan providers for covered services rendered to participants within thirty (30) business days from receipt of a clean claim." Id. ¶ 5. Local 812 was also contractually obligated to pay MultiPlan providers in compliance with contract rates, as defined in the Local 812 Agreement. Id. ¶ 6.

In 1999, MultiPlan and Local 210 entered into an " Agreement for Client Access to Facility and Practitioner Networks" (the " Local 210 Agreement"), effective October 1, 1999. Id. ¶ 7. The terms of the Local 210 Agreement were similar to those contained in the Local 812 Agreement, providing Local 210 access to MultiPlan's network of health care providers and requiring Local 210 to pay those providers within thirty (30) business days from receipt of a clean claim. Id. ¶ ¶ 8-9. Local 210 was also required to pay MultiPlan providers in accordance with contract rates as defined in the Local 210 Agreement. Id. ¶ 10.

On or about June 1, 2007, MultiPlan entered into the 2007 Participation Provider Agreement with North Shore. Id. ¶ 11. Between 2007 and the present, members of both Local 210 and Local 812 have received health care services at North Shore hospitals, resulting in fees and charges being submitted for payment by North Shore to Local 210 and Local 812. Id. ¶ 12. Third-Party Plaintiff MultiPlan asserts, upon information and belief, that beginning in 2007, North Shore notified MultiPlan that medical claims which North Shore believed were subject to payment by Local 210 and Local 812 were either " not being paid timely, correctly or not being paid at all." Id. ¶ 13.

MultiPlan, upon information and belief, alleges that it " used its best efforts to work with Local 812 and Local 210 and its third party administrator company [Crossroads] to resolve the claims being put forth by North Shore." Id. ¶ 14. Some of these claims were resolved to North Shore's satisfaction. Id. ¶ 15. However, other claims have remained unsatisfied according to North Shore. Id. In the first-party action, North Shore alleges that " MultiPlan owes North Shore for the claims which were either not correctly paid or not paid at all by Local 812 and Local 210." Id. ¶ 16. MultiPlan has previously demanded that Local 210 and Local 812, through their third party administrator Crossroads, resolve the claims of North Shore. Id. ¶ 17. These efforts have not been successful. Id. North Shore has initiated a separate lawsuit against Crossroads to recover the " medical claims of North Shore that it contends have not been properly paid or not paid at all by Local 210 and Local 812." Id. ¶ 18. MultiPlan claims that the 2007 Participation Provider Agreement does not hold MultiPlan financially responsible for the payment of North Shore's claims. Id. ¶ 19.

As a consequence of the foregoing allegations, MultiPlan asserts that Third-Party Defendants Local 210 and Local 812 are in breach of their contract and in breach of the covenant of good faith and fair dealing. Id. ¶ ¶ 20-31. Under the first cause of action in the Third-Party Complaint, MultiPlan alleges that both Third-Party Defendants violated their respective agreements with MultiPlan in failing to resolve claims within 30 business days as required. Id. ¶ ¶ 20-22. The first-party action claims that MultiPlan is liable to North Shore for Local 210 and Local 812's unpaid, mispaid, or untimely paid claims. Id. ¶ 23. However, in light of the Local 812 Agreement and the Local 210 Agreement with MultiPlan, MultiPlan alleges that " any amounts allegedly owed to North Shore on the claims of North Shore for medical services rendered to the participants of the Local 812 and Local 210 self-funded insurance plans are amounts owed not by MultiPlan, but by Local 812 and Local 210 as plan sponsors." Id. ¶ 24. In particular, MultiPlan points out, the Local Agreements entered into by Local 210 and Local 812 " contain an indemnification provision at § C.3 that obligates Local 812 and Local 210 to indemnify and hold MultiPlan harmless for any claims, liabilities, losses, damages and/or expenses as a result of the other party's breach of the Agreements, or proximately caused by the negligent omission or commission of the indemnifying party in connection with any obligation set forth in the Local Agreements." Id. ¶ 25. In accordance with this indemnification provision, MultiPlan argues that Third-Party Defendants Local 210 and Local 812 owe MultiPlan for the claims of North Shore in this litigation as well as for costs and attorneys' fees incurred by counsel for MultiPlan in defending the first-party action and prosecuting the third-party action. Id. ¶ ¶ 26-27.

Under the second cause of action in the Third-Party Complaint, MultiPlan alleges that Third-Party Defendants Local 210 and Local 812 violated the covenant of good faith and fair dealing which is implied in all contracts between parties entered into in the State of New York. Id. ¶ ¶ 28-29.[3] The Third-Party Defendants' failure to timely pay or fully pay the claims of North Shore, MultiPlan asserts, was the direct cause of the breach of this covenant. Id. ¶ ¶ 30-31.

C. Local 812's Fourth-Party Complaint

On or about November 1, 2002, Local 812 and Crossroads entered into an Administrative Services Agreement. See Fourth-Party Complaint (" Fourth-Party Compl.") ¶ 5 [DE 83]. In the Administrative Services Agreement, Crossroads " represented 'itself as an expert in the health care industry providing to its clients, among other things, services related to providing or arranging administrative, claim payment, managed care, utilization review, and other services, and under which payment for medical care and treatment is provided to an employee or member, in whole or in part by an employer, labor union, association, or trust.'" Id. ¶ 6. Under the Administrative Services Agreement, Crossroads was required to manage and provide third-party administrative services in managing and remitting payments for healthcare claims for persons covered by Local 812's plan. Id. ¶ 7. More specifically, the Administrative Services Agreement obligated Crossroads to provide a variety of duties and services. Id. ¶ 8. These included, but are not limited to, " the timely processing on behalf of Local 812 of all claims for medical and/or hospital benefits and the issuance of checks on behalf of Local 812 in a timely manner to entitled provider payees of that portion of amounts due under Local 812's plan for each claim of a covered person that qualifies for payment under the terms of Local 812's plan." Id. ¶ 8.

There is also an indemnification provision in the Administrative Services Agreement between Local 812 and Crossroads. Id. ¶ 9. That provision reads, in relevant part, as follows:

Crossroads shall indemnify, defend, and hold harmless [Local 812] and its Trustees, employees, agents, successors, and assigns from and against any and all claims, actions, demands, costs, and expenses, including reasonable attorney fees and disbursements, as a result of a breach by Crossroads of any of its obligations under this Agreement or arising out of the negligent act or omission or willful misconduct of Crossroads.

Id. The indemnification provision further requires the parties to " provide prompt notice in the event of a notices [sic] of claim that could give rise to a claim for indemnification under this Agreement." Id. ¶ 10.

As against Crossroads, Fourth-Party Plaintiff Local 812 asserted a single cause of action for breach of contract. Id. ¶ ¶ 29-37. Specifically, Local 812 contends that the Administrative Services Agreement was in effect during the relevant time period. Id. ¶ 30. Pursuant to its terms, " Crossroads, as Local 812's third-party administrator, was required to timely process all claims for medical, hospital, laboratory tests, diagnostic and drug benefits." Id. ¶ 31. Further, Local 812 claims that Crossroads was " further bound by the Administrative Services Agreement to issue checks on behalf of Local 812 in a timely manner to entitled provider payees of that portion of amounts due under Local 812's plan for each claim of a covered person that qualifies for payment under the terms of Local 812's plan." Id. ¶ 32. In MultiPlan's third-party action, Local 812 is alleged to be liable for " untimely paid, mispaid, underpaid, or fail[ure] to pay certain claims submitted to it by [North Shore]." Id. ¶ 33.

Local 812 asserts that " [t]o the extent that MultiPlan's third-party claims against Local 812 are sustained, Local 812's liability to MultiPlan will be premised on Crossroads' breach of its contractual obligations to Local 812 regarding the processing and payment of claims, and/or Crossroads' negligent acts and/or omissions, and/or willful misconduct." Id. ¶ 34. Local 812 has provided Crossroads with " prompt notice" of the third-party claims asserted by MultiPlan. Id. ¶ 35. Consequently, Local 812 submits that, in compliance with the indemnification provision, " Crossroads is thus obligated to indemnify, defend, and hold harmless Local 812 against MultiPlan's third-party claims, including any reasonable attorney's fees and disbursements incurred by Local 812 in defending against those claims." Id. ΒΆ 36. Due to Crossroads' breach of the Administrative Services Agreement and/or negligent acts, omissions, or willful conduct, " Local 812 has been damaged in the amount of any judgment(s) entered ...


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