Thomson v. Gaskill, 315 U.S. 442, 446 (1942). With these principles in mind, the court evaluates
the counter-defendants’ motion.
Analysis

Before this court are the counter-defendants’ motions to dismiss HealthStar’s Amended
Counterclaim against it for lack of subject matter jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(1)
and Fed.R.Civ.P.(6), or in the alternative Holy Cross and Health Check move to dismiss Counts
I, IV, VI of the plaintiff's Amended Counterclaim for failure to state a claim for which relief may
be granted, pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons stated below, the counter-
defendants’ motions are GRANTED because of the lack of subject matter jurisdiction.

A. Lack of Subject Matter Jurisdiction

The counter-defendants argue that this court does not have authority to exercise
supplemental jurisdiction over HealthStar’s Amended Counterclaim against Holy Cross and the
Health Check Parties, and therefore HealthStar’s entire Counterclaim must be dismissed.

Section 1367(a) of Title 28 of the United States’ Code confers jurisdiction over “claims
that are so related to claims in the action within — original jurisdiction that they form part of the
same case or controversy under Article III of the United States Constitution. Such supplemental
jurisdiction shall include claims that involve the joinder or intervention of additional parties.”
The Supreme Court defined scope of supplemental jurisdiction in United Mine Workers v.

Gibbs, 383 U.S. 715 (1966). The Court held:

Pendent jurisdiction, in the sense of judicial power, exists whenever there is a claim
“arising under [the] Constitution, the Laws of the United States, and Treaties made, or which
shall be made, under their Authority . . .,” U.S. Const., Art. III, § 2, and the relationship between
that claim and the state claim permits the conclusion that the entire action before the court
comprises but one constitutional “case.” The federal claim must have substance sufficient to


nucleus of operative facts” necessary under Holy Cross’ ERISA claim against Banker’s Life.

Finally, in Count VII of the HealthStar seeks recovery from Health Check for the alleged
conduct of two of its employees, John Zivnuska (“Zivnuska”) and Carole Kelly (“Kelly”) for the
unauthorized practice of law. HealthStar alleges that Zivnuska and Kelly held themselves out as
experts in the analysis and interpretation of managed care contracts. And HealthStar alleges that
was damaged as a result of Zivnuska’s and Kelly’s unauthorized practice of law because this
conduct: (1) caused Holy Cross to interfere with HealthStar’s contractual and prospective
relationships; (2) caused Holy Cross to send out letters to customers of HealthStar, which
resulted in the HealthStar losing business; (3) caused irreparable damage to HealthStar’s
reputation; and (4) caused Holy Cross to leave HealthStar’s network of providers. In order to
prove that Zivnuska or Kelly illegitimately engaged in the practice of law, HealthStar bring forth
evidence that they gave advice or rendered any services that required the use of any degree of
legal knowledge or skill. People ex. rel. Illinois State Bar Assoc. v. Barsch, 406 III. 253 (1950).
The process of establishing such facts is well beyond the factual background required for Holy
Cross’ ERISA claim against Banker’s Life.

HealthStar argues that the possibility of inconsistent or even contrary judicial results must
prevent this court from dismissing HealthStar’s counterclaims. The doctrine of issue preclusion,
however, should prevent such a result. court’s resolution of any liability issues relevant to
HealthStar’s state law counterclaims will be respected and not relitigated due to the doctrine of
issue preclusion. Issue preclusion prevents relitigation of an issue when four requirements are
met: (1) the party against whom issue preclusion is asserted must be fully represented in the prior

litigation; (2) the issue sought to be precluded must be identical to the issue involved in the prior


and damages for its counterclaims does not remove the claims from the “same case or
controversy.” This court disagrees.

HealthStar’s counterclaims, arising out of Holy Cross’ alleged communications with
HealthStar’s “Customers” (defined as the “self-insureds and third-party administrators” who
provide services to Holy Cross patients, Counterclaim 4] 2) do not arise from the same nucleus of
operative facts as does Holy Cross’ ERISA claim against Bakers Life to recover benefits due to
Holy Cross patients under the terms of their ERISA plans.

Holy Cross’ claim against Bankers Life concerns the bills rendered by Holy Cross for its
hospital services to ERISA plan participants, and Bakers Life’s right to discount those charges in
reliance upon the Preferred Hospital Agreement between Holy Cross and HealthStar. In contrast,
HealthStar’s counterclaims arise out of Holy Cross’ communications with HealthStar “customers
regarding Holy Cross’ dispute with HealthStar. As the plaintiff points out, Bankers Life is but
one of those Customers. More specifically, HealthStar’s counterclaims are based on allegedly
wrongful communications with HealthStar’s Customers, rather than the benefits that should have
been provided to Banker’s Life ERISA plan participants.

More specifically, Count I of HealthStar’s counterclaim alleges a claim for tortious
interference with the contract arising out of Holy Cross’ and Health Check’s “intentionally and
unjustifiably interfer[ing] with HealthStar Customers by harassing and threatening the
Customers, and further, by approaching HealthStar Customers’ Patients with these putative
Underpayments.” Counterclaim § 24. The counterclaim further alleges “{ajs a direct and
proximate cause of Hospital’s letters, HealthStar has lost Customers who are angry and upset

over the situation. HealthStar is in jeopardy of losing other contracts with its Customers.


confer subject matter jurisdiction on the court. The state and federal claims must derive from a
common nucleus of operative fact. But if, considered without regard to their federal or state
character, a plaintiff’s claims are such that he would ordinarily be expected to try them all in one
judicial proceeding, then, assuming substantiality of the federal issues, there is power in the
federal courts to hear the whole.

383 U.S. at 725 (footnotes and citations admitted).

Citing Gibbs, the Seventh Circuit in Ammerman v. Sween, 54 F.3d 423, 424 (7" Cir.

1995), stated that ‘judicial power to hear both state and federal claims exists where the federal
claim has sufficient substance to confer subject matter jurisdiction on the court, and the state and
federal claims derive from a common nucleus of operative facts.” Supplemental jurisdiction is
not limited to “restatements of the same ground for recovery. The claims need only revolve

around a central fact pattern.” Euromarket Designs v. Crate & Barrel, 96 F.Supp.2d 824 (N.D.

Ill. 2000)(quoting White v, County of Newbury, $.C., 985 F.2d 168, 172 (4" Cir. 1993).

In this case, the allegations contained in HealthStar’s Amended Counterclaim do not
revolve around the similar fact pattern as those in the ERISA claim brought by Holy Cross
against Bankers Life. HealthStar argues that the non ERISA claims contained in the Amended
Complaint are essential prerequisites to making a determination about the central issue in the
case originally brought by Holy Cross. Specifically, HealthStar contends that facts necessary to
prove the duration of Holy Cross’ contractual relationship with HealthStar, are essentially the
same facts necessary to decide whether HolyCross’ conduct in contacting HealthStar customers
constituted a breach of some sort and form the basis for a permanent injunction to issue.
HealthStar contends that the only additional evidence needed to prove the causes of action in its
Amended Complaint will relate to the proximate causation of damages. In addition, HealthStar

asserts that the fact that HealthStar will have to prove additional facts to substantiate causation


of a valid contract, HealthStar must set forth facts that Holy Cross’ statements were inaccurate
and debilitated HealthStar’s business. The claim requires facts beyond those necessary to
determine Holy Cross’ ERISA claim against Bankers Life.

In Count IV of its counterclaim, HealthStar alleges a claim under the Illinois Deceptive
Trade Practices Act, allegedly because “Hospital has disparaged the business of HealthStar by
making false and misleading statements of facts.” Counterclaim | 38. “Hospital by its actions
has proximately caused HealthStar Customers to terminate or decline to renew contracts with
HealthStar.” Complaint { 39. As the counterclaims above, Count IV requires setting forth facts
which demonstrate a causal connection between Holy Cross’ and Health Check’s actions and
damages suffered by HealthStar. Count V alleges a claim under common law disparagement, on
the basis that “Hospital has disparaged the business of HealthStar by making false and
misleading statements of facts.” Counterclaim 41. “Hospital by its actions has proximately
caused HealthStar Customers to terminate or decline to renew contracts with HealthStar.”
Complaint {| 42. Proof of such damages does not fall under the same “‘common nucleus of
operative facts”

Count VI of the HealthStar counterclaim seeks a permanent injunction, allegedly on the
basis that “hospital by its actions has irreparably harmed HealthStar,” Counterclaim {| 44.
“HealthStar has no adequate remedy at law, “ Counterclaim 45, and “Hospital! should be
permanently enjoined from further contact with Holy Cross Hospital Customers or Patients
concerning any care or treatment rendered by Hospital between 1996 and 2000,” Counterclaim
46. As with each of HealthStar’s counterclaims above, a decision as to whether a permanent

injunction is appropriate in this case or not requires assessing facts that are beyond the “common


Minute Order"orm (06/97)

United States District Court, Northern District of Iinois

Name of Assigned Judge David H. Coar Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 01 C 1505 DATE | MAR 7 3 2002
CASE Holy Cross Hospital vs. Bankers Life and Casualty Company and HealthStar, Inc.
TITLE

MOTION:

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

of the motion being presented.}

DOCKET ENTRY:

(1) o Filed motion of [ use listing in “Motion” box above.]

(2) Qa Brief in support of motion due

@) im} Answer brief to motion due . Reply to answer brief due.

(4) im Ruling/Hearing on set for at

6) O Status hearing[held/continued to] [set for/re-set for] on setfor_ at

© Oo Pretrial conference{held/continued to] [set for/re-set for] on set for at

(7) Oo Trial{set for/re-set for] on at :

(8) Oo {Bench/Jury trial] [Hearing] held/continued to at

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

QFRCP4(m) (General Rule 21 OFRCP41(a)(1) OO FRCP41(a)(2).

(10) Ml (Other docketentry] For the foregoing reasons, counterdefendants’ motions to dismiss HealthStar’s
counterclaims against Holy Cross and Health Check, pursuant to Fed.R.Civ.P. 12(b)(1), for lack of
subject matter jurisdiciton are GRANTED. HealthStar’s counterclaims against Holy Cross and Health
Check are dismissed without prejudice. [Doc. #s 49, 56]. n .

Aud LUD

(1) (For further detail see order attached to the original minute order.] ° Va .

No notices required, advised in open court. 7 Document
Number
No notices required. umber of notices

Notices mailed by judge’s staff.

Notified counsel by telephone.

Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge.

courtroom ¢

VG Cled | cers

Date/time received in
central Clerk’s Office mailing deputy initials



could not be resolved without a consideration of the status of the contractual relationship
between Holy Cross and HealthStar. HealthStar is “so related to claims in [this] action within
[this Court’s] original jurisdiction that they form part of the same case or controversy under
Article II] of the United States Constitution.” 28 U.S.C. § 1367(a). For this reason, Count III of
the plaintiff's complaint does not predominate over the claims over which this court has original
jurisdiction.
B. Failure to State a Claim Upon Which Relief Can Be Granted

As this court has found alternate grounds for dismissal, there is no need to address the
plaintiffs contention that HealthStar’s counterclaims do not state a claim upon which relief may
be granted.

Conclusion

For the foregoing reasons, counterdefendants’ motions to dismiss under Fed.R.Civ.P.

12(b)(1) for lack of subject matter jurisdiciton are GRANTED. HealthStar’s counterclaims

against Holy Cross and Health Check are dismissed without prejudice.

oN
Enter: f . \
hi nm SUE

David H. Coar

United States District Judge

Dated: March 11, 2002


litigation; (3) the issue must have been actually litigated on the merits and decided on the merits
in the prior litigation; and (4) the resolution of that issue must have been necessary to the court's
judgment. Gray v. Lacke, 885 F.2d 399, 406 (7th Cir.1989). While this court can not require any
other court to employ the doctrine of issue preclusion in this case, there does not appear to be an
obstacle to the application of the doctrine in any further cases in which whether a valid contract
existed between HealthStar and Holy Cross is relevant.

While it is true that a determination as to the nature of the relationship between
HealthStar and Holy Cross undoubtedly will affect the outcome of HealthStar’s counterclaims
against Holy Cross, the potential for such influence is not enough to confer jurisdiction over
HealthStar’s counterclaims. This court, however, is of the opinion that the goal of judicial
economy would be confounded by attempting to address the numerous additional issues
presented by HealthStar’s counterclaims, including but not limited to establishing the existence
of contracts, prospective business advantages and business expectancies with its customers, Holy
Cross’ alleged interference and damages.

Finally, HealthStar argues that if supplemental jurisdiction cannot be exercised over the
HealthStar counterclaims, it should not be exercised over Count III of the plaintiff's complaint
because the plaintiffs case is dominated by and dependent upon the resolution of a state law
contract issue.

Section 1367(c)(2) provides that the district court may dismiss a supplemental claim that
“substantially predominates over the claim or claims over which the district court has original
jurisdiction.” In this case, Count III of the plaintiff's complaint does not individually

predominate over Holy Cross’ ERISA claims. In fact, Holy Cross’ claim against Bankers Life

10


HealthStar has incurred and will continue to incur expense in responding to and acting upon
complaints from its Customers.” This claim requires facts establishing intentional and
unjustifiable harassment by Holy Cross and Health Check as well as proof that such contact
actually harmed HealthStar’s relationships with other Customers. Consequently, this claim does
not arise out of the same “common nucleus of operative facts” as Holy Cross’ ERISA claim for
benefits against Bankers Life.

Count II of HealthStar’s counterclaim alleges a claim for tortious interference with
prospective business advantage. The claim alleges that Holy Cross and Health Check have
“contacted Customers of HealthStar and made demand for payment despite the fact that Hospital
has no contractual right to demand payment for such monies from HealthStar Customers or
Patients.” Counterclaim 27. It further alleges: “. . . purposeful and intentional interference
has harmed HealthStar’s [sic] reputation, damaging its business relationship with its existing
Customers and preventing HealthStar [sic] from developing additional business relationships
with new customers, including various Unions.” Counterclaim 28. In addition to a
determination as to the existence of a valid contract between HealthStar and Holy Cross, this
claim requires facts establishing actual damages to HealthStar with respect to business
relationships with existing as well as future customers. The claim itself goes well beyond the
same “common nucleus of operative facts” as Holy Cross’ ERISA claim.

Count III of HealthStar’s counterclaim alleges a claim for defamation per quod. It alleges
that “Hospital’s letters misrepresent and make numerous inaccurate statements which are simply
false.” Counterclaim | 28. “These allegations are false and misleading and impugn the ability of

HealthStar to conduct its business.” Counterclaim {[ 35. in addition to disproving the existence


Procedure does not test whether the defendant will prevail on the merits, but instead whether the
defendant has properly stated a claim for which relief may be granted. Pickrel v. City of
Springfield, Ill, 45 F.3d 1115 (7th Cir. 1995). The court must accept as true all of the
defendant’s well-pleaded factual allegations, as well as all reasonable inferences. Id. Thus, the
court will dismiss a complaint under Rule 12(b)(6) only if “it is clear that no relief could be
granted under any set of facts that could be proved consistent with the allegations.” Ledford v.
Sullivan, 105 F.3d 354, 357 (7th Cir. 1997) (quoting Hishon v. King & Spalding, 467 U.S. 69,
78, 104 S. Ct. 2229, 2232 (1984)). Any ambiguities are construed in favor of the defendant
Curtis v. Bembenek, 48 F.3d 281, 283 (7th Cir. 1995). However, the court need “not strain to
find inferences favorable to the defendant which are not apparent on the face of the complaint.”
Coates v. Illinois State Bd. of Ed., 559 F.2d 445, 447 (7th Cir. 1977).

Rule 12(b)(1) provides for dismissal of claims over which the federal court lacks subject
matter jurisdiction. Jurisdiction is the "power to decide" and must be conferred upon the federal

court. See In re Chicago, Rock Island & Pacific R.R. Co., 794 F.2d 1182, 1188 (7th Cir.1986).

In reviewing a 12(b)(1) motion to dismiss, the court may look beyond the complaint and view
any extraneous evidence submitted by the parties to determine whether subject matter jurisdiction

exists. See United Transp, Union v.. Gateway Western Ry. Co., 78 F.3d 1208, 1210 (7th

Cir, 1996), citing Bowyer v. United States Dep't of Air Force, 875 F.2d 632, 635 (7th Cir. 1989),

cert. denied, 493 U.S. 1046 (1990). The plaintiff bears the burden of establishing that the

jurisdictional requirements have been met. See Kontos v. United States Dep't of Labor, 826 F.2d
573, 576 (7th Cir.1987). When a party moves for dismissal pursuant to Rule 12(b)(1), the

nonmoving party must support its allegations with competent proof of jurisdictional facts. See


the business relationship between Holy Cross and HealthStar existed. The Contract provided the
conditions and rates under which Holy Cross would be part of the HealthStar network. Between
1985 and October 2000, several amendments were made to the Contract. In 1994, the parties
executed an amendment in adjusting the rates that HealthStar network patients would be billed
by Holy Cross. The 1994 Amendment expired by its own terms in September 1996.

Typically, under the Contract, patients would present a patient ID card to the Holy Cross,
and Holy Cross would accept the patient for treatment. After treatment, Holy Cross would
forward bills at its retail rate to HealthStar for repricing. Then HealthStar would forward the
bills to the responsible third party payor who would pay the repriced bills.

On March 2, 2001, Holy Cross filed a Complaint against Defendant Bankers Life and
Casualty Company (“Bankers Life”) and HealthStar. On August 27, 2001, HealthStar filed an
Amended Counterclaim against Holy Cross and the Health Check Parties. HealthStar’s two
tortious interference counterclaims allege damage to contracts, prospective business advantages
and business expectancies with its customers from alleged interference by Holy Cross and Health
Check.. HealthStar also alleges that Holy Cross and Heath Check made certain untruthful or
misleading statements about HealthStar in three defamation and disparagement claims.

Holy Cross and Health Check now move to dismiss HealthStar’s entire Amended
Counterclaim for lack of subject matter jurisdiction, pursuant to Fed.R.Civ.P 12(b)(1) and
Fed.R.Civ.P, 12(b)(6) or in the alternative dismiss Counts I, IV, and V of the Amended
Counterclaim for failure to state claims upon which relief may be granted.

Standard of Proof

Typically, a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Holy Cross Hospital,

Plaintiff,
No. 01 C 1505
v.
HONORABLE DAVID H. COAR
Bankers Life and Casualty Company and
HealthStar, Inc.,

eel

i

wee ever

Defendants,

MAR 1320
MEMORANDUM OPINION AND ORDE

Before this is court is plaintiff/counter-defendants’, Holy Cross Hospital ( “Holy Cross”)
and HealthCheck, Inc.,Carole Kelly and John Zivnuska (“HealthCheck”), motions to dismiss the
first amended counterclaim (“Amended Counterclaim) against Holy Cross and new party
counter-defendants, Health Check, Inc., (the “Health Check Parties”) brought by defendant
HealthStar, Inc., (“HealthStar’), pursuant to Fed.R.Civ.P. 12(b)(1) and Fed.R.Civ.P. 12(b)(6). In
the altemative, Holy Cross and Health Check move to dismiss Counts I, IV and V for failure to
state a claim upon which relief may be granted, pursuant to Fed.R.Civ.P. 12(b)(6). Given the
similarity of the counter-defendants’ motions, this court will address the motions simultaneously.
For the following reasons, the counter-defendants’ motions are GRANTED.

Statement of Facts
Holy Cross provided services to patients in the HealthStar Network (also known as the

PCN Network)(“HealthStar”), from 1985 until October 2000. A contract (“Contract”) dictating