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«MEMORANDUM Juan R. Sánchez, J. July 28, 2008 Independence Blue Cross (IBC) and the Commonwealth Defendants ask this Court to punish Cameron’s ...»

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v. : No.: 08-15




Juan R. Sánchez, J. July 28, 2008 Independence Blue Cross (IBC) and the Commonwealth Defendants ask this Court to punish Cameron’s Hardware, the Lobb family, and their attorney for relentlessly pursuing baseless litigation.

Because I find Plaintiffs and their attorney unreasonably continued this case, I will impose sanctions.

IBC and Joseph A. Frick move for sanctions under Federal Rule of Civil Procedure 11 and 28 U.S.C. § 1927 against Cameron’s Hardware, Inc., Frank Lobb, Jeffrey Lobb, and Kristin McDermott, and against Plaintiffs’ attorney, Lawrence M. Otter, Esquire, seeking $33,928.05 in fees and $1,508.86 in costs. The Commonwealth of Pennsylvania Departments of Health and Insurance move for sanctions under 28 U.S.C. § 1927 against Mr. Otter and seek $6,352.50 in fees. Plaintiffs and Mr. Otter respond they reasonably believed they were entitled to a clarification of their rights under ERISA1 and were pursuing a valid cause of action. I find Plaintiffs and Mr. Otter continued to pursue this baseless cause of action in bad faith, and, considering theDoering2 factors presented, impose sanctions of $33,928.05 in fees and $1,508.86 in costs against Cameron’s Hardware, Frank Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461.

Doering v. Union County Bd. of Chosen Freeholders, 857 F.2d 191 (3d Cir.


Lobb, Jeffrey Lobb, and Mr. Otter for Independence Blue Cross,3 and impose sanctions of $6,352.50 against Mr. Otter for the Commonwealth of Pennsylvania Departments of Health and Insurance.

FACTS In the late 1990s, after IBC allegedly denied subscriber Sandra Lobb coverage for inpatient alcohol rehabilitation, Lobb’s familymembers, including husband Frank Lobb and children Jeffrey Lobb and Kristen McDermott, attempted to pay several providers for the care, but were refused.4Sandra Lobb never obtained the care and, on February 1, 1999, died from kidney failure caused by cirrhosis of the liver. As a result, Plaintiffs claim, theywere made aware IBC subscribers could be denied the ability to pay for their own health care whenever IBC refused to pay for care defined as a “covered service.” On February 1, 2001, Kimberly P. Johnson, the personal representative of the estate of Sandra Lobb, filed a complaint against IBC in the Court of Common Pleas ofChester County, Pennsylvania, primarily alleging that after denying coverage for inpatient alcohol rehabilitation, IBC denied access to the treatment even when Lobb’s familyoffered to pay for these services. The court granted IBC’s motion for summary judgment, having found no evidence a request for inpatient alcohol rehabilitation had ever been made by Sandra Lobb or anyone on her behalf, and no evidence a residential treatment facility had refused payment from Lobb or her family members. See Johnson I do not impose sanctions against Plaintiff McDermott or in favor of Defendant Frick because McDermott withdrew on February13, 2008, and Plaintiffs voluntarily dismissed Frick on February 8, 2008, within 21 days of January 31, 2008, when Defendants served a copy of their motion for sanctions on Plaintiffs.

The record shows in 1997 Lobb completed an intensive outpatient alcohol rehabilitation program, covered by IBC. As to inpatient alcohol rehabilitation, the record shows no denial of such care nor that a request for such care was made by Sandra Lobb or her physicians.

v. Independence Blue Cross, No. 01-01070 (Ct. Com. Pl. Apr. 12, 2004). The court also found neither IBC’s provider contracts nor Sandra Lobb’s benefit plan would have produced such a result.

The court found as long as the provider informs the patient services will not be covered by the insurer, it would then be up to the patient whether to accept services and become responsible for payment. See id. The court found nothing in the provider’s contract prohibited payment by the patient. See id.

Plaintiff, represented by Mr. Otter,5 appealed, and on November 4, 2005, the ruling was affirmed by the Pennsylvania Superior Court, which substantially incorporated with approval the trial court’s language and reasoning in its decision. See Johnson v. Independence Blue Cross, 890 A.2d 1113 (Pa. Super. Nov. 4, 2005). The Superior Court noted the action underlying the appeal arose from the death of Lobb, and concluded Plaintiff “[had] not present[ed] sufficient evidence to prove that any residential alcohol treatment facility had ever refused an offer of payment from the decedent, or anyone acting on her behalf, specifically due to such facility’s contract with [IBC].” Johnson v.

Independence Blue Cross, 890 A.2d 1113 (emphasis in original). The Superior Court further


Appellant claims that [IBC’s] contract with various inpatient alcohol treatment facilities prevented those providers from accepting payment from patients themselves once the treatment being sought was deemed ‘not medically necessary’ by [IBC]. However, Appellant presented no evidence from any representative of any such alcohol treatment facility to confirm this claim regarding that specific facility’s contract with [IBC]. Nor did Appellant provide any evidence from [IBC] which indicated that any contract which the company entered into with an inpatient alcohol treatment facility prevented such provider from accepting payment directly from a patient.

Mr. Otter was not involved in the Chester County action, but represented the Plaintiffs in the appeal to the Pennsylvania Superior Court and in the two actions filed in this Court.

Johnson, 890 A.2d 1113 (emphasis in original). The Superior Court noted Kristen McDermott claimed to have contacted numerous facilities which all denied treatment due to IBC’s alleged contractual interference, but admitted shedidnot remember which facilities she had called and could not confirm why they had allegedly declined to provide treatment. Id. The Superior Court held the trial court had correctly determined the language of IBC’s contracts was unambiguous and did not prohibit payment by the insured. “As such, it belies common sense that such statutory language, enacted to protect patients, actually prohibits them from obtaining treatment via voluntary selfpayment.” Id. The Superior Court finally noted the Appellant simply had not produced any actual evidence the language of IBC’s contracts with providers operated to preclude patients from independently paying for treatment. Id.

On May 27, 2005, while the state court action was pendingon appeal, Kimberly P. Johnson, as personal representative of the estate of Sandra Lobb, and Kristen McDermott, with Mr. Otter’s representation, filed a complaint in this Court before the Honorable Lawrence F. Stengel, United States District Judge, against IBC, the Commonwealth of Pennsylvania Departments of Health and Insurance, and the Chester County Hospital. Plaintiffs sought a declaration the state-mandated “hold harmless” language6 in contracts between medical insurers and medical providers interfered with an individual’s abilityto pay providers and access medical care.7 The Court dismissed the case because it found the two-year statute of limitations beginning in 1997 barred the case from being brought in 28 Pa. Code § 9.722(e)(i)-(iii).

Regarding IBC’s hold harmless provision, the Court explained:

The hold harmless provision is a part of every contract between IBC and medical providers within the Commonwealth of Pennsylvania and is for the benefit of the insured. The provision guarantees that person’s insured by IBC do not have to pay for services rendered in theevent that IBC becomes insolvent. Further, the provision may be designed to prevent medical providers from being paid twice for services rendered; once from IBC and once from the insured.

Johnson v. Koken, 2005 WL 3470651 at *1 (E.D. Pa. Dec. 15, 2005).

2005. Johnson v. Koken, 2005 WL 3470651 at *3 (E.D. Pa. Dec. 15, 2005). The Court explained the statute of limitations began running when the alleged denial of the ability to pay for Sandra Lobb’s medical services occurred in 1997, not in 2004 when Plaintiffs discovered the “hold harmless” clause in IBC’s contracts with medical providers.8Id.

The Court further determined Plaintiff McDermott’s claims should be dismissed because she

did not meet any of the requirements for standing in the case:

No facts have been plead that an invasion of her abilityto freelycontract for medical services is either concrete or imminent. McDermott is no different from any other Pennsylvania resident insured byIBC. Although she maybe afraid IBC will treat her in the same manneras theyhave allegedly treated her mother, that fear is insufficient for standing in this case. No facts have been plead to give this court any reason to believe that McDermott can not freelyenter into acontract with any medical service provider and individually pay for all services requested. The fact that Mrs. Lobb may have beenprevented from individually contracting for medical services is not enough to give McDermott standingin this case. Mrs. Lobb, not McDermott, claims a denial of coverage and an interference with her ability to individually pay for medical services in 1997.

Johnson v. Koken, 2005 WL 3470651 at *3 (E.D. Pa. Dec. 15, 2005).

On September 7, 2007, the Third Circuit Court of Appeals affirmed the dismissal because the claims were untimely and McDermott lacked standing. Johnson v. Independence Blue Cross, 247 Fed. Appx. 340 (3d Cir. 2007). The Court of Appeals also imposed sanctions of $7,456.50 in attorneys’ fees after IBC argued the case was frivolous.

In spite of this history, the sound reasoning provided by four courts, and the sanctions imposed bytheCourtofAppeals,on January 3, 2008, Plaintiffs filed yet another action in this Court.

The Court also concluded the claims were likely barred by the res judicatadoctrine and because the same claims had been raised in state court, where they were decided and affirmed. Johnson, 2005 WL 3470651 at *3. Comparing the claims before it with the claims brought in the prior state court action, the Court noted the parties and facts were identical, and the issues were “strikingly similar.” Id. at *4.

They requested “de novo review”9 and a declaratory judgment on the question of whether an insured is free to pay network providers for care whenever the health insurance companies, Defendants Aetna or IBC, refuse to approve and payfor the care. Again Plaintiffs centered their claim, phrased in slightly different terms, around the state-mandated “hold harmless” clause, alleging the clause forbad providers from seeking compensation from an insured if an insurer failed to compensate providers. Plaintiffs alleged this resulted in a provider being unable to bill or hold an insured responsible for payment if the insurer did not pay for a covered service, and an insured could not pay the provider. Consequently, Plaintiffs reasoned, the insured’s access to health care was restricted.

Although this time Plaintiffs dressed the claim as an ERISA action, contending ERISA required Aetna and IBC as ERISA providers to disclose the answer Plaintiffs sought, the claim involved the same “hold harmless” clause issue and argument presented previously in this Court on May 27, 2005, and in the state court on February 1, 2001. In addition, although a number of new Plaintiffs were added10 andJohnson,as representative of Sandra Lobb’s estate, was omitted, the facts presented here were essentially the same set of facts presented in the prior two actions.

Unlike McDermott, Cameron’s Hardware, Frank Lobb, and Jeffrey Lobb chose not to withdraw their claims although they were provided the same notice when IBC served all Plaintiffs with a copy of That Plaintiffs asked this Court for “de novo review” further demonstrates they realized these claims had already been litigated.

Cameron’s Hardware and Frank Lobb brought this action alleging they have a fiduciary duty to their employees. On October 19, 2000, Frank Lobb purchased Cameron’s Hardware and provided employees with an IBC HMO health care plan. On March 1, 2003, Cameron’s Hardware replaced its IBC plan with a similar plan from Aetna. Jeffrey Lobb brought this action as a Cameron’s Hardware employee enrolled in Cameron’s Hardware’s health care plan. McDermott, a public school teacher, was the onlyPlaintiff who had also been involved in the prior federal action, included here initially because of her participation in an IBC plan through her employer, the Oxford Area School System.

its motion for sanctions on January 31, 2008, reminding Plaintiffs the filing of their complaint in this Court constituted the fifth court that would be considering the same claim.11Because McDermott withdrew her claims and all Plaintiffsvoluntarilywithdrew their claims against Frick within the 21-day safe harbor provision of Rule 11(c)(1)(A), sanctions will not be imposed against McDermott or in favor of Frick.

Oral argument on Defendants’ motions to dismiss was held on April 22, 2008. When asked to explain whyPlaintiffs continued to seek an answer when the state court had already found nothing prohibited an insured from paying a provider herself, Plaintiffs responded they had been told an insured could pay the provider, but they were perplexed as to how the insured could pay when the provider could not bill an insured, and sought an answer to resolve that issue. Plaintiffs, however, presented no evidence an insured could not pay a provider because a provider could not bill the insured nor evidence a provider ever refused payment by an insured under any circumstance.

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