Case Name: Michael Jadali, et al., v. Cigna Health and Life Insurance Co., et al.
Case No: 19CV341058

I. Background

Plaintiffs Dr. Michael Jadali, Center for Pain & Rehabilitation Medicine, and Pacific Coast Medical Clinic (collectively, “Plaintiffs”) bring this action against Cigna Health and Life Insurance Company and CIGNA Healthcare of California, Inc. (collectively, “CIGNA”) for damages associated with breach of contract and tortious interference with economic advantage.

According to the allegations of the operative complaint, Plaintiffs operate pain management clinics. (Complaint, ¶ ¶ 19, 20.) They were in-network providers with CIGNA for many years, until 2014. (Id. at ¶ 2.) After they left the CIGNA network, CIGNA required excessive medical records and documentation for each bill prior to payment. (Id. at ¶ 3.) CIGNA claimed that Plaintiffs were under investigation and proceeded to ignore records submitted and deny virtually all payment on the basis that “services were not rendered as billed.” (Ibid.)

CIGNA also contacted Plaintiffs’ patients accusing Plaintiffs of committing fraud and actively encouraging patients to find another provider, causing a disruption to Plaintiffs’ business and patients’ treatment. (Complaint, ¶¶ 4, 47, 48.) CIGNA continues to authorize Plaintiffs to provide certain medical services to its members, even though it has no intention of paying them. (Id. at ¶ 6.) As a result, CIGNA has either not paid, or has underpaid Plaintiffs’ outstanding bills in violation of law. (Id. at ¶ 37.) Simultaneously, CIGNA has referred some of Plaintiffs’ claims to its internal special investigations unit. (Id. at ¶ 47.)

As a result of the foregoing, Plaintiffs allege seven causes of action for: (1) breach of implied in fact contract; (2) book account; (3) unfair business practices; (4) intentional interference with contractual relations; (5) negligent interference with contractual relations; (6) intentional interference with prospective economic advantage; and (7) negligent interference with prospective economic advantage.

Presently before the Court is CIGNA’s demurrer.

II. Demurrer

CIGNA demurs to all seven causes of action on the ground of failure to state sufficient facts pursuant to Code of Civil Procedure section 430.10, subdivision (e) , and uncertainty pursuant to section 430.10, subdivision (f).

A. Legal Standard

A demurrer tests the legal sufficiency of a pleading, but not the truth of a plaintiff’s allegations or the accuracy with which he or she describes the defendant’s conduct. (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958; citing Committee on Children’s Television Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213.) The demurrer is treated as admitting all material facts, properly pleaded, but not contentions, deductions or conclusions of law. (Ibid.)

B. Uncertainty

CIGNA argues that the entire pleading is fatally uncertain because it does not identify the specific defendant against whom each cause of action is asserted and which Plaintiff was subjected to the conduct at issue in violation of Rule of Court 2.112.

Rule 2.112 requires each separately-stated cause of action to specifically state its number, nature, the party asserting the cause of action, and the party to whom the cause of action is directed. Failing to adhere to the rule on the identification of parties and causes of action “may render a complaint confusing and subject to a special demurrer for uncertainty.” (Williams v. Beechnut Nutrition Corporation (1986) 185 Cal.App.3d 135, 139, fn. 2.) Ultimately, however, “where the complaint contains substantive factual allegations sufficiently apprising defendant of the issues it is being ask to meet, a demurrer for uncertainty should be overruled or plaintiff given leave to amend.” (Ibid.)

Here, while the complaint lists several plaintiffs, the allegations contend that one of them is the founder, owner or chief pain specialist for the other two named plaintiffs. (Complaint, ¶¶ 9, 10.) The complaint labels them collectively as “Plaintiffs.” (Id. at p. 2. l 1.) It is also alleged that the CIGNA defendants engage in the business of insurance in California, and are not separate entities. (Id. at ¶¶ 12, 13, 18.) They are also referred collectively as “Cigna” and “Defendants.” (Id. at ¶¶ 14, 16.) Therefore, it appears that all causes of action are brought against both entities by the collective Plaintiffs. Furthermore, the causes of action are otherwise numbered and labeled, and each cause of action asserted with facts alleged. Therefore, the complaint is not fatally deficient in adhering to Rule 2.112, and the demurer on this ground cannot be sustained.

Consequently, the demurrer on the ground of uncertainty is OVERRULED.

C. Failure to State Sufficient Facts

1. First Cause of Action: Breach of Implied in Fact Contract

CIGNA argues that the first cause of action fails to sufficiently plead existence of an implied in fact contract between CIGNA and Plaintiffs.

To plead an implied contract, like an express contract, facts must allege mutual assent through offer and acceptance, and consideration. (Pacific Bay Recovery, Inc. v. California Physicians’ Services, Inc. (2017) 12 Cal.App.5th 200, 215.) An implied contract is an agreement whose terms are manifested by conduct. (Ibid; Civ. Code, § 1621.) In the health insurance context, pre-approval alone is not sufficient to allege the formation of an implied contract, and a plaintiff must allege the type of treatment authorized, the extent of treatment, and the agreed upon rate. (See Pacific Bay Recovery, Inc. v. California Physicians’ Services, Inc., supra, 12 Cal.App.5th 200, 216.)

The facts allege that as a regular practice, before treatment, Plaintiffs call patients’ insurance companies to verify coverage and where necessary, obtain special authorization. (Complaint, ¶ 25.) While individual patient billing issues are pleaded for context along with the nature of the services rendered (Id. at ¶ 44), there are no specific allegations about the nature and extent of the treatment authorized to support an implied contract.

Furthermore, it is alleged that as out-of-network providers, Plaintiffs are entitled receive payment based on “its charges for services rendered, so long as those charges are reasonable and customary.” (Id. at ¶ 32.) They also allege that Plaintiffs “believe their charges are reasonable and customary under industry standards…” (Id. at ¶ 33.) However, there are no allegations which list the agreed upon rate for services rendered to support an implied contract.

Consequently, the demurrer to the first cause of action for failure to state sufficient facts is SUSTAINED, with 10 days leave to amend.

2. Second Cause of Action: Book Account

CIGNA argues that the second cause of action fails because Plaintiffs do not allege the parties agreed that the sums would be subject to a book account.

A book account is a detailed statement constituting the principal record of one or more transactions between a debtor and a creditor arising out of a contract or some fiduciary relationship. (§ 337, subd. (a).) While the law “does not prescribe any standard of bookkeeping practice”… so long as the account is kept as “permanent records, and constitutes a system of bookkeeping as distinguished from mere private memoranda”… it is sufficient to support a cause of action on a book account. (Egan v. Bishop (1935) 8 Cal.App.2d 119, 122.) Furthermore, monies due cannot be treated as items under an open book account without the agreement of the parties. (Tsemetzin v. Coast Federal Savings & Loan Assn. (1997) 57 Cal.App.4th 1334, 1343.)

Plaintiffs rely on a conclusory statement about “written documentation maintained and exchanged by the parties” in reference to both pre-authorizations and bills/payments to support its allegation of book account and CIGNA’s agreement to the same. (Complaint, ¶ 65.) However, they do not allege Plaintiffs maintained a system of bookkeeping in some type of permanent record. In fact the complaint is devoid of any such facts. Plaintiffs’ reliance on Community Hospital of the Monterey Peninsula v. Aetna Life Insurance Company (N.D.Cal. 2015) 119 F. Supp. 3d 1042 is unavailing. That case involved a motion for summary judgment in federal court where the existence of bills sent by a health care provider were considered evidence of what amounts were owed, not the existence of the book account itself. Furthermore, there are no facts to support CIGNA’s agreement to be bound by an open book account.

Consequently, the demurrer to the second cause of action for failure to state sufficient facts is SUSTAINED, with 10 days leave to amend.

3. Fourth through Seventh Causes of Action : Tortious Interference

a. Common Interest Privilege

CIGNA demurs to all four tortious interference causes of action on the basis that the communications alleged to be wrongful are protected and privileged.

Civil Code section 47 provides a conditional privilege against defamation to statements made without malice on subjects of mutual interest. This privilege protects communications made in good faith on a subject in which the speaker and hearer share an interest or duty. (Brown v. Kelly Broadcasting Co. (1989) 48 Cal.3d 711, 716.) The privilege has been applied in the context of other torts including intentional interference with prospective business advantage. (Asia Investment Co. v. Borowski (1982) 133 Cal.App.3d 832, 841-842.)

It is alleged that CIGNA told both patients and Plaintiffs’ employees of the alleged fraud. (Complaint, ¶¶ 47, 48, 49, 50.) CIGNA demurs on the basis of its relationship and shared interest with the patients to whom the statements were made, as they are insurer and insured. Thus, the statements are protected by the common interest privilege. However, there is no similar relationship between CIGNA and Plaintiffs’ employees, and CIGNA makes no argument regarding these in support of the common interest argument. Since a demurrer cannot lie to only part of a claim, it cannot be sustained on the basis of the privilege as to patients alone. (See Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal. App. 4th 1028, 1047 [holding that a demurrer does not lie to only part of a cause of action].)

b. Pleading Sufficiency of Valid Contract

CIGNA demurs to the fourth and fifth causes of action for intentional and negligent interference with contractual relations on the basis that no valid contract between Plaintiff and third parties has been pleaded.

Among other things, a cause of action for intentional interference with contract must allege the existence of a valid contract between plaintiff and a third party. (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.) To plead the existence of a valid contract, the facts must allege mutual assent through offer and acceptance, and consideration. (Pacific Bay Recovery, Inc. v. California Physicians’ Services, Inc., supra, 12 Cal.App.5th 200, 215.)

As CIGNA argues, the complaint is insufficient to allege a valid contract between Plaintiffs and third parties for which CIGNA can be liable for interfering. In a conclusory way, Plaintiffs allege they entered into contracts “when patients came to the Plaintiffs for treatment they signed paperwork agreeing to be fully liable for the bills for the medical services rendered to them.” (Complaint, ¶ 79.) This is alleged to be a “standard practice” in the industry. (Ibid.) However, nothing pleaded shows that they had mutually agreed to contract with a patient or patients and that Plaintiffs interfered with these. CIGNA points out that while there may have been contracts created on a visit-by-visit basis, no facts alleged show that a patient under valid contract decided to seek services elsewhere as a result of CIGNA’s statements or investigation. Consequently, the demurrer to the fourth cause of action will be sustained.

Though not specifically raised by the demurrer, the Court notes that California does not recognize a common law tort of negligent interference with contractual relations. (Fifield Manor v. Finston (1960) 54 Cal.2d 632, 636.) Therefore the demurrer to the fifth cause of action will be sustained without leave to amend.

c. Pleading Sufficiency of Economic Relationship

CIGNA demurs to the sixth and seventh causes of action for tortious interference with economic advantage on the basis that an existing economic relationship is not sufficiently pleaded.

A cause of action for tortious interference with prospective economic advantage, whether intentional or negligent, must plead the existence of an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153; Redfearn v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 1005.) Such claims are not supported by evidence of potential relationships with future customers. (See Blank v. Kirwan (1985) 39 Cal.3d 311, 330-331.)

CIGNA argues that the facts only show that there was interference with potential or repeat customers, but not any “existing relationship.” However, the pleading does indicate that as people suffering from intractable pain, Plaintiffs’ patients entered into “courses of treatment” with their practice and have existing and “ongoing” relationships with Plaintiffs. (Complaint, ¶¶ 19, 20, 22, 94.) Thus the facts are distinguishable from cases where the interference was with potential, future customers as the references are to existing and ongoing relationships with which it alleges CIGNA interfered. Therefore, the demurrer to these causes of action cannot be sustained.

Consequently, the demurrer to the fourth cause of action on the ground of failure to state sufficient facts is SUSTAINED, with 10 days leave to amend on the basis that a valid contract has not been sufficiently pleaded.

The demurrer to the fifth cause of action on the ground of failure to state sufficient facts is SUSTAINED, without leave to amend as there is no cause of action for negligent interference with contract.

The demurrer to the sixth and seventh causes of action on the ground of failure to state sufficient facts is OVERRULED.
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4. Third Cause of Action: Unfair Business Practices

CIGNA argues that the third cause of action fails as Plaintiffs lack standing and the facts pleaded are not sufficient.

Business and Professions Code section 17200 also known as the Unfair Competition Law (“UCL”), provides for remedies for “unlawful, unfair or fraudulent business practices.” A UCL violation must be premised on underlying causes of action, and therefore where the demurrer is sustained, a UCL claim is not sufficiently pleaded standing alone. (See Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 383.) Furthermore, standing to sue under the UCL is available to anyone if he or she has suffered economic injury, and the injury was caused by the unfair business practice. (Bus. & Prof. Code, § 17204; see Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 322.)

Plaintiffs’ theory of recovery under the UCL is in part premised on violations of the Knox-Knee Act, the Insurance Code and the Patient Protection and Affordable Care Act. (Complaint, ¶ 70.) These are not independently pleaded causes of action but arise only as part of the UCL cause of action. CIGNA takes issue with the sufficiency of the pleading of these, specifically whether Plaintiff has standing.

However, the UCL cause of action is also predicated on CIGNA’s “attempts to drive patients away by improperly suggesting that Plaintiffs were ‘committing fraud.’” (Complaint, ¶70 (b).) This language tracks the facts in support of the causes of action for tortious interference with prospective economic advantage, which survive demurrer. Furthermore, Plaintiffs have alleged that they suffered injury in fact and lost money as result of CIGNA’s alleged tortious activity, sufficient to grant them standing. (Id. at ¶ 74.) As a result, there is an underlying cause of action in support of the UCL claim, regardless of whether the statutory bases are sufficient, and the demurrer cannot be sustained on this basis.

Consequently, the demurrer to the third cause of action on the ground of failure to state sufficient facts is OVERRULED.