Case Name: Michael Jadali, et al., v. Cigna Health and Life Insurance Co., et al.

Case No: 19CV341058

Presently before the Court is CIGNA’s demurrer to the first, second, fourth, fifth, and sixth causes of action in the First Amended Complaint (“FAC”).

I. Background
II.

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 first amended complaint (“FAC”), Plaintiffs operate pain management clinics. (FAC, ¶ ¶ 9, 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, and to stop paying bills, causing a disruption to Plaintiffs’ business and patients’ treatment. (FAC, ¶¶ 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, and has kept Plaintiffs under investigation on an indefinite basis. (Id. at ¶¶ 47, 50.)

On September 24, 2019, the Court sustained CIGNA’s demurrer to portions of the original complaint, with leave to amend.

As a result of the foregoing, Plaintiffs filed the FAC to 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.

III. Demurrer
IV.

CIGNA demurs to the first, second, fourth, fifth, and sixth causes of action on the ground of failure to state sufficient facts. (Code Civ. Proc., § 430.10, subd. (e).)

A. Legal Standard
B.

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.) A demurrer reaches only to the contents of the pleading and such matters subject to judicial notice. (Code Civ. Proc. § 430.30, subd. (a); South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732, citations omitted.) “It is not the ordinary function of a demurrer to test the truth of the [ ] allegations, or the accuracy with which [they] describe the defendant’s conduct” and the facts alleged are deemed to be true, however improbable. (Align Technology, Inc. v. Tran, supra, 179 Cal.App.4th 949, 958.)

C. Failure to State Sufficient Facts
D.

1. First Cause of Action: Breach of Implied in Fact Contract
2.

CIGNA argues that the first cause of action fails to sufficiently plead existence of an implied-in-fact contract between CIGNA and Plaintiffs. The Court previously sustained a demurrer as to this cause of action on the same ground.

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.)

Plaintiffs have sufficiently amended the FAC to allege implied-in-fact contract. They again allege “[i]mplied-in-fact contracts were also created during and after the industry standard insurance verification and authorization process.” (Id. at ¶ 62.) Likewise, Plaintiffs made phone calls to CIGNA prior to treatment to verify patients’ insurance coverage, and during the calls, CIGNA confirmed that the services at issue were covered and CIGNA would pay for those services. (Ibid.) It goes on to provide an example of one form of treatment that CIGNA authorized, and states it “knew and understood that providing the… drug… cost thousands of dollars.” (Ibid.) It also alleges that CIGNA received and accepted Plaintiffs’ billed charges, and with full knowledge and understanding, continued to authorize the treatments. (Ibid.)

Thus, the phone calls seeking authorization, the allegations of authorization received and the understanding of what Plaintiffs charged for the services based on prior billing, with subsequent authorization, sufficiently allege implied-in-fact contracts were formed.

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

3. Second Cause of Action: Book Account
4.

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.) The judicial acceptance of an open book account is based on “the enhanced reliability of record keeping in the context of a debtor-creditor relationship with the parties are aware of that relationship and there is, in fact, an account between them.” (Maggio, Inc. v. Neal (1987) 196 Cal.App.3d 745, 751.)

The FAC has been sufficiently amended to allege an open book account. As stated in the previous section, the FAC now alleges that CIGNA received bills from Plaintiffs and continued to authorize patients’ treatment. (FAC, ¶ 62.) Furthermore, facts have been added alleging an organized and shared system of bookkeeping, consisting of bills submitted to CIGNA, written authorizations issued by CIGNA, and written correspondence from them acknowledging receipt of Plaintiffs’ claims. (Id. at ¶ 71.) Thus, the FAC now alleges facts in support of the maintenance of permanent records, in the nature of debtor and creditor, and agreement between the parties to the same.

Consequently, the demurrer to the second cause of action for failure to state sufficient facts is OVERRULED.

5. Fourth and Fifth Causes of Action
6.

CIGNA also demurs to the fourth and fifth causes of action for quantum meruit and unjust enrichment. However, as it has been successful by way of motion to strike with regard to the fourth and fifth causes of action (see tentative ruling for CIGNA’s motion to strike), CIGNA’s demurrer as to the fourth and fifth causes of action for quantum meruit and unjust enrichment is moot and needs not be addressed.

7. Sixth Cause of Action
8.

CIGNA further demurs to the sixth cause of action for intentional interference with contract, arguing that the FAC fails to allege valid contracts, or identify any interference.

A cause of action for intentional interference with contract must allege: (1) the existence of a valid contract between plaintiff and a third party; (2) defendant’s knowledge of the contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage. (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.)

Here, Plaintiffs plead that they had “written agreements” with patients to pay for services rendered and billed. (FAC, ¶ 96.) This is sufficient to allege valid contracts between Plaintiffs and their patients. Furthermore, CIGNA’s argument that the FAC fails to allege any refusal to pay billed charges as a result of its behavior is incorrect. The FAC does allege that “patients stopped paying the bills for medical services that had been rendered by Plaintiffs as a result of CIGNA’s conduct.” (Id, at ¶ 101.) Thus, taken together, the facts are sufficient to allege valid contracts between Plaintiffs and patients with which CIGNA interfered.

Consequently, the demurrer to the sixth cause of action is OVERRULED.