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Sykes v. Health Network Solutions, Inc.

Supreme Court of North Carolina

June 14, 2019

SUSAN SYKES d/b/a ADVANCED CHIROPRACTIC AND HEALTH CENTER, DAWN PATRICK, TROY LYNN, LIFEWORKS ON LAKE NORMAN, PLLC, BRENT BOST, and BOST CHIROPRACTIC CLINIC, P.A.
v.
HEALTH NETWORK SOLUTIONS, INC. f/k/a CHIROPRACTIC NETWORK OF THE CAROLINAS, INC., MICHAEL BINDER, STEVEN BINDER, ROBERT STROUD, JR., LARRY GROSMAN, MATTHEW SCHMID, RALPH RANSONE, JEFFREY K. BALDWIN, IRA RUBIN, RICHARD ARMSTRONG, BRAD BATCHELOR, JOHN SMITH, RICK JACKSON, and MARK HOOPER

          Heard in the Supreme Court on 5 March 2019

          On discretionary review pursuant to N.C. G.S. § 7A-31, prior to a determination by the Court of Appeals, of orders and opinions dated 18 August 2017 and 5 April 2018 entered by Judge James L. Gale, Chief Business Court Judge, in Superior Court, Forsyth County, after the case was designated a mandatory complex business case by the Chief Justice under N.C. G.S. § 7A-45.4.

          Oak City Law LLP, by Samuel Pinero II and Robert E. Fields III; and Doughton Blancato PLLC, by William A. Blancato, for plaintiff-appellants.

          Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Jennifer K. Van Zant, Benjamin R. Norman, and W. Michael Dowling, for defendant-appellees.

          HUDSON, JUSTICE.

         Plaintiffs appeal the North Carolina Business Court's 18 August 2017 order and opinion granting in part and denying in part defendants' motions to dismiss and for partial summary judgment and its 5 April 2018 order and opinion dismissing plaintiffs' remaining claims under Rule of Civil Procedure 12(b)(6). Plaintiffs are licensed chiropractic providers in North Carolina who allege that defendants Health Network Solutions, Inc. (HNS) and HNS's individual owners have engaged in unlawful price fixing ultimately resulting in a reduction of output of chiropractic services in North Carolina. Specifically, plaintiffs allege that defendant HNS has committed antitrust and other violations in its role as intermediary between individual chiropractors and several insurance companies and third-party administrators, [1] who are the defendants in a separate action also before this Court.

         In their Second Amended Class Action Complaint (the second amended complaint), plaintiffs raise the following claims for relief: (1) declaratory judgment, (2) price fixing, monopsony, and monopoly (the antitrust claims), (3) unfair and deceptive trade practices and acts, (4) civil conspiracy, and (5) breach of fiduciary duty. In addition, plaintiffs seek punitive damages, a remedy styled in the complaint as a separate claim for relief.

         Today, we affirm the Business Court's dismissal of plaintiffs' antitrust claims, including the derivative claim of civil conspiracy, by an equally divided vote, meaning that the Business Court's opinion as to those claims will stand without precedential value. We also hold that the Business Court did not err in dismissing each of plaintiffs' other claims. As for plaintiffs' unfair trade practices claim, we hold that this claim is barred by the learned profession exemption set out in N.C. G.S. § 75-1.1(b). Regarding plaintiffs' declaratory judgment claim, we hold that the relevant statutes do not provide plaintiffs a private right of action to obtain the declaratory relief that they seek. As for plaintiffs' breach of fiduciary duty claim, we hold that no fiduciary relationship existed between the parties, meaning no fiduciary duty was ever created. The Business Court correctly noted that no freestanding claim exists for punitive damages, see Funderburk v. JPMorgan Chase Bank, N.A., 241 N.C.App. 415, 425, 775 S.E.2d 1, 8 (2015), and plaintiffs have no remaining legal claim to which punitive damages might attach. As so described, we affirm the decision of the Business Court dismissing plaintiffs' entire action.

         Factual and Procedural Background

         Plaintiffs brought this action as a putative class action lawsuit, defining the class as "all licensed chiropractors practicing in North Carolina from 2005 to the present who provided services in the North Carolina Market" and identifying as three subsets of that class all licensed chiropractors participating in the HNS Market, the Comprehensive Health Market, and the Insurance Market. Plaintiffs made the following allegations in their second amended complaint, and for the purposes of our review they are taken as true.

         Defendant HNS serves as an intermediary between individual chiropractors in North Carolina and various insurance companies and third-party administrators for insurance companies. Essentially, HNS contracts with various chiropractors, who, as part of the HNS network, are able to provide chiropractic services "in-network" for the various insurance payors with whom HNS has separately contracted. In exchange for in-network access, members of the HNS network agree to permit HNS to negotiate with the payors the prices to be charged for in-network chiropractic services. A chiropractor must maintain an average per-patient cost at a certain level or risk termination from the network. Individual defendants are themselves licensed chiropractors who are current or former owners of HNS.

         Plaintiffs are licensed North Carolina chiropractors (and their businesses) who previously participated in the HNS network or have never participated in the network. Plaintiffs fall within one of these three categories: they were removed from the HNS network because their per-patient cost was too high, left the network based on HNS's policies, or declined to join the network because of HNS's practices and restraints. Plaintiffs argue that because HNS is the sole path to becoming an in-network provider for the various participating insurance companies and other payors, they are being deprived of access to the large number of patients that receive health care coverage via the networks of the various payors.

         Plaintiffs' claims are largely based on the following allegations. Plaintiffs contend that HNS, despite representing that it is an integrated independent practice association (IPA), in fact "operat[es] an involuntary cartel to control competition, supply, and pricing of chiropractic services in North Carolina made possible by the exclusive contracts with the Insurers and the market power provided by those contracts." Plaintiffs contend that HNS is operating as a medical service corporation, as described in N.C. G.S. § 58-65-1, that has not become licensed as required by N.C. G.S. § 58-65-50. In addition, they contend that HNS is conducting utilization review based only on providers' average per-patient cost, which does not take into account medical necessity or appropriateness of treatment, in violation of N.C. G.S. § 58-50-61 (2017). Thus, they contend, in addition to its failure to obtain proper licensure, HNS is violating North Carolina's antitrust statutes by fixing the prices charged by more than one-half of the licensed chiropractors in the state and by monopsony, a buyer-side form of monopoly, [2] in which, rather than using its market power as a sole seller to increase the price of services, HNS is using its market power as a buyer of those services to restrict output of services. Plaintiffs allege four relevant markets that have been adversely affected by the conduct of defendant HNS: the North Carolina market, defined as the market for chiropractic services provided in North Carolina, and three submarkets within the North Carolina Market. Those submarkets are (1) the HNS Market, "the market in which in-network managed care chiropractic services . . . are provided to the Insurers and their North Carolina patients through HNS"; (2) the Comprehensive Health Market, "the market for in-network chiropractic services provided to individual and group comprehensive healthcare insurers and their patients in North Carolina"; and (3) the Insurance Health Market, "the market for insurance reimbursed chiropractic services in North Carolina."

         The original complaint in this action was filed on 30 April 2013, and the case was designated a mandatory complex business case on 31 May 2013, before passage of the Business Court Modernization Act (BCMA). The BCMA established that, for all cases designated as mandatory complex business cases after 1 October 2014, appeals from the North Carolina Business Court would come directly to this Court, rather than to the Court of Appeals. A second action involving essentially the same factual allegations and similar legal claims, Sykes v. Blue Cross & Blue Shield of North Carolina (Sykes II), was filed after the effective date of the BCMA, and therefore the appeal in that case lay in this Court. We granted review of this case before a determination by the Court of Appeals, thus giving us jurisdiction over the appeals in both Sykes actions. Plaintiffs filed a motion to consolidate the two actions in the Business Court, which the Business Court never addressed before dismissing both lawsuits entirely.

         The Business Court dismissed the claims here (Sykes I) in two different stages. Several months after plaintiffs filed their first amended complaint, the court on 5 December 2013 ordered limited discovery on the issue of market definition for the purposes of plaintiffs' antitrust claims. This limited discovery took place between February 2014 and August 2015. Following fact and expert discovery on market definition, plaintiffs filed their Sykes II complaint on 26 May 2015 and their second amended complaint in this action on 16 July 2015. Defendants here filed a motion to dismiss and for partial summary judgment, which the court granted in part and denied in part in its 18 August 2017 order and opinion. In that document, the court granted summary judgment for defendants on any claims stemming from their participation in plaintiffs' three proffered relevant submarkets but denied summary judgment on antitrust claims related to the North Carolina Market and on other claims connected to those remaining antitrust claims. The court also dismissed plaintiffs' breach of fiduciary duty claim as well as plaintiffs' claim for declaratory relief to the extent that claim was based on violations of Chapter 58. Finally, the court ordered supplemental briefing on whether plaintiffs had adequately alleged market power within the one relevant market, the North Carolina Market. Following receipt of that supplemental briefing, the court filed a second decision on 5 April 2018 dismissing all of plaintiffs' remaining claims. Plaintiffs appeal from both the 18 August 2017 and the 5 April 2018 orders and opinions of the Business Court.

         Analysis

         I. Standard of Review

         This Court reviews de novo legal conclusions of a trial court, including orders granting or denying a motion to dismiss for failure to state a claim upon which relief can be granted under Rule 12(b)(6) or a motion for summary judgment under Rule 56. See, e.g., Azure Dolphin, LLC v. Barton, __ N.C. __, __, 821 S.E.2d 711, 725 (2018); Variety Wholesalers, Inc. v. Salem Logistics Traffic Servs., LLC, 365 N.C. 520, 523, 723 S.E.2d 744, 747 (2012).

         "We review a dismissal under Rule 12(b)(6) de novo, 'view[ing] the allegations as true and . . . in the light most favorable to the non-moving party.' Dismissal is proper when the complaint 'fail[s] to state a claim upon which relief can be granted.' 'When the complaint on its face reveals that no law supports the claim . . . or discloses facts that necessarily defeat the claim, dismissal is proper.'" Christenbury Eye Ctr., P.A. v. Medflow, Inc., 370 N.C. 1, 5, 802 S.E.2d 888, 891 (2017) (first, second, and fourth alterations in original) (first quoting Kirby v. N.C. DOT, 368 N.C. 847, 852, 786 S.E.2d 919, 923 (2016); then quoting Arnesen v. Rivers Edge Golf Club & Plantation, Inc., 368 N.C. 440, 448, 781 S.E.2d 1, 7-8 (2015) (third alteration in original)). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law." N.C. G.S. § 1A-1, Rule 56(c) (2017). "All facts asserted by the adverse party are taken as true, and their inferences must be viewed in the light most favorable to that party. The showing required for summary judgment may be accomplished by proving an essential element of the opposing party's claim does not exist, cannot be proven at trial, or would be barred by an affirmative defense . . . ." Variety Wholesalers, 365 N.C. at 523, 723 S.E.2d at 747 (ellipsis in original) (quoting Dobson v. Harris, 352 N.C. 77, 83, 530 S.E.2d 829, 835 (2000)). Thus, we do not defer to the conclusions of the Business Court but conduct our own independent inquiry into the legal issues that resulted in the Business Court's orders dismissing all of plaintiffs' claims. We now affirm the Business Court's rulings for the reasons set out below.

         II. Antitrust Claims

         As to plaintiffs' antitrust claims, the members of the Court are equally divided; accordingly, the decision of the Business Court on these claims stands without precedential value. See, e.g., Faires v. State Bd. of Elections, 368 N.C. 825, 825, 784 S.E.2d 463, 464 (2016) (per curiam) (affirming on this basis the judgment of a three-judge panel of the Superior Court, Wake County); Burke v. Carolina & Nw. Ry. Co., 257 N.C. 683, 683, 127 S.E.2d 281, 281 (per curiam) (1962) ("The other Justices, being equally divided as to the propriety of the nonsuit, the judgment of the superior court is affirmed without the decision becoming a precedent."); see also Piro v. McKeever, 369 N.C. 291, 291, 794 S.E.2d 501, 501 (2016) (per curiam) (affirming a Court of Appeals opinion without precedential value by an equally divided vote); CommScope Credit Union v. Butler & Burke, LLP, 369 N.C. 48, 56, 790 S.E.2d 657, 663 (2016) (same).

         III. Unfair Trade Practices

         Plaintiffs allege that defendants have committed a number of unfair trade practices in violation of N.C. G.S. § 75-1.1. Some of these allegations describe the same conduct that is the subject of plaintiffs' antitrust claims. Thus, per our discussion above, to the extent that these allegations overlap, we affirm the trial court's dismissal of plaintiffs' N.C. G.S. § 75-1.1 claims. Plaintiffs' remaining allegations under section 75-1.1 are rooted in various provisions of the Insurance Law, found in Chapter 58 of the North Carolina General Statutes. Specifically, plaintiffs allege that HNS has engaged in unfair trade practices through its failure to meet the licensure and utilization review requirements set out in N.C. G.S. §§ 58-65-50 and 58-50-61 and through other acts, which plaintiffs contend fall within the unfair and deceptive insurance practices that are catalogued at N.C. G.S. § 58-63-15. We do not need to directly address whether the alleged violations of Chapter 58 can support plaintiffs' claims of unfair trade practices because we conclude, as the Business Court did, that plaintiffs' claims are barred by the learned profession exemption.[3]

         Section 75-1.1 states, in pertinent part:

(a) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.
(b) For purposes of this section, "commerce" includes all business activities, however denominated, but does not include professional services rendered by a member of a learned profession.
(d) Any party claiming to be exempt from the provisions of this section shall have the burden of proof with ...

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