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Electrostim Medical Services, Inc. v. Health Care Service Corp.

United States District Court, S.D. Texas, Houston Division

May 3, 2017

ELECTROSTIM MEDICAL SERVICES, INC., Plaintiff,
v.
HEALTH CARE SERVICE CORPORATION, A MUTUAL LEGAL RESERVE COMPANY, Defendant.

          MEMORANDUM AND ORDER

          Lee H. Rosenthal Chief United States District Judge

         Electrostim 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. 2015).

         After 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.

         This 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.

         Based 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.

         After 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.

         The reasons for these rulings are set out in detail below.

         I. Background

         The 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.

         Electrostim's 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 Electrostim.

         In the 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.

         At an 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).

         Electrostim's 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.

         Electrostim's 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.”

         Blue 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.

         Blue 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 ...


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