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Friedman v. AARP, Inc.

United States District Court, C.D. California

November 1, 2019

JERALD FRIEDMAN, Individually and on Behalf of All Others Similarly Situated, Plaintiff,



         Presently before the court are Defendants' Motion to Dismiss and Plaintiffs' Motion for Class Certification. (Dkts. 119, 150.) Having considered the submissions of the parties and heard oral argument, the court grants Defendants' motion, denies Plaintiffs' motion, and adopts the following Order.

         I. BACKGROUND

         Plaintiffs Jerald Friedman (“Friedman”) and Carol McGee (“McGee”) (collectively, “Plaintiffs”) bring this putative class action against defendants AARP, Inc., AARP Services Inc., AARP Insurance Plan, UnitedHealth Group, Inc., and United Healthcare Insurance Company (collectively, “Defendants”). (Dkt. 111, First Amended Complaint (“FAC”) ¶¶ 32-41.) The court has set forth the basic facts of the case in its prior Orders, (Dkts. 50, 78), which it repeats here in relevant part.

         In or around 2011, Plaintiffs purchased a type of health insurance policy, known as a “Medigap” policy, which is designed to offer extra coverage to Medicare beneficiaries beyond the basic Medicare benefits, including coverage of copays and deductibles that would otherwise be the patient's responsibility. (FAC ¶¶ 32-33, 46.) Plaintiffs purchased a Medigap policy that was endorsed by AARP, [1] with UnitedHealth[2]as the insurer. (Id. ¶¶ 32-33, 48.) “AARP [Insurance Plan] is the group policyholder under the Policy.” (Id. ¶ 10.) Additionally, for every AARP/UnitedHealth Medigap policy sold, AARP receives a payment of 4.9%[3] of the amount paid by the insured individual. (Id. ¶ 6.) All UnitedHealth Medigap policies are endorsed by AARP. (Id. ¶ 48.) Though Defendants' agreements cast this payment as a royalty, paid in exchange for UnitedHealth's use of AARP's intellectual property in marketing and selling its Medigap coverage, Plaintiffs allege that this characterization of the 4.9% payment is false. (Id. ¶¶ 73, 77.) On behalf of a putative class, Plaintiffs allege that the 4.9% royalty that AARP receives is (1) an unlawful commission; and/or (2) an unlawful rebate/kickback. (Id. ¶¶ 3, 6, 18.)

         In support of Plaintiffs' first claim that the royalty fee is an unlawful commission, Plaintiffs allege that AARP improperly acts as an unlicensed insurance agent in actively soliciting insurance purchases for Medigap policies on behalf of UnitedHealth. (Id. ¶¶ 6, 15-17, 21, 24, 77-78, 87, 92-93, 95-97, 104, 106.) Plaintiffs allege that the 4.9% payment that AARP receives on every AARP/UnitedHealth Medigap policy is an unlawful insurance commission paid to AARP for its role in marketing, soliciting, and selling or renewing the Medigap policies. (Id. ¶¶ 6, 15, 16.) Plaintiffs further allege that “while Defendants disclose the existence of a payment in general to AARP which they term a ‘royalty' paid for the use of AARP's intellectual property, Defendants hide the fact that the cost of AARP Medigap insurance includes a percentage-based commission to AARP that is funded by consumers, in addition to the insurance premium paid to UnitedHealth for coverage.” (Id. ¶ 99 (emphasis omitted).)

         For Plaintiffs' second claim that the royalty fee is an illegal rebate/kickback, Plaintiffs allege that the royalty is a “‘contract . . . promising returns and profits as an inducement' for the group policyholder AARP to insure its group plan with [UnitedHealth].” (Id. ¶ 109.) Plaintiffs further allege that AARP is “induced to the tune of hundreds of millions of dollars per year to keep AARP Medigap plan with [UnitedHealth] and Defendants worked out a scheme whereby consumers unwittingly fund [the illegal rebate].” (Id.) Therefore, Plaintiffs allege, even if UnitedHealth's payment to AARP is determined to be a royalty payment for the use of AARP's intellectual property, the payment would remain an illegal rebate paid to induce AARP to insurance. (Id. ¶ 113.)

         Plaintiffs allege that they were injured because they paid more for their Medigap policy due to the 4.9% illegal commission/rebate. (Id. ¶¶ 28, 63.) Plaintiffs allege that “Plaintiffs and the Class agreed to pay a monthly premium for insurance coverage, not a monthly premium plus a 4.9% surcharge used to fund an illegal scheme between Defendants, ” (id. ¶ 63), and Plaintiffs are harmed by “paying 4.9% above the actual cost of insurance coverage so that [Defendants] can secretly divert this illegal commission/rebate fee to the unlicensed AARP.” (Id. ¶ 117.)

         Plaintiff Friedman filed a putative class action in January 2014 asserting violations of California's Unfair Competition Law (“UCL”), money had and received, and conversion. (See Dkt. 1, Compl.) Defendants filed a Motion to Dismiss under Rule 12(b)(6). (Dkt. 27.) On October 6, 2014, this court granted Defendants' Motion concluding that Friedman had not plausibly alleged that AARP was acting as an unlicensed insurance agent collecting an illegal commission. (Dkt. 50.) Friedman appealed. (Dkt. 51.) On May 3, 2017, the Ninth Circuit reversed, holding that Friedman sufficiently pled a claim under the UCL's unlawful, unfair, and fraudulent prongs. (See Dkt. 54; Friedman v. AARP, Inc., 855 F.3d 1047, 1053 (9th Cir. 2017).) Specifically, the Ninth Circuit held that Friedman had sufficiently alleged that AARP was acting as an unlicensed insurance agent who collected an illegal commission, and Friedman sufficiently alleged misrepresentations regarding the fee that “induced [Friedman] to purchase Medigap through AARP rather than from other insurers . . . .” (Dkt. 54, at 20; Friedman, 855 F.3d at 1056.) On remand, this court was to consider Defendants' additional challenge to the complaint based on the filed-rate doctrine. Friedman, 855 F.3d at 1057.

         On January 16, 2018, this court concluded that filed rate principles permitted Friedman to proceed.[4] (Dkt. 78, at 4-7.) The court also concluded that Friedman had standing under the UCL, however, Friedman lacked standing to seek injunctive relief because Friedman no longer held a Medigap policy with Defendants. (Id. at 8.)

         On August 31, 2018, Plaintiffs filed the First Amended Complaint adding McGee as a named plaintiff and adding additional claims. (See FAC.) The First Amended Complaint contains claims for (1) violations of the UCL; (2) money had and received; (3) conversion; (4) breach of contract; (5) breach of the covenant of good faith and fair dealing; (6) financial elder abuse; and (7) violations of the Connecticut Unfair Trade Practices Act (“CUTPA”). (See FAC.)

         Defendants now move to dismiss the First Amended Complaint under Rule 12(b)(6).[5] (Dkt. 119, Motion to Dismiss (“MTD”).) Defendants challenge the sufficiency of Plaintiffs' claims based on the following: (1) Plaintiffs' lack standing under the UCL and CUTPA; (2) Plaintiffs' fail to allege an underlying predicate for the UCL and CUTPA claims; and (3) Plaintiffs fail to plausibly allege any state law claims. (Id.)


         A complaint will survive a motion to dismiss when it contains “sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). When considering a Rule 12(b)(6) motion, a court must “accept as true all allegations of material fact and must construe those facts in the light most favorable to the plaintiff.” Resnick v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000). Although a complaint need not include “detailed factual allegations, ” it must offer “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. Conclusory allegations or allegations that are no more than a statement of a legal conclusion “are not entitled to the assumption of truth.” Id. at 679. In other words, a pleading that merely offers “labels and conclusions, ” a “formulaic recitation of the elements, ” or “naked assertions” will not be sufficient to state a claim upon which relief can be granted. Id. at 678 (citations and internal quotation marks omitted).

         “When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement of relief.” Id. at 679. Plaintiffs must allege “plausible grounds to infer” that their claims rise “above the speculative level.” Twombly, 550 U.S. at 555, 556. “Determining whether a complaint states a plausible claim for relief” is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679.

         III. ...

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