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California Pharmacy Management, LLC v. Redwood and Casualty Insurance Co.

October 26, 2009


The opinion of the court was delivered by: The Honorable David O. Carter, Judge



[I hereby certify that this document was served by first class mail or Government messenger service, postage prepaid, to all counsel (or parties) at their respective most recent address of record in this action on this date.]

Kristee Hopkins Not Present


Before the Court is Defendants Redwood Fire and Casualty Insurance Company; Cypress Insurance Company; Oak River Insurance Company; American All Risk Insurance Services, Inc.; American Commercial Claims Administrators, Inc.; Applied Risk Services, Inc.; Applied Underwriters, Inc.; California Insurance Company; and National Liability and Fire Insurance Company (collectively, "Defendants") Motion to Dismiss the Third Amended Complaint (the "Motion"). The Court finds the matter appropriate for decision without oral argument. Fed R. Civ. P. 78; Local R. 7-15. After considering the moving, opposing, and replying papers, and for the reasons stated below, the Court hereby DENIES the Motion.


A. Procedural History

On February 5, 2009, Plaintiff California Pharmacy Management, LLC ("CPM") filed its original complaint alleging a Racketeer Influenced and Corrupt Organizations Act ("RICO") cause of action against Defendants based on mail and wire fraud. On March 12, 2009, Defendants filed a motion to dismiss. In response, CPM filed its First Amended Complaint on March 23, 2009. On April 1, 2009, the parties entered into a stipulation to allow CPM to file a Second Amended Complaint ("SAC"). On July 29, 2009, this Court dismissed the SAC with leave to amend. In response to the Court's Order, Plaintiff filed its Third Amended Complaint ("TAC") on August 18, 2009. Defendants contend that the TAC does not cure the defects in either the SAC or the original pleadings and ask this Court to dismiss Plaintiff's action with prejudice.

B. Factual Allegations

By its TAC, CPM brings a RICO suit against Defendants, workers compensation insurers and claims administrators, for undertaking a scheme to defraud CPM "through a collusive and systematic campaign of sham litigation, fraudulent objections and dilatory conduct carried out by mail fraud and wire fraud, to avoid payment of valid bills and liens for tens of thousands of needed medications prescribed and dispensed to injured workers in over 4000 workers' compensation cases in the California Workers' Compensation Board ("WCAB"); to destroy CPM as a valid company; and to abuse the process of and defraud the WCAB." TAC ¶ 1. CPM's contracts obligate it to "bill and collect for medications dispensed to injured workers." Id. ¶ 2. Defendants have allegedly neglected to pay CPM because they do not "want to pay the prices legally submitted by CPM." Id.

The TAC alleges that Defendants strongly dislike the physician in-office medication programs, notwithstanding the legality of such programs. Id. ¶ 3. It further alleges that Defendants "conspired with other carriers and devised a scheme to put CPM out of business and to destroy the physician in-office medication dispensing program." Id. To effectuate their scheme, Defendants allegedly communicated to their "agents and representatives and the agents and representatives of other carriers the manner in which the scheme to defraud was to be implemented." Id. Pursuant to this scheme, Defendants: (1) ceased payment for all claims submitted by CPM; (2) delivered letters to CPM offering pretextual objections to CPM claims; and (3) consolidated all CPM lien claims before the Id. ¶¶ 3-7. Plaintiff avers that Defendants' objection letters (and their subsequent litigation before the WCAB) were knowingly "baseless," "based on false assumptions," and "served as lulling activity that created a severe cash flow problem for CPM." Id. ¶¶ 5-7. Defendants allegedly "had no interest whatsoever in the actual outcome of any of its individual objections before the WCAB, but intended to use the WCAB process to stonewall CPM and shut off its cash flow." Id. ¶ 6. Plaintiff allegedly sustained "millions of dollars" of economic losses as a result of Defendants' scheme. Id. ¶ 9.

The TAC contends that Defendants' activity violates RICO, 18 U.S.C. § 1961, et seq. TAC, 9. Specifically, CPM contends that Defendants have engaged in and are continuing to engage in mail fraud and wire fraud in violation of 18 U.S.C. § 1962(c) and have engaged in a conspiracy to commit such acts in violation of 18 U.S.C. § 1962(d).¶


Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed when a plaintiff's allegations fail to state a claim upon which relief can be granted. Once it has adequately stated a claim, a plaintiff may support the allegations in its complaint with any set of facts consistent with those allegations. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 562, 127 S.Ct. 1955 (2007). A plaintiff may not merely recite the elements of a cause of action in its complaint. Id. at 555. Instead, to survive a 12(b)(6) motion to dismiss, the complaint must contain factual allegations sufficient to "raise a right of relief above the speculative level. Id. Rule 12(b)(6) motions are viewed with disfavor.

, 320 F.2d 1023, 1028 (9th Cir. 2003). When evaluating a 12(b)(6) motion, the Court must accept as true all factual allegations in the complaint and must draw all reasonable inferences from those allegations, construing the complaint in the light most favorable to the plaintiff. Id.; Guerrero v. , 442 F.3d 697, 703 (9th Cir. 2006).

Federal Rule of Civil Procedure 12(b)(1) provides that a complaint must be dismissed for lack of subject matter jurisdiction. Subject matter jurisdiction is absent where there is not justiciable case or controversy as required by Article III, Section 2, of the U.S. Constitution. In addition, a complaint must be dismissed for its failure to join a necessary party under Federal Rule of Civil See Fed. R. Civ. P. 12(b)(7).


In its July 29, 2009 Order, this Court found that the SAC's allegations, when taken as true, failed to state a claim upon which relief could be granted. First, the SAC's almost exclusive focus on Defendants' exercise of their rights to contest bills and liens submitted by CPM in claims filed by injured workers before the WCAB ran afoul of the Noerr-Pennington doctrine, which immunizes those who petition the government from liability for statutory violations. Second, the SAC's allegations that Defendants submitted baseless objections to CPM's claims for payment failed to sustain a cause of action for mail fraud and wire fraud under 18 U.S.C. § 1341. Third, the SAC neglected to demonstrate that CPM had suffered any concrete injury due to Defendants' alleged racketeering activity. For these reasons, this Court granted Defendants' motion to dismiss the SAC but provided Plaintiff leave to Despite Plaintiff's attempt to remedy the defects identified by the Court's July 29, 2009 Order, Defendants again seek the TAC's dismissal with prejudice. First, Defendants aver that the TAC Noerr-Pennington doctrine. Second, Defendants contend that CPM does not have standing as it is not the provider of service authorized to seek payment for services provided to injured workers. Third, Defendants contend that CPM should be required to join as necessary parties under Fed. R. Civ. P. 19 the physicians with which CPM contracts, or else the SAC must be dismissed for failure to join necessary parties under Fed. R. Civ. P. 12(b)(7). Fourth, Defendants contend that the TAC fails to plead mail and wire fraud under 18 U.S.C. § 1341, 1343, and 1962(c) with the requisite particularity under Fed. R. Civ. P. 9(b). Fifth, Defendants claim that CPM has not alleged facts sufficient to constitute mail or wire fraud under 18 U.S.C. § 1341 or 1343. Sixth, Defendants maintain that the TAC, like its predecessor, does not contain facts sufficient to establish that CPM has suffered a "concrete financial injury" as required for any action under RICO. Seventh, Defendants argue that because CPM's mail and wire fraud claims are insufficient, so too is its RICO conspiracy claim under 18 U.S.C. § 1962(d).

A. The Noerr-Pennington Doctrine

1. General Applicability of the Noerr-Pennington Doctrine

In its Order dismissing the SAC with leave to amend, this Court found that Plaintiff's allegations ran afoul of the Noerr-Pennington doctrine. "Under the Noerr-Pennington doctrine, those who petition any department of the government for redress are generally immune from liability." Empress LLC v. City and County of S.F., 419 F.3d 1052, 1056 (9th Cir. 2005) (citing Manistee Town Ctr. v. City of Glendale, 227 F.3d 1090, 1092 (9th Cir. 2000)); see also White v. Lee, 227 F.3d 1214, 1231 (9th Cir. 2000) ("The Noerr-Pennington doctrine ensures that those who petition the government for redress of their grievances remain immune from liability for statutory violations, notwithstanding the fact that their activity might otherwise be proscribed by the statute involved."). The Ninth Circuit has applied the doctrine to protect petitioning activity as well as activity incidental to and in anticipation of petitioning activity. See Sosa v. DIRECTV, 437 F.3d 923, 934-35 (9th Cir. 2006) ("[I]n the litigation context, not only petitions sent directly to the court in the course of litigation, but also 'conduct incidental to the prosecution of the suit' is protected by the Noerr-Pennington doctrine."); see Premier Med. Mgmt. Sys., Inc. v. California Ins. Guarantee Assn., 136 Cal. App. 4th 464, 479 (holding that actions taken in anticipation of proceedings before the WCAB were protected by the Noerr-Pennington doctrine). The ...

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