IHC Health Services Inc. v. ELAP Services
Filing
120
MEMORANDUM DECISION AND ORDER granting 35 ELAPs motion to dismiss counts two through five of the Amended Complaint and granting 47 IHCs motion to dismiss ELAP's counterclaims. IT IS HEREBY ORDERED that claims two through five of the Amended Complaint are dismissed with prejudice. IT IS FURTHER ORDERED that ELAPs counterclaims are dismissed with prejudice. Signed by Judge Jill N. Parrish on 9/30/2019. (jds)
Case 2:17-cv-01245-JNP-EJF Document 120 Filed 09/30/19 Page 1 of 17
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
IHC HEALTH SERVICES INC., a non-profit Utah
corporation,
Plaintiff,
MEMORANDUM DECISION AND ORDER
GRANTING IN PART AND DENYING IN PART
PLAINTFF’S AND DEFENDANT’S
MOTIONS TO DISMISS
v.
ELAP SERVICES, LLC, a limited liability
company,
Case No. 2:17-cv-01245-JNP-EJF
Defendant.
District Judge Jill N. Parrish
This matter is before the court on the Partial Motion to Dismiss filed by Defendant and
Counterclaim-Plaintiff ELAP Services, LLC (“ELAP”) and the Motion to Dismiss Defendant’s
Counterclaims filed by Plaintiff and Counterclaim-Defendant IHC Health Services, Inc. (“IHC”).
I.
BACKGROUND
IHC is a non-profit Utah corporation operating 22 hospitals and 185 clinics in Utah and
Idaho. IHC provides medical services at its facilities. In 2016, IHC served more than 1.4 million
patients in its hospitals and clinics. In 2015, IHC admitted more than 500,000 patients to its
emergency rooms. When patients are admitted to an IHC facility, they sign a “Patient Agreement,”
wherein they agree to pay the full medical bill charged by IHC. IHC does not disclose the cost of
the treatment beforehand.
If patients have health insurance, IHC bills their insurance provider. Many insurance
providers have signed “preferred-provider agreements” (“PPAs”) with IHC. These contracts
contain mutually agreed upon terms, including an agreement by IHC to collect only a mutually
negotiated amount for any service. This means that patients who are insured by preferred providers
pay significantly reduced rates. Absent a PPA, patients are contractually obligated by the Patient
Agreement to pay the full amount charged by IHC.
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ELAP is a limited-liability company organized and existing under the laws of
Pennsylvania. ELAP provides “health care cost containment services” for its clients, which are
small to medium sized companies that sponsor their own ERISA self-funded healthcare plans.
These companies contract with ELAP to “audit” the medical bills incurred by members of their
plans. When a member of an ELAP-contracted plan (“Plan”) receives treatment from a medical
provider, his or her Plan submits the bills to ELAP. ELAP then purports to decide the reasonable
amount for that service, or the Allowable Claim Limit (“ACL”). The ACL is the greater of a) the
amount Medicare would pay, plus an additional 20%, or b) the provider’s cost to provide the health
care goods and services to the patients, as determined by the self-reported cost information
provided by the provider plus an additional 12%. ELAP calls its role “Designated Decision
Maker.” ELAP’s strategy is that “[t]he only way to pay less for healthcare, is to pay less for
healthcare.”1 ELAP tells its Plans that they can be treated by any medical provider in the country
and that they will only be responsible for the ACL amount that ELAP instructs the Plan to pay.
The dispute between the parties arises from the fact that ELAP has not signed a PPA with
IHC, thus IHC does not recognize ELAP’s authority to decide the amount Plans should pay. When
an ELAP Plan member receives treatment at an IHC facility, IHC bills the Plan, which then only
pays the amount decided by ELAP. IHC then sends additional bills to Plans and Plan members to
demand the outstanding balance owing on the bill. But the Plans refuse to pay, because ELAP
instructs Plans and Plan members that they are not liable for “reimbursement in excess of what
See Am. Compl. at Ex. C, “Put Your Claims Costs Back in the Box.” The court considers Exhibits
A, B, & C attached to the Amended Complaint because “[e]xhibits attached to a complaint are
properly treated as part of the pleadings for purposes of ruling on a motion to dismiss.” Tal v.
Hogan, 453 F.3d 1244, 1264 n.24 (10th Cir. 2006).
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[the plan] has already paid.”2 When IHC attempts to initiate collection proceedings on these
outstanding bills, ELAP instructs the patient to notify ELAP. ELAP is then contractually obligated
to appoint an attorney to represent the Plan member. If necessary, ELAP’s appointed attorney will
institute litigation against IHC to prevent recovery.3
ELAP-affiliated patients do not disclose that their insurance Plan is affiliated with ELAP
when they are admitted to IHC hospitals. Thus, IHC cannot identify the patients before offering
treatment. Nevertheless, IHC estimates that it has provided treatment to hundreds of ELAPaffiliated plan members who have accrued millions of dollars in unpaid charges. IHC alleges it has
been unsuccessful in collecting any unpaid charges from ELAP patients.
On December 1, 2017, IHC filed suit against ELAP asserting six claims for relief.4
On February 12, 2018, ELAP filed a motion to dismiss IHC’s Complaint. On September 28, 2018,
the court granted the motion in part, dismissing counts two through five for failure to state a claim
and granting IHC leave to amend. See ECF No. 29 (the “Order”). On October 12, 2018, IHC filed
its Amended Complaint asserting six nearly identical claims for relief: 1) Intentional Interference
with Existing and Prospective Economic Relations (“Count 1”); 2) Unjust Enrichment (“Count
2”);5 3) Fraud (“Count 3”); 4) Negligent Misrepresentation (“Count 4”); 5) Declaratory Judgment
(“Count 5”); and 6) Preliminary and Permanent Injunction (“Count 6”). On October 26, 2018,
ELAP moved to dismiss Counts 2–5 for failure to state a claim. On November 16, 2018, ELAP
See Am. Compl. at Ex. B, “Helpful Facts to Assist You with Any Balance Bill or Collection
Notices.”
2
See Am. Compl. at Ex. A, Letters to IHC entities from ELAP’s law firm introduced in Musick et
al v. Intermountain Health Care Inc., No. 2:15-cv-00450 (D. Utah 2017).
3
They are: 1) Tortious Interference with Economic Advantage; 2) Injurious Falsehood; 3) Fraud
(“Count 3”); 4) Negligent Misrepresentation; 5) Declaratory Judgment; and 6) Preliminary and
Permanent Injunction.
4
5
Count 2 is a new claim for relief replacing IHC’s Injurious Falsehood claim.
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filed its Answer and Counterclaim against IHC seeking 1) a Declaratory Judgment that IHC may
not collect “excessive, unreasonable, and unconscionable” amounts under the Patient Agreements
and 2) a Permanent Injunction preventing IHC from collecting “excessive, unreasonable, and
unconscionable” amounts under the Patient Agreements. IHC then moved to dismiss ELAP’s
counterclaims. Both motions are now before the court.
II.
LEGAL STANDARD
ELAP and IHC both move under FED. R. CIV. P. 12(b) to dismiss each other’s claims.6 A
claim is properly dismissed under FED. R. CIV. P. 12(b)(6) if it fails to meet either the general
pleading requirements of FED. R. CIV. P. 8 or the specialized pleading requirements of FED. R. CIV.
P. 9. Seattle-First Nat. Bank v. Carlstedt, 800 F.2d 1008, 1011 (10th Cir. 1986). Under the general
pleading standard of FED. R. CIV. P. 8, “[t]o survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)). In contrast, FED. R. CIV. P. 9(b) requires that, “[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake.” The specialized
pleading requirement must be applied to any case brought in federal court where federal law has
held that it should be applied. See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir.
2003); see also Order at 7.
When applying either standard to the factual allegations levied against the defendant “[a]t
the motion-to-dismiss stage, we must accept all the well-pleaded allegations of the complaint as
IHC moves under FED. R. CIV. P. 12(b)(1), (6) and (7) to dismiss for lack of jurisdiction, failure
to state a claim, and failure to join. IHC also purports to move for judgment on the pleadings under
Rule 12(c), but has stylized its motion as a motion to dismiss only. The court therefore treats it as
such. In any event, a motion for judgment on the pleadings is evaluated under the same standard
as a motion to dismiss. Colony Ins. Co. v. Burke, 698 F.3d 1222, 1228 (10th Cir. 2012).
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true and must construe them in the light most favorable to the plaintiff.” Albers v. Bd. of Cty.
Comm’rs of Jefferson Cty., 771 F.3d 697, 700 (10th Cir. 2014) (quoting Cressman v. Thompson,
719 F.3d 1139, 1152 (10th Cir. 2013)). In evaluating a complaint on a motion to dismiss, “a court
should disregard all conclusory statements of law and consider whether the remaining specific
factual allegations, if assumed to be true, plausibly suggest the defendant is liable.” Kansas Penn
Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011).
III.
ELAP’S MOTION TO DISMISS
A. COUNT 2: UNJUST ENRICHMENT
In Utah, “[u]njust enrichment of a person occurs when he has and retains money or benefits
which in justice and equity belong to another.” Baugh v. Darley, 184 P.2d 335, 337 (Utah 1947)
(citations omitted). To prevail on a claim for unjust enrichment, a plaintiff must establish three
elements:
(1) a benefit conferred on one person by another; (2) an appreciation
or knowledge by the conferee of the benefit; and (3) the acceptance
or retention by the conferee of the benefit under such circumstances
as to make it inequitable for the conferee to retain the benefit without
payment of its value.
Jeffs v. Stubbs, 970 P.2d 1234, 1248 (Utah 1998) (citations omitted). ELAP moves to dismiss
IHC’s unjust enrichment claim on the grounds that ELAP did not receive a benefit from IHC and
even if it did, ELAP did not appreciate the benefit. IHC argues that it does not have to be the one
conferring the benefit on ELAP for ELAP to be unjustly enriched. IHC also argues that a benefit
is conferred upon ELAP every time IHC treats an ELAP-contracted plan member because ELAP
gets paid to audit the plan member’s medical bill with money that should be used to pay IHC. The
court finds that IHC has not successfully alleged an actionable benefit and therefore grants ELAP’s
motion to dismiss.
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A “benefit may be an interest in money, land, chattels, or choses in action; beneficial
services conferred; satisfaction of a debt or duty owed . . . ; or anything which adds to [one’s]
security or advantage.” Baugh, 184 P.2d at 337. IHC correctly asserts that the benefit at issue does
not necessarily have to be conferred by the plaintiff upon the defendant. Jeffs, 970 at 1248 (there
must only be “a benefit conferred on one person by another.”). However, that benefit must “in
justice and equity belong to another” to sustain a claim for unjust enrichment. Baugh, 184 P.2d at
337. For example, when a “defendant benefits incidentally” from “[s]ervices performed by the
plaintiff for [the plaintiff’s] own advantage,” the benefit is not “recoverable.” Id.
In this case, IHC argues that ELAP benefits every time IHC treats an ELAP-Plan member
whose Plan underpays because ELAP receives from the Plan money that should have been paid to
IHC in accordance with the Patient Agreement “on a percentage fee tied to [IHC]’s charges.” In
other words, the fee received by ELAP from its customers, the alleged “benefit,” is money owed
to IHC by the Plan under IHC’s Patient Agreement and is a benefit that would not be conferred
upon ELAP absent IHC treating ELAP-Plan patients.
There are two major defects with IHC’s argument. First, to the extent that IHC is claiming
that it is owed money under an express contract, the Patient Agreement, its claim to that money
cannot sustain a claim for unjust enrichment. See U.S. Fid. v. U.S. Sports Specialty, 270 P.3d 464,
468–69 (Utah 2012) (when there is an “express contract covering the subject matter of the litigation
. . . , recovery for unjust enrichment is not available.” (citations omitted)). In Utah, unjust
enrichment “is designed to provide an equitable remedy where one does not exist at law.” Id. at
468 (quoting Selvig v. Blockbuster Enters., LC, 266 P.3d 691, 698 (Utah 2011)). Thus, “the doctrine
may be invoked ‘only when no express contract is present’ that governs the remedies available to
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an injured party.” Id. at 469 (quoting TruGreen Companies, LLC, v. Mower Bros., Inc., 199 P.3d
929, 933 (Utah 2008)).
Second, absent IHC’s theory that ELAP is siphoning money owed to IHC, ELAP is not
benefitting from IHC treating patients covered by ELAP-Plans. When IHC treats patients, the only
parties that benefit directly are 1) the patient who gets treatment and 2) IHC who is paid (or at least
is entitled to be paid). ELAP does not benefit from these transactions.7 Rather, ELAP benefits
because it is paid by the Plans for its services related to the transaction—i.e., the “auditing” of the
medical bill. This is a separate service governed by an independent contract between ELAP and
each Plan. IHC’s only claim to that fee is that ELAP’s “services” cause patients to refuse to pay
IHC the full amount they owe to IHC. But that cannot sustain an unjust enrichment claim. Whether
or not ELAP’s services are legitimate has no effect upon the enforceability of the Patient
Agreement. As a result, IHC must enforce its claim against the patient or the Plan. Having
concluded that IHC cannot state an unjust enrichment claim against ELAP, the court grants
ELAP’s motion to dismiss with prejudice.
B. COUNTS 3 & 4: FRAUD & NEGLIGENT MISREPRESENTATION
In its September 28, 2018 Order, the court dismissed IHC’s claims for Fraud and Negligent
Misrepresentation for failure to state a plausible claim for relief and noted that even if IHC’s claims
had been plausible, IHC had also failed to plead the two claims with particularity as required by
FED. R. CIV. P. 9(b). ELAP again moves to dismiss both claims for failure to assert actionable
IHC cites Emergency Physicians Integrated Care v. Salt Lake Cty., 167 P.3d 1080, 1085 (Utah
2007), for the proposition that a third party may receive a benefit when patients are treated. But
that case is not relevant here. In that case, the third-party was the county who had a constitutional
and statutory duty to provide medical care for inmates. Thus, the treatment of inmates was a direct
benefit for the County. In contrast, ELAP has no duty to insure its Plan-members receive medical
care, only a duty to audit the medical bills when costs are incurred.
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claims and for failure to plead the claims with the requisite particularity. The court need not address
whether IHC has pled the factual allegations with particularity because IHC’s claims are simply
not plausible as asserted.
1. Count 3: Fraud
To state a claim for fraud, IHC must allege nine elements:
(1) that a representation was made (2) concerning a presently
existing material fact (3) which was false and (4) which the
representor either (a) knew to be false or (b) made recklessly,
knowing that there was insufficient knowledge upon which to base
such a representation, (5) for the purpose of inducing the other party
to act upon it and (6) that the other party, acting reasonably and in
ignorance of its falsity, (7) did in fact rely upon it (8) and was
thereby induced to act (9) to that party’s injury and damage.
Arnett v. Howard, No. 2:13-CV-591 TS, 2014 WL 1165851, at *3 (D. Utah Mar. 21, 2014) (citing
Daines v. Vincent, 190 P.3d 1269, 1279 (Utah 2008)). The court granted ELAP’s previous motion
to dismiss IHC’s fraud claim because IHC failed to plead that it reasonably relied to its detriment
on statements made by ELAP. The court also noted that IHC failed to plead with particularity
specific instances of fraudulent representations made by ELAP. ELAP now moves to dismiss
IHC’s amended fraud claim on the same grounds, arguing that IHC has not successfully alleged
reliance on any fraudulent statements made by ELAP to IHC. IHC opposes the motion, arguing
that although ELAP did not make any fraudulent representations directly to IHC, ELAP should be
held liable for the allegedly fraudulent statements made to IHC by ELAP Plan members, because
ELAP’s assurances to patients that they can be treated anywhere and that they will not have to pay
the full amount of their medical bills causes patients to fraudulently sign Patient Agreements that
they do not intend to honor. The court is unpersuaded by IHC’s novel theory and grants ELAP’s
motion to dismiss.
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IHC acknowledges that a fraud claim requires reliance on the defendant’s false statements,
but maintains that the false representation does not necessarily have to be made directly to the
plaintiff.8 And there is no dispute that a plaintiff must establish that it relied on the false statement
to its detriment. See Carlton v. Brown, 323 P.3d 571, 582 (Utah 2014). The problem with IHC’s
theory is that IHC continues to assert that the Patient Agreements are valid and enforceable. Thus,
even though the patients may have signed the agreements with the fraudulent intent that they would
not have to pay their full medical bill, IHC cannot establish the requisite detrimental reliance
because IHC can still enforce its agreements. Thus, the statements upon which IHC allegedly
relied—that the patients would be obligated to pay their bill—is not a false statement by ELAP. It
is a true statement by the patient because the patient’s execution of the Patient Agreement obligates
the patient for the full amount of IHC’s bill. Perhaps ELAP has defrauded its Plan members, but
there is nothing to suggest that ELAP made or caused to be made to IHC any fraudulent
misrepresentations on which IHC relied. And IHC lacks standing to bring a fraud claim on behalf
of ELAP customers.
Alternatively, IHC argues that ELAP members, either on their own accord or under
direction from ELAP, intentionally concealed their contractual relationship with ELAP to induce
IHC to treat them. But IHC has not alleged that it asks every prospective patient whether they do
See Ellis v. Hale, 373 P.2d 382, 384–85 (Utah 1962) (“The usual action for fraud, whether
negligent or intentional, requires that a representation be made with the intention that it be relied
on.”). According to the Restatement (Second) of Torts § 533 (1977), a defendant may be held liable
if the misrepresentation, “although not made directly to the other,” is “made to a third person and
the maker intends or has reason to expect that its terms will be repeated or its substance
communicated to the other, and that it will influence his conduct in the transaction.”
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business with ELAP; thus, IHC has not identified any statements or omissions by patients on which
it has relied.9
Finally, IHC argues that the Plan members are agents of ELAP who are acting on ELAP’s
behalf to defraud IHC. This argument is similarly implausible. Under Utah law, the existence of
an agency relationship requires three elements: “(1) the principal must manifest its intent that the
agent act on its behalf, (2) the agent must consent to so act, and (3) both parties must understand
that the agent is subject to the principal’s control.” Sutton v. Miles, 333 P.3d 1279, 1282 (Utah
2014) (citation omitted). Even if ELAP intended Plan members to act on its behalf, there is no
allegation that individuals whose insurance Plans are contracted with a third-party auditor have
consented to act as agents for that third-party. Nor is there any kind of understanding between
ELAP and the individual Plan participants that ELAP has control over the actions of those
participants. In short, there is absolutely no agency relationship between ELAP and the patients
who sign the Patient Agreements. The court therefore grants ELAP’s motion to dismiss IHC’s
third cause of action with prejudice.
2. Count 4: Negligent Misrepresentation
IHC also alleges that ELAP is liable for negligent misrepresentation. To establish a claim
for negligent misrepresentation, IHC must establish, in addition to “the other elements of fraud,”
that ELAP:
This situation is distinct from a fraudulent credit reporting scheme, which IHC argues is
analogous to this situation, where a person seeking to obtain credit misrepresents information to a
credit-reporting company, which in turn transmits that information to a prospective creditor. In that
case, the person seeking credit made a misrepresentation to the credit-reporting company with the
intent that it would be transmitted to and replied upon by the prospective creditor. In this case, IHC
treats all patients who walk in the door so long as they sign an agreement to pay for IHC’s services.
The fact that patients only disclose their insurance Plan, and not their insurance Plan’s contractual
relationship with ELAP, is not a material omission that causes IHC to undertake treatment.
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(1) [has] a pecuniary interest in a transaction, (2) is in a superior
position to know material facts, and (3) carelessly or negligently
makes a false representation concerning them, (4) expecting the
other party to rely and act thereon, and (5) the other party reasonably
does so and (6) suffers loss in that transaction. . . .
Christenson v. Commonwealth Land Title Ins. Co., 666 P.2d 302, 305 (Utah 1983) (quoting
Jardine v. Brunswick Corp., 423 P.2d 659, 662 (Utah 1967)). The court previously dismissed
IHC’s claim for failing to assert detrimental reliance and for failing to assert a special duty between
plaintiff and defendant.
The court again finds, as discussed above, that IHC has failed to assert detrimental reliance.
Moreover, IHC has again failed to assert “a special duty of care running from the representor to
the representee.” Ellis v. Hale, 373 P.2d 382, 384–85 (Utah 1962). In fact, IHC suggests that it
need not allege a “special duty” because that is not an element of a negligent misrepresentation
claim. See IHC’s Opp’n Mot. Dismiss at 17 n.9. But a negligent misrepresentation claim is merely
a fraud claim where the misrepresenting party acted negligently rather than intentionally. To
successfully assert a negligent misrepresentation claim, IHC must establish that ELAP was
negligent, which requires establishing that ELAP owed IHC a duty. See 2 Harper & James, The
Law of Torts, § 7.6 (3d ed. 2006). The duty of care does not have to be based on privity of contract,
but it does require more than just an intent to induce reliance. Price-Orem Inv. Co. v. Rollins,
Brown & Gunnell, Inc., 713 P.2d 55, 59 (Utah 1986). Here, the only duty identified by IHC—that
ELAP held itself out as a medical insurance expert—was a duty ELAP owed to its Plans and Plan
members, not to IHC. IHC’s claim for negligent misrepresentation is therefore dismissed with
prejudice.
C. COUNT 5: DECLARATORY RELIEF
IHC’s fifth claim is for a declaratory judgment under FED. R. CIV. P. 57 and 28 U.S.C.
§ 2201 that 1) “ELAP is required to notify Intermountain in advance before an ELAP-affiliated
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Plan Member seeks admission to an Intermountain facility”; 2) ELAP is “prohibited from taking
any action or engaging in any representations suggesting that [a] Plan members can visit
Intermountain without abiding by Patient Agreements; [b] that Intermountain will or must accept
[what] ELAP decides to pay for Intermountain’s services; and/or [c] that the patients who sign
Patient Agreements will nevertheless have no financial responsibility to IHC beyond what ELAP
determines the patients’ financial obligation to be”; and that 3) nothing “ELAP does, has done, or
may do, in its role as alleged ‘Dedicated Decision Maker’ is legally binding on Intermountain.”
Am. Compl at ¶¶ 107–109.
ELAP argues that IHC is not entitled to the declaratory relief it seeks for two reasons. First,
ELAP argues that IHC’s claim for such relief is premised on the same conduct giving rise to its
other claims for relief. Therefore, to the extent its other claims for relief are dismissed, its request
for a declaratory judgment must also fail. Second, ELAP argues that IHC lacks standing. The court
addresses the first issue, but does not reach the issue of standing because the court declines to
exercise its jurisdiction over the matter.
Under 28 U.S.C. § 2201, “[i]n a case of actual controversy within its jurisdiction,” a court,
“may declare the rights and other legal relations of any interested party seeking such declaration.”
While declaratory relief is available even in the absence of an underlying cause of action, the
availability of declaratory relief is dependent on there being “a case of actual controversy” to which
the court can provide “a judicially remediable right.” Schilling v. Rogers, 363 U.S. 666, 677 (1960)
(citing Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950)). Thus, when the plaintiff
seeks substantive relief and declaratory relief on the same grounds, if the “substantive claims have
failed,” then the “request for declaratory relief in relation to those claims is not viable” because
there are no rights left to declare on that issue. Long v. Wells Fargo Bank, N.A., 670 F. App’x 670,
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671 (10th Cir. 2016). Because the court has dismissed IHC’s claims for unjust enrichment, fraud,
and negligent misrepresentation, IHC’s claim for declaratory relief, to the extent it is premised on
these claims, must also be dismissed. Thus, any claim for declaratory relief must be premised upon
IHC’s only surviving claim—the claim for intentional interference with economic relations. The
court therefore considers whether IHC has plausibly alleged that the court should “exercise its
authority to grant declaratory relief” as it relates to that claim. Mocek v. City of Albuquerque, 813
F.3d 912, 932 (10th Cir. 2015). When making that decision, the court must “weigh case-specific
factors,” id., including:
[1] whether a declaratory action would settle the controversy; [2]
whether it would serve a useful purpose in clarifying the legal
relations at issue; [3] whether the declaratory remedy is being used
merely for the purpose of ‘procedural fencing’ or ‘to provide an
arena for a race to res judicata’; [4] whether use of a declaratory
action would increase friction between our federal and state courts
and improperly encroach upon state jurisdiction; and [5] whether
there is an alternative remedy which is better or more effective.
Surefoot LC v. Sure Foot Corp., 531 F.3d 1236, 1248 (10th Cir. 2008) (quoting State Farm Fire
& Cas. Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir. 1994)).
Although there is an actual controversy surrounding the tortious interference claim, a
declaratory judgment would not serve a useful purpose in clarifying the legal relations at issue
because they will necessarily be resolved on the merits of the substantive claim. And “[i]f a district
court, in the sound exercise of its judgment, determines after a complaint is filed that a declaratory
judgment will serve no useful purpose, it cannot be incumbent upon that court to proceed to the
merits before staying or dismissing the action.” Wilton v. Seven Falls Co., 515 U.S. 277, 288
(1995). In its prior order, the court dismissed the declaratory judgment claim because IHC had
failed to articulate why a declaratory judgment was necessary in light of the relief it sought on its
substantive claim. In its Amended Complaint, IHC reasserted the claim, arguing that a clarification
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of legal rights was necessary to prevent future harm from ELAP’s alleged tortious interference.
But IHC has also brought a claim for a preliminary and permanent injunction seeking to enjoin
such behavior. If that remedy were to be awarded, the declaratory judgment claim would be
entirely extraneous. And regardless of whether an injunction is entered, the resolution of IHC’s
claim for intentional interference with existing and potential economic relations will decisively
resolve the issue of ELAP’s liability to IHC for its alleged interference with IHC’s patient
relationships. A declaratory judgement would add nothing to the equation. Indeed, the claim for a
declaratory judgment appears to be no more than the type of procedural fencing that courts should
avoid. In short, there is nothing that IHC has alleged that could plausibly entitle it to the unique
remedy offered by the Declaratory Judgment Act. The court therefore grants ELAP’s motion to
dismiss with prejudice IHC’s fifth claim for relief.10
IV.
IHC’S MOTION TO DISMISS11
ELAP asserts two counterclaims against IHC seeking 1) a declaratory judgment that the
Patient Agreements do not permit IHC to collect excessive, unreasonable, or unconscionable
amounts; and 2) injunctive relief prohibiting IHC from seeking to collect excessive, unreasonable,
or unconscionable amounts. IHC moves to dismiss both counterclaims, arguing that 1) ELAP does
not have jurisdictional or prudential standing to litigate the Patient Agreements; 2) ELAP did not
plead a cognizable legal remedy; 3) ELAP failed to join the patients who are necessary parties;
As the court has previously ruled, IHC does have standing to assert a claim for equitable relief
related to its tortious interference claim, the court does not address that issue here. See Order at
20–22.
10
As discussed supra 4 n.6, although IHC purports to assert its motion under FED. R. CIV. P. 12(b)
and 12(c), it has stylized its motion as a motion to dismiss only, not a motion for judgment on the
pleadings, and the court treats it as such.
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and 4) the claims are inappropriate because they raise policy implications beyond the scope of this
case. The court begins (and ends) with the issue of standing.
Standing is a threshold question that the court must evaluate under Article III of the
constitution to “ensure[] that a plaintiff has a sufficient personal stake in a dispute to ensure the
existence of a live case or controversy which renders judicial resolution appropriate.” Tandy v.
City of Wichita, 380 F.3d 1277, 1283 (10th Cir. 2004). To establish Article III standing, ELAP
must show that:
(1) [it] has suffered an “injury in fact” that is (a) concrete and
particularized and (b) actual or imminent, not conjectural or
hypothetical; (2) the injury is fairly traceable to the challenged
action of the defendant; and (3) it is likely, as opposed to merely
speculative, that the injury will be redressed by the relief requested.
Id. (internal citations omitted).12
ELAP asserts that it is injured every time IHC attempts to collect unreasonable amounts
under the Patient Agreements because ELAP is contractually bound to defend its Plan members
against these collection actions, thereby incurring attorney’s fees and litigation costs. Accepting
ELAP’s factual allegations as true, ELAP’s injury appears to be concrete and actual, not merely
conjectural or hypothetical.13 Additionally, this conduct is fairly traceable to IHC because it is IHC
that requires ELAP Plan members to sign the Patient Agreements and IHC brings the lawsuits that
cause ELAP’s alleged injury. But ELAP nevertheless lacks standing to assert its equitable
counterclaims because its requested relief—a declaration and an injunction preventing IHC from
collecting “excessive, unreasonable, or unconscionable amounts”—does not appear “likely, as
opposed to merely speculative,” to redress the harm asserted by ELAP.
See also Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 180–81 (2000);
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992).
12
13
In fact, ELAP and IHC have engaged in litigation on this very subject.
15
Case 2:17-cv-01245-JNP-EJF Document 120 Filed 09/30/19 Page 16 of 17
To sufficiently redress harm for Article III purposes, the relief must “effectively abate[]”
the conduct at issue “and prevent[] its recurrence.” Friends of the Earth, 528 U.S. at 185–86. The
real conflict between the parties is whether ELAP has the legal right to limit how much IHC may
charge for medical services provided by IHC. But ELAP does not have a contract with IHC, nor
do any of the ELAP Plans have a PPA with IHC. Thus, even were the court to declare and order
that IHC could only charge a reasonable and customary amount for medical services, such an order
would be meaningless without a mechanism for determining a reasonable and customary charge.
ELAP has a formula for calculating what ELAP considers a reasonable and customary charge, but
ELAP has not articulated any theory suggesting why ELAP’s calculation should be binding on
IHC. In short, ELAP’s requested equitable relief is so amorphous and indefinite that it could not
possibly redress the injury ELAP has alleged or resolve the dispute between these parties. Thus,
ELAP lacks constitutional standing.
In addition to constitutional standing, ELAP also lacks prudential standing. Prudential
standing requirements preclude litigants from suing to enforce the rights of others. RMA Ventures
Cal. v. SunAmerica Life Ins. Co., 576 F.3d 1070, 1073 (10th Cir. 2009). ELAP asserts that it seeks
to litigate its own rights arising from its contractual obligation to defend Plan members against
collection efforts by IHC. But the court is not persuaded. In reality, ELAP seeks to adjudicate the
validity of contracts between IHC and its patients. ELAP is not party to those contracts and the
patients who are party to those contracts are not parties to this lawsuit. Under these circumstances,
the court concludes that ELAP lacks prudential standing. Its counterclaims must therefore be
dismissed with prejudice for both lack of constitutional and prudential standing.
16
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V.
CONCLUSION AND ORDER
For the reasons articulated, the court hereby grants ELAP’s motion to dismiss counts two
through five of the Amended Complaint. The court further grants IHC’s motion to dismiss ELAP’s
counterclaims.
IT IS HEREBY ORDERED that claims two through five of the Amended Complaint are
dismissed with prejudice.
IT IS FURTHER ORDERED that ELAP’s counterclaims are dismissed with prejudice.
Signed September 30, 2019
BY THE COURT
______________________________
Jill N. Parrish
United States District Court Judge
17
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