United States District Court, N.D. California, San Jose Division
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]
LABSON FREEMAN United States District Judge.
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.
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.
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.
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?”
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
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.
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.
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.
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.
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
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?”
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
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.
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.
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.
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.
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).
Leave to Amend
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
Request for Judicial Notice
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).
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
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.
Court first addresses E3’s argument that res judicata
precludes this action and then turns to the parties’
arguments surrounding the ...