Opinion
03 Civ. 7390 (JCF).
August 11, 2004
MEMORANDUM OPINION AND ORDER
In this diversity action, the plaintiffs, Boston Post Road Medical Imaging, P.C. and Moshe D. Fuld, P.C. (collectively, "Boston") filed a suit against the defendant, Geico General Insurance Company ("Geico"), to recover no-fault insurance benefits assigned to it by thirty-seven separate individuals who were involved in unrelated automobile accidents. Geico denied all of the claimed benefits and has moved for dismissal for lack of subject matter jurisdiction on the ground that the claims are not properly aggregated and that no individual claim meets the amount-in-controversy requirement for diversity actions under 28 U.S.C. § 1332. The parties consented to referral of the case to me for all purposes pursuant to 28 U.S.C. § 636(c). For the reasons set forth below, Geico's motion is granted. Background
Boston, a New York provider of radiological services, initially brought this lawsuit to recover on no-fault automobile insurance claims of forty-four patients who underwent radiological procedures at Boston's facility. (Plaintiff's Memorandum of Law in Opposition to Defendant's Motion to Dismiss ("Pl. Memo.") at 2). The claims of seven of these patients were settled after commencement of the case. (Pl. Memo. at 2). In exchange for the medical services, the patients assigned to Boston the benefits to which they were entitled under no-fault insurance policies issued by Geico, an automobile insurance company with a principal place of business in Washington, D.C. (Pl. Memo. at 2-3; Amended Verified Complaint ("Am. Compl."), ¶¶ 6, 8). The assignments were executed so that each patient-assignor could receive medical treatment without having to pay for it out-of-pocket pursuant to New York's Comprehensive Automobile Insurance Reparations Act (No-Fault Automobile Insurance) (Pl. Memo. at 3; Affirmation of David Karp in Opposition to Defendant's Motion to Dismiss dated March 31, 2004 ("Karp Aff."), ¶ 3). Geico refused to honor Boston's claims for the services rendered to the policyholders. (Am. Compl., ¶¶ 15-16, 18).
On September 4, 2003, Boston commenced this action to recover the unpaid claims. None of the claims at issue, taken individually, is more than $3,549.07. (Rider attached to Amended Complaint ("Rider")). Taken together, the forty-four claims total $94,041.68. (Rider). On March 11, 2004, Geico moved to dismiss the action on the ground that the aggregation of Boston Post's individual claims was improper and that this Court therefore lacks subject matter jurisdiction.
Discussion
This action is one of a series of similar actions filed by the same counsel on behalf of the same plaintiffs or related entities. These cases, in which medical service providers have received assignments of their patients' insurance claims, all appear to raise the same issues: whether the claims, which are individually modest in size, have been properly aggregated so as to satisfy the $75,000 jurisdictional requirement in a diversity action, and, if so, whether the claims should nonetheless be severed.
A. Aggregation
The defendant argues that Boston, by combining thirty-seven separate and distinct claims in one action, has improperly or collusively aggregated these claims in an effort to circumvent the federal courts' jurisdictional threshold of $75,000. (Memorandum of Law in Support of Defendant's Motion to Dismiss ("Def. Memo.") at 1-2).
Pursuant to 28 U.S.C. § 1332, the federal district courts have original jurisdiction with respect to "all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between citizens of different States." 28 U.S.C. § 1332(a)(1). Once subject matter jurisdiction is challenged, the burden of establishing jurisdiction rests with the party asserting that it exists.Deajess Medical Imaging, P.C. v. Allstate Insurance Co., No. 03 Civ. 3920, 2004 WL 1632596, at *2 (S.D.N.Y. July 22, 2004) (citing Thomson v. Gaskill, 315 U.S. 442, 446 (1942)). That party must prove by a preponderance of the evidence that the court has jurisdiction. APWU, AFL-CIO v. Potter, 343 F.3d 619, 623 (2d Cir. 2003); Lunney v. United States, 319 F.3d 550, 554 (2d Cir. 2003); Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). On a motion to dismiss for lack of subject matter jurisdiction, the court must accept as true all material factual allegations contained in the complaint and refrain from drawing inferences in favor of the party contesting jurisdiction.Atlantic Mutual Insurance Co. v. Balfour Maclaine International Ltd., 968 F.2d 196, 198 (2d Cir. 1992).
Under Rule 18(a) of the Federal Rules of Civil Procedure, a plaintiff may join all claims that it has against a single defendant. To the extent that such joinder is proper, the value of all such claims may be aggregated for the purpose of reaching the $75,000 threshold. See Wolde-Meskel v. Vocational Instruction Project Community Services, Inc., 166 F.3d 59, 62 (2d Cir. 1999) (citing Snyder v. Harris, 394 U.S. 332, 335 (1969)).
Nonetheless, "[a] district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court." 28 U.S.C. § 1359. Accordingly, where assignments have been made collusively for the purpose of creating federal jurisdiction, the claim shall not be permitted to proceed. See Airlines Reporting Corp. v. S and N Travel, Inc., 58 F.3d 857, 862-64 (2d Cir. 1995); Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469, 470 (2d Cir. 1976);O'Brien v. AVCO Corp., 425 F.2d 1030, 1034 (2d Cir. 1969) (stating that § 1359 precludes "agreements whose primary aim was to vest the court with jurisdiction it had not formerly enjoyed"). On the other hand, where an assignment was made for a valid business purpose, 28 U.S.C. § 1359 does not destroy jurisdiction. See Schiavone Construction Co. v. City of New York, 99 F.3d 546, 547 n. 1 (2d Cir. 1996); Airlines Reporting, 58 F.3d at 863; Drexel Burnham Lambert Group, Inc. v. Galadari, 777 F.2d 877, 881 (2d Cir. 1985). Once diversity jurisdiction is questioned, the party asserting the existence of such jurisdiction has the burden of proving that assignment was not collusive by demonstrating that it was based on legitimate, non-pretextual reasons. See Airlines Reporting, 58 F.3d at 863; Prudential Oil, 546 F.2d at 476.
The factors that may be used to evaluate the legitimacy of an assignment include: (1) whether the assignee had any previous connection with the claim assigned, (2) whether the assignee will remit any recovery to the assignor, (3) whether the assignor will actually control the conduct of the litigation, (4) when the assignment was made, (5) whether there was meaningful consideration for the assignment, and (6) the underlying purpose of the assignment. See Boston Post Road Medical Imaging, P.C. v. Allstate Insurance Co., No. 03 Civ. 6150, 2004 WL 830154, at *3 (S.D.N.Y. April 13, 2004); Airlines Reporting, 58 F.3d at 863; Kades v. Organic Inc., No. 00 Civ. 3671, 2003 WL 470331, at *5 (S.D.N.Y. Feb. 24, 2003).
Geico argues that the assignments here were made improperly or collusively for the sole purpose of obtaining federal jurisdiction. (Def. Memo. at 2). Boston, however, maintains that aggregation is proper because there were in fact legitimate business reasons for executing the assignments. (Pl. Memo. at 7). In this case, there is no indication that Boston and the patients who received services from it had any prior dealings that would suggest a likelihood of collusion. The litigation arising out of these claims is being controlled by Boston, not by the patients who assigned their claims and who no longer have any stake in the outcome. The assignments were made at the time the services were rendered (Karp Aff., ¶ 5; Pl. Memo. at 3, 7), which was before coverage was denied and any claims accrued, making collusion less likely. The patients received valid consideration for their assignments of rights in that, in exchange for allowing Boston to collect from Geico directly, the patients received medical services without becoming personally liable for their cost (Karp Aff., ¶¶ 4-5; Pl. Memo. at 7). Finally, the underlying purpose proffered by Boston — that, by accepting assignments, its patients would not have to pay for medical services out-of-pocket (Pl. Memo. at 7) — is reasonable, and there is no evidence that suggests that the assignments in question were made to invoke federal jurisdiction. See Boston Post Road, 2004 WL 830154, at *3 (analyzing analogous factual situation and holding that aggregation to meet jurisdictional amount was proper); compare Airlines Reporting, 58 F.3d at 864 (finding collusion in attempt to aggregate claims where assignments were executed only after jurisdiction was challenged, no meaningful consideration was paid, and there was admission that assignments were motivated by desire to remain in federal court). In fact, it appears that the assignments were made here so that Boston could bill the insurance company directly instead of having to look to each individual patient for payment, and that the assignments would have been made absent the availability of a federal forum. Therefore, the assignments in issue do not appear to have been made to manufacture diversity jurisdiction, and aggregation of the claims at stake is not barred by 28 U.S.C. § 1359.
B. Severance
Although a party may assert unrelated claims against a single defendant in the same lawsuit under Rule 18(a) of the Federal Rules of Civil Procedure, the Court may also sever those claims under Rule 21. The power to sever claims is committed to the discretion of the district court. See State of New York v. Hendrickson Brothers, Inc., 840 F.2d 1065, 1082 (2d Cir. 1988). If the court finds that claims, once severed, do not individually meet the $75,000 jurisdictional threshold for diversity actions, dismissal is appropriate. Preferred Medical Imaging, P.C. v. Allstate Insurance Co., 303 F. Supp. 2d 476, 477 (S.D.N.Y. 2004) (dismissing action because individual claims, once disaggregated, did not satisfy amount-in-controversy requirement for diversity jurisdiction). In evaluating whether to sever, the court considers: "(1) whether the claims arise out of the same transaction or occurrence; (2) whether the claims present some common questions of law or fact; (3) whether settlement of the claims or judicial economy would be facilitated; (4) whether prejudice would be avoided if severance were granted; and (5) whether different witnesses and documentary proof are required for the separate claims." In re Merrill Lynch Co., Inc. Research Reports Securities Litigation, 214 F.R.D. 152, 154-55 (S.D.N.Y. 2003).
Although the defendant did not refer explicitly to Rule 21 in its moving papers, it did articulate arguments that go directly to the issue of whether severance is appropriate (Memorandum of Law in Support of Defendant, Government Employees Insurance Company's Motion to Dismiss the Plaintiff's Complaint at 4-6), and it relied specifically on Rule 21 in its reply papers. (Reply Affidavit of Arthur Simuro dated April 16, 2004 ("Simuro Reply Aff."), ¶ 29).
First, the claims at issue here arose out of distinct automobile accidents which led to varying injuries to different individuals, and payment for those claims was denied for a variety of reasons. (Declaration of Arthur Simuro in Support of Defendant's Motion to Dismiss, dated March 11, 2004) ("Simuro Decl."), Exhs. D-I). The fact that the defendant denied each of the claims does not render them part of the same transaction or occurrence.
Second, Boston argues that all assignors entered into uniform insurance contracts with the defendant, and therefore a common question of law is presented. (Pl. Memo. at 10). Even if the assignors' insurance contracts are identical, the legal and factual issues involved in these claims are not. As noted above, the assigned claims were denied for a variety of reasons. These reasons included, among others, performance of unnecessary medical services by the plaintiffs, denial by GEICO policyholders of involvement in the alleged loss, violation by some patients or service providers of various policy provisions such as the Radiology Ground Rules, the Fee Schedule, or the Mandatory Personal Injury Protection Endorsement. (Verified Answer to Amended Complaint, ¶¶ 12-21; Simuro Decl., Exhs. D-I). Thus, even if the insurance policies at issue are identical, different provisions of the policies will be relevant to each claim in this action. See Boston Post Road Medical Imaging, P.C. v. Allstate Insurance Co., No. 03 Civ. 3923, 2004 WL 1586429, at *2-3 (S.D.N.Y. July 15, 2004) (holding that plaintiff's properly joined claims should be severed in analogous case filed by plaintiff's counsel).
Specifically the denials were based on a lack of medical necessity for certain procedures (Simuro Decl., Exh. D.), the failure to comply with the Mandatory Personal Injury Protection Endorsement regarding submission of written proof of claim (Simuro Decl., Exh. E), the denial by the actual GEICO policyholder of involvement in the alleged loss (Simuro Decl., Exh. F), failure to comply with the Radiology Ground Rules (Simuro Decl., Exh. G), the failure to supply completed applications for benefits (Simuro Decl., Exh. H), and the failure of the patient to appear for an examination under oath or independent medical examination (Simuro Decl., Exh. I).
Third, severance here would serve the interests of judicial economy. Trying all of the claims together in one suit would be unwieldy. See Preferred Medical Imaging P.C. v. Geico General Insurance Co., No. 03 Civ. 8726, 2004 WL 690735, at *1 (S.D.N.Y. March 31, 2004) (holding, in case brought by plaintiff's attorney raising identical issues, that "a joint adjudication of these claims would not be more efficient than separate adjudications, and, if anything, would be exceptionally unwieldy"). Since the assigned claims were denied for a variety of reasons, establishing the propriety of each denial will require different witnesses and documentary proof on such issues as coverage, medical necessity, and fraud. These witnesses will include physicians who allegedly referred the assignors for the treatment performed by the plaintiff, the physicians from Boston who performed that treatment, the physicians who conducted peer reviews or who performed independent medical examinations on the patients, and the assignors. In some of the cases, there were multiple independent medical reviews and multiple physical examinations performed by different physicians. (Simuro Reply Aff., Exh. H). Therefore, allowing the various claims to remain consolidated would result in a cumbersome trial with disparate evidence. Although nominally presented as a constellation of similar claims, the case would require a jury to hear evidence from the patients in thirty-seven separate accidents, treatments, claims, and investigations. See Deajess Medical Imaging, P.C. v. Travelers Indemnity Co., 03 Civ. 8517, 2004 WL 1562743, at *2 (S.D.N.Y. July 12, 2004) (granting defendant's motion to sever in similar case). Interests of efficiency suggest that severance is the preferable option.
Fourth, the plaintiffs would not be prejudiced by severance. Discovery has commenced in this action, but since the case will be dismissed without prejudice, Boston may simply use the evidence obtained through that discovery in separate state court suits rather than in this one federal action. See Boston Post Road, 2004 WL 1586429, at *2.
Since none of the individual plaintiffs' claims satisfies the amount-in-controversy requirement for diversity jurisdiction under 28 U.S.C. § 1332 once they have been disaggregated, this case must be dismissed. Preferred Medical Imaging, 303 F. Supp. 2d at 477.
Conclusion
For the reasons discussed above, Geico's motion is granted, and the Complaint is dismissed without prejudice to pursuing the underlying claims in state court. The Clerk of Court shall enter judgment and close this case.
SO ORDERED.