California Surgery Center, Inc. v. Unitedhealthcare, Inc. ( 2020 )

1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 CALIFORNIA SURGERY CENTER, ) Case No. CV 19-02309 DDP (AFMx) INC., ) 12 ) Plaintiff, ) 13 ) ORDER RE: DEFENDANT’S MOTION TO v. ) DISMISS 14 ) UNITEDHEALTHCARE, INC., ) [Dkt 23] 15 ) Defendants. ) 16 17 Presently before the Court is Defendant UnitedHealthcare, Inc. 18 (“United”)’s Motion to Dismiss Plaintiffs’ Second Amended Complaint 19 (“SAC”). Having considered the submissions of the parties and 20 heard oral argument, the court grants the motion in part, denies 21 the motion in part, and adopts the following Order. 22 I. Background 23 Plaintiff California Surgery Center is an ambulatory surgery 24 center. (SAC ¶ 7.) Plaintiff California Spine and Pain Institute 25 is a medical group comprised of anesthesiologists and other 26 doctors. (Id.) Plaintiffs treated patient KES for spinal disease 27 and, after other unsuccessful treatments, recommended to KES that 28 she undergo spinal surgery. (SAC ¶ 13.) KES presented Plaintiffs 1 with a card indicating that she was insured by United, a PPO. (SAC 2 ¶ 14.) 3 In late November 2016, Plaintiffs called United to discuss 4 KES’ treatment. (SAC ¶ 15.) United told Plaintiffs that KES was a 5 United insured and was eligible for coverage, and authorized the 6 services Plaintiffs proposed to render to KES. (Id.) United 7 specifically stated that it would pay up to 80% of its in-network 8 allowed amount and that it would honor an assignment of benefits 9 and pay Plaintiffs directly. (SAC ¶ 22.) Indeed, Plaintiffs had 10 obtained similar verifications of coverage and authorizations for 11 treatment prior to rendering treatment to KES on several prior 12 occasions. (SAC ¶ 30.) On each prior occasion, United paid 13 Plaintiffs the amount discussed prior to treatment. (Id.) 14 Plaintiffs and United engaged in similar practice with respect to 15 other patients. (SAC ¶ 31.) 16 On December 1, 2016, four days before KES’ scheduled surgery, 17 United confirmed, in writing, its approval for spinal surgery. 18 (SAC ¶ 24.) Plaintiffs then provided medical services to KES and 19 submitted claims to United, as Plaintiffs had done in the past. 20 (SAC ¶ 41.) United denied all of the claims, stating that KES’ 21 insurance coverage had been terminated prior to the date of 22 surgery, on October 31, 2016. This action followed. United now 23 moves to dismiss all claims. 24 II. Legal Standard 25 A complaint will survive a motion to dismiss when it 26 “contain[s] sufficient factual matter, accepted as true, to state a 27 claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 28 556 U.S. 662, 678 (2009)(quoting Bell Atl. Corp. v. Twombly, 550 1 U.S. 544, 570 (2007)). When considering a Rule 12(b)(6) motion, a 2 court must “accept as true all allegations of material fact and 3 must construe those facts in the light most favorable to the 4 plaintiff.” Resnick v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000). 5 Although a complaint need not include “detailed factual 6 allegations,” it must offer “more than an unadorned, 7 the-defendant-unlawfully-harmed-me accusation.” Iqbal,556 U.S. at 8 678. Conclusory allegations or allegations that are no more than a 9 statement of a legal conclusion “are not entitled to the assumption 10 of truth.” Id. at 679. In other words, a pleading that merely 11 offers “labels and conclusions,” a “formulaic recitation of the 12 elements,” or “naked assertions” will not be sufficient to state a 13 claim upon which relief can be granted. Id. at 678 (citations and 14 internal quotation marks omitted). 15 “When there are well-pleaded factual allegations, a court 16 should assume their veracity and then determine whether they 17 plausibly give rise to an entitlement of relief.” Id. at 1950. 18 Plaintiffs must allege “plausible grounds to infer” that their 19 claims rise “above the speculative level.” Twombly, 550 U.S. at 20 555-56. “Determining whether a complaint states a plausible claim 21 for relief” is “a context-specific task that requires the reviewing 22 court to draw on its judicial experience and common sense.” Iqbal, 23 556 U.S. at 679. 24 III. Discussion 25 A. “Violation of Statutes” 26 The SAC brings a first cause of action for “violation of 27 statutes.” Specifically, the SAC alleges that Plaintiffs are 28 entitled to compensation for the services rendered to KES because 1 United violated California Health & Safety Code Sections 13717.8 2 and 1371 and California Insurance Code § 796.04. 3 1. Applicability of Health & Safety Code 4 United first contends that Plaintiffs’ Health & Safety Code 5 claims fail because the code is not applicable to United. Sections 6 1371 and 13717.8 are part of California’s Knox-Keene Health Care 7 Service Plan Act. Cal. Health & Safety Code § 1340. The Knox- 8 Keene Act applies “to health care service plans and [certain] 9 specialized health care service plan contracts . . . .” Cal. 10 Health & Safety Code § 1343(a). Although the definition of “health 11 care service plan” includes “any person who undertakes to arrange 12 for the provision of health care services to subscribers or . . . 13 to reimburse any part of the case for such services, in return for 14 a prepaid or periodic charge . . .,” the Knox-Keene Act does not 15 apply to an entity “operating pursuant to a certificate issued by 16 the Insurance Commissioner unless the entity is directly providing 17 the health care service through [] entity-owned or contracting 18 health facilities and providers . . . .” Cal. Health & Safety Code 19 §§ 1343(e); 1345(f)(1). In other words, the Knox-Keene Act applies 20 to insurers and HMOs. Regents of Univ. of California v. Principal 21 Fin. Grp., 412 F. Supp. 2d 1037, 1048 (N.D. Cal. 2006). Such plans 22 are licensed and regulated by California’s Department of Managed 23 Care. See Smith v. PacifiCare Behavioral Health of California, 24 Inc., 93 Cal. App. 4th 139, 150 (2001).1 25 26 27 1 As United points out, the Knox-Keene Act also applies to some PPOs. (Mot. at 11; Request for Judicial Notice, Ex. 3.) 28 1 Although not entirely clear, Plaintiffs appear to suggest that United is either an HMO, and thus subject to the Knox Keene Act, or possibly otherwise subject to the Act. (Opposition at 12-13.) To the extent Plaintiffs suggest the former, their position is at odds Si with the SAC, which acknowledges that Plaintiffs are “out of 6 || network providers” and have no set contract with United, which is a 71 PPO. (SAC 77 14, 17.) Neither Defendant appears on the California Department of Managed Health Care’s list of regulated plans, nor does the “UnitedHealthcare Select Plus” plan to which KES was subscribed. (RJN Ex. 2., Declaration of Gretchen Hess, Ex. A at 11}}1.)* Plaintiffs have failed to allege any facts suggesting that any Defendant is subject to the Knox-Keene Act. See also Namdy Consulting, Inc. v. UnitedHealthcare Ins. Co., No. CV 18-01283-RSWL-KS, 2019 WL 1470849, at *4 (C.D. Cal. Apr. 3, 2019) (finding Defendant UnitedHealthcare Insurance Co. not governed by the Knox-Keene Act) .° 17 2. Insurance Code Claim 18 Plaintiffs’ first cause of action is also premised upon an alleged violation of California Insurance Code § 796.04. That section provides that an insurer “that authorizes a specific type of treatment for services covered under a policyholder’s contract 22 23 * Although Plaintiffs argue that this Court cannot look beyond the SAC to the plan document attached as Exhibit A to the DA Declaration of Gretchen Hess, Plaintiffs do not dispute the authenticity of document. ™“[A] document is not ‘outside’ the 25 complaint if the complaint specifically refers to the document and if its authenticity is not questioned.” Branch v. Tunnell, 14 F.3d 26 449, 453 (9th Cir. 1994), overruled on other grounds by Galbraith v. Cty. of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). 27 °> Having concluded that the Knox-Keene Act does not apply to 28 Defendants, the Court need not reach the question whether the provisions in question provide a private cause of action. 1 or plan by a provider shall not rescind or modify this 2 authorization after the provider renders the health care service in 3 good faith and pursuant to the authorization for any reason, 4 including, but not limited to . . . the insurer’s subsequent 5 determination that it did not make an accurate determination of the 6 insured’s eligibility.” Cal. Ins. Code § 796.04. United contends 7 that this provision does not entail a private right of action. 8 A private party has the right to sue for a violation of a 9 statute only if the legislature manifested an intent to create such 10 a right. Lu v. Hawaiian Gardens Casino, Inc., 50 Cal. 4th 592, 596 11 (2010). Such intent may be apparent from the explicit language in 12 the statute or, in the absence of such language, from the 13 legislative history. Id. at 597. Here, there is no dispute that 14 the statute is silent as to whether a private right of action 15 exists. 16 United points to legislative history indicating that the 17 intent of the provision was to forbid “a health care service plan 18 or a health insurer” from rescinding authorization for treatment on 19 the basis of a later determination of ineligibility. 2007 Cal AB 20 1324. This history suggests that the California Legislature had a 21 similar intent with respect to insurers and health care service 22 plans. Indeed, consistent with that interpretation, Health & 23 Safety Code Section 1371.8 is virtually identical to Insurance Code 24 Section 796.04: “A health care service plan that authorizes a 25 specific type of treatment by a provider shall not rescind or 26 modify this authorization after the provider renders the health 27 care service in good faith and pursuant to the authorization for 28 any reason, including, but not limited to, the plan's subsequent . . determination that it did not make an accurate determination of the enrollee’s or subscriber’s eligibility.” Cal. Health & Safety 31 Code § 1371.8. As other courts have explained, neither Section 1371.8 nor the Knox-Keene Act, more broadly, includes a private right of action. See Summit Estate, Inc. v. Cigna Healthcare of 6 California, Inc., No. 17-CV-03871-LHK, 2017 WL 4517111, at *7 (N.D. Cal. Oct. 10, 2017); Stanford Hosp. & Clinics v. Humana, Inc., No. 5:13-CV-04924 HRL, 2015 WL 5590793, at *8 (N.D. Cal. Sept. 23, 9} 2015); Blue Cross of California, Inc. v. Superior Court, 180 Cal. 10] App. 4th 1237, 1250 (2009) (“[T]he Knox-Keene Act expressly 11] authorizes the DMHC to enforce the statute and does not include a parallel authorization for suits by private individuals ... .”) 13 Plaintiffs point to no countervailing authority or legislative 14] history, contending only that a private right of action must exist because “[United] does not claim enforcement of section 796.04 is the responsibility of the California Department of Insurance (or 17] any other governmental body) . .. .” £=(Opp. at 19:6-7). Defendants, however, take no such position. Indeed, Defendants explicitly acknowledge that “Section 796.04, as part of the Insurance Code, is regulated by the California Insurance 21] Commissioner.” (Motion at 16:12-13.) See also, e.g. Namdy 221 Consulting, Inc. v. UnitedHealthcare Ins. Co., No. CV 23 || 18-01283-RSWL-KS, 2018 WL 6430119, at *3 (C.D. Cal. July 11, 2018); 24] 2007 Cal AB 1324. Plaintiffs’ position has no merit. Because Section 796.04 does not bestow a private right of action upon Plaintiffs, it cannot support their first cause of action. 27 B. Breach of Implied Contract 28 1 Plaintiffs bring a second cause of action for breach of 2 implied contract. Plaintiffs’ opposition clarifies that this claim 3 is premised upon a contract implied in law. (Opp. at 20-22.) In 4 California, “contracts are implied in law where ‘the equitable 5 theory that a contract to pay for services rendered is implied by 6 law for reasons of justice.’” This is a quantum meruit claim.” 7 Design Data Corp. v. Unigate Enter., Inc., No. C 12-4131 PJH, 2013 8 WL 360542, at *5 (N.D. Cal. Jan. 29, 2013) (quoting Hedging 9 Concepts, Inc. v. First Alliance Mortgage Co., 41 Cal.App.4th 1410, 10 1419 (1996)) (internal citation omitted)). 11 The authority cited by Plaintiffs stands for the same 12 principle. “It is clear that in the term ‘quasi contract’ the word 13 contract is not definitive since the obligation depends not at all 14 upon the intent of the parties but rather upon the unjust 15 enrichment of one who has no intent, either express or implied, to 16 pay or to make reimbursement for the consideration received by him. 17 It is not an implied contract in the sense that the court finds an 18 implied intent to pay. It is founded upon a relationship from which 19 an obligation is imposed by law regardless of intent because good 20 conscience dictates that the person benefited should make 21 reimbursement.” Santa Clara Cty. v. Robbiano, 180 Cal. App. 2d 22 845, 848 (1960). As Plaintiffs’ opposition itself acknowledges, 23 however, the SAC alleges only that United’s “insured received a 24 benefit, for which [United] is contractually obligated to pay (by 25 contract with its insured) but refuses to pay.” (Opp. at 21:11- 26 13.) This circular allegation does not adequately state a claim 27 for breach of a contract implied in law. 28 1 Cc. Breach of Oral Contract 2 United also seeks to dismiss the SAC’s third cause of action for breach of oral contract. As an initial matter, “[t]here cannot 4! be a valid, express contract and an implied contract, each embracing the same subject matter, existing at the same time.” Wal-Noon Corp. v. Hill, 45 Cal.App.3d 605, 613 (1975). A plaintiff 7! can, however, plead inconsistent allegations in the alternative if has a reasonable belief that each of the theories pleaded is legally tenable. See Crowley v. Katleman, 8 Cal. 4th 666, 678, 691 (1994). 11 United argues that Plaintiffs fail to adequately allege “that 12]/a meeting of the minds occurred or that there was mutual assent between the parties to enter into an agreement.” (Mot. at 23:25- 26). Plaintiffs do not dispute that mutual assent is a necessary 15]}/element of contract formation. See, e.g., Binder v. Aetna Life Ins. Co., 75 Cal. App. 4th 832, 850 (1999). United’s contention that the SAC does not allege United’s assent to enter into an agreement or to pay a specific amount is not well taken. The SAC explicitly alleges, for example, that Plaintiffs “were expressly told that, after rendering services to KES .. . they would be paid 21] (United]’s allowed amount which was purported by [United] to be 80% 22\)of the usual, reasonable, and customary amount for the services to be rendered .. ., which rates coincided with the rates which were specified in the . . . Agreement between KES and UHC.” (SAC □ 9.) Although United correctly points out that verification of an insured’s coverage is not sufficient to manifest an insurer’s intent to pay for services rendered, the allegations here are not so limited. See Cedars Sinai Med. Ctr. v. Mid-W. Nat. Life Ins. Co., 118 F. Supp. 2d 1002, 1008 (C.D. Cal. 2000). Here, as in Summit Estate, United’s promise to pay Plaintiff’s a specified rate for services rendered to KES is an objective manifestation of intent sufficient to sustain Plaintiffs’ claim for breach of oral contract. See Summit Estate, 2017 WL 4517111, at *3. 6 D. Negligent Misrepresentation 7 “The elements of negligent misrepresentation are (1) the 8!}misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (A) justifiable reliance on the misrepresentation, and (5) resulting damage.” Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge 13] Integrated Servs. Grp., Inc., 171 Cal. App. 4th 35, 50 (2009) 14] (internal quotation omitted). United contends that its alleged promise to pay Plaintiffs at some point in the future does not constitute a past or existing material fact. Courts have agreed with the “basic principle[]” that “an action for negligent 18 misrepresentation cannot be founded upon a false promise.” Dielsi 19})\v. Falk, 916 F. Supp. 985, 995 (C.D. Cal. 1996) (citing Tarmann v. State Farm Mutual Automobile Ins. Co., 2 Cal.App.4th 153, 156 (1991)); see also Sanchez v. Aurora Loan Servs., LLC, No. 22 || CV1308846MMMRZX, 2014 WL 12589660, at *13 (C.D. Cal. June 10, 23/2014). “The promise to pay is also a promise to perform an act in 241 the future.” Trombley Enterprises, LLC v. Sauer, Inc., No. 25 |} 5:17-CV-04568-EJUD, 2019 WL 452044, at *4 (N.D. Cal. Feb. 5, 2019). Although a promise to pay in the future may form the basis of intentional misrepresentation or fraud claim, it can not sustain a 28 10 claim for negligent misrepresentation.* See Trombley, 2019 WL 2 452044, at *4; Stockton Mortg., Inc. v. Tope, 233 Cal. App. 4th 3] 437, 458 (2014) 4 BE. Estoppel 5 Lastly, United argues that Plaintiffs’ equitable estoppel 6|| claim is preempted by the Employee Retirement Income Security Act (“ERISA”). ERISA includes two different preemption provisions, one governing complete preemption and the other concerning conflict preemption. Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 10] F.3d 941, 945 (9th Cir. 2009). United invokes the latter, 29 11] U.S.C. § 1144(a). “Conflict preemption exists when a state law claim ‘relates to’ an ERISA plan, in which case, the state law claim may not be brought. Schwartz v. Associated Employers Grp. 14! Benefit Plan & Tr., No. CV 17-142-BLG-SPW, 2018 WL 453436, at *4 (D. Mont. Jan. 17, 2018). The Ninth Circuit has held, however, that ERISA does not preempt state law estoppel claims similar to that at issue here. ™“[Clourts have held that ERISA does not 18] preempt a third-party provider's independent state law claims against a plan precisely because those claims do not ‘relate to’ 20] the administration of an ERISA plan.” The Meadows v. Employers Health Ins., 47 F.3d 1006, 1010 (9th Cir. 1995); see also Schwartz 22 2018 WL 453436, at *5 (“As the Ninth Circuit and several others have explained, a third-party provider’s claim for damages does not implicate a relationship Congress sought to regulate under BRISA.”). 26 20 28 “ Plaintiffs provide no authority or argument to the contrary. 11 1 United also argues, however, that even if Plaintiffs’ claim is 2 not preempted, Plaintiffs fail to allege all of the elements of an 3 estoppel claim. “The doctrine of estoppel is available if the 4 following elements are present: (1) the party to be estopped must 5 know the facts; (2) he must intend that his conduct shall be acted 6 on or must so act that the party asserting the estoppel has a right 7 to believe it is so intended; (3) the latter must be ignorant of 8 the true facts; and (4) he must rely on the former's conduct to his 9 injury.” Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1096 (9th 10 Cir. 1985). United appears to suggest that Plaintiffs have failed 11 to meet additional requirements applicable to ERISA plan 12 beneficiaries bringing estoppel claims pursuant to ERISA. Although 13 United is correct that ERISA beneficiaries asserting estoppel 14 claims “must not only meet the traditional equitable estoppel 15 requirements, but must also allege: (1) extraordinary 16 circumstances; (2) that the provisions of the plan at issue were 17 ambiguous such that reasonable persons could disagree as to their 18 meaning or effect; and (3) that the representations made about the 19 plan were an interpretation of the plan, not an amendment or 20 modification of the plan,” those are not the circumstances here. 21 Gabriel v. Alaska Elec. Pension Fund, 773 F.3d 945, 957 (9th Cir. 22 2014) (internal quotation omitted). As discussed above, Plaintiffs 23 are not beneficiaries of any ERISA plan, and their third-party 24 claims do not “relate to” ERISA. Plaintiffs’ state law estoppel 25 claims therefore survive. 26 IV. Conclusion 27 For the reasons stated above, Defendants’ Motion to Dismiss is 28 GRANTED in part and DENIED in part. The motion is denied with 1 respect to Plaintiffs’ breach of oral contract and estoppel claims. 2 The motion is granted with respect to Plaintiffs’ claims for 3 violation of statutes, breach of implied contract, and negligent 4 misrepresentation. The violation of statutes claims is dismissed, 5 with prejudice. The breach of implied contract claims and 6 negligent misrepresentation claims are dismissed, with leave to 7 amend. Any amended complaint shall be filed within fourteen days 8 of the date of this Order. 9 10 11 12 13 IT IS SO ORDERED. 14 15 16 Dated: July 9, 2020 DEAN D. PREGERSON 17 United States District Judge 18 19 20 21 22 23 24 25 26 27 28