Williams v. Bestcomp, Inc., No. 6:11–cv–00050, 2011 WL 4499427 (W.D. La. Sept. 26, 2011).

Despite the defendants’ protestations to the contrary, $6 million may be chump change to some people but it is not small change.

In this case, a Louisiana District Court remanded the case to the state court finding that the “Small Change” rule under CAFA is not applicable to a local defendant merely because it was incapable of satisfying the court’s order for damages, because it was effectively insolvent, particularly when the local defendant was a significant defendant against whom a significant relief could be sought.

The plaintiff, George Raymond Williams MD in Orthopedic Surgery, on behalf of himself and as representative of similarly situated health care providers, brought an action seeking damages for violations of the Louisiana Preferred Provider Organization Act (“PPO Act”). The plaintiff alleged that the defendant, Bestcomp, Inc., entered into Preferred Provider Organization (“PPO”) agreements with Louisiana medical care providers pursuant to the PPO Act for discounted rates of pay for medical services rendered by the providers. The plaintiff alleged that Bestcomp failed to comply with the notice provisions of the PPO Act. 

Soon after the filing of the original complaint, Bestcomp filed for protection under Chapter 11 of the Bankruptcy Code and instituted an action in the United States Bankruptcy Court, Eastern District of Louisiana. Separately, Bestcomp removed this matter to the Western District of Louisiana; however, this case was remanded for lack of subject matter jurisdiction. A few months later, the Bankruptcy Court dismissed the Bankruptcy proceeding upon a motion by Bestcomp.

During the pendency of the bankruptcy proceedings, the plaintiff learned that StrataCare, LLC, as a payor, contracted with Bestcomp for access to Bestcomp’s PPO network and discounted rates for workers’ compensation medical services. The plaintiff also learned that Bestcomp’s operations were conducted by its shareholders: Advantage Health Plans, Inc., and CCMSI Holdings, Inc. Therefore, the plaintiff amended the complaint to include all three entities as defendants in the action. 

StrataCare removed the case, and now the plaintiff has moved to remand the case to the state court asserting that this matter fell within the local controversy exception.

At the very outset, the Magistrate Judge noted that the class only included medical care providers who had their bills discounted to a PPO agreement for services to workers’ compensation patients performed in Louisiana. Here, the plaintiff was required to show that more than two-thirds of the purported class was comprised of Louisiana citizens by preponderance of evidence. 

In support of the motion to remand, the plaintiff attached the affidavits of Michelle Rankin, Lauran Schultz, and the Rule 2004 deposition of Bestcomp representatives; which essentially stated that between 87% to 98% of the healthcare providers were listed as Louisiana domiciliaries. 

The defendants objected to the plaintiff’s reliance on those affidavits, and moved to strike. The Magistrate Judge, however, denied the defendants’ request to strike, and found that the affidavits were admissible and the methodology used to determine the domiciles were appropriate. Because the defendants failed to offer any evidence to dispute the plaintiff’s argument, the Magistrate Judge concluded that over two-third the class consisted of Louisiana citizens. 

Next, the Magistrate Judge noted that Bestcomp, was admittedly a Louisiana citizen, and the plaintiff sought significant relief from Bestcomp. The Magistrate Judge explained that, if Bestcomp was found to have violated La. R.S. 40:2203.1(B), the plaintiff would be entitled to recover significant statutory damages under La. R.S. 40:2203.1(G). 

The plaintiff alleged that the Class was composed of hundreds of medical providers, each of whom likely has multiple claims for violations against Bestcomp. During the bankruptcy proceedings for Bestcomp in the Eastern District of Louisiana, the plaintiff filed a proof of claim on behalf of the putative class for $61,546,500. The amount, the Magistrate Judge remarked was clearly not, in isolation, “small change.”

The defendants countered that the relief sought from Bestcomp was in fact, just “small change” when compared to the relief sought from the other defendants because Bestcomp was effectively insolvent. 

The Magistrate Judge noted that the “small change” rule originated from the Senate Report to CAFA. (Editors’ Note: The CAFA Law Blog salutes Magistrate Judge Hornsby for examining the Senate Report on CAFA. We wish more enlightened jurists would review the reports on CAFA before ruling).

The Report gave two examples that illustrated how the Senate Committee intended CAFA’s local controversy exception to work. The Magistrate Judge noted that the second example states what the courts have relied on in stating the “small change” rule. In the second example there is a class action  brought in Florida against an out-of-state automobile manufacturer and the Florida automobile dealers for a defective automobile. The example states that the case would not fall within the local controversy exception for two reasons: (1) the automobile dealers are not defendants whose alleged conduct forms a significant basis for the claims, and (2) even if they truly sought relief from the dealers, it was just a small change compared to what they are seeking from the manufacturer. 

The Magistrate Judge found that the small change rule was not applicable in this case because Bestcomp was not some lowly, small-time defendant roped into this action to serve as an anchor for state court jurisdiction, but Bestcomp was exposed to significant liability as the party who contracted directly with the medical providers to form the Bestcomp PPO network. The Magistrate Judge remarked that unlike the Senate Report example, Bestcomp was not a local car dealer, where it was joined despite the fact recovery prospects were clearly limited. The Magistrate Judge refused delve into Bestcomp’s actual financial viability to sustain this claim, and rejected Bestcomp’s “Small Change” argument.

Second, the Magistrate Judge concluded that Bestcomp’s conduct in taking discounts without proper notice within its PPO network forms a significant basis for the claims asserted by the proposed plaintiff class. 

The defendants countered that even if the proposed class’s claims concern only discounts taken pursuant to Bestcomp’s PPO Network, the plaintiff’s alter-ego claim made the conduct of CCMSI and Advantage Health the conduct, which forms a significant basis for the proposed class’s claims. The Magistrate Judge found that the alter ego theory was simply a mechanism by which the court ignores the limited liability that accompanies incorporation. If CCMSI and Advantage Health, as shareholders, were held vicariously liable on an alter-ego basis, which would turn on separate factual circumstances, then CCMSI and Advantage Health would be held liable for Bestcomp’s conduct.

Similarly, the Magistrate Judge found that the principal injuries were incurred in Louisiana, and because no other class action was filed with this cause of action in the preceding three years, the plaintiff successfully established the local controversy exception.

Accordingly, the Magistrate Judge recommended remanding this case to the state court which the District Judge did.