United States District Court, C.D. California
CIVIL MINUTES - GENERAL
PROCEEDINGS: (IN CHAMBERS) ORDER RE DEFENDANT'S MOTION TO DISMISS (DKT. 12)
JOHN A. KRONSTADT, District Judge.
Plaintiff Los Angeles Sleep Studies Institute ("Plaintiff") brought this action in the Los Angeles County Superior Court against Defendant Anthem Blue Cross Life and Health Insurance Company ("Defendant"). The First Amended Complaint alleges that Defendant failed to pay for the medical services provided by Plaintiff to patients insured by Defendant. First Amended Complaint ("FAC"), Dkt. 1 Exh. F. The FAC advances eight causes of action; each arises under California law. Defendants removed this action pursuant to 28 U.S.C. §§ 1331, 1441 and 1446 on the grounds that Plaintiff's third cause of action arises under, and is completely preempted by, the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1002(1). Notice of Removal, Dkt. 1.
Defendant brought a motion to dismiss all of the causes of action and claims for punitive damages (the "Motion"). Dkt. 12. Plaintiff opposed the Motion (Dkt. 19), and Defendant replied (Dkt. 20). The Court conducted a hearing on the Motion on September 15, 2014 and took the matter under submission. For the reasons stated in this Order, the Motion is GRANTED in part. Certain claims are preempted and dismissed. The Court declines to exercise supplemental jurisdiction over the remaining claims. Therefore, the action is REMANDED to the Superior Court.
II. Factual Background
Plaintiff operates a sleep disorder research institute and treatment center in Tarzana, California. Dkt. 1, Exh. F ¶ 19. Plaintiff provides medical services to patients who are insured by various companies, including Defendant. Id. ¶ 20. Before providing services to a patient insured by Defendant, Plaintiff allegedly contacts the benefits department of Defendant to verify that the requested treatment is covered by the applicable policy. Plaintiff also inquires about the scope of the coverage, e.g., will it be for only a percentage of the cost and will the patient have a co-pay obligation. Id. ¶ 22. Where coverage will be provided, Plaintiff alleges that Defendant authorizes the medical services by telephone, i.e., makes a "verbal agreement" to pay Plaintiff the "usual and customary" value of the medical services. Id. ¶¶ 23, 24. Plaintiff alleges that it only provides medical services to patients insured by Defendant following such an agreement. Id. ¶ 25.
Plaintiff alleges that the patients insured by Defendant who are at issue in this case had "valid written health insurance policies with [Defendant], whereby [Defendant] was obligated to pay for the usual and customary health care expenses incurred by the patients, wherever those expenses were incurred." Id. ¶ 26. Plaintiff also alleges that it obtained a signed, assignment of benefits from each patient prior to providing services to that patient. In those assignments, the patients "assigned their rights to reimbursement and/or payment from [Defendant] for medical expenses." Id. ¶ 27. Further, Defendant contends that a "majority" of these insurance policies are under group benefit plans governed by ERISA. Declaration of Scott Hicks ("Hicks Decl."), Dkt. 2 ¶ 2.
Plaintiff alleges that in the 2011-2012 billing cycle, Defendant began a series of unlawful and fraudulent business practices. It claims that Defendant did so to avoid full payment to Plaintiff as promised by Defendant's telephonic authorizations. Dkt. 1, Exh. F ¶ 31. Plaintiff alleges it provided medical services in 127 cases in the 2011-2012 billing cycle involving patients insured by Defendant. Id. ¶¶ 28, 31. Plaintiff alleges the value of, and amount billed for, these services is $1, 664, 040.00, but that Defendant has paid only $662, 388.72. Id. ¶¶ 28, 32. Plaintiff alleges that Defendant requested that Plaintiff "bundle" the services provided into one billing line, but then claimed it had made payments greater than the amounts due and delayed its processing of Plaintiff's claims. Id. ¶¶ 33-37.
Plaintiff's first cause of action alleges a breach of the oral contracts between Plaintiff and Defendant made during the telephone conversations. Id. ¶ 42-55. The second cause of action alleges breach of the implied contract created based upon the parties' previous conduct of approving services for patients insured by Defendant through these same telephone conversations. Id. ¶¶ 56-67. Plaintiff's third cause of action alleges breach of contract for reimbursement of medical expenses based on the rights assigned to Plaintiff by the patients. Id. ¶¶ 68-80. Plaintiff's fourth cause of action alleges breach of the covenant of good faith and fair dealing arising from the implied contract created "and/or" the assignment of benefits. Id. ¶¶ 81-92. Plaintiff's fifth cause of action alleges promissory fraud based on the oral representations made to Plaintiff during the telephone conversations. Id. ¶¶ 93-105. Plaintiff's sixth cause of action alleges unjust enrichment. Plaintiff contends that it conferred a tangible economic benefit on Defendant by rendering services to patients who pay policy premiums to Defendant. Id. ¶¶ 106-112. Plaintiff's seventh cause of action alleges unfair business practices under Cal. Bus. & Prof. Code §17200, et. seq., for failing to make the promised payments to Plaintiff. Id. ¶¶ 113-120. Plaintiff's eighth cause of action seeks declaratory relief through a ruling that the "usual and customary" rate for the services Plaintiff provided is the one that Plaintiff has requested. Id. ¶¶ 121-125.
III. Procedural Background
Plaintiff originally filed this action in the Los Angeles County Superior Court on October 1, 2013. Defendant filed a demurrer. Id. ¶ 2. On April 17, 2014, Superior Court Judge Hiroshige sustained the demurrer as to the complaint, with leave to amend. Id. ¶ 5. On April 28, 2014 Plaintiff filed its FAC, in which it added three new causes of action. Id. ¶ 6. Defendant removed the action on May 8, 2014, based 28 U.S.C. § 1331. It contends that Plaintiff's third cause of action arises under, and is completely preempted by, ERISA. Id.
A. Legal Standard
1. Preemption under ERISA
ERISA contains "expansive pre-emption provisions... which are intended to ensure that employee benefit plan regulation would be exclusively a federal concern.'" Aetna Health Inc. v. Davila, 542 U.S. 200, 200 (2004) (citing Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981)). ERISA is capable of two types of preemption: first, "complete preemption" under § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a) ("§ 502") and second, "conflict preemption" under § 514(a) of ERISA, 29 U.S.C. § 1144(a) ("§ 514"). See Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 945 (9th Cir. 2009).
Under Section 502, "[a]ny state-law cause of action that duplicates, supplements, or supplants ERISA's civil enforcement remedy" is preempted because it "conflicts with clear congressional intent to make that remedy exclusive." Davila, 542 U.S. at 209. Indeed, "the ERISA civil enforcement mechanism is one of those provisions with such extraordinary pre-emptive power' that it converts an ordinary state common law complaint into one stating a federal claim for purposes of the well-pleaded complaint rule.'" Id. (citing Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 65-66 (1987)). Under § 502, "a state-law cause of action is completely preempted if (1) an individual, at some point in time, could have brought [the] claim under ERISA § 502(a)(1)(B), ' and (2) where there is no other independent legal duty that is implicated by a defendant's actions'" (the " Davila test"). Marin, 581 F.3d at 946 (quoting Davila, 542 U.S. at 210). In Davila, the Supreme Court determined that the first prong was met because the plaintiffs' only claims related to "denial of benefits promised under the terms of the ERISA-regulated employee benefit plans, " and the plaintiffs could have brought an action under § 502. Davila, 542 U.S. at 211. The second prong was met because plaintiffs' civil action sought only to "rectify a wrongful denial of benefits promised under [an] ERISA-regulated plan[ ], and [did] not attempt to remedy any violation of a legal duty independent of ERISA." Id. at 214.
"Conflict preemption" arises under § 514(a). It preempts state laws that relate to any employee benefit plans, but does not those regulating insurance. 29 U.S.C. § 1144(a). State common law causes of action may be preempted by § 514 if they "relate to" an employee benefit plan regulated under ERISA. Pilot Life Ins. v. Dedeaux, 481 U.S. 41, 48 (1987). A state law claim relates to an employee benefit plan "if it has a connection with or reference to such a plan." Sarkisyan v. CIGNA Healthcare, 613 F.Supp.2d 1199, 1204 (C.D. Cal. 2009) (quoting New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 654 (1995)). However, "a defense of conflict preemption under § 514(a) does not confer federal question jurisdiction on a federal district court." Marin, 581 F.3d at 945.
1. Whether Plaintiff's State Law Causes of Action are Preempted by ERISA §§ 502 and 514
a) Preemption under ERISA § 514 and Removal Jurisdiction
Defendant contends that each cause of action asserted by Plaintiff is preempted under both § 502 and § 514. Dkt. 12-1 at 4. However, there are "different jurisdictional consequences that result ...