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Class Action Defense Cases-Kolari v. New York-Presbyterian Hospital: Federal District Court Erred In Exercising Supplemental Jurisdiction And Dismissing Class Action State-Law Claims Second Circuit Holds

Second Circuit Holds that Once District Court Granted Defense Motion to Dismiss Federal Claims that Provided Federal Jurisdiction it Should have Remanded State-Law Class Action Claims to State Court Rather than Dismissing Them with Prejudice

Plaintiffs filed a putative class action against asserting various federal and state-law claims based on allegedly inflated heath care treatment rates. The defense moved to dismiss the class action complaint in its entirety. The district court granted the defense motion, and plaintiffs appealed the dismissal of three of their state-law class action claims arguing that (1) the court should have remanded the claims to state court once it disposed of the federal class action claims, and (2) even if the court should have retained jurisdiction, it erred in dismissing the state-law claims. Kolari v. New York-Presbyterian Hosp., 455 F.3d 118 (2d Cir. 2006). Because the Second Circuit agreed with the first argument advanced by plaintiffs, if did not reach the latter argument. Id., at 119.

The defendants operate several non-profit cute care and community hospitals, as well as a non-profit teaching hospital. The class action complaint alleged that defendants charged uninsured patients higher rates than insured patients, and used these “excessive” fees to negotiate “discounted rates” with insurers. Kolari, at 119-20. The defense moved to dismiss the complaint under Rule 12(b)(1) and 12(b)(6); the district court granted the defense motion as to the federal claims, and exercised supplemental jurisdiction over the state-law claims to dismiss those causes of action as well. Id., at 121. The district court based its ruling on its belief that the class action complaint – as a whole – implicated questions of federal health care policy. Id., at 122. The Second Circuit held that the district court abused its discretion and reversed.

The Circuit Court noted that “‘in the usual case in which all federal-law claims are eliminated before trial, the balance of factors . . . will point toward declining to exercise jurisdiction over the remaining state-law claims.’” Kolari, at 122 (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7, 108 S.Ct. 614 (1988)). And the Second Circuit believed it “clear that this is the ‘usual case.’” Id., at 123. The district court’s concern simply proved too much. It may be true that health care is a matter of national importance,

But a problem experienced nationally is not necessarily one in which there is an overriding federal governmental interest. And states . . . also have a strong interest here. Thus, it is not obvious that federal interest control.

Kolari, at 123. The Circuit Court concluded that the district court abused its discretion in exercising supplemental jurisdiction over plaintiffs’ state-law claims, and therefore reversed.

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