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Prime Partners Ipa of Temecula, Inc., A California Corporation, and v. Kali P. Chaudhuri

May 14, 2012


The opinion of the court was delivered by: Hon. Otis D. Wright, II United States District Judge




Before the Court are Defendants' three concurrently filed motions:

(1) Defendants Kali P. Chaudhuri; Hemet County Medical Group, Inc. ("HCMG"); and KM Strategic Management, LLC's ("KM Management") (collectively the "Chaudhuri Defendants") Motion to Dismiss Plaintiffs' First Amended Complaint ("FAC") (ECF No. 38); (2) Defendants Michael Foutz and William E. Thomas's (collectively the "Foutz Defendants") Motion to Dismiss and Special Motion to Strike (ECF No. 43); and (3) the Chaudhuri Defendants' Motion to Strike Portions of Plaintiffs' FAC (ECF No. 40). Having carefully considered the papers filed in support of and in opposition to the instant Motion, the Court deems the matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. For the reasons discussed below, Defendants' Motions to Dismiss are GRANTED, and the Chaudhuri Defendants' Motion to Strike is DENIED AS MOOT.


Plaintiffs Prime Partners IPA of Temecula, Inc. and Meadowview IPA Medical Group, Inc. are independent practice associations*fn1 ("IPAs") located in Murrieta, California, and Corona, California, respectively. KM Management, which is owned exclusively by Defendants Chaudhuri and Foutz, is and has been the management company for Prime Partners and Meadowview for an unstated period of time. (FAC ¶¶ 31, 43.)

In July 2004, HCMG entered into a Group Provider Services Agreement ("PSA") with Prime Partners (the "2004 PSA"). (FAC ¶ 41.) The PSA required HCMG to act as Prime Partners's IPA and to pay Prime Partners 100% of all revenue HCMG received from HMOs for patients associated with Prime Partners physicians. (Id.) The PSA also required Prime Partners to subcontract all of its management services to KM Management. (FAC ¶ 43.)

Although the 2004 PSA expired by its own terms on June 30, 2009, at the conclusion of a five-year term, both HCMG and Prime Partners continued their business relationship as it had previously existed under the 2004 PSA. (FAC ¶ 45.) In early 2011, Chaudhuri and Thomas*fn2 began to make reference to "the new ten-year group provider service agreement." (FAC ¶ 46.) Prime Partners maintained that it never entered into a new PSA-much less one extending an additional 10 years-and consequently asked to see the document. (Id.) At a meeting in March 2011, members of Prime Partners were shown a new document bearing the same Group Provider Services Agreement name that appeared on the 2004 PSA and an effective date of December 17, 2009. (Id.) The end of the document contained three pages of executed signature blocks; Prime Partners insists, however, that nobody from Prime Partners ever signed the 2009 PSA. (FAC ¶ 47.) Instead, Prime Partners contends Defendants forged these signatures by cutting and pasting the signatures onto the document. (See id.)

Based on these allegations and others not relevant here, Plaintiffs allege that Foutz and Thomas were actively engaged in a criminal enterprise with Chaudhuri, HCMG, and KM Management to systematically defraud medical groups in Southern California by creating false accounting records, forging documents, and engaging in a course of conduct designed to swindle medical groups of money owed to those groups. Plaintiffs specifically contend that Chaudhuri and Foutz formed KM Management in early 2000 with the intent to use KM Management as an instrument for defrauding health plans, physicians, and patients. (FAC ¶ 11.) As relevant to the Court's analysis below, Plaintiffs allege that Defendants executed their fraud on Prime Partners and Meadowview through two criminal schemes.

The first scheme alleges, as described above, that Defendants forged several physicians' signatures on a 10-year Group Provider Services Agreement ("2009 PSA") purporting to obligate Prime Partners to HCMG's IPA services for an additional 10 years following the expiration of the previous five-year 2004 PSA. (FAC ¶ 105.) When HCMG discovered that Prime Partners was seeking to discontinue its business relationship with HCMG and KM Management, Defendants allegedly instructed their attorneys to use the forged 2009 PSA as the basis of four cease-and-desist letters sent over a six-month period to prospective IPAs with which Prime Partners was negotiating. (FAC ¶ 51.) Specifically, in February 2011, Defendants directed their attorneys to send a letter to PrimeCare, LLC instructing it to cease and desist negotiations with Prime Partners based on the forged 2009 PSA. (FAC ¶ 52.) Plaintiffs contend PrimeCare discontinued all negotiations with Prime Partners as a result of this letter. (FAC ¶ 53.)

On March 6, 2011, Defendants directed an identical cease-and-desist letter be sent to Epic Management, LP, another prospective IPA. (FAC ¶ 54.) On June 17, 2011, Defendants directed a follow-up letter to Epic insisting that Epic discontinue negotiations with Prime Partners. (FAC ¶ 55.) Plaintiffs allege that Epic discontinued all negations with Prime Partners as a result of the March and June 2011 letters, forcing Prime Partners again to continue its relationship with HCMG. (FAC ¶ 56.)

Finally, on August 22, 2011, Defendants directed a fourth letter to Prospect Medical Group directing Prospect to cease negotiations with Prime Partners based on the forged 2009 PSA. (FAC ¶ 57.) Plaintiffs allege that while Prospect did not sever its negotiations with Prime Partners as a result of this letter, Prospect nevertheless imposed more onerous terms on Prime Partners as a result of the letter. (FAC ¶ 58.)

Plaintiffs contend that none of the four letters were sent in anticipation of litigation contemplated in good faith and under serious consideration. (FAC ¶¶ 52, 54, 55, 57.) Rather, Plaintiffs maintain that the goal of the fraudulent letters was to prevent Prime Partners from contracting with another IPA on the basis of the forged 2009 PSA, which purports to engage HCMG as Prime Partners's IPA "for a period of ten (10) years from December 17, 2009 (or 2008)." (FAC ¶ 108.) Plaintiffs therefore surmise that "identical cease and desist letters will likely continue to be sent at the instruction of Defendants . . . through the U.S. Postal Service to every IPA that Prime Partners enters into negotiations with until at least 2019 (or 2018)." (Id.)

The second alleged criminal scheme involves 6,600 forged letters purporting to be from Prime Partners and Meadowview physicians to elderly patients of the Secure Horizons health plan. (FAC ¶¶ 68, 112.) Plaintiffs allege these letters "falsely advised the elderly patients that unless they agreed to switch from the Secure Horizons health plan to Citizen's Choice health plan, [those patients] would lose their primary care physician." (Id.) Plaintiffs assert that the purpose of this second scheme was "to secure the continued income of the elderly patients by causing them to believe they would lose their doctor unless they changed their health plan to Citizen's Choice. This was not true, but by convincing these elderly patients to change to Citizen's Choice, HCMG and KM would receive revenue," although Plaintiffs fail to expand on how. (Id.) Plaintiffs claim they were injured as a result of these letters "in that they have lost business associated with several elderly patients who have discontinued services with Plaintiffs as a result of the letters" and "have suffered damages from lost contractual relationships with physicians who were appalled by the conduct of the Defendants and thereafter discontinued or terminated their relationships with Plaintiffs." (FAC ¶¶ 71, 115, 117.)

As a result of these and various other contentions the Court does not address here, Plaintiffs filed a Complaint in California Superior Court for the County of Riverside on October 31, 2011. The Complaint alleged 12 claims for: (1) fraud; (2) violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961--1968 ("RICO"); (3) breach of fiduciary duty; (4) breach of contract; (5) intentional interference with prospective economic advantage; (6) negligent interference with prospective economic advantage; (7) accounting; (8) unfair business practices; (9) conversion; (10) declaratory relief; (11) unjust enrichment; and (12) money had and received. On November 22, 2011, Defendants removed the action to this Court on the basis that this Court had federal question jurisdiction over Plaintiff's RICO claim. (ECF Nos. 1, 9, 22.)

On November 29, 2011, the Chaudhuri Defendants filed a motion to strike and a motion to dismiss Plaintiffs' fraud, RICO, and conversion claims. (ECF Nos. 12, 15.) In addition, on December 9, 2011, the Foutz Defendants filed a motion to dismiss and special motion to strike. (ECF No. 25.) On December 20, 2011, Plaintiffs filed their FAC, thereby rendering the then-pending motions moot. (ECF No. 28.) The FAC contained the same 12 claims but added additional factual allegations.

On January 9, 2012, Defendants filed the Motions presently pending before the Court, which contain arguments essentially identical to those contained in the motions filed in late November and early December 2011 with respect to Plaintiff's original Complaint. The Court turns now to Defendants' pending Motions.


Dismissal under Rule 12(b)(6) can be based on "the lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). "To survive a motion to dismiss for failure to state a claim under Rule 12(b)(6), a complaint generally must satisfy only the minimal notice pleading requirements of Rule 8(a)(2)." Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). Rule 8(a)(2) requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). For a complaint to sufficiently state a claim, its "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). While specific facts are not necessary so long as the complaint gives the defendant fair notice of the claim and the grounds upon which the claim rests, Erickson v. Pardus, 551 U.S. 89, 93 (2007), a complaint must nevertheless "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) (internal quotation marks omitted).

Iqbal's "plausibility standard" is "not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement of relief." Id. (internal citation and quotation marks omitted). "A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'" Id. (citing Twombly, 550 U.S. at 555). The determination whether a complaint satisfies ...

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