Opinion
Civil Action No. 3:03-CV-73-H.
September 2, 2004
MEMORANDUM OPINION
Plaintiff Carefirst of Maryland, Inc. ("Carefirst") brought this suit against Defendants Hardin Memorial Hospital ("HMH") and Carefirst Urgent Care Center, LLC ("Carefirst LLC") (collectively the "Defendants") under federal intellectual property claims, state common law unfair competition and infringement claims, and a state statutory dilution/injury to business representation claim. Defendants move to dismiss the state common law and state statutory claims to the extent Carefirst bases its claim on the common law of Maryland, West Virginia, Delaware, Pennsylvania, Virginia, and the District of Columbia or on Delaware's Unfair Trade Practices Act.
The Court has the benefit of informative memoranda and excellent arguments by counsel at a conference in chambers. Consequently, the Court believes that it has sufficient information at this time to determine which law may apply to Carefirst's state common law and statutory claims.
I.
Carefirst is incorporated and has its principal place of business in Maryland Its trademark and name has been continuously used by its predecessors since 1977. Members also use the collective membership mark to indicate their membership in the organization throughout the United States, including Kentucky. Carefirst is the title owner of the Carefirst federal trademarks, service marks, and collective membership mark registrations. It is the licensor to Carefirst, Inc., which serves as the managing corporation for a number of independent Blue Cross Blue Shield licensees. In late 1997, Blue Cross and Blue Shield of Maryland and Blue Cross Blue Shield of National Capital Area agreed to affiliate and be managed by Carefirst, Inc. and to operate jointly and collectively under the Carefirst mark and name. In 2000, Blue Cross Blue Shield of Delaware also became affiliated. The different entities operated collectively under the Carefirst mark and name (collectively the "Carefirst Organization"). The Carefirst mark and name symbolizes the identity of the Carefirst Health Care Organization.
Carefirst, Inc. is organized under the laws of the state of Maryland
The Carefirst Organization is obligated to provide comprehensive medical services, products, and care directly to enrolled members. Membership in Carefirst entitles each member to payment for emergency health care anywhere in the world and to non-emergency health care upon prior notification and approval by the respective health care provider organization owned by the Carefirst Organization. Membership in any of the Carefirst health maintenance or preferred provider organizations is honored by most health facilities in the United States, provided that the member notifies Carefirst and an appropriate claim is filed. The Carefirst Organization has agreements with 40,000 different companies under which Carefirst will provide, to all employees who enroll with one of the Carefirst health maintenance or preferred organizations, medical services at a specified rate for specified coverage.
HMH has its principal place of business in Elizabethtown, Kentucky. HMH opened an urgent care center named Carefirst Urgent Care Center in 1986 and operated it under that name until forming a solely owned limited liability company Carefirst Urgent Care Center, LLC, ("Carefirst LLC") in April 1999. Carefirst LLC is organized and has its principle place of business in Kentucky. It commenced business under the designation of Carefirst when it was organized. Carefirst LLC assists HMH in its administrative services, namely, the processing of claims and expediting payment for medical services rendered.
Carefirst's primary complaint is that Defendants are using the Carefirst mark and name within the state of Kentucky and in interstate commerce, in connection with their medical care services and administrative services. Carefirst charges that this use is a colorable imitation and an appropriation of its house mark. In addition, Defendants solicit reimbursement and payment for said services under the Carefirst mark and name from insurance companies and self-insured companies and their administrators located throughout the United States.
Carefirst became aware of Defendants alleged violations in October 1999 when it received a health insurance claim form for services rendered by Carefirst, LLC in September 1999. The claim was directed to Carefirst's wholly-owned subsidiary, Willse and Associates, located in Owings Mills, Maryland The claim form had been addressed to Willse and Associates in Radcliff, Kentucky. On November 18, 1999, Carefirst again received a health insurance claim form for services rendered by Carefirst, LLC that had again been addressed to Willse and Associations of Radcliff. Carefirst, after some investigation of Defendants, transmitted a cease and desist letter on February 24, 2000 to the director of Carefirst, LLC and to the chief executive officer of HMH, demanding that the Defendants cease and desist all uses of "Carefirst" and any confusingly similar term. Defendants refused to cease use of the Carefirst mark and name and currently continue to use the mark and name.
This case has an unusual procedural history. Carefirst brought this action in the U.S. District Court of Maryland, asserting various trademark and service mark infringement, unfair competition, and dilution under the federal Lanham Trademark Act claims as well as common law unfair competition and infringement claims. Carefirst's Second Amended Complaint added claims for dilution and injury to business reputation under the statutory law of Delaware. All of these claims were based on its ownership of the Carefirst collective membership mark, service mark, and trademark. Defendants moved to dismiss for lack of jurisdiction. The District of Maryland court held that the Defendants had insufficient contacts with the state to support personal jurisdiction and transferred the case, sua sponte, to this Court pursuant to 28 U.S.C. § 1631.
Carefirst filed a direct appeal to the Fourth Circuit challenging the court's underlying findings of lack of personal jurisdiction. Carefirst concurrently filed its original motion to retransfer the case from Kentucky to Maryland In both the appeal and the motion to retransfer Carefirst claimed that the Maryland court committed reversible error by prematurely ruling on the merits of the trademark claim. The Fourth Circuit dismissed Carefirst's appeal because the transfer order was not immediately appealable under the collateral order doctrine and insulated the personal jurisdiction ruling from plenary judicial review. The case was transferred here February 5, 2003. This Court then denied Carefirst's second motion to retransfer. Carefirst filed a Second Amended complaint with Defendants' consent, and in response Defendants filed this motion to dismiss.
II.
Defendants assert that Kentucky law should apply to all Carefirst's state law claims in Counts III and V of its Second Amended Complaint and that, therefore, those Counts should be dismissed.
As the forum state of a federal district court exercising original jurisdiction over a variety of federal intellectual property claims and Lanham Act violations, Kentucky's choice of law rules apply. See 28 U.S.C. § 1338(a), (b); 15 U.S.C. § 1121; Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132, 136 (6th Cir. 1996) (stating that pendant state claims follow the choice of law of the forum). Kentucky courts originally applied the lex loci delicti rule to their choice of law decisions. This required the application of the substantive law of the state in which the tort was committed. This rule had the advantages of simplicity and predictability, but the disadvantage of ignoring the true relationship of the parties and other considerations important to a just result. Consequently, Kentucky abandoned a pure lex loci rule in favor of an "interest analysis" to determine the state with the most significant contacts with the litigation. Wessling v. Paris, 417 S.W.2d 259, 260-261 (Ky. 1967). Since that occasion Kentucky courts have never applied precisely the same language to its choice of law standard.
The very next year, in fact, the Kentucky Supreme Court said that if Kentucky has "enough contacts," though not necessarily the most significant contacts, then the courts should apply Kentucky substantive law to the dispute. Arnett v. Thompson, 433 S.W.2d 109, 113 (Ky. 1968). A few years later, it said that, "The basic law is the law of the forum, which should not be displaced without valid reasons." Foster v. Leggett, 484 S.W.2d 827, 829 (Ky. 1972). More recently, in an insurance contract case, the Kentucky Supreme Court said that applying the "interest analysis" gives to the forum having the most interest in the problem paramount control of the legal issues. Breeding v. Massachusetts Indem. and Life Ins. Co., 633 S.W.2d 717, 719 (Ky. 1982). These cases do not present Kentucky law in an entirely clear focus.
This has led to some confusion in Sixth Circuit cases. The Sixth Circuit noted that the Breeding case stood for the proposition that Kentucky will apply its own law "if there are significant contacts and no overwhelming interests to the contrary." Harris Corp. v. Comair, Inc., 712 F.2d 1069, 1071 (6th Cir. 1983). In a later case, the Sixth Circuit clarified what it believed to be Kentucky's approach to choice of law problems. The court stated, "Kentucky's conflict of law rules favor the application of its own law whenever it can be justified." Johnson v. S.O.S. Transport, Inc., 926 F.2d 516, 519 n. 6 (6th Cir. 1991) (emphasis added).
Considering these cases together, this Court has concluded that Kentucky prefers the application of its own laws over those of another forum. But the inquiry does not end there. This Court should apply an interest analysis to determine whether it can justify use of Kentucky's laws. If their use can be justified, it should not matter that another state has a greater interest, though perhaps Kentucky's law could be displaced by the overwhelming interest of another state. See Custom Products, Inc. v. Fluor Daniel Canada, Inc., 262 F. Supp. 2d 767 (W.D. Ky. 2003); Rutherford v. Goodyear Tire and Rubber, 943 F.Supp. 789, 792 (W.D.Ky. 1996).
Both Defendants are Kentucky entities. HMH is an unincorporated entity owned by Hardin County, Kentucky, and Carefirst LLC is a limited liability company solely owned by HMH. Defendants do business almost exclusively in Kentucky. HMH provides medical services in its facilities in Elizabethtown and Radcliff, and Carefirst LLC provides administrative services to HMH. The only out of state activity alleged is the transmission of claims to insurance companies and others, seeking reimbursement for the cost of the medical services provided in Kentucky. Indeed, the conduct which is the subject of these claims is so centered upon Kentucky that the District of Maryland federal court found insufficient contacts in that state to justify personal jurisdiction. True, each of the other states listed in Count III have an interest in keeping tortuous conduct from being committed in their state. And, the state of Delaware has an interest in enforcing its anti-dilution statute that Carefirst sets out as a basis for its claims in Count V. However, these interests are generic in nature. These states' interests cannot be so great when their courts lack sufficient contact to assert jurisdiction over the primary Defendants.
The Court is aware that the minimum contacts analysis to decide whether personal jurisdiction is proper over a defendant in a given state is separate from the significant interest analysis under Kentucky's choice of law rules. The two focus on different interests. Choice of law primarily concerns the state's interest in the litigation. See Rutherford v. Goodyear Tire and Rubber, 943 F.Supp. 789, 790 (W.D.Ky. 1996). The minimum contacts analysis focuses on the constitutional due process of forcing a defendant into a state for litigation when it had no reason to expect such litigation in that state. However, the two inquiries frequently rely on common facts and can overlap. Clearly if Maryland lacks the minimum contacts with the Defendants to assert personal jurisdiction, then Kentucky's interests in the litigation would likely be more significant than those of Maryland
On the other hand, Kentucky's interests are demonstrable and significant. Defendants do virtually all of their business in Kentucky. Kentucky contacts and interests establish a strong basis for application of Kentucky law. This is especially true considering the strong presumption in favor of applying Kentucky's substantive law to this matter. Upon reflection, the Court cannot think of a reason why it should apply the law of any state with which Defendants have so few and so unintended contacts. The Court will apply Kentucky's common law to Count III and Kentucky statutory law to Count V. The Court will not dismiss these Counts because the Court has not determined how Kentucky law might apply. At the least, it appears likely that Count V would be subject to dismissal.
The Court will enter an order consistent with this Memorandum Opinion.
ORDER
Defendants have motioned to dismiss Plaintiff's state common law (Count III) and state statutory (Count V) claims to the extent Carefirst bases its claim on the common law of a number of states other than Kentucky. Being otherwise sufficiently advised,
IT IS HEREBY ORDERED that the Kentucky law will apply to Count III and Count V of Plaintiff's Second Amended Complaint.
IT IS FURTHER ORDERED that Defendants' motion to dismiss Counts III and V is DENIED at this time.