United States District Court, S.D. Texas, Houston Division
MEMORANDUM AND ORDER
Rosenthal Chief United States District Judge
Medical Services, Inc., provides electrostimulation products
and services designed to assist patients with pain management
and physical rehabilitation. Electrostim sued Health Care
Service Corporation, a health insurance company that does
business in Texas as Blue Cross Blue Shield of Texas
(“Blue Cross”). Electrostim alleged that Blue
Cross improperly denied or underpaid thousands of
reimbursement claims that Electrostim submitted for providing
medical services and products to patients with Blue Cross
insurance plans. The court dismissed Electrostim's
claims, and the Fifth Circuit affirmed in part, reversed in
part, and remanded. Electrostim Med. Servs., Inc. v.
Health Care Serv. Corp., 614 F. App'x 731 (5th Cir.
remand, the court issued a new scheduling order calling for
Electrostim to file a motion for leave to file any amended
complaint. Electrostim did not seek leave before it filed its
third amended complaint. (Docket Entry No. 129). That
complaint proposes to expand the factual scope of the
litigation. It would add over 20, 000 benefits claims that
this court did not consider before the appeal, that the
appellate court did not review, and that are not included in
the subset of claims that the appellate court remanded.
development prompted a status conference in short order.
Because Electrostim had not sought leave to file the third
amended complaint, the court ordered Electrostim to file a
motion for leave to do so and set a briefing schedule for
Blue Cross's response and Electrostim's reply.
(Docket Entry No. 135). The parties filed their briefs,
(Docket Entries No. 136, 142, 143), and the court heard oral
argument on April 7, 2017.
on the briefs, oral argument, and applicable law, the motion
for leave to file the third amended complaint is denied.
Electrostim may file another motion for leave to amend with a
proposed amended complaint that does not have the
deficiencies identified in this Memorandum and Order. The
motion for leave must be filed no later than June 30, 2017.
Electrostim must confine the proposed amended complaint that
it may seek leave to file to the approximately 8, 000
pretermination claims and 273 posttermination claims
incorporated into the second amended complaint. These claims
are clearly set out in the Blue Cross spreadsheets.
Electrostim must identify the non-ERISA-governed claims that
form the basis for relief, and it must allege a factual basis
for the breach-of-contract claims that it seeks to bring as
its patients' assignee.
Electrostim files its motion for leave to file another
amended complaint, Blue Cross may file any opposition in the
usual course. If, after briefing, the court determines that
Electrostim has failed to present legally or factually
sufficient allegations or claims, they will be dismissed with
prejudice and without leave to amend.
reasons for these rulings are set out in detail below.
factual background and procedural history are set out in
detail in the Fifth Circuit's opinion and this
court's previous orders. See Electrostim, 614 F.
App'x at 734-36; (Docket Entry No. 90). Only a very brief
summary is needed here.
proposed third amended complaint asserts three causes of
action. The first is that Blue Cross breached the provider
agreement by failing to pay, or underpaying, Electrostim for
medical services and products it provided to Blue Cross
patients. The second is that Electrostim provided covered
goods and services to Blue Cross patients on an open account
with Blue Cross; that the charges for the goods and services
were usual, reasonable, and customary; and that Blue Cross
accepted the goods and services but did not pay Electrostim.
The third, styled “Third-Party Beneficiary, ” is
that Electrostim received assignments of benefits from the
Blue Cross patients to whom it provided services and
products, and that Blue Cross breached the patients'
insurance policies when it failed to pay or underpaid
several years during which the parties vigorously litigated
the dismissal and appeal, Electrostim failed to identify with
reasonable specificity the reimbursement claims it was
asserting. Electrostim eventually provided Blue Cross with
enough information for Blue Cross to identify the benefit
claims that Electrostim was alleging were improperly denied
or underpaid. Blue Cross put the information into a
spreadsheet that listed approximately 8, 800 Electrostim
claims submitted before Blue Cross terminated its provider
agreement with Electrostim and 273 claims submitted after
Blue Cross terminated the agreement.
April 23, 2013 hearing, Electrostim stipulated in open court,
on the record, to incorporating into the second amended
complaint the 8, 800 pretermination and 273 posttermination
claims shown in the spreadsheet. (Docket Entry No. 86 at 36).
Both this court and the Fifth Circuit relied on that
stipulation in describing and analyzing the factual
allegations and the number and type of claims in the case.
The remanded claims are a subset of the stipulated 8, 800
pretermination and 273 posttermination claims. See
Electrostim, 604 F. App'x at 734-36; (Docket Entry
No. 90 at 4-6).
proposed third amended complaint attaches a brand-new set of
spreadsheets. These purport to describe the set of
reimbursement claims that Electrostim alleges are at issue.
These spreadsheets contain approximately 24, 000
pretermination claims and 4, 800 posttermination claims. This
adds over 15, 200 pretermination claims and over 4, 500
posttermination claims to the claims in the case that this
court and the Fifth Circuit considered.
motion for leave to amend is a cursory seven pages.
Electrostim's main argument is that, because the proposed
third amended complaint does not add new causes of action,
Electrostim does not need to seek leave to amend. Electrostim
argues that the spreadsheets that it attached to its proposed
third amended complaint reflect only its damage allegations,
not new causes of action. In the alternative, Electrostim
argues that the liberal Rule 15 standard for amending is met
and the amendment should readily be granted. Electrostim
asserts that it did not unduly delay filing its third amended
complaint and did not file it in bad faith. Electrostim notes
that the amended complaint does not reflect repeated failures
to cure pleading defects. Electrostim also insists that,
although the case has been pending for over six years, it is
still “in its infancy, ” and so the third amended
complaint does not prejudice Blue Cross. Finally, Electrostim
argues that it “never agreed or represented that the
claims contained on defendants' spreadsheet represented
the totality of claims.”
Cross disputes each of these points. Blue Cross argues that
Electrostim is engaged in improper gamesmanship by
dramatically expanding the scope of the case, after this
court and the Fifth Circuit analyzed the much narrower set of
claims that Electrostim stipulated were the claims at issue.
Blue Cross vigorously opposes Electrostim adding 20, 000 new
claims, each of which will have to be individually proved,
six years into the case. Blue Cross emphasizes that
Electrostim confirmed on the record in open court that the 8,
800 pretermination and 273 posttermination claims were
incorporated into the second amended complaint and were the
claims asserted in that complaint. Blue Cross points out that
after this court dismissed Electrostim's causes of action
with prejudice, Electrostim filed a Rule 59 motion for
reconsideration that conspicuously omitted any argument that
the court had failed to address the 20, 000 claims that
Electrostim wants to add now. Instead, Electrostim-and
everyone else involved in the litigation-litigated here and
in the Fifth Circuit with the clearly evident shared
assumption that the only claims at issue were the 8, 800
pretermination and 273 posttermination claims shown in the
Blue Cross spreadsheets and incorporated into
Electrostim's second amended complaint. Therefore, Blue
Cross argues, the Fifth Circuit's mandate on remand only
allows Electrostim to assert the remanded subset of the
claims from the second amended complaint.
Cross argues that Electrostim's proposed third amended
complaint should also be rejected for undue delay. Blue Cross
argues that there is no reason Electrostim could not have
identified and asserted these 20, 000 claims in the three
years between filing and dismissal. Electrostim never
challenged the Blue Cross spreadsheets, despite having ample
opportunity to do so. Instead, Electrostim stipulated to
incorporating them into the second amended complaint.
Electrostim had ample opportunity to seek to amend its
complaint to add the ...