Aetna Life Insurance Company v. Bay Area Surgical Management, LLC et al

Filing 33

ORDER by Judge Whyte granting 10 Motion to Remand (rmwlc1, COURT STAFF) (Filed on 1/11/2013)

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1 2 3 E-FILED on: 1/11/13 4 5 6 UNITED STATES DISTRICT COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8 SAN JOSE DIVISION 9 10 AETNA LIFE INSURANCE COMPANY, CASE NO. C-12-05829 RMW Plaintiff, 11 ORDER GRANTING PLAINTIFF’S MOTION TO REMAND v. 12 BAY AREA SURGICAL MANAGEMENT, 13 LLC, et al., 14 [Re: Docket No. 10] Defendants. 15 16 17 On November 29, 2012, plaintiff Aetna Life Insurance Company ("Aetna") moved for: (1) 18 19 an order of the court remanding this action to the Superior Court for the County of Santa Clara 20 California ("state court"); and (2) an award of fees and costs incurred as a result of the removal. 21 Having considered the papers submitted by the parties and the arguments of counsel, and for the 22 reasons set forth below, this court grants Aetna's motion to remand and awards fees and costs to 23 Aetna. 24 I. BACKGROUND 25 26 On February 2, 2012, Aetna sued a group of San Francisco bay area surgical centers and 27 individual defendants (collectively "defendants") in state court for fraudulently securing payments 28 ORDER, CASE NO. C-12-05829-RMW ALG -1- 1 from Aetna for services rendered to members of its health plans. Aetna alleged that defendants 2 "unlawfully induced contracted physicians to refer members to (and render services at) 3 [d]efendants' facilities, unlawfully waived A[etna] members' coinsurance obligations, fraudulently 4 submitted false and inflated bills to A[etna], and violated California's prohibition on the corporate 5 practice of medicine." Pl.'s Br. 1-2, Dkt. No. 10. The complaint alleged six state law causes of 6 action: (1) unfair competition in violation of California's Unfair Competition Law ("UCL"); (2) 7 intentional interference with Aetna’s contractual relations with its members; (3) intentional 8 9 interference with Aetna's contractual relations with its in-network participating providers; (4) 10 fraud; (5) declaratory judgment; and (6) unjust enrichment. Compl. ¶¶ 108-66. In support of 11 Aetna's UCL claim—to show that defendants' practices were "unfair"— paragraphs 48 and 49 of 12 the complaint referenced a "Special Fraud Alert" issued by the Department of Health and Human 13 14 Services, which deemed the waiver of Medicare copayments potentially unlawful and damaging to the public. Defendants demurred and moved to strike, inter alia, paragraphs 48 and 49 of the 15 16 17 complaint. On October 1, 2012, the state court overruled defendants' demurrers and denied the 18 majority of defendants' motions to strike, but granted, in relevant part, defendants' motion to strike 19 paragraphs 48 and 49 relating to Medicare rules on the waiver of coinsurance, with leave to 20 amend. The state court held: 21 22 23 24 25 26 27 28 Regarding the Medicare allegations, (paragraphs 48 and 49), [Aetna] argues Medicare rules on the waiver of coinsurance are relevant as persuasive authority to demonstrate the negative ramifications that result when providers waive coinsurance obligations. However, a complaint should contain only a statement of facts constituting the cause of action and a demand for relief . . . , not legal arguments or citations to persuasive authority. [Aetna] further argues that some of the claims involved in this action do involve Medicare claims. However, this factual assertion appears to be extrinsic to the Complaint. Finally, Aetna argues that the language from the Medicare "Special Fraud Alert" is directly relevant to the claim that the scheme is unfair under the UCL. Again, this seems to be an argument about persuasive legal authority, which is an improper matter to be inserted in a pleading. ORDER, CASE NO. C-12-05829-RMW ALG -2- 1 Order at 17 ll. 20-28, Dkt. No. 22-1. In response to the state court's order, on October 12, 2012, 2 Aetna filed a first amended complaint ("FAC"), maintaining the references to the "Special Fraud 3 Alert" in FAC paragraphs 56 and 57, and further including an allegation in FAC paragraph 55 that, 4 5 "[o]f the provider charges at issue in this case, approximately eight (8) involve members who are 6 covered under Medicare." FAC ¶ 55, Dkt. No. 11-2. On that same day, Aetna served its first set 7 of discovery requests on defendants. 8 9 10 On November 14, 2012, after allegedly having "determined that federal law governs this action," defendants filed a notice of removal on the basis of federal question jurisdiction. 1 On January 11, 2013, Aetna filed the present motion to remand on the grounds that: (1) defendants' 11 12 13 notice of removal was untimely and facially defective; (2) Aetna's complaint does not invoke federal question jurisdiction because it does not involve or rely on federal law; (3) Aetna's state 14 law claims are not completely preempted by, nor do they arise under, the Medicare Act; and (4) 15 there is no federal question jurisdiction based on preemption by the Employee Retirement Income 16 Security Act ("ERISA"). 17 III. ANALYSIS 18 A. Evidentiary Rulings 19 20 Defendants request judicial notice of: (1) the state court opinion and order dated October 1, 21 2012 ("Oct. 1, 2012 Order"); (2) the defendants' March 5, 2012 motion to strike portions of the 22 complaint ("motion to strike"); and (3) a brief for the United States Secretary of Labor as Amicus 23 Curiae Supporting Plaintiff-Appellant Tri3 Enterprises, LLC, in an action entitled Tri3 24 Enterprises, LLC v. Aetna, Inc., Case No. 12-2308 (3d Cir. Nov. 31, 2012) ("Tri3 Amicus Brief"). 25 The court takes judicial notice of the Oct. 1, 2012 Order and the motion to strike as they are part of 26 1 Although certain portions of the notice of removal cite 28 U.S.C. § 1441(b), removal based on 27 diversity jurisdiction, it appears that these citations were in error, and the notice of removal is 28 based on federal question jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1441(a). ORDER, CASE NO. C-12-05829-RMW -3ALG 1 the public record in this case and directly relevant to the present issue. The court declines to take 2 judicial notice of the Tri3 Amicus Brief, which defendants rely on solely as a persuasive legal 3 "authority" in support of removal based on an ERISA claim. Tri3 is inapposite to the present case 4 because the claim in that case was actually based on an ERISA violation, see Tri3 Enterprises, 5 LLC v. Aetna, Inc., Case No. 11-3921, 2012 WL 1416530 at *1 (D.N.J. Apr. 24, 2012), unlike the 6 claims here, which are explicitly brought under state law. Moreover, the district court in Tri3 held 7 that defendants failed to state a federal cause of action under ERISA, and thus the existing law is 8 9 actually contrary to defendants' position on that issue, which, as stated, is not even present in this 10 case. For these reasons, the Tri3 Amicus Brief is not helpful to the court in deciding the present 11 issues. 12 13 14 Aetna objects to paragraph 7 of the declaration of Katherine M. Dru (submitted with defendants' response brief at Dkt. No. 21) "on the basis that it lacks foundation, assumes facts not in evidence, and asserts legal arguments and conclusions." Aetna's Reply Br. 5 n.5. Paragraph 5 15 16 of the Dru declaration states: "In the course of this process of gathering responsive information, 17 [d]efendants learned for the first time that many of the individual claims at issue in this action are 18 claims for benefits under ERISA, and are governed by the federal scheme under 29 U.S.C. § 1002, 19 et seq." Civil Local Rule 7-5(b) provides that "[a]n affidavit or declarations may contain only 20 facts . . . and must avoid conclusions and argument" and allows the court to strike any declaration 21 not in compliance. The court declines to strike paragraph 7, but considers it only as a declaration 22 of fact regarding the defendants' subjective belief, and not for any conclusion stated therein. 23 24 25 B. Legal Standard for Removal Under 28 U.S.C. § 1441(a), an action may be removed to the federal district court 26 "embracing the place where such action is pending" when "the district courts of the United States 27 have original jurisdiction." "Generally speaking, '[a] cause of action arises under federal law only 28 ORDER, CASE NO. C-12-05829-RMW ALG -4- 1 when the plaintiff's well pleaded complaint raises issues of federal law.'" Marin Gen. Hosp. v. 2 Modesto & Empire Traction Co., 581 F.3d 941, 944 (2009) (citing Hansen v. Blue Cross of Cal., 3 891 F.2d 1384, 1386 (9th Cir.1989)). Courts strictly construe the removal statute against removal 4 jurisdiction. See, e.g., Provincial Gov't of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 5 (9th Cir. 2009); Luther v. Countrywide Home Loans Servicing, LP, 533 F.3d 1031, 1034 (9th Cir. 6 2008). "A defendant seeking removal has the burden to establish that removal is proper and any 7 doubt is resolved against removability." Luther, 533 F.3d at 1034 (citation omitted); see also 8 9 Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009) ("[A]ny doubt about 10 the right of removal requires resolution in favor of remand."). 11 C. Timeliness of Defendants' Removal Notice 12 A defendant must normally seek removal within thirty days of the initial pleading or, if the 13 14 initial pleading does not establish a basis for removal, within thirty-days of receipt of "a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the 15 16 case is one which is or has become removable." 28 U.S.C. § 1446(b)(1), (3). Moreover, "all 17 defendants who have been joined and served must join in or consent to the removal of the action." 18 28 U.S.C. § 1446(b)(2)(a). 19 The primary issue is whether the defendants' alleged basis for removal was present prior to 20 October 12, 2012, the date that Aetna filed the FAC. If so, it is undisputed that defendants' 21 removal was untimely. According to Aetna, defendants had knowledge of all of the relevant 22 Medicare-related facts as of the date of the original complaint, February 2, 2012. If not at that 23 24 time, Aetna asserts that the defendants certainly had knowledge of the alleged Medicare-related 25 claims as of July 9, 2012, when Aetna filed its brief in opposition to defendants' motion to strike 26 portions of the complaint. In that brief, Aetna wrote: "the claims in this case do involve Medicare 27 patients as some of the artificially-inflated health insurance claims submitted to Aetna have been 28 ORDER, CASE NO. C-12-05829-RMW ALG -5- 1 for procedures related to Medicare patients." Aetna's Br. in Opp. to Pl.'s Mot. to Strike 4, Dkt. No. 2 11-5. Aetna also asserts that defendants were aware of the alleged basis for removal under ERISA 3 as of the date of the original complaint, because Aetna's benefit plan, which is expressly subject to 4 ERISA, was attached to the original complaint, see Complaint, Ex. A, Dkt. No. 11-6 ("As a 5 participant in [Aetna's] group insurance plan you are entitled to certain rights and protections 6 under [ERISA]"), and no additional reference to ERISA was included in the FAC. Finally, Aetna 7 argues that defendants' removal notice is defective because all defendants must timely consent to 8 9 removal and, without explanation, defendant Pacific Heights did not join the removal notice until 10 November 20, 2012, several days later than the other defendants. 11 12 13 14 1. The alleged Medicare claims Defendants counter that it was not until the FAC, filed on October 12, 2012, that they first learned of the alleged Medicare claims giving rise to federal question jurisdiction. Defendants further assert that they "first learned that many of the individual claims involved in this action are 15 16 claims for benefits under ERISA" in the process of responding to Aetna's October 12, 2012 17 discovery requests. Defs.' Response Br. 8. According to defendants, claims uncovered during the 18 discovery process can properly serve as a basis for removal, and defendants were not required to 19 scour the exhibits to the complaint in search of a basis for removal. With respect to defendant 20 Pacific Height's failure to join the original removal notice, defendants argue that Pacific Heights' 21 joinder shortly thereafter cured any deficiency in the removal notice. 22 The court is not persuaded by defendants' timeliness arguments. The basis for defendants' 23 24 removal is the new allegation at paragraph 55 in the FAC that "approximately eight (8) [of the 25 provider charges at issue] involve members who are covered under Medicare." FAC ¶ 55. 26 Although defendants may not have been aware that certain patients at issue in the case were, in 27 fact, covered under Medicare as of the date of the original complaint, see Defs.' Mot. to Strike 1, 28 ORDER, CASE NO. C-12-05829-RMW ALG -6- 1 Dkt. No. 22-2 ("The Medicare rule prohibiting waiver of copayments for Medicare claims has no 2 applicability to this case. Aetna is not Medicare, none of the patients were Medicare patients, and 3 none of the claims were seeking reimbursement from the Medicare program." (emphasis added)), 4 it cannot be disputed that defendants learned of this fact as of July 9, 2012, when Aetna explicitly 5 states so in its opposition to defendants' motion to strike, see Aetna's Opp. Br. 4 ("[T]he claims in 6 this case do involve Medicare patients as some of the artificially-inflated health insurance claims 7 submitted to Aetna have been for procedures related to Medicare patients." ). Because this fact is 8 9 the basis for defendant's removal based on the alleged "Medicare claims," defendants were 10 required to file notice of removal within thirty days of this disclosure. 28 U.S.C. § 1446(b)(3) 11 (removal within thirty days of receipt of an "other paper from which it may first be ascertained 12 that the case is one which is or has become removable"). Defendants did not file their notice of 13 14 removal until November 14, 2012, which is untimely. See id. The thirty-day time limit "is mandatory and a timely objection to a late petition will defeat removal." Fristoe v. Reynolds 15 16 Metals Co., 615 F.2d 1209, 1212 (9th Cir. 1980). This holding does not preclude the state court 17 from striking paragraphs 55-57 from the FAC on the same ground that it originally struck 18 paragraphs 48 and 49 from the original complaint. 19 20 21 2. The alleged ERISA claims With respect to defendants' notice of removal based on "ERISA claims," defendants rely on "responsive information" that they gathered in the process of responding to Aetna's discovery 22 requests. See Dru Decl. ¶ 7 ("In the course of this process of gathering responsive information, 23 24 [d]efendants learned for the first time that many of the individual claims at issue in this action are 25 claims for benefits under ERISA . . . ."). Defendants, however, never specifically name or 26 describe any newly-discovered facts or documents that could have established a claim under 27 ERISA. Without any information about the nature of the alleged facts discovered, the court 28 ORDER, CASE NO. C-12-05829-RMW ALG -7- 1 cannot decide whether these facts or documents would have constituted "other paper[s]" sufficient 2 to support a motion for remand under § 1446(b)(3). See 28 U.S.C. § 1446(b)(3) (providing that, 3 "if the case stated by the initial pleading is not removable, a notice of removal may be filed within 4 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended 5 pleading, motion, order or other paper from which it may first be ascertained that the case is one 6 which is or has become removable." (emphases added)). The cases that defendants cite in support 7 of the proposition that discovery documents may constitute "other papers" do not hold—as is the 8 9 case here—that documents already in the defendants' possession prior to plaintiff's discovery 10 requests qualify as "other paper[s]" received by defendants under § 1446(b)(3). For example, 11 Riggs v. Continental Baking Co., 678 F. Supp. 236, 238 (N.D. Cal. 1988), and Rose v. Beverly 12 Health & Rehabilitation Services, Inc., 2006 WL 2067060, *5 (E.D. Cal. July 22, 2006), held only 13 14 that the plaintiffs' deposition testimony establishing the basis for removal for the first time qualified as an "other paper" under § 1446(b)(3). Similarly, in Akin v. Big Three Industries, Inc., 15 16 851 F. Supp. 819, 825 (E.D. Tex. 1994), the court held only that one of the plaintiff's discovery 17 responses, which contained facts definitively supporting a basis for removal for the first time, 18 qualified as an "other paper" under § 1446(b)(3). In contrast to those cases, here, the alleged 19 "responsive information" was in defendants' possession prior to discovery, and was requested by 20 Aetna. The only document or fact recited by either party that mentions ERISA is the Aetna 21 Insurance Policy, which Aetna attached as exhibit A to the original complaint, and thus was 22 readily available to defendants as of February 2, 2012. Because no other evidence is cited in 23 24 support of defendants removal action on the basis of ERISA claims, defendant's removal on this 25 ground is likewise untimely. 26 Because the court holds that the removal action was untimely in the first instance, the issue 27 with respect to defendant Pacific Height's (even) later joinder is moot. 28 ORDER, CASE NO. C-12-05829-RMW ALG -8- 1 2 D. No Federal Question Provides a Basis For Removal Even if the court were to consider the removal notice as timely, no federal question 3 provides a basis for removal. Defendants may not remove a case to federal court unless the 4 complaint itself establishes that a right created by the Constitution or laws of the United States is 5 an essential element of the plaintiff's cause of action. Franchise Tax Bd. of Cal. v. Constr. 6 Laborers Vacation Trust for S. Cal., 463 U.S. 1, 10-11 (1983). Each cause of action in the FAC is 7 based on California state law, and Aetna's UCL claims based on "unlawful" acts recite only state 8 laws as predicate violations. Thus, to remove this case based on a federal question, defendants are 9 10 required to show that Aetna's state law claims "arise under" federal law. See Hofler v. Aetna US 11 Healthcare of Cal., Inc., 296 F.3d 764, 769-70 (9th Cir. 2002), abrogated on other grounds 12 by Martin v. Franklin Capital Corp., 546 U.S. 132 (2005); Ardary v. Aetna Health Plans of Cal., 13 98 F.3d 495, 502 (9th Cir. 1996) ("Because we hold that the Ardarys' state law claims do not 14 "arise under" the Medicare Act, we must conclude that the action was improperly removed to 15 16 17 18 federal court."). 2. Aetna's state law claims do not arise under the Medicare Act Defendants do not actually argue that Aetna's state law claims "arise under" the Medicare 19 Act, but rather makes an unsupported conclusion that Aetna actually alleges Medicare "claims." 20 Aetna does not allege Medicare claims, and to the extent defendants make this argument, they 21 mischaracterize patients' health insurance claims submitted to the insurance provider, see FAC 22 ¶ 55 (concerning the eight patients covered under Medicare), with legal claims, i.e., legal causes of 23 24 action. Paragraph 55 is the only new allegation in the FAC that defendants rely upon to support 25 removal. Defendants argue that "Aetna specifically added the allegation in paragraph 55 26 concerning eight Medicare claims so that it could keep the references to Medicare rules in the 27 FAC." Response Br. 14 (emphasis added). According to defendants, "Aetna clearly wants to 28 ORDER, CASE NO. C-12-05829-RMW ALG -9- 1 maintain these references because it believes that these rules are relevant to the legality of 2 Defendants' actions in allegedly waiving co-payments." Id. As the state court recognized in its 3 order on defendants' motion to strike portions of the complaint, the references to Medicare in the 4 FAC are "persuasive authority" in support of "the claim that the scheme is unfair under the UCL." 5 Oct. 1, 2012 Order 17; see e.g., Nevada v. Bank of Am. Corp., 672 F.3d 661, 675 (9th Cir. 2012) 6 ("[M]ere use of a federal statute as a predicate for a state law cause of action does not necessarily 7 transform that cause of action into a federal claim."); Lippitt v. Raymond James Fin. Servs., Inc., 8 9 340 F.3d 1033, 1040-43 (9th Cir. 2003) (reversing the district court and remanding the case back 10 to state court where, although the complaint referenced federal law to support plaintiff's UCL 11 claim, it was not necessary to establish the state law UCL claim); Guerra v. Carrington Mortg. 12 Servs. LLC., No. 10-4299, 2010 WL 2630278, at *2 (C.D. Cal. June 29, 2010) ("California 13 14 district courts have held that mere references to federal law in UCL claims do not convert the claim into a federal cause of action."). On remand, to the extent that the allegations in paragraphs 15 16 55-57 of the FAC are still improper, the court can again strike these paragraphs from the FAC. 17 See Lippitt, 340 F.3d at 1041 ("The appropriate punishment for bad pleading is the striking of 18 surplusage, not removal to federal court where no remedy exists."). Indeed, Aetna admits in its 19 appeal brief that "the FAC could readily be amended to exclude those three paragraphs, thus 20 eliminating any mention of Medicare, ERISA, or other federal law, without affecting A[etna's] 21 claims or right to recovery under state law." Aetna's Br. 14. 22 2. Aetna's State Law Claims are not Preempted by ERISA 23 24 State law claims only "arise under" ERISA when they are completely preempted by 25 ERISA § 502(a) (29 U.S.C. § 1132(a)). Marin General, 581 F.3d at 946. Without explanation, 26 defendants make the conclusory statement that "[b]ased on the information learned through 27 discovery, it is clear that the claims alleged in the FAC are completely preempted by ERISA." 28 ORDER, CASE NO. C-12-05829-RMW ALG - 10 - 1 Response Br. 15. Later, defendants only argue that they "recently learned that many, if not all, of 2 the claims at issue in this action relate to ERISA plans." Id. Mere relation to an ERISA plan is 3 not sufficient to establish preemption. See Marin General, 581 F.3d at 946. In any event, 4 defendants offer no support for this assertion, and fail to explain how or why any claim could, in 5 fact, be brought under ERISA § 502(a). The cases defendants rely on involve adverse benefits 6 determinations under ERISA plans. In contrast, here, Aetna's claims do not involve any adverse 7 benefits determination. See FAC; Aetna Reply Br. 10 (averring that adverse benefits 8 9 determinations are not at issue here); Lippitt, 340 F.3d at 1046 ("We remand in reliance that 10 Lippitt will adhere to . . . the characterization of the complaint which he offered to us, since 11 judicial estoppel “bars a party from taking inconsistent positions in the same litigation.”). 12 13 14 Accordingly, defendants fail to establish any reasonable basis for removal, let alone to meet their burden of establishing a basis for removal without "any doubt." See Moore-Thomas, 553 F.3d at 1244. 15 16 17 F. Costs "An order remanding the case may require payment of just costs and any actual expenses, 18 including attorney fees, incurred as a result of the removal." 28 U.S.C. § 1447(c). Fees may be 19 awarded only "where the removing party lacked an objectively reasonable basis for seeking 20 removal." Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). When this requirement is 21 met, whether to award fees is within the discretion of the court. See id. at 139, 141; Lussier v. 22 Dollar Tree Stores, Inc., 518 F.3d 1062, 1065 (9th Cir. 2008). Although it is a close question as 23 24 to whether defendants had an objectively reasonable basis for removal of the case, the court 25 believes that defendants acted in good faith and, therefore, in its discretion, denies plaintiff's 26 request for its fees and costs incurred as a result of the removal. 27 28 ORDER, CASE NO. C-12-05829-RMW ALG - 11 - III. CONCLUSION 1 2 For the foregoing reasons, the court GRANTS Aetna's motion to remand and denies 3 Aetna's request for fees and costs. 4 5 6 DATED: January 11, 2013 7 8 Ronald M. Whyte United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ORDER, CASE NO. C-12-05829-RMW ALG - 12 -

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