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Wit v. United Behavioral Health

United States District Court, N.D. California

November 20, 2014

DAVID WIT, et al., Plaintiffs,
v.
UNITED BEHAVIORAL HEALTH, Defendant

For David Wit on behalf of himself and all others similarly situated, Natasha Wit on behalf of herself and all others similarly situated, Brian Muir on his own behalf and on behalf of all others similarly situated, Plaintiffs: Meiram Bendat, LEAD ATTORNEY, Psych-Appeal, Inc., West Hollywood, CA; Andrew Caridas, PRO HAC VICE, Zuckerman Spaeder LLP, Washington, DC; Anthony F. Maul, The Maul Firm, P.C., Brooklyn, NY; Caroline E Reynolds, Zuckerman Spaeder LLP, Washington, DC; D. Brian Hufford, Zuckerman Spaeder LLP, New York, NY; Jason S. Cowart, Zuckerman Spaeder LLP, New York, NY.

For Brandt Pfeifer on behalf of the Estate of his deceased wife, Lauralee Pfeifer, and all others similarly situated, Lori Flanzraich on behalf of her daughter Casey Flanzraich and all others similarly situated, Cecilia Holdnak on behalf of herself, her daughter Emily Holdnak, and all others similarly situated, Plaintiffs: D. Brian Hufford, LEAD ATTORNEY, Zuckerman Spaeder LLP, New York, NY; Andrew Caridas, PRO HAC VICE, Zuckerman Spaeder LLP, Washington, DC; Anthony F. Maul, The Maul Firm, P.C., Brooklyn, NY; Caroline E Reynolds, Zuckerman Spaeder LLP, Washington, DC; Meiram Bendat, Psych-Appeal, Inc., West Hollywood, CA.

For United Behavioral Health doing business as OptumHealth Behavioral Solutions, Defendant: Christopher Flynn, LEAD ATTORNEY, Crowell and Moring LLP, Washington, DC; Jennifer Salzman Romano, Crowell & Moring LLP, Los Angeles, CA; Nathaniel Philip Bualat, Crowell & Moring LLP, San Francisco, CA.

ORDER DENYING MOTION TO DISMISS PURSUANT TO RULE 12(b)(6)

JOSEPH C. SPERO, United States Magistrate Judge.

Re: Dkt. No. 43

I. INTRODUCTION

Plaintiffs in this putative class action allege that Defendant United Behavioral Health (" UBH") has wrongfully denied their claims and improperly limited the scope of their insurance coverage for mental health and substance abuse-related residential treatment. Plaintiffs assert claims against UBH for breach of fiduciary duty, improper denial of benefits and equitable relief under the Employee Retirement Income Security Act (" ERISA"). UBH brings a Motion to Dismiss Pursuant to Rule 12(b)(6) (" the Motion"), which came on for hearing on Wednesday, November 19, 2014 at 9:30 a.m. The parties have consented to the jurisdiction of the undersigned magistrate judge pursuant to 28 U.S.C. § 636(c). For the reasons stated below, the Motion is DENIED.

II. BACKGROUND

A. First Amended Complaint

In their First Amended Complaint (Corrected) (" FAC"), Plaintiffs allege that they (or their family members) were insured by employee-sponsored health insurance plans governed by ERISA (" Plans"). FAC ¶ 1. Plaintiffs allege that each of these Plans covers, among other things, treatment for mental illness and substance use disorders, including residential care. FAC ¶ 2.

Plaintiffs allege that the Plans delegate to UBH the responsibility for determining the availability of benefits in response to claims made by Plan members for mental health and substance use-related services (a process also known as adjudicating benefits claims). FAC ¶ 3. According to Plaintiffs, UBH has developed " levels of care" (" LOCs") and " coverage determination" guidelines (" CDGs"), which it instructs its representatives to use in adjudicating mental healthcare claims. FAC ¶ ¶ 3, 5. Because of its central role in the mental health and substance use-related claim adjudication process, Plaintiffs allege, UBH is an ERISA fiduciary as defined by 29 U.S.C. § 1104(a) and therefore owes a fiduciary duty to Plan participants and beneficiaries. FAC ¶ 8. In particular, Plaintiffs allege, " UBH had a fiduciary duty to Plaintiffs (and to other members of plans administered by UBH) to promulgate criteria that faithfully ensure that a particular level of care is both covered by the terms of Plaintiffs' Plans and consistent with generally accepted standards of care." FAC ¶ 13.

Plaintiffs allege that UBH has an " inherent conflict of interest in its role as mental health and substance abuse claims administrator" because " [e]very claim denied by UBH saves money for UBH's corporate affiliates and artificially increases the profits of its parent entity." FAC ¶ 9. In particular, Plaintiffs allege that:

The Wit, Pfeifer, and Flanzraich plans are " fully-insured, " meaning that health care benefits are paid by Defendant UBH's corporate affiliates, UnitedHealthcare Insurance Company (" UHIC"), UnitedHealthcare Insurance Company of Illinois, Inc. (" UHICIL"), and Oxford Insurance Company, Inc. (" Oxford"), respectively. Thus, every residential treatment claim denied by UBH allows one of its affiliates to save money and artificially increases the profit of UHG. The same is largely true with respect to Muir and Holdnak's plans, even though they are " self-funded." Although these plans require that benefits be paid, in the first instance, from the assets of Muir and Holdnak's group plan sponsors, most self-funded plans have stop-loss provisions that obligate the insurer to pay benefits that exceed a certain threshold. Thus, every claim UBH denies makes it less likely that such a stop-loss threshold will be crossed and reduces the possible stop-loss liability of UBH's affiliates.

Id.

Plaintiffs allege that UBH improperly denied their claims for residential treatment even though such treatment was medically appropriate and consistent with the terms of their Plans. See FAC ¶ ¶ 38-50 (alleging that UBH wrongfully denied coverage for Natasha Wit's residential treatment for " depression, anxiety, obsessive-compulsive behaviors, a severe eating disorder, medical complications . .., failure of symptom self-management . .., and a lack of psychosocial support" in violation of prevailing medical standards and UBH's own LOCs); ¶ ¶ 51-91 (alleging that UBH wrongfully denied coverage for Emily Holdnak's residential treatment for, inter alia, Major Depressive Order, obesity, cutting, and chronic suicidal ideation, following years of unsuccessful outpatient treatment and a suicide attempt, based on improper classification of residential treatment as " acute care, " " thereby exempting chronic mental health conditions, irrespective of severity, from residential treatment coverage"); ¶ ¶ 115-133 (alleging UBH wrongfully denied coverage for residential substance use disorder treatment for Lauralee Pfeifer, who ultimately died in her own home of acute alcohol intoxication, despite high risk of relapse and in violation of UBH's own guidelines for treatment of substance use disorders); ¶ ¶ 134-154 (alleging UBH wrongfully denied coverage for Brian Muir's residential treatment for alcohol dependence, depressive and anxiety disorders, suicidality and a delayed traumatic reaction to childhood abuse based on criteria that were inconsistent with Muir's plan and with prevailing medical standards); ¶ ¶ 155-182 (alleging that UBH wrongfully denied coverage for residential treatment for Casey Flanzraich, who was diagnosed with Bipolar I Disorder, Oppositional Defiant Disorder, a parent-relational problem, asthma, fibromyalgia, and brittle bone disease, as well as a substance abuse disorder, where outpatient treatment had been unsuccessful, based on improper application of acute hospitalization criteria).

Plaintiffs also allege that UBH breached its fiduciary duty to them by " supplanting generally accepted treatment standards in the mental health field with standards that promote the self-serving, cost-cutting preferences of UBH and its corporate affiliates." FAC ¶ 13. According to Plaintiffs, " [b]y promulgating improperly restrictive guidelines, UBH artificially decreased the number and value of covered claims thereby benefiting its corporate affiliates at the expense of insureds." FAC ¶ 199. Plaintiffs further allege that they have been " harmed by UBH's breaches of fiduciary duty because their claims have been subjected to UBH's restrictive guidelines making it less likely that UBH will determine that their claims are covered." FAC ¶ 201.

Plaintiffs assert the following claims against UBH:

Claim One: Violation of Fiduciary Obligations pursuant to ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), based on allegation that " [d]espite the fact that the health insurance plans that insure Plaintiffs and the Class provide for insurance coverage for residential treatment, the fact that generally accepted standards of care are widely available and well-known to UBH, and that fact that UBH asserted that its guidelines were consistent with those that are generally accepted, UBH developed guidelines that are far more restrictive than those that are generally accepted." FAC ¶ 198.

Plaintiffs request the following relief on this claim: 1) a declaration by the Court to declare that these internal guidelines " were developed in violation of UBH's fiduciary duties; " 2) a permanent injunction " ordering UBH to stop utilizing the guidelines complained of [in the FAC], and instead adopt or develop guidelines that are consistent with those that are generally accepted and with the requirements of applicable state law; and 3) an order requiring UBH to pay a surcharge " in an amount equivalent to the revenue it generated from its corporate affiliates or the plans for providing mental health and substance abuse-related claims administration services with respect to claims filed by Plaintiffs and members of the Class, expenses that UBH's corporate affiliates saved due to UBH's wrongful denials, the out-of-pocket costs for residential treatment that Plaintiffs and members of the Class incurred following UBH's wrongful denials, and/or pre-judgment interest." FAC at 65-66.

Claim Two: Improper Denial of Benefits pursuant to ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), based on allegation that " UBH denied the insurance claims for residential treatment submitted by Plaintiffs and other members the Class in violation of the terms of Plaintiffs' Plans and the insurance plans that insure members of the Class." FAC ¶ 205. Plaintiffs alleges that " UBH denied these claims, in part, based on its restrictive internal guidelines that were developed in violation of its fiduciary duties [and] . . . in part, based on its systematic practice of: (i) improperly applying acute inpatient treatment criteria to residential treatment claims; (ii) ignoring the evidence presented to it; (iii) applying undisclosed additional criteria to benefit claims, such as a length of stay " benchmark"; and (iv) relying upon its restrictive CDGs even though CDGs (as opposed to LOCs) are not a recognized basis for denying claims under Plaintiffs' Plans." Id.

Plaintiffs request the following relief on this claim: 1) a declaration that UBH's denials of residential treatment coverage were improper; 2) an order requiring that UBH " reprocess claims for residential treatment that it previously denied (in whole or in part) pursuant to new guidelines that are consistent with those that are generally accepted and with the requirements of applicable state law" and that UBH " faithfully apply" these guidelines both in reprocessing previously denied claims and in processing future claims for residential treatment; and 3) an order requiring that UBH be required to pay the same surcharge requested as a remedy on Claim One. FAC at 65-66.

Claim Three: Equitable Relief pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3)(A), seeking equitable relief " only to the extent that the Court finds that the injunctive relief sought to remedy [Claims One and Two] are unavailable pursuant to [ERISA § 502(a)(1)(B), ] 29 U.S.C. § 1132(a)(1)(B)." FAC ¶ 209. In this claim, Plaintiffs ask the Court to enjoin the acts and practices of UBH which allegedly breach its fiduciary duty and by which " Plaintiffs have been harmed and are likely to be harmed in the future." FAC ¶ ¶ 210-211. In particular, Plaintiffs request the following remedies on this claim to the extent they are unavailable on Claims One and Two: 1) a declaration by the Court to declare that the internal guidelines complained of in the FAC " were developed in violation of UBH's fiduciary duties; " 2) a permanent injunction " ordering UBH to stop utilizing the guidelines complained of [in the FAC], and instead adopt or develop guidelines that are consistent with those that are generally accepted and with the requirements of applicable state law; " 3) a declaration that UBH's denials of residential treatment coverage were improper; and 4) an order requiring that UBH " reprocess claims for residential treatment that it previously denied (in whole or in part) pursuant to new guidelines that are consistent with those that are generally accepted and with the requirements of applicable state law" and that UBH " faithfully apply" these guidelines both in reprocessing previously denied claims and in processing future claims for residential treatment. FAC at 65-66.

Claim Four: Other Appropriate Equitable Relief pursuant to ERISA § 502(a)(3)(B), 29 U.S.C. § 1132(a)(3)(B), seeking equitable relief " only to the extent that the Court finds that the injunctive relief sought to remedy [Claims One and Two] are unavailable pursuant to 29 U.S.C. § 1132(a)(1)(B)." FAC ¶ 213. In this claim, Plaintiffs allege that they have been harmed by UBH's breach of fiduciary duty and, that " by engaging in misconduct, UBH allowed its corporate affiliates to be unjustly enriched insofar as they were not required to pay benefit claims." FAC ¶ ¶ 214-215. As remedy on this claim, Plaintiffs ...


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