Pacific Recovery Solutions et al v. United Behavioral Health et al, No. 4:2020cv02249 - Document 83 (N.D. Cal. 2020)
Court Description: ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND by Judge Yvonne Gonzalez Rogers 71 72 80 82 . (cwlc1S, COURT STAFF) (Filed on 12/18/2020)
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Pacific Recovery Solutions et al v. United Behavioral Health et al Doc. 83 Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 1 of 19 1 2 3 IN THE UNITED STATES DISTRICT COURT 4 FOR THE NORTHERN DISTRICT OF CALIFORNIA 5 6 PACIFIC RECOVERY SOLUTIONS, ET AL., Plaintiffs, 7 v. 8 United States District Court Northern District of California UNITED BEHAVIORAL HEALTH, ET AL., Defendants. 11 12 ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND Re: Dkt. Nos. 71, 72, 80 9 10 CASE NO. 4:20-cv-02249 YGR Plaintiffs1 bring this putative class action against defendants United Behavioral Health 13 (“United”) and MultiPlan, Inc. (“MultiPlan”) for claims arising out of United’s alleged failure to 14 reimburse plaintiffs at “a percentage” of the Usual, Customary, and Reasonable Rates (“UCR”) for 15 Intensive Outpatient Program (“IOP”) services, which plaintiffs provided to patients with health 16 insurance policies administered by United. The Court dismissed a prior iteration of the complaint 17 in its entirety, with leave to amend. Plaintiffs filed a First Amended Complaint (“FAC”), in which 18 they assert, on their own behalf and on behalf of a proposed class of similarly-situated out-of- 19 network IOP providers, claims under Section 1 of the Sherman Act and the Racketeer Influenced 20 and Corrupt Organizations Act (“RICO”), and multiple claims under California law. 21 Now pending are two motions to dismiss all claims in the FAC with prejudice under 22 Federal Rule of Civil Procedure 12(b)(6) on the grounds that: (1) plaintiffs’ claims under Section 1 23 of the Sherman Act and RICO fail for lack of statutory standing; (2) plaintiffs’ state-law claims are 24 preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”); and (3) all 25 claims in the FAC continue to be inadequately pleaded. 26 27 28 1 Plaintiffs are Pacific Recovery Solutions d/b/a Westwind Recovery, Miriam Hamideh PhD Clinical Psychologist Inc. d/b/a PCI Westlake Centers, Bridging the Gaps, Inc., and Summit Estate Recovery Center, Inc. Dockets.Justia.com Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 2 of 19 Having carefully considered the pleadings and the parties’ briefs2, and for the reasons set 1 2 forth below, the Court GRANTS the motions to dismiss WITH PREJUDICE with respect to plaintiffs’ 3 claims under the Sherman Act and RICO, and plaintiffs’ state-law claims to the extent that they 4 arise out of the alleged under-reimbursement of claims for IOP services that were covered by 5 ERISA plans. The Court GRANTS the motions to dismiss WITH LEAVE TO AMEND with respect to 6 plaintiffs’ state-law claims to the extent that they arise out of the alleged under-reimbursement of 7 claims for IOP services that were covered by plans that fall outside of the scope of ERISA.3 8 I. United States District Court Northern District of California 9 10 BACKGROUND A. Initial complaint In the first iteration of the complaint, plaintiffs alleged as follows. Plaintiffs are out-of- 11 network healthcare providers who provided IOP services to patients who had health insurance 12 policies that United administered. Compl. ¶ 2, Docket No. 1. The health insurance policies that 13 United administered are “health care benefit programs” covered by ERISA. Id. ¶¶ 348-359. 14 Before providing treatment to these patients, “each of the Plaintiffs confirmed with United that the 15 patients had active coverage and benefits for out of network IOP treatment services” through 16 verification-of-benefits (“VOB”) calls, during which United “represented” that it would pay the 17 patients’ claims for such services at a percentage of the UCR. Id. ¶¶ 3, 17, 188, 195, 202, 209. 18 Due to the communications in question, plaintiffs and United “understood” UCR to be “consistent 19 with United’s published definition of UCR rates” on its website describing out-of-network plan 20 benefits. Id. ¶ 324; id. ¶ 17 n.6 (alleging that United published a definition of UCR on its webpage 21 describing out-of-network plan benefits). Plaintiffs provided IOP services to the patients in 22 reliance of United’s representations. Id. ¶¶ 3, 17, 188, 195, 202, 209. 23 United’s representations that it would pay a percentage of the UCR were false, because 24 “United did not pay UCR amounts for any of the patient claims at issue in this litigation.” Id. ¶ 25 26 27 28 2 Plaintiffs moved for leave to file a sur-reply on December 14, 2020. See Docket No. 80. The Court GRANTS plaintiffs’ motion for leave to file a sur-reply. 3 Pursuant to Federal Rule of Civil Procedure 78(b) and Civil Local Rule 7-1(b), the Court finds this motion appropriate for decision without oral argument. Accordingly, the Court VACATES the hearing set for December 22, 2020. 2 United States District Court Northern District of California Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 3 of 19 1 13. Instead, United engaged defendant Viant, a third-party “repricer,” to “negotiate” 2 reimbursements with Plaintiffs. Id. United has a contract with Viant pursuant to which Viant has 3 “financial incentives” to negotiate reimbursements “at well below the UCR rate.” Id. ¶ 33. 4 During its negotiations with plaintiffs, Viant represented that it had authority to negotiate with 5 providers on the patients’ behalf and that “the rate it offers is based on the UCR for the provider’s 6 geographic location.” Id. ¶¶ 34, 48, 52. Viant’s negotiations with plaintiffs resulted in offers to 7 reimburse them for IOP services at an amount below the UCR, and United paid the patients’ 8 claims at the “reduced Viant amount.” Id. ¶¶ 13-14. Neither United nor Viant disclosed to 9 Plaintiffs the methodology they used for calculating the reimbursement rates for IOP services. Id. 10 ¶ 54. United “unjustly retained” the difference between the amounts it “should have paid” to 11 plaintiffs for the IOP services at issue and the amount that United actually did pay based on 12 Viant’s negotiated reimbursements. Id. ¶ 15. 13 “[L]iability for the cost of care” that plaintiffs provided to patients ultimately falls on the 14 patients. Id. ¶¶ 55, 155, 4. Plaintiffs “make every effort to recover unpaid amounts, first from 15 United, then from patients.” Id. ¶ 55. Plaintiffs “balance bill” patients for the amounts that the 16 patients owe after taking into account any amounts that United reimbursed. Id. ¶¶ 155, 4. 17 Further, United and other insurers were required as part of the settlement of an unrelated 18 litigation (“Ingenix litigation”) to underwrite the creation of a database called the “FAIR health” 19 database, which contains rates for the reimbursement for IOP treatment. Id. ¶ 20. However, 20 United and the other insurers were not required by the Ingenix litigation settlement to use the 21 FAIR health database. Id. 22 Plaintiffs asserted the following claims on their own behalf and on behalf of a proposed 23 class of similarly-situated out-of-network IOP providers in the United States: (1) a claim for 24 violations of the Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq., 25 against each defendant; (2) intentional misrepresentation and fraudulent inducement; (3) negligent 26 misrepresentation; (4) civil conspiracy; (5) breach of oral or implied contract; (6) promissory 27 estoppel; (7) a claim under RICO, 18 U.S.C. § 1962(c); and (8) a claim under Section 1 of the 28 Sherman Act, 15 U.S.C. § 1. 3 Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 4 of 19 1 United States District Court Northern District of California 2 On August 25, 2020, the Court granted defendants’ motions to dismiss all claims in the initial complaint, and it did so with leave to amend. Docket No. 61. 3 B. FAC 4 In the FAC, plaintiffs continue to aver that United represented during VOB calls that it 5 would pay for IOP services at a percentage of the UCR. See, e.g., FAC ¶¶ 269, 276, 292. 6 Plaintiffs also continue to allege that their understanding as to what United meant when it 7 represented that it would pay a percentage of the UCR was based on United’s published definition 8 of UCR on its webpage describing out-of-network plan benefits, suggesting that the UCR 9 definition has a connection to the terms of healthcare plans. See, e.g., FAC ¶ 529 (alleging that the 10 “UCR rate” was “understood by both parties to be consistent with United’s published definition of 11 UCR rates”); id. ¶ 154 & n.19 (alleging that United publishes on its webpage regarding out-of- 12 network plan benefits a description of how it typically determines how to pay for out-of-network 13 services at the UCR rate). 14 The FAC differs from the initial complaint in the following ways: (1) plaintiffs deleted 15 most of the allegations that the Court relied upon in its order dismissing the initial complaint; (2) 16 plaintiffs added new allegations, some of which contradict the allegations in the initial complaint 17 upon which the Court relied in its order dismissing that pleading; (3) plaintiffs substituted 18 MultiPlan for Viant as a defendant; (4) plaintiffs added a claim for conspiracy in violation of 19 RICO, 18 U.S.C. § 1962(d); and (5) plaintiffs deleted their request for injunctive relief under the 20 Sherman Act. 21 Specifically, whereas in the initial complaint plaintiffs alleged that the plans administered 22 by United are healthcare benefit programs covered by ERISA, Compl. ¶¶ 348-59, the FAC 23 contains no such allegations. Plaintiffs aver that each of the patients who received the IOP 24 services at issue had an insurance plan whose premiums were paid by the patient’s employer, see, 25 e.g., FAC ¶¶ 403, 388, but they also allege that a “large percentage” of these plans are not covered 26 by ERISA, FAC ¶ 33 (alleging that “[a] large percentage of the claims which underlie this lawsuit 27 do not involve ERISA plans”). In the FAC, plaintiffs do not specify which of the allegedly under- 28 reimbursed claims for IOP services at issue were covered by an ERISA plan, and which were not. 4 Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 5 of 19 1 In the initial complaint, plaintiffs alleged that their patients are liable for any amounts not 2 reimbursed by United for IOP services, and that their injuries arose from their patients’ failure to 3 pay outstanding balances for IOP services and from having to seek reimbursement from their 4 patients for any amounts not reimbursed by United. The allegations in the FAC attribute 5 plaintiffs’ injuries, not to their patients’ failure to pay outstanding balances, but to United’s failure 6 to properly reimburse the claims for IOP services in question. See, e.g., FAC ¶ 20. Plaintiffs also modified their allegations with respect to the process that United allegedly United States District Court Northern District of California 7 8 used to reprice the claims for IOP services at issue. In the initial complaint, plaintiffs alleged that 9 United had engaged Viant to “negotiate” reimbursements with plaintiffs; that Viant’s negotiations 10 with plaintiffs resulted in offers to reimburse them for IOP services at an amount below the UCR; 11 and that United paid the patients’ claims for IOP services at the “reduced Viant amount.” See 12 Compl. ¶¶ 13-14. In FAC, by contrast, plaintiffs allege that United entered into a contract with 13 MultiPlan, Viant’s parent company, to use a database that allowed defendants to generate 14 “fraudulent UCR rates” for IOP services, which they used to under-reimburse for the cost of the 15 IOP services at issue. FAC ¶¶ 121, 13-62. Plaintiffs deleted all allegations as to Viant’s alleged 16 negotiations with plaintiffs from the FAC. 17 II. 18 LEGAL STANDARD To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient factual 19 matter that, when accepted as true, states a claim that is plausible on its face. Ashcroft v. Iqbal, 20 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the plaintiff pleads factual 21 content that allows the court to draw the reasonable inference that the defendant is liable for the 22 misconduct alleged.” Id. While this standard is not a probability requirement, “[w]here a 23 complaint pleads facts that are merely consistent with a defendant’s liability, it stops short of the 24 line between possibility and plausibility of entitlement to relief.” Id. (internal quotation marks and 25 citation omitted). In determining whether a plaintiff has met this plausibility standard, the Court 26 must “accept all factual allegations in the complaint as true and construe the pleadings in the light 27 most favorable” to the plaintiff. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). “[A] 28 court may not look beyond the complaint to a plaintiff’s moving papers, such as a memorandum in 5 Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 6 of 19 1 opposition to a defendant’s motion to dismiss.” Schneider v. California Dep’t of Corr., 151 F.3d 2 1194, 1197 n.1 (9th Cir. 1998). A court should grant leave to amend unless “the pleading could 3 not possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe, Inc. v. N. Cal. 4 Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990). 5 III. United States District Court Northern District of California 6 DISCUSSION As noted, defendants move to dismiss all claims in the complaint on the grounds that (1) 7 plaintiffs’ claims under Section 1 of the Sherman Act and RICO fail for lack of statutory standing; 8 (2) plaintiffs’ state-law claims are preempted by ERISA; and (3) all claims in the FAC continue to 9 be inadequately pleaded. 10 The Court addresses each of these arguments in turn. 11 A. 12 Section 1 of the Sherman Act makes it unlawful to form a “contract, combination in the Section 1 of the Sherman Act 13 form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several 14 States[.]” 15 U.S.C. § 1. “To establish a claim under Section 1 of the Sherman Act, Plaintiffs 15 must show 1) that there was a contract, combination, or conspiracy; 2) that the agreement 16 unreasonably restrained trade under either a per se rule of illegality or a rule of reason analysis; 17 and 3) that the restraint affected interstate commerce.” Cnty. of Tuolumne v. Sonora Cmty. Hosp., 18 236 F.3d 1148, 1155 (9th Cir. 2001) (citation and internal quotation marks omitted). In addition 19 to these elements, plaintiffs also must show that they were “harmed by the defendant’s anti- 20 competitive contract, combination, or conspiracy, and that this harm flowed from an anti- 21 competitive aspect of the practice under scrutiny.” Brantley v. NBC Universal, Inc., 675 F.3d 22 1192, 1197 (9th Cir. 2012) (citation and internal quotation marks omitted). This requirement is 23 generally referred to as “antitrust standing.” Id. (citation omitted). 24 Plaintiffs assert a Section 1 claim for damages against defendants, which is predicated on 25 the theory that defendants entered into a “horizontal price fixing” conspiracy pursuant to which 26 United and “its competitors” fixed the prices that insurers paid to providers for IOP services, 27 which they achieved by using Multiplan’s database and pricing tool. FAC ¶¶ 389-394, 403. 28 6 Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 7 of 19 1 Plaintiffs allege that they were injured by the alleged conspiracy because they “sold their services 2 for less than they would have sold for in a free, open and competitive market.” Id. ¶ 558. 3 4 antitrust standing because the injuries they allegedly suffered are derivative of their patients’ 5 injuries, and because plaintiffs have otherwise not stated a claim under Section 1. 6 7 United States District Court Northern District of California Defendants move to dismiss plaintiffs’ Section 1 claim on the grounds that plaintiffs lack The Court first turns to the question of whether plaintiffs have shown that they have antitrust standing. 8 Section 4 of the Clayton Act permits private parties to sue for damages arising out of 9 injuries caused by violations of the federal antitrust laws. 15 U.S.C. § 15. In determining whether 10 a private party has “antitrust standing” under Section 4, courts consider the following factors: “(1) 11 the nature of the plaintiff’s alleged injury; that is, whether it was the type the antitrust laws were 12 intended to forestall; (2) the directness of the injury; (3) the speculative measure of the harm; (4) 13 the risk of duplicative recovery; and (5) the complexity in apportioning damages.” American Ad 14 Management, Inc. v. General Tel. Co., 190 F.3d 1051, 1054-55 (9th Cir. 1999). 15 Here, the first factor for antitrust standing is not met, because plaintiffs’ allegations do not 16 raise the reasonable inference that the type of injury they suffered is of the type that the antitrust 17 laws were intended to prevent, which is to preserve competition. Knevelbaard Dairies v. Kraft 18 Foods, Inc., 232 F.3d 979, 988 (9th Cir. 2000) (“[T]he central purpose of the antitrust laws, state 19 and federal, is to preserve competition.”). 20 In the initial complaint, plaintiffs alleged that their patients had “agreed” to be liable for 21 any amounts that United did not reimburse for IOP services, and that plaintiffs suffered injury 22 only to the extent that their patients failed to pay them the difference between the amount 23 reimbursed by United and the amount their patients owed them pursuant to this agreement. See, 24 e.g., Compl. ¶ 151 (“[E]ach patient agreed to be liable for the difference between the amount the 25 treating provider billed, and the amount United reimbursed.”); id. ¶ 155 (alleging that plaintiffs 26 “balance bill their patients for the amounts that they are owed” as a result of United’s alleged 27 under-reimbursement); Id. ¶ 406 (alleging that plaintiffs were injured by the alleged conspiracy 28 because it caused them to be “underpaid” for their services and to incur “significant additional 7 Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 8 of 19 1 expenses in seeking proper payment”). Based on these allegations, the Court concluded that 2 plaintiffs’ alleged injury “would arise directly from the patients’ failure to comply with their 3 financial obligations to plaintiffs, and not from defendants’ conduct.” Order at 5-6, Docket No. 4 61. The Court further concluded that this type of injury, which arises out of the breach of 5 agreements between plaintiffs and each of their patients, was not of the type that the antitrust laws 6 were intended to prevent, because the breach of a contract by individual patients has nothing to do 7 with competition. Id. United States District Court Northern District of California 8 Although plaintiffs deleted from the FAC most of the allegations suggesting that plaintiffs’ 9 injury arises from their patients’ failure to pay them the balance remaining for the IOP services at 10 issue, the FAC still contains some allegations that support that proposition. See, e.g., FAC ¶¶ 62 11 (alleging that “[m]ost patients cannot shoulder the full costs of MH/SUD treatment” and as a 12 result, “in the vast majority of cases . . . the provider bears the full cost of treatment services”); id. 13 ¶ 89. Plaintiffs have cited no case that supports the proposition that the antitrust laws were 14 intended to prevent injury that arises from the breach of an agreement to pay for the cost of 15 healthcare services. Accordingly, the Court concludes that the nature of plaintiffs’ injury is not of 16 the type that the antitrust laws were intended to forestall. 17 The second factor for antitrust standing also is not met, because plaintiffs’ injury, if any, 18 was not proximately caused by the alleged conspiracy. To assess the directness of the plaintiff’s 19 injury, courts “look to the chain of causation between [plaintiff’s] injury and the alleged restraint 20 in the market.” American Ad Management, 190 F.3d at 1058. Plaintiffs alleged in the prior 21 iteration of the complaint that the direct victims of the alleged conspiracy were “United’s 22 members” (i.e., plaintiffs’ patients) because they “incurred liability for illegally inflated out-of- 23 pocket payments for out-of-network IOP services than they would have paid” in the absence of the 24 conspiracy. Compl. ¶ 407. Plaintiffs deleted that allegation from the FAC and replaced it with 25 conclusory allegations that contradict it. See, e.g., FAC ¶¶ 285, 314, 344 (alleging that plaintiffs 26 have “been directly harmed by [United’s] underpayment”). The Court does not consider these 27 new allegations that contradict the allegations in the initial complaint. See Azadpoour v. Sun 28 Microsys., Inc., No. 06–3272, 2007 WL 2141079, at *2 n. 2 (N.D. Cal. July 23, 2007) (“Where 8 Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 9 of 19 1 allegations in an amended complaint contradict those in a prior complaint, a district court need not 2 accept the new alleged facts as true, and may, in fact, strike the changed allegations as ‘false and 3 sham.’”) (citations omitted); Reddy v. Litton Indus., Inc., 912 F.2d 291, 296-97 (9th Cir. 1990) 4 (holding that an “amended complaint may only allege other facts consistent with the challenged 5 pleading”) (citation omitted). As discussed above, plaintiffs’ injury arises only to the extent that 6 their patients do not pay the amounts that United does not reimburse. Accordingly, the proximate 7 cause of plaintiffs’ injuries is their patients’ failure to pay outstanding balances pursuant to their 8 agreements with plaintiffs, and not defendants’ alleged conduct. United States District Court Northern District of California 9 The third factor also is not met, because plaintiffs’ injuries are speculative. To the extent 10 that a patient pays the balance owed to plaintiffs for the IOP services at issue, then plaintiffs 11 would suffer no injury as to that patient. Plaintiffs’ allegations do not raise the reasonable 12 inference that it is certain that none of their patients who have outstanding balances will not pay 13 such balances in the future. To the contrary, plaintiffs admit in their briefs that it remains possible 14 that they could receive a payment of the outstanding balances from their patients, as well as from 15 United to the extent that plaintiffs prevail in this lawsuit. See, e.g., Opp’n at 13, Docket No. 76 16 (“In the off-chance that a patient and United both paid Plaintiffs the underpayment amount, that 17 payment would be refused or promptly refunded by Plaintiffs.”). 18 The remaining factors for antitrust standing also are not satisfied, because plaintiffs’ 19 allegations do not foreclose the possibility that their patients, as the direct victims of the alleged 20 conspiracy, could also sue defendants to recover damages for the alleged conspiracy. If both the 21 patients and plaintiffs were to sue defendants under the Sherman Act, the risk of duplicative 22 recoveries would be significant. Avoiding such duplication would require fact-intensive inquiries 23 and calculations, which weighs against finding that plaintiffs here, whose alleged injuries are less 24 direct than those of their patients, have antitrust standing. 25 In an analogous action brought by healthcare providers against United for failure to 26 properly reimburse United-policy subscribers (i.e., patients) for covered out-of-network services, 27 the court dismissed with prejudice the providers’ claims under the Sherman Act for lack of 28 antitrust standing. See In re Wellpoint, Inc. Out-of-Network “UCR” Rates Litig., 903 F. Supp. 2d 9 United States District Court Northern District of California Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 10 of 19 1 880, 902 (C.D. Cal. 2012) (“In re Wellpoint”). The court reasoned that “there exist more direct 2 victims in the form of the Subscribers [patients]” and that the providers’ alleged injury was 3 “entirely derivative of the injury inflicted on the Subscribers,” as the providers’ alleged injury 4 “merely flows from the misfortunes visited upon the Subscribers by” the defendants’ alleged 5 conspiracy. Id. Even though the Court relied upon this opinion in its order dismissing plaintiffs’ 6 Section 1 claim in the prior iteration of the complaint, Order at 6, Docket No. 61, Plaintiffs have 7 not distinguished In re Wellpoint. Nor have plaintiffs cited any authority that supports the 8 proposition that a plaintiff can have antitrust standing where, as here, the plaintiff’s injury flows 9 from the injury of another.4 10 In light of the foregoing, the Court cannot conclude that plaintiffs have antitrust standing. 11 Because plaintiffs’ lack of antitrust standing requires the dismissal of plaintiffs’ Sherman Act 12 claim, the Court need not address defendants’ alternative arguments with respect to that claim. 13 The Court GRANTS defendants’ motions to dismiss plaintiffs’ Sherman Act claim WITH 14 PREJUDICE. 15 B. 16 Section 1962(c) of RICO provides, “It shall be unlawful for any person employed by or 17 RICO associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of 18 19 20 21 22 23 24 25 26 27 28 4 The authorities upon which plaintiffs rely in their opposition are inapposite. In none of these cases did the plaintiff’s injury flow from the injury of another. In these cases, the alleged injury was the plaintiff’s alleged exclusion from the market in which the defendants also competed; this injury flowed directly from the alleged anticompetitive conduct, and not from the injury of some other person or entity. See Oltz v. St. Peter's Community Hospital, 861 F.2d 1440 (9th Cir. 1988) (denying motion to dismiss antitrust claim brought by nurse anesthesiologist against four anesthesiologists and a hospital based on an alleged conspiracy to exclude the plaintiff nurse anesthesiologist from the market for providing anesthesia services in a county); N. California Minimally Invasive Cardiovascular Surgery, Inc. v. Northbay Healthcare Corp., No. C 15-06283 WHA, 2016 WL 1570015, at *4 (N.D. Cal. Apr. 19, 2016) (denying motion to dismiss antitrust claim brought by a doctor against another doctor and a hospital based on an alleged conspiracy to exclude the plaintiff doctor from the market for providing cardiovascular surgery in two counties). Relying on these authorities, plaintiffs argue in their opposition that they have antitrust standing because the alleged conspiracy “excluded” providers (i.e., plaintiffs) “from serving any patients insured under United plans.” Opp’n at 12, Docket No. 76. This argument is unpersuasive because it contradicts plaintiffs’ allegations that they did and continue to provide services to patients insured under United plans. See, e.g., FAC ¶¶ 259, 289, 318, 348; id. ¶ 19 (“Without Court intervention, this scheme will continue and continue to damage Plaintiffs and the class.”). 10 Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 11 of 19 1 such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.” 2 18 U.S.C. § 1962(c). 3 4 the provisions of subsection (a), (b), or (c) of this section.” A defendant cannot be liable for a 5 RICO conspiracy under Section 1962(d) if the defendant is not liable under the substantive RICO 6 provisions, namely Sections 1962(a), (b), or (c). See Howard v. Am. Online Inc., 208 F.3d 741, 7 751 (9th Cir. 2000) (“Plaintiffs cannot claim that a conspiracy to violate RICO existed if they do 8 not adequately plead a substantive violation of RICO.”). 9 United States District Court Northern District of California Section 1962(d) provides, “It shall be unlawful for any person to conspire to violate any of Here, plaintiffs allege that defendants violated RICO Sections 1962(c) and 1962(d) by 10 committing wire fraud and mail fraud in violation of 18 U.S.C. §§ 1341 and 1343 to under- 11 reimburse plaintiffs for the IOP services that plaintiffs provided to patients with United insurance 12 policies. FAC ¶¶ 13-62. Plaintiffs allege that defendants used a database and pricing tool that 13 allowed them to generate “fraudulent UCR rates” for IOP services, which they used to under- 14 reimburse for the cost of the IOP services at issue. Id. ¶¶ 121, 13-62. 15 Defendants move to dismiss this claim on the grounds that plaintiffs lack RICO standing 16 and that plaintiffs’ allegations are insufficient to state a claim under RICO Sections 1962(c) and 17 1962(d). 18 19 20 The Court first turns to the question of whether plaintiffs have shown that they have RICO standing. To establish RICO standing, a plaintiff must plead an injury to business or property that 21 was proximately caused by the alleged RICO predicate offense. Hemi Grp., LLC v. City of New 22 York, 559 U.S. 1, 2 (2010) (“To establish that an injury came about by reason of a RICO violation, 23 a plaintiff must show that a predicate offense not only was a but for cause of his injury, but was 24 the proximate cause as well.”) (citation and internal quotation marks omitted); Holmes v. Sec. 25 Inv’r Prot. Corp., 503 U.S. 258, 268 (1992) (same). In determining whether a plaintiff’s injury 26 has a sufficient causal nexus to the RICO predicate offense, courts look to the same factors that 27 courts consider to determine whether a plaintiff has antitrust standing. See Oregon Laborers- 28 Employers Health & Welfare Tr. Fund v. Philip Morris Inc., 185 F.3d 957, 963 (9th Cir. 1999) 11 United States District Court Northern District of California Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 12 of 19 1 (“To determine whether an injury is ‘too remote’ to allow recovery under RICO and the antitrust 2 laws, the Court applies the following three-factor ‘remoteness’ test: (1) whether there are more 3 direct victims of the alleged wrongful conduct who can be counted on to vindicate the law as 4 private attorneys general; (2) whether it will be difficult to ascertain the amount of the plaintiff’s 5 damages attributable to defendant’s wrongful conduct; and (3) whether the courts will have to 6 adopt complicated rules apportioning damages to obviate the risk of multiple recoveries.”). 7 Here, plaintiffs’ allegations do not raise the inference that they have RICO standing for the 8 same reasons that such allegations do not raise the inference that plaintiffs have antitrust standing. 9 As discussed above, the proximate cause of plaintiffs’ injury is the non-payment by their patients 10 of any amounts that United did not reimburse. Plaintiffs’ injury is, therefore, derivative of their 11 patients’ injuries and too remote to confer them with RICO standing. Further, the risk of 12 duplicative recoveries and of having to engage in fact-intensive damages calculations to prevent 13 such duplication is high to the extent that plaintiffs and their patients sue defendants for the same 14 conduct. Indeed, plaintiffs admit that their patients have already filed a lawsuit against defendants 15 captioned L.D. v. United, Case No. 4:20-cv-02254, which is also pending before this Court. FAC 16 ¶ 8. In that case, the patients assert claims under RICO arising out of the same alleged enterprise 17 that forms the basis of plaintiffs’ RICO claims here. See First Amended Complaint, Docket No. 18 57, Case No. 4:20-cv-02254. 19 In In re Wellpoint, which, as noted above, is an analogous action brought by healthcare 20 providers against United for failure to properly reimburse subscribers (patients) for covered out- 21 of-network services, the district court dismissed the providers’ RICO claims with prejudice for 22 lack of RICO standing on the basis that the providers’ claims were derivative of those of their 23 patients. 903 F. Supp. 2d at 902. In re Wellpoint, which plaintiffs have not distinguished, 24 supports the dismissal of plaintiffs’ RICO claims here on the same ground. 25 Plaintiffs cite no authority supporting the proposition that a plaintiff can sue under RICO 26 where, as here, the plaintiff’s injury is derivative of the injury of another. To the contrary, the 27 authorities that plaintiffs cite in their opposition support the opposite conclusion. See, e.g., 28 Holmes, 503 U.S. at 271-74 (holding that the plaintiffs “were not the proper plaintiffs” and lacked 12 United States District Court Northern District of California Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 13 of 19 1 RICO standing because their injury was derivative of the injury that a third party suffered as a 2 result of the alleged RICO conspiracy); Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 457-58 3 (2006) (applying Holmes and holding that plaintiffs lacked RICO standing because the “direct 4 victim of this conduct [the alleged RICO enterprise] was the State of New York,” not plaintiffs). 5 In Holmes, which plaintiffs cite in their brief, the Supreme Court expressly rejected the argument 6 that RICO ought to be “liberally construed to effectuate its remedial purposes” by allowing 7 plaintiffs whose injuries were indirect to sue under RICO, reasoning that “[a]llowing suits by 8 those injured only indirectly would open the door to massive and complex damages litigation[, 9 which would] not only burde[n] the courts, but [would] also undermin[e] the effectiveness of 10 treble-damages suits.” 503 U.S. at 274 (citation and internal quotations omitted) (alterations in the 11 original). Plaintiffs appear to argue that they have satisfied the proximate causation requirement for 12 13 RICO standing because they are not required to plead reliance with respect to defendants’ 14 fraudulent acts. Opp’n at 9-10, Docket No. 76. This argument misses the point. The RICO 15 standing analysis here does not hinge on whether plaintiffs have pleaded, or must plead, reliance.5 16 Instead, as discussed above, the analysis turns on the derivative and indirect nature of plaintiffs’ 17 injury. 18 In light of the foregoing, the Court cannot conclude that plaintiffs have RICO standing. 19 Because plaintiffs’ lack of RICO standing requires the dismissal of their RICO claims, the Court 20 need not address defendants’ alternative arguments with respect to whether such claims are 21 22 23 24 25 26 27 28 5 The case that plaintiffs cite for the proposition that they are not required to plead reliance on defendants’ alleged fraud does not actually support that assertion. In Bridge v. Phoenix Bond & Indem. Co., the Supreme Court held that a plaintiff whose injury was “the direct result” of the alleged mail fraud committed by the alleged RICO enterprise can sue under RICO without having to plead that it itself relied on the fraudulent representations, so long as it pleads “at least thirdparty reliance in order to prove causation.” 553 U.S. 639, 658-59 (2008). In other words, Bridge holds that, in the context of a RICO claim predicated on mail fraud, the plaintiff must plead at least third-party reliance on the alleged fraud. Importantly, the directness of the plaintiff’s injury for the purpose of RICO standing was not at issue in Bridge; there, and unlike here, “there [were] no independent factors that account[ed] for [plainitffs’] injury, there [was] no risk of duplicative recoveries by plaintiffs removed at different levels of injury from the violation, and no more immediate victim [was] better situated to sue.” Accordingly, Bridge does not alter the Court’s analysis, above, with respect to whether plaintiffs have RICO standing. 13 United States District Court Northern District of California Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 14 of 19 1 adequately pleaded. The Court GRANTS defendants’ motions to dismiss plaintiffs’ RICO claims 2 WITH PREJUDICE. 3 C. 4 Plaintiffs assert the following state-law claims against defendants: (1) violation of the State-law Claims 5 UCL, Cal. Bus. & Prof. Code § 17200 et seq.; (2) intentional misrepresentation and fraudulent 6 inducement; (3) negligent misrepresentation; (4) civil conspiracy; (5) breach of oral or implied 7 contract; and (6) promissory estoppel. All of these claims are predicated on the theory that United 8 represented to plaintiffs during VOB calls that it would pay for IOP services at a percentage of the 9 UCR. See, e.g., FAC ¶¶ 269, 276, 292. Plaintiffs allege that, instead of paying for the IOP 10 services at a percentage of the UCR, defendants used a database and pricing tool to generate a 11 fraudulent UCR rate, which they used to under-reimburse the claims for IOP services at issue. Id. 12 ¶¶ 70, 121. 13 Defendants move to dismiss these claims on the ground that they are preempted under 14 ERISA Section 514(a) because the claims depend on the existence and terms of ERISA plans. 15 ERISA Section 514(a) expressly preempts “any and all State laws insofar as they may now 16 or hereafter relate to any employee benefit plan[.]” 29 U.S.C. § 1144(a). “While this section 17 suggests that the phrase ‘relate to’ should be read broadly, the Supreme Court has recently 18 admonished that the term is to be read practically, with an eye toward the action’s actual 19 relationship to the subject plan.” Providence Health Plan v. McDowell, 385 F.3d 1168, 1172 (9th 20 Cir. 2004) (citing New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. 21 Co., 514 U.S. 645, 655-56 (1995)). “Generally speaking, a common law claim ‘relates to’ an 22 employee benefit plan governed by ERISA ‘if it has a connection with or reference to such a 23 plan.’” Id. (citation omitted). “In evaluating whether a common law claim has ‘reference to’ a 24 plan governed by ERISA, the focus is whether the claim is premised on the existence of an ERISA 25 plan, and whether the existence of the plan is essential to the claim’s survival. If so, a sufficient 26 ‘reference’ exists to support preemption.” Id. (citations omitted). “In determining whether a 27 claim has a ‘connection with’ an employee benefit plan, courts in this circuit use a relationship 28 test. Specifically, the emphasis is on the genuine impact that the action has on a relationship 14 United States District Court Northern District of California Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 15 of 19 1 governed by ERISA, such as the relationship between the plan and a participant.” Id. (citations 2 omitted). 3 The Court previously held, based on the allegations in the initial complaint, that plaintiffs’ 4 state-law claims depended on the existence and terms of ERISA plans administered by United and 5 that, as such, they were preempted under ERISA Section 514(a). Order at 16-17, Docket No. 61. 6 The Court reasoned that the allegations in the initial complaint connected United’s alleged 7 obligation to pay for IOP services at a percentage of the UCR to the patients’ healthcare plans, 8 which plaintiffs alleged were healthcare benefit plans covered by ERISA, because plaintiffs 9 alleged that “[e]very plan at issue in this litigation was obligated to pay out-of-network IOP claims 10 at the UCR rate.” See Compl. ¶¶ 74, 75, 348-59. Further, plaintiffs averred that the parties’ 11 understanding as to what United meant when it represented that it would pay a percentage of the 12 UCR was based on United’s published definition of UCR on its webpage describing out-of- 13 network plan benefits, suggesting that the UCR definition is based on the terms of benefit plans. 14 See Compl. ¶ 324 (alleging that plaintiffs and United understood UCR to be “consistent with 15 United’s published definition of UCR rates”); id. ¶ 17 n.6 (alleging that United published a 16 definition of UCR on its webpage describing out-of-network plan benefits). 17 In the FAC, plaintiffs continue to allege that the parties’ understanding as to what United 18 meant when it represented that it would pay a percentage of the UCR was based on the terms of 19 the plans that United administered. See FAC ¶ 428 (“It is arbitrary, capricious, improper, and a 20 breach of plan terms for United to pay rates other than a true UCR arrived at under a fair 21 methodology.”) (emphasis added); id. ¶ 529 (alleging that the “UCR rate” was “understood by 22 both parties to be consistent with United’s published definition of UCR rates”); id. ¶ 154 & n.19 23 (alleging that United publishes on its webpage for out-of-network plan benefits a description of 24 how it typically determines how to pay for out-of-network services at the UCR rate). 25 Accordingly, the FAC continues to raise the inference that the state-law claims at issue depend on 26 the terms of the patients’ healthcare plans. 27 The question is whether the patients’ healthcare plans are covered by ERISA. If the plans 28 are so covered, then the state-law claims that depend on the terms of such plans are preempted by 15 United States District Court Northern District of California Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 16 of 19 1 ERISA. See Wise v. Verizon Commc’ns, Inc., 600 F.3d 1180, 1191 (9th Cir. 2010) (holding that 2 state-law claims predicated on “theories of fraud, misrepresentation, and negligence” are 3 preempted under Section 514(a) because they “depend on the existence of an ERISA-covered plan 4 to demonstrate that [the plaintiff] suffered damages”). If the plans are not covered by ERISA, then 5 the state-law claims that depend on the terms of such plans would not be preempted, as defendants 6 have not shown that a claim that depends on the terms of a plan that is not covered by ERISA can 7 be subject to ERISA preemption. 8 In the initial complaint, plaintiffs alleged that the plans administered by United are 9 healthcare benefit plans within the meaning of ERISA and are thus covered by ERISA. Compl. ¶¶ 10 348-59. The FAC contains no such allegations. In the FAC, plaintiffs aver that each of the 11 patients who received the IOP services in question had an insurance plan whose premiums were 12 paid by the patient’s employer, see, e.g., FAC ¶¶ 403, 388, but they also allege that a “large 13 percentage” of these plans are not covered by ERISA, FAC ¶ 33 (alleging that “[a] large 14 percentage of the claims which underlie this lawsuit do not involve ERISA plans”). Plaintiffs do 15 not specify in the FAC which of the claims for IOP services that United allegedly under- 16 reimbursed are covered by an ERISA plan, and which are not. 17 The Court concludes that plaintiffs’ state-law claims are preempted under ERISA Section 18 514(a) to the extent that they arise out of allegedly under-reimbursed claims for IOP services that 19 are covered by ERISA plans, because such state-law claims depend on the existence and terms of 20 ERISA plans based on the allegations discussed above. See Wise, 600 F.3d at 1191. 21 Plaintiffs have not shown that a different conclusion is warranted with respect to these 22 claims. Plaintiffs argue that ERISA does not preempt their state-law claims because such claims 23 depend, not on the terms of ERISA plans, but on duties that are independent of any plan. Opp’n at 24 18, Docket No. 76. But these arguments are inconsistent with the allegations in the FAC, which, 25 as discussed above, raise the inference that the parties’ understanding as to what United was 26 required to reimburse was based on the terms of the patients’ plans, and not on the terms of an 27 agreement between plaintiffs and defendants that was independent of the plans. 28 16 United States District Court Northern District of California Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 17 of 19 1 The authorities upon which plaintiffs rely are distinguishable. See Opp’n at 11-13, Docket 2 No. 75. In the opinions that plaintiffs cite, the state-law claims fell outside of the scope of ERISA 3 preemption because the claims depended on an agreement that was independent of the terms of an 4 ERISA plan. See Summit Estate, Inc. v. United Healthcare Ins. Co., Case No. 4:19-cv-06724 5 YGR, 2020 WL 5436655, at *2 (N.D. Cal. Sept. 10, 2020) (holding that state-law claims were not 6 preempted under ERISA Section 514(a) because they did not “depend[] on the existence or terms 7 of an ERISA plan” and “United’s alleged representations regarding payment for the services at 8 issue [were] independent of any statements that United allegedly made with respect to the 9 insurance policies of Summit Estate’s patients”); Doctors Med. Ctr. of Modesto, Inc. v. The 10 Guardian Life Ins. Co. of Am., No. 1:08-CV-00903 OWWGSA, 2009 WL 179681, at *6 (E.D. 11 Cal. Jan. 26, 2009) (holding that state-law claims were not preempted by ERISA because the 12 claims were predicated on “an independent contractual obligation” and not the terms of an ERISA 13 plan); The Meadows v. Employers Health Ins., 47 F.3d 1006, 1008 (9th Cir. 1995) (same); IV 14 Solutions Inc. v. United Healthcare Servs. Inc., No. CV124887GAFMRWX, 2012 WL 12887401, 15 at *6 (C.D. Cal. Nov. 19, 2012) (same). Here, by contrast, plaintiffs’ allegations raise the 16 inference that United’s reimbursement obligations depend on the terms of the patients’ ERISA 17 plans. Plaintiffs have cited no authority that supports the proposition that state-law claims can fall 18 outside of the scope of ERISA preemption where, as here, the claims depend on the terms of 19 ERISA plans. 20 Accordingly, the Court GRANTS defendants’ motions to dismiss the state-law claims that 21 arise out of the alleged under-reimbursement of claims covered by ERISA plans WITH 22 PREJUDICE. See Johnson v. Dist. 2 Marine Engineers Beneficial Ass’n-Associated Mar. Officers, 23 Med. Plan, 857 F.2d 514, 517 (9th Cir. 1988) (affirming dismissal with prejudice of state-law 24 claims that were “preempted by ERISA” Section 514(a)). 25 As to plaintiffs’ state-law claims that arise out of the alleged under-reimbursement of 26 claims for IOP services covered by healthcare plans that are not subject to ERISA, the Court 27 concludes that the FAC lacks allegations to raise the reasonable inference that the healthcare plans 28 in question fall outside of the scope of ERISA. As noted, plaintiffs allege that the plans in 17 United States District Court Northern District of California Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 18 of 19 1 question are employer-sponsored healthcare plans. FAC ¶¶ 386, 403. Although certain types of 2 employer-sponsored healthcare plans are exempted from ERISA, such as governmental and 3 church plans, the FAC is devoid of allegations showing that any of the plans at issue falls within 4 any of the exceptions to ERISA coverage. See 29 U.S.C. § 1003(b) (listing exceptions to ERISA 5 coverage for employee benefit plans). Accordingly, in light of the totality of plaintiffs’ 6 allegations, the Court cannot conclude at this juncture that plaintiffs’ state-law claims fall outside 7 of the scope of ERISA preemption on the basis that the healthcare plans upon which they depend 8 are not subject to ERISA. The Court, however, will GRANT plaintiffs LEAVE TO AMEND the 9 complaint with respect to these claims. 10 D. Leave to Amend 11 Federal Rule of Civil Procedure 15(a)(2) provides that courts “should freely give leave [to 12 amend] when justice so requires.” In re Korean Air Lines Co., Ltd., 642 F.3d 685, 701 (9th Cir. 13 2011). The Court, however, need not grant leave to amend where amendment would be futile. 14 Smith v. Pac. Props. & Dev. Corp., 358 F.3d 1097, 1101 (9th Cir. 2004). Here, it is not clear that amendment of the complaint would be futile to attempt to allege 15 16 (1) facts identifying which of the allegedly under-reimbursed claims for IOP services in the FAC 17 were covered by a plan that falls outside of the scope of ERISA and showing why; and (2) facts 18 that raise the inference that defendants are liable under state law, based on United’s alleged under- 19 reimbursement of such claims, for violations of the UCL, intentional misrepresentation and 20 fraudulent inducement, negligent misrepresentation, civil conspiracy, breach of contract, or 21 promissory estoppel. The Court, therefore, will grant plaintiffs leave to amend the complaint to 22 allege such facts to the extent that they can do so without contradicting the allegations in prior 23 iterations of the complaint. In any amended complaint, plaintiffs may not reassert claims that the 24 Court has dismissed with prejudice, assert theories that the Court has rejected, or add new claims 25 for relief. 26 IV. 27 28 CONCLUSION For the foregoing reasons, the Court GRANTS defendants’ motions to dismiss with respect to plaintiffs’ Sherman Act and RICO claims, and plaintiffs’ state-law claims to the extent that they 18 United States District Court Northern District of California Case 4:20-cv-02249-YGR Document 83 Filed 12/18/20 Page 19 of 19 1 arise out of the alleged under-reimbursement of claims for IOP services that are covered by 2 ERISA plans, WITH PREJUDICE. The Court GRANTS defendants’ motions to dismiss WITH LEAVE 3 TO AMEND 4 alleged under-reimbursement of claims for IOP services that are covered by plans that fall outside 5 of the scope of ERISA. Plaintiffs may file an amended complaint within thirty (30) days of the 6 date this order is filed. Defendants may file a response to the amended complaint within thirty 7 (30) days of the date it is filed. The Court GRANTS plaintiffs’ motion for leave to file a sur-reply. with respect to plaintiffs’ state-law claims to the extent that the claims arise out of the 8 This order terminates Docket Numbers 71, 72, and 80. 9 IT IS SO ORDERED. 10 Dated: December 18, 2020 11 ______________________________________ YVONNE GONZALEZ ROGERS UNITED STATES DISTRICT COURT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19
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