In Re: lorazepam/cloraze v. Mylan Laboratories ( 2012 )

THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
MDL Docket No. 1290 (TFH/JMF)
Misc. No. 99-276 (TFH)
F§LED
QCTMZBE?
C§erk, U.S. Distnci Ba.r:kruptcy
_ Courts for the Uisrrict of Co!urribi
C1v. No. 01-2646 (TFH)
IN RE LORAZEPAM & CLORAZEPATE
ANTITRUST LITIG.
HEALTH CARE SERV. CORP.,
Plaintiff,
V.
MYLAN LABS., INC., er al.,
Defendants.
BLUE CROSS BLUE SHIELD OF MINN.,
BLUE CROSS BLUE SHIELD OF MASS.,
and FEDERATED MUT. INS. CO.
Plaintiffs,
v. Civ. No. 012-1299 (TFH)
MYLAN LABS., INC., et al.,
Defendants.
\./\z\/\./\/\/\/\/\/\./\/\/\/\/\/\/\/\/\/\/~/\./\/
MEMORANDUM OPINION
These proceedings arise from the D.C. Circuit’s remand of this action on jurisdictional
grounds. On appeal, Defendants challenged, for the first time, the only basis for subject matter
jurisdiction over the action - diversity jurisdiction. Defendants were able to demonstrate that at
least one plaintiff was not diverse to all of the defendants. Because the pleadings lacked
jurisdictional allegations for most of the plaintiffs in this case, the D.C. Circuit remanded the
matter for a determination of: (l) the citizenship of plaintiffs for whom the pleadings lacked
citizenship allegations and (2) whether - in order to preserve jurisdiction - nondiverse plaintiffs
could be dismissed from the action pursuant to Federal Rule of Civil Procedure 21.
l
This Court has already answered the latter question in the affirmative See Order, June l,
2012 [Dkt. No. 1028]. Heretofore unresolved is the citizenship inquiry. Following the remand
Plaintiffs submitted jurisdictional allegations for the allegedly diverse plaintiffs whose
citizenship had not yet been plead and moved to dismiss nondiverse plaintiffs. After carefully
considering Plaintiffs’ motion and the oppositions and replies thereto; the oral arguments before
the Court; and the entire record of this case, the Court denies Plaintiffs’ motion without
prejudice.
I. Background
The Court assumes familiarity with this case’s long and complex factual background and
procedural history and so here will dispense with a detailed recounting.l Briefly, however, this
action arises from alleged antitrust violations resulting from exclusive licensing agreements
among the defendant pharmaceutical drug manufacturers and pharmaceutical drug ingredient
manufacturers - Mylan, lnc.; Mylan Pharmaceuticals; Gyma Laboratories of America, lnc.; and
Cambrex Corporation. The named plaintiffs in this action - Blue Cross Blue Shield of
Minnesota ("BCBS-MN"), Blue Cross Blue Shield of Massachusetts ("BCBS-MA"), Health
Care Service Corporation ("HCSC"), and Federated Mutual Insurance Company ("Federated") -
are four health insurance companies. In addition to bringing suit on their own behalf, the named
plaintiffs sued "as claims administrators for their self-funded customers."z
Prior to trial, a dispute arose over the propriety of permitting the named plaintiffs to sue
on behalf of their self-funded customers. In an order dated March 2, 2005, this Court concluded
l For a comprehensive account of this case’s extensive procedural history and factual background see, e.g., 1n re
Lorazepam & Clorazepate Antitrust Litig. Opinions: 631 F.3d 537 (D.C. Cir. 2011); 295 F. Supp. 2d 30 (D.D.C.
2003); and 467 F. Supp. 2d 74 (D.D.C. 2006).
2 The tenn "self-funded customer" refers to entities "providing health benefits directly to their employees using their
own funds." See In re Lorazepam & Clorazepate Antitrust Litig. v. Mylan Labs., lnc., 631 F.3d 537. The named
plaintiffs provided "administrative services" for these customers.
_p__
the named plaintiffs "lack[ed] authority to bring claims on behalf of their self-funded
customers." Id. However, the Court permitted the name plaintiffs to proceed under Fed. R. Civ.
P. l7(a)(3) by seeking ratification from the self-funded customers to prosecute the claims in their
name. Five of the approximately 1,400 self-funded customers opted out of ratification The
remaining claims proceeded to trial, Following a jury trial, judgment was entered for Plaintiffs
in the amount of $76,823,943. Defendants appea1ed.
Days prior to oral argument on Defendants’ appeal, Defendants alleged jurisdictional
infirrnities. They argued that the Court lacked subject matter jurisdiction because at least one
self-funded customer shared a state of citizenship with a defendant. The Circuit rejected
Plaintiffs’ argument that the Court had supplemental jurisdiction over the self-funded customers’
claims. As the real parties of interest to the ratified claims, the Circuit further concluded, the
"self-funded customers must be counted as parties for diversity of citizenship purposes." In re
Lorazepam, 631 F.3d 53 7, 540 (D.C. Cir. 2011). Because the pleadings in this matter lacked
citizenship allegations for the self-funded customers, the case was remanded to this Court for an
inquiry into the citizenship of the self-funded customers and a determination of whether any
nondiverse self-funded customers could be dismissed pursuant to F ederal Rule of Civil
Procedure 21 ("Rule 21"). See id. at 542.
Through an order dated June 1, 2012, this Court concluded nondiverse self-funded
customers could be dismissed under Rule 21 and denied Defendants’ motion to dismiss this case
for lack of subject matter jurisdiction.3 Still pending before the Court is P1aintiffs’ Motion to
3 The Court provides its reasoning for that decision be1ow.
_3_
Dismiss Claims and for Remittitur [Dkt. No. 1006].4 Plaintiffs seek the dismissal of all
nondiverse self-funded customers and remittitur of` damages attributable to those customers.
Defendants argue Plaintiffs’ jurisdictional allegations are insufficient to establish diversity
jurisdiction over the allegedly diverse self-funded customers. As detailed below, the Court
denies Plaintiffs’ motion without prejudice and instructs the parties to engage in further
jurisdictional inquiry consistent with the framework outlined in this memorandum opinion.
II. Indispensability of self-funded customers
The D.C. Circuit remanded this case, in part, for a determination of whether the
nondiverse self-funded customers could be dismissed from the action under Rule 21. Defendants
argue the self-funded customers are "necessary" and "indispensable" parties to this action under
Federal Rule of Civil Procedure 19 ("Rule 19") and, therefore, no self-f`unded customer may be
dismissed under Rule 21. The Court disagrees.
A. Legal analysis
Rule 21 provides, inter alia, "[o]n motion or on its own, the court may at any time, on just
terms, add or drop a party. . ." FED. R. C1v. P. 21. "This Rule allows the district court to dismiss
so called ‘ jurisdictional spoilers’ - parties whose presence in the litigation destroys jurisdiction -
if those parties are not indispensable and there would be no prejudice to the parties." In re
Lorazepam, 631 F.3d at 542 (citing Newman-Green, Inc. v. A[fonzo-Larrain, 490 U.S. 826, 830-
32 (1989)). "[I]t is well settled that Rule 21 invests district courts with authority to allow a
dispensable nondiverse party to be dropped at any time, even after judgment has been rendered."
Newman-Green, 490 U.S. at 832.
4 As amended by Pls.’ Supplemental Mot. to Dismiss Claims and for Remittitur [Dkt. No. 10l4], Pls.’ Reply on their
Mot. to Dismiss Claims and for Remittitur [Dkt. No. 1016] and Pls.’ Mot. to Dismiss Claims and for Remittitur
[Dkt. No. 1030].
However, a court may not dismiss under Rule 21 an otherwise indispensable party under
Rule 19. See In re Lorazepam, 631 F.3d at 542; CP Solutions PTE, Ltd. v. GE, 553 F.3d l56,
159 (2d Cir. 2009) ("Federal Rule of Civil Procedure 21 allows a court to drop a nondiverse
party at any time to preserve diversity jurisdiction, provided the nondiverse party is not
‘indispensable‘ under Rule 19(b)"). Before the court determines whether a party is
"indispensable" under Rule 19(b), it must first determine under Rule 19(a) whether the party is
"necessary" to the action. See Kickapoo Trz`be of Indians v. Babbitt, 43 F.3d 1491, 1494-95
(D.C. Cir. 1995).5
Rule 19(a) reads as follows in applicable parts:
(a) Person Required to Be Joined if Feasible.
(1) Required Parzy. A person who is subject to service of process and whose
joinder will not deprive the court of subject-matter jurisdiction must be
joined as a party if:
(A) in that person's absence, the court cannot accord complete relief
among existing parties; or
(B) that person claims an interest relating to the subject of the action
and is so situated that disposing of the action in the person's
absence may:
(i) as a practical matter impair or impede the person's ability to
protect the interest; or
(ii) leave an existing party subject to a substantial risk of
incurring double, multiple, or otherwise inconsistent
obligations because of the interest.
Fed. R. Civ. P. 19(a).
If joinder of a "necessary" party is infeasible, "the court must determine whether, in
equity and good conscience, the action should proceed among the existing parties or should be
5 F or consistency’s sake, the Court will employ the traditional "necessary" and "indispensable" nomenclature
notwithstanding the updated Rule 19’s departure from the terrns. The Advisory Committee Notes acknowledge the
departure was "sty1istic" rather than "substantive". See FED. R. CIV. P. 19, Notes of Advisory Committee on 2007
Amendments.
_5_
dismissed." FED. R. CIV. P. 19(b); see also Kickapoo, 43 F.3d at 1494. Factors to consider
include: (l) "the extent to which a judgment rendered in the person’s absence might prejudice
that person or the existing parties;" (2) "the extent to which any prejudice could be lessened by
protective provisions in the judgrnent, shaping relief, or other means;" (3) "whether a judgment
rendered in the person’s absence would be adequate; and" (4) "whether the plaintiff would have
an adequate remedy if the action were dismissed for nonjoinder." FED. R. CIV. P. 19(b); see also
Provident Tradesman Bank & Trust, C0. v. Patterson, 390 U.S. 102, 109-13 (1968). "This is a
333
fact-specific inquiry that ‘can only be determined in the context of particular litigation. Primax
Recoveries, lnc. v. Lee, 260 F. Supp. 2d 43, 51 (D.D.C. 2003) (citing and quoting in part
Provia'ent, 390 U.S. at 118); Kickapoo, 43 F.3d at 1495 ("[t]he rule calls for a pragmatic decision
based on practical considerations in the context of particular liti gation"). With these principles
in mind, the Court turns to the parties’ arguments.
B. Discussion
Before reaching the indispensability analysis under Rule 19(b), the Court seriously
doubts the self-funded customers are necessary parties to the litigation under Rule 19(a). To
begin with, complete relief can be accorded in the absence of the self-funded customers. See
FED. R. CIV. P. l9(a)( 1 )(A). Each of the plaintiff health insurance companies and the self-funded
customers suffered discrete, particularized, damages to the extent that they paid artificially
inflated prices as a result of exclusive licensing agreements entered into by Defendants. In the
words of Defendants, "[t]he losses in this case are strictly economic and were calculated by
reference to thousands of specific identifiable pharmaceutical reimbursement transactions."
Defs.’ Reply in Support of Defs.’ Mot. for Remittitur at 4 [Dkt. No. 905]. Were any or all of the
self-funded customers excluded from this action, the Court would still be in a position to afford
complete relief to the remaining parties.
Next, assuming arguendo each self-funded customer has an interest relating to the subject
of this action, disposition of the case in their absence neither impedes their ability to protect that
interest nor "leave[s] an existing party subject to substantial risk of incurring double, multiple or
otherwise inconsistent obligations because of the interest." See FED. R. CIV. P. l9(a)(l)(B).6 As
is noted above, each self-funded customer sustained individually quantifiable damages from
Defendants’ conduct. Defendants have not established how a final judgment in this action
awarding damages for the discrete harms suffered by plaintiffs remaining in this action would
"impair or impede" any excluded self-funded customers from protecting their own interests.
Moreover, it is inaccurate for Defendants to argue disposing of this action in the absence
of any or all of the self-f11nded customers would subject Defendants to the risk of incongruous
obligations. "‘lnconsistent obligations’ are not. . .the same as inconsistent adjudications or
results." Delgaclo v. Plaza Las Ams., 139 F.3d l, 3 (l st. Cir. l998) (citations omitted); see also
Cachil Dehe Band of Wirztun Indians v. California, 547 F.3d 962, 976 (9th Cir. 2008). The mere
possibility dismissed self-funded customers may choose to sue Defendants for distinct damages
they have suffered does not implicate the concerns associated with inconsistent obligations. See
Delgaclo, 139 F.3d at 3 (". . .inconsistent obligations occur when a party is unable to comply with
one court's order without breaching another court's order conceming the same
incident. . .[i]nconsistent adjudications or results, by contrast, occur when a defendant
successfully defends a claim in one forum, yet loses on another claim arising from the same
6 Certainly each self-funded customer has an interest in the subject of this action to the extent that they too were
harmed as a result of the defendants’ conduct. On the other hand, self-funded customers do not have an interest in
the discrete damages suffered by the named plaintiffs or any other self-funded customers.
incident in another forum."); see also 4 J ames Wm. Moore et al., MOORE’S FEDERAL PRACTICE-
CIVIL § l9.03[4][d] (3d. ed. 2012) (distinguishing between inconsistent adjudications and
inconsistent obligations). Inconsistent adjudications do not implicate the prejudice concerns
subsection (a)(b)(ii) endeavors to protect. See Delgado, 139 F.3d at 3.
Assuming the self-funded customers are "necessary" parties, they are not indispensable.
Joinder of nondiverse self-funded customers is not feasible as their presence would strip this
Court of subject matter jurisdiction. See Provident, 390 U.S. at 108-109. Considerations of
"equity and good conscience" dictate this action proceed to a resolution on the merits in the
absence of the nondiverse self-funded customers.
To begin with, no compelling argument has been presented to show that either the
dismissed self-funded customers or Defendants would suffer meaningful prejudice were this
action to proceed in the absence of any or all of the self-funded customers. The Court has
already concluded the exclusion of non-diverse self-funded customers from this action would not
"impair or impede" their interest in claims they may have against Defendants. See Provz`dent,
390 U.S. at 110 (likening prejudice inquiry under Rule 19(b) to 19(a) inquiry). Defendants,
argue the characterization of the self-funded customers as the "real parties of interest" in this
case makes them inherently indispensable. This argument misses the point. The self-funded
customers are the "real parties of interest" with respect to their own damages claims against
Defendants and not with respect to the named plaintiff insurance companies or other self-funded
customers’ claims. Thus, this is not a case where a party to the action is asking the Court to rule
on the rights of an absent party. See Kz`ckapoo Tribe of Okla. v. Lujan, 728 F. Supp. 791, 797
(D.D.C. 1990) (dismissing case under Rule 19 because "the real party at interest [was] missing").
Defendants’ conduct prior to this remand undermines their present position that equity
and good conscience counsel dismissal. Certainly, Defendants do not here seek to protect
excluded self-funded customers from the prejudice of judgrnent in their absence; indeed,
Defendants sought and were granted dismissal of the self-funded customers prior to trial. See
Defs.’ Mot. in Limine to Preclude Claims on Behalf of Self-Funded Customers [Dkt. No. 680].7
Nor have Defendants made a compelling case that they would be prejudiced if this action
proceeds in the absence of any or all of the self-funded customers. Duplicative liability on
claims can be avoided by modifying the judgment through remittitur of damages attributable to
the dismissed, nondiverse, self-funded customers. See FED. R. CIV. P. l9(b)(2)(B). Further1nore,
the trial phase of this case has already concluded, thus blunting the specter of prejudice from
multiple litigation. 1n any case, Defendants did not appear to be genuinely concerned with the
prospect of multiple litigation when they sought the dismissal of the self-funded customers from
this action prior to trial. See Provia'ent, 390 U.S. at 110 & n.4 ("the defendant may properly
wish to avoid multiple litigation or inconsistent relief . . . [a] fter trial, however, if the defendant has
failed to assert this interest, it is quite proper to consider it foreclosed").
Finally, the Court considers efficiency - a particularly forceful consideration at this stage
of litigation. See Caterpillar Inc. v. Lewz`s, 519 U.S. 61, 76 (noting after a final judgrnent,
"considerations of finality, efficiency, and economy become overwhelming"). Efficiency
concems would be different were this litigation in an earlier phase. However, after over a decade
of litigation culminating in a trial and judgrnent, Plaintiffs have "a strong additional interest in
preserving [their] judgment." Provident, 390 U.S. at 110. Likewise, from the court and public’s
7 The Court granted Defendants’ motion in limine; however, the Court permitted the case to proceed with self-
funded customers’ claims after ratification under FED. R. CIV. P. l7(a)(3).
_9_
perspective, "the fact that time and expense of a trial have already been spent" heavily weigh in
favor of proceeding in the absence of nondiverse self-funded customers. See id. at 1 1 1.
The Court concludes the self-funded customers are not indispensable parties to this action
under Rule 19 and, therefore, may be dismissed pursuant to Rule 21. Moreover, the Court rejects
Defendants’ argument that the contours of Rule 21 itself preclude the dismissal of what
ultimately amounts to hundreds of nondiverse self-funded customers. Nothing in Rule 21
supports such a limitation nor do Defendants offer legal precedent in support of the proposition.
III. Choice of Law Argument
The Court rejects as fatally belated Defendants’ assertions that the Circuit’s remand
necessitates further choice of law analysis. See CSX Transp. v. Commercz`al Union Ins. C0., 82
F.3d 478, 482-83 (D.C. Cir. 1996) (noting choice of law argument may be waived). Defendants
effectively concede this argument was raised for the first time on appeal. See Defs.’ Reply at 10
n.5. They cite In re Air Crash Disaster at Washington, DC, 559 F. Supp. 333 (D.D.C. 1983), for
the appreciable proposition that a choice of law argument cannot be waived prior to the
particular court ruling that creates the basis for the argument. See id., 559 F. Supp. at 337.
However the basis for any choice of law argument Defendants now wish to pursue existed well
before their appeal. The self-funded customers’ claims have been a part of this case from its
inception. See In re Lorazepam, 631 F.3d at 542. This Court’s order precluding Plaintiffs from
bringing claims "on behalf’ of the self-funded customers, Order, March 2, 2005, and subsequent
order permitting Plaintiffs to seek ratification from the self-funded customers pursuant to Fed. R.
Civ. P. 17(a), Order, April 26, 2005, squarely established the self-funded customers’ role as real
parties of interest in this case.
_]_0-
Regard1ess of the parties’ perceived basis for the court’s jurisdiction over the self-funded
customers at trial - whether diversity or supplemental jurisdiction - the choice of law question
was firmly implicated well before the appeals proceedings. See Mastro v. Potomac Elec. Power
C0., 447 F.3d 843, 857 (D.C. Cir. 2006) (noting choice of law analysis implicated "when [federal
court] deciding state-law claims under diversity or supplemental jurisdiction. . ."). Defendants
may not use the Circuit’s remand as a chance to advance an argument they could have, but chose
not to make.
IV. Subject matter jurisdiction
Following the Circuit’s remand of this matter, Plaintiffs undertook an investigation into
the citizenship - for diversity jurisdiction purposes - of the approximately 1,400 self-funded
customers in this case. At the conclusion of their investigation Plaintiffs requested the dismissal
of both nondiverse self-funded customers and those whose citizenship could not be deterrnined.
Pls.’ Mot. to Dismiss at 22.8 In all, Plaintiffs seek the dismissal of nearly 500 self-funded
customers. Defendants argue Plaintiffs have failed to provide sufficient proof to support their
jurisdictional allegations. See Defs.’ Cross Mot. to Dismiss at 8-17.
A. Lega1 analysis
"F ederal courts are courts of limited jurisdiction. They possess only that power
authorized by Constitution and statute. . ." Kokkonen v. Guara’z`an Life Ins. Co. ofAm., 511 U.S.
375, 377 (1994) (citations omitted). 28 U.S.C. § 1332 confers original jurisdiction to district
courts over civil actions in which the amount in controversy exceeds $75,000 and diversity of
citizenship exits. See id. Diversity of citizenship requires no two parties on opposing sides of an
8 Plaintiffs’ June 29, 2011 motion to dismiss has been amended through a series of supplemental
filings on the jurisdictional issue. See Pls.’ Supplemental Mot. to Dismiss [Dkt. No. 1014]; Pls.’
Reply on their Mot. to Dismiss [Dkt. No. 1016]; Pls.’ Joint Mot. to Dismiss Claims and for
Remittitur [Dkt. No. 103 0].
_11_
action share states of citizenship. See Caterpillar Inc., 519 U.S. at 68; Saadeh v. Faroukz`, 107
F.3d 52, 55 (D.C. Cir. 1997).
"[T]he party seeking the exercise of diversity jurisdiction bears the burden of pleading
the citizenship of each and every party to the action." Loughlin v. Unitea’ States, 393 F.3d 155,
171 (D.C. Cir. 2004) (quoting Naartex Consultl`ng C0rp. v. Watt, 722 F.2d 779, 792 (D.C. Cir.
1983)). "When challenged on allegations of jurisdictional facts, [the party asserting jurisdiction]
must support their allegations by competent proof." Hertz Corp. v. Friend, 130 S. Ct. 1181,
1194-1195 (2010) (citing McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189
(1936)); see also Agudas Chasia’z`e Chabaa’ v. Russz`an Fecl ’n, 528 F.3d 934, 940 (D.C. Cir.
2008).
B. Discussion
Here, rather than factually contravening Plaintiffs’ jurisdictional allegations or raising an
issue of fact, Defendants simply argue Plaintiffs have not met their burden of establishing
jurisdiction with competent proof. See Defs.’ Mot. to Dismiss at 8.9 The Court will not here
resolve whether simply uttering "challenge" constitutes a challenge sufficient under McNutt to
trigger Plaintiffs’ burden, but it has its doubts. See, e.g., Sterk v. Redbox Automated Retail, LLC,
2012 U.S. Dist. LEXIS 101717, *25-26 (N.D. lll. July 23, 2012) ("it is only once evidence is
offered to rebut jurisdiction that the plaintiff must present evidence to support jurisdiction");
Branch Bankz`ng & Trust Co. v. R&TRenlals, 2011 U.S. Dist. LEXIS 43910, *4-5 (S.D. Ala.
Apr. 4, 201l). lnstead, the Court determines sua sponte Plaintiffs must support their
jurisdictional allegations with additional proof. See Sharp v. R0sa Mexicano, D. C., LLC, 496 F.
9 In an order dated June 6, 2012, this Court prompted Defendants to assert "any challenges to the factual basis for
Plaintiffs’ jurisdictional allegations. . ." See Order, June 6, 20l2. Defendants responded with the same arguments
raised in their prior briefs on the issue. See Defs.’ Resp. to Pls.’ Mot. for Remittitur [Dkt. No. 1031]. Of course, the
Court is sympathetic to the fact that the procedural oddities in this case which caused defects in the original
pleadings may have affected Defendants’ incentive to explore self-funded customer citizenship during discovery.
_12_
Supp. 2d 93, 97 (D.D.C. 2007) ("[t]he subject matter jurisdiction of the Court is constitutionally
limited, and the Court has an obligation under these constitutional limits to address its
jurisdiction to hear a case, raising the issue sua sponte if necessary").
Tlie Court’s obligation to ensure jurisdiction becomes particularly manifest where, as
here, Plaintiffs have altered their jurisdictional allegations no less than three times in a year. For
example, Plaintiffs originally moved to dismiss self-funded customers Pilgrim’s Pride
Corporation and Occidental Petroleum Corporation as nondiverse parties. See Zimmerrnan
Decl., Ex. HC-C. Plaintiffs subsequently alleged those two self-funded customers were in fact
diverse. See Pls.’ Reply at 30. Then, in a final brief on the issue, Plaintiffs reversed course once
again asserting Pilgrim’s Pride and Occidental were nondiverse. See Pls.’ Mot. to Dismiss
Claims and for Remittitur at 6. In other words, Plaintiffs altered the jurisdictional allegations for
these particular self-funded customers with almost every subsequent brief on the issue.
The Court appreciates Plaintiffs’ good faith efforts to resolve this jurisdictional question.
Were the inquiry limited to the facial sufficiency of Plaintiffs’ jurisdictional allegations the Court
could find no fault. See Macharia v. Um`lea’ Sz‘ates, 238 F. Supp. 2d 13, 19 (D.D.C. 2002)
(noting that upon a "facial challenge" "a court must accept all of the complaint’s well-pleaded
allegations as true and draw all reasonable inferences li‘om those allegations in the plaintiffs’
favor"). Plaintiffs have adequately alleged the necessary underlying facts to establish. But the
concern here is jurisdiction in fact, which requires proof of those alleged facts. The presumption
against jurisdiction, see Kokkonen, 511 U.S. at 377, combined with the peculiar procedural
history of this action and Plaintiffs’ equivocal post-remand briefing on this issue dictate the
Court approach its subject matter jurisdiction analysis with particular caution.
_13_
Ordinarily, analysis of the Court’s subject matter jurisdiction would begin with
allegations contained in the pleadings. Here however the pleadings are devoid of jurisdictional
allegations for the self-funded customers. Therefore the Court tunis to the parties’ post-remand
briefs on the issue. See District of Columbz`a ex rel. Am. Combustion v. Transamerica, 797 F.2d
1041, 1044 (D.C. Cir. 1986) ("[28 U.S.C. §] 1653’s liberal amendment rule permits a party who
has not proved, or even a1leged, that diversity exists to amend his pleadings even as late as
appeal"). The self-f1inded customers for whom Plaintiffs allege diversity jurisdiction fall into
one of two general categories: corporate self-funded customers and municipal self-funded
customers. The Court assesses the proof tendered to support the jurisdictional allegations for
self-funded customers falling into each of these categories in tum.
1. Corporate self-funded customers
For diversity jurisdiction purposes, corporations are citizens of the state or states in which
they are incorporated and the state of its principal place of business. See Novak v. Capital Mgml.
& Dev. Corp., 452 F.3d 902, 906-907 (D.C. Cir. 2006); 28 U.S.C. § 1332(¢). In order to
establish the state of incorporation - at the time the original complaint was filed - for corporate
self-funded customers, Plaintiffs rely on corporate filings stored online in public records
maintained by state Secretaries of State. See Krein Decl. 1111 3-5, 7-9; Zimmerrnan Decl. 11 8.10
The Court takes judicial notice of these public records and accepts them as competent proof of
the states of incorporation for the relevant self-funded customers. See Sears v. Magnolia
Plumbing, Inc., 778 F. Supp. 2d 80, 84 n.6 (D.D.C. 2011) (taking judicial notice of corporate
resolutions filed with the Maryland Department of Assessments and Taxation); see also Ebersohl
v. Bechzel Corp., 2010 U.S. Dist. LEXIS 53277, *8-9 (S.D. lll. May 31, 2010) (taking judicial
m BCBS-MA and BCBS-MN self-funded customer corporate records identifying the state of incorporation are
provided in Krein Supplemental Decl., Ex. 1 and App., respectively. HCSC self-funded customer corporate records
identifying the state of incorporation are provided in Zimmerman Second Supplemental Decl., Ex. 2.
_14_
notice of corporate records maintained by Illinois Secretary of State to determine state of
incorporation).
The proffer by Plaintiffs to establish the principal place of business for the self-funded
customers is another matter alto gether. The "principal place of business" is the place where "a
corporation’s officers direct, control, and coordinate the corporation’s activities." Hertz, 130 S.
Ct. at 1192. To support the alleged principal place of business for most“ of BCBS-MA’s
corporate self-funded customers Plaintiffs rely on corporate annual reports filed with the
Massachusetts Secretary of State. See Krein Decl. 1]1]3-4; Suppl. Krein Decl., Ex. 1. The armual
reports reflect the self-funded customers’: date of incorporation, principal office address and
addresses for the corporation’s officers and directors.
The Court finds the records to be insufficient proof of the principal place of business
See Hertz, 130 S. Ct. at 1195 ("the mere filing of a form listing a corporation’s "principal
executive offices" would, without more, be insufficient proof to establish a corporation’s "nerve
center"). Here, Plaintiffs do offer more in the form of a listing of addresses for corporate
executives and directors Nonetheless, the Court cannot find this infonnation sufficiently
establishes the principal place of business for BCBS-MA’S corporate self-funded customers.
The listing of addresses, presumably in some cases home addresses, offers little in the way of
support for where the companies’ officers actually "direct" and "coordinate" corporate activity.
To establish the principal place of business for BCBS-MN, HCSC and some BCBS-MA
corporate self-funded customers Plaintiffs rely on affirmations from the self-funded customers.
See Gilde Decl. 1111 4-5; Zimmeman Decl. 11 8; Walker Decl. 11 3. Each affirmation consists of a
boilerplate paragraph which asks "an appropriate individual" to designate:
11 Plaintiffs requested the Court take judicial notice of the principal place of business for certain BCBS-MA self-
fmMwcmwmmsSmPBFMmJoDmm$ChmmmdHHmMmnm5.HmCmmdwmwMMMwqmA
_15_
"the principal place of business of the company, that is, the State in which the
company’s high level officers, directed, controlled and coordinated the
corporation’ s activities".
See, e.g., Zimmerrnan Decl., Ex. A. The Court cannot accept these affirmations as competent
proof of the principal place of business First, the unswom affirmations establish no basis of
knowledge for the attesters. See, e.g., Schira v. Sit, 2010 U.S. Dist. LEXIS 40987, *4 (W.D.
Wis. Apr. 27, 2010) (rejecting affidavit supporting jurisdictional allegations, in part, because
affidavit failed to establish affiant had "personal knowledge" of the matter); Martz`nez v. Morgan
Stanley & C0., 2010 U.S. Dist. LEXIS 80797, at *7-8 (Aug. 9, 2010) ("because ...[the]
declaration regarding Morgan Stanley & Co. lncorporated’s principal place of business lacks
foundation, it is insufficient . ."). Furthermore, the affimiations offer conclusory allegations
which recite the "nerve center" test without providing predicate facts to support those
allegations See Heck Yea! Quarter Horses, LLC v. Renji”ow Supply, 2012 U.S. Dist. LEXIS
61224, *l 1-12 (S.D. Miss. May 2, 2012) (requiring more proof when principal place of business
allegation relied on "affidavit stating that the corporation’s ‘high level officers direct, control and
coordinate the corporation’s activities from within the State of Florida’ and its ‘principal place of
business is the State of Florida"’).
2. Municipal self-funded customers
Next, a number of the self-funded customers are characterized as "cities, towns, school
districts or organizations of these political subdivisions". 12 "[A] political subdivision of a State,
unless it is simply ‘the arm or alter ego of the State,’ is a citizen of the State for diversity
purposes." Moor v. Counly of Alameda, 411 U.S. 693, 717 (1973) (citation omitted); Long v.
Dislrict of Columbia, 820 F.2d 409, 413 (D.C. Cir. 1987). "An entity is deemed an arm of the
12 The list of self-funded customers falling into this category inc1udes, among other entities, counties, cities, towns,
school districts, correction facilities, library systems, hospitals sanitary districts,
_15_
state whenever the state is the real party in interest." See Kreiger v. Trane C0., 765 F. Supp. 756,
757 (D.D.C. 1991) (citations omitted). Where the state is the real party in interest and the only
basis for subject matter jurisdiction is diversity, the Court lacks subject matter jurisdiction
because states are not subject to diversity jurisdiction, See Long, 820 F.2d at 412. Plaintiffs
allege none of the 518 self-funded customers falling into this category are located in states in
which Defendants are citizens. See Pls.’ Mot. to Dismiss at 17-18. Defendants contend they
lack the information necessary to assess the relationship between these self-funded customers
and the states in which they are located in order to determine whether a challenge to Plaintiffs’
jurisdictional allegations is warranted. See Defs.’ Resp. to Pls.’ Mot. for Remittitur at 10-1l.
Under the terms set forth below, the Court will permit a brief period of discovery on this
issue alone. See Diamond Chem. Co. v. Ato/i`na Chems., Inc., 268 F. Supp. 2d 1, 15 (D.C. Cir.
2003) (noting Circuit’s liberal standard for permitting jurisdictional discovery); Phoenix
Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C. Cir. 2000) ("[t]he district court
retains considerable latitude in devising the procedures it will follow to ferret out the facts
pertinent to jurisdiction, . ." (intemal quotations and citation omitted)).
3. Limited jurisdictional discovery and briefing schedule
The Court issues the following briefing and discovery schedule pertaining to Plaintiffs’
jurisdictional allegations and Defendants’ challenges thereto:
(l) Defendants shall serve initial jurisdictional discovery requests on Plaintiffs within
30 days of this order permitting jurisdictional discovery. Discovery requests shall
be limited to inquiries on the citizenship, for diversity jurisdiction purposes of the
so called city, town, and school district self-jitndea' customers.
(2) This limited jurisdictional discovery shall terminate 75 days from the date of the
order permitting jurisdictional discovery.
(3) Within 7 days of the close of limited jurisdictional discovery, Plaintiffs shall file a
motion to amend their pleadings Plaintiffs’ amended complaint shall aver the
_17_
(4)
(5)
(6)
jurisdictional facts necessary to establish diversity jurisdiction for self-funded
customers over whom they allege this Court has subject matter jurisdiction See
Loughlin, 393 F.3d at 148-149; Transamerica, 797 F.2d at 1044. Plaintiffs shall
also provide competent proof of the principal place of business for the corporate
self-funded customers over whom they allege this Court has subject matter
jurisdiction.
Within 7 days of the close of limited jurisdictional discovery, Plaintiffs shall file a
motion to dismiss and for remittitur of damages attributable to the dismissed
customers dismissing any nondiverse self-funded customers over whom this court
lacks subject matter jurisdiction,
Within 30 days from the date of Plaintiffs’ motion to amend their pleadings
Defendants shall file a brief identifying: (i) any challenge, as well as the basis for
such challenge, to Plaintiffs’ jurisdictional allegations regarding the corporate self-
funded customers’ principle places of business and (ii) any factual challenge to the
Court’s subject matter jurisdiction over the so called, city, town, and school district
self-funded customers outlining the basis for believing any such self-funded
customer is an "arm of the state".
Plaintiffs shall file a responsive brief within 15 days from the filing of Defendants’
brief and Defendants shall file a reply within 14 days of Plaintiffs’ response.
V. Conclusion
The Court appreciates the fact that this additional phase of litigation may be time
consuming and costly. However, it was Plaintiffs who chose to include the self-f`unded
customers in this suit. The vast number of self-funded customers does not exonerate Plaintiffs or
this Court from the duty to ensure subject matter jurisdiction appertains. Accordingly, Plaintiffs’
motions to dismiss certain self-funded customers and for remittitur [Dkt. Nos. 1006, 1014, 1016
and 1030] shall be DENIED WITHOUT PREJUDICE. Plaintiffs are free to renew their
motion at the appropriate time, with the appropriate support, pursuant to the briefing schedule
delineated above.
An appropriate order accompanies this memorandum opinion.
October 23, 2012
Thomas F. Ho an
UNITED STATES STR UDGE
_18_