Case Name: San Jose Neurospine v. UFCW Employers Benefit Plan of N. Cal. Group Administration, LLC

Case No.: 19CV343500

I. Background

San Jose Neurospine (“Plaintiff”) seeks to recover approximately $56,908.09 from defendant UFCW Employers Benefit Plan of Northern California Group Administration, LLC (“Defendant”) for medical services provided to a member of the healthcare plan administered by Defendant.

According to the allegations in the complaint, in January 2018, Plaintiff called Defendant to verify the patient’s health benefits, including the rate of reimbursement for medical services provided by an out-of-network provider. (Compl., ¶¶ 25–27.) Defendant told Plaintiff it would be reimbursed at the usual and customary rate for the same or similar services in the geographic area and would not be reimbursed based on Medicare reimbursement rates. (Compl., ¶¶ 25–26.) In reliance on Defendant’s representations, and without knowledge of any plan exclusions or limitations, Plaintiff treated the patient on February 5, 2018. Plaintiff billed $58,059.92 for the services it provided. (Compl., ¶ 31.) Defendant paid only $1,151.83 despite claiming to have paid $34,893.77. (Compl., ¶ 31.)

Plaintiff asserts causes of action against Defendant for: (1) breach of oral contract; (2) promissory estoppel; (3) breach of implied contract; (4) breach of the implied covenant of good faith and fair dealing; (5) unjust enrichment; (6) violation of California’s Unfair Competition Law (the “UCL”); and (7) quantum meruit. Defendant demurs to the complaint as a whole and each cause of action therein on the ground of failure to state facts sufficient to constitute a cause of action.

II. Discussion

Defendant advances a central argument that all of the causes of action are preempted by the Employee Retirement Income Security Act (“ERISA”). It also advances a number of additional arguments directed to individual claims. The Court first addresses preemption before considering these additional arguments. In doing so, the Court adheres to well-settled principles for evaluating the legal sufficiency of a pleading.

A demurrer on the ground of failure to state facts sufficient to constitute a cause of action tests whether the plaintiff alleges each ultimate fact essential to the cause of action asserted. (Code Civ. Proc., § 430.10, subd. (e); C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 873.) For the purpose of a demurrer, a court may consider the allegations on the face of the pleading as well as matters subject to judicial notice. (Code Civ. Proc., § 430.30, subd. (a).) A court accepts the factual allegations as true and gives them a reasonable, contextual interpretation. (Sisemore v. Master Financial, Inc. (2007) 151 Cal.App.4th 1386, 1396–97.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (Ferrick v. Santa Clara University (2014) 231 Cal.App.4th 1337, 1341 [internal quotation marks and citations omitted].) Also, the plaintiff’s ability to prove each claim asserted is immaterial; the sole issue is whether the pleading is legally sufficient. (Ibid.)

A. ERISA Preemption

“ERISA is a comprehensive federal law designed to promote the interests of employees and their beneficiaries in employee pension and benefit plans.” (Marshall v. Bankers Life & Casualty Co. (1992) 2 Cal.4th 1045, 1050–51.) “As a part of this integrated regulatory system, Congress enacted various safeguards to preclude abuse and to secure the rights and expectations that ERISA brought into being[,]” including broad preemption provisions. (Id. at p. 1051.) “ERISA has two distinct preemption provisions: Preemption under section 514 (29 U.S.C. § 1144), known as conflict or ordinary preemption; and so-called complete preemption under section 502(a) (29 U.S.C. § 1132(a)).” (Morris B. Silver M.D., Inc. v. Int. Longshore and Warehouse Union (2016) 2 Cal.App.5th 793, 799.) “Conflict preemption is an affirmative defense to a plaintiff’s state law cause of action that entirely bars the claim; that is, the particular claim involved cannot be pursued in either state or federal court.” (Ibid.) In contrast, “complete preemption does not constitute a defense at all.” (Ibid.) “Rather, it is a narrowly drawn jurisdictional rule for assessing federal removal jurisdiction when a complaint purports to raise only state law claims.” (Ibid.) Conflict preemption is the doctrine implicated here. For the reasons that follow, Defendant’s preemption argument is not persuasive.

As an initial matter, it is not actually apparent from the allegations in the pleading that ERISA is implicated here. Plaintiff does not allege facts about Defendant or the plan it administers from which the Court can conclude ERISA applies. This is true irrespective of Plaintiff’s anticipatory allegation that its claims do not arise under ERISA, which allegation is accompanied by citations to legal authority. (Compl., ¶ 22.) This allegation is a legal contention that is not binding on the Court for the purpose of the demurrer. (See generally Piccinini v. California Emergency Management Agency (2014) 226 Cal.App.4th 685, 688.) And, the Court cannot reasonably infer whether an ERISA plan is implicated from this anticipatory allegation; anticipation of Defendant’s asserted preemption defense does not necessarily reflect the defense is justified at its inception. Although Defendant may know as a plan administrator that the underlying healthcare plan is covered by ERISA, its own knowledge or the true state of facts is immaterial for the purpose of the demurrer; at this juncture, the Court is solely concerned with the legal sufficiency of the pleading based on the facts alleged. For these reasons, ERISA is not clearly implicated in the first instance.

Even assuming the plan Defendant administered is subject to ERISA, it does not fairly and adequately address existing caselaw—including distinctions between the types of claims that are preempted and those that are not—and apply these principles to each of the claims it insists are preempted. Defendant misquotes cases, cites cases for propositions they do not directly or indirectly support, and fails to distinguish between cases in which claims by a patient, rather than a provider, were held to be preempted. (See, e.g., Mem. of Pts. & Auth. at pp. 4:19–26, 7:1–5, citing Moeller v. Qualex, Inc. (C.D.Cal. 2006) 458 F.Supp.2d 1069.)

Two fundamental considerations can be distilled from preemption jurisprudence, namely whether: “‘(1) the state law claims address areas of exclusive federal concern, such as the right to receive benefits under the terms of an ERISA plan; and (2) the claims directly affect the relationship among the traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries.’” (Morris B. Silver M.D., Inc., supra, 2 Cal.App.5th at p. 804, quoting Memorial Hospital System v. Northbrook Life Insurance Co. (5th Cir. 1990) 904 F.2d 236, 244–45.)

The Second District has held ERISA does not preempt claims for breach of oral contract, quantum meruit, and promissory estoppel brought by an out-of-network provider against a plan based on an allegation that no payment was made despite telephonic confirmation of reimbursement rates prior to the provision of services. (Morris B. Silver, M.D., Inc., supra, 2 Cal.App.5th at pp. 804–07.) The Second District’s decision is directly on point because, here, Plaintiff asserts similar claims as a third-party provider and is not seeking recovery under the plan as an assignee of the patient’s benefits. Consequently, Defendant’s conflict preemption argument is not persuasive.

In reaching this conclusion, the Court rejects Defendant’s assertion that Plaintiff necessarily had to sue as an assignee of the patient’s benefits. For the proposition that Plaintiff cannot sue as a third-party medical provider and must necessarily bring a claim as an assignee Defendant misquotes a case dealing with the entirely distinct issue of who may bring a statutory claim for benefits under the terms of ERISA itself. (See Mem. of Pts. & Auth. at p. 5:18–20.) In DB Healthcare, LLC v. Blue Cross Blue Shield of Arizona, Inc. (9th Cir. 2017) 852 F.3d 868, the Ninth Circuit considered whether a healthcare provider had the right to commence an action as a beneficiary under ERISA’s civil-enforcement provision. In considering this issue, it restated the principle that a healthcare provider cannot—in the absence of an assignment from the beneficiary, namely the patient—commence an action pursuant to ERISA’s civil-enforcement provision. (DB Healthcare, LLC, supra, 852 F.3d at p. 874.) And so, contrary to what Defendant asserts, the cited case does not support the proposition that any action by a healthcare provider, irrespective of the legal basis for the action, must be brought by the provider as an assignee of the patient’s benefits. Indeed, the Ninth Circuit explicitly “caution[ed]” that its opinion was limited to “ERISA’s statutory remedy” and not claims for breach of contract that could not have been brought under ERISA. (Id. at p. 878.) Defendant’s reliance on this case is misplaced.

For these reasons, the Court is not persuaded Plaintiff’s claims are preempted by ERISA.

B. Sufficiency of Allegations in Individual Causes of Action

1. First and Third Causes of Action

Defendant argues Plaintiff fails to state claims for breach of an express or implied-in-fact contract because it does not adequately allege facts showing the existence and terms of the parties’ purported agreement.

The existence of a contract is an essential element of a claim for breach of contract. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) “Both express contracts and contracts implied in fact are founded upon an ascertained agreement, or, in other words, are consensual in nature, the substantial difference being in the mode of proof by which they are established.” (Caron v. Andrew (1955) 133 Cal.App.2d 412, 417 [internal quotation marks and citations omitted]; see also Unilab Corp. v. Angeles–IPA (2016) 244 Cal.App.4th 622, 636.) “An express contract is one, the terms of which are stated in words.” (Civ. Code, § 1620.) An implied-in-fact contract is simply “one, the existence and terms of which are manifested by conduct.” (Civ. Code, § 1621.) “[T]here is no contract until there has been a meeting of the minds on all material points.” (Banner Entertainment, Inc. v. Super. Ct. (1998) 62 Cal.App.4th 348, 358.)

Defendant argues the facts alleged resemble those held to be insufficient in Pacific Bay Recovery, Inc. v. California Physicians’ Services, Inc. (“Pacific”) (2017) 12 Cal.App.5th 200. Plaintiff does not address this argument or attempt to distinguish Pacific.

In Pacific, a medical provider alleged it contacted the defendant insurer to obtain authorization for treatment of an insured, was advised of the insured’s eligibility for medical coverage, and “‘was led to believe that it would be paid a portion or percentage of its total billed charges, which charges correlated with usual, reasonable and customary charges.’” (Pacific, supra, 12 Cal.App.5th at p. 216.) The defendant paid the medical provider pursuant to the terms of the insured’s healthcare plan, which the medical provider claimed was not enough. (Id. at pp. 204–05.) Instead, the provider claimed it was entitled to the usual, customary, and reasonable rate for services. (Id. at p. 205.) In evaluating the defendant’s demurrer, the court held the provider failed to allege specific facts showing there was a meeting of the minds as to the type and extent of treatment to be performed and the price for those services. (Id. at p. 216.)

Here, as in Pacific, Plaintiff does not allege facts showing the parties agreed upon a particular treatment and price for that treatment; the allegation that it verified coverage for some unspecified service is inadequate. (Complaint, ¶ 25.) Also, as in Pacific, Plaintiff’s allegation that it was promised reimbursement at the usual and customary rate for similar services is insufficient to plead the parties agreed upon a price for the services rendered, particularly because it is not apparent the “usual and customary rate” has an objective, well-defined meaning or has a mutually understood and agreed-upon definition among the parties. Indeed, Plaintiff’s critique of Defendant’s method of calculating the usual and customary rate buttresses this conclusion. (See Compl., ¶ 21.)

Thus, as alleged, there was no contract because the parties failed to have a meeting of the minds on a material term (e.g., the specific rates or overall reimbursement amounts Defendant would pay for the medical services anticipated to be performed by Plaintiff). Plaintiff, thus, fails to state claims for breach of contract.

2. Fourth Cause of Action

Defendant argues the fourth cause of action for breach of the implied covenant of good faith and fair dealing is subject to demurrer because Plaintiff fails to allege the existence of an agreement in the first instance. Because the covenant of good faith and fair dealing is implied in every contract, it necessarily rests on the existence of an agreement between the parties. (Racine & Laramie, Ltd. v. Dept. of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031.) As reflected above, Plaintiff does not adequately allege the existence of an agreement with Defendant. Thus, its claim for breach of the implied covenant is inadequately pleaded as well.

Defendant also states damages are only available for breach of the implied covenant by an insurer. (Mem. of Pts. & Auth. at p. 10:16–17.) It appears Defendant’s argument may be based on some confusion about the type of damages recoverable, as compared to whether damages are recoverable at all. In the insurance context, there are specific duties owed by an insurer rooted in the implied covenant of good faith and fair dealing. (See generally California Shoppers, Inc. v. Royal Globe Insurance Co. (1985) 175 Cal.App.3d 1, 14–15.) An insurer’s tortious breach of those duties, described as bad faith, may justify an award of tort damages not typically recoverable outside of the insurance context. (Ibid.) The fact that tort damages are ordinarily awarded against insurers only does not mean no damages are recoverable in other contexts; rather, damages are simply limited to contract damages. (See Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 685–86.) Consequently, Defendant’s argument that no damages are recoverable unless an insurer is involved is incorrect.

3. Second, Fifth, and Seventh Causes of Action

In the alternative to the breach of contract claims, Plaintiff asserts the second, fifth, and seventh causes of action for promissory estoppel, unjust enrichment, and quantum meruit, respectively.

i. Promissory Estoppel

Promissory estoppel is “a doctrine which employs equitable principles to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced.” (Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 779–80 [internal quotation marks and citations omitted].) It “binds a promisor if the promisor should reasonably have expected a substantial change of position in reliance on the promise, and if injustice can be avoided only by the enforcement of the promise.” (Avidity Partners, LLC v. State of California (2013) 221 Cal.App.4th 1180, 1209.) “In other words, where the promisee’s reliance was bargained for, the law of consideration applies; and it is only where the reliance was unbargained for that there is room for application of the doctrine of promissory estoppel.” (Ibid.) “The elements of a promissory estoppel claim are (1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” (Orcilla v. Big Sur, Inc. (2016) 244 Cal.App.4th 982, 1007 [internal quotation marks and citations omitted].)

Defendant argues Plaintiff fails to state a promissory estoppel claim, but its discussion suffers from a significant lack of clarity and is not supported by analysis of applicable legal authority. Defendant first states it never promised to pay Plaintiff the amount it billed. Next, Defendant asserts that because Plaintiff was an out-of-network provider without any contracted rate, “it can have no expectation for reimbursement at any rate, and it knows this.” (Mem. of Pts. & Auth. at p. 11:24–25.) Defendant also argues it is not reasonable to rely on a promise to pay the usual and customary rate as a promise to pay the full amount billed. To summarize, Defendant focuses on the fact that Plaintiff seeks to recover the full amount it billed and the reasonableness of that amount. In doing so, Defendant seems to take the position that Plaintiff cannot establish the element of reliance. But it is not apparent the reasonableness of the sum Plaintiff seeks to recover necessarily bears on whether it alleges that it reasonably and foreseeably relied on a telephone conversation with one of Defendant’s representatives. Ultimately, Defendant does not rely on a recognized standard for foreseeable and reasonable reliance or cite authority establishing a telephone conversation cannot be relied upon, as a matter of law, under these circumstances. Thus, these underdeveloped assertions are insufficient to substantiate the demurrer.

Defendant also states “for non-contracted providers, the industry standard is that there is no entitlement to benefits apart from the benefits contained in a patient’s health plan.” (Mem. of Pts. & Auth. at p. 12:15–17.) It does not develop this argument. Nevertheless, in a case upon which it relies, namely Pacific, the court held the provider’s allegations were insufficient to state a claim for promissory estoppel because it did not allege “a promise clear and unambiguous in its terms.” (Pacific, supra, 12 Cal.App.5th at p. 215, fn. 6.) In other words, as with the provider’s breach of contract claim, it did not adequately allege facts showing a promise to pay a certain price for a particular service for the purpose of a promissory estoppel claim. (Ibid.) Here, as in Pacific, Plaintiff’s allegations are insufficient to state a claim for promissory estoppel because it does not allege facts sufficient to show there was a clear and unambiguous promise to pay a certain price for a particular service. In opposition, Plaintiff insists its generic allegations are sufficient without citing authority to support its position or addressing the points raised by Defendant. Accordingly, the demurrer to the second cause of action is sustainable.

ii. Unjust Enrichment and Quantum Meruit

Plaintiff’s fifth and seventh causes of action are denominated as claims for unjust enrichment and quantum meruit. In actuality, “unjust enrichment is not a cause of action.” (Jogani v. Super. Ct. (2008) 165 Cal.App.4th 901, 911.) Unjust enrichment describes the “result of failure to make restitution under circumstances where it is equitable to do so.” (Lauriedale Associates, Ltd. v. Wilson (1992) 7 Cal.App.4th 1439, 1448.) Irrespective of the accuracy of the label on the cause of action, the fifth cause of action is in substance a claim seeking restitution based on an alternative, equitable theory. (See McBride v. Boughton (2004) 123 Cal.App.4th 379, 388.) And, while the seventh cause of action is separately denominated, quantum meruit is just another term used to describe a claim for restitution. (Id. at p. 388, fn. 6.)

“There are several potential bases for a cause of action seeking restitution.” (McBride, supra, 123 Cal.App.4th at p. 388.) As relevant here, “restitution may be awarded where the defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar conduct.” (Ibid.) “In such cases, where appropriate, the law will imply a contract (or rather, a quasi-contract), without regard to the parties’ intent, in order to avoid unjust enrichment.” (Ibid.)

Defendant relies on Pacific to establish Plaintiff’s allegations are insufficient to plead entitlement to restitution. Pacific stated that reimbursement for an out-of-network provider under a quantum meruit theory generally was limited by the terms of the insured’s health plan, unless the out-of-network provider made “more detailed allegations that [the defendant insurer] authorized a certain amount of treatment or agreed to pay a specific rate.” (See Pacific, supra, 12 Cal.App.5th at p. 215.) As discussed above, there are no allegations that Defendant authorized a certain amount of treatment at a specific rate. The Court, therefore, agrees that as the complaint currently stands, Plaintiff does not allege a basis for recovering restitution based on an alternative equitable theory. Therefore, as currently pled, the fifth and seventh causes of action fail.

4. Sixth Cause of Action

Plaintiff’s sixth cause of action is for violation of the UCL. It alleges Defendant has a “scheme to reduce the costs of reimbursement claims brought by out-of-network providers” that “constitutes an illegal pattern and practice so pervasive as to form a general business practice” that violates the UCL. (Compl., ¶ 81.) Defendant states Plaintiff “does not allege any facts that support the summary contention that in not reimbursing Plaintiff at full billed charges,” it engaged in unlawful or fraudulent conduct. (Mem. of Pts. & Auth. at p. 15:5–7.) Defendant then asserts its conduct comports with public policy. These points are insufficient to substantiate the demurrer because they are not supported by an adequate discussion of applicable legal standards and the allegations upon which the claim is based. For example, Defendant neglects to address the allegation that it “punish[es] out-of-network providers by underpaying them for the medically necessary covered services they provide [ ] forcing them in-network or driving them out-of-business.” (Compl., ¶ 20.) Additionally, the issue is not whether Defendant’s conduct, in fact, violates public policy or the UCL; rather, the issue is whether Plaintiff alleges facts sufficient to state a claim. While Defendant ultimately concludes Plaintiff cannot state a claim for unfair competition based on a practice of incentivizing members to select in-network providers, it cites no legal authority to support this conclusion. For these reasons, Defendant’s demurrer to the sixth cause of action is unsubstantiated.

C. Conclusion

Defendant’s preemption argument is not persuasive. Yet, the Court is persuaded that Plaintiff fails to state claims for breach of contract, breach of the implied covenant, promissory estoppel, and quantum meruit (or “unjust enrichment”). Consequently, the demurrer to the first, second, third, fourth, fifth, and seventh causes of action is SUSTAINED with 10 days’ leave to amend. The demurrer to the sixth cause of action and the complaint as a whole is OVERRULED.