Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-06069/USCOURTS-cand-3_07-cv-06069-1/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

CHILDREN'S HOSPITAL AND RESEARCH

CENTER AT OAKLAND,

Plaintiff,

 v.

HEALTH PLAN OF NEVADA, INC.; And

DOES 1 THROUGH 25, INCLUSIVE,

Defendants.

 

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

No. 07-6069 SC

ORDER GRANTING MOTION

FOR LEAVE TO AMEND

ANSWER

I. INTRODUCTION

The Children's Hospital and Research Center at Oakland

("Plaintiff" or "the Hospital") brought this suit in the Alameda

County Superior Court in October 2007, alleging that Defendant

Health Plan of Nevada ("Defendant" or "HPN") failed to pay the

contractually required sum for medical services provided to one of

HPN's members. See Notice of Removal, Docket No. 1, Ex. A

("Compl."). The Hospital is a California corporation and HPN is a

Nevada corporation. HPN invoked the Court's diversity

jurisdiction and removed the action from the Superior Court on

November 5, 2007. See Notice of Removal. HPN then filed its

Answer on December 5, 2007. See Docket No. 3. 

Before the Court is HPN's Motion for Leave to Amend Answer to

Assert Counterclaim. Docket No. 21. The Hospital filed an

Case 3:07-cv-06069-SC Document 34 Filed 08/28/08 Page 1 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

Matthew T. Milone, counsel for HPN, submitted a declaration

in support of the motion for leave to amend. Docket No. 23.

2

Opposition and HPN filed a Reply. Docket Nos. 29, 31. Having

considered the parties' arguments in full, the Court hereby GRANTS

HPN's motion.

II. BACKGROUND

Beginning in May 2006, the Hospital rendered medical care to

a Medicaid-eligible patient ("Patient 1") who was enrolled in

HPN's health plan. Pursuant to a Letter of Agreement between the

parties, HPN was to pay the Hospital as follows:

For Medically Necessary Covered Services

rendered by PROVIDER in association with the

above reference number, COMPANY shall

reimburse PROVIDER one-hundred percent (100%)

of the California Medi-Cal Contracted Maximum

Allowable Reimbursement rate less applicable

copayments, coinsurance, and/or deductibles. 

Milone Decl. Ex. A ("LoA 1").1 At about the same time, the

Hospital provided care to another HPN member ("Patient 2"), under

nearly identical terms in a second Letter of Agreement:

For Medically Necessary Covered Services

rendered by PROVIDER, COMPANY shall reimburse

PROVIDER one-hundred percent (100%) of the

California Medi-Cal Contracted Maximum

Allowable Reimbursement rate less applicable

copayments, coinsurance, and/or deductibles.

Id. Ex. B ("LoA 2"). 

According to Plaintiff, the parties understood at the time

they entered the above agreements that "one-hundred percent (100%)

of the California Medi-Cal Contracted Maximum Allowable

Reimbursement rate" was 45% of the Hospital's normal billing rate

Case 3:07-cv-06069-SC Document 34 Filed 08/28/08 Page 2 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 3

for any given service, or a 55% discount. See Compl. ¶ 8; Opp'n

at 7. Plaintiff refers to this as the "Medi-Cal Interim Rate." 

Opp'n at 7.

Patient 1 received care from the Hospital between May 1,

2006, and September 1, 2006, incurring medically necessary

expenses in the amount of $2,008,550.40. Compl. ¶ 12. The

Hospital submitted a bill to HPN for these services totaling

$903,847.68, reflecting the 55% discount off the interim rate. 

Id. ¶¶ 12-13. HPN paid the Hospital $341,325.00 for services

provided to Patient 1. The $562,522.68 remaining from the

Hospital's bill to HPN is the subject of the Complaint. 

In its Answer, HPN admitted only that it "paid claims in

full" to the Hospital. Answer ¶ 14. At that time, HPN asserted

16 affirmative defenses, but did not bring a counterclaim. 

HPN now seeks leave to amend the Answer in order to assert

counterclaims. During the course of discovery, HPN claims it

obtained information demonstrating that it overpaid for the

services provided to Patient 1 and Patient 2 in a total amount of

$215,491.09. Mot. at 2-3. Specifically, HPN refers to a January

2008 letter from the Hospital to HPN regarding a third patient, in

which the Hospital states, "Please note that patient stayed in the

hospital for 13 days and should have been $1,447/per diem x 13days

[sic] = $18,811.00 total payment, or considered at our medi-cal

rate of 45% allowable charges." See Milone Decl. Ex. C. HPN

infers from this letter that it should not have been required to

pay more than $1,447.00 per day for the care of Patient 1 and

Patient 2.

Case 3:07-cv-06069-SC Document 34 Filed 08/28/08 Page 3 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 4

III. LEGAL STANDARD

The Federal Rules of Civil Procedure establish a very liberal

standard for allowing amendments to pleadings. In this case, as

more than 20 days have passed since HPN filed its Answer, Rule

15(a)(2) governs. Under that provision, "a party may amend its

pleading only with the opposing party's written consent or the

court's leave. The court should freely give leave when justice so

requires." Fed. R. Civ. P. 15(a)(2). Where a party seeks to add

a counterclaim omitted from its original answer, the same standard

applies. "The court may permit a party to amend a pleading to add

a counterclaim if it was omitted through oversight, inadvertence,

or excusable neglect or if justice so requires." Fed. R. Civ. P.

13(f); see also Hip Hop Beverage Corp. v. Ric Representacoes

Importacao E Comercio, Ltd., 220 F.R.D. 614, 620 (C.D. Cal. 2003)

("courts presented with motions for leave to amend a pleading to

add an omitted counterclaim generally adhere[] to the liberal

amendment policy of Rule 15 in deciding whether to grant the

requested leave." (internal quotation marks omitted)).

The liberal stance towards amendments is not without some

limitations, however. In deciding whether to grant leave to

amend, the Court should consider factors including prejudice to

the opposing party, bad faith of the moving party, futility of the

amendment, and undue delay. See Foman v. Davis, 371 U.S. 178, 182

(1962). Prejudice to the opposing party is the most important of

these factors. Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d

1048, 1052 (9th Cir. 2003). Absent prejudice or a "strong

showing" of any of the remaining factors, there is a presumption

Case 3:07-cv-06069-SC Document 34 Filed 08/28/08 Page 4 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2For the same reason, the Court cannot credit the Hospital's

assertion that HPN only seeks to file the counterclaims in order to

force the Hospital to disclose confidential pricing information. 

See Opp'n at 8. The cost basis the Hospital uses in determining

what to charge HPN is as material to the existing Answer and

affirmative defenses as it is to the proposed counterclaims. The

Court makes no determination at this time about whether the

Hospital must ultimately disclose such information.

5

in favor of allowing amendment. Id.

IV. DISCUSSION

The Hospital has not demonstrated any compelling reason to

deny leave to amend in this instance. First, the Court fails to

see how the Hospital would be prejudiced by amendment. The

Hospital claims that allowing the amendment will "result in

additional burdensome discovery." Opp'n at 6. There is no basis

for this assertion. In its Answer, HPN denied all of the material

allegations of the Complaint relevant to the amount due or the

interpretation of LoA 1. Compare Compl. ¶¶ 8, 12-15, with Answer

¶¶ 8, 12-15. Further, HPN asserted in its Second Affirmative

Defense that it is "entitled to a set-off and/or recoupment to the

extent Plaintiff received any overpayment or payment in error,

including, but not limited to, payments for services not rendered,

and/or for services improperly billed, and/or for services for

which HPN was under no obligation to pay." Answer at 3. As such,

the current operative pleadings will require interpretation of the

contract provisions, evidence of what services the Hospital

provided, evidence of how much HPN paid the Hospital,

determination of whether that payment was the correct amount, and

which party, if either, is entitled to further recovery.2

Case 3:07-cv-06069-SC Document 34 Filed 08/28/08 Page 5 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 6

Although the proposed counterclaims include breach of LoA 2, which

is not included in the Complaint, the Hospital has already

admitted that its interpretation of the material terms in LoA 1 is

the same as its interpretation of LoA 2, so the legal issues will

not expand. See Opp'n at 3. The facts relevant to the dispute

over LoA 2 were already included in discovery, as the Hospital is

using HPN's behavior under LoA 2 in support of its interpretation

of LoA 1. See Opp'n at 3, 6-7. Thus, the Court finds that the

Hospital will endure little, if any, prejudice if HPN amends its

pleading and asserts new counterclaims.

 The Hospital also argues that the timing of HPN's Motion

proves that HPN is acting in bad faith to avoid a summary judgment

motion. See Opp'n at 6-7. No such motion has been filed or

noticed. The only authority the Hospital cites supporting its

position is Union Pacific Railroad Co. v. Coast Packing Co., 236

F. Supp. 2d 1130 (C.D. Cal. 2002). That case is distinguishable. 

First, in Union Pacific, discovery was already complete at the

time of the proposed amendment. Id. at 1133. Second, a summary

judgment motion was pending at the time the amendment issue arose. 

Id. Third, the amending party in that case did not seek the

court's leave, but rather asserted new facts in its brief opposing

summary judgment, which the court considered an attempt to amend. 

See id. None of these facts is present here, and the Hospital has

not identified any other reason to conclude that HPN is acting in

bad faith.

Additionally, the Hospital argues that HPN's Motion is

untimely because HPN knew, or should have known, the facts

Case 3:07-cv-06069-SC Document 34 Filed 08/28/08 Page 6 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 7

underlying the new counterclaims at the time it filed its Answer. 

See Opp'n at 4-5. When "evaluating undue delay, we also inquire

'whether the moving party knew or should have known the facts and

theories raised by the amendment in the original pleading.'" 

AmerisourceBergen Corp. v. Dialysist West, Inc., 465 F.3d 946, 953

(9th Cir. 2006) (quoting Jackson v. Bank of Haw., 902 F.2d 1385,

1388 (9th Cir. 1990)). The Hospital asserts that HPN was in

possession of all of the documents supporting the counterclaims at

the time it filed the Answer. Opp'n at 5. HPN claims it did not

have one of the critical documents – a letter dated January 25,

2008 – until May 22, 2008. Reply at 3 n.2; see also Milone Decl.

Ex. C. Given that HPN filed its Answer on December 5, 2007, it

could not possibly have known the contents of a January 25, 2008,

letter at that time. The document in question is a letter from

the Hospital to HPN, so HPN was likely aware of its contents at

some point prior to when the letter was produced in May. However,

HPN claims that it deferred moving to amend because the parties

were participating in a Court-mandated mediation, and amendment

would be unnecessary if the parties reached a settlement. Reply

at 3 n.2. Under these circumstances, where the parties have

conducted very little discovery, and where the moving party has a

credible reason for not moving to amend earlier, the Court cannot

find undue delay. 

Finally, the Hospital claims that the amendment would be

futile. See Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th

Cir. 1988) ("A motion for leave to amend may be denied if it

appears to be futile or legally insufficient."). According to the

Case 3:07-cv-06069-SC Document 34 Filed 08/28/08 Page 7 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3Karlene J. Rogers-Aberman, counsel for the Hospital,

submitted a declaration in support of the Hospital's Opposition. 

Docket No. 30.

8

Hospital, the letter agreements between the parties, as well as

other documents, "demonstrate that the parties had a mutual

agreement regarding the expectation of payment under the letters

of agreement, and evidence of HPN's past practice in connection

with other letters of agreement show that they were paid in

accordance with Children's Hospital's interpretation." Opp'n at

10 (citing Aberman Decl. Exs. 3, 4).3 Clearly, the letters

themselves do not demonstrate a mutual understanding that "onehundred percent (100%) of the California Medi-Cal Contracted

Maximum Allowable Reimbursement rate" amounted to a 55% discount

off of the Hospital's maximum billing, as the Hospital claims. 

See Milone Decl. Exs A, B. The third document the Hospital relies

on is the cover sheet to a fax from the Hospital to HPN, with the

following note:

[A]ttached is the most recent Hospital Interim

Rate Report published by the State of

California to document the "maximum allowable

reimbursement" for providers based upon the

latest Medi-Cal cost reports filed by the

Hospitals. This is the basis that we utilize

for payment expectations with out-of-state

Medicaid plans and out-of-state Medicaid

managed care plans. Please call if you [sic]

questions.

Aberman Decl. Ex. 3. The Hospital did not include the remainder

of the fax in its submission to the Court. See id. This document

shows, at most, that the Hospital once faxed some information to

HPN that may be relevant here. It does not show what that

Case 3:07-cv-06069-SC Document 34 Filed 08/28/08 Page 8 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 9

information was, or give any indication that the parties had

agreed to the 45% discount rate, as the Hospital asserts. Exhibit

4 contains three additional letters of agreement between the

parties. Each of these agreements contains different payment

terms. See id. Ex. 4 at HPN0060, HPN0062, HPN0064. Each letter's

payment provision differs from the next, all three differ from the

agreements at the core of this dispute, and none contains an

agreement to the terms the Hospital asserts both parties

understood. See id.; Milone Decl. Exs. A, B. The Court fails to

see how these documents prove that the proposed counterclaims are

futile or legally insufficient. Of the three letters, only one

contains a provision even remotely similar to those at issue here:

For medically necessary covered services

provided by PROVIDER, COMPANY shall reimburse

provider, less any applicable copayment,

coinsurance and/or deductibles, fifty percent

(50%) of PROVIDER's billed charges, which

equals to reimbursement at 100% of Nevada

Medicaid Fee Schedule.

Aberman Decl. Ex. 4 at HPN0064. Unlike the letters in this suit,

however, this agreement made its prices contingent on Nevada's

Medicaid fees rather than California's. The Hospital provides no

supplementary documentation comparing California and Nevada rates,

making it impossible to determine the relevance of this provision

to the issue at bar. The Court therefore finds that the evidence

offered by the Hospital does not render the proposed amendment

futile. 

V. CONCLUSION

For all of the foregoing reasons, the Court concludes that

Case 3:07-cv-06069-SC Document 34 Filed 08/28/08 Page 9 of 10
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 10

under the liberal guidelines of Rule 15(a) and Rule 13(f), HPN

should be allowed to assert its counterclaims. The Court

therefore GRANTS HPN's motion. HPN shall file the proposed

Amended Answer and Counterclaim no later than 10 days from the

date of this Order.

IT IS SO ORDERED.

August 28, 2008

 

 UNITED STATES DISTRICT JUDGE

Case 3:07-cv-06069-SC Document 34 Filed 08/28/08 Page 10 of 10