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Dameron Hospital Association v. Premera Blue Cross

September 11, 2009

DAMERON HOSPITAL ASSOCIATION, PLAINTIFF,
v.
PREMERA BLUE CROSS, ET AL., DEFENDANTS.



ORDER AND FINDINGS AND RECOMMENDATIONS

This matter came before the court on February 6, 2009, for hearing of plaintiff's motions for default judgment against defendants David Martinez, Margaret Lee, Jayson Untalan, and Zarghoona Karimi. (Doc. Nos. 314, 315, 317 & 318). Gregory M. Hatton and John A. McMahon appeared on behalf of plaintiff. No appearance was made by or for the defendants.

Upon hearing argument, the court requested a written report concerning the status of defendants and a supplemental brief addressing specific matters. Plaintiff filed a status report on February 10, 2009, and a supplemental brief on February 13, 2009, whereupon the four motions were submitted for decision. After hearing oral argument and after considering all written materials submitted in connection with plaintiff's motions, for the reasons set forth below, the undersigned recommends that the motions be granted and that default judgment be entered against defendants Martinez, Lee, Untalan, and Karimi.

BACKGROUND

Plaintiff Dameron Hospital Association, a California non-profit association, is a hospital located in Stockton, California. Defendants David Martinez, Margaret Lee, Jayson Untalan, and Zarghoona Karimi are patients who received hospital care at Dameron Hospital. Each defendant was treated as an "out of network" patient and, as such, each was responsible for satisfying all of the hospital's unpaid billed charges for hospital care rendered to him or her. Despite the fact that each defendant received payment of some amount from his or her health insurer for the hospital care rendered by Dameron Hospital, each defendant failed to remit any of those funds to Dameron Hospital and otherwise failed to pay his or her hospital bill.

Plaintiff initially brought this action against numerous corporate defendants for the purpose of collecting the unpaid hospital bills for services provided to more than twenty-five patients. The case was filed in the San Joaquin County Superior Court on June 22, 2007, and was removed to the United States District Court for the Eastern District of California on August 31, 2007. Removal was grounded on jurisdiction arising under ERISA. By a First Amended Complaint filed on November 20, 2007 (Doc. No. 47), plaintiff joined additional defendants, including defendants David Martinez and Margaret Lee. Pursuant to the parties' stipulation and the court's order filed April 11, 2008 , plaintiff filed a Second Amended Complaint on May 1, 2008 (Doc. No. 177). Once again, new defendants were joined, including defendants Jason Untalan and Zarghoona Karimi. As the litigation proceeded, plaintiff reached settlement agreements with many defendants and those defendants were voluntarily dismissed. As of May 12, 2009, defendants Martinez, Lee, Untalan, and Karimi were the sole remaining defendants.

Although service of process was effected on defendants Martinez, Lee, Untalan, and Karimi, each defendant failed to appear in this action. On October 27, 2008, plaintiff requested entry of default as to defendants Untalan and Karimi. (Doc. Nos. 286 & 287.) The Clerk entered default against defendants Untalan and Karimi on October 28, 2008. (Doc. Nos. 288 & 289.) On October 28, 2008, plaintiff requested entry of default as to defendants Lee and Martinez. (Doc. Nos. 291 & 292.) The Clerk entered default against defendant Lee on October 29, 2008 (Doc. No. 294) and against defendant Martinez on October 30, 2008 (Doc. No. 296). On December 31, 2008, plaintiff filed its motions for default judgment against defendants Martinez, Lee, Untalan, and Karimi. (Doc. Nos. 314, 315, 317 & 318.) Each motion includes proof of service on the defendant.

LEGAL STANDARDS

Federal Rule of Civil Procedure 55(b)(2) governs applications to the court for entry of default judgment. Upon entry of default, the complaint's factual allegations regarding liability are taken as true, while allegations regarding the amount of damages must be proven. Dundee Cement Co. v. Howard Pipe & Concrete Prods., 722 F.2d 1319, 1323 (7th Cir. 1983) (citing Pope v. United States, 323 U.S. 1 (1944); Geddes v. United Fin. Group, 559 F.2d 557 (9th Cir. 1977)); see also TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987).

Where damages are liquidated, i.e., capable of ascertainment from definite figures contained in documentary evidence or in detailed affidavits, judgment by default may be entered without a damages hearing. Dundee, 722 F.2d at 1323. Unliquidated and punitive damages, however, require "proving up" at an evidentiary hearing or through other means. Dundee, 722 F.2d at 1323-24; see also James v. Frame, 6 F.3d 307, 310-11 (5th Cir. 1993).

Granting or denying default judgment is within the court's sound discretion.

Draper v. Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986). The court is free to consider a variety of factors in exercising its discretion. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Among the factors that may be considered by the court are

(1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.

Eitel, 782 F.2d at 1471-72 (citing 6 Moore's Federal Practice ¶ 55-05[2], at 55-24 to 55-26).

ANALYSIS

I. Whether Default Judgment Should Be Entered

The factual allegations of plaintiff's second amended complaint, taken as true pursuant to the entry of defaults against defendants Martinez, Lee, Untalan, and Karimi, establish the following circumstances: (1) defendant Martinez entered into a valid, enforceable, and binding written Conditions of Admission contract with plaintiff on December 1, 2005, was admitted to Dameron Hospital for medical care on December 2, 2005, was discharged on December 5, 2005, and incurred charges of $43,409, which is the outstanding balance on his account; (2) defendant Lee entered into a valid, enforceable, and binding written Conditions of Admission contract with plaintiff on July 24, 2007, was admitted to Dameron Hospital for medical care on July 25, 2007, was discharged on the same day, and incurred charges of $6,570, which is the outstanding balance on her account; (3) defendant Untalan entered into a valid, enforceable, and binding written Conditions of Admission contract with plaintiff on July 12, 2007, was admitted to Dameron Hospital for medical care on July 16, 2007, was discharged on the same day, and incurred charges of $36, 427, which is the outstanding balance on his account; (4) defendant Karimi entered into a valid, enforceable, and binding written Conditions of Admission contract with plaintiff on September 22, 2007, was admitted to Dameron Hospital for medical care on September 22, 2007, was discharged on September 24, 2007, incurred charges of $12,798, paid $598 to plaintiff, leaving an outstanding balance of $12,200 on her account; (5) under the parties' contracts, plaintiff agreed to provide medical care, and each defendant agreed to pay plaintiff the billed charges, less any amount paid to plaintiff by the defendant's health insurer; (6) plaintiff performed all of its obligations under the contracts; (7) plaintiff sent each defendant a hospital bill after the defendant's health insurer processed payment on the defendant's claim; (8) each defendant breached the contract by refusing and failing to pay the billed charges; (9) plaintiff has been damaged by each defendant's breach of contract in the sum of the full billed charges minus any amounts for which plaintiff has been compensated by the defendant or the defendant's health insurer; (10) plaintiff is entitled to an award of attorney fees and costs pursuant to the terms of the Conditions of Admission contracts; and (11) plaintiff is entitled to an award of prejudgment interest. (Pl.'s Second Amended Compl. ¶¶ 34-54, 83-96, 117, 120, 124, 193-99 & Exs. A & B.)

Plaintiff's second amended complaint and summons were personally served on defendant Karimi on June 7, 2008 (Doc. No. 233), on defendant Untalan on June 9, 2008 (Doc. No. 231), and on defendant Lee on August 29, 2008 (Doc. No. 266). The undersigned finds that these three defendants were properly served with the second amended complaint and that the Clerk properly entered the default of these defendants.

Plaintiff's second amended complaint and summons were served several times on defendant Martinez by mail sent to his last known address, which was the address where he had been personally served with plaintiff's first amended complaint and summons on February 25, 2008. (Pl.'s Request for Entry of Default of Def't Martinez (Doc. No. 292), Decl. of John A. McMahon in Supp. of Request ¶ 5 & Exs. A & B.) Plaintiff has presented evidence that diligent efforts were made to serve the second amended complaint and summons on defendant Martinez by personal delivery, and extensive efforts were made to locate a new address for plaintiff. (Id.)

Federal Rule of Civil Procedure 5, which governs the service and filing of pleadings and other papers, provides that "[n]o service is required on a party who is in default for failing to appear," except that "a pleading that asserts a new claim for relief against such a party must be served on that party under Rule 4." Fed. R. Civ. P. 5(a)(2). Plaintiff's first amended complaint was personally served on defendant Martinez on February 25, 2008, under Rule 4. Defendant Martinez did not appear and defend against the first amended complaint and was in default when plaintiff's second amended complaint was filed on May 1, 2008. A comparison of the pleadings reflects that the same facts are alleged against defendant Martinez in both of them. (Compare First Amended Compl. (Doc. No. 47) ¶¶ 39-49 & 122 with Second Amended Compl. (Doc. No. 177) ¶¶ 34-41 & 117.) The breach of contract claim at issue in the pending motion for default judgment is identically alleged against plan enrollees, including defendant Martinez, in both pleadings, as the seventh cause of action in the first amended complaint and as the eighth cause of action in the second amended complaint, and the relief sought on that cause of action is the same in both pleadings. (Compare First Amended Compl. ¶¶ 183-191 & 198 with Second Amended Compl. ¶¶ 191-99 & 207.)

Plaintiff's second amended complaint superseded his first amended complaint. See Loux v. Rhay, 375 F.2d 55, 57 (9th Cir. 1967) ("The amended complaint supersedes the original, the latter being treated thereafter as non-existent."); Bullen v. De Bretteville, 239 F.2d 824 (9th Cir. 1956) ("It is hornbook law that an amended pleading supersedes the original, the latter being treated thereafter as non-existent."). Plaintiff's service of the second amended complaint on defendant Martinez pursuant to Rule 5 constitutes sufficient service because the defendant had been personally served with the first amended complaint and was in default with respect to that pleading. The second amended complaint does not assert a new claim for relief against defendant Martinez such that he must be served under Rule 4.

Accordingly, the undersigned finds that all four defendants were properly served with plaintiff's second amended complaint, and their defaults were properly entered by the Clerk of the Court. Defendants were also served with plaintiff's requests for entry of default and plaintiff's motions for default judgment. Despite being served with all papers filed in connection with plaintiff's requests for entry of default and its motions for default judgment, defendants Martinez, Lee, Untalan, and Karimi failed to respond to plaintiff's second amended complaint, to plaintiff's requests for entry of default, or to plaintiff's motions for default judgment. Nor did any defendant appear at the hearing on plaintiff's motions. The four defendants have failed to participate in this action in any way.

After weighing the Eitel factors, the undersigned finds that the material allegations of the second amended complaint support plaintiff's claims. Plaintiff will be prejudiced if default judgment is denied as to these defendants because plaintiff has already litigated claims against defendants' insurers, employee benefit plans, and/or benefit plan sponsors and has entered into settlements with those parties where possible. It is not surprising that settlements were not possible in all cases, in that the defendants' insurers had already provided the individual defendants with funds for payment of their hospital bills. Plaintiff has no other recourse for recovery of the damages suffered due to the four defendants' failure to pay their hospital bills.

In light of the entry of default against the four defendants, there is no apparent possibility of a dispute concerning the material facts underlying the action. Nor is there any indication that any defendant's default resulted from excusable neglect, as each defendant was properly served with one or more of plaintiff's pleadings as well as with plaintiff's request for entry of default and motion ...


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