Case No.: 1-12-CV-217943

According to the allegations of the First Amended Cross-Complaint (“FACC”), cross-defendants Aetna Health of California, Inc., Aetna Life Insurance Company, and Aetna Health Management, LLC (collectively, “Cross-Defendants”) advertise and sell health insurance policies to individuals by representing to them that they can obtain healthcare from any physician of their choice, including out-of-network providers, such as cross-complainants Bay Area Surgical Group, Inc., Forest Ambulatory Surgical Associates, LP, Soar Surgery Center, LLC, Knowles Surgery Center, LLC, National Ambulatory Surgery Center, LLC, and Los Altos Surgery Center, LP (collectively, “Cross-Complainants”). (FACC, ¶ 1.) Although Cross-Defendants advertise and sell policies that allow out-of-network benefits, Cross-Defendants retaliate against patients who attempt to use their out-of-network benefits with Cross-Complainants and against physicians who refer their patients to out-of-network providers such as Cross-Complainants and other ambulatory surgery centers that are out-of-network. (FACC, ¶ 3.)

The FACC, filed on November 22, 2013, sets forth the following causes of action: [1] Breach of Contract; [2] Unfair Business Practices in Violation of California Business & Professions Code Section 17200, et seq.; [3] False Advertising in Violation of California Business and Professions Code Section 17500, et seq.; [4] Intentional Interference with a Prospective Economic Advantage; [5] Negligent Interference with a Prospective Economic Advantage; [6] Quantum Meruit; [7] Promissory Estoppel; and [8] Declaratory Relief. Cross-Defendants now demur on the grounds that each cause of action fails to state facts sufficient to constitute a cause of action. Cross-Complainants move for leave to file a Second Amended Cross-Complaint.

I. Demurrer

A. Statute of Limitations

With regard to the first, sixth, and seventh causes of action for breach of contract, quantum meruit, and promissory estoppel, Cross-Defendants argue that most of the claims for reimbursement under these causes of action are time-barred. This argument does not help Cross-Defendants because a party cannot demur to only part of a cause of action. (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal. App. 4th 1028, 1047 [“a demurrer cannot rightfully be sustained to part of a cause of action . . .”].) Since Cross-Defendants only contend that most of the claims for reimbursement are time-barred, that means that at least some of the claims are not time-barred and a demurrer to these causes of action on the basis of the statute of limitations must therefore fail.

B. First Cause of Action (Breach of Contract)

A cause of action for breach of contract requires a pleading of: (a) the contract; (b) plaintiff’s performance or excuse for nonperformance; (c) defendant’s breach; and (d) damage to plaintiff. (Bushell v. JPMorgan Chase Bank, N.A. (2013) 220 Cal. App. 4th 915, 921.) Cross-Defendants argue that the breach of contract cause of action fails to adequately allege the existence of a sufficiently definite contract.

Cross-Complainants allege the parties entered into oral contracts whereby Cross-Defendants agreed to tender payment in the amount of 60% to 80% of the total usual, customary, and reasonable charges (“UCR” charges) for qualified surgical services, supplies, and equipment rendered to its insured by out-of-network or non-contracted facilities. (FACC, ¶ 58.) Cross-Defendants contend that Cross-Complainants’ allegations are inconsistent because Cross-Complainants allege both that Cross-Defendants agreed to pay 60% to 80% of the billed amounts (FACC, ¶ 37) and 60% to 80% of each patient’s total UCR (FACC, ¶ 59). While it is true that Cross-Complainants refer both to “billed amounts” and “UCR” in connection with the amount Cross-Defendants allegedly agreed to pay, Cross-Complainants explain that the total billed charges are the same as “total UCR based on the actual amounts charged for similar procedures in the same geographic region, rather than [Cross-Defendants’] calculation of UCR, which generally falls well below any actual reasonable and customary amount for similar procedures in the same geographic region.” (FACC, ¶ 62; see also FACC, ¶ 37 [the “billed amounts are also equal to the reasonable and customary value of the procedures performed”].) Cross-Complainants’ explanation demonstrates that there is no inconsistency in the allegations regarding the terms of the alleged oral contracts and that the alleged contracts are sufficiently definite. Accordingly, Cross-Defendants’ demurrer to the first cause of action is OVERRULED.

C. Seventh Cause of Action (Promissory Estoppel)

The elements of promissory estoppel are: “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) his reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” (Laks v. Coast Fed. Sav. Loan Assn. (1976) 60 Cal.App.3d 885, 890; see also US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 901.) Cross-Defendants make essentially the same argument in connection with this cause of action as they make in connection with the breach of contract cause of action; they contend that Cross-Complainants’ fail to adequately allege a clear and unambiguous promise made by Cross-Defendants.

As discussed above in connection with the cause of action for breach of contract, Cross-Complainants’ allegations are not ambiguous. Cross-Complainants allege that Cross-Defendants promised to pay 60%-80% of the billed charges for care provided by Cross-Complainants. (FACC, ¶ 123.) Cross-Complainants’ allegations are sufficient for pleading purposes. Accordingly, Cross-Defendants’ demurrer to the seventh cause of action is OVERRULED.

D. Sixth Cause of Action (Quantum Meruit)

“[I]n order to recover under a quantum meruit theory, a plaintiff must establish both that he or she was acting pursuant to either an express or implied request for such services from the defendant and that the services rendered were intended to and did benefit the defendant.” (Day v. Alta Bates Medical Ctr. (2002) 98 Cal. App. 4th 243, 248, italics in original.) Cross-Defendants argue that Cross-Complainants have alleged no specific request by Cross-Defendants that Cross-Complainants provide services to Cross-Defendants’ members. Cross-Defendants’ assert that Cross-Complainants only allege that there was an implied request for services. Cross-Defendants’ contend that an implied request is insufficient to maintain a cause of action for quantum meruit.

Cross-Defendants are correct that Cross-Complainants allege they acted pursuant to an implied request for services. (See FACC, ¶¶ 113-114.) The issue is whether an implied request is sufficient in this instance. “[W]hen the services are rendered by the plaintiff to a third person, the courts have required that there be a specific request therefor from the defendant.” (Day v. Alta Bates Medical Ctr., supra, 98 Cal. App. 4th at p. 249; see also Gateway Rehab & Wellness Ctr., Inc. v. Aetna Health of Cal., Inc., 2013 U.S. Dist. LEXIS 53401, *11 (C.D. Cal. 2013), citing to Gateway, supra [“An implied request is not sufficient to sustain a cause of action for quantum meruit when the benefit has been conferred by a plaintiff upon a third party, and not the defendant, and the defendant has not made a specific request for those services.”].) Cross-Complainants have not alleged that Cross-Defendants made any specific request for Cross-Complainants to provide services to Cross-Defendants’ members. Rather, Cross-Complainants simply allege that Cross-Defendants pre-authorized certain services. Pre-authorization is not the same as making a specific request that services be provided. The services were provided to members of Cross-Defendants and the members are the ones who received the benefit of the services. Accordingly, for the reasons discussed above, Cross-Defendants’ demurrer to the sixth cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

E. Second Cause of Action (Unfair Business Practices)

Business and Professions Code section 17200 prohibits any unlawful, unfair, or fraudulent business act or practice. (Shvarts v. Budget Group, Inc. (2000) 81 Cal.App.4th 1153, 1157.) Because section 17200 is written in the disjunctive, it establishes three actionable types of unfair competition, namely acts or practices which are unlawful, or unfair, or fraudulent. (Ibid.) Cross-Defendants argue that Cross-Complainants have not alleged any unlawful, unfair, or fraudulent conduct engaged in by Cross-Defendants. Cross-Defendants also argue that Business and Professions Code section 17200, et seq. (the “UCL”) does not apply to the type of claim brought by Cross-Complainants. Lastly, Cross-Defendants contend that Cross-Complainants lack standing to assert the UCL against Cross-Defendants’ alleged interactions with non-parties (i.e. physicians and patients).

Cross-Defendants’ second argument is dispositive. The UCL’s purpose is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services. (Kasky v. Nike, Inc. (2002) 27 Cal. 4th 939, 949.) Cross-Complainants are neither consumers nor competitors of Cross-Defendants. As stated by one case, “where a UCL action is based on contracts not involving either the public in general or individual consumers who are parties to the contracts, a corporate plaintiff may not rely on the UCL for the relief it seeks.” (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal. App. 4th 115, 135; see also Rosenbluth Int’l v. Superior Court (2002) 101 Cal. App. 4th 1073, 1078.) Cross-Complainants’ action is essentially one for breach of contract based on underpayment for services provided by Cross-Complainants that were preauthorized by Cross-Defendants. Under these circumstances, Cross-Complainants cannot maintain a UCL claim. Cross-Defendants’ demurrer to the second cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

F. Third Cause of Action (False Advertising)

Section 17500 of the Business and Professions Code makes it unlawful ‘for any person, . . . .with intent directly or indirectly to dispose of real or personal property or to perform services, professional or otherwise, or anything of any nature whatsoever or to induce the public to enter into any obligation relating thereto, to make or disseminate . . . before the public . . . any statement . . . which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading, or for any such person, . . . to so make or disseminate . . . any such statement as part of a plan or scheme with the intent not to sell such personal property or services, . . . so advertised at the price stated therein, or as so advertised.

(Chern v. Bank of America (1976) 15 Cal. 3d 866, 875.)

Cross-Complainants allege that Cross-Defendants’ advertisement of its alleged “pre-authorization” and/or “pre-certification” of services are no more than a sham and that such pre-authorizations and/or pre-certifications are entirely meaningless. (FACC, ¶ 84.) First, although Cross-Complainants refer to advertisements for the pre-authorization of services, there are no facts alleged showing what those advertisements are. It is not apparent how the act of pre-authorization, in and of itself, would constitute an advertisement and there are no allegations showing any other advertisements regarding the pre-authorization. As pointed out by Cross-Defendants, “advertising” generally means widespread promotional activities directed to the public at large. (Bank of the West v. Superior Court (1992) 2 Cal. 4th 1254, 1277.)

Further, as argued by Cross-Defendants, the fact that Cross-Defendants pre-authorized certain procedures to be performed does not necessarily mean that Cross-Defendants represented they would pay a specific amount to Cross-Complainants for those procedures. Cross-Complainants do not allege otherwise. Consequently, to the extent any pre-authorization could be considered an “advertisement,” Cross-Complainants have not shown that they could have reasonably relied on the pre-authorization as a representation of what they would be paid. Accordingly, Cross-Defendants’ demurrer to the third cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

G. Fourth and Fifth Causes of Action (Intentional and Negligent Interference with Prospective Economic Relations)

Cross-Defendants argue that Cross-Complainants cannot maintain these causes of action because an interference claim cannot be brought against a party to the relationship from which a plaintiff’s anticipated economic advantage would arise and because the prospective relationships alleged by Cross-Complainants do not constitute the existing relationships needed for these claims.

With regard to the first argument, it is true that these causes of action can only be asserted against a stranger to the alleged economic relationship(s). (Kasparian v. County of Los Angeles (1995) 38 Cal. App. 4th 242, 262.) The economic relationships alleged by Cross-Complainants are between out-of-network facilities and patients enrolled in Cross-Defendants’ health plans and between out-of-network facilities and physicians contracted with Cross-Defendants. (FACC, ¶¶ 91, 102.) While Cross-Defendants are tangentially connected to these alleged relationships, the actual economic relationships at issue are those between the facilities and the patients and doctors. Therefore, Cross-Complainants are not barred from bringing causes of action for interference with prospective economic relationships against Cross-Defendants on this basis.

As for the second argument, “an essential element of the tort of intentional interference with prospective business advantage is the existence of a business relationship with which the tortfeasor interfered.” (Roth v. Rhodes (1994) 25 Cal. App. 4th 530, 546.) Cross-Defendants contend that Cross-Complainants have only alleged speculative economic relationships. Although Cross-Complainants allege in a conclusory fashion that they have an economic relationship with Cross-Defendants’ physicians, there are no facts showing the existence of these relationships. Rather, Cross-Complainants’ allegations only show that these physicians may want to refer their patients to Cross-Complainants. (FACC, ¶ 92.) However, Cross-Complainants do allege the existence of an economic relationship with certain patients. While there is not a sufficiently definite relationship alleged with patients who may be referred to Cross-Complainants (see FACC, ¶¶ 27, 92, 103; Roth v. Rhodes (1994) 25 Cal. App. 4th 530, 546), Cross-Complainants also allege that Cross-Defendants have refused “to pay for out-of-network care actually rendered to Cross-Defendants’ members with out-of-network coverage at any reasonable rate, if at all” (FACC, ¶¶ 96, 105). If care was provided to patients, that demonstrates an existing relationship with those patients. Accordingly, Cross-Defendants’ demurrer to the fourth and fifth causes of action is OVERRULED.

H. Eighth Cause of Action (Declaratory Relief)

Cross-Defendants argue that declaratory relief is not appropriate here because Cross-Complainants do not seek clarification of their legal rights and duties as a means to avoid a future breach or violation, but only seek declarations that Cross-Defendants are liable under the other causes of action named in the FACC. Cross-Defendants contend that since the other causes of action fail, so too does the claim for declaratory relief.

First, as discussed above, the demurrer is overruled as to certain causes of action. Further, in an action for declaratory relief, the complaint is sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the respective parties under a contract and requests the rights and duties be adjudged. If these requirements are met, the court must declare the rights of the parties whether or not the facts alleged establish the plaintiff is entitled to a favorable declaration. (See Condor Ins. Co. v. Williamsburg Nat. Ins. Co. (1996) 49 Cal.App.4th 554, 565.) Cross-Complainants allege that Cross-Defendants are engaging in certain ongoing practices. (See FACC, ¶¶ 137-138.) Consequently, there is an alleged controversy regarding the rights and duties of the parties going forward. Accordingly, Cross-Defendants’ demurrer to the eighth cause of action is OVERRULED.

II. Motion for Leave to File Second Amended Cross-Complaint

Cross-Complainants’ motion for leave to file the Second Amended Complaint is GRANTED.