Aton Center, Inc. v. Blue Cross of California et al

Filing 16

ORDER denying as Moot 9 Defendant's Motion to Dismiss; and granting 10 Plaintiff's Motion to Remand to State Court (Certified copy sent to State Court via US Mail Service.). Signed by Judge Roger T. Benitez on 12/4/2017. (anh)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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ATON CENTER, INC., a California
corporation,

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ORDER:

Plaintiff,

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Case No.: 3:17-cv-00852-BEN-MDD

1) GRANTING PLAINTIFF’S
MOTION TO REMAND; and

v.
BLUE CROSS OF CALIFORNIA, a
corporation doing business as Anthem
Blue Cross,

2) DENYING AS MOOT
DEFENDANT’S MOTION TO
DISMISS

Defendant.

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Before the Court are the Motion to Dismiss (Docket No. 9) filed by Defendant

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Blue Cross of California dba Anthem Blue Cross and the Motion to Remand (Docket No.

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10) filed by Plaintiff Aton, Center, Inc. The motions are fully briefed. The Court finds

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the motions suitable for determination on the papers without oral argument pursuant to

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Civil Local Rule 7.1.d.i. For the reasons that follow, Plaintiff’s motion to remand is

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GRANTED, and Defendant’s motion to dismiss is DENIED as moot.

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3:17-cv-00852-BEN-MDD

BACKGROUND1

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Plaintiff Aton, Center, Inc. (“Aton”) is an inpatient residential substance abuse

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treatment facility authorized to do business and doing business in California. (Docket

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No. 7, Amended Complaint (“AC”) ¶ 1.) Blue Cross of California dba Anthem Blue

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Cross (“Anthem”) is a corporation authorized to do business and doing business in

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California. (Id. ¶ 2.) This case arises out of a disagreement over the amount of payment

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Anthem allegedly owes Aton for Aton’s treatment of two patients, JF and GO, who at all

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relevant times were insured under health insurance policies issued by Anthem. (Id. ¶¶ 5-

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8.)
After JF and GO requested treatment from Aton, Aton contacted Anthem “to verify

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available benefits.” (Id. ¶ 6.) Anthem advised Aton that “the policies provided for and

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[Anthem] would pay for inpatient treatment, based on the usual, reasonable and

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customary rate.” (Id.) Relying on Anthem’s representations that it would pay the usual,

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reasonable and customary rate (“UCR”) for JF’s and GO’s treatment, Aton admitted and

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treated JF and GO. (Id.) However, after Aton submitted claims for payment, Anthem

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allegedly underpaid Aton by $44,498.93 for JF’s treatment and $42,725 for GO’s

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treatment. (Id. ¶ 8.) Subsequently, Aton filed a lawsuit against Anthem in the Superior

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Court of California, County of San Diego.2

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PROCEDURAL HISTORY

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On April 26, 2017, Anthem removed Aton’s action to this Court based on federal

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question jurisdiction. (Docket No. 1.) Specifically, Anthem asserted some of Plaintiff’s

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claims arose under and were completely preempted by the Employee Retirement Income

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Security Act of 1974 (“ERISA”). (Id. at pp. 1-4.) On June 6, 2017, Anthem filed a

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motion to dismiss the removed complaint. (Docket No. 6.) Instead of filing an

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The following overview of the facts is taken from the allegations of Plaintiff’s Amended
Complaint. (Docket No. 7.) The Court is not making findings of fact.
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California Superior Court Case No. 37-02017-00009103-CU-BC-NC. (Docket No. 1.)
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3:17-cv-00852-BEN-MDD

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opposition, Aton exercised its right pursuant to Federal Rule of Civil Procedure 15(a)(2)

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to file the operative Amended Complaint. (Docket No. 7.) On June 23, 2017, Anthem

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withdrew its motion to dismiss the removed complaint, and filed the instant motion to

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dismiss the Amended Complaint. (Docket Nos. 8, 9.) On June 30, 2017, Aton filed the

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instant motion to remand. (Docket No. 10.)

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DISCUSSION
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Aton’s Motion to Remand
Aton moves for an order remanding its case back to the California Superior Court

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on the grounds that its Amended Complaint contains solely state law claims, divesting

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this Court of any basis for subject matter jurisdiction. Anthem opposes Aton’s motion,

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arguing Aton’s Amended Complaint continues to contain claims arising under and

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completely preempted by ERISA. Remand is appropriate because each of Aton’s claims

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arise under state law.

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A district court may inquire into its own jurisdiction at any time. Herklotz v.

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Parkinson, 848 F.3d 894, 897 (9th Cir. 2017); Fossen v. Blue Cross & Blue Shield of

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Mont., Inc., 660 F.3d 1102, 1113 n.7 (9th Cir. 2011) (district court is free to reexamine

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supplemental jurisdiction on remand). Although, a court is not required at any particular

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time to sua sponte consider whether it is proper to assert continuing federal jurisdiction

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over state law claims when federal claims are eliminated, it must do so where, as here,

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Plaintiff has raised the issue.

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Aton explains that it was not aware JF and GO received insurance benefits under

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an ERISA plan at the time it filed its complaint in state court. (Remand Mot. at pp. 3-4;

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Declaration of John W. Tower ¶ 4.) It asserts that it was only able to confirm this

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information after Anthem filed its first motion to dismiss, and acknowledges that the two

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claims it asserted as an assignee to JF’s and GO’s plans “would probably be preempted

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by ERISA and/or prohibited by an anti-assignment provision.” (Id.) In response to this

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revelation, Aton amended the complaint to remove that assignment claims, and only

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assert “state law claims which are independent of and separate from ERISA.” (Remand
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Mot. at p. 4.) Nevertheless, Anthem essentially argues that Aton’s action must remain in

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this Court because its claims remain subject to ERISA due to its earlier assertion of rights

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as an assignee. Anthem is mistaken.

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“ERISA preempts the state claims of a provider suing as an assignee of the

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beneficiary's rights to benefits under an ERISA plan.” Cedars-Sinai Med. Ctr. v. Nat’l

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League of Postmasters of U.S., 497 F.3d 972, 978 (9th Cir. 2007) (citing The Meadows v.

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Employers Health Ins., 47 F.3d 1006, 1008 (9th Cir. 1995)). However, “ERISA does not

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preempt ‘claims by a third-party who sues an ERISA plan not as an assignee of a

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purported ERISA beneficiary, but as an independent entity claiming damages’ . . .

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because such claims do not ‘relate’ to ERISA preemption.” Id. (quoting The Meadows, at

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1009); see also Catholic Healthcare W.-Bay Area v. Seafarers Health & Benefits Plan,

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321 F. App’x 563, 564 (9th Cir. 2008) (“where a third party medical provider sues an

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ERISA plan based on contractual obligations arising directly between the provider and

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the ERISA plan (or for misrepresentations of coverage made by the ERISA plan to the

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provider), no ERISA-governed relationship is implicated and the claim is not

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preempted.”) (citing The Meadows, at 1008-11) (emphasis added).
Aton’s Amended Complaint and remand briefing make clear that it has abandoned

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any claim of rights it may, or may not, have had as an assignee of JF’s and GO’s

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insurance benefits. Instead, it asserts independent state law claims related to Anthem’s

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alleged breach of an oral contract regarding the amount to be paid for JF’s and GO’s

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treatment. Even if, as Anthem proffers, Aton has received some payments under an

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ERISA plan,3 such payments do not, ipso facto, revert Aton’s independent contract

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claims into assignee claims. The Court agrees with Aton that The Meadows controls.

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Therefore, Aton’s claims are not preempted under ERISA because they amount to claims

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by an independent entity claiming damages. The Meadows, 47 F.3d at 1008 (“The

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See Remand Opp’n at pp. 2-3; Declaration of Randy Hendel ¶¶ 3-4; Def.’s Exs. AABB.
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question before us, however, is whether ERISA preempts claims by a third-party who

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sues an ERISA plan not as an assignee of a purported ERISA beneficiary, but as an

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independent entity claiming damages. We hold that ERISA does not.”) (emphasis in

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original); see also Catholic Healthcare, 321 F. App’x at 564 (“Although St. Mary’s could

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have brought an ERISA claim derivatively as an assignee, the Complaint does not assert

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a derivative claim. . . . Rather, the Complaint asserts claims based on a direct contractual

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relationship that arose between St. Mary’s and Seafarers and misrepresentations made to

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St. Mary’s by Seafarers. None of these claims rest on the assignment of benefits under an

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ERISA plan, the claims are based on independent state law, and the dispute involves a

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contract and representations made between a third party provider and a plan—a

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relationship that is not governed by ERISA.”).

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In sum, the Court is not persuaded that ERISA preemption applies to any of

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Plaintiff’s claims in the Amended Complaint, and next considers whether it should retain

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supplemental jurisdiction over the remaining state law claims. Once the claim over

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which it had original jurisdiction is dismissed or otherwise eliminated, a federal court has

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discretion to remand or dismiss the remaining state claims. 28 U.S.C. § 1367(c)(3).

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“When the balance of . . . factors indicates that a case properly belongs in state court, as

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when the federal-law claims have dropped out of the lawsuit in its early stages and only

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state-law claims remain, the federal court should decline the exercise of jurisdiction by

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dismissing the case without prejudice.” Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343,

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350 (1988) (citations omitted). Remand may be preferable to dismissal when declining to

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exercise jurisdiction. Id. at 352-53 (“Even when the applicable statute of limitations has

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not expired, a remand may best promote the values of economy, convenience, fairness,

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and comity.”).

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Carnegie-Mellon observes that “in the usual case in which all federal-law claims

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are eliminated before trial, the balance of factors to be considered under the pendent

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jurisdiction doctrine – judicial economy, convenience, fairness, and comity – will point

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toward declining to exercise jurisdiction over the remaining state-law claims. . . . [and]
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these factors usually will favor a decision to relinquish jurisdiction when ‘state issues

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substantially predominate, whether in terms of proof, of the scope of the issues raised, or

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of the comprehensiveness of the remedy sought.’” 484 U.S. at 350 n.7 (citations omitted);

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Acri, 114 F.3d at 1001 (“The Supreme Court has stated, and we have often repeated, that

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‘in the usual case in which all federal-law claims are eliminated before trial, the balance

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of factors will point toward declining to exercise jurisdiction over the remaining state-law

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claims.’”); Reynolds v. Cnty. of San Diego, 84 F.3d 1162, 1171 (9th Cir. 1996) (“[A]fter

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granting summary judgment on the civil rights claim, the court should have dismissed the

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state law claims without prejudice.”). Continuing to assert federal jurisdiction over

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purely state law claims is less compelling when the federal claim is eliminated at an early

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stage of the litigation and the case presents novel or complex issues of state law, as does

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this case. Carnegie-Mellon, 484 U.S. at 351 (“When the single federal-law claim in the

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action was eliminated at an early stage of the litigation, the District Court had a powerful

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reason to choose not to continue to exercise jurisdiction.”) (emphasis added).

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Here the federal-law claims were eliminated early in the litigation and only state

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law questions remain. Informed by the United Mine Workers v. Gibbs, 383 U.S. 715, 726

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(1966), values of economy, convenience, fairness, and comity, rather than dismiss the

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remaining claims, the Court declines to exercise jurisdiction over the remaining state law

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claims and GRANTS Aton’s motion to remand. Zochlinski v. Regents of Univ. of

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California, 538 F. Appx. 783, 784 (9th Cir. 2013) (“The district court properly declined

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to exercise supplemental jurisdiction over Zochlinski’s state law claims after dismissing

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his federal claims.”).

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2.

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Anthem’s Motion to Dismiss
Because the Court remands this case to the California Superior Court, Anthem’s

Motion to Dismiss is now moot, and therefore DENIED.
CONCLUSION

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For all of the reasons stated above, Plaintiff’s Motion to Remand is GRANTED,

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and Defendant’s Motion to Dismiss is DENIED as moot. This case is remanded to the
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Superior Court of California, County of San Diego. Each side shall bear their own costs

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and attorney fees incurred as a result of the removal. 28 U.S.C. § 1447(c).

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IT IS SO ORDERED.

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Dated: December 4, 2017

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