Opelousas General Hospital Authority v. Fairpay Solutions, Inc.

Citations: 655 F.3d 358; 2011 WL 3902996Docket: 11-30610

Court: Court of Appeals for the Fifth Circuit; September 7, 2011; Federal Appellate Court

Original Court Document: View Document

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Defendants FairPay Solutions, Inc., LEMIC Insurance Company, and Zurich American Insurance Company appeal a district court decision that applied the local controversy exception to federal jurisdiction under the Class Action Fairness Act (CAFA) and remanded the case to Louisiana state court. The plaintiff, Opelousas General Hospital Authority, accused the defendants of violating the Louisiana Racketeering Act by conspiring to underpay hospital bills through FairPay's recommendations. The defendants argued that LEMIC, the local defendant, was fraudulently joined to establish jurisdiction. The district court found the local controversy exception applicable, but the appellate court determined that Opelousas General did not sufficiently demonstrate that LEMIC's actions were a significant basis for the claims and vacated the remand order, instructing that the case be reinstated in federal court. The appellate review emphasized that the burden rests on the plaintiff to prove applicability of the local controversy exception, which is interpreted narrowly, favoring federal jurisdiction. The parties agreed that more than two-thirds of the proposed class members are Louisiana citizens, the injuries occurred in Louisiana, and no similar class action has been filed in the last three years.

The local controversy exception necessitates remanding a class action if at least one local defendant, from whom significant relief is sought, has conduct that forms a significant basis for the claims asserted. The focus here is on whether Louisiana defendant LEMIC's alleged conduct significantly relates to the claims of the proposed plaintiff class. Opelousas General argues that the inquiry should be confined to the complaint's allegations, citing the statutory language. However, Opelousas General did not object to using extrinsic evidence in the lower court and actively sought discovery to support its position, leading to a judicial estoppel that prevents it from changing its stance on appeal. 

The court finds that Opelousas General has not met its burden of proving that LEMIC's conduct significantly underpins the claims. The statute requires the local defendant's conduct to be a significant basis for all claims, not necessarily each individual claim. The complaint fails to detail LEMIC's conduct in relation to the other defendants, focusing instead on FairPay's allegedly improper calculations of reimbursements. It does not differentiate LEMIC's actions from those of FairPay or Zurich, nor does it quantify any specific underpayments attributable to LEMIC. Thus, whether considering the complaint or the presented evidence, there is insufficient basis to establish that LEMIC’s conduct is significantly linked to the claims against it. The core of the plaintiffs' claims rests on FairPay's compliance with Louisiana law, implicating LEMIC and Zurich through their reliance on FairPay’s recommendations.

Opelousas General has not provided sufficient evidence of direct contact or communication among the defendants to substantiate its claim of an illegal racketeering enterprise regarding underpayments. The evidence presented by the defendants indicates that no such enterprise exists. The plaintiff relies on a single Explanation of Reimbursement, alleging that LEMIC misrepresented reimbursement calculations, yet this does not connect LEMIC to Zurich or establish any significant impact of LEMIC's conduct on the putative class. Despite Opelousas General's assertion that FairPay is central to the enterprise with LEMIC and Zurich as peripheral entities, the facts do not demonstrate that LEMIC's actions significantly contribute to the claims. The Louisiana Racketeering Act’s provision for solidary liability does not satisfy the requirement that a local defendant's conduct must form a significant basis for the claims, as mere joint liability does not equate the conduct of others to that of the local defendant. Opelousas General's failure to adequately prove LEMIC's significant role results in the inability to invoke the local controversy exception to CAFA jurisdiction. Consequently, the district court's remand to state court is vacated, and the case is to be reinstated on the district court's docket. The appellate court did not address the fraudulent joinder argument due to this decision.