contends that automatic renewal provisions such as the evergreen clause are the industry standard
precisely to avoid the problems created in the wake of the expiration of the amendment. Holy
Cross contests whether evergreen clauses are the industry standard, and the question certainly
remains a genuine issue of fact.

HealthStar and Holy Cross have both been clearly negligent, if not reckless, with respect
to the status of this contract. HealthStar was perfectly content to leave an expired contract in
place, for why should it try to negotiate rates that would only represent an increase over the
previous amounts? Now it seeks to enforce the expired amounts in the 1994 rate agreement,
which it tacitly extended for five years. Holy Cross, meanwhile, kept its contracts in such a
mismanaged state (HealthStar’s Facts, {39 (“Hospital’s managed care contracts... were ‘a

_ess, needed attention... were outdated and had not been renegotiated some of them for four or

five years,””)) that it could not ascertain whether a new contract had been agreed upon three years
after the amendment expired. See Holy Cross’ Statement Add’! Facts, at {J 36-48.” Now they
have come to this Court seeking a favorable interpretation of a contract that each allowed to
lapse.

HealthStar asserts that the “undisputed conduct of the parties from October 1, 1996
through the Summer of 2000 . . . manifested an intention to be bound by the Contract and by the

1994 amendment rates.” In assessing the parties behavior, the Court will turn to the arguments

of both Defendants that Holy Cross ratified the contract through its behavior.

7HealthStar disputes whether it ever represented to Holy Cross that an additional
amendment to the contract was in place. The Court makes no judgment about whether
HealthStar actually did make those representations. The simple fact that Holy Cross was in a
position where it could neither confirm nor deny the existence of the contract demonstrates the
recklessness at issue here.

19



Cc. THE CONTRACT CLAIMS

Holy Cross and HealthStar agreed in 1994 on a set of rates that would remain in effect for
two years. On September 30, 1996, the schedule of rates they agreed upon expired. Holy Cross
contends that the expiration of the rates terminated the entire contract because it was missing an
essential term. HealthStar and Banker’s Life both dispute that claim. The defendants’ summary
judgment claims can be divided into three distinct inquiries: 1) whether equitable doctrines
(laches, promissory estoppel) preclude Holy Cross’ efforts in this lawsuit; 2) whether the parties
had a contract after the expiration of the 1994 amendment and, if so, what were its terms; and 3)
whether Holy Cross ratified a contract with HealthStar through its post-expiration behavior.

1. Application of Equitable Doctrines to preclude Holy Cross

Both Defendants assert that equitable doctrines should preclude Holy Cross from
pursuing this litigation, though they choose different doctrines. Banker’s Life asserts that laches
should prevent Holy Cross from being able to recover. HealthStar asserts that promissory
estoppel should terminate Holy Cross’ efforts. Both claims are unavailing.

a. Banker’s Life’s Assertion of Laches
“The doctrine of laches is derived from the maxim that those who sleep on their rights

lose them.” Chattanooga Mfg., Inc. v. Nike, Inc., 301 F, 3d 789, 792 (7th Cir. 2002). Laches

requires proof that (1) the plaintiff did not diligently pursue its legal rights and (2) the delays

caused prejudice to the defendant. See Nat’! R.R. Passenger Corp. v. Morgan, —— U.S. —, 122 S.

Ct. 2061, 2077 (2002). Laches is a particularly useful doctrine for claims that do not have a
positive statute of limitations, as it sets an equitable boundary beyond which plaintiffs cannot

seek recovery. Cf. Morlan v. Universal Guar. Life Ins. Co., 298 F.3d 609, 620 (7th Cir. 2001)

13


accordance with the rates in the 1994 amendment. Health Check encouraged Holy Cross to
recover the difference, which was calculated at $838,000, between the expired discounted rates
and the retail rates.’

On July 3, 1997, Holy Cross, through Kelly, notified HealthStar that it would be seeking
reimbursement for the underpayments on the contract. Later in the Summer of 1997, Brian
Walsh, the Chief Financial Officer (CFO) of Holy Cross, together with Mark Clement, the Chief
Executive Officer (CEO) of Holy Cross, decided not to pursue a recovery strategy for the
underpayment, opting instead to negotiate with HealthStar towards the establishment of a new
rate schedule. The decision not to pursue a recovery strategy remained in effect until Mark
Clement’s departure from Holy Cross in March 2000. Later in 1997, the relationship between
Health Check and Holy Cross ended.

In 1999, Dan Williams succeeded Brian Walsh as the CFO of Holy Cross. Williams
requested that Joann Kirby, the Operations Manager at Holy Cross, organize all of the hospital’s
existing managed care contracts. When they rediscovered that the HealthStar contract had an
expired rate agreement, Williams urged Kirby to begin negotiations with HealthStar toward a
new contract. Holy Cross asserts that [ealthStar told Kirby that the parties had already executed
a new contract and HealthStar offered to send a copy. See Holy Cross’ Combined Statement of
Additional Facts Require Denial of HealthStar and Banker’s Mot. Summary J., at {4 35-39

[hereinafter “Holy Cross’ Add’] Facts”|. HealthStar disputes that assertion, claiming that Kirby

*Health Check had a financial interest in pursuit of the underpayments, as its would retain
35 percent of any underpayments it recovered successfully. If it recovered no moneys, Health
Check would receive no payment. Both Defendants suggest that this contingent fee contract led
Health Check to act improperly. This Court does not dictate preferred contractual arrangements
between parties. Consequently, the Court rejects the implication of impropriety.

4



3. Did Plaintiff's Behavior Ratify the Contract at the 1994 rates?

Both Banker’s Life and HealthStar assert that Holy Cross’ behavior after the expiration of
the amendment resulted in a ratification of the contract. When a party accepts or retains benefits
under a contract, the party thereby ratifies the contract. Both defendants assert that Holy Cross’
acceptance of payment at the discounted rate ratified a contract at the rates in the amendment.
Under this theory, Holy Cross presumably ratified the contract each time it accepted payment at
the rates in the amendment.

It is less than clear what benefits, other than the moneys, Holy Cross retained that would
require a conclusion that it ratified the contract. HealthStar contends that Holy Cross benefitted
from significant “steerage” of patients during this time, but there has been no credible evidence
about the nature of this benefit. The Court agrees that the agreement with HealthStar did result
in some patient flow to Holy Cross, but it is not at all clear that this should lead to a ratification
of the rates in the 1994 amendment, It seems more likely (though neither party has offered
competent proof of this) that patients are “steered” towards Holy Cross Hospital because it has a
relationship with HealthStar, not necessarily because of any certain rate terms. As the Court
noted above, Holy Cross remained in a valid contractual relationship with HealthStar governing
the other aspects of the relationship. Holy Cross’ continual submission of bills to HealthStar and
listing of HealthStar in its publications was part of its obligations under the existing contract.
Unless Holy Cross was not entitled to any money in the absence of a rate agreement (which
cannot be the case), it had good reason to accept the payments— it was at least part of what it
believed it was owed. Other than receiving the money without complaint, Banker’s Life and

HealthStar point to no further facts that would entitle them to summary judgment on a

20


reference to the parties behavior and intentions in the period between September 30, 1996 and
the filing of this lawsuit. Significant questions of material fact remain about that behavior,

precluding summary judgment on any of the three counts in Plaintiff's complaint.
Enter:

Daub

David H. Coar
United States District Judge

Dated: November 8, 2002

22



Motors Corp., 74 F.3d 795, 799 (7th Cir. 1996) (applying Illinois law). In interpreting contracts,
the Court’s “paramount concern and overriding purpose is to give effect to the intent of the

parties.” Church, 74 F.3d at 799, Illinois law requires giving unambiguous terms in contract

their plain, ordinary meaning. Emergency Medical Care, Inc. v. Mation Mem. Hosp., 94 F.3d

1059, 1061 (7th Cir. 1996) (applying Illinois law). Mlinois also applies the maxim that contracts
should be interpreted “as a whole, giving meaning and effect to each provision.” Emergency

Medical Care, Inc., 94 F.3d at 1061. Interpretation of an unambiguous contract poses a pure

question of law. See Zemco Mfg., Inc. v, Navistar Intern. Transp. Corp., 270 F.3d 1117, 1123

(7th Cir. 2001).
In this case, there are really two separate contract documents to construe: the 1994
amendment (“the amendment”) and the underlying preferred hospital agreement from 1985 (“the

contract”). The 1994 amendment contains a new rate schedule that expires by its terms on
September 30, 1996. The expiration term of the amendment is clear and unambiguous. The
underlying contract contains an “evergreen clause,” which automatically renews the contract
unless either party gives written notice of intention not to renew. In one sense, then, these two
terms are in conflict, as they each provide for the termination of some aspect of the entire
contract, which includes the amendment. The amendment contains a conflicts clause which
provides: “To the extent that the terms and conditions of this Amendment conflict with the terms
and conditions of the [underlying contract] the terms and conditions of this Amendment shall
prevail.” Holy Cross alleges that the expiration term of the amendment conflcits with the
“evergreen clause,” so the amendment’s expiration date prevails over the “evergreen clause.”

This would be the case if the only term of the contract between Holy Cross and

17



A. Summary Judgment Standard of Review

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories and
admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.

Civ. P. 56(c); Kamler v. H/N Telecommunication Services. Inc., 305 F.3d 672, 677 (7" Cir.

2002). A genuine issue of material fact exists for trial when a reasonable jury could return a
verdict for the party opposing summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986); Hedberg v. Indiana Bell Tel. Co., 47 F.3d 928, 931 (7th Cir. 1995). When
determining whether a genuine issue of material fact exists, the Court considers the evidence and

all proper inferences therefrom in the light most favorable to the non-moving party. See Neuma.

Inc. v. AMP, Inc, 259 F.3d 864, 871 (7th Cir. 2001). Cases involving the interpretation of

contractual documents are often well-suited to disposition on summary judgment. See Neuma.

Inc., 259. F.3d at 871; Grun v. Pneumo Abex Corp., 163 F.3d 411, 419 (7th Cir. 1998).
Because the purpose of summary judgment is to isolate and dispose of factually
unsupported claims, the non-movant must respond to the motion with evidence setting forth

specific facts showing that there is a genuine issue for trial. See Fed. R. Civ. P. 56(e); Michael v.

St. Joseph County, et al., 259 F.3d 842, 845 (7th Cir. 2001); Albiero v. City of Kankakee, 246

F.3d 927, 932 (7th Cir. 2001). To successfully oppose the motion for summary judgment, the
non-movant must do more than raise a "metaphysical doubt" as to the material facts, see Wolf v.
Northwest Ind. Symphony Soc'y, 250 F.3d 1136, 1141 (7th Cir. 2001) (citation and quotation
omitted), and instead must present definite, competent evidence to rebut the motion, see Albiero,

246 F.3d at 932. Rule 56(c) mandates the entry of summary judgment against a party "who fails



Cc. Procedural History of this Lawsuit

On March 2, 2001, Plaintiff filed a three count complaint against HealthStar and Banker’s
Life. Count I of the complaint seeks recovery of benefits Holy Cross believes it is owed under
welfare benefit plans governed by the Employment Retirement Income Security Act (ERISA), 29
U.S.C. §§ 1001-1461. Count II of the complaint seeks recovery of benefits Holy Cross believes
it is owed under welfare benefit plans that are not governed by ERISA. Count III of the
complaint seeks a declaratory judgment that the contract between Holy Cross and HealthStar
expired on September 30, 1996 and that HealthStar was not entitled or authorized to reprice Holy
Cross’ bills or take any discounts subsequent to that date,

Banker’s Life filed an amended four count cross-complaint against HealthStar on August
30, 2001. Count I of Banker’s Life’s amended cross-complaint alleges that HealthStar is required
to indemnify Banker’s Life for any damages under the terms of the contract between them.
Count II of the amended cross-complaint alleges, in the alternative, that HealthStar is required to
contribute a portion of the damages commensurate with the degree of fault attributable to
HealthStar. Count III of the amended cross-complaint alleges that HealthStar is a fiduciary to
certain ERISA plans, and that it breached its fiduciary duties. Count IV of the amended cross-
complaint seeks a declaratory judgment that HealthStar has a duty to defend the lawsuit for
Banker’s Life and indemnify Banker’s Life in the event of an adverse judgment. The basis in
fact for the first three counts is the same: HealthStar failed to inform Banker’s Life that the status
of the Holy Cross contract was questionable. The fourth count is premised on an interpretation
of the contract between HealthStar and Banker’s Life. HealthStar filed counterclaims against

Holy Cross and third party Health Check, but the counterclaims were dismissed without



nano.

did not ask for a current contract; rather HealthStar asserts that Kirby asked for an updated
contract “reflective of the changes in the [managed care] industry.” See HealthStar’s Rule
56.1(b)(3)(A) Resp. to Holy Cross’ Add’! Facts, at 13. In any event, on July 13, 1999, Holy
Cross sent HealthStar a contract proposal, proposing new rates. On October 11, 1999, HealthStar
sent a counterproposal to Holy Cross. Holy Cross approved HealthStar’s counterproposal on
December 15, 1999, but the contract was never executed.’

In March 2000, Holy Cross asked Health Check to return and perform an additional audit.
Health Check quickly identified the HealthStar contract as a source of significant underpayments,
as no new rate agreement had been entered since the previous rates expired on September 30,
1996. In late June 2000, Holy Cross decided to stop all negotiation efforts with HealthStar and
pursue recovery of the alleged underpayments.

On August 31, 2000, Holy Cross sent a letter to Banker’s Life which represented that
there was not a valid rate contract between Holy Cross and HealthStar. This was the first time
that Banker’s Life was made aware of the dispute between Holy Cross and HealthStar. Banker’s
Life directed their inquiries about the contract to HealthStar, and HealthStar maintained that it
had a valid contract with Holy Cross. Meanwhile, Holy Cross initiated rebilling and collection
activities to individual patients for outstanding amounts that reflected discounts taken under the
September 30, 1996 agreement. As late as October 17, 2000, HealthStar remained listed on Holy
Cross’ pamphlets and websites as a participating PPO. The conflicts arising from the contract led

Holy Cross to initiate litigation in this court.

‘HealthStar asserts that it sent a new contract to Holy Cross in February of 2000.
(HealthStar’s Facts at | 49). Holy Cross contends it never received the contract. (Holy Cross’
Response to HealthStar’s Facts, at 11). The parties agree that the contract was never executed.

5


HealthStar were a set of discounted rates. The contract contains much more: a billing agreement,
a pre-certification and utilization review program, and other terms governing the relationship
between HealthStar and Holy Cross. As to these terms, the underlying contract remained in place
after the expiration of the amendment.

So what remains is a contract that sets forth a somewhat detailed relationship between
HealthStar and Holy Cross without a term setting forth a payment schedule. The contract
contained a rate schedule that was originally in the 1988 amendment, but those rates were clearly
superseded by the 1994 amendment and its conflict clause. The terms of the contract are
unambiguous, but what both parties claim is an essential term (the money term) is missing. Holy
Cross contends that without this, “the most important term of the [contract]” (Holy Cross Hosp.
Comb. Mem. Law Opp’n Mot. Summ. J. Filed By HealthStar and Banker’s, at 4), the entire

agreement is unenforceable. While this is true under Illinois law, see Milex Products, Inc. v.

Alra Laboratories Inc., 603 N.E.2d 1226, 1233 (Ill. App. Ct. 1992) (citing Academy Chicago

Publishers v. Cheever, 578 N.E.2d 981 (Ill. 1991), it is not a hard and fast rule. Holy Cross’

position would certainly afford the Court with an easy way out of this thicket, but Illinois law
also allows that evidence can demonstrate the parties’ intent to have a valid contract even absent

certain essential terms. Milex Products. Inc. 603 N.E.2d at 1234 (“[T]here was sufficient

evidence . . . to conclude the parties did intend to conclude the contract even in the absence of the
settled price.”).

The past behavior of the parties to this contract demonstrates that expiration dates were
not resolutely adhered to. When the original contract expired, the parties continued negotiating

and behaving as if the contract were still in place for nearly a year. Additionally, HealthStar

18



motions, the submissions of all three parties have focused on the question of whether a contract
existed between Holy Cross and HealthStar after the expiration of the 1994 amendment on
September 30, 1996. Although the Court is reluctant to consider Banker’s Life’s original
summary judgment motion at all, under these circumstances, the Court will only consider those
portions of Banker’s Life’s original summary judgment motion that pertain to the contractual
issue between Holy Cross and HealthStar. Banker’s Life’s attempt to win summary judgment
against HealthStar is a casualty of its failure to refile a summary judgment motion. All of the
parties are admonished in the future to address their briefing only to documents that are still
pending and valid before this Court. The Court will not tolerate similar procedural breaches in
the future.

In its summary judgment motion, HealthStar argues first that the expiration of the 1994
amendment did not terminate the contract. Next, HealthStar claims that the conduct of the
parties after the agreement expired manifests an intent to be bound by the terms of the expired
agreement. Third, HealthStar claims that Holy Cross’ conduct after the expiration of the
agreement resulted in ratification of the contract, Finally, in the alternative, HealthStar contends
that Holy Cross should be estopped from asserting HealthStar’s conduct was improper under the
doctrine of promissory estoppel. Banker’s Life ’s position with respect to the claims against
Holy Cross is nearly identical to HealthStar’s. Like HealthStar, Banker’s Life asserts that Holy
Cross ratified the contract through its behavior. Banker’s Life also asserts that an equitable
doctrine should prevent Holy Cross from seeking recovery under the contract, although it asserts
laches, whereas HealthStar asserted promissory estoppel.

Il. DISCUSSION


Minuce Ojeer Fort (06/97)

United States District Court, Northern District of Iinois

Name of Assigned Judge David H. Coar Sitting Judge if Ocner
or Magistrate Judge than Assigned Judge
CASE NUMBER 01 C1505 DATE 11/8/2002
CASE Holy Cross Hospital vs. Banker’s Life & Casualty Company
TITLE

MOTION:

[In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

‘of the motion being presented.]

Defendants Motions for Summary Judgment

DOCKET ENTRY:

(ap) im} Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

(3) ia Answer brief to motion due . Reply to answer brief due

(4) ia Ruling/Hearing on____ set for _ __at

(5) Oo Status hearing[held/continued to] [set for/re-set for] on set for at

(6) o Pretrial conference[held/continued to} [set for/re-set for] on _ set for __at :

(7) a] Trial[set for/re-set for] on at

(8) oO [Bench/Jury trial] [Hearing] hetd/continued to at

(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OFRCP4(m) CO) Local Rule 41.1 CO FRCP41(a)(1) 1 FRCP41(a)(2).

(io) =o [Other docket entry] For the reasons stated in the attached memorandum opinion and order,
HealthStar’s Motion for Summary Judgment on Count II] of Plaintiff's Complaint (Doc. # 129-1) and
Defendant Banker’s Life and Casualty Company’s Motion for Sigmary Judgment are both denied.

ruddl! hr L

(li) [For further detail see order attached to the original minute order.]

No notices required, advised in open court, 7 Document
«o notk Number
No notices required suber notes
Notices mailed by judge’s staff.
Notified counsel by t NOV hdd O02
oY | Dock LL ra
Mail AO 450 form. 1yn09 Lon isi sn hock dopey inal lw
Copy to judge/magistrate judge. wy
: courtroom th :2 He 8- AONZO MCI ste Hastie
jar fata) deputy's
. initials =
TM OT G3- Gael received in \)
central Clerk’s Office ating deputy nals



assignee of a participant.”). This is an exception to the otherwise strict interpretation of the text

of ERISA. See Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, —, 122 S. Ct.

708, 712 (2002) (“We have . . . been especially ‘reluctant to tamper with [the] enforcement
scheme’ embodied in the statute by extending remedies not specifically authorized by its text.”)

(quoting Massachusetts Mut. Life Ins. Co, v. Russell, 473 U.S. 134, 147 (1985).

Although Holy Cross does have standing to bring this lawsuit, their behavior prior to
filing stretches the logic for permitting provider standing in ERISA cases. Despite being
excluded from the statute, health care providers who are assignees of benefits are granted
standing on the theory that their interests are aligned with the actual beneficiaries of the plans.
Here, Holy Cross’ interests diverge from the beneficiaries interests in some pertinent respects.
The beneficiaries’ interest is in receiving the health care services provided for in their employee
welfare benefit plan and in having those services paid for at the rate provided for in the plan.
Plaintiff's sole interest is in receiving payment for services rendered. In this case, Holy Cross
initiated balance billing and collection activities against the beneficiary-assigners prior to filing
this litigation, yet it claims that the balances owed are owed, at least in part, under ERISA benefit
plans. To the extent that is the case, Holy Cross is the exclusive legal recipient of the financial
benefits owed under those plans pursuant to the assignation agreement. Seeking recovery from
the individual patients who were the original beneficiaries of the plans while simultaneously
seeking recovery under the plans clearly demonstrates the divergence of Plaintiff-assignee’s
interest from the original beneficiaries’ interests.

This situation can occur when the contractual instruments governing payment of services

are outside of the plan itself. What appears to have occurred here is that the claims were

11


to make a showing sufficient to establish the existence of an element essential to that party's case,

and in which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322. A

scintilla of evidence in support of the non-movant's position is not sufficient to oppose
successfully a summary judgment motion; "there must be evidence on which the jury could
reasonably find for the [non-movant]." Anderson, 477 U.S. at 250.
B. Jurisdiction and Assignee Standing

Before addressing the merits of the claim, the Court must address the threshold
jurisdictional question of standing. See Rosetto v. Pabst Brewing Co., Inc., 128 F.3d 538, 539
(7th Cir. 1997) (characterizing standing as a “critical threshold question” the absence of which
can “preclude . . . subject-matter jurisdiction”). Plaintiff, Holy Cross Hospital, is a health care
provider. Plaintiff's patients must assign their insurance benefits to the hospital in order to
receive treatment. As an assignee, Holy Cross asserts that it is a beneficiary of the plan for
purposes of ERISA. Although the text of ERISA does not explicitly include assignees among
those eligible to file suit, 29 U.S.C. § 1132(a) (authorizing plan participants, plan beneficiaries,
plan fiduciaries and the Secretary of Labor to file suit) the Seventh Circuit has held that health
care provider assignees may file actions for the collection of benefits. See Morlan v. Universal
Guar. Life Ins. Co., 298 F.3d 609, 615 (7th Cir. 2002) (“The cases . . . carve an exception for
medical benefits assigned to a health-care provider in exchange for health care) (citing Principal

Mutual Life Ins. Co. v. Charter Barclay Hospital, Inc., 81 F.3d 53, 55-56 (7th Cir.1996)); see also

Kennedy v. Connecticut Gen, Life Ins. Co., 924 F.2d 698, 700 (7th Cir. 1991) (“[A] combination

of statutory text and Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989), shows that [29

U.S.C.] § 1132(a)(1)(B) supplies jurisdiction when a provider of medical services sues as

10


prejudice on March 11, 2002. See Holy Cross Hosp. v. Banker’s Life & Cas. Co., No. 01 C

1505, 2002 WL 389544 (N.D. Ill. Mar. 13, 2002).

On December 28, 2001, Holy Cross amended its complaint to add three additional third
party payors as defendants: Unicare Life and Health Insurance Company (“Unicare”), United
Wisconsin Health Insurance Company (“United Wisconsin”), and Alta Health and Life Insurance
Company (“Alta”). On August 7, 2002, this Court dismissed the complaint against Unicare and
Alta because they merely provided insurance to employee welfare benefit plans, they were not
the actual plans themselves; ERISA requires suits against the plans, See Holy Cross Hosp. v.
Banker’s Life & Cas. Co., No. 01 C 1505, 2002 WL 1822916 (N.D. Ill. Aug. 7, 2002). Holy
Cross and United Wisconsin settled the dispute between them later in August, so this Court
granted Plaintiffs Motion to Voluntarily Dismiss the Claim pursuant to Rule 4(a) of the Federal
Rules of Civil Procedure.

Both remaining Defendants, Banker’s Life and HealthStar, moved for summary judgment
in May 2002. Due to delays in the discovery process, those motions were stricken on July 17,
2002. On August 20, the Court granted both defendants’ motions for Jeave to refile their
summary judgment motions. Oddly, only HealthStar refiled a summary judgment motion;
Banker’s Life never did. Since then, the parties have behaved as though the grant of Banker’s
Life’s Motion for Leave to Refile magically revived the summary judgment motion that was filed
in May. Holy Cross filed a Response to Banker’s Life’s Statement of Material Facts Claimed to
be Undisputed that corresponds to the paragraph numbers in Banker’s Life’s stricken Statement
of Material Facts; Banker’s Life filed a Reply Memorandum in support of its Motion for

Summary Judgment. Since the Court granted the parties leave to refile their summary judgment


ratification theory. Therefore, summary judgment on the ratification claims must be denied.
Ill. Focus of this Case for Trial
At this point, the Court has found that the parties had a valid contractual relationship after
the expiration of the 1994 amendment, but their contract did not contain a term specifying the
‘rates Holy Cross would charge HealthStar’s clients for health care services. Holy Cross, in
Counts I and II of its complaint, seeks to receive payment from Banker’s Life at its retail rates for
health care services it provided after September 30, 1996. Although the parties behavior post-
expiration does not manifest an agreement to be bound by the 1994 agreements, it does manifest
an intention to remain in a relationship of some kind. Holy Cross suggests that the Defendants’
efforts to prove ratification were more properly characterized as “urging this Court to imply a
contract in fact from the parties’ conduct.” See Holy Cross Hosp. Comb. Mem. Law Opp. Mot.
Summ. J. Filed by Bankers and HealthStar at 7. Holy Cross is on the right track. Holy Cross is
right that the evidence marshaled at the summary judgment stage does not establish that the
parties had a contract implied in fact. Any final determination of the issue will depend upon
factual issues about the behavior of the parties after the expiration of the amendment which
remain unresolved. If the defendants seek to establish a contract implied in fact, they will have
to prove all of the classical elements of a contract were present, including mutual assent. See

Samuel Williston, I A Treatise on the Law of Contracts, § 1:5 (4th ed. 1990); Barefield v. Village

of Winnetka, 81 F.3d 704 (7th Cir. 1996).
In the event that the defendants cannot establish (or choose not to try to establish) an
implied in fact contract, the Court will apply the equitable principles from “quasi-contract” or

“contract implied in law” jurisprudence. When the dust settles, this case will be decided by

21


amount to the receivable amount to reflect the acceptable discounts under the relevant contracts.

Banker’s Life has been one of the third party payors with which HealthStar had a contract
since July 1988. Banker’s Life was therefore among the companies that submitted payment to
Holy Cross for services rendered to patients in the HealthStar network.
B. Relationship among the Parties, September 30, 1996 — October 1, 2000

Immediately after the amended contract expired on September 30, 1996, nothing changed
among the parties for several months. Apparently, it is fairly common in the managed health
care industry to continue dealings after the expiration of a contract in anticipation of a new
contract being agreed upon. See HealthStar’s Rule $6.1(a)(3) Statement of Uncontested Facts, at
4 44 [hereinafter “HealthStar’s Facts”].?_ Indeed, the original contract between Holy Cross and
HealthStar expired on July 31, 1987, but it was not amended or renewed unti! July 7, 1988. At
the time of its amendment, the parties agreed to extend the previous contract for 11 months so
that the parties would not have a gap in their otherwise valid contract. (HealthStar’s Facts, at {]
19-20).

In early 1997, Holy Cross hired Health Check, a health care consulting company, to
perform an audit of its accounts and practices. On May 10, 1997, Carole Kelly, the founder and
CEO of Health Check, notified Holy Cross that the contract with HealthStar had expired on

September 30, 1996. After the contract expired, Holy Cross had still been receiving payments in

*Pursuant to Local Rule 56.1(a)(3), parties seeking summary judgment are required to
submit “a statement of material facts as to which the moving party contends there is no genuine
issue [of fact].” Loc. R. 56.1(a)(3). In this case, both Banker’s Life and HealthStar filed for
summary judgment, so both have also submitted statements of material facts that they contend
are undisputed. Unless Holy Cross disputed the facts, the Court will cite to the Rule 56.1(a)(3)
statements without further notation. The Court will note in the text where the parties disagree
about certain facts.



(discussing appropriateness of laches because there are “no fixed time limits on reopening a
bankruptcy proceeding”). This allows for parties to settle their affairs without having to endure
the perpetual uncertainty of prospective litigation. Where there are applicable statutes of
limitations, courts should look, in part, to the applicable state statutes of limitations in

determining whether to apply the laches doctrine. See Hot Wax, Inc. v. Turtle Wax Inc., 191

F.3d 813, 821 (7th Cir. 1999). Here, the applicable statute of limitations for claims for denial of

benefits is ten years. See 735 Ill. Comp. Stat. 5/13-206; Daill v. Sheet Metal Workers’ Local 73

Pension Fund, 100 F.3d 62, 65 (7th Cir. 1996) (“[W]here a [plaintiff] ...seeks[] to recover
benefits purportedly due . . . under the terms of an ERISA plan. . . the most analogous Illinois
statute of limitations is the ten-year limitations period ... [of] 735 III. Comp. Stat. 5/13-206.). If
Plaintiff's delay is adjudged from the date of the contract’s expiration (September 30, 1996),
Holy Cross initiated the lawsuit less than halfway through the statute of limitations period.

The Seventh Circuit has allowed that under some circumstances the doctrine of laches
can be used to contract the applicable statute of limitations. See Teamsters & Employers

Welfare Trust of llinois y. Gorman Bros. Ready Mix, 283 F.3d 877, 881 (7th Cir, 2002). Where

a plaintiff leads a defendant to believe it will not file suit and the defendant’s ability to defend is
specifically impaired by the delay, laches can bar the plaintiff from suing. Id. at 882. Although
laches can shorten the length of the statute of limitations for equitable reasons, the circumstances
would have to be more compelling than they are in this case. Here, Banker’s Life only learned of
the contractual dispute between Holy Cross and HealthStar on August 31, 2000. The Plaintiff

filed suit slightly more than six months later. The Court cannot find a case (and Banker’s Life

14



b, HealthStar’s assertion of Promissory Estoppel
As both parties recognize, promissory estoppel is only applicable in the absence of an

enforceable contract between the parties. See World Champion Wrestling. Inc. v. GJS Int’]

Inc., 13 F, Supp. 2d 725, 736 (N.D. Ill. 1998). The elements of promissory estoppel would be
familiar to any first year law student studying for her contracts exam: 1) the plaintiff made an
unambiguous promise; 2) the defendant relied on the promise; 3) defendant’s reliance was both
reasonable and foreseeable; and 4) defendant’s reliance caused it harm. See Quake Constr., Inc.

v. American Airlines, Inc., 565 N.E.2d 990, 1004 (Ill. 1990).

Holy Cross claims that HealthStar cannot establish that it made an unambiguous promise;
Holy Cross is right. HealthStar claims that as long as Holy Cross was listed in its preferred
provider directory, HealthStar could continue to use the discounted rate schedule in the expired
1994 agreement. First, nothing in that allegation establishes that Holy Cross made any promise
relating to the rates in the 1994 agreement. Second, any such promise that could be divined from
these circumstances is ambiguous at best. On this ground alone, HealthStar’s assertion of
promissory estoppel must fail, especially at the summary judgment phase.

2. Status of the contract between Holy Cross and HealthStar after the
expiration of the 1994 amendment

Holy Cross’ complaint seeks a declaratory judgment that the parties did not have a
contract after September 30, 1996 when the 1994 amendment expired. Principles of contract
interpretation guide the determination of the parties contractual obligations after the expiration of
the 1994 amendment. Under Illinois law, which all parties agree applies in this case, the starting

point for contract interpretation is the language of the contract itself. See Church v. General


contracts in exchange for a reasonably guaranteed inflow of patients. Third, HealthStar contracts
with various “third party payors” that become responsible for payment of health care expenses,
the most common example being insurance companies, such as Defendant Banker’s Life and
Casualty Company (“Banker’s Life”). Although HealthStar does not apply the label to itself in
its filings, lay people might describe it as a preferred provider organization, or PPO.!
A. Relationship Among the Parties, 1985- September 30, 1996

In 1985, Holy Cross and HealthStar agreed on a contract to make Holy Cross a part of
HealthStar’s preferred provider network. Under the contract, the hospital agreed to provide
health care to people who were members of the HealthStar network at pre-set discounted rates.
The contract was amended twice, in 1988 and in 1994. The 1988 amendment established a new
schedule of rates for hospital services to patients in the HealthStar network. The 1988
amendment also contained an automatic renewal provision, known as an “evergreen clause.” In
1994, Holy Cross and HealthStar agreed upon another amendment to the contract that established
a new schedule of agreed upon fees. By its terms, the 1994 amendment remained in effect for
two years; it expired on September 30, 1996.

Under both the original and amended contracts, Holy Cross would submit its bills at retail
rates to HealthStar. HealthStar, in turn, would reprice the bills according to the pre-set rates and
then submit the repriced bills to the third party payors. The third party payors, then, would remit

payment to Holy Cross. Holy Cross’ computer system made internal adjustments from the billed

‘Indeed, all the parties agree that HealthStar is a Preferred Provider Organization. See
Banker’s Life Mot. for Summ, J. at 3, {3 (“HealthStar is a Preferred Provider Organization (i.e.
PPO).”); Holy Cross’ Resp. to Banker’s Statement of Mat. Facts Claimed Undisp. at 1-2, § 3;
HealthStar’s Resp. to Banker’s Statement of Uncont. Facts at § 3.

2



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
HOLY CROSS HOSPITAL, )
) No. 01 C 1505
Plaintiff, )
) HONORABLE DAVID H. COAR
ve )
)
BANKERS LIFE AND CASUALTY )
COMPANY and HEALTHSTAR, INC., )
)
Defendants. y

MEMORANDUM OPINION AND ORDER

This case comes before the Court on Defendant HealthStar’s Motion for Summary
Judgment on Count Ill of Plaintiff's Amended Complaint and Defendant Banker’s Life and
Casualty Company’s Motion for Summary Judgment. For the reasons set forth below, this Court
denies both Defendants’ motions for summary judgment.

I, FACTUAL BACKGROUND

Plaintiff Holy Cross Hospital (“Holy Cross” or “Plaintiff’) is a health care provider.
Defendant HealthStar, Inc., formerly known as Preferred Care Network or PCN, (“HealthStar”)
is a corporation that enters into contracts to coordinate the delivery of health care services.
HealthStar’s coordination efforts lead it to create contracts with three types of organizations.
First, HealthStar contracts with various entities who are responsible for providing health care
services to individual patient populations (¢.g., employers, labor unions, health benefit trusts).
Second, HealthStar contracts with various health care providers, such as Plaintiff, who agree to

afford services at a discounted rate to the patient populations within HealthStar’s network of

1 [ot


approved, processed according to the terms of the plans, and then the hospital was paid (or
possibly underpaid) by the terms of its alleged contract with HealthStar. To the extent the
hospital was underpaid, it is far from clear that Banker’s Life tendered less money than the plan
required, What seems much more likely here is that Banker’s Life tendered less money than the
contract between Holy Cross and Health Star required.

The relationship between the plan and the contract is not transparent at this point, in part
because there has been no evidence of any ERISA plans submitted on the summary judgment
proceedings. This is very odd in an ERISA case for denial of benefits, where the cases are
usually decided by reference to the plan itself. See OReilly v. Hartford Life & Accident Ins. Co.,
272 F.3d 955, 959 (7th Cir. 2001) (claims of denial of ERISA benefits “normally” decided by
“examin[ation of] the plan documents and interpret{ation] ... under the federal rules of contract
interpretation”). In a “normal” case, individual beneficiaries are not in a position to contract for
discounted rates for health care services. In all likelihood, the original beneficiaries are blissfully
unaware of the terms of the contract between HealthStar and Holy Cross. They assign their
benefits to the hospital, pay their required share under the relevant plan, and receive the
necessary health care. Here, the hospital turned around and sought payment of moneys from the
beneficiary-assignors that were owed to the hospital by a third party under the terms of the
ERISA plan. This case certainly represents the logical limit of provider standing. Since health
care providers do have standing in this circuit, however, this Court is empowered to hear the

case.?

5 After having this case pending for nearly two years, the Court would be inclined to retain
supplemental jurisdiction over Counts Iand III of Holy Cross’ Complaint, even if Count I were
dismissed.

12


has certainly not cited one®) where laches was used to estop a Plaintiff from bringing suit less
than halfway through the applicable statute of limitations period. Under these circumstances,
Holy Cross’ delay in filing can hardly be seen as unreasonable, especially as it pertains to
Banker’s Life. When Banker’s Life learned of the dispute, it was already at the brink of
litigation.

Furthermore, Banker’s Life cannot demonstrate the sort of prejudice that the laches
doctrine contemplates. “[T]he prejudice contemplated by laches stems from the loss of evidence
diminishing the defendant’s chance of success at trial.” Zelazny v. Lyng, 853 F.2d 540, 543 (7th
Cir. 1988). Banker’s Life does not demonstrate any prejudice of this sort in its motion. Banker’s
Life asserts that the delay increased the amount of damages exposure in this lawsuit. In other
words, “I wish they would have filed sooner.” The only other prejudice it asserts is that Holy
Cross sought collection from people whom Banker’s Life insures and “caused significant
disruption to Banker’s Life business activities and . .. damaged Banker’s Life’s ongoing
relationships with its group plan members and insureds.” See Banker’s Life & Cas. Co. Mot. for
Summ, J. at 28. In other words, “I wish it would never have come to this.” Litigation is costly
and the risk of litigation is one of the costs of doing business. The harm flowing from litigation
and activity in anticipation of litigation is not grounds for the application of the laches doctrine.
While the Court has some sympathy for Banker’s Life’s position, as it was a latecomer to this

dispute, its assertion of laches against Holy Cross must fail.

‘Banker’s Life cites the following inapposite cases: Golden v. McDermott, Will & Emery,
702 N.E.2d 581, 589-90 (Ill. App. Ct. 1998) (where laches was applied to bar suit when the suit
was brought after the end of the relevant statute of limitations); Herman v. Chicago, 870 F.2d
400, 401 (7th Cir. 1989) (reversing the district court’s grant of summary judgment on ground of
laches in 19 month delay in employment case, but affirming on other grounds);

15