Dual Diagnosis Treatment Ctr., Inc. v. Blue Cross California, Case No.: SA CV 15-0736-DOC (DFMx)

Decision Date22 November 2016
Docket NumberCase No.: SA CV 15-0736-DOC (DFMx)
CourtU.S. District Court — Central District of California
PartiesDUAL DIAGNOSIS TREATMENT CENTER, INC. ET AL. Plaintiffs, v. BLUE CROSS OF CALIFORNIA ET AL. Defendants.
ORDER GRANTING IN PART OMNIBUS MOTION TO DISMISS

[637] Before the Court is Defendants' Omnibus Motion to Dismiss ("Motion") (Dkt. 637), along with supplemental addenda by various parties.

I. Background

This lawsuit arises from Plaintiffs Dual Diagnosis Treatment Center, Inc., Satya Health of California, Inc., Adeona Healthcare, Inc., Sovereign Health of Florida, Inc., Sovereign Health of Phoenix, Inc. and Sovereign Asset Management, Inc.'s (collectively, "Plaintiffs") allegations that they were not properly paid for medical benefits after they secured valid assignments of medical benefits from their patients. First Amended Complaint ("FAC") (Dkt. 298) ¶¶ 5, 22. Defendants are some of the welfare plans that provided coverage to the employee, and various Blue Cross entities ("carriers") that insure or administer the plans. FAC ¶¶ 22-23, 34.

Plaintiffs filed the FAC on November 5, 2015. Plaintiffs brought suit against 159 welfare plans and 49 Blue Cross entities, FAC ¶ 22-23 ("Defendants"), alleging they have assignments of rights from 274 patients, FAC ¶¶ 101-366. Due to voluntary dismissals, Plaintiffs are now pursuing claims assigned from 233 patients against 42 Blue Cross defendants and 143 welfare plan defendants. See Pls.' Identification of Remaining Patients and Corresponding Defs. Exs. A, B (Dkt. 1009-1, 1009-2).

Plaintiffs allege that because they provided medical treatment and received valid assignments, they are entitled to be paid directly by Defendants. FAC ¶ 51. However, Defendants paid the patients directly, id. ¶ 74, and never communicated that to Plaintiffs, id. ¶ 87. Plaintiffs allege that Defendants had a policy of intentionally refusing to honor valid assignments in order to punish out-of-network medical providers by forcing them to collect from their former patients. See FAC ¶¶ 77-79. As a result of this policy, Plaintiffs allege they would only receive a fraction of what they are owed because patients are less likely to forward their benefits checks or contest improper denials of benefits. FAC ¶¶ 79-81.

Plaintiffs allege four claims: (1) a claim for plan benefits under the Employee Retirement Income Security Act of 1974's ("ERISA") remedial scheme, 29 U.S.C. § 1132(a)(1)(B); (2) a claim for breach of fiduciary under an ERISA plan, 29 U.S.C. § 1132(a)(2); (3) a claim for equitable relief under ERISA's equitable catchall provision, 29U.S.C. § 1132(a)(3); and (4) a state law claim under California Business and Professions Code §§ 17200 et. seq. ("UCL").

II. Procedural History

Plaintiffs filed suit on May 8, 2015. See Compl. Defendants filed a Motion to Dismiss on September 14, 2015 (Dkt. 246). Plaintiffs filed the FAC on October 5, 2015. Defendants jointly filed the instant Omnibus Motion to Dismiss on January 25, 2016. Some Defendants also filed supplemental addenda (Dkts. 647, 652, 657, 670, 683, 690, 693, 704, 707, 710, 712, 727). Plaintiffs opposed Defendants' Motion (Dkt. 834) and filed opposition addenda on March 21, 2016 (Dkt. 835). Defendants filed their reply ("Reply") on April 4, 2016 (Dkt. 856). Some Defendants also filed supplemental reply addenda (Dkts. 859, 860, 861, 862, 864, 865, 871, 872, 873, 874, 875). The Court held a hearing on the instant Motion on May 31, 2016.

On June 24, 2016, the Court issued an Order requiring Defendants to identify and produce the plan instrument for each plan and identify provisions establishing the completeness of the plan instrument and the validity of its terms. Order Re: Supplemental Briefing ("Briefing Order") (Dkt. 904) at 8. Defendants compiled this briefing into a Second Addendum to Omnibus Motion to Dismiss ("Defendants' Revised Addendum") (Dkt. 1039-2). The Court also ordered Plaintiffs to respond to Defendants' supplemental briefing with any objections or disputes, including objections to the authenticity of the documents. Briefing Order at 8. Plaintiffs provided a Response Addressing Objections and Disputes to Defendants' Filed Documents which contained their legal objections ("Plaintiffs' Response") (Dkt. 1041), and their patient-by-patient objections ("Plaintiffs' Objections") (Dkt. 1041-2).

Some Defendants believed Plaintiffs' Response exceeded the scope of the Briefing Order by including lengthy sections of legal analysis not provided in their Opposition, and requested leave to respond. Defendants' Ex Parte Application for Leave to File Response (Dkt. 1045). The Court denied the request but agreed that pages eight to twenty-four of Plaintiffs' Response had exceeded the scope of the Briefing Order; the Court held that it would determine in its ruling on the Motion the degree to which it would consider the expanded arguments in Plaintiffs' Response. See Order Denying Ex Parte Application (Dkt. 1045).

III. Legal Standard 12(b)(6)

In ruling on a motion under Federal Rule of Civil Procedure 12(b)(6), the Court follows Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 544 (2009). To survive a motion to dismiss, a complaint must contain factual matter that, if accepted as true, is sufficient to state a claim for relief that is plausible on its face. Iqbal, 556 U.S. at 547. "All allegations of material fact in the complaint are taken as true and construed in the light most favorable to the plaintiff." Williams v. Gerber Prods. Co., 552 F.3d 934, 937 (9th Cir. 2008) (citation omitted). However, pleading identical allegations against different and unrelated defendants for different events without explanation deprives each individual party of a fair and meaningful opportunity to defend itself. Romero v. Countrywide Bank, N.A., 740 F. Supp. 2d 1129, 1136 (N.D. Cal. 2010) (quoting Twombly, 550 U.S. at 553-55).

Where a claim for relief is based on fraud or mistake, the circumstances of the fraud or mistake must be stated with particularity. Fed. R. Civ. P. 9(b). "Fraud arises from the plaintiff's reliance on the defendant's false representations of material fact, made with knowledge of falsity and the intent to deceive." Concha v. London, 62 F.3d 1493, 1503 (9th Cir. 1995) (holding that FRCP 9(b) applies to ERISA claims based on fraud, but not per se to breach of fiduciary duty claims). This rule requires the party to state the "who, what, when, where, and how" of the fraudulent activity. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003); Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) ("[Rule 9(b) requires] the times, dates, places, benefits received, and other details of the alleged fraudulent activity.").

In ruling on a motion to dismiss for failure to state a claim, a court should follow a two-pronged approach: first, the court must discount conclusory statements, which are not presumed to be true; then, assuming any factual allegations are true, the court must determine "whether they plausibly give rise to an entitlement to relief." See Iqbal, 556 U.S. at 679; accord Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012). A court should consider the contents of the complaint and its attached exhibits, documents incorporated into the complaint by reference, and matters properly subject to judicial notice. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-23 (2007); Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001).

A district court should provide leave to amend upon granting a motion to dismiss, unless it is clear that the complaint could not be saved by any amendment. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008) ("Dismissal without leave to amend is improper unless it is clear, upon de novo review, that the complaint could not be saved by any amendment."). Leave to amend, however, "is properly denied . . . if amendment would be futile." Carrico v. City & County of San Francisco, 656 F.3d 1002, 1008 (9th Cir. 2011).

IV. Discussion

In Part A, the Court analyzes the text of the assignments to determine what rights Plaintiffs can pursue derivatively. In Part B, the Court determines whether Plaintiffs have stated a claim for each of the FAC's four counts against Defendants. Part C addresses Defendants' attacks on the validity of the assignments, including arguments based on the existence of anti-assignment provisions ("AAPs"). Finally, in Part D the Court evaluates Defendants' offered plan documents to determine whether they prohibited assignment.

A. Plaintiffs' Standing to Bring the ERISA Counts by Assignment

Only parties identified in ERISA have standing to sue under the Act. See 29 U.S.C. § 1132(a)(1)-(3). As relevant here, (a)(1) identifies "beneficiaries." As providers, Plaintiffs are not themselves beneficiaries as the term is used in ERISA, and thus cannot sue under ERISA. E.g., Rojas v. Cigna Health and Life Ins. Co., 793 F.3d 253 at 257 (2d Cir. 2015) (holding "beneficiary" as it is used in ERISA does not, without more, encompass healthcare providers); City of Hope Nat. Med. Ctr. v. HealthPlus, Inc., 156 F.3d 223, 227-28 (1st Cir. 1998) (provider can sue under ERISA only by virtue of assignment); Ward v. Alt. Health Delivery Sys., Inc., 261 F.3d 624, 627 (6th Cir. 2001) (declining to extend "beneficiary" to include a healthcare provider and noting that plaintiff's entitlement "to payment from defendants as a result of her clients' participation in an employee plan does not make her a beneficiary for the purpose of ERISA standing."); Hobbs v. Blue Cross Blue Shield of Alabama, 276 F.3d 1236, 1241 (11th Cir. 2001) ("Healthcare providers . . . generally are not considered 'beneficiaries' or 'participants' under ERISA."); DB Healthcare, LLC v. Blue Cross Blue Shield of Arizona Inc., No. CV-13-01558-PHX-NVW, 2014 WL 3349920, at *7 (D. Ariz. July 9, 2014) ("Plaintiffs are not...

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