1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA

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7 CALIFORNIA SPINE AND NEUROSURGERY INSTITUTE, Case No. 19-cv-03552-PJH 8 Plaintiff, 9 ORDER GRANTING DEFENDANTS’ v. MOTION FOR JUDGMENT ON THE 10 PLEADINGS WITHOUT PREJUDICE JP MORGAN CHASE & CO., et al., 11 Re: Dkt. No. 20, 22 Defendants. 12

13 14 Defendants JP Morgan Chase (“defendant JPM”) and United Healthcare 15 Insurance Co.’s (“defendant United Healthcare”) (collectively, “defendants”) motion for 16 judgment on the pleadings came on for hearing before this court on December 18, 2019. 17 Plaintiff California Spine and Neurosurgery Institute (“plaintiff”) appeared through its 18 counsel, Anthony Maul. Defendant appeared through their counsel, Jessica Hardy. 19 Having read the papers filed by the parties and carefully considered their arguments and 20 the relevant legal authority, and good cause appearing, the court hereby GRANTS 21 WITHOUT PREJUDICE defendants’ motion for the following reasons. 22 BACKGROUND 23 On March 22, 2019, plaintiff filed this action against defendants in Alameda 24 County Superior Court. Dkt. 1-1 (Compl.). In its complaint, plaintiff alleges state law 25 claims for quantum meruit and promissory estoppel in connection with plaintiff’s provision 26 of surgical services to an unidentified insured patient, “BM.” 27 On June 19, 2019, defendants removed the action to this court. Dkt. 1. On 1 At core, defendants argue that plaintiff’s state law claims are expressly preempted by 2 Title 29 U.S.C. § 1144(a). As further explained below, the court’s resolution of this 3 motion turns on whether plaintiff’s state law claims “relate to” the provisions of the 4 Employee Retirement Income Security Act of 1974 (“ERISA”), as that phrase is 5 understood under Title 29 U.S.C. § 1144(a). For that reason, the court details the 6 allegations of this otherwise straightforward dispute below. 7 A. The Operative Allegations 8 Plaintiff provides complex surgeries to patients in Mountain View. Compl. ¶ 1. 9 Defendant JPM (the investment bank) sponsors an “employee health insurance plan” that 10 is administered on defendant JPM’s behalf by defendant United Health under an 11 administrative services agreement. Id. ¶ 4. Defendant United Health operates as a 12 managed care company and “insurers [sic] and administers” health insurance policies. 13 Id. ¶ 5. With respect to defendant United Health, plaintiff is an “out of network” provider, 14 which means that plaintiff “has not contracted with [defendant United Health] to 15 participate in its provider network, or to provide services to its insureds at particular 16 reimbursement rates.” Id. ¶ 8. BM is a middle-aged man who received the subject 17 surgical services on his lower back pursuant to defendant JPM’s plan. Id. ¶¶ 6, 7. 18 Plaintiff’s claims “arise from” defendants’ “drastic underpayment for highly complex 19 and skilled surgical services” that plaintiff provided to BM. Id. ¶ 6. On or around August 20 23, 2018, plaintiff’s staff called defendant United Health “to verify the details of BM’s 21 insurance coverage and benefits.” Id. ¶ 9. According to plaintiff, “[a] representative of 22 [defendant United Health] informed plaintiff’s staff that [defendant United Health’s] 23 payment for covered care rendered to BM by out-of-network providers would be based on 24 ‘usual and customary rates.’” Id. Plaintiff’s staff recorded this information “on an 25 insurance verification form.” Id. 26 Plaintiff alleges that the phrase “usual and customary” is “a term of art in the 27 healthcare and insurance industry” and “refers to the ordinary market rates charged in a 1 providers with similar training and expertise.” Id. ¶ 10. Plaintiff further alleges that the 2 California Department of Managed Health Care has adopted regulations codifying the 3 definition of “reasonable and customary” to have a specific meaning and that defendants 4 are aware of the meaning of “usual and customary” as defined by the California 5 regulations. Id. Plaintiff subsequently alleges that defendant United Health “promised” to 6 pay plaintiff the “usual and customary rates.” Id. ¶ 14. Plaintiff relies upon the parties’ 7 August 23, 2018 phone call as the basis for such alleged promise. Id. ¶ 17. 8 Before performing the subject surgery on BM, plaintiff “sought prior approval of 9 coverage from defendant United Health.” Id. ¶ 11. On or about August 27, 2018, 10 defendant United Health sent plaintiff a letter approving plaintiff’s performance of back 11 surgery on BM. Id. Such approval cited certain service codes as eligible for coverage. 12 Id. Defendants did not reverse their prior approval of coverage. Id. ¶ 14. 13 On September 6, 2018, plaintiff performed surgery on BM. Id. ¶ 12. Plaintiff then 14 billed defendants for its services using the cited service codes and applying plaintiff’s 15 standard rates for such services. Id. In total, plaintiff charged defendants $77,000. Id. 16 Plaintiff alleges that the rates ultimately charged to defendants “reflected the reasonable 17 and customary value of the services at issue” and that plaintiff’s standard rates “are 18 based on payments plaintiff has historically received from other payers, as well as 19 plaintiff’s understanding of the prevailing rates” in Silicon Valley for such services as 20 provided by comparable doctors. Id. ¶ 13. 21 Defendant United Health paid plaintiff only $2,300 for the surgery provided by 22 plaintiff to BM. Id. ¶ 14. Defendant United Health contended that the “allowed amount” 23 for all services provided by plaintiff was “only $6,600, $4,300 of which was chargeable to 24 [BM’s] deductible, copayment or coinsurance.” Id. ¶ 14. Plaintiff alleges that such 25 allowed amounts “are far below even the average rates for such services in plaintiff’s 26 geographic area,” much less the rates of a doctor with the qualifications of the surgeon 27 here. Id. ¶ 15. Plaintiff further alleges that it “would not have performed the services 1 it known defendants would pay an amount so far below usual and customary rates.” Id. 2 Significantly, in its complaint, plaintiff makes no reference to an assignment of any 3 rights, including those under an ERISA plan, by BM to plaintiff. 4 1. Allegations in Support of Quantum Meruit Claim 5 Defendant United Health “pre-approved coverage” for BM’s surgical services and 6 “explicitly told plaintiff’s staff that reimbursement for such services would be made 7 pursuant to ‘usual and customary’ rates.” Id. ¶ 17. According to plaintiff, such 8 statements by defendant United Health, acting as an agent of defendant JPM, constitute 9 a “clear and unambiguous promise that defendants would pay plaintiff ‘usual and 10 customary’ rates for the surgical services plaintiff provided BM.” Id. In reliance upon such 11 promises, plaintiff provided BM with valuable services. Id. ¶ 18. At the time of the 12 surgery, plaintiff was unaware that such promises were false and reasonably believed 13 them to be true. Id. “Since the promises were made in response to direct inquiries by 14 plaintiff’s staff regarding the patient’s insurance coverage and benefits, it was foreseeable 15 that plaintiff would rely on them.” Id. 16 Significantly, when describing its damages under this claim, plaintiff alleges that 17 “[a]s a direct and proximate result of defendants’ failure to carry out their promises, 18 plaintiff was injured in the amount of $74,700 (minus any applicable deductibles, 19 coinsurance or copayments owed by the patient).” Id. ¶ 19. 20 2. Allegations in Support of Promissory Estoppel Claim 21 Plaintiff alleges that “[d]efendants contract with participants and beneficiaries of 22 their policies to provide payment for medically necessary healthcare in exchange for the 23 payment of insurance premiums. As a result, plaintiff conferred tangible benefit upon 24 defendants when it rendered highly-skilled medical services to defendants’ insured, BM.” 25 Id. ¶ 23. Plaintiff further adds that it provided defendant these services to BM in 26 response to defendant United Health’s promise to pay “reasonable and customary” rates 27 for services, id. ¶ 24, and that the fair value of the services plaintiff provided to BM is 1 Again, when describing its damages under this claim, plaintiff similarly alleges that 2 “[a]s a result of defendants’ conduct, plaintiff has been underpaid $74,700 (minus any 3 applicable deductibles, coinsurance or copayments owed by the patient).” Id. ¶ 27. 4 B. Defendants’ Removal 5 Defendants removed this action on the basis of federal question jurisdiction under 6 Title 28 U.S.C. § 1331, specifically ERISA, Title 29 U.S.C. §§ 1001 et. seq.. Dkt. 1 ¶ 6. 7 In particular, defendants argue that plaintiff “seeks to collect benefits under [BM’s] 8 employee health benefit plan,” which are “provided under an employee welfare benefit 9 plan, pursuant to [ERISA].” Id. ¶ 8. Defendants take the position that a “well-pleaded 10 complaint would have necessarily disclosed that the benefits plaintiff seeks to collect are 11 provided under an ERISA-governed employee welfare benefit plan.” Id. ¶ 9. Citing Title 12 29 U.S.C. § 1132, defendants argue that “ERISA’s civil enforcement provisions govern 13 actions to recover any benefits due under an ERISA plan.” Id. As a result, defendants 14 contend, plaintiff’s claims are “completely preempted” because they are premised on the 15 allegation that “defendants wrongfully refused to pay benefits that were due under an 16 ERISA-governed benefit plan.” Id. 17 At oral argument, the parties represented to this court that federal subject matter 18 jurisdiction is separately appropriate pursuant to diversity jurisdiction under Title 28 19 U.S.C. § 1332. Given the amount in controversy and complete diversity of citizenship 20 between the parties—Compl. ¶ 1 (plaintiff is a California corporation), ¶ 4 (defendant JPM 21 is a Delaware corporation), and ¶ 5 (defendant United Health is a Connecticut 22 corporation), the court is satisfied with such representation. 23 DISCUSSION 24 A. Legal Standard 25 “After the pleadings are closed—but early enough not to delay trial—a party may 26 move for judgment on the pleadings.” Fed. R. Civ. P. 12(c). The legal standards 27 governing Rules 12(c) and 12(b)(6) are “functionally identical.” Cafasso, U.S. ex rel. v. 1 A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims 2 alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 1199-1200 (9th Cir. 2003). 3 Federal Rule of Civil Procedure 8 requires that a complaint include a “short and plain 4 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 5 8(a)(2). Under Rule 12(b)(6), dismissal “is proper when the complaint either (1) lacks a 6 cognizable legal theory or (2) fails to allege sufficient facts to support a cognizable legal 7 theory.” Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013). While the court is to 8 accept as true all the factual allegations in the complaint, legally conclusory statements, 9 not supported by actual factual allegations, need not be accepted. Ashcroft v. Iqbal, 556 10 U.S. 662, 678-79 (2009). The complaint must proffer sufficient facts to state a claim for 11 relief that is plausible on its face. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 558- 12 59 (2007). 13 Lastly, a district court “should grant the plaintiff leave to amend if the complaint 14 can possibly be cured by additional factual allegations;” however, dismissal without such 15 leave “is proper if it is clear that the complaint could not be saved by amendment.” 16 Somers, 729 F.3d at 960. 17 B. Analysis 18 Title 29 U.S.C. § 1144(a) provides that certain ERISA related provisions “shall 19 supersede any and all State laws insofar as they may now or hereafter relate to any 20 employee benefit plan described in section 1003(a) of this title and [are] not exempt 21 under section 1003(b) of this title.” 29 U.S.C. § 1144(a). Courts refer to preemption 22 under Title 29 U.S.C. § 1144(a) as “express” preemption. Depot, Inc. v. Caring for 23 Montanans, Inc., 915 F.3d 643, 665 (9th Cir.), cert. denied, 140 S. Ct. 223 (2019) (““[T]wo 24 strands of ERISA preemption” are relevant here: (1) “express” preemption under 29 25 U.S.C. § 1144(a); and (2) “conflict” preemption based on 29 U.S.C. § 1132(a).”). 26 The United States Supreme Court in Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 27 936 (2016) acknowledged that 29 U.S.C. § 1144(a) expressly preempts two categories of 1 ‘connection with’ ERISA plans, meaning a state law that ‘governs . . . a central matter of 2 plan administration’ or ‘interferes with nationally uniform plan administration.’” Gobeille, 3 136 S. Ct. at 943. The Supreme Court in Gobeille further acknowledged that “[a] state 4 law also might have an impermissible connection with ERISA plans if ‘acute, albeit 5 indirect, economic effects’ of the state law ‘force an ERISA plan to adopt a certain 6 scheme of substantive coverage or effectively restrict its choice of insurers.’” Id. Because 7 the court finds that plaintiff’s claims fall within the second category of expressly 8 preempted state law claims (addressed immediately below), it need not analyze express 9 preemption under this category of laws. 10 Second, ERISA expressly preempts state laws that “ha[ve] a reference to’ ERISA 11 plans. To be more precise, where a State's law acts immediately and exclusively upon 12 ERISA plans . . . or where the existence of ERISA plans is essential to the law's 13 operation . . . , that ‘reference’ will result in pre-emption.” Gobeille, 136 S. Ct. at 943. 14 The Ninth Circuit recently explained that “[a] state-law claim has a ‘reference to’ an 15 ERISA plan’ if it ‘is premised on the existence of an ERISA plan’ or if ‘the existence of the 16 plan is essential to the claim’s survival.’” Depot, Inc., 915 F.3d at 665. 17 Here, plaintiff’s state law claims for promissory estoppel and quantum meruit are 18 premised upon BM’s ERISA plan. Significantly, plaintiff’s complaint shows that, absent 19 such plan, the promise allegedly made by defendant on August 23, 2018 neither could 20 nor would have been made. Tellingly, plaintiff alleges that it called defendant United 21 Health “to verify the details of BM’s insurance coverage and benefits,” Compl. ¶ 9, which, 22 as plaintiff itself recognizes, BM was entitled to under his “employee health insurance 23 plan” with defendant JPM, id. ¶¶ 4,6.1 Plaintiff further recognizes that the specifics of its 24 communication with defendant JPM was recorded “on an insurance verification form.” Id. 25 ¶ 9. Absent BM’s ERISA plan, plaintiff would have no reason to call defendant United 26 Health “to verify” BM’s coverage and, incidentally, defendant United Health would not 27 1 have made any oral representation concerning BM’s coverage rights. Without such 2 communication, plaintiff would have no alleged promise to sue upon. Without such 3 promise, plaintiff would have no state law claims. In short, the court finds that plaintiff’s 4 state law claims have “reference to” BM’s ERISA plan because they are premised upon 5 the existence of such plan and, without such plan, could not state a cause of action under 6 state law. 7 Separately, plaintiff’s measure of damages for both its promissory estoppel and 8 quantum meruit claims “refer to” BM’s ERISA plan. In its complaint, plaintiff alleges that it 9 “has been underpaid $74,700 (minus any applicable deductibles, coinsurance or 10 copayments owed by the patient).” Compl. ¶¶ 19, 27 (emphasis added). While 11 plaintiff’s complaint does not specify how the amounts of such “deductibles, coinsurance, 12 or copayments” would be defined, the court may reasonably infer that such definitions 13 derive from BM’s “insurance coverage and benefits,” id. ¶ 9, which arise from his ERISA 14 plan, id. ¶¶ 4, 6. Given such relationship, plaintiff’s state law claims also “refer to” BM’s 15 ERISA plan within the meaning of Title 29 U.S.C. § 1144(a) for this separate reason. 16 Plaintiff’s reliance upon Catholic Healthcare W.-Bay Area v. Seafarers Health & 17 Benefits Plan, 321 F. App'x 563 (9th Cir. 2008) and Blue Cross of California v. 18 Anesthesia Care Assocs. Med. Grp., Inc., 187 F.3d 1045 (9th Cir. 1999) does not alter 19 this holding. First, the Ninth Circuit in Catholic Healthcare assumed, without deciding, 20 that the provider’s state law claims in that case were “completely independent of the 21 terms and meaning of an ERISA plan.” 321 F. App'x at 564-65 (“It is our reading of the 22 Complaint—confirmed by counsel at oral argument—that [provider] has alleged implied 23 contract formation and misrepresentations that are completely independent of the terms 24 and meaning of an ERISA plan.”) (emphasis in the original). 25 Here, plaintiff’s state law claims depend upon BM’s ERISA plan for two reasons: 26 (1) they are necessarily predicated upon such plan’s existence (i.e., without the plan, 27 plaintiff would not have called defendant United Health and the alleged promise would 1 of certain terms (deductible, coinsurance, and copayment) fixed by such plan. While the 2 court acknowledges the Ninth Circuit’s statement in Catholic Healthcare that “where a 3 third party medical provider sues an ERISA plan based on contractual obligations arising 4 directly between the provider and the ERISA plan (or for misrepresentations of coverage 5 made by the ERISA plan to the provider), no ERISA-governed relationship is implicated 6 and the claim is not preempted,” 321 F. App'x at 564, plaintiff failed to show how the 7 alleged promise by defendant United Health directly arose from a contractual or tortious 8 relationship independent of BM’s ERISA plan. 9 Second, the panel in Blue Cross of California considered express preemption 10 under Title 29 U.S.C. § 1144(a) in the context of a separate written provider agreement 11 between the defendant insurer and plaintiff healthcare provider. 187 F.3d 1047 (“We are 12 asked to determine whether the claims of medical providers against a health care plan for 13 breach of their provider agreements are preempted by the Employee Retirement Income 14 Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq.”). Relying on reasoning offered 15 in its complete preemption analysis under Title 29 U.S.C. § 1132, the Ninth Circuit 16 rejected the contention that the providers’ claims “rely upon the construction of terms” in 17 the subject ERISA plans. Id. at 1053 (“The first contention has already been addressed 18 by our discussion of ERISA's civil enforcement provision. The Providers' claims do not 19 involve construction of the terms of ERISA-covered benefit plans.”). 20 In that incorporated reasoning, the Ninth Circuit found that the providers’ claims 21 did not require construction of the ERISA plan because (1) the providers and insurer had 22 executed separate agreements, which formed the basis for the providers’ separate 23 claims, id. at 1051 (“Here, in contrast, the Providers and Blue Cross have executed 24 provider agreements, and it is the terms of the provider agreements that Providers 25 contend Blue Cross has breached.”); (2) the providers were actually asserting claims that 26 their patient-assignors, in fact, could not, id. at 1051 (“Indeed, the Providers are asserting 27 contractual breaches, and related violations of the implied duty of good faith and fair 1 the provider agreements between the Providers and Blue Cross.”); and (3) the dispute 2 concerned a variable—namely the amount of payment—that depended upon that 3 separate provider-insurer agreement, id. at 1051 (“The dispute here is not over the right 4 to payment, which might be said to depend on the patients' assignments to the Providers, 5 but the amount, or level, of payment, which depends on the terms of the provider 6 agreements.”) (emphasis added). 7 Here, plaintiff has not identified any separate agreement that may form the basis 8 for its state law claims against defendant United Health. While generally citing Blue 9 Cross of California at oral argument, plaintiff failed to explain how defendant United 10 Health’s alleged oral representation that it would pay the “usual and customary” rates of 11 BM’s surgery such representation qualifies as a “separate agreement” within the meaning 12 of that decision. Additionally, a fair reading of plaintiff’s complaint shows that the scope 13 of plaintiff’s claim is no different than that which BM could otherwise have asserted for 14 nonpayment of benefits under his plan if BM were liable to plaintiff for the unpaid amount 15 at issue. Relatedly, unlike Blue Cross of California, plaintiff’s state law claims here do not 16 implicate a measure of damages defined by reference to actual fee schedules in a 17 separate provider agreement. 187 F.3d 1045, 1051 (“But the Providers' claims arise from 18 Blue Cross' alleged breach of the provider agreements' provisions regarding fee 19 schedules, and the procedure for setting them, not what charges are ‘covered’ under the 20 Prudent Buyer Plan.”) (emphasis added). In short, the court finds that plaintiff’s state law 21 claims refer to BM’s ERISA plan within the meaning of Title 29 U.S.C. § 1144(a). As a 22 result, such claims are expressly preempted by that section and therefore subject to 23 dismissal. 24 C. Plaintiff May Amend His Complaint to Allege Assignment 25 At oral argument, plaintiff identified the following two sets of allegations to include 26 as amendments to its complaint. First, plaintiff offered to amend its complaint to specify 27 defendant United Health’s oral representations about certain copayment-related 1 in support of its existing state law claims. Second, plaintiff requested the opportunity to 2 allege its assignment of BM’s rights under his ERISA plan and, correspondingly, a claim 3 under ERISA’s civil enforcement provision, Title 29 U.S.C. § 1132(a). 4 With respect to the first set, the court finds that such amendment would be futile. 5 As detailed above, plaintiff’s state law quantum meruit and promissory estoppel claims 6 inevitably refer to BM’s ERISA plan because, but-for such plan, the oral promise 7 supporting plaintiff’s state law claims would not have been made. Plaintiff failed to 8 explain how additional or more specific allegations of defendant United Health’s oral 9 representations about certain copayment-related information would materially change 10 such relationship between the promise and plan. As a result, the court DENIES plaintiff’s 11 request to amend with respect to its first set of proffered allegations. 12 With respect to the second set, the court finds that such amendment would not be 13 futile and GRANTS plaintiff’s request to amend its complaint to allege its assignment of 14 rights under BM’s plan as well as a claim under Title 29 U.S.C. § 1132(a). The court 15 orders plaintiff to file any such amended pleading by January 20, 2020. 16 CONCLUSION 17 For the foregoing reasons, the court GRANTS defendants’ motion for judgment on 18 the pleadings WITHOUT PREJUDICE. Relatedly, for the reasons stated at the hearing, 19 the court also DENIES as moot defendants’ request for judicial notice (Dkt. 22). Plaintiff 20 may file an amended pleading consistent with the amendments analyzed above. Plaintiff 21 must file any such pleading by January 20, 2020. 22 IT IS SO ORDERED. 23 Dated: December 23, 2019 24 /s/ Phyllis J. Hamilton

PHYLLIS J. HAMILTON

25 United States District Judge

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