Case Name:   Aetna Life Insurance Company, Inc. v. Bay Area Surgical Management, LLC, et al.

 

Case No.:       1-12-CV-217943

 

There are several motions currently before the Court.  Defendants Bay Area Surgical Management, LLC, Bay Area Surgical Group, Inc., Forest Ambulatory Surgical Associates, L.P., SOAR Surgery Center, LLC, Knowles Surgery Center, LLC, National Ambulatory Surgery Center, LLC, Los Altos Surgery Center, LP, Julie Hashemieh, Bobby Sarnevesht, and Javad Zolfaghari (collectively, “BASM”) move for judgment on the pleadings of plaintiff Aetna Life Insurance Company’s first cause of action for unfair competition in the First Amended Complaint (“FAC”).  Defendant Pacific Heights Surgery Center of San Francisco, L.P. joins in the motion for judgment on the pleadings.  Cross-Complainants Bay Area Surgical Management, LLC, Bay Area Surgical Group, Inc., Forest Ambulatory Surgical Associates, L.P., SOAR Surgery Center, LLC, Knowles Surgery Center, LLC, National Ambulatory Surgery Center, LLC, Los Altos Surgery Center, LP (collectively, the “Providers”) move for leave to file a Third Amended Cross-Complaint.  Cross-Defendants Aetna Life Insurance Co., Aetna Health of California, Inc., and Aetna Health Management, LLC (collectively, “Aetna”) demur to the Second Amended Cross-Complaint (“SACC”).

 

1. BASM’s Motion for Judgment on the Pleadings

 

Aetna’s request for judicial notice made in connection with Aetna’s opposition to BASM’s motion for judgment on the pleadings is GRANTED.

 

BASM moves for judgment on the pleadings of Aetna’s first cause of action for unfair competition.  BASM states that it brings the motion on both statutory and non-statutory grounds.  The statutory ground for the motion is Code of Civil Procedure section 438, subdivision (c)(1)(B)(i) – “[t]he court has no jurisdiction of the subject of the cause of action alleged in the complaint.”  BASM brings the motion on this ground because the Court previously denied BASM’s motion for judgment on the pleadings as to the first cause of action because BASM had already demurred to that cause of action on the same “ground” – failure to state facts sufficient to constitute a cause of action.

 

BASM contends that, because Aetna is neither a “competitor” nor a “consumer” it does not have standing to maintain a cause of action under the UCL.  BASM argues that lack of standing is jurisdictional and therefore lack of jurisdiction is the appropriate ground for the instant motion.  Aetna disputes this, asserting that standing and subject matter jurisdiction are separate issues, and that BASM’s challenge to Aetna’s standing does not fall under Code of Civil Procedure section 438, subdivision (c)(1)(B)(i).

 

BASM cites to several cases for the proposition that lack of standing is jurisdictional – see, e.g., Common Cause v. Board of Supervisors (1989) 49 Cal. 3d 432, 438-439 [“contentions based on a lack of standing involve jurisdictional challenges and may be raised at any time in the proceeding”]; Hudis v. Crawford (2005) 125 Cal. App. 4th 1586, 1592 [“[a] ‘lack of standing’ is a jurisdictional defect”].)  While the cited cases show that there is a “jurisdictional” aspect to standing, they do not establish that a lack of standing denies a court from having subject-matter jurisdiction over a cause of action.  As explained in a case cited to by Aetna, “the two issues (standing to sue and subject matter jurisdiction of the court) are totally unrelated in the law.”  (Harnedy v. Whitty (2003) 110 Cal. App. 4th 1333, 1338.)  Code of Civil Procedure section 438, subdivision (c)(1)(B)(i) specifically concerns a court’s lack of “jurisdiction of the subject of the cause of action” – i.e. subject-matter jurisdiction.  The principle of “subject matter jurisdiction” relates to the inherent authority of the court involved to deal with the case or matter before it.  (Harnedy v. Whitty, supra, 110 Cal. App. 4th at p. 1344.)  BASM makes no argument that this Court lacks the inherent authority to deal with the subject matter of this lawsuit or the UCL cause of action.  Consequently, the instant motion for judgment on the pleadings does not concern a challenge to the Court’s jurisdiction as contemplated by Code of Civil Procedure section 438, subdivision (c)(1)(B)(i) and to the extent the motion is brought pursuant to that code section it must be DENIED.

 

In the alternative, BASM brings a “non-statutory” motion for judgment on the pleadings.  In 1994, Code of Civil Procedure section 438 went into effect, codifying motions for judgment on the pleadings.  (See Sen. Com., Analysis of Assem. Bill No. 58 (1993-1994 Reg. Sess.).)  In other words, there is now a statutory procedure for motions for judgment on the pleadings that replaced the former common law procedure.  While there have been a few cases since the enactment of Code of Civil Procedure section 438 that still refer to non-statutory motions for judgment on the pleadings, the issue of whether such motions are actually still viable was not raised in any of those cases.  If non-statutory motions for judgment on the pleadings did still exist, they would make section 438 meaningless.  Consequently, the Court finds that there is no authority supporting the use of a “non-statutory” motion for judgment on the pleadings since the enactment of Code of Civil Procedure section 438 and BASM cannot maintain such a motion.

 

Accordingly, for the reasons discussed above, BASM’s motion for judgment on the pleadings is DENIED.

 

As a final matter in connection with this motion, Aetna requests that the Court sua sponte issue an order to show cause why BASM should not be sanctioned.  Aetna argues that this is BASM’s third challenge to Aetna’s UCL standing and BASM has pointed to no change in the applicable law.  Aetna contends that BASM’s motion serves only to waste this Court’s resources.  Aetna also asserts that BASM’s counsel did not contact Aetna’s counsel to clear the hearing date on this motion and that BASM has engaged in gamesmanship.  Aetna requests that the Court issue an order to show cause why BASM should not be sanctioned pursuant to Code of Civil Procedure section 128.7, on the basis that the motion for judgment on the pleadings was “presented primarily for an improper purpose,” namely, to “harass or to cause unnecessary delay or needless increase in the cost of litigation.”

 

While it may be that the motion for judgment on the pleadings is without merit, it does not appear that BASM filed the motion solely to harass BASM.  The prior motion for judgment on the pleadings was disposed of on procedural grounds, and BASM is seeking a substantive ruling on its argument that Aetna’s UCL claim should be dismissed.  There has not yet been any determination as to the substantive merits of the UCL cause of action.  It should also be noted that Aetna could have made a motion for sanctions itself, rather than asking the Court to “sua sponte” issue an order to show cause why sanctions should not be issued.  It is not apparent why Aetna chose not to do so – perhaps to avoid the safe harbor rule of Code of Civil Procedure section 128.7, subdivision (c)(1) that requires a party moving for sanctions to provide a 21-day period for the challenged motion (in this case the motion for judgment on the pleadings) to be withdrawn.  In sum, the Court declines to sua sponte issue an order to show cause.

 

1. The Providers’ Motion for Leave to File Third Amended Cross-Complaint

 

The Providers seek leave to file a Third Amended Cross-Complaint (“TACC”).  The proposed TACC does the following: (1) names as cross-defendants the defendants from a related federal case, consisting of self-funded ERISA plans from which certain claims for underpaid healthcare services provided to Aetna members arise, as well as the employers who sponsor those self-funded ERISA plans; (2) adds three causes of action under ERISA that the Providers previously brought in the federal action; and (3) modifies the list of underpaid patient claims attached as Exhibit A to the SACC by adding claims arising from self-funded ERISA plans.

 

Despite the normal rule that a court will not consider the substantive merits of new claims in an amended pleading, where the insufficiency of the proposed amendment is established by controlling precedent and where the insufficiency could not be cured by further appropriate amendment, the court can deny a motion to amend.  (Cal. Casualty Gen. Ins. Co. v. Superior Court (1985) 173 Cal. App. 3d 274, 280-281, overruled on other grounds.)  Aetna argues that two of three ERISA claims proposed to be added in the TACC are subject to federal jurisdiction exclusively and cannot be heard in this Court.  The Providers do not appear to dispute this point, but simply assert that after the TACC is filed Aetna can either remove the TACC to federal court or challenge the new claims by demurrer.  (Reply in Support of Motion for Leave to File Third Amended Cross Complaint, p. 6:6-7.)

 

Consequently, allowing the filing of the TACC at this point would mean authorizing the addition of two causes of action that are not appropriately filed in state court, as well as the addition of hundreds of new parties.  Trial is set for May 4, 2015, only about half a year away, and this case was originally filed in 2012.  The Providers could have pursued these claims in state court earlier, but chose a litigation strategy that resulted in the limitation of the claims in this action to preclude any reference to ERISA.  As stated by Judge Davila in the federal action, the situation in which the Providers find themselves is something of their own creation.  (Dru. Decl., Ex. G, p. 8.)  The Providers argue that these claims and parties are already involved in the federal action, so it would not be cause any hardship to add them to this action.  This only demonstrates, however, that to the extent the Providers are unable to pursue ERISA claims in the instant action, they will still have a remedy in federal court.

 

Accordingly, the Providers’ motion for leave to file the TACC is DENIED.

 

1. Aetna’s Demurrer to Second Amended Cross-Complaint

 

Aetna demurs to the second and third causes of action in the SACC for violation of the unfair competition law and violation of the false advertising law, respectively, on the ground that they each fail to state sufficient facts to constitute a cause of action.  As a preliminary matter, the Providers state that they have dismissed their claim under the UCL.  Accordingly, the demurrer to the second cause of action is MOOT.  Consequently, the only cause of action remaining to be addressed is the third cause of action for violation of the false advertising law.

 

The Providers allege that Aetna advertises its pre-certification and pre-authorization services in various ways, but often denies coverage after it has pre-certified or pre-authorized a procedure or underpays amounts quoted in pre-certification/pre-authorization phone calls.  (SACC, ¶¶ 47-50, 53.)  Aetna argues that this cause of action cannot be maintained because the Providers do not allege any facts showing how they reasonably relied on any advertisements to form a belief that a specific amount would be paid for procedures rendered to Aetna members.

 

“Advertising” generally means widespread promotional activities directed to the public at large.  (Bank of the West v. Superior Court (1992) 2 Cal. 4th 1254, 1276, fn. 9.)  Most of the Providers allegations relate to information provided by Aetna regarding coverage for procedures, not “advertising.”  For example, Aetna’s website provides a phone number for member services to get coverage and co-pay information.  (SACC, ¶ 52.)  Simply providing a phone number to get information is not advertising.  However, the Providers also allege that Aetna advertises that one of the benefits of pre-certification is that Providers and members will know coverage decisions before procedures, services, or supplies are provided.  (SACC, ¶ 48.)  This allegation shows that Aetna goes beyond just providing information, but also “advertises” regarding the benefits of its pre-certification services.

 

The Providers allege that Aetna often denies coverage after it has pre-certified a given procedure.  (SACC, ¶ 48.)  This allegation demonstrates that Aetna’s statements regarding the benefits of pre-certification are untrue.  Aetna argues that the Providers could not have relied on any alleged advertisement to form a belief that a specific amount would be paid for procedures rendered to Aetna members.  However, the Providers could have relied on Aetna’s statements that coverage of some amount would be provided after a procedure was pre-certified.  If Aetna did not provide any coverage after pre-certification, then the amount paid is irrelevant.

 

In sum, the Providers have stated a cause of action under the false advertising law and the demurrer is OVERRULED.