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Salinas Valley Memorial Healthcare System v. Envirotech Molded Products, Inc.

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

November 8, 2017



          LUCY H. KOH United States District Judge.

         Plaintiff Salinas Valley Memorial Healthcare System (“Plaintiff”) sues Envirotech Molded Products, Inc. (“Envirotech”) and Envirotech Molded Products Inc. Employee Benefit Plan (the “Plan”) (collectively, “Defendants”) for causes of action arising from Defendants' alleged failure to properly pay Plaintiff for medical care that Plaintiff provided to a beneficiary of a health plan administered by Defendants. See ECF No. 1 (“Compl.”) ¶ 1. Before the Court is Defendants' motion to dismiss. ECF No. 15 (“Def. Mot.”). Having considered the submissions of the parties, the relevant law, and the record in this case, the Court hereby DENIES Defendant's motion to dismiss.

         I. BACKGROUND

         A. Factual Background

         Plaintiff is a “public hospital district and health system” located in Monterey County, California. Compl. ¶ 6. Defendant Envirotech is a Utah corporation with its primary place of business in Salt Lake City, Utah. Id. ¶ 7. Plaintiff alleges that Defendant Envirotech “is the designated Plan Administrator, ” “Named Fiduciary, ” and sponsor of Defendant Plan, which is a self-insured ERISA health benefits plan. Id. ¶¶ 7-8. Plaintiff also asserts that Defendant Plan “has no in-network hospitals.” Id. ¶ 33. Thus, Plaintiff alleges that “as far as emergency services and hospital care is concerned, Defendants intentionally set up a Plan structure where there is no network at all.” Id.

         In 2016, Plaintiff admitted a very ill woman (“Patient”)[1] on two separate occasions for “intensive inpatient care.”[2] Id. ¶ 1. At that time, the Patient was a beneficiary of Defendant Plan. Id. ¶ 8. In mid-January 2016, “when the Patient was still at [Plaintiff's] Hospital, ” Plaintiff called Defendants to verify the Patient's benefits under the Plan. Id. ¶ 37. Plaintiff alleges that “an individual speaking on behalf of the Plan” named “Jennifer” confirmed that (1) the Plan “had a $1, 000 deductible for calendar year 2016”; (2) the Plan covered, among other benefits, “semiprivate inpatient care (e.g., a hospital room)” for the Patient effective January 1, 2016; (3) “such care would initially be covered at 70% up to $10, 000, and then would be paid at 100% thereafter”; and (4) “the Plan had a Maximum Out-of-Pocket limit of $3, 000 in calendar year 2016, which had not yet been met.” Id. Then, in mid-March 2016, Plaintiff called Defendants again to verify the Patient's benefits under the Plan. This time, Plaintiff spoke with someone named “Heidi, ” who confirmed that the Plan had a $1, 000 deductible for 2016, verified that Patient's coverage was effective January 1, 2016, and “represented that the Plan would actually pay 80% for inpatient care up to $20, 000, and after that point, would pay 100% for such care.” Id.

         ¶ 38. Plaintiff alleges that the “customary meaning” of Defendants' representations about paying for certain percentages, such as 70%, 80%, and 100%, is that Defendants would pay those percentages of the Plaintiff's charges for the services that Plaintiff provided to the Patient. Id. ¶ 40. Plaintiff also alleges that Heidi disclosed only one limitation on “inpatient care benefits”: “that the Plan would pay for up to 60 days of inpatient care in any given calendar year.” Id.

         Relying on these representations, Plaintiff provided intensive inpatient care to the Patient. Plaintiff's bill for Defendants' portion of the charges for the Patient's care totaled $200, 444.85. Id. ¶ 1. However, Defendants paid only $63, 581.36, or less than a third of the bill. Id. Plaintiff states that Defendants arrived at this figure by relying on “the unsupported assumption that they never have to pay more than [120% of] the rate that the federal government pays under the Medicare program.” Id. ¶ 23. Thus, instead of paying percentages of Plaintiff's charges for the services that Plaintiff provided, Defendants paid only percentages of 120% of the Medicare rates for those services. See id.¶ 28. For example, instead of paying 100% of Plaintiff's charges for services rendered after the Maximum Out-of-Pocket (“MOOP”) threshold was met, Defendants paid 100% of 120% of the Medicare rates for those services. Id. Plaintiff alleges that 120% of Medicare rates is “just a fraction of the standard charges by [Plaintiff] and all other hospitals in this geographic area (as well as many others).” Id. ¶ 23. Further, because Plaintiff's charges for the services it provided to the Patient were “well above 120% of Medicare, ” Defendants' refusal to pay any more than 100 % of 120% of Medicare rates for those services left “the Patient on the hook for the vast bulk of hospital bills.” Id. ¶ 28.

         Plaintiff alleges that the Summary Plan Description (“SPD”) for Defendant Plan did not disclose the fact that Defendants would pay only 120% of the Medicare rates (at most) for covered services in “sufficiently close proximity” to the Plan's description or summary of benefits. Id. ¶ 31. Plaintiff also alleges that at no time during Plaintiff's two authorization and verification phone calls with Defendants' representatives did those representatives “identify any limitations or exclusions” or disclose that Defendants “would not pay more than 120% of Medicare.” Id. ¶ 41. Plaintiff “pursued all available levels of internal appeal[s] under the Plan with respect to the Patient's medical care, ” but “the Plan has refused to pay a cent more” than the $63, 581.36 it already paid. Id. ¶¶ 2, 52.

         B. Procedural History

         On July 10, 2017, Plaintiff sued Defendants in this Court. See Compl. Plaintiff's complaint alleged four causes of action against Defendants: (1) violation of the Employee Retirement Income Security Act (“ERISA”) of 1974, 29 U.S.C. § 1132(a)(1)(B); (2) violation of 42 U.S.C. § 300gg-6(b); (3) intentional misrepresentation; and (4) negligent misrepresentation.

         On August 2, 2017, Defendants filed a motion to dismiss all but Plaintiff's first cause of action. See ECF No. 15 (“Def. Mot.”). On August 28, 2017, Plaintiff opposed Defendants' motion to dismiss. See ECF No. 18 (“Pl. Opp.”). On September 8, 2017, Defendants filed a Reply. ECF No. 20.


         A. Motion to Dismiss Under Rule 12(b)(6)

         Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a complaint to include “a short and plain statement of the claim showing that the pleader is entitled to relief.” A complaint that fails to meet this standard may be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6). The United States Supreme Court has held that Rule 8(a) requires a plaintiff to 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). “A claim has facial plausibility when the plaintiff pleads 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 plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (internal quotation marks omitted). For purposes of ruling on a Rule 12(b)(6) motion, the Court “accept[s] factual allegations in the complaint as true and construe[s] 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).

         The Court, however, need not accept as true allegations contradicted by judicially noticeable facts, see Schwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000), and it “may look beyond the plaintiff's complaint to matters of public record” without converting the Rule 12(b)(6) motion into a motion for summary judgment, Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 1995). Nor must the Court “assume the truth of legal conclusions merely because they are cast in the form of factual allegations.” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (per curiam) (internal quotation marks omitted). Mere “conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss.” Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004).

         B. Leave to Amend

         If the Court determines that a complaint should be dismissed, it must then decide whether to grant leave to amend. Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend “shall be freely given when justice so requires, ” bearing in mind “the underlying purpose of Rule 15 to facilitate decisions on the merits, rather than on the pleadings or technicalities.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (alterations and internal quotation marks omitted). When dismissing a complaint for failure to state a claim, “a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Id. at 1130 (internal quotation marks omitted). Accordingly, leave to amend generally shall be denied only if allowing amendment would unduly prejudice the opposing party, cause undue delay, or be futile, or if the moving party has acted in bad faith. Leadsinger, Inc. v. BMG Music Publ'g, 512 F.3d 522, 532 (9th Cir. 2008).

         III. ...

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