Wit et al v. UnitedHealthcare Insurance Company et al

Filing 224

ORDER re 189 Joint MOTION FOR APPROVAL OF NOTICE PLAN AND TO AMEND CLASS DEFINITIONS. The parties are requested to meet and confer and submit revised notices consistent with this Order no later than March 24, 2017. Signed by Judge Joseph C. Spero on March 9, 2017. (jcslc1S, COURT STAFF) (Filed on 3/9/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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DAVID WIT, et al.,

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Plaintiffs,

Case No. 14-cv-02346-JCS
Related Case No. 14-cv-05337 JCS

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v.
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UNITED BEHAVIORAL HEALTH,

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Defendant.

United States District Court
Northern District of California

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ORDER RE JOINT MOTION FOR
APPROVAL OF NOTICE PLAN AND
AMEND CLASS DEFINITIONS
Dkt. No. 189 (Case No. 14-cv-02346-JCS)
Dkt. No. 174 (Case No. 14-cv-05337-JCS)

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I.

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INTRODUCTION
On September 19, 2016, the Court granted Plaintiffs‟ Motion for Class Certification in

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these related cases,1 certifying two classes in the Wit case and one in Alexander. Subsequently,

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the Court denied Defendant UBH‟s request to reconsider its order or to certify the order for

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interlocutory review. On October 26, 2016, UBH filed with the Ninth Circuit Court of Appeals a

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petition for leave to appeal pursuant to Rule 23(f) of the Federal Rules of Civil Procedure (“the

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Rule 23(f) Petition”). The Ninth Circuit denied the Rule 23(f) Petition on March 2, 2017.

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Presently before the Court is the parties‟ Joint Motion for Approval of Notice Plan and to Amend

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Class Definitions (“Motion”). A hearing on the Motion was held on February 3, 2017 at 9:30 a.m.

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and the parties submitted supplemental briefs following the hearing.2

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II.

BACKGROUND

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A.

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The parties have agreed to a Notice Plan that provides for notice to be mailed to each class

The Motion

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The Court refers to Case No. 14-cv-02346-JCS as “Wit” or “the Wit case.” The Court refers to
Case No. 14-cv-05337-JCS as “Alexander” or “the Alexander case.”
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The parties have consented to the jurisdiction of the undersigned United States magistrate judge
pursuant to 28 U.S.C. § 636(c).

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member. Motion at 2 & Ex. A (Notice Plan). Under that plan, notices are to be mailed by June

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16, 2017 and the deadline to opt out is July 27, 2017 (40 days after the notices are mailed and one

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day before the current dispositive motions date). The Notice Plan provides that no new class

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members will be added after June 1, 2017 and the parties have stipulated to amend the class

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definitions consistent with that limitation. Therefore, the Court GRANTS the motion to amend

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the class definitions. The parties disagree as to the form of notice, however. See Motion Exs. B-

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D (Plaintiffs‟ proposed notices) & Exs. E-G (UBH‟s proposed notices).
There are three primary disputes. First, UBH has added the words “was owed benefits” to

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Paragraph 2(a), summarizing Plaintiffs‟ claims. See Motion, Exs. H-J (redline versions of
notices). Plaintiffs contend these words improperly suggest that they must prove that each class

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member was owed benefits. Conversely, UBH contends this language accurately conveys the

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nature of Plaintiffs‟ claims, which “require a showing that UBH‟s conduct caused absent class

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members actual harm by denying them benefits to which they were otherwise entitled.” Motion at

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6-7, 9.
Second, Plaintiffs assert UBH‟s proposed notices are complicated and confusing to the

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extent that they attempt to draw “claim-by-claim” and “remedy-by-remedy” distinctions in

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Paragraph 2(a). Motion at 7. In addition, Plaintiffs assert, UBH mistakenly states that the

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surcharge remedy is sought only as to Claim One when in fact, it is sought as to both Claim One

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and Claim Two.3 UBH argues that under Rule 23(b)(3), it is important to “clarify” the remedies

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Plaintiffs are seeking for each alleged wrong so that class members will have enough information

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to make an informed decision as to whether to opt out or remain in the class. Id. at 9-10.
Finally, Plaintiffs object to language proposed by Defendants addressing the practical and

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preclusive effects of both remaining in the class and opting out. Plaintiffs particularly object to

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proposed language at the end of Paragraph 2(a) stating that if UBH is ordered to reprocess

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Plaintiffs‟ denied claims it might also revisit claims that were previously approved and reduce

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In the operative complaints, Plaintiffs assert two claims: 1) breach of fiduciary duty (the “Breach
of Fiduciary Duty Claim” or “Claim One”); and 2) arbitrary and capricious denial of benefits (“the
Arbitrary and Capricious Denial of Benefits Claim” or “Claim Two”).
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benefits on those claims. Plaintiffs contend it is improper to give notice of this possibility when it

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has not been addressed or approved by the Court. Furthermore, they assert, the notice is intended

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to inform class members of what remedies Plaintiffs are seeking, not what Defendants are seeking.

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Id. at 7. Defendants counter that due process requires Plaintiffs be informed of this risk. Id. at 11.

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Plaintiffs also object to the statement in Paragraph 6, proposed by Defendants, that a class

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member who opts out will still be bound by the outcome of the litigation to the extent the

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Guidelines are changed. Motion at 7. According to Plaintiffs, that statement is contrary to the law

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and will confuse class members. Id. at 6-7. UBH, on the other hand, contends it is undeniable

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that some of the injunctive and declaratory relief sought on the Breach of Fiduciary Duty Claim
would apply to all class members regardless of whether they opt out of the class; UBH argues

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class members should be informed of this fact. Id. at 12-13.

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Also incorrect, according to Plaintiffs, is language proposed by Defendants informing

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class members that they may be precluded from asserting other claims that are not being pursued

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by the class, under the doctrine of res judicata. Id. at 8. That statement is contrary to current law,

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Plaintiffs assert. Id. at 8 n. 4 (citing Akootchook v. United States, 271 F.3d 1160, 1165 n. 24 (9th

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Cir. 2001)). UBH argues that the res judicata effect of participating in this lawsuit may be

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broader than suggested in Plaintiffs‟ proposed notice. Id. at 11 (citing Brown v. Ticor Title Ins.

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Co., 982 F.2d 386, 390 (9th Cir. 1992)).

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B.

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At the February 3, 2017 hearing, the Court opined that some of the disputes regarding the

The Supplemental Briefs

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proposed notices turn on the specific nature of the relief Plaintiffs intend to seek and the related

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question of what claims or remedies, if any, class members should be permitted to opt out of. The

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parties filed supplemental briefs addressing these questions following the hearing.

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In Plaintiffs‟ supplemental briefs, they suggest that the Court could drop the Rule 23(b)(3)

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certification because none of the remedies they seek requires individualized inquiries and all can

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be awarded under Rule 23(b)(1) and (2). Were the Court to decertify the classes under Rule

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23(b)(3), notice could be dispenses with altogether, they contend. In the alternative, Plaintiffs

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propose that to the extent the Court finds that the surcharge and reprocessing remedies are forms
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of relief that may be awarded only under Rule 23(b)(3), class members should be permitted to opt

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out of the action altogether ˗ an approach they contend will be more easily understood by class

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members than permitting them to opt out of specific remedies. Plaintiffs agree with UBH,

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however, that any declaratory judgment and prospective injunctive relief will apply to all future

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claims, regardless of whether or not an individual opted out of the Wit or Alexander classes.
Defendants reject Plaintiffs‟ assertion that the surcharge and reprocessing remedies can be

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awarded under Rule 23(b)(1) or (2), arguing that both require individualized inquiries and that

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class members must be given an opportunity to opt out of them. They agree with Plaintiffs that

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the declaratory relief they seek, and any prospective injunctive relief awarded, will be binding on
all class members regardless of whether or not they opt out.

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III.

ANALYSIS

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A.

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Pursuant to Rule 23, “[f]or any class certified under Rule 23(b)(1) or (b)(2), the court may

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direct appropriate notice to the class.” Fed. R. Civ. P. 23(c)(2)(A). In addition, where a class has

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been certified under Rule 23(b)(3), “the court must direct to class members the best notice that is

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practicable under the circumstances, including individual notice to all members who can be

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identified through reasonable effort.” Fed. R. Civ. P. 23(c)(2)(B) (emphasis added). The notice

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required for Rule 23(b)(3) classes must state “clearly and concisely . . . in plain, easily understood

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language:”

Legal Standards

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(i) the nature of the action;

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(ii) the definition of the class certified;

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(iii) the class claims, issues, or defenses;

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(iv) that a class member may enter an appearance through an attorney if the member so

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desires;

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(v) that the court will exclude from the class any member who requests exclusion;

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(vi) the time and manner for requesting exclusion; and

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(vii) the binding effect of a class judgment on members under Rule 23(c)(3).

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Fed. R. Civ. P. 23(c)(2)(B).
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The Ninth Circuit has explained that the adequacy of notice to Rule 23(b)(3) class
members is measured with reference to due process. Hanlon v. Chrysler Corp., 150 F.3d 1011,

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1024 (9th Cir. 1998) (“All class members in a Rule 23(b)(3) action are entitled to due process,

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including notice) (citing Phillips Petroleum v. Shutts, 472 U.S. 797, 810–813, 105 S.Ct. 2965, 86

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L.Ed.2d 628 (1985)). The right of a Rule 23(b)(3) class member to due process “include[s] an

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opportunity to be excluded from the action.” Id. In particular, Rule 23(b)(3) class members

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“have the right to intelligently and individually choose whether to continue in a suit as class

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members.” Id. (citing Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 173–77 (1974)). According

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to Newberg on Class Actions, “[t]he Manual for Complex Litigation augments Rule 23‟s list by

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noting that „sufficient information about the case should be provided to enable class members to

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make an informed decision about their participation‟ and suggesting that the notice . . . explain

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any risks and benefits of retaining class membership and opting out, while emphasizing that the

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court has not ruled on the merits of any claims or defenses.” Newberg on Class Actions § 8:12

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(5th ed.).

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B.

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Description of Claims and Remedies
1. “They were owed”

UBH contends the description of Plaintiffs‟ claims, in Paragraph 2(a), must include the

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following statement: “Plaintiffs claim that UBH violated ERISA in two ways: . . . (2) by using its

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Guidelines to deny the Class members‟ claims for benefits they were owed for residential

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treatment for a mental illness or substance use disorder, which made the denials arbitrary and

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capricious.” The dispute relates to the language in bold, which UBH contends is “critical” to the

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class members‟ understanding of the nature of Plaintiffs‟ claims. In particular, this language is

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offered in order to inform the class members that Plaintiffs‟ claims “require a showing that UBH‟s

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conduct caused absent class members actual harm by denying them benefits to which they were

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otherwise entitled.” The Court finds this language to be unnecessary and potentially confusing.

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First, the Class Notice is to be written in “plain” language so that it can be “easily

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understood.” The words UBH seeks to insert will not add to the class members‟ understanding of

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Plaintiffs‟ claims – the distinction UBH seeks to draw between denial of class members‟ “claims
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for benefits for residential treatment” (Plaintiffs‟ proposed language) and denial of their “claims

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for benefits they were owed for residential treatment” is simply too subtle. While counsel and the

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Court may understand that the additional language refers to one of UBH‟s arguments in this case,

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it is unlikely that these words will contribute to the class members‟ understanding of the claims.

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Second, UBH‟s assertion that the claims require that the absent class must have suffered

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actual harm in the form of denial of benefits is inconsistent with the Court‟s ruling in the Class

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Certification Order. In that Order, the Court found that the relevant harm alleged in Plaintiffs‟

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claims was procedural, namely, the application of allegedly faulty Guidelines in adjudicating their

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claims. See Class Certification Order at 31 (“The harm alleged by Plaintiffs – the promulgation and
application of defective guidelines to the putative class members – is common to all of the putative

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class members.”)
Therefore, the Court rejects UBH‟s request to include this proposed language in the class

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notice.

2. “Claim-by-claim,” “remedy-by-remedy”

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UBH seeks to identify the specific remedies sought by Plaintiffs for each of Plaintiffs‟

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claims. See Paragraph 2(a) (second paragraph of section). The Court agrees with Plaintiffs that

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this description of the claims is not likely to be useful to class members and will more likely create

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confusion given the significant overlap between the two claims and the remedies sought on each

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claim. As discussed further below, the class members‟ ability to opt out (or not) turns on the

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nature of the remedies Plaintiffs‟ seek rather than the underlying claims. Therefore, the Court

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concludes Plaintiffs‟ proposed description of the claims in Paragraph 2(a) of the Notices should be

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used rather than Defendants‟ description of the claims.

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C.

Possibility of Losing Other Benefits if Claims are Reprocessed under New
Guidelines

At the end of Paragraph 2(a) of the Notice, UBH seeks to include the following language:
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Reprocessing a benefit denial could also result in a different
coverage decision that provides for fewer benefits than were
previously approved if: (1) UBH previously denied a request for
residential treatment services but approved coverage of alternative
treatments services; and (2) on reprocessing, UBH determines that
the Class member was not entitled to the treatment services
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originally requested by the Class member or the alternative benefit
UBH previously approved.

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Motion, Exs. E-G. Plaintiffs‟ proposed description of the reprocessing remedy is simpler, stating

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as follows:
If the Court orders UBH to reprocess Class members‟ benefit
claims, that reprocessing could result in a different coverage
decision and additional payment of benefits, but there is no
guarantee that UBH will approve any Class member‟s request for
coverage or pay additional benefits as the result of reprocessing.

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Motion, Exs. B-D. Plaintiffs strongly object to UBH‟s version to the extent that it raises the

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specter that participation in this action could result in class members‟ actually being held liable for

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treatment that UBH previously approved as an alternative to residential treatment. The Court

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agrees that the version proposed by UBH is inappropriate.
UBH contends this language should be included as a matter of due process because a class

United States District Court
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member must have sufficient information about the risks of participation to make an informed

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choice about whether to participate. Motion at 11 (“Under Rule 23(c)(2) and basic standards of

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due process, Class members must be informed of that risk before they make a decision about their

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participation in this lawsuit.”). Neither UBH nor Plaintiffs cite any case that is factually on point,

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or even that sets forth any guidelines that might assist the Court in evaluating this issue. The

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Court assumes, however, without deciding, that a class member has a due process right to be

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informed in the class notice if there is a possibility that is more than remote that he or she could

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not only fail to receive an award of denied benefits but also retroactively lose coverage for other

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treatment already received as a result of participating in the action. Here, however, UBH has

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pointed to no authority suggesting to the Court that the scenario described in the Notice is likely to

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occur.

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UBH states that Plaintiffs “conceded that UBH would have discretion to conduct a full

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review of each class members‟ entitlement to benefits,” citing Plaintiffs‟ Reply brief on its Class

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Certification Motion, Docket No. 153 at 6. In the cited section, Plaintiffs argued that the class

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claims would not require individualized inquiries about each class member‟s denied claim because

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“reprocessing is the preferred form of judicial relief when a denial is determined to be arbitrary.”

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Nothing in the cited passage, however, addresses whether UBH would be permitted to reopen
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benefits determinations granting coverage as to treatments other than the residential treatment that

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is the subject of Plaintiffs‟ claims. Certainly, Plaintiffs have not conceded that such a remedy

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would be appropriate. Although the Court does not decide the question of whether such a remedy

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could ever be appropriate, UBH‟s failure to point to any case in which such a remedy has been

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awarded persuades the Court that the likelihood of the scenario described in UBH‟s version of the

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Notice actually occurring is remote. Therefore, the Court declines to include this language and

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instead adopts the language proposed by Plaintiffs quoted above.

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D.

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Plaintiffs challenge language in Paragraphs 5 and 6 of the Notice proposed by UBH that

Res Judicata Effect of Judgment

they contend informs “class members that they may be precluded from asserting other claims that

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are not being pursued by the class under the doctrine of res judicata.” Motion at 8. The language

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in Paragraph 5 to which Plaintiffs object is the following paragraph proposed by UBH:

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It is also possible that if you do nothing now and remain in the
Class, you may be precluded from suing UBH as part of any other
lawsuit asserting claims that could have been, but were not, raised in
this lawsuit. Participating in this action as a Class member could
mean that you will be unable to sue UBH based on claims that UBH
created and adopted Guidelines that were flawed for any reason, or
that UBH‟s decision to deny a benefit request between May 22,
2011 and June 1, 2017 for residential treatment of a mental illness or
substance use disorder was improper for any reason.

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Motion, Exs. E-G. The language in Paragraph 6 to which Plaintiffs object is the sentence: “Even

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if you choose to be excluded from the class in this case, you may also give up rights to other

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claims that could have been, but were not, raised in this lawsuit based on assertions that UBH

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breached a fiduciary duty by developing inappropriate Guidelines.”

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UBH proposes the language in Paragraph 5 on the basis that “Class members may be

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precluded from bringing any future litigation challenging their denial of benefits – even if that

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challenge is premised on a different theory of wrongdoing than Plaintiffs‟ narrow guideline theory

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– because the operative „cause of action‟ is the benefit denial itself, not the specific basis for the

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denial.” Motion at 11-12; see also Rule 23(f) Petition at 15-16. UBH acknowledges that the

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Court already rejected the same argument in its order denying the motion to reconsider. In

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particular, in that Order, the undersigned stated:
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UBH‟s argument that the alleged narrowing of Plaintiffs‟ claims will
result in manifest injustice to absent class members is unpersuasive
given that under the doctrine of res judicata adjudication of claims
that are common to a class does not preclude subsequent litigation of
individual claims that were not pursued by the class. See
Akootchook v. United States, 271 F.3d 1160, 1164 (9th Cir. 2001)
(holding that adjudication of class claims did not preclude class
members from subsequently pursuing individual claims and noting
that a contrary result “would destroy the purpose of class actions
under Rule 23(b)(2) [because] [i]f all class members had to bring
their own individual claims in addition to the common class claims,
it would destroy the efficiency of having class actions and reduce
the benefit of joining such a suit.”).

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See Docket No. 181 at 5. Because the Court has already concluded that UBH‟s position does not
comport with current law of res judicata, it declines to include the language requested by UBH in
the Notice.
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Exclusion from the Class

Paragraph 6 of the proposed Notices addresses the implications of remaining in the class as
opposed to opting out of it. The difficulty here is that while the Court has certified a “hybrid”
class action by certifying the proposed classes under Rule 23(b)(3) (which typically involves
claims for individualized relief such as money damages) and Rule 23(b)(1) and (2) (which
typically involve mandatory injunctive or declaratory relief that is binding on all class members),
the Plaintiffs did not request – and the Court did not create – separate classes that differentiate
between the (b)(3) remedies and the (b)(1) and (b)(2) remedies. See Newberg on Class Actions §
4:38 (5th ed.) at163-64. The parties agree that the injunctive and declaratory relief sought by
Plaintiffs in the Wit and Alexander classes are most appropriately considered mandatory relief of
the sort that is awarded to (b)(1) and (b)(2) classes, and therefore, as to these remedies, class
members effectively cannot opt out, at least as to prospective injunctive relief. Their disagreement
relates to the reprocessing and surcharge remedies.
Defendants contend both the reprocessing and the surcharge remedies involve
individualized inquiries and can only be awarded on the basis of the (b)(3) certification (meaning
that class members must be permitted to opt out of both remedies). Plaintiffs contend these
remedies do not require individualized inquiries and that they could be awarded on the basis of the
(b)(1) and (b)(2) certifications (meaning that class members need not be permitted to opt out of
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these remedies and notice is class notice optional). In the alternative, Plaintiffs suggest that if the

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Court declines to decertify under Rule 23(b)(3), class members should be offered the option of

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opting out of the case altogether rather than allowing them to out of these remedies individually.

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The Court declines Plaintiffs‟ invitation to modify the basis for its class certification order.

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Further, the Court concludes that there sound reasons for treating the reprocessing and surcharge

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remedies as (b)(3) remedies that require notice and allow class members to opt out. With respect

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to the reprocessing remedy, while Plaintiffs are correct that class members will not be barred from

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bringing separate actions asserting claims that were not addressed in this action even if they do not

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opt out of the class (as discussed above), a class member may nonetheless prefer to assert all of his
or her claims relating to a denial of benefits in a single proceeding rather than having to go

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through two proceedings to challenge a denial of benefits. As to the surcharge, while the Court is

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not persuaded by UBH‟s assertion that individualized inquiries will be required to assess the

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amount of the surcharge under the theory asserted by Plaintiffs in Wit and Alexander, see Class

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Certification Order at 53-54, it is possible that a class member might want to seek a surcharge

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based on a theory that the Wit and Alexander class representatives have dropped. In particular, as

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Plaintiffs recognize in their supplemental reply brief, a class member “might choose to request, as

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a surcharge, the amount the person paid out of pocket for services as to which UBH denied

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coverage.” See Case No. 14-2346, Docket No. 218 at 4. Although Plaintiffs contend the same

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remedy could be obtained through the reprocessing remedy, there may be class members who

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would, due to the specific circumstances of the claim denial, prefer to forego any reprocessing

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remedy that may be ordered in this case in favor of a proceeding where they can assert all of their

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challenges in a single (or different) forum. For these reasons, the Court finds that neither the

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reprocessing remedy nor the surcharge remedy is mandatory. Further, because of the

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manageability problems (and potential confusion) that may arise from giving class members

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multiple options for opting out of specific remedies, the Court concludes that there should be only

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a single option offered to class members for opting out of the case as a whole.

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IV.

CONCLUSION
With this guidance, the parties are requested to meet and confer to draft wording for

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Paragraph 6 of the Notice that is consistent with the discussion above. The remaining sections of

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the Notices should be revised to reflect the Court‟s rulings in this Order. The parties‟ stipulated

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Notices – or if they cannot agree, separate proposed Notices – shall be filed by March 24, 2017.

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If the parties cannot agree on the content of Paragraph 6, they may file a joint brief, not to exceed

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five pages, explaining the basis for their disagreements.

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IT IS SO ORDERED.
Dated: March 9, 2017

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United States District Court
Northern District of California

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______________________________________
JOSEPH C. SPERO
Chief Magistrate Judge

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