DB Healthcare LLC et al v. Blue Cross Blue Shield of Arizona Incorporated

Filing 47

ORDER granting 31 Defendant's Motion to Dismiss, Counts I and II are dismissed for failure to state a claim. The Court declines to exercise supplemental jurisdiction pursuant to 28 U.S.C. § 1367(c)(3) and so also dismisses Count III. The Clerk shall enter judgment dismissing Counts I and II of this action with prejudice and dismissing Count III for lack of jurisdiction. The clerk shall terminate this case. Signed by Judge Neil V Wake on 7/8/14.(LSP)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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DB Healthcare, LLC, et al.,
Plaintiffs,

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ORDER

v.

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No. CV-13-01558-PHX-NVW

Blue Cross Blue Shield of Arizona
Incorporated,

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Defendant.

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Before the Court are Defendant’s Motion to Dismiss Pursuant to Federal Rules of

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Civil Procedure 12(b)(1) and 12(b)(6) and Supporting Materials (Doc. 31), Plaintiffs’

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response (Doc. 39), Defendant’s Reply (Doc. 41). Also before the Court are Plaintiffs’

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Notice of New Developments (Doc. 42), Defendant’s response (Doc. 43), and Plaintiffs’

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supplemental brief (Doc. 46). The parties also presented oral argument on June 25, 2014.

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For the following reasons, Defendant’s motion will be granted and Plaintiffs’ Complaint

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will be dismissed.

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I.

BACKGROUND

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Defendant Blue Cross Blue Shield of Arizona is the insurer and administrator of

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employee health benefit plans. Some of the plans at issue are governed by the Employee

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Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001–1461; others are

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governed by ERISA’s claims regulations as adopted and incorporated into them by the

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Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, 124 Stat. 119,

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codified at 42 U.S.C. § 18091 and 26 U.S.C. § 5000A. Doc. 1 at 2 ¶ 1.

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Plaintiffs are Phoenix-area medical services facilities and ten nurse practitioners that

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they employ or employed. Five of these nurse practitioners, Robert Alexander, Mary

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Melissa Hands, Teresa Meloche, Simran Sathi, and Victoria Tweedy, are current or former

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in-network providers of Blue Cross–administered healthcare. These five nurse practitioners

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entered into provider agreements with Blue Cross. The other five nurse practitioners,

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Crysty Frick, Joe Melby, Patricia Paradis, Sarah Quinn, and Allison Woodworth, are new

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hires at the facilities. Blue Cross has not credentialed them. “Credentialing involves

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reviewing qualifications and licensing and then admission into the [Blue Cross] provider

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network as a Provider. Thereafter, [Blue Cross] patients can be seen and treated by the

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Nurse Practitioners and [have their] health plan claims and their invoicing submitted, to be

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paid at the [Blue Cross] network fee schedules rates.” Doc. 39 at 4 n.4. Consequently, they

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are not party to any provider agreement with Blue Cross.

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The provider nurse practitioners render healthcare to enrollees in Blue Cross–

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administered employee health benefit plans and file claims with Blue Cross for payment.

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Blue Cross then authorizes payments and remits them directly to the medical facilities at the

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providers’ request. Doc. 39 at 8; Doc. 31 at 5 n.6. Among other contractual arrangements,

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providers agree not to seek payment from Blue Cross for “investigational” or

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“experimental” services, and Blue Cross retains the right to “adjust an adjudicated claim if

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[it] determines that the claim was incorrectly paid or denied” within one year of the date of

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the payment.1 Doc. 31-2 at 55.

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The parties dispute whether the terms of the plans themselves also authorize Blue

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Cross to recoup reimbursements paid to providers in error. Compare Doc. 1 at 5 ¶ 10

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Contrary to Plaintiffs’ argument, the Court may look to the example provider
agreement that Defendant has submitted with its motion to dismiss even under the 12(b)(6)
standard. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). As detailed below,
Plaintiffs’ first claim for relief requests that the Court enjoin Blue Cross from terminating
the provider agreements with the provider nurse practitioners and extend the provider
agreements to the nonprovider nurse practitioners. See Doc. 1 at 27 ¶¶ 93–94; Doc. 39 at 4
n.4. Moreover, Plaintiffs do not dispute the authenticity of the provider agreement.
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(“[U]pon information and belief, the applicable ERISA-governed and PPACA-governed

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health plans at issue have no provisions and do not otherwise indicate that covered claims

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can somehow be subsequently converted into non-covered claims months or years after

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final benefit determination decisions have been made.”) with Doc 31 at 8 (averring that all

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the plans included a “Payments Made in Error” section providing that Blue Cross could

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obtain reimbursement from the provider if it made a payment in error).2

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Beginning in May 2011 the five provider nurse practitioners began filing claims for

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particular allergy tests—ALCAT cytotoxic laboratory tests—and attendant care. Although

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Blue Cross initially paid these claims, it subsequently reversed those claims determinations

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because the tests were “investigational” and thus excluded from coverage. Doc. 1 at 5 ¶¶ 8–

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9. Although Plaintiffs acknowledge a “purported” website identifying the subject allergy

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tests as “investigational,” see id. at 5 ¶ 9, they allege the web posting was “at some publicly

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unannounced location and time” and that Blue Cross “never declared, decided, or

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communicated to anyone a belief or a coverage position that the tests or services were

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‘experimental’ or ‘investigational’ during the time that it repeatedly, knowingly, and

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voluntarily paid for the tests and services.” Id. Plaintiffs allege that Blue Cross’s payments,

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totaling in the hundreds of claims, see Doc. 39 at 3, “acknowledg[ed] that both the tests and

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services were medically necessary and that the accounts billed and paid were proper.” Doc.

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1 at 5 ¶ 8.

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In April 2012, Blue Cross informed the five provider nurse practitioners in writing

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that the claims had been paid in error and required repayment of the billing amounts totaling

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$237,000. Doc. 31 at 6. Plaintiffs allege that Blue Cross “reversed its prior benefits

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determination.” Doc. 1 at 5 ¶ 9. Blue Cross asserts it had “discovered the improper

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billing.” Doc. 31 at 6. Either way, Plaintiffs did not repay. Blue Cross viewed this as a

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breach of the provider nurse practitioners’ contracts, refused to recredential them, threatened

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Blue Cross explicitly states, however, that their recoupment efforts were made
pursuant to its rights under the provider agreements and not the plan language. Doc. 31 at
21. In addition to contesting the existence of this language in the relevant plans, see Doc.
39 at 19, Plaintiffs also assert that Blue Cross has not actually provided them with the
plans. Id. at 25.
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to terminate their provider agreements, and declined to credential the five nonprovider nurse

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practitioners “who were associated with the same practices.” Id. at 2.

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Plaintiffs allege that Blue Cross’s “unilateral” reversal—via the repayment letters it

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sent the providers—violates ERISA. Doc. 1 at 6 ¶ 13. Specifically, Plaintiffs allege that the

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health plans at issue do not authorize Blue Cross’s actions, that any provision of the health

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plans that purports to do so violates ERISA’s claims regulations—which require that plan

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administrators like Blue Cross notify claimants of adverse benefit determinations within 30

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days—and that any provision of the provider agreements that purports to do so is preempted

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by ERISA or otherwise invalid. Id. at 12–13 ¶¶ 42–49.

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In their first claim, Plaintiffs allege that Blue Cross retaliated against them in

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violation of ERISA § 510. They seek an injunction to prevent Blue Cross from terminating

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existing provider agreements and to require Blue Cross to credential the five nonprovider

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nurse practitioners. ERISA § 510 prohibits retaliation against a participant or beneficiary

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who exercises rights guaranteed by a plan. See 29 U.S.C. § 1140 (“It shall be unlawful for

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any person to discharge, fine, suspend, expel, discipline, or discriminate against a

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participant or beneficiary for exercising any right to which he is entitled under the

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provisions of an employee benefit plan . . . .”). ERISA § 502(a) allows a civil suit to

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enforce § 510. 29 U.S.C. § 1132(a)(3) (allowing a participant, beneficiary, or fiduciary to

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bring a civil action “(A) to enjoin any act or practice which violates any provision of this

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subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to

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redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the

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plan”).

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In addition to injunctive relief, ERISA § 502 allows for declaratory relief. 29 U.S.C.

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§ 1132(a)(1)(B) (allowing a participant or beneficiary to bring a civil action “to clarify his

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rights to future benefits under the terms of the plan”). In their second claim, Plaintiffs seek

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declaratory relief that Blue Cross’s recoupment attempts

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(1) violate 29 U.S.C. § 1133 (requiring every employment benefit plan to “provide

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adequate notice in writing to any participant or beneficiary whose claim for benefits

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under the plan has been denied,” and to “afford a reasonable opportunity to any

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participant whose claim for benefits has been denied for a full and fair review . . .”);

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(2) violate ERISA’s claims regulations;

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(3) are not authorized by any enforceable terms of the plans; and

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(4) are forfeited, waived, or estopped.

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Doc. 1 at 28 ¶ 97. Plaintiffs further assert that Blue Cross cannot recover the funds because

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any recovery would be preempted by ERISA, limited to equitable remedies, and thus

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require tracing—which cannot be done.

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Finally, Plaintiffs seek declaratory relief pursuant to the federal Declaratory

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Judgment Act that Blue Cross’s actions breached the non-ERISA, contractual PPACA plans

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and their attendant duties of good faith and fair dealing, violated ERISA’s claims

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regulations and waived its rights to all payment issues, and waived its rights under Arizona

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law by paying the subject claims. Although Plaintiffs refer to ERISA’s claim regulations in

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their third claim for relief, they concede that it asserts causes of action under state law only.

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See Doc. 39 at 25.

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II.

LEGAL STANDARD

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A.

Rule 12(b)(1)

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A motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(1)

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challenges the district court’s subject matter jurisdiction.

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jurisdiction under 28 U.S.C. § 1331, which extends federal question jurisdiction over civil

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actions “arising under the Constitution, laws, or treaties of the United States.” Where a

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defendant challenges subject matter jurisdiction, plaintiffs bear the burden of establishing its

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existence. Robinson v. United States, 586 F.3d 683, 685 (9th Cir. 2009). Materials outside

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the pleadings may be considered to determine subject matter jurisdiction. Ass’n of Am.

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Med. Colls. v. United States, 217 F.3d 770, 778 (9th Cir. 2000).

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Plaintiffs’ complaint asserts

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B.

Rule 12(b)(6)

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On a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), all

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allegations of material fact are assumed to be true and construed in the light most favorable

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to the nonmoving party.

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Dismissal under Rule 12(b)(6) “can be based on the lack of a cognizable legal theory or the

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absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica

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Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). To avoid dismissal, a complaint need

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contain only “enough facts to state a claim to relief that is plausible on its face.” Bell Atl.

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Corp. v. Twombly, 550 U.S. 544, 570 (2007). But the principle that a court accepts as true

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all the allegations in a complaint does not apply to legal conclusions or conclusory factual

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allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility

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when the plaintiff pleads factual content that allows the court to draw the reasonable

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inference that the defendant is liable for the misconduct alleged.” Id.

Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009).

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III.

ANALYSIS

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A.

Application of ERISA

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Although Plaintiffs view this as an ERISA action, Blue Cross asserts that the

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complaint “is nothing more than an improper attempt . . . to manufacture federal question

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jurisdiction so as to avoid express contractual obligations.” Doc. 31 at 2. It therefore

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challenges Plaintiffs’ standing to enforce ERISA, the basis for Counts I and II.

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“The express grant of federal jurisdiction in ERISA is limited to suits brought by

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certain parties . . . as to whom Congress presumably determined that a right to enter federal

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court was necessary to further the statute’s purposes.” Franchise Tax Bd. v. Constr.

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Laborers Vacation Trust, 463 U.S. 1, 21 (1983). As noted above, § 502(a)(3) empowers a

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“participant, beneficiary, or fiduciary” to bring a civil action to enforce ERISA. 29 U.S.C.

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§ 1132(a)(3).

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‘beneficiaries,’ and (2) they received assignments from their patients sufficient to enforce

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ERISA on their behalf.

Plaintiffs allege two grounds for ERISA standing: (1) they are ERISA

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Beneficiaries

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ERISA defines a beneficiary as “a person designated by a participant, or by the terms

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of an employee benefit plan, who is or may become entitled to a benefit thereunder.” 29

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U.S.C. § 1002(8). Plaintiffs allege they are beneficiaries within the meaning of the statute

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because Blue Cross paid them—they thus received benefits under the terms of the plan.

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Doc. 1 at 14 ¶ 50; Doc. 39 at 8–9. Plaintiffs assert they received benefits both because the

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plans call for Blue Cross to reimburse them for services provided and because plan

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participants designated the providers to receive payment from Blue Cross. See Ruttenberg

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v. U.S. Life Ins. Co., 413 F.3d 652, 661 (7th Cir. 2005) (ERISA creates “two distinct classes

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of individuals who might be ‘beneficiaries’: those designated by a participant and those who

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are . . . directly designated to receive benefits by the plan itself.”).

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Both arguments fail for the same reason. The term “beneficiary” does not properly

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denote a medical provider who receives reimbursement from a plan administrator. See

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Hobbs v. Blue Cross Blue Shield of Ala., 276 F.3d 1236, 1241 (11th Cir. 2001) (“Healthcare

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providers . . . generally are not considered ‘beneficiaries’ or ‘participants’ under ERISA.”).

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Although ERISA does not define them, the “benefits” it contemplates are fringe

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employment benefits like medical care—rather than simple payment for services—obtained

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by covered persons other than employee-participants, such as spouses and children. See

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Cameron Manor, Inc. v. United Mine Workers of Am., 575 F. Supp. 1243, 1245 (W.D. Pa.

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1983) (“‘Beneficiary’ in the context of the various provisions of ERISA carries the

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connotation of a person, other than the employee-participant, who is covered by the plan’s

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provisions—e.g., a spouse or dependent.”); Hibernia Bank v. Int’l Bhd. of Teamsters,

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Chauffeurs, Warehousemen & Helpers of Am., 411 F. Supp. 478, 489 (N.D. Cal. 1976)

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(“The benefits to which a beneficiary must be entitled are, in general, ‘fringe benefits’ such

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as medical disability and vacation payments.”); see also Michael A. deFreitas, Right of

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Provider of Health or Medical Services, as Assignee of Claim Under ERISA, to Maintain

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Action Against Plan Payor, 133 A.L.R. Fed. 109 §1[a] n.1 (1996) (“‘Beneficiary’ means,

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generally, a person designated by the participant (such as a family member) to be covered

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by the plan.”).

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Thus, healthcare providers do not become ERISA beneficiaries simply by receiving

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payment for services rendered to enrollees of an employment benefit plan. See Ward v. Alt.

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Health Delivery Sys., Inc., 261 F.3d 624, 627 (6th Cir. 2001) (declining to extend

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‘beneficiary’ to include a healthcare provider and noting, “The fact that plaintiff may be

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entitled to payment from defendants as a result of her clients’ participation in an employee

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plan does not make her a beneficiary for the purpose of ERISA standing.”). Indeed,

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the declared purpose of [ERISA] is to protect and educate those persons covered by
such plans, and there is no indication that Congress intended by this statute to insure
that health care facilities be paid. While Plaintiff may indeed be entitled to a
“benefit” through operation of the plan—i.e., payment for services—we conclude
that the term as employed in the statute does not permit of a construction broad
enough to include a provider of health services to participants.
Cameron Manor, Inc., 575 F. Supp. at 1245–46.

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Moreover, “[b]eneficiary status depends on the terms of the plan; plans can limit

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those parties who are beneficiaries.” Ronald J. Cooke, 3 ERISA Practice and Procedure

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§ 8:17. Here, the terms of the plans themselves limit beneficiaries, consistent with the

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common ERISA meaning, to “individuals in whose name an insurance plan was issued or

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family members or dependents of such individuals.” Doc. 41 at 5. That the plans call for

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payment to providers does not contradict this limiting language or expand it to encompass

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providers because payment does not constitute an ERISA “benefit”. Indeed, once Plaintiffs’

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premise that payments are ERISA benefits is rejected, the plan language itself undermines

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their argument.

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Plaintiffs’ argument that they are ERISA beneficiaries is unpersuasive and contrary

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to the weight of authority. Although providers can sue as assignees, as discussed below,

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cases involving assignments do not support Plaintiffs’ assertion that they are beneficiaries

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absent an assignment. See City of Hope Nat. Med. Ctr. v. HealthPlus, Inc., 156 F.3d 223,

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227–28 (1st Cir. 1998) (agreeing “that a health care provider, as the assignee of a

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beneficiary, acquires derivative standing and is able to sue as a ‘beneficiary’ by standing in

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the shoes of his assignor” and concluding, “As the assignee of an ERISA beneficiary, City

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of Hope satisfies the standing requirements of section 1132 . . .”) (quotation marks omitted);

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Cromwell v. Equicor-Equitable HCA Corp., 944 F.2d 1272, 1277 (6th Cir. 1991)

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(“Appellants alleged that they received a valid assignment of benefits. If the assignment of

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benefits did actually convey rights under the plan, appellants clearly would have had

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standing to sue under ERISA.”); Kennedy v. Conn. Gen. Life Ins. Co., 924 F.2d 698 (7th

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Cir. 1991).

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In Kennedy the Seventh Circuit used imprecise language in concluding that a

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healthcare provider had standing to sue her patient’s insurer. Kennedy, 924 F.2d at 700

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(“Myers, unquestionably a ‘participant’ as § 1002(7) uses that term, designated [the medical

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provider] as the person to receive her benefits. That makes [the provider] a ‘beneficiary’.”).

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But Plaintiffs’ interpretation untethers Kennedy’s broad language from its facts.

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healthcare provider sued the insurer as his patient’s assignee.

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approaches among the circuits, the court analyzed whether ERISA “supplies jurisdiction

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when a provider of medical services sues as assignee of a participant.” Id.

The

Confronting divergent

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Thus, courts inside and outside the Seventh Circuit properly interpret Kennedy to

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determine whether an assignee has standing given § 502(a)’s restrictive categories

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(participant, beneficiary, and fiduciary), not whether a healthcare provider may be a

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beneficiary in the absence of an assignment. See Davidowitz v. Delta Dental Plan of Cal.,

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Inc., 946 F.2d 1476, 1479 (9th Cir. 1991) (“Like the case at bar, the plaintiff health care

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provider in Kennedy sued under a waiver of co-payments and an assignment, where the plan

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had a non-assignment clause.”); Lutheran Gen. Hosp., Inc. v. Printing Indus. of

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Illinois/Indiana Employee Ben. Trust, 24 F. Supp. 2d 846, 849 (N.D. Ill. 1998) (“[I]n

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Kennedy v. Connecticut General Life Insurance Co., the Seventh Circuit established that

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assignees do, in fact, have standing to sue to recover benefits under ERISA.”) (citation

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omitted); see also deFreitas, 133 A.L.R. Fed. 109 (“[I]n Kennedy v Connecticut Gen. Life

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Ins. Co., the court held that a health care provider with an assignment of benefits from his

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patient could bring such an action against the health insurer in that case.”). That decisions

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like City of Hope, Cromwell, and Kennedy allow healthcare providers to sue as their

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beneficiaries’ assignees does not make those providers beneficiaries in the absence of

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assignments.

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Similarly, Plaintiffs cannot avail themselves by citing to cases interpreting

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“beneficiary” to include recipients of medical treatment who did not fit a restrictive

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definition of “employee.” For example, Peterson v. American Life & Health Insurance Co.,

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48 F.3d 404, 409 (9th Cir. 1995), also used broad language to define beneficiary:

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Peterson apparently would have us limit the definition of ‘beneficiary’
to persons such as spouses and dependents, designated by participants to
receive benefits. We conclude, though, that any person designated to receive
benefits from a policy that is part of an ERISA plan may bring a civil suit to
enforce ERISA.
But there the Ninth Circuit was deciding whether a working owner (a partner) rather
than an employee who received medical care (a quintuple coronary bypass surgery) had
ERISA standing given that “[n]either an owner of a business nor a partner in a partnership
can constitute an ‘employee’ for purposes of determining the existence of an ERISA plan.”
Id. at 407. Indeed, the court’s chief concern was avoiding “the anomaly of requiring some
insureds to pursue benefit claims under state law while requiring others covered by the
identical policy to proceed under ERISA.” Id. at 409. The critical question was simply
whether someone who received medical treatment but was neither an employee nor an
employee’s family member could sue as a beneficiary. The court did not extend the
definition of beneficiary to include healthcare providers, nor did it have an opportunity to
decide whether the right to reimbursement constituted an ERISA benefit.

See also

Ruttenberg, 413 F.3d at 660–62 (determining that “a ‘beneficiary’ may be a person
designated to receive benefits under a plan . . . and “is not limited to those who are
designated as beneficiaries by a ‘participant,’” in the context of deciding whether a
nonemployee, independent commodity trader who received medical treatment could sue
instead as a beneficiary because he received treatment under the terms of the plan itself
though no plan participant had so designated him). These cases are inapposite.

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Recently, a district court in Illinois adopted the expansive definition of beneficiary

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Plaintiffs advocate here in an unpublished memorandum decision.

In Pennsylvania

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Chiropractic Ass’n v. Blue Cross Blue Shield Ass’n, 09 C 5619, 2014 WL 1276585 (N.D.

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Ill. Mar. 28, 2014), the court accepted Plaintiffs’ premise that the right to receive payment

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constitutes an ERISA “benefit”. Id. at * 7. The court did not rely on a single case, let alone

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one interpreting ERISA, to reach this conclusion. Instead, it looked to references within

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ERISA’s definitions section “imply[ing] that, in the present circumstances at least, payment

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of money is a ‘benefit’ under ERISA.” Id. But the two ERISA provisions the court relied

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on are both contained within the definition of employee pension plans rather than employee

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welfare plans. Id. (quoting 29 U.S.C. § 1002(2)). Where the bargained-for good is a future

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stream of money rather than healthcare, it is unsurprising that “benefits” would comprise the

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right to receive payments. As the authorities cited above make clear, this is not so for

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employee welfare plans like those at issue here. Pennsylvania Chiropractic’s conclusion

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regarding “benefits” is incorrect and contrary to the weight of authority. Indeed, it appears

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to be the only case ever to reach this conclusion.

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“Congress intended to limit the parties who could maintain actions pursuant to

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section 502.” Whitworth Bros. Storage Co. v. Cent. States, Se. & Sw. Areas Pension Fund,

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794 F.2d 221, 228 (6th Cir. 1986). Indeed, “§ 502(a) itself demonstrates Congress’ care in

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delineating the universe of plaintiffs who may bring certain civil actions.” Harris Trust &

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Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 247 (2000). A substantial body of

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case law has developed, especially in the preemption context, evaluating the validity and

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scope of assignments from beneficiaries to providers to determine the latter’s standing to

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enforce ERISA in disputes with plan administrators. Compare Misic v. Bldg. Serv. Emp.

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Health & Welfare Trust, 789 F.2d 1374, 1379 (9th Cir. 1986) (per curiam) (concluding that

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a healthcare provider’s valid assignment from beneficiaries created standing to enforce

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ERISA) with Blue Cross of Cal. v. Anesthesia Care Assocs. Med. Grp., Inc., 187 F.3d 1045,

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1047 (9th Cir. 1999) (“We conclude that the fact that these medical providers obtained

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assignments of benefits from beneficiaries of ERISA-covered health care plans does not

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convert their claims into claims for benefits under ERISA-covered health care plans.”).

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That the courts of appeals, including the Ninth Circuit, allow medical providers to sue as

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assignees reflects the underlying assumption that providers are not beneficiaries. See, e.g.,

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Hobbs, 276 F.3d at 1241 (“Thus, while this court has allowed healthcare providers to use

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derivative standing to sue under ERISA, it has only done so when the healthcare provider

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had obtained a written assignment of claims from a patient who had standing to sue under

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ERISA as a ‘beneficiary’ or ‘participant.’”). The assignee doctrine itself evidences that

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providers do not become beneficiaries simply by receiving the right to reimbursement. See

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generally Lee T. Polk, 2 ERISA Practice and Litigation § 11:21 (dividing beneficiaries into

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common categories including spouses, dependents, other family members, estates,

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independent contractors, and including medical providers only by virtue of valid

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assignments); Cooke, 3 ERISA Practice and Procedure §§ 8:17–18 (discussing standing of

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medical providers in the assignees chapter but not in the beneficiaries chapter). Plaintiffs

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are not beneficiaries. They may sue to enforce ERISA only with valid assignments.

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2.

Assignees

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Plaintiffs allege they can enforce ERISA because Blue Cross enrollees “assigned

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their rights to medical benefits to Plaintiffs through assignment of benefits forms.” Doc. 1

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at 14 ¶ 51. As the discussion above elucidates, healthcare providers like Plaintiffs may

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attain ERISA standing through a valid assignment from an enrollee. See Davidowitz, 946

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F.2d at 1477; Misic, 789 F.2d 1374.

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Plaintiffs allege that insureds under the health plans assigned their rights to the

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provider nurse practitioners and medical facilities via “assignment of benefits” forms, which

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instruct the insurer to pay the facilities. Doc. 39 at 11. They have offered five “samples of

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the forms executed by patients of Plaintiffs, designating payment of benefits and assigning

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rights and benefits to Plaintiffs.” Doc. 35 at 2. Four of the five forms Plaintiffs submitted

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with their Response include the following print: “THIS IS A DIRECT ASSIGNMENT OF

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MY RIGHTS AND BENEFITS UNDER THIS POLICY.” The other form authorizes

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“assignment of your insurance rights and benefits directly to the provider for services

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rendered.” Doc. 35-1 at 2–7. Four of the five are completely blank, however, and none of

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these sample forms contains any information identifying an enrollee or a provider nurse

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practitioner.3 Indeed, Plaintiffs’ accompanying declaration does not even indicate whether

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the unidentified “patients of Plaintiffs” were Blue Cross enrollees.

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Plaintiffs’ assertion that they have valid assignments is a legal conclusion that need

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not be accepted without supporting factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678

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(2009). Aside from the blank forms, Plaintiffs have offered no specific factual allegations

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to support their conclusion that “[Blue Cross] Plan participants, and their spouses,

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dependents, and/or children treated by Plaintiffs additionally assign[ed] their rights to

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medical benefits to Plaintiffs through assignment of benefits forms, rendering Plaintiffs

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assignees of the patients/ERISA plan participants.” Doc. 1 at 14 ¶ 51.

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Blue Cross challenges Plaintiffs’ pleading and additionally offers evidence that each
of the plans at issue included a nonassignment clause:
The benefits contained in this plan, and any right to reimbursement or payment
arising out of such benefits, are not assignable or transferable, in whole or in part, in
any manner or to any extent, to any person or entity. You shall not sell, assign,
pledge, transfer or grant any interest in or to, these benefits or any right of
reimbursement or payment arising out of these benefits, to any person or entity. Any
such purported sale, assignment, pledge, transfer, or grant is not enforceable against
[Blue Cross] and imposes no duty or obligation on [Blue Cross]. [Blue Cross] will
not honor any such purported sale, assignment, pledge, transfer or grant.
Doc. 31-3 at 72. Further, although Plaintiffs dispute the existence of nonassignment clauses
in at least some of the plans at issue, the example plan Plaintiffs submitted in support of
their complaint includes the same nonassignment clause included above. See Doc. 35-2 at
66. This explicit nonassignment clause operates to defeat any purported assignment. See
Davidowitz, 946 F.2d at 1481 (“ERISA welfare plan payments are not assignable in the face
of an express non-assignment clause in the plan.”); see also City of Hope Nat. Med. Ctr.,

26
27
3

28

Notably, the provider facilities themselves produced these forms and their patients
allegedly executed them. It is difficult to believe that Plaintiffs do not have copies and thus
need discovery from Blue Cross to obtain them.
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1

156 F.3d at 229 (“Consistent with the other circuits which have addressed this issue, we

2

hold that ERISA leaves the assignability or non-assignability of health care benefits under

3

ERISA-regulated welfare plans to the negotiations of the contracting parties.”). Plaintiffs

4

may not sue as assignees.

5

Because Plaintiffs do not have a valid assignment, their citation to preemption cases

6

involving assignees does not compel a different conclusion. For example, in Blue Cross of

7

California, 187 F.3d 1045, medical providers sued Blue Cross of California over fee

8

disputes arising from their provider agreements. The providers sued in state court, and the

9

insurer removed to the Northern District of California. The insurer also filed actions in the

10

Central and Eastern Districts of California to compel arbitration. The court in the Northern

11

District remanded for lack of subject matter jurisdiction, and the two other courts granted

12

the plaintiffs’ motions to dismiss for lack of subject matter jurisdiction. In a consolidated

13

opinion, the Ninth Circuit affirmed each of the district courts’ orders.

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In all three actions, the insurer argued that the providers’ claims were “preempted by

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ERISA, which thereby provides a basis for subject matter jurisdiction, because they fall

16

within ERISA’s civil enforcement provision, § 502(a), and express preemption clause, §

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514(a).” Id. at 1050 (citations omitted); see also Aetna Health Inc. v. Davila, 542 U.S. 200,

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210 (2004) (“[I]f an individual, at some point in time, could have brought his claim under

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ERISA § 502(a)(1)(B), and where there is no other independent legal duty that is implicated

20

by a defendant’s actions, then the individual’s cause of action is completely pre-empted by

21

ERISA § 502(a)(1)(B).”). Specifically, the insurer posited that the providers’ “right to

22

receive reimbursement from Blue Cross depends upon the assignment of the right to

23

benefits for payment for medical services from their patients, some of whom are

24

beneficiaries of ERISA-covered health plans, and therefore that the Providers’ claims

25

regarding the fee provisions in their provider agreements are claims for benefits under the

26

terms of ERISA benefit plans and fall within § 502(a)(1)(B).” Blue Cross of Cal., 187 F.3d

27

at 1050.

28

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The Ninth Circuit disagreed. Unlike cases in which providers-assignees sought

2

reimbursement owed to patients-assignors under the terms of their employee health benefit

3

plans, see, e.g., Misic, 789 F.2d 1374, the Blue Cross of California plaintiffs argued that the

4

insurer breached the terms of their provider agreements. The court held “that the Providers’

5

claims, which arise from the terms of their provider agreements and could not be asserted by

6

their patient-assignors, are not claims for benefits under the terms of ERISA plans, and

7

hence do not fall within § 502(a)(1)(B).” 187 F.3d at 1050.

8

The court elaborated: “the Providers are asserting contractual breaches, and related

9

violations of the implied duty of good faith and fair dealing, that their patient-assignors

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could not assert: the patients simply are not parties to the provider agreements between the

11

Providers and Blue Cross. The dispute here is not over the right to payment, which might

12

be said to depend on the patients’ assignments to the Providers, but the amount, or level, of

13

payment, which depends on the terms of the provider agreements.” Id. at 1051.

14

Here, Plaintiffs characterize their dispute with Blue Cross as contesting a “right to

15

payment” under ERISA plans, which is preempted, rather than contesting the “amount of

16

payment” due under the provider agreements, which is not. Doc. 39 at 15–16. According

17

to them, “This is a classic ‘right to payment dispute’, implicating the ERISA plans and their

18

coverage, thus requiring preemption.” Id. at 16.

19

But a central premise of Blue Cross of California forecloses this argument: the

20

existence of valid assignments.

Had the Ninth Circuit determined that the providers

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asserted a right to payment rather than challenged the amount of payment—and thus that the

22

dispute depended on the terms of ERISA plans rather than the terms of the provider

23

agreements—the providers’ standing to enforce § 502(a) still would have depended on their

24

valid assignments. That is why the insurer in Blue Cross of California believed that Misic,

25

789 F.2d 1374, which “affirmed the principle that ERISA preempts the state law claims of a

26

provider suing as an assignee of a beneficiary’s rights to benefits under an ERISA plan,”

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Blue Cross of Cal., 187 F.3d at 1051 (quoting The Meadows v. Emp’rs Health Ins., 47 F.3d

28

1006, 1008 (9th Cir. 1995)), compelled a favorable outcome. And it is why Plaintiffs’

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reliance on Blue Cross of California and other preemption cases involving valid

2

assignments is unavailing. See also Montefiore Med. Ctr. v. Teamsters Local 272, 642 F.3d

3

321, 329–30 (2d Cir. 2011) (valid assignment); Conn. State Dental Ass’n v. Anthem Health

4

Plans, Inc., 591 F.3d 1337, 1353 (11th Cir. 2009) (valid assignment). Because there is no

5

valid assignment, the Court need not decide whether this is a right-to-payment or amount-

6

of-payment dispute.

7

Finally, Plaintiffs’ argue that the nonassignment clauses are inconsistent with Blue

8

Cross reimbursing the providers and thus that the clauses are ineffective or invalid. This is

9

also without merit. That Blue Cross prevents enrollees from unilaterally assigning rights

10

under their plans is not inconsistent with tripartite agreements allowing direct payment to

11

providers as a courtesy to patients. Moreover, as discussed above, those direct payments to

12

providers are not the kind of ERISA “benefits” that can make them § 502(a) beneficiaries.

13

Thus, nonassignment clauses preventing insureds from unilaterally assigning benefits are

14

not inconsistent with Blue Cross agreeing with providers and enrollees to reimburse the

15

former directly.

16

In sum, Plaintiffs are neither beneficiaries nor assignees.

They lack statutory

17

standing to enforce ERISA. Although Defendant has moved to dismiss the complaint both

18

for lack of subject matter jurisdiction and for failure to state a claim, the Court will dismiss

19

Counts I and II on the merits rather than for lack of jurisdiction.

20

Transamerica Disability Income Plan, 671 F.3d 969, 978 (9th Cir. 2012) (“Because

21

Leeson’s ERISA claim rises and falls on the district court’s determination of participant

22

status, the construction of the term ‘participant’ involves a merits-based determination, even

23

if it results in a dismissal.”); Vaughn v. Bay Envtl. Mgmt., Inc., 567 F.3d 1021, 1024 (9th

24

Cir. 2009) (“[A] dismissal for lack of statutory standing is properly viewed as a dismissal

25

for failure to state a claim rather than a dismissal for lack of subject matter jurisdiction.”).

26

Because a district court, in its discretion, may decline to exercise supplemental jurisdiction

27

over a claim if it has dismissed all claims over which it has original jurisdiction, 28 U.S.C.

28

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See Leeson v.

1

§ 1367(c)(3), Count III will also be dismissed, particularly given Plaintiffs’ concern that it

2

presents “potentially unripe issues.” Doc. 39 at 25.

3
4

C.

Leave to amend

5

Although leave to amend should be freely given “when justice so requires,” Fed. R.

6

Civ. P. 15(a)(2), it “need not be given if a complaint, as amended, is subject to dismissal.”

7

Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 538 (9th Cir. 1989). “Futility of

8

amendment can, by itself, justify the denial of a motion for leave to amend.” Bonin v.

9

Calderon, 59 F.3d 815, 845 (9th Cir. 1995). At oral argument, counsel conceded he could

10

add factual allegations only to Count III. Because this could not cure the defects in

11

Plaintiffs’ federal claims, amendment would be futile. Leave to amend will be denied.

12
13

D.

What this motion is, and is not, about

14

The scope of this lawsuit deserves note. At oral argument, the parties clarified that

15

this case does not directly affect the rights or medical benefits of Blue Cross enrollees who

16

seek treatment from Plaintiffs. No insured has been denied an ALCAT test. The providers

17

no longer offer it, and insureds are no longer pursuing it. If insureds did want it, this

18

litigation in no way affects the rights of patients to file ERISA actions to protect their

19

interests. Moreover, the provider agreements preclude Plaintiffs from recovering payments

20

from insureds. On receipt of Blue Cross’s recoupment demand, Plaintiffs may not collect

21

the $237,000 from their patients. That the rights of insureds and their families are not at risk

22

reinforces the inapplicability of ERISA. After all, Congress enacted ERISA “to protect the

23

economic security of American employees by regulating employer-sponsored pension and

24

welfare plans.” Peter K. Stris & Victor O’Connell, ERISA & Equity, 29 ABA J. Lab. &

25

Emp. L. 125 (2013) (emphasis added); see also 29 U.S.C. § 1001 (congressional finding

26

“that the continued well-being and security of millions of employees and their dependents

27

are directly affected by these [employee benefit] plans”). Allowing Plaintiffs to litigate a

28

contractual dispute in federal court under ERISA auspices is not “necessary to further the

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1

statute’s purposes.” Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 21

2

(1983).

3

Thus, this action cannot affect the rights of insureds under the terms of their

4

insurance plans. Instead, it will determine the contractual rights and obligations of two

5

commercial entities. In that respect, in fact, this motion is dispositive. Blue Cross does not

6

dispute that it sought recoupment beyond the 30-day limit imposed by ERISA’s claim

7

regulations. If ERISA governed this commercial dispute rather than ordinary contract law,

8

the 30-day limit ends the story. The litigation would not reach the underlying merits:

9

whether ALCAT cytotoxic laboratory tests are excluded investigational treatment.

In

10

contrast, because ERISA does not apply, the parties may choose to litigate the

11

compensability of ALCAT tests in state court.4

12

nonassignment clauses empower two commercial entities to contractually preclude

13

providers from coming within § 502(a)’s province. But that is entirely reasonable because

14

§ 502(a) “does not purport to reach every question relating to plans covered by ERISA.”

15

Franchise Tax Bd., 463 U.S. at 25.

16

companies and healthcare providers might opt out—sometimes their disputes are simply too

17

attenuated from ERISA’s purposes.

The practical consequence is that

Indeed, this dispute exemplifies why insurance

18

This Order is therefore narrow in two respects: it does not affect any Blue Cross

19

enrollees or patients, and it does not determine the legality of Blue Cross’s attempt to

20

recoup payments for the ALCAT tests. Ultimately, it may be that Blue Cross reimbursed

21

Plaintiffs sufficiently to supply the latter with an effective forfeiture, waiver, or estoppel

22

defense to any breach of contract action Blue Cross might one day pursue. But as alleged,

23

Plaintiffs have not established that they are members of the class Congress intended ERISA

24

to protect, nor that they have the valid assignment necessary to enforce it.

25
26
27
28

4

The Court expresses no opinion as to whether the dispute may be subject to
arbitration.
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1

IT IS THEREFORE ORDERED granting Defendant’s Motion to Dismiss (Doc. 31).

2

Counts I and II are dismissed for failure to state a claim. The Court declines to exercise

3

supplemental jurisdiction pursuant to 28 U.S.C. § 1367(c)(3) and so also dismisses Count III.

4

IT IS FURTHER ORDERED that the Clerk shall enter judgment dismissing Counts

5

I and II of this action with prejudice and dismissing Count III for lack of jurisdiction. The

6

clerk shall terminate this case.

7

Dated this 8th day of July, 2014.

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