Bay Area Surgical Management, LLC v. Principal Life Insurance Company, No. 5:2012cv01140 - Document 39 (N.D. Cal. 2012)
Court Description: ORDER granting 20 Motion to Dismiss. Bay Area may file any amended complaint no later than 30 days from the date of this order. Signed by Judge Edward J. Davila on 9/14/2012. (ejdlc1, COURT STAFF) (Filed on 9/14/2012)
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Bay Area Surgical Management, LLC v. Principal Life Insurance Company Doc. 39 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 9 NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 BAY AREA SURGICAL MANAGEMENT, LLC, ) ) ) Plaintiff, ) ) v. ) ) PRINCIPAL LIFE INSURANCE COMPANY, ) ) Defendant. ) ) Case No.: 5:12-cv-01140 EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND (Re: Docket No. 20) Pending before the court is Defendant Principal Life Insurance Company’s (“Principal”) 18 motion to dismiss Plaintiff Bay Area Surgical Management, LLC’s (“Bay Area”) First Amended 19 Complaint (“FAC”). The court found this motion suitable for determination without oral argument. 20 See Civil L.R. 7-1(b). For the reasons discussed below, the motion to dismiss is GRANTED. 21 I. BACKGROUND 22 The FAC alleges five causes of action against Principal: (1) breach of contract, (2) violation of 23 California Unfair Competition Laws (“UCL”), California Business & Professions Code § 17200 et 24 seq., (3) Negligent Misrepresentation, (4) Promissory Estoppel, and (5) Equitable Estoppel. In 25 support of Bay Area’s claims under these causes of action, Bay Area alleges the following facts in 26 the FAC. See Docket No. 14. 27 28 1 Case No.: 5:12-cv-01140 EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND Dockets.Justia.com 1 Dr. Marshal Rosarios, a doctor with Bay Area, a medical care provider, performed surgery on a 2 patient insured by Principal, a medical insurance provider. FAC ¶¶ 19, 23. Pursuant to the patient’s 3 contract with Principal, Principal was required to pay 60% of the billed price for qualified surgical 4 procedures. Id. ¶ 29; Sullivan Decl. Ex. A (patient’s employmee benefit plan). 1 Prior to the 5 scheduled surgery, on March 7, 2011, Brooke Alvarez, a Bay Area employee spoke with 6 employees of Principal via telephone. Id. ¶ 21. Principal stated that (1) the patient was covered 7 under Principal insurance; and (2) no pre-authorization was necessary for the surgery the patient 8 was scheduled to undergo. Id. ¶¶ 22-23. Bay Area billed Principal for the patient’s surgery, but 9 Principal paid only $26,091.73 of the $250,500 bill, which is approximately 10% of the bill. Id. ¶¶ United States District Court For the Northern District of California 10 24, 7. Pursuant to Principal’s agreement with Bay Area, however, Principal was required to pay 11 60% of the cost of approved surgical procedures for out-of-contract providers, such as Bay Area. 12 Id. ¶ 5 Bay Area is owed $104,000 but seeks to recover only $74,500. Id. ¶ 34. II. 13 LEGAL STANDARDS 14 A. Motion To Dismiss 15 A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency of 16 a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal under Rule 12(b)(6) 17 may be based on either (1) the “lack of a cognizable legal theory,” or (2) “the absence of sufficient 18 facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 19 (9th Cir. 1990). In considering whether the complaint is sufficient to state a claim, the court accepts 20 as true all of the factual allegations contained in the complaint. Gen. Conference Corp. of Seventh- 21 Day Adventists v. Seventh-Day Adventist Congregational Church, 887 F.2d 228, 230 (9th Cir. 22 1989). However, the court need not “accept as true allegations that contradict matters properly 23 subject to judicial notice or by exhibit” or “allegations that are merely conclusory, unwarranted 24 deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 25 (9th Cir. 2008) (internal quotation marks and citations omitted). While a complaint need not allege 26 detailed factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a 27 1 28 Because Bay Area has referenced the plan documents in the FAC (FAC ¶ 29) and does not contest their authenticity, the court may consider them when reviewing Principal’s motion to dismiss. See Anderson v. Clow, 89 F.3d 1399, 1405 n.4 (9th Cir. 1996). 2 Case No.: 5:12-cv-01140 EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 1 claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting 2 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it 3 “allows the court to draw the reasonable inference that the defendant is liable for the misconduct 4 alleged.” Id. 5 B. ERISA Complete Preemption 6 ERISA is a comprehensive legislative scheme intended to protect the interests of participants in 7 employee benefit plans and their beneficiaries. Aetna Health Inc. v. Davila, 542 U.S. 200, 208 8 (2004). One distinctive feature of ERISA is the integrated enforcement mechanism provided under 9 29 U.S.C. §1132(a), which provides ten "carefully integrated civil enforcement provisions." Id. United States District Court For the Northern District of California 10 (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987)). Congress "clearly manifested an 11 intent" to completely preempt causes of action within the scope of § 1132(a). Metropolitan Life 12 Insurance, 481 U.S. at 66. 13 Under Davila, a state law claim is completely preempted by ERISA under 29 U.S.C. § 14 1132(a)'s comprehensive legislative scheme if the state law claim meets a two-prong test. See 15 Marin General Hospital, 581 F.3d at 947 (9th Cir. 2009) (citing Davila, 542 U.S. at 210-12). A 16 state law cause of action is completely pre-empted "only if both prongs of the [Davila] test are 17 satisfied." Marin General Hospital, 581 F.3d at 947 (emphasis added). 18 The first Davila prong asks "whether a plaintiff seeking to assert a state law claim 'at some 19 point in time, could have brought [the] claim under [29 U.S.C. § 1132(a)(l)(B)]."' Marin General 20 Hospital, 581 F.3d at 947 (quoting Davila, 542 U.S. at 210). Section 1132(a)(l)(B) provides: "A 21 civil action may be brought—(1) by a participant or beneficiary— . . . (B) to recover benefits due 22 to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his 23 rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B). The second 24 Davila prong asks whether there is no other legal duty, independent of ERISA, that is implicated 25 by a defendant's actions."' Marin General Hospital, 581 F.3d at 949 (quoting Davila, 542 U.S. at 26 210). For example, an employer-sponsored health insurance plan between a patient and a medical 27 insurer generally does not create legal duties independent of ERISA, but a contract between a 28 medical service provider and a medical insurer creates legal duties independent of ERISA. Id. at 3 Case No.: 5:12-cv-01140 EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 1 950. In sum, if a state law cause of action could have been brought under 29 U.S.C. § 1132(a)(l)(B) 2 and does not create a legal duty independent of ERISA, the state law cause of action is completely 3 preempted. III. DISCUSSION 4 Principal argues that the FAC must be dismissed because the causes of action are 5 6 completely preempted 2 by ERISA and Bay Area has failed to allege any facts that would support a 7 finding that that an agreement independent of an ERISA-governed employee medical benefit plan 8 exists between defendant Principal Life and Plaintiff. 9 A. Preemption United States District Court For the Northern District of California 10 1. Breach of Contract 11 Bay Area's FAC alleges breach of a contract created between Bay Area and Principal during a 12 phone conversation between a Bay Area employee and a Principal employee. FAC ¶ 33 (alleging 13 that Principal breached the contract described in FAC ¶¶ 21-25, which describe the telephone 14 conversation). The Principal employee allegedly (1) told Bay Area that the patient was insured, and 15 (2) told Bay Area that the surgery did not require preauthorization. Id. ¶¶ 21-23. Bay Area also 16 alleges that pursuant to Principal’s agreement with Bay Area, Principal was required to pay 60% of 17 the cost of approved surgical procedures for out-of-contract providers, such as Bay Area. Id.¶ 5. 18 Where a cause of action arises from an alleged contract between a provider and an insurer, the 19 first Davila prong is not satisfied, because at no point in time could the provider have brought the 20 2 21 22 23 24 25 26 27 28 Principal argues that because the state action “relates to” the patient's ERISA plan, it is completely preempted. As Bay Area correctly points out, the question whether a law or claim “relates to” an ERISA plan is not the test for complete preemption under § 502(a)(1)(B). Rather, it is the test for conflict preemption under § 514(a). See Marin General Hospital v. Modesto & Empire Traction Co., 581 F.3d 941, 949. In its reply, Principal argues that “[t[he distinction [between complete and conflict preemption] is not relevant to a motion to dismiss in which a defendant is asserting preemption defensively and not as the basis of the court’s subject matter jurisdiction” and cites to Marin General Hospital in support. Reply at 5. The portion of Marin General Hospital cited by Principal details the difference between complete preemption and conflict preemption and the importance of that difference for determining the federal court’s subject matter jurisdiction; it does not state that the difference is not relevant to a motion to dismiss. See Marin General Hospital, 581 F.3d at 945-46. Thus, Principal has not cited any authority in support of its argument that it is harmless to conflate conflict and complete preemption in this motion. Because Principal’s motion exclusively and repeatedly refers to complete preemption, and Bay Area’s opposition addresses complete preemption, this Order determines whether Principal has demonstrated the FAC is completely preempted and does not address whether Principal has raised a conflict preemption defense. 4 Case No.: 5:12-cv-01140 EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 1 claim as an ERISA plan “participant or beneficiary . . . to recover benefits . . . , to enforce . . . 2 rights . . . , or to clarify . . . rights to future benefits under the terms of the plan,” pursuant to 29 3 U.S.C. § 1132(a)(1)(B). 29 U.S.C. § 1132(a)(1)(B); Marin General Hospital, 581 F.3d at 947. 4 Furthermore, a cause of action arising from contracts between medical service providers and 5 insurance companies also fails the second prong of the Davila test. “The question under the second 6 prong of Davila is whether the complaint relies on a legal duty that arises independently of 7 ERISA.” Marin General Hospital, 581 F.3d at 950. Legal obligations that arise from contracts 8 between medical service providers and medical insurers do not arise from ERISA, even when the 9 insurer is acting as an ERISA plan administrator. Id. It is immaterial that the plaintiff might seek United States District Court For the Northern District of California 10 the same monetary relief to which a patient or patient-assignee might be entitled under ERISA. Id. 11 “Accordingly, where a medical service provider's cause of action arises from the medical service 12 provider's agreement with an ERISA plan provider, the cause of action fails both the first and 13 second prongs of the Davila test and is not subject to ERISA complete preemption under 29 U.S.C. 14 § 1132(a).” Bay Area Surgical Management, LLC, v. Blue Cross Blue Shield of Minnesota Inc., 15 No. 12–CV–0848–LHK, 2012 WL 2919388, at *7 (N.D. Cal. July 17, 2012). 16 Here, Bay Area's breach of contract claim arises from a contract between Principal and Bay 17 Area. Therefore, this cause of action could not have been brought by the patient against Blue Cross 18 under § 1132(a)(1)(B), failing the first prong of the Davila test. See Marin General Hospital, 581 19 F.3d at 947; Blue Cross, 2012 WL 2919388, at *7. Additionally, this cause of action arises from 20 ERISA-independent legal duties created by Principal's alleged entry into a contract with Bay Area, 21 failing the second prong of the Davila test. See Marin General Hospital, 581 F.3d at 950. The fact 22 that Bay Area could have chosen to seek the same monetary relief it now seeks under the patient's 23 assigned ERISA rights does not impinge Bay Area's right to seek that relief on the independent 24 grounds now before the court. See id.; Blue Cross, 2012 WL 2919388, at *7. Thus, Bay Area's 25 action for breach of contract pleaded in the FAC is not completely preempted under § 1132(a) of 26 ERISA. Thus, Principal’s motion to dismiss the breach of contract claim in the FAC on this basis is 27 DENIED. 28 5 Case No.: 5:12-cv-01140 EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 1 2. UCL Claim 2 Like Bay Area's cause of action for breach of contract, Bay Area's UCL claim alleges breach of 3 the contract between Bay Area and Principal made over the telephone. See FAC ¶ 39 (“the contract 4 described herein”); see also FAC ¶¶ 40–43 (alleging other illegal acts committed in furtherance of 5 the alleged breach of telephone contract). Thus, Bay Area's UCL claim from alleged contract terms 6 to which Principal and Bay Area agreed does not arise from the patient's medical insurance 7 contract with Principal. 8 9 Accordingly, Bay Area's UCL claim is not preempted under § 1132(a) of ERISA because this claim could not have been brought by the patient against Blue Cross under § 1132(a)(1)(B), and United States District Court For the Northern District of California 10 also because this claim arises from ERISA-independent legal duties created by Principal's alleged 11 entry into a contract with Bay Area. See Marin General Hospital, 581 F.3d at 947, 950; Blue Cross, 12 2012 WL 2919388, at *7. Thus, Principal’s motion to dismiss the UCL claim in the FAC on this 13 basis is DENIED. 14 3. Negligent Misrepresentation, Promissory Estoppel, and Equitable Estoppel 15 Like Bay Area's breach of contract claim and UCL claim, Bay Area's claims for negligent 16 misrepresentation, promissory estoppel, and equitable estoppel all arise from representations made 17 by Principal to Bay Area. Bay Area's cause of action for negligent misrepresentation alleges that 18 during a telephone call between Principal and Bay Area, Blue Cross negligently misrepresented 19 that “‘no pre-authorization was necessary’ for the surgery that the patient was scheduled to 20 undergo.” FAC ¶ 46. The negligent misrepresentation claim alleges that “[Bay Area] justifiably 21 relied on Principal's misrepresentations . . . and went forward with the procedure, reasonably 22 expecting to be reimbursed.” Id. ¶ 48. Bay Area alleges it is owed “60% of the billed price of the 23 surgery pursuant to the express statements from Principal,” (id. ¶ 48) apparently relying on 24 Principal’s agreement with Bay Area that required Principal “to pay 60% of the cost of approved 25 surgical procedures for out-of-contract providers, such as [Bay Area]” (id. ¶ 5). 26 Similarly, Bay Area's cause of action for promissory estoppel and cause of action for equitable 27 estoppel arise from (1) the statement that Principal allegedly made to Bay Area prior to the patient's 28 surgery that the surgery did not require pre-authorization, and (2) Principal’s agreement with Bay 6 Case No.: 5:12-cv-01140 EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 1 Area that it pay 60% of the billed price. See id. ¶¶ 53, 54 (alleging the pre-authorization and 60% 2 payment promises that give rise to the promissory estoppel cause of action); id. ¶¶ 61, 63 (alleging 3 statements and omissions giving rise to the equitable estoppel cause of action). Thus, Bay Area's 4 claims for negligent misrepresentation, promissory estoppel, and equitable estoppel all arise from 5 representations made by Principal to Bay Area, stating or implying that Principal would pay for the 6 surgery that Bay Area planned to perform. 7 Accordingly, Bay Area's causes of action for negligent misrepresentation, promissory estoppel, 8 and equitable estoppel are not preempted under § 1132(a) of ERISA for the same reasons discussed 9 with respect to Bay Area's breach of contract claim and UCL claim. Thus, Principal’s motion to United States District Court For the Northern District of California 10 dismiss the negligent misrepresentation, promissory estoppel, and equitable estoppel claims in the 11 FAC on this basis is DENIED. 12 In sum, all of the FAC's five causes of action assert state law claims, and none of these five 13 state law causes of action is completely preempted by ERISA. 14 B. Failure To Plead Sufficient Facts To State a Claim 15 Principal further argues that the FAC must be dismissed because it fails to allege facts 16 sufficient to state a plausible claim that the telephone conversation created an agreement between 17 Bay Area and Principal that required Principal to pay 60% of the cost of the surgery. Specifically, 18 Bay Area argues that the FAC alleges in a conclusory fashion that “[p]ursuant to Principal’s 19 agreement with Bay Area, Principal was required to pay 60% of the cost of approved surgical 20 procedures for out-of-contract providers, such as [Bay Area].” FAC ¶ 5. Additionally, the FAC 21 only alleges that during the telephone conversation, Principal told Bay Area that the patient was 22 insured and preauthorization was not necessary for the planned procedure, and the FAC provides 23 no explanation as to why the statement about preauthorization amounts to a promise to pay 60% of 24 the cost of the procedure. See id. ¶¶ 21-23, 31, 46. 25 Bay Area argues that for the purposes of this motion the court must accept as true its allegation 26 that Principal entered into an agreement with Bay Area wherein Principal was required to pay 60% 27 of the cost of the surgery. 28 7 Case No.: 5:12-cv-01140 EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND 1 Although in considering whether the complaint is sufficient to state a claim, the court accepts 2 as true all of the factual allegations contained in the complaint, Gen. Conference Corp. of Seventh- 3 Day Adventists, 887 F.2d at 230, the court need not accept as true “allegations that are merely 4 conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. 5 Litig., 536 F.3d at 1055 (internal quotation marks and citations omitted). 6 Here, Bay Area’s allegation that “[p]ursuant to Principal’s agreement with Bay Area, Principal 7 was required to pay 60% of the cost of approved surgical procedures for out-of-contract providers, 8 such as [Bay Area]” (FAC ¶ 5) is conclusory and therefore need not be accepted as true. Bay Area 9 has not alleged any facts in support of that conclusory allegation. Thus, Bay Area has not pleaded United States District Court For the Northern District of California 10 facts sufficient to state a plausible claim that the telephone conversation between Bay Area and 11 Principal formed an agreement that required Principal to pay 60% of the cost of the surgical 12 procedure. All Bay Area’s claims are insufficiently pleaded because, as discussed above, all Bay 13 Area’s claims depend on the existence of such an agreement and Principal’s failure to pay 60% of 14 the cost as required. Thus, Principal’s motion to dismiss the FAC for failure to state a claim is 15 GRANTED with leave to amend. IV. 16 17 CONCLUSION For the reasons above, Principal’s motion to dismiss the FAC is GRANTED with leave to 18 amend. Bay Area may file any amended complaint no later than 30 days from the date of this order. 19 IT IS SO ORDERED. 20 Dated: September 14, 2012 21 22 _________________________________ EDWARD J. DAVILA United States District Judge 23 24 25 26 27 28 8 Case No.: 5:12-cv-01140 EJD ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND
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