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Aetna Life Insurance Company v. Bay Area Surgical Management

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION


February 25, 2013

AETNA LIFE INSURANCE COMPANY, PLAINTIFF,
v.
BAY AREA SURGICAL MANAGEMENT, LLC, ET AL.,
DEFENDANTS.

The opinion of the court was delivered by: Ronald M. Whyte United States District Judge

E-FILED on: 2/25/13

AMENDED ORDER GRANTING PLAINTIFF'S MOTION TO REMAND [Re: Docket Nos. 10 and 33]

On November 29, 2012, plaintiff Aetna Life Insurance Company ("Aetna") moved for: (1) an order of the court remanding this action to the Superior Court for the County of Santa Clara 20 California ("state court"); and (2) an award of fees and costs incurred as a result of the removal. 21

Having considered the papers submitted by the parties and the arguments of counsel, and for the 22 reasons set forth below, this court grants Aetna's motion to remand and denies Aetna's request for 23 fees and costs.*fn1 24

I. BACKGROUND

On February 2, 2012, Aetna sued a group of San Francisco bay area surgical centers and 1 2 individual defendants (collectively "defendants") in state court for fraudulently securing payments from Aetna for services rendered to members of its health plans. Aetna alleged that defendants 4 [d]efendants' facilities, unlawfully waived A[etna] members' coinsurance obligations, fraudulently 6 submitted false and inflated bills to A[etna], and violated California's prohibition on the corporate 7 practice of medicine." Pl.'s Br. 1-2, Dkt. No. 10. The complaint alleged six state law causes of 8 9 action: (1) unfair competition in violation of California's Unfair Competition Law ("UCL"); (2) intentional interference with Aetna's contractual relations with its members; (3) intentional interference with Aetna's contractual relations with its in-network participating providers; (4) 12 fraud; (5) declaratory judgment; and (6) unjust enrichment. Compl. ¶¶ 108-66. In support of 13 Aetna's UCL claim-to show that defendants' practices were "unfair"- paragraphs 48 and 49 of 14 the complaint referenced a "Special Fraud Alert" issued by the Department of Health and Human 15 Services, which deemed the waiver of Medicare copayments potentially unlawful and damaging to 16 17 the public. Defendants demurred and moved to strike, inter alia, paragraphs 48 and 49 of the complaint. 19

"unlawfully induced contracted physicians to refer members to (and render services at) 5

On October 1, 2012, the state court overruled defendants' demurrers and denied the 20 majority of defendants' motions to strike, but granted, in relevant part, defendants' motion to strike 21 paragraphs 48 and 49 relating to Medicare rules on the waiver of coinsurance, with leave to 22 amend. The state court held: 23

Medicare rules on the waiver of coinsurance are relevant as persuasive authority to 25 demonstrate the negative ramifications that result when providers waive coinsurance obligations. However, a complaint should contain only a statement of 26 facts constituting the cause of action and a demand for relief . . . , not legal arguments or citations to persuasive authority. [Aetna] further argues that some of 27 the claims involved in this action do involve Medicare claims. However, this 28 factual assertion appears to be extrinsic to the Complaint. Finally, Aetna argues Regarding the Medicare allegations, (paragraphs 48 and 49), [Aetna] argues that the language from the Medicare "Special Fraud Alert" is directly relevant to 1 the claim that the scheme is unfair under the UCL. Again, this seems to be an 2 argument about persuasive legal authority, which is an improper matter to be inserted in a pleading. 3

Order at 17 ll. 20-28, Dkt. No. 22-1. In response to the state court's order, on October 12, 2012, 4 5 Alert" in FAC paragraphs 56 and 57, and further including an allegation in FAC paragraph 55 that, "[o]f the provider charges at issue in this case, approximately eight (8) involve members who are 8 covered under Medicare." FAC ¶ 55, Dkt. No. 11-2. On that same day, Aetna served its first set 9 of discovery requests on defendants. 10

On November 14, 2012, after allegedly having "determined that federal law governs this 11 action," defendants filed a notice of removal on the basis of federal question jurisdiction.*fn2 On 12 13 notice of removal was untimely and facially defective; (2) Aetna's complaint does not invoke 15 federal question jurisdiction because it does not involve or rely on federal law; (3) Aetna's state 16 law claims are not completely preempted by, nor do they arise under, the Medicare Act; and (4) 17 there is no federal question jurisdiction based on preemption by the Employee Retirement Income 18 Security Act ("ERISA"). 19

Defendants request judicial notice of: (1) the state court opinion and order dated October 1, 23 Aetna filed a first amended complaint ("FAC"), maintaining the references to the "Special Fraud January 11, 2013, Aetna filed the present motion to remand on the grounds that: (1) defendants'

III. ANALYSIS

A. Evidentiary Rulings

2012 ("Oct. 1, 2012 Order"); (2) the defendants' March 5, 2012 motion to strike portions of the 24 complaint ("motion to strike"); and (3) a brief for the United States Secretary of Labor as Amicus 25 Curiae Supporting Plaintiff-Appellant Tri3 Enterprises, LLC, in an action entitled Tri3 26

Enterprises, LLC v. Aetna, Inc., Case No. 12-2308 (3d Cir. Nov. 31, 2012) ("Tri3 Amicus Brief"). 1 2

the public record in this case and directly relevant to the present issue. The court declines to take 4 judicial notice of the Tri3 Amicus Brief, which defendants rely on solely as a persuasive legal 5

"authority" in support of removal based on an ERISA claim. Tri3 is inapposite to the present case 6 because the claim in that case was actually based on an ERISA violation, see Tri3 Enterprises, 7

The court takes judicial notice of the Oct. 1, 2012 Order and the motion to strike as they are part of LLC v. Aetna, Inc., Case No. 11-3921, 2012 WL 1416530 at *1 (D.N.J. Apr. 24, 2012), unlike the 8 9 claims here, which are explicitly brought under state law. Moreover, the district court in Tri3 held

that defendants failed to state a federal cause of action under ERISA, and thus the existing law is actually contrary to defendants' position on that issue, which, as stated, is not even present in this 12 case. For these reasons, the Tri3 Amicus Brief is not helpful to the court in deciding the present 13 issues. 14

Aetna objects to paragraph 7 of the declaration of Katherine M. Dru (submitted with 15 defendants' response brief at Dkt. No. 21) "on the basis that it lacks foundation, assumes facts not 16 17 in evidence, and asserts legal arguments and conclusions." Aetna's Reply Br. 5 n.5. Paragraph 5 of the Dru declaration states: "In the course of this process of gathering responsive information, 19

[d]efendants learned for the first time that many of the individual claims at issue in this action are 20 claims for benefits under ERISA, and are governed by the federal scheme under 29 U.S.C. § 1002, 21 et seq." Civil Local Rule 7-5(b) provides that "[a]n affidavit or declarations may contain only 22 facts . . . and must avoid conclusions and argument" and allows the court to strike any declaration 23 not in compliance. The court declines to strike paragraph 7, but considers it only as a declaration 24 25 of fact regarding the defendants' subjective belief, and not for any conclusion stated therein.

B. Legal Standard for Removal

Under 28 U.S.C. § 1441(a), an action may be removed to the federal district court 1 2 have original jurisdiction." "Generally speaking, '[a] cause of action arises under federal law only 4 when the plaintiff's well pleaded complaint raises issues of federal law.'" Marin Gen. Hosp. v. 5 Modesto & Empire Traction Co., 581 F.3d 941, 944 (2009) (citing Hansen v. Blue Cross of Cal., 6 891 F.2d 1384, 1386 (9th Cir.1989)). Courts strictly construe the removal statute against removal 7 jurisdiction. See, e.g., Provincial Gov't of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 8 9 2008). "A defendant seeking removal has the burden to establish that removal is proper and any doubt is resolved against removability." Luther,533 F.3d at 1034 (citation omitted); see also 12 Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009) ("[A]ny doubt about 13 the right of removal requires resolution in favor of remand."). 14

"embracing the place where such action is pending" when "the district courts of the United States (9th Cir. 2009); Luther v. Countrywide Home Loans Servicing, LP, 533 F.3d 1031, 1034 (9th Cir.

C. Timeliness of Defendants' Removal Notice

A defendant must normally seek removal within thirty days of the initial pleading or, if the 16 17 initial pleading does not establish a basis for removal, within thirty-days of receipt of "a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the 19 case is one which is or has become removable." 28 U.S.C. § 1446(b)(1), (3). Moreover, "all 20 defendants who have been joined and served must join in or consent to the removal of the action." 21

28 U.S.C. § 1446(b)(2)(a). 22

The primary issue is whether the defendants' alleged basis for removal was present prior to 23

October 12, 2012, the date that Aetna filed the FAC. If so, it is undisputed that defendants' 24 25 removal was untimely. According to Aetna, defendants had knowledge of all of the relevant

Medicare-related facts as of the date of the original complaint, February 2, 2012. If not at that 27 time, Aetna asserts that the defendants certainly had knowledge of the alleged Medicare-related 28

claims as of July 9, 2012, when Aetna filed its brief in opposition to defendants' motion to strike 1 2 portions of the complaint. In that brief, Aetna wrote: "the claims in this case do involve Medicare

patients as some of the artificially-inflated health insurance claims submitted to Aetna have been 4 for procedures related to Medicare patients." Aetna's Br. in Opp. to Pl.'s Mot. to Strike 4, Dkt. No. 5

11-5. Aetna also asserts that defendants were aware of the alleged basis for removal under ERISA 6 as of the date of the original complaint, because Aetna's benefit plan, which is expressly subject to 7

ERISA, was attached to the original complaint, see Complaint, Ex. A, Dkt. No. 11-6 ("As a 8 9 participant in [Aetna's] group insurance plan you are entitled to certain rights and protections

under [ERISA]"), and no additional reference to ERISA was included in the FAC. Finally, Aetna

argues that defendants' removal notice is defective because all defendants must timely consent to 12 removal and, without explanation, defendant Pacific Heights did not join the removal notice until 13

November 20, 2012, several days later than the other defendants. 14

1. The alleged Medicare claims

Defendants counter that it was not until the FAC, filed on October 12, 2012, that they first 16 17 learned of the alleged Medicare claims giving rise to federal question jurisdiction. Defendants

further assert that they "first learned that many of the individual claims involved in this action are 19 claims for benefits under ERISA" in the process of responding to Aetna's October 12, 2012 20 discovery requests. Defs.' Response Br. 8. According to defendants, claims uncovered during the 21 discovery process can properly serve as a basis for removal, and defendants were not required to 22 scour the exhibits to the complaint in search of a basis for removal. With respect to defendant 23

Pacific Height's failure to join the original removal notice, defendants argue that Pacific Heights' 24 25 joinder shortly thereafter cured any deficiency in the removal notice.

The court is not persuaded by defendants' timeliness arguments. The basis for defendants' 27 removal is the new allegation at paragraph 55 in the FAC that "approximately eight (8) [of the 28 provider charges at issue] involve members who are covered under Medicare." FAC ¶ 55. 1 2

fact, covered under Medicare as of the date of the original complaint, see Defs.' Mot. to Strike 1, 4

Although defendants may not have been aware that certain patients at issue in the case were, in

Dkt. No. 22-2 ("The Medicare rule prohibiting waiver of copayments for Medicare claims has no 5 applicability to this case. Aetna is not Medicare, none of the patients were Medicare patients, and 6 none of the claims were seeking reimbursement from the Medicare program." (emphasis added)), 7 it cannot be disputed that defendants learned of this fact as of July 9, 2012, when Aetna explicitly 8 9 states so in its opposition to defendants' motion to strike, see Aetna's Opp. Br. 4 ("[T]he claims in

this case do involve Medicare patients as some of the artificially-inflated health insurance claims

submitted to Aetna have been for procedures related to Medicare patients." ). Because this fact is 12 the basis for defendant's removal based on the alleged "Medicare claims," defendants were 13 required to file notice of removal within thirty days of this disclosure. 28 U.S.C. § 1446(b)(3) 14

(removal within thirty days of receipt of an "other paper from which it may first be ascertained 15 that the case is one which is or has become removable"). Defendants did not file their notice of 16 17 removal until November 14, 2012, which is untimely. See id. The thirty-day time limit "is

mandatory and a timely objection to a late petition will defeat removal." Fristoe v. Reynolds 19

Metals Co., 615 F.2d 1209, 1212 (9th Cir. 1980). This holding does not preclude the state court 20 from striking paragraphs 55-57 from the FAC on the same ground that it originally struck 21 paragraphs 48 and 49 from the original complaint. 22

2. The alleged ERISA claims

With respect to defendants' notice of removal based on "ERISA claims," defendants rely 24 25 on "responsive information" that they gathered in the process of responding to Aetna's discovery requests. See Dru Decl. ¶ 7 ("In the course of this process of gathering responsive information, 27

[d]efendants learned for the first time that many of the individual claims at issue in this action are 28

claims for benefits under ERISA . . . ."). Defendants, however, never specifically name or 1 2 describe any newly-discovered facts or documents that could have established a claim under

ERISA. Without any information about the nature of the alleged facts discovered, the court 4 cannot decide whether these facts or documents would have constituted "other paper[s]" sufficient 5 to support a motion for remand under § 1446(b)(3). See 28 U.S.C. § 1446(b)(3) (providing that, 6

"if the case stated by the initial pleading is not removable, a notice of removal may be filed within 7

30 days after receipt by the defendant, through service or otherwise, of a copy of an amended 8 9 pleading, motion, order or other paper from which it may first be ascertained that the case is one

which is or has become removable." (emphases added)). The cases that defendants cite in support

of the proposition that discovery documents may constitute "other papers" do not hold-as is the 12 case here-that documents already in the defendants' possession prior to plaintiff's discovery 13 requests qualify as "other paper[s]" received by defendants under § 1446(b)(3). For example, 14

Riggs v. Continental Baking Co., 678 F. Supp. 236, 238 (N.D. Cal. 1988), and Rose v. Beverly 15

Health & Rehabilitation Services, Inc., 2006 WL 2067060, *5 (E.D. Cal. July 22, 2006), held only 16 17 that the plaintiffs' deposition testimony establishing the basis for removal for the first time qualified as an "other paper" under § 1446(b)(3). Similarly, in Akin v. Big Three Industries, Inc., 19

851 F. Supp. 819, 825 (E.D. Tex. 1994), the court held only that one of the plaintiff's discovery 20 responses, which contained facts definitively supporting a basis for removal for the first time, 21 qualified as an "other paper" under § 1446(b)(3). In contrast to those cases, here, the alleged 22

"responsive information" was in defendants' possession prior to discovery, and was requested by 23

Aetna. The only document or fact recited by either party that mentions ERISA is the Aetna 24 25

readily available to defendants as of February 2, 2012. Because no other evidence is cited in 27 28

Insurance Policy, which Aetna attached as exhibit A to the original complaint, and thus was

support of defendants removal action on the basis of ERISA claims, defendant's removal on this 1 2 ground is likewise untimely.

Because the court holds that the removal action was untimely in the first instance, the issue 4 with respect to defendant Pacific Height's (even) later joinder is moot. 5

D. No Federal Question Provides a Basis For Removal

Even if the court were to consider the removal notice as timely, no federal question 7 provides a basis for removal. Defendants may not remove a case to federal court unless the 8 9 complaint itself establishes that a right created by the Constitution or laws of the United States is

an essential element of the plaintiff's cause of action. Franchise Tax Bd. of Cal. v. Constr.

Laborers Vacation Trust for S. Cal., 463 U.S. 1, 10-11 (1983). Each cause of action in the FAC is 12 based on California state law, and Aetna's UCL claims based on "unlawful" acts recite only state 13 laws as predicate violations. Thus, to remove this case based on a federal question, defendants are 14 required to show that Aetna's state law claims "arise under" federal law. See Hofler v. Aetna US 15

Healthcare of Cal., Inc., 296 F.3d 764, 769-70 (9th Cir. 2002), abrogated on other grounds 16 17 by Martin v. Franklin Capital Corp., 546 U.S. 132 (2005); Ardary v. Aetna Health Plans of Cal.,

98 F.3d 495, 502 (9th Cir. 1996) ("Because we hold that the Ardarys' state law claims do not 19

"arise under" the Medicare Act, we must conclude that the action was improperly removed to 20 federal court."). 21

2. Aetna's state law claims do not arise under the Medicare Act

Defendants do not actually argue that Aetna's state law claims "arise under" the Medicare 23

Act, but rather makes an unsupported conclusion that Aetna actually alleges Medicare "claims." 24 25

mischaracterize patients' health insurance claims submitted to the insurance provider, see FAC 27

Aetna does not allege Medicare claims, and to the extent defendants make this argument, they ¶ 55 (concerning the eight patients covered under Medicare), with legal claims, i.e., legal causes of 28 action. Paragraph 55 is the only new allegation in the FAC that defendants rely upon to support 1 2 removal. Defendants argue that "Aetna specifically added the allegation in paragraph 55 concerning eight Medicare claims so that it could keep the references to Medicare rules in the 4

FAC." Response Br. 14 (emphasis added). According to defendants, "Aetna clearly wants to 5 maintain these references because it believes that these rules are relevant to the legality of 6

Defendants' actions in allegedly waiving co-payments." Id. As the state court recognized in its 7 order on defendants' motion to strike portions of the complaint, the references to Medicare in the 8 9

Oct. 1, 2012 Order 17; see e.g., Nevada v. Bank of Am. Corp., 672 F.3d 661, 675 (9th Cir. 2012)

("[M]ere use of a federal statute as a predicate for a state law cause of action does not necessarily 12 transform that cause of action into a federal claim."); Lippitt v. Raymond James Fin. Servs., Inc., 13

340 F.3d 1033, 1040-43 (9th Cir. 2003) (reversing the district court and remanding the case back 14 to state court where, although the complaint referenced federal law to support plaintiff's UCL 15 claim, it was not necessary to establish the state law UCL claim); Guerra v. Carrington Mortg. 16 17

district courts have held that mere references to federal law in UCL claims do not convert the 19 claim into a federal cause of action."). On remand, to the extent that the allegations in paragraphs 20

55-57 of the FAC are still improper, the court can again strike these paragraphs from the FAC. 21

See Lippitt, 340 F.3d at 1041 ("The appropriate punishment for bad pleading is the striking of 22 surplusage, not removal to federal court where no remedy exists."). Indeed, Aetna admits in its 23 appeal brief that "the FAC could readily be amended to exclude those three paragraphs, thus 24 25 eliminating any mention of Medicare, ERISA, or other federal law, without affecting A[etna's]

claims or right to recovery under state law." Aetna's Br. 14. 27

FAC are "persuasive authority" in support of "the claim that the scheme is unfair under the UCL."

Servs. LLC., No. 10-4299, 2010 WL 2630278, at *2 (C.D. Cal. June 29, 2010) ("California

2. Aetna's State Law Claims are not Preempted by ERISA

State law claims only "arise under" ERISA when they are completely preempted by 1 2 defendants make the conclusory statement that "[b]ased on the information learned through 4 discovery, it is clear that the claims alleged in the FAC are completely preempted by ERISA." 5

Response Br. 15. Later, defendants only argue that they "recently learned that many, if not all, of 6 the claims at issue in this action relate to ERISA plans." Id. Mere relation to an ERISA plan is 7 not sufficient to establish preemption. See Marin General,581 F.3d at 946. In any event, 8 9 defendants offer no support for this assertion, and fail to explain how or why any claim could, in

fact, be brought under ERISA § 502(a). The cases defendants rely on involve adverse benefits

determinations under ERISA plans. In contrast, here, Aetna's claims do not involve any adverse 12 benefits determination. See FAC; Aetna Reply Br. 10 (averring that adverse benefits 13 determinations are not at issue here); Lippitt, 340 F.3d at 1046 ("We remand in reliance that 14

Lippitt will adhere to . . . the characterization of the complaint which he offered to us, since 15 judicial estoppel "bars a party from taking inconsistent positions in the same litigation."). 16 17

meet their burden of establishing a basis for removal without "any doubt." See Moore-Thomas, 19

ERISA § 502(a) (29 U.S.C. § 1132(a)). Marin General,581 F.3d at 946. Without explanation,

Accordingly, defendants fail to establish any reasonable basis for removal, let alone to 553 F.3d at 1244. 20

F. Costs

"An order remanding the case may require payment of just costs and any actual expenses, 22 including attorney fees, incurred as a result of the removal." 28 U.S.C. § 1447(c). Fees may be 23 awarded only "where the removing party lacked an objectively reasonable basis for seeking 24 25 removal." Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). When this requirement is met, whether to award fees is within the discretion of the court. See id. at 139, 141; Lussier v. 27 Dollar Tree Stores, Inc., 518 F.3d 1062, 1065 (9th Cir. 2008). Although it is a close question as 28 to whether defendants had an objectively reasonable basis for removal of the case, the court 1 2 believes that defendants acted in good faith and, therefore, in its discretion, denies plaintiff's request for its fees and costs incurred as a result of the removal. 4

III. CONCLUSION

For the foregoing reasons, the court GRANTS Aetna's motion to remand and denies 6 Aetna's request for fees and costs. 7 8 9


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