1 2 3 4 5 6 7 8 9 10 UNITED STATES DISTRICT COURT 11 EASTERN DISTRICT OF CALIFORNIA 12 13 DAMERON HOSPITAL ASSOCIATION, a ) Case No. 2:24-cv-01379-JAM-AC California Non-Profit ) 14 Association, ) ) 15 Plaintiff, ) ) 16 v. ) ) ORDER GRANTING IN PART 17 GEICO GENERAL INSURANCE COMPANY, ) DEFENDANTS’ MOTION TO DISMISS a Nebraska Corporation, ) 18 ) Defendant. ) 19 ) DAMERON HOSPITAL ASSOCIATION, a ) Case No. 2:24-cv-00934-JAM-AC 20 California Non-Profit ) Association, ) 21 ) Plaintiff, ) 22 ) v. ) 23 ) GEICO INDEMNITY COMPANY, a ) 24 Maryland Corporation, ) ) 25 Defendant. ) 26 INTRODUCTION OF CASE 27 Before the Court is two related cases involving Geico General 28 Insurance Company and Geico Indemnity Company (“Defendant(s)”), who 1 move to dismiss the Complaint by Dameron Hospital Association 2 (“Plaintiff”) for failure to state a claim. See Mot., ECF No. 12 3 and 10; Compl., ECF No. 1 (both). These cases involve nearly 4 identical claims and legal arguments and were related pursuant to 5 Local Rule 123. See ECF No. 9 (both). Plaintiff opposed the 6 motions. See Opp’n, ECF Nos. 14 and 12. Defendants filed replies. 7 See Reply, ECF Nos. 15 and 14. For the reasons below, Defendants’ 8 Motions are denied in part and granted in part with leave to 9 amend.1 10 I. FACTUAL ALLEGATIONS 11 Plaintiff Dameron Hospital operates an emergency room in 12 Stockton, California and seeks injunctive, declaratory, and 13 compensatory relief arising from Defendants’ Geico General 14 Insurance Company (“Geico General”) and Geico Indemnity Company 15 (“Geico Indemnity”) failure to pay Dameron Hospital certain 16 benefits due under various patients’ automobile policies. See 17 Compl. at 24-25 (both). Specifically, this case involves the 18 purported assignment of Med-Pay (“MP”) and Uninsured Motorist 19 (“UM”) benefits by five patients who were admitted and discharged 20 from Dameron Hospital. Dameron claims entitlement to these 21 benefits pursuant to the Assignment of Benefits (“AOB”) contained 22 in each patients’ respective Conditions of Admission (“COA”) 23 paperwork. Four of the patients have Medicare or Veterans 24 Administration healthcare as their medical insurance (D.S., X.K., 25 M.A., A.G.) and one individual (J.M.) is alleged to be a self-pay 26 patient with no other insurance. See Compl. ¶ 4 (both). Each of

27 1 This motion was determined to be suitable for decision without 28 oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled 1 these individuals is alleged to maintain automobile coverage 2 through either Defendant Geico General Insurance Company or Geico 3 Indemnity Company. See Compl. ¶ 6-7 (both). 4 Dameron Hospital alleges three causes of action in its 5 Complaint. The First Cause of Action is a claim for injunctive 6 relief under California’s Unfair Competition Law, Business and 7 Professions Code § 17200 (“UCL”) stemming from a breach of 8 contract. The Second Cause of Action alleges breach of contract by 9 Defendants for failure to honor the assignment of MP or UM benefits 10 in Dameron Hospital’s COAs signed by the aforementioned emergency 11 room patients. The Third and final Cause of Action is a claim 12 under the Medicare Secondary Payer Act, U.S.C.A. § 1395y(b)(3)(A) 13 (“MSP Act”), alleging that Defendants have primary payer 14 responsibility for the services rendered by Plaintiff Dameron 15 Hospital. 16 II. OPINION 17 A. Legal Standard 18 A Rule 12(b)(6) motion challenges the sufficiency of a 19 complaint for “failure to state a claim upon which relief can be 20 granted.” Fed. R. Civ. P. 12(b)(6). Under the plausibility 21 pleading standard set forth in Bell Atlantic Corp. v. Twombly, 550 22 U.S. 544, 570 (2007), a plaintiff survives a motion to dismiss by 23 alleging “enough facts to state a claim to relief that is 24 plausible on its face.” The complaint must contain sufficient 25 “factual content that allows the court to draw the reasonable 26 inference that the defendant is liable for the misconduct 27 alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). At the 28 Rule 12(b)(6) stage, the Court must accept all nonconclusory 1 factual allegations of the complaint as true and construe those 2 facts and the reasonable inferences that follow in the light most 3 favorable to the Plaintiff. Id.; see also Knievel v. ESPN, 393 4 F.3d 1068, 1072 (9th Cir. 2005). 5 B. Analysis 6 1. Plaintiff Fails to State a Claim for Breach of 7 Contract 8 a. The COAs Are Unenforceable Adhesion Contracts Under 9 California Caselaw for Patients with Medical 10 Insurance 11 Defendants argue that the COAs and AOBs that Plaintiff 12 requires patients to sign upon admittance or discharge from 13 Dameron Hospital are adhesion contracts, thus there is no breach 14 of contract claim for such unenforceable contracts that defy the 15 reasonable expectations of the signatory. See Mot. at 9. 16 Plaintiff argues that an unpublished district court order in this 17 district, Dameron Hosp. Ass’n v. State Farm Mut. Auto. Ins. Co., 18 2018 WL 1425981, at *4 (E.D. Cal. Mar. 22, 2018) (hereinafter, 19 “State Farm 2018”) supports its position that the AOBs are valid 20 contracts. See Opp’n at 10; Exhibit 1. However, as Defendants 21 correctly point out in their Reply, State Farm 2018 did not 22 address arguments that AOBs are unenforceable as adhesion 23 contracts that defy reasonable expectations. See Reply at 6. 24 Importantly, unlike this Court, the State Farm 2018 district court 25 order did not have the benefit of the analysis in Dameron Hosp. 26 Assn. v. AAA N. California, Nevada & Utah Ins. Exch., 77 Cal. App. 27 5th 971 (2022)(“AAA”) – a recently decided case – which as 28 discussed below, deemed Dameron Hospital’s COAs unenforceable 1 adhesion contracts under California law. 2 The factual allegations and legal arguments in this case are 3 strikingly similar to those at issue in AAA: both involve Dameron 4 Hospital, automobile insurers, and questions surrounding the 5 assignment of MP and UM benefits. Plaintiff argues that AAA 6 disposes the contract issue in its favor, however, the Court finds 7 that AAA squarely holds that Dameron Hospital’s COAs are adhesion 8 contracts and are unenforceable if patients do not reasonably 9 expect such assignment of benefits to occur. Id. at 988, 994. 10 “The distinctive feature of a contract of adhesion is that 11 the weaker party has no realistic choice as to its terms.” AAA at 12 992, quoting Wheeler v. St. Joseph Hosp., 63 Cal. App. 3d 345, 356 13 (1976). There is arguably no weaker party than an individual 14 recently admitted to an emergency room for injuries sustained in 15 an accident or any individual under the care of medical 16 professionals and awaiting discharge from a hospital. As 17 Defendants persuasively point out, Dameron Hospital’s COAs possess 18 all the characteristics of a contract of adhesion because “[t]he 19 would-be patient is in no position to reject the proffered 20 agreement, to bargain with the hospital, or in lieu of agreement 21 to find another hospital.” AAA, at 992-93, quoting Wheeler, 63 22 Cal. App. 3d at 357. 23 The COAs Dameron Hospital requires are dense standardized 24 contract forms, which must be signed by or on behalf of all 25 patients receiving emergency medical services, before any patient 26 may be discharged. See Compl. Exhibit 1; ¶ 8. Patients in need 27 of emergency care like those in this case are in no position to 28 bargain with Dameron Hospital over the terms of the COA or refuse 1 to sign it and find another emergency room. 2 As California caselaw maintains, the enforceability of an 3 adhesion contract “depends upon whether the terms of which the 4 adherent was unaware are beyond the reasonable expectations of an 5 ordinary person or are oppressive or unconscionable.” AAA at 993, 6 quoting Wheeler at 357. Here, the Court finds that the COAs that 7 Dameron Hospital required patients to sign are unenforceable when 8 applied to those who would not reasonably expect to sign away 9 their benefits, namely those with medical insurance. 10 As AAA explained, “[p]atients with medical insurance coverage 11 expect that coverage will ‘insulate [them] from any monetary 12 obligation for such medical care.’” AAA, 77 Cal. App. 5th at 988 13 (quoting Whiteside v. Tenet Healthcare Corp., 101 Cal. App. 4th 14 693, 705 (2002)). Just like in AAA, Plaintiff’s attempt to claim 15 patients’ UM and MP benefits once again to recoup more than what 16 health insurance companies would otherwise pay for their patients 17 is simply another attempt to reduce a capped amount of funds that 18 are intended to compensate the patient for the patients’ losses 19 and expenses. Id. 20 Both policy holders insured by Geico General – D.S. and X.K. 21 – have medical insurance. D.S. is alleged to have Veterans 22 healthcare benefits and X.K. has Medicare. Compl. ¶ 4. 23 Similarly, two of three Geico Indemnity policy holders – M.A. and 24 A.G. – are also Medicare recipients. Id. Thus, under a 25 straightforward application of AAA, these patients constitute the 26 precise type of patient whose reasonable expectations would not 27 align with Dameron Hospital’s AOBs. The lesson of AAA is that any 28 policy holder with medical insurance would not reasonably expect 1 to assign their MP and/or UM Benefits because persons with these 2 benefits “expect benefits to be paid directly to them to 3 compensate them for their bodily injuries.” Id. at 993-94. 4 Plaintiff suggests that government-funded insurance may be 5 different than other insurance. But Plaintiff’s Complaint does 6 not contain sufficient factual allegations to support its claim 7 that Medicare or Veterans healthcare insurance is a “payer of last 8 resort” under the facts of this case. 9 The only scenario AAA recognized where an AOB was not 10 immediately invalid as beyond the reasonable expectations of an 11 ordinary person concerned the patient, R.D., who had MP benefits 12 that were capped at $5,000. AAA, 77 Cal. App. 5th at 992, 995; 13 see also Opp’n at 7. Because R.D. had a cap on his benefits, the 14 court found that a trier of fact could conclude it was within 15 reasonable expectations that Dameron would collect amounts beyond 16 the $5,000 policy from other benefits. Here, J.M., who is alleged 17 to be a self-payer with no other insurance, parallels R.D. because 18 without medical insurance, he is not similarly situated to those 19 with Medicare or Veterans healthcare who would reasonably expect 20 their MP or UM benefits to compensate them for their injuries. 21 See Compl. ¶ 31. Thus, the Court agrees with Plaintiff’s 22 contention that AAA acknowledged there might be an assignment 23 expectation for first-party MP where the patient was self-paying 24 (i.e., had no other form of health insurance or health care 25 payment coverage) and finds that Dameron Hospital has plausibly 26 stated a claim for breach of contract only with regard to the 27 self-pay patient J.M. 77 Cal. App. 5th at 992-995. 28 /// 1 b. Partial Assignment May Be Valid Assignments As to 2 J.M. 3 Given the Court’s determination that Dameron Hospital’s COAs 4 and the AOBs within them are unenforceable adhesion contracts for 5 those with medical insurance, the Court need not reach the partial 6 assignment issue except with regard to J.M., the self-payer. In 7 the case of J.M., it is plausible that it was within that 8 individual’s reasonable expectations for Dameron Hospital to 9 collect direct payments from Geico Indemnity out of J.M.’s MP or 10 UM benefits since J.M. is alleged to have had no other insurance 11 and these automobile benefits do cover medical expenses in 12 addition to compensating bodily injuries. Therefore, it follows 13 that if J.M. could have reasonably expected to sign over “all 14 medical payments under any policy of insurance, and all uninsured 15 and underinsured motorist insurance benefits payable to or on 16 behalf of the patient,” to Dameron Hospital, it is possible that 17 the assignments, even if partial, are valid. Compl., ¶ 10. 18 Defendants’ partial assignment argument, discussed in Mot. at 19 11, boils down to a debate over reasonable expectations, which at 20 this stage of litigation, is subject to a low standard of 21 plausibility. Defendants cite Stein v. Cobb, 38 Cal. App. 2d 8 22 (1940), Reichert v. Gen. Ins. Co. of Am., 68 Cal. 2d 822, 834 23 (1968), and Portillo v. Farmers Ins. Exch., 238 Cal. App. 2d 58 24 (1965) for the proposition that their consent is needed. See Mot. 25 at 11, 13. However, these cases are inapposite because they were 26 decided in distinguishable contexts. Stein does not deal with the 27 automobile insurance context, rather, it discusses publishing 28 rights. Reichert deals with property damage and fire insurance. 1 Portillo deals with the wrongful death context where an individual 2 did not survive their injuries, implicating a very different body 3 of common law not in operation here. Even if the Court credited 4 Defendants’ arguments that personal injury causes of action cannot 5 be transferred, this would at most mean that J.M.’s UM benefits, 6 which are paid directly for personal injuries and not at issue in 7 this case, are not transferrable. Here, Dameron Hospital is not 8 claiming J.M.’s UM benefits, and only alleges that Geico paid MP, 9 which exists to cover medical expenses, in violation of the AOB. 10 See Compl. ¶ 31. 11 Based on these cases, the Court is not persuaded as a matter 12 of law that Geico’s consent was necessary to assign MP benefits or 13 that partial assignments “increase[] Geico’s burden beyond what it 14 contracted for” because presumably, if a patient can reasonably 15 expect to assign automobile benefits to cover medical expenses, 16 they would not expect to receive these benefits directly from 17 their automobile insurer, meaning that Geico would only need to 18 pay MP benefits to Dameron Hospital.2 19 Construing the facts most favorable to the Plaintiff that 20 J.M. received MP benefits from Geico Indemnity as alleged in 21 Compl. ¶ 31, the Court finds that Plaintiff has plausibly pleaded 22 that J.M. could have assigned their automobile benefits to Dameron 23 Hospital. 24 2. Plaintiff Fails to State a Claim Under the UCL 25 The UCL protects California's consumers by prohibiting any

26 2 In any case, the Court cannot consider the additional arguments 27 regarding Stein, Reichert, or Portillo discussed in the latter half of Defendant’s Reply because it exceeds the page limit set by 28 the filing order in this case. See Order, ECF No. 11-2; 5. 1 “unlawful, unfair or fraudulent business act or practice.” Cal. 2 Bus. & Prof. Code § 17200. The remedies available under the UCL 3 are injunction and restitution. Id. As discussed below, because 4 Plaintiff has failed to state a viable breach of contract claim 5 for four of the five patients due to the unenforceable nature of 6 the adhesion contracts, it follows that the UCL claims flowing 7 from those allegations similarly fail. The UCL claim as to the 8 fifth patient, J.M., also fails because breach of contract claims 9 are not actionable under the UCL and Plaintiff has failed to 10 allege any unlawful, unfair, fraudulent, or injurious conduct to 11 consumers. 12 a. Unlawful Prong 13 Under the “unlawful prong” of § 17200, a specific activity is 14 not proscribed, rather, the UCL “borrows violations of other laws 15 and treats them as unlawful practices that the [UCL] makes 16 independently actionable.” Id. at 1048. Cel-Tech Commc’ns, Inc. 17 v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999) 18 (citing Farmers Ins. Exch. v. Superior Court, 2 Cal. 4th 377, 383 19 (1992)). However, “a common law violation such as breach of 20 contract is insufficient” to support a claim under the unlawful 21 prong of California’s UCL. See Shroyer v. New Cingular Wireless 22 Servs., 622 F.3d 1035, 1044 (9th Cir. 2010); Vascular Imaging 23 Professionals, Inc. v. Digirad Corporation, 401 F. Supp.3d 1005, 24 1014 (S.D. Cal. 2019) (quoting Shroyer); see also Mazal Group, LLC 25 v. Espana, 2:17-cv-05856-RSWL-KS, 2017 WL 6001721, at *4 (C.D. 26 Cal. Dec. 4, 2017) (granting motion to dismiss UCL claim when 27 plaintiff did not go beyond alleging a violation of common law). 28 Plaintiff in the instant case does not go beyond alleging common 1 law contract violations and has, therefore, failed to state a 2 claim under the first prong of the UCL. 3 b. Unfair Prong 4 Plaintiff argues that a business practice is unfair “when the 5 practice ‘offends an established policy or when the practice is 6 immoral, unethical, oppressive, unscrupulous or substantially 7 injurious to consumer.’[citations]”. State Farm Fire & Casualty 8 Company v. Sup. Ct., 45 Cal.App.4th 1093, 1104 (1996). Yet, 9 Dameron Hospital fails to allege anything beyond the purported 10 violation of the AOBs and an unsubstantiated California policy 11 that “favors enforceability of a hospital patient’s assignment of 12 insurance benefits.” Compl. ¶ 19. 13 As demonstrated by the caselaw surrounding patients’ 14 reasonable expectations, the established policy is that automobile 15 insurers, like Geico, will directly pay their policyholders MP and 16 UM benefits. On its face, there is no plausible unfair business 17 practice claim because Geico’s payments to patients are in line 18 with well-established practices in the medical and automobile 19 insurance industry. 20 Plaintiff’s UCL claim under the unfair competition prong is 21 simply a repetition of its contract claim. As discussed above, 22 this prong of the UCL claim is both not covered by the UCL and 23 unenforceable. See Compl. ¶ 19. Additionally, as Defendants 24 counter, Dameron does not explain why its own interest in 25 receiving direct payment from Geico outweighs the insureds’ 26 interests in receiving their auto-policy benefits directly from 27 Geico and using those benefits to pay their medical bills. Reply 28 at 7. 1 In sum, Plaintiff fails to allege any immoral, unethical, 2 oppressive, unscrupulous or injurious behavior attributable to the 3 Defendants. Because the AOBs are unenforceable and contract 4 claims are not covered by the UCL, Plaintiff must assert that 5 Geico’s practices harm consumers to state a plausible claim for 6 relief under the UCL. As currently alleged, Defendants’ failure 7 to comply with an unenforceable contract does not by itself create 8 a harm to consumers or the insured individuals. In fact, these 9 contracts are unenforceable precisely because the lack of 10 negotiation or opportunity to examine adhesion contracts makes 11 them restrictive and oppressive for consumers. Geico refusal to 12 comply with an unenforceable contract is not unlawful nor unfair. 13 Dameron’s claim under the UCL is therefore dismissed. 14 3. Dameron fails to state a claim under the Medicare 15 Secondary Payer Act 16 Plaintiff argues that it is entitled to payment since 17 Defendant is the primary payer under federal law and that Medicare 18 is the payer of last resort. See Compl. ¶ 30, 54. Defendants 19 argue that Plaintiff’s allegations are simply conclusory 20 statements and Plaintiff has not adequately alleged that Geico 21 General and Geico Indemnity are responsible for the medical 22 services at issue. Mot. at 6. The parties agree that a private 23 cause of action is available under the MSP Act only where a 24 primary plan fails to provide for primary payment or reimbursement 25 in accordance with the Act. Mot. at 15; Opp’n at 18. Thus, a 26 claim under the MSP Act is plausible only if Defendants are 27 primary plan providers. 28 While Plaintiff alleges in its Complaint that Defendants’ 1 automobile insurance coverage is primary to patients’ Medicare 2 coverage, the federal law Plaintiff cites specifies situations in 3 which Medicare is the secondary payer, for example, where an 4 individual is insured by another healthcare plan. See Compl. ¶ 5 54; 42 U.S.C.A. § 1395y(b). The MSP Act refers to certain primary 6 plans, which are defined by federal statute as “a group health 7 plan or large group health plan” 42 U.S.C.A. § 1395y(a)(2)(A)(ii). 8 These group health plans are defined as “plan[s] (including a 9 self-insured plan) of, or contributed to by, an employer 10 (including a self-employed person) or employee organization to 11 provide health care (directly or otherwise) to the employees, 12 former employees, the employer, others associated or formerly 13 associated with the employer in a business relationship, or their 14 families.” 26 U.S.C.A. § 5000(b)(1),(2). By letter of the 15 statute, the MSP Act defines primary plans as other medical 16 insurance plans, not automobile insurance policies. 17 Dameron Hospital alleges that Defendants are the primary 18 payers, but whether an automobile insurer can by law be a primary 19 payer is not addressed in the MSP Act’s statutory text. Indeed, 20 the statute does not reference automobile insurance at all and 21 addresses only other healthcare insurance. See generally, 42 22 U.S.C.A. § 1395y(b). Plaintiff cites an out of circuit case for 23 the proposition that Geico has payment responsibility in this 24 case. See Opp’n at 8 (citing MSP Recovery Claims v. Ace American 25 Ins. Co., 974 F.3d 1305, 1316 (11th Cir. 2020)). However, that 26 case is not binding on this Court and even if the Court accepts 27 Plaintiff’s allegation that Medicare and Veterans healthcare are 28 never primary insurers, this does not automatically make another 1 presumably secondary insurance, like automobile insurance, a 2 primary payer. As Defendants point out, Plaintiff fails to 3 identify the type of coverage at issue or any applicable 4 settlement agreement or contractual obligation to establish that 5 Geico has payment responsibility. See Mot. at 17. 6 Here, Dameron Hospital’s allegations are too conclusory to 7 plausibly support primary medical payment responsibility for 8 Defendants who are automobile insurers. Id. While Dameron 9 hospital “prays for leave to take discovery from Geico and then 10 file an amended complaint,” as discussed below, the Court instead 11 grants Defendants’ motion to dismiss this claim without prejudice. 12 C. Leave to Amend 13 A court granting a motion to dismiss a claim must decide 14 whether to grant leave to amend. Leave to amend should be “freely 15 given” where there is no “undue delay, bad faith or dilatory 16 motive on the part of the movant, . . . undue prejudice to the 17 opposing party by virtue of allowance of the amendment, [or] 18 futility of [the] amendment . . . .” Foman v. Davis, 371 U.S. 19 178, 182 (1962); Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 20 1048, 1052 (9th Cir. 2003) (listing the Foman factors as those to 21 be considered when deciding whether to grant leave to amend). Not 22 all of these factors merit equal weight. Rather, “the 23 consideration of prejudice to the opposing party . . . carries the 24 greatest weight.” Id. (citing DCD Programs, Ltd. v. Leighton, 833 25 F.2d 183, 185 (9th Cir. 1987)). Dismissal without leave to amend 26 is proper only if it is clear that “the complaint could not be 27 saved by any amendment.” Intri-Plex Techs., Inc. v. Crest Group, 28 Inc., 499 F.3d 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., em REI INR EI IERIE OIE OIE OS NIE I IE ee

1 jJInc., 411 F.3d 1006, 1013 (9th Cir. 2005); Ascon Props., Inc. v. 2 {Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989) (“Leave need 3 |J/not be granted where the amendment of the complaint ... 4 |\|constitutes an exercise in futility ... .”)). 5 Here, the Court finds that it is not clear that the 6 |}Complaint’s defects cannot “be saved by [] amendment,” and 7 |j[allowing Plaintiff an opportunity to try to save its claims at this 8 ||/stage of the litigation would not be prejudicial to Defendant since 9 |]}/the Court is allowing Plaintiff’s breach of contract claim for 10 |}patient J.M. to move forward. 11 IIl. ORDER 12 For the reasons set forth above, the Court GRANTS Defendant 13 ||Geico General Insurance Company and Geico Indemnity Company’s 14 |/Motions to Dismiss WITH LEAVE TO AMEND and DENIES Defendants motion 15 ||}to dismiss the breach of contract claim only as it pertains to 16 ||self-pay patient J.M.. 17 If Plaintiff elects to amend its complaint, it shall file a 18 ||First Amended Complaint within twenty days of this Order. 19 ||Defendants’ responsive pleadings are due twenty days thereafter. 20 |J/Additionally, Defendants’ counsel is ordered to pay $250 to the 21 |[/Clerk of the Court, within five days of this Order, for violation 22 |lof the specified page limits for Reply Briefs pursuant to the Order 23 ||Regarding Filing Requirements, ECF No. 11-2; 5. 24 IT IS SO ORDERED. 25 |/Dated: October 24, 2024 26 ep

JOHN A. MENDEZ

28 SENIOR UNITED*STATES DISTRICT JUDGE