Class Actions - Thomas M. Byrne and Suzanne M. Alford

• Citation: Vol. 56 No. 4
• Publication year: 2005

Class Actionsby Thomas M. Byrne^* and Suzanne M. Alford^**

I. Introduction

The year 2004 was an eventful one for the development of class action law in the Eleventh Circuit. In a series of decisions prior to 2004, the court consistently paid close attention to whether the individual issues raised by claims or defenses would predominate over any common issues and would thereby render a class action either unmanageable or unfair. For example, in Andrews v. American Telephone & Telegraph Co.,¹ the court reversed an order certifying a class of millions of telephone service customers who challenged their phone carriers' 900-number participation because of the impossibility of applying the gaming laws of all fifty states to hundreds of 900-number programs.² In the related case of Sikes v. Teleline, Inc.,³ the court reversed certification of a class of phone service consumers who asserted that one specific 900-number violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"),⁴ because individual issues of reliance and injuries predominated.⁵ In Jackson v. Motel 6 Multipurpose, Inc.,⁶ the court reversed anorder certifying a class of motel patrons who alleged race discrimination because plaintiffs' claims required "distinctly case-specific inquiries into the facts surrounding each alleged incident of discrimination."⁷ Finally, in Rutstein v. Avis Rent-A-Car Systems, Inc.,⁸ the court reversed certification of a class of Jewish plaintiffs who were allegedly denied corporate accounts pursuant to a discriminatory policy because individual factual issues predominated.⁹ In these pre-2004 cases, the Eleventh Circuit applied the predominance requirements of Federal Rule of Civil Procedure 23(b)(3)¹⁰ more consistently than some of its sister circuits.

II. Klay v. Humana, Inc.

Viewed in this context, the court's 2004 decision in Klay v. Humana, Inc.¹¹ is all the more notable. In Klay the court affirmed the district court's Rule 23(b)(3) certification of the national class of doctors who had submitted at least one claim for payment to any of the various defendant health maintenance organizations ("HMOs") between 1990 and 2002.¹² Plaintiffs, a group consisting of nearly every physician in the United States, alleged that defendant HMOs conspired to deny payments to physicians in violation of various RICO provisions.¹³

Plaintiffs consisted of two main groups: physicians compensated under a fee-for-service plan and those compensated under capitation plans. Under a fee-for-service plan, an HMO reimburses doctors for medically necessary treatment performed on a covered patient. To receive payment for services rendered, doctors submit forms to the HMOs that identify medical procedures by standardized codes reflecting the nature and difficulty of the procedures. Plaintiffs alleged that the HMOs' computer systems were designed to systematically underpay doctors through a variety of methods including: denying payment for certain codes representing expensive procedures; interpreting codes as requests for reimbursement of less expensive procedures; grouping codes for several procedures together as only a single code; and delaying reimbursement.¹⁴

Plaintiffs further alleged that defendants intentionally denied and delayed payments under capitation plans. Under a capitation plan, a patient specifies a doctor as his "primary care provider," and the specified physician receives a small monthly fee, or capitation payment, for each patient registered to him. The physician then must provide all medical services the patient requires. Plaintiffs alleged that the HMOs underpaid the physicians by failing to pay capitation fees .for many patients who registered with a physician but never actually visited him and by failing to pay the physicians the leftover funds intended to cover a patient's prescription medications. Like the fee-for-services plaintiffs, the capitation-plan plaintiffs also alleged the same grievances for reimbursement claims that were not covered under the capitation plans.¹⁵

On appeal, defendants primarily argued that the common issues of fact and law upon which the RICO violations were alleged did not predominate over the issues specific to each plaintiff.¹⁶ The court stated that "[c]ommon issues of fact and law predominate if they 'ha[ve] a direct impact on every class member's effort to establish liability and on every class member's entitlement to injunctive and monetary relief.'"¹⁷ The court concluded that "[t]he existence of a conspiracy, and whether the defendants aided and abetted each other" were common issues of fact and law to all plaintiffs that predominated over the claims.¹⁸ The court distinguished the case from Rutstein v. Avis Rent-A-Car Systems, Inc.¹⁹ and Jackson v. Motel 6 Multipurpose, Inc.,²⁰ in which individualized issues predominated.²¹ In those cases, "individuals were seeking to litigate separate discrimination claims that arose from a variety of individual incidents together in the same class action simply because they alleged that the acts of discrimination occurred pursuant to corporate policies."²² In contrast, the RICO claims at issue in Klay were

not simply individual allegations of underpayments lumped together, and the allegation of an official corporate policy or conspiracy is not simply a piece of circumstantial evidence being used to support such individual underpayment claims. Instead, the very gravamen of the

RICO claims [was] the "pattern of racketeering activities" and the existence of a national conspiracy to underpay doctors.²³

The "very heart of the plaintiffs' RICO claims" were the corporate policies and practices common to all plaintiffs, thus making the class appropriate for certification despite its massive size.²⁴ The court further noted that individual issues regarding reliance and damages did not preclude class certification because the circumstantial evidence used to prove reliance was "common to the whole class."²⁵ The court reasoned that all communications with the physicians conveyed essentially the same message: "the defendants would honestly pay physicians the amounts to which they were entitled."²⁶

Although the court acknowledged its holding in Sikes that reliance may not be presumed in fraud-based RICO actions, it determined that "the simple fact that reliance is an element in a cause of action is not an absolute bar to class certification."²⁷ The court reasoned that

while each plaintiff must prove his own reliance in this case, we believe that, based on the nature of the misrepresentations at issue, the circumstantial evidence that can be used to show reliance is common to the whole class .... Consequently, while each plaintiff must prove reliance, he or she may do so through common evidence (that is, through legitimate inferences based on the nature of the alleged misrepresentations at issue).²⁸

The court did not address how defendant's right to defend each claim would be adjudicated.

The court in Klay also rejected the argument that individualized damage issues prevented a finding of predominance.²⁹ The court again labored to distinguish Sikes v. Teleline, Inc.³⁰ and Rutstein as cases in which the need for individualized assessment of damages was enough to preclude Rule 23(b)(3) certification.³¹ The court then emphasized that cases like that "rarely, if ever, come along," though it cited two of these apparent rarities, Sikes and Rutstein, in its own published decisions in the last five years.³² The court opined that individualized damage inquiries, though necessary, could perhaps be accomplished by reference to forms.³³ The court then observed that "[i]t is ridiculous to expect 600,000 doctors across the nation to repeatedly prove these complicated and overwhelming facts."³⁴

The court then examined "whether . . . plaintiffs' federal claims satisfied the second prong of the Rule 23(b)(3) test[:] [whether] a 'class action is superior to other available methods . . . ."'³⁵ The court recited the rule's "'non-exhaustive' list of four factors courts should take into account in making this determination": (1) class members' interests "in individually controlling the prosecution or defense of separate actions"; (2) the extent of related litigation already commenced by or against class members; (3) the desirability of concentrating claims in the particular forum; and (4) the likely difficulties of managing the class action.³⁶ The court then focused on the two factors the parties addressed: the desirability of litigating in a single forum and the manageability of the class.³⁷ The court concluded that: (1) proceeding in one forum would save the litigants time and expense; (2) the district court had already handled several preliminary matters; and (3) the individual claims were likely too small for attorneys working on a contingent fee basis to pursue them individually.³⁸ The court also concluded that any foreseeable manageability problems did not counsel against class certification because common issues predominated.³⁹ Moreover, the number ofproblems arising from class certification would be fewer than the potential problems if class members filed 600,000 separate lawsuits.⁴⁰

Although it approved the certification of the RICO class, the court determined that individualized issues of fact on the breach of contract claims would predominate and that class certification should not be permitted.⁴¹ The court noted that there appeared to be no material differences among state laws addressing the breach of contract issue.⁴² The court hesitated to conclude that common issues predominated because of the number of contracts and not all plaintiffs had signed the same form contract.⁴³ The fact that defendants had conspired to underpay doctors and accordingly programmed their computers did nothing to establish that any individual doctor was underpaid on any particular occasion. The court also observed that defendants breached their contracts in a variety of specific...