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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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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CALIFORNIA SPINE AND
NEUROSURGERY INSTITUTE,

Case No. 18-cv-04777-PJH

Plaintiff,
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ORDER GRANTING MOTION TO
DISMISS WITH PREJUDICE

v.
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Re: Dkt. No. 21

BLUE CROSS OF CALIFORNIA,

United States District Court
Northern District of California

Defendant.
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Defendant Blue Cross of California’s (“Blue Cross”) motion to dismiss came on for

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hearing before this court on December 12, 2018. Plaintiff California Spine and

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Neurosurgery Institute dba San Jose Neurospine (“SJN” or “the Institute”) appeared

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through its counsel, Richard Williams. Defendant appeared through its counsel, Mary

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Kate Kamka. Having read the papers filed by the parties and carefully considered their

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arguments and the relevant legal authority, and good cause appearing, the court hereby

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GRANTS defendant’s motion, for the following reasons.

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BACKGROUND
SJN is a medical service provider that provided medical services to an individual,

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referred to by the parties as “HR.” HR is a member of an employer-sponsored ERISA

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plan (the “Plan”, located at Dkt. 21-2, Ex. A) administered by Blue Cross. SJN seeks

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payment from Blue Cross under the terms of the Plan for services it performed on HR.

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SJN’s complaint against Blue Cross states a single cause of action under 29 U.S.C.

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§1132(a)(1)(B) for failure to pay ERISA plan benefits, and for attorneys’ fees and costs

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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.

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Prior to HR receiving treatment from SJN, HR assigned his ERISA Plan rights and

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benefits to SJN in their entirety, designating that SJN stands in the shoes of HR to seek,

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claim, and obtain anything that the member/patient would have been entitled to receive

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under the applicable healthcare coverage administered and/or underwritten by Blue

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Cross. SJN attached a copy of that assignment agreement to the complaint. Id. ¶ 12 &

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Ex. B.

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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

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United States District Court
Northern District of California

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SJN that a patient was covered by insurance, that SJN was an out-of-network provider,

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and that the specific treatment SJN was calling about was covered and that the claim

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administrator would pay some amount of the bill. Id. ¶ 13. After such calls, SJN would

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ordinarily provide surgery. Id. ¶¶ 13–14. SJN has not alleged those ordinary practices

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occurred specifically with respect to SJN’s treatment of HR, although counsel

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represented at the hearing that it may be able to do so in an amended complaint.

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Defendant never told SJN during any of their phone calls that Blue Cross would

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argue that HR could not assign benefits under their ERISA plan to SJN. Id. ¶ 15. If

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defendant would have stated that it intended to rely upon an anti-assignment clause as a

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basis to bar payment, SJN would not have performed surgery on HR. Id.

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SJN submitted its billing claim form to Blue Cross on or about February 2, 2017 in

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the amount of $93,000.00. Id. ¶ 10. On August 14, 2017, Blue Cross processed and

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paid the claim, but only in the amount of $2,095.34. The Claim Status Detail report

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prepared by Blue Cross showed that $1,396.89 was applied to patient co-insurance,

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$601.15 was applied to patient deductible, and $88,906.62 of the billed amount was

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deemed “non-covered” on the basis that it exceeded the maximum allowable amount. Id.

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¶¶ 11, 20. On April 17, 2017, SJN appealed the decision with Blue Cross, but Blue Cross

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did not respond. Id. ¶ 21.
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DISCUSSION

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A.

Legal Standard
A motion to dismiss under Rule 12(b)(6) tests for the legal sufficiency of the claims

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alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 1199–1200 (9th Cir. 2003).

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Under Federal Rule of Civil Procedure 8, which requires that a complaint include a “short

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and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ.

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P. 8(a)(2), a complaint may be dismissed under Rule 12(b)(6) if the plaintiff fails to state a

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cognizable legal theory, or has not alleged sufficient facts to support a cognizable legal

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theory. Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013).

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While the court is to accept as true all the factual allegations in the complaint,

United States District Court
Northern District of California

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legally conclusory statements, not supported by actual factual allegations, need not be

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accepted. Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). The complaint must proffer

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sufficient facts to state a claim for relief that is plausible on its face. Bell Atlantic Corp. v.

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Twombly, 550 U.S. 544, 555, 558–59 (2007).

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“A claim has facial plausibility when the plaintiff pleads factual content that allows

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the court to draw the reasonable inference that the defendant is liable for the misconduct

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alleged.” Iqbal, 556 U.S. at 678. “[W]here the well-pleaded facts do not permit the court

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to infer more than the mere possibility of misconduct, the complaint has alleged—but it

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has not ‘show[n]’—‘that the pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ.

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P. 8(a)(2)). Where dismissal is warranted, it is generally without prejudice, unless it is

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clear the complaint cannot be saved by any amendment. Sparling v. Daou, 411 F.3d

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1006, 1013 (9th Cir. 2005).

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Review is generally limited to the contents of the complaint, although the court can

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also consider documents “whose contents are alleged in a complaint and whose

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authenticity no party questions, but which are not physically attached to the plaintiff's

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pleading.” Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (quoting In re Silicon

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Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999)); see also Sanders v. Brown,

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504 F.3d 903, 910 (9th Cir. 2007) (“a court can consider a document on which the
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complaint relies if the document is central to the plaintiff’s claim, and no party questions

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the authenticity of the document”). The court may also consider matters that are properly

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the subject of judicial notice (Lee v. City of L.A., 250 F.3d 668, 688–89 (9th Cir. 2001)),

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exhibits attached to the complaint (Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc.,

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896 F.2d 1542, 1555 n.19 (9th Cir. 1989)), and documents referenced extensively in the

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complaint and documents that form the basis of the plaintiff’s claims (No. 84 Emp’r-

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Teamster Jt. Counsel Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920, 925 n.2

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(9th Cir. 2003)).

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B.

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Analysis
“ERISA's civil enforcement provisions specify which categories of individuals and

United States District Court
Northern District of California

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entities may enforce each of the statute’s protections.” DB Healthcare, LLC v. Blue

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Cross Blue Shield of Arizona, Inc., 852 F.3d 868, 873 (9th Cir. 2017). Cases discussing

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the ability to bring suit under the ERISA statute “often refer to the question as whether the

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plaintiff has ‘standing’ or ‘statutory standing’ to sue under ERISA.” Id. But “whether

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Congress has granted a private right of action to a particular plaintiff is not a jurisdictional

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requirement. A dismissal for lack of statutory standing under ERISA is properly viewed

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as a dismissal for failure to state a claim rather than a dismissal for lack of subject matter

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jurisdiction.” Id. (internal quotation marks omitted).

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The ERISA statute does not by its terms establish the ability for a provider, like

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plaintiff, to bring claims for benefits on its own behalf. Id. at 874. But as a general

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matter, “ERISA does not forbid assignment by a beneficiary of his right to reimbursement

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under a health care plan to the health care provider.” Misic v. Bldg. Serv. Emps. Health

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and Welfare Tr., 789 F.2d 1374, 1377 (9th Cir. 1986). “So a health care provider in

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appropriate circumstances can assert the claims of an ERISA participant or beneficiary.”

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DB Healthcare, 852 F.3d at 876. However, “ERISA welfare plan payments are not

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assignable in the face of an express non-assignment clause in the plan.” Id. (quoting

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Davidowitz v. Delta Dental Plan of California, Inc., 946 F.2d 1476, 1481 (9th Cir. 1991));

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Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc., 770 F.3d
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1282, 1296 (9th Cir. 2014) (“Anti-assignment clauses in ERISA plans are valid and

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enforceable.”).
The parties agree that the Plan contains an express anti-assignment provision.

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E.g., Opp., Dkt. 27 at 1, 5. Plaintiff argues that defendant (1) waived the anti-assignment

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clause and (2) is equitably estopped from enforcing it.

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Whether Defendant Waived the Anti-Assignment Clause

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An ERISA plan administrator who denies a claim from a “participant or beneficiary”

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must explain the “specific reasons for such denial[.]” 29 U.S.C. § 1133. The

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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

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United States District Court
Northern District of California

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necessary for the claimant to perfect the claim.” Harlick v. Blue Shield of California, 686

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F.3d 699, 719 (9th Cir. 2012) (quoting 29 C.F.R. § 2560.503–1(g)). “A plan administrator

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may not fail to give a reason for a benefits denial during the administrative process and

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then raise that reason for the first time when the denial is challenged in federal court.”

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Id.; accord Spinedex, 770 F.3d at 1296 (“an administrator may not hold in reserve a

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known or reasonably knowable reason for denying a claim, and give that reason for the

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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

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time. But Blue Cross did not deny SJN’s claim because of the anti-assignment clause, or

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because HR attempted to assign his rights under the plan. The anti-assignment clause is

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a litigation defense raised by defendant—not a reason it denied SJN’s claim.

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Two unpublished Ninth Circuit opinions have recently agreed with that

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assessment.1 An ERISA plan’s “anti-assignment provision, however, is a litigation

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defense, not a substantive basis for claim denial. The Plan did not need to raise it during

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the claim administration process.” Brand Tarzana Surgical Inst., Inc. v. Int'l Longshore &

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Warehouse Union-Pac. Mar. Ass'n Welfare Plan, 706 F. App'x 442, 443 (9th Cir. 2017);

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Although not precedential, the court considers the memorandum dispositions discussed
herein persuasive authority.
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Eden Surgical Ctr. v. Cognizant Tech. Sols. Corp., 720 F. App'x 862, 863 (9th Cir. 2018)

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(“Defendants raised the anti-assignment provision after the suit commenced to contest

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Eden’s standing to sue, not as a reason to deny benefits.”). Under that reasoning, Blue

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Cross did not waive the legal defense that SJN cannot bring this ERISA claim due to the

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anti-assignment clause, even though it is raising that defense for the first time now.

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Plaintiff argues that Brand Tarzana and Eden Surgical Center are in tension with

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previously-published, controlling Ninth Circuit authority. Specifically, SJN argues that

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Spinedex compels a contrary outcome. In Spinedex, the court held that an anti-

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assignment clause defense was not waived because “there is no evidence that
[defendant] United was aware, or should have been aware, during the administrative

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United States District Court
Northern District of California

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process that [plaintiff] Spinedex was acting as its patients' assignee. . . . Defendants

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therefore did not waive their objection to the assignment in the district court when it

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became clear, for the first time, that Spinedex was claiming as an assignee.” Spinedex,

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770 F.3d at 1297. The court reasoned that the defendant did not waive the defense

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because it did not know about the assignment. The Spinedex court did not reach the

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issue that was later decided by Brand Tarzana and Eden Surgical Center—whether a

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Plan needs to raise an anti-assignment provision during the claim administration process

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at all to avoid waiving it as a litigation defense.

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Plaintiff argues that Spinedex approvingly cited a Fifth Circuit opinion that found a

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plan was estopped from raising a non-assignment clause defense for the first time at trial,

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where the defendant never previously cited the anti-assignment clause during more than

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three years of claims processing. See Hermann Hosp. v. MEBA Med. & Benefits Plan,

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959 F.2d 569, 574 (5th Cir. 1992), overruled on other grounds by Access Mediquip,

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L.L.C. v. UnitedHealthcare Ins. Co., 698 F.3d 229 (5th Cir. 2012). The Spinedex opinion

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also cited Harlick for the general proposition that “ERISA and its implementing

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regulations are undermined where plan administrators have available sufficient

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information to assert a basis for denial of benefits, but choose to hold that basis in

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reserve rather than communicate it to the beneficiary.” Spinedex, 770 F.3d at 1297.
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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.

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However, this court declines to read Spinedex so expansively. Plaintiff’s reading would

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overextend Spinedex’s holding to reach beyond the factual scenario that court

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considered, and it would read the opinion’s efforts to distinguish Hermann Hospital as a

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broad adoption of Fifth Circuit precedent. Instead, this court reads Spinedex in concert

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with the subsequent Ninth Circuit decisions that are directly on point with the issue

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presented here. In doing so, the court notes that all three opinions rely on Harlick; Brand

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Tarzana itself relies on Spinedex; and Judge Bybee sat on the panels that decided both

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Spinedex in 2014 and Eden Surgical Center less than four years later. This court—like

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United States District Court
Northern District of California

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the three opinions themselves and Judge Bybee—reads their holdings harmoniously.

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This conclusion cannot be overcome by an amended pleading.

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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

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“operates to place the person entitled to its benefit in the same position he would have

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been in had the representations been true.” Gabriel v. Alaska Elec. Pension Fund, 773

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F.3d 945, 955 (9th Cir. 2014). Under the theory of equitable estoppel “(1) the party to be

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estopped must know the facts; (2) he must intend that his conduct shall be acted on or

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must so act that the party asserting the estoppel has a right to believe it is so intended;

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(3) the latter must be ignorant of the true facts; and (4) he must rely on the former's

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conduct to his injury.” Id. (quoting Greany v. W. Farm Bureau Life Ins. Co., 973 F.2d 812,

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821 (9th Cir. 1992)).

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“[T]o maintain a federal equitable estoppel claim in the ERISA context, the party

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asserting estoppel must not only meet the traditional equitable estoppel requirements, but

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must also allege: [5] extraordinary circumstances; [6] that the provisions of the plan at

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issue were ambiguous such that reasonable persons could disagree as to their meaning

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or effect; and [7] that the representations made about the plan were an interpretation of
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the plan, not an amendment or modification of the plan.” Id. at 957 (internal quotation

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marks omitted).

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Plaintiff alleges that defendant affirmed in advance that SJN was eligible to receive

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Plan benefits and would be paid for its services (Compl. ¶¶ 13(e) & 14), and that

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defendant failed to disclose the Plan’s anti-assignment clause (Compl. ¶ 15). See also

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Opp. at 14. The court assumes without deciding that such allegations could support an

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estoppel argument and turns to the Gabriel factors. Plaintiff must meet each factor.

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Here, plaintiff critically fails the third, sixth, and seventh factors.

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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

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United States District Court
Northern District of California

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had the Plan documents available to it. It would have known about the anti-assignment

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provision. Eden Surgical Ctr., 720 F. App'x at 863 (“Eden could have—and should

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have—attempted to obtain the plan documents from the purported assignor to verify

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whether the plan contained an anti-assignment provision, if knowledge of that fact was

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indeed critical to its decision”).

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The sixth factor requires that “the provisions of the plan at issue were ambiguous

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such that reasonable persons could disagree as to their meaning or effect.” Gabriel, 773

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F.3d at 957. The anti-assignment provision at issue is indisputably clear. See Plan at 99

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(“No Assignment[:] No benefit under the plan may be voluntarily or involuntarily assigned

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or alienated.”).

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The seventh factor requires that “the representations made about the plan were an

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interpretation of the plan, not an amendment or modification of the plan.” Gabriel, 773

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F.3d at 957. “Accordingly, a plaintiff may not bring an equitable estoppel claim that would

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result in a payment of benefits that would be inconsistent with the written plan, or would,

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as a practical matter, result in an amendment or modification of a plan, because such a

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result would contradict the writing and amendment requirements” of the ERISA statute.

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Id. at 956 (internal quotation marks omitted). “For the same reason, oral agreements or

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modifications cannot be used to contradict or supersede the written terms of an ERISA
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plan.” Id. (internal quotation marks omitted). The plan terms are clear, and plaintiff’s

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equitable estoppel argument relies on the court finding that defendant made an oral

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modification to the Plan allowing assignment.

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Plaintiff’s inability to meet each of the third, sixth, and seventh Gabriel factors is

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alone fatal to plaintiff’s estoppel argument. Moreover, plaintiff cannot cure its failure to

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meet any of the three factors by amendment. Plaintiff fails the third factor because it was

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an assignee of the Plan, which is itself the essential basis of its ability to bring this action.

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Plaintiff fails the sixth and seventh factors due to the very language of the Plan.
CONCLUSION

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For the foregoing reasons, the court finds that the Plan’s anti-assignment provision

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Northern District of California

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warrants dismissal of this action. The court finds that defendant did not waive the anti-

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assignment provision, nor can it be equitably estopped from enforcing it. Because

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plaintiff cannot cure the pleading’s deficiencies by amendment, the case is DISMISSED

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WITH PREJUDICE.

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IT IS SO ORDERED.
Dated: January 7, 2019
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PHYLLIS J. HAMILTON
United States District Judge

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