Opinion
09-CV-3096 (RA)(SN) 14-CV-10229 (RA)(SN)
01-25-2019
MONTEFIORE MEDICAL CENTER, Plaintiff, v. LOCAL 272 WELFARE FUND, et al., Defendants.
REPORT AND RECOMMENDATION SARAH NETBURN, United States Magistrate Judge.
TO THE HONORABLE RONNIE ABRAMS:
In 2009, Plaintiff Montefiore Medical Center ("Montefiore") sued Defendants Local 272 Welfare Fund (the "Fund") and Marc Goodman, in his official capacity as manager of the Fund (the "First Action"). Montefiore filed a similar lawsuit in 2014 (the "Second Action"). In both cases, Montefiore sought payment for medical services that it provided to participants and beneficiaries of the Fund (collectively, "participants").
The Court has previously addressed most of the disputes in these cases. On May 3, 2018, the Court directed the parties to file consolidated briefing for all outstanding issues. Montefiore filed a consolidated motion for judgment on June 18, 2018. For the reasons set forth below, I recommend GRANTING in part and DENYING in part Montefiore's motion.
BACKGROUND
I. Factual History
Montefiore is a nonprofit hospital in the Bronx, New York. Montefiore provided medical services to participants of the Fund, a self-insured employee benefit plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"). The administration of the Fund is governed by a written document, the Local 272 Welfare Fund Summary Plan Description (the "Plan"). The Plan sets forth rules regarding, among other things, eligibility requirements, benefits coverage, and claim filing. See Montefiore Medical Center v. Local 272 Welfare Fund, No. 09-CV-3096 (RA)(SN), 2018 WL 1665645, at *1 (S.D.N.Y. Feb. 20, 2018).
Between 2003 and 2006, the Fund contracted with a preferred provider organization, Horizon Healthcare Services of New York, Inc. ("Horizon"). Horizon provided the Fund access to its participating medical providers, which included Montefiore. This meant that Montefiore was an in-network provider for the Fund's participants. In 2007, however, the Fund's relationship with Horizon ended. As a result, the Fund contracted with MagnaCare Administrative Services ("MagnaCare") to access MagnaCare's provider network, which also included Montefiore. A year later, in August 2008, Montefiore terminated the Fund from its list of acceptable payors under the MagnaCare contract. Although Montefiore was now an out-of-network provider, it continued to admit the Fund's members for treatment. Id. at *1-2.
Throughout this period, Montefiore contends that the Fund improperly denied Montefiore's claims for reimbursement. Broadly, Montefiore has raised four types of claims in this litigation: (1) breach of contract claims that arose during the Horizon contract; (2) breach of contract claims that arose during the MagnaCare contract; (3) ERISA claims that arose during the MagnaCare contract; and (4) ERISA claims that arose after the MagnaCare contract was terminated. The First Action dealt with all four types of claims, while the Second Action dealt only with the fourth type.
II. The First Action
In September 2012, the Honorable Harold Baer, Jr., held a two-day bench trial in the First Action. After trial, on December 14, the Fund submitted a letter to the Court stating that the Fund had "paid all claims . . . for services rendered after August 13, 2008, when the Fund was terminated from the MagnaCare network." The Fund submitted a similar letter on February 7, 2013. This time, the Fund asserted that it had paid "all claims for services rendered during the period prior to August 13, 2008 . . . except for those claims that were denied for lack of pre-certification." Montefiore opposed the Fund's December 14 letter, but it did not respond to the letter submitted in February. Montefiore Medical Center, No. 09-CV-3096, 2018 WL 1665645, at *2.
On June 25, 2013, Judge Baer issued an Opinion and Order dispensing with all claims in the First Action. Based on the Fund's letters, Judge Baer determined that the post-MagnaCare ERISA claims had largely been settled. On this basis, Judge Baer dismissed the claims without considering them on the merits. Id. at *3. Montefiore then appealed Judge Baer's decision. On January 21, 2015, the Court of Appeals vacated the judgment in its entirety, holding that the "District Court's decision to credit one party's assertion that certain claims had been 'settled' was clearly erroneous." Montefiore Medical Center v. Teamsters Local 272, 589 F. App'x 32, 34 (2d Cir. Jan. 21, 2015).
After the case was remanded, Montefiore brought a motion for judgment as to the remaining claims. The Court addressed Montefiore's motion in a Report and Recommendation in February 2018. The decision addressed three types of claims: the Horizon claims, the breach of contract MagnaCare claims, and the ERISA claims that arose during the MagnaCare contract. Montefiore Medical Center, No. 09-CV-3096, 2018 WL 1665645, adopted by, 2018 WL 1662634. Specifically, the Court recommended that Montefiore be awarded (1) $42,698.03 for its breach of contract claims under the Horizon contract; and (2) $641,326 for its breach of contract and ERISA claims under the MagnaCare contract. Id. at *13. The Court further recommended that Montefiore be awarded prejudgment interest on its breach of contract claims. Id. Importantly, because of a pending decision in the Court of Appeals for the Second Circuit, the Court did not address Montefiore's post-MagnaCare ERISA claims.
III. The Second Action
The Second Action involved only claims from category four; that is, ERISA claims that arose after the MagnaCare contract was terminated. The Court addressed these claims in a Report and Recommendation in December 2016. Montefiore Medical Center v. Local 272 Welfare Fund, No. 14-CV-10229 (RA)(SN), 2016 WL 8677161 (S.D.N.Y. Dec. 2, 2016), adopted by, 2017 WL 1194704. Interpreting the Plan, the Court found that, in deciding how much to pay an out-of-network provider, the Fund was required to "determine what it pays its various in-network providers for a particular service" and then select the "maximum, or highest, amount." Id. at *7. As a result, the Court granted Montefiore's motion for partial summary judgment and remanded to the Fund so that the Fund could reconsider Montefiore's claims. Id. at *10. In addition, the Court held that it could not determine whether Montefiore had exhausted its administrative remedies with respect to a particular claim — that of patient B-11. Id. The Court directed the parties to meet-and-confer and to determine whether that claim should also be remanded. Id.
IV. Remaining Issues
There are four remaining issues from the First and Second Actions. First, whether Montefiore is entitled to reimbursement on six post-MagnaCare ERISA claims: five from the First Action, and one from the Second Action. Second, whether Montefiore is entitled to prejudgment interest on its post-MagnaCare ERISA claims from both the First and the Second Actions. Third, whether Montefiore is entitled to reasonable attorney's fees. And fourth, whether Montefiore properly calculated its prejudgment interest on its breach of contract claims in the First Action.
DISCUSSION
I. Remaining Claims from the First Action
In the June 2013 Opinion and Order, Judge Baer dismissed Montefiore's post-MagnaCare ERISA claims without addressing them on the merits. After that Order was vacated, the Court stayed its consideration of these claims pending the resolution of the Fund's appeal in the Second Action. That appeal has concluded, and Montefiore's claims are now ripe for review. Here, Montefiore seeks reimbursement for five post-MagnaCare ERISA claims that remain in dispute. No. 09-CV-3096, ECF No. 127, Plaintiff's Brief ("Pl's Br."), at 7-8. Because Judge Baer previously conducted a bench trial, the Court considers these claims under Rule 52 of the Federal Rules of Civil Procedure.
The Fund contends that Montefiore's motion should be considered under Rule 56 of the Federal Rules. No 09-CV-3096, ECF No. 138, at 1-2. This misconstrues the procedural history of the First Action. But for the stay, the Court would have considered the post-MagnaCare ERISA claims as part of its February 2018 Report and Recommendation. That decision was considered under Rule 52, not Rule 56, because the Court was addressing whether to reinstate Judge Baer's since-vacated Opinion and Order.
A. Standard of Review
Under ERISA, courts review a denial of benefits de novo unless the benefit plan gives the administrator discretionary authority to construe the terms of the plan. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). If the benefit plan grants the administrator such discretion, a district court "will not disturb the administrator's ultimate conclusion unless it is arbitrary and capricious." Hobson v. Metropolitan Life Ins., 574 F.3d 75, 82 (2d Cir. 2009) (quoting Pagan v. NYNEX Pension Plan, 52 F.3d 438, 441 (2d Cir. 1995)). This rule, however, is subject to an important exception:
[W]hen denying a claim for benefits, a plan's failure to comply with the Department of Labor's claims-procedure regulation, 29 C.F.R. § 2560.503-1, will result in that claim being reviewed de novo in federal court, unless the plan has (1) otherwise established procedures in full conformity with the regulation and (2) can show that its failure to comply with the claims-procedure regulation in the processing of a particular claim was inadvertent and harmless.Halo v. Yale Health Plan, 819 F.3d 42, 57-58 (2d Cir. 2016) (internal citations omitted) (emphasis in original). In other words, "if the plan administrator does not strictly comply with the Department of Labor's regulation governing the processing of an employee's claim, then de novo review applies to the denial of benefits, regardless of whether the plan vests discretion with the administrator." Salisbury v. Prudential Insurance Co., 238 F. Supp. 3d 444, 449 (S.D.N.Y. 2017).
Here, the Fund did not strictly comply with the Department of Labor's requirements. Under the applicable regulations, any notice of a denial of benefits must include, among other things, the "specific reason or reasons for the adverse determination," as well as a "reference to the specific plan provisions on which the determination is based." 29 C.F.R. § 2560.503-1(g)(1). The Fund failed to meet these requirements. None of the Explanation of Benefits forms ("EOBs") references a specific Plan provision, and some do not even offer a reason for the denial, simply stating that the claim was "paid as out-of-network provider under plan." No. 09-CV-3096, ECF No. 126, John G. Martin Declaration ("Martin Decl."), at Exhibits 1-3; ECF No. 137, Letter from Montefiore, at Exhibit 1; ECF No. 138, Letter from the Fund, at 3. Indeed, the Court has twice before held that the Fund's EOBs do not comply with the DOL's regulations. See Montefiore Medical Center, No. 09-CV-3096, 2018 WL 1665645, at *10; Montefiore Medical Center, No. 14-CV-10229, 2016 WL 8677161, at *5. Accordingly, because the Fund does not contest the standard of review in its opposition brief, the Court should review the Fund's denials of the post-MagnaCare ERISA claims de novo.
B. Merits of the Fund's Benefits Denials
Montefiore's reimbursement claims can be divided into two categories: claims where the Fund made partial payments, and claims where the Fund has made no payments at all. The Court considers these categories in turn.
1. Partially Paid Claims
The Plan establishes when a claim for benefits can be denied. Regarding precertification, the Plan states that a participant must contact Alicare Medical Management — an organization that performs administrative services for the Fund — within 24 hours after an emergency admission. No. 09-CV-3096, ECF No. 130, Declaration of Marc Goodman ("Goodman Decl."), Exhibits A & B, at 39. The Plan emphasizes this requirement on the following page, stating that Alicare must be contacted "for all hospital admissions," including "emergency admissions." Id. at 40 (emphasis in original). Failure to contact Alicare, where required, will result in a denial of benefits. Id.
Here, the Fund properly denied the reimbursement claims for patients O.M., O.N., and F.P. The evidence indicates that these patients did not receive precertification for their admissions. For patient O.M., the Alicare records show that there was no request for precertification submitted for the date in question. Goodman Decl., Exhibit D, at 3-4. Similarly, for patient F.P., the Alicare records show that Montefiore's request for precertification was denied. Id., Exhibit F, at 2. Although the Fund did not provide the Alicare records for patient O.N., Goodman states that the Fund has reviewed them and found "no record of any request for precertification." Id., at ¶ 18. Montefiore does not oppose this position; indeed, Montefiore does not allege that any of these patients received precertification. Accordingly, under the plain terms of the Plan, the Fund is not required to reimburse Montefiore.
In its moving papers, Montefiore emphasizes that the Fund, despite denying coverage, has made partial payments on these claims. Pl's Br., at 8-9. The payments were part of the post-trial reimbursements submitted by the Fund in December 2012 and February 2013. Goodman Decl., at ¶¶ 17, 19, 21. Based on these facts, Montefiore argues that the Fund has admitted coverage and should be barred from denying coverage by reason of estoppel. No. 09-CV-3096, ECF No. 135, Plaintiff's Reply Brief ("Pl's Reply Br."), at 6. This argument is unavailing.
Under federal law, a party may be estopped from pursuing a claim or defense where: (1) the party to be estopped makes a misrepresentation of fact to the other party with reason to believe that the other party will rely upon it; (2) the other party reasonably relies upon it; and (3) that reliance is to her detriment. Kosakow v. New Rochelle Radiology Associates, 274 F.3d 706, 725 (2d Cir. 2001). Montefiore does not cite any caselaw in support of its position, and it does not make any clear attempts to identify the Fund's misrepresentation, let alone Montefiore's reasonable reliance. Further, estoppel is an equitable doctrine, and it cannot be invoked in a case where no injustice will result. Friedman v. Wheat First Securities, Inc., 64 F. Supp. 2d 338, 346 (S.D.N.Y. 1999) (citations omitted). Here, under the plain language of the Plan, Montefiore is not entitled to reimbursement. To forbid the Fund from denying coverage would render an injustice for the Fund, not Montefiore. As a result, the Fund should not be required to reimburse Montefiore for the remaining portions of these three claims.
2. Unpaid Claims
There are two remaining claims for reimbursement from the First Action: a claim for patient M.S., and a claim for patient J.B. Regarding the former, hospital records show that M.S. was treated in the emergency room and then admitted to Montefiore for one night. Pl's Br., at 9. She was released the next day, within 24 hours of her admission. Id. The parties seem to agree that M.S. did not receive precertification. Based on the terms of the Plan, Montefiore should be reimbursed for the treatment that M.S. received in the emergency room, but not for the treatment that she received after her admission to the hospital.
Montefiore contends that it should be reimbursed for the entire hospital bill. Pl's Br., at 9-10. It argues, among other things, that precertification is not required for an emergency admission if the patient stays in the hospital for 24 hours or less. Pl's Reply Br., at 8. This position is foreclosed by the plain language of the Plan. As discussed above, Alicare must be contacted "for all hospital admissions," including "emergency admissions." Goodman Decl., Exhibits A & B, at 40 (emphasis in original). For emergency admissions, the Plan explicitly provides that contact must occur "within 24 hours of the . . . admission." Id. at 39. There are no exceptions enumerated in the Plan, and there is no indication that this requirement does not apply for stays in the hospital of 24 hours or less. To be sure, one purpose of precertification — to reduce unnecessary hospitalizations — is not promoted by requiring patients who have already left the hospital to contact Alicare. But the Court cannot rewrite an ERISA plan in order to protect patients (or hospitals) from inefficient procedural requirements. The plain language controls the Court's analysis, and for that reason, Montefiore should not be reimbursed for treatment that M.S. received after her admission. See Montefiore Medical Center v. Local 272 Welfare Fund, 712 F. App'x 104, 106 (2d Cir. Feb. 28, 2018) ("[W]e may neither rewrite, under the guise of interpretation, a term of the contract when the term is clear and unambiguous, nor redraft a contract to accord with our instinct for dispensation of equity upon the facts of a given case.") (internal citations omitted).
Nevertheless, the Fund is required to pay for treatment that M.S. received in the emergency room. The Fund does not contend that emergency room treatment requires precertification; rather, the Fund argues that if precertification is not obtained for an admission, then no benefits will be paid, and the claim will be denied in total. No. 09-CV-3096, ECF No. 132, Defendant's Brief ("Def's Br."), at 3. The Fund's interpretation does not comport with the terms of the Plan. The Fund cites the following provisions, which provide:
You must contact Alicare at least 14 days before a planned hospital admission. You must also contact Alicare within 24 hours after an emergency admission.Goodman Decl., Exhibits A & B, at 39. On the next page, the Plan continues:
You must contact Alicare for all hospital admissions, excluding psychiatric admissions. You must also contact them upon an emergency admission. Failure to contact Alicare, where required, will result in a denial of benefits.Id. at 39-40 (emphasis in original).
The Plan states that a failure to contact Alicare will result in a denial of benefits. Because these provisions concern precertification, a person of average intelligence would interpret "denial of benefits" as a denial of those benefits that required precertification. None of the surrounding language supports the Fund's contention that, absent precertification, a patient's claim will be denied "in total." Indeed, other portions of the Plan suggest the opposite interpretation. In a later section, the Plan reiterates that prior approval is required for, among other things, hospital admissions and inpatient surgeries. No. 09-CV-3096, ECF No. 103, Exhibits B & C, at 97. The Plan then states: "If you fail to precertify these services, no Plan benefits will be payable for those services." Id. (emphasis added). This indicates that services that do not require precertification — such as emergency room treatment — will be reimbursed. The Fund should therefore be required to pay Montefiore for treatment that M.S. received in the emergency room.
The same reasoning applies to Montefiore's remaining claim. Regarding patient J.B., the hospital records show that he received treatment in the emergency room and subsequently spent two nights in the hospital. Because J.B. did not obtain precertification for his admission, Montefiore concedes that the denial of the hospitalization charges was proper. Id. Nevertheless, as explained above, the Plan does not require precertification for emergency room treatment, and there is no indication that a failure to obtain precertification causes a claim for reimbursement to be denied "in total." Accordingly, the Fund should be required to reimburse Montefiore for treatment that J.B. received in the emergency room, but not for treatment he received after his admission to the hospital.
In its moving papers, Montefiore provides medical records for J.B.'s admission to the hospital in 2009. Martin Decl., at Exhibit 5. Subsequently, however, Montefiore clarified that the parties' dispute concerns an admission in 2011. No 09-CV-9036, ECF No. 137, at 3. Both admissions involve the same circumstances: treatment in the emergency room, followed by two nights in the hospital. Id.; ECF No. 138, at 3 (attaching the EOB for J.B.'s 2011 admission).
II. Remaining Claims from the Second Action
There is only one remaining claim from the Second Action. In its December 2016 Report and Recommendation, the Court held that it could not determine whether Montefiore had exhausted its administrative remedies with respect to a particular claim — that of patient B-11. The Court directed the parties to meet-and-confer and to determine whether that claim should be remanded to the Fund. The parties have been unable to resolve their dispute. As a result, Montefiore seeks to renew its motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. I recommend granting Montefiore's motion in part, but granting summary judgment to the Fund on the remaining portion.
A. Summary Judgment Standard
Summary judgment must be granted if the parties' submissions show that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A fact is material if it "might affect the outcome of the suit under the governing law," and is genuinely in dispute if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Roe v. City of Waterbury, 542 F.3d 31, 35 (2d Cir. 2008) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). In making this determination, the Court is to "draw all factual inferences in favor of the party against whom summary judgment is sought, viewing the factual assertions in materials such as affidavits, exhibits, and depositions in the light most favorable to the party opposing the motion." Doe v. City of New York, 15-CV-0117 (AJN), 2018 WL 6095847 (S.D.N.Y. Nov. 21, 2018) (quoting Rodriguez v. City of New York, 72 F.3d 1051, 1061 (2d Cir. 1995)).
B. Application
The Court should review the Fund's denial of benefits de novo. As discussed above, if the plan administrator does not strictly comply with the Department of Labor's regulations, then de novo review applies to the denial of benefits, regardless of whether the plan vests discretion with the administrator. Salisbury, 238 F. Supp. 3d at 449. Under the applicable regulations, any notice of a denial of benefits must include a "reference to the specific plan provisions on which the determination is based." 29 C.F.R. § 2560.503-1(g)(1). Here, the Fund did not satisfy this requirement. Although B-11's EOB states that "pre-certification" was required, it does not refer to any provisions of the Plan, let alone a provision regarding precertification. No. 14-CV-10229, ECF No. 61, Exhibit B, at D0160. Accordingly, like the denials in the First Action, the denial of benefits for patient B-11 should be reviewed de novo.
Applying this standard of review, the Court should grant Montefiore's claim for reimbursement in part. The Fund issued the benefits denial because it alleged that Montefiore failed to obtain precertification. Def's Br., at 4. In its moving papers, Montefiore contends that the Fund's determination violates the Affordable Care Act ("ACA"). Pl's Br., at 10-11. Specifically, under the "Patient Protections" subsection of the ACA, a group health plan is required to "cover emergency services . . . without the need for any prior authorization determination." Because this provision does not apply to the Fund, Montefiore should not be reimbursed for medical services that required precertification.
Under the ACA, a "grandfathered health plan" is a plan in which an individual was enrolled on March 23, 2010. 29 C.F.R. § 2590-715-1251(a)(1)(i). Numerous parts of the ACA do not apply to grandfathered plans, including § 2719A of the Public Health Service Act ("PHSA"). Id. at § 2590-715-1251(c)(1). Section 2719A includes the provisions that require group health plans to cover emergency services without the need for any prior authorization determination. See 42 U.S.C. § 300gg-19a(b)(1)(A). Indeed, the final regulations promulgated by the Department of Labor specifically provide that § 2719A does not apply to grandfathered plans. 29 C.F.R. § 2590-715-1251(c)(1).
Here, the Fund was established before March 23, 2010, which means it is a grandfathered plan under the ACA. Goodman Decl., at ¶ 4. Montefiore does not challenge this fact in its motion papers. Thus, as a grandfathered plan, the Fund is not required to follow the emergency services requirements articulated in §2719A of the PHSA. The Fund therefore properly denied reimbursement for any charges that accrued after patient B-11 was admitted to the hospital. That said, it appears that B-11 received treatment in the emergency room before his admission. See No 14-CV-10229, ECF No. 62, Exhibit 1, at B-11. Accordingly, because emergency room treatment does not require precertification, the Fund should be required to reimburse Montefiore for those services.
III. Prejudgment Interest for Montefiore's Post-MagnaCare ERISA Claims
In both the First and Second Actions, Montefiore raised claims under ERISA that arose after the MagnaCare contract was terminated. Here, Montefiore seeks prejudgment interest on these claims at the rate of 12 percent per annum, or in the alternative, at the rate of 9 percent per annum. Pl's Br., at 14. To avoid giving Montefiore a windfall, the Court recommends awarding prejudgment interest at the federal prime rate.
A. Governing Legal Principles
In a suit to enforce a right under ERISA, the question of whether to award prejudgment interest is ordinarily left to the discretion of the district court. Jones v. UNUM Life Insurance, 223 F.3d 130, 139 (2d Cir. 2000). In exercising that discretion, the court should consider: (1) the need to fully compensate the wronged party for actual damages suffered; (2) considerations of fairness and the relative equities of the award; (3) the remedial purpose of the statute involved; and (4) other principles as are deemed relevant by the court. Id. (quoting SEC v. First Jersey Securities, Inc., 101 F.3d 1450, 1476 (2d Cir. 1996)). There is no federal statute that controls the rate of prejudgment interest. Jones, 223 F.3d at 139. Therefore, in setting the percentage, the court should aim to make the plaintiffs whole, but not to give them a windfall. Algie v. RCA Global Communications, Inc., 891 F. Supp. 875, 899 (S.D.N.Y. 1994).
B. Application
1. Montefiore Should Be Awarded Prejudgment Interest
Here, the Jones factors suggest that Montefiore should be awarded prejudgment interest on its post-MagnaCare ERISA claims. First, Montefiore's claims for reimbursement were paid at low rates, and at times, were not paid at all. In this way, Montefiore was denied access not only to funds to which it was entitled, but to the benefits that it could have derived from those funds had they been invested. Given the time value of money, an award of prejudgment interest is necessary to compensate Montefiore for the actual damages it suffered.
The second factor — considerations of fairness and the relative equities of the award — supports this conclusion. Because the Fund improperly denied Montefiore's reimbursement claims, it was able to enjoy an interest-free loan for several years. Without having to pay prejudgment interest, the Fund would profit from its failure to comply with its statutory obligations. Such a result is hardly fair or equitable. See Slupinski v. First Unum Life Insurance, 554 F.3d 38, 54 (2d Cir. 2009) ("[A]n award of prejudgment interest may be needed in order to ensure that the defendant not enjoy a windfall as a result of its wrongdoing.") (internal citations omitted).
Third, the remedial purpose of ERISA supports an award of prejudgment interest. The purpose of ERISA is to protect employees' rights to receive the benefits that they are due. Slupinski, 554 F.3d at 55. Here, the Fund's participants assigned their right to reimbursement to Montefiore in exchange for treatment. Montefiore Medical Center v. Local 272 Welfare Fund, 14-CV-10229 (RA)(SN), 2015 WL 7970026, at *1 (S.D.N.Y. Oct. 19, 2015). As a result, because Montefiore stands in the shoes of the Fund's participants, an award of prejudgment interest promotes ERISA's remedial purpose.
In its opposition, the Fund asserts that it is in a "fragile financial state," and that an award of prejudgment interest places the Fund's participants at substantial risk. Def's Br., at 7. But the Fund's own financial projections belie this argument. While the Fund had an operating deficit of $133,600 for the fiscal year ending 2017, it is projected to have an operating surplus of $1.14 million and $2.19 million for fiscal years 2018 and 2019, respectively. 09-CV-3096, ECF No. 131, Declaration of Alan Sofge ("Sofge Decl."), Exhibit 1, at 4. Moreover, the Fund's net assets were $3.2 million as of November 30, 2016, and are projected to increase to $11.5 million by the end of 2020. Id. at 1, 4. For these reasons, the Fund's financial position does not outweigh the other Jones factors; indeed, the Fund does not even discuss the need to fully compensate Montefiore, or the remedial purpose of ERISA. Thus, to ensure Montefiore is fully compensated for its actual damages, the Court should award prejudgment interest on Montefiore's post-MagnaCare ERISA claims.
2. The Court Should Use the Federal Prime Rate to Calculate Interest
At a minimum, Montefiore requests that the Court apply an interest rate of nine percent per annum. Pl.'s Br., at 14-15. This is based on the statutory rate for prejudgment interest under New York law. See New York Civil Practice Laws and Rules §§ 5001, 5004. Trial courts in this circuit have split on the issue of what rate of prejudgment interest is reasonable. Some courts, adopting Montefiore's position, have applied the New York statutory rate. See Alfano v. CIGNA Life Insurance, No. 07-CV-9661 (GEL), 2009 WL 890626 (S.D.N.Y. Apr. 2, 2009). Other courts, however, have explicitly declined to use the New York rate, choosing instead to apply the federal prime rate. See Frommert v. Becker, 216 F. Supp. 3d 309, 315 (W.D.N.Y. 2016) affirmed, 2019 WL 178077, at *5 (2d Cir. Jan. 14, 2019). The reasoning in Frommert is persuasive. The New York statutory rate was established in 1981, when interest rates in general were considerably higher than they are today. Id. at 315. Thus, given the relatively low interest rates in recent years, applying a nine percent rate would provide a windfall to Montefiore.
Montefiore argues that the Court should award interest at the rate of 12 percent per annum, the rate established in New York's Prompt Pay Law. Pl's Br., at 14. As indicated below, the Court concludes that an interest rate of nine percent would give Montefiore a windfall. For substantially the same reasons, the Court similarly concludes that 12 percent is excessive.
Citing these concerns, numerous courts in this district have applied the federal prime rate rather than the New York statutory rate. See, e.g., Barrett v. Hartford Life and Accident Insurance, No. 10-CV-4600 (AKH), 2012 WL 6929143, at *2 (S.D.N.Y. Nov. 9, 2012); Levy v. Young Adult Institute, Inc., No. 13-CV-2861 (JPO), 2017 WL 1929505, at *4 (S.D.N.Y. May 9, 2017). Following these cases, the Court recommends using the federal prime rate to determine Montefiore's prejudgment interest. That rate — which has ranged between 3.25% and 5.50% between January 1, 2010, and January 15, 2019 — compensates Montefiore for its damages, but does not unfairly penalize the Fund. Accord Solnin v. Sun Life and Health Insurance Co., 08-CV-2759 (DRH)(AYS), 2018 WL 2075304, at *5 (S.D.N.Y. Feb. 28, 2018) (awarding prejudgment interest at a rate of four percent per annum because the New York statutory rate was excessive).
In its moving papers, Montefiore emphasizes the decision in Alfano v. CIGNA Life Insurance. Pl's Reply. Br., at 17-18. There, the court reasoned that New York had made an objective legislative judgment that nine percent was an appropriate measure of the time value of money. 2009 WL 890626, at *7. But New York's "legislative judgment" was made in substantially different economic conditions, and Montefiore does not explain why that judgement should control here. See Doe v. Unum Life Insurance, No. 12-CV-9327 (LAK), 2016 WL 749886, at *1 (S.D.N.Y. Feb. 23, 2016) ("Inasmuch as no statute compels use of the decades-old statutory New York State law rate of interest, which is so much higher than the cost of borrowing in recent times, this Court declines to use it here.").
Montefiore makes two additional arguments. First, Montefiore notes that the Court has already used a nine percent rate for Montefiore's breach of contract claims. Pl.'s Br., at 15. In that instance, however, the Court was obligated to follow New York law in awarding prejudgment interest. See Adrian v. Town of Yorktown, 620 F.3d 104, 107 (2d Cir. 2010). No such obligation exists for the post-MagnaCare ERISA claims. Rather, for federal claims, the rate of prejudgment interest rests firmly in the discretion of the district court. Ingersoll Milling Machine Co. v. M/V Bodena, 829 F.2d 293, 311 (2d Cir. 1987). For the reasons stated above, the Court should use the federal prime rate to avoid giving Montefiore a windfall.
Second, Montefiore emphasizes that its endowment funds had a rate of return of 11 percent between 2008 and 2018. Pl's Br., at 15. But prejudgment interest should generally be measured by interest on short-term, risk-free obligations, such as Treasury bills. New York Marine and General Insurance Co. v. Tradeline, 266 F.3d 112, 131 (2d Cir. 2001). As a result, even if Montefiore typically places patient revenue in its endowment fund — a fact not clearly established in the record — Montefiore's rate of return on long-term securities is not dispositive.
Quoting from Slupinski, Montefiore argues that the Court of Appeals for the Second Circuit has endorsed the usage of a nine percent prejudgment interest rate. Pl's Reply Br., at 16. The Court was unable to locate this quote in the opinion.
For its part, the Fund argues that the Court should apply the federal post-judgment interest rate under 28 U.S.C. § 1961. Def's Br., at 9-10. That rate, which is equal to the "weekly average 1-year constant maturity Treasury yield," has historically been relatively low. Between January 1, 2010, and January 15, 2019, the rate ranged from 0.37% to 2.60%. The Fund's argument is unavailing. The rate of return on Treasury securities reflects return on monies loaned to the government. But the Court of Appeals for the Second Circuit has explicitly stated that the court "need not limit the award . . . to the rate at which the [plaintiff] would have lent money to the government." Jones, 223 F.3d at 139. Rather, the court would be well within its discretion to use the rate at which the plaintiff would have to borrow the money. Id. at 140. This is necessary to avoid giving the Fund a windfall, and it supports the decision to use the federal prime rate.
In sum, Montefiore should be awarded prejudgment interest at the federal prime rate, accruing from the date each payment became past due. Outside of the six claims above, Montefiore does not describe its post-MagnaCare ERISA claims with any specificity. Montefiore should therefore be directed to submit proposed calculations regarding its prejudgment interest. The Court notes that it would make little sense to take the current federal prime rate and apply it across the board. Doing so would not reflect the historical changes in the rate. See Frommert, 216 F. Supp. 3d at 316. As a result, to the extent feasible, Montefiore should use a variable federal prime rate in determining its prejudgment interest.
IV. Prejudgment Interest for Montefiore's Breach of Contract Claims
In the February 2018 Report and Recommendation, the Court awarded Montefiore prejudgment interest at the rate of nine percent per annum for Montefiore's breach of contract claims from the First Action. As part of its moving papers, Montefiore set forth the methodology it used to calculate its prejudgment interest on these claims. Pl's Br., at 21. The Fund did not challenge these calculations in its opposition. Accordingly, the Court recommends adopting Montefiore's calculations and awarding prejudgment interest in the amount of $475,185 for Montefiore's breach of contract claims.
CONCLUSION
In sum, I recommend that Montefiore's motion be GRANTED in part and DENIED in part. First, regarding the remaining claims from the First Action, I recommend denying Montefiore's reimbursement claims for patients O.M., O.N., and F.P. For patients M.S. and J.B., I recommend that the Fund be required to reimburse Montefiore for treatment that these patients received in the emergency room, but not for treatment they received after being admitted to the hospital. Second, regarding the remaining claim from the Second Action, I recommend granting Montefiore's claim for reimbursement in part, but granting the Fund summary judgment to the remaining portion of Montefiore's claim. Third, I recommend awarding Montefiore prejudgment interest at the federal prime rate for its post-MagnaCare ERISA claims from the First and Second Actions. Fourth, I recommend awarding Montefiore prejudgment interest in the amount of $475,185 for its breach of contract claims from the First Action. DATED: January 25, 2019
New York, New York
/s/_________
SARAH NETBURN
United States Magistrate Judge
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NOTICE OF PROCEDURE FOR FILING OBJECTIONS
TO THIS REPORT AND RECOMMENDATION
The parties shall have fourteen days from the service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed. R. Civ. P. 6(a), (d) (adding three additional days when service is made under Fed. R. Civ. P. 5(b)(2)(C), (D), or (F)). A party may respond to another party's objections within fourteen days after being served with a copy. Fed. R. Civ. P. 72(b)(2). Such objections shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Ronnie Abrams at the United States Courthouse, 40 Foley Square, New York, New York 10007, and to any opposing parties. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Abrams. The failure to file these timely objections will result in a waiver of those objections for purposes of appeal. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).