CASE ILLUMINATES DIFFICULTIES IN LITIGATION WITH INDIAN TRIBES IN SELF-FUNDED CONTEXT
CASE ILLUMINATES DIFFICULTIES IN LITIGATION WITH INDIAN TRIBES IN SELF-FUNDED CONTEXT (LDFS,LLC v. IEC Group, Inc., d/b/a AmeriBen, U.S. District Court, D. Arizona, July 27, 2017).
A dialysis provider, LDFS, sued AmeriBen, a TPA, in federal district court in Arizona, claiming that AmeriBen owed it for services rendered to a self-funded Indian Tribe Plan beneficiary and for certain bounced checks. These claims were based on state law.
The theory of LFDS’ action was that the TPA AmeriBen had negotiated a “pricing agreement” (through its agent) with LFDS, providing that AmeriBen would receive a 40% discount off billed charges at LFDS’ dialysis center. This pricing agreement, LFDS contended, obligated AmeriBen as payor and rendered it liable to LFDS for the charges at issue.
In reality, however, there was another entity in the mix, a non-profit corporation known as the Tuba City Regional Healthcare Corporation (“Tuba”). AmeriBen had a contract with Tuba in Tuba’s capacity as Plan Sponsor and/or Administrator of the Indian Tribe Plan. That contract provided, among other things, that AmeriBen had no responsibility for funding any of the Plan benefits. Further, it stated that Tuba would be bound by any contracts AmeriBen made with vendors and others, that Tuba had final discretionary authority with respect to any Plan benefit payments, and that all such payments would be made by AmeriBen via an account established, funded and regularly reconciled by Tuba.
Tuba was not made a party to the lawsuit by LFDS, because, as we will shortly see, it could not be. AmeriBen moved to dismiss the action for want of an “indispensable party” under Fed. R. Civ. P. 19. Rule 19 is designed to lay out a rubric for the court to follow when a defendant contends that the case cannot go forward without the presence of some absent entity. If the factors set out in Rule 19 are all satisfied, then the case must be dismissed.
Essentially, Rule 19 functions as follows: First, the court must determine whether the absent party is “necessary,” in the general sense that it would be unfair to that party or to the existing parties to proceed with that party missing. If the absent party is ‘necessary,’ the court must then determine whether joinder is “feasible.” Finally, if joinder is not “feasible,” the court must decide whether the absent party is ‘indispensable.” In order to determine indispensability, the court must determine whether “in equity and good conscience” the action can continue without the necessary party.
The Court had no problem concluding that Tuba was a necessary party under Rule 19, given its role. So, why did the Court end up dismissing the case? Because Tuba could not be made a party as it was a tribal entity.
Federal courts may only proceed with a case if there is what is called “subject matter jurisdiction.” There are two types: federal question jurisdiction and diversity jurisdiction. The former requires that the action arises under federal law. Here, LDFS’ claims were merely state-law breach of contract and bad check claims. As for diversity, that requires that the parties be “citizens” of different states. And tribal entities are not citizens of any state, according to established law. Adding Tuba would therefore have destroyed diversity, and the Court would have lost jurisdiction of the case in such event.
Noting this fatal problem, the Court entered an order dismissing the case, leaving LFDS to pursue its remedies in state court, where diversity is not required for jurisdiction to exist.
And so it is with tribal entities—the normal rules don’t apply. Stop loss carriers providing excess loss coverage to Indian tribes—and in my experience, many often do—should not enter into such deals without appreciation of the fact that if disputes arise, they will be relegated to the state courts. The federal courts, which so often are receptive to dispositive pretrial motions filed by stop loss carriers, will be out of reach.
Read the Court’s opinion here.