L v. Scottsdale Healthcare Corporation Health Plan et al

Filing 28

ORDER AND OPINION that Defendants' 15 Motion to Dismiss is granted. Plaintiff is granted leave to amend her complaint within 20 days, consistent with this opinion. Signed by Judge Robert E Jones on 08/09/11.(ESL)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
E.L.,

)
)
Plaintiff,
)
)
v.
)
)
SCOTTSDALE HEALTHCARE CORPORATION )
HEALTH PLAN; ET AL.,
)
)
Defendants.
)
Daniel L. Bonnett
Jennifer L. Kroll
Susan J. Martin
MARTIN & BONNETT, P.L.L.C.
1850 N. Central Avenue, Suite 2010
Phoenix, AZ 85004
Attorneys for Plaintiff
Barry D. Halpern
Jefferson R. Hayden
Joseph G. Adams
SNELL & WILMER, L.L.P.
1 Arizona Center
400 E. Van Buren
Phoenix, AZ 85004-2202
Attorneys for Defendants

No. 2:11-cv-00271-REJ
OPINION AND ORDER

JONES, Judge:
Plaintiff brings this action against defendants Scottsdale Healthcare Corp. Health Plan,
Plan Administrator of the Scottsdale Healthcare Corp. Health Plan, and Scottsdale Healthcare
Corp., alleging eight claims: (1) breach of contract and recovery of benefits and enforcement of
rights pursuant to § 502(a)(1)(B) of the Employment Retirement Income Security Act
(“ERISA”); (2) violations of the terms of the Scottsdale Healthcare Corp. Health Plan (“Plan”)
pursuant to § 502(a)(1)(B) and § 502(a)(3) of ERISA; (3) violations of § 510 of ERISA; (4)
breach of fiduciary duty pursuant to § 502(a)(3) of ERISA; (5) violations of ERISA’s claims
procedure requirement; (6) violations of requirements governing limits on preexisting conditions
exclusions; (7) violations of ERISA disclosure requirements; and (8) equitable estoppel for
failure to pay promised benefits.1
This case is now before the court on defendants’ motion to dismiss (# 15) two counts of
plaintiff’s complaint: Count VI for violations of requirements governing limits on preexisting
conditions exclusions and Count VIII for equitable estoppel for failure to pay promised benefits.
In her response to defendants’ motion to dismiss, plaintiff requests leave to amend her complaint.
For the reasons explained below, defendants’ motion is granted on both counts, and plaintiff is
granted leave to amend.
STANDARD
Dismissal under Fed. R. Civ. P. 12(b)(6) is appropriate “only where the complaint lacks a
cognizable legal theory or sufficient facts to support a cognizable legal theory.” Mendiondo v.

1

The complaint is styled as a class action complaint, but plaintiff has not sought
class certification.
2 - OPINION AND ORDER

Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008).
To survive a Rule 12(b)(6) motion, “a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, ___
U.S. ____, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570,
(2007)). The plaintiff must plead “factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 129 S.Ct. at 1949.
While the court must accept all factual allegations in the complaint as true and construe
them in the light most favorable to the plaintiff, it is “not bound to accept as true a legal
conclusion couched as a factual allegation.” Twombly, 550 U.S. at 555. “Nor is the court
required to accept as true allegations that are merely conclusory, unwarranted deductions of fact,
or unreasonable inferences.” In re Gilead Sciences Securities Litigation, 536 F.3d 1049, 1055
(9th Cir. 2008). Assessing a claim's plausibility is a “context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Iqbal, 129 S.Ct. at 1950.
FACTUAL BACKGROUND
The factual background is taken entirely from plaintiff’s complaint. In 1996, plaintiff
underwent Roux-en-Y gastric bypass surgery to address several serious and potentially fatal
health conditions. Complaint (“Compl.”), ¶ 17 . Medicare covered the surgery as a medically
necessary procedure. Compl., ¶ 18. Plaintiff also underwent hernia repair surgery in 1997 and
abdominal hysterectomy surgery in 2002. Id., ¶¶ 20, 21.

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Before her employment with Scottsdale Health Care in 2007, defendants advised plaintiff
that the Plan would cover future complications of plaintiff’s previous surgeries and that no
preexisting condition exclusions would apply. Id., ¶ 62. Plaintiff alleges that in reliance upon
these representations, she went to work for Scottsdale Health Corp. Id., ¶ 63.
Shortly after starting employment, plaintiff began suffering serious health problems.
Id., ¶ 10. Plaintiff’s health problems persisted through March of 2009, when plaintiff visited a
physician who referred her to a specialist at the Mayo Clinic. Id., ¶ 13. In June 2009, Dr. Swain
of the Mayo Clinic performed surgery on plaintiff to remove a narrowed silastic band from her
1996 Roux-en-Y surgery. Id., ¶ 22. During the surgery, Dr. Swain also found and repaired
adhesions related to plaintiff’s 1997 hernia repair surgery, and a bowel obstruction that was
unrelated to any prior surgery. Id.
On June 8, 2009, the Plan notified plaintiff by letter that it believed the Roux-en-Y
surgery was not a covered service and that medical procedures resulting from complications of
the Roux-en-Y surgery were not covered under the Plan. Compl., ¶ 37. The letter advised
plaintiff that she had a right to appeal the determination and that the Plan would not seek
repayment of benefits that it had already paid for medical surgeries related to plaintiff’s
Roux-en-Y surgery. Id., ¶ 40. Plaintiff timely appealed the decision, but the Plan upheld the
decision denying her claims. Id., ¶¶ 44, 45. In February of 2010, the Plan notified plaintiff that
the commitment not to seek recoupment of benefits paid for previous medical surgeries related to
plaintiff’s Roux-en-Y surgery was conditioned on plaintiff’s agreement not to file any further
appeals. Id., ¶ 47. In June 2010, plaintiff again appealed the denial of benefits. Id., ¶ 50.

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By letter dated July 29, 2010, the Plan notified plaintiff that it would allow medical
expenses for constipation relating to plaintiff’s colonic motility disorder, but that her claims
related to hyperthyroidism, abdominal pain, bowel obstructions, chronic nausea, vomiting, and
iron deficiency were complications of the 1996 Roux-en-Y surgery and would not be allowed.
Compl., ¶ 52. In a letter dated October 21, 2010, the Plan notified plaintiff that it was offsetting
$39,242.61 in benefits paid for what it deemed to be complications of plaintiff’s Roux-en-Y
surgery. Id., ¶ 57. The letter further advised plaintiff that the claims system used by physicians
and pharmacies would show plaintiff as ineligible for benefits. Id., ¶ 58.
DISCUSSION
1.

Plaintiff’s Claim for Violations of Requirements Governing Limits on Preexisting
Conditions Exclusions (Count VI)
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) amended

numerous federal statutes, including ERISA. Among these amendments was ERISA § 701,
29 U.S.C. § 1181(a), which sets forth the conditions under which a health care plan may impose
an exclusion for a preexisting condition.
Relying on Webb v. Smart Solutions, LLC, 499 F.3d 1078, 1081 (9th Cir. 2007), Doe v.
Bd. of Trustees of the Univ of Ill., 429 F. Supp. 2d 930, 944 (N.N. Ill. 2006), and Fast v. Univ. of
Neb. Med. Ctr., 2007 U.S. Dist. LEXIS 63079, at *4 (D. Neb. Aug. 23, 2007), defendant
contends that there is no private right of action under HIPAA. Defendant also argues that the
court in Werdehausen v. Benicorp Ins. Co., 487 F.3d 660 (8th Cir. 2007), held that a plaintiff is
permitted to bring an action for an alleged violation of HIPAA only when such claim is based on
another provision of ERISA. Plaintiff, however, also cites Werdehausen, as well as Stang v.

5 - OPINION AND ORDER

Clifton Gunderson Health Care Plan, 71 F. Supp. 2d 926, 933 (W.D. Wis. 1999), and Warren
Pearl Const. Corp. v. Guardian Life Ins. Co. Of America, 639 F. Supp. 2d 371, 377 (S.D.N.Y.
2009), for the proposition that a plan participant may bring a claim under 701.
Courts generally have held that there is no private right of action under HIPAA. Webb v.
Smart Solutions, LLC, 499 F.3d at 1081 (“HIPAA itself provides no private right of action.”);
Doe v. Bd. of Trustees of the Univ of Ill., 429 F. Supp. 2d at 944 (“Every court to have
considered the issue . . . has concluded that HIPAA does not authorize a private right of action.”)
(citing cases); Fast v. Univ. of Neb. Med. Ctr., 2007 U.S. Dist. LEXIS 63079, at *4 (“[A] federal
agency can file lawsuits to recover civil and criminal penalties against those who violate HIPAA,
but private citizens cannot.”).
Despite plaintiff’s arguments to the contrary, Werdehausen does not support the
proposition that she may bring a claim directly under ERISA § 701. In Werdehausen, the
plaintiffs tried to bring a direct claim under ERISA § 702. However, both the district court and
the Eighth Circuit recognized that there is no private right of action under HIPAA, and instead
permitted plaintiffs to bring a new claim under ERISA § 502(a)(3). Werdehausen, 487 F.3d at
668. In Stang, the plaintiff properly brought his claim under Section 502 and not Section 701 or
any other provision of HIPAA. Similarly, the court in Warren Pearl simply cited to Werdehausen
without any further analysis and granted defendants’ motion for summary judgment.
Plaintiff has not cited any additional authority that allows her to bring her claim under
HIPAA. Consequently, I grant defendants’ motion to dismiss Count VI with leave for plaintiff to
amend her claim such that it is brought under an appropriate ERISA code section.

6 - OPINION AND ORDER

2.

Plaintiff’s Claim for Equitable Estoppel for Failure to Pay Promised Benefits
(Count VIII)
The Ninth Circuit requires a plaintiff to establish five elements to state a claim for

estoppel in an ERISA case: (1) a “material misrepresentation,” (2) a “reasonable and detrimental
reliance upon the representation,” (3) extraordinary circumstances,” (4) “the provisions of the
plan at issue are ambiguous such that reasonable persons could disagree as to their meaning or
effect,” and (5) “representations are made to the employee that involve an oral interpretation of
the plan.” Pisciotta v. Teledyne Indus., Inc.,91 F.3d 1326, 1331 (9th Cir. 1996); see also Greany
v. Western Farm Bureau Life Ins. Co., 973 F.2d 812, 821 (9th Cir. 1992).
I agree with defendants that plaintiff has failed to allege facts sufficient to state three of
the above five elements: that the provisions of the Plan were ambiguous, that the representations
about the Plan were made orally, and that extraordinary circumstances exist that justify an
estoppel claim. Consequently, I grant defendants’ motion to dismiss Count VIII with leave for
plaintiff to amend the claim to allege the necessary elements.
CONCLUSION
Defendants’ motion to dismiss (#15) is GRANTED. Plaintiff is granted leave to amend
her complaint within 20 days, consistent with this opinion.
DATED this 9th day of August, 2011.

/s/ Robert E. Jones
ROBERT E. JONES
U.S. District Judge

7 - OPINION AND ORDER