California Spine And Neurosurgery Institute v. Blue Cross of California

Filing 32

ORDER by Judge Phyllis J. Hamilton granting 21 Motion to Dismiss With Prejudice. (pjhlc1, COURT STAFF) (Filed on 1/7/2019)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 8 CALIFORNIA SPINE AND NEUROSURGERY INSTITUTE, Case No. 18-cv-04777-PJH Plaintiff, 9 ORDER GRANTING MOTION TO DISMISS WITH PREJUDICE v. 10 11 Re: Dkt. No. 21 BLUE CROSS OF CALIFORNIA, United States District Court Northern District of California Defendant. 12 13 14 Defendant Blue Cross of California’s (“Blue Cross”) motion to dismiss came on for 15 hearing before this court on December 12, 2018. Plaintiff California Spine and 16 Neurosurgery Institute dba San Jose Neurospine (“SJN” or “the Institute”) appeared 17 through its counsel, Richard Williams. Defendant appeared through its counsel, Mary 18 Kate Kamka. Having read the papers filed by the parties and carefully considered their 19 arguments and the relevant legal authority, and good cause appearing, the court hereby 20 GRANTS defendant’s motion, for the following reasons. 21 22 BACKGROUND SJN is a medical service provider that provided medical services to an individual, 23 referred to by the parties as “HR.” HR is a member of an employer-sponsored ERISA 24 plan (the “Plan”, located at Dkt. 21-2, Ex. A) administered by Blue Cross. SJN seeks 25 payment from Blue Cross under the terms of the Plan for services it performed on HR. 26 SJN’s complaint against Blue Cross states a single cause of action under 29 U.S.C. 27 §1132(a)(1)(B) for failure to pay ERISA plan benefits, and for attorneys’ fees and costs 28 under 29 U.S.C. § 1132(g)(1). Compl., Dkt. 1. SJN provided surgery services to its patient HR on January 19, 2017. Id. ¶ 10. 1 2 Prior to HR receiving treatment from SJN, HR assigned his ERISA Plan rights and 3 benefits to SJN in their entirety, designating that SJN stands in the shoes of HR to seek, 4 claim, and obtain anything that the member/patient would have been entitled to receive 5 under the applicable healthcare coverage administered and/or underwritten by Blue 6 Cross. SJN attached a copy of that assignment agreement to the complaint. Id. ¶ 12 & 7 Ex. B. 8 9 SJN alleges that as a general practice, prior to a patient’s surgery, a SJN representative would ordinarily speak to a representative of an underwriter or claim administrator. Those conversations would typically result in a claim administrator telling 11 United States District Court Northern District of California 10 SJN that a patient was covered by insurance, that SJN was an out-of-network provider, 12 and that the specific treatment SJN was calling about was covered and that the claim 13 administrator would pay some amount of the bill. Id. ¶ 13. After such calls, SJN would 14 ordinarily provide surgery. Id. ¶¶ 13–14. SJN has not alleged those ordinary practices 15 occurred specifically with respect to SJN’s treatment of HR, although counsel 16 represented at the hearing that it may be able to do so in an amended complaint. 17 Defendant never told SJN during any of their phone calls that Blue Cross would 18 argue that HR could not assign benefits under their ERISA plan to SJN. Id. ¶ 15. If 19 defendant would have stated that it intended to rely upon an anti-assignment clause as a 20 basis to bar payment, SJN would not have performed surgery on HR. Id. 21 SJN submitted its billing claim form to Blue Cross on or about February 2, 2017 in 22 the amount of $93,000.00. Id. ¶ 10. On August 14, 2017, Blue Cross processed and 23 paid the claim, but only in the amount of $2,095.34. The Claim Status Detail report 24 prepared by Blue Cross showed that $1,396.89 was applied to patient co-insurance, 25 $601.15 was applied to patient deductible, and $88,906.62 of the billed amount was 26 deemed “non-covered” on the basis that it exceeded the maximum allowable amount. Id. 27 ¶¶ 11, 20. On April 17, 2017, SJN appealed the decision with Blue Cross, but Blue Cross 28 did not respond. Id. ¶ 21. 2 DISCUSSION 1 2 3 A. Legal Standard A motion to dismiss under Rule 12(b)(6) tests for the legal sufficiency of the claims 4 alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 1199–1200 (9th Cir. 2003). 5 Under Federal Rule of Civil Procedure 8, which requires that a complaint include a “short 6 and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. 7 P. 8(a)(2), a complaint may be dismissed under Rule 12(b)(6) if the plaintiff fails to state a 8 cognizable legal theory, or has not alleged sufficient facts to support a cognizable legal 9 theory. Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013). 10 While the court is to accept as true all the factual allegations in the complaint, United States District Court Northern District of California 11 legally conclusory statements, not supported by actual factual allegations, need not be 12 accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). The complaint must proffer 13 sufficient facts to state a claim for relief that is plausible on its face. Bell Atlantic Corp. v. 14 Twombly, 550 U.S. 544, 555, 558–59 (2007). 15 “A claim has facial plausibility when the plaintiff pleads factual content that allows 16 the court to draw the reasonable inference that the defendant is liable for the misconduct 17 alleged.” Iqbal, 556 U.S. at 678. “[W]here the well-pleaded facts do not permit the court 18 to infer more than the mere possibility of misconduct, the complaint has alleged—but it 19 has not ‘show[n]’—‘that the pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. 20 P. 8(a)(2)). Where dismissal is warranted, it is generally without prejudice, unless it is 21 clear the complaint cannot be saved by any amendment. Sparling v. Daou, 411 F.3d 22 1006, 1013 (9th Cir. 2005). 23 Review is generally limited to the contents of the complaint, although the court can 24 also consider documents “whose contents are alleged in a complaint and whose 25 authenticity no party questions, but which are not physically attached to the plaintiff's 26 pleading.” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (quoting In re Silicon 27 Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999)); see also Sanders v. Brown, 28 504 F.3d 903, 910 (9th Cir. 2007) (“a court can consider a document on which the 3 1 complaint relies if the document is central to the plaintiff’s claim, and no party questions 2 the authenticity of the document”). The court may also consider matters that are properly 3 the subject of judicial notice (Lee v. City of L.A., 250 F.3d 668, 688–89 (9th Cir. 2001)), 4 exhibits attached to the complaint (Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 5 896 F.2d 1542, 1555 n.19 (9th Cir. 1989)), and documents referenced extensively in the 6 complaint and documents that form the basis of the plaintiff’s claims (No. 84 Emp’r- 7 Teamster Jt. Counsel Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920, 925 n.2 8 (9th Cir. 2003)). 9 B. 10 Analysis “ERISA's civil enforcement provisions specify which categories of individuals and United States District Court Northern District of California 11 entities may enforce each of the statute’s protections.” DB Healthcare, LLC v. Blue 12 Cross Blue Shield of Arizona, Inc., 852 F.3d 868, 873 (9th Cir. 2017). Cases discussing 13 the ability to bring suit under the ERISA statute “often refer to the question as whether the 14 plaintiff has ‘standing’ or ‘statutory standing’ to sue under ERISA.” Id. But “whether 15 Congress has granted a private right of action to a particular plaintiff is not a jurisdictional 16 requirement. A dismissal for lack of statutory standing under ERISA is properly viewed 17 as a dismissal for failure to state a claim rather than a dismissal for lack of subject matter 18 jurisdiction.” Id. (internal quotation marks omitted). 19 The ERISA statute does not by its terms establish the ability for a provider, like 20 plaintiff, to bring claims for benefits on its own behalf. Id. at 874. But as a general 21 matter, “ERISA does not forbid assignment by a beneficiary of his right to reimbursement 22 under a health care plan to the health care provider.” Misic v. Bldg. Serv. Emps. Health 23 and Welfare Tr., 789 F.2d 1374, 1377 (9th Cir. 1986). “So a health care provider in 24 appropriate circumstances can assert the claims of an ERISA participant or beneficiary.” 25 DB Healthcare, 852 F.3d at 876. However, “ERISA welfare plan payments are not 26 assignable in the face of an express non-assignment clause in the plan.” Id. (quoting 27 Davidowitz v. Delta Dental Plan of California, Inc., 946 F.2d 1476, 1481 (9th Cir. 1991)); 28 Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc., 770 F.3d 4 1 1282, 1296 (9th Cir. 2014) (“Anti-assignment clauses in ERISA plans are valid and 2 enforceable.”). The parties agree that the Plan contains an express anti-assignment provision. 3 4 E.g., Opp., Dkt. 27 at 1, 5. Plaintiff argues that defendant (1) waived the anti-assignment 5 clause and (2) is equitably estopped from enforcing it. 6 1. Whether Defendant Waived the Anti-Assignment Clause 7 An ERISA plan administrator who denies a claim from a “participant or beneficiary” 8 must explain the “specific reasons for such denial[.]” 29 U.S.C. § 1133. The 9 administrator must also give the claimant information about the denial, including the “specific plan provisions” on which it is based and “any additional material or information 11 United States District Court Northern District of California 10 necessary for the claimant to perfect the claim.” Harlick v. Blue Shield of California, 686 12 F.3d 699, 719 (9th Cir. 2012) (quoting 29 C.F.R. § 2560.503–1(g)). “A plan administrator 13 may not fail to give a reason for a benefits denial during the administrative process and 14 then raise that reason for the first time when the denial is challenged in federal court.” 15 Id.; accord Spinedex, 770 F.3d at 1296 (“an administrator may not hold in reserve a 16 known or reasonably knowable reason for denying a claim, and give that reason for the 17 first time when the claimant challenges a benefits denial in court”). In short, a plan cannot describe the reasons it denied a claim in court for the first 18 19 time. But Blue Cross did not deny SJN’s claim because of the anti-assignment clause, or 20 because HR attempted to assign his rights under the plan. The anti-assignment clause is 21 a litigation defense raised by defendant—not a reason it denied SJN’s claim. 22 Two unpublished Ninth Circuit opinions have recently agreed with that 23 assessment.1 An ERISA plan’s “anti-assignment provision, however, is a litigation 24 defense, not a substantive basis for claim denial. The Plan did not need to raise it during 25 the claim administration process.” Brand Tarzana Surgical Inst., Inc. v. Int'l Longshore & 26 Warehouse Union-Pac. Mar. Ass'n Welfare Plan, 706 F. App'x 442, 443 (9th Cir. 2017); 27 28 1 Although not precedential, the court considers the memorandum dispositions discussed herein persuasive authority. 5 1 Eden Surgical Ctr. v. Cognizant Tech. Sols. Corp., 720 F. App'x 862, 863 (9th Cir. 2018) 2 (“Defendants raised the anti-assignment provision after the suit commenced to contest 3 Eden’s standing to sue, not as a reason to deny benefits.”). Under that reasoning, Blue 4 Cross did not waive the legal defense that SJN cannot bring this ERISA claim due to the 5 anti-assignment clause, even though it is raising that defense for the first time now. 6 Plaintiff argues that Brand Tarzana and Eden Surgical Center are in tension with 7 previously-published, controlling Ninth Circuit authority. Specifically, SJN argues that 8 Spinedex compels a contrary outcome. In Spinedex, the court held that an anti- 9 assignment clause defense was not waived because “there is no evidence that [defendant] United was aware, or should have been aware, during the administrative 11 United States District Court Northern District of California 10 process that [plaintiff] Spinedex was acting as its patients' assignee. . . . Defendants 12 therefore did not waive their objection to the assignment in the district court when it 13 became clear, for the first time, that Spinedex was claiming as an assignee.” Spinedex, 14 770 F.3d at 1297. The court reasoned that the defendant did not waive the defense 15 because it did not know about the assignment. The Spinedex court did not reach the 16 issue that was later decided by Brand Tarzana and Eden Surgical Center—whether a 17 Plan needs to raise an anti-assignment provision during the claim administration process 18 at all to avoid waiving it as a litigation defense. 19 Plaintiff argues that Spinedex approvingly cited a Fifth Circuit opinion that found a 20 plan was estopped from raising a non-assignment clause defense for the first time at trial, 21 where the defendant never previously cited the anti-assignment clause during more than 22 three years of claims processing. See Hermann Hosp. v. MEBA Med. & Benefits Plan, 23 959 F.2d 569, 574 (5th Cir. 1992), overruled on other grounds by Access Mediquip, 24 L.L.C. v. UnitedHealthcare Ins. Co., 698 F.3d 229 (5th Cir. 2012). The Spinedex opinion 25 also cited Harlick for the general proposition that “ERISA and its implementing 26 regulations are undermined where plan administrators have available sufficient 27 information to assert a basis for denial of benefits, but choose to hold that basis in 28 reserve rather than communicate it to the beneficiary.” Spinedex, 770 F.3d at 1297. 6 1 The court appreciates that plaintiff has adopted a plausible—if expansive—reading of Spinedex that would put it in tension with Brand Tarzana and Eden Surgical Center. 3 However, this court declines to read Spinedex so expansively. Plaintiff’s reading would 4 overextend Spinedex’s holding to reach beyond the factual scenario that court 5 considered, and it would read the opinion’s efforts to distinguish Hermann Hospital as a 6 broad adoption of Fifth Circuit precedent. Instead, this court reads Spinedex in concert 7 with the subsequent Ninth Circuit decisions that are directly on point with the issue 8 presented here. In doing so, the court notes that all three opinions rely on Harlick; Brand 9 Tarzana itself relies on Spinedex; and Judge Bybee sat on the panels that decided both 10 Spinedex in 2014 and Eden Surgical Center less than four years later. This court—like 11 United States District Court Northern District of California 2 the three opinions themselves and Judge Bybee—reads their holdings harmoniously. 12 This conclusion cannot be overcome by an amended pleading. 13 14 15 2. Whether Defendant is Estopped from Enforcing the Anti-Assignment Clause The remedy of equitable estoppel holds the promisor to what it had promised and 16 “operates to place the person entitled to its benefit in the same position he would have 17 been in had the representations been true.” Gabriel v. Alaska Elec. Pension Fund, 773 18 F.3d 945, 955 (9th Cir. 2014). Under the theory of equitable estoppel “(1) the party to be 19 estopped must know the facts; (2) he must intend that his conduct shall be acted on or 20 must so act that the party asserting the estoppel has a right to believe it is so intended; 21 (3) the latter must be ignorant of the true facts; and (4) he must rely on the former's 22 conduct to his injury.” Id. (quoting Greany v. W. Farm Bureau Life Ins. Co., 973 F.2d 812, 23 821 (9th Cir. 1992)). 24 “[T]o maintain a federal equitable estoppel claim in the ERISA context, the party 25 asserting estoppel must not only meet the traditional equitable estoppel requirements, but 26 must also allege: [5] extraordinary circumstances; [6] that the provisions of the plan at 27 issue were ambiguous such that reasonable persons could disagree as to their meaning 28 or effect; and [7] that the representations made about the plan were an interpretation of 7 1 the plan, not an amendment or modification of the plan.” Id. at 957 (internal quotation 2 marks omitted). 3 Plaintiff alleges that defendant affirmed in advance that SJN was eligible to receive 4 Plan benefits and would be paid for its services (Compl. ¶¶ 13(e) & 14), and that 5 defendant failed to disclose the Plan’s anti-assignment clause (Compl. ¶ 15). See also 6 Opp. at 14. The court assumes without deciding that such allegations could support an 7 estoppel argument and turns to the Gabriel factors. Plaintiff must meet each factor. 8 Here, plaintiff critically fails the third, sixth, and seventh factors. 9 The third factor requires that “the [plaintiff] must be ignorant of the true facts.” Gabriel, 773 F.3d at 955. If plaintiff were in fact an assignee as it alleges, it would have 11 United States District Court Northern District of California 10 had the Plan documents available to it. It would have known about the anti-assignment 12 provision. Eden Surgical Ctr., 720 F. App'x at 863 (“Eden could have—and should 13 have—attempted to obtain the plan documents from the purported assignor to verify 14 whether the plan contained an anti-assignment provision, if knowledge of that fact was 15 indeed critical to its decision”). 16 The sixth factor requires that “the provisions of the plan at issue were ambiguous 17 such that reasonable persons could disagree as to their meaning or effect.” Gabriel, 773 18 F.3d at 957. The anti-assignment provision at issue is indisputably clear. See Plan at 99 19 (“No Assignment[:] No benefit under the plan may be voluntarily or involuntarily assigned 20 or alienated.”). 21 The seventh factor requires that “the representations made about the plan were an 22 interpretation of the plan, not an amendment or modification of the plan.” Gabriel, 773 23 F.3d at 957. “Accordingly, a plaintiff may not bring an equitable estoppel claim that would 24 result in a payment of benefits that would be inconsistent with the written plan, or would, 25 as a practical matter, result in an amendment or modification of a plan, because such a 26 result would contradict the writing and amendment requirements” of the ERISA statute. 27 Id. at 956 (internal quotation marks omitted). “For the same reason, oral agreements or 28 modifications cannot be used to contradict or supersede the written terms of an ERISA 8 1 plan.” Id. (internal quotation marks omitted). The plan terms are clear, and plaintiff’s 2 equitable estoppel argument relies on the court finding that defendant made an oral 3 modification to the Plan allowing assignment. 4 Plaintiff’s inability to meet each of the third, sixth, and seventh Gabriel factors is 5 alone fatal to plaintiff’s estoppel argument. Moreover, plaintiff cannot cure its failure to 6 meet any of the three factors by amendment. Plaintiff fails the third factor because it was 7 an assignee of the Plan, which is itself the essential basis of its ability to bring this action. 8 Plaintiff fails the sixth and seventh factors due to the very language of the Plan. CONCLUSION 9 10 For the foregoing reasons, the court finds that the Plan’s anti-assignment provision United States District Court Northern District of California 11 warrants dismissal of this action. The court finds that defendant did not waive the anti- 12 assignment provision, nor can it be equitably estopped from enforcing it. Because 13 plaintiff cannot cure the pleading’s deficiencies by amendment, the case is DISMISSED 14 WITH PREJUDICE. 15 16 17 18 IT IS SO ORDERED. Dated: January 7, 2019 __________________________________ PHYLLIS J. HAMILTON United States District Judge 19 20 21 22 23 24 25 26 27 28 9

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