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Agostino v. Quest Diagnostics Inc.

February 11, 2009

DENISE AGOSTINO, ET AL., PLAINTIFFS,
v.
QUEST DIAGNOSTICS INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Chesler, District Judge

OPINION

This matter comes before the Court on Plaintiffs' motion for class certification pursuant to Federal Rule of Civil Procedure 23. Plaintiffs seek certification of a class of all persons in the United States who allege they have been improperly billed by Quest or its outside debt collection agencies, as well as certification of four subclasses: two subclasses seeking injunctive and declaratory relief, and two subclasses seeking monetary remedies. Plaintiffs also argue that the New Jersey Consumer Fraud Act should be applied to the class and all subclasses. As discussed more fully below, the Court finds that the proposed class and subclasses do not meet the requirements of Rule 23 and therefore denies Plaintiffs' motion for class certification.

I. BACKGROUND

Plaintiffs*fn1 initiated this putative class action on September 3, 2004, alleging that Defendant Quest Diagnostics, Inc. ("Quest"), the nation's leading provider of diagnostic and clinical testing, and its outside debt collection agencies*fn2 improperly bill consumers at full list price when Quest has unanswered questions concerning consumers' insurance information or when insurance providers do not timely respond to a claim or respond without adjudicating a claim due to incorrect patient information. Plaintiffs further allege Defendants improperly bill Medicare Part B beneficiaries.

In the First Amended Class Action Complaint, Plaintiffs asserted eight separate causes of action. However, by Opinion and Order dated October 6, 2005 (hereinafter the "Lifland Opinion"), the Honorable John C. Lifland, U.S.D.J., dismissed Plaintiff Mark Smaller's claim against CCS pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (" ERISA"), Smaller's claim pursuant to the Fair Debt Collection Practices Act, 15 U.S.C. § § 1692, et seq. ("FDCPA") against CCS, and all claims that refer to violations of the FDCPA against any Defendant that occurred before September 3, 2003.

The following claims remain: Count I: violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"); Count II: violations of the FDCPA that occurred on or after September 3, 2003, as to all Defendants other than Quest and CCS; Count III: violations of ERISA, as to all Defendants other than CCS; Count IV: violations of the New Jersey Consumer Fraud Act ("NJCFA"), N.J.S.A. § § 56:8-1, et seq., and similar laws of other states; Count V: violations of consumer protection laws of states other than New Jersey; Count VI: breach of contract; Count VII: common law unjust enrichment; and Count VIII: common law fraud.

Subsequent to the motion to dismiss, the Honorable Mark Falk, U.S.M.J., appointed Interim Class Counsel pursuant to Rule 23(g)(2), and the parties began the discovery process.

Plaintiffs now seek certification of a class*fn3 ("the Class") defined as: All natural persons in the United States of America and its territories who are members, participants, subscribers or beneficiaries of a Health Maintenance Organization ("HMO") or health insurance plan provided by an insurance provider or its Third Party Administrator ("TPA") with whom Quest has a participating provider contract that includes a hold harmless provision or where a hold harmless provision is imposed by law, or who are participants or beneficiaries of Medicare Part B.

Plaintiffs also seek certification of four subclasses. Plaintiffs propose two subclasses under Rule 23(a) and (b)(2), seeking equitable and/or statutory remedies. Plaintiffs title and define the proposed equitable and statutory subclasses as follows:

i. Refund Interest Subclass

All natural persons in the United Stated of America and its territories who are members, participants, subscribers or beneficiaries of a HMO or health insurance plan provided by an insurance provider with whom Quest had a participating provider contract that includes a hold harmless provision, or participants or beneficiaries of Medicare Part B, and to whom Quest or its outside debt collectors paid a refund without interest as a result of such person being billed at an amount in excess of the stated patient responsibility on an Explanation of Benefits ("EOB") provided by an insurance provider or TPA at any time from September 3, 1998, through the present; and

ii. Equitable Remedy Subclass

All natural persons in the United States of America and its territories who are members, participants, subscribers or beneficiaries of a HMO or health insurance plan provided by an insurance provider or its TPA with whom Quest had a participating provider contract that includes a hold harmless provision, or participants or beneficiaries of Medicare Part B, and who since September 3, 1998, were billed or dunned by Quest or its outside debt collectors and paid an amount in excess of the stated patient responsibility on an EOB provided by their insurance provider or TPA or who was billed or dunned after their insurance provider or administrator filed for bankruptcy or were deemed insolvent.

Plaintiffs also seek certification of the following two additional subclasses under Rule 23(a) and (b)(3), seeking damages:

iii. Medicare Part B Subclass

All natural persons in the United States of America and its territories who are participants or beneficiaries of Medicare Part B, and who since September 3, 1998, paid any portion of bills or dunning demands by Quest or its outside debt collectors when Quest did not have a signed Advanced Beneficiary Notice ("ABN") and a determination of patient responsibility from Medicare Part B or its administrators; and

iv. Debtor Subclass

All natural persons in the United States of America and its territories who received demands for payment from Quest or its outside debt collectors since September 3, 1998, or since September 3, 2003, for FDCPA violations, which demands for payment did any of the following: i) added fees or charges to the debt; ii) made threats the collector was either not authorized and/or not intending to pursue; iii) falsely representing that debts were owed; iv) representing that minors were personally responsible to pay debts.

Plaintiffs propose two methods to identify members of the Subclasses. Under Plaintiffs' proposed plan, Defendants would first be required to review their available records to identify members of the Rule 23(b)(2) and Rule 23(b)(3) Subclasses. Then, upon a finding of liability, Subclass members would be permitted to submit a claim form with supporting documentation entitling them to relief. A claims process, following notice, would be used to adjudicate those claims.

II. FACTS

In this case, Plaintiffs are challenging Quest's billing procedures. Quest is the nation's leading provider of diagnostic and clinical testing. Quest performs these diagnostic and clinical testing services upon the orders of physicians, physicians assistants, and registered nurses. (Declaration of Dr. Hugh Long, ("Long Dec.") at 9.) Specimens are either obtained by physicians and sent to Quest for testing, or the patient is sent "'to a Quest Diagnostic Patient Service Center with an order to have the specimen drawn.'" (Declaration of Thomas McGuire filed in support of Plaintiff's motion ("McGuire Dec.") at 31, ¶ 38) (quoting "Assurance of Discontinuance," issued in In re Quest Diagnostics, Inc., Attorney General of the State of New York, June 13, 2002 ("AOD")). Physicians order the tests in writing, using either Quest's test requisition form, or the physician's prescription pad. (Id.) If the patient goes to a Quest Service Center, Quest obtains the patient's personal and billing information directly from the patient. (Id.)

As stated above, Plaintiffs' claims challenge the billing practices of Quest and the Debt Collection Defendants as improper and unconscionable. The named Plaintiffs assert that they "represent a cross-section of consumers injured by the Defendants' billing and collection practices." (Plaintiffs Brief at 14.) Some of the named Plaintiffs have private health insurance plans, while others are covered by Medicare Part B.

In addressing the motion to dismiss, Judge Lifland summarized Plaintiffs' claims as follows:

In the Complaint, Plaintiffs allege that the Defendants injured the Plaintiffs and the Class in three ways: (1) by subjecting Plaintiffs to "Defendants unlawful and repetitive demands to pay debts for laboratory testing not owed or in amounts above the actual amount owed"; (2) by forcing the Plaintiffs "to endure deceptive, misleading, abusive and fraudulent debt collection practices and threats to their credit ratings, records, scores and reports; and (3) by demanding and collecting monies from "some Plaintiffs and many class members... that were not owed or in amounts above the amount owed[.]"....

Plaintiffs specifically allege that "Quest has routinely violated their provider agreements by billing and collecting or attempting to collect monies from insured individuals and their insurance providers for the entire amount of the same services ("Balance Billing"), billing and collecting or attempting to collect monies from both the health insurance providers and insured individuals ("Double Billing"), billing and collecting or attempting to collect monies from insured individuals for services in an amount above the rates and prices agreed in the provider agreements ("Over Billing") and billing and collecting or attempting to collect monies not owed by insured or individuals ("False Billing"). Compl. at ¶ 61. Plaintiffs further allege that "Quest provides knowingly and/or recklessly false information to debt collection agencies employed and retained by Quest to wrongfully, deceptively and unconscionably collect and attempt to collect non-existent debts from insured consumers." Id. at ¶ 66.....

According to Plaintiffs, the Debt Collector Defendants collect debts that they "know or should know are not owed by consumers" and they "unfairly, deceptively and unconscionably abuse[] and harass[] individuals to pay monies purportedly owed to Quest, but which are in fact not owed." Id. at ¶ 68. Plaintiffs further allege that "[a]ll Defendants acted jointly and severally as a common enterprise and association-in-fact controlled by Quest, are affiliated with the RICO enterprise alleged herein, and participated in furtherance of the scheme described herein to commit the unlawful acts and practices alleged herein." Id. at ¶ 42. (Memorandum and Order, Docket Item 49, at 2-5.)

In support of the motion for class certification, Plaintiffs have submitted a declaration of Dr. Thomas McGuire, Professor of Health and Economics in the Department of Health Care Policy at Harvard Medical School. (McGuire Dec. at ¶ 1.) Dr. McGuire purports to be an expert in the field of health care economics, and Plaintiffs retained Dr. McGuire to "review and evaluate the likelihood that alleged activities of the Defendants had a common impact on the Class and the [four] Subclasses[,]... to evaluate the feasability of establishing a class-wide approach to analyzing the impact of Defendant's practices[,]... to identify[, for those subclasses seeking damages,] the possible methods for measuring damages on a class wide basis[,]... and to assess Quest's challenged billing practices in light of billing practices between managed care providers." (Id. at ¶ 9.) Dr. McGuire concluded that, "virtually all[] of Quest's agreements with insurance providers contain hold-harmless provisions, consumers covered by such agreements were harmed if Quest billed them for any amounts other than those provided on an Explanation of Benefits (EOB) or after receiving an insurance denial not based on a substantive adjudication of the claim form submitted by their insurance provider," therefore, "class-wide analysis is feasible and is the most efficient and effective way of analyzing and measuring damages." (Id. at ¶¶ 14, 15.)

A. Facts Particular to CCS

Only one of the named Plaintiffs, Mark Smaller, asserts claims against CCS. In Plaintiffs' Reply Brief in support of the motion, Mr. Smaller is identified as a member of the purported Class, as well as the Equitable Remedy and Debtor Subclasses. Plaintiffs allege that CCS has engaged in "double billing (billing after full payment), over billing (billing above contract rate), and false billing." (Plaintiffs' Reply Brief at 39; Amended Complaint at ¶¶ 24, 25). Plaintiffs further contend that CCS, along with Quest and the remaining DCDs, acted as a member of the alleged RICO conspiracy. (Plaintiffs' Reply Brief at 40.)

CCS argues in its brief in opposition to the motion for class certification that the Class should not be certified against CCS because "the sole putative representative plaintiff, Mark Smaller, does not possess the claim which he seeks to assert [on] behalf of the putative class." (CCS Brief at 9.)

III. DISCUSSION

A. General Requirements for Class Certification

Rule 23 of the Federal Rules of Civil Procedure ("Rule 23") sets forth a two-pronged standard for class certification. To obtain class action certification, Plaintiffs must establish that all four prerequisites of Rule 23(a) are met and must also qualify under the one of the three sections of Rule 23(b). Baby Neal, for and by Kanter v. Casey, 43 F.3d 48, 55 (3d Cir. 1994). Rule 23(a) requires a showing of: (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation. See Fed. R. Civ. P. 23(a). To meet the requirements of Rule 23(b), of which (b)(2) and (b)(3) are applicable in this litigation, the Court must determine that:

(2) the party opposing class certification has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole. or

(3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include:

(A) the class members' interests in individually controlling the prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;

(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and

(D) the likely difficulties in managing a class action.

Fed. R. Civ. P. 23(b). Plaintiffs are seeking certification of the general Class under Rule 23(b)(2) and of the defined Subclasses under Rule 23(b)(2) and (b)(3).*fn4

Class certification is appropriate only "if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23 are met." In Re Hydrogen Peroxide, 552 F.3d 305, 309 (3d Cir. 2008) (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161 (1982)) (quotations omitted). In deciding whether to certify a class, a Court must make a thorough examination of the factual and legal allegations involved in the complaint. Newton v. Merrill Lynch, Pierce, Fenner & Smith, 259 F.3d 154, 166 (3d Cir. 2001) (citing Barnes v. Am. Tobacco Co., 161 F.3d 127, 140 (3d Cir. 1998). "It may be necessary for the court to probe behind the pleadings before coming to rest on the certification question." Newton, 259 F.3d at 166 (quoting Gen. Tel Co. of Sw., 457 U.S. at 160). "The decision to certify a class calls for findings by the court, not merely a threshold showing by a party, that each requirement of Rule 23 is met." Hydrogen Peroxide, 552 F.3d at 306. Indeed, class certification determinations require that a court "resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits - including disputes touching on elements of the cause of action." Id. Even at the certification stage, a court may "consider the substantive elements of the plaintiffs' case in order to envision the form that a trial on those issues would take." Id. at 8. In determining what a trial will look like, a Court should make its own independent findings and need not afford plaintiff's claims any deference. Id., n.18 (rejecting its previous statement in Chiang v. Veneman, 385 F.3d 256, 262 (3d Cir. 2004), that "in determining whether a class will be certified, the substantive allegations of the complaint must be taken as true.").

B. Requirements for Certification Under Rule 23(b)(2)

Plaintiffs seek certification of the proposed Class and the Refund Interest and Equitable Remedy Subclasses pursuant to Rule 23(b)(2), which provides that an action may be maintained as a class action where "the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate with respect to the class as a whole." Fed. R. Civ. P. 23(b)(2). In Baby Neal v. Casey, the Third Circuit stated that the requirements of Rule 23(b)(2) are "almost automatically satisfied in actions primarily seeking injunctive relief.... What is important is that the relief sought by the named plaintiffs should benefit the entire class." 43 F.3d 48, 58-59 (3d Cir. 1994). Unlike certification pursuant to Rule 23(b)(3), there are no predominance or superiority requirements for Rule 23(b)(2) certification. However, courts in the Third Circuit have consistently held that Rule 23(b)(2) class claims must be "cohesive." Barnes v. Am. Tobacco Co., 161 F.3d 127, 143 (3d Cir. 1998); Wetzel v. Liberty Mut. Ins. Co., 508 F.2d 239, 248 (3d Cir. 1975); In re Unisys Corp. Retiree Medical Benefits Litig., 2003 WL 252106, at *3 (E.D.Pa. Feb. 4, 2003).

In Barnes v. American Tobacco Co., the Third Circuit explained that the cohesiveness required for certification of 23(b)(3) classes, as articulated by the Supreme Court in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 623 (1997) ("Amchem"), applies equally, if not more so, to prospective 23(b)(2) classes. Barnes, 161 F.3d at 142-43. The Third Circuit noted two reasons why courts must determine whether a proposed (b)(2) class is cohesive before certifying the class. "First, unnamed members with valid individual claims are bound by the action without the opportunity to withdraw and may be prejudiced by a negative judgment in the class action." Id. at 143 (citing Santiago v. City of Philadelphia, 72 F.R.D. 619, 628 (E.D.Pa.1976)). "[T]he court must ensure that significant individual issues do not pervade the entire action because it would be unjust to bind absent class members to a negative decision where the class representatives's (sic) claims present different individual issues than the claims of the absent members present." Id. "Indeed, a(b)(2) class may require more cohesiveness than a(b)(3) class... because in a (b)(2) action, unnamed members are bound by the action without the opportunity to opt out." Id. at 142-43. Second, "the suit could become unmanageable and little value would be gained in proceeding as a class action... if significant individual issues were to arise consistently." Id. at 143 (quoting Santiago, 72 F.R.D. at 628).

Accordingly, to protect the interests of absent class members and to promote the efficient litigation of class actions, the Third Circuit has "committed to the district court the discretion to deny certification in Rule 23(b)(2) cases in the presence of 'disparate factual circumstances.'" Geraghty v. United States Parole Comm'n, 719 F.2d 1199, 1205-06 (3d Cir. 1983) (quoting Carter v. Butz, 479 F.2d 1084, 1089 (3d Cir. 1973)). Therefore, "Rule 23(b)(2) may not be invoked in a case requiring 'significant individual liability or defense issues which would require separate hearings for each class member in order to establish defendants' liability.'" Arch v. American Tobacco Co., Inc., 175 F.R.D. 469, 482 (E.D.Pa. 1997) (quoting Santiago, 72 F.R.D. at 627). In addition, variation among the laws of the underlying jurisdictions creates an equally compelling reason to deny certification. Courts routinely refuse to certify proposed classes under 23(b)(2) where there is significant variation in the statutory and common law elements of the claims alleged by the class. See, e.g., Lemon v. Int'l Union of Operating Engineers, 216 F.3d 577, 580 (7th Cir. 2000); Sanders v. Johnson & Johnson, Inc., 2006 WL 1541033, at *10 (D.N.J. June 2, 2006); In re Propulsid Prod. Liab. Litig., 208 F.R.D. 133, 147 (E.D. La. 2003); Clay v. American Tobacco Co., 188 F.R.D. 483, 495 (D.C. Ill. 1999).

C. Plaintiffs' Arguments in Support of Class Certification

Plaintiffs bring eight causes of action on behalf of the proposed Class under federal and state law. Specifically, their claims consist of alleged violations of: (1) RICO; (2) the FDCPA; (3) ERISA; (4) the NJCFA; (5) the consumer protection laws of states other than New Jersey; (6) common law breach of contract; (7) unjust enrichment; and (8) common law fraud. (Amended Complaint ¶¶ 142-202.) Plaintiffs seek declaratory and injunctive relief barring the following nine (9) billing practices:

(1) Billing Class members prior to receiving a response from their participating insurance providers or TPAs;

(2) Billing Class members based upon an insurance denial indicating incorrect patient date of birth, gender or relationship of the patient to the insured;

(3) Billing Class members when the insurance provider or TPA responded to only part of the claim made by Quest;

(4) Billing Class members based upon an insurance denial indicating incorrect Insurance/Policy ID or Group Number for failure to recognize the insured;

(5) Billing Class members when Quest used the wrong address for the insurance provider or TPA;

(6) Billing Class members upon an insurance denial indicating the wrong employer name for the patient;

(7) Billing Class members upon an insurance denial indicating that the patient has participating primary insurance;

(8) Billing Class members upon an insurance denial indicating that a diagnosis or CPT code is required; and

(9) Billing Medicare Part B participants or beneficiaries when Quest does not have both an ABN signed by the patient [sic] an EOB from Medicare or its administrator assigning patient responsibility.

(Plaintiffs' Brief at 26-27.) Underlying each of Plaintiffs' claims is the allegation that the Defendants have acted in contravention of the contractual hold harmless provisions contained in prospective plaintiffs' insurance plans and of the statutory hold harmless rules imposed by Medicare Part B and the laws of various jurisdictions. (Plaintiffs' Brief at 2-3.)

Plaintiffs assert five distinct arguments in support of certifying the proposed Class under Rule 23(b)(2). First, they argue that certification is appropriate because they are primarily seeking equitable relief.*fn5 Because the Court reaches its decision on alternative grounds, it expressly declines to address the question of whether Plaintiffs primarily seek equitable relief with respect to the Class and the Refund Interest and Equitable Remedy Subclasses. Secondly, Plaintiffs insist that the hold harmless laws and contractual provisions governing Defendants' conduct are substantially uniform, making classwide liability determinations manageable. Third, they suggest that the Court should follow the lead of the New York Attorney General and various courts by finding unlawful the billing practices allegedly employed by Quest and the DCDs. Fourth, Plaintiffs claim that the Class claims are amenable to classwide proof of damages, making certification appropriate. And finally, Plaintiffs aver that class cohesiveness is unnecessary under Rule 23(b)(2) because they have offered evidence that Quest and the DCDs have acted on grounds generally applicable to the Class as a whole.

Defendants dispute Plaintiffs' arguments, contending that class certification is inappropriate because there are significant factual and legal variations among the claims of prospective Class members. Defendants contend that these variations require individual inquiry by the Court in order to determine their liability. (See Declaration of Dr. Zachary Dyckman ("Dyckman Dec.") ΒΆ 5 ("[I]t is simply not feasible to determine causation and injury, and hence liability, on a class-wide basis.").) Because a court would have to engage in a transaction-by-transaction analysis of the alleged ...


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