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Walsh Chiropractic, Ltd., Individually and On Behalf of Others Similarly Situated v. Stratacare

September 14, 2011


The opinion of the court was delivered by: Reagan, District Judge:


This action pertains to an alleged scheme known as a "silent PPO," a term of art for a specific kind of Preferred Provider Organization ("PPO") abuse. A PPO is a managed care technique encompassing numerous contracts between health care providers (such as Plaintiff Walsh Chiropractic, Ltd. ("Walsh")), payors (such as insurance carriers and employers), various third parties, and the PPO network administrator. The PPO at issue here is administered by First Health Group Corporation ("First Health"), which is not a party to this action. Defendant StrataCare, LLC ("StrataCare"), is a software company; its software and personnel are used to facilitate the electronic processing of transactions between the provider, the payor and the PPO administrator, First Health.

Plaintiff Walsh has filed a motion for class certification and memorandum in support (Docs. 41 and 42). Defendant StrataCare has filed a memorandum in opposition to class certification (Doc. 44), to which Walsh has filed a reply (Doc. 46). An evidentiary hearing was held on January 6, 2011 (Doc. 50 Transcript), and the Court accepted proposed findings of fact and conclusions of law from each party (Docs. 51-1 and 52). The Court now rules as follows.

A. Procedural History and Background

On November 6, 2009, Plaintiff Walsh Chiropractic filed this putative class action in the Third Judicial Circuit Court in Madison County, Illinois, alleging various breach of contract theories and a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), 815 ILCS 501/1 et seq., (Doc. 9-1). On December 17, 2009, Walsh filed its First Amended Class Action Complaint (Doc. 9-2), adding two additional counts: one for unjust enrichment and the other alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1962(c), 1964(c). Defendant StrataCare removed this action to federal court on December 28, 2009, pursuant to 28 U.S.C. § 1441, alleging this Court has federal question, supplemental and diversity jurisdiction under 28 U.S.C. §§ 1331, 1367(a) and 1332(a)(1), respectively (Doc. 9). On motion by StrataCare (Doc. 20), all of Walsh's contract claims (Counts I-IV) were dismissed, but the action proceeds on the ICFA, RICO and unjust enrichment claims (Counts V-VII) (Doc. 38).

In analyzing the motion for class certification, the Court keeps in mind that it has been found that the relationship between Walsh and StrataCare stems from two separate, though related, contracts (see Doc. 38).*fn1 The first specific contract at issue is the Provider Agreement that Walsh entered into with First Health on March 13, 2002 (Doc. 32-1, pp. 1-10 (Ex. A)). Under this contract, Walsh, as a provider, agrees to participate in the First Health PPO, and provide services to "participating patients"-as defined by the contract-at discounted rates. The Provider Agreement further dictates that "First Health will offer to certain Payors the opportunity to contract with First Health to utilize the services of the health care providers participating in the Preferred Provider Panel" (Doc. 32-1, p. 1, § 1.5). First Health is required to provide Providers with a list of all Payors, with whom it has entered into such agreements (Doc. 32-1, p. 1, § 1.5). For purposes of the Provider Agreement:

"Payor" means any employer, trust fund, insurance carrier, health care service plan, trust, nonprofit hospital service plan, a governmental unit, any other entity which has an obligation to provide medical services or benefits for such services to Participating Participants, or any other entity which has contracted with First Health to use First Health's PPO Plan.

Doc. 32-1, p. 1, § 2.7.

The second contract at issue is between StrataCare and First Health, entitled, "Workers' Compensation Managed Care Services Network Agreement" ("Network Access Agreement"), signed on January 1, 2005 (Doc. 34-2). Per the Network Access Agreement, upon execution of a form written agreement, referred to as an "Appendix II Agreement" (Doc. 34-2, pp. 16-19), StrataCare's clients -- referred to as "sub-clients"-- are entitled to the discounted rates in the Provider Agreements between First Health and Providers, such as Walsh.

In essence, Plaintiff claims that it was fraud for Defendant StrataCare to submit, or cause to be submitted, thousands of misleading Explanations of Review ("EORs") deceptively claiming PPO discounts for medical services pursuant to First Health PPO network discounts when neither StrataCare nor its clients were entitled to those discounts as legitimate First Health Payors. From Walsh's perspective, StrataCare took discounts beyond what was authorized by any contractual authority, "without performing the associated obligation of 'preferring' the preferred providers by channeling or steering patients to [Walsh], and because Defendant and its third-party payor clients were not proper 'Payors' under [Walsh's] and class members' PPO provider agreements"( Doc. 2-2, pp. 1-2).*fn2

The Court ruled that, as pleaded, Walsh's contract claims failed because: (1) the Network Access Agreement did not incorporate, specifically or by reference, the Provider Agreement between Walsh and First Health; (2) Walsh was not an intended third-party beneficiary of the Provider Agreement between Walsh and First Health; (3) there was no implied contract; and (4) there is no joint venture between StrataCare and First Health (see Doc. 38). Although all contract claims were dismissed, the Court further ruled that the RICO claim was sufficiently pleaded, based on an "association in fact;" the ICFA claim was plausible because, as pleaded, StrataCare was the proximate cause of Walsh's actual damages (i.e. not receiving full fees), and Walsh's patients may be affected by StrataCare's allegedly fraudulent claims, via fee increases needed to cover Walsh's decreased income; and the unjust enrichment claim(s) could proceed, premised upon the alleged fraud (see Doc. 38).

B. The Proposed Class

Plaintiff Walsh moves for class certification pursuant to Federal Rules of Civil Procedure 23(a) and (b)(3), based on the predominance of questions of law and fact common to the class. Without objection from StrataCare, Walsh has slightly narrowed the proposed class than from what was delineated in the First Amended Class Action Complaint (Doc. 2-2). The revised proposed class is:

All Illinois medical providers who:

(a) entered into the First Health Network Participating Provider Agreement, the First Health Network Participating Provider Group Agreement, or the First Health Network Participating Clinic Agreement;

(b) provided medical services to an Illinois workers compensation claimant; and

(c) received partial payment from a StrataCare client based on access to a First Health PPO discount through the Workers Compensation Managed Care Services Agreement dated January 1, 2005, between StrataCare and First Health.

Defendant StrataCare contends that the relevant time period should be limited to between January 1, 2005, and January 1, 2009-- the inclusive dates of Walsh's contract with First Health, and after which the Coventry-StrataCare Agreement took effect (see Doc. 44-6 at § 8.4).

C. Legal Standards for Class Certification

Rule 23 of the Federal Rules of Civil Procedure governs class actions. When a plaintiff seeks class certification, the Court should not consider the merits of the case, although the Court may look beyond the pleadings. Wiesmueller v. Kosobucki, 513 F.3d 784, 787 (7th Cir. 2008); Chavez v. Illinois State Police, 251 F.3d 612, 629-630 (7th Cir. 2001); General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 160 (1982). The Court may make whatever factual and legal inquiries are necessary for the Rule 23 determination. See Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 675-676 (7th Cir. 2001).

Plaintiffs seeking class certification bear the burden of proving the action satisfies the four requirements of Rule 23(a): numerosity, commonality, typicality, and adequacy of representation. Harper v. Sheriff of Cook County, 581 F.3d 511, 513 (7th Cir. 2009). Once all of the requirements of Rule 23(a) are satisfied, plaintiffs' claims must fall within at least one subsection of Rule 23(b). Arreola v. Godinez, 546 F.3d 788, 797 (7th Cir. 2008).In this case, Plaintiff Walsh seeks to certify a class under Rule 23(b)(3).

"Certification under Rule 23(b)(3) requires that 'the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.' " Pella Corp. v. Saltzman, 606 F.3d 391, 393 (7th Cir. 2010) (quoting Fed.R.Civ.P. 23(b)(3)). Rule 23(b)(3) further provides:

The matters pertinent to these findings include:

(A) the class members' interests in individually controlling the prosecution or ...

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