Jou v. National Interstate Ins. Co. of Haw.

157 P.3d 561

Emerson M.F. JOU, M.D., And As To Some Claims, On Behalf Of The Class of Others Similarly Situated, Plaintiff-Appellant, v. NATIONAL INTERSTATE INSURANCE COMPANY OF HAWAII, A Corporation; ADP Integrated Medical Solutions, An Entity, Form Unknown; and Nelson B. Befitel, Director, Department of Labor, State of Hawaii, Defendants-Appellees, and John Doe 1 to 10; Doe Corporation 1 to 10; Doe Partnership 1 to 10; and Doe Governmental Entity 1 to 10, Defendants.

No. 26204.

Intermediate Court of Appeals of Hawai`i.

April 16, 2007.

Stephen M. Shaw, on the briefs, for Plaintiff-Appellant.

Kevin P.H. Sumida, James H. Monma (Matsui Chung Sumida & Tsuchiyama), Honolulu, on the briefs, for Defendant-Appellee, National Interstate Insurance Company of Hawaii and National Interstate Insurance Company.

Frances E.H. Lum, Robyn M. Kuwabe, Deputy Attorneys General, Department of the Attorney General, State of Hawaii, on the briefs, for Defendant-Appellee, Nelson B. Befitel, Director of Labor and Industrial Relations.

George W. Playdon, Jr., Kelvin H. Kaneshiro (Reinwald, O'Connor & Playdon LLP), Honolulu, on the briefs, for Defendant-Appellee, ADP Integrated Medical Solutions.

WATANABE, Presiding Judge, FOLEY, and NAKAMURA, JJ.

Opinion of the Court by NAKAMURA, J.

This case arises out of a $1,955.49 dispute between a physician and a workers' compensation insurance carrier over amounts billed for the treatment of an injured worker. Plaintiff-Appellant Emerson M.F. Jou, M.D., (Dr. Jou), who was doing business as Comprehensive Clinic of Rehabilitation Medicine, submitted bills to National Interstate Insurance Company (National) seeking payment for treatments provided to the worker. Defendant-Appellee ADP Integrated Medical Solutions (ADP) reviewed Dr. Jou's bills and recommended that National not pay the amounts charged for massage therapy because Dr. Jou did not have a massage establishment license. National paid Dr. Jou $340.40 for amounts he charged for office/outpatient visits but did not pay Dr. Jou the $1,955.49 he charged for massage therapy.

Dr. Jou filed a First Amended Complaint in Tort for Interference, Insurer Bad Faith, and Class Action (first amended complaint) against National's subsidiary, Defendant-Appellee National Interstate Insurance Company of Hawaii (National-Hawaii), ADP, and Defendant-Appellee Nelson B. Befitel, in his capacity as the Director of the Department of Labor and Industrial Relations for the State of Hawai`i (the Director). Dr. Jou sued National-Hawaii for the tort of insurer bad faith arising out of its refusal to pay his bills for massage therapy (Count 2-A) and requested an accounting or tracing of National-Hawaii's corporate structure (Count 8). He sued both National-Hawaii and ADP for tortious interference with contract or prospective business advantage (Counts 1 and 2), reckless supervision or hiring of employees or subsidiaries (Count 5), civil conspiracy (Count 6), and negligence (Count 7). Dr. Jou also sought class certification for all similarly situated medical providers in Hawai`i, who he claimed were third-party beneficiaries of workers' compensation insurance policies issued by National-Hawaii; a declaration that National-Hawaii and ADP have an obligation of good faith and fair dealing that extends to medical providers; and an injunction precluding National-Hawaii and ADP from violating this obligation (Counts 3 and 4). Finally, Dr. Jou sued the Director seeking a declaration that any rule promulgated by the Department of Labor and Industrial Relations (DLIR) that purports to require the exhaustion of administrative remedies before a suit in tort for insurer bad faith can be filed was invalid (Count 9).

The Circuit Court of the First Circuit (circuit court)¹ granted motions to dismiss the first amended complaint as against National and National-Hawaii, ADP, and the Director. With respect to the joint motion to dismiss filed by National and National-Hawaii, the circuit court granted the motion because the court concluded that Dr. Jou had failed to exhaust his administrative remedies prior to filing suit.² In dismissing for failure to exhaust administrative remedies, the circuit court focused on Dr. Jou's claim of insurer bad faith and treated his remaining claims as derivative of his bad faith claim. The circuit court also denied two motions for summary judgment filed by Dr. Jou.

Dr. Jou appeals from the Judgment filed on October 30, 2003, in the circuit court. The Judgment was entered against Dr. Jou and in favor of National, ADP, and the Director on all claims alleged in the first amended complaint. On appeal, Dr. Jou contends that the circuit court erred in: 1) granting National's motion to dismiss his bad faith tort claim for failure to exhaust his administrative remedies; 2) granting ADP's motion to dismiss his claims against ADP; 3) granting the Director's motion to dismiss Dr. Jou's claim for declaratory relief regarding the DLIR's administrative rules; and 4) denying both of Dr. Jou's motions for summary judgment. We affirm the Judgment.

BACKGROUND

I. Events Preceding Dr. Jou's Lawsuit

On April 6, 2000, Linda Miyake (Miyake) suffered a work-related injury while employed by Fantastic Sam's, a subsidiary of Fanfare Investments (Fanfare). Dr. Jou, who specializes in physical medicine, treated Miyake, and Dr. Jou's office provided Miyake with massage therapy from mid-April until late June of 2000. Dr. Jou subsequently submitted a bill for $2,295.53 to National, the workers' compensation insurance carrier for Fanfare. This bill was audited by ADP, which described itself as "an independent medical bill review company that compares medical bills to ... regulatory requirements (such as proper licensing for regulated services)." ADP recommended that National not pay Dr. Jou for the massage therapy services on the ground that he did not have a massage establishment license. National accordingly paid Dr. Jou only $340.04, the amount he billed for office/outpatient visits, and did not pay the $1,955.49 he billed for massage therapy.

On January 16, 2003, Dr. Jou submitted a letter to National demanding payment of the amounts he billed for massage therapy. In the letter, Dr. Jou advised National of a recent decision by the circuit court in a no-fault automobile insurance case that was favorable to his position that he did not need a massage establishment license in order to obtain payment for massage therapy.³

II. Procedural History in the Circuit Court

On January 31, 2003, two weeks after sending his demand letter, Dr. Jou filed a complaint (initial complaint) in the circuit court against National, ADP, and the Director. The first amended complaint followed shortly thereafter on February 13, 2003.

On March 7, 2003, ADP moved to dismiss the first amended complaint as against ADP, and on March 13, 2003, the Director moved to dismiss Count 9, the only count pertaining to the Director. After holding hearings on these motions, the circuit court, on April 23, 2003, filed orders dismissing the first amended complaint as against ADP and the Director.

On March 19, 2003, Dr. Jou filed a Motion for Summary Judgment (first MSJ) against National. On April 21, 2003, the circuit court held a hearing on this motion, and on May 7, 2003, the court entered an order denying Dr. Jou's first MSJ.

On April 25, 2003, Dr. Jou filed a second Motion for Summary Judgment (second MSJ) against National seeking "summary judgment, summary adjudication of issues, or orders compelling payment." Citing Hough v. Pacific Ins. Co., 83 Hawai`i 457, 927 P.2d 858 (1996), Dr. Jou argued that 1) the circuit court had original jurisdiction over his insurer bad faith claim and 2) exhaustion of administrative remedies was not required for this claim. On May 2, 2003, National filed a motion to dismiss the initial complaint. National characterized Dr. Jou's initial complaint as arising out of a "billing dispute" and argued, among other things, that: 1) the Director, and not the circuit court, had original jurisdiction over the subject matter of Dr. Jou's lawsuit; 2) Dr. Jou was required to exhaust his administrative remedies by presenting his billing dispute to the Director before filing suit; and 3) Dr. Jou was not an intended third-party beneficiary of the insurance contract between National and Fanfare (the injured worker's employer) and thus, Dr. Jou could not sue National in tort for bad faith.

On May 19, 2003, the circuit court held a hearing on Dr. Jou's second MSJ and National's motion to dismiss. At the hearing, the parties agreed that the court could consider their motions with respect to both the initial complaint and the first amended complaint. The circuit court did not decide whether Dr. Jou was entitled to sue on the theory of insurer bad faith, but it ruled on jurisdictional grounds that he had failed to exhaust administrative remedies prior to filing suit. The circuit court determined that Dr. Jou was required to exhaust his administrative remedies by obtaining a ruling from the Director on whether Dr. Jou was entitled to payment for the massage therapy services before Dr. Jou could raise a claim of insurer bad faith. The court treated the other claims Dr. Jou raised in his first amended complaint as derivative of his bad faith claim. The circuit court orally ruled as follows:

At this time the Court is going to grant the motion to dismiss on failure to exhaust administrative remedies. This Court does not have jurisdiction over this claim as of yet.

Hough is distinguishable. It dealt with a situation where Pacific was the work comp carrier for both potential employers, and it dealt with injuries outside the work injury.

We are still dealing with the work injury here. Whether or not Mr. Jou is entitled to payment under workers' compensation policy for services rendered to an employee, he needs to go through the administrative remedies first.

So at this time, the court is going...