EMERGENCY SERVICES OF OKLAHOMA PC PC PC PC v. UNITED HEALTHCARE INSURANCE COMPANY (2022)

ORDER

Before the Court is the Motion to Remand (“Motion”) filed by Plaintiffs Emergency Services of Oklahoma, P.C., Oklahoma Emergency Services P.C., South Central Emergency Services, P.C., and Emergency Physicians of Mid-America, P.C. (collectively, “Physicians”) [Doc. No. 27]. Defendants United Healthcare Insurance Company (“UHIC”), United HealthCare Services, Inc. (“UHS”), and United HealthCare of Oklahoma, Inc. (“UHOK”) (collectively, “Insurance Companies”) have filed a response (“Response”) [Doc. No. 32], and Physicians have filed a reply (“Reply”) [Doc. No. 34]. The Court has also reviewed the parties’ notices of supplemental authority [Doc. Nos. 52, 54–56].

Insurance Companies removed this case on the basis that federal law completely preempts the state-law claims, and therefore the Court has federal-question jurisdiction. [Doc. No. 1]. Even if the Court lacks federal-question jurisdiction, Insurance Companies contend that the Court has diversity jurisdiction. But there is a potential jurisdictional spoiler: UHOK is a non-diverse defendant. To overcome this jurisdictional impediment, Insurance Companies contend that the Court should apply the doctrine of procedural misjoinder.¹ If the Court applies this doctrine, the citizenship of UHOK can be ignored for jurisdictional purposes, effectively carving away the jurisdictional spoiler and establishing the existence of diversity jurisdiction.

As set forth below, the Court concludes that federal law does not completely preempt the claims in this case, and therefore federal-question jurisdiction is lacking. Regarding procedural misjoinder, “[f]ederal courts ․ possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) (citations omitted). Because neither the Constitution, nor statute, nor binding precedent permits the Court to apply the procedural-misjoinder doctrine, the Court lacks diversity jurisdiction. Lacking subject-matter jurisdiction, the Court REMANDS this case under 28 U.S.C. § 1447(c).

I. Background

According to the Motion and complaint, plaintiffs are four groups of physicians who staff emergency departments in Oklahoma. The federal Emergency Medical Treatment and Labor Act (42 U.S.C. § 1395dd) requires emergency providers like Physicians to evaluate, stabilize, and treat all patients regardless of their ability to pay. Insurance Companies underwrite, operate, and administer health plans in Oklahoma.

Physicians allege that “[a]lmost 1 in 5 emergency patients has no ability to pay, and 3 out of 4 emergency room visits are reimbursed below cost.” [Doc. No. 1-4 ¶ 24]. They further allege that “[i]n exchange for premiums and/or fees or other compensation, the Insurance Companies pay for health care services rendered to their members, including the emergency medicine services [Physicians] have provided and continue to provide to the Insurance Companies’ members.” [Id. ¶ 31].

Physicians do not participate in the Insurance Companies’ network. [Id. ¶ 33]. Consequently, there is no agreed reimbursement rate for their services. [Id. ¶ 34]. According to Physicians, this means that they are entitled to a reimbursement at the “prevailing charges” in the geographic area where the Physicians provide their services or are at least entitled to reimbursement of the “reasonable value” of their services. [Id.]. Physicians allege that they have provided services on more than 7,000 emergency service claims involving Insurance Companies’ members from January 2016 to September 2018, but that the Insurance Companies reimbursed them at “unacceptably low rates,” an underpayment allegedly in excess of $3.8 million. [Id. ¶¶ 44–46].

In this case, Physicians’ claims are either:

(1) “Non-Participating HMO Claims,” which are claims that are subject to Oklahoma law governing health maintenance organizations (“HMOs”). [Id. ¶ 26]. For these Non-Participating HMO Claims, Physicians allege that they are entitled to “prevailing charges” in the geographic area where the Physicians provide their services. [Id. ¶ 27].

(2) “Other Non-Participating Claims,” which are claims that are not subject to Oklahoma law governing HMOs. [Id. ¶ 26]. For these Other Non-Participating HMO Claims, Physicians allege that they are entitled to reimbursement of “rates, at a minimum, equivalent to the reasonable value” of their services. [Id. ¶ 28].

Insurance Companies assert in the Notice of Removal that the Court has both (1) federal-question jurisdiction (because at least some of the Physicians’ claims are completely preempted by the federal Employee Retirement Income Security Act of 1974 (“ERISA”)), and (2) diversity jurisdiction (because Physicians improperly misjoined Defendant UHOK and all the remaining parties are completely diverse, and the amount in controversy exceeds $75,000, exclusive of interests and costs). [Doc. No. 1 at 3–8].²

In the Motion, Physicians contend that federal-question jurisdiction is lacking because none of their claims is preempted by ERISA. Motion at 16–20. They also argue that diversity jurisdiction is lacking because the Tenth Circuit has not adopted the doctrine of procedural misjoinder. Id. at 10–15.

II. Removal Standard

“A defendant may remove a civil action initially brought in state court if the federal district court could have exercised original jurisdiction.” Salzer v. SSM Health Care of Okla. Inc., 762 F.3d 1130, 1134 (10th Cir. 2014) (citing 28 U.S.C. § 1441(a)). But this Court must remand “ ‘if at any time before final judgment it appears that the district court lacks subject matter jurisdiction.’ ” Id. (quoting 28 U.S.C. § 1447(c) (bracketing removed)). The party invoking federal jurisdiction bears the burden to show that jurisdiction is proper, and “there is a presumption against its existence.” Id. (citation omitted).

III. ERISA Complete Preemption

A. Applicable Law

Federal “district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. Whether a case arises under federal law and is subject to a federal court's subject-matter jurisdiction ordinarily turns on the well-pleaded complaint rule. Aetna Health Inc. v. Davila, 542 U.S. 200, 207, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) (citations omitted). A “defendant may not generally remove a case to federal court unless the plaintiff's complaint establishes that the case ‘arises under’ federal law.” Id. (cleaned up). However, a state claim can be removed when “a federal statute [like ERISA] wholly displaces the state-law cause of action through complete pre-emption.” Id. Because ERISA is a “comprehensive legislative scheme” that includes “an integrated system of procedures for enforcement, ․ any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted.” Id. at 208–09, 124 S.Ct. 2488 (citations omitted).

Section 502(a) of ERISA authorizes civil actions by a “participant or beneficiary” to recover benefits due to him under the terms of an ERISA-governed plan, to enforce rights under the plan, or to clarify the rights to future benefits under the plan. 29 U.S.C. § 1132(a). ERISA is a statute of complete preemption so long as a claim fits within its scope; regardless of whether the plaintiff intended to bring the claim under state law or federal law, the claim can be recast, converted, or recharacterized as an ERISA claim in the appropriate circumstances. Davila, 542 U.S. at 209, 124 S.Ct. 2488 (“the ERISA civil enforcement mechanism is one of those provisions with such extraordinary pre-emptive power that it converts an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule”) (citations omitted); see also Felix v. Lucent Techs., Inc., 387 F.3d 1146, 1155 (10th Cir. 2004) (indicating that § 502(a) “manifest[s] sufficient congressional intent to recharacterize state law claims that fall within [its] scope ․ as federal claims subject to removal”).

Davila set out a two-part test for complete preemption under ERISA § 502(a). ERISA completely preempts a state-law claim “where the individual is entitled to ․ coverage only because of the terms of an ERISA-regulated employee benefit plan, and where no legal duty (state or federal) independent of ERISA or the plan terms is violated ․” 542 U.S. at 210, 124 S.Ct. 2488. Stated differently, if (1) “an individual,[³ ] at some point in time, could have brought his claim under ERISA § 502(a)(1)(B)” and (2) “there is no other independent legal duty that is implicated by a defendant's actions, then the individual's cause of action is completely pre-empted by ERISA § 502(a)(1)(B).” Id. ERISA preemption does not apply if the plan plays only a “tangential role in the claim,” or if the plan is merely “part of the factual backdrop of the case.” Salzer, 762 F.3d at 1136–37 (cleaned up) (citing David P. Coldesina, D.D.S., P.C., Empl. Profit Sharing Plan & Trust v. Estate of Simper, 407 F.3d 1126, 1138 (10th Cir. 2005) and Cargill v. Norman Reg'l Health Sys., No. CIV-12-0180-C, 2012 WL 1299079, at *1 (W.D. Okla. Apr. 16, 2012)).

B. Discussion

The Court analyzes the claims in the complaint to determine if (1) “an individual, at some point in time, could have brought his claim under ERISA § 502(a)(1)(B)” and (2) “there is no other independent legal duty that is implicated by a defendant's actions ․” Davila, 542 U.S. at 210, 124 S.Ct. 2488.

1) Count 1: Violation of Oklahoma Clean Claim Reimbursement Laws

This claim seeks recovery under Oklahoma law, 36 Okla. Stat. §§ 1219 et seq.,⁴ and 6571,⁵ and Okla. Admin. Code 635:40-5-120, et seq.⁶ [Doc. No. 1-4 ¶¶ 57–66]. Physicians contend that their state-law claims are not rooted in the right of payment (for which ERISA preemption might apply) but implicate the appropriate rate of payment (for which ERISA preemption often does not apply). Motion at 16–18 (collecting cases). Put another way, Physicians allege that they have been paid (and coverage is not an issue), but they have been underpaid in violation of Oklahoma law. [Doc. No. 1-4 ¶¶ 75, 89]. They also argue that compliance with Oklahoma's Clean Claim Reimbursement Laws implicates Insurance Companies’ duties that are “completely independent from ERISA.” Motion at 19 (citing the second prong of Davila).

Insurance Companies contend that Physicians are merely trying to “supplement” the benefits that the ERISA plans provide, and therefore the state-law claims “fall squarely within th[e] preemption framework.” Response at 11. Insurance Companies acknowledge that courts “routinely hold” that ERISA does not preempt rate-of-pay claims, but argue that the claims in this case are distinguishable because Physicians in this case are “out-of-network providers who have no contract with [Insurance Companies] and no agreed-upon rate of payment.” Response at 13. Physicians reply that this out-of-network distinction is irrelevant and cite numerous nonbinding cases in support. Reply at 3.

ERISA does not preempt the claim for violation of Oklahoma Clean Claim Reimbursement Laws because this claim does not seek to vindicate rights set forth in the “terms of the plan,” as ERISA § 502(a)(1)(B) requires. This claim does not meet the first prong of the Davila test because it does not assert rights to which Physicians are entitled “only because of the terms of an ERISA-regulated employee benefit plan.” Davila, 542 U.S. at 210, 124 S.Ct. 2488 (emphasis added). The Court need not refer to the contents of any ERISA plan to resolve Count 1. The alleged claim is based on alleged rights created by Oklahoma law (36 Okla. Stat. §§ 1219, 6571, and Okla. Admin. Code 365:40-5-123(e)(1))—not ERISA—and the alleged rights are not derivative of or dependent on the terms of a benefit plan. Relatedly, because there is an “independent legal duty” other than ERISA that is implicated (i.e., duties under state insurance law), Davila’s second prong is also not met. 542 U.S. at 210, 124 S.Ct. 2488. Cf. Salzer, 762 F.3d at 1135–37 (holding the same regarding claim of violation of Oklahoma's Consumer Protection Act).

Insurance Companies have provided no binding authority supporting their position, and the Court has not identified any. The Court is persuaded by cases determining that similar claims are not preempted. See, e.g., id.; Lone Star OB/GYN Assocs. v. Aetna Health Inc., 579 F.3d 525, 532 (5th Cir. 2009) (recognizing the rate-of-pay vs. right-of pay distinction, collecting cases holding the same, and stating that “in seeking remedies under the Texas Pay Prompt Act, Lone Star is not seeking relief that ‘duplicates, supplements or supplants’ that provided by ERISA”) (quoting Davila, 542 U.S. at 209, 124 S.Ct. 2488); Fla. Emergency Physicians Kang & Assocs., M.D., Inc. v. United Healthcare of Fla., Inc., 526 F. Supp. 3d 1282, 1300 (S.D. Fla. 2021) (“In determining the proper rate of payment in the present case the court will likely be called to interpret and apply Florida Statute § 641.513 or § 627.64194 not the terms of any ERISA plan. Accordingly, the Court finds that Plaintiffs could not have brought their state law claims under § 502 of ERISA.”).

Because the claim for violation of Oklahoma Clean Claim Reimbursement Laws fails both prongs of Davila, ERISA does not completely preempt this claim.

2) Counts 2 and 3: Breach of Implied-in-Fact Contract and Unjust Enrichment/Breach of Implied-in-Law Contract

The elements of a breach of contract action are: (1) formation of a contract, (2) breach of the contract, and (3) damages as a result of that breach. Morgan v. State Farm Mut. Auto. Ins. Co., 2021 OK 27, 488 P.3d 743, 748 (citation omitted). A “plaintiff acquires the legal right to sue when the first two elements are present: formation of a contract and breach of the contract.” Id. at 750.

Under Oklahoma law, a contract can either be express or implied. 15 Okla. Stat. § 131. Implied contracts, at issue here, are ones “the existence and terms of which are manifested by conduct.” Id. § 133. Oklahoma recognizes that implied-in-law contracts (or “quasi-contracts” or “constructive contracts”) are mere legal fictions where the intention of the parties is disregarded, and an implied-in-law contract is “imposed in order to adapt the case to a given remedy.” T & S Inv. Co. v. Coury, 1979 OK 53, 593 P.2d 503, 504–05 (citation omitted). For an implied-in-fact contract, the intention of the parties “is ascertained and enforced” and “the contract is a fact legitimately inferred.” Id. (citation omitted). An action can lie for a breach of duties ex contractu (or “from a contract”) regardless of whether the duty arose from a contract that was implied in law, implied in fact, or express. Shebester v. Triple Crown Insurers, 1992 OK 20, 826 P.2d 603, 610. Finally, unjust enrichment arises “from the failure of a party to make restitution in circumstances where it is inequitable,” or one party holds property “that, in equity and good conscience, it should not be allowed to retain.” Harvell v. Goodyear Tire & Rubber Co., 2006 OK 24, 164 P.3d 1028, 1035.

Physicians seek reimbursement at the prevailing rate in the geographic area or for the “reasonable value of their services” under a theory of implied contract, contending that Physicians billed the Insurance Companies and “had a reasonable expectation and understanding[ ] that the Insurance Companies would reimburse” them “at rates in accordance with the standards established under Oklahoma law.” [Doc. No. 1-4 ¶¶ 67–86 (citing 36 Okla. Stat. § 6571 and Okla. Admin. Code 365:40-5-123(e)(1))]. They also seek reimbursement at the prevailing rate in the geographic area or for the “reasonable value” of their services on a theory of unjust enrichment. [Id. ¶¶ 87–93]. Although the Insurance Companies paid Physicians some amount, Physicians seek damages of the difference between the amount paid and the amount Physicians claim is owed under Oklahoma law. [Id. ¶¶ 89, 93].

The Court finds that ERISA does not preempt the claims in Counts 2 and 3. Physicians could not have brought these claims under ERISA § 502(a)(1)(B) because these claims do not exist “only because of the terms of an ERISA-regulated employee benefit plan.” Davila, 542 U.S. at 210, 124 S.Ct. 2488. These claims exist as a matter of state contract law, not ERISA, and are not dependent on any plan. See, e.g., >Morgan, 2021 OK 27, 488 P.3d at 750 (a plaintiff “acquires the legal right to sue when the first two elements are present: formation of a contract and breach of the contract”). The Court need not refer to the contents of any ERISA plan to resolve Counts 2 or 3.

The Court views the contract claims in this case as similar to those that other courts have found not to be preempted. For example, in Memorial Health System v. Aetna Health, Inc., a healthcare provider and an insurer entered into an agreement for the provider to provide medical care to the defendant's members in exchange for reimbursement under a compensation schedule. 730 F. Supp. 2d 1289, 1292 (D. Colo. 2010). The plaintiff later filed a claim of breach of contract after the defendant allegedly underpaid, and the defendant asserted that the claim was completely preempted because the plaintiff was asserting a right to benefits on behalf of some of the defendant's members. Id. The district court determined that the plaintiff's claims did not implicate an ERISA plan or seek benefits under the terms of such a plan because the private agreement created independent obligations between the parties outside of ERISA or an ERISA plan's terms, meaning the breach-of-contract claim was not completely preempted. Id. at 1296–98.

In Crescent City Surgical Centre v. Humana Health Benefit Plan of Louisiana, Inc., an out-of-network healthcare provider sued a health insurance company in state court, alleging state-law claims such as breach of contract, fraud, and negligent misrepresentation related to alleged underpayment to the provider. Case No. CIV-19-9540, 2019 WL 4387152, at *1 (E.D. La. Sept. 13, 2019). Like Physicians’ claims here, the dispute was not over coverage. Id. at *3. Instead, like Physicians’ claims here, the dispute was over the rates or amounts the insurance company was reimbursing them for services where they were out-of-network and where they contended they were being underpaid. See id.; see also, e.g., >Salzer, 762 F.3d at 1135 (claims for breach of contract, violation of the Oklahoma Consumer Protection Act, deceit, specific performance, and punitive damages, not preempted because they did “not assert claims for benefits under [a] Plan, nor ․ seek to enforce or clarify rights under [a] Plan”); Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 947 (9th Cir. 2009) (holding that state claims—including for breach of an implied contract, breach of an oral contract, negligent misrepresentation, quantum meruit, and estoppel—were not completely preempted because plaintiff hospital did not contend that sums were owed under patient's ERISA plan but because sums were not owed under patient's ERISA plan); Fla. Emergency Physicians, 526 F. Supp. 3d at 1300 (same for underpayment claims including claims of violations of certain Florida statutes, and breach of implied-in-fact contract, quantum meruit, and unjust enrichment under Florida law).

The Court also finds that these claims implicate “other independent legal dut[ies]” (namely, duties under state contract law), and therefore the second prong of Davila is not met. 542 U.S. at 210, 124 S.Ct. 2488. See Emergency Grp. of Ariz. Pro. Corp. v. United Healthcare, Inc., 838 F. App'x 299, 300 (9th Cir. 2021) (unpublished) (reversing and remanding district-court case cited by Insurance Companies, see [Doc. No. 54-2], and holding that even for out-of-network providers, “legal duties arising under an implied-in-fact contract based on a course of dealing between the parties ․ would exist whether or not an ERISA plan existed and thus are independent from the legal obligations imposed by the ERISA plans”) (quotation omitted).

Because the Davila standard is not satisfied, ERISA does not completely preempt Counts 2 and 3.

3) Count 4: Declaratory Relief—12 Okla. Stat. § 1651

Count 4 seeks a declaration that the Insurance Companies are required to reimburse Physicians at the prevailing rate in the geographic area or for the “reasonable value of [their] services” going forward. [Doc. No. 1-4 ¶¶ 94–99]. These claims are rooted in Counts 1–3 but seek a declaration that the increased amounts owed as a result of prevailing on Counts 1–3 should continue going forward. [Id.] It follows from the Court's analysis in Counts 1–3 that ERISA also does not preempt the declaratory-judgment claim.

“[A] claim only falls within ERISA's civil enforcement scheme when it is based solely on legal duties created by ERISA or the plan terms, rather than some other independent source.” Coldesina, D.D.S., 407 F.3d at 1137 (citing Davila, 542 U.S. at 210, 124 S.Ct. 2488). See also Plumbers & Pipefitters Local Union 430 Health & Welfare Fund v. Russell Plumbing, Heat & Air Co., No. 05-CV-363-TCK-PJC, 2006 WL 8458238, at *4 (N.D. Okla. Mar. 23, 2006), report and recommendation adopted, No. 05-CV-363-TCK-PJC, 2006 WL 8458240 (N.D. Okla. May 17, 2006) (“[T]he key to complete preemption is determining whether the state claim at issue arises solely from legal duties provided by ERISA or an ERISA plan or whether the legal duties supporting the claim arise from a source independent of ERISA.”).

Physicians are out-of-network and have no contracts or agreements with the Insurance Companies. Physicians allege the claims they seek recovery on were determined by the Insurance Companies to be covered and payable; they simply dispute the amount paid by the Insurance Companies as not comporting with Oklahoma law. Motion at 18–19; [Doc. No. 1-4 ¶¶ 49, 75, 89]. Physicians could not have brought these claims under ERISA § 502(a)(1)(B) because the alleged entitlement to the increased payments on these claims does not exist “only because of the terms of an ERISA-regulated employee benefit plan.” Davila, 542 U.S. at 210, 124 S.Ct. 2488. The right to the increased payments sought going forward exists as a matter of state law (in essence, prevailing on Counts 1, 2, or 3, and applying that relief going forward under 12 Okla. Stat. § 1651), not under ERISA. Accordingly, ERISA does not preempt the declaratory-judgment claim.

In summary, ERISA does not completely preempt any of Counts 1–4, and therefore the Court lacks federal-question jurisdiction.

IV. Procedural Misjoinder

Turning to whether the Court has diversity jurisdiction, Physicians filed their petition in the District Court of Cleveland County, Oklahoma (Case No. CJ-2019-482), against three insurers, UHIC, UHS, and UHOK. [Doc. No. 1-4].

Although Defendant UHOK, like Plaintiffs, is a citizen of Oklahoma for diversity purposes, Insurance Companies contend that “UHOK has been fraudulently misjoined, and its citizenship is therefore irrelevant for jurisdictional purposes.” [Doc. No. 1 ¶ 3]. Insurance Companies contend that the claims against UHOK differ from the claims against the other defendants such that UHOK has been procedurally misjoined. [Id. ¶ 4].

Physicians argue that this Court should not adopt the procedural-misjoinder doctrine because the Tenth Circuit has refused to adopt it on multiple occasions, and argue that even if the Court applied the doctrine, UHOK is a proper party to this lawsuit. Motion at 10–13.

A. Applicable Law

1) Jurisdiction

“Federal courts are courts of limited jurisdiction.” Kokkonen, 511 U.S. at 377, 114 S.Ct. 1673. “They possess only that power authorized by Constitution and statute ․” Id. (citation omitted); see also Kontrick v. Ryan, 540 U.S. 443, 452, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004) (“Only Congress may determine a lower federal court's subject-matter jurisdiction.”) (citing U.S. Const., Art. III, § 1). The Supreme Court has long recognized this limitation on the power of federal courts. See, e.g., Mayor v. Cooper, 73 U.S. (6 Wall.) 247, 252, 18 L.Ed. 851 (1867) (“As regards all courts of the United States inferior to this tribunal, two things are necessary to create jurisdiction, whether original or appellate. The Constitution must have given to the court the capacity to take it, and an act of Congress must have supplied it․ To the extent that such [congressional] action is not taken, the power lies dormant.”).

“Article III of the Constitution provides, in pertinent part, that ‘[t]he judicial Power shall extend to ․ Controversies ․ between Citizens of different States.” Carden v. Arkoma Assocs., 494 U.S. 185, 187, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990) (quoting U.S. Const., Art. III, § 2, cl. 1). “Congress first authorized the federal courts to exercise diversity jurisdiction in the Judiciary Act of 1789 ․” Id. The current diversity jurisdiction statute provides that “[t]he district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between—(1) citizens of different States ․” 28 U.S.C. § 1332(a)(1). Subject to certain statutory exceptions that are not applicable here, diversity of citizenship requires “complete diversity,” which means that parties on each side of the “v” must not be of the same state. Carden, 494 U.S. at 187, 110 S.Ct. 1015 (“Since its enactment, we have interpreted the diversity statute to require ‘complete diversity’ of citizenship.”) (citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 267, 2 L.Ed. 435 (1806)).

“[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants to the district court ․” 28 U.S.C. § 1441(a). A party may seek to remand the case to state court on the basis of lack of subject-matter jurisdiction. “If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c).

Additionally, the Federal Rules of Civil Procedure cannot create jurisdiction. Rule 82 states in pertinent part that “[t]hese rules do not extend or limit the jurisdiction of the district courts ․” The Supreme Court has said the same thing. See Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 370, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978) (“[I]t is axiomatic that the Federal Rules of Civil Procedure do not create or withdraw federal jurisdiction.”) (footnote omitted); see also Kontrick, 540 U.S. at 454, 124 S.Ct. 906 (“[t]he rules merely prescribe the method by which the jurisdiction granted the courts by Congress is to be exercised” (citation omitted)). Finally, “[i]t is to be presumed that a cause lies outside th[e] [federal courts’] limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction.” Kokkonen, 511 U.S. at 377, 114 S.Ct. 1673 (citations omitted).

2) Procedural Misjoinder Doctrine

Procedural misjoinder “occurs when a plaintiff sues a diverse defendant in state court and joins a non-diverse or in-state defendant even though the plaintiff has no reasonable procedural basis to join such defendants in one action.” Lafalier v. State Farm Fire & Cas. Co., 391 F. App'x 732, 739 (10th Cir. 2010) (unpublished) (citation omitted). Courts that apply the doctrine effectively carve away procedurally misjoined parties, resolving the jurisdictional spoiler and leaving the Court with diversity jurisdiction. Viewed in relation to a similar concept—fraudulent joinder—generally if a plaintiff can't or won't make a claim against a nondiverse defendant, the issue involves fraudulent joinder. If a plaintiff can or will make a claim against a nondiverse defendant, but the claim is completely unrelated to the claim made against the diverse defendant, the issue concerns procedural misjoinder.

It appears that the Eleventh Circuit was first to apply procedural misjoinder in Tapscott v. MS Dealer Service Corp., 77 F.3d 1353 (11th Cir. 1996), abrogated on other grounds by Cohen v. Office Depot, Inc., 204 F.3d 1069 (11th Cir. 2000).⁷ Tapscott involved the joinder of two class actions, an “automobile” class (alleging violations of Alabama common law and statutory fraud in connection with the sale of service contracts for automobiles) and a “merchant” class (alleging the same claims in connection with the sale of service contracts for retail products). Id. at 1355.

Quoting Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S.Ct. 35, 66 L.Ed. 144 (1921), the court stated that a defendant's “right of removal cannot be defeated by a fraudulent joinder of a resident defendant having no real connection with the controversy.” Tapscott, 77 F.3d at 1360. The court affirmed the district court's severance of the unrelated claims: “Although certain putative class representatives may have colorable claims against resident defendants in the putative ‘automobile’ class, these resident defendants have no real connection with the controversy involving Appellants Davis and West and Appellee Lowe's in the putative ‘merchant’ class action.” Id.

The Tenth Circuit has declined to either adopt or reject the doctrine of procedural misjoinder at least twice. See Parson v. Johnson & Johnson, 749 F.3d 879, 893 (10th Cir. 2014) (declining to “determine whether to recognize the doctrine of ‘[procedural] misjoinder of plaintiffs ․ to circumvent diversity jurisdiction,’ a rule that the defendants admit has not yet been adopted within this circuit”) (citation omitted); Lafalier, 391 F. App'x at 739 (“There may be many good reasons to adopt procedural misjoinder, as the Insurers argue. But we need not decide that issue today ․”). There is no binding authority adopting or requiring the application of the doctrine of procedural misjoinder within the Tenth Circuit.⁸

B. Discussion

No party argues that procedural misjoinder exists in the Constitution or in any statute, and the Court is aware of no express constitutional or statutory basis for the Court to apply procedural misjoinder to cure jurisdictional defects. See, e.g., 28 U.S.C. § 1441.

Insurance Companies concede that there is no binding precedent permitting this Court to apply procedural misjoinder, but they offer an inverse argument: the Court can apply the doctrine because there is no binding precedent prohibiting the application of procedural misjoinder. Response at 18–19. Insurance Companies point to district-court cases applying the doctrine, but those cases are not binding on this Court.⁹ See Camreta v. Greene, 563 U.S. 692, 709 n.7, 131 S.Ct. 2020, 179 L.Ed.2d 1118 (2011) (“A decision of a federal district court judge is not binding precedent in either a different judicial district, the same judicial district, or even upon the same judge in a different case.”).

The Court rejects the argument that it can apply the doctrine because there is no binding authority prohibiting its application. “If an act can be performed by a district court, it is because it was permitted and not because it was not prohibited by Congress. Federal courts operate only in the presence rather than the absence of statutory authority.” Wyeth Lab'ys, a Div. of Am. Home Prods. Corp. v. U.S. Dist. Ct. for Dist. of Kan., 851 F.2d 321, 324 (10th Cir. 1988). Ultimately, this is not a matter for this lower district court in the first instance. See Mayor, 73 U.S. (6 Wall.) at 252. With no constitutional provision, statute, or binding precedent allowing this Court to apply procedural misjoinder, Insurance Companies have failed to meet their burden to establish that removal is proper. While there may be “many good reasons to adopt procedural misjoinder,” Lafalier, 391 F. App'x at 739, it is beyond the purview of this Court to adopt new doctrines regarding jurisdiction, particularly when the Supreme Court has instructed that there is a presumption “that a cause lies outside” of a federal court's limited jurisdiction, and that federal jurisdiction “is not to be expanded by judicial decree.” Kokkonen, 511 U.S. at 377, 114 S.Ct. 1673.

The Court also cannot square this district court adopting and applying procedural misjoinder against the backdrop of general removal principles, including that “statutory procedures for removal are to be strictly construed,” Syngenta Crop Prot., Inc. v. Henson, 537 U.S. 28, 32, 123 S.Ct. 366, 154 L.Ed.2d 368 (2002), and that in analyzing a motion to remand, “all doubts are to be resolved against removal.” Fajen v. Found. Reserve Ins. Co., 683 F.2d 331, 333 (10th Cir. 1982) (citation omitted). Cf. Salazar v. Allstate Texas Lloyd's, Inc., 455 F.3d 571, 575 (5th Cir. 2006) (“Rule 21 does not allow for substitution of parties to create jurisdiction.”).

Because the Court concludes that it lacks subject-matter jurisdiction over this removed action, the Court GRANTS the Motion and remands this matter to the District Court of Cleveland County. 28 U.S.C. § 1447(c) (“If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.”).

V. Costs and Expenses

28 U.S.C. § 1447(c) provides that “[a]n order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.” However, “absent unusual circumstances, attorney's fees should not be awarded when the removing party has an objectively reasonable basis for removal.” Martin v. Franklin Cap. Corp., 546 U.S. 132, 136, 126 S.Ct. 704, 163 L.Ed.2d 547 (2005).

The Court finds that Insurance Companies had an objectively reasonable basis for removal, given the divergence of orders addressing the procedural-misjoinder doctrine. As a result, the Court declines to award fees, costs, and expenses under § 1447(c).

VI. Conclusion

For the reasons stated above, the Court lacks subject-matter jurisdiction over this matter, GRANTS Plaintiff's Motion to Remand [Doc. No. 27], and REMANDS this case to the District Court of Cleveland County, Oklahoma. The Clerk of Court shall mail a certified copy of this Order to the clerk of the District Court of Cleveland County, Oklahoma. The state court may then proceed. Each side shall bear its own attorney's fees, costs, and expenses incurred as a result of the removal. Based on the remand, the Court does not decide Insurance Companies’ Motion to Dismiss [Doc. No. 4] and leaves that motion for the state court.

IT IS SO ORDERED this 2nd day of March 2022.

FOOTNOTES

1.   The doctrine is sometimes called “fraudulent misjoinder.” The Court will use “procedural misjoinder” instead of “fraudulent misjoinder” to avoid confusion with the related concept of fraudulent joinder, and to avoid any negative connotation from using the phrase “fraudulent,” which is usually unwarranted in these circumstances. See Bailey v. Markham, 611 F.Supp.3d 1177, 1219 n.10 (D.N.M. 2020) (same).

2.   The Court's page references are to ECF page numbering.

3.   “A plaintiff must have standing to sue under § 502(a) before [a] state law claim can be recharacterized as arising under federal law subject to federal jurisdiction under the doctrine of complete preemption.” Felix, 387 F.3d at 1158. The Motion does not seek a determination of standing in this case, and based on the conclusions in this Order, a determination is unnecessary because ERISA does not preempt the claims even if the Court assumes that Physicians have standing.

4.   36 Okla. Stat. § 1219 provides parameters for “clean claims” and reimbursements “[i]n the administration, servicing, or processing of any accident and health insurance policy․”

5.   36 Okla. Stat. § 6571(B) provides that any insurer which:1. Makes a determination or contracts with a third party who makes the determination of average area charges or customary and reasonable charges for health care services, procedures or supplies; and2. Based on such determination, authorizes payment in an amount which is less than the amount charged by the health care provider for such services, procedures or supplies;shall, upon the request of a health care provider, furnish the name, mailing address and telephone number of the party making the determination to the health care provider.Physicians regularly cite 36 Okla. Stat. § 6571(A)(2) in the complaint [Doc. No. 1-4], which the Court believes that Physicians meant to cite to subsection “(B)” because Physicians quote the language from § 6571(B). See [Doc. No. 1-4 ¶ 50].

6.   OAC 365:40-5-123 provides certain “Reimbursement Criteria” for the reimbursement of claims.

7.   The court in Tapscott couched the ruling in terms of fraudulent joinder, not procedural misjoinder. See Tapscott, 77 F.3d at 1360 (“We do not hold that mere misjoinder is fraudulent joinder, but we do agree with the district court that Appellants’ attempt to join these parties is so egregious as to constitute fraudulent joinder.”). But as set forth in this Order, “joinder” and “misjoinder” are not interchangeable. Appellants in Tapscott noted this in their brief. Appellant's Br., Case No. 95-6055, 1995 WL 17108983 (11th Cir. May 24, 1995) (“the real issue here is whether the district court was proper in finding, in the context of a motion to remand, that Lowe's had been ‘misjoined’ with non-diverse defendants”). Within a year after Tapscott, courts were using the correct term: procedural misjoinder. See, e.g., >Ren-Dan Farms, Inc. v. Monsanto Co., 952 F. Supp. 370, 375 (W.D. La. 1997).

8.   Most of the Oklahoma cases addressing procedural misjoinder have concluded that even if the doctrine applied, remand would still be appropriate based on the circumstances. See, e.g., >Greer v. State Farm Fire & Cas. Co., No. CIV-19-378-PRW, 2019 WL 2578087, at *2 (W.D. Okla. June 24, 2019) (even if the doctrine applied, the claims against the defendants “are not wholly distinct such that their joinder constitutes [procedural] misjoinder”) (quotation omitted); Rowan v. State Farm Fire & Cas. Co., No. CIV-18-109-C, 2018 WL 1426358, at *2 (W.D. Okla. Mar. 22, 2018) (same); Premier Cmty. Servs., Inc. v. Goldesberry-VanMeter, No. 17-CV-70-TCK-FHM, 2017 WL 2294678, at *5 (N.D. Okla. May 25, 2017) (same); Trotter v. Smith, No. CIV-13-0831-F, 2013 WL 12142352, at *2–3 (W.D. Okla. Oct. 22, 2013) (“The court rejects the removing defendants’ contention that remand should be denied based on a doctrine which has not been adopted by the Tenth Circuit. Alternatively, even if the Tenth Circuit were to adopt the reasoning of Tapscott, that decision's reasoning does not apply here.”); Express Servs., Inc. v. Stoller, No. CIV-12-797-C, 2012 WL 12865259, at *1 (W.D. Okla. Oct. 2, 2012) (same); Magnuson v. Jackson, No. 11-CV-0561-CVE-PJC, 2012 WL 2995669, at *4 (N.D. Okla. July 23, 2012) (same); Cline v. Blackmon Mooring of Okla. City, Inc., No. CIV-11-1136-HE, 2012 WL 255675, at *1 (W.D. Okla. Jan. 27, 2012) (same); Lafalier v. Cinnabar Serv. Co., No. 10-CV-0005-CVE-TLW, 2010 WL 1486900, at *9 (N.D. Okla. Apr. 13, 2010), aff'd sub nom. Lafalier, 391 F. App'x 732 (same).

9.   Insurance Companies cite Bunnell v. Oklahoma MH Properties, LP, CIV-12-372-R, 2012 WL 12863916 (W.D. Okla. May 11, 2012), as a persuasive case from this district applying procedural misjoinder. Response at 19. But without binding authority, Bunnell does not persuade the Court to apply the doctrine. See also Halliburton v. Johnson & Johnson, 983 F. Supp. 2d 1355, 1359–60 (W.D. Okla. 2013), aff'd sub nom. Parson, 749 F.3d 879 (declining to adopt the procedural-misjoinder doctrine given the lack of guidance by the Tenth Circuit and given the criticism of the doctrine by other courts, and explaining that the court cannot “fashion subject matter jurisdiction by using the federal rules governing joinder and severance”); DeWitt v. Foot Locker Retail, Inc., No. 13-CV-3459 YGR, 2013 WL 12214729, at *1 (N.D. Cal. Oct. 1, 2013) (“This Court finds persuasive the reasoning of courts that have, in the absence of controlling appellate authority, declined to adopt the doctrine [of procedural misjoinder]․ [T]he Court doubts that it has jurisdiction over the case and thus the power to sever improperly joined defendants.”).

JODI W. DISHMAN, UNITED STATES DISTRICT JUDGE