The opinion of the court was delivered by: MICHAEL MIHM, District Judge
Before the Court is Defendant Frank Walter's Motion for Summary
Judgment [#86]. For the following reasons, the Motion is GRANTED. The
Court declines to retain jurisdiction over the state law Counter-Claim
and, therefore, it is DISMISSED without prejudice so that it may be
re-filed in state court.
This case arises out of the criminal investigation and prosecution of
Plaintiff, Ron Jones ("Jones"), the owner and president of Mutual Medical
Plans, Inc. ("Mutual Medical" or "The Compmany"). Mutual Medical is an
Illinois corporation whose primary business is the third party
administration of employer-sponsored health benefit plans. Kevin Lyons
("Lyons") is the Peoria County State's Attorney and Frank Walter
("Walter") is an investigator employed by that office.
In its capacity as a third party administrator, Mutual Medical also
brokered Safeco. Company's ("Safeco") reinsurance products to the health
plans that it serviced. This relationship was somewhat unique in the
sense that it granted Jones the right to approve increases in the rates
charged by Safeco. for reinsurance to Jones' clients. The ability to
increase the rates was contingent upon Jones' block of business, which at
the time was comprised of approximately 63 employer health benefits
plans, not exceeding certain levels of loss as a group.
In addition to commissions paid from Safeco. to Jones and Mutual
Medical, Mutual Medical was eligible to receive an annual "profit bonus"
equal to one half of the profit earned by Safeco. on Jones' reinsurance
clients after deductions were made for losses, reserves, conversion
charges, pooling charges, and a target profit established by Safeco.
Between 1995 and 1998, Mutual Medical's profit bonuses were $260,361,
$840,541, $601,730 and $523,624, respectively. The Company did not
receive a profit bonus in 1999.
Mutual Medical, as a third party administrator, was responsible for
processing and paying medical charges of employees and dependants who
were covered by the health care plans it serviced. The Company was also
responsible for making sure that its clients obtained reimbursement from
the reinsurer, Safeco, whenever the claims incurred by an individual
covered under a client's health care plan exceeded the plan's "stop-loss"
or deductible point in a particular premium year. The profit bonuses
received by Mutual Medical were largely dependent upon the total dollar
amount in reinsurance claims that were paid by Safeco. within a calender
The background for this lawsuit centers on three cases in which Mutual
Medical served as the third party administrator for health care plans
purchased from Safeco. These three cases will be referred to as the
Wolfe, Boren, and Wilson cases.
From July 1, 1992, to April 30, 1998, Mutual Medical served as the
third party administrator for the self-funded benefit plan offered by PMP
Fermentation Products, Inc. As part of its plan, PMP purchased individual
excess loss insurance coverage from Safeco, under which Safeco. would
reimburse PMP for claim payments made in a reinsurance contract year
(July 1st to June 30th) above the first $20,000 per person. On August
25, 1996, Mindy Wolfe, the wife of PMP employee Mitch Wolfe, prematurely
gave birth to twin boys at OSF St. Francis Hospital (OSF) in Peoria. Drew
and Derek Wolfe were hospitalized from August 25, 1996, through November
The OSF bills for the twins collectively totaled over $309,000. After
receiving the bills in the fall of 1996, and early 1997, Jones and Mutual
Medical claimed that the bills were excessive and, therefore, did not
submit them to Safeco. for reimbursement.
On June 27, 1997, Jones requested that Safeco. extend the time period
for PMP to submit claims for reinsurance on the Wolfe twins an additional
12 months, so that PMP would not be charged another set of deductibles.
In his letter requesting the extension, Jones suggested that the
potential reinsurance claim savings on the case was $200,000 or more.
Safeco. agreed to extend the time period, but only for an additional two
months. Without notifying PMP officials*fn1, in July of 1997 Mutual
Medical hired a company, Preferred Payment Systems (PPS), to attempt to
negotiate the bills, but OSF refused to consider that option and, the
bills remained unpaid prior to the expiration of the extension period.*fn2
On October 29, 1997, Jones wrote a check from Mutual Medical's account
to OSF for partial payment of the Wolfe's bill in the amount of $145,904
*fn3 and an additional amount of $3,445.47 to the Wolfes to reimburse
them for their expenses. The bill was not submitted to Safeco for
On March 27, 1998, PMP terminated Mutual Medical as its third party
administrator for reasons unrelated to the Wolfe case. Shortly
thereafter, PMP Human Resources Director Randy Niedermeier
("Niedermeier") spoke with Jones, and it was revealed to PMP, for the
first time, that the Wolfe matter was still unresolved by Mutual
On April 30, 1998, Niedermeier sent a letter to Jones demanding that
Mutual Medical pay the balance of the Wolfe claim immediately. Shortly
thereafter, the remaining balance of $163,400 was paid, and the charges
were submitted to Safeco. for reimbursement. Safeco. reimbursed PMP
$123,400 ($163,400-$40,000 dedectible) on July 15, 1998.
If the bills had been paid by Mutual Medical in the first eight months
of 1997, Jones' profit bonus would have been reduced by $154,652.
However, since Mutual Medical ultimately submitted $123,400 to Safeco.
for reimbursement in July, 1998, Jones' 1998 profit bonus was decreased
by only $61,700. As a result, the "net" increase to Mutual Medical's
profit bonus was $92,952. Because the Wolfe's bills were not paid during
the 1996-1997 policy year, PMP was forced to pay an additional $20,000
deductible for each twin.*fn4
Peoria County has a self-funded employee benefit plan to provide health
insurance benefits to its employees and their dependents. Mutual Medical
served at all relevant times as the third party administrator. Peoria
County purchased excess loss insurance coverage from Safeco, which
provided reimbursement for payments made in a reinsurance contract year
above the first $150,000 per person.
On May 13, 1998, Tanisha Wilson, the wife of a Peoria County employee,
prematurely gave birth to her daughter, Aalis, at OSF. Aalis remained at
the hospital until she was discharged on July 23, 1998. Payment was made
on the first and third interim hospital bills, totaling approximately
$118,000, in August and October, 1998. OSF records indicate that on July
2, 1998, the hospital sent Mutual Medical, by certified mail, the second
interim bill in the amount of $73,228 for the care provided to Aalis.
Although OSF records also indicate that a Mutual Medical employee
received and signed for this certified mailing on July 16, 1998, Mutual
Medical claims that it never received it.*fn5
On February 10, 1999, an OSF representative called Jones on an
unrelated matter, at which time Jones told the representative that if OSF
had any unpaid bills for Mutual Medical's clients, it should re-bill the
account. A reprint of the $73,228 bill was mailed to Mutual Medical on
February 12, 1999, and was paid in full shortly thereafter.
Because the second interim bill was not paid by Mutual Medical in 1998,
Peoria County never reached its "stop-loss" point of $150,000 on expenses
for Aalis Wilson. If Mutual Medical had paid OSF's second interim bill of
$73,228 in 1998, Peoria County would have been entitled to receive
reimbursement from Safeco. in the amount of $61,378, and Jones' profit
bonus would have been reduced by $30,689.
Mutual Medical was the third party administrator for Pike County's
benefit plan. Pike County ("Pike") also purchased individual excess loss
insurance coverage from Safeco. which would reimburse Pike for payments
made in a reinsurance contract year above the first $15,000 per person.
An employee of Pike, Janet Boren ("Boren"), received knee surgery on
October 21, 1999, at Hannibal Regional Hospital ("Hannibal"). Hannibal
mailed Mutual Medical a bill on November 4, 1999, in the amount of
$14,338.50. However, because this bill did not include an itemization of
the medical services provided, Mutual Medical returned that bill with a
request, as it claims was customary, that the hospital provide an
itemization of the services provided. Hannibal sent Mutual Medical an
itemized bill on January 12, 2000. Mutual Medical paid the bill in full
on January 27, 2000.
Boren had also incurred other medical bills in connection with her knee
surgery that were paid by Mutual Medical in 1999. Thus, Pike County could
have recouped a portion of the $14,338.50 bill, had the bill been paid in
1999. Because of the delay in payment, Pike County lost $3,451 in
reinsurance that it otherwise would have received from Safeco.
Peoria County Initiates the Investigation
In May of 1999, Peoria County's Risk Management Assistant, Sandy
Cheeseman, reported to the Management Services Subcommittee of the Peoria
County Board that the County lost "a considerable reimbursement" because
Mutual Medical had not paid the claims incurred at OSF by the Wilsons in
a timely manner. Cheeseman also noted that Mutual Medical paid the third
interim bill first and the first interim bill second and that, even if
Mutual Medical had not received the second bill, "they should have
questioned the service dates on the [third interim] billing which was the
During the meeting, the Committee chairman informed the Committee that
Jones was both an agent of the County's reinsurer Safeco, and that Jones
received a profit sharing percentage if the payouts made by Safeco. in a
given year did not exceed certain dollar amounts. According to the
minutes of that meeting, "the Committee felt that this was a conflict of
interest" and that the State's Attorney's office ...