Cent. Valley AG Coop. v. Daniel K. Leonard, Susan Leonard, the Benefit Grp., Inc.

CENTRAL VALLEY AG COOPERATIVE,and CENTRAL VALLEY AG COOPERATIVE HEALTH CARE PLAN, Plaintiffs, v. DANIEL K. LEONARD, SUSAN LEONARD, THE BENEFIT GROUP,INC., ANASAZI MEDICAL PAYMENT SOLUTIONS, INC., CLAIMS DELEGATE SERVICES, LLC,LINUS G. HUMPAL, and GMS BENEFITS, INC., Defendants.

8:17CV379

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEBRASKA

October 26, 2017

MEMORANDUM AND ORDER

This matter is before the Court on the Motion for Temporary Restraining Order and for an Order to Show Cause Why a Preliminary Injunction Should Not Be Granted, ECF No. 3, filed by Plaintiffs Central Valley Ag Cooperative (Central Valley), and Central Valley Ag Cooperative Health Care Plan (the Plan). Also before the Court is Plaintiffs' Motion for Hearing Regarding Temporary Restraining Order, ECF No. 26.

The Court held an evidentiary hearing on Plaintiffs' Motion for Temporary Restraining Order (TRO) on October 17, 2017. All parties were represented. Plaintiffs submitted a brief, ECF No. 3-1, and evidence, ECF Nos. 4, 18, before the hearing. Defendants Anasazi Medical Payment Solutions, Inc. (AMPS), and its subsidiary Claims Delegate Services, LLC (Claims Delegate), also submitted evidence before the hearing. ECF No. 19. Defendants Linus G. Humpal and The Benefit Group, Inc. (the Claims Administrator), submitted a brief, ECF No. 22, and evidence, ECF No. 21. At the hearing, Plaintiffs offered further evidence that lacked proper foundation and was not received. No other party offered further evidence. For the reasons stated below, the Motion for TRO will be denied, and the Court concludes that no further hearing for preliminary injunctive relief is warranted at this time.

BACKGROUND

1. The Parties

The Plan is a self-funded group health and disability plan, governed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461, administered by Central Valley. The Plan identifies Central Valley as its primary fiduciary under ERISA. ECF No. 21-1, Page ID 354, 448.

Defendant Humpal is the President of the Claims Administrator, with whom Central Valley contracted to perform certain administrative services related to the Plan, including processing of claims. The relationship between Central Valley and the Claims Administrator was governed by an Administrative Services Agreement, see ECF No. 21-3, Page ID 484, that delineated the Claims Administrator's services and set the fees for its services.

The Plan designated Claims Delegate as a Plan fiduciary for purposes related to hospital and facility claims, see ECF No. 21-1, Page ID 354, stating that Claims Delegate would review and make benefit determinations on all post-service hospital and facility claims. AMPS, Claims Delegate, the Claims Administrator, Central Valley, and the Plan entered into an Referenced Based Reimbursement (RBR) Services Agreement that defined the duties of AMPS and Claims Delegate with respect to the Plan.

Defendants Daniel K. Leonard, Susan Leonard, and GMS Health Benefits, Inc. (collectively Brokers), brokered the initial agreements between the Plaintiffs and the Claims Administrator. Counsel for the Brokers represented that this was the extent of the Brokers' relationship with the Plaintiffs.

2. Timeline of Events

According to Plan documents, the Plan went into effect on January 1, 2013. ECF No. 21-1, Page ID 448. AMPS, Claims Delegate, the Claims Administrator, Central Valley, and the Plan entered into the RBR Services Agreement effective January 1, 2016. ECF No. 4-1, Page ID 76. Central Valley and the Claims Administrator also entered into the Administrative Services Agreement, effective January 1, 2016. Plaintiffs allege that shortly after Claims Delegate's retention, claims payments to health care providers under the Plan virtually ceased. Providers complained the Plan was not paying them for services rendered to Plan participants, and Plan participants were subjected to collection efforts by physicians and other providers. Several providers refused to render further services to Plan participants, their spouses, and their dependents. Plaintiffs allege the Plan also lost benefits from its stop-loss insurance carrier due to the extended claim disputes.

On May 19, 2016, Nebraska Methodist Hospital filed a lawsuit captioned The Nebraska Methodist Hospital et al. v. Cooperative Producers Inc. Group Benefit Plan et al., Case No. CI 16-4230, in the District Court of Douglas County, Nebraska (the "Nebraska Methodist Lawsuit"). At issue in that lawsuit are claims submitted to the Plan. A similar lawsuit has been pending in the District Court of Douglas County, Nebraska, since 2015. On November 28, 2016, counsel for AMPS, Claims Delegate, and the Claims Administrator contacted counsel for Central Valley to answer questions about the Nebraska Methodist Lawsuit. On June 21, 2017, counsel for AMPS, the Claims Delegate, and the Claims Administrator issued a report on the Nebraska Methodist Lawsuit to Carl Dickinson, Central Valley's CEO. Counsel issued a follow-up report to Dickinson on October 3, 2017. Neither Dickinson nor any agent or representative of Central Valley responded to the reports.

On January 1, 2017, Central Valley terminated the Administrative Services Agreement with the Claims Administrator. However, Central Valley asked the Claims Administrator to handle claims for health care services provided before January 1, 2017, during what the parties refer to as a "run-out period," lasting through September 30, 2017. On October 2, 2017, Central Valley and the Claims Administrator extended their Run-Out Services Agreement, through December 31, 2017. ECF No. 21-1, Page ID 451.

On October 11, 2017, Plaintiffs filed this lawsuit and their Motion for Temporary Restraining Order. ECF Nos. 1, 3. Plaintiffs allege that the Defendants breached their fiduciary duty to the Plan. Plaintiffs also allege that Defendants engaged in a criminal enterprise, in violation of the Racketeer Influenced Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. Plaintiffs seek to recover Plan assets; to acquire restitution for lost Plan assets resulting from Defendants' actions in breach of fiduciary duties; to receive payment for damages arising from prohibited and party-in-interest transactions; and to receive damages for Defendants' RICO violations.

3. Request for Injunctive Relief

In their Motion, Plaintiffs request a TRO and preliminary injunction with the following provisions:

1. Order to prohibit Defendants from exercising any power or authority over any bank accounts containing Plan assets;

2. Order to enjoin each Defendant from performing any services on behalf of CVA, the Plan, or Plan participants;

3. Order to Prohibit Defendants from representing CVA and the Plan in any litigation, including Nebraska Methodist Hospital, et. al. v. Cooperative Producers, Inc. Group Benefit Plan, et. al., Case No. CI 16-4230, District Court of Douglas County, Nebraska;

4. Order to expedite discovery;

5. Order that Bill Kenedy and Taylor Pugh of Lutz accounting firm will immediately commence a forensic audit of the Plan's monetary transactions (including medical claims payments) at Defendants' cost and that Defendants shall cooperate with such forensic audit;

6. Order to Compel Defendants to immediately provide all documents listed in Exhibit 4 to the forensic auditor as per paragraph 5;

7. Order that such forensic audit be presented to this Court for review and approval;

8. Order that Robert M. Slovek, Kutak Rock LLP, be appointed as counsel for CVA and the Plan to represent these Plaintiffs in the Nebraska Methodist litigation; to identify and appropriately direct payment of outstanding and unresolved participant claims from Plan Years 2015 and 2016; to negotiate stop-loss insurance coverage with regard to these claims; and, to take whatever further action is necessary to resolve Plan administration issues for these Plan Years;

9. Order that an expedited hearing on the preliminary injunction shall be had pursuant to Rule 65(b)(3), Fed. R. Civ. P., on a date and at a time set by the Court; and

10. Order that no security shall be required to be posted by Plaintiffs.

Motion, ECF No. 3, Page ID 49-50.

At the hearing, Plaintiffs did not oppose a consolidation of the TRO hearing and the request for preliminary injunction,¹ but Defendants did not consent to consolidation.

STANDARD OF REVIEW

Courts in the Eighth Circuit apply the factors set forth in Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc), when determining whether to issue a TRO or a preliminary injunction. See S.B. McLaughlin & Co., Ltd. v. Tudor Oaks Condo. Project, 877 F.2d 707, 708 (8th Cir. 1989) (approving the use of Dataphase factors for analyzing a TRO motion). Those factors are: "(1) the threat of irreparable harm to the movant; (2) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest." Dataphase, 640 F.2d at 114. "No single factor is determinative." WWP, Inc. v. Wounded Warriors, Inc., 566 F. Supp. 2d 970, 974 (D. Neb. 2008). The movant bears the burden of establishing the propriety of the TRO. See Roudachevski v. All-Am. Care Ctrs., Inc., 648 F.3d 701, 705 (8th Cir. 2011).

DISCUSSION

Some of Plaintiffs' requests are moot. They ask for an order prohibiting Defendants from representing Central Valley and the Plan in any litigation, including the Nebraska Methodist Lawsut. They also ask the Court to appoint Robert M. Slovek of Kutak Rock, LLP, as counsel for Central Valley and the Plan in the Nebraska Methodist Lawsuit. However, counsel for AMPS, Claims Delegate, and the Claims Administrator, already moved to withdraw in that action. See ECF Nos. 194, 19-5. Defendants' voluntary withdrawal moots these requests.

Plaintiffs' remaining requests also will be denied because Dataphase factors do not favor a TRO or preliminary injunction. "A...