Pacific Recovery Solutions et al v. United Behavioral Health et al

Filing 91

ORDER GRANTING MOTIONS TO DISMISS by Judge Yvonne Gonzalez Rogers; granting 85 Motion to Dismiss; granting 86 Motion to Dismiss. The Court VACATES the hearing set for April 6, 2021. (fs, COURT STAFF) (Filed on 4/1/2021)

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1 2 3 IN THE UNITED STATES DISTRICT COURT 4 FOR THE NORTHERN DISTRICT OF CALIFORNIA 5 6 PACIFIC RECOVERY SOLUTIONS, ET AL., Plaintiffs, 7 v. 8 United States District Court Northern District of California UNITED BEHAVIORAL HEALTH, ET AL., Defendants. 11 12 ORDER GRANTING MOTIONS TO DISMISS Re: Dkt. Nos. 85, 86 9 10 CASE NO. 4:20-cv-02249 YGR Plaintiffs1 bring this putative class action against defendants United Behavioral Health 13 (“United”) and MultiPlan, Inc. (“MultiPlan”) for claims arising out of United’s alleged failure to 14 reimburse plaintiffs at “a percentage” of the Usual, Customary, and Reasonable Rates (“UCR”) for 15 Intensive Outpatient Program (“IOP”) services, which plaintiffs provided to patients with health 16 insurance policies administered by United. The Court dismissed two prior iterations of the 17 complaint, with leave to amend. Plaintiffs filed a Second Amended Complaint (“SAC”), in which 18 they assert, on their own behalf and on behalf of a proposed class of similarly-situated out-of- 19 network IOP providers, multiple claims under California law that arise out of defendants’ alleged 20 under-reimbursement of claims for IOP services. 21 Now pending are United’s and MultiPlan’s motions to dismiss all claims in the SAC with 22 prejudice under Federal Rule of Civil Procedure 12(b)(6) on the grounds that: (1) plaintiffs’ state- 23 law claims are preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”); 24 and (2) even if such claims are not preempted by ERISA, the claims are inadequately pleaded. 25 26 27 28 1 Plaintiffs are Pacific Recovery Solutions d/b/a Westwind Recovery, Miriam Hamideh PhD Clinical Psychologist Inc. d/b/a PCI Westlake Centers, Bridging the Gaps, Inc., and Summit Estate Recovery Center, Inc. Having carefully considered the pleadings and the parties’ briefs, and for the reasons set 1 2 forth below, the Court GRANTS the motions to dismiss WITH PREJUDICE with respect to plaintiffs’ 3 state-law claims.2 4 I. BACKGROUND 5 A. Initial Complaint 6 In the first iteration of the complaint, plaintiffs alleged as follows. Plaintiffs are out-ofnetwork healthcare providers who provided IOP services to patients who had health insurance 8 policies that United administered and that are “health care benefit programs” covered by ERISA. 9 United States District Court Northern District of California 7 Compl. ¶¶ 2, 348-59, Docket No. 1. Before providing treatment to these patients, “each of the 10 Plaintiffs confirmed with United that the patients had active coverage and benefits for out of 11 network IOP treatment services” through verification-of-benefits (“VOB”) calls, during which 12 United “represented” that it would pay the patients’ claims for such services at a percentage of the 13 UCR. Id. ¶¶ 3, 17, 188, 195, 202, 209. Due to the communications in question, plaintiffs and 14 United “understood” UCR to be “consistent with United’s published definition of UCR rates” on 15 its website describing out-of-network plan benefits. Id. ¶ 324; id. ¶ 17 n.6 (alleging that United 16 published a definition of UCR on its webpage describing out-of-network plan benefits). Plaintiffs 17 provided IOP services to the patients in reliance of United’s representations. Id. ¶¶ 3, 17, 188, 18 195, 202, 209. 19 United’s representations that it would pay a percentage of the UCR were false, because 20 “United did not pay UCR amounts for any of the patient claims at issue in this litigation.” Id. ¶ 21 13. Instead, United engaged defendant Viant, a third-party “repricer,” to “negotiate” 22 reimbursements with plaintiffs “at well below the UCR rate.” Id. ¶¶ 13, 33. During its 23 negotiations with plaintiffs, Viant represented that it had authority to negotiate with providers on 24 the patients’ behalf and that “the rate it offers is based on the UCR for the provider’s geographic 25 location.” Id. ¶¶ 34, 48, 52. Viant’s negotiations with plaintiffs resulted in offers to reimburse 26 27 28 2 Pursuant to Federal Rule of Civil Procedure 78(b) and Civil Local Rule 7-1(b), the Court finds this motion appropriate for decision without oral argument. Accordingly, the Court VACATES the hearing set for April 6, 2021. 2 1 them for IOP services at an amount below the UCR, and United paid the patients’ claims at the 2 “reduced Viant amount.” Id. ¶¶ 13-14. Neither United nor Viant disclosed to plaintiffs the 3 methodology they used for calculating the reimbursement rates for IOP services. Id. ¶ 54. United 4 “unjustly retained” the difference between the amounts it “should have paid” to plaintiffs for the 5 IOP services at issue and the amount that United actually did pay based on Viant’s negotiated 6 reimbursements. Id. ¶ 15. 7 Plaintiffs asserted the following claims against each defendant on their own behalf and on behalf of a proposed class of similarly-situated out-of-network IOP providers in the United States: 9 United States District Court Northern District of California 8 (1) a claim for violations of the Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 10 17200, et seq.; (2) intentional misrepresentation and fraudulent inducement; (3) negligent 11 misrepresentation; (4) civil conspiracy; (5) breach of oral or implied contract; (6) promissory 12 estoppel; (7) a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 13 U.S.C. § 1962(c); and (8) a claim under Section 1 of the Sherman Act, 15 U.S.C. § 1. 14 15 On August 25, 2020, the Court granted defendants’ motions to dismiss all claims in the initial complaint, and it did so with leave to amend. Docket No. 61. 16 B. First Amended Complaint 17 The First Amended Complaint (“FAC”) differed from the initial complaint in the following 18 ways: (1) plaintiffs deleted most of the allegations that the Court relied upon in its order 19 dismissing the initial complaint; (2) plaintiffs added new allegations, as discussed in more detail 20 below; (3) plaintiffs substituted MultiPlan for Viant as a defendant; (4) plaintiffs added a claim for 21 conspiracy in violation of RICO, 18 U.S.C. § 1962(d); and (5) plaintiffs deleted their request for 22 injunctive relief under the Sherman Act. 23 In the FAC, plaintiffs continued to aver that United represented during VOB calls that it 24 would pay for IOP services at a percentage of the UCR. See, e.g., FAC ¶¶ 269, 276, 292. 25 Plaintiffs, however, modified their allegations with respect to the process that United allegedly 26 used to reprice the claims for IOP services at issue. In the initial complaint, plaintiffs alleged that 27 United had engaged Viant to “negotiate” reimbursements with plaintiffs; that Viant’s negotiations 28 with plaintiffs resulted in offers to reimburse them for IOP services at an amount below the UCR; 3 1 and that United paid the patients’ claims for IOP services at the “reduced Viant amount.” See 2 Compl. ¶¶ 13-14. In FAC, by contrast, plaintiffs alleged that United entered into a contract with 3 MultiPlan, Viant’s parent company, to use a database that allowed defendants to generate 4 “fraudulent UCR rates” for IOP services, which they used to under-reimburse for the cost of the 5 IOP services at issue. FAC ¶¶ 121, 13-62. Plaintiffs deleted all allegations as to Viant’s alleged 6 negotiations with plaintiffs from the FAC. On December 18, 2020, the Court granted defendants’ motions to dismiss all claims in the 7 FAC. Docket No. 83. Specifically, the Court (1) dismissed with prejudice plaintiffs’ Sherman 9 United States District Court Northern District of California 8 Act claim for lack of antitrust standing; (2) dismissed with prejudice plaintiffs’ RICO claims for 10 lack of RICO standing; (3) dismissed with prejudice plaintiffs’ state-law claims to the extent that 11 they arise out of the alleged under-reimbursement of claims for IOP services that are covered by 12 plans governed by ERISA; and (4) dismissed with leave to amend plaintiffs’ state-law claims to 13 the extent that they arise out of the alleged under-reimbursement of claims for IOP services that 14 are covered by plans that are not governed by ERISA. Id. 15 C. 16 The SAC differs from the FAC in the following ways: (1) plaintiffs deleted their claims 17 under the Sherman Act and RICO, such that the only claims that remain are those arising out of 18 state law; (2) plaintiffs deleted their allegations regarding specific claims for IOP services that 19 defendants allegedly under-reimbursed; and (3) plaintiffs added conclusory allegations that the 20 plans that cover the IOP claims at issue are plans that are not governed by ERISA. 21 II. 22 Second Amended Complaint LEGAL STANDARD To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient factual 23 matter that, when accepted as true, states a claim that is plausible on its face. Ashcroft v. Iqbal, 24 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the plaintiff pleads factual 25 content that allows the court to draw the reasonable inference that the defendant is liable for the 26 misconduct alleged.” Id. While this standard is not a probability requirement, “[w]here a 27 complaint pleads facts that are merely consistent with a defendant’s liability, it stops short of the 28 line between possibility and plausibility of entitlement to relief.” Id. (internal quotation marks and 4 citation omitted). In determining whether a plaintiff has met this plausibility standard, the Court 2 must “accept all factual allegations in the complaint as true and construe the pleadings in the light 3 most favorable” to the plaintiff. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). “[A] 4 court may not look beyond the complaint to a plaintiff’s moving papers, such as a memorandum in 5 opposition to a defendant’s motion to dismiss.” Schneider v. California Dep’t of Corr., 151 F.3d 6 1194, 1197 n.1 (9th Cir. 1998). A court should grant leave to amend unless “the pleading could 7 not possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe, Inc. v. N. Cal. 8 Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990). 9 United States District Court Northern District of California 1 III. 10 DISCUSSION As noted, plaintiffs assert the following state-law claims against defendants in the SAC: 11 (1) violation of the UCL, Cal. Bus. & Prof. Code § 17200, et seq.; (2) intentional 12 misrepresentation and fraudulent inducement; (3) negligent misrepresentation; (4) civil 13 conspiracy; (5) breach of oral or implied contract; and (6) promissory estoppel. All of these 14 claims are predicated on the theory that United represented to plaintiffs during VOB calls that it 15 would pay for IOP services at a percentage of the UCR pursuant to the terms of the patients’ 16 healthcare plans. 17 Defendants move to dismiss all of these claims on the grounds that (1) the claims are 18 preempted by ERISA; and (2) even if the claims are not preempted by ERISA, they are 19 inadequately pleaded. 20 ERISA Section 514(a) expressly preempts “any and all State laws insofar as they may now 21 or hereafter relate to any employee benefit plan[.]” 29 U.S.C. § 1144(a). “While this section 22 suggests that the phrase ‘relate to’ should be read broadly, the Supreme Court has recently 23 admonished that the term is to be read practically, with an eye toward the action’s actual 24 relationship to the subject plan.” Providence Health Plan v. McDowell, 385 F.3d 1168, 1172 (9th 25 Cir. 2004) (citing New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. 26 Co., 514 U.S. 645, 655-56 (1995)). “Generally speaking, a common law claim ‘relates to’ an 27 employee benefit plan governed by ERISA ‘if it has a connection with or reference to such a 28 plan.’” Id. (citation omitted). “In evaluating whether a common law claim has ‘reference to’ a 5 1 plan governed by ERISA, the focus is whether the claim is premised on the existence of an ERISA 2 plan, and whether the existence of the plan is essential to the claim’s survival. If so, a sufficient 3 ‘reference’ exists to support preemption.” Id. (citations omitted). “In determining whether a 4 claim has a ‘connection with’ an employee benefit plan, courts in this circuit use a relationship 5 test. Specifically, the emphasis is on the genuine impact that the action has on a relationship 6 governed by ERISA, such as the relationship between the plan and a participant.” Id. (citations 7 omitted). 8 United States District Court Northern District of California 9 In its order of December 18, 2020, the Court dismissed plaintiffs’ state-law claims with prejudice on the ground that they are preempted by ERISA Section 514(a) to the extent that they 10 depend on the existence and terms of a plan that is governed by ERISA. See Docket No. 83 at 14- 11 18; see also Wise v. Verizon Commc’ns, Inc., 600 F.3d 1180, 1191 (9th Cir. 2010) (holding that 12 state-law claims predicated on “theories of fraud, misrepresentation, and negligence” are 13 preempted under Section 514(a) because they “depend on the existence of an ERISA-covered plan 14 to demonstrate that [the plaintiff] suffered damages”); Johnson v. Dist. 2 Marine Engineers 15 Beneficial Ass’n-Associated Mar. Officers, Med. Plan, 857 F.2d 514, 517 (9th Cir. 1988) 16 (affirming dismissal with prejudice of state-law claims that are “preempted by ERISA” Section 17 514(a)). 18 In the same order, the Court recognized that plaintiffs had alleged in the FAC that some of 19 the plans that cover the claims for IOP services at issue are not governed by ERISA, but it 20 concluded that the FAC lacked factual matter to raise the reasonable inference that the plans in 21 question fall outside of the scope of ERISA. See Docket No. 83 at 17-18 (noting that, although 22 certain types of employer-sponsored healthcare plans are exempted from ERISA, such as 23 governmental and church plans, the FAC was “devoid of allegations showing that any of the plans 24 at issue falls within any of the exceptions to ERISA coverage”) (citing 29 U.S.C. § 1003(b)). 25 Accordingly, the Court granted plaintiffs leave to amend the complaint to allege, in relevant part, 26 “facts identifying which of the allegedly under-reimbursed claims for IOP services in the FAC 27 were covered by a plan that falls outside of the scope of ERISA and showing why[.]” Id. at 18. 28 6 1 The SAC fails to satisfy these requirements. Rather than adding detail to their allegations as the Court required, plaintiffs removed material averments from the complaint. Specifically, 3 plaintiffs removed from the SAC the detailed factual matter they had alleged in the FAC with 4 respect to the number of IOP claims at issue, the amounts that defendants allegedly under- 5 reimbursed, and the misrepresentations that United allegedly made during VOB calls, presumably 6 because all of those facts pertained to claims for IOP services that are covered by plans that are 7 governed by ERISA. In place of the detailed allegations they removed, plaintiffs left conclusory 8 allegations. Their state-law claims are now supported only by bare averments that the claims for 9 United States District Court Northern District of California 2 IOP services at issue are covered by plans that are “not governed by ERISA.” See, e.g., SAC ¶¶ 10 384, 5. Plaintiffs do not identify any non-ERISA claims, plans, or members; nor do they aver any 11 nonconclusory factual matter that would allow the Court to reasonably infer that any of the claims 12 for IOP services at issue are covered by a plan that is not subject to ERISA. 13 Where, as here, plaintiffs assert state-law claims that depend on the terms of certain 14 healthcare plans, but plaintiffs do not allege any factual matter giving rise to the inference that 15 such healthcare plans are not governed by ERISA, the state-law claims are subject to dismissal on 16 the ground that they are preempted by ERISA. See, e.g., Omega Hospital, LLC v. United 17 Healthcare Services, Inc., No. 16-00560-JJB-EWD, 2017 WL 4228756, at *4 (M.D. La. Sept. 22, 18 2017) (dismissing state-law claims of “non-ERISA plan participants” as preempted by ERISA on 19 the ground that “the Court is not satisfied with general statements referring to non-ERISA plans 20 without specific allegations identifying a particular non-ERISA plan at issue in this case”); 21 Biohealth Med. Lab’y, Inc. v. Connecticut Gen. Life Ins. Co., No. 1:15-CV-23075-KMM, 2016 22 WL 375012, at *5 (S.D. Fla. Feb. 1, 2016), aff’d in part, vacated in part on other grounds sub 23 nom. BioHealth Med. Lab’y, Inc. v. Cigna Health & Life Ins. Co., 706 F. App’x 521 (11th Cir. 24 2017) (dismissing state-law claims as preempted by ERISA on the grounds that “the Complaint on 25 its face does not identify any plan(s)” that are “non-ERISA plans” and that “merely claiming that 26 some of the member claims arise under non-ERISA plans is insufficient to provide fair notice to 27 [defendant]”). 28 7 In their opposition to the present motions, plaintiffs attempt to distinguish these authorities 1 on grounds that are immaterial, such as the fact that the state-law claims at issue in Omega and 3 Biohealth do not arise out of similar facts or the same legal theories as the state-law claims at issue 4 here. See Docket No. 87 at 6. Plaintiffs’ attempt to distinguish these authorities is ineffective. As 5 in Omega and Biohealth, the ERISA preemption analysis here turns on whether the healthcare 6 plans upon which the claims for benefits depend are governed by ERISA. As the plaintiffs in 7 Omega and Biohealth, plaintiffs here have failed to aver any factual matter that would permit the 8 Court to infer that the plans at issue are not governed by ERISA. Plaintiffs’ state-law claims, 9 United States District Court Northern District of California 2 therefore, are subject to dismissal on the basis that they are preempted by ERISA Section 514(a). 10 See Johnson, 857 F.2d at 517. Because the Court previously provided plaintiffs with an opportunity to amend the 11 12 complaint to add factual matter to make plausible their allegations that the plans in question are 13 not governed by ERISA, and plaintiffs failed to do so, the Court finds that providing plaintiffs 14 with a further opportunity to amend the complaint would be futile. Accordingly, the Court GRANTS defendants’ motions to dismiss plaintiffs’ state-law claims 15 16 WITH PREJUDICE. 17 IV. 18 19 CONCLUSION For the foregoing reasons, the Court GRANTS defendants’ motions to dismiss plaintiffs’ state-law claims WITH PREJUDICE. 20 This order terminates Docket Numbers 85 and 86. 21 The Clerk shall terminate this action and enter judgment. 22 IT IS SO ORDERED. 23 24 Dated: April 1, 2021 ______________________________________ YVONNE GONZALEZ ROGERS UNITED STATES DISTRICT COURT JUDGE 25 26 27 28 8

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