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Sargese v. Horizon Healthcare Services, Inc.

Superior Court of New Jersey, Appellate Division

June 11, 2013



Argued January 14, 2013

On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-0173-11.

James P. Flynn argued the cause for the appellants (Epstein Becker & Green, P.C., attorneys; Mr. Flynn and Amy E. Hatcher, on the briefs).

Bruce D. Greenberg argued the cause for respondents (Lite DePalma Greenberg, L.L.C., attorneys; Mr. Greenberg and Susana Cruz-Hodge, on the brief).

Jeffrey S. Chiesa, Attorney General, attorney for amicus curiae State Health Benefits Commission (Melissa H. Raksa, Assistant Attorney General, of counsel; Danielle P. Schimmel, Deputy Attorney General, on the brief).

Before Judges Espinosa and Guadagno.


By leave granted by the Supreme Court, defendants Horizon Healthcare Services, Inc. (Horizon) and Magellan Health

Services, Inc. (Magellan), appeal the November 18, 2011 order of the Chancery Division, Essex County denying defendants' motion to dismiss the complaint filed by the New Jersey Psychological Association (NJPA) and two patients covered by the New Jersey State Health Benefits Program (SHBP). Because the Essex court failed to grant preclusive effect to a determination made by a court of concurrent jurisdiction that NJPA lacked standing in an action that raised the same substantive claims, and because the patient plaintiffs failed to exhaust their administrative remedies, we reverse and remand for dismissal of the complaint.


NJPA is a private, non-profit, professional association representing approximately 2100 active and retired psychologists located throughout New Jersey. On October 29, 2010, NJPA and a member psychologist, Barry L. Helfmann, filed a declaratory judgment complaint in the Chancery Division, Mercer County (NJPA I), naming Horizon, Magellan and the State Health Benefits Commission (Commission) as defendants. Plaintiffs in NJPA I sought a declaration that Horizon and Magellan violated the New Jersey Practicing Psychology Licensing Act (PPLA), N.J.S.A. 45:14B-1 to -46, by engaging in a practice "requiring psychologists to disclose confidential patient treatment information in connection with the initial precertification process and/or the process for authorizing continuing treatment or approving payment for mental health benefits." N.J.S.A. 45:14B-28. The complaint also alleged that defendants' conduct breached the Commission's policy requiring only minimum necessary disclosures when making treatment and payment decisions. Plaintiffs claimed that they were bringing the action as parties in interest, pursuant to N.J.S.A. 2A:16-53. Defendants filed a motion to dismiss, claiming plaintiffs lacked standing.

On January 31, 2011, after hearing oral argument, the Mercer judge found that NJPA had not "shown any actual injury, certainly to itself as an association" and that "third party standing should not be accorded to parties in a breach of contract situation where the parties are not . . . parties to the contract." The court entered an order dismissing plaintiffs' complaint finding that "neither the [NJPA] nor Dr. Helfmann has standing to bring the claims that were set forth in [the] complaint."

Plaintiffs filed notice of appeal on March 9, 2011, then apparently reconsidered this course of action. On June 13, 2011, plaintiffs withdrew their appeal and on July 19, 2011, NJPA filed a second declaratory judgment complaint, this time in the Chancery Division, Essex County (NJPA II). The complaint in NJPA II added two patients as plaintiffs, Steven Sargese and Maryanne Krenz, but named only Horizon and Magellan as defendants, not the Commission. Dr. Helfmann was not a party to NJPA II.

Sargese was a member of the SHBP, which provides health insurance to state employees. He claims that he was denied treatment because he refused to provide confidential information protected under N.J.S.A. 45:14B-28. In March 2009, Sargese sought mental health treatment. His treating psychologist completed the forms required by defendant, Magellan, and requested authorization for a treatment plan consisting of two sessions per week of seventy-five minutes each. Magellan did not immediately approve the treatment plan and requested that Sargese's treating psychologist submit to a clinical review by a psychiatrist. During this review, Magellan sought additional treatment records pertaining to the underlying cause of Sargese's mental health issues and whether Sargese was taking medication. Sargese did not consent to the release of this information and his treating psychologist would not disclose it. Magellan ultimately denied the psychologist's treatment request and approved only one session per week.

After Sargese filed an internal appeal, [1] Magellan amended its authorization to allow two therapy sessions per week of forty-five to fifty minutes each for four weeks and then one forty-five to fifty minute therapy session per week for the next eight weeks. Sargese underwent the treatment plan recommended by his psychologist and paid for the additional sessions himself.

Maryanne Krenz was also a member of the SHBP and participated in the N.J. Direct plan. Krenz claims she was denied treatment based on her refusal to provide confidential information. Specifically, Krenz had been receiving ongoing care from a psychologist for a mental health condition. Initially, Krenz attended two individual therapy sessions per week authorized by Magellan, based on treatment request forms submitted by Krenz's treating psychologist. In 2010, the authorization was reduced to one session per week. Krenz's psychologist was asked to submit to clinical reviews and additional information was sought. Krenz's psychologist refused to provide the information, and Magellan denied the request to reimburse for the additional visits. Krenz and her treating psychologist submitted Level 1 and Level 2 internal appeals. Magellan requested additional information but Krenz felt the information sought was confidential and refused to disclose it. Magellan then denied Krenz's appeals as well as her request for additional therapy sessions. Krenz failed to exercise her right to appeal the Level 1 and Level 2 denials to the Commission.

The NJPA II complaint sought identical relief as the complaint in NJPA I. However, the PPLA claim was brought on behalf of all plaintiffs, while the breach of contract claim was brought on behalf of only the patient plaintiffs.

On September 8, 2011, defendants filed a motion to dismiss, claiming lack of standing, collateral estoppel, failure to exhaust administrative remedies, failure to state a claim and failure to join the Commission as an indispensable party. The Essex court ...

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