2:22-cv-01159
E.D. Wis.Sep 19, 2023Background:
- Aurora and Blue Cross are parties to a Physician-Hospital Organization (PHO) Agreement requiring Blue Cross to pay claims timely and to pay 7.5% interest on claims unpaid after 30 days.
- Between 2020–2021 Aurora provided services to tens of thousands of Blue Cross insureds; Aurora alleges >25,000 claims remained unpaid, many >150 days overdue, totaling about $83 million (excluding interest).
- Aurora sued in state court for breach of contract, breach of the implied covenant of good faith, and alternatively quantum meruit and unjust enrichment; Blue Cross removed to federal court invoking the federal-officer removal statute (28 U.S.C. §1442) based on FEHBA/OPM relationships.
- Blue Cross moved to dismiss under Rule 12(b)(6) for failure to state claims and alternatively sought a more definite statement under Rule 12(e).
- The district court found federal-officer removal permissible on the record and denied Blue Cross’s motion, holding Aurora’s pleadings sufficiently alleged breach, bad-faith contract interference, allowed alternative equitable claims, and were not so vague as to require a more definite statement.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Federal-officer removal jurisdiction | Blue Cross acts under OPM/FEHBA when administering Service Benefit Plan and drawing on Treasury letter-of-credit | Removal improper: claims are state law and Blue Cross’s federal contacts are few | Court: removal permissible; Blue Cross met the four Baker/Ruppel factors despite limited federal contacts |
| Breach of contract pleading sufficiency | Complaint identifies PHO Agreement, systemic delayed payments, four representative unpaid-claim examples, and damages | Complaint too vague given 25,000+ claims; Blue Cross cannot guess which claims are sued on | Court: complaint meets Rule 8 notice pleading; pleadings plausible and adequate for dismissal-stage |
| Breach of implied covenant of good faith | Alleged use of verification requests and other tactics to delay payment — may deny expected contractual benefit | Claim is duplicative of breach-of-contract and should be dismissed | Court: survives; Wisconsin law permits bad-faith claim where technical compliance frustrates contractual purpose |
| Quantum meruit / unjust enrichment (alternative pleading) | Pleaded in the alternative if PHO Agreement is invalid or unenforceable | Equitable claims barred because contract exists | Court: allowed as alternative claims under Fed. R. Civ. P. 8(d); inconsistent claims permitted at pleading stage |
| Motion for more definite statement | N/A (Aurora opposed) | Complaint is too vague; Blue Cross needs more details to respond | Court: denied; Rule 12(e) only for unintelligible pleadings, not to force detailed factual disclosure |
Key Cases Cited
- Watson v. Philip Morris Cos., 551 U.S. 142 (2007) (defines "acting under" federal officer removal and requires assistance beyond mere regulation)
- Baker v. Atl. Richfield Co., 962 F.3d 937 (7th Cir. 2020) (articulates four-factor federal-officer removal test and permits removal despite non-federal claims)
- Ruppel v. CBS Corp., 701 F.3d 1176 (7th Cir. 2012) (sets elements for federal-officer removal)
- Panther Brands, LLC v. Indy Racing League, LLC, 827 F.3d 586 (7th Cir. 2016) (treats corporations as "persons" under §1442)
- Jacks v. Meridian Res. Co., LLC, 701 F.3d 1224 (8th Cir. 2012) (permits removal involving FEHBA carriers; colorable federal defenses)
- Goncalves ex rel. Goncalves v. Rady Children’s Hosp. San Diego, 865 F.3d 1237 (9th Cir. 2017) (FEHBA-related removal where carriers pursued federal-subrogation interests)
- St. Charles Surgical Hosp., LLC v. La. Health Serv. & Indem. Co., 935 F.3d 352 (5th Cir. 2019) (permits removal based on OPM control over carriers)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must be plausible on its face)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must include factual content supporting plausibility)
- Brooks v. Ross, 578 F.3d 574 (7th Cir. 2009) (describes liberal notice-pleading standard)