Paragon Office Services LLC et al v. UnitedHealthGroup, Inc. et al

Filing 55

MEMORANDUM OPINION AND ORDER granting in part #49 Motion to Dismiss filed by UnitedHealthcare Benefits of Texas, Inc., Ingenix, Inc, UnitedHealthcare of Texas, Inc., United Healthcare Insurance Company Inc. The court dismisses plaintiffs' ERISA claims, grants plaintiffs leave to file a second amended complaint, and declines to reach United's motion to the extent addressed to the dismissal of Ingenix or of plaintiffs' state-law claims, pending the filing of their second amended complaint. (Ordered by Chief Judge Sidney A Fitzwater on 11/20/2012) (Chief Judge Sidney A Fitzwater)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
PARAGON OFFICE SERVICES, LLC,
et al.,

§
§
§
Plaintiffs,
§
§ Civil Action No. 3:11-CV-2205-D
VS.
§
§
UNITEDHEALTHCARE INSURANCE §
COMPANY, INC., et al.,
§
§
Defendants. §
MEMORANDUM OPINION
AND ORDER
In this lawsuit seeking payment for medical equipment services provided to
defendants’ insureds, plaintiffs bring claims under state law and ERISA.1 Defendants move
to dismiss under Fed. R. Civ. P. 12(b)(6). For the reasons that follow, the court grants the
motion as to plaintiffs’ federal-law claims but also grants plaintiffs leave to replead. The
court declines to reach defendants’ motion to the extent addressed to plaintiffs’ state-law
claims pending the filing of their second amended complaint.
I
The background facts and procedural history of this case are set out in prior opinions
and need not be repeated at length. See Paragon Office Servs., LLC v. UnitedHealthGroup,
Inc., 2012 WL 1019953, at *1 (N.D. Tex. Mar. 27, 2012) (Fitzwater, C.J.) (“Paragon I”);
Paragon Office Servs., LLC v. UnitedHealthcare Ins. Co, 2012 WL 4442368, at *1 (N.D.
1

Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq.

Tex. Sept. 26, 2012) (Fitzwater, C.J.) (“Paragon II”). The court will limit its discussion of
the background facts and procedural history to what is necessary to understand the present
decision.
Plaintiffs Paragon Office Services, LLC, Paragon Ambulatory Physician Services,
LLC, Office Surgery Support Services, LLC, and Ambulatory Health Systems, LLC provide
anesthesia services to obstetricians and gynecologists who perform in-office surgeries.
Plaintiffs seek payment for equipment used in rendering anesthesia services for persons
insured by defendants UnitedHealthcare Insurance Co., Inc., UnitedHealthcare of Texas, Inc.,
UnitedHealthcare Benefits of Texas, Inc., and Ingenix, Inc. (“Ingenix”) (collectively,
“United,” unless the court is referring to Ingenix individually).2
Plaintiffs filed this lawsuit in state court, alleging that United improperly denied their
claims for payment. United removed the suit to this court based on federal question
jurisdiction, contending that plaintiffs were seeking payment under plans governed by
ERISA. The court denied plaintiffs’ motion to remand, see Paragon I, 2012 WL 1019953
at *1, and it later denied their motion to sever and remand the state-law claims, see Paragon
II, 2012 WL 4442368, at *1.3 The parties agree that all but 47 of plaintiffs’ 1,245 claims for
payment arise from ERISA plans.
Plaintiffs filed an amended complaint to allege both state-law and ERISA claims.

2

UnitedHealthGroup, Inc. has been dismissed by stipulation and is no longer a party.

3

The court opted to exercise supplemental jurisdiction over plaintiffs’ state-law claims
regarding the non-ERISA plans. See Paragon I, 2012 WL 1019953, at *9.
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Regarding the claims not covered by ERISA, plaintiffs assert state-law actions for, inter alia,
breach of implied contract, violation of the Texas Insurance Code, fraud, theft of services,
quantum meruit, and unjust enrichment. Regarding the claims governed by ERISA, plaintiffs
sue under 29 U.S.C. § 1132(a)(1)(B) for payments allegedly owed under the terms of the
plans. United moves to dismiss the state-law and ERISA claims, and it moves to dismiss
Ingenix as a party to the lawsuit.
II
In deciding United’s Rule 12(b)(6) motion, the court evaluates the sufficiency of
plaintiffs’ amended complaint by “accept[ing] all well-pleaded facts as true, viewing them
in the light most favorable to the plaintiff.” In re Katrina Canal Breaches Litig., 495 F.3d
191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369
F.3d 464, 467 (5th Cir. 2004)) (internal quotation marks omitted). To survive United’s
motion, plaintiffs must plead “enough facts to state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009). “The plausibility standard is not akin to a ‘probability requirement,’ but it
asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also
Twombly, 550 U.S. at 555 (“Factual allegations must be enough to raise a right to relief
above the speculative level[.]”). “[W]here the well-pleaded facts do not permit the court to
infer more than the mere possibility of misconduct, the complaint has alleged—but it has not
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‘shown’—‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. at 679 (alteration omitted)
(quoting Rule 8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading must contain “a short
and plain statement of the claim showing that the pleader is entitled to relief.” Although “the
pleading standard Rule 8 announces does not require ‘detailed factual allegations,’” it
demands more than “‘labels and conclusions.’” Id. at 678 (quoting Twombly, 550 U.S. at
555). And “‘a formulaic recitation of the elements of a cause of action will not do.’” Id.
(quoting Twombly, 550 U.S. at 555).
III
The court first addresses plaintiffs’ ERISA claims.
A
United moves to dismiss plaintiffs’ claim for recovery of unpaid benefits under 29
U.S.C. § 1132(a)(1)(B).4 United contends that plaintiffs’ allegations fail to “‘identify the
specific provisions of the plan itself that were breached.’” Ds. Br. 26 (quoting Midwest
Special Surgery, P.C. v. Anthem Ins. Cos., 2010 WL 716105, at *2-3 (E.D. Mo. Feb. 24,
2010)) (emphasis omitted). Plaintiffs respond that Twombly does not require that their
complaint identify specific provisions of each ERISA plan that United breached. And

4

Section 1132 provides:
(a) A civil action may be brought—
(1) by a participant or beneficiary—
...
(B) to recover benefits due to him under the terms of his plan, to
enforce his rights under the terms of the plan, or to clarify his
rights to future benefits under the terms of the plan[.]
§ 1132(a)(1)(B).
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plaintiffs maintain that they have satisfied the applicable pleading standard because the
complaint specifically alleges the existence of ERISA plans, and both sides know the claims
for payment that are at issue.
B
“[B]enefits payable under an ERISA plan are limited to the benefits specified in the
plan.” Clair v. Harris Trust & Sav. Bank, 190 F.3d 495, 497 (7th Cir. 1999). “A plaintiff
who brings a claim for benefits under ERISA must identify a specific plan term that confers
the benefit in question.” Stewart v. Nat’l Educ. Ass’n, 404 F.Supp.2d 122, 130 (D.D.C.
2005) (citing Clair, 190 F.3d at 499), aff’d, 471 F.3d 169 (D.C. Cir. 2006); see also Midwest
Special Surgery, 2010 WL 716105, at *2-3; Steelman v. Prudential Ins. Co. of Am., 2007 WL
1080656, at *7 (E.D. Cal. Apr. 4, 2007). The plaintiff must “provide the court with enough
factual information to determine whether the [services] were indeed covered services under
the plan.” Broad St. Surgical Ctr., LLC v. UnitedHealth Grp., Inc., 2012 WL 762498, at *13
(D.N.J. Mar. 6, 2012). “Without information as to the terms and provisions of the plan
documents, the complaint fails to state a claim upon which relief can be granted.” Id. Cf. In
re WellPoint, Inc. Out-of-Network UCR Rates Litig., 865 F.Supp.2d 1002, 2011 WL
3555610, at *25 (C.D. Cal. Aug. 11, 2011) (rejecting defendants’ assertion that plaintiffs had
failed to identify specific plan term that conferred the benefit in question, because plaintiffs
had sufficiently identified specific plan terms promising medical reimbursement benefits that
were denied by defendants; and distinguishing, inter alia, Midwest Special Surgery).
Further underscoring the importance of identifying the specific provisions allegedly
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breached is the fact that plaintiffs here must plead a facially plausible claim that United acted
arbitrarily and capriciously in denying payment. See Paragon II, 2012 WL 4442368, at *2
n.4 (“Plaintiffs do not challenge that the appropriate standard here is ‘arbitrary and
capricious.’”); see also Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989)
(holding that “arbitrary and capricious” standard of review applies where administrator of
ERISA plan has “discretionary authority to determine eligibility for benefits or to construe
the terms of the plan”). Because, to recover, plaintiffs must show that the administrator acted
arbitrarily and capriciously under the terms of the plan, it is necessary to state a plausible
claim for relief that they at least identify the plan provisions on which they rely.
C
Plaintiffs’ amended complaint lacks the specificity necessary to state a facially
plausible claim under § 1132(a)(1)(B). Plaintiffs allege that around August 2009 United
began to deny payment on some equipment claims “while arbitrarily paying others.” Am.
Compl. ¶ 14. The amended complaint relies on conclusory allegations that United arbitrarily
violated the terms of the health care plans, but it does not identify any plan provisions that
were allegedly violated. See id. at ¶¶ 15, 64, 67. The most detail that the amended complaint
offers is that the disputed services would have been paid in full had they been provided in
a hospital or surgical center, but because the equipment services were for surgeries in a
physician’s office, United arbitrarily denied payment. See id. at ¶ 15; see also id. at ¶ 31
(alleging that United improperly rejected plaintiffs’ charges for equipment services despite
covering the patient’s surgical procedure and the anesthesiologist’s professional services).
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These allegations are insufficient because they merely assert that the services were covered,
without identifying the plan provisions that entitle plaintiffs to payment. See In re Managed
Care Litig., 2009 WL 742678, at *3 (S.D. Fla. Mar. 20, 2009) (granting motion to dismiss
§ 1132(a)(1)(B) claim despite many alleged violations of plan because complaint did not
identify relevant plan terms).
Accordingly, the court grants United’s motion to dismiss plaintiffs’ § 1132(a)(1)(B)
claim for unpaid benefits due under the terms of the plans.
D
Plaintiffs also seek recovery for unpaid benefits under § 1132(a)(1)(B) on the grounds
that United breached the ERISA plans by using flawed Ingenix databases to determine
reimbursement amounts. Plaintiffs allege that United’s “use of Ingenix Databases to
determine the amount of reimbursement to [plaintiffs] was flawed and included false and
fraudulent data.” Am. Compl. ¶ 65. Plaintiffs aver that, based on the use of Ingenix
databases, United arbitrarily underpaid or failed to pay for plaintiffs’ services, in breach of
the plan provisions. See id. United moves to dismiss this claim and seeks dismissal of
Ingenix as a party to the lawsuit.
According to the amended complaint, United used the Ingenix databases both to
underpay and to fail to pay for plaintiffs’ services, in violation of § 1132(a)(1)(B).
Regarding both underpayment and failure to pay, plaintiffs have failed to state a claim on
which relief can be granted. Because plaintiffs rely on United’s use of Ingenix databases as
grounds for a § 1132(a)(1)(B) claim—and not for an independent claim—plaintiffs must
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identify the plan terms that entitle them to payment under § 1132(a)(1)(B). See supra
§ III(B). Here, plaintiffs have failed to specify the plan terms that allegedly entitle them to
payments that United underpaid or failed to pay.5 The court therefore grants the motion to
dismiss plaintiffs’ claim regarding the use of the Ingenix databases.
The court will not reach defendants’ motion to dismiss Ingenix as a party to the
lawsuit because plaintiffs are being given an opportunity to replead their claim regarding the
Ingenix databases.
IV
Plaintiffs allege that United violated certain ERISA procedural requirements, and they
seek damages under § 1132(a)(1)(B).6 The amended complaint asserts that United violated
29 U.S.C. § 1022 because the summary plan descriptions did not accurately describe what
services the plan covered; and that United violated 29 U.S.C. § 1133 by failing to disclose
the “true ‘specific reasons’” for denying plaintiffs’ claims for payment. Am. Compl. ¶ 66.

5

Regarding plaintiffs’ claim that United failed to pay the disputed equipment charges,
the allegations of the amended complaint do not explain how this relates to United’s use of
the Ingenix databases. According to the amended complaint, United used the Ingenix
databases “to determine the amount of reimbursement.” Am. Compl. ¶ 65 (emphasis added).
But the amount of reimbursement presents a different issue from refusing any reimbursement
at all.
6

The amended complaint also seeks “all damages resulting from [United’s] violations
of 29 U.S.C. § 1133(2),” Am. Compl. ¶ 66, but plaintiffs clarify in their response brief that
they do “not seek damages under § 1133 itself,” Ps. Br. 24. For the alleged procedural
violations, plaintiffs only seek damages under § 1132(a)(1)(B). See id.
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A
To recover a substantive damages remedy for violations of ERISA procedural
requirements, plaintiffs must show that the violations “are continuous and amount to actual
harm.” See Leake v. Kroger Tex., L.P., 2006 WL 2842024, at *5 (N.D. Tex. Sept. 28, 2006)
(Fitzwater, J.) (citing Hines v. Mass. Mut. Life Ins. Co., 43 F.3d 207, 211 (5th Cir. 1995));
see also Lafleur v. La. Health Serv. & Indem. Co., 563 F.3d 148, 157 (5th Cir. 2009)
(“Substantive damages would be permitted only ‘when the violations are continuous and
amount to substantive harm.’”) (citation omitted); Duncan v. Assisted Living Concepts, Inc.,
2005 WL 331116, at *4 (N.D. Tex. Feb. 10, 2005) (Godbey, J.) (“Procedural violations of
ERISA do not entitle the plan beneficiary to a substantive remedy unless the beneficiary can
prove continuous violations resulting in some prejudice to the beneficiary.”) (citation
omitted).
B
The court need not address whether plaintiffs have sufficiently alleged violations of
§§ 1022 and 1133, because they have failed to sufficiently allege actual harm from the
procedural violations. The only harm plaintiffs identify is nonpayment or underpayment for
equipment services. Because the only damages plaintiffs assert are for payments supposedly
due under the terms of the plans, and plaintiffs have failed to state a claim for those payments
by not sufficiently identifying the plan provisions that entitle plaintiffs to payment, plaintiffs
have not adequately alleged that the procedural violations harmed them.
The court therefore dismisses plaintiffs’ claims for alleged violations of §§ 1022 and
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1133.
V
Although the court is dismissing plaintiffs’ ERISA claims, it will permit them to
replead. “[D]istrict courts often afford plaintiffs at least one opportunity to cure pleading
deficiencies before dismissing a case, unless it is clear that the defects are incurable or the
plaintiffs advise the court that they are unwilling or unable to amend in a manner that will
avoid dismissal.” In re Am. Airlines, Inc., Privacy Litig., 370 F.Supp.2d 552, 567-68 (N.D.
Tex. 2005) (Fitzwater, J.) (quoting Great Plains Trust Co. v. Morgan Stanley Dean Witter
& Co., 313 F.3d 305, 329 (5th Cir. 2002)). Because plaintiffs have not stated that they
cannot, or are unwilling to, cure the defects that the court has identified, the court grants them
30 days from the date this memorandum opinion and order is filed to file a second amended
complaint.
VI
In light of the court’s dismissal of plaintiffs’ federal-law claims, the court declines to
exercise supplemental jurisdiction at this time over the state-law claims. The court therefore
declines to reach United’s motion to the extent addressed to plaintiffs’ state-law claims
pending the filing of their second amended complaint.
*

*

*

For the reasons explained, the court dismisses plaintiffs’ ERISA claims, grants
plaintiffs leave to file a second amended complaint, and declines to reach United’s motion
to the extent addressed to the dismissal of Ingenix or of plaintiffs’ state-law claims, pending
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the filing of their second amended complaint.
SO ORDERED.
November 20, 2012.

_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE

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