Opinion
No. 03 Civ. 3916 (LTS)(MHD).
August 27, 2004
MEMORANDUM OPINION AND ORDER
Plaintiff Deajess Medical Imaging, P.C., brings this action seeking insurance funds for reimbursement pertaining to forty-five patients treated as a result of various car accidents. Currently pending before the Court are Plaintiff's motion for judgment by default and Defendant's motion to vacate any default, accept Defendant's Answer, and dismiss the Complaint for lack of subject matter jurisdiction. The Court has considered thoroughly the parties' submissions. For the following reasons, Plaintiff's motion for judgment by default is denied, and the action is dismissed for lack of subject matter jurisdiction.
The Verified Complaint in this action is fairly brief. The following facts are either undisputed or are allegations taken as true for purposes of deciding the motion to dismiss. Plaintiff, a medical provider that performs MRIs, filed this action as an assignee of forty-five patient-assignors who received medical treatment as a result of various car accidents. Defendant is an insurance company that issues insurance to motor vehicle owners. (Compl. ¶ 5.) The vehicles involved in the accidents were insured by Defendant, and Plaintiff's assignors sustained injuries while the insurance policies were in effect. (Id. ¶ 6.) The assignors, as drivers or passengers, or their agents, notified Defendant of their claims for "no-fault" benefits within ninety days of their respective accidents, or as soon thereafter as reasonably practicable. (Id. ¶ 8.) Plaintiff provided medical services to the assignors and executed all required New York State Insurance Department and other relevant forms in a timely manner. (Id. ¶ 10.) Plaintiff, as assignee, has also made demands on Defendant for the payment of no-fault benefits; more than thirty days have elapsed since Plaintiff made such demands. (Id. ¶¶ 11-12.) Plaintiff asserts that the sum of benefits owed for all forty-five assignors is $106,776.05 (not including interest). A rider is attached to the Complaint listing the relevant medical expenses of each assignor. Plaintiff also demands legal fees pursuant to11 NYCRR 65.17. (Id. ¶ 16.)
Plaintiff filed this action on May 29, 2003. Service of process was effected on the Defendant on June 16, 2003. The Court noted Defendant's failure to interpose a timely response to the Complaint and granted Plaintiff leave to move for a default judgment on September 5, 2003; Plaintiff filed and served a motion for a default judgment on December 1, 2003. Shortly thereafter, Defendant's counsel wrote to the Court and Plaintiff, seeking relief from the default and permission to file an Answer. Defendant filed and served an Answer in January 2004; its response to Plaintiff's default judgment motion included a cross-motion for an order vacating the default and accepting Defendant's answer, and for an order dismissing the Complaint for lack of subject matter jurisdiction.
Motion for Default Judgment
Plaintiff seeks a default judgment pursuant to Federal Rule of Civil Procedure 55, which provides that, "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend as provided by these rules and that fact is made to appear by affidavit or otherwise, the clerk shall enter the party's default." Fed.R.Civ.P. 55(a). Default judgments are, however, disfavored. Pecarsky v. Galaxiworld.Com Ltd., 249 F.3d 167, 174 (2d Cir. 2001) ("A clear preference exists for cases to be adjudicated on the merits."). Defendant has filed an affidavit proffering reasons for its failure to respond to the Complaint in a timely fashion and, as noted, has served and filed an answer. "When deciding whether to relieve a party from default or default judgment, [the Court] consider[s] the willfulness of the default, the existence of a meritorious defense, and the level of prejudice that the non-defaulting party may suffer should relief be granted." Id. at 171.
Willfulness
The Second Circuit has explained that a finding of willfulness is properly based on egregious or deliberate conduct. Am. Alliance Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996). "Gross negligence can weigh against the party seeking relief from a default judgment, though it does not necessarily preclude relief." Id. In the instant matter, Defendant's answer was due on July 7, 2003. Defendant did not even seek to interpose a response to the Complaint until after Plaintiff had served and filed its December 1, 2003, motion for a default judgment. In an affidavit submitted in support of its cross-motion, Defendant represents that its failure to respond in a timely fashion was attributable to confusion arising from Plaintiff's recent practice of aggregating multiple claims of different insureds, covered by different contracts, in a number of federal court actions. Defendant claims that its internal distribution of no-fault claim responsibility among different business locations, and certain alleged errors in the schedule of claims annexed to the Complaint, made it difficult for Defendant to recognize and react appropriately to the existence of this lawsuit. (See Deft's Mem. in Support of Cross-Motion, Ex. B, Aff. of Madeline Valente.) Defendant's explanation indicates that it does not have appropriate systems in place for managing litigation. It is not, however, indicative of the sort of willful evasion of its duty to respond, or of egregious or deliberate conduct, that would support a finding of willfulness for purposes of a motion for default judgment. Compare Brien v. Kullman Indus., Inc., 71 F.3d 1073, 1078 (2d Cir. 1995) (refusing to find willfulness where defendant failed to file Answer because it received misinformation from clerk's office regarding docket number) with Securities and Exchange Comm'n v. McNulty, 137 F.3d 732, 739 (2d Cir. 1998) (finding willfulness where defendant ignored repeated warnings from plaintiff stating intention to file default motion, and, despite defendant's response to one warning that answer would be filed in two days, answer was never filed).
Meritorious defense
In seeking relief from a default judgment, the defendant must present a meritorious defense which "is measured not by whether there is a likelihood that it will carry the day, but whether the evidence submitted, if proven at trial, would constitute a complete defense." Pecarsky, 249 F.3d at 173 (internal quotation omitted). In the instant matter, Defendant argues, citing 28 U.S.C. § 1359, that the Court lacks subject matter jurisdiction because the assignors' claims have improperly been aggregated in order to meet the amount in controversy requirement for federal diversity jurisdiction. (Deft. Mem. of Law, at 8-15.) Because such an argument goes to the power of this Court to adjudicate Plaintiff's claims, an issue as to which the Court also has an independent duty of inquiry (see Fed.R.Civ.P. 12(h)(3)), it is sufficient to constitute a meritorious defense for the purposes of the default judgment analysis. See Boston Post Road Med. Imaging v. Allstate Ins. Co., No. 03 Civ. 6153 (LAK), 2004 WL 938296, at *3-4 (S.D.N.Y. May 3, 2004) (finding on post-judgment motion to vacate default that argument, pursuant to 28 U.S.C. § 1359, that claims were improperly aggregated constituted meritorious defense but denying motion to vacate default on other grounds). Defendant also represents that it has defenses going to the merits of the underlying medical benefit claims, including lack of medical necessity of the procedures. Plaintiff argues that some or all of the defenses as to particular claims may be barred as untimely under state laws relating to the processing of claims but, as noted above, the likelihood of the success of the proffered defense is not the determining criterion in weighing the question of whether a defense that merits adjudication has been asserted.
Section 1359 provides that, "A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such court." 28 U.S.C.A. § 1359 (West 1993).
Prejudice to Plaintiff
Plaintiff makes no argument that it would be prejudiced if the Court were to refuse to enter default judgment and, indeed, the Court finds that there is no basis for such an argument. At best, Plaintiff could argue that it was inconvenienced by the delay, but delay alone is an insufficient basis for a finding of prejudice. Davis v. Musler, 713 F.2d 907, 916 (2d Cir. 1983). The delay must "result in the loss of evidence, create increased difficulties of discovery, or provide greater opportunity for fraud and collusion." Id. (internal quotation omitted). Plaintiff has not asserted that such difficulties would burden this litigation if the Court did not enter a default judgment.
For all of the foregoing reasons, Defendant's motion to vacate the notation of default is granted, its Answer is accepted, and Plaintiff's motion for judgment by default is denied. The Court now turns to Defendant's motion to dismiss the Complaint.
Motion to Dismiss the Complaint
Defendant moves to dismiss the Complaint, arguing that the claims assigned to Plaintiff have improperly been aggregated to meet the amount in controversy requirement for diversity jurisdiction and that the case should therefore be dismissed for lack of subject matter jurisdiction. "Failure of subject matter jurisdiction . . . is not waivable and may be raised at any time by a party or by the court sua sponte. . . . `If subject matter jurisdiction is lacking, the action must be dismissed.'" Oscar Gruss Son, Inc. v. Hollander, 337 F.3d 186, 193 (2d Cir. 2003) (internal citations omitted). In considering a motion to dismiss a complaint for lack of subject matter jurisdiction, the Court must accept as true all material factual allegations in the complaint. Atlantic Mutual Ins. Co. v. Balfor Maclaine Int'l Ltd., 968 F.2d 196, 198 (2d Cir. 1992). The Court need not, however, confine itself to the four corners of the complaint and may consider evidence outside the pleadings, such as affidavits and other documents. Kamen v. Am. Tel. Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986).
Collusiveness
Parties may bring a federal court action based on diversity jurisdiction where the plaintiff and defendant are citizens of different states and where the amount in controversy exceeds $75,000. 28 U.S.C.A. § 1332 (West 1993). Federal Rule of Civil Procedure 18(a) allows a plaintiff to join all of its claims against a single defendant in the same civil action; the value of those individual claims may be aggregated to meet the $75,000 jurisdictional requirement as long as joinder is proper under Rule 18. Wolde-Meskel v. Vocational Instruction Project Cmty. Servs., Inc., 166 F.3d 59, 62 (2d Cir. 1999). A party may not, however, create federal jurisdiction by improperly or collusively making assignments of claims. 28 U.S.C. § 1359. Section 1359 is construed "broadly to bar any agreement whose `primary aim' is to concoct federal diversity jurisdiction." Airlines Reporting Corp. v. S and N Travel, Inc., 58 F.3d 857, 862 (2d Cir. 1995) (quoting O'Brien v. AVCO Corp., 425 F.2d 1030, 1034 (2d Cir. 1969)). The party asserting diversity jurisdiction bears the burden of showing that the reason for the assignments was legitimate, not pretextual. Prudential Oil Corp. v. Phillip Petroleum Co., 546 F.2d 469, 476 (2d Cir. 1976). Furthermore, if the assertion of proper diversity is premised on an assignment of the claim to a named plaintiff, the business reason asserted by the plaintiff for the assignment must be sufficiently compelling, such that it is clear that the assignment would have been made absent the purpose of gaining a federal forum. Ferrara v. Philadelphia Labs. Inc., 272 F. Supp. 1000, 1007-08, aff'd, 393 F.2d 934 (2d Cir. 1967).
Defendant argues that Plaintiff has improperly aggregated the claims of forty-five patient-assignors as a means of establishing diversity jurisdiction and gaining access to federal court. Courts in the Second Circuit consider the following non-exclusive factors in determining whether an assignment is improper for purposes of establishing diversity: (1) lack of meaningful consideration; (2) an assignee's lack of a previous connection to the claim; (3) the underlying purpose of the assignment; (4) whether the assignor actually controls the litigation; (5) the remittance of any recovery to the assignor; and (6) the timing of the assignment. Airlines Reporting Corp., 58 F.3d at 863.
Plaintiff's counsel has recently brought several lawsuits in this district compiling assigned claims and seeking similar relief against Allstate and other insurance company defendants.See Deajess Med. Imaging, P.C. v. Geico Gen. Ins. Co., No. 03 Civ. 7388(DF), 2004 WL 1576536, at *2 (S.D.N.Y. July 15, 2004) (listing similar lawsuits filed by Plaintiff's counsel).
Plaintiff has proffered evidence that the assignments in question were obtained in the ordinary course of treatment, at the time treatment was rendered, and before any lawsuit was contemplated, in order to permit Plaintiff to receive direct payment pursuant to the New York nofault regulations. Applying the relevant factors to these representations, the Court finds no indication that the assignments were collusive or improperly made for the purpose of gaining a federal forum. Nor does it appear that the reason for the assignments was pretextual. Accord Deajess Med. Imaging, 2004 WL 1576536, at *3; Boston Post Road Med. Imaging, P.C. v. Allstate Ins. Co., No. 03 Civ. 6150(SAS), 2004 WL 830154, at *3 (S.D.N.Y. Apr. 13, 2004). Defendant's motion to dismiss the Complaint is therefore denied to the extent it is premised on collusive joinder of claims.
Real party in interest
In addition to its collusiveness argument, Defendant asserts that Plaintiff brings this action in its representative capacity and therefore is not a real party in interest. (Deft. Mem. of Law at 12 (citing Airlines Reporting Corp.).) In Airlines Reporting Corp., the plaintiff, a corporation, filed a lawsuit as a representative of several air carriers, and the court evaluated whether the plaintiff was a real party to the controversy for purposes of determining diversity jurisdiction.Airlines Reporting Corp., 58 F.3d at 861 n. 4. Unlike the situation in Airlines Reporting Corp., Deajess, having provided medical services to the assignors, claims here that it is owed money and is therefore advancing its own interests in the litigation; Deajess is not obligated to remit a damages award to the assignors. Deajess thus cannot be said to be a "mere conduit for a remedy owing to others, advancing no interests of its own." Cf. id. at 862. Plaintiff is clearly the real party in interest for purposes of determining diversity jurisdiction. Defendant's motion is therefore denied as to this ground as well.
Severance of Claims; Jurisdiction of Severed Claims
Notwithstanding the Court's conclusions that Plaintiff has not aggregated claims improperly in violation of Rule 18 or 28 U.S.C. § 1359, and that Plaintiff is the real party in interest for jurisdictional purposes, the parties' submissions in connection with these motions make it clear that the underlying claims are, for the most part, entirely unrelated, arising from different automobile accidents, under different insurance contracts, and involving denials on different bases. The Court has determined, for the following reasons, that severance of the underlying claims pursuant to Rule 21 of the Federal Rules of Civil Procedure is appropriate. In determining whether to sever a claim, the Court considers:
(1) whether the claims arise out of the same transaction or occurrence; (2) whether the claims present some common questions of law or fact; (3) whether settlement of the claims or judicial economy would be facilitated; (4) whether prejudice would be avoided if severance were granted; and (5) whether different witnesses and documentary proof are required for the separate claims.In re Merrill Lynch Co., Inc. Research Reports Sec. Litig., 214 F.R.D. 152, 154-55 (S.D.N.Y. 2003). A jury evaluating all of the claims in this case would have to parse evidence regarding several different car accidents, the injuries sustained by forty-five different individuals, the medical treatment each individual received, and the reasonableness of those medical services. Under these circumstances, severance of Plaintiff's claims would foster judicial economy and may indeed facilitate settlement. Accord Boston Post Road Med. Imaging v. Allstate Ins. Co., No. 03 Civ. 3923 (RCC), 2004 WL 1586429, at *3-4 (S.D.N.Y. July 15, 2004) (applying considerations for Rule 21 severance). Moreover, because this case is in the early stages of litigation, severance at this time will not cause prejudice to either party, nor will severance create undue delay. In re Merrill Lynch, 214 F.R.D. at 155.
Once the forty-five claims assigned to Plaintiff are severed, they cannot meet the $75,000 amount in controversy requirement for diversity jurisdiction. The individual claims range from $878.67 to $3,622.78. The Court thus lacks subject matter jurisdiction of the severed claims, and this case must therefore be dismissed in its entirety for lack of subject matter jurisdiction of those claims.
Defendant asserts, and Plaintiff does not deny, that only three pairs of the claims arise from the same accidents and under the same insurance policies, namely: the claims of Dashkevich Servey and Dashkevich Sofya, totaling $4,457.90; the claims of Kharik Yana and Kharik Oleg, totaling $5,299.01; and the claims of Noncent Noellan and Noncent Wedyne, totaling $6,288.95. (Valente Aff. at 3-5.) Even if these pairs of claims were not severed from each other, they would still clearly fall short of the requisite jurisdictional amount. Plaintiff has proffered no other rationale for grouping that demonstrates a sufficient commonality of issues as between these claims to indicate that judicial economy would be served by adjudication of their merits jointly.
CONCLUSION
For the foregoing reasons, Plaintiff's motion for a default judgment is denied, Defendant's motion to vacate the default is granted, and its Answer is accepted, Defendant's motion to dismiss the Complaint is denied, and the Court sua sponte severs the underlying claims for adjudicative purposes. Because the severed claims fail to meet the requisite amount in controversy for diversity jurisdiction pursuant to 28 U.S.C. § 1332, this action is dismissed in its entirety for lack of subject matter jurisdiction. The Clerk of Court shall close this case.SO ORDERED.