The opinion of the court was delivered by: Hayes, Judge
ORDER ON DEFENDANTS' MOTIONS TO DISMISS AND PLAINTIFF'S MOTION FOR LEAVE TO AMEND
Pending before the Court are Defendants' motions to dismiss for lack of personal jurisdiction and failure to state a claim upon which relief can be granted (Docs. # 21, 22), and Plaintiff's motion for leave to file a Second Amended Complaint (Doc. # 23). The Court finds these matters suitable for submission on the papers and without oral argument pursuant to Civil Local Rule 7.1(d)(1).
On September 28, 2007, Plaintiff Three Rivers Provider Network, Inc. (Three Rivers) filed a Complaint in this matter against Defendant Meritain Health, Inc. fka North American Health Plans, Inc. (Meritain). (Doc. # 1). On December 20, 2007, Plaintiff Three Rivers filed an Amended Complaint against Defendants Meritain, Christine Calarco, and Joseph Coffey. (Doc. # 14). The Amended Complaint asserts claims for breach of contract, fraud, conversion, and violation of the Racketeering Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1962(a)-(d). (Doc. # 14).
On January 9, 2008, Defendants Calarco and Coffey filed the pending motion to dismiss for lack of personal jurisdiction. (Doc. # 21). On January 9, 2008, Defendants Meritain, Calarco, and Coffey filed the pending motion to dismiss for failure to state a claim upon which relief can be granted. (Doc. # 22). On January 9, 2008, Plaintiff filed the pending motion for leave to file a Second Amended Complaint. (Doc. # 23).
ALLEGATIONS OF THE AMENDED COMPLAINT
Plaintiff Three Rivers is a Nevada corporation "qualified to do business in California." Am. Compl., ¶ 3. Plaintiff owns and operates "the Managed Care Strategies" network, and provides health care discounts--through direct contracts between Plaintiff and health care providers--on group health plans. Am. Compl., ¶ 3. Plaintiff owns, or possess "an ownership interest in," the health care discounts it negotiates with health care providers. Am. Compl., ¶ 47. Plaintiff's contracts with health care providers provide Plaintiff with exclusive access to the discounts. Am. Compl., ¶ 47.
Defendant Meritain is a business "with principal offices" in New York. Am. Compl., ¶ 4. Defendant Meritain provides health care plans and/or access to health care plans to its clients. Am. Compl., ¶ 4. Defendant Christine Calarco is a resident of the State of New York and employed by Defendant Meritain as "Senior Vice President of Operations." Am. Compl., ¶ 5. Defendant Joseph Coffey is "Director of Cost Management Strategies for a now wholly owned subsidiary of Defendant Meritain, CBSA. Am. Compl., ¶ 6. Defendant Coffey resides in the State of Minnesota. Am. Compl., ¶ 6.
On June 4, 2004, Plaintiff Three Rivers and Defendant Meritain entered into an agreement "whereby [Defendant Meritain] leased access to Plaintiff's network of discounts on group healthcare claims, which network of discounts is based in San Diego County, California." Am. Compl., ¶ 9. The agreement provided that,
Three Rivers Provider Network grants to [Defendant Meritain] the right to access the network of health care providers comprising the Three Rivers Provider Network (the "PPO Network") and to enjoy the benefit of the PPO Network rates offered by PPO Network providers (the "Network Rates") in effect at the time services are provided. Three Rivers Provider Network will make the Network Rates available to individuals who are entitled to benefits under a group health or other health plan offered, underwritten or administered by [Defendant Meritain].
Am. Compl., Ex. 1. Pursuant to the agreement, Defendant Meritain agreed "to pay [Plaintiff] a fee of [10%] of the savings" that Defendant Meritain or its clients received by using Plaintiff's health care network. Am. Compl., ¶ 11. The agreement defined "Savings" as, the difference between the charges of the Participating Provider, as set forth on a claim, and the amount adjudicated as due to the Participating Provider by [Plaintiff Three Rivers], as a repricing agent, or by Payor pursuant to such a claim.
As a condition of the agreement, Defendant Meritain agreed to "ensure that the Three River Provider Network and/or its affiliate partners are identified" on EOB (Explanation of Benefits) forms given to Meritain's clients or health care providers. Am. Compl., Ex. 1. The agreement required Defendant Meritain to identify Plaintiff on EOBs because (1) Plaintiff's contracts with health care providers require that Plaintiff be identified on any EOB, and (2) Plaintiff's identification on EOBs allows Plaintiff to keep track of the total savings "achieved by [Defendant] Meritain under the contract and thereby know the exact amount [Defendant] Meritain owes to [Plaintiff] as a result." Am. Compl., ¶ 11 & Ex. 1.
"Despite its agreement to do so, Meritain did not use any effort to ensure the inclusion of Plaintiff [Three Rivers'] name, or the name of any of [Plaintiff's] affiliates, on the EOB forms." Am. Compl., ¶ 12. Defendants Meritain, Calarco, and Coffey intentionally omitted Plaintiff's name from relevant EOBs as early as 2004 as part of a "scheme to avoid payment" to Plaintiff under the agreement. Am. Compl., ¶¶ 12, 17.
Plaintiff "only discovered Defendants' scheme to avoid payment under the contract" because "a large number" of health care providers began to contact Plaintiff when they received EOBs on which Defendant Meritain omitted Plaintiff's name. Am. Compl., ¶ 12. For example, on October 28, 2004, Plaintiff received an inquiry from Minnesota Epilepsy Group, which read in pertinent part, I am having a hard time reading these explanations of benefits. Please review the attached EOBs and contact me at the number above. I contacted the payor and they said there was an agreement made thru (sic) Global Claims Resources. We did not make an agreement with GCR, but do have a contract with [Three Rivers Provider Network]. I am really confused.
Am. Compl., ¶ 12 (internal quotations omitted). "[Defendant] Meritain's custom and practice of breaching the contract and misidentifying the source of the discounts on the EOBs deprived [Plaintiff] of the contractual fee and directly interfered with [Plaintiff's] ability to do business with [Plaintiff's] providers." Am. Compl., ¶ 12. Plaintiff "faithfully performed all obligations, conditions, covenants and promises on its part" as required by the agreement. Am. Compl., ¶ 30.
Defendant Meritain allowed its clients to access Plaintiff's network without including Plaintiff's name on an EOB or paying Plaintiff a fee under the agreement on many occasions, including the following: (1) "On November 23, 2005, Meritain sent an EOB to a provider, Medical Anesthesia Associates, in Liberty, Texas which included a discount taken through the TRPN agreement, but placed GCR on the EOB, thereby misidentifying the source of the discount and depriving [Plaintiff] of its fee for the same." (2) "On July 20, 2006, Meritain sent an EOB which did not include [Plaintiff's] name to a provider in Pine Hill, North Carolina, Greensboro Anesthesia Physicians, despite the fact that [Plaintiff] provided the discount through its network." (3) "In September, 2005, Meritain sent an EOB to a provider, Children's Critical Care Association, with national locations throughout the United States, an EOB which omitted the TRPN/affiliate reference and thereby misled the provider and [Plaintiff] with respect to the source of the discount and deprived [Plaintiff] of its fee." (4) "In May, 2005, Meritain sent an EOB to a provider, Alexander Swistel, in New York which misidentified the source of the discount taken by stating it was through an entity other than [Plaintiff] or [an affiliate of Plaintiff]." Am. Compl., ¶¶ 13-16. Plaintiff has discovered hundreds of instances where Defendant Meritain has failed to properly identify Plaintiff on EOB forms, however, Plaintiff alleges that those instances represent only "a fraction of the actual claims on which [Defendant] Meritain omitted the TRPN/affiliate name on the EOB." Am. Compl., ¶ 17.
"[Defendant] Meritain's wholly owned [subsidiary]," CBSA, also "improperly accessed" Plaintiff's network without reporting its use or compensating Plaintiff under the contract. Am. Compl., ¶ 22. Defendant Joseph Coffey, Director of Cost Management Strategies at CBSA, instructed "a CBSA employee, Albert Perez, to use [Plaintiff's discount] rate without identifying [Plaintiff] on the EOB and without reporting the discounts taken to [Plaintiff]." Am. Compl., ¶ 22. Coffey "later admitted" that CBSA had "accessed [Plaintiff's] network and discounts in a way which was unauthorized and violated Silent PPO laws and that CBSA was not entitled to the discounts taken."
Am. Compl., ¶ 22. Coffey agreed to "set up direct and proper access" to Plaintiff's network, however, Coffey never followed through in setting up proper access, and "CBSA continues to this day" to access Plaintiff's network improperly and without authorization. Am. Compl., ¶ 22. Coffey made misrepresentations to Plaintiff to ensure that Plaintiff would continue to work with CBSA, and "CBSA continued its unauthorized access [to Plaintiff's network] even following [CBSA's] acquisition by [Defendant] Meritain." Am. Compl., ¶ 40.
Plaintiff alleges that "Defendants intentionally omitted or misidentified the data on the EOB forms so that [Plaintiff] would not discover Defendants' scheme to avail themselves and their clients of discounts through [Plaintiff's] network without paying the contract fee for those discounts." Am. Compl., ¶ 17. Plaintiff further alleges that Defendants "knew that the statements on the EOBs naming someone other than [Plaintiff] were false when made," and were done as part of Defendants' "plan to defraud" and "mislead" Plaintiff. Am. Compl., ¶ 18. As a result of the intentional misrepresentations, Plaintiff "has been damaged by providing [Defendant] Meritain's clients with more than . . . $20 million worth of discounts." Am. Compl., ¶ 35.
In and around December of 2005, Plaintiff and Defendant Meritain "entered into negotiations regarding a new contract between them," which "would have foreclosed many of the issues" raised in the Amended Complaint. Am. Compl., ¶ 36. After a draft agreement was sent to Defendant Meritain courtesy of Defendant Christine Calarco, Calarco telephoned Plaintiff's President to inform Plaintiff that Defendant Meritain agreed to the contract. Am. Compl., ¶ 36. Calarco further informed Plaintiff that the draft agreement had been signed and "was in the mail back to Plaintiff." Am. Compl., ¶ 36. In reliance on this information, Plaintiff sent Defendant Meritain Plaintiff's new discount rates and allowed Defendant Meritain to continue to use Plaintiff's network. Am. Compl., ¶¶ 36-37. Plaintiff later learned that neither Defendant Meritain nor Defendant Calarco had signed the draft agreement, and that the draft agreement had not been mailed to Plaintiff. Am. Compl., ¶¶ 36-37. Plaintiff alleges that "Calarco knew that the contract had not been signed nor sent and made the misrepresentations with the intent to induce [Plaintiff] to rely on the misrepresentations." Am. Compl., ¶ 36.
In addition to Defendant Meritain's failure to properly identify Plaintiff or one of Plaintiff's affiliates on EOBs, Defendant Meritain "began to intentionally miscalculate the amount of fees owed to [Plaintiff] under the contract." Am. Compl., ¶ 19. "The contract, which was never modified orally or in writing to change the fee due to [Plaintiff], called for [Defendant] Meritain to pay [Plaintiff] 10% of the savings received by Meritain, but Meritain instead began to send [Plaintiff] access fees representing only 8% of savings." Am. Compl., ¶ 19. By the time Plaintiff discovered Defendant Meritain's underpayment, "Meritain had underpaid [Plaintiff] in the amount of $95,000.00." Am. Compl., ¶ 19. Defendant Meritain refuses to pay Plaintiff the $95,000.000 owed. Am. Compl., ¶ 19.
Defendant Meritain collects administrative fees from vendors such as Plaintiff, as well as from Defendant Meritain's clients. Am. Compl., ¶ 23. Plaintiff alleges that Defendant Meritain collects these administrative fees without relation to the costs incurred by Defendant Meritain. Am. Compl., ¶ 23. Defendant Meritain "essentially [collects] twice" for the same administrative costs. Am. Compl., ¶ 23.
Plaintiff paid an administrative fee of $7,000.00 per/month for ten (10) months to Defendant Meritain because Plaintiff believed that the fee entitled Plaintiff to "maintain [its] relative vendor" position with Defendant Meritain. Am. Compl., ¶ 24. Plaintiff was not aware that "the administrative fees were not justified by actual costs or that Meritain was also charging the same fees to Meritain's clients/employer groups." Am. Compl., ¶ 24. Despite paying administrative fees for ten (10) months, Plaintiff discovered that it "had lost its relative vendor position with Meritain." Am. Compl., ¶ 24. "Defendants used the United States Mail service to send invoices" to Plaintiff for the administrative fee. Am. Compl., ¶ 26.
Defendants Calarco, Coffey, and Meritain, as well as Meritain's officers, agents, clients, vendors, and employees, "associated together in fact for the common purpose of carrying out the fraudulent scheme described," "namely, converting [Plaintiff's] discount network by, among other things, obscuring the nature and amount of access Meritain and Meritain's clients and vendors had to the discounts and the amount due from Meritain to [Plaintiff] for such access, while charging [Plaintiff] and others unwarranted administrative fees and underpaying the percentage due under the contract." Am. Compl., ¶ 54. Defendants' association in fact constitutes an enterprise within the meaning of the RICO statutes. Am. Compl., ¶ 54. Defendants participated in the conduct of the enterprise "through a pattern of racketeering activity." Am. Compl., ¶ 57. Defendant Meritain participated in the operation or management of the enterprise by "creating or supervising the creation of the EOBs which contain the misrepresentations as to the source of the discounts, initiating and collecting unwarranted administrative fees and misleading others as to the actual administrative costs incurred," among other things. Am. Compl., ¶ 57. Defendant Calarco participated in the operation of the enterprise by "creating or supervising the creation of the fraudulent EOBs, . . . invoicing and collecting the fraudulent administrative fees, granting access to [Plaintiff's] network to Meritain's clients without payment, and taking various other steps to help Meritain hide the unauthorized access from [Plaintiff]." Am. Compl., ¶ 57. Defendant Coffey participated in the operation or management of the enterprise by "creating or supervising the creation of fraudulent EOBs" which contain misrepresentations as to the source of the discounts, and intentionally misleading [Plaintiff] as to (a) who had access to [Plaintiff's network], and (b) how much money was owed to CBSA. Am. Compl., ¶ 57.
Defendants' "pattern of racketeering activity" consisted of "Defendants' aiding and abetting the commission of countless acts of mail and/or wire fraud." Am. Compl., ¶ 58. Specifically, Defendants "transmitted, or caused to be transmitted by means of wire communication," or through the use of the mails, the following misleading or fraudulent communications, among others:
a) On October 28, 2004, by utilizing the United States mail and/or United States wires in forwarding correspondence and attached EOB from Defendant Meritain to Minnesota Epilepsy Group in furtherance of Defendants' scheme, with the specific intent to deceive and defraud [Plaintiff] with respect to the omission of [Plaintiff's] name from that document;
b) On November 23, 2005, by utilizing the United States mail and/or United States wires in forwarding correspondence and attached EOB from Defendant Meritain to Medical Anesthesia Associates in furtherance of Defendants' scheme, with the specific intent to deceive and defraud [Plaintiff] regarding the omission of [Plaintiff's name] from the EOB document;
c) In September, 2005, by utilizing the United States mail and/or United States wires in forwarding correspondence and attached EOB from Defendant Meritain to Children's Critical Care Association in furtherance of Defendants' scheme, with the specific intent to deceive and defraud [Plaintiff] regarding the omission of [Plaintiff's] name from the EOB document; . . .
f) On a monthly basis between January and October inclusive of 2005, by utilizing the United States mail and/or United States wires in forwarding correspondence and attached invoicing from Defendant Meritain to [Plaintiff], in furtherance of Defendants' scheme, with the specific intent to deceive and defraud [Plaintiff] regarding the unwarranted administrative fees . . . .
Am. Compl., ¶ 59. Defendants "have used and invested proceeds derived from their activities to acquire, or attempt to acquire, and to operate Defendants' racketeering enterprise." Am. Compl., ¶ 61. For example, "Defendants used and invested the proceeds derived from their illegal activities to acquire CBSA, now a wholly owned subsidiary of Meritain." Am. Compl., ¶ 61. Defendants have wrongfully acquired, or purported to acquire, "Plaintiff's interest in the right to the profit derived from [Plaintiff's network] through the pattern of racketeering activity." Am. Compl., ¶ 62. Defendants have conducted, or participated--directly or indirectly--"in the conduct and maintenance of the racketeering enterprise." Am. Compl., ¶ 63. In addition, Defendants have "agreed and conspired with each other" to perpetrate the acts alleged, and have "participated in the scheme knowingly, willfully, and with the specific intent to defraud [Plaintiff] in furtherance of the agreed upon plan to commit the alleged predicate acts and to advance and further their scheme." Am. Compl., ¶ 64.
As a result of Defendants' racketeering activity, Plaintiff has suffered economic injury in excess of $20 million. Am. Compl., ¶ 66.
A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the pleadings. De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir. 1978). A complaint may be dismissed for failure to state a claim under Rule 12(b)(6) where the factual allegations do not raise the "right to relief above the speculative level." Bell Atlantic v. Twombly, 127 S.Ct. 1955, 1965 (2007). Conversely, a complaint may not be dismissed for failure to state a claim where the allegations plausibly show "that the pleader is entitled to relief." Id. (citing FED R. CIV. P. 8(a)(2)). In ruling on a motion pursuant to Rule 12(b)(6), a court must construe the pleadings in the light most favorable to the plaintiff, and further, must accept as true all material allegations in the complaint, as well as any reasonable inferences to be drawn therefrom. See Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir. 2003), see also Chang v. Chen, 80 F.3d 1293 (9th Cir. 1996). In considering a Rule 12(b)(6) dismissal, a court may not look beyond the complaint. Moore v. Costa Mesa, 886 F.2d 260, 262 (9th Cir. 1989).
On a motion to dismiss a complaint for lack of personal jurisdiction, the plaintiff bears the burden of establishing personal jurisdiction. Farmers Ins. Exchange v. Portage La Prarie Mut. Ins. Co., 907 F.2d 911, 912 (9th Cir. 1990). Where the motion to dismiss is based on written materials rather than an evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdictional facts to satisfy this burden. Dole Food Co. v. Watts, 303 F.3d 1104, 1108 (9th Cir. 2002). While the plaintiff cannot "simply rest on the bare allegations of its complaint," Amba Marketing Systems, Inc. v. Jobar Int'l, Inc., 551 F.2d 784, 787 (9th Cir. 1977), uncontroverted allegations in the complaint must be taken as true. AT&T v. Campagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir. 1996). Conflicts between parties over statements contained in affidavits must be resolved in the plaintiff's favor. Id.; see also Bancroft & Masters, Inc. v. Augusta Nat'l, Inc., 223 F.3d 1082, 1087 (9th Cir. 2000) ("Because the prima facie jurisdictional analysis requires us to accept the plaintiff's allegations as true, we must adopt [the plaintiff's] version of events for purposes of this ...