Aliya Medcare Fin., LLC v. Nickell

• Decision Date: 26 May 2015
• Docket Number: CASE NO. CV 14-07806 MMM (SHx)
• Citation: 156 F.Supp.3d 1105
• Parties: Aliya Medcare Finance, LLC, Plaintiff, v. Robert P. Nickell, an individual; Comprehensive Toxicology Billing, LLC, a California limited liability company; Exec Billing Services, LLC, a California limited liability company; and Does 1-10, inclusive, Defendants.
• Court: U.S. District Court — Central District of California

156 F.Supp.3d 1105

Aliya Medcare Finance, LLC, Plaintiff,

v.Robert P. Nickell, an individual; Comprehensive Toxicology Billing, LLC, a California limited liability company; Exec Billing Services, LLC, a California limited liability company; and Does 1-10, inclusive, Defendants.

CASE NO. CV 14-07806 MMM (SHx)

United States District Court, C.D. California.

Signed May 26, 2015

Kevin M. Yopp, Law Offices of Kevin M. Yopp, APC, Santa Monica, CA, Richard William Buckner, Glaser Weil Fink Howard Avchen and Shapiro LLP, Los Angeles, CA, for Plaintiff.

Steven M. Goldberg, Emil Petrossian, Viral Mehta, Manatt Phelps and Phillips LLP, Los Angeles, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

MARGARET M. MORROW

, UNITED STATES DISTRICT JUDGE

On October 8, 2014, Aliya Medcare Finance, LLC (“Aliya”) filed this action against Robert P. Nickell, Comprehensive Toxicology Billing, LLC (“CTB”), Exec Billing Services, LLC (“Exec Billing”) (collectively “defendants”), and various fictitious defendants.¹ The complaint alleged eleven claims arising from a dispute concerning negotiation and implementation of a factoring agreement between Aliya and defendants. On November 20, 2014, Aliya filed an ex parte application for a temporary restraining order.² It sought a temporary restraining order requiring defendants to (1) transfer to Aliya all funds received to date as payment on receivables Aliya had purchased from CTB; (2) continue to transfer to Aliya, until the conclusion of a trial on the merits, all funds received as payment on receivables Aliya had purchased from CTB; (3) give Aliya any and all documentation received concerning receivables it had purchased; (4) give Aliya access to the billing and collection software used to manage and collect the receivables it had purchased from CTB; and restraining defendants from (5) managing, controlling, collecting, or taking any action with respect to receivables Aliya had purchased from CTB except as provided in items (1)-(4) above.³ On November 26, 2015, the court denied Aliya's application because it had not adequately shown that it would suffer imminent, irreparable harm if an injunction were not entered.⁴

On December 18, 2014, Aliya filed a first amended complaint.⁵ The first amended complaint alleges eleven claims.⁶ It pleads claims against Nickell and CTB for fraud in the inducement of the factoring agreement; fraudulent concealment; promissory fraud; negligent misrepresentation; and conversion.⁷ It also alleges separate breach of contract claims against CTB and Exec Billing;⁸ intentional interference with contractual relations and violation of California Business and Professions Code § 17200

claims against Nickell; and claims for an accounting and imposition of a constructive trust against all defendants.

On December 29, 2014, the court approved the parties' stipulation to extend defendants' time to respond to the first amended complaint to January 30, 2015.⁹ On January 30, 2015, defendants filed a motion to dismiss the first through fourth and sixth through tenth claims in Aliya's first amended complaint; they do not seek dismissal of Aliya's fifth claim for breach of contract against CTB or eleventh claim for an accounting.¹⁰ Aliya opposes the motion.¹¹

I. FACTUAL BACKGROUND

Aliya is in the business of factoring.¹² The complaint alleges that Nickell is a successful pharmacist and businessman who owns and controls multiple undercapitalized shell entities through which he conducts a multimillion dollar medical services business.¹³ One such entity is CTB, which provides toxicology services—specifically urinalysis—to patients with workers' compensation claims. As relevant here, instead of charging patients directly for toxicology services, CTB allegedly invoices an insurance company that provides coverage for the services.¹⁴ The right to receive payments from insurance providers is purportedly a receivable that is often marketed and sold to third parties that factor receivables.¹⁵ CTB has allegedly originated thousands of such receivables, each of which typically represents a bill of $800 to $1,400.¹⁶

A. The Factoring, Non–Compete, and Indemnification Agreements

Beginning in the fourth quarter of 2012 and continuing to the first quarter of 2013, CTB and Aliya allegedly entered into three factoring agreements pursuant to which Aliya purchased existing CTB receivables and an exclusive right to acquire all right, title, and interest to CTB's future receivables for a period of five years.¹⁷

The first agreement, which was executed in November 2012, documented Aliya's purchase of $7.9 million of CTB's receivables;¹⁸ the second agreement, which was executed in February 2013, reflected Aliya's purchase of $4.1 million of CTB's receivables,¹⁹ while the third agreement, executed in March 2013, documented Aliya's purchase of $18 million of CTB's receivables.²⁰ The third agreement also gave Aliya the exclusive right to purchase all of CTB's future receivables for five years, or until January 2018.²¹ Aliya asserts that by entering into these agreements, it acquired the right to receive all payments made on all of CTB's then-existing receivables as well as all future receivables through January 2018.²²

Aliya alleges that, to induce it to enter into the third agreement and pay in excess of $4 million for the receivables being purchased, Nickell executed and delivered a covenant not to compete and a covenant to indemnify.²³ The non-competition clause purportedly required all entities affiliated with CTB (the “Nickell entities”), including Exec Billing, to acknowledge that they and their respective managers, including Nickell, would conduct all toxicology business solely through CTB—for Aliya's benefit—and ensure that they operated in such a way that all receivables generated were subject to the third agreement.²⁴ In the indemnification clause, the Nickell entities allegedly promised to indemnify Aliya for any loss caused by CTB's breach of the third agreement.²⁵

Aliya, for its part, agreed to purchase all of CTB's receivables without conducting any due diligence; in exchange, it negotiated a provision that permitted it to return any and all receivables that failed to meet certain criteria.²⁶ Thus, section 14 of the third agreement provided that Aliya “shall have the right, at any time, to reject any [r]eceivable that, in [Aliya's] judgment, meet or includes one or more of the following criteria....”²⁷ The criteria set forth in section 14, for example, permitted Aliya to reject receivables that represented claims or charges “requested by a physician of record that [are] not within the applicable ‘Medical Provider Network’ [ (“MPN”) ],” i.e., claims presented by out-of-network providers.²⁸ Section 14 also provided that if Aliya rejected a receivable based on any of the enumerated criteria, CTB would “have the opportunity to object to [Ailya's] classification of [the] [r]eceivable as [rejectable] within 10 days of receiving notice thereof[;] ... the parties [ ] agree[d] to make a ‘good faith effort to mutually determine whether the cause of such [r]eceivable becoming [rejectable] [could] be cured by [CTB] within a commercially reasonable time.” “With respect to any [r]ejected [r]eceivable that [as to which CTB could not cure], an amount equal to the applicable [p]urchase [p]rice ... [was to] be deducted from the immediately following [m]onthly [f]unding [a]mount, or, in the event that no [t]ransaction [m]onth remain[ed] ... [CTB] [was obligated to] pay the applicable [p]urchase [p]rice for such [r]eceivable to [Aliya] within five [ ] business days.”²⁹ Rejected receivables were deemed to belong to CTB; as a result, the agreement provided that CTB could “collect on or sell” any rejected receivable.³⁰

Aliya alleges that it purchased an additional $52.6 million of future receivables from CTB under the third agreement. In total, it contends it has purchased “all of CTB's receivables, which amounts to over $83 million of receivables.”³¹

B. Alleged Misrepresentations Concerning In–Network Doctors

The third agreement allegedly required that all receivables represent charges by referring physicians who were “in-network.”³² At the time it entered into the third agreement, Aliya became increasingly concerned that providers be in-network because California Senate Bill 863 had taken effect in January 2013, and Aliya believed insurance companies would begin to scrutinize whether a provider was in-network more closely, which in turn would materially affect the collectability of receivables representing charges submitted by out-of-network providers.³³ To assuage these concerns, Nickell purportedly represented in telephone conversations and meetings at his office that the doctors ordering toxicology services from CTB were in-network.³⁴ This representation allegedly proved false. Aliya asserts that it initially did not know the number of receivables being denied by insurance companies because the referring physician was out-of-network. CTB purportedly handled collection and servicing of accounts, pursuant to an agreement between the parties, until June 2013. At that time, Aliya formed its own in-house collections department.³⁵ Soon after it began handling collections in house, Aliya allegedly “noticed that insurance companies had denied payment of a large number of receivables because the referring physician was out-of-network.”³⁶ It contends it did not know this earlier because CTB did not provide any documentation from insurance companies; it purportedly communicated only the amount paid by insurers and remitted that amount to Aliya.³⁷ By September 2013, insurers' denial of claims submitted by out-of-network physicians allegedly totaled millions of dollars.³⁸ When Aliya confronted Nickell, he purportedly denied that any doctors were out-of-network; he asserted that insurers offer any reason, including a blatantly false one, to avoid payment.³⁹

Once it learned of the...