Bay Area Surgical Management LLC v. Aetna Life Insurance Co.

          ORDER (1) GRANTING DEFENDANT E3’S MOTION TO DISMISS WITH PARTIAL LEAVE TO AMEND AND (2) GRANTING DEFENDANT AETNA’S MOTION TO DISMISS WITH LEAVE TO AMEND [RE: ECF 66, 68]

          BETH LABSON FREEMAN United States District Judge.

         Plaintiffs Bay Area Surgical Management, LLC, Bay Area Surgical Group, Inc., Forest Surgery Center, L.P., SOAR Surgery Center, LLC, Knowles Surgery Center, LLC, National Ambulatory Surgery Center, LLC, and Los Altos Surgery Center, L.P. bring this action alleging violations of the Sherman Act, intentional interference with prospective economic advantage, intentional interference with actual contractual relations, violations of California’s antitrust statute, the Cartwright Act, and violations of California’s Unfair Competition Law against Defendants E3 Healthcare Management LLC, Alpine Healthcare, LLC, Bascom Surgery Center, L.P., Campus Surgery Center L.P., El Camino Ambulatory Surgery Center, LLC, Silicon Valley Surgery Center, L.P., and Waverley Surgery Center, L.P.’s (collectively “E3”), Defendant United Healthcare Services, Inc., and Defendant Aetna Life Insurance Company (“Aetna”). On May 25, 2016, Plaintiffs dismissed Defendant United Healthcare with prejudice. ECF 86. Before the Court are Defendant E3 and Defendant Aetna’s motions to dismiss Plaintiffs’ First Amended Complaint (“FAC”) pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons discussed below, Defendant E3’s motion to dismiss is GRANTED with partial leave to amend and Defendant Aetna’s motion to dismiss is GRANTED with leave to amend.

         I.BACKGROUND

         The following factual allegations are taken from Plaintiffs’ FAC. Plaintiff Bay Area Surgical Management, LLC manages ambulatory surgical centers, including some owned and operated by the other Plaintiffs. FAC ¶ 3. The remaining six Plaintiffs own and operate ambulatory surgery centers at which outpatient surgeries are performed. Id. ¶¶ 4-9. Defendant Aetna is a health insurance company doing business in California. Id. ¶ 10. Defendants E3 Healthcare Management, LLC and Alpine Healthcare, LLC manage ambulatory surgery centers in Northern California. Id. ¶¶ 12-13. The remaining five E3 Defendants own and operate ambulatory surgery centers at which outpatient surgeries are performed. ¶¶ 14-18.

         Defendant Aetna is a “goliath” in the highly concentrated health insurance industry and has health benefit plans through which their insureds are reimbursed for covered healthcare services, including outpatient surgery services such as those provided by the centers managed by Plaintiff and the E3 Defendants. Id. ¶¶ 26, 32. The amount reimbursed by the health benefit plans depends on whether the services were performed by in-network or out-of-network providers. Id. ¶ 27. In-network service providers agree to a lower reimbursement rate in exchange for participation in Aetna’s networks. Id. Insureds who utilize in-network service providers are required only to pay any applicable copayment or coinsurance along with the deductible amount provided in the plan. Id. On the other hand, out-of-network service providers are reimbursed at specific rates delineated in each insureds’ benefit plan. Id. ¶ 28. Insureds are therefore responsible for any applicable copayment, coinsurance, and deductible amount as well as the difference charged by the out-of-network service provider and the amount reimbursed by Defendant Insurers. Id.

         In early 2010 and continuing thereafter, Plaintiffs allege that Defendants conspired to suppress competition in the ambulatory surgery market in Santa Clara and San Mateo Counties. Id. ¶ 23. According to Plaintiffs, the conspiracy began on March 18, 2010 during the California Ambulatory Surgery Association trade association meeting. Id. ¶ 46. Dr. Jay Pruzansky, Managing Member of Alpine Healthcare and Director of E3 Healthcare LLC, approached Mark Reynolds, Manager at Aetna, to discuss his belief that Plaintiffs were charging exorbitant surgical fees. Id. That same day, Mr. Reynolds reported back to Aetna about his meeting with Dr. Pruzansky, stating, “How can we bring down the hammer on these guys?” Id.

         On March 24, 2010, Dr. Pruzansky contacted Mary Hull, in Aetna’s Special Investigations Unit, about filing a complaint against Plaintiffs with the California Medical Board. Id. ¶ 47. In response, Aetna asked for contact information for a representative at United Healthcare. Id. Dr. Pruzansky provided information for Carolyn Ham, United Healthcare’s Associate General Counsel. Id.

         In April 2010, Ms. Hull advised Dr. Pruzansky that Aetna had conducted research on information brought to its attention by him and that Aetna wanted to write a letter to the California State Attorney General and the Office of the Inspector General. Id. ¶48.

         On May 20, 2010, as a direct result of Dr. Pruzansky’s encouragement and prodding, Aetna sent a request to the Office of Inspector General of the Department of Health and Human Services, the Attorney General of California, and the California Department of Public Health that they “commence an investigation” into Plaintiffs’ financial and marketing practices. Id. ¶49. No action was initiated or taken by any of these agencies or entities against Plaintiffs as a result of Aetna’s request. Id.

         In February 2011, Dr. Pruzansky told Mr. Reynolds that he was frustrated and was considering canceling his Aetna’s contracts at 4 ASCs. Id. ¶ 50. According to Plaintiffs, this threat to withdraw came in response to Plaintiffs’ acquisition of an ASC in Santa Clara or San Mateo County and the opening of new additional ASCs. Id. Dr. Pruzansky, in a lengthy and detailed memo, demanded that Aetna take a series of actions against Plaintiffs, including limiting payments to Plaintiffs, terminating the in-network contracts of physicians referring cases to Plaintiffs, auditing Plaintiffs’ patients for payment collection, and reporting Plaintiffs’ billing practices to state authorities. Id. Plaintiffs allege this memo was “the blueprint for the closely coordinated and orchestrated plan to drive [Plaintiffs] out of the market.” Id.

         In response, Mr. Reynolds and Dr. Pruzansky met in-person at another trade association meeting held in Dana Point, California. Id. ¶ 52. Dr. Pruzansky followed-up the meeting with an e-mail to Mr. Reynolds on April 4, 2011 advising him that Plaintiffs had announced they were opening another “non-par facility” in the Los Gatos-San Jose area. Id. In what Plaintiffs purport was a thinly veiled threat, Dr. Pruzansky stated that “It continues to be a challenge to stay in-network and do the right thing.” Id.

         That same month, Defendants E3 and Aetna jointly retained Christine Hall, an attorney, to investigate and draft a complaint that was filed by Aetna with the Medical Board of California regarding Plaintiffs’ conduct. Id. ¶ 53. Bryan Westerfeld, an outside attorney for United Healthcare, also participated in the discussions. Id. ¶ 54. Between September and December 2011, high level management and legal representatives exchanged 67 written communications and participated in numerous conferences concerning Plaintiffs’ conduct and the Medical Board Complaint. Id. ¶ 55. On November 1, 2011, Aetna filed a formal written Complaint with the California Medical Board. Id. Plaintiffs note that they are not predicating any of their liability claims on the filing of the Medical Board Complaint or any of the letters written to any governmental agency or entity. Id. at 18 n.15.

         In early 2010, after the Medical Board did not issue any rulings or take any action against Plaintiffs, Aetna and United Healthcare filed substantially similar lawsuits against Plaintiffs in Santa Clara Superior Court. Id. ¶ 56. Plaintiffs state they are not predicating any of their liability claims on the filing or maintenance of either of these lawsuits. Plaintiffs contend that both suits absurdly allege that “because [Aetna and United Healthcare] are busy processing millions of claims, they do not have time to review all out-of-network claims for ASC services for accuracy and reasonableness and have therefore on occasions made payments to [Plaintiffs] which in hindsight [] should have been reimbursed at lesser amounts.” Id. After filing the lawsuit, Karen Jansen, an E3 employee, wrote to Andrea Tyler, an Aetna employee, recognizing what Plaintiffs argue was the true purpose of the lawsuits: “[h]ow do you feel about [Plaintiffs’] take on this whole lawsuit stating this is Aetna’s way of strong-arming them to take a below market contract?” Id.

         From 2011 and continuing to the present, Plaintiffs allege Aetna and United Healthcare boycotted, intimidated, and harassed them, their active and potential surgeons, and their actual and prospective patients. Id. ¶ 57. For example, Aetna’s Director of Network Management sent written warnings to one or more surgeons affiliated with Plaintiffs stating that Aetna was “concerned” about the practice of referring patients to Plaintiffs’ “nonparticipating” facilities. Id. Aetna stated that “continued use of nonparticipating facilities” would result in “your profile on DocFind® will inform our [patient] members about the additional costs associated with using out-of-network providers.” Id.

         In April 2012 and continuing through the present, Plaintiffs allege United Healthcare sent letters to Plaintiffs’ surgeons threatening them with “termination” of their carrier agreements if they did not stop referring patients to Plaintiffs’ facilities. Id. ¶ 58. United Healthcare also posted designations for surgeons affiliated with Plaintiffs that stated these “care provider[s have] not met guidelines for cost-efficiency care.” Id. ¶ 60. United Healthcare also contacted patients using Plaintiffs’ facilities to advise them that the “allowable amount” of reimbursement was lower than the amount billed by Plaintiffs. Id. ¶ 63.

         Plaintiffs also allege that Aetna sent written questionnaires to patients that had submitted claims for services performed at Plaintiffs’ facilities. Id. ¶ 62. These forms demanded information about billing and payment practices, disclosures of the surgeons relating to financial ownership, the level of care provided, whether they had seen negative press articles about Plaintiffs, and requested a telephone interview. Id.

         Plaintiffs allege the Defendants’ coordinated action has had disastrous effects on revenues, profits, and growth. Id. ¶ 64. From their peak in 2010-2011 through 2014, Plaintiffs’ revenues have declined in excess of $46.2 million-a 45% decline-and the number of surgical procedures performed at BASM facilities has declined 20%. Id. United Healthcare has refused to pay for at least 154 surgical procedures, amounting to $3 million in losses, and Aetna has paid zero in 124 cases, amounting to another $3 million loss. Id.

         Based on the forgoing conduct, Plaintiffs brought this suit alleging Defendants violated Section 1 of the Sherman Act. Id. ¶ 68. Moreover, Plaintiffs allege that Defendants’ conduct wrongfully interfered with actual and prospective contractual relationships between Plaintiffs and physicians Dr. Andy Yu, Dr. Peter Yuan, Dr. Julia Kahan, Dr. Norman Kahan, Dr. Samir Sharma, Dr. Jeff Gutman, and Dr. Shahram Gholami. Id. ¶¶ 86, 94.

         II. LEGAL STANDARD

         A. Rule 12(b)(6)

         A motion to dismiss under Rule 12(b)(6) concerns what facts a plaintiff must plead on the face of the complaint. Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Any complaint that does not meet this requirement can be dismissed pursuant to Rule 12(b)(6). A “short and plain statement” demands that a plaintiff plead “enough facts to state a claim to relief that is plausible on its face, ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007), which requires that “the plaintiff plead factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court must “accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

         B. Leave to Amend

         Under Rule 15(a), a court should grant leave to amend “when justice so requires, ” because “the purpose of Rule 15…[is] to facilitate decision on the merits, rather than on the pleadings or technicalities.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc). A court may deny leave to amend for several reasons, including “undue delay, bad faith, …[and] futility of amendment.” Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003).

         C. Request for Judicial Notice

         Although a district court generally may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion, the Court may take judicial notice of documents referenced in the complaint, as well as matters in the public record, without converting a motion to dismiss into one for summary judgment. See Lee v. City of L.A., 250 F.3d 668, 688-89 (9th Cir. 2001), overruled on other grounds by Galbraith v. Cty. of Santa Clara, 307 F.3d 1119, 1125-26 (9th Cir. 2002). In addition, the Court may take judicial notice of matters that are either “generally known within the trial court’s territorial jurisdiction” or “can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b). Public records, including judgments and other court documents, are proper subjects of judicial notice. See, e.g., United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007).

         Aetna requests judicial notice of court documents from prior actions filed by the parties in California Superior Court. ECF 68. Plaintiffs do not object to the any of Aetna’s requests. Since these documents are court documents or part of the court record, they are the proper subject of judicial notice and the Court GRANTS Aetna’s request for judicial notice.

         E3 requests judicial notice of two filings from a prior state court action and a release of all claims signed by Plaintiffs and E3. ECF 67 at 2. Plaintiffs object to E3’s request for judicial notice of the release because “the scope of a release is a fact issue, [and] it would violate [Plaintiffs’] due process rights to resolve this issue without first affording [Plaintiffs] the opportunity to conduct discovery.” Opp. to E3 8, ECF 76. Plaintiffs’ objection does not go to the existence of the release but whether it is appropriate for the Court to resolve its scope. As the Court explains infra III.A.1, the Court is not analyzing the scope of the release in addressing E3’s motion to dismiss. Accordingly, Plaintiffs’ objection to the release is overruled. Thus, the Court GRANTS E3’s request for judicial notice as two of the documents are court documents, and the existence of the release, which has been signed by Plaintiffs, cannot be reasonably questioned by either party.

         III. DISCUSSION

         The Court first addresses E3’s argument that res judicata precludes this action and then turns to the parties’ arguments surrounding the ...