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Bay Area Surgical Group, Inc. v. Aetna Life Insurance Co.

United States District Court, N.D. California, San Jose Division

June 17, 2014

BAY AREA SURGICAL GROUP, INC., et. al., Plaintiff(s),
AETNA LIFE INSURANCE COMPANY, et. al., Defendant(s).


EDWARD J. DAVILA, District Judge

Plaintiffs Bay Area Surgical Group, Inc., Knowles Surgery Center, LLC, National Ambulatory Surgery Center, LLC, Los Altos Surgery Center, LP, Forest Ambulatory Surgery Center Associates, LP, and SOAR Surgery Center, LLC (collectively, "Plaintiffs") commenced the instant action against Defendants Aetna Life Insurance Company ("Aetna") and over 200 employers and employee benefit plans (the "ERISA Plan Defendants") asserting various violations of the Employee Retirement Income Security Act of 1974 ("ERISA"). Presently before the court are a number of motions filed by various defendants, including motions to dismiss, motions to sever, a motion for sanctions, motions for joinder, and a motion to stay filed by Aetna. See Docket Item Nos. 255, 279, 326, 329, 363, 387, 389, 459, 460, 558. The court held a hearing on Aetna's motion to stay on June 6, 2014.

Federal jurisdiction arises under 28 U.S.C. § 1331. Having carefully considered the pleadings[1] in conjunction with the argument presented at the hearing, the court finds the circumstances presented by this case warrant a stay in favor of related state court proceedings. Accordingly, Aetna's motion to stay will be granted and the additional motions will be denied without prejudice for the reasons explained below.


Plaintiffs are a group of ambulatory surgery centers located in and around San Jose, California, and provide medical and surgical procedures at their facilities. With regard to the ERISA Plan Defendants, Plaintiffs allege that Aetna acts as their designated fiduciary and administrator. Plaintiffs do not participate in the provider networks designated by Aetna or the ERISA Plan Defendants but are instead "non-contracted" or "out-of-network" providers. As such, Plaintiffs have not agreed to accept a specifically-negotiated rate for their services from Aetna or the ERISA Plan Defendants. Instead, out-of-network providers likes Plaintiffs are routinely paid according to the "usual, customary and reasonable" amount, or the "UCR, " as contemplated in the plan documents governing the individual employee benefit plans. The appropriate UCR rate for any given service is determined based on a review of the prevailing or competitive charges for similar health care services by similar types of providers within the same geographical area at the time.

Plaintiffs have provided out-of-network medical services to patients covered by the ERISA Plan Defendants. For their services, Aetna allegedly represented that it would pay Plaintiffs in an amount that is the lower of either the provider's actual billed charge or the UCR amount. Plaintiffs allege, however, that Aetna has improperly underpaid Plaintiffs for timely claims, even after further demands and appeals. In doing so, Plaintiffs believe that Aetna has not applied a proper UCR methodology to calculate payments. Plaintiffs contend that Aetna and the ERISA Plan Defendants owe them over $26 million as a result of the underpayments.

Based on these allegations, Plaintiffs assert the following causes of action in the instant federal action: (1) violation of 29 U.S.C. § 1132(a)(1)(B); (2) violation of 29 U.S.C. § 1132(a)(2); (3) violation of 29 U.S.C. §§ 1024(b), 1104, and 1133(2); and (4) declaratory and injunctive relief under 29 U.S.C. § 1132(a). Plaintiffs seek monetary damages and "a declaration that Plaintiffs are entitled to have Aetna and the ERISA Plans calculate UCR based on the ERISA and Aetna Plan documents."

But this litigation, initiated in November, 2013, is not the only dispute between these parties. In or about February, 2012, Aetna filed a Complaint in Santa Clara County Superior Court against Plaintiffs and five additional defendants for intentional interference with contract, declaratory judgment, unjust enrichment, and unfair competition in violation of California's Unfair Competition Law ("UCL"), Business and Professions Code § 17200.[2] Aetna alleges the defendants named in that action have instituted an illegal insurance billing scheme whereby in-network physicians refer Aetna patients to out-of-network outpatient surgery centers, such as Plaintiffs, in which the referring physician has invested and from which the referring physician receives profits. The surgery center then allegedly waives the out-of-network coinsurance payment to entice the patient to utilize its services but does not inform Aetna of this waiver when it submits its claim for payment.

Plaintiffs (or at least three of them) also initiated no fewer than 14 separate state-court lawsuits in 2012 against Aetna for various combinations of breach of contract, breach of implied contract, negligent misrepresentation, promissory estoppel, equitable estoppel, quantum meruit, indebitatus assumpsit, and violation of the UCL. In these lawsuits, the surgery centers allege that Aetna underpaid on particular patient claims for out-of-network services despite prior confirmation of a patient's coverage and an authorization to perform the services. These lawsuits further allege Aetna miscalculated the UCR and failed to pay the contractual percentage that Plaintiffs believe Aetna should have paid according to the governing documents of the subject benefit plan.

The state court consolidated the surgery center lawsuits with Aetna's suit on May 8, 2013. Thereafter, Plaintiffs filed a cross-complaint against Aetna, again alleging that Aetna reimbursed out-of-network claims by underpricing the UCR. It appears based on a case management statement filed in the consolidated state court action that discovery has commenced and has progressed in some fashion. Moreover, a trial in the consolidated action has been scheduled for May, 2015.

Turning back to the federal case, Aetna now moves to stay the instant action in favor of the state court proceedings.


The district court's "power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. N. Am. Co. , 299 U.S. 248, 254 (1936). Using this power, one case may be stayed in favor of another. Leyva v. Certified Grocers of Cal., Ltd. , 593 F.2d 857, 863-64 (9th Cir. 1997) ("A trial court may, with propriety, find it is efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the case. This rule applies whether the separate proceedings are judicial, administrative, or arbitral in character, and does not require that the issues in such proceedings are necessarily controlling of the action before the court.").

In order to determine whether a Landis stay should be implemented, various interests must be considered: (1) "the possible damage which may result from the granting of a stay, " (2) "the hardship or inequity which a party may suffer in being required to go forward, " and (3) "the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay." CMAX, Inc. v. Hall , 300 F.2d 265, 268 (9th Cir. 1962) (citing Landis , 299 U.S. at 254-55). Whether to grant a stay request is a matter entrusted to the discretion of the district court. ...

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